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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Pre-Effective Amendment 2
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
SPACEDEV, INC.
Colorado 84-1374613
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13855 Stowe Drive Poway, California 92064
(Address of principal executive office) (Zip Code)
Issuer's telephone number: (858) 375-2030
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None. None.
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.0001 par value
(Title of Class)
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TABLE OF CONTENTS
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PART I........................................................................................4
ITEM 1. DESCRIPTION OF BUSINESS...............................................................4
BACKGROUND.................................................................................4
THE COMPANY................................................................................7
BUSINESS PLAN..............................................................................9
NASA'S "FASTER, BETTER, CHEAPER" CONCEPT................................................11
PRODUCTS AND SERVICES.....................................................................12
SPACE MISSIONS..........................................................................13
SPACE PRODUCTS..........................................................................14
ENGINEERING SERVICES....................................................................15
MARKET STRATEGIES.........................................................................16
SPACE MISSIONS..........................................................................16
SPACE PRODUCTS..........................................................................17
ENGINEERING SERVICES....................................................................18
COMPETITION...............................................................................18
SPACE MISSIONS..........................................................................18
SPACE PRODUCTS..........................................................................20
ENGINEERING SERVICES....................................................................20
REGULATION................................................................................20
EMPLOYEES.................................................................................22
INTELLECTUAL PROPERTY.....................................................................22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION............................22
OVERVIEW..................................................................................22
RESULTS OF OPERATIONS FOR TWELVE MONTHS ENDED DECEMBER 31, 1999..........................25
NET SALES...............................................................................25
COST OF SALES...........................................................................25
RESEARCH AND DEVELOPMENT................................................................26
GENERAL AND ADMINISTRATIVE..............................................................26
OTHER INCOME EXPENSE, (NET).............................................................26
LIQUIDITY AND CAPITAL RESOURCES...........................................................26
RECENT DEVELOPMENTS.......................................................................28
YEAR 2000 COMPLIANCE......................................................................29
ITEM 3. DESCRIPTION OF PROPERTY..............................................................30
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................30
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS......................31
ITEM 6. EXECUTIVE COMPENSATION...............................................................35
REMUNERATION PAID TO EXECUTIVES...........................................................35
EMPLOYMENT AGREEMENTS.....................................................................39
EMPLOYEE BENEFITS.........................................................................40
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................40
ITEM 8. DESCRIPTION OF SECURITIES............................................................41
COMMON STOCK..............................................................................41
VOTING RIGHTS...........................................................................41
NO PREEMPTIVE RIGHTS....................................................................41
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DIVIDENDS AND DISTRIBUTIONS.............................................................41
PREFERRED STOCK...........................................................................41
PART II......................................................................................42
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS..................................................................42
MARKET INFORMATION........................................................................42
HOLDERS...................................................................................42
DIVIDENDS.................................................................................42
ITEM 2. LEGAL PROCEEDINGS....................................................................42
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS........................................43
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES..............................................43
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS............................................46
ITEM 6. FINANCIAL STATEMENTS.................................................................46
PART III.....................................................................................47
ITEM 1. INDEX TO EXHIBITS....................................................................47
ITEM 2. DESCRIPTION OF EXHIBITS..............................................................47
SIGNATURES...................................................................................48
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
SpaceDev, Inc., consisting of one wholly owned subsidiary and one Division,
is organized under the laws of the State of Colorado on December 23, 1996. It
became a publicly traded company in October 1997 and is currently trading on the
Over-The-Counter Bulletin Board exchange under the symbol "SPDVE," until the
NASD receives notice from the SEC that the SEC has no further comments with
respect to this Registration Statement. At that time the symbol will return to
"SPDV."
SpaceDev's overall vision is to establish itself as the world's first
commercial space exploration and development company operating in "small space"
- - small spacecraft, small space transportation systems and focused, low-cost
mission solutions. When SpaceDev refers to commercial space and commercial
practices, we mean that the company intends to pursue business approaches more
common to the commercial business arena than to the government-contracting
arena. Government business is often characterized by cost plus fixed fee
contracts written to adhere to the Federal Acquisition Regulation (FAR), which
can limit profits and permit potentially expensive government oversight into the
conduct of the contract. On the other hand, commercial business practices can be
characterized by fixed price contracts and little or no government oversight
into the design and production of products. SpaceDev intends to follow
commercial business practices as much as possible, as opposed to government
contracting practices. Even though some or many of SpaceDev's customers may be
government agencies, it is sometimes possible to use commercial practices to
reduce government oversight and the associated higher costs of doing business.
For example, SpaceDev's CHIPSat project with the University of California at
Berkeley consists of a commercial-type contract with no FAR clauses, even though
NASA funds the University's CHIPS project. SpaceDev believes this simplified
contracting is one reason SpaceDev was able to submit a low bid, and may have
been a factor in winning the contract.
SpaceDev believes it is pioneering a revolutionary space-products business
that has strong parallels to the early days of the microcomputer revolution.
Prior to microcomputers, the computer industry was dominated by mainframe and
minicomputers that used relatively old, large, expensive and power-hungry
components and subsystems. SpaceDev is attempting to introduce relatively new
but proven, small, inexpensive, low-power technology into the space arena which
is often dominated by satellites and spacecraft which are large, heavy,
expensive, etc. The mass production of personal computers resulted in high
volumes, and SpaceDev hopes that smaller, less expensive satellites and
spacecraft will result in increased demand.
The Company's approach is to provide small spacecraft - approximately 250
kg mass and less - and compatible small space transportation vehicles to a
growing market of commercial and government customers. The small spacecraft
market is supported by the evolution and enabling of micro-electronics.
Reduction of the size and mass of traditional spacecraft electronics (i.e.,
black boxes) has directly resulted in allowing overall spacecraft size, mass,
and volume to be reduced over the past 10 to 15 years. A direct example of the
small spacecraft market is evidenced by smaller, lower cost launch vehicles
(i.e., rockets) that were not available ten years ago - specifically, launch
vehicles such as Pegasus, Taurus, Athena-I, Athena-II, and Minotaur. These
launch vehicles are significantly smaller than traditional Titan, Delta, and
Atlas classes of launch vehicles, and have been developed specifically to
accommodate the smaller spacecraft market (i.e., less than 1,000 kg weight
class).
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SpaceDev intends to use common commercial business practices, whenever
possible, rather than the government-driven processes that dominate the space
industry. SpaceDev seeks to avoid "re-inventing the wheel" on each project and
instead intends to rely on proven, "trailing-edge" technologies used in new
ways, and relatively innovative stable product and service offerings. Trailing
edge technologies are commodities that are readily available to support space
flight missions. Traditionally, technologies needed to support space missions
may have required significant dollar and time investment, thereby increasing the
overall life cycle cost. By not pushing the state-of-the-art, spacecraft
development schedules are reduced, thereby further reducing cost. Additionally,
the use of trailing edge technologies serves to reduce operational risk since
these technologies are proven and have space flight heritage. In contrast,
"leading edge" technologies are associated with higher risk, higher development
costs, higher maintenance costs, and longer schedule development - generally,
leading edge requirements are generated as a result of "Top-Down" requirements
allocation (i.e., "What do we need to do the job"), whereas use of "trailing
edge" technologies is the result of "Bottoms-Up" requirements allocation (i.e.,
"What do we have and can we make it work?").
Trailing edge technologies can be used in new ways to significantly reduce
the cost of space systems. Other trailing edge technologies (also known as
Commercial-off-the-Shelf, or COTS) that we plan to use in new ways include: 1)
hybrid rocket motor technology (which has been in existence for over 20 years)
to enable safe, efficient orbital transfer and rendezvous; 2) lithium-ion
battery technology (currently in wide use for calculators, cell phones, and
small portable electronic devices) to enable high depth-of-discharge, high cycle
life, high energy density, long life secondary power sources for small space
craft.
Since its inception, a specific SpaceDev objective has been to be the first
company to successfully define, implement and execute commercial, low-cost
deep-space missions, i.e., missions to the Moon and beyond. All prior deep-space
missions to date - U.S. and foreign - have been government-defined and
relatively expensive. At the beginning of the space age, all satellites were
launched and operated by governments. After the first commercial communications
satellite was put into service, the private sector became actively involved in
designing, launching and operating communications satellites. Following this
trend is the space telecommunications sector that began decades ago and more
recently the space remote-sensing sector. Commercial practices have begun to
penetrate the deep-space sector - already a multi-billion-dollar market
worldwide.
Remote sensing in the space sector consists of satellites that gather data
about weather, crops, terrain elevations and temperatures, etc., and according
to the 1998 "State of the Space Industry" report by Space Publications, the
sector was expected to grow from $12.5 billion in 1996 to $17.0 billion in 2000,
with the commercial segment growing the fastest from $1.3 billion to $3.0
billion.
Commercial practices have begun to penetrate the deep-space sector -
already a multi-billion-dollar market worldwide. As these commercial practices
take hold and the results of NASA's "faster, better, cheaper" initiatives bear
fruit, total mission costs should continue to decrease. A more detailed
discussion of "faster, better, cheaper" is included elsewhere in this document.
SpaceDev's first entrant in this new arena, the Near Earth Asteroid
Prospector (NEAP) mission, was announced in 1997. At its news conference, held
August 13, 1999 at the second annual Mars Society Conference at the University
of Colorado, SpaceDev announced new commercial products: Mars Probe Carrier and
Lunar Orbiter missions, based on the mission and spacecraft design study
SpaceDev had recently completed for NASA's Jet Propulsion Laboratory. These
missions, being offered as commercial products, are available for sale to
government agencies, private corporations and wealthy individuals. Entities
wishing to acquire unique data produced by deep space missions can purchase a
SpaceDev mission. These missions can be used by the owner to produce streaming
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video, science data, educational information and a wide variety of other outputs
for distribution through the Internet, media channels, educational institutions,
etc. SpaceDev has made presentations of such missions, for such purposes, to at
least three large private sector companies, and believes a market for such
commercial deep space missions is forming at this time, driven in part by
proliferating cable channels and web sites need for unique information content.
From the outset, the Company's strategy has been to rapidly build a growing,
horizontally integrated company that provides low-cost access to space through
profitable, fixed-price commercial sales. This buildup is fueled by in-house
growth and by strategic acquisitions. Selected space-business niches will be
targeted for acquisition and integration.
A prime element of this strategy is a strong focus on small, capable,
low-cost satellites and launch systems addressing the deep space and
Earth-orbiting markets. Small satellites are also a key element of low-cost
Earth-orbiting missions, for which demand is rising. Demand for low cost
earth-orbiting missions is increasing from both the government and commercial
sectors. NASA has several earth orbiting programs, including New Millennium
EO-X, SMEX, ESSP, UNEX, and UNESS. NASA's University-Class Explorer program, or
UNEX are investigations characterized by definition, development, launch
service, and mission operations and data analysis costs not to exceed $13M total
cost to NASA. University-class Explorer missions will be launched by a variety
of low-cost methods. Initially, one launch per year is anticipated. A long term
goal is to achieve multiple launches per year for this class of Explorer
missions with a substantially lower cost per mission. The CHIPSat satellite
being built by SpaceDev is the first in this program. Analogous to the computer
field, such small satellites are often called "microsatellites" or
"micro-spacecraft," with their associated "micromissions."
The need for increased demand for low-cost earth orbiting spacecraft is not
limited to the U.S. government. Commercial communications systems such as
Iridium, GlobalStar, and Teledesic (each constellation consisting of dozens of
smaller spacecraft) rely on lower development costs to enable a for-profit
venture. Commercial imaging systems such as IKONOS, Orbview, and EarthWatch
utilize lower cost satellites, again to enable commercially viable products that
can be marketed globally.
Another key aspect of SpaceDev's strategy is the hiring of individuals with
world-class experience and skills in the areas above, combined with strategic
acquisitions of companies successfully engaged in these markets. SpaceDev's core
business is providing small, low-cost space products, and in that context,
SpaceDev uses "world-class experience" in the common sense of the term to mean
people whose experience in the small low-cost spacecraft field is hard to top.
For example, SpaceDev V.P. Jan King has designed, built or managed over a dozen
small, low-cost, volunteer-built satellites. Few people in the world have that
level of experience. Charles Lloyd, SpaceDev CFO and ISS CEO has been a top
level manager in two companies that commercialized military missiles into
commercial launch vehicles and went on to negotiate or sell over $4 billion of
such launch vehicles. Few people in the world equal that experience. Stan Dubyn,
President and COO of SpaceDev has 22 years of experience managing the design and
construction of small spacecraft for both earth orbit and deep-space missions in
addition to being a founder of a highly successful company that built small
spacecraft for over eight years.
The Company intends to gain maximum competitive advantage by developing and
offering a limited yet relevant suite of proprietary, open-standard small
satellites, launch systems and related subsystem components. "Open-standard" is
a term used to describe standard hardware or software and their interfaces such
as found in personal computer boards and operating systems, but applied to small
spacecraft. Open standards often result in less expensive products because,
being "open," they can be produced by a variety of competing sources, as opposed
to proprietary standards that are often available only from limited sources.
This is part of the Company's strategy to avoid re-inventing the wheel on each
project.
THE COMPANY
In February 1998, the Company acquired Integrated Space Systems (ISS, in
San Diego). ISS is now a wholly owned SpaceDev subsidiary. Most ISS employees
are former launch-vehicle engineers and managers who worked for General Dynamics
in San Diego. At ISS they perform aerospace-engineering services and R&D, with a
principal focus on launch-system and propulsion-module products. With the
acquisition of ISS, SpaceDev's employee base increased to 20 employees in
February 1998. This number is expected to increase to approximately 40 over the
next 12 months. The Company is actively investigating further strategic
acquisitions.
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In August 1998 SpaceDev also acquired the patents and intellectual property
produced by the former American Rocket Company (AMROC), which specialized in
hybrid rocket technology (solid fuel and liquid or gas oxidizer) for small
sounding rockets and launch vehicles. AMROC's purpose and only focus was to
design, build and test hybrid rocket motors with the intention of producing
hybrid sounding rockets and hybrid launch vehicles. Dozens of hybrid motors were
built, and hundreds of test firings were conducted by AMROC. SpaceDev acquired
from AMROC only intellectual property that was produced by AMROC before AMROC
went out of business in the mid-1990s. The acquisition of such data has not
affected SpaceDev operations other than to provide access to hybrid rocket
documents, designs and test results.
In October 1998 the Company entered into an agreement with Space
Innovations Limited (SIL) in Newbury, England to acquire all of the shares of
SIL in exchange for shares of SpaceDev. By mutual and amicable agreement of both
parties, this transaction was rescinded in December 1999. The primary reason for
the rescission was the difficulties that SpaceDev and SIL encountered in working
with each other due to the new highly restrictive technology-transfer
regulations instituted by the United States.
Technology transfer restrictions related to space products and engineering
created a barrier between SpaceDev and SIL. SpaceDev originally desired to use
SIL expertise in the design and manufacturing of space radios, but because of
restrictions on SpaceDev's ability to communicate its product enhancement ideas
to SIL, an important reason for acquiring SIL was eliminated. Now that SpaceDev
does not own a foreign subsidiary, the impact of these regulations has been
minimized. Because of the same technology transfer restrictions, it would be
difficult for SpaceDev to specify modifications to space technology purchased in
other countries. This is mitigated by SpaceDev's desire to use standard
off-the-shelf products where possible, because this usually results in lower
costs than custom products. These regulations are discussed in further detail
under the heading "Regulation."
Commercial space missions are defined and offered by SpaceDev's Space
Missions Division, with support from ISS, and selected outside partner
organizations. In August 1998 SpaceDev hired Jan King, an expert in the field of
low-cost spacecraft and space-mission development. Mr. King forms the core
technical leadership of this Division.
By 1998 the core SpaceDev team had refined the definition of the Near Earth
Asteroid Prospector (NEAP), modeled after NASA's current successful Near Earth
Asteroid Rendezvous (NEAR) mission to the degree that NASA formally recognized
it as a "Mission of Opportunity." This was significant because Missions of
Opportunity had never been included in NASA's Discovery program. Missions of
Opportunity are missions to be flown by entities other than NASA on which there
is room for one or more additional experiments. In the past, it had been assumed
by NASA that Missions of Opportunity would be government missions of other
countries.
Established scientists and engineers then began supporting the concept
with scientific-investigation proposals to NASA and commitments from their home
institutions, including three letters of intent for the design and fabrication
of science instruments. In late 1998 SpaceDev began the approximately two-year
process of working with NASA's Jet Propulsion Laboratory (JPL) to secure scarce
Deep Space Network (DSN) tracking time for the mission. The NASA Deep Space
Network - or DSN - is an international network of antennas that supports
interplanetary spacecraft missions and radio and radar astronomy observations
for the exploration of the solar system and the universe. The DSN provides the
vital two-way communications link that guides and controls unmanned spacecraft
and brings back images and new scientific information. The network also supports
selected Earth-orbiting missions. DSN tracking time is scarce because deep space
missions require frequent communications; therefore, the Deep Space Commercial
Complexes (DSCCs) have been located so as to compensate for Earth's daily
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rotation by being situated approximately 120 degrees apart in longitude.
However, since there are several active deep space missions at any given time
e.g., currently the DSN is supporting Voyager-1 and Voyager-2 (both still active
since 1977), Galileo, Ulysses, New Millennium Deep Space One, NEAR, Mars Global
Surveyor, Stardust, and Cassini the allocation of DSN time to any one mission is
not possible, and as deep space missions grow in number, less and less DSN time
will be available to each mission. By the summer of 1999, JPL and NASA
Headquarters formally agreed that NASA was technically prepared to support the
NEAP mission with the DSN. Deep space missions require support from NASA for
navigation and communications, but the NASA Deep Space Network has limited
capacity and cannot always accommodate all desired missions. SpaceDev contracted
with JPL to factor NEAP into its planning process, and after that analysis was
completed, SpaceDev was informed that, as originally planned, NEAP would not
conflict with JPL's other scheduled Deep Space Missions and therefore NASA would
be able to provide DSN support for a fee.
SpaceDev offers to sell "rides" for science and other packages on its
proposed spacecraft as a means of generating revenue. The term "rides" is used
to refer to the purchase of available cargo space for science and other packages
on the Company's proposed spacecraft as a means of generating revenue. This is
similar to the concept of package delivery whereby a scientist may want to have
a science instrument delivered from earth to a location in space or to another
planetary body where it can collect data for transmission back to earth. The
instrument, or package or "payload" ride is to be paid for by the owner or
"sponsor" of the payload. A firm contract for a ride on NEAP was signed with a
payload sponsor in mid-1999. In July of 1999 Dojin Limited signed a contract
with SpaceDev to purchase a ride on the NEAP spacecraft. In March 2000, the
University of Arizona agreed to furnish a multi-band imaging camera to be built
by Mars Pathfinder camera builder Peter Smith to support a Mission of
Opportunity.
Launch was planned for late 2001, with a rendezvous at the near-Earth
asteroid Nereus in mid-2002. Due to program delays, the mission is being
reprogrammed to another accessible target asteroid. Multiple back-up targets are
available for this reprogramming which is a part of nominal mission planning to
accommodate schedule slips as a result of launch vehicle readiness, funding
delays, and/or priority changes.
Due to the number of factors involved and the Company's need for commercial
or government revenue, there can be no assurance that NEAP will be launched. In
order to accomplish the launch of NEAP, the Company will require commercial or
government revenue in the form of sales, and there can be no assurance that the
Company will be able to obtain sales sufficient to support the mission.
Also in late 1998, SpaceDev began bidding on and winning
government-sponsored R&D contracts directly relevant to its strategic commercial
space interests. The Company competed with seven other industry teams to perform
a mission and spacecraft feasibility assessment study of proposed 200-kg Mars
micromissions and was one of five firms selected by JPL. The final report was
delivered to JPL in March 1999. A few months later JPL initiated a procurement
action for at least one such spacecraft, to be launched in 2003. Due to our
evaluation of the past performance prerequisites along with our assessments of
the technical cost and schedule feasibility, the Company decided not to compete
for this NASA contract, but has continued refining its baseline micromissions
concept independent of NASA and JPL, and is now offering lunar and Mars
commercial deep-space missions based on this design.
In mid-1999 SpaceDev's ISS subsidiary competitively won an R&D contract
from the National Reconnaissance Office of Space Launch to study a family of
very small, hybrid-based "micro" kick-motors for small-satellite orbital
transfer applications. At about the same time, ISS and Lockheed Martin
Astronautics (LMA) agreed to investigate selling packaged commercial launch
services involving two to four small satellites on LMA's Athena launch vehicle.
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In November 1999 the Space Missions Division was awarded a $4,995,868
million turnkey mission contract by the Space Sciences Laboratory (SSL) at
University of California, Berkeley (UCB). SpaceDev was competitively selected by
UCB/SSL to design, build, integrate, test and operate for one year a small
scientific, Earth-orbiting spacecraft called CHIPSat.
BUSINESS PLAN
SpaceDev's corporate goal is to increase the intrinsic value of the Company
by providing proprietary, reliable, low-cost access to space through innovative
solutions currently lacking in the marketplace. Low-cost space-mission solutions
involving microsatellites (less than 250 kg) and nanosatellites (less than 50
kg).
The Space Missions Division intends to define and market proprietary
missions and spacecraft based on open standards. "Open-standard" is a term used
to describe industry standard hardware or software and their interfaces such as
found in personal computer boards and operating systems, but applied to small
spacecraft. Open standards often result in less expensive products because being
"open" they can be produced by a variety of competing sources, as opposed to
proprietary standards that are often available from limited sources.
ISS continues to market its current products and services to the aerospace
industry as well as expand its offerings. SpaceDev intends to continue
developing new products and services the Company's management believes are
needed in the marketplace.
SpaceDev is successfully implementing a strategic thrust to be perceived
and regarded as an experienced provider of small-satellite launch-integration
services. This allows the Company to identify launch opportunities (whether on
U.S. or foreign launchers), conceive and evaluate small-satellite designs
matched with those opportunities and to support the design, development, test,
integration, launch and operations of these satellites. We intend to offer
small-space customers end-to-end business solutions. This includes providing
launch integration services which are the engineering tasks needed to insure
that the satellite fits on and is technically compatible with the selected
launch vehicle. This is an important part of our small-space strategy.
Our staff and some carefully selected external partners have a combined
experience base with such systems - direct experience in defining, implementing
and operating several dozen small-spacecraft missions - believed to be equal to
any in the industry. We believe our staff is "equal to any" because of the
accomplishments of the staff members. For example, SpaceDev's President and COO
has twenty-two years of space experience gained at Hughes, TRW and Spectrum
Astro by working in management positions on six space vehicles, including three
deep space missions. SpaceDev's CFO has twenty years of experience in the space
field, holding top management positions with General Dynamics and Lockheed
Martin's International Launch Services, where his combined lifetime launch
vehicles sales total over $4 billion, a number few people in the world equal.
SpaceDev's Vice President for Space Engineering has designed built or managed
over a dozen small, inexpensive satellites, and has worked on over six other
science satellites, has held top management positions at Orbital Sciences and
QUALCOMM and held an endowed Chair at the U.S. Air Force Academy while directing
their small satellite program. Another staff member recently graduated cum laude
from Harvard's Electronics Engineering program. Most other staff members have
been involved in space engineering projects since obtaining their degrees,
giving SpaceDev a highly accomplished staff that is perhaps "equal to any."
SpaceDev believes that a majority of its customers are drawn to the Company
because they are being underserved by the traditional aerospace industry. Most
of the companies that have been servicing this market - especially U.S.
companies - have been redirecting their efforts to larger systems, leaving a
relatively unpopulated market niche for SpaceDev to fill just as the demand for
small satellites is blossoming. The Company intends to continue to introduce new
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and useful low-cost space products and services designed to meet customers'
needs, all with an aggressive and practical commercial approach.
SpaceDev customers will come from a variety of different markets, but they
will all have the common requirement for a low cost small-space system. That is
the "market niche" that SpaceDev intends to fill. Customer requirements will
emanate from various needs. Some customers, such as entertainment or Internet
content companies, may want a small satellite to deliver pictures from outer
space that can be integrated into theme parks or Internet sites. Some customers,
such as foreign countries, may want to buy small satellites commercially to be a
delivery system for their science instruments as they explore the inner solar
system. Some customers, such as NASA may want to buy small satellites as a part
of their traditional programs or perhaps buy data from the satellites on a
commercial basis. Some customers, such as universities may want to buy
satellites as a delivery system for experiments designed by students and
faculty. Some customers, such as the Air Force or the National Reconnaissance
Office may want to buy our products to test new technologies in space--sometimes
procured in a traditional manner and sometimes commercially. At the present
time, one customer, the University of California, Berkeley, is forecasted to
account for about 40% of our expected 2000 revenue.
The Company's preferred space-mission implementation approach has the
following attributes atypical of projects done by traditional defense
contractors:
o SpaceDev-proprietary spacecraft and launch-vehicle electrical,
mechanical and data command interfaces to SpaceDev-developed secondary
payload adapters
o SpaceDev-defined products and services from a catalog, rather than
designs responding to government-supplied specifications
o A focus on "Small Space," involving turnkey mission solutions and
application of proven commercial business practices such as offering
launch and mission space insurance options through SpaceDev's space
insurance broker of record, International Space Brokers, competitive
pricing and creative billing arrangements as part of our commercial
space mission packages
o Relatively simple and elegant (elegant meaning meeting or exceeding
the technical requirements with less complexity) programmatic and
technical solutions, rather than complex and bulky
The Company believes that this business model emphasizing smaller
satellites, commercial approaches, technological simplicity, architectural and
interface standardization and horizontal integration ("whole product") provides
the following advantages:
o Enables small-space customers to contract for end-to-end mission
solutions, reducing the need for and complexity of finding other
contractors for different project tasks
o Creates an easy and convenient way for customers to contract for space
missions and/or spacecraft subsystems
o Lowers total project costs and therefore provides greater value and
increases return on investment for SpaceDev and its customers
o Creates barriers to entry and competition from competitors
Though the Company prefers to define and execute complete space missions
for clients, it also offers customers space-delivery services (for
customer-supplied science or technology demonstration payloads);
science-instrument or technology-demonstration data-set products (from
SpaceDev-supplied payloads); integration and launch services (for a
customer-supplied spacecraft); and space hardware from commercial price lists
(for customer spacecraft). Data-sets are end-item products (e.g., data,
photographs) that consist of the results of a science experiment or technology
demonstration, and are used to generate new scientific knowledge or to describe
performance results when new technology is being tested in space.
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These features of the Company's business approach thus place it more into
the template that existed during the early days of the microcomputer technical
revolution rather than into the classical patterns of the existing
government-dominated, limited-profit margin, aerospace industry.
NASA'S "FASTER, BETTER, CHEAPER" CONCEPT
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Since the arrival of the Honorable Daniel S. Goldin as NASA Administrator
almost eight years ago, the phrase "faster, better, cheaper" has become
something of a mantra for the space agency, after suffering the very expensive
loss of the billion-dollar Mars Observer spacecraft in 1993, shortly after the
Administrator took the office as a political appointee of the president. The
meaning, no matter how one phrased it, was clear: do more with less.
However, only in the past five years has the application of this phrase,
and this method of doing things, paid dividends, most publicly with Mars
Pathfinder in 1997. A mission with a budget only about one-twelfth of the
previous American Mars landing mission, Viking, and one-fourth the budget of the
last American Mars mission altogether (Mars Observer), which failed before even
reaching the planet, succeeded in safely landing on the planet and returning
data which already is reshaping the way we understand the Red Planet. NASA's
concept of "faster, better, cheaper" rests on the interconnection of decreased
mission costs and increased risk. To be able to do significant missions with
less money, NASA has gone on record as being committed to be willing to accept
increased risk through the use of untried or otherwise risky techniques or
equipment that promise to do more for less money. For the normally risk-adverse
space agency to accept increased risk, the stakes must be lower: tens or hundred
of millions of dollars, not billions, must be on the line.
Pushing NASA in this direction were the twin forces of very expensive and
very embarrassing failures and budget cuts. By the fall of 1993, less than 18
months into Mr. Goldin's tenure at NASA, he had seen a $1-billion spacecraft,
Mars Observer, lost due to what turned out to be a simple failure of a
propellant system that could have been easily corrected before launch had
engineers thought about the problem more carefully. At this same time NASA has
also all but written off any chance of opening the high-gain antenna on the
Galileo spacecraft (mission to explore Jupiter and its moons), another
multi-billion dollar mission, due to a few stuck ribs (similar to that of an
umbrella). Use of the low-gain antenna and other tricks would ensure that some
data would return, but the torrent of images expected from the mission would not
happen.
In the fall of 1993 the repair of the optically-flawed Hubble Space
Telescope was still in the near future. Moreover Space Station Freedom was
undergoing the pains of another reorganization, including bringing Russia into
the program, and the fate of the multi-billion station in Congress was very
uncertain. NASA had shown that risk in expensive programs could not be
eliminated, and when failures or problems happened, the stakes were much higher.
As NASA's budget was slowly trimmed over the next few years in Congress's
zeal to balance the budget, it was clear that the era of billion-dollar
"mega-projects" was, at least temporarily, at an end. To keep space sciences
alive between the budget pressures of the space station and the space shuttle,
NASA needed less expensive projects. To get those smaller missions to do good
science, the space agency needed to embrace something it had avoided for years:
risk.
NASA Administrator Dan Goldin, in his 1998 statement before the Senate
Appropriations Committee, said "Faster, better, cheaper is not a slogan - it is
routine. The FY 1994 budget included funding for 11 Space Science missions; the
FY 1999 budget request contains funding for 28 missions...The current EOS
program encompasses many much smaller missions at a significantly lower cost.
This will enable the infusion of new technology development and is responsive to
emerging scientific discoveries."
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One of the flagship programs of the "faster, better, cheaper" philosophy is
NASA's Discovery program. The goal of the program is simple: fly frequent, small
missions throughout the solar system. Each mission had to cost less than $150
million in 1992 dollars (about $182 million in 1997) and be ready to fly within
a few years of selection. The first two programs selected for the Discovery
program were NEAR (Near Earth Asteroid Rendezvous), a mission to rendezvous with
and study a near-Earth asteroid; and Mars Pathfinder.
To achieve the goals of the Mars Pathfinder mission within the tight
budgetary constraints of the Discovery program, project officials were willing
to embrace new technologies and techniques, such as an airbag-cushioned landing
instead of the more traditional, and more expensive, landing legs and
retrorockets. They also used new ways of working together, putting project
personnel together in the same work space to allow more communication and
interaction between team members, so they could find ways of improving the
spacecraft and decrease its costs.
The risks, for now, seemed to have paid off for Pathfinder, Goldin, and
the space agency. Pathfinder performed beyond the expectations of project
officials. Combined with the recent successful flyby of the asteroids Mathilde
and Eros by NEAR, the Discovery program has shown that smaller, lower cost,
higher risk missions can do good science. The verification of the "faster,
better, cheaper" paradigm has allowed Mr. Goldin to continue to spread it
throughout the space agency, cutting costs for the space shuttle and keeping the
International Space Station in line.
There are no plans to discontinue "faster, better, cheaper" applications
within NASA, although, as a result of the recent failures of two "faster,
better, cheaper" missions - the Mars Climate Orbiter, and Mars Polar Lander -
the paradigm is being re-evaluated for applicability on a case-by-case and
mission-by-mission basis.
PRODUCTS AND SERVICES
SpaceDev's products and services are grouped into three business areas:
Space Missions, Space Products and Engineering Services. Its business is not
seasonal to any significant extent; however, because it is a commercial
business, it follows normal industry trends such as increased demand during
bullish economic periods, or slow-downs in demand during recessionary periods.
SPACE MISSIONS
The Company's Space Missions Division offers commercial, standards-based
turnkey space missions for sale as products to a variety of customer bases
(government agencies, other countries, universities, corporations, consortia,
individuals, etc.). It is this product line for which SpaceDev was originally
formed, particularly in the deep-space arena.
Space missions consist of the overall effort including the design of the
mission and its science, commerce or technology demonstration goals, the design
of an appropriate space vehicle (satellite or spacecraft), construction and
testing of the spacecraft, integration of one or more payloads (instruments,
experiments or technologies) into the spacecraft, integration of the spacecraft
onto the launch vehicle (rocket), the launch, and the mission control and
operations during the life of the mission. Missions can orbit the earth, travel
to another planetary body, or cruise through space taking measurements.
DEEP-SPACE MISSIONS. SpaceDev defined the Near Earth Asteroid Prospector
(NEAP) mission in 1997-99 and has been in the process of taking the necessary
steps for project implementation. NEAP can be thought of as a "space utility
van" that can be used to carry packages from one destination to another, for
example a science experiment (instrument) from earth to lunar orbit, much like
NASA's recent Lunar Prospector. The instrument is offered the opportunity for
accommodation (i.e., the "ride") to enable fulfillment of its mission goals.
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In 1998 NASA Headquarters recognized the project as a valid commercial
"Mission of Opportunity" for both its Discovery Program of solar-system
exploration missions and Mid-class Explorer ("MIDEX") program of space-science
missions. This opened the door for space scientists to submit proposals to NASA
for science-instrument development funding and for coverage of the fee that
SpaceDev would charge the scientist for an instrument ride on NEAP (i.e., cost
of hosting a science payload on NEAP). Three proposals were submitted (two to
Discovery and one to MIDEX) in 1998, but none were selected nor funded.
In December 1998, SpaceDev funded JPL to evaluate the feasibility of
supporting the NEAP mission with NASA's DSN, and in October 1999 JPL and NASA
headquarters concurred that such technical support was feasible. From the
mission-operations standpoint, NASA now treats NEAP as a valid mission (an
"Advanced Planning" mission). NEAP is the first proposed commercial deep-space
mission to be granted this status.
In December 1998, approximately fifteen months after SpaceDev announced the
feasibility of deep space missions costing less than $50 million, a SpaceDev-led
team was awarded a contract by JPL to assess the feasibility of sending
"micromissions" to Mars for less than $50M total mission cost each.
Micromissions are generally in the few hundred kilogram mass range, and were
popularized by NASA studies in their search for ways to comply with NASA
headquarters' admonitions for missions to be "faster, better and cheaper." One
such micromission is being considered for development in the Mars micromission
and weighs approximately 220 kg. These missions would cost approximately
one-third to one-fifth of recent Mars-mission costs. An extensive final report
was submitted by SpaceDev to JPL the following March. This work formed the basis
for redefining the NEAP mission to be significantly smaller and lower cost than
the previous baseline and also prompted SpaceDev to offer low-cost commercial
lunar orbiter and Mars probe-carrier missions employing a similar design. The
Company began to market its commercial micromissions concept during the summer
of 1999. The Company has continued to market these missions to a number of
possible customers.
On February 1, 2000 the Company announced that it had teamed with The
Boeing Company to investigate opportunities of mutual interest in the commercial
deep-space arena. The purpose of the agreement is to investigate a variety of
small, low-cost, deep-space mission initiatives formulated by SpaceDev that are
based on the commercial micromission concept. During 2000, technical and
corporate staff from Boeing and SpaceDev will further refine and advance
SpaceDev's concept of commercial missions to the Moon, Mars and near-Earth
asteriods, involving micro-spacecraft of 250 kg mass. The effort also includes a
global assessment of the market potential for such missions, and a technical and
programmatic assessment of lower cost launch-vehicle options for such missions.
EARTH-ORBITING MISSIONS. A natural byproduct of the Company's focus on
small, low-cost spacecraft for commercial deep-space mission applications is the
in-house capability to design, build, market and sell similar concepts for
Earth-orbiting applications.
In November 1999 the Space Missions Division was awarded a turnkey mission
contract by the Space Sciences Laboratory (SSL) at University of California,
Berkeley (UCB). SpaceDev was competitively selected by UCB/SSL's Dr. Michael
Hurwitz to design, build, integrate, test and operate a small spacecraft called
CHIPSat. The 85-kg microspacecraft will carry one science instrument, the Cosmic
Hot Interstellar Plasma Spectrometer, or CHIPS. CHIPS facilitates the
observation and diagnosis of the astrophysical environment in the void outside
our solar system and between the nearby stars in our galaxy. Dr. Hurwitz, the
CHIPS Principal Investigator, and his team are responsible for the overall
CHIPSat mission, designing and building the CHIPS instrument, and performing the
science-data analysis.
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CHIPSat is the first mission of NASA's low-cost University-Class Explorer
(UNEX) series to be approved for the implementation phase. SpaceDev started its
work on the CHIPSat project in November 1999 under the $4,995,868 commercial,
fixed-price contract with UCB. Initial integration and testing of the
spacecraft's components are planned at the Company's headquarters in Poway in
late 2000. Launch at the Cape Canaveral Air Station on a Boeing Delta II is
expected in early 2002, followed by one year of mission operations to be
controlled at SpaceDev's Mission Control Center in Poway, California.
SpaceDev believes that the CHIPSat contract establishes the Company as a
significant competitor in the small-satellite arena, and it expects this
perception to spread rapidly among NASA, DoD, university/R&D, and foreign and
commercial customer bases during the next several months. The CHIPSat mission
was awarded in the first round of NASA's smallest and least expensive missions
ever - the University Explorer (UNEX) program. NASA caps these missions at about
$13 million total. This was the largest and first significant competition
SpaceDev had participated in at the time, and as a result of winning the
competition to design the mission and spacecraft, build, test and conduct the
mission, SpaceDev believes this win helped establish SpaceDev's credentials as
being able to successfully compete with older and larger companies. Winning the
UNEX mission has helped to create a market `niche' for SpaceDev and demonstrates
NASA's confidence in SpaceDev to take on the responsibility for design and
development of low cost science missions.
Work is progressing on the CHIPSat contract. There will be a Confirmation
Review with the customer in early May 2000, at which time a review of the
technical progress to date will be conducted and a decision will be made to
commit to full scale development.
SPACE PRODUCTS
SpaceDev's space-products business currently includes spacecraft and
related space systems; launch vehicles and propulsion modules.
SPACECRAFT AND RELATED SPACE SYSTEMS. The Company is presently bidding on
several programs to supply spacecraft buses (i.e., instrument platforms) that
would utilize the basic elements of the CHIPSat and other proprietary spacecraft
designs.
LAUNCH VEHICLES AND PROPULSION MODULES. Currently, SpaceDev's ISS
subsidiary is performing design analyses and computer simulations of various
sounding rockets and launch vehicles that primarily use hybrid-propulsion
technology (based on the AMROC intellectual property). Hybrid rocket technology
represents a mating of solid and liquid rocket technologies. In a hybrid rocket,
an oxidizer is passed through a hollow cylinder of solid hydrocarbon fuel,
uniting the densely packed power of a solid rocket with the precision of a
liquid engine. While there are disadvantages to hybrid technology for launching
large satellites, it may be well suited for the launch of small
satellites--which is the market that ISS is looking to focus upon. The hybrid
rocket is cheaper and simpler to design, and safer to store and transport than a
liquid rocket. It is cheaper, safer, more environmentally benign than solid
fueled rocket. It is also throttle-able and restartable, characteristics that no
solid rocket can accomplish. This technology can be used for both small launch
vehicles--that get the payload off the ground--and orbital transfer
vehicles--that can maneuver payloads into a final orbit once they have been
placed into a preliminary orbit by a launch vehicle. The Company anticipates the
possible spin-off of this activity from ISS once specific product lines are
defined and developed. Currently, however, no action has been taken to
accomplish such a spin-off.
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In mid-1999 ISS competitively won an R&D contract from the National
Reconnaissance Office of Space Launch to study the feasibility of building
small, hybrid-based "micro" kick-motors for small-satellite applications. The
Secondary Payload Orbital Transfer Vehicle (SPOTV) family, which utilizes
micro-kick motor concepts, has a multitude of possible on-orbit uses and is now
being marketed by SpaceDev as a part of its growing product line.
This contract has been successfully completed. SpaceDev submitted published
reports to the customer along with a presentation in the customer's Virginia
office in March of 2000. As a result of the study, three variations of the
technology were defined with the least complex version being a simple kick-motor
to boost microsatellites into more desirable orbits after being released from
the launch vehicle, up to the most complex version which can be described as a
highly capable satellite with a relatively large restartable motor for orbital
maneuvers. The kick motor is the primary element of the SPOTV, which also
consists of components to support attitude control, power and communications.
The Company is in the process of bidding several proposals to the U.S.
government for the continuation and expansion of design studies and motor tests
for this product.
ENGINEERING SERVICES
SpaceDev corporate-level staff and staff in SMD and ISS are available for
supplying aerospace-related technical services to a variety of clients. ISS is
currently most actively engaged in such services. ISS has provided launch-site
design, launch vehicle design, analysis, test and operations support for both
commercial (Atlas, Delta and Kistler) and U.S. government funded launch
programs.
Most ISS employees are former launch systems engineers and managers at
General Dynamics in San Diego; many have extensive experience with the Atlas
family of launch vehicles and other large-scale rockets and launch facilities.
The ISS staff has core competencies in engineering design and analysis; system
modeling and simulation; instrumentation and testing; launch-site operations and
range safety; launch environments and transport; and mission and trajectory
design. Other skills include project planning and development; systems
engineering and pre-design engineering (e.g., definition of engineering
processes and methods); and systems integration.
ISS has recently performed launch-vehicle design and testing support
services for the Atlas launcher program, Titan/Centaur program and the Kistler
Aerospace launcher development program. ISS has also provided launch-site
design, analysis, test and operations support for various U.S. launcher programs
and launch sites. Various U.S. governments and commercially funded launcher
programs and launch site engineering services have been supplied to over a dozen
unmanned spacecraft, manned spacecraft and Remotely Piloted Vehicles (RPVs).
MARKET STRATEGIES
SPACE MISSIONS
The Company intends through its commercial deep-space and Earth-orbiting
missions to prove its viability and establish itself as the premier commercial
space-exploration and development company. Once it has established its
capabilities for insured, high-quality, fast turnaround and low-cost systems and
missions, the Company believes it will be able to effectively compete, develop
new markets and expand existing markets for space exploration and other
applications.
The Company believes that its low-cost commercial missions can provide
unique information content (i.e., not limited to science and/or technology data)
to unconventional (i.e., non-traditional) space-mission customers such as
entertainment media, e-commerce organizations, larger aerospace companies that
endeavor to enter the commercial space market, and a few wealthy individuals who
can privately fund entire space missions. The unique information that SpaceDev
provides is the ability to host payloads and instruments that are geared for
producing data for the purposes of generating advertising revenue and public
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appeal, as opposed to science data. In particular, the Company is actively
seeking potential strategic partners and customers who share SpaceDev's vision
of the convergence of commercial deep-space activities with selected Internet,
media, entertainment and education activities.
DEEP-SPACE MISSIONS. Since all deep-space missions to date world-wide have
been defined and executed by various government agencies, SpaceDev's plan for
defining and executing such missions as a commercial venture places the Company
at the forefront of a new way of doing business in this arena. Under such
conditions, questions naturally arise within the space community about whether
the Company and its partners are capable of successfully performing in this
arena. The Company's approach is two-fold: (1) Selectively compete for
deep-space related work (R&D studies and development efforts as well as
missions) against established space-systems companies, and (2) Define, develop
and execute space missions independently of government agencies. Inherent to the
latter approach is a concerted effort to define and cultivate alternative
sponsors for these missions, such as other commercial companies, research and
technology consortia, non-U.S. space interests, etc.
SpaceDev's win of the JPL-funded Mars Micromissions study in 1998 is
representative of approach (1) above, while its efforts to define and promote
the NEAP and Lunar Orbiter streaming video missions fit approach (2) above.
EARTH-ORBITING MISSIONS. The market situation in this arena has
similarities to the deep-space arena, but there are more competitors and a wider
variety and greater number of missions to consider as marketing targets. The
challenge here, as in the deep-space arena, is for the Company to rapidly
establish credibility by selectively competing for and winning R&D studies and
development efforts as well as missions.
The Company's commercial focus works more easily with government-funded
efforts if it performs the work on a commercial basis for a Principal
Investigator (PI) or Task manager. The PI is the central person in charge of
each mission with full responsibility for its scientific integrity. A task
manager interfaces directly with the government sponsor(s). NASA rules permit
the PI to use his/her own management methods to the fullest extent possible to
accomplish the goals of the scientific investigation.
For non-governmental sponsors, the Company prefers to deal directly with
the customer(s). Currently, our biggest customer (in terms of dollar revenue) is
a non-government customer: the University of California Berkeley, which is an
academic institution. UC Berkeley provides the Principal Investigator (Dr. Mark
Hurwitz), who has been given a contract by the NASA Explorer Office to provide
the CHIPSat mission data set. Dr. Hurwitz, as the PI for this mission, exercised
his power as the PI to contract separately with SpaceDev to provide for the
spacecraft bus and mission operations services. SPACE PRODUCTS
SPACECRAFT AND RELATED SPACE SYSTEMS. In general, the Company believes
that any market target in the space-missions segment discussed above also
represents a potential customer for its space products (vs. turnkey missions).
This includes both the earth-orbiting and deep space markets. Technically, a
spacecraft bus is the host platform that provides all housekeeping, control,
stability, thermal protection, communications and power to the payload and/or
instrument.
LAUNCH VEHICLES AND PROPULSION MODULES. SpaceDev addresses this market
segment with its ISS subsidiary. Small spacecraft are produced by government
agencies, universities and commercial companies throughout the United States,
Europe and Japan. These spacecraft represent significant science and
technology-demonstration opportunities that require exposure to the space
environment to fulfill their mission objectives. Annual launch rates for such
spacecraft are limited principally by the high cost of current launch vehicles.
These conditions result in many valuable experiments and payloads being left on
the ground.
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Recognizing this problem, government and commercial industry have been
performing research and development in an attempt to reduce the cost per
kilogram (or pound) to orbit for small spacecraft. Paul Coleman, president of
the Universities Space Research Association (USRA), has challenged the space
industry with launch-cost targets priced between $2.0M and $3.5M for a 300-kg
spacecraft. Clearly, today's commonly used launch-vehicle technologies cannot
achieve this goal. Launch service users have pinned their future hopes on
reusable launch vehicles, which appear to be ten years or more away from
day-to-day use, to lower launch costs.
In the near term the only real hope for low cost launches for small
spacecraft is to find an alternative path to space using a secondary ride system
such as the Ariane Structure for Auxiliary Payloads (ASAP) or a low-cost launch
system yet to be developed. ISS retained key personnel critical in the
development of General Dynamics' Atlas Centaur launch vehicle. Management
believes that this level of experience is critical to the small launch-vehicle
market. ISS has also obtained the rights to the patents and intellectual
property produced by the former American Rocket Company (AMROC), which
specialized in hybrid rocket technology (solid fuel and liquid or gas oxidizer)
in the design of sounding rockets and launch vehicles.
The ISS approach of combining large-vehicle expertise with the lower cost
inherent in hybrid rocket technology could give small payload customers new and
valuable capabilities at small-business savings. SpaceDev research has indicated
a very large university and government market, starving for cost-effective
access to space. ISS intends to put that expertise to work building a family of
orbital transfer vehicles and small launch vehicles using hybrid rocket
technology. SpaceDev has prepared business plans for the development of both a
family of small hybrid launch vehicles and a family of small hybrid orbital
transfer vehicles. To date, the funding for the development of the small launch
vehicle has been provided from general corporate funds. Funding for the small
orbital transfer vehicle has been partially funded by the U.S. government. To
fully develop the family of orbital transfer vehicles would require over $5
million. To fully develop the small launch vehicle would require over $15
million. The funds need to fully develop this family of vehicles have not yet
been secured and there is no guarantee that these funds can be raised.
ENGINEERING SERVICES
SpaceDev addresses this market segment principally with its ISS subsidiary,
though the SMD staff can be applied selectively to provide such services. The
current business base lies principally within the aerospace- engineering and
test-services market. ISS can be distinguished from its competitors by its
highly experienced personnel, who gained their knowledge and know-how during
years of employment with major aerospace companies (General Dynamics Space
Systems in particular).
The personnel that came to ISS from General Dynamics worked on the
Commercial Atlas Launch Vehicle program which is one of the largest commercial
launch programs in the history of the aerospace industry. These employees
include engineers, program managers and senior level finance and marketing
people. In most cases, the commercial small launch industry has not generally
been composed of people that benefited from the combination of participation
with such a high level large commercial program and a determination to bring
that experience to a small low cost launcher. An example of this is the Lockheed
Launch Vehicle, now the Lockheed Martin Athena. The people that worked on that
program came out of the Lockheed government based ballistic missile program and
did not have the benefit of developing a commercially based launch vehicle.
Recent space-market analysis conducted by A. T. Kearney in the 1998 and
1999 editions of the State of the Space Industry from Space Publications and a
study conducted by the Teal Group in "The Military Satellite Market" from the
June 1999 edition of AEROSPACE AMERICA indicates an overall trend toward
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shrinking budgets. This could result in smaller spacecraft, rapid turn-ons,
shorter schedules and smaller project budgets. ISS is being groomed to work
within this environment. ISS intends to exploit its technologies, low-cost
focus, rapid turn-on (i.e., shorter acquisition times) capabilities and
small-business assets to form teaming arrangements, solicit business and win
contracts.
Currently no experienced small launch-vehicle company is known to offer
this service to space-vehicle contractors. ISS also offers experienced personnel
to launch-vehicle customers as a low-cost alternative to in-house capabilities.
ISS provides companies the ability to complete jobs where the work has surpassed
workforce capabilities or the task requires unique expertise, without having to
hire permanent employees.
COMPETITION
SpaceDev believes that competition for sales of its products and services
is based on price, performance and other technical features, contracting
approach, reliability, scheduling, customization, and in some situations,
geography.
SPACE MISSIONS
The primary domestic competition for space missions in the targeted
SpaceDev markets comes from such companies as Orbital Sciences Corporation, Ball
Aerospace and Technology Corporation, Space Dynamics Laboratory and AeroAstro.
Though Lockheed Martin Aerospace, TRW, Inc., Swales Aerospace, GM Hughes
Electronics and a few other companies and R&D organizations are perhaps capable
of mounting a competition in these markets, the Company is not aware of any
serious intent to do so. In addition to private companies there are certain
universities in the United States that have the capability to produce reasonably
simple satellites. Within the industry it is generally known which companies
participate in what kinds of projects, both by dollar range and type of mission.
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SpaceDev believes that it has made much more substantial and significant
progress compared to these firms in defining business models and in pursuing
sales in the small, emerging commercial deep-space and Earth-orbiting markets.
Over the past two and a half years SpaceDev employees and principals have
participated in dozens of space conferences both as members of the audience and
in a majority of cases as presenters. These conferences are well-established and
well-attended annual small satellite conferences where industry representatives
present talks and papers on a wide variety of topics including small,
inexpensive satellites and deep space missions.
At these conferences and in many private conversations with space industry
colleagues, space customers, and senior space officials, SpaceDev does not know
of any established companies such as TRW, Lockheed, etc., which have expressed
corporate goals to design and build inexpensive microspacecraft for commercial
deep space missions or for any other missions for that matter, leading SpaceDev
to believe it is making more progress in defining and pursuing sales in the
small, inexpensive commercial deep space arena than are the larger more
traditional companies.
By way of example, NASA's University Explorer program funds NASA's smallest
and least expensive space missions. SpaceDev is the first and only company to be
awarded a contract to design and conduct such a mission. The other UNEX mission
selected by NASA has not been awarded a contract, and the spacecraft integrator
is a university and not a company, leaving SpaceDev as the sole commercial
company engaged in building this category of spacecraft. Additionally, SpaceDev
believes it is the only company that has publicly declared the availability of
commercial deep space missions as products, further leading SpaceDev to believe
it has made more progress in this arena than any other company. The clear
competitor in the international arena is Surrey Satellite Technology Limited in
the UK. Swedish Space Corporation is also able to compete in the small-satellite
arena; they were named in November 1999 as the prime contractor for the European
Space Agency's (ESA) SMART-1 technology-demonstration spacecraft to the Moon.
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The Company is not aware of any current direct and credible competition in
the field of commercial space exploration and development. Firms such as those
mentioned above and other R&D laboratories (e.g., JPL, Applied Physics
Laboratory, ISAS in Japan) have the technical knowledge and experience to design
and execute missions similar to NEAP and CHIPSat, but they are primarily
government agencies or contractors. SpaceDev management believes that federal
procurement regulations and accounting systems make it difficult for these
companies and labs to compete on price with the Company.
Governments and government programs like those in NASA, ESA and the
Japanese space agencies (NASDA and ISAS) have executed many missions over a
period of many years, but all of these are characterized by long lead times,
high expense, little flexibility, and generally uninsured payloads. It is
SpaceDev's opinion that NASA Administrator Dan Goldin has done an excellent job
in lowering the cost of NASA missions, but the cost has declined from billions
of dollars to hundreds of millions of dollars, whereas SpaceDev is targeting
missions costing tens of millions. With the overhead and culture of such
agencies and their defense contractors, it may be difficult for the
government-defined and managed programs to lower costs much more.
The Company believes that government-driven programs pose only a small
threat of competing on the basis of price, although governments have
considerably greater experience, and substantially greater financial, workforce
and facilities resources. The Company also believes that governments and their
legislatures will increasingly encourage and support private, routine commercial
space exploration due to budgetary pressures, private-sector job creation and
tax-revenue considerations.
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SPACE PRODUCTS
The trend in some sectors of the space industry to smaller, lower cost
spacecraft is creating a new market for smaller, cheaper, launch-on-demand space
systems. With respect to SpaceDev's initiatives into low-cost launch systems,
several competitors have already entered the top end of this small-satellite
market, including Lockheed Martin with its Athena launch vehicle and Orbital
Sciences Corporation with its Pegasus and Taurus. The launch costs of these
vehicles, beginning at approximately $16 million per launch, are considered by
many to be too expensive for university-class and micro-spacecraft missions,
resulting in low launch rates for these launch systems. Although these companies
have been operating longer than SpaceDev, the Company believes that it may be
able to effectively compete against them in the area of launching small
satellites for under $10 million. This, combined with what is perceived as the
rapid growth in the demand for mini and micro-satellites, has left the market
open for a low-cost, reliable, rapidly deployed family of launch vehicles.
EXPENDABLE LAUNCH VEHICLES. Today's launch mainstays in the large
launch-vehicle class are the United States' Titan, European Ariane and Russian
Proton and Zenit. In the medium launch-vehicle class the United States' Atlas
and Delta rockets face heavy competition from around the world from the European
Space Agency, former Soviet States and more recently from Japan, China and
India. In the small launch-vehicle class the United States' Athena, Taurus and
Pegasus are dominant. Microcosm, Inc. has been working on the development of a
low-cost family of expendables called Scorpius, with first orbital launch not
expected before 2002. A common thread in the existing medium and small
launch-vehicle classes is that the United States' launch systems are
consistently more expensive than their foreign counterparts. SpaceDev believes
there is a great need for a low-cost (less than $10 million) U.S. built and
controlled micro launch system. SpaceDev has not formally initiated a launch
vehicle program and might not in the future.
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RE-USABLE LAUNCH VEHICLES. There is only one partially re-usable launch
vehicle currently in use: the Space Shuttle (the "Space Transportation System,"
or STS). Over the past five years, a multitude of companies have been working on
a variety of designs to capture this market. The most notable attempts at
developing re-usable vehicles are the NASA co-sponsored X-33/Venture Star (with
a Lockheed Martin-led consortium), the X-34 (with an Orbital-led consortium) and
the X-38 (led by Boeing). Other commercial firms such as Kistler, Kelly, Roton,
and Pioneer Rocketplane are attempting to develop conceptually similar systems.
ENGINEERING SERVICES
There are a number of small to very large companies that supply engineering
services in the space arena. SpaceDev offers one unique capability in that it
has co-located in one area both launch and spacecraft engineers. This allows the
Company to provide efficient and coordinated responses to design issues that
almost always have both spacecraft and launch considerations.
REGULATION
The Company's business activities are regulated by various agencies and
departments of the U.S. government and, in certain circumstances, the
governments of other countries. Several government agencies, including NASA and
the U.S. Air Force, maintain Export Control Offices to ensure that any
disclosure of scientific and technical information (STI) complies with the
Export Administration Regulations and the International Traffic in Arms
Regulations (ITAR). Exports of the Company's products, services, and technical
information require either Technical Assistance Agreements (TAAs) or licenses
from the U.S. Department of State depending on the level of technology being
transferred. This includes recently published regulations restricting the
ability of U.S. based companies to complete off-shore launches, or to export
certain satellite components and technical data to any country outside the
United States. The export of information with respect to ground-based sensors,
detectors, high-speed computers, and national security and missile technology
items are controlled by the Department of Commerce. The government is very
strict with respect to compliance and has served notice that failure to comply
with the ITAR and/or the Commerce Department regulations may subject guilty
parties to fines of up to $1 million and/or up to 10 years imprisonment per
violation. The failure of the Company to comply with any of the above mentioned
regulations could have serious adverse effects as dictated by the rules
associated with compliance to the ITAR regulations. SpaceDev's conservative
position is to consider any material beyond standard marketing material to be
regulated by ITAR regulations.
In addition to the standard local, state and national government
regulations that all businesses must adhere to, the space industry has specific
regulations. Command and telemetry frequency assignments for space missions are
regulated internationally by the International Telecommunications Union (ITU)
and in the U.S. by the Federal Communications Commission (FCC) and National
Telecommunications Information Agency (NTIA). All launch vehicles that are
launched from a launch site in the United States must pass certain launch range
safety regulations that are administered by the U.S. Air Force. In addition, all
commercial space launches that the company would perform require a license from
DOT. Satellites that are launched must obtain approvals for command and
frequency assignments. For international approvals, the FCC and NTIA obtain
these approvals from the ITU. These regulations have been in place for a number
of years to cover the large number of non-government commercial space missions
that have been launched and put into orbit in the last 15 to 20 years. Any
commercial deep space mission that the company would perform would be subject to
these regulations. These regulations are well understood by the Company. At the
present time, the Company is not aware of any additional or unique government
regulations related to commercial deep space missions.
