10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

       (Mark One)

S

       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

£

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 1-13923

WAUSAU PAPER CORP.

(Exact name of registrant as specified in charter)

       100 Paper Place

         Wisconsin

Mosinee, Wisconsin 54455

(State of incorporation)

     (Address of principal executive office)

         39-0690900

 (I.R.S. Employer Identification Number)

Registrant’s telephone number, including area code: 715-693-4470

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

     Common stock, no par value

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  £  No  S

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes  £  No  S

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days.

Yes  S

No  £

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  S

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  £

Accelerated filer  S

Non-accelerated filer  £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  £  No  S

As of June 30, 2006, the aggregate market value of the common stock shares held by non-affiliates was approximately $576,784,794.  For purposes of this calculation, the registrant has assumed its directors and executive officers are affiliates.  As of February 15, 2007, 50,746,503 shares of common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement for use in connection with 2007 annual meeting of shareholders

(to the extent noted herein): Part III

TABLE OF CONTENTS

PART I

PART II

PART III

PART IV

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Forward-Looking Statements

This Annual Report on Form 10-K includes forward-looking statements.  A cautionary statement regarding forward-looking statements is set forth under the caption “Information Concerning Forward-Looking Statements” in Item 7.  This report should be considered in light of such cautionary statement and the risk factors disclosed in Item 1A.

PART I

Item 1.  BUSINESS

General

Wausau Paper Corp. (“Wausau Paper”) manufactures, converts, and sells paper and paper products within three principal operating segments: Specialty Products, Printing & Writing, and Towel & Tissue.  All three of our business segments market their products under the Wausau Paper™ trademark. Our headquarters is located in Mosinee, Wisconsin.  At December 31, 2006, we had approximately 3,000 employees at eleven operating facilities located in seven states.

Financial Information About Segments

Information relating to our sales, a measure of operating profit or loss, and total assets by segment is set forth in Note 13 of the Notes to Consolidated Financial Statements.

Narrative Description of Business

Wausau Paper competes in different markets within the paper industry.  Each of our business segments serves distinct market niches.  The various markets for our products are highly competitive, with competition based on service, quality, and price.

Wausau Paper’s eleven operating facilities are organized into the three business segments as described below.

Effective January 1, 2007, for tax and administrative purposes, we reorganized the various subsidiaries which comprised our operating segments.  Each segment is now organized as a single member limited liability company and operates as a direct subsidiary of Wausau Paper.

Specialty Products

Specialty Products produces a wide variety of technical specialty papers at three facilities located in Rhinelander, Wisconsin; Mosinee, Wisconsin; and Jay, Maine. The markets for technical specialty papers are diverse and highly fragmented.  Specialty Products’ market position varies by product, but it is a leading producer of supercalendered backing papers used as a base from which “peel-and-stick” pressure sensitive labels are dispensed. These backing papers are designed for high-speed labeling machines, which apply labels on consumer products such as shampoo and deodorant.  Specialty Products is also North America’s largest producer of

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unsaturated masking tape base paper used in the production of masking tape. Other products include a broad range of food, medical, and industrial papers used in a variety of applications including grease-resistant protective barrier paper for food packaging, lightweight paper for sterilized medical packaging, interleaver paper used in steel processing and to protect polished steel after production, siliconized release papers used in pressure sensitive tapes, labels and composites, and coating and laminating base papers used in composite can construction.

Specialty Products’ papers are sold to manufacturers and converters, primarily in the United States, that serve a host of industries including consumer products, food service, product identification, medical packaging, and manufacturing. Under the Wausau Paper™ trademark, products are marketed under a variety of brands including ExperTec®, DuraTec™, InvenTec®, ProGard®, ProRedi®, ProPly®, and ProTec®.

Primary competition for Specialty Products comes from approximately 12 paper producing companies of which our principal competitors include Packaging Dynamics Corporation, Longview Fibre Company, Stora Enso, Boise Cascade, LLC, and Fraser Paper, Inc.

Specialty Products also operates converting facilities in Columbus, Wisconsin, and Jackson, Mississippi, which produce moisture-barrier laminated roll wrap used to protect rolls of paper during storage and shipment, and related specialty finishing and packaging products such as custom coating, laminating, and converting.  These products are sold to manufacturers and converters who serve multiple industries including paper, industrial packaging, and corrugated containers.  Specialty Products’ moisture-barrier laminated roll wrap sales are estimated to be approximately 44% of the North American roll wrap market.  The converting facilities also produce consumer products including fabric softener sheets that are sold through retail merchandisers.

Primary competition in roll wrap comes from approximately 4 other wax and poly laminators and includes Cascades/Sonoco, Inc. and Ludlow Coated Products.

Printing & Writing

Printing & Writing produces and converts fine printing and writing paper products in four facilities.  At facilities in Appleton and Brokaw, Wisconsin; Groveton, New Hampshire; and Brainerd, Minnesota, Printing & Writing manufactures and converts a broad line of premium uncoated printing, writing, imaging, text, cover; and board grades, in various weights, colors, sizes, and finishes.  Approximately 42% of the fine printing and writing papers we produce are colored papers.  Distribution warehouses are currently maintained in Appleton and Brokaw, Wisconsin; Groveton, New Hampshire; Dallas, Texas; and Los Angeles, California.

Under the Wausau Paper™ trademark, products are marketed under a variety of brands, including Astrobrights®, Astropaque®, Royal, Exact®, Professional Series™, and Creative Collection™.  These papers are used for printed and photocopied documents such as flyers, annual reports, brochures, announcements, and greeting cards.  Approximately 73% of Printing & Writing’s products are sold in sheet form to paper distributors, who sell to commercial printers, in-plant print shops, quick printers, and copy centers and to office supply and mass

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merchandisers to reach consumers.  Products are also sold in roll form to converters that serve, as an example, the greeting card, envelope, and announcement industry.  The segment’s fine printing and writing sales are estimated to be approximately 3% of the total uncoated free-sheet market although greater share is held in certain segments of this market.  

Competition in printing and writing grades comes from major integrated paper companies as well as smaller, privately held non-integrated companies.  We estimate that the number of principal competitors in the printing and writing grade papers portion of the uncoated free-sheet market is approximately 10 of which our principal competition includes International Paper Company, Domtar, Inc., Weyerhaeuser Company, Fox River Paper Company, LLC, Neenah Paper, Inc., Mohawk Fine Papers, Inc., and Finch Paper.

Towel & Tissue

Towel & Tissue produces a broad line of paper towel and tissue products which are marketed along with soap and dispensing system products for the industrial and commercial “away-from-home” market.  

Under the Wausau Paper™ trademark, Bay West® towel and tissue products, made primarily from recycled material, are marketed under a number of brands including DublSoft®, EcoSoft™, OptiCore®, Revolution®, and Dubl-Tough®.  These products include washroom roll and folded towels, tissue products, a variety of towel, tissue, and soap dispensers, windshield folded towels, industrial wipers, dairy towels, household roll towels, and other premium towel and tissue products.  Products are sold to paper and sanitary supply distributors in North America that serve factories and other commercial and industrial locations, health service facilities, office buildings, restaurants, theme parks, airports, and hotels.  Towel & Tissue operates a paper mill located in Middletown, Ohio and a converting facility and its main distribution warehouse are located in Harrodsburg, Kentucky.  In addition, Towel & Tiss ue currently maintains a distribution warehouse in Los Angeles, California.

Competition comes from major integrated paper companies and smaller converters which service consumer and food service markets as well as the industrial and institutional markets concentrated on by Towel & Tissue.  Our major competitors include Georgia-Pacific Corporation, Kimberly Clark Corporation, and SCA Hygiene Products.

Export Sales

Currently, foreign sales represent approximately 7 percent of Wausau Paper’s consolidated net sales, with sales to Canada representing 6 percent of consolidated net sales. Refer to Note 13 of the Notes to Consolidated Financial Statements for our geographic data.

In January 2002, the Appellate Body of the World Trade Organization (“WTO”) held that the United States extraterritorial income exclusion (“ETI”) was a prohibited export subsidy similar to the benefits derived from a foreign sales corporation.  The United States enacted legislation in October 2004 which addressed the European Union’s objections regarding the ETI regime.  The American Jobs Creation Act of 2004 included the repeal of ETI and provided a deduction with

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respect to income of certain United States manufacturing activity in 2005.  The ETI regime repeal was intended to be fully effective in 2007.  For transactions prior to 2005, we retained 100 percent of the ETI benefit.  For transactions in 2005 and a portion of 2006, the ETI benefit was available, but at a reduced rate of 80 percent and 60 percent, respectively.  During February 2006, the WTO appellate panel ruled that because the American Jobs Creation Act of 2004 allowed for a gradual phaseout of ETI, the United States is still in breach of the WTO rules.  In May 2006, the United States enacted legislation repealing the ETI binding contract transition rule.  The enactment of the legislation did not have a financial impact on Wausau Paper.

Raw Materials

Pulp is the basic raw material for paper production and represents approximately one-half of the total raw material cost of making paper.  The Mosinee mill within the Specialty Products business segment is our only facility with a pulp producing operation. During 2006, the Mosinee pulp mill provided a percentage of the fiber needs to our Wisconsin paper operations as follows:  Mosinee, 60% and Rhinelander, 5%. The balance of our pulp needs at the Mosinee and Rhinelander mills and all of the pulp used at our other facilities (an aggregate of approximately 520,000 air-dried metric tons in 2006) was purchased on the open market, principally from pulp mills throughout the United States and Canada.  We have purchased, and may, from time to time in the future, purchase pulp futures contracts as a hedge against significant future increases in the market price of pulp.

In 2006 wood fiber that is required for operation of our pulp mill was purchased on the open market in the form of pulpwood and chips from independent contractors.  In addition, approximately 7% of the timber consumed in pulping operations was produced from Wausau Paper-owned timberlands.  Open-market pulpwood was purchased from approximately 200 independent loggers at market prices under contracts that typically provide for the delivery of a specified amount of wood and are entered into on a quarterly basis.  Open-market chips were also purchased from independent sawmills.  

Recycled, de-inked fiber with a high content of post-consumer waste is purchased from domestic suppliers as part of the fiber requirements for Printing & Writing’s recycled products. Recycled fiber is in adequate supply and readily obtainable.  Additionally, Towel & Tissue fulfills substantially all of its de-inked fiber needs from 100% recycled wastepaper which is readily available from domestic suppliers.  Approximately 140,000 standard tons of wastepaper is consumed annually to produce approximately 60% of our parent roll requirements.  The balance of our parent roll supply needs is purchased from outside sources at then current market prices.

Various chemicals are used in the pulping and papermaking processes.  These industrial chemicals are available from a number of suppliers and are purchased at current market prices.

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Energy

Wausau Paper’s paper mills consume significant amounts of electrical and steam energy which are adequately supplied by public utilities or generated at Wausau Paper operated facilities.  We generate approximately 33% of our electrical power needs from spent pulping liquor, fuel oil, coal, wood chips, fiber cake, natural gas, and hydropower.  Spent pulping liquor, wood chips, and fiber cake are byproducts of mill operations.  We continue to explore alternative power sources as an ongoing business practice and are party to an operating lease for a co-generation electrical power facility for our Groveton mill.  

Wausau Paper contracts for the supply and delivery of natural gas at some of our facilities.  Under these contracts, we are committed to the transportation of a fixed volume of natural gas from our natural gas suppliers to our facilities. We are not required to buy or sell minimum gas volumes under the agreement, but are required to pay a minimum transportation fee for the contracted period.  Contracts expire at various times between 2007 and 2019.  At December 31, 2006, we also have volume commitments for the supply of fuel oil, natural gas, paper, and certain raw materials.  These obligations expire between 2007 and 2012. Wausau Paper may also purchase, from time to time, natural gas contracts with fixed prices for a certain portion of our facility requirements.  

Patents and Trademarks

Wausau Paper develops and files trademarks and patents, as appropriate.  Trademarks include Wausau Paper™, ProPly®, ExperTec®, DuraTec™, InvenTec®, ProGard®, ProRedi®, ProTec®, Astrobrights®, Astropaque®, Exact®, Bay West®, EcoSoft™, DublSoft®, OptiCore®, Revolution®, and Wave ’N Dry®, among others.  Our patents cover various paper towel and tissue dispensers, metering or other mechanisms for towel and tissue dispensers and cabinets, and certain silicone release papers.  We consider our trademarks and patents, in the aggregate, to be material to our business, although we believe the loss of any one such mark or patent right would not have a material adverse effect on our business.  We do not own or hold material licenses, franchises, or concessions.

Seasonal Nature of Business

The markets for some of the grades of paper produced by Wausau Paper tend to be somewhat seasonal.  However, the marketing seasons for these grades are not necessarily the same.  Overall, we generally experience lower sales in the first quarter, in comparison to the rest of the year, primarily due to reduced business activity for many customers following the year-end holiday season.

Working Capital

As is customary in the paper industry, Wausau Paper carries adequate amounts of raw materials and finished goods inventory to facilitate the manufacture and rapid delivery of paper products to our customers.  

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Major Customers

No single customer accounted for 10% or more of our consolidated net sales during 2006.  On a segment basis, two customers accounted for approximately 25% of our Printing & Writing business net sales and one customer accounted for approximately 15% of our Towel & Tissue net sales while no single customer in Specialty Products’ business segment comprised 10 % or more of the respective segment net sales.

Backlog

Consolidated order backlogs at December 31, 2006 increased to approximately 48,300 tons representing $59.9 million in sales compared to 42,500 tons, or $52.1 million of sales at December 31, 2005 and 35,100 tons, or $42.0 million in sales at December 31, 2004. The change in customer order backlog at December 31, 2006 compared to December 31, 2005 does not necessarily indicate a change in business conditions, as a large portion of orders is shipped directly from inventory upon receipt and does not impact backlog numbers.  A backlog of unmade customer orders is monitored to optimize paper machine production.  The majority of our customer orders are filled within 15 days of receipt.  The entire backlog at December 31, 2006 is expected to be shipped during fiscal 2007. Information on backlogs by business segment is included in Item 7 of this report.

Research and Development

Research and development projects for the last three fiscal years primarily involved development of a variety of new release liners for Specialty Products’ line of “peel-and-stick” liner papers, food-packaging/food-service papers and the development of new color and writing grades at Printing & Writing.  Expenditures for product development were $2.1 million, $1.9 million, and $1.9 million in 2006, 2005, and 2004, respectively.

Environment

Wausau Paper is subject to extensive regulation by various federal, state, provincial, and local agencies concerning compliance with environmental control statutes and regulations.  These regulations impose limitations, including effluent and emission limitations, on the discharge of materials into the environment, as well as require us to obtain and operate in compliance with conditions of permits and other governmental authorizations.  Future regulations could materially increase our capital requirements and certain operating expenses in future years.

Wausau Paper has a strong commitment to protecting the environment.  Like our competitors in the paper industry, we face increasing capital investments and operating expenses to comply with expanding and more stringent environmental regulations.  We estimate that our capital expenditures for environmental purposes will approximate $4.0 million in 2007.  

We believe that capital expenditures associated with compliance with environmental regulations will not have a material adverse effect on our competitive position, consolidated financial condition, liquidity, or results of operations.

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Wausau Paper is not involved in any proceedings under the Comprehensive Environmental Response, Compensation and Liability Act.  In 1986, the Wisconsin Department of Natural Resources (“DNR”) notified a subsidiary of Wausau Paper that under Wisconsin environmental laws we may be a potentially responsible party (“PRP”) for the Gorski landfill in Mosinee, Wisconsin, and nominated the landfill to the Environmental Protection Agency’s (“EPA”) National Priorities List.  The DNR had identified elevated concentrations of chlorinated volatile organic compounds in three private water supply wells located in close proximity to the landfill.  The DNR has identified 10 PRPs.  No action was taken by either the DNR or the EPA until June 2000, when the DNR requested certain parties who had disposed of waste at the site to form an ad hoc group to cooperatively investigate the environmental contamination at the site.  In October 2001, we entered into an agreement with three other parties to fund a study of the landfill to determine possible remediation strategies.  We worked with the DNR on the development of the study and work plan which was initiated in early 2003.  A report based upon the study was submitted to the DNR in 2004. In early 2006, the DNR responded to the study and requested the ad hoc group focus on water replacement for the two remaining impacted wells.  The ad hoc group prepared and submitted a water replacement plan to the DNR, which the DNR subsequently approved.  The water replacement plan is expected to be implemented in early 2007.  We estimate that the costs of remediation of the entire site for all parties will be approximately $1.5 million, based upon the remediation method our consultants believe to be the most likely to be used.  This estimate is preliminary.  Actual costs of remediation of the site could be materially differe nt since no timetable or decision on the actual remediation work has yet been developed.  Our share of the cost of such remediation cannot be determined with certainty at this time, but based on the estimated costs at year-end and the number and nature of other PRPs, we are of the opinion that such costs will not have a material adverse effect on the consolidated financial condition, liquidity, or results of operations of Wausau Paper.  We are also pursuing insurance coverage of our remediation costs following a 2003 Wisconsin Supreme Court decision in an unrelated case that remediation claims may amount to damages for purposes of general liability insurance.

Note 10 of the Notes to Consolidated Financial Statements discusses our policies with respect to the accrual of remediation costs.  Estimates of costs for future remediation are necessarily imprecise due to, among other things, the identification of presently unknown remediation sites and the allocation of costs among PRPs.  We believe that our share of the costs of cleanup for our current remediation site will not have a material adverse impact on our consolidated financial position.  As is the case with most manufacturing and many other entities, there can be no assurance that we will not be named as a PRP at additional sites in the future or that the costs associated with such additional sites would not be material.

Employees

Wausau Paper had approximately 3,000 employees at the end of 2006.  Most hourly mill employees are covered under collective bargaining agreements.  A new three-year labor agreement was negotiated with United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Services Workers International Union Local 2-15 and Local 2-1778 at Specialty Products’ Rhinelander, Wisconsin facility in 2006.  The labor contract at our Printing & Writing’s Brokaw, Wisconsin facility expired on May 31, 2006 and is in the process

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of being negotiated. Labor agreements will expire at other facilities in 2007, 2008, and 2009.  We maintain good labor relations at all facilities and expect that new multi-year contracts will be negotiated at competitive rates.

Executive Officers of the Company

The following information relates to executive officers of Wausau Paper as of March 16, 2007.  Unless otherwise specified, current positions listed for an executive officer have been held for a minimum of five years.

San W. Orr, Jr., 65

Chairman of the Board of the Company and Advisor, Estates of A. P. Woodson and family; Chief Executive Officer of the Company (2000; 1994-1995; 1989-1990); formerly Chairman of the Board (1987-1997) and a Director (1972-1997) of Mosinee Paper Corporation; also a Director of Marshall & Ilsley Corporation.

Thomas J. Howatt, 57

President and Chief Executive Officer. Previously, Senior Vice President, Printing & Writing (1997-2000), Vice President and General Manager, Printing & Writing Division (1994-1997), Vice President and General Manager, Wausau Papers of New Hampshire (1993-1994), Vice President Operations, Brokaw Division (1990-1993), and prior thereto, Vice President, Administration, Brokaw Division.

Stuart R. Carlson, 60

Executive Vice President, Administration. Previously, Senior Vice President, Specialty Paper Group (1997-2000), and Senior Vice President -Administration (1993-1996), and Vice President Human Resources (1991-1993) of Mosinee Paper Corporation.  Also Director of Human Resources, Georgia Pacific, Inc. (1990-1991) and Corporate Director of Industrial Relations, Great Northern Nekoosa Corporation (1989-1990).

Albert K. Davis, 59

Executive Vice President, Specialty Products. Previously, Vice President of Operations (1996-2000), Vice President of Engineering (1990-1996), and Director of Engineering (1983-1990), Rhinelander Paper Company, Inc.

Pete R. Chiericozzi, 63

Senior Vice President, Towel & Tissue since September, 2003.  Previously, Consultant, Self-employed (2002), Vice President, Sales and Marketing, SCA Tissue (2001), Executive Vice President, Sales and Marketing, Georgia-Pacific Tissue (2000), Executive Vice-President, Wisconsin Tissue (Division of Chesapeake Corporation) (1999).

Daniel R. Trettin, 57

Senior Vice President, Printing & Writing since October, 2006.  Previously, Vice President, Technology (2005-2006), Vice President, Naheola Operations (2002-2005), Vice President, Manufacturing (2001-2002), Vice President, Wisconsin Operations (1997 -2001), and General Manger, Port Edwards Operations (1993-1997), Georgia-Pacific.

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Scott P. Doescher, 47

Senior Vice President, Finance, Secretary and Treasurer.  Previously, Vice President, Finance, Printing & Writing Group (1998-2001), Director of Finance, Printing & Writing Division (1992-1998) and Corporate Director Financial Analysis and Internal Audit and Assistant Secretary/Treasurer (1988-1992).

Dennis M. Urbanek, 62

Senior Vice President, Engineering and Environmental Services. Previously, Vice President, Engineering and Environmental Services (1996-1997) of Mosinee Paper Corporation, Vice President and General Manager of Mosinee’s Pulp & Paper Division (1992-1996), and Vice President and General Manager, Sorg Paper Company (1990-1992).

Available Information

Information regarding our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports, are available, free of charge, on our website by going to “Investor Information – SEC Filings” at www.wausaupaper.com. These reports are available as soon as reasonably practicable after we electronically file such reports with or furnish them to the Securities and Exchange Commission (“SEC”).

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Item 1A.  RISK FACTORS

An investment in Wausau Paper stock involves risk.  You should carefully consider the following risk factors and the other information contained in this Annual Report on Form 10-K and in other reports that we file from time to time with the SEC.  Our business, financial condition and results of operations could be harmed if any of the following risks occur.  In that case, the trading price of our common stock may decline.  In addition to the following risk factors, you should carefully review the cautionary statement made under “Information Concerning Forward-Looking Statements” in Item 7.

The segments of the paper industry in which we operate are highly competitive and increased competition could reduce our sales and profitability.

We compete in different markets within the paper industry on the basis of the quality of our products, customer service, product development activities, price, and distribution.  All of our markets are highly competitive.  Our competitors vary in size, and many have greater financial and marketing resources than we do.  In some of our markets, the industry’s capacity to make products exceeds current demand levels.  Competitive conditions in some of our segments have caused us to incur lower net selling prices and reduced gross margins and net earnings.  These conditions may continue indefinitely.  See Item 1 of this report for information regarding the number and identities of our competitors in our operating segments.  See Item 7 concerning recent competitive conditions in the markets we serve.

As a producer of specialty papers, we target markets in which our relative size, equipment and product development capabilities, and customer service emphasis provide us a competitive advantage.  We work to limit our exposure to commodity products where larger competitors with more efficient equipment generally have production cost advantages.  Recent improvements in some commodity products have narrowed the quality differential between these products and our specialty products.  Changes of this nature could further “commoditize” and reduce the size of our target markets.

Changes within the paper industry may adversely affect our financial performance.

Changes in the identity, ownership structure, and strategic goals of our competitors and the emergence of new competitors in our target markets may harm our financial performance.  New competitors may include foreign-based companies and commodity-based domestic producers who could enter our specialty markets if they are unable to compete in their traditional markets.  The paper industry has also experienced consolidation of producers and distribution channels.  Further consolidation could unite other producers with distribution channels through which we currently sell, limiting access to our target markets.  

Our business and financial performance may be adversely affected by downturns in the target markets that we serve or reduced demand for the types of products we sell.

Demand for our products is often affected by general economic conditions as well as product-use trends in our target markets.  These changes may result in decreased demand for our products.  

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For example, our “away-from-home” towel and tissue business usually declines during periods of economic slowdowns as business and recreational travel is curtailed.  Also, demand for uncoated freesheet papers, the broad market category in which Printing & Writing competes, has declined in five of the last seven years due to such factors as general economic conditions, office employment trends and the increased use of electronic communications.  There may be periods during which demand for our products is insufficient to enable us to operate our production facilities in an economical manner.  The occurrence of these conditions is beyond our ability to control and, when they occur, they may have a significant impact on our sales and results of operations.

The cost of raw materials and energy used to manufacture our products could increase.  

Raw materials comprise approximately 55% of our cost of sales, with market pulp, purchased parent rolls, and wastepaper accounting for more than one-half of this total.  Raw material prices will change based on supply and demand on a worldwide spectrum.  Pulp price changes can occur due to worldwide consumption levels of pulp, pulp production capacity, expansions or curtailments, inventory building or depletion, and pulp producer cost changes related to wood availability, environmental issues, or other variables.

We generate approximately 33% of our energy needs.  Energy costs may fluctuate significantly due to increased worldwide consumption levels, disruptions in supply due to natural catastrophes or political turmoil, or decreased production capacity.

We may not be able to pass increased cost for raw materials or energy to our customers if the market or existing agreements with our customers do not allow us to raise the prices of our finished products.  Even if we are able to pass through increased cost of raw materials or energy, the resulting increase in the selling prices for our products could reduce the volume of products we sell and decrease our revenues.  While we may try, from time to time, to hedge against price increases, we may not be successful in doing so.

We currently purchase approximately 40%, or more than 80,000 tons per year, of our towel and tissue parent roll needs from other producers in the paper industry.  A disruption in supply of these parent rolls could have an adverse affect on our ability to meet demand for our products and a significant increase in the cost of these parent rolls could unfavorably impact profitability.

The failure to develop new products could reduce the overall demand for our products and our net income.

We have a goal of generating at least 25% of our annual revenue from products introduced within the previous three years.  Our sales volume and net earnings may decrease if we do not satisfy new customer product preferences or fail to meet new technology demands of our customers.

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If we fail to maintain satisfactory relationships with our larger customers, our business may be harmed.

We do not have long-term, fixed quantity supply agreements with our customers.  Due to competition or other factors we may lose business from our customers, either partially or completely.  The loss of one or more of our significant customers, or a substantial reduction of orders by any of our significant customers, could harm our business and results of operations.  Moreover, our customers may vary their order levels significantly from period to period, and customers may not continue to place orders with us in the future at the same levels as in prior periods.  In the event we lose any of our larger customers, we may not be able to replace that revenue source, which could harm our financial results.

We may be unable to maintain our relationships with organized labor unions.

The majority of our hourly production workforce is represented by labor unions.  While we believe we enjoy satisfactory relationships with all of the labor organizations that represent our employees, we cannot guarantee that labor-related disputes will not arise.  Labor disputes could result in disruptions in production and could also cause increases in production costs, which could damage our relationships with our customers and adversely affect our business and financial results.

The costs of complying with environmental regulations may increase substantially and adversely affect our consolidated financial condition, liquidity, or results of operations.  

We are subject to various environmental laws and regulations that govern discharges into the environment and the handling and disposal of hazardous substances and wastes.  Environmental laws impose liability and clean-up responsibility for releases of hazardous substances into the environment.  We will continue to incur substantial capital and operating expenses in order to comply with current law.  Any changes in these laws or their interpretation by government agencies or the courts may significantly increase our capital expenditures and operating expenses and decrease the amount of funds available for investment in other areas of operation.  In addition, we may be required to eliminate or mitigate any adverse effects on the environment caused by the release of hazardous materials, whether or not we had knowledge of, or were responsible for, such release.  We may also incur liability for personal injury and property damages as a result of discharges into the environment.  The costs of remediation of known environmental sites, such as described in Note 10 of the Notes to Consolidated Financial Statements, may exceed current estimates and there may be additional sites not now known to us that may require significant remediation expenses in the future.  If costs or liabilities related to environmental compliance increase significantly, our consolidated financial condition, liquidity, or results of operations may be adversely affected.

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We may be unable to generate sufficient cash flow to simultaneously fund our operations, finance capital expenditures, satisfy other obligations, and make dividend payments on our common stock.

Our business is capital intensive and requires significant expenditures for equipment maintenance and new or enhanced equipment for environmental compliance matters, and to support our business strategies.  We expect to meet all of our near- and longer-term cash needs from a combination of operating cash flow, cash and cash equivalents, sale of timberlands, our existing credit facility or other bank lines of credit, and other long-term debt.  If we are unable to generate sufficient cash flow from these sources or if we are unable to secure needed credit, we could be unable to meet our near- and longer-term cash needs or make dividend payments.

If we have a catastrophic loss or unforeseen or recurring operational problems at any of our facilities, we could suffer significant lost production and/or cost increases.

Our paper making and converting facilities and distribution warehouses may suffer catastrophic loss due to fire, flood, terrorism, mechanical failure, or other natural or man-made events.  If any of these facilities were to experience a catastrophic loss, it could disrupt our operations, delay production, delay or reduce shipments, reduce revenue, and result in significant expenses to repair or replace the facility.  These expenses and losses may not be adequately covered by property or business interruption insurance.  Even if covered by insurance, our inability to deliver our products to customers, even on a short-term basis, may cause us to lose market share on a more permanent basis.  

