SEC Filing - Optical Cable Corporation

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 1999 OR [ ] 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 0-27022 OPTICAL CABLE CORPORATION (Exact name of registrant as specified in its charter) VIRGINIA 54-1237042 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 5290 CONCOURSE DRIVE ROANOKE, VIRGINIA 24019 (Address of principal executive offices, including zip code) (540) 265-0690 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark 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 reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes X No (2) Yes X No --- --- --- --- As of March 12, 1999, 37,899,686 shares of the registrant's Common Stock, no par value, were outstanding. Of these outstanding shares 36,000,000 shares were held by Robert Kopstein, Chairman of the Board, President and Chief Executive Officer of the registrant.

OPTICAL CABLE CORPORATION FORM 10-Q INDEX THREE MONTHS ENDED JANUARY 31, 1999 PAGE ---- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Balance Sheets - January 31, 1999 and October 31, 1998.......................................................................2 Condensed Statements of Income - Three Months Ended January 31, 1999 and 1998............................................................3 Condensed Statement of Changes in Stockholders' Equity - Three Months Ended January 31, 1999...............................................4 Condensed Statements of Cash Flows - Three Months Ended January 31, 1999 and 1998............................................................5 Condensed Notes to Condensed Financial Statements..........................................6-7 ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................................................8-11 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................12

PART I. FINANCIAL INFORMATION Item 1. Financial Statements OPTICAL CABLE CORPORATION Condensed Balance Sheets (Unaudited) JANUARY 31, OCTOBER 31, ASSETS 1999 1998 ----------- ----------- Current assets: Cash and cash equivalents $ 5,160,812 $ 1,122,277 Trade accounts receivable, net of allowance for doubtful accounts of $262,500 at January 31, 1999 and $311,500 at October 31, 1998 8,487,598 10,012,699 Other receivables 315,451 295,199 Due from employees 4,639 5,589 Inventories 9,830,055 9,967,012 Prepaid expenses 142,566 95,766 Deferred income taxes 219,826 212,738 ----------- ----------- Total current assets 24,160,947 21,711,280 Other assets, net 55,132 33,950 Property and equipment, net 10,915,958 11,083,921 ----------- ----------- Total assets $35,132,037 $32,829,151 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 2,984,341 $ 1,952,360 Accrued compensation and payroll taxes 416,722 656,028 Income taxes payable 842,097 111,449 ----------- ----------- Total current liabilities 4,243,160 2,719,837 Deferred income taxes 158,311 118,121 ----------- ----------- Total liabilities 4,401,471 2,837,958 ----------- ----------- Stockholders' equity: Preferred stock, no par value, authorized 1,000,000 shares; none issued and outstanding -- -- Common stock, voting; no par value, authorized 100,000,000 shares; issued and outstanding 37,825,636 shares at January 31, 1999 and 37,879,036 shares at October 31, 1998 9,036,741 9,786,281 Paid-in capital 191,037 150,359 Retained earnings 21,502,788 20,054,553 ----------- ----------- Total stockholders' equity 30,730,566 29,991,193 Commitments and contingencies ----------- ----------- Total liabilities and stockholders' equity $35,132,037 $32,829,151 =========== =========== See accompanying condensed notes to condensed financial statements. 2

OPTICAL CABLE CORPORATION Condensed Statements of Income (Unaudited) THREE MONTHS ENDED JANUARY 31, --------------------------------------- 1999 1998 ------------ ------------ Net sales $ 10,841,939 $ 11,873,115 Cost of goods sold 6,119,752 6,804,207 ------------ ------------ Gross profit 4,722,187 5,068,908 Selling, general and administrative expenses 2,509,772 2,283,226 ------------ ------------ Income from operations 2,212,415 2,785,682 ------------ ------------ Other income (expense): Interest income 33,999 26,609 Other, net 6,249 (3,419) ------------ ------------ Other income, net 40,248 23,190 ------------ ------------ Income before income tax expense 2,252,663 2,808,872 Income tax expense 804,428 985,900 ------------ ------------ Net income $ 1,448,235 $ 1,822,972 ============ ============ Earnings per share: Earnings per common share $ 0.038 $ 0.047 ============ ============ Earnings per common share - assuming dilution $ 0.038 $ 0.047 ============ ============ See accompanying condensed notes to condensed financial statements. 3

OPTICAL CABLE CORPORATION Condensed Statement of Changes in Stockholders' Equity (Unaudited) Three Months Ended January 31, 1999 -------------------------------------------------------------------------------------- Common Stock Total ------------------------------ Paid-in Retained Stockholders' Shares Amount Capital Earnings Equity ------------ ------------ ------------ ------------ ------------ Balances at October 31, 1998 37,879,036 $ 9,786,281 $ 150,359 $ 20,054,553 $ 29,991,193 Net income -- -- -- 1,448,235 1,448,235 Exercise of employee stock options ($2.50 per share) 9,700 24,250 -- -- 24,250 Tax benefit of disqualifying disposition of stock options exercised -- -- 40,678 -- 40,678 Repurchase of common stock (at cost) (63,100) (773,790) -- -- (773,790) ------------ ------------ ------------ ------------ ------------ Balances at January 31, 1999 37,825,636 $ 9,036,741 $ 191,037 $ 21,502,788 $ 30,730,566 ============ ============ ============ ============ ============ See accompanying condensed notes to condensed financial statements. 4

OPTICAL CABLE CORPORATION Condensed Statements of Cash Flows (Unaudited) THREE MONTHS ENDED JANUARY 31, ----------------------------------- 1999 1998 ----------- ----------- Cash flows from operating activities: Net income $ 1,448,235 $ 1,822,972 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 211,282 187,385 Bad debt recovery (49,000) (37,900) Deferred income taxes 33,102 (31,355) (Increase) decrease in: Trade accounts receivable 1,574,101 1,253,863 Other receivables (20,252) (35,180) Due from employees 950 (2,925) Inventories 136,957 (334,424) Prepaid expenses (46,800) (2,203) Other assets, net (25,433) Increase (decrease) in: Accounts payable and accrued expenses 1,033,635 306,637 Accrued compensation and payroll taxes (239,306) (3,710) Income taxes payable 771,326 416,255 ----------- ----------- Net cash provided by operating activities 4,828,797 3,539,415 ----------- ----------- Cash flows from investing activities: Purchase of property and equipment (40,722) (334,309) ----------- ----------- Net cash used in investing activities (40,722) (334,309) ----------- ----------- Cash flows from financing activities: Repurchase of common stock (773,790) (1,701,187) Proceeds from exercise of employee stock options 24,250 -- ----------- ----------- Net cash used in financing activities (749,540) (1,701,187) ----------- ----------- Net increase (decrease) in cash and cash equivalents 4,038,535 1,503,919 Cash and cash equivalents at beginning of period 1,122,277 985,807 ----------- ----------- Cash and cash equivalents at end of period $ 5,160,812 $ 2,489,726 =========== =========== See accompanying condensed notes to condensed financial statements. 5

OPTICAL CABLE CORPORATION CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS THREE MONTHS ENDED JANUARY 31, 1999 (Unaudited) (1) GENERAL The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all material adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended January 31, 1999 are not necessarily indicative of the results that may be expected for the fiscal year ending October 31, 1999. The unaudited condensed financial statements and condensed notes are presented as permitted by Form 10-Q and do not contain certain information included in the Company's annual financial statements and notes. For further information, refer to the financial statements and notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended October 31, 1998. (2) INVENTORIES Inventories at January 31, 1999 and October 31, 1998 consist of the following: JANUARY 31, OCTOBER 31, 1999 1998 ----------- ----------- Finished goods $ 4,655,743 $ 4,152,094 Work in process 2,267,117 1,896,858 Raw materials 2,857,992 3,873,824 Production supplies 49,203 44,236 ----------- ----------- $ 9,830,055 $ 9,967,012 =========== =========== (3) NOTES PAYABLE Under a loan agreement with its bank dated March 10, 1999, the Company has a $5 million secured revolving line of credit available for general corporate purposes and a $10 million secured line of credit to fund potential acquisitions, mergers or joint ventures. The lines of credit bear interest at 1.50 percent above the monthly LIBOR rate and are equally and ratably secured by the Company's accounts receivable, contract rights, inventory, furniture and fixtures, machinery and equipment and general intangibles. The lines of credit will expire on February 28, 2001, unless renewed or extended. (Continued) 6

