3.4 Certificate of Designation of 15% Cumulative Redeemable Series D
Preferred Stock

                          CERTIFICATE OF DESIGNATION OF
                       PREFERENCES, RIGHTS AND LIMITATIONS
                                       OF
         15% CUMULATIVE CONVERTIBLE REDEEMABLE SERIES D PREFERRED STOCK
                                       OF
                         VERTICAL COMPUTER SYSTEMS, INC.

VERTICAL COMPUTER SYSTEMS. INC. (the "Company"), a corporation organized and
existing under the laws of the State of Delaware, does hereby certify:

That, pursuant to authority conferred upon the Board of Directors by the
      Certificate of Incorporation of the Company, and pursuant to the provision
      of Section 161 Delaware Statutes, said Board of Directors, by unanimous
      written consent effective as of October 13. 1998, duly adopted a
      resolution providing for the issuance of a series of 1 00,000 shares of
      15% Cumulative Convertible Redeemable Series D Preferred Stock, $.001 par
      value ("Preferred Stock"), which resolution is as follows:

            RESOLVED, that pursuant to the authority expressly granted and
            invested in the Board of Directors of this Company in accordance
            with the provisions of its Certificate of Incorporation, a series of
            preferred stock of the Company be and hereby is given the
            distinctive designation of 15% Cumulative Convertible Redeemable
            Series D Preferred Stock' (the "Preferred Stock"), said series to
            consist of 100,000 shares of the par value $001 per share non-voting
            preferred stock, of which the preferences and relative,
            participating, optional or other special rights, and the
            qualifications, limitations or restrictions thereof shall be as
            follows:

            1. Dividends on Preferred Stock.

                  (a) Except as hereinafter provided, the holders of the
      Preferred Stock shall be entitled to receive, when and as declared by the
      Board of Directors out of funds for the Company legally available

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      therefor, cash or common stock dividends at the annual rate of 15% per
      annum on March 15 and September 15 of each year. Dividends will accrue
      from the date of the issuance of the Preferred Stock (the "Closing Date').
      If the dividend on the Preferred Stock for any dividend period shall not
      have been paid or set apart in full for such Preferred Stock, the
      aggregate deficiency shall be cumulative and shall be fully paid or set
      apart for payment before any dividend shall be paid or set apart for
      payment of any class of common stock of the Company. Accumulation of
      dividends of the Preferred Stock shall not bear interest.

            (b) Dividends shall be paid in cash.

            2. Conversion of Preferred Stock into Common Stock.

                  (a) Subject to redemption by the Company as hereinafter
      described, the holder of record of any share or shares of Preferred Stock
      shall have the right, at his option, to convert each said share or shares
      of Preferred Stock into 3.788 fully paid and non-assessable shares of the
      Company's common stock, par value $.001 per share ("Common Stock").

                  (b) Any holder of a share or shares of Preferred Stock
      desiring to convert such Preferred Stock into Common Stock shall surrender
      the certificate or certificates representing the share or shares of
      Preferred Stock to be so converted, duly endorsed to the Company or in
      blank, at the principal of-floe of the Company (or such other place as may
      be designated by the Company) and shall give written notice to the Company
      at said office that the holder elects to convert same, setting forth the
      name or names (with the address or addresses) in which the shares of
      Common Stock are to be issued. Shares of the Preferred Stock shall be
      deemed to have been converted as of the close of business on the date the
      Company shall receive the written notice of conversion, together with the
      duly executed certificate and payment in full of transfer tax, if
      applicable, and the rights of the holders of such Preferred Stock shall
      cease at such time, and the person or persons in whose name or names the
      certificates for such shares are to be issued shall be treated for all
      purposes as having become the record holder or holders of such Common
      Stock at such time: provided, however, that any such surrender on any date
      when the stock transfer books of the Company shall be closed shall
      constitute the person or persons in whose name or names the certificates
      for such shares to be issued as the record holder or holders thereof for
      all purposes at the close of business on the next succeeding day on which
      such stock transfer books are open.
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                  (c) Conversion of the Preferred Stock shall be subject to the
      following additional terms and provisions:

                                    (i) As promptly as practicable after the
                        surrender for conversion of any certificate or
                        certificate representing Preferred Stock, the Company
                        shall deliver or cause to be delivered at the principal
                        office of the Company (or such other place as may be
                        designated by the Company) to or upon the written order
                        of the holder of such Preferred Stock, certificates
                        representing the shares of Common Stock issuable upon
                        the conversion, issued in such name or names as such
                        holder may direct.

