As
      of
      November 3, 2005











Level
      8
      Systems, Inc.


8000
      Regency Parkway


Cary,
      NC
      27511




Gentlemen:





We
      are
      pleased to advise that Bank Hapoalim B.M. (the “Bank”) has agreed, subject to
      the conditions set forth below to renew the existing term loan (the “Loan”) to
      you **** (the
      “Borrower”) in the amount of $1,971,000.00. The Loan shall mature on October 30,
      2006. Any amounts prepaid at any time during the term of the Loan may not be
      reborrowed. The effectiveness of the renewal of the Loan is subject to the
      Bank’s receipt of such documentation as it may request, including without
      limitation, the following, each in form and substance satisfactory to the Bank:
      (1) this Letter Agreement, (2) a Promissory Note in the amount of $1,971,000.00
      executed by the Borrower in favor of the Bank in substitution and replacement
      of
      the Note dated as of November 15, 2003, (3) a Letter of Undertaking from Bank
      Hapoalim Rison Le Zion Branch in the aggregate amount of $1,971,000.00, and
      (4)
      any other documents as the Bank may require. The Borrower shall also pay an
      amendment fee in the amount of $350.00.





Please
      indicate your acknowledgment of and agreement to the foregoing by signing and
      returning the enclosed copy of this letter to the attention of Maxine Levy,
      Vice
      President.





Very
      truly yours,





Acknowledged
      and Agreed to:      **BANK
      HAPOALIM B.M.**





**LEVEL
      8 SYSTEMS, INC.**


By:
      ______________________


By:
      _________________________  Title:


Title:


By:
      ______________________


By:
      ______________________   Title:


Title:










J:\gina\-04
            agreements\05283Level 8 Systems Inc Letter Agreement (12/16/05)
 *New
            York Branches*
 
 1177
            Avenue of the Americas New York NY 10036-2790
 T.
            212
            782 2000 F. 212 782 2222 www.hapoalimusa.com


**AGREEMENT**





**Dated
      November 3, 2005**







The
      parties to this agreement are Level 8 Systems, Inc. (the “Company”) and Liraz
      Systems Ltd. (“Liraz”).





Pursuant
      to a guaranty agreement between Liraz and Bank Hapoalim B.M. (the “Bank”), Liraz
      has guaranteed certain obligations of the Company under the Company’s promissory
      note (the “Note”) dated September 28, 2001, in favor of the Bank, which is due
      and payable on or about November 03, 2005 (the “Guaranty”). The outstanding
      principal amount of the Note is $1,971,000.





The
      parties wish to enter into an agreement with respect to, among other things,
      (a)
      the extension of the maturity of the Note, by amendment, renewal, replacement,
      or otherwise, from November 03, 2005 to November 15, 2006, and the related
      extension of the Guaranty, (b) the loan by Liraz to the Company of $43,000
      pursuant to a promissory note in the form of exhibit A (the “$43,000 Note”), and
      (c) the agreement by the Company to repay $100,000 aggregate principal amount
      of
      the Note pursuant to the irrevocable instruction letter in the form of exhibit
      B
      (the “Irrevocable Instruction Letter”).





Accordingly,
      the parties agree as follows:




1.  Extension
      of Maturity; Issuance and Registration of Shares





(a)  The
      Company and Liraz shall cooperate with each other with a view to causing the
      Bank, as promptly as practicable, to extend the maturity of the Note from
      November 03, 2005 to November 15, 2006. In that connection, Liraz shall take
      such action, and execute and deliver to the Bank such documents, as the Bank
      may
      reasonably require to insure that the Guaranty remain in effect through November
      15, 2006. As long as Liraz has any liability or obligation to the Bank under
      the
      Guaranty, and, except for the extension of the maturity of the Note contemplated
      by this section, the Company shall not, directly or indirectly, modify, amend,
      or otherwise change the terms of the Note or the Company’s or its subsidiaries’
liabilities or obligations to the Bank, without the prior written consent of
      Liraz.





(b)  As
      promptly as practicable after the execution and delivery of this agreement
      (but
      in no event later than, and as a condition of, the execution and delivery of
      all
      the documents necessary to extend the maturity of the Note and cause the
      Guaranty to remain in effect through November 15, 2006), the Company shall
      issue
      to Liraz (i) 2,400,000 fully paid and nonassessable shares of the Company’s
      common stock, free and clear of any adverse claim (the date on which the Company
      is required to issue such shares to Liraz, the “Guaranty Extension Date”), and
      (ii) a warrant to purchase shares of the Company’s common stock in the form of
      exhibit C.


