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                                                                    Exhibit 10.3

                               SECURITY AGREEMENT


   1.     Date.   October 2, 2001

   2.     Parties.

          (a)   Secured
                Party:       Avalanche Resources, Ltd.
                             P. O. Box 140978
                             Dallas, TX 75214

          (b)   Debtor:      North American Technologies Group, Inc.
                             14315 W. HARDY ROAD
                             Houston, TX  77060

   3.   Security Interest.  Subject to the applicable terms of this agreement,
debtor assigns and grants to secured party a security interest and lien in the
collateral to secure the payment and the performance of the obligation.

   4.   Obligation.  The following obligations (obligation) are secured by
this agreement:

        (a) Debts.  (i) The indebtedness of debtor to secured party evidenced
by the promissory note dated on the date of this agreement executed by debtor
payable to the order of secured party in the original principal amount of
$500,000.00.  (ii) All debt, obligations, liabilities and agreements of debtor
to secured party set forth in or arising from the Securities Purchase Agreement
dated on the date of this agreement and between debtor and secured party.  (iii)
All renewals, extensions or rearrangements of any of the above.

        (b) Costs.  All costs incurred by secured party to obtain, preserve,
perfect and enforce this security agreement and security interest, collect the
obligation, and maintain, preserve, collect and enforce the collateral,
including but not limited to taxes, assessments, insurance premiums repairs,
reasonable attorney's fees and legal expenses incurred in connection with the
preservation and enforcement of this security agreement and security interest,
rent, storage costs and expenses of sale.

   5.   Collateral.  The security interest is granted in the following
(collateral): All accounts, inventory, equipment, documents,
chattel paper, instruments, general intangibles, investment property, and any
other property of debtor of every type, kind
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and description, whether now owned or hereafter acquired, including the
Universal Display Securities and Warrant (as defined in the Securities Purchase
Agreement) and all proceeds thereof, including but not limited to all insurance
proceeds of the foregoing.

   6.   Debtor's Representations.

        (a)  Ownership.  Debtor owns, or will use the proceeds of any loans by
secured party to become the owner of, the collateral.

        (b)  Intentionally left blank.

        (c)  Claims.  All account debtors and other obligors whose debts or
obligations are part of the collateral have no right to setoffs, counterclaims
or adjustments, and no defense in connection therewith.

        (d)  Financial Statements.  All balance sheets, earnings statements and
other financial data which have been or hereafter may be furnished to secured
party to induce it to permit the obligation or to make this agreement or in
conjunction herewith truly represent or shall truly represent the financial
condition and operations of debtor as of the dates and for the periods shown
thereon; and all other information, reports, papers and data furnished to
secured party are or shall be, at the time furnished, accurate and correct in
all respects and complete insofar as necessary to give secured party a true and
accurate knowledge of the subject matter.

        (e)  Power and Authority.  Debtor has full power and authority to make
this agreement.

   7.   Debtor's Covenants.

        (a)  Obligation/This Agreement.  Debtor shall perform promptly all of
its agreements herein and in any other agreements between it and secured party.

        (b)  Ownership.  At the time debtor grants to secured party a security
interest in any collateral, debtor shall be the absolute owner thereof and shall
have the right to grant such security interest. Debtor shall defend the
collateral against all claims and demands of all persons at any time claiming
any interest therein adverse to secured party other than claims arising from
liens or interests created prior to the date of this agreement, to which Secured
Party's security interest shall be subject. Debtor shall keep the collateral
free from all liens and security interests created following the date hereof
except for taxes not yet due and this security interest.

        (c)  Insurance. Debtor shall insure the collateral with companies
acceptable to secured party against such casualties and in such amounts as
secured
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party shall require. All insurance policies shall be written for the benefit of
debtor and secured party as their interests may appear, or in other form
satisfactory to secured party, and such policies or certificates evidencing the
same shall be furnished to secured party. All policies of insurance shall
provide for written notice to secured party at least l0 days prior to
cancellation. Risk of loss or damage is debtor's to the extent of any deficiency
in any effective insurance coverage.

        (d)  Maintenance. Debtor shall keep all collateral which constitutes
goods in good condition and repair.

        (e)  Costs. Debtor shall pay all costs necessary to obtain, preserve,
perfect, defend and enforce this security interest, collect the obligation, and
preserve, defend, enforce and collect the collateral, including but not limited
to taxes, assessments, insurance premiums, repairs, reasonable attorney's fees
for the preservation, defense and enforcement of this security interest, rent,
storage costs and expenses of sales.  Whether collateral is or is not in secured
party's possession, and without any obligation to do so and without waiving
debtor's default for failure to make any such payment, secured party at its
option may pay any such costs and expenses, discharge encumbrances on
collateral, and pay for insurance of collateral and such payment shall be a part
of the obligation.  Debtor agrees to reimburse secured party on demand for any
reasonable costs so incurred.

