SpaceDev and Starsys Sign Merger Agreement

FOR IMMEDIATE RELEASE
The Investor Relations Group
Investor Contact:
John Nesbett/Dian Griesel
Media Contact:
Mike Graff
(212) 825-3210


SpaceDev and Starsys Sign Merger Agreement

Merger Will Bring Mechanical Systems Capabilities to SpaceDev’s
Industry-Leading Experience in Micro-Satellites and Affordable
Access to Space


POWAY, CA – October 26, 2005--SpaceDev, Inc. (OTCBB: SPDV) and
Starsys Research Corporation have entered into an Agreement and
Plan of Merger and Reorganization.

Starsys has approximately 130 employees. Starsys designs,
engineers and manufactures mechanical systems, structures, and
mechanisms that open, close, release, and move components on
spacecraft, including motion-control actuators, cover systems,
deployment systems, and separation systems. Starsys components
have flown on over 200 missions including the Mars Rover
missions, Cassini, and Deep Impact with 100% operational
success. Starsys quality is exemplified by the Mars Rover
missions; Starsys provided 25 mechanisms for each rover
controlling movement including cameras and science experiments
to the drive mechanisms that allow the rovers to roam the
Martian surface. All of these mechanisms have functioned beyond
their design life; enabling earthbound scientists to explore the
red planet.

SpaceDev, with approximately 50 employees, designs,
manufactures, markets, and operates sophisticated micro- and
nano-satellites, along with hybrid rocket propulsion systems for
potential sub-orbital and orbital launch and transport systems,
including prospective missions for cargo and safe human space
flight. SpaceDev is a leader in developing satellite and hybrid
propulsion technology that is safe, low-cost and can be developed
and deployed rapidly. As part of the SpaceShipOne team, SpaceDev
provided critical hybrid rocket technology and key components to
Scaled Composites for the rocket engines that propelled
SpaceShipOne to capture the Ansari X-Prize. SpaceDev’s first
satellite, CHIPSat; was an experimental NASA satellite developed
under contract with UC Berkeley. CHIPSat was successfully
launched in January of 2003 and continues to function today,
beyond its designed mission life of 12 months.

“This acquisition is a major milestone for SpaceDev because it
combines the highly respected broad range of high tech space
products of Starsys, with the high performance, low cost
satellite, spacecraft and propulsion systems designed and
produced by SpaceDev,” said SpaceDev Founding Chairman and Chief
Executive Officer Jim Benson. “The engineering capabilities and
products of the two companies solidly compliment each other.
SpaceDev is committed to implementing our private sector space
program through rapid and profitable growth via both new
business development and the acquisition of innovative and
efficient space technology companies like Starsys.”

Under the terms of the merger agreement, Starsys, a private
Colorado corporation with headquarters in Boulder, will merge
with and into a newly-created, wholly-owned subsidiary of
SpaceDev. SpaceDev will pay approximately $9 million, which is
broken down into $1.5 million in cash and $7.5 million SpaceDev
common stock at the effective time of the merger, subject to
adjustment as provided in the merger agreement. SpaceDev will
also pay off at closing approximately $4.6 million of Starsys
debt and forgive a $1.2 million loan from SpaceDev to Starsys.
Following the merger, Starsys shareholders may also be entitled
to receive, based on the achievement of certain performance
criteria for each of the fiscal years ending December 31, 2005,
2006 and 2007, additional earnout consideration valued at up to
approximately $19 million, with approximately $1 million in cash
and $18 million in SpaceDev common stock. The number of shares
issued will depend on both the achievement of the performance
criteria and the prevailing stock price at the time of
measurement. Current holders of Starsys common stock will
become holders of SpaceDev common stock following the merger.
The merger agreement is subject to a number of conditions
including but not limited to the effectiveness of a registration
statement for the stock to be issued and approval of the
shareholders of SpaceDev and Starsys.

To facilitate growth following the closing, SpaceDev will
contribute at least $2.5 million to Starsys’ working capital
through the end of 2006. Following the merger, Scott Tibbitts
is expected to become a director and executive officer of
SpaceDev. Robert Vacek is expected to remain the President of
Starsys.