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<PAGE>
The Company is required to obtain permits, licenses, and other
authorizations under federal, state, local and foreign statutes, laws or
regulations or other governmental restrictions relating to the environment or to
emissions, discharges or releases of pollutants, contaminants, petroleum or
petroleum products, chemicals or industrial, toxic or hazardous substances or
wastes into the environment including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, petroleum or petroleum products, chemicals
or industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof. At the present time the Company does not have a requirement
to obtain any special environmental licenses or permits.
It is anticipated that the Company will need to utilize the Deep Space
Network (DSN) on some of its missions. The DSN is an international network of
antennas that supports interplanetary spacecraft missions and radio and radar
astronomy observations for the exploration of the solar system and the universe.
The network also supports selected Earth-orbiting missions. The DSN currently
consists of three deep-space communications facilities placed approximately 120
degrees apart around the world: at Goldstone (http://gts.gdscc.nasa.gov/), in
California's Mojave Desert; near Madrid, Spain; and near Canberra
(http://tid.cdscc.nasa.gov/), Australia. This strategic placement permits
constant observation of spacecraft as the Earth rotates, and helps to make the
DSN the largest and most sensitive scientific telecommunications system in the
world. The network is a facility of NASA, and is managed and operated for NASA
by the Jet Propulsion Laboratory. The Telecommunications and Mission Operations
Directorate (TMOD) manages the program within JPL. Coordination for the use of
this facility is arranged with the Telecommunications and Mission Operations
Command (TMOC).
The failure of the Company to comply with any of the above mentioned
regulations could have serious adverse effects.
EMPLOYEES
As of the date of this registration statement, the Company, together with
ISS, employs approximately 25 persons full and part-time, of which most are
aerospace, mechanical and electrical engineers. The Company expects to hire
other personnel as necessary for product development, quality assurance, sales
and marketing and administration.
SpaceDev does not have any collective bargaining agreements with its
employees and believes its employee relations are good. An employee
stock-incentive program and an employee stock-purchase program were approved at
the 1999 annual shareholders meeting and have been implemented.
INTELLECTUAL PROPERTY
SpaceDev relies in part on patents, trade secrets and know-how to develop
and maintain its competitive position and technological advantage. The Company
intends to protect its intellectual property through a combination of license
agreements, trademark, service mark, copyright, trade secret laws and other
methods of restricting disclosure and transferring title. There is no guarantee
that such applications will be granted. The Company has and intends to continue
entering into confidentiality agreements with its employees, consultants and
vendors; entering into license agreements with third parties; and generally
seeking to control access to and distribution of its intellectual property.
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<PAGE>
In August 1998, SpaceDev acquired license to intellectual property
(including patents and trade secrets) from an individual who had acquired them
from the former American Rocket Company (AMROC), which specialized in hybrid
rocket technology. The Company issued warrants to this individual to purchase a
minimum of 100,000 and a maximum of 3,000,000 shares of its Common Stock over
the next 10 years, depending on the Company's annual revenues related to sales
of hybrid technology-based products.
In 1999 the Company began preparing a new patent application addressing a
technological need in the accommodation and deployment of secondary payloads on
launch vehicles. This patent application specifically addresses a need to enable
lower cost, more frequent access to space on existing or planned (i.e.,
government funded) launch vehicles. It expects to submit the application in
2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the Company's
financial statements and the notes thereto and the other financial information
appearing elsewhere in this document. In addition to historical information, the
following discussion and other parts of this document contain forward-looking
information that involves risks and uncertainties. Actual results could differ
materially from those anticipated by such forward-looking information due to
risk factors discussed elsewhere in this submittal.
OVERVIEW
During 1997, operating activities consisted largely of developing the
preliminary designs and mission analysis for the NEAP mission. During 1998,
SpaceDev acquired ISS and SIL. In 1998, operating activities included
engineering technical services work for aerospace customers and continued
development of NEAP preliminary designs and mission analysis. During 1999,
operating activities included preliminary design and conceptual studies for the
CHIPSat program, engineering technical services and continued work on the NEAP
mission. SpaceDev's employee base increased with the acquisition of ISS to 20
employees in February 1998.
In 1998, SpaceDev entered into a fixed price contract with the Jet
Propulsion Laboratory (JPL) to provide mission support for the Deep Space
Tracking Network. JPL's main task was to coordinate the NEAP mission trajectory
analysis into their Deep Space Network Plan. SpaceDev paid JPL $10,000 for this
phase of work.
In November 1999, SpaceDev was awarded a $4,995,868 million turnkey mission
contract by the Space Sciences Laboratory (SSL) at University of California,
Berkeley (UCB). SpaceDev was competitively selected by UCB/SSL to design, build,
integrate, test and operate for one year a small scientific, Earth-orbiting
spacecraft called CHIPSat.
On December 17, 1999, the Company's Board of Directors entered into a
Mutual Release and Rescission of Agreement ("Release Agreement") to rescind the
original acquisition of SIL, effective October 1, 1998. Subsequent to SIL's
acquisition and prior to December 17, 1999, the accounts of SIL were included in
the consolidated financial statements of the Company. The results of operations
of SIL are presented as discontinued operations net of income taxes in the
consolidated statements of operations for the fiscal years ended December 31,
1999 and 1998 and are not included in the discussion of operations presented
below. The results of operations of SIL are presented as discontinued operations
net of income taxes in the consolidated statements of operations for the fiscal
years ended December 31, 1999 and 1998 and are not included in the discussion of
operations presented below.
The Release Agreement resulted in the retirement of the 1,000,000 shares of
the Company common stock which had been issued to the former shareholders of
SIL, the cancellation of all outstanding options for Company stock and the
expiration of the acquisition price payable. The transaction was recorded as a
purchase of treasury stock. In accordance with Accounting Principles Board
Opinion No. 26, "Early Extinguishment of Debt", the gain created by the
transaction with a related party was recorded as an addition to stockholders'
equity. Therefore, $1,506,322 was recorded as an increase in the Company's
additional paid-in-capital on December 17, 1999.
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<PAGE>
RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED DECEMBER 31, 1999 AND 1998
NET SALES
Net sales, for the twelve months ended December 31, 1999, consisted
primarily of the sales for engineering technical services to various aerospace
customers. Net sales were $1,091,259 for the twelve months ended December 31,
1999 compared with sales of $1,339,920 for the same period in 1998 (18.6%
reduction). This reduction in sales was a direct result of Integrated Space
Systems' move from the Small Disadvantage Business classification after being
acquired. This reclassification resulted in lost contract opportunities of
approximately $500,000. However, during this period, contracts with seven new
customers were initiated and partially off-set the reduction.
Net sales are generated through either fixed price contracts or time and
material contracts. Sales recognition for time and material contracts is
recognized at time of work, while fixed price contracts are based on a percent
completion basis.
On November 1, 1999, SpaceDev entered into a $4,995,868 firm fixed price
contract with the University of California at Berkeley. In 1999, its recognized
revenue for this contract totaled $86,332 (7.9% of revenues) It is anticipated
that total net revenues will increase in the year 2000 with this contract award.
COST OF SALES
Cost of sales primarily represents all costs directly associated with
individual contracts. Included in this category are direct labor and associated
fringe benefits, direct material and subcontracts, and direct travel. Cost of
sales for the twelve months ended December 31, 1999 was $459,996 (42.2% of net
sales) compared to $915,947 (68.4% of net sales) for the twelve months ended
December 31, 1998.
RESEARCH AND DEVELOPMENT
Research and development expense for the twelve months ended December 31,
1999 was $61,615 compared to $322,269 for the twelve months ended December 31,
1998. These expenses were incurred in the continued development of the NEAP
project. The decrease in these expenses in 1999 can be attributed to winning and
performing several R&D contracts from the US government and to redirecting
company resources to the University of California at Berkeley contract. The
Company expenses research and development costs as they are incurred.
GENERAL AND ADMINISTRATIVE
General and administrative expense consists primarily of salaries for
administrative personnel, fees for outside consultants, goodwill allocation of
acquisition costs, depreciation, facilities related costs, insurance, legal and
accounting fees, and other overhead. General and administrative expense for the
twelve months ended December 31, 1999 was $2,572,831 (235.8% of net sales)
compared to $1,476,658 (110.2% of net sales) for the twelve months ended
December 31, 1998. Amortization expenses associated with the acquisition of
Integrated Space Systems and the hybrid rocket technology for the twelve months
ended December 31, 1999 totaled $707,163 (27.5% of general and administrative)
compared to $636,355 in the same period in 1998 (43.1% of general and
administrative). SpaceDev anticipates that overall general and administrative
expense will increase in the foreseeable future; however, general and
administrative expense as a percentage of net sales may fluctuate depending on
the level of future net sales and the timing of additional investments in
general and administrative infrastructure.
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<PAGE>
OTHER INCOME EXPENSE, (NET)
Net interest expense was $374,541 for the twelve months ended December 31,
1999 as compared to $29,725 interest expense in 1998 (the majority of which was
entered in December 1998). The increase in interest expense was primarily
attributable to interest incurred on a building mortgage and various leases.
There were miscellaneous other interest expenses of $9,836 in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business strategy requires significant capital expenditures.
The Company will incur a substantial portion of these expenditures before it
generates significant sales. Combined with operating expenses, these capital
expenditures will result in a negative cash flow until the Company establishes
an adequate revenue-generating customer base. The Company expects losses through
2000 and does not expect to generate net positive cash flow from operations
sufficient to fund both operations and capital expenditures until the launch of
its first commercial spacecraft or launch vehicle. There is no assurance that
the Company will achieve or sustain any positive cash flow or profitability
thereafter.
On December 31, 1999 the Company's audited financials show current assets
were $473,776. The outstanding receivables were $363,915 other assets totaled
$6,974 and the balances in the cash accounts totaled $102,887. On December 31,
1999 the Company's audited financials show the accounts payable totaled $377,213
of which $40,147 was over 120 days, $18,592 at 90 days, $9,727 at 60 days,
$13,825 at 30 days and $294,922 was current.
On January 31, 2000 the Company's current assets were $495,578. The
outstanding receivables were $341,326 and the balances in the cash accounts
totaled $154,252. On January 31, 2000 the Company's accounts payable totaled
$158,517 of which $14,679 was over 120 days, $0 at 90 days, $0 at 60 days,
$34,854 at 30 days and $108,984 was current.
During the years ended December 31, 1998 and 1999, the Company raised
$997,412 (including proceeds from the 504 Colorado offering described below)
through private sales of stock. To execute the company's total strategy of
small, capable, low-cost satellites and launch systems, the company requires
significant funding. The current estimate is over $20 million which could come
from a combination of private or public equity placements, commercial project
financing and government program funding. At this time, the company does not
have a commitment from any placement agent or underwriter to implement any
additional public offering or from any government agency to obtain significant
additional program funding for its products.
On June 23, 1999, the Company filed for a registration statement for units
of common stock and re-pricing warrants with the Colorado Division of Securities
on Form U-7 for the purpose of raising $350,000 under Rule 504 of the Securities
Act of 1933. That registration statement was made effective on August 26, 1999.
The registration statement provided for a per unit price of $1.50 per share. Due
to fluctuations in the market price of the Company's common stock, the Company
was forced to negotiate a per unit price based on the five-day trading average,
less thirty percent. The entire offering of $350,000 was sold to a single
investor in Colorado. Following that sale, the Company determined to raise the
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<PAGE>
aggregate offering price in order to allow it to obtain funding during
preparation of this registration statement. The registration statement was
amended for a total aggregate offering price of $700,000, with a per unit price
based on the negotiated amount paid by the initial investor. Following
effectiveness of the post-effective amendment on October 13, 1999, the Company
sold an additional $10,000 in units under the offering.
The repricing warrants provide that, if the trading price drops below the
issuance price of the units within the 150-day period, the holder will have the
right to include his or her shares in any future registration of the Company's
common stock. Once that registration has been made effective, the warrant holder
may exercise the warrant at any time during the 120-days immediately following
the date of effectiveness for that registration. The warrants entitle the
holders to acquire additional common stock based on the following formula, but
in no event shall the market price be less than $1.25 per share:
[PURCHASE PRICE - MARKET PRICE] X NUMBER OF SHARES PURCHASED
-------------------------------
MARKET PRICE
On November 1, 1999, the Company signed an agreement with the Regents of
the University of California Berkely for the CHIPSat project discussed above.
During the term of the agreement, the Company will receive fixed compensation
for the above-referenced services in a total amount of $4,995,868, of which
about $2.0 million is expected to be generated in 2000. The fixed price will be
paid in increments over the term of the contract.
The Company's ability to consummate any additional public offering or
otherwise obtain funds is subject to numerous factors beyond the Company's
control, including, without limitation, a receptive securities market and
appropriate governmental clearances. No assurances can be given that the Company
will be profitable, or that any additional public offering will occur, that the
Company will be successful in obtaining additional funds from any source or that
the Company will be successful in implementing an acceptable exit strategy on
behalf of its investors. Moreover, additional funds, if obtainable at all, may
not be available on terms acceptable to the Company when the Company needs such
funds or may be on terms which are significantly adverse to the Company's
current shareholders. The unavailability of funds when needed would have a
material adverse effect on the Company.
The Company may also need to raise additional capital if, for example,
(i) significant delays occur in deploying its first deep-space mission due to
technical difficulties, launch, or satellite failure, or other reasons; (ii) the
Company does not enter into agreements with customers on the terms the Company
anticipates; (iii) the Company's net operating deficit increases because it
incurs significant unanticipated expenses; or (iv) the Company incurs additional
costs from modifying all or part of NEAP or its proposed hybrid-related systems
to meet changed or unanticipated market, regulatory, or technical requirements.
If these or other events occur, there is no assurance that the Company could
raise additional capital on favorable terms, on a timely basis or at all. A
substantial shortfall in funding would delay or prevent deployment of NEAP
and/or the hybrid-related systems.
RECENT DEVELOPMENTS
In November 1999 SpaceDev hired Charles Lloyd, a leader in the commercial
launch systems field, to be CEO of ISS and CFO for SpaceDev. Mr. Lloyd brings to
the Company extensive experience in corporate finance and strategic planning as
well as direct, recent experience with the development and implementation of a
global marketing and sales organization for commercial launch systems.
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<PAGE>
In December 1999 the Company completed negotiations with SIL to rescind the
1998 Share Acquisition Agreement between the parties and to arrange a more
mutually beneficial trading relationship between SIL and the Company. As stated
earlier, recent regulations of the Department of State restrict exports and
imports of technology, including space products and engineering. The Company
originally intended to use SIL's expertise in designing and manufacturing space
radios. However, the new restrictions impeded the Company's ability to
communicate its technical product enhancement requirements to SIL, eliminating
an important reason for acquiring that company. For these reasons, management of
the Company felt that doing business with SIL as a subsidiary created a
liability under the new regulations, and rescission of the acquisition agreement
has minimized the impact of the restrictions on the Company. The divestiture of
SIL allows us to be more flexible in our decisions regarding competition and
selection for space system products and services, including communications
equipment and electronics. The flexibility allows us to make better business
decisions based on capabilities and price versus buying from SIL simply because
it is part of SpaceDev. Management believed rescission of the agreement would
allow the Company more flexibility in its relationship with SIL. Although the
long-term financial effects of the rescission on the Company are unclear,
management anticipates that, initially, the rescission will have a positive net
effect on the Company's balance sheet.
In February 2000, the Company received approval from a financial
institution to refinance the $1.3 million first mortgage on the company's office
building. This refinancing changes the first mortgage from a one-year term loan
to a 25-year term loan and reduces the interest expense from 13% to 10%.
In March 2000 SpaceDev hired Stanley W. Dubyn, a leader in the small
satellite field, to be President and Chief Operating Officer of SpaceDev. Mr.
Dubyn brings to the Company extensive experience in satellite design and
manufacturing as well as government and commercial marketing, strategic planning
and executive management.
Pursuant to the continuing implementation of the OTC Bulletin Board(R)
Eligibility Rule implementation, the Company received notice on or about March
10, 2000 that the fifth character "E," which denotes delinquency in SEC
reporting requirements, was being added to its trading symbol pending SEC
clearance of this Registration Statement. The NASD has indicated that the symbol
will be removed when it has received notice from the SEC to the effect that the
Commission has no further comments with respect to the Registration Statement.
In the event that this Registration Statement is not cleared by the SEC by April
5, 2000, the Company's symbol will be delisted from the OTCBB. The Company has
been advised by the NASD that it may continue trading on the pink sheets in the
event it is delisted, and one or more of its market makers applies for an
exemption for Rule 211 on the Company's behalf. Additionally, the Company has
been informed by the NASD that, in the event of delisting, it will be able to
relist its common stock upon clearance of this Registration Statement and filing
of Form 211 with the NASD by one or more of the Company's market makers.
YEAR 2000 COMPLIANCE
Many existing computer systems and applications, and other control devices
use only two digits to identify a year in the date field, without considering
the impact of the recent change in the century. Others do not correctly process
"leap year" dates. The Company has not experienced any technical difficulties as
a result of this problem, however, systems and applications could fail or create
erroneous results during the next six months. While the Company has evaluated
its products for year 2000 compliance and believes that each is substantially
year 2000 compliant, there can be no assurance that the Company's products are
or will ultimately be year 2000 compliant. In addition, the Company believes
that it is not possible to determine whether all of its customers' products into
which the Company's products are incorporated are year 2000 compliant because
the Company has little or no control over the design production and testing of
its customers' products.
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The Company relies on its systems, applications and devices in operating
and monitoring all major aspects of its business, including financial systems
(such as general ledger, accounts payable and payroll modules), customer
services, infrastructure, embedded computer chips, networks and
telecommunications equipment and end products. The Company could be affected
through disruptions in the operation of the enterprises with which the Company
interacts or from general widespread problems or an economic crisis resulting
from non-compliant year 2000 systems. Despite the Company's efforts to address
the year 2000 impact on its internal systems and business operations, there can
be no assurance that such impact will not result in a material disruption of its
business or have a material adverse effect on the Company's business, financial
condition or results of operations. Contingency plans include alternative
vendors and procedures. Remediation costs associated with the Year 2000 have
been minimal for the Company. SpaceDev believes such costs will continue to be
nominal through the next six months.
ITEM 3. DESCRIPTION OF PROPERTY
SpaceDev owns over 25,000 square feet of office, engineering and
manufacturing space in Poway, CA. In December 1998 the Company purchased its
headquarters facility in the Poway Industrial Park complex and proceeded to
invest $300,000 in modifications and improvements before moving in mid-May
(SpaceDev corporate and ISS). Key uses of the Poway facility are program and
project conferences and meetings, engineering design, engineering analysis,
spacecraft assembly, avionics labs and software labs and media outreach. By late
1999 the Company had defined plans for outfitting the building with a 1,800
square foot clean-room facility to support spacecraft integration and additional
space for testing, an avionics test area, machine shop and shipping/receiving
area. Completion of these improvements is expected in 2000.
We have not yet started the build-out of the clean room facility. The
build-out will consist of the addition of upgraded air-handling equipment, new
doors and new floor coverings. The space for the cleanroom is already a part of
the existing structure that SpaceDev owns. The facility is required to be in
place by January 2001. The total cost of the facility is estimated to be less
than $80,000.
The Company also has plans for a Mission Control Center in the Poway
building and expects this to be completed in 2001 prior to the CHIPSat launch in
2002. Avionics systems may be built up from components and undergo system-level
tests at this location prior to shipment to other facilities. Because these
improvements depend on the Company obtaining adequate funding, there can be no
assurance that they will be completed as scheduled.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as December 31, 1999 concerning
the beneficial ownership of the Company's common stock by (i) each director,
(ii) each named executive officer, (iii) each shareholder known by the Company
to be the beneficial owner of more than 10% of its outstanding Common Stock, and
(iv) the directors and officers as a group. Except as otherwise indicated, the
persons named in the table have sole voting and investing power with respect to
all shares of Common Stock owned by them.
<TABLE>
<CAPTION>
- ------------------------------ ----------------------------------- ---------------------------- --------------------
Name and Address of Beneficial Amount and Nature of Percent of Class(4)
Title of Class Owner(2) Beneficial Ownership
- ------------------------------ ----------------------------------- ---------------------------- --------------------
<S> <C> <C> <C>
$.0001 par value common stock James W. Benson, CEO and 9,628,413(2)(3) 66%(1)
President and
Susan Benson, Secretary
13855 Stowe Drive
Poway, California 92064
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
$.0001 par value common stock Philip E. Smith 333,335 2.2%
Chief Operating Officer
13855 Stowe Drive
Poway, California 92064
$.0001 par value common stock Jan A. King, Vice President 5,000 <0.1%
13855 Stowe Drive
Poway, California 92064
$.0001 par value common stock Wesley T. Huntress Jr., Director 4,444 <0.1%
13855 Stowe Drive
Poway, California 92064
$.0001 par value common stock Officers and Directors as a group 9,637,857 70%(1)
</TABLE>
(1) Where persons listed on this table have the right to obtain additional
shares of Common Stock through the exercise of outstanding options or warrants
or the conversion of convertible securities within 60 days from December 31,
1999, these additional shares are deemed to be outstanding for the purpose of
computing the percentage of Common Stock owned by such persons, but are not
deemed outstanding for the purpose of computing the percentage owned by any
other person. Percentages are based on 13,840,145 shares outstanding on January
31, 2000.
(2) Does not include options to purchase 500,000 shares of common stock
currently exercisable.
(3) Represents 236,000 shares held directly by James W. Benson; 8,895,000 shares
held by SD Holdings, LLC, an entity controlled by James W. Benson; and 497,413
shares recently transferred from SD Holdings, LLC to Space Development
Institute, a 501(c)(3) corporation.
(4) The table does not reflect options to purchase 250,000 shares issued to
Charles H. Lloyd during fiscal year 1999.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The management and directors of the Company's business activities are under
the control of its Board of Directors. Its Chief Operating Officer, Stanley W.
Dubyn, manages the Company's daily operations. The Company currently has four
directors. Below are the executive officers and directors of the Company.
NAME POSITION HELD
- ---- -------------
James W. Benson Chief Executive Officer,
13855 Stowe Drive Director, Chairman of the Board
Poway, California 92064
Stanley W. Dubyn*** Director, President and Chief Operating
13855 Stowe Drive Officer
Poway, California 92064
Charles H. Lloyd** Director, Chief Financial Officer
13855 Stowe Drive
Poway, California 92064
Susan Benson Secretary
13855 Stowe Drive
Poway, California 92064
Jan King Vice-President, Space Engineering
13855 Stowe Drive
Poway, California 92064
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Wesley T. Huntress* Director
13855 Stowe Drive
Poway, California 92064
* Denotes Independent Director
** Thomas W. Brown resigned as the Company's Chief Financial Officer on
November 3, 1999. Mr. Lloyd has been appointed Chief Financial Officer
of SpaceDev.
*** Philip E. Smith resigned as a Director of the Company in November
1999. The Board of Directors has appointed Charles H. Lloyd and
Stanley W. Dubyn to act as interim directors until the next annual
shareholders' meeting.
The following is a summary of the business experience of the officers and
directors of the Company as well as other key employees.
JAMES W. BENSON, age 54, is the founder, Chairman and Chief Executive
Officer of the Company. Mr. Benson served as SpaceDev President until he
resigned from that position on February 4, 2000. Mr. Benson is also a Director
of the Company, a position he has held since October 1997. In 1984, Mr. Benson
founded Compusearch Corporation (later renamed Compusearch Software Systems), in
McLean, Virginia. The company was based on use of personal computers to create
full text indexes of massive government procurement regulations and to provide
fast full text searches for any word or phrase; the first instance of large
scale, commercial implementation of PC-based full text searching, which later
grew to encompass such systems as worldwide web search engines. Seeing related
opportunities in document and image management, Mr. Benson started the
award-winning ImageFast Software Systems in 1989, which later merged with
Compusearch. ImageFast was awarded PC Magazine's Editor's Choice in 1994. In
1995, Mr. Benson sold Compusearch and ImageFast, and retired at age fifty. After
months of research, Mr. Benson started SpaceDev LLC, which was acquired by the
Company in October 1997. Mr. Benson holds a Bachelor of Science degree in
Geology from the University of Missouri. He founded the non-profit Space
Development Institute and introduced the $5,000 Benson Prize for Amateur
Discovery of Near Earth Objects. He is also Vice-Chairman and private sector
representative on NASA's national Space Grant Review Panel and a member of the
American Society of Civil Engineers subcommittee on Near Earth Object Impact
Prevention and Mitigation.
STANLEY W. DUBYN, age 43, has been appointed as an interim director of the
Company, a position he has held since February 4, 2000, and has been appointed
as President and Chief Operating Officer for the Company. Mr. Dubyn was formerly
Senior Vice-President and Chief Operating Officer for Spectrum Astro, Inc. in
Manhattan Beach, California, a position he held since October 1990 and which he
resigned prior to becoming an officer of the Registrant. In that capacity, Mr.
Dubyn was responsible for overall cost, schedule and technical management and
oversight of company business activities with NASA, USAF, BMDO DARPA, classified
and government customers, and managed over $75 million in prime contract revenue
associated with spacecraft design, development, manufacturing, integration,
test, launch and on-orbit operation. He was directly responsible for proposal
management and winning a $1.5 billion NASA Goddard Space Flight Center contract.
Mr. Dubyn has managed subcontracts and suppliers totaling over $34 million, many
29
<PAGE>
with new development technologies on compressed delivery schedules, and has
functioned as director of new business and marketing for all classified, defense
and NASA programs for Spectrum Astro. Concurrently with his employment for
Spectrum Astro, Mr. Dubyn has acted as program manager on the following
projects: New Millennium Deep Space One (October 1995-February 1997), Mars-98
Orbiter & Lander (February 1995 - October 1995), MSTI-3 (May 1994 - February
1995), MSTI-2 (November 1992 - May 1994), MSTI -1, where he also acted as Chief
Systems Engineer (November 1991 - November 1992) and DSP Evolution Study
(October 1991 - November 1992). Prior to going to work with Spectrum Astro, Mr.
Dubyn worked for TRW Space & Technology Group from June 1982 to October 1990,
where he worked on a variety of classified projects in a myriad of capacities,
including Program Manager and Director of STS Training for the Defense Projects
Division. From May 1978 to June 1982, Mr. Dubyn worked for Hughes Aircraft
Company, Space & Communications Group in El Segundo, California as a Mission and
Systems Analyst, STS Integration Engineer and Preliminary Design Engineer, and,
from July 1977 to September 1997, Mr. Dubyn worked for Rockwell International,
B-1 Division s a Stuctural Analyst. Mr. Dubyn received his Master of Science
Degree, Aerospace Engineering in 1981, and a Bachelor of Science Degree in
Aerospace Engineering in 1978 from the University of Southern California. He has
been honored throughout his career with awards for recognition and achievement,
including the Hughes Aircraft Co. Masters Fellowship Award in 1980 and American
Institute of Aeronautics and Astronautics Judging Awards in 1986, 1987 and 1988.
In 1990, Mr. Dubyn received the TRW Chairman's Award for Innovation.
CHARLES H. LLOYD, age 49, has been retained as the Company's Chief
Financial Officer following resignation of that position by Thomas W. Brown on
November 3, 1999. Mr. Lloyd has also been named the CEO of the Company's ISS
subsidiary. Mr. Lloyd was formerly the CEO and President of International Launch
Services (ILS), a joint venture of Lockheed Martin Corporation, Khrunichev State
Research and Production Space Center and RSC Energia. Mr. Lloyd was employed by
ILS and its predecessor joint venture LKE from 1993 to 1998. During his tenure
at ILS, he was responsible for the development, expansion, and ongoing operation
of the joint venture. Lloyd aggressively marketed product lines globally, not
only by overcoming cultural barriers, but also by structuring the organization
to support multiple product and management requirements. He is credited with
developing strategic international relationships between the United States and
Russia, and with setting the industry standard for strict controls in the
transfer of technology. Lloyd and his team at ILS generated over a billion
dollars in new contracts and developed competitive markets in Asia, Europe, and
North America, all of which have provided increased revenues. Mr. Lloyd has
close to 20 years of senior management experience in high technology,
international service and manufacturing environments, with most of that time in
positions focused on operations management, marketing and finance and
administration. Prior to his employment with Lockheed and ILS, Mr. Lloyd held
several management positions at General Dynamics (GD). He was Vice President and
Managing Director, and responsible for the management and operations of General
Dynamics Commercial Launch Services. Prior to that, he was Vice President of
Finance and Controller of GD Space Systems, and Vice President of Finance and
Administration of GD Services Company. Mr. Lloyd began his career as a Senior
Financial Planning Analyst at Ford Motor Company in 1975. Mr. Lloyd holds a
Masters of Business Administration from the University of Michigan and earned
his Bachelor of Arts Degree in Finance from Virginia Polytechnic Institute and
State University.
SUSAN BENSON, age 54, has served as the Company's Secretary since its
inception. She is the wife of James W. Benson. Ms. Benson was the Customer
Support Manager for Compusearch Software Systems in McLean, Virginia from 1986
through 1995.
JAN KING, age 52, has served as Vice-President of the Company since August
1998. With more than 30 years experience in the field, Mr. King has a
distinguished record within the small satellite and launch vehicle communities.
During this time he has been associated with the design and development of 17
small spacecraft and 9 larger spacecraft, as well as one launch vehicle. He has
also provided technical advice and consulting support to other corporations and
30
<PAGE>
organizations regarding small satellite system technology. Some of his previous
positions include: Schriever Chair Professor (endowed chair), Dept. of
Astronautics, United States Air Force Academy (1997 - 1998); Vice President,
Technology, Qualcomm, Inc., Boulder, Colorado (1995 - 1997); Vice President of
Boulder Operations, Orbital Sciences Corporation (1989 - 1995); Vice President
for Space Technology, Member BOD and Founder, Skylink Corporation; Aerospace
Technologist, NASA/GSFC; Vice President for Engineering, Member of the BOD,
Co-founder of the Radio Amateur Satellite Corp., Washington, D.C. Mr. King
received a Bachelor of Science degree in Physics from Oakland University in 1968
and a Master of Science degree in Electrical Engineering from Catholic
University of America in 1973.
WESLEY T. HUNTRESS, age 57, was elected to the Company's Board of
Directors as an Independent Director at the Company's annual shareholder meeting
held June 30, 1999. Dr. Huntress is currently Director of the Geophysical
Laboratory at the Carnegie Institution of Washington in Washington, DC, where he
leads an interdisciplinary group of scientists in the fields of high-pressure
science, astrobiology, petrology and biogeochemistry. Prior to his appointment
at Carnegie, Dr. Huntress served the Nation's space program as the Associate
Administrator for Space Science at NASA from October 1993 through September 1998
where he was responsible for NASA's programs in astrophysics, planetary
exploration, and space physics. During his tenure, NASA space science produced
numerous major discoveries, and greatly increased the launch rate of missions.
These discoveries include the discovery of possible ancient microbial life in a
Mars meteorite; a possible subsurface ocean on Jupiter's moon Europa; the
finding that gamma ray bursts originate at vast distances from the Milky Way and
are extraordinarily powerful; discovery of massive rivers of plasma inside the
Sun; and a wealth of announcements and images from the Hubble Space Telescope,
which have revolutionized astronomy as well as increased public interest in the
cosmos. Dr. Huntress also served as a Director of NASA's Solar System
Exploration Division from 1990 to 1993, and as special assistant to NASA's
Director of the Earth Science and Applications from 1988 to 1990. Dr. Huntress
came to NASA Headquarters from Caltech's Jet Propulsion Laboratory (JPL). Dr.
Huntress joined JPL as a National Research Council resident associate after
receiving is B.S. in Chemistry from Brown University in 1964 and his Ph.D. in
Chemical Physics from Stanford in 1968. He became a permanent research scientist
at JPL in 1969. He and his JPL team gained an international reputation for their
pioneering studies of chemical evolution in interstellar clouds, comets and
planetary atmospheres. At JPL Dr. Huntress served as co-investigator for the ion
mass spectrometer experiment in the Giotto Halley's Comet mission, and as an
interdisciplinary scientist for the Upper Atmosphere Research Satellite and
Cassini missions. He also assumed a number of line and research program
management assignments while at JPL, and spent a year as a visiting professor in
the Department of Planetary Science and Geophysics at Caltech.
ITEM 6. EXECUTIVE COMPENSATION
REMUNERATION PAID TO EXECUTIVES
The following table sets forth the remuneration to the Company's executive
officers for the past three fiscal years:
31
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
---------------------------------------
Long Term Compensation
------------------------------------- -------------------------- ------------
Annual Compensation Awards Payouts
------------------------------------- -------------------------- ------------
Securities
Other Restricted Under- All Other
Name and Annual Stock lying LTIP Compen-
Principal Compensation Award(s) Options/ Payouts sation
Position Year(3) Salary ($) Bonus ($) ($) ($) SARs (#) ($) ($)
- --------------- --------- ------------ ------------ ----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James W. 1997 - - - - 2,500,000 - -
Benson, 1998 0 - - - 100,000 - -
CEO(4) 1999 0 - - - - - -
Charles H. 1997 - - - - - - -
Lloyd, 1998 - - - - - - -
CFO(1) 1999 8,077 - - - 450,000 - -
Philip E. 1997 - - - - - - -
Smith 1998 61,060 - - - 100,000 - -
COO(6) 1999 43,388 - - - - - -
Thomas 1997 - - - - - - -
Brown, 1998 59,246 - - - 100,000 - -
CFO(1)(5) 1999 68,454 - - - - - -
Susan 1997 - - - - - - -
Benson, 1998 0 - - - - - -
Secretary 1999 0 - - - - - -
Jan King, 1997 - - - - - - -
V.P.(7) 1998 43,154 - - 10,000 - - 5,500(2)
1999 134,133 - - - - - -
</TABLE>
(1) Thomas W. Brown resigned as the Company's Chief Financial Officer on
November 3, 1999. Charles H. Lloyd was appointed Chief Executive Officer
upon Mr. Brown's resignation.
(2) Represents a relocation allowance paid upon execution of Mr. King's
employment agreement.
(3) Figures for 1999 represent actual compensation and represent true year-end
compensation.
(4) James W. Benson purchased 100,000 shares for $.50 per share in October
1998.
(5) Certain of the employees listed above have earned compensation in excess of
the actual amount paid during fiscal year ended 1999, pursuant to the terms
of their various employment agreements, as discussed below. In 1999, Thomas
Brown was paid $68,454. This amount is less than the amount due to him
under the provisions of his employment agreement. In order to compensate
Mr. Brown for the deficiency, the Company has entered into an Amendment to
his employment agreement whereby the amount of compensation due has been
revised to reflect the actual amount paid, and the Company agrees to issue
10,000 shares of its common stock to Mr. Brown on January 31, 2001.
(6) On February 5, 2000, the Company negotiated a Separation and Release
Agreement with Philip E. Smith, then Chief Operating Officer of ISS.
Pursuant to the Separation and Release Agreement, the Company has agreed to
pay off a promissory note previously issued to Mr. Smith in six monthly
installments, for a total of $70,000, and to pay Mr. Smith his base salary
of $90,000 for the period from January 29, 1999 to February 11, 2000. Mr.
Smith has agreed to make himself available for meetings, introductions,
review sessions, strategy meetings and to otherwise assist the Company and
ISS for a period of six months. All other claims of Mr. Smith have been
released, including claims to back-salary and authorized but unissued stock
options under the Company's 1999 Employee Stock Option Plan. On March 4,
2000, Stanley W. Dubyn became President and Chief Operating Officer of the
Company.
(7) Pursuant to his employment agreement with the Company, Mr. King may receive
an additional 50,000 plus shares of common stock in the Company upon
reaching certain milestones as follows: 5,000 shares per year following his
first year of employment; 10,000 shares upon successful completion of the
Company's first lunar or deep-space spacecraft; 15,000 shares upon
successful launch of the Company's first lunar or deep-space spacecraft;
and 25,000 shares for successful completion of the Company's first lunar or
deep-space mission.
During the last fiscal year and as of December 31, 1999, the Company
granted stock options to executive officers as set forth in the following table:
32
<PAGE>
<TABLE>
OPTION/SAR GRANTS ENDED DECEMBER 31, 1999
<CAPTION>
Individual Grants
- ----------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise of Base
Name Granted (#) Fiscal Year Price ($/Sh) Expiration Date
- ---- ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
James W. Benson - - - -
Charles H. Lloyd 450,000 100% $1.34 11/01/09
Philip E. Smith - - - -
Thomas W. Brown - - - -
Susan Benson - - - -
Jan King - - - -
</TABLE>
The following table is intended to provide information as to the number of
stock options exercised by each of the executive officers listed above, the
value realized upon exercise of such options, and the number and value of any
unexercised options still held by such individuals.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable Unexercisable
- -------------------------- ------------------ --------------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
James W. Benson(1) 0 0 500,000/ $500,000/
2,000,000 0
Charles H. Lloyd 0 0 0/450,000 0/0
Philip E. Smith 0 0 0/100,000 0/0
Thomas W. Brown 0 0 0/100,000 0/0
Susan Benson 0 0 0 0
Jan King 0 0 0 0
</TABLE>
(1) Mr. Benson owns options to purchase 2,500,000 shares of the Company's
Common Stock as follows:
500,000 Shares at $1.00 currently vested
500,000 Shares at $1.50 vesting upon the Company obtaining $6,500,000
additional equity capital
500,000 Shares at $2.00 vesting upon the financing and execution of
definitive space launch agreement
500,000 Shares at $2.50 vesting upon launch of first lunar or
deep-space mission
500,000 Shares at $3.00 vesting upon successful completion of first
lunar or deep-space mission
33
<PAGE>
(2) Under the terms of Mr. Lloyd's employment agreement with ISS, SpaceDev, as
the parent corporation, agreed to grant Mr. Lloyd stock options to purchase
250,000 shares of the Company's common stock pursuant to the Company's Stock
Option Plan upon execution of the employment agreement. These options begin
vesting three (3) months after the date of grant. On February 1, 2000, the
Company issued options to purchase an additional 250,000 shares of common stock
to Mr. Lloyd at a per share price of $1.44 (the then fair market value) pursuant
to the agreement. Mr. Lloyd will receive an additional options to purchase
500,000 stock options shares at a rate of 250,000 per quarter during the
remainder of his first year of employment with ISS. Additionally, the Company
agreed to issue Mr. Lloyd non-qualified stock options to purchase up to 200,000
common shares, which will vest upon ISS raising and acquiring a minimum equity
financing of $3,000,000 within the first nine (9) months of his employment.
These options will be issued on a sliding scale based on a maximum equity
financing of $10,000,000, with options to purchase 20,000 common shares for each
$1,000,000 of equity financing obtained. All options will be exercisable at the
fair market value of the common stock on the date the option was granted.
(3) Pursuant to employment agreements with Philip E. Smith and Thomas W. Brown,
the Company has issued performance-based options to purchase 100,000 shares of
common stock to each of those individuals. The option held by Philip E. Smith
was canceled pursuant to his Release and Separation Agreement with the Company.
The options issued to Mr. Brown are not currently vested. The options will have
exercise prices ranging from $1.50 per share to $3.50 per share.
REMUNERATION PAID TO DIRECTORS
The following table sets forth the remuneration paid to the Company's
directors during its fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
- ----------------------- ------------------------------------------------------ -------------------------------------
Cash Compensation Security Grants
----------------- ----------------- ------------------ ------------------ ------------------
Number of
Securities
Annual Retainer Consulting Number of Shares Underlying
Name Fees Meeting Fees Fees/Other Fees Options/SARs
- ----------------------- ----------------- ----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
James W. Benson - - - - -
- ----------------------- ----------------- ----------------- ------------------ ------------------ ------------------
Charles H. Lloyd(1) - - - - -
- ----------------------- ----------------- ----------------- ------------------ ------------------ ------------------
Wesley T. Huntress(2) - - - 4,444 -
- ----------------------- ----------------- ----------------- ------------------ ------------------ ------------------
Thomas W. Brown(3) - - - - -
- ----------------------- ----------------- ----------------- ------------------ ------------------ ------------------
Susan Benson (3) - - - - -
- ----------------------- ----------------- ----------------- ------------------ ------------------ ------------------
Philip E. Smith(1) - - - - -
- ----------------------- ----------------- ----------------- ------------------ ------------------ ------------------
</TABLE>
(1) Philip E. Smith resigned as a director of the Company in November 1999. The
Board has elected Charles H. Lloyd and Stanley W. Dubyn to serve as interim
directors until the next annual shareholders' meeting.
(2) Wesley T. Huntress Jr. was elected to the Board at the 1999 Annual
Shareholders' Meeting. Pursuant to an agreement with the Company, Mr.
Huntress will receive a total of $10,000 in the Company's common stock as
compensation for his services as a director in two separate issuances
during the first two years of his directorship. The table reflects the
first issuance of 4,444 shares pursuant to that agreement. Mr. Huntress has
recently received the second issuance of 4,424 shares. Additionally, Mr.
Huntress will receive options to purchase a total of $10,000 shares. Mr.
Huntress was recently issued an option to purchase 4,425 shares at a per
share price of $1.13, the fair market value on January 1, 2000, when the
options were due to be issued pursuant to the agreement.
(3) Thomas B. Brown and Susan Benson resigned their positions on the Board by
not running for re-election at the 1999 Annual Shareholders' Meeting.
34
<PAGE>
EMPLOYMENT AGREEMENTS
On November 21, 1997, the Company entered into a five-year employment
agreement with its President, James W. Benson. This agreement provides for
compensation of salary and stock as well as stock options. This agreement also
prohibits Mr. Benson from competing with the Company, disclosing any
confidential information, or soliciting any employees or customers of the
Company for one year after termination of employment.
On February 7, 1998, the Company, through ISS, entered into three-year
employment agreements with its (then) Chief Operating Officer, Philip E. Smith,
its Manager of Business Development, Jack A. Rubidoux, and its (then) Chief
Financial Officer, Thomas W. Brown. These agreements provide for compensation of
salary and stock to the employees. The agreements also prohibit the employees
from competing with the Company, disclosing any confidential information, or
soliciting any employees or customers of the Company for three years after
termination of employment.
On February 5, 2000, the Company negotiated Separation and Release
Agreements with Philip E. Smith, then Chief Operating Officer of ISS, and Jack
Rubidoux, an employee of ISS, with whom ISS had employment agreements binding
these individuals to ISS and the Company. Pursuant to the Separation and Release
Agreement with Jack Rubidoux, the Company has agreed to pay his base salary for
the period from January 29, 1999 to February 11, 2000, a total of $70,000. Mr.
Rubidoux has agreed to be available to the Company for a period of six months
from the date of the agreement. Pursuant to the Separation and Release Agreement
with Philip E. Smith, the Company has agreed to pay off a promissory note
previously issued to Mr. Smith in six monthly installments, for a total of
$70,000, and to pay Mr. Smith his base salary of $90,000 for the period from
January 29, 1999 to February 11, 2000. Mr. Smith has agreed to make himself
available for meetings, introductions, review sessions, strategy meetings and to
otherwise assist the Company and ISS for a period of six months. All other
claims of Mr. Smith and Mr. Rubidoux have been released, including claims to
back-salary and authorized but unissued stock options under the Company's 1999
Employee Stock Option Plan.
On August 3, 1998, the Company entered into a one-year employment agreement
with its Vice President of Space Engineering, Jan King. This contract will
automatically renew for one-year periods unless either party gives the other
written notice and provides for compensation of salary and stock to the
employee. Mr. King agreed to assign his interest in all inventions and
intellectual property developed by him in conjunction with his employment to the
Company. The agreement also prohibits Mr. King from competing with the Company,
disclosing any confidential information, or soliciting any employees or
customers of the Company for one year after termination of employment.
On November 1, 1999, the Company, through ISS, entered into an employment
agreement with its Chief Financial Officer, Charles H. Lloyd. The agreement
automatically renews for one-year periods until terminated by written notice of
either Mr. Lloyd or the Company. This agreement provides for compensation of
salary and options to the employee. The agreement also prohibits the employee
from competing with the Company for one year after termination of employment.
On February 4, 2000, the Company entered into an employment agreement with
its President and Chief Operating Officer, Stanley W. Dubyn. The agreement
automatically renews for one-year periods until terminated by written notice of
either Mr. Dubyn or the Company. This agreement provides for compensation of
salary and options to the employee. The agreement also prohibits the employee
from competing with the Company for one year after termination of employment.
Pursuant to that agreement, Mr. Dubyn will receive 50,000 shares and options to
purchase an additional 50,000 shares of the Company's common stock upon
successful completion of his first year of employment.
35
<PAGE>
EMPLOYEE BENEFITS
The Company has adopted, at its 1999 Annual Stockholder Meeting, an
Incentive Employee Stock Option Plan under which its Board of Directors may
grant employees, directors and affiliates of the Company opportunities to
purchase Incentive Stock Options, Supplemental Stock Options and to receive
stock bonuses or rights to purchase restricted stock of the Company. Incentive
Stock Options will only be available to employees, including officers, and
affiliates of the Company; they will not be available to non-employee directors.
The exercise price of the Incentive Stock Options shall not be less than 100% of
the fair market value of the stock subject to the option on the date the option
is granted. The exercise price for the Supplemental Stock Options will not be
less than 85% of the fair market value of the stock subject to the option on the
date the option is granted. The Company will be required to reserve an amount of
common shares equal to the number of shares which may be purchased as a result
of such stock awards.
The Company also offers a variety of health, dental, vision and life
insurance benefits to its employees. The Company also offers a 401(k) program to
its employees.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
James W. Benson, the Company's Chief Executive Officer and Chairman of the
Board of Directors, and Susan Benson, the Company's Secretary, are husband and
wife.
James W. Benson has personally guaranteed the letters of credit of the
Company's subsidiary, Integrated Space Systems in the amount of $250,000. Mr.
Benson also personally guaranteed two loans for the purchase of the Company's
new headquarters; the loans are in the amount of $1,800,000.
There is a note payable to James and Susan Benson in the amount of $655,992
as of the end of 1999. This note represents a combination of a number of smaller
notes that were executed over the last several years. The funds from these loans
were used for general Corporate purposes and carry an interest rate of 10%. At
the present time the notes are being paid off at the rate of $6,000 per month.
Additionally, the Company has recorded a note payable of $62,010 to Philip
E. Smith in 1998. The note was released pursuant to the Separation and Release
Agreement signed by Mr. Smith on February 5, 2000. Pursuant to the terms of the
release, the Company has given a new note to Mr. Smith in the total amount of
$70,000, including principal and interest. See "Employment Agreements" above.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 50,000,000 shares of its $.0001
par value common stock, of which 13,840,145 shares issued and outstanding as of
January 31, 2000. The Board of Directors may issue additional shares of Common
Stock without the consent of the holders of Common Stock.
VOTING RIGHTS
Each outstanding share of Common Stock is entitled to one vote. The
holders of Common Stock do not have cumulative voting rights, which means that
the holders of more than 50% of such outstanding shares voting for the election
of directors can elect all of the directors of the Company to be elected, if
they so choose.
NO PREEMPTIVE RIGHTS
Holders of Common Stock are not entitled to any preemptive rights.
36
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Holders of Common Stock are entitled to receive such dividends as may be
declared by the directors out of funds legally available therefore and to share
pro rata in any distributions to holders of Common Stock upon liquidation or
otherwise. However, the Company has not paid cash dividends on its Common Stock,
and does not expect to pay such dividends in the foreseeable future.
PREFERRED STOCK
The Articles of Incorporation authorize the Board of Directors to issue, by
resolution, 10,000,000 shares of preferred stock, in classes or series, having
such designations, powers, preferences, rights, and limitations as the Board of
Directors may from time to time determine. The conversion ratio is subject to
certain anti-dilution adjustments, and the holder of each share of preferred
stock is entitled to one vote for each share of common stock into which it would
convert. In 1997, 82,450 shares of Series B Convertible Preferred Stock were
issued at $3.64 per share and each was convertible at the option of the holder
into 100 shares of common stock. As of the date of this filing, all of the
Series B Convertible Preferred Stock has been converted, and there are no
preferred shares outstanding.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock has been traded on the Over the Counter
Bulletin Board since August 1998 under the symbol "SPDV." The following table
sets forth the trading history of the Common Stock on the Over the Counter
Bulletin Board for each quarter as reported by Tradeline. The quotations reflect
inter-dealer prices, without retail mark-up, markdown or commission and may not
represent actual transactions.
END DATE HIGH LOW CLOSE
- -------- ---- --- -----
03/31/99 2 1/2 1 7/8 2 1/4
06/30/99 2 3/8 1 1/2 2 1/4
09/30/99 2 3/8 1 1/8 1 3/8
12/31/99 1 7/8 7/8 1 1/8
HOLDERS
As of January 31, 2000, there were approximately 145 holders of record of
the Company's common stock.
37
<PAGE>
DIVIDENDS
The Company has never paid a cash dividend on its Common Stock. Payment of
dividends is at the discretion of the Board of Directors. The Board of Directors
plans to retain earnings, if any, for operations and does not intend to pay
dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
On August 6, 1998, the Securities and Exchange Commission ("SEC") issued a
Cease-and-Desist Order against the Company and James W. Benson for violation of
Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities
Exchange Act of 1934. Without admitting or denying the allegations, the Company
and Mr. Benson submitted offers of settlement to the SEC, which were accepted on
April 13, 1999. No sanctions were issued against either the Company or Mr.
Benson. The resulting order requires the Company and Mr. Benson from committing
or causing violations of those provisions in the future.
Currently, there is no litigation pending or, to the Company's knowledge,
threatened, against the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
During its last fiscal year and as of the date of this Registration
Statement, the Company has had no changes in or disagreements with its principal
independent accountant regarding any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, nor
has the Company's principal accounting firm resigned or declined to stand for
re-election.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During 1997, the Company entered into a five-year employment agreement with
its president. As part of the employment agreement, the Company granted options
to the president to purchase up to 2,500,000 shares of the Company's $.0001 par
value restricted Common Stock. In accordance with APB 25, the Company recognized
$500,000 of compensation expense and $250,000 of deferred compensation. The
options are subject to vesting conditions and have exercise prices between $1.50
and $3.00 per share.
On October 22, 1997, the Company entered into agreements with three
individual investors, Tuscan Capital Ltd., Robert Beaton and Allen Gelbard, to
grant options to purchase common stock restricted under Securities Exchange
Commission Rule 144 in consideration for consulting services. The options were
granted for a total of 573,150 shares of the Company's $.0001 par value common
stock with an exercise price of $.066 per share. All of the options were
exercisable at December 31, 1997 and each option was to expire on October 21,
2002. Based on the use of the Black-Scholes option-pricing model, the fair value
of the stock options issued for these services was $211,333. As a result, the
Company recognized $211,333 in consulting expenses in 1997 related to the
issuance of Common Stock options. All of these options were exercised in 1998.
The options were issued pursuant to Rule 701 of the Securities Act. Also, during
1998, the Company issued 573,150 shares of Common Stock upon the exercise of
stock options pursuant to Rule 504.
On February 7, 1998, the Company entered into a Share Acquisition Agreement
with ISS, pursuant to which it issued 2,000,000 shares of its Common Stock under
Section 4(2) of the Securities Act in exchange for the outstanding shares of ISS
(then a privately held company). ISS is now a wholly owned subsidiary of the
Company. In addition to the issuance of shares, the ISS shareholders also
received two seats on the Board of Directors of the Company, and former
employees of ISS became employees of the Company; such employees to receive
performance options for up to an additional 300,000 shares.
38
<PAGE>
In August 1998, the Company secured intellectual property, including
patents and trade secrets, from a former shareholder, Alan M. Voorhees, who had
acquired them from American Rocket Company (AMROC), an aerospace company active
during the late 1980s and early 1990s. The consideration for the intellectual
property was warrants to purchase a minimum of 100,000 and a maximum of
3,000,000 shares of the Company's Common Stock over the following 10-year
period, depending on the Company's annual revenues received from the license,
sale, use or other disposition of the intellectual property. The warrants issued
to Mr. Voorhees were issued pursuant to the private offering exemption in
Section 4(2) of the Securities Act. In return for the exclusive royalty free
right to use, sell and apply patents and other technology, the Company issued
warrants to purchase 25,000 shares of Common Stock at 50% of their fair market
value on the date of issuance. Mr. Voorhees will receive warrants to purchase a
minimum of 75,000 shares and a maximum of 3,000,000 shares of Common Stock at
50% of their fair market value on the date of issuance. For each of the first
three years of the agreement, Mr. Voorhees will receive warrants to purchase the
greater of 25,000 common shares or one common share for each $125 of revenue
generated by the technology on specific dates.
On October 1, 1998 the Company entered into a Common Stock Exchange
Agreement with SIL pursuant to Section 4(2) of the Securities Act. Upon
execution of the Agreement, the Company obtained all outstanding shares of SIL
(then a privately held company) and issued 1,000,000 shares of the Company's
Common Stock to the SIL shareholders. The Company also agreed to issue
additional shares of Common Stock valued at $1,000,000 to the SIL shareholders
in installments, with the final installment due on July 15, 2000. SIL
shareholders also received incentive stock options for 500,000 additional
shares. SIL became a wholly owned subsidiary as a result of this Agreement. In
December 1999, the Company and SIL negotiated a rescission of the Share
Acquisition Agreement, pursuant to which the shares were returned and the
options were canceled.
In four separate transactions between September 2, 1998 and October 16,
1998, the Company's Chief Executive Officer, James W. Benson, purchased a total
of 348,000 shares of the Company's common stock at a per share price of $0.50
pursuant to Section 4(2) of the Securities Act, 60,000 of which are held by his
three children. The sale was made at a time when the company had little credit
and no collateral with which to obtain outside financing and was left with the
option of either borrowing funds or selling restricted stock to members of
management. Due to the resale restrictions on the stock, the shares were issued
at a discount from market rate since they are inherently less valuable than the
company's free trading stock. There was no set method for determining the
percentage discount from the closing price of the company's common shares on the
OTC. All of these options have been exercised, and the underlying shares have
been issued with the appropriate resale restrictions. During 1998, the Company
recorded approximately $126,000 of compensation expense related to the 348,000
shares of Common Stock issued to the president at less than fair market value.
As part of an employment agreement with Jan King, the Company issued 5,000
shares of Common Stock as a signing bonus and recorded $8,750 of compensation
expense, based on the five-day trading average for the five days immediately
preceding and the five days immediately following the date of the transaction.
The agreement renews annually and can be canceled by either party under
provisions of the agreement. Upon renewal of the agreement, Mr. King will
receive 5,000 shares of Common Stock annually for two years.
In conjunction with the Common Stock Exchange Agreement between the Company
and ISS, the Company granted options to three key employees to purchase up to
350,000 shares of restricted Common Stock with exercise prices between $1.50 and
$3.50 per share. The vesting of these options is contingent on several future
events. Should these events not occur, no options would vest. These options were
to be issued pursuant to Rule 701 of the Securities Act. Effective February 5,
2000, as part of separation agreements with two of these individuals, 200,000 of
these options were canceled.
During 1999 and 2000, the Company issued a total of 39,926 shares of
restricted stock to its former employee, Rex Ridenoure, to perform services for
the Company. Mr. Ridenoure received the number of shares equal in value to the
number of hours worked and reimbursement of expenses incurred during each
bi-monthly pay period, based on the average trading price for the Company's
common shares on the OTC for each such period. Mr. Ridenoure worked at
competitive hourly rates, and kept meticulous records of his time and expenses.
All of the above referenced securities are restricted by Rule 144 of the
Securities Act of 1933.
39
<PAGE>
During 1998 and 1999, the Company issued shares in a series of transactions
pursuant Rule 504 and Section 4(2), including 92,140 shares issued to sales and
public relations firms in 1998, as follows:
The first of these transactions took place as a result of the exercise of
options held by Tuscan Capital, Ltd., Robert Beaton (February 1998), and Allen
Gelbard (December 1998), as discussed in more detail above. The options were
exercised at a per share price of $0.066 per share for a total of 573,150
shares. The shares were issued pursuant to Rule 504.
In May 1998, the Company issued 53,400 shares of restricted common stock as
compensation for services rendered in the design of the NEAP mission under
Section 4(2). This transaction resulted from an arms-length transaction in which
the value of the services was determined first, with the Company offering shares
of common stock in lieu of cash payment. The parties negotiated the number of
shares to be issued without a set per share price. Due to the resale
restrictions on the shares to be issued, they were not valued at the trading
price of the Company's common stock on the OTC.
In June 1998, JP Carey, Inc. placed 261,903 shares of the Company's common
stock at 75% of the average closing bid price of the common stock for the
preceding day, with an average per share price of $1.34. J.P. Carey had signed a
letter agreement with the Company to place up to $890,000 in shares pursuant to
Rule 504 in exchange for a fee equal to 10% of the aggregate price of all shares
placed in the offering plus a 1% non-accountable expense allowance.
From October to December 1998, the Company entered into separate
transactions with De Jong & Associates and The Hayley Sumner Company, Inc., a
public relations firm and publicist respectively, pursuant to which the Company
issued shares in exchange for services. A total of 28,750 shares were issued to
De Jong & Associates in three transactions at per share prices of $2.50, $2.01
and $2.30, respectively, based on the average bid and ask prices for the common
stock at the time the shares were issued. A total of 3,334 shares were issued to
The Hayley Sumner Company, Inc. in two separate transactions of 1,667 shares
each, at per share prices of $0.81 and $1.94, respectively. In 1999, the Company
issued additional common shares to The Hayley Sumner Company, Inc. in two
separate transactions for services rendered on February 7, 1999 (721 shares) and
April 28, 1999 (2,390 shares). The per share value in each of these transactions
was based on the average bid and ask prices for the common stock at the time the
shares were issued. These shares were issued in reliance on the exemption from
registration provided by Rule 504 under Section 3(b) of the Securities Act.
From November to December 1998, the Company issued a total of 3,000 common
shares to Scott Mathews and Gary Whitman (1,500 shares to each) at a per share
price of $2.50 per share, based on the average bid and asked prices preceding
the transaction. The shares were issued in exchange for consulting services
pursuant to Section 4(2) of the Act, and are restricted.
