Document:

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                                                                     Exhibit 4.1

                          REGISTRATION RIGHTS AGREEMENT

         This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
March 19, 2003, by and among Level 8 Systems, Inc., a corporation organized
under the laws of the State of Delaware (the "Company"), and the undersigned
(together with their affiliates, the "Initial Investors").

WHEREAS:

         A. In connection with that certain Securities Purchase Agreement of
even date herewith by and among the Company and the Initial Investors (the
"Securities Purchase Agreement"), the Company has agreed, upon the terms and
subject to the conditions contained therein, to issue and sell to the Initial
Investors (i) 3,705 shares of the Company's Series D Convertible Preferred Stock
(the "Series D Stock") that are convertible into shares of the Company's common
stock, par value $0.001 per share (the "Common Stock"), and (ii) warrants (the
"Warrants") to acquire shares of Common Stock. The shares of Common Stock, par
value $0.001 per share issuable upon conversion of or otherwise pursuant to the
Series D Stock are referred to herein as the "Conversion Shares" and the shares
of Common Stock issuable upon exercise of or otherwise pursuant to the Warrants
are referred to herein as the "Warrant Shares".

         B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:

1.       DEFINITIONS.
         ------------

         (a) As used in this Agreement, the following terms shall have the
following meanings:

               (i) "INVESTOR" means the Initial Investors and any transferees or
assignees who agree to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.

               (ii) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of

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effectiveness of such Registration Statement by the United States Securities and
Exchange Commission (the "SEC").

               (iii) "REGISTRABLE SECURITIES" means (a) the Conversion Shares,
(b) the Warrant Shares, (c) any shares of Common Stock issuable upon the
exchange of Level8 ASIA Shares (as defined in the Securities Purchase Agreement)
and (d) any shares of capital stock issued or issuable, from time to time (on
account of any anti-dilution or other adjustments or otherwise), as a
distribution on or in exchange for or otherwise with respect to any of the
foregoing, whether as default payments or otherwise; provided, however, that the
term "Registrable Securities" shall not include any shares of Common Stock
issuable upon exercise of or otherwise pursuant to the Series D-2 Warrants (as
defined in the Securities Purchase Agreement) until such time as the Series D-2
Warrants are exercisable.

               (iv) "REGISTRATION STATEMENT" means a registration statement of
the Company under the Securities Act.

         (b) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.

2.       REGISTRATION.
         -------------

         (a) Mandatory Registration. The Company shall prepare promptly and file
with the SEC as soon as practicable, but in no event later than the sixtieth
(60th) day following the date hereof (the "FILING DATE"), a Registration
Statement on Form S-3 (or, if Form S-3 is not then available, on such form of
Registration Statement as is then available to effect a registration of all of
the Registrable Securities, subject to the consent of the Initial Investors)
covering the resale of the Registrable Securities. The Registration Statement
filed hereunder, to the extent allowable under the Securities Act and the Rules
promulgated thereunder (including Rule 416), shall state that such Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of the Series D Stock and exercise
of the Warrants to prevent dilution resulting from stock splits, stock dividends
or similar transactions. The Registration Statement (and each amendment or
supplement thereto, and each request for acceleration of effectiveness thereof)
shall be provided to (and subject to the approval of) the Initial Investors and
their counsel prior to its filing or other submission.

         (b) Underwritten Offering. If any offering pursuant to the Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investor who holds a majority in interest of the Registrable Securities subject
to such underwritten offering, with the consent of the Initial Investors if they
are still holding Registrable Securities, shall have the right to select one
legal counsel to represent the Investors and an investment banker or bankers and
manager or managers to administer the offering, which investment banker or
bankers or manager or managers shall be reasonably satisfactory to the Company.
In the event that the Investor elects not to participate in such underwritten
offering, the Registration Statement covering all of the Registrable Securities
shall contain appropriate plans of distribution reasonably satisfactory to any
Investor participating in such underwritten offering and the Investor electing
not to participate in such underwritten offering (including, without limitation,
the ability of any nonparticipating Investor to sell from time to time and at
any time during the effectiveness of such Registration Statement).
Notwithstanding the foregoing, if the offering does not involve an underwritten
offer, the Investor shall not be entitled to require that the offering be
underwritten.

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         (c) Payments by the Company. The Company shall use its best efforts to
cause the Registration Statement required to be filed pursuant to Section 2(a)
hereof to become effective as soon as practicable, but in no event later than
the one hundred twentieth (120th) day following the date hereof. At the time of
effectiveness, the Company shall ensure such Registration Statement covers at
least 100% of the Registrable Securities issuable pursuant to the Series D Stock
and Warrants (including, if necessary, by filing an amendment prior to the
effective date of the Registration Statement to increase the number of shares
covered thereby). If (i) (A) the Registration Statement required to be filed by
the Company pursuant to Section 2(a) hereof is not filed with the SEC prior to
the Filing Date or (B) such Registration Statement covering all of the
Registrable Securities is not declared effective by the SEC on or before the one
hundred and fiftieth (150th) day following the date hereof (the "REGISTRATION
DEADLINE") or (ii) if, after such Registration Statement has been declared
effective by the SEC, sales of any of the Registrable Securities required to be
covered by such Registration Statement cannot be made pursuant to such
Registration Statement (by reason of a stop order or otherwise the Registration
Statement contains misstatements or omissions by reason of the Company's failure
to update the Registration Statement or for any other reason outside the control
of the Investor) or (iii) the Common Stock is not listed or included for
quotation on the Nasdaq National Market ("NNM"), the Nasdaq SmallCap Market
("SMALLCAP"), the New York Stock Exchange (the "NYSE"), the American Stock
Exchange (the "AMEX") or the OTC Electronic Bulletin Board (the "OTC") or the
Bulletin Board Exchange (collectively, the "BULLETIN BOARD"), at any time after
the Registration Deadline hereunder, then the Company will make payments to the
Investors in such amounts and at such times as shall be determined pursuant to
this Section 2(c) as partial relief for the damages to the Investor by reason of
any such delay in or reduction of their ability to sell the Registrable
Securities (which remedy shall not be exclusive of any other remedies available
at law or in equity). The Company shall pay to each Investor an amount equal to
the product of (i) the number of shares of Series D Stock multiplied by
$1,000.00 (including, without limitation, Series D Stock that have been
converted into Conversion Shares then held by such Investor as if such shares of
Series D Stock had not been so converted) (the "AGGREGATE SHARE PRICE"),
multiplied by (ii) fifteen thousandths (.015), for the first thirty (30) day
period (or portion thereof) (A) after the Filing Date and prior to the date the
Registration Statement is filed with the SEC pursuant to Section 2(a), (B) after
the Registration Deadline and prior to the date the Registration Statement
covering all of the Registrable Securities is declared effective by the SEC, and
(C) during which sales of any Registrable Securities cannot be made pursuant to
any such Registration Statement after the Registration Statement has been
declared effective or the Common Stock is not listed or included for quotation
on the NNM, SmallCap, NYSE, AMEX, or the Bulletin Board; and (iii) seventy-five
hundreth thousandths (.0075) for each thirty (30) day period (or portion
thereof) subsequent to the first thirty (30) day period (A) after the Filing
Date and prior to the date the Registration Statement is filed with the SEC
pursuant to Section 2(a), (B) after the Registration Deadline and prior to the
date the Registration Statement covering all of the Registrable Securities is
declared effective by the SEC, and (C) during which sales of any Registrable
Securities cannot be made pursuant to any said Registration Statement after the
Registration Statement has been declared effective or the Common Stock is not
listed or included for quotation on the NNM, Small Cap, NYSE, AMEX or the
Bulletin Board; provided, however, that there shall be excluded from each such
period any delays which are solely attributable to changes (other than
corrections of Company mistakes with respect to information previously

