Document:

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                                                                    Exhibit 10.3
                           RECAPITALIZATION AGREEMENT

         This Recapitalization Agreement ("Agreement") is entered into this 6th
day of October, 2005 between Black Warrior Wireline Corp., a Delaware
corporation, (the "Company") and SJMB, L.P., a Delaware limited partnership (the
"Holder"), such Holder having the address set forth on the Signature Page to
this agreement.

                                   BACKGROUND

         A. The Company has outstanding as of September 30, 2005, an aggregate
of $42,477,902 of principal and accrued interest on its promissory notes (the
"Notes") which, as extended, are due and payable on February 14, 2008.

         B. The principal and accrued interest on the Notes is convertible into
shares of the Company's Common Stock, $0.0005 par value (the "Common Stock") at
a conversion price of $0.75 for each share of Common Stock, subject to
anti-dilution adjustment, or an aggregate of 56,637,203 shares of Common Stock
as of September 30, 2005, based on the interest accrued on the Notes through
that date.

         C. The Company also has outstanding as of September 30, 2005 common
stock purchase warrants (the "Warrants") to purchase an aggregate of 70,761,185
shares of Common Stock at an excise price of $0.75 per share, subject to
anti-dilution adjustment.

         D. In order to simplify and clarify its equity capital structure, the
Company is seeking to eliminate and reduce the amount of derivative securities
it has outstanding.

         E. The Company desires that the Holder on the terms provided herein (i)
transfer and assign to the Company the Holder's Warrants (the "Holder
Warrants"), (ii) transfer and assign to the Company the 5, 017,481 shares of
Common Stock (the "SJMB Shares") issued to the Holder in December 2000 on
conversion of a portion of the principal and accrued interest on the Holder's
Notes, and (iii) convert the principal of and accrued interest on the Holder's
Notes (the "Holder Notes") into shares of Common Stock (the "Conversion Shares")
at the conversion price of $0.75 of principal and accrued interest per
Conversion Share and agree to sell such Conversion Shares to the Company as
provided herein.

         F. The Holder desires to convert the Holder Notes into Conversion
Shares and transfer and assign to the Company the Holder Warrants, SJMB Shares
and Conversion Shares on the terms set forth herein.

         G. Concurrently with entering into this Agreement, the Company has
entered into Recapitalization Agreements with Charles E. Underbrink, Northgate,
L.L.C., Hub, Inc., Charles E. Underbrink IRA, and the Charles E. Underbrink
Irrevocable Trust dated 10/10/92 for the benefit of Piper Aurora Underbrink,
which persons and entities are herein collectively referred to as the
"Underbrink Family Entities," and St. James Capital Partners, L.P. and
subsequent to entering into this Agreement the Company proposes to enter into
Recapitalization Agreements with each other holder of Warrants, other than the
Holder and St. James Capital Partners, L.P. (herein the Holder and St. James
Capital Partners, L.P. are collectively referred to as the "St. James
Partnerships") and the Underbrink Family Entities (herein all holders of Notes
and Warrants, including the St. James Partnerships and the Underbrink Family
Entities, are collectively referred to as the "Derivatives Holders" and the
Derivatives Holders other than the St. James Partnerships and the Underbrink
Family Entities are referred to as the "Other Derivatives Holders") pursuant to
which the Company will during the "Exchange Period" (as defined in such
Recapitalization Agreements with the Other Derivatives Holders) offer to the
Other Derivatives Holders to exchange its shares of Common Stock for Warrants
held by the Other Derivatives Holders at an exchange ratio of one (1) share of
Common Stock (each, an "Exchange Share") for each three (3) Warrants.
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H. After the expiration of the Exchange Period, the Company intends to undertake
to complete an Underwritten Offering (as defined herein). Pursuant to a
Registration Rights Agreement dated December 17, 1999 (the "Registration Rights
Agreement") between the Company and the Other Derivatives Holders the Other
Derivatives Holders have the right to request that their Conversion Shares and,
as such agreement is to be amended, their Exchange Shares, be included in such
registration and sold in the Underwritten Offering.

         I. Herein each three (3) Warrants are referred to as a "Warrant Unit"
and each Warrant Unit or Exchange Share to be sold by any Derivatives Holder,
either to the Company or in the Underwritten Offering, is referred to as an
"Exchange Share Equivalent."

                                    AGREEMENT

                  NOW, THEREFORE, in consideration of the foregoing and of the
mutual agreements, covenants, representations and warranties contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, each intending to be legally
bound, hereby agree as follows:
                  Certain terms used herein as defined terms are defined in
Article VIII hereof, unless the context should otherwise require.

                                    ARTICLE I
                        CONVERSION OF SUBORDINATED NOTES

1.1      Agreement of Holder to Convert Principal and Interest of Notes.

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                             1.1.1 The Holder agrees irrevocably to convert at
                             the Closing Time of the Underwritten Offering the
                             full principal amount and all interest accrued on
                             the Holder Notes through the Interest Expiration
                             Date (as defined below) into shares of Common
                             Stock, such conversion to be effected automatically
                             as of the Closing Time and without further act by
                             or on behalf of the Holder.

                             1.1.2. For the purpose of effecting the conversion
                             of the Holder Notes in accordance with subparagraph
                             1.1.1, at the Closing Time of the Underwritten
                             Offering, the Holder shall deliver to the Company,
                             at the location set as the place for closing the
                             Underwritten Offering, the original executed Holder
                             Notes, together with a completed and executed
                             Notice of Conversion (the "Notice of Conversion")
                             in the form attached hereto as Addendum A, and the
                             completed and executed Stock Assignment (the "Stock
                             Assignment") in the form attached hereto as
                             Addendum B. The Holder Notes, Notice of Conversion
                             and Stock Assignment are herein collectively
                             referred to as the "Conversion Documents."

1.2. Treatment of Fractional Shares. The Company shall not be required to issue
fractional shares of Common Stock on the conversion of the Holder Notes. If more
than one Holder Note shall be presented for conversion by the Holder, the number
of full shares of Common Stock which shall be issuable upon such conversion
shall be computed on the basis of the aggregate number of whole shares of Common
Stock issuable on conversion for all the Holder Notes so presented. If any
fraction of a share of Common Stock would, except for the provisions of this
paragraph, be issuable on the conversion of this Note or Notes so presented, the
Company shall pay an amount in cash calculated by it to be equal to the market
price of one share of Common Stock on the Interest Expiration Date multiplied by
such fraction computed to the nearest whole cent.

                                   ARTICLE II
                              UNDERWRITTEN OFFERING

         2.1. Commercially Reasonable Efforts of the Company. The Company agrees
that it shall promptly after the expiration of the Exchange Period use its
commercially reasonable efforts to complete an Underwritten Offering. Such
commercially reasonable efforts shall include, among other things, contacting
and soliciting prospective investment bankers to act as underwriters or agents
of the Company in effecting such transaction, providing to the prospective
investment bankers such financial and other information concerning the Company
as may be reasonably requested, providing reasonable access to the management of
the Company, its advisors and the Company's facilities as is requested by the
prospective investment bankers, fulfilling the Company's obligations set forth
in this Article II and otherwise enabling such investment bankers to have the
opportunity to engage in "due diligence" activities with respect to the Company
and its management and completing the Underwritten Offering on such terms as
will yield Net Proceeds, after deducting such amount of Net Proceeds as are to
be retained by the Company for its corporate purposes, sufficient to enable the
Company to purchase all the Conversion Shares, SJMB Shares and such number of
Exchange Share Equivalents as are to be purchased by the Company, subject to
paragraph 2.2 hereof, at the Closing Time of the Underwritten Offering.

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         2.2. Terms of Underwritten Offering. If the managing underwriter of the
Underwritten Offering concludes in its reasonable judgment that the number of
shares to be registered for selling shareholders would materially adversely
affect such offering and that the number of Conversion Shares and Exchange
Shares to be registered in such offering shall be reduced, the Holder, St. James
Capital Partners, L.P., and each of the Underbrink Family Entities, under the
terms this Agreement and the other Recapitalization Agreements such persons have
entered into with the Company, severally and not jointly agree that the number
of Conversion Shares, SJMB Shares and Exchange Share Equivalents to be purchased
from them by the Company at the Closing Time shall be reduced in accordance with
Addendum C hereto to the extent necessary in order that the number of Conversion
Shares and Exchange Shares to be registered for sale in the Underwritten
Offering by the Other Derivatives Holders will no longer, in the reasonable
judgment of the managing underwriter, materially adversely affect the
Underwritten Offering.

         2.3 Underwritten Offering Defined. An "Underwritten Offering" means a
sale of such number of shares of Common Stock of the Company conducted on such
terms and conditions, in compliance with the provisions of the Securities Act,
and at such price per share of Common Stock and on other terms and conditions as
the Company may in its sole and exclusive discretion determine to complete and
as will result in sufficient Net Proceeds, subject to paragraph 2.2 hereof, to
enable the Company to purchase not less than all the Conversion Shares, SJMB
Shares and Exchange Share Equivalents to be sold by the Underbrink Family
Entities and the St. James Partnerships and purchased by the Company, provided,
however, that the Underbrink Family Entities and the St. James Partnerships
shall only be obligated to sell their Conversion Shares, SJMB Shares and
Exchange Share Equivalents to the Company if the purchase price paid per
Conversion Share, SJMB Share and Exchange Share Equivalent is not less than
$0.75 per share (before reflecting stock splits, divisions, reverse stock splits
or share combinations).

         2.4 Net Proceeds Defined. "Net Proceeds" means the total proceeds
received by the Company from a sale of shares of its Common Stock in a
Underwritten Offering after deducting selling, underwriting and other
commissions and expenses and fees, and before deducting legal, accounting and
printing expenses and all other expenses of the Company related to the
Underwritten Offering.

         2.5 Net Price Per Share. As used herein, "Net Price Per Share" means
the Net Proceeds received by the Company in the Underwritten Offering divided by
the number of shares of Common Stock sold by the Company in the Underwritten
Offering.

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         2.6. Closing Time Defined. "Closing Time" means the time at which all
conditions to the closing of the Underwritten Offering have been met or waived
and the Company issues and delivers the shares of Common Stock sold for the
consideration paid for such shares.

         2.7 Agreements. In connection with the Underwritten Offering, the
Company agrees to execute such underwriting or selling agreements and such other
agreements and documents, including indemnification provisions, as are
customarily entered into in connection with such transactions and provide its
cooperation and the cooperation of its officers and employees in effecting the
Underwritten Offering.

                                   ARTICLE III
                SALE TO COMPANY OF CONVERSION SHARES AND WARRANTS
                    AT CLOSING TIME OF UNDERWRITTEN OFFERING

         3.1 Sale of Conversion Shares at the Closing Time of the Underwritten
Offering. Provided that the Net Price Per Share to be paid to the Holder by the
Company at the Closing Time of the Underwritten Offering is not less than $0.75
per share (before reflecting stock splits, divisions, reverse stock splits or
share combinations), the Holder agrees to sell to the Company the Holder's
Conversion Shares and the Company agrees to purchase at the Closing Time all the
Holder's Conversion Shares out of the Net Proceeds of the Underwritten Offering
and in accordance with Article I hereof. The Holder agrees to accept the Net
Price Per Share determined as provided in paragraph 2.5 hereof for Holder's
Conversion Shares, provided that the Net Price Per Share is not less than $0.75
per share (before reflecting stock splits, divisions, reverse stock splits or
share combinations).