Between December 1998 and January 1999, the Company issued a total of
50,000 shares to Proactive Solution in two separate transactions under Rule 504:
the first for 20,000 shares at $2.50 per share and the second for 30,000 shares
at $2.25 pre share, based on the average bid and ask prices for the common stock
at the time the shares were issued.
In September 1999, the Company issued 2,630 common shares to Fortune Eight
Aerospace Industries, Inc. pursuant to Section 4(6) of the Act at a rate of
$2.28 per share. The transaction was a cash sale at above the then average
trading price of the Company's common stock.
In December 1999, the Company issued 10,000 restricted common shares to
Alex Duncan for consulting services rendered to the Company at a per share value
of $1.46 per share, based on the averaged bid and asked prices of the Company's
common stock on the OTC. This sale was made pursuant to Section 4(2) of the Act.
In April 1999, the Company issued a total of 70,113 shares through
Sovereign Capital Advisors, LLC pursuant to a letter agreement dated December 8,
1998, under Section 504. The shares were sold at 85% of the average five-day
closing bid price of the Company's common stock on the OTC. As compensation for
the placement, Sovereign Capital was paid a fee equal to 10% of the aggregate
price of the stock sold and was given warrants to purchase shares for an
additional 10% of the aggregate price of the shares it placed.
40
<PAGE>
On August 26, 1999, the Colorado Securities Division made effective the
Company's registration statement on Form U-7 for offers and sales to Colorado
residents. The offering was for an aggregate amount of $350,000 in units of the
Company's $.0001 par value common stock and re-pricing warrants. Following
closing on the first $350,000 in units, the Company filed a post-effective
amendment to the Form U-7 registration statement to raise the aggregate amount
of the offering to $730,000. The post-effective amendment was made effective on
October 13, 1999. The Company sold $10,000 in units pursuant to the
post-effective amendment for an approximate price of $0.83 per share. The
Company made a decision to close this offering in December 1999.
In exchange for services as the Company's outside director, the Company has
issued a total of 8,868 common shares to Wesley T. Huntress in two transactions
of 4,444 (September 22, 1999) and 4,424 (March 6, 2000), respectively. Also, in
September 1999 and January 2000, Mr. Huntress was issued non-qualified stock
options under the Company's Employee Stock Option Plan to purchase 2,222 and
4,425 shares of common stock at $2.25 and $1.13 per share, respectively, the
then fair market value based on the closing price on the date of grant. These
shares and options were issued to Mr. Huntress pursuant to a letter agreement
with the Company, whereby he will be issued up to $10,000 in common shares and
$10,000 in options during the first two years of services as a director. The
shares were issued pursuant to Section 4(2) of the Act, while the options were
issued under Rule 701.
In February 2000, the Company issued a total of 2,114 shares of restricted
common stock to Eric Reitman, a former employee pursuant to his agreement with
the Company, the terms of which provided that the employee was to receive 96.1
shares of common stock for each week of employment with the Company.
In February 2000, the Company made a cash sale of 355 shares of common
stock to Juliana C. Sanger Yee for services valued at $585, based on the closing
price for the Company's common stock on date of the transaction.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation contain a provision which, in
accordance with Colorado law, eliminates or limits the personal liability of
directors and officers of the Company for monetary damages for certain breaches
of their duty of care or other duty if he or she acted in good faith and in a
manner they believed to be in, or not opposed to, the best interests of the
Company, except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his or her duty to the
Company unless otherwise determined by the court before which such action was
brought. The Company believes this provision is essential to maintain and
improve its ability to attract and retain competent directors. These
indemnification provisions do not reduce the exposure of directors and officers
to liability under federal and state securities laws, nor do they limit the
shareholders' ability to obtain injunctive relief or other equitable remedies
for a violation of a director's or officer's duty to the Company or its
shareholders, although such equitable remedies may not be an effective remedy in
certain circumstances.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company is informed that it is
the opinion of the Securities and Exchange Commission that such indemnification
is against public policy and therefore unenforceable.
ITEM 6. FINANCIAL STATEMENTS
Please see the Company financial statements attached hereto.
41
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
ITEM EXH. NO.
- ----- --------
<S> <C>
Registrant's Articles of Incorporation 2.1*
Registrant's Articles of Amendment to Articles of Incorporation dated November 4, 1997 2.2*
Authorizing Series B Preferred Stock
Registrant's Articles of Amendment to Articles of Incorporation dated December 17, 1997 2.3*
Registrant's Bylaws 2.4*
Form of Common Stock Certificate 3.1*
Form of Non-Qualified Stock Option 3.2*
Form of Incentive Stock Option 3.3*
Form of Re-Pricing Warrant 3.4*
Form of Warrant 3.5*
Common Stock Exchange Agreement Between Registrant and SIL 6.1*
Mututal Rescission and Release of Share Acquisition Agreement 6.2*
Share Exchange Agreement Between Registrant and ISS 6.3*
Agreement of License and Purchase of Technology Between Registrant and AMROC 6.4*
Firm Fixed Price Agreement Number 108252 Between Registrant and Regents of the University of California 6.5*
1999 Stock Option Plan 6.6*
1999 Employee Stock Purchase Plan 6.7*
Employment Agreement of James W. Benson 6.8*
Employment Agreement between ISS and Thomas W. Brown 6.9*
Employment Agreement between ISS and Philip E. Smith 6.10*
Employment Agreement of Jan A. King 6.11*
Employment Agreement between ISS and Charles H. Lloyd 6.12*
Philip Smith Separation and Release Agreement 6.13
First Amendment to Employment Agreement of Thomas Brown 6.14
Employment Agreement between SpaceDev and Stan Dubyn 6.15
First Amendment to Employment Agreement of James W. Benson 6.16
First Amendment to Employment Agreement of Jan A. King 6.17
Launch and Integration Services Agreement By and Between SpaceDev, Inc. and Dojin Limited 6.18
Lockheed Martin ILS Contract 6.19
Lockheed Martin Engineering Services Contract 6.20
Collaborative Agreement between University of Arizona and SpaceDev 6.21
National Reconnaissance Office - SPOTV 6.22
</TABLE>
* Previously filed with 10SB12G filed January 18, 2000.
ITEM 2. DESCRIPTION OF EXHIBITS
As appropriate, the Registrant has attached those documents required to be
filed as Exhibit Numbers 2, 3, 5, 6 and 7 of Part III of Form 1-A.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
SPACEDEV, INC.
Date: March 24, 2000 By: /s/ James W. Benson
-------------- ----------------------------------------
James W. Benson, Chairman and CEO
Date: March 24, 2000 By: /s/ Charles H. Lloyd
-------------- -----------------------------------------
Charles H. Lloyd, Chief Financial Officer
43
<PAGE>
SPACEDEV, INC. AND
SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
CONTENTS
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 3-4
FINANCIAL STATEMENTS
Consolidated Balance Sheets 5
Consolidated Statements of Operations 6-7
Consolidated Statements of Stockholders' Equity 8
Consolidated Statements of Cash Flows 9-10
Notes to Consolidated Financial Statements 11-34
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
SPACEDEV, INC.
We have audited the accompanying consolidated balance sheets of SPACEDEV, INC.
AND SUBSIDIARY (the "Company") (see Note 1(c) to the consolidated financial
statements) as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. We did not audit
the 1998 financial statements of SPACE INNOVATIONS LIMITED (SIL), a wholly-owned
subsidiary (see Note 1(c)), as of December 31, 1998 and for the three-month
period then ended, whose statements reflect total assets constituting 20% of
consolidated assets as of December 31, 1998, and net sales constituting 36% of
consolidated net sales for the three-month period then ended. Those statements
were audited by BDO Stoy Hayward, Reading, UK, whose report has been furnished
to us, and our opinion, insofar as it related to the amounts included for SIL is
based solely on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits and
the report of BDO Stoy Hayward provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of BDO Stoy Haward, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of SPACEDEV, INC. AND
SUBSIDIARY as of December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the years then ended, in
conformity with generally accepted accounting principles.
<PAGE>
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1(b) to
the consolidated financial statements, the Company incurred net losses of
$5,907,315 and $1,909,642 for the years ended December 31, 1999 and 1998,
respectively, and had working capital deficits of $1,231,411 and $2,383,061 as
of December 31, 1999 and 1998, respectively, that raises substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 1(b). The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Nation, Smith, Hermes, Diamond
San Diego, California
February 18, 2000
3
<PAGE>
<TABLE>
SPACEDEV, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
=========================================================================================================
DECEMBER 31, 1999 (Note 1) 1998
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
ASSETS (Note 4)
CURRENT ASSETS
Cash (Note 10(a)) $ 102,887 $ 106,539
Accounts receivable 363,915 1,392,336
Inventory (Note 1(e)) - 165,283
Other current assets 6,974 125,709
- ---------------------------------------------------------------------------------------------------------
Total current assets 473,776 1,789,867
FIXED ASSETS - NET (Notes 1(g) and 2) 2,103,326 2,031,240
INTANGIBLE ASSETS - NET (Notes 1(g) and 3) 2,182,232 5,690,812
OTHER ASSETS 2,730 150,704
- ---------------------------------------------------------------------------------------------------------
$ 4,762,064 $ 9,662,623
==========================================================================================================
</TABLE>
4
<PAGE>
<TABLE>
SPACEDEV, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
=========================================================================================================
DECEMBER 31, 1999 (Note 1) 1998
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ - $ 477,298
Line of credit (Note 4) 241,415 100,000
Current portion of notes payable (Note 5(a)) 7,200 1,350,663
Current portion of acquisition price payable (Note 3(c)) - 500,000
Current portion of capitalized lease obligations (Note 9) 11,135 43,666
Accounts payable and accrued expenses 377,213 617,395
Accrued payroll, vacation and related taxes 56,136 282,170
Customer deposits and deferred revenue (Note 1(f)) 19,166 564,736
Billing in excess of costs incurred and estimated earnings (Note 1(f)) 274,920 -
Note payable related party (Note 5(b)) 718,002 237,000
- ---------------------------------------------------------------------------------------------------------
Total current liabilities 1,705,187 4,172,928
NOTES PAYABLE, LESS CURRENT MATURITIES (Note 5(a)) 2,251,721 500,000
CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT MATURITIES (Note 9) 17,972 28,351
DEFERRED REVENUE (Note 1(f)) 5,000 54,738
ACQUISITION PRICE PAYABLE, LESS CURRENT MATURITIES (Note 3(c)) - 500,000
- ---------------------------------------------------------------------------------------------------------
Total liabilities 3,979,880 5,256,017
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par value, 10,000,000 shares
authorized 0 shares and 82,450 shares issued and outstanding,
respectively (Note 8(a)) - 82
Common stock, $.0001 par value; 50,000,000 and 25,000,000
shares authorized, and 13,879,945 and 6,047,743 shares issued
and outstanding, respectively Note 8(b)) 1,388 605
Additional paid-in capital 9,002,744 6,713,229
Additional paid-in capital - stock options (Note 8(d)) 750,000 750,000
Deferred compensation (Note 8(d)) (250,000) (250,000)
Accumulated deficit (8,721,948) (2,814,633)
Accumulated other comprehensive income:
Cumulative foreign currency translation adjustment - 7,323
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity 782,184 4,406,606
- ---------------------------------------------------------------------------------------------------------
$ 4,762,064 $ 9,662,623
=========================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
SPACEDEV, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
=========================================================================================================
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 (Note 1) 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 1,091,259 $ 1,339,920
Cost of sales 459,996 915,947
- ---------------------------------------------------------------------------------------------------------
GROSS MARGIN 631,263 423,973
- ---------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
General and administrative 2,572,831 1,476,658
Research and development (Note 1(h)) 61,615 322,269
Stock-based compensation (Notes 1(l) and 8(b)) 178,810 324,081
- ---------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 2,813,256 2,123,008
- ---------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (2,181,993) (1,699,035)
- ---------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense (374,541) (29,725)
Other income - net - (9,836)
- ---------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (374,541) (39,561)
- ---------------------------------------------------------------------------------------------------------
NET LOSS BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS (2,556,534) (1,738,596)
INCOME TAX PROVISION (Notes 1(j) and 6) 3,335 -
- ---------------------------------------------------------------------------------------------------------
NET LOSS FROM CONTINUING OPERATIONS (2,559,869) (1,738,596)
- ---------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
Income (loss) from discontinued operations of SIL
net of income taxes of $0 (Note 3(c)) (3,347,446) (171,046)
- ---------------------------------------------------------------------------------------------------------
NET LOSS $(5,907,315) $(1,909,642)
=========================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SPACEDEV, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS, CONTINUED
=========================================================================================================
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 (Note 1) 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET LOSS PER SHARE:
Loss from continuing operations $ (.24) $ (.42)
Discontinued operations $ (.31) $ (.04)
Net loss $ (.56) $ (.47)
- ---------------------------------------------------------------------------------------------------------
Weighted-Average Shares Outstanding 10,629,483 4,095,975
=========================================================================================================
</TABLE>
6
<PAGE>
<TABLE>
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
====================================================================================================================================
<CAPTION>
Redeemable
Preferred Stock Common Stock
--------------------------------- ---------------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 82,450 $ 82 1,755,000 $ 176
Common stock issued for cash - - 622,403 62
Acquisition of intangible assets (Notes 1(g) and 3(b)) - - - -
Common stock issued for compensation
(Notes 1(m) and 8(b)) - - 5,000 1
Common stock issued for business acquisition
of subsidiary - SIL (Notes 1(g) and 3(c)) - - 1,000,000 100
Common stock issued for business acquisition
of subsidiary - ISS (Notes 1(g) and 3(a)) - - 2,000,000 200
Common stock issued for services (Notes 1(m)
and 8(b) - - 92,190 9
Common stock issued for exercise of options
(Note 8(d)) - - 573,150 57
Comprehensive income:
Net loss - - - -
Foreign currency translation adjustment - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 82,450 82 6,047,743 605
Preferred stock converted to common stock (82,450) (82) 8,245,000 825
Shares issued for cash - - 546,546 54
Shares issued for services (Note 8(b)) - - 40,656 4
Rescission of SIL acquisition (Note 3(c)) - - (1,000,000) (100)
Acquisition of intangible assets (Note 3(b)) - - - -
Comprehensive Income (Loss):
Net loss - - - -
Foreign currency translation adjustment - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 - $ - 13,879,945 $ 1,388
====================================================================================================================================
</TABLE>
7
<PAGE>
<TABLE>
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CONTINUED
====================================================================================================================================
<CAPTION>
Additional Accumulated
Additional Paid-In Other
Paid-In Capital - Deferred Accumulated Comprehensive
Capital Stock Options Compensation Deficit Income Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 300,974 $ 971,333 $ (250,000) $ (904,991) $ - $ 117,574
637,688 - - - - 637,750
24,500 - - - - 24,500
8,749 - - - - 8,750
1,667,900 - - - - 1,668,000
3,624,800 - - - - 3,625,000
189,572 - - - - 189,581
259,046 (221,333) - - - 37,770
- - - (1,909,642) - (1,909,642)
- - - - 7,323 7,323
- ------------------------------------------------------------------------------------------------------------------------------------
- - - (1,909,642) 7,323 (1,902,319)
- ------------------------------------------------------------------------------------------------------------------------------------
6,713,229 750,000 (250,000) (2,814,633) 7,323 4,406,606
(743) - - - - -
564,880 - - - - 564,934
178,806 - - - - 178,810
1,506,322 - - - - 1,506,222
40,250 - - - - 40,250
- - - (5,907,315) - (5,907,315)
- - - - (7,323) (7,323)
- ------------------------------------------------------------------------------------------------------------------------------------
- - - (5,907,315) (7,323) (5,914,638)
- ------------------------------------------------------------------------------------------------------------------------------------
$9,002,744 $ 750,000 $ (250,000) $(8,721,948) $ - $ 782,184
====================================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
8
<PAGE>
<TABLE>
SPACEDEV, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
===================================================================================================
<CAPTION>
DECEMBER 31, 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(5,907,315) $(1,909,642)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,945,937 956,015
Loss on impairment of long-lived assets 1,847,667 -
Common stock issued for compensation and services 178,810 324,081
Change in operating assets and liabilities:
Accounts receivable 954,604 (391,032)
Inventory (250,065) (51,198)
Prepaid and other current assets 118,736 (52,411)
Other assets 14,010 (20,474)
Accounts payable and accrued expenses 682,453 52,080
Accrued payroll, vacation and related taxes (16,062) 75,172
Customer deposits and deferred revenue (545,570) (33,909)
Billings in excess of costs incurred and estimated earnings 274,920 -
Other liabilities 160,234 (31,476)
- ---------------------------------------------------------------------------------------------------
Net cash used in operating activities (541,641) (1,082,794)
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired in purchase (disposal) of subsidiaries (113,420) 31,427
Purchases of fixed assets (103,092) (61,826)
- ---------------------------------------------------------------------------------------------------
Net cash used in investing activities (216,512) (30,399)
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - related party 591,002 175,000
Proceeds from issuance of common stock 564,934 512,000
Increase (decrease) in bank overdraft (477,298) 302,749
Proceeds from notes payable 141,921 -
Proceeds from bank lines of credit 141,415 75,000
Payments on notes payable - related party (110,000) -
Principal payments on capital lease obligations (52,632) (29,383)
Payments on notes payable (50,663) (10,544)
Proceeds from exercise of options - 37,700
- ---------------------------------------------------------------------------------------------------
Net cash provided by financing activities 748,679 1,062,522
- ---------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 5,822 9,115
- ---------------------------------------------------------------------------------------------------
Net decrease in cash (3,652) (41,556)
CASH AT BEGINNING OF PERIOD 106,539 148,095
- ---------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 102,887 $ 106,539
===================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
9
<PAGE>
<TABLE>
SPACEDEV, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED
===================================================================================================
<CAPTION>
DECEMBER 31, 1999 (Note 1) 1998
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION:
<S> <C> <C>
Cash paid during the period for:
Interest $ 253,132 $ 32,954
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1999 and 1998, the Company acquired $29,660 and $6,300 of fixed assets
under capital lease agreements, respectively.
During 1999 and 1998, the Company issued 40,656 and 92,190 shares of restricted
common stock for compensation and consulting expense of $178,810 and $324,081,
respectively. See Note 8(b).
On August 14, 1998, the Company issued warrants to purchase 25,000 shares of
restricted common stock to acquire certain technology. On August 14, 1999, the
Company issued warrants to purchase 25,000 shares of restricted common stock in
accordance with the acquisition agreement. See Note 3(b).
On February 7, 1998, the Company issued 2,000,000 shares of restricted common
stock to acquire ISS. Total goodwill from the acquisition was $3,461,000. See
Note 3(a).
On October 1, 1998, the Company issued 1,000,000 shares of restricted common
stock to acquire SIL. Total goodwill from the acquisition was $3,100,000. See
Note 3(c).
Acquisition of: ISS SIL
----------------------------------- ------------------ ----------------------
Working capital other than cash $ 69,888 $ (463,747)
Fixed assets 93,398 240,731
Intangibles and other assets 627 -
Long-term debt assumed - (127,782)
----------------------------------- ------------------ ----------------------
$163,913 $ (350,798)
=================================== ================== ======================
During 1999, the Company financed $317,000 of building improvements with a note
payable.
During 1998, the Company financed its Poway facility and related costs with
$1,800,000 of notes payable.
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. SUMMARY OF A summary of the Company's significant accounting
SIGNIFICANT policies consistently applied in the preparation of the
ACCOUNTING accompanying consolidated financial statements follows.
POLICIES As discussed in Note 3(c), as a result of the disposal
of SIL, a wholly-owned subsidiary, on December 17, 1999,
the 1999 consolidated financial statements are not
comparable to the 1998 consolidated financial
statements. In 1998, the Company left the development
stage.
(a) NATURE OF SPACEDEV, INC. (the "Company") was incorporated under
OPERATIONS the laws of Colorado on December 23, 1996 as Pegasus
Development Group, Inc. (PDGI). The Company, through its
three business segments, is engaged in the commercial
development of low-cost satellites and their subsystems,
as well as providing engineering technical services to
major aerospace companies. The principal geographic
markets of the Company are the United States and Europe.
See Note 11(a).
PDGI was originally formed for the purpose of entering
the real estate industry. SpaceDev, LLC of Colorado was
originally formed in 1997 for commercial space
exploration and was the sole owner of shares of common
stock of SpaceDev (a Nevada corporation) ("SpaceDev").
On October 22, 1997, PDGI issued 8,245,000 of its $.0001
par value common stock for 100 percent, 1,000,000
shares, of SPACEDEV'S common stock owned by SpaceDev,
LLC. Upon the acquisition of the SPACEDEV stock,
SPACEDEV was merged into PDGI and, on December 17,1997,
the name of the Company was changed to SPACEDEV, INC.
After the merger, SPACEDEV, LLC, which changed its name
to SD Holdings, LLC on December 17, 1997, owned
9,545,000 shares of the outstanding common stock of the
Company.
For accounting purposes, the transaction was accounted
for as a reverse merger with the Company as the
acquirer. Since SpaceDev had minimal assets prior to the
merger, the transaction was accounted for as the sale of
Company's common stock for net assets of $1,232.
11
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(b) LIQUIDITY/ The accompanying consolidated financial statements as of
GOING CONCERN December 31, 1999 have been prepared assuming the
Company will continue as a going concern. However, the
Company had working capital deficits of $1,231,411 and
$2,383,061 as of December 31, 1999 and 1998,
respectively, and incurred net loss of $5,907,315 and
$1,909,642 for the years ended December 31, 1999 and
1998, respectively. These conditions raise substantial
doubt about the Company's ability to continue as a going
concern. Subsequent to December 1999, management intends
to raise additional financing through a combination of
public and private equity placements, commercial project
financing and government program funding to fund future
operations and commitments. There is no assurance that
additional debt and equity financing needed to fund
operations will be consummated or obtained in sufficient
amounts necessary to meet the Company's needs.
The accompanying consolidated financial statements do
not include any adjustments to reflect the possible
future effects on the recoverability and classification
of assets or the amounts and classification of
liabilities that may result from the possible inability
of the Company to continue as a going concern.
The 1998 consolidated financial statements include the
accounts of the Company and its wholly-owned
subsidiaries, Space Innovations Limited (SIL) (a United
Kingdom entity) and Integrated Space Systems, Inc. (ISS)
(a California corporation).
12
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(c) PRINCIPLES OF All significant intercompany balances and transactions
CONSOLIDATION, have been eliminated in the consolidation.
CONT'D
(d) USE OF The preparation of financial statements in conformity
ESTIMATES with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the
date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Although management believes that the estimates
and assumptions used in preparing the accompanying
consolidated financial statements and related notes are
reasonable in light of known facts and circumstances,
actual results could differ from those estimates.
(e) INVENTORY In 1998, inventory was held by SIL and consisted mainly
of raw materials and is stated at the lower of cost
(first-in, first-out) or market.
(f) REVENUE The Company's revenues are derived primarily from fixed
RECOGNITION price contracts and are recognized using the
percentage-of-completion method of contract accounting
based on the ratio of incurred costs to total estimated
costs. Losses on contracts are recognized when they
become known and reasonably estimable. Actual results of
contracts may differ from management's estimates and
such differences could be material to the consolidated
financial statements. Professional fees are billed to
customers on either a time and materials basis, a fixed
price basis or a per-transaction basis. Time and
materials revenues are recognized as services are
performed.
Billings in excess of costs incurred represent the
excess of amounts billed in accordance with the
contractual billing terms. At December 31, 1999,
billings in excess of costs incurred and estimated
earnings was $274,920.
13
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(f) REVENUE Deferred revenue represents amounts collected from
RECOGNITION, customers for services to be provided at a future date.
CONT'D
(g) DEPRECIATION Fixed assets are depreciated over their estimated useful
AND lives of three-to-thirty years using the straight-line
AMORTIZATION method of accounting.
Goodwill and other intangible assets were created upon
the acquisition of the Company's subsidiaries.
Intangible assets are amortized over their assets'
estimated future useful lives on a straight-line basis
over three to five years. Goodwill and other intangibles
are periodically reviewed for impairment based on an
assessment of future operations to ensure they are
appropriately valued in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."
As a result of the disposal of SIL, the goodwill
associated with the original acquisition became impaired
on December 17, 1999. Loss from the impairment
represented the net unamortized goodwill at December 17,
1999, $1,847,667 and is included on discontinued
operations. See Note 3(c).
(h) RESEARCH AND The Company is actively engaged in new product
DEVELOPMENT development efforts. Research and development
expenditures relating to possible future products are
expensed as incurred. Research and development expenses
were as follows:
DECEMBER 31, 1999 1998
--------------------------------------------------------
SpaceDev $ 61,615 $ 322,269
SIL 506,703 378,652
--------------------------------------------------------
$ 568,318 $ 700,921
========================================================
Research and development expenses for SIL are included
in discontinued operations for 1999 and 1998.
14
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(i) ADVERTISING The Company follows the policy of charging the costs of
advertising to expense as incurred. Advertising expenses
were approximately $9,500 and $1,500 for 1999 and 1998,
respectively.
(j) INCOME Deferred income taxes are recognized for the tax
TAXES consequences in future years of differences between the
tax basis of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax
laws and statutory tax rates applicable to the years in
which the differences are expected to affect taxable
income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the
combination of the tax payable for the year and the
change during the year in deferred tax assets and
liabilities.
(k) NEW In 1997, the Financial Accounting Standards Board issued
ACCOUNTING Statement of Financial Accounting Standards No. 130,
STANDARDS "Reporting Comprehensive Income." This Statement was
adopted in 1998. In accordance with the Statement,
comprehensive income is presented in the consolidated
statements of stockholders' equity.
Statement of Financial Accounting Standards No. 133,
"Accounting for Derivatives Instrument and Hedging
Activities," established accounting and reporting
standards for derivative instruments. The Company has
not in the past, nor does it anticipate that it will,
engage in transactions involving derivative instruments
which will impact the consolidated financial statements.
(l) STOCK-BASED In October 1995, the Financial Accounting Standards
COMPENSATION Board issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). The Company adopted SFAS 123 in 1997. The Company
has elected to measure compensation expense for its
stock-based employee compensation plans using the
intrinsic value method prescribed by APB Opinion 25,
"Accounting for Stock Issued to Employees" (APB 25) and
has provided pro forma disclosures as if the fair value
based method prescribed SFAS 123 has been utilized. See
Note 8(d).
15
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(m) COMMON STOCK The Company has valued its stock and stock options
AND STOCK issued to non- employees at fair value in accordance
OPTIONS TO with the accounting prescribed in SFAS 123, which states
NON-EMPLOYEES that all transactions in which goods or services are
received for the issuance of equity instruments shall be
accounted for based on the fair value of the
consideration received or the fair value of the equity
instruments issued, whichever is more reliably
measurable.
(n) NET LOSS PER Net loss per common share has been computed on the basis
COMMON SHARE of the weighted average number of shares outstanding,
according to the rules of Statement of Financial
Accounting Standards No. 128, "Earnings per Share."
Diluted net loss per share has not been presented as the
computation would result in anti-dilution.
(o) FINANCIAL The Company's financial instruments consist primarily of
INSTRUMENTS cash, accounts receivable and notes payable. These
financial instruments are stated at their respective
carrying values, which approximate their fair values.
(p) FOREIGN For the foreign subsidiary, assets and liabilities were
CURRENCY translated at the current year end exchange rate, equity
at the historical rate and income statement items at the
weighted average exchange rate for the period. Resulting
translation adjustments were made directly to a separate
component of stockholders' equity.
(q) SEGMENT The Company is managed through two reportable segments:
REPORTING Space Missions Division (SMD), ISS and SIL. The Space
Missions Division is in the process of developing deep
space science exploration satellites. Through December
31, 1998, this Division had no revenue with outside
customers. ISS provides engineering services, launch
integration services and space vehicle integration
services. SIL developed low-cost satellites and
satellite subsystems for use in space. The Company
disposed of SIL on December 17, 1999. See Note 3(c). The
Company follows the requirement of Statement of
Financial Accounting Standards No. 131 "Disclosures
about Segments of an Enterprise and Related Information"
("FAS 131").
2. FIXED ASSETS Fixed assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
-----------------------------------------------------------------------
<S> <C> <C>
Building and improvements $ 2,071,437 $ -
Furniture and fixtures 18,442 222,073
Computer equipment 167,650 151,890
Leasehold improvements 68,197 36,769
-----------------------------------------------------------------------
2,325,726 410,732
Less accumulated depreciation
and amortization (222,400) (239,964)
-----------------------------------------------------------------------
2,103,326 170,768
Construction in progress - 1,860,472
-----------------------------------------------------------------------
$ 2,103,326 $ 2,031,240
=======================================================================
</TABLE>
16
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. FIXED ASSETS, Depreciation and amortization expense was $110,810 and
cont'd $60,807 for the 1999 and 1998, respectively.
3. ACQUISITIONS All acquisitions have been accounted for using the
purchase method of accounting and intangible assets are
being amortized using the straight-line method. Initial
purchase price includes stock issued at the date of
acquisition, direct acquisition costs and any guaranteed
future consideration.
(a) ISS On February 7, 1998, the Company issued 2,000,000 shares
of restricted common stock and acquired all of the
outstanding shares of common stock of Integrated Space
Systems, Inc. ("ISS"). ISS provides engineering and
technical services related to space-based systems,
primarily launch vehicle integration. The fair value of
the shares issued was $1.8125 per share, calculated
using the average daily closing prices for a period
surrounding the acquisition date. The acquisition price
was not reduced for the Rule 144 restrictions on the
shares of common stock. The total purchase price was
valued at $3,625,000. The calculated purchase price in
excess of the approximately $164,000 of net assets
acquired was capitalized as goodwill and will be
amortized over sixty months.
Goodwill from the ISS acquisition consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
-----------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 3,461,000 $ 3,461,000
Less accumulated amortization (1,326,717) (634,517)
-----------------------------------------------------------------------
$ 2,134,283 $ 2,826,483
=======================================================================
</TABLE>
Amortization expense was $692,200 and $634,517 for 1999
and 1998, respectively.
17
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(b) AMROC On August 14, 1998, the Company entered the Agreement
for License and Purchase of Technology (AMROC) with an
unrelated individual. The technology acquired was hybrid
rocket technology that will be used in the future
operations of the Company. Upon execution of the
Agreement, the Company issued the seller a warrant to
purchase 25,000 shares of restricted common stock at a
strike price equal to 50 percent of the market price of
the common stock on the issuance date. For the three
years following the Agreement date, the seller will
receive warrants to purchase the greater of 25,000
shares of restricted common stock or a number of shares
to be determined based on revenue generated from the
acquired technology. In the fourth year following the
Agreement date, the seller will receive a warrant to
purchase a number of shares based on the amount of
revenue generated from the acquired technology. Under
the terms of the Agreement, the minimum number shares to
be issued is 100,000 and the maximum number of shares is
3,000,000 with $6,000,000 in recognized value, which is
the difference between the strike price and market value
of the underlying stock.
The Company valued the warrants using the fair value
method as prescribed by SFAS 123. Under this method, the
Company used the risk-free interest rate at the date of
grant, the expected volatility of the stock, the
expected dividend yield on the stock and the expected
life of the warrants to determine the fair value of the
warrants. The risk-free rate of interest used to value
the initial issuance was 5.4 percent, a zero percent
dividend yield was assumed and the expected life of the
warrants was five years from the date of issuance. This
calculation resulted in a fair value of $24,500 and was
used as the value of the intangible assets acquired. On
August 14, 1999, the Company issued warrants to purchase
25,000 shares of restricted common stock with fair value
of $40,250 using the same valuation method. This amount
was capitalized as an additional acquisition of
intangible assets and will be amortized over the
remaining four years of the estimated useful life of the
assets. All warrants are immediately exercisable after
issuance and expire on the fifth anniversary of their
issuance. No value is given to the future issuance of
warrants as the strike price is unknown at this time.
18
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(b) AMROC, CONT'D Other intangible assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
----------------------------------------------------------------------------
<S> <C> <C>
Other intangibles $ 64,750 $ 24,500
Less accumulated amortization (16,801) (1,838)
----------------------------------------------------------------------------
$ 47,949 $ 22,662
============================================================================
</TABLE>
Amortization expense was $14,963 and $1,838 for 1999 and
1998, respectively.
(c) SIL On October 1, 1998, the Company issued 1,000,000 shares
of restricted common stock and acquired all of the
outstanding shares of common stock of Space Innovations
Limited ("SIL"). SIL develops low-cost satellites and
satellite subsystems for use in space. The fair value of
the shares issued was $1.75 per share and was calculated
using the average daily closing prices for a period
surrounding the acquisition date. The acquisition price
was not reduced for the Rule 144 restrictions on the
shares of common stock. The total purchase price was
valued at $3,100,000, including approximately $350,000
of liabilities in excess of the value of assets
acquired. Also included in the total goodwill was an
acquisition price payable of $1,000,000. To satisfy the
payable, the Company was to issue $1,000,000 of
restricted common stock to the former shareholders of
SIL in four equal semi- annual installments. The fair
market value of the common stock at specified dates
would be used to determine the number of shares to be
issued. The resulting goodwill amount was to be
amortized over sixty months.
19
<PAGE>
Goodwill from the SIL acquisition consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
----------------------------------------------------------------------
<S> <C> <C>
Goodwill $ - $3,100,000
Less accumulated amortization - (258,333)
----------------------------------------------------------------------
$ - $2,841,667
======================================================================
</TABLE>
Amortization expense was $994,000 and $258,333 for 1999
and 1998, respectively.
19
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(c) SIL, CONT'D Included in the acquisition agreement and under the
Company's Revenue and Profit Incentive Stock Option Plan
and the Profit Sharing Stock Issuance Plan, the former
stockholders of SIL also received options to purchase up
to 500,000 additional shares of the Company's common
stock at a price to be determined in the year of grant
should certain future events occur in each of the next
three years. During 1998, 100,000 options expired as the
qualifying events did not occur. Effective December 17,
1999, all remaining unexpired options were cancelled.
The following unaudited pro forma information presents a
summary of consolidated results of operations of the
Company and its subsidiaries, ISS and SIL, as if the
acquisitions had occurred on January 1, 1998,, with pro
forma adjustments to give effect to amortization of
goodwill and other intangible assets and certain other
adjustments:
(IN THOUSANDS, EXCEPT EARNING PER SHARE AMOUNTS)
PERIOD ENDED DECEMBER 31, 1998
--------------------------------------------------------
Net sales $ 3,765
Net losses $ (3,282)
Basic net loss per share $ (.69)
========================================================
On December 17, 1999, the Company's Board of Directors
entered into a Mutual Release and Rescission of
Agreement ("Release Agreement") to rescind the original
acquisition of SIL, effective October 1, 1998.
Subsequent to SIL's acquisition and prior to December
17, 1999, the accounts of SIL were included in the
consolidated financial statements of the Company. The
results of operations of SIL are presented as
discontinued operations net of income taxes in the
consolidated statements of operations.
The Release Agreement resulted in the retirement of the
1,000,000 shares of the Company common stock which had
been issued to the former shareholders of SIL, the
cancellation of all outstanding options for Company
stock and the expiration of the acquisition price
payable. The transaction was recorded as a purchase of
treasury stock. In accordance with Accounting Principles
Board Opinion No. 26, "Early Extinguishment of Debt",
the gain created by the transaction with a related party
was recorded as an addition to stockholders' equity.
Therefore, $1,506,322 was recorded as an increase in the
Company's additional paid-in-capital on December 17,
1999.
20
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(c) SIL, CONT'D The Company remains a guarantor on a bank loan used to
finance SIL's operations. Under terms of the Release
Agreement, SIL agreed to apply 25 percent of the
proceeds from each payment received on a specific
contract until the bank loan is paid in full. Once the
loan has been paid in full, the loan agreement will be
terminated, releasing the Company's guarantor
obligation.
4. LINE OF In November 1998, the Company (through ISS) obtained a
CREDIT bank line of credit in the amount of $250,000 which
matured in November 1999 and was renewed for one year.
At December 31, 1999 and 1998, $241,415 and $100,000,
respectively, was outstanding on the line of credit.
The line of credit was secured by all of the assets of
ISS. The line is also guaranteed by SPACEDEV and a major
stockholder. The interest rate under the line of credit
is prime (8.5 percent at December 31, 1999) plus 2.0
percent.
5. NOTES
PAYABLE
(a) BUILDING On December 21, 1998, the Company borrowed $1,300,000
NOTES from a lender to finance the purchase of its facility in
Poway, California. The note called for monthly payments
and a balloon payment on December 21, 1999. The note
accrued interest at 13 percent. Upon its maturity, the
note continued on a month-to-month basis until it was
paid in full on February 23, 2000.
On February 23, 2000, the Company signed a $1,330,000
note with a new lender to refinance the aforementioned
debt. The note calls for 300 monthly payments of
$12,091, which include principal and interest at the
bank's prime rate (8.75% at February 23, 2000) plus 1.5
percent. The note matures on March 1, 2025.
In December 1998, the president of the Company entered
into a $500,000 loan agreement with another lender to
finance additional costs of its new facility. This
liability was assigned to the Company and called for 59
monthly interest payments at 12.23 percent and a balloon
payment of $505,000, including interest, on December 17,
2003.
21
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(a) BUILDING In 1999, the Company entered into a second loan
NOTES, CONT'D agreement with the lender. The $460,000 loan called for
59 monthly interest payments at 10.5 percent and a
balloon payment of $464,000, including interest in March
2004.
(b) RELATED The Company had notes payable to a stockholder and a
PARTIES former key employee at December 31, 1999 and 1998. The
balances were $718,002 and $237,000, respectively, with
interest between 4 percent and 12 percent. The notes,
due in March 1999, were converted to demand notes. As
part of a Separation and Release Agreement with the
former key employee, $70,000 of principal and accrued
interest will be paid in monthly installments through
July 2000.
Interest expense on these notes was $67,331 and $5,152
for 1999 and 1998, respectively.
Future minimum principal payments on all notes payable
including the new note payable are as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2000 $ 725,202
2001 12,736
2002 14,111
2003 515,634
2004 475,861
Thereafter 1,263,379
-------------------------------------------------------
$ 3,006,923
=======================================================
6. INCOME Deferred income taxes are provided for temporary
TAXES differences in recognizing certain income and expense
items for financial and tax reporting purposes. The
deferred tax asset of $1,892,000 and $950,000 as of
December 31, 1999 and 1998, respectively, consisted
primarily of the income tax benefits from net operating
loss carryforwards, amortization of goodwill and
research and development credits. A valuation allowance
has been recorded to fully offset the deferred tax asset
as it is more likely than not that the assets will not
be utilized. The valuation allowance increased
approximately $942,000 in the 1999 from $950,000 at
December 31, 1998 to $1,892,000 at December 31, 1999.
22
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
6. INCOME At December 31, 1999, the Company has federal and state
TAXES, cont'd tax net operating loss carryforwards of approximately
$3,708,000 and $1,854,000, respectively.. The federal
and state tax loss carryforwards will expire through
2019, unless previously utilized.
A reconciliation of the statutory income tax rates and
the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998
------------------------------------------------------------------------------------
<S> <C> <C>
Statutory U.S. federal rate 34% 34%
State income taxes - net of federal benefit 5% 5%
Net operating loss for which no tax
benefit is currently available (39%) (39%)
------------------------------------------------------------------------------------
- -
====================================================================================
</TABLE>
The tax effects of temporary differences and
carryforwards that give rise to deferred tax assets and
liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,425,000 $ 688,000
Temporary differences 425,000 220,000
Research and development credits 42,000 42,000
----------------------------------------------------------------------------
Gross deferred tax assets 1,892,000 950,000
Valuation allowance (1,892,000) (950,000)
----------------------------------------------------------------------------
$ - $ -
============================================================================
</TABLE>
7. EMPLOYEE
BENEFIT PLAN
(a) PROFIT SHARING During 1997, the Company adopted a 401(k) retirement
401(k) PLAN savings plan for its U.S. employees which allows each
eligible employee to voluntarily make pre-tax salary
contributions up to 15 percent of their compensation.
The Company may elect to make a matching contribution.
The total Company contribution and participant salary
reduction may not exceed 25 percent of the compensation
of eligible participants. During 1999 and 1998, the
Company did not contribute to the Plan.
(b) INCENTIVE STOCK The Company implemented an Incentive Stock Option Plan
OPTION AND as well as an Employee Stock Purchase Plan.
EMPLOYEE STOCK
PURCHASE PLANS
23
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
8. STOCKHOLDERS'
EQUITY
(a) REDEEMABLE On November 4, 1997, 82,450 shares of $.001 par value
PREFERRED STOCK redeemable preferred stock were issued to SD Holdings,
LLC in exchange for 8,245,000 shares of the Company (see
Note 1(a)). Each share of redeemable preferred stock was
convertible, at the option of the holder, into 100
shares of common stock. The conversion ratio was subject
to certain anti-dilution adjustments, and the holder of
each share of preferred stock was entitled to one vote
for each share of common stock into which it would
convert. These shares were converted into 8,245,000
shares of common stock on May 11, 1999.
(b) COMMON The Company entered into agreements with sales, investor
STOCK relations and public relations firms to perform services
for the Company. In connection with these agreements,
the Company issued 40,656 and 92,190 shares of its
common stock and recorded expense of approximately
$179,000 and $190,000 for 1999 and 1998, respectively.
The fair value of the shares issued was calculated using
the average closing price surrounding the issuance
dates.
In 1998, the Company's Chief Executive Officer, James W.
Benson, purchased 348,000 shares of the Company's common
stock at a per share price of $0.50 pursuant to Section
4(2) of the Securities Act. The company recorded
compensation expense of $126,000 in the consolidated
statement of operations. The fair value of the shares
issued was calculated using the average closing price
surrounding the issuance dates.
24
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(b) COMMON On August 3, 1998, the Company entered into a one-year
STOCK, CONT'D employment agreement with a key employee. The agreement
automatically renews until terminated in accordance with
the agreement As part of the employment agreement, the
Company approved additional compensation through the
issuance of shares of common stock up to 60,000 shares
of the Company's $.0001 par value restricted common
stock.
On August 3, 1998, the Company issued 5,000 shares as a
signing bonus. The fair value of $8,750 was recorded as
compensation expenses. The fair value of the shares
issued was calculated using the average closing price
surrounding the issuance dates.
The additional shares are subject to the following
conditions as amended on January 20, 2000 to the
following:
Number
of shares Issuing Conditions
--------------------------------------------------------
5,000 Currently issued
5,000 Per year commencing at the end of the second
year of employment and 5,000 for each
additional year of employment
10,000 Successful completion of first lunar or
deep-space craft
15,000 Launching of first lunar or deep-space mission
25,000 Successful completion of first lunar or
deep-space mission
========================================================
During 1999, the Company issued 622,403 shares of its
Common Stock, priced at an average of $1.02 per share
for a total amount of $637,750.
During 1998, the Company issued 546,546 shares of its
Common Stock, priced at an average of $1.03 per share
for a total amount of $564,934.
25
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(b) COMMON On August 26, 1999, the Colorado Securities Division
STOCK, CONT'D made effective the Company's registration statement on
Form U-7 for offers and sales to Colorado residents. The
offering is for an aggregate amount of $350,000 in units
of the Company's $.0001 par value common stock and
re-pricing warrants. Following closing on the first
$350,000 in units, the Company filed a post-effective
amendment to the Form U-7 registration statement to
raise the aggregate amount of the offering to $730,000.
The post-effective amendment was made effective on
October 13, 1999. The Company sold $10,000 in units
pursuant to the post-effective amendment for an
approximate price of $0.83 per share. The Company made a
decision to close this offering in December 1999.
(c) WARRANTS On August 14, 1999 and 1998, the Company issued warrants
to purchase 25,000 shares of common stock at 50 percent
of their fair market value on the date of issuance, in
return for the exclusive royalty free right to use, sell
and apply patents and other technology developed by an
individual (see Note 3(b)). The individual will receive
warrants to purchase a minimum of 50,000 additional
shares and a maximum of 3,000,000 shares of common stock
at 50 percent of the fair market value on the date of
issuance. The number of shares varies with revenue
generated by the technology on specific dates. At
December 31, 1999, the unissued warrants were not
recorded as the future strike price of the warrants
cannot be estimated.
(d) STOCK OPTIONS On October 22, 1997, the Company entered into three
agreements to grant options to purchase common stock
restricted under Securities Exchange Commission Rule 144
in consideration for consulting services. The options
were granted for a total of 573,150 shares of the
Company's $.0001 par value common stock with an exercise
price of $.07 per share. All of the options were
exercisable at December 31, 1997 and each option was to
expire on October 21, 2002. Based on the use of the
Black-Scholes option pricing model, the fair value of
the stock options issued for these services was
$221,333. As a result, the Company recognized $221,333
of consulting expense in 1997 related to the issuance of
the common stock options. All of the options were
exercised in 1998.
26
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(d) STOCK OPTIONS, On November 21, 1997, the Company entered into a
CONT'D five-year employment agreement with its president. As
part of the employment agreement, the Company granted
options to the president to purchase up to 2,500,000
shares of the Company's $.0001 par value restricted
common stock. The options are subject to the following
vesting conditions which were amended on January 21,
2000 at the exercise prices set forth:
<TABLE>
<CAPTION>
Exercise
Number price per
of shares Vesting Conditions share
-------------------------------------------------------------------------------
<S> <C> <C>
500,000 Currently vested $1.00
500,000 Obtaining $5,500,000 additional equity capital $1.50
500,000 Financing and executing a definitive space launch
agreement $2.00
500,000 Launching of first lunar or deep-space mission $2.50
500,000 Successful completion of first lunar or deep-space
mission $3.00
===============================================================================
</TABLE>
All options expire 60 months from date of amendment.
In accordance with APB 25, the Company recognized
$500,000 of compensation expense and $250,000 of
deferred compensation in 1998. The options are subject
to vesting conditions and have exercise prices between
$1.50 and $3.00 per share.
During 1998, the Company granted options to three key
employees to purchase up to 300,000 shares of restricted
common stock with exercise prices between $1.50 and
$3.50 per share.
<TABLE>
<CAPTION>
Exercise
Number price per
of shares Vesting Conditions share
-----------------------------------------------------------------------------------
<S> <C> <C>
60,000 Successful completion of the first space craft $1.00
60,000 Upon ISS generating $750,000 in pre-tax profits $1.50
60,000 Upon launch of the first space craft $2.00
60,000 Upon rendezvous of space craft with NEAP target $2.50
60,000 Upon reaching 17% profit for two years $3.00
===================================================================================
</TABLE>
All options expire 60 months from the date of issuance.
On November 1, 1999, the Company (through ISS) entered
into an employment agreement with its Chief Financial
Officer (the "CFO"). The agreement automatically renews
for one-year periods until terminated by written notice
of either the Company or the CFO. In addition to annual
salary levels, the agreement allows the CFO to
participate in the Company's Incentive Stock Option Plan
(the "ISO Plan") and qualify for stock option bonuses
based on certain events occurring.
27
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Under the terms of the employment agreement with ISS,
SpaceDev, as the parent corporation, agreed to grant
stock options to purchase 250,000 shares of the
Company's common stock pursuant to the Company's Stock
Option Plan upon execution of the employment agreement.
These options began vesting three months after the date
of grant. On February 1, 2000, the Company issued
options to purchase an additional 250,000 shares of
common stock at a per share price of $1.44 (the then
fair market value) pursuant to the agreement. The CFO
will receive additional options to purchase 500,000
stock options shares at a rate of 250,000 per quarter
during the remainder of his first year of employment
with ISS. Additionally, the Company agreed to issue
non-qualified stock options to purchase up to 200,000
common shares, which will vest upon ISS raising and
acquiring a minimum equity financing of $10,000,000,
with options to purchase 20,000 common shares for each
$1,000,000 of equity financing obtained. All options
will be exercisable at the fair market value of the
common stock on the date the option was granted.
28
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(d) STOCK OPTIONS, The following summarizes stock option activity related
CONT'D to all Plans:
<TABLE>
<CAPTION>
Weighted
Options Average
Outstanding Exercise Prices
--------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1997 3,073,150 $1.64
Granted 800,000 $1.88
Exercised (573,150) $.07
Expired (100,000) $1.50
--------------------------------------------------------------------------
Balance at December 31, 1998 3,200,000 $1.98
Granted 450,000 $1.34
Exercised - -
Expired (400,000) $1.50
--------------------------------------------------------------------------
Balance at December 31, 1999 3,250,000 $1.19
==========================================================================
</TABLE>
The weighted average fair value of options granted to
employees under the Plan during the years ended December
31, 1999, and 1998 was $1.34 and $1.88, respectively. At
December 31, 1999 and 1998, there were 3,250,000 and
3,200,000 options exercisable at a weighted average
exercise price of $1.19 and $1.98, respectively. The
weighted average remaining life of outstanding options
under the Plan at December 31, 1999 was 3.31 years.
There were 500,000 and 500,000 exercisable options
outstanding at December 31, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
Range of Weighted-Average Number of Weighted-Average
Exercise Number of Remaining Shares Exercisable
Price Shares Contractual Life Exercisable Price
Outstanding of Shares Outstanding
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1.00-1.99 1,510,000 3.64 years 500,000 $1.29
$2.00-2.99 1,120,000 3.10 years - $2.25
$3.00-3.50 620,000 3.19 years - $3.05
---------------------------------------------------------------------------------------
$1.34 3,250,000 3.31 years 500,000 $1.19
=======================================================================================
</TABLE>
As of December 31, 1999, the Company had warrants
outstanding that allow the holder to purchase up to
25,000 shares of common stock at $.88 per share and
25,000 at $.94 per share. The warrants may be exercised
any time within five years of issuance.
29
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(d) STOCK OPTIONS, The Company has elected to account for its stock-based
CONT'D compensation plans under APB 25. However, the Company
has computed, for pro forma disclosure purposes, the
value of all options granted during 1999 and 1998 using
the minimum value method as prescribed by SFAS 123.
Under this method, the Company used the risk-free
interest rate at date of grant, the expected volatility,
the expected dividend yield and the expected life of the
options to determine the fair value of options granted.
The risk-free interest rates ranged from 5.4 percent to
6.0 percent; expected volatility of 118% and the
dividend yield was assumed to be zero, and the expected
life of the options was assumed to be three to five
years based on the average vesting period of options
granted.
If the Company had accounted for these options in
accordance with SFAS 123, the total value of options
granted during 1999 and 1998 would be amortized on a pro
forma basis over the vesting period of the options.
Thus, the Company's consolidated net loss would have
increased as reflected as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998
-------------------------------------------------------------------------------
<S> <C> <C>
Net loss:
As reported $(5,907,315) $(1,909,642)
Pro forma $(5,944,808) $(1,909,642)
-------------------------------------------------------------------------------
Loss per share $ (.56) $ (.47)
===============================================================================
</TABLE>
9. COMMITMENTS
AND
CONTINGENCIES
CAPITAL The Company leases certain equipment under
LEASES non-cancelable capital leases, which are included in
fixed assets as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
-------------------------------------------------------------------
<S> <C> <C>
Computer equipment $ 68,197 $ 39,000
Less accumulated depreciation (34,572) (29,000)
-------------------------------------------------------------------
33,625 $ 10,000
===================================================================
</TABLE>
30
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
CAPITAL LEASES, Depreciation expense related to these capitalized leases
CONT'D was approximately $4,600 and $14,000 during 1999 and
1998, respectively.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------------------------------------------
<S> <C>
2000 $ 14,649
2001 12,541
2002 8,777
------------------------------------------------------------------
Total minimum lease payments 35,967
Amount representing interest (6,860)
------------------------------------------------------------------
Present value of minimum lease payments $ 29,107
==================================================================
Total obligation $ 29,107
Less current portion (11,135)
------------------------------------------------------------------
Long-term portion $ 17,972
==================================================================
</TABLE>
10. CONCENTRATIONS
(a) CREDIT RISK The Company maintains cash balances at various financial
institutions primarily located in San Diego. Accounts at
these institutions are secured by the Federal Deposit
Insurance Corporation up to $100,000. The Company has
not experienced any losses in such accounts. Management
believes that the Company is not exposed to any
significant credit risk on cash.
(b) CUSTOMER During 1999 and 1998, the Company had two major
customers that accounted for sales of approximately
$570,000 and $1,142,000 or 48% and 55% of consolidated
revenue. At December 31, 1999 and 1998, the amount
receivable from these customers was approximately
$87,000 and $122,000, respectively.
(c) CONTRACT In November 1999, the Space Missions Division was
awarded a $4,995,868 million turnkey mission contract by
the Space Sciences Laboratory (SSL) at University of
California, Berkeley (UCB). This contract represents 7.9
percent of the Company's revenue in 1999.
31
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
11. OPERATING The Company's operating structure included two and three
SEGMENTS operating segments for 1999 and 1998, respectively.
(a) SEGMENT The Company has three reportable segments: Space
PRODUCTS AND Missions Division (SMD), ISS and SIL. The Space Missions
SERVICES Division is in the process of developing deep space
science exploration satellites. Through December 31,
1998, this Division had no revenue with outside
customers. ISS provides engineering services, launch
integration services and space vehicle integration
services. SIL developed low-cost satellites and
satellite subsystems for use in space. The Company
disposed of SIL on December 17, 1999. See Note 3(c).
The following is a summary of operating results and
assets by segment
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------------------------------
(IN THOUSANDS) ISS SIL SMD Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue from external
Customers $ 1,008 $ - $ 83 $ 1,091
Intersegment revenues 71 33 - 104
Depreciation and
Amortization expense (40) - (707) (747)
Discontinued operations - (3,347) - (3,347)
Segment loss $ (113) $ (3,347) $ (2,447) $ (5,907)
====================================================
Total segment assets $ 475 $ - $ 4,630 $ 5,105
Less intersegment assets (160) - (183) (343)
----------------------------------------------------
Net segment assets $ 315 $ - $ 4,447 $ 4,762
====================================================
</TABLE>
32
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(a) SEGMENT
PRODUCTS AND
SERVICES, CONT'D
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------------------------
(IN THOUSANDS) ISS SIL SMD Total
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue from external
customers $ 1,340 $ - $ - $ 1,340
Depreciation and
amortization expense (44) - (639) (683)
Other segment expenses (1,256) (644) (1,141) (3,041)
Discontinued operations - (171) - (171)
----------------------------------------------------
Segment profit (loss) $ 40 $ 88 $ (2,038) $ (1,910)
====================================================
SIL operations are presented in discontinued operations.
Total segment assets $ 575 $ 1,765 $ 7,676 $ 10,016
Less intersegment assets (273) - (80) (353)
----------------------------------------------------
Net segment assets $ 302 $ 1,765 $ 7,596 $ 9,663
====================================================
Geographic Information:
Revenue
-----------------------------------------------------------------------------------------
United States $ 1,340 $ - $ - $ 1,340
Europe - 753 - 753
----------------------------------------------------
$ 1,340 $ 753 $ - $ 2,093
====================================================
Assets
-----------------------------------------------------------------------------------------
United States $ 302 $ - $ 7,596 $ 7,898
Europe - 1,765 - 1,765
----------------------------------------------------
$ 302 $ 1,765 $ 7,596 $ 9,663
====================================================
</TABLE>
33
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(b) METHOD OF Management evaluates the performance of its operating
DETERMNING segments separately to individually monitor the
SEGMENT PROFIT different factors affecting financial performance.
OR LOSS Segment profit or loss includes substantially all of the
segment's costs of production, distribution and
administration. The Company manages income taxes on a
global basis. Thus, management evaluates segment
performance based on profit or loss before income taxes,
exclusive of any significant gains or losses on the
disposition of investments or other assets. The Company
typically manages and evaluates equity investments and
related income or loss on a segment level.
12. SETTLEMENT In August 1998, the U.S. Securities and Exchange
WITH U.S. Commission (SEC) alleged that the Company and its
SECURITIES AND chairman made statements on the Internet regarding
EXCHANGE revenue and earnings estimates without a reasonable
COMMISSION basis and also misrepresented a financing agreement it
had with a broker-dealer.
During April 1999, the Company and its chairman agreed
to settle the SEC's charges. Neither party paid any
fines. Under the settlement, the Company neither
admitted nor denied wrongdoing. The Company and its
chairman agreed to be subject to stiffer sanctions for
any future violations.
13. SUBSEQUENT In January 2000, the Company entered employment
EVENT agreements with a key employee. The agreements can be
terminated by the employees or the Company under certain
circumstances. The agreements also include stock options
contingent on future events as well as grants under the
Company's Incentive Stock Option Plan.
In February 2000, the Company renegotiated employment
agreements with two key employees. The changes
associated with these agreements were to change the
"NEAP" milestone to "first spacecraft".