OPTICAL CABLE CORPORATION CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) (4) STOCKHOLDERS' EQUITY During the three months ended January 31, 1999, the Company repurchased 63,100 shares of its common stock for $773,790. (5) EARNINGS PER SHARE Earnings per common share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Earnings per common share - assuming dilution reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The following is a reconciliation of the numerators and denominators of the earnings per common share computations for the periods presented: NET INCOME SHARES PER SHARE THREE MONTHS ENDED JANUARY 31, 1999 (NUMERATOR) (DENOMINATOR) AMOUNT - ----------------------------------- ------------ ------------- ---------- Earnings per common share $1,448,235 37,850,680 $ 0.038 ========== Effect of dilutive stock options -- 301,466 ---------- ---------- Earnings per common share - assuming dilution $1,448,235 38,152,146 $ 0.038 ========== ========== ========== THREE MONTHS ENDED JANUARY 31, 1998 - ----------------------------------- Earnings per common share $1,822,972 38,607,240 $ 0.047 ========== Effect of dilutive stock options -- 311,728 ---------- ---------- Earnings per common share - assuming dilution $1,822,972 38,918,968 $ 0.047 ========== ========== ========== Stock options that could potentially dilute earnings per common share in the future that were not included in the computation of earnings per common share - assuming dilution because to do so would have been antidilutive for the periods presented totaled 238,500 for the three months ended January 31, 1998. On March 1, 1999 and March 2, 1999, stock options totaling 21,500 shares of common stock were exercised. 7

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three Months Ended January 31, 1999 Net Sales Net sales consists of gross sales of products, less discounts, refunds and returns. Net sales decreased 8.7 percent to $10.8 million in first quarter 1999 from $11.9 million for the same period in 1998. This decrease was attributable to decreased volume and a change in product mix. Total cable meters shipped in first quarter 1999 decreased 1.3 percent to 34.7 million from 35.1 million cable meters shipped for the same period in 1998. This decline in cable meters shipped was a result of a 2.8 million decrease in multi mode cable meters shipped, partially offset by a 2.4 million increase in single mode cable meters shipped. This change in product mix contributed further to the overall decline in sales because the single mode cable typically has a lower selling price than the multi mode cable. Gross Profit Margin Cost of goods sold consists of the cost of materials, compensation costs and overhead related to the Company's manufacturing operations. The Company's gross profit margin (gross profit as a percentage of net sales) increased slightly to 43.6 percent in first quarter 1999 from 42.7 percent in first quarter 1998. During first quarter 1999, sales from orders $50,000 or more approximated 20 percent compared to 18 percent for first quarter 1998. In addition, during first quarter 1999 and 1998, net sales to distributors approximated 55 percent and 52 percent, respectively. Discounts on large orders and on sales to distributors are generally greater than for sales to the Company's other customer base. Selling, General and Administrative Expenses Selling, general and administrative expenses consist of the compensation costs (including sales commissions) for sales and marketing personnel, travel expenses, customer support expenses, trade show expenses, advertising, the compensation cost for administration, finance and general management personnel, as well as legal and accounting fees. Selling, general and administrative expenses as a percentage of net sales were 23.1 percent in first quarter 1999 compared to 19.2 percent in first quarter 1998. This higher percentage was primarily the result of the fact that net sales for first quarter 1999 decreased 8.7 percent compared to first quarter 1998, while selling, general and administrative expenses increased 9.9 percent. Selling, general and administrative expenses increased largely as a result of increased marketing efforts. Income Before Income Tax Expense Income before income tax expense decreased 2.0 percent to $2.3 million for the three months ended January 31, 1999 compared to $2.8 million for the three months ended January 31, 1998. This decrease was primarily due to decreased sales volume and an increase in selling, general and administrative expenses. Income Tax Expense Income tax expense decreased $182,000 to $804,000 for the three months ended January 31, 1999 compared to $986,000 for the same period in 1998 due to the decrease in income before income tax expense. The Company's effective tax rate was 35.7 percent during the three months ended January 31, 1999 compared to 35.1 percent for the same period in 1998. 8

Net Income Net income for first quarter 1999 was $1.4 million compared to $1.8 million for first quarter 1998. Net income decreased $374,000 due to the $556,000 decrease in income before income tax expense partially offset by the decrease in income tax expense of $182,000. FINANCIAL CONDITION Total assets at January 31, 1999 were $35.1 million, an increase of $2.3 million, or 7.0 percent from October 31, 1998. This increase was primarily due to an increase of $4.0 million in cash and cash equivalents partially offset by a decrease of $1.5 million in trade accounts receivable resulting from the decreased sales volume during the quarter as compared to fourth quarter 1998. Total stockholders' equity at January 31, 1999 increased $739,000 in first quarter 1999 with net income retained, offset by the repurchase of common stock in the amount of $774,000, accounting for the majority of the increase. LIQUIDITY AND CAPITAL RESOURCES During the first quarter of fiscal years 1999 and 1998, the Company's primary capital needs have been to fund working capital requirements and capital expenditures as needed. The Company's primary source of financing has been cash provided from operations. The Company maintains bank lines of credit; however, there were no balances outstanding under the lines as of the end of fiscal year 1998 or the first quarter of fiscal year 1999. Under a loan agreement with its bank dated March 10, 1999, the Company has a $5 million secured revolving line of credit available for general corporate purposes and a $10 million secured line of credit to fund potential acquisitions, mergers and joint ventures. The lines of credit bear interest at 1.50 percent above the monthly LIBOR rate and are equally and ratably secured by the Company's accounts receivable, contract rights, inventory, furniture and fixtures, machinery and equipment and general intangibles. The lines of credit will expire on February 28, 2001, unless renewed or extended. As of the date hereof, the Company has no additional material sources of financing. The Company believes that its cash flow from operations and available lines of credit will be adequate to fund its operations for at least the next twelve months. Cash flows from operations were approximately $4.8 million and $3.5 million in first quarter 1999 and 1998, respectively. Cash flows from operations in first quarter 1999 were primarily provided by operating income and a decrease in trade accounts receivable of $1.6 million. For first quarter 1998, cash flows from operations were primarily provided by operating income and a decrease in trade accounts receivable of $1.3 million. Net cash used in investing activities was for expenditures related to facilities and equipment and was $41,000 and $334,000 in first quarter 1999 and 1998, respectively. As of January 31, 1999, there are no material commitments for additional capital expenditures. Net cash used in financing activities was $750,000 and $1.7 million in first quarter 1999 and 1998, respectively. The net cash used in financing activities is primarily related to the Company's common stock repurchase program. 9

