Exhibit 10.2
 
SECURITY AGREEMENT
 
 
THIS SECURITY AGREEMENT (“Security Agreement”) is made 11/12/2010, between
Paneltech International Holdings, Inc., a Delaware corporation (fka Charleston
Basics, Inc.) (“Debtor”) and Collins Timber Company LLC, an Oregon limited
liability company (“Secured Party”).
 
Debtor is indebted to Secured Party pursuant to a Non-Negotiable Promissory Note
dated December 23, 2009 in the original principal sum of $375,000 (with
provision to adjustment to $625,000), as amended (such promissory note, as
previously amended and as it may hereafter be amended, is referred to as the
“Note”).
 
To avoid acceleration of the Note as provided in paragraph (c) of the Note
(which was inserted in the Note by Amendment No. 2 to Non-Negotiable Promissory
Note dated as of September 16, 2010), Debtor has agreed to grant to Secured
Party a security interest in all personal property of Debtor.
 
NOW, THEREFORE, Debtor and Secured Party agree as follows:
 
1.   Definitions.
 
1.1   Collateral. The “Collateral” consists of all of the Debtor’s personal
property, wherever located and now owned or hereafter acquired, including
without limitation:
 
(a) Accounts;
 
(b) Chattel paper;
 
(c) Commercial Tort Claims;
 
(d) Goods;
 
(e) Inventory;
 
(f) Equipment (including trade fixtures, seating, and tenant leasehold
improvements);
 
(g) Instruments, including Promissory Notes;
 
(h) Documents;
 
(i) Deposit accounts;
 
(j) Letter-of-credit rights;
 
 
 
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(k) General intangibles, including payment intangibles;
 
(l) to the extent not listed above as original collateral, proceeds and products
of the foregoing.
 
1.2   Obligations. This Security Agreement secures the following (the
“Obligations”):
 
(a) Debtor’s obligations under the Note and this Security Agreement;
 
(b) the repayment of (a) any amounts that Secured Party may advance or spend for
the maintenance or preservation of the Collateral and (b) any other expenditures
that Secured Party may make under the provisions of the Note or this Security
Agreement;
 
(c) all amounts owed under any modifications, renewals or extensions of any of
the foregoing obligations; and
 
(d) any of the foregoing that arises after the filing of a petition by or
against Debtor under the Bankruptcy Code, even if the obligations do not accrue
because of the automatic stay under Bankruptcy Code § 362 or otherwise.
 
1.3   UCC.  Any term used in the Uniform Commercial Code as adopted in the state
of Washington (the “UCC”) and not defined in this Security Agreement has the
meaning given to the term in the UCC.
 
2.   Grant of Security Interest.  Debtor grants a security interest in the
Collateral to Secured Party to secure the payment and performance of the
Obligations.
 
3.   Subordination.
 
3.1   Notwithstanding anything to the contrary herein, the Secured Party hereby
agrees that the Debtor’s security interest in the Collateral granted pursuant to
Section 2 hereof, is subject to and subordinate and junior to (a) existing liens
securing Debtor’s existing indebtedness to ShoreBank Pacific and Anchor Bank
(the “Prior Liens”) in the Collateral and that the subordination is for the
benefit of the holders of Prior Liens and (b) certain future security interests
(“New Priority Liens”) consisting of (i) liens in favor of institution lenders
securing a new credit facility or operating loan to Debtor in an aggregate
amount of not more than One Million Dollars ($1,000,000) if, in connection with
granting of such liens, Debtor’s existing line of credit from ShoreBank Pacific
is paid in full and liens securing the ShoreBank Pacific line of credit released
and (ii) such other liens securing loans to Debtor from institution lenders
which are approved in writing by Secured Party (such approval not to be
unreasonably withheld).  The Prior Liens, together with New Priority Liens, are
referred to herein as the “Priority Liens”.
 
 
 
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3.2   The Secured Party shall, upon request, execute and deliver a subordination
agreement and such documents with respect to subordination as may be reasonably
requested from time to time by the Debtor, in forms reasonably acceptable to
Secured Party, to further evidence and effect the subordination of the liens
created by this Security Agreement to the Priority Liens.
 
4.   Perfection of Security Interests.
 
4.1   Filing of financing statements.  Debtor authorizes Secured Party to file
financing statements (the “Financing Statements”) describing the
Collateral.  The Financing Statements may describe the collateral as “all
assets, other than real property assets, whether now owned or hereafter
acquired, wherever located.”
 
4.2   Possession.
 
(a) Debtor shall have possession of the Collateral, except where expressly
otherwise provided in this Security Agreement or where Secured Party chooses
(subject to the rights of Priority Lien holders) to perfect its security
interest by possession in addition to the filing of a financing statement.
 
