Document:

Exhibit
10.3

FIRST
AMENDMENT

FIRST AMENDMENT, dated as of March 21, 2007 (this “Amendment”),
to the CREDIT AGREEMENT, dated as of June 12, 2006 (as amended, supplemented or
otherwise modified from time to time, the “Credit Agreement”), by and
among CELLU PAPER HOLDINGS, INC., CELLU TISSUE HOLDINGS, INC. (the “Borrower”),
INTERLAKE ACQUISITION CORPORATION LIMITED, the Loan Guarantors party thereto,
the lenders party thereto (the “Lenders”), JPMORGAN CHASE BANK, N.A., as
US Administrative Agent (in such capacity, the “Administrative Agent”)
and JPMORGAN CHASE BANK, N.A., TORONTO BRANCH, as Canadian Administrative Agent
(the “Canadian Administrative Agent”).

RECITALS

A.            WHEREAS, the Borrower intends to acquire CityForest
Corporation, and, in connection with the CityForest Acquisition and the
financing thereof, the Borrower is requesting that the Lenders agree to certain
amendments relating to, and provide certain waivers under, the Credit
Agreement; and

B.            WHEREAS, the Lenders are willing to agree to such amendments
and provide such waivers, in each case subject to the terms and conditions set
forth herein.

NOW, THEREFORE, in
consideration of the foregoing Recitals and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:

AGREEMENT

1.             Defined Terms.  Terms defined in the Credit Agreement and
used herein shall have the meanings given to them in the Credit Agreement.

2.             Amendments to Section 1.01.  Section 1.01 of the Credit Agreement is
hereby amended by

(a)
adding the following definitions in the appropriate alphabetical order:

“Additional Senior Secured Notes” means the 93⁄4% senior secured
notes due 2010 issued under the Senior Secured Notes Indenture in connection
with the CityForest Acquisition.

“Associated Bank Agreement” means the Amended and Restated
Reimbursement Agreement dated as of March 21, 2007 between CityForest and
Associated Bank, National Association, as such Amended and Restated
Reimbursement Agreement may be amended, supplemented or otherwise modified from
time to time in accordance with the terms hereof.

“Associated Bank Intercreditor Agreement” means the
Intercreditor Agreement dated as of March 21, 2007 among CityForest, Associated
Bank, National Association, the Administrative Agent and the Canadian
Administrative Agent, as such Intercreditor Agreement may be amended,
supplemented or otherwise modified from time to time.

“CityForest” means CityForest Corporation, a Minnesota
corporation, and, after giving effect to the CityForest Conversion, Cellu
Tissue-CityForest LLC, a Minnesota limited liability company.

“CityForest Acquisition” means the acquisition of CityForest by
the Borrower pursuant to the CityForest Acquisition Agreement.

“CityForest Acquisition Agreement” means the Merger Agreement,
dated as of February 26, 2007, among the Borrower, Cellu City Acquisition
Corporation, CityForest and Wayne Gullstad as the Shareholders’ Representative.

“CityForest Bond Loan Agreement” means the Loan Agreement, dated
March 1, 1998, between CityForest and City of Ladysmith, Wisconsin, as such
Loan Agreement may be amended, supplemented or otherwise modified from time to
time.

“CityForest Bonds” means the Variable Rate Demand Solid Waste
Disposal Facility Revenue Bonds, Series 1998 (CityForest Corporation Project)
issued by City of Ladysmith, Wisconsin pursuant to the CityForest Indenture.

“CityForest Conversion” means the conversion, promptly following
the consummation of the City Forest Acquisition, of CityForest from a Minnesota
corporation to a Minnesota limited liability company pursuant to the Articles
of Conversion to be filed with the Secretary of State of the State of
Minnesota.

“CityForest Indenture” means the Indenture of Trust, dated March
1, 1998, from City of Ladysmith, Wisconsin to Norwest Bank Wisconsin, N.A., as
such Indenture of Trust may be amended, supplemented or otherwise modified from
time to time in accordance with the terms hereof.

“Investor Group” means the Sponsor and each other Person
selected by the Sponsor as a co-investor that is reasonably acceptable to the
Administrative Agent.

“Note Purchase Agreement” means the Note Purchase Agreement,
dated March 21, 2007, between the Borrower and Wingate Capital Ltd.

(b) in the definition of “Change in Control”, deleting the words
“the Sponsor” in clause (a) and substituting therefor the words “the Investor
Group”;

(c)
in the definition of “Eligible Accounts”, adding the following sentence
at the end thereof:

“It
is understood and agreed that Accounts of CityForest and its Subsidiaries shall
not be eligible for inclusion as “Eligible Accounts” unless otherwise agreed by
the Administrative Agent in its discretion (which in any event shall not occur
earlier than the repayment of all Indebtedness under the Associated Bank
Agreement and the release of all Liens in connection therewith and the
satisfaction of all requirements of clause (d) in the definition of Permitted
Acquisition).”

(d)
in the definition of “Eligible Inventory”, adding the following sentence
at the end thereof:

“It
is understood and agreed that Inventory of CityForest and its Subsidiaries
shall not be eligible for inclusion as “Eligible Inventory” unless otherwise
agreed by the Administrative Agent in its discretion (which in any event shall
not occur earlier than the repayment of all Indebtedness under the Associated
Bank Agreement and the release of 

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all
Liens in connection therewith and the satisfaction of all requirements of
clause (d) in the definition of Permitted Acquisition).”

(e) in the definition of “Permitted Acquisition”, in clause
(e)(i) after the words “any individual transaction” inserting the parenthetical
“(other than the CityForest Acquisition)” and in clause (e)(ii) after the words
“all such transactions” inserting the parenthetical “(other than the CityForest
Acquisition)”; and

(f) in the definition of “US Commitment”, deleting the amount “US$32,000,000”
and substituting therefor the amount “US$37,000,000.”

3.             Amendment to Section 6.01.  Section 6.01 of the Credit Agreement is
hereby amended by (i) deleting the word “and” from the end of clause (k), (ii)
deleting the period from the end of clause (l) and substituting therefor a
semicolon and (iii) adding the following at the end thereof:

“(m)
Indebtedness under the CityForest Bond Loan Agreement in an aggregate principal
amount not to exceed US$19,000,000;

(n)
(i) Indebtedness under the Associated Bank Agreement in respect of (x) the
letter of credit reimbursement obligations provided for therein, (y) any Term
Loan (as defined therein) provided thereunder and (z) the revolving line of
credit provided thereunder in a maximum principal amount not to exceed
US$3,500,000 and (ii) Indebtedness (in the form of Guarantees) of the
Borrower in respect of such Indebtedness under the Associated Bank Agreement, provided
that the aggregate principal amount of Indebtedness (without duplication)
outstanding under this clause (n) at any time shall not exceed $22,500,000; and

(o)
(i) (x) Indebtedness in respect of the Additional Senior Secured Notes pursuant
to the Note Purchase Agreement in an aggregate principal amount not to exceed
US$20,265,000 and (y) Indebtedness (in the form of Guarantees) of the Loan
Parties in respect of the Additional Senior Secured Notes pursuant to the Note
Purchase Agreement and (ii) Permitted Refinancing Indebtedness in respect
thereof.”

4.             Amendments to Section 6.02.

(a)           Section 6.02(k) of the Credit
Agreement is hereby amended by adding the words “and the Additional Senior
Secured Notes” after the words “Senior Secured Notes”.

(b)           Section 6.02 of the Credit Agreement
is hereby amended by (i) deleting the word “and” from the end of clause (j),
(ii) deleting the period from the end of clause (k) and substituting therefor a
semicolon and (iii) adding the following at the end thereof:

“(l)
liens securing the Associated Bank Agreement in accordance with the provisions
of the Associated Bank Intercreditor Agreement.”

5.             Amendments to Section 6.03.

(a)           Section 6.03(a) of the Credit
Agreement is hereby amended by adding the words “, including the
CityForest Acquisition, and the CityForest Conversion” after the words “Permitted
Acquisitions” in clause (ii) of the proviso thereof.

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(b)           Section 6.03(c)(vii) of the Credit
Agreement is hereby amended by adding the words “and the Additional Senior
Secured Notes” after the words “Senior Secured Notes”.

6.             Amendments to Section 6.08.

(a)           Section 6.08(a) of the Credit
Agreement is hereby amended by adding the words “or distributions” after the
word “declare and pay dividends” in clause (ii) thereof.

(b)           Section 6.08(b) of the Credit
Agreement is hereby amended by (i) adding the words “and the Additional Senior
Secured Notes” after the words “the Senior Secured Notes” in the parenthetical
of clause (ii), (ii) deleting the word “and” from the end of clause (iv), (iii)
deleting the period from the end of clause (v) and substituting therefor a
semicolon and (iv) adding the following at the end thereof:

“(vi)
payment of regularly scheduled interest and principal payments as and when due
in respect of Indebtedness under the CityForest Bond Loan Agreement;

(vii)
without duplication of the amounts payable under clause (vi) in respect of
principal payments, amortization payments in respect of the CityForest Bonds
required under Section 8.18 of the Associated Bank Agreement;

(viii)
payment of any reimbursement obligation in respect of any letter of credit
issued under the Associated Bank Agreement;

(ix)
payment of (x) interest and principal in respect of any amounts drawn under the
revolving line of credit provided under the Associated Bank Agreement and (y)
interest and regularly scheduled principal in respect of any Term Loan (as
defined therein) provided thereunder; and

(x)
payment of fees and expenses owing to (x) Associated Bank, National Association
under the Associated Bank Agreement, (y) City of Ladysmith, Wisconsin under the
CityForest Bond Loan Agreement or (z) the Trustee under the CityForest
Indenture.

7.             Amendments to Section 6.10.

(a)           Section 6.10 of the Credit Agreement
is hereby amended by deleting the existing clause (ii) and substituting
therefor the following:

“(ii)
the foregoing shall not apply to restrictions and conditions existing on the
date hereof identified on Schedule 6.10 including the Senior Secured Notes
Indenture (but shall apply to any extension or renewal of, or any amendment or
modification expanding the scope of, any such restriction or condition (it
being understood that the Additional Senior Secured Notes will be subject to
the same restrictions and conditions as the Senior Secured Notes)) and any
Permitted Refinancing Indebtedness (so long as the applicable restriction in
the documentation for the Permitted Refinancing Indebtedness is not materially
more restrictive, when taken as a whole, than the applicable restrictions in
the Senior Secured Notes Indenture),”

(b)           Section 6.10 of the Credit Agreement
is hereby amended by (i) deleting the word “and” from the end of clause (iv)
and substituting therefor a comma, (ii) deleting the period from the end of
clause (v) and (iii) adding the following at the end thereof:

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“and
(vi) the foregoing shall not apply to restrictions and conditions contained in
the CityForest Indenture or the CityForest Bond Loan Agreement (but shall apply
to any extension or renewal of, or any amendment or modification expanding the
scope of, any such restriction or condition), and (vii) the foregoing shall not
apply to restrictions and conditions contained in the Associated Bank Agreement
(but shall apply to any extension or renewal of, or any amendment or
modification expanding the scope of, any such restriction or condition).”

8.             Amendment to Section 6.11.  Section 6.11 of the Credit Agreement is
hereby amended by (i) deleting the word “and” from the end of clause (c) and
substituting therefor a comma, (ii) adding the clause “, (e) the CityForest
Indenture, (f) the CityForest Bond Loan Agreement, (g) the CityForest
Acquisition Agreement and (h) the Associated Bank Agreement” after the phrase “Acquisition
Documentation” and (iii) replacing the words “(b), (c) or (d) above” in the
sixth line with the words “(b), (c), (d), (e), (f), (g) or (h) above.”

9.             Schedule 3.15 to the Credit
Agreement.  Schedule 3.15 to the
Credit Agreement is hereby supplemented with the information provided in
Schedule 3.15 attached to this Amendment.

10.           General Amendments.

(a)           For purposes of Sections 6.01(c), 6.01(d), 6.02(h),
6.03(a), 6.04(c), 6.04(d) of the Credit Agreement, CityForest and its
Subsidiaries shall be deemed to be Subsidiaries that are not Loan Parties and
for purposes of the definition of Permitted Acquisition, CityForest and its
Subsidiaries shall be deemed to be Subsidiaries that are not Domestic
Subsidiaries.

(b)           From and after the Effective Date, the existence of the
Liens securing the Associated Bank Agreement shall not violate any of the
representations, warranties and other provisions in the Loan Documents relating
to the Collateral.

(c)           Notwithstanding
anything to the contrary in Section 5.9 of the US Security Agreement, the
Borrower shall not be required to comply with the requirements of such Section
with respect to any Deposit Account or Securities Account of CityForest or any
of its Subsidiaries for so long as the Associated Bank Intercreditor Agreement
remains in effect.

11.           Conditions to Effectiveness.
This Amendment shall become effective on the date (the “Effective Date”)
on which the following conditions shall have been satisfied or waived:

(a)           the Administrative Agent shall have
received this Amendment, duly executed and delivered by the Borrower and the
Lenders;

(b)           CityForest and its Subsidiaries shall
have complied with Section 5.13 of the Credit Agreement, including the delivery
of a Joinder Agreement to the Administrative Agent;

(c)           the Administrative Agent shall have
received copies of the CityForest Acquisition Agreement, the CityForest
Indenture, the CityForest Bond Loan Agreement, the Note Purchase Agreement and
the Associated Bank Agreement, certified by an officer of the Borrower to be
true and correct and in force and effect as of the Effective Date, and no
provision thereof shall have been amended, waived or otherwise modified without
the consent of the Administrative Agent;

(d)           the Associated Bank Intercreditor
Agreement shall have been duly executed and delivered by all parties thereto;

 5
 

(e)           each document (including any Uniform
Commercial Code financing statement) required by the Collateral Documents
or under law or reasonably requested by the Administrative Agent to be filed,
registered or recorded in order to create in favor of the Administrative Agent,
for the benefit of the Lenders, a perfected Lien on the Collateral acquired
pursuant to the CityForest Acquisition to the extent required by Section 5.13
of the Credit Agreement;

(f)            the CityForest Acquisition shall
have been consummated in accordance with the CityForest Acquisition Agreement,
and no provision thereof shall have been amended, waived or otherwise modified
without the consent of the Administrative Agent;

(g)           the Administrative Agent shall have
received evidence reasonably satisfactory to it that the Borrower shall have
received $20,265,000 in gross cash proceeds from the issuance of the Additional
Senior Secured Notes pursuant to the Note Purchase Agreement;

(h)           the Administrative Agent shall have
received legal opinions from counsel to the Borrower and its Subsidiaries in
form and substance reasonably satisfactory to the Administrative Agent; and

(i)            the Administrative Agent shall have
received such certificates as may be reasonably requested by the Administrative
Agent.

12.           Counterparts. This Amendment
may be executed in any number of counterparts, each of which when so executed
shall be deemed to be an original and all of which when taken together shall
constitute one and the same agreement.

13.           Representations and Warranties.
The Borrower hereby represents and warrants to the Lenders and the
Administrative Agent as follows:

(a)           The Borrower has the corporate power
and authority and the legal right to execute, deliver and perform this
Amendment and has taken all necessary corporate action to authorize the
execution, delivery and performance of this Amendment. This Amendment has been
duly executed and delivered on behalf of the Borrower and constitutes the
legal, valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms.

(b)           The representations and warranties of
the Borrower set forth in Article III of the Credit Agreement as amended hereby
are true and correct in all material respects as of the date hereof.

14.           Fees, Costs and Expenses.  The Borrower agrees to reimburse the
Administrative Agent for all reasonable fees, costs and expenses, including the
reasonable fees, costs and expenses of counsel, incurred by it in connection
with this Amendment.

15.           Governing Law.  This Amendment and the rights and obligations
of the parties hereunder shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York.

[Signature pages follow]

 6

IN WITNESS WHEREOF, the
parties hereto have caused this Amendment to be duly executed by their
respective authorized officers as of the day and year first above written.

	
  

  	
  CELLU PAPER HOLDINGS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M.
  Scheu

  
	
   

  	
   

  	
  Name: 

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice
  President and Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE HOLDINGS,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M.
  Scheu

  
	
   

  	
   

  	
  Name: 

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President
  and Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  INTERLAKE
  ACQUISITION CORPORATION LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M.
  Scheu

  
	
   

  	
   

  	
  Name: 

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice
  President and Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  

  	
  CELLU TISSUE LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M. Scheu

  
	
   

  	
   

  	
  Name: 

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice
  President and Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  

  	
  CELLU TISSUE
  CORPORATION — NATURAL DAM

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M.
  Scheu

  
	
   

  	
   

  	
  Name: 

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice
  President and Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  

  	
  CELLU TISSUE
  CORPORATION — NEENAH

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M.
  Scheu

  
	
   

  	
   

  	
  Name: 

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice
  President and Chief Financial Officer

  

 

Signature
Page to First Amendment

 

	
  

  	
  COASTAL PAPER
  COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  Van Paper Company,

  
	
   

  	
   

  	
  its Managing Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M.
  Scheu

  
	
   

  	
   

  	
  Name: 

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice
  President and Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  VAN PAPER
  COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M.
  Scheu

  
	
   

  	
   

  	
  Name: 

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice
  President and Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  VAN TIMBER
  COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M.
  Scheu

  
	
   

  	
   

  	
  Name: 

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice
  President and Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  

  	
  MENOMINEE
  ACQUISITION CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M.
  Scheu

  
	
   

  	
   

  	
  Name: 

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice
  President and Chief Financial Officer

  
					

 

Signature
Page to First Amendment

 

	
  

  	
  JPMORGAN CHASE
  BANK, N.A., individually, as US Administrative Agent, Issuing Bank, Swingline
  Lender and a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John M. Hariaczyi

  
	
   

  	
   

  	
  Name: 

  	
  John M.
  Hariaczyi

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  JPMORGAN CHASE
  BANK, N.A., TORONTO BRANCH, individually and as Canadian Administrative Agent
  and a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael N.
  Tam

  
	
   

  	
   

  	
  Name: 

  	
  Michael N. Tam

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice
  President

  

 

Signature
Page to First AmendmentExhibit
10.4

AMENDED
AND RESTATED REIMBURSEMENT AGREEMENT

THIS AMENDED AND RESTATED REIMBURSEMENT AGREEMENT,
dated as of March 21, 2007, is by and between CELLU TISSUE-CITYFOREST LLC, a
Minnesota limited liability company (the “Borrower”) resulting from the
conversion of CITYFOREST CORPORATION, a Minnesota corporation (“CF Corporation”),
into a limited liability company, and ASSOCIATED BANK, NATIONAL ASSOCIATION, a
national banking association (the “Bank”).

RECITALS

A.            CF Corporation and the Bank are the
parties to that certain Reimbursement Agreement dated as of June 29, 2005 (the “Original
Reimbursement Agreement”) pursuant to which, among other things:

(1)          the Bank extended the “Revolving
Credit Commitment” described therein to CF Corporation; and

(2)          the Bank issued the “Bonds Letter of
Credit” described therein to secure the payment of City of Ladysmith, Wisconsin’s
(the “Issuer”) Variable Rate Demand Solid Waste Disposal Facility Revenue
Bonds, Series 1998 (CityForest Corporation Project) (the “Bonds”) that were
issued pursuant to an Indenture of Trust dated as of March 1, 1998 (as the same
may be amended or modified in accordance with its terms, the “Indenture”),
between the Issuer and Wells Fargo Bank, N.A., as the successor to Norwest Bank
Wisconsin, N. A., as trustee (the “Trustee”), and pursuant to the terms of that
certain Loan Agreement dated as of even date with the Indenture (as the same
may be amended or modified in accordance with its terms, the “Bond Loan
Agreement”), between the Issuer and CF Corporation, the Issuer loaned the
proceeds of the Bonds to CF Corporation for the purpose of enabling CF
Corporation to finance the expansion and upgrade of an existing tissue mill in
the Town of Ladysmith, Rusk County, Wisconsin (such tissue mill, as modified,
improved, upgraded or expanded from time to time being the “Plant”).

B.            On the date hereof, all of CF
Corporation’s issued and outstanding capital stock has been acquired by Cellu
City Acquisition Corporation (the “Cellu Tissue Merger Sub”), a wholly-owned
subsidiary of Cellu Tissue Holdings, Inc., a Delaware corporation (“Cellu
Tissue”), pursuant to that certain Merger Agreement dated as of February 26,
2007 (the “Cellu Tissue Merger Agreement”) among Cellu Tissue, the Cellu Tissue
Merger Sub, CF Corporation  and Wayne
Gullstad as representative of the shareholders of CF Corporation (such
shareholders being the “CF Sellers”), and the Cellu Tissue Merger Sub has been
merged (the “Cellu Tissue Merger”) into CF Corporation and CF Corporation has
been converted (the “CF Corporation Conversion”) into the Borrower.

C.            The Borrower has requested that the
Bank consent to the Cellu Tissue Merger and the CF Corporation Conversion, and
amend certain provisions of the Original Reimbursement Agreement pursuant to
this Agreement, and the Bank is willing to do so subject to the terms and
conditions of this Agreement.

NOW,
THEREFORE, in consideration of the premises and other good and valuable
consideration the receipt and adequacy of which is hereby acknowledged, the
parties hereto hereby agree to amend and restate the Original Reimbursement
Agreement as follows:

ARTICLE I. 

DEFINITIONS AND ACCOUNTING TERMS

Section 1.1            Defined Terms.  In addition to terms defined elsewhere in
this Agreement, the following terms shall have
the following respective meanings (and such meanings shall be equally
applicable to both the singular and plural form of the terms defined, as the
context may require):

“Account”:  The Borrower’s “Receivables”.

“Account
Debtor”:  Any Person who is or who
may become obligated to the Borrower under, with respect to, or on account of
an Account, General Intangible or other Collateral.

“Adjusted
Net Income”:  For any period, the
Borrower’s net income for such period but adjusted to exclude: (i) non-operating
gains and losses (including extra-ordinary or unusual gains and losses, gains
and losses from discontinuance of operations, gains and losses arising from the
sale of assets other than Inventory and other non-recurring gains and losses)
during such period; and (ii) any income attributable to the Borrower’s or any
of its Subsidiaries’ Investment in any non-wholly owned subsidiary which is not
distributed in cash during such period.

“Affiliate”:  As applied
to any Person, means any other Person directly or indirectly controlling, controlled
by, or under common control with, that Person. For the purposes of this
definition, “control” (including with
correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as applied to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise.

“Agreement”:  This Amended and Restated Reimbursement
Agreement, as it may be amended, modified, supplemented, restated or replaced
from time to time.

“Amortization
Schedule”: 
As provided in Section 8.18.

“Annual
Budget”:  The Annual Budget for the
Borrower approved by the Borrower’s Board of Directors and delivered to the
Bank pursuant to Section 8.14(c).

“Annual Date”:  Each annual date on which the Borrower is required
to pay the Letter of Credit Fee to the Bank pursuant to Section 2.9(a).

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“Applicable
Margin and Applicable Letter of Credit Fee Percentage”: At any date of
determination, the percentage indicated below in accordance with the Leverage
Ratio at such date:

	
  

  	
   

  	
   

  	
   

  	
  Revolving Loans

  Applicable Margin

  	
   

  	
  Applicable Letter of

  Credit Fee Percentage

  	
   

  
	
  Levels

  	
   

  	
  Leverage Ratio

  	
   

  	
  Per annum

  	
   

  	
  Per annum

  	
   

  
	
  3

  	
   

  	
  =3

  	
   

  	
  2.25%

  	
   

  	
  1.75%

  	
   

  
	
  2

  	
   

  	
  =2
  & <3

  	
   

  	
  2.00%

  	
   

  	
  1.50%

  	
   

  
	
  1

  	
   

  	
  <2

  	
   

  	
  1.75%

  	
   

  	
  1.25%

  	
   

  

 

The Applicable
Margin and Applicable Letter of Credit Fee Percentage on the Effective Date is
Level 1, and shall continue at that percentage until changed in accordance with
the terms of this definition.  The
Leverage Ratio and the Applicable Margin will be determined on each Quarterly
Measurement Date, commencing with the Quarterly Measurement Date occurring on
the date of the consummation of the Cellu Tissue Merger, as calculated from the
interim financial statements and Compliance Certificate delivered by the
Borrower to the Bank pursuant to Section 8.14(b).  The Leverage Ratio and the Applicable Letter
of Credit Fee Percentage will be determined on the Quarterly Measurement Date
occurring at the end of the Borrower’s fiscal year, commencing at the end of
the Borrower’s 2008 fiscal year, as calculated from the audited financial
statements and Compliance Certificate delivered by the Borrower to the Bank
pursuant to Section 8.14(d).  The
Applicable Margin, as calculated in accordance with the preceding sentences,
shall apply to all then existing or thereafter arising Revolving Loans and
shall become effective as of the first day of the third month following the
relevant Quarterly Measurement Date and shall continue to be effective until
the last day of the second month following the next succeeding Quarterly
Measurement Date; provided, however, that if the financial
statements and Compliance Certificate required by Section 8.14(b) are
not delivered in the time periods provided therein, the Leverage Ratio will be
deemed to be greater than 3.00 to 1.0. 
If:

(x)            the audited financial statements and
Compliance Certificate delivered by the Borrower to the Bank pursuant to Section
8.14(d) show that the Leverage Ratio is greater than the Leverage Ratio as shown by the interim financial
statements and Compliance Certificate previously delivered by the Borrower to
the Bank, then the Applicable Margin for the relevant period shall adjusted
based upon the Leverage Ratio shown by such annual audited financial statements
and related Compliance Certificate, retroactive to the beginning of such
relevant period, and if such retroactive adjustment is made for any two fiscal
years during the term of this Agreement, then the Applicable Margin at the end
of any subsequent fiscal year shall be adjusted only upon the Leverage Ratio
shown on the Borrower’s subsequently delivered annual audited financial
statements and related Compliance Certificate, rather than upon the interim
financial statements and related Compliance Certificate; and/or

(y)           the Senior Leverage Ratio has been
calculated from erroneous 

 3
 

financial statements
previously delivered to the Bank and the correct financial statements show that
the Leverage Ratio is greater than the
Leverage Ratio as calculated from the erroneous financial statements, then the
Applicable Margin and/or the Applicable Letter of Credit Fee Percentage for the
relevant period shall adjusted based upon the Leverage Ratio as calculated from
such correct financial statements, retroactive to the beginning of such
relevant period;

it being understood and
agreed that the Bank’s acceptance of interest based on the lower Applicable
Margin or Letter of Credit Fee based on the lower Applicable Letter of Credit
Percentage shall not constitute a waiver of the Bank’s right to collect such
additional interest or additional Letter of Credit Fee and does not relieve,
release or discharge the Borrower’s obligation to pay such additional interest
or Letter of Credit Fee.

