USE OR DISCLOSURE OF DATA CONTAINED ON THIS SHEET IS SUBJECT TO THE RESTRICTION
                       ON THE TITLE PAGE OF THIS PROPOSAL

Confidential treatment has been requested for portions of this exhibit. The copy
filed  herewith  omits  the  information  subject  to a confidentiality request.
Omissions  are  designated  ******. A complete version of this exhibit has been
filed  separately  with  the  Securities  and  Exchange  Commission.

                               HYBRID ROCKET MOTOR
                         SYSTEMS AND COMPONENTS PROPOSAL
                                 CPL-SPDV-03-001
                                23 SEPTEMBER 2003


                                                [GRAPHIC OMITED]



                                                [GRAPHIC OMITED]



                              CONTINUATION SUPPORT
                     FOR THE TIER ONE (SPACESHIPONE) PROGRAM
                                  PREPARED FOR


                                                [GRAPHIC OMITED]



                                                [GRAPHIC OMITED]


                             SCALED COMPOSITES, LLC
                                ATTN: TRISH MILLS
                                1624 FLIGHT LINE
                                MOJAVE, CA  93501

                                  SUBMITTED BY


                                                [GRAPHIC OMITED]



                                                [GRAPHIC OMITED]


                                13855 STOWE DRIVE
                             POWAY, CALIFORNIA 92064
                     USE AND DISCLOSURE OF PROPRIETARY DATA
      This proposal includes data that shall not be disclosed outside Scaled
   Composites and shall not be duplicated, used, or disclosed -- in whole or in
    part -- for any purpose other than to evaluate this proposal. However, if a
  contract is awarded to this offeror as a result of -- or in connection with --
      the submission of these data, Scaled Composites shall have the right to
   duplicate, use, or disclose the data to the extent provided in the resulting
    contract with proper permission from SpaceDev. This restriction also limits
Scaled Composite's right to use information contained in these data even if they
 are obtained from another source. Each page of this proposal is subject to this
                restriction and each page is marked accordingly.
                     USE AND DISCLOSURE OF PROPRIETARY DATA
      This proposal includes data that shall not be disclosed outside Scaled
   Composites and shall not be duplicated, used, or disclosed -- in whole or in
    part -- for any purpose other than to evaluate this proposal. However, if a
  contract is awarded to this offeror as a result of -- or in connection with --
      the submission of these data, Scaled Composites shall have the right to
   duplicate, use, or disclose the data to the extent provided in the resulting
    contract with proper permission from SpaceDev. This restriction also limits
Scaled Composite's right to use information contained in these data even if they
 are obtained from another source. Each page of this proposal is subject to this
                restriction and each page is marked accordingly.
                    PHONE (858) 375-2030   FAX (858) 375-1000

<PAGE>

Confidential treatment has been requested for portions of this exhibit. The copy
filed  herewith  omits  the  information  subject  to a confidentiality request.
Omissions  are  designated  ******. A complete version of this exhibit has been
filed  separately  with  the  Securities  and  Exchange  Commission.


                                TABLE OF CONTENTS


1.0     Introduction                                                     2
1.1     Key  Personnel                                                   2
1.2     Risk  Analysis  and  Mitigation                                  3
2.0     Price  PROPOSAL                                                  4
2.1     Statement  Of  Work  (SOW)                                       4
2.1.1     Scope                                                          4
2.1.2     SOW  breakdown  and  pricing.                                  4
2.2     Pricing  Ground  Rules  and  Assumptions                         5
2.3     Period  of  Performance                                          6
2.4     Type  of  Contract                                               6
2.5     Expiration  of  Offer                                            6
2.6     Terms  and  Conditions                                           6
2.7     Price  Summary                                                   6
2.8     Engineering  Change  Order  ("ECO")                              7
2.9     Not-to-Exceed  Termination  Liability  Schedule                  7


<PAGE>

Confidential treatment has been requested for portions of this exhibit. The copy
filed  herewith  omits  the  information  subject  to a confidentiality request.
Omissions  are  designated  ******. A complete version of this exhibit has been
filed  separately  with  the  Securities  and  Exchange  Commission.

