Document:

EXHIBIT 10.39

            [** CONFIDENTIAL TREATMENT HaS BEEN REQUESTED FOR CERTAIN
           MATERIAL IN EXHIBIT "A" APEARING IN BOLD WHERE BRACKETED]

                        Development and License agreement
                                     between
                      Cisco Systems and Ambient Corporation

This DEVELOPMENT AND LICENSE AGREEMENT (the "Agreement") is made and entered
into as of this ___ day of December, 2000 (the "Effective Date") by and between
Cisco Systems, Inc., a California corporation, with offices at 170 W. Tasman
Drive, San Jose, California 95134 and its affiliates ("Cisco"), and Ambient
Corporation, a Delaware corporation, with offices at 1033 Beacon Street,
Brookline, Massachusetts 02446 ("Ambient").

This Agreement has the following attachments, which are incorporated in this
Agreement by this reference:

      1.    Development and License Agreement Terms and Conditions

      2.    EXHIBIT A: Statement of Work

      3.    EXHIBIT B: Field Trial Agreement

      4.    EXHIBIT C: Press Release

                                    RECITALS

A.    Cisco is in the business of developing, manufacturing and selling hardware
      and software products for use in computer and communications networks.

B.    Ambient is in the business of communications products focusing on Power
      Line Telecommunication for consumer applications and utility-related
      services.

C.    Cisco and Ambient desire that Cisco develop and Ambient market the
      Products (as defined herein) on the terms and conditions set forth herein
      and in subsequent agreements to be entered into by the parties.

                                    AGREEMENT

      NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:

1.0   DEFINITIONS.

      1.1 "Cisco Property" shall mean such items owned and provided by Cisco
under this Agreement or developed by or for Cisco under this Agreement and all
Intellectual Property Rights

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related thereto. Cisco Property shall include any derivatives, improvements or
modifications thereto or thereof and any Intellectual Property rights related
thereto.

      1.2 "Ambient Property" shall mean such items as owned and provided by
Ambient under this Agreement and all Intellectual Property Rights related
thereto. Ambient Property shall not include any derivatives, improvements or
modifications thereto or thereof and any Intellectual Property rights related
thereto made by or for Cisco under this Agreement, it being understood that any
such derivatives will be deemed "Cisco Property."

      1.3 "Deliverables" shall mean any tangible or intangible items to be
delivered by the parties pursuant to the Statement of Work.

      1.4 "Intellectual Property Rights" shall mean all current and future
worldwide patents and other patent rights, utility models, copyrights, mask work
rights, trade secrets, and all other intellectual property rights and the
related documentation or other tangible expression thereof.

      1.5 "Products" shall mean the Products described in the Statement of Work
and all tangible and intangible results and items arising out of or constituting
the results of the development of the Products, including without limitation all
Deliverables, documentation, and Intellectual Property Rights constituting,
embodied in, or pertaining to any of the foregoing. It is understood and agreed
that for purposes of the initial development activities contemplated by this
Agreement, the "Products" will include the "Headend Router Product" and the "CPE
Product" as described in the Statement of Work or any part or derivative
thereof.

      1.6 "Statement of Work" shall mean the information set forth in Exhibit A.

      1.7 "Day" shall mean a normal working day in the United States.

      1.8 "First Revenue Ship" shall mean the first commercial distribution of
the Products or the services related to the Products that generates revenue of
any type for Ambient.

      1.9 "Field Trial Site" shall mean any site where a Headend Router Product
is deployed.

      1.10 "Field Trial Test Period" shall mean for each Field Trial Site, sixty
(60) calendar days from the date of installation of the Products at that site.

2.    DEVELOPMENT EFFORT.

      2.1 Development Effort. With the assistance and cooperation of Ambient,
Cisco shall use reasonable commercial efforts to develop and deliver the
Deliverables in accordance with the Statement of Work; provided, however, that
the due date for any Deliverable, performance of which was delayed on account of
failure of Ambient to complete any of its prerequisite obligations in a timely
fashion, shall be extended by one day for each day of Ambient's lateness. Each
Deliverable shall be delivered in such format and on such media as may be
reasonably requested by Ambient.

      2.2 Acceptance. Upon delivery of the Deliverables to Ambient, Ambient will
test whether the Deliverables conform to the applicable part of the Statement of
Work. Unless

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otherwise specified Ambient will accept or reject each Deliverable within five
(5) Days after delivery. In the event that a Deliverable does not conform to
such part of the Statement of Work (such nonconformance will be referred to as
"Deficiencies"), Ambient shall provide written notice to Cisco describing the
Deficiencies in sufficient detail to allow Cisco to reproduce the Deficiencies.
Cisco will exert reasonable commercial efforts to correct the Deficiencies so
that the Deliverable conforms to the applicable part of the Statement of Work.
If Ambient does not give written notice to Cisco within five (5) Days following
delivery of the Deliverable, Ambient shall be deemed to have accepted the
Deliverable. The procedure in this Section 2.2 will be repeated with respect to
a revised Deliverable to determine whether it is acceptable to Ambient, unless
and until Ambient issues a final rejection of the revised Deliverable after
rejecting the Deliverable on at least three (3) prior occasions. If Ambient
issues a final rejection of the revised Deliverable pursuant to this paragraph,
either Cisco or Ambient shall be entitled to terminate this Agreement or the
applicable Statement of Work, as the case may be, without further obligation or
liability to the other party. The parties agree that the time period for
accepting and rejecting Deliverables only apply if there are no specific time
periods specified for the applicable Deliverable in the Statement of Work.

      2.3 Changes. At any time following execution of this Agreement the
Statement of Work may be modified upon mutual written agreement of the parties.
In the event any such change materially increases Cisco's development costs
hereunder or requires a modification to the schedule for development and such
change was not required due to Cisco's delay or failure to complete its
obligations hereunder, Cisco and Ambient shall negotiate in good faith an
equitable adjustment to the development charges payable by Ambient to Cisco and
to the schedule for development.

      2.4 Liaison. Each party agrees to appoint a principal point of contact,
identified in the Statement of Work as "Project Managers", to whom all
communications between the parties with respect to development of the Products
shall be directed.

      2.5 Technical Assistance Required to Evaluate Deliverables. Cisco shall
determine and make available to Ambient reasonable technical assistance with
respect to the evaluation of the Deliverables per the time periods of section
2.2.

