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EXHIBIT 4.6    
  

 
 

CERTIFICATE OF DESIGNATION OF
  PREFERENCES AND RELATIVE PARTICIPATING, OPTIONAL AND OTHER
  SPECIAL RIGHTS OF
  SERIES A 6% CUMULATIVE CONVERTIBLE PREFERRED STOCK
  OF
  SPECIAL DEVICES, INCORPORATED    

 

(Pursuant to Section 151(g) of the General Corporation Law of the State of Delaware) 

    Special
Devices, Incorporated, a corporation organized and existing under the laws of the State of Delaware (hereinafter the "Company"), DOES HEREBY CERTIFY THAT, pursuant to
authority conferred upon the Board of Directors of the Company (the "Board of Directors") by the certificate of incorporation of the Company, as amended, the Board of Directors unanimously adopted the
following resolutions on January 30, 2001, authorizing the issuance of the Series A 6% Cumulative Convertible Preferred Stock of the Company, which resolutions are still in full force
and effect and are not in conflict with any provisions of the certificate of incorporation or bylaws of the Company: 

    RESOLVED,
that pursuant to the authority presently granted to and vested in the Board of Directors of this Company under the provisions of the Certificate of Incorporation of the
Company and pursuant to the provisions of Section 151(g) of the General Corporation Law of the State of Delaware, this Board of Directors hereby creates a series of Preferred Stock to consist
of 4,000 shares, and hereby fixes the powers, preferences, relative participating, voting, optional and other special rights, and the qualifications, limitations and restrictions thereof, as follows: 

    1.  Designation and Amount.  The shares of such series of Preferred Stock shall be designated as
"Series A 6% Cumulative Convertible Preferred Stock" (the "Series A Preferred Stock"), and the number of shares constituting such series shall be 4,000. The initial liquidation
preference of the Series A Preferred Stock shall be $1,000 per share (the "Stated Liquidation Value"). 

    2.  Rank.  The Series A Preferred Stock shall, with respect to rights on bankruptcy, liquidation,
winding up, dissolution and dividends, rank senior to the Company's Common Stock, par value $0.01 per share (the "Common Stock"), and to all other classes and series of stock of the Company now or
hereafter authorized, issued or outstanding, other than any class or series of stock of the Company expressly designated as being on a parity with ("Parity Securities") or senior to the Common Stock.
Such other classes or series of stock of the Company not expressly designated as being on a parity with or senior to the Series A Preferred Stock are referred to hereafter as "Junior
Securities." The rights of holders of shares of the Series A Preferred Stock are subordinate to the rights of the Company's general creditors, including the holders of the Company's
113/8% Senior Subordinated Notes due 2008 (the "Senior Notes") and the lenders party to the Credit Agreement, dated as of December 15, 1998, among the Company, the various
lenders party thereto, and Bankers Trust Company, as administrative agent, as such agreement may be amended or supplemented (the "Credit Agreement"). 

    3.  Dividends.  

    (a) The
holders of shares of the Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally
available therefor, dividends payable semi-annually in arrears on February 28 and August 31 of each year (each such date, a "Dividend Payment Date"), except that if any
Dividend Payment Date is not a Business Day (as defined below), then such semi-annual dividend shall be payable on the next succeeding Business Day and such next succeeding Business Day
will be the Dividend Payment Date. Dividends shall be payable to holders of the Series A Preferred Stock at the annual rate of 6% times the sum of (i) the Stated Liquidation Value and
(ii) accrued but unpaid dividends as of the immediately preceding Dividend Payment Date, compounded semi-annually. Dividends shall be payable in cash only to holders of record at
the close of business on the date specified by the Board of Directors at the time such dividend is declared (the "Record Date"). Any such Record Date shall be not less than 10 days and not more
than 60 days prior 

 

to the relevant Dividend Payment Date. All dividends paid with respect to shares of the Series A Preferred Stock shall be paid pro rata to the holders entitled thereto. 