During the period from October 1997 through January 1999, the Company has repurchased $9.8 million of the Company's common stock in the open market or in privately negotiated transactions. The repurchases were funded through cash flows from operating activities. The Company intends to use excess working capital and other sources as appropriate to finance the remaining share repurchase program. DERIVATIVES The Company does not use derivatives or off-balance sheet instruments such as future contracts, forward obligations, interest rate swaps or option contracts. YEAR 2000 The "Year 2000" problem will affect many computers and other electronic devices that are not programmed to properly recognize a year that begins with "20" instead of "19." Some devices may recognize dates on or after January 1, 2000 as a date during the 1900s, or may not recognize the date at all. If not corrected, many devices could fail or create erroneous results. Since 1997, the Company has been actively assessing, planning and responding to the risks to the Company created by the Year 2000 problem. In assessing the risks, the Company has focused on both (i) its internal information technology ("IT") and non-IT systems, including, but not limited to, computer hardware and software, manufacturing equipment, printers, facsimile machines, and other control and accounting devices, and (ii) its interfaces with third parties with which the Company has material relationships, such as suppliers, customers and financial institutions. The Company has completed its assessment and response planning with respect to its internal IT and non-IT systems. Additionally, the Company has substantially completed necessary remediation measures with respect to those internal systems. The Company's remediation has included updating various computer hardware and software and printers to be Year 2000 compliant. The Company has also determined that the Year 2000 problem will not have a material adverse affect on its manufacturing machinery. To date, the Company has expended less than $100,000 on its remediation measures and believes future remediation expenditures with respect to its internal systems to be less than $50,000. With respect to the Company's internal systems, the Company believes it will complete its planned remediation and any testing in time to ensure the Year 2000 problem will not have a material adverse affect on the Company or its business. The Company does not believe contingency plans are necessary for its internal systems at this time. The Company has completed its assessment of potential Year 2000 problems which may arise from failures of third parties to be Year 2000 compliant. However, many of the Company's suppliers and customers are still engaged in executing their Year 2000 readiness efforts and, as a result, the Company cannot fully evaluate the Year 2000 risks to its supply chain and its distribution channels at this time. The Company's assessment efforts included sending questionnaires to major third party suppliers and reviewing responses, and taking other steps to assess risks as deemed appropriate. The Company has not been made aware of any Year 2000 issues of third parties that are expected to be unresolved prior to December 31, 1999 and that would have a material adverse effect on the Company. Nonetheless, the Company is considering contingency plans, as appropriate, including relying on raw material inventory on hand and identification of alternative suppliers. The Company will continue to monitor the Year 2000 status of third parties with which it has material relationships to minimize its risk from failures of such parties to be Year 2000 compliant. 10

The most likely worst case scenario for the Company with respect to the Year 2000 problem is the failure of a supplier, including an energy supplier, to be Year 2000 compliant such that its supply of needed products or services to the Company's manufacturing facility is interrupted temporarily. This could result in the Company not being able to produce fiber optic cable for a period of time, which in turn could result in lost sales and gross profit. While the Company believes that it is taking the necessary steps to resolve its Year 2000 issues in a timely manner, there can be no assurance that the Company will not have any Year 2000 problems. If any such problems occur, the Company will work to solve them as quickly as possible. At present, the Company does not expect that such problems related to the Company's internal IT and non-IT systems will have a material adverse affect on its business. The failure, however, of one or more of the Company's major suppliers, customers or financial institutions to be Year 2000 compliant could have a material adverse effect on the Company. NEW ACCOUNTING STANDARDS SFAS No. 131 - ------------ In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 establishes standards for the way public business enterprises are to report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated, unless it is impracticable to do so. SFAS No. 131 need not be applied to interim financial statements in the initial year of its application, but comparative information for interim periods in the initial year of application shall be reported in financial statements for interim periods in the second year of application. The Company adopted SFAS No. 131 as of November 1, 1998; however, interim disclosures are not required during the initial year of application. FORWARD LOOKING INFORMATION This Form 10-Q may contain certain "forward-looking" information within the meaning of the federal securities laws. The forward-looking information may include, among other information, (i) statements concerning the Company's outlook for the future, (ii) statements of belief, (iii) future plans, strategies or anticipated events, and (iv) similar information and statements concerning matters that are not historical facts. Such forward-looking information is subject to risks and uncertainties that may cause actual events to differ materially from the expectations of the Company. Factors that could cause or contribute to such differences include, but are not limited to, the level of sales to key customers, actions by competitors, fluctuations in the price of raw materials (including optical fiber), the Company's dependence on a single manufacturing facility, the ability of the Company to protect its proprietary manufacturing technology, the Company's dependence on a limited number of suppliers, technological changes and introductions of new competing products, and market and economic conditions in the areas of the world in which the Company operates or markets its products. 11

PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required by Item 601 of Regulation S-K for the three months ended January 31, 1999. 10.6 Loan Agreement, dated March 10, 1999, between Optical Cable Corporation and First Union National Bank (the "Loan Agreement"). 10.8 Promissory Note, dated March 10, 1999, issued by Optical Cable Corporation to First Union National Bank in the amount of $5 million in connection with the Loan Agreement, and Promissory Note, dated March 10, 1999, issued by Optical Cable Corporation to First Union National Bank in the amount of $10 million in connection with the Loan Agreement. 27 Financial Data Schedule (b) Reports on Form 8-K filed during the three months ended January 31, 1999. None. 12

SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OPTICAL CABLE CORPORATION (Registrant) Date: March 17, 1999 /s/Robert Kopstein --------------------------------- Robert Kopstein Chairman of the Board, President and Chief Executive Officer Date: March 17, 1999 /s/Kenneth W. Harber --------------------------------- Kenneth W. Harber Vice President of Finance, Treasurer and Secretary (principal financial and accounting officer)

INDEX TO ATTACHED EXHIBITS EXHIBIT NUMBER DESCRIPTION -------------- ----------- 10.6 Loan Agreement, dated March 10, 1999, between Optical Cable Corporation and First Union National Bank (the "Loan Agreement"). 10.8 Promissory Note, dated March 10, 1999, issued by Optical Cable Corporation to First Union National Bank in the amount of $5 million in connection with the Loan Agreement, and Promissory Note, dated March 10, 1999, issued by Optical Cable Corporation to First Union National Bank in the amount of $10 million in connection with the Loan Agreement. 27 Financial Data Schedule

EXHIBIT 10.6 LOAN AGREEMENT FIRST UNION NATIONAL BANK 201 S. JEFFERSON STREET Roanoke, Virginia 24011 (Hereinafter referred to as the "Bank") OPTICAL CABLE CORPORATION 5290 CONCOURSE DRIVE ROANOKE, VIRGINIA 24019 (Individually and collectively, "Borrower") This Loan Agreement ("Agreement") is entered into this 10th day of March, 1999, by and between Bank and OPTICAL CABLE CORPORATION, a corporation organized under the laws of the State of Virginia. Borrower has applied to Bank for a loan or loans (individually and collectively, the "Loan") evidenced by one or more promissory note (whether one or more, the "Note:) as follows: * Working Capital Line of Credit - in the principal amount of $10,000,000.00 which is evidenced by the Promissory Note of even date herewith (the "Line of Credit Note"), under which Borrower may borrow, repay, and reborrow, from time to time, so long as the total indebtedness outstanding at any one time does not exceed the principal amount. The Loan proceeds are to be used by Borrower solely for financing working capital. Bank's obligation to advance or readvance under the Line of Credit Note shall terminate if Borrower is in Default under the Line of Credit Note. * Line of Credit/Sweep + - in the principal amount of $5,000,000.00 which is evidenced by the Promissory Note of even date herewith (the "Line of Credit Note"), under which Borrower may borrow, repay, and reborrow, from time to time, so long as the total indebtedness outstanding at any one time does not exceed the principal amount. The Loan proceeds are to be used by Borrower solely for financing working capital. Bank's obligation to advance or readvance under the Line of Credit Note shall terminate if Borrower is in Default under the Line of Credit Note. The Agreement also amends and restates in its entirety that certain Loan Agreement dated April 25, 1997. This Agreement applies to the loan and all Loan Documents. The terms "Loan Documents" and "Obligations," as used in this Agreement, are defined in the Note. The term "Borrower" shall include its Subsidiaries and Affiliates. As used in this Agreement as to Borrower, "Subsidiary" shall mean any corporation of which more than 50% of the issued and outstanding voting stock is owned directly or indirectly by Borrower. As to Borrower, "Affiliate" shall have the meaning as defined in 11 U.S.C. ss. 101, except that the term "debtor' therein shall be substituted by term "Borrower" herein. Relying upon the covenants, agreements, representations and warranties contained in this Agreement, Bank is willing to extend credit to Borrower upon the terms and subject to the conditions set forth herein, and Bank and Borrower agree as follows: REPRESENTATIONS. Borrower represents that from the date of this Agreement and until final payment in full of the Obligations: ACCURATE INFORMATION. All information now and hereafter furnished to Bank is and will be true, correct and complete. Any such information relating to Borrower's financial condition will accurately reflect Borrower's financial condition as of the date(s) thereof, (including all contingent liabilities of every type, and Borrower further represents that its financial condition has not changed materially or Page 1 of 4