         3.2 Interest Expiration Date. For the purpose of facilitating the sale
of the Conversion Shares at the Closing Time of the Underwritten Offering, the
Holder agrees that interest on the Holder Notes shall cease to accrue on the
last day of the month preceding the month in which the Closing Time occurs
(herein such date is referred to as the "Interest Expiration Date").

         3.3 Sale of Warrants and SJMB Shares at Closing Time of Underwritten
Offering. Provided that the Net Price Per Share to be paid to the Holder by the
Company at the Closing Time of the Underwritten Offering is not less than $0.75
for each Warrant Unit and each SJMB Share sold (before reflecting stock splits,
divisions, reverse stock splits or share combinations) and subject to paragraph
2.2 hereof, the Holder hereby agrees to sell to the Company the Holder's
Warrants and SJMB Shares and the Company agrees to purchase at the Closing Time
all the Holder's Warrants and SJMB Shares out of the Net Proceeds of the
Underwritten Offering. At the Closing Time, Holder agrees to execute and deliver
to the Company, at the location set as the place for closing the Underwritten
Offering, the warrant assignment attached hereto as Addendum D (the "Warrant
Assignment") with respect to Warrants sold to the Company and a Stock Assignment
with respect to the SJMB Shares sold to the Company. The Holder agrees to accept
the Net Price Per Share as the purchase price for each Warrant Unit and SJMB
Share sold determined as provided in paragraph 2.5 hereof for its Warrants and
SJMB Shares, provided that the Net Price Per Share is not less than $0.75 for
each Warrant Unit and SJMB Share (before reflecting stock splits, divisions,
reverse stock splits or share combinations).

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         3.4 Aggregation of Warrants for Payment. If more than one Warrant
certificate shall be delivered at the Closing Time for sale by a Holder, the
purchase price for all such Warrants presented shall be computed on the basis of
the aggregate number of Warrants represented by the Warrant certificates so
delivered. The aggregate purchase price for the Warrants shall be rounded to the
nearest whole cent.

                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES

         4. 1. Company Representations and Warranties. The Company represents
         and warrants to the Holder as of the date hereof, as of the Closing
         Time, and as of the Warrant Exchange Date as set forth below:

                  (a) The Company is duly organized and in good standing under
                  the laws of the State of Delaware. The Company has all
                  corporate power and authority to execute and deliver this
                  Agreement and to perform its obligations hereunder. The
                  execution, delivery and performance of this Agreement has been
                  duly and validly authorized by the board of directors of the
                  Company and no other corporate proceedings on the part of the
                  Company are necessary to authorize or consummate this
                  Agreement. This Agreement has been duly and validly executed
                  and delivered by the Company, and (assuming the due
                  authorization, execution and delivery hereof by the Holder)
                  constitutes the legal, valid and binding obligation of the
                  Company, enforceable against the Company in accordance with
                  its terms, except as may be limited by bankruptcy, insolvency,
                  moratorium, reorganization or similar laws affecting the
                  rights of creditors generally and of general principles of
                  equity.

                  (b) The execution, delivery and performance by the Company of
                  this Agreement does not and will not contravene, conflict
                  with, constitute a violation or breach of, (i) the
                  organizational documents of the Company, (ii) any laws binding
                  upon or applicable to the Company or by which any of its
                  assets or properties is bound or (iii) any material contract
                  to which the Company is a party or by which any of its assets
                  or properties is bound.

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                  (c) The Conversion Shares when issued and the Exchange Shares
                  if and when issued to Holder will be duly authorized and
                  validly issued, fully paid and non-assessable.

         4.2. Holder's Representations and Warranties. The Holder represents and
         warrants to the Company as of the date hereof, as of the Closing Time
         of the Underwritten Offering, and as of the Warrant Exchange Date as
         set forth below:

                  (a) the Holder is an entity duly organized, validly existing
                  and in good standing under the laws of the jurisdiction under
                  which it was organized and has all requisite power and
                  authority to execute and deliver this Agreement and to perform
                  its obligations hereunder. The execution, delivery and
                  performance of this Agreement has been duly and validly
                  authorized by the governing body, if any, of the Holder and no
                  other proceedings on the part of the Holder are necessary to
                  authorize or consummate this Agreement. This Agreement has
                  been duly and validly executed and delivered by the Holder,
                  and (assuming the due authorization, execution and delivery
                  hereof by the Company) constitutes the legal, valid and
                  binding obligation of the Holder, enforceable against the
                  Holder in accordance with its terms, except as may be limited
                  by bankruptcy, insolvency, moratorium, reorganization or
                  similar laws affecting the rights of creditors generally and
                  of general principles of equity.

                  (b) The execution, delivery and performance by the Holder of
                  this Agreement does not and will not contravene, conflict
                  with, constitute a violation or breach of, constitute (with or
                  without notice or lapse of time or both) a default under,
                  result in or give to any person any right of payment or
                  reimbursement, termination, cancellation, modification or
                  acceleration, loss of a material benefit under or result in
                  the creation or imposition of any lien upon or create in any
                  other person any claim against any of the Holder Notes or
                  Holder Warrants, or shares of Common Stock issued or issuable
                  to Holder under the terms of this Agreement, under any of the
                  terms, conditions or provisions of (i) the organizational
                  documents of the Holder, (ii) any laws binding upon or
                  applicable to the Holder or by which any of its assets or
                  properties is bound or (iii) any material contract to which
                  the Holder is a party or by which any of its assets or
                  properties is bound.

                   (c) No consent, waiver, approval or action of, filing with or
                  notice to any governmental entity or third party is necessary
                  or required under any of the terms, conditions or provisions
                  of any law or any contract to which the Holder is a party or
                  by which any of its assets or properties is bound for the
                  execution, delivery and performance by the Holder of this
                  Agreement.

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                  (d) The Holder is the record and beneficial owner of the
                  Holder Notes and Holder Warrants adjacent to the Holder's name
                  on the Signature Page hereof, free and clear of any liens,
                  claims, rights of others or encumbrances.

                  (e) The sale and transfer of the Conversion Shares to the
                  Company at the Closing Time of the Underwritten Offering is
                  and will be free and clear of all liens, claims, rights of
                  others and encumbrances.

                  (f) To the extent sold by the Holder to the Company at the
                  Closing Time of the Underwritten Offering, the sale and
                  transfer of the Warrants to the Company at the Closing Time of
                  the Underwritten Offering is and will be free and clear of all
                  liens, claims, rights of others and encumbrances.

                  (g) The sale, transfer and exchange of the Warrant Shares to
                  the Company on the Warrant Exchange Date is and will be free
                  and clear of all liens, claims, rights of others and
                  encumbrances.

                                    ARTICLE V
                              THE WARRANT EXCHANGE

5.1      Exchange by Holder of Warrants for Shares of Common Stock.

         5.1.1.   In the event an Underwritten Offering has not been completed
                  on or before June 30, 2006, the Holder and the Company agree
                  that the Holder will exchange its Warrants for Exchange Shares
                  on the first Business Day following June 30, 2006 (herein such
                  date is referred to as the "Warrant Exchange Date"). Subject
                  to the terms and conditions of this Agreement, the Holder
                  agrees to transfer and assign to the Company on the Warrant
                  Exchange Date the Holder Warrants in exchange for Exchange
                  Shares at the exchange rate of three (3) warrants for each one
                  (1) Exchange Share.

         5.1.2.   In order to consummate the foregoing transaction, the Holder
                  shall deliver to the Company on the Warrant Exchange Date, at
                  its address set forth in subparagraph 7.3 hereof, (i) the
                  original executed Holder Warrants, and (ii) the executed
                  Warrant Assignment attached hereto as Addendum D.

         5.1.3.   Promptly upon receipt by the Company of the original executed
                  Holder Warrants and executed Warrant Assignment, the Company
                  shall deliver to the Holder, at Holder's address set forth on
                  the Signature Page, a certificate for the number of Exchange
                  Shares which the Holder is entitled to receive pursuant to the
                  terms of this Agreement.

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         5.2      Treatment of Fractional Shares. The Company shall not be
                  required to issue fractional shares of Common Stock in
                  exchange for the Holder Warrants. If more than one Holder
                  Warrant shall be presented for exchange by the Holder, the
                  number of Exchange Shares issuable shall be computed on the
                  basis of the aggregate number of whole shares of Common Stock
                  issuable in exchange for the Holder Warrants so presented. If
                  any fraction of a share of Common Stock would, except for the
                  provisions of this paragraph, be issuable in exchange for
                  Exchange Shares, the Company shall pay to the Holder an amount
                  in cash calculated by it to be equal to the closing market
                  price of one share of Common Stock on June 30, 2006 multiplied
                  by such fraction computed to the nearest whole cent.

         5.3      Resale Restrictions on Exchange Shares. Holder understands,
                  covenants and agrees that the Exchange Shares issued shall
                  have such restrictions on the resale of those shares as are
                  required under the Securities Act. In effecting resales of
                  such Exchange Shares, such shares will be deemed to be
                  "restricted securities" as defined under Rule 144 and, unless
                  such offer and resale has been registered under the Securities
                  Act, the resale will be subject to the restrictions and
                  limitations of Rule 144. Holder agrees that a legend may be
                  affixed to the certificate for the Exchange Shares issued to
                  Holder and stop transfer instructions can be placed against
                  the transfer of the Exchange Shares in accordance with the
                  foregoing.

5.4               Amendment of Registration Rights Agreement. The Company and
                  the Holder are parties to the Registration Rights Agreement
                  dated June 5, 1997, as amended (the "1997 Registration Rights
                  Agreement") between the Company and the Holder, and other
                  holders of Convertible Notes and Warrants. In the event the
                  Holder exchanges its Warrants for Common Shares in accordance
                  with this Article V, the Company and the Holder agree that
                  Section 1.3 of the 1997 Registration Rights Agreement, which
                  section defines the Company's securities the holders of which
                  are entitled to the rights and benefits of the Registration
                  Rights Agreement, is amended to include in the definition of
                  "Registrable Securities" the Exchange Shares to be received by
                  the Holder in exchange for its Warrants as provided herein.

                                   ARTICLE VI
                                OTHER AGREEMENTS

                  6.1 Adjustments. It's anticipated that the Company will
         combine, by way of a reverse stock split, its outstanding shares of
         Common Stock into a smaller number of shares. The conversion price of
         the Notes shall be adjusted for such share combination in accordance
         with the terms set forth in the Notes. The exchange ratio for the
         Warrants shall be adjusted so that both the number of Warrants
         exchanged and the number of shares of Common Stock issued in exchange
         is adjusted in proportion to the terms of the share combination.

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                  6.2. Prohibition of Transfers of Notes, SJMB Shares and
         Warrants. Effective as of the date hereof and through June 30, 2006,
         the Holder will not sell, assign, pledge, encumber, transfer, negotiate
         or otherwise dispose of the Holder Notes, SJMB Shares or Holder
         Warrants or any interest therein or in the shares issuable on
         conversion of the Holder Notes or exercise of the Holder Warrants or
         enter into any contract or understanding to do so or relating to the
         Holder Notes or Holder Warrants or the shares issuable on conversion or
         exercise of any thereof other than as contemplated by this Agreement.

                  6.3 No Prohibition Against Conversion. Notwithstanding
         anything to the contrary herein, the Holder may at any time on or prior
         to June 30,2006, convert any portion or all of the principal and
         accrued interest on the Holder Notes into shares of Common Stock,
         provided any shares of Common Stock received by the Holder as a result
         of such conversion shall be "Conversion Shares" for the purposes of
         this Agreement and the rights and obligations of the parties hereto and
         shall be subject to the provisions of paragraphs 6.2 and 6.4 hereof.

