Document:

Exhibit 4.1
                          REGISTRATION RIGHTS AGREEMENT

                  This Registration Rights Agreement (this "Agreement") is made
and entered into as of August 14, 2002, by and among Level 8 Systems, Inc., a
Delaware corporation (the "Company"), and the investors signatory hereto (each,
including their respective successors and assigns, a "Purchaser" and
collectively, the "Purchasers").

                  This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers (the
"Purchase Agreement").

                  The Company and the Purchasers hereby agree as follows:

     1. Definitions. Capitalized terms used and not otherwise defined herein
that are defined in the Purchase Agreement shall have the meanings given such
terms in the Purchase Agreement. As used in this Agreement, the following terms
shall have the meanings set forth in this Section 1:

                  "Effectiveness Date" means, with respect to the Registration
Statement required to be filed under this Agreement, the earlier of (i) the
120th day following the Closing Date and (ii) the fifth Trading Day following
the date on which the Company is notified by the Commission that such
Registration Statement will not be reviewed or is no longer subject to further
review and comments.

                  "Effectiveness Period" shall have the meaning set forth in
Section 2(a).

                  "Filing Date" with respect to the initial Registration
Statement required to be filed under this Agreement, the 45th day following the
Closing Date.

                  "Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.

                  "Indemnified Party" shall have the meaning set forth in
Section 5(c).

                  "Indemnifying Party" shall have the meaning set forth in
Section 5(c).

                  "Losses" shall have the meaning set forth in Section 5(a).

                  "Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened in writing.

                  "Prospectus" means the prospectus included in a Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.

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                  "Registrable Securities" means the shares of Common Stock
issued or issuable upon (i) conversion of or with respect to the Preferred Stock
, (ii) upon exercise of the Warrants or (iii) any shares of the Company's
capital stock issued with respect to (i) and (ii) as a result of a stock split,
stock dividend, recapitalization, exchange, or other similar event or otherwise.

                  "Registration Statement" means the initial registration
statement required to be filed under this Agreement, including the Prospectus,
amendments and supplements to such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto, and all
material incorporated by reference or deemed to be incorporated by reference in
such registration statement.

                  "Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

                  "Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

                  "Rule 424" means Rule 424 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

                  "Trading Day" means (i) a day on which the Common Stock is
traded on a Trading Market, or (ii) if the Common Stock is not listed on a
Trading Market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the
Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices); provided, that in the event that the Common
Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then
Trading Day shall mean a Business Day.

     2. Registration.

                  (a) On or prior to the Filing Date, the Company shall prepare
and file with the Commission a Registration Statement covering the resale of all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form S-3 (except if the
Company is not then eligible to register for resale the Registrable Securities
on Form S-3, in which case such registration shall be on another appropriate
form in accordance herewith) and shall contain (except if otherwise agreed by
the Holders) the "Plan of Distribution" attached hereto as Annex A. The Company
shall use its best efforts to cause each Registration Statement to be declared
effective under the Securities Act as promptly as possible after the filing
thereof, but in any event prior to its Effectiveness Date, and shall use its
best efforts to keep such Registration Statement continuously effective under
the Securities Act until the date which is four years after the date that such
Registration Statement is declared effective by the Commission or such earlier
date when all Registrable Securities covered by a Registration Statement have
been sold or may be sold without volume restrictions pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Company's transfer agent and the
affected Purchasers (the "Effectiveness Period").

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                  (b) If: (a) a Registration Statement is not filed on or prior
to its Filing Date (if the Company files such Registration Statement without
affording the Holder the opportunity to review and comment on the same as
required by Section 3(a), the Company shall not be deemed to have satisfied
clause (a)), or (b) the Company fails to file with the Commission a request for
acceleration in accordance with Rule 461 promulgated under the Securities Act,
within five Trading Days of the date that the Company is notified (orally or in
writing, whichever is earlier) by the Commission that a Registration Statement
will not be "reviewed," or not subject to further review, or (c) the Company
fails to respond to any comments made by the Commission within fifteen Trading
Days after the receipt of such comments, or (d) a Registration Statement filed
hereunder is not declared effective by the Commission by the Effectiveness Date,
or (e) after a Registration Statement is filed with and declared effective by
the Commission, such Registration Statement ceases to be effective as to all
Registrable Securities to which it is required to relate at any time prior to
the expiration of the Effectiveness Period without being succeeded within
fifteen Trading Days by an amendment to such Registration Statement or by a
subsequent Registration Statement filed with and declared effective by the
Commission, (f) an amendment to a Registration Statement is not filed by the
Company with the Commission within fifteen Trading Days of the Commission's
notifying the Company that such amendment is required in order for a
Registration Statement to be declared effective, (any such failure or breach
being referred to as an "Event," and for purposes of clause (a) or (d) the date
on which such Event occurs, or for purposes of clause (b) the date on which such
five Trading Day period is exceeded, or for purposes of clauses (c), (e) or (f)
the date which such fifteen Trading Day-period is exceeded, being referred to as
"Event Date"), then: (x) on each such Event Date the Company shall pay to each
Holder an amount in cash, as liquidated damages and not as a penalty, equal to
2% of the aggregate purchase price paid by such Holder pursuant to the Purchase
Agreement; and (y) on each monthly anniversary of each such Event Date thereof
(if the applicable Event shall not have been cured by such date) until the
applicable Event is cured, the Company shall pay to each Holder an amount in
cash, as liquidated damages and not as a penalty, equal to 2% of the aggregate
purchase price paid by such Holder pursuant to the Purchase Agreement. If the
Company fails to pay any liquidated damages pursuant to this Section in full
within seven days after the date payable, the Company will pay interest thereon
at a rate of 12% per annum (or such lesser maximum amount that is permitted to
be paid by applicable law) to the Holder, accruing daily from the date such
liquidated damages are due until such amounts, plus all such interest thereon,
are paid in full.

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     3. Registration Procedures

                  In connection with the Company's registration obligations
hereunder, the Company shall:

                  (a) Not less than five Trading Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or supplement
thereto, the Company shall, (i) furnish to the Holders copies of all such
documents proposed to be filed which documents will be subject to the review of
such Holders, and (ii) cause its officers and directors, counsel and independent
certified public accountants to respond to such inquiries as shall be necessary,
in the reasonable opinion of respective counsel to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file a Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities shall reasonably object in good faith.

                  (b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to a Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep such
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements in order to register for resale under
the Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible, and in any event within ten Trading
Days, to any comments received from the Commission with respect to a
Registration Statement or any amendment thereto and, as promptly as reasonably
possible provide the Holders true and complete copies of all correspondence from
and to the Commission relating to such Registration Statement; and (iv) comply
in all material respects with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable Securities
covered by a Registration Statement during the applicable period in accordance
with the intended methods of disposition by the Holders thereof set forth in
such Registration Statement as so amended or in such Prospectus as so
supplemented.

                  (c) Notify the Holders of Registrable Securities to be sold in
writing as promptly as reasonably possible (and, in the case of (i)(A) below,
not less than three Trading Days prior to such filing): (i)(A) when a Prospectus
or any Prospectus supplement or post-effective amendment to a Registration
Statement is proposed to be filed; (B) when the Commission notifies the Company
whether there will be a "review" of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement (the Company shall
provide true and complete copies thereof and all written responses thereto to
each of the Holders); and (C) with respect to a Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to a Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of a Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (v) of the occurrence of any
event or passage of time that makes the financial statements included in a
Registration Statement ineligible for inclusion therein or any statement made in
a Registration Statement or Prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or that
requires any revisions to a Registration Statement, Prospectus or other
documents so that, in the case of a Registration Statement or the Prospectus, as
the case may be, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.

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                  (d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of a
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.

                  (e) Furnish to each Holder, without charge, at least one
conformed copy of each Registration Statement and each amendment thereto,
including financial statements, schedules, exhibits and, to the extent requested
by such Holder, all documents and exhibits incorporated or deemed to be
incorporated therein by reference promptly after the filing of such documents
with the Commission.

                  (f) Promptly deliver to each Holder, without charge, as many
copies of the Prospectus or Prospectuses (including each form of prospectus) and
each amendment or supplement thereto as such Persons may reasonably request. The
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto.

                  (g) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions within the
United States as any Holder requests in writing, to keep each such registration
or qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by a Registration Statement; provided, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.

                  (h) Cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by the Purchase Agreement,
of all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as any such Holders may request.

                  (i) Upon the occurrence of any event contemplated by Section
3(c)(v), as promptly as reasonably possible, prepare a supplement or amendment,
including a post-effective amendment, to a Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither a Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

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                  (j) Comply with all applicable rules and regulations of the
Commission.

                  (k) The Company may require each selling Holder to furnish to
the Company a certified statement as to the number of shares of Common Stock
beneficially owned by such Holder and, if requested by the Commission, the
controlling person thereof.

                  (l) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on Nasdaq and any other
securities exchange, quotation system, market or over-the-counter bulletin
board, if any, on which similar securities issued by the Company are then listed
as and when required pursuant to the Purchase Agreement.

                  (m) Use its best efforts to comply in all material respects
with all applicable rules and regulations of the Commission and make generally
available to its securityholders earning statements satisfying the provisions of
Section 11(a) of the Securities Act and Rule 158 not later than 45 days after
the end of any 12-month period (or 90 days after the end of any 12-month period
if such period is a fiscal year) commencing on the first day of the first fiscal
quarter of the Company after the effective date of the Registration Statement,
which statement shall conform to the requirements of Rule 158.

               4. Registration Expenses. All fees and expenses incident to
the performance of or compliance with this Agreement by the Company shall be
borne by the Company whether or not any Registrable Securities are sold pursuant
to a Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the Trading Market on which the Common Stock is then
listed for trading, and (B) in compliance with applicable state securities or
Blue Sky laws), (ii) printing expenses (including, without limitation, expenses
of printing certificates for Registrable Securities and of printing prospectuses
if the printing of prospectuses is reasonably requested by the holders of a
majority of the Registrable Securities included in a Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.

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     5. Indemnification

                  (a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents and employees of each of them, each
Person who controls any such Holder (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and the officers, directors,
agents and employees of each such controlling Person, to the fullest extent
permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, reasonable costs of
preparation and reasonable attorneys' fees) and expenses (collectively,
"Losses"), as incurred, arising out of or relating to (i) any untrue or alleged
untrue statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading or (ii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any other law, including,
without limitation, any state securities law, or any rule or regulation
thereunder relating to the offer or sale of Registrable Securities, except to
the extent, but only to the extent, that (1) such untrue statements or omissions
are based solely upon information regarding such Holder furnished in writing to
the Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
(it being understood that the Holder has approved Annex A hereto for this
purpose) or (2) in the case of an occurrence of an event of the type specified
in Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that the
Prospectus is outdated or defective and prior to the receipt by such Holder of
the Advice contemplated in Section 5(e) or (ii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of Registrable Securities.
The Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.

                  (b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon: (x) such Holder's failure
to comply with the prospectus delivery requirements of the Securities Act in
reselling Registrable Securities or (y) any untrue statement of a material fact
contained in any Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto, or arising solely out of
or based solely upon any omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading to the
extent, but only to the extent, that (1) such untrue statements or omissions are
based solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in a Registration Statement (it
being understood that the Holder has approved Annex A hereto for this purpose),
such Prospectus or such form of Prospectus or in any amendment or supplement
thereto or (2) in the case of an occurrence of an event of the type specified in
Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that the
Prospectus is outdated or defective and prior to the receipt by such Holder of
the Advice contemplated in Section 6(d) provided, however, that the indemnity
agreement contained in this Section 5(b) shall not apply to amounts paid in
settlement of any Losses if such settlement is effected without the prior
written consent of such Holder, which consent shall not be unreasonably
withheld. In no event shall the liability of any selling Holder hereunder be
greater in amount than the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.