34
<PAGE>
INTEGRATED SPACE SYSTEMS
PROFIT AND LOSS
JANUARY 1 THROUGH FEBRUARY 6, 1998
Jan 1 - Feb 6, '98
------------------
Ordinary Income/Expense
Income
GDE -9,380.00
ILS 26,891.87
Ketema 11,210.63
Lockheed - Michoud -14,341.00
Lockheed-Martin 130,988.55
TRA 5,266.56
---------------
Total income 150,636.61
Expense
Amortization Expense 29.17
Bank Service Charges 25.00
Books & Information Matl 161.57
Depreciation Expense
Capital Lease 1,249.00
Computer & Network Equipment 2,792.52
Office Furniture 219.52
---------------
Total Depreciation Expense 4,261.04
Fringe Benefits 5,412.60
Holiday
Medical Costs
Allowance Benefit 1,650.22
Medical 4,119.27
---------------
Total Medical Costs 5,769.49
Payroll Taxes
ETT 158.72
FICA 14,390.98
FUI 1,247.46
SUI 5,298.59
---------------
Total Payroll Taxes 21,095.75
Sick / Other 3,051.70
Vacation 3,641.78
Work Comp 1,324.49
---------------
Total Fringe Benefits 40,295.81
Insurance
Liability Insurance -671.25
---------------
Total Insurance -671.25
Interest Expense
Finance Charge 417.92
Internet Expense - Leases 61.56
Interest Expense - LOC 592.24
Loans Payable 336.92
---------------
Total Internet Expense 1,408.64
Labor
Direct Labor
DL - GDE 5,500.04
DL - Ketema 4,309.91
DL - Lockheed Martin 87,654.44
DL - NEAP 3,875.01
DL - TRA 1,789.33
---------------
Total Direct Labor 103,128.73
Indirect Labor 40,922.84
Project Consultant Diff. 4,864.10
---------------
Total Labor 148,915.67
Late Charges 98.82
Lease
Copier Lease 159.53
---------------
Page 1
<PAGE>
INTEGRATED SPACE SYSTEMS
PROFIT AND LOSS
JANUARY 1 THROUGH FEBRUARY 6, 1998
Jan 1 - Feb 6, '98
------------------
Total Lease 159.53
Miscellaneous 185.56
Network Expense 952.70
Office Supplies 61.50
Outside Service
Payroll Expenses 1,349.51
---------------
Total Outside Services 1,349.51
Postage and Delivery 27.00
Printing and Reproduction
Reproduction 0.00
---------------
Total Printing and Reproduction 0.00
Rent
Office Space 3,815.60
Other 0.00
---------------
Total Rent 3,815.60
Telephone 1,413.40
Travel & Ent
Direct Travel
Direct Travel - LM 851.48
Off-Site Travel (Vandenberg) 800.00
Travel - ILS 800.00
---------------
Total Direct Travel 2,451.48
Entertainment 0.00
Indirect Travel 174.95
Inter-plant Travel 55.18
Meals 59.65
Travel - SpaceDev 385.95
---------------
Total Travel & Ent 3,127.21
---------------
Total Expense 205,616.48
---------------
Net Ordinary income -54,979.87
---------------
Net Income -54,979.87
===============
Page 2
<PAGE>
INTEGRATED SPACE SYSTEMS
BALANCE SHEET
AS AT FEBRUARY 6, 1998
Feb 6, '98
---------------
ASSETS
Current Assets
Checking/Savings
Bank of Commerce 1,219.51
Bank of Southern Calif 21,730.32
---------------
Total Checking/Savings 22,949.83
Accounts Receivable
A/R - SpaceDev. 3,593.41
Accounts Receivable 162,128.15
Accounts Receivable - Unbilled 35,244.00
---------------
Total Accounts Receivable 200,965.56
Other Current Assets
Prepaid Expenses 2,737.00
---------------
Total Other Current Assets 2,737.00
---------------
Total Current Assets 226,652.39
Fixed Assets
Computer Equipment
Depreciation -49,181.65
Original Cost 1,455.15
Computer Equipment - Other 123,369.59
---------------
Total Computer Equipment 75,643.09
Equipment under Capital Lease
Depreciation - Capital Lease -12,367.00
Equipment under Capital Lease - Other 32,288.00
---------------
Total Equipment under Capital Lease 19,921.00
Office Furniture
Depreciation -4,337.17
Original Cost 3,400.00
Office Furniture - Other 9,771.46
---------------
Total Office Furniture 8,834.29
Organization Costs
Depreciation -1,123.04
Original Cost 1,750.00
---------------
Total Organization Costs 626.96
---------------
Total Fixed Assets 105,025.34
Other Assets
Employee Loan 15,333.79
---------------
Total Other Assets 15,333.79
---------------
TOTAL ASSETS 347,011.52
===============
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable
Accounts Payable 9,849.19
---------------
Total Accounts Payable 9,849.19
Other Current Liabilities
Bank One LOC 208.49
Capital Lease Debt - L/T 10,325.00
Capital Lease Debt - S/T 10,577.19
FNB - Cap Line 25,000.00
Interest Payable 3,706.12
Payroll 44,449.24
Short Term Loan
Short Term Loan - Smith 62,000.00
---------------
Page 1
<PAGE>
INTEGRATED SPACE SYSTEMS
BALANCE SHEET
AS AT FEBRUARY 6, 1998
Feb 6, '98
---------------
Total Short Term Loan 62,000.00
Vacations Payable 5,091.30
---------------
Total Other Current Liabilities 161,357.34
---------------
Total Current Liabilities 171,206.53
Long Term Liabilities
Mike Veno 5,000.00
Teresa Macklin 1,967.56
Wes Dreyer 4,000.00
---------------
Total Long Term Liabilities 10,967.56
---------------
Total Liabilities 182,174.09
Equity
Capital Stock 18,000.00
Opening Bal Equity -3,696.80
Retained Earnings 205,514.10
Net Income -54,979.87
---------------
Total Equity 164,837.43
---------------
TOTAL LIABILITIES & EQUITY 347,011.52
===============
Page 2
<PAGE>
ARTHUR ANDERSEN LLP
INTEGRATED SPACE SYSTEMS, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
TOGETHER WITH AUDITORS' REPORT
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders and Board of Directors of
Integrated Space Systems, Inc.:
We have audited the accompanying balance Sheet of INTEGRATED SPACE SYSTEMS, INC.
(a California corporation) as of December 31, 1997, and the related statements
of income, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted out audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Integrated Space Systems, Inc.
as of December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
San Diego, California
May 1, 1998
<PAGE>
INTEGRATED SPACE SYSTEMS, INC.
------------------------------
BALANCE SHEET
-------------
AS OF DECEMBER 31, 1997
-----------------------
ASSETS
------
CURRENT ASSETS:
Cash $ 13,199
Accounts receivable:
Billed 254,026
Unbilled 44,076
Prepaid expenses and other 2,431
-------------
Total current assets 313,732
-------------
PROPERTY AND EQUIPMENT, at cost:
Computer equipment 124,825
Furniture and fixtures 13,171
Equipment under capital leases 32,288
-------------
170,284
Less: accumulated depreciation and amortization (61,625)
-------------
108,659
-------------
OTHER ASSETS 16,888
-------------
Total assets $ 439,279
=============
The accompanying notes are an integral part of this balance sheet.
<PAGE>
INTEGRATED SPACE SYSTEMS, INC.
------------------------------
BALANCE SHEET
-------------
AS OF DECEMBER 31, 1997
-----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 36,561
Accrued liabilities 43,645
Lines of credit 45,000
Current portion of capital lease obligations 10,845
Notes payable to shareholders 72,967
-------------
Total current liabilities 209,018
-------------
CAPITAL LEASE OBLIGATIONS, net of current portion 10,325
-------------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY:
Common stock, 1,000,000 shares authorized, no par
value, 72,000 shares outstanding 18,000
Retained earnings 201,936
-------------
Total shareholders' equity 219,936
-------------
Total liabilities and shareholders' equity $ 439,279
=============
The accompanying notes are an integral part of this balance sheet.
<PAGE>
INTEGRATED SPACE SYSTEMS, INC.
------------------------------
STATEMENT OF INCOME
-------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
CONTRACT REVENUES $ 1,926,914
COSTS AND EXPENSES:
Cost of contract revenues 1,075,784
Selling, general and administrative 621,933
-------------
Income from operations 229,197
INTEREST AND OTHER EXPENSE, net 12,100
-------------
Income before provision for income taxes 217,097
PROVISION FOR INCOME TAXES 4,000
-------------
Net income $ 213,097
=============
The accompanying notes are an integral part of this financial statement.
<PAGE>
<TABLE>
INTEGRATED SPACE SYSTEMS, INC.
------------------------------
STATEMENT OF SHAREHOLDERS' EQUITY
---------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
<CAPTION>
(Accumulated
Common Stock deficit) Total
--------------------------- Retained Shareholders'
Shares Amount Earnings Equity
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 132,000 $ 33,000 $ (11,161) $ 21,839
Purchase and retirement of
common stock (60,000) (15,000) - (15,000)
Net income - - 213,097 213,097
------------ ------------ ------------ ------------
BALANCE, December 31, 1997 72,000 $ 18,000 $ 201,936 $ 219,936
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
INTEGRATED SPACE SYSTEMS, INC.
------------------------------
STATEMENT OF CASH FLOWS
-----------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 213,097
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 33,372
Changes in assets and liabilities:
Restricted cash 60,000
Accounts receivable (160,819)
Prepaid expenses and other (1,283)
Other assets (6,595)
Accounts payable (3,228)
Accrued liabilities (1,468)
-------------
Net cash provided by operating activities 133,076
-------------
NET CASH USED IN INVESTING ACTIVITIES:
Purchases of property and equipment (62,061)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on lines of credit (388,019)
Borrowings on lines of credit 353,000
Payments on capital lease obligations (9,662)
Purchase and retirement of common stock (15,000)
-------------
Net cash used in financing activities (59,681)
-------------
NET INCREASE IN CASH 11,334
CASH, beginning of year 1,865
-------------
CASH, end of year $ 13,199
=============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 13,237
=============
Income taxes $ 1,015
=============
SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Purchase of property and equipment under capital
lease ob1igations $ 23,125
=============
The accompanying notes are an integral part of this financial statement.
<PAGE>
INTEGRATED SPACE SYSTEMS, INC.
------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1997
-----------------
1. Line of Business
----------------
Integrated Space Systems, Inc. (the "Company"), a California
corporation is an engineering and technical services firm specia1izing
in space based systems, primarily launch vehicle integration.
2. Summary of Significant Accounting Policies Contract Revenues
------------------------------------------------------------
Customer contracts are comprised of time and material contracts and
fixed-price development contracts. Accordingly, on time and material
contracts, revenue is recognized as services are performed and on
fixed-price development contracts, revenue is recognized based on the
percentage of completion method. If a loss is projected on a contract,
the entire estimated loss is charged to cost of contract revenues when
the amount of the loss is determinable.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation and
amortization are provided using the straight-line method based on the
following estimated useful lives:
Computer equipment 3 to 5 years
Furniture and fixtures 5 years
Equipment under capital leases Lesser of useful life or lease
term
Repairs and maintenance are charged to expense as incurred and the
costs of additions and betterments that increase the useful lives of
related assets are capitalized.
Long-Lived Assets
-----------------
The Company assesses potential impairments to its long-lived assets
when there is evidence that events or changes in circumstances have
made recovery of the asset's carrying value unlikely. An impairment
loss would be recognized when the sum of the expected future net cash
flows generated by the asset is less than the carrying amount of the
asset.
Income Taxes
------------
The Company has elected to be treated as an S Corporation for federal
and state income tax purposes. In accordance with federal tax code
provisions, corporate earnings flow through and are taxed solely at the
<PAGE>
shareholder level. Under the provision of the California franchise tax
law, pre-tax earnings also flow through to the shareholders to be taxed
at the individual shareholder level. Additionally, a 1.5 percent surtax
is levied at the corporate level.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109. "Accounting For Income
Taxes." Deferred income tax assets and liabilities are recognized based
on the temporary differences between financial statement and income tax
bases of assets and liabilities using enacted tax rates in effect for
the years in which the differences are expected to reverse. Deferred
income tax expenses or credits are based on the changes in the deferred
income tax assets or liabilities from period to period.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, as well as the reported amount of
revenues and expenses during the reporting period, particularly
recognition of revenue and related costs accounted for under the
percentage-of-completion method as described above. Actual results
could differ from those estimates.
Recent Authoritative Pronouncements
-----------------------------------
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income". This standard establishes
standards for reporting of comprehensive income and its components in a
full set of general purpose financial statements. The adoption of this
standard will not have a material effect on the Company's financial
position or results of operations as it pertains to disclosure only.
3. Note Receivable from Shareholder
--------------------------------
Included in other assets at December 31, 1997 is a note receivable from
shareholder totaling $15,432, due January 1, 1999, bearing interest at 4
percent.
4. Income Taxes
------------
The provision for income taxes for the year ended December 31, 1997 consisted of
current state taxes.
The Company has deferred income taxes primarily due to timing differences in the
recognition of expenses for tax and financial reporting purposes, primarily due
to depreciation of property and equipment and accrued employee benefits.
5. Lines of Credit and Notes Payable
---------------------------------
The Company has an unsecured line of credit for borrowings up to $20,000, with
balance outstanding of $5,000 at December 31, 1997, interest payable monthly at
prime plus 6.75 Percent (15.25 percent at December 31, 1997).
<PAGE>
The company has an additional line of credit with a bank for borrowings up to
$100,000 with a balance outstanding of $40,000 at December 31, 1997, expiring in
July 1998, bearing interest at prime rate plus 2.25 percent (10.75 percent at
December 31, 1997), interest payable monthly with principal due at maturity,
collateralized by substantially all assets of the Company and by certain
personal assets of a Company shareholder.
The Company has various unsecured notes payable to shareholders with outstanding
balances aggregating $72,967 at December 31, 1997, bearing interest at rates
between 5 percent and 8 percent, principal and interest due at maturates during
March 1998. These notes payable were paid in full at maturity.
6. Commitments and Contingencies
-----------------------------
Leases
------
The Company leases its office facilities under a month-to-month
operating lease and certain equipment under capital and non-cancelable
operating leases. Future minimum lease payments under capital and
non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year ending December 31. Capital Operating
------------------------ --------- ---------
<S> <C> <C>
1998 $ 13,931 $ 1,340
1999 11,181 -
2000 3,117 -
--------- ---------
28,229 $ 1,340
=========
Less: amount representing
interest (7,059)
---------
Present value of minimum capital
lease payments 21,170
Less: current portion (10,845)
---------
$ 10,325
=========
</TABLE>
Facilities rent expense totaled approximately $40,000 in 1997.
Contingencies
-------------
In the ordinary course of business, the Company is subject to claims
and, from time to time, is party to various legal proceedings. In the
opinion of management, the amount of ultimate liability, if any, with
respect to any pending actions will not materially affect the Company's
financial position or results of operations.
7. Significant Customers and Concentration of Credit Risk
------------------------------------------------------
For the year ended December 31, 1997, the Company's revenues were derived from
five customers with one customer representing approximately 82 percent of
contract revenues. At December 31, 1997, one customer accounted for
approximately 74 percent of total accounts receivable.
<PAGE>
The loss of a significant customer would have a material adverse impact on the
Company's financial position and results of operations.
8. Subsequent Events
-----------------
Effective January 1, 1998, the Company elected to be treated as a C Corporation
for federal and state income tax purposes.
In February 1998, the Company's shareholders exchanged all outstanding shares of
common stock of the Company for 2,000,000 shares of common stock of SpaceDev,
Inc., a Colorado Corporation ("SpaceDev"). Formerly known as Pegasus Development
Group, Inc. SpaceDev is a development stage company engaged in activities to
commercialize routine space exploration missions. To date, SpaceDev has earned
no revenues and has minimal assets and liabilities. SpaceDev's common stock is
traded publicly on the National Association of Securities Dealer's bulletin
board system.
<PAGE>
INTEGRATED SPACE SYSTEMS, INC.
Statement of Operations
31-Dec-96
Account ISS
- --------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equiv 61,865
Accounts receivable 132,923
Other current assets 615
--------------
Total current assets 195,403
Fixed Assets-Net 48,165
Other Assets 10,294
--------------
Total Assets 253,862
==============
Current Liabilities
Line of Credit (80,139)
Accrued payroll, vacation and related taxes (31,245)
Related Party Payable - related party (62,000)
Accounts Payable (19,064)
Accrued other liabilities (6,285)
--------------
Total current liabilities (198,733)
Long Term Debt
Loans (10,968)
-
--------------
Total Liabilities (209,701)
Stockholders' Equity
Common Stock (33,000)
Retained Earnings (11,161)
--------------
(44,161)
Total liabilities and stockholders' equity (253,862)
==============
<PAGE>
INTEGRATED SPACE SYSTEMS, INC.
Statement of Operations
YE 12/31/96
ISS
- --------------------------------------------------------------------------------
Contract revenue (663,897)
-------------
(663,897)
Cost of contact revenue 362,476
-------------
Total Direct Costs 362,476
-------------
Gross (profit) loss (301,421)
General and administrative expenses 293,271
-------------
293,271
-------------
Loss (Income) from Operations (8,150)
Other (Income) Expense
Interest income (2,993)
Other income (18)
-------------
(3,011)
Income before income taxes (11,161)
Provision for income taxes -
-------------
-------------
Net Loss (Income) (11,161)
=============
<PAGE>
SPACE INNOVATIONS LIMITED
DIRECTORS' REPORT AND ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
Company Registration No. 03193413 (England and Wales)
<PAGE>
SPACE INNOVATIONS LIMITED
COMPANY INFORMATION
- --------------------------------------------------------------------------------
DIRECTORS A K Ward
J L Culhane
J E Holloway
A J Barrington Brown
D R Brindley
J Anzalchi
H K K Ngan
T W Brown
SECRETARY J E Holloway
COMPANY NUMBER 03193413
REGISTERED OFFICE 3 The Paddock
Hambridge Road
Newbury
Berks
RG14 5TQ
AUDITORS BDO Stoy Hayward
Reading
BANKERS Lloyds Bank
Newbury
SOLICITORS Bird & Bird
London
<PAGE>
SPACE INNOVATIONS LIMITED
CONTENTS
- --------------------------------------------------------------------------------
DIRECTORS' REPORT.........................................................1
AUDITORS' REPORT..........................................................4
PROFIT AND LOSS ACCOUNT...................................................5
BALANCE SHEET.............................................................6
CASH FLOW STATEMENT.......................................................7
NOTES TO THE ACCOUNTS.....................................................8
<PAGE>
SPACE INNOVATIONS LIMITED
DIRECTORS' REPORT
YEAR ENDED 31 DECEMBER 1998
- --------------------------------------------------------------------------------
The directors present their report and accounts for the year ended 31 December
1998.
DIRECTORS
The following directors have held office since 1 January 1998:
A K Ward
J L Culhane
J E Holloway
A J Barrington Brown
D R Brindley
J Anzalchi
H K K Ngan
T W Brown (Appointed 1 October 1998)
DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare accounts for each financial year
which give a true and fair view of the state of affairs of the company and of
the profit or loss of the company for that period. In preparing those accounts,
the directors are required to:
- - select suitable accounting policies and then apply them consistently;
- - make judgements and estimates that are reasonable and prudent;
- - prepare the accounts on the going concern basis unless it is inappropriate to
presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the accounts comply with the Companies
Act 1985. They are also responsible for safeguarding the assets of the company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
PRINCIPAL ACTIVITIES AND REVIEW OF THE BUSINESS
The principal activities of the company in the period under review included the
research, design and development of space related hardware and software, and the
manufacture, test and supply of associated systems and products.
Following the recommendation of the Board, there was a unanimous decision by the
shareholders to accept the offer for the purchase of the company from SpaceDev
Inc. a company incorporated in the state of Colorado, USA. The sale was
completed on 1 October 1998 and at that date the Company became a wholly owned
subsidiary of SpaceDev, but remains a United Kingdom registered Company
operating as an autonomous organisation.
Due to the potential for rapid growth foreseen for the immediate future, the
acquisition by SpaceDev has given added strength to the Company and its product
development. The high level of research and development costs expended through
the year from (pound)86,124 in 1997 to (pound)226,609 for 1998 has resulted in
considerable added value to products that support the planned growth. The
Balance Sheet naturally reflects these costs although to a lesser extent than
the monies actually expended on the additional research and development.
-1-
<PAGE>
SPACE INNOVATIONS LIMITED
DIRECTORS' REPORT
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------
It is now hoped that a rapid expansion amounting to more than an 80% increase in
sales turnover will be achieved next year. This is based on the finalisation of
a contract for the purchase of a MicroSIL (small satellite) platform for the
FedSat Australian satellite where work has already started under a
limit-of-liability arrangement and the success of sales in the RF and digital
communications sub-system areas in particular. As an affiliate of SpaceDev the
Company's sales opportunities in the USA have dramatically improved. Past
experience has shown that United States customers make excellent working
partners and the USA represents a large potential market for the company's
products.
Following the continuing successful operation in-orbit of several of the
Company's subsystems, including most recently the on-board S-band transponders
on the Danish Orsted satellite launched in February, 1999 a growing measure of
credibility has been achieved within the Space industry. This will substantially
enhance the Company's ability to promote sales in future years.
A satellite communications ground station has been delivered and installed on
site in Morocco during 1998. Although this has been a high cost development, a
significant number of resulting future sales are expected.
The Company also continued to lead and manage one of the UK Government's (DTI)
Sector Challenge programme for innovations within the UK small satellite arena
involving a group of space SMEs.
A number of management changes have been implemented during the year in order to
put expertise within the Company to its most effective use and to achieve the
success and expansion which is now planned and expected as a part of SpaceDev
both in Europe and in the USA.
Year 2000
The directors are aware of the potential problems associated with the
"Millennium Bug" and have given the issue due consideration. The company has
considerable in-house expertise in the IT area and these experts have been
charged with ensuring that all of the company's computer systems are not going
to be adversely affected by the year 2000 date change problem.
Although no organisation can guarantee that no year 2000 problems will arise,
the directors are satisfied that all necessary steps are being taken to ensure
that there will not be any significant problems arising from this cause.
The directors an unable to quantify the cost of any potential modifications that
may be necessary, but where new equipment is required the expenditure will be
capitalised in accordance with the company's accounting policy. Other
expenditure will be expensed when incurred.
RESULTS AND DIVIDENDS
The results for the year are set out on page 5.
The directors are unable to recommend payment of a dividend for the year.
-2-
<PAGE>
SPACE INNOVATIONS LIMITED
DIRECTORS' REPORT
YEAR ENDED 31 DECEMBER 1998
- --------------------------------------------------------------------------------
DIRECTORS' INTERESTS
The directors' beneficial interests in the shares of the company were as stated
below:
ORDINARY SHARES OF (POUND)1 EACH
31 DECEMBER 1998 1 JANUARY 1998
A K Ward - 10,000
J L Culhane - 10,000
J E Holloway - 3,000
A J Barrington Brown - 10,000
D R Brindley - 10,000
J Anzalchi - 10,000
H K K Ngan - 10,000
T W Brown - -
PARENT COMPANY
With effect from 1 October 1998, SpaceDev Inc, a company incorporated in the
state of Colorado, USA, is considered to be the company's ultimate parent
company.
AUDITORS
On 1 March 1999 the auditors, Moores Rowland, merged their practice with that of
BDO Stoy Hayward and are now practising under that name. A resolution will be
proposed at the annual general meeting that BDO Stoy Hayward be re-appointed as
the auditors to the company for the ensuing year.
On behalf of the board
/s/ J E Holloway
J E Holloway
Director
10 June 1999
-3-
<PAGE>
SPACE INNOVATIONS LIMITED
AUDITORS' REPORT
TO THE SHAREHOLDERS OF SPACE INNOVATIONS LIMITED
- --------------------------------------------------------------------------------
We have audited the accounts pages 5 to 19.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described in the directors' report the company's directors are responsible
for the preparation of accounts. It is our responsibility as auditors to form
an independent opinion, based an our audit, on those accounts and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the accounts. It also
includes an assessment of the significant estimates and judgements made by the
directors in the preparation of the accounts, and of whether the accounting
policies are appropriate to the company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations that we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the accounts an free from
material misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the accounts.
OPINION
In our opinion the accounts give a true and fair view of the state of the
company's affairs as at 31 December 1998 and of its loss for the year then ended
and have been properly prepared in accordance with the Companies Act 1985.
/s/ BDO Stoy Hayward
BDO STOY HAYWARD
Chartered Accountants
Registered Auditors
Reading
21 June 1999
-4-
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
PROFIT AND LOSS ACCOUNT
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
1998 1997
Notes (pound) (pound)
<S> <C> <C> <C>
Turnover 2 1,361,309 1,347,991
Cost of sales (600,532) (601,883)
------------- -------------
Gross profit 760,777 746,108
Administrative expenses (871,144) (734,245)
Research and development costs (226,609) (86,124)
Other operating income 120,859 -
------------- -------------
Operating Loss 3 (216,117) (74,261)
Interest payable and similar charges 4 (19,555) (6,300)
------------- -------------
Loss on ordinary activities before
taxation (235,672) (80,561)
Tax on loss on ordinary activities 7 - -
------------- -------------
Loss on ordinary activities after
taxation 16 (235,672) (80,561)
============= =============
The profit and loss account has been prepared on the basis that all operations
are continuing operations.
There are no recognised gains and losses other than those passing through the
profit and loss account.
</TABLE>
-5-
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
BALANCE SHEET
AS OF 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
1998 1997
Notes (pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C> <C>
Fixed assets
Intangible assets 8 - 9,447
Tangible assets 9 150,344 138,508
----------- -----------
150,344 147,955
Current assets
Stocks 10 99,646 47,109
Debtors 11 810,272 598,822
Cash at bank and in hand 4,102 16,719
----------- -----------
914,020 662,650
Creditors: amounts falling due
within one year 12 (1,061,369) (726,130)
----------- -----------
Net current liabilities (147,349) (63,480)
----------- -----------
Total assets less current liabilities 2,995 84,475
Creditors: amounts falling due after
more than one year 13 (17,092) (52,527)
Provisions for liabilities and charges 14 (33,001) -
----------- -----------
(47,098) 31,948
=========== ===========
Capital and reserves
Called up share capital 15 82,000 82,000
Capital contributions 21 156,626 -
Share premium account 16 30,000 30,000
Profit and loss account 16 (315,724) (80,052)
----------- -----------
Shareholders' funds - equity interests 17 (47,098) 31,948
=========== ===========
</TABLE>
The accounts were approved by the Board on 10 June 1999
DR Brindley JE Holloway
Director Director
-6-
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
CASH FLOW STATEMENT
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
1998 1997
Notes (pound) (pound)
<S> <C> <C> <C> <C> <C>
Net case outflow from operating
activities 18 (390,684) (2,619)
Returns on investments and
servicing of finance
interest paid (19,555) (6,300)
----------- -----------
Net cash outflow for returns on
investments and servicing of finance (19,555) (6,300)
CAPITAL EXPENDITURE
Payments to acquire tangible assets (52,654) (37,951)
----------- -----------
Net cash outflow for capital
expenditure (52,654) (37,951)
----------- -----------
Net cash outflow before
management of liquid resources
and financing (462,893) (46,870)
FINANCING
Capital contributions 156,626 -
Other new short term loans 94,568 40,000
Repayment of other short term loans (72,429) (33,333)
Capital element of hire purchase contracts (16,243) (4,051)
----------- -----------
Net cash inflow from financing 162,522 2,616
----------- -----------
Decrease in cash in the year 20 (300,371) (44,254)
=========== ===========
</TABLE>
-7-
<PAGE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- --------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
1.1 ACCOUNTING CONVENTION
The accounts are prepared under the historical cost convention.
1.2 TURNOVER
Turnover represents amounts receivable for goods and services net of VAT
and trade discounts.
1.3 GOODWILL
The goodwill arising on the acquisition of the business, being the amount
paid in respect of contracts which had not commenced at 30 May 1996, has
been capitalized and is amortised through the profit and loss account over
a period of three years, estimated by the directors to be the period during
which profits will arise from these contracts. Where the carrying value of
the goodwill is considered to be impaired, it has been written down to its
recoverable amount.
1.4 TANGIBLE FIXED ASSETS AND DEPRECIATION
Tangible fixed assets are stated at cost less depreciation. Depreciation is
provided at rates calculated to write off the cost less estimated residual
value of each asset over its expected useful life, as follows:
Leasehold improvements 20% straight line basis
Plant and equipment 20% straight line basis
Fixtures and fittings 20% straight line basis
Motor vehicles 33% straight line basis
1.5 LEASING AND HIRE PURCHASE COMMITMENTS
Assets obtained under hire purchase contracts and finance leases are
capitalised as tangible assets and depreciated over the shorter of the
lease term and their useful lives. Obligations under such agreements are
included in creditors not of the finance charge allocated to future
periods. The finance element of the rental payment is charged to the profit
and loss account so as to produce a constant periodic rate of charge on the
net obligation outstanding in each period.
Rentals payable under operating leases are charged against income on a
straight line basis over the lease term.
1.6 STOCK
Stocks are valued at the lower of cost, including appropriate overhead
expenses, and net realisable value.
-8-
<PAGE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- --------------------------------------------------------------------------------
1.7 LONG TERM CONTRACTS
Long term contracts are stated at total costs incurred, net of amounts
transferred to the profit and loss account in respect of work carried out
to date after deducting foreseeable losses if applicable and payments on
account.
Amounts recoverable on contracts are included in debtors, net of progress
payments received and receivable.
Payments made in excess of amounts (i) matched with turnover, (ii) offset
against long term contract balances are classified as payments on account
and disclosed under: Creditors: Amounts Failing Due Within One Year.
Turnover and attributable profit have been calculated by reference to the
percentage completion of the job at the balance sheet date.
1.8 PENSIONS
The pension costs charged in the account represent the contributions
payable by the company during the year in accordance with SSAP 24.
1.9 FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities denominated in foreign currencies are
translated into sterling at the rates of exchange ruling at the balance
sheet date. Transactions in foreign currencies are recorded at the rate
ruling at the date of the transaction. Differences arising are dealt with
in the profit and loss account.
1.10 RESEARCH AND DEVELOPMENT
Research and development expenditure is written off to the profit and loss
account in the year in which it is incurred.
1.11 CONTINGENCIES AND WARRANTIES
Expenditure associated with contingencies or warranties on contracts is
written off to the profit and loss account in the year in which it is
incurred.
1.12 GOVERNMENT GRANTS
Government grants in respect of research and development activities are
credited to the profit and loss account as the related expenditure is
incurred.
2 TURNOVER
GEOGRAPHICAL MARKET TURNOVER
1998 1997
(pound) (pound)
United Kingdom 130,632 32,004
Europe 734,095 471,853
Rest of the World 496,582 844,134
---------- ----------
1,361,309 1,347,991
========== ==========
-9-
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
3 OPERATING LOSS 1998 1997
(pound) (pound)
<S> <C> <C>
Operating loss is stated after charging:
Amortisation of intangible assets 9,447 6,667
Depreciation of tangible assets 40,818 27,340
Operating lease rentals
- Plant and machinery 7,596 6,240
- Other assets 52,589 52,589
Auditors' remuneration 16,500 7,500
Loss on exchange - 6,572
and after crediting:
Government grants 120,859 -
Profit on exchange 4,834 -
========== ==========
4 INTEREST PAYABLE AND SIMILAR CHARGES 1998 1997
(pound) (pound)
On bank loans and overdrafts 14,881 5,551
Hire purchase interest 2,674 749
On overdue tax 2,000 -
---------- ----------
19,555 6,300
========== ==========
5 EMPLOYEES
NUMBER OF EMPLOYEES
The average monthly number of employees (including directors) during the
year was:
1998 1997
Number Number
Production and sales 23 23
Administration 11 10
------- -------
34 33
======= =======
EMPLOYMENT COSTS
(pound) (pound)
Wages and salaries 928,822 744,039
Social security costs 93,072 73,897
Other pension costs 19,621 23,283
---------- ----------
1,041,515 841,219
========== ==========
</TABLE>
-10-
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
6 DIRECTORS' EMOLUMENTS 1998 1997
(pound) (pound)
<S> <C> <C>
Emoluments for qualifying services 236,441 221,107
Company pension contributions to money purchase schemes 4,112 4,113
---------- ----------
240,553 225,220
========== ==========
Emoluments disclosed above include the following amounts paid to the
highest paid director:
Emoluments for qualifying services 54,371 56,482
========== ==========
</TABLE>
During the year three (1997: three) directors were accruing benefits under
the company's money purchase pension scheme.
In addition to the pension contributions disclosed above, amounts totaling
(pound)5,150 (1997: (pound)4,360) have been charged to the profit and loss
account in respect of a scheme to be set up for the directors of the
company.
7 TAXATION
No liability to UK Corporation Tax arises on the results for the year
(1997: (pound)Nil). The company has tax losses available to offset against
future chargeable profits.
-11-
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
8 INTANGIBLE FIXED ASSETS
PATENTS AND GOODWILL TOTAL
TRADE MARKS
(pound) (pound) (pound)
<S> <C> <C> <C>
Cost
At 1 January 1998 & at 31 December 1998 2 20,001 20,003
---------- ---------- ----------
Amortisation
At 1 January 1998 - 10,556 10,556
Charge for year 2 9,445 9,447
---------- ---------- ----------
At 31 December 1998 2 20,001 20,003
---------- ---------- ----------
Net book value
At 31 December 1998 - - -
========== ========== ==========
At 31 December 1997 2 9,445 9,447
========== ========== ==========
</TABLE>
Goodwill represents the amount paid for contracts which had not commenced
at the date of the acquisition of the business. This is being amortised
over a period of three years which is the directors' estimate of the period
during which profits will arise from these contracts. Where the carrying
value of the goodwill is considered to be impaired, it has been written
down to its recoverable amount.
The goodwill amortisation charge for the year includes impairment losses
recognized amounting to (pound)2,778. The cumulative amount of impairment
losses recognized at 31 December 1998 in respect of goodwill amounted to
(pound)2,778.
The patents and trade marks amortisation charge for the year represents
impairment losses recognized amounting to (pound)2. The cumulative amount
of impairment losses recognized at 31 December 1998 in respect of patents
and trade marks amounted to (pound)2.
-12-
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
9 INTANGIBLE FIXED ASSETS
LEASEHOLD PLANT AND FIXTURES AND MOTOR TOTAL
IMPROVEMENTS EQUIPMENT FITTINGS VEHICLES
(pound) (pound) (pound) (pound) (pound)
COST
<S> <C> <C> <C> <C> <C>
At 1 January 1998 2,526 78,940 82,626 10,700 174,792
Additions 17,187 29,260 6,207 - 52,654
--------- --------- --------- --------- ---------
At 31 December 1998 19,713 108,200 88,833 10,700 227,446
--------- --------- --------- --------- ---------
DEPRECIATION
At 1 January 1998 374 18,731 11,829 5,350 36,284
Charge for the year 2,797 17,720 16,734 3,567 40,818
--------- --------- --------- --------- ---------
At 31 December 1998 3,171 36,451 28,563 8,917 77,102
--------- --------- --------- --------- ---------
NET BOOK VALUE
At 31 December 1998 16,542 71,749 60,270 1,783 150,344
========= ========= ========= ========= =========
At 31 December 1997 2,152 60,209 70,797 5,350 138,508
========= ========= ========= ========= =========
</TABLE>
Included above are assets held under finance leases or hire purchase
contracts as follows:
<TABLE>
<CAPTION>
FIXTURES MOTOR TOTAL
AND FITTINGS VEHICLES
(pound) (pound) (pound)
NET BOOK VALUES
<S> <C> <C> <C>
At 31 December 1998 35,472 1,783 37,255
========= ========= =========
At 31 December 1997 45,575 5,350 50,925
========= ========= =========
DEPRECIATION CHARGE FOR THE YEAR
31 December 1998 9,526 3,567 13,093
========= ========= =========
31 December 1997 1,716 3,567 5,283
========= ========= =========
</TABLE>
-13-
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
10 STOCKS 1998 1997
(pound) (pound)
<S> <C> <C>
Raw materials and consumables 99,646 47,109
========== =========
-13
<PAGE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- ------------------------------------------------------------------------------------------------------------------
11 DEBTORS 1998 1997
(pound) (pound)
Trade debtors 347,280 139,971
Amounts recoverable on long term contracts 372,891 413,209
Other debtors 19,753 23,240
Prepayments and accrued income 70,348 22,402
---------- ---------
810,272 598,822
========== =========
12 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 1998 1997
(pound) (pound)
Bank loans and overdrafts 318,298 33,333
Payments received on account 264,970 342,349
Net obligations under finance lease and hire purchase contracts 17,485 20,516
Trade creditors 194,107 132,194
Taxes and social security costs 136,110 137,397
Directors' current accounts 47,151 -
Other creditors 7,749 22,268
Accruals and deferred income 75,499 38,073
---------- ----------
1,061,369 726,130
========== =========
Debt due within one year 382,934 33,333
========== =========
</TABLE>
The bank loan and overdraft is secured by a fixed and floating charge over
the assets of the company, together with deeds of postponement in respect
of directors loans to the company. The bank loan is repayable in monthly
installments of (pound)3,021 and carries an interest rate of 2.5% over the
base rate.
Obligations under finance leases and hire purchase contracts are secured
upon the assets concerned.
-14-
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
13 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 1998 1997
(pound) (pound)
<S> <C> <C>
Bank loans - 22,223
Net obligations under finance leases and hire purchase agreements 17,092 30,304
---------- ----------
17,092 52,527
========== ==========
ANALYSIS OF LOSES
Wholly repayable within five years 30,544 55,556
---------- ----------
30,544 55,556
Included in current liabilities (30,544) (33,333)
---------- ----------
- 22,223
========== ==========
MATURITY OF DEBT
Between one and two years 16,358 39,707
Between two and five years 734 12,820
========== ==========
14 PROVISIONS FOR LIABILITIES AND CHARGES Provisions for
foreseeable
losses
(pound)
Profit and loss account 33,001
==========
15 SHARE CAPITAL 1998 1997
(pound) (pound)
AUTHORIZED
100,000 Ordinary shares of (pound)1 each 100,000 100,000
========== ==========
ALLOTTED, CALLED UP AND FULLY PAID
82,000 Ordinary shares of (pound)1 each 82,000 82,000
========== ==========
</TABLE>
-15-
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
16 STATEMENT OF MOVEMENTS ON RESERVES
SHARE PROFIT AND
PREMIUM LOSS ACCOUNT
ACCOUNT
(pound) (pound)
<S> <C> <C>
Balance at 1 January 1998 30,000 (80,052)
Retained loss for the year - (235,672)
---------- ----------
30,000 (315,724)
========== ==========
17 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 1998 1997
(pound) (pound)
Loss for the financial year (235,672) (80,561)
Capital contributions 156,626 -
---------- ----------
Net depletion in shareholders' funds (79,046) (80,561)
Opening shareholders' funds 31,948 112,509
---------- ----------
Closing shareholders' funds (47,098) 31,948
========== ==========
18 RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW
FROM OPERATING ACTIVITIES 1998 1997
(pound) (pound)
Operating loss (216,117) (74,261)
Depreciation of tangible assets 40,818 27,340
Amortisation of intangible assets 9,447 6,667
Increase in stocks (52,537) (31,625)
Increase in debtors (211,450) (78,464)
Increase in creditors within one year 6,154 147,724
Increase in pension provision 33,001 -
---------- ----------
Net cash outflow from operating activities (390,684) (2,619)
========== ==========
</TABLE>
-16-
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
19 ANALYSIS OF NET DEBT 1 January Cash Flow 31 December
1998 1998
(pound) (pound) (pound)
<S> <C> <C> <C>
NET CASH:
Cash at bank and in hand 16,719 (12,617) 4,102
Bank overdrafts - (287,754) (287,754)
---------- ---------- ----------
16,719 (300,371) (283,652)
---------- ---------- ----------
DEBT:
Finance leases (50,820) 16,243 (34,577)
Debts falling due within one year (33,333) (44,362) (77,695)
Debts falling due after one year (22,223) 22,223 -
---------- ---------- ----------
(106,376) (5,896) (112,272)
---------- ---------- ----------
NET DEBT (89,657) (306,267) (395,924)
========== ========== ==========
</TABLE>
<TABLE>
20 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 1998 1997
(pound) (pound)
<CAPTION>
<S> <C> <C>
Decrease in cash in the year (300,371) (44,254)
Cash inflow from increase in debt and lease financing (5,896) (2,616)
---------- ----------
Change in net debt resulting from cash flows (306,267) (46,870)
New finance lease - (47,631)
---------- ----------
Movement in net debt in the year (306,267) (94,501)
Opening net (debt)/funds (89,657) 4,844
---------- ----------
Closing net debt (395,924) (89,657)
========== ==========
</TABLE>
21 CAPITAL CONTRIBUTIONS
Capital contributions represent amounts of capital provided by equity
shareholders which are not represented by issued shares. The company has no
obligation to transfer economic benefits to shareholders in respect of
these contributions, as defined by Financial Reporting Standard Number 4.
-17-
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
22 FINANCIAL COMMITMENTS
At 31 December 1998 the company had annual commitments under
non-cancellable operating leases as follows:
LAND AND BUILDINGS OTHER
1998 1997 1998 1997
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Expiry date:
Within one year - - 4,705 -
Between two and five years - - 10,487 11,303
In over five years 43,876 43,876 - -
---------- ---------- ---------- ----------
43,876 43,876 15,192 11,303
========== ========== ========== ==========
</TABLE>
23 PENSION COSTS
The company operates a defined contribution pension scheme. The assets of
the scheme are held separately from those of the company in an
independently administered fund. The pension cost charge represents
contributions payable by the company to the fund and amounted to
(pound)19,621 (1997: (pound)23,283). Contributions totaling (pound)10,821
(1997: (pound)2,508) were payable to the fund at the year end and are
included in creditors; amounts falling due within on year.
In addition to the contributions payable to fund as described above amounts
totaling (pound)5,150 (1997: (pound)4,860) have been charged to the profit
and loss account in respect of a pension scheme to be set up for the
directors of the company. At the year end amounts totaling (pound)12,689
(1997: (pound)7,539) had been accrued but not paid in respect of this
scheme.
24 CONTROL
The directors consider SpaceDev Inc., a company incorporated in the state
of Colorado, USA, to be the company's immediate controlling party and
ultimate parent company.
J W Benson a director of SpaceDev Inc., is considered to be the company's
ultimate controlling party.
-18-
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
25 RELATED PARTY TRANSACTIONS
Up until 30 September 1998 Crossnet Systems Limited was regarded as a
related party by virtue of three directors/shareholders of Space
Innovations Limited (Joan Holloway, Dennis Brindley, and Professor John
Culhane) holding between them 52% of the issued share capital of Crossnet
Systems Limited. Joan Holloway and Dennis Brindley are also directors of
Crossnet Systems Limited.
Purchases/(sales) made from/to Crossnet Systems Limited during the period
to 30 September 1998 were:
<CAPTION>
Value of
transactions Debtor/(creditor)
in the year at 31/12/98
(pound) (pound)
<S> <C> <C>
Reimbursement of wages - (1,996)
========== ==========
Contribution to overheads (11,981) -
========== ==========
Purchases/(sales) made from/to Crossnet Systems Limited during 1997 were:
Value of
transactions Debtor/(creditor)
in the year at 31/12/97
(pound) (pound)
Reimbursement of wages - (3,200)
========== ==========
Contribution to overheads (22,740) (1,839)
========== ==========
During the year, the following directors advanced loans to the company:
Amount of loan Balance
Outstanding at
31/12/98
(pound) (pound)
J L Culhane 11,000 11,000
A J Barrington Brown 10,000 9,429
A K Ward 10,000 6,944
J E Holloway 5,000 3,889
J Anzalchi 12,000 8,667
D R Brindley 10,000 7,222
In addition to the capital amounts above, the company reimburses directors
for interest charges and premiums incurred on their loans.
</TABLE>
-19-
<PAGE>
SPACE INNOVATIONS LIMITED
DETAILED TRADING AND PROFIT AND LOSS ACCOUNT
PERIOD ENDED 30 SEPTEMBER 1998
- --------------------------------------------------------------------------------
Period
ended
30
September
1998
(pound) (pound)
Turnover
Sales 910,467
Cost of sales (458,777)
----------
Gross profit 49.61% 451,690
Administrative expenses (791,868)
----------
(340,178)
Other operating income
Government grants received 61,189
----------
61,189
----------
Operating loss (278,989)
Interest payable
Bank interest paid 7,084
Hire purchase interest paid 1,837
----------
(8,921)
----------
Loss before taxation 31.62% (287,910)
==========
<PAGE>
SPACE INNOVATIONS LIMITED
SCHEDULE OF ADMINISTRATIVE EXPENSES
PERIOD ENDED 30 SEPTEMBER 1998
- --------------------------------------------------------------------------------
Period
ended
30
September
1998
(pound)
ADMINISTRATIVE EXPENSES
Wages and salaries (including directors) 290,329
Employer's N.I. contributions 65,669
Staff pension costs 17,966
Staff training 6,750
Keyman life insurance 3,187
Recruitment 21,000
Rates 50,438
Insurance 8,100
Light and heat 5,500
Repairs and maintenance 38,637
Books and journals 4,286
Printing, postage and stationery 8,531
Advertising 19,054
Telephone 4,800
Hire of equipment 3,160
Motor vehicle leasing 6,626
Motor running expenses 912
Travelling expenses 6,764
Legal and professional fees 20,250
Audit fees 9,000
Bank charges 4,500
Profit/loss on foreign currency (3,284)
Sundry expenses (3,062)
Depreciation on intangible assets 9,447
Amortisation on leasehold improvements 1,811
Depreciation on plant and machinery 12,535
Depreciation on fixtures and fittings 12,391
Depreciation on motor vehicles 2,675
Research and development 163,896
----------
791,868
==========
<PAGE>
SPACE INNOVATIONS LIMITED
BALANCE SHEET
AS AT 30 SEPTEMBER 1998
- --------------------------------------------------------------------------------
1998
Notes (pound) (pound)
FIXED ASSETS
Tangible assets 8 141,765
CURRENT ASSETS
Stocks 9 67,184
Debtors 10 559,209
cash at bank and in hand 4,992
-----------
631,385
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 11 (905,380)
-----------
NET CURRENT LIABILITIES: (273,995)
-----------
TOTAL ASSETS LESS CURRENT LIABILITIES (132,230)
CREDITORS: AMOUNTS FALLING DUE AFTER MORE
THAN ONE YEAR 12 (24,479)
PROVISIONS FOR LIABILITIES AND CHARGES 13 (50,771)
-----------
(207,480)
===========
CAPITAL AND RESERVES
Called up share capital 14 82,000
Capital contributions 16 48,482
Share premium account 30,000
Profit and loss account (367,962)
-----------
SHAREHOLDERS' FUNDS - EQUITY INTERESTS 15 (207,480)
===========
<PAGE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
PERIOD ENDED 30 SEPTEMBER 1998
- --------------------------------------------------------------------------------
7 INTANGIBLE FIXED ASSETS
PATENTS AND GOODWILL TOTAL
TRADE MARKS
(pound) (pound) (pound)
---------- ---------- ----------
Cost
At 1 October 1997 & at 30 September 1998 2 20,001 20,003
---------- ---------- ----------
Amortisation
At 1 October 1997 - 10,556 10,556
Charge for period 2 9,445 9,447
---------- ---------- ----------
At 30 September 1998 2 20,001 20,003
---------- ---------- ----------
Net book value
At 30 September 1998 - - -
========== ========== ==========
<TABLE>
8. TANGIBLE FIXED ASSETS
<CAPTION>
LEASEHOLD PLANT AND FIXTURES AND MOTOR TOTAL
IMPROVEMENTS EQUIPMENT FITTINGS VEHICLES
(pound) (pound) (pound) (pound) (pound)
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Cost
At 1 October 1997 2,526 78,940 82,626 10,700 174,792
Additions 17,187 12,239 3,243 - 32,669
---------- ---------- ---------- ---------- ---------
At 30 September 1998 19,713 91,179 85,869 10,700 207,461
---------- ---------- ---------- ---------- ---------
Depreciation
At 1 October 1997 374 18,731 11,829 5,350 36,284
Charge for the period 1,811 12,535 12,391 2,675 29,412
---------- ---------- ---------- ---------- ---------
At 30 September 1998 2,185 31,266 24,220 8,025 65,696
---------- ---------- ---------- ---------- ---------
Net book value
At 30 September 1998 17,528 59,913 61,649 2,675 141,765
========== ========== ========== ========== =========
</TABLE>
9. STOCKS
1998
(pound)
Stocks 67,184
==========
<PAGE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
PERIOD ENDED 30 SEPTEMBER 1998
- --------------------------------------------------------------------------------
10 DEBTORS 1998
(pound)
Trade debtors 159,953
Amounts recoverable on long term contracts 321,522
Other debtors 36,793
Prepayments and accrued income 40,941
----------
559,209
==========
11 CREDITORS: AMOUNTS FALLING DUE WITHIN ON YEAR 1998
(pound)
Bank loans and overdrafts 139,903
Payments received on account 274,278
Net obligtions under finance lease and hire purchase contracts 20,516
Trade creditors 220,757
Taxes and social security costs 92,726
Directors current accounts 50,672
Other creditors 28,268
Accruals and deferred income 78,260
----------
905,380
==========
12 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 1998
(pound)
Net obligations under finance leases and hire purchase agreements 24,479
==========
Net obligations under finance leases and hire purchase contracts
Repayable within one year 20,516
Repayable between one and five years 24,479
----------
44,995
Included in liabilities falling due within one year (20,516)
----------
24,479
==========
<PAGE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
PERIOD ENDED 30 SEPTEMBER 1998
- --------------------------------------------------------------------------------
13 PROVISIONS FOR LIABILITIES AND CHARGES
PROVISION FOR
FORSEEABLE
LOSSES
(pound)
Profit and loss account 50,771
==========
14 SHARE CAPITAL 1998
(pound)
AUTHORISED
100,000 Ordinary shares of (pound)1 each 100,000
==========
ALLOTTED, CALLED UP AND FULLY PAID
82,000 Ordinary shares of (pound)1 each 82,000
==========
15 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 1998
(pound)
Loss for the financial period (287,910)
Capital contribution 48,482
----------
Net depletion in shareholders' funds (239,428)
Opening shareholders' funds 31,948
----------
Closing shareholders' funds (207,480)
==========
16 CAPITAL CONTRIBUTIONS
Capital contributionns represent amounts of capital provided by equity
shareholders which are not represented by issued shares. The company has no
obligation to transfer economic benefits to shareholders in respect of this
contribution, as defined by Financial Reporting Standard Number 4.
<PAGE>
SPACE INNOVATIONS LIMITED
CASH FLOW STATEMENT
FOR THE PERIOD ENDED 30TH SEPTEMBER 1998
1998
(pound) (pound)
Net cash flow from operating activities (147,813)
Returns on investment and servicing of
finance
Interest received 0
Interest paid (8,921)
Non equity dividends paid 0
Dividends received 0
-----------
(8,921)
Taxation
Corporation tax paid 0
ACT 0
-----------
0
Capital Expenditure
Payments to acquire tangible fixed assets (32,669)
Receipts from sale of tangible fixed assets 0
-----------
(32,669)
Equity dividends paid 0
-----------
0
-----------
Cash inflow before use of liquid resources & financing (189,403)
Financing
Capital element of hire purchase borrowings (5,825)
Capital contributions 48,482
Loan advanced in year 94,568
Loan repayments (66,119)
-----------
71,106
-----------
Increase/(decrease) in cash (118,297)
- --------------------------------------------------------------------------------
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
(pound) (pound)
Decrease in cash in the period (118,297)
Cash outflow from decrease in debt financing (22,624)
-----------
Changes in net debt resulting from cash flows (140,921)
-----------
Movement in net debt in the period (140,921)
Net funds at 1st January 1998 (89,657)
-----------
Net debt at 30th September 1998 (230,578)
===========
<PAGE>
SPACE INNOVATIONS LIMITED
NOTES TO THE CASH FLOW STATEMENT
FOR THE PERIOD ENDED 30TH SEPTEMBER 1998
1. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM
OPERATING ACTIVITIES
1998
(pound)
Operating profit/(loss) (278,989)
Depreciation charges 29,412
Amortisation and impairment of intangible fixed assets 9,447
Increase in provisions 50,771
Accrued government grant income (10,145)
Profit on sale of tangible fixed assets 0
(Increase)/decrease in stocks (20,075)
(Increase)/decrease in debtors 49,758
(Decrease)/increase in creditors 22,008
----------
(147,813)
==========
2. ANALYSIS OF CHANGES IN NET DEBT
At 1st Cash Non-Cash At 30th
January 1998 Flows Flows September 1998
(pound) (pound) (pound) (pound)
Cash in hand, at bank 16,719 (11,727) 4,992
Bank overdrafts 0 (106,570) (106,570)
------------ ------------
(118,297) 0
Debt due within one year (22,223) (61,782) (84,005)
Debt due after one year (33,333) 33,333 0
Finance leases (50,820) 5,825 0 (44,995)
------------ ------------
(22,624) 0
------------ ------------ ------------ ------------
TOTAL (89,657) (140,921) 0 (230,578)
============ ============ ============ ============
<PAGE>
================================================================================
SPACE INNOVATIONS LIMITED
DIRECTORS' REPORT AND ACCOUNTS
YEAR ENDED 31 DECEMBER 1997
Company Registration No. 03193413
================================================================================
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
DIRECTORS A K Ward
J L Culhane
J E Holloway
J A Barrington Brown
D R Brindley
J Anzalchi
H K K Ngan
SECRETARY J E Holloway
BANKERS Lloyds Bank PLC
Newbury
SOLICITORS Bird & Bird
London
AUDITORS Moores Rowland
Reading
REGISTERED OFFICE 3 The Paddock,
Hambridge Road,
Newbury,
Berks
RG14 5TQ
-------------------
CONTENTS PAGE
Directors' Report 1 - 3
Report of the Auditors 4
Profit and Loss Account 5
Balance Sheet 6
Notes to the Accounts 7 - 15
================================================================================
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
DIRECTORS' REPORT
The directors submit their report and accounts for the year ended 31st December
1997.
Company law requires the directors to prepare accounts that give a true and fair
view of the state of affairs of the company and of the profit or loss for its
financial year. In doing so the directors are required to:
- - select suitable accounting policies and then apply them consistently
- - make judgements and estimates that are reasonable and prudent
- - prepare the accounts on the going concern basis unless it is inappropriate
to presume that the company will continue in business
The directors are responsible for maintaining proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the accounts comply with the Companies
Act 1985. They are also responsible for safeguarding the assets of the company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
PRINCIPAL ACTIVITIES AND BUSINESS REVIEW
The principal activities of the company in the period under review include
research, design and development of space-related hardware and software, and the
manufacture, test and supply of associated systems and products.
Approximately half of the company's turnover in 1997 was in the area of
communications, including on-board subsystems and ground communications
equipment. The company supplied on-board S-band equipment for Pakistan's BADR-B
satellite, the Moroccan small satellite, the Italian UNISAT small satellite, the
Argentinean SAC-C satellite, the German CHAMP satellite, and the French small
satellite programme. Late in the year, in December, the company made its first
substantive break-through into the American market, with the award of a contract
by Orbital Sciences Corporation, OSC, for the supply of S-band equipment for
NASA's ACRIMSAT spacecraft. in the digital communications area, the company
continued working with the Canadian CAL Corporation on the development of spread
spectrum systems for the European Space Agency, ESA. This development has a
number of potentially lucrative market applications in the future.
The company decided to enter a new product area, namely satellite ground
stations. The first of these S-band stations was built to support the Moroccan
small satellite due to be launched in April 1999. The majority of the (pound)86k
of R&D shown in the profit and loss account on Page 5 was expended on this
development. Whilst this represents a substantial amount of R&D for a small
company, the potential future market for small satellite ground stations is very
large and so justifies the expenditure. At the year end the first ground station
was essentially complete and entering a test and commissioning phase. Around 27%
of the company's turnover was attributable to the area of ground systems,
including the ground station and associated support equipment.
In May, the President of the Board of Trade, the Rt. Hon Margaret Beckett MP,
announced that SIL had been awarded (pound)450k under the DTI's Sector Challenge
initiative to develop the capability of SMEs in the emerging market for small
satellites. Under this award, SIL will work with 11 other SMEs to develop the
'MiniSlL' small satellite platform. The work will include a study phase to
examine potential applications for this type of small satellite in the areas of
Earth observation, communications and space science; followed by a hardware
phase, where a prototype MiniSIL will be built and tested in order to 'flight
qualify' the design. This programme will put the company in a strong position to
participate in future small satellite missions. Although the project was still
only in a preparatory phase by the end of the period under review, the Award
represents an important marker for the future activities of the company.
================================================================================
1
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
DIRECTORS' REPORT (continued)
PRINCIPAL ACTIVITIES AND BUSINESS REVIEW (continued)
Also in the field of small satellites, the company completed a study of the ESA
PROBA (PRoject for On-Board Autonomy) mission, working closely with the Belgian
company Verhaert Design and Development. SIL has a vital role in this project
and will supply the ground station, on-board communications equipment, the
on-board computer, the power system, and systems engineering support to
Verhaert. It had long been planned that this project would enter its
implementation phase in the August/September timeframe. In the event,
administrative delays within ESA led to the 'kick-off' of the project being
delayed until early 1998. This delay led to a significant reduction in turnover
in the last 4 months of the year and was the principal reason for the loss
recorded in 1997. It should be stressed that the turnover was not 'lost', but
was carried forward into 1998. There were two other projects which were also
delayed and which thus contributed to the reduction in turnover in 1997, but the
most significant cause was undoubtedly the delay in starting the PROBA project.
In response to the problems caused by the delays in these projects, but also
recognising the potential of the rapidly expanding global market for small
satellites, the company produced a 'Business Plan for Investment in SIL' in
November 1997. The intention was to obtain equity investment in the company
which would provide both a cash flow buffer and an opportunity to increase the
corporate infrastructure, in order to exploit more effectively the market
opportunities. This initiative has led directly to the decision by SpaceDev Inc.
to acquire the share capital of the company, mentioned in Note 18 to the
accounts.
A further consideration of the Directors has been the potential problem of the
'Millennium Bug'. The company has considerable in-house expertise in the IT area
and these experts have been charged with ensuring that all of the company's
software systems, ranging from CAD through to word-processing, spread-sheet and
accounting packages, are not going to be adversely affected by the Year 2000
date change. The Directors are satisfied that all necessary steps are being
taken to ensure that there will not be any problems arising from this cause.
Thus although, due to the reasons stated above, the company recorded a loss for
the period under review, a substantial amount of groundwork has been laid which
will enable the company to take maximum advantage of the burgeoning small
satellite market. This view is already upheld by events in 1998 and the
Directors believe that the company is now in a strong position to perform well
in the future.
RESULTS AND DIVIDENDS
The loss for the year after taxation amounted to (pound)80,561 (1996: profit
(pound)509).
In view of the company's current and future requirements for the maintenance and
development of its business, the directors do not recommend that a dividend be
declared but that the balance on the profit and loss account be carried forward.