      2.6 Independent Development. Except as set forth below, nothing in this
Agreement will impair either party's right to acquire, license, develop,
manufacture or distribute itself or through third parties on its behalf
technology substantially similar to that described in the Statement of Work or
to market and distribute such similar technology in addition to or in lieu of
the technology contemplated by this Agreement. Further, neither party will have
any obligations to limit or restrict the assignment or reassignment of any
employees or contractors in connection with the development of such similar
technology or the technology contemplated by this Agreement. However, nothing in
this Section 2.6 shall be construed as granting to either party any rights
except as specifically provided in this Agreement.

      2.7 Required Third Parties. Cisco and Ambient shall choose one or more
third party providers of power line transmission access physical layer
technology and electric utility companies in the manner specified in the
Statement of Work.

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      2.8 General Business Relationship. Cisco shall support all development
efforts for the Products such as design, printed circuit layout, prototype
manufacture, testing, software and firmware in the manner specified in this
Agreement. The Parties agree to commence discussions to enter into a Systems
Integration Agreement and any other agreements to implement the goals of this
Agreement.

      2.9 Additional Statements of Work. If Ambient desires to engage Cisco for
additional services which are not included in the Statement of Work and which do
not constitute merely a revision or modification of the Statement of Work, the
parties shall in good faith negotiate additional Statements of Work, each of
which upon signing shall be deemed a part of this Agreement. Additional
Statements of Work shall be entered into by mutual agreement between Cisco and
Ambient and shall be substantially in the form of the Statement of Work attached
hereto. Each Statement of Work shall be signed by authorized representatives of
the parties. This Agreement may cover more than one Statement of Work at any
given time.

3.    OWNERSHIP.

      3.1 Ownership by Ambient. Except as otherwise set forth in Section 3.2
below, Ambient shall own all right, title, and interest in the Ambient Property,
if any, and Cisco shall have no ownership interest therein.

      3.2 Ownership by Cisco. Cisco shall own all right, title, and interest in
the Cisco Property, the Products, all results arising from the development
thereof by Cisco, and all Intellectual Property Rights therein, including any
derivatives, improvements or modifications of the Ambient Property made by or
for Cisco under this Agreement. Ambient shall execute such documents, render
such assistance, and take such other action as Cisco may reasonably request, at
Cisco's expense, to apply for, register, perfect, confirm, and protect Cisco's
rights therein. Cisco shall have the exclusive right to apply for or register
any patents, mask work rights, copyrights, and such other proprietary
protections with respect thereto.

      3.3 Waiver of Moral Rights. Ambient hereby waives any and all moral
rights, including without limitation any right to identification of authorship
or limitation on subsequent modification that Cisco (or its employees, agents or
consultants) has or may have in the Ambient Property or any part thereof as
included in the Products.

      3.4 Cisco as Attorney in Fact. Ambient agrees that if Cisco is unable
because of Ambient's unavailability, dissolution or incapacity, or for any other
reason, to secure Ambient's signature to apply for or to pursue any application
for any United States or foreign patents or mask work or copyright registrations
covering the inventions assigned to Cisco above, then Ambient hereby irrevocably
designates and appoints the company and its duly authorized officers and agents
as Ambient's agent and attorney in fact, to act for and in Ambient's behalf and
stead to execute and file any such applications and to do all other lawfully
permitted acts to further the prosecution and issuance of patents, copyright and
mask work registrations thereon with the same legal force and effect as if
executed by Ambient.

4.    LICENSES BY AMBIENT TO CISCO.

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Ambient hereby grants Cisco a nonexclusive, worldwide, perpetual, irrevocable,
fully paid-up, royalty free license, with the right to sublicense and authorize
the granting of sublicenses, to make, have made, use, import, copy, modify,
offer to sell, sell, lease and otherwise distribute the Ambient Property, if
any, and all Intellectual Property Rights with respect thereto solely as
incorporated in the Products and any enhancements, derivatives or modifications
thereof.

5.    LICENSES BY CISCO TO AMBIENT.

      5.1 Nonexclusive License. Cisco hereby grants Ambient a nonexclusive,
worldwide, perpetual, irrevocable, fully paid-up, royalty free license, with the
right to sublicense and authorize the granting of sublicenses, to make, have
made, use, import, copy, modify, offer to sell, sell, lease and otherwise
distribute any derivative, improved or modified Ambient Property.

      5.2 Manufacturing Rights. Ambient may elect in its reasonable judgment to
manufacture the CPE Product itself or together with third party manufacturers
agreed upon by the parties pursuant to a non-exclusive, non-transferable
license. Ambient's right to manufacture the CPE Product will also include the
right to modify and further develop the CPE Product in a manner mutually agreed
upon by the parties. All sales of the CPE Product manufactured by or for Ambient
(including modified versions of the CPE Product) shall be subject to the payment
of a royalty by Ambient to Cisco. Ambient agrees to pay Cisco royalties of
twenty-five dollars ($25) per unit which shall include any trademark rights
granted by Cisco to Ambient. The details concerning Ambient's manufacturing
rights, and the parties maintenance and support obligations with respect to the
CPE Product to be manufactured by or for Ambient will be mutually agreed upon in
writing by the parties in a further Agreement.

      5.3 Branding Rights. If Ambient elects to manufacture the CPE Product,
Ambient may in its sole discretion (a) sell the CPE Product using a Cisco owned
trademark as specified by Cisco, provided that, Ambient shall not be entitled to
use any Cisco trademark where the CPE Product has been modified by Ambient; or
(b) sell the CPE Product using an Ambient trademark or brand. Ambient's use of
any Cisco owned trademark shall be subject to a trademark license agreement to
be negotiated in good faith by the parties.

      5.4 Sales Rights.

            5.4.1 From the Effective Date of this Agreement until six (6) months
after the first successful installed field site demonstration employing the
testing criteria for the staging demonstration as described in the Statement of
Work (except that the telephone connection will be with a phone located in the
electric utilities data center), Ambient shall have the exclusive right to sell
the Products to end user customers in all 50 states of the United States of
America and the non-exclusive right to sell the Products to end user customers
throughout the world. For purposes of this Agreement, such "exclusive right"
means that any customer in the United States who desires to purchase the
Products from Cisco will be directed to Ambient to order the Products during the
Exclusivity Period.

