Document:

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                                                                  EXHIBIT 10.20B

                              BANK HAPOALIM B.M.
                       CASH COLLATERAL PLEDGE AGREEMENT
                       --------------------------------
                                (U.S. Currency)

                                                   Dated as of December 15, 2000
================================================================================

                                Specific Terms
                                --------------

     Pledgor:  Level 8 Systems, Inc.

(a)  Pledgor's Address (include only one address):
     -----------------
     8000 Regency Parkway
     Cary, NC 27511

     E-mail:______________________________________________________
     Answerback:__________________________________________________
     Fax No.:_____________________________________________________

(b)  Description of Deposit and Depository:
     -------------------------------------

     Original principal amount of Deposit Pledged: $10,000,000.00

     Branch (check one and complete if necessary):

     [X] New York Branch, 1177 Avenue of the Americas, New York, New York  10036
     [_] Other (specify): Bank Hapoalim

     Account No. (if available):  01057827

     Type of Deposit (check one and complete if necessary):

     [X] Time Deposit
     [_] Money Market
     [_] Demand Deposit

(c)  Debtor(s), if any:  Other than Pledgor(s) whose obligations are secured by
     --------------------
     this Agreement.

     None.

================================================================================
<PAGE>

                                      -2-

Definitions of certain capitalized terms are included in Section 21.

  1.  Pledge and Assignment; Security for Liabilities:  For value received,
      -----------------------------------------------
Pledgor hereby assigns, transfers and pledges to Bank Hapoalim B.M. (the "Bank")
and grants to the Bank, as security for any and all Liabilities of Pledgor and
of any Debtor(s), identified in Specific Terms, a security interest in all of
the right, title and interest of Pledgor in, to and under the Collateral
described below.

  As used herein, "Collateral" shall mean (i) the Deposit, (ii) any cash or
other property at any time and from time to time receivable or otherwise
distributable in respect of, in exchange for or in substitution for the Deposit,
including interest accruing thereon, (iii) any deposits or other sums at any
time credited by or due from any office of the Bank or any subsidiary of the
Bank (hereinafter a "Subsidiary") to Pledgor (regardless of the currency thereof
and whether general or special, contingent and/or matured), and securities or
other property of Pledgor at any time in the possession of any office of the
Bank or Subsidiary, (iv) all replacements, substitutions, extensions, renewals
and proceeds of any and all of the foregoing and (v) all rights and privileges
of Pledgor with respect to any and all of the foregoing.

  2.  Guarantee by Pledgor of Liabilities of Debtors:  (a) Subject to Section
      ----------------------------------------------
2(b), Pledgor irrevocably and unconditionally guarantees to the Bank payment
when due, whether by demand, acceleration or otherwise, without defense, waiver,
setoff or counterclaim, of each and every Liability of any Debtor (hereinafter,
"Pledgor's Guarantee Undertaking").

  (b) In the event of any inconsistency with respect to the Pledgor's Guarantee
Undertaking between this Agreement and any other guarantee agreement executed by
Pledgor in favor of the Bank (hereinafter, a "Guarantee"), the terms of such
Guarantee shall apply.  In the event that there shall not exist any such other
Guarantee, the following terms shall apply to Pledgor's Guarantee Undertaking:
(i) the obligation of Pledgor with respect to the Liabilities of the Debtor(s)
shall not exceed the value from time to time of the Collateral and (ii) the Bank
shall be limited to enforcing its remedies against Pledgor in connection with
this Agreement with respect to the Liabilities of the Debtor(s) solely against
the Collateral.

  3.  The Deposit: (a)  On or before the date of this Agreement, Pledgor has
      -----------
placed immediately available funds with the Bank as further identified above
under "Specific Terms" (individually and collectively the "Deposit"). The
Deposit and any interest or other income thereon shall be kept in an account
(the "Account") at the Branch or Subsidiary of the Bank identified above (such
Branch or Subsidiary sometimes referred to hereinafter as the "Depository").
The Deposit shall also include any amounts delivered by the Pledgor for deposit
in the Account subsequent to the date of this agreement as required by the terms
of the Loan Agreement between the Bank and the Borrower dated as of the date
hereof.  The Deposit shall be kept under the sole dominion and control of the
Depository subject, however to the instructions of the Bank, if the Depository
is a Subsidiary.  Pledgor shall have no right to withdraw any amounts from the
Deposit, including any interest paid thereon, except as provided in the Loan
Agreement and when the Liabilities shall have been paid in full.

  (b) If any Deposit is evidenced by a certificate or instrument, the Pledgor
shall deliver and, if necessary, endorse in any manner necessary to transfer, to
the Bank any certificates or instruments constituting, representing or
evidencing any such Deposit.

  (c) Any Deposit may be issued in book entry form by the Depository against
funds which have been booked in the Account, and a confirmation of deposit, as
distinguished from a physical certificate may, in the discretion of the
Depository, serve to evidence such deposit.

  4.  Rights of Bank with Respect to Deposit: (a) The Bank may from time to time
      --------------------------------------
(i) apply any
<PAGE>

                                      -3-

funds in the Deposit to satisfy the Liabilities (or any part thereof) as the
same shall become due or payable in accordance with the terms thereof and as
otherwise provided by applicable law, in each case, regardless of the stated
maturity of the Deposit, (ii) exercise all rights of Pledgor in the Deposit and
(iii) retain all income or interest on the Deposit as additional Collateral.

  (b) As long as any of the Liabilities to which this Agreement applies shall be
outstanding and no Event of Default shall have occurred, on the maturity date of
the Deposit, the amount due with respect thereto, including interest thereon,
will automatically be placed in a new deposit, which shall then be deemed to be
the "Deposit."  The term of such Deposit shall be, at the option of and upon
notice by the Pledgor given to the Depository at least seven Business Days prior
to the then existing maturity date, one of such terms as may be permitted at
such time by the Depository, or in the absence of such selection by the Pledgor
and notice to the Depository, a term selected by the Depository not to exceed
the longer of one year or the term of the maturing Deposit.