------
SPACEDEV  IS  PLEASED  TO  SUBMIT  THIS  PROPOSAL!
--------------------------------------------------

1.0     INTRODUCTION
SpaceDev  is  a  publicly  owned small business.  Our project management team is
results-oriented and supports all project objectives.  We allocate dedicated and
experienced  managers  and  seasoned hands-on engineers to each effort to ensure
the  right  focus  and attention to detail and quality.  SpaceDev key management
personnel  are  assigned  personal  responsibility  and  accountability  for the
completion  of  specific  task  elements  as  follows:

[******]  Tier  One Chief Engineer, is responsible for overall program success.
           ------------------------
He leads all design, test, test support, and performance verification activities
required to fulfill the contract requirements, and acts as the primary technical
point  of  contact  between  SpaceDev  and  Scaled  Composites.

[******]  Propulsion  Systems  Mechanical  Design  Lead, is responsible for all
         -----------------------------------------------
system  interfaces,  hardware  designs,  and  hardware  development  activities.

[******]  Manufacturing  Development  Lead,  is  responsible  for  the design &
         -----------------------------------
development of hardware manufacturing processes, and the production and delivery
of  all  hardware to the test site. Mr. Veno is also responsible for leading all
structural  dynamics,  and  thermodynamics  analysis  activities.

1.1     KEY  PERSONNEL
The  names and brief biographies of our key Tier One team personnel are provided
below.

                                [******], P. E.
                             TIER ONE CHIEF ENGINEER
[******]  is  a  California  State  board-certified and registered professional
electrical  engineer with more than 19 years of experience with launch vehicles,
ground launch control systems, launch sites and launch teams.  While a member of
the  Peacekeeper  developmental  launch  team,  he  was responsible for the $30M
guidance  and  control system, led a group of 30 industry engineers and gave the
final  guidance  system  go/no-go  for launch.  Continuing his career at General
Dynamics (and Martin Marietta), he integrated a new guidance system onto the new
generation of Atlas launch vehicles, and is intimately familiar with all aspects
of  vehicle  flight  software and hardware.  He designed and implemented diverse
ground  guidance  performance  and  analysis software systems, and is a complete
end-to-end  systems  expert. As well as leading the design and successful ground
development  phase of a hybrid motor to support Scaled Composites' SpaceShipOne,
[******]was  the technical leader for SpaceDev's NRO funded SPOTV Hybrid System
Definition  study,  and  is  currently  Principle Investigator for our Air Force
Research  Lab  Small  Launch  Vehicle  Project.

<PAGE>
------

Confidential treatment has been requested for portions of this exhibit. The copy
filed  herewith  omits  the  information  subject  to a confidentiality request.
Omissions  are  designated  ******. A complete version of this exhibit has been
filed  separately  with  the  Securities  and  Exchange  Commission.

                                    [******]
                   TIER ONE PROPULSION MECHANICAL DESIGN LEAD
[******]  is an experienced engineer with a strong background in thermodynamics,
fluids,  structures,  and  mechanical  design.  He  holds  a  BS  in  Mechanical
Engineering and over 7 years of experience in his field. As an undergraduate and
later  an  adjunct  faculty  member  at  SDSU  he  led a team of students in the
development  of  the mechanical structural and control systems of the Suntrakker
II  solar  racing car. His professional experience includes the defense industry
where  he  was  responsible for the redesign and electro-mechanical packaging of
bearing  locator  and  navigational  computer systems for the next generation of
fast-attack  Navy  submarines.  As  a  subsystem  team  leader  at  XCELLSiS, an
automotive  fuel  cell  R&D  subsidiary  of  Daimler Chrysler and Ford, [******]
directed  the  development  and  systems  integration  of  the  water management
subsystem  on  two  separate fuel cell system platforms. His innovative concepts
and creative approach to the unique thermodynamic and fluid flow problems of the
fuel cell systems inspired several patentable ideas and components. At SpaceDev,
in addition to supporting Scaled Composites Tier One program, [******] is a Lead
Mechanical  Engineer on propulsion system development projects including a small
launch  vehicle  and  a  Space  Shuttle  compatible  secondary  payload  system.