                  6.4 No Conflicting Agreements; Compliance with Agreement.
         Holder will act in good faith and use commercially reasonable efforts
         to take, or cause to be taken, all actions, execute all documents and
         do, or cause to be done, all things necessary, proper or advisable to
         consummate and make effective the transactions contemplated by this
         Agreement as promptly as practicable. Holder shall refrain from taking
         directly or indirectly, any action that would impair Holder's or the
         Company's ability to consummate the transactions contemplated by this
         Agreement. Holder shall not enter into any agreement in conflict with
         this Agreement or which would impair Holder's or the Company's ability
         to fulfill the terms of this Agreement or make false or misleading any
         of Holder's representations, warranties or agreements herein.

                  6.5 Holder's Acknowledgement. The Holder acknowledges that the
         Company now possesses and may hereafter possess certain non-public
         information concerning the Company and its prospects and proposed
         transactions beyond the transactions contemplated in this Agreement
         that may or may not be independently known to the Holder or other
         Derivatives Holders (the "Company Non-Public Information") which
         information may constitute material information. The Holder agrees to
         the terms and conditions of this Agreement notwithstanding that it is
         aware that Company Non-Public Information may exist and that the
         Company has not disclosed any Company Non-Public Information to Holder
         or, if such information has been disclosed, it has been disclosed under
         the terms of a confidentiality agreement. The Holder acknowledges that
         it is a sophisticated investor and is acting independently with respect
         to the transactions set forth in this Agreement and that the Company
         has no obligations to the Holder to disclose such Company Non-Public
         Information and it has no fiduciary obligations to the Holder.
         Additionally, the Holder acknowledges that it has adequate information
         concerning the transactions contemplated in this Agreement, and the
         business and financial condition of the Company and its prospects, to
         make an informed decision regarding entering into this Agreement, and
         it has done so independently and without reliance upon the Company and,
         based upon such information as the Holder has deemed appropriate, made
         its own analysis and decision to enter into this Agreement with the
         Company. Holder understands and acknowledges that the market value of
         the Company's shares of Common Stock after the Closing Time of the
         Underwritten Offering may exceed the price realized by the Holder out
         of the Net Proceeds of the Underwritten Offering.

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                                   ARTICLE VII
                                     GENERAL

         7.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Delaware.

         7.2 Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subject hereof. This Agreement, or any provision hereof, may be amended, waived,
discharged or terminated upon the written consent of the parties hereto.

         7.3 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger
including Federal Express or similar courier service, addressed:

                  If to the Holder, at the address set forth on the Signature
Page or at such other address as the Holder shall have furnished to the Company
in writing;

                  If to the Company:

                  Black Warrior Wireline Corp.
                  100 Rosecrest,
                  Columbus, MS 39701
                  Attention:  William Jenkins, President

or a such other address as the Company shall have furnished to the Holder. Each
such notice or other communication shall, for all purposes of this Agreement, be
treated as effective upon receipt.

         7.4 Delays or Omissions. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any party to this
Agreement shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party to this Agreement, shall be cumulative and not alternative.

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         7.5 Counterparts. This Agreement may be executed in separate
counterparts, each of which shall collectively and separately constitute one
agreement and shall be binding upon the parties hereto.

         7.6 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.

         7.7 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.

         7.8 Enforcement of Agreement. Holder acknowledges and agrees that the
Company could by damaged irreparably if any of the provisions of this Agreement
are not performed in accordance with their specific terms. Accordingly, the
Holder agrees that, (i) it will waive, in any action for specific performance,
the defense of adequacy of a remedy at law, and (ii) in addition to any other
right or remedy to which the Company may be entitled, at law or in equity, the
Company will be entitled to enforce any provision of this Agreement by a decree
of specific performance and to temporary, preliminary and permanent injunctive
relief to prevent breaches or threatened breaches of any of the provisions of
this Agreement, without posting any bond or other undertaking.

         7.9 Binding on Successors and Assigns. Subject to paragraph 6.2 hereof,
the provisions of this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, administrators, successors and
assigns. No party may assign, delegate or otherwise transfer any of its rights
or obligations under this Agreement without the consent of the other party
hereto. Any purported assignment in violation hereof shall be null and void.

                                  ARTICLE VIII

                                   DEFINITIONS

         "1997 REGISTRATION RIGHTS AGREEMENT" is defined in paragraph 5.4 of
         this Agreement.

                                       12
<PAGE>

          "AGREEMENT" is defined in the first paragraph of this Agreement.

         "BUSINESS DAY" means any day that is not a Saturday, a Sunday or a day
         on which banks are required or permitted to be closed in the State of
         Mississippi.

         "CLOSING TIME" is defined in paragraph 2.6 of this Agreement.

         "COMMON STOCK" is defined in paragraph B of this Agreement.

         "COMPANY" is defined in the first paragraph of this Agreement.

         "COMPANY NON-PUBLIC INFORMATION" is defined in paragraph 6.4 of this
         Agreement.

         "CONVERSION DOCUMENTS" is defined in paragraph 1.1.2. of this
         Agreement.

         "CONVERSION SHARES" is defined in paragraph E of this Agreement.

         "DERIVATIVES HOLDERS" is defined in paragraph G of this Agreement.

         "EXCHANGE PERIOD" is defined in paragraph G of this Agreement.

         "EXCHANGE SHARE" is defined in paragraph G of this Agreement.

         "EXCHANGE SHARE EQUIVALENT" is defined in paragraph I of this
         Agreement.

         "HOLDER" is defined in the first paragraph of this Agreement.

         "HOLDER NOTES" is defined in paragraph E of this Agreement.

         "SJMB SHARES" is defined in paragraph E of this Agreement.

         "HOLDER WARRANTS" is defined in paragraph E of this Agreement.

         "INTEREST EXPIRATION DATE" is defined in paragraph 3.2 of this
         Agreement.

         "NET PRICE PER SHARE" is defined in paragraph 2.5 of this Agreement.

         "NET PROCEEDS" is defined in paragraph 2.4 of this Agreement.

         "NOTES" is defined in paragraph A of this Agreement.

         "NOTICE OF CONVERSION" is defined in paragraph 1.1.2 of this Agreement.

         "OTHER DERIVATIVES HOLDERS" is defined in paragraph G of this
         Agreement.

                                       13
<PAGE>

         "REGISTRATION RIGHTS AGREEMENT" is defined in paragraph H of this
         Agreement.

         "ST. JAMES PARTNERSHIPS" is defined in paragraph G of this Agreement.

         "STOCK ASSIGNMENT" is defined in paragraph 1.1.2 of this Agreement.

         "UNDERWRITTEN OFFERING" is defined in paragraph 2.3 of this Agreement.

         "UNDERBRINK FAMILY ENTITIES" is defined in paragraph G of this
         Agreement.

         "WARRANTS" is defined in paragraph C of this Agreement.

         "WARRANT ASSIGNMENT" is defined in paragraph 3.3 of this Agreement.

         "WARRANT EXCHANGE DATE" is defined in paragraph 5.1.1 of this
         Agreement.

         "WARRANT UNIT" is defined in paragraph I of this Agreement.

                                       14
<PAGE>

                                 SIGNATURE PAGE

                  In Witness Whereof, the parties hereto have caused this
Recapitalization Agreement to be duly executed as of the day and year first
above written.

COMPANY                         BLACK WARRIOR WIRELINE CORP.

                                By /s/ William L. Jenkins
                                   -------------------------
                                   William L. Jenkins, President

HOLDER                          SJMB, L.P.
                                BY SJMB, L.L.C., ITS GENERAL PARTNER

                                BY: /S/ James H. Harrison
                                    -------------------------
                                    James H. Harrison, Chief Financial Officer
Dated: October 6, 2005

HOLDER'S NOTES AND WARRANTS:

1. Number of Warrants purchasable from Holder is 33,434,999

2. Number of SJMB Shares purchasable from Holder is 5,017,481.

3. Principal amount of Notes held by Holder is $13,700,000, plus accrued
interest

HOLDER'S ADDRESS IS:   4299 San Felipe, Suite 120
                         Houston, TX 77027

                                       15
<PAGE>

                                                                      ADDENDUM A

                              NOTICE OF CONVERSION

                  The undersigned, the holder of the below identified
Convertible Promissory Notes ("Holder Notes") issued by Black Warrior Wireline
Corp. ("Company"), hereby elects to convert the principal and accrued interest
of the Holder Notes into shares of Company Common Stock in accordance with the
terms of the Holder Notes and in accordance with the terms of the
Recapitalization Agreement between the undersigned and the Company. The
conversion price is $0.75 per share.

         Holder Notes to be converted:

                             -----------------------------

                             -----------------------------

HOLDER                          SJMB, L.P.
                                BY SJMB, L.L.C., ITS GENERAL PARTNER

                                BY:
                                    ------------------------------------------
                                    James H. Harrison, Chief Financial Officer

Date:             ,2005
         --------------

                                       16
<PAGE>

                                                                      ADDENDUM B

                                STOCK ASSIGNMENT

                  For value received, ___________________________, hereby sells,
assigns, and transfers unto Black Warrior Wireline Corp., in accordance with the
terms of the Recapitalization Agreement between the Company and the undersigned,
the within shares of Common Stock, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint Ronald Whitter
attorney, to transfer such shares of Common Stock on the books of the Company,
with full power of substitution.

         Number of shares of Common Stock covered by this assignment:
                                                                      ----------

         Certificate No(s)
                           -----------------------------------------------------

HOLDER                         SJMB, L.P.
                               BY SJMB, L.L.C., ITS GENERAL PARTNER

                               BY:
                                    ------------------------------------------
                                    James H. Harrison, Chief Financial Officer
Date:             ,2005
         --------------

                                       17
<PAGE>

                                                                      ADDENDUM C
             PRIORITY OF CUTBACK OF SHARES IN UNDERWRITTEN OFFERING

         The following procedures only apply in the event that the managing
underwriter of the Underwritten Offering advises the Company that in its
judgment the number of shares of Common Stock to be included in the Underwritten
Offering must be reduced:

PRIORITY ONE: The first securities to be cut back out of the sale to the Company
are those shares (including Conversion Shares, Exchange Shares and any other
shares) held by the Underbrink Family Entities to be purchased by the Company at
the Closing Time. Mr. Charles E. Underbrink, a director of our company and his
family affiliates, including Northgate, L.L.C., Hub, Inc., Charles E. Underbrink
IRA, and the Charles E. Underbrink Irrevocable Trust dated 10/10/92 for the
benefit of Piper Aurora Underbrink, but excluding St. James Capital Partners,
L.P. and SJMB, L.P. are herein collectively referred to as the "Underbrink
Family Entities."

PRIORITY TWO: The second shares to be cut back out of the sale to the Company
are the 5,017, 481 shares currently
held by SJMB, L.P. to be purchased by the Company at the Closing Time.

PRIORITY THREE: The third securities to be cut back out of the sale to the
Company are the Exchange Share Equivalents held by the Company's other holders
other than the Underbrink Family Entities. Such cutback will be pro-rata based
on the aggregate number of Exchange Share Equivalents intended to be sold in the
Underwritten Offering and to be purchased by the Company at the Closing Time.

                                       18
<PAGE>

                                                                      ADDENDUM D

                               WARRANT ASSIGNMENT

                  For value received, ___________________________, hereby sells,
assigns, and transfers unto Black Warrior Wireline Corp., in accordance with the
terms of the Recapitalization Agreement between the Company and the undersigned,
the within Warrants, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint Ronald Whitter attorney, to
transfer such Warrants on the books of the Company, with full power of
substitution.

