LEVEL 8 SYSTEMS INC
FORM OF WARRANT ISSUED TO THE PURCHASERS
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>5
<FILENAME>dex102.txt
<DESCRIPTION>FORM OF WARRANT ISSUED TO THE PURCHASERS
<TEXT>
<PAGE>


                                                                    Exhibit 10.2

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SHARES.

                                January 16, 2002

[_____________  shares]                                     Warrant No. _______


                              LEVEL 8 SYSTEMS, INC.
                             STOCK PURCHASE WARRANT

         THIS IS TO CERTIFY THAT _____________________ ("Holder"), or its
registered assigns, is entitled, at any time prior to the Expiration Date (as
hereinafter defined), to purchase from LEVEL 8 SYSTEMS, INC., a Delaware
corporation ("Company") (the Company and the Holder are hereinafter referred to
collectively as the "Parties" and individually as a "Party"), ____________
shares of Common Stock (as hereinafter defined and subject to adjustment as
provided herein), in whole or in part, at a purchase price of $2.50 per share
(subject to adjustment as provided herein), on the terms and conditions and
pursuant to the provisions hereinafter set forth.

1.       DEFINITIONS

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

         "Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing, other than Warrant Stock.

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

         "Buy-In" shall have the meaning set forth in Section 2.1(c).

         "Closing Date" shall have the meaning set forth in the Purchase
Agreement.

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

         "Common Stock" shall mean (except where the context otherwise
indicates) the common stock, $.001 par value, of the Company as constituted on
the Closing Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the holders of
shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation (as defined in Section 4.4) received by or
distributed to the holders of Common Stock of the Company in the circumstances
contemplated by Section 4.4.

         "Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for Additional
Shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.

         "Current Market Price" shall mean, in respect of any share of Common
Stock on any date herein specified (i) the closing sales price on such day on
the NASDAQ National Market System ("NASDAQ") or the principal stock exchange on
which such Common Stock is listed or admitted to trading, (ii) if no sale takes
place on such day on NASDAQ or any such exchange, the average of the last
reported closing bid and asked prices on such day as officially quoted on NASDAQ
or any such exchange, (iii) if the Common Stock is not then listed or admitted
to trading on NASDAQ or any stock exchange, the average of the last reported
closing bid and asked prices on such day in the over-the-counter market, as
furnished by the National Association of Securities Dealers Automatic Quotation
System or the National Quotation Bureau, Inc., (iv) if neither such corporation
at the time is engaged in the business of reporting such prices, as furnished by
any similar firm then engaged in such business, or (v) if there is no such firm,
as furnished by any member of the NASD selected mutually by the Holder and the
Company or, if they cannot agree upon such selection, as selected by two such
members of the NASD, one of which shall be selected by the Holder and one of
which shall be selected by the Company.

         "Current Warrant Price" shall mean, in respect of a share of Common
Stock at any date herein specified, $2.50 per share of Common Stock as of the
date hereof, subject to adjustment as provided herein.

         "Date of Exercise" shall have the meaning set forth in Section 2.1(b).

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

         "Exchange Agreement" shall have the meaning set forth in Section 4.5.

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

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         "Expiration Date" shall mean January 16, 2005.

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

         "Issuance Cap" shall have the meaning set forth in Section 4.5.

         "NASD" shall mean the National Association of Securities Dealers, Inc.,
or any successor corporation thereto.

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

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

         "Optional Redemption" shall have the meaning set forth in Section 7.1.

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

         "Purchase Agreement" shall mean the Securities Purchase Agreement dated
as of the date hereof by and between the Company and the Holder.

         "Preferred Stock" shall have the meaning set forth in Section 4.5.

         "Proceeding" shall have the meaning set forth in Section 16.8.

         "Redemption Date" shall have the meaning set forth in Section 7.3.

         "Redemption Notice" shall have the meaning set forth in Section 7.2.