                                    (ii) The Company shall at the time of such
                        conversion pay to the holder of record of any share or
                        shares of such Preferred Stock any accrued but unpaid
                        dividends on such Preferred Stock so surrendered for
                        conversion, except that no payment or adjustment shall
                        be made for any accrued or unpaid dividends for the then
                        current quarterly dividend.

                                    (iii) The Company shall not be required to
                        issue any fractions of shares of Common Stock or script
                        upon the conversion of Preferred Stock. If more than one
                        share of Preferred Stock shall be surrendered for
                        conversion at any time by the holder, the number of full
                        shares of Common Stock which shall be issuable upon
                        conversion of such Preferred Stock shall be computed on
                        the basis of the aggregate number of shares of Preferred
                        Stock so surrendered. If any interest in a fractional
                        share of Common Stock would otherwise be delivered upon
                        the conversion of any Preferred Stock, the Company shall
                        make adjustment for such fractional share of interest by
                        payment of an amount in cash equal to the same fraction
                        of the market value of a full share of Common Stock of
                        the Company. For such purpose, the market value of a
                        share of Common Stock on any securities exchange or in
                        the open

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                        market, as determined by the Company, which
                        determination shall be conclusive.

                                    (iv) In the event that the Company shall at
                        any time subdivide or combine in a greater or lesser
                        number of outstanding shares of Common Stock, the number
                        of shares of Common Stock issuable upon conversion of
                        the Preferred Stock shall be proportionately increased
                        in the case of subdivision or decreased in the case of
                        combination, effective in either case at the close of
                        business on the date when such subdivision or
                        combination shall become effective.

                                    (v) In the event that the Company shall be
                        recapitalized, consolidated or merged into any other
                        corporation, or shall sell or convey to any corporation
                        all or substantially all of its property as an entity,
                        provisions shall be made as part of the terms of such
                        recapitalization, consolidation, merger, sale or
                        conveyance so that any holder of Preferred Stock may
                        thereafter receive in lieu of Common Stock otherwise
                        issuable to him upon his conversion of Preferred Stock,
                        and at the same conversion ratio stated in this
                        Paragraph 2, the same kind and amount of securities or
                        assets as may be distributable upon such
                        recapitalization, consolidation, merger, sale or
                        conveyance, with respect to the Common Stock of the
                        Company.

                                    (vi) Such adjustment shall be made
                        successively if more than one event listed in
                        subdivision (iv) and (v) of this subparagraph (c) of
                        this Paragraph 2 shall occur.

                                    (vii) No adjustment of the conversion ratio
                        shall be made by reason of:

                              (A) the payment of any cash or Common Stock
      dividend on the Common Stock or any other classes of capital stock of the
      Company: or
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                              (B) the purchase, acquisition, redemption or
      retirement by the Company of any shares of Common Stock or any other class
      of the capital stock of the Company, except as provided in subdivision
      (iv) of this subparagraph (c); or

                              (C) the issuance other than as provided in
      subdivision (iv) and (v) of this subparagraph (c) of any shares of Common
      Stock of the Company or of any securities convertible into shares of
      Common Stock or other securities of the Company, or any rights, warrants
      or options to subscribe for or purchase shares of the Common Stock or
      other securities of the Company. or of any other securities of the
      Company, provided that in the event the Company offers any of its
      securities or any rights, warrants or options to subscribe for or purchase
      any of its securities, to holders of its Common Stock pursuant to any
      preemptive or preferential rights granted to holders of Common Stock by
      the Certificate of Incorporation of the Company, as may be amended, or
      pursuant to any similar rights that may be granted to such holders of
      Common Stock by the board of Directors of the Company, then the Company
      shall mail written notice of such offer to holders of the Preferred Stock
      then of record at Least 20 days prior to the record date set for such
      determination of holders of the Common Stock entitled to receive any such
      offer: or (D) Any offer by the company to redeem or acquire shares of the
      Common Stock by paying or exchanging therefore stock of another
      corporation the carrying out by the Company of the transactions
      contemplated by such offer, provided that at least twenty (20) days prior
      to the expiration of any such offer the Company shall mail written notice
      of such offer to the holders of the Preferred Stock then of record; or

            (d) The Company shall at all times reserve and keep available solely
      for the purpose of issue upon conversion of the Preferred Stock, as herein
      provided, such number of shares of Common Stock as shall be issuable upon
      the conversion of all outstanding Preferred Stock.

