Document:

THIS  WARRANT AND THE  SECURITIES  REPRESENTED  HEREBY HAVE NOT BEEN  REGISTERED
UNDER THE  SECURITIES  ACT OF 1933, AS AMENDED,  OR THE  SECURITIES  LAWS OF ANY
STATE,  AND MAY NOT BE  TRANSFERRED  IN  VIOLATION  OF SUCH  ACT,  THE RULES AND
REGULATIONS  THEREUNDER OR ANY STATE  SECURITIES  LAWS OR THE PROVISIONS OF THIS
WARRANT.

No. FW-1

                      No. of Shares of Common Stock: 20,000

                                     WARRANT

                           To Purchase Common Stock of

                          DATA SYSTEMS & SOFTWARE INC.

              THIS IS TO CERTIFY THAT Maram Stern, or his registered assigns, is
entitled, at any time from the Warrant Issuance Date (as hereinafter defined) to
the Expiration  Date (as hereinafter  defined),  to purchase from Data Systems &
Software Inc., a Delaware corporation (the "Company"),  twenty thousand (20,000)
shares of Common  Stock (as  hereinafter  defined and subject to  adjustment  as
provided herein), in whole or in part, including fractional parts, at a purchase
price per share  equal to  $3.06625  (subject  to any  adjustments  made to such
amount pursuant to Section 4 hereto) on the terms and conditions and pursuant to
the provisions hereinafter set forth.

1. DEFINITIONS

              As used in this Warrant,  the following  terms have the respective
meanings set forth below:

              "Business Day" shall mean any day that is not a Saturday or Sunday
or a day on which banks are  required or  permitted to be closed in the State of
New York.

              "Closing Date" shall mean October 12, 1999.

              "Commission" shall mean the Securities and Exchange  Commission or
any other federal agency then administering the Securities Act and other federal
securities laws.

              "Common  Stock"  shall mean  (except  where the context  otherwise
indicates)  the  Common  Stock,  par value  $.01 per  share,  of the  Company as
constituted  on the Closing  Date,  and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the holders
of shares of Common Stock upon any  reclassification  thereof  which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and

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(ii) shares of common stock of any successor or acquiring  corporation  received
by or  distributed  to  the  holders  of  Common  Stock  of the  Company  in the
circumstances contemplated by Section 4.4.

              "Current  Warrant  Price"  shall  mean,  $3.06625  subject  to any
adjustments to such amount made in accordance with Section 4 hereof.

              "Exchange Act" shall mean the Securities  Exchange Act of 1934, as
amended, or any successor federal statute,  and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.

              "Exercise  Period" shall mean the period during which this Warrant
is exercisable pursuant to Section 2.1.

              "Expiration Date" shall mean October 12, 2002.

              "Holder"  shall  mean the  Person  in whose  name the  Warrant  or
Warrant  Stock  set  forth  herein is  registered  on the  books of the  Company
maintained for such purpose.

              "Other Property" shall have the meaning set forth in Section 4.4.

              "Outstanding"  shall  mean,  when  used with  reference  to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued  shares of Common  Stock,  except shares then owned or held by or for
the  account of the Company or any  subsidiary  thereof,  and shall  include all
shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.

              "Person"   shall  mean  any   individual,   sole   proprietorship,
partnership,  joint  venture,  trust,  incorporated  organization,  association,
corporation,  institution,  public  benefit  corporation,  entity or  government
(whether  federal,  state,  county,  city,  municipal or  otherwise,  including,
without limitation,  any instrumentality,  division,  agency, body or department
thereof).

              "Restricted  Common Stock" shall mean shares of Common Stock which
are, or which upon their  issuance on the  exercise  of this  Warrant  would be,
evidenced by a certificate  bearing the restrictive  legend set forth in Section
9.1(a).

              "Securities  Act"  shall  mean  the  Securities  Act of  1933,  as
amended, or any successor federal statute,  and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.

              "Transfer"  shall mean any  disposition  of any Warrant or Warrant
Stock or of any interest in either thereof,  which would  constitute an offer or
sale thereof within the meaning of the Securities Act.

              "Transfer Notice" shall have the meaning set forth in Section 9.2.

              "Warrant Issuance Date" shall mean October 12, 1999.

              "Warrants"  shall mean this Warrant and all  warrants  issued upon
transfer,  division or combination of, or in substitution for, any thereof.  All
Warrants  shall at all times be identical as to terms and  conditions  and date,
except  as to the  number of  shares  of  Common  Stock  for  which  they may be
exercised.

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              "Warrant  Price"  shall mean an amount  equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.

              "Warrant Stock" shall mean the shares of Common Stock purchased by
the holders of the Warrants upon the exercise thereof.

2. EXERCISE OF WARRANT

              2.1.   MANNER OF  EXERCISE.  From and after the  Warrant  Issuance
Date and until 5:00 P.M., New York City time, on the Expiration Date, Holder may
exercise this Warrant, on any Business Day, for all or any part of the number of
shares of Common Stock purchasable hereunder.

