Document:

THE  SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, OR
OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT  FILED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND IN COMPLIANCE
WITH  APPLICABLE  SECURITIES  LAWS  OF  ANY  STATE  WITH  RESPECT  THERETO OR IN
ACCORDANCE  WITH AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND ALSO MAY NOT BE
SOLD,  TRANSFERRED  OR  OTHERWISE  DISPOSED  OF  EXCEPT  IN  COMPLIANCE WITH ANY
APPLICABLE  RULES  OF  THE  SECURITIES  AND  EXCHANGE  COMMISSION.

                             STOCK PURCHASE WARRANT
                      To Purchase Shares of Common Stock of
                         Citadel Security Software Inc.

     THIS CERTIFIES that, for value received, RTX Securities Corporation (the
"Investor") together with its successors and assigns (the Investor and its
 --------
successors and assigns, individually or collectively, the "Holder"), is
                                                           ------
entitled, upon the terms and subject to the conditions hereinafter set forth, at

any time on or after May 6, 2003 and on or prior to the Termination Date (as
defined below), to subscribe for and purchase, from Citadel Security Software
Inc., a Delaware corporation, or its successors or assigns (the "Company"), up
                                                                 -------
to 40,938 shares of common stock, par value $0.01 per share (the "Common Stock")
                                                                  ------------
(as adjusted pursuant to Section 9 hereof, the "Shares"), at an exercise price
                                                ------
per Share equal to the market price of the Company's Common Stock on May 6, 2003
(as adjusted pursuant to Section 9 hereof, the "Exercise Price"). The Holder and
                                                --------------
the Company agree that the number of Shares for which this Warrant is
exercisable shall equal 2.5% of the number of warrants (the "Prior Warrants")
                                                             --------------
issued to certain purchasers in the Company's January 2003 private placement for
which Holder acted as placement agent pursuant to subscription agreements (the
"Subscription Agreements") which are exercised on or before May 6, 2003, and
 -----------------------
that the number of Shares subject to this Warrant shall be reduced in the event
 --
less than all of the Prior Warrants are exercised by such date.  The
"Termination Date" shall mean the earlier of April 21, 2008 or the date ten days
 ----------------
after the date on which the Company has provided notice to the Holder that the
closing sale price for the common stock of the Company has closed at or above
$2.40 for ten consecutive trading days.

     1. Title to Warrant. Prior to the expiration hereof, subject to compliance
        ----------------
with applicable laws, this Warrant and all rights hereunder are transferable, in
whole or in part, at the office or agency of the Company, referred to in Section
2 hereof, by the Holder in person or by duly authorized attorney, upon surrender
of this Warrant together with the Assignment Form annexed hereto properly
endorsed, to any affiliate of such Holder.

     2. Exercise of Warrant. The purchase rights represented by this Warrant are
        -------------------
exercisable by the Holder, in whole or in part, at any time following the
Closing (as defined in the Subscription Agreement) and before the close of
business on the Termination Date by the surrender of this Warrant and the Notice
of Exercise form annexed hereto duly executed at the office of the Company set
forth in Section 14.3 hereof (or such other office or agency of the Company as
it may designate by notice in writing to the Holder at the address set forth in
Section

                                        1
<PAGE>
14.3 hereof), and upon payment of the aggregate Exercise Price for the Shares
thereby purchased (by cashless exercise as set forth below, or by cash or by
check or bank draft payable to the order of the Company or by cancellation of
indebtedness of the Company to the Holder, if any, at the time of exercise in an
amount equal to the aggregate Exercise Price of the Shares thereby purchased);
whereupon the Holder shall be entitled to receive a certificate for the
applicable number of Shares.

     The Holder may provide notice of cashless election to the Company, in which
event the Company shall issue Holder a number of shares of Common Stock computed
using the following formula:

                                  X = Y(A-B)/A

where:    X = the  number  of  shares  of  Common  Stock to be issued to Holder.

          Y = the  number of shares  of  Common  Stock for which this Warrant is
          being exercised.

          A = the Market Price of one (1) share of Common Stock (for purposes of
          this Section 3(ii), the "Market Price" shall be defined as the average
          closing price of the Common Stock for the five (5) trading days prior
          to the Date of Exercise of this Warrant (the "Average Closing
          Price")), as reported by the national securities exchange or the
          automatic quotation system on which the Common Stock is so traded and
          if not available, the average of the high and low prices on the
          principal national securities exchange or the automated quotation
          system on which the Common Stock is so traded. If the Common Stock
          is/was not traded during the five (5) trading days prior to the Date
          of Exercise, then the closing price for the last publicly traded day
          shall be deemed to be the closing price for any and all (if
          applicable) days during such five (5) trading day period.