Our acquisitions, facility closings, or other structural changes may result in financial results that are different than expected.

In the normal course of business, we frequently engage in discussions with third parties relating to the possible acquisition of additional facilities and may consider, from time to time, the acquisition of another business.  We also continually review and may implement structural changes designed to improve our operations or to reflect anticipated changes in long-term market conditions.  As a result of recent or similar future transactions, our financial results may differ from the investment community’s expectations in a given quarter, or over the long term.  We may have difficulty integrating the acquisition of a newly acquired company in a way that enhances the performance of our combined businesses or product lines to realize the value from expected synergies.  We may also have difficulty integrating a new manufacturing facility into current operations.  These difficulties can arise for a variety of reasons, including, the size and complexity of the acquisition, the retention of key employees, the retention of key customers, and the ability to integrate manufacturing systems and transfer our corporate culture to new employees and facilities.  If we do not realize the expected benefits or synergies of such transactions, our consolidated financial position, liquidity, and results of operations could be negatively impacted.

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If we incur a material weakness in our internal control over financial reporting, it could have a material adverse effect on our business, operating results, and stock price.

Section 404 of the Sarbanes-Oxley Act of 2002 and related rules and regulations promulgated by the SEC (collectively, “Section 404”) require us to assess and report on our internal control over financial reporting as of the end of each fiscal year.  In our report under Section 404 which is included in Item 8 of this report, we have concluded that our internal control over financial reporting is effective.  Our auditors have concurred on that assessment.  

If we should develop a material weakness in our control over financial reporting, it could have a material adverse effect on the company.  A material weakness is a control deficiency, or a combination of control deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by management or employees in the normal course of performing their assigned functions.  If a material weakness occurs, it could adversely affect our financial reporting process and our financial statements.  If we fail to maintain an effective internal control environment it could have a material adverse effect on our business, operating results, and our stock price.

Future changes in financial accounting standards may adversely affect our reported results of operations.

A change in financial accounting standards can have a significant effect on our reported results.  New accounting pronouncements may adversely affect our reported financial results in the future or require us to restate results we have already reported.  New financial accounting standards or interpretations may require us to recognize additional expenses in the future or change the manner in which amounts currently recognized are determined.  Such additional expense recognition may result in lower reported net earnings or increased balance sheet liabilities, either of which may reduce the market price of our common stock or affect our compliance with various covenants relating to our indebtedness.

We may incur significant, unexpected liabilities from current or future claims, including matters now threatened or in litigation.

We deal with claims which are threatened or made by third parties in the normal course of our business.  Some claims result in formal administrative or legal proceedings in which the amounts claimed are significant.  We assess each claim and make a judgment whether the claim will have a material adverse effect on our consolidated financial condition, liquidity, or results of operations.  Claims which we believe could have material adverse effect if not resolved in our favor, or other claims which we believe to be significant, are discussed in Item 3 of this report and in Note 10 of the Notes to Consolidated Financial Statements for the most recent fiscal year which are included in Item 8 of this report.  Our reports do not disclose or discuss all claims of which we are aware.  Our assessment of the materiality of any claim is based upon the amount involved, the underlying facts, and our assessment of the likelihood of a material adverse outcome.  If our assessment of a claim as immaterial is not correct, we may not have made

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adequate provision for such loss and our consolidated financial condition, liquidity, or results of operations could be harmed.

We may become involved in claims concerning intellectual property rights, and we could suffer significant litigation or related expenses in defending our own intellectual property rights or defending claims that we infringed the rights of others.

None of our trademarks or patents is, in itself, considered to be material to our business.  However, taken together, we consider our intellectual property to be a material asset.  We may lose market share and suffer a decline in our revenue and net earnings if we cannot successfully defend one or more trademarks or patents.

We do not believe that any of our products infringe the valid intellectual property rights of third parties.  However, we may be unaware of intellectual property rights of others that may cover some of our products or services.  In that event, we may be subject to significant claims for damages.

Any litigation regarding patents or other intellectual property could be costly and time-consuming and could divert our management and key personnel from our business operations. Claims of intellectual property infringement might also require us to enter into license agreements, which would reduce our operating margins, or in some cases, we may not be able to obtain license agreements on terms acceptable to us.  

Some anti-takeover provisions in our articles of incorporation and bylaws, as well as provisions of Wisconsin law, could impair a takeover attempt.

Our articles of incorporation and bylaws, and our shareholders rights plan, could have the effect of rendering more difficult or discouraging an acquisition of Wausau Paper that is deemed undesirable by our board of directors.  These include provisions that:  

·

permit our board of directors to issue one or more series of preferred stock with rights and preferences designated by our board, including stock with voting, liquidation, dividend, and other rights superior to our common stock;

·

impose advance notice requirements for shareholder proposals and nominations of directors to be considered at shareholder meetings;

·

divide our board of directors into three classes of directors serving staggered terms;

·

allow the board of directors to fill any vacancies on our board;

·

under our articles of incorporation, prohibit us from entering into a “business combination” transaction with any person who acquires 10% of our voting stock at any time (an “interested 10% shareholder”) unless certain “fair price” requirements are met or, in the alternative, either (a) two-thirds of the shares entitled to vote which are not held

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by the interested shareholder are voted for the transaction, or (b) the board of directors has approved the transaction;

·

under Wisconsin law, require that two-thirds of our voting stock must vote to approve any merger with another corporation, a share exchange, or the sale of substantially all of our assets;

·

under Wisconsin law, prohibit us from entering into a “business combination” transaction with an interested 10% shareholder for a period of three years from the date such person makes such an acquisition unless our board of directors had approved the business combination or the acquisition of shares before the date of the acquisition;

·

under Wisconsin law, prohibit us from entering into a “business combination” transaction with an interested 10% shareholder at any time after a period of three years from the date of becoming an interested 10% shareholder unless our board of directors had approved the acquisition of shares before the date of the acquisition, the business combination meets certain “fair price” requirements, or the business combination is approved by a majority of the shares entitled to vote which are not beneficially owned by the interested 10% shareholder;

·

under Wisconsin law, reduce the voting power of any shares held by a shareholder who holds in excess of 20% of the shares outstanding to 10% of the full voting power of the excess shares;

·

require a vote by the holders of four-fifths of our outstanding shares to amend the provisions of our articles or bylaws described above; and

·

require that, in many potential takeover situations, rights issued under our shareholder rights plan become exercisable to purchase our common stock and potentially other securities at a price substantially discounted from the then applicable market price.

These provisions and similar provisions that could apply to us in the future may discourage potential takeover attempts, discourage bids for our common stock at a premium over market price, or otherwise adversely affect the market price of, and the voting and other rights of the holders of, our common stock.  Such provisions could also discourage proxy contests and make it more difficult for shareholders to elect directors other than the candidates nominated by our board of directors.

Item 1B.  UNRESOLVED STAFF COMMENTS

Not applicable

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Item 2.  PROPERTIES

Wausau Paper’s headquarters are located in Mosinee, Wisconsin.  Executive officers and corporate staff who perform corporate accounting, financial, and human resource services are located in the corporate headquarters, as are certain business segment personnel.  Our operating facilities consist of the following:

		Number of
		Paper	Practical	2006
Facility	Product	Machines	Capacity* (tons)	Actual (tons)
Specialty Products
Rhinelander, WI	Paper	4	152,000	146,700
Otis, ME	Paper	2	74,000	71,800
Mosinee, WI	Paper	4	119,000	117,400
	Pulp		96,000	85,300
Columbus, WI and	Laminated/
Jackson, MS	Coated Papers	N/A	150,000	56,600
Printing & Writing
Brokaw, WI	Paper	4	178,000	152,000
Groveton, NH	Paper	2	115,000	108,700
Brainerd, MN	Paper	2	170,000	90,000
Appleton, WI	Converting	N/A	70,000	45,200
Towel & Tissue
Middletown, OH	Towel & Tissue	2	110,000	106,500
	Deink Pulp		110,000	105,300
Harrodsburg, KY	Converted Towel
	& Tissue	N/A	190,000	172,100

* “Practical capacity” is the amount of finished product a mill can produce with existing papermaking equipment, grade mix and workforce and usually approximates maximum, or theoretical, capacity.  At Wausau Paper’s converting operations it reflects the approximate maximum amount of product that can be made on existing equipment, but would require additional days and/or shifts of operation to achieve.

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Wausau Paper currently maintains warehouse distribution facilities in order to provide prompt delivery of its products.  The facilities are:

			Owned or
Segment	Location	Square Feet	Leased (Expiration Date)
Printing & Writing	Appleton, WI	36,000	Owned
	Brokaw, WI	174,000	Owned
	Dallas, TX	70,000*	Leased (December 2007)
	Groveton, NH	80,000	Owned
	Los Angeles, CA	85,000*	Leased (December 2007)†
Towel & Tissue	Los Angeles, CA	45,000*	Leased (December 2007)†
	Harrodsburg, KY	460,000	Owned

*

guaranteed space

†

Aggregate of approximately 130,000 square feet under one agreement which will expire in December 2007.

Specialty Products, Printing & Writing, and Towel & Tissue also lease limited space in various warehouses to facilitate deliveries to specific customers.

Wausau Paper owns approximately 106,000 acres of timberland in the state of Wisconsin.  The growing stock inventory on Company timberlands is an estimated 8 million board feet of saw timber and an estimated 600,000 cords of pulpwood.  During 2005, we announced our intent to sell, over the next three to four years, approximately 42,000 acres of timberlands.  During 2006 we sold approximately 14,000 acres of our timberlands resulting in an after-tax gain of $10.8 million.  Our timberland sales program is expected to continue at a pace in 2007 that will allow us to complete our sales program within the time period specified.  

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Item 3.  LEGAL PROCEEDINGS

Wausau Paper has been named as a potentially responsible party with respect to a Mosinee, Wisconsin landfill.  See “Environment” in Item 1 and Note 10 in Notes to Consolidated Financial Statements included in Item 8 of this report.  

Wausau Paper strives to maintain compliance with applicable environmental discharge regulations at all times.  However, from time to time, our operating facilities may exceed permitted levels of materials into the environment or inadvertently discharge other materials.  Such discharges may be caused by equipment malfunction, prevailing environmental conditions, or other factors.  It is our policy to report any violation of environmental regulations to the appropriate environmental authority as soon as we become aware of such an occurrence and to work with such authorities to take appropriate remediatory or corrective actions.

Wausau Paper may be involved from time to time in various other legal and administrative proceedings or subject to various claims in the normal course of its business.  Although the ultimate disposition of legal proceedings cannot be predicted with certainty, in the opinion of management, the ultimate disposition of any threatened or pending matters, either individually or on a combined basis, will not have a material adverse effect on our consolidated financial condition, liquidity, or results of operations.  See Item 1A, page 13, concerning the possible effect of unexpected liabilities from current or future claims.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of shareholders during the fourth quarter of 2006.

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PART II

Item 5.  MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market and Dividend Information

Wausau Paper common stock is traded on the New York Stock Exchange under the symbol “WPP”.  

As of the record date of the annual meeting, February 15, 2007, (the “Record Date”) there were approximately 2,600 holders of record of Wausau Paper common stock.  We estimate that as of the Record Date there were approximately 8,600 additional beneficial owners whose shares were held in street name or in other fiduciary capacities.  As of the Record Date, there were 50,746,503 shares of common stock outstanding.

The following table sets forth the range of high and low sales price information of Wausau Paper common stock and the dividends declared on the common stock, for the calendar quarters indicated.

	Market Price		Cash Dividend
Calendar Quarter	High	Low	Declared
2006
First Quarter	$14.35	$11.36	*
Second Quarter	$15.33	$11.20	$.17
Third Quarter	$13.93	$11.50	$.085
Fourth Quarter	$15.48	$13.07	$.085
2005
First Quarter	$18.13	$13.57	*
Second Quarter	$14.63	$11.16	$.17
Third Quarter	$13.23	$11.28	$.085
Fourth Quarter	$12.63	$10.08	$.085
2004
First Quarter	$14.11	$12.20	*
Second Quarter	$17.44	$13.19	$.17
Third Quarter	$17.40	$14.54	$.085
Fourth Quarter	$19.12	$15.15	$.085

*Two dividends of $.085 per share were declared in the second quarter in 2006, 2005, and 2004.

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Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities – Quarter ending December 31, 2006

				Maximum number
			Total number	(or approximate
			of shares (or	dollar value) of
	Total number		units) purchased	shares (or units)
	of shares	Average price	as part of publicly	that may yet be
	(or units)	paid per share	announced plans	purchased under the
	purchased	(or unit)	or programs	plans or programs
Period	(a)	(b)	(c)(1)	(d)(1)
October	0	0	0
November	80,000	$14.75	80,000
December	0	0	0
Quarterly Totals	80,000	$14.75	80,000	1,505,574

⁽¹⁾ Includes shares purchased under a program announced on April 20, 2000, pursuant to which the Board of Directors authorized the repurchase of up to 2,571,000 shares in open market or privately negotiated transactions (the “2000 Plan”).  No price or expiration date was specified for the program’s purchases.

Stock Available Under Compensation Plans

Information required by Item 201(d) of SEC Regulation S-K is set forth under Item 12, Part III of this report.

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Item 6.  SELECTED FINANCIAL DATA

Wausau Paper Corp. and Subsidiaries Selected Financial Data

(all amounts in thousands,
except per share data)		For the Year Ended December 31,
		2006*	2005**	2004	2003***	2002
FINANCIAL RESULTS
Net sales		$1,188,178	$1,097,093	$1,040,717	$971,444	$948,698
Depreciation, depletion, and amortization		57,913	91,554	59,965	60,823	60,624
Operating profit (loss)		39,497	(23,129)	41,724	35,278	47,422
Interest expense		11,252	10,957	10,285	10,188	10,845
Earnings (loss) before
	income taxes and cumulative
	effect of change in accounting principle	28,869	(33,590)	32,378	25,180	36,618
Net earnings (loss)		17,619	(19,465)	20,393	15,863	23,068
Cash dividends paid		17,335	17,523	17,560	17,527	17,520
Cash flows from operating activities		37,982	18,223	70,737	63,105	76,269
PER SHARE
Net earnings (loss) – basic		$         0.35	$        (0.38)	$         0.39	$      0.31	$      0.45
Net earnings (loss) – diluted		0.34	(0.38)	0.39	0.31	0.45
Cash dividends declared		0.34	0.34	0.34	0.34	0.34
Stockholders’ equity		5.38	6.03	6.91	6.80	6.91
Basic average number of shares outstanding		50,935	51,448	51,662	51,549	51,532
Price range (low and high closing)		$11.27-15.34	$10.35-17.64	$12.33-19.12	$9.45-13.58	$8.26-13.80
FINANCIAL CONDITION
Working capital		$   139,065	$   130,719	$   139,542	$136,414	$118,398
Total assets		799,114	820,513	882,234	858,100	873,757
Long-term debt		160,287	161,011	161,833	162,174	162,763
Stockholders’ equity		274,074	310,219	357,092	350,316	355,948
Capital expenditures		23,856	31,494	29,565	24,261	19,201
RATIOS
Percent net earnings (loss) to sales		1.5%	(1.8%)	2.0%	1.6%	2.4%
Percent net earnings (loss) to average
	stockholders’ equity	6.0%	(5.8%)	5.8%	4.5%	6.4%
Ratio of current assets to current liabilities		1.9 to 1	1.9 to 1	1.9 to 1	2.2 to 1	2.0 to 1
Percent of long-term debt to
	total capitalization	36.9%	34.2%	31.2%	31.6%	31.4%

*  In 2006, includes impact to accumulated other comprehensive loss of $36.6 million ($58.1 million pretax) for the adoption of Statement of Financial Accounting Standards No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Benefit Plans.”

**In 2005, includes after-tax expense of $24.2 million ($38.4 million pretax) or $0.47 per share for closure costs and restructuring expense as a result of closing the sulfite pulp mill at Printing & Writing’s Brokaw, Wisconsin facility.

***In 2003, includes after-tax income of $2.6 million ($4.2 million pretax) or $0.05 per share for a fee for licensing certain patent dispenser technologies as a result of a settlement of all claims of the parties in a patent litigation case.

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Item 7.  MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Information Concerning Forward-Looking Statements

The following discussion and analysis of our financial condition and results of operations contains forward-looking statements that involve risks, uncertainties, and assumptions.  Forward-looking statements are not guarantees of performance.  If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of Wausau Paper and our consolidated subsidiaries may differ materially from those expressed or implied by such forward-looking statements and assumptions.  All statements other than statements of historical fact are statements that could be deemed forward-looking statements.  Forward-looking statements may be identified by, among other things, beliefs or expectations that certain events may occur or are anticipated and projections or statements of expectations with respect to various aspects of our business, our plans or intentions, our stock performance, the industry within which we operate, the econ omy, and any other expressions of similar import or covering other matters relating to our business and operations.  Risks, uncertainties, and assumptions relating to our forward-looking statements include the level of competition for our products, changes in the paper industry, downturns in our target markets, adverse changes in our relationships with large customers and our labor unions, costs of compliance with environmental regulations, our ability to fund our operations, changes in the price or availability of raw materials and energy, the failure to develop new products that meet customer needs, unforeseen operating problems, changes in strategic plans or our ability to execute such plans, maintenance of adequate internal controls, changes in financial accounting standards, unforeseen liabilities arising from current or prospective claims, and the effect of certain organizational anti-takeover provisions.  These and other risks, uncertainties, and assumptions are described under the caption & #147;Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2006, and from time to time in our other filings with the Securities and Exchange Commission after the date of such annual report.  We assume no obligation, and do not intend, to update these forward-looking statements.

Critical Accounting Policies and Estimates

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported.  Actual results could differ from those estimates.  We believe the following are the accounting policies which could have the most significant effect on our reported results and require subjective or complex judgments by management.

Sales Returns and Allowances

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Wausau Paper maintains reserves for expected returns and allowances based on return practices and historical experience.  Reserves for returns and allowances may need to be adjusted if actual sales returns differ from estimates.

Allowance for Doubtful Accounts

Wausau Paper records allowances for doubtful accounts based upon customer-specific analysis and general matters such as current assessment of past-due balances.  Additional allowances for doubtful accounts may be required if there is an increase in past-due balances or for customer-specific circumstances, such as financial difficulty.  The allowance for doubtful accounts was $1.4 million and $1.7 million at December 31, 2006 and 2005, respectively.

Excess and Obsolete Inventory

Wausau Paper records allowances for excess and obsolete inventory based on historical and estimated future demand and market conditions.  Additional inventory allowances may be required if future demand or market conditions are less favorable than we have estimated.

Impairment of Long-Lived Assets

Wausau Paper evaluates the recoverability of the carrying amount of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable.  We use judgment when applying the impairment rules to determine when an impairment test is necessary.  Factors we consider which could trigger an impairment review include significant underperformance relative to historical or forecasted operating results, a significant decrease in the market value of an asset, a significant change in the extent or manner in which an asset is used, and significant negative or industry trends.

Impairment losses are measured as the amount by which the carrying value of an asset exceeds its estimated fair value.  We are required to make estimates of our future cash flows related to the asset subject to review.  These estimates require assumptions about demand for our products, future market conditions, and technological developments.  Other assumptions include determining the discount rate and future growth rates.

Income Taxes

Wausau Paper’s estimates of income taxes payable, deferred income taxes, and the effective tax rate are based on an analysis of many factors including interpretations of federal, state, and foreign income tax laws, the difference between tax and financial reporting basis of assets and liabilities, estimates of amounts currently due or owed, realization of income tax benefits in future years, and current accounting standards.  Estimates are reviewed and updated on a quarterly basis as facts and circumstances change and actual results are known.  In addition, federal and state taxing authorities periodically review our estimates and interpretations of income tax laws.  Adjustments to the effective income tax rate and recorded assets and liabilities may occur in future periods if actual results differ significantly from original estimates and interpretations.

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Pension Benefits

Defined benefit pension costs and obligations are actuarially determined and are affected by assumptions including discount rate, the expected rate of return on plan assets, and assumed annual rate of compensation increase for plan employees, among other factors.  Changes in discount rate and differences from actual and assumed asset returns as well as changes in other assumptions will affect the amount of pension expense recognized in future periods.  Additional information regarding pension benefits is available in “Note 6 – Pension and Other Post-retirement Benefit Plans” in the Notes to Consolidated Financial Statements.

Other Post-retirement Benefits

The costs and obligations for post-retirement benefits other than pension are also actuarially determined and are affected by assumptions including the discount rate and expected future increase in per capita costs of covered post-retirement health care benefits.  Changes in the discount rate and differences between actual and assumed per capita health care costs may affect the recorded amount of the expense in future periods.  Additional information regarding post-retirement benefits is available in “Note 6 – Pension and Other Post-retirement Benefit Plans” in the Notes to Consolidated Financial Statements.

Litigation, Claims, and Contingencies

Wausau Paper records environmental liabilities based on estimates for known environmental remediation exposures utilizing information received from third-party experts and our past experience with these matters.  At third-party sites where more than one potentially responsible party has been identified, we record a liability for its estimated allocable share of costs related to our involvement with the site as well as an estimated allocable share of costs related to the involvement of insolvent or unidentified parties.  Environmental liability estimates may be affected by changing determinations of what constitutes an environmental exposure or acceptable level of cleanup.  To the extent that remediation procedures change or the financial condition of other potentially responsible parties is adversely affected, the estimate of our environmental liabilities may change.

Stock-based Compensation Plans

Effective January 1, 2006, Wausau Paper adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), using the modified prospective application transition method.  The modified prospective application transition method requires that as of the effective date, compensation cost related to share-based payment transactions is recognized as an operating expense in the statement of operations over the requisite service period of the grant based on the grant-date fair value of the award.  As such, prior periods will not reflect restated amounts.  The grant-date fair value of an award is estimated using a binomial option-pricing model that incorporates assumptions based upon expectations and information available at the measurement date of the award.  These assumptions include the expected term of the award, the expected dividend yield over the expected term of the award , the risk-free interest rate over the expected term of the award, the expected volatility of the stock price over the

26

expected term of the award, and estimated forfeitures over the expected term of the award.  See “Note 1– Description of the Business and Summary of Significant Accounting Policies” and “Note 8-Stock Compensation Plans” in the Notes to Consolidated Financial Statements for additional information on the impact of this statement.

New Accounting Pronouncement

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Benefit Plans” (“SFAS 158”), which requires that we recognize in our financial statements the overfunded or underfunded status of a defined benefit post-retirement plan as an asset or liability and to recognize changes in that funded status in the year in which the changes occur through comprehensive income.  SFAS 158 also requires the measurement of the funded status of a plan as of the date of the year end financial statements, with limited exceptions, and to disclose additional information regarding certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service credits, and transition assets or obligations.  The requirement t o recognize the funded status of a defined post-retirement plan and the disclosure requirements are effective for fiscal years ending after December 15, 2006.  The requirement to measure plan assets and benefit obligations as of the date of the year end financial statements is effective for fiscal years ending after December 15, 2008.  On December 31, 2006, we adopted the recognition and disclosure provisions of SFAS 158 and recognized a charge of $36.6 million, net of income taxes, to other comprehensive income in the Consolidated Statement of Stockholders’ Equity.  See “Note 6-Pension and Other Post-retirement Benefit Plans” in the Notes to Consolidated Financial Statements for additional information required to be disclosed in accordance with SFAS 158.

Future Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which will be effective for Wausau Paper on January 1, 2007.  FIN 48 defines the thresholds for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority.  This Interpretation provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with interest and penalties.  Additional information regarding the adoption of FIN 48 is contained in “Note 1 – Description of the Business and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements.

In September 2006, the FASB issued FASB Staff Position (“FSP”) No. AUG AIR-1, “Accounting for Planned Major Maintenance Activities.”  This FSP prohibits companies from recognizing planned major maintenance costs under the “accrue-in-advance” method that allowed the accrual of a liability over several reporting periods before the maintenance is performed.  FSP AUG AIR-1 is applicable to entities in all industries for fiscal years beginning after December 15, 2006, and must be retrospectively applied.  Additional information regarding the adoption of FSP AUG AIR-1 is contained in “Note 1 – Description of the Business and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements.

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Other significant accounting policies, not involving the same level of uncertainties as those previously discussed, are important to an understanding of the Consolidated Financial Statements.  Additional information regarding significant accounting policies is available in “Note 1 – Description of the Business and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements.

Operations Review

Overview

During 2006, Wausau Paper captured the benefits of year-over-year increases in average selling price and shipments, as well as gains from our timberland sales program, to more than offset higher manufacturing costs – most notably fiber and energy prices – and report net earnings of $17.6 million in 2006.  In 2005, Wausau Paper reported a net loss of $19.5 million which included losses associated with the first full-year of operation of the paper mill in Brainerd, Minnesota, and after-tax charges of $24.2 million for closure costs and restructuring expense related to the closure of a sulfite pulp mill.  Additional information on the acquisition of the Brainerd, Minnesota mill and the closure of the sulfite pulp mill is available in “Note 9 – Acquisitions” and “Note 2 – Pulp Mill Closure” in the Notes to Consolidated Financial Statements, respectively.

In 2006, we continued to pursue our core business strategies, focusing on niche markets, product innovation, benchmark customer service, and operational excellence to drive long-term results.  During 2006, revenues from products developed in the previous three years exceeded our corporate goal of 25%, helping to increase sales of higher-margin premium products.  Paper mill productivity increased 2% in 2006 following a 1% improvement in 2005.  In addition, we targeted key areas, including disciplined management of capital spending, containment of manufacturing and administrative costs, and improvement in working capital efficiencies, to increase our return on capital employed. In 2006, we achieved a composite internal rate of return for capital approved that exceeded our goal of 17%. Our cost containment efforts resulted in costs, after equalizing for production volume and mix differences as well as fiber and energy price variations, that were slightly below 2005 levels.  Our management of working capital through the monitoring of inventory levels, accounts receivable, and accounts payable resulted in essentially flat year-over-year inventory turns and days payable outstanding, while days sales outstanding improved modestly. These and other improvement initiatives are intended to help us achieve a long-term return-on-capital-employed target of 13%.  Our ability to ultimately achieve this target is influenced by internal initiatives as well as external factors including general economic conditions, the price of energy and raw materials, competitive factors, and changes in market demand and paper pricing.

Effective with the first quarter of 2006, timberland assets held for sale and gains from the disposal of such assets have been reclassified from the operating segments to corporate.  As a result, certain prior-year segment information has been reclassified to conform to the 2006 presentation.

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Net Sales

(all dollar amounts in thousands)	2006	2005	2004
Net sales	$1,188,178	$1,097,093	$1,040,717
Percent increase	8%	5%	7%

Net sales for the year ended December 31, 2006, were $1,188.2 million compared to net sales of $1,097.1 million for the year ended December 31, 2005.  Total shipments increased 4% in 2006 to 919,072 tons from the 882,267 tons shipped in 2005.  Net sales in 2004 were $1,040.7 million, and total tons shipped were 863,055 tons.

Average net selling price increased approximately 4%, improving net sales by $44 million, in 2006 as compared to 2005, with more than 3 percentage points of the net selling price improvement, or approximately $34 million, attributable to actual selling price increases and the balance due to improved overall product mix. Compared to 2004, 2005 average net selling price improved nearly 3%, or $28 million, with actual product selling prices improving approximately 3%, or $33 million, and product mix differences reducing net sales by more than $4 million.

Discussion of market conditions and trends is included in the segment summaries that follow.  If published market data is available, it is referenced in the discussion.  Certain markets within which Wausau Paper competes are small and highly fragmented.  Where industry data is not available, our analysis is based on more subjective market indicators, such as order patterns for Wausau Paper products and discussion with customers regarding overall industry volumes.

Specialty Products recorded net sales of $468.9 million on total shipments of 394,079 tons for the year ended December 31, 2006, compared with net sales of $459.0 million on shipments of 403,747 tons in 2005.  Net sales and shipments in 2004 were $462.8 million and 421,449 tons, respectively.  While the tons of product shipped declined more than 2% in 2006 from 2005, average net selling price, led by actual product selling price improvements, increased 4%, or $18 million, resulting in a year-over-year increase in net sales. Average selling price increased 3% in 2005 compared with 2004, improving net sales by approximately $14 million with the improvement nearly evenly split between actual selling price increases and mix enhancements.

Market demand improved in Specialty Products’ largest product category, pressure-sensitive backing papers, increasing an estimated 4% in both 2006 and 2005.  Demand in Specialty Products’ second largest product category, food-packaging/food-service papers, also increased an estimated 4% in both 2006 and 2005.  Demand for paper mill packaging products declined in both 2006 and 2005 as production of newsprint and other paper grades trended lower across the industry.  Demand for other industrial and consumer papers, most notably masking tape base stock, declined slightly in 2006 after increasing modestly in 2005.  Despite recent growth in demand, markets remained competitive with competition coming from paper-based products as well as other film-based substrates.  