  5.  Representations, Warranties and Covenants:  Pledgor hereby represents and
      -----------------------------------------
warrants to, and covenants with, the Bank that, (a) the Collateral existing on
the date hereof is and will continue to be, and, as to Collateral arising after
the date hereof, will be, free from all security interests or other encumbrances
except the Bank's rights under this Agreement and/or any other agreement between
Pledgor and the Bank, (b) Pledgor has full right, power and authority to enter
into this Agreement, grant the security interests in the Collateral hereunder
and perform Pledgor's obligations hereunder, (c) the execution, delivery and
performance of this Agreement, the pledge of the Collateral hereunder and the
exercise of the Bank's rights hereunder and/or under applicable law do not and
will not violate or contravene the terms of Pledgor's charter documents or any
agreement, instrument, law, rule, regulation, or judgment binding on Pledgor or
its properties, (d) no registration with, or consent or approval of, or other
action by or with, any court or governmental body or authority or any other
Person is required in connection with the execution, delivery and performance of
this Agreement or the exercise of the Bank's rights hereunder, (e) this
Agreement constitutes the legal, valid and binding obligation of Pledgor
enforceable in accordance with its terms, (f) the security interests granted
hereunder to the Bank are and will continue to be (or will be, in the case of
Collateral hereafter arising) a valid first lien on and security interest in the
Collateral, superior and prior to the rights of all third Persons, and no filing
or other act is required to create and perfect such lien and security interest,
and (g) the Pledgor is not presently insolvent and the transfer and pledge of
the Collateral to the Bank does not result in the insolvency of the Pledgor.

  6.  Further Assurances; Bank Appointed Attorney-in-Fact:  Pledgor agrees at
      ---------------------------------------------------
Pledgor's own expense to take such actions and to execute such writings as the
Bank may request from time to time and irrevocably authorizes the Bank to take
such actions and to execute such writings as Pledgor's agent and attorney-in-
fact, which authorization is irrevocable and coupled with an interest to
perfect, confirm and assure the Bank's security interest in the Collateral, to
assist the Bank's realization thereon and to otherwise accomplish the purposes
hereof.

  7.  Rights and Remedies Upon Default:  Upon the occurrence of any Event of
      --------------------------------
Default, the Bank shall have, in addition to other rights provided in this
Agreement and the rights of a secured party under the Uniform Commercial Code as
in effect in the State of New York and under any other applicable law as in
effect from time to time, the right, without prior notice (except as may be
required by law and may not be waived) to, or consent from, the Pledgor and
without releasing or affecting this Agreement or the Pledgor's obligation
hereunder, to (i) demand and receive payments on or from the Deposit and give
releases, receipts and acquittances therefor, (ii) exercise any right of set-off
the Bank may have with respect to the Deposit (regardless of its stated
maturity), (iii) effect one or more withdrawals from the Account (regardless of
its stated maturity) as may be required to pay wholly or partially any Liability
of the Pledgor or any Debtor referred to in, or any obligation of the Pledgor
created by, this Agreement at any time outstanding, and (iv) apply any amounts
so withdrawn, set-off or received on account of any Liability referred to in, or
any obligation of the Pledgor created by, this Agreement.
<PAGE>

                                      -4-

  In the course of exercising the remedies provided for hereunder and/or under
applicable law, the Bank shall have the right to apply any amount held, realized
or received by it first, toward the payment of any of its costs and expenses in
enforcing this Agreement, in realizing upon or protecting any Collateral and in
enforcing or collecting, or preserving its rights with respect to, the
Liabilities (including, without limitation, attorneys' fees and expenses),
second, to the payment of all other Liabilities in such order as the Bank may
elect, and third, as otherwise provided by applicable law.  Any instruments or
certificates evidencing any Collateral remaining after the Liabilities have been
paid in full shall be delivered to Pledgor or Pledgor's successors or assigns or
as otherwise required under applicable law.

  8.  Security Interest Absolute: The obligations of Pledgor hereunder shall
      --------------------------
remain in full force and effect without regard to, and shall not be impaired by:
(a) any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or the like of any Debtor or any guarantor, endorser or
other Person providing security or otherwise liable for any of the Liabilities;
(b) any exercise or nonexercise, or any waiver, by the Bank of any right,
remedy, power or privilege under or in respect to the Liabilities or any other
agreement, instrument or document executed in connection with or relating to or
evidencing any of the Liabilities or any security for or any guarantee of any of
the Liabilities (other than this Agreement); (c) any extension, renewal,
continuation of or amendment to or modification of any of the Liabilities, any
agreement, instrument or document executed in connection with or relating to or
evidencing any of the Liabilities or any security for or any guarantee of any of
the Liabilities (other than this Agreement); or (d) the invalidity, irregularity
or unenforceability of all or any part of the Liabilities or any security for or
any guarantee of any of the Liabilities, whether or not Pledgor shall have
notice or knowledge of any of the foregoing.

  9.  Reinstatement of Liability: If claim is ever made upon the Bank for
      --------------------------
repayment or recovery of any amount or amounts received by the Bank in payment
or on account of any of the Liabilities of any Debtor and the Bank repays all or
part of said amount by reason of (a) any judgment, decree or order of any court
or administrative body having jurisdiction over the Bank or any of its property,
or (b) any settlement or compromise of any such claim effected by the Bank with
any such claimant (including such Debtor), then any such judgment, decree,
order, settlement or compromise shall be binding upon Pledgor, notwithstanding
any revocation hereof or the cancellation of any note or other instrument
evidencing any liability of such Debtor, and Pledgor shall be and remain liable
to the Bank hereunder for the amount so repaid or recovered to the same extent
as if such amount had never originally been received by the Bank.

  10. Waiver of Subrogation and Creditor Status: Pledgor irrevocably waives and
      -----------------------------------------
gives up any and all legal and equitable rights and claims arising from the
existence or performance of this Agreement that Pledgor may now or hereafter
have and that would result in the Pledgor being deemed a "creditor" (under the
U.S. federal Bankruptcy Code or any other law) of any Debtor or of any other
person or entity directly or contingently liable for any of the Liabilities of
such Debtor (a "Third Party"), including without limitation all rights of
subrogation, indemnity, reimbursement, exoneration and/or contribution, and
including without limitation any such right or claim against or with respect to
any property (including without limitation any collateral security) of such
Debtor or of any Third Party.  In furtherance, and not in limitation, of the
preceding waiver, Pledgor agrees that any exercise by the Bank of its security
interest in any of the Collateral securing any of the Liabilities of any Debtor
shall be deemed a contribution to the capital of such Debtor, and any such
payment shall not constitute Pledgor as a "creditor" of any such Debtor or of
any Third Party.