          B = Exercise  Price.

     3. Issuance of Stock and New Warrant; No Fractional Shares or Scrip.
        ----------------------------------------------------------------
Certificates for the Shares purchased hereunder or issuable upon exchange hereof
and, unless this Warrant has been fully exercised or exchanged, a new Warrant
representing the portion of the Shares with respect to which this Warrant shall
not then have been exercised or exchanged shall be delivered to the Holder
promptly after the date on which this Warrant shall have been exercised or
exchanged as aforesaid. The Company covenants that all Shares which may be
issued upon the exercise of rights represented by this Warrant will, upon
exercise of the rights represented by this Warrant, be fully paid and
nonassessable and free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
with such issue). The Company agrees that the Shares so issued shall be and be
deemed to be issued to the Holder as the record owner of such Shares as of the
close of business on the date on which this Warrant shall have been exercised or
exchanged as aforesaid. No fractional Shares or scrip representing fractional
Shares shall be issued upon the exercise or exchange of this Warrant.

                                        2
<PAGE>
With respect to any fraction of a Share called for upon the exercise or exchange
of this Warrant, an amount equal to such fraction multiplied by the then current
price at which each Share may be purchased hereunder shall be paid in cash to
the Holder.

     4. Charges, Taxes and Expenses. Issuance of certificates for the Shares
        ---------------------------
upon the exercise or exchange of this Warrant shall be made without charge to
the Holder for any issue or transfer tax or other incidental expense in respect
of the issuance of such certificate, all of which taxes and expenses shall be
paid by the Company, and such certificates shall be issued in the name of the
Holder or in such name or names as may be directed by the Holder; provided,
however, that in the event certificates for Shares are to be issued in a name
other than the name of the Holder, this Warrant when surrendered for exercise or
exchange shall be accompanied by the Assignment Form attached hereto duly
executed by the Holder; and provided further, that upon any transfer involved in
the issuance or delivery of any certificates for the Shares, the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.

     5. No Rights as Stockholders. This Warrant does not entitle the Holder to
        -------------------------
any voting rights or other rights as a stockholder of the Company prior to the
exercise or exchange hereof.

     6. Registry of Warrant. The Company shall maintain at the above- mentioned
        -------------------
office or agency a registry showing the name and address of the Holder. This
Warrant may be surrendered for exchange, transfer or exercise, in accordance
with its terms, at such office or agency of the Company, and the Company shall
be entitled to rely in all respects, prior to written notice to the contrary,
upon such registry.

     7. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
        -------------------------------------------------
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor and dated as of such cancellation, in
lieu of this Warrant.

     8. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
        ----------------------------------
taking of any action or the expiration of any right required or granted herein
shall be a Saturday or a Sunday or shall be a legal holiday, then such action
may be taken or such right may be exercised on the next succeeding day not a
Saturday, Sunday or legal holiday.

     9. Adjustment of Exercise Price and Number of Shares. The number and kind
        -------------------------------------------------
of securities purchasable upon the exercise of this Warrant and the Exercise
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows.

     9.1 Reclassification or Merger. In case of any recapitalization,
         --------------------------
reclassification, reorganization or change of securities of the class issuable
upon exercise of this Warrant (other than a change in par value or as a result
of a subdivision or combination), the Company shall duly execute and deliver to
the Holder a new Warrant (in form and substance satisfactory to the Holder), or
in case of any merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is the acquiring and
the surviving

                                        3
<PAGE>
corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, the
Company, or such successor or purchasing entity, as the case may be, shall (i)
duly execute and deliver to the Holder a new Warrant as nearly equivalent as
possible to this Warrant (in form and substance satisfactory to the Holder) or
(ii) make appropriate written provisions without the issuance of a new Warrant,
so that the Holder shall have the right to receive upon exercise or exchange of
this Warrant, at a total exercise price not to exceed that payable upon the
exercise of the unexercised portion of this Warrant, and in lieu of the Shares
theretofore issuable upon exercise or exchange of this Warrant, the kind and
amount of shares of stock, other securities, money and property receivable upon
such reclassification, change, merger or sale by a holder of the number of
Shares then purchasable under this Warrant. Any new Warrant shall provide for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 9. The provisions of this subparagraph
9.1 shall similarly apply to successive recapitalizations, reclassifications,
reorganizations, changes, mergers and transfers.

