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                                                                    EXHIBIT 10.3


THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.

July 20, 2000

182,506 shares                                                Warrant No. 2000-2

                              LEVEL 8 SYSTEMS, INC.
                             STOCK PURCHASE WARRANT

Registered Owner: Seneca Capital, L.P.

         This certifies that, for value received, Level 8 Systems, Inc., a
Delaware corporation, the ("Company") grants the following rights to the
Registered Owner, or assigns, of this Warrant:

         1.       ISSUE. Upon tender (as defined in Section 5) to the Company,
the Company, within three (3) Business Days of the date thereof, shall issue to
the Registered Owner, or assigns, up to the number of shares specified in
Section 2 of fully paid and nonassessable shares of Common Stock that the
Registered Owner, or assigns, is otherwise entitled to purchase.

         2.       NUMBER OF SHARES. The total number of shares of Common Stock
that the Registered Owner, or assigns, of this Warrant is entitled to receive
upon exercise of this Warrant (the "Warrant Shares") is 182,506 shares, subject
to adjustment from time to time as set forth in Section 6. The Company shall at
all times reserve and hold available sufficient shares of Common Stock to
satisfy all conversion and purchase rights represented by outstanding
convertible securities, options and warrants, including this Warrant. The
Company covenants and agrees that all shares of Common Stock that may be issued
upon the exercise of this Warrant shall, upon issuance, be duly and validly
issued, fully paid and nonassessable, free from all taxes, liens and charges
with respect to the purchase and the issuance of the shares, and shall not have
any legend or restrictions on resale, except as required by Section 3.2(b) of
the Purchase Agreement.


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         3.       EXERCISE PRICE. The initial per share exercise price of this
Warrant, representing the price per share at which the shares of stock issuable
upon exercise of this Warrant may be purchased, is Twenty Five and One Sixteenth
Dollars ($25.0625) (the "Exercise Price").

         4.       EXERCISE PERIOD. This Warrant may be exercised from the
Closing Date (as defined in the Purchase Agreement) up to and including July
___, 2005 (the "Exercise Period"). If not exercised in compliance with Section 5
during this period, this Warrant and all rights granted under this Warrant shall
expire and lapse.

         5.       TENDER; ISSUANCE OF CERTIFICATES.

                  a.       This Warrant may be exercised, in whole or in part,
         by (i) actual delivery of (a) the Exercise Price in cash, (b) a duly
         executed Warrant Exercise Form, a copy of which is attached to this
         Warrant as Exhibit A, properly executed by the Registered Owner, or
         assigns, of this Warrant, and (c) by surrender of this Warrant, or (ii)
         if the resale of the Warrant Shares by the Registered Owner is not then
         registered pursuant to an effective registration statement under the
         Securities Act, delivery to the Company of (i) the Warrant and (ii) a
         written notice of an election to effect a "Cashless Exercise" (as
         defined below) for the Warrant Shares specified in the Warrant Exercise
         Form. The Warrant Shares so purchased shall be deemed to be issued to
         the Registered Owner as of the close of business on the Business Day on
         which this Warrant shall have been surrendered, the completed Warrant
         Exercise Form shall have been delivered and payment shall have been
         made for such shares as set forth above. Unless otherwise directed in
         writing by the Company, the payment, Warrant and Warrant Exercise Form
         must be delivered to the principal office of the Company either in
         person or as set for in Section 14.

                  b.       Commencing ninety (90) days from the Filing Date (as
         defined in the Registration Rights Agreement), if, and only if, at the
         time of exercise of this Warrant, the Warrant Shares are not saleable
         pursuant to an effective registration statement, then in addition to
         the exercise of all or a part of this Warrant by payment of the
         Exercise Price in cash as provided above, and in lieu of such payment,
         the Registered Owner shall have the right to effect a cashless exercise
         (a "Cashless Exercise"). In the event of a Cashless Exercise, the
         Registered Owner may exercise this Warrant in whole or in part by
         surrendering this Warrant, together with a duly executed Warrant
         Exercise Form, in exchange for the number of shares of Common Stock
         equal to the product of (x) the number of shares as to which this
         Warrant is being exercised multiplied by (y) a fraction, the numerator
         of which is the Per Share Market Value of the Common Stock less the
         Exercise Price then in effect and the denominator of which is the Per
         Share Market Value (in each case adjusted for fractional shares as
         herein provided).

                  c.       In lieu of physical delivery of the Warrant Shares,
         provided the Company's transfer agent is participating in the
         Depositary Trust Company ("DTC") Fast Automated Securities Transfer
         ("FAST") program, upon request of the Registered Owner and in
         compliance with the provisions hereof, the Company shall use its best
         efforts to cause its transfer agent to electronically transmit the
         Warrant Shares to the Registered Owner by crediting the account of the
         Registered Owner's Prime Broker with DTC


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         through its Deposit Withdrawal Agent Commission system. The time period
         for delivery described herein shall apply to the electronic
         transmittals described herein. The Company and its transfer agent shall
         be entitled to rely in good faith on the instructions which reasonably
         appear on their face to be issued on behalf of the Holder, and will
         have no liability with respect to any misdelivery of Warrant Shares if
         such instructions are followed.

                  d.       Certificates for the Warrant Shares so purchased,
         representing the aggregate number of shares specified in the Warrant
         Exercise Form, shall be delivered to the Registered Owner within a
         reasonable time, not exceeding three (3) Business Days, after this
         Warrant shall have been so exercised. The certificates so delivered
         shall be in such denominations as may be reasonably requested by the
         Registered Owner and shall be registered in the name of the Registered
         Owner or such other name as shall be designated by such Registered
         Owner. If this Warrant shall have been exercised only in part, then,
         unless this Warrant has expired, the Company shall, at its expense, at
         the time of delivery of such certificates, deliver to the Registered
         Owner a new Warrant representing the number of shares with respect to
         which this Warrant shall not then have been exercised.