  11. Limitation on Bank Liability:  Beyond the exercise of reasonable care to
      ----------------------------
assure the safe custody of the Collateral in its possession, the Bank shall have
no duty or liability to preserve rights pertaining thereto.  Furthermore, the
Bank is under no duty to the Pledgor to protect, secure, insure or obtain or
perfect any security interest in any property pledged by any other Person in
connection with any Liability of the Pledgor or of any Debtor.  In any event,
the Bank and its directors, officers and employees shall not be liable for any
special, consequential or punitive damages.
<PAGE>

                                      -5-

  12. Indemnification:  Pledgor agrees to indemnify and hold the Bank and/or
      ---------------
any agents of the Bank harmless from and against, and pay on demand to the Bank
or such agents, any and all loss, liability, cost and expense (including filing
fees and reasonable attorneys' fees and expenses in advising, representing or
litigating on behalf of the Bank) in connection with any matter relating to
Pledgor, the Collateral and/or this Agreement, including the Bank's exercising
any of its rights, remedies and powers hereunder, unless such loss, liability,
cost or expense shall be due to willful misconduct or gross negligence on the
part of the Bank or such agents.  Any such loss, liability, cost or expense
shall, from the date incurred, be part of the Liabilities secured by this
Agreement.

  13. Waiver of Protest, etc.:  Pledgor waives notice of acceptance of this
      -----------------------
Agreement and notice of any Liability to which it may apply, and waives
presentment, notice of payment, protest, notice of dishonor or nonpayment of any
Liabilities of any Debtor, or of any suit or the taking of other action by the
Bank against, and any other notice to, any Person liable thereon.

  14. Parties: Pledgor, if more than one, shall be jointly and severally liable
      -------
under this Agreement.  Anyone signing this Agreement shall be bound hereby,
whether or not anyone else signs this Agreement at any time.  Any reference
herein to the Pledgor or to any Debtor shall include (a) any successor or
successors to which all or substantially all of the business or assets of
Pledgor or of such Debtor shall have been transferred directly or indirectly and
(b) any other corporation, firm or entity into or with which Pledgor or any
Debtor shall have merged, consolidated or reorganized.  The term "Bank" includes
any agent of the Bank acting for it.

  15. Amendments, etc.: None of the terms or conditions of this Agreement may
      ----------------
be changed, waived, modified or varied in any manner whatever unless in a
writing duly signed on behalf of the Bank; and each such waiver, if any, shall
be a waiver only with respect to the specific instance involved and shall in no
way impair the rights of the Bank or the obligations of the Pledgor to the Bank
in any other respect at any other time.

  16. Provisions of Other Agreements: Neither the provisions of this Agreement
      ------------------------------
nor the Bank's acceptance of a pledge of and/or security interest in the
Collateral shall in any way limit, diminish or waive any of the Bank's rights
under any other agreement with Pledgor or any other Person, by law or otherwise.

  17. No Representation of Nonenforcement: Pledgor acknowledges that no
      -----------------------------------
representative or agent of the Bank has represented or indicated that the Bank
will not enforce any provision of this Agreement in the event of litigation or
otherwise.

  18. Benefit of Agreement; Revocation: This Agreement is binding upon Pledgor
      --------------------------------
and the executors, administrators, successors and assigns of Pledgor; provided,
however, Pledgor may not, without the prior written consent of the Bank, assign
any of its rights or obligations hereunder to any person. Pledgor agrees that
this Agreement shall continue until a written revocation signed by Pledgor, or
in case of the death of the Pledgor, by some person qualified to act for the
estate of the Pledgor, is received by the Bank, and that such revocation shall
not affect the rights of the Bank in the Collateral and proceeds thereof arising
prior to receipt of such revocation.

  19. Pledgor as Partnership: In the event that Pledgor is a partnership, this
      ----------------------
Agreement shall continue in effect and apply to all obligations of Pledgor
and/or any successor partnership(s) from time to time incurred or accruing
before or after any dissolution, termination or changes in personnel of the
Pledgor and/or any successor partnership(s).

  20. Bank Transfers:  (a) Transferability.  Without limiting the Bank's rights
      --------------       ---------------
hereunder the Bank may make a Transfer of all or any part of (i) any obligation
of Pledgor to the Bank, (ii) any obligation of
<PAGE>

                                      -6-

any other party in connection with any of such obligations, (iii) any agreement
of any party in connection with any of such obligations, (iv) any collateral,
mortgage, lien or security interest, however denominated, securing any of such
liabilities, and/or (v) the Bank's rights and, if any, liabilities with respect
to any of the foregoing. (b) Extent of Transfer.  In the event the Bank shall
                             ------------------
make any Transfer of any of the above listed items ("Transferred Items"), then,
to the extent provided by the Bank with respect to such Transfer, the Transferee
shall have the rights, powers, privileges and remedies of the Bank. The Bank
shall thereafter, to the extent of such Transfer, be forever relieved and fully
discharged from all liability or responsibility, if any, that it may have to any
Person with respect thereto, except for claims, if any, arising prior to or upon
such Transfer. The Bank shall retain all its rights and powers with respect to
any Transferred Items to the extent that it has not made a Transfer thereof.
(c) Disclosures. The Bank is authorized to disclose to any prospective or
    -----------
actual Transferee any information that the Bank may have or acquire about
Pledgor and any information about any other Person submitted to the Bank by or
on behalf of Pledgor.

     21.  Definitions: As used herein, the following terms shall have the
          -----------
meanings specified below and shall include in the singular number the plural and
in the plural number the singular:

"Business Day" shall mean any day on which banks in New York City and, if
different, the city where the Office is located, are regularly open for
business.

