OTC happens DURING University Term -- it's a sidebar. You can join OTC at any point during University -- either right at the start, during your Bachelor's Program, or wait til the very end, during your Doctorate. HOWEVER! If you get into OTC, then the VERY NEXT TERM AFTER UNIVERSITY must be spent in the "Service".
Now remember, you can, if you want, spread out your University time into multiple Terms (I usually like to try and get it all done at the same time, but, if you should ever "Fail" at a Term, you can always come back later). So, Time at University could look like this:
T1: University, Bachelor's
T2: Anything Else
T3: BACK to University for a Masters
T4: Something Else
T5: Something Else Again
T6: BACK to University for a Doctorate.
Of course, as I mentioned, with University Terms, most folks like to just go for broke in a single "Term" -- Just declare for a Doctorate, and go as far as you can. Like this:
T1: University - Bachelor's > Masters > Doctorate
T2: Anything
OTC is a SIDE Roll for your time in University. WHENEVER you make your OTC roll -- either during the one, single, big Term, or any one, specific Term -- the VERY FIRST Non-University Term that follows MUST be spent in whatever "Service" the OTC was for -- Navy, Marines, etc.
Your example...
Bachelors degree with Hons into OTC
then 2 Terms of Navy (mustering out bens)
then 2 term Merc (muster out bens)
Class on as Merc
Should look more like this:
T1: University Bachelors degree with Hons AND Navy OTC
T2: MANDATORY Term in Navy (because of OTC)
T3: Second Term in Navy (Muster Out at end of Term)
T4: First Term with Mercs
T5: Second Term with Mercs (Muster Out at end of Term)
END of Prior History, Class on as Merc
Term-1 -- the one with the OTC -- and Term-2 MUST occur in that order. Everything else is variable.
However, THIS comment...
...do I complete Prior history as Navy and say next level is Merc...
Has me wondering if you are asking about the prior History SERVICES, or if you are asking about MULTICLASSING?
What CLASS are you starting as?