adversely since the date(s) of such documents. AUTHORIZATION; NON-CONTRAVENTION. The execution, delivery and performance by Borrower and any guarantor, as applicable, of this Agreement and other Loan Documents to which it is a party are within its power, have been duly authorized by all necessary action taken by the duly authorized officers of Borrower and any guarantors and if necessary, by making appropriate filings with any governmental agency or unit and are the legal, binding, valid and enforceable obligations of Borrower and any guarantors; and do not (i) contravene, or constitute (with or without the giving of notice or lapse of time or both) a violation of any provision of applicable law, a violation of the organizational documents of Borrower or any guarantor, or a default under any agreement, judgment, injunction, order, decree or other instrument binding upon or affecting Borrower or any guarantor, (ii) result in the creation or imposition of any lien (other than the lien(s) created by the Loan Documents) on any of Borrower's or guarantor's assets, or (iii) give cause for the acceleration of any obligations of Borrower or any guarantor to any other creditor. ASSET OWNERSHIP. Borrower has good and marketable title to all of the properties and assets reflected on the balance sheets and financial statement supplied Bank by Borrower, and all such properties and assets are free and clear of mortgages, security deeds, pledges, liens, charges, and all other encumbrances, except as otherwise disclosed to Bank by Borrower in writing ("Permitted Liens"). To Borrower's knowledge, no default has occurred under any Permitted Liens and no claims or interest adverse to Borrower's present rights in its properties and assets have arisen. DISCHARGE OF LIENS AND TAXES. Borrower has duly filed, paid and/or discharged all taxes or other claims which may become a lien on any of its property or assets, except to the extent that such items are being appropriately contested in good faith and an adequate reserve for the payment thereof is being maintained. SUFFICIENCY OF CAPITAL. Borrower is not, and after consummation of this Agreement and after giving effect to all indebtedness incurred and liens created by Borrower in connection with the Loan, will not be insolvent within the meaning of 11 U.S.C. ss. 101(32). COMPLIANCE WITH LAWS. Borrower is in compliance in all respects with all federal, state and local laws, rules and regulations applicable to its properties, operations, business, and finances, including, without limitation, any federal or state laws relating to liquor (including 18 U.S.C. ss. 3617 et seq.) or narcotics (including 21 U.S.C. ss. 801 et seq.) and/or any commercial crimes; all applicable federal, state and local laws and regulations intended to protect the environment; and the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), if applicable. ORGANIZATION AND AUTHORITY. Each corporate or limited liability company Borrower and any guarantor, as applicable, is duly created, validly existing and in good standing under the laws of the state of its organization, and has all powers, governmental licenses, authorizations, consents and approvals required to operate its business as now conducted. Each corporate or limited liability company Borrower and any guarantor, if any, is duly qualified, licensed and in good standing in each jurisdiction where qualification or licensing is required by the nature of its business or the character and location of its property, business or customers, and in which the failure to so qualify or be licensed, as the case may be, in the aggregate, could have a material adverse effect on the business, financial position, results of operations, properties or prospects of Borrower or any such guarantor. NO LITIGATION. There are no pending or threatened suits, claims or demands against Borrower or any guarantor that have not been disclosed to Bank by Borrower in writing. AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement and until final payment in full of the Obligations, unless Bank shall otherwise consent in writing: BUSINESS CONTINUITY. Borrower shall conduct its business in substantially the same manner and locations as such business is now and has previously been conducted. MAINTAIN PROPERTIES. Borrower shall maintain, preserve and keep its property in good repair, working order and conditions, making all needed replacements, additions and improvements thereto, to the extent allowed by this Agreement. ACCESS TO BOOKS & RECORDS. Borrower shall allow Bank, or its agents, during normal business hours, access to the books, records and such other documents of Borrower as Bank shall reasonably require, and allow Bank to make copies thereof at Bank's expense. INSURANCE. Borrower shall maintain adequate insurance coverage with respect to its properties and business against loss or damage of the kinds and in the amounts customarily insured against by companies of established reputation engaged in the same or similar businesses including, without limitation, commercial general liability insurance, workmen's compensation insurance, and business interruption insurance, and upon all Collateral (as defined in the Loan Documents) securing the Obligations, such insurance as specified in the Loan Documents; all acquired in such amounts and from such companies as Bank may reasonably require. NOTICE OF DEFAULT AND OTHER NOTICES. (a) Notice of Default. Borrower shall furnish to Bank immediately upon becoming aware of the existence of Page 2 of 4

any condition or event which constitutes a Default (as defined in the Loan Documents) or any event which, upon the giving of notice or lapse of time or both, may become a Default, written notice specifying the nature and period of existence thereof and the action which Borrower is taking or proposes to take with respect thereto. (b) Other Notices. Borrower shall promptly notify Bank in writing of (i) any material adverse change in its financial condition or its business; (ii) any default under any material agreement, contract or other instrument to which it is a party or by which any of its properties are bound, or any acceleration of the maturity of any indebtedness owed by Borrower; (iii) any material adverse claim against or affecting Borrower; or any part of its properties; (iv) the commencement of, any material determination in, any litigation with any third party or any proceeding before any governmental agency or unit affecting Borrower; and (v) at least thirty (30) days prior thereto, any change in Borrower's name or address as shown above, and/or any change in Borrower's structure. COMPLIANCE WITH OTHER AGREEMENTS. Borrower shall comply with all terms and conditions contained in this Agreement, and any other Loan Documents, and swap agreements, if applicable, as defined in the Note. Payments of Debts. Borrower shall pay and discharge when due, and before subject to penalty or further charge, and otherwise satisfy before maturity or delinquency, all obligations, debts, taxes, and liabilities of whatever nature or amount, except those which Borrower in good faith disputes. REPORTS AND PROXIES. Borrower shall deliver to Bank, promptly, a copy of all financial statements, reports, notices, and proxy statements sent by Borrower to stockholders, and all regular or periodic reports required to be filed by Borrower with any governmental agency or authority. Other Financial Information. Borrower shall deliver promptly such other information regarding the operation, business affairs, and financial condition of Borrower which Bank may reasonably request. ESTOPPEL CERTIFICATE. Borrower, within fifteen (15) days after request by Bank, will furnish a written statement duly acknowledged of the amount due under the Loan and whether offsets or defenses exist against the Obligations. DEPOSIT RELATIONSHIP. Borrower will maintain its primary depository relationship with Bank. LIFE INSURANCE. Maintain no less than $2,000,000.00 of life insurance on Robert Kopstein. NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and until final payment in full of the Obligations, unless Bank shall otherwise consent in writing: GOVERNMENT INTERVENTION. Borrower shall not permit the assertion or making of any seizure, vesting or intervention by or under authority of any government by which the management of Borrower or any guarantor is displaced of its authority in the conduct of its respective business or such business is curtailed or materially impaired. PREPAYMENT OF OTHER DEBT. Borrower shall not retire any long-term debt entered into prior to the date of this Agreement at a date in advance of its legal obligation to do so. DEFAULT ON OTHER CONTRACTS OR OBLIGATIONS. Borrower shall not default on any material contract with or obligations when due to a third party or default in the performance of any obligation to a third party incurred for money borrowed in an amount in excess of $100,000.00. JUDGMENT ENTERED. Borrower shall not permit the entry of any monetary judgment or the assessment against, the filing of any tax lien against, or the issuance of any writ of garnishment or attachment against any property of or debts due Borrower in an amount in excess of $50,000.00 and that is not discharged or execution is not stayed within 30 days of entry. CHANGE OF CONTROL. Borrower shall not make a material change of ownership that effectively changes control of Borrower. GUARANTEES. Borrower shall not guarantee or otherwise become responsible for obligations of any other person or entity. ENCUMBRANCES. Borrower shall not create, assume, or permit to exist any mortgage, security deed, deed of trust, pledge, lien, change or other encumbrance on any of its assets, whether now owned or hereafter acquired, other than: (i) security interests required by the Loan Documents; (ii) liens for taxes contested in good faith; (iii) liens accruing by law for employee benefits; or (iv) Permitted Liens. RETIRE OR REPURCHASE CAPITAL STOCK. Retire or otherwise acquire its capital stock in an amount greater than $15,000,000.00. Any such acquisition of capital stock may be paid for from working capital or other sources deemed appropriate by the officers of the corporation. FINANCIAL REPORTS. Borrower agrees to the following provisions(s) from the date of this Agreement and until final payment in full of the Obligations, unless Bank shall otherwise consent in writing: ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 120 days after the close of each fiscal year, audited financial statements reflecting its operations during such fiscal year, including, without limitation, a balance sheet, profit and loss statement and statement of cash flows, with supporting schedules; all in reasonable detail, prepared in conformity with generally accepted accounting principles, applied on a Page 3 of 4

