SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12

SPECIAL DEVICES, INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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2
SPECIAL DEVICES, INCORPORATED
16830 WEST PLACERITA CANYON ROAD
NEWHALL, CALIFORNIA 91321

----------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MARCH 25, 1998

----------

To The Stockholders of
Special Devices, Incorporated:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Special Devices, Incorporated, a Delaware corporation (the "Company"), will be
held at the Hampton Inn, 25259 North The Old Road, Valencia, California, on
Wednesday, March 25, 1998, at 10:00 A.M., local time, for the purpose of
considering and acting upon the following:

1. The election of two directors, to hold office until the 2001
Annual Meeting of Stockholders and thereafter until their
successors are elected and qualified; and

2. The transaction of such other business as may properly come
before the meeting or any adjournment thereof.

Only stockholders of record at the close of business on February 4, 1998
will be entitled to notice of and to vote at the meeting and any adjournments
thereof.

By Order of the Board of Directors,

/s/ THOMAS F. TREINEN
THOMAS F. TREINEN
Chairman of the Board
Dated: February 26, 1998

PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE
ACCOMPANYING ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.

3
SPECIAL DEVICES, INCORPORATED
16830 WEST PLACERITA CANYON ROAD
NEWHALL, CALIFORNIA 91321

-----------------

PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
MARCH 25, 1998

-----------------

This Proxy Statement is being mailed on or about February 26, 1998 to
stockholders of Special Devices, Incorporated (the "Company") in connection with
the solicitation of proxies by the Board of Directors for use at the Annual
Meeting of Stockholders to be held on March 25, 1998, or any adjournment or
adjournments thereof, for the purposes set forth in this Proxy Statement and in
the accompanying Notice of Annual Meeting of Stockholders.

When a proxy in the form enclosed with this Proxy Statement is returned
properly executed, the shares represented thereby will be voted at the Annual
Meeting in accordance with the directions indicated thereon or, if no direction
is indicated, the shares will be voted in accordance with the recommendations of
the Board of Directors and in the discretion of the Proxies. A stockholder who
executes and returns the enclosed proxy may revoke it at any time prior to its
exercise by giving written notice of such revocation to the Chairman of the
Board of the Company, at the address of the Company, or by revoking it in person
at the Annual Meeting. Attendance at the Annual Meeting by a stockholder who has
executed and returned the enclosed proxy does not alone revoke the proxy.

The costs of preparing and mailing this Notice and Proxy Statement and
the enclosed form of proxy will be paid by the Company. In addition to
soliciting proxies by mail, officers and regular employees of the Company may,
at the Company's expense, solicit proxies in person and by telephone or
telegraph. The Company has retained ChaseMellon Shareholder Services to assist
in the solicitation of proxies. The Company will pay reasonable out-of-pocket
expenses incurred by them. The Company will pay brokers, nominees, fiduciaries
and other custodians their reasonable fees and expenses for forwarding
solicitation material to principals and for obtaining their instructions.

VOTING SECURITIES

As of the close of business on February 4, 1998, 7,788,667 shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), were
outstanding and held of record by approximately 144 stockholders, each of which
shares is entitled to one vote at the Annual Meeting. The Company has no other
class of voting securities outstanding.

A majority of the shares entitled to vote, present in person or
represented by proxy, will constitute a quorum at the meeting. In all matters
other than the election of directors, the affirmative vote of a majority of
shares of Common Stock present in person or represented by proxy at the meeting
and entitled to vote on the subject matter will be the act of the stockholders.
Directors will be elected by a plurality of the votes of the shares of Common
Stock present in person or represented by proxy and entitled to vote on the
election of directors. Abstentions will be treated as the equivalent of a
negative vote for the purpose of determining whether a proposal has been adopted
and will have no effect for the purpose of determining whether a director has
been elected. As to certain matters other than the election of directors, New
York Stock Exchange and American Stock Exchange rules generally require when
shares are registered in street or nominee name that their member brokers
receive specific instructions from the beneficial owners in order to vote on
such a proposal. If a member broker indicates on the proxy that such broker does
not have discretionary authority as to certain shares to vote on a particular
matter, those shares will not be considered as present and entitled to vote with
respect to that matter.

ITEM 1
ELECTION OF DIRECTORS

The Company's Certificate of Incorporation provides for a three-tiered
classified Board of Directors with staggered terms of office. The Board of
Directors consists of three classes, designated as Class I, Class II and Class
III. Pursuant to the Certificate of Incorporation, the term of Class I directors
expires at the 1998 Annual Meeting, the term of Class II directors expires at
the 1999 Annual Meeting, and the term of Class III directors expires at the 2000
Annual Meeting. At each Annual Meeting, only one class of directors will be
elected, and each class of directors will serve a three-year term and until
their successors are elected and qualified.

INFORMATION CONCERNING NOMINEES

The nominees for election as Class I directors are set forth below along
with certain information regarding the nominees. Unless marked to the contrary,
proxies received will be voted for the election of J. Nelson Hoffman, Robert S.
Ritchie and Jack B. Watson, each of whom currently serves as a Director of the
Company, to serve until the 2001 Annual Meeting and until his successor is
elected and qualified. If for any reason any nominee should not be available for
election or be unable to serve as a Director, the accompanying proxy will be
voted for the election of such other person, if any, as the Board of Directors
may designate. The Board has no reason to believe that any nominee will be
unavailable for election or unable to serve.

