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 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  forpayment  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.

<PAGE>

            (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  office 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.

            (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.


<PAGE>

                  (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  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:


<PAGE>

                        (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

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


<PAGE>

            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
      two-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 $6.875 (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  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.


<PAGE>

            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


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