basis consistent with that of the preceding year. All such statements shall be examined by an independent certified public accountant acceptable to Bank. The opinion of such independent certified public accountant shall not be acceptable to Bank if qualified due to any limitation in scope imposed by Borrower. Any other qualification of the opinion by the accountant shall render the acceptability of the financial statements subject to Bank's approval. PERIODIC FINANCIAL STATEMENTS. Borrower shall deliver to Bank quarterly unaudited management-prepared financial statements, including, without limitation, a balance sheet, profit and loss statement, and statement of cash flows, with supporting schedules, as soon as available and in any event within 60 days after the close of each such period; all in reasonable detail. Such statements shall be certified as to their correctness by a principal financial officer of Borrower. CONDITONS PRECEDENT. The obligations of Bank to make the Loan and any advances pursuant to this Agreement are subject to the following conditions precedent: ADDITIONAL DOCUMENTS. Receipt by Bank of such additional supporting documents as Bank or its counsel may reasonably request. IN WITNESS WHEREOF, Borrower, on the day and year first written above, has caused this Agreement to be executed under seal. OPTICAL CABLE CORPORATION Corporate By: /s/ Robert Kopstein Seal ------------------------ Robert Kopstein President TAXPAYER IDENTIFICATION NUMBER(S): OPTICAL CABLE CORPORATION 54-1237042 FIRST UNION NATIONAL BANK By: /s/ Susan Doyle ------------------------ Susan Doyle Senior Vice President 49548 Page 4 of 4

EXHIBIT 10.8 PROMISSORY NOTE $5,000,000.00 March 10, 1999 Optical Cable Corporation, a Virginia Corporation 5290 Concourse Drive Roanoke, Virginia 24019 (Individually and collectively, "Borrower") First Union National Bank of Virginia 201 South Jefferson Street Roanoke, Virginia 24011 (Hereinafter referred to as the "Bank") IMPORTANT NOTICE THIS NOTE CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A BORROWER AND ALLOWS BANK TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT FURTHER NOTICE. RENEWAL/MODIFICATION. This Promissory Note renews, extends and/or modifies that certain Promissory Note dated April 25, 1997, evidencing an original principal indebtedness of Five Million Dollars and No Cents ($5,000,000.00). The Promissory Note is not a novation. Borrower promises to pay to the order of Bank, in lawful money of the United States of America, at its office indicated above or wherever else Bank may specify, the sum of Five Million and No/100 Dollars ($5,000,000.00) or such sum as may be advanced and outstanding from time to time with interest on the unpaid principal balance at the rate and on the terms provided in this Promissory Note (including all renewals, extensions or modifications hereof, this "Note"). SECURITY. Borrower has granted Bank a security interest in the collateral described in the Loan Documents, including, but not limited to, personal property collateral described in that certain Security Agreement dated March 13, 1996. INTEREST RATE. Interest shall accrue on the unpaid principal balance of each Advance (defined herein) under this Note from the date such Advance is made available to the Borrower at the LIBOR Market Index rate plus 1.50% as that rate may change from day to day in accordance with changes in the LIBOR Market Index rate ("Interest Rate"). "LIBOR Market Index Rate", for any day, is the rate for 1 month U.S. dollar deposits as reported on Telerate page 3750 as of 11:00 a.m., London time, on such day, or if such day is not a London business day, then the immediately preceding London business day (or if not so reported, then as determined by Bank from another recognized source or Interbank quotation). DEFAULT RATE. In addition to all other rights contained in this Note, if a Default (defined herein) occurs and as long as a Default continues, all outstanding Obligations shall bear interest at the Interest Rate plus 3% ("Default Rate"). The Default Rate shall also apply from acceleration until the Obligations or any judgment thereon is paid in full. INTEREST AND FEE(S) COMPUTATION (ACTUAL/360). Interest and fees, if any, shall be computed on the basis of a 360-day year for the actual number of days in the applicable period ("Actual/360 Page 1 of 5

Computation"). The Actual/360 Computation determines the annual effective interest yield by taking the stated (nominal) interest rate for a year's period and then dividing said rate by 360 to determine the daily periodic rate to be applied for each day in the applicable period. Application of the Actual/360 Computation produces an annualized effective interest rate exceeding that of the nominal rate. REPAYMENT TERMS. This Note shall be due and payable in consecutive monthly payments of accrued interest only commencing on April 1, 1999, and on the same day of each month thereafter until fully paid. In any event, all principal and accrued interest shall be due and payable on February 28, 2001. APPLICATION OF PAYMENTS. Monies received by Bank from any source for application toward payment of the Obligations shall be applied to accrued interest and then to principal. If a Default occurs, monies may be applied to the Obligations in any manner or order deemed appropriate by Bank. If any payment received by Bank under this Note or other Loan Documents is rescinded, avoided or for any reason returned by Bank because of any adverse claim or threatened action, the returned payment shall remain payable as an obligation of all persons liable under this Note or other Loan Documents as though such payment had not been made. LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this Note and other Loan Documents refers to all documents executed in connection with the loan evidenced by this Note and any prior notes which evidence all or any portion of the loan evidenced by this Note, and may include, without limitation, a commitment letter that survives closing, a loan agreement, this Note, guaranty agreements, security agreements, security instruments, financing statements, mortgage instruments, letters of credit and any renewals or modifications, whenever any of the foregoing are executed, but does not include swap agreements (as defined in 11 U.S.C. ss. 101). The term "Obligations" used in this Note refers to any and all indebtedness and other obligations under this Note, all other obligations under any other Loan Document(s), and all obligations under any swap agreements as defined in 11 U.S.C. ss. 101 between Borrower and Bank whenever executed. LATE CHARGE. If any payments are not timely made, Borrower shall also pay to Bank a late charge equal to five percent (5%) of each payment past due for eight (8) or more days. Acceptance by Bank of any late payment without an accompanying late charge shall not be deemed a waiver of Bank's right to collect such late charge or to collect a late charge for any subsequent late payment received. If this Note is secured by owner-occupied residential real property located outside the state in which the office of Bank first shown above is located, the late charge laws of the state where the real property is located shall apply to this Note and the late charge shall be the highest amount allowable under such laws. If no amount is stated thereunder, the late charge shall be five percent (5%) of each payment past due for ten (10) or more days. ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's reasonable expenses incurred to enforce or collect any of the Obligations, including, without limitation, reasonable arbitration, paralegals', attorneys' and experts' fees and expenses, whether incurred without the commencement of a suit, in any trial, arbitration, or administrative proceeding, or in any appellate or bankruptcy proceeding. USURY. Regardless of any other provision of this Note or other Loan Documents, if for any reason the effective interest should exceed the maximum lawful interest, the effective interest shall be deemed reduced to, and shall be, such maximum lawful interest, and (i) the amount which would be excessive interest shall be deemed applied to the reduction of the principal balance of this Note and not to the payment of interest, and (ii) if the loan evidenced by this Note has been or is thereby paid in full, the excess shall be returned to the party paying same, such application to the principal balance of this Note or the refunding of excess to be a complete settlement and acquittance thereof. Page 2 of 5