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5

1998 NOMINEES

YEAR
COMMENCED OTHER
SERVING AS A CORPORATE
NAME AND PRINCIPAL OCCUPATION AGE DIRECTOR DIRECTORSHIPS
- ----------------------------------------------------------- --- ------------ -------------

J. Nelson Hoffman(1) 64 1991 None
Mr. Hoffman has been a Director of the Company since
May 1991. Mr. Hoffman was Chairman and Chief Executive
Officer of Brice Manufacturing Co., Pacoima,
California, a manufacturer of commercial aircraft
interior spare parts, until the company was sold in
December 1994. Mr. Hoffman holds a degree in optical
physics and had been employed by Brice Manufacturing
Co. since 1979.

Robert S. Ritchie 55 1994 None
Mr. Ritchie has been employed by the Company since May
1990, a Vice President since October 1991 and a
Director since September 1994. From 1985 to 1990, Mr.
Ritchie was an independent business management
consultant servicing aerospace and commercial
companies. Mr. Ritchie holds a degree in mechanical
engineering and an MBA.

Jack B. Watson 62 1991 Watson
Mr. Watson has been a Director of the Company since Helicopters
April 1991. Mr. Watson served as President of the Inc.
Automotive Products Division from 1987 to January 1992
when he resigned to concentrate on specific projects.
Mr. Watson served as Vice President of the Automotive
Products Division from January 1997 through December
1997. From 1982 to the present, Mr. Watson has been
President of Watson Helicopters Inc. (a company engaged
in helicopter flight training, charter service,
maintenance and helicopter sales). Prior to his
re-employment by the Company in January 1997, Mr.
Watson provided consulting services to the Company
regarding pyrotechnic devices. Mr. Watson will again
serve as a consultant to the Company from January 1998
through December 1999. Mr. Watson was initially
employed by the Company from 1967 to 1981. He served
as Vice President from 1970 to 1975 and as Co-President
with Mr. Treinen from 1974 to 1981. Mr. Watson holds
degrees in aerodynamics.

- --------------

(1) Member of the Audit Committee and Compensation Committee.

The proposed nominees are not related by blood or marriage to any
executive officer of the Company.

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE ELECTION OF THE NOMINEES FOR DIRECTOR NAMED ABOVE.

3
6

INFORMATION CONCERNING DIRECTORS

Set forth below are the Class II and Class III directors whose terms do
not expire this year, along with certain information regarding these directors.

YEAR
COMMENCED OTHER
SERVING AS A CORPORATE
NAME AND PRINCIPAL OCCUPATION AGE DIRECTOR DIRECTORSHIPS
- ----------------------------------------------------------- --- ------------ -------------

Thomas F. Treinen 60 1976 None
Mr. Treinen has served as Chairman, President and as a
Director of the Company since 1976. From 1965 to 1976
Mr. Treinen held various positions including project
engineer and Vice President. From 1961 to 1965 Mr.
Treinen was a project engineer at Aerojet General
Corporation. Mr. Treinen holds a degree in mechanical
engineering. (Class III)

Samuel Levin 68 1994 None
Mr. Levin has been President of Scot, Incorporated (a
wholly-owned subsidiary of the Company) and a Director
since September 1994. Prior to that time, Mr. Levin
spent 18 years in various executive capacities
(including as President beginning in 1992) with Scot,
Inc., which sold substantially all of its assets to
Scot, Incorporated, a subsidiary of the Company, in
September 1994. Mr. Levin holds a degree in mechanical
engineering. (Class III)

Donald A. Bendix(1) 61 1991 Sierra
Mr. Bendix has been a Director of the Company since May Concepts
1991. Mr. Bendix is the Chief Financial Officer, Corporation
Secretary and Treasurer of Sierra Concepts Corporation and
and its major operating subsidiary, Ellison Machinery Subsidiaries
Company, Santa Fe Springs, California, a distributor of
high technology machinery equipment and machine tools.
Mr. Bendix holds a degree in marketing and has been
employed by Ellison Machinery since 1968. (Class II)

John M. Cuthbert 55 1991 None
Mr. Cuthbert has been a Director of the Company since
June 1991 and has served as President of the Automotive
Products Division since January 1992. From December 1989
to January 1992, he served as a Vice President of the
Automotive Products Division. From 1977 to 1984, Mr.
Cuthbert was Director of Engineering at OEA, Inc.
(aerospace and automotive products) and was Vice
President of Engineering for OEA from 1984 to 1989.
Mr. Cuthbert holds a degree in mechanical engineering.
(Class II)

- --------------

(1) Member of the Audit Committee and Compensation Committee.

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7

COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS

The Board of Directors has a standing Audit Committee and a standing
Compensation Committee, but does not have a standing nominating committee.

The members of the Audit Committee, which held one meeting during fiscal
year 1997, are Messrs. Bendix and Hoffman. Its functions include recommending to
the Board of Directors the selection of the Company's independent public
accountants and reviewing with such accountants the plan and results of their
audit and the adequacy of the Company's systems of internal accounting controls.
In addition, the Audit Committee reviews the independence of the independent
public accountants and reviews the fees for audit and non-audit services
rendered to the Company by its independent public accountants.

The members of the Compensation Committee, which held three meetings
during fiscal year 1997, are Messrs. Bendix and Hoffman. Its functions include
recommending to the Board of Directors the compensation and benefits for senior
management, including the grant of stock options.

