Document:

PROMISSORY NOTE
<TABLE>
<CAPTION>
--------------------- ---------------- ----------------- ---------------- --------------- ---------- ----------- ----------
     Principal           Loan Date         Maturity         Loan No.        Call/Coll      Account    Officer    Initials
--------------------- ---------------- ----------------- ---------------- --------------- ---------- ----------- ----------
<S>                     <C>               <C>               <C>           <C>                           <C>
   $2,000,000.00        09-19-2002        09-19-2003        143840038     410 5/03 BRES                B5KST
---------------------------------------------------------------------------------------------------------------------------
                   References in the shaded area are for Lender's use only and do
                         not limit the applicability of this document to any
                    particular loan or item. Any item above containing ***** has
                            been omitted due to text length limitations.
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

Borrower:  BADGER PAPER MILLS, INC.    Lender:  WISCONSIN COMMUNITY BANK
             (TIN: 39-0143840)                  WISCONSIN BUSINESS BANK - BRANCH
           200 W. FRONT ST.                     GREEN BAY OFFICE
           PESHTIGO, WI  54157                  1510 HWY 41 PO BOX 5307
                                                DE PERE, WI  54115-5307

Principal Amount: $2,000,000.00    Initial Rate: 5.000%

                                                Date of Note: September 19, 2002

PROMISE TO PAY. BADGER PAPER MILLS, INC. ("Borrower") promises to pay to
WISCONSIN COMMUNITY BANK ("Lender"), or order, in lawful money of the United
States of America, the principal amount of Two Million & 00/100 Dollars
($2,000,000.00) or so much as may be outstanding, together with interest on the
unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.

PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on September 19, 2003. In addition, Borrower
will pay regular monthly payments of all accrued unpaid interest due as of each
payment date, beginning October 19, 2002, with all subsequent interest payments
to be due on the same day of each month after that. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs and late charges. The annual interest rate for this Note is computed on a
365/360 basis; that is, by applying the ratio of the annual interest rate over a
year of 360 days, multiplied by the outstanding principal balance, multiplied by
the actual number of days the principal balance is outstanding. Borrower will
pay Lender at Lender's address shown above or at such other place as lender may
designate in writing.

VARIABLE INTERST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the PRIME RATE AS
PUBLISHED IN THE WALL STREET JOURNAL. WHEN A RANGE OF RATES HAS BEEN PUBLISHED,
THE LOWER OF THE RATES WILL BE USED (the "Index"). The Index is not necessarily
the lowest rate charged by Lender on its loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a substitute index after
notice to Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. The interest rate change will not occur more often than each
DAY. Borrower understands that Lender may make loans based on other rates as
well. The Index currently is 4.750% per annum. The interest rate to be applied
to the unpaid principal balance of this Note will be at a rate of 0.250
percentage points over the Index, resulting in an initial rate of 5.000% per
annum. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
<PAGE>
                                PROMISSORY NOTE
                                  (Continued)

PREPAYMENT; MINIMUM FINANCE CHARGE. In any event, even upon full prepayment of
this Note, Borrower understands that Lender is entitled to a minimum finance
charge of $50.00. Other than Borrower's obligation to pay any minimum finance
charge, Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, early payments will reduce the principal
balance due. Borrower agrees not to send Lender payments marked "paid in full",
"without recourse", or similar language. If Borrower sends such a payment,
Lender may accept it without losing any of Lender's rights under this Note, and
Borrower will remain obligated to pay any further amount owed to Lender. All
written communications concerning disputed amounts, including any check or other
payment instrument that indicates that the payment constitutes "payment in full"
of the amount owed or that is tendered with other conditions or limitations or
as full satisfaction of a disputed amount must be mailed or delivered to:
WISCONSIN COMMUNITY BANK, WISCONSIN BUSINESS BANK - BRANCH, GREEN BAY OFFICE,
1510 HWY 41 PO BOX 5307, DE PERE, WI 54115-5307.

LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment or $10.00,
whichever is greater.