DEFAULT. If any of the following occurs, a Default ("Default") under this Note shall exist: NONPAYMENT; NONPERFORMANCE. The failure of timely payment or performance of the Obligations or Default under this Note or any other Loan Documents. FALSE WARRANTY. A warranty or representation made or deemed made in the Loan Documents or furnished Bank in connection with the loan evidenced by this Note proves materially false, or if of a continuing nature, becomes materially false. CROSS DEFAULT. At Bank's option, any default in payment or performance of any obligation under any other loans, contracts or agreements of Borrower, any Subsidiary or Affiliate of Borrower, any general partner of or the holder(s) of the majority ownership interests of Borrower with Bank or its affiliates ("Affiliate" shall have the meaning as defined in 11 U.S.C. ss. 101, except that the term "debtor' therein shall be substituted by the term "Borrower" herein; "Subsidiary" shall mean any corporation of which more than 50% of the issued or outstanding voting stock is owned directly or indirectly by Borrower). CESSATION; BANKRUPTCY. The death of, appointment of guardian for, dissolution of, termination of existence of, loss of good standing status by, appointment of a receiver for, assignment for the benefit of creditors of, or commencement of any bankruptcy or insolvency proceeding by or against Borrower, its Subsidiaries or Affiliates, if any, or any general partner of or the holder(s) of the majority ownership interests of Borrower, or any party to the Loan Documents. MATERIAL CAPITAL STRUCTURE OR BUSINESS ALTERATION. Without prior written consent of Bank, (i) a material alteration in the kind or type of Borrower's business or that of Borrower's Subsidiaries or Affiliates, if any; (ii) the sale of substantially all of the business or assets of Borrower, any of Borrower's Subsidiaries or Affiliates or any guarantor, or a material portion (10% or more) of such business or assets if such a sale is outside the ordinary course of business of Borrower, or any of Borrower's Subsidiaries or Affiliates or any guarantor, or more than 50% of the outstanding stock or voting power of or in a single transaction or a series of transactions; (iii) the acquisition of substantially all of the business or assets or more than 50% of the outstanding stock or voting power of any other entity; or (iv) should any Borrower, or any of borrower's Subsidiaries or Affiliates, or any guarantor enter into any merger or consolidation. REMEDIES UPON DEFAULT. If a Default occurs under this Note or any Loan Documents, Bank may at any time thereafter, take the following actions: BANK LIEN. Foreclose its security interest or lien against Borrower's accounts without notice. ACCELERATION UPON DEFAULT. Accelerate the maturity of this Note and all other of the Obligations shall be immediately due and payable. CUMULATIVE. Exercise any rights and remedies as provided under the Note and other Loan Documents, or as provided by law or equity. FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information as Bank may reasonably request from time to time, including without limitation, financial statements and information pertaining to Borrower's financial condition. Such information shall be true, complete, and accurate. YEAR 2000 COMPATIBILITY. Borrower shall take all action necessary to assure that Borrower's computer based systems are able to operate and effectively process data including dates on and after January 1, 2000. At the request of Bank, Borrower shall provide Bank assurance acceptable to Bank of Borrower's Year 2000 compatibility. CONFESSION OF JUDGMENT. Each Borrower hereby duly constitutes and appoints Keith M. Northern, Gregory A. Baugher (each of whom is an officer of Bank), and Bank through an officer duly authorized by Bank, (any of the foregoing may act), as the true and lawful attorneys-in-fact for them, in any and all of their names, place and stead, and upon the occurrence of a Default in the payment of the Obligations due under this Note, at maturity, or upon acceleration, to confess judgment against them or any of them, in favor of Bank, before the Clerk of the Circuit Court for City of Roanoke, Virginia, in accordance with 1950 Code of Virginia Section 8.01-431 et seq., and any successor statute, for all amounts owed with respect to the Obligations under and pursuant to this Not including, without limitation, all costs of collection and attorneys' fees in an amount equal to 15% of the Obligations then outstanding (which shall be deemed reasonable attorneys' fees for the purposes of this paragraph), and court costs, hereby ratifying and confirming the acts of said attorney-in-fact as if done by themselves. Upon request of Bank, each Borrower will execute an amendment or other agreement substituting attorneys-in-fact appointed to act for each Borrower hereunder. Page 3 of 5

WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note and other Loan Documents shall be valid unless in writing and signed by an officer of Bank. No waiver by Bank of any Default shall operate as a waiver of any other Default or the same Default on a future occasion. Neither the failure nor any delay on the part of Bank in exercising any right, power, or remedy under this Note and other Loan Documents shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or remedy. Each Borrower or any person liable under this Note waives presentment, protest, notice of dishonor, demand for payment, notice of intention to accelerate maturity, notice of acceleration of maturity, notice of sale and all other demand for payment notices of any kind. Further, each agrees that Bank may extend, modify or renew this Note or make a novation of the loan evidenced by this Note for any period and grant any releases, compromises or indulgences with respect to any collateral securing this Note, or with respect to any other Borrower or any other person liable under this Note or other Loan Documents, all without notice to or consent of each Borrower or each person who may be liable under this Note or other Loan Documents and without affecting the liability of Borrower or any person who may be liable under this Note or other Loan Documents. MISCELLANEOUS PROVISIONS. ASSIGNMENT. This Note and other Loan Documents shall inure to the benefit of and be binding upon the parties and their respective heirs, legal representatives, successors and assigns. Bank's interests in and rights under this Note and other Loan Documents are freely assignable, in whole or in part, by Bank. In addition, nothing in this Note or any of the Loan Documents shall prohibit Bank from pledging or assigning this Note or any of the Loan Documents or any interest therein to any Federal Reserve Bank. Borrower shall not assign its rights and interest hereunder without the prior written consent of Bank, and any attempt by Borrower to assign without Bank's prior written consent is null and void. Any assignment shall not release Borrower from the Obligations. APPLICATION LAW; CONFLICT BETWEEN DOCUMENTS. This Note and other Loan Documents shall be governed by and construed under the laws of the state where Bank first shown above is located without regard to that state's conflict of laws principles. If the terms of this Note should conflict with the terms of the Loan Agreement or any commitment letter that survives closing, the terms of this Note shall control. BORROWER'S ACCOUNTS. Except as prohibited by law, Borrower grants Bank a security interest in all of Borrower's accounts with Bank and any of its affiliates. JURISDICTION. Borrower irrevocably agrees to non-exclusive personal jurisdiction in the state in which the office of Bank first shown above is located. SEVERABILITY. If any provision of this Note or of the other Loan Documents shall be prohibited or invalid under applicable law, such provision shall be ineffective but only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note or other such document. NOTICES. Any notices to Borrower shall be sufficiently given, if in writing and mailed or delivered to the Borrower's address shown above or such other address as provided hereunder, and to Bank, if in writing and mailed or delivered to Bank's office address shown above or such other address as Bank may specify in writing from time to time. In the event that Borrower changes Borrower's address at any time prior to the date the Obligations are paid in full, Borrower agrees to promptly give written notice of said change of address by registered or certified mail, return receipt requested, all charges prepaid. PLURAL; CAPTIONS. All references in the Loan Documents to Borrower, guarantor, person, document or other nouns of reference mean both the singular and plural form, as the case may be, and the term "person" shall mean any individual, person or entity. The captions contained in the Loan Documents are inserted for convenience only and shall not affect the meaning or interpretation of the Loan Documents. BINDING CONTRACT. Borrower by execution of and Bank by acceptance of this Note agree that each party is bound to all terms and provisions of this Note. ADVANCES. Bank in its sole discretion may make other Advances under this Note pursuant hereto. POSTING OF PAYMENTS. All payments received during normal banking hours after 2:00 p.m. local time at the office of Bank first shown above shall be deemed received at the opening of the next banking day. JOINT AND SEVERAL OBLIGATIONS. Each Borrower is jointly and severally obligated under this Note. FEES AND TAXES. Borrower shall promptly pay all documentary, intangible recordation and/or similar taxes on this transaction whether assessed at closing or arising from time to time. ARBITRATION. Upon demand of any party hereto, whether made before or after institution of any judicial proceeding any claim or controversy arising out of, or relating to the Loan Documents between the parties hereto (a "Dispute")shall be resolved by binding arbitration conducted and governed by the Page 4 of 5

Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA") and the Federal Arbitration Act. Disputes may include, without limitation, tort claims, counterclaims, disputes as to whether a matter is subject to arbitration, claims brought as class actions, or claims arising from documents executed in the future. A judgment upon the award may be entered in any court having jurisdiction. Notwithstanding the foregoing, this arbitration provision does not apply to disputes under or related to swap agreements. SPECIAL RULES. All arbitration hearings shall be conducted in the city in which the office of Bank first stated above is located. A hearing shall begin within 90 days of demand for arbitration and all hearings shall be concluded within 120 days of demand for arbitration. These time limitations may not be extended unless a party shows cause for extension and then for no more than a total of 60 days. The expedited procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000.00. Arbitrators shall be licensed attorneys selected from the Commercial Financial Dispute Arbitration Panel of the AAA. These parties do not waive applicable Federal or state substantive law except as provided herein. PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding arbitration provisions, the parties agree to preserve, without diminution, certain remedies that any party may exercise before or after an arbitration proceeding is brought. The parties shall have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies, as applicable: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale or under applicable law by judicial foreclosure including a proceeding to confirm the sale; (ii) all rights of self-help including peaceful occupation of real property and collection of rents, set-off, and peaceful possession of personal property, (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and filing an involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by confession of judgment. Any claim or controversy with regard to any party's entitlement to such remedies is a Dispute. Each party agrees that it shall not have a remedy of punitive and exemplary damages against the other in any Dispute and hereby waive any right or claim to punitive or exemplary damages they have now or which may arise in the future in connection with any Dispute, whether the Dispute is resolved by arbitration or judicially. WAIVER OF JURY TRIAL. THE PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL WITH REGARD TO A DISPUTE. IN WITNESS WHEREOF, Borrower, on the day and year first written above, has caused this Note to be executed under seal. OPTICAL CABLE CORPORATION CORPORATE By: /s/ Robert Kopstein SEAL ----------------------------- Robert Kopstein President TAXPAYER INDENTIFICATION NUMBER(S): OPTICAL CABLE CORPORATION 54-1237042 49548 Page 5 of 5

PROMISSORY NOTE $10, 000,000.00 March 10, 1999 Optical Cable Corporation, a Virginia Corporation 5290 Concourse Drive Roanoke, Virginia 24019 (Individually and collectively,"Borrower") First Union National Bank of Virginia 201 South Jefferson Street Roanoke, Virginia 24011 (Hereinafter referred to as the "Bank") IMPORTANT NOTICE THIS NOTE CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A BORROWER AND ALLOWS BANK TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT FURTHER NOTICE. RENEWAL/MODIFICATION. This Promissory Note renews, extends and/or modifies that certain Promissory Note dated April 25, 1997, evidencing an original principal indebtedness of Ten Million Dollars and No Cents ($10,000,000.00). The Promissory Note is not a novation. Borrower promises to pay to the order of Bank, in lawful money of the United States of America, at its office indicated above or wherever else Bank may specify, the sum of Ten Million and No/100 Dollars ($10,000,000.00) or such sum as may be advanced and outstanding from time to time with interest on the unpaid principal balance at the rate and on the terms provided in this Promissory Note (including all renewals, extensions or modifications hereof, this "Note"). SECURITY. Borrower has granted Bank a security interest in the collateral described in the Loan Documents, including, but not limited to, personal property collateral described in that certain Security Agreement dated March 13, 1996. INTEREST RATE. Interest shall accrue on the unpaid principal balance of each Advance (defined herein) under this Note from the date such Advance is made available to the Borrower at the LIBOR Market Index rate plus 1.50% as that rate may change from day to day in accordance with changes in the LIBOR Market Index rate ("Interest Rate"). "LIBOR Market Index Rate", for any day, is the rate for 1 month U.S. dollar deposits as reported on Telerate page 3750 as of 11:00 a.m., London time, on such day, or if such day is not a London business day, then the immediately preceding London business day (or if not so reported, then as determined by Bank from another recognized source or Interbank quotation). DEFAULT RATE. In addition to all other rights contained in this Note, if a Default (defined herein) occurs and as long as a Default continues, all outstanding Obligations shall bear interest at the Interest Rate plus 3% ("Default Rate"). The Default Rate shall also apply from acceleration until the Obligations or any judgment thereon is paid in full. INTEREST AND FEE(S) COMPUTATION (ACTUAL/360). Interest and fees, if any, shall be computed on the basis of a 360-day year for the actual number of days in the applicable period ("Actual/360 Computation"). The Actual/360 Computation determines the annual effective interest yield by taking the Page 1 of 6

stated (nominal) interest rate for a year's period and then dividing said rate by 360 to determine the daily periodic rate to be applied for each day in the applicable period. Application of the Actual/360 Computation produces an annualized effective interest rate exceeding that of the nominal rate. REPAYMENT TERMS. This Note shall be due and payable in consecutive monthly payments of accrued interest only commencing on April 1, 1999, and on the same day of each month thereafter until fully paid. In any event, all principal and accrued interest shall be due and payable on February 28, 2001. APPLICATION OF PAYMENTS. Monies received by Bank from any source for application toward payment of the Obligations shall be applied to accrued interest and then to principal. If a Default occurs, monies may be applied to the Obligations in any manner or order deemed appropriate by Bank. If any payment received by Bank under this Note or other Loan Documents is rescinded, avoided or for any reason returned by Bank because of any adverse claim or threatened action, the returned payment shall remain payable as an obligation of all persons liable under this Note or other Loan Documents as though such payment had not been made. LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this Note and other Loan Documents refers to all documents executed in connection with the loan evidenced by this Note and any prior notes which evidence all or any portion of the loan evidenced by this Note, and may include, without limitation, a commitment letter that survives closing, a loan agreement, this Note, guaranty agreements, security agreements, security instruments, financing statements, mortgage instruments, letters of credit and any renewals or modifications, whenever any of the foregoing are executed, but does not include swap agreements (as defined in 11 U.S.C. ss. 101). The term "Obligations" used in this Note refers to any and all indebtedness and other obligations under this Note, all other obligations under any other Loan Document(s), and all obligations under any swap agreements as defined in 11 U.S.C. ss. 101 between Borrower and Bank whenever executed. LATE CHARGE. If any payments are not timely made, Borrower shall also pay to Bank a late charge equal to five percent (5%) of each payment past due for eight (8) or more days. Acceptance by Bank of any late payment without an accompanying late charge shall not be deemed a waiver of Bank's right to collect such late charge or to collect a late charge for any subsequent late payment received. If this Note is secured by owner-occupied residential real property located outside the state in which the office of Bank first shown above is located, the late charge laws of the state where the real property is located shall apply to this Note and the late charge shall be the highest amount allowable under such laws. If no amount is stated thereunder, the late charge shall be five percent (5%) of each payment past due for ten (10) or more days. ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's reasonable expenses incurred to enforce or collect any of the Obligations, including, without limitation, reasonable arbitration, paralegals', attorneys' and experts' fees and expenses, whether incurred without the commencement of a suit, in any trial, arbitration, or administrative proceeding, or in any appellate or bankruptcy proceeding. USURY. Regardless of any other provision of this Note or other Loan Documents, if for any reason the effective interest should exceed the maximum lawful interest, the effective interest shall be deemed reduced to, and shall be, such maximum lawful interest, and (i) the amount which would be excessive interest shall be deemed applied to the reduction of the principal balance of this Note and not to the payment of interest, and (ii) if the loan evidenced by this Note has been or is thereby paid in full, the excess shall be returned to the party paying same, such application to the principal balance of this Note or the refunding of excess to be a complete settlement and acquittance thereof. Page 2 of 6

