Exhibit 10.3


THIS NOTE AND THE SECURITIES  INTO WHICH THIS NOTE IS CONVERTIBLE  HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR THE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR IN ANY OTHER  JURISDICTION.  THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED,  SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE  REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES
LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THOSE LAWS.

                       _____% CONVERTIBLE PROMISSORY NOTE

Date: ______, 2004                                         $_________________

         FOR VALUE RECEIVED, LEVEL 8 SYSTEMS, INC., a corporation duly organized
under the laws of the State of Delaware (the "BORROWER"), hereby promises to pay
to the order of ____________________, a ____________________,  or its registered
assigns  (individually,  the "HOLDER," and, collectively with the holders of all
other   notes   of  same   like  and   tenor,   the   "HOLDERS"),   the  sum  of
_______________________   ($_________)  on  March  ____,  2004  (the  "SCHEDULED
MATURITY DATE"),  and to pay interest on the unpaid principal  balance hereof at
the rate of ________  percent  (___%) per annum  (except as  otherwise  provided
herein), all as provided in Article I below.

         The term "NOTE" and all references  thereto,  as used  throughout  this
instrument,  shall mean this  instrument  as  originally  executed,  or if later
amended or supplemented,  then as so amended or supplemented. This Note is being
issued  by  the  Borrower  along  with  similar  convertible   promissory  notes
designated  as ____%  Convertible  Promissory  Notes  (the  "OTHER  NOTES"  and,
together  with this Note,  the  "NOTES")  pursuant  to that  certain  Securities
Purchase  Agreement,  dated as of the date hereof,  between the Borrower and the
signatories  thereto  (the  "SECURITIES  PURCHASE  AGREEMENT").  The Notes,  the
Securities  Purchase  Agreement,  the Warrants issued pursuant to the Securities
Purchase Agreement (the "WARRANTS") and the Registration Rights Agreement, dated
as of the date hereof, between the Borrower and the initial Holders of the Notes
(the "REGISTRATION RIGHTS AGREEMENT") are collectively referred to herein as the
"TRANSACTION  DOCUMENTS." All capitalized  terms used but not otherwise  defined
herein  shall  have  the  respective  meanings  assigned  to such  terms  in the
Securities Purchase Agreement.

                                    ARTICLE I
                        PAYMENT OF PRINCIPAL AND INTEREST

         A. Payment of Interest.  Interest shall accrue on the unpaid  principal
balance hereof from the date hereof until the same is paid, whether at maturity,
or upon  prepayment,  repayment,  conversion  or  otherwise.  Interest  shall be
calculated  based on a 365 day  year  and  shall  be  payable  on the  Scheduled
Maturity Date.


                                      -95-
<PAGE>


         B. Payment of Principal. The principal amount hereof, together with all
accrued and unpaid interest  thereon,  shall be due and payable on the Scheduled
Maturity  Date.  Payment of  principal  and accrued  interest  on the  Scheduled
Maturity  Date  shall be made,  at the  Holder's  election  but  subject  to the
limitations  set forth in Article VIII, (i) in cash, (ii) in such number of duly
authorized, validly issued, fully paid and non-assessable shares of Common Stock
determined by dividing the aggregate  amount due on the Scheduled  Maturity Date
by ($X.XX) (the  "CONVERSION  PRICE"),  or (iii) in any  combination of cash and
shares of Common  Stock  with an  aggregate  value  equal to the  principal  and
interest  then due. In the event that the  Borrower is  prohibited  from issuing
shares of Common Stock in connection with the payment pursuant to this Paragraph
B as a result of the  operation  of the  limitations  set forth in Article  VIII
("Payment  Limitations"),  the  Borrower  shall be  required  to pay in cash any
amounts due hereunder as to which it is so prohibited.

         C. Prepayment.  Except as and to the extent otherwise  provided herein,
no amounts of principal or interest due hereunder may be prepaid by the Borrower
without the prior written consent of the Holder.

         D. Manner of  Payments.  All cash  payments of  principal  and interest
shall be made in, and all  references  herein to  monetary  denominations  shall
refer to,  lawful money of the United States of America.  All payments  shall be
made at such address as the Holder shall have given or shall  hereafter  give to
the Borrower by written  notice made in accordance  with the  provisions of this
Note. If any cash payment to be made hereunder  shall be due on a day other than
a business day, such payment shall be made on the next  succeeding  business day
and such extension of time shall be included in computing interest in connection
with such payment. If any payment due hereunder is not made when due, the Holder
shall  thereafter  be entitled  to interest on the unpaid  amount at a per annum
rate equal to the lower of eighteen  percent (18%) and the highest interest rate
permitted by applicable law until such amount is paid in full.