During fiscal year 1997, the Board of Directors met three times. No
director attended less than 75% of the meetings of the Board and the committees
of the Board on which he served.

COMPENSATION OF DIRECTORS

Directors who are not officers or consultants to the Company receive an
annual fee of $2,500 plus $250 for each Board of Directors or committee meeting
attended. All directors are eligible for reimbursement for their expenses in
connection with their attendance at such meetings. Directors who are not
employees of the Company and who serve on the Company's Compensation Committee
or the committee appointed by the Board of Directors to administer the Company's
Amended and Restated 1991 Stock Incentive Plan (the "Plan") automatically
receive options on a bi-annual basis (on every other August 15th) to acquire
10,000 shares of the Company's Common Stock at an exercise price per share equal
to the fair market value of the Company's Common Stock on the date of grant.
Pursuant to the Plan, on August 15, 1996, Messrs. Bendix and Hoffman were each
granted options to purchase 10,000 shares of the Company's Common Stock at an
exercise price of $17.00 per share (the closing price of the Common Stock on the
Nasdaq National Market on such date). Such options have a term of ten years and
vest ratably over a three-year period, with the first third having vested on
August 15, 1997 and the second third vesting on August 15, 1998.

5
8

OWNERSHIP OF THE COMPANY'S SECURITIES

PRINCIPAL STOCKHOLDERS

The following table sets forth as of February 4, 1998, the record date
for the Annual Meeting, the stockholders known to management to be the
beneficial owners of more than five percent of the Company's Common Stock:

NAME AND ADDRESS NUMBER OF SHARES PERCENT OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS OUTSTANDING
- ---------------------------------- --------------------- -----------------

Walter Neubauer
Ordnance Products, Inc. 1,457,750(2) 18.7%
21200 S. Figueroa Street
Carson, CA 90745

Thomas F. Treinen 1,325,000(3) 17.0%
Special Devices, Incorporated
16830 W. Placerita Canyon Road
Newhall, CA 91321

Conner Clark & Company, Ltd. 1,105,600(4) 14.2%
40 King Street
Suite 5110, Box 125
Toronto, Ontario M5H 3Y2

Mt. Everest Fund, L.P. 754,000(5) 9.7%
600 Atlantic Avenue, Suite 2800
Boston, MA 02110

- --------------

(1) Based on 7,788,667 shares of the Company's Common Stock outstanding on
February 4, 1998. Except as indicated otherwise in the following notes,
shares shown as beneficially owned are those as to which the named persons
possess sole voting and investment power. However, under California law,
personal property owned by a married person may be community property that
either spouse may manage and control. The Company has no information as to
whether any shares shown in this table are subject to California community
property law.

(2) Based on information contained in a Schedule 13G filed with the Securities
and Exchange Commission on February 14, 1997. The Neubauer Family Trust
dated March 7, 1985 owns 339,373 of such shares and the Neubauer Family
Trust dated May 19, 1993 owns 906,750 of such shares. Under both of these
trusts, Mr. Neubauer is the sole trustee and has sole voting and investment
power over such shares. The remaining 211,627 of such shares are owned by
the Neubauer Trust dated December 3, 1992, under which George Ota is the
sole trustee and has sole voting and investment power over such shares.

(3) All of such shares are owned by the Treinen Family Trust dated December 2,
1981, as restated on November 3, 1986, under which Mr. Treinen is the sole
trustee and has sole voting and investment power.

(4) Based on information contained in an Amendment No. 1 to Schedule 13G filed
with the Securities and Exchange Commission on February 13, 1997.

(5) Based on information contained in an Amendment No. 2 to Schedule 13G filed
with the Securities and Exchange Commission on February 11, 1998.

6
9

OWNERSHIP BY MANAGEMENT

The following table sets forth as of February 4, 1998, the record date
for the Annual Meeting, the number of shares of Common Stock of the Company and
the percent of Common Stock owned beneficially by each Director and Named
Officer (as defined below) of the Company, and by all Directors and executive
officers of the Company as a group.

NUMBER OF SHARES PERCENT OF
AND NATURE OF CLASS
NAME BENEFICIAL OWNERSHIP(1) OUTSTANDING
- ------------------------------------------ ----------------------- -----------

Thomas F. Treinen......................... 1,325,000(2) 17.0%
John M. Cuthbert.......................... 39,100(3)(4) *
Robert S. Ritchie......................... 7,200(4) *
Samuel Levin.............................. 6,000(4)(5) *
Donald A. Bendix.......................... 12,800(4) *
J. Nelson Hoffman......................... 12,800(4)(6) *
Jack B. Watson............................ 66,900(4) *
John T. Vinke............................. 19,700(4) *
All directors and executive officers
as a group (eight persons)(4)......... 1,489,500 18.8%

- --------------
* Indicates ownership of less than one percent of outstanding shares.

(l) Based on 7,788,667 shares of the Company's Common Stock outstanding on
February 4, 1998. Except as indicated otherwise in the following notes,
shares shown as beneficially owned are those as to which the named persons
possess sole voting and investing power. However, under California law,
personal property owned by a married person may be community property which
either spouse may manage and control, and the Company has no information as
to whether any shares shown in this table are subject to California
community property law.

