CERTIFICATE OF DESIGNATION OF
                         VERTICAL COMPUTER SYSTEMS, INC.

      Pursuant  to Section 151 of the  General  Corporation  Law of the State of
Delaware, the undersigned duly authorized officers of Vertical Computer Systems,
Inc. (the "Corporation"), a corporation organized and existing under the General
Corporation Law of the State of Delaware, DO HEREBY CERTIFY:

      FIRST:  That,  pursuant  to  authority  expressly  vested  in the Board of
Directors  of  said   corporation  by  the  provisions  of  its  Certificate  of
Incorporation  as amended,  said Board of Directors  duly adopted the  following
resolution:

      RESOLVED:  that the Board of  Directors,  pursuant to authority  expressly
vested  in it by the  provisions  of the  Certificate  of  Incorporation  of the
Corporation,  hereby  authorizes  the  issue  from  time to time of a series  of
Preferred Stock of the Corporation and hereby fixes the designation, preferences
and relative,  participating,  optional or other rights, and the qualifications,
limitations  or  restrictions  of the series  thereof,  in addition to those set
forth in said Certificate of Incorporation, to be in their entirety as follows:

              SERIES "C" 4% CUMULATIVE CONVERTIBLE PREFERRED STOCK

      Section I. Designation and Number.  The series of Preferred Stock shall be
designated and known as "Series "C" 4% Cumulative  Convertible Preferred Stock."
The number of shares constituting Series "C" 4% Cumulative Convertible Preferred
Stock (hereinafter referred to as the "Series "C" Preferred Stock") shall be Two
Hundred Thousand (200,000).  For purposes of this Section, all equity securities
of the  corporation  ranking  as to  dividends  or  distributions  of  assets on
liquidation,  dissolution or winding up of the corporation, junior to the Series
"C"  Preferred  Stock,  including the Common  Stock,  are sometimes  hereinafter
referred to as "Junior Securities."

      Section  2.  Liquidation   Rights.  In  the  event  of  any  voluntary  or
involuntary  liquidation,  dissolution  or  winding  up of  the  affairs  of the
corporation,  the holders of each share of the Series "C" Preferred  Stock shall
be entitled to receive, prior to and in preference to any distribution of any of
the  assets  or  surplus  funds of the  corporation  to the  holders  of  Junior
Securities, by reason of their ownership thereof, an amount equal to One Hundred
Dollars  ($100.00)  per share (the  "Liquidation  Value")  plus any  accrued but
unpaid dividends on the Series "C" Preferred Stock.

      All of the  preferential  amounts to be paid to the  holders of the Series
"C" Preferred  Stock under this Section 2 shall be paid or set apart for payment
before the  payment  or setting  apart for  payment  of any amount  for,  or the
distribution  of any  assets  of the  corporation  to,  the  holders  of  Junior
Securities,  in connection  with such  liquidation,  dissolution  or winding up.
After the payment or the setting  apart for payment to the holders of the Series
"C" Preferred Stock of the preferential  amounts so payable to them, the holders
of Junior  Securities  shall be entitled to receive all remaining  assets of the
corporation  in  accordance  with  the  Certificate  of   Incorporation  of  the
corporation.  If the assets or surplus funds to be distributed to the holders of
the Series "C" Preferred  Stock are  insufficient  to permit the payment to such
holders of their full preferential  amount, the assets and surplus funds legally
available for distribution shall be distributed ratably among the holders of the
Series "C" Preferred  Stock in proportion to the full  preferential  amount each
such holder is otherwise entitled to receive.


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<PAGE>

      Section 3. Voting Rights.  Except as otherwise  provided herein or by law,
the holders of Series "C" Preferred Stock shall not be entitled to notice of any
stockholder's  meeting  and shall not be  entitled  to vote,  together  with the
holders of all other voting capital stock of the Company,  including the holders
of Common Stock, upon any matter submitted to the stockholders for a vote.