        (f)  Information/Inspection. Debtor shall (i) furnish secured party
upon request any financial statements of debtor or reports to debtor by
accountants or others pertaining to debtor's business as soon as available, and
any information with respect to collateral requested by secured party; (ii)
allow secured party to inspect the collateral, at any time and wherever located,
and to inspect and copy, or furnish secured party with copies of, all records
relating to collateral and the obligation; (iii) furnish secured party such
information as secured party may request to identify inventory, accounts and
general intangibles in collateral, at the time and in the form requested by
secured party; and (iv) deliver upon request to secured party shipping and
delivery receipts evidencing the shipment of goods and invoices evidencing the
receipt of, and the payment for, inventory in collateral.

        (g)  Additional Documents.  Debtor shall sign any papers furnished by
secured party and take any other actions which are necessary in the judgment of
secured party to obtain, maintain and perfect this security interest.

        (h)  Parties Liable.  Debtor will preserve the liability of all
obligors on any collateral, will preserve the priority of all security therefor,
and upon secured party's request will deliver to secured party the original
certificates of title on all motor vehicles securing the collateral.  Secured
party shall have no duty to preserve such
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liability or security, but may do so at the expense of debtor, without waiving
debtor's default.

        (i)  Modification.  Without the written consent of secured party,
debtor shall not agree to any modification of any of the terms of any accounts,
contracts, chattel paper, general intangibles or instruments in collateral.

        (j)  Debtor Notification.  At any time following a default hereunder or
under the note secured party may notify persons obligated on any collateral to
make payments directly to secured party and secured party may take control of
all proceeds of any collateral. Until secured party elects to exercise such
rights, debtor, as agent of secured party, shall collect and enforce all
payments owed on collateral.

        (k)  Receipts/Rejected Goods. Upon secured party's demand following a
default hereunder or under the note, debtor will deposit, upon receipt and in
the form received, with any necessary indorsement, all payments received as
proceeds of collateral, in a special bank account in a bank of secured party's
choice over which secured party alone shall have power of withdrawal.  The funds
in said account shall secure the obligation.  Secured party is authorized to
make any indorsement in debtor's name and behalf. Pending such deposit, debtor
shall not mingle any such payments with any of debtor's other funds or property,
but will hold them separate and upon an express trust for secured party.
Secured party may from time to time apply the whole or any part of the funds in
the special account against the obligation.

        (l)  Records.  Debtor at all times will maintain accurate books and
records covering the collateral. Debtor immediately will mark all books and
records with an entry showing the assignment of all accounts in collateral to
secured party and secured party is hereby given the right to audit the books and
records of debtor relating to collateral at any time and from time to time.

        (m)  Disposition.  If disposition of any collateral gives rise to an
account, chattel paper or instrument, debtor immediately shall notify secured
party, and upon request of secured party shall assign or indorse the same to
secured party.  No collateral may be sold, leased, manufactured, processed or
otherwise disposed of by debtor in any manner without the prior written consent
of secured party, except inventory sold, leased, manufactured, processed or
consumed in the ordinary course of business.

        (n)  Accounts.  Each account in collateral will represent the valid and
legally enforceable obligation of third parties.

        (o)  Location.  Debtor shall give secured party written notice of each
office of debtor in which records of debtor pertaining to accounts in collateral
are kept, and of any change of any such location. If no such notice is given,
all records of debtor
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pertaining to accounts and all inventory are and shall be kept at debtor's
address shown above.

        (p)  Changes.  Debtor will notify secured party immediately of any
material change in the collateral, of a change in any manner warranted or
represented by debtor in this agreement or furnished to secured party, and of
any event of default.

        (q)  Use/Removal.  Debtor will not use the collateral illegally or
permit the collateral to be affixed to real or personal property without the
written consent of secured party.  Debtor will keep all collateral at debtor's
address shown above.

        (r)  Possession.  If the collateral is chattel paper, documents,
instruments or investment securities or other instruments, secured party may
deliver a copy of this agreement to the broker or seller thereof, or any person
in possession thereof, and such delivery shall constitute notice to such person
of secured party's security interest therein and shall constitute debtor s
instruction to such person to deliver to secured party certificates or other
evidence of the same as soon as available.  Debtor will deliver all investment
securities and other instruments, documents and chattel paper which are part of
the collateral and in debtor's possession to the secured party immediately, or
if hereafter acquired, immediately following acquisition, appropriately indorsed
to secured party's order or with appropriate executed powers.  Debtor waives
presentment, demand, notice of dishonor, protest, and all other notices with
respect thereof.

        (s)  Chattel Paper.  Debtor has perfected or will perfect a security
interest by means satisfactory to secured party in goods covered by chattel
paper in collateral.