                                   ARTICLE II
                                   CONVERSION

         A.  Conversion at the Option of the Holder.  Subject to the limitations
on  conversions  contained in Article VIII, the Holder may, at any time and from
time to time,  convert  (an  "OPTIONAL  CONVERSION")  all or any  portion of the
unpaid principal amount hereof and any accrued interest thereon into a number of
fully paid and non-assessable shares of Common Stock as is equal to the quotient
obtained by dividing (x) the amount of principal and interest being so converted
by (y) the Conversion Price then in effect.

         B. Mechanics of Conversion.  In order to effect an Optional Conversion,
the Holder shall:  (x) fax (or otherwise  deliver) a copy of the fully  executed
Notice of Conversion to the Borrower (Attention: Secretary) and (y) surrender or
cause to be  surrendered  this  Note,  duly  endorsed,  along with a copy of the
Notice of Conversion  as soon as  practicable  thereafter to the Borrower.  Upon
receipt by the Borrower of a facsimile  copy of a Notice of Conversion  from the
Holder,  the Borrower shall promptly send, via facsimile,  a confirmation to the
Holder stating that the Notice of Conversion  has been  received,  the date upon
which the  Borrower  expects to  deliver  the Common  Stock  issuable  upon such


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conversion and the name and telephone number of a contact person at the Borrower
regarding the conversion. The Borrower shall not be obligated to issue shares of
Common Stock upon a conversion  unless this Note is delivered to the Borrower as
provided  above,  or the Holder  notifies the  Borrower  that this Note has been
lost,  stolen or  destroyed  and  delivers  the  documentation  to the  Borrower
required by Article X.B hereof.

                  (i)  Delivery  of  Common  Stock  Upon  Conversion.  Upon  the
surrender  of this Note  accompanied  by a Notice of  Conversion,  the  Borrower
(itself,  or through its transfer  agent) shall,  no later than the later of (a)
the tenth (10th) business day following the Conversion Date and (b) the business
day following  the date of such  surrender  (or, in the case of lost,  stolen or
destroyed  certificates,  after provision of indemnity  pursuant to Article X.B)
(the  "DELIVERY  PERIOD"),  issue and deliver  (i.e.,  deposit with a nationally
recognized  overnight  courier  service  postage  prepaid)  to the Holder or its
nominee (x) that number of shares of Common Stock  issuable  upon  conversion of
that portion of this Note being  converted and (y) a new Note  representing  the
principal balance of this Note not being converted, if any.  Notwithstanding the
foregoing,  if the Borrower's  transfer agent is participating in the Depository
Trust Company ("DTC") Fast Automated Securities Transfer program, and so long as
the  certificates  therefor do not bear a legend  (pursuant  to the terms of the
Securities  Purchase  Agreement)  and the holder thereof is not then required to
return such  certificate for the placement of a legend thereon  (pursuant to the
terms of the  Securities  Purchase  Agreement),  the  Borrower  shall  cause its
transfer  agent to promptly  electronically  transmit the Common Stock  issuable
upon  conversion  to the Holder by  crediting  the  account of the Holder or its
nominee with DTC through its Deposit  Withdrawal Agent  Commission  system ("DTC
TRANSFER").  If  the  aforementioned  conditions  to  a  DTC  Transfer  are  not
satisfied,  the Borrower shall deliver as provided above to the Holder  physical
certificates  representing the Common Stock issuable upon  conversion.  Further,
the  Holder  may  instruct  the  Borrower  to  deliver  to the  Holder  physical
certificates  representing  the Common Stock issuable upon conversion in lieu of
delivering such shares by way of DTC Transfer.

                  (ii) Taxes.  The Borrower shall pay any and all taxes that may
be imposed  upon it with  respect to the  issuance and delivery of the shares of
Common Stock upon the conversion of this Note.

                  (iii) No  Fractional  Shares.  If any  conversion of this Note
would result in the issuance of a fractional share of Common Stock  (aggregating
the entire amount of principal and interest being converted  pursuant to a given
Notice of Conversion), such fractional share shall be payable in cash based upon
the Conversion  Price of the Common Stock at such time, and the number of shares
of Common Stock  issuable  upon  conversion of this Note shall be the next lower
whole  number of shares.  If the  Borrower  elects not to, or is unable to, make
such a cash  payment,  the holder  shall be entitled to receive,  in lieu of the
final fraction of a share, one whole share of Common Stock.

