Document:

PROMISSORY NOTE 

	 	 	 	 	 	 	 	 
	Principal
$2,000,000.00 	Loan Date
05-15-2003 	Maturity
11-15-2015 	Loan No.
143840039 	Call/Coll
410 5/03BRE 5 	Account 	Officer
B5KST 	Initials 

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. 

				
	Borrower:	BADGER PAPER MILLS, INC.

(TIN:  39-0143840)
299 W. FRONT STR.
PESHTIGO, WI  54157	Lender:	WISCONSIN COMMUNITY BANK

WISCONSIN BUSINESS BANK
DE PERE BRANCH
1510 MID VALLEY DRIVE,
PO BOX 5307
DE PERE, WI  54115-5307

Principal Amount:   
$2,000,000.00    Initial Rate:   4.500%   
Date of Note:   May 15, 2003 

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 accordance with the following payment schedule:  

	  	
Subject
to any payment changes resulting from changes in the index, Borrower will pay this loan in
149 regular payments of $17,494.68 each and one last irregular payment estimated at
$17,494.99. Borrower’s first payment is due July 1, 2003, and all subsequent payments
are due on the same day of each month thereafter. Lender must adjust the payment amount at
least annually as needed to amortize principal over the remaining term of the note.
Borrower’s final payment is due on November 15, 2015, and will be for all principal
and accrued interest not yet paid.  

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. Interest on this Note is computed on a 365/365 simple interest basis; that is,
by applying the ratio of the annual interest rate over the number of days in a year (366
during leap years), 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 INTEREST 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 QUARTER. Borrower understands that Lender may make loans based on other rates as
well. The Index currently is 4.250% 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 4.500% per annum.  NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate allowed by
applicable law.  

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 — DE PERE
BRANCH, GREEN BAY OFFICE, 1510 MID VALLEY DRIVE, 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 affect 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 commencement of any proceeding under any bankruptcy
or insolvency laws by or against Borrower.  

2 

	 	
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, surely, 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 twenty-five percent (25%) 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 balance 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 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, Lenders 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.  

3 

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 LIFE INSURANCE ASSIGNMENTS DATED NOVEMBER 30, 2001, APRIL 16, 2002 AND
JANUARY 20, 2003.  

LINE OF CREDIT.   
 This Note evidences a
straight line of credit. Once the total amount of principal has bean advanced, Borrower is
not entitled to further loan advances. Advances under this Note, as well as directions for
payment from Borrower’s accounts, may be requested orally or in writing by Borrower
or by an authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. 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 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.  

PAYMENT CHANGE PROVISION.
   This
original payment is based upon a principal balance of $2,000,000.00, a rate of 4.50%, and
an amortization period of 150 months. The original payment is subject to change quarterly
on the 1st of each calendar quarter (January 1, April 1, July 1 and October 1). The new
payment will reflect the amount needed to amortize the then existing principal balance at
the then current interest rate over the remainder of the original amortization period.  

INTEREST RATE ADJUSTMENT.
    The
interest rate change dates referred to in section ‘Variable Interest Rate’ will
be the 1st day of January, April, July and October, each third month.  

PRIOR NOTE.
    Promissory Note Dated
September 19, 2002 in the amount of $2,000,000.00.  

4 

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 Lender 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:
___________________________________     

        WILLIAM H. PETERS, Chief Fin. Officer     

        & VP of BADGER PAPER MILLS, INC. 

LENDER: 

WISCONSIN COMMUNITY BANK 

x
___________________________________ 

         Authorized Signer  

5Your Bank...Your Partner  

February 27, 2004 

     Mr. Bill Peters 

Badger Paper Mills, Inc. 

200 W. Front St. 

Peshtigo, WI 54157 

Dear Bill: 

Badger Paper Mills, Inc. was in
default of our loan agreement at 12/31/03 due to not meeting the debt service coverage
covenant. Wisconsin Business Bank agrees to waive this covenant as it pertains to the year
2003. 

This waiver should not be construed
to be a waiver of any other rights under the note, loan agreement and related loan
documents. 

Please sign below to accept these
terms. 

Sincerely, 

Wenda M. Roycraft 

Vice President 

I agree and acknowledge
the above terms on this _____ day of ______________, 2004. 

By ______________________________ 

      William F. Peters

       CFO, Vice President/Secretary

       Badger Paper Mills, Inc.

1510 Mid Valley Dr.,
P.O. Box 5307, De Pere, WI 54115-5307
 Phone 920-983-5000 Fax 920-983-2980

    www.wisbusbank.com

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