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provided by any Investor) required by an Investor in the Registration Statement
with respect to information relating to the Investor, including, without
limitation, changes to the plan of distribution. Such amounts shall be paid in
cash or, at each Investor's option, may be convertible into Common Stock at the
"CONVERSION PRICE" (as defined in the Certificate of Designations, Rights and
Preferences of the Series D Stock (the "CERTIFICATE OF DESIGNATIONS")) then in
effect. Any shares of Common Stock issued upon conversion of such amounts shall
be Registrable Securities. If the Investor desires to convert the amounts due
hereunder into Registrable Securities it shall so notify the Company in writing
within two (2) business days after the date on which such amounts are first
payable in cash and such amounts shall be so convertible (pursuant to the
mechanics set forth in the Certificate of Designations), beginning on the last
day upon which the cash amount would otherwise be due in accordance with the
following sentence. Payments of cash pursuant hereto shall be made within five
(5) days after the end of each period that gives rise to such obligation,
provided that, if any such period extends for more than thirty (30) days,
interim payments shall be made for each such thirty (30) day period.

         (d) Piggy-Back Registrations. If at any time prior to the expiration of
the Registration Period (as hereinafter defined) and during a period in which
the Registration Statement required to be filed pursuant to Section 2(a) is not
effective, the Company shall file with the SEC 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 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), the Company shall
send to each Investor written notice of such filing and, if within fifteen (15)
days after the date of such notice, such Investor shall so request in writing,
the Company shall include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered, except that if,
in connection with any underwritten public offering, the managing underwriter(s)
thereof shall impose a limitation on the number of shares of Common Stock which
may be included in the Registration Statement because, in such underwriter(s)'
judgment, marketing or other factors dictate such limitation is necessary to
facilitate public distribution, then the Company shall be obligated to include
in such Registration Statement only such limited portion of the Registrable
Securities with respect to which such Investor has requested inclusion hereunder
as the underwriter shall permit. Any exclusion of Registrable Securities shall
be made pro rata among the Investor seeking to include Registrable Securities,
in proportion to the number of Registrable Securities sought to be included by
such Investor; provided, however, that the Company shall not exclude any
Registrable Securities unless the Company has first excluded all outstanding
securities, the holders of which are not contractually entitled to inclusion of
such securities in such Registration Statement or are not contractually entitled
to pro rata inclusion with the Registrable Securities; and provided, further,
however, that, after giving effect to the immediately preceding proviso, any
exclusion of Registrable Securities shall be made pro rata with holders of other
securities having the contractual right to include such securities in the
Registration Statement other than holders of securities contractually entitled
to inclusion of their securities in such Registration Statement by reason of
demand registration rights. Notwithstanding the foregoing, no such reduction
shall reduce the amount of Registrable Securities included in the registration
below twenty-five (25%) of the total amount of securities included in such
registration. No right to registration of Registrable Securities under this
Section 2(d) shall be construed to limit any

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registration required under Section 2(a) hereof. If an offering in connection
with which an Investor is entitled to registration under this Section 2(d) is an
underwritten offering, then each Investor whose Registrable Securities are
included in such Registration Statement shall, unless otherwise agreed by the
Company, offer and sell such Registrable Securities in an underwritten offering
using the same underwriter or underwriters and, subject to the provisions of
this Agreement, on the same terms and conditions as other shares of Common Stock
included in such underwritten offering.

         (e) [Intentionally Omitted.]

         (f) Rule 416; Notice of Registration Trigger Date. The Company and the
Investor each acknowledge that an indeterminate number of Registrable Securities
shall be registered pursuant to Rule 416 under the Securities Act so as to
include in such Registration Statement any and all Registrable Securities which
may become issuable to prevent dilution resulting from stock splits, stock
dividends or similar transactions, including those resulting from the issuance
of additional securities which occur from the anti-dilution adjustments
contained in the Warrants (collectively, the "RULE 416 SECURITIES"). In this
regard, the Company agrees to take all steps necessary to ensure that all Rule
416 Securities are registered pursuant to Rule 416 under the Securities Act in
the Registration Statement and, absent guidance from the SEC or other definitive
authority to the contrary, the Company shall affirmatively support and not take
any action adverse to the position that the Registration Statements filed
hereunder cover all of the Rule 416 Securities. If the Company determines that
the Registration Statement(s) filed hereunder do not cover all of the Rule 416
Securities, the Company shall immediately provide to each Investor written
notice (a "RULE 416 NOTICE") setting forth the basis for the Company's position
and the authority therefor. In the event that a Registration Trigger Date (as
defined below) occurs, the Company shall provide each Investor written notice of
such Registration Trigger Date within three (3) business days thereafter.

3.       OBLIGATIONS OF THE COMPANY.
         ---------------------------

         In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:

         (a) The Company shall respond promptly to any and all comments made by
the staff of the SEC to the Registration Statement required by Section 2(a), and
shall submit to the SEC, within two business days following the business day on
which the Company learns (either by telephone or in writing) that no review of
such Registration Statement will be made by the SEC or that the staff of the SEC
has no further comments on such Registration Statement, as the case may be, a
request for acceleration of the effectiveness of such Registration Statement to
a time and date as soon as practicable. The Company shall keep such Registration
Statement effective pursuant to Rule 415 at all times until such date as is the
earlier of (i) the date on which all of the Registrable Securities have been
sold and (ii) the date on which all of the Registrable Securities (in the
reasonable opinion of counsel to the Initial Investors) may be immediately sold
to the public without registration or restriction pursuant to Rule 144(k) under
the Securities Act or any successor provision (the "REGISTRATION PERIOD"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein and all documents incorporated by reference
therein) (i) shall comply in all material respects with the requirements

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of the Securities Act and the rules and regulations of the SEC promulgated
thereunder and (ii) shall not contain any 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 not misleading. The financial statements of the
Company included in the Registration Statement or incorporated by reference
therein will comply as to form in all material respects with the applicable
accounting requirements and the published rules and regulations of the SEC
applicable with respect thereto. Such financial statements will be prepared in
accordance with U.S. generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may not include footnotes or
may be condensed on summary statements and fairly present in all material
respects the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to immaterial year-end adjustments)).