Shipments of Specialty Products’ pressure-sensitive backing papers decreased 1% in 2006 after decreasing 1% in 2005, while food-packaging/food-service shipments decreased 5% in 2006

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compared to an improvement of 3% in 2005.  Paper mill packaging shipments declined 13% each in 2006 and 2005, respectively.  Shipments of lower-price fill products increased nearly 60% in 2006 compared to a decline of 60% in 2005.  Specialty Products continued its focused product development efforts in 2006 with revenues from products developed in the previous three years exceeding the corporate goal of 25%.  

Net sales for the Printing & Writing business segment were $431.0 million in 2006 on shipments of 354,243 tons compared with 2005 net sales of $378.1 million on shipments of 316,234 tons.  In 2004, net sales were $352.3 million and shipments were 289,703 tons.  The overall improvement in net sales from 2005 to 2006 of 14% was driven primarily through growth in white papers including premium and opaque product categories.  

For the year ended December 31, 2006, average net selling price improved 2%, increasing net sales by $9 million as compared to the year ended December 31, 2005.  In the year-over-year comparison, actual selling price increases accounted for the majority of the average net selling price gain. Comparing 2005 to 2004, average net selling price declined 3% in 2005, reducing net sales by $10 million as compared to 2004.  Product mix differences, primarily related to higher fill volumes, reduced average net selling price 5%, or net sales by $17 million, while actual product selling prices increased 2%, impacting net sales by more than $7 million.  

Demand for uncoated freesheet papers increased less than 1% in 2006 following a 3% decrease in 2005.  Uncoated freesheet demand, impacted by such factors as employment trends and increased electronic data communications, declined in five of the last seven years.  Demand in the text and cover segment of the uncoated freesheet market declined 3% in 2006 following a 4% decline in 2005.  Despite competitive market conditions, shipments of our premium printing and writing papers, including text and cover, increased 13% in 2006 and 4% in 2005.  Shipments through Printing & Writing’s retail distribution channel such as office supply stores and other retailers increased 26% in 2006 and 5% in 2005.  At the same time, shipments through Printing & Writing’s largest distribution channel, traditional paper merchants, increased 7% in 2006 and 9% in 2005.  Product pricing has remained very competitive despite the industr y-wide capacity rationalization that has occurred in recent years.  As 2007 began, prices were relatively stable despite seasonally weak market conditions.

Towel & Tissue 2006 net sales were $288.3 million and shipments were 170,750 tons compared to 2005 net sales of $260.0 million and shipments of 162,286 tons.  In 2004, net sales were $225.7 million on shipments of 151,903 tons.  Average net selling price increased 6% in 2006 as compared to 2005, favorably impacting net sales by more than $15 million.  Actual product price increases improved average selling price by more than 4% and net sales by $11 million, while product mix enhancements improved average selling price and net sales by 2% and more than $4 million, respectively.  Average net selling price increased 9% in 2005 as compared to 2004, favorably impacting net sales by $19 million.  Actual product price increases improved average selling price by more than 7% and net sales by $17 million, while mix enhancements improved average selling price and net sales by 1% and more than $2 million, respectively.  

The “away-from-home” segment of the towel and tissue market grew nearly 2% in 2006 and 1% in 2005.  Steady growth and industry rationalization of production capacity have resulted in a

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balanced market and pricing leverage over the past two years.  As a result, significant selling price increases were implemented in 2006 and 2005.  Shipments of Towel & Tissue’s higher-priced, value-added products increased 15% in 2006 and 10% in 2005, while shipments of lower-priced standard products increased 1% in 2006 and 5% in 2005.  

Approximately 40%, or more than 80,000 tons per year, of Towel & Tissue’s total parent roll supply is purchased from other towel and tissue manufacturers.  Industry supply of these parent rolls was readily available throughout 2006 and 2005.  We believe that adequate parent roll supply will continue to be available to meet our converting needs.  As 2007 began, “away-from-home” towel and tissue market conditions remained stable with demand continuing to expand at a moderate rate.

Gross Profit on Sales

(all dollar amounts in thousands)	2006	2005	2004
Gross profit on sales	$122,418	$52,626	$117,541
Gross profit margin	10%	5%	11%

Gross profit margin increased to $122.4 million, or 10.3% of net sales in 2006 compared with $52.6 million or 4.8% of net sales in 2005.  Gross profit margin in 2004 was $117.5 million, or 11.3% of net sales.  Improvements in average selling price and shipment volumes, operational efficiency gains, and gains from the timberland sales program more than offset higher energy and fiber costs in 2006.  During 2006 and 2005, our timberland sales program favorably impacted gross profit margin by $17.3 million and $2.2 million, respectively.  In addition, 2005 gross profit margins were impacted by charges of $37.1 million related to inventory write-downs of pulp mill inventory to net realizable value, accelerated depreciation on long-lived assets that were abandoned upon closure, and a portion of severance and benefit continuation costs with respect to the closure of the sulfite pulp mill at our Brokaw mill.  Pulp mill closure charges r ecognized in cost of sales for 2006 were $0.3 million. For additional information on the closure of our sulfite pulp mill, refer to “Note 2 – Pulp Mill Closure” in the Notes to Consolidated Financial Statements.

Raw materials comprise approximately 55% of our total cost of sales with market pulp and wastepaper accounting for more than one-half of this total.  Labor and fringes are approximately 20% of our total cost of sales while utilities account for approximately 10%.  Other operating expenses, including outbound freight, depreciation, and maintenance, comprise the remaining 15% of our cost of sales.

Fiber prices – consisting primarily of market pulp, wastepaper, linerboard, pulpwood, and purchased towel and tissue parent rolls – increased over the last three years.  As compared to 2005, 2006 fiber costs increased approximately $25 million after increasing approximately $16 million in 2005 as compared with 2004.

During the first quarter of 2006, pulp prices increased slightly from pricing at the end of 2005.  In the following three quarters of 2006, pulp prices increased significantly. In 2006, wastepaper prices trended higher in the second and third quarters before holding relatively stable through the

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fourth quarter.  In 2006, we consumed approximately 520,000 air-dried metric tons of market pulp and 140,000 standard tons of wastepaper.  Approximately 450,000 air-dried metric tons of market pulp and 150,000 standard tons of wastepaper were consumed in 2005.  The average consumption price of market pulp, the primary raw material used in the production of paper, increased approximately $40 per air-dried metric ton, or $19 million, in 2006 as compared to 2005.  As compared with 2004, the average price of market pulp increased approximately $22 per air-dried metric ton, or $9 million in 2005.  The average price of wastepaper, used in the production of towel and tissue products, increased $5 per standard ton, or less than $1 million, in 2006 as compared to 2005.  As compared with 2004, the average price of wastepaper decreased $21 per standard ton, or $3 million, in 2005.  Total costs for linerb oard, used in the production of moisture-barrier laminated roll wrap, increased nearly $2 million in 2006 as compared to 2005.  Total costs for linerboard increased approximately $2 million in 2005 as compared to 2004.  Purchased towel and tissue parent rolls, used in Towel & Tissue’s converting operation, increased $53 per standard ton, or more than $4 million, in 2006 as compared to 2005 after increasing $71 per standard ton, or more than $4 million the year before.

Energy-related prices – consisting primarily of natural gas, electricity, coal, fuel oil, and transportation – trended modestly lower in 2006 although declines in natural gas prices were somewhat offset by price volatility with other energy components.  During 2005, energy prices increased dramatically after increasing at a significant but more modest rate in 2004.  In total, energy-related costs increased more than $4 million in 2006 as compared with 2005 and $23 million in 2005 as compared with 2004.

Natural gas prices trended generally higher in the first three quarters of 2005 before moving significantly higher in the fourth quarter.  The late-year move was related, in part, to supply disruptions caused by hurricanes impacting the Gulf of Mexico in the late summer and early fall seasons.  Natural gas prices trended lower in 2006 from peak levels reached in late 2005.  The average price of natural gas decreased approximately 2%, or less than $1 million, in 2006 as compared to 2005 after increasing 33%, or $11 million, in 2005 compared with the prior year.  Through our cost reduction efforts, we have been successful in improving our energy efficiencies and reducing natural gas consumption in recent years.  We currently consume more than 4 million decatherms annually and have substituted fuel oil and coal when economics allowed.  We price protect, from time to time, certain volumes of natural gas through fixed-price cont racts.  Our policy allows for the price protection of up to 50% of our expected use on a rolling 12-month basis.  Early in 2007, we had a portion of our first quarter requirements price protected.  

Price increases were experienced in 2006 with other sources of energy that are significant to our operations.  As compared with 2005, 2006 electricity costs increased 8% or $2 million, fuel oil costs increased 20% or more than $1 million, and coal costs increased 10% or nearly $2 million.  As compared with 2004, 2005 electricity costs increased 14% or more than $3 million, fuel oil costs increased 35% or $2 million, and coal costs increased 14% or nearly $2 million.  In addition, transportation prices increased $6 million in 2006 as compared with 2005 after increasing nearly $5 million from 2004.

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Market pulp list prices continued their upward trend in early 2007 while natural gas prices have trended lower.  However, natural gas prices are well above historical averages and remain quite volatile.  

Labor and fringe costs decreased 0.9% in 2006 as compared to 2005 and increased 2.5% in 2005 as compared to 2004.  Depreciation expenses decreased 42% in 2006 compared with 2005 due primarily to accelerated depreciation related to the 2005 closure of the sulfite pulp mill at Brokaw.  Depreciation expenses increased nearly 60% in 2005 as compared with 2004, again, due primarily to accelerated depreciation related to the 2005 closure of the sulfite pulp mill at Brokaw.  Other operating costs, including maintenance, were relatively stable in 2006 compared to the same period in the prior year.

Specialty Products gross profit margins were 5.7% in 2006, 7.4% in 2005, and 9.8% in 2004.  The improvement in average net selling price in 2006 compared to 2005 only partially offset higher energy, fiber and other manufacturing costs, resulting in reduced gross profit margins.  Fiber prices increased nearly $13 million in 2006 as compared with 2005 while energy prices increased more than $3 million over the same period.  Similarly, selling price increases, sales mix enhancements, and production efficiency improvements only partially offset higher manufacturing expenses resulting in lower 2005 margins as compared to 2004.  Energy prices increased more than $6 million in 2005 as compared with 2004 while fiber costs increased more than $7 million over the same period.  

Printing & Writing recorded a gross profit margin of 3.5% in 2006, a negative gross margin of 9.7% in 2005 and a gross profit margin of 7.6% in 2004. An improvement in the 2006 gross profit margin from 2005 was the result of average net selling price increases, sales volume gains and slightly lower energy prices which more than offset increases of more than $7 million in fiber prices.  Gross profit in 2005 was also unfavorably impacted by a $37.1 million charge to cost of goods sold as a result of the fourth-quarter closure of the sulfite pulp mill located in Brokaw.  The pulp mill closure charge, which impacted 2005 gross profit margins by nearly 10 percentage points, included accelerated depreciation on pulp mill related assets that were abandoned as a result of the closure and a write-down of related pulp mill inventory to net realizable value.  The pulp mill was closed due to the unit’s high cost of operation and capital inve stment requirements related to aging plant and equipment.  As compared with 2004, 2005 energy prices increased more than $12 million while fiber prices increased more than $6 million.  

Towel & Tissue gross profit margin was 22.3% in 2006, 21.6% in 2005, and 20.5% in 2004.  Selling price increases and mix improvements more than offset increased fiber and energy prices, resulting in higher 2006 margins compared to 2005.  Fiber prices increased slightly more than $5 million in 2006 as compared with 2005 while energy prices increased nearly $2 million.  Similarly in 2005, selling price increases and mix enhancements offset increased energy and fiber prices, improving margins as compared to 2004.  Energy prices increased $4 million in 2005 as compared with 2004 while fiber prices increased $2 million.  

Consolidated customer order backlogs increased to approximately 48,300 tons, representing $59.9 million in sales at December 31, 2006, compared to 42,500 tons, representing $52.1 million in sales as of December 31, 2005.  Consolidated customer order backlogs were 35,100

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tons, or $42.0 million in sales as of December 31, 2004.  The increase in customer order backlogs was due to increases across all business segments.  Our Specialty Products business segment backlog totaled 34,700 tons at December 31, 2006, compared to 32,200 tons at December 31, 2005.  Printing & Writing’s backlog tons increased to 11,400 tons at December 31, 2006, from 8,400 tons at December 31, 2005.  In the Towel & Tissue business segment, backlog tons were 2,200 tons at December 31, 2006, compared to 1,900 tons at December 31, 2005.  The change in customer backlog at December 31, 2006, compared to December 31, 2005, does not necessarily indicate a change in business conditions, as a large portion of orders is shipped directly from inventory upon receipt and does not impact backlog numbers.  The entire backlog at December 31, 2006, is expected to be shipped during fiscal 2007.

Labor

A new three-year labor agreement was negotiated with United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Services Workers International Union Local 2-15 and Local 2-1778 at Specialty Products’ Rhinelander, Wisconsin facility in 2006.  The labor contract at our Printing & Writing’s Brokaw, Wisconsin facility expired on May 31, 2006 and is in the process of being negotiated. Labor agreements will expire at other facilities in 2007, 2008, and 2009.  We maintain good labor relations at all facilities and expect that new multi-year contracts will be negotiated at competitive rates.

Selling and Administrative Expenses

(all dollar amounts in thousands)	2006	2005	2004
Selling and administrative expense	$82,695	$74,423	$75,817
Percent increase/(decrease)	11%	(2%)	12%
As a percent of net sales	7%	7%	7%

In 2006, selling and administrative expenses were impacted by stock incentive program charges of $2.3 million, which were determined by the grant-date fair value of equity-type awards and the change in the fair value of liability-type awards which are settled in cash. During 2005 and 2004, the charges or credits for these programs were determined by using the “intrinsic value based method.” As a result, awards classified as a liability were remeasured at the intrinsic value each reporting period and resulted in a credit of $2.4 million in 2005 and a charge of $2.8 million in 2004.  For additional information on our stock incentive programs, refer to “Note 8 – Stock Compensation Plans” in the Notes to Consolidated Financial Statements.  After adjusting for stock-based incentive compensation programs, increased wages, benefits, legal, and consulting expenses accounted for the balance of the increase in selling and admini strative expenses.

Restructuring Charge

Wausau Paper recorded a pre-tax $1.3 million closure charge for the year ending December 31, 2005, for employee severance benefits and other associated closure costs directly related to the closure of the sulfite pulp mill located at Printing & Writing’s Brokaw papermaking mill.  Other associated closure costs of approximately $0.2 million were recorded in the first half of 2006.  

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For additional information on the closure of our sulfite pulp mill, refer to “Note 2 – Pulp Mill Closure” in the Notes to Consolidated Financial Statements.

Other Income and Expense

(all dollar amounts in thousands)	2006	2005	2004
Interest expense	$11,252	$10,957	$10,285
Other income, net	624	496	939

Interest expense was higher for the year ending December 31, 2006, at $11.3 million compared to $11.0 million for the year ending December 31, 2005, due principally to increased interest rates year over year.  Interest expense for the year ending December 31, 2004, was $10.3 million.  Long-term debt levels were $160.3 million, $161.0 million, and $161.8 million as of December 31, 2006, 2005, and 2004, respectively.  

In 2007, interest expense is expected to remain comparable with 2006 levels.  Interest capitalized in 2006, 2005, and 2004 was not significant.  Our capitalized interest methodology is outlined in “Note 1 – Description of the Business and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements.

Other income includes interest income of $0.3 million, $0.5 million, and $0.7 million in 2006, 2005, and 2004, respectively.  The decrease in interest income in 2006 was driven primarily by lower average cash and cash equivalent balances.

Income Taxes

(all dollar amounts in thousands)	2006	2005	2004
Income tax provision (credit)	$10,823	$(14,125)	$11,985
Effective tax rate	37.5%	(42.3%)	37%

The effective tax rate for the year ended December 31, 2006 was 37.5%.  In 2005, our effective tax rate was favorably impacted by $1.7 million for changes in state tax laws which lowered our effective state rate.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which will be effective for Wausau Paper on January 1, 2007.  FIN 48 defines the thresholds for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority.  This interpretation provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with interest and penalties.  We do not expect the adoption of FIN 48 to have a material effect on the consolidated financial statements.

Effective January 1, 2007, we reorganized the structure of some of our legal entities for administrative and tax saving objectives.  The impact of this reorganization is expected to result in state tax benefits of approximately $10.0 million for the tax year ended December 31, 2007

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due to the ability to utilize previously reserved state operating losses.  Income taxes are discussed in “Note 7 – Income Taxes” in the Notes to Consolidated Financial Statements.

Liquidity and Capital Resources

Cash Flows and Capital Expenditures

(all dollar amounts in thousands)	2006	2005	2004
Cash provided by operating activities	$  37,982	$  18,223	$  70,737
Percent increase/(decrease)	108%	(74%)	12%
Working capital	$139,065	$130,719	$139,542
Percent increase/(decrease)	6%	(6%)	2%
Current ratio	1.9:1	1.9:1	1.9:1
Capital expenditures	$  23,856	$  31,494	$  29,565
Percent increase/(decrease)	(24%)	7%	22%

Cash provided by operating activities increased in 2006 compared to 2005 due, in part, to improved net earnings in 2006, somewhat stable year-over-year inventory levels and cash received from income tax refunds.  These factors were somewhat offset by increased receivable balances in 2006 compared to 2005.  In 2005, cash provided by operating activities decreased compared to 2004 due, in part, to a net loss in 2005, increased inventory levels, higher receivable balances, and a decline in income taxes payable.  We contributed $17.4 million to defined benefit pension plans during 2006, compared with contributions of $16.0 million and $20.2 million in 2005 and 2004, respectively.  Benefit plans are discussed in “Note 6 – Pension and Other Post-retirement Benefit Plans” in the Notes to Consolidated Financial Statements.

In 2006, we continued our initiative to limit capital spending to necessary maintenance-related and high-return capital projects.  We also met our targeted composite internal rate of return of 17% for capital approved.  Capital expenditures totaled $23.9 million, $31.5 million, and $29.6 million in 2006, 2005, and 2004, respectively.  In 2007, it is expected that capital spending will be approximately $40.0 million.  

For 2006, capital expenditures for projects with total spending expected to exceed $1.0 million occurred in all three business segments.  Specialty Products spent $4.2 million on a stock preparation consolidation project at the Rhinelander, Wisconsin facility and $3.0 million on paper mill related equipment at the Rhinelander, Wisconsin, Mosinee, Wisconsin, and Jay, Maine, mills.  Printing & Writing spent $1.0 million on paper mill related equipment at the Brokaw, Wisconsin, Groveton, New Hampshire, and Brainerd, Minnesota, mills.  Towel & Tissue spent $1.1 million on various converting lines.  

The balance of $14.6 million in 2006 capital spending was related to projects that individually cost less than $1.0 million.  These expenditures included $6.1 million for essential non- or low-return projects, including maintenance-related capital and approximately $8.5 million on projects expected to provide a return in excess of our targeted internal rate of return.

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For 2005, capital expenditures for projects with total spending expected to exceed $1.0 million occurred in all three business segments.  Specialty Products spent $2.5 million on paper mill related equipment at the Rhinelander, Wisconsin, Mosinee, Wisconsin, and Jay, Maine, mills.  Printing & Writing spent $1.1 million on a palletizer project at the Groveton, New Hampshire facility and $0.3 million as part of a capital project to expand premium papers production capabilities at the Brokaw, Wisconsin, paper mill.  Towel & Tissue spent $4.5 million on various converting lines.  The balance of $23.1 million in 2005 capital spending was related to projects that individually cost less than $1.0 million.  These expenditures included $16.8 million for essential non- or low-return projects, including maintenance-related capital and approximately $6.3 million on projects expected to provide a return in e xcess of our targeted internal rate of return.

During 2005, we announced our intent to sell, over the next three to four years, approximately 42,000 acres of timberlands at values expected to result in an after-tax gain of $29 million.  

In 2006, we sold approximately 14,000 acres of timberlands for an after-tax gain of $10.8 million.  During 2005, we sold approximately 1,200 acres of timberlands for an after-tax gain of $1.3 million.  Our timberland sales program is expected to continue at a pace in 2007 that will allow us to complete our sales program within the time period specified.  

We believe that the available credit under our credit agreements and our earnings for 2007 will be sufficient to meet our cash flow needs for capital, working capital, and investing activities in 2007.  

Debt and Equity

(all dollar amounts in thousands)	2006	2005	2004
Short-term debt	$     184	$        86	$      115
Long-term debt	160,287	161,011	161,833
Total debt	160,471	161,097	161,948
Stockholders’ equity	274,074	310,219	357,092
Total capitalization	434,545	471,316	519,040
Long-term debt/capitalization ratio	37%	34%	31%

At December 31, 2006, total debt was $160.5 million, which is comparable to the $161.1 million reported at December 31, 2005.  

The total amount of long-term debt outstanding includes a private placement of $138.5 million in senior notes.  The notes mature in 2007, 2009, and 2011 at $35 million, $68.5 million, and $35 million, respectively. In addition, we have a $125 million unsecured revolving-credit agreement with five participating banks that expires on July 27, 2011.  Under the facility, we may elect the base for interest from either domestic or offshore rates.  In addition, the facility provides for sublimits of $50 million for the issuance of standby letters of credit and $10 million for certain short-term bid loans among the bank group.  Under the $125 million unsecured revolving-credit facility, we have the ability and the intent to refinance on a long-term basis $35 million of unsecured private placement notes maturing in 2007.  As a result, we have classified the amount as long-term on our balance sheet.

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On December 22, 2006, Wausau Paper, the financial institutions participating in the revolving-credit facility, and the required holders of our $138.5 million senior notes agreed to amend a certain financial covenant in anticipation of the adoption of SFAS 158 at December 31, 2006.  The minimum net worth covenant was amended to allow for the impact of the initial adoption of the pronouncement.  See “Note 6 – Pension and Other Post-retirement Benefit Plans” in the Notes to Consolidated Financial Statements for a further discussion on the adoption of SFAS 158.

Wausau Paper maintains an unrated commercial paper placement agreement with a bank to issue up to $50 million of unsecured debt obligations.  The agreement requires unused credit availability under our revolving-credit agreement equal to the amount of outstanding commercial paper.  There were no borrowings under this agreement at December 31, 2006 and 2005.

On November 2, 2004, we entered into a loan agreement with the Economic Development Authority of the city of Brainerd, Minnesota.  Under the agreement, we borrowed $500,000, of which $100,000 was forgivable upon meeting certain employment criteria at our Brainerd, Minnesota, facility by November 1, 2006.  The employment criteria have been met in 2006, therefore, $100,000 of the loan has been forgiven.  Interest is payable quarterly on the outstanding balance at a rate of 2% per annum.  In accordance with the agreement, quarterly payments of principal and interest began on January 1, 2006. The loan is due and payable no later than November 1, 2013.

In August 1995, we obtained $19 million in industrial development bond financing to fund an upgrade of the Brokaw mill wastewater treatment plant.  The bonds mature in 2023 and bear interest at short-term rates.  The bonds are supported by a letter of credit that was issued under our revolving credit facility.

On December 31, 2006, we had a total of approximately $106 million available for borrowing under existing credit facilities.

We do not have material market risk associated with derivative instruments, including interest-rate risk, foreign currency exchange risk, or commodity-price risk.  Wausau Paper conducts U.S. dollar denominated export transactions or immediately exchanges all foreign currency attributable to export sales for U.S. dollars.

In April 2000, our Board of Directors authorized the repurchase of 2,571,000 shares of Wausau Paper common stock.  This authorization added to the balance remaining on a 1998 authorization to repurchase 5,650,000 shares of Wausau Paper common stock.  We repurchased 474,400 and 658,700 shares of common stock during 2006 and 2005, respectively.  There were no repurchases in 2004.  Repurchases may be made from time to time in the open market or through privately negotiated transactions.  At December 31, 2006, there were 1,505,574 shares available for purchase under the existing authorization.

During 2006, 2005, and 2004, the Board of Directors declared cash dividends of $0.34 per share of common stock.

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Commitments and Contractual Obligations

The following is a summary of our contractual obligations and payments due by period subsequent to December 31, 2006:

		Payments Due by Period
(all dollar amounts in thousands)		Total	2007	2008	2009	2010	2011	Thereafter
Long-term debt		$157,842	$      64	$       66	$68,567	$    69	$70,076	$19,000
Interest on debt		40,814	10,396	8,714	7,044	3,704	2,675	8,281
Capital lease		269	120	137	12	–	–	–
Operating leases		5,940	1,584	1,560	1,535	1,261	–	–
Capital spending commitments		7,468	7,468	–	–	–	–	–
Retirement plan contributions		16,174	16,174	–	–	–	–	–
Post-retirement benefit plan
	contributions	4,096	–	–	–	–	–	–
Purchase obligations		52,430	31,701	4,333	2,495	1,617	1,465	10,819
		$285,033	$71,603	$14,810	$79,653	$6,651	$74,216	$38,100

For additional information on debt and interest obligations, please refer to “Note 4 – Debt” in the Notes to Consolidated Financial Statements.  For additional information on capital and operating leases, please refer to “Note 5 – Lease Commitments” in the Notes to Consolidated Financial Statements.  Commitments for capital spending and additional information with respect to the purchase obligations are described in “Note 10 – Commitments and Contingencies” in the Notes to Consolidated Financial Statements.  We also have various employee benefit plan obligations that are described in “Note 6 – Pension and Other Post-retirement Benefit Plans.”

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Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We do not have a material market risk associated with derivative instruments, including interest rate risk, foreign currency exchange risk, or commodity-price risk.  We conduct U.S. dollar denominated export transactions or immediately exchanges all foreign currency attributable to export sales for U.S. dollars.  On August 31, 1999, we issued notes in the amount of $138.5 million that remain outstanding at December 31, 2006 and 2005.  The principal amounts, maturities, and interest rates on the notes are:  (1) $35 million, 8 years, 7.20%; (2) $68.5 million, 10 years, 7.31%; and (3) $35 million, 12 years, 7.43%.  The fair value of this fixed rate debt was $141.8 million at December 31, 2006, and $146.8 million at December 31, 2005.  The potential loss in fair value on such fixed-rate debt obligations from a hypothetical 10% increase in market interest rates would not be material to the overall fair value of the debt.  W e currently have no plans to repurchase our outstanding fixed-rate instruments and, therefore, fluctuations in market interest rates would not have an effect on our results of operations or stockholders’ equity.  

We also have $19,000,000 of Industrial Development Bonds due July 1, 2023, at variable rates of interest.  The fair value of these obligations approximated their carrying values at December 31, 2006 and 2005, and would not have been materially affected by a 10% hypothetical change in market interest rates.

40

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Report on Internal Control Over Financial Reporting

We are responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

•

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

•

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We assessed the effectiveness of our internal control over financial reporting as of December 31, 2006.  In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on our assessment, we believe that, as of December 31, 2006, our internal control over financial reporting is effective based on those criteria.

Our independent registered public accounting firm has issued a report on our assessment of our internal control over financial reporting.  This report appears on page 41.

41

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Wausau Paper Corp.

Mosinee, WI

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Wausau Paper Corp. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting princ iples, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

42

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2006 of the Company and our report dated February 20, 2007 expressed an unqualified opinion on those financial statements (which report includes an explanatory paragraph relating to the Company’s adoption of Statement of Financial Accounting Standards No. 158, Employer’s Accounting for Defined Benefit Plans, on December 31, 2006, and Statement of Financial Accounting Standards No. 123R, Share-based Payment, on January 1, 2006, as described in Note 1).

DELOITTE & TOUCHE LLP

Milwaukee, Wisconsin

February 20, 2007

43

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Wausau Paper Corp.

