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Note 6 - Long-term Debt and Notes Payable to Bank

6 Months Ended

Apr. 30, 2020

(6)

Long-term Debt and Notes Payable to Bank

The Company has credit facilities consisting of a real estate term loan, as amended and restated (the “Virginia Real Estate Loan”), a supplemental real estate term loan, as amended and restated (the “North Carolina Real Estate Loan”), a Revolving Credit Note and related agreements (collectively, the “Revolver”) and a Paycheck Protection Program loan (“PPP Loan”) implemented by the United States Small Business Administration (“SBA”).

Both the Virginia Real Estate Loan and the North Carolina Real Estate Loan are with Pinnacle Bank (“Pinnacle”), have a fixed interest rate of 3.95% and are secured by a first priority lien on all of the Company’s personal property and assets, all money, goods, machinery, equipment, fixtures, inventory, accounts, chattel paper, letter of credit rights, deposit accounts, commercial tort claims, documents, instruments, investment property and general intangibles now owned or hereafter acquired by the Company and wherever located, as well as a first lien deed of trust on the Company’s real property.

Long-term debt as of April 30, 2020 and October 31, 2019 consists of the following:

	April 30,		October 31,
	2020		2019
Virginia Real Estate Loan ($6.5 million original principal) payable in monthly installments of $31,812, including interest (at 3.95%), with final payment of $3,644,211 due May 1, 2024	$	4,226,733	$	4,580,173
North Carolina Real Estate Loan ($2.24 million original principal) payable in monthly installments of $10,963, including interest (at 3.95%), with final payment of $1,255,850 due May 1, 2024		1,089,688		1,328,450
Total long-term debt		5,316,421		5,908,623
Less current installments		305,630		738,955
Long-term debt, excluding current installments	$	5,010,791	$	5,169,668

The Revolver with Pinnacle provides the Company with a $6.5 million revolving line of credit for its working capital needs. Under the Revolver, Pinnacle provides the Company with one or more revolving loans in a collective maximum principal amount of $6.5 million. The Company may borrow, repay, and reborrow at any time or from time to time while the Revolver is in effect.

On January 22, 2020, OCC entered into an Eighth Loan Modification Agreement (the “Eighth Amendment”) with Pinnacle to modify the Credit Agreement dated April 26, 2016 entered into between the Company and Pinnacle and the term loans dated April 26, 2016. The purpose of the Eighth Amendment was to (i) reduce the aggregate outstanding balance under the Credit Agreement by $200,000 on or before April 15, 2020 by reducing the outstanding principal balances on the term loans; (ii) provide that all outstanding and future advances under the Revolver accrue interest at an interest rate of prime lending rate plus 0.50%, effective January 22, 2020, (iii) remove the current ratio financial covenant for the fiscal quarter ended October 31, 2019, (iv) remove the fixed charge coverage ratio for the fiscal year ended October 31, 2019, and (v) provide that OCC engage in good faith to negotiate a letter of intent or similar expression of interest to refinance the Revolver by March 31, 2020 and enter into a financing commitment letter, similar equity commitment or combination thereof relating to the financing by May 1, 2020 with closing planned on or before June 30, 2020.

On March 10, 2020, OCC entered into a Ninth Loan Modification Agreement (the “Ninth Amendment”) with Pinnacle to modify the Credit Agreement dated April 26, 2016 entered into between the Company and Pinnacle and the term loans dated April 26, 2016. The purpose of the Ninth Amendment was to (i) remove the current ratio financial covenant for the fiscal quarters ended January 31, 2020 and April 30, 2020 and (ii) remove the total liabilities to tangible net worth ratio for the fiscal quarters ended January 31, 2020 and April 30, 2020. OCC also reaffirmed it would reduce the aggregate outstanding balance under the Credit Agreement by $200,000 on or before April 15, 2020 by reducing the outstanding principal balances on the term loans. OCC also affirmed that it would continue to engage in good faith to negotiate a letter of intent or similar expression of interest to refinance the Revolver by March 31, 2020 and enter into a financing commitment letter, similar equity commitment or combination thereof relating to the financing by May 1, 2020 with a closing planned on or before June 30, 2020.

On April 15, 2020, OCC entered into a Tenth Loan Modification Agreement (the “Tenth Amendment”) with Pinnacle to modify the Credit Agreement dated April 26, 2016 entered into between the Company and Pinnacle and the term loans dated April 26, 2016. The purpose of the Tenth Amendment was to allow the Company to incur indebtedness pursuant to the SBA PPP Loan or U.S. Department of Treasury loans under the Coronavirus, Aid, Relief and Economic Security Act (“CARES Act”) which are in whole or part responsive to the COVID-19 pandemic, as updated by the U.S. federal government from time to time.

Also on April 15, 2020, the Company obtained an unsecured PPP Loan through Pinnacle in the amount of $4,981,400. The loan was made through the Small Business Administration as part of the PPP under the CARES Act. The interest rate is fixed at 1.00% per year. Under the CARES Act, all or a portion of this loan may be forgiven if certain requirements are met. If the loan is not forgiven, the Company will pay principal and interest payments of $280,335 every month, beginning seven months from the effective date of the PPP Loan. The Company can repay the PPP Loan without any prepayment penalty. All remaining principal and accrued interest is due and payable two years from the effective date of the PPP Loan ( April 15, 2022). The current portion of the PPP Loan is $1,636,341 and the noncurrent portion is $3,345,059.

On April 30, 2020, OCC entered into an Eleventh Loan Modification Agreement (the “Eleventh Amendment”) with Pinnacle to modify the Credit Agreement dated April 26, 2016 entered into between the Company and Pinnacle and the term loans dated April 26, 2016. The purpose of the Eleventh Amendment was to remove a requirement that the Company secure a financing commitment letter, similar equity commitment or combination thereof to refinance the Revolving Credit Note under the Credit Agreement prior to May 1, 2020, as required by Section 3(e) of the Eighth Amendment.

As of April 30, 2020, the Revolver accrued interest of prime lending rate plus 0.50% (resulting in a 3.75% rate at April 30, 2020). The Revolver is payable in monthly payments of interest only with principal and any outstanding interest due and payable at maturity.

All other terms and conditions of the Credit Agreement, as amended, remain unaltered and in effect.

The Revolver is secured by a perfected first lien security interest on all assets, including but not limited to, accounts, as-extracted collateral, chattel paper, commodity accounts, commodity contracts, deposit accounts, documents, equipment, fixtures, furniture, general intangibles, goods, instruments, inventory, investment property, letter of credit rights, payment intangibles, promissory notes, software and general tangible and intangible assets owned now or later acquired. The Revolver is also cross-collateralized with the Company’s real property.

Prior to the Ninth Amendment, the terms of OCC’s credit facilities with Pinnacle required the Company to comply, on a quarterly basis, with two financial covenants including a current ratio and a total liabilities to tangible net worth ratio. The Ninth Amendment suspended the requirement to comply with these two financial covenants through April 30, 2020. The Company was in compliance with all other material covenants of the Credit Agreement, as amended, as of April 30, 2020.

As of April 30, 2020 and October 31, 2019, the Company had $6.0 million of outstanding borrowings on its Revolver and $500,000 in available credit.