    (b) Dividends
on the Series A Preferred Stock shall accrue and be cumulative on a semi-annual basis (whether or not declared and whether or not funds
are legally available for the payment thereof) from the Issue Date (as defined below). The semi-annual dividend period shall be computed on the basis of a 360-day year of
twelve 30-day months. 

    (c) So
long as any shares of the Series A Preferred Stock are outstanding, the Company shall not, without the prior consent of the holders of at least
fifty-one percent (51%) of the shares of outstanding Series A Preferred Stock, (i) make any payment on account of, or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or retirement of, any Junior Securities
(other than dividends or distributions payable in additional shares of Junior Securities to holders of Junior Securities); (ii) permit any corporation or other entity directly or indirectly
controlled by the Company to purchase or redeem any Junior Securities; (iii) declare, pay or set apart for payment, or permit any corporation or other entity directly or indirectly controlled
by the Company to declare, pay or set apart for payment, any dividend or make any distribution or payment on any Junior Securities or Parity Securities, whether directly or indirectly and whether in
cash, obligations or shares of the Company or other property (other than dividends or distributions payable in additional shares of Junior Securities to holders of Junior Securities); or
(iv) make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or retirement of, any Parity Securities, whether directly
or indirectly, and whether in cash, obligations, shares of the Company or other property (other than payments solely of Junior Securities), and shall not permit any corporation or other entity
directly or indirectly controlled by the Company to purchase or redeem any Parity Securities, unless prior to or at the time of such payment or setting apart for payment, the Company shall have
repurchased, redeemed or retired shares of the Series A Preferred Stock on a pro rata basis, in proportion to the respective Liquidation Preferences (as defined in the Certificate of
Incorporation or applicable Certificate of Designation) of the Series A Preferred Stock and the Parity Securities as to which such sinking fund or similar fund payment, or such purchase,
redemption or retirement, is being effected. 

    (d) Notwithstanding
anything contained herein to the contrary, no dividends on shares of Series A Preferred Stock shall be authorized or declared by the Board of
Directors of the Company or paid or set apart for payment by the Company at such time as the terms and provisions of any agreement of the Company, including any agreement relating to its indebtedness,
prohibits such authorization, declaration, payment or setting apart for payment or provides that such authorization, declaration, payment or setting apart for payment would constitute a breach thereof
or a default thereunder, or to the extent such declaration or payment shall be restricted or prohibited by law. 

    4.  Liquidation Preference.  

    (a) In
the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount in cash equal to 100% of the Stated Liquidation
Value for each share outstanding, plus an amount in cash equal to all accrued but unpaid dividends thereon (whether or not declared) as provided in Section 3(b) above, without interest, to the
date of liquidation, dissolution or winding up (such amount the "Liquidation Preference"), before any payment shall be made or any assets distributed to the holders of any of the Junior Securities. If
the assets of the Company are not sufficient to pay in full the Liquidation Preference payable to the holders of outstanding shares of the Series A Preferred Stock and any Parity Securities,
then the holders of all such shares shall share ratably in such distribution of assets in accordance with the amount which would be payable on such 

2

 

distribution if the amounts to which the holders of outstanding shares of Series A Preferred Stock and the holders of outstanding shares of such Parity Securities are entitled were paid in
full. 

    (b) For
the purposes of this Section 4, neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the Company nor the consolidation or merger of the Company with any one or more other corporations shall be deemed to be a
voluntary or involuntary liquidation, dissolution or winding up of the Company, unless such voluntary sale, conveyance, exchange or transfer shall be in connection with a plan of liquidation,
dissolution or winding up of the Company. 

    5.  Redemption.  

    (a)  Optional Redemption.  The Company may, at its option, redeem at any time, out of funds legally
available therefor, in the manner provided in Section 6 hereof, all or any portion of the shares of the Series A Preferred Stock, at a redemption price per share equal to 100% of the
Liquidation Preference thereof on the date of redemption, including dividends accrued through the Dividend Payment Date immediately preceding the redemption date, though not including any dividends
for any period after such Dividend Payment Date; provided, however, that any such optional redemption by
the Company shall be on a pro rata basis and for whole shares of the Series A Preferred Stock; provided,  further, however, that the Company may redeem fractional shares of Series A Preferred Stock
pursuant to this Section 5(a) in the event that after such redemption a holder of Series A Preferred Stock would be left with less than one full share of Series A Preferred Stock. 