         "Redemption Notice Date" shall have the meaning set forth in Section
7.3.

         "Redemption Price" shall have the meaning set forth in Section 7.2.

         "Restricted Common Stock" shall mean shares of Common Stock which are,
or which upon their issuance on the exercise of this Warrant would be, evidenced
by a certificate bearing the restrictive legend set forth in Section 10.1(a).

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

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         "Threshold Price" shall have the meaning set forth in Section 7.1.

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

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

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

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

2.       EXERCISE OF WARRANT

         2.1. Manner of Exercise. (a) From and after the Closing Date and until
6:30 P.M., New York time, on the Expiration Date, the Holder may exercise this
Warrant, for all or any part of the number of shares of Common Stock purchasable
hereunder. At 6:30 p.m., New York City time on the Expiration Date, the portion
of this Warrant not exercised prior thereto shall be and become void and of no
value; provided that, if the closing sales price of the Common Stock on the
Expiration Date is greater than 102% of the Current Warrant Price on the
Expiration Date, then this Warrant shall be deemed to have been exercised in
full (to the extent not previously exercised) on a "cashless exercise" basis at
6:30 P.M. New York City time on the Expiration Date.

         (b) In order to exercise this Warrant, in whole or in part, the Holder
shall deliver to the Company at its principal office at 8000 Regency Parkway,
Cary, North Carolina 27511, or at the office or agency designated by the Company
pursuant to Section 13, (i) a written notice of the Holder's election to
exercise this Warrant, which notice shall specify the number of shares of Common
Stock to be purchased, (ii) payment of the Warrant Price and (iii) this Warrant.
Such notice shall be substantially in the form of the subscription form
appearing at the end of this Warrant as Exhibit A, duly executed by the Holder
or its agent or attorney. Upon receipt thereof, the Company shall, as promptly
as practicable, and in any event within three (3) Business Days thereafter,
issue or cause to be issued and deliver or cause to be delivered to the Holder a
certificate or certificates representing the aggregate number of full shares of
Common Stock issuable upon such exercise, together with cash in lieu of any
fraction of a share, as hereinafter provided. The stock certificate or
certificates so delivered shall be, to the extent possible, in such denomination
or denominations as such Holder shall request in the notice and shall be
registered in the name of the Holder or, subject to Section 10, such other name
as shall be designated in the notice. This Warrant shall be deemed to have been
exercised and such certificate or certificates shall be deemed to have been
issued, and the Holder or any other Person so designated to be named therein
shall be deemed to have become a holder of record of such shares for all
purposes, as of the date the notice, together with the cash or check or checks
and this Warrant, is received

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by the Company as described above and all taxes required to be paid by the
Holder, if any, pursuant to Section 2.2 prior to the issuance of such shares
have been paid (such date, the "Date of Exercise"). If this Warrant shall have
been exercised in part, the Company shall, at the time of delivery of the
certificate or certificates representing Warrant Stock, deliver to the Holder a
new Warrant evidencing the rights of the Holder to purchase the unpurchased
shares of Common Stock called for by this Warrant, which new Warrant shall in
all other respects be identical with this Warrant, or, at the request of the
Holder, appropriate notation may be made on this Warrant and the same returned
to the Holder. Notwithstanding any provision herein to the contrary, the Company
shall not be required to register shares in the name of any Person who acquired
this Warrant (or part hereof) or any Warrant Stock otherwise than in accordance
with this Warrant. If the Company fails to deliver to the Holder the required
Warrant Stock in accordance with and pursuant to this Section by the third
Trading Day after the Date of Exercise, then the Holder will have the right to
rescind such exercise.