         6.       ADJUSTMENT OF EXERCISE PRICE.

                  a.       Common Stock Dividends; Common Stock Splits; Reverse
         Common Stock Splits. If the Company, at any time while this Warrant is
         outstanding, (a) shall pay a stock dividend on its Common Stock, (b)
         subdivide outstanding shares of Common Stock into a larger number of
         shares, (c) combine outstanding shares of Common Stock into a smaller
         number of shares or (d) issue by reclassification of shares of Common
         Stock any shares of capital stock of the Company, then the Exercise
         Price thereafter shall be determined by multiplying the Exercise Price
         by a fraction the numerator of which shall be the number of shares of
         Common Stock (excluding treasury shares, if any) outstanding before
         such event and the denominator of which shall be the number of shares
         of Common Stock outstanding after such event. Any adjustment made
         pursuant to this paragraph (6)(a) shall become effective on the
         effective date of any dividend, distribution, subdivision, combination
         or re-classification.

                  b.       Rights; Warrants. If the Company, at any time while
         this Warrant is outstanding, shall issue rights or warrants to all of
         the holders of Common Stock entitling them to subscribe for or purchase
         shares of Common Stock at a price per share less than the Exercise
         Price and similar rights are not concurrently distributed to the
         Registered Holder, the Exercise Price shall thereafter be determined by
         multiplying the Exercise Price by a fraction, the denominator of which
         shall be the number of shares of Common Stock (excluding treasury
         shares, if any) outstanding on the date of issuance of such rights or
         warrants plus the number of additional shares of Common Stock offered
         for subscription or purchase, and the numerator of which shall be the
         number of shares of Common Stock (excluding treasury shares, if any)
         outstanding on the date of issuance of such rights or warrants plus the
         number of shares which the aggregate offering price of the total number
         of shares so offered would purchase at the Exercise Price. Such
         adjustment shall be made whenever such rights or warrants are issued,
         and shall become


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         effective immediately after the record date for the determination of
         shareholders entitled to receive such rights or warrants.

                  c.       Subscription Rights. If the Company, at any time
         while this Warrant is outstanding, shall distribute to all of the
         holders of Common Stock evidence of its indebtedness or assets or
         rights or warrants to subscribe for or purchase any security (excluding
         those referred to in paragraphs 6(a) and (b) above) and similar rights
         are not concurrently distributed to the Registered Owner, then in each
         such case the Exercise Price at which the Warrant shall thereafter be
         exercisable shall be determined by multiplying the Exercise Price in
         effect immediately prior to the record date fixed for determination of
         shareholders entitled to receive such distribution by a fraction, the
         denominator of which shall be the Per Share Market Value of Common
         Stock determined as of the record date mentioned above, and the
         numerator of which shall be such Per Share Market Value of the Common
         Stock on such record date less the then fair market value at such
         record date of the portion of such assets or evidence of indebtedness
         so distributed applicable to one outstanding share of Common Stock as
         determined by the Board of Directors in good faith; provided, however,
         that in the event of a distribution exceeding ten percent (10%) of the
         net assets of the Company, such fair market value shall be determined
         by one Appraiser selected in good faith by the Registered Owner of the
         Warrant; and provided, further, that the Company, after receipt of the
         determination by such Appraiser shall have the right to select in good
         faith an additional Appraiser meeting similar qualifications in which
         case the fair market value shall be equal to the average of the
         determinations by each such Appraiser. Such adjustment shall be made
         whenever any such distribution is made and shall become effective
         immediately after the record date mentioned above.

                  d.       Rounding. All calculations under this Section 6 shall
         be made to the nearest cent or the nearest l/l00th of a share, as the
         case may be.

                  e.       Notice of Adjustment. Whenever the Exercise Price is
         adjusted pursuant to paragraphs 6(a), (b) or (c), the Company shall
         promptly deliver to the Registered Owner a notice setting forth the
         Exercise Price after such adjustment and setting forth a brief
         statement of the facts requiring such adjustment.

                  f.       Events Triggering Redemption. The following are
         "Redemption Events" under this Section 6.(f): (A) any reclassification
         of the Common Stock which would have a material adverse affect on the
         rights of holders of the securities into which the Warrant is
         exercisable, (B) any suspension from listing or delisting of the Common
         Stock such that the Common Stock is not listed on Nasdaq or any
         Subsequent Market for a period of ten consecutive Trading Days, or (C)
         a breach by the Company of its obligations under this Warrant, but only
         if such breach continues for a period of at least 10 Trading Days after
         the Company is notified by any Holder of such breach.