“Assigned Agreements”:  As provided in the Security Agreement.

“Assignment
of Leases and Rents”:  The Assignment
of Leases and Rents dated as of June 29, 2005 made by the Borrower in favor of
the Collateral Agent to secure the Secured Obligations, as assigned by the
Collateral Agent to the Bank and amended pursuant to that certain Assignment of
Assignment of Leases and Rents and Amendment (the “Rent Assignment/Amendment”)
dated as of even date herewith, as so amended and as it may be further amended,
modified, supplemented, restated or replaced from time to time.

“Bank”:  As provided in the preamble hereto.

“Bond
Documents”: The Indenture, the Bond Loan Agreement, the Bonds, the
Remarketing Agreement, the Bonds Placement Agreement, the Security Documents
and all other documents delivered by the Borrower pursuant to the Bond Loan
Agreement.

“Bond
Loan Agreement”:  As provided in the
recitals hereto.

“Bond Prepayment Fund”:  As provided in  Section 2.15.

“Bond Proceeds”: 
The proceeds from the sale of
the Bonds.

“Bonds”:  As provided in the recitals hereto.

“Bonds
Pledge Agreement”:  The Pledge and
Security Agreement dated as of June 29, 2005 made by the Borrower in favor of
the Bank to secure the Senior Obligations, as originally executed and as it may
be amended, modified, supplemented, restated or replaced from time to time.

“Bonds
Promissory Note”:  The Promissory
Note dated March 26, 1998 made by the Borrower payable to the order of the Issuer
in the original principal amount of $27,000,000.00 and on which there is an
outstanding principal amount of $18,450,000.00 on the Closing Date.

“Bonds
Letter of Credit”:  As provided in Section
2.7.

 4
 

“Borrower”:  As provided in the preamble hereto including,
for purposes of computing the financial covenants set forth in this Agreement,
its predecessor, CF Corporation.

“Borrowing
Base”:  At any date of determination,
the sum of:  (a) 85% of the Borrower’s
Eligible Accounts; plus (b) 50% of the Borrower’s Eligible Inventory.

“Borrowing
Base Certificate”:  As provided in Section
8.14(a).

“Business
Day”:  Any day (other than a
Saturday, Sunday or legal holiday in the State of Wisconsin) on which national
banks are permitted to be open in Green Bay, Wisconsin.

“CA
Accounts”:  The Bond Prepayment Fund
described in Section 2.15, the Letter of Credit Fee Account described in
Section 2.16 and the Senior Debt Reserve Fund described in Section
2.17.

“Capital
Expenditure”:  Any amount debited to
the fixed asset account on the Borrower’s consolidated balance sheet in respect
of:  (a) the acquisition (including,
without limitation, acquisition by entry into a Capitalized Lease),
construction, improvement, replacement or betterment of land, buildings,
machinery, equipment or of any other fixed assets or capitalized leaseholds;
and (b) to the extent related to and not included in (a) above, materials,
contract labor and direct labor (excluding expenditures charged to repairs or
maintenance in accordance with GAAP).

“Capitalized
Lease”:  Any lease which, in
accordance with GAAP, is capitalized on the books of the lessee.

“Cash
Collateral Account”:  As provided in Section
10.4.

“Cellu
Tissue”:  As provided in the recitals
hereto.

“Cellu
Tissue Bank Guaranty”:  The Guaranty
dated as of March 21, 2007 made by Cellu Tissue in favor of the Bank, as
originally executed and as it may be amended, modified, supplemented, restated
or replaced from time to time

“Cellu
Tissue Credit Facility:  The
revolving credit and letter of credit facility provided under the Credit
Agreement dated as of June 12, 2006 (the “Cellu Tissue JPMorgan Credit
Agreement”) among Holdings, Cellu Tissue, Interlake Acquisition Corporation
Limited, the other Loan Guarantors party hereto, the Lenders party hereto, JPMORGAN
CHASE BANK, N.A., TORONTO BRANCH, as Canadian Administrative Agent, and
JPMORGAN CHASE BANK, N.A., as US Administrative Agent or, if the Cellu Tissue
JPMorgan Credit Agreement has been replaced by any subsequent credit facility,
the loan agreement providing for such subsequent credit facility; in each case,
as amended, modified, supplemented, restated or replaced from time to time.

 5
 

“Cellu
Tissue Credit Facility Loan Documents”: 
The Cellu Tissue JPMorgan Credit Agreement and the other “Loan Documents”
described therein or, if the Cellu Tissue JPMorgan Credit Agreement has been
replaced by any subsequent credit facility, the documentation evidencing,
guaranteeing or securing such subsequent credit facility; in each case, as
amended, modified, supplemented, restated or replaced from time to time.

“Cellu
Tissue Credit Facility Loan Guaranty”: 
The “Loan Guaranty” described in the Cellu Tissue JPMorgan Credit
Agreement that has been made by the Borrower in favor of the “Lenders” party
thereto or, if the Cellu Tissue JPMorgan Credit Agreement has been replaced by
any subsequent credit facility, any similar guaranty made by the Borrower
guaranteeing the payment of such subsequent credit facility; in each case, as
amended, modified, supplemented, restated or replaced from time to time.

“Cellu
Tissue Credit Facility Collateral Document”:  Each “Collateral Document” described in the
Cellu Tissue JPMorgan Credit Agreement that has been made by the Borrower to
secure the payment of the “Secured Obligations” described therein or, if the
JPMorgan Credit Agreement has been replaced by any subsequent credit facility,
then any similar collateral documents made by the Borrower securing the payment
of such subsequent credit facility; in each case, as amended, modified, supplemented,
restated or replaced from time to time.

“Cellu
Tissue Merger”:  As provided in the
recitals hereto.

“Cellu
Tissue Merger Agreement”:  As
provided in the recitals hereto.

“Cellu
Tissue Merger Documents”:  The Cellu
Tissue Merger Agreement and the other documents described on Schedule 6.1(r) attached hereto and
incorporated herein by reference

“Cellu
Tissue Merger Sub”:  As provided in
the recitals hereto.

“Cellu
Tissue Merger Transactions”: (a) the Cellu Tissue Merger Sub’s acquisition of all the outstanding Equity
Interests in the Borrower and the consummation of the Cellu Tissue Merger, the
CF Corporation Conversion and the other transactions contemplated by the Cellu
Tissue Merger Documents, (b) the Borrower’s execution and delivery of the Cellu
Tissue Senior Secured Notes Loan Documents and the Cellu Tissue Credit Facility
Loan Documents to which the Borrower is party, and (c) the execution, delivery
and performance by the Loan Parties of this Agreement and the other Loan
Documents, the issuance of Bonds LC Amendment and the consummation of the other
transactions contemplated by this Agreement.

“Cellu
Tissue Prepayment Event”:  The
occurrence of the following:  (a) either
(i) Cellu Tissue incurs Indebtedness (including, without limitation, any “Additional
Securities” described in the Cellu Tissue Senior Secured Notes Indenture) that
is not permitted by Section 3.2 of the Cellu Tissue Senior Secured Notes
Indenture as in effect on the date of this Agreement or any substitute covenant
limiting debt incurrence which the Bank has consented to in writing as a
replacement for Section 3.2 of the Cellu Tissue Senior Secured Notes
Indenture; and/or (ii) Cellu Tissue refinances the Cellu Tissue Senior Secured
Notes pursuant to an extension of the Cellu Tissue Senior Secured Notes
Indenture or to any 

 6
 

subsequent credit
facility and the Bank determines that the terms and conditions of such
refinancing are materially adverse to the rights and benefits of the Bank under
the Loan Documents; and (b) the Bank, within 60 days after the date of  on which the Borrower notifies the Bank of
the occurrence of any event described in clause (a)(i) or (ii) above, delivers
a written demand to the Borrower and Cellu Tissue that the Borrower prepay all
of the Obligations in full, rather than approving Cellu Tissue’s requested debt
increase or refinancing.

 “Cellu Tissue Senior Secured Notes”:
The 93⁄4% senior secured notes due 2010 now or hereafter issued under the Cellu
Tissue Senior Secured Notes Indenture and any subsequent term Indebtedness
refinancing, replacing or extending such notes.

“Cellu
Tissue Senior Secured Notes Indenture” 
The Indenture dated as of March 12, 2004, among Cellu Tissue, the
subsidiary guarantors party thereto and The Bank of New York, as trustee, as amended
by the First Supplemental Indenture dated June 2, 2006, and the Second
Supplemental Indenture dated March 21, 2007 (the “Second Cellu Tissue Senior
Secured Notes Indenture Supplement”) or, if the Cellu Tissue Senior Secured
Notes have been replaced by any subsequent term Indebtedness, the loan
agreement or other instrument governing such subsequent term Indebtedness; in
each case, as amended, modified, supplemented, restated or replaced from time
to time.

“Cellu
Tissue Senior Secured Notes Collateral Document”:  Each “Collateral Document” described in the
Cellu Tissue Senior Secured Notes Indenture that has been made by the Borrower
to secure the payment of the Cellu Tissue Senior Secured Notes and the other “Obligations”
described therein or, if the Cellu Tissue Senior Secured Notes have been
replaced by any subsequent term Indebtedness, then any similar collateral
documents made by the Borrower securing the payment of such subsequent term
Indebtedness; in each case, as amended, modified, supplemented, restated or
replaced from time to.

“Cellu
Tissue Senior Secured Notes Loan Documents”:  The Cellu Tissue Senior Secured Notes
Indenture, the Cell Tissue Senior Secured Notes and the “Subsidiary Guarantees”
and “Collateral Documents” described therein or, if the Cellu Tissue Senior
Secured Notes have been replaced by any subsequent term Indebtedness, the
documentation evidencing, guaranteeing 
or securing such subsequent term Indebtedness; in each case, as amended,
modified, supplemented, restated or replaced from time to time.

“Cellu
Tissue Senior Secured Notes Subsidiary Guarantee”:  The “Subsidiary Guarantee” described in the
Cellu Tissue Senior Secured Notes Indenture that has been made by the Borrower
to secure the “Obligations” described therein or, if the Cellu Tissue Senior
Secured Notes have been replaced by any subsequent term Indebtedness, any
similar guaranty made by the Borrower guaranteeing the payment of such
subsequent term Indebtedness; in each case, as amended, modified, supplemented,
restated or replaced from time to time.

“CF
Corporation Conversion”:  As provided
in the recitals hereto.

“CF
Sellers”:  As provided in the
recitals hereto.

 7
 

“Change
of Control”:  The occurrence of any
of the following events (or any combination of the following) whether arising
from any single transaction or event or any series of transactions or events
(whether as the most recent transaction in a series of transactions) which,
individually or in the aggregate, results in a change in the direct or indirect
ownership of Borrower, such that: (a) the Sponsor shall cease to own, free and
clear of all Liens other than Liens not prohibited by the Cellu Tissue JPMorgan
Credit Agreement, directly or indirectly, at least 51% of the outstanding
voting Equity Interests of Holdings on a fully diluted bass; (b) Holdings shall
cease to own, free and clear of all Liens other than Liens not prohibited by
the Cellu Tissue JPMorgan Credit Agreement, 100% of the outstanding Equity
Interests of Cellu Tissue; (c) Cellu Tissue 
shall cease to own, free and clear of all Liens other than Liens not
prohibited by the Cellu Tissue JPMorgan Credit Agreement, 100% of the
outstanding Equity Interests of the Borrower; or (d) any other “Change of
Control” (howsoever defined) shall occur under the Cellu Tissue Senior Secured
Notes Loan Documents or the Cellu Tissue Credit Facility Loan Documents.

“Chief Office”:  As provided in the Security Agreement.

“Code”:  The Internal Revenue Code of 1986, as
amended, or any successor statute, together with regulations thereunder.

“Collateral”:  Any property in which the Bank, as the
assignee of the Collateral Agent, has been granted a Lien pursuant to any
Security Document.

“Collateral
Agency Agreement”:  The Collateral
Agency and Intercreditor Agreement dated as of June 29, 2005 (the “Original
Collateral Agency Agreement”) among the Borrower, the Bank, the Bank in its
separate capacity as collateral agent (in such capacity, the “Collateral Agent”)
and the “Senior Subordinated Agent” described therein; provided,  however,  that on the Effective Date and immediately
after with the Collateral Agent’s assignments of its rights under the Security
Documents to the Bank, the Borrower, the Bank and the Collateral Agent shall be
deemed to have terminated the Collateral Agency Agreement.

“Commitment”:  The agreement of the Bank to make the
Revolving Loans and the Term Loans.

“Compliance
Certificate”: As provided in Section 8.14(b).

“Contingent
Obligation”:  With respect to any
Person at the time of any determination, without duplication, any obligation,
contingent or otherwise, of such Person guaranteeing or having the economic
effect of guaranteeing any Indebtedness of any other Person (the “primary
obligor”) in any manner, whether directly or otherwise, or entered into for the
purpose of assuring in any manner the owner of such Indebtedness of the payment
of such Indebtedness or to protect the owner against loss in respect thereof;
provided, that the term “Contingent Obligation” shall not include endorsements
for collection or deposit, in each case in the ordinary course of business.

 8
 

“Conversion Date”:  As provided in the Indenture.

“Credit Documents”:  The Senior Debt Documents.

“Damages”: 
All condemnation awards,
warranty payments, proceeds of property or casualty insurance policies of the Borrower, liquidated damages or
other damages received from time to time by or on behalf of the
Borrower.

“Debt Agreements”:  This Agreement and the other Loan Documents.

 “Default”:  Any event which, with the giving of notice to
the Borrower or lapse of time, or both, would constitute an Event of Default.

“Default
Rate”:  As provided in Section
2.4(b).

“Drawing”:  As
provided in the Bonds Letter of Credit.

“Drawing Date”: 
Any date on which the Bank honors a
Drawing.

“EBITDA”:  For any period, the sum of:  (a) the Adjusted Net Income for such period; plus
(b) the sum of the following amounts deducted in arriving at such adjusted net
income (but without duplication for any item): (i) Interest Expense; (ii)
depreciation and amortization expense; and (iii) federal, state and local
income taxes or, if the Borrower is a pass-through tax entity, the maximum
Permitted Tax Distributions that are permitted to be paid with respect to such
net income (assuming compliance with Section 9.7(b)(i)), regardless of
whether actually paid during such Measurement Period.

“Effective
Date”:  The date of this Agreement
or, if the conditions precedent set forth in Article VI shall not have been
satisfied or waived in writing by the Bank on such date,  then such later date specified by the
Borrower and the Bank as being the Effective Date.

“Eligible
Account”:  An Account owing to the
Borrower which meets the following requirements:

(a)                                it
is genuine and in all respects what it purports to be;

(b)           it arises from either (i) the
performance of services by the Borrower, which services have been fully
performed and, if applicable, acknowledged and/or accepted by the Account
Debtor with respect thereto; or (ii) the sale or lease of goods by the Borrower
and (A) such goods comply with such Account Debtor’s specifications (if any)
and have been shipped to, or delivered to and accepted by, such Account Debtor,
(B) the Borrower has possession of, or has delivered to the Bank, at the Bank’s
request, shipping and delivery receipts evidencing such shipment, delivery and
acceptance, and (C) such goods have not been returned to the Borrower;

 9
 

(c)           it is evidenced by an invoice rendered
to the Account Debtor with respect thereto which (i) is dated not earlier than
the date of shipment or performance and (ii) is payable in accordance with:(A)
the Borrower’s standard payment terms of net 30 days  from
the date of the invoice applicable thereto;  (B) dating
terms not to exceed 90 days from the date of the invoice applicable thereto; or
(C) such other or extended terms that Bank, in its discretion exercised in good
faith, approves after prior notice from Borrower;

(d)           (i) it must not be unpaid on the date
that is the earlier of 90 days after the date of the invoice evidencing such
Account; or (ii) it must not be an 
Account owed by any Account Debtor which has not paid 25% or more of its
Accounts within the time period specified in subsection (i) above;

(e)           it is not subject to any assignment,
claim or Lien other than (i) a first priority Lien in favor of the Bank; (ii)
Permitted Liens; and (iii) other Liens permitted by Section 9.1(e) or (f);

(f)            it is a valid, legally enforceable
and unconditional obligation of the Account Debtor with respect thereto and is
not subject to any right of setoff, counterclaim, recoupment, credit or
allowance (except any credit or allowance which has been deducted in computing
the net amount of the applicable invoice as shown in the original schedule or
Borrowing Base Certificate furnished to the Bank identifying or including such
Account) or adjustment by the Account Debtor with respect thereto, or to any
claim by such Account Debtor denying liability thereunder in whole or in part,
and such Account Debtor has not refused to accept any of the goods or services
which are the subject of such Account  or
offered or attempted to return any of such goods; it being understood and
agreed that any Account that is owed by an Account Debtor that is also a
supplier (regardless of whether through sale, consignment or bailment) to the
Borrower or any Account that arises pursuant to any agreement between the
Borrower and the Account Debtor that requires the Borrower to perform in a
series of actions shall be deemed subject to a right of set-off unless in
either case, the Account Debtor has waived its right of set-off pursuant to an
agreement in favor of the Bank that is in form and substance satisfactory to
the Bank, in its sole discretion;

(g)           there are no proceedings or actions
which are then threatened or pending against the Account Debtor with respect
thereto or to which such Account Debtor is a party which might result in any
material adverse change in such Account Debtor’s financial condition or in its
ability to pay any Account in full when due;

(h)           it does not arise out of a contract or
order which, by its terms, forbids, restricts or makes void or unenforceable
the assignment by the Borrower to the Bank of such Account;

(i)             the Account Debtor with respect
thereto is not a Subsidiary or Related Party, or a director, officer, employee
or agent of the Borrower, a Subsidiary or Related Party;

 10

(j)            the Account Debtor with respect
thereto is a resident or citizen of and is located within the United States of
America or Canada unless the sale of goods giving rise to such Account is on
letter of credit, banker’s acceptance or other credit support terms
satisfactory to the Bank;

(k)           it does not arise from a “sale on
approval,” “sale or return” or “consignment,” nor is it subject to any other
repurchase or return agreement;

(l)            it is not an Account with respect to
which possession and/or control of the goods sold giving rise thereto is held,
maintained or retained by the Borrower, any Subsidiary or Related Party (or by
any agent or custodian of the Borrower, any Subsidiary or Related Party) for
the account of or subject to further and/or future direction from the Account
Debtor with respect thereto;

(m)          it does not, in any way, violate or
fail to meet any warranty, representation or covenant contained in the Loan
Documents relating directly or indirectly to the Borrower’s Accounts;

(n)           the Account Debtor with respect
thereto is not located in the States of Minnesota, Indiana, New Jersey or
Alabama or any other state which prohibits a Person from availing itself of the
benefits of that state’s courts unless such Person is qualified to do business
or has filed a notice of business activities; provided, however,
that such restriction shall not apply if: (i) the Borrower is qualified to do
business in such state; (ii) the Borrower has filed and has effective a notice
of business activities report with the appropriate office or agency of such
state for the then current year or is exempt from the filing of such report; or
(iii) upon the Borrower’s written request and at the Borrower’s sole cost and
expense (including, without limitation, the payment of Bank’s reasonable
attorneys’ fees), the Bank determines, in its reasonable business judgment,
that it can avail itself of the benefits of the relevant state’s courts to
collect such Account Debtor’s Accounts, regardless of whether the Borrower can
do so;

(o)           it arises in the ordinary course of
the Borrower’s business;

(p)           if the Account Debtor with respect
thereto is the United States of America or any department, agency or
instrumentality thereof (a “Federal Governmental Authority”), or any
state, county or local governmental authority, or any department, agency or
instrumentality thereof, the Borrower has assigned its right to payment of such
Account to the Bank pursuant to the Assignment of Claims Act of 1940 as amended
in the case of the a Federal Governmental Authority, or pursuant to applicable
state law, if any, in all other instances, and such assignment has been
accepted and acknowledged by the appropriate government officers;

(q)           if the Bank, in its reasonable
business judgment, has established a credit limit for the Account Debtor with
respect thereto, the aggregate dollar amount of Accounts due from such Account
Debtor, including such Account, does not exceed such credit limit; and

 11
 

(r)            if it is evidenced by chattel paper
or instruments, (i) the Bank shall have specifically agreed to include such
Account as an Eligible Account, (ii) only payments then due and payable under
such chattel paper or instrument shall be included as an Eligible Account and
(iii) the originals of such chattel paper or instruments have been assigned and
delivered to the Bank in a manner satisfactory to the Bank.

An Account which
is at any time an Eligible Account but which subsequently fails to meet any of
the foregoing requirements shall forthwith cease to be an Eligible Account.  Further, with respect to any Account, if the
Bank at any time or times hereafter determines, in its reasonable business
judgment exercised in good faith, that the prospect of payment or performance
by the Account Debtor with respect thereto is or will be impaired for any
reason whatsoever, notwithstanding anything to the contrary contained above,
such Account shall forthwith cease to be an Eligible Account. The amount of
Eligible Accounts shall be the net United States dollar amount (as determined by
the Bank after deduction of such reserves and allowances as the Bank, in its
reasonable business judgment, deems proper and necessary) computed no less
frequently than monthly from the Borrowing Base Certificate delivered to the
Bank pursuant to Section 8.14(a).

“Eligible
Inventory”:  Inventory of the
Borrower which meets the following requirements:

(a)           it is owned by the Borrower and is not
subject to any prior assignment, claim or Lien other than (i) a first priority
Lien in favor of the Bank; (ii) Permitted Liens; and (iii) other Liens
permitted by Section 9.1(e) or (f);

(b)           if held for sale or lease or
furnishing under contracts of service, it is (except as the Bank may otherwise
consent in writing) new and unused;

(c)           except as the Bank may otherwise consent,
it is not stored with a bailee, consignee, warehouseman or similar party; or,
if so stored with the Bank’s consent, such bailee, consignee, warehouseman or
similar party has issued and delivered to the Bank, in form and substance
acceptable to the Bank, such documents and agreements as the Bank may require,
including, without limitation, warehouse receipts therefor in the Bank’s name;

(d)           the Bank has determined, in its
reasonable business judgment, that it is not unacceptable due to age, type, category,
quality and/or quantity;

(e)           it is not held by the Borrower on “consignment”
or bailment and is not subject to any other repurchase or return agreement;

(f)            it complies with all standards
imposed by any governmental agency having regulatory authority over such goods
and/or their use, manufacture or sale;

 12
 

(g)           it does not, in any way, violate or
fail to meet any warranty, representation or covenant contained in the Loan
Documents relating directly or indirectly to the Borrower’s Inventory;

(h)           it is raw material (other than
supplies, packaging, chemicals, propane, or cores and headers) or finished
goods Inventory of the Borrower;

(i)                                     it
is not a sub-assembly; and

(j)                                     it
is not in-transit.

Inventory of the
Borrower which is at any time Eligible Inventory but which subsequently fails
to meet any of the foregoing requirements shall forthwith cease to be Eligible
Inventory. The value of Eligible Inventory shall be the U.S. dollar amount
thereof computed at the lower of the cost, determined on a first in first out
basis, or market value of such Inventory, as determined by the Bank after
deduction of such reserves and allowances as the Bank, in its reasonable
business judgment exercised in good faith, deems proper and necessary and shall
be computed no less frequently than monthly from the Borrowing Base Certificate
delivered to the Bank pursuant to Section 8.14(a).