         (c) In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder the required Warrant Stock in accordance
with and pursuant to an exercise by the third Trading Day after the Date of
Exercise, and if after such third Trading Day the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Stock which the Holder
anticipated receiving upon such exercise (a "Buy-In"), then the Company shall
(1) pay in cash to the Holder the amount by which (x) the Holder's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of Warrant Stock that the Company was required to deliver to the Holder
in connection with the exercise at issue by (B) the closing price of the Common
Stock at the time of the obligation giving rise to such purchase obligation and
(2) at the option of the Holder, either reinstate the portion of the Warrant and
equivalent number of Warrant Stock for which such exercise was not honored or
deliver to the Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its exercise and delivery
obligations hereunder. For example, if the Holder purchases Common Stock having
a total purchase price of $11,000 to cover a Buy-In with respect to an attempted
exercise of shares of Common Stock with a market price on the date of exercise
totaled $10,000, under clause (1) of the immediately preceding sentence the
Company shall be required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder in respect
of the Buy-In. Nothing herein shall limit a Holder's right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company's failure to timely deliver certificates representing
shares of Common Stock upon exercise of the Warrant as required pursuant to the
terms hereof.

         (d) The Company's obligations to issue and deliver Warrant Stock in
accordance with the terms hereof are absolute and unconditional, irrespective of
any action or inaction by the Holder to enforce the same, any waiver or consent
with respect to any provision hereof, the recovery of any judgment against any
Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any violation or
alleged violation of law by the Holder or any other Person, and irrespective of
any other circumstance which might otherwise

                                        5

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limit such obligation of the Company to the Holder in connection with the
issuance of Warrant Stock.

         (e) Payment of the Warrant Price shall be made at the option of the
Holder by (i) wire transfer to an account designated by the Company, (ii)
certified or official bank check, and/or (iii) by the Holder's surrender to the
Company of that number of shares of Warrant Stock (or the right to receive such
number of shares) or shares of Common Stock having an aggregate Current Market
Price equal to or greater than the Current Warrant Price for all shares then
being purchased (including those being surrendered), or (iv) any combination
thereof, duly endorsed by or accompanied by appropriate instruments of transfer
duly executed by the Holder or by the Holder's attorney duly authorized in
writing.

         2.2. Payment of Taxes. All shares of Common Stock issuable upon the
exercise of this Warrant pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable and without any preemptive rights. The Company
shall pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issue or delivery thereof,
unless such tax or charge is imposed by law upon the Holder, in which case such
taxes or charges shall be paid by the Holder. The Holder or its transferee shall
pay any transfer tax due and payable in respect of a transfer of this Warrant or
the Warrant Stock to a party other than the Holder.

         2.3. Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which the Holder of one or more Warrants, the rights under
which are exercised in the same transaction, would otherwise be entitled to
purchase upon such exercise, the Company shall pay a cash adjustment in respect
of such final fraction in an amount equal to the same fraction of (x) the
Current Market Price per share of Common Stock on the date of exercise, so long
as there continues to be a public market for the Common Stock, or (y) in the
event there is no public market for the Common Stock, the fair market value
thereof as reasonably determined by the Board of Directors of the Company.

         2.4. Continued Validity. A holder of shares of Common Stock issued upon
the exercise of this Warrant, in whole or in part (other than a holder who
acquires such shares after the same have been publicly sold pursuant to a
Registration Statement under the Securities Act or sold pursuant to Rule 144
thereunder), shall continue to be entitled to all rights, and subject to all
obligations, to which it would have been entitled or obligated, as applicable,
as the Holder under Sections 10, 11 and 16 of this Warrant. The Company will, at
the time of each exercise of this Warrant, in whole or in part, upon the request
of the holder of the shares of Common Stock issued upon such exercise hereof,
acknowledge in writing, in form reasonably satisfactory to such holder, its
continuing obligation to afford to such holder all such rights; provided,
however, that if such holder shall fail to make any such request, such failure
shall not affect the continuing obligation of the Company to afford to such
holder all such rights.