         Number of Warrants covered by this assignment:
                                                        ---------------

HOLDER                          SJMB, L.P.
                                BY SJMB, L.L.C., ITS GENERAL PARTNER

                                BY:
                                    ------------------------------------------
                                    James H. Harrison, Chief Financial Officer
Date:             ,200_
         --------------

                                       19Exhibit 4.1

This  LOAN AND SECURITY AGREEMENT is entered into as of October 10, 2005, by and
between  Lawrence  Lacerte  ("Lender")  and  Citadel  Security  Software  Inc.
("Borrower").

                                    RECITALS
                                    --------

Borrower  wishes  to  obtain  a  loan  from Lender, and Lender desires to extend
credit  to  Borrower.  This  Agreement sets forth the terms on which Lender will
advance credit to Borrower, and Borrower will repay the amounts owing to Lender.

                                    AGREEMENT
                                    ---------

The parties agree as follows:

     1.     DEFINITIONS AND CONSTRUCTION.
            ----------------------------

          1.1     Definitions.  As used in this Agreement, all capitalized terms
                  -----------
shall  have  the  definitions set forth on Exhibit A.  Any term used in the Code
                                           ---------
and  not  defined  herein  shall have the meaning given to the term in the Code.

          1.2     Accounting  Terms.  Any  accounting  term  not  specifically
                  -----------------
defined  on  Exhibit  A  shall  be  construed  in  accordance  with GAAP and all
             ----------
calculations  shall  be  made  in  accordance  with  GAAP.  The  term "financial
statements"  shall  include  the  accompanying  notes  and  schedules.

     2.     LOAN AND TERMS OF PAYMENT.
            -------------------------

          2.1     Credit Extensions.
                  -----------------

               (a)     Promise  to  Pay.  Borrower promises to pay to Lender, in
                       ----------------
lawful  money  of  the  United States of America, the aggregate unpaid principal
amount  of  all  Credit  Extensions  made  by  Lender to Borrower, together with
interest  on  the  unpaid principal amount of such Credit Extensions at rates in
accordance  with  the  terms  hereof.

               (b)     Advance.
                       -------

                    (i)     Subject to and upon the terms and conditions of this
Agreement,  Lender  agrees to make an advance (the "Advance") to Borrower in the
amount  of  Three  Million  Seven  Hundred  Fifty Thousand Dollars ($3,750,000).

                    (ii)     Interest  shall accrue from the date of the Advance
at the rate specified in Section 2.3(a), and shall be payable in accordance with
Section 2.2(c).  The Advance, plus all accrued unpaid interest, shall be due and
payable  on  October 10, 2007.  Borrower may prepay the Advance without penalty;
provided,  however  that Borrower shall pay a premium equal to five percent (5%)
of  the  outstanding principal amount of the Advance upon repayment prior to the
due  date.  In  addition, in connection with any Change in Control, Lender shall
have  the  option  to  require the repayment of the Advance plus all accrued and
unpaid  interest,  plus  a premium equal to five percent (5%) of the outstanding
principal  amount of the Advance, or to permit the Advance to remain outstanding
if  assumed  by  the  acquiring  entity.

          2.2     Interest Rate, Payments, and Calculations.
                  -----------------------------------------

               (a)     Interest  Rate.  The  Advance shall bear interest, on the
                       --------------
outstanding  daily  balance thereof, at a rate equal to twelve percent (12%) per
annum.

               (b)     Late  Fee;  Default  Rate.  If  any  payment  is not made
                       -------------------------
within  10  days after the date such payment is due, Borrower shall pay Lender a
late  fee  equal  to the lesser of (i) 5% of the amount of such unpaid amount or
(ii)  the  maximum  amount  permitted  to  be charged under applicable law.  All
Obligations  shall  bear

--------------------------------------------------------------------------------
Loan and Security Agreement          Page 1
<PAGE>
Exhibit 4.1

interest,  from  and after the occurrence and during the continuance of an Event
of  Default,  at  a  rate equal to five (5) percentage points above the interest
rate  applicable  immediately  prior  to the occurrence of the Event of Default.

               (c)     Payments.  Interest hereunder shall be due and payable on
                       --------
the  first  calendar day of each quarter during the term hereof (each January 1,
April  1,  July  1  and  October  1).  Any  interest  not paid when due shall be
compounded  by  becoming  a  part  of  the  Obligations, and such interest shall
thereafter  accrue  interest  at  the  rate  then  applicable  hereunder.

               (d)     Computation.  All  interest  chargeable  under  the  Loan
                       -----------
Documents shall be computed on the basis of a 360 day year for the actual number
of  days  elapsed.

               (e)     Limitation  on  Interest.  Borrower  and Lender intend to
                       ------------------------
contract  in  strict  compliance  with applicable usury law from time to time in
effect. In furtherance thereof such persons stipulate and agree that none of the
terms  and provisions contained in the Loan Documents shall ever be construed to
provide for interest in excess of the maximum amount of interest permitted to be
charged by applicable usury law from time to time in effect. If, notwithstanding
the  foregoing,  any  amount  constituting  interest  is  nonetheless charged or
collected in excess of the maximum amount of interest permitted to be charged by
applicable usury law from time to time in effect, then such excess shall, at the
option  of  the payee thereof, be credited on the amount of the obligations owed
to  such  payee  or  refunded  by  such  payee  to  the  payor  thereof.

          2.3     Crediting  Payments.  Prior  to the occurrence and continuance
                  -------------------
of  an  Event of Default, Lender shall credit a wire transfer of funds, check or
other  item  of  payment  to  such  Obligation as Borrower specifies.  After the
occurrence  and  during  the  continuance of an Event of Default, the receipt by
Lender  of  any wire transfer of funds, check, or other item of payment shall be
immediately  applied  to  conditionally  reduce  Obligations,  but  shall not be
considered  a payment on account unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when  presented for payment.  Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Lender after 12:00 noon Central
time  shall  be  deemed  to  have  been  received by Lender as of the opening of
business  on  the  immediately  following Business Day.  Whenever any payment to
Lender  under  the  Loan  Documents  would otherwise be due (except by reason of
acceleration)  on  a date that is not a Business Day, such payment shall instead
be  due  on  the next Business Day, and additional fees or interest, as the case
may  be,  shall  accrue  and  be  payable  for  the  period  of  such extension.

          2.4     Fees.  Borrower  shall  pay  to  Lender  a  one  percent  (1%)
                  ----
origination  fee  on  the  Closing  Date.

          2.5     Term.  This  Agreement  shall  become effective on the Closing
                  ----
Date and, subject to Section 8.7, shall continue in full force and effect for so
long  as  any  Obligations  remain  outstanding.

     3.     CONDITIONS OF LOANS.
            -------------------

          3.1     Conditions  Precedent to Advance.  The obligation of Lender to
                  --------------------------------
make  the  Advance  is subject to the condition precedent that Lender shall have
received,  in  form  and  substance  satisfactory  to  Lender,  the  following:

               (a)     this Agreement;

               (b)     an  officer's  certificate  of  Borrower  with respect to
incumbency  and  resolutions  authorizing  the  execution  and  delivery of this
Agreement;

               (c)     a financing statement (Form UCC-1);

               (d)     an intellectual property security agreement;

               (e)     payment of the fees then due specified in Section 2.4;

--------------------------------------------------------------------------------
Loan and Security Agreement          Page 2
<PAGE>
Exhibit 4.1

               (f)     such  other  documents or certificates, and completion of
such  other  matters,  as  Lender  may reasonably deem necessary or appropriate.

     4.     CREATION OF SECURITY INTEREST.
            -----------------------------

          4.1     Grant  of  Security  Interest.  Borrower grants and pledges to
                  -----------------------------
Lender  a  continuing  security  interest  in  the  Collateral  to secure prompt
repayment  of  any  and  all  Obligations  and  to  secure prompt performance by
Borrower  of  each of its covenants and duties under the Loan Documents.  Except
for  Permitted Liens, such security interest constitutes a valid, first priority
security  interest in the presently existing Collateral, and will, when properly
perfected  and  recorded  with  state  and/or  federal  agencies as appropriate,
constitute  a  valid,  first  priority  security  interest  in  later-acquired
Collateral.  Notwithstanding  any  termination,  Lender's Lien on the Collateral
shall  remain  in  effect  for  so  long  as  any  Obligations  are outstanding.

          4.2     Perfection  of  Security Interest.  Borrower authorizes Lender
                  ---------------------------------
to  file  at  any  time  financing  statements,  continuation  statements,  and
amendments  thereto  that describe the Collateral and to describe the Collateral
as  all  assets  of Borrower of the kind pledged hereunder and which contain any
other  information  required  by  the  Code for the sufficiency of filing office
acceptance  of  any  financing  statement, continuation statement, or amendment,
including  whether Borrower is an organization, the type of organization and any
organizational  identification  number  issued  to Borrower, if applicable.  Any
such  financing  statements may be filed at any time in any jurisdiction whether
or  not  Revised  Article  9 of the Code is then in effect in that jurisdiction.
Borrower  shall  from time to time execute and deliver to Lender, at the request
of  Lender,  all  Collateral  and  other  documents  that  Lender may reasonably
request,  in  form  reasonably  satisfactory  to Lender, to perfect and continue
perfected  Lender's  security  interests in the Collateral and in order to fully
consummate  all  of  the  transactions  contemplated  under  the Loan Documents.
Borrower  shall  have  possession  of  the  Collateral,  except  where expressly
otherwise  provided  in  this  Agreement  or where Lender chooses to perfect its
security  interest  in  instruments,  investment  property  or  other  similar
Collateral  by  possession  in  addition to the filing of a financing statement.
Where  Collateral  is in possession of a third party bailee, Borrower shall take
such  steps  as  Lender  reasonably  requests  for  Lender  to  (i)  obtain  an
acknowledgment, in form and substance satisfactory to Lender, of the bailee that
the  bailee  holds  such  Collateral  for  the  benefit  of  Lender, (ii) obtain
"control" of any Collateral consisting of investment property, deposit accounts,
letter-of-credit  rights or electronic chattel paper (as such items and the term
"control"  are  defined  in  Revised  Article  9  of  the  Code)  by causing the
securities  intermediary  or depositary institution or issuing bank to execute a
control  agreement  in form and substance satisfactory to Lender.  Borrower will
not  create  any  chattel  paper  without  placing a legend on the chattel paper
acceptable  to  Lender  indicating  that  Lender  has a security interest in the
chattel  paper.

          4.3     Right  to  Inspect.  Lender  (through  any  of  its  officers,
                  ------------------
employees,  or  agents) shall have the right, upon reasonable prior notice, from
time  to  time  during  Borrower's usual business hours but no more than twice a
year  (unless  an  Event  of Default has occurred and is continuing), to inspect
Borrower's Books and to make copies thereof and to check, test, and appraise the
Collateral  in  order  to  verify  Borrower's financial condition or the amount,
condition  of,  or  any  other  matter  relating  to,  the  Collateral.

     5.     REPRESENTATIONS AND WARRANTIES.
            ------------------------------

Borrower represents and warrants as follows:

          5.1     Due  Organization  and  Qualification.  Borrower  and  each
                  -------------------------------------
Subsidiary  is  a corporation duly existing under the laws of the Borrower State
and  qualified  and licensed to do business in any state in which the conduct of
its  business  or  its  ownership  of property requires that it be so qualified,
except where the failure to so qualify would not reasonably be expected to cause
a  Material  Adverse  Effect.

          5.2     Due  Authorization; No Conflict.  The execution, delivery, and
                  -------------------------------
performance  of  the Loan Documents are within Borrower's powers, have been duly
authorized,  and  are  not  in  conflict  with  nor  constitute  a breach of any
provision  contained  in  Borrower's Certificate of Incorporation or Bylaws, nor
will  they  constitute an event of default under any material agreement by which
Borrower  is  bound.