“Environmental Indemnity” or “Indemnity”:  The Environmental and ADA Indemnity
Agreement dated as of June 29, 2005 made by the Borrower in favor of the
Collateral Agent, as assigned by the Collateral Agent to the Bank and amended
pursuant to that certain Assignment of Environmental Indemnity and Amendment
(the “Indemnity Assignment/Amendment”) dated as of even date herewith, as so
amended and as it may be further amended, modified, supplemented, restated or
replaced from time to time.

“Environmental
Laws”:  All present and future
federal, state, regional or local laws, statutes,
ordinances, rules, regulations and other requirements of governmental
authorities relating to the
environment or to any Hazardous Substance or Hazardous Substance Activity
including, without limitation, at
the federal level, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980,42 U.S.C. Section 9601, et seq., as now or
hereafter amended (“CERCLA”),  the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901 et seq.,  as now or hereafter amended, the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,  as now or hereafter amended,
the Clean Water Act, 33 U.S.C. Section 1251,  to  sea., as now or hereafter amended, the Clean Air Act, 42 U.S.C. Section 7901, et seq., as now or hereafter amended, the Toxic Substances Control Act, 15 U.S.C. Sections 2601 through 2629,
as now or hereafter amended, and the Safe Drinking Water Act, 42 U.S.C. Section 300f through 300j, as now or
hereafter amended.

“Environmental
Report(s)”:  The environmental
report(s) described in Schedule 1 to the Environmental Indemnity covering the “Premises”
subject to the Mortgage and delivered to the Bank pursuant to Section
6.1(a)(iii) of the Original Reimbursement Agreement.

“Equipment”: 
As provided in the UCC including, without limitation, all of the
Borrower’s present and future interests in (i) equipment in all of its forms wherever located, 

 13
 

now or hereafter existing, whether owned or leased by the Borrower, including,
without limitation, machinery, transportation equipment, manufacturing,
distribution, selling, data processing and office equipment, assembly systems,
tools, molds, dies, fixtures, appliances,
furniture, furnishings, and trade fixtures, (ii) other tangible personal
property (other than the Borrower’s Inventory), and (iii) any and all
accessions, parts and appurtenances attached to any of the foregoing or used in connection therewith, and any substitutions
therefor and replacements, products and proceeds thereof.

“Equity Interests”:   Shares of capital stock, partnership
interests, membership interests in a limited liability company, beneficial
interests in a trust or other equity ownership interests in a Person, and any
warrants, options or other rights entitling the holder thereof to purchase or
acquire any such equity interest.

“ERISA”:  The Employee Retirement Income Security Act
of 1974, as amended, or any successor statute, together with regulations
thereunder.

“ERISA
Affiliate”:  Any trade or business
(whether or not incorporated) that is a member of a group of which the Borrower
or any of its Subsidiaries is a member and that is treated as a single employer
under Section 414 of the Code.

“Event
of Default”:  Any event described in Section
10.1 which has not been cured to the satisfaction of, or waived by, the
Bank in accordance with Section 11.1.

“Federal
Reserve Board”:  The Board of Governors
of the Federal Reserve System or any successor thereto.

“Final Drawing”:  As provided in the Bonds Letter of Credit.

“Financial Officer”:  With respect to any described Person, the
chief financial officer, principal accounting officer, treasurer or controller
of such Person.

“Financing Agreements”:  This Agreement, the other Loan Documents and
the Bond Documents.

“Fixed
Charge Coverage Ratio”:  At any
Quarterly Measurement Date, the numerical ratio of: (a) the sum of: (i) the
EBITDA for the Measurement Period ending at such date; plus (ii) rent
expense on Operating Leases deducted from the net income included in the
Adjusted Net Income used in calculating such EBITDA; plus (iii) non-cash
corporate allocations incurred during such Measurement Period; to (b) the sum
of: (i) the Interest Expense during such Measurement Period; plus (ii)
the Mandatory Principal Payments scheduled to have been paid during such
Measurement Period; plus (iii) the rent expense on Operating Leases
scheduled to have been paid during such Measurement Period; plus (iv)
the greater of: (A) Non-Financed Capital Expenditures made during such
Measurement Period; or (B) a maintenance Capital Expenditures requirement of
$500,000.00, regardless of whether actually paid during such Measurement
Period; plus (v) federal, state and local income taxes with respect to
the net income included in the EBITDA 

 14
 

for such
Measurement Period or, if the Borrower is a pass-through tax entity, the
maximum Permitted Tax Distributions that are permitted to be paid with respect
to such net income (assuming compliance with Section 9.7(b)(i)),
regardless of whether actually paid during such Measurement Period.

“GAAP”:  Generally accepted accounting principles as
in effect from time to time including, without limitation, applicable
statements, bulletins and interpretations of the Financial Accounting Standards
Board and applicable bulletins, opinions and interpretations issued by the
American Institute of Certified Public Accountants or its committees.

“Governmental
Approvals”:  The Permits and all other permits,
authorizations, consents, approvals, licenses, consent certificates,
rulings, certifications, orders, waivers, exemptions of, or filings or registrations with, any Governmental
Person required in connection with the operation or maintenance of the
Plant and the consummation of the transactions
set forth in the Transaction Documents.

“Governmental
Person”:  Any national, federal, state or local government (whether foreign or domestic), any political subdivision thereof or any
governmental, quasi-governmental, administrative,
judicial, public or statutory instrumentality, authority, body or entity, or
any other regulatory bureau,
authority, body or entity, including the Federal Deposit Insurance Corporation,
the Comptroller of the Currency or
the Federal Reserve Board, any central bank or any comparable authority.

“Governmental
Rule”:  Any law, statute, permit, concession, grant,
franchise, license, requirement,
rule, regulation, ordinance, order, code, interpretation, judgment, decree,
directive, guideline, policy or other
governmental restriction or any similar form of decision of, or determination by, or any interpretation or
administration of any of the foregoing by, any Governmental Person whether now or hereafter in effect.

“Hazardous Materials Claims”:  As provided in Section 8.15.

“Hazardous
Substance Activity”:  Any storage, holding, disposal, leaching, existence, use, release, migration, emission, discharge,
generation, processing, abatement, removal, repair, cleanup or detoxification, disposition, handling or
transportation of any Hazardous Substance from, under, into, on or about the Property.

“Hazardous Substances”  Any substance that is at any time defined or
listed in, or otherwise classified or regulated pursuant to, any Environmental
Laws as (a) a “hazardous substance,” “hazardous material,” “hazardous waste,” “infectious
waste,” “designated waste,” “biohazard,” “toxic
substance,” “toxic pollutant,” “pollutant,” “contaminent” or similarly designated
substance; or (b) otherwise having or exhibiting deleterious properties such
as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity
or “EP toxicity,” including asbestos, polychlorinated
biphenyls and also including petroleum
products, by-products and wastes or by-products associated with the
extraction, refining or use of petroleum or petroleum products, whether or not so
listed or classified in such laws or
regulations.

 15
 

“Holdings”:  Cellu Paper Holdings, Inc., a Delaware
corporation.

“Indebtedness”:  Without duplication, all obligations,
contingent or otherwise, which in accordance with GAAP should be classified
upon the obligor’s balance sheet as liabilities, but in any event including the
following (whether or not they should be classified as liabilities upon such
balance sheet):  (a) obligations
secured by any mortgage, pledge, security interest, lien, charge or other
encumbrance existing on property owned or acquired subject thereto, whether or
not the obligation secured thereby shall have been assumed and whether or not
the obligation secured is the obligation of the owner or another party;
(b) any obligation on account of deposits or advances; (c) any
obligation for the deferred purchase price of any property or services, except
Trade Accounts Payable; (d) any obligation as lessee under any Capitalized
Lease; (e) all Contingent Obligations; (f) undertakings or agreements
to reimburse or indemnify issuers of letters of credit or in connection with bankers’
acceptances including, without limitation, the Letter of Credit Obligations;
and (g) all Rate Protection Obligations. 
For all purposes of this Agreement, the Indebtedness of any Person shall
include the Indebtedness of any partnership or joint venture as to which such
Person is or may become personally liable.

“Indenture”:
As provided in the recitals hereto.

“Insolvency
or Liquidation Proceedings”:  Any
receivership, conservatorship, general meeting of creditors, insolvency or
bankruptcy proceeding, assignment for the benefit of creditors or any
proceeding or action by or against the Borrower or any guarantor of the Senior
Obligations for any relief under any bankruptcy or insolvency law or other laws
relating to the relief of debtors, readjustment of indebtedness,
reorganizations, dissolution, liquidation, compositions or extensions, or the
appointment of any receiver, intervenor or conservator of, or trustee, or
similar officer for, the Borrower or any guarantor of the Senior Obligations or
any substantial part of its or their respective properties or assets,
including, without limitation, proceedings under the United States Bankruptcy
Code (the “Bankruptcy Code”), or under other federal, state or local statute,
laws, rules and regulations, all whether now or hereafter in effect.

 “Interest Expense”:  For any period, the aggregate interest
expense (including capitalized interest) of the Borrower for such period
including, without limitation, the interest portion of any Capitalized Lease,
the Letter of Credit Fee and other fees and charges with respect to the Bonds
Letter of Credit; provided, however, that the foregoing shall be
adjusted to reflect only the net effect of any interest rate swap, interest
hedging transaction, or other similar arrangement entered into by the Borrower
in order to reduce or eliminate variations in its interest expenses.

“Interest Payment
Date”:  As provided in the Indenture.

“Inventory”:  As provided in the UCC including, without
limitation,  including, without
limitation, all of the Borrower’s present and future: (a) inventory in all of
its forms wherever located, now or hereafter existing, (b) goods, merchandise
and other personal property furnished or to be furnished under any contract of
service or intended for sale, lease or exchange, and all consigned goods and
all other items which have previously constituted Equipment of the Borrower but
are then currently being held for sale or lease in the ordinary course of the
Borrower’s business, (c) raw materials, work-in-process and 

 16
 

finished goods, (d) materials and supplies of any
kind, nature or description used or consumed in the Borrower’s business or in
connection with the manufacture, production, packing, shipping, advertising,
finishing or sale of any of the Property described in clauses (a)
through (c) above, (e) goods in which the Borrower has a joint or other
interest or right of any kind (including, without limitation, goods in which
the Borrower has an interest or right as consignee), and (f) goods which are
returned to or repossessed by the Borrower, in each case whether in the
possession of the Borrower, a bailee, a consignee, or any other Person for
sale, storage, transit, processing, use or otherwise, and any and all
accessions thereto, products thereof, and documents for or relating to any of
the foregoing.

“Investment”:  The acquisition, purchase, making or holding
of any stock or other security, any loan, advance, contribution to capital,
extension of credit (except for trade and customer accounts receivable for
Inventory sold or services rendered in the ordinary course of business and
payable in accordance with customary trade terms), any acquisitions of real or
personal property (other than real and personal property acquired in the
ordinary course of business) and any purchase or commitment or option to
purchase stock or other debt or equity securities of, or any interest in,
another Person or any integral part of any business or the assets comprising
such business or part thereof. The amount of any Investment shall be the original
cost of such Investment plus the cost of all additions thereto, without any
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment.

“Issuer”:  As provided in the recitals hereto.

“Land”:  As provided in the Mortgage.

“Letter of Credit Amount”:  As
provided in the Bonds Letter of Credit.

“Letter of Credit Fee”:  As provided in Section 2.9(a).

“Letter of Credit
Fee Account”: 
As provided in Section 2.16.

“Letter of Credit Obligations”:  At any date of determination, the sum of: (a) the aggregate amount available to be
drawn on the Bonds Letter of Credit on such date; plus (b) the aggregate
amount owed by the Borrower to the Bank on such date as a result of a Drawing
on the Bonds Letter of Credit for which the Borrower has not reimbursed the
Bank (such unpaid amount being the “Unreimbursed Amount”).

“Leverage Ratio”:  At any Quarterly Measurement Date, the ratio
of: (a) the sum (without duplication) of the
outstanding principal balance of the Loans, any unpaid Unreimbursed Amount
including, without limitation, any Term Loan Conversion Amount, the outstanding
principal balance of the Bonds Promissory Note, the outstanding principal
balance of any Indebtedness incurred by the Borrower pursuant to Section
9.2(g),  and the outstanding
principal of all other interest bearing Indebtedness of the Borrower and its
Subsidiaries (including, without limitation, the portion of any Capitalized
Lease allocable to principal in accordance with GAAP but excluding Indebtedness
arising under the Cellu Tissue Senior Secured Notes Guarantee and the Cellu
Tissue Credit Facility Loan 

 17
 

Guaranty so long as, in either case, the Indebtedness
created thereby has not become due and payable at the maturity of the guarantied
obligations, by acceleration or otherwise, and remains unpaid) at such date; to
(b) the EBITDA for the Measurement Period ending on such Quarterly Measurement
Date.

“Liabilities”:  At any date of determination, the aggregate
amount of liabilities appearing on the Borrower’s balance sheet at such date
prepared in accordance with GAAP.

“LIBOR
Rate”:  As provided in Section
2.4(a).

“Lien”:  Any security interest, mortgage, pledge,
lien, hypothecation, judgment lien or similar legal process, charge, encumbrance,
title retention agreement or analogous instrument or device (including, without
limitation, the interest of the lessors under Capitalized Leases and the
interest of a vendor under any conditional sale or other title retention
agreement).

“Liquidity Drawing”:  As provided in the Bonds Letter of Credit.

“Loan
Documents”: This Agreement, the Notes, the Security Documents, the Rate
Protection Agreements, the Cellu Tissue Bank Guaranty and each other
instrument, document, guaranty, security agreement, mortgage, or other
agreement executed and delivered by the Borrower or any other Loan Party
pursuant to which the Borrower or such Loan Party incurs any liability to the
Bank with respect to the Obligations, agrees to perform any covenant or
agreement with respect to the Obligations or grants any security interest to
secure the Obligations.

“Loan
Party”:  The Borrower and Cellu
Tissue.

“Loan(s)”:  The Revolving Loans and the Term Loans.

“Lockbox
Agreement”: The Lockbox Services Agreement dated as of June 29, 2005
between the Borrower and the Bank, as amended by a First Amendment to Lockbox
Services Agreement dated as of June 29, 2005, as so amended and as it may be
further amended, modified, supplemented, restated or replaced from time to time

“Mandatory
Principal Payments”:  For any period,
the payments required to be made on the Bonds pursuant to the Amortization
Schedule, principal payments required to be made on the Term Loans during such
period and other principal payments (including the portion of any payment on
any Capitalized Lease allocable to principal in accordance with GAAP) regularly
scheduled to be paid by the Borrower or any of its Subsidiaries during such
period on the Borrower’s Capitalized Leases and other interest-bearing
Indebtedness.

“Material Adverse
Occurrence”:  The occurrence of any
event which the Bank, in good faith, determines could reasonably be expected to
have a material adverse effect on (a) the business, property, assets,
operations or condition, financial or otherwise of either: (i) the Borrower; or
(ii) Cellu Tissue and its Subsidiaries, taken as a whole; or (b) the Borrower’s
or any other Loan Party’s prospective ability to perform any of its payment or 

 18
 

other obligations
under the Loan Documents.

“Material
Contract”:  Each contract (other than
a lease, sublease or assignment of an interest in land, improvements, equipment
or fixtures) to which the Borrower is a party that: (a) adversely affects the
value of any of the Collateral as security for the Obligations; or (b) is materially adverse to the rights and benefits of the
Bank under the Loan Documents.

“Maturity”: 
The earlier of: (a) the date on which the Loans become due and payable
under Section 10.2 upon the occurrence of an Event of Default; or (b)
(i) the Revolving Credit Termination Date for the Revolving Loans; or (ii) the
Scheduled Expiration Date for the Term Loans.

“Maximum Debt
Service Reserve Amount”:  As provided in the Indenture.

“Measurement
Period”:  At any Quarterly
Measurement Date, the four fiscal quarters ending on such Quarterly Measurement
Date; provided, however, that, in order to provide for stub
periods that are required to change the Borrower’s accounting periods to
coincide with Cellu Tissue’s, the Borrower and the Bank agree that a fiscal
quarter shall be deemed to have commenced on January 1, 2007 and ended on the
date of the consummation of the Cellu Tissue Merger (the “First Stub Period”)
and that next fiscal quarter shall be deemed to commence on the day following
the end of the First Stub Period and end on May 24, 2007 (the “Second Stub
Period”).

“Monthly Date”: The first Business Day of each month.

“Moody’s”:  Moody’s Investors Service, Inc. and any successor
thereto.

“Mortgage”:
The Mortgage, Security Agreement, Financing Statement and Assignment of Rents
and Leases dated as of June 29, 2005 made by the Borrower in favor of the
Collateral Agent to secure the Secured Obligations, as assigned by the
Collateral Agent to the Bank and amended by that certain Assignment of
Mortgage, Security Agreement, Financing Statement and Assignment of Rents and
Leases and Amendment dated as of even date herewith (the “Mortgage
Assignment/Amendment”), as so amended and as it may be further amended,
modified, supplemented, restated or replaced from time to time.

“Multiemployer Plan Insolvency”: 
With respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section
4245 of ERISA.

“Multiemployer Plan”:  A Plan that is a “multiemployer plan” within
the meaning of Section 4001(a)(3) of ERISA.

“Net
Proceeds”:  With respect to any sale,
transfer or other disposition of any of the Borrower’s assets (other than sales
of Inventory in the ordinary course of business) or from the issuance of any
Equity Interest in the Borrower other than to Cellu Tissue) or of any option,
warrant or other right to acquire the same, or from the incurrence of any other
Indebtedness (excluding  Indebtedness
permitted to be incurred by Section 9.2) by the 

 19
 

Borrower, in any
case net of the actual cash expenses paid by the Borrower in connection with
such issuance or incurrence, the cash proceeds received by the Borrower or such
Subsidiary from such transaction less the sum of: (a) the reasonable costs
associated with such transaction; and (b) the amount of any Indebtedness (other
than the Obligations) which is required to be paid in connection with such
transaction.

“Non-Financed Capital Expenditures”:  For any period, the portion of the Capital
Expenditures made during such period which was not financed by Purchase Money
Indebtedness or Capitalized Leases permitted to be incurred by Section
9.2(f).

 “Notes”:  The Revolving Note and the Term Notes.

“Obligations”:  All Loans, Letter of Credit Obligations, Rate
Protection Obligations, advances, debts, liabilities, obligations, covenants
and duties owing by the Borrower to the Bank of any kind or nature, present or
future, which arise under this Agreement, any other Loan Document or any Rate
Protection Agreement or by operation of law, whether or not evidenced by the Note,
guaranty or other instrument, whether or not for the payment of money, whether
arising by reason of an extension of credit, opening, guarantying or confirming
of a letter of credit, guaranty, indemnification or in any other manner,
whether joint, several, or joint and several, direct or indirect (including
those acquired by assignment or purchases), absolute or contingent, due or to
become due, and however acquired.  The
term includes, without limitation, all principal, interest, fees, charges,
expenses, attorneys’ fees, and any other sum chargeable to the Borrower under
this Agreement, any other Loan Document or any Rate Protection Agreement.

“Operating Account”:  The Borrower’s general operating account
maintained at the Bank, being account no. 2283089064 on the Effective Date and
any successor account therefor.

“Operating
Lease”:  Any lease of personal
property other than a Capitalized Lease.

“Optional
Tender Date”:  As provided in the
Indenture.

“Original Bonds Letter of Credit”:  As provided in Section 2.7.

“Parent”: Cellu Parent Corporation, a
Delaware corporation

“Paying
Agent”:  As provided in the Indenture.

“PBGC”:  The Pension Benefit Guaranty Corporation,
established pursuant to Subtitle A of Title IV of ERISA, and any successor
thereto or to the functions thereof.

“Permits”:  The permits set forth on Schedule 7.3
attached hereto and incorporated herein by reference.

“Permitted
Debt Repayments”:  The repayments of
the Borrower’s Indebtedness to Cellu Tissue for borrowed money that are
permitted to be paid pursuant to Section 9.15(a)(vi).

 20

“Permitted
Distributions”:  The dividends and
distributions that are permitted to be paid pursuant to Section 9.7(b).

“Permitted
Encumbrances”:  The Liens, charges
and encumbrances on title to the Project listed on Exhibit B to the Mortgage.

“Permitted Investments”:  “Qualified Investments” as defined in the Indenture.

“Permitted Liens”:  The
following:

(a)          Liens for taxes, assessments or
governmental charges for the then current year and Liens for other taxes, assessments or governmental charges that are
not yet delinquent or the amount or
validity of which is being timely contested in good faith and for the payment
of which the Borrower has made
adequate reserves;

(b)          deposits or pledges to secure the payment of workers’ compensation,
unemployment insurance, old-age pensions or
other social security benefits or obligations;

(c)            mechanics’, materialmen’s, warehousemen’s, carriers’ or other like Liens arising in the ordinary course of business securing obligations that
are not overdue for more than 30 days or that are being timely contested in
good faith and for the payment of which the Borrower has made adequate
reserves;

(d)           Liens incurred or created in the ordinary course of business in
connection with or to secure the performance of bids, tenders, contracts
(other than for the payment of money), leases, statutory obligations, surety bonds or
appeal bonds;

(e)           Liens covered by a bond in form and
substance reasonably satisfactory to the Bank;

(f)            statutory banker’s liens and rights
of set-off;

(g)           the Permitted Encumbrances; and

(h)           Liens of judgments covered by
insurance, or upon appeal and covered by bond so long as: (i) no cash or property (other than proceeds of insurance
payable by reason of such judgments, decrees or attachments) is deposited or
delivered to secure any such judgment, or any appeal bond in respect
thereof;  (ii) levy and execution
on such Lien have been and continue to be stayed;  and (iii) such Lien does not prevent Bank
from having a perfected first priority security interest in the Collateral or
with respect to future credit extensions made under this Agreement.

“Permitted
Other Distributions”:  As provided in
Section 9.9(b)(ii).

“Permitted Tax Distributions”:  As provided in Section 9.9(b)(i).

 21
 

“Person”:  Any natural person, corporation, partnership,
joint venture, firm, association, trust, unincorporated organization,
government or governmental agency or political subdivision, or any other
entity, whether acting in an individual, fiduciary or other capacity.

“Plan”:  An “employee pension benefit plan” (as
defined in Section 3(2)(A) of ERISA) that is maintained for employees of the
Borrower or of any ERISA Affiliate, and subject to Title IV of ERISA or Section
412 of the Code.

“Plant”:  As provided in the recitals hereto.

“Pledged
Bond Account”:  As provided in
Section 309 of the Indenture.

“Pledged Bonds”:  As
provided in the Indenture.

“Pledged
Permits”:  As provided in the Security Agreement.

“Property”:  As
provided in the Environmental Indemnity.

“Purchase
Money Indebtedness”:  Any Indebtedness
incurred for the purchase of personal property where the repayment thereof is
secured solely by an interest in the personal property so purchased.

“Quarterly
Measurement Date”:  The last day of
each quarter of the Borrower’s fiscal year, provided, however,  that, in order to provide for stub periods
that are required to change the Borrower’s accounting periods to coincide with
Cellu Tissues’, the Borrower and the Bank agree that a Quarterly Measurement
Date shall be deemed to occur at the end of each of the First Stub Period and
the Second Stub Period, with the first Quarterly Measurement Date coinciding
with the end of the First Stub Period

“Quarterly
Payment Date”:  The last day of each
quarter of the Borrower’s fiscal year, commencing with the Quarterly Payment
Date occurring on March 31, 2007.

“Rate
Protection Agreement”:  Any interest
rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate futures contract, interest rate options contract or
similar agreement or arrangement between the Borrower and the Bank designed to
protect the Borrower against fluctuations in interest.

“Rate
Protection Obligations”:  The
liabilities, indebtedness, and obligations of the Borrower, if any, to the Bank
under the Rate Protection Agreement.

“Rating Agency”:   Moody’s and any other national rating service
maintaining a rating on the Bonds at
the request of the Issuer or the Borrower.

“Receivables”:  All
of the Borrower’s present and future (a) accounts, (b) contract rights, chattel paper, instruments, documents, general
intangibles, deposit accounts, and other rights to payment of any kind, now or hereafter existing,
whether or not arising out of 

 22
 

or in connection with the sale,
lease or exchange of goods or the rendering of services, and whether or not
earned by performance, (c) any of the
foregoing which are not evidenced by instruments or chattel paper, (d) inter-company
receivables, and any security documents executed in connection therewith, (e) proceeds of any letters of credit or insurance
policies on which the Borrower is named as beneficiary, (f) claims
against third parties for advances and other financial accommodations and any
other obligations whatsoever owing to the Borrower, (g) tax refunds, tax refund
claims or guarantee claims, held by or granted to the Borrower; (h)
rights now or hereafter existing in and to all security agreements, leases,
guarantees, instruments, securities, documents of title and other contracts securing, evidencing, supporting or
otherwise relating to any of the foregoing, together with all rights in
any goods, merchandise or Inventory which any of the foregoing may represent, and (i) rights in returned and repossessed goods,
merchandise and Inventory which any of the same may represent, including, without limitation, any right of stoppage in
transit. Such leases, security agreements
and other contracts described in this definition are referred to as the “Related
Contracts”. The foregoing uncapitalized terms “account”, “account
debtor”, “bill of lading”, “chattel paper”, “contract right”, “deposit account”,
“document”, “document of title”, “electronic chattel paper”, “equipment”, “general
intangible”, `investment property’, “letter-of-credit right”, “instrument”, “inventory”,
“money”, “payment intangible”, “proceeds”, products”, “purchase money security
interest”, “supporting obligation” and “warehouse receipt” as used in this
Agreement  shall have the meanings
ascribed thereto in the UCC.