1


2.  Loan
      of $43,000; Use of Proceeds; Letter of Instruction .  Simultaneously
      with the execution and delivery of this agreement, (a) Liraz is transferring
      to
      the Company $43,000, (b) the Company is issuing to Liraz the $43,000 Note,
      (c)
      the Company is transferring $43,000 to the Bank in full satisfaction of all
      interest currently due and payable under the Note, and (d) the Company is
      executing and delivering to Bank of America, N.A. (the “Depository”) the Letter
      of Instruction. The Company shall maintain deposits at the Depository sufficient
      to perform all its obligations under the $43,000 Note and to enable the
      Depository to carry out all the instructions in the Letter of Instruction.
      The
      Company acknowledges that Liraz is an intended beneficiary of the Letter of
      Instruction. The Company represents and warrants to Liraz that the Depository
      is
      the primary bank or other financial institution at which the Company maintains
      a
      checking account or holds deposits. Until $100,000 shall have been paid to
      the
      Bank pursuant to the Letter of Instruction, the Company shall not amend,
      withdraw, or terminate, or otherwise permit to become ineffective, the Letter
      of
      Instruction, and shall not maintain a checking, deposit, or similar account
      in
      any bank or other financial institution (other than the Depository) unless
      it so
      notifies Liraz at least two weeks in advance of any change in financial
      institution, and enters into a Letter of Instruction substantially the same
      as
      the Letter of Instruction referred to above, which Letter of Instruction is
      reasonably satisfactory to Liraz.





3.  Repayment
      Obligations .  The
      Company hereby acknowledges and confirms to Liraz that (i) it is required to
      prepay the indebtedness under the Note immediately upon the consummation of
      a
      financing by it or any of its direct or indirect subsidiaries, to the extent
      of
      10% of any net proceeds of any such financing in accordance with exhibit 6.1.1
      of the asset purchase agreement dated August 8, 2001 between the Company and
      BluePhoenix Solutions Ltd. (“BluePhoenix”) (the “APA”), (ii) it shall not, and
      it shall not permit any of its direct or indirect subsidiaries to, consummate
      any such financing, if the related prepayment of the indebtedness under the
      Note
      in accordance with the immediately preceding sentence does not occur
      simultaneously with the consummation of the financing, and (iii) the liabilities
      and obligations referred to in (i) and (ii) above are in addition to the
      liabilities and obligations of the Company under the Irrevocable Instruction
      Letter (for the avoidance of doubt, it is understood and agreed that (A) the
      satisfaction or discharge of any liability or obligation under the Irrevocable
      Instruction Letter shall not satisfy or discharge any liability or obligation
      referred to in (i) or (ii) above, and (B) the discharge or satisfaction of
      any
      liability or obligation under (i) or (ii) above shall not satisfy or discharge
      any liability or obligation under the Irrevocable Instruction Letter.





4.  Registration. The
      Company shall cause all shares required to be issued pursuant to section 1
      and
      issuable pursuant to the warrant referred to in section 1 to be registered
      under
      a registration statement on Form S-4/A to be filed with the Securities and
      Exchange Commission as promptly as practicable, but in no event later than
      December 31, 2005, and shall use its best efforts to cause such registration
      statement to become effective as soon as practicable, and to remain effective
      and current, until (a) all the certificates evidencing the unsold shares covered
      by the registration statement cease to bear any restrictive legends, (b) no
      such
      shares are subject to any stop transfer orders, and (c) all the unsold shares
      covered by the registration statement may be sold publicly without registration
      under the Securities Act of 1933 (without limitation as to volume in any period)
      (such date, the “Termination Date”). Except as otherwise provided in this


2


section
      4, the provisions of the registration rights agreement among the Company and
      the
      Purchasers named therein dated October 15, 2003 shall be applicable to the
      shares required to be registered pursuant to this section 4, mutatis
      mutandis .





Notwithstanding
      anything to the contrary in this section 4, if the Company is or becomes a
      party
      to any agreement with any other person or entity respecting registration of
      shares under Securities Act of 1933, which agreement contains provisions
      entitling such other person or entity to rights not otherwise provided to Liraz
      under this section 4, this section 4 shall be deemed amended to the extent
      necessary to provide Liraz such additional rights (but without adversely
      affecting the rights otherwise provided under this section 4.




5.  Co -Lender
      Agreement and Intellectual Property Security Agreement .
      The
      Company acknowledges and confirms to Liraz that (a) in connection with the
      execution and delivery of the 2004 Extension Agreement, the Company orally
      undertook to cause all the holders of the New Securities (as defined in the
      2004
      Extension Agreement) to execute and deliver a co-lender agreement in the form
      of
      exhibit [D] to replace the co-lender agreement that had been executed and
      delivered by all such holders (other than Liraz), and (b) the Company did not
      perform that undertaking. The Company hereby agrees that, prior to the Guarantee
      Extension Date, it shall perform that undertaking and provide Liraz copies
      of
      documents evidencing the performance of that undertaking.