     9.2 Subdivision or Combination of Shares. If the Company at any time while
         ------------------------------------
this Warrant remains outstanding and unexpired shall subdivide or combine its
outstanding Shares, the Exercise Price shall be proportionately decreased in the
case of a subdivision and the number of Shares issuable hereunder shall be
proportionately increased in the case of a subdivision and the Exercise Price
shall be proportionately increased in the case of a combination and the number
of Shares issuable hereunder shall be proportionately decreased in the case of a
combination, effective at the close of business on the date the subdivision or
combination becomes effective.

     9.3 Stock Dividends and Other Distributions. If the Company at any time
         ---------------------------------------
while this Warrant is outstanding and unexpired shall pay a dividend with
respect to the Common Stock payable in additional shares of Common Stock, then
the Exercise Price shall be adjusted, from and after the date of determination
of stockholders entitled to receive such dividend or distribution, to that price
determined by multiplying the Exercise Price in effect immediately prior to such
date of determination by a fraction (A) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such
dividend or  distribution and (B) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such dividend or
distribution.

     9.4 Adjustment of Number of Shares. Upon each adjustment in the Exercise
         ------------------------------
Price, the number of Shares purchasable hereunder shall be adjusted, to the
nearest whole  share, to the product obtained by multiplying the number of
Shares purchasable immediately prior to such adjustment in the Exercise Price by
a fraction, the numerator of which shall be the Exercise Price immediately prior
to such adjustment and the denominator of which shall be the Exercise Price
immediately thereafter.

     9.5 Notice of Adjustments. Whenever the Exercise Price or the number and/or
         ---------------------
type of securities purchasable hereunder shall be adjusted pursuant to this
Section 9, at the written request of the Holder, the Company's President, Chief
Executive Officer or Chief Financial Officer shall sign a certificate setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated,

                                        4
<PAGE>
the Exercise Price, and the number and/or type of securities purchasable
hereunder after giving effect to such adjustment, and shall cause a copy of such
certificate to be mailed by first class mail, postage prepaid to the Holder.

     10. Restrictions on Transferability of Securities.
         ---------------------------------------------

     10.1 Restrictions on Transferability. This Warrant and the Shares issuable
          -------------------------------
upon exercise or exchange of this Warrant (collectively the "Securities") shall
                                                             ----------
not be sold, assigned, transferred or pledged except upon the conditions
specified in this Section 10, which conditions are intended to ensure compliance
with the provisions of the Securities Act of 1933, as amended (the "Securities
                                                                    ----------
Act"). Each holder of Restricted Securities (as defined below) will cause any
---
proposed purchaser, assignee, transferee, or pledgee of Restricted Securities
held by such holder to agree to take and hold such Restricted Securities subject
to the provisions and upon the conditions specified in this Section 10.

     10.2 Restrictive Legend. Each certificate representing the Securities and
          ------------------
any other securities issued in respect of the Securities upon any stock split,
stock dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of Section 10.4 below) be stamped
or otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, OR
OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND IN COMPLIANCE
WITH APPLICABLE SECURITIES LAWS OF ANY STATE WITH RESPECT THERETO OR IN
ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND ALSO MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH ANY
APPLICABLE RULES OF THE SECURITIES AND EXCHANGE COMMISSION.

Each holder of Restricted Securities and each subsequent transferee (hereinafter
collectively referred to as a "Restricted Holder") consents to the Company
                               -----------------
making a notation on its records and giving instructions to any transfer agent
of the Securities in order to implement the restrictions on transfer established
in this Section 10. Securities represented by a certificate bearing the legend
set forth in this Section 10.2 are referred to herein as "Restricted
                                                          ----------
Securities."
----------

     10.3 Restriction on Transfers. Each Restricted Holder of a certificate
          ------------------------
representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of this Section 10.3. Restricted Holder agrees
that it will not sell or otherwise dispose of any of the Restricted Securities
unless such sale or other disposition has been registered under the Securities
Act or, in the opinion of counsel acceptable to the Company, is exempt from
registration under the Securities Act and has been registered or qualified or,
in the opinion of such counsel acceptable to the Company, is exempt from
registration or qualification under applicable state securities laws. Restricted
Holder understands that the offer and sale by the