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final
maturity, Lender, at its option, may, if permitted under applicable law,
increase the variable interest rate on this Note to 15.000% per annum. The
interest rate will not exceed the maximum rate permitted by applicable law.

DEFAULT. Each of the following shall constitute an event of default ("Event of
Default") under this Note:

         Payment Default. Borrower fails to make any payment when due under this
         Note.

         Other Defaults. Borrower fails to comply with or to perform any other
         term, obligation, covenant or condition contained in this Note or in
         any of the related documents or to comply with or to perform any term,
         obligation, covenant or condition contained in any other agreement
         between Lender and Borrower.

         Default in Favor of Third Parties. Borrower or any Grantor defaults
         under any loan, extension of credit, security agreement, purchase or
         sales agreement, or any other agreement, in favor of any other creditor
         or person that may materially effect any of Borrower's property or
         Borrower's ability to repay this Note or perform Borrower's obligations
         under this Note or any of the related documents.

         False Statements. Any warranty, representation or statement made or
         furnished to Lender by Borrower or on Borrower's behalf under this Note
         or the related documents is false or misleading in any material
         respect, either now or at the time made or furnished or becomes false
         or misleading at any time thereafter.

         Insolvency. The dissolution or termination of Borrower's existence as a
         going business, the insolvency of Borrower, the appointment of a
         receiver for any part of Borrower's property, any assignment for the
         benefit of creditors, any type of creditor workout, or the

                                       2
<PAGE>
                                PROMISSORY NOTE
                                  (Continued)

         commencement of any proceeding under any bankruptcy or insolvency laws
         by or against Borrower.

         Creditor or Forfeiture Proceedings. Commencement of foreclosure or
         forfeiture proceedings, whether by judicial proceeding, self-help,
         repossession or any other method, by any creditor of Borrower or by any
         governmental agency against any collateral securing the loan. This
         includes a garnishment of any of Borrower's accounts, including deposit
         accounts, with Lender. However, this Event of Default shall not apply
         if there is a good faith dispute by Borrower as to the validity or
         reasonableness of the claim which is the basis of the creditor or
         forfeiture proceeding and if Borrower gives Lender written notice of
         the creditor or forfeiture proceeding and deposits with Lender monies
         or a surety bond for the creditor or forfeiture proceeding, in an
         amount determined by Lender, in its sole discretion, as being an
         adequate reserve or bond for the dispute.

         Events Affecting Guarantor. Any of the preceding events occurs with
         respect to any guarantor, endorser, surety or accommodation party of
         any of the indebtedness or any guarantor, endorser, surety, or
         accommodation party dies or becomes incompetent, or revokes or disputes
         the validity of, or liability under, any guaranty of the indebtedness
         evidenced by this Note. In the event of a death, Lender, at its option,
         may, but shall not be required to, permit the guarantor's estate to
         assume unconditionally the obligations arising under the guaranty in a
         manner satisfactory to Lender, and, in doing so, cure any Event of
         Default.

         Change in ownership. Any change in ownership of Fifty percent (50%) or
         more of the common stock of Borrower.

         Adverse Change. A material adverse change occurs in Borrower's
         financial condition, or Lender believes the prospect of payment or
         performance of this Note is impaired.

         Insecurity. Lender in good faith believes itself insecure.

         Cure Provisions. If any default, other than a default in payment is
         curable and if Borrower has not been given a notice of a breach of the
         same provision of this Note within the preceding twelve (12) months, it
         may be cured (and no event of default will have occurred). If Borrower,
         after receiving written notice from Lender demanding cure of such
         default: (1) cures the default within thirty (30) days; or (2) if the
         cure requires more than thirty (30) days, immediately initiates steps
         which Lender deems in Lender's sole discretion to be sufficient to cure
         the default and thereafter continues and completes all reasonable and
         necessary steps sufficient to produce compliance as soon as reasonably
         practical.

LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balances on this Note and all accrued unpaid interest immediately due, and then
Borrower will pay that amount.