“All of us here at Starsys are excited about the statement this
merger makes for our companies and our industry” said Starsys
Founder and Chief Executive Officer Scott Tibbitts. “We believe
that Starsys’ mechanical systems capabilities, coupled with
SpaceDev’s experience in micro-satellites and affordable access
to space, will provide unique, cost-effective solutions to our
industry. SpaceDev is a company with vision, and we look forward
to bringing our capabilities together to help make that vision a
reality.”

In 2004, SpaceDev recorded almost $5 million in revenues and
Starsys recorded approximately $15 million in revenues. As of
June 30, 2005, SpaceDev recorded its tenth consecutive quarter
of revenue growth with approximately $3.7 million in revenue for
the six-month period, and Starsys recorded approximately $11
million for the same six-months of 2005.

“This merger is an important and exciting opportunity for
SpaceDev and Starsys,” said SpaceDev President and Chief
Financial Officer Richard Slansky. “We have analyzed this
transaction carefully and believe that it will be accretive to
the SpaceDev stockholders. Furthermore, if the Starsys
stockholders achieve their earnout, we believe that the
resulting dilution will be more than offset by the increase in
shareholder value for all stockholders created by revenue and
EBITDA growth."

Additional Information and Where to Find It

SpaceDev will file a Form 8-K related to this transaction before
date of this release and intends to file a registration statement
on Form S-4 containing a joint proxy statement/prospectus in
connection with the merger transaction involving SpaceDev and
Starsys in the near future. Investors and security holders are
urged to read these filings when they become available because
they will contain important information about the merger
transaction. Investors and security holders may obtain free
copies of these documents (when they become available) and other
documents filed with the SEC at the SEC’s web site at
www.sec.gov. In addition, investors and security holders may
obtain free copies of the documents filed with the SEC by
SpaceDev by contacting SpaceDev Investor Relations at (858)
375-2026.

About SpaceDev
SpaceDev (OTCBB: SPDV) creates and sells affordable and
innovative high tech space products and solutions to government
and commercial enterprises. SpaceDev's innovations include the
design, manufacture, marketing and operation of sophisticated
micro- and nano-satellites. SpaceDev designs and builds safe
hybrid rocket motor propulsion systems for potential sub-orbital
and orbital transportation systems including prospective missions
for cargo and human space flight. Upon founding SpaceDev in 1997,
Jim Benson started the trend of successful computer entrepreneurs
moving into the space development arena. For more information,
visit www.spacedev.com.

About Starsys Research Corporation
Starsys Research Corporation is a design, engineering, and
manufacturing company, headquartered in Boulder, Colorado, that
provides mechanical systems to the aerospace industry. For more
information about Starsys Research Corporation, visit
www.starsys.com.

Except for the factual statements made herein, the information
contained in this news release consists of forward-looking
statements that involve risks, uncertainties and assumptions
that are difficult to predict. Words and expressions reflecting
optimism and satisfaction with current prospects, as well as
words such as "believe," "intends," "expects," "plans,"
"anticipates" and variations thereof, identify forward-looking
statements, but their absence does not mean that a statement is
not forward looking. Such forward-looking statements are not
guarantees of performance and the company's actual results could
differ materially from those contained in such statements.
Factors that could cause or contribute to such differences
include risks and uncertainties associated with the company's
acquisition of Starsys, including possible integration problems
and difficulties regarding the execution of the business plan
for the combined companies; the ability of the company to raise
additional capital on acceptable terms; market acceptance of the
company's products; worldwide spending levels in the space
industry; rescheduling or cancellation of customer orders or
government contracts; general competition and price pressures in
the marketplace; the company's ability to control costs and
expenses; and general economic conditions. Reference is also
made to other factors set forth in the company's filings with
the Securities and Exchange Commission, including "Management's
Discussion and Analysis" and other sections of the company's
Form 10-KSB currently on file with the SEC. These
forward-looking statements speak only as of the date of this
release and the company undertakes no obligation to update
publicly any forward-looking statements to reflect new
information, events or circumstances after the date of this
release.

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