Mosinee, WI

We have audited the accompanying consolidated balance sheets of Wausau Paper Corp. and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Wausau Paper Corp. and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

As described in Note 1 to the Consolidated Financial Statements, the Company adopted Statement of Financial Accounting Standards No. 158, Employer’s Accounting for Defined Benefit Plans, on December 31, 2006, and Statement of Financial Accounting Standards No. 123R, Share-based Payment, on January 1, 2006.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2007 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

DELOITTE & TOUCHE LLP

Milwaukee, Wisconsin

February 20, 2007

44

Wausau Paper Corp. and Subsidiaries

Consolidated Balance Sheets

			As of December 31,
(all dollar amounts in thousands)			2006	2005
ASSETS
Current assets:
	Cash and cash equivalents		$  26,122	$  15,500
	Receivables, net		104,801	97,904
	Refundable income taxes		737	5,831
	Inventories		122,531	119,647
	Deferred income taxes		7,444	9,971
	Other current assets		32,612	30,831
		Total current assets	294,247	279,684
Property, plant, and equipment – net			468,372	494,228
Other assets			36,495	46,601
Total Assets			$799,114	$820,513
LIABILITIES
Current liabilities:
	Current maturities of long-term debt		$       184	$         86
	Accounts payable		83,441	78,726
	Accrued and other liabilities		71,557	70,153
		Total current liabilities	155,182	148,965
Long-term debt			160,287	161,011
Deferred income taxes			66,574	91,334
Post-retirement benefits			101,513	58,171
Pension			14,259	26,905
Other noncurrent liabilities			27,225	23,908
		Total liabilities	525,040	510,294
Commitments and contingencies			–	–
STOCKHOLDERS’ EQUITY
Preferred stock, no par value (500,000 shares authorized;
	no shares issued)		–	–
Common stock, no par value (100,000,000 shares authorized;
	issued 60,122,812 shares in 2006 and 2005)		173,302	173,456
Retained earnings			287,023	286,713
Accumulated other comprehensive loss			(61,192)	(29,119)
Treasury stock, at cost (9,393,603 and 9,085,562 shares
	in 2006 and 2005, respectively)		(125,059)	(120,831)
		Total stockholders’ equity	274,074	310,219
Total Liabilities and Stockholders’ Equity			$799,114	$820,513

See accompanying Notes to Consolidated Financial Statements.

45

Wausau Paper Corp. and Subsidiaries

Consolidated Statements of Operations

		For the Year Ended December 31,
(all amounts in thousands, except per share data)		2006	2005	2004
Net sales		$1,188,178	$1,097,093	$1,040,717
Cost of sales		1,065,760	1,044,467	923,176
Gross profit		122,418	52,626	117,541
Selling and administrative		82,695	74,423	75,817
Restructuring		226	1,332	–
Operating profit (loss)		39,497	(23,129)	41,724
Other income (expense):
	Interest expense	(11,252)	(10,957)	(10,285)
	Interest income	315	479	666
	Other, net	309	17	273
Earnings (loss) before income taxes and
	cumulative effect of a change in
	accounting principle	28,869	(33,590)	32,378
Provision (credit) for income taxes		10,823	(14,125)	11,985
Earnings (loss) before cumulative effect of
	a change in accounting principle	18,046	(19,465)	20,393
Cumulative effect of a change in accounting
	principle (net of income taxes)	(427)	–	–
Net earnings (loss)		$      17,619	$   (19,465)	$     20,393
Earnings (loss) per share before
	cumulative effect of a change in
	accounting principle-basic	$          0.36	$       (0.38)	$         0.39
Cumulative effect of a change in accounting
	principle (net of income taxes) per share– basic	(0.01)	–	–
Net earnings (loss) per share-basic		$          0.35	$       (0.38)	$         0.39
Weighted average shares outstanding – basic		50,935	51,448	51,662
Earnings (loss) per share before
cumulative effect of a change in
accounting principle-diluted		$         0.35	$      (0.38)	$         0.39
Cumulative effect of a change in accounting
principle (net of income taxes) per share– diluted		(0.01)	–	–
Net earnings (loss) per share-diluted		$          0.34	$       (0.38)	$         0.39
Weighted average shares outstanding – diluted		51,249	51,448	51,940
Dividends declared per common share		$          0.34	$          0.34	$         0.34

See accompanying Notes to Consolidated Financial Statements.

46

Wausau Paper Corp. and Subsidiaries

Consolidated Statements of Cash Flows

		For the Year Ended December 31,
(all dollar amounts in thousands)		2006	2005	2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)		$ 17,619	$(19,465)	$ 20,393
Provision for depreciation, depletion, and amortization		57,913	91,554	59,965
(Credit) provision for losses on accounts receivable		(64)	248	103
(Gain) loss on property, plant, and equipment disposals		(16,434)	497	3,356
Compensation expense for stock-based awards		659	487	292
Deferred income taxes		(3,802)	(13,878)	(348)
Changes in operating assets and liabilities:
	Receivables	(6,833)	(2,421)	(13,859)
	Inventories	(2,884)	(18,914)	(11,001)
	Other assets	(18,256)	(15,361)	(8,406)
	Accounts payable and other liabilities	1,975	6,739	15,428
	Accrued and refundable income taxes	8,089	(11,263)	4,814
Net cash provided by operating activities		37,982	18,223	70,737
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(23,856)	(31,494)	(29,565)
Acquisitions		–	–	(9,935)
Proceeds from property, plant, and equipment disposals		18,860	2,366	45
Net cash used in investing activities		(4,996)	(29,128)	(39,455)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings of notes payable		(48)	(10)	500
Payments under capital lease obligation		(146)	(115)	(112)
Dividends paid		(17,335)	(17,523)	(17,560)
Proceeds from stock option exercises		1,503	–	1,499
Excess tax benefit from stock option exercises		102	–	–
Payments for purchase of company stock		(6,440)	(7,861)	–
Net cash used in financing activities		(22,364)	(25,509)	(15,673)
Net increase (decrease) in cash and cash equivalents		10,622	(36,414)	15,609
Cash and cash equivalents at beginning of year		15,500	51,914	36,305
Cash and cash equivalents at end of year		$ 26,122	$ 15,500	$ 51,914
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid – net of amount capitalized		$ 10,891	$ 10,734	$ 10,722
Income taxes paid		$ 10,377	$ 11,131	$   9,019

Noncash investing and financing activities:  A capital lease obligation of $393 was recorded in the first quarter of 2006 when we entered into a new lease agreement for equipment.

See accompanying Notes to Consolidated Financial Statements.

47

Wausau Paper Corp. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

											Accumulated
											Other		Total
								Common	Retained	Unearned	Comprehensive	Treasury	Stockholders’
(all dollar amounts in thousands)								Stock	Earnings	Compensation	Loss	Stock	Equity
Balances December 31, 2003								$173,037	$320,823	$   –	$(28,723)	$(114,821)	$350,316
		Comprehensive earnings, 2004:
					Net earnings				20,393				20,393
					Minimum pension liability
							(Net of $1,210 deferred tax)				2,062		2,062
					Comprehensive earnings, 2004								22,455
		Cash dividends declared							(17,571)				(17,571)
		Restricted stock grant						20		(87)		67	–
		Recognition of restricted stock
					compensation expense					3			3
		Stock options exercised						(275)				1,774	1,499
		Tax benefit related to stock options						101					101
		Stock-based award compensation						289					289
Balances December 31, 2004								173,172	323,645	(84)	(26,661)	(112,980)	357,092
		Comprehensive earnings, 2005:
				Net (loss)					(19,465)				(19,465)
				Minimum pension liability
						(Net of $1,443 deferred tax)					(2,458)		(2,458)
				Comprehensive (loss), 2005									(21,923)
		Cash dividends declared							(17,467)				(17,467)
		Recognition of restricted stock
				compensation expense						84			84
		Settlement of performance unit grant						(14)				10	(4)
		Tax benefit related to stock options						(4)					(4)
		Stock-based award compensation						302					302
		Purchases of treasury stock										(7,861)	(7,861)
Balances December 31, 2005								173,456	286,713	–	(29,119)	(120,831)	310,219
		Comprehensive earnings, 2006:
			Net earnings						17,619				17,619
			Minimum pension liability
			(Net of $2,661 deferred tax)								4,527		4,527
			Comprehensive earnings, 2006										22,146
			Adoption of SFAS 158								(36,600)		(36,600)
	Cash dividends declared								(17,309)				(17,309)
	Stock options exercised							(452)				1,955	1,503
	Settlement of performance unit grant							(426)				257	(169)
	Tax benefit related to stock awards							65					65
	Stock-based award compensation							659					659
	Purchases of treasury stock											(6,440)	(6,440)
Balances December 31, 2006								$173,302	$287,023	$   –	$(61,192)	$(125,059)	$274,074

See accompanying Notes to Consolidated Financial Statements.

48

Wausau Paper Corp. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1

Description of the Business and Summary of Significant Accounting Policies

Wausau Paper Corp. manufactures, converts, and sells paper and paper products within three principal segments:  Specialty Products, Printing & Writing, and Towel & Tissue.  The majority of our products are sold within the United States and Canada.

Specialty Products produces a wide variety of technical specialty papers that include supercalendered backing papers for pressure-sensitive labeling applications, tape backing, and packaging materials for a broad range of food, medical, and industrial applications.  In addition, the business segment includes two converting facilities that produce laminated roll wrap and related specialty finishing and packaging products.

Printing & Writing manufactures, converts, and markets a broad line of premium printing and writing grades.  

Towel & Tissue produces a complete line of towel and tissue products that are marketed along with soap and dispensing systems for the industrial and commercial “away-from-home” market.

Basis of Presentation

The consolidated financial statements include the accounts of Wausau Paper Corp. and our subsidiaries.  All significant intercompany transactions and accounts have been eliminated in consolidation.

Use of Estimates

The preparation of the accompanying financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses.  Actual results may differ from these estimates.

Cash and Cash Equivalents

We define cash equivalents as highly liquid, short-term investments with an original maturity of three months or less.  Cash and cash equivalents are stated at cost, which approximates market.  

There were approximately $15.2 million and $7.8 million of cash and cash equivalents on deposit with one bank at December 31, 2006 and 2005, respectively.

Inventories

Pulpwood, finished paper products, and approximately 94% of raw materials are valued at the lower of cost, determined on the last-in, first-out (LIFO) method, or market.  All other inventories are valued at the lower of average cost or market.  Liquidations in individual LIFO

49

inventory pools decreased cost of sales by $1.4 million for the years ended December 31, 2006 and 2005.

Property, Plant, and Equipment

Property, plant, and equipment are stated at cost and are depreciated over the estimated useful lives of the assets using the straight-line method for financial statement purposes.  Land and construction in progress are stated at cost.  The cost and related accumulated depreciation of all plant and equipment retired or otherwise disposed of are removed from the accounts, and any resulting gains or losses are included in the statements of operations.

Buildings are depreciated over a 20- to 45-year period; machinery and equipment over a three- to 20-year period.  Maintenance and repair costs are charged to expense as incurred.  Improvements that extend the useful lives of the assets are added to the plant and equipment accounts.

Our policy is to capitalize interest incurred on debt during the course of projects that exceed one year in construction and $1 million, or projects that exceed $10 million.  Interest capitalized in 2006, 2005, and 2004 was not significant.

We assess the recoverability of assets to be held and used by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets, based on a discounted cash flow analysis.  No impairment losses were recorded in 2006, 2005, or 2004.

Timber and timberlands are stated at net depleted value.  We capitalize the cost of purchasing timberlands and reforestation costs.  Interest and taxes related to timberlands are expensed as incurred.  Reforestation costs include site preparation, planting, fertilizing, herbicide application, and thinning.  Temporary logging roads are expensed while long-term logging roads are capitalized and amortized over the estimated useful lives of the roads, which is generally 15 to 20 years.  Depletion is recorded as timber is harvested and included in inventory until conversion into saleable product.  Depletion is calculated using the block and units-of-production methods.  Under these methods, the capitalized costs of large land tracts are divided by the estimated volume of timber anticipated to be harvested on each tract.  As the timber is harvested, depletion is either recorded as each block is harvested or as a percent age of each block harvested.

Income Taxes

Estimates of income taxes refundable and payable, deferred income tax assets and liabilities, and the effective tax rate are based on an analysis of many factors including interpretations of Federal, state, and foreign income tax laws, the difference between tax and financial reporting basis of assets and liabilities, estimates of amounts currently due or owed, realization of income tax benefits in future years, and current accounting standards.  Estimates are reviewed and updated on a quarterly basis as facts and circumstances change and actual results are known.  Adjustments to the effective income tax rate and recorded assets and liabilities may occur in future periods if actual results differ significantly from original estimates and interpretations.

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Treasury Stock

Common stock purchased for treasury is recorded at cost.  At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on the weighted-average cost basis.

Accumulated Other Comprehensive Loss

At December 31, 2006, the accumulated other comprehensive loss is comprised of cumulative net actuarial losses and prior service cost not yet recognized as a component of net periodic benefit costs for retirement plans and other post-retirement benefit plans, net of tax of $35.9 million.  The accumulated other comprehensive loss is comprised solely of additional minimum pension liability, net of tax of $17.1 million, at December 31, 2005.

Revenue Recognition

Revenue is recognized, net of estimated discounts, allowances and returns upon shipment of goods at which time title passes to the customer.  Upon shipment, the customer is obligated to pay us and we have no remaining obligation.  We grant credit to customers in the ordinary course of business.

Shipping and handling costs billed to customers are included in net sales, and the related costs are included in cost of sales in the Consolidated Statements of Operations.

Stock-based Compensation Plans

Effective January 1, 2006, Wausau Paper adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), using the modified prospective application transition method.  The modified prospective application transition method requires that as of the effective date, compensation cost related to share-based payment transactions is recognized as an operating expense in the statement of operations over the requisite service period of the grant based on the grant-date fair value of the award.  As such, prior periods will not reflect restated amounts.

Prior to January 1, 2006, we measured compensation cost for stock-based compensation plans using the “intrinsic value based method” prescribed under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”  As a result, compensation expense for restricted stock was recognized ratably over the service period based upon the grant-date market value and compensation expense for performance stock awards was recognized ratably over the performance period based on changes in quoted market prices of Wausau Paper common stock and the likelihood of achieving performance goals.  The exercise price of all employee stock options was at least equal to their grant-date market value.  Accordingly, no compensation expense was recorded for stock options granted to employees.

Under SFAS 123R, share-based payment awards that are settled in cash continue to be classified as a liability; however, rather than remeasuring the award at the intrinsic value each reporting

51

period, the award is remeasured at its fair value each reporting period until final settlement.  The difference between the liability as previously computed (i.e., intrinsic value) and the fair value of the liability award on January 1, 2006, was $0.4 million net of any related tax effects ($0.7 million pretax), and was recorded as a cumulative effect of a change in accounting principle in the Consolidated Statement of Operations.  SFAS 123R also requires us to report the tax benefit from the tax deduction that is in excess of recognized compensation costs (excess tax benefits) as a financing cash flow rather than an operating cash flow.  Before the adoption of SFAS 123R, we reported the entire tax benefit related to the exercise of stock options as an operating cash flow.  See Note 8 to the Consolidated Financial Statements for a further discussion on stock-based compensation plans.

Earnings Per Share

We present both basic and diluted net earnings (loss) per share (“EPS”) amounts.  Basic EPS is calculated based on the weighted average number of common shares outstanding during the respective year, while diluted EPS is calculated based on the weighted average number of common shares and common stock equivalents outstanding during the respective year.  The difference between basic and diluted EPS is solely attributable to stock-based compensation plans.  See Note 8 for information on stock-based compensation plans.  We use the treasury-stock method to calculate the impact of outstanding awards of stock options, restricted stock and restricted stock unit awards, referred to as performance units.  Stock options for which the exercise price exceeds the average market price over the period have an antidilutive effect on EPS and, accordingly, are excluded from the calculation.

For the years ended December 31, 2006, 2005, and 2004, stock-based grants for 667,944, 2,160,804, and 375,071 shares, respectively, were excluded from the diluted EPS calculation because the shares were antidilutive.

Basic and diluted earnings (loss) per share are reconciled as follows:

(all amounts in thousands, except per share data)			2006	2005	2004
Net earnings (loss)			$  17,619	$(19,465)	$  20,393
Basic weighted average common
	shares outstanding		50,935	51,448	51,662
Dilutive securities:
		Stock compensation plans	314	–	278
Diluted weighted average common
	shares outstanding		51,249	51,448	51,940
Net earnings (loss) per share – basic			$      0.35	$    (0.38)	$      0.39
Net earnings (loss) per share – diluted			$      0.34	$    (0.38)	$      0.39

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Derivatives

In the past, we have used derivative instruments to mitigate our exposure to interest rate risk.  We do not issue such instruments for trading purposes.  At December 31, 2006 and 2005, there were no derivative instruments outstanding.

Research and Development Expenses

Research and development costs are expensed as incurred.  Expenditures for product development were $2.1 million, $1.9 million, and $1.9 million in 2006, 2005, and 2004, respectively.

New Accounting Pronouncement

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Benefit Plans” (“SFAS 158”), which requires that we recognize in our financial statements the overfunded or underfunded status of a defined benefit post-retirement plan as an asset or liability and to recognize changes in that funded status in the year in which the changes occur through comprehensive income.  SFAS 158 also requires the measurement of the funded status of a plan as of the date of the year end financial statements, with limited exceptions, and to disclose additional information regarding certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service credits, and transition assets or obligations.  The requirement to recognize the funded status of a defi ned post-retirement plan and the disclosure requirements are effective for fiscal years ending after December 15, 2006.  The requirement to measure plan assets and benefit obligations as of the date of the year end financial statements is effective for fiscal years ending after December 15, 2008.  On December 31, 2006, we adopted the recognition and disclosure provisions of SFAS 158 and recognized a charge of $36.6 million, net of income taxes, to other comprehensive income in the Consolidated Statement of Stockholders’ Equity.  See Note 6 to the Consolidated Financial Statements for additional information required to be disclosed in accordance with SFAS 158.

Future Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Income Tax Uncertainties” (“FIN 48”).  FIN 48 defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority.  The literature also provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties.  FIN 48 also includes guidance concerning accounting for income tax uncertainties in interim periods and increases the level of disclosures associated with any recorded income tax uncertainties.  The provisions of FIN 48 are effective as of January 1, 2007.  Any differences between the amounts recognized in the financial statements prior to the adoption of FIN 48 and the amounts reported after adoption will be accounted for as a cumulative-effect adj ustment recorded to the beginning balance of retained earnings.  Accordingly, we will be required to adopt FIN 48 in the first

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quarter 2007.  We do not expect the adoption of FIN 48 to have a material effect on the consolidated financial statements.

In September 2006, the FASB issued FASB Staff Position (“FSP”) No. AUG AIR-1, “Accounting for Planned Major Maintenance Activities.”  This FSP prohibits companies from recognizing planned major maintenance costs under the “accrue-in-advance” method that allowed the accrual of a liability over several reporting periods before the maintenance is performed.  FSP AUG AIR-1 is applicable to entities in all industries for fiscal years beginning after December 15, 2006, and must be retrospectively applied.  While adoption of this FSP will not impact our annual consolidated financial statements, we are currently evaluating the impact on interim period reporting.

Reclassifications

During 2006, we evaluated the composition of our storeroom materials and supplies and concluded that a preferable balance sheet presentation is as a component of other current assets rather than as a component of inventories.  Accordingly, we reclassified $26.2 million from inventories at December 31, 2005, to other current assets to conform to the 2006 balance sheet presentation.

Also during 2006, we reclassified timberland assets held for sale and gains from the disposal of such assets from the operating segments to corporate for purposes of segment reporting.

Note 2  Pulp Mill Closure

In July 2005, we announced plans to permanently close the sulfite pulp mill at our Brokaw, Wisconsin, papermaking facility. The pulp mill was closed in November 2005 and the related long-lived assets were abandoned. The closure resulted in the elimination of 57 permanent jobs, or approximately 10% of the facility’s total workforce.  The cost of sales for the years ended December 31, 2006 and 2005, as reflected in the Consolidated Statement of Operations, include $0.3 million and $37.1 million, respectively, in pre-tax charges for adjustments of pulp mill inventory to net realizable value and, in 2005, accelerated depreciation on the long-lived assets that were abandoned upon closure and a portion of the severance and benefit continuation expense.  Pre-tax restructuring expense related to other associated closure costs was $0.2 million and $1.3 million for the years ended December 31, 2006 and 2005, respectively.

The following table sets forth information with respect to pulp mill closure charges:

(all dollar amounts in thousands)		2006	2005
Depreciation on abandoned equipment		$  –	$31,970
Inventory write-down		275	4,635
Severance and benefit continuation		–	862
Other associated costs		226	973
	Total	$501	$38,440

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Note 3

Supplemental Balance Sheet Information

(all dollar amounts in thousands)		2006	2005
Receivables
	Trade	$  104,049	$    97,829
	Other	2,113	1,736
		106,162	99,565
	Less:  allowances for doubtful accounts	(1,361)	(1,661)
		$  104,801	$    97,904
Inventories
	Raw materials	$    37,393	$    36,810
	Work in process and finished goods	114,584	112,776
	Supplies	9,457	5,809
	Inventories at cost	161,434	155,395
	LIFO reserve	(38,903)	(35,748)
		$  122,531	$  119,647
Property, plant, and equipment
	Buildings	$  134,653	$  133,197
	Machinery and equipment	1,024,791	1,016,297
		1,159,444	1,149,494
	Less: accumulated depreciation	(712,035)	(675,285)
	Net depreciated value	447,409	474,209
	Land	7,311	6,896
	Timber and timberlands, net of depletion	5,730	5,998
	Construction in progress	7,922	7,125
		$  468,372	$  494,228
Accrued and other liabilities
	Payroll	$    10,661	$      7,446
	Vacation pay	13,101	12,971
	Employee retirement plans	4,737	5,768
	Rebates	10,331	13,899
	Accrued income taxes	7,960	5,371
	Other	24,767	24,698
		$    71,557	$    70,153

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Note 4

Debt

A summary of long-term debt as of December 31 is as follows:

(all dollar amounts in thousands)		2006	2005
Senior notes with interest from 7.20% to 7.43%,
	due between August 31, 2007, and August 31, 2011	$138,500	$138,500
Industrial development bonds due July 1, 2023, with weighted
	average interest rate of 3.69% in 2006 and 2.70% in 2005	19,000	19,000
Note payable		342	490
Capitalized leases (see Note 5)		269	21
Subtotal		158,111	158,011
Premium on senior notes		2,360	3,086
Total debt		160,471	161,097
Less: current maturities of long-term debt (see Note 5)		(184)	(86)
Total long-term debt		$160,287	$161,011

Wausau Paper has $138.5 million outstanding in unsecured private placement notes that were closed and funded on August 31, 1999.  The principal amounts, maturities, and interest rates on the notes are (1) $35 million, eight years, 7.20%; (2) $68.5 million, 10 years, 7.31%; and (3) $35 million, 12 years, 7.43%.  In connection with the note offering, we entered into an interest-rate swap agreement under which the interest rate paid by us with respect to (1) $58.5 million of the 10-year notes was the three-month LIBOR rate, plus .4925%, and (2) $30 million of the 12-year notes was the three-month LIBOR rate, plus .55%.  During 2001, we terminated this interest-rate swap arrangement in exchange for cash payments of $6.4 million.  The amounts received from the swap counterparties at termination approximated the fair values of the swaps at the respective termination dates.  The premium recorded on debt during the period the swaps were outstanding will continue to be amortized using the effective interest-rate method over the remaining term of the respective debt instruments.  See Note 12 for additional information regarding the interest-rate swap and amortization of debt premium.

On July 27, 2006, we amended and restated our existing $100 million revolving-credit facility to provide an unsecured $125 million facility with five financial institutions that will expire on July 27, 2011.  Under the facility, we may elect a base rate which is a fluctuating rate per annum for interest from either domestic or offshore rates plus an applicable rate based upon our consolidated leverage ratio.  In addition, the facility provides for sublimits of $50 million for the issuance of standby letters of credit and $10 million for certain short-term bid loans among the bank group.  We pay the banks a facility fee under this agreement based on quarterly debt/capitalization ratios.  Total facility fees paid under this agreement and previous agreements were $268,000 in 2006, $303,000 in 2005, and $280,000 in 2004.  There were no borrowings against the agreement at December 31, 2006 and 2005.

In addition to representations and warranties, covenants, and provisions for default customary for facilities of this nature for customers of the banks having similar creditworthiness, we are required to maintain a consolidated leverage ratio of not more than 55%, a consolidated interest coverage ratio of not less than 3 to 1, and an adjustable minimum net worth covenant.  On

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December 22, 2006, Wausau Paper, the financial institutions participating in the revolving-credit facility and the required holders of our $138.5 million senior notes agreed to amend a certain financial covenant in anticipation of the adoption of SFAS 158 at December 31, 2006.  The adjustable minimum net worth covenant was amended to allow for the impact of the initial adoption of the pronouncement.  See Note 6 to the Consolidated Financial Statements for a further discussion on the adoption of SFAS 158.  The adjustable minimum net worth requirement was $255.2 million at December 31, 2006.  As of December 31, 2006 and 2005, we were in compliance with all required covenants.

Wausau Paper maintains an unrated commercial paper placement agreement with a bank to issue up to $50 million of unsecured debt obligations.  The agreement requires unused credit availability under our revolving-credit agreement equal to the amount of outstanding commercial paper.  There were no borrowings under this agreement at December 31, 2006 and 2005.

On November 2, 2004, we entered into a loan agreement with the Economic Development Authority of the city of Brainerd, Minnesota.  Under the agreement, we borrowed $500,000, of which $100,000 was forgivable upon meeting certain employment criteria at our Brainerd, Minnesota, facility by November 1, 2006.  The employment criteria have been met in 2006, therefore, $100,000 of the loan has been forgiven.  Interest is payable quarterly on the outstanding balance at a rate of 2% per annum.  In accordance with the agreement, quarterly payments of principal and interest began on January 1, 2006. The loan is due and payable no later than November 1, 2013.

In August 1995, we obtained $19 million in industrial development bond financing to fund an upgrade of the Brokaw mill wastewater treatment plant.  The bonds mature in 2023 and bear interest at short-term rates.  The bonds are supported by a letter of credit that was issued under our revolving-credit facility.

At December 31, 2006, under the $125 million revolving-credit facility, we have the ability and the intent to refinance on a long-term basis the $35 million of unsecured private placement notes maturing on August 31, 2007.  As a result, we have classified the amount as long-term on our balance sheet.

The aggregate annual maturities of long-term debt, excluding capital leases (see Note 5), are as follows:

(all dollar amounts in thousands)	2007	2008	2009	2010	2011	THEREAFTER
Annual maturities	$64	$66	$68,567	$69	$70,076	$19,000

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Note 5

Lease Commitments

Wausau Paper has various leases for real estate, mobile equipment, and machinery that generally provide for renewal privileges or for purchase at option prices established in the lease agreements.  Property, plant, and equipment include the following amount for capitalized leases as of December 31:

(all dollar amounts in thousands)	2006	2005
Machinery and equipment	$ 393	$ 347
Allowance for amortization	(65)	(179)
Net value	$ 328	$ 168

Lease amortization is included in depreciation expense.

Future minimum payments, by year and in the aggregate, under capitalized leases and noncancelable operating leases with initial or remaining terms of one year or more consisted of the following at December 31, 2006:

	Capital	Operating
(all dollar amounts in thousands)	Leases	Leases
2007	$120	$1,584
2008	137	1,560
2009	12	1,535
2010	–	1,261
2011	–	–
Thereafter	–	–
Total minimum payments	$269	$5,940

Rental expense for all operating leases was as follows:

(all dollar amounts in thousands)	2006	2005	2004
Rent expense	$8,508	$7,691	$6,493

Note 6

Pension and Other Post-retirement Benefit Plans

We sponsor defined benefit pension plans covering substantially all employees.  Retirement benefits for salaried and nonunion employees are based on pay and company performance.  Plans covering hourly employees provide benefits based on years of service and fixed benefit amounts for each year of service.  The defined benefit pension plans are funded in accordance with federal laws and regulations.

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We have supplemental retirement agreements with certain present and past key officers, directors, and employees.  The principal cost of such plans is being or has been accrued over the period of active employment to the full eligibility date.  The supplemental retirement agreements are unfunded.

Wausau Paper also provides certain defined benefit post-retirement health and life insurance plans that cover qualifying retirees.  Benefits and eligibility for various employee groups vary by location and union agreements.  The defined benefit post-retirement plans are unfunded.

As described in Note 1, effective December 31, 2006, Wausau Paper adopted SFAS 158, which requires that we recognize in our financial statements the overfunded or underfunded status of a defined benefit post-retirement plan as an asset or liability and to recognize changes in that funded status in the year which the changes occur through comprehensive income.  

The following table illustrates the incremental effect of applying SFAS 158 on individual line items in the Consolidated Balance Sheets for December 31, 2006:

(all amounts in thousands)		Before Application of SFAS 158	Adjustments	After Application of SFAS 158
Other assets		$  52,159	$  (15,664)	$  36,495
Total Assets		814,778	(15,664)	799,114
Deferred income taxes		88,068	(21,494)	66,574
Post-retirement benefits		62,488	39,025	101,513
Pension		10,854	3,405	14,259
	Total liabilities	504,104	20,936	525,040
Accumulated other comprehensive loss		(24,592)	(36,600)	(61,192)
Total stockholders’ equity		310,674	(36,600)	274,074
Total Liabilities and Stockholders’ Equity		814,778	(15,664)	799,114

We selected September 30, 2006 and 2005, as the measurement dates for plan assets and obligations in 2006 and 2005, respectively.