    (b)  Redemption Upon Change of Control.  Upon the occurrence of a Change of Control (as defined below),
the Series A Preferred Stock shall be redeemable at the option of the holders thereof, in whole or in part, at a redemption price per share equal to 100% of the Liquidation Preference on the
date of redemption, including dividends accrued through the Dividend Payment Date immediately preceding the redemption date, though not including any dividends for any period after such Dividend
Payment Date; provided, however, that the Company will not be obligated to redeem, and will not redeem
or call for redemption, any Junior Securities upon a Change of Control until it has repurchased or redeemed (x) such of the $100,000,000 original principal amount of Senior Notes then
outstanding as the Company is required to repurchase in connection with a change of control pursuant to the terms of the Indenture, dated as of December 15, 1998, between SDI Acquisition
Corporation, the Guarantors named therein and United States Trust Company of New York, as trustee (the "Trustee"), relating to the Senior Notes, as such Indenture may be amended or supplemented, and
(y) such of the shares of Series A Preferred Stock then outstanding as the Company is required to repurchase pursuant to the Certificate of Designation relating thereto;  provided, further, that any such redemption (and the Company's obligations with respect thereto) shall
be subject in all respects to the applicable restrictions contained in the Credit Agreement, as such agreement may be amended or supplemented, and any other agreement(s) evidencing debt of the
Company, whether currently in effect or that the Company may enter after the date of issuance of the Series A Preferred Stock. Subject to the foregoing provisos, the Company shall redeem, out
of funds legally available therefor, the number of shares specified in the holders' notices of election to redeem pursuant to Section 6(b) hereof on the date fixed for redemption. 

    6.  Procedure for Redemption.  

    (a) In
the event that the Company shall redeem shares of Series A Preferred Stock pursuant to Section 5(a) hereof, notice of such redemption shall be
mailed by first-class mail, postage prepaid, and mailed not less than 30 days nor more than 60 days prior to the redemption date to the holders of record of the shares to be redeemed at
their respective addresses as they shall appear in the records of the Company; provided, however, that
failure to give such notice or any defect therein or in the mailing thereof shall not affect the validity of the proceeding for the redemption of any shares so to be redeemed except as to the holder
to whom the Company has failed to give such notice or except as to 

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the holder to whom notice was defective. Each such notice shall state: (i) the redemption date; (ii) the number of shares of Series A Preferred Stock to be redeemed and, if less
than all the shares held by such holders are to be redeemed, the number of such shares to be redeemed from such holders; (iii) the redemption price and form of consideration; (iv) the
place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on such
redemption date. Any redemption of less than all the shares of Series A Preferred Stock pursuant to Section 5(a) shall be made on a pro rata basis to all holders of Series A
Preferred Stock. 

    (b) If
a Change of Control should occur, then, subject to Section 5(b) above, within 30 days of the occurrence of such Change of Control, the Company
shall give written notice by first-class mail, postage prepaid, to each holder of Series A Preferred Stock at its address as it appears in the records of the Company, which notice shall set
forth (in addition to the information required by the next succeeding paragraph): (i) each holder's right to require the Company to redeem shares of Series A Preferred Stock held by such
holder as a result of such Change of Control; (ii) the redemption price; (iii) the redemption date (which date shall be no earlier than 30 days and no later than 60 days
from the date the notice in respect of such Change of Control is mailed); (iv) the procedures to be followed by such holder in exercising its right of redemption, including the place or places
where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on the redemption date. In
the event a holder of shares of Series A Preferred Stock shall elect to require the Company to redeem any or all of such shares of Series A Preferred Stock, such holder shall deliver,
within 20 days of the mailing to it of the Company's notice described in this Section 6(b), a written notice stating such holder's election and specifying the number of shares to be
redeemed pursuant to Section 5(b) hereof. 