(2) All of such shares are owned by the Treinen Family Trust dated December 2,
1981, as restated on November 3, 1986, under which Mr. Treinen is the sole
trustee and has sole voting and investment power.

(3) All of such shares are owned by the Cuthbert Family Trust dated June 9,
1993, under which Mr. Cuthbert is co-trustee with his wife. Mr. and Mrs.
Cuthbert, as co-trustees, have shared voting and investment power with
respect to such shares.

(4) Includes stock options currently exercisable or exercisable within 60 days
of 600, 7,200, 4,000, 12,800, 9,467, 58,800 and 19,700 for Messrs. Cuthbert,
Ritchie, Levin, Bendix, Hoffman, Watson and Vinke, respectively.

(5) All of the shares are held by The Samuel Levin Trust dated July 18, 1994,
under which Mr. Levin is sole trustee and has sole voting and investment
power with respect to such shares.

(6) All of the shares are held by The Hoffman Family Trust dated September 30,
1991, under which Mr. Hoffman is co-trustee with his wife. Mr. and Mrs.
Hoffman, as co-trustees, have shared voting and investment power with
respect to such shares.

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10

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and Directors and persons who own more than ten
percent of the Company's Common Stock to file reports of ownership and changes
in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission
(the "SEC"). Executive officers, Directors and ten percent stockholders are
required by the SEC to furnish the Company with copies of all Forms 3, 4 and 5
they file.

Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file a Form 5 for specified fiscal years, the Company
believes that all of its executive officers, Directors and greater than ten
percent beneficial owners complied with all the filing requirements applicable
to them with respect to transactions during fiscal year 1997.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

As discussed above, the Compensation Committee of the Board of Directors
is composed of two members, Messrs. Bendix and Hoffman, neither of whom is or
has been an employee or officer of the Company. No executive officer of the
Company has served as a member of the board of directors or compensation
committee of any company in which Messrs. Bendix or Hoffman is an executive
officer.

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11

EXECUTIVE OFFICERS

The following table sets forth the current executive officers of the
Company:

NAME CAPACITIES IN WHICH SERVED AGE
- ------------------------------------------------------------- -------------------------- ---

Thomas F. Treinen Chairman and President 60
Mr. Treinen has served as Chairman, President and as a
Director of the Company since 1976. From 1965 to 1976
Mr. Treinen held various positions including project
engineer and Vice President. From 1961 to 1965 Mr.
Treinen was a project engineer at Aerojet General
Corporation. Mr. Treinen holds a degree in mechanical
engineering.

John M. Cuthbert President, Automotive 55
Mr. Cuthbert has been a Director of the Company since June Products Division
1991 and has served as President of the Automotive
Products Division since January 1992. From December 1989
to January 1992, he served as a Vice President of the
Automotive Products Division. From 1977 to 1984, he was
Director of Engineering at OEA, Inc. (aerospace and
automotive products) and was Vice President of Engineering
for OEA from 1984 to 1989. Mr. Cuthbert holds a degree in
mechanical engineering.

Samuel Levin President, Scot, Incorporated 68
Mr. Levin has been President of Scot, Incorporated (a
wholly-owned subsidiary of the Company) and a Director
since September 1994. Prior to that time, Mr. Levin spent
18 years in various executive capacities (including as
President beginning in 1992) with Scot, Inc., which sold
substantially all of its assets to Scot, Incorporated, a
subsidiary of the Company, in September 1994. Mr. Levin
holds a degree in mechanical engineering.

Robert S. Ritchie Vice President, Aerospace 56
Mr. Ritchie has been employed by the Company since May Division
1990 and a Vice President since October 1991. From 1985
to 1990, Mr. Ritchie was an independent business
management consultant servicing aerospace and commercial
companies. Mr. Ritchie holds a degree in mechanical
engineering and an MBA.

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12

NAME CAPACITIES IN WHICH SERVED AGE
- ------------------------------------------------------------- -------------------------- ---

John T. Vinke Vice President, Finance and 53
Mr. Vinke has been employed by the Company since April Chief FInancial Officer
1994. From January 1990 through March 1994, Mr. Vinke
served as Vice President of Finance and Chief Financial
Officer of Chalco Industries, Inc., a publicly-held
aerospace manufacturing company that filed a petition for
protection under the federal bankruptcy laws in December
1993. For the six years prior to January 1990, Mr. Vinke
was an independent consultant and advised aerospace and
other commercial companies on the design of management
information systems, mergers and acquisitions, and
capital financing. Mr. Vinke is a Certified Public
Accountant.

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13

EXECUTIVE COMPENSATION AND RELATED MATTERS

COMPENSATION

Set forth below is information concerning the annual and long-term
compensation for services in all capacities to the Company for the three fiscal
years ended October 31, 1997, of those persons who were, at that date (i) the
Chief Executive Officer and (ii) the five other most highly compensated
executive officers receiving compensation of $100,000 or more from the Company
during fiscal year 1997 (collectively, the "Named Officers").

