8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)      March 21, 2007

Cellu Tissue Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware	333-118829	06-1346495
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

1855 Lockeway Drive, Suite 501
Alpharetta, Georgia	30004
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code      (678) 393-2651

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

This Amendment No. 1 is with respect to the Company’s Current Report filed on Form 8-K filed with the Securities and Exchange Commission on March 21, 2007.

Item 1.01               Entry into a Material Definitive Agreement

The agreements listed below were entered into or adopted in connection with the consummation of the acquisition of CityForest Corporation (“CityForest” ) by Cellu Tissue Holdings, Inc. (“Cellu Tissue”) pursuant to a Merger Agreement by and among Cellu Tissue, CityForest, Cellu City Acquisition Corporation and Wayne Gullstad as the shareholders’ representative (the “Acquisition”).  Immediately following the consummation of the Acquisition, CityForest, which, following the acquisition, is a wholly-owned subsidiary of Cellu Tissue, converted from a Minnesota corporation to a Minnesota limited liability company and changed its name to Cellu Tissue-CityForest LLC.

Note Purchase Agreement

Cellu Tissue has entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with Wingate Capital Ltd. (the “Purchaser”), dated March 21, 2007, pursuant to which Cellu Tissue issued and sold $20,255,572 aggregate principal amount of unregistered 9 3/4% Senior Secured Notes due 2010 (the “Notes”) to the Purchaser for the purchase price of $20,000,007 which is equal to 98.7383% of the aggregate principal amount of the Notes.  The Notes were issued pursuant to and will be governed by the Indenture, dated as of March 12, 2004 (as amended and supplemented, the “Cellu Tissue Indenture”) among Cellu Tissue, the subsidiary guarantors party thereto and The Bank of New York Trust Company, N.A., as successor trustee to the Bank of New York (the “Trustee”).  The proceeds of the sale were used to finance a portion of the Acquisition.

A copy of the Note Purchase Agreement is furnished as Exhibit 10.1 to this report and incorporated herein by reference. The foregoing description is qualified in its entirety by reference to the Note Purchase Agreement.

Second Supplemental Indenture

Cellu Tissue, certain subsidiaries of Cellu Tissue, the Trustee and CityForest have executed the Second Supplemental Indenture, dated March 21, 2007 (the “Second Supplemental Indenture”), pursuant to which CityForest became a party to the Cellu Tissue Indenture as a subsidiary guarantor.  As a subsidiary guarantor, CityForest, on a joint and several basis with all the existing subsidiary guarantors, fully, unconditionally and irrevocably guarantees to each holder of the Notes and the Trustee the obligations of Cellu Tissue under the Cellu Tissue Indenture and the Notes.

A copy of the Second Supplemental Indenture is furnished as Exhibit 10.2 to this report and incorporated herein by reference. The foregoing description is qualified in its entirety by reference to the Second Supplemental Indenture.

Amendment to Credit Agreement

Cellu Tissue has entered into a First Amendment, dated March 21, 2007 (the “Amendment”), to the Credit Agreement dated June 12, 2006 (as amended by the Amendment, the “Amended Credit Agreement”) among Cellu Tissue, as U.S. Borrower, Interlake Acquisition Corporation Limited, a subsidiary of Cellu Tissue, as Canadian Borrower, certain subsidiaries of Cellu Tissue, Cellu Paper Holdings, Inc., the parent corporation of Cellu Tissue, JPMorgan Chase Bank, N.A. (the “U.S. Administrative Agent”) and JPMorgan Chase Bank, N.A., Toronto Branch (the “Canadian Administrative Agent”).

The Amendment (1) increases the working capital facility from $35.0 million to $40.0 million, (2) permits the issuance and sale by Cellu Tissue of the Notes, (3) provides for the consummation of the Acquisition and the conversion by CityForest from a Minnesota corporation to a Minnesota limited liability company, (4) permits the assumption of approximately $18.5 million in aggregate principal amount of indebtedness of CityForest in connection with the Acquisition in accordance with the terms of the CityForest Bond Documents (as defined below under “CityForest Bond Documents”), and (5) permits the guarantee by Cellu Tissue of certain obligations of CityForest under the CityForest Bond Documents.  In connection with the Amendment, CityForest became a guarantor of the obligations of the borrowers under the Amended Credit Agreement.

2

A copy of the First Amendment is furnished as Exhibit 10.3 to this report and incorporated herein by reference. The foregoing description is qualified in its entirety by reference to the First Amendment and the Amended Credit Agreement.

CityForest Bond Documents

CityForest is party to a Loan Agreement, dated March 1, 1998 (the “Loan Agreement”), with the City of Ladysmith, Wisconsin (the “Issuer”).  Pursuant to the Loan Agreement, the Issuer loaned the proceeds of the Issuer’s Variable Rate Demand Solid Waste Disposal Facility Revenue Bonds, Series 1998 (CityForest Corporation Project) (the “Bonds”) to CityForest to finance the construction by CityForest of a solid waste disposal facility.  Approximately $18.5 million in aggregate principal amount of the Bonds was outstanding as of the date of the Acquisition.  CityForest is required, under the terms of the Indenture of Trust governing the Bonds (the “CityForest Indenture”), to provide a letter of credit in favor of the trustee under the CityForest Indenture (the “Bonds Trustee”).  CityForest has entered into an Amended and Restated Reimbursement Agreement, dated March 21, 2007 (the “Reimbursement Agreement” and, together with the CityForest Indenture and the Loan Agreement, the “CityForest Bond Documents”), with Associated Bank, National Association (“Associated Bank”), pursuant to which Associated Bank has extended the required letter of credit (the “Associated Bank Letter of Credit”) and has provided a revolving credit facility to CityForest in an aggregate principal amount of up to $3.5 million (the “Associated Bank Revolving Credit Facility”).

The Bonds Trustee is permitted to draw upon the Associated Bank Letter of Credit to pay principal and interest due on the Bonds, and to provide liquidity to purchase Bonds put to CityForest by bondholders and not remarketed; and CityForest is obligated under the Reimbursement Agreement to reimburse Associated Bank for any such draws. CityForest is also obligated to pay a fee in respect of the aggregate amount available to be drawn under the Associated Bank Letter of Credit at a rate per annum initially equal to 1.25%, subject to adjustment on a quarterly basis based on CityForest’s leverage.  The expiration date of the Associated Bank Letter of Credit is February 15, 2011.

Amounts borrowed by CityForest under the Associated Bank Revolving Credit Facility bear interest at a rate per annum equal to the LIBOR Rate (as defined in the Reimbursement Agreement), plus an applicable margin. The applicable margin percentage initially is 1.75%, subject to adjustment on a quarterly basis based upon CityForest’s leverage.  During the continuance of an event of default, the outstanding principal balance bears interest at a rate per annum equal to the then applicable interest rate plus 2.00%.  CityForest is also obligated to pay a commitment fee in respect of any unused commitment under the Associated Bank Revolving Credit Facility in an amount equal to 0.50% per annum.  In addition, subject to certain exceptions, if CityForest terminates the Associated Bank Revolving Credit Facility prior to February 15, 2009, CityForest is obligated to pay to Associated a Bank a fee equal to 1.00% of the commitment then being terminated. The maturity date of the Associated Bank Revolving Credit Facility is February 15, 2011.

The Reimbursement Agreement requires scheduled semi-annual payments of principal of the Bonds equal to approximately 2% of the principal amount outstanding as of the date of the Acquisition, with the balance payable at maturity of the Bonds on March 1, 2028. The Reimbursement Agreement also contains a number of other provisions regarding reserve funds and other mandatory and optional repayments in connection with the Bonds.  In addition, the Reimbursement Agreement provides that in certain circumstances where Cellu Tissue incurs Indebtedness in excess of amounts currently permitted under the Cellu Tissue Indenture or refinances the indebtedness issued under the Cellu Tissue Indenture, Associated Bank may require CityForest to repay all of its obligations to Associated Bank under the Reimbursement Agreement and either to cause the Bonds to be redeemed or to replace the Associated Bank Letter of Credit with a Substitute Credit Facility, as such term is defined in the CityForest Indenture.

The Reimbursement Agreement contains various affirmative and negative covenants customary for working capital and term credit facilities, as well as additional covenants relating to the Bonds.  The negative covenants include limitations on: indebtedness; liens; acquisitions, mergers and consolidations; investments; guarantees; asset sales; sale and leaseback transactions; dividends and distributions; transactions with affiliates; capital expenditures; and changes to the status of the Bonds. CityForest is also required to comply on a quarterly basis with a maximum leverage covenant and a minimum fixed charge coverage covenant.

The Reimbursement Agreement also contains customary events of default, including:  payment defaults; breaches of representations and warranties; covenant defaults; cross-defaults to certain other debt, including the Notes and indebtedness under the Amended Credit Agreement; certain events of bankruptcy and insolvency; judgment defaults; certain defaults

3

related to the Employee Retirement Income Security Act of 1974, as amended; and a change of control of CityForest or Cellu Tissue.

Cellu Tissue has guaranteed all of the obligations of CityForest under the Reimbursement Agreement, pursuant to a Guaranty, dated March 21, 2007 (the “Cellu Tissue Guaranty”), executed by Cellu Tissue in favor of Associated Bank. In addition, the obligations of CityForest under the Reimbursement Agreement are secured by first-priority liens in favor of Associated Bank in all of CityForest’s assets.  The U.S. Administrative Agent, the Canadian Administrative Agent, Associated Bank and CityForest have entered into an Intercreditor Agreement, dated March 21, 2007, which sets forth the respective rights and priorities of Associated Bank, on the one hand, and the U.S. Administrative Agent and the Canadian Administrative Agent, on the other hand, as to the collateral of CityForest securing the Reimbursement Agreement and the Amended Credit Agreement.

A copy of each of the Reimbursement Agreement, the Loan Agreement, the CityForest Indenture and the Cellu Tissue Guaranty is furnished as Exhibit 10.4, 10.5, 10.6 and 10.7, respectively, to this report and incorporated herein by reference. The foregoing descriptions are qualified in their entirety by reference to the applicable agreement.

Item 2.01.              Completion of Acquisition or Disposition of Assets

On March 21, 2007, Cellu Tissue issued a press release announcing that Cellu Tissue has consummated the acquisition of CityForest pursuant to a Merger Agreement by and among Cellu Tissue, CityForest, Cellu City Acquisition Corporation and Wayne Gullstad as the shareholders’ representative.  The aggregate merger consideration paid (including the assumption of approximately $18.5 million in aggregate principal amount of indebtedness, described above under Item 1.01) is approximately $61 million and is subject to certain working capital and net cash adjustments which may occur after the closing.

Item 2.03               Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

Reference is made to Item 1.01 and the descriptions of the Note Purchase Agreement, Second Supplemental Indenture, Amendment, CityForest Bond Documents and Cellu Tissue Guaranty therein, which is hereby incorporated by reference into this Item 2.03.

Item 9.01.              Financial Statements and Exhibits

The following items are being furnished as exhibits to this Current Report on Form 8-K:

10.1	Note Purchase Agreement, dated March 21, 2007, between Cellu Tissue Holdings, Inc. and Wingate Capital Ltd.
10.2	Second Supplemental Indenture, dated March 21, 2007, by and among Cellu Tissue Holdings, Inc., the subsidiary guarantors, and The Bank of New York Trust Company, N.A., as successor trustee to The Bank of New York.
10.3	First Amendment, dated March 21, 2007, to Credit Agreement dated June 12, 2006 (as amended by the Amendment, the “Amended Credit Agreement”) among Cellu Tissue Holdings, Inc. (“Cellu Tissue”), as U.S. Borrower, Interlake Acquisition Corporation Limited, a subsidiary of Cellu Tissue, as Canadian Borrower, certain subsidiaries of Cellu Tissue, Cellu Paper Holdings, Inc., the parent corporation of Cellu Tissue, JPMorgan Chase Bank, N.A. and JPMorgan Chase Bank, N.A., Toronto Branch.
10.4	Amended and Restated Reimbursement Agreement, dated March 21, 2007, between Cellu Tissue-CityForest LLC and Associated Bank, National Association.
10.5	Loan Agreement, dated March 1, 1998, between CityForest Corporation and City of Ladysmith, Wisconsin.
10.6	Indenture, dated March 1, 1998, between City of Ladysmith, Wisconsin and Norwest Bank Wisconsin, N.A.

4

10.7	Guaranty, dated March 1, 1998, executed by Cellu Tissue Holdings, Inc., in favor of Associated Bank, National Association.
99.1	Release, dated March 21, 2007, “Cellu Tissue Holdings, Inc. Completes Acquisition of CityForest Corporation.”

*****

5

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Cellu Tissue Holdings, Inc.
	(Registrant)
Date: March 27, 2007	By:	/s/ Dianne M. Scheu
		Ms. Dianne M. Scheu
		Senior Vice President, Finance and
		Chief Financial Officer

6

EXHIBIT INDEX

10.1	Note Purchase Agreement, dated March 21, 2007, between Cellu Tissue Holdings, Inc. and Wingate Capital Ltd.
10.2	Second Supplemental Indenture, dated March 21, 2007, by and among Cellu Tissue Holdings, Inc., the subsidiary guarantors, and The Bank of New York Trust Company, N.A., as successor trustee to The Bank of New York.
10.3	First Amendment, dated March 21, 2007, to Credit Agreement dated June 12, 2006 (as amended by the Amendment, the “Amended Credit Agreement”) among Cellu Tissue Holdings, Inc. (“Cellu Tissue”), as U.S. Borrower, Interlake Acquisition Corporation Limited, a subsidiary of Cellu Tissue, as Canadian Borrower, certain subsidiaries of Cellu Tissue, Cellu Paper Holdings, Inc., the parent corporation of Cellu Tissue, JPMorgan Chase Bank, N.A. and JPMorgan Chase Bank, N.A., Toronto Branch.
10.4	Amended and Restated Reimbursement Agreement, dated March 21, 2007, between Cellu Tissue-CityForest LLC and Associated Bank, National Association.
10.5	Loan Agreement, dated March 1, 1998, between CityForest Corporation and City of Ladysmith, Wisconsin.
10.6	Indenture, dated March 1, 1998, between City of Ladysmith, Wisconsin and Norwest Bank Wisconsin, N.A.
10.7	Guaranty, dated March 1, 1998, executed by Cellu Tissue Holdings, Inc., in favor of Associated Bank, National Association.
99.1	Release, dated March 21, 2007, “Cellu Tissue Holdings, Inc. Completes Acquisition of CityForest Corporation.”

7

EX-10.1

Exhibit 10.1

NOTE PURCHASE AGREEMENT

Dated as of March 21, 2007

Between

CELLU TISSUE HOLDINGS, INC.
Issuer of the Notes

and

WINGATE CAPITAL LTD.
Purchaser

$20,255,572 AGGREGATE PRINCIPAL AMOUNT
OF 9 3/4% SENIOR SECURED NOTES
DUE 2010

NOTE PURCHASE AGREEMENT

This NOTE PURCHASE AGREEMENT is dated as of March 21, 2007 by and between Cellu Tissue Holdings, Inc. (the “Company”) and Wingate Capital Ltd. (the “Purchaser”).

RECITALS

WHEREAS, the Company and certain of its Subsidiaries have entered into an Indenture dated as of March 12, 2004 with The Bank of New York as Trustee (as supplemented and in effect on the date hereof, the “Indenture”), relating to its 9 3/4% Senior Secured Notes due 2010 (the “Senior Secured Notes”) pursuant to which the Company is authorized to issue additional Senior Secured Notes subject to the terms and conditions specified in the Indenture.

WHEREAS, the Company desires to issue pursuant to the Indenture and sell to the Purchaser, and the Purchaser has agreed to purchase, subject to the terms and conditions herein, $20,255,572 aggregate principal amount of Senior Secured Notes (the “Notes”).

WHEREAS, the Company will use the proceeds of the issuance and sale of the Notes to provide a portion of the financing for the acquisition by the Company of the stock of CityForest Corporation (the “Acquisition”).

AGREEMENT

In consideration of the foregoing, and the representations, warranties, covenants and conditions set forth below, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE 1
DEFINITIONS

1.1.          Certain Defined Terms.  Capitalized terms used and not otherwise defined in this Agreement are defined in Appendix I.

ARTICLE 2
PURCHASE AND SALE OF THE NOTES

2.1.          Purchase and Sale of Notes.  Subject to the terms and conditions of this Agreement and on the basis of the representations and warranties set forth herein, the Company hereby agrees to issue and to sell to the Purchaser, and by its acceptance hereof the Purchaser agrees to purchase from the Company at the Closing, $20,255,572 aggregate principal amount of the Notes for the purchase price of $20,000,007, which is equal to 98.7383% of the aggregate principal amount of the Notes.

2.2.          Closing.  The purchase and sale of the Notes pursuant to Section 2.1 shall occur at a closing (the “Closing”) to be held on March 21, 2007 at 10:00 a.m. (Boston time), at the offices of Ropes & Gray LLP, One International Place, Boston, MA 02110, or at such other date, time and/or location as may be agreed upon by the parties hereto.

2.3.          Delivery of Notes.  Notes will be in substantially the form of Exhibit A.  The Company will deliver the Notes to the Purchaser, against payment by or on behalf of the Purchaser of the purchase price therefor by wire transfer of Federal (same day) funds to JPMorgan/Chase Bank, New York, New York, ABA #021000021, Account Name: Cellu Tissue Corp., Account #114-733805.

2.4.          Use of Proceeds.  The proceeds of the sale by the Company of the Notes hereunder shall be used to provide a portion of the financing for the Acquisition.

ARTICLE 3
TERMS OF THE NOTES

3.1.          Notes Under Indenture.  The Notes shall be issued under the Indenture and shall be subject to all the terms and conditions thereof and entitled to all the benefits thereof.

3.2.          CUSIP.  The Purchaser understands that because the Notes are issued at a discount the Notes will have a CUSIP number through the maturity of the Notes which is different from the CUSIP number of the Senior Secured Notes previously issued under the Indenture.  The Purchaser further understands that the Notes will not either now or in the future be entitled to share the same CUSIP number as the notes previously issued under the Indenture.

3.3.          No Registration Rights.  The Purchaser understands and agrees that the Company is and will be under no obligation to effect any registration of the Notes under the Securities Act.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

The Purchaser represents and warrants to and for the benefit of the Company that:

4.1.          Legal Capacity; Due Authorization.  The Purchaser has full legal capacity, power and authority to execute and deliver this Agreement and to perform its obligations hereunder.  This  Agreement has been duly authorized, executed and delivered by the Purchaser and is the legal, valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms subject to bankruptcy and general principles of equity.

4.2.          Restrictions on Transfer.  The Purchaser has been advised that the Notes have not been registered under the Securities Act or any state securities laws and cannot be resold unless registered under the Securities Act and applicable state securities laws or unless an exemption from such registration requirements is available, and that accordingly the Notes may have to be held by the Purchaser for an indefinite period of time.  The Purchaser is purchasing the Notes for its own account and not with a view to, or for resale in connection with, the distribution thereof; provided, however, that subject to compliance with the restrictions contained or referred to in the Indenture, the Notes and this Agreement, the disposition of such Purchaser’s property shall at all times be and remain under its sole discretion and control.  The Purchaser acknowledges and agrees that each Note will bear a legend (or a substantially similar indication) indicating that the Notes have not been registered under the Securities Act or under any state securities laws and may not be sold, offered for sale or otherwise transferred in the absence of an effective registration statement under the Securities Act and applicable state securities laws or an exemption from registration thereunder, in addition to any other legends required by applicable state blue sky laws.

4.3.          Accredited Investor, etc.  The Purchaser has such knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Notes, is able to incur a complete loss of such investment and to bear the economic risk of such investment for an indefinite period of time.  Such Purchaser has been given access to all information with respect to the Company requested by the Purchaser and has had access to, and adequate opportunity to ask questions of and request additional information from, officers and representatives of the Company concerning the Company’s business, operations and financial condition.  Such Purchaser (i) is an “accredited investor” as

2

that term is defined in Regulation D under the Securities Act and (ii) has been represented by counsel in the purchase of the Notes and has been advised with respect to the restrictions imposed by state and federal securities laws with respect to the disposition of the Notes.

4.4.          Independent Decision.  The Purchaser has independently and without reliance on the Company, and based on such information as the Purchaser has deemed appropriate, made its own analysis and decision to enter into this Agreement and the transaction contemplated hereby, except that the Purchaser has relied upon the Company’s express representations, warranties and covenants made herein.  The Purchaser acknowledges that the Company has not given the Purchaser any investment advice, credit information or opinion on whether the purchase of the Notes is a prudent investment decision.

4.5.          Brokerage Fees, etc.  The Purchaser represents and warrants to the Company that no broker’s, finder’s or placement fee or commission will be payable to any Person alleged to have been retained by the Purchaser with respect to any of the transactions contemplated by this Agreement.

ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

In order to induce the Purchaser to enter into this Agreement and to purchase the Notes hereunder, the Company represents and warrants for the benefit of the Purchaser that, as of the Closing Date (unless otherwise stated, both before and after giving effect to the issuance of the Notes):

5.1.          Organization, Good Standing and Qualification.  The Company is a corporation, duly organized and validly existing under the laws of the State of Delaware and has all requisite power and authority to conduct its business as now conducted.  The Company is duly qualified as a foreign entity and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not reasonably be expected to result in a Material Adverse Effect.  Certified copies of the Governing Documents of the Company have been delivered to the Purchaser and such copies of the Governing Documents are correct and complete.

5.2.          Authorization.  The Company has taken all necessary corporate action to authorize the  execution and delivery of this Agreement and the Notes and the performance of its obligations hereunder and thereunder.  This Agreement constitutes the valid and legally binding obligation of the Company enforceable in accordance with its terms subject to bankruptcy laws and general principles of equity.

5.3.          Valid Issuance of the Notes.  The Notes, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly authorized and issued, fully paid, free of restrictions on transfer, other than restrictions contained or referred to in the Indenture, the Notes or this Agreement and enforceable in accordance with their terms subject to bankruptcy laws and general principles of equity.  Based in part upon the representations of the Purchaser in Article 4 of this Agreement, the Notes will be issued in compliance with all applicable United States securities laws.

5.4.          Financial Statements and Other Information.

5.4.1.         The Company has previously furnished to the Purchaser copies of the following:  (i) the Company’s filing on Form 10-K for the fiscal year ended February 28, 2006; (ii) the Company’s filings on Form 10-Q for the fiscal quarters ended May 25, 2006, August 24, 2006 and November 23, 2006; and (iii) the Company’s filings on Form 8-K dated January 5, 2006,

3

March 30, 2006, May 9, 2006, June 5, 2006, June 16, 2006, July 7, 2006, October 4, 2006, October 5, 2006 and January 5, 2007 (the “Company SEC Documents”).

5.4.2.         As of the time it was filed with the SEC (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing):  (i) each of the Company SEC Documents complied in all material respects with such requirements of the Securities Act or the Exchange Act as were applicable thereto; and (ii) none of the Company SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

5.4.3.         The financial statements (including any related notes) contained in the Company SEC Documents fairly present, in all material respects, the consolidated financial position of the Company and its Subsidiaries as of the respective dates thereof and the consolidated results of operations of the Company and its Subsidiaries for the periods covered thereby in accordance with GAAP applied on a consistent basis throughout the periods covered (except as may be indicated in the notes to such financial statements or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC, and except that unaudited financial statements may not contain footnotes and are subject to year-end adjustments).

5.4.4.         As of the date of this Agreement, neither the Company nor any of its Subsidiaries has any liabilities of the type required to be disclosed in the liabilities column of a balance sheet prepared in accordance with GAAP, except for:  (i) liabilities disclosed in the financial statements (including any related notes) contained in the Company SEC Documents; (ii) liabilities incurred in the ordinary course of business since the date included in the financial statements of the Company SEC Documents; and (iii) liabilities that are not material in the aggregate to the Company and its Subsidiaries on a consolidated basis.

5.4.5.         The information with respect to the Company and its Subsidiaries contained in the Private Placement Memorandum dated January, 2007 relating to $20,000,000 Senior Unsecured Subordinated Notes (the “Subordinated Notes”) of the Company due 2012 (the “Placement Memorandum”) when taken as a whole with the Company SEC Documents did not as of the date thereof contain an untrue statement of material fact or omit to state a material fact necessary in order to make the statements contained therein not materially misleading in light of the circumstances under which such statements were made.  The information contained in the Placement Memorandum with respect to CityForest Corporation was prepared in good faith by the Company based on information obtained from CityForest Corporation.  Notwithstanding the foregoing, no representation regarding projections or forward looking statements is being made in this Section 5.4.5 and the disclaimers and cautionary statements with respect thereto set forth in the Placement Memorandum are incorporated herein by reference.  The Company and the Purchaser agree that the Notes are being purchased in lieu of the Subordinated Notes and that no representation is being made with respect to any portion of the Placement Memorandum to the extent that the information in the Placement Memorandum is affected by the issuance of the Notes in lieu of the Subordinated Notes.

5.5.          Material Adverse Effect.  Since September 30, 2006 no event or condition has occurred which affects the Company or its Subsidiaries which has had or could be reasonably expected to have a Material Adverse Effect.

5.6.          Consents.  No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority, or any third

4

party in connection with any agreement to which the Company or any of its Subsidiaries is party, is required to be obtained or made by the Company or any of its  Subsidiaries in connection with the issuance of the Notes other than such of the foregoing as have been or will be obtained prior to the Closing or where the failure to obtain the consent of a third party would not affect the ability of the Company to enter into the Agreement, to issue the Notes and perform its obligations under the Notes, and would not result in a Material Adverse Effect.

5.7.          Litigation.  Except as disclosed with the Company SEC Documents, there is no action, suit, proceeding or investigation pending or, to the Company’s knowledge, currently threatened that questions the validity of this Agreement or the right of the Company or any of its Subsidiaries to enter into this Agreement and to issue the Notes or that would reasonably be expected to result, either individually or in the aggregate, in a Material Adverse Effect.

5.8.          Compliance with Other Instruments.    The execution, delivery and performance of this Agreement and the issuance of the Notes will not result in the violation of any instrument, judgment, order, writ, decree or contract to which the Company is a party or by which it is bound or, of any provision of federal or state statute, rule or regulation applicable to it or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any Lien, charge or encumbrance upon any assets of the Company or any of its  Subsidiaries, except for a violation, conflict or default that does not affect the ability of the Company to enter into this Agreement, to issue the Notes and perform its obligation under the Notes and would not result in a Material Adverse Effect.

5.9.          Delivery of Acquisition Documents.   The Company has delivered to the Purchaser true, accurate and complete copies of each of the Acquisition Documents which are the only agreements of the Company relating to the Acquisition.

5.10.        No Governmental Approval Necessary.  Assuming the truth and accuracy of the Purchaser’s representations set forth in Article 4 of this Agreement, no consent by, approval of, giving of notice to, registration with, or taking of any other action with respect to or by any federal, state, or local governmental authority or organization is required for any of the Company’s execution, delivery, or performance of this Agreement or the issuance of the Notes.

5.11.        Private Placement.  Assuming the truth and accuracy of the Purchaser’s representations set forth in Article 4 of this Agreement, the offer, sale and issuance of the Notes as contemplated by this Agreement is exempt from the registration requirements of the Securities Act.  Neither the Company nor any authorized agent acting on behalf of it will take any action hereafter that would cause the loss of such exemption.

ARTICLE 6
CLOSING CONDITIONS

6.1           Purchaser’s Conditions.  The obligation of the Purchaser to purchase and pay for the Notes provided for hereunder on the Closing Date is subject to the satisfaction of the following conditions, each as of the Closing Date:

6.1.1        Representations and Warranties; No Default.  After giving effect to the issuance of the Notes and Acquisition all representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects, and there shall exist no continuing Default or Event of Default under the Indenture.

5

6.1.2        Delivery of Documents.  The Purchaser shall have received the following items, each of which shall be in form and substance reasonably satisfactory to the Purchaser and, unless otherwise noted, dated as of the Closing Date:

6.1.2.1       Resolutions of the board of directors of the Company authorizing the execution, delivery and performance of this Agreement and authorizing the issuance and sale of the Notes certified as of the Closing Date by its secretary or an assistant secretary as being in full force and effect.

6.1.2.2       A copy of a certificate of the Secretary of State of the State of Delaware, dated as of a recent date prior to the Closing Date and listing all Governing Documents of the Company on file with such Secretary, including any amendments thereto, and copies of all such Governing Documents and certifying that the Company is duly organized and in good standing under the laws of the State of Delaware.

6.1.2.3.      A certificate of the Company, signed on its behalf by a duly authorized officer and dated the Closing Date, certifying as to (i) the absence of any amendment to the Governing Documents of the Company since the date of the applicable secretary of state’s certificate referred to in Section 6.1.2.2, (ii) its bylaws as in effect on the Closing Date and (iii) the completeness and accuracy of the representations and warranties contained in this Agreement as of the Closing Date, including the absence of any event occurring and continuing, or resulting from the transactions contemplated under this Agreement, that constitutes a Default or an Event of Default under the Indenture.

6.1.2.4.      A certificate of the secretary or an assistant secretary of the Company  certifying the names and true signatures of the officers of the Company executing this Agreement.

6.1.2.5.      A legal opinion of Ropes & Gray, LLP, counsel for the Company, addressed to the Purchaser in substantially the form attached as Exhibit B.

6.1.2.6.      A certificate signed by a duly authorized officer of the Company certifying that the conditions specified in this Section 6 have been fulfilled.

6.1.3.       Acquisition Closed.  The Acquisition shall be consummated substantially simultaneously with the Closing.

6.1.4.       Issues of Notes.  The Company shall have issued and delivered the Notes to the Purchaser against payment therefor as contemplated by Section 2.3.

6.2.          Company Conditions.  The obligation of the Company to issue the Notes on the Closing Date as provided herein is subject to the satisfaction of the following conditions, each as of the Closing Date:

6.2.1.       Purchase Price.  The Purchaser shall have paid for the Notes as provided in Section 2.3.

6.2.2.       Representations and Warranties.  The representations and warranties of the Purchaser set forth in Article 4 shall be true and correct.

6.2.3.       Acquisition Closed.  The Acquisition shall be consummated substantially simultaneously with the Closing.

6

ARTICLE 7
RESTRICTIONS ON TRANSFER; LEGENDS

7.1.          Assignments.  After the Closing and subject to the restrictions referred to in Section 7.2, the Purchaser may sell, assign, transfer or negotiate all or any part of their Notes.

7.2.          Restrictive Notes Legend.  Each Note shall bear legends in substantially the forms contained in Exhibit A and shall be subject to the restrictions on transfer contained in the Indenture for as long as such restrictions shall be applicable.

7.3.          Other Note Legends.  Each Note shall bear a legend in substantially the following form:

“THIS NOTE BEARS ORIGINAL ISSUE DISCOUNT.  UPON WRITTEN REQUEST TO CELLU TISSUE HOLDINGS, INC. 1855 LOCKEWAY DRIVE, STE. 501, ALPHARETTA, GEORGIA 30004, ATTENTION: CHIEF EXECUTIVE OFFICER, INFORMATION REGARDING THE ISSUE PRICE, AMOUNT OF ORIGINAL ISSUE DISCOUNT, ISSUE DATE AND YIELD TO MATURITY WILL BE MADE AVAILABLE.”

ARTICLE 8
MISCELLANEOUS

8.1.          Amendments and Waivers.  No amendment, modification, termination or waiver of any provision of this Agreement, shall in any event be effective without the written consent of the Purchaser  and the Company.

8.2.          Expenses.  Each of the Company and the Purchaser shall bear its own expenses incurred in connection with the execution and delivery of this Agreement and the issuance of the Notes.

8.3.          Notices.  All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and delivered personally or sent via a nationally recognized overnight courier.  Such notices, demands and other communications will be delivered or sent to the address indicated below:

If to the Company:
	1855 Lockeway Drive, Ste. 501
	Alpharetta, Georgia 30004
	Attention: Chief Executive Officer
with a copy to:
	Ropes & Gray LLP
	One International Place
	Boston, Massachusetts 02110
	Fax: (617) 951-7050
	Attention: Lawrence D. Bragg III, Esq.

7

If to Purchaser:	Wingate Capital, Ltd.
	c/o Citadel Limited Partnership
	131 South Dearborn
	Chicago, IL 60603
	Fax: (312) 267-7577
	Attention: Tony Buchanon
with a copy to:	Davis Polk Warwell
	450 Lexington Avenue
	New York, NY 10017
	Fax: (212) 450-3126
	Attention: Alan Dean

or such other address or to the attention of such other Person as the recipient party shall have specified by prior written notice to the sending party.  Any such communication shall be deemed to have been received when actually delivered or refused.

8.4.          Survival of Warranties and Certain Agreements.  Any liability of the Company for any breach of, or inaccuracy in, the representations and warranties made by it herein shall survive the execution and delivery of this Agreement and the sale and delivery of the Notes but shall expire one year after the date of the Closing.

8.5.          Heading.  Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect.

8.6.          Applicable Law.  This Agreement shall be governed by, and shall be construed and enforced in accordance with, the internal laws of the State of New York.

8.7.          Successors and Assigns; Subsequent Holders.  This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of the Purchaser; provided, however, that the Company’s rights  hereunder may not be assigned without the written consent of Purchaser; and provided further, no assignee of purchaser of the Notes from the Purchaser shall be entitled to rely on the representations and warranties of the Company contained herein.

8.8.          Consent to Jurisdiction and Service of Process.  All judicial proceedings with respect to this Agreement or any Notes may be brought in any state or federal court of competent jurisdiction in the State of New York and by execution and delivery of this Agreement the Company accepts for itself and in connection with its properties, generally and unconditionally, the jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement subject, however, to rights of appeal.  The Company hereby agrees that service upon it in the manner provided for the giving of notices in Section 8.3 shall constitute sufficient notice.  Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of the  Purchaser to bring proceedings against the Company in the courts of any other jurisdiction.

8.9.          Waiver of Jury Trial.  Each of the parties hereto waives, to the full extent permitted by applicable law, trial by jury in any litigation in any court with respect to, in connection with, or arising out

8

of this Agreement or any other Document or the validity, protection, interpretation, collection or enforcement thereof.

8.10.        Counterparts; Effectiveness.  This Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.  This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto, and when written or telephonic notification of such execution and authorization of delivery thereof has been received by the Company and the Purchaser.

8.11.        USA PATRIOT ACT.  The Purchaser is subject to the USA PATRIOT ACT (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”) and hereby notifies the Company that pursuant to the requirements of the Act, it may be required to obtain, verify and record information that identifies the Company,  which information includes the name and address of the Company and other information that will allow such Purchaser to identify the Company in accordance with the Act.  The Company hereby agrees to provide any such information upon request, and to the disclosure of such information pursuant to the requirements of the Act and notwithstanding any other provision hereof.

8.12.        Entirety.  This Agreement embodies the entire agreement among the parties and supersede all prior agreements and understandings, if any, relating to the subject matter hereof and thereof.

[Remainder of Page Intentionally Left Blank.]

9

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by the respective duly authorized officers of the undersigned and by the undersigned as of the date first written above.

COMPANY:
CELLU TISSUE HOLDINGS, INC.
By:	/s/ Dianne M. Scheu
	Name:	Dianne M. Scheu
	Title:	Senior Vice President and
		Chief Financial Officer
PURCHASER:
WINGATE CAPITAL LTD.
By:	Citadel Limited Partnership,
	the Portfolio Manager
By:	Citadel Investment Group, LLC,
	Its General Partner
By:	/s/ Matthew Hinerfeld
	Name:	Matthew Hinerfeld
	Title:	Managing Director and
		Deputy General Counsel

Signature page to Note Purchase Agreement

APPENDIX I

TO NOTE PURCHASE AGREEMENT

“Acquisition” has the meaning set forth in the Recitals to the Agreement.

“Acquisition Documents” means (i) the Merger Agreement among the Company, Cellu City Acquisition Corporation, CityForest Corporation and Wayne Gullstad as the Shareholders’ Representative dated February 26, 2007, (ii) the Shareholder Support Agreement dated as of February 26, 2007 entered into by John L. Morrison for the benefit of the Company, (iii) the Shareholder Support Agreement dated as of February 26, 2007 entered into by Wayne Gullstad and Carol Gullstad for the benefit of the Company, (iv) the Paying Agent Agreement among the Company, Cellu City Acquisition Corporation, Wayne Gullstad in his capacity as the Shareholders’ Representative and Wells Fargo Bank, N.A. as paying agent, dated as of March 21, 2007 and (v) the Escrow Agreement among the Company, Cellu City Acquisition Corporation, Wayne Gullstad in his capacity as the Shareholders’ Representative and Wells Fargo Bank, N.A. as escrow agent dated as of March 21, 2007.

 “Agreement” means the Note Purchase Agreement dated as of March 21, 2007 among the Company and the Purchaser, as from time to time in effect, of which this Appendix is a part.

“Closing” shall have the meaning set forth in Section 2.2 of the Agreement.

“Closing Date” means the date of the Closing on which the Notes are issued and sold to the Purchaser pursuant to the Agreement.

“Company” shall have the meaning set forth in the preamble to the Agreement.

“Company SEC Filings” has the meaning set forth in Section 5.4.1 of the Agreement.

“Exchange Act” means the United States Exchange Act of 1934, as amended (and any  successor statute.)

“GAAP” means generally accepted accounting principles as from time to time in effect, including the statements and interpretations of the United States Financial Accounting Standards Board and shall mean when referring to any particular financial statement such principles as in effect on the date of such financial statements.

“Governing Documents” means, with respect to any Person, such Person’s articles and by-laws if a corporation, operating agreement, if a limited liability company or unlimited liability company and limited partnership agreement and certificate of limited partnership, if a limited partnership, and other similar governing documents, with respect to any other entity.

“Governmental Authority” means any government, governmental department, ministry, commission, board, bureau, agency or instrumentality of any government, judicial, legislative or administrative body having jurisdiction over the matter or matters in question.

“Indenture” has the meanings set forth in the Recitals to the Agreement.

 “Material Adverse Effect” means, since any specified date (or if no date is specified, since September 30, 2006) or from the circumstances existing immediately prior to the happening

of any specified event, a material adverse change in the prospects, business, assets or financial condition of the Company and its Subsidiaries on a consolidated basis.

 “Notes” has the meaning set forth in the Recitals to the Agreement.

 “Person” means any entity, whether of natural or legal constitution, including any present or future individual, corporation, partnership, joint venture, limited liability company, unlimited liability company, trust, estate, unincorporated organization, government or any agency or political subdivision thereof.

 “Purchaser” has the meaning set forth in the preamble to the Agreement.

“Securities Act” means the United States Securities Act of 1933, as amended (and any successor statute).

“SEC” means the Securities and Exchange Commission of the United States.

“Senior Secured Notes” has the meaning set forth in the Recitals to the Agreement.

“Subsidiary” means any corporation, association or other business entity of which more than 50% of the total ordinary voting power entitled to vote on the election of directors, managers or trustees thereof (or persons performing similar functions) is owned, directly or indirectly, by the Company.

EXHIBIT A

[FORM OF FACE OF NOTE]

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION.  NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.  THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE “RESALE RESTRICTION TERMINATION DATE”) THAT IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL ACCREDITED INVESTOR ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY’S AND THE TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/ OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM.  THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.

BY ITS ACQUISITION OF THIS SECURITY THE HOLDER HEREOF WILL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT EITHER (I) NO PORTION OF THE ASSETS USED BY SUCH HOLDER TO ACQUIRE AND HOLD THIS SECURITY CONSTITUTES THE ASSETS OF AN EMPLOYEE BENEFIT PLAN THAT IS SUBJECT TO TITLE I OF THE U.S. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OF PLANS, INDIVIDUAL RETIREMENT ACCOUNTS OR OTHER ARRANGEMENTS THAT ARE SUBJECT TO SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”), OR PROVISIONS UNDER ANY FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER LAWS OR REGULATIONS THAT ARE SIMILAR TO SUCH PROVISIONS OF ERISA OR

A-1

THE CODE (“SIMILAR LAWS”), OR OF AN ENTITY WHOSE UNDERLYING ASSETS ARE CONSIDERED TO INCLUDE “PLAN ASSETS” OF SUCH PLANS, ACCOUNTS OR ARRANGEMENTS, OR (II) THE PURCHASE AND HOLDING OF THIS SECURITY WILL NOT CONSTITUTE A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR A SIMILAR VIOLATION UNDER ANY APPLICABLE SIMILAR LAWS.

THIS NOTE BEARS ORIGINAL ISSUE DISCOUNT.  UPON WRITTEN REQUEST TO CELLU TISSUE HOLDINGS, INC. 1855 LOCKEWAY DRIVE, STE. 501, ALPHARETTA, GEORGIA 30004, ATTENTION: CHIEF EXECUTIVE OFFICER, INFORMATION REGARDING THE ISSUE PRICE, AMOUNT OF ORIGINAL ISSUE DISCOUNT, ISSUE DATE AND YIELD TO MATURITY WILL BE MADE AVAILABLE.

No. [      ]	Principal Amount $20,255,572
	CUSIP No. 151169 AE9

CELLU TISSUE HOLDINGS, INC.

93¤4% Senior Secured Note, Series A, due 2010

Cellu Tissue Holdings Inc., a Delaware corporation, promises to pay to Wingate Capital Ltd., or its registered assigns, the principal sum of $20,255,572 Dollars on March 15, 2010.

Interest Payment Dates:  March 15 and September 15
Record Dates:  March 1 and September 1

Additional provisions of this Security are set forth on the other side of this Security.

CELLU TISSUE HOLDINGS, INC.
By:
	Name:
	Title:

A-2

TRUSTEE’S CERTIFICATE OF
  AUTHENTICATION

THE BANK OF NEW YORK TRUST

COMPANY, N.A.
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.

By:
	Authorized Signatory	Date:                     , 2007

A-3

[FORM OF REVERSE SIDE OF NOTE]
CELLU TISSUE HOLDINGS, INC.

93¤4% Senior Secured Note, Series A, due 2010

1.Interest

Cellu Tissue Holdings Inc., a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the “Company”), promises to pay interest on the principal amount of this Security at the rate per annum shown above.

The Company will pay interest semiannually on March 15 and September 15 of each year commencing September 15, 2007.  Interest on the Securities will accrue from the most recent date to which interest has been paid on the Securities or, if no interest has been paid, from March 21, 2007.  The Company shall pay interest on overdue principal, and on overdue premium or Additional Amounts, if any (plus interest on such interest to the extent lawful), at the rate borne by the Securities to the extent lawful.  Interest will be computed on the basis of a 360-day year of twelve 30-day months.

2.Method of Payment

By no later than 10:00 a.m. (New York City time) on the date on which any principal of, premium, if any, or interest on any Security is due and payable, the Company shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, Additional Amounts, if any, and/or interest (including Additional Interest).  The Company will pay interest (except Defaulted Interest) to the Persons who are registered Holders of Securities at the close of business on the March 1 or September 1 next preceding the interest payment date even if Securities are cancelled, repurchased or redeemed after the record date and on or before the interest payment date.  Holders must surrender Securities to a Paying Agent to collect principal payments.  The Company will pay principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company will make all payments in respect of a Definitive Security (including principal, premium, if any, and interest) by mailing a check to the registered address of each Holder thereof; provided, however, that payments on the Securities may also be made, in the case of a Holder of at least $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion).

3.Paying Agent and Registrar

Initially, The Bank of New York Trust Company, N.A. (the “Trustee”) will act as Trustee, Paying Agent and Registrar.  The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice to any Securityholder.  The Company or any of its

A-4

domestically organized, wholly owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.

4.Indenture

The Company issued the Securities under an Indenture dated as of March 12, 2004 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the “Indenture”), among the Company, the Subsidiary Guarantors and the Trustee.  The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb) as in effect on the date of the Indenture (the “Act”).  Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture.  The Securities are subject to all terms and provisions of the Indenture, and Securityholders are referred to the Indenture and the Act for a statement of those terms.

The Securities are secured senior obligations of the Company.  The aggregate principal amount of Securities that may be authenticated and delivered under the Indenture is unlimited, provided that the Net Cash Proceeds from any issuance of Additional Securities are invested in Additional Assets in accordance with the Indenture.  This Security is one of the 9¾% Senior Secured Notes, Series A, due 2010 referred to in the Indenture.  The Securities include (i) $162,000,000 aggregate principal amount of the Company’s 9¾% Senior Secured Notes, Series A, due 2010 issued under the Indenture on March 12, 2004 (herein called “Initial Securities”), (ii) $20,255,572 aggregate principal amount of the Company’s 9¾% Senior Secured Notes, Series A, due 2010 issued under the Indenture on March     , 2007 (the “2007 Notes”), (iii) if and when issued, additional 9¾% Senior Secured Notes, Series A, due 2010 or 9¾% Senior Secured Notes, Series B, due 2010 of the Company that may be issued from time to time under the Indenture subsequent to March 12, 2004 (together, with the 2007 Notes, herein called “Additional Securities”) as provided in Section 2.1(a) of the Indenture and (iv) if and when issued, the Company’s 9¾% Senior Secured Notes, Series B, due 2010 that may be issued from time to time under the Indenture in exchange for Initial Securities or Additional Securities in an offer registered under the Securities Act as provided in any registration rights agreements (herein called “Exchange Securities”).  The Initial Securities, Additional Securities and Exchange Securities are treated as a single class of securities under the Indenture and shall be secured by first and second priority Liens and security interests, subject to Permitted Liens, in the Collateral.  The Indenture imposes certain limitations on the incurrence of indebtedness, the making of restricted payments, the sale of assets and subsidiary stock, the incurrence of certain liens, sale-leaseback transactions, the sale of capital stock of restricted subsidiaries, the making of payments for consents, the entering into of agreements that restrict distribution from restricted subsidiaries and the consummation of mergers and consolidations.  The Indenture also imposes requirements with respect to the provision of financial information and the provision of guarantees of the Securities by certain subsidiaries.

To guarantee the due and punctual payment of the principal, premium, if any, and interest (including post-filing or post-petition interest) on the Securities and all other amounts payable by the Company under the Indenture, the Securities, the Collateral Documents and the Intercreditor Agreement when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Securities and the Indenture, the

A-5

Subsidiary Guarantors have unconditionally guaranteed (and future guarantors, together with the Subsidiary Guarantors, will unconditionally Guarantee), jointly and severally, such obligations on a senior, secured basis pursuant to the terms of the Indenture.