    (c) Notice
by the Company having been mailed as provided in Section 6(a) hereof, or notice of election having been mailed by the holders as provided in
Section 6(b) hereof, and provided that on or before the applicable redemption date funds necessary for such redemption shall have been set aside by the Company, separate and apart from its
other funds, in trust for the pro rata benefit of the holders of the shares of Series A Preferred Stock so called for or entitled to redemption, so as to be and to continue to be available
therefor, then, from and after the redemption date, dividends on the shares of Series A Preferred Stock so called for or entitled to redemption shall cease to accrue, and said shares shall no
longer be deemed to be outstanding and shall not have the status of shares of Series A Preferred Stock, and all rights of the holders thereof as stockholders of the Company (except the right to
receive the applicable redemption price and any accrued and unpaid dividends from the Company to
the date of redemption) shall cease, unless the Company defaults in the payment of the redemption price, in which case all rights of the holders of Series A Preferred Stock shall continue until
the redemption price is paid. Upon surrender of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Company shall so require and a
notice by the Company shall so state), such shares shall be redeemed by the Company at the applicable redemption price as aforesaid. In case fewer than all the shares represented by any such
certificate are redeemed, a new certificate or certificates shall be issued representing the unredeemed shares without cost to the holder thereof. Any funds set aside in trust for the holders of
Series A Preferred Stock pursuant to this Section 6(c) which remain unclaimed on the second anniversary of the applicable redemption date shall be released or repaid to the Company,
after which the holders of shares called for redemption shall be entitled to receive payment of the redemption price only from the Company. 

    7.  Reacquired Shares.  Shares of Series A Preferred Stock that have been issued and reacquired in
any manner, including shares reacquired by redemption or shares converted into Common Stock pursuant to Section 9 below, shall (upon compliance with any applicable provisions of the laws of the
State of Delaware) have the status of authorized and unissued shares of the class of Preferred Stock 

4

 

undesignated as to series and may be redesignated and reissued as part of any series of Preferred Stock other than the Series A Preferred Stock. 

    8.  Voting Rights.  Except as specifically provided in this Section 8 and except for any
additional voting rights provided by law, the holders of Series A Preferred Stock shall have no voting rights. The Certificate of Incorporation of the Company shall not be amended in any manner
that would adversely alter or change the powers, preferences or special rights of the Series A Preferred Stock as set forth herein without the affirmative vote of the holders of at least
fifty-one percent (51%) of the outstanding shares of Series A Preferred Stock. 

    9.  Conversion Rights.  The rights of the holders of shares of Series A Preferred Stock to convert
such shares into shares of Common Stock (the "Conversion Rights"), and the terms and conditions of such conversion, shall be as follows: 

    (a)  Right to Convert.  

     (i) At
any time following a Triggering Event (as defined below), each holder of shares of the Series A Preferred Stock shall have the right and option to convert
all, but not less than all, of such shares into that number of fully paid and nonassessable shares of Common Stock determined in accordance with the provisions of this Section 9. In order to
convert shares of the Series A Preferred Stock into shares of Common Stock, the holder thereof shall surrender the certificate or certificates therefor, duly endorsed, at the office of the
Company or to the transfer agent for the Series A Preferred Stock or the Common Stock, together with written notice to the Company stating that he, she or it elects to convert the same
and setting forth the name or names in which he, she or it wishes the certificate or certificates for Common Stock to be issued (the "Conversion Notice"). In the event of a redemption of the
Series A Preferred Stock pursuant to Section 5 above, any holder that does not timely deliver such Conversion Notice and surrender such certificate or certificates prior to the date of
redemption specified in any notice delivered pursuant to Section 6 above shall be deemed to have waived his, her or its right to conversion, and such shares shall be subject to the Company's
right of redemption pursuant to Section 5 above. 