                  (iv)  Conversion  Disputes.  In the case of any  dispute  with
respect to a conversion, the Borrower shall promptly issue such number of shares
of Common Stock as are not disputed in accordance with  subparagraph  (i) above.
If such dispute  involves the  calculation  of the  Conversion  Price,  and such
dispute is not  promptly  resolved  by  discussion  between  the Holders and the
Borrower,  the Borrower shall submit the disputed calculations to an independent


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<PAGE>


outside accountant (which accountant shall be subject to the reasonable approval
of the Majority  Holders) via facsimile within three business days of receipt of
the Notice of Conversion.  The accountant  shall promptly audit the calculations
and  notify the  Borrower  and the  Holders  of the  results no later than three
business  days  from  the  date  it  receives  the  disputed  calculations.  The
accountant's calculation shall be deemed conclusive,  absent manifest error, and
the party whose proposed calculation is further from the calculation  determined
by the accountant  shall bear all of the accountant's  expenses  (which,  if the
disputing  Holders are the  non-prevailing  party,  shall be allocated  pro rata
among such disputing  Holders).  The Borrower  shall then issue the  appropriate
number of shares of Common Stock in accordance with subparagraph (i) above.

                  (v) Payment of Accrued Amounts.  Upon conversion of any unpaid
principal  amount of this Note, all accrued  interest on such amount through and
including the Conversion Date shall be paid on the Conversion Date in accordance
with one of the permitted payment methods set forth in Article I.A above.

                                   ARTICLE III
                      RESERVATION OF SHARES OF COMMON STOCK

         A.  Reserved  Amount.  On or prior to the Issuance  Date,  the Borrower
shall reserve  ______________  shares of its authorized  but unissued  shares of
Common Stock for issuance upon  conversion of the Notes  pursuant to Article II,
and, thereafter, the number of authorized but unissued shares of Common Stock so
reserved (the "RESERVED AMOUNT") shall at all times be sufficient to provide for
the  full  conversion  of all of  the  Notes  outstanding  at the  then  current
Conversion Price thereof (without giving effect to the limitations  contained in
Article  VIII).  The Reserved  Amount  shall be  allocated  among the Holders as
provided in Article X.C.

                                   ARTICLE IV
                         FAILURE TO SATISFY CONVERSIONS

         A.  Conversion  Defaults.  If, at any time,  (i) the  Holder  submits a
Notice of Conversion  and the Borrower  fails for any reason (other than because
such  issuance  would  exceed the  Holder's  allocated  portion of the  Reserved
Amount,  for which  failures  the holders  shall have the  remedies set forth in
Article III) to deliver,  on or prior to the fifth  business day  following  the
expiration  of the Delivery  Period for such  conversion,  such number of freely
tradable  shares of  Common  Stock to which the  Holder  is  entitled  upon such
conversion,  (such  event  being a  "CONVERSION  DEFAULT"),  then the Holder may
elect, at any time and from time to time prior to the Default Cure Date for such
Conversion Default, by delivery of a Default Notice to the Borrower, to have all
or any  portion of the unpaid  principal  amount  hereof  and  accrued  interest
thereto paid by the Borrower in cash.

                                    ARTICLE V
                                EVENTS OF DEFAULT

         A. Events of Default.  In the event  (each of the events  described  in
clauses  (i)-(v) below after  expiration of the applicable  cure period (if any)
being an "EVENT OF DEFAULT"):


                                       98
<PAGE>


                  (i) the Borrower  fails to pay in full the  principal  hereof,
and/or the accrued and unpaid interest  thereon,  when due, whether at maturity,
upon acceleration or otherwise;

                  (ii)  the  Borrower  provides  written  notice  (or  otherwise
indicates) to the Holder,  or states by way of public  announcement  distributed
via a press  release,  at any time, of its intention not to issue,  or otherwise
refuses  to issue,  shares of Common  Stock to the  Holder  upon  conversion  in
accordance with the terms of this Note;

                  (iii) the Borrower or any  subsidiary  of the  Borrower  shall
make an assignment for the benefit of creditors,  or apply for or consent to the
appointment  of a receiver  or trustee for it or for a  substantial  part of its
property  or  business,  or  such a  receiver  or  trustee  shall  otherwise  be
appointed;

                  (iv)  bankruptcy,  insolvency,  reorganization  or liquidation
proceedings or other  proceedings  for the relief of debtors shall be instituted
by or against the Borrower or any  subsidiary  of the Borrower and if instituted
against the Borrower or any  subsidiary of the Borrower by a third party,  shall
not be dismissed within 60 days of their initiation; or