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION
------------------------------
LONG-TERM
COMPENSATION
AWARDS-STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(SHARES) COMPENSATION(1)
- --------------------------- ---- -------- -------- --------------- ---------------

Thomas F. Treinen 1997 $221,667 $ 72,542 -- $ 3,353
President and 1996 199,992 27,465 -- 4,030
Chief Executive Officer 1995 199,992 19,018 -- 2,999

John M. Cuthbert 1997 177,162 34,660 150,000(2) 2,656
President, Automotive 1996 171,592 13,158 3,000(3) 3,056
Products Division 1995 164,394 7,199 -- 2,465

Robert S. Ritchie 1997 138,263 58,642 30,000(2) 1,781
Vice President, 1996 133,634 13,365 3,000(3) 2,200
Aerospace Division 1995 126,592 44,703 -- 1,898

Samuel Levin 1997 187,500 105,019 10,000(3) 9,918
President, Scot 1996 181,900 66,972 5,000(3) 7,894
Incorporated 1995 169,584 64,216 -- 5,762

John T. Vinke 1997 118,938 29,096 25,000(2) 716
Vice President, Finance and 1996 112,912 12,149 3,000(3) 1,078
Chief Financial Officer 1995 109,323 7,776 -- 655

Jack B. Watson (4) 1997 118,277 50,000 212,000(2) --
Former Vice President, 1996 -- -- -- --
Automotive Division 1995 -- -- -- --

- --------

(1) Consists of matching contributions by the Company under its 401(k) plan,
which was adopted in fiscal year 1994, or its non-qualified deferred
compensation plan, which was adopted in fiscal year 1995, and certain life
insurance premiums paid on behalf of Mr. Levin.

(2) Options granted by the Compensation Committee of the Board of Directors on
December 30, 1996 and ratified by the stockholders at the Company's 1997
annual meeting. All grants were at the market price of the Common Stock
($17.00) on the date of grant.

11
14

(3) Granted pursuant to the Company's Amended and Restated 1991 Stock Incentive
Plan at the market price of the Common Stock on the date of grant.

(4) Mr. Watson was not an employee of the Company in fiscal 1995 and 1996.

OPTION GRANTS IN LAST FISCAL YEAR

Shown below is information concerning grants of options issued by the
Company to Named Officers during fiscal year 1997:

POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK OPTION APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---------------------- ------------- ------------ --------- ---------- -------- --------

John M. Cuthbert ..... 100,000(3) 21.1% $ 17.00 12/30/06 $ 85,000 $170,000
John M. Cuthbert ..... 50,000(4) 10.5 17.00 12/30/06 $ 42,500 $ 85,000
Robert S. Ritchie .... 30,000(4) 6.3 17.00 12/30/06 $ 25,500 $ 51,000
Samuel Levin ......... 10,000(5) 2.1 17.00 12/30/06 $ 8,500 $ 17,000
John T. Vinke ........ 25,000(4) 5.3 17.00 12/30/06 $ 21,250 $ 42,500
Jack B. Watson ....... 154,000(3) 32.4 17.00 12/30/06 $130,900 $261,800
Jack B. Watson ....... 58,000(6) 12.2 17.00 12/30/06 $ 49,300 $ 98,600

- --------

(1) All options were granted on December 30, 1996 with an exercise price equal
to the closing sale price of the Common Stock as reported on the Nasdaq
National Market on such date.

(2) The 5% and 10% assumed rates of appreciation are specified under the rules
of the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future price of its Common Stock. The actual
value, if any, which a Named Officer may realize upon the exercise of stock
options will be based upon the difference between the market price of the
Common Stock on the date of exercise and the exercise price.

(3) Performance Stock Options granted by the Compensation Committee and ratified
by the stockholders at the Company's 1997 annual meeting. The Performance
Stock Options granted to Messrs. Cuthbert and Watson vest in full on the
fifth and eighth anniversaries of the date of grant, respectively; provided,
however, that if during the period commencing on December 30, 1996 and
ending on December 30, 1999, the closing sale price of the Common Stock on
the Nasdaq National Market is at least $30.00 per share on 15 trading days
within any 30 consecutive-trading-day period, then these options shall
accelerate and vest in full.

(4) Key Employee Stock Options granted by the Compensation Committee and
ratified by the stockholders at the Company's 1997 annual meeting. These
options vest in equal installments over a five-year period, with the first
20% of the options vesting on December 30, 1997.

(5) Granted pursuant to the Amended and Restated 1991 Stock Incentive Plan and
vesting ratably over five years, with the first 20% of such options vesting
on December 30, 1997.

(6) Performance Stock Options granted by the Compensation Committee and ratified
by the stockholders at the Company's 1997 annual meeting. These options vest
in full on the eighth anniversary of the date of grant, subject to
acceleration in the event the Company achieves certain earnings per share
targets in either 1997 or 1998. As a result of the Company's earnings per
share in 1997, these options accelerated and vested in full.

12
15

FISCAL YEAR-END OPTION VALUES

The following table sets forth for the Named Officers information with
respect to option exercises, unexercised options and year-end option values, in
each case with respect to options to purchase shares of the Company's Common
Stock.

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END ($) (1)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ---------------------- ------------ ----------- --------------------- --------------------

Thomas F. Treinen .... -- -- -- --
John M. Cuthbert ..... 25,600 483,875 --/152,400 $0/$1,407,900
Robert S. Ritchie .... -- -- 15,600/32,400 $253,850/$297,900
Samuel Levin ......... -- -- 1,000/14,000 $8,500/$126,500
John T. Vinke ........ -- -- 14,100/27,400 $237,975/$251,650
Jack B. Watson ....... -- -- 58,400/155,600 $539,900/$1,438,100

- -------------------

(1) Based upon the closing price on the Nasdaq National Market of the Common
Stock on February 2, 1998 ($26.25 per share).