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The following schedules present changes in, and components of, net assets (liabilities) for retirement and other post-retirement benefits:

				Other
				Post–retirement
		Retirement Benefits		Benefits
(all dollar amounts in thousands)		2006	2005	2006	2005
Change in benefit obligation:
	Benefit obligation at September 30, 2005 and 2004	$ 193,432	$ 171,683	$   97,418	$ 86,983
	Service cost	7,833	7,250	3,201	2,513
	Interest cost	10,382	9,584	5,242	4,740
	Amendments	2,278	1,651	–	(3,329)
	Net actuarial (gain) loss	(6,112)	13,990	5,531	12,332
	Participant contributions	–	–	2,030	2,063
	Benefits paid	(11,262)	(9,663)	(6,513)	(7,884)
	Settlements	–	(1,063)	–	–
	Benefit obligation September 30, 2006 and 2005	$ 196,551	$ 193,432	$  106,909	$ 97,418
Change in plan assets:
	Fair value at September 30, 2005 and 2004	$ 147,096	$ 125,148	$          –	$        –
	Actual gain	11,955	17,491	–	–
	Company contributions	17,045	15,183	4,483	5,821
	Participant contributions	–	–	2,030	2,063
	Benefits paid	(11,262)	(9,663)	(6,513)	(7,884)
	Settlements	–	(1,063)	–	–
	Fair value at September 30, 2006 and 2005	$ 164,834	$ 147,096	$          –	$        –
Net amount recognized:
	Funded status at September 30, 2006 and 2005	$ (31,717)	$  (46,336)	$(106,909)	$(97,418)
	Unrecognized prior service cost (benefit)	–	16,095	–	(8,321)
	Unrecognized net actuarial loss	–	50,514	–	41,075
	Cash contribution subsequent to measurement date	4,402	4,040	1,296	1,293
	Accrued benefit cost at December 31	$ (27,315)	$   24,313	$(105,613)	$(63,371)
Amounts recognized in the Balance Sheet consist of:
	Noncurrent assets	$         –	$          –	$          –	$        –
	Current liabilities	(554)	–	(4,100)	–
	Noncurrent liabilities	(26,761)	–	(101,513)	–
	Accrued benefit liability	–	(37,990)	–	(63,371)
	Intangible asset	–	16,083	–	–
	Accumulated other comprehensive loss	–	46,220	–	–
	Net amount recognized at December 31	$ (27,315)	$   24,313	$(105,613)	$(63,371)

For 2006, the amendment to retirement benefit plans reflects union negotiated rate increases.  In 2005, the amendment to retirement benefit plans reflects the impact of a discretionary interest credit.  In 2005, we adopted the RP-2000 Static Mortality Table which, due to an increased life expectancy assumption for participants, resulted in an actuarial loss of approximately $8.0 million for our retirement benefit plans. For 2005, other post-retirement benefit plans were amended to reflect increased contributions by retirees for medical benefits.

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Amounts recognized in Accumulated Other Comprehensive Loss consist of:

			Other
			Post–retirement
	Retirement Benefits		Benefits
(all dollar amounts in thousands)	2006	2005	2006	2005
Additional minimum liability	$     –	$46,220	$       –	$      –
Prior service cost (credit)	16,218	–	(4,998)	–
Net loss	41,267	–	44,640	–
Net amount recognized at December 31	$57,485	$46,220	$39,642	$     –

The total accumulated benefit obligation for pension plans was $193.4 million and $189.1 million at December 31, 2006 and 2005, respectively, and exceeded the plan assets for all of the defined benefit pension plans.

	Pension Benefits
	Target	Percentage of Plan Assets
	Allocations	at Measurement Date
		2006	2005
Asset category
Equity securities	70.0%	69.5%	71.0%
Debt securities	30.0%	30.5%	29.0%
Total	100.0%	100.0%	100.0%

Wausau Paper’s Benefits Committee, as established by the Board of Directors, monitors pension assets and the performance of pension investments.  The Benefits Committee manages toward an asset allocation consisting of approximately 70% equity securities and 30% debt securities.  An external investment manager is used to assist us in establishing our investment strategies and policies.  We consider the historical and projected returns for each asset category and believe that the investment strategy employed will provide a blended rate of return on pension assets consistent with current pension valuation assumptions.

Although we do not have a minimum funding requirement for defined benefit pension plans in 2007, we may elect to make contributions of up to $16.2 million directly to pension plans.  We also expect to contribute $4.1 million directly to other post-retirement plans.  Benefit payments expected to be paid and subsidy amounts to be received in each of the next five years and in the aggregate for the five years thereafter are:

	Pension	Other Post-retirement
(all dollar amounts in thousands)	Benefit Payments	Benefit Payments	Subsidy
2007	$  9,462	$  4,301	$   196
2008	$ 10,301	$  4,138	$   222
2009	$11,450	$  4,253	$   253
2010	$12,015	$  4,612	$   282
2011	$12,688	$  4,975	$   308
2012-2016	$76,404	$33,269	$2,161

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The components of net periodic benefit costs recognized in the Consolidated Statements of Operations and the weighted average assumptions used in the calculation of the year-end obligation and net periodic benefit costs are as follows:

						Other Post–retirement
			Pension Benefits			Benefits
(all dollar amounts in thousands)			2006	2005	2004	2006	2005	2004
Components of net periodic benefit cost:
	Service cost		$   7,833	$  7,250	$  6,899	$3,201	$ 2,513	$ 2,275
	Interest cost		10,382	9,584	9,828	5,242	4,740	5,413
	Expected return on plan assets		(12,011)	(10,832)	(10,012)	–	–	–
	Amortization of:
		Prior service cost (benefit)	2,156	2,250	2,075	(3,324)	(3,055)	(1,971)
		Transition asset	–	–	(50)	–	–	–
		Actuarial loss	3,190	1,862	1,677	1,967	1,352	1,635
	Settlement		–	316	30	–	–	–
	Net periodic benefit cost		$ 11,550	$10,430	$10,447	$7,086	$ 5,550	$ 7,352

The estimated prior service cost and net actuarial loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the year ended December 31, 2007 are charges of $2.2 million and $2.5 million, respectively.  The estimated prior service credit and net actuarial loss for the other post-retirement benefit plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the year ended December 31, 2007 are a credit of $4.6 million and a charge of $2.4 million, respectively.

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						Other Post–retirement
			Pension Benefits			Benefits
			2006	2005	2004	2006	2005	2004
Weighted-average assumptions used to
	determine benefit obligations at September 30:
		Discount rate	5.75%	5.50%	5.75%	5.75%	5.50%	5.75%
		Rate of compensation increase	4.25%	4.25%	4.25%	n/a	n/a	n/a
Weighted-average assumptions used to
	determine net periodic benefit cost for
	year ended December 31:
		Discount rate	5.50%	5.75%	6.25%	5.50%	5.75%	6.0%
		Expected return on plan assets	8.25%	8.25%	8.50%	n/a	n/a	n/a
		Rate of compensation increase	4.25%	4.25%	4.25%	n/a	n/a	n/a
Assumed health care cost trend rates at
	at December 31:
Health care cost trend rate assumed			n/a	n/a	n/a	9%	10%	10%
Ultimate trend rate			n/a	n/a	n/a	5%	5%	5%
Year that the rate reaches the ultimate trend rate			n/a	n/a	n/a	2010	2010	2009

In accordance with the adoption of FSP 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, on July 1, 2004, we remeasured our post-retirement benefit obligation which resulted in a net actuarial gain of $5.9 million and a $0.5 million reduction in net periodic benefit cost for the year ended December 31, 2004.  In addition, the discount rate reflected for the net periodic benefit cost is a weighted-average rate for 2004.  

Assumed health care cost trend rates significantly affect reported amounts for retiree medical benefits.  For 2006, the effect of a one-percentage-point change in the assumed health care cost trend rate would have had the following effects:

	One percentage point
(all dollar amounts in thousands)	Increase	Decrease
Effect on the post-retirement benefit obligation	$16,106	($13,997)
Effect on the sum of the service and interest cost components	$  1,619	($  1,343)

Wausau Paper also sponsors defined contribution pension plans, several of which provide for company contributions based on a percentage of employee contributions.  The cost of such plans totaled $2.7 million in 2006, 2005, and 2004.

We have deferred-compensation agreements with certain present and past key officers, directors, and employees which allow participants to defer a portion of their compensation.  The principal cost of such plans is being or has been accrued over the period of active employment to the full eligibility date.  The annual cost of the deferred-compensation agreements was $0.9 million for the year ending 2006 and a credit of $0.6 million for the year ending December 31, 2005.  At

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December 31, 2006 and 2005, the amounts accrued under the deferred-compensation agreements were $7.9 million and $5.9 million, respectively, and are included in other noncurrent liabilities on the Consolidated Balance Sheets.

Note 7

Income Taxes

Deferred tax assets and liabilities are determined based on the estimated future tax effects of temporary differences between the financial statement and tax bases of assets and liabilities, as measured by the current enacted tax rates.  Deferred tax expense (credit) is the result of changes in the deferred tax asset and liability.

The provision (credit) for income taxes is comprised of the following:

(all dollar amounts in thousands)	2006	2005	2004
Current tax expense (credit):
Federal	$ 11,632	$  (1,074)	$  9,898
State	2,993	827	2,435
Total current	14,625	(247)	12,333
Deferred tax (credit) expense:
Federal	(3,212)	(10,615)	(581)
State	(590)	(3,263)	233
Total deferred	(3,802)	(13,878)	(348)
Total provision (credit) for income taxes	$ 10,823	$(14,125)	$11,985

A reconciliation between taxes computed at the federal statutory rate and our effective tax rate follows:

(all dollar amounts in thousands)	2006		2005		2004
Federal statutory tax rate	$10,119	35.0%	$(11,757)	(35.0%)	$11,332	35.0%
State taxes (net of federal tax benefits)	1,729	6.1	(2,796)	(8.3)	1,684	5.2
Export sales benefit	(380)	(1.3)	(438)	(1.3)	(690)	(2.1)
Other	(645)	(2.3)	866	2.3	(341)	(1.1)
Effective tax rate	$10,823	37.5%	$(14,125)	(42.3%)	$11,985	37.0%

At the end of 2006, $209.4 million of unused state operating loss and credit carryovers existed, which may be used to offset future state taxable income in various amounts through the year 2021.  Because separate state tax returns are filed, Wausau Paper is not able to offset consolidated income with the subsidiaries’ losses.  Under the provisions of SFAS No. 109, the benefits of state tax losses are recognized as a deferred tax asset, subject to appropriate valuation allowances.

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The major temporary differences that give rise to the deferred tax assets and liabilities at December 31, 2006 and 2005, are as follows:

(all dollar amounts in thousands)		2006	2005
Deferred tax assets:
	Accrued compensated absences	$     4,281	$     4,289
	Pensions	1,648	1,698
	Post-retirement benefits	40,522	24,754
	State net operating loss carry forward	15,466	14,257
	Other	25,088	22,377
	Gross deferred tax asset	87,005	67,375
	Less valuation allowance	(12,267)	(10,927)
	Net deferred tax assets	74,738	56,448
Deferred tax liabilities:
	Property, plant, and equipment	(120,271)	(126,734)
	Other	(13,597)	(11,077)
	Gross deferred tax liability	(133,868)	(137,811)
	Net deferred tax liability	$  (59,130)	$  (81,363)

The total deferred tax assets (liabilities) as presented in the accompanying consolidated balance sheets are as follows:

(all dollar amounts in thousands)	2006	2005
Net deferred tax assets	$   7,444	$   9,971
Net long – term deferred tax liabilities	(66,574)	(91,334)
Net deferred tax liability	$(59,130)	$(81,363)

A valuation allowance has been recognized for Wausau Paper and two of our subsidiaries’ state loss carry forwards and future deductible items, as cumulative losses create uncertainty about the realization of the tax benefits in future years.

Effective January 1, 2007, we reorganized the various subsidiaries which comprised our operating segments to align more closely with our operating structure.  Each segment is now organized as a single member limited liability company and operates as a direct subsidiary of Wausau Paper.  The new structure will allow us to utilize state net operating loss and credit carryovers of certain subsidiaries for which full valuation allowances had been previously established due to the fact that separate state tax returns were filed under our previous structure.  In 2007, we expect to record state tax benefits of approximately $10.0 million as a result of the release of these valuation allowances.

Note 8

Stock Compensation Plans

Effective January 1, 2006, Wausau Paper adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), using the modified prospective application transition method.  The

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modified prospective application transition method requires that as of the effective date, compensation cost related to share-based payment transactions is recognized as an operating expense in the statement of operations over the requisite service period of the grant based on the grant-date fair value of the award.  As such, prior periods will not reflect restated amounts.

Prior to January 1, 2006, we measured compensation cost for stock-based compensation plans using the “intrinsic value based method” prescribed under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”  As a result, compensation expense for restricted stock was recognized ratably over the service period based upon the grant-date market value and compensation expense for performance stock awards was recognized ratably over the performance period based on changes in quoted market prices of Wausau Paper common stock and the likelihood of achieving performance goals.  The exercise price of all employee stock options was at least equal to their grant-date market value.  Accordingly, no compensation expense was recorded for stock options granted to employees.

Under SFAS 123R, share-based payment awards that are settled in cash continue to be classified as a liability; however, rather than remeasuring the award at the intrinsic value each reporting period, the award is remeasured at its fair value each reporting period until final settlement.  The difference between the liability as previously computed (i.e., intrinsic value) and the fair value of the liability award on January 1, 2006, was $0.4 million net of any related tax effects ($0.7 million pretax), and was recorded as a cumulative effect of a change in accounting principle in the Consolidated Statement of Operations.

The impact of accounting for share-based compensation to our reported net earnings for the year ended December 31, 2006 under the provisions of SFAS 123R using the “fair value based method” compared to the “intrinsic value based method” was after-tax income of $0.2 million, or less than $0.01 per share.

SFAS 123R also requires us to report the tax benefit from the tax deduction that is in excess of recognized compensation costs (excess tax benefits) as a financing cash flow rather than an operating cash flow.  Before the adoption on January 1, 2006, we reported the entire tax benefit related to the exercise of stock options as an operating cash flow.

Stock Options, Restricted Stock Awards, and Performance Units

Wausau Paper has one stock incentive plan, the “2000 Stock Incentive Plan”, under which awards to grantees are issued.  Under the 2000 Stock Incentive Plan, in addition to stock options, awards of restricted shares of common stock and restricted stock units, referred to as performance units, may be granted.  We also maintain various other employee stock option plans under which options are outstanding.  The plans provide for the determination of purchase price, time, and method of exercise.  We are authorized to deliver up to 3.7 million shares of our common stock upon exercise of non-qualified stock options or incentive stock options, or upon grant or in payment of performance shares, performance units, and restricted stock under the various incentive plans. As of December 31, 2006, there were 1.7 million shares available under the 2000 Stock Incentive Plan for future grant.  We use treasury stock to deliver common st ock shares under these plans.

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For the year ended December 31, 2006, we recognized approximately $0.7 million in share-based compensation expense which included fixed option grants and performance unit awards.  We recognize compensation expense on grants of stock options, restricted stock, and performance unit share-based compensation awards on a straight-line basis over the requisite service period of each award.  As of December 31, 2006, total unrecognized compensation cost related to share-based compensation awards was approximately $0.5 million, net of estimated forfeitures, which we expect to recognize over a weighted average period of approximately 1.3 years.  

Options

Non-qualified stock options are granted for terms up to 20 years from the grant date. The option price is equal to the fair market value of Wausau Paper common stock at the date of grant for incentive and non-qualified options.  Fixed option grant agreements define service condition vesting requirements and other transferability restrictions on a grant-by-grant basis, and performance-based options vest in relation to defined performance.

The following table summarizes the status of all outstanding stock options as of December 31, 2006, 2005, and 2004, and changes during those years:

		2006		2005		2004
		Weighted		Weighted		Weighted
		Average		Average		Average
	2006	Exercise	2005	Exercise	2004	Exercise
	Shares	Price	Shares	Price	Shares	Price
Outstanding at January 1	2,489,842	$12.32	2,259,732	$13.15	2,213,768	$11.88
Granted	106,000	14.03	624,562	12.49	553,108	17.12
Terminated/canceled	(509,218)	13.35	(394,452)	17.37	(374,784)	12.09
Exercised	(147,000)	10.23	–	–	(132,360)	11.33
Outstanding at December 31	1,939,624	$12.30	2,489,842	$12.32	2,259,732	$13.15
Exercisable at December 31	1,839,624	$12.36	2,026,624	$12.32	1,686,624	$11.88
Fair value of options granted during the year		$  3.97		$  4.14		$  5.45

The preceding table includes performance-based options that vest in relation to achieving defined performance criteria. The following table summarizes the status of outstanding performance-based stock options as of December 31, 2006, 2005, and 2004, and changes during those years:

		2006		2005		2004
		Weighted		Weighted		Weighted
		Average		Average		Average
	2006	Exercise	2005	Exercise	2004	Exercise
	Shares	Price	Shares	Price	Shares	Price
Outstanding at January 1	456,218	$12.08	456,108	$16.26	417,000	$11.24
Granted	–	–	384,562	12.10	378,108	17.40
Terminated/canceled	(378,218)	9.18	(384,452)	16.93	(324,000)	11.39
Exercised	(12,000)	10.71	–	–	(15,000)	10.71
Outstanding at December 31	66,000	$10.74	456,218	$12.08	456,108	$16.26
Exercisable at December 31	66,000	$10.74	78,000	$10.74	78,000	$10.74

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As a result of not achieving certain operating profit levels for the years ended December 31, 2006, 2005, and 2004, no compensation expense was recorded for performance-based option grants.  

Additional information regarding all grants outstanding and exercisable at December 31, 2006, is as follows:

(all dollar amounts in thousands, except per share data)

		Weighted Average
		Remaining	Weighted		Weighted
Range of	Outstanding	Contractual	Average	Exercisable	Average
Exercise Prices	Options	Life (years)	Exercise Price	Options	Exercise Price
$8.75 – $10.17	742,913	13.15	$ 9.07	742,913	$ 9.07
$10.71 – $14.98	754,800	16.40	12.66	654,800	12.45
$15.58 – $18.22	384,161	10.95	16.79	384,161	16.79
$18.50 – $21.61	57,750	6.71	19.26	57,750	19.26
Total	1,939,624			1,839,624
Aggregate intrinsic value	$      6,153			$      6,058

For the year ended December 31, 2006, we estimated the fair value of each option on the date of grant using the binomial tree model and the following weighted average assumptions:

Average risk-free interest rate	4.81%
Expected dividend yield	2.59%
Expected volatility	29.8%
Expected term (years)	8.8

The average risk-free rate is determined on the grant date using the yield on zero-coupon U.S. Treasury strips.  The rate is duration-matched to the term of the option, which may entail an extrapolation of the rate.  The expected dividend yield is calculated using the ten year historical yield of Wausau Paper’s dividends.  The expected volatility assumption is based on equally weighted averages of implied volatilities of comparable exchange traded-options, five-year average historical volatilities of Wausau Paper common stock, and ten-year average historical volatilities of Wausau Paper common stock on the valuation date.  The expected term of the options is calculated using the remaining contractual lives of the grants and expected exercise and expected termination behavior based upon historical data for Wausau Paper.

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The table below presents stock option exercise and vesting activity for the years ended December 31, 2006 and 2005:

	Year Ended
	December 31,
(all dollar amounts in thousands)	2006	2005
Total intrinsic value of stock options exercised	$  551	$     –
Cash received from stock option exercises	1,503	–
Income tax benefit from the exercise of stock options	102	–
Total fair value of stock options vested during period	156	1,487

Restricted Stock

On December 17, 2004, 5,000 shares of restricted stock were granted by Wausau Paper.  In accordance with the plan, the 5,000 shares were valued at the fair value of Wausau Paper’s stock on the date of grant and reflected in equity as a reduction in treasury stock outstanding. Compensation expense was recognized for the restricted stock award on a straight-line basis over the vesting period of the entire award with the balance of unearned compensation reflected in the equity section of the balance sheet.  Under the plan, shares of restricted stock have voting rights. Cash dividends on the restricted shares were deferred and held by us until satisfaction of the vesting requirements which occurred on December 17, 2005.  For the year ended December 31, 2005, $84,000 in expense was recognized for restricted stock. There were no issuances of restricted stock during the years ended December 31, 2006 or 2005.

Performance Units

Under the 2000 Stock Incentive Plan, we granted performance units that vested in relation to (1) achieving certain operating profit levels and (2) completion of a service requirement.  Upon satisfaction of the vesting requirements, the performance units and a dividend equivalent calculated based upon shares earned will be paid out in whole shares of Wausau Paper’s common stock, with fractional shares paid in cash.  Prior to vesting, no shares are issued and performance units have no voting rights.  Effective January 1, 2006, compensation expense is determined based upon the closing sales price of our common stock on the date of the award and is recognized over the requisite service period of the grant once we have determined that achievement of the performance condition is probable. If it is improbable that the performance condition will be met, no compensation cost is recognized.  Service condition vesting ranges from zero to t wo years.  For performance unit grants vested prior to the adoption of SFAS 123R, compensation cost was recognized as expense over the service period to the extent the fair market value of Wausau Paper’s stock exceeded the grant price of the performance units until the measurement date.  At the measurement date, total compensation expense was fixed and any unrecognized cost was expensed over the remaining service period.  

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The following table summarizes the activity relating to performance unit grants:

	2006	2005	2004
Outstanding at January 1 (number of units)	90,529	75,993	29,578
Granted	12,269	43,533	46,415
Terminated	(5,676)	(18,404)	–
Settled	(30,657)	(10,593)	–
Outstanding at December 31 (number of units)	66,465	90,529	75,993

The aggregate intrinsic value of performance units outstanding at December 31, 2006 was approximately $1.0 million. Total compensation expense recognized for performance units for the years ended December 31 totaled $0.5 million in 2006, $0.4 million in 2005, and $0.3 million in 2004.

Stock Appreciation Rights

Wausau Paper maintains various stock appreciation rights plans that entitle certain management employees to receive cash equal to the sum of the appreciation in the value of the stock and the hypothetical value of cash dividends which would have been paid on the stock covered by the grant assuming reinvestment in Wausau Paper stock.  The stock appreciation rights granted may be exercised in whole or in such installments and at such times as specified in the grant.  In all instances, the rights lapse if not exercised within 20 years of the grant date.  All of the outstanding stock appreciation rights were fully vested as of January 1, 2006.

The following table summarizes the activity relating to our stock appreciation rights plans:

		2006	2005	2004
Outstanding at January 1 (number of shares)		253,797	253,797	289,472
	Terminated	–	–	(4,875)
	Exercised	–	–	(30,800)
Outstanding and exercisable at December 31
	(number of shares)	253,797	253,797	253,797
Price range of rights exercised		$8.12-$9.33	$8.12-$9.33	$8.12-$9.33
Price range of outstanding and exercisable rights:
	$4.06 – $9.58	243,797	243,797	243,797
	$17.16	10,000	10,000	10,000

At December 31, 2006, the weighted average remaining contractual life on outstanding stock appreciation rights with an exercise price of between $4.06 and $9.58 was 3.1 years, and with an exercise price of $17.16 was 12 years.

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Dividend Equivalents

We maintain a Dividend Equivalent Plan.  Upon termination of employment, or at the time of exercise of options granted in tandem with the dividend equivalents, participants are entitled to receive the cash value of the grant.  The cash value is determined by the sum of the value of cash dividends that would have been paid on the stock covered by the grant had it been actual stock and assuming all such hypothetical dividends had been reinvested in Wausau Paper stock.  All of the outstanding dividend equivalents were fully vested as of January 1, 2006.

The following table summarizes the activity relating to our dividend equivalent plan:

		2006	2005	2004
Outstanding at January 1 (number of shares)		154,750	154,750	174,114
Exercised		(3,000)	–	(19,364)
Outstanding and exercisable at December 31
	(number of shares)	151,750	154,750	154,750

For the year ended December 31, 2006, $8,827 was paid to a participant in settlement of outstanding dividend equivalent awards.

Effective January 1, 2006, share-based compensation provisions or credits related to stock appreciation rights and dividend equivalents are determined based upon a remeasurement to their fair value at each reporting period in accordance with the provisions of SFAS 123R. The provision (credit) for stock appreciation rights and dividend equivalents, net of the cumulative effect adjustment recorded upon the adoption of SFAS 123R, for the year ended December 31, 2006 is shown in the following table.  Prior to January 1, 2006, additions or reductions to compensation expense for stock appreciation rights and dividend equivalents was recognized in each period based upon the quoted market value of the shares and the exercise provisions.

(all dollar amounts in thousands)	2006	2005	2004
Stock appreciation rights	$   866	$(1,897)	$1,486
Dividend equivalents	164	(175)	227
Total	$1,030	$(2,072)	$1,713

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Prior Year Pro forma Expense

The following table illustrates the effect on net earnings and earnings per share as if the fair value-based method provided by SFAS No. 123 had been applied for all outstanding and unvested awards for periods prior to the adoption of SFAS 123R:

(all dollar amounts in thousands, except per share data)			2005	2004
Net earnings:
	As reported		$(19,465)	$20,393
	Add: Total stock – based employee compensation expense (credit)
		under APB No. 25, net of related tax effects	(1,505)	1,748
	Deduct: Total stock – based employee compensation expense
		determined under fair – value – based method for all awards,
		net of related tax effects	468	(2,034)
Pro forma			$(20,502)	$20,107
Net earnings per share – basic:
	As reported		$(0.38)	$0.39
	Pro forma		$(0.40)	$0.39
Net earnings per share – diluted:
	As reported		$(0.38)	$0.39
	Pro forma		$(0.40)	$0.39

Note 9

Acquisitions

On October 21, 2004, we acquired the assets of the Brainerd, Minnesota, paper mill of the Missota Paper Company, LLC, for approximately $9.9 million.  The purchase price was allocated using the fair values of the acquired property, plant, and equipment.  We assumed no liabilities of the mill.  No goodwill or other intangible assets resulted from the transaction.  The acquired assets are included in the Printing & Writing business segment.

Note 10

Commitments and Contingencies

Litigation and Other Claims

Wausau Paper may be involved from time to time in various legal and administrative proceedings or be subject to various claims in the normal course of its business.  Although the ultimate disposition of legal proceedings cannot be predicted with certainty, in the opinion of management, the ultimate disposition of any threatened or pending matters, either individually or on a combined basis, will not have a material adverse effect on our consolidated financial condition, liquidity, or results of operations.

Environmental Matters

Wausau Paper is subject to extensive regulation by various federal, state, provincial, and local agencies concerning compliance with environmental control statutes and regulations.  These regulations impose limitations, including effluent and emission limitations, on the discharge of materials into the environment, as well as require us to obtain and operate in compliance with

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conditions of permits and other governmental authorizations.  Future regulations could materially increase our capital requirements and certain operating expenses in future years.

In 1986, the Wisconsin Department of Natural Resources (“DNR”) notified a subsidiary of Wausau Paper that under Wisconsin environmental laws we may be a potentially responsible party (“PRP”) for the Gorski landfill in Mosinee, Wisconsin, and nominated the landfill to the Environmental Protection Agency’s (“EPA”) National Priorities List.  The DNR had identified elevated concentrations of chlorinated volatile organic compounds in three private water supply wells located in close proximity to the landfill.  The DNR has identified 10 PRPs.  No action was taken by either the DNR or the EPA until June 2000, when the DNR requested certain parties who had disposed of waste at the site to form an ad hoc group to cooperatively investigate the environmental contamination at the site.  In October 2001, we entered into an agreement with three other parties to fund a study of the landfill to determine possible r emediation strategies.  We worked with the DNR on the development of the study and work plan which was initiated in early 2003.  A report based upon the study was submitted to the DNR in 2004.  In early 2006, the DNR responded to the report and requested the ad hoc group focus on water replacement for the two remaining impacted wells.  The ad hoc group prepared and submitted a water replacement plan to the DNR, which the DNR subsequently approved.  The water replacement plan is expected to be implemented in early 2007.  We estimate that the costs of remediation of the entire site for all parties will be approximately $1.5 million, based upon the remediation method our consultants believe to be the most likely to be used.  This estimate is preliminary.  Actual costs of remediation of the site could be materially different since no timetable or decision on the actual remediation work has yet been developed.  Our share of the cost of such remediation cannot be determ ined with certainty at this time, but based on the estimated costs at year-end and the number and nature of other PRPs, we are of the opinion that such costs will not have a material adverse effect on the operations, financial condition, or liquidity of Wausau Paper.  We are also pursuing insurance coverage of our remediation costs following a 2003 Wisconsin Supreme Court decision in an unrelated case that remediation claims may amount to damages for purposes of general liability insurance.