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                  (c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party shall promptly notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.

                  An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.

                  All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten Trading Days of written notice thereof to the Indemnifying
Party (regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; provided, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).

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                  (d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public policy
or otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.

                  The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the foregoing, the liability of any Holder under this
Section 5(d) shall be limited to the amount of net proceeds received by such
Holder in the offering giving rise to such liability, less any amounts paid by
such Holder pursuant to Section 5(b) hereof.

                  The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.

     6. Rule 144

                  As long as any Holder owns Registrable Securities, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or l5(d) of the Exchange
Act and to promptly furnish the Holders with true and complete copies of all
such filings. As long as any Holder owns Registrable Securities, if the Company
is not required to file reports pursuant to Section 13(a) or l5(d) of the
Exchange Act, it will prepare and furnish to the Holders and make publicly
available in accordance with Rule 144(c) promulgated under the Securities Act
annual and quarterly financial statements, together with a discussion and
analysis of such financial statements in form and substance substantially
similar to those that would otherwise be required to be included in reports
required by Section 13(a) or 15(d) of the Exchange Act, as well as any other
information required thereby, in the time period that such filings would have
been required to have been made under the Exchange Act. Upon the request of any
Holder, the Company shall deliver to such Holder a written certification of a
duly authorized officer as to whether it has complied with such requirements.
The Company further covenants that it will take such further action as any
Holder may reasonably request, all to the extent required from time to time to
enable such Person to sell Underlying Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act.

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     7. Miscellaneous

                  (a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.

                  (b) Compliance. Each Holder covenants and agrees that it will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.

                  (c) Discontinued Disposition. Each Holder agrees by its
acquisition of such Registrable Securities that, upon receipt of a notice from
the Company of the occurrence of any event of the kind described in Section
3(c), such Holder will forthwith discontinue disposition of such Registrable
Securities under a Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement or
until it is advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and, in either case, has received copies
of any additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph.

                  (d) Piggy-Back Registrations. If at any time during the
Effectiveness Period there is not an effective Registration Statement covering
all of the Registrable Securities and the Company shall determine to prepare and
file with the Commission a registration statement relating to an offering for
its own account or the account of others under the Securities Act of any of its
equity securities, other than on Form S-4 or Form S-8 (each as promulgated under
the Securities Act) or their then equivalents relating to equity securities to
be issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder written notice of such
determination and, if within fifteen days after receipt of such notice, any such
Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered, subject to customary underwriter cutbacks
applicable to all holders of registration rights.

                                       10
<PAGE>

                  (e) No Piggyback on Registrations. Except as disclosed on
Schedule 2.1(c) of the Purchase Agreement, neither the Company nor any of its
securityholders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in the Registration Statements and the Company
shall not after the date hereof enter into any agreement providing such right to
any of its securityholders, unless the right so granted is on parity with or
subordinated in all respects to the rights in full of the Holders set forth
herein, and is not otherwise in conflict or inconsistent with the provisions of
this Agreement.

                  (f) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and two-thirds of the Holders of the then outstanding Registrable Securities.

                  (g) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 6:30 p.m. (New
York City time) on a Trading Day, (ii) the Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Agreement later than 6:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Trading Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:

         If to the Company:               Level 8 Systems, Inc.
                                          8000 Regency Parkway
                                          Cary, North Carolina 27511
                                          Attn:     John P. Broderick

                  With a Copy to:

                                          Powell, Goldstein, Frazer & Murphy LLP
                                          191 Peachtree Street, 16th Floor
                                          Atlanta, Georgia 30303
                                          Attn:     Scott D. Smith, Esq.

         If to a Purchaser: To the address set forth under such Purchaser's name
on the signature pages hereto.

                                       11
<PAGE>

                  If to any other Person who is then the registered Holder:

                  To the address of such Holder as it appears in the stock
transfer books of the Company.

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

                  (h) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.

                  (i) Execution and Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed shall be deemed to
be an original and, all of which taken together shall constitute one and the
same Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.

                  (j) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement 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 agrees that all Proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the State of New York. Each party hereto hereby
irrevocably submits to the exclusive 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 (including with respect to
the enforcement of the any of this Agreement), and hereby irrevocably waives,
and agrees not to assert in any Proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such Proceeding is improper.
Each party hereto hereby irrevocably waives personal service of process and
consents to process being served in any such Proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Agreement 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 hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby. If either party shall commence a Proceeding to enforce any provisions of
this Agreement, then the prevailing party in such Proceeding shall be reimbursed
by the other party for its attorneys fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such Proceeding.

                                       12
<PAGE>

                  (k) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

                  (l) Independent Nature of Purchasers' Obligations and Rights.
The obligations of each Purchaser hereunder is several and not joint with the
obligations of any other Purchaser hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                           SIGNATURE PAGES TO FOLLOW]

                                       13
<PAGE>

                  IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.

                            LEVEL 8 SYSTEMS, INC.

                            By:
                               -------------------------------------------------
                                     John P. Broderick,
                                     Chief Operating and Financial Officer,
                                     Corporate Secretary

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                     SIGNATURE PAGES OF PURCHASER TO FOLLOW]

                                       14
<PAGE>

     IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

                                            [PURCHASER]

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

                                            Name:
                                                 -------------------------------

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

                                            Address for Notice:

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

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

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

                                            With a copy to:

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

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

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

                                       15
<PAGE>

                                     Annex A

                              PLAN OF DISTRIBUTION

       We are registering the shares of common stock on behalf of the selling
stockholders. All costs, expenses and fees in connection with the registration
of the shares offered by this prospectus will be borne by us, other than
brokerage commissions and similar selling expenses, if any, attributable to the
sale of shares which will be borne by the selling stockholders. The Company has
agreed to indemnify the selling stockholders against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act. Sales
of shares may be effected by selling stockholders from time to time in one or
more types of transactions (which may include block transactions) on the Nasdaq
National Market, in the over-the-counter market, in negotiated transactions,
through put or call options transactions relating to the shares, through short
sales of shares, or a combination of any such methods of sale, and any other
method permitted pursuant to applicable law, at market prices prevailing at the
time of sale, or at negotiated prices. Such transactions may or may not involve
brokers or dealers. The selling stockholders have advised us that they have not
entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities, nor is
there an underwriter or coordinated broker acting in connection with the
proposed sale of shares by the selling stockholders.

       The selling stockholders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with such
transactions, broker-dealers or other financial institutions may engage in short
sales of the shares or of securities convertible into or exchangeable for the
shares in the course of hedging positions they assume with selling stockholders.
The selling stockholders may also enter into options or other transactions with
broker-dealers or other financial institutions which require the delivery to
such broker-dealers or other financial institutions of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as amended or supplemented to reflect such
transaction). The selling stockholders may pledge and or loan these shares to
broker-dealers who may borrow the shares against their hedging short position
and in turn sell these shares under the prospectus to cover such short position.

       The selling stockholders may make these transactions by selling shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from selling stockholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both (which compensation as to a particular
broker-dealer is not expected to be in excess of customary commissions).

       The selling stockholders and any broker-dealers that act in connection
with the sale of shares may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act, and any commissions received by such
broker-dealers or any profit on the resale of the shares sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act. The selling stockholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving sales
of the shares against certain liabilities, including liabilities arising under
the Securities Act.

                                       16
<PAGE>

       Because selling stockholders may be deemed "underwriters" within the
meaning of Section 2(11) of the Securities Act, the selling stockholders may be
subject to the prospectus delivery requirements of the Securities Act. We have
informed the selling stockholders that the anti-manipulative provisions of
Regulation M promulgated under the Exchange Act may apply to their sales in the
market.

       Selling stockholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act
provided they meet the criteria and conform to the requirements of Rule 144.

       Upon our being notified by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing:

     o    the name of each such selling stockholder and of the participating
          broker-dealer(s);

     o    the number of shares involved;

     o    the initial price at which such shares were sold;

     o    the commissions paid or discounts or concessions allowed to such
          broker-dealer(s), where applicable;

     o    that such broker-dealer(s) did not conduct any investigation to verify
          the information set out or incorporated by reference in this
          prospectus; and

     o    other facts material to the transactions.

         In addition, upon our being notified by a selling stockholder that a
donee or pledgee intends to sell more than 500 shares, a supplement to this
prospectus will be filed. The selling stockholder may from time to time pledge
or grant a security interest in some or all of the Shares or common stock or
Warrant owned by them and, if they default in the performance of their secured
obligations, the pledgees or secured parties may offer and sell the shares of
common stock from time to time under this prospectus, or under an amendment to
this prospectus under Rule 424(b)(3) or other applicable provision of the
Securities Act of 1933 amending the list of selling stockholders to include the
pledgee, transferee or other successors in interest as selling stockholders
under this prospectus.

         The selling stockholders also may transfer the shares of common stock
in other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.

                                       17
<PAGE>Exhibit 10.1

                          SECURITIES PURCHASE AGREEMENT

                                  BY AND AMONG

                             LEVEL 8 SYSTEMS, INC.,

                                       AND

                       THE PURCHASERS LISTED ON SCHEDULE I

                           DATED AS OF AUGUST 14, 2002

<PAGE>

                          SECURITIES PURCHASE AGREEMENT

                  THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is dated
as of August 14, 2002, by and among Level 8 Systems, Inc., a Delaware
corporation (the "Company"), and the various purchasers listed on Schedule I
hereto (each referred to herein as a "Purchaser" and, collectively, the
"Purchasers").

                  WHEREAS, the Company and the Purchasers are executing and
delivering this Agreement in reliance upon the exemption from securities
registration afforded by Rule 506 under Regulation D as promulgated by the
United States Securities and Exchange Commission (the "Commission") under
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act");

                  WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers, and the
Purchasers desire to acquire from the Company, shares of the Company's Series C
Convertible Redeemable Preferred Stock, par value $.001 per share, liquidation
value $1,000 per share (the "Preferred Stock") in the form of Exhibit A annexed
hereto, and a stock purchase warrant (each a "Warrant", and, collectively, the
"Warrants"), in the form of Exhibit B annexed hereto to purchase shares of the
Company's common stock, par value $.001 per share (the "Common Stock"); and

                  WHEREAS, contemporaneously with the execution and delivery of
this Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement substantially in the form of Exhibit C attached hereto (the
"Registration Rights Agreement") pursuant to which the Company has agreed to
provide certain registration rights under the Securities Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.

                  NOW, THEREFORE, in consideration of the promises and mutual
covenants and agreements hereinafter, the Company and the Purchasers hereby
agree as follows:

<PAGE>

                                PURCHASE AND SALE

     Purchase and Sale.
     -----------------

                  On the Closing Date (as defined below), subject to the terms
and conditions set forth herein, the Company shall issue and sell to each
Purchaser and each Purchaser, severally and not jointly, shall purchase from the
Company the shares of Preferred Stock as set forth on Schedule I and a Warrant
exercisable for the number of shares of Common Stock as set forth on Schedule I
for such Purchaser. The purchase price for the Preferred Stock and Warrants
purchased by each Purchasers shall be as set forth on Schedule I.