         2.5 Limitation on Exercise. Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be acquired by
the Holder upon any exercise of this Warrant (or otherwise in respect hereof)
shall be limited to the extent necessary to insure that, following such exercise
(or other issuance), the total number of shares of Common

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Stock then beneficially owned by such Holder and its affiliates and any other
Persons whose beneficial ownership of Common Stock would be aggregated
with the Holder's for purposes of Section 13(d) of the Exchange Act, does not
exceed 9.999% of the total number of issued and outstanding shares of Common
Stock (including for such purpose the shares of Common Stock issuable upon such
exercise). For such purposes, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. Each delivery of a notice of exercise under Section 2.1
will constitute a representation by the Holder that it has evaluated the
limitation set forth in this paragraph and determined that issuance of the full
number of Warrant Shares requested in such notice of exercise is permitted under
this paragraph. By written notice to the Company, the Holder may waive the
provisions of this Section but (i) any such waiver will not be effective until
the 61st day after such notice is delivered to the Company, and (ii) any such
waiver will apply only to the Holder and not to any other holder of Warrants.

3.       TRANSFER; DIVISION AND COMBINATION

         3.1. Transfer. Subject to compliance with Section 10, transfer of this
Warrant and all rights hereunder, in whole or in part, shall be registered on
the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company specified in Section 2.1 or
the office or agency designated by the Company pursuant to Section 13, together
with a written assignment of this Warrant substantially in the form of Exhibit B
hereto duly executed by the Holder or its agent or attorney. Upon such
surrender, the Company shall, subject to Section 10, execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denomination specified in such instrument of assignment, and shall issue to the
assignor a new Warrant evidencing the portion of this Warrant not so assigned,
and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in
compliance with Section 10, may be exercised by a new Holder for the purchase of
shares of Common Stock without having a new Warrant issued.

         3.2. Division and Combination. Subject to Section 10, this Warrant may
be divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance with
Section 3.1 and with Section 10, as to any transfer which may be involved in
such division or combination, the Company shall execute and deliver a new
Warrant or Warrants in exchange for the Warrant or Warrants to be divided or
combined in accordance with such notice.

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

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

4.       ADJUSTMENTS.

         The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to

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adjustment from time to time as set forth in this Section 4. The Company shall
give each Holder notice of any event described below which requires an
adjustment pursuant to this Section 4 at the time of such event.

         4.1. Stock Dividends, Subdivisions and Combinations.  If at any time
the Company shall:

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

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

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

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

         4.2.  Certain  Other  Distributions.  If at any time the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive any dividend or other distribution of:

               (a) cash;

               (b) any evidences of its indebtedness, any shares of its stock or
any other securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock); or

               (c) any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness, any shares of its stock or any other securities
or property of any nature whatsoever (other than cash, Convertible Securities or
Additional Shares of Common Stock);

then (i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
adjustment by a fraction (A) the numerator of which shall be the Current Market
Price per share of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Current Market Price per share of Common
Stock minus the amount allocable to one share of Common Stock of any such cash
so distributable and of the fair value (as determined in good faith by the Board
of Directors of the

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<PAGE>

Company) of any and all such evidences of indebtedness, shares of stock, other
securities or property or warrants or other subscription or purchase rights so
distributable, and (ii) the Current Warrant Price shall be adjusted to equal (A)
the Current Warrant Price multiplied by the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to the adjustment divided by
(B) the number of shares for which this Warrant is exercisable immediately after
such adjustment. A reclassification of the Common Stock (other than a change in
par value, or from par value to no par value or from no par value to par value)
into shares of Common Stock and shares of any other class of stock shall be
deemed a distribution by the Company to the holders of its Common Stock of such
shares of such other class of stock within the meaning of this Section 4.2 and,
if the outstanding shares of Common Stock shall be changed into a larger or
smaller number of shares of Common Stock as a part of such reclassification,
such change shall be deemed a subdivision or combination, as the case may be, of
the outstanding shares of Common Stock within the meaning of Section 4.1.