              In order to exercise  this  Warrant,  in whole or in part,  Holder
shall  deliver to the Company at the office or agency  designated by the Company
pursuant  to Section 12, (i) a written  notice of Holder's  election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock to
be purchased,  (ii) payment by cash,  check or bank draft payable to the Company
of the Warrant Price in cash or by wire  transfer or cashier's  check drawn on a
United  States bank or by the Holder's  surrender of Warrant Stock (or the right
to receive such number of shares) having an aggregate  Market Price equal to the
Warrant Price for all shares then being  purchased and (iii) this Warrant.  Such
notice shall be substantially in the form of the subscription  form appearing at
the end of this  Warrant as EXHIBIT A, duly  executed  by Holder or its agent or
attorney.  Upon receipt of the items  referred to in clauses (i), (ii) and (iii)
above,  the Company shall, as promptly as  practicable,  and in any event within
three (3) Business Days thereafter,  execute or cause to be executed and deliver
or cause to be delivered to Holder a certificate  or  certificates  representing
the aggregate number of full shares of Common Stock issuable upon such exercise,
together with cash in lieu of any fraction of a share, as hereinafter  provided.
The stock  certificate  or  certificates  so  delivered  shall be, to the extent
possible,  in such  denomination or denominations as Holder shall request in the
notice and shall be registered  in the name of Holder or,  subject to Section 9,
such other name as shall be  designated  in the notice.  This  Warrant  shall be
deemed to have been  exercised and such  certificate  or  certificates  shall be
deemed to have been issued,  and Holder or any other Person so  designated to be
named  therein  shall be deemed to have become a holder of record of such shares
for all  purposes,  as of the date the Warrant has been  exercised by payment to
the Company of the Warrant  Price.  If this Warrant shall have been exercised in
part,  the  Company  shall,  at the  time  of  delivery  of the  certificate  or
certificates  representing  Warrant  Stock,  deliver  to  Holder  a new  Warrant
evidencing  the rights of Holder to purchase  the  unpurchased  shares of Common
Stock called for by this Warrant,  which new Warrant shall in all other respects
be identical with this Warrant.

              The  Holder   shall  be   entitled   to   exercise   the   Warrant
notwithstanding  the  commencement  of any case under 11 U.S.C.  ss. 101 ET SEQ.
(the  "Bankruptcy  Code").  In the  event  the  Company  is a debtor  under  the
Bankruptcy  Code, the Company hereby waives to the fullest extent  permitted any
rights to relief it may have under 11 U.S.C.  ss.362 in respect of the  Holder's
exercise right. The Company hereby waives to the fullest

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extent  permitted  any  rights to relief it may have  under 11 U.S.C.  ss.362 in
respect of the  exercise of the  Warrant.  The Company  agrees,  without cost or
expense to the  Holder,  to take or consent to any and all action  necessary  to
effectuate relief under 11 U.S.C. ss.362.

              2.2.   PAYMENT OF TAXES AND  CHARGES.  All shares of Common  Stock
issuable upon the exercise of this Warrant pursuant to the terms hereof shall be
validly issued, fully paid and nonassessable, and without any preemptive rights.
The Company shall pay all expenses in connection  with,  and all taxes and other
governmental  charges that may be imposed with respect to, the issue or delivery
thereof.

              2.3.   FRACTIONAL  SHARES.  The  Company  shall not be required to
issue a fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which  Holder would  otherwise be entitled to purchase  upon
such exercise,  the Company shall pay a cash adjustment in respect of such final
fraction in an amount  equal to the same  fraction of the Market Price per share
of Common Stock on the relevant exercise date.

              2.4.   CONTINUED  VALIDITY.  A holder of  shares  of Common  Stock
issued  upon the  exercise  of this  Warrant,  in whole or in part (other than a
holder who acquires  such shares after the same have been publicly sold pursuant
to a  Registration  Statement  under the Securities Act or sold pursuant to Rule
144  thereunder),  shall  continue to be entitled with respect to such shares to
all rights to which it would have been  entitled as Holder under  Sections 9, 10
and 14 of this  Warrant.  The  Company  will,  at the time of  exercise  of this
Warrant,  in whole or in  part,  upon the  request  of  Holder,  acknowledge  in
writing, in form reasonably satisfactory to Holder, its continuing obligation to
afford Holder all such rights;  PROVIDED,  HOWEVER, that if Holder shall fail to
make any such request,  such failure shall not affect the continuing  obligation
of the Company to afford to Holder all such rights.

              2.5.   RIGHT TO CONVERT  WARRANT.  The Holder shall have the right
to convert,  in whole or in part, this Warrant (the  "Conversion  Right") at any
time prior to the expiration of the Exercise Period, into shares of Common Stock
in accordance with this Section 2.5. Upon exercise of the Conversion  Right, the
Company  shall  deliver  to the  Holder  (without  payment  by the Holder of the
Warrant  Price)  that  number of shares of Common  Stock  equal to the  quotient
obtained  by  dividing  (x) the  value  of the  portion  of this  Warrant  being
converted  at  the  time  the  Conversion  Right  is  exercised  (determined  by
subtracting  the Warrant Price for the portion of this Warrant  being  converted
(in effect  immediately  prior to the exercise of the Conversion Right) from the
amount  obtained by  multiplying  the number of shares of Common Stock  issuable
upon the whole or partial  exercise of this Warrant,  as the case may be, by the
Market Price  immediately  prior to the exercise of the Conversion Right) by (y)
the Market Price of one share of Common Stock  immediately prior to the exercise
of the Conversion Right.

              The Conversion  Right may be exercised by the Holder,  at any time
or from time to time, prior to its expiration, on any business day by delivering
a written notice (the "Conversion  Notice") to the Company at the offices of the
Company,  exercising the Conversion Right and specifying (i) the total number of
shares of Common

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Stock the Holder will purchase  pursuant to the  conversion and (ii) a place and
date not less than two (2) nor more than twenty (20) Business Days from the date
of the Subscription Notice for the closing of such purchase.