         Closing.
         -------

                  The Closing. The closing (the "Closing") of the purchase and
sale of the Preferred Stock and the Warrants shall take place at the offices of
Powell, Goldstein, Frazer & Murphy LLP, 191 Peachtree Street, N.E., Suite 1600,
Atlanta, Georgia 30303, or by transmission by facsimile and overnight courier,
immediately following the execution hereof or such later date or different
location as the parties shall agree, but in no event prior to the date that the
conditions set forth in Section 4.1 have been satisfied or waived by the
appropriate party (such date of the Closing, the "Closing Date"). At the
Closing:

                  Each Purchaser  shall deliver to the Company (1) this
Agreement,  duly executed by such Purchaser, (2) the Registration Rights
Agreement, duly executed by such Purchaser and (3) its portion of the purchase
price as set forth next to its name on Schedule I in United States dollars in
immediately available funds to an account or accounts designated in writing by
the Company; and

                  The Company shall deliver to each Purchaser (1) this
Agreement,  duly executed by the Company, (2) the Registration Rights Agreement,
duly executed by the Company, (3) a Warrant representing the Purchaser's right
to acquire the number of shares of Common Stock as set forth on Schedule I
hereto registered in the name of such Purchaser and (4) a certificate evidencing
the number of shares of Preferred Stock purchased by such Purchaser as set forth
on Schedule I hereto, registered in the name of such Purchaser, the Preferred
Stock shall have the respective rights, preferences, limitations and privileges
set forth in Exhibit A attached hereto, which shall be incorporated into a
Certificate of Designation of Rights, Preferences and Limitations to be approved
by the Purchasers and the Company's Board of Directors and filed on or before
the Closing with the Secretary of State of Delaware.

                                       2
<PAGE>

                         REPRESENTATIONS AND WARRANTIES

   2.1   Representations  and Warranties of the Company.  The Company represents
and warrants to each of the  Purchasers  that the  statements  contained in this
Section 2.1 are true,  correct and complete as of the date  hereof,  and will be
true correct and complete as of the Closing Date (unless specifically made as of
another  date),  except  as  specified  to the  contrary  in  the  corresponding
paragraph of the disclosure  schedule prepared by the Company  accompanying this
Agreement (the "Company Disclosure Schedules"):

     a.  Organization  and  Qualification.  The  Company is a  corporation  duly
incorporated,  validly existing and in good standing under the laws of Delaware,
with the requisite  corporate  power and authority to own and use its properties
and assets and to carry on its  business as currently  conducted.  Except as set
forth on Schedule 2.1(a), the Company is duly qualified as a foreign corporation
to do  business  and is in  good  standing  as a  foreign  corporation  in  each
jurisdiction in which the nature of the business  conducted or property owned by
it makes  such  qualification  necessary,  except  where  the  failure  to be so
qualified or in good standing, as the case may be, would not, individually or in
the aggregate, (x) adversely affect the legality,  validity or enforceability of
any of this  Agreement  or the  Transaction  Documents  (as  defined  in Section
2.1(b)) or any of the transactions  contemplated hereby or thereby,  (y) have or
result in a material  adverse  effect on the results of operations,  assets,  or
financial condition of the Company, taken as a whole or (z) impair the Company's
ability to perform fully on a timely basis its obligations under any Transaction
Document  (any of (x),  (y) or (z),  being a  "Material  Adverse  Effect").  The
Company has made  available  to the  Purchaser  true and  correct  copies of the
Company's Certificate of Incorporation,  as amended and as in effect on the date
hereof (the  "Certificate of  Incorporation"),  and the Company's  Bylaws, as in
effect on the date hereof (the "Bylaws").

     b.  Authorization;  Enforcement.  The Company has the  requisite  corporate
power  and  authority  to  enter  into  and  to  consummate   the   transactions
contemplated  by this Agreement and the  Registration  Rights  Agreement and the
Warrants (collectively, the "Transaction Documents"), and otherwise to carry out
its obligations hereunder and thereunder.  The execution and delivery of each of
this Agreement and the Transaction Documents by the Company and the consummation
by it of the  transactions  contemplated  hereby  and  thereby  have  been  duly
authorized  by all  necessary  corporate  action  by the  Company.  Each of this
Agreement  and the  Transaction  Documents has been duly executed by the Company
and when delivered in accordance with the terms hereof will constitute the valid
and  binding  obligation  of the  Company  enforceable  against  the  Company in
accordance  with its  terms,  except as such  enforceability  may be  limited by
applicable bankruptcy,  insolvency,  reorganization,  moratorium, liquidation or
similar laws relating to, or affecting  generally the enforcement of, creditors'
rights and remedies or by other equitable  principles of general application and
except that rights to indemnification and contribution may be limited by Federal
or state securities laws or public policy relating thereto.

                                       3
<PAGE>

     c.  Capitalization.  As of the date hereof, the authorized capital stock of
the Company is as set forth in Schedule 2.1(c).  All of such outstanding  shares
of capital stock have been, or upon issuance  will be,  validly  authorized  and
issued,  fully paid and  nonassessable  and were issued in  accordance  with the
registration  provisions of the Securities Act, or pursuant to valid  exemptions
therefrom.  Except as  disclosed  in Schedule  2.1(c) or the SEC  Documents  (as
defined in Section  2.1(j)),  (i) no shares of the  Company's  capital stock are
subject to preemptive  rights nor is any holder of the Common Stock  entitled to
preemptive or similar rights arising out of any agreement or understanding  with
the Company by virtue of any Transaction  Document, as defined in Section 2.1(b)
above,  (ii)  there  are no  outstanding  options,  warrants,  scrip  rights  to
subscribe to, calls or commitments of any character  whatsoever  relating to, or
securities or rights  convertible into or exchangeable for, or giving any Person
(as defined below) any right to subscribe for or acquire,  any shares of capital
stock of the  Company or any of its  subsidiaries,  or  contracts,  commitments,
understandings  or arrangements by which the Company or any of its  subsidiaries
is or may  become  bound to issue  additional  shares  of  capital  stock of the
Company  or any of its  subsidiaries  or  options,  warrants,  scrip  rights  to
subscribe to, calls or commitments of any character  whatsoever  relating to, or
securities  or rights  convertible  into,  any  shares of  capital  stock of the
Company  or  any  of  its  subsidiaries,   (iii)  there  are  no  agreements  or
arrangements  under which the Company or any of its subsidiaries is obligated to
register the sale of any of their  securities  under the  Securities Act (except
the Registration Rights Agreement),  (iv) there are no outstanding securities of
the Company or any of its  subsidiaries  which contain any redemption or similar
provisions,  and  there  are  no  contracts,   commitments,   understandings  or
arrangements  by which the Company or any of its  subsidiaries  is or may become
bound to redeem a security of the Company or any of its subsidiaries,  (v) there
are no securities or instruments containing  anti-dilution or similar provisions
that  will be  triggered  by the  issuance  of the  shares  of  Common  Stock as
described in this Agreement and (vi) except as specifically disclosed in the SEC
Documents,  to the Company's knowledge, no Person (as defined below) or group of
related  Persons  beneficially  owns  (as  determined  pursuant  to  Rule  13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) or has the right to acquire by agreement  with or by  obligation  binding
upon the Company  beneficial  ownership of in excess of 5% of the Common  Stock.
"Person" means an individual or corporation, partnership, trust, incorporated or
unincorporated  association,  joint venture,  limited liability  company,  joint
stock company,  government (or an agency or subdivision thereof) or other entity
of any kind.

     d.  Authorization  and Validity;  Issuance of Shares.  The shares of Common
Stock issuable upon conversion of the Preferred Stock (the "Conversion  Shares")
and the exercise of the Warrants  (the "Warrant  Shares",  and together with the
Conversion  Shares the "Underlying  Shares") are and will at all times hereafter
continue to be duly  authorized  and reserved for issuance  and, when issued and
paid for in accordance with this Agreement and the Transaction  Documents,  will
be validly issued,  fully paid and non-assessable,  free and clear of all liens,
encumbrances  and  Company  rights  of  first  refusal,  other  than  liens  and
encumbrances created by the Purchasers  (collectively,  "Liens") and will not be
subject to any  preemptive or similar  rights other than as granted  pursuant to
the Transaction Documents.

                                       4
<PAGE>

     e. No Conflicts. The execution,  delivery and performance of this Agreement
and each of the Transaction Documents by the Company and the consummation by the
Company of the  transactions  contemplated  hereby and  thereby  (including  the
issuance  of the  Underlying  Shares) do not and will not (i)  conflict  with or
violate any  provision  of the  Certificate  of  Incorporation,  Bylaws or other
organizational  documents of the Company, (ii) subject to obtaining the consents
referred to in Section  2.1(f),  conflict  with,  or constitute a default (or an
event which with notice or lapse of time or both would become a default)  under,
or  give to  others  any  rights  of  termination,  amendment,  acceleration  or
cancellation of, any agreement,  indenture, patent, patent license or instrument
(evidencing  a Company debt or  otherwise) to which the Company is a party or by
which any  property or asset of the Company is bound or  affected,  except where
such conflict or violation has not resulted or would not  reasonably be expected
to result,  individually or in the aggregate,  in a Material Adverse Effect,  or
(iii)  result in a violation  of any law,  rule,  regulation,  order,  judgment,
injunction,  decree or other restriction of any court or governmental  authority
to which the Company is subject (including Federal and state securities laws and
regulations and the rules and regulations of the principal market or exchange on
which the Common Stock is traded or listed),  or by which any material  property
or asset of the Company is bound, except where such conflict has not resulted or
would not reasonably be expected to result, individually or in the aggregate, in
a Material Adverse Effect.

     f.  Consents  and  Approvals.  The  Company is not  required  to obtain any
consent,  waiver,  authorization  or order of,  give any  notice to, or make any
filing or registration  with, any court or other federal,  state, local or other
governmental authority, regulatory or self regulatory agency, or other Person in
connection  with the execution,  delivery and performance by the Company of this
Agreement  or  the  Transaction  Documents,  other  than  (i)  the  filing  of a
registration  statement with the Commission,  which shall be filed in accordance
with and in the time  periods set forth in the  Registration  Rights  Agreement,
(ii) the  application(s)  or any  letter(s)  acceptable  to the Nasdaq  National
Market ("Nasdaq") for the listing of the Underlying Shares with Nasdaq (and with
any other  national  securities  exchange or market on which the Common Stock is
then listed),  and (iii) any filings,  notices or registrations under applicable
Federal  or  state  securities  laws  (together  with  the  consents,   waivers,
authorizations,  orders, notices and filings referred to on Schedule 2.1(f), the
"Required  Approvals"),  except where failure to do so has not resulted or would
not reasonably result, individually,  or in the aggregate, in a Material Adverse
Effect.

     g.  Litigation;  Proceedings.  Except as specifically set forth on Schedule
2.1(g) or in the SEC Documents  (as  hereinafter  defined),  there is no action,
suit,  notice of  violation,  proceeding  or  investigation  pending  or, to the
knowledge of the Company,  threatened against or affecting the Company or any of
its subsidiaries or any of their respective  properties  before or by any court,
governmental or administrative  agency or regulatory authority (Federal,  state,
county,  local or  foreign)  (collectively,  an  "Action")  which (i)  adversely
affects or challenges the legality,  validity or  enforceability  of any of this
Agreement or the Transaction  Documents or (ii) would reasonably be expected to,
individually or in the aggregate,  have a Material  Adverse Effect.  Neither the
Company nor any  subsidiary,  nor, to the knowledge of the Company,  any officer
thereof,  is or has been,  nor, to the  knowledge of the  Company,  any director
thereof  is or has been for the last  three  years,  the  subject  of any Action
involving a claim of violation of or liability under federal or state securities
laws or a claim of breach of  fiduciary  duty.  There has not been,  and, to the
knowledge  of  the  Company,   there  is  not  pending  or   contemplated,   any
investigation  by the Commission  involving the Company or any current or former
director  that was a director  of the  Company at any time during the last three
years or officer of the Company. The Commission has not issued any stop order or
other order suspending the effectiveness of any registration  statement filed by
the Company or any subsidiary under the Exchange Act or the Securities Act.