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            5.4.2 If and only if Cisco can demonstrate to Ambient that any one
of the following three conditions is met, then Cisco may on an exceptional basis
sell a Product to a customer in the United States during the Exclusivity Period:
(a) Ambient is unable to meet such customer's requirements and delaying the sale
of the Product to such customer by Cisco beyond the Exclusivity Period would
cause a serious customer satisfaction issue for Cisco, (b) Cisco's failure to
sell the Product to a customer in the United States during the Exclusivity
Period would result in a breach of a contractual obligation to a customer
(provided that no such contractual obligations may be made for purposes of
circumventing this restriction) or (c) this Agreement is terminated for cause by
Cisco pursuant to Section 14.2 prior to the end of the Exclusivity Period.

            5.4.3 Notwithstanding anything to the contrary contained herein,
Cisco may sell the Products directly to end user customers or to resellers or
system integrators outside of the United States of America during and after the
Exclusivity Period.

            5.4.4 After the Exclusivity Period, Cisco agrees to grant Ambient
the continued right to sell the Products worldwide and to treat Ambient as its
non-exclusive preferred system integrator of the Products, details of this
right, obligations and preferred status to be documented in the System
Integrator Agreement or in any other convenient manner as agreed upon by the
parties. Ambient agrees that except for the exclusivity restriction described
above, Cisco may sell the Products to any other party on a non-exclusive basis.
Ambient also agrees that all purchases of Products by Ambient from Cisco will be
pursuant to Cisco's standard System Integrator Agreement to be negotiated in
good faith by the parties.

6.    PAYMENTS; TAXES.

      6.1 Payments. In consideration of the duties and obligations of Cisco and
the rights granted to Ambient hereunder, Ambient shall pay to Cisco within one
(1) day of becoming due Six Million and Five Hundred Thousand Dollars
(US$6,500,000) in the manner specified below for the initial development
arrangement contemplated by this Agreement:

            i.    The sum of $2 million upon the execution of this Agreement.
            b.    The sum of $2 million upon demonstration of a proof of concept
                  (acceptance criteria for such demonstration shall be as set
                  forth in the Statement of Work).
            c.    The sum of $2.5 million in increments of $500,000 per trial
                  site for the Field Trials, upon installation, or if less than
                  5 sites are installed then the full remainder at first revenue
                  shipment of a Product by Ambient.

If the parties agree to additional Statements of Work beyond the initial one
attached hereto or if the parties agree to expand the development activities
contemplated by the initial Statement of Work, additional fees, if any, shall be
set forth in the relevant Statement of Work.

      6.2 Taxes.

            6.2.1 In addition to the payment described above, Ambient shall pay
all taxes, including sales and use tax, but excluding any tax based upon the
income of Cisco if imposed by

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any government as a result of payments made to Cisco under this Agreement.

            6.2.2 Ambient may withhold from its payment to Cisco under this
Agreement any income taxes required to be withheld by Ambient under the
applicable laws of the United States or any other country. Such amount shall be
paid to the appropriate taxing authorities and Ambient shall provide Cisco with
official receipts issued by said taxing authority or such other evidence as is
reasonably available to establish that such taxes have been paid. Ambient shall
cooperate with Cisco and take all actions reasonably necessary in order to
secure a reduction or elimination of withholding taxes pursuant to the income
tax treaty between the United States and any other country.

      6.3 Third Party License Fees. Ambient shall be obligated to pay all
license fees and royalties, if any, with respect to any third party proprietary
rights and technologies which are required for the fulfillment of its
obligations under this Agreement.

7.    FIELD TRIALS.

The parties shall conduct field trials for the Products ("Field Trials")
pursuant to the Field Trial Agreement attached hereto as Exhibit B.

8.    CONFIDENTIALITY.

      8.1 Press Releases. Each party shall obtain the other party's written
consent prior to any publication, presentation, public announcement or press
release concerning the existence or terms and conditions of this Agreement.
Ambient may, however, make the statement as set forth in Exhibit C in its
publications, presentations, public announcements and press release concerning
this Agreement and Ambient's relationship with Cisco.

      8.2 Confidential Information. The existence and terms and conditions of
this Agreement shall be considered "Confidential Information" under the
"Non-Disclosure Agreement" entered into by the parties on August 3, 2000 ("NDA")
and the parties agree to comply with the provisions of the NDA. To the extent
that the term stated in the NDA terminates prior to the termination of this
Agreement, the parties agree that the term of the NDA shall be automatically
extended to the term of this Agreement.

      8.3 Legal Obligation to Disclose. Ambient's disclosure of the existence of
this Agreement and the terms thereunder in accordance with its obligation under
the Securities Exchange Act of 1934, as amended, shall not be deemed to be a
violation of Section 8, so long as Ambient has provided to Cisco beforehand a
copy of the provisions which it proposes to release to the Securities and
Exchange Commission, has given good faith consideration to any request by Cisco
to redact specific provisions from such disclosure.

      8.4 Confidentiality Agreements with Utilities. Ambient shall require each
Utility to enter into a confidentiality agreement that provides the same
protections to Cisco's Confidential Information as provided for in the NDA.

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9.    USE OF CONTRACTORS.

The parties may retain third parties ("Contractors") to furnish services to them
in connection with the performance of its obligations hereunder and permit such
Contractors to have access to Confidential Information, but only to the extent
and insofar as reasonably required in connection with the performance of their
obligations under this Agreement. Each party shall require each such Contractor
to enter into a confidentiality agreement that provides at least the same level
of protections to Confidential Information as provided for in the NDA.

10.   REPRESENTATIONS AND WARRANTIES.

      10.1 THE PRODUCTS FURNISHED UNDER THIS AGREEMENT ARE PROVIDED FOR
DEVELOPMENT AND TESTING PURPOSES ONLY ON AN "AS IS" BASIS, WITHOUT ANY
WARRANTIES OR REPRESENTATIONS EXPRESS, IMPLIED OR STATUTORY; INCLUDING, WITHOUT
LIMITATION, WARRANTIES OF QUALITY, PERFORMANCE, NONINFRINGEMENT, MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. NOR ARE THERE ANY WARRANTIES CREATED BY A
COURSE OF DEALING, COURSE OF PERFORMANCE OR TRADE USAGE. CISCO DOES NOT WARRANT
THAT THE PRODUCTS WILL MEET AMBIENT'S NEEDS OR BE FREE FROM ERRORS, OR THAT THE
OPERATION OF THE PRODUCTS WILL BE UNINTERRUPTED. THE FOREGOING EXCLUSIONS AND
DISCLAIMERS ARE AN ESSENTIAL PART OF THIS AGREEMENT AND FORMED THE BASIS FOR
DETERMINING THE FEES CHARGED FOR THE PRODUCTS.