         On and after notice of the occurrence of a Redemption Event, the Holder
shall have the option to require the Company to redeem (the "Redemption Right")
in cash and subject to the terms of payment provisions set forth in Section 5,
from funds legally available therefor at the time of such redemption, the
Holder's shares of Common Stock immediately theretofore


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acquirable and receivable upon the exercise of such Holder's Warrant at a price
per share equal to the product of (i) the difference between (A) Average Price
immediately preceding the effective date, the date of the closing, date of
occurrence or the date of the announcement, as the case may be, of the
Redemption Event triggering such Redemption Right and (B) the Exercise Price,
and (ii) the number of shares of Common Stock that would have been issued upon
the exercise of the Warrant immediately prior to such Redemption Event.

                  g.       Notice of Certain Events. If:

                           (i)      the Company shall declare a dividend (or any
                  other distribution) on its Common Stock; or

                           (ii)     the Company shall declare a special
                  nonrecurring cash dividend on or a redemption of its Common
                  Stock; or

                           (iii)    the Company shall authorize the granting to
                  the holders of the Common Stock rights or warrants to
                  subscribe for or purchase any shares of capital stock of any
                  class or of any rights; or

                           (iv)     the approval of any shareholders of the
                  Company shall be required in connection with any
                  reclassification of the Common Stock of the Company, any
                  consolidation or merger to which the Company is a party, any
                  sale or transfer of all or substantially all of the assets of
                  the Company, or any compulsory share exchange whereby the
                  Common Stock is converted into other securities, cash or
                  property; or

                           (v)      the Company shall authorize the voluntary or
                  involuntary dissolution, liquidation or winding up of the
                  affairs of the Company;

         then the Company shall cause to be filed at each office or agency
         maintained for the purpose of exercise of this Warrant, and shall cause
         to be delivered to the Registered Owner, at least 10 Business Days
         prior to the applicable record or effective date hereinafter specified,
         a notice stating (x) the date on which a record is to be taken for the
         purpose of such dividend, distribution, redemption, rights or warrants,
         or if a record is not to be taken, the date as of which the holders of
         Common Stock of record to be entitled to such dividend, distributions,
         redemption, rights or warrants are to be determined or (y) the date on
         which such reclassification, consolidation, merger, sale, transfer or
         share exchange is expected to become effective or close, and the date
         as of which it is expected that holders of Common Stock of record shall
         be entitled to exchange their shares of Common Stock for securities,
         cash or other property deliverable upon such reclassification,
         consolidation, merger, sale, transfer or share exchange; provided,
         however, that the failure to mail such notice or any defect therein or
         in the mailing thereof shall not affect the validity of the corporate
         action required to be specified in such notice.

                  h.       Adjustment to Exercise Price. If the Company, at any
         time while this Warrant is outstanding, takes any of the actions
         described in this Section 6, then, in order


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         to prevent dilution of the rights granted under this Warrant, the
         Exercise Price will be subject to adjustment from time to time as
         provided in this Section 6.

                           (i)      Adjustment of Exercise Price upon Issuance
                  of Common Stock. If at any time while this Warrant is
                  outstanding the Company issues or sells, or is deemed to have
                  issued or sold, any shares of Common Stock (other than (1) the
                  Underlying Shares or other shares of Common Stock issued to
                  any Holder or shares of Common Stock deemed to have been
                  issued by the Company in connection with an Approved Stock
                  Plan, (2) the shares of Common Stock issuable upon the
                  exercise of any options or warrants outstanding on the date
                  hereof and listed in Schedule 2.1(c) of the Purchase
                  Agreement, (3) the securities to be issued in the transactions
                  set forth on such Schedule 2.1(c), (4) share of Common Stock
                  issuable upon conversion of the Series A Preferred Stock, (5)
                  the shares of Common Stock issuable upon an Underwritten Offer
                  (as defined in the Registration Rights Agreement) occurring
                  before December 31, 2001, or (6) the shares of Common Stock
                  issued or deemed to have been issued as consideration for an
                  acquisition by the Company of a division, assets or business
                  (or stock constituting any portion thereof) from another
                  person) for a consideration per share less than the Exercise
                  Price in effect immediately prior to such issuance or sale,
                  then immediately after such issue or sale, the Exercise Price
                  then in effect shall be reduced to an amount equal to the
                  lesser of: (1) the Adjusted Price in such issuance or sale or
                  (2) the Average Price on the date of such issuance or sale.
                  For the purpose of determining the adjusted Exercise Price
                  under this Section 6(h)(i), the following shall be applicable:

                           (A)      Issuance of Options. If at any time while
                  this Warrant is outstanding the Company in any manner grants
                  any rights or options to subscribe for or to purchase Common
                  Stock or any stock or other securities convertible into or
                  exchangeable for Common Stock (other than (1) the Underlying
                  Shares or shares of Common Stock deemed to have been issued by
                  the Company in connection with an Approved Stock Plan, (2) the
                  shares of Common Stock issuable upon the exercise of any
                  options or warrants outstanding on the date hereof and listed
                  in Schedule 2.1(c) of the Purchase Agreement, (3) the
                  securities to be issued in the transactions set forth on such
                  Schedule 2.1(c), (4) share of Common Stock issuable upon
                  conversion of the Series A Preferred Stock, (5) the shares of
                  Common Stock issuable upon an Underwritten Offer (as defined
                  in the Registration Rights Agreement) occurring before
                  December 31, 2001, or (6) the shares of Common Stock issued or
                  deemed to have been issued as consideration for an acquisition
                  by the Company of a division, assets or business (or stock
                  constituting any portion thereof) from another person) (such
                  rights or options being herein called "Options" and such
                  convertible or exchangeable stock or securities being herein
                  called "Convertible Securities") and the price per share for
                  which Common Stock is issuable upon the exercise of such
                  Options or upon conversion or exchange of such Convertible
                  Securities is less than the Exercise Price in effect
                  immediately prior to such grant, then the Exercise Price shall
                  be adjusted to equal to the lesser of: (1) the Adjusted Price
                  upon the exercise of such


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                  Options or upon the conversion or exchange of such Convertible
                  Securities or (2) the Average Price on the date of such grant.
                  No adjustment of the Exercise Price shall be made upon the
                  actual issuance of such Common Stock or of such Convertible
                  Securities upon the exercise of such Options or upon the
                  actual issuance of such Common Stock upon conversion or
                  exchange of such Convertible Securities.