    (ii) The
Company shall, as soon as practicable after the surrender of the certificate or certificates evidencing shares of Series A Preferred Stock for
conversion at the office of the Company or the transfer agent for the Series A Preferred Stock or the Common Stock, issue to each holder of such shares, or such holder's nominee or nominees, a
certificate or certificates evidencing the number of shares of Common Stock to which such holder shall be entitled. Such conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the recordholder or holders of such shares of Common Stock at such date and shall, with respect to such shares, have only those rights of a holder of
Common Stock of the Company. 

    (b)  Conversion of Preferred Stock.  Each share of Series A Preferred
Stock shall be convertible into the number of shares of Common Stock which results from dividing the Stated Liquidation Value (without any adjustment for the accrued but unpaid dividends thereon) by
the Conversion Price per share in effect at the time of conversion; provided, however, that any
fractional number of shares of Common Stock shall be rounded up to the next whole share. Upon conversion of the Series A Preferred Stock, holders of shares of Series A Preferred Stock
shall not be entitled to receive any accrued but unpaid dividends as of the conversion date. 

    (c)  Conversion Price.  The conversion price of each share of Series A
Preferred Stock shall initially be $5.00, which the Board of Directors of the Company has determined to be equal to or greater than the fair market value of the Common Stock on the Issue Date (the
"Conversion Price"), and shall be subject to adjustment from time to time as provided herein. 

5

 

    (d)  Adjustment for Stock Splits and Combinations.  If outstanding shares of the
Common Stock of the Company shall be subdivided into a greater number of shares, or a dividend in Common Stock or other securities of the Company convertible into or exchangeable for Common Stock (in
which latter event the number of shares of Common Stock issuable upon the conversion or exchange of such securities shall be deemed to have been distributed), shall be paid in respect of the Common
Stock of the Company, the Conversion Price for each share of Series A Preferred Stock in effect immediately prior to such subdivision or at the record date of such dividend shall,
simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend, be proportionately reduced, and conversely, if outstanding shares of the Common Stock
of the Company shall be combined into a
smaller number of shares, the Conversion Price for each share of Series A Preferred Stock in effect immediately prior to such combination shall simultaneously with the effectiveness of such
combination, be proportionately increased. Notwithstanding the foregoing, no adjustment of the Conversion Price for the Series A Preferred Stock shall be required unless such adjustment would
require an increase or decrease of at least 1% in such price; provided, however, that any adjustments
which by reason of this subparagraph (d) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this subparagraph
(9)(d) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Any adjustment to the Conversion Price under this Section 9(d) shall become
effective at the close of business on the date the subdivision, dividend or combination referred to herein becomes effective. 

    (e)  Reorganizations, Mergers and Consolidations.  In the event of any capital
reorganization, or the consolidation or merger of the Company with or into another entity (collectively referred to hereinafter as "Reorganizations"), unless the Company exercises its right to redeem
the Series A Preferred Stock pursuant to Section 5(a) above, the holders of the Series A Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock the kind and number of shares of Common Stock or other securities or property (including cash) of the Company (or other corporation resulting from such consolidation or
surviving such merger or to which such properties and assets shall have been sold or otherwise transferred), that the holders would have been entitled to receive had such holders converted their
Series A Preferred Stock into shares of Common Stock immediately prior to such Reorganization. In addition, upon the occurrence of such a Reorganization, appropriate adjustment shall be made in
the application of the provisions set forth herein with respect to the rights and interests thereafter of the holders of the Series A Preferred Stock, to the end that the provisions set forth
herein (including the specified changes and other adjustments to the Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares, other securities or
property thereafter receivable upon conversion of the Series A Preferred Stock. The provisions of this Section 9(e) shall similarly apply to successive Reorganizations. Any agreement
entered into by the Company relating to any Reorganization shall make appropriate provision for the conversions described herein. 

    (f)  Conversion Price Adjustment Certificate.  Whenever the Conversion Price is
adjusted as herein provided, the Company shall promptly file with the Secretary or transfer agent an officer's certificate setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment, which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after delivery of such
certificate, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the effective date of such adjustment and shall mail such
notice of such adjustment of the Conversion Price to the holder of each share of Series A Preferred Stock at such holder's last address as shown on the stock records of the Company. 