EMPLOYMENT AGREEMENTS

Samuel Levin, the President and Chief Executive Officer of Scot,
Incorporated ("Scot"), entered into an employment agreement with Scot and the
Company, the term of which began on September 8, 1994 and ended on October 31,
1997. Mr. Levin's employment agreement was extended to December 31, 1999. Such
amended employment agreement provides for an annual salary of $205,000 with
annual adjustments for cost of living increases and also provides for
participation by Mr. Levin in a bonus and qualified deferred compensation plan.
The level of Mr. Levin's participation is calculated according to a formula
based upon the net operating income of Scot. In the event Mr. Levin voluntarily
terminates the employment agreement or the employment agreement is terminated
due to a disability suffered by Mr. Levin, Mr. Levin is entitled to a severance
payment equal to one year's salary. In the event Mr. Levin's employment
agreement is terminated "For Cause" (as defined therein), Mr. Levin is not
entitled to a severance payment. In the event Mr. Levin's employment agreement
is terminated due to his death, neither Scot nor the Company is obligated to
make a severance payment to Mr. Levin's estate. In the event Mr. Levin's
employment agreement is terminated by Scot or the Company for any reason other
than "For Cause" or upon Mr. Levin's death or disability, Mr. Levin is entitled
to receive as severance an amount equal to his then base salary and his existing
employee benefits for the remaining period of the employment agreement. Pursuant
to the employment agreement, Mr. Levin has agreed to serve on the Company's
Board of Directors, and the Company has agreed to recommend to its stockholders
that Mr. Levin serve in such capacity.

Jack B. Watson, former Vice President of the Company's Automotive
Products Division and a Director of the Company, entered into an employment and
consulting agreement with the Company dated as of January 1, 1997. The
employment portion of the agreement was for a term of one year which commenced
on January 1, 1997 and ended on December 31, 1997. The employment portion of the
agreement provided for a salary of $150,000 for the one year term,

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and also entitled Mr. Watson to participate in the benefit plans provided by the
Company to its other senior officers. Pursuant to the agreement Mr. Watson
earned a bonus in the amount of $50,000 based on the Company's achievement of
certain financial milestones. The Company has no obligations under the agreement
to make severance payments to Mr. Watson of any kind. The consulting portion of
the agreement is for a term of two years which commenced on January 1, 1998 and
ends on December 31, 1999. For his services as a consultant to the Company, Mr.
Watson will receive an annual fee of $50,000 subject to Mr. Watson providing a
certain number of hours of service to the Company each month. In the event Mr.
Watson's retention as a consultant to the Company is terminated for any reason,
Mr. Watson shall receive accrued compensation through the date of termination.
In addition, with respect to certain 1996 Performance Stock Options granted by
the Compensation Committee to Mr. Watson on December 30, 1996, if the consulting
portion of the agreement is terminated for any reason (other than Mr. Watson's
death or disability), then Mr. Watson shall nevertheless be entitled to the
benefits of the 1996 Performance Stock Option Agreements entered into between
Mr. Watson and the Company with respect to the accelerated vesting provisions
contained in each of those agreements (one for a period of three years, which is
based on the Company's stock price, and the other for a period of two years,
which is based on the Company achieving certain earnings per share target
levels, which target levels were attained). In the event the consulting portion
of the agreement is terminated upon Mr. Watson's death or disability, Mr. Watson
shall be entitled to the benefits granted to him under the Performance Stock
Option Agreements to the extent set forth in each such agreement.

No other Named Officer (as defined above under "Executive Compensation
and Related Matters") is a party to an employment agreement with the Company.

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PERFORMANCE GRAPH

The performance graph shown below shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such acts. The graph shows the Company's total return to
stockholders compared to the NASDAQ Market Value Index1 and a Peer Group Index2
over the period from November 1, 1992 to October 31, 1997 (the final day of the
most recently completed fiscal year).

COMPARISON OF CUMULATIVE TOTAL RETURN OF SPECIAL DEVICES,
INCORPORATED, NASDAQ MARKET INDEX AND PEER GROUP INDEX

[GRAPH]

- --------------------------------------------------------------------------------------------------------------
FY 1992 FY 1993 FY 1994 FY 1995 FY 1996 FY 1997
- --------------------------------------------------------------------------------------------------------------

Special Devices, Incorporated $100.00 $ 75.00 $198.61 $180.56 $138.89 $256.94
- --------------------------------------------------------------------------------------------------------------
NASDAQ Market Index $100.00 $131.23 $139.52 $165.50 $194.35 $254.71
- --------------------------------------------------------------------------------------------------------------
Peer Group Index $100.00 $155.68 $168.58 $162.64 $201.59 $251.41
- --------------------------------------------------------------------------------------------------------------

- ----------

1 Includes all issues trading over the Nasdaq National Market and Over the
Counter Markets during the period from November 1, 1992 through October 31,
1997, weighted annually by market capitalization (shares outstanding
multiplied by stock price).

2 A Peer Group Index compiled and published by Media General Financial
Services, Inc. comprised of all automotive and automotive parts and
accessories companies that were publicly traded in the United States at
October 31, 1997, weighted annually by market capitalization (shares
outstanding multiplied by stock price). Copies of this index can be obtained
by ordering MG Industry Group 03 from Media General Financial Services,
Inc., P.O. Box 85333, Richmond, VA, 23293, telephone number (804) 649-6097,
and paying their standard fee.