It is our policy to accrue remediation costs when it is probable that such costs will be incurred and when a range of loss can be reasonably estimated.  Estimates of loss are developed based on currently available information including environmental studies performed by third-party experts and our past experience with these matters.  Our accrued environmental liabilities, including all remediation and landfill closure costs, totaled $5.7 million and $6.2 million at December 31, 2006 and 2005, respectively.  The provision for remediation and landfill costs was not significant for the years ended December 31, 2006, 2005, and 2004, respectively.  We periodically review the status of all significant existing or potential environmental issues and adjust our accruals as necessary.  The accruals do not reflect any possible future insurance recoveries.  Estimates of costs for future remediation are necessarily imprecise due to, amo ng other things, the identification of presently unknown remediation sites and the allocation of costs among PRPs.  We believe that our share of the costs of cleanup for our current remediation site will not have a material adverse impact on our consolidated financial position.  As is the case with most manufacturing and many other entities, there can be no assurance that we will not be named as a PRP at additional previously or currently owned sites in the future or that the costs associated with such additional sites would not be material.

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Other Commitments

As of December 31, 2006, Wausau Paper was committed to spend approximately $7.5 million on capital projects, which were in various stages of completion.

Wausau Paper contracts for the supply and delivery of natural gas at some of its facilities.  Under these contracts, we are committed to the transportation of a fixed volume of natural gas from our natural gas suppliers to our facilities.  We are not required to buy or sell minimum gas volumes under the agreement but are required to pay a minimum transportation fee for the contracted period.  Contracts expire at various times between 2007 and 2019.  At December 31, 2006, we also have commitments for the purchase of machine clothing from various suppliers and volume commitments for the supply of fuel oil, natural gas, coal, paper, and certain raw materials.  These obligations expire between 2007 and 2012.  Wausau Paper may also purchase, from time to time, natural gas contracts with fixed prices for a certain portion of our facility requirements.

Note 11

Preferred Share Purchase Rights Plan

Wausau Paper maintains a rights plan under which one preferred share purchase right is issued for each outstanding share of common stock.  Each right entitles its holder to purchase 1 one-thousandth of a share of Series A Junior Participating Preferred Stock, at an exercise price of $60 per 1 one-thousandth of a preferred share, subject to adjustment.  The rights will become exercisable only if a person or group (with certain exceptions) acquires beneficial ownership of 15% or more of the outstanding common stock (an “Acquiring Person”).  Once exercisable, each holder of a right, other than the Acquiring Person, will thereafter have the right to receive common stock having a market value of two times the exercise price of the right.  Upon the occurrence of certain events, each holder of a right, other than an Acquiring Person, will have the right to receive (in lieu of preferred shares) our common stock (or a successor comp any) that has a market value of two times the exercise price of the right.  Until exercisable, the rights will not be issued or traded in separate form from the common stock.  After any person or group becomes an Acquiring Person, and prior to the acquisition by the Acquiring Person of 50% or more of the common stock, we may exchange the rights, other than rights owned by the Acquiring Person, at an exchange ratio of one share per right (subject to adjustment).  At any time prior to any person or group becoming an Acquiring Person, we may redeem the rights at a price of $0.01 per right.  The rights will expire on October 31, 2008.

Note 12

Financial Instruments

Financial instruments consisted of the following:

Cash and Cash Equivalents

The carrying amount approximates fair value due to the relatively short period to maturity for these instruments.

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Accounts Receivable, Accounts Payable, and Accrued Liabilities

The carrying amounts approximate fair value due to the relatively short-term nature of these instruments.

Long-Term Debt

The fair value of our long-term debt is estimated based on current rates offered to us for debt of the same remaining maturities.  At December 31, 2006 and 2005, the fair value of the long-term debt exceeded the carrying value by approximately $3.3 million and $8.3 million, respectively.

Interest Rate Agreement

Interest-rate swaps designated in fair value hedge relationships have been used by us in the past to mitigate the risk of reductions in the fair value of existing fixed-rate long-term notes due to decreases in LIBOR-based interest rates.  Gains and losses on these instruments were reflected in interest expense in the period in which they occurred, and an offsetting gain or loss is also reflected in interest expense based on changes in the fair value of the debt instrument being hedged due to changes in LIBOR-based interest rates.  During 2001, the interest rate agreements were terminated.  The amounts received from the swap counterparties at termination approximated the fair values of the swaps at the respective termination dates.  The premium recorded on debt during the period the swaps were outstanding will continue to be amortized using the effective interest rate method over the remaining term of the respective debt instruments.  Debt premium amortization reduced interest expense by approximately $0.7 million for the years ended December 31, 2006, 2005, and 2004.  

Note 13

Segment Data

Wausau Paper has reclassified certain prior-year segment information to conform to the 2006 presentation.  The reclassification is the result of a reporting change, effective January 1, 2006, for timberland assets held for sale and gains from the disposal of such assets from the operating segments to corporate.

Factors Used to Identify Reportable Segments

Our operations are classified into three principal reportable segments:  Specialty Products, Printing & Writing, and Towel & Tissue, each providing different products.  Separate management of each segment is required because each business unit is subject to different marketing, production, and technology strategies.

Products From Which Revenue Is Derived

Specialty Products produces specialty papers at its manufacturing facilities in Rhinelander, Wisconsin; Mosinee, Wisconsin; and Jay, Maine.  Specialty Products also includes two converting facilities that produce laminated roll wrap and related specialty finishing and packaging products.  Printing & Writing produces a broad line of premium printing and writing

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grades at manufacturing facilities in Brokaw, Wisconsin; Groveton, New Hampshire; and Brainerd, Minnesota.  Printing & Writing also includes a converting facility that converts printing and writing grades.  Towel & Tissue produces a complete line of towel and tissue products that are marketed along with soap and dispensing systems for the “away-from-home” market.  Towel & Tissue operates a paper mill in Middletown, Ohio, and a converting facility in Harrodsburg, Kentucky.

During 2006, no single customer accounted for 10% or more of our consolidated net sales.  On a segment basis, two customers accounted for approximately 25% of Printing & Writing business net sales and one customer accounted for approximately 15% of Towel & Tissue net sales, while no single customer of the Specialty Products’ business segment comprised 10% or more of the respective segment net sales.

Measurement of Segment Profit and Assets

We evaluate performance and allocate resources based on operating profit or loss.  The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.

Reconciliations

The following are reconciliations to corresponding totals in the accompanying consolidated financial statements:

(all dollar amounts in thousands)		2006	2005	2004
Net sales external customers:
	Specialty Products	$   468,866	$   459,028	$   462,779
	Printing & Writing	431,022	378,073	352,286
	Towel & Tissue	288,290	259,992	225,652
		$1,188,178	$1,097,093	$1,040,717
Operating profit (loss):
	Specialty Products	$       4,412	$     10,371	$     22,666
	Printing & Writing	(10,975)	(63,363)	5,806
	Towel & Tissue	44,621	37,991	29,148
	Corporate and eliminations	1,439	(8,128)	(15,896)
		$     39,497	$    (23,129)	$     41,724

Segment assets:
	Specialty Products	$   319,387	$   333,460	$   342,724
	Printing & Writing	243,362	254,215	281,378
	Towel & Tissue	180,188	175,134	171,080
	Corporate and unallocated	56,177	57,704	87,052
		$   799,114	$   820,513	$   882,234

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Other Significant Items

	Depreciation,	Expenditures
(all dollar amounts in thousands)	Depletion, and	for Long–Lived
	Amortization	Assets
2006
Specialty Products	$23,052	$13,305
Printing & Writing	12,382	6,505
Towel & Tissue	21,236	3,120
Corporate and unallocated	1,243	926
	$57,913	$23,856
2005
Specialty Products	$24,756	$11,273
Printing & Writing	45,958	10,014
Towel & Tissue	19,642	9,758
Corporate and unallocated	1,198	449
	$91,554	$31,494
2004
Specialty Products	$25,072	$  7,543
Printing & Writing	15,527	13,863
Towel & Tissue	18,177	7,128
Corporate and unallocated	1,189	1,031
	$59,965	$29,565

Company Geographic Data

We have no long-lived assets outside the United States.  Net sales to customers within the United States and other countries, of which the majority relates to Canadian customers, are as follows:

(all dollar amounts in thousands)	2006	2005	2004
United States	$1,099,165	$1,005,818	$   954,684
All foreign countries	89,013	91,275	86,033
	$1,188,178	$1,097,093	$1,040,717

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Quarterly Financial Data (Unaudited)

(all dollar amounts in thousands,		First	Second	Third	Fourth
except per share data)		Quarter	Quarter*	Quarter*	Quarter*	Annual
2006
Net sales		$283,663	$297,286	$306,699	$300,530	$1,188,178
Gross profit		22,325	28,340	36,486	35,267	122,418
Operating profit		1,217	8,528	14,701	15,051	39,497
Net earnings (loss)		(1,343)	3,588	7,509	7,865	17,619
Net earnings (loss) per share - basic		$(0.03)	$0.07	$0.15	$0.15	$0.35
Net earnings (loss) per share - diluted		$(0.03)	$0.07	$0.15	$0.15	$0.34
2005
Net sales		$267,741	$275,291	$285,624	$268,437	$1,097,093
Gross profit		23,135	16,846	8,142	4,503	52,626
Operating (loss) profit		5,608	(1,707)	(11,192)	(15,838)	(23,129)
Net (loss) earnings		1,936	(2,691)	(8,992)	(9,718)	(19,465)
Net (loss) earnings per share basic
	and diluted	$0.04	$(0.05)	$(0.18)	$(0.19)	$(0.38)
2004
Net sales		$251,815	$264,109	$262,428	$262,365	$1,040,717
Gross profit		26,698	28,136	32,445	30,262	117,541
Operating profit		7,814	8,382	15,287	10,241	41,724
Net earnings		3,452	3,737	8,108	5,096	20,393
Net earnings per share basic and diluted		$0.07	$0.07	$0.16	$0.10	$0.39

* In 2005, the second, third, and fourth quarters include after-tax expense of $6.0 million ($9.5 million pretax) or $0.12 per share, $13.6 million ($20.8 million pretax) or $0.26 per share, and $5.1 million ($8.1 million pretax) or $0.10 per share, respectively, related to closure costs and restructuring expense related to the closing of the sulfite pulp mill at Printing & Writing’s Brokaw, Wisconsin facility.

Market Prices For Common Shares (Unaudited)

	2006			2005			2004
			Cash			Cash			Cash
			Dividends			Dividends			Dividends
	Price	Price	Paid Per	Price	Price	Paid Per	Price	Price	Paid Per
Quarter	High	Low	Share	High	Low	Share	High	Low	Share
1st	$14.35	$11.36	$0.085	$18.13	$13.57	$0.085	$14.11	$12.20	$0.085
2nd	15.33	11.20	0.085	14.63	11.16	0.085	17.44	13.19	0.085
3rd	13.93	11.50	0.085	13.23	11.28	0.085	17.40	14.54	0.085
4th	15.48	13.07	0.085	12.63	10.08	0.085	19.12	15.15	0.085

All prices represent the high and the low sales prices for the common stock as reported on the New York Stock Exchange.

78

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders of

Wausau Paper Corp.

Mosinee, WI

We have audited the consolidated financial statements of Wausau Paper Corp. and subsidiaries (the “Company”) as of and for the years ended December 31, 2006 and 2005, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, and have issued our reports thereon dated February 20, 2007 (which report includes an explanatory paragraph relating to the Company’s adoption of Statement of Financial Accounting Standards No. 158, Employer’s Accounting for Defined Benefit Plans, on December 31, 2006, and Statement of Financial Accounting Standards No. 123R, Share-based Payment, on January 1, 2006, as described in Note 1).  Our audits also included the consolidated financial statement schedule of the Company listed in Item 8. This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

DELOITTE & TOUCHE LLP

Milwaukee, Wisconsin

February 20, 2007

79

Financial Statement Schedule II – Valuation and Qualifying Accounts

		Allowance for	Valuation Allowance
		Doubtful Accounts	for Deferred Tax Assets
Balance December 31, 2003		$1,928	$5,562
	Charges to cost and expense	92	2,824
	Deductions	(186)	(17)
Balance December 31, 2004		1,834	8,369
	Charges to cost and expense	256	3,849
	Deductions	(429)	(1,291)
Balance December 31, 2005		1,661	10,927
	Charges (credits) to cost and expense	(64)	1,358
	Deductions	(236)	(18)
Balance December 31, 2006		$1,361	$12,267

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

Not applicable.

Item 9A.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this Form 10-K, management, under the supervision, and with the participation, of the our President and Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 as amended (the “Exchange Act”)) pursuant to Rule 13a-15.  Based upon, and as of the date of such evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective.  

Internal Control Over Financial Reporting

Management’s report on our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), and the related report of our independent registered public accounting firm, are set forth in Item 8 of this report under “Management’s Report on Internal Control Over Financial Reporting” on page 40 and “Report of Independent Registered Public Accounting Firm” on page 41. No changes in our internal

80

control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.  OTHER INFORMATION

Not applicable.

PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors and Executive Officers

Information relating to our directors is incorporated into this Form 10-K by this reference to the disclosure in our proxy statement relating to the 2007 annual meeting of shareholders (the “2007 Proxy Statement”) under the subcaption “Election of Directors – Election of Directors.”  

Information relating to our executive officers is found in Part I of this Form 10-K.  

Information required under Rule 405 of Regulation S-K is incorporated into this Form 10-K by this reference to the disclosure in the 2007 Proxy Statement under the subcaption “Stock Ownership – Section 16(a) Beneficial Ownership Reporting Compliance.”

Code of Ethics

We have adopted a Code of Business Conduct and Ethics for all directors, officers, and employees and a Code of Compliance and Reporting Requirements for Chief Executive Officer and Senior Financial Officers which covers our Chief Executive Officer, Chief Financial Officer, Controller, Manager of Corporate Accounting, and Manager of Internal Audit.  Each of these codes is available at “About Wausau Paper – Corporate Governance” on the Company’s website (www.wausaupaper.com).  Shareholders may also obtain a free copy by writing to the address set forth under the following subcaption.  In the event we amend or waive any provision of the Code of Compliance and Reporting Requirements for Chief Executive Officer and Senior Financial Officers applicable to its principal executive officers, principal financial officers, or controller, we intend to disclose such amendment or waiver at the website address where the code may also be found.

81

Corporate Governance Guidelines and Committee Charters

We have adopted Corporate Governance guidelines and charters for the Board of Directors’ Audit, Compensation, and Corporate Governance Committees.  These guidelines and charters are available at “About Wausau Paper – Corporate Governance” on our website (www.wausaupaper.com).  Shareholders may also request a free copy of these documents by writing to:

Corporate Secretary

Wausau Paper

100 Paper Place

Mosinee, WI 54455-9099

Audit Committee

Our Board of Directors has appointed an Audit Committee in accordance with Section 3(a)(58)(A) of the Exchange Act.  The members of the Audit Committee satisfy the NYSE and SEC rules for independence applicable to audit committees of listed companies.  Mr. Freels (Chairman), Mr. Baur, Mr. Knetter, and Mr. Kuester serve on the Audit Committee.

Financial Expert

Our Board of Directors has determined that Gary W. Freels is an audit committee financial expert.  Mr. Freels is an independent director under NYSE listing standards.  Mr. Freels has 26 years of experience in commercial banking and, for the last 11 years, has managed the investment portfolios of the private foundation he serves as chief executive officer.  He has also served on the Audit Committee since 1996, and as its chairman since April, 2004.

Item 11.  EXECUTIVE COMPENSATION

Director Compensation

Information relating to director compensation is incorporated into this Form 10-K by this reference to the disclosure in the 2007 Proxy Statement under the subcaption “Election of Directors –Director Compensation for 2006.”  

Executive Officer Compensation

Information relating to the compensation of executive officers is incorporated into this Form 10-K by this reference to the disclosure in the 2007 Proxy Statement beginning under the caption “Executive Compensation.”

82

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information concerning (1) any person or group known to us to be the beneficial owner of more than 5% of our voting stock, and (2) ownership of its equity securities by management is incorporated by reference to the material under the heading “Stock Ownership” in the 2007 Proxy Statement.

The following table provides information with respect to compensation plans under which our common stock is authorized for future issuance:

			Number of securities
	Number of securities	Weighted-average	remaining available for
	to be issued	exercise price	future issuance under
	upon exercise of	of outstanding	equity compensation plans
	outstanding options,	options, warrants and	(excluding securities
Plan category	warrants and rights(1)(2)	rights(1) (2) (3)	reflected in column (a))(1) (2)
	(a)	(b)	(c)
Equity compensation plans
approved by security
holders	1,889,889	$12.30	1,667,327
Equity compensation plans
not approved by security
holders	0	n/a	0
Total	1,889,889	$12.30	1,667,327

⁽¹⁾ Shares indicated relate to common stock issuable upon exercise of options awarded under the 1991 Employee Stock Option Plan and upon exercise of options or the vesting of performance units awarded under the 2000 Stock Incentive Plan.

⁽²⁾ Table excludes options with respect to 116,200 shares granted under stock option plans of Mosinee Paper Corporation as of December 17, 1997 (the date of the merger between Wausau Paper Mills Company and Mosinee Paper Corporation) at a weighted-average exercise price of $11.58.  No additional options will be granted pursuant to the former Mosinee Paper Corporation stock-option plans.

⁽³⁾ The exercise price calculation is based only on outstanding options to purchase 1,823,424 shares.  Shares issuable pursuant to performance units have no exercise price.

Beneficial Ownership

Information relating to security ownership of certain beneficial owners and management is incorporated into this Form 10-K by this reference to the disclosure in the 2007 Proxy Statement beginning under the caption “Stock Ownership.”

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information relating to certain relationships and related transactions with our directors and officers and the independence of our directors is incorporated into this Form 10-K by this

83

reference to the disclosure in the 2007 Proxy Statement under the subcaption “Corporate Governance – Review, Approval, or Ratification of Related Party Transactions” and “Corporate Governance – Director Independence.”

Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information relating to the fees and services of our principal accountant is incorporated into this Form 10-K by this reference to the disclosure in the 2007 Proxy Statement under the subcaption “Report of the Audit Committee and Related Matters – Independent Auditor and Fees,” and “Report of the Audit Committee and Related Matters – Audit Committee Pre-Approval Policies.”

PART IV

Item 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)

Documents filed as part of this report

(1)

The following consolidated financial statements of Wausau Paper and the Reports of our Independent Registered Public Accounting Firm thereon are filed as part of this report:

(i)

Consolidated Balance Sheets as of December 31, 2006 and 2005

(ii)

Consolidated Statements of Operations for the years ended December 31, 2006, 2005, and 2004

(iii)

Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005, and 2004

(iv)

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2006, 2005, and 2004

(v)

Notes to Consolidated Financial Statements

(2)

Financial Statement Schedules  

The following financial statement schedule is filed as part of this report:

(i)

Financial Statement Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 2006, 2005, and 2004 (page 79)

All other schedules prescribed by Regulation S-X are not submitted because they are not applicable or not required, or because the required information is included in the Consolidated Financial Statements and Notes thereto.

84

(3)

Exhibits

The following exhibits required by Item 601 of Regulation S-K are filed as part of this report:

Exhibit

Number

Description

3.1

Restated Articles of Incorporation, as amended May 12, 2005 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K dated May 12, 2005)

3.2

Restated Bylaws, as amended May 12, 2005 (incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K dated May 12, 2005)

4.1

Rights Agreement, dated as of October 21, 1998, including the Form of Restated Articles of Incorporation as Exhibit A and the Form of Rights Certificate as Exhibit B (incorporated by reference to Exhibit 4.1 to Registration Statement on Form 8-A dated October 21, 1998)

4.2

First Amendment dated August 22, 2000 to Rights Agreement dated October 21, 1998 (incorporated by reference to Exhibit 4.1(a) to Amendment No. 1 to Registration Statement on Form 8-A, filed on December 19, 2000)

4.3

Summary of Rights to Purchase Preferred Shares, Exhibit C to Rights Agreement filed as Exhibit 4.1 thereto (incorporated by reference to Exhibit 4.2 to Registration Statement on Form 8-A, filed on October 29, 1998)

4.4

$138,500,000 Note Purchase Agreement dated August 31, 1999 (incorporated by reference to Exhibit 4.3 to Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999)

4.5

Amendment No. 1, dated June 28, 2005, to Note Purchase Agreement dated August 31, 1999 (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K dated June 28, 2005)

4.6

Amendment No. 2, dated as of December 21, 2006, to Note Purchase Agreement dated August 31, 1999 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated December 22, 2006)

4.7

$125,000,000 Credit Agreement dated as of July 27, 2006, among Wausau Paper and Bank of America, N.A., M&I Marshall & Ilsley Bank, Harris N.A., Wells Fargo Bank, N. A., and Northwest Farm Credit Services, PCA (incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K dated July 27, 2006)

4.8

First Amendment to $125,000,000 Credit Agreement dated as of December 21, 2006 (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K dated December 22, 2006)

4.9

Indenture of Trust dated July 1, 1995, relating to $19,000,000 in Series 1995 variable rate industrial revenue bonds.

10.1

Supplemental Retirement Plan, as last amended and restated effective January 1, 2005 (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006)*

10.2

1988 Stock Appreciation Rights Plan, as last amended March 4, 1999 (incorporated by reference to Exhibit 10.4 to Annual Report on Form 10-K for the fiscal year ended December 31, 1998)*

85

10.3

1990 Stock Appreciation Rights Plan, as last amended March 4, 1999 (incorporated by reference to Exhibit 10.6 to Annual Report on Form 10-K for the fiscal year ended December 31, 1998)*

10.4

Deferred Compensation Agreement dated March 2, 1990, as last amended December 16, 2005 (incorporated by reference to Exhibit 10.9 to Current Report on Form 8-K dated December 16, 2005)*

10.5

1991 Employee Stock Option Plan, as last amended June 16, 2006 (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006)*

10.6

1991 Dividend Equivalent Plan, as last amended March 4, 1999 (incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K for the fiscal year ended December 31, 1998)*

10.7

Supplemental Retirement Benefit Plan dated January 16, 1992, as last amended December 16, 2005 (incorporated by reference to Exhibit 10.8 to Current Report on Form 8-K dated December 16, 2005)*

10.8

Directors’ Deferred Compensation Plan, as last amended March 4, 1999 (incorporated by reference to Exhibit 10.11 to Annual Report on Form 10-K for the fiscal year ended December 31, 1998)*

10.9

Directors Retirement Benefit Policy, as amended December 16, 2005 (incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K dated December 16, 2005)*

10.10

Mosinee Paper Corporation 1985 Executive Stock Option Plan, as last amended June 16, 2006 (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006)*

10.11

Mosinee Paper Corporation 1988 Stock Appreciation Rights Plan, as last amended March 4, 1999 (incorporated by reference to Exhibit 10.15 to Annual Report on Form 10-K for the fiscal year ended December 31, 1998)*

10.12

Mosinee Paper Corporation Supplemental Retirement Benefit Agreement dated November 12, 1991, as last amended December 16, 2005 (incorporated by reference to Exhibit 10.10 to Current Report on Form 8-K dated December 16, 2005)*

10.13

Mosinee Paper Corporation 1994 Stock Option Plan, as last amended June 16, 2006 (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006)*

10.14

2006 Equity-Based Incentive Compensation Plan*

10.15

Incentive Compensation Plan for Executive Officers (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K dated December 16, 2005)*

10.16

2000 Stock Incentive Plan as last amended October 20, 2006 (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006)*

10.17

Executive Deferred Compensation Plan as last amended October 20, 2006 (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006)*

10.18

2005 Directors Deferred Compensation Plan as last amended October 20, 2006 (incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K dated December 16, 2005)*

10.19

2005 Executive Deferred Compensation Plan as last amended October 20, 2006 (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006)*

86

10.20

Standard Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K dated December 17, 2004)*

10.21

Standard Form of Performance Unit Grant Agreement (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004)*

10.22

Standard Form of Non-Qualified Performance Stock Option Agreement (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004)*

10.23

Standard Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K dated December 16, 2005)*

10.24

Standard Form of Non-Qualified Stock Option Agreement for Directors (incorporated by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K dated December 16, 2005)*

10.25

Board of Directors Compensation Policy dated December 16, 2005 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated December 16, 2005)*

10.26

Form of Grant of Performance Units Pursuant to Director Compensation Policy dated December 16, 2005 (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K dated December 16, 2005)*

21.1

Subsidiaries of Wausau Paper

23.1

Consent of Deloitte & Touche LLP

31.1

Certification of CEO pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2

Certification of CFO pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1

Certification of CEO and CFO furnished pursuant to Section 906 of Sarbanes-Oxley Act of 2002

* Executive compensation plans or arrangements.  All plans are sponsored or maintained by Wausau Paper unless otherwise noted.

(b)

Exhibits

See Item 15(a)(3).

(c)

Financial Schedules

See Item 15(a)(2).

87

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

WAUSAU PAPER CORP.

March 16, 2007	SCOTT P. DOESCHER
	Scott P. Doescher
	Senior Vice President – Finance,
		Secretary and Treasurer

(On behalf of the Registrant and as Principal

Financial and Accounting Officer)

88

Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

March 16, 2007

THOMAS J. HOWATT	SAN W. ORR, JR.
Thomas J. Howatt	San W. Orr, Jr.
President and Chief Executive Officer	Chairman of the Board
(Principal Executive Officer)
ANDREW N. BAUR	GARY W. FREELS
Andrew N. Baur	Gary W. Freels
Director	Director
MICHAEL M. KNETTER	DENNIS J. KUESTER
Michael M. Knetter	Dennis J. Kuester
Director	Director
DAVID B. SMITH, JR.
David B. Smith, Jr.
Director

89

EXHIBIT INDEX*

to

FORM 10-K

of

WAUSAU PAPER CORP.

for the fiscal year ended December 31, 2006

Pursuant to Section 102(d) of Regulation S-T

(17 C.F.R. §232.102(d))

Exhibit 4.9

Indenture of Trust dated July 1, 1995, relating to $19 million in Series 1995 variable rate industrial revenue bonds.

Exhibit 10.14

2006 Equity-Based Incentive Compensation Plan

Exhibit 21.1

Subsidiaries of Wausau Paper

Exhibit 23.1

Consent of Deloitte & Touche LLP

Exhibit 31.1

Certification of CEO pursuant to Section 302 of Sarbanes-Oxley Act of 2002

Exhibit 31.2

Certification of CFO pursuant to Section 302 of Sarbanes-Oxley Act of 2002

Exhibit 32.1

Certification of CEO and CFO pursuant to Section 906 of Sarbanes-Oxley Act of 2002

*  Exhibits required by Item 601 of Regulation S-K which have previously been filed and are incorporated herein by reference are set forth in Part IV, Item 15 of Form 10-K to which this Exhibit Index relates.

