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                                                                     Exhibit 3.5


                           CERTIFICATE OF DESIGNATION
                                       OF
                SERIES B-1 REDEEMABLE CONVERTIBLE PREFERRED STOCK
                                       OF
                      SPATIALIZER AUDIO LABORATORIES, INC.

      Pursuant to Section 151 of the General Corporation Law ("GCL") of the
State of Delaware, and the Bylaws of SPATIALIZER AUDIO LABORATORIES, INC., a
Delaware corporation (the "Company"), we the undersigned, being President and
Assistant Secretary, respectively, DO HEREBY CERTIFY, that the following
resolution was duly adopted by the Board of Directors on November 6, 2002:

      RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by the Company's Certificate of Incorporation and Bylaws, the Board of
Directors hereby provides for the issuance of a series of Preferred Stock of the
Company consisting of 118,351 authorized shares which shall have the voting
powers, designations, preferences and relative participating, optional or other
rights, if any, and the qualifications, limitations, or restrictions, set forth
in such Certificate of Incorporation, and in addition thereto, the following:

      Section 1. Designation and Amount. The series of Preferred Stock hereby
created shall be designated as "Series B-1 Preferred Stock", shall have a par
value of $0.01 per share and the number of shares constituting the Series B-1
Preferred Stock shall be 118,351. The Series B-1 Preferred Stock shall have a
stated value of US$10.00 per share.

      Section 2. Rank. The Series B-1 Preferred Stock shall rank: (i) prior to
all of the Company's Common Stock, par value $0.01 per share ("Common Stock"),
(ii) prior to any class or series of capital stock of the Company hereafter
created (unless such future class specifically, by its terms, ranks on parity
with the Series B-1 Preferred Stock), and (iii) junior to any class or series of
capital stock of the Company created before the date hereof, in each case as to
distributions of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (all such distributions being referred
to collectively as "Distributions").

      Section 3. Dividends. No dividends shall be paid on the Series B-1
Preferred Stock.

      Section 4. Sinking Funding. No provisions shall be made for any sinking
fund.

      Section 5. Liquidation Preference.

            (a) In the event of any liquidation, dissolution or winding up of
the Company, either voluntary or involuntary, the holders of Series B-1
Preferred Stock shall be entitled to receive an amount per share equal to the
sum of US$10.00 for each outstanding share of Series B-1 Preferred Stock (the
"Liquidation Preference"). If upon the occurrence of such event, the assets and
funds available to be distributed among the holders of the Series B-1 Preferred
Stock shall be insufficient to permit the payment to such holders of the full
preferential amounts due to such holders, then the entire assets and funds of
the Company legally available for distribution shall be distributed among the
holders of the Series B-1 Preferred Stock on a pro rata basis.

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            (b) Notwithstanding anything set forth above, holders of Series B-1
Preferred Stock shall not be entitled to receive more than the Liquidation
Preference in the event of any corporate reorganizations or any other
transaction (or series of related transactions) that results in the transfer of
more than fifty percent (50%) of the outstanding voting power of the Company,
and such transactions shall not constitute a liquidation, dissolution, or
winding up of the Company if the successor assumes that obligations of the
Company with respect to the Series B-1 Preferred Stock. A sale, conveyance, or
other disposition of all or substantially all of the Company's assets, shall
constitute a liquidation, dissolution or winding up within the meaning of this
paragraph and shall entitle the holders of the Series B-1 Preferred Stock to the
Liquidation Preference, to the extent available above. The purchase or
redemption by the Company of stock of any class, in any number permitted by law,
for the purpose of this paragraph, shall not be regarded as a liquidation,
dissolution or winding up of the Company.

      Section 6. Conversion. The record holders of this Series B-1 Preferred
Stock shall have conversion rights as follows (the "Conversion Rights").

            (a) Right to Convert.

                  (1) On or after January 1, 2003, the holders shall have the
right, subject to Section 6(a)(2) below, to convert, in whole or in part, shares
of Series B-1 Preferred Stock into shares of Common Stock based on the
conversion price per share defined below (the "Conversion Price"). The number of
shares of Common Stock to be issued to the holder upon conversion shall be
determined by (i) multiplying the number of shares of Series B-1 Preferred Stock
to be converted by US$10.00, and (ii) dividing this product by the Conversion
Price, provided, however, that the Company shall not issue to any holder a
fraction of a share of Common Stock and shall instead round the number of shares
of Common Stock issued up to the next whole share of Common Stock.