"Event of Default" shall mean the occurrence of any of the following: (i) a
default or Event of Default under any documentation for any loan or other
facility made available by the Bank to Pledgor or to any Debtor, (ii) the
Pledgor shall fail, following three Business Days' notice from the Bank to make
any required deposits as may be required pursuant to Section 4(b) hereof or the
Pledgor shall fail to perform any of its other obligations hereunder, (iii) any
representation or warranty made by the Pledgor in this Agreement shall prove to
be incorrect or misleading in any material respect,  or (iv) any levy upon,
seizure of, or the commencement of any legal proceeding against the Collateral.

"Governmental Authority" shall mean any domestic or foreign, national or local
(a) government, (b) governmental, quasi-governmental or regulatory agency or
authority, (c) court or (d) central bank or other monetary authority.

"Liabilities" shall mean any and all indebtedness, obligations and liabilities
(in whole or in part) for the payment of money, whether (a) absolute or
contingent, (b) joint, several or independent, (c) now or hereafter existing,
(d) due or to become due, (e) secured or unsecured, of Pledgor or any Debtor to,
or held or to be held by, the Bank in any jurisdiction worldwide for its own
account or as agent for another or others, whether created directly or acquired
by Transfer or otherwise, and any and all extensions, continuations, renewals
and/or modifications thereof.

"Office" shall mean 1177 Avenue of the Americas, New York City, or such other
office or address as the Bank may notify the Pledgor.

"Person" shall mean any person, partnership, joint venture, company,
corporation, unincorporated organization or association, trust, estate,
Governmental Authority, or any other entity.

"Transfer" shall mean any negotiation, assignment, participation, conveyance,
grant of a security interest, lease, delegation or any other direct or indirect
transfer of a complete or partial, legal, beneficial, economic or other interest
or obligation.

"Transferee" shall mean any Person to whom a transfer is made.

     22.  Jurisdiction; Waiver of Sovereign Immunity: Pledgor submits to the
          ------------------------------------------
non-exclusive jurisdiction of the federal and state courts in the State of New
York and, if different, the state where the
<PAGE>

                                      -7-

Office is located, with respect to any legal action or proceeding arising
hereunder or relating to any of the obligations of Pledgor. Pledgor hereby
irrevocably consents to service of process in any such action or proceeding in
any of such courts by personal delivery at, or by mail addressed to any address
to which the Bank may address notices to the Pledgor as set forth below. Pledgor
waives the right to assert any counterclaim or setoff in any litigation brought
to enforce the Bank's above and remedies hereunder. In connection with any
litigation, Pledgor irrevocably waives any sovereign immunity that it may have
or hereafter acquire, including but not limited to immunity from the
jurisdiction of any court, from any legal process, from attachment prior to
judgment, from attachment in aid of execution, from execution or otherwise.

  23.  CHOICE OF LAW; WAIVER OF JURY TRIAL: THIS AGREEMENT AND RIGHTS AND
       -----------------------------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE INTERNAL LAW OF THE STATE OF NEW YORK EXCEPT TO THE EXTENT
THAT PERFECTION OF THE SECURITY INTEREST HEREUNDER OR REMEDIES HEREUNDER IN
RESPECT OF ANY COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN
THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO CONFLICTS OF LAW PRINCIPLES.
PLEDGOR WAIVES, AND UNDERSTANDS THAT THE BANK WAIVES, ANY RIGHT IT MAY HAVE TO
TRIAL BY JURY IN ANY PROCEEDING BROUGHT IN CONNECTION WITH THIS AGREEMENT.

  24.  Continuing Nature of Agreement: This Agreement is a continuing one, and
       ------------------------------
all Liabilities to which it applies or may apply under the terms hereof shall be
conclusively presumed to have been created in reliance hereon.

  25.  Descriptive Headings: The descriptive headings for the sections of this
       --------------------
Agreement are inserted for reference only and shall not be deemed to affect the
meaning or construction of any provision of this Agreement or be considered a
part of this Agreement.

  26.  Notices: Any notice in connection with this Agreement shall be in writing
       -------
and may be delivered personally or by cable, telex, telecopy or other electronic
means of communication, or certified mail, return receipt requested, addressed
(a) to Pledgor as set forth above or to any other address that the Bank believes
to be the address of the Pledgor, and (b) to the Bank at Bank Hapoalim B.M.,
1177 Avenue of the Americas, New York, New York 10036, Attention:  Legal
Department or to such other address as the Bank may notify the Borrower.  Any
such notice or other communication may also be addressed to such other
address(es) as may be designated in writing afterwards.  All such notices or
other communications shall be deemed given when delivered personally or
electronically or when mailed, except notice of change of address or notice of
revocation pursuant to Section 18 hereof, each of which shall be deemed to have
been given only when received.

  27.  "In Trust For" Accounts:  If the Deposit or the Account is held in
        ----------------------
trust for one or more beneficiaries, the Pledgor acknowledges that whenever the
Bank chooses to exercise any of its rights hereunder, then to such extent the
trust created in the Deposit or the Account or the benefit of such beneficiaries
shall be revoked, terminated and/or modified.

  28.  Termination; survival:  The Bank may terminate this Agreement by
       ---------------------
notice to the Pledgor Section 12 will survive termination of this Agreement.

  29.  Entire agreement:  This Agreement is the entire agreement, and
       ----------------
supersedes any prior agreements and contemporaneous oral agreements, of the
parties concerning its subject matter.

  30.  Amendments:  No amendment of, or waiver of a right under, this
       ----------
Agreement will be binding unless it is in writing and signed by the party to be
charged.
<PAGE>

                                      -8-

     31.  Severability:  To the extent a provision of this Agreement is
          ------------
unenforceable, this Agreement will be construed as if the unenforceable
provisions were omitted.