--------------------------------------------------------------------------------
Loan and Security Agreement          Page 3
<PAGE>
Exhibit 4.1

          5.3     Intellectual  Property  Collateral.  The Borrower's knowledge,
                  ----------------------------------
Borrower  is  the sole owner of the Intellectual Property Collateral, except for
licenses  granted  by  Borrower  to  its  customers  in  the  ordinary course of
business.  To  Borrower's  knowledge,  each  of  the  Copyrights, Trademarks and
Patents  is  valid  and  enforceable,  and  no part of the Intellectual Property
Collateral  has  been  judged  invalid  or  unenforceable,  in whole or in part.

          5.4     Name;  Location  of Chief Executive Office.  Borrower does not
                  ------------------------------------------
conduct  business under any name other than that specified on the signature page
hereof,  and its exact legal name is as set forth in the first paragraph of this
Agreement.  The  chief  executive  office  of  Borrower  is located in the Chief
Executive  Office  State  at  the  address  indicated  in  Section  8  hereof.

          5.5     Litigation.  Except  as  set  forth  in the Borrower's filings
                  ----------
with the Securities and Exchange Commission, there are no actions or proceedings
pending  by  or  against  Borrower  or  any  Subsidiary  before  any  court  or
administrative  agency  in  which  a likely adverse decision would reasonably be
expected  to  have  a  Material  Adverse Effect, or a material adverse effect on
Borrower's  interest  or  Lender's  security  interest  in  the  Collateral.

          5.6     Solvency, Payment of Debts.  Borrower is able to pay its debts
                  --------------------------
(including  trade  debts)  as they mature; the fair saleable value of Borrower's
assets  (including  goodwill  minus disposition costs) exceeds the fair value of
its  liabilities; and Borrower is not left with unreasonably small capital after
the  transactions  contemplated  by  this  Agreement.

          5.7     Compliance  with  Laws  and  Regulations.  Borrower  and  each
                  ----------------------------------------
Subsidiary  have  met  the minimum funding requirements of ERISA with respect to
any  employee  benefit  plans  subject to ERISA.  Borrower is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of  the Investment Company Act of 1940.  Borrower is not engaged principally, or
as  one of the important activities, in the business of extending credit for the
purpose  of  purchasing  or  carrying  margin  stock  (within  the  meaning  of
Regulations  T  and  U of the Board of Governors of the Federal Reserve System).

          5.8     Subsidiaries.  Borrower  does  not  own any stock, partnership
                  ------------
interest  or  other  equity  securities  of  any  Person,  except  for Permitted
Investments.

          5.9     Full  Disclosure.  No  representation,  warranty  or  other
                  ----------------
statement  made by Borrower in any certificate or written statement furnished to
Lender  taken  together  with  all  such  certificates  and  written  statements
furnished to Lender contains any untrue statement of a material fact or omits to
state  a  material  fact  necessary in order to make the statements contained in
such  certificates  or  statements not misleading, it being recognized by Lender
that  the projections and forecasts provided by Borrower in good faith and based
upon  reasonable  assumptions  are  not  to  be  viewed as facts and that actual
results  during  the  period  or  periods  covered  by  any such projections and
forecasts  may  differ  from  the  projected  or  forecasted  results.

     6.     EVENTS OF DEFAULT.
            -----------------

Any  one or more of the following events shall constitute an Event of Default by
Borrower  under  this  Agreement:

          6.1     Payment  Default.  If  Borrower  fails  to  pay  any  of  the
                  ----------------
Obligations  when  due  and  such failure shall continue unremedied for five (5)
business  days  after  such  failure;

          6.2     Covenant  Default. If Borrower fails or neglects to perform or
                  -----------------
observe  any  other  material  term, provision, condition, covenant contained in
this  Agreement, in any of the Loan Documents, or in any other present or future
agreement  between  Borrower  and  Lender and as to any default under such other
term,  provision,  condition  or  covenant that can be cured, has failed to cure
such  default  within  15  days  after  Borrower  receives notice thereof or any
officer  of  Borrower  becomes  aware  thereof;  provided,  however, that if the
default  cannot  by its nature be cured within the 15 day period or cannot after
diligent  attempts  by  Borrower  be  cured  within such 15 day period, and such
default is likely to be cured within a reasonable time, then Borrower shall have
an  additional reasonable period (which shall not in any case exceed 30 days) to
attempt  to  cure  such  default,  and  within  such  reasonable  time

--------------------------------------------------------------------------------
Loan and Security Agreement          Page 4
<PAGE>
Exhibit 4.1

period  the  failure  to have cured such default shall not be deemed an Event of
Default  but  no  Credit  Extensions  will  be  made;

          6.3     Defective  Perfection.  If  Lender  shall  receive at any time
                  ---------------------
following  the  Closing  Date an SOS Report indicating that except for Permitted
Liens,  Lender's  security  interest in the Collateral is not prior to all other
security  interests  or  Liens  of  record  reflected  in  the  report;

          6.4     Attachment.  If  any  material portion of Borrower's assets is
                  ----------
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity  and such attachment, seizure, writ or distress warrant or levy has not
been  removed,  discharged  or  rescinded  within  10  days,  or  if Borrower is
enjoined,  restrained, or in any way prevented by court order from continuing to
conduct  all  or  any material part of its business affairs, or if a judgment or
other  claim  becomes  a  lien  or  encumbrance  upon  any  material  portion of
Borrower's  assets,  or  if  a  notice  of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or  any department, agency, or instrumentality thereof, or by any state, county,
municipal,  or  governmental  agency,  and  the same is not paid within ten days
after  Borrower  receives  notice  thereof,  provided that none of the foregoing
shall  constitute an Event of Default where such action or event is stayed or an
adequate  bond  has  been  posted  pending  a  good  faith  contest by Borrower;

          6.5     Insolvency.  If  Borrower  becomes  insolvent,  or  if  an
                  ----------
Insolvency  Proceeding  is commenced by Borrower, or if an Insolvency Proceeding
is  commenced against Borrower and is not dismissed or stayed within 60 days; or

          6.6     Misrepresentations.  If  any  material  misrepresentation  or
                  ------------------
material  misstatement exists now or hereafter in any warranty or representation
set  forth  herein  or in any certificate delivered to Lender by any Responsible
Officer  pursuant  to  this  Agreement  or  to  induce Lender to enter into this
Agreement  or  any  other  Loan  Document.

     7.     LENDER'S RIGHTS AND REMEDIES.
            ----------------------------

          7.1     Rights  and  Remedies.  Upon  the  occurrence  and  during the
                  ---------------------
continuance  of an Event of Default, Lender may, at its election, without notice
of  its election and without demand, do any one or more of the following, all of
which  are  authorized  by  Borrower:

               (a)     Declare  all  Obligations,  whether  evidenced  by  this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable  (provided  that upon the occurrence of an Event of Default described in
Section  6.5,  all  Obligations shall become immediately due and payable without
any  action  by  Lender);

               (b)     Settle  or  adjust  disputes  and  claims  directly  with
account  debtors  for  amounts,  upon  terms  and  in whatever order that Lender
reasonably  considers  advisable;

               (c)     Make  such  payments and do such acts as Lender considers
necessary  or  reasonable  to  protect  its security interest in the Collateral.
Borrower  agrees  to  assemble the Collateral if Lender so requires, and to make
the Collateral available to Lender as Lender may designate.  Borrower authorizes
Lender  to  enter  the  premises  where  the  Collateral is located, to take and
maintain  possession of the Collateral, or any part of it, and to pay, purchase,
contest,  or  compromise  any  encumbrance,  charge,  or  lien which in Lender's
determination  appears  to  be prior or superior to its security interest and to
pay  all  expenses  incurred  in  connection  therewith.  With respect to any of
Borrower's owned premises, Borrower hereby grants Lender a license to enter into
possession  of such premises and to occupy the same, without charge, in order to
exercise  any of Lender's rights or remedies provided herein, at law, in equity,
or  otherwise;

               (d)     Ship,  reclaim, recover, store, finish, maintain, repair,
prepare  for  sale,  advertise  for  sale,  and sell (in the manner provided for
herein)  the  Collateral.  Lender  is  hereby  granted a license or other right,
solely  pursuant  to the provisions of this Section 7.1, to use, without charge,
Borrower's  labels,  patents,  copyrights,

--------------------------------------------------------------------------------
Loan and Security Agreement          Page 5
<PAGE>
Exhibit 4.1

rights  of  use  of  any  name,  trade secrets, trade names, trademarks, service
marks,  and  advertising  matter,  or  any  property  of a similar nature, as it
pertains  to  the Collateral, in completing production of, advertising for sale,
and  selling  any  Collateral  and,  in connection with Lender's exercise of its
rights  under  this  Section  7.1,  Borrower's rights under all licenses and all
franchise  agreements  shall  inure  to  Lender's  benefit;

               (e)     Sell  the  Collateral at either a public or private sale,
or  both, by way of one or more contracts or transactions, for cash or on terms,
in  such  manner  and  at  such places (including Borrower's premises) as Lender
determines is commercially reasonable, and apply any proceeds to the Obligations
in  whatever  manner  or  order  Lender  deems appropriate.  Lender may sell the
Collateral  without  giving  any  warranties  as  to the Collateral.  Lender 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.  If Lender sells any of the Collateral upon credit, Borrower
will  be credited only with payments actually made by the purchaser, received by
Lender,  and  applied  to  the  indebtedness of the purchaser.  If the purchaser
fails  to  pay for the Collateral, Lender may resell the Collateral and Borrower
shall  be  credited  with  the  proceeds  of  the  sale;

               (f)     Lender  may  credit  bid and purchase at any public sale;

               (g)     Apply  for  the  appointment  of  a  receiver,  trustee,
liquidator  or  conservator of the Collateral, without notice and without regard
to  the  adequacy  of the security for the Obligations and without regard to the
solvency  of  Borrower,  any guarantor or any other Person liable for any of the
Obligations;  and

               (h)     Any  deficiency  that  exists  after  disposition  of the
Collateral  as  provided  above  will  be  paid  immediately  by  Borrower.

Lender  may  comply  with  any  applicable  state or federal law requirements in
connection  with  a  disposition  of  the  Collateral and compliance will not be
considered  adversely to affect the commercial reasonableness of any sale of the
Collateral.

          7.2     Power  of  Attorney.  Effective  only  upon the occurrence and
                  -------------------
during  the  continuance  of  an  Event  of Default, Borrower hereby irrevocably
appoints  Lender  (and  any  of  Lender's  designated officers, or employees) as
Borrower's  true  and  lawful  attorney  to:  (a) endorse Borrower's name on any
checks  or  other  forms  of  payment  or  security  that may come into Lender's
possession;  (b)  dispose  of  any  Collateral; (c) make, settle, and adjust all
claims under and decisions with respect to Borrower's policies of insurance; (d)
settle  and  adjust  disputes  and  claims respecting the accounts directly with
account  debtors,  for  amounts  and  upon  terms  which Lender determines to be
reasonable;  (e)  to  modify,  in its sole discretion, any intellectual property
security  agreement  entered  into  between  Borrower  and  Lender without first
obtaining  Borrower's  approval of or signature to such modification by amending
exhibits  thereof,  as  appropriate, to include reference to any right, title or
interest in any Copyrights, Patents or Trademarks acquired by Borrower after the
execution  hereof  or to delete any reference to any right, title or interest in
any  Copyrights, Patents or Trademarks in which Borrower no longer has or claims
to  have  any right, title or interest; (f) to file, in its sole discretion, one
or more financing or continuation statements and amendments thereto, relative to
any  of the Collateral without the signature of Borrower where permitted by law;
and (g) to transfer the Intellectual Property Collateral into the name of Lender
or  a  third  party  to  the extent permitted under the Texas Uniform Commercial
Code;  provided  Lender  may exercise such power of attorney to sign the name of
Borrower  on any of the documents described above regardless of whether an Event
of  Default  has  occurred.  The appointment of Lender as Borrower's attorney in
fact,  and  each and every one of Lender's rights and powers, being coupled with
an  interest, is irrevocable until all of the Obligations have been fully repaid
and  performed  and  Lender's  obligation  to  provide  advances  hereunder  is
terminated.