        (t)  Intentionally left blank.

        (u)  Change of Name.  Without the written consent of secured party,
debtor shall not change its name or the state of its incorporation.

        (v)  Power of Attorney. Debtor appoints secured party debtor's
attorney-in-fact with full power in debtor's name and behalf to do every act
which debtor is obligated to do or may be required to do hereunder; however,
nothing in this paragraph shall be construed to obligate secured party to take
any action hereunder.

        (w)  Waivers.  Debtor waives notice of the creation, advance, increase,
existence, extension or renewal of, and of any indulgence with respect to, the
obligation; waives presentment, demand, notice of dishonor, and protest; waives
notice of the amount of the obligation outstanding at any time, notice of any
change in financial condition of any person liable for the obligation or any
part thereof, and all other notices respecting the obligation; and agrees that
maturity of the obligation and any
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part thereof may be accelerated, extended or renewed one or more times by
secured party in its discretion, without notice to debtor.

        (x)  Other Parties/Collateral.  No renewal or extension of or any other
indulgence with respect to the obligation or any part thereof, no release of any
security, no release of any person (including any maker, indorser, guarantor or
surety) liable on the obligation, no delay in enforcement of payment, and no
delay or omission or lack of diligence or care in exercising any right or power
with respect to the obligation or any security therefor or guaranty thereof or
under this agreement shall in any manner impair or affect the rights of secured
party under the law, hereunder, or under any other agreement pertaining to the
collateral. Secured party need not file suit or assert a claim for personal
judgment against any person for any part of the obligation or seek to realize
upon any other security for the obligation before foreclosing upon the
collateral for the purpose of paying the obligation.  Debtor waives any right to
the benefit of or to require or control application of any other security or
proceeds thereof, and agrees that secured party shall have no duty or obligation
to debtor to apply to the obligation any such other security or proceeds
thereof.

   8.   Rights and Powers of Secured Party.

        (a)  General.  Secured party before or after default and without
liability to debtor may: obtain from any person information regarding debtor or
debtor's business, which information any such person also may furnish without
liability to debtor; require debtor to give possession or control of any
collateral to secured party; indorse as debtor's agent any instruments,
documents or chattel paper in collateral or representing proceeds of collateral;
contact account debtors directly to verify information furnished by debtor;
release collateral in its possession to any debtor, temporarily or otherwise;
reject as unsatisfactory any property hereafter offered by debtor as collateral;
set standards from time to time to govern what may be used as after acquired
collateral, designate, from time to time, a certain percent of the collateral as
the loan value and require debtor to maintain the obligation at or below such
figure; take control of funds generated by the collateral and use same to reduce
any part of the obligation.  Secured party shall not be liable for failure to
collect any account or instrument, or for any act or omission on the part of the
secured party, its officers, agents or employees, except willful misconduct.
The foregoing rights and powers of secured party will be in addition to, and not
a limitation upon, any rights and powers of secured party given by law,
elsewhere in this agreement, or otherwise.

        (b)  Convertible Securities.  Secured party may present for conversion
any instrument or investment security in collateral which is convertible into
any other instrument or investment or a combination thereof and cash, but
secured party shall not have any duty to present for conversion any instrument
in collateral unless it shall have
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received from debtor detailed written instructions to that effect at a time
reasonably far in advance of the final conversion date to make such conversion
possible.

   9.   Default.

        (a)  Events of Default.  The following are events of default hereunder:

             (i)    default in the timely payment or the performance of any
part of the obligation or in performance or observance of the terms and
conditions herein;

             (ii)   any warranty, representation or statement made or furnished
to secured party herein, heretofore, or hereafter proves to have been false in
any material respect when made or furnished;

             (iii)  acceleration of the maturity of debt of debtor to any other
person;

             (iv)   substantial change in any fact warranted or represented in
this agreement or in any other agreement between debtor and secured party or in
any statement, schedule, or other writing furnished in connection therewith;

             (v)    loss, theft, destruction or encumbrance or sale or transfer
of any collateral in violation hereof, or substantial damage to any collateral;

             (vi)   dissolution, merger or consolidation, termination of
existence, insolvency or business failure of debtor; commencement of proceedings
for the appointment of a receiver for any property of debtor, or commission of
an act of bankruptcy by debtor; commencement of any proceeding under any
bankruptcy or insolvency law by or against debtor (or any corporate action shall
be taken to effect same), or any partnership of which debtor is a partner or by
or against any person liable upon the obligation or any part thereof, or liable
upon collateral;

             (vii)  levy on, seizure or attachment of any property of debtor; or

             (viii) a judgment against debtor
becomes final.