                                       5
<PAGE>

     h. No Default or Violation.  Except as  specifically  set forth on Schedule
2.1(h),  the  Company  (i)  is not  in  default  under  or in  violation  of any
indenture,  loan or other credit  agreement or any other agreement or instrument
to which it is a party or by  which  it or any of its  properties  is bound  and
which is required to be included as an exhibit to any SEC  Document  (as defined
in  Section  2.1(j)) or will be  required  to be  included  as an exhibit to the
Company's next filing under either the Securities Act or the Securities Exchange
Act of 1934, as amended (the "Exchange Act"),  (ii) is in violation of any order
of any court,  arbitrator  or  governmental  body  applicable to it, (iii) is in
violation of any statute,  rule or regulation of any  governmental  authority to
which it is subject, (iv) is in default under or in violation of its Certificate
of Incorporation,  Bylaws or other organizational documents, respectively in the
case of (i), (ii) and (iii),  except where such  violations have not resulted or
would not reasonably  result,  individually  or in the aggregate,  in a Material
Adverse Effect.

     i. Private Offering.  The Company and all Persons acting on its behalf have
not made,  directly  or  indirectly,  and will not make,  offers or sales of any
securities or solicited any offers to buy any security under  circumstances that
would  require  registration  of  the  Preferred  Stock,  the  Warrants  or  the
Underlying  Shares or the issuance of such securities  under the Securities Act.
Subject to the accuracy and completeness of the  representations  and warranties
of the Purchasers  contained in Section 2.2, the offer, sale and issuance by the
Company  to  the  Purchasers  of the  Preferred  Stock,  the  Warrants  and  the
Underlying Shares is exempt from the registration requirements of the Securities
Act.

     j. SEC Documents;  Financial Statements. The Common Stock of the Company is
registered  pursuant to Section  12(g) of the Exchange Act.  Since  December 31,
2001, the Company has filed all reports,  schedules, forms, statements and other
documents  required to be filed by it, with the Commission,  pursuant to Section
13, 14 or 15(d) of the Exchange Act (the  foregoing  materials  and all exhibits
included  therein and financial  statements and schedules  thereto and documents
(other than exhibits to such documents)  incorporated by reference therein being
collectively  referred to herein as the "SEC  Documents"),  on a timely basis or
has received a valid extension of such time of filing and has filed any such SEC
Documents prior to the expiration of any such extension.  As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and  regulations of the
Commission promulgated  thereunder,  and none of the SEC Documents,  when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated  therein or necessary in order to make the statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading.  The  financial  statements  of the  Company  included  in  the  SEC
Documents   comply  in  all  material   respects  with   applicable   accounting
requirements  and the rules  and  regulations  of the  Commission  with  respect
thereto as in effect at the time of filing. Such financial  statements have been
prepared in accordance with generally accepted accounting  principles applied on
a  consistent  basis  during the  periods  involved  ("GAAP"),  except as may be
otherwise  specified in such  financial  statements  or the notes  thereto,  and
fairly  present in all material  respects the financial  position of the Company
and  its  consolidated  subsidiaries  as of and for the  dates  thereof  and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit adjustments.

                                       6
<PAGE>

     k.  Material  Changes.  Since  the  date of the  latest  audited  financial
statements included within the SEC Documents,  except as specifically  disclosed
in the SEC  Documents,  (i) there has been no event,  occurrence or  development
that has had or that could result in a Material Adverse Effect, (ii) the Company
has not incurred any liabilities  (contingent or otherwise) other than (A) trade
payables  and  accrued  expenses  incurred  in the  ordinary  course of business
consistent  with past practice and (B)  liabilities not required to be reflected
in the  Company's  financial  statements  pursuant  to  GAAP or  required  to be
disclosed in filings made with the Commission, (iii) the Company has not altered
its method of accounting  or the identity of its auditors,  (iv) the Company has
not declared or made any dividend or  distribution  of cash or other property to
its  stockholders  or purchased,  redeemed or made any agreements to purchase or
redeem any shares of its capital  stock,  and (v) the Company has not issued any
equity  securities  to any officer,  director or affiliate,  except  pursuant to
existing  Company stock option plans.  The Company does not have pending  before
the Commission any request for confidential treatment of information.

     l.  Investment  Company.  The Company is not, and is not  controlled  by or
under common  control  with an  affiliate  (an  "Affiliate")  of an  "investment
company" within the meaning of the Investment Company Act of 1940, as amended.

     m. Patents and Trademarks.  The Company and its subsidiaries  have, or have
rights  to  use,  all  patents,  patent  applications,   trademarks,   trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights  that  are  necessary  or  material  for  use in  connection  with  their
respective businesses as described in the SEC Documents and which the failure to
so have could have, or  reasonably be expected to result in, a Material  Adverse
Effect (collectively,  the "Intellectual Property Rights").  Neither the Company
nor any subsidiary has received a written notice that the Intellectual  Property
Rights used by the Company or any  subsidiary  violates  or  infringes  upon the
rights  of any  Person  which if  determined  adversely  to the  Company  would,
individually  or in  the  aggregate  have  a  Material  Adverse  Effect.  To the
knowledge of the Company, all such Intellectual  Property Rights are enforceable
and  there  is no  existing  infringement  by  another  Person  of  any  of  the
Intellectual Property Rights.

     n. Transactions  With Affiliates and Employees.  Except as set forth in SEC
Documents,  none  of the  officers  or  directors  of the  Company  and,  to the
knowledge  of the Company,  none of the  employees of the Company is presently a
party to any  transaction  with the  Company or any  subsidiary  (other than for
services  as  employees,  officers  and  directors),   including  any  contract,
agreement or other  arrangement  providing for the  furnishing of services to or
by,  providing for rental of real or personal  property to or from, or otherwise
requiring payments to or from any officer,  director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee  has a  substantial  interest  or is an officer,  director,  trustee or
partner.

     o. Form S-3 Eligibility.  The Company is eligible to register the resale of
the Underlying  Shares for resale by the Purchasers  under Form S-3  promulgated
under the Securities Act.

                                       7
<PAGE>

     p. Listing and  Maintenance  Requirements.  Except as set forth on Schedule
2.1(p),  the  Company  has not,  in the two  years  preceding  the date  hereof,
received  notice  (written or oral) from the Nasdaq National Market or any other
exchange or market on which the Common  Stock is or has been listed or quoted to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. Except as set forth on Schedule 2.1(p),
the Company is, and has no reason to believe that it will not in the foreseeable
future  continue to be, in  compliance  with all such  listing  and  maintenance
requirements.  The  issuance  and  sale  of the  Preferred  Stock  and  Warrants
hereunder does not contravene the rules and  regulations of the Nasdaq  National
Market and no approval of the  shareholders  of the Company is required  for the
Company to issue and deliver to the Purchasers the number of shares or Preferred
Stock,  the  Conversion  Shares  and the  Warrant  Shares  contemplated  by this
Agreement.

     q. Broker's Fees. No fees or  commissions or similar  payments with respect
to the transactions  contemplated by this Agreement or the Transaction Documents
have been paid or will be payable  by the  Company  to any third  party  broker,
financial advisor, finder,  investment banker, or bank. The Purchaser shall have
no obligation  with respect to any fees or with respect to any claims made by or
on behalf  of other  Persons  for fees of a type  contemplated  in this  Section
2.1(q) that may be due in connection with the transactions  contemplated by this
Agreement and the Transaction Documents.

     r.  Disclosure.  All disclosure  provided to the  Purchasers  regarding the
Company, its business and the transactions  contemplated  hereby,  including the
Schedules to this  Agreement,  furnished by or on behalf of the Company are true
and correct and do not contain any untrue  statement of a material  fact or omit
to state  any  material  fact  necessary  in order to make the  statements  made
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading.

     s. Acknowledgement  Regarding  Purchasers' Purchase of Preferred Stock. The
Company further  acknowledges that no Purchaser is acting as a financial advisor
or  fiduciary of the Company (or in any similar  capacity)  with respect to this
Agreement and the transactions contemplated hereby and any statement made by any
Purchaser or any of their  respective  representatives  or agents in  connection
with this Agreement and the transactions  contemplated hereby is not advice or a
recommendation  and is merely  incidental  to the  Purchasers'  purchase  of the
securities.  The Company further represents to each Purchaser that the Company's
decision to enter into this  Agreement has been based solely on the  independent
evaluation of the Company and its representatives.

     2.2  Representations  and  Warranties  of  the  Purchasers.   Each  of  the
Purchasers,  severally and not jointly,  hereby  represents  and warrants to the
Company as follows:

     a. Organization; Authority. Such Purchaser, as applicable, is a corporation
or a limited  liability  company or limited  partnership  duly  formed,  validly
existing  and in  good  standing  under  the  laws  of the  jurisdiction  of its
incorporation or formation with the requisite power and authority,  corporate or
otherwise, to enter into and to consummate the transactions  contemplated hereby
and by this Agreement and the  Transaction  Documents and otherwise to carry out
its  obligations  hereunder and thereunder.  The purchase by such Purchaser,  as
applicable, of the shares of Preferred Stock and the Warrants hereunder has been
duly authorized by all necessary  action on the part of such Purchaser.  Each of
this  Agreement  and the  Transaction  Documents  has  been  duly  executed  and
delivered  by each  Purchaser  and  constitutes  the valid and  legally  binding
obligation of each Purchaser,  enforceable  against such Purchaser in accordance
with  its  terms,  subject  to  bankruptcy,   insolvency,  fraudulent  transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity and
except that rights to indemnification and contribution may be limited by Federal
or state securities laws or public policy relating thereto.