         (b) The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement. In the event the number of
shares available under a Registration Statement filed pursuant to this Agreement
is, for any three (3) consecutive trading days (the last of such three (3)
trading days being the "REGISTRATION TRIGGER DATE"), insufficient to cover one
hundred percent (100%) of the Registrable Securities issued or issuable upon
conversion (without giving effect to any limitations on conversion contained in
Article IV.C of the Certificate of Designations) and exercise of the Warrants
(without giving effect to any limitations on exercise on Section 8(g) of the
Warrants), the Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable), or
both, so as to cover one hundred percent (100%) of the Registrable Securities
issued or issuable (without giving effect to any limitations on conversion or
exercise contained in the Series D Stock or the Warrants) as of the Registration
Trigger Date, in each case, as soon as practicable, but in any event within
fifteen (15) days after the Registration Trigger Date (based on the market price
then in effect of the Common Stock and other relevant factors on which the
Company reasonably elects to rely). The Company shall cause such amendment(s)
and/or new Registration Statement to become effective as soon as practicable
following the filing thereof. In the event that the Company fails to obtain the
effectiveness of any such Registration Statement within sixty (60) days after a
Registration Trigger Date (the "PENALTY DATE"), the Company shall thereafter be
obligated to pay each Investor payments ("PENALTY PAYMENTS") in an amount equal
to the (x) the product of (1) the greater of the Closing Bid Price (as defined
below) or the Conversion Price (as defined in the Securities Purchase Agreement)
in effect as of the Penalty Date, multiplied by the number of shares of Common
Stock the Investor would otherwise be entitled to receive assuming full
conversion of such Investor's shares of Series D Stock, multiplied by (2) 0.25,
multiplied by (y) (N/365), where N equals the number of days from the date the
Penalty Date first occurs, (z) plus

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the amount of any declared and unpaid dividends on such shares of Series D
Stock, for each day from and including the Penalty Date until the Registration
Statement is effective.

         For purposes of this Section 3(b), "CLOSING BID PRICE" means, for any
security as of any date, the last sales price of such security on the OTC or
other trading market where such security is listed or traded as reported by
Bloomberg Financial Markets (or a comparable reporting service of national
reputation selected by the Corporation and reasonably acceptable to holders of a
majority of the then outstanding shares of Series D Stock ("MAJORITY HOLDERS")
if Bloomberg Financial Markets is not then reporting closing bid prices of such
security) (collectively, "BLOOMBERG"), or if the foregoing does not apply, the
closing bid price of such security on a national exchange or other trading
market for such security as reported by Bloomberg, or, if no such price is
reported for such security by Bloomberg, the average of the bid prices of all
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc., in each case for such date or, if such date was not a
trading day for such security, on the next preceding date which was a trading
day. If the Closing Bid Price cannot be calculated for such security as of
either of such dates on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as reasonably
determined by an investment banking firm selected by the Corporation and
reasonably acceptable to the Majority Holders, with the costs of such appraisal
to be borne by the Company.

         (c) The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC (including, without limitation, any request to
accelerate the effectiveness of the Registration Statement or amendment
thereto), and each item of correspondence from the SEC or the staff of the SEC,
in each case relating to the Registration Statement (other than any portion, if
any, thereof which contains information for which the Company has sought
confidential treatment), (ii) on the date of effectiveness of the Registration
Statement or any amendment thereto, a notice stating that the Registration
Statement or amendment has been declared effective, and (iii) such number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor.

         (d) The Company shall use its reasonable best efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statement
under such other securities or "blue sky" laws of such jurisdictions in the
United States as each Investor who holds Registrable Securities being offered
reasonably requests, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith

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or as a condition thereto to (A) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section 3(d),
(B) subject itself to general taxation in any such jurisdiction, (C) file a
general consent to service of process in any such jurisdiction, (D) provide any
undertakings that cause the Company undue expense or burden, or (E) make any
change in its charter or bylaws, which in each case the Board of Directors of
the Company determines to be contrary to the best interests of the Company and
its stockholders.

         (e) In the event the Investor who holds a majority in interest of the
Registrable Securities being offered in an offering select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.

         (f) As promptly as practicable after becoming aware of such event, the
Company shall notify each Investor by telephone and facsimile of the happening
of any event, of which the Company has knowledge, as a result of which the
prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and, use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement to correct such untrue statement or
omission, and deliver such number of copies of such supplement or amendment to
each Investor as such Investor may reasonably request.

         (g) The Company shall use its best efforts (i) to prevent the issuance
of any stop order or other suspension of effectiveness of a Registration
Statement, and, if such an order is issued, to obtain the withdrawal of such
order at the earliest practicable moment (including in each case by amending or
supplementing such Registration Statement) and (ii) to notify each Investor who
holds Registrable Securities being sold (or, in the event of an underwritten
offering, the managing underwriters) of the issuance of such order and the
resolution thereof (and if such Registration Statement is supplemented or
amended, deliver such number of copies of such supplement or amendment to each
Investor as such Investor may reasonably request).

         (h) The Company shall permit a single firm of counsel designated by the
Initial Investors to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time prior to its filing with the
SEC, and not file any document in a form to which such counsel reasonably
objects.

         (i) The Company shall make generally available to its security holders
as soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Securities Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.

         (j) At the request of any Investor in the case of an underwritten
public offering, the Company shall furnish, on the date of effectiveness of the
Registration Statement (i) an opinion, dated as of such date, from counsel
representing the Company addressed to any such Investor and in form, scope and
substance as is customarily given in an underwritten public offering and (ii) a
letter, dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and any such Investor.

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         (k) The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(A) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (B) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (C) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. Nothing herein shall be deemed to
limit an Investor's ability to sell Registrable Securities in a manner, which is
otherwise consistent with applicable laws and regulations.

         (l) The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other order from a court
or governmental body of competent jurisdiction, (iv) such information has been
made generally available to the public other than by disclosure in violation of
this or any other agreement, or (v) such Investor consents to the form and
content of any such disclosure. The Company agrees that it shall, upon learning
that disclosure of such information concerning an Investor is sought in or by a
court or governmental body of competent jurisdiction or through other means,
give prompt notice to such Investor prior to making such disclosure, and allow
the Investor, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.

         (m) The Company shall use its best efforts to promptly cause all of the
Registrable Securities covered by the registration Statement to be listed on the
Electronic Bulletin or another national securities exchange or automated
quotation system and on each additional national securities exchange or
automated quotation system on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange or
automated quotation system.

         (n) The Company shall provide a transfer agent and registrar, which may
be a single entity, for the Registrable Securities not later than the effective
date of the Registration Statement.

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         (o) The Company shall cooperate with an Investor who holds Registrable
Securities being offered and the managing underwriter or underwriters, if any,
to facilitate the timely preparation and delivery of certificates (not bearing
any restrictive legends) representing Registrable Securities to be offered
pursuant to the Registration Statement and enable such certificates to be in
such denominations or amounts, as the case may be, as the managing underwriter
or underwriters, if any, or the Investor may reasonably request and registered
in such names as the managing underwriter or underwriters, if any, or an
Investor may request, and, within three (3) business days after the Registration
Statement which includes Registrable Securities is ordered effective by the SEC,
the Company shall deliver, and shall cause legal counsel selected by the Company
to deliver, to the transfer agent for the Registrable Securities (with copies to
an Investor whose Registrable Securities are included in such Registration
Statement), an opinion of such counsel in the form attached hereto as EXHIBIT 1.

         (p) At the request of any Investor, the Company shall prepare and file
with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement. (q) The Company shall
comply with all applicable laws related to a Registration Statement and offering
and sale of securities and all applicable rules and regulations of governmental
authorities in connection therewith (including, without limitation, the
Securities Act and the Securities Exchange Act of 1934, as amended, (the
"EXCHANGE ACT") and the rules and regulations promulgated by the SEC.)