                  (v) except with respect to matters covered by subparagraph (i)
- (iv)  above,  as to which  such  applicable  subparagraphs  shall  apply,  the
Borrower  otherwise  shall breach any material term hereunder or under the other
Transaction Documents,  including,  without limitation,  the representations and
warranties  contained therein (i.e., in the event of a material breach as of the
date such  representation  and warranty was made) and if such breach is curable,
shall fail to cure such breach  within  thirty  business days after the Borrower
has been notified thereof in writing by the Holder; then, upon the occurrence of
any such Event of Default, at the option of the Holder,  exercisable in whole or
in part at any time and from time to time by  delivery  of a  written  notice to
such effect (a "DEFAULT  NOTICE")  to the  Borrower  while such Event of Default
continues,  the Borrower shall pay the outstanding principal amount of this Note
and  accrued and unpaid  interest  thereon  (The  "Default  Amount"),  provided,
however,  that (a) in the case of an Event of Default described in clauses (iii)
and (iv) of this Article  V.A,  the  Borrower's  obligation  hereunder  shall be
automatic and shall not require the delivery of a Default  Notice by the Holder.
Such  Default  Amount,   together  with  all  other  ancillary  amounts  payable
hereunder,  shall  immediately  become  due and  payable,  all  without  demand,
presentment or notice,  all of which are hereby expressly waived,  together with
all costs, including, without limitation, legal fees and expenses of collection,
and the Holder  shall be  entitled  to exercise  all other  rights and  remedies
available at law or in equity. Upon the Borrower's receipt of any Default Notice
hereunder, the Borrower shall immediately (and in any event within five business
days following such receipt) deliver a written notice (a "DEFAULT ANNOUNCEMENT")
to all Holders of the Notes  stating the date upon which the  Borrower  received
such Default Notice and the amount of the Notes covered  thereby.  Following the
delivery of a Default Announcement hereunder, at any time and from time to time,
the  Holder may  request  (either  orally or in  writing)  information  from the
Borrower with respect to the instant default (including, but not limited to, the
aggregate  principal  amount  outstanding  of Notes  covered by Default  Notices
received by the Borrower) and the Borrower  shall furnish  (either  orally or in
writing) as soon as practicable such requested information to the Holder.


                                       99
<PAGE>


         B. Failure to Pay Default  Amounts.  If the  Borrower  fails to pay the
Holder the Default  Amount with  respect to any Note within five  business  days
after its receipt of a Default Notice (the "PREPAYMENT  DATE"),  then the Holder
shall be entitled to interest on the Default Amount at a per annum rate equal to
the lower of eighteen  percent (18%) and the highest  interest rate permitted by
applicable  law from the date on which the Borrower  receives the Default Notice
until the date of  payment of the  Default  Amount  hereunder.  In the event the
Borrower is not able to pay the outstanding  Notes required to be paid hereunder
the Borrower shall pay the outstanding Notes from each Holder pro rata, based on
the total amounts due on the Notes at the time of default..

                                   ARTICLE VI
                       ADJUSTMENTS TO THE CONVERSION PRICE

         The Conversion  Price shall be subject to adjustment  from time to time
as follows:

         A. Stock Splits, Stock Dividends,  Etc. If, at any time on or after the
Issuance Date, the number of outstanding  shares of Common Stock is increased by
a stock split, stock dividend,  combination,  reclassification  or other similar
event, the Conversion Price shall be proportionately  reduced,  or of the number
of  outstanding  shares of Common Stock is  decreased by a reverse  stock split,
combination, reclassification or other similar event, the Conversion Price shall
be  proportionately  increased.  In such event,  the  Borrower  shall notify the
Borrower's  transfer  agent of such  change  on or  before  the  effective  date
thereof.

         B. Merger, Consolidation, Etc. If, at any time after the Issuance Date,
there shall be (i) any  reclassification  or change of the outstanding shares of
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,  or as a result of a  subdivision  or
combination),  (ii) any  consolidation  or merger of the Borrower with any other
entity (other than a merger in which the Borrower is the surviving or continuing
entity and its capital stock is unchanged), (iii) any sale or transfer of all or
substantially  all of the assets of the  Borrower or (iv) any share  exchange or
other  transaction  pursuant  to which all of the  outstanding  shares of Common
Stock are converted into other  securities or property (each of (i) - (iv) above
being a "CORPORATE CHANGE"),  then the Holder shall thereafter have the right to
receive  upon  conversion,  in lieu of the  shares  of  Common  Stock  otherwise
issuable,  such shares of stock,  securities and/or other property as would have
been issued or payable in such  Corporate  Change with respect to or in exchange
for the number of shares of Common  Stock  which would have been  issuable  upon
conversion had such Corporate  Change not taken place (without  giving effect to
the limitations  contained in Article VIII),  and in any such case,  appropriate
provisions  (in form  and  substance  reasonably  satisfactory  to the  Majority
Holders)  shall be made with  respect to the rights and  interests of the Holder
hereunder  to the  end  that  the  economic  value  of this  Note  are in no way
diminished by such Corporate Change and that the provisions  hereof  (including,
without  limitation,  in the case of any such  consolidation,  merger or sale in
which  the  successor  entity  or  purchasing  entity  is not the  Borrower,  an
immediate  adjustment  of the  Conversion  Price  so that the  Conversion  Price
immediately  after the  Corporate  Change  reflects the same  relative  value as
compared  to the value of the  surviving  entity's  common  stock  that  existed
between  the  Conversion  Price and the  value of the  Borrower's  Common  Stock
immediately prior to such Corporate  Change) shall thereafter be applicable,  as
nearly as may be  practicable  in relation to any shares of stock or  securities