              At any  closing  under  this  Section  2.5,  (i) the  Holder  will
surrender  this  Warrant  and (ii) the  Company  will  deliver  to the  Holder a
certificate  or  certificates  for the number of shares of Common Stock issuable
upon such  conversion.  If this Warrant shall have been  converted only in part,
the  Company  shall,  at the  time of  delivery  of said  stock  certificate  or
certificates,  deliver to the Holder a new Warrant  evidencing the rights of the
Holder to  purchase  the  remaining  shares of Common  Stock  called for by this
Warrant,  which new Warrant  shall in all other  respects be  identical  to this
Warrant,  or, at the request of the Holder,  appropriate notation may be made on
this  Warrant and the same  returned to the  Holder.  The Company  shall pay all
expenses,  taxes and other charges payable in connection  with the  preparation,
issue and delivery of such stock certificates and new Warrants,  except that, in
case such stock  certificates  and/or new Warrants shall be registered in a name
or names other than the name of the Holder,  funds  sufficient  to pay all stock
transfer taxes that are payable upon the issuance of such stock  certificates or
new Warrants shall be paid by the Holder at the time of delivering the notice of
exercise mentioned above.

              2.6.   EXERCISE LIMITATION. Notwithstanding anything herein to the
contrary,  at no time shall the Holder  (including  its officers,  directors and
affiliates)  maintain  in the  aggregate  beneficial  ownership  (as defined for
purposes of Section 16 of the  Securities  Exchange Act of 1934,  as amended) of
shares of Common  Stock in excess of 9.9% of the  Company's  outstanding  Common
Stock and accordingly, the Holder may only exercise this Warrant up to the point
where its aggregate  beneficial ownership (as defined for purposes of Section 16
of the Securities Exchange Act of 1934, as amended) of shares of Common Stock is
equal or less than 9.9% of the Company's outstanding Common Stock.

3. TRANSFER, DIVISION AND COMBINATION

              3.1.   TRANSFER.  Subject to compliance  with Sections 9, transfer
of this  Warrant  and all  rights  hereunder,  in  whole  or in  part,  shall be
registered on the books of the Company to be maintained  for such purpose,  upon
surrender of this Warrant at the principal  office of the Company referred to in
Section  2.1 or the  office or agency  designated  by the  Company  pursuant  to
Section 12, together with a written assignment of this Warrant  substantially in
the form of EXHIBIT B hereto duly  executed by Holder or its agent or  attorney.
Upon such  surrender,  the  Company  shall,  subject to Section 9,  execute  and
deliver a new Warrant or Warrants in the name of the assignee or  assignees  and
in the denomination specified in such instrument of assignment,  and shall issue
to the  assignor a new Warrant  evidencing  the  portion of this  Warrant not so
assigned,  and this Warrant shall promptly be cancelled.  A Warrant, if properly
assigned in compliance  with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new Warrant issued.

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<PAGE>

              3.2.   DIVISION  AND  COMBINATION.  Subject  to  Section  9,  this
Warrant may be divided or combined with other Warrants upon presentation  hereof
at the aforesaid office or agency of the Company, together with a written notice
specifying the names and  denominations  in which new Warrants are to be issued,
signed by Holder or its agent or attorney.  Subject to  compliance  with Section
3.1 and  with  Section  9, as to any  transfer  which  may be  involved  in such
division or combination,  the Company shall execute and deliver a new Warrant or
Warrants  in  exchange  for the Warrant or Warrants to be divided or combined in
accordance with such notice.

              3.3.   EXPENSES.  The Company shall prepare,  issue and deliver at
its own expense the new Warrant or Warrants under this Section 3.

              3.4.   MAINTENANCE OF BOOKS.  The Company  agrees to maintain,  at
its aforesaid office or agency,  books for the registration and the registration
of transfer of the Warrants.

4. ADJUSTMENTS

              The  number of shares of Common  Stock for which  this  Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant,  shall be subject to adjustment  from time to time as set forth in
this  Section 4. The  Company  shall give Holder  notice of any event  described
below which  requires an  adjustment  pursuant to this  Section 4 at the time of
such event.

              4.1.   STOCK DIVIDENDS,  SUBDIVISIONS AND COMBINATIONS.  If at any
time the Company shall:

                     (a)    take a record of the holders of its Common Stock for
the  purpose  of  entitling  them to  receive a  dividend  payable  in, or other
distribution of, Additional Shares of Common Stock,

                     (b)    subdivide  its  outstanding  shares of Common  Stock
into a larger number of shares of Common Stock, or

                     (c)    combine its outstanding  shares of Common Stock into
a smaller number of shares of Common Stock,

then (i) the  number  of  shares of Common  Stock  for  which  this  Warrant  is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record  holder of the same
number of  shares  of  Common  Stock  for  which  this  Warrant  is  exercisable
immediately  prior to the  occurrence  of such event would own or be entitled to
receive  after the happening of such event,  and (ii) the Current  Warrant Price
shall be adjusted  to equal (A) the  Current  Warrant  Price  multiplied  by the
number of  shares  of  Common  Stock  for  which  this  Warrant  is  exercisable
immediately  prior to the  adjustment  divided  by (B) the  number of shares for
which this Warrant is exercisable immediately after such adjustment.

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              4.2.   NO CASH OR STOCK  DIVIDENDS;  CERTAIN OTHER  DISTRIBUTIONS.
The Holder of this Warrant  shall not (in such  capacity) be entitled to receive
dividends  payable  in cash or  shares of the  Common  Stock;  provided  that an
adjustment  pursuant  to  Section  4.1  shall  be made in the  event  of a stock
dividend.  In case the Company shall  distribute to all holders of record of its
Common Stock any rights,  options or warrants entitling all holders to subscribe
for or purchase shares of Common Stock,  the Holder shall be entitled to receive
such distribution as if the Holder had exercised the Warrant.

