Exhibit 4.02
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                               SECURITY AGREEMENT
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         THIS AGREEMENT is made as of July 31, 2003, by and between the Grantor,
as herein defined, and North Coast Technology Investors, L.P., a Michigan
limited partnership ("NCTI"), whose address is 206 South Fifth Avenue, Ann
Arbor, Michigan 48104.

         IN CONSIDERATION of loans, advances or other financial accommodations
from NCTI to the Grantor, the Grantor agrees as follows:

1.   Definitions.  The following  terms shall have the  following  meanings when
     used in this Agreement:
a.   "Collateral"  means the  property and  interests  in property  described in
     Section 3 below.
b.   "Grantor" means NEMATRON CORPORATION,  a Michigan corporation,  whose chief
     executive offices are located at 103.
c.   "Liabilities" means all loans, advances or other financial  accommodations,
     including any renewals or extensions thereof,  from NCTI to Grantor, now or
     hereafter in effect, and any and all liabilities and obligations of any and
     every kind and nature  heretofore,  now or hereafter  owing from Grantor to
     NCTI, however incurred or evidenced, whether primary, secondary, contingent
     or  otherwise,  whether  arising  under  this  Agreement,  under  any other
     security  agreement(s),   promissory  note(s),  guaranty(s),   mortgage(s),
     lease(s), instrument(s),  document(s),  contract(s), letter(s) of credit or
     similar agreement(s) heretofore,  heretofore,  now or hereafter executed by
     Grantor and delivered to NCTI, or by oral  agreement or by operation of law
     plus all interest,  costs,  expenses and reasonable attorney fees which may
     be  made  or  incurred  by  NCTI  in the  disbursement,  administration  or
     collection  of such  liabilities  and  obligations  and in the  protection,
     maintenance and liquidation of the Collateral.

2.   Grant of Security  Interest.  Grantor  hereby  grants to NCTI a  continuing
     security   interest  in  the  Collateral  to  secure  the  payment  of  the
     Liabilities.

3.   Collateral.  The Collateral  covered by this Agreement is all the Grantor's
     property  described below which it now owns or shall  hereafter  acquire or
     create immediately upon the acquisition or creation thereof:

a.   All Assets. All personal property of the Grantor, wherever located, and now
     owned or hereafter acquired,  including accounts;  as-extracted collateral;
     chattel paper (both tangible and electronic);  deposit accounts; documents;
     equipment;  fixtures;  general intangibles,  including payment intangibles;
     goods;  instruments,  including  promissory  notes;  inventory;  investment
     property,  including certificated  securities,  uncertificated  securities,
     security  entitlements,   securities  accounts,   commodity  contracts  and
     commodity  accounts;  letters of credit;  letter of credit  rights;  money;
     software; supporting obligations; and vehicles. Together with:

b.   All Proceeds  (whether Cash Proceeds or Noncash  Proceeds) of the foregoing
     property,  including  without  limitation  proceeds of insurance payable by
     reason of loss or damage to the foregoing property and of eminent domain or
     condemnation awards.

c.   All  products  of,   additions  and  accessions   to,  and   substitutions,
     betterments and replacements for the foregoing property.

d.   All sums at any time credited by or due from NCTI to Grantor.

e.   All  property  in which  the  Grantor  has an  interest  now or at any time
     hereafter  coming  into the  possession  or under the control of NCTI or in
     transit by mail or carrier to or from NCTI or in possession of or under the
     control  of any  third  party  acting on NCTI's  behalf  without  regard to
     whether NCTI  received the same in pledge,  for  safekeeping,  as agent for
     collection or transmission  or otherwise or whether NCTI has  conditionally
     released the same (excluding,  nevertheless,  any of the foregoing property
     of the Grantor which now or any time  hereafter is in possession or control
     of NCTI under any  written  trust  agreement  wherein  NCTI is trustee  and
     Grantor is trustor).

         Terms used and not otherwise defined in this Agreement shall have the
meaning given such terms in the Michigan Uniform Commercial Code. In the event
the meaning of any term defined in the Michigan Uniform Code is amended after
the date of this Agreement, the meaning of such term as used in this Agreement
shall be that of the more encompassing of: (i) the definition contained in the
Michigan Uniform Commercial Code prior to the amendment, and (ii) the definition
contained in the Michigan Uniform Commercial Code after the amendment.