                                      100
<PAGE>


thereafter  deliverable  upon the  conversion  thereof.  The Borrower  shall not
effect any Corporate  Change unless the resulting  successor or acquiring entity
(if not the  Borrower)  assumes by  written  instrument  (in form and  substance
reasonable   satisfactory  to  the  Holder)  the  obligations  under  this  Note
(including, without limitation, the obligation to make interest payments accrued
but unpaid through the date of such  consolidation,  merger or sale and accruing
thereafter). The above provisions shall apply regardless of whether or not there
would have been a  sufficient  number of shares of Common Stock  authorized  and
available  for  issuance  upon  conversion  of this  Note as of the date of such
transaction,   and  shall  similarly  apply  to  successive   reclassifications,
consolidations, mergers, sales, transfers or share exchanges.

         C. Distributions. If, at any time after the Issuance Date, the Borrower
shall declare or make any  distribution  of its assets (or rights to acquire its
assets) to holders of Common Stock as a partial liquidating  dividend, by way of
return of capital or otherwise  (including any dividend or  distribution  to the
Borrower's  stockholders  in cash or shares  (or  rights to  acquire  shares) of
capital stock of a subsidiary (i.e., a spin-off)) (a  "DISTRIBUTION"),  then the
Holder shall be  entitled,  upon any  conversion  of this Note after the date of
record for determining stockholders entitled to such Distribution (or if no such
record is taken,  the date on which such  Distribution  is declared or made), to
receive  the amount of such assets  which would have been  payable to the Holder
with  respect  to the  shares  of Common  Stock  issuable  upon such  conversion
(without  giving  effect to the  limitations  contained in Article VIII) had the
Holder been the holder of such shares of Common Stock on the record date for the
determination  of  stockholders  entitled  to such  Distribution  (or if no such
record is taken, the date on which such Distribution is declared or made).

         D. Convertible  Securities and Purchase  Rights.  If, at any time after
the Issuance Date, the Borrower issues any securities or other instruments which
are  convertible   into  or  exercisable  or   exchangeable   for  Common  Stock
("CONVERTIBLE  SECURITIES") or options,  warrants or other rights to purchase or
subscribe for Common Stock or  Convertible  Securities  ("PURCHASE  RIGHTS") pro
rata to the record holders of the Common Stock,  whether or not such Convertible
Securities  or  Purchase  Rights are  immediately  convertible,  exercisable  or
exchangeable,  then the Holder shall be entitled,  upon any  conversion  of this
Note after the date of record for determining  stockholders  entitled to receive
such  Convertible  Securities or Purchase Rights (or if no such record is taken,
the date on which such Convertible Securities or Purchase Rights are issued), to
receive the aggregate number of Convertible  Securities or Purchase Rights which
the  Holder  would have  received  with  respect  to the shares of Common  Stock
issuable  upon  such  conversion  (without  giving  effect  to  the  limitations
contained  in  Article  VIII) had the Holder  been the holder of such  shares of
Common Stock on the record date for the  determination of stockholders  entitled
to receive such Convertible  Securities or Purchase Rights (or if no such record
is taken, the date on which such Convertible  Securities or Purchase Rights were
issued).

         F. Notice of  Adjustments.  Upon the  occurrence of each  adjustment or
readjustment of the Conversion  Price pursuant to this Article VI amounting to a
more than ten percent (10%) change in such  Conversion  Price,  or any change in
the number or type of stock,  securities  and/or other  property  issuable  upon
conversion of the Notes,  the Borrower,  at its expense,  shall promptly compute
such  adjustment or readjustment or change and prepare and furnish to the Holder


                                      101
<PAGE>


a  certificate  setting  forth such  adjustment  or  readjustment  or change and
showing in detail the facts upon which such adjustment or readjustment or change
is based.  The  Borrower  shall,  upon the  written  request  at any time of the
Holder,  furnish  to the  Holder  a like  certificate  setting  forth  (i)  such
adjustment or readjustment or change,  (ii) the Conversion  Price at the time in
effect and (iii) the number of shares of Common Stock and the amount, if any, of
other securities or property which at the time would be received upon conversion
of the Notes.