“Regulatory
Change”:  As to the Bank, any change
(including any scheduled change) applicable to a class of banks which includes
the Bank in any:

(a)           federal or state law or foreign law;
or

(b)           regulation, interpretation, directive
or request (whether or not having the force of law) of any court or governmental
authority charged with the interpretation or administration of any law referred
to in clause (a) of this definition or of any fiscal, monetary or other
authority having jurisdiction over such class of banks;

or the adoption
after the date hereof of any new or final law, regulation, interpretation,
directive or request applicable to a class of banks which includes the Bank.

“Related
Party”:  Any Person (other than a
Subsidiary, the Bank or any other subsidiary or affiliate of Associated
Bancorp): (a) which directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Borrower;
(b)which beneficially owns or holds 5% or more of the Equity Interest of the
Borrower; or (c) 5% or more of the Equity Interest of which is beneficially
owned or held by the Borrower or a Subsidiary. 
The term “control” means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities or by contract.

“Release”: 
As provided in the
Environmental Indemnity.

 23
 

“Related Contracts”:   As
provided in the definition of “Receivables”.

“Remarketing Agent”:  Wells Fargo Brokerage Services, LLC, or any successor thereto.

“Remarketing Agreement”:  The Remarketing
Agreement, dated as of March 27, 2003 between the Remarketing Agent and the
Borrower.

“Remediation Work”:  As provided in the Environmental Indemnity.

“Rent
Expense”:  For any Measurement
Period, the aggregate amount of rent expense as determined in accordance with
GAAP.

“Reorganization”:  With respect to any Multiemployer Plan, the
condition that such plan is in
reorganization within the meaning of Section 4241 of ERISA.

“Reportable
Event”:  A “reportable event”, as
defined in Section 4043 of ERISA and the regulations issued under such section,
with respect to a Plan, excluding, however, such events as to which the PBGC,
by regulation, has waived the requirement of Section 4043(a) of ERISA that it
be notified within 30 days of the occurrence of such event, provided that a
failure to meet the minimum funding standard of Section 412 of the Code and
Section 302 of ERISA shall be a reportable event regardless of the
issuance of any such waivers in accordance with Section 412(d) of the Code.

“Required
Secured Parties”:  The Bank.

“Required Senior
Reserve Balance”:  With respect to the Senior Debt Service Reserve Fund, $1,000,000.00.

“Restricted Debt Payment”:  Any payment of the principal of any of the
Borrower’s Indebtedness to Cellu Tissue for borrowed money.

“Restricted
Payment”:   Any dividend or other
distribution (whether in cash, securities or other property) with respect to
any Equity Interests in the Borrower, or any payment (whether in cash,
securities or other property), including any sinking fund or similar deposit,
on account of the purchase, redemption, retirement, acquisition, cancellation
or termination of any such Equity Interests in the Borrower or any option,
warrant or other right to acquire any such Equity Interests in the Borrower.

“Revolving
Credit Commitment”:  $3,500,000.00,
as the same may be reduced from time to time pursuant to Section 4.3
and, as the context may require, the agreement of the Bank to make Revolving
Loans to the Borrower up to the Revolving Credit Commitment subject to the
terms and conditions of this Agreement.

“Revolving
Credit Non-use Fee”:  As provided in Section 2.5.

 24
 

“Revolving
Credit Termination Date”:  The date
which is the earlier of:  (a) February
15, 2011; or (b) the date upon which the obligation of the Bank to make
Revolving Loans is terminated pursuant to Section 4.3 or Section 10.2.

“Revolving
Loan(s)”:  The Loans described in Section
2.1.

“Revolving
Note”:  The Revolving Note of the
Borrower described in Section 2.3, substantially in the form of Exhibit A-1 attached hereto, as such Revolving Note may be amended, modified
or supplemented from time to time, and such term shall include any
substitutions for, or renewals of, such 
Revolving Note.

“Scheduled
Expiration Date”:  As provided in the
Bonds Letter of Credit.

“Secured
Obligations”:  The Senior
Obligations.

“Secured
Parties”:  The Bank.

“Security
Agreement”:  The Security Agreement
dated as of June 29, 2005 made by the Borrower in favor of the Collateral Agent
to secure the Secured Obligations, as assigned by the Collateral Agent to the
Bank and amended pursuant to that certain Assignment of Security Agreement and
Amendment dated as of even date herewith (the “Security Agreement
Assignment/Amendment”), and as it may be further amended, modified,
supplemented, restated or replaced from time to time.

“Security
Document”:  The Security Agreement,
the Mortgage, the Assignment of Rents, the Indemnity, the Bonds Pledge
Agreement, the Lockbox Agreement and any substitute or replacement.

“Semiannual
Date”: Each Monthly Date occurring in March and September.

“Senior
Debt Documents”: The Loan Documents.

“Senior
Debt Service Reserve Fund”: As provided in Section 2.17(b).

“Senior
Obligations”: The Obligations.

“Senior
Secured Parties”:  The Bank and any
subsequent holder of the Senior Obligations.

“Single
Employer Plan”:  A Plan that is not a
Multiemployer Plan.

 “Solvent” shall mean, with respect to
any Person on any date of determination, that on such date:

 25
 

(a)           the fair value of such Person’s
tangible and intangible assets is in excess of the total amount of such Person’s
liabilities including, without limitation, Contingent Obligations; and

(b)           such Person is then able to pay its
debts as they mature; and

(c)           such Person has capital sufficient to
carry on its business.

“Sponsor”:  Weston Presidio, together with its Affiliates, and any other
co-investors selected by Weston Presidio, so long as Weston Presidio maintains
direct or indirect ownership of at least 25% of the outstanding voting Equity
Interests of Holdings on a fully diluted basis.

“Subsidiary”:  With respect to any described Person, any
other Person of which or in which the described Person and its other
Subsidiaries own directly or indirectly 50% or more of:  (a) the combined voting power of all
classes of stock having general voting power under ordinary circumstances to
elect a majority of the board of directors of such Person, if it is a
corporation, (b) the capital interest or profit interest of such Person, if
it is a partnership, joint venture or similar entity, or (c) the
beneficial interest of such Person, if it is a trust, association or other
unincorporated organization.

“Taking”:  An
exercise of the power of eminent domain by a Governmental Person.

“Tendered
Bonds”:  As provided in the
Indenture.

“Term
Loan(s)”:  The Loans described in Section
2.14.

“Term
Note(s)”:  The Term Notes of the
Borrower described in Section 2.14, substantially in the form of Exhibit A-2 attached hereto, as each such Term Note may be amended, modified
or supplemented from time to time, and such term shall include any
substitutions for, or renewals of, such Term Note.

“Termination
Event”:  Any of: (a) a Reportable Event, (b) the institution of
proceedings to terminate a Single
Employer Plan by the PBGC under Section 4042 of ERISA, (c) the appointment by the PBGC of a trustee to administer any Single
Employer Plan or (d) the existence of any other event or condition that would
reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment
by the PBGC of a trustee to administer, any Single Employer Plan.

“Termination
Fee”:  As provide in Section 2.6.

“Title Company”:  First
American Title Insurance Company.

“Title Policy”:  The policy of title insurance issued to the Collateral Agent by
the Title Company with respect to
the Property, as assigned by the Collateral Agent to the Bank.

 26
 

“Trade
Accounts Payable”:  The trade
accounts payable of the described Person with a maturity of not greater than 90
days incurred in the ordinary course of such Person’s business.

“Transaction
Documents”:  The Loan Documents,  the Bond Documents, the Cellu Tissue Senior Secured Notes
Loan Documents, the Cellu Tissue Credit Facility Loan Documents, the Cellu
Tissue Merger Documents, and the Indemnity.

“Transfer Certificate”:  As provided in the Bonds Letter of Credit.

“Transfer
Fee”:  As provided in Section 2.9(c).

“Trustee”:  As provided in the recitals hereto.

“UCC”:  The Uniform Commercial Code as enacted in the
State of Minnesota, as amended from time to time; provided, however,
that: (a) to the extent that the UCC is used to define any term herein, and
such term is defined differently in different Articles of the UCC, the
definition of such term contained in Article 9 shall govern; and (b) if, by
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of, or remedies with respect to, the Secured Party’s security
interest in any Collateral is governed by the Uniform Commercial Code as
enacted and in effect in a jurisdiction other than the State of Minnesota,
the  term “UCC” shall mean the Uniform
Commercial Code as enacted and in effect in such other jurisdiction solely for
purposes of the provisions thereof relating to such attachment, perfection or
priority of, or remedies with respect to, the Secured Party’s  security interest and for purposes of
definitions related to such provisions.

“Unreimbursed
Amount”:  As provided in the
definition of “Letter of Credit Obligations.”

Section 1.2            Accounting Terms and Calculations.  Except as may be expressly provided to the
contrary herein, all accounting terms used herein shall be interpreted and all
accounting determinations hereunder (including, without limitation,
determination of compliance with financial ratios and restrictions in Articles
VIII and IX shall be made in accordance with GAAP consistently
applied for the Borrower as used in the preparation of the Borrower’s audited
financial statements described in Section 7.5. To the extent any change
in GAAP affects any computation or determination required to be made pursuant
to this Agreement, such computation or determination shall be made as if such
change in GAAP had not occurred unless the Borrower and the Bank agree in writing
on an adjustment to such computation or determination to account for such
change in GAAP.

Section 1.3            Computation of Time Periods.  In this Agreement, in the computation of a
period of time from a specified date to a later specified date, unless otherwise
stated, the word “from” means “from and including” and the words “to” or “until”
each means “to but excluding.”

Section 1.4            Other Definitional Provisions.  The words “hereof,” “herein,” and “hereunder”
and words of similar import when used in this Agreement shall refer to this 

 27
 

Agreement as a
whole and not to any particular provision of this Agreement.  References to Sections, Exhibits, Schedules
and like references are to this Agreement unless otherwise expressly provided.  The words “include,” “includes” and “including”
shall be deemed to be followed by the phrase “without limitation.”  Unless the context in which used herein
otherwise clearly requires, “or” has the inclusive meaning represented by the
phrase “and/or.”

 28
 

ARTICLE
II

TERMS OF LENDING

PART
A-REVOLVING LOANS

Section 2.1           The Revolving Loans.  Subject to the terms and conditions hereof
and in reliance upon the warranties of the Borrower herein, the Bank agrees to
make loans (each  a “Revolving Loan” and
collectively the “Revolving Loans”) to the Borrower from time to time from the
date hereof until the Revolving Credit Termination Date up to the undrawn
amount of the Revolving Credit Commitment, during which period the Borrower may
repay and reborrow in accordance with the provisions hereof, provided
that the Bank shall not be obligated to make any Revolving Loan if:

(a)          after giving effect to such Revolving
Loan, the aggregate outstanding principal amount of the Revolving Loans would
exceed the lesser at such time of: (i) the Borrowing Base; or (ii) the
Revolving Credit Commitment; or

(b)          such Revolving Loan exceeds the amount
of such Indebtedness then permitted to be incurred by the Borrower pursuant to
the Cellu Tissue Senior Secured Notes Loan Documents or the Cellu Tissue Credit
Facility Loan Documents.

On the Effective Date,
the Borrower and the Bank acknowledge and agree that the outstanding principal
balance of the “Revolving Loans” under the Original Reimbursement Agreement is
$0.00 (zero).

Section
2.2              Borrowing Procedures.  Any request by the Borrower for Revolving
Loans shall be in writing and must be given so as to be received by the Bank
not later than 11:00 a.m., Green Bay, Wisconsin time, on the second (2nd) Business Day preceding the
date of the requested Revolving Loans; provided, however, that if
the Borrower has previously provided evidence reasonably satisfactory to the
Bank that the requested Revolving Loan complies with Section 2.1(b),
then the Bank may permit a borrowing request to be by telephone promptly
confirmed in writing if so requested by the Bank, and to be received by the
Bank not later than 11:00 a.m., Green Bay, Wisconsin time, on the date of
the requested Revolving Loans.  Each
request for Revolving Loans shall specify the borrowing date (which shall be a
Business Day) and the amount of such Revolving Loans.  Each request for Revolving Loans shall be in
a minimum amount of $25,000.00.  Each request for Revolving Loans shall be
deemed a representation and warranty by the Borrower that all conditions
precedent specified in Section 6.2 to such Revolving Loans are satisfied
on the date of such request and on the date the requested Revolving Loans are
made.  Unless the Bank determines that
any applicable condition specified in Article VI has not been satisfied
(in which case the Bank will promptly notify the Borrower in writing of such
determination), the Bank will make the amount of the requested Revolving Loan
available to the Borrower at the Bank’s principal office in Green Bay,
Wisconsin by depositing immediately available funds into the Borrower’s
Operating Account by not later than 2:00 p.m., Green Bay, Wisconsin  time, on the date requested.  Each written request (or confirmation) shall
be in the form of Exhibit B-1
attached hereto.

 29
 

Section 2.3           The
Revolving Note and Maturities.  The Revolving Loans made by the Bank shall be
evidenced by a Revolving Note in the initial amount of the Revolving Credit
Commitment.  The Revolving Loans and the
Revolving Note shall mature and be payable at Maturity of the Revolving Loans.  The Bank shall enter in its records the
amount of each Revolving Loan, the rate of interest borne on such Revolving
Loans from time to time, and the payments of the Revolving Loans received by
the Bank, and such records shall be determinative in the absence of manifest
error.

Section 2.4            Interest.

(a)          Interest Rate. 
Subject to Section 2.4(b) below, interest on each
Revolving Loan hereunder shall accrue at an annual rate equal to the Applicable
Margin plus the one-month LIBOR rate (the “LIBOR Rate”) quoted by the Bank from
Telerate Page 3750 or any successor thereto, which shall be that one-month
LIBOR rate in effect two Eurodollar Business Days prior to the beginning of
each calendar month, adjusted for any reserve requirement and any subsequent
costs arising from a change in government regulation, such rate to be reset at
the beginning of each succeeding month. 
The term “Eurodollar Business Day” means any day which is a Business Day
and also a day (other than a Saturday or Sunday) on which commercial banks are
open for business in New York, New York and a day for trading by and between
banks in United States dollar deposits in the interbank Eurodollar market.  If the initial Revolving Loan occurs other
than on the first day of the month, the initial one-month LIBOR Rate shall be
that one-month LIBOR Rate in effect two Eurodollar Business Days prior to the
date of the initial Revolving Loan, which rate plus the Applicable Margin
described above shall be in effect for the remaining days of the month of the initial
Revolving Loan; such one-month LIBOR Rate to be reset at the beginning of each
succeeding month.  The Bank’s internal
records of applicable interest rates shall be determinative in the absence of
manifest error.

(b)           Default Rate. 
Notwithstanding the provisions of Section 2.4(a), at all times
after the occurrence and during the continuance of any Event of Default, the
Borrower agrees to pay interest on the outstanding principal balance of the
Loans from the date on which the Bank notifies the Borrower of such Event of
Default at a rate per annum at all times equal to the sum of the rate otherwise
in effect on the Revolving Loans plus two percent (2.0%) per annum.

(c)                                  Interest Payment Dates.

(i)            Until Maturity of the Revolving
Loans, interest accrued on the Revolving Loans through the end of a month shall
be payable on the following Monthly Date, commencing on the first Monthly Date
occurring after the date of this Agreement and at Maturity of the Revolving
Loans.  Interest accrued after Maturity
of the Revolving Loans shall be payable on demand.

 30

(ii)           No provision of this Agreement or the
Revolving Note shall require the payment of interest in excess of the rate
permitted by applicable law.

Section
2.5            Revolving Credit Non-use
Fee.  The Borrower
shall pay to the Bank a fee (the “Revolving Credit Non-use Fee”) in an amount
determined by applying a rate of one-half of one percent (0.50%) per annum to
the average daily excess of the Revolving Credit Commitment over the aggregate
outstanding principal amount of the Revolving Loans.  Such Revolving Credit Non-use Fee shall be
payable to the Bank in arrears on each Quarterly Payment Date after the date of
this Agreement and on the Revolving Credit Termination Date.

Section
2.6            Termination Fee.  If the Borrower terminates
the Revolving Credit Commitment prior to February 15, 2009, then the Borrower
shall pay to the Bank a termination fee (the “Termination Fee”) equal to 1% of
the maximum amount of the Revolving Credit Commitment then being terminated or
if the Borrower reduces the Revolving Credit Commitment below $1,000,000.00
prior to such date, then the Borrower shall pay to the Bank a Termination Fee
equal to 1% of the amount of the reduction below $3,500,000.00; provided,
however, that no Termination Fee is payable in connection with the
Borrower’s termination of the Revolving Credit Commitment following the
occurrence of a Cellu Tissue Prepayment Event.

PART
B-BONDS LETTER OF CREDIT

Section 2.7            Bonds
Letter of Credit. Pursuant to the Original Reimbursement
Agreement, the Borrower requested that the Bank issue the “Bonds Letter of
Credit” described therein (the “Original Bonds Letter of Credit”) and the Bank
did so; a copy of the Original Bonds Letter of Credit is attached hereto as Exhibit C-1.  The Borrower hereby requests that the Bank
immediately issue an amendment to the Original Bonds Letter of Credit in the
form attached hereto as Exhibit C-2
(the “Bonds LC Amendment”) (the Original Bonds Letter of Credit as amended by
the Bonds LC Amendment and as it may be further amended, modified, supplemented
or replaced by a Substitute Credit Facility issued by the Bank from time to
time being the “Bonds Letter of Credit”) and deliver the Bonds LC Amendment to
the Trustee.  The Bank agrees to issue
and deliver the Bonds Letter of Credit on the terms and conditions contained in
this Agreement.

Section 2.8            Repayment
of Advances by the Bank to Honor Drafts Drawn on the Letter of Credit.  The Borrower hereby agrees to reimburse the
Bank for all Letter of Credit Obligations arising from Drawings on the Bonds
Letter of Credit that are paid by the Bank in accordance with the terms of this
Agreement.  Reimbursement for all such
Letter of Credit Obligations shall be immediately due and payable on the date
that the Draw is paid by the Bank except that, so long as no Default or Event
of Default has occurred and is continuing during the 90 day period commencing
on the day on which the Bank’s makes payment of any “Liquidity Drawing” (as
defined in the Bonds Letter of Credit) to pay the purchase price of any
Tendered Bond being purchased on an Optional Tender Date and ending on the 89th day thereafter (each such date being a “Term
Loan Conversion Date”) and subject to the satisfaction of the other conditions
set forth in Section 2.14(c), the Unreimbursed Amount remaining unpaid on
such Liquidity Drawing on the 

 31
 

Term Loan
Conversion Date (such Unreimbursed Amount being the “Term Loan Conversion
Amount”) shall be converted to a Term Loan to the Borrower pursuant to Section
2.14; provided, however, that all monies deposited in the Pledged
Bond Account pursuant to Section 309 of the Indenture from the remarketing of
Pledged Bonds through, to and including the Term Loan Conversion Date shall
have been, or shall be, applied to the payment of such Unreimbursed Amount and
accrued, but unpaid, interest thereon, prior to such conversion.  Until fully reimbursed, Unreimbursed Amounts
shall bear interest at a fluctuating rate per annum at all times equal to the
Default Rate except that Unreimbursed Amounts arising from the payment of a
Liquidity Drawing shall bear interest at a fluctuating rate per annum equal at
all times to the sum of the Prime Rate plus 0.50% through, to but excluding the
Term Loan Conversion Date so long as no Event of Default has occurred and is
continuing or, if an Event of Default has occurred and is continuing, at the
Default Rate.

Section 2.9            Bonds
Letter of Credit Fees.

(a)           Letter of Credit Fee.  In consideration of
the Bank’s issuance of the Bonds Letter of Credit, the Borrower hereby agrees
to pay to the Bank a fee (the “Letter of Credit Fee”) in advance as follows:
(i) on June 30, 2006, the Borrower paid a Letter of Credit Fee in the amount of
$250,719.72 for the period from July 1, 2006 through June 30, 2007; and (ii) on
June 30, 2007 and each year thereafter, a Letter of Credit Fee in the amount
determined by applying a per annum rate equal to the Applicable Letter of
Credit Fee Percentage applied to the maximum amount then available to be drawn
on the Bonds Letter of Credit; provided, however, that if the
Bank extends the Scheduled Expiration Date of the Bonds Letter of Credit
pursuant to Section 2.10, then the Borrower shall pay the Letter of
Credit Fee on the date of such extension (and on the anniversary date of such
date in succeeding years during the term of the Bonds Letter of Credit) for the
first year of such extension, but the amount of such Bonds Letter of Credit Fee
shall be prorated based on the number of days in the then current unexpired
portion of the Bonds Letter of Credit for which the Borrower has previously
paid the Letter of Credit Fee.  If the
Borrower fails to pay the Bonds Letter of Credit Fee when due, the amount of
the unpaid Letter of Credit Fee shall bear interest at the Default Rate. The
Bonds Letter of Credit Fee is earned by the Bank upon payment to the Bank, is
non-refundable and is in addition to all other amounts payable by the Borrower
under this Agreement and the other Loan Documents.

(b)           Optional Redemption Fee. If the
Borrower exercises its rights under Section 8.19 of this Agreement and
Section 404 of the Indenture to redeem Bonds (excluding any redemption required
by Section 8.18 or made in connection with a Cellu Tissue Prepayment
Event), the Borrower shall pay to the Bank a fee (the “Optional Redemption Fee”)
equal to 1.00% of the principal amount of the Bonds being optionally redeemed; provided,
however, that no Optional Redemption Fee shall be required if the Bank
exercises its rights under Section 4.2(c) of this Agreement to require
an mandatory redemption of the Bonds.

 32
 

(c)           Transfer Fee.   Any transfer of the Bonds Letter of Credit by the Trustee
shall be made by, and be only
effective upon, the Trustee’s providing the Bank with a “Transfer Certificate”
described in the Bonds Letter of Credit and payment to the Bank by the Borrower
of a transfer fee (the “Transfer Fee”) of $3,000.00 for each transfer and the costs payable to the Bank
pursuant to Section 2.9(d) below in respect of each such transfer.

(d)           Other
Fees.  In addition to the
Bonds Letter of Credit Fee and the Transfer Fee, the Borrower shall pay to the
Bank, on demand, such fees as are customarily charged by the Bank from time to
time in connection with the issuance, renewal, amendment and administration of
letters of credit (including, without limitation, a draw fee, renewal fee and
amendment fee), as the same may change from time to time.  If the Borrower fails to pay any such fee
when due, the unpaid amount shall bear interest from the date due until paid at
the Default Rate.

Section 2.10         Expiration,
Renewal and Reduction of Letter of Credit.

(a)           The Original Bonds Letter of Credit
had an initial Scheduled Expiration Date of February 15, 2009 and the Bonds LC
Amendment has extended the Scheduled Expiration Date to February 15, 2011.  If the Borrower desires that the Bank
consider renewing the Bonds Letter of Credit by extending the then Scheduled
Expiration Date, then the Borrower shall deliver to the Bank a written request
for such consideration during the period beginning on or after the date of the
Borrower’s delivery to the Bank of the Borrower’s audited annual financial
statements for the Borrower’s 2009 fiscal year and ending on June 30, 2010 (or,
if the Bank has previously extended the Bonds Letter of Credit, the
corresponding fiscal year and period relating to the then Scheduled Expiration
Date (e.g. if the Scheduled Expiration Date is extended to February 15, 2012,
then the fiscal year will become the Borrower’s 2010 fiscal year and the period
will end on June 30, 2011).  If the Bank
timely receives such request, then the Bank will notify the Borrower and the
Trustee by no later than the immediately following September 30 of the Bank’s
decision to renew or not renew the Bonds Letter of Credit for an additional
period of at least twelve (12) months and, if the Bank decides to renew the
Bonds Letter of Credit, then, by not later than 45 days prior to the Scheduled
Expiration Date, the Bank shall deliver to the Trustee a written amendment to
the Bonds Letter of Credit extending the Scheduled Expiration Date in accordance
with the terms of the Bank’s renewal.  If
the Borrower fails to timely request a renewal or if the Bank decides not to
renew the Bonds Letter of Credit, then the Bonds Letter of Credit shall expire
on its then Scheduled Expiration Date without further action on the Bank’s part
unless the Bank, with written notice to the Borrower not later than 45 days
prior to the Scheduled Expiration Date, delivers to the Trustee a written
amendment to the Bonds Letter of Credit extending the Scheduled Expiration
Date.