         4.3. Other Provisions Applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price provided for in this Section 4:

              (a) When Adjustments to Be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that any adjustment of the number of shares of
Common Stock for which this Warrant is exercisable that would otherwise be
required may be postponed (except in the case of a subdivision or combination of
shares of Common Stock, as provided for in Section 4.1) up to, but not beyond
the date of exercise if such adjustment either by itself or with other
adjustments not previously made adds or subtracts less than 1% of the shares of
Common Stock for which this Warrant is exercisable immediately prior to the
making of such adjustment. Any adjustment representing a change of less than
such minimum amount (except as aforesaid) which is postponed shall be carried
forward and made as soon as such adjustment, together with other adjustments
required by this Section 4 and not previously made, would result in a minimum
adjustment or on the date of exercise. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on the
date of its occurrence.

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

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

              (d) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any record
of the holders of Common Stock, but prior to the occurrence of the event for
which such record is taken, and the Holder exercises this Warrant, any
Additional Shares of Common Stock issuable upon exercise by reason of such

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<PAGE>

adjustment shall be deemed the last shares of Common Stock for which this
Warrant is exercised (notwithstanding any other provision to the contrary
herein) and such shares or other property shall be held in escrow for the Holder
by the Company to be issued to the Holder upon and to the extent that the event
actually takes place, upon payment of the then Current Warrant Price.
Notwithstanding any other provision to the contrary herein, if the event for
which such record was taken fails to occur or is rescinded, then such escrowed
shares shall be cancelled by the Company and escrowed property returned.

         4.4. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation or other business entity (where the Company is not the surviving
corporation or where there is a change in or distribution with respect to the
Common Stock of the Company), or sell, transfer or otherwise dispose of all or
substantially all its property, assets or business to another corporation or
other business entity and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("Other Property"), are
to be received by or distributed to the holders of Common Stock of the Company,
then each Holder shall have the right thereafter to receive, upon exercise of
such Warrant, the number of shares of common stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and Other
Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, at the
Holder's option and request, any successor to the Company or surviving entity
shall expressly assume the due and punctual observance and performance of each
and every covenant and condition of this Warrant to be performed and observed by
the Company and all the obligations and liabilities hereunder in order to
provide for adjustments of shares of Common Stock for which this Warrant is
exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 4 and issue to the Holder a new warrant
substantially in the form of this Warrant and consistent with the foregoing
provisions and evidencing the Holder's right to purchase the Other Property for
the aggregate Current Market Price upon exercise thereof. For purposes of this
Section 4.4, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 4.4 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.

         4.5. Triggering of Anti-Dilution Provisions of Preferred Stock. The
Company is party to that certain Exchange Agreement dated as of October 16, 2001
(the "Exchange Agreement") by and among the Company and the holders of Company
Series A1 Convertible Redeemable Preferred Stock and the Series B1 Convertible
Redeemable Preferred Stock (collectively, the

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<PAGE>

"Preferred Stock"). Pursuant to the terms and conditions of the Exchange
Agreement, the related Certificates of Designations of the Preferred Stock and
the related warrants, the Company may issue up to an aggregate of 3,000,000
shares of common stock of the Company (subject to equitable adjustment in the
event of stock splits, reverse stock splits and similar events affecting
the Common Stock) or warrants or other securities convertible or exercisable
into 3,000,000 shares of common stock of the Company (subject to equitable
adjustment in the event of stock splits, reverse stock splits and similar events
affecting the Common Stock) (the "Issuance Cap") without triggering certain
anti-dilution provisions contained in the Certificates of Designations of the
Preferred Stock and the related warrants. In the event that the Company issues
shares of common stock of the Company or warrants or securities convertible or
exercisable into shares of common stock of the Company which exceeds the
Issuance Cap such that the anti-dilution provisions of the Certificates of
Designations of the Preferred Stock or the anti-dilution provisions of the
related warrants are triggered, then the Current Warrant Price under this
Warrant shall be $.001.