For Pledgors that are individuals:      For all other Pledgors (e.g.
                                        corporations or partnerships):

(Signature) _____________________              Level 8 Systems, Inc.
                 PLEDGOR                -----------------------------------
                                               NAME OF PLEDGOR

_________________________________       By:________________________________
           PRINT NAME OF PLEDGOR                  (Signature)

(Signature)______________________       By:________________________________
                 PLEDGOR                Title or Capacity:_________________
                                        (if signing on behalf of Pledgor)

_________________________________       By:________________________________
           PRINT NAME OF PLEDGOR                  (Signature)

                                        Title or Capacity:_________________
                                        (if signing on behalf of Pledgor)<PAGE>

                                                                  EXHIBIT 10.20C

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR QUALIFIED UNDER ANY STATE OR FOREIGN SECURITIES LAW, AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE OR
FOREIGN SECURITIES LAWS, OR THE HOLDER RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH SALE, OFFER, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE SECURITIES ACT AND THE QUALIFICATION REQUIREMENTS UNDER
APPLICABLE STATE OR FOREIGN SECURITIES LAW.

                             LEVEL 8 SYSTEMS, INC.

                  WARRANT TO PURCHASE SHARES OF COMMON STOCK
                  ------------------------------------------

LEVEL 8 SYSTEMS, INC., a Delaware Corporation (the "Company"), hereby grants to
Tarshish Hahzakot VeHashkaot Hapoalim LTD (the "Holder"), the right to purchase
from the Company the number of shares of Common Stock of the Company, par value
$0.001 (the "Common Shares") specified below, subject to the terms and
conditions set forth below, effective as of December 28, 2000 (the "Effective
Date").

1.   Number of Common Shares Available for Purchase and Exercise Price
     -----------------------------------------------------------------

     This Warrant may be exercised to purchase that number of the Company's
     Common Shares having an aggregate exercise price in an amount equivalent to
     seven hundred and fifty thousand United States dollars (US$750,000), at an
     exercise price per each Common Share which shall be equal to the mean of
     the closing or last sale prices of the Common Shares over the period
     beginning on the first U.S. business day following the Effective Date and
     ending on the fourteenth (14/th/) U.S. business day following the Effective
     Date, as quoted on NASDAQ/NMS, subject to adjustments under Section 8 of
     this Warrant (the "Warrant Shares").

2.   Intentionally Omitted.
     ---------------------

3.   Term
     ----

     This Warrant may be exercised, in whole, or in part, during the period
     beginning one day after the fourteenth (14/th/) U.S. business day following
     the Effective Date and ending on the date which is four (4) years following
     the Effective Date.
<PAGE>

                                      -2-

4.   Exercise of Warrant
     -------------------

     This Warrant may be exercised in whole or in part on one or more occasions
     during its term. The Warrant may be exercised by the surrender of the
     Warrant to the Company at its principal office together with the Notice of
     Exercise annexed hereto duly completed and executed on behalf of the
     Holder.

     a.   Exercise for Cash
          -----------------

          To exercise for cash, the Notice of Exercise must be accompanied by
          payment in full of the amount of the aggregate purchase price of the
          Warrant Shares being purchased upon such exercise in immediately
          available funds.

     b.   Net Exercise
          ------------

          In lieu of the payment method set forth in Section 4(a) above, the
          Holder may elect to exchange the Warrant for a number of Warrant
          Shares equal to the increase in value of the Warrant Shares otherwise
          purchasable hereunder on the date of exchange. If the Holder elects to
          exchange this Warrant as provided in this Section 4(b), the Holder
          shall tender to the Company the Warrant along with the Notice of
          Exercise, and the Company shall issue to the Holder the number of
          Warrant Shares computed using the following formula:

          X = Y (A-B)
              -------
                 A

          Where X = the number of Warrant Shares to be issued to the Holder.

          Y = the number of shares of Warrant Shares purchasable under the
          Warrant (as adjusted to the date of such calculation, but excluding
          those shares already issued under this Warrant).

          A = the Fair Market Value (as defined below) of one share of the
          Company's Common Shares.

          B = Exercise Price (as adjusted to the date of such calculation).

          "Fair Market Value" of an Common Share shall mean:

          (i)  If the Company's Common Shares are listed on a national
               securities exchange or is quoted on the National Association of
               Securities Dealers, Inc. Automated Quotation/National Market
               System (NASDAQ/NMS), then the closing or last sale price,
               respectively, reported for the exercise date.
<PAGE>

                                      -3-

          (ii)   If the Company's Common Shares are not listed on a national
                 securities exchange or quoted on NASDAQ/NMS, but are traded in
                 the over-the-counter market, then the mean of the closing bid
                 and asked prices as reported for the exercise date.

          (iii)  If the Company's Common Shares are not publicly traded, then as
                 determined by the Company's Board of Directors in good faith.

          In the event of a net exercise, the entire Warrant must be
          surrendered, and no new Warrant shall be issued.

     c.   Issuance of Shares on Exercise
          ------------------------------

          The Company agrees that the Warrant Shares so purchased shall be
          issued as soon as practicable thereafter, and that the Holder shall be
          deemed the record owner of such Warrant Shares as of and from the
          close of business on the date on which this Warrant shall be
          surrendered, together with payment in full as required above. In the
          event of a partial exercise, the Company shall concurrently issue to
          the Holder a replacement Warrant on the same terms and conditions as
          this Warrant, but representing the number of Warrant Shares remaining
          after such partial exercise

5.   Fractional Interest
     -------------------

     No fractional shares will be issued in connection with any exercise
     hereunder, but in lieu of such fractional shares the Company shall make a
     cash payment therefor upon the basis of the current market price of such
     shares then in effect as determined in good faith by the Company's Board of
     Directors.

6.   Warrant Confers No Rights of Shareholder
     ----------------------------------------

     The Holder shall not have any rights as a shareholder of the Company with
     regard to the Warrant Shares prior to actual exercise resulting in the
     purchase of any Warrant Shares

7.   Investment Representation
     -------------------------

     Neither this Warrant nor the Warrant Shares issuable upon the exercise of
     this Warrant have been registered under the Securities Act, or any other
     securities laws. The Holder acknowledges by acceptance of the Warrant that
     (a) it has acquired this Warrant for investment and not with a view to
     distribution; (b) it has either a pre-existing personal or business
     relationship with the Company, or its executive officers, or by reason of
     its business or financial experience, it has the capacity to protect its
     own interests in connection with the transaction; and (c) it is an
     accredited investor as that term is defined in Regulation D promulgated
     under the Securities Act. The Holder agrees that any Warrant Shares
     issuable upon exercise of this Warrant will be acquired for investment
<PAGE>

                                      -4-

     and not with a view to distribution and such Warrant Shares will not be
     registered under the Securities Act and applicable state securities laws
     and that such Warrant Shares may have to be held indefinitely unless they
     are subsequently registered or qualified under the Securities Act and
     applicable state securities laws, or based on an opinion of counsel
     reasonably satisfactory to the Company, an exemption from such registration
     and qualification is available. The Holder, by acceptance hereof, consents
     to the placement of legend(s) on all securities hereunder as to the
     applicable restrictions on transferability in order to ensure compliance
     with the Securities Act, unless in the opinion of counsel for the Company
     such legend is not required in order to ensure compliance with the
     Securities Act. The Company may issue stop transfer instructions to its
     transfer agent in connection with such restrictions.