    (g)  Triggering Events.  A Triggering Event shall mean (i) a Change of
Control, (ii) an initial public offering of any class of equity securities of the Company pursuant to the Securities Act of 1933, 

6

 

as amended, (iii) the delivery of a notice of redemption pursuant to Section 6(a) above and (iv) the fifth anniversary of the Issue Date. 

    10.  Reservation of Stock Issuable Upon Conversion.  The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of Series A Preferred Stock, such numbers of its shares of
Common Stock as shall from time to time be sufficient to effect a conversion of all outstanding shares of the Series A Preferred Stock, and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all the outstanding shares of the Series A Preferred Stock, the Company shall promptly seek such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. In the event of the
consolidation or merger of the Company with another corporation where the Company is not the surviving corporation, effective provisions shall be made in the articles or certificate of incorporation,
merger or consolidation, or otherwise of the surviving corporation so that such corporation will at all times reserve and keep available a sufficient number of shares of Common Stock or other
securities or property to provide for the conversion of the Series A Preferred Stock in accordance with the provisions of this Section 10. 

    11.  Notices.  All notices referred to herein, except as otherwise expressly provided, shall be made by
registered or certified mail, return receipt requested, postage prepaid and shall be deemed to have been given when so mailed to the holder at the address for such holder maintained by the Company. 

    12.  Remedies.  Any holder of Series A Preferred Stock may proceed to protect and enforce his, her
or its rights and the rights of other holders by any available remedy by proceeding at law or in equity to protect and enforce any such rights, whether for the specific enforcement of any provision in
this Certificate of Designation or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. 

    13.  Definitions.  For the purposes of this Certificate of Designation, the following terms shall have
the meanings indicated: 

    "Affiliate"
shall mean, with respect to any specified person, (a) any other person directly or indirectly controlling or controlled by or under direct or indirect common
control with such specified person or (b) any other person that owns, directly or indirectly, 10% or more of such specified person's capital stock or any executive officer or director of any
such specified person or other person or, with respect to any natural person, any person having a relationship with such person by blood, marriage or adoption not more remote than first cousin. For
the purposes of this definition, "control," when used with respect to any specified person, means the power to direct the management and policies of such person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. 

    "Beneficial
Owner" shall have the meaning ascribed to such term or the term "beneficial ownership" in Rule 13d-3 and Rule 13d-5 under the
Securities Exchange Act of 1934, as amended, except that a person shall be deemed have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a subsequent condition. 

    "Business
Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in New York, New York are authorized or obligated by law or executive order to
close. 

    "Change
of Control" shall mean such time after the Issue Date as either: 

     (i) prior
to the initial public offering by the Company of any class of its Common Stock, the consummation of any transaction the result of which is that the Principals
and their Related Parties 

7

 

become the Beneficial Owners, in the aggregate, of less than 50% of the Common Stock of the Company; 

    (ii) after
the initial public offering by the Company of any class of its Common Stock, any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act), other than the Principals and their Related Parties, becomes, directly or indirectly, the Beneficial Owner, by way of merger, consolidation or otherwise, of 51% or more of the Common Stock of
the Company and such person is or becomes, directly or indirectly, the Beneficial Owner of a greater percentage of the voting power of the Common Stock of the Company, calculated on a fully diluted
basis, than the percentage Beneficially Owned by the Principals and their Related Parties; or 

    (iii) the
Company (A) effects the sale, lease or transfer of all or substantially all of the assets of the Company to any person or group, or (B) any
wholly-owned subsidiary of the Company effects the sale, lease or transfer of all or substantially all of the assets of such subsidiary to any person or group, if such assets constitute substantially
all of the assets of the Company and its subsidiaries, taken as a whole. 

    "Junior
Securities" shall have the meaning set forth in Section 2 hereof. 

    "Issue
Date" shall mean the first date on which shares of Series A Preferred Stock are issued. 

    "Liquidation
Preference" shall have the meaning set forth in Section 4 hereof. 