      Section 4. Dividend Rights.  The holders of the Series "C" Preferred Stock
shall be entitled to receive, when and as declared by the Board of Directors out
of the funds of the corporation  legally  available  therefore,  cumulative cash
dividends  at the annual rate of four  percent  (4%) of the  Liquidation  Value,
payable quarterly on the first day of April,  July,  October and January in each
year  beginning  July 1,  2001.  The  initial  dividend  paid  after the date of
original  issuance of any shares of the Series "C" Preferred  Stock shall accrue
from such date of issuance on a pro rata basis. Dividends payable for any period
less than a full  quarter  shall be computed on the basis of a 360-day year with
12 equal months of 30 days.  Dividends shall be payable to holders of record, as
they appear on the stock books of the Corporation on such record dates as may be
declared by the Board of Directors,  not more than sixty (60) days nor less than
ten (10) days preceding the payment dates of such dividends.  If the dividend on
the Series "C" Preferred  Stock is not paid in full,  the  aggregate  deficiency
shall be cumulative  and shall be fully paid or set apart for payment before any
dividends  shall be paid or set apart for, or any other  distributions  paid, or
any payments  made on account of the  purchase,  redemption  or  retirement  of,
Junior  Securities  other  than,  in the  case of  dividends  or  distributions,
dividends or distributions paid in Junior Securities. No full dividends shall be
declared  by the Board of  Directors  or paid or set apart  for  payment  by the
corporation  on any Junior  Securities  for any period  unless  full  cumulative
dividends have been or contemporaneously are declared and paid or declared and a
sum set apart  sufficient for such payment on the Series "C" Preferred Stock for
all dividend  payment periods  terminating on or prior to the date of payment of
such full dividends on the Series "C" Preferred Stock shall not bear interest.

      Notwithstanding,  any dividends payable pursuant to this Section 4 may, at
the election of the Board of  Directors,  be paid,  all or in part, in shares of
the Corporation's  Common Stock. Each such share of Common Stock shall be valued
at the closing sale price on the record date of the  Corporation's  Common Stock
on any exchange or over the counter market on which the Common Stock trades.  If
the  Common  Stock is not listed on any  exchange  or there is no market for the
Common  Stock,   then  the  value  set  by  the  Board  of  Directors  shall  be
determinative.

      Section 5. Covenants.  So long as fifty percent (50%) of the shares of the
Series "C" Preferred Stock  authorized  hereby shall be outstanding (as adjusted
for all subdivision and  combinations,  the corporation shall not, without first
obtaining the  affirmative  vote or written  consent of not less than  fifty-one
percent (51%) of such outstanding shares of the Series "C" Preferred Stock:

            (a) amend or repeal any  provision  of, or add any provision to, the
corporation's  Certificate of Incorporation or Bylaws if such action would alter
or change the preferences,  rights, privileges or powers of, or the restrictions
provided for the benefit of the Series "C" Preferred  Stock;  provided that, the
authorization  of Junior  Securities  shall not be deemed to alter or change the
preferences,  rights,  privileges or powers of, or the restriction  provided for
the benefit of the Series "C" Preferred Stock;


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<PAGE>

            (b) reclassify any Common Stock into shares having any preference or
priority of the Series "C" Preferred Stock;

            (c) pay or declare  any cash  dividend on any Junior  Securities  or
apply  any of its  assets  to the  redemption,  retirement,  purchase  or  other
acquisition directly or indirectly,  through  subsidiaries or otherwise,  of any
Junior Securities or any rights,  options,  warrants to purchase,  or securities
convertible  into,  Junior  Securities  except for the  acquisition of shares of
Common  Stock or options to  purchase  shares of Common  Stock from  officers or
employees of, or consultants  to, the  corporation in accordance  with any stock
option or other agreement entered into by the corporation;

            (d) create or issue any  securities  of the  corporation  which have
equity  features  and which rank senior to the Series "C"  Preferred  Stock upon
payment of dividends or upon liquidation or other distribution of assets;

            (e)  increase  the  authorized  number of shares of the  Series  "C"
Preferred Stock;

      Section  6.  Conversion  into  Common  Stock.  The holder of any shares of
Series  "C"  Preferred  Stock  shall  have  conversion  rights as  follows  (the
"Conversion Rights"):

            (a) Right to Convert. Ninety (90) days after issuance, each share of
Series "C"  Preferred  Stock  shall be  convertible,  without the payment of any
additional  consideration  by the holder thereof and at the option of the holder
thereof,  into four hundred (400) fully paid and nonassessable  shares of common
stock of the Company, subject to adjustment as outlined below.