(b)           The Borrower acknowledges and agrees
that the Bank shall have no obligation to renew the Bonds Letter of Credit at
any time in the future.  The Borrower and
the Bank each acknowledges and understands that the Bonds will be 

 33
 

subject to mandatory redemption or purchase pursuant
to the Indenture if the Bank does not renew the Bonds Letter of Credit thereby
resulting in a Drawing under the Bonds Letter of Credit unless a Substitute
Credit Facility is delivered to the Trustee pursuant to the Indenture.

(c)           In accordance with the procedures set
forth in the Bonds Letter of Credit, the Letter of Credit Amount of the Bonds
Letter of Credit shall be reduced by a sum equal to the principal of and 35
days’ maximum interest on each Bond which is no longer “Outstanding” under the
Indenture.

Section 2.11         Limited
Resolution of Issues by the Bank.  The Bank shall not be called upon to resolve
any issues of law or fact with respect to the honoring or dishonoring of any
draft submitted under the Bonds Letter of Credit other than whether a Draw
strictly complies with the Bonds Letter of Credit as determined in accordance
with this Agreement and applicable law.

Section 2.12         
Liabilities of the Bank. 
Neither the Bank nor any of its officers or directors shall be liable or
responsible for:  (a) the use which
may be made of the Bonds Letter of Credit or for any acts or omissions of the
Issuer, the Trustee, or any assignee or transferee in connection therewith;
(b) the validity, sufficiency or genuineness of documents, or of any
endorsement(s) thereon, even if such documents should, in fact, prove to be in
any or all respects invalid, insufficient, fraudulent or forged; or
(c) any other circumstances whatsoever in making or failing to make
payment under the Letter of Credit, except only that the Borrower shall have a
claim against the Bank, and the Bank shall be liable to the Borrower, to the
extent, but only to the extent, of any direct, as opposed to consequential,
damages suffered by the Borrower which the Borrower prove were caused by
(i) the Bank’s willful misconduct or gross negligence in determining
whether documents presented under the Bonds Letter of Credit comply with the
terms of such Letter of Credit or (ii) the Bank’s willful failure to pay
under the Bonds Letter of Credit after the presentation to it by the
beneficiary or its permitted assignee or transferee of a sight draft and
certificate strictly complying with the terms and conditions of the Bonds
Letter of Credit.  In furtherance and not
in limitation of the foregoing, the Bank may accept documents that appear on
their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary.

Section 2.13         Reinstatement
of Letter of Credit for Certain Draws.  The Letter of Credit Amount shall be reduced
by each Drawing on the Bonds Letter of Credit; subject, however,
to reinstatement in accordance with the terms of the Bonds Letter of Credit.
The Borrower acknowledges that the Bank shall not have any obligation to
reinstate the amount drawn on the Bonds Letter of Credit pursuant to any “Final
Drawing” described in the Letter of Credit.

Section 2.14         Term
Loans.

(a)           Subject to the conditions set forth
in Section 2.14(c), the Bank hereby agrees with the Borrower that, on
each Term Loan Conversion Date, the Bank will convert the relevant Term Loan
Conversion Amount to a term loan (each a “Term Loan” and collectively the “Term
Loans”) that will be payable in equal monthly 

 34
 

principal installments in the amount necessary to
fully amortize such Term Loan over the period commencing on the first Monthly
Date following the making of such Term Loan and ending on the Scheduled
Expiration Date in effect on the date of such Term Loan.

(b)           The Borrower agrees to pay interest
on each Term Loan at a fluctuating rate per annum equal at all times to the sum
of the Prime Rate plus 1% so long as no Event of Default has occurred
and is continuing or, if an Event of Default has occurred and is continuing, at
the Default Rate.  Until Maturity of the
Term Loans, interest accrued on the Term Loans through the end of a month shall
be payable on the following Monthly Date, commencing on the first Monthly Date
occurring after the making of such Term Loan and at Maturity of the Term Loans.  Interest accrued after Maturity of the Term
Loans shall be payable on demand. No provision of this Agreement or any Term
Note shall require the payment of interest in excess of the rate permitted by
applicable law.

(c)           Any request by the Borrower for a
Term Loan shall be in writing and must be given so as to be received by the
Bank not later than 11:00 a.m., Green Bay, Wisconsin time, on the second
(2nd)
Business Day preceding the relevant Term Loan Conversion Date.  Each request for a Term Loan shall be deemed
a representation and warranty by the Borrower that all conditions precedent
specified in Section 6.2 to such Term Loan are satisfied on the
date of such request and on the date the requested Term Loan is made.  Unless the Bank determines that any
applicable condition specified in Section 6.2 has not been satisfied (in
which case the Bank will promptly notify the Borrower in writing of such
determination), the Bank will make the amount of the requested Term Loan by
converting the Term Loan Conversion Amount to such Term Loan.  Each written request shall be in the form of Exhibit B-2 attached hereto.

Section 2.15         Bond
Prepayment Fund.

(a)          On the Effective Date, the
Collateral Agent, at the Borrower’s and the Bank’s direction, has assigned all
of its rights in the “Bond Prepayment Fund” described in the Collateral Agency
Agreement (including, without limitation, any balance thereof) to the Bank as
the CITYFOREST Project-Bond Prepayment Fund (the “Bond Prepayment Fund”) and
the Borrower hereby acknowledges that the Borrower has irrevocably directed the
Collateral Agent to effect such assignment 
and agrees that the Bond Prepayment Fund shall be maintained with the
Bank pursuant to this Agreement.

(b)          Subject to Section 2.15(c)
below, the Borrower shall cause all Damages to be deposited promptly into the
Bond Prepayment Fund.

(c)          Subject to the Borrower’s right to
apply Damages to the repair and rebuilding of property pursuant to Section
2.15(d) below, amounts on deposit from time to time in the Bond Prepayment
Fund shall, at the direction of the Bank or the Borrower, be transferred to the
Trustee and used to redeem outstanding Bonds.

(d)          In the event of any loss, damage or
destruction of or to any property 

 35
 

of the Borrower or any condemnation of any property of
the Borrower, or a sale thereof in lieu of or in anticipation of, the exercise
of the power of condemnation or eminent domain, 
any Damages received by or on behalf of the Borrower in connection with
such loss, damage, destruction or condemnation shall be used to pay the cost of
repairing, rebuilding or restoring such property in accordance with Section 11
or 12 of the Mortgage, as the case may be.

Section 2.16         Letter
of Credit Fee Account.

(a)          On the Effective Date, the Collateral
Agent, at the Borrower’s and the Bank’s direction, has assigned all of its
rights in the “Letter of Credit Fee Account” described in the Original
Collateral Agency Agreement (including, without limitation, the $189,997.75
balance thereof) to the Bank as the CITYFOREST Project-Letter of Credit Fee
Account (the “Letter of Credit Fee Account”) and the Borrower hereby
acknowledges that the Borrower has irrevocably directed the Collateral Agent to
effect such assignment and agrees that the Letter of Credit Fee Account shall
be maintained with the Bank pursuant to this Agreement.

(b)          On each Monthly Date, the Borrower
shall deposit to the Letter of Credit Fee Account, an amount equal to
one-twelfth of the Letter of Credit Fee payable to the Bank pursuant to Section
2.9(a) of this Agreement on the next Annual Date following such Monthly
Date.

(c)           On each Annual Date, the Bank shall
apply amounts on deposit in the Letter of Credit Fee Account to pay the Letter
of Credit Fee to which the Bank is entitled under Section 2.9(a) of this
Agreement.

Section 2.17         Senior Debt Service Reserve Fund.

(a)          Immediately prior to the
Cellu Tissue Merger Sub’s acquisition of the shares of CF Corporation, the Bank
has instructed the Collateral Agent to release any amount on deposit in the “Senior
Debt Service Reserve Fund” described in the Collateral Agency Agreement in
excess of $1,000,000.00 to the Borrower and to transfer such amounts to the
Operating Account.  On the Effective
Date, the Collateral Agent, at the Borrower’s and the Bank’s direction, has
assigned all of its rights in such “Senior Debt Service Reserve Fund”
(including, without limitation, the $1,000,000.00 balance thereof) to the Bank
as the CITYFOREST Project-Senior Debt Service Reserve Fund (the “Senior Debt
Service Reserve Fund”) and the Borrower hereby acknowledges that the Borrower
has irrevocably directed the Collateral Agent to effect such assignment and
agrees that the Senior Debt Service Reserve Fund shall be maintained with the
Bank pursuant to this Agreement.

(b)          On each Semiannual Date, the Borrower
shall deposit to the Senior Debt Service Reserve Fund, an amount equal to the
difference, if any, between (a) the Required Senior Reserve Balance as of such
date; minus (b) the amount on deposit in the Senior Debt Service Reserve
Fund immediately prior to the deposit 

 36
 

provided for in this paragraph (but after giving
effect to any withdrawals from the Senior Debt Service Reserve Fund on such
date).

(c)          Amounts on deposit in the Senior Debt
Service Reserve Fund shall be used by the Bank as necessary from time to time
to reimburse the Bank for the account of the Bank for Drawings (other than a
Liquidity Drawing that is convertible into a Term Loan pursuant to Section
2.14) in respect of principal or interest on the Bonds or other Senior
Obligations, in each case when due to the extent that there are insufficient
funds available therefor in the Operating Account.

(d)          On each Semiannual Date, the Bank
shall transfer to the Operating Account amounts on deposit in the Senior Debt
Service Reserve Fund in excess of the sum of the Required Senior Reserve
Balance.

(e)          The Bank shall, upon the written
request of the Borrower, transfer to the Trustee any amount requested by the
Borrower for the purpose of redeeming Bonds on the first date available
therefor; provided, however, that after giving effect to such
transfer, the balance of the Senior Debt Service Reserve Fund shall not be less
than the Required Senior Reserve Balance.

(f)           Interest income earned on amounts in
the Senior Debt Service Reserve Fund shall not be withdrawn from the Senior
Debt Service Reserve Fund prior to such time as the Required Senior Reserve
Balance has been met, and once the Required Senior Reserve Balance has been
met, such interest income shall be deposited into the Operating Account.

(g)          The Bank acknowledges that the Senior
Debt Service Reserve Fund is being established by the Borrower as a reasonably
required debt service reserve fund under Section 148 of the Internal Revenue
Code of 1986, as amended, funded in part from “gross proceeds” of the Bonds.
The Bank agrees to (A) maintain records in a form to permit the Borrower and
its agents to periodically calculate rebatable arbitrage, (B) preserve such
records for a period of not less than six months following the date on which
the Bonds have been fully redeemed and paid, (C) to make such records available
to the Borrower, the Issuer or the Trustee upon written request therefor, and
(D) upon written directions by the Borrower, accompanied by a report of the
Borrower’s rebate analyst or any opinion of Bond Counsel, to transfer the “arbitrage
rebate amount” set forth therein to the Trustee for credit to the Rebate
Account under the Indenture.

ARTICLE
III

CERTAIN FEES AND COMPUTATIONS

Section 3.1            Amendment Fee.  The Borrower shall pay to the Bank a
non-refundable amendment fee (the “Amendment Fee”) in the amount of
$95,000.00.  The Amendment Fee is earned
upon receipt by the Bank and no termination or reduction of the Revolving Loan
Commitment and no failure of the Borrower to satisfy the conditions set forth
in Article VI shall entitle the Borrower to a refund of any portion of
the Amendment Fee.

 37
 

Section 3.2            Computation.  Interest, the Revolving Credit Non-use Fee,
the Letter of Credit Fee and any other fee calculated on a per annum basis shall
be computed on the basis of actual days elapsed and a year of 360 days.

ARTICLE IV

PAYMENTS, PREPAYMENTS, REDUCTION OR

TERMINATION OF THE CREDIT AND SETOFF

Section 4.1            Repayment.  Principal of the Revolving Loans shall be due
and payable in accordance with the provisions of Section 2.3 and this Article IV.
Principal of the Term Loans shall be due and payable in accordance with Section
2.14 and this Article IV.

Section 4.2            Voluntary and Mandatory
Prepayments; Scheduled Installment Payments.

(a)           Optional Prepayments.  The Borrower, by giving written or telephonic
notice to the Bank by no later than 2:00 p.m. on the Business Day of a
prepayment, may prepay the Loans, in whole or in part, at any time, without
premium or penalty except as provided in Section 2.6.

(b)           Mandatory Prepayment of Loans.

(i)          If, at any time, the aggregate
outstanding principal amount of the Revolving Loans exceeds the lesser at such
time of: (A) the Borrowing Base; or (B) the Revolving Credit Commitment, then
the Borrower shall immediately prepay the Revolving Loans by the amount of such
excess together with interest on the amount prepaid.

(ii)         The Borrower shall prepay the principal
amount of the Term Loans contemporaneously with the Trustee’s and/or the
Borrower’s receipt of any proceeds from the remarketing or redemption of the
Pledged Bonds in accordance with Section 309 of the Indenture.

(iii)        The Borrower shall prepay the principal
amount of the Term Loans contemporaneously with the effectiveness of the
Borrower’s termination of the Revolving Credit Commitment together with all
unpaid accrued interest thereon.

(iv)        If a Cellu Tissue Prepayment Event
occurs, then the Borrower shall prepay all of the Obligations by not later than
the 180th calendar day (or, if such day is not a Business
Day, the immediately following Business Day) after the date of the Borrower’s
receipt of the Bank’s written demand for prepayment of the Obligations.

 38
 

(c)           Mandatory Redemption of Bonds.

(i)          If required by, and as directed by,
the Bank, the Borrower, contemporaneously with the Borrower’s receipt of any
Net Proceeds arising from the issuance of any equity interest in the Borrower
or options or warrants or other rights to acquire the same shall: (i) exercise
its rights under Section 404 of the Indenture to optionally redeem Bonds by the
amount of such Net Proceeds; and/or (ii) deposit such Net Proceeds in the Cash
Collateral Account described in Section 10.4 of this Agreement to secure
the payment of the Obligations in accordance with Section 10.4.

(ii)         If the Borrower terminates the
Revolving Credit Commitment, then, prior to or contemporaneously with the
termination of the Revolving Credit Commitment, the Borrower shall have
exercised its rights under Section 404 of the Indenture to optionally redeem the
Bonds or shall have caused the Bonds Letter of Credit to be replaced by a “Substitute
Credit Facility” permitted by the Indenture.

(iii)        If a Cellu Tissue Prepayment Event
occurs, then, by no later than the 180th calendar day (or, if such day is not a Business
Day, the immediately following Business Day) after the date of the Borrower’s
receipt of the Bank’s written demand for prepayment of the Obligations, the
Borrower shall have exercised its rights under Section 404 of the Indenture to
optionally redeem the Bonds or shall have caused the Bonds Letter of Credit to
be replaced by a “Substitute Credit Facility” permitted by the Indenture.

(d)          Application of Term Loan
Prepayments. Any optional or mandatory partial prepayment of the
Term Loans shall be applied to the Term Loans on a first made, first paid basis
and the partial prepayments applied to any Term Loan shall be applied against
the installments due thereon in the inverse order of maturities.

Section 4.3            Optional Reduction or Termination
of Revolving Credit Commitment.  The Borrower may, at any time, upon no less
than two (2) Business Days’ prior written notice received by the Bank,
permanently reduce the Revolving Credit Commitment, with any such reduction in
a minimum amount of $100,000.00 or an integral multiple thereof; provided,
however, that the Borrower may not reduce the Revolving Credit
Commitment below the aggregate outstanding principal amount of the Revolving
Loans.  The Borrower may, at any time
when no Revolving Loans are outstanding, upon not less than three (3) Business
Days’ prior written notice to the Bank, terminate the Revolving Credit
Commitment in its entirety; provided, however, that, as a
condition to such termination, the Borrower shall also cause the Bonds Letter
of Credit to be replaced by a “Substitute Credit Facility” permitted by the
Indenture.  Upon termination of the
Revolving Credit Commitment, the Borrower shall pay to the Bank the Term Loans,
all accrued and unpaid interest on the Loans, the unpaid Revolving Credit Non-use
Fee accrued to the date of such termination and all other unpaid Obligations of
the Borrower to the Bank hereunder with respect to the Loans, the Revolving
Credit Commitment, the 

 39
 

Letter of Credit
Obligations and the Bonds Letter of Credit. 
Any reduction in, or termination of, the Revolving Credit Commitment
prior to February 15, 2009 shall be accompanied by the Termination Fee, if any,
required to be paid by the Borrower to the Bank pursuant to Section 2.6.

Section 4.4            Payments.  All payments and prepayments of principal of,
and interest on, the Notes and all fees, expenses and other Obligations under
the Loan Documents payable to the Bank shall be made without deduction,
set-off, or counterclaim in immediately available funds not later than 2:00 p.m.,
Green Bay time, on the dates due at the main office of the Bank in Green Bay,
Wisconsin.  Funds received on any day
after such time shall be deemed to have been received on the next Business Day.  Whenever any payment to be made hereunder or
on any  Note shall be stated to be due on
a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall be included in the
computation of any interest or fees.  The
Borrower authorizes the Bank to charge any of the Borrower’s accounts
maintained at the Bank for the amount of any payment or prepayment on any Note
or other amount owing pursuant to any of the other Loan Documents.  The Borrower
hereby authorizes the Bank, at its sole discretion, to make a Revolving Loan in
order to pay, on behalf of the Borrower, any amount due on any Note or pursuant
to any of the other Loan Documents without further action on the part of the
Borrower and regardless of whether the Borrower is able to comply with the terms,
conditions and covenants of this Agreement at the time of such Revolving Loan.

ARTICLE
V

ADDITIONAL PROVISIONS RELATING TO THE LOANS

Section 5.1            Increased
Costs.  In the
event that any Regulatory Change reduces or shall have the effect of reducing
the rate of return on the Bank’s capital or the capital of its parent
corporation as a consequence of the Loans evidenced hereby or the Commitment
hereunder or the Bonds Letter of Credit issued pursuant hereto to a level below
that which the Bank or its parent corporation could have achieved but for such
Regulatory Change (taking into account Bank’s policies and the policies of its
parent corporation with respect to capital adequacy), then Borrower shall,
within twenty days after written notice and demand from Bank, pay to Bank
additional amounts sufficient to compensate Bank or its parent corporation for
such reduction.  Determinations by Bank
for purposes of this Section 5.1 of the additional amounts required to
compensate Bank shall be determinative in the absence of manifest error.  If
the Bank fails to give such notice within 60 days after it obtains knowledge of
such an event, then the Bank shall, with respect to compensation payable
pursuant to this Section, only be entitled to payment under this Section
for costs incurred from and after the date 60 days prior to the date that the
Bank does give such notice.  In
determining such amounts, the Bank may use any reasonable averaging,
attribution and allocation methods.
Failure on the part of the Bank to demand compensation under this Section
for any period shall not constitute a waiver of the Bank’s rights to demand
compensation for any subsequent period.

Section 5.2            Funding Through the Sale of
Participation. The Borrower acknowledges that the Bank
may fund all or any part of the Loans or the Letter of Credit Obligations by
sales of participation to various participants and agrees that the Bank may, 

 40
 

in invoking its
rights under this Article V, demand and receive payment for
reasonable costs and other amounts incurred by, or allocable to, any such
participant, or take other action arising from circumstances applicable to any
such participant, to the same extent that such participant could demand and
receive payments, or take other action, under this Article V or if
such participant were the Bank under this Agreement except that no participant’s
claims for payment of costs and other amounts under this Article V shall
exceed the amount which the Bank would have received had the Bank not sold a
participation to such participant.

ARTICLE VI

CONDITIONS PRECEDENT

Section
6.1           Conditions of Effective
Date; etc.  The
Effective Date of this Agreement and the obligation of the Bank to issue the
Bonds LC Amendment and to make any Revolving Loan or Term Loan shall be subject
to the satisfaction of the conditions precedent in addition to the applicable
conditions precedent set forth in Section 6.2 below, at the
Borrower’s sole cost and expense:

(a)            A Replacement Revolving Note
appropriately completed and duly executed by the Borrower;

(b)            The Indemnity Assignment/Amendment
in the form provided by the Bank appropriately completed and duly executed by
the Borrower;

(c)            The Mortgage Assignment/Amendment in
the form provided by the Bank appropriately completed and duly executed by the Borrower;

(d)            The Rent Assignment/Amendment in the
form provided by the Bank appropriately completed and duly executed by the
Borrower;

(e)            The Security Agreement
Assignment/Amendment in the form provided by the Bank appropriately completed
and duly executed by the Borrower;

(f)             An Assignment by the Collateral
Agent to the Bank of each deposit account control agreement made by a
depository bank in favor of the Bank and amendment thereof in the form provided
by the Bank appropriately completed and duly executed by the Borrower, the
Collateral Agent and the depository bank that is a counterparty thereto;

(g)            The Cellu Tissue Bank Guaranty in
the form provided by the Bank appropriately completed and duly executed by
Cellu Tissue;

(h)            The other Loan Documents appropriately
completed and duly executed by the Borrower and the other parties thereto;

 41

(i)             A certificate of the Secretary of
each Loan Party having attached (A) a copy of the corporate resolution of
such Loan Party authorizing the execution, delivery and performance of the Loan
Documents, certified by the Secretary or an Assistant Secretary of the
Borrower; (B) an incumbency certificate showing the names and titles, and
bearing the signatures of, the officers of such Loan Party  authorized to execute the Loan Documents; and
(C) a copy of the bylaws of such Loan Party with all amendments thereto;

(j)             A copy of the articles or
certificate of incorporation of each Loan Party with all amendments thereto,
certified by the appropriate governmental official of the jurisdiction of its
incorporation as of a date acceptable to the Bank;

(k)            Certificates (or other evidence) of
good standing for each Loan Party in the jurisdiction of its incorporation and,
in the case of the Borrower, such other states as, in accordance with the
standards set forth in Section 7.1, the Borrower is required to
qualify to do business, certified by the appropriate governmental officials as
of a date acceptable to the Bank;

(l)             A No Default Certificate in a form
provided by the Bank executed by a Financial Officer of the Borrower;

(m)           Receipt in immediately available
funds of the Amendment Fee;

(n)            A Borrowing Base Certificate as of a
date satisfactory to the Bank prepared and executed by a Financial Officer of
the Borrower;

(o)            An opinion of counsel to the Loan
Parties, addressed to the Bank, in form and substance satisfactory to the Bank;

(p)            A copy of the Borrower’s unaudited
financial statements prepared in accordance with Section 8.14(a) of this
Agreement certified by a Financial Officer of the Borrower and a Compliance
Certificate showing pro forma compliance with this Agreement as of February 28,
2007 certified by a Financial Officer of the Borrower;

(q)            All other documents that are
required to be delivered to, or obtained by the Trustee in connection with the
delivery of an extension of the Scheduled Expiration Date contemplated by the
Bonds LC Amendment pursuant to Section 1202 or 1401 of the Indenture;

(r)             Certified copies of the Cellu
Tissue Merger Agreement and the other Cellu Tissue Merger Documents described
on Schedule 6.1(r) attached hereto and
incorporated herein by reference certified as a true and correct copies by a
Financial Officer of the Cellu Tissue;

(s)            A Certificate appropriately
completed and duly executed by a Financial Officer of Cellu Tissue stating to
the effect that the Cellu Tissue Merger 

 42
 

has been consummated
in accordance with the terms Cellu Tissue Merger Documents together with
evidence that the Articles (or Certificate) of Merger have been filed in the
respective offices of the Minnesota Secretary of State and Delaware Secretary
of State;

(t)             Copies of the Cellu Tissue Senior
Notes Loan Documents certified as a true and correct copies by a Financial
Officer of Cellu Tissue together with evidence satisfactory to the Bank that
Cellu Tissue has received at least $20,000,000 from the issuance of “Additional
Securities” pursuant to the terms of the Cellu Tissue Senior Notes Indenture;

(u)            Copies of the Cellu Tissue Credit
Facility Loan Documents certified as a true and correct copies by a Financial
Officer of Cellu Tissue together with evidence satisfactory to the Bank that
the Cellu Tissue JPMorgan Credit Agreement has become effective in accordance
with the terms of the Cellu Tissue JPMorgan Credit Agreement;

(v)            Evidence satisfactory to the Bank
that: (i) all conditions precedent to the consummation of any of the Cellu
Tissue Merger Transactions have been satisfied or waived; (ii) all necessary
regulatory approvals to the consummation of the Cellu Tissue Merger
Transactions have been obtained; (iii) no litigation exists relating to the
Cellu Tissue Merger Transactions; and (iv) the Cellu Tissue Merger Transactions
(excluding those described in clause (c) of the definition of “Cellu Tissue
Merger Transactions”) have been consummated in full in accordance with the
terms of the Cellu Tissue Merger Transaction Documents;

(w)          Evidence of insurance for all
insurance required by the Loan Documents; and

(x)            Such other approvals, opinions or
documents as the Bank may reasonably request.