8.   Adjustment of Warrant Price and Number of Shares
     ------------------------------------------------

     The number of securities purchasable initially upon the exercise of this
     Warrant and the Warrant Price shall be subject to adjustment from time to
     time upon the occurrence of certain events, as follows:

     a.   Adjustment for Shares Splits and Combinations If the Company at any
          ---------------------------------------------
          time or from time to time effects a subdivision of the outstanding
          Common Shares, the number of Common Shares issuable upon exercise of
          this Warrant immediately before the subdivision shall be
          proportionately increased, and conversely, if the Company at any time
          or from time to time combines the outstanding Common Shares, the
          number of Common Shares issuable upon exercise of this Warrant
          immediately before the combination shall be proportionately decreased.
          Any adjustment under this Section 8(a) shall become effective at the
          close of business on the date the subdivision or combination becomes
          effective.

     b.   Adjustment for Certain Dividends and Distributions In the event the
          --------------------------------------------------
          Company at any time, or from time to time makes, or fixes a record
          date for the determination of holders of Common Shares entitled to
          receive a dividend or other distribution payable in additional shares
          of Common Shares, then and in each such event the number of Common
          Shares issuable upon exercise of this Warrant shall be increased as of
          the time of such issuance or, in the event such a record date is
          fixed, as of the close of business on such record date, by multiplying
          the number of Common Shares issuable upon exercise of this Warrant by
          a fraction: (i) the numerator of which shall be the total number of
          Common Shares issued and outstanding immediately prior to the time of
          such issuance or the close of business on such record date plus the
          number of Common Shares issuable in payment of such dividend or
          distribution, and (ii) the denominator of which is the total number of
          shares of Common Shares issued and outstanding immediately prior to
          the time of such issuance or the close of business on such record
          date; provided, however, that if such record date is fixed and such
                -----------------
          dividend is not fully paid or if such distribution is not fully made
          on the date fixed thereof, the number of Common Shares issuable upon
          exercise of this Warrant shall be recomputed
<PAGE>

                                      -5-

          accordingly as of the close of business on such record date and
          thereafter the number of shares of Common Shares issuable upon
          exercise of this Warrant shall be adjusted pursuant to this Section
          8(b) as of the time of actual payment of such dividends or
          distributions.

     c.   Adjustments for Other Dividends and Distributions. In the event the
          -------------------------------------------------
          Company at any time or from time to time makes, or fixes a record date
          for the determination of holders of Common Shares entitled to receive
          a dividend or other distribution payable in securities of the Company
          other than Common Shares, then in each such event provision shall be
          made so that the Holder shall receive upon exercise of this Warrant,
          in addition to the number of Common Shares receivable thereupon, the
          amount of securities of the Company that the Holder would have
          received had this Warrant been exercised for Common Shares immediately
          prior to such event (or the record date for such event) and had the
          Holder thereafter, during the period from the date of such event to
          and including the date of exercise, retained such securities
          receivable by it as aforesaid during such period, subject to all other
          adjustments called for during such period under this Section and the
          Company's Certificate of Incorporation or By-laws with respect to the
          rights of the Holder.

     d.   Adjustment for Reclassification, Exchange and Substitution If the
          ----------------------------------------------------------
          Common Shares issuable upon the exercise of this Warrant are changed
          into the same or a different number of shares of any class or classes
          of shares, whether by recapitalization, reclassification or otherwise
          (other than a subdivision or combination of shares or shares dividend
          or a reorganization, merger, consolidation or sale of assets, provided
          for elsewhere in this Section), then and in any such event the Holder
          shall have the right thereafter to exercise this Warrant into the kind
          and amount of shares and other securities receivable upon such
          recapitalization, reclassification or other change, by holders of the
          number of shares of Common Shares for which this Warrant might have
          been exercised immediately prior to such recapitalization,
          reclassification or change, all subject to further adjustment as
          provided herein and under the Company's Certificate of Incorporation
          or By-laws.

     e.   Reorganization, Mergers, Consolidations or Sales of Assets If at any
          ----------------------------------------------------------
          time from time to time there is a capital reorganization of the Common
          Shares (other than a recapitalization, subdivision, combination,
          reclassification or exchange of shares provided for elsewhere in this
          Subsection) or a merger or consolidation of the Company with or into
          another corporation, or the sale of all or substantially all of the
          Company's properties and assets to any other person, then, as a part
          of such reorganization, merger, consolidation or sale, provision shall
          be made so that the Holder shall thereafter be entitled to receive
          upon exercise of this Warrant, the number of shares or other
          securities or property of the Company, or of the successor corporation
          resulting from such merger or consolidation or sale, to which a holder
          of Common Shares deliverable upon conversion would have been
<PAGE>

                                      -6-

          entitled on such capital reorganization, merger, consolidation or
          sale. In any such case (except to the extent any cash or property is
          received in such transaction), appropriate adjustment shall be made in
          the application of the provisions of this Subsection and the Company's
          Certificate of Incorporation with respect to the rights of the Holder
          after the reorganization, merger, consolidation or sale to the end
          that the provisions of this Subsection and the Company's Certificate
          of Incorporation (including adjustment of the number of shares of
          Common Shares issuable upon exercise of this Warrant) shall be
          applicable after that event and be as nearly equivalent to the
          provisions hereof as may be practicable.