5.Redemption

Except as set forth below, the Securities will not be redeemable at the option of the Company prior to March 15, 2007.  On and after such date, the Securities will be redeemable, at the Company’s option, in whole or in part, at any time upon not less than 30 nor more than 60 days prior notice mailed by first-class mail to each Holder’s registered address, at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest (including Additional Interest) to the applicable redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date):

If redeemed during the 12-month period commencing on March 15 of the years set forth below:

Period	Redemption Price
2007	107.313	%
2008	103.656	%
2009 and thereafter	100.000	%

In addition, at any time and from time to time prior to March 15, 2007, the Company may redeem in the aggregate up to 35% of the original principal amount of the Securities with the Net Cash Proceeds of one or more Public Equity Offerings by the Company or with the Net Cash Proceeds of one or more Public Equity Offerings by Holdings that are contributed to the Company as common equity capital at a redemption price (expressed as a percentage of principal amount) of 109.750% of the principal amount thereof, plus accrued and unpaid interest (including Additional Interest), if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, that:

(1)           there is a Public Market at the time of such redemption;

(2)           at least 65% of the original principal amount of the Securities must remain outstanding after each such redemption; and

(3)           each such redemption occurs within 60 days of the date of closing of such Public Equity Offering.

If the optional redemption date is on or after an interest record date and on or before the related interest payment date, the accrued and unpaid interest (including Additional Interest), if any, will be paid on the optional redemption date to the Person in whose name the

A-6

Security is registered at the close of business on such record date, and no additional interest will be payable to Holders whose Securities will be subject to redemption by the Company.

In the case of any partial redemption, selection of the Securities for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are listed or, if the Securities are not listed, then on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, although no Security of $1,000 in original principal amount or less will be redeemed in part.  If any Security is to be redeemed in part only, the notice of redemption relating to such Security shall state the portion of the principal amount thereof to be redeemed. A new Security in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Security.  On and after the redemption date, interest will cease to accrue on Securities or portions thereof called for redemption as long as the Company has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to the Indenture.

Prior to the mailing of any notice of redemption of the Securities, the Company shall deliver to the Trustee an Officers’ Certificate stating that the Company is entitled to effect such redemption, accompanied by an opinion of counsel satisfactory to the Trustee, acting reasonably, that the conditions precedent to the right of redemption have occurred.  Any such notice to the Trustee may be cancelled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect.  The Company will be bound to redeem the Securities on the date fixed for redemption.

The Company is not required to make any mandatory redemption payments or sinking fund payments with respect to the Securities.

6.Optional Tax Redemption

If any taxes, assessments or other governmental charges are imposed by any jurisdiction where the Company, a Subsidiary Guarantor or a successor of either (a “Payor”) is organized or otherwise considered by a taxing authority to be a resident for tax purposes, any jurisdiction from or through which the Payor makes a payment on the Securities, or, in each case, any political organization or governmental authority thereof or therein having the power to tax (the “Relevant Tax Jurisdiction”) in respect of any payments under the Securities, the Payor will pay to each Holder of a Security, to the extent it may lawfully do so, such additional amounts (“Additional Amounts”) as may be necessary in order that the net amounts paid to such Holder will be not less than the amount specified in such Security to which such Holder is entitled; provided, however, the Payor will not be required to make any payment of Additional Amounts for or on account of:

(1) any tax, assessment or other governmental charge which would not have been imposed but for (A) the existence of any present or former connection between such Holder (or between a fiduciary, settlor, beneficiary, member or shareholder of, or possessor of a power over, such Holder, if such Holder is an estate, trust, partnership, limited liability company or corporation) and the Relevant Tax Jurisdiction other than solely by the holding of Securities or by the receipt of

A-7

principal or interest in respect of the Securities (including, without limitation, such Holder (or such fiduciary, settlor, beneficiary, member, shareholder or possessor) being or having been a citizen or resident thereof or being or having been present or engaged in trade or business therein or having or having had a permanent establishment therein) or (B) the presentation of a Security (where presentation is required) for payment on a date more than 30 days after (x) the date on which such payment became due and payable or (y) the date on which payment thereof is duly provided for and notice of the availability of the funds has been given, whichever occurs later (in either case (x) or (y), except to the extent that the Holder would have been entitled to Additional Amounts had the Security been presented during such 30-day period);

(2) any estate, inheritance, gift, sales, transfer, personal property or similar tax, assessment or other governmental charge;

(3) any tax, assessment or other governmental charge that is imposed or withheld by reason of the failure by the Holder or the beneficial owner of the Security to comply with a reasonable and timely request of the Payor addressed to the Holder to provide information, documents or other evidence concerning the nationality, residence or identity of the Holder or such beneficial owner which is required by a statute, treaty, regulation or administrative practice of the taxing jurisdiction as a precondition to exemption from all or part of such tax, assessment or other governmental charge; or

(4) any combination of the above;

nor will Additional Amounts be paid with respect to any payment of the principal of, or any premium or interest (including Additional Interest) on, any Security to any Holder who is a fiduciary or partnership or limited liability company or other than the sole beneficial owner of such payment to the extent that a beneficiary or settlor with respect to such fiduciary or a member of such partnership, limited liability company or beneficial owner would not have been entitled to such Additional Amounts had it been the Holder of such Security.

The Payor will provide the Trustee with the official acknowledgment of the Relevant Tax Authority (or, if such acknowledgment is not available, a certified copy thereof) evidencing the payment of the withholding taxes by the Payor.  Copies of such documentation will be made available to the Holders of the Securities or the Paying Agent, as applicable, upon request therefor.

The Company and the Subsidiary Guarantors will pay any present or future stamp, court or documentary taxes, or any other excise or property taxes, charges or similar levies which arise in any jurisdiction from the execution, delivery or registration of the Securities or any other document or instrument referred to therein (other than a transfer of the Securities), or the receipt of any payments with respect to the Securities, excluding any such taxes, charges or similar levies imposed by any jurisdiction outside the United States of America or Canada or any jurisdiction in which a paying agent is located, other than those resulting from, or required to be paid in connection with, the enforcement of the Securities or any other such document or instrument following the occurrence of any Event of Default with respect to the Securities.

A-8

All references in the Indenture to principal of, premium, if any, and interest on the Securities will include any Additional Interest and any Additional Amounts payable by the Payor in respect of such principal, such premium, if any, and such interest.

The Payor will be entitled to redeem all, but not less than all, of the Securities if as a result of any change in or amendment to the laws, regulations or rulings of any Relevant Tax Jurisdiction or any change in the official application or interpretation of such laws, regulations or rulings, or any change in the official application or interpretation of, or any execution of or amendment to, any treaty or treaties affecting taxation to which such Relevant Tax Jurisdiction is a party (a “Change in Tax Law”) the Payor is or would be required on the next succeeding interest payment date to pay Additional Amounts with respect to the Securities as described under Section 5.9(a) of the Indenture and the Payor delivers to the Trustee an Officers’ Certificate stating that the payment of such Additional Amounts cannot be avoided by the use of any reasonable measures available to the Payor and that the Payor is entitled to redeem the Securities pursuant to their terms.  The Change in Tax Law must become effective on or after the Issue Date.  Further, the Payor must deliver to the Trustee at least 30 days before the redemption date an opinion of counsel of recognized standing to the effect that the Payor has or will become obligated to pay Additional Amounts as a result of such Change in Tax Law.  The Payor must also provide the Holders with notice of the intended redemption at least 30 days and no more than 60 days before the redemption date and shall comply with all provisions of Article V of the Indenture.  The redemption price will equal the principal amount of the Securities plus accrued and unpaid interest thereon (including Additional Interest), if any to the redemption date, premium, if any, and Additional Amounts, if any, then due and which otherwise would be payable.

7.Repurchase Provisions

If a Change of Control occurs, unless the Company has exercised its right to redeem all of the Securities as described under paragraph 5 of the Securities, each Holder will have the right to require the Company to repurchase from each Holder all or any part (equal to $1,000 or an integral multiple thereof) of such Holder’s Securities at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date) as provided in, and subject to the terms of, the Indenture.

8.Denominations; Transfer; Exchange

The Securities are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000.  A Holder may transfer or exchange Securities in accordance with the Indenture.  The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay a sum sufficient to cover any taxes and fees required by law or permitted by the Indenture.  The Registrar need not register the transfer of or exchange of any Security (A) for a period beginning (1) 15 days before the mailing of a notice of an offer to repurchase or redeem Securities and ending at the close of business on the day of such mailing or (2) 15 days before an interest payment date and ending on

A-9

such interest payment date or (B) called for redemption, except the unredeemed portion of any Security being redeemed in part.

9.Persons Deemed Owners

The registered Holder of this Security may be treated as the owner of it for all purposes.

10.Unclaimed Money

If money for the payment of principal, premium, if any, or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person.  After any such payment, Holders entitled to the money must look only to the Company for payment as general creditors unless an abandoned property law designates another person and not to the Trustee for payment.

11.Defeasance

Subject to certain exceptions and conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Securities, the Indenture, the Collateral Documents and the Intercreditor Agreement if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal, premium, if any, and interest on the Securities to redemption or maturity, as the case may be.

12.Amendment, Supplement, Waiver

Subject to certain exceptions set forth in the Indenture, (i) the Indenture, the Securities, the Subsidiary Guarantees, the Collateral Documents or the Intercreditor Agreement may be amended or supplemented by the Company, Subsidiary Guarantors and Trustee with the written consent of the Holders of at least a majority in principal amount of the then outstanding Securities and (ii) any default (other than with respect to nonpayment or in respect of a provision that cannot be amended without the written consent of each Securityholder affected) or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount of the then outstanding Securities.  Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company, Subsidiary Guarantors and the Trustee may amend or supplement the Indenture, the Securities, the Subsidiary Guarantees, the Collateral Documents or the Intercreditor Agreement to cure any ambiguity, omission, defect or inconsistency, to comply with Article IV or Article X of the Indenture, to provide for uncertificated Securities in addition to, or in place of, certificated Securities, to add Guarantees with respect to the Securities, to release Subsidiary Guarantors upon their designation as Unrestricted Subsidiaries or otherwise in accordance with the Indenture, to secure the Securities, to release Liens in favor of the Collateral Agent in the Collateral as provided under the collateral release provisions, to add additional covenants of the Company, to surrender rights and powers conferred on the Company, to comply with any requirement of the SEC in connection with qualifying the Indenture under the Act, to make any change that does not adversely affect the rights of any Securityholder or, in the case of the

A-10

Intercreditor Agreement, that does not adversely affect the rights of any Securityholder in any material respect, or to provide for the issuance of Exchange Securities.

13.Defaults and Remedies

Under the Indenture, Events of Default include (each of which is described in greater detail in the Indenture) (i) default for 30 days in payment of interest, Additional Interest or Additional Amounts when due on the Securities; (ii) default in payment of principal or premium, if any, on the Securities at Stated Maturity, upon required repurchase or upon optional redemption pursuant to paragraph 5 of the Securities, upon declaration or otherwise; (iii) the failure by the Company or any Subsidiary Guarantor to comply with its obligations under Article IV or Section 10.2 of the Indenture; (iv) failure by the Company to comply for 30 days after written notice with any of its obligations under the covenants described under Sections 3.2 through 3.12 inclusive, Section 3.16 or Section 3.19 of the Indenture (in each case, other than a failure to purchase Securities when required under the Indenture, which failure shall constitute an Event of Default under clause (ii) above) or failure by the Company or any Subsidiary Guarantor to comply for 30 days after written notice with any of its obligations under the Collateral Documents; (v) the failure by the Company to comply for 60 days after written notice with its other agreements contained in the Indenture or under the Securities (other than those referred to in clause (i), (ii), (iii) or (iv) above); (vi) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), other than Indebtedness owed to the Company or a Restricted Subsidiary, whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness at maturity prior to the expiration of the grace period provided in such Indebtedness (“payment default”) or (b) results in the acceleration of such Indebtedness prior to its maturity (the “cross acceleration provision”) and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (vii) certain events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements for the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary (the “bankruptcy provisions”); (viii) failure by the Company or any Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements for the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary to pay final judgments aggregating in excess of $5.0 million (net of any amounts that a reputable and creditworthy insurance company has acknowledged liability for in writing), which judgments are not paid, discharged, waived or stayed for a period of 60 days (the “judgment default provision”); (ix) any Subsidiary Guarantee or Collateral Document ceases to be in full force and effect (except as contemplated by the terms of the Indenture) or is declared null and void in a judicial proceeding or any of Holdings, the Company or any Subsidiary Guarantor denies or disaffirms its obligations under the Indenture, any Subsidiary Guarantee, any Collateral Document to which it is a party or the Intercreditor Agreement; or (x) with respect to any Collateral having a fair market value in excess of $5.0 million, individually or in the aggregate, (A) the security interest under the Collateral

A-11

Documents, at any time, ceases to be in full force and effect for any reason other than in accordance with their terms and the terms of the Indenture and other than the satisfaction in full of all obligations under the Indenture and discharge of the Indenture, (B) any security interest created thereunder or under the Indenture is declared invalid or unenforceable or (C) Holdings, the Company or any Subsidiary Guarantor asserts, in any pleading in any court of competent jurisdiction, that any such security interest is invalid or unenforceable.  However, a default under clause (iv) or (v) will not constitute an Event of Default until the Trustee or the Holders of at least 25% in principal amount of the outstanding Securities notify the Company of the Default and the Company does not cure such Default within the time specified in clause (iv) or (v) hereof after receipt of such notice.

If an Event of Default (other than an Event of Default described in (vii) hereof) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the outstanding Securities by notice to the Company and the Trustee, may, and the Trustee at the request of such Holders shall, declare all the Securities to be due and payable immediately.  If an Event of Default described in clause (vii) hereof occurs and is continuing, the principal of, premium, if any, and accrued and unpaid interest on all the Securities will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders.

Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture.  The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security.  Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power.  The Trustee may withhold from Securityholders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of principal or interest) if it determines that withholding notice is in their interest.

14.Trustee Dealings with the Company

Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or their Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee.

15.No Recourse Against Others

An incorporator, director, officer, employee or stockholder of each of the Company or any Subsidiary Guarantor, solely by reason of this status, shall not have any liability for any obligations of the Company or any Subsidiary Guarantor under the Securities, the Indenture, the Collateral Documents, the Intercreditor Agreement, any Subsidiary Guarantees or for any claim based on, in respect of or by reason of such obligations or their creation.  By accepting a Security, each Securityholder waives and releases all such liability.  The waiver and release are part of the consideration for the issue of the Securities.

A-12

16.Authentication

This Security shall not be valid until an authorized officer of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security.

17.Abbreviations

Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the entirety), JT TEN (= joint tenants with rights of survivorship and not as tenants in common), CUST (= custodian) and U/G/M/A (= Uniform Gift to Minors Act).

18.CUSIP, Common Code and ISIN Numbers

The Company has caused CUSIP, Common Code and ISIN numbers, if applicable, to be printed on the Securities and has directed the Trustee to use CUSIP, Common Code and ISIN numbers, if applicable, in notices of redemption or purchase as a convenience to Securityholders.  No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption or purchase and reliance may be placed only on the other identification numbers placed thereon.

19.Governing Law

This Security shall be governed by, and construed in accordance with, the laws of the State of New York.

A-13

ASSIGNMENT FORM

To assign this Security, fill in the form below:

I or we assign and transfer this Security to:

(Print or type assignee’s name, address and zip code)
(Insert assignee’s social security or tax I.D. No.)
and irrevocably appoint ___________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him.
Date:		Your Signature:
Signature Guarantee:
	(Signature must be guaranteed)
Sign exactly as your name appears on the other side of this Security.

The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15.

In connection with any transfer or exchange of any of the Securities evidenced by this certificate occurring prior to the date that is two years after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Securities are being:

CHECK ONE BOX BELOW:

(1)	o	acquired for the undersigned’s own account, without transfer; or
(2)	o	transferred to the Company; or
(3)	o	transferred pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”); or
(4)	¨	transferred pursuant to an effective registration statement under the Securities Act; or
(5)	¨	transferred pursuant to and in compliance with Regulation S under the Securities Act; or

A-14

(6)	¨	transferred to an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act), that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter appears as Section 2.8 of the Indenture); or
(7)	¨	transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933, as amended.

Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if box (5), (6) or (7) is checked, the Company may require, prior to registering any such transfer of the Securities, in its sole discretion, such legal opinions, certifications and other information as the Company may reasonably request to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended, such as the exemption provided by Rule 144 under such Act.

	Signature
Signature Guarantee:
(Signature must be guaranteed)	Signature

The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15.

TO BE COMPLETED BY PURCHASER IF BOX (1) OR (3) ABOVE IS CHECKED.

The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned’s foregoing representations in order to claim the exemption from registration provided by Rule 144A.

Dated:

A-15

OPTION OF HOLDER TO ELECT PURCHASE

If you elect to have this Security purchased by the Company pursuant to Section 3.5 or 3.10 of the Indenture, check either box:

¨	¨
3.5	3.10

If you want to elect to have only part of this Security purchased by the Company pursuant to Section 3.5 or Section 3.10 of the Indenture, state the amount in principal amount (must be integral multiple of $1,000):  $____________________________________________ and specify the denomination or denominations (which shall not be less than the minimum authorized denomination) of the Securities to be issued to the Holder for the portion of the within Security not being repurchased (in the absence of any such specification, one such Security will be issued for the portion not being repurchased): _________________.

Date:		Your Signature
			(Sign exactly as your name appears on the other side of the Security)
Signature Guarantee:
	(Signature must be guaranteed)

The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15.

A-16

SUBSIDIARY GUARANTEE

Pursuant to the Indenture (the “Indenture”) dated as of March 12, 2004 among Cellu Tissue Holdings, Inc., the Subsidiary Guarantors party thereto (each a “Subsidiary Guarantor” and collectively the “Subsidiary Guarantors”) and The Bank of New York Trust Company, N.A., as trustee (the “Trustee”), each Subsidiary Guarantor, subject to the provisions of Article X of the Indenture, hereby fully, unconditionally and irrevocably guarantees, as primary obligor and not merely as surety, jointly and severally with each other Subsidiary Guarantor, to each Holder of the Securities, to the extent lawful, and the Trustee the full and punctual payment when due, whether at maturity, by acceleration, by redemption or otherwise, of the principal of, premium, if any, Additional Amounts, if any, and interest (including Additional Interest) on the Securities and all other obligations and liabilities of the Company under the Indenture (including without limitation interest (including Additional Interest) accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company or any Subsidiary Guarantor whether or not a claim for post-filing or post-petition interest is allowed in such proceeding and the obligations under Section 7.7 of the Indenture), the Collateral Documents and the Intercreditor Agreement (all the foregoing being hereinafter collectively called the “Obligations”).  Each Subsidiary Guarantor agrees that the Obligations will rank equally in right of payment with other Indebtedness of such Subsidiary Guarantor, except to the extent such other Indebtedness is subordinate to the Obligations.  Each Subsidiary Guarantor further agrees (to the extent permitted by law) that the Obligations may be extended or renewed, in whole or in part, without notice or further assent from it, and that it will remain bound under this Subsidiary Guarantee notwithstanding any extension or renewal of any Obligation.

Each Subsidiary Guarantor waives presentation to, demand of payment from and protest to the Company of any of the Obligations and also waives notice of protest for nonpayment.  Each Subsidiary Guarantor waives notice of any default under the Securities or the Obligations.

Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee herein constitutes a Guarantee of payment when due (and not a Guarantee of collection) and waives any right to require that any resort be had by any Holder to any security held for payment of the Obligations.

Except as set forth in Section 10.2 of the Indenture, the obligations of each Subsidiary Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (other than payment of the Obligations in full), including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise.  Without limiting the generality of the foregoing, the obligations of each Subsidiary Guarantor herein shall not be discharged or impaired or otherwise affected by (a) the failure of any Holder to assert any claim or demand or to enforce any right or remedy against the Company or any other person under the Indenture, the Securities or any other agreement or otherwise; (b) any extension or renewal of any thereof; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of the Indenture, the Securities or any other agreement; (d) the release of any security held by any

A-17

Holder or the Collateral Agent for the Obligations or any of them; (e) the failure of any Holder to exercise any right or remedy against any other Subsidiary Guarantor; (f) any change in the ownership of the Company; (g) any default, failure or delay, willful or otherwise, in the performance of the Obligations, or (h) any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of any Subsidiary Guarantor or would otherwise operate as a discharge of such Subsidiary Guarantor as a matter of law or equity.

Each Subsidiary Guarantor agrees that its Subsidiary Guarantee herein shall remain in full force and effect until payment in full of all the Obligations or such Subsidiary Guarantor is released from its Subsidiary Guarantee upon the merger or the sale of all the Capital Stock or assets of the Subsidiary Guarantor or otherwise in compliance with Section 10.2 or Article VIII of the Indenture.  Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of, premium, if any, or interest on any of the Obligations is rescinded or must otherwise be restored by any Holder upon the bankruptcy or reorganization of the Company or otherwise.

In furtherance of the foregoing and not in limitation of any other right which any Holder has at law or in equity against any Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay any of the Obligations when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, each Subsidiary Guarantor hereby promises to and will, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Trustee or the Trustee on behalf of the Holders an amount equal to the sum of (i) the unpaid amount of such Obligations then due and owing and (ii) accrued and unpaid interest (including Additional Interest) on such Obligations then due and owing (but only to the extent not prohibited by law).

Each Subsidiary Guarantor further agrees that, as between such Subsidiary Guarantor, on the one hand, and the Holders, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in the Indenture for the purposes of its Subsidiary Guarantee herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby and (y) in the event of any such declaration of acceleration of such Obligations, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Subsidiary Guarantor for the purposes of this Subsidiary Guarantee.

Each Subsidiary Guarantor also agrees to pay any and all reasonable costs and expenses (including reasonable attorneys’ fees) incurred by the Trustee or the Holders in enforcing any rights under this Subsidiary Guarantee.

A-18

CELLU TISSUE CORPORATION — NATURAL DAM
CELLU TISSUE CORPORATION — NEENAH
CELLU TISSUE LLC
INTERLAKE ACQUISITION CORPORATION LIMITED
MENOMINEE ACQUISITION CORPORATION
VAN PAPER COMPANY
VAN TIMBER COMPANY,
as Subsidiary Guarantors
By:
	Name:
	Title:
COASTAL PAPER COMPANY,
as a Subsidiary Guarantor
By: Van Paper Company, its
managing partner
By:
	Name:
	Title:

A-19

EX-10.2

Exhibit 10.2

SECOND SUPPLEMENTAL INDENTURE

This Second Supplemental Indenture, dated as of March 21, 2007 (this “Supplemental Indenture” or “Guarantee”), among Cellu Tissue-CityForest LLC (the “Guarantor”), Cellu Tissue Holdings, Inc. (together with its successors and assigns, the “Company”), each other then existing Subsidiary Guarantor under the Indenture referred to below, and The Bank of New York Trust Company, N.A., as Trustee under the Indenture referred to below.

W I T N E S S E T H:

WHEREAS, the Company, the Subsidiary Guarantors and the Trustee have heretofore executed and delivered an Indenture, dated as of March 12, 2004 (as amended, supplemented, waived or otherwise modified, the “Indenture”), providing for the issuance of an aggregate principal amount of $162.0 million of 9¾% Senior Secured Notes due 2010 of the Company (the “Securities”);

WHEREAS, Section 3.12 of the Indenture provides that after the Issue Date the Company is required to cause each Restricted Subsidiary (other than a Foreign Subsidiary that does not Guarantee any Indebtedness of the Company or any Restricted Subsidiary) created or acquired by the Company or one or more Restricted Subsidiaries or Holdings, in the event that Holdings Guarantees any Indebtedness of the Company or any of its Restricted Subsidiaries, to execute and deliver to the Trustee a supplemental indenture pursuant to which such Subsidiary (or Holdings, if applicable) will unconditionally Guarantee, on a joint and several basis with the other Subsidiary Guarantors, the full and prompt payment of the principal of, premium, if any, and interest on the Securities on a secured basis; and

WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee and the Company are authorized to execute and deliver this Supplemental Indenture to amend or supplement the Indenture, without the consent of any Securityholder;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guarantor, the Company, the other Subsidiary Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Securities as follows:

ARTICLE I

Definitions

SECTION 1.1  Defined Terms.  As used in this Supplemental Indenture, terms defined in the Indenture or in the preamble or recital hereto are used herein as therein defined.  The words “herein,” “hereof” and “hereby” and other words of similar import used in this Supplemental Indenture refer to this

1

Supplemental Indenture as a whole and not to any particular section hereof.

ARTICLE II

Agreement to be Bound; Guarantee

SECTION 2.1  Agreement to be Bound.  The Guarantor hereby becomes a party to the Indenture as a Subsidiary Guarantor and as such will have all of the rights and be subject to all of the obligations and agreements of a Subsidiary Guarantor under the Indenture.  The Guarantor agrees to be bound by all of the provisions of the Indenture, the Collateral Documents and the Intercreditor Agreement applicable to a Subsidiary Guarantor and to perform all of the obligations and agreements of a Subsidiary Guarantor under the Indenture, the Collateral Documents and the Intercreditor Agreement.

SECTION 2.2   Guarantee.  The Guarantor agrees, on a joint and several basis with all the existing Subsidiary Guarantors, to fully, unconditionally and irrevocably Guarantee to each Holder of the Securities and the Trustee the Obligations pursuant to Article X of the Indenture on a secured basis.

ARTICLE III

Miscellaneous

SECTION 3.1   Notices.  All notices and other communications to the Guarantor shall be given as provided in the Indenture to the Guarantor, at its address set forth below, with a copy to the Company as provided in the Indenture for notices to the Company.

SECTION 3.2   Parties.  Nothing expressed or mentioned herein is intended or shall be construed to give any Person, firm or corporation, other than the Holders and the Trustee, any legal or equitable right, remedy or claim under or in respect of this Supplemental Indenture or the Indenture or any provision herein or therein contained.

SECTION 3.3   Governing Law.  This Supplemental Indenture shall be governed by, and construed in accordance with, the laws of the State of New York.

SECTION 3.4   Severability Clause.  In case any provision in this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability.

SECTION 3.5   Ratification of Indenture; Supplemental Indentures Part of Indenture.  Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and

2

effect.  This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby.  The Trustee makes no representation or warranty as to the validity or sufficiency of this Supplemental Indenture or with respect to the recitals contained herein, all of which recitals are made solely by the other parties hereto.

SECTION 3.6   Counterparts.  The parties hereto may sign one or more copies of this Supplemental Indenture in counterparts, all of which together shall constitute one and the same agreement.

SECTION 3.7   Headings.  The headings of the Articles and the sections in this Guarantee are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof.

3

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.

CELLU TISSUE-CITYFOREST LLC,
as a Guarantor
By:	/s/ Dianne M. Scheu
	Name:	Dianne M. Scheu
	Title:	Senior Vice President and Chief Financial Officer
THE BANK OF NEW YORK TRUST COMPANY, N.A., as Trustee
By:	/s/ Peter M. Murphy
	Name:	Peter M. Murphy
	Title:	Vice President
CELLU TISSUE HOLDINGS, INC.
By:	/s/ Dianne M. Scheu
	Name:	Dianne M. Scheu
	Title:	Senior Vice President and Chief Financial Officer
CELLU TISSUE CORPORATION — NATURAL DAM
CELLU TISSUE CORPORATION — NEENAH
CELLU TISSUE LLC
INTERLAKE ACQUISITION CORPORATION LIMITED
MENOMINEE ACQUISITION CORPORATION
VAN PAPER COMPANY
VAN TIMBER COMPANY
By:	/s/ Dianne M. Scheu
	Name:	Dianne M. Scheu
	Title:	Senior Vice President and Chief Financial Officer

Supplemental Indenture

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

Supplemental Indenture

EX-10.3

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 9¾% 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

2

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.

3

(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:

4

“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 Amendment

EX-10.4

Exhibit 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).

2

“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 9¾% 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

EX-10.5

Exhibit 10.5

LOAN AGREEMENT

Dated as of March 1, 1998

By and Between

CITY OF LADYSMITH, WISCONSIN

and

CITYFOREST CORPORATION

Relating to:

$27,000,000

CITY OF LADYSMITH, WISCONSIN

VARIABLE RATE DEMAND SOLID WASTE DISPOSAL FACILITY
REVENUE BONDS,

SERIES 1998 (CITYFOREST CORPORATION PROJECT)

Notice of Assignment:

All rights and interest of the City of Ladysmith under this Loan Agreement have (with certain exceptions) been assigned to Norwest Bank Wisconsin, N.A., Milwaukee, Wisconsin, under an Indenture of Trust dated even herewith.

TABLE OF CONTENTS

		PAGE
ARTICLE I DEFINITIONS AND USE OF PHRASES
Section 1.01	Definitions	2
Section 1.02	Use of Phrases; Rules of Construction	3
ARTICLE II THE LOAN
Section 2.01	Issuance of Bonds to Finance the Project	4
Section 2.02	Making of the Loan	4
Section 2.03	Acceptance and Evidence of the Loan	4
Section 2.04	Direct, Unsecured Obligation	5
Section 2.05	Pledge and Assignment to Trustee	5
Section 2.06	Loan Repayment	5
ARTICLE III CONSTRUCTION OF THE PROJECT.
Section 3.01	Agreement to Complete the Project	5
Section 3.02	Manner of Procuring Disbursements from the Cost of Issuance Fund	6
Section 3.03	Manner of Procuring Disbursements from the Construction Fund	6
Section 3.04	Amendments to Project Plans and Specifications	7
Section 3.05	Establishment of Project Completion Date	7
Section 3.06	Closing of Construction Fund	7
Section 3.07	Maintenance and Improvement of Project	8
Section 3.08	Agreements for the Benefit of the Issuer	8
ARTICLE IV CONVERSION OF INTEREST RATE, REMARKETING AGENT AND CREDIT FACILITIES
Section 4.01	Conversion of Interest Rate	8
Section 4.02	Concerning the Remarketing Agent	9
Section 4.03	Concerning Substitute Credit Facilities	9
Section 4.04	References to Credit Facility Provider After Expiration or Default of Credit Facility	9
ARTICLE V PREPAYMENT OF PROMISSORY NOTE
Section 5.01	Optional Prepayment of Promissory Note Upon Occurrence of Certain Extraordinary Events	9
Section 5.02	Mandatory Prepayment of Promissory Note Upon Determination of Taxability or Expiration of Credit Facility	10
Section 5.03	Optional Prepayment of the Promissory Note	11
Section 5.04	Deposit of Prepayments in Redemption Fund	12
Section 5.05	Corresponding Redemption of Bonds	12
Section 5.06	Purchase and Cancellation of Bonds	12

i

ARTICLE VI REPRESENTATIONS OF BORROWER
Section 6.01	Corporate Existence and Authorizations	12
Section 6.02	Absence of Conflicting Agreements	12
Section 6.03	Absence of Litigation	12
Section 6.04	Regulatory Approvals	13
Section 6.05	Date and Survival of Representations; Exceptions	13
ARTICLE VII COVENANTS OF BORROWER
Section 7.01	Payment of Promissory Note	13
Section 7.02	Unconditional Obligation to Provide the Issuer with Sufficient Revenues	13
Section 7.03	Indemnification of Issuer	14
Section 7.04	Taxes, Licenses, Utilities and Governmental Charges	15
Section 7.05	Insurance	15
Section 7.06	Tax Status of Bonds	15
Section 7.07	Sale or Transfer of Project	17
Section 7.08	Maintenance of Corporate Existence	17
Section 7.09	Transfers of Assets	18
Section 7.10	Debt Service Reserve Fund	18
ARTICLE VIII DAMAGE; EMINENT DOMAIN
Section 8.01	Damage	18
Section 8.02	Eminent Domain	19
ARTICLE IX THE TRUSTEE AND TRUST FUNDS
Section 9.01	Payment of Trustee’s Fees	19
Section 9.02	Duty to Provide Data	20
Section 9.03	Investment of Trust Funds; Arbitrage	20
Section 9.04	Bond Fund and Redemption Fund	21
Section 9.05	Excess Trust Fund Moneys	21
ARTICLE X DEFAULT PROVISIONS
Section 10.01	Defaults; Events of Default	21
Section 10.02	Acceleration	22
Section 10.03	Remedies	22
Section 10.04	Disposition of Amounts Collected	22
Section 10.05	Payment of Costs and Expenses	22
Section 10.06	Limitation on Waivers	23
Section 10.07	Performance by Third Parties	23
Section 10.08	Performance for Issuer Under Indenture	23
ARTICLE XI MISCELLANEOUS
Section 11.01	Amendments	23
Section 11.02	Successors	24
Section 11.03	Governing Law	24

ii

Section 11.04	Captions and Dates	24
Section 11.05	Counterparts	24
Section 11.06	Notices	24
Section 11.07	Severability	24
Section 11.08	Termination	25
Section 11.09	Limited Liability of Issuer	25

EXHIBITS

Exhibit A - Form of Promissory Note
Exhibit B - Form of Conversion Notice
Exhibit C - Form of Reset Notice
Exhibit D - Form of Requisition
Exhibit E - Eligible Costs of the Project

iii

LOAN AGREEMENT

THIS LOAN AGREEMENT, made and entered into as of March 1, 1998, by and between the CITY OF LADYSMITH, WISCONSIN, a political subdivision and body corporate and politic existing under the laws of the State of Wisconsin (the “Issuer”) and CITYFOREST CORPORATION, a Minnesota corporation authorized to do business in the state of Wisconsin (the “Borrower”);

WITNESSETH:

WHEREAS, the Issuer is authorized pursuant to the provisions of the laws of the State of Wisconsin, including specifically, but without limitation, Section 66.521, Wisconsin Statutes (the “Act”), to issue its revenue bonds to finance or refinance all or any part of the construction, equipping, re-equipping, acquisition, purchase, installation, reconstruction, rebuilding, rehabilitation, improving, supplementing, replacing, maintaining, repairing, enlarging, extending or remodeling of qualified projects and the improvement of sites therefor within and outside of the territory of the Issuer; and

WHEREAS, the Issuer is further authorized by the Act to issue its revenue bonds, payable solely and only from the revenues and receipts to be derived by the Issuer from the Borrower, to provide funds to pay, in whole or in part, or to reimburse the Borrower for, the costs of such qualified projects; and

WHEREAS, the Issuer has induced the Borrower to proceed with the Project (as hereinafter defined) in the territory of the Issuer by offering to issue the Bonds (as hereinafter defined) and to loan the proceeds thereof to the Borrower for the purpose of paying certain costs of the Project; and

WHEREAS, the Issuer will receive substantial municipal benefits from the Project, including by way of illustration but not limitation: retention of and more steady employment of its citizens resulting in the alleviation of unemployment within the Issuer; maintenance or increase in the tax base of the Issuer resulting in greater support for education and municipal services; stimulation for expansion of existing and new business; stimulation of private investment funds from financial institutions; and betterment of the Issuer’s environment and economy; and

WHEREAS, the Issuer’s governing body has found and determined that the Project is a qualified project under the Act, that the Borrower is an eligible participant under the Act, and that this Loan Agreement meets the requirements of a revenue agreement under the Act; and

WHEREAS, the Issuer’s governing body has found and determined the financing of the Project with the Bonds will serve the intended accomplishments of public purpose and will in all respects conform to the provisions and requirements of the Act; and

WHEREAS, the execution and delivery of this Loan Agreement have been in all respects duly and validly authorized by resolution of the Issuer’s governing body, and no

sufficient petition for a referendum has been filed pursuant to the provisions of subsection (10)(d) of the Act;

WHEREAS, the execution and delivery of this Loan Agreement have been in all respects duly and validly authorized by resolution of the Issuer’s governing body;

NOW, THEREFORE, in consideration of the premises and of the covenants and undertakings herein expressed, the Issuer and the Borrower agree as follows:

ARTICLE I

DEFINITIONS AND USE OF PHRASES

Section 1.01  Definitions.

As used in this Loan Agreement and the recitals hereto, the terms and phrases defined in the Indenture of Trust dated even herewith between the Issuer and U.S. Bank National Association, as trustee, shall, except as set forth below, have the same meanings herein. In addition:

“Bond Discount” means the difference, if any, between the Bond Amount and the price at which the Bonds are sold by the Issuer to the original purchaser(s) of the Bonds.

“Eligible Costs of the Project” means the following categorical costs of providing the Project:

(a) the “Bond Issuance Costs”, namely the costs, fees and expenses incurred or to be incurred by the Borrower in connection with the issuance and sale of the Bonds which are subject to the limitation described in Section 147(g)(l) of the Internal Revenue Code, including commitment, underwriting, remarketing or other financing fees, the fees and disbursements of Bond Counsel, the Trustee’s acceptance fee, the filing and recording fees in connection with any filings or recording necessary under the Indenture or to perfect the lien thereof, any administrative fee of the Issuer, the fees and disbursements of counsel to the Issuer, the fees and disbursements of counsel to the Borrower, the fees and disbursements of counsel to the underwriter, the fees and disbursements of counsel to the Credit Facility Provider, rating agency fees, the fees and disbursements of the Borrower’s accountants, the costs of preparing or printing the Bonds and the documentation supporting the issuance of the Bonds, the costs of any title insurance policies, appraisals, environmental audits and similar costs relating to the Project or other security for the Borrower’s obligations under the Credit Facility Reimbursement Agreement, and any other costs of a similar nature reasonably incurred;

2

(b) the “Capitalized Interest Costs”, namely interest on the Bonds from the date of their original delivery to the Completion Date and certain fees of the Credit Facility Provider approved in writing by Bond Counsel;

(c) the “Engineering Costs”, namely (i) the architectural and engineering costs and other costs which are or were necessary for the design and planning of the Project and which were paid or incurred after November 13, 1995 and/or (ii) costs which constitute preliminary expenditures as such term is used in Treas. Reg. §1.150-2(f);

(d) the “Basic Project Costs”, namely those costs of acquiring, constructing and installing the Project which were paid or incurred after November 13, 1995 and which were or are for the purpose of providing land or property of a character subject to the allowance for depreciation under Section 167 of the Internal Revenue Code;

(e) the “Other Costs”, namely such other costs paid or incurred in connection with the Project or the financing thereof which, in the opinion of Bond Counsel, may be paid or reimbursed to the Borrower from the Construction Fund without adverse effect on the legality of the Bonds or the exclusion of interest thereon from gross income for federal income tax purposes under Sections 103(a) and 142 of the Internal Revenue Code; and

(f) the “Debt Service Reserve Fund Costs” means an amount up to $500,000 to be paid to the Credit Facility Provider for deposit in the Debt Service Reserve Fund.

“Event of Default” means any of the events designated as such in Section 10.01 of this Loan Agreement.

“Loan” means the Loan described in Section 2.02 hereof.

Section 1.02  Use of Phrases: Rules of Construction.

The following provisions shall be applied wherever appropriate herein:

“Herein”, “hereby”, “hereunder”, “hereof” and other equivalent words refer to this Loan Agreement as an entirety and not solely to the particular portion of this Loan Agreement in which any such word is used.

The definitions set forth in Section 1.01 hereof shall be deemed applicable whether the words defined are herein used in the singular or the plural.

Wherever used herein, any pronoun or pronouns shall be deemed to include both the singular and plural and to cover all genders.

3

Unless otherwise provided, any determinations or reports hereunder which require the application of accounting concepts or principles shall be made in accordance with generally accepted accounting principles.

ARTICLE II

THE LOAN

Section 2.01  Issuance of Bonds to Finance the Project.

Simultaneously with the delivery of this Loan Agreement, the Issuer shall issue, sell and deliver the Bonds in the Bond Amount to provide it with funds to be loaned to the Borrower pursuant to this Loan Agreement. The Bonds shall be issued in accordance with the Indenture. The Borrower’s approval of the terms of the Bonds and the Indenture shall be conclusively established by its execution and delivery of this Loan Agreement. If for any reason the Bonds are not issued, sold and delivered, the Issuer shall have no obligation to make the Loan and this Loan Agreement and the Promissory Note shall each cease, terminate and be void.

Section 2.02  Making of the Loan.

The Issuer hereby makes a Loan to the Borrower in the principal amount of the Bond Amount. The Loan shall be deemed to have been made when the proceeds of the original sale of the Bonds are delivered to the Trustee at the direction of the Issuer. Such proceeds shall be apportioned by the Trustee and deposited in Trust Funds, as follows:

(a) An amount equal to the Cost of Issuance Deposit Amount shall be paid to the Credit Facility Provider for deposit into the Cost of Issuance Fund and the Initial Debt Service Amount shall be paid to the Credit Facility Provider for deposit in the Debt Service Reserve Fund; and

(b) The balance shall be deposited into the Construction Fund.

The Bond Discount, if any, shall be deemed to have been loaned to the Borrower and applied to the Bond Issuance Costs. The Bond Amount equals (and the Loan consists of) the sum of the Bond Discount plus items (a) and (b) above.

Section 2.03  Acceptance and Evidence of the Loan.

The Borrower hereby accepts the Loan and as evidence thereof hereby delivers the Promissory Note to the Issuer. The Issuer hereby acknowledges receipt of the Promissory Note.

4

Section 2.04  Direct, Unsecured Obligation.

The debt obligations of the Borrower under this Loan Agreement and the Promissory Note are direct, unsecured obligations of the Borrower.

Section 2.05  Pledge and Assignment to Trustee.

Simultaneously with the delivery of this Loan Agreement, the Issuer shall pledge and assign to the Trustee under the Indenture all of the Issuer’s right, title and interest in and to the Promissory Note, this Loan Agreement and all of the Issuer’s rights to receive payments thereunder and hereunder; provided, however, that the Issuer reserves the right to enforce the Unassigned Rights in its own name and for its own account. The Borrower hereby consents to such pledge and assignment and agrees that the Trustee may enforce any and all rights, privileges and remedies of the Issuer (other than the Unassigned Rights) under or with respect to the Promissory Note and this Loan Agreement.

Section 2.06  Loan Repayment.

The Borrower shall repay the Loan in accordance with the terms of the Promissory Note. The Promissory Note shall be in the Bond Amount and shall mature on the Final Maturity Date, but shall be subject to prepayment, as provided therein upon the establishment of Reset Periods and as otherwise provided in Article V hereof. The Promissory Note shall bear interest from the date of issuance of the Bonds, (i) prior to the Conversion Date, at the Variable Rate, and (ii) thereafter, during each Reset Period, at the Adjusted Interest Rates from time to time. Interest is payable (i) on and prior to the Conversion Date, on the first Business Day of each month, commencing March 1, 1998, (ii) thereafter, on March 1 and September 1 of each year, commencing the first such date which is at least 30 days after the Conversion Date, and (iii) on each other Interest Payment Date for the Bonds as provided in the Indenture. The payments on the Promissory Note shall be made by the Borrower (or by the Credit Facility Provider pursuant to the Credit Facility Reimbursement Agreement) directly to the Trustee then acting under the Indenture. The Trustee shall deposit all payments on the Promissory Note into the Bond Fund or the Redemption Fund as provided in the Indenture.

The Borrower’s principal and interest payment obligations on the Promissory Note shall be discharged to the extent that the corresponding principal and interest payments on the Bonds are made from the Bond Fund in accordance with the provisions of the Indenture.

ARTICLE III

CONSTRUCTION OF THE PROJECT.

Section 3.01  Agreement to Complete the Project.

The Borrower agrees to complete, or cause to be completed, the construction, acquisition and installation of the Project with all reasonable dispatch in accordance with the

5

Project Plans and Specifications. If the moneys in the Construction Fund shall be insufficient to pay the costs of completing the Project, the Borrower shall nevertheless complete the same and shall be responsible for causing the costs thereof to be paid. The Borrower shall procure any and all building permits, use and occupancy permits, and other permits, licenses and authorizations necessary for the construction, completion, occupancy and use of the Project.

Section 3.02  Manner of Procuring Disbursements from the Cost of Issuance Fund.

Bond Issuance Costs, to the extent financed by the Bonds, may be disbursed only from the Cost of Issuance Fund and only in an aggregate amount not exceeding the Cost of Issuance Deposit Amount. Upon requisition as hereinafter provided, the moneys in the Cost of Issuance Fund shall be disbursed to or at the order of the Borrower to pay (or reimburse the Borrower for) the Bond Issuance Costs described in the definition of Eligible Costs of the Project herein.

Disbursements from the Cost of Issuance Fund shall be made by the Trustee only upon receipt of an appropriately completed Borrower’s Requisition substantially in the form attached hereto as Exhibit D, executed on behalf of the Borrower by a Borrower’s Representative, accompanied by the supporting information and documentation specified therein and approved by the Credit Bank.

If the moneys in the Cost of Issuance Fund shall be insufficient to pay all of the Bond Issuance Costs, the Borrower shall not allocate Bond proceeds to the payment of such difference. If there shall be any balance in the Cost of Issuance Fund remaining after the earlier of the date which is 90 days after the date of issuance of the Bonds or the date the Trustee receives a certification by the Borrower’s Representative that all Bond Issuance Costs have been paid, such remaining balance shall be transferred to the Construction Fund, or if the Construction Fund has been closed pursuant to Section 3.06 hereof, to the Surplus Construction Fund.

Section 3.03  Manner of Procuring Disbursements from the Construction Fund.

Upon requisition as hereinafter provided, moneys in the Construction Fund shall be disbursed to or at the order of the Borrower to pay (or reimburse the Borrower for) the Engineering Costs, the Basic Project Costs and the Other Costs of the Project described in the definition of Eligible Costs of the Project herein.

Disbursements from the Construction Fund shall be made by the Trustee only upon receipt of an appropriately completed Borrower’s Requisition substantially in the form attached hereto as Exhibit D, executed on behalf of the Borrower by a Borrower’s Representative and approved by the Credit Facility Provider and the Independent Engineer. With respect to each such disbursement from the Construction Fund, the Borrower must allocate each such amount set forth therein to an Eligible Cost of the Project described in Exhibit E hereto, unless such cost is allocated to Other Costs of the Project described in the definition of Eligible Costs of the Project. The Trustee shall have the right to withhold disbursements from the Construction Fund if the Borrower’s Requisition is incomplete or is not approved by the Credit Facility

6

Provider and the Independent Engineer.  The Borrower may deposit moneys into the Construction Fund from time to time as it deems desirable or necessary.