              4.3.   OTHER  PROVISIONS  APPLICABLE  TO  ADJUSTMENTS  UNDER  THIS
SECTION.  The  following  provisions  shall  be  applicable  to  the  making  of
adjustments  of the number of shares of Common  Stock for which this  Warrant is
exercisable and the Current Warrant Price provided for in this Section 4:

                     (a)    WHEN   ADJUSTMENTS  TO  BE  MADE.  The   adjustments
required by this Section 4 shall be made  whenever and as often as any specified
event  requiring an adjustment  shall occur.  For the purpose of any adjustment,
any specified event shall be deemed to have occurred at the close of business on
the date of its occurrence.

                     (b)    FRACTIONAL INTERESTS. In computing adjustments under
this Section 4, fractional interests in Common Stock shall be taken into account
to the nearest 1/10th of a share.

                     (c)    WHEN  ADJUSTMENT NOT REQUIRED.  If the Company shall
take a record of the holders of its Common  Stock for the  purpose of  entitling
them to receive a dividend or  distribution  or  subscription or purchase rights
and shall,  thereafter  and before the  distribution  to  stockholders  thereof,
legally  abandon  its  plan  to  pay or  deliver  such  dividend,  distribution,
subscription or purchase rights, then thereafter no adjustment shall be required
by reason of the taking of such record and any such  adjustment  previously made
in respect thereof shall be rescinded and annulled.

                     (d)    CHALLENGE TO GOOD FAITH DETERMINATION.  Whenever the
Board of Directors of the Company shall be required to make a  determination  in
good  faith  of  the  fair  value  of  any  item  under  this  Section  4,  such
determination  may be  challenged  in good faith by the Holder,  and any dispute
shall be resolved by an investment banking firm of recognized  national standing
selected by the Holder and reasonably acceptable to the Company.

              4.4.   REORGANIZATION,  RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION  OF  ASSETS.  In case the  Company  shall  reorganize  its  capital,
reclassify  its  capital  stock,  consolidate  or  merge  with or  into  another
corporation  (where the Company is not the surviving  corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business  to another  corporation  and,  pursuant to the terms of such
reorganization,   reclassification,  merger,  consolidation  or  disposition  of
assets, shares of common stock of the successor or acquiring corporation, or any
cash,  shares of stock or other securities or property of any nature  whatsoever
(including

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warrants or other  subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring  corporation ("Other Property"),  are
to be received by or  distributed to the holders of Common Stock of the Company,
then Holder shall have the right  thereafter  to receive,  upon  exercise of the
Warrant,  the number of shares of common  stock of the  successor  or  acquiring
corporation  or of the Company,  if it is the surviving  corporation,  and Other
Property   receivable   upon   or   as  a   result   of   such   reorganization,
reclassification,  merger, consolidation or disposition of assets by a holder of
the  number of shares of Common  Stock for which  this  Warrant  is  exercisable
immediately   prior  to  such  event.  In  case  of  any  such   reorganization,
reclassification,  merger, consolidation or disposition of assets, the successor
or acquiring  corporation (if other than the Company) shall expressly assume the
due and  punctual  observance  and  performance  of each and every  covenant and
condition of this  Warrant to be  performed  and observed by the Company and all
the obligations and liabilities hereunder,  subject to such modifications as may
be deemed appropriate,  subject to the Holder's consent, in order to provide for
adjustments  of shares of Common  Stock for which this  Warrant  is  exercisable
which shall be as nearly  equivalent as practicable to the adjustments  provided
for in this Section 4. For purposes of this  Section 4.4,  "common  stock of the
successor or acquiring  corporation"  shall include stock of such corporation of
any class which is not  preferred as to dividends or assets over any other class
of stock of such  corporation  and which is not subject to redemption  and shall
also include any evidences of indebtedness,  shares of stock or other securities
which  are  convertible  into  or  exchangeable  for  any  such  stock,   either
immediately  or upon the  arrival  of a  specified  date or the  happening  of a
specified  event and any warrants or other  rights to subscribe  for or purchase
any such stock.  The foregoing  provisions  of this Section 4.4 shall  similarly
apply to successive reorganizations,  reclassifications, mergers, consolidations
or disposition of assets.

              4.5.   OTHER ACTION AFFECTING COMMON STOCK. In case at any time or
from time to time the  Company  shall  take any  action in respect of its Common
Stock,  other  than any action  taken in the  ordinary  course of the  Company's
business or any action  described in this Section 4, which would have a material
adverse  effect  upon the rights of the  Holder,  the number of shares of Common
Stock and/or the purchase  price thereof shall be adjusted in such manner as may
be equitable in the circumstances,  as determined in good faith by an investment
bank selected by Holder.

              4.6.   CERTAIN LIMITATIONS. Notwithstanding anything herein to the
contrary,  the Company agrees not to enter into any transaction which, by reason
of any adjustment  hereunder,  would cause the Current  Warrant Price to be less
than the par value per share of Common Stock.

              4.7.   NO VOTING RIGHTS. This Warrant shall not entitle its Holder
to any voting rights or other rights as a shareholder of the Company.

5. NOTICES TO HOLDER

              5.1.   NOTICE OF  ADJUSTMENTS.  Whenever  the  number of shares of
Common  Stock for which this  Warrant is  exercisable,  or whenever the price at
which a share  of such  Common  Stock  may be  purchased  upon  exercise  of the
Warrants,  shall be

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adjusted   pursuant  to  Section  4,  the  Company  shall  forthwith  prepare  a
certificate to be executed by an executive officer of the Company setting forth,
in reasonable detail, the event requiring the adjustment and the method by which
such adjustment was calculated,  specifying the number of shares of Common Stock
for which this Warrant is exercisable  and (if such adjustment was made pursuant
to Section  4.4 or 4.5)  describing  the number and kind of any other  shares of
stock or Other Property for which this Warrant is exercisable, and any change in
the purchase price or prices thereof,  after giving effect to such adjustment or
change. The Company shall promptly cause a signed copy of such certificate to be
delivered to the Holder in accordance  with Section 14.2. The Company shall keep
at its  office or agency  designated  pursuant  to Section 12 copies of all such
certificates  and cause the same to be available  for  inspection at said office
during  normal  business  hours  by  the  Holder,  its  representatives,  or any
prospective purchaser of a Warrant designated by the Holder.