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<PAGE>
Company being acquired by Restricted Holder hereunder has not been registered
under the Securities Act by reason of their contemplated issuance in
transactions exempt from the registration and prospectus delivery requirements
of the Securities Act pursuant to Section 4(2) thereof, and that the reliance of
the Company on such exemption from registration is predicated in part on these
representations and warranties of Restricted Holder. Each certificate evidencing
the Securities transferred as above provided shall bear the appropriate
restrictive legend set forth in Section 10.2 above, except that such certificate
shall not bear such restrictive legend if in the opinion of counsel for such
Restricted Holder and in the opinion of counsel for the Company such legend is
not required in order to establish compliance with any provision of the
Securities Act.

     10.4 Removal of Restrictions on Transfer of Securities. Any legend referred
          -------------------------------------------------
to in Section 10.2 hereof stamped on a certificate evidencing the Securities and
the stock  transfer instructions and record notations with respect to the
Securities shall be removed, and the Company shall issue a certificate without
such legend to the Restricted Holder of the Securities if the Securities are
registered under the Securities Act, or if such Restricted Holder provides the
Company with an opinion of counsel (which may be counsel for the Company)
reasonably satisfactory to the Company to the effect that a public sale or
transfer of such security may be made without registration under the Securities
Act or such Restricted Holder provides the Company with reasonable assurances
that such security can be sold pursuant to paragraph (k) of Rule 144 (or any
successor provision) under the Securities Act.

     11. Registration. The Company shall register the resale by Holder of all
         ------------
Shares issued or issuable hereunder under the Securities Act in the Shelf
Registration Statement (as defined in the Subscription Agreement).

     12. Investment Representations of the Holder. With respect to the
         ----------------------------------------
acquisition of any of the Shares, the Holder hereby represents and warrants to
the Company as follows:

     12.1 Experience. The Holder has such knowledge and experience in financial,
          ----------
tax and business matters, including substantial experience in evaluating and
investing in  common stock and other securities (including the common stock and
other securities of speculative companies), so as to evaluate the merits and
risks of an investment in the Shares and to make an informed investment decision
with respect thereto. Investor is fully aware of: (i) the highly speculative
nature of the Shares; (ii) the financial hazards involved; (iii) the lack of
liquidity of the Shares and the restrictions on transferability of the Shares;
(iv) the qualifications and backgrounds of the management of the Company; (v)
the tax consequences of acquiring the Shares; and (vi) Investor understands that
the Shares are restricted and cannot be resold unless a registration statement
under the Securities Act (and current prospectus) is in effect as to the Shares,
the Shares are sold pursuant to Rule 144 of the Securities Act or pursuant to
another exemption from the registration requirements of the Securities Act or
applicable state securities laws. The Holder is an "accredited investor" as such
                                                    -------------------
term is defined in Rule 501(a) of Regulation D under the Securities Act (a copy
of which is attached as Exhibit D to the Subscription Agreement upon which the
Holder has indicated the specific definition with which the Holder complies),
and has such knowledge and experience in financial and business  matters that it
is capable of evaluating the merits and risks of the investment to be made by it
hereunder.

                                        6
<PAGE>
     12.2 Investment. The Holder is acquiring the Shares for investment for its
          ----------
own account and with no present intention of distributing or selling such Shares
and further agrees not to transfer such Shares in violation of the Securities
Act or any applicable state securities law, and no one other than the Holder has
any beneficial interest in the Shares. The Holder agrees that it will not sell
or otherwise dispose of any of the Shares unless such sale or other disposition
has been registered under the Securities Act or, in the opinion of counsel
acceptable to the Company, is exempt from registration under the Securities Act
and has been registered or qualified or, in the opinion of such counsel
acceptable to the Company, is exempt from registration or qualification under
applicable state securities laws. The Holder understands that the Shares have
not been, and except as otherwise provided in Section 11 will not be, registered
under the Securities Act by reason of their contemplated issuance in
transactions exempt from the registration and prospectus delivery requirements
of the Securities Act pursuant to Section 4(2) thereof, and that the reliance of
the Company on such exemption from registration is predicated in part on these
representations and warranties of the Holder.