                  (2) Upon an election by a holder to convert shares of Series
B-1 Preferred Stock into shares of Common Stock, the Company shall have the
right to pay cash to such holder in lieu of issuing shares of Common Stock. If
the Company elects to pay cash rather than issuing shares of Common Stock, the
Company shall pay to the holder US$10.00 for each share of Series B-1 Preferred
Stock that such holder had elected to convert to shares of Common Stock. The
holder shall surrender the shares of Series B-1 Preferred Stock to the Company
for cancellation.

                  (3) The "Conversion Price" shall be determined on the
Conversion Date, and shall equal Ninety percent (90%) of the average of the
closing bid prices of Common Stock for the ten (10) consecutive trading days
ending on the trading day immediately preceding the Conversion Date (as defined
below), provided, however, that the Conversion Price shall under no
circumstances: (i) be lower than Fifty-Six Cents ($0.56) (the "Floor Price"); or
(ii) be higher than 200% of the Floor Price (the "Ceiling Price"). The "closing
bid price" shall mean the last bid price for Common Stock on the OTC Bulletin
Board, as reported by any authoritative source acceptable to the Company or on
the successor market for the Company's Common Stock.

                  (4) In the event of any stock split, reverse stock split,
stock dividend, reclassification or similar event affecting the Common Stock
(each an "Adjustment

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Transaction"), then both the Floor Price and the Ceiling Price shall be adjusted
by multiplying them by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Adjustment
Transaction, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Adjustment Transaction.

            (b) Mechanics of Conversion. Conversion of the Series B-1 Preferred
Stock to Common Stock may be exercised by holder telecopying an executed and
completed notice of conversion ("Notice of Conversion") to the Company, and
delivering the original Notice of Conversion and the certificate representing
the shares of Series B-1 Preferred Stock to the Company by hand or by overnight
courier within three (3) business days of exercise. Each date on which a Notice
of Conversion is telecopied to and received by the Company in accordance with
the provisions hereof shall be deemed a "Conversion Date". The Company will
transmit the certificates representing the Common Stock issuable upon conversion
of all or any part of the shares of Series B-1 Preferred Stock (together with
any certificates for replacement shares of Series B-1 Preferred Stock not
previously converted but included in the original certificate presented for
conversion) to the holder via overnight courier within three (3) business days
after the Company has received the original Notice of Conversion and certificate
for the shares of Series B-1 Preferred Stock being so converted. The Notice of
Conversion and certificate representing the portion of the shares of Series B-1
Preferred Stock converted shall be delivered as follows:

            To the Company:     Spatializer Audio Laboratories, Inc.
                                900 Lafayette Street, Suite 710
                                Santa Clara, CA 95050
                                Attention: Henry Mandell
                                Telephone: (408) 296-0600
                                Facsimile: (408) 296-0650

or to such other person at such other place as the Company shall designate to
the holder in writing.

            (c) Lost or Stolen Certificates. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any certificates
representing shares of Series B-1 Preferred Stock, and (in the case of loss,
theft or destruction) of indemnity or security reasonably satisfactory to the
Company, and upon surrender and cancellation of the certificate(s), if
mutilated, the Company shall execute and deliver new certificate(s) of like
tenor and date. However, the Company shall not be obligated to re-issue such
lost or stolen certificates if holder contemporaneously requests the Company to
convert such Series B Preferred Stock into Common Stock.

            (d) Mandatory Conversion. To the extent not previously converted,
any Series B-1 Preferred Stock then outstanding shall be subject to mandatory
conversion on December 29, 2005, at which time all shares of Series B-1
Preferred Stock will automatically be converted upon the terms set forth in
Section 6(a) at the Conversion Price in effect at such time. Mandatory
conversion shall not occur in the event of the occurrence of one or both of the
following at the time of such mandatory conversion: (x) the Company is unable,
or admits in

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writing its inability, to pay its debts, or is not paying its debts generally as
they come due, or has made any assignment for the benefit of creditors; or (y)
the Company has commenced, or there has been commenced against the Company, any
case, proceeding, or other action seeking to have an order for relief entered
with respect to the Company, or to adjudicate the Company as a bankrupt or
insolvent.