4.   Perfection of Security Interest. Grantor hereby irrevocably authorizes NCTI
     to file  financing  statement(s)  describing  the  Collateral in all public
     offices  deemed  necessary  by  NCTI,  and to take  any  and  all  actions,
     including,   without   limitation,   filing   all   financing   statements,
     continuation  financing  statements  and all other  documents that NCTI may
     reasonably  determine  to be  necessary  to  perfect  and  maintain  NCTI's
     security interests in the Collateral.  Grantor shall have possession of the
     Collateral,  except where expressly otherwise provided in this Agreement or
     where NCTI chooses to perfect its security interest by possession,  whether
     or not in addition to the filing of a financing statement. Where Collateral
     is in the  possession  of a third  party,  Grantor  will  join with NCTI in
     notifying  the third party of NCTI's  security  interest  and  obtaining an
     acknowledgement  from the third party that it is holding the Collateral for
     the benefit of NCTI.  Grantor shall pay the cost of filing or recording all
     financing  statement(s)  and other  documents.  Grantor  agrees to promptly
     execute  and  deliver  to  NCTI  all  financing  statements,   continuation
     financing statements, assignments,  certificates of title, applications for
     vehicle titles, affidavits,  reports, notices, letters of authority and all
     other  documents that NCTI may reasonably  request in form  satisfactory to
     NCTI to perfect and maintain NCTI's  security  interests in the Collateral.
     In  order  to  fully  consummate  all  of  the  transactions   contemplated
     hereunder,  Grantor shall make appropriate entries on its books and records
     disclosing NCTI's security interests in the Collateral.

5.   Warranties and Representations. Grantor warrants and represents: (a) except
     as may be otherwise  disclosed in an attachment to this Agreement,  Grantor
     has rights in or the power to transfer the  Collateral and its title to the
     Collateral  is free and clear of all liens or  security  interests,  except
     NCTI's security interests, (b) no financing statements,  other than that of
     NCTI,  are on file covering the  Collateral or any of it, (c) the Grantor's
     exact legal name and the address of the Grantor's  chief  executive  office
     are as set forth in the first paragraph of this Agreement;  (d) the form of
     Grantor's organization and the State under which it is organized are as set
     forth  in the  first  paragraph  of  this  Agreement;  (e)  all  Collateral
     consisting  of Goods is  located  in the State  where the  Grantor's  chief
     executive  office is located  except as  otherwise  disclosed in a schedule
     attached  to this  Agreement;  (f) the  Collateral,  wherever  located,  is
     covered by this Agreement; (g) the execution and delivery of this Agreement
     and any instruments  evidencing Liabilities will not violate nor constitute
     a breach of Grantor's Articles of Incorporation,  By-Laws, or any agreement
     or  restriction  of any type  whatsoever  to which Grantor is a party or is
     subject;  (h) all financial  statements and information relating to Grantor
     delivered  or to be  delivered  by Grantor to NCTI are true and correct and
     prepared in accordance with generally accepted accounting  principles,  and
     there has been no material  adverse  change in the  financial  condition of
     Grantor since the submission of any such financial information to NCTI; (i)
     there are no actions or proceedings which are threatened or pending against
     Grantor  which might  result in any  material  adverse  change in Grantor's
     financial  condition  or which  might  materially  affect any of  Grantor's
     assets;  and (j)  Grantor  has duly  filed all  federal,  state,  and other
     governmental tax returns which Grantor is required by law to file, and will
     continue to file same during such time as any of the Liabilities  hereunder
     remain  owing to NCTI,  and all such  taxes  required  to be paid have been
     paid, in full.

6.   Covenants.  Grantor  covenants and agrees that while any of the Liabilities
     remain unperformed and unpaid it will: (a) preserve its legal 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;  (b) not change the state where it is located;  (c) neither  change
     its name, form of business entity nor address of its chief executive office
     without  giving  written  notice to NCTI  thereof at least thirty (30) days
     prior to the  effective  date of such change,  and Grantor  agrees that all
     documents, instruments, and agreements demanded by NCTI in response to such
     change shall be prepared, filed, and recorded at Grantor's expense prior to
     the effective date of such change;  (d) not use the Collateral,  nor permit
     the Collateral to be used, for any unlawful purpose, whatever; (e) maintain
     the Collateral in first-class  condition and repair;  and (f) indemnify and
     hold NCTI harmless against claims of any persons or entities not a party to
     this Agreement concerning disputes arising over the Collateral.