                           (B)      Issuance of Convertible Securities. If at
                  any time while this Warrant is outstanding the Company in any
                  manner issues or sells any Convertible Securities (other than
                  the Underlying Shares or shares of Common Stock deemed to have
                  been issued by the Company in connection with an Approved
                  Stock Plan, shares of Common Stock issuable upon the exercise
                  of any options or warrants outstanding on the date hereof and
                  listed in Schedule 2.1(c) of the Purchase Agreement, or the
                  securities to be issued in the transactions set forth on such
                  Schedule 2.1(c) or any securities to be issued in an
                  Underwritten Offering (as defined in the Registration Rights
                  Agreement) before December 31, 2001 or shares of Common Stock
                  issued or deemed to have been issued as consideration for an
                  acquisition by the Company of a division, assets or business
                  (or stock constituting any portion thereof) from another
                  person) and the price per share for which Common Stock is
                  issuable upon such conversion or exchange is less than the
                  Exercise Price in effect immediately prior to issuance or
                  sale, then the Exercise Price shall be adjusted to equal to
                  the lesser of: (1) the Adjusted Price issuable upon the
                  conversion or exchange of such Convertible Securities or (2)
                  the Average Price on the date of such issuance or sale.

                           (C)      Change in Option Price or Rate of
                  Conversion. If there is a change at any time in (i) the
                  purchase price provided for in any Options, (ii) the
                  additional consideration, if any, payable upon the issuance,
                  conversion or exchange of any Convertible Securities or (iii)
                  the rate at which any Convertible Securities are convertible
                  into or exchangeable for Common Stock, then the Exercise Price
                  in effect at the time of such change shall be readjusted to
                  the lesser of (1) the Exercise Price which would have been in
                  effect at such time had such Options or Convertible Securities
                  still outstanding provided for such changed purchase price,
                  additional consideration or changed conversion rate, as the
                  case may be, at the time initially granted, issued or sold or
                  (2) the Average Price on the date of such change; provided
                  that no adjustment shall be made if such adjustment would
                  result in an increase of the Exercise Price then in effect.

                           (D)      Effect on Exercise Price of Certain Events.
                  For purposes of determining the adjusted Exercise Price under
                  this Section 6, the following shall be applicable:

                                    (I)      Calculation of Consideration
                           Received. If any Common Stock, Options or Convertible
                           Securities are issued or sold or deemed to have been
                           issued or sold for cash, the consideration received
                           therefor will be deemed to be the net amount received
                           by the Company therefor. In case any Common Stock,
                           Options or Convertible Securities are issued or


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                           sold for a consideration other than cash, the amount
                           of the consideration other than cash received by the
                           Company will be the fair value of such consideration,
                           except where such consideration consists of
                           securities, in which case the amount of consideration
                           received by the Company will be the Average Price of
                           such security on Trading Day immediately preceding
                           the date of receipt thereof. In case any Common
                           Stock, Options or Convertible Securities are issued
                           to the owners of the non-surviving entity in
                           connection with any merger in which the Company is
                           the surviving entity the amount of consideration
                           therefor will be deemed to be the fair value of such
                           portion of the net assets and business of the
                           non-surviving entity as is attributable to such
                           Common Stock, Options or Convertible Securities, as
                           the case may be. The fair value of any consideration
                           other than cash or securities will be determined
                           jointly by the Company and the registered owners of a
                           majority of the Underlying Shares of Warrants then
                           outstanding. If such parties are unable to reach
                           agreement within ten (10) days after the occurrence
                           of an event requiring valuation (the "Valuation
                           Event"), the fair value of such consideration will be
                           determined within forty-eight (48) hours of the tenth
                           (10th) day following the Valuation Event by an
                           Appraiser selected in good faith by the Company and
                           agreed upon in good faith by the holders of a
                           majority of the Warrants then outstanding. The
                           determination of such Appraiser shall be binding upon
                           all parties absent manifest error.

                                    (II)     Integrated Transactions. In case
                           any Option is issued in connection with the issue or
                           sale of other securities of the Company, together
                           comprising one integrated transaction in which no
                           specific consideration is allocated to such Options
                           by the parties thereto, the Options will be deemed to
                           have been issued for an aggregate consideration of
                           $.001.

                                    (III)    Treasury Shares. The number of
                           shares of Common Stock outstanding at any given time
                           does not include shares owned or held by or for the
                           account of the Company, and the disposition of any
                           shares so owned or held will be considered an issue
                           or sale of Common Stock.

                                    (IV)     Record Date. If the Company takes a
                           record of the holders of Common Stock for the purpose
                           of entitling them (1) to receive a dividend or other
                           distribution payable in Common Stock, Options or in
                           Convertible Securities or (2) to subscribe for or
                           purchase Common Stock, Options or Convertible
                           Securities, then such record date will be deemed to
                           be the date of the issue or sale of the shares of
                           Common Stock deemed to have been issued or sold upon
                           the declaration of such dividend or the making of
                           such other distribution or the date of the granting
                           of such right of subscription or purchase, as the
                           case may be.