     12.3 Rule 144. The Holder acknowledges that the Shares must be held
          --------
indefinitely unless subsequently registered under the Securities Act, or unless
an exemption from such registration is available. In addition, Holder has been
advised that Rule 144 promulgated under the Securities Act, which permits
certain limited sales of unregistered securities, may not be presently available
with respect to the Shares and, in any event, requires that the Shares be held
for a minimum of one (1) year, and in certain cases two (2) years, after they
have been purchased and paid for (within the meaning of Rule 144), before they
may be resold under Rule 144.

     12.4 Access to Data. The Investor has received from the Company, and has
          --------------
reviewed, such information which the Investor considers necessary or appropriate
to evaluate the risks and merits of an investment in the Shares, including
without limitation, the documents listed on Exhibit E to the Subscription
Agreement, which have been received by Investor as part of an informational
packet of materials from the Company. The Investor has had an opportunity to
discuss the Company's business, management and financial affairs and projections
with the Company's management and has also had an opportunity to ask questions
of the Company's officers, which questions were answered to its satisfaction,
and to verify information obtained in the Investor's examination of the Company.

     13. Notices. If at any time prior to the exercise or exchange of this
         -------
Warrant in full the Company takes a record of the holders of the Company's
common stock for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company will give to
the Holder, at least thirty (30) days prior to the date specified therein,
written notice specifying the date on which any such record is to be taken for
the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.

14. Miscellaneous.
    -------------

                                        7
<PAGE>
     14.1 Issue Date. The provisions of this Warrant shall be construed and
          ----------
shall be given effect in all respect as if it had been issued and delivered by
the Company on the date hereof. This Warrant shall be governed in all respects
by the laws of the State of California without regard to choice of laws or
conflict of laws provisions thereof.

     14.2 Waivers and Amendments. With the written consent of the Company and
          ----------------------
the Holder, the obligations of the Company and the right of the Holder may be
waived (either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely), and
with the same consent the Company and the Holder may enter into a supplementary
agreement for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Warrant.

     14.3 Notices. All notices and other communications required or permitted to
          -------
be given under this Warrant shall be in writing and shall be deemed effectively
given upon personal delivery, delivery by nationally recognized courier or upon
deposit with the United States Post Office (by first class mail, postage
prepaid) addressed as follows: (i) if to the Company, at 8750 North Central
Expressway, Suite 100, Dallas, Texas 75251, or at such other address as the
Company shall have furnished the Holder in writing, and (ii) if to the Holder,
to RTX Securities Corporation, Attention: CEO, 100 Pine Street, Suite 500, San
Francisco, California 94111; Fax: (415) 274-5669, or at such other address as
the Holder shall have furnished the Company in writing.

     14.4 Survival. The provisions of Section 10 hereof shall survive the
          --------
exercise or exchange of this Warrant and shall remain in effect until such time
as the Holder no longer holds Shares.

     14.5 Binding Effect on Successors. This Warrant shall be binding upon any
          ----------------------------
entity succeeding the Company by merger or consolidation. This Warrant shall not
be assignable by the Company without the prior written consent of the Holder.
All of the covenants and agreements of the Company shall inure to the benefit of
successors and assigns of the Holder.

                                        8
<PAGE>
     IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.

Dated : April 21, 2003

                                             CITADEL SECURITY SOFTWARE INC.

                                             By:  ______________________________
                                             Name: _____________________________
                                             Title: ____________________________

Acknowledged and agreed:

RTX Securities Corporation

By: _______________________
Name: _____________________
Title: ______________________

<PAGE>
                               NOTICE OF EXERCISE

To: Citadel Security Software Inc.

(1) The undersigned hereby elects to purchase ____________ Shares (as defined in
the attached Stock Purchase Warrant (the "Warrant")) pursuant to the terms of
the Warrant, and tenders herewith payment of the purchase price in full,
together with any applicable transfer taxes required by the Warrant to be paid
by the undersigned.