      10.2 Representations and Warranties of Ambient. Ambient hereby warrants
and represents to Cisco as follows:

            10.2.1 Ambient Property and all parts thereof, are either owned or
properly licensed by Ambient or are in the public domain and the use thereof by
Cisco, its representatives, resellers or end users will not infringe any
proprietary rights of any third party. Any third party property provided by
Ambient hereunder is properly licensed and, to Ambient's knowledge, does not
infringe any proprietary rights of any other third party.

            10.2.2 Ambient has the full power to enter into this Agreement and
to carry out its obligations under this Agreement.

      10.3 Representations and Warranties of Cisco. Cisco hereby warrants and
represents to Ambient as follows:

            10.3.1 Cisco Property and all parts thereof, are either owned or
properly licensed by Cisco or are in the public domain and the use thereof by
Ambient, its representatives, resellers or end users will not infringe any
proprietary rights of any third party. Any third-party property provided by
Cisco hereunder is properly licensed and, to Cisco's knowledge, does not
infringe any proprietary rights of any other third party.

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            10.3.2 Cisco has the full power to enter into this Agreement and to
carry out its obligations under this Agreement.

11.   INDEMNITY.

      11.1 Indemnification by Cisco.

            11.1.1 Cisco shall defend, indemnify and hold harmless Ambient and
its officers, directors, employees, shareholders, customers, agents, successors
and assigns from and against any and all loss, damage, settlement, costs or
expense (including legal expenses), as incurred, resulting from, or arising out
of (i) any claim which alleges that any Product or Cisco Property infringes
upon, misappropriates or violates any issued U.S. patents, copyrights,
trademarks or trade secret rights or other proprietary rights of persons, firms
or entities who are not parties to this Agreement where such unlawful activity
is completely independent of the Product and (ii) any claim relating to
negligence, misrepresentation, intentional misconduct, error or omission by
Cisco.

            11.1.2 As a condition to such defense, Ambient will provide Cisco
with prompt written notice of the claim and permit Cisco to control the defense,
settlement, adjustment or compromise of any such claim. Ambient may employ
counsel at its own expense to assist it with respect to any such claim.

            11.1.3 If the use of the Products hereunder is enjoined or becomes
the subject of a claim of infringement, Cisco shall use its reasonable efforts
at its option to: (i) obtain such licenses; or (ii) make such replacements or
modifications as are necessary to the continue use or of the Products without
infringement and in compliance with the Statement of Work.

            11.1.4 Cisco shall have no obligation under subsections 11.1.1 and
11.1.2 above to the extent any claim of infringement or misappropriation results
from: (i) use of the Products in combination with any other product, end item,
or subassembly if the infringement would not have occurred but for such
combination; (ii) use or incorporation in the Products of any design, technique
or specification furnished by Ambient, if the infringement would not have
occurred but for such incorporation or use; or (iii) any claim based on
Ambient's use of the Products after Cisco has informed Ambient of modifications
or changes in the Products required to avoid such claims and offered to
implement those modifications or changes, if such claim would have been avoided
by implementation of Cisco's suggestions; (iv) compliance by Cisco with
specifications or instructions supplied by Ambient.

      11.2 Indemnification by Ambient.

            11.2.1 Ambient shall defend, indemnify and hold harmless Cisco and
its officers, directors, employees, shareholders, customers, agents, successors
and assigns from and against any and all loss, damage, settlement, costs or
expense (including legal expenses), as incurred, resulting from, or arising out
of (i) any claim which alleges that the Ambient Property infringes upon,
misappropriates or violates any issued U.S. patents, copyrights, trademarks or
trade secret

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rights or other proprietary rights of persons, firms or entities who are not
parties to this Agreement where such unlawful activity is completely independent
of the Product and (ii) any claim relating to negligence, misrepresentation,
intentional misconduct, error or omission by Ambient.

            11.2.2 As a condition to such defense and indemnification, Cisco
will provide Ambient with prompt written notice of the claim and permit Ambient
to control the defense, settlement, adjustment or compromise of any such claim.
Cisco may employ counsel at its own expense to assist it with respect to any
such claim.

      11.3 Exclusive Remedy. THE FOREGOING PROVISIONS OF THIS SECTION 11.1 STATE
THE ENTIRE LIABILITY AND OBLIGATIONS OF THE PARTIES AND THE EXCLUSIVE REMEDY OF
THE PARTIES AND THEIR CUSTOMERS, WITH RESPECT TO ANY VIOLATION OR INFRINGEMENT
OF PROPRIETARY RIGHTS, INCLUDING BUT NOT LIMITED TO ANY PATENT, COPYRIGHT,
TRADEMARK, BY THE PRODUCTS OR ANY PART THEREOF. THE PARTY'S OBLIGATIONS UNDER
THIS SECTION 11 ARE SUBJECT TO THE LIMITATIONS SET FORTH IN SECTION 12.

12.   CONSEQUENTIAL DAMAGES.

NOTWITHSTANDING ANYTHING TO THE CONTRARY, NEITHER PARTY SHALL BE LIABLE WITH
RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, STRICT
LIABILITY, NEGLIGENCE OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST PROFITS, OR COST OF PROCUREMENT OF
SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES.

13.   LIMITATION OF LIABILITY.

NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE TOTAL DOLLAR LIABILITY OF EITHER
PARTY UNDER THIS AGREEMENT OR OTHERWISE SHALL BE LIMITED TO ONE MILLION DOLLARS
($1,000,000).

14.   TERM AND TERMINATION.

      14.1 Term of Agreement. Unless otherwise terminated as provided herein,
this Agreement shall be effective upon the Effective Date and shall remain in
force for a period of two (2) years, and shall automatically renew for
additional one (1) year periods unless terminated by either party upon written
notice to the other at least thirty (30) calendar days prior to the end of the
then-current term.