EX-4.9

Exhibit 4.9

INDENTURE OF TRUST

Dated as of July 1, 1995

From

VILLAGE OF BROKAW, WISCONSIN,

as Grantor

To

M&I FIRST NATIONAL BANK,

West Bend, Wisconsin,

as Trustee

Relating To:

$19,000,000

VILLAGE OF BROKAW, WISCONSIN

VARIABLE RATE DEMAND SEWAGE AND SOLID WASTE REVENUE BONDS,

SERIES 1995 (WAUSAU PAPER MILLS COMPANY PROJECT)

INDEX TO INDENTURE OF TRUST

Page

Parties and Recitals

1

Granting Clauses

2

ARTICLE I

DEFINITIONS AND USE OF PHRASES

One-1

Section 101

Definitions

One-1

Section 102

Use of Phrases; Rules of Construction

One-1

ARTICLE II

GENERAL PROVISIONS RELATING TO THE BONDS

Two-1

Section 201

Creation of Bonds for Issuance

Two-1

Section 202

Parity

Two-1

Section 203

Bonds to be Limited Obligations of Issuer

Two-2

Section 204

Execution of Bonds

Two-2

Section 205

Authentication

Two-2

Section 206

Form of Bonds

Two-2

Section 207

Provision for Registration, Transfer and Exchange of Bonds

Two-3

Section 208

Persons Treated as Owners

Two-5

Section 209

Manner of Payment of Bonds

Two-5

Section 210

Mutilated, Lost, Stolen or Destroyed Bonds

Two-5

Section 211

Designation of Bond Registrar and Paying Agents

Two-6

Section 212

Disposition of Bonds Upon Payment;

Safekeeping of Bonds Surrendered for

Exchange

Two-6

Section 213

Nonpresentment of Bonds

Two-6

Section 214

Delivery of Bonds

Two-7

ARTICLE III

GENERAL PROVISIONS RELATING TO REDEMPTION

OF BONDS PRIOR TO MATURITY

Three-1

Section 301

Limitation of Redemptions Prior to

Maturity

Three-1

Section 302

Notice and Effect of Redemption

Three-1

Section 303

Selection of Bonds for Redemption;

Manner of Effecting Partial Redemptions of Particular Bonds

Three-2

ARTICLE IV

TERMS OF THE BONDS

Four-1

Section 401

Maturity

Four-1

Section 402

Interest on the Bonds

Four-1

Section 403

Optional Redemption of Bonds at Election

of the Borrower

Four-3

-i-

Page

Section 404

Optional Redemption of Bonds Upon

Occurrence of Certain Extraordinary Events

Four-4

Section 405

Mandatory Redemption of Bonds Upon

Determination of Taxability or Expiration of Credit Facility

Four-5

Section 406

Purchase of Bonds Upon Demand

Four-6

Section 407

Mandatory Tender of Bonds for Purchase

Four-6

Section 408

Purchase of Tendered Bonds

Four-7

Section 409

Bond Purchase Account

Four-8

Section 410

Treatment of Untendered Bond Certificates

Four-11

Section 411

Remarketing of Tendered Bonds

Four-11

Section 412

None

Four-12

Section 413

Concerning the Remarketing Agent

Four-12

ARTICLE V

REPRESENTATIONS AND COVENANTS OF ISSUER

Five-1

Section 501

Payment of Principal and Interest

Five-1

Section 502

Performance of Covenants; Authority

Five-1

Section 503

Instruments of Further Assurance

Five-1

Section 504

Inspection of Books

Five-1

Section 505

Rights Under Loan Agreement and Other Documents

Five-1

Section 506

Tax-Exempt Status of Bonds

Five-2

ARTICLE VI

CUSTODY AND APPLICATION OF PROCEEDS OF BONDS

Six-1

Section 601

Application of Proceeds of Bonds

Six-1

Section 602

Cost of Issuance Fund

Six-1

Section 603

Construction Fund

Six-1

Section 604

Surplus Construction Fund

Six-2

ARTICLE VII

REVENUES AND FUNDS

Seven-1

Section 701

Source of Payment

Seven-1

Section 702

Pledged Revenues

Seven-1

Section 703

Bond Fund

Seven-1

Section 704

Redemption Fund

Seven-2

Section 705

Trust Funds Held in Trust

Seven-2

ARTICLE VIII

INVESTMENTS

Eight-1

Section 801

Permitted Investment of Trust Funds

Eight-1

Section 802

Arbitrage

Eight-1

Section 803

Rebate of Certain Arbitrage Profits

Eight-2

-ii-

Page

ARTICLE IX

DISCHARGE

Nine-1

Section 901

Discharge

Nine-1

ARTICLE X

DEFAULT PROVISIONS AND REMEDIES OF TRUSTEE

AND BONDOWNERS

Ten-1

Section 1001

Defaults; Events of Default

Ten-1

Section 1002

Acceleration

Ten-1

Section 1003

Remedies

Ten-2

Section 1004

Right of Bondowners to Direct Proceedings

Ten-3

Section 1005

Waiver of Certain Rights

Ten-3

Section 1006

Application of Moneys

Ten-3

Section 1007

Remedies Vested in Trustee

Ten-6

Section 1008

Rights and Remedies of Bondowners

Ten-6

Section 1009

Termination of Proceedings

Ten-7

Section 1010

Waivers of Events of Default

Ten-7

Section 1011

Opportunity to Cure Defaults by Issuer

Ten-7

Section 1012

Certain Notices to Borrower

Ten-8

ARTICLE XI

THE TRUSTEE

Eleven-1

Section 1101

Acceptance of Trusts

Eleven-1

Section 1102

Specific Duty of Trustee to File Continuation Statements

Eleven-4

Section 1103

Notice to Bondowners if Default Occurs

Eleven-4

Section 1104

Intervention by Trustee

Eleven-4

Section 1105

Successor Trustee

Eleven-4

Section 1106

Resignation by Trustee

Eleven-5

Section 1107

Removal of Trustee

Eleven-5

Section 1108

Appointment of Successor Trustee by

Bondowners; Temporary Trustee

Eleven-5

Section 1109

Concerning Any Successor Trustee

Eleven-6

Section 1110

Appointment of Co-Trustee

Eleven-6

Section 1111

Acquisition of Conflicting Interests by Trustee

Eleven-8

Section 1112

Requirement of a Corporate Trustee

Eleven-9

Section 1113

Trustee’s Fees

Eleven-9

ARTICLE XII

CONCERNING THE CREDIT FACILITY

Twelve-1

Section 1201

Trustee to Draw on Credit Facility

Twelve-1

Section 1202

Requirements Regarding Credit Facility

and Substitute Credit Facility

Twelve-2

Section 1203

References to Credit Facility Provider

After Expiration or Default of Credit Facility

Twelve-3

-iii-

Page

Section 1204

References to Eligible Funds and

Preference Opinion After Expiration

of Credit Facility

Twelve-3

Section 1205

Option of Credit Facility Provider

to Purchase Bonds in Lieu of Redemption

or Upon Acceleration

Twelve-4

Section 1206

Credit Facility Provider Not Responsible

for Construction Disbursements

Twelve-4

Section 1207

Disclaimer of FDIC Insurance

Twelve-4

ARTICLE XIII

SUPPLEMENTAL INDENTURES

Thirteen-1

Section 1301

Amendments and Supplements Without

Bondowners’ Consent

Thirteen-1

Section 1302

Amendments With Bondowners’ Consent

Thirteen-1

Section 1303

Consent of Borrower and Credit

Facility Provider

Thirteen-2

ARTICLE XIV

AMENDMENT OF LOAN AGREEMENT, PROMISSORY

NOTE AND CREDIT FACILITY

Fourteen-1

Section 1401

Amendments Not Requiring Consent of

Bondowners

Fourteen-1

Section 1402

Amendments Requiring Consent of

Bondowners

Fourteen-1

Section 1403

Consent of Borrower and Credit

Facility Provider

Fourteen-2

ARTICLE XV

FORM OF BONDS

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Section 1501

General Matters

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Section 1502

Form of Bond Prior to the Conversion Date

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Section 1503  Form of Bond On or After Conversion Date

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Section 1504

Additional Matters Appearing on Bonds

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ARTICLE XVI

MISCELLANEOUS

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Section 1601

Consent of Bondowners

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Section 1602

Limitation of Rights

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Section 1603

Severability

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Section 1604

Notices

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Section 1605

Payments Due on Saturdays, Sundays and Holidays

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Section 1606

Captions

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Section 1607

Counterparts

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Section 1608

Governing Law

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INDENTURE OF TRUST

THIS INDENTURE OF TRUST, dated as of July 1, 1995, between the VILLAGE OF BROKAW, WISCONSIN, a municipal corporation and political subdivision of the State of Wisconsin, located in Marathon County, Wisconsin (the “Issuer”), and M&I First National Bank, a national banking corporation 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 West Bend, Wisconsin, as trustee (the “Trustee”);

W I T N E S S E T H :

WHEREAS, Section 66.521 of the Wisconsin Statutes (the “Act”) authorizes the Issuer to issue industrial development revenue bonds to finance all or any part of the construction, equipping, reequipping, acquisition, purchase, installation, reconstruction, rebuilding, rehabilitation, improving, supplementing, replacing, maintaining, repairing, enlarging, extending or remodeling of qualified projects and the improvement of sites therefor including, without limitation, sewage and solid and liquid waste disposal facilities and pollution control facilities; and

WHEREAS, the Act authorizes the Issuer to enter into a revenue agreement with an eligible participant wherein the eligible participant agrees (i) to provide the Issuer with revenues sufficient for the prompt payments of the principal of and interest on the industrial development revenue bonds; and (ii) to cause such qualified project to be constructed; and

WHEREAS, the Issuer has induced Wausau Paper Mills Company, a Wisconsin corporation (the “Borrower”), to proceed with the Project (as hereinafter defined) in the jurisdiction of the Issuer and in the Town of Texas and City of Rhinelander by offering to issue the Bonds (as hereinafter defined) and to loan the proceeds thereof to the Borrower pursuant to a loan agreement dated even herewith (the “Loan Agreement”) 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 the 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 Indenture have been in all respects duly and validly authorized by resolution of the Issuer’s governing body, and no sufficient petition for referendum has been filed pursuant to the provisions of subsection (10)(d) of the Act; and

WHEREAS, all things necessary to make the Bonds, when authenticated by the Trustee as in this Indenture provided, the valid, binding and legal 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 at any time 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;

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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; 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 any other Bond, except as otherwise expressly provided herein;

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

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respective Owners from time to time of the Bonds, as follows, THAT IS TO SAY:

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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.

“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 during the Variable Rate Period $100,000 or any multiple thereof (or multiples of $5,000 in excess of $100,000) and after the Conversion Date, $5,000 or any multiple thereof.

“Authorized Officer of the Borrower” means the President, any Vice President or the Treasurer 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, 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 Sections 406 or 407 hereof.

“Bond Amount” means $19,000,000.

“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.

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“Bond Purchase Account” means the trust account described in Section 409 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 Sewage and Solid Waste Revenue Bonds, Series 1995 (Wausau Paper Mills Company 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.  The book entry maintained by the Depository is the record that identifies the owners of beneficial interests in those Bonds.

“Borrower” means Wausau Paper Mills Company, a Wisconsin corporation, and any successor, surviving, resulting or transferee corporation as provided in Sections 7.7, 7.9 and 11.2 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:

Wausau Paper Mills Company

Attention:  Steven A. Schmidt,

Vice President-Finance

P.O. Box 1408

Wausau, Wisconsin  54402-1408

Telecopy:  (715) 848-2652

Telephone:  (715) 845-5266

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

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

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“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 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 and the city in which the Remarketing Agent’s principal office is located, are not 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 Thursday of each week (whether or not a Business Day) through and including the earlier of (i) the following Wednesday (whether or not a Business Day), or (ii) the day immediately preceding a Conversion Date.

“Chief Municipal Officer” means the person at the time incumbent in the office of Village President 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.

“Clerk” means the person at the time incumbent in the office of Village 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 3.5 of the Loan Agreement.

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

“Conversion Date” means the date on which the interest rate on the Bonds is converted from the Variable Rate to the Fixed Rate as provided in Section 402(B) of this Indenture.

“Conversion Notice” means a notice in the form of Exhibit E to the Loan Agreement from the Borrower to the Trustee, the Remarketing Agent and the Credit Facility Provider designating a Conversion Date.

“Cost of Issuance Deposit Amount:  means $150,000.

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“Cost of Issuance Fund” means the Trust Fund described in Section 602 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, including any Substitute Credit Facility.  The initial Credit Facility is Irrevocable Letter of Credit, No. 416, issued by NBD Bank in the face amount of $19,687,124 on the date of the 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 expiration 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 NBD Bank, Detroit, Michigan.

“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 Trustee and the Borrower, the Credit Facility Provider’s Address shall be:

NBD Bank

Attention:  Capital Markets Division

Revenue Bond Group

611 Woodward Avenue

Detroit, Michigan  48226

Telecopy:  (313) 225-4533

Telephone:  (313) 225-3104

“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 July 1, 1995, between NBD Bank, and the Borrower, as amended from time to time.

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

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“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 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 Thursday, the Wednesday immediately preceding the commencement of such Calculation Period or, if such Wednesday is not a Business Day, the next preceding Business Day, and (ii) with respect to each Calculation Period commencing on a Conversion Date, no later than ten days prior to such 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;

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 fails 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 unqualified opinion of Bond Counsel acceptable to the Trustee to the effect that no Event of Taxability has occurred.

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“Effective Date” means July 1, 1995.

“Eligible Funds” means (i) all amounts (including investment earnings) in the Credit Facility Account and the Bond Purchase Account, and (ii) other amounts (including investment earnings) in the Bond Fund and 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 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.

“Final Maturity Date” means July 1, 2023.

“Fixed Rate” means the interest rate borne by the Bonds from and after the Conversion Date, if any, determined in accordance with Section 402(B) of this Indenture.

“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.

“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 Village of Brokaw, Wisconsin, a municipal corporation and political subdivision of the State of Wisconsin, located in Marathon County, Wisconsin, and any successor political subdivision of the State of Wisconsin having jurisdiction over the Project.

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“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 and the Trustee, the Issuer’s Address shall be:

Village of Brokaw

Attention:  Village Clerk

218 Second Street

P.O. Box 108

Brokaw, Wisconsin  54417

Telephone:  (715) 675-3059

“Issuer’s Governing Body” means the Village Board of the Issuer.

“Letter of Representations” means the agreement among the Issuer, the Trustee, the Remarketing Agent 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 Letter of Representations dated as of the Effective Date, from the Issuer, the Remarketing Agent and the Trustee to The Depository Trust Company.

“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 11.1 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 407 hereof.

“Optional Tender Date” means the date specified in a Purchase Demand as the date on which the Owner of the Bond(s) (or portions thereof) described therein is demanding purchase of such Bond(s) (or portions thereof), 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 205, 207, 210, 408 and 412 of this Indenture; and

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(iii)

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

“Pledge Agreement” means any pledge agreement entered into between the Borrower and the Credit Facility Provider relating to the pledge of the Pledged Bonds in connection with the issuance by the Credit Facility Provider of the Credit Facility; initially, “Pledge Agreement” shall mean the Pledge and Security Agreement dated as of July 1, 1995 among the Borrower, the Trustee and the initial Credit Facility Provider.

“Pledged Bonds” means, at the time of determination thereof, any Bonds or beneficial interests in Bonds purchased by the Trustee with payments made under the Credit Facility as described in Section 409 hereof and pledged to the Credit Facility Provider pursuant to the provisions of the Pledge Agreement.

“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, and the investment earnings thereon, and (iii) all payments by the Borrower on the Promissory Note or pursuant to Section 7.2 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.

“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, the Town of Texas and the City of Rhinelander in accordance with the Project Plans and Specifications.

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“Project Enterprise” means the Project financed by the Bonds as used in the consolidated business of Wausau Paper Mills Company and related activities.

“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 3.4 of the Loan Agreement.

“Promissory Note” means the Borrower’s promissory note, 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 402(B)(1) hereof as the date on which the interest rate on the Bonds is to be converted from the Variable Rate to the Fixed Rate.

“Purchase Demand” means a written demand by an Owner of a Bond, meeting the requirements of Section 406 hereof, that such Bond be purchased on the date specified therein.

“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, the case of institutions other than the Trustee, has capital, surplus and undivided profits in excess of $50,000,000, but in no event shall the amount invested at any one time, in interest-bearing accounts, time deposits and certifi cates 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 A-1 by Standard & Poor’s Corporation (or an equivalent rating from another national rating agency), (vi) interests in any money market fund or trust, the investments of which are restricted to obligations described in clauses (i), (ii), (iii), (iv), or (v) above, 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

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any of the foregoing, the term “Qualified Investments” shall conform to such conditions.

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

“Record Date” means (i) with respect of 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, seven days 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 Thornton, Farish & Gauntt, Inc. and any successor institution serving as Remarketing Agent pursuant to Section 413 of this Indenture.

“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:

Thornton, Farish & Gauntt, Inc.

2511 Fairlane Drive

Montgomery, Alabama  36116

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

“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.

“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 XIII of this Indenture.

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

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“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 408 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, 410 and 412 of this Indenture.

“Trustee” means M&I First National Bank, West Bend, 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 and the Issuer, the Trustee’s Address and Principal Office is:

M&I First National Bank

321 North Main Street

P.O. Box 1980

West Bend, WI  53095-7980

Attention:  Corporate Trust Department

Telecopy:  (414) 335-3037

Telephone:  (414) 335-3030

“Unassigned Rights” means the Borrower’s obligations to the Issuer under Sections 3.8, 7.3 and 11.9 of the Loan Agreement.

“Untendered Bonds” means Bonds which are required to be tendered for purchase in accordance with the provisions of Sections 408 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 402(A) of this Indenture.

Section 102

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 Indenture as an entirety and not

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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 in effect from time to time.

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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:

VILLAGE OF BROKAW, WISCONSIN

VARIABLE RATE DEMAND SEWAGE AND SOLID WASTE REVENUE BONDS,

SERIES 1995 (WAUSAU PAPER MILLS COMPANY PROJECT)

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

VILLAGE OF BROKAW, WISCONSIN

SEWAGE AND SOLID WASTE REVENUE BONDS, SERIES 1995

(WAUSAU PAPER MILLS COMPANY PROJECT)

The Bonds shall be issued in the aggregate principal amount of nineteen million dollars ($19,000,000), 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 Article IV 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 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 and to be issued hereunder.  All Bonds shall be of equal rank, and no Bondowner shall be accorded a preference or priority over any

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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 Officer under the official seal of the Issuer attested by its Clerk.  The signatures of the Chief Municipal Officer 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 Officer 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.

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

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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 Officer 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 tempo rary 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 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 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 Deposito ry 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

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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 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 sa tisfaction 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 th e 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

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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.

Except in connection with a remarketing of Bonds pursuant to Section 411 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.

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, 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.

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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 may execute and the Trustee may 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.

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; Safekeeping 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 shall be canceled by the Trustee.  All canceled Bonds shall be destroyed by the Trustee by cremation, shredding or other suitable means.

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 at the date fixed for redemption thereof, if cash 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 cash 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

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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.  If any such Bond has not been presented within 60 days of the date the principal became due, the Trustee shall promptly notify the person identified as the Owner of such Bond in the Bond Register (as of the date the principal of such Bond became due) by first class mail that such Bond has become due and that the amount due is being held by the Trustee hereunder.

After any such cash has 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 such unpresented Bonds and shall have no 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.

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 Officer 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.

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ARTICLE III

GENERAL PROVISIONS RELATING TO REDEMPTION OF BONDS

PRIOR TO MATURITY

Section 301

Limitation of Redemptions Prior to Maturity.  No Bond may be called for redemption prior to its stated maturity except as provided in Article IV hereof; 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.

Section 302

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 15 nor more than 30 days prior to the redemption date during the Variable Rate Period and not less than 30 nor more than 60 days after the Conversion 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.

In the case of optional redemption under Sections 403 and 404 of this Indenture, the required notice of redemption shall not be given until the Trustee has received the written consent of the Credit Facility Provider and the premium, if any, of the Bond 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

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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 405 hereof need not be Eligible Funds.

Section 303

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 403 hereof, the particular Bonds or portions thereof to be redeemed shall be selected by the Trustee by lot or by such other random means as the Trustee shall determine in its discretion.  Any such means of selecting 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 ba lance 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 302 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.

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ARTICLE IV

TERMS OF THE BONDS

Section 401

Maturity.  The Bonds shall mature on the Final Maturity Date.

Section 402

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 402(A), payable on the first Business Day of each January, April, July and October commencing October 1, 1995, on each Mandatory Tender Date, and at maturity.  From the date of the issuance of the Bonds through and including August 9, 1995 the Variable Rate shall be equal to 4.05% 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) 12% 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, secu rity 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)

The interest rate on the Bonds may be converted to the Fixed Rate as follows:

(1)

The Borrower may designate any Business Day as a Conversion Date by delivering to the Trustee, the Remarketing Agent and the Credit Facility Provider a Conversion Notice not less than 20 days, nor more than 30 days, prior to the Conversion Date (unless a shorter notice shall be acceptable to the Trustee).  Such Conversion Notice shall (a) identify the Conversion Date and (b) state whether or not a Credit Facility will be in effect after the Conversion Date and if so,

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describe such Credit Facility and identify the Credit Facility Provider,

(2)

No later than 15 days prior to the Conversion Date, the Trustee shall determine whether such Conversion Notice complies with paragraph (1) 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 (1), the Trustee shall also notify the Bondowners of the mandatory tender on the Conversion Date as provided in Section 407 hereof.

(3)

Upon receipt of notice from the Trustee under paragraph (2) above, the Remarketing Agent shall, no later than ten days prior to the Conversion Date, determine the Fixed Rate and shall notify the Trustee of such determination on such date by telephone, promptly confirmed in writing, or by facsimile.  The Fixed Rate 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 the Bonds, would enable the Bonds to be sold at a price of par on the Conversion Date.

(4)

On the Conversion Date, the Borrower shall cause to be delivered:  (a) to the Trustee, the Credit Facility, if any, described in paragraph (1)(b) 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 Conversion Date, to the effect that the conversion of the interest rate on the Bonds to the Fixed Rate and the delivery of the Credit Facility, if any, described in clause (a) above, will not result in an Event of Taxability.

(5)

If all of the requirements of paragraphs (1), (2), (3) and (4) above are met, the Bonds shall bear interest at the Fixed Rate from and after such date.

From and after the Conversion Date, if any, the Bonds shall bear interest at the Fixed Rate, payable on the first day of January and July of each year.

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

(C)

To the extent permitted by law, overdue principal, premium, if any, and interest shall bear interest at the same

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rate as was borne by the Bonds on the due date of the payment that is delinquent.

Section 403

Optional Redemption of Bonds at Election of the Borrower.  Upon prepayment of the Promissory Note in accordance with Section 5.3 of the Loan Agreement, the Bonds are subject to redemption pursuant to this Section 403:

(A)

on or prior to the Conversion Date, in whole or in part (in multiples of $100,000 or $5,000 in excess of $100,000) on any date, 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)

after the Conversion Date, in whole on any date or in part (in multiples of $5,000) on any regularly scheduled Interest Payment Date at the redemption prices set forth below, plus accrued interest to the redemption date:

Length of
Fixed Rate Term
(expressed in years)	Redemption Prices
greater than 10	after 7 years at 102%
	declining by 1/2 of 1%
	every 6 months to 100%
less than or equal to 10	after 5 years at 101.5%,
and greater than 7	declining by 1/2 of 1%
	every 6 months to 100%
less than or equal to 7	after 3 years at 101%
and greater than 3	declining by 1/2 of 1%
	every 6 months to 100%
less than or equal to 3	after 1 year at 100.5%,
and greater than 1	declining by 1/2 of 1%
	in 6 months to 100%
less than or equal to 1 and	after 6 months at 100.125%,
greater than six months	declining by 0.125 of 1%
	in 6 months to 100%
6 months or less	nonredeemable

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The Trustee shall give notice of the call for redemption pursuant to paragraphs (A) or (B) of this Section 403 in the manner provided in Section 302 of this Indenture.

Section 404

Optional Redemption of Bonds Upon Occurrence of Certain Extraordinary Events.  The Bonds shall be subject to redemption, in whole (or, if but only if any of the occurrences referred to in subsections (a) through and including (c) below affect the Project site or sites located in the City of Rhinelander or the Town of Texas, as the case may be but not the Project site located in the Village of Brokaw, in part), at any time, if within ninety 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 5.1 of the Loan Agreement:

(a)

The Project (or in occurrences allowing redemption in part, the Project sites in the City of Rhinelander or the Town of Texas) 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) the completion of the Project or such portion will be delayed for at least six months, (ii) it is not practicable or desirable to rebuild, repair or restore the Project or such portion within a period of six consecutive months following such damage or destruction, or (iii) the Borrower is or will be thereby prevented from carrying on its normal operations at the Project or such portion for a period of at least six consecutive months;

(b)

Title to or the temporary use of all or substantially all of the Project (or in occurrences allowing redemption in part the Project sites in the City of Rhinelander or the Town of Texas) 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 (i) the completion of the Project or such portion will be delayed for at least six months, or (ii) the Borrower is or will be thereby prevented from carrying on its normal operations at the Project or such portion 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 Project (or in

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occurrences allowing redemption in part, the Project sites in the City of Rhinelander or the Town of Texas) 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 Project or such portion 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 (which, in the case of redemption in part, shall be determined in accordance with the portion of the Project in the City of Rhinelander or the Town of Texas so affected pursuant to Section 5.1 of the Loan Agreement), plus accrued interest to the redemption date, and without premium.  The Trustee shall give notice of a call for redemption pursuant to this Section 404 in the manner provided in Section 302 of this Indenture.

Section 405

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 date (selected by the Trustee) 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.  Redemption of Bonds as aforesaid shall be the Bondholders’ sole remedy upon an Event of Taxability.

(B) After the Conversion Date (if there is a Credit Facility), 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

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delivered to the Trustee a Substitute Credit Facility meeting the requirements of Section 1202 hereof.  The redemption price shall be 100% of the principal amount of the Bonds to be so redeemed, plus accrued interest to the redemption date.

(C) The Trustee shall give notice of a call for redemption pursuant to this Section 405 in the manner provided in Section 302 of this Indenture.

Section 406

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 Borrower 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 406.  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 10:00 a.m. on a Business Day of a Purchase Demand together with any related due bills which may be reasonably require d by the Remarketing Agent in form and substance satisfactory to it.  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 408 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 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 10:00 a.m. on a Business Day, of such Purchase Demand, (iv) acknowledge that such demand is irrevoc able, and (v) in the case of a Beneficial Owner, be accompanied by evidence satisfactory to the Trustee of such Beneficial Owner’s Beneficial Ownership Interest.  The determination by the Trustee as to whether a Purchase Demand has been properly delivered pursuant to this Section 406 shall be conclusive and binding upon the Owners or Beneficial Owners of the Bonds.  After the Conversion Date, there shall be no purchase of Bonds upon demand.

Section 407

Mandatory Tender of Bonds for Purchase.  All Bonds or the Beneficial Ownership Interests therein (other

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than Pledged Bonds) shall be subject to mandatory tender for purchase in accordance with Section 408 hereof on:

(A)

each Conversion Date; and

(B)

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.

The Trustee shall give notice of each Mandatory Tender Date in the same manner as notice of redemption of Bonds pursuant to Section 302 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, 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 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 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 408

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 406 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 a Mandatory Tender Date, at a purchase price equal to 100% of the principal amount thereof, plus accrued interest to the Tender Date, from moneys available therefor in the Bond Purchase Account.  Provided that Eligible Funds are available to the Trustee to pay the purchase price thereof:

(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;

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(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 409 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 409

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 411 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 Eligible Funds.  No other funds shall be accepted by the Trustee for deposit into the Bond Purchase Account.  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 the reof 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, from proceeds of the remarketing of Bonds (or Beneficial Ownership Interests) by the Remarketing Agent as described in Section 411 hereof;

second, from proceeds of a draw on the Credit Facility; and

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

Each Tendered Bond delivered to the Trustee pursuant to Section 408 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 (or portions thereof in Authorized Denominations) purchased with the proceeds of a draw on the Credit Facility, if the Bonds are not in a book-entry only system, be registered in the name of the Borrower (or as otherwise provided in any Pledge Agreement then in effect) be referred to as Pledged Bonds, be held by the Trustee under such Pledge Agreement in trust for the account of the Borrower, be pledged to the Bank pursuant to such Pledge Agreement securing the Borrower’s obligations thereunder and not be transferred or exchanged by the Trustee until (a) the Credit Facility has been reinstated in the amount of the aggregate principal amount of such Bonds and the amount originally realized under the Credit Facility to pay the portion of the purchase price equal to the accrued interest, if any, on such Bonds or, (b) the obligations of the Borrower, if any, then due under such Pledge Agreement have bee n paid in full; and the Trustee may then release such Bonds, and register the transfer of such Bonds in the names of the new registered owners thereof as shall be provided by the Remarketing Agent by telephone or telecopy promptly confirmed in writing; provided, however, that Pledged Bonds which have been held by the Trustee for a period of six months and have not been remarketed shall, at the written direction of the Bank, be canceled.

In the case of Bonds (or portions thereof, in Authorized Denominations) purchased with the proceeds of a draw on the Credit Facility, if the Bonds are in a book-entry only system, the Trustee shall instruct the Depository to record in the books of the Depository for the account of the Borrower such Bonds (or portions thereof in Authorized Denominations) and the Trustee shall record such beneficial ownership interest of the Borrower on its books, and such Bonds shall be referred to as

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Pledged Bonds, shall be deemed to be held by the Trustee in trust for account of the Bank and to the fullest extent permitted by law shall be subject to a security interest in favor of the Credit Facility Provider as security for the Borrower’s obligations under any Pledge Agreement then in effect, which security interest shall be released only after (a) the Credit Facility has been reinstated in the amount of the aggregate principal amount of such Bonds and the amount realized under the Credit Facility to pay the portion of the purchase price equal to the accrued interest, if any, on such Bonds or, (b) the obligations of the Borrower, if any, then due under such Pledge Agreement have been paid in full; provided, however, that any such Pledged Bonds which have been recorded in the books of the Depository for the account of the Borrower for a period of six months and have not been remarketed shall, at the written direction of the Credit Facility Provider, be canceled.