                                    [******]
                     TIER ONE MANUFACTURING DEVELOPMENT LEAD
[******]  has  over  25 years experience in launch vehicle acoustic, vibration,
pyrotechnic shock analysis and testing, loads analysis, finite element modeling,
and  anomaly  investigations.  He  was  responsible  for all dynamic (vibration,
shock,  & acoustics) environments analysis at General Dynamics Space Systems for
commercial,  NASA  and  Air  Force  launch  vehicle  programs. As launch vehicle
representative, [******] supported customer spacecraft testing to ensure launch
vehicle  environments  were  met.  His work including flight wind loads analysis
(trajectory  simulation  with auto-pilot, gust response, and static aero-elastic
analysis)  and  transient  spacecraft load analysis. His recent work at SpaceDev
includes dynamic analysis of the CHIPSat response to the Delta-II launch vehicle
environments  and  payload interface loads. [******] was manufacturing lead for
SpaceDev's  MTV  Hybrid  Motor  Technology  Demonstration  project.

1.2     RISK  ANALYSIS  AND  MITIGATION
Our team of experienced space mission management and engineering people assigned
to  the  project provides project Management and Systems Engineering leadership.
[******],  as  Chief  Engineer  of Hybrid Propulsion for SpaceDev, provides the
project  management  and  overall  team  leadership  by continually focusing his
efforts on customer satisfaction, risk avoidance/mitigation, quality of product,
schedule  of  delivery,  and  cost.  OUR  APPROACH TO PROJECT SUCCESS EMPHASIZES
GETTING  THE  RIGHT  TEAM  IN  PLACE  AT  THE  START OF THE PROJECT AND ENSURING
CONTINUOUS  RISK  AVOIDANCE  AND  MITIGATION  THROUGHOUT.  Risk  avoidance  and
mitigation  rely  on  careful planning and review of all project elements as was
demonstrated on our previous Tier One development work. A detailed plan for each
task  is  developed and reviewed by the team to identify the technical, cost and
schedule  issues  and  risks.  Each  risk item identified in the plan is tracked
weekly  until  resolution. Risk issues are assigned to a responsible team member
to  evaluate  and  select  risk  mitigation  approaches.  Risk  issues  and risk
mitigation  approaches  are  reviewed  weekly  with  SpaceDev management, and in
scheduled  weekly  telecons  with  Scaled  until  resolved.

<PAGE>

Confidential treatment has been requested for portions of this exhibit. The copy
filed  herewith  omits  the  information  subject  to a confidentiality request.
Omissions  are  designated  ******. A complete version of this exhibit has been
filed  separately  with  the  Securities  and  Exchange  Commission.

2.0     PRICE  PROPOSAL
SpaceDev  is  pleased  to  present  our Price Proposal to Scaled Composites, LLC
(hereinafter  "Scaled")  to  support  continued development of the Hybrid Rocket
Motor Systems and Components for the Reusable, Air Launched SpaceShipOne for the
Tier  One  Program  (hereinafter  "Tier  One").

     2.1  STATEMENT  OF  WORK  (SOW)

     2.1.1 SCOPE SpaceDev offers to provide its facilities, resources and a team
     of  launch vehicle and hybrid propulsion engineers & technical personnel in
     continued support of Scaled's Tier One program. This proposal was developed
     to  offer our best efforts to satisfy the requirements of Scaled's Tier One
     program,  based  on  our  experience  with  Phases  I  and II. Our basis of
     estimate  for each task is performed using a buildup of labor hours, travel
     and  material  (as  necessary),  based directly on this program to date and
     related  hybrid  motor  design  & development work experience combined with
     engineering  judgment  based  on  similar  type  work.  Our  price proposal
     allocates resources and capabilities to meet or exceed Scaled's needs at an
     affordable  price.