     f.   Other Transactions. In the event that the Company shall issue shares
          ------------------
          to its shareholders as a result of a split-off, spin-off or the like,
          then the Company shall only complete such issuance or other action if,
          as part thereof, allowance is made to protect the economic interest of
          the Holder either by increasing the number of Warrant Shares or by
          procuring that the Holder shall be entitled, on economically
          proportionate terms, to acquire additional shares of the spun-off or
          split-off entities.

     g.   General Protection. The Company will not, by amendment of its
          ------------------
          Certificate of Incorporation or other charter document or through any
          reorganization, recapitalization, 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 hereunder, or impair
          the economic interest of the Holder, but will at all times in good
          faith assist in the carrying out of all the provisions hereof and in
          taking of all such actions and making all such adjustments as may be
          necessary or appropriate in order to protect the rights and the
          economic interests of the Holder against impairment.

     h.   Notice of Capital Changes. If at any time the Company shall offer for
          -------------------------
          subscription pro rata to the holders of Common Shares any additional
                       --------
          shares of any class, other rights or any equity security of any kind,
          or there shall be any capital reorganization or reclassification of
          the capital shares of the Company, or consolidation or merger of the
          Company with, or sale of all or substantially all of its assets to
          another company or there shall be a voluntary or involuntary
          dissolution, liquidation or winding up of the Company, or other
          transaction described in this Section 8, then, in any one or more of
          said cases, the Company shall give the Holder written notice, by
          registered or certified mail, postage prepaid, of the date on which
          (i) a record shall be taken for such subscription rights or (ii) such
          reorganization, reclassification, consolidation, merger, sale,
          dissolution, liquidation or winding up shall take place, as the case
          may be. Such notice shall also specify the date as of which the
          holders of record of Common Shares shall participate in such
          subscription rights, or shall be entitled to exchange their Common
          Shares for securities or other property deliverable upon such
          reorganization, reclassification, consolidation, merger, sale,
          dissolution, liquidation or winding up, as the case may be. Such
          written notice shall be given
<PAGE>

                                      -7-

          at least fourteen (14) days prior to the action in question and not
          less than fourteen (14) days prior to the record date in respect
          thereto.

     i.   Adjustment of Warrant Price. Upon each adjustment in the number of
          ---------------------------
          Common Shares purchasable hereunder, the Warrant Price shall be
          proportionately increased or decreased, as the case may be, in a
          manner that is the inverse of the manner in which the number of Common
          Shares purchasable hereunder shall be adjusted.

     j.   Notice of Adjustments. Whenever the Warrant Price or the number of
          ---------------------
          Common Shares purchasable hereunder shall be adjusted pursuant to
          Section 8 hereof, the Company shall prepare a certificate signed by
          the chief financial officer of the Company setting forth, in
          reasonable detail, the event requiring the adjustment, the amount of
          the adjustment, the method by which such adjustment was calculated,
          and the Warrant Price and the number of Common Shares purchasable
          hereunder after giving effect to such adjustment, and shall cause
          copies of such certificate to be mailed (by first class mail, postage
          prepaid) to the Holder.

9.   Transfer of This Warrant or Securities Issuable on Exercise Hereof
     ------------------------------------------------------------------

     1.   With respect to any offer, sale or other disposition of this Warrant
          or securities into which such Warrant may be exercised, the Holder
          will give written notice to the Company prior thereto, describing
          briefly the manner thereof, together with, if requested by the
          Company, a written opinion of such Holder's counsel, to the effect
          that such offer, sale or other distribution may be effected without
          registration or qualification (under any federal or state law then in
          effect). Such opinion letter and all such transferees must warrant and
          represent that they are an "accredited" investor as that term is
          defined under Regulation D of the Securities Act. Promptly, as
          practicable, upon receiving such written notice and opinion and
          warranties and representations, if so requested, the Company, as
          promptly as practicable, shall deliver to the Holder one or more
          replacement Warrant certificates on the same terms and conditions as
          this Warrant for delivery to the transferees. Each Warrant thus
          transferred and each certificate representing the securities thus
          transferred shall bear legend(s) as to the applicable restrictions on
          transferability in order to ensure compliance with the Securities Act,
          unless in the opinion of counsel for the Company such legend is not
          required in order to ensure compliance with the Securities Act. The
          Company may issue stop transfer instructions to its transfer agent in
          connection with such restrictions. Any provision of this Warrant to
          the contrary notwithstanding, the Holder may not offer, sell or
          otherwise dispose of this Warrant to any third party, other than (i)
          to a wholly owned subsidiary of Bank Hapoalim B.M., or (ii) to any
          other transferee approved by the Company in writing with such approval
          not to be unreasonably withheld.

     2.   In the event that the Company or its shareholders receive an offer to
          transfer all or substantially all of the shares in the Company, or to
          effect a merger or acquisition, or
<PAGE>

                                      -8-

          sale of all or substantially all of the assets of the Company, then
          the Company shall promptly inform the Holder in writing of such offer.

10.  Registration Rights
     -------------------

     The Company covenants and agreed as follows:

     a.   Definitions  For purposes of this Section 10:
          -----------

               "Registrable Shares" means (i) the Warrant Shares, and (ii) any
               Common Shares of the Company issued as (or issuable upon the
               conversion or exercise of any warrant, right or other security
               that is issued as) a dividend or other distribution with respect
               to, or in exchange for or in replacement of, such Warrant Shares;
               provided, however, that any exercise of this Warrant in
               connection with an exercise of rights to registration under this
               Section 10 may be made conditional upon the closing of the
               offering contemplated by such registration.