4.       OBLIGATIONS OF THE INVESTOR.
         ----------------------------

         In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:

         (a) It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it and the intended method of disposition of the Registrable Securities
held by it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5) trading
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor.

         (b) Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.

         (c) In the event Investor holding a majority in interest of the
Registrable Securities being offered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual

                                       10
<PAGE>

and customary form, including, without limitation, customary indemnification and
contribution obligations, with the underwriter(s) of such offering and the
Company and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities, unless
such Investor has notified the Company in writing of such Investor's election
not to participate in such underwritten distribution.

         (d) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Sections 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Sections 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
Notwithstanding anything to the contrary, subject to compliance with applicable
laws, the Company shall cause the transfer agent for the Registrable Securities
to deliver unlegended shares of Common Stock to a transferee of an Investor in
accordance with the terms of the Series D Stock and Warrants in connection with
any sale of Registrable Securities with respect to which any such Investor has
entered into a contract for sale prior to receipt of such notice and for which
any such Investor has not yet settled.

         (e) No Investor may participate in any underwritten distribution
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below, and (iv) complies with all applicable laws
in connection therewith. Notwithstanding anything in this Section 4(e) to the
contrary, this Section 4(e) is not intended to limit an Investor's rights under
Sections 2(a) or 3(b) hereof.

5.       EXPENSES OF REGISTRATION.
         ------------------------

         All reasonable expenses incurred by the Company or the Investors in
connection with registrations, filings or qualifications pursuant to Sections 2
and 3 above, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, the fees and disbursements of
counsel for the Company and the fees and disbursements of one counsel selected
by the Investors shall be borne by the Company. In addition, the Company shall
pay all of the Investors' costs and expenses (including legal fees) incurred in
connection with the enforcement of the rights of any such Investor hereunder.
Notwithstanding anything to the contrary herein, the Company shall not be
required to pay the expenses of the Investors in accordance with this Section in
excess of $5000 (exclusive of any amount payable by the Company in accordance
with the Securities Purchase Agreement), unless prior approval is obtained from
the Company.

                                       11
<PAGE>

6.       INDEMNIFICATION.
         ----------------

         In the event any Registrable Securities are included in a Registration
Statement under this Agreement:

         (a) To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities, and
(ii) the directors, officers, partners, members, employees and agents of each
Investor and each person who controls any Investor within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, if any, (each, an
"INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (1) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading, (2) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, or
(3) 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 the
Registrable Securities (the matters in the foregoing clauses (1) through (3)
being, collectively, "VIOLATIONS"). Subject to the restrictions set forth in
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Investor and each other Indemnified Person, promptly as such
expenses are incurred and are due and payable, for any reasonable legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (x) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person expressly for use in the Registration
Statement or any such amendment thereof or supplement thereto; (y) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (z) with respect to any preliminary prospectus, shall
not inure to the benefit of any Indemnified Person if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented, if such
corrected prospectus was timely made available by the Company pursuant to
Section 3(c) hereof, and the Indemnified Person was promptly advised in writing
not to use the incorrect prospectus prior to the use giving rise to a Violation
and such Indemnified Person, notwithstanding such advice, used it. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investor pursuant to Section 9 hereof.

                                       12
<PAGE>

         (b) In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees severally and not jointly to
indemnify, hold harmless and defend, to the same extent and in the same manner
set forth in Section 6(a), the Company, each of its directors, each of its
officers who signs the Registration Statement, its employees, agents and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and any other stockholder
selling securities pursuant to the Registration Statement or any of its
directors or officers or any person who controls such stockholder within the
meaning of the Securities Act or the Exchange Act (collectively and together
with an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim to which
any of them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and subject to Section 6(c) such Investor will reimburse any legal or
other expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
Section 6(b) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds actually
received by such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investor pursuant to Section 9 hereof. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.

         (c) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to made against any indemnifying
party under this Section 6, deliver to the indemnifying party a written notice
of the commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that such indemnifying party shall not be entitled to assume such
defense and an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential conflicts of interest between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action include both the Indemnified

                                       13
<PAGE>

Person or the Indemnified Party and the indemnifying party and any such
Indemnified Person or Indemnified Party reasonably determines that there may be
legal defenses available to such Indemnified Person or Indemnified Party which
are in conflict with those available to such indemnifying party. The
indemnifying party shall pay for only one separate legal counsel for the
Indemnified Persons or the Indemnified Parties, as applicable, and such legal
counsel shall be selected by Investor holding a majority-in-interest of the
Registrable Securities included in the Registration Statement to which the Claim
relates (with the approval of the Initial Investors if it holds Registrable
Securities included in such Registration Statement), if the Investors are
entitled to indemnification hereunder, or by the Company, if the Company is
entitled to indemnification hereunder, as applicable. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is actually prejudiced in its
ability to defend such action. The indemnification required by this Section 6
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.

7.       CONTRIBUTION.
         -------------

         To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law as is appropriate to
reflect the relative fault of the indemnifying party, on the one hand, and the
Indemnified Person or Indemnified Party, as the case may be, on the other hand,
with respect to the Violation giving rise to the applicable Claim; provided,
however, that (i) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6, (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation, and (iii) contribution (together with any
indemnification or other obligations under this Agreement) by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.

8.       REPORTS UNDER THE EXCHANGE ACT.
         -------------------------------

         With a view to making available to the Investors the benefits of Rule
144 promulgated under the Securities Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:

         (a) file with the SEC in a timely manner and make and keep available
all reports and other documents required of the Company under the Securities Act
and the Exchange Act so long as the Company remains subject to such requirements
(it being understood that nothing herein shall limit the Company's obligations
under Section 4(c) of the Securities Purchase Agreement) and the filing and
availability of such reports and other documents is required for the applicable
provisions of Rule 144; and

                                       14
<PAGE>

         (b) furnish to each Investor so long as such Investor holds Series D
Stock, Warrants or Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested to permit such Investor to sell such securities under Rule
144 without registration.

9.       ASSIGNMENT OF REGISTRATION RIGHTS.
         ----------------------------------

         The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Investor to any transferee of all or any
portion of the Series D Stock, the Warrants or the Registrable Securities if:
(a) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company after such
assignment, (b) the Company is furnished with written notice of (i) the name and
address of such transferee or assignee, and (ii) the securities with respect to
which such registration rights are being transferred or assigned, (c) following
such transfer or assignment, the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, (d) the transferee or assignee agrees in writing for the
benefit of the Company to be bound by all of the provisions contained herein,
and (e) such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement, the Certificate of
Designations and the Warrants, as applicable. In addition, and notwithstanding
anything to the contrary contained in this Agreement, the Securities Purchase
Agreement, the Certificate of Designations or the Warrants, the Securities (as
defined in the Securities Purchase Agreement) may be pledged, and all rights of
the Investor under this Agreement or any other agreement or document related to
the transactions contemplated hereby may be assigned, without further consent of
the Company, to a bona fide pledgee in connection with an Investor's margin or
brokerage account.