7.   Insurance,  Taxes,  Etc.  Grantor  has the risk of loss of the  Collateral.
     Grantor shall: (a) pay promptly all taxes, levies, assessments,  judgments,
     and charges of any kind upon or relating to the  Collateral,  to  Grantor's
     business,  and to Grantor's ownership or use of any of its assets,  income,
     or gross  receipts;  (b) at its own  expense,  keep and maintain all of the
     Collateral fully insured against loss or damage by fire,  theft,  explosion
     and other risks in such amounts,  with such companies,  under such policies
     and in such form as shall be  satisfactory  to NCTI,  which  policies shall
     expressly  provide  that loss  thereunder  shall be  payable to NCTI as its
     interest  may  appear  (and NCTI  shall  have a  security  interest  in the
     proceeds of such  insurance  and may apply any such  proceeds  which may be
     received by it toward  payment of the  Liabilities,  whether or not due, in
     such order of application as NCTI may  determine);  and (c) maintain at its
     own expense public liability and property damage insurance in such amounts,
     with  such  companies,  under  such  policies  and in such form as shall be
     satisfactory  to NCTI,  and, upon NCTI's  request,  shall furnish NCTI with
     such  policies and evidence of payment of premiums  thereon.  If Grantor at
     any time  hereafter  should fail to obtain or maintain  any of the policies
     required above or pay any premium in whole or in part relating thereto,  or
     shall fail to pay any such tax, assessment, levy, or charge or to discharge
     any such  lien,  claim,  or  encumbrance,  then  NCTI,  without  waiving or
     releasing any obligation or default of Grantor  hereunder,  may at any time
     hereafter  (but shall be under no obligation to do so) make such payment or
     obtain such discharge or obtain and maintain such policies of insurance and
     pay such premiums,  and take such action with respect thereto as NCTI deems
     advisable.  All sums so disbursed by NCTI,  including  reasonable  attorney
     fees, court costs,  expenses,  and other charges relating thereto, shall be
     part of the Liabilities,  secured hereby,  and payable upon demand together
     with  interest at the highest  rate payable in  connection  with any of the
     Liabilities from the date when advanced until paid.

8.   Care, Custody,  and Dealings with Collateral.  NCTI shall have no liability
     to Grantor  with  respect to NCTI's care and custody of any  Collateral  in
     NCTI's  possession  and shall have no duty to sell,  surrender,  collect or
     protect the same or to preserve rights against prior parties or to take any
     action with respect  thereto beyond the custody  thereof,  exercising  that
     reasonable  custodial  care  which it would  exercise  in  holding  similar
     interests  for its own  account.  NCTI shall only be liable for its acts of
     gross  negligence.  NCTI is hereby  authorized  and  empowered  to take the
     following steps,  either prior or subsequent to default  hereunder:  (a) to
     deal  directly  with  issuers,   entities,   owners,  transfer  agents  and
     custodians to effect changes in the registered name of any such Collateral,
     to effect substitutions and replacements thereof necessitated by any reason
     (including  by  reason  of  recapitalization,   merger,  acquisition,  debt
     restructuring or otherwise),  to execute and deliver receipts  therefor and
     to take  possession  thereof;  (b) to  communicate  and deal  directly with
     payors of instruments (including  securities,  promissory notes, letters of
     credit,  certificates  of  deposits  and other  instruments),  which may be
     payable to or for the benefit of Grantor at any time,  with  respect to the
     terms  of  payment  thereof;  (c) in the  Grantor's  name,  to agree to any
     extension of payment, any substitution of Collateral or any other action or
     event with  respect to the  Collateral;  (d) to notify  parties who have an
     obligation  to pay  or  deliver  anything  of  value  (including  money  or
     securities)  with  respect to the  Collateral  to pay or  deliver  the same
     directly  to NCTI on behalf of Grantor  and to receive  and receipt for any
     such  payment  or  delivery  in  Grantor's  name  as  an  addition  to  the
     Collateral;   (e)  to  surrender   renewable   certificates  or  any  other
     instruments  or securities  forming a portion of the  Collateral  which may
     permit or require  reissuance,  renewal or  substitution at any time and to
     immediately take possession of and receive directly from the issuer,  maker
     or other obligor, the substituted instrument or securities; (f) to exercise
     any  right  which  Grantor  may have with  respect  to any  portion  of the
     Collateral,  including rights to seek and receive  information with respect
     thereto;  and (g) to do or  perform  any  other  act and to enjoy all other
     benefits with respect to the Collateral as Grantor could in its own name.