(d)  Notwithstanding any other provision of this Indenture to the contrary, in the event that (i) the Remarketing Agent remarkets any Bonds tendered for purchase pursuant to Section 406 or Section 407 hereof and the proceeds of such remarketing are received by the Trustee after the Trustee has taken action under the Credit Facility to realize moneys to pay the purchase price of such Bonds, pursuant to subsection (c) above, or (ii) the Remarketing Agent shall subsequently remarket any Pledged Bonds, the purchase price of which Bonds were paid by the Trustee as a result of action taken under the Credit Facility pursuant to subsection (c) above, then all proceeds of any such remarketing which necessitated such action under the Credit Facility (or which would otherwise be payable to the Borrower as the Registered Owner or Beneficial Owner of the Bonds) shall be paid by the Trustee to the Bank in respect of the obligations of the Borr ower under the Credit Facility Reimbursement Agreement.  The Trustee shall immediately notify the Credit Facility Provider by telecopy or telephone, promptly confirmed in writing, that such proceeds are on deposit in the Purchase Account, and the Credit Facility Provider shall certify to the Trustee the amount of the obligations of the Borrower under the Credit Facility Reimbursement Agreement.  When all obligations of the Borrower to the Credit Facility Provider under the Credit Facility Reimbursement Agreement which are then due have been satisfied, then all such moneys remaining in the Bond Purchase Account shall be paid to the Borrower.

(e)  in the case of Bonds purchased with other funds in the Bond Purchase Account, 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.

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Section 410

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 P ledged 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 411

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 411; 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.  The Remarketing Agent shall pay the purchase price, if any, 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 10:00 a.m., Milwaukee time, on the Tender Date.  

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No funds so deposited shall have been furnished by the Borrower or any person who is an insider to the Borrower 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 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 412

[This Section deliberately left blank.  There is no Section 412.]

Section 413

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 30 days prior written notice to the Issuer, the Trustee, the Credit Facility Provider and the Borrower and may be removed by the Borrower with or without cause upon not less than 30 days prior written notice to the Issuer, the Trustee, 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 413.  The successor Remarketing Agent shall evidence its acceptance of its duties hereunder by a writing delivered to the Trustee and the Credit Facility Provider.

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 Section 411.  The Remarketing Agent’s compensation for remarketing shall be fixed by agreement between

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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.

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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 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 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

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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 103(a) of the Internal Revenue Code.

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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 Issuance Expense Fund; and

(b)

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 1.1 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 3.2 of the Loan Agreement.

If an Event of Default shall have happened and be continuing, the Trustee (without any authorization from the Borrower) shall make such disbursements from the Cost of Issuance Fund directly to the persons determined by the Trustee to be entitled thereto, and after all Bond Issuance Costs have been paid any remaining balance in the Cost of Issuance Fund shall be applied in accordance with Section 1006 of this Indenture.

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 3.6 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

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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(b) hereof;

(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 1.1 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 3.3 of the Loan Agreement.

If an Event of Default shall have happened and be continuing, the Trustee may (i) make disbursements from the Construction Fund, without the authorization of the Borrower, for the payment of any costs necessary to complete the Project, or (ii) to the extent consistent with an opinion of Bond Counsel to the effect that such application will not result in an Event of Taxability, apply moneys in the Construction Fund in accordance with Section 1006 of this Indenture.  

Upon the closing of the Construction Fund in accordance with Section 3.6 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 3.6 of the Loan Agreement;

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(b)

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

(c)

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

The Trustee is hereby authorized and directed to use the moneys in the Surplus Construction Fund to call Bonds for redemption pursuant to Section 403 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 403 of this Indenture.

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.  In addition, the Borrower may direct the Trustee to use monies in the Surplus Construction Fund to finance Other Costs or to purchase Bonds on the open market for cancellation if the Trustee is furnished with an opinion of Bond Counsel to the effect that such action will not result in an Event of Taxability.

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 will not result in an Event of Taxability.

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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 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 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 7.2 of the Loan Agreement;

(c)

Moneys required to be transferred to the Bond Fund from other Trust Funds or from Pledged Revenues in accordance with this Indenture; and

(d)

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 monies received by the Trustee for the account of the Bond Fund shall be deposited into the Borrower’s Payments Account.

All monies 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

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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 monies in the Bond Fund, but only to the extent that the foregoing two sources are not likely, in the judgment of the Trustee, to be available and sufficient therefor.

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 the principal of any Bonds called for redemption in accordance with this Indenture; (ii) withdraw funds from the Redemption Fund to pay 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 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 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 pric e 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,

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garnishment or other claims or proceedings by other creditors of the Borrower or the Issuer.

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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 9.3 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 except that, in the case of the Cost of Issuance Fund, such income and profit shall be credited to the Construction Fund.  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.  Investments and reinvestments of moneys held in the Surplus Construction Fund shall be restricted as to yield as provided in Section 604 of this Indenture. Monies 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.

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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, at least (i) on the earlier of the Completion Date or the third anniversary of the date of issuance of the Bonds, and (ii) thereafter on the fifth anniversary of the Effective Date, and (iii) 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 7.6(g) of the Loan Agreement 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.

(e)

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

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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 reconvey, release, assign and deliver unto the Issuer any and all the estate, right, title and interest in and to any and all prope rty conveyed, assigned or pledged to the Trustee or 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 410 hereof for the purchase of Untendered Bonds or the payment of the principal of, premium, if any, and interest on unpresented 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 s hall 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

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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 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 302 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 agreement will not adversely affect the tax-exempt status of the Bonds 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 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 Governmental 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.

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Notwithstanding any other provision to the contrary in this Indenture and unless otherwise agreed to by the Credit Facility Provider, (i) to the extent that moneys are drawn by the Trustee under the Credit Facility or the Borrower is otherwise indebted to the Credit Facility Provider under the Credit Agreement and (ii) the fees, costs and expenses of the Issuer and the Trustee hereunder have been paid, then:  (A) the lien of this Indenture shall not be discharged; (B) the Credit Facility Provider shall be subrogated to the extent of such draws on the Credit Facility or the Borrower’s indebtedness to the Credit Facility Provider to all rights of the Bondholders to enforce the payment of the Bonds from the Security and all other rights of the Bondholders under the Bonds, this Indenture and the Loan Agreement; (C) the Credit Facility Provider shall be entitled in its own right upon payment in full of th e principal of and interest on the Bonds to exercise all rights of enforcement and remedies set forth in Article IX hereof; (D) the Bondholders will be deemed paid to the extent of moneys drawn by the Trustee under the Credit Facility; and (E) the Trustee shall sign, execute and deliver all documents or instruments and do all things which may be reasonably required by the Credit Facility Provider to effect the Credit Facility Provider’s subrogation of rights of enforcement and remedies set forth in Article IX hereof in accordance with the intent of this Section 9.01.

Anything in Article XIII 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.

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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 10.2 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

(d)

Prior to the Conversion Date, 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; or

(e)

Prior to the Conversion Date, the Credit Facility Provider shall deliver 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.

Section 1002

Acceleration.  Upon the occurrence of an Event of Default set forth in Section 1001(a), (b), (d) or (e) hereof and without regard to the continuance thereof, the Trustee shall declare the principal of all Bonds then Outstanding and the interest accrued thereon immediately due and payable, and such

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principal and interest shall thereupon become and be immediately due and payable.

Upon the occurrence of an Event of Default set forth in Section 1001(c) hereof, the Trustee may with the written consent of the Credit Facility Provider, and shall upon the written request of Credit Facility Provider and 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 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.

Upon an 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 Borrower or Pledged Bonds) to the expected payment date.

Section 1003

Remedies.  Upon the occurrence of an Event of Default (other than an Event of Default set forth in Section 1001(d) hereof), the Trustee, with the written consent of the Credit Facility Provider, 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 Credit Facility Provider shall have no right to consent to, or to withhold consent to, the pursuit by the Trustee of any additional remedies as provided in this Section 1003 upon the occurrence of an Event of Default set forth in Section 1001(d) hereof.

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, except if there shall be an Event of Default under Section 1001(d) hereof, 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.

If an Event of Default shall have occurred, and if requested so to do by the Owners of at least 25% in aggregate principal amount of Bonds then Outstanding and if indemnified as provided in subsection (l) of Section 1101 hereof, the Trustee shall be obliged to exercise such one or more of the rights and

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powers conferred by this Article as the Trustee, being advised by counsel, shall deem most expedient in the interest of the Bondowners, subject to the rights of the Credit Facility Provider.

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.

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

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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 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

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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 su ch Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid.

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

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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, and 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 interest on each of the Bonds issued hereunder to the respective

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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 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 of any Outstanding Bonds at the date of maturity specified therein or at the date fixed for the redemption or mandatory 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 provided in the 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 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.

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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, 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.

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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 or waiver 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 or nonaction 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

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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 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 Officer 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 su ch 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

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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) 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.

(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.

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(l)

Before taking any action under Articles X or XI of this Indenture, 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.

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.

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

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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 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 Issuer and the acceptance of such appointment.

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 Owners of a majority in aggregate principal amount of Bonds then Outstanding.  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 Issuer and the acceptance of such appointment.

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 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 by 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 Officer 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 in the manner above provided; and any s uch 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

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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.  So long as no Event of Default is continuing under the Loan Agreement, no Successor Trustee shall be appointed hereunder without obtaining the prior written consent of the Borrower.

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 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 every predecessor Trustee shall deliver 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 suc h 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

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permitted by law, be appointed subject to the following provisions and conditions, namely:

(i)

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;

(ii)

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;

(iii)

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, 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

(iv)

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 separat e 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

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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)(1) to (9), 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 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.

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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, 410 or 412 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.

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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 each Interest Payment Date -- an amount sufficient to pay all interest on the Outstanding Bonds due on such Interest Payment Date;

(b)

On the Final Maturity Date -- an amount sufficient to pay the principal amount of the Outstanding Bonds;

(c)

On each redemption date fixed pursuant to Sections 403, 404, or 405 of this Indenture -- an amount sufficient to pay the principal of 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 11:00 a.m., Milwaukee, Wisconsin, time, on each Tender Date -- an amount sufficient, together with available Eligible Funds on deposit at 11:00 a.m. 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 on which the proceeds of such draw are expected to be available for such payment;

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. A draw may be made by facsimile if permitted under 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

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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.  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 a month that is not earlier than (i) if issued in respect of the period prior to the Conversion Date, the expiration date of the Credit Facility being replaced and (ii) if issued in respect of the period on and after the Conversion Date, the first date on which the Bonds would be subject to redemption at par pursuant to Section 403(B) hereof;

(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 110 days 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 least      days of interest on such principal amount at the actual rates borne thereby (if issued in respect of the period on and after the Conversion Date);

(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, the issuer of the Substitute Credit Facility has a rating on its long-term unsecured debt equal to the lower of:  (i) the rating on the immediately preceding Credit Facility at the time of the expiration of such Credit Facility or the replacement of such Credit Facility with the Substitute Credit Facility, as the case may be or (ii) the second-highest rating category, without regard to degree within such category, from a nationally recognized rating agency.

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,

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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 received not less than 30 days prior to the Credit Facility Substitution Date (unless a shorter notice shall be acceptable to the Trustee), accept a renewal, substitute or replacement Credit Facility to replace the Credit Facility then in effect (the “Existing Credit Facility”) or an extension of the Credit Facility Expiration Date of the Existing Credit Facility (such renewal, substitute, replacement or extension 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.  In the case of an extension of the Credit Facility Expiration Date of the Existing Credit Facility that does not otherwise modify the Credit Facility, the opinions referred to in the immediately preceding paragraph shall not be required.

The Trustee shall give notice of the proposed delivery of any Substitute Credit Facility by first class mail not less than 30 nor more than 60 days prior to the Credit Facility Substitution Date 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.

On the effective date of a Substitute Credit Facility (a “Credit Facility Substitution Date”), the Existing Credit Facility may be terminated and thereupon 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.

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.

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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 403 or 405 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.

Section 1206

Credit Facility Provider Not Responsible for Construction Disbursements.  The Credit Facility Provider shall have no obligation to the Bondowners in connection with the authorization of disbursements from the Cost of Issuance Fund or the Construction Fund or for any other matters relating to the construction of the Project. To the extent the Credit Facility Provider takes actions or exercises discretion with respect to such matters, it may do so in its own interests and without regard to the interests of the Issuer, the Trustee or the Bondowners.

Section 1207

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 Bonds.

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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 which shall not be inconsistent with the provisions of this Indenture and which, in the judgment of the Trustee, shall not 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, premium or interest payment upon any Bonds, (ii) the mandatory redemption provisions of any Bonds, (iii) the provisions for optional or mandatory tender of the Bonds, and (iv) this Article XIII 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

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provisions contained therein, or the operation thereof, or in any manner to 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.

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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; and

(b)

to make such other provisions in regard to matters or questions arising thereunder which shall not be inconsistent with the provisions of this Indenture and which, in the judgment of the Trustee, shall not adversely affect the interests of the Owners of the Bonds.

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 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 7.2 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.

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Section 1403

Consent of Borrower and Credit Facility Provider.  No amendment, change or modification under this Article XIV shall be effective unless the Credit Facility Provider shall have consented in writing thereto, and no 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.

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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, date and CUSIP number (if any) and to indicate the principal amount, maturity, 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:

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REGISTERED

United States of America

REGISTERED

State of Wisconsin

NO. ______

County of Marathon

$_________

VILLAGE OF BROKAW, WISCONSIN

VARIABLE RATE DEMAND SEWAGE AND SOLID WASTE REVENUE BOND,

SERIES 1995 (WAUSAU PAPER MILLS COMPANY PROJECT)

Interest	Maturity	Original Issue	CUSIP
Rate:	Date	Date:	Number
Variable -		August ___, 1995	______
see below

Registered Owner:

______________________________

______________________________

Denomination:  _____________________________________ DOLLARS

KNOW ALL MEN BY THESE PRESENTS that the VILLAGE OF BROKAW, 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 (or on such earlier Maturity Date as may be assigned as hereinafter described), 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 in the Indenture defined below), payable quarterly on the first Business Day of each January, April, July and October, commencing October 2, 1995, on tender dates (as provided in the Indenture) 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 M&I First National Bank, West Bend, 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

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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 a fixed interest rate.  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 which the Credit Facility Provider’s principal office is located and the city in which the Remarketing Agent’s principal office is located, are not 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 Thursday of each week (whether or not a Business Day) through and including the earlier of (i) the following Wednesday (whether or not a Business Day), 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 described above to the fixed rate described above.

“Determination Date” means (i) with respect to each Calculation Period commencing on a Thursday, the Wednesday immediately preceding the commencement of such Calculation Period or, if such Wednesday is not a Business Day, the next preceding Business Day, and (ii) with respect to each Calculation Period commencing on a Conversion Date, no later than ten days prior to such Conversion Date.

“Remarketing Agent” means Thornton, Farish & Gauntt, Inc. and any successor institution serving as Remarketing Agent pursuant to the Indenture.

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

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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 net proceeds derived by recourse 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 Village President and its Village Clerk and its corporate seal to be hereunto affixed, impressed, imprinted or otherwise reproduced.

VILLAGE OF BROKAW, WISCONSIN

By ________________________________

Village President

[SEAL]

________________________________

Village Clerk

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Registrar, Paying Agent and

Tender Agent:

FIRST NATIONAL BANK

West Bend, Wisconsin

Certificate of Authentication:

This Bond is one of the Bonds described in the within-mentioned Indenture of Trust.

Dated:  _______________

M&I FIRST NATIONAL BANK,

as Trustee

By  _______________________________

Authorized Signatory

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[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 $19,000,000 (hereinafter referred to as the “Bonds”), issued and authorized to be issued for the purpose of providing financing to Wausau Paper Mills Company, a Wisconsin corporation (the “Borrower”).  The financing is accomplished pursuant to the terms of a Loan Agreement made and entered into as of July 1, 1995, by and between the Issuer and the Borrower (hereinafter referred to as the “Loan Agreement”) with respect to a project (the “Project”) located in the jurisdiction of the Issuer and the Town of Texas and City of Rhinelander, Wisconsin.  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 $19,000,000, 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 July 1, 1995, 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 NBD Bank, Detroit, Michigan, expiring on July 15, 1997, 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

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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 Bond number and principal amount, and (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 by the Trustee, at or before 10:00 a.m. on a Business Day, of such Purchase Demand.

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 a fixed interest rate.  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 15 nor more than 30 days prior to the date fixed for such mandatory tender (the “Mandatory Tender Date”).

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 N OT 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 5.3 of the Loan Agreement, the Bonds are subject to redemption, in whole or in part on any date.  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 (or, if but only if any of the occurrences referred to in subsections (a) through and including (c) below affect the Project site or sites located in the City of Rhinelander or the Town of Texas, as the case may be, but not the Project site located in the Village

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of Brokaw, in part), at any time, if within ninety days after the occurrence of any of the following events, the Borrower shall elect to prepay the Promissory Note pursuant to Section 5.1 of the Loan Agreement:

(a)

The Project (or in occurrences allowing redemption in part, the Project sites in the City of Rhinelander or the Town of Texas) 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) the completion of the Project will be delayed for at least six months, (ii) it is not practicable or desirable to rebuild, repair or restore the Project or such portion within a period of six consecutive months following such damage or destruction, or (iii) the Borrower is or will be thereby prevented from carrying on its normal operations at the Project or such portion for a period of at least six consecutive months;

(b)

Title to or the temporary use of all or substantially all of the Project (or in occurrences allowing redemption in part, the Project sites in the City of Rhinelander or the Town of Texas) 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 (i) the completion of the Project or such portion will be delayed for at least six months, or (ii) the Borrower is or will be thereby prevented from carrying on its normal operations at the Project or such portion 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 Project (or in occurrences allowing redemption in part, the Project sites in the City of Rhinelander or the Town of Texas) 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 Project or such portion 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

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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 (which, in the case of redemption in part, shall be determined in accordance with the portion of the Project in the City of Rhinelander or the Town of Texas pursuant to Section 5.1 of the Loan Agreement), plus accrued interest to the redemption date, and without premium.

The Bonds shall be subject to mandatory redemption in whole on the earliest practicable date (selected by the Trustee) within 90 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.  The Credit Facility is not available to pay any premium in connection with such a redemption.

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 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)

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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 a nd 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 thereof or any multiple of $5,000 in excess of $100,000.  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 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

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(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.

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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

NOTICE:

The signature to this

guaranteed.

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, 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:

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REGISTERED

United States of America

REGISTERED

State of Wisconsin

NO. ______

County of Marathon

$_________

VILLAGE OF BROKAW, WISCONSIN

SEWAGE AND SOLID WASTE REVENUE BOND,

SERIES 1995 (WAUSAU PAPER MILLS COMPANY PROJECT)

Interest	Maturity	Original Issue	CUSIP
Rate:	Date	Date:	Number
____%		August ___, 1995	______

Registered Owner:

______________________________

______________________________

Denomination:  _____________________________________ DOLLARS

KNOW ALL MEN BY THESE PRESENTS that the VILLAGE OF BROKAW, WISCONSIN, a body corporate and politic organized and existing under the laws 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 semi-annually on each January 1 and July 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 ext ent 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 M&I First National Bank, West Bend, 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 fifteenth day of the

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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.

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 ref erred to, including all payments by the Borrower on the Promissory Note hereinafter referred to and all net proceeds derived by recourse 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 Village President and its Village Clerk and its corporate seal to be hereunto affixed, impressed, imprinted or otherwise reproduced.

VILLAGE OF BROKAW, WISCONSIN

By ________________________________

Village President

[SEAL]

________________________________

Village Clerk

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Registrar, Paying Agent and

Tender Agent:

FIRST NATIONAL BANK

West Bend, Wisconsin

Certificate of Authentication:

This Bond is one of the Bonds described in the within-mentioned Indenture of Trust.

Dated:  _______________

M&I FIRST NATIONAL BANK,

as Trustee

By  _______________________________

Authorized Signatory

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[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 $19,000,000 (hereinafter referred to as the “Bonds”), issued and authorized to be issued for the purpose of providing financing to Wausau Paper Mills Company, a Wisconsin corporation (the “Borrower”).  The financing is accomplished pursuant to the terms of a Loan Agreement made and entered into as of July 1, 1995, by and between the Issuer and the Borrower (hereinafter referred to as the “Loan Agreement”) with respect to a project (the “Project”) located in the jurisdiction of the Issuer and the Town of Texas and City of Rhinelander, Wisconsin.  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 $19,000,000, 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 July 1, 1995, 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 an Irrevocable Letter of Credit issued by NBD Bank, Detroit, Michigan, expiring on July 15, 1997, 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.]

[Upon prepayment of the Promissory Note in accordance with Section 5.3 of the Loan Agreement, the Bonds are subject to redemption, in whole or in part on any date or in part on any

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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 (or, if but only if any of the occurrences referred to in subsections (a) through and including (c) below affect the Project site or sites located in the City of Rhinelander or the Town of Texas, as the case may be, but not the Project site located in the Village of Brokaw in part), at any time, if within ninety days after the occurrence of any of the following events, the Borrower shall elect to prepay the Promissory Note pursuant to Section 5.1 of the Loan Agreement:

(a)

The Project (or in occurrences allowing redemption in part, the Project sites in the City of Rhinelander or the Town of Texas) 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) the completion of the Project or such portion will be delayed for at least six months, (ii) it is not practicable or desirable to rebuild, repair or restore the Project or such portion within a period of six consecutive months following such damage or destruction, or (iii) the Borrower is or will be thereby prevented from carrying on its normal operations at the Project or such portion for a period of at least six consecutive months;

(b)

Title to or the temporary use of all or substantially all of the Project (or in occurrences allowing redemption in part, the Project sites in the City of Rhinelander or the Town of Texas) 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] (i) the completion of the Project or such portion will be delayed for at least six months, or (ii) the Borrower is or will be thereby prevented from carrying on its

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normal operations at the Project or such portion 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 Project (or in occurrences allowing redemption in part, the Project sites in the City of Rhinelander or the Town of Texas) 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 Project or such portion 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 (which, in the case of redemption in part, shall be determined in accordance with the portion of the Project in the City of Rhinelander or the Town of Texas pursuant to Section 5.1 of the Loan Agreement), plus accrued interest to the redemption date, and without premium.

The Bonds shall be subject to mandatory redemption in whole on the earliest practicable date (selected by the Trustee) 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.

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 15 nor more than 30 days prior to the redemption date to the registered owner

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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 a nd 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

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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 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.

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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

NOTICE:

The signature to this

guaranteed.

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.

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[The next page is Sixteen-1]

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.  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 the following 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, namely:  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 signi ng such writing acknowledged before him or her the execution thereof, or by an affidavit of any witness to such execution.

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.

Sixteen-1

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 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.

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; provided that prior to the Conversion Date, interest shall continue to accrue to the date on which payment is actually made.

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.

Sixteen-2

IN WITNESS WHEREOF, the Issuer has caused this Indenture to be executed in its name and on its behalf by its Chief Municipal Officer 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 officers and its corporate seal to be hereunto affixed, all as of the first day of July, 1995.

VILLAGE OF BROKAW, WISCONSIN

By  JUDITH A. ROSE

Village President

Attest  WAYNE UTECHT

Village Clerk

[SEAL OF ISSUER]

M&I FIRST NATIONAL BANK

West Bend, Wisconsin, as Trustee

By  R. T. STEPHENSON

R. T. Stephenson

(name printed)

Its Executive Vice President

Attest  M. F. HRON

M. F. Hron

(name printed)

Its Vice President

[SEAL OF TRUSTEE]

Sixteen-3

STATE OF WISCONSIN

)

) SS

COUNTY OF MARATHON

)

On the 27th day of July, 1995, before me a Notary Public in and for said County, personally appeared Judith A. Rose and Wayne H. Utecht, to me personally known and known to me to be the same persons who executed the within instrument, who, being by me duly sworn, did depose, acknowledge and say: that they are respectively the Village President and Village Clerk of the Village of Brokaw, Wisconsin, the municipal corporation described herein and which executed the foregoing instrument; that they know the seal of said municipal corporation; that the seal affixed to said instrument is the seal of said municipal corporation; that said instrument was signed and sealed on behalf of said municipal corporation by authority of its governing body pursuant to resolution passed and approved; and the said persons severally acknowledged the execution of said instrument to be the free and voluntary act and deed of said municipal corporation by it bein g freely and voluntarily executed.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal.

CYNTHIA Z. JORGENSEN

Cynthia Z. Jorgensen

Notary Public

My commission expires 2/14/99

[NOTARIAL SEAL]

Sixteen-4

STATE OF WISCONSIN

)

) SS

COUNTY OF WASHINGTON

)

On the 27th day of July, 1995, before me, a Notary Public in and for said County, personally appeared R.T. Stephenson and M. F. Hron, to me personally known and known to me to be the same persons who executed the within instrument, who, being by me duly sworn, did depose, acknowledge and say:  that they are respectively a Executive Vice President and a Vice President of M&I First National Bank, the national banking corporation described in and which executed the foregoing instrument; that they know the seal of said banking corporation; that said instrument was signed and sealed by them as such officers of and on behalf of said banking corporation by authority of its Board of Directors; and the said persons severally acknowledged the execution of said instrument to be the free and voluntary act and deed of said banking corporation by it being freely and voluntarily executed.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal.

ROSEANN ZAUTCKE

Roseann Zautcke

(name printed)

Notary Public

My commission:  September 1, 1996

[NOTARIAL SEAL]

Sixteen-5

EX-10.4

Exhibit 10.14

Wausau Paper Corp.

2006 Equity-Based Incentive Compensation Plan

An individual officer’s grant at each tier will vest upon the Company’s achievement of targeted levels of return on capital employed for such tier and, with respect to the restricted stock units, the satisfaction of minimum service criteria.  The maximum potential award for the CEO, CFO, and each of the named executive officers is the cumulative award payable under each of Tiers I, II, and III.

Tier I	Tier II	Tier III
Restricted stock units equal	Options (100 shares	Options (100 shares
to 12% of base salary(1)	per $2,000 base salary)(2)	per $2,000 base salary)(2)

⁽¹⁾ Number of shares determined by closing price of Company stock ($15.20) on last business day preceding grant as markets were closed on date of grant.

⁽²⁾ Exercise price of $15.20 per share (closing price of Company stock on last business day preceding grant as markets were closed on date of grant).

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF WAUSAU PAPER CORP.†

1.

Wausau Paper Specialty Products, LLC, a Wisconsin limited liability company

2.

Wausau Paper Printing & Writing, LLC, a Wisconsin limited liability company

3.

Wausau Paper Towel & Tissue, LLC, a Wisconsin limited liability company

4.

The Sorg Paper Company, an Ohio corporation

(a)

The Middletown Hydraulic Company, an Ohio corporation

5.

Wausau Timberland Company, LLC, a Wisconsin limited liability company

†

Each subsidiary is wholly-owned.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-44922, 333-02845, 333-42445, 333-42447, 333-47277 and 333-61128 on Form S-8 of our reports dated February 20, 2007, (which report includes an explanatory paragraph relating to the Company’s adoption of Statement of Financial Accounting Standards No. 158, Employer’s Accounting for Defined Benefit Plans, on December 31, 2006, and Statement of Financial Accounting Standards No. 123R, Share-based Payment, on January 1, 2006, as described in Note 1), relating to the consolidated financial statements and consolidated financial statement schedule of Wausau Paper Corp. and management’s report of the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Wausau Paper Corp. for the year ended December 31, 2006.

DELOITTE & TOUCHE LLP

Deloitte & Touche LLP

Milwaukee, Wisconsin
March 15, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Thomas J. Howatt, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Wausau Paper Corp. (the “registrant”);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and we have:

(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  March 16, 2007	THOMAS J. HOWATT
	Thomas J. Howatt
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Scott P. Doescher, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Wausau Paper Corp. (the “registrant”);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and we have:

(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  March 16, 2007	SCOTT P. DOESCHER
	Scott P. Doescher
	Senior Vice President, Finance
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certification

of

Wausau Paper Corp.

under Section 906 of Sarbanes-Oxley Act of 2002

The undersigned Chief Executive Officer and Chief Financial Officer of Wausau Paper Corp. (the “Company”) certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that (1) the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2005 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, 15 U.S.C. 78m or 78o(d), and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.  

Date:  March 16, 2007
	THOMAS J. HOWATT
	Thomas J. Howatt
	President and CEO
	SCOTT P. DOESCHER
	Scott P. Doescher
	Senior Vice President, Finance
	(Chief Financial Officer)

This certification accompanies this Annual Report on Form 10-K for the year ended December 31, 2006, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by Wausau Paper Corp. for purposes of the Securities Exchange Act of 1934.