EXPENSES. If Lender institutes any suit or action to enforce any of the terms of
this Note, Lender shall be entitled to recover such sum as the court may adjudge
reasonable. Whether or not any court action is involved, all reasonable expenses
Lender incurs that in Lender's opinion

                                       3
<PAGE>
                                PROMISSORY NOTE
                                  (Continued)

are necessary at any time for the protection of its interest or the enforcement
of its rights shall become a part of the loan payable on demand and shall bear
interest at the Note rate from the date of the expenditure until repaid.
Expenses covered by this paragraph include, without limitation, however subject
to any limits under applicable law, Lender's legal expenses whether or not there
is a lawsuit, including expenses for bankruptcy proceedings (including efforts
to modify or vacate any automatic stay or injunction), and appeals, to the
extent permitted by applicable law. Borrower also will pay any court costs, in
addition to all other sums provided by law.

JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either Lender or Borrower against
the other.

GOVERNING LAW. This Note will be governed by, construed and enforced in
accordance with federal law and the laws of the State of Wisconsin. This Note
has been accepted by Lender in the State of Wisconsin.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
indebtedness against any and all such accounts, and, at Lender's option, to
administratively freeze all such accounts to allow Lender to protect Lender's
charge and setoff rights provided in this paragraph.

COLLATERAL. Borrower acknowledges this Note is secured by INCLUDING BUT NOT
LIMITED TO SECURITY AGREEMENT DATED NOVEMBER 30, 2001, REAL ESTATE MORTGAGE
DATED SEPTEMBER 19, 2002 AND ASSIGNMENTS OF LIFE INSURANCE DATED NOVEMBER 30,
2001, JANUARY 8, 2002 AND APRIL 16, 2002.

LINE OF CREDIT. This Note evidences a straight line of credit. Once the total
amount of principal has been advanced, Borrower is not entitled to further loan
advances. Advances under this Note may be requested either orally or in writing
by Borrower or as provided in this paragraph. Lender may, but need not, require
that all oral requests be confirmed in writing. All communications,
instructions, or directions by telephone or otherwise to Lender are to be
directed to Lender's office shown above. The following persons currently are
authorized to request advances and authorize payments under the line of credit
until Lender receives from Borrower, at Lender's address shown above, written
notice of revocation of their authority: ROBERT A. OLAH, President of BADGER
PAPER MILLS, INC.; and WILLIAM H. PETERS, Chief Fin. Officer & VP of BADGER
PAPER MILLS, INC. Borrower agrees to be liable for all sums either: (A) advanced
in accordance with the instructions of an authorized person or (B) credited to
any of Borrower's accounts with Lender. The unpaid principal balance owing on
this Note at any time may be evidenced by endorsements on this Note or by
Lender's internal records, including daily computer print-outs. Lender will have
no obligation to advance funds under this Note if: (A) Borrower or any guarantor
is in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (B) Borrower or any guarantor ceases doing business

                                       4
<PAGE>
                                PROMISSORY NOTE
                                  (Continued)

or is insolvent; (C) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; (D) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender; or (E) Lender in good faith
believes itself insecure.

ADDITIONAL PROVISION. THIS LOAN IS GOVERNED BY LOAN AGREEMENT DATED NOVEMBER 30,
2001.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and
upon Borrower's heirs, personal representatives, successors and assigns, and
shall inure to the benefit of Lender and its successors and assigns.

GENERAL PROVISIONS. This Note benefits Lenders and its successors and assigns,
and binds Borrower and Borrower's heirs, successors, assigns, and
representatives. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, and notice of dishonor. Upon any change in the
terms of this Note, and unless otherwise expressly stated in writing, no party
who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan or release
any party or guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action deemed
necessary by Lender without the consent of or notice to anyone. All such parties
also agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made. The obligations
under this Note are joint and several.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

BORROWER:

BADGER PAPER MILLS, INC.

By:      /s/ William H. Peters
       ----------------------------------
       WILLIAM H. PETERS, CFO, VP and
       Secretary of BADGER PAPER MILLS, INC.