                                    (V)      Certain Events. If any event occurs
                           of the type contemplated by the provisions of this
                           Section 6(h)(i) (subject to the


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                           exceptions stated therein) but not expressly provided
                           for by such provisions (including, without
                           limitation, the granting of stock appreciation
                           rights, phantom stock rights or other rights with
                           equity features), then the Company's Board of
                           Directors will make an appropriate adjustment in the
                           Exercise Price so as to protect the rights of the
                           Registered Owner, or assigns, of this Warrant;
                           provided, however, that no such adjustment will
                           increase the Exercise Price as otherwise determined
                           pursuant to this Section 6(h).

                                    (VI)     "Common Stock Deemed Outstanding"
                           means, at any given time, the number of shares of
                           Common Stock issued and outstanding at such time,
                           plus the number of shares of Common Stock deemed to
                           be outstanding pursuant to Sections 7.1(g)(ii)(A) and
                           7(g)(ii)(B) hereof regardless of whether the Options
                           or Convertible Securities are actually exercisable at
                           such time, but excluding any shares of Common Stock
                           issuable upon exercise of the Warrants

         Notwithstanding the foregoing, in no event shall any provision in this
Section 6 cause the Exercise Price to be greater than the Exercise Price on the
date of issuance of this Warrant.

                  i.       Adjustment of Number of Shares. Upon each adjustment
         of the Exercise Price as a result of the calculations made in this
         Section 6, this Warrant shall thereafter evidence the right to receive,
         at the adjusted Exercise Price, that number of shares of Common Stock
         (calculated to the nearest one-hundredth) obtained by dividing (i) the
         product of the aggregate number of shares covered by this Warrant
         immediately prior to such adjustment and the Exercise Price in effect
         immediately prior to such adjustment of the Exercise Price by (ii) the
         Exercise Price in effect immediately after such adjustment of the
         Exercise Price.

         7.       OPTIONAL REDEMPTION.

                  a.       Optional Redemption. This Warrant is redeemable in
         whole or in part at the option of the Company at any time, subject to
         the conditions herein, (the "Optional Redemption"):

                           (i)      Commencing on the First Business Day
                  immediately after the first anniversary of the Closing Date,
                  provided that the closing price of the Company's Common Stock
                  is greater than Fifty and One Eighth Dollars ($50.125) for
                  twenty (20) consecutive Trading Days and subject to the other
                  conditions set forth herein.

                           (ii)     After the Original Issue Date, if the
                  Warrants outstanding represent less than 5% of the Warrant
                  Shares to be issued upon exercise of the Warrants issued on
                  the Original Issue Date remain unexercised, excluding from
                  such calculation any Warrants held by Affiliate of the Company
                  as of such date (other that any Holder or transferees or
                  successors or assigns thereof if such Holder is deemed to be
                  an Affiliate solely by reason of its holding of Preferred
                  Stock and Warrants)


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                  b.       Redemption Notice. Subject to the conditions set
         forth in Section 7(a), so long as (i) any Registration Statement
         required to be filed and be effective pursuant to the Registration
         Rights Agreement is then in effect and has been in effect and sales of
         all of the Registrable Securities can be made thereunder for at least
         twenty (20) days prior to the Redemption Notice Date (as defined below)
         and (ii) the Company has a sufficient number of authorized shares of
         Common Stock reserved for issuance upon full exercise of the
         outstanding Warrants, upon ten (10) Business Days' prior written notice
         to the Registered Owner (a "Redemption Notice"), the Warrant may be
         redeemed by the Company, in whole or in part, at a redemption price
         equal to $.001 per Warrant (the "Redemption Price').

                  c.       Mechanics of Redemption. The Company shall exercise
         its right to redeem by delivering its Redemption Notice by facsimile
         and overnight courier to each Registered Owner (such date that the
         Redemption Notice is given on the "Redemption Notice Date"). Such
         Redemption Notice shall indicate (A) the Redemption Price, (B) each
         Registered Owner's pro rata allocation of such maximum amount, and (C)
         a confirmation of the date that the Company shall effect the redemption
         (the "Redemption Date"). The Redemption Date shall be not less than ten
         (10) Business Days and not more than sixty (60) calendar days after the
         Redemption Notice Date. Notwithstanding anything in this Section 7(c),
         the Company shall convert any Warrant pursuant to Section 5 if the
         Warrant Exercise Form for a Warrant submitted for exercise is (i)
         received by the Company, together with the Exercise Price in cash and
         the Warrant, before the Redemption Date, (ii) for an Exercise Price
         greater than or equal to the Redemption Price (appropriately adjusted
         in accordance with the terms hereof) and (iii) in excess of such
         Registered Owner's pro rata allocation of the maximum Redemption Price
         indicated in its Redemption Notice.

                  d.       Payment of Redemption Price. The Company shall pay
         the applicable Redemption Price to the Registered Owner of the Warrants
         being redeemed in cash on the Redemption Date (or, if later, the
         Business Day following the Business Day upon which the Company receives
         the Warrant). If the Company shall fail to pay the applicable
         Redemption Price to such Registered Owner on the Redemption Date, in
         addition to any remedy such Registered Owner may have under this
         Warrant and the Purchase Agreement, such unpaid amount shall bear
         interest at the rate of 2.0% per month until paid in full.