Disbursements from the Construction Fund shall be subject to such further terms and conditions as are contained in the Credit Facility Reimbursement Agreement.

Section 3.04  Amendments to Project Plans and Specifications.

Subject to the conditions set forth in this Section 3.04 and the Credit Facility Reimbursement Agreement, the Borrower shall have the right to amend its Project Plans and Specifications and to issue change orders to contractors from time to time as the Borrower shall deem necessary and in each such case, the borrower will provide the Trustee an amended to Exhibit E executed by a Borrower’s Representative.

The Borrower agrees that it will make no amendment or change to the Project Plans and Specifications which would (i) adversely affect the legality of the Bonds or the exclusion of interest thereon from gross income under Section 142 of the Internal Revenue Code, or (ii) be inconsistent with Section 3.08 of this Loan Agreement.

Section 3.05  Establishment of Project Completion Date.

The Borrower shall evidence the completion of the Project by filing the following items with the Issuer, the Credit Facility Provider and the Trustee:  a Borrower’s Certificate certifying, without prejudice to any rights against third parties (i) that the Project has been constructed, acquired and installed in accordance with Project Plans and Specifications, (ii) the date of Project completion and, if applicable, the respective dates of completion of each of the component phases of the Project, and (iii) that all labor, services, materials and supplies used to construct, acquire and install the Project have been paid in full, except for such portion thereof (which shall be identified in detail) which the Borrower is disputing in good faith and by appropriate proceeding.

Upon such filing, the date specified in accordance with clause (ii) above shall be the “Completion Date” for purposes of this Loan Agreement.

Section 3.06  Closing of Construction Fund.

Upon being furnished the items described in Section 3.05 hereof, the Trustee shall close the Construction Fund and transfer the remaining balance therein, if any, to the Surplus Construction Fund. If the Borrower has not filed such items by ninety days prior to the third annual anniversary of the Effective Date, the Borrower shall file with the Trustee a Borrower’s Certificate stating in detail the reasons therefor, certifying the amounts, if any, which are then due and owing to contractors, materialmen or other suppliers for the Project and containing detailed estimates of the costs necessary to complete the Project in accordance with the Project Plans and Specifications.

7

Section 3.07  Maintenance and Improvement of Project.

For so long as any Bonds shall be Outstanding, the Borrower agrees to keep and maintain the Project in good condition, repair and working order, except for ordinary wear and tear and obsolescence. Subject to Section 3.08 hereof, the Borrower may remodel, modify or otherwise improve the Project from time to time as the Borrower in its discretion determines to be in its best interests.

Section 3.08  Agreements for the Benefit of the Issuer.

The Borrower represents that its present intention and expectation is to use the Project for the Project Enterprise for so long as there shall be Bonds Outstanding. Notwithstanding such intention and expectation, the Borrower shall have the right to use the Project for any lawful purpose which in the opinion of Bond Counsel will not affect adversely the validity of the Bonds or result in the inclusion of interest on the Bonds in gross income for federal income tax purposes. As an inducement to the Issuer to issue the Bonds, the Borrower covenants to use its best efforts to cause the Project Enterprise to be conducted in the Issuer’s jurisdiction for so long as there shall be Bonds Outstanding.

The Borrower covenants that it shall, on the date of the making of the Loan, and two years after the date of the original issuance and sale of the Bonds, submit to the Department of Commerce of the State of Wisconsin, information regarding the net number of jobs eliminated, created or maintained on the Project site and elsewhere in the State of Wisconsin as a result of the Project. The Borrower further agrees to notify (1) the Department of Industry, Labor and Human Relations and (2) the area private industry council under the Job Training Partnership Act, 29 U.S.C. §§ 1501 to 1798, of any position to be filled within the geographic limits of the Issuer prior to November 25, 1998, and to provide such notices at least two weeks prior to advertising the position.

The Borrower covenants that it will not discriminate based on race, creed, sex, handicap, ethnic origin, age or marital status with regard to employment within the Plant Complex or access to any portion of the Plant Complex generally open to the public.

A breach of the covenants contained in this Section 3.08 shall not be or be deemed an “Event of Default” under this Loan Agreement.

ARTICLE IV

CONVERSION OF INTEREST RATE, REMARKETING
AGENT AND CREDIT FACILITIES

Section 4.01  Conversion of Interest Rate.

The Borrower shall have the right to convert the interest rate on the Bonds from the Variable Rate to the Adjusted Interest Rates, and to cause stated maturities to be assigned to

8

the Bonds, by delivering a Conversion Notice in the form of Exhibit B hereto to the Trustee and causing the other conditions set forth in Section 302(B) of the Indenture to be satisfied, and thereafter to establish Reset Periods from time to time by delivering Reset Notices in the form of Exhibit C hereto in accordance with Section 302(C) of the Indenture. In the event that any Proposed Conversion Date established by the delivery of a Conversion Notice does not become the Conversion Date, the Borrower shall have the right to establish another Proposed Conversion Date in the same manner.

Section 4.02  Concerning the Remarketing Agent.

The Borrower shall at all times cause a Remarketing Agent meeting the requirements of Section 310 of the Indenture to perform the functions required of the Remarketing Agent hereunder and under the Indenture. The Borrower shall be responsible for the payment of the fees and expenses of the Remarketing Agent. Any successor Remarketing Agent shall be appointed by the Issuer at the direction of the Borrower.

Section 4.03  Concerning Substitute Credit Facilities.

The Borrower may furnish Substitute Credit Facilities from time to time in accordance with Section 1202 of the Indenture.

Section 4.04  References to Credit Facility Provider After Expiration or Default of Credit Facility.

The particular provisions of this Loan Agreement which require the approval, consent or direction of, or notice to, the Credit Facility Provider apply only while a Credit Facility is outstanding and if the Credit Facility Provider is not in default in any payment required to be made on the Credit Facility.

ARTICLE V

PREPAYMENT OF PROMISSORY NOTE

Section 5.01  Optional Prepayment of Promissory Note Upon Occurrence of Certain Extraordinary Events.

At the option of the Borrower, the Promissory Note may be prepaid in whole (but not in part) if any of the following shall occur:

(a) The Plant Complex shall have been damaged or destroyed to such extent that, in the opinion of the Borrower expressed in a Borrower’s Certificate filed with the Issuer, the Trustee and the Credit Facility Provider following such damage or destruction, (i) it is not practicable or desirable to rebuild, repair or restore the Plant Complex within a period of six consecutive months following such damage or destruction, or (ii) the Borrower is or will be thereby prevented from carrying on its

9

normal operations at the Plant Complex for a period of at least six consecutive months; or

(b) Title to or the temporary use of all or substantially all the Plant Complex shall have been taken under the exercise of the power of eminent domain by any governmental authority to such extent that, in the opinion of the Borrower expressed in a Borrower’s Certificate filed with the Issuer, the Trustee and the Credit Facility Provider, the Borrower is or will be thereby prevented from carrying on its normal operations at the Plant Complex for a period of at least six consecutive months; or

(c) Any court or administrative body of competent jurisdiction shall enter a judgment, order or decree requiring the Borrower to cease all or any substantial part of its operations at the Plant Complex to such extent that, in the opinion of the Borrower expressed in a Borrower’s Certificate filed with the Issuer, the Trustee and the Credit Facility Provider, the Borrower is or will be thereby prevented from carrying on its normal operations at the Plant Complex for a period of at least six consecutive months; or

(d) As a result of any changes in the Constitution of Wisconsin or the Constitution of the United States of America or of legislative or administrative action (whether state or federal) or by final decree, judgment or order of any court or administrative body (whether state or federal), this Loan Agreement shall have become void or unenforceable or impossible of performance in accordance with the intent and purposes of the parties as expressed in this Loan Agreement, or unreasonable burdens or excessive liabilities shall have been imposed on the Issuer or the Borrower as a consequence of the Bonds or the Promissory Note being Outstanding, including without limitation federal, state or other ad valorem, property, income or other taxes not being imposed on the date of this Loan Agreement.

To exercise such option the Borrower shall give notice to the Issuer and the Trustee within 120 days following the occurrence of the event which is said to give rise to the right to exercise such option. The notice shall refer to this Section 5.01, shall describe and give the date of the subject event, shall have attached to it the requisite Borrower’s Certificate, and shall direct a redemption of all Outstanding Bonds pursuant to Section 405 of the Indenture on a specified Business Day for which the notice of redemption required by Section 402 of the Indenture can be given. As a further condition to the exercise of such option, the Borrower shall obtain the written consent of the Credit Facility Provider.

Section 5.02  Mandatory Prepayment of Promissory Note Upon Determination of Taxability or Expiration of Credit Facility.

(a) The Borrower agrees to prepay the entire outstanding principal balance of the Promissory Note if a Determination of Taxability shall occur. The Issuer and the Borrower authorize the Trustee to take actions necessary to call all Bonds for redemption pursuant to Section 406(A) of the Indenture on the earliest practicable

10

Business Day for which the Trustee can give notice pursuant to Section 402 of the Indenture, and in any event, within 60 days following the date on which a Determination of Taxability shall have occurred, and to draw on the Credit Facility to prepay the Promissory Note in the amount of 100% of the principal amount of the Bonds to be so redeemed and all interest thereon accrued and to accrue to the date of redemption.

(b) After the Conversion Date, the Borrower agrees to prepay the entire outstanding principal balance of the Promissory Note on the first day of the month in which the Credit Facility Expiration Date is to occur unless, at least 45 days prior to such date, the Borrower shall have caused to be delivered to the Trustee a Substitute Credit Facility meeting the requirements of Section 1202 of the Indenture or an amendment to the Credit Facility extending the Credit Facility Expiration Date by at least the lesser of one year or the period ending on the fifteenth day of the month in which the next Reset Date is to occur. The Issuer and the Borrower authorize the Trustee to take actions necessary to call all Bonds for redemption pursuant to Section 406(B) of the Indenture on such date and to draw on the Credit Facility to prepay the Promissory Note in the amount of 100% of the principal amount of the Bonds to be so redeemed and all interest thereon accrued and to accrue to the date of redemption.

Section 5.03  Optional Prepayment of the Promissory Note.

At the option of the Borrower, the Promissory Note may be prepaid (i) prior to the Conversion Date in whole or in part on any Business Day (ii) in whole or in part on the Conversion Date or any Reset Date, and (iii) during any Reset Period, in whole on any date or in part on any regularly scheduled Interest Payment Date which is (a) on or after the third anniversary of the Conversion Date or Reset Date, as the case may be, if the length of the Reset Period is at least five years, but less than seven years, and (b) on or after the fourth anniversary of the Conversion Date or Reset Date if the length of the Reset Period is seven years or more. If the length of the Reset Period is less than five years, the Promissory Note shall not thereafter be subject to prepayment pursuant to this Section 5.03.

Such option may not be exercised if a Determination of Taxability has occurred. To exercise such option the Borrower shall give notice to the Issuer and the Trustee at least 45 days prior to the Business Day date specified therein as the redemption date. Such notice shall refer to this Section 5.03, shall state the principal amount of the prepayment, and shall direct the redemption of a like principal amount of Bonds pursuant to Section 404 of the Indenture on a specified authorized redemption date for which the notice of redemption required by Section 402 of the Indenture can be given. If the prepayment shall be in part, it shall be in the amount of $5,000 or a multiple thereof. As further conditions to the exercise of such option, the Borrower shall obtain the written consent of the Credit Facility Provider and (unless the Credit Facility provides for the payment of any redemption premium required by Section 404 of the Indenture in connection with such a prepayment) shall cause the Trustee to have in hand, on the date the Trustee gives such redemption notice, Eligible Funds in an amount equal to the amount of any such premium.

11

Section 5.04  Deposit of Prepayments in Redemption Fund.

All prepayments by the Borrower of principal on the Promissory Note, together with the premium, if any, shall be deposited by the Trustee when received into the Redemption Fund. The accrued interest paid in connection with any such prepayment shall be deposited into the Bond Fund.

Section 5.05  Corresponding Redemption of Bonds.

All authorized prepayments of the Promissory Note shall be applied to a corresponding redemption of the Bonds.

Section 5.06  Purchase and Cancellation of Bonds.

The Borrower shall have the right to purchase any Outstanding Bond with Eligible Funds and deliver it to the Trustee for cancellation. Any such purchase and cancellation of a Bond made with Eligible Funds as to which the Trustee has received a Preference Opinion shall ipso facto reduce the unpaid principal balance of the Promissory Note on the date of such cancellation by an amount equal to the unpaid principal amount of such Bond.

ARTICLE VI

REPRESENTATIONS OF BORROWER

Section 6.01  Corporate Existence and Authorizations.

The Borrower represents that it is a corporation duly organized and validly existing under the laws of the State identified in the first paragraph of this Loan Agreement and that it has obtained all corporate authorizations necessary on its part for the due and valid execution and delivery of this Loan Agreement and the Promissory Note and the assumption of the obligations represented hereby and thereby.

Section 6.02  Absence of Conflicting Agreements.

The Borrower represents that the execution and delivery of this Loan Agreement and the Promissory Note, and the performance by the Borrower hereunder and thereunder, will not conflict with or constitute a breach of or default under its Articles of Incorporation or bylaws, or any indenture, loan agreement or instrument or agreement to which the Borrower is a party or by which the Borrower or its properties are bound.

Section 6.03  Absence of Litigation.

The Borrower represents that it is not a party to any litigation or administrative proceeding, nor so far as is known by the Borrower is any litigation or administrative proceeding threatened against it which in either case would, if adversely determined, cause any

12

material adverse change in its power or ability to perform its obligations under this Loan Agreement.

Section 6.04  Regulatory Approvals.

The Borrower represents that no authorization, approval, consent or license of any governmental regulatory body or authority, not already obtained, is required for the valid and lawful execution and delivery of this Loan Agreement and the Promissory Note by the Borrower or the assumption of the obligations of the Borrower represented hereby and thereby.

Section 6.05  Date and Survival of Representations, Exceptions.

The representations of the Borrower made in this Article VI are made as of the date of closing of the Loan, and all such representations shall survive the execution and delivery of this Loan Agreement and the making of the Loan.

ARTICLE VII

COVENANTS OF BORROWER

Section 7.01  Payment of Promissory Note.

The Borrower agrees to make the principal, premium, if any, and interest payments on the Promissory Note in the manner and amounts and the times and places specified therein.

Section 7.02  Unconditional Obligation to Provide the Issuer with Sufficient Revenues.

The Borrower unconditionally agrees that it shall make payments to the Trustee (for the account of the Issuer) in lawful money of the United States of America and in such amounts and at such times (if not sooner required under the terms of this Loan Agreement) as shall be necessary to enable the Trustee to make full and prompt payment when due (whether at stated maturity, upon redemption prior to stated maturity or upon acceleration of stated maturity), of the principal of, premium, if any, and interest on all Bonds issued under the Indenture. The obligation of the Borrower to make the payments required in this Section 7.02 shall be absolute and unconditional and shall not be subject to diminution by set off, counterclaim, abatement or otherwise; and until such time as the principal of, premium, if any, and interest on the Bonds shall have been paid or provided for in accordance with the Indenture, the Borrower: (i) will not suspend or discontinue, or permit the suspension or discontinuance of, any payments provided for in this Section 7.02; (ii) will perform and observe all its other agreements contained in this Loan Agreement; and (iii) will not terminate this Loan Agreement for any cause including without limiting the generality of the foregoing, any defect in title to the Project, failure of the Project to comply with the Borrower’s plans and specifications, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Project, frustration of commercial purpose, any change in the tax or other laws or

13

administrative rulings of or administrative actions by the United States of America or the State of Wisconsin or any political subdivision of either, or any failure of the Issuer to perform and observe any agreement, whether expressed or implied, or any duty, liability or obligation arising out of or in connection with this Loan Agreement. Nothing contained in this Section 7.02 shall be construed to release the Issuer from the performance of any of the agreements on its part herein contained; and if the Issuer shall fail to perform any such agreement on its part, the Borrower may institute such action against the Issuer as the Borrower may deem necessary to compel performance, provided that no such action shall violate the agreements on the part of the Borrower contained in this Section 7.02, or diminish the amounts required to be paid by the Borrower pursuant to this Section 7.02.

Section 7.03  Indemnification of Issuer.

Reference is made to subsections (4)(a) and (10)(e) of the Act. Notwithstanding anything to the contrary herein contained by implication or otherwise, the obligations of the Issuer created by or arising out of this Loan Agreement shall not be general debt obligations of the Issuer, do not constitute or give rise to charges against its general credit or taxing powers and shall not constitute or give rise to any personal liability of any member of the Issuer’s Governing Body or the officers, agents and employees of the Issuer on the Bonds or for any act or omission related to the authorization or issuance of the Bonds.

The Borrower agrees to indemnify and hold harmless the Issuer and its officers, agents, employees and officials from and against any and all losses, claims, damages, expenses (including reasonable counsel fees) and liabilities caused by the Borrower and arising from, in connection with, or as a result of the issuance of the Bonds, the execution and delivery of this Loan Agreement and the Indenture or the performance and observance by or on behalf of the Issuer of those things on the part of the Issuer agreed to be performed or observed hereunder and thereunder. Nothing in the foregoing indemnity shall protect the Issuer against its own default, gross negligence or willful misconduct.

If any action shall be brought against the Issuer in respect of which indemnity may be sought under the foregoing provisions of this Section 7.03 against the Borrower, the Issuer shall promptly notify the Borrower in writing, and the Borrower shall assume the defense thereof including the employment of counsel and the payment of all expenses. In any such action the Issuer shall have the right to employ separate counsel, but the reasonable fees and expenses of such counsel shall be at the expense of the Issuer unless the Borrower and the Issuer shall have mutually agreed in writing to the employment of such counsel. The Borrower shall not be liable for any settlement of such action effected without its written consent, but if settled with the written consent of the Borrower or if there be a final judgment for the plaintiff in any such action, the Borrower agrees to indemnify and hold harmless the Issuer from and against any loss or liability by reason of such settlement or judgment.

14

Section 7.04  Taxes, Licenses, Utilities and Governmental Charges.

The Borrower agrees to pay promptly, as and when the same shall become due and payable, each and every lawful cost, expense and obligation of every kind and nature, foreseen or unforeseen, for the payment of which the Issuer or the Borrower is or shall become liable by reason of its estate or interest in the Project or in any portion thereof, or by reason of or in any manner connected with or arising out of the possession, operation, maintenance, alteration, repair, rebuilding, use or occupancy of the Project or any part thereof. The Borrower also agrees to pay and discharge, promptly as and when the same shall become due and payable, all lawful real estate taxes, personal property taxes, business and occupation taxes, occupational license taxes, assessments for public improvements or benefits and all other lawful governmental taxes, impositions and charges of every kind and nature, ordinary or extraordinary, general or special, foreseen or unforeseen, whether similar or dissimilar to any of the foregoing, and all applicable interest and penalties thereon, if any, which at any time shall be or become due and payable and which shall be lawfully levied, assessed or imposed upon or with respect to, or which shall be or become liens upon, the Project or any portion thereof or any interest of the Borrower therein. The Borrower also agrees to pay or cause to be paid all lawful charges for gas, water, sewer, electricity, light, heat, power, telephone and other utility and service used, rendered or supplied to, upon or in connection with the Project. The Borrower agrees that the Issuer is not, nor shall it be, required to furnish free of charge to the Borrower or any other occupant of the Plant Complex, any gas, water, sewer, electricity, light, heat, power or other facilities, equipment, labor, materials or services of any kind, except as otherwise may be required by law or except as the same shall generally be furnished without charge to other owners or users of comparable property within the Issuer’s jurisdiction.

The Borrower shall have the right in good faith and by appropriate proceeding to dispute or contest the validity or amount of any such tax, assessment, governmental charge or utility charge, and during the pendency of any such dispute or contest, the Borrower shall not be deemed to be in default under this Section 7.04 by reason of its failure to have paid the disputed or contested amount.

Section 7.05  Insurance.

The Borrower agrees, both generally and specifically with respect to the Project, that it will insure against such risks in such amounts as are customarily insured against by companies of like size similarly situated. Such insurance shall be obtained by the purchase of insurance policies (including blanket policies covering multiple risks) issued by reputable insurance companies authorized and qualified to underwrite such risks.

Section 7.06  Tax Status of Bonds.

It is intended that the interest on the Bonds be excluded from gross income for Federal income tax purposes pursuant to Sections 103(a) and 142 of the Internal Revenue Code. In general, the Borrower agrees that it will take no action which would (and will omit no action

15

the omission of which would) cause an Event of Taxability. Without limiting the generality of such covenant, the Borrower agrees:

(a) that its requisitions from the Construction Fund will be such that at least 95% of the funds deposited therein and earnings thereon of the Bonds will be used for the acquisition, construction, reconstruction or improvement of land or property of a character subject to the allowance for depreciation;

(b) that the issuance costs financed by the Bonds will not exceed 2% of the aggregate face amount of the issue;

(c) that not more than 25% of the funds deposited in the Construction Fund and earnings thereon the Bonds will be used to provide a facility the primary purpose of which is one of the following: retail food and beverage services, automobile sales or service, or the provision of recreation or entertainment;

(d) that no portion of the proceeds of the Bonds will be used to provide the following: any private or commercial golf course, country club, massage parlor, tennis club, skating facility (including roller skating, skateboard and ice skating), racquet sports facility (including any handball or racquetball court), hot tub facility, suntan facility or racetrack;

(e) that no portion of the proceeds of the Bonds will be used for the acquisition of any property (or an interest therein) unless either (i) the first use of such property is pursuant to such acquisition, (ii) in the case of any building (and the equipment therefor) the rehabilitation expenditures with respect to such building incurred within two years after the Bonds are issued equal or exceed 15% of the portion of the cost of acquiring such building (and equipment) financed with the net proceeds of the Bonds, or (iii) in the case of structures other than a building, the rehabilitation expenditures with respect to such structures incurred within two years after the Bonds are issued equal or exceed 100% of the portion of the cost of acquiring such structures financed with the net proceeds of the Bonds;

(f) that less than 25% of the funds deposited in the Construction Fund and earnings thereon will be used (directly or indirectly) for the acquisition of land (or on interest therein);

(g) that it will permit no use of the proceeds of the Bonds which would cause the Bonds to be classified as “arbitrage bonds” within the meaning of Section 148 of the Internal Revenue Code, and

(h) that the Project will be used at all times as a solid waste disposal facility as defined in Section 142 of the Code and at least 65% by weight or volume of the materials used in the conversions process at the Project will be solid waste as defined in Section 142 of the Code;

16

(i) that it shall pay any rebate amount required to be paid on behalf of the Issuer to the United States Treasury pursuant to Section 148(f) of the Internal Revenue Code and any proposed, temporary or final regulations promulgated thereunder and, to assure payment of such amount, that it shall pay to the Trustee any amount required to be deposited into the Rebate Account pursuant to Section 803 of the Indenture.

If, nevertheless, an Event of Taxability shall occur, the Borrower shall not be deemed to be in default under this Section 7.06 if it complies in all respects with Section 5.02 of this Loan Agreement. Prepayment of the Loan shall be the sole liability of the Borrower for an Event of Taxability.

Section 7.07  Sale or Transfer of Project.

The Borrower may sell, assign or otherwise transfer all or any part of its interest in the Plant Complex or the Project and in connection therewith may assign all or any portion of its rights and privileges under this Loan Agreement, provided that:

(a) if such sale, transfer or assignment involves (in a single transaction or any series of transactions) all or substantially all of the Borrower’s assets, the Borrower shall comply with Section 7.09 of this Loan Agreement;

(b) if such transaction involves the sale, transfer or assignment of all or substantially all of the Project, the purchaser, transferee or assignee, as the case may be, shall have assumed in writing all obligations of the Borrower contained in Sections 3.03 and 7.06 hereof;

(c) no such sale, transfer or assignment shall relieve the Borrower from primary liability for the performance of its obligations hereunder and under the Promissory Note unless the requirements set forth in Section 7.09(a) through (d) of this Loan Agreement are met with respect to the purchaser, transferee or assignee, in which event the Borrower shall be released of all further obligation hereunder and such purchaser, transferee or assignee shall become the “Borrower” for purposes hereof and of the Indenture and the Promissory Note;

(d) the Borrower shall have delivered to the Trustee and the Issuer an opinion of Bond Counsel to the effect that such transaction will not violate the Act, adversely affect the legality of the Bonds or result in an Event of Taxability; and

(e) the Borrower shall have complied with the applicable provisions of the Credit Facility Reimbursement Agreement.

Section 7.08  Maintenance of Corporate Existence.

The Borrower agrees that, except as otherwise permitted in Section 7.09 of this Loan Agreement, it will maintain its corporate existence and will neither dissolve nor institute any proceedings for dissolution.

17

Section 7.09  Transfers of Assets.

The Borrower agrees that it will not (in a single transaction or any series of transactions) dissolve or otherwise dispose of all or substantially all its assets and will not consolidate with or merge into another entity; provided, however, that the Borrower may, without violating the foregoing, consolidate with or merge into another entity, or transfer all or substantially all its assets to another entity (and thereafter be released of all further obligation hereunder and dissolve or not dissolve as it may elect) if:

(a) the resulting, surviving or transferee entity, as the case may be, is a corporation incorporated, or a partnership, limited liability company or other recognized legal entity organized, under the laws of one of the States of the United States of America;

(b) such resulting, surviving or transferee entity has obtained the prior written consent of the Credit Facility Provider (or, if there is no Credit Facility then in effect or the Credit Facility Provider is in default of its obligations thereunder, the Requisite Consent of Bondowners) to such transaction;

(c) such resulting, surviving or transferee entity expressly assumes in writing (delivered to the Issuer and the Trustee) all of the obligations of the Borrower contained in this Loan Agreement, the Promissory Note and the Continuing Disclosure Agreement (after which it shall be the “Borrower” for purposes hereof and thereof); and

(d) the Borrower shall have delivered to the Trustee and the Issuer an opinion of Bond Counsel to the effect that such transaction will not adversely affect the legality of the Bonds or result in an Event of Taxability.

Section 7.10  Debt Service Reserve Fund.

The Borrower shall deposit with the Trustee, within 2 Business Days after the Trustee has given the Borrower notice that the amount held in the Debt Service Reserve Fund is less than the Debt Service Requirement, the amount necessary to cause the balance in the Debt Service Reserve Fund to meet the Debt Service Fund Requirement

ARTICLE VIII

DAMAGE; EMINENT DOMAIN

Section 8.01  Damage.

If prior to the full payment of the Bonds (or provision for payment thereof having been made to the satisfaction of the Trustee in accordance with the provisions of the Indenture) the Plant Complex shall be damaged by fire, flood, windstorm or other casualty to such extent that

18

the Borrower has the option of prepaying the Promissory Note pursuant to Section 5.01(a) of this Loan Agreement, the Borrower shall either (i) prepay the entire outstanding balance of the Promissory Note in accordance with Section 5.01 of this Loan Agreement, or (ii) repair, replace or restore the damaged property to such condition as in the judgment of the Borrower will restore the capacity of the Project to conduct the Project Enterprise to a level at least equal to the lesser of (A) the capacity of the Project to conduct the Project Enterprise as it existed immediately prior to such damage, or (B) the capacity of the Project to conduct the Project Enterprise on the date hereof.

Section 8.02  Eminent Domain.

If prior to full payment of the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Indenture) the Plant Complex shall be taken by eminent domain, in whole or in part, to such extent that the Borrower has the option of prepaying the Promissory Note pursuant to Section 5.01(b) of this Loan Agreement, the Borrower shall either (i) prepay the entire outstanding balance of the Promissory Note in accordance with Section 5.01 of this Loan Agreement, or (ii) acquire such new property in the Issuer as in the judgment of the Borrower will be necessary to restore the capacity of the Project to conduct the Project Enterprise to a level at least equal to the lesser of (A) the capacity of the Project to conduct the Project Enterprise as it existed immediately prior to such taking, or (B) the capacity of the Project to conduct the Project Enterprise on the date hereof.

ARTICLE IX

THE TRUSTEE AND TRUST FUNDS

Section 9.01  Payment of Trustee’s Fees.

The Borrower agrees that it will pay the Trustee its customary fees for acting as Trustee under the Indenture and that it will reimburse the Trustee for its ordinary and necessary expenses incurred in carrying out the terms of the Indenture. Such fees and reimbursements of expenses shall be paid upon receipt of periodic invoices therefor.

In the event the Trustee is required by the terms of the Indenture or otherwise deems it necessary or advisable in fulfillment of its fiduciary responsibilities thereunder to take actions beyond those which are routinely performed by corporate trustees under similar indentures, the Borrower also agrees that it will pay the Trustee its reasonable fees for its services in such regard (including but not limited to legal fees and costs) and that it will reimburse the Trustee for ordinary and necessary expenses incurred in connection therewith. Such fees and reimbursements of expenses shall be paid upon receipt of invoices therefor; provided, however, that the Borrower may dispute (in good faith and by appropriate proceeding) the reasonableness of any such charges and during the pendency of any such dispute the Borrower shall not be deemed in default of the foregoing covenant by reason of its failure to have paid the portion of such charges so disputed.

19

Section 9.02  Duty to Provide Data.

The Borrower agrees to furnish to the Trustee, promptly upon receipt of a written request therefor, any documents, information or data reasonably necessary to enable the Trustee to carry out its duties and responsibilities under the Indenture or to verify the truth and accuracy of any representation or statement made on behalf of the Borrower herein, in any Borrower’s Certificate.

Section 9.03  Investment of Trust Funds; Arbitrage.

The Trustee shall have the exclusive right to direct the investment and reinvestment of Trust Fund moneys, subject, however, to the following limitations and conditions:

(a) The investment of the Trust Funds shall be in accordance with directions from the Borrower, such directions to be made in a Borrower’s Certificate or in a writing signed by the Borrower’s Representative and shall be consistent with the remaining provisions of this Section 9.03.

(b) The particular investments shall be Qualified Investments, and, in the case of the investment of moneys in the Bond Fund, shall be Government Obligations.

(c) No investment shall have a maturity later than the estimated time when the funds so invested will be needed for the purposes of the Trust Fund of which they are a part.

(d) In the event of any actual loss realized from any such investment, the Borrower shall promptly pay the amount of such loss to the Trustee for deposit into the applicable Trust Fund.

(e) The Trustee shall sell or otherwise reduce to cash any investment in the Bond Fund or the Redemption Fund if such action is necessary to pay the principal of, premium, if any, or interest on a Bond when due.

(f) No investment or other use will be made of the proceeds of the Bonds which would cause any Bond to be classified as an “arbitrage bond” within the meaning of Section 148 of the Internal Revenue Code or any proposed, temporary or final regulations issued thereunder.

(g) In the event the Issuer or the Borrower is of the opinion (supported by an opinion of Bond Counsel) that it is necessary or advisable to restrict or limit the yield on the investment of any moneys held in any Trust Fund in order to avoid the Bonds being considered “arbitrage bonds” within the meaning aforesaid, the Issuer may (and shall if so requested by the Borrower) issue to the Trustee a written certificate (copied to the Credit Facility Provider) to such effect together with appropriate written instructions, in which event the Trustee shall take such action as is necessary so to

20

restrict or limit the yield on such investment in accordance with such certificate and instructions, irrespective of whether the Trustee shares such opinion.

Section 9.04  Bond Fund and Redemption Fund.

Except as expressly provided in the Indenture, moneys in the Bond Fund and the Redemption Fund shall be used in accordance with the Indenture solely for the payment of the principal of, premium, if any, and interest on the Bonds as the same become due at maturity, upon redemption prior to maturity, or upon acceleration of maturity.

Section 9.05  Excess Trust Fund Moneys.

Following full and final payment of the Bonds (or provision therefor having been made to the satisfaction of the Trustee in accordance with the Indenture) and any fees due to the Trustee, the Remarketing Agent and any paying agents under the Indenture, any excess moneys remaining in the Trust Funds shall be paid to the Credit Facility Provider, to the extent of any amounts due it under the Credit Facility Reimbursement Agreement, and thereafter to the Borrower.

ARTICLE X

DEFAULT PROVISIONS

Section 10.01  Defaults; Events of Default.

If any one or more of the following events occur, it is hereby defined as and declared to be and to constitute an “Event of Default” under and for purposes of this Loan Agreement:

(a) Default in the due and punctual payment of any installment of principal or of any payment of interest or premium on the Promissory Note;

(b) Default in the performance or observance of any other of the covenants, agreements or conditions on the part of the Borrower in this Loan Agreement contained and the continuance thereof for a period of 30 days after receipt by the Borrower of written notice (from the Issuer, the Trustee or the Owners of at least 10% in aggregate principal amount of the Bonds at the time Outstanding) specifying such default and requesting that it be cured; provided, however, that if the default is capable of being cured, but not so within such 30 day period, such default shall not become an Event of Default if the Borrower institutes reasonable corrective action within such period and pursues such action diligently until such default is cured;

(c) The Borrower shall: (i) become insolvent; or (ii) be unable, or admit in writing its inability, to pay its debts as they mature; or (iii) make a general assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its property; or (iv) have a court order relief against it under the United States

21

Bankruptcy Code; or (v) file a petition with respect to itself as debtor under chapter 7 or 11 of the United States Bankruptcy Code; or (vi) have a petition under chapter 7 or 11 of the United States Bankruptcy Code filed against it as debtor and fail to have such petition vacated or discharged within 60 days following the filing thereof; or (vii) file an answer to a creditor’s petition, admitting the material allegations thereof, for liquidation, reorganization or to effect a plan or other arrangement with creditors; or (viii) apply to a court for the appointment of a receiver for any of its assets; or (ix) have a receiver appointed for any of its assets (with or without the consent of the Borrower) and such receiver shall not be discharged within 60 days after its appointment; or

(d) An “event of default” (as defined therein) shall have occurred under the Indenture.

Section 10.02  Acceleration.

If an Event of Default shall occur, the Trustee may with the written consent of the Credit Facility Provider, and shall upon the written request of the Credit Facility Provider or if the Bonds have been accelerated pursuant to Section 1002 of the Indenture, by written notice to the Borrower and the Credit Facility Provider, declare the entire outstanding principal balance of the Promissory Note together with all interest accrued thereon (to the date of such acceleration) to be immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable.

Section 10.03  Remedies.

If an Event of Default shall occur, the Issuer or the Trustee may, with the written consent of the Credit Facility Provider, pursue any available remedy at law or in equity to realize the payment of the principal of, premium, if any, and interest on the Promissory Note.

Section 10.04  Disposition of Amounts Collected.

Any amounts collected pursuant to action taken under this Article X shall be paid to the Trustee and applied in accordance with the provisions of Section 1006 of the Indenture or, if the Bonds have been fully paid (or provision for payment thereof has been made in accordance with the provisions of the Indenture), shall be paid to the Credit Facility Provider to the extent of any amount due under the Credit Facility Reimbursement Agreement, and otherwise to the Borrower.

Section 10.05  Payment of Costs and Expenses.

If the Borrower defaults under any provisions of this Loan Agreement and the Issuer or the Trustee, or both, employ attorneys or incur other expenses for the collection of payments due or for the enforcement of performance or observance of any other obligation or agreement on the part of the Borrower herein contained, the Borrower agrees that it will on demand

22

therefor pay to the Issuer or the Trustee, as the case may be, the reasonable fees of such attorneys and such other reasonable expenses so incurred by the Issuer or the Trustee.

Section 10.06  Limitation on Waivers.

If any agreement contained in this Loan Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive the same, any other or any future breach hereunder on any other occasion. No remedy herein conferred upon or reserved to the Issuer or Trustee is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Loan Agreement or now or hereafter existing at law or in equity or by virtue of other contracts. No delay or omission to exercise any right or power occurring upon any Event of Default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. To entitle the Issuer or the Trustee to exercise any remedy reserved or available to it, it shall not be necessary to give any notice other than such notice as may be expressly required herein.

Section 10.07 Performance by Third Parties.

The Issuer agrees that, with the written consent of the Borrower, third parties may perform any and all acts or take such action as may be necessary for and on behalf of the Borrower to prevent or correct any Event of Default hereunder, and the Issuer agrees that the Trustee shall take or accept such performance as performance by the Borrower in such event. The acceptance by the Issuer or the Trustee of any such performance by third parties shall not in any way diminish or absolve the Borrower of primary liability hereunder.

Section 10.08  Performance for Issuer Under Indenture.

The Issuer agrees that the Borrower and the Credit Facility Provider or either of them may, but shall not be obligated to, perform any such acts and do all such things in the place and stead of the Issuer as the Borrower or the Credit Facility Provider, as the case may be, shall deem necessary to prevent or correct any default or “event of default” caused or about to be caused by the Issuer under the Indenture.

ARTICLE XI

MISCELLANEOUS

Section 11.01  Amendments.

This Loan Agreement and the Promissory Note shall not be effectively amended, changed, modified, altered or terminated without the written consent of the Trustee and the Credit Facility Provider, and no modification, alteration or amendment to this Loan Agreement

23

or the Promissory Note shall be binding upon either party hereto until such modification, alteration or amendment is reduced to writing and executed by both parties hereto.

Section 11.02  Successors.

Except as limited or conditioned by the express provisions hereof, the provisions of this Loan Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties hereto.

Section 11.03  Governing Law.

The laws of the State of Wisconsin shall govern this Loan Agreement and the Promissory Note issued hereunder.

Section 11.04 Captions and Dates.

The captions or headings in this Loan Agreement are for convenience only and in no way define, limit or describe the scope or intent of any of the provisions of this Loan Agreement. Any date set forth herein falling on February 28 shall mean February 29 in any leap year.

Section 11.05 Counterparts.

This Loan Agreement may be signed in any number of counterparts with the same effect as if the signatures thereto and hereto were on the same instrument.

Section 11.06  Notices.

All notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed given when hand delivered or when mailed by certified or registered mail, postage prepaid, or by prepaid telegram addressed as follows: (i) if to the Issuer, at the Issuer’s Address, and (ii) if to the Borrower, at the Borrower’s Address.

A duplicate copy of each notice, certificate or other communication given hereunder by either the Issuer or the Borrower shall also be concurrently given to the Trustee at the Trustee’s Address, to the Credit Facility Provider at the Credit Facility Provider’s Address, and to the Remarketing Agent at the Remarketing Agent’s Address.

Section 11.07  Severability.

If any provisions of this Loan Agreement shall be held or deemed to be or shall, in fact, be inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions or in all jurisdictions, or in all cases because it conflicts with any other provision or provisions hereof or any constitution or statute or rule of public policy, or for any other reason, such circumstance shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any extent

24

whatever. The invalidity of any one or more phrases, sentences, clauses or Sections in this Loan Agreement contained, shall not affect the remaining portions of this Loan Agreement, or any part thereof.

Section 11.08  Termination.

Upon full and final payment of all Bonds (or if all Bonds shall, prior to the maturity or redemption date thereof, be deemed to have been paid within the meaning of Article IX of the Indenture) and of all amounts due under this Loan Agreement (including all amounts required to be deposited with the Trustee for payment of “rebate” obligations to the United States Treasury pursuant to Section 803 of the Indenture):

(a) This Loan Agreement shall terminate and neither the Issuer nor the Trustee nor any Bondowner shall thereafter have any rights hereunder, saving and excepting those that shall have theretofore vested; and

(b) The Issuer shall cause the Promissory Note to be canceled and delivered to the Borrower.

Section 11.09  Limited Liability of Issuer.

Notwithstanding anything herein contained to the contrary by implication or otherwise, any obligations of the Issuer created by or arising out of this Loan Agreement do not give rise to a pecuniary liability of the Issuer or a charge against its general credit or the Issuer’s taxing powers, including, but not limited to (i) liability for failure to investigate or negligence in the investigation of the financial position or prospects of the Borrower, a user of the Project or any other person or for failure to consider, or negligence concerning, the adequacy of terms of, or collateral security for, the Bonds or any related agreement to protect interests of holders of the Bonds; and (ii) any liability in connection with the issuance or sale of the Bonds. In addition, this Loan Agreement shall not give rise to any personal liability of any member of the Issuer’s Governing Body or of any officers, agents, employees or officials of the Issuer on the Bonds or for any act or omission related to the authorization or issuance of the Bonds.

25

IN WITNESS WHEREOF, the Issuer has caused this Loan Agreement to be executed in its name and behalf by its Chief Municipal Official and its Clerk thereunto duly authorized and its seal to be hereunto affixed, and the Borrower has caused this Loan Agreement to be executed in its name and behalf by an Authorized Officer of the Borrower, all as of the Effective Date.

	CITY OF LADYSMITH, WISCONSIN
	By:	/s/ Ronald Moore
		Mayor
	Attest:	/s/ Kathleen Stewart
		Clerk
[SEAL]
	CITYFOREST CORPORATION
	By:	/s/ Wayne Gullstad
		President

26

EXHIBIT A

FORM OF PROMISSORY NOTE

THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE TRANSFERABILITY HEREOF IS RESTRICTED BY THE INDENTURE OF TRUST IDENTIFIED IN THE ASSIGNMENT ENDORSED HEREON.

PROMISSORY NOTE

$27,000,000 March 26, 1998

FOR VALUE RECEIVED, the undersigned CITYFOREST CORPORATION, a Minnesota corporation (hereinafter called the “Borrower”, which term shall be construed to include the successors and assigns of the Borrower), promises to pay to the order of the CITY OF LADYSMITH, WISCONSIN, a municipal corporation and political subdivision of the State of Wisconsin (hereinafter called the “Issuer”), the principal sum of TWENTY-SEVEN MILLION DOLLARS ($27,000,000) on March 1, 2028. The unpaid principal balance of this Promissory Note shall bear interest from the date hereof (i) prior to the Conversion Date, at the Variable Rate in effect from time to time, payable on the first Business Day of each month, commencing March, 1998, and on any other date on which interest is payable on the Issuer’s Variable Rate Demand Solid Waste Disposal Facility Revenue Bonds, Series 1998 (CityForest Corporation Project) (the “Bonds”) pursuant to the Indenture hereinafter referred to, and (ii) on and after the Conversion Date, at the weighted average of Adjusted Interest Rates (based upon the respective principal amounts of outstanding Bonds bearing interest at those rates) in effect from time to time, payable semi-annually on March 1 and September 1 of each year, commencing the first such date occurring at least 30 days after the Conversion Date, and on any other date on which interest is payable on the Bonds pursuant to said Indenture. To the extent permitted by law, overdue principal, premium, if any, and interest shall bear interest until paid at the same rate per annum as borne by this Promissory Note on the due date of the payment that is delinquent.

After the Conversion Date, a portion of the principal of this Promissory Note shall be due on each March 1 in accordance with the schedule of stated maturities assigned to the Bonds pursuant to Section 301 of the Indenture.

The principal of and interest on this Promissory Note are payable in federal or other immediately available funds at the principal corporate trust office of Norwest Bank Wisconsin, N.A., Milwaukee, Wisconsin or its successor or successors, as trustee under that certain Indenture of Trust, dated as of March 1, 1998, from the Issuer, as grantor, to which reference is hereby made for definitions of the terms “Conversion Date”, “Variable Rate” and “Adjusted Interest Rates”.

Exhibit A - Page 1

This Promissory Note constitutes the Promissory Note issued under a Loan Agreement, dated as of March 1, 1998, between the Borrower and the Issuer, to which Loan Agreement reference is hereby made for a statement of the terms and conditions on which the loan evidenced hereby was made, for a description of the circumstances under which there shall be credits allowed against the principal and interest on this Promissory Note, and for a description of the terms and conditions upon which this Promissory Note may or must be prepaid or its maturity accelerated.

CITYFOREST CORPORATION
By:
Its:	President

FOR VALUE RECEIVED, the undersigned City of Ladysmith, Wisconsin, hereby assigns, without recourse, all its right, title and interest in and to the above Promissory Note to Norwest Bank Wisconsin, N.A., or to its successor or successors, as trustee under that certain Indenture of Trust, dated as of March 1, 1998 by and between the undersigned and said Trustee, securing its Variable Rate Demand Solid Waste Disposal Facility Revenue Bonds, Series 1998 (CityForest Corporation Project) issued under said Indenture.

Dated March 26, 1998.

	CITY OF LADYSMITH, WISCONSIN
	By:
	Its:	Mayor
	Attest:
	Its:	Clerk
[SEAL]

Exhibit A - Page 2

EXHIBIT B

FORM OF CONVERSION NOTICE

[Trustee Address]	[Issuer Address]
[Credit Facility Provider Address]	[Remarketing Agent Address]
	[Rating Agency Address]

Re:$27,000,000 City of Ladysmith, Wisconsin Variable Rate Demand Solid Waste Disposal Facility Revenue Bonds, Series 1998 (CityForest Corporation Project)

Ladies and Gentlemen:

This is a “Conversion Notice” under purposes of the Indenture of Trust, dated as of March 1, 1998 (the “Indenture”) entered into in connection with the issuance of the captioned bonds. Terms are used herein with the meanings assigned to them in the Indenture.

The Borrower hereby specifies the date______________, ______, as a Proposed Conversion Date and February 28, ______ as the termination of the first Reset Period.

The Borrower hereby requests the assignment of stated maturities of the Bonds during such Reset Period in accordance with Section 301 of the Indenture and the establishment (by [insert name of Remarketing Agent] as Remarketing Agent) of the Adjusted Interest Rates to be in effect during such Reset Period in accordance with the Indenture. [The Credit Facility to be in effect during the first Reset Period is a _________________, issued by ___________________, a ___________________.] [No Credit Facility shall be in effect during such Reset Period.] [The Debt Service Reserve Fund [should] [should not] be liquidated prior to such Reset Period.]

Exhibit B - Page 1

Delivered herewith are the  Bond  Counsel opinion and the undertaking  of the Remarketing Agent required by Section 302(B)(l) of the Indenture.

Very truly yours,
CITYFOREST CORPORATION
By:
	Borrower’s Representative

Exhibit B - Page 2

EXHIBIT C

FORM OF RESET NOTICE

[Trustee Address]	[Issuer Address]
[Credit Facility Provider Address]	[Remarketing Agent Address]
	[Rating Agency Address]

Re:$27,000,000 City of Ladysmith, Wisconsin Variable Rate Demand Solid Waste Disposal Facility Revenue Bonds, Series 1998 (CityForest Corporation Project)

Ladies and Gentlemen:

This is a “Reset Notice” under purposes of the Indenture of Trust, dated as of March 1, 1998 (the “Indenture”) entered into in connection with the issuance of the captioned bonds. Terms are used herein with the meanings assigned to them in the Indenture.