                                       8
<PAGE>

     b. Investment  Intent.  Such Purchaser is acquiring the shares of Preferred
Stock, the Warrants and the Underlying Shares for its own account and not with a
present view to or for  distributing or reselling the shares of Preferred Stock,
the Warrants or the Underlying Shares or any part thereof or interest therein in
violation of the  Securities  Act.  Nothing  contained  herein shall be deemed a
representation  or warranty by such  Purchaser  to hold the  Preferred  Stock or
Warrants  or  Underlying  Shares  for any  period  of time.  Such  Purchaser  is
acquiring the Preferred Stock,  Warrants and Underlying  Shares hereunder in the
ordinary  course of its business.  Such Purchaser does not have any agreement or
understanding,  directly or indirectly, with any Person to distribute any of the
Preferred Stock, Warrants or Underlying Shares.

     c. Purchaser  Status.  At the time such Purchaser was offered the Preferred
Stock and the  Warrants,  and at the Closing  Date and each date such  Purchaser
exercises Warrants,  (i) it was and will be an "accredited  investor" as defined
in Rule 501 under the  Securities Act and (ii) such  Purchaser,  either alone or
together  with  its   representatives,   had  and  will  have  such   knowledge,
sophistication  and  experience  in business and  financial  matters so as to be
capable of evaluating the merits and risks of the prospective  investment in the
Preferred Stock, the Warrants and the Underlying Shares. Such Purchaser is not a
registered broker-dealer under Section 15 of the Exchange Act.

     d.  Reliance.  Such Purchaser  understands  and  acknowledges  that (i) the
Preferred  Stock,  the Warrants and the Underlying  Shares are being offered and
sold to the Purchaser without registration under the Securities Act in a private
placement that is exempt from the registration  provisions of the Securities Act
under Section 4(2) of the Securities Act or Regulation D promulgated  thereunder
and (ii) the availability of such exemption  depends in part on, and the Company
will rely upon the accuracy and truthfulness of, the  representations  set forth
in this Section 2.2 and such Purchaser hereby consents to such reliance.

     e.  Information.  Such  Purchaser  and  its  advisors,  if any,  have  been
furnished with all materials  relating to the business,  finances and operations
of the Company  and  materials  relating to the offer and sale of the  Preferred
Stock and the  Warrants  which  have been  requested  by such  Purchaser  or its
advisors.  Such  Purchaser  and its  advisors,  if any,  have been  afforded the
opportunity to ask questions of the Company. The Purchaser  understands that its
investment in the Preferred Stock and Warrants involves a significant  degree of
risk.  Neither such  inquiries  nor any other  investigation  conducted by or on
behalf of such Purchaser or its  representatives or counsel shall modify,  amend
or affect such Purchaser's right to rely on the truth, accuracy and completeness
of the Company's  representations and warranties  contained in this Agreement or
the Transaction Documents.

                                       9
<PAGE>

     f. Governmental  Review.  Such Purchaser  understands that no United States
Federal  or state  agency or any other  government  or  governmental  agency has
passed upon or made any  recommendation or endorsement of the Preferred Stock or
Warrants.

     g. Residency.  Such Purchaser is a resident of the  jurisdiction  set forth
immediately beside such Purchaser's name on Schedule I hereto.

     The  Company   acknowledges   and  agrees  that  the  Purchasers   make  no
representations  or  warranties  with respect to the  transactions  contemplated
hereby other than those specifically set forth in this Section 2.2.

                                  ARTICLE III.

                                OTHER AGREEMENTS

     3.1 Transfer Restrictions.

     a. If any Purchaser  should decide to dispose of the Preferred  Stock,  the
Warrants, the Conversion Shares or the Warrant Shares held by it, such Purchaser
understands  and  agrees  that it may do so (1) only  pursuant  to an  effective
registration  statement  under the Securities  Act, (2) pursuant to an available
exemption from the  registration  requirements  of the Securities Act, (3) to an
affiliate of the Purchaser,  or (4) pursuant to Rule 144  promulgated  under the
Securities  Act ("Rule 144").  In connection  with any transfer of any Preferred
Stock, the Warrants, the Conversion Shares or Warrant Shares other than pursuant
to an  effective  registration  statement,  Rule 144,  to the  Company  or to an
affiliate of the Purchasers,  the Company may require the transferor  thereof to
provide to the Company a written  opinion of counsel  experienced in the area of
United States securities laws selected by the transferor, the form and substance
of which  opinion  shall be  customary  for  opinions  of counsel in  comparable
transactions and reasonably  acceptable to the Company,  to the effect that such
transfer does not require registration of such transferred  securities under the
Securities Act;  provided,  however,  that if the Preferred Stock, the Warrants,
the Conversion  Shares or Warrant Shares may be sold pursuant to Rule 144(k), no
written  opinion  of  counsel  shall  be  required  from any  Purchaser  if such
Purchaser provides reasonable assurances that such security can be sold pursuant
to Rule 144(k).  Notwithstanding  the foregoing,  the Company hereby consents to
and agrees to register  any  transfer by any  Purchaser  to an affiliate of such
Purchaser,  provided that the transferee  certifies to the Company that it is an
"accredited  investor" as defined in Rule 501(a) under the  Securities  Act. Any
such  transferee  shall  agree  in  writing  to be  bound  by the  terms of this
Agreement and the Transaction Documents and shall have the rights of a Purchaser
under this  Agreement  and the  Transaction  Documents.  The  Company  shall not
require an opinion of counsel in  connection  with the transfer of the shares of
Common Stock,  the Preferred Stock,  the Warrant,  the Conversion  Shares or the
Warrant Shares to an affiliate of a Purchaser.

     b. The Purchasers  agree to the imprinting,  so long as is required by this
Section 3.1(b),  of the following  legend on the Preferred  Stock, the Warrants,
the Conversion Shares and the Warrant Shares:

                                       10
<PAGE>

                     THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
            REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
            SECURITIES COMMISSION OF ANY STATE 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 AND IN
            ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED
            BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH
            EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE
            TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION
            WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
            SHARES.

     Neither the Preferred Stock, the Warrant,  the Conversion  Shares,  nor the
Warrant  Shares shall  contain the legend set forth above (or any other  legend)
(i) while a  registration  statement  covering  the resale of such  security  is
effective under the Securities Act, (ii) if in the written opinion of counsel to
the Company experienced in the area of United States securities laws such legend
is not required under  applicable  requirements of the Securities Act (including
judicial   interpretations  and  pronouncements  issued  by  the  staff  of  the
Commission)  or (iii) if such  Preferred  Stock,  the Warrants,  the  Conversion
Shares or the Warrant  Shares may be sold  pursuant to Rule 144(k).  The Company
agrees that it will provide any Purchaser,  upon request,  with a certificate or
certificates representing shares of Preferred Stock, the Warrant, the Conversion
Shares or the Warrant Shares,  free from such legend at such time as such legend
is no  longer  required  hereunder.  If such  certificate  or  certificates  had
previously  been  issued  with such a legend or any other  legend,  the  Company
shall,  upon  request  and upon the  delivery  of the  legended  certificate(s),
reissue such certificate or certificates free of any legend.

     3.2 Stop Transfer Instruction. The Company may not make any notation on its
records or give  instructions to any transfer agent of the Company which enlarge
the restrictions on transfer set forth in Section 3.1.

     3.3 Listing and Reservation of Underlying Shares.

     a. The Company  shall (i) not later than ten (10)  business  days after the
Closing  Date  prepare  and file  with  Nasdaq  (as well as any  other  national
securities  exchange  or  market  on which  the  Common  Stock  is then  listed)
additional shares listing  applications or letters acceptable to Nasdaq covering
and  listing a number of shares of Common  Stock which is at least equal to 100%
the maximum number of Underlying Shares then issuable, assuming that the payment
of all future  dividends on such shares then  outstanding were made in shares of
Common Stock, (ii) take all steps necessary to cause the Underlying Shares to be
approved  for  listing  on Nasdaq (as well as on any other  national  securities
exchange or market on which the Common Stock is then listed) as soon as possible
thereafter, (iii) maintain, so long as any other shares of Common Stock shall be
so listed,  such listing of all such Underlying  Shares, and (iv) provide to the
Purchasers  evidence  of  such  listing.  Prior  to  the  effectiveness  of  the
Registration  Statement,  the Company shall  promptly  provide to each Purchaser
copies  of  any  notices  it  receives  from  Nasdaq   regarding  the  continued
eligibility of the Common Stock for listing on such automated  quotation system.
The Company shall pay all fees and expenses in connection  with  satisfying  its
obligations under this Section 3.3(a).

                                       11
<PAGE>

     b. The Company at all times shall reserve a sufficient  number of shares of
its authorized but unissued  Common Stock to provide for the full  conversion of
the  Preferred  Stock and the  Warrants.  If at any time the number of shares of
Common Stock  authorized and reserved for issuance is  insufficient to cover the
number of  Conversion  Shares  and  Warrant  Shares  issued  and  issuable  upon
conversion  of the  Preferred  Stock or exercise  of the  Warrant  (based on the
Exercise Price (as defined in the Warrant) of the Warrant in effect from time to
time) without regard to any limitation on conversions or exercises,  the Company
will promptly take all corporate  action necessary to authorize and reserve such
shares including, without limitation,  calling a special meeting of stockholders
to authorize  additional  shares to meet the  Company's  obligations  under this
Section 3.3(b), in the case of an insufficient  number of authorized shares, and
using  best  efforts  to obtain  stockholder  approval  of an  increase  in such
authorized number of shares.

     3.4 Furnishing of Information.  As long as any Purchaser owns the Preferred
Stock, the Warrants,  the Conversion  Shares or the Warrant Shares,  the Company
will cause the Common  Stock to  continue  at all times to be  registered  under
Section 12 of the Exchange Act or subject to Section  15(d) of the Exchange Act,
will timely file (or obtain  extensions  in respect  thereof and file within the
applicable  grace period) all reports  required to be filed by the Company after
the date hereof pursuant to Section 13, 14 or 15(d) of the Exchange Act and will
not take any  action  or file any  document  (whether  or not  permitted  by the
Exchange Act or the rules thereunder) to terminate or suspend such reporting and
filing  obligations.  As long as any  Purchaser  owns the Preferred  Stock,  the
Warrants,  the Conversion  Shares or the Warrant  Shares,  if the Company is not
required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act,
it will prepare and furnish to the  Purchasers  and make  publicly  available in
accordance  with Rule 144(c)  promulgated  under the  Securities  Act annual and
quarterly financial statements,  together with a discussion and analysis of such
financial statements in form and substance  substantially  similar to those that
would otherwise be required to be included in reports  required by Section 13(a)
or 15(d) of the Exchange Act, as well as any other information required thereby,
in the time period that such filings  would have been required to have been made
under the Exchange  Act. The Company  further  covenants  that it will take such
further  action  as the  holders  of a  majority  of the  Preferred  Stock,  the
Warrants,  the Conversion  Shares or the Warrant Shares may reasonably  request,
all to the extent  required  from time to time to enable such Person to sell the
Preferred  Stock,  the Warrants,  the Conversion  Shares,  or the Warrant Shares
without  registration  under the  Securities  Act within the  limitation  of the
exemptions  provided by Rule 144 promulgated under the Securities Act, including
the legal opinion  referenced  above in Section 3.1(b).  Upon the request of any
such Person, the Company shall deliver to such Person a written certification of
a duly authorized officer as to whether it has complied with such requirements.

                                       12
<PAGE>

     3.5  Integration.  The Company shall not, and shall use its best efforts to
ensure that no affiliate of the Company shall,  sell,  offer for sale or solicit
offers to buy or  otherwise  negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the shares of Preferred  Stock  hereunder in a manner that would  require the
registration  under the Securities Act of the sale of the shares Preferred Stock
to the  Purchasers,  or that would be  integrated  with the offer or sale of the
Preferred Stock for purposes of the rules and regulations of the Nasdaq National
Market,  if such  integration  would  result in a violation  of any such rule or
regulation.

     3.6 Non-Public Information.  Purchasers acknowledge that they may have been
provided  material  non-public  information in connection with the  transactions
contemplated  hereby and that trading in  securities of the Company while in the
possession  of material  non-public  information  is  prohibited  by the federal
securities laws.  Subject to compliance with all applicable  securities laws and
Nasdaq  regulations,  no  Purchaser  shall be  prohibited  by the  Company  from
engaging in its ordinary course  brokerage and trading  activities in respect of
the  Company's  Common  Stock;  provided  that  the  personnel  engaged  in such
activities have not been involved with the transactions  contemplated hereby and
have not  been  provided  with  confidential  information  with  respect  to the
Company.  No  Purchaser  shall engage in any trading  activity in the  Company's
securities in violation of Regulation M under the Exchange Act.

