The low-temperature behavior of a two-level system (TLS) with spin is investigated, where the atom tunneling between two positions possesses a spin and interacts with the conduction electrons by an exchange interaction. To describe the physical properties of this TLS a generalized model is developed, where in addition to the usual screening and electron assisted tunneling processes exchange interaction and exchange assisted interactions with the conduction electrons are introduced. These exchange interaction terms break the SU(2) symmetry of the original TLS model corresponding to the conduction-electron spin. Summing up the leading logarithmic vertex corrections we show that if the Kondo temperature associated with the orbital degrees of freedom, T-K(orb), is smaller than that associated with the exchange interaction, T-K(magn), then the orbital degrees of freedom of the TLS are frozen out when the magnetic Kondo effect takes place and only a magnetic Kondo effect occurs. In this case the ground state of the system seems to be a Fermi-liquid state. In the opposite case, T-K(orb) > T-K(magn) two orbital electron channels become dominant below T-K(orb) and a new fixed point appears. The possibility of experimental realizations is also shortly discussed.