          7.3     Lender  Expenses.  If  Borrower  fails  to  pay any amounts or
                  ----------------
furnish  any  required  proof  of  payment  due to third persons or entities, as
required under the terms of this Agreement, then Lender may do any or all of the
following  after reasonable notice to Borrower:  (a) make payment of the same or
any  part  thereof;  or  (b)  obtain and maintain insurance policies of the type
discussed  in  this Agreement, and take any action with respect to such policies
as  Lender  deems  prudent.  Any  amounts  so  paid or deposited by Lender shall
constitute Lender Expenses, shall be immediately due and payable, and shall bear
interest  at the then applicable rate hereinabove provided, and shall be secured
by  the  Collateral.  Any  payments  made  by  Lender  shall  not  constitute an
agreement

--------------------------------------------------------------------------------
Loan and Security Agreement          Page 6
<PAGE>
Exhibit 4.1

by  Lender  to  make similar payments in the future or a waiver by Lender of any
Event  of  Default  under  this  Agreement.

          7.4     Lender's  Liability  for Collateral.  Lender has no obligation
                  -----------------------------------
to  clean  up  or  otherwise prepare the Collateral for sale.  All risk of loss,
damage  or  destruction  of  the  Collateral  shall  be  borne  by  Borrower.

          7.5     No  Obligation  to Pursue Others.  Lender has no obligation to
                  --------------------------------
attempt  to  satisfy  the  Obligations  by collecting them from any other person
liable  for them and Lender may release, modify or waive any collateral provided
by  any  other  Person  to  secure any of the Obligations, all without affecting
Lender's  rights  against  Borrower.  Borrower  waives  any right it may have to
require  Lender  to  pursue  any  other  Person  for  any  of  the  Obligations.

          7.6     Remedies  Cumulative.  Lender's rights and remedies under this
                  --------------------
Agreement,  the  Loan  Documents,  and all other agreements shall be cumulative.
Lender  shall  have  all  other rights and remedies not inconsistent herewith as
provided  under  the  Code,  by law, or in equity.  No exercise by Lender of one
right  or  remedy  shall  be  deemed an election, and no waiver by Lender of any
Event  of  Default  on  Borrower's part shall be deemed a continuing waiver.  No
delay  by Lender shall constitute a waiver, election, or acquiescence by it.  No
waiver  by Lender shall be effective unless made in a written document signed on
behalf  of  Lender and then shall be effective only in the specific instance and
for the specific purpose for which it was given.  Borrower expressly agrees that
this  Section  7.6  may  not  be  waived  or  modified  by  Lender  by course of
performance,  conduct,  estoppel  or  otherwise.

          7.7     Demand;  Protest.  Borrower  waives demand, protest, notice of
                  ----------------
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of  any  default,  nonpayment  at  maturity,  release,  compromise,  settlement,
extension,  or  renewal  of accounts, documents, instruments, chattel paper, and
guarantees  at  any  time  held  by  Lender  on which Borrower may in any way be
liable.

     8.     NOTICES.
            -------

Unless  otherwise  provided  in  this Agreement or the other Loan Documents, all
notices  or  demands  by  any  party  relating  to  this  Agreement or any other
agreement  entered  into  in connection herewith shall be in writing and (except
for  financial statements and other informational documents which may be sent by
first-class  mail,  postage  prepaid) shall be personally delivered or sent by a
recognized  overnight  delivery service, certified mail, postage prepaid, return
receipt requested, or by telefacsimile to Borrower or to Lender, as the case may
be,  at  its  addresses  set  forth  below:

          If  to  Borrower:        Citadel Security Software, Inc.
                                   5420 LBJ Freeway, Suite 1600
                                   Dallas, Texas 75240
                                   Attn: Richard Connelly
                                   FAX: (214) 520-9496

          If  to  Lender:          Lawrence Lacerte
                                   5950 Sherry Lane, Suite 900
                                   Dallas, Texas 75225
                                   FAX: (214) 346-7081

     The  parties  hereto  may  change  the address at which they are to receive
notices  hereunder,  by  notice  in writing in the foregoing manner given to the
other.

     9.     CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.  This Agreement shall be
            -------------------------------------------
governed by, and construed in accordance with, the internal laws of the State of
Texas,  without  regard to principles of conflicts of law.  Each of Borrower and
Lender  hereby  submits  to  the exclusive jurisdiction of the state and Federal

--------------------------------------------------------------------------------
Loan and Security Agreement          Page 7
Exhibit 4.1

<PAGE>
courts  located  in  the  County of Dallas, State of Texas.  LENDER AND BORROWER
EACH  ACKNOWLEDGE  THAT  THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT
THAT  IT  MAY  BE  WAIVED.  EACH  OF  THEM,  AFTER  CONSULTING OR HAVING HAD THE
OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY  WAIVES  ANY  RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY
LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT
OR  LOAN  DOCUMENT  OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR
ANY  COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTION
OF  ANY  OF THEM.  THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN
ANY  RESPECT  OR  RELINQUISHED  BY  LENDER  OR  BORROWER,  EXCEPT  BY  A WRITTEN
INSTRUMENT  EXECUTED  BY  EACH  OF  THEM.

     10.     GENERAL PROVISIONS.
             ------------------

          10.1     Successors  and Assigns.  This Agreement shall bind and inure
                   -----------------------
to the benefit of the respective successors and permitted assigns of each of the
parties  and  shall  bind  all  persons  who  become  bound  as a debtor to this
Agreement;  provided,  however,  that  neither  this  Agreement  nor  any rights
hereunder  may  be  assigned by Borrower without Lender's prior written consent,
which  consent  may  be granted or withheld in Lender's sole discretion.  Lender
shall  have  the  right  without  the  consent of or notice to Borrower to sell,
transfer,  negotiate,  or  grant  participation  in  all  or any part of, or any
interest  in,  Lender's  obligations,  rights  and  benefits  hereunder.

          10.2     Indemnification.  Borrower  shall  defend, indemnify and hold
                   ---------------
harmless  Lender  and  its  officers,  employees,  and  agents against:  (a) all
obligations,  demands,  claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement, except
for  obligations,  demands,  claims  and  liabilities  caused  by Lender's gross
negligence  or  willful misconduct; and (b) all losses or Lender Expenses in any
way suffered, incurred, or paid by Lender, its officers, employees and agents as
a  result  of  or  in  any  way  arising  out of, following, or consequential to
transactions  between  Lender  and  Borrower  whether  under  this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
INCLUDING  ANY  OBLIGATIONS,  DEMANDS,  CLAIMS, LIABILITIES AND LOSSES RESULTING
FROM  LENDER'S  OWN  NEGLIGENCE  OR ARISING OUT OF ANY CLAIM OR THEORY OF STRICT
LIABILITY,  except  for  losses  caused  by Lender's gross negligence or willful
misconduct.

          10.3     Time  of Essence.  Time is of the essence for the performance
                   ----------------
of  all  obligations  set  forth  in  this  Agreement.

          10.4     Severability of Provisions.  Each provision of this Agreement
                   --------------------------
shall  be severable from every other provision of this Agreement for the purpose
of  determining  the  legal  enforceability  of  any  specific  provision.

          10.5     Amendments  in  Writing,  Integration.  All  amendments to or
                   -------------------------------------
terminations  of  this  Agreement  must  be  in  writing.  All prior agreements,
understandings,  representations,  warranties,  and  negotiations  between  the
parties hereto with respect to the subject matter of this Agreement, if any, are
merged  into  this  Agreement  and  the  Loan  Documents.

          10.6     Counterparts.  This  Agreement  may be executed in any number
                   ------------
of  counterparts  and  by  different  parties  on separate counterparts, each of
which,  when  executed and delivered, shall be deemed to be an original, and all
of  which, when taken together, shall constitute but one and the same Agreement.

          10.7     Survival.  All covenants, representations and warranties made
                   --------
in  this  Agreement  shall  continue  in  full  force  and effect so long as any
Obligations remain outstanding.  The obligations of Borrower to indemnify Lender
with  respect  to the expenses, damages, losses, costs and liabilities described
in Section 8.2 shall survive until all applicable statute of limitations periods
with  respect  to  actions  that  may  be  brought  against  Lender  have  run.

--------------------------------------------------------------------------------
Loan and Security Agreement          Page 8
<PAGE>
Exhibit 4.1

          10.8     Confidentiality.  In  handling  any confidential information,
                   ---------------
Lender  and all employees and agents of Lender shall exercise the same degree of
care  that  Lender  exercises with respect to its own proprietary information of
the  same  types  to  maintain the confidentiality of any non-public information
thereby  received  or received pursuant to this Agreement except that disclosure
of  such information may be made (i) to the subsidiaries or affiliates of Lender
in  connection  with  their  present  or  prospective  business  relations  with
Borrower,  (ii)  to prospective transferees or purchasers of any interest in the
Loans,  provided  that  they  have  entered  into  a  comparable confidentiality
agreement  in  favor of Borrower and have delivered a copy to Borrower, (iii) as
required by law, regulations, rule or order, subpoena, judicial order or similar
order,  (iv)  as  may  be  required in connection with the examination, audit or
similar  investigation  of  Lender and (v) as Lender may determine in connection
with  the  enforcement  of  any  remedies  hereunder.  Confidential  information
hereunder  shall  not  include  information  that  either:  (a) is in the public
domain  or in the knowledge or possession of Lender when disclosed to Lender, or
becomes part of the public domain after disclosure to Lender through no fault of
Lender; or (b) is disclosed to Lender by a third party, provided Lender does not
have  actual  knowledge that such third party is prohibited from disclosing such
information.

     THIS  WRITTEN  AGREEMENT  AND  THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT  BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS,  OR  SUBSEQUENT  ORAL  AGREEMENTS  OF  THE  PARTIES.

     THERE  ARE  NO  UNWRITTEN  ORAL  AGREEMENTS  BETWEEN  THE  PARTIES.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as  of  the  date  first  above  written.

                                            CITADEL SECURITY SOFTWARE INC.

                                            By: ________________________________
                                            Name: ______________________________
                                            Title: _____________________________

                                            LENDER

                                            ____________________________________
                                            Lawrence  Lacerte

--------------------------------------------------------------------------------
Loan and Security Agreement          Page 9
<PAGE>
Exhibit 4.1

                                    EXHIBIT A
                                    ---------

DEFINITIONS

"Advance" means the cash advance under this Agreement.

"Affiliate"  means, with respect to any Person, any Person that owns or controls
directly or indirectly such Person, any Person that controls or is controlled by
or  is  under  common control with such Person, and each of such Person's senior
executive  officers,  directors,  and  partners.

"Borrower  State"  means  Delaware,  the  state  under  whose  laws  Borrower is
organized.