    "Parity
Securities" shall have the meaning set forth in Section 2 hereof. 

    "Person"
shall mean any individual, firm, corporation or other entity, and shall include any successor (by merger or otherwise) of such entity. 

    "Principals"
shall mean (i) J.F. Lehman & Company ("Lehman"), (ii) each Affiliate of Lehman as of the Issue Date, (iii) J.F. Lehman Equity Investors I.,
L.P., (iv) JFL Co-Invest Partners I, L.P., (v) Paribas Principal Incorporated, and (vi) each officer or employee (including their respective immediate family members)
of Lehman as of the Issue Date. 

    "Related
Party" shall mean with respect to any Principal (A) any controlling stockholder or 80% (or more) owned subsidiary of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal
and/or such other Persons referred to in the immediately preceding clause (A). 

    IN
WITNESS WHEREOF, Special Devices, Incorporated has caused this Certificate to be executed by its President this 28th day of February, 2001. 

	 	 	SPECIAL DEVICES, INCORPORATED
	

 	
 	

By:	
 	

/s/ THOMAS W. CRESANTE   

	 	 	 	 	Name:	 	Thomas W. Cresante
	 	 	 	 	Title:	 	President and CEO

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EXHIBIT 4.6

CERTIFICATE OF DESIGNATION OF PREFERENCES AND RELATIVE PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF SERIES A 6% CUMULATIVE CONVERTIBLE PREFERRED STOCK OF SPECIAL DEVICES, INCORPORATEDPrepared by MERRILL CORPORATION

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EXHIBIT 10.39    
  

 
 

FIRST AMENDMENT TO CREDIT AGREEMENT    
  

    FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of July 14, 1999, among SPECIAL DEVICES, INCORPORATED, a corporation organized under
the laws of the State of Delaware (the "Borrower"), the lenders party to the Credit Agreement referred to below (collectively, the "Banks") and BANKERS TRUST COMPANY, as Administrative Agent. All
capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Credit Agreement. 

W I T N E S S E T H:  

    WHEREAS, the Borrower, the Banks and the Administrative Agent are parties to a Credit Agreement, dated as of December 15, 1998 (the "Credit Agreement");
and 

    WHEREAS,
the parties hereto have agreed to amend the Credit Agreement as herein provided; 

    NOW,
THEREFORE, it is agreed: 

I.  Amendments to Credit Agreement.

    1.  The
definition of "Maximum Swingline Amount" appearing in Section 11.01 of the Credit Agreement is hereby amended to read in its entirety as follows: 

    "Maximum
Swingline Amount" shall mean $3,000,000. 

    2.  The
definition of "Excess Cash Flow" appearing in Section 11.01 of the Credit Agreement is hereby amended by (x) inserting a parenthesis immediately
after the phrase "insurance proceeds or Indebtedness" appearing in sub-clause (b)(i) thereof and (y) deleting the reference to sub-clause (vii)
appearing in clause (b) thereof and inserting a reference to sub-clause (vi) in lieu thereof. 

    3.  The
Borrower hereby agrees to execute and deliver to the Administrative Agent for the benefit of the Swingline Bank a new Swingline Note reflecting the increased
Maximum Swingline Amount effected hereby, and the Swingline Bank shall, upon receipt of the new Swingline Note, surrender to the Borrower the Swingline Note being so replaced. 

II.  Miscellaneous.

    1.  In
order to induce the Banks (including the Swingline Bank) to enter into this Amendment, the Borrower hereby represents and warrants that (i) all
representations, warranties and agreements contained in Section 7 of the Credit Agreement are true and correct in all material respects on and as of the First Amendment Effective Date (as
defined below) (unless such representations and warranties relate to a specific earlier date, in which case such representations and warranties shall be true and correct as of such earlier date) and
(ii) there exists no Default or Event of Default on the First Amendment Effective Date, in each case both before and after giving effect to this Amendment. 

    2.  This
Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other
Credit Document. 

    3.  This
Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed
and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Administrative
Agent. 