              5.2.   NOTICE OF CORPORATE ACTION. If at any time

                     (a)    the  Company  shall take a record of the  holders of
its Common  Stock for the  purpose of  entitling  them to receive a dividend  or
other  distribution,  or any right to subscribe for or purchase any evidences of
its  indebtedness,  any shares of stock of any class or any other  securities or
property, or to receive any other right, or

                     (b)    there  shall be any  capital  reorganization  of the
Company,  any  reclassification  or recapitalization of the capital stock of the
Company  or any  consolidation  or  merger  of the  Company  with,  or any sale,
transfer or other disposition of all or substantially  all the property,  assets
or business of the Company to, another corporation, or

                     (c)    there   shall   be  a   voluntary   or   involuntary
dissolution, liquidation or winding up of the Company;

then, in any one or more of such cases,  the Company shall give to Holder (i) at
least thirty (30)  Business  Days' prior  written  notice of the date on which a
record date shall be selected for such  dividend,  distribution  or right or for
determining   rights   to  vote  in   respect   of  any   such   reorganization,
reclassification,    merger,   consolidation,   sale,   transfer,   disposition,
dissolution,  liquidation  or  winding  up,  and  (ii) in the  case of any  such
reorganization,   reclassification,   merger,  consolidation,   sale,  transfer,
disposition,  dissolution,  liquidation  or  winding  up, at least  thirty  (30)
Business  Days' prior written notice of the date when the same shall take place.
Such notice in accordance  with the foregoing  clause also shall specify (i) the
date on which any such record is to be taken for the  purpose of such  dividend,
distribution  or right,  the date on which the holders of Common  Stock shall be
entitled  to any such  dividend,  distribution  or  right,  and the  amount  and
character  thereof,  and  (ii)  the  date  on  which  any  such  reorganization,
reclassification,    merger,   consolidation,   sale,   transfer,   disposition,
dissolution,  liquidation  or winding  up is to take place and the time,  if any
such  time is to be fixed,  as of which the  holders  of Common  Stock  shall be
entitled  to  exchange  their  shares of Common  Stock for

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<PAGE>

securities   or   other   property   deliverable   upon   such   reorganization,
reclassification,    merger,   consolidation,   sale,   transfer,   disposition,
dissolution,  liquidation  or winding  up.  Each such  written  notice  shall be
sufficiently  given if  addressed  to  Holder  at the  last  address  of  Holder
appearing on the books of the Company and delivered in  accordance  with Section
14.2.

6. NO IMPAIRMENT

              The  Company   shall  not  by  any  action,   including,   without
limitation,   amending  its   certificate  of   incorporation   or  through  any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities  or any other  voluntary  action,  avoid or seek to avoid the
observance or performance  of any of the terms of this Warrant,  but will at all
times in good  faith  assist in the  carrying  out of all such  terms and in the
taking of all such  actions as may be necessary  or  appropriate  to protect the
rights of Holder  against  impairment.  Without  limiting the  generality of the
foregoing,  the  Company  will (a) not  increase  the par value of any shares of
Common  Stock  receivable  upon the  exercise of this  Warrant  above the amount
payable  therefor upon such exercise  immediately  prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant,  and (c) use its best efforts to
obtain  all  such  authorizations,   exemptions  or  consents  from  any  public
regulatory  body having  jurisdiction  thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.

              Upon the request of Holder,  the  Company  will at any time during
the  period  this  Warrant  is  outstanding  acknowledge  in  writing,  in  form
reasonably  satisfactory to Holder, the continuing  validity of this Warrant and
the obligations of the Company hereunder.

7. RESERVATION AND AUTHORIZATION OF COMMON STOCK

              From and after the Closing  Date,  the Company  shall at all times
reserve and keep  available  for issue upon the exercise of Warrants such number
of its authorized  but unissued  shares of Common Stock as will be sufficient to
permit the exercise in full of all  outstanding  Warrants.  All shares of Common
Stock which shall be so issuable,  when issued upon  exercise of any Warrant and
payment therefor in accordance with the terms of such Warrant, shall be duly and
validly issued and fully paid and  nonassessable,  and not subject to preemptive
rights.

              Before taking any action which would cause an adjustment  reducing
the Current  Warrant  Price  below the then par value,  if any, of the shares of
Common Stock issuable upon exercise of the Warrants,  the Company shall take any
corporate  action  which may be  necessary in order that the Company may validly
and legally issue fully paid and  non-assessable  shares of such Common Stock at
such adjusted Current Warrant Price.

                                       10
<PAGE>

                  Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable or
in the Current Warrant Price, the Company shall obtain all such authorizations
or exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.

8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS

              In the case of all dividends or other distributions by the Company
to the  holders of its  Common  Stock with  respect  to which any  provision  of
Section 4 refers to the taking of a record of such holders,  the Company will in
each such case take such a record as of the close of business on a Business Day.
The  Company  will not at any time  close its stock  transfer  books or  Warrant
transfer  books so as to  result in  preventing  or  delaying  the  exercise  or
transfer of any Warrant.

9. RESTRICTIONS ON TRANSFERABILITY

              The  Warrants  and the  Warrant  Stock  shall not be  transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section  9,  which  conditions  are  intended  to  ensure  compliance  with  the
provisions of the  Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant,  agrees to be bound by
the provisions of this Section 9.