     2.1.2  SOW  BREAKDOWN  AND  PRICING. - PROVIDE TWO SETS OF RE-USABLE FLIGHT
     TEST  HARDWARE.  [******]  -  PRODUCE  AND ASSEMBLE TEST MOTORS. [******] -
     PROVIDE  ON-SITE  ENGINEERING  TEST  SUPPORT.  [******]

<PAGE>

Confidential treatment has been requested for portions of this exhibit. The copy
filed  herewith  omits  the  information  subject  to a confidentiality request.
Omissions  are  designated  ******. A complete version of this exhibit has been
filed  separately  with  the  Securities  and  Exchange  Commission.


-     POST-TEST  ANALYSIS.  [******]
-     SPACEDEV  TEST  SUPPORT  SUMMARY.  [******]

2.2     PRICING  GROUND  RULES  AND  ASSUMPTIONS
     This  proposal  is  for  services  to  supply  specific hybrid rocket motor
systems  and  components  [******].

     SpaceDev's  price  to  Scaled  for  Tier  One  Phase  III  is  bid  as Firm
Fixed-Price  with an option of additional work or requested improvements via the
ECO  process.

     The pricing of this proposal assumes a minimum of [******] motor tests and
support.  SpaceDev reserves the right to increase the pricing if Scaled does not
purchase the minimum.  Additional motors and test support may be ordered through
the  ECO  process  at  the  rates  listed  in  Table  2-1.

     The SpaceDev test motor, SD-004, as fired on 31 July 2003, is considered to
be the baseline configuration for all future program motors.  Any changes to the
baseline  design  are not part of this proposal and will be accommodated via the
ECO process.  Partially fueled motors or refilled motors as described in the SOW
above  are  not  considered  a  change  to  the  baseline.

     Scaled  has  previously  expressed  a  desire  to perform hot-fire tests at
[******] week intervals.  SpaceDev will provide the staff and resources to meet
a nominal schedule of one (1) hot-fire test every [******] weeks.  A good faith
effort  will  be  made  to  accommodate  moderate deviations to this schedule as
required  by  the  overall  program,  if  requested  by  Scaled.

     Unplanned delays in schedule represent a significant cost risk to SpaceDev.
[******]

     General  research,  variations  or  deviations of tasks are not included in
this  proposal  pricing.

     All  full-scale  qualification  test  firings of the Tier One hybrid rocket
motor  will  be  done  in  Mojave,  CA  at  Scaled's  test  facility.

<PAGE>

Confidential treatment has been requested for portions of this exhibit. The copy
filed  herewith  omits  the  information  subject  to a confidentiality request.
Omissions  are  designated  ******. A complete version of this exhibit has been
filed  separately  with  the  Securities  and  Exchange  Commission.


[******]
     SpaceDev's price includes the parts, materials and program unique tools and
equipment  as  used  in  the  current process in support of the Tier One program
to-date.

2.3     PERIOD  OF  PERFORMANCE
The period of performance of the proposed contract is approximately sixteen (16)
months,  beginning  on or about September 15, 2003.  This proposed agreement, if
accepted,  will  terminate  on  December  31,  2004.

2.4     TYPE  OF  CONTRACT
The  contract  issued by Scaled to SpaceDev to support all SOW tasks is proposed
as Firm Fixed-Price based on specification in Section 2.2 above, with additional
work  as  required  by  Scaled,  documented  and authorized via a written ECO as
determined  at  the  rates  listed  in  this  proposal  on  Table  2-2.

2.5     EXPIRATION  OF  OFFER
This  proposal  will  expire  and  become void unless accepted by 5:00 PM PDT on
September  23,  2003.

2.6     TERMS  AND  CONDITIONS
Any additional terms and conditions not specified herein will be mutually agreed
upon  by  Scaled  and  SpaceDev  in  writing.