5.       NOTICES TO WARRANT HOLDERS

         5.1. Notice of Adjustments. Whenever the number of shares of Common
Stock for which this Warrant is exercisable, or whenever the price at which a
share of such Common Stock may be purchased upon exercise of the Warrants, shall
be adjusted pursuant to Section 4, the Company shall forthwith prepare a
certificate to be executed by the chief financial officer of the Company setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated (including a description of the basis on
which the Board of Directors of the Company determined the fair value of any
evidences of indebtedness, shares of stock, other securities or property or
warrants or other subscription or purchase rights referred to in Section 4.2)
specifying the number of shares of Common Stock for which this Warrant is
exercisable and (if such adjustment was made pursuant to Section 4.4) describing
the number and kind of any other shares of stock or Other Property for which
this Warrant is exercisable, and any change in the purchase price or prices
thereof, after giving effect to such adjustment or change. The Company shall
promptly cause a signed copy of such certificate to be delivered to each Holder
in accordance with Section 16.2. The Company shall keep at its office or agency
designated pursuant to Section 13 copies of all such certificates and cause the
same to be available for inspection at said office during normal business hours
by any Holder or any prospective purchaser of a Warrant designated by a Holder
thereof.

         5.2. Notice of Corporate Action. If at any time:

              (a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend (other than a cash
dividend payable out of earnings or earned surplus legally available for the
payment of dividends under the laws of the jurisdiction of incorporation of the
Company) or other distribution, or any right to subscribe for or purchase any
evidences of its indebtedness, any shares of stock of any class or any other
securities or property, or to receive any other right;

              (b) there shall be any capital  reorganization  of the  Company,
any  reclassification  or  recapitalization  of the capital  stock of the
Company or any consolidation or merger of the


                                       11

<PAGE>

Company with, or any sale, transfer or other disposition of all or substantially
all the property, assets or business of the Company to, another corporation; or

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

then, in any one or more of such cases, the Company shall give to the Holder (i)
at least ten (10) days' prior written notice of the date on which a record date
shall be selected for such dividend, distribution or right or for determining
rights to vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least ten (10) days' prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing clause also shall
specify (A) the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, the date on which the holders of Common
Stock shall be entitled to any such dividend, distribution or right, and the
amount and character thereof, and (B) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to the
Holder and delivered in accordance with Section 16.2.

6.       NO IMPAIRMENT

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

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

7.       OPTIONAL REDEMPTION

                                       12


<PAGE>

         7.1. Optional Redemption. This Warrant is redeemable (the "Optional
Redemption"): in whole or in part at the option of the Company at any time after
the Closing Date, provided that the closing price of the Company's Common Stock
for twenty (20) consecutive Trading Days is greater than $5.50 (subject to
equitable adjustment in the event of stock splits, reverse stock splits and
similar events affecting the Common Stock) (the "Threshold Price").

         7.2. Redemption Notice. Subject to the conditions set forth in Section
7.1, so long as the Company has a sufficient number of authorized shares of
Common Stock reserved for issuance upon full exercise of the outstanding
Warrants, upon prior written notice to the Holder (a "Redemption Notice"), the
Warrant may be redeemed by the Company, in whole or in part, at a redemption
price equal to $5.50 (subject to equitable adjustment in the event of stock
splits, reverse stock splits and similar events affecting the Common Stock) (the
"Redemption Price").