      14.2 Termination for Convenience. Either party may terminate this
Agreement or any Statement of Work hereunder, at any time for convenience, for
no reason or for any reason, upon delivery of thirty (30) days written notice to
the other party. In the event of such termination by Cisco prior to the
demonstration of proof of concept as set forth in Section 6.1(b), Cisco shall
return the $2 million development payment paid to Cisco upon execution of this
Agreement. In the event

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of such termination by Cisco following the demonstration of proof of concept as
set forth in Section 6.1(b), Cisco shall return the $2 million development
payment paid to Cisco upon demonstration of proof of concept and any payments by
Ambient for the Field Trials, but Cisco shall be entitled to retain the $2
million payment made upon execution of this Agreement.

      14.3 Termination for Cause. This Agreement may be terminated by a party
for cause immediately upon the occurrence of and in accordance with the
following:

            14.3.1 Insolvency Event. Either party may terminate this Agreement
by delivering written notice to the other party upon the occurrence of any of
the following events: (i) a receiver is appointed for either party or its
property; (ii) either makes a general assignment for the benefit of its
creditors; (iii) either party commences, or has commenced against it,
proceedings under any bankruptcy, insolvency or debtor's relief law, which
proceedings are not dismissed within sixty (60) calendar days; or (iv) either
party is liquidated or dissolved.

            14.3.2 Change of Control. In the event that a competitor of Cisco
acquires a minimum of twenty percent (20%) of the equity ownership of Ambient,
Cisco may, at its option terminate this Agreement for cause upon delivering
written notice to Ambient. For purposes of this Section 14.3.2, competitors of
Cisco shall mean Lucent, Nortel, Ericsson, Alcatel, Siemens and Ascom or any of
their subsidiaries of affiliates.

            14.3.3 Default. Either party may terminate this Agreement effective
upon written notice to the other if the other party violates any covenant,
agreement, representation or warranty contained herein in any material respect
or defaults or fails to perform any of its obligations or agreements hereunder
in any material respect, which violation, default or failure is not cured within
thirty (30) calendar days after notice thereof from the non-defaulting party
stating its intention to terminate this Agreement by reason thereof. A material
breach will include but not be limited to: (i) any attempted reverse engineering
or otherwise infringing Cisco's proprietary rights by Ambient, its resellers or
its end users; (ii) failure by Ambient to pay in a timely fashion; and (iii)
breach of confidentiality obligations.

      14.4 Survival of Rights and Obligations Upon Termination. Sections 2.6, 3,
4, 5.1, 5.2, 5.3, 6, 8, 10, 11, 12, 13, 14, and 15, shall survive any expiration
or termination of this Agreement or any Statement of Work hereunder.
Notwithstanding anything in the foregoing to the contrary, in the case of
termination by Cisco for cause pursuant to Section 14.3.3, Ambient shall pay all
expenses reasonably incurred by Cisco in excess of amounts already paid to
Cisco. The amount of such payment shall be determined on a time and materials
basis using Cisco's commercially reasonable rates then in effect.

15.   MISCELLANEOUS.

      15.1 Force Majeure. Neither party shall be liable to the other for delays
or failures in performance resulting from causes beyond the reasonable control
of that party, including, but not limited to, acts of God, labor disputes or
disturbances, material shortages or rationing, riots, acts of war, governmental
regulations, communication or utility failures, or casualties.

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      15.2 Export.

            15.2.1 Ambient hereby acknowledges that the Products supplied by
Cisco under the Agreement are subject to export or import controls under the
laws and regulations of the United States (U.S.). Ambient shall comply with such
laws and regulations, and, agrees not to knowingly export, re-export, import or
re-import, or transfer Cisco Products without first obtaining all required U.S.
Government authorizations or licenses. Cisco and Ambient each agree to provide
the other such information and assistance as may reasonably be required by the
other in connection with securing such authorizations or licenses, and to take
timely action to obtain all required support documents.

            15.2.2 Ambient agrees to maintain a record of exports, re-exports,
and transfers of the Cisco Products for five (5) years and to forward within
that time period any required records to Cisco or, at Cisco's request, the U.S.
Government. Ambient agrees to permit audits by Cisco or the U.S. Government as
required under the regulations to ensure compliance with this Agreement.

      15.3 Relationship of Parties. The parties are independent contractors
under this Agreement and no other relationship is intended, including a
partnership, franchise, joint venture, agency, employer/employee, fiduciary,
master/servant relationship, or other special relationship. Neither party shall
act in a manner which expresses or implies a relationship other than that of
independent contractor, nor bind the other party.

      15.4 Insurance. Ambient shall carry Commercial General Liability insurance
covering all operations by or on behalf of Ambient arising out of or connected
with this Agreement providing insurance for bodily injury, property damage,
personal injury and advertising injury, as those terms are defined by Commercial
General Liability insurance policies, with limits of not less than $5,000,000
each occurrence and $10,000,000 in the aggregate. Such insurance must be on an
"occurrence" basis and not "claims-made" basis. Ambient shall continue to
maintain the Commercial General Liability insurance required under this
Agreement for a minimum of one year following completion of and acceptance of
the Products. Consultant shall furnish Certificates of Insurance annually to
Cisco as evidence of this required insurance. In the event Consultant utilizes
the services of Subcontractors to perform the Services contemplated hereunder,
Consultant shall require from or provide for all Subcontractors (regardless of
tier) the same minimum insurance requirements detailed above. Cisco reserves the
right to request copies of Subcontractor's Certificates of Insurance when deemed
necessary.

      15.5 No Third Party Beneficiaries. Unless otherwise expressly provided, no
provisions of this Agreement are intended or shall be construed to confer upon
or give to any person or entity other than Cisco and Ambient any rights,
remedies or other benefits under or by reason of this Agreement.

<PAGE>

      15.6 Equitable Relief. Each party acknowledges that a breach by the other
party of any confidentiality or proprietary rights provision of this Agreement
may cause the non-breaching party irreparable damage, for which the award of
damages would not be adequate compensation. Consequently, the non-breaching
party may institute an action to enjoin the breaching party from any and all
acts in violation of those provisions, which remedy shall be cumulative and not
exclusive, and a party may seek the entry of an injunction enjoining any breach
or threatened breach of those provisions, in addition to any other relief to
which the non-breaching party may be entitled at law or in equity.