The Borrower hereby specifies the date___________________, _______, as a Proposed Conversion Date and February 28, ___ as the termination of the first Reset Period.

The Borrower hereby requests the assignment of stated maturities of the Bonds during such Reset Period in accordance with Section 301 of the Indenture and the establishment (by [insert name of Remarketing Agent] as Remarketing Agent) of the Adjusted Interest Rates to be in effect during such Reset Period in accordance with the Indenture. [The Credit Facility to be in effect during the first Reset Period is a _____________________, issued by ______________________, a ____________________________.] [No Credit Facility shall be in effect during such Reset Period.] [The Debt Service Reserve Fund [should] [should not] be liquidated prior to such Reset Period.]

Exhibit C - Page 1

Delivered herewith are the Bond Counsel opinion and the undertaking of the Remarketing Agent required by Section 302(B)(1) of the Indenture.

Very truly yours,
CITYFOREST CORPORATION
By:
	Borrower’s Representative

Exhibit C - Page 2

EXHIBIT D

FORM OF REQUISITION

Requisition No             

To:	Attn: Corporate Trust Department
Re:	$27,000,000
	City of Ladysmith, Wisconsin
	Variable Rate Demand Solid Waste Disposal Facility Revenue Bonds, Series 1998 (CityForest Corporation Project)

This Borrower’s Requisition is delivered to you pursuant to Section 3.02 and Section 3.03 of the Loan Agreement, dated as of March 1, 1998, (the “Loan Agreement”), by and between CityForest Corporation, a Minnesota corporation (the “Borrower”), and the City of Ladysmith, Wisconsin, a political subdivision and body corporate and politic created under the laws of the State of Wisconsin (the “Issuer”). Reference is made to the Cost of Issuance Fund and the Construction Fund created in Sections 602 and 603, respectively, of the Indenture of Trust (the “Indenture”), dated as of March 1, 1998, between the Issuer and you, securing the captioned bonds.

The Borrower hereby requisitions from the Construction Fund the amounts indicated below:

Categorical Purpose		Amount Requisitioned
A.	To allocate to or pay (or reimburse the Borrower for) the Engineering Costs or the Basic Project Costs of the Project described in the definition of Eligible Costs of the Project in Section 1.01 of the Loan Agreement	$
B.	To allocate to or pay (or reimburse the Borrower for) the Other Costs described in the definition of Eligible Costs of the Project in Section 1.01 of the Loan Agreement and specified in the Opinion of Bond Counsel attached	$
C.	To allocate to or pay the Capitalized Interest Costs described in the definition of Eligible Costs of the Project in Section 1.01 of the Loan Agreement	$

Exhibit D - Page 1

The Borrower hereby requisitions from the Cost of Issuance Fund the amount indicated below:

D.	To allocate to or pay (or reimburse the Borrower for) the Bond Issuance Costs described in the definition of Eligible Costs of the Project in Section 1.01 of the Loan Agreement	$
	TOTAL REQUISITION AMOUNT	$

In support of this requisition, the undersigned hereby certifies as follows:

1. He (She) is the Borrower’s Representative, that is, the person or, in such person’s absence, the alternate person, designated in a Borrower’s Certificate as the person authorized to execute and deliver Requisitions and to give Trust Fund investment directions on behalf of the Borrower.

2. The amounts, if any, requisitioned for Categorical Purpose A. above:

(a) have been incurred by Borrower or paid by the Borrower and are hereby allocated to the Eligible Costs of the Project described in Schedule A hereto which corresponds to Exhibit E of the Loan Agreement;

(b) have been incurred or paid by Borrower for land or property of a character subject to the allowance for depreciation under Section 167 of the Internal Revenue Code except as otherwise indicated in Schedule A attached hereto;

(c) were incurred or paid by Borrower after November 13, 1995; and

(d) are chargeable to the capital account of the Project or would be so chargeable either with a proper election of the Borrower or but for a proper election by the Borrower to deduct such amounts.

3. The amounts, if any, requisitioned for Categorical Purpose D. above:

(a) have been incurred by the Borrower or paid by the Borrower and are hereby allocated to the Eligible Costs of the Project described in Schedule D attached hereto which correspond to Exhibit D of the Loan Agreement; and

(b) have been or will be capitalized by the Borrower for Federal income tax purposes.

4. The estimated completion date of the Project now is                                                 , 19     . The Borrower is not in default under the Loan Agreement, except as follows (if no default exists, so state):

.

Exhibit D - Page 2

Nothing has occurred to the knowledge of the undersigned which will prevent the performance by the Borrower of its obligations under the Loan Agreement, except as follows (if none, so state):

.

5. No Borrower’s Requisition has previously been submitted in respect of the costs which form a basis for this Borrower’s Requisition.

6. You are hereby requested to pay the Total Requisition Amount in the following manner:

(a) To the Borrower by check; or

(b) To the Borrower by deposit in its general account (No.                          ) maintained at                                                                                                                                                                          ; or

(c) Other:                                                                                                                                                                                                                .

Executed by the undersigned on                                         , 199     .

7. Attached hereto is the requisition form to the Credit Facility Provider approved by the Independent Engineer.

CITYFOREST CORPORATION
By
	Its (Alternate) Borrower’s Representative

Exhibit D - Page 3

EXHIBIT E

It is noted that items under the heading “Qualified” represent Eligible Costs of the Project and that such Qualified amounts exceed the amount of Bonds proceeds.

Cost of Expansion and Upgrade:	Qualified
Engineering - Prespent	$	413,610
Engineering	1,441,411
Voith Contract	12,117,558
DIP Equipment	936,672
DIP Spares	97,174
PM#4 AC Drives	1,243,880
PM#4 Equipment	2,461,532
DCS & Field Devices	1,464,282
Buildings	7,615,766
Processing Piping and Eqp. Install	4,613,850
Electrical	1,520,726
Construction Mgmt. & Sub. Mgmt	918,683
Boldt Project Mgmt. Services	96,915
Total	$	34,942,059
Capitalized Interest
Capitalized Interest - Bond	3,500,000		*
Total	$	3,500,000
Debt Service Reserve Fund	1,000,000
Transaction Costs
Qualified at 2%	$	540,000
Total	$	1,540,000
Total All	$	39,982,059

* Estimated.

Exhibit E - Page 1

EX-10.6

Exhibit 10.6

INDENTURE OF TRUST

Dated as of March 1, 1998

From

CITY OF LADYSMITH, WISCONSIN
as Grantor

To

NORWEST BANK WISCONSIN, N.A.

Milwaukee, Wisconsin
as Trustee

Relating To:

$27,000,000

CITY OF LADYSMITH, WISCONSIN

VARIABLE RATE DEMAND SOLID WASTE DISPOSAL FACILITY
REVENUE BONDS,

SERIES 1998 (CITYFOREST CORPORATION PROJECT)

TABLE OF CONTENTS

Parties and Recitals			1
Granting Clauses			2
ARTICLE I DEFINITIONS AND USE OF PHRASES
Section 101		Definitions	3
Section 102		Use of Phrases; Rules of Construction	14
ARTICLE II GENERAL PROVISIONS RELATING TO THE BONDS
Section 201	Creation of Bonds for Issuance		15
Section 202	Parity		16
Section 203	Bonds to be Limited Obligations of Issuer		16
Section 204	Execution of Bonds		16
Section 205	Authentication		16
Section 206	Form of Bonds		17
Section 207	Provision for Registration, Transfer and Exchange of Bonds		17
Section 208	Persons Treated as Owners		19
Section 209	Manner of Payment of Bonds		19
Section 210	Mutilated, Lost, Stolen or Destroyed Bonds		19
Section 211	Designation of Bond Registrar and Paying Agents		20
Section 212	Disposition of Bonds Upon Payment; Safe-keeping of Bonds Surrendered for Exchange		20
Section 213	Nonpresentment of Bonds		20
Section 214	Delivery of Bonds		20
ARTICLE III TERMS OF THE BONDS
Section 301	Maturity		21
Section 302	Interest on the Bonds		21
Section 303	Purchase of Bonds Upon Demand		26
Section 304	Mandatory Tender of Bonds for Purchase		27
Section 305	Purchase of Tendered Bonds		28
Section 306	Bond Purchase Account		28
Section 307	Treatment of Untendered Bond Certificates		30
Section 308	Remarketing of Tendered Bonds		30
Section 309	Remarketing of Pledged Bonds		31
Section 310	Concerning the Remarketing Agent		32
ARTICLE IV REDEMPTION OF BONDS PRIOR TO MATURITY
Section 401	Limitation of Redemptions Prior to Maturity		32
Section 402	Notice and Effect of Redemption		33
Section 403	Selection of Bonds for Redemption; Manner of Effecting Partial Redemptions of Particular Bonds		33
Section 404	Optional Redemption of Bonds at Election of the Borrower		34

i

Section 405	Optional Redemption of Bonds Upon Occurrence of Certain Extraordinary Events	35
Section 406	Mandatory Redemption of Bonds Upon Determination of Taxability or Expiration of Credit Facility	36
Section 407	Mandatory Purchase of Bonds Relating to Debt Service Reserve Fund	37
ARTICLE V REPRESENTATIONS AND COVENANTS OF ISSUER
Section 501	Payment of Principal and Interest	37
Section 502	Performance of Covenants; Authority	37
Section 503	Instruments of Further Assurance	38
Section 504	Inspection of Books	38
Section 505	Rights Under Loan Agreement and Other Documents	38
Section 506	Tax-Exempt Status of Bonds	38
ARTICLE VI CUSTODY AND APPLICATION OF PROCEEDS OF BONDS
Section 601	Application of Proceeds of Bonds	39
Section 602	Cost of Issuance Fund	39
Section 603	Construction Fund	39
Section 604	Surplus Construction Fund	40
Section 605	Debt Service Reserve Fund	41
ARTICLE VII REVENUES AND FUNDS
Section 701	Source of Payment	42
Section 702	Pledged Revenues	42
Section 703	Bond Fund	42
Section 704	Redemption Fund	44
Section 705	Trust Funds Held in Trust	44
Section 706	Credit Facility Reimbursement Account	44
ARTICLE VIII INVESTMENTS
Section 801	Permitted Investment of Trust Funds	45
Section 802	Arbitrage	45
Section 803	Rebate of Certain Arbitrage Profits	46
ARTICLE IX DISCHARGE
Section 901	Discharge	46
ARTICLE X DEFAULT PROVISIONS AND REMEDIES OF TRUSTEE AND BONDOWNERS
Section 1001	Defaults; Events of Default	48
Section 1002	Acceleration	49
Section 1003	Remedies	49
Section 1004	Right of Bondowners to Direct Proceedings	50
Section 1005	Waiver of Certain Rights	51
Section 1006	Application of Moneys	51

ii

Section 1007	Remedies Vested in Trustee	53
Section 1008	Rights and Remedies of Bondowners	53
Section 1009	Termination of Proceedings	53
Section 1010	Waivers of Events of Default	54
Section 1011	Opportunity to Cure Defaults by Issuer	54
Section 1012	Certain Notices to Borrower	54
ARTICLE XI THE TRUSTEE
Section 1101	Acceptance of Trusts	54
Section 1102	Specific Duty of Trustee to File Continuation Statements	57
Section 1103	Notice to Bondowners if Default Occurs	57
Section 1104	Intervention by Trustee	57
Section 1105	Successor Trustee	58
Section 1106	Resignation by Trustee	58
Section 1107	Removal of Trustee	58
Section 1108	Appointment of Successor Trustee by Bondowners; Temporary Trustee	58
Section 1109	Concerning Any Successor Trustee	59
Section 1110	Appointment of Co-Trustee	59
Section 1111	Acquisition of Conflicting Interests by Trustee	60
Section 1112	Requirement of a Corporate Trustee	61
Section 1113	Trustee’s Fees	61
ARTICLE XII CONCERNING THE CREDIT FACILITY
Section 1201	Trustee to Draw on Credit Facility	62
Section 1202	Requirements Regarding Credit Facility and Substitute Credit Facility	63
Section 1203	References to Credit Facility Provider After Expiration or Default of Credit Facility	65
Section 1204	References to Eligible Funds and Preference Opinion After Expiration of Credit Facility	65
Section 1205	Option of Credit Facility Provider to Purchase Bonds in Lieu of Redemption or Upon Acceleration	65
Section 1206	Disclaimer of FDIC Insurance	65
ARTICLE XIII SUPPLEMENTAL INDENTURES
Section 1301	Amendments and Supplements Without Bondowners’ Consent	66
Section 1302	Amendments With Bondowners’ Consent	66
Section 1303	Consent of Borrower and Credit Facility Provider	67
ARTICLE XIV AMENDMENT OF LOAN AGREEMENT, PROMISSORY NOTE AND CREDIT FACILITY
Section 1401	Amendments Not Requiring Consent of Bondowners	67
Section 1402	Amendments Requiring Consent of Bondowners	67
Section 1403	Consent of Borrower and Credit Facility Provider	68

iii

ARTICLE XV FORM OF BONDS
Section 1501	General Matters	68
Section 1502	Form of Bond Prior to the Conversion Date	68
Section 1503	Form of Bond On or After Conversion Date	77
Section 1504	Additional Matters Appearing on Bonds	85
ARTICLE XVI MISCELLANEOUS
Section 1601	Consent of Bondowners	86
Section 1602	Limitation of Rights	86
Section 1603	Severability	86
Section 1604	Notices	86
Section 1605	Payments Due on Saturdays, Sundays and Holidays	87
Section 1606	Captions	87
Section 1607	Counterparts	87
Section 1608	Governing Law	87

iv

INDENTURE OF TRUST

THIS INDENTURE OF TRUST, dated as of March 1, 1998, between the CITY OF LADYSMITH, WISCONSIN, a political subdivision and body corporate and politic created under the laws of the State of Wisconsin (the “Issuer”), and NORWEST BANK WISCONSIN, N.A., a national banking association, duly organized, existing and authorized to accept and execute trusts of the character herein set out by virtue of the laws of the United States, with its principal corporate trust office located in Milwaukee, Wisconsin, as trustee (the “Trustee”);

W I T N E S S E T H :

WHEREAS, the Issuer is authorized pursuant to the provisions of the laws of the State of Wisconsin, including specifically, but without limitation, Section 66.521, Wisconsin Statutes (the “Act”), to issue its revenue bonds to finance or refinance all or any part of the construction, equipping, reequipping, acquisition, purchase, installation, reconstruction, rebuilding, rehabilitation, improving, supplementing, replacing, maintaining, repairing, enlarging, extending or remodelling of qualified projects and the improvement of sites therefor; and

WHEREAS, the Issuer has agreed to issue its Variable Rate Demand Solid Waste Disposal Facility Revenue Bonds, Series 1998 (CityForest Corporation Project) in the aggregate principal amount of $27,000,000 (the “Bonds”), and to lend the proceeds of the sale of the Bonds to CityForest Corporation (the “Borrower”), to enable the Borrower to finance the acquisition, construction and equipping of a solid waste disposal facility (the “Project”) located in the territory of the Issuer; and

WHEREAS, the Issuer and the Borrower will enter into a Loan Agreement, dated as of March 1, 1998 (the “Loan Agreement”), pursuant to which the Issuer will agree to lend the proceeds of the Bonds to the Borrower and the Borrower will agree to make payments sufficient to pay the principal and Purchase Price (as hereinafter defined) of, and redemption premium, if any, and interest on, the Bonds as the same become due and payable and to pay administrative expenses in connection with the Bonds; and

WHEREAS, as security for the payment of the Bonds issued pursuant to this Indenture, the Issuer has agreed to assign and pledge to the Trustee, the Trust Estate (as hereinafter defined); and

WHEREAS, Union Bank of California, N.A. (the “Bank”), will issue a Credit Facility (as hereinafter defined) in favor of the Trustee, for the account of the Borrower, obligating the Bank, as Credit Facility Provider to pay to the Trustee during the periods described herein, upon request and in accordance with the terms thereof, the amounts described therein for the purpose of making certain payments on or with respect to the Bonds (other than Bonds

registered in the name of the Borrower or the Bank, which Bonds shall not be entitled to any benefit of the Credit Facility); and

WHEREAS, all things necessary to make the Bonds, when authenticated by the Trustee as in this Indenture provided, the legal valid and binding limited obligations of the Issuer according to the import thereof, and to constitute this Indenture a valid pledge and assignment of the Trust Estate (as hereinafter defined) have been done and performed;

GRANTING CLAUSES

NOW, THEREFORE, in consideration of the premises, the acceptance by the Trustee of the trusts hereby created, and the purchase and acceptance of delivery of the Bonds by the purchaser(s) thereof, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and to secure the payment of the principal or Purchase Price of, premium, if any, and interest on all Bonds issued and Outstanding under this Indenture according to their tenor and effect, and to secure the performance and observance by the Issuer of all the covenants contained in the Bonds and in this Indenture, the Issuer does hereby pledge, assign, grant a security interest in and confirm unto the Trustee, all and singular the properties, revenues and rights hereinafter described, whether now owned or hereafter acquired, and the proceeds thereof (collectively called the “Trust Estate”), to wit:

1. All right, title and interest of the Issuer in and to the Promissory Note;

2. All right, title and interest of the Issuer in, to and under the Loan Agreement and the right to receive revenues and payments from the Borrower thereunder;

3. All right, title and interest of the Issuer in and to the Pledged Revenues;

4. All right, title and interest (if any) of the Issuer in and to the Credit Facility;

5. All right, title and interest of the Issuer in and to the Trust Funds and the cash, securities and investments of which they are comprised (excluding the Credit Facility Reimbursement Account and subject, however, to the rights of the Credit Facility Provider with respect to the Debt Service Reserve Fund); and

6. All property which by the express provisions of this Indenture is required to be subjected to the lien hereof, and any additional property that may from time to time hereafter be made subject to the lien hereof by the Issuer or by anyone on its behalf;

IN TRUST, for the equal and ratable benefit and security of the Bondowners without preference, priority or distinction as to lien or otherwise of any particular Bond over

2

any other Bond, except as otherwise expressly provided herein and subject to the rights of the Bondholders and Credit Facility Provider;

PROVIDED, HOWEVER, that the Issuer reserves the right to enforce the Unassigned Rights in its own name and for its own account; and

PROVIDED, FURTHER, HOWEVER, that if the Issuer shall pay, cause to be paid or provide for the payment of the principal of, premium, if any, and interest on the Bonds in accordance with Article IX of this Indenture, and shall make all required “rebate” payments to the United States Treasury in accordance with Section 803 of this Indenture, and if the Issuer shall promptly, faithfully and strictly keep, perform and observe all of its representations, covenants and agreements contained in this Indenture, then in such event this Indenture and the rights hereby granted (excepting Bondowners’ rights theretofore vested) shall cease, terminate and be void, otherwise to remain in full force and effect upon the trusts and subject to the conditions hereinafter set forth.

All Bonds issued and secured hereunder are to be issued, authenticated and delivered, and all Trust Funds, revenues and income hereby pledged are to be dealt with and disposed of under and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes as hereinafter expressed, and the Issuer has agreed and covenanted, and does hereby agree and covenant, with the Trustee and with the respective Owners from time to time of the Bonds, as follows, THAT IS TO SAY:

ARTICLE I

DEFINITIONS AND USE OF PHRASES

Section 101 Definitions. As used in this Indenture and the recitals hereto, the following terms and phrases shall have the following meanings.

“Act” means Section 66.521 of the Wisconsin Statutes, as amended from time to time.

“Adjusted Interest Rate” means, with respect to each Reset Period and Bonds of each stated maturity, the interest rate determined and certified to the Trustee by the Remarketing Agent as provided in Section 302(b)(iv) or Section 302(c)(iv), as the case may be.

“Alternate Paying Agent” means any bank or trust company designated by the Issuer at the written request of the Borrower as an alternate or co-paying agent in respect of the Bonds.

“Authorized Denomination” means $100,000 or any multiple of $5,000 in excess thereof provided that after the Conversion Date such term shall mean $5000 or any multiple thereof.

3

“Authorized Officers of the Borrower” means the President or any Vice President of the Borrower.

“Bankruptcy Condition” means (i) the filing of a petition in bankruptcy by or against the Borrower or the Issuer as debtor under the United States Bankruptcy Code, 11 U.S.C. Sections 101 et seq., or (ii) the commencement or continuance of other judicial proceedings with respect to the Borrower or the Issuer as debtor under similar or successor federal or state bankruptcy, reorganization or insolvency laws.

“Beneficial Owner” means, with respect to a Bond which is held in Book Entry Form, the person who owns the Beneficial Ownership Interest therein, as evidenced to the satisfaction of the Trustee.

“Beneficial Ownership Interest” means the right to receive payments and notices with respect to Bonds which are held by the Depository under a Book Entry System and for which the Depository does not, pursuant to the Letter of Representations, act on behalf of the Beneficial Owner in connection with the optional or mandatory tender of Bonds pursuant to Section 303 or Section 304 hereof.

“Bond Amount” means $27,000,000.

“Bond Counsel” means Independent Counsel whose legal and tax opinion on municipal bond issues is nationally recognized.

“Bond Fund” means the Trust Fund described in Section 703 of this Indenture.

“Bond Purchase Account” means the trust account described in Section 306 of this Indenture.

“Bond Register” means the registration books maintained by the Trustee pursuant to Section 207 of this Indenture.

“Bondowners” and “Owners” (when used with reference to Bonds) means, at the time or times of determination, the persons who are registered owners of Bonds.

“Bonds” means the Issuer’s Variable Rate Demand Solid Waste Disposal Facility Revenue Bonds, Series 1998 (CityForest Corporation Project) issued under this Indenture in the aggregate principal amount of the Bond Amount.

“Book Entry Form” or “Book Entry System” means, with respect to the Bonds, a form or system, as applicable, under which (i) the ownership of beneficial interests in the Bonds may be transferred only through book entry and (ii) physical Bond certificates in fully registered form are registered only in the name of a Depository or its nominee as Owner, with the physical Bond certificates “immobilized” in the custody of the Depository.

4

“Borrower” means CityForest Corporation, a Minnesota corporation, and any successor, surviving, resulting or transferee entity as provided in Sections 7.07, 7.09 and 11.02 of the Loan Agreement.

“Borrower’s Address” means the address which the Borrower designates for the delivery of notices hereunder. Until changed by notice from the Borrower to the Issuer, the Credit Facility Provider, the Remarketing Agent and the Trustee, the Borrower’s Address shall be:

CityForest Corporation
1215 East Worden Avenue
Ladysmith, Wisconsin 54848
Attention: President
Telephone: (715) 532-5541
Telecopy: (715) 532-5542

“Borrower’s Certificate” means a certificate signed on behalf of the Borrower by Authorized Officers of the Borrower.

“Borrower’s Payments Account” means the Borrower’s Payments Account of the Bond Fund described in Section 703 of this Indenture.

“Borrower’s Representative” means the person or, in his or her absence, the alternate person, designated in a Borrower’s Certificate (containing specimen signatures of each such person) as a person authorized to execute and deliver Requisitions, Conversion Notices and Reset Notices and to give Trust Fund investment directions on behalf of the Borrower.

“Business Day” means a day (a) other than a Saturday, Sunday or legal holiday on which banks located in the city in which the Trustee’s Principal Office is located, the city in which the Credit Facility Provider’s principal office is located or the city in which the Remarketing Agent’s principal office is located, are required or authorized to remain closed and (b) on which neither the New York Stock Exchange nor the Federal Reserve Banks are closed.

“Calculation Period” means, while the Bonds bear interest at the Variable Rate, the period from Wednesday of each week (whether or not a Business Day) or any Proposed Conversion Date through and including the earlier of (i) the following Tuesday (whether or not a Business Day) or (ii) the day immediately preceding a Proposed Conversion Date.

“Chief Municipal Official” means the person at the time incumbent in the office of Mayor of the Issuer or, in the event of the death, disability or absence of such person, the person duly authorized and legally empowered to perform the duties of such office in such event.

5

“Clerk” means the person at the time incumbent in the office of Clerk of the Issuer or, in the event of the death, disability or absence of such person, the person duly authorized and legally empowered to perform the duties of such office in such event.

“Completion Date” means the completion date of the Project as determined in accordance with Section 3.05 of the Loan Agreement.

“Construction Fund” means the Trust Fund described in Section 603 of this Indenture.

“Continuing Disclosure Agreement” means the Continuing Disclosure Agreement, dated as of the Effective Date, between the Borrower and the Trustee, as amended from time to time.

“Cost of Issuance Deposit Amount: means $540,000.

“Cost of Issuance Fund” means the Trust Fund described in Section 602 of this Indenture.

“Conversion Date” means the date on which the interest rate on the Bonds is converted from the Variable Rate to the Adjusted Interest Rate as provided in Section 302(b) of this Indenture.

“Conversion Notice” means a notice in the form of Exhibit B to the Loan Agreement from the Borrower to the Trustee, the Issuer, the Remarketing Agent, the Rating Agency and the Credit Facility Provider designating a Proposed Conversion Date, as provided in Section 302(b)(i) of this Indenture.

“Credit Facility” means any letter of credit (or, on or after the Conversion Date, any standby purchase agreement, guaranty, bond insurance policy or similar credit enhancement instrument, meeting the requirements of Section 1202 of this Indenture) or any Substitute Credit Facility. The initial Credit Facility is Irrevocable Letter of Credit, No. 306S231063 issued by Union Bank of California, N.A. in the original stated amount of $27,258,905 on the date of original issuance and delivery of the Bonds.

“Credit Facility Account” means the Credit Facility Account of the Bond Fund described in Section 703 of this Indenture.

“Credit Facility Expiration Date” means the stated expiry of a Credit Facility in accordance with the terms thereof and Section 1202 of this Indenture.

“Credit Facility Provider” means any bank, savings and loan association, insurance company or other regulated financial institution which issues a Credit Facility in accordance with Article XII of this Indenture. The initial Credit Facility Provider is Union Bank of California, N.A., Los Angeles, California.

6

“Credit Facility Provider’s Address” means the address which the Credit Facility Provider designates for the delivery of notices hereunder. Until changed by notice from the Credit Facility Provider to the Issuer, the Remarketing Agent, the Rating Agency, the Trustee and the Borrower, the Credit Facility Provider’s Address shall be:

Union Bank of California, N.A.
495 South Figueroa Street, 15th Floor
Los Angeles, California 90071
Attention: Vicente Bendanillo, Jr.
Telephone: (213) 236-6198
Telecopy: (213) 236-4096

“Credit Facility Reimbursement Account” means the account created pursuant to Section 706 of this Indenture.

“Credit Facility Reimbursement Agreement” means the agreement between the Borrower and the Credit Facility Provider pursuant to which the Credit Facility is issued and, with respect to the initial Credit Facility, means the Reimbursement Agreement, dated as of the Effective Date, between the Borrower and Union Bank of California, N.A., as amended from time to time.

“Credit Facility Substitution Date” means each date designated as such in accordance with Section 1202 of this Indenture.

“Debt Service Reserve Fund” shall have the meaning set forth in Article VI hereof.

“Debt Service Reserve Fund Requirement” shall mean initially $1,000,000 and thereafter (i) while a Credit Facility is in effect, an amount in excess thereof established by a written certificate provided to the Trustee signed by the Borrower and the Credit Facility Provider, provided, that such amount shall not exceed the Maximum Debt Service Reserve Amount, and, provided, further, that such certification shall contain such certifications of the Credit Facility Provider acceptable to Bond Counsel (expressed in a written opinion to be provided to the Trustee, that increasing such amount will not adversely affect the exclusion from gross income of interest on the Bonds) or (ii) if no Credit Facility is in effect, and if the Borrower has not elected to liquidate the Debt Service Reserve Fund in accordance with Section 407 hereof, an amount equal to the lesser of the amount of the Debt Service Reserve Fund on the Conversion Date or the Maximum Debt Service Reserve Amount.

“Depository” means any securities depository that is a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, operating and maintaining, with its participants or otherwise, a Book Entry System to record ownership of beneficial interests in the Bonds, and to effect transfers of the Bonds, in Book

7

Entry Form, and includes and means initially The Depository Trust Company (a limited purpose trust company), New York, New York.

“Determination Date” means (i) with respect to each Calculation Period commencing on a Wednesday, the Tuesday immediately preceding the commencement of such Calculation Period or, if such Tuesday is not a Business Day, the next preceding Business Day, and (ii) with respect to each Calculation Period commencing on a Proposed Conversion Date, such Proposed Conversion Date.

“Determination of Taxability” means the occurrence of any of the following:

(a) the filing of a Borrower’s Certificate with the Trustee asserting or indicating by its terms to the satisfaction of the Trustee that an Event of Taxability has occurred;

(b) notification to the Trustee that an authorized officer or official of the Internal Revenue Service has issued a statutory notice of deficiency or document of similar import to the effect that an Event of Taxability has occurred; or

(c) notification to the Trustee from any Bondowner or former Bondowner to the effect that the Internal Revenue Service has assessed as includable in the gross income of such Bondowner or former Bondowner interest on a Bond due to the occurrence of any Event of Taxability;

(d) provided, however, that in respect of clauses (b) and (c) above, a Determination of Taxability shall not be deemed to have occurred unless and until the Borrower has been notified of the allegation that an Event of Taxability and a Determination of Taxability have occurred and the Borrower has failed within 90 days following such notice either (i) to have the allegation that an Event of Taxability has occurred rescinded by the Internal Revenue Service or the Bondowner or the former Bondowner who made such allegation, as the case may be, or (ii) to obtain an opinion of Bond Counsel acceptable to the Trustee to the effect that no Event of Taxability has occurred.

“Effective Date” means March 1, 1998.

“Eligible Funds” means (i) any amounts (including investment earnings) in the Credit Facility Account, the Debt Service Reserve Fund or the Bond Purchase Account, and (ii) other amounts (including investment earnings) in the Bond Fund or the Redemption Fund with respect to which the Trustee has received a Preference Opinion.

“Event of Default” means any of the events designated as such in Section 1001 of this Indenture.

“Event of Taxability” means the circumstance of interest paid or payable on any Bond becoming includable for federal income tax purposes (other than for purposes of

8

computing alternative minimum taxes) in the gross income of any Bondowner (other than a Bondowner who is a “substantial user” of the Project or “related person” within the meaning of Section 147(a) of the Internal Revenue Code) as a consequence of any act, omission or event whatsoever; provided, however, that a change in the Internal Revenue Code enacted after the date of issuance of the Bonds which results in interest on borrowings by state and local governments generally being included in gross income shall not be an Event of Taxability.

“Final Maturity Date” means March 1, 2028.

“Government Obligations” means direct, full faith and credit obligations of the United States of America.

“Indenture” means this Indenture of Trust from the Issuer to the Trustee, dated as of the Effective Date, under which the Bonds are issued, as amended from time to time by Supplemental Indentures.

“Independent Counsel” means any attorney or firm of attorneys who or which shall be acceptable to the Trustee and who or which is not an employee of the Borrower or the Issuer.

“Initial Debt Service Reserve Fund Deposit” means $1,000,000.

“Interest Payment Date” means each date on which interest is stated to be due on any Bond.

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Issuer” means the City of Ladysmith, Wisconsin, a municipal corporation and political subdivision of the State of Wisconsin, and any successor political subdivision of the State of Wisconsin having jurisdiction over the Project.

“Issuer’s Address” means the address which the Issuer designates for the delivery of notices hereunder. Until changed by notice from the Issuer to the Borrower, the Credit Facility Provider, the Remarketing Agent, the Rating Agency and the Trustee, the Issuer’s Address shall be:

City of Ladysmith, Wisconsin
120 Minor Avenue West
P.O. Box 431
Ladysmith, Wisconsin 54848
Attention: Clerk
Telephone (215) 532-2600
Telecopy: (215) 532-2620

“Issuer’s Governing Body” means the Common Council of the Issuer.

9

“Letter of Representations” means the agreement between the Issuer and the Depository that sets forth the manner of making and processing payments, giving notices and other procedures relating to the Depository’s Book Entry System. The initial Letter of Representations is the Blanket Letter of Representations from the Issuer to DTC.

“Loan Agreement” means the Loan Agreement, dated as of the Effective Date, between the Issuer and the Borrower, as amended from time to time in accordance with Section 11.01 of the Loan Agreement and Article XIV of this Indenture.

“Mandatory Tender Date” means each date on which all Bonds are required to be tendered for purchase pursuant to Section 304 hereof.

“Maximum Debt Service Reserve Amount” means the lesser of (i) 10% of the stated principal amount of the Bonds, (ii) maximum annual debt service on the Bonds, or (iii) 125% of average annual debt service on the Bonds. The amounts for (ii) and (iii) above may be established by assuming the Bonds are level debt service fixed rate bonds with an interest rate comparable to similar fixed rate bonds established on the date of issuance of the Bonds by a certificate of the Remarketing Agent.

“Optional Tender Date” means the date specified in a Purchase Demand as the date on which the Owner or Beneficial Owner of the Bond(s) (or portions thereof) described therein is demanding purchase of such Bond(s) (or portions thereof) or the Beneficial Ownership Interest therein, which date must be a Business Day not less than seven days after receipt by the Trustee of such Purchase Demand.

“Outstanding Bonds” and “Outstanding”, when used with reference to Bonds, means all Bonds which have been authenticated and delivered by the Trustee under this Indenture, except:

(i) Bonds or portions thereof canceled by the Trustee or delivered to the Trustee for cancellation;

(ii) Bonds in lieu of which other Bonds have been authenticated and delivered in accordance with Sections 206, 207, 210, 306, 309 and 403 of this Indenture; and

(iii) Bonds which are not deemed to be Outstanding in accordance with the provisions of Sections 213, 307 and 901 of this Indenture.

“Plant Complex” means the land, building(s), improvements, fixtures and major equipment located in the Issuer’s jurisdiction from time to time, with which the Project Enterprise will be conducted and of which the Project forms a part.

“Pledged Bonds” means Bonds or Beneficial Ownership Interests therein, purchased with the proceeds of a draw under the Credit Facility pursuant to Section 1201(d) hereof and not remarketed by the Remarketing Agent.

10

“Pledged Revenues” means all revenues and income derived by or for the account of the Issuer from or for the account of the Borrower pursuant to the terms of the Loan Agreement, the Promissory Note and this Indenture, including, without limitation (i) all amounts derived pursuant to the Credit Facility, (ii) all cash and securities held from time to time in the Trust Funds (except the Debt Service Reserve Fund when it is held by the Credit Facility Provider), and the investment earnings thereon, and (iii) all payments by the Borrower on the Promissory Note or pursuant to Section 7.02 of the Loan Agreement; but excluding any amounts derived by the Issuer for its own account pursuant to the enforcement of Unassigned Rights.

“Preference Opinion” means an opinion of Bond Counsel addressed to the Trustee stating in effect that the use of the funds to which the opinion relates for the purchase of Bonds or for the payment of the principal of, premium, if any, or interest on the Bonds, as the case may be, will not, upon the occurrence of a Bankruptcy Condition on or after the date of such opinion, constitute a preference payment under the United States Bankruptcy Code (taking into account the “insider” provisions thereof) or a payment of similar import (that is, a payment subject to disgorgement upon the occurrence of certain bankruptcy events) under the then applicable Federal and State bankruptcy, insolvency and reorganization laws.

“Principal Payment Date” means the Final Maturity Date and, during any Reset Period, each March 1.

“Project” means the project of the Borrower described in Exhibit A to the Loan Agreement which has been or is to be acquired, constructed and installed in the Issuer’s jurisdiction in accordance with the Project Plans and Specifications.

“Project Enterprise” means the business of manufacturing paper and tissue products utilizing solid waste.

“Project Plans and Specifications” means the Borrower’s architectural and engineering drawings and other plans and specifications for the Project, as amended from time to time in accordance with Section 3.04 of the Loan Agreement.

“Promissory Note” means the Borrower’s promissory note in the form of Exhibit A to the Loan Agreement, dated the date of issuance of the Bonds, issued in the principal amount of the Bond Amount payable to the order of the Issuer.

“Proposed Conversion Date” shall mean the date identified in a Conversion Notice properly delivered by the Borrower pursuant to Section 302(b)(i) hereof as the date on which the interest rate on the Bonds is to be converted from the Variable Rate to the Adjusted Interest Rate.

“Purchase Demand” means a written demand by an Owner or a Beneficial Owner of a Bond, meeting the requirements of Section 303 hereof, that such Bond or the Beneficial Ownership Interest therein be purchased on the date specified therein.

11

“Qualified Investments” means such of the following as at the time of determination are permitted investments under the Act: (i) Government Obligations, (ii) securities as to which the timely payment of both principal and interest are unconditionally guaranteed by the United States of America, (iii) obligations of any of the following: Banks for Cooperatives, Federal Land Banks, Federal Home Loan Banks, Federal Intermediate Credit Banks and Federal National Mortgage Association, (iv) interest-bearing accounts, time deposits and certificates of deposit issued by any bank, trust company or national banking association (including the Trustee and any affiliate of the Trustee) which has capital, surplus and undivided profits in excess of $10,000,000, but in no event shall the amount invested at any one time, in interest-bearing accounts, time deposits and certificates of deposit issued by any one bank, trust company or national banking association equal or exceed 20% of the capital, surplus and undivided profits of such bank, trust company or national banking association, (v) commercial paper issued by domestic corporations which is rated not less than P-l by the Rating Agency (or an equivalent rating from another national rating agency), (vi) any fund or other pooling arrangement which exclusively purchases and holds the investments itemized in (i) through (v) above or repurchase agreements fully collateralized by such investments, and (vii) at any time while a Credit Facility is in effect, any other investment approved in writing by the Credit Facility Provider; provided, however, that if the conditions of any investment rating assigned or to be assigned to the Bonds require an exclusion of or limitation on any of the foregoing, the term “Qualified Investments” shall conform to such conditions.

“Rating Agency” means Moody’s Investors Service, Inc., or any successor thereto (if at the time maintaining a rating on the Bonds), and any other national rating service maintaining a rating on the Bonds.

“Rebate Account” means the special account described in Section 803(b).

“Record Date” means (i) with respect to each regularly scheduled Interest Payment Date occurring on or before the Conversion Date, and with respect to any redemption date that is not a regularly scheduled Interest Payment Date, the day (whether or not a Business Day) immediately preceding such Interest Payment Date or redemption date, as the case may be and (ii) with respect to each regularly scheduled Interest Payment Date occurring after the Conversion Date, the 15th day (whether or not a Business Day) of the calendar month next preceding such Interest Payment Date.

“Redemption Fund” means the Trust Fund described in Section 704 of this Indenture.

“Remarketing Agent” means Lehman Brothers Inc. and any successor institution serving as Remarketing Agent pursuant to Section 310 of this Indenture.

12

“Remarketing Agent’s Address” means the address or office which the Remarketing Agent designates for the delivery of notices or payments hereunder. Until changed by notice from the Remarketing Agent to the Credit Facility Provider, the Borrower, the Issuer and the Trustee, the Remarketing Agent’s Address shall be:

Lehman Brothers Inc.
Three World Financial Center, 20th Floor
New York, New York 10285
Attn: Frank Murphy
Telephone: (212) 528-1022
Telecopy: (212) 526-2129

“Required Substitution” shall have the meaning assigned such term in Section 1202 of this Indenture.

“Requisite Consent of Bondowners” means the affirmative written consent of Bondowners owning in aggregate not less than a majority in principal amount of the Bonds (other than Bonds owned by the Borrower or any “related person” as defined in Section 147(a) of the Internal Revenue Code) at the time Outstanding.

“Requisition” means a requisition of the Borrower substantially in the form of Exhibit C to the Loan Agreement.

“Reset Date” means the March 1 next following the scheduled termination date of each Reset Period.

“Reset Notice” means a written notice, substantially in the form of Exhibit C to the Loan Agreement, from the Borrower to the Trustee, the Remarketing Agent, the Rating Agency, the Issuer and the Credit Facility Provider, establishing a new Reset Period as provided in Section 302(c)(ii) hereof.

“Reset Period” means (i) the period from the Conversion Date through and including the February 28 specified in the Conversion Notice as the termination date of the first Reset Period and (ii) each period thereafter from and including the next March 1 through and including the February 28 specified in the Reset Notice as the termination date for such Reset Period; provided that, if the conditions set forth in Section 302(b)(vi) to the establishment of the succeeding Reset Period are not satisfied as of the Reset Date, the then current Reset Period shall not terminate, and the next Reset Period shall not commence, until the date as of which such conditions are satisfied.

“Substitute Credit Facility” shall have the meaning assigned to such term in Section 1202 of this Indenture.

“Supplemental Indenture” means any supplement to or amendment of this Indenture entered into in accordance with Article VIII of this Indenture.

13

“Surplus Construction Fund” means the Trust Fund described in Section 604 of this Indenture.

“Tender Date” means a Mandatory Tender Date or Optional Tender Date.

“Tendered Bonds” means Bonds tendered or required to be tendered for purchase in accordance with Section 305 of this Indenture.

“Trust Funds” means the trust funds administered by the Trustee under this Indenture other than the Bond Purchase Account, the Rebate Account and the segregated trust accounts described in Sections 213, 307 and 309 of this Indenture.

“Trustee” means Norwest Bank Wisconsin, N.A., Milwaukee, Wisconsin, and any successor banking corporation, banking association or trust company at the time serving as corporate trustee under this Indenture.

“Trustee’s Address” and “Trustee’s Principal Office” means the address or office which the Trustee designates for the delivery of notices or payments hereunder or under the Loan Agreement. Until changed by notice from the Trustee to the Borrower, the Credit Facility Provider, the Remarketing Agent, the Rating Agency and the Issuer, the Trustee’s Address and Principal Office is:

Norwest Bank Wisconsin, N.A.
Suite 1200
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Corporate Trust
Telephone: (414) 224-7489
Telecopy: (414) 224-3747

“Unassigned Rights” means the Borrower’s obligations to the Issuer under Sections 3.08, 7.03 and 11.09 of the Loan Agreement.

“Untendered Bonds” means Bonds which are required to be tendered for purchase in accordance with the provisions of Section 305 of this Indenture but which in fact are not delivered to the Trustee on or before the applicable Tender Date.

“Variable Rate” means the interest rate borne by the Bonds from time to time prior to the Conversion Date, if any, determined in accordance with Section 302(a) of this Indenture.

Section 102 Use of Phrases; Rules of Construction. The following provisions shall be applied wherever appropriate herein:

14

“Herein”, “hereby”, “hereunder”, “hereof” and other equivalent words refer to this Indenture as an entirety and not solely to the particular portion of this Indenture in which any such word is used.

The definitions set forth in Section 101 hereof shall be deemed applicable whether the words defined are herein used in the singular or the plural.

Wherever used herein, any pronoun or pronouns shall be deemed to include both the singular and plural and to cover all genders.

Unless otherwise provided, any determinations or reports hereunder which require the application of accounting concepts or principles shall be made in accordance with generally accepted accounting principles.

ARTICLE II

GENERAL PROVISIONS RELATING TO THE BONDS

Section 201 Creation of Bonds for Issuance. There is hereby created for issuance an issue of Bonds to be designated:

CITY OF LADYSMITH, WISCONSIN
VARIABLE RATE DEMAND SOLID WASTE DISPOSAL FACILITY
REVENUE BONDS,
SERIES 1998 (CITYFOREST CORPORATION PROJECT)

provided, that on or after the Conversion Date, the Bonds shall be designated:

CITY OF LADYSMITH, WISCONSIN
SOLID WASTE DISPOSAL FACILITY REVENUE BONDS, SERIES 1998
(CITYFOREST CORPORATION PROJECT)

The Bonds shall be issued in the aggregate principal amount of Twenty-Seven Million Dollars ($27,000,000), and the maximum aggregate principal amount of Bonds that may be Outstanding at any one time is hereby expressly limited to such amount.

The Bonds shall be numbered in such manner as the Trustee shall deem appropriate, provided that each particular Bond shall have a different identifying number. The Bonds shall be issuable in the form of typewritten, lithographed, printed or engraved fully registered Bonds in Authorized Denominations.

The Bonds shall mature and bear interest as provided in Sections 301 and 302 of this Indenture. The Bonds shall specify, as their original issue date, the date of their original issuance and delivery. Each particular Bond shall be dated, as its registration date, the date of its authentication.  Bonds authenticated prior to the first Interest Payment Date shall bear

15

interest from the original issue date. Bonds authenticated on or after the first Interest Payment Date applicable thereto shall bear interest from the Interest Payment Date next preceding the date of their authentication unless the date of such authentication is an Interest Payment Date to which interest has been fully paid or provided for, in which case they shall bear interest from such Interest Payment Date. If interest on the Bonds shall be in default, such Bonds shall bear interest from the date to which interest on such Bonds has been paid in full or, if no interest has been paid, then from the date of their original authentication and delivery.

Section 202 Parity. This Indenture is for the equal and ratable benefit and security of all Bonds issued hereunder. All Bonds shall be of equal rank, and no Bondowner shall be accorded a preference or priority over any other Bondowner except as expressly authorized or provided herein.

Section 203 Bonds to be Limited Obligations of Issuer. In accordance with the Act, the Bonds shall be limited obligations of the Issuer payable by it solely from the Pledged Revenues. The Bonds shall not constitute a debt or obligation of the Issuer, the county in which it is located, the State of Wisconsin or any political subdivision thereof within the meaning of any State of Wisconsin constitutional provision or statutory limitation and shall not be a charge against their general credit or taxing powers.

Section 204 Execution of Bonds. The Bonds shall be executed on behalf of the Issuer by its Chief Municipal Official under the official seal, if any, of the Issuer attested by its Clerk. The signatures of the Chief Municipal Official and the Clerk on the Bonds may be manual or facsimile. The official seal of the Issuer on the Bonds may be actually impressed or imprinted or may be reproduced thereon by facsimile.

Bonds bearing the manual or facsimile signatures of the persons who were the Chief Municipal Official and the Clerk at the time of the execution thereof shall be valid and sufficient for all purposes notwithstanding that such persons or either of them have ceased to hold such offices prior to the authentication and delivery of the Bonds or did not hold such offices at the date of the Bonds. For this purpose a Bond executed by facsimile signature shall be deemed to have been executed on the date of the printing thereof.