Section
6.2            Conditions Precedent to
Effective Date; etc.  The Effective Date of  this Agreement and obligation of the Bank to
make any Loan hereunder (including any Revolving Loan or Term Loan ) or to
issue the Bonds LC Amendment hereunder shall be subject to the satisfaction of
the following conditions precedent:

(a)           Before and after giving effect to the
making of such Loan or the issuing of the Bonds LC Amendment, the
representations and warranties contained in Article VII shall be
true and correct, as though made on the date of the making of such Loan or the
issuing of the Bonds LC Amendment except that, after the delivery of any
financial statements to the Bank in accordance with Section 8.14(a)
or (d), the representations and warranties set forth in Section 7.5
shall be deemed a reference to the audited or unaudited financial statements
then most recently delivered to the Bank;

 43
 

(b)           Before and after giving effect to the
making of such Loan or the issuing of the Bonds LC Amendment, no Default or
Event of Default shall have occurred and be continuing; and

(c)           In the case of: (i) a Revolving Loan,
the Bank shall have received the Borrower’s request for a Revolving Loan as
required by Section 2.2; or (ii) a Term Loan, the Bank shall have
received the Borrower’s request for a Term Loan as required by Section 2.14
and the Term Note evidencing such Term Loan in the form provided by the Bank
appropriately completed and duly executed by the Borrower.

ARTICLE VII

REPRESENTATIONS AND WARRANTIES

To
induce the Bank to enter into this Agreement, to grant the Commitment and to
make Loans and to issue the Bonds Letter of Credit, the Borrower represents and
warrants to the Bank:

Section 7.1           Existence. Etc.
The Borrower is a limited liability company duly formed and validly existing
under the laws of the State of Minnesota. 
The Borrower has all power and authority to do business in, and is in
good standing in, all other jurisdictions where the nature of its business or
the nature of the property owned or leased by it makes such qualification
necessary, except where the failure to effect such qualification could not
reasonably be expected to cause a Material Adverse Occurrence. The Borrower has
all power and authority to own its properties.

Section 7.2            Due
Authorization, No Breach, No Liens. The execution,
delivery and performance by the Borrower of each Transaction Document to which
the Borrower is a party are within the Borrower’s powers, have been duly
authorized by all necessary action by the managing member of the Borrower, and
do not contravene (a) the Borrower’s articles of organization, certificate of
formation, operating agreement, member control agreement,  limited liability company agreement or other
organizational document, (b) any Governmental Rule or (c) any indenture, loan
or credit agreement or any other material 
agreement, lease or instrument to which the Borrower is a party or by
which it or any of its properties may be bound; and such execution, delivery
and performance do not result in or require the creation of any Lien upon or
with respect to any of the Borrower’s properties, other than Permitted
Liens.  The Borrower is not in default
under or in violation of any such law, statute, rule or regulation, order,
writ, judgment, injunction, decree, determination or award or any such
indenture, loan or credit agreement or other material agreement, lease or
instrument in any case in which the consequences of such default or violation
could reasonably be expected to cause a Material Adverse Occurrence.  No Default or Event of Default has occurred
and is continuing.

Section 7.3            Governmental
Approvals.  No
Governmental Approval is required for the due execution, delivery and
performance by the Borrower of the Transaction Documents to which it is a
party, other than those already obtained and those not yet required but
obtainable in the ordinary course as and when required. The Governmental
Approvals set forth on Schedule 7.3
attached hereto and incorporated herein by reference constitute all of the
Governmental Approvals necessary for the lawful ownership, operation and
maintenance of the Plant.

 44
 

Section 7.4            Transaction
Documents.  The
Transaction Documents to which the Borrower is a party are the valid and
binding obligations of the Borrower enforceable against the Borrower in
accordance with their respective terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws of general application affecting the enforcement of creditors’
rights or by general principles of equity limiting the availability of
equitable remedies. The Transaction Documents are in full force and effect in
all material respects and no default under any Transaction Document has
occurred and is continuing.

Section
7.5            Financial Condition.

(a)          The Borrower’s audited financial
statements as at December 31, 2005 and unaudited financial statements dated
December 31, 2006, as heretofore furnished to the Bank, have been prepared in
accordance with GAAP on a consistent basis (except, in the case of the
unaudited financial statements,  for the
omission of footnotes and prior period comparative data required by GAAP and
for variations from GAAP which in the aggregate are not material) and fairly
present the financial condition of the Borrower 
as at such dates and the results of its operations and changes in
financial position for the respective periods then ended. The Borrower has no
material liabilities which have not been disclosed in such financial statements
or otherwise disclosed in writing to the Bank. 
Since December 31, 2005, no event has occurred which could reasonably be
expected to cause a Material Adverse Occurrence.

(b)           The pro forma unaudited balance sheet
of the Borrower delivered to the Bank has been prepared on a basis in
conformity with GAAP (except for the omission of footnotes and prior period
comparative data required by GAAP and for variations from GAAP which in the
aggregate are not material and for reallocations of values with respect to
categories of assets acquired in connection with, and adjustment for actual
fees, expenses and transaction costs incurred in connection with, the Cellu
Tissue Merger Transactions) and presents fairly the financial condition of the
Borrower, assuming consummation of the Cellu Tissue Merger Transactions.

(c)           The projections provided to the Bank
have been prepared on the basis of the assumptions which are set forth
therein.  Such projections have been
prepared in good faith and represent, on the date of this Agreement, the good
faith opinion of the Borrower’s management as to the most probable course of
business of the Borrower on the basis of the assumptions which are set forth
therein.

Section 7.6            Material
Contracts.  
Neither the Borrower nor any of its property is a party to, or bound by,
any Material Contracts.

Section
7.7            Proceedings.
There is no pending or, to the best of the Borrower’s knowledge, threatened
action or proceeding which is material before any court, governmental agency or
arbitrator to which the Plant, the Borrower or any Affiliate thereof, or the
property of any of the foregoing, is or may become a party, which could, if 

 45
 

adversely
determined,  reasonably be expected to
cause a Material Adverse Occurrence or which purports to affect or challenge
the legality, validity or enforceability of any Transaction Document. All
pending or threatened proceedings or claims are disclosed on Schedule 7.7 attached hereto and
incorporated herein by reference.

 46
 

Section 7.8            Compliance
with Laws. Etc. 
The Borrower is in material compliance with all statutes and
Governmental Rules and Governmental Approvals applicable to the Borrower, its
properties and operations except to the extent that such noncompliance could
not reasonably be expected to constitute a Material Adverse Occurrence. Without
limiting the generality of the foregoing, the Plant complies in all material
respects with all applicable Governmental Approvals and Governmental Rules,
including zoning, environmental protection, use and land use and building laws,
ordinances and regulations, except to the extent that such noncompliance could
not  reasonably be expected to constitute
a Material Adverse Occurrence. The Borrower has no knowledge of any notices of
violations of any such laws, ordinances or regulations issued by any
Governmental Person having jurisdiction over the Borrower or its properties.

Section 7.9            Taxes.  The Borrower has filed all
tax returns (federal, state and local) required to be filed by it and has paid
or caused to be paid all taxes due for the periods covered thereby, including
interest and penalties, except for any such taxes, interest or penalties which
are being timely contested in good faith and by proper proceedings and in
respect of which the Borrower has set aside adequate cash (or cash equivalent)
reserves for the payment thereof.

Section 7.10         ERISA.  No Reportable Event has occurred during the
five-year period prior to the date on which this representation is made with
respect to any Plan that has resulted, or could reasonably be expected to
result, in a Material Adverse Occurrence. Each Plan has complied in all
material respects with the applicable provisions of ERISA and the Code. The
present value of all accrued benefits under all Single Employer Plans
maintained by the Borrower or any of its ERISA Affiliates (based on those
assumptions used to fund the Plans) did not, as of the last annual valuation
date prior to the date on which this representation is made, exceed the value
of the assets of such Plans by an aggregate amount greater than $100,000.00.
Neither the Borrower nor any of its ERISA Affiliates has had a complete or partial
withdrawal (as defined in Section 4201 of ERISA) from any Multiemployer Plan
that has resulted, or could reasonably be expected to result, in a Material
Adverse Occurrence. The present value (determined using actuarial and other
assumptions that are reasonable in respect of the benefits provided and the
employees participating) of the liability of the Borrower and each ERISA
Affiliate for post-retirement benefits (excluding benefits required by Section
4980B of the Code and similar Governmental Rules) to be provided to their
current and former employees under any Plans that include “welfare benefit
plans” (as defined in Section 3(1) of ERISA) does not, in the aggregate, exceed
the assets under all such Plans that are allocable to such benefits by an amount
that could reasonably be expected to result in a Material Adverse Occurrence.

Section
7.11         Business.  The sole business of the Borrower is the
operation of the Plant and the sale of Inventory.

Section
7.12         Insurance.  All insurance required by Section
8.8, in each case required to be in effect on the Effective Date, is in
full force and effect.

Section 7.13         Title
to Collateral.  The
Borrower possesses good and marketable title to the Collateral that it purports
to own, including all properties and assets referred to in 

 47
 

the most recent 
financial statements of the Borrower referred to in Section 7.5
(other than property disposed of since the date of such financial statements in
the ordinary course of business). None of the properties, revenues or assets of
any such Person is subject to a Lien, except for Liens permitted under Section
9.1.

Section 7.14         Security
Documents; Liens. 
The Security Documents: (a) create valid and first priority security
interests in the Collateral, subject only to the Liens permitted under Section
9.1; and (b) are “Permitted Liens” as defined in the Cellu Tissue Senior
Notes Indenture and are permitted under Section 6.02 of the Cellu Tissue
JPMorgan Credit Agreement; provided, however,  the Lien granted by the Borrower under the Security
Agreement may not be  permitted under the
terms of the Cellu Tissue Senior Secured Notes Indenture to the extent that
the  “Collateral” described in the
Security Agreement includes any manufacturing or other facility not located on the property subject to the Mortgage and acquired by the Borrower following the
consummation of the Cellu Tissue.

Section
7.15         Sufficiency of Rights.  All roads necessary for the full utilization
of the Plant for its intended purpose have been completed. The Borrower has all
rights and property interests that are required to enable the Borrower to
obtain all services, materials and rights required for the operation and
maintenance of the Plant.

Section 7.16         Disclosure.  No exhibit, schedule, report or other
information (unless superseded by a subsequently provided, corrected exhibit,
schedule or report or by corrected information) provided by the Borrower or any
of its Affiliates or their respective agents to the  Bank in connection with the negotiation and
execution of the Transaction Documents to which the Borrower is party and
otherwise in connection with the transactions contemplated thereby contains any
material misstatement of fact or omits to state a material fact necessary to
make the statements contained therein taken as a whole not misleading, as of
the date provided.

Section 7.17         Use
of Bond Proceeds.  No
Bond Proceeds were used to acquire any security in any transaction which is
subject to Sections 13 and 14 of the Securities Exchange Act of 1934.

Section 7.18         Margin
Stock.  The
Borrower is not engaged in the business of extending credit for the purpose of
buying or carrying margin stock (within the meaning of Regulation U issued by
the Federal Reserve Board), and no proceeds of any Loan will be used to
purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.

Section 7.19         Incorporation
of Representations and Warranties.  Each of the following representations and
warranties were true and correct when made and if any such representation and
warranty is a continuing representation and warranty under the relevant
Transaction Document as of the Effective Date, then such continuing
representation and warranty is true and correct as of the Effective Date:

(a)          all representations and warranties of
the Borrower in the Bond 

 48
 

Documents to which
the Borrower;

(b)          all representations and warranties of
the Borrower in any Cellu Tissue Senior Secured Notes Loan Documents to which
the Borrower is party or pertaining to the Borrower or any of its properties in
any Cellu Tissue Senior Secured Notes Loan Document (for purposes of providing
an example as to the scope of the representations and warranties covered by
this Section, but without limiting the terms of this Section, any
representation of warranty in any Cellu Tissue Senior Secured Notes Loan
Document pertaining to a “Subsidiary”, a “Restricted Subsidiary”, a “Subsidiary
Guarantor”, a “Grantor”, a “Mortgagor”, a “Trustor” or words to similar effect
pertaining to the Borrower shall be deemed covered by this Section);

(c)          all representations and warranties of
the Borrower in any Cellu Tissue Credit Facility Loan Document or party or
pertaining to the Borrower or any of its properties in any Cellu Tissue Credit
Facility Loan Document (for purposes of providing an example as to the scope of
the representations and warranties covered by this Section, but without
limiting the terms of this Section, any representation of warranty in
any Cellu Tissue Credit Facility Loan Document pertaining to a “Subsidiary”, a “Loan
Guarantor”, a “Loan Party”, a “Grantor”, a “Mortgagor”, a “Trustor” or words to
similar effect pertaining to the Borrower 
shall be deemed covered by this Section); and

(d)          all representations and warranties of,
or pertaining relating to, the Borrower or any of its properties in any Cellu
Tissue Merger Document.

The Borrower has no knowledge that any of the
representations and warranties made in the Transaction Documents by or on
behalf of any party thereto other than the Borrower is untrue or incorrect in
any material respect.

Section 7.20         Status.  The Borrower is not an “investment company”
or a company “controlled” by an “investment company” within the meaning of the
Investment Company Act of 1940, as amended, or an “investment advisor” within
the meaning of the Investment Company Act of 1940, as amended.

Section 7.21         Broker’s
Fees.  Except as
disclosed on Schedule 7.21 attached hereto
and incorporated herein by reference, 
the Borrower has not dealt with any Person who may be entitled to any
finder’s fee, brokerage commission, loan commission or other sum in connection
with the transactions contemplated by this Agreement. The Borrower hereby
agrees to indemnify, defend and hold harmless the Bank against any and all
loss, liability, cost or expense, including reasonable attorneys’ fees, that
such parties may suffer or sustain with respect to any finder’s fee, brokerage
commission or other sum due in connection with this Agreement.

Section 7.22         Leases;
Other Agreements. 
Except as set forth on Schedule 7.22
attached hereto and incorporated herein by reference, there are no leases or
subleases affecting the Plant. As of the date of this Agreement, there are no
contracts or agreements materially affecting the use, operation or maintenance
of the Plant.

 49
 

Section 7.23         Official
Statement. 
Intentionally Deleted.

Section 7.24         Environmental
Matters.   Except
as otherwise disclosed in the Environmental Reports listed in Schedule 1 to the
Environmental Indemnity: (a) to the best knowledge of the Borrower, there are
no facts, circumstances, conditions or occurrences regarding the Property that
could reasonably be anticipated (i) to form the basis of a Hazardous Materials
Claim against the Property, the Borrower or any of its officers, directors,
employees, or agents or, to the best knowledge of the Borrower, any other
Persons occupying or conducting operations on or about the Property, that
individually or in the aggregate could reasonably be expected to result in a
Material Adverse Occurrence, (ii) to cause the Property to be subject to any
restrictions on its ownership, occupancy, use (other than those imposed
pursuant to the Permits described in Schedule 7.3
attached hereto) or transferability under any applicable Environmental Law, or
(iii) to require the filing or recording of any notice, registration, permit or
disclosure documents under any applicable Environmental Law, except for any
necessary recording or filing of the Permits described in Schedule
7.3 attached hereto; (b) all Governmental Approvals required
under Environmental Laws to operate the Project and the Plant are identified in
Schedule 7.3 attached hereto; and
(c) the representations and warranties set forth in Section 2 of the
Environmental Indemnity are incorporated herein by reference as though fully
set forth herein.

Section 7.25         Transactions
with Affiliates. 
Except as disclosed in Schedule 7.25 attached
hereto and incorporated herein by reference, the Borrower is not a party to any
agreement with or subject to any commitment in favor of any Affiliate of the
Borrower.

Section
7.26         Ownership and Control.  Each of the Borrower’s equity holders, and
the percentage of each such equity holders’ ownership interest, is set forth in
Schedule 7.26 attached
hereto and incorporated herein. All of the issued and outstanding Equity
Interests of the Borrower are duly authorized, validly issued, fully paid and
non-assessable.  Except as set forth in
said Schedule, the Borrower has not
granted or issued, and has not agreed to grant or issue, any options, warrants
or similar rights to any Person to acquire any Equity Interests of, or other
securities convertible into, the Borrower’s Equity Interests.

Section 7.27         Indebtedness.  Except for Indebtedness permitted by Section
9.2, the Borrower does not have any Indebtedness.

Section 7.28         Guaranty or Suretyship.  Except for Contingent Obligations permitted
by Section 9.4, the Borrower is not a party to any contract of guaranty
or suretyship and none of its assets is subject to such a contract.

Section 7.29         Trademarks, Patents.  The Borrower possesses or has the right to
use all of the patents, trademarks, trade names, service marks and copyrights,
and applications therefor, and all technology, know-how, processes,
methods and designs used in or necessary for the conduct of its business,
without known conflict with the rights of others.  Schedule 7.29
attached hereto and incorporated herein by reference is a complete list of all
such patents and trademarks.

Section 7.30         Public Utility Holding Company Act.  Intentionally Deleted.

 50
 

Section 7.31         Subsidiaries.  The Borrower does not have any Subsidiaries.

Section 7.32         Partnerships and Joint Ventures.  The Borrower is not a partner (limited or
general) or joint venturer in any partnerships or joint ventures.

Section
7.33         Use of Proceeds.  The Revolving Loans will be used to pay the “Revolving
Loans” made pursuant to the Original Reimbursement Agreement, to provide
working capital to the Borrower and for other general corporate purposes.

Section 7.34         Solvency.  The Borrower is Solvent after giving effect
to the making of the Loans in the full amount available hereunder, the issuance
of the Bonds Letter of Credit, the incurrence of any other Indebtedness
pursuant to the Loan Documents, and the granting of Liens pursuant to the Loan
Documents.

Section 7.35         Contracts;
Labor Matters.  Except as disclosed on Schedule 7.35  attached hereto and
incorporated herein by reference: (a) the Borrower is not a party to any
contract or agreement, or subject to any charge, corporate restriction,
judgment, decree or order, the performance of which could reasonably be
expected to cause a Material Adverse Occurrence; (b) on the Effective Date: (i)
the Borrower is not a party to any labor dispute; and (ii) there are no strikes
or walkouts relating to any labor contracts to which the Borrower is subject.

Section 7.36         Trading with the Enemy
Act.  The execution of
this Agreement and the use of the proceeds of the Loans does not violate the
Trading with the Enemy Act of 1917, as amended, nor any of the foreign assets
control regulations promulgated thereunder or the under the International
Emergency Economic Powers Act or the U.N. Participation Act of 1945. Neither
the Borrower nor any person who owns a controlling interest in or otherwise
controls the Borrower or any Subsidiary of the Borrower is listed on the
Specially Designated Nationals and Blocked Person List or other similar lists
maintained by the Office of Foreign Assets Control (“OFAC”), the Department of
the Treasury or included in any Executive Orders.

Section 7.37         Survival of Representations. All
representations and warranties contained in this Article VII shall
survive the delivery of the Notes, the making of the Loans evidenced thereby,
the issuance of the Bonds Letter of Credit and any investigation at any time
made by or on behalf of the Bank shall not diminish the Bank’s rights to rely
thereon.

ARTICLE VIII

AFFIRMATIVE COVENANTS

From
the date of this Agreement and thereafter until the Commitment and the Bonds
Letter of Credit are terminated or expired and the Loans, the Letter of Credit
Obligations and all other Obligations of the Borrower to the Bank hereunder and
under the Notes and the other Loan Documents have been paid in full, unless the
Bank shall otherwise expressly consent in writing:

Section 8.1            Preservation
of Existence. Etc. 
The Borrower shall: (a) preserve and maintain its legal existence,
rights, franchises and privileges in the jurisdiction of its 

 51
 

incorporation except where the failure to do so can be
cured without any adverse effect on the Borrower’s rights, franchises or
privileges; and (b) qualify and remain qualified as a foreign corporation in
each jurisdiction in which such qualification is necessary or desirable in view
of its business and operations or the ownership of its properties, except where
the failure to so qualify or remain qualified could not reasonably be expected
to result in a Material Adverse Occurrence.

Section 8.2            Governmental
Approvals.  The
Borrower shall maintain in effect and comply with at all times in all material
respects, all Governmental Approvals except where non-compliance could not
reasonably be expected to result in a Material Adverse Occurrence.

Section 8.3            Maintenance
of Properties, Etc., 
The Borrower shall maintain and preserve all of its properties necessary
in the conduct of its business in good working order and condition, ordinary
wear and tear, and obsolescence, excepted.

Section 8.4            Maintenance
and Operation of the Plant.  The
Borrower shall administer, maintain, repair and operate the Plant (including
the making  from time to
time of all necessary renewals and replacements), in a sound and workmanlike
manner consistent with good engineering practice and safety standards, ordinary
wear and tear and obsolescence excepted, and substantially in accordance with
sound tissue mill industry practices and in compliance with the Bond Documents
and the Loan Documents and all applicable Governmental Approvals.

Section 8.5            Maintenance
of Security Interests. 
The Borrower shall take or cause to be taken all actions that may be
necessary or that the Bank may reasonably request
to maintain and preserve the security interests and Liens created by the
Security Documents and the priority thereof, including without limitation
executing any and all further instruments (including financing statements,
continuation statements and similar statements with respect to any of the
Security Documents) reasonably requested by the Bank for such purpose.

Section 8.6            Performance
of Transaction Documents. 
The Borrower shall: (a) perform and observe all material terms and
provisions of each Bond Document, each Cellu Tissue Senior Secured Notes Loan
Document and each Cellu Tissue Credit Facility Loan Document to be performed or
observed by the Borrower; (b); maintain each Bond Document in full force and
effect; and (c) enforce each Bond Document in accordance with its terms and
take all actions concerning enforcement of each Bond Document as the Bank may
from time to time reasonably request.

Section
8.7            Payment of Taxes. Etc.  The Borrower shall pay and discharge all
taxes, assessments and governmental charges or levies imposed upon any
properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims (including claims for labor, materials and
supplies to the extent Liens relating thereto are not Permitted Liens), which,
if unpaid, might become a lien or charge upon any properties of the Borrower,
provided that the Borrower shall not be required to pay any such tax,
assessment, charge, levy or claim which is being timely contested in good faith
and by proper proceedings and in respect of which the Borrower has set aside
adequate cash (or cash equivalent) reserves for the payment thereof; provided,
however that, in all events, the 

 52
 

Borrower shall pay
or cause to be paid all such taxes, assessments, charges or levies forthwith
upon the commencement of foreclosure of any Lien which may have attached as
security therefor.

Section 8.8            Maintenance
of Insurance.

(a)           General Requirements.  The Borrower shall maintain or cause to be
maintained in effect, in amounts, from carriers with an A.M. Best Company Key
Rating Guide of “A-IX” or better and authorized to do business in the State of
Wisconsin, and in form satisfactory to the Bank, the insurance described in the
Bond Documents and such other insurance as the Bank shall reasonably request
from time to time, and shall maintain such additional insurance as set forth in
Schedule 8.8 attached hereto and
incorporated herein by reference.

(b)           Certificates of Insurance.  By no later than 10 days prior to the then
current expiration date of the polices shown on any insurance certificate
delivered by the Borrower to the Bank, the Borrower shall deliver to the Bank
updated certificates of insurance for all insurance required under any Bond
Document or Loan Document. Such certificates shall be executed by each
respective insurer or by an authorized representative of each insurer.  Such certificates shall identify the
underwriters or companies issuing such insurance, the type of insurance, the
policy term and shall specifically list the special provisions enumerated for
such insurance in any of the Bond Documents or Loan Documents.

(c)           Insurance Reports.  Concurrently with the delivery of the
certificates required in (b) above at least 10 days prior to the expiration of
any insurance policy, the Borrower shall deliver to the Bank a letter from the
Borrower’s insurance broker, signed by an officer of the broker, stating that
all premiums then due have been paid and that, in the opinion of such broker,
the Borrower’s insurance then carried or to be renewed meets or exceeds the
requirements of the Bond Documents and/or the Loan Documents.

(d)           Proceeds of Insurance.  All proceeds of any insurance required
hereunder shall be applied in accordance with the terms of the Security
Documents.

(e)           Certain Requirements Regarding
Liability Policies. 
Liability policies covering general liability and automobile liability
shall include endorsements providing (i) for additional insured coverage for
the Bank, and their respective  officers,
directors, employees, agents and representatives; (ii) that insurance for the
Bank as additional insured is primary insurance and any other insurance
available to the Bank shall apply as excess; (iii) thirty days prior written
notice of cancellation by certified mail in the event of cancellation (other
than cancellation for nonpayment of premium, for which the notice period may be
ten days); (iv) a cross-liability or severability of interests provision
stipulating that insurance available to the Bank as an insured applies
separately with respect to insurance available to other insureds as though
separate policies had been issued to each; and (v) a waiver of subrogation by
insurers in favor of the Bank.

 53

(f)           Certain Requirements Regarding
Property Insurance. 
Property policies (including builder’s risk and boiler and machinery
coverage) covering real and personal property of the Plant shall include, (i) a
lender’s loss payable endorsement or a standard first mortgage endorsement in
favor of the Bank, (ii) thirty days prior written notice of cancellation in the
event of cancellation of any policy and (iii) a waiver of subrogation by
insurers in favor of the Bank.

(g)          Amendment of Coverage.  The Bank, in its reasonable discretion, may
at any time amend the amount and scope of coverage of any of the insurance
policies required hereunder to cover such risks that could not have been
foreseen by the parties hereto on the date of this Agreement and which, in the reasonable
judgment of the Bank, renders such coverage materially inadequate; provided,
however, that the Bank shall not require the Borrower to obtain
insurance that is not reasonably commercially available or which is not
commonly maintained by businesses in the same line of business and geographic
location as the Borrower.