"Borrower's  Books"  means  all  of  Borrower's  books  and  records  including:
ledgers;  records  concerning  Borrower's assets or liabilities, the Collateral,
business  operations  or financial condition; and all computer programs, or tape
files,  and  the  equipment,  containing  such  information.

"Business  Day"  means  any  day that is not a Saturday, Sunday, or other day on
which  banks  in  the  State  of  Texas  are  authorized  or  required to close.

"Capitalized  Software" means all costs involved in the development, improvement
or  enhancement of new or existing proprietary software that are not expensed as
incurred.

"Cash" means unrestricted cash and cash equivalents.

"Change  in  Control"  shall mean a transaction in which any "person" or "group"
(within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act
of  1934)  becomes  the  "beneficial  owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of a sufficient number
of  shares  of  all  classes  of  stock  then outstanding of Borrower ordinarily
entitled  to  vote  in  the  election  of directors, empowering such "person" or
"group"  to  elect a majority of the Board of Directors of Borrower, who did not
have  such  power  before  such  transaction.

"Chief  Executive  Office  State"  means Texas, where Borrower's chief executive
office  is  located.

"Closing Date" means the date of this Agreement.

"Code"  means  the Texas Uniform Commercial Code as amended or supplemented from
time  to  time.

"Collateral"  means  the property described on Exhibit B attached hereto and all
                                               ---------
Intellectual  Property  Collateral  to  the  extent  not described on Exhibit B,
                                                                      ---------
except to the extent any such property (i) is nonassignable by its terms without
the  consent  of  the  licensor thereof or another party (but only to the extent
such  prohibition  on  transfer  is enforceable under applicable law, including,
without  limitation,  the  Code),  or  (ii)  the granting of a security interest
therein  is  contrary to applicable law, provided that upon the cessation of any
such  restriction  or prohibition, such property shall automatically become part
of  the  Collateral.

"Collateral  State"  means  the state or states where the Collateral is located,
which  is  Texas.

"Contingent  Obligation" means, as applied to any Person, any direct or indirect
liability,  contingent  or  otherwise,  of  that  Person with respect to (i) any
indebtedness,  lease, dividend, letter of credit or other obligation of another,
including,  without  limitation,  any  such  obligation  directly  or indirectly
guaranteed,  endorsed,  co-made  or  discounted  or  sold  with recourse by that
Person,  or  in respect of which that Person is otherwise directly or indirectly
liable;  (ii)  any  obligations with respect to undrawn letters of credit issued
for  the  account  of  that  Person; and (iii) all obligations arising under any
interest  rate,  currency  or  commodity  swap  agreement,  interest  rate  cap
agreement,  interest  rate  collar  agreement, or other agreement or arrangement
designated  to  protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation"  shall  not  include  endorsements  for collection or deposit in the
ordinary  course  of business.  The amount of any Contingent Obligation shall be
deemed  to  be an amount equal to the stated or determined amount of the primary
obligation  in

--------------------------------------------------------------------------------
Loan and Security Agreement          Page 1
<PAGE>
Exhibit 4.1

respect  of  which  such  Contingent  Obligation  is  made  or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof as
determined  by  such  Person  in good faith; provided, however, that such amount
shall  not  in  any event exceed the maximum amount of the obligations under the
guarantee  or  other  support  arrangement.

"Copyrights"  means  any  and  all  copyright  rights,  copyright  applications,
copyright  registrations  and  like  protections  in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not the
same  also  constitutes  a  trade  secret,  now  or hereafter existing, created,
acquired  or  held.

"Credit Extension" means each Advance or any other extension of credit by Lender
to  or  for  the  benefit  of  Borrower  hereunder.

"Current Liabilities" means, as of any applicable date, all amounts that should,
in  accordance with GAAP, be included as current liabilities on the consolidated
balance  sheet  of  Borrower and its Subsidiaries, as at such date, plus, to the
extent  not  already  included  therein,  undrawn  Letters  of  Credit,  if any.

"Deferred Maintenance Contract Revenue" means all amounts received in advance of
performance  under  maintenance  contracts  and  not  yet recognized as revenue.

"Environmental  Laws"  means  all  laws, rules, regulations, orders and the like
issued  by  any  federal  state,  local  foreign  or  other  governmental  or
quasi-governmental  authority  or any agency pertaining to the environment or to
any  hazardous  materials  or  wastes, toxic substances, flammable, explosive or
radioactive  materials,  asbestos  or  other  similar  materials.

"ERISA"  means  the Employee Retirement Income Security Act of 1974, as amended,
and  the  regulations  thereunder.

"Event of Default" has the meaning assigned in Article 6.

"GAAP"  means generally accepted accounting principles, consistently applied, as
in  effect  from  time  to  time.

"Indebtedness"  means  (without  duplication)  (a) all indebtedness for borrowed
money  or the deferred purchase price of property or services, including without
limitation  reimbursement and other obligations with respect to surety bonds and
letters  of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar  instruments,  (c) all capital lease obligations, and (d) all Contingent
Obligations.

"Insolvency  Proceeding" means any proceeding commenced by or against any Person
or  entity under any provision of the United States Bankruptcy Code, as amended,
or  under  any other bankruptcy or insolvency law, including assignments for the
benefit  of  creditors,  formal  or  informal moratoria, compositions, extension
generally  with  its  creditors,  or  proceedings  seeking  reorganization,
arrangement,  or  other  relief.

"Intellectual  Property  Collateral"  means  all of Borrower's right, title, and
interest  in  and  to  the  following:

(a)  Copyrights,  Trademarks  and  Patents;

(b)  Any  and all trade secrets, and any and all intellectual property rights in
     computer software and computer software products now or hereafter existing,
     created,  acquired  or  held  by  Borrower;

(c)  Any  and  all  design  rights  which  may  be  available to Borrower now or
     hereafter  existing,  created,  acquired  or  held;

(d)  Any  and  all  claims  for  damages  by  way  of  past,  present and future
     infringement  of  any of the rights included above, with the right, but not
     the  obligation,  to  sue  for  and  collect  such  damages for said use or
     infringement  of  the  intellectual  property  rights  identified  above;

--------------------------------------------------------------------------------
Loan and Security Agreement          Page 2
<PAGE>
Exhibit 4.1

(e)  All  licenses  or  other  rights  to  use any of the Copyrights, Patents or
     Trademarks, and all license fees and royalties arising from such use to the
     extent  permitted  by  such  license  or  rights;

(f)  All  amendments,  renewals  and  extensions  of  any  of  the  Copyrights,
     Trademarks  or  Patents;  and

(g)  All  proceeds  and  products of the foregoing, including without limitation
     all  payments  under  insurance  or  any  indemnity  or warranty payable in
     respect  of  any  of  the  foregoing.

"Investment"  means any beneficial ownership of (including stock, partnership or
limited liability company interest or other securities) any Person, or any loan,
advance  or  capital  contribution  to  any  Person.

"IRC"  means  the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.

"Lender  Expenses"  means all reasonable costs or expenses (including reasonable
attorneys'  fees and expenses, whether generated in-house or by outside counsel)
incurred  in  connection  with the preparation, negotiation, administration, and
enforcement  of  the  Loan  Documents;  reasonable  Collateral  audit  fees; and
Lender's  reasonable attorneys' fees and expenses (whether generated in-house or
by  outside  counsel)  incurred  in  amending,  enforcing  or defending the Loan
Documents  (including  fees and expenses of appeal), incurred before, during and
after  an  Insolvency  Proceeding,  whether  or  not  suit  is  brought.

"Lien"  means  any  mortgage,  lien,  deed  of  trust,  charge, pledge, security
interest  or  other  encumbrance.

"Loan Documents" means, collectively, this Agreement, any note or notes executed
by  Borrower,  and  any  other  document,  instrument  or agreement entered into
between Borrower and Lender in connection with this Agreement, all as amended or
extended  from  time  to  time.

"Material  Adverse  Effect"  means a material adverse effect on (i) the business
operations  of Borrower that affects the financial condition of Borrower and its
Subsidiaries  taken  as  a whole or (ii) the financial condition of the Borrower
and its Subsidiaries taken as a whole, or (iii) the ability of Borrower to repay
the  Obligations  or otherwise perform its obligations under the Loan Documents.

"Obligations"  means  all  debt,  principal, interest, Lender Expenses and other
amounts  owed  to  Lender  by  Borrower  pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an  Insolvency Proceeding and including any debt, liability, or obligation owing
from  Borrower  to  others  that  Lender  may  have  obtained  by  assignment or
otherwise.

"Patents"  means  all  patents  and  patent  applications issued or filed in the
United  States  Patent and Trademark Office or any similar office of any foreign
jurisdiction  including  without  limitation  improvements,  divisions,
continuations,  renewals,  reissues, extensions and continuations-in-part of the
same.

"Periodic  Payments"  means  all installments or similar recurring payments that
Borrower  may now or hereafter become obligated to pay to Lender pursuant to the
terms  and  provisions  of  any  instrument,  or  agreement  now or hereafter in
existence  between  Borrower  and  Lender.

"Permitted Indebtedness" means:

(a)  Indebtedness of Borrower in favor of Lender arising under this Agreement or
     any  other  Loan  Document;

(b)  Indebtedness  existing  on  the  Closing  Date;

(c)  Indebtedness  of  Borrower secured by a lien described in clause (c) of the
     defined  term "Permitted Liens," provided such Indebtedness does not exceed
     the  lesser of the cost or fair market value of the equipment financed with
     such  Indebtedness;

(d)  Subordinated  Debt;

--------------------------------------------------------------------------------
Loan and Security Agreement          Page 3
<PAGE>
Exhibit 4.1

(e)  Indebtedness  to  trade  creditors  incurred  in  the  ordinary  course  of
     business;

(f)  Indebtedness  incurred  in  connection  with  any  factoring  or  similar
     arrangements  with  respect  to  the Borrower's or any of its Subsidiaries'
     accounts  receivable;

(g)  Preferred  Stock;  and

(h)  Extensions,  refinancings  and  renewals  of  any  items  of  Permitted
     Indebtedness,  provided  that  the principal amount is not increased or the
     terms  modified  to  impose  more  burdensome  terms  upon  Borrower or its
     Subsidiary,  as  the  case  may  be.

"Permitted Investment" means:

(a)  Investments  existing  on  the  Closing  Date;

(b)  (i)  Marketable  direct obligations issued or unconditionally guaranteed by
     the  United  States  of America or any agency or any State thereof maturing
     within one year from the date of acquisition thereof, (ii) commercial paper
     maturing  no  more  than  one  year  from  the date of creation thereof and
     currently  having  rating  of  at  least  A-2 or P-2 from either Standard &
     Poor's  Corporation  or  Moody's  Investors  Service,  (iii)  Lender's
     certificates  of  deposit  maturing  no more than one year from the date of
     investment  therein,  and  (iv)  Lender's  money  market  accounts;

(c)  Repurchases  of  stock from former employees or directors of Borrower under
     the  terms  of  applicable repurchase agreements (i) in an aggregate amount
     not  to  exceed  $100,000  in  any  fiscal  year, provided that no Event of
     Default  has  occurred, is continuing or would exist after giving effect to
     the  repurchases,  or  (ii)  in  any amount where the consideration for the
     repurchase  is  the  cancellation  of  indebtedness  owed  by  such  former
     employees  to  Borrower  regardless  of whether an Event of Default exists;

(d)  Investments  accepted  in  connection  with  Permitted  Transfers;

(e)  Investments  of  Subsidiaries  in or to other Subsidiaries or Borrower, and
     Investments  by  Borrower  in  Subsidiaries;

(f)  Investments consisting of (i) travel advances and employee relocation loans
     and  other  employee loans and advances in the ordinary course of business,
     and (ii) loans to employees, officers or directors relating to the purchase
     of  equity  securities of Borrower or its Subsidiaries pursuant to employee
     stock  purchase  plan agreements approved by Borrower's Board of Directors;

(g)  Investments  (including  debt  obligations) received in connection with the
     bankruptcy or reorganization of customers or suppliers and in settlement of
     delinquent  obligations of, and other disputes with, customers or suppliers
     arising  in  the  ordinary  course  of  Borrower's  business;

(h)  Investments  consisting  of  notes  receivable of, or prepaid royalties and
     other credit extensions, to customers and suppliers who are not Affiliates,
     in  the  ordinary  course  of business, provided that this subparagraph (h)
     shall  not  apply  to  Investments  of  Borrower  in  any  Subsidiary;  and

(i)  Joint  ventures or strategic alliances in the ordinary course of Borrower's
     business  consisting  of  the  non-exclusive  licensing  of technology, the
     development  of  technology  or  the  providing  of  technical  support.