Section 205 Authentication. The Trustee is hereby appointed as a fiscal agent of the Issuer for purposes of authenticating the Bonds. From time to time after the execution and delivery of this Indenture, the Issuer may deliver executed Bonds to the Trustee for authentication, and the Trustee shall authenticate and deliver such Bonds as provided in this Indenture and not otherwise.

No Bond shall be entitled to any benefit under this Indenture or be valid for any purpose unless there appears on such Bond a certificate of authentication substantially in the form set forth in Sections 1502 or 1503 hereof, as appropriate, executed on behalf of the Trustee with the manual signature of an authorized signatory of the Trustee. Such certificate of authentication executed as aforesaid on a Bond shall be conclusive evidence that such Bond has been authenticated and delivered under this Indenture.

16

Section 206 Form of Bonds. The Bonds shall be issuable only as fully registered Bonds substantially in the form set forth in Section 1502 (in the case of Bonds authenticated prior to the Conversion Date) or 1503 (in the case of Bonds authenticated on or after the Conversion Date) of this Indenture.

Pending the preparation of definitive Bonds, the Issuer may execute and the Trustee shall authenticate and deliver typewritten Bonds which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any Authorized Denomination, substantially of the tenor of the definitive Bonds in lieu of which they are issued, in fully registered form, with such appropriate insertions, omissions, substitutions and other variations as the Chief Municipal Official and Clerk may determine, as evidenced by their manual signing of such Bonds. If temporary Bonds are issued, the Trustee will cause definitive Bonds to be prepared without unreasonable delay. After the preparation of definitive Bonds, the temporary Bonds shall be exchangeable for definitive Bonds upon surrender of the temporary Bonds at the Trustee’s Principal Office without charge to the Bondowner. Upon surrender for cancellation of any one or more temporary Bonds, the Issuer shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Bonds of Authorized Denominations. Until so exchanged the temporary Bonds shall in all respects be entitled to the same benefits under this Indenture as definitive Bonds, and the principal of, premium, if any, and interest thereon, when and as payable, shall be paid to the Owners of the temporary Bonds.

Section 207 Provision for Registration, Transfer and Exchange of Bonds. The Bonds are issuable only as fully registered bonds and, except as hereinafter provided, registered in the name of the Depository or its nominee, which shall be considered to be the Bondowner for all purposes of this Indenture, including, without limitation, payment by the Issuer of principal or purchase price of, premium, if any, and interest on the Bonds, and receipt of notices and exercise of rights of Bondowners. There shall be a single temporary Bond for each maturity which shall be immobilized in the custody of the Depository (or the Trustee as custodian for the Depository) with the beneficial owners having no right to receive the Bonds in the form of physical securities or certificates. Ownership of beneficial interests in the Bonds shall be shown by book entry on the Book Entry System maintained and operated by the Depository, and transfers of ownership of beneficial interests shall be made only by Depository and, if applicable, its participants, by book entry, the Issuer having no responsibility therefor. The Bonds as such shall not be transferable or exchangeable, except for transfer to another Depository or to another nominee of a Depository, without further action by the Trustee.

If any Depository determines not to continue to act as a Depository for the Bonds for use in a Book Entry System, the Trustee shall attempt to have established a securities depository/book entry system relationship with another qualified Depository under this Indenture. If the Trustee does not or is unable to do so, the Issuer and the Trustee, after the Trustee has made provision for notification of the beneficial owners by the then Depository, shall permit withdrawal of the Bonds from the Depository, and authenticate and deliver Bond certificates in fully registered form (in Authorized Denominations) to the assigns

17

of the Depository or its nominee, all at the cost and expense (including costs of printing definitive Bonds) of the Borrower.

If the Bonds are not in a Book Entry System, the Trustee shall cause a register (herein sometimes referred to as the “Bond Register”) to be kept at the Trustee’s Principal Office for the purpose of providing for the registration and transfer of Bonds in accordance with the provisions of this Section and such reasonable additional regulations as the Trustee may prescribe. Subject to such regulations, any Bondowner may cause its address on the Bond Register to be changed by giving written notice to the Trustee. At reasonable times and under reasonable regulations established by the Trustee, the Bond Register may be inspected and copied by the Borrower, the Credit Facility Provider, the Remarketing Agent, the Issuer or by Owners (or a designated representative thereof) of 10% or more in aggregate principal amount of Bonds then Outstanding, the authority of such designated representative to be evidenced to the satisfaction of the Trustee.

Subject to the foregoing provisions regarding the maintenance of a Book Entry System for the Bonds, each Bond shall be fully negotiable. A Bond may be transferred only by a written assignment duly executed by the Bondowner or by such Owner’s duly authorized legal representative. Upon presentation and surrender of the Bond together with said executed form of assignment at the Trustee’s Principal Office, the Trustee shall, subject to the limitations contained in the last paragraph of this Section 207, register the transfer in the Bond Register; provided, however, that the Trustee shall have no obligation to register the transfer unless the executed assignment shall be satisfactory to it in form and substance. Upon registration of the transfer of a Bond, the Trustee shall cancel the surrendered Bond and the Issuer shall issue, and the Trustee shall authenticate, one or more new Bonds of Authorized Denominations of the same maturity and interest rate and in the same aggregate principal amount as the surrendered Bond.

Subject to the foregoing provisions regarding the maintenance of a Book Entry System for the Bonds, and to the limitations contained in the last paragraph of this Section 207, Bonds may be exchanged at the Trustee’s Principal Office for a like aggregate principal amount of Bonds of the same maturity and interest rate in other Authorized Denominations. Each Bond surrendered for exchange shall be accompanied by a written assignment in form and substance satisfactory to the Trustee and duly executed by the Bondowner or by such Owner’s duly authorized legal representative. The Issuer shall issue and the Trustee shall authenticate such new Bonds as shall be required to accomplish exchanges as aforesaid.

The Bondowner requesting any registration of transfer or exchange of Bonds shall pay with respect thereto any resulting tax or governmental charge. All such payments shall be conditions precedent to the exercise of the Bondowner’s rights of registration of transfer or exchange.

All registrations of transfer and exchanges of Bonds shall be accomplished in such manner that no increase or decrease in interest payable on the Bonds results therefrom.

18

Except in connection with a purchase of Bonds pursuant to Section 305 of this Indenture, the Trustee shall not be required to register the transfer of or to exchange any Bond (i) after the receipt by the Trustee of a Purchase Demand with respect thereto and through the corresponding Optional Tender Date, (ii) after the Trustee has given notice of a Mandatory Tender Date and through the Mandatory Tender Date, (iii) during the fifteen days prior to the mailing of any notice of redemption, or (iv) after such Bond has been selected for redemption. Upon registration of the transfer of any Bond that has been called for redemption, the Trustee shall promptly give notice of redemption to the transferee in the manner provided in Section 402 hereof.

Section 208 Persons Treated as Owners. The Issuer, the Trustee and any Alternate Paying Agent may treat the person in whose name any Bond is registered (who, in the case of a Book Entry System, shall be the Depository) as the absolute owner of such Bond for the purpose of receiving payment of the principal of, premium, if any, and interest thereon and for all other purposes whatsoever (except as otherwise specifically provided herein with respect to Beneficial Owners), whether or not such Bond is overdue and irrespective of any actual, implied or imputed notice to the contrary.

Section 209 Manner of Payment of Bonds. The principal of and premium, if any, on each Bond shall be payable to the Owner of such Bond as shown on the Bond Register on the date of payment, upon presentation and surrender at the Trustee’s Principal Office. The interest on any Bond which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid by check drawn by the Trustee payable to the order of the person in whose name that Bond is registered as of the close of business on the Record Date for such interest and mailed to such person at the address shown on the Bond Register.

The principal of, premium, if any, and interest on all Bonds shall be paid in lawful money of the United States of America.

Notwithstanding the foregoing, while the Bonds are in a Book Entry System, payments shall be made as provided in the Letter of Representations.

Section 210 Mutilated, Lost, Stolen or Destroyed Bonds. In the event any Bond is mutilated, lost, stolen or destroyed, the Issuer shall execute and the Trustee shall authenticate a new Bond of like date, maturity, interest rate and denomination as the Bond mutilated, lost, stolen or destroyed. In the case of any lost, stolen or destroyed Bond, there shall first be furnished to the Issuer and the Trustee evidence of such loss, theft or destruction satisfactory to the Issuer and the Trustee, together with indemnity satisfactory to them. In the case of any mutilated Bond, such Bond shall be surrendered to the Trustee. In the event any such Bond shall have matured, the Trustee instead of issuing a substitute Bond may pay the same without surrender thereof. The Issuer and the Trustee may charge the Owner of such Bond with their reasonable fees and expenses in this connection.

19

Section 211 Designation of Bond Registrar and Paying Agents. The Trustee shall be the Bond registrar and a paying agent for and in respect of all Bonds. At the written request of the Borrower, the Issuer may also designate one or more Alternate Paying Agents.

Section 212 Disposition of Bonds Upon Payment; Safe-keeping of Bonds Surrendered for Exchange. All Bonds fully paid, fully redeemed or purchased by the Trustee or any Alternate Paying Agent for cancellation under the provisions of this Indenture shall be canceled when such final payment, redemption or purchase is made, and such canceled Bonds shall be delivered to the Trustee. Bonds surrendered to the Trustee for exchange or transfer in accordance with Section 207 hereof, temporary Bonds surrendered for exchange in accordance with Section 206 hereof, and mutilated Bonds surrendered for exchange in accordance with Section 210 hereof, Bonds surrendered for partial redemption in accordance with Section 403 hereof, Bonds tendered for purchase and purchased in accordance with Section 305 hereof, and Pledged Bonds delivered by the Credit Facility Provider upon remarketing in accordance with Section 309 hereof shall be canceled by the Trustee. All canceled Bonds shall be destroyed by the Trustee by cremation, shredding or other suitable means, and the Trustee shall execute a certificate of destruction in duplicate describing the Bonds so destroyed and one executed certificate shall be filed with the Issuer and the other executed certificate shall be retained by the Trustee.

Section 213 Nonpresentment of Bonds. In the event any Bond shall not be presented for payment when the principal thereof becomes due, either at stated maturity or on the date fixed for redemption thereof, if Eligible Funds sufficient to pay such Bond shall be held by the Trustee for the benefit of the Owner thereof, all liability of the Issuer to the Owner thereof for the payment of such Bond shall forthwith cease, terminate and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such Eligible Funds in a segregated trust account without liability for interest thereon, for the benefit of the Owner of such Bond who shall thereafter be restricted exclusively to such account for any claim of whatever nature on such person’s part under this Indenture or on or with respect to said Bond. Such cash in such segregated trust account shall thereafter no longer be considered Pledged Revenues and any such Bond shall no longer be deemed Outstanding under this Indenture.

After any such funds have been held in such segregated trust account for four years, the Trustee shall certify the amount thereof and the identifying numbers of the particular Bonds whose Owners have a claim thereagainst (which Owners shall also be identified, if known) and deliver such certificate and such cash to the Borrower. Thereafter such Owners shall have an unsecured claim against the Borrower in respect of payment of such unpresented Bonds, and shall have no further claim whatever against the Issuer, the Trustee or the Credit Facility Provider in respect thereof.

Section 214 Delivery of Bonds. Upon the execution and delivery of this Indenture, the Issuer shall issue and execute and deliver the Bonds to the Trustee, and the Trustee shall authenticate such Bonds and deliver them to the purchaser(s) as may be directed by the Issuer.

20

Prior to the delivery of the Bonds by the Trustee there shall be filed with the Trustee:

(a)    a certified copy of the resolution(s) of the Issuer’s Governing Body authorizing the issuance of the Bonds and the execution and delivery of the Loan Agreement and this Indenture;

(b)    original executed counterparts of the Loan Agreement, this Indenture and the Remarketing Agreement;

(c)    the original executed Promissory Note;

(d)    the original executed Credit Facility;

(e)    a request and authorization to the Trustee, executed on behalf of the Issuer by its Chief Municipal Official or Clerk, to deliver the Bonds to the purchaser(s) therein identified, in the form and amount requested upon payment to the Trustee, for the account of the Issuer, of a specified sum.

ARTICLE III

TERMS OF THE BONDS

Section 301 Maturity. Subject to the provisions of this section providing for assignment of stated maturities on and after the Conversion Date, the Bonds shall mature on the Final Maturity Date. The Bonds shall be subject to prior redemption as provided in Article VI hereof and to optional and mandatory purchase as provided in Sections 303 and 304 hereof.

Upon the receipt of a Conversion Notice, the Trustee shall, in accordance with the instruction of the Remarketing Agent, assign stated maturity dates to the Bonds, to be effective on the Conversion Date, as hereinafter described. Upon receipt of a Reset Notice, the Trustee shall, in accordance with the instructions of the Remarketing Agent, assign stated maturity dates to the Bonds, to be effective on the related Reset Date, as hereinafter described. Stated maturity dates of each March 1 occurring during the applicable Reset Period shall be assigned, such that the principal amount of Bonds to mature on each such March 1 is equal to the quotient (rounded down, if necessary, to the nearest multiple of $100,000) obtained by dividing the aggregate principal amount of Bonds Outstanding on the Conversion Date or Reset Date, as the case may be, by the number of March 1’s occurring from (but not including) the Conversion Date or Reset Date, as the case may be, through and including the Final Maturity Date. After the Conversion Date, the Bond certificates shall specify the maturity dates so assigned and no particular Bond certificate may cover more than one such stated maturity date.

Section 302 Interest on the Bonds. (a) Prior to the Conversion Date, if any, the Bonds shall bear interest at the Variable Rate determined from time to time in accordance with the provisions of this Section 302(a), payable on the first Business Day

21

of each month, commencing March, 1998, on each Mandatory Tender Date, and at maturity. From the date of issuance of the Bonds through and including March 31, 1998 the Variable Rate shall be equal to 3.80% per annum. Thereafter, the Variable Rate for each Calculation Period shall be determined on the Determination Date with respect thereto and shall be the lesser of (i) 10% per annum, or (ii) the minimum rate of interest which, in the judgment of the Remarketing Agent, under prevailing market conditions, taking into account the current rates for tax-exempt securities comparable in length of interest rate adjustment periods, liquidity, security and creditworthiness to the Bonds, would enable the Bonds to be sold at a price of par, plus accrued interest, if any, on the Determination Date. The Remarketing Agent shall determine the Variable Rate for each Calculation Period on the corresponding Determination Date, and shall notify the Trustee of such determination on such date by telephone, promptly, confirmed in writing, or by facsimile. In the event that the Remarketing Agent shall fail for any reason to determine, and notify the Trustee of, the Variable Rate for any Calculation Period, the Variable Rate for such Calculation Period shall be equal to the Variable Rate in effect immediately prior to the commencement of such Calculation Period.

Interest accruing at the Variable Rate shall be computed on the basis of a 365 or 366-day year, as the case may be, and the actual number of days elapsed.

(b)    From and after the Conversion Date, if any, the Bonds of each stated maturity shall bear interest during each Reset Period at the Adjusted Interest Rate with respect thereto, payable on the first day of February and August of each year, commencing the first such date which is at least 30 days after the Conversion Date, and at maturity. Interest accruing at the Adjusted Interest Rates shall be calculated on the basis of a 360-day year comprised of twelve 30-day months. The interest rate on the Bonds may be converted to the Adjusted Interest Rates as follows:

(i)          The Borrower may designate any Business Day (except as provided in paragraph (xii) below) as a Proposed Conversion Date by delivering to the Trustee, the Remarketing Agent, the Issuer, the Rating Agency and the Credit Facility Provider a Conversion Notice not less than 45 days, nor more than 60 days, prior to the Proposed Conversion Date (unless a shorter notice shall be acceptable to the Trustee). Such Conversion Notice shall (a) specify the Proposed Conversion Date and the termination date of the first Reset Period (which must be a February 28), (b) request the establishment of an Adjusted Interest Rate for the Bonds of each stated maturity to be in effect during such Reset Period, (c) provide the notice described in Section 407 and state whether or not a Credit Facility will be in effect during such Reset Period and (i) if so, describe such Credit Facility and identify the Credit Facility Provider, and (ii) if not, include the written consent of the current Credit Facility Provider to such conversion, (d) be accompanied by a written opinion of Bond Counsel, addressed to the Trustee, the Issuer and the Remarketing Agent, to the effect that the conversion of the interest rate on the Bonds to the Adjusted Interest

22

Rates is permitted by the Act and this Indenture and that such conversion and the delivery of the Credit Facility, if any, described in clause (c) above will not (upon satisfaction of such conditions as may be set forth therein) result in interest on the Bonds being included in gross income for federal income tax purposes, and (e) be accompanied by a written undertaking of the Remarketing Agent to calculate the principal amounts of Bonds to mature on each Principal Payment Date, establish the Adjusted Interest Rates for Bonds maturing on each Principal Payment Date and remarket the Bonds on the Proposed Conversion Date.

(ii)         Upon receipt of a Conversion Notice, the Trustee shall determine whether such Conversion Notice complies with paragraph (i) above, and shall notify the Remarketing Agent, the Credit Facility Provider and the Borrower of such determination. If the Conversion Notice does comply with said paragraph (i), the Trustee shall also notify the Bondowners of the mandatory tender on the Proposed Conversion Date as provided in Section 304 hereof.

(iii)        The Borrower or, if no Credit Facility will be in effect during the First Reset Period, the current Credit Facility Provider, may rescind the Conversion Notice by delivering to the Trustee and the Remarketing Agent, no later than eight days prior to the Proposed Conversion Date, a notice stating that the Borrower or the Credit Facility Provider, as the case may be wishes to rescind the Conversion Notice and have the Bonds continue to bear interest at the Variable Rate on and after the Proposed Conversion Date.

(iv)       Upon receipt of notice from the Trustee under paragraph (ii) above, and unless the Remarketing Agent shall have received notice from the Borrower under paragraph (iii) above, the Remarketing Agent shall, no later than seven days prior to the Proposed Conversion Date, determine the principal amount of Bonds to mature on each Principal Payment Date (as provided in Section 301) and the respective Adjusted Interest Rates and shall notify the Trustee of such determinations on such date by telephone, promptly confirmed in writing, or by facsimile. The Adjusted Interest Rate for Bonds of each stated maturity to be in effect during the first Reset Period shall be the lesser of (a) 20% per annum, or (b) the minimum rate of interest which, in the judgment of the Remarketing Agent, under prevailing market conditions, taking into account the current rates for tax-exempt securities comparable in term, security and creditworthiness to such Bonds, would enable such Bonds to be sold at a price of par on the Proposed Conversion Date.

(v)        On the Proposed Conversion Date, the Borrower shall cause to be delivered: (a) to the Trustee, the Credit Facility, if any, described in paragraph (i)(c) above, together with all other items required by Section 1202 hereof and (b) to the Trustee and the Remarketing Agent, a written opinion of Bond Counsel, dated the Proposed Conversion Date, to the effect that the conversion

23

of the interest rate on the Bonds to the Adjusted Interest Rate and the delivery of the Credit Facility, if any, described in clause (a) above, will not result in an Event of Taxability.

(vi)       If all of the requirements of paragraphs (i), (ii), (iv) and (v) above are met, if the Borrower has not rescinded the Conversion Notice pursuant to paragraph (iii) above, and if by 11:00 a.m., New York, New York time, on the Proposed Conversion Date the Remarketing Agent has successfully remarketed all of the Bonds at the Adjusted Interest Rates and the proceeds of such remarketing are available in the Bond Purchase Account pursuant to Section 306, the Proposed Conversion Date shall be the Conversion Date and the Bonds shall bear interest at the respective Adjusted Interest Rates during the first Reset Period. If the Borrower rescinds the Conversion Notice pursuant to paragraph (iii) above, if for any reason the Remarketing Agent fails to determine and notify the Trustee of the Adjusted Interest Rates as described in paragraph (iv) above, if the Borrower fails to cause to be delivered the Credit Facility, if any, and opinion of Bond Counsel as described in paragraph (v) above, or if the Remarketing Agent has not successfully remarketed all of the Bonds and caused the proceeds thereof to be available in the Bond Purchase Account by 11:00 a.m., New York, New York time, on the Proposed Conversion Date, the Proposed Conversion Date shall not be the Conversion Date and the Bonds shall continue to bear interest at the Variable Rate.

(vii)      Notwithstanding the foregoing, no Proposed Conversion Date shall be established on a day that is during the thirty-five days immediately preceding a Principal Payment Date.

Interest accruing at the Adjusted Interest Rates shall be calculated on the basis of a 360-day year comprising twelve 30-day months.

(c)    Following the first Reset Period, the Adjusted Interest Rates shall be established for each succeeding Reset Period as follows:

(i)          At least 45 days, but not more than 60 days, prior to each Reset Date, the Trustee shall send a notice to the Borrower and the Remarketing Agent, setting forth: (i) the Reset Date, and (ii) that a Reset Notice is due not later than 25 days before the Reset Date. The Trustee shall also notify the Bondholders of the mandatory tender on the Reset Date as provided in Section 304 hereof.

(ii)         Not later than 25 days prior to each Reset Date, the Borrower shall deliver to the Trustee, the Remarketing Agent, the Issuer, the Rating Agency and the Credit Facility Provider a Reset Notice with respect to the Reset Period commencing on such Reset Date, which shall (a) specify the termination date of such Reset Period, which date must always be a February 28, (b) request

24

the establishment of an Adjusted Interest Rate for the Bonds of each stated maturity to be in effect during such Reset Period, (c) state whether or not a Credit Facility will be in effect during such Reset Period and if so, describe such Credit Facility and identify the Credit Facility Provider, and (d) be accompanied by a written opinion of Bond Counsel, addressed to the Trustee, the Issuer and the Remarketing Agent, to the effect that the establishment of the new Adjusted Interest Rates is permitted by the Act and this Indenture and that such establishment and the delivery of the Credit Facility, if any, described in clause (c) above will not (upon satisfaction of such conditions as may be set forth therein) result in interest on the Bonds being included in gross income for federal income tax purposes.

(iii)        If the Borrower delivers to the Trustee a document purporting to be a Reset Notice, the Trustee shall as promptly as possible determine whether it is proper and sufficient as a Reset Notice pursuant to this Indenture, and promptly notify the Borrower, the Credit Facility Provider and the Remarketing Agent of such determination.

(iv)       On the last Business Day which is at least seven days prior to the Reset Date (or on an earlier day selected by the Remarketing Agent with the consent of the Borrower), the Remarketing Agent shall determine the principal amount of Bonds to mature on each Principal Payment Date (as provided in Section 301) and the respective Adjusted Interest Rates, and shall notify the Trustee of such determination on such date by telephone, promptly confirmed in writing, or by facsimile. The Adjusted Interest Rate for Bonds of each stated maturity to be in effect during the Reset Period commencing on such Reset Date shall be the lesser of (a) 20% per annum, or (b) the minimum rate of interest which, in the judgment of the Remarketing Agent, under prevailing market conditions, taking into account the current rates for tax-exempt securities comparable in term, security and creditworthiness to such Bonds, would enable such Bonds to be sold at a price of par on the Reset Date (or, in the case of a Reset Date that is not a Business Day, at a price of par plus accrued interest on the next succeeding Business Day).

(v)        On the Reset Date (or, if the Reset Date is not a Business Day, on the next succeeding Business Day), the Borrower shall cause to be delivered: (a) to the Trustee, the Credit Facility, if any, described in paragraph (ii)(c) above, together with all other items required by Section 1202 hereof and (b) to the Trustee and the Remarketing Agent, a written opinion of Bond Counsel, dated the date of delivery thereof, to the effect that the establishment of the new Adjusted Interest Rate and the delivery of the Credit Facility, if any, described in clause (a) above, will not result in an Event of Taxability.

(vi)       It is a condition to the establishment of any Reset Period and the Adjusted Interest Rates with respect thereto that (a) the Borrower shall have

25

delivered to the Trustee a Reset Notice in proper form, (b) the Remarketing Agent shall have determined the Adjusted Interest Rates to be in effect during such period, (c) the Borrower shall have delivered the Credit Facility, if any, and the opinion of Bond Counsel described in paragraph (v) above, and (d) by 11:00 a.m., New York, New York time, on the Reset Date (or, if the Reset Date is not a Business Day, on the next succeeding Business Day), the Remarketing Agent shall have successfully remarketed all of the Bonds at the new Adjusted Interest Rates and the proceeds of such remarketing shall be available in the Bond Purchase Account pursuant to Section 306. In the event such conditions have not been satisfied as of the Reset Date (or, if the Reset Date is not a Business Day, as of the next succeeding Business Day), the next Reset Period shall not commence, and the new Adjusted Interest Rates and stated maturity dates assigned pursuant to Section 301 shall not become effective, until such time, if any, as such conditions are satisfied. On any Business Day thereafter upon which each such condition has been satisfied (provided that the Remarketing Agent may have established different Adjusted Interest Rates and the Bonds shall have been remarketed in accordance with Section 309), the next Reset Period shall commence. No failure to satisfy such conditions shall affect the requirement for mandatory tender of Bonds on the Reset Date (or, if the Reset Date is not a Business Day, on the next succeeding Business Day) or the right of the Bondowners to have their Bonds purchased on such date; provided that no remarketing of Bonds pursuant to Sections 308 or 309 shall be effective until all such conditions have been satisfied.

(vii)      To the extent permitted by law, overdue principal, premium, if any, and interest shall bear interest at the same rate as was borne by the Bonds on the due date of the payment that is delinquent.

Section 303     Purchase of Bonds Upon Demand.  While the Bonds bear interest at the Variable Rate, any Bond or the Beneficial Ownership Interest therein (other than a Pledged Bond), or any portion thereof in an Authorized Denomination, shall be purchased by the Trustee, on behalf of the Borrower, but only from the funds available therefor in the Bond Purchase Account, at a purchase price equal to 100% of the principal amount thereof, plus accrued interest to the Optional Tender Date, upon the demand of the Owner or Beneficial Owner thereof as provided in this Section 303. The Owner or Beneficial Owner, as the case may be, of a Bond may demand purchase of such Bond or the Beneficial Ownership Interest therein, on any Business Day which is at least seven days after delivery to the Trustee, at its Principal Office, by 11:00 a.m., New York, New York time, on a Business Day of a Purchase Demand. Delivery of a Purchase Demand shall be irrevocable and shall bind the Owner or Beneficial Owner, as the case may be, to tender his, her or its Bonds or Beneficial Ownership Interests for purchase on the Optional Tender Date as provided in Section 305 hereof. The Purchase Demand shall (i) state the name and taxpayer identification number of the Owner or Beneficial Owner, as the case may be, (ii) identify the Bond(s) or portion(s) thereof which are to be purchased, or the Beneficial Ownership Interests in which are to be purchased, by CUSIP number, Bond number(s) and principal amount(s), (iii) state the Optional Tender Date on

26

which the purchase of such Bond(s), or Beneficial Ownership Interest(s) (or portions thereof) is being demanded, which must be a Business Day not less than seven days after receipt by the Trustee, at or before 11:00 a.m., New York, New York time, on a Business Day, of such Purchase Demand, (iv) acknowledge that such demand is irrevocable, and (v) in the case of a Beneficial Owner, (a) be submitted to the Trustee through a participant in the Depository, (b) be accompanied by evidence satisfactory to the Trustee of such participant’s position in the Bonds at the Depository and of such Beneficial Owner’s Beneficial Ownership Interest in the Bonds, and (c) contain irrevocable authorization for such participant to transfer the Beneficial Ownership Interest on the Optional Tender Date. The determination by the Trustee as to whether a Purchase Demand has been properly delivered pursuant to this Section 303 shall be conclusive and binding upon the Owners or Beneficial Owners of the Bonds.

Section 304     Mandatory Tender of Bonds for Purchase.  All Bonds or the Beneficial Ownership Interests therein (other than Pledged Bonds) shall be subject to mandatory tender for purchase in accordance with Section 305 hereof on:

(a)    prior to the Conversion Date, the first Business Day of the month in which the Credit Facility Expiration Date is to occur unless, at least 45 days prior to such first Business Day of the month, the Borrower shall have caused to be delivered to the Trustee a Substitute Credit Facility meeting the requirements of Section 1202 hereof or an amendment to the Credit Facility extending the Credit Facility Expiration Date by at least the lesser of one year or the period ending on the fifteenth day of the month in which the Final Maturity Date is to occur;

(b)    on the Business Day that the Credit Facility Provider shall have delivered a certificate to the Trustee stating that an “Event of Default” (as defined therein) has occurred under the Credit Facility Reimbursement Agreement and demanding a mandatory tender for purchase of all of the Outstanding Bonds;

(c)    each Proposed Conversion Date;

(d)    prior to the Conversion Date, two Business Days prior to the effective date of any Substitute Credit Facility (other than a Required Substitution); and

(e)    each Reset Date.

The Trustee shall give notice of each Mandatory Tender Date in the same manner as notice of redemption of Bonds pursuant to Section 402 hereof. Such notice shall (i) identify the Bonds by name, CUSIP number, date of issue and maturity date, (ii) state the Mandatory Tender Date, (iii) state that all Bonds (or Beneficial Ownership Interests, as the case may be) are subject to mandatory tender for purchase at a purchase price equal to 100% of the principal amount thereof, plus accrued interest to the Mandatory Tender Date, (iv) state that, if moneys are available and on hand with the Trustee on the Mandatory Tender Date (or, if the Mandatory Tender Date is not a Business Day, on the next succeeding Business Day), all Bonds (or Beneficial Ownership Interests, as the case may be) shall be deemed tendered, whether or not so tendered, and that on and after the Mandatory Tender Date, the Owner (or

27

Beneficial Owner) shall have no further rights in such Bond other than the right to receive the purchase price thereof upon presentation of such Bond to the Trustee on any Business Day on or after the Mandatory Tender Date (or upon the transfer of such Beneficial Ownership Interest as directed by the Trustee) and (v) in the case of a mandatory tender of Bonds, state the place where Bonds may be presented for purchase.

Section 305     Purchase of Tendered Bonds.  All Bonds or Beneficial Ownership Interests, as the case may be (other than Pledged Bonds), with respect to which the Owners or Beneficial Owners, as the case may be, thereof have delivered Purchase Demands pursuant to Section 303 shall be purchased on an Optional Tender Date, and all Bonds or Beneficial Ownership Interests, as the case may be (other than Pledged Bonds), shall be purchased on each Mandatory Tender Date (or, if the Mandatory Tender Date is not a Business Day, on the next succeeding Business Day), at a purchase price equal to 100% of the principal amount thereof, plus accrued interest to the Tender Date (or, if the Tender Date is not a Business Day, to the next succeeding Business Day), from moneys available therefor in the Bond Purchase Account. Provided that Eligible Funds are available to the Trustee to pay the purchase price thereof and as set forth in Section 306:

(a)    in the case of the tender of Bonds:

(i)          all Tendered Bonds shall be deemed tendered, whether or not actually tendered, on the Tender Date;

(ii)         interest accruing on the Tendered Bonds on and after the Tender Date shall cease to be payable to the former Owners of such Tendered Bonds, who shall have no further interest or rights in such Bonds, except the right to receive payment of the purchase price thereof, exclusively from moneys held by the Trustee for such purpose upon presentation of such Bonds to the Trustee at its Principal Office on any Business Day on or after the Tender Date; and

(iii)        the Trustee shall authenticate and deliver Bonds to the new Owners thereof as provided in Section 306 hereof; and

(b) in the case of the tender of Beneficial Ownership Interests, the Beneficial Owner shall be obligated to cause the transfer of such Beneficial Ownership Interest on the records of the Depository, as directed by the Trustee.

Section 306     Bond Purchase Account.  There is hereby created by the Issuer and ordered established with the Trustee a trust account to be designated with the names of the Issuer and the Borrower and the label “Bond Purchase Account”. There shall be deposited into the Bond Purchase Account, when and as received by the Trustee (i) all funds received from the Remarketing Agent on a Tender Date for the purchase of Tendered Bonds (or Beneficial Ownership Interests therein) in accordance with Section 308 of this Indenture, (ii) all funds received from the Credit Facility Provider pursuant to a draw made by the Trustee under Section 1201(d) hereof; and (iii) any other funds deposited therein by or on behalf of the Borrower if accompanied with a Preference Opinion with respect thereto. No other funds shall

28

be accepted by the Trustee for deposit into the Bond Purchase Account. Notwithstanding the foregoing, any funds received from the Remarketing Agent representing accrued interest on Tendered Bonds (or Beneficial Ownership Interests therein) with respect to a Reset Date that is not a Business Day shall be deposited to the Bond Fund and used to pay or reimburse the Credit Facility Provider for the payment of the interest on the Bonds on the next Interest Payment Date.

Funds in the Bond Purchase Account shall be held in trust for the account of the respective owners of such funds at the time of the deposit thereof into the Bond Purchase Account until such funds are applied by the Trustee on the Tender Date to pay the purchase price of Tendered Bonds or Beneficial Ownership Interests. Such funds may be invested only in Government Obligations maturing no later than the date(s) on which such funds are expected to be needed for the purposes of the Bond Purchase Account.

Funds for the payment of such purchase price shall be derived from the following sources in the following order:

First.          first, from proceeds of the remarketing of Bonds (or Beneficial Ownership Interests) by the Remarketing Agent as described in Section 308 hereof;

Second.     second, from proceeds of a draw on the Credit Facility pursuant to Section 1201(d) hereof; and

Third.         third, from any other funds in the Bond Purchase Account.

Each Tendered Bond delivered to the Trustee pursuant to Section 305 of this Indenture shall be held in trust in the Bond Purchase Account for the account of such Owner until the purchase price shall have been paid in full to the Owner of such Tendered Bond. Upon payment in full of the purchase price of a Tendered Bond or Beneficial Ownership Interest from the Bond Purchase Account, the Tendered Bond or Beneficial Ownership Interest, as the case may be, shall (a) in the case of Bonds purchased with proceeds of the remarketing thereof, be registered and delivered by the Trustee as directed by the Remarketing Agent, (b) in the case of Beneficial Ownership Interests purchased with the proceeds of the remarketing thereof, be recorded on the records of the Depository as directed by the Trustee pursuant to instructions from the Remarketing Agent, (c) in the case of Bonds purchased with the proceeds of a draw on the Credit Facility, be registered in the name of the Credit Facility Provider and held by the Trustee, except as otherwise provided in the Credit Facility Reimbursement Agreement, (d) in the case of Beneficial Ownership Interests purchased with the proceeds of a draw on the Credit Facility, be recorded on the records of the Depository as directed by the Trustee pursuant to instructions from the Credit Facility Provider, (e) in the case of Bonds purchased with other funds in the Bond Purchase Account, be registered and delivered by the Trustee as directed by the Borrower and (f) in the case of Beneficial Ownership Interests purchased with other funds in the Bond Purchase Account, be recorded on the records of the Depository as directed by the Trustee pursuant to instructions of the Borrower.

29

Section 307     Treatment of Untendered Bond Certificates.  Untendered Bonds shall cease to bear interest on the Tender Date if funds sufficient to pay the purchase price or redemption price, as the case may be, of an Untendered Bond (including any accrued and unpaid interest) shall be held by the Trustee in the Bond Purchase Account. All liability of the Issuer to the Owner thereof for the payment of such Untendered Bond shall forthwith cease, terminate and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such funds in a separate segregated trust account, without liability for interest thereon, for the benefit of the owner of such Untendered Bond who shall thereafter be restricted exclusively to such account for any claim of whatever nature on such person’s part under this Indenture or on or with respect to such Bond. Such funds in such segregated trust account shall not be considered Pledged Revenues, and such Untendered Bonds shall not be deemed to be Outstanding under this Indenture.

After any such funds have been held in such segregated trust account for four years, the Trustee shall certify the amount thereof and the identifying numbers of the particular Bonds whose Owners have a claim there against (which Owners shall also be identified, if known) and deliver such certificate and such funds to the Borrower. Thereafter such Owners shall have an unsecured claim against the Borrower in respect of payment of such Untendered Bonds, and shall have no further claim whatever against the Issuer or the Trustee in respect thereof.

Section 308     Remarketing of Tendered Bonds.  Upon receipt of a Purchase Demand, the Trustee shall notify the Remarketing Agent by telephone, promptly confirmed in writing, or by facsimile, of the principal amount of Bonds or Beneficial Ownership Interests to be purchased on the Optional Tender Date.

Upon being notified by the Trustee of its receipt of a Purchase Demand, the Remarketing Agent shall attempt to remarket the Bonds or Beneficial Ownership Interests described in such Purchase Demand in accordance with this Section 308, and the Remarketing Agent shall attempt to remarket all Bonds on each Mandatory Tender Date in accordance with this Section; provided, however, that if the Borrower notifies the Remarketing Agent of a principal amount of Tendered Bonds or Beneficial Ownership Interests which the Remarketing Agent shall not remarket, then the Remarketing Agent shall not attempt to remarket the principal amount of the Bonds or Beneficial Ownership Interests so identified.

The Remarketing Agent shall use its best efforts to solicit purchases of the Tendered Bonds or Beneficial Ownership Interests at a price of par plus accrued interest on each Tender Date (or, in the case of a Reset Date that is not a Business Day, on the next succeeding Business Day); provided that the Remarketing Agent shall not settle any remarketing of Bonds at the Adjusted Interest Rate on a Proposed Conversion Date or any remarketing of Bonds on a Reset Date unless all of the conditions set forth in Section 302(b)(vi) or 302(c)(vi), as the case may be, have been satisfied. The Remarketing Agent shall pay the purchase price received by it (for any Tendered Bonds or Beneficial Ownership Interests so remarketed) to the Trustee for deposit in the Bond Purchase Account prior to 11:00 a.m., New York, New York time, on the Tender Date. No funds so deposited shall

30

have been furnished by the Borrower or the Issuer or any person who is an insider to the Borrower or the Issuer, respectively, within the meaning of the United States Bankruptcy Code. Upon request of the Borrower or the Credit Facility Provider from time to time, the Remarketing Agent shall advise the requesting party of the status of the remarketing effort and the Trustee shall advise the requesting party of the balance held by it in the Bond Purchase Account.

The Remarketing Agent shall have the right to, but shall not be obligated to, purchase Bonds or Beneficial Ownership Interests therein (including Pledged Bonds) for its own account to the same extent as if it were not the Remarketing Agent hereunder, and the purchase price paid by the Remarketing Agent for Tendered Bonds or Beneficial Ownership Interests shall be considered proceeds of the remarketing of such Tendered Bonds or Beneficial Ownership Interests, as the case may be.

Section 309     Remarketing of Pledged Bonds.  The Remarketing Agent shall continue to use its best efforts to solicit purchases of Pledged Bonds at a price of par plus accrued interest on any Business Day; provided that (i) no Pledged Bonds shall be remarketed for any Reset Period unless the conditions set forth in Section 302(c)(vi) have been satisfied, and (ii) if the Credit Facility Provider notifies the Remarketing Agent of a principal amount of Pledged Bonds which the Remarketing Agent shall not remarket, then the Remarketing Agent shall not attempt to remarket the principal amount of Pledged Bonds so identified. If the Remarketing Agent shall identify a purchaser for Pledged Bonds, it shall notify the Borrower, the Trustee and the Credit Facility Provider, and the Trustee shall establish a separate, segregated account (the “Pledged Bond Account”) to be used only for the purchase of such Pledged Bonds. Upon the deposit into the Pledged Bond Account of the amount, if any, required under the Credit Facility Reimbursement Agreement to be paid to the Credit Facility Provider, together with the proceeds of the remarketing, to cause the release of the Pledged Bonds, the Remarketing Agent shall cause to be deposited into the Pledged Bond Account any proceeds it receives from such remarketing.

On the Business Day fixed for such remarketing, provided that funds sufficient for the payment of the purchase price of the Pledged Bonds to be remarketed, together with any additional amount required pursuant to the Credit Facility Reimbursement Agreement for the release of the Pledged Bonds, are on deposit in the Pledged Bond Account:

(a)    the Trustee shall authenticate and deliver Bonds to the new Owners thereof as directed by the Remarketing Agent or the Beneficial Ownership Interest shall be transferred on the records of the Depositary, as appropriate; provided that Pledged Bonds remarketed by the Remarketing Agent shall not be delivered to the purchasers (i) until the Trustee has received written notice from the Credit Facility Provider that the Credit Facility has been reinstated in an amount equal to the purchase price paid by the Trustee from Credit Facility proceeds (unless the Credit Facility provides for automatic reinstatement upon such remarketing), and (ii) if a Bond (or Beneficial Ownership Interest) has been a Pledged Bond for a period of 30 days or more, unless the Trustee has been provided with an opinion of Bond Counsel to the effect that the status of such

31

Bond (or Beneficial Ownership Interest) as a Pledged Bond has not adversely affected the exclusion of interest on such Bond from gross income for federal tax purposes; and

(b)    the monies held in the Pledged Bond Account with respect to such Pledged Bonds shall be paid to the Credit Facility Provider, to the extent required by the Credit Facility Reimbursement Agreement, and thereafter to the order of the Borrower.

Section 310     Concerning the Remarketing Agent.  The Remarketing Agent shall be a member of the National Association of Securities Dealers, Inc. and authorized by law to perform the functions of the Remarketing Agent as described in this Indenture. The Trustee shall cooperate with the Remarketing Agent in the performance of its duties. The Remarketing Agent may resign upon not less than 60 days prior written notice to the Issuer, the Trustee, the Credit Facility Provider, the Rating Agency and the Borrower and may be removed by the Borrower upon not less than 60 days prior written notice to the Issuer, the Trustee, the Rating Agency, the Credit Facility Provider and the Remarketing Agent. In case the Remarketing Agent shall resign or be removed, the Borrower shall appoint a successor Remarketing Agent meeting the requirements of this Section 310. The successor Remarketing Agent shall evidence its acceptance of its duties hereunder by a writing delivered to the Trustee and the Credit Facility Provider. If the current Remarketing Agent’s resignation is effective prior to the appointment of a successor, the Trustee shall assume the duties thereof until a successor is appointed.

The Remarketing Agent’s duty to remarket Tendered Bonds (or Beneficial Ownership Interests) and Pledged Bonds pursuant to this Indenture (unless it shall agree otherwise in writing) shall be a “best efforts” undertaking on its part and shall not obligate it to purchase Bonds (or Beneficial Ownership Interests) for its own account or to advance funds for the account of any of its customers or prospective purchasers of Bonds (or Beneficial Ownership Interests). The Borrower shall, at its expense, furnish the Remarketing Agent with a prospectus meeting the requirements of applicable state and federal securities laws as a condition precedent to the institution by the Borrower of the remarketing described in Sections 308 and 309. The Remarketing Agent’s compensation for remarketing shall be fixed by agreement between the Borrower and the Remarketing Agent within the range of customary charges by investment bankers for similar services and shall be paid by the Borrower.

ARTICLE IV

REDEMPTION OF BONDS PRIOR TO MATURITY

Section 401     Limitation of Redemptions Prior to Maturity.  No Bond may be called for redemption prior to its stated maturity except as provided in this Article IV; provided, however, that nothing herein shall be deemed to limit the right of acceleration of Bond maturities upon the occurrence of an Event of Default.

32

Section 402     Notice and Effect of Redemption.  The Trustee shall give notice of the call for any redemption of Bonds prior to maturity by mailing a copy of the redemption notice by first class mail not less than 30 nor more than 60 days prior to the redemption date to the Owner of each Bond to be redeemed at the address shown on the Bond Register; provided, however, that failure to give any such notice as aforesaid or any defect therein with respect to any particular Bond shall not affect the validity of any proceedings for the redemption of any other Bond. A copy of all notices of redemption shall also be sent to the Rating Agency when sent to owners of Bonds, provided that any failure to provide such notice shall not affect the validity of any redemption.

In the case of optional redemption under Sections 404 or 405 of this Indenture, the required notice of redemption shall not be given until the Trustee has received (i) the written consent of the Credit Facility Provider, and (ii) in the case of redemption at a premium which is not provided for by the Credit Facility, Eligible Funds in an amount necessary to pay when due the premium, if any, on the Bonds to be redeemed.

Each redemption notice shall (a) identify the Bonds to be redeemed by name, CUSIP number, date of issue, interest rate and maturity date and, if only a portion of the Bonds are to be redeemed, the certificate numbers and the respective principal amounts to be redeemed, (b) identify the redemption date, (c) state the redemption price, (d) state that interest on the Bonds or the portions thereof called for redemption will (unless such Bonds are purchased in lieu of redemption pursuant to Section 1205 hereof) cease to accrue from and after the redemption date if funds sufficient for their redemption and available for the purpose are on deposit with the Trustee on the redemption date, and (e) state that payment for the Bonds will be made on the redemption date at the principal trust office of the Trustee during normal business hours upon the surrender of the Bonds to be redeemed.

Notice of redemption having been given as aforesaid, the Bonds so called for redemption, together with the premium, if any and accrued interest thereon, shall become due and payable on the redemption date. If pursuant to this Indenture the Trustee shall hold Eligible Funds which are available and sufficient in amount to pay the principal of and premium, if any, on the Bonds or portions thereof thus called for redemption and to pay the interest thereon to the redemption date, such Bonds or portions thereof shall (unless such Bonds are purchased in lieu of redemption pursuant to Section 1205 hereof) cease to bear interest from and after said redemption date; provided that funds available for the payment of the redemption premium payable pursuant to Section 406 hereof need not be Eligible Funds.

Section 403     Selection of Bonds for Redemption; Manner of Effecting Partial Redemptions of Particular Bonds.  If less than all Bonds are to be redeemed pursuant to the provisions of Section 404 hereof, the particular Bonds or portions thereof to be redeemed shall be selected by the Trustee in the inverse order of their stated maturities and within a stated maturity by lot or by such other random means as the Trustee shall determine in its discretion; provided, however, that Pledged Bonds shall be redeemed first and until all of the Pledged Bonds have been redeemed, no other Bonds shall be redeemed. Any such means of selecting

33

Bonds for redemption shall provide for the possibility of partial redemption of any Bond of a denomination greater than the smallest Authorized Denomination.