     3.7 Use of Proceeds.  The Company  shall use the net proceeds from the sale
of the shares of Common Stock hereunder for working capital purposes.

     3.8 Best Efforts.  Each of the parties hereto shall use its best efforts to
satisfy each of the  conditions  to be satisfied by it as provided in Article IV
of this Agreement.

     3.9  Form  D.  The  Company  agrees  to file a Form D with  respect  to the
Preferred  Stock and Warrants as required by Rule 506 under  Regulation D and to
provide a copy thereof to each Purchaser promptly after such filing.

     3.10 Corporate Existence.  Until such time as all of the Purchasers provide
the Company with written notice that they do not  beneficially own any shares of
Preferred Stock or Warrants,  the Company shall maintain its corporate existence
and shall not sell all or substantially all of the Company's  assets,  except in
the event of a merger or consolidation  or sale of all or  substantially  all of
the  Company's  assets,   where  the  surviving  or  successor  entity  in  such
transaction  (i)  assumes  the  Company's  obligations  hereunder  and under the
agreements  and  instruments  entered into in connection  herewith and (ii) is a
publicly  traded  corporation  whose  common  stock is listed for trading on the
Nasdaq, the New York Stock Exchange or the American Stock Exchange.

                                       13
<PAGE>

                                  ARTICLE IV.

                                   CONDITIONS

     4.1 Closing.

     a. Conditions Precedent to the Obligation of the Company to Sell the Shares
of Preferred  Stock and the Warrants.  The obligation of the Company to sell the
shares of  Preferred  Stock and the Warrants is subject to the  satisfaction  or
waiver by the Company,  at or before the Closing  Date, of each of the following
conditions:

     (i)  Accuracy  of  the  Purchasers'  Representations  and  Warranties.  The
representations and warranties of each Purchaser in this Agreement shall be true
and  correct  in all  material  respects  as of the date when made and as of the
Closing Date;

     (ii)  Performance by the  Purchasers.  Each Purchaser shall have performed,
satisfied and complied in all material  respects with all covenants,  agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by such Purchaser at or before the Closing Date;

     (iii) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted,  entered,  promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the  consummation of any of the  transactions  contemplated by this Agreement or
the Transaction Documents;

     (iv) Required  Approvals.  All Required Approvals shall have been obtained;
and

     (v)  Agreement  of  Preferred  Stockholders.  The holders of the  Company's
Series A1 Preferred  Stock and Series B1 Preferred Stock shall have executed and
delivered a waiver and consent agreement  substantially in the form of Exhibit D
annexed hereto.

     b. Conditions Precedent to the Obligation of the Purchasers to Purchase the
Shares of Preferred  Stock and Warrants at the Closing.  The  obligation of each
Purchaser hereunder to acquire and pay for the shares of Preferred Stock and the
Warrants at the Closing is subject to the  satisfaction  or waiver by Purchaser,
at or before the Closing Date, of each of the following conditions:

     (i)  Accuracy  of  the  Company's   Representations  and  Warranties.   The
representations  and warranties of the Company set forth in this Agreement shall
be true and  correct  in all  respects  as of the date  when  made and as of the
Closing Date;

     (ii)  Performance  by  the  Company.  The  Company  shall  have  performed,
satisfied  and  complied in all  respects  with all  covenants,  agreements  and
conditions  required by this  Agreement to be  performed,  satisfied or complied
with by the Company at or before the Closing Date;

     (iii) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted,  entered,  promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the  transactions  contemplated by this Agreement and
the Transaction Documents;

     (iv) Required Approvals. All Required Approvals shall have been obtained;

                                       14
<PAGE>

     (v)  Agreement  of  Preferred  Stockholders.  The holders of the  Company's
Series A1 Preferred  Stock and Series B1 Preferred Stock shall have executed and
delivered a waiver and consent agreement  substantially in the form of Exhibit D
annexed hereto; and

     (vi) Shares of Capital  Stock.  The Company  shall have duly  reserved  the
number of shares of Preferred  Stock,  the number of  Conversion  Shares and the
number or Warrant Shares issuable upon the exercise of the Warrants  acquired by
the Purchasers on the Closing Date.

     c.  Documents  and  Certificates.  At the Closing,  the Company  shall have
delivered to the  Purchasers,  the  following in form and  substance  reasonably
satisfactory to the Purchasers:

     (i) Opinion. An opinion of the Company's legal counsel in the form attached
hereto as Exhibit E dated as of the Closing Date;

     (ii)  Preferred  Stock  Certificate.   A  Preferred  Stock   Certificate(s)
representing the number of shares of Preferred Stock purchased by such Purchaser
as set forth next to such Purchaser's name on Schedule I, registered in the name
of such Purchaser, each in form satisfactory to the Purchaser;

     (iii) Warrant.  A Warrant(s)  representing  the Warrants  purchased by such
Purchaser as set forth next to such  Purchaser's  name on Schedule I, registered
in the name of such Purchaser;

     (iv) Registration Rights. The Company shall have executed and delivered the
Registration Rights Agreement;

     (v) Officer's Certificate.  An Officer's Certificate dated the Closing Date
and signed by an executive officer of the Company confirming the accuracy of the
Company's  representations and warranties as of such Closing Date and confirming
the  compliance by the Company with the  conditions  precedent set forth in this
Section 4.1(c) as of the Closing Date;

     (vi) Secretary's  Certificate.  A Secretary's Certificate dated the Closing
Date  and  signed  by the  Secretary  or  Assistant  Secretary  of  the  Company
certifying  (A)  that  attached  thereto  is a true  and  complete  copy  of the
Certificate of Incorporation  of the Company,  as in effect on the Closing Date,
(B) that  attached  thereto is a true and  complete  copy of the  by-laws of the
Company,  as in effect on the Closing  Date and (C) that  attached  thereto is a
true and complete copy of the Resolutions duly adopted by the Board of Directors
of the Company  authorizing  the  execution,  delivery and  performance  of this
Agreement and of the Transaction  Documents,  and that such Resolutions have not
been modified, rescinded or revoked;

     (vii)  Transfer  Agent  Letter.  The Company  shall have  delivered to each
Purchaser a letter from the Company's  transfer  agent  certifying the number of
shares of Common Stock  outstanding as of a date within five days of the Closing
Date; and

                                       15
<PAGE>

     (viii) Other Documents.  The Company shall have delivered to each Purchaser
such  other  documents   relating  to  the  transactions   contemplated  by  the
Transaction Documents as the Purchasers or its counsel may reasonably request.

                                   ARTICLE V.

                                 INDEMNIFICATION

     5.1 Indemnification. The Company will indemnify and hold the Purchasers and
their directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses,  liabilities,  obligations,
claims,  contingencies,  damages,  costs and expenses,  including all judgments,
amounts paid in  settlements,  court costs and  reasonable  attorneys'  fees and
costs of  investigation  that any such Purchaser  Party may suffer or incur as a
result of or relating to (a) any misrepresentation, breach or inaccuracy, or any
allegation  by a third  party  that,  if true,  would  constitute  a  breach  or
inaccuracy, of any of the representations,  warranties,  covenants or agreements
made by the Company in this Agreement or in the other Transaction Documents;  or
(b) any cause of action,  suit or claim  brought or made against such  Purchaser
Party  and  solely  arising  out of or  solely  resulting  from  the  execution,
delivery,  performance  or  enforcement  of this  Agreement  or any of the other
Transaction  Documents.  The  Company  will  reimburse  such  Purchaser  for its
reasonable  legal and other expenses  (including the cost of any  investigation,
preparation  and  travel  in  connection   therewith)   incurred  in  connection
therewith,  as such expenses are incurred.  Notwithstanding  the foregoing,  the
Company shall not be required to indemnify any the Purchaser  under the terms of
this Article V with respect to any claim or violation for which  indemnification
is expressly excluded under the Registration Rights Agreement.

                                   ARTICLE VI.

                                  MISCELLANEOUS

     6.1 Entire  Agreement.  This  Agreement,  together  with the  Exhibits  and
Schedules hereto and the Transaction  Documents contain the entire understanding
of the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters.

     6.2  Notices.  Whenever  it is provided  herein  that any  notice,  demand,
request, consent,  approval,  declaration or other communication shall or may be
given to or served upon any of the parties by  another,  or whenever  any of the
parties  desires  to give or serve  upon  another  any such  communication  with
respect to this Agreement, each such notice, demand, request, consent, approval,
declaration  or other  communication  shall be in writing  and  either  shall be
delivered  in person with receipt  acknowledged  or by  registered  or certified
mail, return receipt requested, postage prepaid, or by telecopy and confirmed by
telecopy answerback addressed as follows:

                                       16
<PAGE>

                  If to the Company:

                                    Level 8 Systems, Inc.
                                    8000 Regency Parkway
                                    Cary, North Carolina 27511
                                    Attn:   John P. Broderick
                                    Facsimile: (919) 380-5090

                  With a Copy to:

                                    Powell, Goldstein, Frazer & Murphy LLP
                                    191 Peachtree Street, 16th Floor
                                    Atlanta, Georgia 30303
                                    Attn:   Scott D. Smith, Esq.
                                    Facsimile: (404) 572-6999

     If to the Purchasers: To the address set forth on the counterpart signature
page of such  Purchaser or at such other address as may be substituted by notice
given as herein provided.

The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice. Every notice, demand, request, consent,
approval, declaration or other communication hereunder shall be deemed to have
been duly given and effective on the earliest of (a) the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
number specified in this Section prior to 6:30 p.m. (New York City time) on a
business day, (b) the next business day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a business day or later than 6:30
p.m. (New York City time) on any business day, (c) the business day following
the date of mailing, if sent by U.S. nationally recognized overnight courier
service, or (d) upon actual receipt by the party to whom such notice is required
to be given. As used herein, a "business day" means any day except Saturday,
Sunday and any day which shall be a federal legal holiday or a day on which
banking institutions in the State of New York are authorized or required by law
or other governmental action to close.

     6.3  Amendments;  Waivers.  No provision of this Agreement may be waived or
amended except in a written instrument  signed, in the case of an amendment,  by
both the Company and each of the Purchasers or, in the case of a waiver,  by the
party against whom  enforcement  of any such waiver is sought.  No waiver of any
default  with  respect  to any  provision,  condition  or  requirement  of  this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other  provision,  condition or requirement  hereof,  nor shall any delay or
omission of either  party to exercise any right  hereunder in any manner  impair
the exercise of any such right accruing to it thereafter.

     6.4  Headings.  The  headings  herein  are  for  convenience  only,  do not
constitute a part of this  Agreement  and shall not be deemed to limit or affect
any of the provisions hereof.

     6.5  References.  References  herein to  Sections  are to  Sections of this
Agreement, unless otherwise expressly provided.

                                       17
<PAGE>

     6.6 Successors and Assigns;  Assignability.  Neither this Agreement nor any
right,  remedy,  obligation or liability  arising  hereunder or by reason hereof
shall be  assignable by either the Company or the  Purchasers  without the prior
written  consent of the other party,  which  consent  shall not be  unreasonably
withheld.  In the event that such prior  written  consent is  obtained  and this
Agreement is assigned by either party, all covenants contained herein shall bind
and inure to the benefit of the parties hereto and their  respective  successors
and assigns.

     6.7 No  Third-Party  Beneficiaries.  This  Agreement  is  intended  for the
benefit of the parties  hereto and their  respective  permitted  successors  and
assigns and is not for the benefit of, nor may any provision  hereof be enforced
by, any other Person.