        (b)  Remedies.  When an event of default occurs, and at any time
thereafter, secured party without notice or demand may declare the obligation in
whole or in part immediately due and may enforce payment of the same and
exercise any rights under the UCC, rights and remedies of secured party under
this agreement, or otherwise.  Secured party may require debtor to assemble the
collateral and make it available to secured party at a place which is reasonably
convenient to both parties.  Unless the collateral is perishable or threatens to
decline speedily in value or is of a type
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customarily sold on a recognized market, secured party will give debtor
reasonable notice of the time and place of any public sale thereof or of the
time after which any private sale or other intended disposition thereof is to be
made. Expenses of retaking, holding, preparing for sale, selling, leasing or the
like shall include secured party's reasonable attorney's fees. Secured party
shall be entitled to immediate possession of all books and records evidencing
any accounts or general intangibles or pertaining to chattel paper covered by
this agreement and shall have the authority to enter upon any premises upon
which any of the same, or any collateral, may be situated and to remove the same
therefrom without liability. Secured party may surrender any insurance policies
in collateral and receive the unearned premium thereon. Debtor shall be entitled
to any surplus and shall be liable to secured party for any deficiency. The
proceeds of any disposition after default available to satisfy the obligation
shall be applied to the obligation in such order and in such manner as secured
party in its discretion shall decide. If, in the opinion of secured party, there
is any question that a public sale or distribution of any collateral will
violate any state or federal securities law, secured party (i) may offer and
sell securities privately to purchasers who will agree to take them for
investment purposes and not with a view to distribution and who will agree to
imposition of restrictive legends on the certificates representing the security,
or (ii) may sell such securities in an intrastate offering under Section
3(a)(11) of the Securities Act of 1933, and any sale so made in good faith by
secured party shall be deemed to be "commercially reasonable."

   10.  General.

        (a)  Parties Bound.  Secured party's rights hereunder shall inure to
the benefit of its successors and assigns, and in the event of any assignment or
transfer of any of the obligation or the collateral, secured party thereafter
shall be fully discharged from any responsibility with respect to the collateral
so assigned or transferred, but secured party shall retain all rights and powers
hereby given with respect to any of the obligation or collateral not so assigned
or transferred.  All representations, warranties and agreements of debtor if
more than one are joint and several, and all shall be binding upon the personal
representatives, heirs, successors and assigns of debtor.

        (b)  Waiver. No delay of secured party in exercising any power or right
shall operate as a waiver thereof; nor shall any single or partial exercise of
any power or right preclude other or further exercise thereof or the exercise of
any other power or right.  No waiver by secured party of any right hereunder or
of any default by debtor shall be binding upon secured party unless in writing,
and no failure by secured party to exercise any power or right hereunder or
waiver of any default by debtor shall operate as a waiver of any other or
further exercise of such right or power or of any further default.
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        (c)  Agreement Continuing.  This agreement shall constitute a
continuing agreement, applying to all future as well as existing transactions,
whether or not of the character contemplated at the date of this agreement, and
if all transactions between secured party and debtor shall be closed at any time
shall be equally applicable to any new transactions thereafter.  Provisions of
this agreement, unless by their terms exclusive, shall be in addition to other
agreements between the parties.

        (d)  Definitions.  Unless the context indicates otherwise, definitions
in the UCC apply to words and phrases in this agreement; if UCC definitions
conflict, Chapter 9 definitions apply.

        (e)  Notice.  Notice shall be deemed reasonable if mailed postage
prepaid at least 5 days before the related action (or if the UCC elsewhere
specifies a longer period, such longer period) to the address of debtor given
above.

        (f)  Interest.  No agreement relating to the obligation shall be
construed to be a contract for or to authorize charging or receiving, or require
the payment or permit the collection of, interest at a rate or in an amount
above that authorized by law.  Interest payable under any agreement above that
authorized by law shall be reduced automatically to the highest amount permitted
by law.  This provision shall override and supersede all other provisions of any
agreement relating to the obligation.

        (g)  Modifications. No provision hereof shall be modified or limited
except by a written agreement expressly referring hereto and to the provisions
so modified or limited and signed by the debtor and secured party, nor by course
of conduct, usage of trade, or by the law merchant.

        (h)  Severability.  The unenforceability of any provision of this
agreement shall not affect the enforceability or validity of any other
provision.

        (i)  Gender and Number.  Where appropriate, the use of one gender shall
be construed to include the others or any of them, and the singular number shall
be construed to include the plural, and vice versa.

        (j)  Applicable Law.  This agreement shall be construed according to
the laws of Texas.

        (k)  Financing Statement.  A carbon, photographic or other reproduction
of this agreement or any financing statement covering the collateral shall be
sufficient as a financing statement.
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                                       NORTH AMERICAN TECHNOLOGIES GROUP, INC.



                                       By:   /s/
                                          --------------------------------------
                                          Henry W. Sullivan, President and Chief
                                          Executive Officer