         8.       NASDAQ LIMITATION. If on any date (the "Determination Date")
(a) the Common Stock is listed for trading on Nasdaq, (b) the Exercise Price
then in effect is such that the aggregate number of shares of Common Stock that
would then be issuable upon exercise in full of the then outstanding Warrants as
if all such Warrants were exercised on such Determination Date (without regard
to any limitations on exercises) and as payment of interest thereon, as would
equal or exceed 20% of the number of shares of the Common Stock outstanding
immediately prior to the "Closing Date" (the "Issuable Maximum"), and (c) the
Company shall not have previously obtained the vote of the shareholders of the
Company (the "Shareholder Approval"), if any, as may be required by the
applicable rules and regulations of Nasdaq (or any successor entity) to approve
the issuance of shares of Common Stock in excess of the Issuable


                                       10
<PAGE>   11

Maximum in a private placement whereby shares of Common Stock are deemed to have
been issued at a price that is less than the greater of book value or fair
market value of the Common Stock, then with respect to the aggregate number of
Warrants then held by the Holders for which an exercise in accordance with the
Exercise Price would result in an issuance of shares of Common Stock in excess
of such Holder's pro rata allocation (as described below) of the Issuable
Maximum (the "Excess Amount"), the Company may elect to pay cash to the Holders
in an amount equal to the product of the Average Price on the Determination Date
multiplied by the number of shares of Common Stock that would be issued upon the
exercise of the Warrants resulting in the Excess Amount (the "Prepayment
Amount"). Any such election by the Company must be made in writing to the
Holders within five (5) Trading Days after the first such Determination Date and
the payment of such Prepayment Amount applicable to such prepayment must be made
in full to the Holders with ten (10) Business Days after the date such notice is
delivered. If the Company does not deliver timely a notice of its election to
prepay under this Section or shall, if it shall have delivered such a notice,
fail to pay the Prepayment Amount hereunder within ten (10) Business Days
thereafter, then each Holder shall have the option by written notice to the
Company, to, if applicable, declare any such notice given by the Company, if
given, to be null and void and require the Company to either: (i) use its best
efforts to obtain the Shareholder Approval applicable to such issuance as soon
as is possible, but in any event not later than the 60th day after such request
unless the Company has previously used its best efforts to, but has failed to,
obtain such approval (provided, that if the Company shall fail to obtain the
Shareholder Approval during such 60-day period, the Holder may demand the cash
payment set forth in Section 8(ii) herein) or (ii) pay cash to such Holder,
within five (5) Business Days of such Holder's notice, in an amount equal to the
Prepayment Amount for such Holder's portion of the Excess Amount. The payment of
the Prepayment Amount to each Holder pursuant to this Section shall be
determined on a pro rata basis upon the number of shares of Common Stock
issuable upon the exercise of the Warrants held by such Holder on the
Determination Date which is in excess of the pro rata allocation of the Issuable
Maximum. If the Company fails to pay the Prepayment Amount in full pursuant to
this Section within five (5) Business Days after the date payable, the Company
will pay interest thereon at a rate of 20% per annum to the converting Holder,
accruing interest daily from the date of conversion until such amount, plus all
such interest thereon, if any, is paid in full. Until the Company has received
the Shareholder Approval no Holder shall be issued, upon exercise of a Warrant ,
shares of Common Stock in an amount greater than such Holder's allocated portion
of the Issuable Maximum pursuant to Section 8.

         9.       [INTENTIONALLY OMITTED.]

         10.      OFFICER'S CERTIFICATE. Whenever the number of shares
purchasable upon exercise shall be adjusted as required by the provisions of
Section 6, the Company shall forthwith file in the custody of its Secretary or
an Assistant Secretary at its principal office and with its stock transfer
agent, if any, an officer's certificate showing the adjusted number of shares
determined as herein provided, setting forth in reasonable detail the facts
requiring such adjustment and the manner of computing such adjustment. Each such
officer's certificate shall be signed by the chairman, president or chief
financial officer of the Company and by the secretary or any assistant secretary
of the Company. Each such officer's certificate shall be made available at all
reasonable times for inspection by any Registered Owner of the Warrants and the
Company


                                       11
<PAGE>   12

shall, forthwith after each such adjustment, deliver a copy of such certificate
to the each of the Registered Owners.

         11.      DEFINITIONS. Capitalized terms used herein and not otherwise
defined herein shall have the meanings given to such terms in the Purchase
Agreement. As used in this Warrant, the following terms have the following
meanings:

         "Adjusted Price" means the product of (x) the Exercise Price in effect
immediately prior to such issuance or sale or grant multiplied by (y) the
quotient determined by dividing (1) the sum of (I) the product of (A) the
Exercise Price in effect immediately before the issuance or sale or grant
multiplied by (B) the number of shares of Common Stock Deemed Outstanding (as
defined below) immediately prior to such issuance or sale or grant, plus (II)
the consideration, if any, received by the Company upon such issue or sale, by
(2) the product of (I) the Exercise Price in effect immediately before the
issuance or sale or grant, multiplied by (II) number of shares of Common Stock
Deemed Outstanding (as defined below) immediately after such issue or sale or
grant.

         "Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.

         "Appraiser" shall mean a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of
recognized standing.

         "Approved Stock Plan" shall mean any contract, plan or agreement which
has been approved by the Board of Directors of the Company, pursuant to which
the Company's securities may be issued to any employee, officer, director or
consultant.

         "Average Price" has the meaning set forth in the Certificate of
Designation.

         "Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the state of
New York generally are authorized or required by law or other government actions
to close.

         "Certificate of Designation" has the meaning assigned to it in Section
6(f).

         "Closing" has the meaning set forth in Section 1.2(a) of the Purchase
Agreement.

         "Closing Date" has the meaning set forth in the Certificate of
Designation.

         "Common Stock" means the shares of the Company's Common Stock, par
value $0.001 per share.

         "Common Stock Deemed Outstanding" has the meaning assigned to it in
Section (h)(i)(D)(VI).


                                       12
<PAGE>   13

         "Company" means Level 8 Systems, Inc., a New York corporation.