DIRECTORS AND INTERESTS IN SHARES
The number of shares in the company in which the directors had a beneficial
interest, as defined by the Companies Act 1985 was as follows:
Ordinary shares of (pound)1 each
31st December 31st December
1997 1996
A K Ward 10,000 10,000
J L Culhane 10,000 10,000
J E Holloway 3,000 3,000
J A Barrington Brown 10,000 10,000
D R Brindley 10,000 10,000
J Anzalchi 10,000 10,000
H K K Ngan 10,000 10,000
================================================================================
2
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
DIRECTORS' REPORT (continued)
POST BALANCE SHEET EVENTS
On 1st October 1998, SpaceDev Inc., a company based in Colorado, USA, acquired
the entire share capital of the company.
In addition the directors have advanced loans to the company amounting to
(pound)58,000.
AUDITORS
A resolution will be proposed at the annual general meeting to re-appoint Moores
Rowland as auditors to the company for the ensuing year.
By order of the board
J E Holloway
Secretary
Date: 22 January 1999
================================================================================
3
<PAGE>
AUDITORS' REPORT TO THE MEMBERS OF
================================================================================
SPACE INNOVATIONS LIMITED
We have audited the accounts on pages 5 to 15.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described in the directors' report the company's directors are responsible
for the preparation of accounts. It is our responsibility as auditors to form an
independent opinion, based on our audit, on those accounts and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the accounts. It also
includes an assessment of the significant estimates and judgements made by the
directors in the preparation of the accounts, and of whether the accounting
policies are appropriate to the company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations that we considered necessary in order to provide us with sufficient
evidence to give reasonable assurance that the accounts are free from material
misstatement, whether caused by fraud or other irregularity or error. In forming
our opinion we also evaluated the overall adequacy of the presentation of
information in the accounts.
OPINION
In our opinion the accounts give a true and fair view of the state of the
company's affairs as at 31st December 1997 and of its loss for the year then
ended and have been properly prepared in accordance with the Companies Act 1985.
/s/ Moores Rowland
Moores Rowland
Chartered Accountants
Registered Auditors
Reading
Date: 27 January 1999
================================================================================
4
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
================================================================================
PROFIT AND LOSS ACCOUNT
Year Ended 31st December 1997
<CAPTION>
7 months to
31st December
1997 1996
Note (pound) (pound)
<S> <C> <C> <C>
TURNOVER 2 1,347,991 649,451
Cost of sales 601,883 267,605
------------- -------------
GROSS PROFIT 746,108 381,846
Administrative expenses 734,245 379,419
------------- -------------
11,863 2,427
Research and development costs 86,124 -
------------- -------------
OPERATING (LOSS)/PROFIT 4 (74,261) 2,427
Interest payable 3 6,300 1,918
------------- -------------
(LOSS)/PROFIT ON ORDINARY
ACTIVITIES BEFORE TAXATION (80,561) 509
Tax on (loss)/profit on ordinary
activities 6 - -
------------- -------------
(LOSS)/PROFIT FOR THE FINANCIAL YEAR (80,561) 509
============= =============
</TABLE>
All disclosures relate only to continuing operations.
There are no recognised gains and losses other than the profit or loss for the
year.
The notes on pages 7 to 15 form part of these accounts.
================================================================================
5
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
================================================================================
BALANCE SHEET
As at 31st December 1997
<CAPTION>
1997 1996
Note (pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Intangible assets 7 9,447 16,114
Tangible assets 8 138,508 80,266
----------- -----------
147,955 96,380
CURRENT ASSETS
Stocks 9 47,109 15,484
Debtors 10 598,822 520,358
Cash at bank and in hand 16,719 60,973
----------- -----------
662,650 596,815
CREDITORS - amounts falling
due within one year 11 726,130 547,981
----------- -----------
NET CURRENT (LIABILITIES)/ASSETS (63,480) 48,834
----------- -----------
TOTAL ASSETS LESS
CURRENT LIABILITIES 84,475 145,214
CREDITORS - amounts falling
due after more than one year 12 52,527 32,705
----------- -----------
TOTAL NET ASSETS 31,948 112,509
=========== ===========
CAPITAL AND RESERVES
Called up share capital 13 82,000 82,000
Share premium 15 30,000 30,000
Profit and loss account 15 (80,052) 509
----------- -----------
EQUITY SHAREHOLDERS FUNDS 31,948 112,509
=========== ===========
</TABLE>
Approved by the Board on 22 January 1999
A K Ward
- Directors
J E Holloway
The notes on pages 7 to 15 form part of these accounts.
================================================================================
6
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
NOTES TO THE ACCOUNTS
1. ACCOUNTING POLICIES
Accounting convention
The accounts are prepared under the historical cost convention.
Turnover
Turnover represents amounts receivable from customers for goods and
services provided, excluding value added tax.
Goodwill
The goodwill arising on the acquisition of the business, being the amount
paid in respect of contracts which had not commenced at 30 May 1996, has
been capitalised and is amortised through the profit and loss account over
a period of three years, estimated by the directors to be the period during
which profits will arise from these contracts.
Depreciation of tangible fixed assets
Depreciation is provided on all tangible fixed assets so as to write them
off over their anticipated useful lives at the following annual rates on a
straight line basis:
Leasehold improvements - 20%
Fixtures and fittings - 20%
Computer equipment - 20%
Motor vehicles - 33%
Stocks
Stocks are valued at the lower of cost, including appropriate overhead
expenses, and net realisable value.
Long term contracts are stated at total costs incurred, net of amounts
transferred to the profit and loss account in respect of work carried out
to date after deducting foreseeable losses if applicable and payments on
account.
Amounts recoverable on contracts are included in debtors, net of progress
payments received and receivable.
Payments made in excess of amounts (i) matched with turnover, (ii) offset
against long term contract balances are classified as payments on account
and disclosed under:- Creditors: Amounts Falling Due Within One Year.
Turnover and attributable profit have been calculated by reference to the
actual progress of the contracts to the Balance Sheet date in comparison
with their planned progress.
================================================================================
7
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
NOTES TO THE ACCOUNTS (continued)
1. ACCOUNTING POLICIES (continued)
Foreign currencies
Assets and liabilities expressed in foreign currencies are translated at
the rates of exchange ruling at the balance sheet date. Transactions in
foreign currencies are translated at the rate ruling at the date of the
transaction. Differences arising are dealt with in the profit and loss
account.
Lease and hire purchase contracts
Assets being acquired under finance leases and hire purchase contracts are
capitalised in the balance sheet and are depreciated over their anticipated
useful lives. The obligation to make future rental payments, net of future
finance charges, is recognised as a liability in the balance sheet. The
interest element of the lease and hire purchase payments is charged to the
profit and loss account at a constant rate over the period of the
agreement. Rentals under operating leases are charged to the profit and
loss account as incurred.
Development Expenditure
Research and development expenditure is written off to the profit and loss
account in the year in which it is incurred.
Contingencies and Warranties
Expenditure associated with contingencies or warranties on contracts is
written off to the profit and loss account in the year in which it is
incurred.
Pension Costs
Pension costs are charged to the profit and loss account as incurred.
2. TURNOVER
An analysis of turnover by geographical
market is given below:
1997 1996
(pound) (pound)
United Kingdom 32,004 41,801
Europe 471,853 283,540
Rest of the World 844,134 324,110
---------- ----------
1,347,991 649,451
========== ==========
3. INTEREST PAYABLE
1997 1996
(pound) (pound)
On bank loans and overdrafts wholly 5,551 1,455
repayable within five years 749 463
---------- ---------
On finance leases and hire purchase contracts 6,300 1,918
========== =========
================================================================================
8
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
NOTES TO THE ACCOUNTS (continued)
4. OPERATING (LOSS)/PROFIT
<TABLE>
Operating (loss)/profit is stated after charging:
<CAPTION>
1997 1996
(pound) (pound)
<S> <C> <C>
Auditors' remuneration 7,500 6,100
Depreciation of fixed assets 27,340 8,944
Amortisation of goodwill 6,667 3,889
Loss on exchange 6,572 12,919
Operating lease rentals:
- Hire of plant and machinery 6,240 -
- Other operating lease payments 52,589 51,642
========== ==========
</TABLE>
Depreciation of fixed assets includes (pound)5,283 (1996: (pound)1,783) in
respect of assets being acquired under finance leases and hire purchase
contracts.
5. DIRECTORS AND OTHER EMPLOYEES
<TABLE>
<CAPTION>
1997 1996
(pound) (pound)
<S> <C> <C>
Wages and salaries 744,039 275,674
Social security costs 73,897 27,648
Other pension costs 23,283 3,373
---------- ----------
841,219 306,695
========== ==========
The average number of persons employed
by the company during the year was as follows:
Number Number
Production and sales 23 14
Administration 10 10
---------- ----------
33 24
========== ==========
The emoluments of the directors were as follows:
For services as executives 221,107 110,855
Pension contributions paid by the company 4,113 2,156
---------- ----------
225,220 113,011
========== ==========
</TABLE>
Included in the above are emoluments of (pound)56,482 in respect of the
highest paid director, who had no accrued pension entitlement at the year
end.
During the year three (1996: three) directors were accruing benefits under
the company's money purchase pension scheme.
================================================================================
9
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
NOTES TO THE ACCOUNTS (continued)
6. TAX ON (LOSS)/PROFIT ON ORDINARY ACTIVITIES
No liability to UK corporation tax arises on the results for the year
(1996: (pound)Nil).
<TABLE>
<CAPTION>
7. INTANGIBLE FIXED ASSETS
Patents
and trade
Goodwill marks Total
(pound) (pound) (pound)
<S> <C> <C> <C>
Cost:
At 1st January 1997 and
At 31st December 1997 20,001 2 20,003
---------- ---------- ----------
Amortisation:
At 1st January 1997 3,889 - 3,889
Charge for year 6,667 - 6,667
---------- ---------- ----------
At 31st December 1997 10,556 - 10,556
---------- ---------- ----------
Net book value at 31st December 1997 9,445 2 9,447
========== ========== ==========
Net book value at 31st December 1996 16,112 2 16,114
========== ========== ==========
</TABLE>
Goodwill represents the amount paid for contracts which had not commenced
at the date of the acquisition of the business. This is being amortised
over a period of three years which is the directors' estimate of the period
during which profits will arise from these contracts.
================================================================================
10
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
NOTES TO THE ACCOUNTS (continued)
<TABLE>
8. INTANGIBLE FIXED ASSETS
<CAPTION>
Fixtures Plant
Leasehold and and Motor
improvements fittings equipment vehicles Total
(pound) (pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C> <C>
Cost:
At 1st January 1997 - 25,924 52,586 10,700 89,210
Additions 2,526 56,702 26,354 - 85,582
--------- --------- --------- --------- ---------
At 31st December 1997 2,526 82,626 78,940 10,700 174,792
--------- --------- --------- --------- ---------
Depreciation:
At 1st January 1997 - 2,849 4,312 1,783 8,944
Charge for year 374 8,980 14,419 3,567 27,340
--------- --------- --------- --------- ---------
At 31st December 1997 374 11,829 18,731 5,350 36,284
--------- --------- --------- --------- ---------
Net book value at
31st December 1997 2,152 70,797 60,209 5,350 138,508
========= ========= ========= ========= =========
Net book value at
31st December 1996 - 23,075 48,274 8,917 80,266
========= ========= ========= ========= =========
Included in the net book value of fixed assets above are the following
amounts in respect of assets being acquired under finances leases and hire
purchase contracts:
At 31st December 1997 - 45,575 - 5,350 50,925
========= ========= ========= ========= =========
At 31st December 1996 - - - 8,916 8,916
========= ========= ========= ========= =========
</TABLE>
9. STOCKS
<TABLE>
<CAPTION>
1997 1996
(pound) (pound)
<S> <C> <C>
Raw materials and consumables 47,109 15,484
========== ==========
10. DEBTORS 1997 1996
(pound) (pound)
Trade debtors 139,971 142,363
Amounts recoverable on contracts 413,209 316,144
Other debtors 23,240 40,762
Prepayments and accrued income 22,402 21,089
---------- ----------
598,822 520,358
========== ===========
</TABLE>
================================================================================
11
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
NOTES TO THE ACCOUNTS (continued)
<TABLE>
11. CREDITORS - amounts falling
due within one year
<CAPTION>
1997 1996
(pound) (pound)
<S> <C> <C>
Bank loans and overdrafts 33,333 20,000
Payments received on account 342,349 307,668
Trade creditors 132,194 68,133
Obligations under finance leases and hire
purchase contracts 20,516 3,424
Taxation and social security 137,397 49,634
Other creditors 22,268 83,243
Accruals and deferred income 38,073 15,879
---------- ----------
726,130 547,981
========== ==========
</TABLE>
The bank loan and overdraft is secured by a fixed and floating charge over
the assets of the company.
<TABLE>
12. CREDITORS - amounts falling
due after more than one year
<CAPTION>
1997 1996
(pound) (pound)
<S> <C> <C>
Bank loans 22,223 28,889
Obligations under finance leases
and hire purchase contracts 30,304 3,816
---------- ----------
52,527 32,705
========== ==========
Maturity of debt:
- falling due between one and two years 39,707 32,313
- falling due between two and five years 12,820 392
---------- ----------
52,527 32,705
========== ==========
</TABLE>
The bank loan which totals (pound)55,556 is repayable in monthly
instalments of (pound)3,167 and carries an interest rate of 2.5% over the
base rate.
================================================================================
12
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
NOTES TO THE ACCOUNTS (continued)
<TABLE>
13. CALLED UP SHARE CAPITAL
<CAPTION>
1997 1996
(pound) (pound)
<S> <C> <C>
Authorised:
100,000 ordinary shares of (pound)1 each 100,000 100,000
========== ==========
Issued and fully paid:
82,000 ordinary shares of (pound)1 each 82,000 -
Issued in period - 82,000
---------- ----------
82,000 82,000
========== ==========
</TABLE>
During the year an option to subscribe for 1,000 ordinary shares of
(pound)1 each was granted by the company. The option is valid for a period
of 3 years from 24th November 1997 and may be exercised at a price of
(pound)10,000.
<TABLE>
14. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<CAPTION>
1997 1996
(pound) (pound)
<S> <C> <C>
(Loss)/profit for the financial year (80,561) 509
New share capital subscribed - 112,000
---------- ----------
Net (reduction in)/addition to shareholders
funds (80,561) 112,509
Opening shareholders' funds 112,509 -
---------- ----------
Closing shareholders' funds 31,948 112,509
========== ==========
</TABLE>
<TABLE>
15. RESERVES
<CAPTION>
Share Premium Profit & loss
Account Account
(pound) (pound)
<S> <C> <C>
As at 1st January 1997 30,000 509
Loss for the financial year - (80,561)
---------- ----------
As at 31st December 1997 30,000 (80,052)
========== ==========
</TABLE>
================================================================================
13
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
NOTES TO THE ACCOUNTS (continued)
16. FINANCIAL COMMITMENTS
<TABLE>
The amounts payable in the next year in respect of operating leases are
shown below, analysed according to the expiry date of the leases.
<CAPTION>
Land and buildings Other
1997 1996 1997 1996
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Expiry date:
Within one year - - - 9,300
Between two and five years - - 11,303 6,000
After five years 43,876 42,000 - -
---------- ---------- ---------- ----------
43,876 42,000 11,303 15,300
========== ========== ========== ==========
</TABLE>
17. PENSIONS
The company operates a defined contribution pension scheme in respect of
certain of its employees. Contributions are charged in the accounts as
incurred. Pension costs charged in the year were (pound)23,283 (1996:
(pound)3,373) and at the balance sheet date there were outstanding
contributions of (pound)2,508 (1996: (pound)Nil).
18. POST BALANCE SHEET EVENTS
On 1st October 1998, SpaceDev Inc., a company based in Colorado, USA,
acquired the entire share capital of the company.
In addition the directors have advanced loans to the company amounting to
(pound)58,000.
19. TRANSACTIONS WITH RELATED PARTIES
Crossnet Systems Limited is regarded as a related party by virtue of three
directors/shareholders of Space Innovations Limited (Joan Holloway, Dennis
Brindley, and Professor John Culhane) holding between them 52% of the
issued share capital of Crossnet Systems Limited. Joan Holloway and Dennis
Brindley are also directors of Crossnet Systems Limited.
Purchases/(sales) made from to Crossnet Systems Limited during the year
were:
Value of
Transactions Debtor/(Creditor)
in the year at 31/12/97
(pound) (pound)
Reimbursement of wages - (3,200)
========== ==========
Contribution to overheads (22,740) (1,839)
========== ==========
================================================================================
14
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
NOTES TO THE ACCOUNTS (continued)
19. TRANSACTIONS WITH RELATED PARTIES (continued)
Purchases/(sales made from/to Crossnet Systems Limited during 1996 were:
Value of
Transactions Debtor/(Creditor)
in the year at 31/12/96
(pound) (pound)
Sale of work in progress (4,445) 4,445
========== ==========
Reimbursement of wages (7,250) (3,200)
========== ==========
Contribution to overheads (10,988) (558)
========== ==========
Work sub-contracted 5,716 (3,358)
========== ==========
20. CONTROLLING PARTY
Until 1st October 1998, the directors do not consider there to be an
overall controlling party.
From 1st October 1998, SpaceDev Inc., a company based in Colorado, USA., is
considered to be both the ultimate controlling party and ultimate parent
company.
================================================================================
15
<PAGE>
================================================================================
SPACE INNOVATIONS LIMITED
ABBREVIATED ACCOUNTS
PERIOD ENDED 31ST DECEMBER 1996
Company Number: 03193413
================================================================================
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
DIRECTORS A K Ward
J L Culhane
J E Holloway
J A Barrington Brown
D R Brindley
J Anzalchi
H K K Ngan
SECRETARY J E Holloway
BANKERS Barclays Bank Plc
Baker Street
London
SOLICITORS Bird & Bird
London
AUDITORS Moores Rowland
Reading, Berks
REGISTERED OFFICE 3 The Paddock,
Hambridge Road
Newbury
Berks
RG14 5TQ
-------------------
CONTENTS PAGE
Special Auditors' Report 1-2
Abbreviated Balance Sheet 3
Notes to the Accounts 4-6
================================================================================
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
SPECIAL AUDITORS' REPORT
TO THE DIRECTORS OF SPACE INNOVATIONS LIMITED PURSUANT TO PARAGRAPH 8 OF
SCHEDULE 8 TO THE COMPANIES ACT 1985
We have examined the abbreviated accounts on pages 3 to 6 together with the full
accounts of Space Innovations Limited for the period ended 31st December 1996.
The scope of our work for the purpose of this report was limited to confirming
that the company is entitled to the exemptions claimed in the director's
statement on page 3 and that the abbreviated account have been properly prepared
from the full accounts.
In our opinion the company is entitled under sections 246 and 247 of the
Companies Act 1985 to the exemptions conferred by part I of Schedule 8 to that
Act in respect of the period ended 31st December 1996 and the abbreviated
accounts on pages 3 to 6 have been properly prepared in accordance with that
Schedule.
On 26 June 1997 we reported, as auditors of Space Innovations Limited to the
members on the full accounts prepared under Section 226 of the Companies Act
1985 for the period ended 31st December 1996 and our audit report was as
follows:
We have audited the accounts on pages 4 to 13.
Respective responsibilities of directors and auditors
As described in the directors' report the company's directors are responsible
for the preparation of the accounts. It is our responsibility as auditors to
form an independent opinion based on our audit, on those accounts and to report
our opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the accounts. It also
includes an assessment of the significant estimates and judgements made by the
directors in the preparation of the accounts, and of whether the accounting
policies are appropriate to the company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations that we considered necessary in order to provide us with sufficient
evidence to give reasonable assurance that the accounts are free from material
misstatement, whether caused by fraud or other irregularity or error. In forming
our opinion we also evaluated the overall adequacy of the presentation of
information in the accounts.
================================================================================
1
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
Opinion
In our opinion the accounts give a true and fair view of the state of the
company's affairs at 31st December 1996 and of its profit for the period then
ended and have been properly prepared in accordance with the Companies Act 1985.
/s/ Moores Rowland
Moores Rowland
Chartered Accountants,
Registered Auditors,
Reading
26 June 1997
================================================================================
2
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
AS AT 31ST DECEMBER 1996
1996
Note (pound) (pound)
FIXED ASSETS
Intangible assets 2 16,114
Tangible assets 2 80,266
-----------
96,380
CURRENT ASSETS
Stocks 15,484
Debtors 520,358
Cash at bank and in hand 60,973
-----------
596,815
CREDITORS - amounts falling
due within one year 547,981
-----------
NET CURRENT ASSETS 48,834
-----------
TOTAL ASSETS LESS
CURRENT LIABILITIES 145,214
CREDITORS - amounts falling
due after more than one year 32,705
-----------
TOTAL NET ASSETS 112,509
===========
CAPITAL AND RESERVES
Called up share capital 3 82,000
Share premium 30,000
Profit and loss account 509
-----------
EQUITY SHAREHOLDERS FUNDS 112,509
===========
The directors have taken advantage of the exemptions conferred by Part I of
Schedule 8 to the Companies Act 1985 as entitling them to deliver abbreviated
accounts on the grounds that the company is entitled under Sections 246 and 247
of that Act to the benefit of those exemptions as a small company.
/s/ Anthony K. Ward A K Ward
- Directors
/s/ Jan Holloway J E Holloway
Approved by the Board 26 June 1997
================================================================================
3
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
1. ACCOUNTING POLICIES
Accounting convention
The accounts are prepared under the historical cost convention.
Turnover
Turnover represents amounts receivable from customers for goods and
services provided, excluding value added tax.
Goodwill
The goodwill arising on the acquisition of the business, being the amount
paid in respect of contracts which had not commenced at 30 May 1996, has
been capitalised and is amortised through the profit and loss account over
a period of three years, estimated by the directors to be the period during
which profits will arise from these contracts.
Depreciation of tangible fixed assets
Depreciation is provided on all tangible fixed assets so as to write them
off over their anticipated useful lives at the following annual rates on a
straight line basis:
Fixtures and fittings - 20%
Computer equipment - 20%
Motor vehicles - 33%
Stocks
Stocks are valued at the lower of cost, including appropriate overhead
expenses, and net realisable value.
Long term contracts are stated at total costs incurred, net of amounts
transferred to the profit and loss account in respect of work carried out
to date after deducting foreseeable losses if applicable and payments on
account.
Amounts recoverable on contracts are included in debtors, net of progress
payments received and receivable.
Payments made in excess of amounts (i) matched with turnover, (ii) offset
against long term contract balances are classified as payments on account
and disclosed under:- Creditors: Amounts Falling Due Within One Year.
Turnover and attributable profit have been calculated by reference to the
actual progress of the contracts to the Balance Sheet date in comparison
with their planned progress.
Foreign currencies
Assets and liabilities expressed in foreign currencies are translated at
the rates of exchange ruling at the balance sheet date. Transactions in
foreign currencies are translated at the rate ruling at the date of the
transaction. Differences arising are dealt with in the profit and loss
account.
================================================================================
4
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
1. ACCOUNTING POLICIES (continued)
Lease and hire purchase contracts
Assets being acquired under finance leases and hire purchase contracts are
capitalised in the balance sheet and are depreciated over their anticipated
useful lives. The obligation to make future rental payments, net of future
finance charges, is recognised as a liability in the balance sheet. The
interest element of the lease and hire purchase payments is charged to the
profit and loss account at a constant rate over the period of the
agreement. Rentals under operating leases are charged to the profit and
loss account as incurred.
Development Expenditure
Research and development expenditure is written off to the profit and loss
account in the year in which it is incurred.
Pension Costs
Pension costs are charged to the profit and loss account as incurred.
<TABLE>
2. FIXED ASSETS
<CAPTION>
Intangible Tangible
assets assets Total
(pound) (pound) (pound)
<S> <C> <C> <C>
Cost:
Additions: 20,003 89,210 109,213
---------- ---------- ----------
At 31st December 1996 20,003 89,210 109,213
---------- ---------- ----------
Depreciation:
Charge for period 3,889 8,944 12,833
---------- ---------- ----------
At 31st December 1996 3,889 8,944 12,833
---------- ---------- ----------
Net book value at
31st December 1996 16,114 80,266 96,380
========== ========== ==========
</TABLE>
3 CALLED UP SHARE CAPITAL
1996
(pound)
Authorised:
100,000 ordinary shares of (pound)1 each 100,000
==========
Issued and fully paid:
82,000 ordinary shares of (pound)1 each
Issued in period 82,000
==========
================================================================================
5
<PAGE>
SPACE INNOVATIONS LIMITED
================================================================================
4. SECURED CREDITORS
The company has a bank loan totalling (pound)48,889 at 31 December 1996
which is secured by a fixed and floating charge over the assets of the
company.
5. DIRECTORS INTERESTS IN TRANSACTIONS
The company undertook transactions during the period with Crossnet Systems
Limited, a company in which three of the directors (Joan Holloway, Dennis
Brindley, and Professor John Culhane) are interested as directors and/or
shareholders. All transactions were conducted on an arms length basis. The
total value of transactions during the period was (pound)28,399 and the net
balance due to Crossnet Systems Limited at 31 December 1996 was
(pound)2,671.
================================================================================
6
SEPARATION AND RELEASE AGREEMENT
This Separation and Release Agreement (the "Agreement") is made and
entered into as of February 5th, 2000, by and among Philip E. Smith ("Smith")
and Integrated Space Systems, Inc., a California Corporation and it's parent
company SpaceDev, Inc., a Colorado Corporation (hereinafter collectively
referred to as the "Company").
RECITALS
--------
A. Smith worked for or was employed by the Company pursuant to an
employment agreement ("Employment Agreement") and a stock option agreement
("Stock Option Agreement") both dated February 7, 1998 (collectively "the
Employment Agreements"). The Company desires to terminate the employment of
Smith pursuant to the Employment Agreements.
B. The Parties desire to bring the termination of Smith's employment to
a timely and mutually beneficial conclusion, to avoid publicity attendant to the
termination, and to avoid incurring any costs or expenses incident to
prosecution of any claims by Smith or the Company.
C. The Parties enter into the Agreement expressly recognizing that the
making of this agreement does not in any way constitute an admission of
wrongdoing on the part of either Smith or the Company.
DEFINITIONS
-----------
The following terms have the following meanings:
"CLAIMS" means any and all actions, causes of action, claims, costs,
damages, debts, demands, expenses, liabilities, losses, obligations,
proceedings, and suits of every kind and nature, liquidated or unliquidated,
fixed or contingent, in law, equity or otherwise, and whether presently known or
unknown.
"SMITH" means Philip E. Smith.
The "COMPANY" means Integrated Space Systems, Inc. and SpaceDev, Inc.
"EFFECTIVE DATE" means the date first written above.
"PARTIES" means Smith and the Company, collectively.
"PARAGRAPH" means a numbered paragraph of this Separation and Release
Agreement, unless otherwise noted, and all references to a paragraph shall
include all subparts or subparagraphs of that paragraph.
1
<PAGE>
The "AGREEMENT" means this document.
NOW THEREFORE, in reliance upon the above recitals and in consideration
of the mutual covenants contained herein, the Parties hereby agree and covenant
as follows:
1.1 Smith's employment with the Company is terminated effective
February 5th, 2000. Smith waives any right to prior written notice and any other
notice from or by the Company. Smith resigns from the ISS Board of Directors.
1.2 Except for Article 8 of the Employment Agreement which survives the
termination of Smith's employment by the Company, the Employment Agreements are
terminated and the Parties rights and responsibilities under the Employment
Agreements are discharged. The parties expressly agree that Article 8 of the
Employment Agreement shall continue on in full force and effect as modified in
paragraph 1.8 of this Agreement.
1.3 The Company agrees to make payments to Smith pursuant to the
Promissory Note attached hereto as Exhibit A, and incorporation herein by this
reference. Payments shall be made in six (6) successive monthly installments, as
follows:
FEBRUARY 8, 2000 - $15,000
MARCH 1, 2000 - $11,000
APRIL 3, 2000 - $11,000
MAY 1, 2000 - $11,000
JUNE 1, 2000 - $11,000
JULY 3, 2000 - $11,000
(i) This Note may be pre-paid in full without penalty.
(ii) Installments not paid within fifteen (15) days after they
are due shall be subject to, and it is agreed that Smith shall collect, a "late
charge" in the amount of ten (10%) percent of the delinquent monthly payment on
each delinquent installment.
(iii) In the event that any payment is not made within thirty
(30) days after the due date, the entire remaining unpaid balance shall become
immediately due and payable at the option of Smith, without notice, time being
of the essence, and the sum shall bear interest from such time until paid at the
highest rate allowable under the laws of the State of California. Failure of
Smith to exercise this option shall not constitute a waiver of the right to
exercise the same in the event of any subsequent default.
(iv) Larger sums may be paid at anytime if there is no default
under this Note, but the payment of any larger sums in addition to the payments
required in this Note shall not relieve the Company of the payment of the
periodic installments provided for in this Note, unless it is specifically
stipulated by the Company at the time of payment that any larger sums are to be
applied to the advance payment of the periodic installments next maturing in the
order of their due dates.
2
<PAGE>
1.4 The Company agrees to continue to pay Smith his base salary for the
pay period from January 29, 2000 through February 11, 2000. Base salary for
purposes of this provision shall be calculated on the basis of an annualized
salary of ninety thousand dollars ($90,000). Smith agrees that for a period of
six months from the date of this Agreement, he will be available for meetings,
introductions, review sessions, strategy meetings and to otherwise assist the
Company with obtaining or continuing business with the National Reconnaissance
Office. With the exception of the first meeting, which shall be without cost to
the Company and shall not exceed six hours, the Company will reimburse Smith any
expenses in connection with such requests and pay the required hourly rate of
any firm that may employ smith under any contract that may be required by that
firm.
1.5 Except for base salary accruing between January 29, 2000 and
February 11, 2000, Smith agrees to waive all claims to any accrued but unpaid
compensation payable by the Company to Smith under the terms of the Employment
Agreements, including but not limited to any accrued but unpaid salary and stock
options.
1.6 The Company agrees to use its best efforts to secure the removal of
Smith as a personal guarantor of the Company's line of credit by March 31, 2000.
If the Company is not able to obtain a release from the Bank removing Smith from
the line of credit, the Company will indemnify and hold Smith harmless against
any claim against Smith arising from a demand by the bank under the guarantee
Smith executed on the line of credit.
1.7 Smith agrees and covenants that except as may be authorized by the
Company in writing, he shall hold all confidential information in trust and
confidence for the Company, and not disclose such information to anyone outside
of the Company or use such information for the benefit of anyone other than the
Company. Confidential information shall include, without limitation, any and all
information concerning (i) the Company's marketing plans, business plans,
strategies, forecasts, unpublished financial information, budgets, and
projections; (ii) personnel information relating to the Company, including
organizational structure, salary, and qualifications of the Company's employee;
and (iii) customer and supplier information, including identities, sales and
purchase history or forecasts and agreements. Smith warrants that with the
exception of information pertaining to the California Space Technology Alliance,
or information brought with Smith at the time of his employment from outside
sources, he is not in possession of any Confidential Information or any
information that was created or developed from December 9, 1994 to the date of
this agreement. Confidential information shall not include information in the
public domain.
1.8 The Parties agree that the Employment Agreement of Smith is
terminated with the exception of Article 8 of the Employment Agreement which
shall survive the termination and Article 8 of the Employment Agreement is
hereby superceded and amended to read: "For a period of one (1) year after the
Effective date, Smith agrees and covenants that he shall not either directly or
indirectly solicit, induce, recruit, or compete with the Company in connection
with the SpotV or CHIPSat, or SpaceDev Micromission spacecraft as designed for
and derived from the NASA JPL study conducted by the Company. In addition Smith
3
<PAGE>
shall not compete using hybrid rocket technology and related systems including
but not limited to any technology involving: hybrid rocket motors, sounding
rockets, orbital launch vehicles, orbital transfer or kick motors. Except that,
Smith may pursue other small spacecraft missions, products and launch services.
Further, Smith shall not encourage any of the Company's employees to leave their
employment or take away employees, or attempt to solicit, induce, recruit,
encourage or take away employees of the Company, either for himself or for any
other person or entity. The provisions of this section shall be enforceable in a
court of equity through the remedy of injunctive relief or any other legal or
equitable remedy.
1.9 Smith and the Company agree that Smith shall remain eligible to
receive all benefits to which he is entitled pursuant to the Stand-Still
Agreement ("Stand Still Agreement"), a copy of which is attached hereto as
Exhibit B, and incorporated herein by this reference.
1.10 Except for the rights and obligations expressly created or
reserved by the Agreement, Smith on behalf of himself, his heirs, estate,
executors, administrators, successors and assigns fully releases and discharges
the Company and all agents, officers, directors, principals, employees,
attorneys, subsidiaries, affiliated companies, successors, assigns and insurers
of the Company, and each of them, from all actions, causes of action, claims,
judgments, obligations, damages, and liabilities, of whatsoever kind and
character, occurring at any time or times prior to the date of the Agreement,
including, but not limited to, any such claims arising out of or relating to
Smith's employment and to any acts or events involving Smith and the Company.
Further, Smith agrees that by this Agreement he waives any claim for damages
incurred at any time after the date of this Agreement because of alleged
continuing effects of any alleged acts or omissions involving the Company that
occurred on or before the Effective Date, and any right to sue or pursue
arbitration for monetary or injunctive relief against the alleged continuing
effects of acts or omissions that occurred prior to the Effective Date.
1.11 Except for the rights and obligations expressly created or
reserved by the Agreement, the Company on behalf of itself, its agents,
officers, directors, principals, employees, attorneys, subsidiaries, affiliated
companies, successors, assigns and insurers of the Company, and each of them,
fully releases and discharges Smith, his heirs, estate, executors,
administrators, successors and each of them, from all actions, causes of action,
claims, judgments, obligations, damages, and liabilities, of whatsoever kind and
character, occurring at any time or times prior to the date of the Agreement,
including, but not limited to, any such claims arising out of or relating to
Smith's employment and to any acts or events involving Smith and the Company.
Further, Smith agrees that by this Agreement he waives any claim for damages
incurred at any time after the date of this Agreement because of alleged
continuing effects of any alleged acts or omissions involving the Company that
occurred on or before the Effective Date, and any right to sue or pursue
arbitration for monetary or injunctive relief against the alleged continuing
effects of acts or omissions that occurred prior to the Effective Date.
4
<PAGE>
1.12. Smith and the Company expressly waive the benefit of any
statutory provision or common law rule that provides, in sum or substance, that
a release does not extend to claims which the party does not know or suspect to
exist in its favor at the time of executing the release, which if known by it,
would have materially affected its settlement with the other party. In
particular but without limitation, Smith and the Company expressly waive the
provisions of California Civil Code section 1542, which statute reads:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
1.13 Smith agrees that he shall not be entitled to any employment with
the Company or with any of its subsidiaries or related companies, or any
successor, and that he will not apply for employment with the Company or related
or successor companies. Smith further agrees that he will not institute or join
any action, lawsuit, or proceeding against the Company, its subsidiaries,
related companies, or successors for any failure to employ him.
1.14 For a period of five (5) years from the Effective Date the Company
and Smith covenant and agree that the terms, amount and facts of the Agreement
shall be kept strictly confidential. Smith therefore agrees not to disclose,
directly or indirectly, any information concerning the Agreement to anyone,
including past, present and future employees of the Company. Smith further
agrees not to divulge or to disclose in any way to any third parties any of the
alleged facts, circumstances, or events that gave rise to the Agreement or
Smith's termination. . Similarly the Company agrees not to disclose, directly or
indirectly, any information concerning the Agreement to any third party. The
Company further agrees not to divulge or to disclose in any way to any third
parties any of the alleged facts, circumstances, or events that gave rise to the
Agreement or Smith's termination. The provisions of this section shall no apply
to information that must be disclosed by lawful orders of a Court of competent
jurisdiction or to a governmental agency conducting an official inquiry.
1.15 The Parties understand and agree that any breach of section 1.14
shall entitle nonbreaching Party to bring an action for failure to comply with
the terms of this Agreement. Further, this Agreement may be pled as a full and
complete defense to any Claim that may be instituted, prosecuted or attempted by
either Party in breach of this Agreement. In any such action, and in any action
to enforce this Agreement, the prevailing Party shall recover its reasonable
attorneys' fees and costs.
1.16 The Parties expressly understand that both direct and indirect
breaches of this Agreement are proscribed. Therefore, Smith and the Company
covenant that each will not institute or prosecute, against the other, any
action or other proceeding based in whole or in part upon any Claims released by
this Agreement.
5
<PAGE>
1.17 All agreements and obligations of the Parties under this Agreement
shall survive execution and delivery of this Agreement and are not released or
affected hereby.
GENERAL PROVISIONS
------------------
2.1 In entering and making this Agreement, the Parties assume the risk
of any mistake of fact or law. If the Parties, or any of them, should later
discover that any fact they relied upon in entering this Agreement is not true,
or that their understanding of the facts or law was incorrect, the Parties shall
not be entitled to seek rescission of this Agreement by reason thereof. This
Agreement is intended to be final and binding upon the Parties regardless of any
mistake of fact or law.
2.2 This Agreement shall be binding upon and for the benefit of the
Parties and their respective subsidiaries, officers, directors, partners,
employees, heirs, conservators, successors, devisees and assigns.
2.3 Neither the payment of consideration referred to herein, nor the
performance of any covenants contained herein, nor anything contained or
incorporated herein shall be deemed, nor shall the negotiation, execution and
performance of this Agreement constitute, any admission or concession of
liability or wrongdoing on the part of any Party, or any other form of admission
with respect to any matter, thing or dispute whatsoever. Any such liability or
wrongdoing is expressly denied.
2.4 Each Party warrants that no promise, inducement or agreement not
expressed herein has been made in connection with this Agreement. This Agreement
constitutes the entire agreement between the Parties and supercedes and replaces
all prior negotiations or proposed agreements, written or oral.
2.5 This Agreement may not be altered, amended, modified or otherwise
changed in any respect whatsoever except by a writing duly executed by an
authorized representative of each of the Parties.
2.6 The language of this Agreement shall be construed as a whole,
according to its fair meaning and intention, and not strictly for or against any
Party, regardless of who drafted or was principally responsible for drafting the
Agreement or any specific term or condition hereof. This Agreement shall be
deemed to have been drafted by the Parties jointly, and no Party shall urge
otherwise.
2.7 The headings in this Agreement are for convenience only. They in no
way limit, alter or affect the meaning of this Agreement.
2.8 This Agreement shall be construed and enforced pursuant to the laws
of the State of California.
6
<PAGE>
2.9 Should any provision of this Agreement be held illegal, such
illegality shall not invalidate the whole of this Agreement; instead, the
Agreement shall be construed as if it did not contain the illegal part, and the
rights and obligations of the Parties shall be construed and enforced
accordingly.
2.10 This Agreement may be executed in multiple originals, each of
which is equally admissible in evidence and shall be deemed to be one and the
same instrument. The Agreement shall not take effect until each Party has signed
a counterpart.
2.11 Each Party represents and warrants that it has the full power and
authority to enter into this Agreement and to perform all transactions, duties
and obligations herein set forth. Each signatory to this Agreement who signs on
behalf of a Party represents and warrants that he or she has the authority to
sign on behalf of that Party.
2.12 Except as may be otherwise expressly provided herein, this
Agreement shall not effect or terminate the Parties rights and responsibilities
under the following sections of the Employment Agreement which shall survive the
termination of the Employment Agreement and the execution of this Agreement:
Article 8, entitled "Noncompetition; Nonsolicitation; Confidential Information",
as superceded and amended by paragraph 1.8 of this Agreement.
2.13 SMITH FURTHER STATES THAT HE HAS CAREFULLY READ THIS RELEASE, THAT
IT HAS BEEN FULLY EXPLAINED TO HIM BY HIS ATTORNEY, OR THAT HE HAS KNOWINGLY AND
INTELLIGENTLY WAIVED THE ADVICE OF COUNSEL, AND THAT HE FULLY UNDERSTANDS THE
AGREEMENT'S FINAL AND BINDING EFFECT, THAT THE ONLY PROMISES MADE TO INDUCE HIM
TO SIGN THIS AGREEMENT ARE THOSE STATED IN PARAGRAPH 3, AND THAT HE IS SIGNING
THIS AGREEMENT VOLUNTARILY AND WITH THE FULL INTENT OF RELEASING THE COMPANY
FROM ALL CLAIMS.
IN WITNESS HEREOF, the Parties have executed this Agreement as of the
Effective Date.
Philip E. Smith Integrated Space Systems, Inc.
By: /S/ Philip E. Smith By: /s/ Charles Lloyd
------------------- ---------------------------
SpaceDev, Inc.
By: /s/ James Benson
---------------------------
7
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT ("Agreement") is made by
and between Integrated Space Systems, Inc., a California corporation (the
"Company"), and Thomas W. Brown ("Employee") effective March 15, 2000.
PREFACE
WHEREAS, the Employment Agreement between the parties dated February 7,
1998 (the "Employment Agreement") provided, in section 4 that Employee was to
receive salary compensation of $60,000 during his first year of employment,
$80,000 during his second year of employment and $100,000 during his third year
of employment; and
WHEREAS, due to a shortage of cash flow experienced by the Company and
its parent corporation, SpaceDev., Inc. ("SpaceDev"), the Employee accepted a
reduced salary of $59,246 for his first year of employment and $68,454 for his
second year of employment; and
WHEREAS, it is the intention of the Company and SpaceDev to fully
compensate employee as provided in the Employment Agreement;
NOW THEREFORE, the Employment Agreement is amended as provided in this
Amendment to Employment Agreement.
ARTICLE 1
Section 4 of the Employment Agreement is stricken in its entirety and
amended to read as follows:
"4. COMPENSATION. As compensation for the services which Employee is to render
hereunder, the Company shall pay Employee the following aggregate annual salary
for and with respect to each year (annual periods ending with the anniversary
date of the date of this Agreement) during the term hereof: $59,246 for the
first year, $68,545 for the second year and $100,000 for the third year.
Employee's salary during each of such years shall be paid in accordance with the
normal payroll practices of the Company. At the end of each year during the term
thereof, the Board of Directors of the Company may review the compensation of
Employee hereunder and if it, in its sole discretion, believes it to be
justified, may pay to Employee a cash bonus for and with respect to such year.
In addition to the foregoing, SpaceDev, as the parent of the Company, agrees to
issue to Employee 10,000 shares of SpaceDev's common stock, $.0001 par value, on
January 31, 2001.
(a) The Company will provide Employee with such fringe benefits as are
within the Company's policy as approved by the Board of Directors of the
Company. The Company shall also reimburse Employee for expenses reasonably
incurred by him in carrying out his duties hereunder, including travel, lodging
and reasonable entertainment expenses, promptly after presentation to the
Company of receipts or other documents evidencing the incurrence of such
expenses providing that such expenses have been approved in advance by the Chief
Executive Officer of the Company or are otherwise consistent with policy on such
matters as established by the Company's Board of Directors.
-1-
<PAGE>
(b) The Company shall cause SPDV to grant to Employee options to
purchase shares of common stock of SPDV in the amounts and upon the terms set
forth in Exhibit A attached hereto and incorporated herein by this reference."
All of the other provisions of the Employment Agreement shall remain in
effect without amendment.
ARTICLE II
This Amendment to Employment Agreement may be executed in any number of
counterparts, each of which, when taken together, shall be deemed the fully
executed agreement between the parties.
IN WITNESS WHEREOF, the parties have executed this Amendment effective
as of the date first written above.
THE COMPANY:
INTEGRATED SPACE SYSTEMS, INC.
By: /s/ Charles H. Lloyd
-----------------------------------------
Charles H. Lloyd, Chief Executive Officer
EMPLOYEE:
/s/ Thomas W. Brown
- ---------------------------------------------
Thomas W. Brown
SPACEDEV, INC.:
By: /s/ James W. Benson
-----------------------------------------
James W. Benson, Chief Executive Officer
-2-
EMPLOYMENT AGREEMENT
SPACEDEV, INC. AND STAN DUBYN
<PAGE>
TABLE OF CONTENTS
1. Period of Employment.....................................................3
2. Position and Responsibilities............................................3
3. Compensation and Benefits................................................4
4. Termination of Employment................................................5
5. Proprietary Information..................................................7
6. Prior Knowledge and Information..........................................9
7. Arbitration..............................................................9
8. Notices.................................................................10
9. Action by SpaceDev......................................................10
10. Integration.............................................................11
11. Amendments; Waivers.....................................................11
12. Assignment; Successors and Assigns......................................11
13. Severability............................................................11
14. Attorneys' Fees.........................................................11
15. Injunctive Relief.......................................................11
16. Governing Law...........................................................12
17. Interpretation..........................................................12
18. Employee Acknowledgment.................................................12
2
<PAGE>
This Agreement is made effective January 16, 2000, by and between
SpaceDev, Inc., a Colorado corporation ("SpaceDev"), and Stan Dubyn ("Dubyn").
WHEREAS
SpaceDev and Dubyn wish to enter into an employment relationship on the
following terms and conditions.
Dubyn has the experience to provide services to SpaceDev of an
extraordinary character, which gives such services a unique value, the loss of
which cannot be reasonably or adequately compensated in damages in an action at
law.
SpaceDev desires to retain the services of Dubyn, and Dubyn desires to
be employed by SpaceDev for the term of this Agreement.
ACCORDINGLY, the parties agree as follows:
1. PERIOD OF EMPLOYMENT.
BASIC TERM. SpaceDev shall employ Dubyn to render services to SpaceDev
in the position and with the duties and responsibilities described in Section 2
for the period (the "Period of Employment") commencing on March 4, 2000 and
ending upon the date of termination in accordance with Section 4.
2. POSITION AND RESPONSIBILITIES.
(a) POSITION. Dubyn accepts employment with SpaceDev as President
and Chief Operating Officer and shall perform all services appropriate to that
position as assigned by the Board of Directors of SpaceDev. Dubyn shall devote
his best efforts and full-time attention to the performance of his duties. Dubyn
shall be subject to the direction of SpaceDev, which shall retain full control
of the means and methods by which he performs the above services and of the
place(s) at which all services are rendered. Dubyn shall report to the Chairman
of the Board of Directors of SpaceDev. Dubyn shall be expected to travel if
necessary or advisable in order to meet the obligations of his position. Dubyn
may receive incentive compensation in the form of stock bonuses and incentive
stock options as set forth in Sections 3(b) and 3(c) below provided he is able
to successfully complete five acquisitions of companies with ten or more
full-time employees on behalf of SpaceDev before the first anniversary date of
this Agreement. An acquisition shall be deemed completed when a target company,
with ten or more employees, approved for acquisition by the SpaceDev Board of
Directors, becomes a wholly-owned subsidiary of SpaceDev. This provision is
intended to exclude the acquisitions of Altair and Tethers Unlimited, which
SpaceDev targeted for acquisition prior to this Agreement.
(b) OTHER ACTIVITY. Except upon the prior written consent of
SpaceDev, Dubyn (during the Period of Employment) shall not (i) accept any other
employment; or (ii) engage, directly or indirectly, in any other business,
commercial, or professional activity (whether or not pursued for pecuniary
advantage) that is or may be competitive with SpaceDev, that might create a
conflict of interest with SpaceDev, or that otherwise might interfere with the
business of SpaceDev, or any Affiliate. An "Affiliate" shall mean any person or
3
<PAGE>
entity that directly or indirectly controls, is controlled by, or is under
common control with SpaceDev. So that SpaceDev may be aware of the extent of any
other demands upon Dubyn's time and attention, Dubyn shall disclose in
confidence to SpaceDev the nature and scope of any other business activity in
which he is or becomes engaged during the Period of Employment.
(c) REPRESENTATIONS. Dubyn represents and warrants (i) that he is
fully qualified and competent to perform the responsibilities for which he is
being hired pursuant to the terms of this Agreement; and (ii) that Dubyn's
execution of this Agreement, his employment with SpaceDev, and the performance
of his proposed duties under this Agreement shall not violate any obligations he
may have to any former employer (or other person or entity), including any
obligations with respect to proprietary or confidential information of any other
person or entity.
(d) INDEMNIFICATION. Dubyn agrees to indemnify SpaceDev for all
cost and expenses including attorney fees for any and all claims by third
parties for any action or conduct which occurred prior to the date of this
Agreement.
3. COMPENSATION AND BENEFITS.
(a) COMPENSATION. In consideration of the services to be rendered
under this Agreement, SpaceDev shall pay Dubyn a base salary of One Hundred
Fifty Thousand Dollars ($150,000) per year, payable semi-monthly, pursuant to
the procedures regularly established, and as they may be amended, by SpaceDev in
its sole discretion, during the Period of Employment. SpaceDev shall review
annually Dubyn's compensation in accordance with SpaceDev's established
administrative practice for adjusting salaries for similarly situated employees.
(b) BONUS. As additional consideration of the services to be
rendered under this Agreement, SpaceDev shall issue 50,000 shares of its common
stock to Dubyn, pursuant to Rule 701 of the Securities Act of 1933 (the "Act"),
upon successful completion of twelve months of service pursuant to this
Agreement, plus an additional 50,000 shares upon Dubyn's achievement of the
acquisition goals set forth in Section 2(a) above.
(C) INCENTIVE STOCK OPTION. Dubyn shall be eligible to participate
in the SpaceDev Incentive Stock Option Plan (the "Plan") and shall receive an
incentive stock option under the Plan to purchase 50,000 shares of SpaceDev's
common stock upon successful completion of the first twelve months of this
Agreement. In addition, Dubyn is entitled to receive an option under the Plan to
purchase 50,000 shares upon achievement of the acquisition goals set forth in
Section 2(a) above and may receive annual options under the Plan to purchase up
to 20,000 shares, contingent upon favorable annual employment reviews. In
accordance with SpaceDev's Incentive Stock Option Plan, the exercise price on
all options issued to Dubyn will be the five-day quoted average of the closing
Bid price of SpaceDev's common stock on the date the option is issued. All
options issued to Dubyn pursuant to this Agreement and the Plan shall expire
after five (5) years from the date of issuance, and shall be issued subject to
Rule 701 of the Act or other exemption contained in the Act.
4
<PAGE>
(d) BENEFITS. Dubyn shall be entitled to vacation leave in
accordance with SpaceDev's standard policies. As Dubyn becomes eligible
therefor, Dubyn shall have the right to participate in and to receive benefits
from all present and future benefit plans specified in SpaceDev's policies and
generally made available to similarly situated employees of SpaceDev. The amount
and extent of benefits to which Dubyn is entitled shall be governed by the Board
of Directors. Dubyn also shall be entitled to any benefits or compensation tied
to termination as described in Section 4. Nothing stated in this Agreement shall
prevent SpaceDev from changing or eliminating any benefit during the Period of
Employment as SpaceDev, in its sole discretion, may deem necessary or desirable.
No statement concerning benefits or compensation to which Dubyn is entitled
shall alter in any way the term of this Agreement, any renewal thereof, or its
termination. All compensation and comparable payments to be paid to Dubyn under
this Agreement shall be less withholdings required by tax law.
(e) EXPENSES. SpaceDev shall reimburse Dubyn for reasonable travel
and other business expenses incurred by Dubyn in the performance of his duties,
in accordance with SpaceDev's policies, as they may be amended in SpaceDev's
sole discretion. All expenses must be approved by the Chairman of the Board
prior to Dubyn incurring such expense for which he expects reimbursement.
4. TERMINATION OF EMPLOYMENT.
(a) BY DEATH. The Period of Employment shall terminate
automatically upon the death of Dubyn. SpaceDev shall pay to Dubyn's
beneficiaries or estate, as appropriate, any compensation then due and owing,
including payment for accrued unused vacation, if any. Thereafter, all
obligations of SpaceDev under this Agreement shall cease. Nothing in this
Section shall affect any entitlement of Dubyn's heirs to the benefits of any
life insurance plan or other applicable benefits.
(b) BY DISABILITY. If, by reason of any physical or mental
incapacity, Dubyn has been or will be prevented from properly performing his
duties under this Agreement for more than ninety (90) days in any one (1) year
period, then, to the extent permitted by law, SpaceDev may terminate the Period
of Employment upon two (2) weeks' advance written notice. SpaceDev shall pay
Dubyn all compensation to which he is entitled up through the last business day
of the notice period; thereafter, all obligations of SpaceDev under this
Agreement shall cease. Nothing in this Section shall affect Dubyn's rights under
any applicable SpaceDev disability plan.
(c) BY EMPLOYER NOT FOR CAUSE. At any time, SpaceDev may terminate
Dubyn for any reason, with or without cause, by providing Dubyn sixty (60) days'
advance written notice. SpaceDev shall have the option, in its complete
discretion, to terminate Dubyn at any time prior to the end of such notice
period, provided SpaceDev pays Dubyn all compensation due and owing through the
last day actually worked, plus an amount equal to the base salary Dubyn would
have earned through the balance of the above notice period; thereafter, all of
SpaceDev's obligations under this Agreement shall cease. SpaceDev may dismiss
Dubyn without cause notwithstanding anything to the contrary contained in or
arising from any statements, policies, or practices of SpaceDev relating to the
employment, discipline, or termination of its employees.
5
<PAGE>
(d) BY EMPLOYER FOR CAUSE. At any time, and without prior notice,
SpaceDev may terminate Dubyn for Cause (as defined below). SpaceDev shall pay
Dubyn all compensation then due and owing; thereafter, all of SpaceDev's
obligations under this Agreement shall cease. Termination shall be for "Cause"
if Dubyn: (i) acts in bad faith and to the detriment of SpaceDev; (ii) refuses
or fails to act in accordance with any specific direction or order of SpaceDev;
(iii) exhibits in regard to his employment unfitness or unavailability for
service, unsatisfactory performance, misconduct, dishonesty, habitual neglect,
or incompetence; (iv) is convicted of a crime involving dishonesty, breach of
trust, or physical or emotional harm to any person; (v) is selected for layoff
pursuant to a bona fide reduction in force; or (vi) breaches any material term
of this Agreement. If termination is due to Dubyn's disability, Section 4(b)
above shall control, and not this subsection on termination for Cause.
(e) BY EMPLOYEE NOT FOR CAUSE. At any time, Dubyn may terminate
his employment for any reason, with or without cause, by providing SpaceDev
thirty (30) days' advance written notice. SpaceDev shall have the option, in its
complete discretion, to make Dubyn's termination effective at any time prior to
the end of such notice period, provided SpaceDev pays Dubyn all compensation due
and owing through the last day actually worked, plus an amount equal to the base
salary Dubyn would have earned through the balance of the above notice period,
not to exceed thirty (30) days; thereafter, all of SpaceDev's obligations under
this Agreement shall cease.
(f) BY EMPLOYEE FOR GOOD REASON. Dubyn may terminate, without
liability, the Period of Employment for Good Reason (as defined below), provided
Dubyn gives SpaceDev thirty (30) days' advance written notice of the reason for
termination and his intent to terminate this Agreement. During this period,
SpaceDev shall have an opportunity to correct the condition constituting Good
Reason. If the condition is remedied within this period, Dubyn's notice to
terminate shall be rescinded automatically; if not remedied, termination shall
become effective upon expiration of the above notice period. In this event,
SpaceDev shall pay Dubyn all compensation due and owing through the last day
actually worked, plus a lump-sum payment equal to six (6) months' base salary,
which payments shall be in lieu of any damages under this Agreement for any
alleged breach. Thereafter, all of SpaceDev's obligations under this Agreement
shall cease. SpaceDev shall also have the option, in its complete discretion, to
make Dubyn's termination effective at any time prior to the end of the notice
period, provided that SpaceDev pays Dubyn all compensation due and owing through
the balance of the notice period (not to exceed thirty (30) days), in addition
to the payment of six (6) months' base salary described above. Dubyn shall be
entitled to exercise his right to terminate this Agreement for Good Reason only
if he gives the required notice not more than forty-five (45) days after the
occurrence of the event that is the basis for the Good Reason.
Termination shall be for "Good Reason" if: (i) there is a material and
adverse change in Dubyn's position, duties, responsibilities, or status with
SpaceDev; (ii) there is a reduction in Dubyn's salary then in effect, other than
a reduction comparable to reductions generally applicable to similarly situated
employees of SpaceDev; (iii) there is a material reduction in Dubyn's benefits,
other than a reduction comparable to reductions generally applicable to
similarly situated employees of SpaceDev; or (iv) SpaceDev materially breaches
this Agreement. Dubyn shall not be entitled to terminate this Agreement for Good
Reason if an event occurs that would otherwise constitute Good Reason, except
that it results from a change in SpaceDev's status as defined in Section 4(g).
6
<PAGE>
(g) CHANGE IN EMPLOYER STATUS. To the extent permitted by law,
SpaceDev, in its sole discretion, may terminate this Agreement (in which case
all of SpaceDev's obligations under this Agreement shall cease after payment of
all compensation due and owing) upon any formal action of SpaceDev's management
to terminate SpaceDev's existence or otherwise wind up its affairs, to sell all
or substantially all of its assets, or to merge with or into another entity.
(h) TERMINATION OBLIGATIONS.
(i) Dubyn agrees that all property, including, without
limitation, all equipment, tangible Proprietary Information (as defined
below), documents, books, records, reports, notes, contracts, lists,
computer disks (and other computer-generated files and data), and
copies thereof, created on any medium and furnished to, obtained by, or
prepared by Dubyn in the course of or incident to his employment,
belongs to SpaceDev and shall be returned promptly to SpaceDev upon
termination of the Period of Employment.
(ii) All benefits to which Dubyn is otherwise entitled shall
cease upon Dubyn's termination, unless explicitly continued either
under this Agreement or under any specific written policy or benefit
plan of SpaceDev.
(iii) Upon termination of the Period of Employment, Dubyn
shall be deemed to have resigned from all offices and directorships
then held with SpaceDev or any Affiliate.
(iv) The representations, indemnification and warranties
contained in this Agreement shall survive the termination of the Period
of Employment and the expiration of this Agreement.
