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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 








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      
 Name: JOHN NOCITA

Title: VICE PRESIDENT	

 
	

ACCEPTED BY:	

 
	

SPECIAL DEVICES, INCORPORATED	

 
	

By:	

/s/  JAMES E. REEDER      
 Name: JAMES E. REEDER	

 
	 	Title: VICE PRESIDENT FINANCE
	 	 	 





	DATED:	OCTOBER 23, 2002
	 
	 	 	 











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EXHIBIT 10.46