9.   Disposition of Collateral.  NCTI does not authorize, and Grantor agrees not
     to make any sales or leases of any of the  Collateral or license any of the
     Collateral,  or grant any other security interest in any of the Collateral;
     provided,  however,  that  until  such time as NCTI  shall  give  notice of
     revocation of such  authorization,  Grantor may sell or lease its Inventory
     and grant licenses of its software to its customers in the ordinary  course
     of its business.

10.  Information.  Grantor  shall  permit  NCTI or its  agents  upon  reasonable
     request  to  have  access  to,  and to  inspect,  all the  Collateral  (and
     Grantor's other assets,  if any) and may from time to time inspect,  check,
     make copies of, or extracts from the books,  records, and files of Grantor,
     and Grantor  will make same  available  at any time for such  purposes.  In
     addition,  Grantor shall promptly  supply NCTI with such other financial or
     other  information  concerning  its  affairs and assets as NCTI may request
     from time to time.

11.  Remedies  Upon  Default.  Immediately  upon the  occurrence  of an event of
     default  under any of the  Liabilities  or any  default  in the  payment or
     performance of any of the covenants, conditions and agreements contained in
     this Agreement (an "Event of Default"), NCTI may, in addition to and not in
     lieu of or substitution for, all other rights and remedies provided by law,
     without  notice,  except as expressly  required by law,  declare the entire
     unpaid  and  outstanding  principal  balance  of the  Liabilities,  and all
     accrued  interest,  together will all other  indebtedness of the Grantor to
     NCTI,  to be due and payable in full  forthwith  and NCTI may exercise from
     time to time any  rights  and  remedies  including  the right to  immediate
     possession of the Collateral available to it under applicable law. NCTI may
     directly  contact third  parties and enforce  against them all rights which
     arise with respect to the  Collateral and to which Grantor or NCTI would be
     entitled.  Grantor  waives any right it may have to require  NCTI to pursue
     any third person for any of the  Liabilities.  NCTI shall have the right to
     hold any property then in, upon or in any way affiliated to said Collateral
     at the time of repossession even though not covered by this Agreement until
     return is  demanded in writing by the  Grantor.  Grantor  agrees,  upon the
     occurrence  of an Event of  Default,  to  assemble  at its  expense all the
     Collateral and make it available to NCTI at a convenient  place  acceptable
     to NCTI.  Grantor  agrees  to pay all  costs of NCTI of  collection  of the
     Liabilities,  and  enforcement of rights  hereunder,  including  reasonable
     attorney fees and legal  expenses,  including  participation  in Bankruptcy
     proceedings,  and expense of locating  the  Collateral  and expenses of any
     repairs to any realty or other  property to which any of the Collateral may
     be affixed or be a part. If any notification of intended disposition of any
     of the Collateral is required by law, such notification,  if mailed,  shall
     be  deemed  reasonably  and  properly  given if sent at least ten (10) days
     before such disposition,  postage pre-paid, addressed to the Grantor either
     at the address shown above or at any other address of the Grantor appearing
     on the records of NCTI and to such other  parties as may be required by the
     Michigan Uniform  Commercial Code.  Grantor  acknowledges  that NCTI may be
     unable  to effect a public  sale of all or any  portion  of the  Collateral
     because of certain legal and/or practical restrictions and provisions which
     may be applicable to the  Collateral  and,  therefore,  may be compelled to
     resort to one or more private  sales to a restricted  group of offerees and
     purchasers.  Grantor  consents to any such private sale so made even though
     at places and upon terms less favorable than if the Collateral were sold at
     public sale. NCTI shall have no obligation to clean-up or otherwise prepare
     the  Collateral  for sale.  NCTI may comply  with any  applicable  state or
     federal law requirements in connection with a disposition of the Collateral
     and  compliance  will not be considered to adversely  affect the commercial
     reasonableness  of  any  sale  of the  Collateral.  NCTI  may  specifically
     disclaim  any  warranties  as to the  Collateral.  If NCTI sells any of the
     Collateral  upon  credit,  Grantor  will be  credited  only  with  payments
     actually  made by the  purchaser,  received  by  NCTI  and  applied  to the
     indebtedness of the purchaser.  In the event the purchaser fails to pay for
     the  Collateral,  NCTI may resell the  Collateral  and the Grantor shall be
     credited  with the  proceeds  of sale.  NCTI  shall have no  obligation  to
     marshal  any assets in favor of the  Grantor.  Grantor  waives the right to
     jury trial in any proceeding instituted with respect to the Collateral. Out
     of the net proceeds from sale or disposition of the Collateral,  NCTI shall
     retain  all  the  Liabilities  then  owing  to it and  the  actual  cost of
     collection (including reasonable attorney fees) and shall tender any excess
     to  Grantor  or its  successors  or  assigns.  If the  Collateral  shall be
     insufficient to pay the entire  Liabilities,  Grantor shall pay to NCTI the
     resulting  deficiency  upon demand.  Grantor  expressly  waives any and all
     claims of any nature,  kind or  description  which it has or may  hereafter
     have against NCTI or its representatives,  by reason of taking,  selling or
     collecting any portion of the Collateral.  Grantor  consents to releases of
     the Collateral at any time (including prior to default) and to sales of the
     Collateral in groups, parcels or portions, or as an entirety, as NCTI shall
     deem appropriate.  Grantor expressly absolves NCTI from any loss or decline
     in market value of any Collateral by reason of delay in the  enforcement or
     assertion or nonenforcement of any rights or remedies under this Agreement.
     Grantor agrees that NCTI shall, upon the occurrence of an Event of Default,
     have the right to peacefully  retake any of the collateral.  Grantor waives
     any right it may have in such instance to a judicial  hearing prior to such
     retaking.