"Permitted Liens" means the following:

(a)  Any  Liens  existing  on  the Closing Date (including Liens to be satisfied
     with  the  proceeds  of the Advance) or arising under this Agreement or the
     other  Loan  Documents;

--------------------------------------------------------------------------------
Loan and Security Agreement          Page 4
<PAGE>
Exhibit 4.1

(b)  Liens for taxes, fees, assessments or other governmental charges or levies,
     either  not  delinquent  or  being  contested  in good faith by appropriate
     proceedings  and  for  which Borrower maintains adequate reserves, provided
     the  same  have  no  priority  over  any  of  Lender's  security interests;

(c)  Liens (i) upon or in any Equipment acquired, leased, or held by Borrower or
     any  of  its  Subsidiaries  to  secure the purchase price of such, or lease
     payments with respect to, Equipment or indebtedness incurred solely for the
     purpose  of  financing  the  acquisition  or  lease of such Equipment, (ii)
     existing  on  such  Equipment at the time of its acquisition, provided that
     the  Lien  is  confined solely to the property so acquired and improvements
     thereon,  and  the  proceeds  of  such  Equipment,  or (iii) upon or in any
     accounts  receivable  that  are  factored  by  the  Borrower  or any of its
     Subsidiaries;

(d)  Liens  incurred in connection with the extension, renewal or refinancing of
     the  indebtedness  secured  by  Liens  of the type described in clauses (a)
     through (c) above, provided that any extension, renewal or replacement Lien
     shall  be  limited  to the property encumbered by the existing Lien and the
     principal  amount of the indebtedness being extended, renewed or refinanced
     does  not  increase;

(e)  Liens  arising  from judgments, decrees or attachments in circumstances not
     constituting  an  Event  of  Default;

(f)  Liens  in  favor of other financial institutions arising in connection with
     Borrower's deposit accounts held at such institutions, provided that Lender
     has  a  perfected  security  interest  in  the amounts held in such deposit
     accounts;

(g)  Liens arising from, or evidenced by, precautionary UCC financing statements
     with  respect  to  operating  leases  entered  into  the ordinary course of
     business,  provided  such  financing  statements  cover  only the equipment
     subject  to  such  operating  leases;

(h)  Any  assignment  of  right  to  receive  income  resulting  from Borrower's
     licensing  of software in the normal course of its business to distributors
     and  resellers;  and

(i)  Other  Liens not described above arising in the ordinary course of business
     and  not having or not reasonably likely to have a Material Adverse Effect.

"Permitted  Transfer" means the conveyance, sale, lease, transfer or disposition
by  Borrower  or  any  Subsidiary  of:

(a)  Inventory  in  the  ordinary  course  of  business;

(b)  licenses  and  similar arrangements for the use of the property of Borrower
     or  its  Subsidiaries  in  the  ordinary  course  of  business;

(c)  worn-out  or obsolete Equipment not financed with the proceeds of Equipment
     Advances;  or

(d)  other  assets of Borrower or its Subsidiaries which do not in the aggregate
     exceed  $500,000  during  any  fiscal  year.

"Person"  means  any  individual,  sole  proprietorship,  partnership,  limited
liability  company,  joint  venture,  trust,  unincorporated  organization,
association,  corporation,  institution, public benefit corporation, firm, joint
stock  company,  estate,  entity  or  governmental  agency.

"Preferred  Stock"  means  Borrower's  Preferred  Stock.

"Responsible  Officer"  means  each  of  the  Chief Executive Officer, the Chief
Operating  Officer,  the Chief Financial Officer and the Controller of Borrower.

--------------------------------------------------------------------------------
Loan and Security Agreement          Page 5
<PAGE>
Exhibit 4.1

"SOS  Reports"  means the official reports from the Secretaries of State of each
Collateral  State, Chief Executive Office State and the Borrower State and other
applicable  federal,  state  or local government offices identifying all current
security interests filed in the Collateral and Liens of record as of the date of
such  report.

"Subordinated  Debt" means any debt incurred by Borrower that is subordinated in
writing  to  the debt owing by Borrower to Lender on terms reasonably acceptable
to  Lender  (and  identified  as  being  such  by  Borrower  and  Lender).

"Subsidiary"  means any corporation, partnership or limited liability company or
joint  venture  in  which (i) any general partnership interest or (ii) more than
50%  of  the stock, limited liability company interest or joint venture of which
by  the  terms  thereof  ordinary  voting power to elect the Board of Directors,
managers or trustees of the entity, at the time as of which any determination is
being  made,  is  owned  by  Borrower,  either directly or through an Affiliate.

"Trademarks"  means  any trademark and servicemark rights, whether registered or
not,  applications  to  register  and  registrations  of  the  same  and  like
protections,  and the entire goodwill of the business of Borrower connected with
and  symbolized  by  such  trademarks.

--------------------------------------------------------------------------------
Loan and Security Agreement          Page 6
<PAGE>
DEBTOR                   CITADEL  SECURITY  SOFTWARE  INC.

SECURED  PARTY:          LAWRENCE  LACERTE

                                    EXHIBIT B
                                    ---------

COLLATERAL                        DESCRIPTION                         ATTACHMENT
TO LOAN AND SECURITY AGREEMENT

All  assets  (excluding  accounts  receivable),  including  without  limitation,
intellectual property of Borrower (herein referred to as "Borrower" or "Debtor")
whether  presently  existing  or  hereafter  created  or  acquired, and wherever
located,  including,  but  not  limited  to:

(a)  all  common  law  and  statutory  copyrights  and  copyright registrations,
     applications  for  registration,  now existing or hereafter arising, in the
     United  States of America or in any foreign jurisdiction, obtained or to be
     obtained  on  or  in  connection  with  any  of the foregoing, or any parts
     thereof  or  any  underlying or component elements of any of the foregoing,
     together with the right to copyright and all rights to renew or extend such
     copyrights  and  the right (but not the obligation) of Secured Party to sue
     in  its  own  name  and/or  in the name of the Debtor for past, present and
     future  infringements  of  copyright;

(b)  all  trademarks,  service  marks,  trade  names  and  service names and the
     goodwill associated therewith, together with the right to trademark and all
     rights  to  renew  or  extend  such  trademarks  and the right (but not the
     obligation)  of  Secured Party to sue in its own name and/or in the name of
     the  Debtor  for  past,  present  and  future  infringements  of trademark;

(c)  all  (i)  patents and patent applications filed in the United States Patent
     and Trademark Office or any similar office of any foreign jurisdiction, and
     interests  under  patent license agreements, including, without limitation,
     the  inventions  and  improvements  described  and  claimed  therein,  (ii)
     licenses  pertaining  to any patent whether Debtor is licensor or licensee,
     (iii)  income,  royalties,  damages,  payments,  accounts  and  accounts
     receivable  now  or  hereafter  due  and/or  payable under and with respect
     thereto,  including,  without  limitation,  damages  and payments for past,
     present  or  future  infringements  thereof,  (iv)  right  (but  not  the
     obligation)  to  sue  in  the  name of Debtor and/or in the name of Secured
     Party  for  past,  present  and  future  infringements  thereof, (v) rights
     corresponding  thereto  throughout  the world in all jurisdictions in which
     such patents have been issued or applied for, and (vi) reissues, divisions,
     continuations,  renewals, extensions and continuations-in-part with respect
     to  any  of  the  foregoing;  and

(d)  any  and all cash proceeds and/or noncash proceeds of any of the foregoing,
     including,  without  limitation,  insurance  proceeds,  and  all supporting
     obligations  and  the  security  therefor  or for any right to payment. All
     terms above have the meanings given to them in the Texas Uniform Commercial
     Code,  as  amended  or  supplemented  from  time to time, including revised
     Article  9  of  the  Uniform  Commercial  Code-Secured  Transactions.

                                        1
<PAGE>
                                            EXHIBIT A to UCC Financing Statement
                                            ------------------------------------

Secured Party: Lawrence Lacerte

Debtor: CITADEL SECURITY SOFTWARE INC.

                        COLLATERAL DESCRIPTION ATTACHMENT
                         TO LOAN AND SECURITY AGREEMENT

All  personal  property  (excluding  accounts  receivable)  of  Borrower (herein
referred  to  as "Borrower" or "Debtor") whether presently existing or hereafter
created  or  acquired,  and  wherever  located,  including,  but not limited to:

(a)  all  common  law  and  statutory  copyrights  and  copyright registrations,
     applications  for  registration,  now existing or hereafter arising, in the
     United  States of America or in any foreign jurisdiction, obtained or to be
     obtained  on  or  in  connection  with  any  of the foregoing, or any parts
     thereof  or  any  underlying or component elements of any of the foregoing,
     together with the right to copyright and all rights to renew or extend such
     copyrights  and  the right (but not the obligation) of Secured Party to sue
     in  its  own  name  and/or  in the name of the Debtor for past, present and
     future  infringements  of  copyright;

(b)  all  trademarks,  service  marks,  trade  names  and  service names and the
     goodwill associated therewith, together with the right to trademark and all
     rights  to  renew  or  extend  such  trademarks  and the right (but not the
     obligation)  of  Secured Party to sue in its own name and/or in the name of
     the  Debtor  for  past,  present  and  future  infringements  of trademark;

(c)  all  (i)  patents and patent applications filed in the United States Patent
     and Trademark Office or any similar office of any foreign jurisdiction, and
     interests  under  patent license agreements, including, without limitation,
     the  inventions  and  improvements  described  and  claimed  therein,  (ii)
     licenses  pertaining  to any patent whether Debtor is licensor or licensee,
     (iii)  income,  royalties,  damages,  payments,  accounts  and  accounts
     receivable  now  or  hereafter  due  and/or  payable under and with respect
     thereto,  including,  without  limitation,  damages  and payments for past,
     present  or  future  infringements  thereof,  (iv)  right  (but  not  the
     obligation)  to  sue  in  the  name of Debtor and/or in the name of Secured
     Party  for  past,  present  and  future  infringements  thereof, (v) rights
     corresponding  thereto  throughout  the world in all jurisdictions in which
     such patents have been issued or applied for, and (vi) reissues, divisions,
     continuations,  renewals, extensions and continuations-in-part with respect
     to  any  of  the  foregoing;  and

(d)  any  and all cash proceeds and/or noncash proceeds of any of the foregoing,
     including,  without  limitation,  insurance  proceeds,  and  all supporting
     obligations  and  the  security  therefor  or for any right to payment. All
     terms above have the meanings given to them in the Texas Uniform Commercial
     Code,  as  amended  or  supplemented  from  time to time, including revised
     Article  9  of  the  Uniform  Commercial  Code-Secured  Transactions.

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