(v) Following any termination of the Period of Employment,
Dubyn shall fully cooperate with SpaceDev in all matters relating to
the winding up of pending work on behalf of SpaceDev and the orderly
transfer of work to other employees of SpaceDev. Dubyn shall also
cooperate in the defense of any action brought by any third party
against SpaceDev that relates in any way to Dubyn's acts or omissions
while employed by SpaceDev.
5. PROPRIETARY INFORMATION.
(a) DEFINED. "Proprietary Information" is all information and any
idea in whatever form, tangible or intangible, pertaining in any manner to the
business of SpaceDev, or any Affiliate, or its employees, clients, consultants,
or business associates, which was produced by any employee of SpaceDev in the
course of his or her employment or otherwise produced or acquired by or on
behalf of SpaceDev. All Proprietary Information not generally known outside of
SpaceDev's organization, and all Proprietary Information so known only through
improper means, shall be deemed "Confidential Information." Without limiting the
foregoing definition, Proprietary Information and Confidential Information shall
7
<PAGE>
include, but not be limited to: (i) teaching and development techniques,
processes, confidential or secret designs, and trade secrets; (ii) information
about costs, profits, markets, sales, and lists of customers or clients; (iii)
business, marketing, and strategic plans; (iv) employee personnel files and
compensation information; and (v) research, systems, protocols, programs, plans,
and devices and software. Dubyn should consult any SpaceDev procedures
instituted to identify and protect certain types of Confidential Information,
which are considered by SpaceDev to be safeguards in addition to the protection
provided by this Agreement. Nothing contained in those procedures or in this
Agreement is intended to limit the effect of the other.
(b) CONFIDENTIALITY. Dubyn will not disclose any Proprietary
Information to any third party for any reason whatsoever. Dubyn will not
disclose any Proprietary Information to any person unless that person is a
director, officer, Dubyn, advisor or representative of SpaceDev who needs such
information for the purpose of evaluating any possible transaction (it being
understood that those directors, officers, employees, advisors and
representatives shall be informed by Dubyn of the confidential nature of the
Proprietary Information and shall be directed by Dubyn to treat such information
confidentially). In any event, no Proprietary Information shall be disclosed
without the prior written consent of SpaceDev. Dubyn will not utilize any
Proprietary Information he receives for the benefit of anyone other than
SpaceDev. Dubyn will promptly and fully disclose to SpaceDev the name of any
person receiving any Proprietary Information of SpaceDev. This Section 5(b)shall
survive the termination of employment and Dubyn agrees that this agreement shall
remain in full force and effect for a period of one (1) year after termination
of employment with SpaceDev. In the event of a breach of this Section 5(b),
Dubyn acknowledges that, in addition to any other damages, SpaceDev reserves the
right to seek injunctive relief in a court of equity against Dubyn, and/or any
other parties to prevent further breaches from occurring and/or minimize
SpaceDev's damages due to a breach subsequent to the time SpaceDev discovers the
breach has occurred. Nothing in this Section 5(b) shall be construed to
constitute the grant of a license to Dubyn under any trademark, patent, patent
application, or Proprietary Information.
(c) COMPETITIVE ACTIVITY. Dubyn acknowledges that the pursuit of
the activities forbidden by this section would necessarily involve the use or
disclosure of Confidential Information in breach of the preceding subsections,
but that proof of such a breach would be extremely difficult. To forestall such
disclosure, use, and breach, and in consideration of the employment under this
Agreement, Dubyn agrees that for a period of one (1) year after termination of
the Period of Employment, he shall not, directly or indirectly, (i) divert or
attempt to divert from SpaceDev (or any Affiliate) any business of any kind in
which it is engaged, including, without limitation, the solicitation of or
interference with any of its customers; (ii) employ, solicit for employment, or
recommend for employment any person employed by SpaceDev (or any Affiliate); or
(iii) engage in any business activity that is or may be competitive with
SpaceDev (or any Affiliate) in any state where SpaceDev conducts its business,
unless Dubyn can prove that any action taken in contravention of this subsection
was done without the use in any way of Confidential Information.
8
<PAGE>
6. PRIOR KNOWLEDGE AND INFORMATION.
Dubyn acknowledges that he may have certain proprietary information
that was obtained during the course of his former employment or business
dealings with other third parties. Dubyn agrees and represents that he will not
use or disclose, and that SpaceDev has not requested that Dubyn use or disclose,
any third party proprietary information which would be in violation of any laws.
Furthermore, Dubyn agrees to indemnify SpaceDev for the cost, expenses and loss
related to any action or claim arising from the misappropriation of proprietary
information of third parties.
7. ARBITRATION.
(a) ARBITRABLE CLAIMS. All disputes between Dubyn (and his
attorneys, successors, and assigns) and SpaceDev (and its Affiliates,
shareholders, directors, officers, employees, agents, successors, attorneys, and
assigns) relating in any manner whatsoever to the employment or termination of
Dubyn, including, without limitation, all disputes arising under this Agreement,
("Arbitrable Claims") shall be resolved by arbitration. All persons and entities
specified in the preceding sentence (other than SpaceDev and Dubyn) shall be
considered third-party beneficiaries of the rights and obligations created by
this Section on Arbitration. Arbitrable Claims shall include, but are not
limited to, contract (express or implied) and tort claims of all kinds, as well
as all claims based on any federal, state, or local law, statute, or regulation,
excepting only claims under applicable workers' compensation law and
unemployment insurance claims. Arbitration shall be final and binding upon the
parties and shall be the exclusive remedy for all Arbitrable Claims, except that
SpaceDev may, at its option, seek injunctive relief and damages in court for any
breach of Sections 5 and 6 of this Agreement. Subject to the foregoing sentence,
THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO
ARBITRABLE CLAIMS.
(b) PROCEDURE. Arbitration of Arbitrable Claims shall be in
accordance with the Employment Dispute Resolution Rules of the American
Arbitration Association ("AAA Employment Rules"), except as provided otherwise
in this Agreement. Prior to resorting to arbitration, the complaining party must
first exhaust the procedures specified in the SpaceDev Employment Manual Section
3.4. Arbitration shall be initiated by providing written notice to the other
party with a statement of the claim(s) asserted, the facts upon which the
claim(s) are based, and the remedy sought. This notice shall be provided to the
other party within six (6) months of the acts or omissions complained of. Any
claim not initiated within this limitation period shall be null and void. EACH
PARTY WAIVES ALL RIGHTS UNDER STATUTES OF LIMITATIONS OF DIFFERENT DURATION. In
any arbitration, the burden of proof shall be allocated as provided by
applicable law. Either party may bring an action in court to compel arbitration
under this Agreement and to enforce an arbitration award. Otherwise, neither
party shall initiate or prosecute any lawsuit or administrative action in any
way related to any Arbitrable Claim. All arbitration hearings under this
Agreement shall be conducted in San Diego, California. The Federal Arbitration
Act shall govern the interpretation and enforcement of this Section 7.
9
<PAGE>
(c) ARBITRATOR SELECTION AND AUTHORITY. All disputes involving
Arbitrable Claims shall be decided by a single arbitrator. The arbitrator shall
be selected by mutual agreement of the parties within thirty (30) days of the
effective date of the notice initiating the arbitration. If the parties cannot
agree on an arbitrator, then the complaining party shall notify the AAA and
request selection of an arbitrator in accordance with the AAA Employment Rules.
The arbitrator shall have the authority to award equitable relief, damages,
costs, and fees as provided by law for the particular claim(s) asserted. The
fees of the arbitrator shall be split between both parties equally. The
arbitrator shall have exclusive authority to resolve all Arbitrable Claims,
including, but not limited to, any claim that all or any part of this Agreement
is void or unenforceable.
(d) CONFIDENTIALITY. All proceedings and all documents prepared in
connection with any Arbitrable Claim shall be confidential and, unless otherwise
required by law, the subject matter thereof shall not be disclosed to any person
other than the parties to the proceedings, their counsel, witnesses and experts,
the arbitrator, and, if involved, the court and court staff. All documents filed
with the arbitrator or with a court shall be filed under seal. The parties shall
stipulate to all arbitration and court orders necessary to effectuate fully the
provisions of this subsection concerning confidentiality.
(e) CONTINUING OBLIGATIONS. The rights and obligations of Dubyn
and SpaceDev set forth in this Section on Arbitration shall survive the
termination of Dubyn's employment and the expiration of this Agreement.
8. NOTICES.
Any notice under this Agreement must be in writing and shall be
effective upon delivery by hand, upon facsimile transmission to the number
provided below (if one is provided), or three (3) business days after deposit in
the United States mails, postage prepaid, certified or registered, and addressed
to SpaceDev or to Dubyn at the corresponding address below. Dubyn shall be
obligated to notify SpaceDev in writing of any change in his address. Notice of
change of address shall be effective only when done in accordance with this
Section.
SpaceDev's Notice Address:
13855 Stowe Drive
Poway, California 92064
(858) 375-1000
Dubyn's Notice Address:
1831 Prospect Avenue
Hermosa Beach, CA 90254
9. ACTION BY SPACEDEV.
All actions required or permitted to be taken under this Agreement by
SpaceDev, including, without limitation, exercise of discretion, consents,
waivers, and amendments to this Agreement, shall be made and authorized only by
the President or by his or her representative specifically authorized to fulfill
these obligations under this Agreement.
10
<PAGE>
10. INTEGRATION.
This Agreement is intended to be the final, complete, and exclusive
statement of the terms of Dubyn's employment by SpaceDev. This Agreement may not
be contradicted by evidence of any prior or contemporaneous statements or
agreements. To the extent that the practices, policies, or procedures of
SpaceDev, now or in the future, apply to Dubyn and are inconsistent with the
terms of this Agreement, the provisions of this Agreement shall control.
11. AMENDMENTS; WAIVERS.
This Agreement may not be modified, amended, or terminated except by an
instrument in writing, signed by each of the parties. No failure to exercise and
no delay in exercising any right, remedy, or power under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, or power under this Agreement preclude any other or further
exercise thereof, or the exercise of any other right, remedy, or power provided
herein or by law or in equity.
12. ASSIGNMENT; SUCCESSORS AND ASSIGNS.
Dubyn agrees that he will not assign, sell, transfer, delegate, or
otherwise dispose of, whether voluntarily or involuntarily, or by operation of
law, any rights or obligations under this Agreement. Any such purported
assignment, transfer, or delegation shall be null and void. Nothing in this
Agreement shall prevent the consolidation of SpaceDev with, or its merger into,
any other entity, or the sale by SpaceDev of all or substantially all of its
assets, or the otherwise lawful assignment by SpaceDev of any rights or
obligations under this Agreement. Subject to the foregoing, this Agreement shall
be binding upon and shall inure to the benefit of the parties and their
respective heirs, legal representatives, successors, and permitted assigns, and
shall not benefit any person or entity other than those specifically enumerated
in this Agreement.
13. SEVERABILITY.
If any provision of this Agreement, or its application to any person,
place, or circumstance, is held by an arbitrator or a court of competent
jurisdiction to be invalid, unenforceable, or void, such provision shall be
enforced to the greatest extent permitted by law, and the remainder of this
Agreement and such provision as applied to other persons, places, and
circumstances shall remain in full force and effect.
14. ATTORNEYS' FEES.
In any legal action, arbitration, or other proceeding brought to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and costs.
11
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15. INJUNCTIVE RELIEF.
If (i) Dubyn refuses to perform the responsibilities outlined in
Section 2 on Position and Responsibilities within the agreed upon Period of
Employment, and Dubyn has no right to terminate the employment relationship
pursuant to Section 4 on Termination of Employment, or (ii) Dubyn breaches or
threatens to breach any of the covenants in Section 5 on Proprietary Information
and Section 6 on Prior Knowledge and Information, the parties acknowledge that
the damage or imminent damage to SpaceDev's business or its goodwill would be
irreparable and extremely difficult to estimate, making any remedy at law or in
damages inadequate. Accordingly, SpaceDev shall be entitled to injunctive relief
against Dubyn in the event of any breach or threatened breach of such provisions
by Dubyn, in addition to any other relief (including damages) available to
SpaceDev under this Agreement or under law.
16. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the law of the State of California.
17. INTERPRETATION.
This Agreement shall be construed as a whole, according to its fair
meaning, and not in favor of or against any party. By way of example and not in
limitation, this Agreement shall not be construed in favor of the party
receiving a benefit nor against the party responsible for any particular
language in this Agreement.
18. EMPLOYEE ACKNOWLEDGMENT.
Dubyn acknowledges that he has had the opportunity to consult legal
counsel in regard to this Agreement, that he has read and understands this
Agreement, that he is fully aware of its legal effect (including notice of his
statutory rights under Section 2870 of the California Labor Code, as set forth
in the above Section on Inventions and Ideas), and that he has entered into it
freely and voluntarily and based on his own judgment and not on any
representations or promises other than those contained in this Agreement.
The parties have duly executed this Agreement as of the date first
written above.
/S/ Stan Dubyn
--------------------------------
Stan Dubyn
/S/ James W. Benson
--------------------------------
By: James W. Benson
SpaceDev, Inc., President
12
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT ("Agreement") is made by
and between SpaceDev, Inc., a Colorado corporation (the "Company"), and James W.
Benson ("Employee") effective January 21, 2000.
PREFACE
WHEREAS, the Employment Agreement between the parties dated November
24, 1997 (the "Employment Agreement") provides, in section 3, that
performance-based stock options awarded to Employee vest contingent upon the
successful completion of construction, launch and completion of the mission of
the Company's Near Earth Asteroid Prospector; and
WHEREAS, the Company's objectives and business plan have been altered
to focus on the completion and launch of a lunar or deep-space mission; and
WHEREAS, it is the intention of the Company to reward Employee for
accomplishment of its current objectives and business plan;
NOW THEREFORE, the Employment Agreement is amended as provided in this
Amendment to Employment Agreement.
ARTICLE 1
Section 4(c) of the Employment Agreement is stricken in its entirety
and amended to read as follows:
"(c) The Company hereby grants to Employee options to purchase up to
2,500,000 shares of Common Stock, subject to the vesting conditions and at the
exercise prices set forth below:
<TABLE>
<CAPTION>
- ------------ ---------------------------------------------------- -----------------------------
Number of Vesting Upon the Company's Exercise Price Per Share
Shares
- ------------ ---------------------------------------------------- -----------------------------
<S> <C> <C>
500,000 Currently Vested $1.00
- ------------ ---------------------------------------------------- -----------------------------
500,000 Obtaining $6,500,000 additional equity capital $1.50
- ------------ ---------------------------------------------------- -----------------------------
Financing and executing definitive space launch
500,000 agreement $2.00
- ------------ ---------------------------------------------------- -----------------------------
500,000 Launching of first Lunar or Deep-Space mission $2.50
- ------------ ---------------------------------------------------- -----------------------------
Successful completion of first Lunar or Deep-Space
500,000 mission $3.00
- ------------ ---------------------------------------------------- -----------------------------
2,500,000
- ------------ ---------------------------------------------------- -----------------------------
</TABLE>
All options shall expire 60 months from the date of this Agreement."
-1-
<PAGE>
All of the other references to the Near Earth Asteroid Prospector, NEAP
or an asteroid mission in the Employment Agreement shall altered to refer to the
Lunar or Deep-Space spacecraft or mission, as appropriate. Except as provided in
the preceding sentence, all other provisions of the Employment Agreement remain
in effect without amendment.
ARTICLE II
This Amendment to Employment Agreement may be executed in any number of
counterparts, each of which, when taken together, shall be deemed the fully
executed agreement between the parties.
IN WITNESS WHEREOF, the parties have executed this Amendment effective
as of the date first written above.
THE COMPANY:
SPACEDEV, INC.
By: /S/ James W. Benson
-----------------------------------------
James W. Benson, Chief Executive Officer
By: /S/ Charles H. Lloyd
-----------------------------------------
Charles H. Lloyd, Chief Financial Officer
EMPLOYEE:
/S/ James W. Benson
- ---------------------------------------------
James W. Benson
-2-
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT ("Agreement") is made by
and between SpaceDev, Inc., a Colorado corporation (the "Company"), and Jan A.
King ("Employee") effective January 20, 2000.
PREFACE
WHEREAS, the Employment Agreement between the parties dated August 3,
1998 (the "Employment Agreement") provides, in section 3, that Employee is to
receive performance-based stock awards contingent upon the successful completion
of construction, launch and completion of the mission of the Company's Near
Earth Asteroid Prospector; and
WHEREAS, the Company's objectives and business plan have been altered
to focus on the completion and launch of a lunar or deep-space mission; and
WHEREAS, it is the intention of the Company to reward Employee for
accomplishment of its current objectives and business plan;
NOW THEREFORE, the Employment Agreement is amended as provided in this
Amendment to Employment Agreement.
ARTICLE 1
Section 3(b) of the Employment Agreement is stricken in its entirety
and amended to read as follows:
"(b) Corporate Stock. As additional consideration King shall be issued Common
Stock in SPDV as follows:
(1) 5,000 shares on execution of this agreement;
(2) 5,000 shares per year commencing at the end of the second
anniversary of this agreement and each year thereafter of successfully completed
employment under the terms of this agreement. (e.g. The 5,000 shares for the
second year will be issued at the end of the second year (August 2000) and
thereafter at the end of each twelve month term completed;
(3) 10,000 shares upon the successful completion of the SPDV's first
Lunar or Deep-Space spacecraft. Completion shall be deemed to have occurred for
purposes of this section when the spacecraft is built, tested and certified as
ready for launch within time, mass and fiscal budgets. For purposes of this
section, King and SPDV will agree in writing prior to the commencement of the
Lunar or Deep-Space project as to the time, mass and fiscal budgets which will
be acceptable to both parties for King to qualify for the issuance of shares
under this subsection;
(4) 15,000 shares for the successful launch of the Lunar or Deep-Space
spacecraft;
(5) 25,000 shares for the successful completion of minimum defined
specifications for the first Lunar or Deep-Space mission."
-1-
<PAGE>
All of the other references to the Near Earth Asteroid Prospector or
NEAP in the Employment Agreement shall be altered to refer to the Lunar or
Deep-Space spacecraft or mission, as appropriate. Except as provided in the
preceding sentence, all other provisions of the Employment Agreement remain in
effect without amendment.
ARTICLE II
This Amendment to Employment Agreement may be executed in any number of
counterparts, each of which, when taken together, shall be deemed the fully
executed agreement between the parties.
IN WITNESS WHEREOF, the parties have executed this Amendment effective
as of the date first written above.
THE COMPANY:
SPACEDEV, INC.
By: /S/ James W. Benson
-----------------------------------------
James W. Benson, Chief Executive Officer
EMPLOYEE:
/S/ Jan A. King
- ---------------------------------------------
Jan A. King
-2-
LAUNCH AND INTEGRATION SERVICES AGREEMENT
BY AND BETWEEN
SPACEDEV, INC.
AND
DOJIN LIMITED
This Launch and Integration Services Agreement ("Agreement") is entered
into by and between SpaceDev, Inc. ("SpaceDev"), whose principal place of
business is 13855 Stowe Drive, Poway, California and Dojin, Limited ("Customer"
or "Dojin"), whose principal place of business is 4560 Kinsey Drive, Tyler,
Texas. The parties to this Agreement may be referred to collectively herein as
the "Parties".
Whereas, Customer has requested SpaceDev to provide launch and
integration services to transport Customer's payload using the Near Earth
Asteroid Prospector (NEAP) in conjunction with its deep space mission to the
target asteroid identified as Nereus; and
Whereas, Customer and SpaceDev wish to set forth their agreement for
the provision of launch and integration services by SpaceDev in accordance with
the terms and conditions of this Agreement;
The Parties agree as follows:
ARTICLE 1
DEFINITIONS
In this Agreement, capita1ized terms used and not otherwise defined
herein shall have the following meanings, such terms being equally applicable to
the singular and plural forms:
1.1 BEST EFFORTS: Diligently working in a good and workmanlike manner
as a reasonable, prudent provider of launch services.
1.2 CONFIDENTIAL DATA: As defined in Article 22 of this Agreement.
1.3 CUSTOMER'S PAYLOAD: All property that is provided by Customer as
described in the Statement of Work, Exhibit A hereto, to be flown aboard the
Launch Vehicle.
1.4 DUE DATE: The date indicated in Exhibit B, Payment Schedules,
expressed as: (1) a date within a specified number of days from the Effective
Date of this Agreement, (2) a date within a specified number of days from the
satisfactory completion of a Milestone Event, or (3) the date of the later of
(1) or (2).
1.5 EXCUSABLE DELAY: As defined in Article 13 of this Agreement.
<PAGE>
1.6 INTELLECTUAL PROPERTY: Any inventions, software, designs, patents,
trademarks, registered designs, copyrights, trade secrets and other proprietary
data or information of a Party.
1.7 LAUNCH: Issuance of the launch command from the launch sequencer
followed by flow of fuel or oxidizer into any of the first stage engines of the
Launch Vehicle that has been integrated with NEAP. The intent of this definition
is that a Launch shall be considered to occur at the "point of no return", i.e.,
the earliest point in the launch sequence when it is no longer possible to
prevent either lift-off or destruction of the Launch Vehicle or NEAP.
1.8 LAUNCH ATTEMPT: The pre-launch and launch operation of the Launch
Vehicle that has been integrated with NEAP, up to the point of, but not
including, lift-off.
1.9 LAUNCH DAY: A calendar day established for the Launch pursuant to
this Agreement within which the Launch Window is open.
1.10 LAUNCH FAILURE: As defined in Paragraph 13.2 of this Agreement.
1.11 LAUNCH AND INTEGRATION SERVICES: Those services to be performed by
SpaceDev as specified in Article 6, Services To Be Provided By SpaceDev, and in
the Statement of Work, Exhibit A hereto.
1.12 LAUNCH SITE: The physical location for the Launch, including the
associated installations and equipment used by SpaceDev in connection with the
Launch and Integration Services.
1.13 LAUNCH SUCCESS: As defined in Paragraph 12.1 of this Agreement.
1.14 LAUNCH TIME: The time within the Launch Window and when the
Lift-off of the Launch Vehicle is scheduled to take place and, if Lift-off
occurs, the time of Lift-off, defined in hours, minutes and seconds in Universal
Time (UTC).
1.15 LAUNCH VEHICLE: The manufacture launch model as defined in the
appropriate Vehicle Space Launcher Users Handbook, which is to be used to
perform the launch Services for NEAP.
1.16 LAUNCH WINDOW: A time period during the Launch Day within which
the Launch may take place.
1.17 LIFT-OFF: The moment of intentional first motion of the Launch
Vehicle that has been integrated with NEAP, containing the customer's payload.
1.18 MILESTONE EVENT: A task of sufficient importance and
accomplishment that it warrants the establishment of an earned value as
specified in Exhibit B of this Agreement.
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1.19 MISSILE TECHNOLOGY CONTROL REGIME: The Policy Statement between
the United States, United Kingdom, the Federal republic of Germany, France,
Italy, Canada, and Japan, announced on April 16, 1987 and as defined by the
Untied States Department of State, International Traffic in Arms Regulations, 22
C.F.R. ss. 120.29.
1.20 NEAP: Near Earth Asteroid Prospector.
1.21 PAYLOAD PROCESSING FACILITY: The complex composed of various
facilities and equipment located in the vicinity of the Launch Site, or
designated by SpaceDev as the integration area for the Launch Site.
1.22 STATEMENT OF WORK: As set forth in Exhibit A, "Statement of Work",
hereto and made a part hereof.
1.23 TECHNICAL DATE: As defined by the Department of State,
International Traffic in Arms Regulations, 22 C.F.R. ss.120.10.
1.24 TECHNICAL ASSISTANCE AGREEMENT: Means any and all Technology
Assistance Agreements between Customer and SpaceDev.
1.25 TECHNOLOGY TRANSFER CONTROL PLAN: Means the Technology Transfer
Control Plan required by the United States Department of State, Office of
Defense Trade Controls and agreed to by Customer and SpaceDev as a condition of
any license or authorization to export Customer's Payload to be launched by
SpaceDev pursuant to this Agreement or any Technical Data Related to such
Payload.
1.26 THIRD PARTY: Any person or legal entity other than the Parties.
ARTICLE 2
SCOPE OF AGREEMENT
2.1 The scope of this Agreement shall encompass all commercial launch
services and the transportation of the desired equipment pursuant to the
Customer's requirements as set forth in the attached Exhibit A.
ARTICLE 3
TERM
3.1 This Agreement shall be effective on the date this Agreement is
executed by both Parties and shall continue in full force and effect unless
terminated sooner in accordance with Section 24 of this Agreement.
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ARTICLE 4
COVENANT OF WARRANTY OF RIGHTS
4.1 SpaceDev hereby warrants that it possesses the power and authority
necessary for it to enter into this Agreement and to provide to the Customer
launch capabilities and the transportation of the payload which is the subject
of this Agreement. SpaceDev covenants that it will exercise its best efforts to
obtain the necessary governmental licenses to allow it to privately and
commercially launch the NEAP mission that is the subject of this Agreement.
4.2 Customer hereby warrants that it possesses the power and authority
necessary for it to enter into this Agreement and to purchase the launch
services, transportation fees, and the payload that is the subject of this
Agreement. Customer further warrants that it has not executed and will not
execute or in any manner enter into any agreement in conflict herewith.
4.3 The Parties warrant that this Agreement's execution has been duly
authorized by all necessary corporate action. This Agreement constitutes a valid
and binding obligation on each party, enforceable in accordance with its terms.
The Parties warrant that no suit, action, arbitration, or legal, administrative,
or other proceedings or governmental investigation is pending or threatened
against or affecting the parties, their business or properties, their financial
or other conditions, or the transaction contemplated under this Agreement.
Furthermore, the Parties warrant that neither the execution nor delivery of the
Agreement nor the consummation of the transaction contemplated by it would
constitute a default or violation of the Parties' articles of incorporation,
bylaws, or any license, lease, franchise, mortgage, instrument, or other
agreement.
4.4 Customer's Payload must not pose any danger to NEAP or its mission.
Furthermore, SpaceDev reserves the right to refine and exclude any Customer
Payload at its sole discretion.
ARTICLE 5
DISCLAIMER OF WARRANTIES
5.1 There are no warranties that extend beyond the description of the
goods and services provided in this Agreement. SpaceDev disclaims any warranty
of any other kind, including any warranty that the services provided hereunder
will meet any requirement of the client beyond those set forth in the attached
Exhibit A.
ARTICLE 6
SERVICES TO BE PROVIDED BY SPACEDEV
6.1 SpaceDev, in consideration for payments made by Customer under this
Agreement, and in accordance with the terms and conditions contained herein,
shall use its best efforts to provide Launch and Integration Services for the
Launch of Customers Payload aboard NEAP. These Services shall be as described in
the Statement of Work, Exhibit A hereto, utilizing the Launch Vehicle for the
purpose of launching NEAP.
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6.2 In the event that any Launch results in a Launch Failure, SpaceDev
will provide relaunch services at no additional charge.
6.3 All data and documentation in connection with the Launch and
Integration Services shall be delivered to Customer in accordance with the
requirements specified in the Statement of Work.
6.4 In order for SpaceDev to successfully complete the mission,
SpaceDev shall have full and exclusive responsibility for all aspects of the
NEAP spacecraft integration and mission. Customer agrees to submit their fully
tested payload to SpaceDev in accordance with the specifications set forth in
the attached Schedule A. SpaceDev will test the payload to verify that it meets
the contractual requirements for dimensions, weight, and other mutually agreed
conditions as set forth in the attached Schedule A; as soon as the requirements
are verified, SpaceDev will notify Customer. From the date of the notice,
SpaceDev shall then be responsible for the instrument and its integration into
NEAP; however, SpaceDev's actions will be governed by Article 11 "Rights of
Ownership and Custody".
ARTICLE 7
CUSTOMER'S RESPONSIBILITIES
7.1 Customer shall, on a timely basis, perform its obligations under
this Agreement and as set forth in the Statement of Work, Exhibit A hereto,
including, without limitation, the timely delivery, at its expense, of the
Customers Payload to the Payload Processing Facility in order to meet the
requirements for integration specified in the Statement of Work, Exhibit A
hereto. Unless otherwise stated, Customer shall deliver Customer's fully tested
Payload to SpaceDev no later than ninety (90) days prior to the Launch Date.
ARTICLE 8
PURCHASE PRICE
8.1 Customer shall pay to SpaceDev for the Launch and Integration
Services to be provided by SpaceDev pursuant to this Agreement, the firm-fixed
price for such services are specified on Exhibit B attached hereto.
8.2 The price set forth in Exhibit B is the firm and fixed price for
the cost of the Launch and Integration Services, including, without limitation,
the cost of the third-party liability insurance specified in Article 17,
"Third-Party Liability Insurance," and all taxes and duties that may be imposed
by any local governmental authorities with respect to the Launch and Integration
Services. The price also includes re-launch insurance for Customer's Payload.
8.3 The price set forth in paragraph 8.2 does not include any amounts
payable by Customer pursuant to Article 10, "Launch Schedule Adjustments."
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8.4 SpaceDev reserves the rights to increase the price charged by
SpaceDev in the event of additional technical requirements of the Customer after
delivery of the payload to SpaceDev for inspection and acceptance.
ARTICLE 9
GENERAL PAYMENT CONDITIONS
9.1 Within ten (10) days of the execution of this Agreement, Customer
shall pay a down payment as set forth in Exhibit B. If Customer terminates this
Agreement within six (6) months of executing this Agreement, then the down
payment shall be refunded to Customer. If Customer terminates this Agreement
after six (6) months, Customer shall forfeit the down payment in its entirety.
SpaceDev shall provide launch insurance sufficient to either recover the down
payment or provide a re-launch in the event of launch failure. Customer shall
deposit into the escrow account named in Section 9.4 below, the total balance
due, prior to Customer's payload being integrated into NEAP.
9.2 Adjustments to the launch schedule pursuant to Article 10 "Launch
Schedule Adjustments" shall not modify the applicable Payment Schedule in
Exhibit B as regards payments already made.
9.3 SpaceDev shall deliver to Customer an invoice for each payment as
specified in Exhibit B on the Due Date of such payment. Following receipt of
SpaceDev's invoice, Customer shall pay the amount due not later than the number
of days following the Due Date that are specified in Exhibit B (some Due Dates
are not established until satisfactory completion of the Milestone Event for
that payment). One (1) original invoice and two (2) copies shall be sent to
Customer's address set forth in Article 27, "Notices and Language".
9.4 All payments to be made to SpaceDev hereunder shall be made in U.S.
Dollars by Electronic Funds Transfer to SpaceDev's account listed below.
Bank: First National Bank
Account No.: 0092103779
Routing No.: 122238938
Any such finds deposited into SpaceDev's escrow account shall be
released to SpaceDev in the amount and on the Due Date as specified in Exhibit
B. SpaceDev shall notify Customer of such releases of funds.
9.5 Payments made under this Agreement shall not be deemed to
constitute a waiver of any rights, either expressed or implied, that either
Party may have under this Agreement.
9.6 Customer, in its sole discretion, has the option to make payments
earlier than the scheduled date of said payments.
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9.7 Interest at the rate of one percent (1%) per month shall be applied
to all payments required to be paid by Customer for the period beyond the due
date of such payment until paid. The payment of the interest only shall not
release Customer from its obligations to pay the principal of the payment.
ARTICLE 10
LAUNCH SCHEDULE ADJUSTMENTS
10.1 Changes to the Launch Schedule will be provided to Customer in
writing and shall be governed by the following terms and conditions.
10.2 SpaceDev will promptly provide written notice to Customer of any
action which will result in the postponement of a Launch.
10.3 In the event of a launch postponement due to an excusable delay
under Article 13, "Excusable Delay", herein, the Launch Schedule for the
postponed Launch shall be extended for a period of time equal to such period of
Excusable Delay.
ARTICLE 11
RIGHTS OF OWNERSHIP AND CUSTODY
11.1 SpaceDev hereby acknowledges and agrees that at no time shall it
obtain title to or any ownership of, or any other legal or equitable right or
interest in any part of Customer's Payload, or any other tangible or intangible
property or hardware of Customer including, without limitation, any Intellectual
Property rights with respect to Customer's Payload. Such property shall be
considered to be the sole and exclusive property of Customer.
11.2 SpaceDev shall be authorized to destroy the Launch Vehicle and
NEAP, including Customer's Payload, in the event that, following ignition of the
engines, such action shall prove necessary to avoid damage or injury to persons
or property.
ARTICLE 12
LAUNCH SUCCESS AND LAUNCH FAILURE
The performance of Launch and Integration Services shall be considered
either a success or a failure in accordance with the following criteria:
12.1 Launch Success (or "Successful Launch") shall be a Launch that is
not a Launch Failure (according to the definition of Launch Failure in Paragraph
12.2).
12.2 Launch Failure: The performance of the Launch and Integration
Services hereunder shall he considered to be a Launch Failure in the event that
loss of or damage to Customer's Payload is caused solely and directly by Launch
Vehicle or NEAP failure.
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12.3 Corrective Actions Followed Any Launch Failure: In the event of
any failure of any Launch performed by SpaceDev, SpaceDev shall use its Best
Efforts to take all actions necessary to correct the cause of causes of such
failure or failures as may be required by Customer and/or insurance
underwriter(s) acceptable to Customer. SpaceDev and Customer will both use their
Best Efforts to determine the cause in the event of a Launch Failure.
12.4 If Launch failure was due to Customer's Payload, then SpaceDev
shall not be required to provide any further services to Customer in conjunction
with this Agreement, nor shall SpaceDev reimburse Customer any portion of the
Purchase Price as set forth on Schedule B.
12.5 If the Launch Failure was not the fault of Customer, Customer
shall be relieved from all obligations to pay the balance of the purchase price.
ARTICLE 13
EXCUSABLE DELAY
13.1 Except as specifically provided in paragraphs 21.3 and 21.4,
neither Customer nor SpaceDev shall be liable to the other in the event of a
failure or delay in the performance of their respective obligations or
commitments hereunder, and the date on which those obligations or commitments
are to be fulfilled shall be extended for the period of time of such delay,
provided that such failure or delay was unforeseeable and due to a cause beyond
Customer's or SpaceDev's reasonable control, as the case may be, and not due to
that Party's fault or negligence. Such causes include, without limitation, the
following: acts of God, acts of any governmental authority in its sovereign
capacity, wars (declared or undeclared), riots or social uprisings, revolutions,
fires, floods, typhoons, earthquakes, freight embargoes, strikes, lock-outs, or
other labor disturbances, adverse weather, or declared launch safety conditions
that do not permit a Launch ("Excusable Delay").
13.2 In the event of an Excusable Delay, the Party so affected shall
promptly inform the other Party in writing of the date, nature, extent of the
occurrence and, in the event of a delay, its expected length. The Party so
affected shall use its Best Efforts and all means reasonably available to it to
overcome such occurrence. Both Parties shall consult as soon as possible after
the occurrence of Excusable Delay to find an appropriate solution. Such efforts
shall include, without limitation, the expediting of materials and the provision
of additional labor notwithstanding that such efforts may result in additional
expense to the affected Party, provided such additional expense is reasonable.
13.3 Except as provided in Paragraph 24.4.4, the schedule for the
Launch Services affected by an Excusable Delay may be postponed if required, for
the period of the Excusable Delay.
13.4 Nothing contained herein shall be constructed so as to require a
party to settle any strike or labor dispute in which it may be involved.
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ARTICLE 14
INSURANCE AND RISK MANAGEMENT
14.1 SpaceDev shall provide, at no expense to Customer, risk management
services for the launch and the payload that is the subject of this Agreement,
including, but not limited to, general liability insurance, launch insurance,
and specific property insurance.
ARTICLE 15
ASSUMPTION OF LIABILITIES
15.1 Subject to the terms and conditions of the Agreement, SpaceDev
shall not be liable for any obligations or liabilities of Customer of any kind
or nature other than those specifically assumed by SpaceDev under this
Agreement.
ARTICLE 16
INDEMNIFICATION
16.1 Customer shall indemnify, defend, and hold harmless SpaceDev, and
its officers, directors, shareholders, employees, agents, and representative,
against all liability, demands, claims, costs, losses, damages, recoveries,
settlements, and expenses including interest, penalties, attorney fees,
accounting fees, expert witness fees, costs, and expenses incurred by SpaceDev
known or unknown, contingent or otherwise, directly or indirectly arising from
or related to any untruth, inaccuracy, misrepresentations, or breach of any
warranties made by Customer in this Agreement.
ARTICLE 17
THIRD PARTY LIABILITY INSURANCE
17.1 In order to protect each party against any claims by any Third
Party arising out of, relating to or resulting from the Launch and Integration
Services provided under the Agreement, including damage caused by NEAP, SpaceDev
shall procure and maintain an occurrence basis type insurance policy covering
liability for bodily injury, including death, to Third Parties, and loss of or
damage to property of Third Parties. Such insurance ("Third Party Liability
Insurance") shall be in the amount of One Hundred Million U.S. Dollars
(US$100,000,000) and shall be obtained from commercial insurance carriers. Such
insurance shall name Customer as additional insured and shall provide that the
insurers shall waive all rights of subrogation that may arise by contact or at
law against Customer.
17.2 Attachment of Risk for the third party liability insurance
referred to in Paragraph 17.1 will occur upon delivery of Customer's Payload to
SpaceDev in connection with Article 7.
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ARTICLE 18
INSURANCE SUPPORT
18.1 If Customer so requests, SpaceDev shall, at its own expense,
assist Customer in obtaining a policy of launch insurance from a commercial
Customer's insurer of Customer's choosing, the cost of said policy to be paid by
Customer, naming Customer as insured. Such assistance shall include attending
underwriting presentations and furnishing information and materials regarding
the Launch Site, Launch Vehicle, and the Launch and Integration Services,
including access to the Launch Site, if necessary, as needed to secure such
insurance.
18.2 If Customer makes any claim under its insurance, SpaceDev agrees
to provide, at its own expense, all relevant and necessary information regarding
the Launch that may be requested by Customer or its insurers to assist in
settling any claim, and will provide access to the Launch Site and other launch
facilities, if necessary, for the purpose of the insurer's investigation of such
claim.
ARTICLE 19
ALLOCATION OF RISKS
19.1 Inter-participant Waiver of Liability.
19.1.1 Except as otherwise expressly provided in this
Agreement, in view of the particular nature of the services to be
performed hereunder, Customer and SpaceDev irrevocably agree to a no
fault, no-subrogation, inter-participant waiver of liability pursuant
to which each Party agrees to assume the risk of and to absorb the
financial and any other consequences whether direct or indirect, of any
property damage or loss it sustains or for any bodily injury to, death
of, or property damage or loss sustained by its own employees directly
or indirectly arising out of, relating to or resulting from any and all
activities carried out under this Agreement, and each Party further
agrees that it will not make any claim or institute any administrative,
arbitral or judicial proceedings against the other Party for any such
property damage or bodily injury, including death; provided, however
the foregoing inter-participant waiver will not apply to any damage,
loss, bodily injury, or death sustained by a Party that is cause by the
other Party's gross negligence or willful or intentional misconduct.
19.1.2 The inter-participant waiver provisions of this Article
shall inure to the benefit of, and be binding upon, the successor and
permitted assigns of each Party.
19.2 Liability for Infringement of Intellectual Property Rights.
19.2.1 SpaceDev shall indemnify, defend, and hold harmless
Customer from and against any and all claims arising out of or relating
to any infringement, or claim of infringement of the Intellectual
Property rights of a Third Party, that may result from Customer" use of
SpaceDev" Launch and Integration Services including, but not limited to
the use of any and all products, processes, articles of manufacture,
supporting equipment, and facilities.
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19.2.2 Customer shall indemnify, defend and hold harmless SpaceDev from
and against any and all claims arising out of or relating to any infringement,
or claim of infringement of the Intellectual Property rights of a Third Party,
that may result from Customer's design, manufacture or operation of Customer's
Payload launched by SpaceDev or by SpaceDev's compliance with specifications
furnished by Customer with respect to the Launch and Integration Services.
19.3 Rights and Obligations
The right to indemnification provided under this Article 19, shall be
subject to the following conditions.
19.3.1 The Party seeking indemnification shall promptly advise
the other Party in writing of the filing of any suit, or of any written
or oral claim against it alleging an infringement of any Third Party's
rights, upon receipt thereof; and shall provide the indemnifying Party,
at its sole cost and expense, with copies of all relevant
documentation;
19.3.2 The Party seeking indemnification shall not make any
admission nor shall it reach a compromise or settlement nor take any
steps in a dispute with any Third Party without the prior written
approval of the other Party, which approval shall not he unreasonably
withheld or delayed;
19.3.3 The indemnifying Party shall have the obligation to
defend and/or settle any claim or suit when not contrary to the
governing rules of procedure, shall pay all reasonable litigation and
administrative costs and expense (including reasonable attorneys' fees)
incurred in connection with the defense of any such claim or suit,
shall satisfy any arbitral awards or judgments rendered by a court of
competent jurisdiction in such suits, and shall make all settlement
payments in connection therewith; and
19.3.4 In the event that SpaceDev and Customer shall be the
subject of the same infringement claim involving both Paragraphs 19.3.1
and 19.3.2, SpaceDev and Customer shall jointly assume the defense and
shall jointly share the cost of any judgment, award settlement, cost or
expense on a pro-rata basis according to their respective share of
liability. In the event of any disagreement with respect to the
pro-rata allocation of any amount referred to in the immediately
preceding sentence, such allocation shall be determined through good
faith negotiation or final judgment of a court of competent
jurisdiction.
19.4 WITHOUT LIMITING THE GENERALITY OF THE INTER-PARTICIPANT WAIVER OF
LIABILITY SET FORTH IN ARTICLE 19, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO
THE OTHER AND TO PERSONS CLAIMING BY OR THROUGH SUCH PARTY UNDER ANY THEORY OF
TORT, CONTRACT, STRICT LIABILITY, NEGLIGENCE OR UNDER ANY OTHER LEGAL OR
EQUITABLE THEORY FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES,
INCLUDING WITHOUT LIMITATION, COSTS OF EFFECTING COVER, LOST PROFITS LOST
REVENUES OR OTHER ECONOMIC DAMAGES OR LOSSES.
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ARTICLE 20
RIGHTS TO INTELLECTUAL PROPERTY
20.1 Each party acknowledges and agrees that neither the execution nor
the performance by either Party of this Agreement shall grant any ownership
rights or any other right, title or interest in, or license to, any Intellectual
Property of the other Party including, without limitation, any Intellectual
Property conceived and first actually reduced to practice in the course of the
performance of this Agreement by such Party, unless such grant is expressly
recited in a separate written document duly executed by or on behalf of the
granting party. Notwithstanding the foregoing sentence, SpaceDev hereby grants
to Customer for the duration of its performance under this Agreement the right
to duplicate, disclose, and use all interface and integration data necessary for
performance of this Agreement subject to Article 22, "Confidential Data".
ARTICLE 21
LICENSES, PERMITS AND APPROVALS
21.1 SpaceDev shall be responsible for obtaining all necessary
government licenses, permits, approvals, and other documentation for the
performance by SpaceDev of the launch and Integration Services.
21.2 Customer, if not a U.S. entity, shall be responsible for obtaining
all necessary U.S. government licenses, permits, approvals, and other
documentation regarding the export from the United States of technical
information and data necessary for the performance by SpaceDev of the Launch and
Integration Services regarding the export of Customer's Payload from its country
of origin to the Launch Site. Customer shall use reasonable efforts to obtain
such licenses, permits, or approvals as soon as possible, and SpaceDev or its
designee shall, within the prescriptions of applicable law, if requested by
Customer, participate in the procedures necessary to obtain such licenses,
permits, or approvals. If Customer fails to obtain such licenses, permits, or
approvals due to Customer's lack of reasonable efforts, Customer shall forfeit
all payments made to that date. SpaceDev shall comply with any requirements that
may be imposed by the government of the country of origin of Customer's Payload
so that Customer may obtain such licenses, permits, or approvals. Customer shall
inform SpaceDev in writing of any such requirements that require SpaceDev's
compliance.
21.3 In the event that Customer, despite using its reasonable efforts,
is unable to obtain (or if obtained, is subsequently revoked or suspended) the
necessary U.S. Government licenses, permits or approvals for the export of
Customer's Payload for Launch from the Launch Site at least three (3) months
prior to the first day in the Launch Period for that launch, or if the export
license imposes requirements on SpaceDev that SpaceDev is not capable of
satisfying, then the Parties shall meet to consider if additional actions could
be taken to obtain such licenses, permits or approvals, or if other solutions
are available. If, after considering all reasonable alternatives, the Parties
have exhausted all other courses of actions, then Customer shall be entitled to
terminate this Agreement with respect to the launch of Customer's Payload for
which the necessary export authorization has not been obtained or has been
revoked or suspended, and Article 13 "Excusable Delay' shall not apply.
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21.3.1 If the denial, revocation, or suspension of such
licenses, permits, or approvals is the result of actions or inaction's
attributable to SpaceDev or the Customer's government, SpaceDev shall
refund to Customer within sixty (60) days of the date of the
termination notice all payments made by Customer under this Agreement
with respect to the Launch of the affected Payload. For the Purpose of
this paragraph 21.3.1 any action by the U.S. government to deny or
revoke Customer's export authorization as a result of an alleged
failure of government or SpaceDev or its general partners to fully
comply with the requirements of the Missile Technology Control Regime
("MTCR"), any Treaty or agreement (including, but not limited to,
Executive Agreements, Memoranda and Understanding and other agreements
between departments or agencies of the U.S. government), the Technology
Transfer Control Plan ("TTCP"), Technology Assistance Agreement or any
condition or provision of any export license or authorization, shall be
deemed to be the result of actions of SpaceDev.
21.3.2 If the denial of such licenses, permits or approvals is
not the result of actions or inactions attributable to either SpaceDev
or Customer, SpaceDev shall be entitled to retain as termination
charges all payments made by Customer until the date of the termination
notice up to the smaller of ten percent (l0%) of the purchase price and
maximum amount of One Hundred Thousand United States Dollars
(US$1OO,000). If the amounts paid to SpaceDev by Customer for the
Launch Services to terminate exceed One Hundred Thousand United States
Dollars (US$100,000), SpaceDev shall refund to Customer within sixty
(60) days of the date of the termination notice all amounts paid in
excess of one hundred thousand United States Dollars (US $100,000).
21.4 Each Party shall be solely responsible for any expense incurred in
obtaining the licenses, permits, approvals, authorizations, notices, and other
documentation such Party is required to obtain under this Article 21, provided
that each Party agrees to provide reasonable assistance to the other Party, at
its own expense, in obtaining such licenses, permits, approvals, authorizations,
notices, and other documentation.
21.5 SpaceDev shall obtain whatever licenses, permits, approvals or
other documentation from any governmental authorities that are necessary or
appropriate for the performance by the Parties of this Agreement. In the event
that such governmental licenses, permits, or approvals are denied or, if
granted, are later withdrawn or canceled at any time during the term of this
Agreement, Customer shall be entitled to terminate this Agreement, in whole or
in part and SpaceDev shall refund to Customer within thirty (30) days of the
date of the termination notice all payments made by Customer under this
Agreement and Article 13, "Excusable Delay" shall not apply.
ARTICLE 22
CONFIDENTIAL DATA
22.1 In the course of performance of its obligations hereunder each
Party may disclose data and information of a technical and financial nature that
is considered to be proprietary and confidential, including, without limitation,
information originally created by or available only from the disclosing Party,
or a Third Party with respect to which the disclosing Party has limited
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disclosure rights ("Confidential Data"), Such Confidential Data shall be marked
prominently as confidential or proprietary before its disclosure.
22.2 A Party receiving Confidential Data that has been identified as
confidential or proprietary shall take all reasonable precautions to prevent its
publication or disclosure to any Third Party. Such Party shall use the
Confidential Data solely for the performance of its obligations under this
Agreement. The Parties shall be deemed to have discharged their entire
obligation to maintain confidentiality of Confidential Data hereunder, if they
exercise the same degree of care to preserve and safeguard the other Party's
Confidential Data as they use to preserve and safeguard their own Confidential
Data.
22.3 Neither Party shall be liable for disclosure or use of any
Confidential Data that is;
22.3.1 In the public domain, by publication or otherwise, at
the time to receipt or that comes into the public domain thereafter
through no act of the receiving Party in breach of this Agreement: or
22.3.2 Known to the receiving Party or legally in the
receiving Party's possession before disclosure by the disclosing Party;
or
22.3.3 Disclosed with the prior written approval of the
disclosing Party; or
22.3.4 Independently developed by the receiving Party; or
22.3.5 Lawfully disclosed to the receiving Party by a Third
Party under conditions permitting such disclosure, or
22.3.6 Not properly marked as confidential or proprietary, or
22.3.7 Required, but only to the extent necessary, to be
disclosed pursuant to governmental or judicial order in which event the
Party concerned shall notify the other Party of any such requirement
before such disclosure and shall take all reasonable actions to protect
the confidentiality of such Confidential Data; or
22.3.8 Required in connection with the financing of this
Agreement or of Customers Payload or in connection with the procurement
of insurance or the presentation of any insurance claim, provided any
recipient shall have first agreed to be bound by the nondisclosure and
use restrictions contained herein.
22.4 Upon termination or completion of this Agreement, and upon
request, each Party agrees to return all Confidential Data (including all copies
thereof) received from the other Party or provide written certification that all
such Confidential Data has been destroyed, except that each Party may retain one
legal file copy Thereof. The confidentiality provisions of this Article 22 shall
survive the termination or completion of this Agreement.
22.5 If the Confidential Data disclosed is verbal, such verbal
Confidential Data shall be identified as confidential and proprietary before
disclosure and shall be reduced to writing promptly,
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but in no event later than twenty (20) days, properly marked as confidential or
proprietary and delivered to the receiving Party in accordance with this Article
22.
22.6. All right, title and interest in and to all Confidential Data and
any other data or information owned by one Party and delivered or disclosed to
the other Party pursuant to this Agreement shall remain exclusively with the
delivering or disclosing Party.
ARTICLE 23
NON-COMPETITION
23.1 SpaceDev's business is to deliver payload packages to certain
predetermined destinations in space for a delivery fee. SpaceDev agrees not to
compete with its customers but cannot arbitrate among customers regarding their
payload content.
ARTICLE 24
TERMINATION
24.1 This Agreement and the performance of services hereunder may be
terminated for cause by either Party upon the occurrence of any one of the
following events:
24.1.1 The other Party files a voluntary petition in
bankruptcy, makes a general assignment, arrangement or composition with
or for the benefit of its creditors, suffers or permits the appointment
of a receiver for its business assets, becomes subject to involuntary
proceedings under any bankruptcy or insolvency law (which proceedings
remain pending for more than thirty (30) days or is wound up or
liquidated;
24.1.2 The other Party breaches any material covenant in this
Agreement, which breach remains uncured for a period of time equal to
the earlier to occur of: (a) thirty (30) days following receipt of
written notice of such breach from the non-breaching Party or (b) five
(5) days following receipt of written notice of such breach from the
non-breaching Party if such breach occurs within thirty (30) days
before Launch provided that, SpaceDev shall not be required to perform
the outstanding services with respect to Customer's Payload as set
forth in Exhibit A if Customer has not cured the breach of any material
covenant before the Launch and provided further that, if such breach is
not curable using reasonable efforts within the time periods specified
in (a) and (b) of this Paragraph 24.1.2 and the Launch is not scheduled
or occur before such time, such longer period, not exceeding ninety
(90) days, provided the breach can be cured within such longer period
and the breaching Party has commenced and is diligently proceeding with
the cure; or
24.2 If Customer terminates this Agreement pursuant to Paragraph
24.1.1, it shall be entitled to claim any amounts previously paid to SpaceDev
hereunder in excess of launches already performed. If SpaceDev terminates this
Agreement pursuant to Paragraph 24.1.1, it shall be entitled to retain all
payments made by Customer to SpaceDev hereunder.
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24.3 Customer may terminate this Agreement for its own convenience, at
any time before Launch, provided that it shall pay SpaceDev through the
effective date of termination in accordance with the termination schedule below.
The total price payable shall be inclusive of payments already made to SpaceDev;
if the total amount paid by Customer to SpaceDev at the effective date of
termination exceeds the amount shown in the table below, then SpaceDev shall
refund to Customer the difference between the amount paid by Customer to
SpaceDev, and the amount shown in the table below.
Months Before Launch Day Total Price Payable Hereunder
------------------------ -----------------------------
18 months 10% of total price as defined in Exhibit B
12 months 27.5%
7 months 55%
4 months 80%
The Launch Day referred to in the above table shall be the Launch Day
in effect on the effective date of termination.
24.4 Customer shall be entitled to cancel a Launch and Integration
Service and terminate this Agreement for cause upon notice to SpaceDev under the
following conditions.
24.4.1 In the event that the Launch Date is postponed beyond
December 31, 2002, Customer may cancel the Launch Service with respect
to such Launch, in which case SpaceDev shall reimburse within thirty
(30) days of written notice by Customer for all payments made to
SpaceDev under this Agreement with respect to such Launch.
24.4.2 In the event of a Launch Failure, or a failure of any
launch vehicle, within six (6) months before the commencement of the
Launch period for the next scheduled Launch, if SpaceDev has not
demonstrated to the satisfaction of Customer that the cause of the
failure has been identified and that corrective measures have been or
are being implemented.
24.4.3 In the event of termination in whole or in part, under
this Paragraph 24.4, Customer shall not have any liability to SpaceDev
under this Agreement with respect to the portion of this Agreement
which is terminated, including, without limitation, any of the payment
obligations under Article 8, "Purchase Price" or Article 9, "General
Payment Conditions", and SpaceDev shall refund to Customer any amount
paid under this Agreement with respect to such terminated portion of
this Agreement within thirty (30) days of the date of the termination
notice.
24.5 Notwithstanding any provision in this Agreement to the contrary,
the termination fees set forth in this Article 24 shall be SpaceDev's sole and
exclusive remedy in the event of Customer's default hereunder.
24.6 On termination of this Agreement, each party agrees to immediately
deliver to the other party all documents, data, records, electronic data,
notebooks, and similar material relating in away to any proprietary information
of the other party, including copies then such party's possession, whether
prepared by that party or others. Neither party shall retain any such documents,
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data, or other items originated by the other party.
ARTICLE 25
CONDITIONS
25.1 If SpaceDev is unable to successfully complete the NEAP project or
if at the sole discretion of SpaceDev, it determines under its own standard of
satisfaction and under good faith that a specific mission cannot be successfully
completed, then this Agreement shall be void, and all rights granted by this
Agreement shall be terminated and forfeited, all funds paid shall be refunded to
client and neither SpaceDev nor client shall have any further responsibility or
liability to each other.
25.2 SpaceDev's obligations to provide launch services and
transportation of the payload under this Agreement are subject to the
satisfaction, at or before the launch date, of all the following conditions.
SpaceDev may waive any or all or these conditions in whole or in part without
prior notice, except that no waiver of a condition shall constitute a waiver by
SpaceDev of any of its rights or remedies, at law or in equity, if Customer is
in default of any of its rights representations, warranties, or covenants under
this Agreement.
25.3 All representations and warranties by Customer in this Agreement,
or in any written statement delivered to SpaceDev under this Agreement, shall be
true in all material respects regarding the launch date as though such
representation and warranties were made on and as of that date.
25.4 Customer shall have performed, satisfied, and complied with all
covenants, agreements, and conditions that it is required by this Agreement to
perform, satisfy, or comply with on or before the launch date.
ARTICLE 26
INTERPRETATION
26.1 This Agreement contains the entire agreement of the parties. There
are no understandings or agreements between the relative to this Agreement or to
its subject matter that are not fully expressed in this Agreement. All prior
agreements, discussions, representations, warranties, or statements by the
parties are hereby superseded unless they are expressly incorporated in the
terms of this Agreement by the terms thereof.
26.2 All terms and conditions of this Agreement are established on the
basis of mutual understanding between the parties. Therefore, the relationship
of the parties, including, but not limited to, the rights, obligations and
remedies of both parties and the meaning and effectiveness of the terms and
conditions of the Agreement shall be construed in the context of this Agreement
and to give effect thereto.
26.3 Article and Section headings are used solely for convenience of
reference only and shall not affect the construction of any provision of this
Agreement.
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ARTICLE 27
NOTICES AND LANGUAGE
27.1 Any communication between the parties in connection with this
Agreement shall be made in the English language. Any documents provided by one
party to the other shall be written in the English language. Translation by or
any document from another language into English shall be at the risk of the
party performing the translation. SpaceDev reserves the right to reject any
document received if not in accurate English.
27.2 All important communication notices concerning this Agreement
shall be made in writing and shall be sufficient in all respects if delivered in
person or by facsimile, telex, or telegram to SpaceDev or to Customer, as the
case may be, at the address specified below or such other addresses as a party
may give to the other party pursuant to this Section. Any notices sent by telex,
facsimile, or telegram shall be confirmed by sending an original of such notice
by certified or registered airmail, and if any notice is given by facsimile, the
party giving the notice shall at or about the time of sending the facsimile,
record the number of pages thereof and brief description of the matters covered.
SpaceDev: l3855 Stowe Drive, Poway, California 92064
Dojin: 4560 Kinsey Drive, Tyler, Texas 75703
27.3 Notices given hereunder shall be deemed to be received in the case
of telegrams, telexes and facsimiles on the first business day after the
dispatch thereof. Business day means any day other than a Saturday, Sunday, or
public holiday in the United States of America.
ARTICLE 28
COORDINATION AND COMMUNICATIONS BETWEEN PARTIES
28.1 Customer and SpaceDev shall each designate a project coordinator
immediately following the effective date of this Agreement.
28.2 The project coordinators shall supervise and coordinate the
performance of the Launch and Integration Services and the technical commitments
of the respective Parties under this Agreement.
28.3 The project coordinators shall have sufficient power to be able to
settle any technical issues that may arise during the performance of this
Agreement as well as any daily administration of the new project coordinator.
28.4 Either Party may replace its project coordinator by prior written
notice to the other Party, signed by an authorized representative, indicating
the effective date of designation of the new project coordinator.
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28.5 The project coordinators shall not be authorized to direct work
contrary to the requirements of or to make modifications to this Agreement.