         "Convertible Securities" has the meaning assigned to it in Section
6(h)(i)(A).

         "Determination Date" has the meaning assigned to it in Section 8.

         "Distribution Date" has the meaning assigned to it in Section 22.

         "Exercise Period" has the meaning assigned to it the Section 4.

         "Exercise Price" has the meaning assigned to it in Section 3.

         "Excess Amount" has the meaning assigned to it in Section 8.

         "Issuable Maximum" has the meaning assigned to it in Section 8.

         "Options" has the meaning assigned to it in Section 6(h)(i)(A).

         "Per Share Market Value" means on any particular date (i) the closing
bid price per share of the Common Stock on such date on the Nasdaq National
Market or other registered national stock exchange on which the Common Stock is
then listed or if there is no such price on such date, then the closing bid
price on such exchange or quotation system on the date nearest preceding such
date, or (ii) if the Common Stock is not listed then on the Nasdaq National
Market or the Nasdaq SmallCap Market or any registered national stock exchange,
the closing bid price for a share of Common Stock in the over-the-counter
market, as reported by the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions of reporting prices) at the
close of business on such date, or (iii) if the Common Stock is not then
publicly traded the fair market value of a share of Common Stock as determined
by an Appraiser selected in good faith by the holder of this Warrant; provided,
however, that the Company, after receipt of the determination by such Appraiser,
shall have the right to select, in good faith, an additional Appraiser, in which
case the fair market value shall be equal to the average of the determinations
by each such Appraiser; and provided, further that all determinations of the Per
Share Market Value shall be appropriately adjusted for any stock dividends,
stock splits or other similar transactions during such period.

         "Preferred Stock" means the shares of the Series B 4% convertible
preferred stock issued pursuant to the Company's Certificate of Designation and
sold pursuant to the Purchase Agreement.

         "Prepayment Amount" has the meaning assigned to it in Section 8.

         "Purchase Agreement" means that certain Securities Purchase Agreement,
dated July 20, 2000, among the Company and the Purchasers.

         "Purchaser" has the meaning set forth in the Purchase Agreement.

         "Redemption Date" has the meaning assigned to it in Section 7(c).


                                       13
<PAGE>   14

         "Redemption Event" has the meaning assigned to it in Section 6(f).

         "Redemption Notice" has the meaning assigned to it in Section 7(b).

         "Registered Owner" means the person identified on the face of this
Warrant as the registered owner hereof or such other person as shown on the
records of the Company as being the registered owner of this Warrant.

         "Redemption Price" has the meaning assigned to it in Section 7(b)
hereof.

         "Registrable Securities" has the meaning assigned to it in the
Registration Rights Agreement.

         "Registration Rights Agreement" means that certain Registration Rights
Agreement, dated July 20, 2000, among the Company and the Purchasers.

         "Rights" has the meaning assigned to it in Section 22.

         "Shareholder Approval" has the meaning assigned to it in Section 8.

         "Trading Day(s)" means any day on which the primary market on which
shares of Common Stock are listed is open for trading.

         "Underlying Shares" has the meaning assigned to it in Section 2.1(d) of
the Purchase Agreement.

         "Warrant(s)" means the warrants issuable at the Closing.

         12.      REGISTRATION RIGHTS. The Company will undertake the
registration of the Common Stock into which such Warrants are exercisable at
such times and upon such terms pursuant to the provisions of the Registration
Rights Agreement.

         13.      NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if received by
8:00 p.m. EST where such notice is to be received), or the first Business Day
following such delivery (if received after 8:00 p.m. EST where such notice is to
be received) or (b) on the second Business Day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications are (i) if to the Company to Level 8 Systems, Inc., 9000
Regency Parkway, Cary, North Carolina 27571, Telephone: (919) 380-5005,
Facsimile: (919) 461-2690, Attention: Dennis McKinnie, with copies to Powell,
Goldstein, Frazer & Murphy LLP, 16th Floor, 191 Peachtree Street, Atlanta, GA
30303, Attention: Scott D. Smith, Esq., Facsimile: (404) 572-6999 and (ii) if to
the Registered Owner to the address set forth on Schedule II to the Purchase
Agreement with copies to the addressees set forth on Schedule II to the
Registration Rights Agreement or such other address as may be designated in
writing hereafter, in the same manner, by such person.


                                       14
<PAGE>   15

         14.      COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. The Company
covenants that if any shares of Common Stock required to be reserved for
purposes of exercise of Warrants hereunder require registration with or approval
of any governmental authority under any Federal or state law, or any national
securities exchange, before such shares may be issued upon exercise, the Company
will use its best efforts to cause such shares to be duly registered or
approved, as the case may be.

         15.      FRACTIONAL SHARES. Upon any exercise hereunder, the Company
shall not be required to issue stock certificates representing fractions of
shares of the Common Stock, but may if otherwise permitted make a cash payment
in respect of any final fraction of a share based on the Per Share Market Value
at such time. If the Company elects not, or is unable, to make such a cash
payment, the Registered Owner shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.

         16.      PAYMENT OF TAX UPON ISSUE OF TRANSFER. The issuance of
certificates for shares of the Common Stock upon exercise of the Warrants shall
be made without charge to the Registered Owners thereof for any documentary
stamp or similar taxes that may be payable in respect of the issue or delivery
of such certificate, provided that the Company shall not be required to pay any
tax that may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate upon exercise in a name other than that of the
Registered Owner of such Warrant so converted and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.