Particular Bonds may be redeemed only in multiples of the smallest Authorized Denomination (hereinafter called a “Unit”). In the case of Bonds of denominations greater than a Unit, each Unit shall be treated as though it were a separate Bond in the denomination of a Unit. If it is determined that one or more, but not all of the Units of principal amount represented by any such Bond is to be called for redemption, then upon notice of redemption of such Unit or Units, the Owner of such Bond shall present and surrender the same to the Trustee (i) for the payment of the redemption price (including the redemption premium, if any, and interest to the date fixed for redemption) in respect of the Unit or Units called for redemption and (ii) in exchange for a new Bond in the aggregate principal amount of the unredeemed balance of the principal amount not called for redemption. New Bonds representing the unredeemed balance of the principal amount of such Bond shall be issued to the registered Owner thereof without charge therefor. If the Owner of any such Bond shall fail to present such Bond to the Trustee for payment and exchange as aforesaid, such Bond shall nevertheless become due and payable on the date fixed for redemption to the extent of the Unit or Units of principal amount called for redemption (and to that extent only), and (subject to Section 402 hereof) interest shall cease to accrue on the portion of the principal amount of such Bond represented by such Unit or Units from and after the date fixed for redemption.

Section 404     Optional Redemption of Bonds at Election of the Borrower.  Upon prepayment of the Promissory Note in accordance with Section 5.03 of the Loan Agreement, and with the consent of the Credit Facility Provider, the Bonds are subject to redemption pursuant to this Section 404:

(a)    on or prior to the Conversion Date, in whole or in part (in multiples of $5,000 in excess of $100,000) on any Business Day, at a redemption price of 100% of the principal amount of Bonds so redeemed, plus accrued interest to the redemption date, and without premium; and

(b)    during any Reset Period, in whole on any date or in part (in multiples of $5,000) on any regularly scheduled Interest Payment Date which is (1) on or after the third anniversary of the Conversion Date or the Reset Date, as the case may be, if the length of the Reset Period is at least five years, but less than seven years, (2) on or after the fourth anniversary of the Conversion Date or the Reset Date, if the length of the Reset Period is seven years or more. The redemption price for any such redemption shall be the amount determined from the applicable table below (expressed as a percentage of the principal amount of the Bonds or portions thereof so redeemed), plus accrued interest to the redemption date:

34

If the Reset Period is at least five years, but less than seven years:

Redemption Period (by reference to Annual Anniversaries of Conversion Date or Reset Date)
On or After	But Prior To	Redemption Price
Third Anniversary	Fourth Anniversary	101	%
Fourth Anniversary		100

If the Reset Period is at least seven years:

Redemption Period (by reference to Annual Anniversaries of Conversion Date or Reset Date)
On or After	But Prior To	Redemption Price
Fourth Anniversary	Fifth Anniversary	102	%
Fifth Anniversary	Sixth Anniversary	101
Sixth Anniversary		100

If the length of the Reset Period is less than five years, the Bonds shall not be subject to redemption pursuant to this Section 404 during such Reset Period.

(c) on any Proposed Conversion Date or Reset Date, in whole or in part (in multiples of $5,000), at a redemption price of 100% of the principal amount of the Bonds so redeemed, plus accrued interest to the redemption date, and without premium.

The Trustee shall give notice of the call for redemption pursuant to this Section 404 in the manner provided in Section 402 of this Indenture.

Section 405     Optional Redemption of Bonds Upon Occurrence of Certain Extraordinary Events.  The Bonds shall be subject to redemption, in whole but not in part, on any Business Day, if within 120 days after the occurrence of any of the following events, the Borrower shall, with the consent of the Credit Facility Provider, elect to prepay the Promissory Note pursuant to Section 5.01 of the Loan Agreement:

(a)    The Plant Complex shall have been damaged or destroyed to such extent that, in the opinion of the Borrower expressed in a Borrower’s Certificate filed with the Issuer, the Trustee and the Credit Facility Provider following such damage or destruction (i) it is not practicable or desirable to rebuild, repair or restore the Plant Complex within a period of six consecutive months following such damage or destruction, or (ii) the Borrower is or will be thereby prevented from carrying on its normal operations at the Plant Complex for a period of at least six consecutive months;

35

(b)    Title to or the temporary use of all or substantially all of the Plant Complex shall have been taken under the exercise of the power of eminent domain by any governmental authority to such extent that, in the opinion of the Borrower expressed in a Borrower’s Certificate filed with the Issuer, the Trustee and the Credit Facility Provider, the Borrower is or will be thereby prevented from carrying on its normal operations at the Plant Complex for a period of at least six consecutive months;

(c)    Any court or administrative body of competent jurisdiction shall enter a judgment, order or decree requiring the Borrower to cease all or any substantial part of its operations at the Plant Complex to such extent that, in the opinion of the Borrower expressed in a Borrower’s Certificate filed with the Issuer, the Trustee and the Credit Facility Provider, the Borrower is or will be thereby prevented from carrying on its normal operations at the Plant Complex for a period of at least six consecutive months; or

(d)    As a result of any changes in the Constitution of Wisconsin or the Constitution of the United States of America or of legislative or administrative action (whether state or federal) or by final decree, judgment or order of any court or administrative body (whether state or federal), the Loan Agreement shall have become void or unenforceable or impossible of performance in accordance with the intent and purposes of the parties as expressed in the Loan Agreement, or unreasonable burdens or excessive liabilities shall have been imposed on the Issuer or the Borrower as a consequence of having the Bonds or the Promissory Note Outstanding, including without limitation federal, state or other ad valorem, property, income or other taxes not being imposed on the date of the Loan Agreement.

The redemption price shall be 100% of the principal amount of Bonds so redeemed, plus accrued interest to the redemption date, and without premium. The Trustee shall give notice of a call for redemption pursuant to this Section 405 in the manner provided in Section 402 of this Indenture.

Section 406     Mandatory Redemption of Bonds Upon Determination of Taxability or Expiration of Credit Facility.  (a) The Bonds shall be subject to mandatory redemption in whole on the earliest practicable Business Day (selected by the Trustee) for which the Trustee can give timely notice pursuant to Section 402 hereof, but in any event within 60 days following a Determination of Taxability. The redemption price shall be 100% of the principal amount of Bonds so redeemed, plus accrued interest to the redemption date.

(b)    During any Reset Period where the Borrower elected in its Conversion Notice or Reset Notice to have a Credit Facility in effect for the Reset Period relating to such notice and during which the Credit Facility Expiration Date is to occur, the Bonds shall be subject to mandatory redemption in whole on the first day of the month in which the Credit Facility Expiration Date is to occur unless, at least 45 days prior to such first day of the month, the Borrower shall have caused to be delivered to the

36

Trustee a Substitute Credit Facility meeting the requirements of Section 1202 hereof or an amendment to the Credit Facility extending the Credit Facility Expiration Date by at least the lesser of one year or the period ending on the fifteenth day of the month in which the next Reset Date or the Final Maturity Date is to occur. The redemption price shall be 100% of the principal amount of the Bonds to be so redeemed, plus accrued interest to the redemption date. Redemption of Bonds as aforesaid shall be the Bondholders’ sole remedy upon the Borrower not obtaining an extension of the expiration of the existing Credit Facility or a Substitute Credit Facility.

(c)    The Trustee shall give notice of a call for redemption pursuant to this Section 406 in the manner provided in Section 402 of this Indenture.

Section 407     Mandatory Redemption of Bonds Relating to Debt Service Reserve Fund.  If the Borrower, in any Conversion Notice or Reset Notice gives notice to the Issuer, the Trustee and the Remarketing Agent that the Debt Service Reserve Fund will not be necessary for such Reset Period, the Trustee shall liquidate such Debt Service Reserve Fund and utilize the proceeds to redeem the principal amount of Bonds closest in principal amount to the proceeds of such Debt Service Reserve Fund to be tendered for purchase on such Reset Date or Conversion Date and the Trustee shall cancel such Bonds thereby permanently reducing the principal amount of Bonds Outstanding accordingly. Due to such redemption occurring only on a Mandatory Tender Date, the Trustee need not give any notice of such redemption in advance but shall, upon such redemption, give notice thereof do the Borrower and the Remarketing Agent.

ARTICLE V

REPRESENTATIONS AND COVENANTS OF ISSUER

Section 501     Payment of Principal and Interest.  The Issuer covenants that it will promptly pay the principal of, premium, if any, and interest on each Bond issued under this Indenture at the place, on the date and in the manner provided in said Bond according to the true intent and meaning thereof. The principal of, premium, if any, and interest on the Bonds are payable solely from the Pledged Revenues, and nothing in the Bonds or this Indenture shall be considered as pledging any other funds or assets of the Issuer.

Section 502     Performance of Covenants: Authority.  The Issuer covenants that it will faithfully perform each and every undertaking, covenant, stipulation and provision contained in this Indenture and in each and every Bond executed, authenticated and delivered hereunder. The Issuer represents that it is duly authorized under the Constitution and laws of the State of Wisconsin to issue the Bonds, to execute this Indenture and the Loan Agreement and to pledge the revenues described and pledged herein. The Issuer represents further that all action on its part for the issuance of the Bonds and the execution and delivery of this Indenture and the Loan Agreement has been duly and effectively taken, and that the Bonds in the hands

37

of the Owners thereof are and will be valid and enforceable obligations of the Issuer according to the tenor and import thereof.

Section 503     Instruments of Further Assurance.  The Issuer covenants that it will do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, such Supplemental Indentures and such further acts, instruments and transfers as the Trustee may reasonably require for the better assuring, pledging, assigning and confirming unto the Trustee all and singular the Trust Estate and the revenues pledged hereby to the payment of the principal of, premium, if any, and interest on the Bonds.

Section 504     Inspection of Books.  The Issuer and the Trustee each covenant and agree that all books and documents in their possession relating to the Bonds and the Pledged Revenues shall at all times be open to inspection by such accountants or other agents as the Trustee, the Borrower or the Issuer may from time to time designate.

Section 505     Rights Under Loan Agreement and Other Documents.  The Issuer covenants and agrees that except as provided herein and in the Loan Agreement it will not sell, assign, pledge, transfer, encumber or otherwise dispose of the Pledged Revenues. The Loan Agreement, a duly executed counterpart of which has been filed with the Trustee, sets forth covenants and obligations of the Issuer and Borrower, including provisions that subsequent to the issuance of the Bonds and prior to their payment in full or provision for payment thereof in accordance with the provisions hereof, the Loan Agreement shall not be effectively amended, changed, modified, altered or terminated (other than as provided therein) without the concurring written consent of the Trustee and the Credit Facility Provider. The Issuer agrees that the Trustee in its own name may enforce all rights of the Issuer and all obligations of the Borrower under and pursuant to the Loan Agreement (other than the Unassigned Rights) and the Promissory Note for and on behalf of the Bondowners whether or not the Issuer is in default hereunder, but the Trustee shall not thereby be deemed to have assumed the obligations of the Issuer under the Loan Agreement or the Promissory Note and shall have no obligations thereunder except as expressly provided herein or therein. The Issuer hereby agrees to cooperate fully with the Trustee (at the expense of the Borrower) in any proceedings or to join in or commence in its own name any proceedings necessary to enforce the rights of the Issuer and all obligations of the Borrower under and pursuant to the Loan Agreement and the Promissory Note, if the Trustee shall so request.

Section 506     Tax-Exempt Status of Bonds.  The Issuer covenants that it will take no action which would adversely affect the exclusion of interest on the Bonds from gross income under Section 142 of the Internal Revenue Code.

38

ARTICLE VI

CUSTODY AND APPLICATION OF PROCEEDS OF BONDS

Section 601     Application of Proceeds of Bonds.  The Trustee shall deposit the Bond proceeds received by it for the account of the Issuer from the original sale of the Bonds as follows:

(a)    An amount equal to the Cost of Issuance Deposit Amount shall be deposited into the Cost of Issuance Fund;

(b)    An amount equal to the Initial Debt Service Reserve Deposit shall be deposited in the Debt Service Reserve Fund or deposited with the Credit Facility Provider as set forth in Section 605 hereof, and

(c)    The balance shall be deposited into the Construction Fund;

Section 602     Cost of Issuance Fund.  There is hereby created by the Issuer and ordered established with the Trustee a Trust Fund to be designated with the names of the Issuer and the Borrower and the label “Cost of Issuance Fund.” The Trustee shall deposit into the Cost of Issuance Fund, when and as received, the amount specified in Section 601(a) hereof.

The Trustee is hereby authorized and directed to disburse moneys from the Cost of Issuance Fund to pay (or reimburse the Borrower for) the Bond Issuance Costs (as defined in the definition of “Eligible Costs of the Project” in Section 1.01 of the Loan Agreement). Except as otherwise provided below, such disbursements shall be made only upon requisition of the Borrower meeting the requirements of and submitted in accordance with Section 3.02 of the Loan Agreement.

If there shall be any balance in the Cost of Issuance Fund remaining after the earlier of (i) the date which is 90 days after the date of issuance of the Bonds or (ii) the Trustee’s receipt of a certification by the Borrower’s Representative that all Bond Issuance Costs have been paid, the Trustee shall transfer such remaining balance to the Construction Fund or, if the Construction Fund has been closed pursuant to Section 3.06 of the Loan Agreement, to the Surplus Construction Fund.

Section 603     Construction Fund.  There is hereby created by the Issuer and ordered established with the Trustee a Trust Fund to be designated with the names of the Issuer and the Borrower and the label “Construction Fund”. The Trustee shall deposit into the Construction Fund, when and as received:

(a)    the amount specified in Section 601(c) hereof;

39

(b)    any additional moneys which the Borrower may deliver to the Trustee from time to time with the instruction that such moneys be deposited into the Construction Fund; and

(c)    Moneys required to be deposited into the Construction Fund under the terms of a Supplemental Indenture.

The Trustee is hereby authorized and directed to disburse moneys from the Construction Fund to pay (or reimburse the Borrower for) the Engineering Costs, the Basic Project Costs, the Capitalized Interest Costs and the Other Costs of the Project (as defined in the definition of “Eligible Costs of the Project” in Section 1.01 of the Loan Agreement). Except as otherwise provided below, such disbursements shall be made only upon requisition of the Borrower meeting the requirements of and submitted in accordance with Section 3.03 of the Loan Agreement. In addition, and subject to the Maximum Debt Service Reserve Amount and the requirements of the Loan Agreement, an amount of up to $500,000 from the Construction Fund may be transferred to the Debt Service Reserve Fund (regardless of whether it is held by the Trustee or the Credit Facility Provider).

Upon the closing of the Construction Fund in accordance with Section 3.06 of the Loan Agreement, any remaining balance in the Construction Fund shall be transferred to the Surplus Construction Fund.

Section 604     Surplus Construction Fund.  There is hereby created by the Issuer and ordered established with the Trustee a Trust Fund to be designated with the names of the Issuer and the Borrower and the label “Surplus Construction Fund”.

The Trustee shall deposit into the Surplus Construction Fund, when and as received:

(a)    Moneys remaining in the Construction Fund after it has been closed in accordance with Section 3.06 of the Loan Agreement;

(b)    Moneys required to be transferred from the Costs of Issuance Fund pursuant to Section 602 hereof;

(c)    Moneys required to be deposited into the Surplus Construction Fund under the terms of a Supplemental Indenture; and

(d)    Moneys transferred to the Trustee from the Credit Facility Provider.

The Trustee is hereby authorized and directed to use the moneys in the Surplus Construction Fund (upon transfer to the Redemption Fund) to call Bonds for redemption pursuant to Section 404 of this Indenture. Such redemption shall be in the largest amount possible and at the earliest possible call date or dates given the call provisions of the Bonds as specified in Section 404 of this Indenture.

40

Notwithstanding the foregoing, during periods in which the Bonds are callable only in an amount in excess of available moneys in the Surplus Construction Fund, or during periods in which the Bonds are callable but a call premium or penalty is required for such early redemption, the Trustee shall not transfer Surplus Construction Fund moneys to the Redemption Fund unless directed to do so by the Borrower in a Borrower’s Certificate.

Until used for one or more of the foregoing purposes, any moneys in the Surplus Construction Fund shall be invested in Qualified Investments but may not be invested to provide a yield on such moneys (computed from the Completion Date and taking into account any investment of such moneys during the period from the Completion Date to the date of deposit of such moneys into the Surplus Construction Fund) greater than the yield on the Bonds from the proceeds of which such moneys were derived, all as such terms are defined and used in Section 148 of the Internal Revenue Code and any proposed, temporary or final regulations promulgated thereunder; provided that such yield restriction on the Surplus Construction Fund shall not apply if the Trustee is furnished with an opinion of Bond Counsel to the effect that the lack of a yield restriction on the Surplus Construction Fund and the use of such monies will not result in an Event of Taxability.

Section 605     Debt Service Reserve Fund.

The Trustee shall create a special separate trust fund to be known and designated as the Debt Service Reserve Fund (CityForest Corporation) (the “Debt Service Reserve Fund”).

If the Debt Service Reserve Fund is not held by the Credit Facility Provider, moneys on deposit in the Debt Service Reserve Fund shall be transferred to the Credit Facility Reimbursement Account of the Bond Fund upon written notice to the Trustee from the Credit Facility Provider of a Borrower failure to repay a draw on the Credit Facility in an amount set forth in such notice, provided, that such notice must contain a covenant from the Credit Facility Provider that any such amounts paid to it from the Debt Service Reserve Fund will only be used to pay unreimbursed draws on the Credit Facility and will not be used to pay any fees, interest or other amounts owed to the Credit Facility Provider by the Borrower or be shared with any other persons or entities, provided further that if no Credit Facility shall be in effect, money on deposit in the Debt Service Reserve Fund shall be transferred to the Bond Fund on an Interest Payment Date to make up any deficiency in such Bond Fund. Upon receipt from the Credit Facility Provider of the notice relating to an unreimbursed draw on the Credit Facility, and the transfer of funds to the Credit Facility Reimbursement Account from the Debt Service Reserve Fund, the Trustee within one Business Day thereafter shall give the Borrower written notice of the amount so transferred which shall cause a deficiency in the Debt Service Reserve Fund equal to such amount.

Moneys on deposit in the Debt Service Reserve Fund shall be invested in Qualified Investments which shall be valued by the Trustee (or, if relevant, the Credit Facility Provider) on each March 1 and September 1 (which valuation shall take into account any accrued and unpaid interest and shall be based on the assumption that such investment shall be

41

held to maturity). If, at the time of such valuation, the balance in the Debt Service Reserve Fund is less than the Debt Service Reserve Fund Requirement, the Trustee (or, if relevant, the Credit Facility Provider) shall give notice to the Borrower of the aggregate amount necessary to cause the balance in the Debt Service Reserve Fund to meet the Debt Service Reserve Fund Requirement. If upon any such valuation the balance in the Debt Service Reserve Fund is in excess of the Debt Service Reserve Fund Requirement, such excess shall be transferred to the Bond Fund, if no Credit Facility is in existence and, if in existence to the Credit Facility Reimbursement Account if the Credit Facility Provider does not hold the Debt Service Reserve Fund, or reimburse the Credit Facility Provider for the next draw or draws on the Credit Facility if the Debt Service Reserve Fund is held by the Credit Facility Provider.

For so long as the Debt Service Reserve Fund is held by the Credit Facility Provider, all obligations of the Trustee with respect thereto and contained herein, shall be obligations of the Credit Facility Provider and not of the Trustee (including any rebate obligation determination with respect thereto). In order for the Credit Facility Provider to hold the Debt Service Reserve Fund, it shall execute and deliver to the Trustee and the Borrower an agreement wherein it shall unconditionally agree to maintain the Debt Service Reserve Fund as a separate account, to adhere to the requirements of the Trustee set forth in this Indenture with respect to the Debt Service Reserve Fund and to adhere to the requirements set forth in the Nonarbitrage Certificate relating to records relating to the Bonds (with respect to maintenance of records for the Debt Service Reserve Fund). In addition, the Credit Facility Provider will agree that any amounts in the Debt Service Reserve Fund will be used exclusively to reimburse the Credit Facility Provider for unreimbursed draws on the Credit Facility, or to pay principal and interest on the Bonds and will not be used to pay any fees or expenses of the Credit Facility Provider. In addition, the Credit Facility Provider will agree that it shall deposit to the Trustee any rebate liability relating to the Debt Service Reserve Fund from investment proceeds of the Debt Service Reserve Fund for deposit in the Rebate Account when such fund is held by the Credit Facility Provider.

ARTICLE VII

REVENUES AND FUNDS

Section 701     Source of Payment.  The principal of, premium, if any, and interest on the Bonds shall be payable by the Issuer solely from the Pledged Revenues.

Section 702     Pledged Revenues.  The Pledged Revenues are hereby specifically, irrevocably and exclusively pledged to the punctual payment of the principal of, premium, if any, and interest on the Bonds, and shall be used for no other purpose except as otherwise expressly authorized in this Indenture.

Section 703     Bond Fund.  There is hereby created by the Issuer and ordered established with the Trustee a Trust Fund to be designated with the names of the Issuer and the Borrower and the label “Bond Fund”. Within the Bond Fund there are hereby created and

42

ordered established and the Trustee shall maintain two separate accounts to be designated the “Credit Facility Account” and the “Borrower’s Payments Account”.

The Trustee shall deposit into the Bond Fund, when and as received:

(a)    All payments received under the Credit Facility other than (i) payments received pursuant to a draw under Section 1201(d) and (ii) payments received for the purchase of Bonds pursuant to Section 1205;

(b)    All payments from or for the account of the Borrower on the Promissory Note (except prepayments of principal and the premium, if any, thereon required to be deposited into the Redemption Fund) or pursuant to Section 7.02 of the Loan Agreement;

(c)    Moneys required to be transferred to the Bond Fund from other Trust Funds (including, if applicable, the Debt Service Reserve Fund) or from Pledged Revenues in accordance with this Indenture;

(d)    Proceeds from the remarketing of Tendered Bonds or Beneficial Ownership Interests with respect to a Reset Date that is not a Business Day, to the extent such proceeds represent accrued interest on such Tendered Bonds; and

(e)    Moneys required to be deposited into the Bond Fund pursuant to the terms of a Supplemental Indenture.

All payments received under the Credit Facility shall be deposited into the Credit Facility Account. All other moneys received by the Trustee for the account of the Bond Fund shall be deposited into the Borrower’s Payments Account. The Trustee shall not commingle moneys in the Credit Facility Account with moneys in the Borrower’s Payment Account.

All moneys in the Bond Fund shall be used solely for the payment of interest on the Bonds and for the payment of principal of the Bonds when due (whether at maturity, by acceleration or call for redemption or otherwise). The Trustee shall pay principal of and interest on the Bonds from the following sources and in the following priority:

First, from the Credit Facility Account (provided that no Pledged Bonds shall be paid from the Credit Facility Account);

Second, from Eligible Funds on deposit in the Borrower’s Payments Account; and

Third, from remaining moneys in the Bond Fund, but only to the extent that the foregoing two sources are not likely to be available and sufficient therefor.

43

Notwithstanding the foregoing, any monies in the Bond Fund representing proceeds of the remarketing of Tendered Bonds or Beneficial Ownership Interests and which are not applied as described above shall be paid to the Credit Facility Provider to reimburse it for the payment of interest on the Bonds no later than the first Business Day following the deposit of such monies.

Section 704     Redemption Fund.  There is hereby created by the Issuer and ordered established with the Trustee a Trust Fund to be designated with names of the Issuer and the Borrower and the label “Redemption Fund”.

The Trustee shall deposit into the Redemption Fund, when and as received:

(a)    All prepayments of principal by the Borrower on the Promissory Note, together with the premium, if any, thereon;

(b)    Moneys required to be transferred to the Redemption Fund from other Trust Funds in accordance with this Indenture; and

(c)    Moneys required to be deposited into the Redemption Fund pursuant to the terms of a Supplemental Indenture.

The Issuer hereby authorizes and directs the Trustee to (i) transfer Eligible Funds from the Redemption Fund to the Bond Fund when and as required to pay, or reimburse the Credit Facility for the payment of, the principal of any Bonds called for redemption in accordance with this Indenture; (ii) withdraw funds from the Redemption Fund to pay, or reimburse the Credit Facility Provider for the payment of, any premiums payable on Bonds called for redemption in accordance with this Indenture; and (iii) transfer Eligible Funds from the Redemption Fund to the Bond Fund to pay, or reimburse the Credit Facility Provider for the payment of, the final payment of principal on the Bonds at the last maturity thereof. Except to the extent moneys in the Redemption Fund are needed for the purposes described in the foregoing clauses (i) and (ii), the Trustee is authorized to use Eligible Funds in the Redemption Fund in accordance with Section 306 for the purchase of Bonds for cancellation; provided that such purchases shall be made only to the extent authorized by the Borrower in a Borrower’s Certificate; and provided further that the purchase price for any Bond so purchased shall not exceed the principal amount thereof plus any accrued and unpaid interest thereon.

Section 705     Trust Funds Held in Trust.  All Trust Funds shall be held in trust in the custody of the Trustee, subject to the provisions of this Indenture which permit disbursements from the Trust Funds. All moneys and securities held in Trust Funds shall be subject to the first lien of this Indenture thereon and shall not be subject to lien, attachment, garnishment or other claims or proceedings by other creditors of the Borrower or the Issuer.

Section 706     Credit Facility Reimbursement Account.

The Trustee shall create a Credit Facility Reimbursement Account into which it shall deposit (if the Debt Service Reserve Fund is not held by the Credit Facility Provider)

44

amounts pursuant to Section 605 hereof and from which it shall pay to the Credit Facility Provider amounts in accordance with Section 605 hereof deposited in connection with a Borrower failure to reimburse the Credit Facility Provider for a draw on the Credit Facility. Other funds deposited in the Credit Facility Reimbursement Account may be used at any time to reimburse the Credit Facility Provider for draws on the Credit Facility upon a written request to the Trustee signed by the Borrower and the Credit Facility Provider accompanied by covenants described in Section 605 hereof.

ARTICLE VIII

INVESTMENTS

Section 801     Permitted Investment of Trust Funds.  Moneys held in the Trust Funds shall be separately invested and reinvested by the Trustee in accordance with this Article VIII and Section 9.03 of the Loan Agreement. Each investment shall be held by or under the control of the Trustee and shall be deemed at all times to be part of the particular Trust Fund in which such moneys were held. Income and profit from any such investment shall be credited to the Trust Fund for whose account the investment was made. Any net loss realized and resulting from any such investment shall be charged to the particular Trust Fund for whose account the investment was made.

All such investments and reinvestments shall be made in Qualified Investments having a maturity not later than the estimated time when the moneys so invested will be needed for the purposes of the Trust Fund of which they are a part. Moneys in the Bond Fund shall be invested only in Government Obligations.

The Trustee may make and execute any such investment through its own bond department, money center or other investment operation or through the bond department, money center or investment operation of any affiliated bank.

Section 802     Arbitrage.  The Issuer covenants that it will take no action to permit any investment or other use of the proceeds of the Bonds which would cause any Bond to be classified as an “arbitrage bond” within the meaning of Section 148 the Internal Revenue Code or any proposed, temporary or final regulations issued thereunder.

In the event the Issuer or the Borrower is of the opinion (supported by an opinion of Bond Counsel) that it is necessary or advisable to restrict or limit the yield on the investment of any moneys held in any Trust Fund in order to avoid the Bonds being considered “arbitrage bonds” within the meaning aforesaid, the Issuer may (and shall if so requested by the Borrower) issue to the Trustee a written certificate to such effect together with appropriate written instructions, in which event the Trustee shall take such action as is necessary so to restrict or limit the yield on such investment in accordance with such certificate and instructions, irrespective of whether the Trustee shares such opinion.

45

Section 803     Rebate of Certain Arbitrage Profits.  To the extent required by law, the Trustee shall take the following actions to provide for payment to the United States Treasury pursuant to Section 148(f) of the Internal Revenue Code and any proposed, temporary or final regulations promulgated thereunder:

(a)    Either the Trustee or an agent employed by the Trustee shall make a determination, on the fifth anniversary of the date of original issuance of the Bonds, and upon the final payment of the Bonds, of the amount required to be paid to the United States Treasury. If an agent is employed, the Trustee may pay its reasonable compensation which shall be an expense of the administration of this Indenture reimbursable by the Borrower under the Loan Agreement.

(b)    An amount equal to the amount to be paid shall be paid by the Borrower to the Trustee pursuant to Section 7.06(c) of the Loan Agreement or by the Credit Facility Provider pursuant to Section 6.05 hereof and deposited by the Trustee into a special account established with the Trustee and designated with the names of the Issuer and the Borrower and the label “Rebate Account”, which shall be held for the sole benefit of the United States Treasury and shall not be or be deemed to be a Trust Fund.

(c)    The Trustee shall make payment to the United States Treasury from the Rebate Account on the dates and in the manner required by law, as indicated by an opinion of Bond Counsel or otherwise determined by the Trustee.

(d)    The Trustee shall take any additional action required to be taken pursuant to the nonarbitrage certificate delivered by the Issuer in connection with the issuance and sale of the Bonds as directed by the Borrower.

(e)    The Trustee shall keep records of the determinations made under clause (a) above, on behalf of the Issuer, until six years after the final payment of the Bonds.

ARTICLE IX

DISCHARGE

Section 901     Discharge.  If the Issuer shall pay or cause to be paid the principal, premium, if any, and interest due or to become due on the Bonds at the times and in the manner stipulated therein, and if the Issuer shall not then be in default in any of the covenants and promises in the Bonds and in this Indenture expressed as to be kept, performed and observed by it or on its part, and shall pay or cause to be paid to the Trustee all sums of money due or to become due according to the provisions hereof, then these presents and the estate and rights hereby granted shall cease, terminate and be void, whereupon the Trustee shall cancel and discharge the lien of this Indenture and execute and deliver to the Issuer such instruments in writing as shall be requisite to cancel and discharge the lien hereof, and recovery, release, assign and deliver unto the Issuer any and all the estate, right, title and interest in and to any and all property conveyed, assigned or pledged to the Trustee or

46

otherwise subject to the lien of this Indenture, except moneys or securities held by the Trustee in separate segregated trust accounts pursuant to Sections 213 and 307 hereof for the payment of the principal of, premium, if any, and interest on unpresented Bonds or the purchase of Untendered Bonds.

A Bond shall be deemed to be paid within the meaning of this Article when payment of the principal of and premium, if any, on such Bond, plus interest thereon to the due date thereof (whether such due date be by reason of maturity or upon redemption as provided in this Indenture, or otherwise) either (A) shall have been made in accordance with the terms of this Indenture, or (B) shall have been provided for by irrevocably depositing with the Trustee, in trust and irrevocably set aside exclusively for such payment, (i) moneys sufficient to make such payment or (ii) Government Obligations not redeemable at the option of the issuer or anyone acting on its behalf, maturing as to principal and interest in such amounts and at such times as will provide sufficient moneys to make such payment, and all necessary and proper fees and expenses of the Trustee pertaining to the Bond with respect to which such deposit is made. At such time as a Bond shall be deemed to be paid hereunder as aforesaid, it shall no longer be deemed to be Outstanding hereunder and shall no longer be secured by or entitled to the benefits of this Indenture, except for the purposes of any such payment from such moneys or Government Obligations.

Notwithstanding the foregoing, no deposit under clause (B) of the immediately preceding paragraph shall be deemed a payment of such Bonds as aforesaid until:

(a)    The deposit shall have been made under the terms of an escrow trust agreement in form and substance satisfactory to the Trustee consistent herewith, which shall identify the Bonds covered thereby;

(b)    In the case of an escrow trust deposit with respect to Bonds subject to redemption prior to maturity at the option of the Borrower, the Borrower shall have delivered a Borrower’s Certificate designating when such Bonds are to be paid or redeemed under the terms of such escrow trust agreement;

(c)    In the case of Bonds which are subject to mandatory redemption or which are subject to mandatory or optional tender for purchase, the Trustee shall have been furnished with evidence satisfactory to it that a redemption or tender for purchase of such Bonds in accordance with their terms in advance of stated maturity will not create a deficiency in the escrow;

(d)    In case of Bonds which are to be redeemed prior to maturity from such escrow trust deposit, a redemption notice meeting the requirements of Section 402 hereof and stating that such Bonds are being redeemed from a deposit made pursuant to this Article either (i) shall have been given, or (ii) shall have been provided for by delivery to the Trustee of irrevocable instructions for the giving of such notice;

(e)    The Trustee shall have been furnished with an opinion of Bond Counsel to the effect that the payment of the Bonds in accordance with said escrow trust

47

agreement will not adversely affect the exclusion of interest on the Bonds from gross income of the owners thereof and will not cause the Bonds to be classified as “arbitrage bonds” under Section 148 of the Internal Revenue Code;

(f)     The Trustee shall have been furnished with a Preference Opinion in respect of the moneys so deposited; and

(g)    The Trustee shall have given notice of such deposit to the Owner of each such Bond at the address shown on the Bond Register.

Notwithstanding any provision of any other Article of this Indenture which may be contrary to the provisions of this Article, all moneys or Government Obligations set aside and held in trust pursuant to the provisions of this Article for the payment of Bonds (including interest and premium thereon, if any) shall be applied to and used solely for the payment of the particular Bonds (including interest and premium thereon, if any) with respect to which such moneys and Government Obligations have been so set aside in trust.

Anything in Article VIII hereof to the contrary notwithstanding, if moneys or Government Obligations have been deposited or set aside with the Trustee pursuant to this Article for the payment of Bonds and the interest and premium, if any, thereon and such Bonds and the interest and premium, if any, thereon shall not have in fact been actually paid in full, no amendment to the provisions of this Article shall be made without the consent of the Owner of each of the Bonds affected thereby.

ARTICLE X

DEFAULT PROVISIONS
AND REMEDIES OF TRUSTEE AND BONDOWNERS

Section 1001   Defaults; Events of Default.  If any of the following events occur, it is hereby defined as and declared to be and to constitute an “Event of Default”:

(a)    Default in the due and punctual payment of the principal or purchase price of, premium, if any, or interest on any Bond whether at the stated maturity thereof, on a Tender Date, or upon proceedings for redemption (or purchase in lieu of redemption) thereof, or upon the maturity thereof by acceleration or otherwise; or

(b)    The acceleration of the maturity of the Promissory Note pursuant to the terms of Section 10.02 of the Loan Agreement; or

(c)    Default in the performance or observance of any of the covenants, agreements or conditions on the part of the Issuer in this Indenture or in the Bonds contained and the continuance thereof for a period of 60 days after written notice given to the Issuer by the Trustee or to the Trustee and the Issuer by the Owners of not less than 25% in aggregate principal amount of Bonds then Outstanding; or

48

(d)    The Credit Facility Provider admits its insolvency or becomes unable to pay its debts as they mature or a receiver is appointed for the Credit Facility Provider; or the Credit Facility Provider defaults in the payment when due of any amounts due under the Credit Facility; or the Credit Facility ceases to remain in full force and effect and, in any such event, the Borrower fails to deliver to the Trustee, within 45 days of receipt of notice of such event, a Substitute Credit Facility issued by another financial institution; or

(e)    The Credit Facility Provider delivers a certificate to the Trustee (i) stating that an “event of default” (as defined therein) has occurred under the Credit Facility Reimbursement Agreement and demanding an acceleration of the Bonds or (ii) stating that the amount of a drawing under the Credit Facility in respect of interest on the Bonds will not be reinstated.

49

Section 1002   Acceleration.  Upon the occurrence of an Event of Default set forth in Section 1001(c), the Trustee shall upon the written request of the Credit Facility Provider, or if no Credit Facility shall be securing the Bonds, the Owners of not less than 25% in aggregate principal amount of Bonds then Outstanding, by notice in writing delivered to the Issuer, the Credit Facility Provider, the Rating Agency and the Borrower, declare the principal of all Bonds then Outstanding and the interest accrued thereon immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable and shall cease to accrue.

Upon the occurrence of an Event of Default set forth in Sections 1001(b), (d) or (e), or upon the continuance for two Business Days of the Event of Default set forth in Section 1001(a), the Trustee shall, by notice in writing delivered to the Issuer, the Credit Facility Provider and the Borrower, declare the principal of all Bonds then Outstanding and the accrued interest thereon immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable and shall cease to accrue.

Upon the occurrence of an Event of Default set forth in Section 1001(a), and without regard to the continuance thereof, the Trustee may, and upon the written request of the Owners of not less than 25% in aggregate principal amount of Bonds then Outstanding shall, by notice in writing delivered to the Issuer, the Credit Facility Provider and the Borrower, declare the principal of all Bonds then outstanding and the accrued interest thereon immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable and shall cease to accrue.

Upon the acceleration of the maturities of the Bonds, the Trustee shall forthwith demand payment from the Credit Facility Provider for the payment under the Credit Facility pursuant to the terms thereof in an amount sufficient to pay the principal of and interest on the Bonds (other than Pledged Bonds) to the expected payment date.

Section 1003   Remedies.  Upon the occurrence of an Event of Default, the Trustee, with the written consent of the Credit Facility Provider (if such Event of Default is not caused by an event or events described in Section 1001(a) or Section 1001(d) hereof), may, in addition to acceleration as provided in Section 1002, pursue any available remedy by action at law or suit in equity to enforce the payment of the principal of, premium, if any, and interest on the Bonds or on the Promissory Note.

The Trustee, as beneficiary of the Credit Facility, shall enforce such of its rights thereunder as it shall deem necessary or appropriate. The Trustee, as an assignee of rights and interests of the Issuer in and to the Loan Agreement shall, with the prior written consent of the Credit Facility Provider, enforce such of its rights and the rights of the Issuer thereunder as it shall deem necessary or appropriate. In exercising such rights and the rights given the Trustee under this Article X, the Trustee shall take such action as, in the judgment of the Trustee applying the standards described in Section 1101 hereof, would best serve the interests of the Bondowners.

50

If an Event of Default shall have occurred, and if requested so to do by the Credit Facility Provider or the Owners of at least 25% in aggregate principal amount of Bonds then Outstanding (if no Credit Facility shall be in effect or if such Event of Default is caused by an event or events described in Section 1001(a) or Section 1001(d) hereof) and if indemnified as provided in subsection (1) of Section 1101 hereof, the Trustee shall be obliged to exercise such one or more of the rights and powers conferred by this Article as the Trustee, being advised by counsel, shall deem most expedient in the interest of the Bondowners.

No remedy by the terms of this Indenture conferred upon or reserved to the Trustee (or to the Bondowners) is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Bondowners hereunder or now or hereafter existing at law or in equity or by statute.

No delay or omission to exercise any right or power accruing upon any default or Event of Default shall impair any such right or power or shall be construed to be a waiver of any such default or Event of Default or acquiescence therein; and every such right and power may be exercised from time to time and as often as may be deemed expedient.

No waiver of any default or Event of Default hereunder, whether by the Trustee pursuant to the provisions of Section 1010 hereof or by the Bondowners, shall extend to or shall affect any subsequent default or event of default or shall impair any rights or remedies consequent thereon.

51

Section 1004   Right of Bondowners to Direct Proceedings.  Anything in this Indenture to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of Bonds then Outstanding shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the time, method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of this Indenture, or for the appointment of a receiver or any other proceedings hereunder; provided, that such direction shall not be otherwise than in accordance with the provisions of law and of this Indenture (including, where applicable, the consent of the Credit Facility Provider).

Section 1005   Waiver of Certain Rights.  Upon the occurrence of an Event of Default, to the extent that such rights may then lawfully be waived, neither the Issuer nor anyone claiming through it or under it, shall set up, claim or seek to take advantage of any moratorium, stay, extension or redemption laws now or hereafter in force to prevent or hinder the enforcement of this Indenture, but the Issuer for itself and all who may claim through or under it hereby waives, to the extent that it lawfully may do so, the benefit of all such laws to which it may be entitled by law.

Section 1006   Application of Moneys.  All moneys received by the Trustee pursuant to any right given or action taken under the provisions of this Article shall, after payment of the cost and expenses of the proceedings resulting in the collection of such moneys and of the expenses, liabilities and advances incurred or made by the Trustee (provided that no such costs or expenses may be taken or paid from Credit Facility proceeds), be deposited into the Bond Fund and all moneys held or deposited in the Bond Fund during the continuance of an Event of Default shall be applied, in the order of priority set forth in Section 703 of this Indenture, as follows (provided that no Pledged Bonds shall be paid from Credit Facility proceeds):

(a)    Unless the principal of all the Bonds has become or shall have been declared due and payable, all such moneys shall be applied:

First:          To the payment to the persons entitled thereto of all installments of interest then due on the Bonds, in the order of the maturity of the installments of such interest including interest (to the extent permitted by law) on overdue installments of interest at the same rate(s) per annum as borne by such Bonds on the date such interest became due, and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the persons entitled thereto without any discrimination or privilege; and

Second:     To the payment to the persons entitled thereto of the unpaid principal of any of the Bonds which shall have become due (other than Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of this

52

Indenture), in the order of their due dates, with interest (to the extent permitted by law) on such Bonds from the respective dates upon which they became due at the same rate(s) per annum as borne by such Bonds on the date such principal became due and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal, with interest (to the extent permitted by law) on such principal from the respective dates on which such principal became due, due on such date, to the persons entitled thereto without any discrimination or privilege.

Third:         To the payment to the persons entitled thereto of the unpaid premium, if any, on any of the Bonds which have been called for redemption, in the order of the redemption dates, with interest (to the extent permitted by law) on such premiums from the respective dates on which such premiums became due, and, if the amount available shall not be sufficient to pay in full the premiums due on any particular redemption date, together with such interest, then to the payment ratably, according to the premium due on such date, to the persons entitled thereto without any discrimination or privilege.

(b)    If the principal of all the Bonds shall have become due or shall have been declared due and payable, all such moneys shall be applied first to the payment of the principal and interest then due and unpaid upon all of the Bonds, without preference or priority of principal over interest or of interest over principal, or of any installment of interest, or of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the persons entitled thereto without any discrimination or privilege, and secondly to the payment of the premium, if any, then due, ratably to the persons entitled thereto without any discrimination or privilege.

(c)    If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the provisions of this Article, then, subject to the provisions of paragraph (b) of this Section in the event that the principal of all the Bonds shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of paragraph (a) of this Section.

Whenever moneys are to be applied pursuant to the provisions of this Section, such moneys shall be applied at such times from time to time as the Trustee shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date (which shall be a regularly scheduled Interest Payment Date unless it shall deem another date more suitable or unless the Credit Facility requires an earlier payment date) upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such dates shall cease to accrue. The Trustee shall give such notice as it may deem appropriate of the deposit with it of such moneys and of the fixing of such date and shall not be required to make payment to the Owner of any unpaid Bond until such Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid. The foregoing in this paragraph notwithstanding,

53

upon any Event of Default and draw on the Credit Facility relating thereto, the Trustee shall immediately pay the principal and accrued interest on the Bonds and upon such acceleration interest shall cease to accrue on the Bonds.

Whenever all of the Bonds and interest thereon have been paid under the provisions of this Section 1006 and all fees, charges and expenses of the Trustee and any paying agents and all other amounts required to be paid hereunder have been paid, any balance remaining in the Bond Fund shall be paid to the Credit Facility Provider to the extent of any amounts due it pursuant to the Credit Facility Reimbursement Agreement, and thereafter to the Borrower.

Section 1007   Remedies Vested in Trustee.  All rights of action (including the right to file proof of claims) under this Indenture or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or the production thereof in any trial or other proceedings relating thereto and any such suit or proceeding instituted by the Trustee shall be brought in its name as Trustee without the necessity of joining as plaintiffs or defendants any Owners of the Bonds, and any recovery of judgment shall, subject to the provisions of Section 1006 hereof, be for the equal and ratable benefit of the Owners of the Outstanding Bonds.

Section 1008   Rights and Remedies of Bondowners.  No Owner of any Bond shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of this Indenture or for the execution of any trust thereof or for the appointment of a receiver or any other remedy hereunder, unless: (i) a default has occurred of which the Trustee has been notified as provided in subsection (h) of Section 1101, or of which by said subsection it is deemed to have notice, (ii) such default shall have become an Event of Default and the Owners of at least 25% in aggregate principal amount of Bonds then Outstanding shall have made written request to the Trustee and shall have offered it reasonable opportunity either to proceed to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name, (iii) such Owners shall have offered to the Trustee indemnity as provided in Section 1101, and (iv) the Trustee shall thereafter have failed or refused to exercise the powers hereinbefore granted, or to institute such action, suit or proceeding in its own name; and such notification, request and offer of indemnity are hereby declared in every case at the option of the Trustee to be conditions precedent to the execution of the powers and trust of this Indenture, and to any action or cause of action for the enforcement of this Indenture, or for the appointment of a receiver or for any other remedy hereunder; it being understood and intended that no one or more Owners of the Bonds shall have any right in any manner whatsoever to affect, disturb or prejudice the security of this Indenture by its, his, her or their action or to enforce any right hereunder except in the manner herein provided and that all proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the equal benefit of the Owners of all Bonds then Outstanding. Nothing in this Indenture contained shall, however, affect or impair the right of any Owner of Bonds to enforce the payment of the principal of and interest on any Bond at and after the stated maturity thereof, or the obligation of the Issuer to pay the principal of, premium, if any, and

54

interest on each of the Bonds issued hereunder to the respective Owners of the Bonds at the time and place, from the source and in the manner herein and in said Bonds expressed.

Section 1009   Termination of Proceedings.  In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely, then and in every such case the Issuer, the Borrower and the Trustee shall be restored to their former positions and rights hereunder and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken.

Section 1010   Waivers of Events of Default.  The Trustee shall waive any Event of Default hereunder and its consequences and rescind any declaration of maturity of principal of and interest on the Bonds upon the written request of the Owners of a majority in aggregate principal amount of all of the Bonds then Outstanding; provided, however, that the Event of Default set forth in Section 1001(e) may be waived only with the written consent of the Credit Facility Provider and upon the rescission of the notice delivered pursuant to Section 1001(e) and the reinstatement of funds available under the Credit Facility; and provided further that there shall not be waived without the consent of the Owners of all the Bonds Outstanding (i) any Event of Default in the payment of the principal or purchase price of any Outstanding Bonds at the date of maturity specified therein or at the date fixed for the redemption or purchase thereof, or (ii) any Event of Default in the payment when due of the interest on any such Bonds unless, prior to such waiver or rescission, all arrears of interest, with interest (to the extent permitted by law) on overdue installments of interest at the same rate(s) per annum as borne by such Bonds, or all arrears of payments of principal, with interest (to the extent permitted by law) on overdue principal at the same rate(s) per annum as borne by such Bonds, as the case may be, and all expenses of the Trustee in connection with such default shall have been paid or provided for; and in case of any such waiver or rescission, or in case any proceeding taken by the Trustee on account of any such default shall have been discontinued or abandoned or determined adversely, then and in every such case the Issuer, the Trustee and the Bondowners shall be restored to their former positions and rights hereunder respectively, but no such waiver or rescission shall extend to any subsequent or other default, or impair any right consequent thereon.