10.      AMENDMENT OF REGISTRATION RIGHTS.
         ---------------------------------

         Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, the
Initial Investors (to the extent the Initial Investor still owns Series D Stock,
Warrants or Registrable Securities) and the Investor or Investors who hold a
majority in interest of the Registrable Securities or, in the case of a waiver,
with the written consent of the party charged with the enforcement of any such
provision; provided, however, that no amendment hereto which restricts the
ability of an Investor to elect not to participate in an underwritten offering
shall be effective against any Investor which does not consent in writing to
such amendment; provided, further, however, that no consideration shall be paid
to an Investor by the Company in connection with an amendment hereto unless each
Investor similarly affected by such amendment receives a pro-rata amount of
consideration from the Company. Unless an Investor otherwise agrees, each
amendment hereto must similarly affect each Investor. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon each Investor
and the Company.

                                       15
<PAGE>

11.      MISCELLANEOUS.
         --------------

         (a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.

         (b) Any notices required or permitted to be given under the terms of
this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five (5) days after being placed in the mail, if mailed, or
upon receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:

                 If to the Company:

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

                 with a copy simultaneously transmitted by like means to:

                 Powell, Goldstein, Frazer & Murphy LLP
                 191 Peachtree Street; 16th Floor
                 Atlanta, Georgia 30319
                 Fax:  (404) 572-6999
                 Attn:  Scott D. Smith, Esq.

and if to any Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 11(b).

         (c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

         (d) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware applicable to contracts made and to be
performed in the State of Delaware. The Company irrevocably consents to the
jurisdiction of the United States federal courts and the state courts located in
the County of New Castle, State of Delaware in any suit or proceeding based on
or arising under this Agreement and irrevocably agrees that all claims in
respect of such suit or proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The

                                       16
<PAGE>

Company further agrees that service of process upon the Company, mailed by first
class mail shall be deemed in every respect effective service of process upon
the Company in any such suit or proceeding. Nothing herein shall affect an
Investor's right to serve process in any other manner permitted by law. The
Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.

         (e) This Agreement and the other Transaction Documents (including any
schedules and exhibits thereto), constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement and the other
Transaction Documents supersede all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof and thereof.

         (f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.

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

         (h) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.

         (i) 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.

         (j) All consents, approvals and other determinations to be made by the
Investors pursuant to this Agreement shall be made by the Investors holding a
majority in interest of the Registrable Securities (determined as if all Series
D Stock and Warrants then outstanding had been converted into or exercised for
Registrable Securities) held by all Investors.

         (k) The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be allocated pro rata among the Investors based on the
number of Registrable Securities held by each Investor at the time of such
establishment or increase, as the case may be. In the event an Investor shall
sell or otherwise transfer any of such holder's Registrable Securities, each
transferee shall be allocated a pro rata portion of the number of Registrable
Securities included on a Registration Statement for such transferor. Any shares
of Common Stock included on a Registration Statement and which remain allocated
to any person or entity which does not hold any Registrable Securities shall be
allocated to the remaining Investors, pro rata based on the number of shares of
Registrable Securities then held by such Investors. For the avoidance of doubt,
the number of Registrable Securities held by any Investor shall be determined as
if all Series D Stock and Warrants then outstanding were converted into or
exercised for Registrable Securities.

                                       17
<PAGE>

         (l) Each party to this Agreement has participated in the negotiation
and drafting of this Agreement. As such, the language used herein shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party to
this Agreement.

         (m) For purposes of this Agreement, the term "business day" means any
day other than a Saturday or Sunday or a day on which banking institutions in
the State of New York are authorized or obligated by law, regulation or
executive order to close, and the term "trading day" means any day on which the
OTC or, if the Common Stock is not then traded on the OTC, the principal
securities exchange or trading market where the Common Stock is then listed or
traded, is open for trading.

                   [REMAINDER OF PAGE LEFT BLANK INTENTIONALLY

                                       18
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the date first above written.

                              LEVEL 8 SYSTEMS, INC.

                              By:
                                 -----------------------------------------------
                              Name:
                                   ---------------------------------------------
                              Its:
                                  ----------------------------------------------

                              PURCHASERS

                              SDS MERCHANT FUND L.P.
                                   by SDS Capital Partners L.L.C., its
                                   managing member

                              By:
                                 -----------------------------------------------
                              Name:
                                   ---------------------------------------------
                              Its:
                                  ----------------------------------------------

                              DMG LEGACY FUND LLC
                                   by DMG Advisors LLC, its
                                   managing member

                              By:
                                 -----------------------------------------------
                              Name:
                                   ---------------------------------------------
                              Its:
                                  ----------------------------------------------

                              DMG LEGACY INSTITUTIONAL FUND LLC
                                   by DMG Advisors LLC, its
                                   managing member

                              By:
                                 -----------------------------------------------
                              Name:
                                   ---------------------------------------------
                              Its:
                                  ----------------------------------------------

                              DMG LEGACY INTERNATIONAL LTD.
                                   by DMG Advisors LLC, its
                                   managing member

                              By:
                                 -----------------------------------------------
                              Name:
                                   ---------------------------------------------
                              Its:
                                  ----------------------------------------------

                                       19
<PAGE>

                              PURCHASERS (CONT.)

                              IKE DWECK

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

                              BRUCE MILLER

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

                              JIM STEVENS

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

                              FRED MACK 4/30/92 TRUST

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

                              VERTICAL VENTURES INVESTMENTS LLC

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

                              Joseph Shelanski

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

                                       20
<PAGE>

                               PURCHASERS (CONT.)

                               C. Glen & Joan Dugdale

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

                               RICHARD MACK

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

                                       21
<PAGE>

                                                                       EXHIBIT 1

[Date]
[Name and address
of transfer agent]

RE:      LEVEL 8 SYSTEMS, INC.

Ladies and Gentlemen:

We are counsel to Level 8 Systems, Inc., a corporation organized under the laws
of the State of Delaware (the "COMPANY"), and we understand that [Name of
Investor] (the "HOLDER") has purchased from the Company (i) shares of Series D
Convertible Preferred Stock that are convertible into shares of the Company's
common stock, par value $._____ per share (the "COMMON STOCK"), and (ii)
warrants to acquire shares of Common Stock. Pursuant to a Registration Rights
Agreement, dated as of ____ ___, 2002, by and among the Company and the
signatories thereto (the "REGISTRATION RIGHTS AGREEMENT"), the Company agreed
with the Holder, among other things, to register the Registrable Securities (as
that term is defined in the Registration Rights Agreement) under the Securities
Act of 1933, as amended (the "SECURITIES ACT"), upon the terms provided in the
Registration Rights Agreement. In connection with the Company's obligations
under the Registration Rights Agreement, on __________, 2003, the Company filed
a Registration Statement on Form S-___ (File No. 333- _____________) (the
"REGISTRATION STATEMENT") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities, which names the Holder as a
selling stockholder thereunder. The Registration Statement was declared
effective by the SEC on _____________, 2003. [Other customary introductory and
scope of examination language to be inserted] Based on the foregoing, we are of
the opinion that the Registrable Securities have been registered under the
Securities Act. [Other customary language to be included.]

Very truly yours,

cc:   [Name of Investor]<PAGE>
                                                                     Exhibit 4.2

         VOID AFTER 5:00 P.M., NEW YORK CITY
         TIME, ON MARCH ___, 2008
         (UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF)

         THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
         NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
         "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
         STATES OR ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY
         NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
         REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES
         LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
         EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.

