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EXHIBIT 10.46

LETTER AGREEMENT

October 23, 2002

Mr. James E. Reeder
Chief Financial Officer
Special Devices, Incorporated
14370 White Sage Road
Moorpark, CA 93021

Dear Mr. Reeder:

        Reference is hereby made to that certain Loan and Security Agreement
dated as of June 27, 2001 (the "Loan Agreement"), between Special Devices,
Incorporated ("Borrower") and Foothill Capital Corporation ("Lender").
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Loan Agreement.

        Borrower has advised Lender that it proposes to repurchase up to
$10 million in Senior Subordinated Notes at a discounted price (the "Proposed
Transaction"). In order to accomplish the Proposed Transaction, Borrower has
requested that Lender reduce the minimum amount of credit availability and cash
on hand required by Section 7.17 of the Loan Agreement to enable Borrower to use
Advances under the Loan Agreement to retire the Senior Subordinated Notes.

        Lender hereby agrees to modify Section 7.17 of the Loan Agreement as
requested by Borrower, subject to the terms and conditions set forth in this
Amendment Letter.

        Modification of Section 7.17.    The proviso set forth in clause (b) of
Section 7.17 of the Loan Agreement is hereby modified in its entirety to read as
follows:

"; provided that Borrower may use a portion of the proceeds of the Advances and
the Term Loan to retire the Senior Subordinated Notes if, after giving effect to
such retirement payment, credit availability under Section 2.1(a) hereof, plus
Borrower's cash on hand, minus a reserve for any outstanding trade accounts
payable in excess of historically aged levels, is in excess of $5,000,000."

        Amendment Fee.    As consideration of Lender's agreement to modify the
Loan Agreement, Borrower shall pay to Lender an amendment fee (the "Amendment
Fee") in the amount equal to two percent (2%) of the face amount of the Senior
Subordinated Notes repurchased by Borrower using the proceeds of Advances made
(or deemed made) to Borrower under the Loan Agreement. The Amendment Fee shall
be paid concurrently with the consummation of each repurchase of Senior
Subordinated Notes. The Amendment Fee shall be deemed to be an Obligation that
is secured by the Collateral.

        Fees and Expenses.    Borrower hereby agrees to reimburse Lender for all
of Lender's reasonable out-of-pocket costs and expenses relating to this
Amendment Letter and the Proposed Transaction, including, but not limited to,
reasonable attorneys fees and expenses.

        Reaffirmation of Loan Documents; No Defaults.    Borrower hereby
reaffirms each of the Loan Documents and confirms that the representations and
warranties set forth in the Loan Documents remain true and correct as of the
date of this Amendment Letter.

        All other terms and conditions of the Loan Documents remain unchanged.

        The Loan Agreement and all other Loan Documents executed in connection
therewith, as amended and supplemented by this Amendment Letter, shall remain in
full force and effect in accordance with their terms. For purposes of this
Amendment Letter, the terms and conditions of Sections 13, 15.1, 16.1, 16.2,
16.3, 16.4, 16.6, 16.7 and 16.9 of the Loan Agreement are hereby

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incorporated by reference, provided that all references to "Agreement" in such
sections shall mean this "Amendment Letter".

        Please acknowledge your agreement with the foregoing by signing in the
space provided below and return it to the undersigned. This Amendment Letter
shall become effective upon execution by both Lender and Borrower.

Very truly yours,

FOOTHILL CAPITAL CORPORATION  
By:
/s/  JOHN NOCITA      

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Name: JOHN NOCITA
Title: VICE PRESIDENT
 
ACCEPTED BY:
 
SPECIAL DEVICES, INCORPORATED
 
By:
/s/  JAMES E. REEDER      

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Name: JAMES E. REEDER
    Title: VICE PRESIDENT FINANCE      

DATED: OCTOBER 23, 2002

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EXHIBIT 10.46