Section 1011   Opportunity to Cure Defaults by Issuer.  With regard to any alleged default by the Issuer hereunder, the Issuer hereby names and appoints the Borrower and the Credit Facility Provider or either of them as its attorney-in-fact and agent with full authority to perform any covenant or obligation any failure in the performance of which is alleged to constitute a default by the Issuer, in the name and stead of the Issuer with full power to do any and all things and acts with power of substitution.

Section 1012   Certain Notices to Borrower.  In the event that the Trustee fails to receive when due any payment of principal or interest by the Borrower on the Promissory Note, the Trustee shall immediately give written notice thereof by registered or certified mail, postage prepaid, or by messenger to the Borrower specifying such failure. Such notice,

55

however, shall not be a condition precedent to the exercise of any remedy hereunder, and failure to give such notice shall not preclude such default from being an Event of Default.

ARTICLE XI

THE TRUSTEE

Section 1101   Acceptance of Trusts.  The Trustee hereby accepts the trusts imposed upon it by this Indenture, and agrees to perform said trusts, but only upon and subject to the following express terms and conditions, and no implied covenants or obligations shall be read into this Indenture against the Trustee:

(a)    The Trustee, prior to the occurrence of any Event of Default and after the curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default has occurred (which has not been cured) the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a reasonable and prudent person would exercise or use under the circumstances in the conduct of personal affairs.

(b)    The Trustee may execute any of the trusts or powers hereof and perform any of its duties by or through attorneys, agents or employees but shall be answerable for the conduct of the same in accordance with the standard specified above, and shall be entitled to act upon the opinion or advice of its counsel concerning all matters of trust hereof and the duties hereunder, and may in all cases pay such reasonable compensation to all such attorneys, agents and employees as may reasonably be employed in connection with the trust hereof. The Trustee may act upon an opinion of Independent Counsel and shall not be responsible for any loss or damage resulting from any action by it taken or omitted to be taken in good faith in reliance upon such opinion of Independent Counsel.

(c)    The Trustee shall not be responsible for any recital herein or in the Bonds (except in respect to the certificate of the Trustee endorsed on the Bonds) or for the validity of the execution by the Issuer of this Indenture or of any supplements hereto or for the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby, and the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions or agreements on the part of the Issuer or on the part of the Borrower in connection with the Loan Agreement, except as hereinafter set forth; and the Trustee shall not be responsible or liable for any loss suffered in connection with any investment of funds made by it in accordance with Article VIII hereof.

(d)    The Trustee shall not be accountable for the use of any Bonds authenticated or delivered hereunder. The Trustee may become the Owner of Bonds secured hereby with the same rights which it would have if not Trustee. The Trustee

56

may in good faith buy, sell, own and deal in any of the Bonds and may join in any action which any Bondowner may be entitled to take with like effect as if the Trustee were not a party to this Indenture.

(e)    The Trustee shall be protected in acting upon any notice, request, consent, certificate, order, affidavit, letter, telegram, telex, telecopy or other paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons. Any action taken by the Trustee pursuant to this Indenture upon the request or authority or consent of any person who at the time of making such request or giving such authority or consent is the Owner of any Bond, shall be conclusive and binding upon all future Owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof.

(f)     As to the existence or nonexistence of any fact or as to the sufficiency or validity of any instrument, paper or proceeding, the Trustee shall be entitled to rely upon a certificate signed on behalf of the Issuer by the Chief Municipal Official or such other person as may be designated for such purpose by resolution of the Issuer’s Governing Body, and attested by the Clerk or such other person as may be designated for such purpose by resolution of the Issuer’s Governing Body, as sufficient evidence of the facts therein contained; and prior to the occurrence of a default of which the Trustee has been notified as provided in subsection (h) of this Section, or of which by said subsection it is deemed to have notice, shall also be at liberty to accept and rely upon a similar certificate to the effect that any particular dealing, transaction or action is necessary or expedient, but may at its discretion secure such further evidence deemed necessary or advisable, but shall in no case be bound to secure the same. The Trustee may accept a certificate of the Clerk under the Issuer’s seal, if any, to the effect that a resolution in the form therein set forth has been adopted by the Issuer’s Governing Body as conclusive evidence that such resolution has been duly adopted, and is in full force and effect. The resolutions, orders, opinions, certificates and other instruments provided for in this Indenture may be accepted by the Trustee as conclusive evidence of the facts and conclusions stated therein and shall be full warrant protection and authority to the Trustee for the withdrawal of cash and the taking or omitting of any other action hereunder.

(g)    The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty, and the Trustee shall not be answerable for other than its negligence or willful default.

(h)    The Trustee shall not be presumed to have knowledge of any default or Event of Default hereunder except (i) the failure to pay the principal or purchase price of, premium, if any, and interest on the Bonds or the Promissory Note, or (ii) the failure of the Credit Facility Provider to honor a demand made by the Trustee under the Credit Facility, unless the Trustee shall be specifically notified in writing of such default by the Borrower, the Issuer, the Credit Facility Provider or the Owners of at least 10% in aggregate principal amount of Bonds then Outstanding.

57

(i)     At any and all reasonable times the Trustee and its duly authorized agents, attorneys, experts, engineers, accountants and representatives shall have the right, but shall not be required, to inspect all books, papers and records of the Issuer pertaining to the Bonds and to take such memoranda from and in regard thereto as may be desired.

(j)     The Trustee shall not be required to give any bond or surety in respect of the execution of said trusts and powers or otherwise in respect of the premises.

(k)    Notwithstanding anything elsewhere in this Indenture contained, the Trustee shall have the right, but shall not be required, to demand, in respect of the authentication of any Bonds, the withdrawal of any cash, the release of any property, or any action whatsoever within the purview of this Indenture, any showings, certificates, opinions, appraisals or other information, or corporate action or evidence thereof, in addition to that by the terms hereof required, as a condition of such action by the Trustee deemed desirable for the purpose of establishing the right of the Issuer to the authentication of any Bonds, the withdrawal of any cash, or the taking of any other action by the Trustee.

(1)    Before taking any action under Articles X or XI of this Indenture, other than acceleration of the Bonds and presentation of a draft to the Credit Facility Provider pursuant to the Credit Facility, and making payments with respect to the Bonds when due, the Trustee may require that satisfactory indemnity be furnished to it for the reimbursement of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from its negligence or willful default, by reason of any action so taken.

(m)   All moneys received by the Trustee or any Alternate Paying Agent shall, until used or applied or invested as herein provided, be held in trust in the manner and for the purposes for which they were received but need not be segregated from other funds except to the extent required by this Indenture or law. Neither the Trustee nor any Alternate Paying Agent shall be under any liability for interest on any moneys received hereunder except such as may be agreed upon.

(n)    While the Bonds are in Book Entry Form, the Trustee shall comply with the representations and undertakings set forth in the Letter of Representations.

(o)    The Trustee shall comply with the provisions of the Continuing Disclosure Agreement.

Section 1102   Specific Duty of Trustee to File Continuation Statements.  The Trustee shall periodically file Uniform Commercial Code continuation statements as required to maintain and continue the perfection of any security interests granted by the Issuer as debtor to the Trustee as secured party hereunder.

58

Section 1103   Notice to Bondowners if Default Occurs.  If a default occurs of which the Trustee has, or is by subsection (h) of Section 1101 hereof presumed to have, knowledge, then the Trustee shall give written notice thereof by first-class mail to the Owners of all Bonds then Outstanding.

Section 1104   Intervention by Trustee.  In any judicial proceedings to which the Issuer is a party and which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of Owners of the Bonds, the Trustee may intervene on behalf of Bondowners and shall do so if requested in writing by the Owners of at least 25% in aggregate principal amount of all Bonds then Outstanding, provided that the Trustee shall first have been offered such reasonable indemnity against such liability as it may incur in or by reason of such proceedings. The rights and obligations of the Trustee under this Section are subject to the approval of a court of competent jurisdiction.

Section 1105   Successor Trustee.  Any corporation or association into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, ipso facto, shall be and become a successor Trustee hereunder and under the Continuing Disclosure Agreement, and vested with all of the title to the whole property or trust estate and all the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding.

Section 1106   Resignation by Trustee.  The Trustee and any successor Trustee may at any time resign from the trusts hereby created by giving 30 days’ prior written notice to the Issuer, the Borrower and the Credit Facility Provider, and by first-class mail to each Owner of Bonds. Such resignation shall take effect, however, only upon the appointment of a successor Trustee (or a temporary Trustee as provided in Section 1108 hereof) by the Bondowners or by the Borrower and the acceptance of such appointment and the transfer of the Credit Facility to the successor Trustee.

Section 1107   Removal of Trustee.  The Trustee may be removed at any time, by an instrument or concurrent instruments in writing delivered to the Trustee and to the Issuer, and signed by the Borrower or Owners of a majority in aggregate principal amount of Bonds then Outstanding. If notice of removal is provided by the Borrower, the Trustee shall mail by first-class mail notice thereof to the Owners of the Bonds. Such removal shall take effect, however, only upon the appointment of a successor Trustee (or a temporary Trustee as provided in Section 1108 hereof) by the Bondowners or by the Borrower and the acceptance of such appointment and the transfer of the Credit Facility to the successor Trustee.

Section 1108   Appointment of Successor Trustee by Bondowners; Temporary Trustee.  In case the Trustee hereunder shall resign or be removed, or be dissolved, or shall be in course of dissolution or liquidation, or otherwise become incapable of acting hereunder, or

59

in case it shall be taken under the control of any public officer or officers, or of a receiver appointed by a court, a successor may be appointed, with the prior written consent of the Credit Facility Provider, by either the Borrower or the Owners of a majority in aggregate principal amount of Bonds then Outstanding by an instrument or concurrent instruments in writing signed by such Owners, or by their attorneys-in-fact, duly authorized; provided, nevertheless, that in case of such vacancy the Issuer by an instrument executed and signed by the Chief Municipal Official and attested by the Clerk under its seal shall appoint a temporary Trustee to fill such vacancy until a successor Trustee shall be appointed by the Bondowners and consented to by the Credit Facility Provider in the manner above provided; and any such temporary Trustee so appointed by the Issuer shall immediately and without further act be superseded by the Trustee so appointed by such Bondowners. If no successor Trustee has been appointed within 60 days from the mailing of notice of resignation by the Trustee under Section 1106, or from the date the Trustee is removed or becomes incapable of acting hereunder, the Trustee or any Bondowner may petition a court of competent jurisdiction to appoint a successor Trustee. Every such Trustee appointed pursuant to the provisions of this Section shall be a trust company or bank organized and in good standing under the laws of the United States of America or any state of the United States of America having the power and any authority to assume the duties and trusts hereby created and having a reported capital, surplus and undivided profits of not less than $10,000,000 if there be such an institution willing, qualified and able to accept the trust upon reasonable or customary terms.

60

Section 1109   Concerning Any Successor Trustee.  Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to its predecessor and also to the Issuer and the Borrower an instrument in writing accepting such appointment hereunder and under the Continuing Disclosure Agreement, and thereupon such successor, without any further act, deed or conveyance, shall become fully vested with all of the properties, rights, powers, trusts, duties and obligations of its predecessor; but such predecessor shall nevertheless, on the written request of its successor, or of the Issuer, execute and deliver an instrument transferring to such successor Trustee all the properties, rights, powers, and trusts of such predecessor hereunder and under the Continuing Disclosure Agreement and the Credit Facility; and every predecessor Trustee shall deliver the Credit Facility and all securities and moneys held by it as Trustee hereunder to its successor. Should any instrument in writing from the Issuer be required by any successor Trustee for more fully and certainly vesting in such successor the properties, rights, powers and duties hereby vested or intended to be vested in the predecessor, any and all such instruments in writing, shall, on request, be executed, acknowledged and delivered by the Issuer.

Section 1110   Appointment of Co-Trustee.  At any time or times, for the purposes of conforming to any legal requirements, restrictions or conditions in any State, or if the Trustee shall be advised by Independent Counsel that it is necessary or advisable in the interest of the Bondowners so to do, the Issuer and the Trustee shall have power to appoint (and upon the request of the Trustee, the Issuer shall for such purpose join with the Trustee in the execution, delivery and recording of all instruments and agreements necessary or proper to appoint) another corporation or one or more persons, approved by the Trustee, either to act as separate Trustee or Trustees or Co-Trustees of all or any of the trust estate jointly with the Trustee hereunder.

Every separate Trustee or Co-Trustee (other than the Trustee initially acting as Trustee hereunder, hereinafter in this Section called the “Initial Trustee”, and any Trustee which may be appointed as successor to it) shall, to the extent permitted by law, be appointed subject to the following provisions and conditions, namely:

(a)    The Bonds secured hereby shall be authenticated and delivered, and all powers, duties, obligations and rights, conferred upon the Trustee in respect of the custody of all funds and any securities pledged hereunder, shall be exercised solely by the Initial Trustee or its successors in trust hereunder;

(b)    No power shall be exercised hereunder by such separate Trustee or Co-Trustee except with the consent in writing of the Initial Trustee or its successors in the trust hereunder;

(c)    The Issuer and the Initial Trustee or its successors in the trust hereunder, at any time by an instrument in writing executed by them jointly, may accept the resignation or remove any separate Trustee or Co-Trustee appointed under this Section,

61

and may likewise and in like manner appoint a successor to such separate Trustee or Co-Trustee who shall be so removed or who shall have resigned as provided in Section 1106 hereof, anything herein contained to the contrary notwithstanding; and

(d)    No Trustee or Co-Trustee hereunder shall be personally liable by reason of any act or omission of any other Trustee or Co-Trustee hereunder.

Any notice, request or other writing, by or on behalf of the Owners of the Bonds issued hereunder, delivered solely to the Initial Trustee, or its successors in trust, shall be deemed to have been delivered to all of the then Trustees and Co-Trustees as effectually as if delivered to each of them. Every instrument appointing any Trustee or Co-Trustee other than a successor to the Initial Trustee shall refer to this Indenture and the conditions in this Section expressed, and upon the acceptance in writing by such Trustee or Co-Trustee, he, she, they or it shall be vested with the rights, powers, estate and/or property specified in such instrument either jointly with the Initial Trustee, or its successor, or separately, as may be provided therein, subject to all the trusts, conditions and provisions of this Indenture; and every such instrument shall be filed with the Initial Trustee or its successors in the trust. Any separate Trustee or Co-Trustee may at any time by an instrument in writing constitute the Initial Trustee or its successors in the trusts hereunder, his, her, their or its agent or attorney-in-fact, with full power and authority, to the extent which may be authorized by law, to do all acts and things and exercise all discretion authorized or permitted by him, her, them or it, for and in behalf of him, her, them or it, and in his, her, their or its name. Any Co-Trustee may, as to any action hereunder, whether discretionary or otherwise, act by attorney-in-fact. In case any separate Trustee or Co-Trustee, or a successor to any of them, shall die, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of said separate Trustee or Co-Trustee, so far as permitted by law, shall vest in and be exercised by the Initial Trustee or its successors in trust until the appointment of a successor to such separate Trustee or Co-Trustee.

Section 1111   Acquisition of Conflicting Interests by Trustee.  If the Trustee has or shall acquire any conflicting interest, the Trustee shall, within 90 days after ascertaining that it has such conflicting interest, either eliminate the same or resign by giving notice in accordance with Section 1106 hereof to the Issuer, the Borrower and Bondowners within such period; provided that such resignation shall become effective upon the appointment of a successor Trustee and such successor’s acceptance of such appointment, and the Issuer and the Trustee agree to take prompt steps to have a successor appointed in the manner herein provided.

The Trustee shall be deemed to have a conflicting interest hereunder if, while the Bonds are not secured by a Credit Facility, it has a “conflicting interest” within the meaning of Section 310(b)(i) to (ix), inclusive, of the Trust Indenture Act of 1939, as amended, except that the Trustee shall not be deemed to have a conflicting interest solely by reason of its having for itself or as a banker become a purchaser, seller or pledgee of Bonds, it being understood that the Trustee may so deal with Bonds with the same rights that it would have if it were not Trustee and without liability or accountability to the Issuer or Owners of

62

Bonds on account thereof. Also, it may act as depositary for any purpose for any committee formed to protect the rights of Bondowners or effect or aid in any reorganization growing out of or involving the enforcement of the Bonds or this Indenture whether or not any such committee shall represent the Owners of a majority in aggregate principal amount of the Bonds Outstanding hereunder.

In the event that the Trustee shall fail to comply with the provisions of this Section, the Trustee shall within 10 days after the expiration of such 90-day period, transmit notice of such failure to the Bondowners.

Any Bondowner who has been a bona fide Owner of a Bond or Bonds for at least six months may, on behalf of himself, herself or itself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor, if the Trustee fails, after written request therefor by such Owner, to comply with the provisions of this Section.

Section 1112   Requirement of a Corporate Trustee.  There shall at all times be one or more Trustees hereunder. One of the Trustees hereunder shall at all times be a corporate Trustee, and the corporate Trustee and any successor to the corporate Trustee, appointed as hereinbefore provided, shall be a corporation organized and doing business under the laws of the United States of America or any State or territory thereof, or of the District of Columbia, and shall be authorized under such laws to exercise corporate trust powers and be subject to supervision or examination by Federal, State, Territorial or District of Columbia authority and have a combined capital, surplus and undivided profits of not less than the $10,000,000; provided, however, that the preceding combined capital, surplus and undivided profits test shall not apply to the initial Trustee under this Indenture. If such corporate Trustee publishes reports of its condition at least annually, pursuant to law or to the requirements of any supervising or examining authority hereinbefore referred to, then for the purposes of this Section, the combined capital, surplus and undivided profits of the corporate Trustee shall be deemed its combined capital, surplus and undivided profits as the same is set forth in such corporate Trustee’s most recent report of condition so published.

Section 1113   Trustee’s Fees.  The Borrower has agreed in the Loan Agreement to pay certain fees and expenses of the Trustee for acting as Trustee hereunder. The Trustee shall not be entitled to any payment from the Issuer for fees or expenses of the Trustee, except to the extent payable from Pledged Revenues. During the continuance of an Event of Default, the Trustee shall have a first lien on Pledged Revenues (other than proceeds of the Credit Facility and moneys in the Bond Purchase Account and the segregated trust accounts held by the Trustee pursuant to Sections 213, 307 or 309 hereof) for payment of its fees and expenses in accordance with the Loan Agreement, with a right of payment therefrom prior to payment of any principal, premium, or interest on the Bonds. The Trustee shall not be entitled to any payments of fees or reimbursements of expenses which result from the negligence or willful default of the Trustee.

63

ARTICLE XII

CONCERNING THE CREDIT FACILITY

Section 1201   Trustee to Draw on Credit Facility.  For so long as the Credit Facility remains outstanding, the Trustee shall draw on the Credit Facility as follows:

(a)    On or before the Business Day immediately preceding each Interest Payment Date — an amount sufficient to pay all interest on the Outstanding Bonds due on such Interest Payment Date;

(b)    On or before the Business Day immediately preceding each Principal Payment Date — an amount sufficient to pay the principal amount of the Outstanding Bonds maturing on such Principal Payment Date;

(c)    On or before the Business Day preceding each redemption date fixed pursuant to Sections 404, 405, or 406 of this Indenture — an amount sufficient to pay the principal of, and (to the extent provided for in such Credit Facility) the premium, if any, and accrued interest (to the extent not already covered by the draw described in clause (a) above) on all Outstanding Bonds to be redeemed on such redemption date;

(d)    At or before 11:30 a.m., New York, New York, time, on each Tender Date (or, in the case of a Reset Date that is not a Business Day, on the next succeeding Business Day) — an amount sufficient, together with available Eligible Funds in accordance with Section 306 hereof on deposit at 11:00 a.m., New York, New York time in the Bond Purchase Account, to pay the purchase price (to the extent not already covered by the draw described in clause (a) above) of all Tendered Bonds or Beneficial Ownership Interests; and

(e)    Upon acceleration of the maturity of the Bonds pursuant to Section 1002 of this Indenture — an amount sufficient to pay the principal of the Outstanding Bonds and the accrued interest thereof to the date of such acceleration;

provided, however, that for purposes of this Section 1201, Pledged Bonds shall not be deemed Outstanding, and the Trustee shall not draw on the Credit Facility or use the proceeds of the Credit Facility for the payment of Pledged Bonds.

Each such draw on the Credit Facility shall be made in timely manner in accordance with the terms of the Credit Facility. In the event that for purposes of obtaining or maintaining a rating for the Bonds or for any other reason, it shall be necessary or desirable to make provision for draws on the Credit Facility at particular times, the Trustee shall deliver a written undertaking so to do and shall be bound thereby to the same extent as if the terms thereof were set forth in full in this Indenture.

Section 1202   Requirements Regarding Credit Facility and Substitute Credit Facility.  Prior to the Conversion Date there shall at all time be in effect a Credit Facility

64

meeting the requirements set forth in this Indenture. Thereafter, there shall be no requirement for a Credit Facility to be in effect meeting the requirements hereof unless the Borrower, in a Conversion Notice or Reset Notice, shall have elected to cause a Credit Facility to be delivered to the Trustee. Each Credit Facility shall have the following terms and provisions:

(a)    the Credit Facility shall be issued by a Credit Facility Provider and shall permit demands to be made against it as set forth in Section 1201 of this Indenture;

(b)    the Credit Facility shall have a Credit Facility Expiration Date which is the fifteenth day of the month that is not earlier than (i) if issued in respect of the period prior to the Conversion Date, the earlier of one year from the effective date of such Credit Facility or the Final Maturity Date, and (ii) if issued in respect of a Reset Period, the first date on which the Bonds would be subject to redemption pursuant to Section 404(b) hereof at a redemption price all of which (including any redemption premium) is provided for by such Credit Facility (or if such Bonds are not subject to redemption pursuant to Section 404(b), then the last day of such Reset Period);

(c)    the Credit Facility shall be in an amount not less than the sum of (i) the maximum principal amount of Bonds that will be Outstanding commencing on the first date on which draws are permitted thereunder, plus (ii) at least 35 days, prior to the Conversion Date, and 195 days thereafter of interest on such principal amount of Bonds at the maximum rate that could be borne thereby (if issued in respect of the period prior to the Conversion Date) or at the Adjusted Interest Rate (if issued in respect of a Reset Period), as the case may be, plus (iii) in the case of a Substitute Credit Facility delivered with respect to a Reset Period after the Reset Date with respect thereto (or, in the case of the first Reset Period, after the Conversion Date), an amount equal to any premium that could become due upon a redemption of Bonds to the extent provided for by the Existing Credit Facility (as hereinafter defined);

(d)    the Credit Facility shall be issued in favor of and delivered to the Trustee; and

(e)    in the case of a Substitute Credit Facility delivered after the Conversion Date, either (i) the Credit Facility Provider is the issuer of both the Existing Credit Facility and the Substitute Credit Facility, or (ii) the Trustee shall have received evidence satisfactory to it that the issuer of the Substitute Credit Facility has a rating on its long-term unsecured debt, or on obligations secured by its letters of credit, from Standard & Poor’s or another national rating firm of at least the higher of (A) the comparable rating of the issuer of the Existing Credit Facility, if any, or (B) “A” or the equivalent thereof.

(f)     in the case of a Substitute Credit Facility issued in respect of the period prior to the Conversion Date, it shall be delivered at least 45 days prior to its effective date, which must be a Business Day, except that a Substitute Credit Facility delivered

65

under the circumstances described in Section 1001(d) (a “Required Substitution”) need not be delivered prior to its effective date.

The Trustee shall not accept any instrument as a Credit Facility unless it determines to its satisfaction that the foregoing conditions have been satisfied and unless the Trustee shall have been furnished with (i) an opinion of Independent Counsel to the effect that the Credit Facility has been duly authorized, executed and delivered and is a legally valid and binding obligation of the Credit Facility Provider enforceable in accordance with its terms (subject to customary exceptions as to enforceability), (ii) a Preference Opinion relating to the proceeds of the Credit Facility and (iii) in the case of a Substitute Credit Facility, an opinion of Bond Counsel to the effect that the Trustee’s acceptance of the Substitute Credit Facility will not result in an Event of Taxability.

The Trustee shall, from time to time, at the written direction of the Borrower, accept a substitute or replacement Credit Facility to replace the Credit Facility then in effect (the “Existing Credit Facility”) (such substitute or replacement being referred to herein as a “Substitute Credit Facility”), provided that the Substitute Credit Facility meets the requirements of a Credit Facility as set forth above. Except in the case of a Required Substitution, such direction shall be given to the Trustee not less than 45 days prior to the Credit Facility Substitution Date (unless a shorter notice shall be acceptable to the Trustee). The Trustee shall also accept an amendment to the Existing Credit Facility to extend its expiration date, as provided in Section 1401(a), which shall not be deemed a Substitute Credit Facility.

In the case of a Substitute Credit Facility to be effective prior to the Conversion Date (other than a Required Substitution), the Trustee shall give notice of the mandatory tender of Bonds as provided in Section 304. In the case of a Substitute Credit Facility to be effective during a Reset Period (other than a Required Substitution), the Trustee shall give immediate notice (but in no case less than 30 days prior to the Credit Facility Substitution Date) of the proposed delivery of such Substitute Credit Facility by first class mail to the Owner of each Bond at the address shown on the Bond Register and to the Remarketing Agent at the Remarketing Agent’s Address. In the case of a Required Substitution, the Trustee shall give notice of the delivery of the Substitute Credit Facility in the manner described above as soon as practicable after such delivery.

On the effective date of a Substitute Credit Facility (a “Credit Facility Substitution Date”), the Existing Credit Facility shall be released to the issuer thereof for cancellation upon the drawing from such Existing Letter of Credit of any amounts necessary to pay the Bonds; provided that the Existing Credit Facility shall not be so released upon the delivery of a Substitute Credit Facility in connection with a Reset Period for which the conditions set forth in Section 302(b)(xi) or Section 302(c)(xi), as the case may be, are not met. Upon the termination and release of the Existing Credit Facility, all references in this Indenture to the Credit Facility, the Credit Facility Provider and the Credit Facility Expiration Date shall be construed by reference to the Substitute Credit Facility.

66

Section 1203   References to Credit Facility Provider After Expiration or Default of Credit Facility.  The particular provisions of this Indenture and the Loan Agreement which require the approval, consent or direction of, or notice to, the Credit Facility Provider apply only while a Credit Facility is outstanding and if the Credit Facility Provider is not in default in any payment required to be made on the Credit Facility.

Section 1204   References to Eligible Funds and Preference Opinion After Expiration of Credit Facility.  The provisions of this Indenture and the Loan Agreement which require that particular funds be Eligible Funds or that require a Preference Opinion with respect thereto shall not apply if no Credit Facility is outstanding.

Section 1205   Option of Credit Facility Provider to Purchase Bonds in Lieu of Redemption or Upon Acceleration.  For so long as its Credit Facility is outstanding, the Credit Facility Provider shall have the right to purchase with its own funds including Credit Facility proceeds (but not with funds provided by the Borrower or any person who is an insider to the Borrower within the meaning of the United States Bankruptcy Code) any Bonds (i) which have been called for redemption pursuant to Sections 404 or 406 hereof or (ii) whose maturities have been accelerated pursuant to Section 1002. The purchase price due the Owners of the Bonds so purchased shall be 100% of the principal, premium, if any, and interest otherwise due on such Bonds on the redemption date or accelerated maturity date, as the case may be. The purchase price shall be payable in immediately available funds for the account of such Owners at the Principal Office of the Trustee prior to the time that payment would otherwise be due on the Credit Facility for the retirement of such Bonds in such event. In any such case, a payment from the Credit Facility Provider pursuant to the Credit Facility shall be deemed to be for the purchase of the Bonds otherwise to be redeemed, unless the Credit Facility Provider elects in a written notice accompanying such payment to have such payment applied to the redemption and retirement of such Bonds.

67

Section 1206   Disclaimer of FDIC Insurance.  The Trustee hereby disclaims and waives any and all right to assert a claim for Federal Deposit Insurance against the Federal Deposit Insurance Corporation in respect of the Credit Facility or the Bonds.

ARTICLE XIII

SUPPLEMENTAL INDENTURES

Section 1301   Amendments and Supplements Without Bondowners’ Consent.  This Indenture may be amended or supplemented from time to time, without the consent of the Bondowners, by a Supplemental Indenture authorized by a resolution of the Issuer’s Governing Body filed with the Trustee, for one or more of the following purposes:

(a)    to add additional covenants of the Issuer or to surrender any right or power herein conferred upon the Issuer; and

(b)    for any purpose not inconsistent with the terms of this Indenture or to cure any ambiguity or to correct or supplement any provision contained herein or in any Supplemental Indenture which may be defective or inconsistent with any other provision contained herein or in any Supplemental Indenture, or to make such other provisions in regard to matters or questions arising under this Indenture as shall not be inconsistent with the provisions of this Indenture and shall not, in the judgment of the Trustee, adversely affect the interests of the Owners of the Bonds.

Section 1302   Amendments With Bondowners’ Consent.  This Indenture may be amended from time to time by a Supplemental Indenture consented to by the Borrower and approved by the Requisite Consent of Bondowners; provided that no amendment shall be made which affects the rights of some but less than all the Outstanding Bonds without the Requisite Consent of Bondowners so affected; and provided further that unanimous written consent of the Bondowners shall be required for any amendment with respect to (i) the amount or due date of any principal, purchase price, premium or interest payment upon any Bonds, (ii) the mandatory redemption provisions of any Bonds, (iii) the optional and mandatory tender provisions of any Bonds and (iv) this Article VIII and Article XIV hereof.

If at any time the Issuer shall request the Trustee to enter into any Supplemental Indenture for any of the purposes of this Section, the Trustee shall, upon being satisfactorily indemnified with respect to expenses, mail a copy of the notice by first-class mail to each Owner of the Bonds. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that copies thereof are on file at the Trustee’s Principal Office for inspection by all Bondowners. If within six months following the giving of such notice, the execution of any such Supplemental Indenture shall have been consented to and approved as herein provided, no Owner of any Bond shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to

68

question the propriety of the execution thereof, or to enjoin or restrain the Trustee or the Issuer from executing the same or from taking any action pursuant to the provisions thereof. Upon the execution of any such Supplemental Indenture as in this Section permitted and provided, this Indenture shall be and be deemed to be modified and amended in accordance therewith.

Section 1303   Consent of Borrower and Credit Facility Provider.  No Supplemental Indenture under this Article XIII shall become effective unless the Credit Facility Provider shall have consented in writing thereto, and no Supplemental Indenture under this Article XIII which affects any rights of the Borrower shall become effective unless and until the Borrower shall have consented in writing to the execution and delivery of such Supplemental Indenture.

ARTICLE XIV

AMENDMENT OF LOAN AGREEMENT, PROMISSORY NOTE
AND CREDIT FACILITY

Section 1401   Amendments Not Requiring Consent of Bondowners.  The Issuer and the Trustee may without the consent of or notice to the Bondowners agree to any amendment, change or modification of the Loan Agreement, the Promissory Note or the Credit Facility in connection with any change therein for any of the following purposes:

(a)    to add additional covenants of the Borrower or the Credit Facility Provider, as the case may be, or to surrender any right or power therein conferred upon the Borrower or the Credit Facility Provider, as the case may be, or to add additional security for the performance of their respective obligations, or to extend the Credit Facility Expiration Date to any date permitted under Section 1202(b);

(b)    to make such other provisions in regard to matters or questions arising thereunder as shall not be inconsistent with the provisions of this Indenture and shall not, in the judgment of the Trustee, adversely affect the interests of the Owners of the Bonds; and

(c)    to cause a rating on the Bonds to be maintained.

In addition, any amendment to Exhibit E to the Loan Agreement may be made without the consent of Bondowners and without the consent of or execution by the Issuer in accordance with Section 3.04 of the Loan Agreement.

Section 1402   Amendments Requiring Consent of Bondowners.  Except for amendments, changes or modifications as provided in Section 1401 hereof, neither the Issuer nor the Trustee shall consent to any amendment of the Loan Agreement, the Promissory Note or the Credit Facility without the giving of notice and the Requisite Consent of Bondowners; provided, that no amendment shall be consented to which affects the rights of some but less than all the Outstanding Bonds without the Requisite Consent of Bondowners so affected; and

69

provided further that the Trustee shall not without the unanimous written consent of the Bondowners consent to any amendment which would (i) decrease the amounts payable on the Credit Facility or Promissory Note, (ii) change the date of payment of principal of or premium or interest on the Promissory Note, or (iii) change Section 7.02 of the Loan Agreement.

If at any time the Trustee shall be requested to consent to any such proposed amendment, change or modification, the Trustee shall, upon being satisfactorily indemnified with respect to expenses, notify the Issuer and the Borrower and cause notice of such proposed amendment, change or modification to be given in the same manner as provided in Section 1302 hereof with respect to Supplemental Indentures. Such notice shall briefly set forth the nature of such proposed amendment, change or modification and shall state that copies of the instrument embodying the same are on file at the Trustee’s Principal Office for inspection by all Bondowners.

Section 1403   Consent of Borrower and Credit Facility Provider.  Unless an Event of Default shall have occurred described in Section 1001(a) or Section 1001(d) hereof, no amendment, change or modification under this Article XIV shall be effective unless the Credit Facility Provider shall have consented in writing thereto, and any amendment, change or modification under this Article XIV which affects any rights or obligations of the Borrower shall become effective unless and until the Borrower shall have consented in writing thereto.

ARTICLE XV

FORM OF BONDS

Section 1501   General Matters.  The Bonds and the certificates of authentication thereon shall be in substantially the forms set forth in this Article XV, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon, as may be required to comply with the rules of any securities exchange, or as may, consistently herewith, be determined by the officers executing such Bonds as evidenced by their execution of the Bonds.

Section 1502   Form of Bond Prior to the Conversion Date.  Each particular Bond authenticated prior to the Conversion Date shall be substantially in the following form, with such insertions and alterations as shall be necessary to identify such Bond by number and date and to indicate the principal amount and Owner of such Bond; and the Trustee’s certificate of authentication to appear on all Bonds shall be substantially in the following form:

REGISTERED	United States of America	REGISTERED
NO._________________	State of Wisconsin County of Rusk	$_______________

CITY OF LADYSMITH, WISCONSIN
VARIABLE RATE DEMAND SOLID WASTE DISPOSAL FACILITY

70

REVENUE BOND,
SERIES 1998 (CITYFOREST CORPORATION PROJECT)

Interest Rate	Maturity Date	Original Issue Date:	CUSIP Number
Variable - see below	March 1, 2028	____ __, 1998	___________

Registered Owner:

Denomination: DOLLARS

THE CITY OF LADYSMITH, WISCONSIN, a municipal corporation and political subdivision of the State of Wisconsin (the “Issuer”), for value received, promises to pay, but solely from the source and as hereinafter provided and not otherwise, to the above named Registered Owner, or registered assigns, on the above specified Maturity Date, upon presentation and surrender of this Bond, the principal sum specified above and to pay interest thereon, but solely from said source and as so provided and not otherwise, at the Variable Rate (as defined below), payable monthly on the first Business Day of each month, commencing March, 1998, on each Mandatory Tender Date (as defined below) and on the redemption date until payment of such principal sum, or, if this Bond shall be duly called for redemption, until the redemption date. Interest on overdue principal, premium, if any, and interest (to the extent legally enforceable) is payable at the same rate per annum as was borne by this Bond on the due date. The principal of, premium, if any, and interest on this Bond are payable in lawful money of the United States of America at the principal corporate trust office of Norwest Bank Wisconsin, N.A., Milwaukee, Wisconsin, or its successor or successors, as trustee (the “Trustee”). Interest hereon which is payable, and punctually paid or duly provided for, on any interest payment date shall be paid by check drawn by the Trustee payable to the order of the person in whose name this Bond is registered at the close of business on the record date for such interest, which shall be the day (whether or not a Business Day) immediately preceding such interest payment date. Such interest shall be mailed to such person at the address shown on the Bond register kept by the Trustee.

The interest rate on this Bond may be converted to an adjusted interest rate, whereupon a different maturity date may be assigned to this Bond. In such event, the owner of this Bond shall be required to tender this Bond for purchase as hereinafter described, and a new Bond will be authenticated and delivered in lieu hereof.

As used herein:

“Business Day” means a day (a) other than a Saturday, Sunday or legal holiday on which banks located in the city in which the Trustee’s principal office is located, the city in

71

which the Credit Facility Provider’s principal office is located or the city in which the Remarketing Agent’s principal office is located, are required or authorized to remain closed and (b) on which neither the New York Stock Exchange nor the Federal Reserve Bank is closed.

“Calculation Period” means, while the Bonds bear interest at the Variable Rate, the period from Wednesday of each week or any proposed Conversion Date established as provided in the Indenture through and including the earlier of (i) the following Tuesday, or (ii) the day immediately preceding a proposed Conversion Date.

“Conversion Date” means the date on which the interest rate on the Bonds is converted from the Variable Rate to the adjusted interest rates described above.

“Determination Date” means (i) with respect to each Calculation Period commencing on a Wednesday, the Tuesday immediately preceding the commencement of such Calculation Period or, if such Tuesday is not a Business Day, the next preceding Business Day, and (ii) with respect to each Calculation Period commencing on a proposed Conversion Date, such proposed Conversion Date.

“Remarketing Agent” means Lehman Brothers Inc. and any successor institution serving as Remarketing Agent pursuant to the Indenture.

“Variable Rate” means (a) for the period from the Original Issue Date through March 31, 1998, the rate set forth in the Indenture hereinafter referred to, and (b) thereafter, for each Calculation Period, the lesser of (i) 10% per annum or (ii) the interest rate per annum determined by the Remarketing Agent on the Determination Date as the minimum rate of interest, which, in the judgment of the Remarketing Agent, under prevailing market conditions, taking into account the current rates for tax-exempt securities comparable in length of interest rate adjustment periods, liquidity, security and creditworthiness to the Bonds, would enable the Bonds to be sold at a price of par, plus accrued interest, if any, on the Determination Date.

The Bonds have been issued pursuant to and in full compliance with the Constitution and laws of the State of Wisconsin, particularly Section 66.521 of the Wisconsin Statutes, as amended, and by authority of resolutions adopted by the Issuer’s governing body in connection with a project and activity undertaken pursuant to said Section of the Wisconsin Statutes. THE BONDS ARE LIMITED OBLIGATIONS OF THE ISSUER. THE BONDS SHALL NOT CONSTITUTE A DEBT OR OBLIGATION OF THE ISSUER, THE COUNTY IN WHICH IT IS LOCATED, THE STATE OF WISCONSIN OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY STATE CONSTITUTIONAL PROVISION, STATUTORY LIMITATION OR CHARTER PROVISION OR LIMITATION AND SHALL NOT BE A CHARGE AGAINST THEIR GENERAL CREDIT OR TAXING POWERS. The principal of, premium, if any, and interest on the Bonds are payable by the Issuer solely from “Pledged Revenues” as defined in the Indenture hereinafter referred to, including all payments by the Borrower on the Promissory

72

Note hereinafter referred to and all proceeds derived pursuant to the Credit Facility hereinafter referred to.

IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts, conditions and things required to exist, happen and be performed precedent to and in the execution and delivery of the Indenture and the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law, and that the issuance of this Bond and the issue of which it forms a part has been duly authorized by the Issuer and does not exceed or violate any constitutional or statutory limitation. This Bond is issued with the intent that the laws of the State of Wisconsin will govern its construction. This Bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Indenture until the certificate of authentication hereon shall have been signed by the Trustee.

IN WITNESS WHEREOF, the Issuer has caused this Bond to be executed in its name by the manual or facsimile signatures of its Mayor and its Clerk and its seal to be hereunto affixed, impressed, imprinted or otherwise reproduced.

CITY OF LADYSMITH, WISCONSIN
By
	Mayor

[SEAL]
	By
		Clerk

Registrar, Paying Agent
and Tender Agent:

Norwest Bank Wisconsin, N.A.,
Milwaukee, Wisconsin

Certificate of Authentication:

This Bond is one of the Bonds described in the within-mentioned Indenture of Trust.

Dated:
	Norwest Bank Wisconsin, N.A., as trustee
	By
		Authorized Signatory

73

[Text of Reverse Side of Bond]

This Bond is one of a duly authorized issue of Bonds of the Issuer, limited in aggregate principal amount to $27,000,000 (hereinafter referred to as the “Bonds”), issued and authorized to be issued for the purpose of funding a loan to CityForest Corporation, a Minnesota corporation (the “Borrower”), pursuant to the terms of a Loan Agreement made and entered into as of March 1, 1998, by and between the Issuer and the Borrower (hereinafter referred to as the “Loan Agreement”). The purpose of the Bond issue and of the loan funded thereby is to refund bonds previously issued by the Issuer to finance a project at the Borrower’s facilities (the “Plant Complex”) located in the jurisdiction of the Issuer. Pursuant to the Loan Agreement, the Borrower has executed and delivered its promissory note, payable to the order of the Issuer in the principal amount of $27,000,000, maturing and bearing interest on the unpaid principal balance thereof at such rates as to provide the Issuer with sufficient revenues to pay when due the principal of and interest on the Bonds (the “Promissory Note”).

The Bonds are all issued under and are equally and ratably secured and entitled to the protection and benefits given by an Indenture of Trust, dated as of March 1, 1998, duly executed and delivered by the Issuer to the Trustee (the “Indenture”). Reference is hereby made to the Indenture and to all indentures supplemental thereto for a description of rights, duties and obligations of the Issuer, the Trustee and the owners of the Bonds. All of the Issuer’s right, title and interest in and to the Loan Agreement (except for its right to enforce certain limited provisions of the Loan Agreement) and the Promissory Note have been pledged and assigned to the Trustee under the Indenture as security for the payment of the Bonds.

The payment of the Bonds may be further secured by a letter of credit, standby purchase agreement, guaranty, bond insurance policy or similar credit enhancement instrument which meets the requirements set forth in the Indenture (a “Credit Facility”) issued by a bank, savings and loan association, insurance company or other regulated financial institution (a “Credit Facility Provider”). The initial Credit Facility is an Irrevocable Letter of Credit issued by Union Bank of California, N.A., expiring on March 15, 2003 or such other date as therein provided. Subject to the conditions set forth in the Indenture, the Borrower may replace any Credit Facility with a new Credit Facility issued by the same or a different Credit Facility Provider.

The Owner of this Bond may require the Trustee to purchase this Bond (or any portion hereof that is a multiple of $5,000 in excess of $100,000) on any Business Day (an “Optional Tender Date”) but only from the sources set forth in the Indenture, upon delivery to the Trustee, no less than seven days prior to the Optional Tender Date, of a written demand for purchase (a “Purchase Demand”). The purchase price shall be 100% of the principal amount of this Bond (or the portion hereof to be purchased), plus accrued interest to the Optional Tender Date. The Purchase Demand shall be irrevocable, and must (i) state the name and taxpayer identification number of the Owner, (ii) identify this Bond or the portion hereof to be purchased by CUSIP number, Bond number and principal amount, (iii) state the Optional Tender Date on which the purchase of this Bond (or portion hereof) is being demanded, which must be a Business Day not less than seven days after receipt of such Purchase Demand by the

74

Trustee, at or before 11:00 a.m., New York, New York time, on a Business Day, and (iv) acknowledge that such demand is irrevocable.

This Bond shall be subject to mandatory tender for purchase by the Trustee, but only from the sources set forth in the Indenture, on any date established under the Indenture for the conversion of the interest rate on the Bonds to adjusted interest rates, on the effective date of a substitute Credit Facility (except as otherwise provided in the Indenture), or on the first Business Day of the month in which the expiration of the Credit Facility is to occur, unless the Credit Facility expiration date has been extended in accordance with the Indenture. The purchase price shall be 100% of the principal amount hereof. The Trustee shall give notice of such mandatory tender in the same manner described below for notice of redemption, not less than 30 nor more than 60 days prior to the date fixed for such mandatory tender (the “Mandatory Tender Date” and, together with an Optional Tender Date, a “Tender Date”) except with respect to a mandatory tender caused by notice given by the Credit Facility Provider.

BONDS WHICH ARE SUBJECT TO OPTIONAL OR MANDATORY TENDER FOR PURCHASE AS AFORESAID BUT WHICH ARE NOT IN FACT DELIVERED TO THE TRUSTEE ON OR BEFORE THE TENDER DATE SHALL CEASE TO BEAR INTEREST ON THE TENDER DATE. IF ELIGIBLE FUNDS (AS DEFINED IN THE INDENTURE) SUFFICIENT TO PAY THE PURCHASE PRICE OF ANY SUCH UNTENDERED BOND SHALL BE HELD BY THE TRUSTEE, ALL LIABILITY OF THE ISSUER TO THE OWNER OF SUCH UNTENDERED BOND FOR THE PAYMENT OF SUCH BOND SHALL FORTHWITH CEASE, TERMINATE AND BE COMPLETELY DISCHARGED, AND THEREUPON IT SHALL BE THE DUTY OF THE TRUSTEE TO HOLD SUCH FUNDS IN A SEPARATE SEGREGATED TRUST ACCOUNT, WITHOUT LIABILITY FOR INTEREST THEREON, FOR THE BENEFIT OF THE OWNER OF SUCH UNTENDERED BOND WHO SHALL THEREAFTER BE RESTRICTED EXCLUSIVELY TO SUCH ACCOUNT FOR ANY CLAIM OF WHATEVER NATURE ON SUCH PERSON’S PART UNDER THE INDENTURE OR ON OR WITH RESPECT TO SUCH BOND. SUCH FUNDS IN SUCH SEGREGATED TRUST ACCOUNT SHALL NOT BE CONSIDERED PLEDGED REVENUES, AND SUCH UNTENDERED BONDS SHALL NOT BE DEEMED TO BE OUTSTANDING UNDER THE INDENTURE.

Upon prepayment of the Promissory Note in accordance with Section 5.03 of the Loan Agreement, the Bonds are subject to redemption, in whole or in part on any Business Day. The redemption price shall be 100% of the principal amount of the Bonds or portions thereof so redeemed, plus accrued interest to the redemption date, and without premium.