                                   ARTICLE VII
                            NOTICE OF CERTAIN ACTIONS

         A. Notice  Rights.  The  Borrower  shall  provide the Holder with prior
notification of any meeting of the  stockholders  (and copies of proxy materials
and other information sent to  stockholders).  If the Borrower takes a record of
its  stockholders  for the purpose of determining  stockholders  entitled to (i)
receive  payment of any dividend or other  distribution,  any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other  right,  or (ii) to vote in  connection  with any  proposed
sale,  lease or  conveyance  of all or  substantially  all of the  assets of the
Borrower,  or any proposed merger,  consolidation,  liquidation,  dissolution or
winding up of the  Borrower,  the  Borrower  shall mail a notice to the  Holder,
promptly,  but in no event  earlier than public  announcement  of such  proposed
transaction, of the date on which any such record is to be taken for the purpose
of  such  vote,  dividend,  distribution,  right  or  other  event,  and a brief
statement   regarding  the  amount  and   character  of  such  vote,   dividend,
distribution, right or other event to the extent known at such time.

                                  ARTICLE VIII
          LIMITATIONS ON CERTAIN CONVERSIONS, REDEMPTIONS AND TRANSFERS

         In no event  shall the  Borrower  issue  Common  Stock to the Holder in
connection  with the  repayment of this Note  pursuant to Article I.B, and in no
event shall the Holder have the right to effect an Optional  Conversion  of this
Note into  shares of Common  Stock or to dispose of this Note to the extent that
such  repayment,  conversion or right to effect such  conversion or  disposition
would result in the Holder and its affiliates together  beneficially owning more
than 4.99% of the  outstanding  shares of Common  Stock.  For  purposes  of this
Article VIII,  beneficial  ownership  shall be  determined  in  accordance  with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13D-G thereunder.

The  restriction  contained in this  Article  VIII may not be altered,  amended,
deleted or changed in any manner  whatsoever unless the holders of a majority of
the outstanding shares of Common Stock and the Holder shall approve, in writing,
such alteration,  amendment,  deletion or change. In the event that the Borrower
is  prohibited  from  issuing  shares of  Common  Stock in  connection  with the
repayment of this Note  pursuant to Article I.B as a result of the  operation of
this Article VIII, the Borrower shall make such repayment in cash.


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                                   ARTICLE IX
                               CERTAIN DEFINITIONS

         For  purposes of this Note,  in  addition  to the other  terms  defined
herein, the following terms shall have the following meanings:

         A.  "BUSINESS  DAY" means any day, other than a Saturday or Sunday or a
day on which  banking  institutions  in the State of New York are  authorized or
obligated by law, regulation or executive order to close.

         B. "COMMON  STOCK" means the common  stock of the  Borrower,  par value
$0.001 per share.

         C.  "CONVERSION  DATE"  means,  as  applicable,  (i) for  any  Optional
Conversion  (as defined in Article  II.A),  the date  specified in the notice of
conversion in the form attached hereto (the "NOTICE OF CONVERSION"),  so long as
a copy of the  Notice  of  Conversion  is faxed  (or  delivered  by other  means
resulting in notice) to the Borrower  before 11:59 p.m.,  New York City time, on
the Conversion  Date indicated in the Notice of Conversion;  provided,  however,
that if the Notice of Conversion is not so faxed or otherwise  delivered  before
such  time,  then the  Conversion  Date  shall be the date the  holder  faxes or
otherwise delivers the Notice of Conversion to the Borrower.

         D.  "CONVERSION  PRICE" means $X.XX, and shall be subject to adjustment
as provided herein.

         E.  "DEFAULT  CURE DATE" means,  as  applicable,  (i) with respect to a
Conversion  Default  described  in  clause  (i) of  Article  IV.A,  the date the
Borrower effects the conversion of the full amount of this Note being converted,
(ii) with  respect to a Conversion  Default  described in clause (ii) of Article
IV.A, the date the Borrower issues shares of Common Stock in satisfaction of the
conversion of the full amount of this Note being  converted in  accordance  with
Article II, or (iii) with  respect to either type of a Conversion  Default,  the
date on which the Borrower prepays this Note pursuant to Article IV.A.

         F.  "ISSUANCE  DATE" means the date of the closing under the Securities
Purchase  Agreement,  pursuant to which the Borrower issued, and such purchasers
purchased, the Notes.