         7.3. Mechanics of Redemption. The Company shall exercise its right to
redeem by delivering its Redemption Notice by facsimile and overnight courier to
the Holder (such date that the Redemption Notice is given, the "Redemption
Notice Date"). Such Redemption Notice shall indicate the Redemption Price and a
confirmation of the date that the Company shall effect the redemption (the
"Redemption Date"). The Redemption Date shall be not less than ten (10) Business
Days and not more than sixty (60) calendar days after the Redemption Notice
Date. Notwithstanding anything in this Section 7.3, the Company shall convert
any Warrant pursuant to Section 2 if the Warrant Exercise Form for a Warrant
submitted for exercise is received by the Company, together with the Warrant
Price and the Warrant, before the Redemption Date for a Warrant Price greater
than or equal to the Redemption Price (appropriately adjusted in accordance with
the terms hereof). Notwithstanding anything to the contrary set forth in this
Warrant, the Company may not deliver a Redemption Notice or require the
cancellation of this Warrant (and any Redemption Notice will be void), unless
from the beginning of the 20 consecutive Trading Days used to determine whether
the Common Stock has achieved the Threshold Price through the Redemption Date
(i) the Current Market Price equals or exceeds the Threshold Price, (ii) the
Company shall have honored in accordance with the terms of this Warrant all
Subscription Form delivered by 6:30 p.m. (New York City time) on the Redemption
Date, and (iii) the registration statement contemplated by the Registration
Rights Agreement shall be effective as to all Warrant Stock and the prospectus
thereunder available for use by the Holder for the resale all such Warrant
Stock.

         7.4. Payment of Redemption Price. The Company shall pay the applicable
Redemption Price to the Holder of the Warrants being redeemed in cash on the
Redemption Date (or, if later, the Business Day following the Business Day upon
which the Company receives the Warrant).

8.       RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
         APPROVAL OF ANY GOVERNMENTAL AUTHORITY

         From and after the Closing Date, the Company shall at all times reserve
and keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants. All shares of Common Stock
which shall be so issuable, when issued upon exercise of

                                       13

<PAGE>

any Warrant and payment therefor in accordance with the terms of such Warrant,
shall be duly and validly issued and fully paid and nonassessable, and not
subject to preemptive rights.

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

         If any shares of Common Stock required to be reserved for issuance upon
exercise of Warrants require registration or qualification with any governmental
authority or other governmental approval or filing under any Federal or state
law (otherwise than as provided in Section 10) before such shares may be so
issued, the Company will in good faith and as expeditiously as possible and at
its expense endeavor to cause such shares to be duly registered.

9.       TAKING OF RECORD; STOCK AND WARRANT AND WARRANT TRANSFER BOOKS

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

10.      RESTRICTIONS ON TRANSFERRABILITY

         The Warrants and the Warrant Stock shall not be transferred except in
accordance with the terms and conditions of the Purchase Agreement.

11.      SUPPLYING INFORMATION

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

12.      LOSS OR MUTILATION

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

13.      OFFICE OF COMPANY

                                       14



<PAGE>

         As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.

14.      FILINGS

         So long as the Company has a class of equity securities registered
pursuant to Section 12 of the Exchange Act, the Company will file on or before
the required date all regular or periodic reports (pursuant to the Exchange Act)
required to be filed with the Commission pursuant to the Exchange Act and will
deliver to the Holder promptly upon their becoming available (unless such
reports are available through the Commission's EDGAR system) one copy of each
report, notice or proxy statement sent by the Company to its stockholders
generally, and of each regular or periodic report (pursuant to the Exchange Act)
and any Registration Statement, prospectus or written communication (other than
transmittal letters) (pursuant to the Securities Act), filed by the Company with
(a) the Commission or (b) any securities exchange on which shares of Common
Stock are listed.

15.      NO RIGHTS AS STOCKHOLDERS; LIMITATIONS OF LIABILITY

         Except as otherwise provided herein, this Warrant shall not entitle the
Holder to any rights as a stockholder of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions or
to receive notice of or attend meetings of stockholders or any other proceedings
of the Company unless and to the extent exercised for shares of Common Stock in
accordance with the terms hereof. No provision hereof, in the absence of
affirmative action by the Holder to exercise its rights to purchase shares of
Common Stock hereunder, and no enumeration herein of the rights or privileges of
the Holder hereof, shall give rise to any liability of such Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.