Section
8.9            Keeping of Records and
Books of Account. 
The Borrower shall keep adequate records and books of account, in which
full and correct entries shall be made in accordance with generally accepted
accounting principles of all financial transactions of the Borrower, the assets
and business of the Borrower and all costs and expenses in connection with the
Plant.

Section 8.10         Inspection
Rights.  The
Borrower shall, at any reasonable time and from time to time, permit the Bank
and its agents and representatives, upon reasonable prior notice, to examine
and make copies of and abstracts from the records and books of account of, and
visit and inspect the properties of, the Borrower and to discuss the affairs,
finances and accounts of the Borrower and of the Plant with the Borrower and
any of its officers or directors.  The
Borrower agrees to pay, or reimburse the Bank for the payment of, the Bank for
its reasonable fees and out-of-pocket expenses incurred with respect to such
examinations for: (a) one (1) examination and inspection during any fiscal year
(the pre-closing examination and inspection not counting as inspection during
the current fiscal year); (b) two (2) examinations and inspections during any
fiscal year in which the Borrower completes a material acquisition or any
fiscal year thereafter; (c) any examination and inspection that reveals that
the Borrower’s financial reports most recently delivered to the Bank contain
significant errors or discrepancies; and/or (d) any examination and inspection
conducted at any time after the occurrence and during the continuance of an
Event of Default.  None of the foregoing
shall imply that the Bank is under any duty to examine any books and records.
Any inspection or examination by the Bank is for the sole purpose of protecting
the Bank’s security and preserving the Bank’s rights under the Loan
Documents.  No Default or Event of
Default will be deemed waived by any such inspection.

Section 8.11         Compliance
with Laws.  The
Borrower shall comply in all material respects with all applicable Governmental
Rules, including all applicable federal, state and local energy and labor laws
and similar laws, rules, regulations and orders except where such non-compliance
could not reasonably be expected to result in a Material Adverse Occurrence.

 54
 

Section 8.12         Material
Contracts.  Intentionally
Deleted.

Section
8.13         Banking Accounts.
The Borrower shall maintain all of its banking accounts with the Bank except that
the Borrower may maintain its payroll account no. 124599 and its health claims
account no. 126332 with Pioneer National Bank, Ladysmith, Wisconsin so long as
such bank has entered into a deposit account control agreement with the Bank.

Section 8.14         Reporting
Requirements.  The Borrower shall furnish to the Bank, in
each case in form and substance reasonably acceptable to the Bank:

(a)           as soon as available and in any event
within 30 days after the end of each fiscal month, (i) a copy of the unaudited
financial statements of the Borrower prepared in conformity with GAAP on a
consistent basis (except for the omission of footnotes and prior period
comparative data required by GAAP and for variations from GAAP which in the
aggregate are not material) consisting of a balance sheet of the Borrower as of
the end of such month and statements of income, cash flows and retained
earnings of the Borrower for the period commencing at the end of the previous
fiscal year and ending with the end of such month, setting forth in each case
in comparative form the corresponding figures for the corresponding period of
the preceding fiscal year and the budgets for such period, certified by a
Financial Officer of the Borrower, and (ii) a Borrowing Base Certificate (the “Borrowing
Base Certificate”) in the form of Exhibit D
attached hereto duly completed and signed by a Financial Officer of the
Borrower;

(b)           as soon as available and in any event
within 30 days after the end of each fiscal quarter of the Borrower, a
Compliance Certificate (the “Compliance Certificate”)  in the form of Exhibit E attached hereto  certified by a Financial Officer of the
Borrower;

(c)           as soon as available and in any event
by the 15th day of 
each fiscal year, commencing on such day in calendar year 2008, a copy
of the operating budget of the Borrower for the then current fiscal year,
certified by a Financial Officer of the Borrower;

(d)           as soon as available and in any event
within 120 days after the end of each fiscal year of the Borrower, a copy of
the annual audited financial statements for such year for the Borrower prepared
in conformity with GAAP, containing financial statements of the Borrower for
such year and statements of income, cash flows and retained earnings,  setting forth in each case in comparative
form corresponding figures from the previous annual audit, certified without
qualification by independent certified public accountants of recognized
standing selected by the Borrower and acceptable to the Bank together with (i)
any management letters, management reports or other supplementary comments or
reports to the Borrower or its board of directors furnished by such
accountants; (ii) a Compliance Certificate certified by a Financial Officer of
the Borrower; and (iii) a statement by the accounting firm performing such
audit stating whether they obtained knowledge during the course of their
examination of such financial statements of any Default or Event of Default
(which certificate may be limited to the extent required by accounting rules or
guidelines and internal policies of such accounting firm);

 55
 

(e)           as soon as possible and in any event
within 5 days after the Borrower becomes aware of the occurrence of any Default
or Event of Default continuing on the date of such statement, a statement of an
authorized officer of the Borrower setting forth details of such Default or
Event of Default and the action which the Borrower has taken and proposes to
take with respect thereto;

(f)            as soon as possible and in any event
within 5 days after the Borrower becomes aware of the institution of any action
or proceeding affecting the Borrower or the Plant before any court,
Governmental Person or arbitrator which, if determined adversely to the
Borrower or the Plant, as applicable, would materially adversely affect the
performance of the Transaction Documents or which purports to affect the
legality, validity or enforceability of any of the Transaction Documents, a
statement of an authorized officer of the Borrower setting forth details of
such action or proceeding and the action which the Borrower has taken and
proposes to take with respect thereto;

(g)           upon preparation for recording,
copies of any documents granting easements, licenses, or other similar rights
benefiting or encumbering the Property;

(h)           upon delivery or receipt thereof, a
copy of any notice required to be delivered by or to the Borrower under any
Bond Document;

(i)            (i) as soon as possible and in any
event within 30 days after the Borrower knows or has reason to know that any
Termination Event with respect to any Single Employer Plan has occurred, a
statement of a Responsible Officer of the Borrower describing such Termination
Event and the action, if any, that the Borrower proposes to take with respect
thereto; (ii) promptly and in any event within ten Business Days after receipt
thereof by the Borrower or any of its ERISA Affiliates from the PBGC, copies of
each notice received by the Borrower or any of its ERISA Affiliates of the PBGC’s
intention to terminate any Plan or to have a trustee appointed to administer
any Plan; (iii) promptly and in any event within 30 days after the filing
thereof with the Internal Revenue Service, copies of each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) with respect to each
Single Employer Plan maintained for or covering employees of the Borrower if
the present value of the accrued benefits under the Single Employer Plan
exceeds its assets by an amount in excess of $1,000,000.00 and (iv) promptly
and in any event within fifteen Business Days after receipt thereof by the
Borrower or any of its ERISA Affiliates from a sponsor of a Multiemployer Plan
or from the PBGC, a copy of each notice received by the Borrower or any of its
ERISA Affiliates concerning the imposition or amount of withdrawal liability
under Section 4202 of ERISA or indicating that such Multiemployer Plan may
enter reorganization status under Section 4241 of ERISA;

(j)            concurrently with delivery thereof
to the Trustee or any Governmental Person, any report, certificate, request,
statement, notice, instrument or opinion of counsel required to be delivered by
the Borrower pursuant to any Bond Document, in each case addressed to the Bank;

 56
 

(k)           promptly, and any event by no later
than five (5) Business Days prior to the date on which Cellu Tissue proposes to
consummate any transaction described in clause (a) of the definition of “Cellu
Tissue Prepayment Event”, notify the Bank of Cellu Tissue’s intent to do so
and provide the Bank with copies of the relevant documentation governing such
transaction or, in each case, cause Cellu Tissue to do so;

(l)            within five (5) Business Days after
making a Permitted Other Distribution or Permitted Debt Payment, a certificate
from a Financial Officer of the Borrower certifying compliance with Section
9.7(b)(ii) or Section 9.15(a)(iv), as the case may be; and

(m)          such other information respecting the
condition or operations, financial or otherwise, of the Borrower, any other
Loan Party or the Plant as the Bank may from time to time reasonably request.

Section 8.15         Environmental
Matters.  The
Borrower shall at all times: (a) not cause or permit the Property to be in
violation of any Environmental Law which violation would have a material effect
on the ability of the Borrower to perform its obligations under the Bond
Documents or the Loan Documents; and (b) promptly upon the Borrower’s knowledge
thereof, advise the Bank in writing of (i) any and all enforcement, cleanup,
removal, mitigation or other governmental or regulatory actions affecting the
Property instituted in writing against the Borrower pursuant to any
Environmental Laws and (ii) all claims made in writing by any third party
against the Borrower or the Property relating to damage, contribution, cost
recovery, compensation, loss or injury resulting from any Hazardous Substance
Activity at or from the Property in violation of applicable Environmental Laws
(the matters set forth in clauses (a) and (b) above are hereinafter referred to
as “Hazardous Materials Claims”).  In
addition, the Borrower shall (i) comply in all material respects and cause all
other Persons constructing, occupying or conducting operations on or about the
Property, to comply in all material respects with all Environmental Laws now or
hereafter applicable to the Property; (ii) obtain, at or prior to the time
required by applicable Environmental Laws, all Governmental Approvals required
pursuant to applicable Environmental Law for the Borrower’s operations, and the
construction, operation and maintenance of the Plant, and maintain such
Governmental Approvals in full force and effect; (iii) not generate, use,
treat, recycle, store, release or dispose of, or permit the generation, use,
treatment, recycling, storage, release or disposal of Hazardous Substances on
the Property, or transport or permit the transportation of Hazardous Substances
to or from the Property, other than in material compliance with all applicable
Environmental Laws; (iv) conduct and complete any reasonable investigation,
study, sampling and testing and undertake any reasonable cleanup, removal,
remedial or other action necessary to remove and clean up all Hazardous
Substances released at, on, in, under or emanating from the Property for which
the Borrower is liable, in accordance with and to the extent necessary under
all applicable Environmental Laws; and (v) provide the Bank with written notice
of (A) any fact, circumstance, condition, occurrence or release at, on, under
or from the Property that results in material noncompliance with any
Environmental Law or that has resulted or 

 57
 

could reasonably result in personal injury or material
property damage claims or could have a material adverse effect on the Borrower,
such notice to be given promptly after the condition is discovered by or made
known to the Borrower and (B) any pending or threatened Hazardous Materials
Claim against the Borrower or any other Persons occupying or conducting
operations on the Property, such notice to be given promptly after such
Hazardous Materials Claim is commenced or threatened against the Borrower. All
such notices shall describe in reasonable detail the nature of the claim,
investigation, condition, incident, or occurrence and the Borrower’s response
thereto. In addition, the Borrower will provide the Bank with copies of all
written communications with any Governmental Person relating to any material
violation by the Borrower of any applicable Environmental Law or any Hazardous
Materials Claim commenced against the Borrower promptly after the giving or
receiving of any such written communications. The Borrower shall also provide
such detailed reports of any Hazardous Materials Claim as may be reasonably
requested by the Bank.

Section 8.16         Further
Assurances.  The
Borrower shall, at the request of the Bank, execute, deliver and furnish such
documents or take such further action as the Bank may reasonably deem necessary
or desirable to evidence the Senior Obligations, perfect the security therefor,
or otherwise carry out the terms of this Agreement or any other Loan Document.

Section
8.17         ERISA.  The Borrower shall maintain each Single
Employer Plan in material compliance with all applicable requirements of ERISA
and of the Code and with all applicable rulings and regulations issued under
the provisions of ERISA and of the Code.

Section 8.18         Amortization Schedule.  The Borrower shall cause the Bonds to be
retired in accordance with the amortization schedule set forth in Schedule 8.18 attached hereto and
incorporated herein by reference (the “Amortization Schedule”).

Section 8.19         Consent
to Optional Redemption. The Borrower hereby agrees that,
prior to the effectiveness of any election by the Borrower to exercise its
right of optional redemption of the Bonds pursuant to the Indenture and the
Bond Loan Agreement (excluding redemptions required by Section 8.18 or made in
connection with a Cellu Tissue Prepayment Event), the Borrower will obtain the
Bank’s prior written consent to such optional redemption of the Bonds, and if
consented to by the Bank, the Bank shall execute such written consents with
respect thereto as may be required by the Trustee under the Indenture.  The Bank shall not withhold its consent to
such optional redemption of the Bonds so long as the Borrower shall satisfy the
Bank that the Borrower will have funds available to it in an amount sufficient
to reimburse the Bank for the Drawing under the Bonds Letter of Credit to pay
the redemption price of such Bonds and that such funds will be on deposit with
the Trustee or the Bank at such time as would enable the Bank to be reimbursed
for Drawings made in connection with such redemption on the proposed redemption
date and to pay the Optional Redemption Fee required by Section 2.9(b),
if applicable.  The Borrower further
agrees to take all action requested by the Bank to cause Bonds to be redeemed
pursuant to Section 4.2(c) or 8.18 of this Agreement.

Section 8.20         Replacement
of Trustee.  Upon
the Bank’s written request, the Borrower shall take such action as may be
necessary to remove the Trustee pursuant to 

 58
 

Section 1107 of the Indenture, in which case the
$3,000.00 Transfer Fee shall be waived.

ARTICLE
IX

NEGATIVE COVENANTS

From
the date of this Agreement and thereafter until the Commitment and the Bonds
Letter of Credit are terminated or expired and the Loans and all other Obligations
of the Borrower to the Bank hereunder and under the Notes and the other Loan
Documents have been paid in full, unless the Bank shall otherwise expressly
consent in writing:

Section
9.1            Liens. Etc.  The Borrower shall not create or suffer to
exist any Lien on any asset of the Borrower other than:

(a)           Liens under the Security Documents,
or permitted thereby or by this Agreement;

(b)           Liens securing Purchase Money Indebtedness incurred in connection with
Capital Expenditures made after the date of this Agreement by way of purchase
money security interest, purchase money mortgage, conditional sale or other
title retention agreement, Capitalized Lease or other deferred payment
contract, and attaching only to the property being acquired, provided that the
Indebtedness secured thereby is permitted as a Capital Expenditure at the time
of such incurrence and does not exceed the lesser of the purchase price or the
fair market value of such property at the time of its acquisition;

(c)           Liens on equipment leased in a manner
not prohibited by any Transaction Document;

(d)           Liens listed on Schedule
7.13 to this Agreement;

(e)           Liens under the Cellu Tissue Senior
Secured Notes Loan Documents;

(f)            Liens under the Cellu Tissue Credit
Facility Loan Documents; and

(g)           Permitted Liens.

Section
9.2            Indebtedness.  The Borrower shall not
create or suffer to exist any Indebtedness except:

(a)           Indebtedness under this Agreement;

(b)           Current liabilities, other than for
borrowed money, incurred in the ordinary course of business;

(c)           Contingent Obligations under the
Cellu Tissue Senior Secured Notes Subsidiary Guarantee;

(d)           Contingent Obligations under the
Cellu Tissue Credit Facility Loan Guaranty;

 59
 

(e)           Other Indebtedness existing on the
date of this Agreement and disclosed on Schedule
9.2 attached hereto and incorporated herein by reference and any
extension, refinancing or renewal thereof that: (i) does not include an
increase in the principal amount thereof; and/or (ii) does not impose any
standard of financial performance on the Borrower that is greater than the
standards of financial performance set forth in this Agreement;

(f)            Purchase Money Indebtedness and
Capital Leases so long as no Event of Default has occurred and is continuing on
the date of the incurrence of such Indebtedness;

(g)           Indebtedness of the Borrower to Cellu
Tissue; and

(h)           Indebtedness consisting of
endorsements for collection, deposit or negotiation and warranties of products
or services, in each case incurred in the ordinary course of business.

Section
9.3            Lease Obligations.   Intentionally Deleted.

Section 9.4            Guaranty
Obligations. 
Except as provided in the Loan Documents or for Indebtedness permitted
by Section 9.2, the Borrower shall not: (a) be or become liable on any
Contingent Obligations; or (b) agree to maintain the net worth or working
capital of, or provide funds to satisfy any other financial test applicable to,
any other Person.

Section
9.5            Mergers, Restriction on
Fundamental Changes, Etc. 
The Borrower shall not liquidate or dissolve, or merge into or
consolidate with or into, or acquire all or substantially all of the assets of,
any Person, except as contemplated in the Cellu Tissue Merger Transactions. The
Borrower shall not permit any material amendment of its organizational
documents, except as contemplated in the Cellu Tissue Merger Transactions.

Section 9.6            Sales, Etc. of Assets.  The Borrower shall not, nor shall it permit
any Person to, whether by operation of law or otherwise, sell, assign, lease,
transfer or otherwise dispose of all or any substantial part of its assets
(whether now owned or hereafter acquired) to any Person, except that the
Borrower may sell any of its assets:

(a)          dispositions of Inventory, or used,
worn-out or surplus Equipment, all in the ordinary course of business;

(b)          the sale of Equipment to the extent
that such Equipment is exchanged for credit against the purchase price of
similar replacement Equipment, or the proceeds of such sale are applied with
reasonable promptness to the purchase price of such replacement Equipment; or

(c)          other dispositions of property during
the term of this Agreement so long as the Net Proceeds to be obtained from any
such transaction (or related series 

 60
 

of transactions)
does not exceed $100,000.00 or the aggregate Net Proceeds determined  from all such transactions in any fiscal year
does not exceed $100,000.00.

Section 9.7           Restricted
Payments.  The
Borrower shall not declare or make, or agree to pay or make, directly or
indirectly, any Restricted Payment, or incur any obligation (contingent or
otherwise) to do so, except:

(a)                           the Borrower may
declare and pay dividends with respect to its common stock payable solely in
additional shares of its common stock;

(b)         so long as no Default or Event of
Default has occurred and is continuing at the time of a proposed payment of a
Permitted Tax Distribution or Permitted Other Distribution or could reasonably
be expected to result from such payment, the Borrower may:

(i)               make distributions (the “Permitted
Tax Distributions”) to its member for the sole purpose of paying the tax
liabilities of the Borrower’s member resulting from the reported net income of
the Borrower so long as the Borrower is a pass-through tax entity under the
Code;  provided, however, that:
(A) such member’s federal and state income tax liability shall be computed on
the basis of the highest marginal tax rates under the Code and the laws of the
State of Minnesota; (B) Permitted Tax Distributions shall be paid in estimated
quarterly installments contemporaneously with its member’s obligations to pay
estimated income taxes based upon the Borrower’s annualized income through the
end of its fiscal month immediately preceding such tax installment’s due date
and also contemporaneously with such member’s filing of its federal and state
income tax returns if the estimated Permitted Tax Distributions paid for any of
the Borrower’s fiscal years are not sufficient to pay such member’s actual
income tax liability  computed at
the highest marginal rates based on its share of the Borrower’s actual taxable income
for such fiscal year as disclosed by copies of the Borrower’s tax returns and
related Schedules K-1 for such fiscal year delivered to the Bank pursuant to
this Agreement; and (C) if the Permitted Tax Distributions actually paid with
respect to any of the Borrower’s fiscal years exceed the Permitted Tax
Distributions permitted by this Section based upon the Borrower’s actual
taxable net income as disclosed by copies of such tax returns and schedules
described above, then the Borrower shall immediately recover the excess amount
from the recipient and shall not pay any further Permitted Tax Distributions to
any Person until such excess amount is recovered; and/or

(ii)         the Borrower may declare and pay
other dividends or distributions (the “Permitted Other Distributions”) with
respect to its Equity Interests; provided that: (A) immediately prior to and
after giving effect to a proposed Permitted Other Distribution, neither any
Revolving Loan nor any Indebtedness described in Section 9.2(g) shall be
outstanding; and (B) the excess (such excess being the “Excess Availability”)
of the Borrowing Base 

 61
 

over the aggregate outstanding principal amount of the
Revolving Loans as of the Borrower’s then most recent fiscal month-end was at
least $1,000,000.00.

Section 9.8            Investments
in Other Persons. 
Other than Permitted Investments, the Borrower shall not make any loan
or advance to any Person or purchase or otherwise acquire any capital stock,
obligations or other securities of, make any capital contribution to, or otherwise
invest in, any Person (other than the Borrower).

Section
9.9            Change in Nature of
Business.  The
Borrower shall not engage in any business other than the operation of the Plant
or make any material change in the nature of its business as carried on at the
date hereof.

Section 9.10         Change of Fiscal Year.  After changing its method of determining its
fiscal year and interim fiscal months and quarters to coincide with Cellu
Tissue’s, the Borrower shall not make any further change.

Section 9.11         Plans.  The Borrower shall not permit any condition to
exist in connection with any Single Employer Plan that could reasonably  be expected to constitute grounds for the
PBGC to institute proceedings to have such Single Employer Plan terminated or a
trustee appointed to administer such Single Employer Plan; permit any Single
Employer Plan to terminate under any circumstances that would cause the Lien
provided for in Section 4068 of ERISA to attach to any property, revenue or
asset of the Borrower or any of its ERISA Affiliates; or permit the underfunded
amount of any Single Employer Plan benefits guaranteed under Title IV of ERISA
to exceed $50,000.00.

Section 9.12         Subsidiaries, Partnerships and Joint
Ventures.  The
Borrower shall not: (a) form or acquire any corporation or company which would
thereby become a Subsidiary; or (b) form or enter into any partnership as a
limited or general partner or form or enter into any joint venture.

Section
9.13         Restrictive Agreements.  The Borrower shall not directly or indirectly,
enter into, incur or permit to exist any agreement or other arrangement that
prohibits, restricts or imposes any condition upon:

(a)           the
ability of the Borrower to create, incur or permit to exist any Lien upon any
of its property or assets in favor of the Bank;

(b)           the
Bank’s right to impose the conditions set forth in this Agreement upon the
Borrower’s ability to pay dividends or distributions with respect to its Equity
Interests or to repay loans or advances made to the Borrower by Cellu Tissue;

provided
that:

(x)            the foregoing shall not apply to:

(i)            restrictions and conditions imposed
by law or by any Loan 

 62
 

Document,

(ii)           restrictions and conditions existing
on the date hereof identified on Schedule 9.13
attached hereto and incorporated herein by reference including the Cellu Tissue
Senior Secured Notes Indenture and the Cellu Tissue JPMorgan Credit Agreement; provided
further, that in no event shall any such restriction or condition be
breached or violated by: (A) the Borrower’s incurrence of the Indebtedness
under this Agreement and the grant of Liens in its property pursuant to the
Loan Documents; or (B) the Borrower’s performance of its obligations under the
Loan Documents; or (C) the Borrower’s incurrence of any Indebtedness to
refinance the Indebtedness incurred under this Agreement so long as: (1) the
terms of such re-refinancing Indebtedness comply with any requirement then
imposed by the Cellu Tissue Senior Secured Notes Loan Documents and the Cellu
Tissue Credit Facility Loan Documents for permitted re-financing Indebtedness;
(2) with respect to all Loans and Letter of Credit Obligations, the Liens
securing such re-financing Indebtedness shall be substantially the same as those created by the Security
Documents; and (3) the applicable restrictions described in Section
9.13(b) in the documentation for the re-financing Indebtedness are not
materially more restrictive, when taken as a whole, than the applicable
restrictions in this Agreement; and

(iii)          customary restrictions and conditions
contained in agreements relating to the sale of the Borrower pending such sale;
and

(y)           clause (a) of the foregoing shall not
apply to: (i) restrictions or conditions imposed by any agreement relating to
secured Indebtedness permitted by this Agreement if such restrictions or
conditions apply only to the property or assets securing such Indebtedness; and
(ii) customary provisions in leases and other contracts restricting the
assignment thereof.

Section 9.14         Payment Terms.  The Borrower shall not materially change its
selling terms of payment on Accounts as in effect on the date of this Agreement
in any manner that materially affects the value of the Accounts as collateral
for the Obligations or provide dating terms that exceed 90 days after the
relevant invoice date.

Section 9.15         Transactions with Related Parties.
The Borrower shall not: (a) permit the direct or indirect transfer,
distribution or payment of any of its funds, assets or property to any Related
Party, except that the Borrower may pay: 
(i) bona fide employee compensation (including benefits) to Related
Parties for services actually rendered to the Borrower; (ii) expenses
incurred by an employee in the ordinary course of business; (iii) expenses
or rents for services or property or the use thereof allocated to the Borrower;
provided, however, that all such payments pursuant to subsections
(a)(i), (ii) and (iii) shall not exceed the amount which would be payable in a
comparable arm’s length transaction with a third party who is not a Related
Party; (iv) repayment of Indebtedness permitted by Section 9.2(g) (such
repayments being “Permitted Debt Payments”) so long as: (A) no Default or Event
of Default has occurred and is continuing at the time of the proposed 

 63
 

Permitted Debt
Payment; (B) immediately prior to and after giving effect to a proposed
Permitted Debt Payment, no  Revolving
Loan shall be outstanding; and (C) the Excess 
Availability shall have been at least $1,000,000.00; (b) lend or advance
money, credit or property to any Related Party; (c) invest in (by capital
contribution or otherwise) or purchase or repurchase any stock or indebtedness,
or any assets or properties, of any Related Party except otherwise permitted by
other subsections of this Section; or (d) guarantee, assume, endorse or
otherwise become responsible for, or enter into any agreement or instrument for
the purpose of discharging or assuming (directly or indirectly, through the
purchase of goods, supplies or services or otherwise) the indebtedness,
performance, capability, obligations, dividends or agreement for the furnishing
of funds of any Related Party or any officer, director or employee thereof
except for the Contingent  Obligations
permitted by Section 9.4.