Modifications to this Agreement shall only be made in accordance with Article
29, Amendments.
ARTICLE 29
AMENDMENTS
29.1 Either party to this Agreement shall be entitled to request an
amendment to this Agreement by submitting its request in writing to the other
party. If the other party agrees to amend this Agreement, the amendment shall
take effect after it is signed by the authorized representatives of the parties.
ARTICLE 30
ASSIGNMENT OF AGREEMENT
30.1 This Agreement shall be binding upon and shall inure to the
benefit of the parties, any successor, and permitted assignees. Neither party
shall be entitled to assign all or part of its rights and obligations under this
Agreement without the prior written consent of the other party, except that
SpaceDev may transfer or assign its rights and obligations under this Agreement
to a Third Party or to a wholly owned subsidiary of such Party pursuant to any
merger, sale of all or substantially all assets, or other corporate
reorganization. Consent to assignment shall not be unreasonably withheld.
Notwithstanding this Section, the parties recognize that for the purpose of
financing the parties' obligations under this Agreement, it may be necessary for
either party to assign by way of security its rights hereunder to a bank or
banks or other financial institution. Neither party shall withhold its consent
to any such assignment.
ARTICLE 31
DEFAULT
31.1 Both parties shall have the mutual obligation to notify the other
party in writing immediately of any event which could give rise to default under
this Agreement.
31.2 No default of either party to this Agreement in the performance of
any of its covenants or obligations, which except for this provision would be
the legal basis for rescission or termination of this Agreement by the other
party, shall give or result in such rights, unless and until the party
committing the default shall fail to correct the default within thirty (30) days
after written notice of claim of default, and a statement setting forth the
nature thereof is given by the defaulting party by the party claiming default.
31.3 If either party did not exercise its right to impose sanctions
when its interests under this Agreement were violated, such failure shall not be
constructed as allowing such violation in the future.
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ARTICLE 32
JOINT AND SEVERAL LIABILITY
32.1 If any party consists of more than one person or entity, the
liability of each such person or entity signing this Agreement shall be joint
and several.
ARTICLE 33
SETTLEMENT OF DISPUTES
33.1 All disputes arising in connection with this Agreement or the
validity, interpretation, performance, or breach thereof, shall, if possible, be
settled through friendly negotiations. If an amicable settlement cannot be
achieved through such negotiations, or the dispute requires urgent settlement,
the dispute may be submitted to arbitration by either party.
33.2 Any controversy, dispute or claim arising out of the
interpretation, performance or breach of this agreement (including disputes as
to the jurisdiction of the arbitrator) shall be resolved at the request of any
party hereto ("Initiation") directed to the Judicial Arbitration and Mediation
Service, (JAMS) by a binding arbitration conducted by a single Arbitrator in San
Diego County, California in accordance with the California Code of civil
Procedure section 1280 et. seq. except as modified by the terms of this Section.
The arbitrator shall apply California substantive law to the matter(s) which are
the subject of the arbitration. The arbitrator shall have the power to grant
such legal and equitable remedies and award such damages as may be grated or
awarded by a Judge of the Superior Court of the County of San Diego, California.
The arbitrator shall prepare and provide to the parties a written decision
("Decision") on all matter(s) which are the subject of the arbitration,
including factual findings and the reasons which form the basis of the Decision
of the arbitrator. The arbitrator shall not have the power to commit errors of
law or legal reasoning and the award may be vacated or corrected pursuant to
California Code of Civil Procedure sections 1286.2 or 1286.6 for any such error.
The Decision shall have the effect and be enforceable in the manner provided by
the California Code of Civil Procedure. Costs of the arbitration shall be borne
as directed by the arbitrator. The parties hereby agree that the CAR are
modified as follows:
33.2.1 If the parties have not agreed to an Arbitrator within
thirty (30) days after Initiation of arbitration, then JAMS shall
appoint a single neutral Arbitrator as soon thereafter as practical.
33.2.2 The parties shall be permitted discovery, including
depositions, under the supervision and rules set by the Arbitrator;
provided, however, that discovery shall be completed within forty-five
(45) days of selection or appointment of the Arbitrator. The Arbitrator
shall have power to impose such sanctions as the Arbitrator deems
appropriate for failure of a party or counsel for a party to comply
with discovery rules established by the Arbitrator.
33.2.3 A hearing before the Arbitrator shall be held no later
than ninety (90) days after Initiation of arbitration, unless a hearing
is waived by all parties.
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33.2.4 No later than ten (10) days from the date of closing of
the arbitration hearing, or, if an oral hearing has been waived, from
the date of transmitting final statements and proofs to the Arbitrator,
the Arbitrator shall render a written Decision.
ARTICLE 34
GOVERNING LAW
34.1 This Agreement shall he construed and enforced in accordance with
the laws of the State of California, United States of America, without giving
effect to the conflicts of laws provisions thereof.
34.2 The Parties hereby irrevocably consent to and submit to the
exclusive jurisdiction of the federal and state courts located in the State of
California, and any action, suit or proceeding under this Agreement may be
brought by the Parties in any federal or state court of competent jurisdiction
established or sitting in the State of California. Furthermore, the Parties
shall nor raise, and hereby waive, any defenses based upon improper venue,
inconvenience of the forum, lack of personal jurisdiction, sufficiency of
service of process, or the like in any such action, suit, or proceeding brought
in the State of California.
34.3 To the extent that SpaceDev or any of its property is or becomes
entitled at any time to assert the claim or defense of sovereign immunity in any
legal action, suit or proceeding (including, but not limited to actions, suits,
or proceedings brought in the State of California), or in connection with any
other legal process in any jurisdiction, SpaceDev for itself and its property
hereby irrevocably and unconditionally waives, and agrees not to plead or claim,
the claim or defense of sovereign immunity (including, but not limited to, any
immunity provided under the Foreign Sovereign Immunities Act of 1976, 28 U.S.C.
ss. 1602 et. seq. of the United States of America) with respect to its
obligations, liabilities, or any other matter arising under to relating to this
Agreement.
34.4 The Parties agree that the United Nations Convention for the
International Sales of Goods shall not be applicable to this Agreement.
ARTICLE 35
WAIVERS AND REMEDIES
35.1 The failure of either SpaceDev or Customer to insist, in any one
or more instances, on strict performance of any of the provisions of this
Agreement or to take advantage of any of its rights shall not be construed as a
waiver of any of these provisions or the relinquishment of any of its rights,
but they shall continue and remain in full force and effect. The waiver by a
Party of a breach of any provision of this Agreement shall not constitute a
waiver of any succeeding breach of the same or any other provision, nor shall it
constitute a waiver of the provisions itself.
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ARTICLE 36
ENTIRE AGREEMENT
36.1 This Agreement, including all its Exhibits, constitutes the entire
understanding and agreement between the Parties and supersedes all prior or
contemporaneous correspondence, representations, proposals, negotiations,
understandings or agreements of the Parties, whether oral or written in
connection with the subject matter hereof. The Parties hereby acknowledge that
there are no collateral agreements between them with respect to the subject
matter hereof.
ARTICLE 37
PUBLIC RELEASE OF INFORMATION
37.1 Each Party shall obtain the written approval of the other Party
concerning the content and timing of new releases, articles, brochures,
advertisements, prepared speeches, and other information releases to be made by
the Party concerning this Agreement or the Launch and Integration Services
performed or to be performed hereunder. Such approval shall not be unreasonably
withheld.
ARTICLE 38
CONFIDENTIALITY
38.1 From the date of execution of this Agreement first written above
and at all times thereafter, including any time after termination of this
Agreement, neither party shall directly or indirectly, use or make available to
any person, firm, corporation, partnership, association, or other entity, and
shall keep confidential any and all information they have, have had, or may
subsequently obtain relative to the others' affairs, relationships to actual or
potential customers and sources of supply and the needs and requirements of any
such actual or potential plans, and shall keep confidential the prices,
investors, contents of contracts and/or agreements pursuant to this Agreement
without prior written consent of both parties.
38.2 In case of the violation of the covenants concerning
confidentiality contained in Section 4.6, the party violating the indicated
covenants shall bear any damages incurred by the other party as a result of such
violation.
38.3 Nothing in this Agreement means, and cannot be constructed, as a
basis for transferring the rights to intellectual property belonging to SpaceDev
or its affiliates in relation to its products, components, scientific and
production experience and know-how to Customer unless expressly granted by
SpaceDev in writing in a special additional agreement between the parties.
ARTICLE 39
ORDER OF PRECEDENCE
39.1 All Exhibits and documents referred to herein are hereby
incorporated into the
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Agreement and shall form an integral part hereof. The Articles of this Agreement
and all Exhibits hereto shall be read so as to be consistent to the extent
practicable. In the event of any ambiguity, conflict, or inconsistency among or
between the various parts of this Agreement, such ambiguity, conflict, or
inconsistency shall be resolved by giving precedence to the documents in the
order set forth as follows:
1. Launch and Integration Services Agreement
2. Exhibit A, Launch and Integration Services Statement of Work.
3. Exhibit B, Payment Schedule
4. Any documents incorporated into the Agreement or Exhibits A or B by
reference.
ARTICLE 40
GENERAL
40.1 All rights and remedies hereunder shall be cumulative and may be
exercised singly or concurrently. Failure by either party to enforce any of its
rights shall not be deemed a waiver of future enforcement of such rights or any
other rights. If any provision of this Agreement is found to be invalid or
unenforceable, it shall not affect any other provision this Agreement, and the
invalid or unenforceable provision shall be replaced with a provision consistent
with the original intent of the parties.
ARTICLE 41
TIME IS OF ESSENCE
41.1 Time is of the essence as to each and every provision of this
Agreement.
ARTICLE 42
RELATIONSHIP OF THE PARTIES
42.1 The relationship of the parties to this Agreement is limited to
the purposes and transactions contained herein in accordance with the terms of
this Agreement. Nothing contained herein shall be construed to create a general
partnership or other relationship between the parties or to permit either party
to bid for or to undertake any contracts for the other party.
ARTICLE 43
SEVERABILITY
43.1 Should any single provision of this Agreement be held to be
unenforceable, the remaining provisions shall remain in full force and effect,
to be read and construed as if the unenforceable provisions were deleted.
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The Parties have executed this Agreement by their duly authorized
representatives in duplicate originals on July 14, 1999 at Poway, California.
SPACEDEV, INC. DOJIN LIMITED
/s/ James W. Benson /s/ Eric Ralls
- ----------------------------- -----------------------------
Signature Signature
By: James W. Benson By: Eric Ralls
Title: Chief Executive Officer Title: President
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EXHIBIT A
STATEMENT OF WORK
1. Dojin shall deliver one (1) Compact Disc of standard dimensions and
weight to SpaceDev's Payload Processing Facility located at 13855 Stowe
Drive, Poway, California, no later than ninety (90) days prior to
launch. The size and weight of the compact disc shall not exceed those
of commonly available Compact Discs widely available at the signing of
this Agreement.
2. SpaceDev shall integrate Dojin's compact disc into NEAP in a manner
that SpaceDev determines.
3. SpaceDev shall provide Dojin with verification of integration of the
compact disc into NEAP at least sixty (60) days prior to launch.
4. SpaceDev shall launch NEAP containing Dojin's compact disc between
July, 2001 and January 31, 2002.
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EXHIBIT B
PAYMENT SCHEDULE
The total price of this Agreement is Two Hundred Thousand Dollars ($200,000).
This amount shall be paid by Dojin to SpaceDev in increments as follows:
1. Two and One-Half percent (2.5%) or Five Thousand Dollars ($5,000)
within ten (10) days of the execution of this Agreement.
2. Twenty-Five percent (25%) or Fifty Thousand Dollars ($50,000) twelve
(12) months prior to the Launch Date.
3. Twenty-Seven and One-Half percent (27.5%) or Fifty-Five Thousand
Dollars ($55,000) seven (7) months prior to the Launch Date.
4. Twenty-Five percent (25%) or Fifty Thousand Dollars ($50,000) four (4)
months prior to the Launch Date.
5. Twenty percent (20%) or Forty Thousand Dollars ($40,000) upon
successful Launch of Customer's payload.
Note: Any unpaid balance, including that due under paragraph 5. of this Exhibit
B above, must be deposited into the escrow account named in Section 9.4 prior to
the integration of Customer's payload into NEAP. Pursuant to the terms of this
Agreement, SpaceDev shall notify Customer as to the date of integration.
/s/
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LKE PROPRIETARY
INTEGRATION SUPPORT SERVICES AGREEMENT
This SUBCONTRACT ILS/LKE-SC-9812-539, is entered into effective 1 January 1999,
by and between LOCKHEED-KHRUNICHEV-ENERGIA INTERNATIONAL, INC. (hereinafter
referred to as "LKE" or "Customer"), a corporation organized and operating under
the laws of the State of Delaware, having offices at 101 W. Broadway, Suite
2000, San Diego, California 92101 and INTEGRATED SPACE SYSTEMS. INC.,
(hereinafter referred to as "ISS" or "Contractor"), having offices at 7940
Silverton Avenue, Suite 202, San Diego, California 92126.
PURPOSE
-------
The purpose of this Subcontract ILS/LKE-SC-9812-539 together with its exhibits
is to govern the purchase by LKE from ISS and sale to LKE by ISS the following
services for personnel supporting LKE in San Diego, or elsewhere, as defined in
this Agreement and all exhibits hereto.
RECITALS
--------
WHEREAS, LKE has the exclusive rights for the marketing and sales of Proton
Launch Services for Non-Russian commercial satellites;
WHEREAS, LKE is in the business of providing commercial launch services
utilizing the Russian Proton Space Launch Vehicle; and
WHEREAS, LKE provides for the integration of customer-owned satellites on the
Proton Launch Vehicle; and
WHEREAS, ISS has the capability to support these integration services;
NOW THEREFORE, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
As used herein, the following terms shall have the meanings set forth below:
1.1 "Affiliate" means any person or legal entity, other than the Parties
hereto, who or which shall, directly or indirectly, control, be
controlled by or act on behalf of a Party in the performance of this
Agreement, including but not limited to customers, employees,
suppliers, subcontractors, agents, owners, shareholders and
subsidiaries. This definition is for identification purposes only and
shall not be interpreted as creating any privity of contract or legal
relationship/obligation between the Affiliates of one Party and the
other Party or its Affiliates.
1.2 "Agreement' means this instrument and all exhibits described herein and
all amendments that may be agreed to by the Parties in accordance with
the terms and conditions of this instrument.
1.3 "Assistance" means the support services to be provided by Contractor as
defined in the statement of work incorporated herein.
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LKE PROPRIETARY
1.4 "Party" or "Parties" means the Contractor or the Customer or both,
according to the context.
1.5 "Subcontractor" means a person, firm, corporation, government agency or
other legal entity which has an agreement with the Contractor to
provide all or a portion of the services in connection with this
Agreement.
ARTICLE 2
CONTRACTUAL DOCUMENTS
2.1 Exhibits. The following documents, hereby attached to this instrument
as Exhibits, are incorporated herein by reference and made a part
hereof as if fully set forth:
a. Exhibit A - Statement of Work, Fixed Price Mission Integrator
Support, dated 7 December 1998.
2.2 Order of Precedence. In the event of any conflict or inconsistency
between or among the provisions of the various parts of this Agreement
including the Exhibits attached hereto and incorporated into this
Agreement, such conflict or inconsistency shall be resolved by giving
precedence to the provisions of this Agreement, less the Exhibits
hereto, then to the attached and incorporated Exhibits in the order
listed in Paragraph 2.1 herein, and then to any documents referred to
and incorporated into said Exhibits.
2.3 Supersession. This Contract constitutes the definitive agreement
contemplated by the documents listed below which are hereby superseded
in their entirety. The actions taken in accordance with the
authorizations contained in such documents, and payments made
thereunder shall be considered as actions performed under, and payments
made against the price of, this Contract: None.
ARTICLE 3
PERIOD OF PERFORMANCE
3.1 Contractor's performance under this Agreement shall commence on or
about 1 January 1999, and shall complete all performance on or before
31 December 1999.
3.2 LKE has the option to extend this Agreement beyond this period of
performance. Extension(s) requires fourteen (14) days prior
notification to Contractor. An extension(s) shall be considered a
change within the scope of the CHANGES Article of this Agreement;
however, the price per hour shall be negotiated.
ARTICLE 4
CONTRACTOR AND CUSTOMER OBLIGATIONS
4.1 Scope of Supply. Contractor shall provide the Mission Integrator
Support and Mission Integration Support as defined in this Agreement
and Exhibit A hereto. LKE shall be responsible for meeting all of its
obligations established in accordance with the terms of this Agreement.
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LKE PROPRIETARY
ARTICLE 5
PRICE
5.1 LKE shall pay to Contractor the sums indicated below for the
performance of the Work under this Agreement. Contractor shall be
entitled to payment by LKE in accordance with the provisions of Article
6 entitled "PAYMENTS."
For Exhibit A: Firm Fixed Price of $ 158,058.00
5.2 Price redetermination for additional hardship compensation of mission
integrator will require LKE Mission Manager's prior approval. This
hardship would entail working seven continuous days or more at the
Baikonur Launch Site. In addition, the maximum amount of overtime
allowed and reimbursable is twenty hours per week. The compensation for
this hardship would be twenty-nine dollars ($29.00) an hour over and
above the Firm Fixed Price in Paragraph 5.1 above for all hours
compensated.
5.3 The Prices stated herein include all applicable duties, taxes and other
levies the Contractor is required to pay in the performance of its
obligations under this Agreement.
ARTICLE 6
PAYMENTS
6.1 Payment Schedule. Payment of the total price for the Services required
under this Agreement shall be made in accordance with the following
payment schedule:
For Exhibit A: Monthly payments of $13,171.50 each, starting 31 January
1999, and ending on 31 December 1999.
For Paragraph 5.2 above, hardship compensation will be accounted for
and invoiced separately.
6.2 Invoices. All payments in connection with this Agreement shall be made
on their respective due dates, or within thirty (30) days of Customer's
receipt of the corresponding invoice, whichever is later. ISS will
submit an original invoice to:
Lockheed-Khrunichev-Energia International, Inc.
101 W. Broadway, Suite 2000
San Diego, CA 92101
Attention: Michael Andranovich
Each invoice shall cite this Agreement Number ILS/LKE-SC-9812-539.
6.3 Reimbursement for Travel Expenditures. Contractor will be responsible
for their own travel arrangements, if required, to locations including
Denver, Colorado and Moscow, Russia. LKE shall reimburse Contractor for
actual, necessary and reasonable transportation and subsistence
associated with travel for support of the mission integration activity.
Air transportation shall not exceed Business Class airfare. When
requesting reimbursement under this paragraph, Contractor shall submit
a separate invoice to LKE, detailing the dates, and expenditures and
shall attach receipts thereto for all expenditures greater than fifty
dollars ($50.00). LKE shall reimburse Contractor for the actual
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LKE PROPRIETARY
expenses incurred, without Contractor's mark-up. Contractor travel and
subsistence expenses may be invoiced with the monthly request for
payment in each monthly period in which actual travel expenses are
incurred.
6.4 Manner and Payment Location. All payments in connection with this
Agreement shall be made via check directly payable to "Integrated Space
Systems" and sent to:
Integrated Space Systems, Inc.
Attention: Financial Department
7940 Silverton Ave, Suite 202
San Diego, California 92126
6.5 Currency. All payments in connection with this Agreement shall be made
in U.S. dollars.
ARTICLE 7
REPORTS AND DOCUMENTATION
7.1 Contractor shall prepare and submit reports as required by LKE and
submit a final report within fifteen (15) days after Contractor
personnel have completed their work on each separate activity directed
under this Agreement.
7.2 Unless otherwise notified, all reports and documentation shall be sent
to the address indicated in the Article 21 entitled "NOTICES."
ARTICLE 8
GOVERNMENTAL APPROVALS
8.1 Parties Respective Obligations and Mutual Assistance. Unless otherwise
specified in this Agreement, each Party is responsible for obtaining
all governmental approvals from any governmental authority which has
jurisdiction and authority to require such approvals, necessary to
carry out such Party's respective obligations in accordance with this
Agreement. Each Party shall, however, cooperate and provide the other
Party upon request and without cost all reasonable and necessary
assistance in obtaining any and all governmental approvals which the
requesting Party may be required to obtain pursuant to this Agreement.
ARTICLE 9
RIGHT OF OWNERSHIP
9.1 Contractor's Property. Customer acknowledges that at no time shall it
have any right of ownership of, or any other right in, or title to, the
property of Contractor or its Affiliates, and that such property shall
at all times be considered the property of Contractor or its
Affiliates, as the case might be.
9.2 Customer's Property. Notwithstanding the fact that Contractor may from
time to time have possession and control of property owned by Customer
or its Affiliates, Contractor acknowledges that at no time shall it
have any right of ownership of, or any other right in or title to, such
property, and that such property shall at all times be considered the
property of customer or its Affiliate, as the case might be.
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LKE PROPRIETARY
ARTICLE 10
INTER-PARTY LIABILITY AND INDEMNIFICATION
10.1 Reciprocal Waiver of Liability
LKE represents and warrants, with respect to launch services agreements
it has executed and delivered, and hereby agrees, with respect to
future launch services agreements, that it has agreed to and will agree
to no-fault, no-subrogation reciprocal waivers of liability whereby LKE
and each customer to such launch services agreement (the "Customer")
agree to not to bring any claim against or sue each other or the
other's contractors, subcontractors, and suppliers at any tier and
other related third parties involved in the performance of the launch
services agreement (the "Related Third Parties") for any property
damage it incurs or for any bodily injury to or property damage
incurred by its own employees resulting from activities carried out
under the launch services agreement irrespective of whether such
property damage or bodily injury is caused by LKE, its Customer of
either Party's respective Related Third Party and regardless of whether
such property damage or bodily injury arises through or is alleged to
arise through negligence or otherwise (each, a "Reciprocal Waiver of
Liability").
LKE and ISS hereby agree to a reciprocal waiver of liability pursuant
to which each party agrees not to bring a claim in arbitration or
otherwise sue the other Party for any property loss or damage it
sustains and any property loss or damage, personal injury, including
death, sustained by any of its employees, arising in any manner in
connection with the performance of or activities carried out pursuant
to this subcontract. Such waiver of liability shall also extend to any
indirect, special, incidental or consequential damages or other loss of
revenue or business injury or loss.
Claims of liability are hereby waived and released regardless of
whether loss, damage or injury arises from the acts or omissions,
negligent or otherwise, of either Party. This waiver of liability shall
extend to: (a) all theories of recovery, including in contact for
property loss of damage, tort, product liability and strict liability;
and (b) the successor and assigns, whether by subrogation or otherwise,
of both Parties. Each Party shall obtain a waiver of subrogation and
release of any rights of recover against the other Party from any
insurer providing coverage for the risks of loss for which the Party
hereby waives claims of liability against the other Party.
10.2 Flow-Down by LKE
Pursuant to each Reciprocal Waiver of Liability, LKE has agreed to and
will in the future extend the provisions of such Reciprocal Waiver of
Liability to its Related Third Parties requiring such Related Third
Parties to agree not to bring any claims against or sue LKE's
Customers, its Customers Related Third Parties or other LKE's Related
Third Parties.
10.3 ISS Agreement and Flow-Down
In furtherance of the foregoing, ISS hereby agrees not to bring any
claim against or sue, and to cause each of its contractors,
subcontractors and suppliers at any tier and other related parties (the
"ISS Related Third Parties") not to bring any claim against or sue,
LKE, LKE's Customers, their Related Third Parties and other LKE Related
Third Parties and agrees to be responsible for and to absorb the
financial and any other consequences of any property damage it incurs
or for any bodily injury or property damage incurred by its own
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LKE PROPRIETARY
employees resulting from activities carried out under this Agreement,
irrespective of whether such property damage of bodily injury is caused
by LKE's Customers or other LKE Related Third Parties and regardless of
whether such property damage or bodily injury arises through negligence
or otherwise (each, an "ISS Reciprocal Waiver of Liability").
10.4 LKE Indemnity
LKE hereby agrees to defend, indemnify and hold harmless ISS and ISS
Related Third Parties from and against any claim brought against them
by LKE's Customers, their Related Third Parties or LKE Related Third
Parties other than ISS Related Third Parties arising from the failure
by LKE to extend a Reciprocal Waiver of Liability to any Customer or
LKE Related Third Party with which it is in contractual privity or to
require that such persons extend the Reciprocal Waiver of Liability to
their respective Related Third Parties or the unenforceabilty or
invalidity of any reciprocal waiver of liability.
10.5 ISS Indemnity
ISS hereby agrees to defend, indemnify and hold harmless LKE and LKE's
Customers and the Related Third Parties of LKE and its Customers from
and against any claim brought against them by ISS Related Third Parties
arising from the failure by ISS to extend an ISS Reciprocal Waiver of
Liability to any ISS Related Third Party with which it is in
contractual privity or to require that such ISS Related Third Parties
or the unenforceabilty or invalidity of any reciprocal waiver of
liability.
ARTICLE 11
CONDITIONS FOR INDEMNIFICATION
11.1 Conditions. The rights to indemnification provided in this Agreement
shall be subject to the observance of the following conditions:
a. The Party seeking indemnification shall promptly advise the other
Party of the filing of any suit, or of any written or oral claim,
alleging an infringement of rights or incurrence of damages which
it may receive in connection with this Agreement.
b. The Party seeking indemnification shall take no steps in a dispute
with a third party, nor shall it reach a compromise with such
third party, without the prior written approval of the other
Party, which approval shall not be unreasonably withheld or
delayed.
11.2 Defend and Pay Costs. The Party required to hold the other harmless
shall assist and assume, when not contrary to the governing rules of
procedure, the defense of any claim or suit or settlement thereof, and
shall take all other reasonable steps to avoid, settle or otherwise
terminate the dispute, and shall pay all litigation and administrative
costs and expenses incurred in connection with the defense of any such
suit, shall satisfy any judgments rendered by a court of competent
jurisdiction in such suits, and shall make all settlement payments.
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LKE PROPRIETARY
ARTICLE 12
TERMINATION BY CUSTOMER FOR CONVENIENCE
12.1 Right to Terminate. Customer may, in accordance with this Article 12,
terminate this Agreement in its sole discretion at any time.
12.2 Termination Notice. Termination of this Agreement in accordance with
this Article 12 shall take place only if Customer gives written notice
of termination to Contractor.
12.3 Termination Date. The effective termination date of this Agreement in
accordance with this Article 12 shall be the latter of either the
termination date specified in the Customer's written notice of
termination or the date of Contractor's receipt of Customer's written
notice of termination.
12.4 Cessation of Work. On the termination date of this Agreement in
accordance with this Article 12, Contractor shall promptly cease work
by taking all reasonable actions to wind down work in progress and
refrain from additional work in connection with this Agreement.
12.5 Right to Compensation. Upon termination of this Agreement in accordance
with this Article 12, Contractor shall be entitled to retain amounts
paid and currently due as of the effective date of termination,
including any commitments, liabilities or expenditures which arise by
reason of the termination of this Agreement.
ARTICLE 13
TERMINATION FOR CAUSE
13.1 Right to Terminate. Either Party shall have the right to terminate this
Agreement in the event that any action or inaction by the other Party
constitutes a material breach of this Agreement, provided that such
other Party fails to cure the material breach or propose a mutually
acceptable cure within five (5) days of receipt of a written notice
thereof from the Party claiming the material breach.
13.2 Termination Notice. Termination of this Agreement in accordance with
this Article 13 shall take place upon provision of written notice of
termination.
13.3 Termination Date. The effective termination date of this Agreement in
accordance with this Article 13 shall be the latter of either the
termination date specified in the written notice of termination or the
date of receipt of written notice of termination.
13.4 Claim for Future Payments. Upon the effective date of termination by
Customer, Contractor shall have no claim for any further payment,
including payments already invoiced but not paid in accordance with
Article 6, entitled "PAYMENTS." In the event of termination by
Contractor under this Article 13, Contractor shall be entitled to the
payments made under Article 6, and if Contractor believes their cost
are in excess of the amounts already paid to them then Customer and
Contractor shall negotiate an equitable adjustment for such supported
excess costs.
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13.5 Return of Amounts Previously Paid. If this Agreement is terminated by
Customer as provided in this Article 13, Contractor shall, subject to
Article 18, entitled "DISPUTE NEGOTIATION," refund all payments paid by
Customer in accordance with Article 6, entitled "PAYMENT," or if any
amount remains in dispute then the amount as determined in accordance
with Article 18, and Article 19, entitled "ARBITRATION" shall be
refunded to Customer.
13.6 Completed and Partially Completed Deliveries. If this Agreement is
terminated by Customer as provided in this Article 13, Contractor shall
be entitled to the price set forth in this Agreement for all accepted
and delivered documents and services.
ARTICLE 14
LIMITATION OF LIABILITY
14.1 In no event shall either Party be liable to the other, whether in
contract, tort or otherwise for special, incidental, indirect, or
consequential damages, including, without limitation, lost profit or
revenues.
ARTICLE 15
PROPRIETARY INFORMATION AND DATA
15.1 Non-Disclosure Agreement. The Parties agree to protect the proprietary
information of the other in accordance with the provisions the
Non-Disclosure Agreement between the Parties signed 17 April 1997.
ARTICLE 16
LANGUAGE
16.1 Language. This agreement shall be officially maintained in the English
language. All communications between the Parties in connection with
this Agreement, including but not limited to documentation, notices,
reports and correspondence, shall be in the English language.
16.2 Titles and Headings. Titles and headings to Articles, Sections or
Paragraphs in this Agreement are inserted for convenience of reference
only and are not intended to affect the interpretation or construction
of this Agreement.
16.3 Tense and Gender. In this Agreement, words in the singular include the
plural and vice-versa, and words imparting the masculine gender include
the feminine or neuter genders where the context so requires.
ARTICLE 17
GOVERNING LAW
17.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of California exclusive of that jurisdiction's
choice of law rules.
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LKE PROPRIETARY
ARTICLE 18
DISPUTE NEGOTIATION
18.1 Negotiation. In the event of any controversy or claim arising out of or
relating to this Agreement or the breach thereof, the Parties shall use
their best efforts to settle such controversy or claim through
negotiation with one another in good faith.
ARTICLE 19
ARBITRATION
19.1 Administration and Rules. If any disputes arising in connection with
this Agreement fails to be resolved through negotiation or mediation
within a period of twenty (20) days, such disputes shall be finally
settled by arbitration in accordance with the terms and conditions of
this Article. Arbitration proceedings in connection with this Agreement
will be conducted in accordance with the rules of the American
Arbitration Association in accordance with its then in effect
Commercial Arbitration Rules, together with any relevant supplemental
rules, as modified by the terms and conditions of this Agreement.
19.2 Language. Arbitration proceedings in connection with this Agreement
shall be conducted in the English language.
19.3 Selection of Arbitrators. Arbitration proceedings in connection with
this Agreement shall be conducted before a panel of three (3)
arbitrators. LKE and Contractor shall each select an arbitrator, and
these two arbitrators shall jointly select the third.
19.4 Locale of Meetings. All meetings for arbitration proceedings in
connection with this Agreement shall be held in the San Diego Area in
the State of California, USA, or at such other place as may be selected
by mutual agreement of all Parties.
19.5 Award and Judgment. The arbitrators shall have no authority to award
punitive damages or any other damages not measured by the prevailing
Party's actual damages, and may not, in any event, make any ruling,
finding or award that does not conform to the terms and conditions of
this Agreement. Subject to the foregoing, the Parties agree that the
judgment of the arbitrators shall be final and binding upon the
Parties, and that judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof.
19.6 Confidentiality. No Party or arbitrator may disclose the existence,
content, or results of any arbitration proceedings in connection with
this Agreement without prior written consent of all Parties to the
arbitration proceeding.
19.7 Fees and Expenses. The Arbitrators shall apportion all fees and
expenses of any arbitration proceedings in connection with this
Agreement between the Parties. However, each Party shall bear the
expense of its own counsel, experts, witnesses, and preparation and
presentation of evidence.
19.8 Performance. Contractor and Customer shall continue with performance
under this Agreement during any disagreement, negotiation, or
arbitration. Customer shall continue to make payments due under this
Agreement pending resolution of the dispute pursuant to this section.
At Customer's election, such payments may be made into an escrow
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LKE PROPRIETARY
account at a recognized California third party financial institution
under terms to be agreed upon by the Parties.
ARTICLE 20
ASSIGNMENT
20.1 Conditions. No Party may transfer or assign any or all of its rights,
duties and obligations in connection with this Agreement to any other
person or legal entity, including but not limited to a partnership,
joint venture, corporation, association or governmental agency, unless
such transfer or assignment is either specifically authorized in this
Article 20 or the other Party gives its prior written consent, which
shall not be unreasonably withheld.
20.2 Successors and Assigns. This Agreement shall be binding on and inure to
the benefit of the Parties and their successors and assigns, provided
no assignment shall be made contrary to the requirements of this
Article 20.
ARTICLE 21
NOTICES
21.1 Notices. Any notice or communication required or permitted in
connection with this Agreement shall be in writing, and shall be either
personally served on any officer of the recipient Party, or sent by
facsimile, telex or registered mail with postage prepaid, to the
following respective addresses: a. To Customer:
Lockheed-Khrunichev-Energia International, Inc.
101 W. Broadway, Suite 2000
San Diego, CA 92101
Attention: Mr. Michael Andranovich
Phone: (619) 645-6436
Facsimile: (619) 645-6500
b. To Contractor:
Integrated Space Systems, Inc.
7940 Silverton Avenue, Suite 202
San Diego, California 92126
Attention: Mr. Jack Rubidoux
Phone: (619) 684-3570
Facsimile: (619) 693-6932
21.2 Authority to Proceed for Task Orders. All Task Orders issued by LKE
must be countersigned by Contracts Department to be valid and
enforceable.
21.3 Effective Date. The effective date of any notice or communication sent
in accordance with this Article 21 shall be the date of receipt if such
notice or communication is personally served or sent via facsimile or
telex; or if such notice is sent by registered mail with postage
prepaid, the effective date shall be the earlier of (a) the date of
receipt or (b) five (5) calendar days after the date such notice or
communication is deposited with an applicable postal service.
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LKE PROPRIETARY
ARTICLE 22
CHANGES
22.1 Change Direction. Customer may at any time, through written
notification, require a reduction or addition of work, or otherwise
require changes within the scope of this Agreement. If such change
causes an increase or decrease in the cost or, or the time required for
performance of, this Agreement, or otherwise affects any other
provision of this Agreement, an equitable adjustment shall be made in
the Price or time for performance, or both, or in such other provisions
of this Agreement as may be affected, and the Agreement shall be
modified in writing accordingly.
22.2 Change Proposals. Within ten (10) days from the receipt by Contractor
of the notification of change, or such other time as agreed by the
Parties, Contractor shall submit its proposal for equitable adjustment
in writing to the Customer. Such proposal shall set forth a description
of the effort required by the changes, a description of any products or
components that will be made excess due to the change, the proposed
adjustments to Price or schedule or other affected provisions of this
Agreement and a justification for the proposed change in Price.
22.3 Contractor Notification. In the event that Contractor perceives that
any action or inaction on the part of LKE constitutes a change to this
Agreement, Contractor shall so notify LKE in writing within ten (10)
days of the occurrence of such action or inaction. Such notification by
Contractor shall specifically state the action or inaction that
constitutes a change, the impact to this Agreement and any terms and
conditions and shall also contain a proposal for an equitable
adjustment in the Price of schedule or other affected provisions of
this Agreement. LKE shall respond to Contractor within seven (7) days
of receipt of Contractor's notification, and shall either confirm that
the action or inaction constitutes a change to the proposal and proceed
with modifying this Agreement per Paragraph 22.2 above, or LKE shall
advise that it does not consider such stated action or inaction to
constitute a change to this Agreement. In the event that the Parties
fail to agree whether the action or inaction constitutes a change, it
shall be considered a Dispute under Article 18 entitled "DISPUTE
NEGOTIATION."
ARTICLE 23
PARTIAL INVALIDITY
23.1 Interpretation. Whenever possible, each provision of this Agreement
shall be interpreted in such a way as to be effective, valid and
enforceable under applicable law.
23.2 Severability. If for any reason a provision of this Agreement is held
to be ineffective, invalid or unenforceable under applicable law, then
such provision shall be ineffective, invalid or unenforceable only to
the extent of such prohibition or impairment under applicable law,
without rendering ineffective, invalid or unenforceable the remainder
of such provision or other provisions of this Agreement.
23.3 Replacement. If for any reason a provision of this Agreement is held to
be ineffective, invalid or unenforceable under applicable law, then
such provision shall be replaced by a mutually acceptable provision
which, being effective, valid and enforceable, comes closest to the
intention of the Parties underlying the ineffective, invalid or
unenforceable provision.
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LKE PROPRIETARY
ARTICLE 24
EXPORT REQUIREMENTS
24.1 Contractor and Customer agree that all exports of goods and data made
pursuant to this Agreement shall be in strict compliance with all laws,
rules and regulations of the United States regarding exportation and
re-exportation of technical data including the United States Department
of State International Traffic in Arms Regulations (ITAR) and the
export regulations of the United States Department of Commerce.
ARTICLE 25
PUBLIC RELEASE OF INFORMATION
25.1 Except as required by law or regulation, no news release, public
announcement, or advertising material concerned with this Agreement
shall be issued by either Party without prior written consent of the
other Party. Such consent shall not be unreasonably withheld. All
releases shall be coordinated between both Parties.
ARTICLE 26
WAIVER
26.1 No Waiver. No waiver, alteration or modification of any of the
provisions of this Agreement shall be binding on either Party unless
evidenced by a written notice or amendment signed by an authorized
representative of the Party to be bound. Failure by either Party to
insist on performance of any of the terms or conditions herein, or the
exercise of any right or privilege, or the waiver of any breach
hereunder shall not thereafter operate to waive any other terms,
conditions, privileges, or breaches whether of the same or similar
kind.
ARTICLE 27
AMENDMENTS
27.1 Amendments. Unless specified elsewhere in this Agreement, this
Agreement may not be modified except by written amendment agreed upon
by both Parties and signed by duly authorized representatives of both
Parties.
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LKE PROPRIETARY
ARTICLE 28
ENTIRE AGREEMENT
28.1 Entire Agreement. This Agreement supersedes all communications,
negotiations, and other agreements either written or oral, relating to
the subject matter of this Agreement and made prior to the effective
date of this Agreement, unless the same are expressly incorporated by
reference into this Agreement.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
in duplicate as of the day and year set forth above.
INTEGRATED SPACE SYSTEMS, INC. LOCKHEED KHRUNICHEV ENERGIA
INTERNATIONAL INC.
By: /s/ Philip E. Smith By: /S/ Michael Andranovich
------------------------- -------------------------------
Michael Andranovich
Title: President
----------------------- Title: Manager, Business Operations
----------------------------
Date: 10 December 1998
------------------------ Date: 9 December '98
-----------------------------
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<PAGE>
LKE PROPRIETARY
EXHIBIT A
STATEMENT OF WORK
TO
PERFORM
INTERNATIONAL LAUNCH SERVICES
MISSION INTEGRATION SUPPORT
DATED 7 DECEMBER 1998
BETWEEN
INTEGRATED SPACE SYSTEMS INC.
7940 Silverton Ave. Suite 202
San Diego, California 92126
AND
LOCKHEED MARTIN CORPORATION
INTERNATIONAL LAUNCH SERVICES
101 WEST BROADWAY, Suite 2000
San Diego, California 92101
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LKE PROPRIETARY
1.0 Scope
- ---------
This STATEMENT OF WORK includes all tasks, material acquisition and facility
definitions required to be performed by ISS in support of PROGRAM. ISS shall
provided engineering technical analysis in support of the International Launch
Services departments.
2.0 Tasks Description for Mission Integrator
- --------------------------------------------
2.1 Requirements
Each Engineer must possess a broad knowledge of spacecraft to launch vehicle
interfaces. These interfaces will included: mechanical / electrical interfaces,
adaptor structures, with analysis in the areas of thermal, dynamics,
performance, separation, and experience in launch base operations / processing.
2.2 Responsibilities
o Coordination of Khrunichev analyses and design tasks in support of the
Launch Vehicle interface.
o Preparation and participation in all technical meetings and design reviews
domestically and in Moscow.
o Maintain ICD's, action item lists and program schedules.
o Participate in pre-launch campaign support in Moscow.
2.3 Unique Responsibilities
o Participate in launch campaign support at the launch site, Baikonur
Cosmodrome.
3.0 Individuals Assigned as Mission Integrators
- -----------------------------------------------
The following individual has been assigned under this Contract as Mission
Integrator:
Ms. Kani Eding
LKE may at its discretion request a change in the above individual with a thirty
day notice.
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<TABLE>
LOCKHEED MARTIN Purchase Order
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PO Number: HC6-315069 Orig Date: 10/18/1996 Contract Type: Labor Hour or Time & Material Amend Level: Amend Date:
<S> <C> <C> <C> <C>
Supplier: Ship To: Govt Prime Contract:
INTEGRATED SPACE SYSTEMS Lockheed Martin Corporation N/A
7940 SILVERTON AVE. STE. 202 Dock 5
SAN DIEGO CA 92126 12257 State Highway 121 ---------------------------
DPAS Rating:
(3) N/A (N)
===========================
Buyer:
- -------------------------------------------------------------------------------------------------------- Name: SHIRAMIZO S.
F.O.B. Point: Ship Via: Mail Stop: DC9816
DESTINATION N/A. SERVICE Phone #: (303) 977-5577
- -------------------------------------------------------------------------------------------------------- Fax #: (303) 977-7657
Terms: Freight Charges: Ext.:
Net 30 Days N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Administrative Clauses:
35
- ------------------------------------------------------------------------------------------------------------------------------------
Quality Clauses:
- ------------------------------------------------------------------------------------------------------------------------------------
See these Line Item(s) for Quality Clause Exceptions:
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Special Instructions:
====================================================================================================================================
Attachments (incorporated herein by this specific reference):
Form Number: 24F Revision Date: 0993 Form Description: COST REIMBURSE PROV. PART i I
Form Number: 25 Revision Date: 1295 Form Description: GP-PART II SELF CERT & REP.
Form Number: 253-02 Revision Date: 0996 Form Description: ADMINISTRATIVE CLAUSES
Page: 1 of 5
</TABLE>
<PAGE>
<TABLE>
LOCKHEED MARTIN Purchase Order
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PO Number: HC6-315069 Orig Date: 10/18/1996 Contract Type: Labor Hour or Time & Material Amend Level: Amend Date:
<S> <C> <C> <C> <C>
(continued from the previous page)
Additional Information
EXHIBIT A, STATEMENT OF WORK# 710579 DATED 10/8/96, EXHIBIT B, PATENT &
CONFIDENTIAL INFO AGREEMENT, EXHIBIT C, ADDITIONAL CLAUSES, AND
EXHIBIT D, ISS CONTRACT PROPOSAL ISS-96-006
</TABLE>
Page: 2 of 5
<PAGE>
<TABLE>
LOCKHEED MARTIN Purchase Order
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PO Number: HC6-315069 Orig Date: 10/18/1996 Contract Type: Labor Hour or Time & Material Amend Level: Amend Date:
<S> <C> <C> <C> <C>
Instructions to Contractor
A. Mail the signed acceptance of this Purchase Order to:
Attn: Order Control
Lockheed Martin, Astronautics
Mail Stop: DC9861
PO Box 179
Denver, CO 80201-0179
B. Mail invoices, in triplicate, containing Purchase Order Number, item numbers, description of items, sizes,
quantities, unit prices, and extended totals to:
Attn: Accounts Payable
Lockheed Martin, Astronautics
PO Box 31
Denver, CO 80201-0031
NOTE: Invoice each Purchase Order separately. Mark the final invoice "order completed.
C. Mail all correspondence, except the invoices and the acceptance, to the buyer identified herein at:
Lockheed Martin, Astronautics
PO Box 179
Denver, CO 80201-0179
NOTE: Include in the address the buyer's mail stop as shown on page 1.
D. Prepare the packing list with the line item number, part number, and Purchase Order Number. Include the packing list
with the shipment. Mark the final packing list "order completed". Mark each container to show the number of
containers. Attach the packing list to the number one container. Mark the Purchase Order Number on each container
label.
E. Refer to the individual line items for information about the boxes marked with an asterisk. An asterisk "*" in a
box indicates that there is special information identified with each line item.
F. As used throughout this Purchase Order, the following terms shall have the meaning as follows: "Martin Marietta
Technologies, Inc.", "MMTI", "Martin Marietta Astronautics Group", "MMAG", "Martin Marietta Astronautics", Martin
Marietta Corporation", "MMC", "Martin Marietta", "General Dynamics", "General Dynamics Space Systems Division",
and/or "Lockheed Martin" shall mean "Lockheed Martin Corporation".
Page: 3 of 5
</TABLE>
<PAGE>
<TABLE>
LOCKHEED MARTIN Purchase Order
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PO Number: HC6-315069 Orig Date: 10/18/1996 Contract Type: Labor Hour or Time & Material Amend Level: Amend Date:
<S> <C> <C> <C> <C> <C> <C>
Item Quantity UM Item Description and Shipping Schedule Unit Price UM Extended Value
01 1.00 LT rev 1v1 = ==> PROVIDE SENIOR STRUC 200,326.00 LT 200,326.00
ENGINEERING SERVICES (LABOR & TRAVEL) TO PROVIDE SENIOR STRUCTURAL
ANALYSIS SERVICES FOR THE ATLAS IIAR PROGRAM PER ATTACHED STATEMENT OF
WORK #710579 DATED 10/8/96. ENGINEERING RATES FOR 1996 ARE $95.80/HR AND
FOR HOURS WORKED IN 1997 $98.68/HR, WITH TRAVEL TO BE REIMBURSED BASED ON
ACTUALS. PERIOD OF PERFORMANCE: 10/21/96 TO 04/07/97.
LMC TECHNICAL CONTACT IS JOHN GOULD (303)977-0387. SEE ALSO EXHIBIT B,
(PATENT & CONFIDENTIAL INFO AGREEMENT), EXHIBIT C (ADDITIONAL CLAUSES),
AND EXHIBIT D (ISS CONTRACT PROPOSAL ISS-96-006).
1.00 Charge to: 204802-01100-52124-20-00000-3400
Contracted Receipt Date: 1.00 04/07/1997
Additional Attachments:
Form #: 24F Rev Date: 0993 From Desc: COST REIMBURSE PROV. PART i I
PO Total: $200,326.00
***** End of Order *****
CONTRACTOR
Page: 4 of 5
</TABLE>
<PAGE>
<TABLE>
LOCKHEED MARTIN Purchase Order
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PO Number: HC6-315069 Orig Date: 10/18/1996 Contract Type: Labor Hour or Time & Material Amend Level: Amend Date:
<S> <C> <C> <C> <C>
INTEGRATED SPACE SYSTEMS ACCEPTANCE
7940 SILVERTON AVE. STE. 202 ----------
SAN DIEGO CA 92126 Contractor Copy
This Purchase Order consisting of pages 1 through 5 and line items 1 through 1, constitutes an offer until accepted by
the Contractor. Upon acceptance by the Contractor, the rights and obligations of the parties are subject to and
governed by its terms and conditions, and those general provisions, special provisions, addenda, specifications,
drawings, and any other Purchase Order attachments referenced above.
Sign and mail this acceptance to:
Attn: Order Control
Lockheed Martin Corporation
P.O. Box 179 MSL DC9861
Denver, CO 80201-0179
TOTAL PURCHASE ORDER VALUE: $200,326.00
LOCKHEED MARTIN BUYER NAME: SHIRAMIZU S.
====================================================================================================================================
ACCEPTED: FOR INTEGRATED SPACE SYSTEMS INC.
BY: /S/ Philip E. Smith Lockheed Martin Corporation
---------------------------------------
(Signature) by
Philip E. Smith /s/ Steven K. Christensen
---------------------------------------
(Print your name)
TITLE: President Steven K. Christensen
------------------------------------- Director, Material
DATE: 21 Oct 1996
------------------------------------
Page: 5 of 5
</TABLE>
<PAGE>
PO# HC6-315059
Exhibit A "SOW# 710579"
Statement of Work
- -----------------
2.0 Task Description
ISS will provide stress analysis of Single Stage Atlas Fluid system designs on a
level of effort basis. The analysis shall include finite element model
generation, loads analysis and detailed stress evaluation (hand and computer
analysis). Provide written documentation of analyses as directed by Lockheed
Martin Fluids IPT personnel. Review and approve engineering drawing releases.
ISS personnel working on this project shall be subject to prior approval by
Lockheed Martin.
2.1 Notice
Any notice, demand, request statement or other writing required or permitted by
any Contract resulting from this proposal shall be deemed to have been given
when personally delivered or mailed by certified or registered United States
Mail, postage prepaid, addressed as follows:
Integrated Space Systems Inc. Lockheed Martin
Corporation
7940 Silverton Ave, Suite 202 12257 State Highway
121
San Diego, CA 92126 Littleton, CO 80217
Attn.: Jack Rubidoux Attn: John Gould
(619) 684-3570 (619) 977-0387
3.0 Period of Performance
The period of performance to accomplish all tasks requested herein shall be from
Oct 7, 1996 through April 7, 1997
4.0 Level of Effort
1996 4th Quarter- Direct Labor- (2) Senior heads with an option for (1)
additional head with 30 days advance notice.
1997 1st Quarter- Direct Labor- (2) Senior heads
<PAGE>
EXHIBIT C
---------
Additional Clauses
------------------
PO# HC6-315069
1. CONTRACTOR shall submit invoices in triplicate to:
LOCKHEED MARTIN
P0 BOX 31 Accounts Payable
Denver, CO 80201
Invoices shall be numbered, dated, and contain the following
information:
To LOCKHEED MARTIN
PO# HC6-315069
For the time period of: _________________________
Hours worked
Hourly rate
Other Direct Costs plus original receipts to support charges
Total amount due
Remit to address
2. It is understood and agreed that proprietary information of LOCKHEED
MARTIN (whether or not patentable) of any nature whatsoever,
disclosed to the CONTRACTOR by LOCKHEED MARTIN as a result of this
Contract, shall not in any way or manner be used or disclosed by the
CONTRACTOR to any person, business firm or organization. Furthermore,
CONTRACTOR agrees to have each and every employee assigned to provide
services for LOCKHEED MARTIN under this Contract execute the "Patent
and Confidential Information Agreement for Contract Services"
(Exhibit "B" thereof), and furnish an executed copy of same to
LOCKHEED MARTIN'S authorized Procurement representative, prior to
commencement of assignment.
3. The personnel listed below are considered to be essential to work
being performed hereunder. Prior to diverting any of the specified
individuals to other programs, the Contractor shall notify the
LOCKHEED MARTIN Contract Administrator reasonably in advance and
shall submit justification (including proposed substitutions) in
sufficient detail to permit evaluation of the impact on the program.
No diversion shall be made by the CONTRACTOR without the written
consent of the LOCKHEED MARTIN Contract Administrator. The personnel
listed may, with the consent of the contracting parties, be amended
from time to time during the course of the Contract to either add or
delete personnel as appropriate. For any changes required to be
approved by LOCKHEED MARTIN, the CONTRACTOR will be responsible for
substituting personnel with equal or greater qualifications as
originally approved. The CONTRACTOR agrees that the key personnel
listed below will be utilized in the performance of this Contract to
the extent necessary for full and satisfactory performance of this
Contract.
Key Personnel:
--------------
PHILIP BUNCH SENIOR STRUCTURAL ENGINEER
<PAGE>
<TABLE>
LOCKHEED MARTIN Request For Quotation
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
RFQ Number Amd. No. RFQ Date Date Reply Due Prime Contract Number
SSS0034919 00 10/08/1996 10/15/1996 (Not Applicable)
<S> <C>
Offeror RFQ Reply Address
INTEGRATED SPACE SYSTEMS MARTIN MARIETTA
7940 SILVERTON AVE. STE. 202 PO BOX 179 M/S-ds9816
SAN DIEGO, CA 92126 ATTN: SUSAN SHIRAMIZU
DENVER, CO 80201-0179
Ship to Address Buyer
Lockheed Martin Corporation SHIRAMIZU S.
Dock 5
12257 State Highway 121 Phone Number FAX Number Mail Stop
Littleton, CO 80127 (303) 977-5577 (303) 977-7657 DC9816
Administrative Clauses: DOC 253-02 DPAS Rating FOB Point:
35 (Not Applicable) FOB Destination
Quality Assurance Clauses: DOC 253-01 Freight Terms:
(Not Applicable) Prepaid
The following attached documents are incorporated in this RFQ:
Additional Documents:
Form Number: 24F Revision Date: 09/93 Form Description: COST REIMBURSE PROV. PART I
Form Number: 253-02 Revision Date: 09/96 Form description: ADMINISTRATIVE CLAUSES
The following attached documents must be completed by the offeror and returned with this RFQ:
Page: 1 of 5
</TABLE>
<PAGE>
<TABLE>
LOCKHEED MARTIN Request For Quotation
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Notice to Offeror:
<S> <C>
As used throughout this solicitation, the following terms shall have the meaning as follows; "Martin Marietta
Technologies, Inc." ,"MMTI, "Martin Marietta Astronautics Group", "MMAG", Martin Marietta Astronautics", "Martin
Marietta Corporation", "MMC", Martin Marietta", "General Dynamics", "General Dynamics Space Systems Division", "LMC
and/or "Lockheed Martin" shall mean "Lockheed Martin Corporation".
Lockheed Martin reserves the right to award a contract without discussing the offer.
Lockheed Martin is not obligated to pay any costs incurred by the offerer in preparing or submitting the offer.
Lockheed Martin intends to award to a responsive and responsible offerer.
The award will be made to the offerer that in Lockheed Martin's opinion submits the best overall offer.
All prices offered must be firm for 30 days.
The type of anticipated contract is a Labor Hour or Time & Material contract.
Offerers producing products where the country of origin is outside of the U.S. or its territories and possessions
must identify the place of production or performance in the offer.
Offerors providing products with an origin outside the U.S. or its territories and possessions must identify ozone
in depleting chemicals used to manufacture the products.
Offerers providing products containing ozone depleting chemicals must label the products in accordance with federal
law.
Make all contacts relevant to this solicitation with the authorized buyer. Unauthorized contacts are a basis for
disqualification.
Offerers must clearly state acceptance of all General and Special Provisions, or define & justify any exceptions.
Exceptions to General and Special Provisions may make an offer nonresponsive.
Offerers response must comply with all solicitation requirements and enclosures.
Offerers must not disclose any information in the solicitation to anyone who does not need to know.
Offerers may cancel or correct errors in their offers any time prior to award.
If this offer exceeds $100,000 and you are a SDB, HBCU, MI, or WOSB, you may request a debriefing ant this
solicitation.
Offerers must hot disclose to any entity the offers contents submitted in response to this solicitation
under circumstances that indicate the data is all or part of an offer to Lockheed Martin without the
buyers authorization. Failure to comply may result in disqualifaction.
Page: 2 of 5
</TABLE>
<TABLE>
LOCKHEED MARTIN Request For Quotation
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Instructions to Offerer:
<S> <C>
Answer completely each element and item of information requested, explain and justify any omissions. Return the last
page of this solicitation and include the mode of transportation and signature of an authorized person.
Report separately any royalty expense included as a cost element in your offer. If the amount of the royalty expense
exceeds $250.00, furnish the data required by FAR 52.227-6.
Calculate leadtime based on the usual time between receiving an order and delivering to the ship to address.
Provide price, transportation, and payment information and any exceptions. State all prices and conditions.
Additional charges for packing or other items not stated in this solicitation will not be allowed.
Provide the anticipated percent of work to be performed by subtier contractors.
Identify any drawings, data, and data rights that are proprietary.
LMC will not receive or provide propriety information without a PIA form, OF 265.
Quote all nonrecurring costs separately.
Furnish offers to the issuing office on or before the due date by close of business (4:00 P.M. Mountain time).
Offers may be submitted by overnight mail to:
MARTIN MARIETTA
PO BOX 179 M/S-DS9816
ATTN: SUSAN SHIRAMIZU
DENVER, CO 80201-0179
Indicate the most favorable prompt payment discount terms.
Page: 3 of 5
</TABLE>
<PAGE>
<TABLE>
LOCKHEED MARTIN Request For Quotation
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unit Extended Lead
Item Quantity U/M Part Number and Part Description Quantity U/M Price Price Time
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1 LT ENGINEERING SERVICES ==> ENGINEERING SERVICES
ENGINEERING SERVICES TO SUPPORT ATLAS IIAR
STATEMENT OF WORK # 710579 DATED 10/8/95
(ATTACHED). PLEASE PROVIDE ENGINEERING RATES FOR
SENIOR STRUCTURAL ANALYSIS SERVICES, APPROX.
10/15/96 - 4/15/97. ALSO PROVIDE ESTIMATES FOR
TRAVEL TO LMC/DENVER.
Shipping Schedule:
On Dock: 04/07/1997 Qty: 1
QC Notes: (Not Applicable)
***** End of RFQ *****
Page 4 of 5
</TABLE>
<PAGE>
<TABLE>
LOCKHEED MARTIN Request For Quotation
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
PRICE INFORMATION
<S> <C>
Catalog and published price list if available. Enclosed [ ] Not Applicable [ ]
TRANSPORTATION INFORMATION
FOB Point______________________________________ Freight Terms: Prepay [ ] Collect [ ] Prepay & Add [ ]
Total Ship Weight _____________________________
PAYMENT INFORMATION
Terms of Payment ______________________________
EXCEPTIONS
If you do not accept Lockheed Martin's terms and condition, list exceptions below.
If awarded an order, I agree to furnish the items in this offer at prices and under conditions indicated.