                                  Right to Purchase [_____ SHARES] of
                                  Common Stock, par value $.001 per share

Date: March ___, 2003

                              LEVEL 8 SYSTEMS, INC.
                               SERIES D-1 WARRANT

         THIS CERTIFIES THAT, for value received, [NAME], or its registered
assigns, is entitled to purchase from Level 8 Systems, Inc., a corporation
organized under the laws of the State of Delaware (the "COMPANY"), at any time
or from time to time during the period specified in Section 2 hereof [______]
fully paid and nonassessable shares of the Company's common stock, par value
$0.001 per share (the "COMMON STOCK"), subject to adjustment as provided herein.
The exercise price per share (the "EXERCISE PRICE") for which this Warrant (as
defined below) is exercisable shall be equal to $0.07, subject to adjustment as
provided herein. The shares of Common Stock purchasable hereunder are referred
to herein as the "WARRANT SHARES". The term "WARRANT" and all references
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended or
supplemented. This Warrant is being issued by the Company along with similar
warrants designated as Series D-2 Warrants (the "OTHER WARRANTS" and, together
with this Warrant, the "WARRANTS") pursuant to that certain Securities Purchase
Agreement, dated as of March ___, 2003, by and among the Company and the other
signatories thereto (the "SECURITIES PURCHASE AGREEMENT").

<PAGE>

This Warrant is subject to the following terms, provisions and conditions:

         1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, including, without limitation, the limitations
contained in Section 8 hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "EXERCISE
AGREEMENT"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by written notice to the holder hereof), and upon
(i) payment to the Company in cash, by certified or official bank check or by
wire transfer for the account of the Company, of the Exercise Price for the
Warrant Shares specified in the Exercise Agreement or (ii) if the holder is
effectuating a Cashless Exercise (as defined in Section 12(c) hereof) pursuant
to Section 12(c) hereof, delivery to the Company of a written notice of an
election to effect a Cashless Exercise for the Warrant Shares specified in the
Exercise Agreement. The Warrant Shares so purchased shall be deemed to be issued
to the holder hereof or such holder's designee, as the record owner of such
shares, as of the close of business on the date on which this Warrant shall have
been surrendered, the completed Exercise Agreement shall have been delivered,
and payment shall have been made for such shares as set forth above or, if such
date is not a business date, on the next succeeding business date. The Warrant
Shares so purchased, representing the aggregate number of shares specified in
the Exercise Agreement, shall be delivered to the holder hereof within a
reasonable time, not exceeding two business days, after this Warrant shall have
been so exercised (the "Delivery Period"). If the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, and so long as the certificates therefor do not bear a legend
and the holder is not obligated to return such certificate for the placement of
a legend thereon, the Company shall cause its transfer agent to electronically
transmit the Warrant Shares so purchased to the holder by crediting the account
of the holder or its nominee with DTC through its Deposit Withdrawal Agent
Commission system ("DTC Transfer"). If the aforementioned conditions to a DTC
Transfer are not satisfied, the Company shall deliver to the holder physical
certificates representing the Warrant Shares so purchased. Further, the holder
may instruct the Company to deliver to the holder physical certificates
representing the Warrant Shares so purchased in lieu of delivering such shares
by way of DTC Transfer. Any certificates so delivered shall be in such
denominations as may be reasonably requested by the holder hereof, shall be
registered in the name of such holder or such other name as shall be designated
by such holder and, following the date on which the Warrant Shares have been
registered under the Securities Act pursuant to that certain Registration Rights
Agreement, dated as of March ____, 2003, by and between the Company and the
other signatories thereto (the "Registration Rights Agreement") or otherwise may
be sold by the holder pursuant to Rule 144 promulgated under the Securities Act
(or a successor rule), shall not bear any restrictive legend. If this Warrant
shall have been exercised only in part, then the Company shall, at its expense,
at the time of delivery of such certificates, deliver to the holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.

         If, at any time, a holder of this Warrant submits this Warrant, an
Exercise Agreement and payment to the Company of the Exercise Price for each of
the Warrant Shares specified in the

                                       2
<PAGE>

Exercise Agreement (including pursuant to a Cashless Exercise), and the Company
fails for any reason (other than the reasons contemplated by Sections 8(f) and
(g) hereof) to deliver, on or prior to the fourth business day following the
expiration of the Delivery Period for such exercise, the number of shares of
Common Stock to which the holder is entitled upon such exercise (an "EXERCISE
DEFAULT"), then the Company shall pay to the holder payments ("EXERCISE DEFAULT
PAYMENTS") for an Exercise Default in the amount of (a) (N/365), multiplied by
(b) the amount by which the Market Price (as defined herein) on the date the
Exercise Agreement giving rise to the Exercise Default is transmitted in
accordance with this Section 1 (the "EXERCISE DEFAULT DATE") exceeds the
Exercise Price in respect of such Warrant Shares, multiplied by (c) the number
of shares of Common Stock the Company failed to so deliver in such Exercise
Default, multiplied by (d) .24, where N equals the number of days from the
Exercise Default Date to the date that the Company effects the full exercise of
this Warrant which gave rise to the Exercise Default. The accrued Exercise
Default Payment for each calendar month shall be paid in cash or shall be
convertible into Common Stock, at the holder's option, as follows:

         (i) In the event holder elects to take such payment in cash, cash
payment shall be made to holder by the fifth day of the month following the
month in which it has accrued; and

         (ii) In the event the holder elects to take such payment in Common
Stock, the holder may convert such payment amount into Common Stock at the lower
of the Exercise Price or the Market Price (as in effect at the time of
conversion) at any time after the fifth day of the month following the month in
which it has accrued.

         Nothing herein shall limit the holder's right to pursue actual damages
for the Company's failure to maintain a sufficient number of authorized shares
of Common Stock as required pursuant to the terms of Section 3(b) hereof or to
otherwise issue shares of Common Stock upon exercise of this Warrant in
accordance with the terms hereof, and the holder shall have the right to pursue
all remedies available at law or in equity (including a decree of specific
performance and/or injunctive relief).

         "MARKET PRICE," as of any date, (i) means the closing bid price for the
Common Stock as reported on the OTC Bulletin Board (the "OTC") by Bloomberg
Financial Markets ("BLOOMBERG") or other nationally recognized reporting
service, or (ii) if the OTC is not the principal trading market for the shares
of Common Stock, the average of the reported bid prices reported by Bloomberg or
such other nationally recognized reporting service on the principal trading
market for the Common Stock during the same period, or, if there is no bid price
for such period, the last sales price reported by Bloomberg or such service for
such period, or (iii) if the foregoing do not apply, the last bid price of such
security in the over-the-counter market on the pink sheets for such security as
reported by Bloomberg or such service, or if no bid price is so reported for
such security, the last sale price of such security as reported by Bloomberg or
such service, or (iv) if market value cannot be calculated as of such date on
any of the foregoing bases, the Market Price shall be the average fair market
value as reasonably determined by an investment banking firm selected by the
Company and reasonably acceptable to the holder, with the costs of the appraisal
to be borne by the Company. The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition shall apply with respect to
any other security in respect of which a determination as to market value must
be made hereunder.

                                       3
<PAGE>

For purposes of this Section 1, "TRADING DAY" means any day on which principal
United States securities exchange or trading market where the Common Stock is
then listed or traded, is open for trading.