15
18

The cumulative total return shown on the stock performance graph
indicates historical results only and is not necessarily indicative of future
results.

Each line on the stock performance graph assumes that $100 was invested
in the Company's Common Stock and the respective indices on November 1, 1992.
The graph then tracks the value of these investments, assuming reinvestment of
dividends, through October 31, 1997.

COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS ON EXECUTIVE COMPENSATION

The report of the Compensation Committee given below shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such acts.

The Compensation Committee of the Board of Directors (the "Compensation
Committee"), comprised of two non-employee directors, is responsible for
establishing the base salary of the Company's President and for approving and
monitoring the criteria used in establishing the base salaries and other
compensation of the Company's other executive officers. Set forth below is a
report, submitted by Messrs. Hoffman and Bendix in their capacity as the Board's
Compensation Committee, addressing the Company's compensation policies for
fiscal year 1997 as they affected Mr. Treinen and the other officers named in
the Summary Compensation Table appearing elsewhere herein (collectively, the
"Executive Officers").

COMPENSATION POLICIES TOWARDS EXECUTIVE OFFICERS

The Compensation Committee believes that the most effective executive
compensation program is one that provides incentives to achieve both current and
long-term strategic management goals of the Company, with the ultimate objective
of enhancing stockholder value primarily through increasing earnings per share.
In this regard, the Compensation Committee believes executive compensation
should be comprised of cash as well as equity-based and other incentive
programs. With respect to equity-based compensation, the Compensation Committee
believes that an integral part of the Company's compensation program is the
ownership and retention of the Company's Common Stock by its Executive Officers.
By providing Executive Officers with a meaningful stake in the Company, the
value of which is dependent on the Company's long-term success, a commonality of
interests between the Company's Executive Officers and its stockholders is
fostered.

SALARIES AWARDED TO THE PRESIDENT AND OTHER EXECUTIVE OFFICERS

The Board of Directors has delegated to the Compensation Committee the
authority to establish compensation levels for the Company's Executive Officers.
The Compensation Committee has established a policy of setting the salary of Mr.
Treinen while reviewing the base salaries of the other Executive Officers as
determined by Mr. Treinen.

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19

In evaluating the performance and setting of the compensation of Mr.
Treinen and approving the compensation of the other Executive Officers in fiscal
year 1997, the Compensation Committee considered management's continued success
in improving earnings per share and in directing the Company's transition toward
an increased emphasis on commercial products as compared to defense products,
and in the Company's overall growth, improvements made in operations,
efficiencies achieved in manufacturing and profitability. The Compensation
Committee views increases in earnings per share as a very significant indicator
of executive performance, and believes in utilizing variable measures of
compensation (through bonuses and stock options) to properly incentivize and
reward such performance. In addition, the Compensation Committee considered
management's success in integrating the operations of Scot, its wholly owned
subsidiary acquired in September 1994, into the operations of the Aerospace
Division. In setting Mr. Treinen's salary, the Compensation Committee also took
into account its subjective evaluation of his performance during fiscal year
1997. In granting Mr. Treinen's bonus for 1997, the Compensation Committee
considered the Company's overall financial performance and the fact that Mr.
Treinen has a significant equity interest in the Company. In determining the
compensation of any potential future successors to Mr. Treinen, the Compensation
Committee would have to consider additional equity and bonus components.

Mr. Treinen determines salary ranges for each of the other Executive
Officers based, in part, on his subjective understanding of competitive
conditions. Small annual percentage increases in base salaries have been awarded
to the Executive Officers within the range of percentage increases given to all
of the Company's personnel. Increases to each Executive Officer have been
determined by, among other things, a subjective evaluation of such Executive
Officer's performance and the results of his operating division. In 1997 a
significant number of options were granted to key employees to increase
incentives to optimize stockholder values. Options to purchase 442,000 shares of
Common Stock were granted to certain corporate officers, at an exercise price of
$17.00 per share, the fair market value on the date of grant, during fiscal year
1997. Bonuses awarded to Mr. Ritchie and Mr. Cuthbert in 1995, 1996 and 1997,
and the bonus awarded to Mr. Watson in 1997, were based, in part, on the
operating performance of the Aerospace and Automotive Products Divisions,
respectively, and in part on overall corporate performance. Bonuses awarded in
those years to Executive Officers other than Mr. Ritchie, Mr. Cuthbert, and Mr.
Watson were based in part on overall corporate operating performance, among
other factors.

THE COMPENSATION COMMITTEE

J. Nelson Hoffman
Donald A. Bendix

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CERTAIN TRANSACTIONS

NEWHALL LEASE

The Company leases its land and facilities located in Newhall,
California from Placerita Land and Farming Company, the sole partners of which
are Thomas F. Treinen, the Chairman, President and a Director of the Company,
and Walter Neubauer, a stockholder of the Company. The lease is a triple net
lease that requires the Company to pay all utilities, taxes and insurance. This
lease expired on April 30, 1996, but the Company continues to lease this
property from Placerita Land and Farming Company on a month-to-month basis. For
fiscal year 1997, the Company's lease expense for this property was $461,540.
Lease payments under the month-to-month lease are $43,700 per month, subject to
annual increases based on the Consumer Price Index. The Company believes that
the terms of the lease are no less favorable to the Company than those that
could have been obtained from an unrelated third party.