6.  Release .
      The
      Company, on its own behalf and on behalf of each of its subsidiaries and
      controlled affiliates, hereby releases, acquits, and forever discharges Liraz
      and its affiliates, agents, representatives, officers, directors, and employees,
      whether in their individual or representative capacities, and their successors
      and assigns from, and acknowledge the full accord and satisfaction of, any
      and
      all claims, accounts, debts, obligations, demands, damages, actions, or suits
      of
      whatever nature, whether in contract, tort, or otherwise, now accrued known
      or
      unknown, arising out of any and all transactions and occurrences up to and
      including the execution and delivery of this agreement; provided, however,
      that
      this release shall not release Liraz [or any of its affiliates] from any
      obligations [not in default immediately before the execution and delivery of
      this agreement and required to be performed by any of them on or after the
      date
      of this agreement] pursuant to [the APA, the bill of sale and assignment and
      assumption agreement dated October 1, 2001 among the Company, Level 8
      Technologies, Inc. and BluePhoenix, the sublease dated October 1, 2001 between
      the Company and BluePhoenix, insofar as it relates to the premises in Cary,
      North Carolina, or] this agreement.





7.  Remedy.  If
      the
      Company fails to perform any of its obligations under this agreement, Liraz
      may,
      at its option, by notice given to the Company, terminate any or all of its
      obligations to perform further under this agreement, without any liability
      therefore.







8.  Miscellaneous


3


(a)  Further
      Assurances .
      Each
      party shall, without further consideration, take such action and execute and
      deliver such documents as any other party reasonably requests to carry out
      this
      agreement.





(b)  Expenses .
      Each
      party shall bear its own expenses in connection with the negotiation and
      preparation of this agreement and all duties and obligations required to be
      performed by it under this agreement.





(c)  Governing
      Law .
      This
      agreement shall be governed by and construed in accordance with the law of
      the
      state of New York, without giving effect to its conflict of law
      principles.





(d)  Headings. The
      section headings of this agreement are for reference purposes only, and are
      to
      be given no effect in the construction or interpretation of this
      agreement.





(e)  Notices .
      All
      notices and other communications under this agreement shall be in writing and
      may be given by any of the following methods: (i) personal delivery; (ii)
      facsimile transmission; (iii) registered or certified mail, postage prepaid,
      return receipt requested; or (iv) overnight delivery service. Notices shall
      be
      sent to the appropriate party at its address or facsimile number given below
      (or
      at such other address or facsimile number for that party as shall be specified
      by notice given under this section 8(e)):


(y)
      if to
      the Company, to it at:





8000
      Regency Parkway


Cary,
      North Carolina 27511


Attention:
      Mr. John Broderick





With
      a
      copy to:








Golenbock,
      Eiseman, Assor, Bell and Peskoe, LLP


437
      Madison Avenue


New
      York,
      NY 10022


Attention:
      Lawrence Bell, Esq.




















(z)
      if to Liraz, to
      it at:





8
      Maskit
      Street


P.O.
      Box 2062


Herzlia
      46120


Israel


Attention:
      Chief Financial
      Officer


4


with
      a
      copy to:





Law
      Office of Edward W. Kerson


80
      University Place, Third Floor


New
      York,
      New York 10003-4564





All
      such
      notices and communications shall be deemed received upon (v) actual receipt
      by
      the addressee, (vi) actual delivery to the appropriate address, or (vii) in
      the
      case of a facsimile transmission, upon transmission by the sender and issuance
      by the transmitting machine of a confirmation slip confirming that the number
      of
      pages constituting the notice have been transmitted without error. In the case
      of notices sent by facsimile transmission, the sender shall contemporaneously
      mail a copy of the notice to the addressee at the address provided for above.
      However, such mailing shall in no way alter the time at which the facsimile
      notice is deemed received.





(f)  Separability. The
      invalidity of unenforceability of any provision of this agreement shall not
      affect the validity or enforceability of any other provision of this agreement,
      which shall remain in full force and effect.





(g)  Waiver.
      Any party may waive compliance by the others with any provision of this
      agreement. No waiver of any provision shall be construed as a waiver of any
      other provision. Any waiver must be in writing and signed by the waiving party.





(h)  Counterparts .
      This
      agreement may be executed in counterparts, each of which shall be deemed an
      original, but all of which together shall constitute one and the same
      instrument.





(i)  Arbitration .
      Any
      dispute or controversy arising under or in connection with this agreement shall
      be settled exclusively by arbitration to be held in the City of New York before
      a single arbitrator in accordance with the rules of the American Arbitration
      Association then in effect. As part of his award, the arbitrator shall make
      a
      fair allocation between the parties of the fee and expenses of the American
      Arbitration Association and the cost of any transcript, taking into account
      the
      merits of the parties’ claims and defenses. Judgment may be entered on the
      arbitrator’s award in any court having jurisdiction, and the parties irrevocably
      consent to the jurisdiction of the New York courts for that purpose. The parties
      waive personal service in connection with any such arbitration; any process
      or
      other papers under this provision may be served outside the state of New York
      by
      at least 10 days’ written notice given in accordance with section 8(e). The
      arbitrator may grant injunctive or other relief.





(j)
            Entire
                Agreement.
                This agreement is a complete statement of all the terms of the


arrangements
      between the parties with respect to the matters provided for, supersedes all
      previous agreements and understandings between the parties with respect to
      those
      matters, and cannot be changed or terminated orally.


5





LEVEL
      8
      SYSTEMS, INC.














By:











LIRAZ
      SYSTEMS LTD .











By:_____________________________