         2. Period of Exercise. This Warrant is immediately exercisable, at any
time or from time to time on or after the date of initial issuance of this
Warrant (the "ISSUE DATE") and before 5:00 p.m., New York City time, on the
fifth anniversary of the Issue Date (the "EXERCISE PERIOD"). The Exercise Period
shall automatically be extended by one (1) day for each day on which the Company
does not have a number of shares of Common Stock reserved for issuance upon
exercise hereof at least equal to the number of shares of Common Stock issuable
upon exercise hereof, or otherwise fails to deliver shares of Common Stock in
the names set forth in Section 1 hereof upon exercise hereof, or the Warrant
Shares are not then otherwise registered for resale pursuant to the terms of the
Registration Rights Agreement.

         3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:

         (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, claims and encumbrances.

         (b) Reservation of Shares. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise in full of this Warrant (without giving effect to the
limitations on exercise set forth in Section 8(g) hereof).

         (c) Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated or electronic quotation system, if any, upon
which shares of Common Stock are then listed or become listed (subject to
official notice of issuance upon exercise of this Warrant) and shall maintain,
so long as any other shares of Common Stock shall be so listed, such listing of
all shares of Common Stock from time to time issuable upon the exercise of this
Warrant; and the Company shall so list on each national securities exchange or
automated or electronic quotation system, as the case may be, and shall maintain
such listing of, any other shares of capital stock of the Company issuable upon
the exercise of this Warrant if and so long as any shares of the same class
shall be listed on such national securities exchange or automated or electronic
quotation system.

         (d) Certain Actions Prohibited. The Company will not, by amendment of
its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the economic benefit inuring to the holder hereof
and the exercise privilege of the holder of this Warrant against dilution or
other impairment, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the

                                       4
<PAGE>

par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.

         (e) Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all of the Company's assets.

         (f) Blue Sky Laws. The Company shall, on or before the date of issuance
of any Warrant Shares, take such actions as the Company shall reasonably
determine are necessary to qualify the Warrant Shares for, or obtain exemption
for the Warrant Shares for, sale to the holder of this Warrant upon the exercise
hereof under applicable securities or "blue sky" laws of the states of the
United States, and shall provide evidence of any such action so taken to the
holder of this Warrant prior to such date; provided, however, that the Company
shall not be required in connection therewith or as a condition thereto to (i)
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(f), (ii) subject itself to general
taxation in any such jurisdiction or (iii) file a general consent to service of
process in any such jurisdiction.

         4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares issuable hereunder shall be subject to
adjustment from time to time as provided in this Section 4. In the event that
any adjustment of the Exercise Price as required herein results in a fraction of
a cent, such Exercise Price shall be rounded up or down to the nearest cent.

         (a) Subdivision or Combination of Common Stock. If the Company, at any
time during the Exercise Period, subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a greater number of shares, then, after the date of record for
effecting such subdivision, the Exercise Price in effect immediately prior to
such subdivision will be proportionately reduced. If the Company, at any time
during the Exercise Period, combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) its shares of Common Stock into a
smaller number of shares, then, after the date of record for effecting such
combination, the Exercise Price in effect immediately prior to such combination
will be proportionately increased.

         (b) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of Section 4(a), the number of shares
of Common Stock issuable upon exercise of this Warrant at each such Exercise
Price shall be adjusted by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of shares of Common
Stock issuable upon exercise of this Warrant at such Exercise Price immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.

         (c) Distribution of Assets. In case the Company shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, stock repurchase by way of
return of capital or otherwise (including any

                                       5
<PAGE>

dividend or distribution to the Company's shareholders of cash or shares (or
rights to acquire shares) of capital stock of a subsidiary) (a "Distribution"),
at any time during the Exercise Period, then the holder hereof shall be entitled
upon exercise of this Warrant for the purchase of any or all of the shares of
Common Stock subject hereto, to receive the amount of such assets (or rights)
which would have been payable to the holder had such holder been the holder of
such shares of Common Stock on the record date for the determination of
shareholders entitled to such Distribution. If the Company distributes rights,
warrants, options or any other form of convertible securities and the right to
exercise or convert such securities would expire in accordance with their terms
prior to the expiration of the Exercise Period, then the terms of such
securities shall provide that such exercise or convertibility right shall remain
in effect until 30 days after the date the holder hereof receives such
securities pursuant to the exercise hereof.

         (d) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder hereof, which notice shall state
the Exercise Price resulting from such adjustment and the increase or decrease
in the number of Warrant Shares purchasable at such price upon exercise, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. Such calculation shall be certified by the chief
financial officer of the Company.

         (e) No Fractional Shares. No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.

         (f) Other Notices. In case at any time:

               (i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution (other
than dividends or distributions payable in cash out of retained earnings
consistent with the Company's past practices with respect to declaring dividends
and making distributions) to the holders of the Common Stock;

               (ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;

               (iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or

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

then, in each such case, the Company shall give to the holder of this Warrant
(A) notice of the date or estimated date on which the books of the Company shall
close or a record shall be taken for determining the holders of Common Stock
entitled to receive any such dividend, distribution, or subscription rights or
for determining the holders of Common Stock entitled to vote in respect of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up and (B) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation

                                       6
<PAGE>

or winding-up, notice of the date (or, if not then known, a reasonable estimate
thereof by the Company) when the same shall take place. Such notice shall also
specify the date on which the holders of Common Stock shall be entitled to
receive such dividend, distribution, or subscription rights or to exchange their
Common Stock for stock or other securities or property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. Such notice shall be given at
least thirty (30) days prior to the record date or the date on which the
Company's books are closed in respect thereto. Failure to give any such notice
or any defect therein shall not affect the validity of the proceedings referred
to in clauses (i), (ii), (iii) and (iv) above. Notwithstanding the foregoing,
the Company shall publicly disclose the substance of any notice delivered
hereunder prior to delivery of such notice to the holder hereof.

         (g) Certain Events. If, at any time during the Exercise Period, any
event occurs of the type contemplated by the adjustment provisions of this
Section 4 but not expressly provided for by such provisions, the Company will
give notice of such event as provided in Section 4(d) hereof, and the Company's
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of shares of Common Stock acquirable upon exercise of this Warrant at
each such Exercise Price so that the rights of the holder shall be neither
enhanced nor diminished by such event.

         5. [Intentionally Omitted.]

         6. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.

         7. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.

         8. Transfer, Exchange, Redemption and Replacement of Warrant.

         (a) Restriction on Transfer. This Warrant and the rights granted to the
holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Section 8(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Sections 8(f) and (g) hereof and to the provisions
of Sections 2(f) and 2(g) of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the

                                       7
<PAGE>

contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 9 hereof are assignable only in
accordance with the provisions of the Registration Rights Agreement.

         (b) Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Section 8(e) below, for new Warrants of
like tenor of different denominations representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder,
each of such new Warrants to represent the right to purchase such number of
shares (at the Exercise Price therefor) as shall be designated by the holder
hereof at the time of such surrender.

         (c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.

         (d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 8, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the holder of this
Warrant or transferees) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 8. The Company
shall indemnify and reimburse the holder of this Warrant for all losses and
damages arising as a result of or related to any breach of the terms of this
Warrant, including costs and expenses (including legal fees) incurred by such
holder in connection with the enforcement of its rights hereunder.