2.7     PRICE  SUMMARY
SpaceDev will support the listed activities, based on [******] motor tests, for
the  Firm Fixed-Price, based on specification in Section 2.2 above, as specified
below  in  Table  2-1:

LINE     DELIVERABLE  ITEM     EST.  TIME     AMOUNT
----     -----------------     ----------     ------
1        PARTS AND MATERIALS PROCUREMENT (REFERENCE)       [******]     [******]
-        -------------------------------------------      ---------     --------
2        2 SETS OF REUSABLE FLIGHT TEST HARDWARE           [******]     [******]
-        -------------------------------------------      ---------     --------
3.1      MOTOR #1 PRODUCTION AND ASSEMBLY, READY TO SHIP   [******]     [******]
---      -------------------------------------------      ---------     --------
3.2      TEST #1 ONE WEEK ON-SITE ENGINEERING SUPPORT      [******]     [******]
---      -------------------------------------------      ---------     --------
3.3      TEST #1 POST-TEST ANALYSIS AND SUPPORT            [******]     [******]
---      -------------------------------------------      ---------     --------
4     MOTOR #2 PRODUCTION, ON-SITE AND POST-TEST SUPPORT   [******]     [******]
-        -------------------------------------------      ---------     --------
5     MOTOR #3 PRODUCTION, ON-SITE AND POST-TEST SUPPORT   [******]     [******]
-        -------------------------------------------      ---------     --------
6     MOTOR #4 PRODUCTION, ON-SITE AND POST-TEST SUPPORT   [******]     [******]
-        -------------------------------------------      ---------     --------
7     MOTOR #5 PRODUCTION, ON-SITE AND POST-TEST SUPPORT   [******]     [******]
-        -------------------------------------------      ---------     --------
8     MOTOR #6 PRODUCTION, ON-SITE AND POST-TEST SUPPORT   [******]     [******]
-        -------------------------------------------      ---------     --------
9     MOTOR #7 PRODUCTION, ON-SITE AND POST-TEST SUPPORT   [******]     [******]
-        -------------------------------------------      ---------     --------
                                                        TOTAL           [******]
                                                        -----          ---------

<PAGE>

Confidential treatment has been requested for portions of this exhibit. The copy
filed  herewith  omits  the  information  subject  to a confidentiality request.
Omissions  are  designated  ******. A complete version of this exhibit has been
filed  separately  with  the  Securities  and  Exchange  Commission.



2.8     ENGINEERING  CHANGE  ORDER  ("ECO")

Additional  work  by  SpaceDev  beyond  that  specified in the SOW herein may be
requested  by  Scaled.  When  requested by Scaled, SpaceDev will prepare an ECO,
for Scaled's approval, detailing additional proposed work including the costs to
complete  the  work.  Scaled  may  accept  or reject the ECO.  SpaceDev will not
perform  additional  work without a properly authorized ECO.  After issuance and
acceptance  of  the  ECO,  SpaceDev will perform the work at the rates listed in
Table  2-2  below  or  as  otherwise  agreed  to  by  both  parties  in writing.

                      TABLE 2-1. SPACEDEV'S PRICE BREAKDOWN

LINE     ENGINEERING  CHANGE  ORDER  (ECO)  SUPPORT        AMOUNT
----     ------------------------------------------        ------
1        ENGINEERING SUPPORT COST PER HOUR               [******]
----     ------------------------------------------        ------
2        TECHNICIAN SUPPORT COST PER HOUR                [******]
----     ------------------------------------------        ------
3         MATERIAL COSTS AS A PERCENTAGE OF ACTUAL COST  [******]
----     ------------------------------------------        ------

                     TABLE 2-2. SPACEDEV'S PRICE ECO SUPPORT
2.9     NOT-TO-EXCEED  TERMINATION  LIABILITY  SCHEDULE

Notwithstanding  the  minimum payment specified in Section 2.2 above, should the
contract  be  terminated  through  no fault of SpaceDev, a pro-rated termination
liability  value  will  be  determined  based  on  the  following  factors:
[******]

Prepared  by  SpaceDev,  Inc.     Accepted  by  Scaled  Composites,  LLC

/S/ James W. Benson
-----------------------------     --------------------------------------
James  W.  Benson                 Name:
Chief  Executive  Officer         Title:

Date:  September  23,  2003     Date:  September  23,  2003

<PAGE>