      15.7 Attorneys' Fees. In addition to any other relief awarded, the
prevailing party in any action arising out of this Agreement shall be entitled
to its reasonable attorneys' fees and costs.

      15.8 Notices. Any notice required or permitted to be given by either party
under this Agreement shall be in writing and shall be personally delivered or
sent by a reputable overnight mail service (e.g., Federal Express), or by first
class mail (certified or registered), or by facsimile confirmed by first class
mail (registered or certified), to the Project Manager of other party. Notices
will be deemed effective (i) three (3) Days after deposit, postage prepaid, if
mailed, (ii) the next day if sent by overnight mail, or (iii) the same day if
sent by facsimile and confirmed as set forth above. A copy of any notice shall
be sent to the following:

                Cisco Systems, Inc.                    Ambient Corporation
                170 West Tasman Drive                  1033 Brookline Street
                San Jose, CA 95134                     Brookline, MA 02446
                Attn: VP Legal and Government Affairs
                Fax: (408) 526-7019                    Fax: (617) 566-3035

      15.9 Assignment. Neither party may assign its rights or delegate its
obligations hereunder, either in whole or in part, whether by operation of law
or otherwise, without the prior written consent of the other party. Any
attempted assignment or delegation without such written consent will be void.
The rights and liabilities of the parties under this Agreement will bind and
inure to the benefit of the parties' respective successors and permitted
assigns.

      15.10 Waiver and Modification. Failure by either party to enforce any
provision of this Agreement will not be deemed a waiver of future enforcement of
that or any other provision. Any waiver, amendment or other modification of any
provision of this Agreement will be effective only if in writing and signed by
the parties.

      15.11 Severability. If for any reason a court of competent jurisdiction
finds any provision of this Agreement to be unenforceable, that provision of the
Agreement will be enforced to the maximum extent permissible so as to effect the
intent of the parties, and the remainder of this Agreement will continue in full
force and effect.

      15.12 Controlling Law and Jurisdiction. This Agreement and any action
related thereto shall be governed, controlled, interpreted and defined by and
under the laws of the State of California and the United States, without regard
to the conflicts of laws provisions thereof. Unless

<PAGE>

waived by Cisco, the exclusive jurisdiction and venue of any action with respect
to the subject matter of this Agreement shall be the state courts of the State
of California for the County of Santa Clara or the United States District Court
for the Northern District of California and each of the parties hereto submits
itself to the exclusive jurisdiction and venue of such courts for the purpose of
any such action. The parties specifically disclaim the UN Convention on
Contracts for the International Sale of Goods.

      15.13 Headings. Headings used in this Agreement are for ease of reference
only and shall not be used to interpret any aspect of this Agreement.

      15.14 Entire Agreement. This Agreement, including all exhibits which are
incorporated herein by reference, constitutes the entire agreement between the
parties with respect to the subject matter hereof, and supersedes and replaces
all prior and contemporaneous understandings or agreements, written or oral,
regarding such subject matter.

      15.15 Counterparts. This Agreement may be executed in two counterparts,
each of which shall be an original and together which shall constitute one and
the same instrument.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement by persons
duly authorized as of the date and year first above written.

AMBIENT CORPORATION ("Ambient")           CISCO SYSTEMS, INC. ("Cisco")

________________________________          ____________________________________
Authorized Signature                      Authorized Signature

________________________________          ____________________________________
Name                                      Name

________________________________          ____________________________________
Date                                      Date

Ambient Corporation                       Cisco Systems, Inc.

1033 Beacon Street                        170 W. Tasman Drive

Brookline, MA 02446                       San Jose, CA 95134-1706

<PAGE>

      STATEMENT OF WORK BETWEEN CISCO SYSTEMS AND AMBIENT FOR PROJECT CEAD

                                    EXHIBIT A

This Statement of Work ("SOW") is made and entered into between Cisco Systems,
Inc., a California corporation, with offices at 170 West Tasman Drive, San Jose,
California 95134 ("Cisco") and Ambient Corporation, a Delaware corporation, with
offices at 1033 Beacon Street, Brookline, Massachusetts 02446 ("Ambient") as of
the date last written below ("Effective Date").

This SOW is governed by, incorporated into, and made part of the Contract
between Cisco and Ambient. This SOW defines the tasks and deliverables of both
Cisco and Ambient, under the terms of the Contract. The terms of this SOW are
limited to the scope of this SOW and shall not be applicable to any other SOWs,
which may be executed and attached to the Agreement.

This SOW consists of this signature page and the following sections which are
incorporated in this SOW by this reference:

            1.    Introduction
            2.    Tasks and Deliverables - Overview
            3.    Tasks and Deliverables - Details
            4.    Assumptions
            5.    Project Management
            6.    Responsibilities of the Parties
            7.    Schedule
            8.    Change Management Procedures
            9.    Definitions
            10.   Appendix A - Deliverable/Milestone/Task Completion Form
            11.   Appendix B - Project Change Request Form

IN WITNESS WHEREOF, the duly authorized representatives of the parties hereto
have caused this SOW to be duly executed.

CISCO SYSTEMS, INC.                                   Ambient Corporation

By:                                              By:
    --------------------------------------          ----------------------------
Name:                                            Name:
      ------------------------------------            --------------------------
Title:                                           Title:
       -----------------------------------              ------------------------
Date:                                            Date:
      ------------------------------------             -------------------------

<PAGE>

1.0   INTRODUCTION

      Cisco Systems, Inc. ("Cisco") and Ambient have entered into a contract for
      the development of an Internet access solution that uses the low voltage
      power distribution grid as a means of communication. The goal of both
      companies is the deployment of Powerline Technology (PLT) based access
      trials, around Calendar Q1 of 2001. This initiative also involves Utility
      companies (where the trials will take place) and powerline technology
      companies (who will provide physical layer technology).

      Ambient will be responsible for the co-ordination of contributions of the
      Utilities, Cisco will be responsible for the co-ordination of
      contributions of the powerline technology companies. This SOW focuses on
      the tasks and deliverables of Cisco and Ambient, and only details those of
      the Utilities and powerline technology companies when necessary.