         (e) Warrant Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.

         (f) Transfer or Exchange Without Registration. If, at the time of the
surrender of this Warrant in connection with any transfer or exchange of this
Warrant, this Warrant (or, in the case of any exercise, the Warrant Shares
issuable hereunder) shall not be registered under the Securities Act and under
applicable state securities or blue sky laws, the Company may require, as a
condition of allowing such transfer or exchange, (i) that the holder or
transferee of this Warrant, as the case may be, furnish to the Company a written
opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that
such transfer or exchange may be made without registration under the Securities
Act and under applicable state securities or blue sky laws (the cost of which
shall be borne by the Company if the Company's counsel renders such an opinion,
and up to $1,000 of such cost shall be borne by the Company if the holder's
counsel is required to render such opinion), (ii) that the holder or transferee
execute and deliver to the Company an investment

                                       8
<PAGE>

letter in form and substance acceptable to the Company and (iii) that the
transferee be an "ACCREDITED INVESTOR" as defined in Rule 501(a) promulgated
under the Securities Act; provided that no such opinion, letter, or status as an
"accredited investor" shall be required in connection with a transfer pursuant
to Rule 144 under the Securities Act.

         (g) Additional Restrictions on Exercise or Transfer. In no event shall
the holder hereof have the right to exercise any portion of this Warrant for
shares of Common Stock or to dispose of any portion of this Warrant to the
extent that such right to effect such exercise or disposition would result in
the holder or any of its affiliates beneficially owning more than 4.99% of the
outstanding shares of Common Stock. For purposes of this Section 8(g),
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder.
The restriction contained in this Section 8(g) may not be altered, amended,
deleted or changed in any manner whatsoever unless the holders of a majority of
the outstanding shares of Common Stock and the holder hereof shall approve, in
writing, such alteration, amendment, deletion or change.

         9. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement, including the right to assign such rights to certain assignees, as
set forth therein.

         10. Notices. Any notices required or permitted to be given under the
terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier, or by confirmed telecopy, in each case addressed to a party. The
addresses for such communications shall be:

                   If to the Company:

                   Level 8 Systems, Inc.
                   8000 Regency Parkway
                   Cary, North Carolina 27511
                   Facsimile: (404) 572-6999
                   Attn:  John P. Broderick

                   with a copy simultaneously transmitted by like means to:

                   Powell, Goldstein, Frazer & Murphy LLP
                   191 Peachtree Street, 16th Floor
                   Atlanta, Georgia 30319
                   Facsimile: (404) 572-6999
                   Attn:  Scott D. Smith, Esq.

                                       9
<PAGE>

If to the holder, at such address as such holder shall have provided in writing
to the Company, or at such other address as such holder furnishes by notice
given in accordance with this Section 10, and, if to SDS Merchant Fund, L.P., or
any of its affiliates, with a copy simultaneously transmitted by like means to:

                    Drinker Biddle & Reath LLP One Logan Square 18th &
                    Cherry Streets Philadelphia, PA 19103 U.S.A.
                    Facsimile: (215) 988-2757
                    Attn:  Stephen T. Burdumy, Esq.

         11. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts and
state courts located in the County of New Castle, State of Delaware in any suit
or proceeding based on or arising under this Warrant and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives any objection to the laying of venue and
the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company further agrees that service of process upon the Company
mailed by certified or registered mail shall be deemed in every respect
effective service of process upon the Company in any such suit or proceeding.
Nothing herein shall affect the holder's right to serve process in any other
manner permitted by law. The Company agrees that a final non-appealable judgment
in any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.

         12. Miscellaneous.

               (a) Amendments. Except as provided in Section 8(g) hereof, this
Warrant and any provision hereof may only be amended by an instrument in writing
signed by the Company and the holder hereof.

               (b) Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.

               (c) Cashless Exercise. This Warrant may be exercised at any time
during the Exercise Period by presentation and surrender of this Warrant to the
Company at its principal executive offices with a written notice of the holder's
intention to effect a cashless exercise, including a calculation of the number
of shares of Common Stock to be issued upon such exercise in accordance with the
terms hereof (a "CASHLESS Exercise"). In the event of a Cashless Exercise, in
lieu of paying the Exercise Price in cash, the holder shall surrender this
Warrant for that number of shares of Common Stock determined by multiplying the
number of Warrant Shares to which it would otherwise be entitled by a fraction,
the numerator of which shall be the

                                       10
<PAGE>

difference between the then current Market Price of a share of the Common Stock
on the date of exercise and the Exercise Price, and the denominator of which
shall be the then current Market Price per share of Common Stock.

               (d) Business Day. For purposes of this Warrant, the term
"BUSINESS DAY" means any day, other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by
law, regulation or executive order to close.

                                       11
<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.

                                  LEVEL 8 SYSTEMS, INC.

                                  By:
                                     -------------------------------
                                      John P. Broderick
                                      Chief Financial Officer

<PAGE>

                           FORM OF EXERCISE AGREEMENT

         (TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT)

         To:
                 Level 8 Systems, Inc.

                 Facsimile:
                 Attn: Chief Executive Officer

         The undersigned hereby irrevocably exercises the right to purchase
_____________ shares of the Common Stock of Level 8 Systems, Inc., a corporation
organized under the laws of the State of Delaware (the "COMPANY"), evidenced by
the attached Warrant, and herewith [makes payment of the Exercise Price with
respect to such shares in full][elects to effect a Cashless Exercise (as defined
in Section 12(c) of such Warrant)], all in accordance with the conditions and
provisions of said Warrant.

         The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.

                  |_| The undersigned requests that the Company cause its
                  transfer agent to electronically transmit the Common Stock
                  issuable pursuant to this Exercise Agreement to the account of
                  the undersigned or its nominee (which is _________________)
                  with DTC through its Deposit Withdrawal Agent Commission
                  System ("DTC TRANSFER"), provided that such transfer agent
                  participates in the DTC Fast Automated Securities Transfer
                  program.

                  |_| In lieu of receiving the shares of Common Stock issuable
                  pursuant to this Exercise Agreement by way of DTC Transfer,
                  the undersigned hereby requests that the Company cause its
                  transfer agent to issue and deliver to the undersigned
                  physical certificates representing such shares of Common
                  Stock.

The undersigned requests that a Warrant representing any unexercised portion
hereof be issued, pursuant to the Warrant, in the name of the Holder and
delivered to the undersigned at the address set forth below:

Dated:
      -------------------                 -----------------------------------
                                                 Signature of Holder

                                          -----------------------------------
                                                 Name of Holder (Print)

                                                 Address:

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

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

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

<PAGE>

                               FORM OF ASSIGNMENT

         FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:

Name of Assignee          Address                           No. of Shares
----------------          -------                           -------------

, and hereby irrevocably constitutes and appoints _____________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.

Dated:                      ,
       ---------------------  ----

In the presence of

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

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

                                    Signature:
                                               ---------------------------------
                                    Title of Signing Officer or Agent (if any):

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

                                    Note:    The above signature should
                                             correspond exactly with the name on
                                             the face of the within Warrant.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00049-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00049-of-00352.parquet"}]]