(b) Where Collateral is in the possession of a third party, Debtor will join
with Secured Party in notifying the third party of Secured Party’s security
interest.
 
4.3   Control.  Debtor will, upon request of Secured Party, but subject to the
rights of Priority Lien holders, cooperate with Secured Party in obtaining
control with respect to Collateral consisting of:
 
(a) Deposit Accounts;
 
(b) Investment Property;
 
(c) Letter-of-credit rights; and
 
(d) Electronic chattel paper.
 
5.   Post-Closing Covenants and Rights Concerning the Collateral.
 
5.1   Inspection.  The parties to this Security Agreement may inspect any
Collateral in the other party’s possession, at any time upon reasonable notice.
 
5.2   Secured Party’s Collection Rights.  Secured Party shall have the right at
any time to enforce Debtor’s rights against all persons obligated in any of the
Collateral.
 
5.3   Limitations on Obligations Concerning Maintenance of Collateral.
 
(a) Risk of Loss.  Debtor has the risk of loss of the Collateral.
 
 
 
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(b) No Collection Obligation.  Secured Party have no duty to collect any income
accruing on the Collateral or to preserve any rights relating to the Collateral.
 
5.4   No Disposition of Collateral.  Secured Party does not authorize, and
Debtor agrees not to:
 
(a) make any sales or leases of any of the Collateral other than sales of
Inventory other than in the ordinary course of business; or
 
(b) license any of the Collateral other than in the ordinary course of business.
 
6.   Debtor’s Representations and Warranties.  Debtor warrants and represents
that:
 
6.1   Title to and transfer of Collateral.  It has rights in or the power to
transfer the Collateral and its title to the Collateral is free of all adverse
claims, liens, security interests and restrictions on transfer or pledge except
(i) as created by this Security Agreement and (ii) the Prior Liens and (iii) as
disclosed in the Debtor’s filings with the Securities and Exchange Commission.
 
6.2   Location of Collateral.  All collateral consisting of goods is located
solely in the state of Washington.
 
7.   Debtor’s Covenants.  Until the Obligations are paid in full, Debtor agrees
that it will:
 
7.1   Preserve its corporate existence and not, in one transaction or a series
of related transactions, merge into or consolidate with any other entity or sell
all or substantially all of its assets without the prior consent of the Secured
Party, which consent shall not be unreasonably withheld;
 
7.2   Not change the state of its organization; and
 
7.3   Not change its corporate name without providing Secured Party with 30
days’ prior written notice.
 
8.   Events of Default.  The occurrence of any of the following shall, at the
option of Secured Party, be an Event of Default:
 
8.1   Any Event of Default (as defined in the Note) by Debtor under the Note or
any other obligation to the Secured Party;
 
8.2   An uncured default by Debtor under the Priority Liens or under the
indebtedness secured by the Priority Liens.
 
8.3   Debtor’s failure to comply with any of the provisions of, or the
incorrectness of any representation or warranty contained in, this Security
Agreement, the Note, or any other obligation to the Secured Party that could
reasonably be expected to have a material adverse effect;
 
 
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8.4   Transfer or disposition of any of the Collateral, except as expressly
permitted by this Security Agreement;
 
8.5   Debtor voluntarily or involuntarily becoming subject to any proceeding
under (a) the Bankruptcy Code or (b) any similar remedy under state statutory or
common law; or
 
8.6   Debtor shall fail to comply with, or become subject to any administrative
or judicial proceeding under any federal, state or local (a) hazardous waste or
environmental law, (b) asset forfeiture or similar law which can result in the
forfeiture of property, or (c) other law, where noncompliance will have a
material adverse effect on the Collateral.
 
9.   Default Costs.  Should an Event of Default occur, Debtor will pay to
Secured Party all costs reasonably incurred by the Secured Party for the purpose
of enforcing its rights hereunder, including:
 
9.1   Costs of foreclosure;
 
9.2   Costs of obtaining money damages; and
 
9.3   A reasonable fee for the services of attorneys employed by Secured Party
for any purpose related to this Security Agreement or the Obligations, including
consultation, drafting documents, sending notices or instituting, prosecuting or
defending litigation (including appeals and petitions for review) or arbitration
or in any workout, bankruptcy case or involuntary proceeding.
 
10.   Remedies Upon Default.
 
10.1   General.  Upon any Event of Default, Secured Party may upon 15 days prior
written notice to Debtor, seek any remedy available at law (including those
available under the provisions of the UCC) or in equity to collect, enforce or
satisfy any Obligations then owing, whether by acceleration or otherwise.
 
10.2   Cumulative Remedies.  Upon any Event of Default, Secured Party shall have
the right to seek any of the following remedies separately, successively or
simultaneously:
 
   (a) Obtain judgment and, in conjunction with any action, Secured Party may
seek any ancillary remedies provided by law, including levy of attachment and
garnishment.
 