(2) Please issue a certificate of certificates representing said Shares in the
name of the undersigned or in such other name as is specified below:

                                             (Name)

                                             (Address)

(Date)
                                             (Signature)

<PAGE>
                                 ASSIGNMENT FORM

                    (To assign the foregoing Warrant, execute
                   this form and supply required information.
                    Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Warrant with respect to the number of shares
indicated below, and all rights evidenced thereby are hereby assigned to

___________________________________________________________________________
                                 (Please Print)

whose address is  ____________________________________________________________
                                 (Please Print)

__________________________

_____ shares

Dated: _____________, 200__

Holder's Signature:  _________________________________________________
Holder's Address:    _________________________________________________
_________________________________________________________________

                                        2
<PAGE><PAGE>

EXHIBIT 10.1

                                 LOAN AGREEMENT

         This Loan Agreement is entered into as of March 13, 2003 by and between
the Conrad von Bibra Revocable Trust and Carl von Bibra ("Lenders") and Prism
Software Corporation, a Delaware corporation ( the "Company");

                                    RECITALS:

         A. The Company is indebted to the Lenders for an aggregate of
$5,939,837.85, consisting of $3,181,204.32 owed to the Conrad von Bibra
Revocable Trust (of which $2,747,900 is unpaid principal and $433,304.32 is
interest accrued to the date hereof) and $2,758,633.53 owed to Carl von Bibra
(of which $2,454,000 is unpaid principal and $304,633.53 is interest accrued to
the date hereof);

         B. The parties desire to consolidate these amounts into two Promissory
Notes, and to provide for future advances by the Lenders to the Company;

         NOW THEREFORE, in consideration of the mutual covenants set forth
herein, the parties agree as follows:

         1. ISSUANCE OF CONSOLIDATED NOTES. Concurrently with the date of this
Agreement, the Company shall issue a Promissory Note to the Conrad von Bibra
Revocable Trust in the amount of $3,181,204.32 and a Promissory Note to Carl von
Bibra in the amount of $2,758,633.53 (the "Consolidated Notes"). The
Consolidated Notes represent the entire amounts owed by the Company to the
Lenders as of the date of this Agreement, including all accrued principal and
interest, and replace and supercede all existing notes, credit agreements or
similar obligations, except for that certain note dated September 25, 2000, in
the original principal amount of $34,794 payable to the Conrad von Bibra
Revocable Trust.

         2. PROCEDURE FOR ADDITIONAL BORROWING. Lenders may, from time to time,
advance additional funds from time to time to meet the Company's capital needs,
as such needs are determined by Lenders (the "Additional Advances"). Such
advances shall be made upon written or verbal requests by the Company, which
requests shall include such supporting documentation of the Company's capital
needs as Lenders may reasonably request. The amounts borrowed shall be reflected
on the books and records of Lender and the Company; provided, however, that at
Lenders' request, the Company shall execute a promissory note or notes
evidencing the borrowings.

                                       1

<PAGE>

         3. TERMS OF BORROWINGS. The Consolidated Notes and all Additional
Borrowings (the "Obligations") shall be on the following terms and conditions

                  3.1 INTEREST RATE. The Obligations shall bear interest at a
rate equal to eight percent per annum. Interest not paid when due shall
thereafter bear like interest as the principal, but unpaid interest so
compounded shall not exceed the maximum rate permitted by law.

                  3.2 TERMS OF PAYMENT Amounts due under the Obligations shall
be paid within three days after receipt of written demand for such amounts from
the Lenders. The Company may, at its option, prepay all or any amount owed prior
to such date. Any such payment shall be credited first to interest then due and
the remainder to principal unless otherwise specified by the Lender. To the
extent that the Company receives funding from other parties and there are excess
funds available, the Company will make a good faith effort to prepay all or a
portion of the Obligations.

                  3.3. USURY LIMITATION. In no event shall the interest rate
payable pursuant to this Agreement be higher than permitted by applicable law.

                  3.4 DEFAULT AND ACCELERATION. Upon the occurrence of any Event
of Default (as defined below), the Obligations shall be in default and Lenders
shall have the right, at Lenders' sole option, to declare all amounts owed under
the Obligations immediately due and payable. Each of the following is an "Event
of Default": (a) the failure of the Company to pay any portion of principal or
interest when due, which failure is not cured within three calendar days after
written notice, (b) the entry of a decree or order for relief in respect of the
Company under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable Federal or state bankruptcy,
insolvency or similar law, or appointing a receiver, trustee, or custodian of
the Company or for any substantial part of the Company's property, which decree
or order is not stayed or set aside within 60 days thereafter, or (c) the filing
by the Company of a petition, answer or consent seeking relief under Title 11 of
the United States Code, as now constituted or hereafter amended, or the consent
by the Company to the institution of proceedings thereunder or to the
appointment of a receiver, trustee or custodian.