The Bonds shall be subject to redemption, in whole but not in part, on any Business Day, if within 120 days after the occurrence of any of the following events, the Borrower shall elect to prepay the Promissory Note pursuant to Section 5.01 of the Loan Agreement:

75

(a)    The Plant Complex shall have been damaged or destroyed to such extent that, in the opinion of the Borrower expressed in a Borrower’s certificate filed with the Issuer, the Trustee and the Credit Facility Provider following such damage or destruction (i) it is not practicable or desirable to rebuild, repair or restore the Plant Complex within a period of six consecutive months following such damage or destruction, or (ii) the Borrower is or will be thereby prevented from carrying on its normal operations at the Plant Complex for a period of at least six consecutive months;

(b)    Title to or the temporary use of all or substantially all of the Plant Complex shall have been taken under the exercise of the power of eminent domain by any governmental authority to such extent that, in the opinion of the Borrower expressed in a Borrower’s certificate filed with the Issuer, the Trustee and the Credit Facility Provider, the Borrower is or will be thereby prevented from carrying on its normal operations at the Plant Complex for a period of at least six consecutive months;

(c)    Any court or administrative body of competent jurisdiction shall enter a judgment, order or decree requiring the Borrower to cease all or any substantial part of its operations at the Plant Complex to such extent that, in the opinion of the Borrower expressed in a Borrower’s certificate filed with the Issuer, the Trustee and the Credit Facility Provider, the Borrower is or will be thereby prevented from carrying on its normal operations at the Plant Complex for a period of at least six consecutive months; or

(d)    As a result of any changes in the Constitution of Wisconsin or the Constitution of the United States of America or of legislative or administrative action (whether state or federal) or by final decree, judgment or order of any court or administrative body (whether state or federal), the Loan Agreement shall have become void or unenforceable or impossible of performance in accordance with the intent and purposes of the parties as expressed in the Loan Agreement, or unreasonable burdens or excessive liabilities shall have been imposed on the Issuer or the Borrower as a consequence of having the Bonds or the Promissory Note outstanding including without limitation federal, state or other ad valorem, property, income or other taxes not being imposed on the date of the Loan Agreement.

The redemption price for any such redemption shall be 100% of the principal amount of Bonds so redeemed, plus accrued interest to the redemption date, and without premium.

The Bonds shall be subject to mandatory redemption in whole on the earliest practicable Business Day for which the Trustee can give timely notice, but in any event within 60 days following a Determination of Taxability (as defined in the Indenture). The redemption price for any such redemption shall be 100% of the principal amount of Bonds so redeemed, plus accrued interest to the redemption date.

Bonds which otherwise are to be redeemed in accordance with the redemption provisions summarized under the third preceding paragraph or the immediately preceding paragraph may, at the option of the Credit Facility Provider, be purchased in lieu of

76

redemption on the redemption date. Any Bonds so purchased may be remarketed. The purchase price shall be the same as the otherwise applicable redemption price.

Notice of the call for any redemption of the Bonds prior to maturity shall be given by mailing a copy of the redemption notice by first-class mail not less than 30 nor more than 60 days prior to the redemption date to the registered owner of each Bond to be redeemed at the address shown on the Bond register maintained by the Trustee. Neither the failure to mail any such notice, nor any defect in any notice so mailed, with respect to any particular Bondowner shall affect the validity of any proceedings for redemption of any other Bond. All Bonds or portions thereof so called for redemption shall, unless they are purchased in lieu of redemption as provided in the Indenture, cease to bear interest on the specified redemption date and shall no longer be deemed to be outstanding under the provisions of the Indenture if Eligible Funds (as defined in the Indenture) available and sufficient for their redemption are on deposit at the place of payment at that time.

Except as provided in the Indenture, the owners of the Bonds shall have no right to enforce the provisions of the Indenture or to institute action to enforce the covenants therein, or to take any action with respect to any event of default under the Indenture, or to institute, appear in or defend any suit or other proceedings with respect thereto. In certain events, on the conditions, in the manner and with the effect set forth in the Indenture, the principal of all Bonds issued under the Indenture and then outstanding may become or may be declared due and payable before the stated maturity thereof, together with interest accrued thereon. Amendments, modifications and alterations of the Loan Agreement, the Indenture and the Credit Facility, or of any supplements thereto, may be made only to the extent and in the circumstances permitted by the Indenture.

This Bond shall be fully negotiable, but may be transferred only by a written assignment duly executed by the registered owner hereof or by such owner’s duly authorized legal representative. Upon presentation and surrender of this Bond together with said executed form of assignment at the principal corporate trust office of the Trustee, the Trustee shall register the transfer of this Bond in the Bond register maintained by the Trustee; provided, however, that the Trustee shall have no obligation to register the transfer unless the executed assignment shall be satisfactory to it in form and substance. Upon registration of the transfer of this Bond, the Trustee shall cancel this Bond, and the Issuer shall issue, and the Trustee shall authenticate, one or more new Bonds of authorized denominations of the same maturity and interest rate and in the same aggregate outstanding principal amount as this Bond. The Issuer and the Trustee may deem and treat the registered owner hereof as the absolute owner hereof for the purpose of receiving payment of or on account of the principal of, premium, if any, and interest due hereon and for all other purposes, and neither the Issuer, nor the Trustee nor any alternate paying agent shall be affected by any notice to the contrary.

The Bonds are issuable in the form of fully registered bonds in the denominations of $100,000 or any multiple of $5,000 in excess thereof. In the manner and subject to the conditions provided in the Indenture, Bonds, upon surrender thereof at the principal corporate trust office of the Trustee together with a written instrument of transfer

77

satisfactory to the Trustee, duly executed by the registered owner or such owner’s duly authorized legal representative, may be exchanged for an equal outstanding aggregate principal amount of Bonds of the same maturities and interest rates of any authorized denomination. Except in connection with a remarketing of the Bonds upon optional or mandatory tender, the Trustee shall not be required to register the transfer or to exchange any Bond (i) after the receipt by the Trustee of a Purchase Demand with respect thereto and through the corresponding Optional Tender Date, (ii) after the Trustee has given notice of a Mandatory Tender Date and through the Mandatory Tender Date, (iii) during the fifteen days prior to the mailing of notice of any redemption, or (iv) after such Bond has been called for redemption. The Bondowner requesting any registration of transfer or exchange of Bonds shall pay with respect thereto any resulting tax or governmental charge. All such payments shall be conditions precedent to the exercise of the Bondowner’s rights of registration of transfer or exchange.

ASSIGNMENT

FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto __________________________________________________________________________________________________________________ (Please Print or Typewrite Name and Address of Transferee) _______________________________________________________________________ the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints ________________________________________ Attorney to transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises.

Dated:
Signature Guaranteed:	Signature of Bondowner:
		(L.S.)
NOTICE: Signature(s) must be guaranteed.	NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without alteration or enlargement or any change whatever.

Section 1503 Form of Bond On or After Conversion Date. Each particular Bond authenticated on or after the Conversion Date shall be substantially in the following form, with such insertions and alterations as shall be necessary to identify such Bond by number, date and CUSIP number (if any) and to indicate the principal amount, maturity date, Reset Date, Owner, interest rate and redemption features of such Bond; and the Trustee’s Certificate of authentication to appear on all Bonds shall be substantially in the following form:

78

REGISTERED	United States of America	REGISTERED
NO.___________________	State of Wisconsin County of Rusk	$_______________

CITY OF LADYSMITH, WISCONSIN
SOLID WASTE DISPOSAL FACILITY
REVENUE BOND,
SERIES 1998 (CITYFOREST CORPORATION PROJECT)

Interest Rate	Maturity Date	[Mandatory Tender Date	Original Issue Date:	CUSIP Number
________%	March 1, _____	__________ 1, _____]	__________, 1998	___________

Registered Owner:

Denomination: DOLLARS

THE CITY OF LADYSMITH, WISCONSIN, a municipal corporation and political subdivision of the State of Wisconsin (the “Issuer”), for value received, promises to pay, but solely from the source and as hereinafter provided and not otherwise, to the above named Registered Owner, or registered assigns, on the above specified Maturity Date, upon presentation and surrender of this Bond, the principal sum specified above and to pay interest thereon, but solely from said source and as so provided and not otherwise, at a rate per annum equal to the Interest Rate set forth above, payable quarterly on each March 1 and September 1, commencing                      1,       and on the redemption date until payment of such principal sum, or, if this Bond shall be duly called for redemption, until the redemption date. Interest on overdue principal, premium, if any, and interest (to the extent legally enforceable) is payable at the same rate per annum as was borne by this Bond on the due date. The principal of, premium, if any, and interest on this Bond are payable in lawful money of the United States of America at the principal corporate trust office of Norwest Bank Wisconsin, N.A., or its successor or successors, as trustee (the “Trustee”). Interest hereon which is payable, and punctually paid or duly provided for, on any interest payment date shall be paid by check drawn by the Trustee payable to the order of the person in whose name this Bond is registered at the close of business on the record date for such interest, which shall be the fifteenth day of the calendar month immediately preceding such interest payment date. Such interest shall be mailed to such person at the address shown on the Bond register kept by the Trustee.

79

The Bonds have been issued pursuant to and in full compliance with the Constitution and laws of the State of Wisconsin, particularly Section 66.521 of the Wisconsin Statutes, as amended, and by authority of resolutions adopted by the Issuer’s governing body in connection with a project and activity undertaken pursuant to said Section of the Wisconsin Statutes. THE BONDS ARE LIMITED OBLIGATIONS OF THE ISSUER. THE BONDS SHALL NOT CONSTITUTE A DEBT OR OBLIGATION OF THE ISSUER, THE COUNTY IN WHICH IT IS LOCATED, THE STATE OF WISCONSIN OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY STATE CONSTITUTIONAL PROVISION, STATUTORY LIMITATION OR CHARTER PROVISION OR LIMITATION AND SHALL NOT BE A CHARGE AGAINST THEIR GENERAL CREDIT OR TAXING POWERS. The principal of, premium, if any, and interest on the Bonds are payable by the Issuer solely from “Pledged Revenues” as defined in the Indenture hereinafter referred to, including all payments by the Borrower on the Promissory Note hereinafter referred to [and all proceeds derived pursuant to the Credit Facility hereinafter referred to].

IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts, conditions and things required to exist, happen and be performed precedent to and in the execution and delivery of the Indenture and the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law, and that the issuance of this Bond and the issue of which it forms a part has been duly authorized by the Issuer and does not exceed or violate any constitutional or statutory limitation. This Bond is issued with the intent that the laws of the State of Wisconsin will govern its construction. This Bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Indenture until the certificate of authentication hereon shall have been signed by the Trustee.

80

IN WITNESS WHEREOF, the Issuer has caused this Bond to be executed in its name by the manual or facsimile signatures of its Mayor and its Clerk and its seal to be hereunto affixed, impressed, imprinted or otherwise reproduced.

CITY OF LADYSMITH, WISCONSIN
By
	Mayor

[SEAL]
	By
		Clerk

Registrar, Paying Agent
and Tender Agent:

NORWEST BANK WISCONSIN, N.A.,
Milwaukee, Wisconsin

Certificate of Authentication:

This Bond is one of the Bonds described in the within-mentioned Indenture of Trust.

Dated:
	NORWEST BANK WISCONSIN, N.A., as trustee
	By
		Authorized Signatory

81

[Text of Reverse Side of Bond]

This Bond is one of a duly authorized issue of Bonds of the Issuer, limited in aggregate principal amount to $27,000,000 (hereinafter referred to as the “Bonds”), issued and authorized to be issued for the purpose of funding a loan to CityForest Corporation, a Minnesota corporation (the “Borrower”), pursuant to the terms of a Loan Agreement made and entered into as of March 1, 1998, by and between the Issuer and the Borrower (hereinafter referred to as the “Loan Agreement”). The purpose of the Bond issue and of the loan funded thereby is to refund bonds previously issued by the Issuer to finance a project at the Borrower’s facilities (the “Plant Complex”) located in the jurisdiction of the Issuer. Pursuant to the Loan Agreement, the Borrower has executed and delivered its promissory note, payable to the order of the Issuer in the principal amount of $27,000,000, maturing and bearing interest on the unpaid principal balance thereof at such rates as to provide the Issuer with sufficient revenues to pay when due the principal of and interest on the Bonds (the “Promissory Note”).

The Bonds are all issued under and are equally and ratably secured and entitled to the protection and benefits given by an Indenture of Trust, dated as of March 1, 1998, duly executed and delivered by the Issuer to the Trustee (the “Indenture”). Reference is hereby made to the Indenture and to all indentures supplemental thereto for a description of rights, duties and obligations of the Issuer, the Trustee and the owners of the Bonds. All of the Issuer’s right, title and interest in and to the Loan Agreement (except for its right to enforce certain limited provisions of the Loan Agreement) and the Promissory Note have been pledged and assigned to the Trustee under the Indenture as security for the payment of the Bonds.

[The payment of the Bonds may be further secured by a letter of credit, standby purchase agreement, guaranty, bond insurance policy or similar credit enhancement instrument which meets the requirements set forth in the Indenture (a “Credit Facility”) issued by a bank, savings and loan association, insurance company or other regulated financial institution (a “Credit Facility Provider”). The current Credit Facility is                                                                       issued by                                                                       expiring on                                    ,                       or such earlier date as therein provided. Subject to the conditions set forth in the Indenture, the Borrower may replace any Credit Facility with a new Credit Facility issued by the same or a different Credit Facility Provider.]

[The Bonds may also be further partially be secured by a Debt Service Reserve Fund.]

[The Bonds shall be subject to mandatory tender for purchase on the Mandatory Tender Date set forth above. The purchase price shall be 100% of the principal amount of the Bonds, plus accrued interest to the Mandatory Tender Date. Each Bondowner will be required to tender its Bonds to the Trustee, or such Bonds will be deemed to have been so tendered, for purchase on such date. The purchase price will be payable only upon actual surrender of the Bond to the Trustee.]

82

BONDS WHICH ARE SUBJECT TO MANDATORY TENDER FOR PURCHASE AS AFORESAID BUT WHICH ARE NOT IN FACT DELIVERED TO THE TRUSTEE ON OR BEFORE THE MANDATORY TENDER DATE SHALL CEASE TO BEAR INTEREST ON THE MANDATORY TENDER DATE. IF ELIGIBLE FUNDS (AS DEFINED IN THE INDENTURE) SUFFICIENT TO PAY THE PURCHASE PRICE OF ANY SUCH UNTENDERED BOND SHALL BE HELD BY THE TRUSTEE, ALL LIABILITY OF THE ISSUER TO THE OWNER OF SUCH UNTENDERED BOND FOR THE PAYMENT OF SUCH BOND SHALL FORTHWITH CEASE, TERMINATE AND BE COMPLETELY DISCHARGED, AND THEREUPON IT SHALL BE THE DUTY OF THE TRUSTEE TO HOLD SUCH FUNDS IN A SEPARATE SEGREGATED TRUST ACCOUNT, WITHOUT LIABILITY FOR INTEREST THEREON, FOR THE BENEFIT OF THE OWNER OF SUCH UNTENDERED BOND WHO SHALL THEREAFTER BE RESTRICTED EXCLUSIVELY TO SUCH ACCOUNT FOR ANY CLAIM OF WHATEVER NATURE ON SUCH PERSON’S PART UNDER THE INDENTURE OR ON OR WITH RESPECT TO SUCH BOND. SUCH FUNDS IN SUCH SEGREGATED TRUST ACCOUNT SHALL NOT BE CONSIDERED PLEDGED REVENUES, AND SUCH UNTENDERED BONDS SHALL NOT BE DEEMED TO BE OUTSTANDING UNDER THE INDENTURE.

[Upon prepayment of the Promissory Note in accordance with Section 5.03 of the Loan Agreement, the Bonds [maturing after March 1,     ] are subject to redemption, in whole or in part on any date or in part on any regularly scheduled interest payment date. The redemption price shall be the amount determined from the table below (expressed as a percentage of the principal amount of the Bonds or portions thereof so redeemed), plus accrued interest to the redemption date:

Redemption Period	Redemption Price
	]

The Bonds shall be subject to redemption, in whole but not in part, on any Business Day, if within 120 days after the occurrence of any of the following events, the Borrower shall elect to prepay the Promissory Note pursuant to Section 5.01 of the Loan Agreement:

(a)    The Plant Complex shall have been damaged or destroyed to such extent that, in the opinion of the Borrower expressed in a Borrower’s certificate filed with the Issuer, the Trustee [and the Credit Facility Provider] following such damage or destruction (i) it is not practicable or desirable to rebuild, repair or restore the Plant Complex within a period of six consecutive months following such damage or destruction, or (ii) the Borrower is or will be thereby prevented from carrying on its normal operations at the Plant Complex for a period of at least six consecutive months;

(b)    Title to or the temporary use of all or substantially all of the Plant Complex shall have been taken under the exercise of the power of eminent domain by

83

any governmental authority to such extent that, in the opinion of the Borrower expressed in a Borrower’s certificate filed with the Issuer, the Trustee [and the Credit Facility Provider,] the Borrower is or will be thereby prevented from carrying on its normal operations at the Plant Complex for a period of at least six consecutive months;

(c)    Any court or administrative body of competent jurisdiction shall enter a judgment, order or decree requiring the Borrower to cease all or any substantial part of its operations at the Plant Complex to such extent that, in the opinion of the Borrower expressed in a Borrower’s certificate filed with the Issuer, the Trustee, [and the Credit Facility Provider] the Borrower is or will be thereby prevented from carrying on its normal operations at the Plant Complex for a period of at least six consecutive months; or

(d)    As a result of any changes in the Constitution of Wisconsin or the Constitution of the United States of America or of legislative or administrative action (whether state or federal) or by final decree, judgment or order of any court or administrative body (whether state or federal), the Loan Agreement shall have become void or unenforceable or impossible of performance in accordance with the intent and purposes of the parties as expressed in the Loan Agreement, or unreasonable burdens or excessive liabilities shall have been imposed on the Issuer or the Borrower as a consequence of having the Bonds or the Promissory Note outstanding including without limitation federal, state or other ad valorem, property, income or other taxes not being imposed on the date of the Loan Agreement.

The redemption price for any such redemption shall be 100% of the principal amount of Bonds so redeemed, plus accrued interest to the redemption date, and without premium.

[The Bonds shall be subject to mandatory redemption in whole on the first day of the month in which the Credit Facility is to expire unless, at least 45 days before such first day of the month, the Borrower has caused to be delivered a substitute Credit Facility, or an amendment to the Credit Facility extending the expiration date, in either case meeting the requirements of the Indenture. The redemption price for any such redemption shall be 100% of the principal amount of Bonds so redeemed, plus accrued interest to the redemption date, and without premium.]

The Bonds shall be subject to mandatory redemption in whole on the earliest practicable Business Day for which the Trustee can give timely notice, but in any event within 60 days following a Determination of Taxability (as defined in the Indenture). The redemption price for any such redemption shall be 100% of the principal amount of Bonds so redeemed, plus accrued interest to the redemption date.

[Bonds which otherwise are to be redeemed in accordance with the redemption provisions summarized under the fourth preceding paragraph, the second preceding paragraph and the immediately preceding paragraph may, at the option of the Credit Facility Provider, be

84

purchased in lieu of redemption on the redemption date. Any Bonds so purchased may be remarketed. The purchase price shall be the same as the otherwise applicable redemption price.]

Notice of the call for any redemption of the Bonds prior to maturity shall be given by mailing a copy of the redemption notice by first-class mail not less than 30 nor more than 60 days prior to the redemption date to the registered owner of each Bond to be redeemed at the address shown on the Bond register maintained by the Trustee. Neither the failure to mail any such notice, nor any defect in any notice so mailed, with respect to any particular Bondowner shall affect the validity of any proceedings for redemption of any other Bond. All Bonds or portions thereof so called for redemption shall[, unless they are purchased in lieu of redemption as provided in the Indenture,] cease to bear interest on the specified redemption date and shall no longer be deemed to be outstanding under the provisions of the Indenture if Eligible Funds (as defined in the Indenture) available and sufficient for their redemption are on deposit at the place of payment at that time.

Except as provided in the Indenture, the owners of the Bonds shall have no right to enforce the provisions of the Indenture or to institute action to enforce the covenants therein, or to take any action with respect to any event of default under the Indenture, or to institute, appear in or defend any suit or other proceedings with respect thereto. In certain events, on the conditions, in the manner and with the effect set forth in the Indenture, the principal of all Bonds issued under the Indenture and then outstanding may become or may be declared due and payable before the stated maturity thereof, together with interest accrued thereon. Amendments, modifications and alterations of the Loan Agreement, the Indenture [and the Credit Facility,] or of any supplements thereto, may be made only to the extent and in the circumstances permitted by the Indenture.

This Bond shall be fully negotiable, but may be transferred only by a written assignment duly executed by the registered owner hereof or by such owner’s duly authorized legal representative. Upon presentation and surrender of this Bond together with said executed form of assignment at the principal corporate trust office of the Trustee, the Trustee shall register the transfer of this Bond in the Bond register maintained by the Trustee; provided, however, that the Trustee shall have no obligation to register the transfer unless the executed assignment shall be satisfactory to it in form and substance. Upon registration of the transfer of this Bond, the Trustee shall cancel this Bond, and the Issuer shall issue, and the Trustee shall authenticate, one or more new Bonds of authorized denominations of the same maturity and interest rate and in the same aggregate outstanding principal amount as this Bond. The Issuer and the Trustee may deem and treat the registered owner hereof as the absolute owner hereof for the purpose of receiving payment of or on account of the principal of, premium, if any, and interest due hereon and for all other purposes, and neither the Issuer, nor the Trustee nor any alternate paying agent shall be affected by any notice to the contrary.

The Bonds are issuable in the form of fully registered bonds in the denominations of $5,000 or any multiple thereof. In the manner and subject to the conditions provided in the Indenture, Bonds, upon surrender thereof at the principal corporate trust office

85

of the Trustee together with a written instrument of transfer satisfactory to the Trustee, duly executed by the registered owner or such owner’s duly authorized legal representative, may be exchanged for an equal outstanding aggregate principal amount of Bonds of the same maturities and interest rates of any authorized denomination. The Trustee shall not be required to register the transfer or to exchange any Bond (i) during the fifteen days prior to the mailing of notice of any redemption, or (ii) after such Bond has been called for redemption. The Bondowner requesting any registration of transfer or exchange of Bonds shall pay with respect thereto any resulting tax or governmental charge. All such payments shall be conditions precedent to the exercise of the Bondowner’s rights of registration of transfer or exchange.

ASSIGNMENT

FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto ___________________________________________________________________________________________________________________________________ (Please Print or Typewrite Name and Address of Transferee) ________________________________________________________________________________ the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints ________________________________ Attorney to transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises.

Dated:
Signature Guaranteed:	Signature of Bondowner:
		(L.S.)
NOTICE: Signature(s) must be guaranteed.	NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without alteration or enlargement or any change whatever.

Section 1504   Additional Matters Appearing on Bonds.  There may be printed or otherwise reproduced on any Bond form (i) the legal opinion of Bond Counsel, (ii) customary “back file panel” summary information, (iii) restrictions on transfer in form approved by the Trustee as required in particular instances, and (iv) any other information deemed necessary or appropriate by the Issuer or the Trustee with the approval of Bond Counsel to give notice of information to Bondowners.

86

ARTICLE XVI

MISCELLANEOUS

Section 1601   Consent of Bondowners.  Any consent, request, direction, approval, objection or other instrument required by this Indenture to be signed and executed by the Bondowners may be in any number of concurrent writings of similar tenor and may be signed or executed by such Bondowners in person or by agent appointed in writing. The fact and date of the execution by any person of any such writing may be proved by the certificate of any officer in any jurisdiction who by law had power to take acknowledgments within such jurisdiction that the person signing such writing acknowledged before him or her the execution thereof, or by an affidavit of any witness to such execution. Proof of the execution of any such consent, request, direction, approval, objection or other instrument or of the writing appointing any such agent, if made in said manner, shall be sufficient for any of the purposes of this Indenture, and shall be conclusive in favor of the Trustee with regard to any action taken under such request for other instrument.

Section 1602   Limitation of Rights.  With the exception of rights herein expressly conferred, nothing expressed or mentioned in or to be implied from the Indenture or the Bonds is intended or shall be construed to give to any person other than the parties hereto, the Borrower, the Remarketing Agent, the Credit Facility Provider, and the Owners of the Bonds any legal or equitable right, remedy or claim under or in respect to this Indenture, or any covenants, conditions and provisions hereof, which are and are intended to be for the sole and exclusive benefit of the parties hereto, the Borrower, the Credit Facility Provider, and the Owners of the Bonds as herein provided.

Section 1603 Severability. If any provision of this Indenture shall be held or deemed to be or shall, in fact, be inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions or in all jurisdictions, or in all cases because it conflicts with any other provision or provisions hereof or any constitution or statute or rule of public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any extent whatever.

The invalidity of any one or more phrases, sentences, clauses or Sections in this Indenture contained shall not affect the remaining portions of the Indenture, or any part thereof.

87

Section 1604   Notices.  Unless otherwise expressly provided herein, all notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed given when hand delivered or when mailed by certified or registered mail, postage prepaid, or by prepaid telex, telecopy or telegram addressed as follows: (i) if to the Issuer, at the Issuer’s Address; (ii) if to the Trustee, at the Trustee’s Address; (iii) if to the Remarketing Agent, at the Remarketing Agent’s Address; and (iv) if to the Credit Facility Provider, at the Credit Facility Provider’s Address. A notice to the Rating Agency shall be sent to the current address of the Rating Agency.

A duplicate copy of each notice, certificate or other communication given hereunder by either the Issuer or the Trustee shall also be concurrently given to the Borrower at the Borrower’s Address and to the Credit Facility Provider at the Credit Facility Provider’s Address.

Whenever the Trustee is required hereunder to give notice to Bondowners, it shall give such notice by first class mail to each person on the Bond Register whose Bond is affected thereby. The Trustee shall send to the Rating Agency by first class mail notice of any of the following events:

(a)    change in any party to the Indenture or Loan Agreement;

(b)    any material change in the Credit Facility, Loan Agreement or Indenture;

(c)    any expiration, failure to reinstate or termination of the Credit Facility;

(d)    any Proposed Conversion Date or Mandatory Tender Date; or

(e)    any redemption, defeasance or acceleration of the Bonds.

Section 1605   Payments Due on Saturdays, Sundays and Holidays.  In any case where the date of maturity of interest on or principal of the Bonds or the date fixed for mandatory tender or redemption of any Bonds shall not be a Business Day, the payment of principal, premium, if any, and interest (or, in the case of mandatory tender for purchase, the purchase price) need not be made on such date in such city but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for redemption, and no interest shall accrue for the period after such date and prior to the date of payment as aforesaid.

88

Section 1606   Captions.  The captions or headings in this Indenture are for convenience only and in no way define, limit or describe the scope or intent of any provisions of this Indenture.

Section 1607   Counterparts.  This Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Section 1608   Governing Law.  The laws of the State of Wisconsin shall govern this Indenture.

IN WITNESS WHEREOF, the Issuer has caused this Indenture to be executed in its name and on its behalf by its Chief Municipal Official and its Clerk thereunto duly authorized and its seal to be hereunto affixed, and the Trustee has caused this Indenture to be executed in its name and behalf by its duly authorized officer all as of the first day of March, 1998.

CITY OF LADYSMITH, WISCONSIN
By	/s/ Ronald Moore
	Mayor

[SEAL]
	By	/s/ Kathleen Stewart
		Clerk

	NORWEST BANK WISCONSIN, N.A., as trustee
[SEAL]	By	/s/ Susan L. Shepherd
		Corporate Trust Officer

89

EX-10.7

Exhibit 10.7

GUARANTY

THIS GUARANTY is made, executed and delivered this 21st day of March, 2007 (the “Guaranty”) by CELLU TISSUE HOLDINGS, INC., a Delaware corporation (the “Guarantor”) in favor of ASSOCIATED BANK, NATIONAL ASSOCIATION, a national banking association with an office at 200 North Adams Street, Green Bay, Wisconsin 54301 (the “Bank”).

RECITALS

A.          CityForest Corporation, a Minnesota corporation (“CF Corporation”), and the Bank are the parties to that certain Reimbursement Agreement dated as of June 29, 2005 (the “Original Reimbursement Agreement”).

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 the Guarantor, pursuant to that certain Merger Agreement dated as of February 26, 2007 (the “Cellu Tissue Merger Agreement”) among the Guarantor, 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 with CF Corporation being the surviving corporation and CF Corporation has been converted (the “CF Corporation Conversion”) into Cellu Tissue-CityForest LLC, a Minnesota limited liability company (the “Borrower”).

C.            The Borrower has requested that the Bank consent to the Cellu Tissue Merger and the CF Corporation Conversion, and agree to amend certain provisions of the Original Reimbursement Agreement pursuant to that certain Amended and Restated Reimbursement Agreement dated as of even date herewith (the Amended and Restated Reimbursement Agreement as it may be amended, modified, supplemented, increased, restated or replaced from time to time being the “Reimbursement Agreement”; capitalized terms not otherwise defined herein being used herein as therein defined) between the Borrower and the Bank.

D.            As a condition to the “Effective Date” of the Reimbursement Agreement, the Bank has required that the Guarantor execute and deliver this Guaranty.

E.             The Guarantor has determined that the execution, delivery and performance of this Guaranty are in the Guarantor’s best business and pecuniary interest.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto, and in order to induce the Bank to amend and restate the Original Reimbursement Agreement pursuant to the Reimbursement Agreement, the Guarantor hereby agrees with the Bank as follows:

1.             Guaranty of Payment.  The Guarantor hereby unconditionally guarantee(s) the full and prompt payment when due, whether by acceleration or otherwise, and at all times thereafter, of all obligations of the Borrower to the Bank, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or now or hereafter existing, or due or to become due, including, without limitation, all Obligations of the Borrower to the Bank arising under the Reimbursement Agreement or any other Loan Document (all such obligations being hereinafter collectively called the “Guaranteed Obligations”) and the Guarantor further agrees to pay all reasonable expenses, including reasonable fees of attorneys (who may be employees of the Bank) and legal expenses, paid or incurred by the Bank in endeavoring to collect the Guaranteed Obligations, or any part thereof, and in enforcing this Guaranty.

2.             Representations and Warranties.  The Guarantor represents and warrants to the Bank that:

(a)           Existence. Etc. The Guarantor is a corporation duly formed and validly existing under the laws of the State of Delaware.  The Guarantor 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 Guarantor has all power and authority to own its properties.

(b)           Due Authorization, No Breach, No Liens. The execution, delivery and performance by the Guarantor of this Guaranty and each other Transaction Document to which the Guarantor is a party are within the Guarantor’s powers, have been duly authorized by all necessary action by the board of directors of the Guarantor, and do not contravene (a) the Guarantor’s articles of incorporation or bylaws, (b) any Governmental Rule or (c) any indenture, loan or credit agreement or any other material agreement, lease or instrument to which the Guarantor is a party or by which it or any of its properties may be bound including, without limitation, the Cellu Tissue Credit Facility Loan Documents and the Cellu Tissue Senior Secured Notes Loan Documents; 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 Guarantor’s properties.  The Guarantor 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.

(c)           Governmental Approvals.  No Governmental Approval is required for the due execution, delivery and performance by the Guarantor of this Guaranty or any other Transaction Document 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.

(d)           Transaction Documents.  This Guaranty and the other Transaction Documents to which the Guarantor is a party are the valid and binding obligations of the Guarantor enforceable against the

2

Guarantor 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. This Guaranty is in full force and effect in all material respects and no default under this Guaranty has occurred and is continuing.  To the knowledge of the Guarantor, the other Transaction Documents to which the Guarantor is a party are in full force and effect in all material respects and no default under any such other Transaction Document to which the Guarantor is party has occurred and is continuing.

(e)           Financial Condition.

(i)            The Guarantor has heretofore furnished to the Bank its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended February 28, 2006, reported on by Ernst & Young LLP, independent public accountants, and (ii) as of and for the fiscal month ended February 28, 2007 and for the portion of the fiscal year elapsed since the end of the 2006 fiscal year, certified by the chief financial officer of the Guarantor.  Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Guarantor and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above.

(ii)           No event, change or condition has occurred that has resulted in, or could reasonably be expected to result, in a Material Adverse Occurrence since February 28, 2006.

(f)            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 Guarantor 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 Guarantor 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.

(g)           Margin Stock.   The Guarantor 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).

(h)           Incorporation of Representations and Warranties.  Each of the representations and warranties of the Guarantor or pertaining to the Guarantor or any of its properties in any Cellu Tissue Merger Document were true and correct when made and if any such representation and warranty is a continuing representation and warranty under the relevant Cellu Tissue Merger Document as of the Effective Date, then such

3

continuing representation and warranty is true and correct as of the Effective Date.  The Guarantor 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 Guarantor is untrue or incorrect in any material respect.

(i)            Status.  The Guarantor 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.

(j)            Broker’s Fees.  Except as disclosed on Schedule 7.21 attached to the Reimbursement Agreement and incorporated herein by reference, the Guarantor 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 the Transaction Documents. The Guarantor 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 the Reimbursement Agreement, the other Loan Documents or any other Transaction Document.

(k)           Solvency.  The Guarantor is Solvent after giving effect to the making of the Loans in the full amount available under the Reimbursement Agreement, the issuance of the Bonds Letter of Credit, the incurrence of any other Indebtedness pursuant to the Loan Documents, the incurrence of the Indebtedness under the Second Cellu Tissue Senior Secured Notes Indenture Supplement, and the incurrence of Indebtedness in the full amount of the “Commitments” available under the Cellu Tissue JPMorgan Credit Agreement.

(l)            Trading with the Enemy Act.  The execution of this Guaranty 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 Guarantor nor any person who owns a controlling interest in or otherwise controls the Guarantor or any Subsidiary of the Guarantor 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.

(m)          Survival of Representations. All representations and warranties contained in this Section 2 shall survive the delivery of this Guaranty, the making of the Loans evidenced by the Notes, 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.

4

3.             Affirmative Covenants.  From the date of this Guaranty and thereafter until this Guaranty is either terminated or performed, unless the Bank shall otherwise expressly consent in writing, the Guarantor will do all of the following:

(a)           Financial Statements and Reports.  Furnish to the Bank:

(i)            within 90 days after the end of each fiscal year of the Guarantor, its audited consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Ernst & Young LLP or other nationally recognized auditors (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Guarantor and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, accompanied by any management letter prepared by said accountants;

(ii)           within 45 days after the end of each of the first three fiscal quarters of the Guarantor, its consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Guarantor and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes;

(iii)          immediately upon the Bank’s request, copies of all publicly available periodic and other reports, proxy statements and other materials filed by the Guarantor or any of its Subsidiaries with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange; and

(iv)          promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Guarantor or any of its Subsidiaries, or compliance with the terms of any Loan Document, as the Bank may reasonably request.

(b)          Notices of Material Events.  Furnish to the Bank prompt written notice of the following:

(i)            the occurrence of any Default or Event of Default;

5

(ii)           the proposed consummation of any event described in clause (a) of the definition of “Cellu Tissue Prepayment Event” in the Reimbursement Agreement, where such notice shall be delivered by no later than five (5) Business Days prior to the date of consummation and shall be accompanied by copies of the relevant documentation governing such event; or

(iii)          any other development that results in, or could reasonably be expected to result in, a Material Adverse Occurrence.

(c)           Corporate Existence.  Except as provided by Section 4(a), maintain its corporate existence and good standing under the laws of its jurisdiction of incorporation and its qualification to transact business in each jurisdiction in which the character of the properties owned, leased or operated by it or the business conducted by it makes such qualification necessary and where the failure to so qualify results in, or could reasonably be expected to result in, a Material Adverse Occurrence.

4.             Negative Covenants.  From the date of this Guaranty and thereafter until this Guaranty is either terminated or performed, unless the Bank shall otherwise expressly consent in writing, the Guarantor will not do any of the following:

(a)          Merger.  Liquidate or dissolve, or merge into or consolidate with or into, any Person; provided that the Guarantor may enter into any merger, consolidation, or other transaction permitted by Section 3.14 of the Cellu Tissue Senior Secured Notes Indenture so long as: (i) the resulting, surviving or transferee entity (if not the Guarantor) shall assume the obligations of the Guarantor under this Guaranty pursuant to a written instrument of assumption that is reasonably satisfactory to the Bank; and (ii) no Change of Control has resulted from such transaction.

(b)           Restricted Agreement.  Directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon:

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

(ii)           the Bank’s right to prohibit, restrict or impose conditions 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 the Guarantor;

provided that:

(A)           the foregoing shall not apply to:

(1)           restrictions and conditions imposed by law or by any Loan Document,

6

(2)           restrictions and conditions existing on the date hereof identified on Schedule 9.13 attached to the Reimbursement Agreement 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 the Reimbursement  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 the Reimbursement Agreement so long as: (i) 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; (ii) 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) of the Reimbursement Agreement in the documentation for the re-financing Indebtedness are not materially more restrictive, when taken as a whole, than the applicable restrictions in the Reimbursement Agreement; and

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

(B)            clause (b)(i) of the foregoing shall not apply to: (1) 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 (2) customary provisions in leases and other contracts restricting the assignment thereof.

5.             Continuing Guaranty.  This Guaranty shall in all respects be a continuing, absolute and unconditional Guaranty, and shall remain in full force and effect (notwithstanding, without limitation, the dissolution of the Guarantor or that no Guaranteed Obligations may exist from time to time) until payment in full of the Guaranteed Obligations following the Revolving Credit Termination Date; subject, however, to reinstatement pursuant to the Section 6 hereof.

6.             Rescission or Return of Payment on Guaranteed Obligations.  The Guarantor further agrees that, if at any time all or any part of any payment theretofore applied by the Bank to any of the Guaranteed Obligations is or must be rescinded or returned by such Person for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of the Borrower), such Guaranteed Obligations shall, for the purposes of this Guaranty, to the extent that such payment is or must be rescinded or returned, be deemed to have continued in existence, notwithstanding such application by the Bank, and this Guaranty shall continue to be effective or be reinstated, as the case may be, as to such Guaranteed Obligations, all as though such application by such Person had not been made.

7

7.             Bank Permitted to Take Certain Actions.  The Bank may, from time to time (but shall not be obligated to), whether before or after any discontinuance of this Guaranty, at their sole discretion and without notice to the Guarantor, take any or all of the following actions: (a) retain or obtain a security interest in any property to secure any of the Obligations or any obligation hereunder; (b) retain or obtain the primary or secondary obligation of any obligor or obligors, in addition to the Guarantor, with respect to any of the Obligations; (c) increase any of the Obligations or extend or renew for one or more periods (whether or not longer than the original period), alter or exchange any of the Obligations, or release or compromise any obligation of any nature of any other obligor with respect to any of the Obligations; (d) release its security interest in, or surrender, release or permit any substitution or exchange for, all or any part of any property securing any of the Obligations or any obligation hereunder, or extend or renew for one or more periods (whether or not longer than the original period) or release, compromise, alter or exchange, any Obligations of any nature of any obligor with respect to any such property; and (e) resort to the Guarantor for payment of any of the Guaranteed Obligations, whether or not the Bank: (i) shall have resorted to any property securing any of the Obligations or any obligation hereunder or (ii) shall have proceeded against any other obligor primarily or secondarily obligated with respect to any of the Obligations (all of the actions referred to in preceding clauses (i) and (ii) being hereby expressly waived by the Guarantor).

8.             Subrogation.  The Guarantor hereby waives, until payment in full of the Guaranteed Obligations, any claim, right or remedy which the Guarantor may now have or hereafter acquire against the Borrower that arises hereunder and/or from the performance by the Guarantor hereunder, including, without limitation, any claim, remedy or right of subrogation, reimbursement, exoneration, contribution, indemnification, or participation in any claim, right or remedy of the Bank against the Borrower or any security which the Bank now has or hereafter acquires, whether or not such claim, right or remedy arises in equity, under contract, by statute, under common law, or otherwise.

9.             Waiver of Notice and Other Matters.  The Guarantor hereby expressly waives: (a) notice of the acceptance by the Bank of this Guaranty; (b) notice of the existence or creation or non-payment of all or any of the Guaranteed Obligations; (c) presentment, demand, notice of dishonor, protest, and all other notices whatsoever; and (d) all diligence in collection or protection of or realization upon the Obligations or any thereof, any obligation hereunder, or any security for or guaranty of any of the foregoing.

10.           Additional Obligations of the Borrower Permitted.  The creation or existence from time to time of Obligations in excess of the Guaranteed Obligations is hereby authorized, without notice to the Guarantor, and shall in no way affect or impair the rights of the Bank and the obligations of the Guarantor under this Guaranty.

11.           Assignment of Guaranteed Obligations. The Bank may, from time to time, whether before or after any discontinuance of this Guaranty, with notice to the Guarantor, and only in connection with an assignment by the Bank of its rights and obligations in accordance with Section 11.4 of the Reimbursement Agreement, assign or transfer any or all of the Guaranteed Obligations owed to it or any interest therein; and, notwithstanding any such

8

assignment or transfer or any subsequent assignment or transfer thereof, such Guaranteed Obligations shall be and remain Guaranteed Obligations for the purposes of this Guaranty, and each and every immediate and successive assignee or transferee of any of the Guaranteed Obligations or of any interest therein shall, to the extent of the interest of such assignee or transferee in the Guaranteed Obligations, be entitled to the benefits of this Guaranty to the same extent as if such assignee or transferee were the assigning or transferring Bank.

12.           Information Concerning Borrower.  The Guarantor hereby warrants to the Bank that the Guarantor now has and will continue to have independent means of obtaining information concerning the affairs, financial condition and business of the Borrower.  The Bank shall not have any duty or responsibility to provide the Guarantor with any credit or other information concerning the affairs, financial condition or business of the Borrower which may come into the Bank’s possession.

13.           Waiver and Modifications.  No delay on the part of the Bank in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by the Bank of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy; nor shall any modification or waiver of any of the provisions of this Guaranty be binding upon the Bank except as expressly set forth in a writing duly signed and delivered on behalf of the Bank.

14.           Obligations Under Guaranty.  No action of the Bank permitted hereunder shall in any way affect or impair the rights of the Bank or the obligations of the Guarantor under this Guaranty.  The obligations of the Guarantor under this Guaranty shall be absolute and unconditional irrespective of any circumstance whatsoever which might constitute a legal or equitable discharge or defense of the Borrower or the Guarantor.  The Guarantor hereby acknowledges that there are no conditions to the effectiveness of this Guaranty.

15.           Successors.  This Guaranty shall be binding upon the parties, and upon the successors and assigns of the parties.

16.           Governing Law.  THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS GUARANTY 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.  Wherever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty.

17.             Consent to Jurisdiction.  AT THE OPTION OF THE BANK, THIS GUARANTY MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN MINNEAPOLIS OR ST. PAUL, MINNESOTA; AND GUARANTOR CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. 

9

IN THE EVENT GUARANTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS GUARANTY, 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.

18.           WAIVER OF JURY TRIAL.  GUARANTOR 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 GUARANTY 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 GUARANTY, AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

19.           Captions.  Section captions used in this Guaranty are for convenience only, and shall not affect the construction of this Guaranty.

20.Recitals.  The recitals to this Guaranty are incorporated herein by reference.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

10

IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the date first above written.

GUARANTOR:
CELLU TISSUE HOLDINGS, INC.
By:	/s/ Dianne M. Scheu
Name:		Dianne M. Scheu
Its:		Senior Vice President and Chief Financial Officer
Address:
			1855 Lockeway Drive, Suite 501
			Alpharetta, GA 30004
Attention:			Chief Financial Officer
Telephone:			(678) 393-2651
Telecopier:			(678) 393-2657

BANK (solely with respect to Section 18 hereof):

ASSOCIATED BANK, NATIONAL ASSOCIATION
By:	/s/ Thomas M. Toerpe
Name:		Thomas M. Toerpe
Title:		Vice President

SIGNATURE PAGE:  CELLU TISSUE GUARANTY

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Cellu Tissue Holdings, Inc. Completes Acquisition of CityForest Corporation

Alpharetta, Ga. — March 21, 2007— Cellu Tissue Holdings, Inc. (“Cellu Tissue”) announced today that it has consummated the acquisition of CityForest Corporation (“CityForest”).  Cellu Tissue-CityForest LLC, the acquired business, is a wholly-owned subsidiary of Cellu Tissue.

CityForest is a Ladysmith, Wisconsin-based manufacturer of tissue paper parent rolls for converters that resize and convert the rolls into napkins, towels, bath tissue, specialty medical tissue, industrial wipers and facial tissue. The majority of CityForest’s sales are to converters serving the commercial (“away-from-home”) market, the consumer (“at-home”) market, as well as state and federal government agencies and the medical industry.  CityForest is solely focused on manufacturing tissue hard rolls and does not currently convert rolls into finished products.

Cellu Tissue manufactures and markets a variety of specialty tissue hard rolls and machine-glazed paper used in the manufacture of various end products, including diapers, facial and bath tissue, assorted paper towels and food wraps. In addition, Cellu Tissue produces a variety of converted tissue products. Cellu Tissue’s customers include major North American producers of branded and unbranded disposable consumer absorbent and tissue products for the personal and health care markets; consumer and away-from-home tissue products companies; national and regional tissue products distributors; and third-party converters who sell their products to food, bakery and confections companies. Cellu Tissue services a diverse group of high-quality customers, with three of its top 10 customers belonging to the Fortune 150 group of companies.

The statements contained in this release that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended including statements regarding the expected timing, completion and effects of the proposed acquisition.  Readers are cautioned not to place undue reliance on these forward-looking statements and any such forward-looking statements are qualified in their entirety by reference to the following cautionary statements. All forward-looking statements included in this document are based upon information available to Cellu Tissue as of the date hereof, and Cellu Tissue assumes no obligation to update any such forward-looking statement. Cellu Tissue cautions you that any forward looking information is based on current expectations and involve a number of assumptions, risks and uncertainties that could cause the actual results to differ materially from such forward-looking statements. Factors that may affect the business or financial results of Cellu Tissue are described in Cellu Tissue’s filings with the SEC, including in its annual report on Form 10-K for the fiscal year ended February 28, 2006.

* * * * *