         G. "MAJORITY  HOLDERS" means the holders of a majority of the aggregate
principal amount and accrued interest represented by the then outstanding Notes.

                                    ARTICLE X
                                  MISCELLANEOUS

         A. Failure or Indulgency Not Waiver. No failure or delay on the part of
any Holder in the  exercise of any power,  right or  privilege  hereunder  shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
such power,  right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.

         B. Lost or Stolen  Notes.  Upon receipt by the Borrower of (i) evidence
of the loss,  theft,  destruction  or mutilation of any Note and (ii) (y) in the
case of loss,  theft or  destruction,  of  indemnity  (without any bond or other


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security)  reasonably  satisfactory  to the  Borrower,  or (z)  in the  case  of
mutilation, the Note (surrendered for cancellation),  the Borrower shall execute
and deliver a new Note of like tenor and date.  However,  the Borrower shall not
be obligated to reissue such lost,  stolen,  destroyed or mutilated  Note if the
Holder contemporaneously requests the Borrower to convert such Note.

         C. Allocation of Reserved Amount.  The initial Reserved Amount shall be
allocated pro rata among the Holders of the Notes based on the principal  amount
of Notes  issued to each Holder.  Any  increase to the Reserved  Amount shall be
allocated pro rata among the Holders of the Notes based on the principal  amount
of Notes held by each Holder at the time of the increase in the Reserved Amount.
In the event a Holder  shall sell or  otherwise  transfer  any of such  Holder's
Notes,   each  transferee  shall  be  allocated  a  pro  rata  portion  of  such
transferor's  Reserved Amount.  Any portion of the Reserved Amount which remains
allocated  to any  person  or  entity  which  does not hold any  Notes  shall be
allocated to the remaining Holders of the Notes, pro rata based on the principal
balance of Notes then held by such Holders.

         D. Status as Stockholder.  Upon submission of a Notice of Conversion by
the Holder, (i) the shares covered thereby (other than the shares, if any, which
cannot be issued  because  their  issuance  would exceed the Holder's  allocated
portion of the Reserved  Amount) shall be deemed converted into shares of Common
Stock and (ii) the  Holder's  rights as a holder of such  converted  Note  shall
cease and terminate,  excepting only the right to receive  certificates for such
shares  of  Common  Stock  and to any  remedies  provided  herein  or  otherwise
available at law or in equity to the Holder because of a failure by the Borrower
to comply with the terms of this Note.  Notwithstanding  the  foregoing,  if the
Holder has not received certificates for all shares of Common Stock prior to the
Sixth  (6th)  business  day after the  expiration  of the  Delivery  Period with
respect to a  conversion  of this Note for any reason,  then  (unless the Holder
otherwise  elects  to  retain  its  status  as a holder  of  Common  Stock by so
notifying the Borrower  within five  business days after the  expiration of such
six  business  day period after  expiration  of the Delivery  Period) the Holder
shall regain the rights of a holder of this Note and the Borrower shall, as soon
as practicable,  return such unconverted  Note to the Holder.  In all cases, the
Holder shall retain all of its rights and remedies for the Borrower's failure to
convert this Note.

         E.  Remedies  Cumulative.  The remedies  provided in this Note shall be
cumulative and in addition to all other remedies  available  under this Note, at
law or in  equity  (including  a decree of  specific  performance  and/or  other
injunctive relief),  and nothing herein shall limit the Holder's right to pursue
actual  damages for any failure by the Borrower to comply with the terms of this
Note. The Borrower acknowledges that a breach by it of its obligations hereunder
will  cause  irreparable  harm to the  Holder and that the remedy at law for any
such breach may be inadequate.  The Borrower  therefore  agrees, in the event of
any such breach or  threatened  breach,  that the Holder shall be  entitled,  in
addition to all other  available  remedies,  to an  injunction  restraining  any
breach,  without the necessity of showing  economic loss and without any bond or
other security being required.

         F. Waiver.  Notwithstanding any provision in this Note to the contrary,
any provision contained herein and any right of the Holder granted hereunder may
be waived as to all Notes (and the Holders  thereof) upon the written consent of
the Majority Holders,  unless a higher percentage is required by applicable law,


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<PAGE>


in which case the  written  consent of the  Holders of not less than such higher
percentage of Notes shall be required.

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

                  (i) if to the Borrower, to:

                                              Level 8 Systems, Inc.
                                              214 Carnegie Center, Suite 303
                                              Princeton, New Jersey 08540
                                              Attn:    John P. Broderick

                  With a Copy to:             Lemery Greisler LLC
                                              10 Railroad Place
                                              Saratoga Springs, New York 12866
                                              Attn:    Robert J. May, Jr., Esq.