LINE OF CREDIT ADVANCES. Borrower may borrow, repay and reborrow, and Bank may advance and readvance under this Note respectively from time to time (each an "Advance" and together the "Advances"), so long as the total indebtedness outstanding at any one time does not exceed the principal amount stated on the face of this Note. Bank's obligation to make Advances under this Note shall terminate if Borrower is in Default under this Note. As of the date of each proposed Advance, Borrower shall be deemed to represent that each representation made in the Loan Documents is true as of such date. If Borrower subscribes to Bank's cash management services and such services are applicable to this line of credit, the terms of such service shall control the manner in which funds are transferred between the applicable demand deposit account and the line of credit or debit to the line of credit. WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note and other Loan Documents shall be valid unless in writing and signed by an officer of Bank. No waiver by Bank of any Default shall operate as a waiver of any other Default or the same Default on a future occasion. Neither the failure nor any delay on the part of Bank in exercising any right, power, or remedy under this Note and other Loan Documents shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or remedy. Each Borrower or any person liable under this Note waives presentment, protest, notice of dishonor, demand for payment, notice of intention to accelerate maturity, notice of acceleration of maturity, notice of sale and all other demand for payment notices of any kind. Further, each agrees that Bank may extend, modify or renew this Note or make a novation of the loan evidenced by this Note for any period and grant any releases, compromises or indulgences with respect to any collateral securing this Note, or with respect to any other Borrower or any other person liable under this Note or other Loan Documents, all without notice to or consent of each Borrower or each person who may be liable under this Note or other Loan Documents and without affecting the liability of Borrower or any person who may be liable under this Note or other Loan Documents. MISCELLANEOUS PROVISIONS. ASSIGNMENT. This Note and other Loan Documents shall inure to the benefit of and be binding upon the parties and their respective heirs, legal representatives, successors and assigns. Bank's interests in and rights under this Note and other Loan Documents are freely assignable, in whole or in part, by Bank. In addition, nothing in this Note or any of the Loan Documents shall prohibit Bank from pledging or assigning this Note or any of the Loan Documents or any interest therein to any Federal Reserve Bank. Borrower shall not assign its rights and interest hereunder without the prior written consent of Bank, and any attempt by Borrower to assign without Bank's prior written consent is null and void. Any assignment shall not release Borrower from the Obligations. APPLICATION LAW; CONFLICT BETWEEN DOCUMENTS. This Note and other Loan Documents shall be governed by and construed under the laws of the state where Bank first shown above is located without regard to that state's conflict of laws principles. If the terms of this Note should conflict with the terms of the Loan Agreement or any commitment letter that survives closing, the terms of this Note shall control. BORROWER'S ACCOUNTS. Except as prohibited by law, Borrower grants Bank a security interest in all of Borrower's accounts with Bank and any of its affiliates. JURISDICTION. Borrower irrevocably agrees to non-exclusive personal jurisdiction in the state in which the office of Bank first shown above is located. SEVERABILITY. If any provision of this Note or of the other Loan Documents shall be prohibited or invalid under applicable law, such provision shall be ineffective but only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note or other such document. NOTICES. Any notices to Borrower shall be sufficiently given, if in writing and mailed or delivered to the Borrower's address shown above or such other address as provided hereunder, and to Bank, if in writing and mailed or delivered to Bank's office address shown above or such other address as Bank may specify in writing from time to time. In the event that Borrower changes Borrower's address at any time prior to the date the Obligations are paid in full, Borrower agrees to promptly give written notice of said change of address by registered or certified mail, return receipt requested, all charges prepaid. PLURAL; CAPTIONS. All references in the Loan Documents to Borrower, guarantor, person, document or other nouns of reference mean both the singular and plural form, as the case may be, and the term "person" shall mean any individual, person or entity. The captions contained in the Loan Documents are inserted for convenience only and shall not affect the meaning or interpretation of the Loan Documents. Page 4 of 6

BINDING CONTRACT. Borrower by execution of and Bank by acceptance of this Note agree that each party is bound to all terms and provisions of this Note. ADVANCES. Bank in its sole discretion may make other Advances under this Note pursuant hereto. POSTING OF PAYMENTS. All payments received during normal banking hours after 2:00 p.m. local time at the office of Bank first shown above shall be deemed received at the opening of the next banking day. JOINT AND SEVERAL OBLIGATIONS. Each Borrower is jointly and severally obligated under this Note. FEES AND TAXES. Borrower shall promptly pay all documentary, intangible recordation and/or similar taxes on this transaction whether assessed at closing or arising from time to time. ARBITRATION. Upon demand of any party hereto, whether made before or after institution of any judicial proceeding any claim or controversy arising out of, or relating to the Loan Documents between the parties hereto (a "Dispute")shall be resolved by binding arbitration conducted and governed by the Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA") and the Federal Arbitration Act. Disputes may include, without limitation, tort claims, counterclaims, disputes as to whether a matter is subject to arbitration, claims brought as class actions, or claims arising from documents executed in the future. A judgment upon the award may be entered in any court having jurisdiction. Notwithstanding the foregoing, this arbitration provision does not apply to disputes under or related to swap agreements. SPECIAL RULES. All arbitration hearings shall be conducted in the city in which the office of Bank first stated above is located. A hearing shall begin within 90 days of demand for arbitration and all hearings shall be concluded within 120 days of demand for arbitration. These time limitations may not be extended unless a party shows cause for extension and then for no more than a total of 60 days. The expedited procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000.00. Arbitrators shall be licensed attorneys selected from the Commercial Financial Dispute Arbitration Panel of the AAA. These parties do not waive applicable Federal or state substantive law except as provided herein. PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding arbitration provisions, the parties agree to preserve, without diminution, certain remedies that any party may exercise before or after an arbitration proceeding is brought. The parties shall have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies, as applicable: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale or under applicable law by judicial foreclosure including a proceeding to confirm the sale; (ii) all rights of self-help including peaceful occupation of real property and collection of rents, set-off, and peaceful possession of personal property, (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and filing an involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by confession of judgment. Any claim or controversy with regard to any party's entitlement to such remedies is a Dispute. Each party agrees that it shall not have a remedy of punitive and exemplary damages against the other in any Dispute and hereby waive any right or claim to punitive or exemplary damages they have now or which may arise in the future in connection with any Dispute, whether the Dispute is resolved by arbitration or judicially. WAIVER OF JURY TRIAL. THE PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL WITH REGARD TO A DISPUTE. Page 5 of 6

IN WITNESS WHEREOF, Borrower, on the day and year first written above, has caused this Note to be executed under seal. OPTICAL CABLE CORPORATION CORPORATE By: /s/ Robert Kopstein SEAL ----------------------------- Robert Kopstein President TAXPAYER IDENTIFICATION NUMBER(S): OPTICAL CABLE CORPORATION 54-1237042 49548 Page 6 of 6

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. Amounts inapplicable or not disclosed as a separate line on the Balance Sheet or Statement of Income are reported as 0 herein. 0001000230 Optical Cable Corporation 1,000 U.S. Dollars 3-MOS OCT-31-1999 NOV-01-1998 JAN-31-1999 1 5,161 0 8,750 263 9,830 24,161 15,479 4,563 35,132 4,243 0 0 0 9,037 21,694 35,132 10,842 10,882 6,120 8,630 0 (49) 0 2,253 804 1,448 0 0 0 1,448 0.038 0.038