   (b) Take possession of any Collateral if not already in its possession
without demand and without legal process.  Upon Secured Party’s demand, Debtor
will assemble and make the Collateral available to Secured Party as it
directs.  Debtor grants to Secured Party the right, for this purpose, to enter
into or on any premises where Collateral may be located.
 
 
 
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   (c) Without taking possession, sell, lease or otherwise dispose of the
Collateral at public or private sale in accordance with the UCC.
 
11.   Foreclosure Procedures.
 
11.1   No Waiver.  No delay or omission by Secured Party to exercise any right
or remedy accruing upon any Event of Default shall:  (a) impair any right or
remedy, (b) waive any default or operate as an acquiescence to the Event of
Default, or (c) affect any subsequent default of the same or of a different
nature.
 
11.2   Notices.  Secured Party shall give Debtor such notice of any private or
public sale as may be required by the UCC.
 
11.3   Condition of Collateral.  Secured Party has no obligation to clean-up,
repair or otherwise prepare the Collateral for sale.
 
11.4   Warranties.  Secured Party may sell the Collateral without giving any
warranties as to the Collateral.  Secured Party may specifically disclaim any
warranties of title or the like.  This procedure will not be considered
adversely to affect the commercial reasonableness of any sale of the Collateral.
 
11.5   Purchases by Secured Party.  In the event Secured Party purchases any of
the Collateral being sold, Secured Party may pay for the Collateral by crediting
some or all of the Obligations of the Debtor.
 
11.6   No Marshaling.  Secured Party have no obligation to marshal any assets in
favor of Debtor or against or in payment of the Obligations or any other
obligation owed to Secured Party by Debtor or any other person.
 
12.   Miscellaneous.
 
12.1   Assignment.
 
   (a) Binds Assignees.  This Security Agreement shall bind and shall inure to
the benefit of the heirs, legatees, executors, administrators, successors and
assigns of Secured Party and shall bind all persons who become bound as a debtor
to this Security Agreement.
 
   (b) No Assignments by Debtor.  Secured Party does not consent to any
assignment by Debtor except as expressly provided in this Security Agreement.
 
   (c) Secured Party Assignments.  Secured Party may assign its rights and
interests under this Security Agreement.  If an assignment is made, Debtor shall
render performance under this Security Agreement to the assignee.  Debtor waives
and will not assert against any assignee any claims, defenses or set-offs which
Debtor could assert against Secured Party, except defenses which cannot be
waived.
 
 
 
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12.2   Severability.  Should any provision of this Security Agreement be found
to be void, invalid or unenforceable by a court or panel of arbitrators of
competent jurisdiction, that finding shall only affect the provisions expressly
found to be void, invalid or unenforceable and shall not affect the remaining
provisions of this Security Agreement.
 
12.3   Notices.  Any notices required by this Security Agreement shall be deemed
to be delivered when a record has been (a) received by telecopy, (b) received
through the Internet, or (c) personally delivered.
 
12.4   Headings.  Section headings used this Security Agreement are for
convenience only.  They are not a part of this Security Agreement and shall not
be used in construing it.
 
12.5   Governing Law.  This Security Agreement is being executed and delivered
and is intended to be performed in the State of Oregon and shall be construed
and enforced in accordance with the laws of the State of Oregon.
 
12.6   Integration and Modifications.
 
   (a) This Security Agreement is the entire agreement of the Debtor and Secured
Party concerning its subject matter.
 
   (b) Any modification to this Security Agreement must be made in writing and
signed by the party adversely affected.
 
12.7   Waiver.  Any party to this Security Agreement may waive the enforcement
of any provision to the extent the provision is for its benefit.
 
12.8   Further Assurances.  Debtor agrees to execute any further documents, and
to take any further actions, reasonably requested by Secured Party to evidence
or perfect the security interests granted herein, to maintain the first priority
of the security interests, or to effectuate the rights granted to Secured Party
herein.
 
12.9   Delivery.  Secured Party agrees that the delivery and execution of this
Security Agreement by the Debtor fully satisfies Debtor’s obligation to deliver
a security agreement and UCC financing statement satisfactory to Secured Party
on or before September 21, 2010, and Secured Party hereby waives acceleration of
payment under paragraph (c)(ii) of  the Note (as amended).
 
 
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The parties have signed this Security Agreement as of the day and year first
above written at Portland, Oregon.
 
 
DEBTOR:
 
Paneltech International Holdings, Inc. (fka Charleston Basics, Inc.)
 
SECURED PARTY:
 
Collins Timber Company LLC
 
 
By:  /s/ Scott Olmstead  
By:  /s/ Eric Schooler
Name:  Scott Olmstead
 
Name:  Eric Schooler
Title:  CFO/Secretary
 
Title:  President/CEO

 
 
 

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