16.      MISCELLANEOUS

         16.1. Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Holder shall operate
as a waiver of such right or otherwise prejudice the Holder's rights, powers or
remedies. If the Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, the
Company shall pay to the Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by the Holder in collecting
any amounts due pursuant hereto or in otherwise enforcing any of its rights,
powers or remedies hereunder.

         16.2. Notice Generally. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Warrant shall be sufficiently given or made if in writing
and either delivered in person with receipt acknowledged or sent by registered
or certified mail, return receipt requested, postage prepaid, or by telecopy and
confirmed by telecopy answerback, addressed as follows:

                                       15



<PAGE>

               If to the Company:        Level 8 Systems, Inc.
                                         8000 Regency Parkway
                                         Cary, North Carolina 27511
                                         Attn: James Andrew Saputo, Jr., Esq.

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

               If to the Holder: At its last known address appearing on the
books and records of the Company maintained for such purpose.

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

         16.3. Remedies. Each holder of Warrant and Warrant Stock, in addition
to being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under Section 10
of this Warrant. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of Section 10 of this Warrant and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.

         16.4. Successors and Assigns. Subject to the provisions of Sections 3.1
and 10, this Warrant and the rights evidenced hereby shall inure to the benefit
of and be binding upon the successors of the Company and the successors and
assigns of the Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and, with respect to
Section 10 hereof, holders of Warrant Stock, and shall be enforceable by any
such Holder or holder of Warrant Stock.

         16.5.    Amendment.  This Warrant may be modified or amended or the
provisions  hereof waived with the written  consent of the Company and the
Holder.


                                       16



<PAGE>

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

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

         16.8 Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Warrant shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Delaware, without regard to the principles of conflicts of law thereof. Each
party agrees that all proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Warrant (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) (each a "Proceeding") shall be commenced
exclusively in the state and federal courts sitting in the City of New York,
Borough of Manhattan. Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
New York, Borough of Manhattan for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of this Warrant), and hereby
irrevocably waives, and agrees not to assert in any Proceeding, any claim that
it is not personally subject to the jurisdiction of any such court, that such
Proceeding is improper. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any such Proceeding
by mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Warrant and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law. Each party hereto hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Warrant or the transactions
contemplated hereby. If either party shall commence a Proceeding to enforce any
provisions of this Warrant, then the prevailing party in such Proceeding shall
be reimbursed by the other party for its attorneys fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
Proceeding.

                                       17


<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon as of the day and year
first above written.

                               LEVEL 8 SYSTEMS, INC.

                               By:
                                  ----------------------------------------
                                  Paul Rampel,
                                  President

<PAGE>

                                    EXHIBIT A

                                SUBSCRIPTION FORM

[To be executed only upon exercise of Warrant]


                  The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of ______ Shares of Common Stock of
LEVEL 8 SYSTEMS, INC., and herewith makes payment therefor, all at the price and
on the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to _____________ whose address is
________________________________________ and, if such shares of Common Stock
shall not include all of the shares of Common Stock issuable as provided in this
Warrant, that a new Warrant of like tenor and date for the balance of the shares
of Common Stock issuable hereunder be delivered to the undersigned.



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


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


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


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



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

<PAGE>

                                    EXHIBIT B

                                 ASSIGNMENT FORM

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

Name and Address of Assignee                                  No. of Shares of
----------------------------                                  ----------------
                                                                Common Stock
                                                                ------------

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

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

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

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


and does hereby irrevocably constitute and appoint __________________________
attorney-in-fact to register such transfer on the books of LEVEL 8 SYSTEMS,
INC., maintained for the purpose, with full power of substitution in the
premises.

Dated: __________________           Print Name:
                                               ---------------------------------

                                    Signature:
                                              ----------------------------------

                                    Witness:
                                              ----------------------------------



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

</TEXT>
</DOCUMENT>