      Each share of Series "C" Preferred Stock is convertible  into four hundred
(400) shares of the Company's  common stock.  In the event the Company shall, at
any time  prior  to the  expiration  date of this  conversion  and  prior to the
exercise  thereof:  (i)  declare or pay to the  holders  of the  common  stock a
dividend  payable in any kind of shares of stock of the Company;  or (ii) change
or divide or otherwise  reclassify its common stock into the same or a different
number of shares  with or  without  par  value,  or into  shares of any class or
classes;  or (iii)  consolidate  or merge with,  or transfer  its property as an
entirety or substantially as an entirety to, any other  corporation;  then, upon
subsequent  exercise of this  conversion,  the holder thereof shall receive,  in
addition to or in substitution  for the shares of common stock to which he would
otherwise be entitled upon such exercise, such additional shares of stock of the
Company,  or such reclassified shares of stock of the Company, or such shares of
the securities or property of the Company  resulting from such  consolidation or
merger  or  transfer,  which he would  have  been  entitled  to  receive  had he
exercised this conversion prior to the happening of any of the foregoing events.


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<PAGE>

            (b) Mechanics of Conversion.  Holders of Series "C" Preferred  Stock
may  exercise  their  conversion  rights  at any time  ninety  (90)  days  after
issuance.  Before any holder of Series "C" Preferred  Stock shall be entitled to
convert  the same into  full  shares of common  stock,  he shall  surrender  the
certificate  or  certificates  therefore,  duly  endorsed,  at the office of the
corporation  or of any transfer  agent for the Series "C" Preferred  Stock,  and
shall give written  notice to the  corporation  at such office that he elects to
convert  the same and shall  state  therein his name or the name or names of his
nominees in which he wishes the certificate or certificates for shares of common
stock to be issued.

            (c) The corporation shall, as soon as practicable thereafter,  issue
and deliver at such office to such holder of Series "C" Preferred  Stock,  or to
his nominee or nominees,  a certificate or certificates for the number of shares
of common stock to which he shall be entitled as  aforesaid,  together with cash
in payment of any accrued unpaid dividends on the shares of Series "C" Preferred
Stock  converted   through  the  date  of  conversion,   and  a  certificate  or
certificates  for such Series "C"  Preferred  Stock as were  represented  by the
certificates  surrendered and not converted.  Such conversion shall be deemed to
have  been  immediately  prior  to the  close  of  business  on the date of such
surrender  of the  shares of Common  Stock  issuable  upon  conversion  shall be
treated  for all  purposes  as the record  holder or  holders of such  shares of
Common stock on such date.

            (d) No  Impairment.  The  corporation  will not, by amendment of 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 to be observed or performed  hereunder by the  corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section  6 and in the  taking  of  all  such  action  as  may  be  necessary  or
appropriate  in order to protect  the  conversion  rights of the  holders of the
Series "C" Preferred Stock against impairment.

            (e)  Notices  of  Record  Date.  In the  event of any  taking by the
corporation  of a record  of the  holders  of any  class of  securities  for the
purpose of  determining  the  holders  thereof  who are  entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous  quarters) or other  distribution,  the corporation  shall mail to each
holder of Series  "C"  Preferred  Stock at least ten (10) days prior to the date
specified herein, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend or distribution.

            (f) Common Stock Reserved.  The  corporation  shall reserve and keep
available out of its authorized but unissued  Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect conversion of
the Series "C" Preferred Stock.

      IN WITNESS  WHEREOF,  the officers named below acting for and on behalf of
the corporation,  have subscribed their names to this Certificate of Designation
this 13th day of August, 2001.


VERTICAL COMPUTER SYSTEMS, INC.
a Delaware Corporation


By:
   -----------------------------------------
         Richard Wade, President

By:
   -----------------------------------------
         William Mills, Secretary


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