     6.8  Governing  Law;  Waiver of Jury Trial.  All questions  concerning  the
construction,  validity,  enforcement and interpretation of this Agreement shall
be governed by and construed  and enforced in accordance  with the internal laws
of the State of New York,  without  regard to the principles of conflicts of law
thereof. Each party agrees that all proceedings  concerning the interpretations,
enforcement and defense of the  transactions  contemplated by this Agreement and
any other Transaction  Documents  (whether brought against a party hereto or its
respective affiliates,  directors, officers, shareholders,  employees or agents)
(each a  "Proceeding")  shall be commenced  exclusively in the state and federal
courts sitting in the City of New York, Borough of Manhattan.  Each party hereto
hereby  irrevocably  submits  to the  exclusive  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 (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives,  and  agrees not to assert in any  Proceeding,  any claim that it is not
personally  subject to the jurisdiction of any such court,  that such Proceeding
is improper.  Each party hereto hereby  irrevocably  waives personal  service of
process and consents to process being served in any such Proceeding by mailing a
copy thereof via  registered  or  certified  mail or  overnight  delivery  (with
evidence of  delivery)  to such party at the address in effect for notices to it
under this  Agreement  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 hereto  hereby  irrevocably  waives,  to the fullest  extent
permitted  by  applicable  law,  any and all right to trial by jury in any legal
proceeding  arising  out of or relating to this  Agreement  or the  transactions
contemplated  hereby. If either party shall commence a Proceeding to enforce any
provisions  of a  Transaction  Document,  then  the  prevailing  party  in  such
Proceeding  shall be reimbursed  by the other party for its  attorneys  fees and
other  costs and  expenses  incurred  with the  investigation,  preparation  and
prosecution of such Proceeding.

     6.9 Survival.  The  representations,  warranties,  agreements and covenants
contained herein shall survive following the Closing.

     6.10 Execution; Counterparts. This Agreement may be executed in two or more
counterparts,  all of which when taken  together shall be considered one and the
same agreement and shall become effective when  counterparts have been signed by
each party and  delivered  to the other  party,  it being  understood  that both
parties need not sign the same  counterpart.  In the event that any signature is
delivered by facsimile  transmission,  such  signature  shall create a valid and
binding  obligation of the party executing (or on whose behalf such signature is
executed)  with the same force and effect as if such  facsimile  signature  page
were an original thereof.

                                       18
<PAGE>

     6.11  Publicity.  The Purchasers  shall not issue any press release or make
any public disclosure regarding the transactions contemplated hereby unless such
press  release or public  disclosure  is  approved  by the  Company in  advance.
Notwithstanding  the  foregoing,  each of the parties  hereto may, in  documents
required to be filed by it with the SEC or other  regulatory  bodies,  make such
statements with respect to the transactions  contemplated  hereby as each may be
advised  by  counsel  is  legally  necessary  or  advisable,  and may make  such
disclosure  as it is advised by its counsel is required  by law.  Company  shall
give Purchasers the opportunity to review any statements prior to their release.

     6.12  Severability.  In case  any one or  more  of the  provisions  of this
Agreement  shall be invalid or  unenforceable  in any respect,  the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable  provision  which shall be a reasonable  substitute
therefor,  and upon so agreeing,  shall incorporate such substitute provision in
this Agreement.

     6.13 Further  Assurances.  Each party shall do and perform,  or cause to be
done and  performed,  all such  further acts and things,  and shall  execute and
deliver all such other agreements,  certificates,  instruments and documents, as
the other  party may  reasonably  request  in order to carry out the  intent and
accomplish  the  purposes  of  this  Agreement  and  the   consummation  of  the
transactions contemplated hereby.

     6.14  Replacement  of  Certificates.   If  any  certificate  or  instrument
evidencing  any  shares  of  Preferred  Stock  is  mutilated,  lost,  stolen  or
destroyed,  the  Company  shall  issue or cause to be  issued  in  exchange  and
substitution for and upon cancellation  thereof,  or in lieu of and substitution
therefor,  a new  certificate or  instrument,  but only upon receipt of evidence
reasonably  satisfactory  to the Company of such loss,  theft or destruction and
customary and  reasonable  indemnity,  if requested.  The  applicants  for a new
certificate or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement shares.

     6.15 Payment Set Aside.  To the extent that the Company  makes a payment or
payments to the Purchasers hereunder or pursuant to the Transaction Documents or
the  Purchasers  enforce or exercise their rights  hereunder or thereunder,  and
such payment or payments or the proceeds of such  enforcement or exercise or any
part thereof are subsequently invalidated,  declared fraudulent or preferential,
set aside,  recovered from, disgorged by or are required to be refunded,  repaid
or otherwise  restored to the Company,  a trustee,  receiver or any other Person
under any law  (including,  without  limitation,  any  bankruptcy  law, state or
federal law, common law or equitable cause of action), then to the extent of any
such  restoration  the  obligation  or part  thereof  originally  intended to be
satisfied  shall be revived  and  continued  in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.

                                       19
<PAGE>

     6.16  Remedies.  In  addition  to being  entitled  to  exercise  all rights
provided herein or granted by law,  including  recovery of damages,  each of the
Purchasers and the Company will be entitled to specific  performance  under this
Agreement or the Transaction Documents.  The parties agree that monetary damages
may not be adequate  compensation  for any loss incurred by reason of any breach
of obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific  performance  of any such  obligation the defense that a
remedy at law would be adequate.

     6.17  Independent  Nature  of  Purchasers'   Obligations  and  Rights.  The
obligations of each Purchaser under this Agreement or any  Transaction  Document
are several and not joint with the  obligations of any other  Purchaser,  and no
Purchaser shall be responsible in any way for the performance of the obligations
of any other Purchaser under this Agreement or any Transaction Document. Nothing
contained  herein or in any  Transaction  Document,  and no action  taken by any
Purchaser  pursuant  thereto,  shall be deemed to constitute the Purchasers as a
partnership,  an  association,  a joint venture or any other kind of entity,  or
create a presumption  that the Purchasers are in any way acting in concert or as
a group with respect to such  obligations or the  transactions  contemplated  by
this Agreement or any the Transaction Document. Each Purchaser shall be entitled
to independently  protect and enforce its rights,  including without  limitation
the  rights  arising  out of  this  Agreement  or out of the  other  Transaction
Documents, and it shall not be necessary for any other Purchaser to be joined as
an additional party in any proceeding for such purpose.

     6.18 Fees and  Expenses.  Except as set  forth in the  Registration  Rights
Agreement, each party shall pay the fees and expenses of its advisers,  counsel,
accountants and other experts,  if any, and all other expenses  incurred by such
party  incident  to  the  negotiation,   preparation,  execution,  delivery  and
performance  of this  Agreement;  provided,  however,  that  the  Company  shall
reimburse  Brown  Simpson  Partners  I, Ltd.  at the Closing for actual fees and
expenses of its counsel.

     6.19  Understanding  Among  the  Purchasers.  It is  acknowledged  by  each
Purchaser  that no  Purchaser  has acted as an agent of any other  Purchaser  in
connection  with making its investment  hereunder and that no Purchaser shall be
acting as an agent of any other  Purchaser in  connection  with  monitoring  its
investment hereunder. It is further acknowledged by each of the other Purchasers
that Brown Simpson  Partners I, Ltd. has retained Akin, Gump,  Strauss,  Hauer &
Feld,  L.L.P.  ("Akin  Gump")  to act as its  counsel  in  connection  with  the
transactions  contemplated hereby and under the other Transaction  Documents and
that Akin  Gump has not acted as  counsel  for any of the  other  Purchasers  in
connection  therewith and that none of the other Purchasers have the status of a
client of Akin Gump for  conflict  of  interest  or other  purposes  as a result
thereof.

                                       20
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized persons as
of the day and year first above written.

                                 LEVEL 8 SYSTEMS, INC.

                                 By:
                                       -----------------------------------------
                                       John P. Broderick
                                       Chief Financial and Operating Officer,
                                       Corporate Secretary

                                 PURCHASERS:

                                 [COUNTERPART SIGNATURE PAGES FOLLOW]

                                       21
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized persons as
of the day and year first above written.

                          PURCHASER

                                   (Name of Purchaser)

                          By:
                              -------------------------------------------------
                                   (Signature of Purchaser(s))

                          Name:
                                   --------------------------------------------
                                   (Name of Signatory if Purchaser is an Entity)

                          Title:
                                 ----------------------------------------------
                                   (if Purchaser is an Entity)

                          Purchase Price: $____________

                          Address for Notice:

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

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

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

                          With a copy to:

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

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

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

                                       22

<PAGE>

<TABLE>
<CAPTION>

                                   SCHEDULE I

                                                         Number of Shares of         Number of Shares
Name and                                                   Preferred Stock              Underlying
Address of Purchaser                   Residence           at Closing Date               Warrants              Purchase Price
--------------------                   ---------           ---------------               --------              --------------

<S>                                                                <C>                    <C>                     <C>
Fred Mack                              New Jersey                  150                    98,684                  $150,000
2115 Linwood Ave
Fort Lee, NJ 07024

Scott Lustgarden                       Pennsylvania                 25                    16,447                  $25,000
418 Hillbrook Road
Bryn Mawr, PA 19010

Marvin Bank                            Pennsylvania                 25                    16,447                  $25,000
The Rittenhouse
210 West Rittenhouse, #2502
Philadelphia, PA 19103

Bruce Miller                           Massachusetts                50                    32,895                  $50,000
c/o Signet Management
45 Sparks Ave
Nantucket, MA 02554-3951

Sandra Grodko                          New Jersey                  100                    65,789                  $100,000
596 South Forest Drive
Teaneck, NJ 07666

Jeffrey Grodko                         New York                     25                    16,447                  $25,000
1865 East 28th St
Brooklyn, NY 11229

Christine Shipman                      California                   25                    16,447                  $25,000
1 Wilton Place
Rancho Mirage, CA 92270

Leonard Gronstein                      New Jersey                   50                    32,895                  $50,000
665 South Forest
Teaneck, NJ 07666

Ike Dweck                              New Jersey                   25                    16,447                  $25,000
46 Ocean Ave
Deal, NJ 07723

Brown Simpson Partners I, Ltd.         New York                    175                   115,132                  $175,000
152 West 57th Street, 40th Floor
New York, New York 10029

Liraz Systems Ltd.                     Israel                      125                    82,237                  $125,000
3 Azrieli Center
Tel Aviv, Israel, 67023

Mark and Carolyn  Landis               Florida                     100                    65,789                  $100,000
251 Crandon Boulevard, Ste. #161
Key Biscayne, Florida 33149

Natwar Shah                            New York                    140                    92,105                  $140,000
589 5th Ave
New York, New York 10017

Murray Forman                          New York                    150                    98,684                  $150,000
291 Ocean Ave
Lawrence, NY 11559

Irving Forman                          New York                     50                    32,895                  $50,000
802 Westwood Avenue
Staten Island, NY 10314

Michael Weiss                          New York                     40                    26,316                  $40,000
25 Cedarhurst Ave
Lawrence, NY 11559

Anthony C. Pizi                        New Jersey                  150                    98,684                  $150,000
16 Blackhawk Court
Princeton Junction, NJ 08550.