         4.   CONVERSION

                                       2

<PAGE>

                    4.1 RIGHT TO CONVERT. Lenders may, from time to time,
convert all or any portion of the unpaid principal balance of the Obligations,
and any accrued interest, into shares of the Company's common stock ("Common
Stock") at a price of $ .05 per share (the "Conversion Price"). The Conversion
Price is subject to adjustment as set forth below.

                    4.2 MECHANICS OF CONVERSION. Conversion shall be effected by
giving the Company written notice at its principal executive office of the
election to convert (the "Conversion Notice") and by delivering any Promissory
Notes issued under this Agreement to such office for endorsement by the Company
to reflect the principal amount converted to shares of Common Stock. The
Conversion Notice shall state the name or names of the parties to whom the
certificate or certificates for shares of common stock should be issued and the
address to which the certificates are to be sent. As soon as practicable
thereafter, the Company shall issue and deliver to Lenders at the address or
addresses designated in the Conversion Notice the certificate or certificates
for the number of shares of common stock to which such parties are entitled. At
its election, the Company may issue fractional shares or, in lieu thereof, make
a cash payment to Lenders in an amount equal to the number of fractional shares
to be issued multiplied by the then fair market value of one share of the
Company's Common Stock as determined in good faith by the Company's Board of
Directors. Conversion shall be deemed to have occurred on the close of business
on the date the Conversion Notice is received by the Company.

                   4.3 CONVERSION PRICE. In order to prevent dilution of the
conversion rights granted under this Agreement, the Conversion Price will be
subject to adjustment from time to time as follows:

                           (i) If the Company at any time subdivides (by any
stock split, stock dividend or otherwise) its outstanding shares of Common Stock
into a greater number of shares, the Conversion Price will be proportionately
reduced, and if the Company at any time combines (by reverse stock split, or
otherwise) its outstanding shares of Common Stock into a smaller number of
shares, the Conversion Price will be proportionately increased.

                           (ii) If any capital reorganization, reclassification,
consolidation or merger or any sale of substantially all of the Company's assets
(collectively, the "Corporate Transactions") is effected in such a way that the
holders of Common Stock become entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then, as a condition to such

                                       3

<PAGE>

Corporate Transaction, lawful and adequate provision will be made whereby the
Lenders will thereafter have the right to acquire and receive in lieu in shares
of Common Stock, such shares, securities or assets as would have been issuable
to the Lenders if it had converted the principal amount of this Note immediately
prior to such Corporate Transaction.

                           (iii) In the event Maker issues additional shares of
Common Stock for a purchase price of less that $.05 per share, or issues
securities convertible or exercisable into Common Stock at a price of less than
$.05 per share, then the conversion price of the note shall be automatically
adjusted to such lower conversion price unless waived in writing for a
particular case; provided, however, that such adjustment may be waived or
modified from time to time by either of the two Lenders.

         5. ISSUANCE OF WARRANT ON CONVERSION. Upon the conversion of all or
part of the Obligations into Common Stock, the Company shall issue to the
converting Lender a Warrant to purchase additional shares of Common Stock of
Company (equal to the number of shares of Common Stock issued upon such
conversion), at an exercise price of $ .12 per share, in the form of Exhibit A
hereto.

         6. ATTORNEYS' FEES. In the event any judicial proceedings are
instituted to enforce or interpret the rights and obligations of the Company and
the Lenders under this Agreement, the prevailing party in such proceeding shall
be entitled to reasonable attorneys' fees and costs, as well as related costs of
collection and appeal.

         7. GOVERNING LAW. This Agreement and all transactions hereunder and/or
evidenced hereby shall be governed by, construed under, and enforced in
accordance with the laws of the State of California, without regard to any
choice of law or conflict of law provisions thereof.

         8. SEVERABILITY. Should any provision of this Agreement be declared or
be determined by any court to be invalid, illegal or unenforceable, such
provision shall be severable from the remainder of this Agreement, and the
legality, validity and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.

                                       4

<PAGE>

                                    Prism Software Corporation

                                    By: /S/ E. TED DANIELS
                                        ---------------------------------------
                                        E. Ted Daniels, Chief Executive Officer

                                    /S/ CONRAD VON BIBRA
                                    -------------------------------------------
                                    Conrad von Bibra, Trustee for
                                    the Conrad von Bibra Revocable Trust

                                    /S/ CARL VON BIBRA
                                    -------------------------------------------
                                    Carl von Bibra

                                       5

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