              9.1.   RESTRICTIVE  LEGEND.  The Holder by accepting  this Warrant
and any Warrant  Stock agrees that this Warrant and the Warrant  Stock  issuable
upon  exercise  hereof may not be assigned or otherwise  transferred  unless and
until (i) the  Company  has  received  an opinion of counsel for the Holder that
such securities may be sold pursuant to an exemption from registration under the
Securities Act or (ii) a registration  statement relating to such securities has
been filed by the Company and declared effective by the Commission.

                     (a)    Each   certificate   for  Warrant   Stock   issuable
hereunder  shall  bear a legend  substantially  worded as  follows  unless  such
securities have been sold pursuant to an effective  registration statement under
the Securities Act:

                     "The securities  represented by this  certificate  have not
                     been  registered  under  the  Securities  Act of  1933,  as
                     amended  (the  "Act") or any  state  securities  laws.  The
                     securities  may not be offered  for sale,  sold,  assigned,
                     offered,  transferred  or otherwise  distributed  for value
                     except (i) pursuant to an effective  registration statement
                     under the Act or any state securities laws or (ii) pursuant
                     to an exemption from  registration  or prospectus  delivery
                     requirements  under the Act or any state securities laws in
                     respect of which the  Company  has  received  an opinion of
                     counsel satisfactory to

                                       11
<PAGE>

                     the  Company  to  such  effect.  Copies  of  the  agreement
                     covering   both  the   purchase  of  the   securities   and
                     restricting  their  transfer  may be obtained at no cost by
                     written  request  made  by the  holder  of  record  of this
                     certificate   to  the  Secretary  of  the  Company  at  the
                     principal executive offices of the Company."

                     (b)    Except as otherwise  provided in this Section 9, the
Warrant shall be stamped or otherwise  imprinted with a legend in  substantially
the following form:

                     "This Warrant and the  securities  represented  hereby have
                     not been  registered  under the  Securities Act of 1933, as
                     amended,  or any  state  securities  laws  and  may  not be
                     transferred  in  violation  of  such  Act,  the  rules  and
                     regulations  thereunder or any state securities laws or the
                     provisions of this Warrant."

              9.2.   NOTICE OF  PROPOSED  TRANSFERS.  Prior to any  Transfer  or
attempted Transfer of any Warrants or any shares of Restricted Common Stock, the
Holder shall give five (5) days' prior written  notice (a "Transfer  Notice") to
the Company of Holder's intention to effect such Transfer, describing the manner
and circumstances of the proposed Transfer, and obtain from counsel to Holder an
opinion that the proposed  Transfer of such Warrants or such  Restricted  Common
Stock may be effected  without  registration  under the  Securities Act or state
securities laws. After the Company's receipt of the Transfer Notice and opinion,
such Holder  shall  thereupon  be entitled  to  Transfer  such  Warrants or such
Restricted  Common Stock, in accordance  with the terms of the Transfer  Notice.
Each  certificate,  if any,  evidencing  such shares of Restricted  Common Stock
issued upon such Transfer and the Warrant  issued upon such Transfer  shall bear
the restrictive  legends set forth in Section 9.1, unless in the opinion of such
counsel  such  legend is not  required  in order to ensure  compliance  with the
Securities Act.

              9.3.   TERMINATION OF RESTRICTIONS.  Notwithstanding the foregoing
provisions  of Section 9, the  restrictions  imposed  by this  Section  upon the
transferability  of the Warrants,  the Warrant Stock and the  Restricted  Common
Stock (or Common  Stock  issuable  upon the  exercise of the  Warrants)  and the
legend  requirements of Section 9.1 shall terminate as to any particular Warrant
or share of Warrant Stock or Restricted  Common Stock (or Common Stock  issuable
upon the exercise of the Warrants)  (i) when and so long as such security  shall
have been  effectively  registered under the Securities Act and applicable state
securities laws and disposed of pursuant  thereto or (ii) when the Company shall
have received an opinion of counsel that such shares may be transferred  without
registration  thereof under the Securities Act and applicable  state  securities
laws. Whenever the restrictions  imposed by Section 9 shall terminate as to this
Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive
from the  Company  upon  written  request of the  Holder,  at the expense of the
Company,  a new Warrant bearing the following legend in place of the restrictive
legend set forth hereon:

                                       12
<PAGE>

              "THE RESTRICTIONS ON  TRANSFERABILITY  OF THE WITHIN
              WARRANT  CONTAINED IN SECTION 9 HEREOF TERMINATED ON
              ________, AND ARE OF NO FURTHER FORCE AND EFFECT."

All Warrants issued upon  registration of transfer,  division or combination of,
or in  substitution  for,  any Warrant or Warrants  entitled to bear such legend
shall have a similar legend endorsed thereon.  Whenever the restrictions imposed
by this Section shall  terminate as to any share of Restricted  Common Stock, as
hereinabove  provided,  the holder thereof shall be entitled to receive from the
Company,  at the Company's expense,  a new certificate  representing such Common
Stock not bearing the  restrictive  legends set forth in Section 9.1. The Holder
acknowledges  that the Registration  Statement  referred to in Section 9.3 above
relates to the resale of the  Warrant  Shares only and that the Company may take
appropriate  steps,  including stop transfer orders and  restrictive  legends to
insure  that the Warrant  Shares are sold in  compliance  with the  Registration
Statement  (including the prospectus  delivery  requirement)  and any applicable
laws and rules, until such resale has been effected.

              9.4.   LISTING ON SECURITIES  EXCHANGE.  If the Company shall list
any shares of Common Stock on any securities exchange,  it will, at its expense,
list thereon, maintain and, when necessary, increase such listing of, all shares
of Common  Stock  issued  or, to the  extent  permissible  under the  applicable
securities exchange rules, issuable upon the exercise of this Warrant so long as
any shares of Common Stock shall be so listed during the Exercise Period.