PURCHASES FROM AFFILIATES

The Company purchases various parts and components manufactured to the
Company's specifications used in the Company's products from Ordnance Products,
Inc. and Multi-Screw, Inc., companies controlled by Walter Neubauer, a
significant stockholder of the Company. In most cases, these parts and
components are similar to those that could be obtained from other suppliers
without significant delay. For fiscal years 1995, 1996 and 1997, the Company's
aggregate purchases of parts and components from these companies were
$1,247,400, $2,361,500 and $3,460,100, respectively. The Company believes that
parts and components purchased from these companies were purchased at prices
that were no less favorable to the Company than those that could have been
obtained from an unrelated third party.

The Company also has a contract to purchase glass seals (the "Seal
Contract") from Hermetic Seal Corporation ("HSC"), which was amended in 1994.
Mr. Neubauer acquired 40% of the common stock of the ultimate parent company of
HSC in November 1989. Mr. Neubauer divested his ownership in HSC in January
1997. Both the original and the new contracts were competitively bid by the
Company. In both instances, HSC was the low bidder. The Seal Contract requires
the Company to buy a substantial majority of its requirements of four header
sub-assemblies from HSC at a decreasing fixed price per unit through December
1999. The Company's obligations under the contract are subject to HSC's prices,
technology and quality remaining competitive. For fiscal years 1995, 1996 and
1997, the Company's purchases of header sub-assemblies from HSC aggregated
$12,791,600, $12,768,500 and $11,464,400, respectively. The Company believes
that the terms of the Seal Contract are no less favorable to the Company than
could have been obtained from an unrelated third party.

INDEPENDENT PUBLIC ACCOUNTANTS

KPMG Peat Marwick LLP has been selected as the Company's independent
public accountants for fiscal year 1998. A representative of KPMG Peat Marwick
will be present at the Annual Meeting and such representative will have an
opportunity to make a statement if he or she so desires. Further, such
representative will be available to respond to appropriate stockholder
questions.

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STOCKHOLDER PROPOSALS

Any stockholder wishing to submit a proposal to be presented to all
stockholders at the Company's 1998 Annual Meeting must submit such proposal to
the Company so that it is received by the Company at its principal executive
offices no later than October 29, 1998.

ANNUAL REPORT

The Company's Annual Report on Form 10-K for the year ended October 31,
1997 is being mailed to stockholders with this Proxy Statement. The Annual
Report does not form part of the material for solicitation of proxies. If you do
not receive the 1997 Annual Report on Form 10-K, which includes financial
statements, please contact Investor Relations, 16830 W. Placerita Canyon Road,
Newhall, California 91321, and a copy will be sent to you.

MISCELLANEOUS

The Board of Directors knows of no other matters that are likely to come
before the meeting. If any other matter, of which the Board is not now aware,
should properly come before the meeting, it is intended that the persons named
in the accompanying form of proxy will vote such proxy in accordance with their
best judgment on such matters.

By the order of the Board of Directors,

/s/ THOMAS F. TREINEN
Thomas F. Treinen
Chairman of the Board

Newhall, California
February 26, 1998

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ANNEX

PROXY

SPECIAL DEVICES, INCORPORATED
16830 WEST PLACERITA CANYON ROAD
NEWHALL, CALIFORNIA 91321

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SPECIAL DEVICES,
INCORPORATED.

The undersigned hereby appoints Thomas F. Treinen and John T. Vinke, and
each of them, as Proxies, each with the power to appoint his substitute, and
hereby authorizes each of them to represent and vote as designated below, all
the shares of Common Stock of Special Devices, Incorporated held of record by
the undersigned on February 4, 1998, at the Annual Meeting of Stockholders to be
held on March 25, 1998 and any postponements or adjournments thereof.

1. Election of Directors:

[ ] FOR each nominee listed below (except as marked to the contrary
below).

[ ] WITHHOLD AUTHORITY to vote for both nominees listed below.

INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST
BELOW.

J. NELSON HOFFMAN ROBERT S. RITCHIE JACK B. WATSON

2. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before such meeting and any
and all postponements or adjournments thereof.

PLEASE DATE, SIGN ON THE REVERSE SIDE AND RETURN IN THE ACCOMPANYING
ENVELOPE. THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS
INDICATED; HOWEVER, IF NO INSTRUCTIONS ARE GIVEN, THE PROXIES WILL VOTE THE
SHARES FOR EACH OF THE NOMINEES FOR DIRECTOR LISTED IN ITEM 1 AND IN THEIR
DISCRETION ON THE MATTERS DESCRIBED IN ITEM 2.

1
23

[Reverse Side of Proxy]

THIS PROXY when properly executed will be voted in the manner
directed herein by the undersigned stockholder. If no direction is made, this
proxy will be voted for each of the nominees listed above in Item 1 and in their
discretion on the matters described in Item 2.

Do you plan to attend the meeting?

[ ] YES [ ] NO

Please sign exactly as your name
appears on the stock certificate(s).
When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give your full title as such.
If a corporation, please sign in
full corporate name by the president
or other authorized officer. If a
partnership or limited liability
company, please sign in the
partnership's or limited liability
company's name by an authorized
person.

DATED: , 1997

------------------------------------
Signature

------------------------------------
Signature if held jointly