LENDER:

WISCONSIN COMMUNITY BANK

X        /s/ Kevin S. Tenpas
   ----------------------------------
     Authorized Signer

                                       5SECOND AMENDMENT TO BUSINESS LOAN AGREEMENT AND

                                RELATED DOCUMENTS

         This Second Amendment to Business Loan Agreement and Related Documents
(this "Second Amendment") dated as of September 19, 2002, is by and between
Badger Paper Mills, Inc., a Wisconsin corporation (the "Borrower"), and
Wisconsin Community Bank, Wisconsin Business Bank-Branch (the "Lender"). This
Second Amendment supplements and amends the Business Loan Agreement (as defined
below), the Amendment to Business Loan Agreement and Related Documents as of
November 30, 2001 between the Borrower and the Lender (the "First Amendment")
and the Related Documents (as defined below).

                                    RECITALS

         A. The Borrower and the Lender have entered into a Business Loan
Agreement dated November 30, 2001 (as amended by the First Amendment, the
("Business Loan Agreement"), setting forth the terms on which the Lender has
agreed to make certain loans to the Borrower. Pursuant to the Business Loan
Agreement, the Borrower has executed and delivered to the Lender its Promissory
Note in the original principal amount of $5,000,000 (the "Existing Note"), a
Commercial Security Agreement (the "Security Agreement") and a Mortgage (the
"Existing Mortgage"), each dated as of November 30, 2001.

         B. In addition to the loans made pursuant to the Existing Note, the
Lender has agreed to make an additional loan to the Borrower in an amount of
$2,000,000.00 (the "New Loan"), for the purpose of capital expenditures,
including but not limited to the purchase of additional equipment, which will
add to or increase the value of the Collateral securing the Borrower's
indebtedness. In connection with this additional loan, the Borrower has executed
and delivered to the Lender a Promissory Note of even date herewith in the
original principal amount of $2,000,000.00 (the "Interim Note").

         C. It is intended that the New Loan will, at or prior to maturity of
the Interim Note, be refinanced by a long term loan by the Lender to the
Borrower in the amount of $2,000,000.00, which shall be guaranteed up to 70% of
its principal balance by the United States Department of Agriculture, Rural
Development ("Rural Development"). This long term loan shall be evidenced by a
Promissory Note in substantially the form of Exhibit A attached hereto (the
"Refinancing Note" and, collectively with the Existing Note and the Interim
Note, the "Promissory Note").

         D. The Interim Note (and, when issued, the Refinancing Note) will be
secured by the Security Agreement and by a Mortgage of even date herewith by the
Borrower for the benefit of the Lender (the "New Mortgage" and, collectively
with the Existing Mortgage, the "Mortgage"). The Promissory Note, the Security
Agreement and the Mortgage are referred to herein collectively as the "Related
Documents".

         E. The Borrower and the Lender have agreed to enter into this Second
Amendment in order to make additional modification and supplements to various
provisions of the Business Loan Agreement, the Related Documents and the First
Amendment.
<PAGE>

                                    AGREEMENT

         In consideration of the foregoing recitals and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be legally bound, agree as follows:

         1. The foregoing Recitals are true and correct.

         2. All references and definitions within the Business Loan Agreement
and the Related Documents to the Business Loan Agreement or any Related Document
shall refer to the Business Loan Agreement or such Related Document as amended
by the First Amendment and as amended hereby.

         3. The Business Loan Agreement, the Related Documents and the First
Amendment are amended and/or supplemented as follows:

                  a. The term "Note", as used in the Business Loan Agreement and
         the Security Agreement, means all promissory notes executed by the
         Borrower and issued to the Lender together with all renewals,
         extensions, modifications, refinancings, consolidations, and
         substitutions thereof or therefor, including without limitation the
         Existing Note, the Interim Note and the Refinancing Note.

                  b. The paragraph in the Business Loan Agreement entitled
         "Term" is amended in its entirety to read as follows:

                  "Term. This Agreement shall continue to be effective as of
                  September 19, 2002 and shall continue in full force and effect
                  until such time as all of Borrower's Loans in favor of Lender
                  have been paid in full, including principal, interest, costs,
                  expenses, attorneys' fees, and other fees and charges payable
                  under this Agreement, or until such time as the parties may
                  agree in writing to terminate this Agreement."

                  c. With respect to the paragraph entitled "Financial Covenants
         and Ratios" within the section of the Business Loan Agreement entitled
         "Affirmative Covenants" that part of such paragraph entitled "Minimum
         Income and Cash Flow Requirements" is amended to read as follows:

                  "Minimum Income and Cash Flow Requirements. Other Cash Flow
                  Requirements are as follows: MINIMUM DEBT SERVICE COVERAGE
                  RATIO OF 1.25:1.0 AT FISCAL YEAR-END 2002 AND THEREAFTER. Debt
                  Service Coverage Ratio is defined as [net income +
                  depreciation + amortization + interest (less) distributions] /
                  [prior year's current maturity of long-term debt + interest]."

                                       2
<PAGE>

                  d. The Interim Note is (and the Refinancing Note, when issued,
         will be ) secured by the Security Agreement and by the New Mortgage. As
         further clarification, the Assignments of Life Insurance Policies are
         as follows:

         Robert A. Olah         $ 2,000,000.00           April 16, 2002
         Michael J. Bekes       $   500,000.00          January 8, 2002
         William Peters         $   500,000.00          November 30, 2001

                  e. As to Payments on the Interim Note, the Borrower will pay
         regular monthly payments of interest only on the outstanding principal
         balance for a period not to exceed 12 months. The New Loan will be
         renewed at or prior to note maturity for a 12.5 year term upon issuance
         of a loan guarantee issued by Rural Development, with 150 regular
         monthly principal and interest payments estimated at $17,956.35 based
         on an interest rate of Prime + 0.25%. The payment may change from time
         to time resulting from changes in the Prime rate index.

                  f. The First Amendment is amended as follows: the terms
         "Related Documents", "Promissory Note" and "Mortgage" as used in the
         First Amendment are amended to mean the Related Documents, the
         Promissory Note and the Mortgage, respectively, as defined in this
         Second Amendment, such that each of the amendments, modifications and
         supplements applicable, pursuant to First Amendment, to the "Related
         Documents", the "Promissory Note" and the "Mortgage" shall be
         applicable to all documents, agreements and instruments included in
         such definitions as such definitions have been amended hereby.

         4. The Business Loan Agreement, the Related Documents and the First
Amendment shall remain in full force and effect, as modified by this Second
Amendment.

         5. To the extent this Second Amendment causes or creates any provisions
of the Business Loan Agreement, the Related Documents or the First Amendment, as
amended hereby, to be or become unenforceable or invalid, or to the extent any
provision of this Second Amendment directly contradicts the purposes of the
Business Loan Agreement or the Related Documents as a whole, rather than amends,
clarifies or makes more specific, the provisions of the Business Loan Agreement
or Related Documents, the original provisions of the Business Loan Agreement
and/or the Related Documents shall apply as fully stated therein.

         6. The provisions of this Second Amendment shall inure to the benefit
of, and be binding upon, each of the parties hereto and their respective
successors and assigns.

         7. This Second Amendment may be signed in any number of counterparts
with the same effect as if the signature thereto and hereto were upon the same
instrument.

         8. This Amendment may be executed and delivered by facsimile
transmission for purposes of confirming execution. The parties hereto agree that
execution and delivery by such method will be confirmed by overnight delivery
express of an original executed counterpart of this Amendment to each of the
other parties hereto.

                                       3
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the date first above written.

                                         BADGER PAPER MILLS, INC.

                                         By: /s/ William H. Peters
                                            ----------------------------------
                                         Name:        William H. Peters
                                             Title:   Chief Financial Officer
                                                      and Vice President

                                         WISCONSIN COMMUNITY BANK

                                         By: /s/ Kevin S. Tenpas
                                            ----------------------------------
                                         Name:        Kevin S. Tenpas
                                             Title:   President, Wisconsin
                                                      Business Bank Branch

                                       4

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