            (e) The issuance of certificate for shares of Common Stock upon
      conversion of the Preferred Stock shall be made without charge for any tax
      in respect to such issuance. However, if any certificate is to be issued
      in its name Other than that of the holder of record of the Preferred Stock
      so converted, the person or persons requesting the issuance thereof shall
      pay to the Company the amount of tax which may be payable in respect of
      any transfer involved in such issuance, or shall establish the

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      satisfaction of the Company that sucri tax has been paid or is not due and
      payable.

      3. Redemption of Preferred Stock.

            (a) The Preferred Stock may be redeemed at the option of the Company
      on or after the second anniversary of the Closing Date at $6.25 per share.
      The Company may redeem the Preferred Stock at any time prior to the
      Nvo-year period, if all of the following are true: (i) the Company's
      Common Stock trades at or above $2.00 bid for thirty (30) consecutive
      trading days ending within fifteen (15) days of the date of the redemption
      notice, (ii) the Company's Common Stock is listed on NASDAQ and there has
      been reported volume of at least 100,000 shares per week for the prior
      four calendar weeks, and (iii) a registration statement is effective with
      respect to the Common Stock into which the Preferred Stock is convertible.
      The applicable redemption price in the first two years is $6875 (110% of
      the stated value of one (1) share of Preferred Stock) plus all dividends
      accrued and unpaid on such Preferred Stock up to the date fixed for
      redemption. In the event that the Company shall call all or part of the
      Preferred Stock for redemption, the holder of the Preferred Stock shall
      have a period of not less than thirty (30) days within which to convert
      the Preferred Stock to Common Stock before such redemption shall occur.

            (b) In the event that less than the entire amount of Preferred Stock
      outstanding is redeemed at any one time, the shares to be redeemed shall
      be selected by lot in a manner to be determined by the Board of Directors
      of the Company. Not less than thirty (30) nor more than sixty (60) days
      prior to the date fixed for redemption of the Preferred Stock or any part
      thereof, a notice specifying the time and place thereof shall be given by
      mail to the holders of record of the shares of Preferred Stock selected
      for redemption at the respective addresses as the same shall appear on the
      stock records of the Company. but no failure to mail such notice or any
      defect therein or in the mailing thereof shall affect the validity of the
      proceeding for redemption. Any notice which was mailed in the manner
      herein provided shall be conclusively presumed to have been duly given
      whether or not the holder receives the notice. Upon such redemption date,
      or such earlier date as the Board of Directors shall designate for payment
      of the redemption price (unless the Company shall default on the payment
      of the redemption price set forth in such notice). The holders of the
      shares of Preferred Stock selected for redemption and to whom notice has
      been duly given shall cease to be -stockholders with respect to such
      shares and shall have no interest in or claim against the

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      Company by virtue thereof and shall have no rights with respect to such
      shares except the right to convert such shares within the time hereinabove
      set forth and except the right to receive the monies payable upon such
      redemption from the Company or otherwise, without interest thereon, upon
      surrender and endorsement, if required by the Company, of the
      certificates, and the shares represented thereby shall no longer be deemed
      to be outstanding. Upon redemption or conversion of the Preferred Stock in
      the manner set out herein, or upon purchase of Preferred Stock by the
      Company, the Preferred Stock so acquired by the Company shall be
      cancelable and shall not be reissued. After giving any notice of
      redemption and prior to the close of business ont he date prior to the
      redemption date. As hereinbefore provided, the holders of the Preferred
      Stock so called for redemption may convert such stock into Common Stock of
      the Company in accordance with the conversion privileges set forth in
      Paragraph 2 hereof.

            4. Voting Rights. Except as otherwise required by law, the holders
      of Preferred Stock shall have no voting rights.

            5. Priority of Preferred Stock in the Event of a Dissolution. In the
      event of any liquidation, dissolution or winding up of the affairs of the
      company. whether voluntary or otherwise, after payment or provision for
      payment of debts and the liabilities of the Company, the holders of
      Preferred Stock shall receive preference on distribution including an
      amount equal to all dividends accrued and unpaid on each share up to the
      date fixed for distribution, before any distribution shall be made to the
      holders of any class of Common Stock of the company.

      IN WITNESS WHEREOF, the undersigned has caused its corporate seal to be
affixed and this Certificate to be executed by its President and Secretary as of
the 13th day of October, 1998.

                                    VERTICAL COMPUTER SYSTEMS


                                    -------------------------------------
                                    Brett E. Howell, President, Secretary
                                    & Treasurer