                  (ii) if to the  Holder,  to the  address  set forth  under the
Holder's name on the execution page to the  Securities  Purchase  Agreement,  or
such  other  address as may be  designated  in  writing  hereafter,  in the same
manner, by such person.

         H.  Amendment  Provision.  This Note and any  provision  hereof  may be
amended only by an instrument in writing signed by the Borrower and the Holder.

         I. Assignability.  This Note shall be binding upon the Borrower and its
successors  and  assigns  and shall  inure to the  benefit of the Holder and its
successors and assigns.  Notwithstanding  anything to the contrary  contained in
this Note or the Transaction Documents,  this Note may be pledged and all rights
of the Holder  under this Note may be assigned to any  affiliate or to any other
person or entity without the consent of the Borrower.

         J. Cost of  Collection.  If an Event of Default occurs  hereunder,  the
Borrower shall pay the Holder hereof costs of collection,  including  reasonable
attorneys' fees.

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


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<PAGE>


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

         L. Denominations.  At the request of the Holder, upon surrender of this
Note, the Borrower  shall promptly issue new Notes in the aggregate  outstanding
principal amount hereof, in the form hereof,  in such  denominations of at least
$25,000 as the Holder shall request.

         M.  Certain  Waivers.  The  Borrower  and each  endorser  hereby  waive
presentment,  notice of nonpayment or dishonor,  protest,  notice of protest and
all other notices in  connection  with the  delivery,  acceptance,  performance,
default or  enforcement  of payment of this Note, and hereby waive all notice or
right of approval of any  extensions,  renewals,  modifications  or forbearances
which may be allowed.

         N.  Severability.  If any  provision  of this Note  shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the  validity  or  enforceability  of the  remainder  of this Note or the
validity or enforceability of this Note in any other jurisdiction.

         O. Maximum  Interest Rate. If the effective  interest rate on this Note
would otherwise  violate any applicable  usury law, then the interest rate shall
be reduced to the  maximum  permissible  rate and any  payment  received  by the
Holder  in  excess  of the  maximum  permissible  rate  shall  be  treated  as a
prepayment of the principal of this Note.



                  [REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]



                                      106
<PAGE>


         IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by
its duly authorized officer as of the date first written above.


                            LEVEL 8 SYSTEMS, INC.


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


                 [SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE]





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<PAGE>


                                    EXHIBIT A
                          NOTICE OF OPTIONAL CONVERSION


To:      Level 8 Systems, Inc.
         214 Carnegie Center, Suite 303
         Princeton, New Jersey 08540
         Attention:  John P. Broderick,
         Chief Financial Officer

The  undersigned  hereby  irrevocably  elects to  convert  $____________  of the
outstanding  principal  balance  of,  and  accrued  interest  on,  the Note (the
"CONVERSION"),  into shares of common stock ("COMMON STOCK") of Level 8 Systems,
Inc. (the  "CORPORATION")  according to the conditions of the ____%  Convertible
Promissory  Note dated  March ___,  2004 (the  "NOTE"),  as of the date  written
below.  If  securities  are to be issued in the name of a person  other than the
undersigned,  the  undersigned  will pay all transfer taxes payable with respect
thereto.  No fee will be charged to the  holder for any  conversion,  except for
transfer taxes, if any. The original of the Note is attached hereto (or evidence
of loss, theft or destruction thereof).

Except as may be provided below, the Corporation shall  electronically  transmit
the Common Stock  issuable  pursuant to this Notice of Conversion to the account
of the undersigned or its nominee (which is  ________________)  with DTC through
its Deposit Withdrawal Agent Commission System ("DTC TRANSFER").

In the event of partial exercise,  please reissue an appropriate Note(s) for the
principal balance which shall not have been converted.

The  undersigned  acknowledges  and  agrees  that all  offers  and  sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Note have been or will be made only pursuant to an effective registration of the
transfer of the Common Stock under the  Securities  Act of 1933, as amended (the
"ACT"), or pursuant to an exemption from registration under the Act.

Check Box if Applicable:

[ ] In lieu of receiving  the shares of Common Stock  issuable  pursuant to this
Notice of Conversion by way of DTC Transfer,  the  undersigned  hereby  requests
that the  Corporation  issue and deliver to the  undersigned  or its nominee (if
applicable) physical certificates representing such shares of Common Stock.

           Date of Conversion:
                              -------------------------------------------------

           Applicable Conversion Price:
                                       ----------------------------------------
           Number of Shares of
           Common Stock to be Issued:
                                     ------------------------------------------

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

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

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




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