12.  General.  Time shall be deemed of the very essence of this Agreement.  NCTI
     shall be  deemed  to have  exercised  reasonable  care in the  custody  and
     preservation  of any  Collateral in its  possession if it takes such action
     for that  purpose as Grantor  requests in  writing,  but failure of NCTI to
     comply  with any such  request  shall not of itself be deemed a failure  to
     exercise  reasonable  care,  and failure of NCTI to preserve or protect any
     rights with respect to such  Collateral  against any prior parties or to do
     any  act  with  respect  to the  preservation  of  such  Collateral  not so
     requested by Grantor  shall not be deemed a failure to exercise  reasonable
     care in the custody and preservation of such Collateral. This Agreement has
     been  delivered in Michigan and shall be construed in  accordance  with the
     laws of the State of Michigan.  Whenever  possible,  each provision of this
     Agreement  shall be interpreted in such manner as to be effective and valid
     under  applicable  law,  but if any  provision of this  Agreement  shall be
     prohibited by or invalid under  applicable  law,  such  provision  shall be
     ineffective  to the  extent  of such  prohibition  or  invalidity,  without
     invalidating the remainder of such provision or the remaining provisions of
     this Agreement.  The rights and privileges of NCTI hereunder shall inure to
     the benefit of its  successors  and assigns,  and this  Agreement  shall be
     binding on all heirs, personal  representatives,  assigns and successors of
     Grantor  and all persons  who become  bound as a debtor to this  Agreement.
     Grantor  hereby  expressly  authorizes  and  appoints  NCTI  to  act as its
     attorney-in-fact  for the sole purpose of executing  any and all  financing
     statements  or other  documents  deemed  necessary  to perfect the security
     interest herein contemplated.

13.  No Waiver. Any delay on the part of NCTI in exercising any power, privilege
     or right hereunder,  or under any other  instrument  executed by Grantor to
     NCTI in connection  herewith shall not operate as a waiver thereof,  and no
     single or partial  exercise  thereof,  or the  exercise of any other power,
     privilege or right shall preclude other or further exercise thereof, or the
     exercise of any other power,  privilege or right. The waiver of NCTI of any
     default  by  Grantor  shall  not  constitute  a  waiver  of any  subsequent
     defaults,  but shall be  restricted  to the default so waived.  All rights,
     remedies and powers of NCTI hereunder are irrevocable  and cumulative,  and
     not  alternative  or  exclusive,  and shall be in  addition  to all rights,
     remedies, and powers given hereunder or in or by any other instruments,  or
     by the  Michigan  Uniform  Commercial  Code,  or any laws now  existing  or
     hereafter  enacted.  The  Grantor  acknowledges  that  this  is the  entire
     agreement  between the parties except to the extent that writings signed by
     the party to be charged are specifically  incorporated  herein by reference
     either in this Agreement or in such writings, and acknowledges receipt of a
     true and complete copy of this Agreement.

IN WITNESS  WHEREOF,  this Security  Agreement was executed and delivered by the
undersigned on the date stated in the first paragraph above.

 Grantor:

 NEMATRON CORPORATION



 By:  /s/ Matthew S. Galvez
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     Its:
     President