               "Register", "registered" and "registration" refer to a
                -------     ----------       ------------
               registration effected by filing a registration statement in
               compliance with the Securities Act and the declaration or
               ordering by the Commission of effectiveness of such registration
               statement, or the equivalent actions under the laws of another
               jurisdiction.

     b.   Incidental Registration. If the Company at any time proposes to
          -----------------------
          register any of its securities, it shall give notice to the Holder of
          such intention. Upon the written request of the Holder given within
          twenty (20) days after receipt of any such notice, the Company shall
          include in such registration all of the Registrable Shares indicated
          in such request, so as to permit the disposition of the shares so
          registered, at the expense of the Company.

     c.   Assignment of Registration Rights. The rights to cause the Company to
          ---------------------------------
          register Registrable Securities pursuant to the Registration Rights
          may be assigned by a Holder to a transferee or assignee of such
          securities to the same extent as permitted by Section 9 of this
          Warrant.

     d.   No Conflicting Agreements. The Company represents and warrants to the
          -------------------------
          Holder that the Company is not a party to any agreement that conflicts
          in any manner with the Holder's rights to cause the Company to
          register Registrable Securities pursuant to the Registration Rights.
          The Company covenants and agrees that it shall not, without the prior
          written consent of the holders of a majority of the outstanding
          Registrable Securities, amend, modify or restate the Registration
          Rights if the Holder would be adversely affected by the amendment in a
          different manner than other holders of "Registrable Shares" similarly
          situated.
<PAGE>

                                      -9-

     e.   Rights and Obligations Survive Exercise and Expiration of Warrant The
          -----------------------------------------------------------------
          rights and obligations of the Company and the Holder set forth in this
          Section 10 and in the Registration Rights shall survive the exercise,
          conversion and expiration of this Warrant.

     f.   Stand-Off Period. Upon written request by the Company, for a period of
          ----------------
          up to one-hundred-eighty (180) days commencing on the date of a public
          registration of the Company's Common Shares (the "Stand-off Period")
          other than a registration in which Warrant Shares are included, Holder
          shall not sell, pledge or otherwise transfer any Warrant Shares (or
          any other shares exchanged therefor), if this Warrant has been
          exercised, to any person or entity. If the Company has requested the
          Holder to adhere to a Stand-off Period, the Exercise Period of the
          Warrant shall be extended for a period equal to the term of the Stand-
          off Period requested by the Company.

11.  Representations and Warranties.
     ------------------------------

     The Company represents and warrants to the Holder as follows:

     a.   This Warrant has been duly authorized and executed by the Company and
          is a valid and binding obligation of the Company enforceable in
          accordance with its terms, subject to bankruptcy, insolvency,
          fraudulent transfer, reorganization moratorium .and similar laws of
          general applicability.

     b.   The Warrant Shares are duly authorized and reserved for issuance by
          the Company and, when issued in accordance with the terms hereof, will
          be validly issued, fully paid and nonassessable and not subject to any
          preemptive rights.

     c.   The execution and delivery of this Warrant are not, and the issuance
          of the Warrant Shares upon exercise of this Warrant in accordance with
          the terms hereof will not be, inconsistent with the Company's
          Certificate of Incorporation or By-laws, to the Company's knowledge do
          not and will not contravene any law, governmental rule or regulation,
          judgment or order applicable to the Company, and, except for consents
          that have already been obtained by the Company, do not and will not
          conflict with or contravene any provision of, or constitute a default
          under, any indenture, mortgage, contract or other instrument of which
          the Company is a party or by which it is bound or require the consent
          or approval of, the giving of notice to, the registration with or the
          taking of any action in respect of or by, any Federal, state or local
          government authority or agency or other person.

12.  Loss, Theft, Destruction or Mutilation of Warrant
     -------------------------------------------------

     Upon receipt by the Company of evidence reasonably satisfactory to it of
     the loss, theft, destruction or mutilation of any Warrant or Shares
     certificate, and in case of loss, theft or
<PAGE>

                                      -10-

     destruction, of indemnity, or security reasonably satisfactory to it, and
     upon reimbursement to the Company of all reasonable expenses incidental
     thereto, and upon surrender and cancellation of such Warrant or Shares
     certificate, if mutilated, the Company will make and deliver a new Warrant
     or Shares certificate of like tenor and dated as of such cancellation, in
     lieu of such Warrant or Shares certificate.

13.  Notices
     -------

     Any notice or other communication hereunder shall be in writing and shall
     be deemed to have been given upon delivery, if personally delivered or
     three business days after deposit if deposited in the mail for mailing by
     certified mail, postage prepaid, and addressed as follows:

     If to Holder:           Bank Hapoalim B.M.
                             Electronics Group - Industrial Sector
                             41-45 Rothschild Blvd.
                             Tel Aviv, Israel
                             attn.: ______________
                             fax: 03-567-5699

     If to Company:          Level 8 Systems, Inc.
                             Dennis McKinnie
                             Senior Vice President
                             8000 Regency Parkway
                             Cary, N.C. 27511

     Each of the above addressees may change its address for purposes of this by
     giving to the other addressees notice of such new address in conformance
     with this paragraph.

14.  Applicable Law; Jurisdiction
     ----------------------------

     This Warrant shall be governed by and construed in accordance with the laws
     of the State of Delaware. Any dispute arising under or in relation to this
     Warrant shall be resolved exclusively in the competent court in the State
     of Delaware, and each of the parties hereby submits irrevocably to the
     exclusive jurisdiction of such court.
<PAGE>

                                      -11-

15.  Entire Agreement
     ----------------

     This Warrant constitutes the entire agreement between the parties hereto
     with regard to the subject matters hereof, and supercedes any prior
     communications, agreements and/or understandings between the parties hereto
     with regard to the subject matters hereof.

     Dated:  December 28, 2000

     LEVEL 8 SYSTEMS, INC.

     By:     ________________________

     Title:  ________________________
<PAGE>

                                      -12-

                              NOTICE OF EXERCISE

To:

1.   The undersigned hereby elects to purchase _________ shares of Common Shares
     of ____________, pursuant to the terms of the attached Warrant, and tenders
     herewith payment of the purchase price for such shares in full.

2.   In exercising this Warrant, the undersigned hereby confirms and
     acknowledges that the shares of Common Shares are being acquired solely for
     the account of the undersigned and not as a nominee for any other party, or
     for investment, and that the undersigned will not offer, sell or otherwise
     dispose of any such shares of Common Shares except under circumstances that
     will not result in a violation of the Securities Act of 1933, as amended,
     or any state securities laws.

3.   Please issue a certificate representing said shares of Common Shares in the
     name of the undersigned.

4.   Please issue a new Warrant for the unexercised portion of the attached
     Warrant in the name of the undersigned.

______________________                  _________________________
(Date)                                  (Print Name)

                                        _________________________
                                        (Signature)

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