2.0   TASKS AND DELIVERABLES - OVERVIEW

      2.1   Cisco Systems - Overview

            Cisco Systems will:-

            1.    Develop a PLT-enabled HeadEnd Router (HRouter)
            2.    Develop a PLT-enabled Customer Premise Equipment (CPE)
            3.    Provide 3rd level field support
            4.    Provide Training for 1st and 2nd level support
            5.    Provide Network Architectural services

            Cisco Systems Prime Deliverables will be:-

            6.    Demonstration of Proof of Concept
            7.    Demonstration of staged systems

            See section 3.1 for details. See section 7 for all tasks,
            deliverables and schedule

      2.2   Ambient - Overview

            Ambient will:-

            1.    Arrange for access and support from Utilities
            2.    Provide 1st and 2nd level support
            3.    Arrange for a backhaul network and maintenance line at each
                  trial site
            4.    Arrange for the preparation of the trialing homes and SOHOs
            5.    Install and commission trial systems
            6.    Manage the trials
            7.    Obtain from the Utilities, and provide to Cisco information

            See section 3.2 for details, see section 7 for all tasks,
            deliverables and schedule

      2.3   Cisco Systems and Ambient - Overview

<PAGE>

            Both companies will contribute towards the following

            1.    Trial site selection criteria
            2.    Customer (end-user) selection criteria
            3.    Selection of Utilities
            4.    Selection of PLT Vendors
            5.    Trial configuration and plan

            See section 3.3 for details, see section 7 for all tasks,
            deliverables and schedule

3.0   TASKS AND DELIVERABLES - DETAILS

      3.1   Cisco Systems - Detail

            3.1.1 Cisco will develop a HeadEnd Router (HRouter) which has been
            environmentally engineered to sit at poletop &/or roadside. This
            HRouter supports the project's networking services requirements. It
            will contain Cisco standard hardware & software components to enable
            voice, data and provisioning services, such as DHCP, along with
            newly and purposely developed hardware and software to support PLT
            devices, and include packaging. The actual functionality will be
            determined as part of 2.4.5 and may be different for each field
            site.

                  Acceptance criteria:

                  There are no acceptance criteria. This task will be deemed
                  completed when the first Test sites have been commissioned.

      3.1.2 Cisco will develop a CPE (customer premise equipment) that allows
            layer 2 transport of data and voice to the HRouter above. Its
            functionality will include

                  a)    Learning bridge
                  b)    2 POTS interfaces for use with analog handsets.
                  c)    1 PLT WAN interface
                  d)    2 Ethernet LAN ports
                  e)    IP visibility for network management (SNMP, CLI, etc.)

            Acceptance criteria:

            There are no acceptance criteria. This task will be deemed completed
            when the first Test sites have been commissioned

      3.1.3 Cisco will provide 3rd level field support. This will include

                  a)    Access to Cisco TAC for 7x24 support for all standard
                        Cisco products.
                  b)    Access to Cisco Technical Center for support of PLT
                        products during normal business hours.
                  c)    Privileged access to Cisco Connection Online (CCO), the
                        Cisco web site that includes detailed technical support
                        information for all standard products.
                  d)    Highly skilled system / consulting engineering teams
                        available to provide backup support to the Ambient
                        engineering team. This support will be provided remotely
                        via email and telephone. It is assumed that Ambient will
                        be able to handle 80-85%

<PAGE>

                        of system engineering / consulting engineering needs
                        without Cisco's involvement.

                  e)    On-site technical system / consulting engineering
                        support for critical situations (with designated
                        technical support resources already briefed and
                        knowledgeable on PLT products). It is assumed that this
                        level of support will only be needed for ~5-10% of
                        situations and is contingent on approval by Tom
                        O'Donnell.

                  f)    Expedited access to development engineering resources if
                        needed.

            Acceptance criteria:

            There are no acceptance criteria. This task will be deemed completed
            when all Test sites have been decommissioned

      3.1.4 Cisco will provide Training, tools and documentation to Ambient
            sufficient for competent network engineers to be able to provide 1st
            and 2nd level support for Cisco equipment deployed in the field
            trials. This training will take place at Cisco facilities for up to
            10 people. It will include the following sessions

            a)    Detailed product training on PLT products and technologies,
                  including:

                  -     network architecture and design with PLT products
                  -     network configuration, installation and integration of
                        PLT products
                  -     network management and troubleshooting of PLT products

            b)    Process and procedures on interfacing to the TAC, using CCO,
                  etc. for technical support. These processes and procedures
                  will be documented in a Field Trial Support Guide.

                  Successful completion of this task is dependent upon Ambient
                  providing qualified individuals. Pre-requisites for
                  individuals include

                        a)    Cisco certification (CCIE preferred)

                        b)    Network engineers with B.S. minimum and 3-5+ years
                              of experience in industry. a)In-depth experience
                              designing, deploying and/or managing extensive
                              LAN/ WAN that utilized LAN switches, routers,
                              network management technologies, etc. b)Voice /
                              telephony experience preferred

                        c)    Strong interpersonal skills (verbal and written)

                        d)    Ability to learn quickly and integrate new
                              information effectively.

                        e)    Action-oriented person with the ability to get
                              things done

            Acceptance criteria:

            This task will be deemed completed when Ambient staff have
            demonstrated the required level of expertise in the areas of
            integrated data / voice networking over PLT. Written test cases and
            hands-on lab exercises at the Cisco lab in Chelmsford, MA (i.e.,
            build, break and fix required PLT equipment configurations) will be
            used to demonstrate each engineer's skill level. A pass / no pass
            assessment for each engineer will be made jointly by Cisco and
            Ambient technical management teams.

            It is assumed that each engineer has attended all required training
            classes prior to the assessment test. Also note that the assessment
            test will be based on specific network

<PAGE>

            configurations that will be deployed in the PLT trials, so there
            should be no major surprises.

            To enable Ambient to provide 2nd level support, Cisco will provide a
            HeadEnd Router and CPE, and hardware modules and software sufficient
            to build a small network of any PLT and attempt to replicate
            problems reported from the field. This equipment will be maintained
            at Ambient' lab, to the same revision level as that deployed in the
            field. Any materials needed to do this will be supplied by Cisco and
            installed by Ambient.