Section 9.16         Unconditional Purchase Obligations.  The Borrower shall not enter into or be a
party to any contract for the purchase or lease of materials, supplies or other
property or services if such contract requires that payment be made by it
regardless of whether or not delivery is ever made of such materials, supplies or
other property or services.

Section
9.17         Use of Proceeds.  The Borrower shall
not permit any proceeds of the Loans to be used, either directly or indirectly,
for the purpose, whether immediate, incidental or ultimate, of “purchasing or
carrying any margin stock” within the meaning of Regulation U of the
Federal Reserve Board, as amended from time to time, and furnish to the Bank
upon its request, a statement in conformity with the requirements of Federal
Reserve Form U-l referred to in Regulation U.

Section 9.18         Leverage
Ratio.  The
Borrower shall not permit, as of any Quarterly Measurement Date, the Leverage
Ratio to be greater than 3.5 to 1.0.

Section 9.19         Fixed
Charge Coverage Ratio.  The Borrower shall not permit, as of
any Quarterly Measurement Date, the Fixed Charge Coverage Ratio to be less than
1.0 to 1.0.

Section
9.20         Capital Expenditures.  The
Borrower shall not make any Capital Expenditure if, after giving effect
to such Capital Expenditure, the aggregate Capital Expenditures made by the
Borrower during any of its fiscal years would exceed $3,000,000.00.

Section 9.21         Sale and Lease.  The
Borrower shall not enter into any agreement providing for the leasing by
the Borrower of property which has been or is to be sold or transferred by the
Borrower to the lessor thereof, or which is substantially similar in purpose to
property so sold.

Section
9.22         Bonds Interest Rate Mode
Election.  The
Borrower shall not convert the interest rate on the Bonds from the “Variable
Rate” to the “Adjusted Interest Rate” permitted by Section 302 of the
Indenture.

Section 9.23         Bond Status.  The Borrower will not take any action or fail
to take any action within its reasonable control that shall cause the Rating
Agency to reduce the 

 64
 

rating on the Bonds. 
The Borrower shall not be responsible for any change in such rating of
the Bonds resulting from the Bank’s actions or a change in the rating of the
Bank.

Section 9.24         Bond
Documents.  Except
as may be required to maintain the tax-exempt status of the Bonds, the Borrower
will not amend, modify or terminate, or agree to amend, modify or terminate any
Bond Document. Unless approved by the Bank in writing, the Borrower shall not
consent to the appointment of any successor to the Trustee or the Paying Agent
and shall not appoint or consent to the appointment of any other agent
appointed pursuant to the Indenture or any additional Paying Agents or other
such agents with respect to the Bonds.

Section 9.25         Certain
Transaction Documents. 
The Borrower will not amend, modify, or
supplement any provision of, or waive any other party’s compliance with any of
the terms of any Cellu Tissue Merger Document to which the Borrower or any of
its Subsidiaries is a party in any manner that: (a) requires the Borrower or
any of its Subsidiaries to pay any additional consideration under such Cellu
Tissue Merger Document or otherwise imposes any financial obligation or burden
on the Borrower of any of its Subsidiaries; (b) could reasonably be expected to
result in a Material Adverse Occurrence; or (c) is materially adverse to the
rights and benefits of the Bank under the Loan Documents.

ARTICLE
X

EVENTS OF DEFAULT AND REMEDIES

Section 10.1         Events of Default.  The occurrence of any one or more of the
following events shall constitute an Event of Default upon the expiration of
the cure period, if any, described in the relevant event:

(a)           The Borrower shall fail to make when
due, whether by acceleration or otherwise, (i) any payment of principal
of, or interest on, any Note; (ii) any Letter of Credit Obligation; or
(iii) any fee or other amount required to be made to the Bank pursuant to
any Loan Document; or

(b)           Any representation or warranty made
or deemed to have been made by or on behalf of any Loan Party in any of the
Loan Documents or by or on behalf of any Loan Party in any certificate,
statement, report or other writing furnished by or on behalf of such Loan
Party  to the Bank pursuant to the Loan
Documents shall prove to have been false or misleading in any material respect
on the date as of which the facts set forth are stated or certified or deemed
to have been stated or certified; or

(c)           The Borrower shall fail to comply
with Section 8.1(a), Section 8.8(a) or (b), Section
8.14(e), or any Section of Article IX; or

(d)           Any Loan Party shall fail to comply
with any agreement, covenant, condition, provision or term contained in the
Loan Documents on its part to be performed (and such failure shall not
constitute an Event of Default under any of the other provisions of this Section
10.1) and such failure to comply shall continue for 30 calendar days
after the earlier to occur of: (i) the Borrower’s receipt of notice 

 65
 

of such failure from the Bank; or (ii) the date on
which the Borrower is required to give notice of an Event of Default to the
Bank pursuant to Section 8.1(e); or

(e)           Any Loan Party shall become insolvent
or shall generally not pay its debts as they mature or shall apply for, shall
consent to, or shall acquiesce in the appointment of a custodian, trustee or
receiver of any Loan Party or for a substantial part of its property or, in the
absence of such application, consent or acquiescence, a custodian, trustee or
receiver shall be appointed for any Loan Party or for a substantial part of its
property and shall not be discharged within 30 days; or

(f)            Any bankruptcy, reorganization, debt
arrangement or other proceedings under any bankruptcy or insolvency law shall
be instituted by or against any Loan Party and, if instituted against such Loan
Party, shall have been consented to or acquiesced in by such Loan Party, or
shall remain undismissed for 60 days, or an order for relief shall have been
entered against any Loan Party, or any Loan Party shall take any corporate
action to approve institution of, or acquiesced in, such a proceeding; or

(g)           Any dissolution or liquidation
proceeding shall be instituted by or against any Loan Party and, if instituted
against any Loan Party, shall be consented to or acquiesced in by such Loan
Party or shall remain for 60 days undismissed, or any Loan Party shall take any
corporate action to approve institution of, or acquiescence in, such a
proceeding; or

(h)           A judgment or judgments (other than
judgment(s) that are covered by insurance where the insurance company has not
reserved its rights against the Borrower with respect to the insurance company’s
payment of such judgment) for the payment of money in excess of the sum of
$250,000.00 in the aggregate shall be rendered against the Borrower and the
Borrower shall not discharge the same or provide for its discharge in accordance
with its terms, or procure a stay of execution thereof, prior to any execution
on such judgments by such judgment creditor, within 30 days from the date of
entry thereof, and within said period of 30 days, or such longer period during
which execution of such judgment shall be stayed, appeal therefrom and cause
the execution thereof to be stayed during such appeal; or

(i)            (i) The Borrower or any ERISA
Affiliate institutes steps to terminate any Single Employer Plan if, in order
to effectuate such termination, the Borrower or any ERISA Affiliate would be
required to make a contribution to such Single Employer Plan, or would incur a
liability or obligation to such Single Employer Plan, in either case, in excess
of $250,000.00, or the PBGC terminates any Single Employer Plan if such
termination causes the Borrower or any of its ERISA Affiliates to incur any
liability or obligation in excess of $250,000.00; or (ii) the Borrower or any
ERISA Affiliate incurs any liability in excess of $250,000.00 in connection
with the withdrawal from any Multiemployer Plan; or

(j)            The maturity of any Indebtedness of
the Borrower (other than Indebtedness under this Agreement or the other Loan
Documents or the Cellu Tissue Senior Secured Notes Loan Documents or the Cellu 

 66
 

Tissue Credit Facility Loan Documents) in the
aggregate amount of more than $250,000.00 shall be accelerated, or the Borrower
shall fail to pay any such Indebtedness when due and any applicable grace
period shall have expired or, in the case of such Indebtedness payable on
demand, when demanded, or any event shall occur or condition shall exist and
shall continue for more than the period of grace, if any, applicable thereto
and shall have the effect of causing, or permitting (any required notice having
been given and grace period having expired) the holder of any such Indebtedness
or any trustee or other Person acting on behalf of such holder to cause such
Indebtedness to become due prior to its stated maturity or to realize upon any
collateral given as security therefor; or

(k)           Any Change of Control shall occur; or

(l)            If the validity or enforceability of
any of the Loan Documents shall be challenged by any Loan Party  or any other party thereto, or any Loan
Document shall fail to remain in full force and effect; or

(m)          The Bank shall have reasonably
determined in good faith that the Bank’s interest in any material Collateral
has been materially adversely affected or impaired, or the value thereof to the
Bank has been diminished to a material extent except for depreciation in the
ordinary course of business and normal wear and tear; or

(n)           Any “Event of Default” (howsoever
defined) shall occur and be continuing under any Cellu Tissue Senior Secured
Notes Loan Document, any Cellu Tissue Credit Facility Loan Document or any Bond
Document.

Section 10.2         Remedies.  If: (a) any Event of Default described
in Sections 10.1(e), (f) or (g) shall occur, the
Commitment shall automatically terminate and the outstanding unpaid principal
balance of the Notes, the accrued interest thereon, the Letter of Credit
Obligations and all other Obligations under the Loan Documents shall
automatically become immediately due and payable; or (b) any other Event of
Default shall occur and be continuing, then the Bank may take any or all of the
following actions: (i) declare the Commitment terminated, whereupon the
Commitment shall terminate; (ii) declare that the outstanding unpaid
principal balance of the Notes, the accrued and unpaid interest thereon, the
Letter of Credit Obligations and all other Obligations under the Loan Documents
to be forthwith due and payable, whereupon the Notes, all accrued and unpaid
interest thereon, the Letter of Credit Obligations and all such Obligations
shall immediately become due and payable, in each case without demand or notice
of any kind, all of which are hereby expressly waived, anything in this
Agreement or in any Note to the contrary notwithstanding; (iii) exercise
all rights and remedies under any other instrument, document or agreement
between the Borrower and the Bank; and (iv) enforce all rights and
remedies under any applicable law.

In addition to the
remedies set forth in the preceding paragraph, the Bank may:

(x)               Notify
the Trustee that the amount of a Drawing under the Bonds 

 67
 

Letter of Credit will not be reinstated in accordance with the terms of
the Bonds Letter of Credit;

(y)              Notify
the Trustee that an Event of Default has occurred and is continuing and direct
the Trustee to:  (i) cancel any Bonds
then owned or held by the Borrower including, but not limited to, any Pledged
Bonds and (ii) forthwith accelerate payment of all other Bonds all in
accordance with Section 1003 of the Indenture or to purchase the Bonds in
accordance with Section 1205 of the Indenture; and

(z)            Notify
the Trustee to cancel all applicable Pledged Bonds.  Any such cancellation pursuant to this Section
10.2 shall not be deemed to discharge or extinguish any of the Borrower’s
Letter of Credit Obligations.

Section 10.3         Offset.  In addition to the remedies set forth in Section
10.2, upon the occurrence of any Event of Default or at any time thereafter
while such Event of Default continues, the Bank or any other holder of any Note
may offset any and all balances, credits, deposits (general or special, time or
demand, provisional or final), accounts or monies of the Borrower then or
thereafter with the Bank or such other holder, or any obligations of the Bank
or such other holder of any Note, against the Indebtedness then owed by the
Borrower to the Bank.  The Borrower
hereby grants to the Bank and each other Note holder a security interest in all
such balances, credits, deposits, accounts or monies.

Section 10.4         Prepayment Obligations.  The
Borrower agrees that if the Obligations become immediately due and payable in
full at a time when the Bond Letter of Credit is  outstanding or if the Revolving Credit
Commitment is terminated at such time, the Borrower shall thereupon
automatically be obligated to pay the Bank, in addition to all other amounts
owing under this Agreement, the aggregate face amount of the Bonds Letter of
Credit then outstanding.  The foregoing
obligation to pay in advance for amounts which the Bank may later have to pay
pursuant to the Bonds Letter of Credit is and shall at all times constitute a
part of the “Obligations”.  Amounts paid
by the Borrower pursuant to this Section 10.4 shall be made
directly to an interest-bearing collateral account (the “Cash Collateral
Account”) maintained at the Bank for application to the Borrower’s
reimbursement obligations under Section 2.8 as payments are made on the
Bonds Letter of Credit, with the balance, if any, to be applied to the other
Obligations if any Event of Default has occurred and is continuing, or if no
Event of Default has occurred and is continuing, returned to the Borrower.

Section 10.5         Right
of the Bank to Cure Defaults under Bond Loan Agreement.  If the Borrower shall fail to make any
required payment under the Bond Loan Agreement on the day such payment is first
due and payable, or shall fail to comply with any other covenant or agreement
of the Borrower under the Bond Loan Agreement, the Bank shall have the option,
in the Bank’s sole discretion, to cure any such failure by taking action
reasonably required to effect such cure including, without limitation, making
the required payment directly to the Trustee; provided, however,
that nothing herein shall be deemed to require the Bank to cure any such
failure.  Any such payment by the Bank
shall constitute Obligations payable upon demand, and shall bear interest from
the date such payment is made by the Bank (regardless of whether a demand for
payment by the Borrower is made by the Bank) at the Default Rate.

 68

ARTICLE XI

MISCELLANEOUS

Section 11.1         Waiver and Amendment.  No failure on the part of the Bank or the
holder of any Note to exercise and no delay in exercising any power or right
hereunder or under any other Loan Document shall operate as a waiver thereof;
nor shall any single or partial exercise of any power or right preclude any
other or further exercise thereof or the exercise of any other power or
right.  The remedies herein and in any
other instrument, document or agreement delivered or to be delivered to the
Bank hereunder or in connection herewith are cumulative and not exclusive of
any remedies provided by law.  No notice
to or demand on the Borrower not required hereunder or under any Note or any
other Loan Document shall in any event entitle the Borrower to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the right of the Bank or the holder of any Note to any other or
further action in any circumstances without notice or demand.  No amendment, modification or waiver of any
provision of this Agreement or consent to any departure by the Borrower
therefrom shall be effective unless the same shall be in writing and signed by
the Bank, and then such amendment, modification, waiver or consent shall be effective
only in the specific instances and for the specific purpose for which given.

Section 11.2         Expenses and Indemnities.

(a)           Loan
Documents.  Whether or not
any Loan is made, the Borrower agrees to pay and reimburse the Bank upon demand
for all reasonable expenses paid or incurred by the Bank (including filing and
recording costs and fees and expenses of legal counsel, who may be employees of
the Bank, and including the costs of any appraisals and environmental
assessments) in connection with the preparation, review, execution, delivery,
amendment, modification or interpretation of the Loan Documents.  The Borrower agrees to pay and reimburse the
Bank upon demand for all reasonable expenses paid or incurred by the Bank
(including reasonable fees and expenses of legal counsel, who may be employees
of the Bank) in connection with the collection and enforcement of the Loan
Documents.  The Borrower agrees to pay,
and save the Bank harmless from all liability for, any stamp or other taxes
which may be payable with respect to the execution or delivery of the Loan
Documents.  The Borrower agrees to
indemnify and hold the Bank harmless from any loss or expense which may arise
or be created by the acceptance of telephonic or other instructions for making
Loans or disbursing the proceeds thereof.

(b)           General
Indemnity.  In addition to
the payment of expenses pursuant to Section 11.2(a), whether or not the
transactions contemplated hereby shall be consummated, the Borrower hereby
indemnifies, and agrees to pay and hold the Bank, its affiliates and any holder
of any Note, and their respective officers, directors, employees, agents,
successors and assigns  (collectively
called the “Indemnitees”) harmless from and against, any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, the 

 69
 

reasonable fees and disbursements of counsel for any
of such Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not any of such
Indemnitees shall be designated a party thereto), that may be imposed on,
incurred by, or asserted against the Indemnitees (or any of them), in any manner
relating to or arising out of the Loan Documents, the statements contained in
any commitment letters delivered by the Bank, the Bank’s agreement to make the
Loans or issue the Bonds Letter of Credit, or the use or intended use of the
proceeds of any of the Loans or Bonds Letter of Credit  (the “Indemnified Liabilities”); provided,
however, that the Borrower shall have no obligation to an Indemnitee
hereunder with respect to Indemnified Liabilities arising from the gross
negligence or willful misconduct of an Indemnitee.  To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, the Borrower
shall contribute the maximum portion that it is permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all Indemnified
Liabilities incurred by the Indemnitees or any of them.

(c)           Survival.  The obligations of the Borrower under this Section 11.2
shall survive any termination of this Agreement.

Section
11.3         Notices.  Except when
telephonic notice is expressly authorized by this Agreement, any notice or
other communication to any party in connection with this Agreement shall be in
writing and shall be sent by manual delivery, telegram, telex, facsimile
transmission, overnight courier or United States mail (postage prepaid)
addressed to such party at the address specified on the signature page hereof,
or at such other address as such party shall have specified to the other party
hereto in writing.  All periods of notice
shall be measured from the date of delivery thereof if manually delivered, from
the date of sending thereof if sent by telegram, telex or facsimile
transmission, from the first Business Day after the date of sending if sent by
overnight courier, or from four days after the date of mailing if mailed;
provided, however, that any notice to the Bank under Article II shall be
deemed to have been given only when received by the Bank.  The Borrower hereby authorizes the Bank to
rely upon the telephone or written instructions of any person identifying
himself as an authorized officer of the Borrower and upon any signature which
the Bank believes to be genuine, and the Borrower shall be bound thereby in the
same manner as if the Borrower were authorized or such signature were genuine.

Section 11.4         Successors.  This Agreement shall be binding upon the
Borrower, the Bank and their respective successors and assigns, and shall inure
to the benefit of the Borrower, the Bank and the successors and assigns of the
Borrower and the Bank.  The Borrower
shall not assign its rights or duties hereunder without the consent of the
Bank.  With the prior written consent of
the Borrower (other than with respect to any of the transactions described in
the proviso clause hereto (an “Exempt Transfer”)), which consent shall not be
unreasonably withheld or delayed by the Borrower, the Bank may assign its
rights and obligations under this Agreement and the Loan Documents to any
Person; provided, however, that no Borrower consent shall be
required with respect to any assignment made: (a) during any period when an
Event of Default has occurred and is continuing; provided  further,
however, that the Borrower’s consent shall be required for 

 70
 

any assignment to
any Person that has been engaged in all or one of the business lines of the
Borrower during the preceding two (2) years except where the assignment is made
after the Obligations have become due and payable at maturity, upon
acceleration or otherwise; (b) to another subsidiary or affiliate of Associated
Bancorp; (c) in connection with the sale of all or substantially all of the
Bank’s assets; or (d) in response to any regulatory action affecting the Bank.

Section 11.5         Participations.  The Bank may sell participation interests in
any or all of the Loans and the Bonds Letter of Credit and in all or any
portion of the Commitment to any Person; provided, however, that
the Borrower’s prior written consent shall be required for any sale of a
participation to any Person that has been engaged in all or one of the business
lines of the Borrower during the preceding two (2) years except where such sale
is made after the Obligations have become due and payable at maturity, upon
acceleration or otherwise.

Section 11. 6        Severability.  Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.

Section 11.7         Captions.  The captions or headings herein and any table
of contents hereto are for convenience only and in no way define, limit or
describe the scope or intent of any provision of this Agreement.

Section 11.8         Entire Agreement.  This Agreement, the Notes and the other Loan
Documents embody the entire agreement and understanding between the Borrower
and the Bank with respect to the subject matter hereof and thereof.  This Agreement supersedes all prior
agreements and understandings relating to the subject matter hereof.

Section 11.9         Counterparts.  This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.

Section 11.10       Governing Law.  THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY
OF THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS TO WHICH THE BORROWER
IS A PARTY SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA,
WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT
TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL BANKS.

Section 11.11       Consent to Jurisdiction.  AT THE OPTION OF THE BANK, THIS AGREEMENT,
THE NOTES AND THE OTHER LOAN DOCUMENTS TO WHICH THE BORROWER IS A PARTY MAY BE
ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN MINNEAPOLIS
OR ST. PAUL, MINNESOTA; OR ANY FEDERAL COURT SITTING IN GREEN BAY, WISCONSIN OR
WISCONSIN STATE COURT SITTING IN GREEN BAY, WISCONSIN AND THE BORROWER CONSENTS
TO THE JURISDICTION AND VENUE OF ANY SUCH 

 71
 

COURT AND WAIVES
ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT.  IN THE EVENT THE BORROWER COMMENCES ANY ACTION
IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING
DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE
BANK, AT ITS OPTION, SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF
THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT
BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.

Section
11.12       Waiver of Jury Trial.  THE
BORROWER AND THE BANK WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (a) UNDER THIS AGREEMENT OR
UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY
IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH, OR (b) ARISING FROM ANY
BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT
ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A
JURY.

Section 11.13       Document Construction.  This
Agreement and each other Loan Document has been reviewed by all the parties
hereto and incorporates the requirements of such parties.  Each party waives the rule of construction
that any ambiguities are to be resolved against the party drafting the same and
agrees such rules will not be employed in the interpretation of this Agreement
or any other Loan Document.

Section 11.14       Customer Identification - USA Patriot
Act Notice.   The Bank hereby notifies the Borrower that
pursuant to the requirements of the USA Patriot Act (Title III of Pub. L.
107-56, signed into law October 26, 2001) (the “Act”), and the Bank’s policies
and practices, the Bank is required to obtain, verify and record certain
information and documentation that identifies the Borrower, which information
includes the name and address of the Borrower and such other information that
will allow the Lender to identify the Borrower in accordance with the Act.

Section 11.15       Confidentiality.  The Bank
shall use reasonable efforts to assure that information about the Borrower and
its operations, affairs and financial condition, not generally disclosed to the
public or to trade and other creditors, which is furnished to the Bank pursuant
to the provisions hereof is used only for the purposes of this Agreement any
other relationship between the Borrower, on the one hand, and the Bank and its
Affiliates, on the other hand, and shall not be divulged to any Person other
than the Bank, its Affiliates and their respective officers, directors,
employees and agents, except: (a) to their attorneys and accountants, (b) in
connection with the enforcement of the rights of the Bank hereunder and under
the Loan Documents or otherwise in connection with applicable litigation, (c)
in connection with assignments and participations and the solicitation of
prospective assignees and participants referred to in Section 11.4 or 11.5
of this Agreement, (d) if such information is generally available to the public
other than as a result of disclosure by the Bank, (e) to any direct or indirect
contractual counterparty in any 

 72
 

hedging arrangement or such contractual counterparty’s professional
advisor, (f) to any nationally recognized rating agency that requires
information about the Bank’s investment portfolio in connection with ratings
issued with respect to such  Bank, and (g)
as may otherwise be required or requested by any regulatory authority having
jurisdiction over the Bank or by any applicable law, rule, regulation or
judicial process, the opinion of the Bank’s counsel concerning the making of
such disclosure to be binding on the parties hereto.  The Bank shall not incur any liability to the
Borrower by reason of any disclosure permitted by this Section.

Section 11.16       Effect on Original Reimbursement Agreement.  On the Effective Date, the Original
Reimbursement Agreement shall be completely amended and restated by this
Agreement, and each reference to the “Reimbursement Agreement,” “Credit
Agreement,” “Loan Agreement,” “therein,” “thereof,” “thereby,” or words of like
import referring to the Original Reimbursement Agreement in any other Loan
Document shall mean and be a reference to this Agreement.

Section
11.17       Consent.  On the Effective Date, the
Bank consents to the consummation of the Cellu Tissue Merger, the CF
Corporation Conversion and the consummation of the other Cellu Tissue Merger
Transactions.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 73

IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above.

	
  

  	
  CELLU TISSUE-CITYFOREST LLC

  
	
  

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M. Scheu

  
	
   

  	
  Name: 

  	
  Dianne M. Scheu

  
	
   

  	
  Its: 

  	
  Senior Vice President and Chief Financial Officer
  

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  1215 East Worden Avenue

  
	
   

  	
  Ladysmith, WI 54848

  
	
   

  	
  Attention: Chief Financial Officer

  
	
   

  	
  Telephone: (715) 532-5541

  
	
   

  	
  Telecopier: (715) 532-5542

  
	
   

  	
   

  
	
  

  	
   

  
	
  

  	
  ASSOCIATED BANK, NATIONAL ASSOCIATION 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas M. Toerpe

  
	
   

  	
  Name:

  	
  Thomas M. Toerpe

  
	
   

  	
  Its:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  200 North Adams Street

  
	
   

  	
  Green Bay, Wisconsin 54301

  
	
   

  	
  Attention: Mr. Stephen E. Pasowicz

  
	
   

  	
  Telephone: (920) 433-3080

  
	
   

  	
  Telecopier: (920) 433-3290

  
				

 

SIGNATURE PAGE: 
AMENDED REIMBURSEMENT AGREEMENT

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