Richard Nager                          Connecticut                  50                    32,895                  $50,000
65 North Park Ave
Easton, CT 066612

Robert Vegh                            New York                     25                    16,447                  $25,000
51 East 42nd Street
New York, New York 10017

Frank Tamberelli                       North Carolina               10                    6,579                   $10,000
2513 Arbroath Trace
Gastonia, NC, 28054

Mark Feder                             New York                     25                    16,447                  $25,000
37 Harborview West
Lawrence, New York 11559

Haines Family Associates LP            New Jersey                   50                    32,895                  $50,000
c/o ThinkCentric
3680 Route 9 South
Freehold, NJ 07728

Sidney Gable                           New York                     25                    16,477                  $25,000
111 Joseph Ave, Staten Island, NY,
NY 10314 SS# ###-##-####
</TABLE>
<PAGE>

                                                                      Exhibit A

                      [Form of Certificate of Designation]

<PAGE>

                                                                      Exhibit B

                                [Form of Warrant]

<PAGE>

                                                                      Exhibit C

                         [Registration Rights Agreement]

<PAGE>

                                                                      Exhibit D

             [Form of Consent and Waiver of Preferred Stockholders]

<PAGE>

                                                                      Exhibit E
                         [Form of Company Legal Opinion]

The Purchasers listed on Schedule I to the Purchase Agreement (as defined below)

Ladies and Gentlemen:

         We have represented Level 8 Systems, Inc., a Delaware corporation (the
"Company"), in connection with the Securities Purchase Agreement, dated as of
August __, 2002 (the "Purchase Agreement"), by and among the Company and the
Purchasers listed on Schedule I to the Purchase Agreement (the "Purchasers"). We
have also represented the Company in connection with the Certificate of
Designation, the Registration Rights Agreement and the Warrants (together with
the Purchase Agreement, the "Transaction Documents"). This opinion is delivered
pursuant to Section 4.1(c)(i) of the Purchase Agreement. Except as otherwise
indicated, capitalized terms used herein are defined as set forth in the
Purchase Agreement.
In connection with this opinion, we have assumed the accuracy and completeness
of all documents and records that we have reviewed, the genuineness of all
signatures other than those of the Company, the authenticity of the documents
submitted to us as originals and the conformity to authentic original documents
of all documents submitted to us as certified, conformed or reproduced copies.
We have further assumed that:

     A. All natural  persons  involved in the  transactions  contemplated by the
Transaction  Documents  (the  "Transactions")  have  sufficient  power and legal
capacity to enter into and perform their respective  obligations  thereunder and
to carry out their roles in the Transactions.

     B.  Each  entity  which  is a party  to the  Transactions,  other  than the
Company,  has been duly  organized and is validly  existing and in good standing
under  its   jurisdiction   of   organization,   with  the  corporate  or  other
organizational power to perform its obligations under the Transaction Documents,
that each of such entities has all  requisite  power and authority to enter into
and  perform  under  the  Transaction  Documents,  and  that  each  party to the
Transactions other than the Company (collectively, the "Other Parties") has duly
authorized, executed and delivered each document to which they are a party.

     C.  Each  Other  Party  has  satisfied  all  legal  requirements  that  are
applicable to it to the extent  necessary to make the  Transaction  Documents to
which  it is a party to be  enforceable  against  it in  accordance  with  their
respective terms.

     D.  The  conduct  of the  parties  to the  Transactions  complies  with any
applicable requirement of good faith, fair dealing and conscionability.

     E. The Company holds the requisite  title (both legal and  beneficial)  and
rights to any property involved in the Transactions.

     F.  There  has not been any  mutual  mistake  of fact or  misunderstanding,
fraud, duress or undue influence.

     G. All  statutes,  judicial  and  administrative  decisions,  and rules and
regulations of governmental  agencies,  applicable to this opinion are generally
available to lawyers practicing in the State of Georgia and are in a format that
makes legal research reasonably feasible.

     In connection  with this opinion,  we have examined such corporate  records
and other  documents  and have made such  examinations  of law as we have deemed
necessary.  In rendering this opinion,  as to questions of fact material to this
opinion, we have relied to the extent we have deemed such reliance  appropriate,
without  investigation,  on certificates  and other  communications  from public
officials  and   certificates   from  officers  of  the  Company,   and  on  the
representations and warranties of the Company and the Other Parties set forth in
the Transaction Documents and the schedules and certificates  delivered pursuant
thereto.

     Wherever we indicate  that our opinion  with  respect to the  existence  or
absence of facts is based on our  knowledge,  our opinion is based solely on the
current actual  knowledge of factual matters that the attorneys in this firm who
are representing  the Company in connection with the  Transactions  recognize as
being  relevant to the opinions or  confirmations  being  rendered,  and we have
conducted no independent  investigation  of factual  matters in connection  with
this  opinion.  The  opinions  set forth  below  are  subject  to the  following
limitations and qualifications:

(1)  the  effects  of  bankruptcy,  insolvency,  reorganization,   receivership,
     moratorium  and other  similar  laws  affecting  the rights and remedies of
     creditors generally;

(2)  the effects of general principles of equity,  whether applied by a court of
     law or equity,  with  respect to the  performance  and  enforcement  of the
     Transaction Documents;

(3)  the  effect  and  possible   unenforceability  of  contractual   provisions
     providing for choice of governing laws;

(4)  we express no opinion as to the effect of any federal (except to the extent
     provided herein) or state securities laws or blue sky laws;

(5)  we  express no opinion  as to the  enforceability  of any  non-competition,
     non-solicitation  or  confidentiality  covenant  in any of the  Transaction
     Documents;

(6)  we  express  no  opinion  as to  patent,  copyright,  trademark  and  other
     intellectual property law;

(7)  we express no opinion as to the  possible  unenforceability  of  provisions
     providing for the  modification of an agreement  without the consent of all
     of the parties to such agreement;

(8)  we express no opinion as to the  possible  unenforceability  of  provisions
     providing for the jurisdiction of courts,  venues of actions, the waiver of
     any party's rights to a trial by jury, or in certain cases, notices;

(9)  we express no opinion as to fraudulent conveyance,  usury laws, or taxation
     laws;

(10) we express no opinion as to the  possible  unenforceability  of  provisions
     providing for  indemnification  and  contribution  for liabilities  arising
     under federal or state securities laws;

(11) we express no opinion as to the  possible  unenforceability  of  provisions
     imposing  increased payments or charges or providing for liquidated damages
     to  the  extent  any  such   provisions  are  deemed  to  be  penalties  or
     forfeitures; and

(12) we express no opinion as to the  possible  unenforceability  of  provisions
     that enumerated remedies are not exclusive or that a party has the right to
     pursue multiple  remedies  without regard to the other remedies  elected or
     that all remedies are cumulative.

     Based upon and subject to the foregoing,  and to the further qualifications
and limitations set forth below, it is our opinion that:

1.   The Company is duly  incorporated as a corporation and is validly  existing
     and in good standing under the laws of the State of Delaware.

2.   The Company has all requisite  corporate power and authority to (a) own and
     use its properties,  (b) conduct its business as presently  conducted,  (c)
     execute and deliver the Transaction  Documents,  to perform its obligations
     thereunder and to consummate the  Transactions,  and (d) to issue, sell and
     deliver the  Preferred  Stock,  the Warrants  and the  Reserved  Shares (as
     described in paragraph 8 below).

3.   The execution,  delivery and  performance by the Company of the Transaction
     Documents have been duly authorized by all requisite  corporate  action and
     the  Company  has  duly  executed  and  delivered  each of the  Transaction
     Documents.

4.   Assuming  that,  contrary to their terms,  the  Transaction  Documents  are
     governed by the laws of the State of Georgia,  and,  contrary to the facts,
     that the laws of Georgia are identical to the laws of the State of New York
     in all respects,  the  Transaction  Documents are  enforceable  against the
     Company in accordance with their terms.

5.   Except as set forth in the Purchase Agreement or the schedules thereto, the
     execution  and delivery by the Company of the  Transaction  Documents,  the
     performance  by  the  Company  of  its  obligations  thereunder,   and  the
     consummation of the  Transactions  (i) do not and will not conflict with or
     violate any provisions of the Certificate of Incorporation or Bylaws of the
     Company,  and (ii) do not and will not result in a  violation  of, any law,
     statute, rule or regulation,  or any order, judgment or decree, known to us
     to which the Company is subject or by which any of its assets are bound.

6.   Other than the filings identified in the Registration Rights Agreement, the
     Purchase Agreement and the schedules thereto, no consent,  approval,  order
     or  authorization  of, or  registration,  declaration  or filing with,  any
     federal or State of Delaware  governmental  authority  is required  for the
     execution and delivery by the Company of the Transaction  Documents and for
     the consummation by the Company of the Transactions.

7.   When issued in  compliance  with the terms and  conditions  of the Purchase
     Agreement,  the shares of  Preferred  Stock set forth on  Schedule I to the
     Purchase Agreement will be validly issued,  fully paid and  non-assessable.
     When issued upon  conversion of the Preferred  Stock in compliance with the
     terms and conditions of the  Certificate of Designation or upon exercise of
     the Warrants in  compliance  with the terms and  conditions of the Warrants
     (as applicable), the Reserved Shares will be validly issued, fully paid and
     non-assessable.

8.   The  Company has duly  reserved  _____________  shares of Common  Stock for
     issuance upon  conversion of the Preferred  Stock and __________  shares of
     Common Stock for issuance upon  conversion  of the Warrants (the  "Reserved
     Shares").

9.   Based in part upon the  representations  of the Company and the  Purchasers
     contained in the Purchase  Agreement,  the offer and sale of the  Preferred
     Stock to the Purchasers is exempt from the registration requirements of the
     Securities Act of 1933, as amended to date.

10.  Except as  disclosed  by the  Company on Schedule  2.1(k)  (SEC  Documents;
     Financial Statements) to the Purchase Agreement, to our knowledge,  (a) the
     Company  has filed  all  reports  required  to be filed by it  pursuant  to
     Section 13(a),  14(a) or 15(d) of the Exchange Act, since December 31, 1999
     (the "SEC  Documents")  on a timely  basis  and (b) as of their  respective
     dates,  the  SEC  Documents  (except  for  the  financial   statements  and
     schedules,  operating statistics and other financial data included therein,
     as to which we express no opinion)  complied in all material respects as to
     form with the  requirements  of the Securities Act and the Exchange Act and
     the  rules  and  regulations  of the  Securities  and  Exchange  Commission
     promulgated thereunder.

     We hereby  confirm to you that, to our  knowledge,  except as identified in
the Purchase  Agreement and the schedules  thereto there are no actions,  suits,
proceedings,  orders, investigations or claims pending or threatened against the
Company,  at  law  or in  equity,  or  before  or  by  any  court,  governmental
department,   commission,   board,   bureau,   agency,   arbitrator   or   other
instrumentality.

     Our  opinions  expressed  above  are  limited  to the laws of the  State of
Georgia,  the  corporate  laws of the State of  Delaware,  and,  subject  to the
limitations set forth herein,  the federal laws of the United States of America,
and we do not express any opinion herein  concerning any other law. In addition,
we express no opinion herein concerning any statues, ordinances,  administrative
decisions,  rules or regulations of any county,  town,  municipality  or special
political  subdivision (whether created or enabled through legislative action at
the  federal,  state or regional  level).  This  opinion is given as of the date
hereof and we assume no  obligation  to advise you of changes that may hereafter
be brought to our attention.  This opinion is solely for the  information of the
Purchasers,  and is not to be quoted in whole or in part or  otherwise  referred
to,  nor is it to be filed  with any  governmental  agency or any  other  person
without our prior  written  consent.  This  opinion is  rendered  solely for the
benefit of the  Purchasers and solely for the purposes of the  Transactions  and
should not be relied upon for any other purpose.

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