10. SUPPLYING INFORMATION

              The  Company  shall   cooperate  with  Holder  in  supplying  such
information  as may be reasonably  necessary for Holder to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the  availability of an exemption from the Securities Act for the
sale of any Warrant or Restricted Common Stock.

11. LOSS OR MUTILATION

              Upon  receipt by the Company  from  Holder of evidence  reasonably
satisfactory  to it of the  ownership  of and the loss,  theft,  destruction  or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood  that  the  written  agreement  of the  Holder  shall  be  sufficient
indemnity),  and in case of mutilation upon surrender and  cancellation  hereof,
the Company  will execute and deliver in lieu hereof a new Warrant of like tenor
to Holder;  PROVIDED, in the case of mutilation,  no indemnity shall be required
if  this  Warrant  in  identifiable  form  is  surrendered  to the  Company  for
cancellation.

                                       13
<PAGE>

12.  OFFICE OF THE COMPANY

                  As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive offices
of the Company) where the Warrants may be presented for exercise, registration
of transfer, division or combination as provided in this Warrant, such office to
be initially located at 200 Route 17, Mahwah, New Jersey 07430, fax: (201)
529-3163, provided, however, that the Company shall provide prior written notice
to Holder of a change in address no less than 30 days prior to such change.

13. LIMITATION OF LIABILITY

              No  provision  hereof,  in the  absence of  affirmative  action by
Holder to purchase  shares of Common  Stock,  and no  enumeration  herein of the
rights or  privileges  of Holder  hereof,  shall give rise to any  liability  of
Holder for the  purchase  price of any Common Stock or as a  stockholder  of the
Company,  whether  such  liability is asserted by the Company or by creditors of
the Company.

14. MISCELLANEOUS

              14.1.  NONWAIVER AND  EXPENSES.  No course of dealing or any delay
or failure to exercise any right  hereunder on the part of Holder shall  operate
as a waiver of such right or  otherwise  prejudice  Holder's  rights,  powers or
remedies, notwithstanding all rights hereunder terminate on the Expiration Date.

              14.2.  NOTICE  GENERALLY.  Except  as  may be  otherwise  provided
herein,  any notice or other  communication  or delivery  required or  permitted
hereunder  shall be in  writing  and shall be  delivered  personally  or sent by
certified mail, postage prepaid, or by a nationally recognized overnight courier
service,  and shall be deemed given when so delivered personally or by overnight
courier service,  or, if mailed, three (3) days after the date of deposit in the
United States mails, as follows:

If to the Company, to:              Data Systems & Software Inc.
                                    200 Route 17
                                    Mahwah, New Jersey  07430
                                    ATTENTION:  George Morgenstern, President
                                    Tel:  (201)  529-2026
                                    Fax: (201) 529-3163

with a copy to:                     Ehrenreich Eilenberg Krause & Zivian, LLP
                                    11 East 44th Street
                                    New York, New York  10017
                                    Tel:  (212) 986-9700
                                    Fax: (212) 986-2399

                                       14
<PAGE>

if to the Purchaser to:             Maram Stern
                                    c\o WEC Asset Management LLC
                                    One World Trade Center, Suite #4563
                                    New York, New York  10048
                                    ATTENTION:  Daniel J. Saks
                                    Tel:  (212) 775-9299
                                    Fax: (212) 775-9311

       The  Company or the Holder  may  change the  foregoing  address by notice
given pursuant to this Section 14.2.

              14.3.  INDEMNIFICATION.  The Company  agrees to indemnify and hold
harmless Holder from and against any liabilities,  obligations, losses, damages,
penalties,  actions,  judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against  Holder in any manner  relating  to or arising out of any failure by the
Company to perform or observe in any respect any of its  covenants,  agreements,
undertakings or obligations set forth in this Warrant.

              14.4.  REMEDIES.  Holder in addition to being entitled to exercise
all rights granted by law,  including  recovery of damages,  will be entitled to
specific  performance of its rights under this Warrant.  The Company agrees that
monetary  damages  would not be adequate  compensation  for any loss incurred by
reason of a breach by it of the  provisions of this Warrant and hereby agrees to
waive the defense in any action for  specific  performance  that a remedy at law
would be adequate.

              14.5.  SUCCESSORS  AND  ASSIGNS.  Subject  to  the  provisions  of
Sections 3.1 and 9, this Warrant and the rights  evidenced hereby shall inure to
the  benefit  of and be  binding  upon the  successors  of the  Company  and the
successors and assigns of Holder. The provisions of this Warrant are intended to
be for the benefit of all Holders from time to time of this  Warrant  and,  with
respect to Section 9 hereof,  holders of Warrant Stock, and shall be enforceable
by any such Holder or holder of Warrant Stock.

              14.6.  AMENDMENT.  This  Warrant  and all  other  Warrants  may be
modified or amended or the provisions  hereof waived only with the prior written
consent of the Company and the Holder.

              14.7.  SEVERABILITY.  Wherever  possible,  each  provision of this
Warrant shall be  interpreted  in such manner as to be effective and valid under
applicable  law, but if any  provision of this Warrant shall be prohibited by or
invalid under  applicable law, such provision shall be ineffective to the extent
of such  prohibition or invalidity,  without  invalidating the remainder of such
provision or the remaining provisions of this Warrant.

              14.8.  HEADINGS.  The  headings  used in this  Warrant are for the
convenience of reference  only and shall not, for any purpose,  be deemed a part
of this Warrant.