This quote is form for ____________ days. Supplier Quote Number: ____________________
By Title Date
(Print & Sign Your Name)
Page: 5 of 5
</TABLE>
<PAGE>
HC6-315069
MARTIN MARIETTA EXHIBIT B
PATENT AND CONFIDENTIAL INFORMATION AGREEMENT FOR CONTRACT SERVICES
Individual Bob Patil
---------------------------------------------------------------------
(Typewritten - Give First Name in Full)
THIS AGREEMENT made between me, the undersigned, and Martin Marietta
Corporation, hereinafter referred to as the "THE CORPORATION", pursuant to a
contract dated Oct. 21, 1996, between Integrated Space Systems and THE
CORPORATION, agree as follows:
I acknowledge that I am an employee of Integrated Space Systems and that I am
not an employee of THE CORPORATION for any purpose whatsoever and that the
compensation and employee benefits received by me from Integrated Space Systems
by reason of the performance of services for THE CORPORATION shall constitute
the exclusive compensation and employment benefits to which I am entitled.
THE CORPORATION has developed and uses commercially technical and nontechnical
information which is vital to the success of its business. Generally, persons
performing personal services for THE CORPORATION become acquainted with THE
CORPORATION's information and depending upon their assignment may contribute to
such information either through inventions, discoveries, improvements, or
otherwise. It is necessary for THE CORPORATION to protect certain of the
aforesaid information and contributions thereto either by patents or by holding
it confidential.*
In consideration of and as part of the terms of present assignment with THE
CORPORATION, and of the compensation paid during the term of such assignment to
THE CORPORATION, it is hereby agreed as follows:
1. I agree to promptly and fully disclose to THE CORPORATION all inventions,
discoveries, and improvements (whether patentable or not) which have been, or
may be conceived or made by me solely or jointly with others, during the period
of my assignment with THE CORPORATION from the beginning until termination,
which result from or arise out of any work which I may do for or on behalf of
THE CORPORATION. All of such inventions, discoveries, and improvements shall be
the sole and exclusive property of THE CORPORATION, and I hereby assign to THE
CORPORATION all of my rights and interest therein.
2. I agree to execute assignments to THE CORPORATION or to its nominees,
successors, or assigns, of all my rights, title, and interest in and to any and
all such inventions, disclosures, and improvements and in and to any and all
patent applications therefor, and in and to all priority rights as acquired
under the International Convention for Protection of Industrial Property by
filing of such applications, and in and to all patents that may be granted
therefor throughout the world. I also agree, during and subsequent to my
contract services, to sign all lawful papers and to assist THE CORPORATION and
its nominees, successors, or assigns, at its or their request and expense but
without charge, in every lawful way to obtain and sustain such patents in any
and all countries for its and their own benefit.
3. Except as authorized or directed by THE CORPORATION, I shall not at any time
during or subsequent to my assignment, directly or indirectly, disclose any
confidential information of THE CORPORATION or confidential information of
others which has come into THE CORPORATION's possession or into my possession in
the course of my assignment, to any person, firm, or competitor of THE
CORPORATION, or to any others, and I shall not use any such confidential
information for my own personal use or advantage or make it available to others
for use. All information, whether written or not, regarding THE CORPORATION's
business, including, but not limited to that relating to existing and
contemplated products, formulas, compositions. machines. apparatus, systems,
processes, methods, manufacturing procedures, research and development programs,
inventions, discoveries, business plans and procedures, financial data, bid or
proposal information, customers, and sources of supply shall be presumed to be
confidential except to the extent the same shall have been lawfully and without
breach of confidential obligation made available to the general public without
restriction.
4. All records, documents, and other writings, whether copyrightable or not,
relating to or dealing with THE CORPORATION's information as defined above, and
to that of others entrusted to THE CORPORATION, which are prepared or created by
me or which may come into my possession during my assignment, are the property
of THE CORPORATION, and upon termination of my assignment. I agree to leave all
such records, documents, and writings, and all copies thereof with THE
CORPORATION.
5. I agree that THE CORPORATION may make known to others, either during or
subsequent to my employment. the existence of this Agreement and the provisions
of all or any part thereof.
6. This Agreement shall be binding upon my heirs, executors, administrators, or
other legal representatives or assigns and shall be binding upon and inure to
the benefit of THE CORPORATION, its successors, and assigns.
MARTIN MARIETTA CORPORATION
By /s/ Bob Patil 11/11/96
------------------------------------ ---------------------------------
Signature of Company Representative Signature of Contractor Bob Patil
Date
------------------------------------ ---------------------------------
Position To be written in by Contractor
* The term "Confidential" as used herein does not refer to official security
classification of the United Slates Government. B EXHIBIT______________
<PAGE>
HC6-315069
MARTIN MARIETTA EXHIBIT B
PATENT AND CONFIDENTIAL INFORMATION AGREEMENT FOR CONTRACT SERVICES
Individual Philip Bunch
---------------------------------------------------------------------
(Typewritten - Give First Name in Full)
THIS AGREEMENT made between me, the undersigned, and Martin Marietta
Corporation, hereinafter referred to as the "THE CORPORATION", pursuant to a
contract dated Oct. 21, 1996, between Integrated Space Systems and THE
CORPORATION, agree as follows:
I acknowledge that I am an employee of Integrated Space Systems and that I am
not an employee of THE CORPORATION for any purpose whatsoever and that the
compensation and employee benefits received by me from Integrated Space Systems
by reason of the performance of services for THE CORPORATION shall constitute
the exclusive compensation and employment benefits to which I am entitled.
THE CORPORATION has developed and uses commercially technical and nontechnical
information which is vital to the success of its business. Generally, persons
performing personal services for THE CORPORATION become acquainted with THE
CORPORATION's information and depending upon their assignment may contribute to
such information either through inventions, discoveries, improvements, or
otherwise. It is necessary for THE CORPORATION to protect certain of the
aforesaid information and contributions thereto either by patents or by holding
it confidential.*
In consideration of and as part of the terms of present assignment with THE
CORPORATION, and of the compensation paid during the term of such assignment to
THE CORPORATION, it is hereby agreed as follows:
1. I agree to promptly and fully disclose to THE CORPORATION all inventions,
discoveries, and improvements (whether patentable or not) which have been, or
may be conceived or made by me solely or jointly with others, during the period
of my assignment with THE CORPORATION from the beginning until termination,
which result from or arise out of any work which I may do for or on behalf of
THE CORPORATION. All of such inventions, discoveries, and improvements shall be
the sole and exclusive property of THE CORPORATION, and I hereby assign to THE
CORPORATION all of my rights and interest therein.
2. I agree to execute assignments to THE CORPORATION or to its nominees,
successors, or assigns, of all my rights, title, and interest in and to any and
all such inventions, disclosures, and improvements and in and to any and all
patent applications therefor, and in and to all priority rights as acquired
under the International Convention for Protection of Industrial Property by
filing of such applications, and in and to all patents that may be granted
therefor throughout the world. I also agree, during and subsequent to my
contract services, to sign all lawful papers and to assist THE CORPORATION and
its nominees, successors, or assigns, at its or their request and expense but
without charge, in every lawful way to obtain and sustain such patents in any
and all countries for its and their own benefit.
3. Except as authorized or directed by THE CORPORATION, I shall not at any time
during or subsequent to my assignment, directly or indirectly, disclose any
confidential information of THE CORPORATION or confidential information of
others which has come into THE CORPORATION's possession or into my possession in
the course of my assignment, to any person, firm, or competitor of THE
CORPORATION, or to any others, and I shall not use any such confidential
information for my own personal use or advantage or make it available to others
for use. All information, whether written or not, regarding THE CORPORATION's
business, including, but not limited to that relating to existing and
contemplated products, formulas, compositions. machines. apparatus, systems,
processes, methods, manufacturing procedures, research and development programs,
inventions, discoveries, business plans and procedures, financial data, bid or
proposal information, customers, and sources of supply shall be presumed to be
confidential except to the extent the same shall have been lawfully and without
breach of confidential obligation made available to the general public without
restriction.
4. All records, documents, and other writings, whether copyrightable or not,
relating to or dealing with THE CORPORATION's information as defined above, and
to that of others entrusted to THE CORPORATION, which are prepared or created by
me or which may come into my possession during my assignment, are the property
of THE CORPORATION, and upon termination of my assignment. I agree to leave all
such records, documents, and writings, and all copies thereof with THE
CORPORATION.
5. I agree that THE CORPORATION may make known to others, either during or
subsequent to my employment. the existence of this Agreement and the provisions
of all or any part thereof.
6. This Agreement shall be binding upon my heirs, executors, administrators, or
other legal representatives or assigns and shall be binding upon and inure to
the benefit of THE CORPORATION, its successors, and assigns.
MARTIN MARIETTA CORPORATION
By /s/ Philip B. Bunch
------------------------------------ ----------------------------------
Signature of Company Representative Signature of Contractor Phil Bunch
Date 10/21/96
------------------------------------ ----------------------------------
Position To be written in by Contractor
* The term "Confidential" as used herein does not refer to official security
classification of the United Slates Government. B EXHIBIT______________
<PAGE>
LOCKHEED MARTIN Representations and Certifications
CERTIFICATION REGARDING DEBARMENT, SUSPENSION,
PROPOSED DEBARMENT, AND OTHER RESPONSIBILITY
MATTERS (MAY 1989)
(a)(l) The Offeror certifies, to the best of its knowledge and belief, that--
(i) The Offeror and/or any of its Principals--
(A) Are ( ) are not (X) presently debarred, suspended, proposed for
debarment, or declared ineligible for the award of contracts by any
Federal agency;
(B) Have ( ) have not (X) within a three-year period preceding this offer,
been convicted of or had a civil judgment rendered against them for
commission of fraud or a criminal offense in connection with obtaining,
attempting to obtain, or performing a public (Federal, date, or local)
contract or subcontract; violation of Federal or state antitrust
statutes relating to the submission of offers; or commission of
embezzlement, theft, forgery, bribery, falsification or destruction of
records, making false statements, or receiving stolen property; and
(C) Are ( ) are not (X) presently indicted for, or otherwise criminally or
civilly charged by a governmental entity with commission of any of the
offenses enumerated in subdivision(a)(l)(i)(B) of this provision.
(ii) The Offeror has ( ) has not (X), within a three-year period preceding
this offer, had one or more contracts terminated for default by any
Federal agency.
(2) "Principals," for the purposes of this certification, means officers;
directors; owners; partners; and, persons having primary management or
supervisory responsibilities within a business entity (e.g., general
manager; plant manager, head of a subsidiary, division, or business
segment end similar positions).
This certification concerns a matter within the jurisdiction of any
agency of the United States and the making of a false, fictitious, or
fraudulent certification may render the maker subject to prosecution
under section 1001, title 18, United States Code.
(b) The Offeror shall provide immediate written notice to the Contracting
Officer if, at any time prior to contract award, Offeror learns that
its certification was erroneous when submitted or has become erroneous
by reason of changed circumstances.
(c) A certification that any of the items in paragraph (a) of this
provision exists will not necessarily result in withholding of an award
under this solicitation. However, the certification will be considered
in connection with a determination of the Offerer's responsibility.
Failure of the Offeror to furnish a certification or provide the
additional information as requested by the Contracting Officer may
render the Offeror nonresponsible.
(d) Nothing contained in the foregoing shall be construed to require
establishment of a system of records in order to render, in good faith,
the certification required by paragraph (a) of this provision. The
knowledge and information of an offeror is not required to exceed that
which is normally possessed by a prudent person in the ordinary course
of business dealings.
(e) The certification in paragraph (a) of this provision is a material
representation of fact upon which reliance was placed when making
award. If it is later determined that the Offerer knowingly rendered an
erroneous certification, in addition to the other remedies available to
the Government, the Contacting Officer may terminate the Contract
resulting from this solicitation for default.
INTEGRATED SPACE SYSTEMS INC. SSS0034919
- --------------------------------- -------------------------------
Company Name Solicitation Number
/s/ Philip E. Smith
- ---------------------------------
Signature
President 18 October 1996
- --------------------------------- -------------------------------
Title Date
<PAGE>
RFQ# SSS0034919
SOW# 710573 10/8/96
Statement of Work
- -----------------
2.0 Task Description
ISS will provide stress analysis of Single Stage Atlas Fluid system designs on a
level of effort basis. The analysis shall include finite element model
generation, loads analysis and detailed stress evaluation (hand and computer
analysis). Provide written documentation of analyses as directed by Lockheed
Martin Fluids IPT personnel. Review and approve engineering drawing releases.
ISS personnel working on this project shall be subject to prior approval by
Lockheed Martin.
2.1 Notice
Any notice, demand, request statement or other writing required or permitted by
any Contract resulting from this proposal shall be deemed to have been given
when personally delivered or mailed by certified or registered United States
Mail, postage prepaid, addressed as follows:
Integrated Space Systems Inc. Lockheed Martin
Corporation
7940 Silverton Ave, Suite 202 12257 State Highway
121
San Diego, CA 92126 Littleton, CO 80217
Attn.: Jack Rubidoux Attn: John Gould
(619) 684-3570 (619) 977-0387
3.0 Period of Performance
The period of performance to accomplish all tasks requested herein shall be from
Oct 7, 1996 through April 7, 1997
4.0 Level of Effort
1996 4th Quarter- Direct Labor- (2) Senior heads with an option for (1)
additional head with 30 days advance notice.
1997 1st Quarter- Direct Labor- (2) Senior heads
COLLABORATIVE AGREEMENT
PARTIES
- -------
The parties to this Agreement are the Arizona Board of Regents, for and
on behalf of The University of Arizona (Lunar and Planetary Laboratory)
(hereinafter "University") and SpaceDev, Inc., a Colorado corporation, having
its principal place of business in Poway, California (hereinafter "SpaceDev").
RECITALS
- --------
The University and SpaceDev have been engaged in discussions concerning
a collaborative agreement for the sale of scientific data which will be obtained
from camera created and owned by the University and to be carried into space
aboard SpaceDev's spacecraft. SpaceDev is a commercial space exploration company
currently projecting to launch a spacecraft under the SpaceDev Near Earth
Asteroid Prospector (NEAP) program. It is anticipated the scientific camera
developed and owned by the University will be carried aboard SpaceDev's NEAP
spacecraft to be placed in space for the purpose of gathering and relaying to
earth the scientific data which would be the product to be sold.
The parties have heretofore proceeded under a Nonbinding Letter of
Intent. They now wish to enter into a binding collaborative agreement which sets
forth the pre-mission agreements and responsibilities of the respective parties
and formalizes their respective agreements.
UNIVERSITY INSTRUMENT
- ---------------------
The University will furnish to SpaceDev in time for mission planning
and integration with the launch vehicle one (1) multi-band charged coupled
device (CCD) camera. The University will retain ownership of the camera, and in
the event SpaceDev fails to launch the
<PAGE>
spacecraft before December 31, 2002, the camera will be returned to the
University in as good a condition as when first delivered to SpaceDev, and this
Agreement will be terminated along with any obligations between the parties
arising from this Agreement. In any event, the University shall retain all
information that pertains to the design, construction, testing, calibration and
operation of the camera.
INSURANCE AND LOSS OF CAMERA
- ----------------------------
The University will deliver the camera to SpaceDev, F.O.B. the
University loading dock, Tucson, Arizona. At all times the camera is in the
possession of SpaceDev, including during the launch and space flight of such
camera, it shall be insured by SpaceDev using insurers satisfactory to the
University against loss or damage in an amount adequate to guarantee replacement
cost. If the camera is damaged, destroyed or otherwise lost while in SpaceDev's
custody or control, including in connection with the actual launch and space
flight or at any time after the camera is integrated into SpaceDev's spacecraft,
the proceeds of such insurance shall be payable to the University. The
University agrees to apply the insurance proceeds to recreate or rebuild the
camera using then-current technology. The University agrees to use its best
efforts to rebuild or replace the lost camera, but the parties understand that
such replacement will be on a schedule consistent with other University
commitments. When and if the camera is replaced, the University will make the
new camera available to SpaceDev under terms and conditions similar to this
Agreement.
SALE OF DATA
- ------------
If the camera is successfully placed in space and transmits data which
is acceptable for resale, SpaceDev shall have the exclusive right to resell the
data to clients of SpaceDev.
2
<PAGE>
SpaceDev will pay to the University a royalty equal to eight percent (8%) of the
gross receipts received by SpaceDev from the sale of data, including sales to
the University. Gross receipts shall be defined for purposes of this Agreement
as the total amount of money paid to SpaceDev in exchange for use or access
(however described) to the data from the camera described herein. Should
SpaceDev be unable or unwilling to sell the data within three (3) years from the
date it is received, then the University shall have the non-exclusive right to
use or sell the data. If the University is able to sell the data in a bona fide
arm's-length transaction, SpaceDev shall be entitled to a royalty of eight
percent (8%) of the gross proceeds (as herein defined) received by the
University from the sale. Should the University desire data from the camera, the
University will purchase the data from SpaceDev for $15 million per dataset (in
real year dollars). A dataset is defined as all data acquired by an instrument
from the beginning of the flight until the instrument ceases to function.
SpaceDev will provide a Certified Public Accountant (CPA) audited
accounting to the University within three (3) months of the University's
request. The University agrees to accept the CPA's audited financial statements
of SpaceDev in lieu of a segregated audit if such audited financial statements
provide the information which would he presented if such a segregated audit were
conducted pursuant to this section.
CAMERA OPERATIONS
- -----------------
If the camera provided by the University is successfully launched, it
shall be operated by the University or under the direct supervision and control
of the University. The University shall have full rights to participate in the
mission operations phase of the project and will have access to the returned
data for the purposes of internal evaluation of the performance of the camera
and planning the observing sequences. Any other use of the data including
scientific analysis of the
3
<PAGE>
data leading to publication in scientific, journals shall not be performed
without purchase of the data. The University shall also have the right to plan
the data-taking sequences within the limitations placed by the mission profile
to maximize the scientific and commercial value of the datasets.
The University shall seek NASA funding for the cost for the operations
phase of the camera. In the event that NASA fails to fund the cost of operations
for the camera by purchase of the data or otherwise, and SpaceDev chooses to fly
the camera anyway, SpaceDev will provide the operations cost to the University
as incurred.
OTHER NASA FUNDING
- ------------------
The University anticipates submitting Mission of Opportunity proposals
to NASA under NASA's Discovery Program, or other funding programs, which may
necessarily include funding for the acquisition of data transmitted by the
camera. In the event such proposals are funded, the granting of such funding
shall not relieve SpaceDev from its responsibility for the payment of the
royalty as agreed above. Any such proposals will be submitted beginning with
NASA's FY2000 funding cycle.
TERM AND TERMINATION
- --------------------
This Agreement shall terminate: (1) by expiration in the event the
spacecraft launch planned by SpaceDev fails to occur by December 31, 2002; or
(2) due to cancellation of NASA's launch programs or other financial or
operational situations that are either outside the parties' control or
technically impossible, impractical or prevented by a third party or condition.
SpaceDev agrees to return the camera to the University in the event of
termination of its NEAP program before launch, or the above failure to launch
than by December 31, 2002, whichever is sooner.
4
<PAGE>
The University shall not be obligated to continue developing or
building the camera if SpaceDev fails to make reasonable or adequate progress in
the NEAP program or in developing and building the launch craft or space craft
or in obtaining necessary funding for the NEAP program, including the launch
itself. If the University discontinues its efforts for this reason, it shall
notify SpaceDev in writing of the discontinuation.
If the camera is successfully launched, then this Agreement shall
continue for three (3) years from the date of its execution. At the end of three
(3) years, neither party shall have any further duty or obligation to the other,
except that any duty or obligation that arose during the term of this Agreement
and remains unfulfilled shall survive and remain a duty or obligation or the
party upon whom it devolved. All the expiration of the term, any data received
or recovered from the operation of the camera shall belong jointly to the
parties without restriction or obligation, and each party agrees to provide the
other with any data or information such that each party has a full set.
This Agreement may be canceled for Conflict of Interest pursuant to
A.R.S.ss.38-511.
GENERAL TERMS
- -------------
Both parties acknowledge that no finder or other fee or introduction
fee has been paid or will be paid by either party to this Agreement, and both
parties warrant that they have not used a broker or other agent in connection
with this transaction. Both parties understand and agree that certain
information will be exchanged which may be proprietary in nature, and both
parties agree to execute the necessary confidentiality or non-disclosure
agreements as may be necessary in order to protect the proprietary nature of
that information.
The parties will bear their own costs and expenses in connection with
this Agreement and the transactions contemplated hereby including, but not
limited to, the cost of their respective
5
<PAGE>
legal counsel and neither party will have any obligation with respect to the
costs and expenses incurred by the other in connection herewith. Both parties
have had the opportunity to consult with counsel and participated in the
drafting of this Agreement. Therefore, this Agreement shall he construed fairly
and equitably between the parties and not more strongly for or against either of
them.
If either of the parties hereto files for protection under the United
States Bankruptcy Code or under any state law or act providing for a composition
of creditors or a reorganization of any type, the data and camera which are the
subject matter of this Agreement shall not be considered an asset in bankruptcy
but shall be and become the property of the party not filing for relief under
the bankruptcy act or other reorganization, subject to the right to receive any
proceeds to which the bankrupt or reorganizing party would otherwise be entitled
under this Agreement.
The parties agree to be bound by applicable state and federal rules
governing Equal Employment Opportunity and Non-discrimination.
The parties agree that any dispute arising under this Agreement
involving the sum of $30,000 or less in money damages only shall be resolved by
arbitration pursuant to the Arizona Uniform Rules of Procedures for Arbitration.
The decision of the arbitrator(s) shall be final.
The parties recognize that the performance by the Arizona Board of
Regents for and on behalf of The University of Arizona may be dependent upon the
appropriation of funds by the State Legislature of Arizona. Should the
Legislature fail to appropriate the necessary funds, or if the University's
appropriation is reduced during the fiscal year, the Board of Regents may reduce
the scope of the Agreement if appropriate or cancel the agreement without
further duty or obligation. The Board agrees to notify the other party(ies) as
soon as reasonably possible after the unavailability of said funds comes to the
Boards attention.
6
<PAGE>
DATED this 15 day of February, 2000.
SpaceDev, Inc. ARIZONA BOARD OF REGENTS
for and on behalf of The University of Arizona
By /s/ James Benson By /s/ Richard C. Powell
------------------------- -----------------------------
James Benson Richard C. Powell
President Vice President for Research
APPROVED AND AGREED TO:
Lunar and Planetary Laboratory
By /s/ Michael Drake
---------------------------
Michael Drake, Director
7
NATIONAL RECONNAISSANCE OFFICE
16 August 1999
TO: Major Keith Dugger
OSL/APD
FROM: BARBARA L. PEDERSEN
Contracting Officer
Office of Space Launch Contracts Division (SAF/SL-CD)
SUBJ.: COTR Delegation of Responsibilities and Duties
1. You are hereby appointed as the Contracting Officer's Technical
Representative (COTR) for the following contract(s):
Contract No. Contractor
------------ ----------
NRO000-99-C-0120/CLINs 0003/0004 Integrated Space Systems, Inc.
2. This delegation authorizes you to oversee the contractor's technical efforts
to ensure that performance is in strict accordance with the terms and conditions
of the contract. You will also be the primary interface between the contractor
and the Contracting Officer on matters pertaining to the contractor's technical
effort.
3. This delegation DOES NOT authorize you to direct the contractor to perform
work unless explicitly provided for in the contract, nor does it authorize you
to take actions other than those specifically stated in this letter.
4. Unless otherwise proscribed in this letter or in the contract, you have broad
authority to represent the Contracting Officer regarding the technical aspects
of this contract. However, you are NOT authorized to make any agreement or
commitments involving a change in unit price, total contract cost, quantity,
quality, delivery schedule or other aspects of the contract specifically
defined. The Contracting Officer is the only Government official with the
authority to enter into or modify contractual agreements or commitments.
5. The performance of your duties is subject to the limitations set forth
herein, the contract terms and conditions and applicable requirements set forth
in the FAR and the NAM. UNAUTHORIZED ACTS COULD RESULT IN PERSONAL LIABILITY.
Typical duties that you are expected to perform, include, but are not limited
to:
<PAGE>
a. Monitor the contractor's performance and provide status to the
Contracting Officer and other program personnel to ensure compliance with the
technical requirements of the contract. If performance is not proceeding
satisfactorily, or if problems are anticipated, notify the Contracting Officer
as to the cause and provide a recommended technical course of action. Prompt
notification is essential to ensure that the Contracting Officer can take
appropriate action to protect the Government s rights under the contract.
b. Support the Property Management Office (PMO) as necessary to ensure
proper utilization and disposition of Government property accountable to the
contract.
c. Review and approve progress reports, technical reports,
financial/management reports, and other items requiring approval. Notify the
Contracting Officer if such reports or items should be rejected, stating the
basis for rejection.
d. Provide technical representation regarding any proposed changes to the
contract.
e. Support the program configuration control board in evaluating requests
for change (RFCs) and change proposals and provide recommendations thereon.
Support the Contracting Officer, if necessary, during fact-finding and
negotiation.
f. Provide the Contracting Officer with technical advice relating to the
Contracting Officer's approval of subcontracts, overtime, travel, etc.
g. Keep the Contracting Officer informed regarding communications with the
contractor in order to prevent possible misunderstandings or situations that
could affect contract terms and conditions and become the basis for future
claims against the Government.
h. In coordination with program security, determine what classified
technical documents or data should be provided to the contractor by the NRO.
Keep track of any classified documents or data provided and ensure their return
or destruction upon completion of the contract. This includes magnetic media
material (tapes, disks, diskettes) on which the contractor stored the classified
data or documents.
i. Support the Contracting Officer in accomplishing contract closeout by:
(1) Verifying, in writing, satisfactory completion of effort in
accordance with contract terms and conditions;
(2) In coordination with program security, oversee the identification
and disposition of all classified material;
(3) Support the PMO in identifying and disposing of all Government
property accountable to the contract; and
<PAGE>
(4) Support the Contracting Officer and the Office of General Counsel
(OGC) in resolving any outstanding patent, data, or copyright issues.
j. Perform such other duties as appropriate, including contractor
performance evaluation under cost reimbursement award fee contracts.
6. Additional technical personnel may be assigned to assist you in the
performance of your duties, however, you shall remain responsible for all
actions taken by such support personnel.
7. This appointment cannot be redelegated. It is effective upon signature and
shall expire when the contract is completed or when rescinded in writing by
myself or my successor.
8. Please contact me directly if you have any questions regarding the
responsibilities that have been assigned to you.
/s/ Barbara L. Pedersen
BARBARA L. PEDERSEN
Contracting Officer
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
AWARD/CONTRACT 1. THIS CONTRACT IS A RATED ORDER RATING PAGE OF PAGES
UNDER DPAS (15 CFR 350) N 1 13
- -----------------------------------------------------------------------------------------------------------------
2. CONTRACT (Proc. inst. Ident.) NO. 3. EFFECTIVE DATE 4. REQUISITION/PURCHASE REQUEST/PROJECT NO.
NR0000-99-C-0120 08/16/99
- -----------------------------------------------------------------------------------------------------------------
6. ISSUED BY CODE 6. ADMINISTERED BY (If other than Item 5) CODE
OFFICE OF SPACE LAUNCH (SAF/SL-CD) SEE BLOCK 5
2420 VELA WAY, SUITE 1467-A5
EL SEGUNDO, CA 90245-4659
- -----------------------------------------------------------------------------------------------------------------
7. NAME AND ADDRESS OF CONTRACTOR (No., street, city, county, State and ZIP Code) 8. DELIVERY
INTEGRATED SPACE SYSTEMS, INC. [ ] FOB ORIGIN [X] OTHER (See below)
13855 STOWE DRIVE
POWAY, CALIFORNIA 92064
9. DISCOUNT FOR PROMPT PAYMENT
SEE SECTION G
10. SUBMIT INVOICES ITEM
(4 copies unless otherwise
specified) TO THE ADDRESS
CODE FACILITY CODE SHOWN IN: SECTION G
- -----------------------------------------------------------------------------------------------------------------
11. SHIP TO/MARK FOR CODE 12. PAYMENT WILL BE MADE BY CODE
SEE SECTION G
- -----------------------------------------------------------------------------------------------------------------
13. AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETITION: 14. ACCOUNTING AND APPROPRIATION DATA
[ ] 10 USC 2304(c) ( ) [ ] 41 USC 253(c)( ) SEE SECTION G
- -----------------------------------------------------------------------------------------------------------------
15A. ITEM NO. 15B. SUPPLIES/SERVICES 15C. QUANTITY 15D. UNIT 15. UNIT PRICE 15F. AMOUNT
SEE SECTION B
MAILING DATE 13 AUG 1999
OFFICIAL FILE COPY DATE: 13 AUG 1999
- -----------------------------------------------------------------------------------------------------------------
15G. TOTAL AMOUNT OF CONTRACT $687,740.00
- -----------------------------------------------------------------------------------------------------------------
16. TABLE OF CONTENTS
(X) SEC. DESCRIPTION PAGE(S) (X) SEC. DESCRIPTION PAGE(S)
- -----------------------------------------------------------------------------------------------------------------
PART I - THE SCHEDULE PART II - CONTRACT CLAUSES
X A SOLICITATION/CONTRACT FORM 1 X I CONTRACT CLAUSES 8
X B SUPPLIES OR SERVICES AND PRICES/COST 2 PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH.
X C DESCRIPTION/SPECS./WORK STATEMENT 4 X J LIST OF ATTACHMENTS 13
D PACKAGING AND MARKING PART IV - REPRESENTATIONS AND INSTRUCTIONS
X E INSPECTION AND ACCEPTANCE 4 REPRESENTATIONS, CERTIFICATIONS AND
X F DELIVERIES OR PERFORMANCE 5 K OTHER STATEMENTS OF OFFERORS
X G CONTRACT ADMINISTRATION DATA 6 L INSTRS., CONDS., AND NOTICES TO OFFERORS
H SPECIAL CONTRACT REQUIREMENTS M EVALUATION FACTORS FOR AWARD
- -----------------------------------------------------------------------------------------------------------------
CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
17.[X] CONTRACTOR'S NEGOTIATED AGREEMENT (Contractor is required to sign this
document and return 1 copies to issuing office.) Contractor agrees to furnish
and deliver all items or perform all the services set forth or otherwise
identified above and on any continuation sheets for the consideration stated
herein. The rights and obligations of the parties to this contract shall be
subject to and governed by the following documents: (a) this award/contract, (b)
the solicitation, if any, and (c) such provisions, representations,
certifications, and specifications, as are attached or incorporated by reference
herein. (Attachments are listed herein.)
18. [ ] AWARD (Contractor is not required to sign this document.) Your offer on
Solicitation Number __________ including the additions or changes made by you
which additions or changes are set forth in full above, is hereby accepted as to
the items listed above and on any continuation sheets. This award consummates
the contract which consists of the following documents: (a) the Government's
solicitation and your offer, and (b) this award/contact. No further contractual
document is necessary.
<TABLE>
<S> <C> <C> <C>
19A. NAME AND TITLE OF SIGNER (Type or print) 20A. NAME OF CONTRACTING OFFICER
Philip E. Smith, President BARBARA L. PEDERSEN
19B. NAME OF CONTRACTOR 19C. DATE SIGNED 20B. UNITED STATES OF AMERICA 20C. DATE SIGNED
BY /S/ Philip E. Smith 06/ Aug 1999 BY /s/ signature 13 Aug 99
------------------------- ---------------------------
(Signature of person authorized to sign) (Signature of Contracting Officer)
</TABLE>
<PAGE>
UNCLASSIFIED
PART I - THE SCHEDULE
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
-------------------------------------------------
B-1 TYPE OF CONTRACT AND TOTAL CONTRACT VALUE
- -------------------------------------------------
The Contractor shall, in accordance with the terms and conditions set forth
herein, furnish the necessary qualified personnel, services, travel, facilities
and materials (except those specifically designated to be provided by the
Government) and do all things necessary and incidental to complete the
contractual effort in accordance with the Statement of Work incorporated by
Section C - Description/Specifications/Statement of Work hereto.
The total current contract value is $687,740.00.
CLIN 0001, as identified in this contract and in the total estimated amounts set
forth below are Firm-Fixed Price (FFP), as described under the Federal
Acquisition Regulations (FAR) 16.202.
Description: The Contractor shall provide the supplies and services required to
accomplish the effort as set forth in Contractor's Proposal entitled "BAA
#99-001, Topic 1.2 Low Cost Space Technology Demonstrations" dated 31 March
1999, paragraph 2.2.
Firm Fixed Price $637,740.00
The fixed price for the Contract Line Item 0001, and any modifications thereto
are shown below. (Note: Provisional increases are not included in this summary
until recognized as definitive)
FIRM FIXED PRICE
Basic $637,740.00
2
<PAGE>
UNCLASSIFIED
CLIN 0002 NSP
Description: The Contractor shall provide data and reports in support of
CLIN 0001:
Mission Requirements Report
Motor System Requirements Report
Hybrid SPOT System Report
Launch System Feasibility Report
Mission Service Mission Model
Price of CLIN 0002 is included in the price of CLIN 0001.
CLIN 0003, as identified in this contract and in the total estimated amounts set
forth below are Firm Fixed Price (FFP), as described under the Federal
Acquisition Regulations (FAR) 16.202.
Description: The Contractor shall provide the supplies and services required to
accomplish the effort as set forth In Contractor's proposal entitled "BAA
#99-01, Topic 1.8 Streamlined Launch Services dated 15 May 1999, paragraph 2.2.
Firm Fixed Price $50,000.00
The fixed price for the Contract Line Item 0003, and any modifications thereto
are shown below. (Note: Provisional increases are not included in this summary
until recognized as definitive)
FIRM FIXED PRICE
Basic $50,000.00
CLIN 0004 NSP
Description: The Contractor shall provide Data and Reports in support of CLIN
0003 -- Final Report. Price of CLIN 0004 is included in price of CLIN 0003.
3
<PAGE>
UNCLASSIFIED
SECTION C - DESCRIPTIONS/SPECS./WORK STATEMENT
----------------------------------------------
C-1 INCORPORATION OF CONTRACTOR'S PROPOSALS
- -----------------------------------------------
Contractor's Broad Agency Announcement #99-001 Proposals entitled "Topic 1.2 Low
Cost Space Technology Demonstrations" dated 31 March 1999 and "Topic 1.8
Streamlined Launch Services" dated 21 May 1999, paragraphs 2.2 are incorporated
herein by reference and made a part of this contract.
Nothing contained in the Contractor's proposal shall constitute a waiver to any
other requirement of this contract. In the event of any conflict between the
Contractor's technical proposal and any other requirement of the contract, the
conflict shall resolved in accordance with the Order of Precedence clause.
SECTION E - INSPECTION AND ACCEPTANCE
-------------------------------------
E-1 N52.252-002 CLAUSES INCORPORATED BY REFERENCE (APR 1998)
- ----------------------------------------------------------------
This contract incorporates one or more clauses by reference, with the same force
and effect as if they were given in full text. Upon request, the Contracting
Officer will make their full text available.
NUMBER TITLE
52.246-9 Inspection of Research and Development (Short Form) (APR 1984)
52.246-16 Responsibility for Supplies (APR 1984)
N52.246-001 Inspection and Acceptance at Destination (General) (MAR 1996)
N52.246-005 Material Inspection and Receiving Report (DFARS 252.246-7000)
(MAR 1996)
N52.246-006 Requirement for Data Acceptance (MAR 1996)
4
<PAGE>
UNCLASSIFIED
SECTION F - DELIVERIES OR PERFORMANCE
-------------------------------------
F-1 N52.252-002 CLAUSES INCORPORATED BY REFERENCE (APR 1998)
- ----------------------------------------------------------------
This contract incorporates one or more clauses by reference, with the same force
and effect as if they were given in full text. Upon request, the Contracting
Officer will make their full text available.
NUMBER TITLE
52.242-15 Stop-Work Order (AUG 1989)
F-2 N52.211-006 CONTRACTOR PERFORMANCE AND DELIVERY (MAR 1996)
- ------------------------------------------------------------------
(a) Period of Performance: The period of performance of this contract
shall be:
CLIN START DATE COMPLETION DATE
0001 16 AUG 99 15 FEB 00
0002 16 AUG 99 15 FEB 00
0003 16 AUG 99 15 DEC 99
0004 16 AUG 99 15 DEC 99
The principal place of performance under this contract shall be the
Contractor's facility located at:
Integrated Space Systems, Inc.
13855 Stowe Drive
Poway, CA 92064
(b) Delivery: In the event an item under this contract is delivered
directly to the COTR, the contractor shall obtain a signed receipt
from the COTR. One copy of the receipt shall be attached to the
contractor's invoice submitted for payment, for such item(s).
Failure to do so may result in delayed payment.
(c) When the contractor encounters difficulty in meeting performance
requirements, or anticipates difficulty in complying with the
contract delivery schedule or date, they shall immediately notify
the Contracting Officer in writing giving pertinent details;
provided, however, that this data shall be informational only in
character and that this provision shall not be construed as a waiver
by the Government of any delivery schedule for any rights or
remedies provided by law or under this contract.
5
<PAGE>
UNCLASSIFIED
SECTION G-CONTRACT ADMINISTRATION DATA
---------------------------------------
G-1 POINTS OF CONTACT
- -------------------------
TITLE NAME PHONE #
COTR CLINs 0001/0002 Major Angela Burns (703) 808-3836
COTR CLINs 0003/0004 Major Keith Dugger (310) 416-7936
Contracting Officer Ms. Barbara Pedersen (310) 416-7757
G-2 PURCHASE REQUEST NUMBER AND ACCOUNTING AND APPROPRIATION DATA
- ---------------------------------------------------------------------
Contract CLIN RCA# RCA BLI FY BOC Dollars
Doc ACTNG Obligated
#
Basic 0001 OSL-99-0028- 1 H66 99 2550 $637,740.00
0000
Basic 0003 OSL-99-0028- 1 H66 99 2550 $50,000.00
0000
SubTotal $687,740.00
Total $687,740.00
G-3 PAYMENT INSTRUCTIONS (SINGLE FUNDING AGENCY, R&D APPROPRIATIONS ONLY)
- -----------------------------------------------------------------------------
Payments under CLIN should be made from available accounting classification
citations in the order in which the funds were appropriated.
G-4 N52.204-004 CONTRACT CLAUSE NUMBERING (MAR 1996)
- --------------------------------------------------------
In this contract, standard clauses are originated from two sources; (1) the
Federal Acquisition Regulation and (2) the NRO Acquisition Manual (NAM). NAM
clauses are identifiable by noting the "N" preceding the clause reference
number. Any clauses which are duplicative to DFARS are indicated by the DFARS
clause number parenthetically inserted beside the clause title.
G-5 N52.232-007 INSTRUCTIONS FOR REQUESTING CONTRACT PAYMENT (SEP 1998)
- ---------------------------------------------------------------------------
All requests for invoice and contract financing payments (other than progress
payments) shall be prepared on a Standard Form 1034, Public Voucher for
Purchases and Services Other Than Personal, and submitted for payment to the
following billing office:
Ms. Barbara L. Pedersen
Office of Space Launch (SAF/SL-CD)
2420 Vela Way. Suite 1467-A5
El Segundo, CA 90245-4659
6
<PAGE>
UNCLASSIFIED
Requests for progress payments shall be prepared on a Standard Form 1443,
Contractor's Request for Progress Payment, and submitted to the following
billing office: N/A
The payment periods designated in the FAR Prompt Payment clause(s) contained in
this contractual document will begin on the date a proper voucher or request for
payment (SF 1034 or SF 1443) is received in the billing office listed above. The
following additional voucher preparation instructions and requirements for
backup documentation also apply: NONE
The government billing office or payment office will notify the contractor of
any apparent error, defect, or impropriety in a voucher or request for payment
within seven days of receipt by the billing office. Inquiries regarding vouchers
or requests for payment should be directed to the government contracting
officer.
G-6 PAYMENT INSTRUCTIONS FOR CLIN 0001
- ------------------------------------------
Payment for CLIN 0001 shall be made in accordance with the following schedule:
Mission Design Complete 15 SEP 99 $ 44,642.00
Mission Design Report Submitted 15 OCT 99 $ 12,755.00
SPOT Design Requirements Complete 15 NOV 99 $ 70,152.00
SPOT Design Requirements Report Submitted 15 JAN 00 $ 19,133.00
SPOT Preliminary System Design Complete 15 OCT 99 $184,945.00
SPOT System Design Complete 15 JAN 00 $ 95,661.00
Submit SPOT System Design Report Submitted 15 FEB 00 $ 31,887.00
Launch System Feasibility Complete 15 JAN 00 $ 44,642.00
Launch System Feasibility Report Submitted 15 FEB 00 $ 12,755.00
Mission Contracting Models Complete 15 JAN 00 $ 70,152.00
Mission Contracting Models Report Submitted 15 FEB 00 $ 19,133.00
Project Complete 15 FEB 00 $ 31,883.00
G-7 PAYMENT INSTRUCTIONS FOR CLIN 0003
- ------------------------------------------
Payment for CLIN 0003 shall be made in accordance with the following schedule:
Customer Review 15 SEP 99 $ 16,500.00
Midterm Report 16 OCT 99 $ 16,500.00
Final Report 16 DEC 99 $ 17,000.00
7
<PAGE>
UNCLASSIFIED
PART II-CONTRACT CLAUSES
-------------------------
SECTION I - CONTRACT CLAUSES
- ----------------------------
(1) CLAUSES INCORPORATED BY REFERENCE (APR 1998)
--------------------------------------------
This contract incorporates one or more clauses by reference, with
the same force and effect as if they were given in full text. Upon request, the
Contracting Officer will make their full text available. Also, the full text of
a FAR clause may be accessed electronically at this address:
http://farsite.himaf.mil. (N52.252-002)
I. FEDERAL ACQUISITION REGULATION (1997 EDITION)(48 CFR CHAPTER 1) CLAUSES:
- -- ------------------------------------------------------------------------
CLAUSE NUMBER CLAUSE TITLE/DATE
------------- -----------------
52.202-1 DEFINITIONS (OCT 1995)
52.203-3 GRATUITIES (APR 1984)
52.203-5 COVENANT AGAINST CONTINGENT FEES (APR 1984)
52.203-7 ANTI-KICKBACK PROCEDURES (JUL 1995)
52.203-8 CANCELLATION, RESCISSION, AND RECOVERY OF FUNDS FOR
ILLEGAL OR IMPROPER ACTIVITY (JAN 1997)
52.203-10 PRICE OR FEE ADJUSTMENT FOR ILLEGAL OR IMPROPER
ACTIVITY (JAN 1997)
52.203-12 LIMITATION ON PAYMENTS TO INFLUENCE CERTAIN FEDERAL
TRANSACTIONS (JUN 1997)
52.204-4 PRINTING/COPYING DOUBLE-SIDED ON RECYCLED PAPER
(JUN 1996)
52.209-6 PROTECTING THE GOVERNMENTS INTEREST WHEN SUBCONTRACTING
WITH CONTRACTORS DEBARRED SUSPENDED, OR PROPOSED FOR
DEBARMENT (JUL 1995)
52.215-2 AUDIT AND RECORDS--NEGOTIATION (JUN 1999) (FAC 97-12)
52.215-8 ORDER OF PRECEDENCE--UNIFORM CONTRACT FORMAT (OCT 1997)
(FAC 97-02)
52.215-11 PRICE REDUCTION FOR DEFECTIVE COST OR PRICING DATA--
MODIFICATIONS (OCT 1997) (FAC 97-02)
52.215-13 SUBCONTRACTOR COST OR PRICING DATA--MODIFICATIONS
(OCT 1997)(FAC 97-02)
52.215-14 INTEGRITY OF UNIT PRICES (OCT 1997) (FAC 97-02)
52.215-15 PENSION ADJUSTMENTS AND ASSET REVERSIONS (DEC 1998)
(FAC 97-09)
52.215-18 REVERSION ORADJUSTMENT OF PLANS FOR POSTRETIREMENT
BENEFITS (PRB) OTHER THAN PENSIONS
(PRB)(OCT 1997) (FAC 97-02)
52.215-19 NOTIFICATION OF OWNERSHIP CHANGES (OCT 1997)(FAC 97-02)
52.215-21 REQUIREMENTS FOR COST OR PRICING DATA OR INFORMATION
OTHER THAN COST OR PRICING DATA--MODIFICATIONS
(OCT 1997) (FAC 97-02)
52.222-1 NOTICE TO THE GOVERNMENT OF LABOR DISPUTES (FEB 1997)
52.222-3 CONVICT LABOR (AUG 1996)
8
<PAGE>
UNCLASSIFIED
52.222-4 CONTRACT WORK HOURS AND SAFETY STANDARDS ACT--OVERTIME
COMPENSATION (JUL 1995)
52.222-21 PROHIBITION OF SEGREGATED FACILITIES (FEB 1999)
(FAC 97-10)
52.222-26 EQUAL OPPORTUNITY (FEB 1999) (FAC 97-10)
52.222-35 AFFIRMATIVE ACTION FOR DISABLED VETERANS AND VETERANS
OF THE VIETNAM ERA (APR 1998) (FAC 97-04)
52.222-36 AFFIRMATIVE ACTION FOR WORKERS WITH DISABILITIES
(JUN 1998) (FAC 97-05)
52.222-37 EMPLOYMENT REPORTS ON DISABLED VETERANS AND VETERANS OF
THE VIETNAM ERA (JAN 1999) (FAC 97-10)
52.223-2 CLEAN AIR AND WATER (APR 1984)
52.223-6 DRUG-FREE WORKPLACE (JAN 1997)
52.223-14 TOXIC CHEMICAL RELEASE REPORTING (OCT 1996)
52.225-11 RESTRICTIONS ON CERTAIN FOREIGN PURCHASES (AUG 1998)
(FAC 97-05)
52.227-1 AUTHORIZATION AND CONSENT (JUL 1995)
ALTERNATE I (APR 1984)
52.227-2 NOTICE AND ASSISTANCE REGARDING PATENT AND COPYRIGHT
INFRINGEMENT (AUG 1996)
52.227-9 REFUND OF ROYALTIES (APR 1984)
52.227-11 PATENT RIGHTS--RETENTION BY THE CONTRACTOR (SHORT FORM)
(JUN 1997)
52.229-3 FEDERAL STATE, AND LOCAL TAXES (JAN 1991)
52.229-5 TAXES-CONTRACTS PERFORMED IN U.S. POSSESSIONS OR PUERTO
RICO (APR 1984)
52.232-2 PAYMENTS UNDER FIXED-PRICE RESEARCH AND DEVELOPMENT
CONTRACTS (APR 1984)
52.232-9 LIMITATION ON WITHHOLDING OF PAYMENTS (APR 1984)
52.232-17 INTEREST (JUN 1996)
52.232-23 ASSIGNMENT OF CLAIMS (JAN 1986)
52.232-25 PROMPT PAYMENT (JUN 1997)
52.232-34 PAYMENT BY ELECTRONIC FUNDS TRANSFER--OTHER THAN CENTRAL
CONTRACTOR REGISTRATION (MAY 1999) (FAC 97-11)
52.233-3 PROTEST AFTER AWARD (AUG 1996)
52.242-13 BANKRUPTCY (JUL 1995)
52.243-1 CHANGES--FIXED PRICE (AUG 1987)
ALTERNATE V (APR 1984)
52.244-5 COMPETITION IN SUBCONTRACTING (DEC 1996)
52.244-6 SUBCONTRACTS FOR COMMERCIAL ITEMS AND COMMERCIAL
COMPONENTS (OCT 1998) (FAC 97-09)
52.245-2 GOVERNMENT PROPERTY (FIXED-PRICE CONTRACTS) (DEC 1989)
52.249-2 TERMINATION FOR THE CONVENIENCE OF THE GOVERNMENT
(FIXED PRICE)(SEP 1996)
52.249-9 DEFAULT (FIXED-PRICE RESEARCH AND DEVELOPMENT (APR 1984)
52.253-1 COMPUTER GENERATED FORMS (JAN 1991)
9
<PAGE>
UNCLASSIFIED
II. NRO ACQUISITION MANUAL CLAUSES
- --- ------------------------------
CLAUSE NUMBER CLAUSE TITLE /DATE
------------- ------------------
N52.203-O03 SPECIAL PROHIBITION ON EMPLOYMENT (JUN 1997)
(DFARS 252.203-7001)
N52.203-004 PERSONAL CONDUCT (APR 1997)
N52.204-002 CONTRACTOR PERSONNEL (MAR 1996)
N52.204-003 SPECIAL NOTIFICATION AND APPROVAL REQUIREMENTS
(JUL 1996)
N52.209-001 ACQUISITION FROM SUBCONTRACTORS SUBJECT TO ON-SITE
INSPECTION UNDER THE INTERMEDIATE-RANGE NUCLEAR FORCES
(INF) TREATY (MAR 1996)
N52.209-008 ORGANIZATIONAL CONFLICT OF INTEREST: GENERAL (MAR 1996)
N52.215-002 INTENTION TO USE CONSULTANTS (JAN 1998) (NAC 98-02)
N52.219-001 UTILIZATION OF SMALL, SMALL DISADVANTAGED AND
WOMEN-OWNED BUSINESS CONCERNS (MAR 1996)
N52.223-005 PROHIBITION ON STORAGE AND DISPOSAL OF TOXIC AND
HAZARDOUS MATERIALS (OCT 1997)
(In the blank space insert "NONE")
N52.223-006 CONTRACTOR COMPLIANCE WITH ENVIRONMENTAL, OCCUPATIONAL
SAFETY AND HEALTH, AND SYSTEM SAFETY REQUIREMENTS
(OCT 1997)
N52.227-014 TECHNICAL DATA--COMMERCIAL ITEMS (MAR 1996)
(DFARS 252.227-7015)
N52.227-015 RIGHTS IN TECHNICAL DATA--NONCOMMERCIAL ITEMS (MAR 1996)
(DFARS 252.227-7013)
N52.227-017 VALIDATION OF RESTRICTIVE MARKINGS ON TECHNICAL DATA
(MAR 1996) (DFAFS 252.227-7037)
N52.227-019 LIMITATIONS ON THE USE OR DISCLOSURE OF GOVERNMENT-
FURNISHED INFORMATION MARKED WITH RESTRICTIVE LEGENDS
(MAR 1996) (DFARS 252.227-7025)
N52.227-021 RIGHTS IN BID OR PROPOSAL INFORMATION (MAR 1996)
(DFARS 252.227-7016)
N52.227-022 TECHNICAL DATA--WITHHOLDING OF PAYMENT (MAR 1996)
(DF.ARS 252.227-7030)
N52.227-023 CERTIFICATION OF TECHNICAL DATA CONFORMITY (JAN 1997)
(DFARS 252.227-7036)
10
<PAGE>
UNCLASSIFIED
N52.227-033 RIGHTS IN NONCOMMERCIAL COMPUTER SOFTWARE AND
NONCOMMERCIAL COMPUTER SOFTWARE DOCUMENTATION (MAR 1996)
(DFARS 252.227-7014)
N52.227-035 VALIDATION OF ASSERTED RESTRICTIONS: COMPUTER SOFTWARE
(MAR 1996) (DFARS 252.227-7019)
N52.227-036 DATA REQUIREMENTS (MAR 1996)
N52.231-001 SUPPLEMENTAL COST PRINCIPLES (MAR 1996)
N52.232-009 CONSIDERATION AND PAYMENT-SUBMISSION OF DD250 (MAR 1996)
N52.233-002 DISPUTES (MAY 1996)
N52.242-001 AUTHORITY AND DESIGNATION OF A CONTRACTING OFFICER'S
TECHNICAL REPRESENTATIVE (COTR) (MAR 1996)
N52.243-001 CONTRACT CHANGE PROPOSALS (MAR 1996)
(2) THE FOLLOWING ADDITIONAL FAR CLAUSES ARE APPLICABLE DURING THE
--------------------------------------------------------------
PERFORMANCE OF THIS CONTRACT:
- -----------------------------
52.232-35 DESIGNATION OF OFFICE FOR GOVERNMENT RECEIPT OF ELECTRONIC
----------------------------------------------------------
FUNDS TRANSFER INFORMATION (MAY 1999)
-------------------------------------
(a) As provided in paragraph (b) of the clause 52.232-34,
Payment by Electronic Funds Transfer--Other than Central Contractor
Registration, the Government has designated the office cited in paragraph (c) of
this clause as the office to receive the Contractor's electronic funds transfer
(EFT) information, in lieu of the payment office of this contract.
(b) The Contractor shall send all EFT information, and any
changes to EFT information to the office designated in paragraph (c) of this
clause. The Contractor shall not send EFT information to the payment office or
any other office than that designated in paragraph (c). The Government need not
use any EFT information sent to any office other than that designated in
paragraph (c).
(c) Designated Office:
Name: Office of Space Launch/Contracts Division (SAF/SL)
Mailing Address: 2420 Vela Way, Suite 1467-A5
El Segundo, CA 90245-4659
Telephone Number: (310) 416- 7757
Person to Contact: Barbara L. Pedersen Contracting Officer
Electronic Address: N/A
11
<PAGE>
UNCLASSIFIED
(3) THE FOLLOWING NRO ACQUISITION MANUAL CLAUSES ARE APPLICABLE DURING THE
----------------------------------------------------------------------
PERFORMANCE OF THIS CONTRACT:
- -----------------------------
N52.215-006 INCORPORATION OF SECTION K, REPRESENTATIONS, CERTIFICATIONS, AND
- ----------- ----------------------------------------------------------------
OTHER STATEMENTS OF OFFEROR (DEC 1998)
--------------------------------------
Section K dated 2 July 1999, completed and submitted with
Contractor's proposal In support of this effort or on file with the Contracting
Officer's Directorate/Office, is incorporated herein by reference and made a
part of this contract.
12
<PAGE>
UNCLASSIFIED
PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACHMENTS
------------------------------------------------------------
SECTION J
---------
LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACHMENTS
-------------------------------------------------
ATCH NO. DESCRIPTION NO. PAGES
- -------- ----------- ---------
1 Memorandum Regarding Contract
Security Guidance 3
13
<PAGE>
UNCLASSIFIED
ATTACHMENT 1
TO
CONTRACT NRO000-99-C-0120
MEMORANDUM REGARDING
CONTRACT SECURITY GUIDANCE
DATED 27 JUL 99
This Attachment, including this page
consists of 3 pages
<PAGE>
UNCLASSIFIED
MEMORANDUM FOR Integrated Space Systems 27-Jul-99
FROM: Office of Space Launch
SUBJECT: Contract Security Guidance
1. This contract does not require access to classified data and generation,
processing, handling, or storage of classified information is specifically
disallowed and not authorized. The Contractor should immediately contact
the OSL Contracting Officer or OSL Security if a need for access to
classified information is identified.
2. NAM clause 52.204-003 applies, specifically Section (a) (2), Utilization
of Government Relationship for Publicity, Advertising or Reference
Purposes.
a) The contractor agrees not to use, or allow to be used, any aspect of
this contract for publicity, advertisement, reference, or any other
public purpose. It is further understood that this obligation shall
not expire upon completion or termination of this contract, but will
continue until rescinded by the U.S. Government.
b) The contractor may request a waiver or release from the foregoing, but
shall not deviate therefrom unless authorized to do so in writing by
the Contracting Officer. The Contractor is authorized to make the
following release: "Integrated Space Systems is contracted to provide
research support, in BAA area 1.8, `Streamlined Launch Services', to
the National Reconnaissance Office's Office of Space Launch."
c) The contractor agrees to insert the above in any subcontract under
this contract. In the event of litigation, the Subcontractor shall
immediately notify its next tier Subcontractor or the Prime
contractor, as the case may be, of all relevant information with
respect to such litigation.
3. A copy of all filings or disclosures pertinent to this contract that are
required by a federal statute or regulation, e.g., Securities Exchange
Commission filings, shall be promptly forwarded to the Contracting
Officer.
4. If you have any questions regarding this guidance please contact the
Contracting Officer or OSL Security at (703) 808-5293.
/s/ Barbara Pedersen
Barbara Pedersen
Contracting Officer
<PAGE>
UNCLASSIFIED
MEMORANDUM FOR Integrated Space Systems 27-Jul-99
FROM: Office of Space Launch
SUBJECT: Contract Security Guidance
1. This contract does not require access to classified data and generation,
processing, handling, or storage of classified information is specifically
disallowed and not authorized. The Contractor should immediately contact
the OSL Contracting Officer or OSL Security if a need for access to
classified information is identified.
2. NAM clause 52.204-003 applies, specifically Section (a) (2), Utilization
of Government Relationship for Publicity, Advertising or Reference
Purposes.
a) The contractor agrees not to use, or allow to be used, any aspect of
this contract for publicity, advertisement, reference, or any other
public purpose. It is further understood that this obligation shall
not expire upon completion or termination of this contract, but will
continue until rescinded by the U.S. Government.
b) The contractor may request a waiver or release from the foregoing, but
shall not deviate therefrom unless authorized to do so in writing by
the Contracting Officer. The Contractor is authorized to make the
following release: "Integrated Space Systems is contracted to provide
research support, in BAA area 1.2, `Low-risk Space technology
Demonstrations', to the National Reconnaissance Office's Office of
Space Launch."
c) The contractor agrees to insert the above in any subcontract under
this contract. In the event of litigation, the Subcontractor shall
immediately notify its next tier Subcontractor or the Prime
contractor, as the case may be, of all relevant information with
respect to such litigation.
3. A copy of all filings or disclosures pertinent to this contract that are
required by a federal statute or regulation, e.g., Securities Exchange
Commission filings, shall be promptly forwarded to the Contracting
Officer.
4. If you have any questions regarding this guidance please contact the
Contracting Officer or OSL Security at (703) 808-5293.
/s/ Barbara Pedersen
Barbara Pedersen
Contracting Officer
<TABLE> <S> <C>
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<SECURITIES> 0
<RECEIVABLES> 363,915
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<PP&E> 2,325,726
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<BONDS> 2,251,721
0
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<COMMON> 1,388
<OTHER-SE> 780,796
<TOTAL-LIABILITY-AND-EQUITY> 4,762,064
<SALES> 1,091,259
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<CGS> 459,996
<TOTAL-COSTS> 2,813,256
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<LOSS-PROVISION> 0
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<INCOME-CONTINUING> (5,401,536)
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