            (e) Reservation of Stock Issuable upon Conversion. The Company has
reserved and will keep available out of its authorized but unissued shares of
Common Stock, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all then outstanding shares of
Series B-1 Preferred Stock at the Floor Price.

            (f) Conversion Adjustments.

                  (1) Adjustment Due to Merger, Consolidation, Etc. If, prior to
the conversion of all Series B-1 Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of another class or
classes of stock or securities of the Company or another entity, or other
property, then each holder of Series B-1 Preferred Stock shall, upon being given
at least ten (10) business days advance written notice of such transaction,
thereafter have the right to acquire and receive, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such shares of stock and/or
securities or other property as would have been issuable or payable with respect
to or in exchange for the number of shares of Common Stock purchasable and
receivable upon the conversion of Series B-1 Preferred Stock held by such holder
immediately prior to the merger, consolidation, exchange of shares,
recapitalization or reorganization. Appropriate provisions shall be made with
respect to the rights and interests of the holders of the Series B-1 Preferred
Stock to the end that the provisions hereof shall thereafter be applicable, as
nearly as may be practicable in relation to any shares of stock or securities
thereafter deliverable upon the conversion thereof. The Company shall not effect
any transaction described in this subsection unless (1) each holder of Series
B-1 Preferred Stock has been given at least ten (10) business days advance
written notice of such transaction, and (2) the resulting successor or acquiring
entity (if not the Company) assumes by written instrument the obligation to
deliver to the holders of the Series B-1 Preferred Stock such shares of stock
and/or securities or other property as the holders of the Series B-1 Preferred
Stock would be entitled to receive pursuant to this Section 6(f).

                  (2) No Fractional Shares. If any adjustment under this section
would create a fractional share, or a right to acquire a fractional share, of
any security, such fractional share shall be disregarded and the number of
shares of such security issuable upon conversion shall be the next higher number
of shares.

      Section 7. Voting Rights. The holders of the Series B-1 Preferred Stock
shall have no voting power whatsoever, except with respect to any amendment to
the Company's Certificate of Incorporation which would have an adverse effect on
the Series B-1 Preferred Stock or as otherwise provided by the Delaware
Corporation Laws.


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      Section 8. Status of Converted Stock. In the event any shares of Series
B-1 Preferred Stock shall be converted pursuant to Section 6 hereof, shall be
exchanged by the holders for other securities of the Company or if the Company
has elected to pay cash to such holder pursuant to Section 6(a)(2) in lieu of
issuing shares of Common Stock, the shares of Series B-1 Preferred Stock so
converted (or for which cash was paid in lieu of conversion) shall be cancelled,
shall return to the status of authorized but unissued Preferred Stock of no
designated series, and shall not be issuable by the Company as Series B-1
Preferred Stock.

      Section 9. Preference Rights. Nothing contained herein shall be construed
to prevent the Board of Directors of the Company from issuing one or more series
of Preferred Stock with dividend and/or liquidation preferences junior to the
dividend and liquidation preferences of the Series B-1 Preferred Stock.

      Section 10. Restrictions on Trading. Each holder of Series B-1 Preferred
Stock shall agree that, during the ten (10) trading days immediately preceding
the Conversion Date, it shall not, whether directly or indirectly: (i) buy or
sell, or make or accept any offer to buy or sell, any shares of capital stock of
the Company; or (ii) buy or sell, or make or accept any offer to buy or sell,
any derivative security based on or relating to any capital stock of the Company
(including without limitation options to buy or sell shares of capital stock of
the Company). Each holder of Series B-1 Preferred Stock shall also agree not to
engage in any short sales of any shares of capital stock of the Company for so
long as any of its shares of Series B-1 Preferred Stock remain issued and
outstanding. No holder of Series B-1 Preferred Stock shall be entitled to
convert its Series B-1 Preferred Stock into Common Stock until ten (10)
consecutive trading days have elapsed during which such holder has not engaged
in any of the transactions prohibited by this Section 10.


                  [Remainder of Page Intentionally Left Blank]


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      IN WITNESS THEREOF, the Company has caused the undersigned to sign this
Certificate of Designation this 12th day of December, 2002.

                                           SPATIALIZER AUDIO LABORATORIES, INC.


                                           By: /s/ HENRY R. MANDELL
                                               ---------------------------------
                                               Henry R. Mandell,
                                               Chief Executive Officer


Attest:


By: /s/ MARGARET G. GRAF
   ----------------------------------
   Assistant Secretary


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