    4.  THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.

    5.  This
Amendment shall become effective on the date (the "First Amendment Effective Date") when each Credit Party, the Required Banks and the Swingline Bank shall
have signed a counterpart 

 

hereof (whether the same or different counterparts) and shall have delivered (including, without limitation, by usage of facsimile transmission) the same to the Administrative Agent at the Notice
Office. This Amendment and the agreements contained herein shall be binding on the successors and assigns of the parties hereto. 

    6.  From
and after the First Amendment Effective Date, all references in the Credit Agreement and the other Credit Documents to the Credit Agreement shall be deemed to
be references to the Credit Agreement as amended hereby. 

*
* * 

2

    IN
WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. 

	 	 	SPECIAL DEVICES, INCORPORATED
	

 	
 	

 	
 	

 
	

 	
 	

By:	
 	

/s/ JOSEPH A. STROUD
 Name: Joseph A. Stroud

Title: Executive Vice President and Chief Financial Officer
	

 	
 	

 	
 	

 
	 	 	BANKERS TRUST COMPANY,

Individually and as Administrative Agent
	

 	
 	

By:	
 	

/s/ PATRICIA HOGAN
 Name: Patricia Hogan

Title: Principal
	

 	
 	

 	
 	

 
	 	 	BANKBOSTON, N.A.
	

 	
 	

 	
 	

 
	

 	
 	

By:	
 	

/s/ CB MOORE
 Name: CB Moore

Title: Vice President
	

 	
 	

 	
 	

 
	 	 	THE BANK OF NOVA SCOTIA
	

 	
 	

 	
 	

 
	

 	
 	

By:	
 	

/s/ JON BURCKIN
 Name: Jon Burckin

Title: Relationship Manager
	

 	
 	

 	
 	

 
	 	 	CITY NATIONAL BANK
	

 	
 	

 	
 	

 
	

 	
 	

By:	
 	

/s/ EDWARD VASSALLO
 Name: Edward Vassallo

Title: Vice President
	

 	
 	

 	
 	

 
	 	 	FIRST UNION NATIONAL BANK
	

 	
 	

 	
 	

 
	

 	
 	

By:	
 	

/s/ ROBERT A. BROWN
 Name: Robert A. Brown

Title: Vice President

	

 	
 	

 	
 	

 
	 	 	GENERAL ELECTRIC CAPITAL CORPORATION
	

 	
 	

 	
 	

 
	

 	
 	

By:	
 	

/s/ JAMES KOPACK
 Name: James Kopack

Title: Risk Manager
	

 	
 	

 	
 	

 
	 	 	MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
	

 	
 	

 	
 	

 
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:
	

 	
 	

 	
 	

 
	 	 	NATIONAL CITY BANK
	

 	
 	

 	
 	

 
	

 	
 	

By:	
 	

/s/ ROBERT C. ROWE
 Name: Robert C. Rowe

Title: Senior Vice President
	

 	
 	

 	
 	

 
	 	 	PARIBAS
	

 	
 	

 	
 	

 
	

 	
 	

By:	
 	

/s/ DARRYL M. MONASEBIAN
 Name: Darryl M. Monasebian

Title: Director Merchant Banking Group
	

 	
 	

By:	
 	

/s/ EDWARD T. IRWIN
 Name: Edward T. Irwin

Title: Managing Director
	

 	
 	

 	
 	

 
	 	 	KZH STERLING LLC
	

 	
 	

 	
 	

 
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:
	

 	
 	

 	
 	

 
	 	 	UNION BANK OF CALIFORNIA, N.A.
	

 	
 	

 	
 	

 
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:

	

Acknowledged and Agreed:	
 	

 	
 	

 
	

SCOTT, INCORPORATED	
 	

 	
 	

 
	

 	
 	

 	
 	

 	
 	

 
	

By:	
 	

/s/ JOSEPH A. STROUD
 Name: Joseph A. Stroud

Title: Vice President	
 	

 	
 	

 

QuickLinks

EXHIBIT 10.39

FIRST AMENDMENT TO CREDIT AGREEMENT

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