Intercompany Subordinated Demand Promissory Note

INTERCOMPANY SUBORDINATED DEMAND PROMISSORY NOTE


Note Number: 1 Dated November 30, 1999


FOR VALUE RECEIVED, the Borrower and each of its Subsidiaries (collectively, the "GROUP MEMBERS" and each, a "GROUP MEMBER") which is a party to this intercompany subordinated demand promissory note (the "PROMISSORY NOTE") promises to pay to the order of such other_ as makes loans to such (each _ which borrows money pursuant to this Promissory Note is referred to herein as a "PAYOR" and each_ which makes loans and advances pursuant to this Promissory Note is referred to herein as a "PAYEE"), on demand, in lawful money of the United States of America, in immediately available funds and at the appropriate office of the Payee, the aggregate unpaid principal amount of all loans and advances heretofore and hereafter made by such Payee to such Payor and any other indebtedness now or hereafter owing by such Payor to such Payee as shown either on Schedule A attached hereto (and any continuation thereof) or in the books and records of such Payee. The failure to show any such Indebtedness or any error in showing such Indebtedness shall not affect the obligations of any Payor hereunder. Capitalized terms used herein but not otherwise defined herein shall have the meanings given such terms in the Credit Agreement, dated as of November 30, 1999 (as amended, supplemented, replaced or otherwise modified from time to time, the "CREDIT AGREEMENT"), among O'Sullivan Industries, Inc. (the "BORROWER"), each bank and other financial institution or entity from time to time party thereto, Lehman Brothers Inc., as advisor, lead arranger and book manager, Wachovia Bank, N.A., as syndication agent, and Lehman Commercial Paper Inc., as administrative agent (in such capacity and including its successors and assigns, the "ADMINISTRATIVE AGENT").


The unpaid principal amount hereof from time to time outstanding shall bear interest at a rate equal to the rate as may be agreed upon in writing from time to time by the relevant Payor and Payee or, at the Administrative Agent's option following the occurrence and during the continuation of an Event of Default, at the rate per annum then applicable to Base Rate Loans under the Revolving Credit Facility or, following expiration or termination of the Revolving Credit Commitments, the rate applicable to Base Rate Loans thereunder immediately prior to such expiration or termination, in each case, PLUS 2.0% per annum. Interest shall be due and payable on the last day of each month commencing after the date hereof or at such other times as may be agreed upon in writing from time to time by the relevant Payor and Payee. Upon demand for payment of any principal amount hereof, accrued but unpaid interest on such principal amount shall also be due and payable. Interest shall be paid in lawful money of the United States of America and in immediately available funds. Interest shall be computed for the actual number of days elapsed on the basis of a year consisting of 365 days.


Each Payor and any endorser of this Promissory Note hereby waives presentment, demand, protest and notice of any kind. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights.


This Promissory Note has been pledged by each Payee to the Administrative Agent, for the benefit of the Secured Parties, as security for such Payee's Obligations, if any,


under the Credit Agreement, the Guarantee and Collateral Agreement and the other Loan Documents to which such Payee is a party. Each Payor acknowledges and agrees that the Administrative Agent and the other Secured Parties may exercise all the rights of the Payees under this Promissory Note and will not be subject to any abatement, reduction, recoupment, defense, setoff or counterclaim available to such Payor.


Each Payee agrees that any and all claims of such Payee against any Payor or any endorser of this Promissory Note, or against any of their respective properties, shall be subordinate and subject in right of payment to the Obligations until all of the Obligations have been performed and paid in full in immediately available funds, no Letters of Credit are outstanding and the Commitments have been terminated; PROVIDED, that each Payor may make payments to the applicable Payee so long as no Default or Event of Default shall have occurred and be continuing; and PROVIDED, FURTHER, that all loans and advances made by a Payee pursuant to this Promissory Note shall be received by the applicable Payor subject to the provisions of the Credit Agreement including, without limitation, the provisions thereof relating to mandatory prepayment. Notwithstanding any right of any Payee to ask, demand, sue for, take or receive any payment from any Payor, all rights, Liens and security interests of such Payee, whether now or hereafter arising and howsoever existing, in any assets of any Payor (whether constituting part of the security or collateral given to the Administrative Agent or any Secured Party to secure payment of all or any part of the Obligations or otherwise) shall be and hereby are subordinated to the rights of the Administrative Agent or any Secured Party in such assets. Except as expressly permitted by the Credit Agreement, the Payees shall have no right to possession of any such asset or to foreclose upon, or exercise any other remedy in respect of, any such asset, whether by judicial action or otherwise, unless and until all of the Obligations shall have been performed and paid in full in immediately available funds, no Letters of Credit are outstanding and the Commitments under the Credit Agreement have been terminated.


If all or any part of the assets of any Payor, or the proceeds thereof, are subject to any distribution, division or application to the creditors of any Payor, whether partial or complete, voluntary or involuntary, and whether by reason of liquidation, bankruptcy, arrangement, receivership, assignment for the benefit of creditors or any other action or proceeding, or if the business of any Payor is dissolved or if (except as expressly permitted by the Credit Agreement) all or substantially all of the assets of any Payor are sold, then, and in any such event, any payment or distribution of any kind or character, whether in cash, securities or other investment property, or otherwise, which shall be payable or deliverable upon or with respect to any indebtedn ...