         17.      WARRANTS OWNED BY COMPANY DEEMED NOT OUTSTANDING. In
determining whether the holders of the outstanding Warrants have concurred in
any direction, consent or waiver under this Warrant, Warrants which are owned by
the Company or any other obligor on the Warrants or by any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company or any other obligor on the Warrants shall be
disregarded and deemed not to be outstanding for the purpose of any such
determination; provided that any Warrants owned by the Purchasers (as defined in
the Purchase Agreement) shall be deemed outstanding for purposes of making such
a determination. Warrants so owned which have been pledged in good faith may be
regarded as outstanding if the pledgee establishes to the satisfaction of the
Company the pledgee's right so to act with respect to such Warrants and that the
pledgee is not the Company or any other obligor upon the Warrants or any person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company or any other obligor on the Warrants.

         18.      EFFECT OF HEADINGS; REFERENCES. The section headings herein
are for convenience only and shall not affect the construction hereof.
References herein to Sections are to Sections of this Warrant, unless otherwise
expressly provided.

         19.      NO RIGHTS AS STOCKHOLDER. This Warrant shall not entitle the
Registered Owner to any rights as a stockholder of the Company, including
without limitation, the right to vote, to receive dividends and other
distributions, or to receive notice of, or to attend, meetings of


                                       15
<PAGE>   16

stockholders or any other proceedings of the Company, unless and to the extent
exercised for shares of Common Stock in accordance with the terms hereof.

         20.      CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment
of its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.

         21.      SHAREHOLDER RIGHTS PLAN. Notwithstanding the foregoing, in the
event that the Company shall distribute "poison pill" rights pursuant to a
"poison pill" shareholder rights plan (the "Rights"), the Company shall, in lieu
of making any adjustment pursuant to Section 6, make proper provision so that
each Registered Owner who exercises a Warrant after the record date for such
distribution and prior to the expiration or redemption of the Rights shall be
entitled to receive upon such exercise, in addition to the shares of Common
Stock issuable upon such exercise, a number of Rights to be determined as
follows: (i) if such exercise occurs on or prior to the date for the
distribution to the holders of Rights of separate certificates evidencing such
Rights (the "Distribution Date"), the same number of Rights to which a holder of
a number of shares of Common Stock equal to the number of shares of Common Stock
issuable upon such exercise at the time of such exercise would be entitled in
accordance with the terms and provisions of and applicable to the Rights; and
(ii) if such exercise occurs after the Distribution Date, the same number of
Rights to which a holder of the number of shares into which the Warrant to
exercised was exercisable immediately prior to the Distribution Date would have
been entitled on the Distribution Date in accordance with the terms and
provisions of and applicable to the Rights, and in each case subject to the
terms and conditions of the Rights.

         22.      SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon and
inure to the benefit of the Registered Owners and its assigns, and shall be
binding upon any entity succeeding to the Company by merger or acquisition of
all or substantially all the assets of the Company. The Company may not assign
this Warrant or any rights or obligations hereunder without the prior written
consent of the Registered Owner. The Registered Owner may assign this Warrant,
in compliance with applicable law, without the prior written consent of the
Company.

         23.      GOVERNING LAW. This Warrant shall be governed by and construed
and enforced in accordance with the internal laws of the State of Delaware
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the nonexclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of


                                       16
<PAGE>   17

any such court, that such suit, action or proceeding is improper. Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address for such notices to it under this Warrant and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

         IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer as of the date first set forth above.

                                             LEVEL 8 SYSTEMS, INC.


                                             By: /s/ Dennis McKinnie
                                                --------------------------------
                                             Name: Dennis McKinnie
                                                  ------------------------------
                                             Title: Senior Vice President, Chief
                                                    Legal and Administrative
                                                    Officer and Corporate
                                                    Secretary

                                       17
<PAGE>   18

                                    EXHIBIT A

                              Warrant Exercise Form

TO:      LEVEL 8 SYSTEMS, INC.

         The undersigned hereby: (1) irrevocably subscribes for and offers to
purchase _______ shares of Common Stock of Level 8 Systems, Inc., pursuant to
Warrant No. ___ heretofore issued to ___________________ on ____________, 2000;
(2) encloses a payment of $__________ for these shares at a price of $____ per
share (as adjusted pursuant to the provisions of the Warrant); and (3) requests
that a certificate for the shares be issued in the name of the undersigned and
delivered to the undersigned at the address specified below.

____ The undersigned hereby certifies that the Common Stock issuable pursuant to
this Conversion Notice has been sold pursuant to a registration statement under
the Securities Act of 1933 which identifies the Holder as a selling security
holder. THIS MUST BE CHECKED FOR SHARES FREE OF RESTRICTIVE LEGENDS TO BE
ISSUED.

                  Date:
                                             ----------------------------

                  Investor Name:
                                             ----------------------------

                  Taxpayer Identification
                                             ----------------------------

                  Number:
                                             ----------------------------

                  By:
                                             ----------------------------

                  Printed Name:
                                             ----------------------------

                  Title:
                                             ----------------------------

                  Address:
                                             ----------------------------


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


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

                  Note: The above signature should correspond exactly with the
                  name on the face of this Warrant Certificate or with the name
                  of assignee appearing in assignment form below.

AND, if said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant Certificate is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder less
any fraction of a share paid in cash and delivered to the address stated above.


                                       18
<PAGE>   19

TO:      The TRANSFER AGENT

         The issuance of the shares of Common Stock set forth above is hereby
authorized and directed by the Company.

                                             LEVEL 8 SYSTEMS, INC.


                                             By:
                                                --------------------------------
                                             Name:
                                                  ------------------------------
                                             Title:
                                                   -----------------------------


                                       19