                                       15
<PAGE>

              14.9.  GOVERNING  LAW.  This Warrant shall be governed by the laws
of the State of New York,  without regard to the provisions  thereof relating to
conflict of laws. The Company consents to the jurisdiction of the federal courts
whose  districts  encompass any part of the City of New York or the state courts
of the State of New York sitting in the City of New York in connection  with any
dispute  arising  under  this  Warrant or any of the  transactions  contemplated
hereby,  and  hereby  waives,  to the  maximum  extent  permitted  by  law,  any
objection,  including  any  objections  based on FORUM  NON  CONVENIENS,  to the
bringing of any such proceeding in such jurisdictions.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

                                       16
<PAGE>

              IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed  and its  corporate  seal to be  impressed  hereon and  attested by its
Secretary or an Assistant Secretary.

Dated:  October 12, 1999

                                               DATA SYSTEMS & SOFTWARE INC.

                                               By:___________________________
                                                  Name:  George Morgenstern
                                                  Title:    President

Attest:

By:______________________
    Name:
    Title:

                                       17
<PAGE>

                                    EXHIBIT A

                                SUBSCRIPTION FORM

                 [To be executed only upon exercise of Warrant]

The  undersigned  registered  owner of this Warrant  irrevocably  exercises this
Warrant for the  purchase  of ______  Shares of Common  Stock of Data  Systems &
Software Inc.,  and herewith makes payment  therefor in cash or by check or bank
draft  made  payable  to the  Company,  all at the  price  and on the  terms and
conditions  specified  in this Warrant and requests  that  certificates  for the
shares of Common Stock hereby  purchased  (and any  securities or other property
issuable  upon  such  exercise)  be  issued  in the  name  of and  delivered  to
_____________ whose address is  _________________  and, if such shares of Common
Stock shall not include all of the shares of Common  Stock  issuable as provided
in this  Warrant,  that a new  Warrant of like tenor and date for the balance of
the shares of Common Stock issuable hereunder be delivered to the undersigned.

                                                 -------------------------------
                                                 (Name of Registered Owner)

                                                 -------------------------------
                                                 (Signature of Registered Owner)

                                                 -------------------------------
                                                 (Street Address)

                                                 -------------------------------
                                                 (City)   (State)     (Zip Code)

       NOTICE:  The signature on this subscription must correspond with the name
as written  upon the face of the within  Warrant  in every  particular,  without
alteration or enlargement or any change whatsoever.

                                       18
<PAGE>

                                    EXHIBIT B

                                 ASSIGNMENT FORM

              FOR  VALUE  RECEIVED  the  undersigned  registered  owner  of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant,  with respect to the number of
shares of Common Stock set forth below:

   NAME AND ADDRESS OF ASSIGNEE                         NO. OF SHARES OF
   ----------------------------                         ----------------
                                                        COMMON STOCK
                                                        ------------

and does hereby  irrevocably  constitute  and appoint  _______  ________________
attorney-in-fact  to  register  such  transfer  on the  books of Data  Systems &
Software Inc.,  maintained for the purpose,  with full power of  substitution in
the premises.

   Dated:__________________                    Print Name:___________________

                                               Signature:____________________

                                               Witness:______________________

       NOTICE:    The signature on this assignment must correspond with the name
as written  upon the face of the within  Warrant  in every  particular,  without
alteration or enlargement or any change whatsoever.

                                       19DATA SYSTEMS & SOFTWARE INC.
================================================================================
                           200 ROUTE 17, MAHWAH, NEW JERSEY 07430 (201) 529-2026
                                                             FAX: (201) 529-3163

                                              September 25, 2000

Bank Leumi USA
564 Fifth Avenue
New York, New York  10036

Dear Sirs:

     Reference is made to (i) the Warrant  Agreement dated as of August 30, 1999
(the  "Warrant  Agreement"),  between  the Data  Systems &  Software  Inc.  (the
"Company") and the holders  referred to therein (the "Holders") and (ii) Warrant
Certificate  No. W-1 for 83,333  Warrants  and Warrant  Certificate  No. W-2 for
166,667 (collectively, the "Warrants") issued pursuant to the Warrant Agreement.
The Company desires to repurchase the Warrants and the respective holders of the
Warrants  desire to sell the  Warrants  to the  Company  at a price of $1.50 per
Warrant.

     The parties therefore hereby agree as follows:

     1. In  consideration  of the  payment by the Company of an  aggregate  of $
124,999.50, Bank Leumi USA hereby agrees to sell to the Company, and the Company
hereby agrees to repurchase from Bank Leumi USA, Warrant Certificate No. W-1.

     2. In consideration of the payment by the Company to the respective  holder
thereof of an  aggregate  of $  250,000.50  , Bank Leumi le Israel  B.M.  hereby
agrees to sell to the Company,  and the Company hereby agrees to repurchase from
Bank Leumi le Israel B.M, Warrant Certificate No. W-2.

     3. The  closing  of the sale of  Warrants  shall  take  place on or  before
September 27, 2000, upon the wire by the Company to Bank Leumi USA, as agent for
the Holders,  of an  aggregate  of $ 375,000 in full  payment of the  repurchase
price  for  the  Warrants,  against  delivery  to the  Company  of the  original
Warrants.

     4. After the closing of the  transaction the Warrants will be cancelled and
neither of the Holders shall have any rights thereunder whatsoever.

     If the foregoing  accurately sets forth our agreement please execute a copy
of in the space indicated and return it to us by fax..

                                                  Very truly yours,

                                                  George Morgenstern
                                                  President

AGREED AND ACCEPTED:

BANK LEUMI USA                                       BANK LEUMI  LE ISRAEL B.M

By:______________________                            _________________________
     Name:                                                    Name:
     Title:                                                   Title:

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