      3.1.5 Cisco will provide Network Architectural services. These will
            include the following tasks:

            a)    Detailed site survey and analysis to understand existing
                  infrastructure (including development and use of a site survey
                  and preparation checklist to be used throughout the project)

            b)    End-to-end network design (for integrated data and voice)
                  including:

                  -     IP routing and addressing plans
                  -     Network management and security plans
                  -     Backhaul network interconnect plans
                  -     Internet access options
                  -     Detailed dial plan for inclusion in the site-specific
                        configurations.
                  -     Develop network design.
                  -     Develop relevant network diagrams and maps
                  -     Provide all relevant information to perform a technical
                        validation of the proposed design.

            c)    Detailed HeadEnd router and CPE device hardware and software
                  configurations

            d)    OSS / BSS (i.e., network management) specification and
                  integration support

            e)    Design Review with Utilities for each Trial site

            Successful completion of this task is dependent upon Ambient
            providing the following:

            a)    (Selected) Utilities' Data Network Architecture

            Acceptance criteria:

            This task will be deemed completed when all Test site Utilities have
            received from Cisco and reviewed and approved the completed network
            architecture / design document. This document will include detailed
            network diagrams for the trial network (i.e., In-home / LV /
            backhaul PLT network for integrated data and telephony transport),
            IP routing and addressing information, any special requirements
            (e.g., phone lines needed, space requirements, etc.), telco circuit
            requirements for T1's, software configurations for each PLT device,
            etc.

            It is assumed that any questions / concerns / issues with the
            proposed network design will be addressed and that jointly agreed
            modifications will be incorporated within days of their being
            raised.

<PAGE>

      3.1.6 Prime Deliverable - Proof of Concept Demonstration

            A HeadEnd Router and a CPE both with PLT interfaces will be
            configured at Cisco's facilities as follows:

            a)    The HeadEnd PLT port will be connected to the low voltage side
                  of a 480/110v transformer
            b)    The HeadEnd Ethernet port will be connected to Cisco's
                  internal network and to the Internet.
            c)    Through 450' of cable, meter, breaker panel and 10' of house
                  wiring, a CPE will be connected via its PLT port.
            d)    An analog phone will be connected to a CPE POTS port.
            e)    A computer will be connected to a CPE Ethernet port.

            Demonstration

            A phone call will be placed through the CPE to a lab phone. The
            computer will initiate a request to surf the Internet. Not
            simultaneous with the phone call.

            Acceptance criteria

            The phone call must be connected. No speech quality is required The
            computer must display a web page. No speed metric is required.

            Note: Cisco may integrate multiple PLT vendors' modules into the
            HeadEnd and CPE, however, there will be only one Proof of Concept
            demonstration which will include the first sufficiently operating
            PLT vendor's modules.

      3.1.7 Prime Deliverable - Demonstration of Staged Systems Before systems
            are deployed to the trial sites, they will each be staged in the
            target configuration, and tested at Cisco's facilities s follows:-

            a)    The HeadEnd PLT port will be connected to the low voltage side
                  of a 480/110v transformer
            b)    The HeadEnd WAN port will be connected to Cisco's internal
                  network and to the Internet.
            c)    Through various lengths up to 450' of cable, meter, breaker
                  panel and 10' of house wiring, each CPE will be connected via
                  its PLT port. The actual configuration will be jointly
                  determined by Cisco and Ambient.
            d)    An analog phone will be connected to a CPE POTS port.
            e)    A computer will be connected to a CPE Ethernet port.

            A Demonstration of each of the (up to 5) site configurations will
            occur.

            Occurrence of these demonstrations is dependent upon the
            prerequisite test site selection and configuration that will be
            strongly considered in the determination of the

<PAGE>

            demonstration configuration.

            Demonstration

            Simultaneously, phone calls will be placed through each CPE to a lab
            phone, and the computers will each initiate a request to surf the
            Internet.

            Acceptance criteria

            The phone calls must be connected. No speech quality is required The
            computers must display a web page. No speed metric is required

            Following each successful demonstration the equipment will be
            suitably packaged and drop-shipped to the target Utility. This will
            include tested spares of 10% (minimum 1) of the total equipment
            provided for all sites. Cisco is responsible to ensure that the
            shipped equipment is certified for use on low voltage lines.

3.2   Ambient - Detail

      3.2.1 Arrange for access and support from Utilities

            1.    It is a desirable goal that access to Trial site will occur
                  within 72 hours of its request
            2.    Utility support includes providing appropriately qualified
                  individuals to assist in the line characterisation by PLT
                  vendors.
            3.    Utility support includes providing appropriately qualified
                  individuals to assist in the monitoring, installation, repair,
                  replacement of trial equipment
            4.    Utility support includes providing appropriately qualified
                  individuals to assist in the configuration, commissioning and
                  monitoring of Utilities' data network equipment
            5.    Utilities support includes monitoring of their powerlines and
                  reporting events of interest (lightning strikes, topology
                  changes, etc.)

      3.2.2 Provide 1st and 2nd level support, where:

            First Level Support is defined as:

            1. First call support on all end user / customer calls
            2. Broad internetworking trouble-shooting expertise (including voice
            and data)
            3. Router / switch configuration and upgrade support
            5. Ability to capture network traces
            6. On-site visits to end user to gather information if situation
            requires

            Second Level Support is defined as:

            1. Specialist level technical support for problem isolation
            2. Lab simulation (if needed)
            3. Interoperability testing
            4. Analysis of network traces
            5. Remote diagnostics
            6. Onsite trouble shooting if situation requires

<PAGE>

            (For reference, Third Level Support is defined as highly-skilled
            engineering support that is focused on determining the root cause of
            problems encountered by the end user, working with development
            engineering to get problems resolved (i.e., hardware / software
            fixed) and then working with the customer to get the solution
            deployed back into the network.)

      3.2.3 Arrange for a backhaul network at each trial site (includes
            provisioning of phone calls off-network), and an "out-of-band"
            channel, such as a phone line, be made available to each HeadEnd
            Router to be used as a backup control mechanism in case the backhaul
            goes down.

            Acceptance Criteria: This task will be deemed complete when data and
            telephony test equipment is connected to the poletop &/or roadside
            access point and data and telephony services are found to be
            supported; and when remote modem access to the HeadEnd router is
            demonstrated.

      3.2.4 Arrange for the preparation of the trialing homes and SOHOs (site
            survey, access agreement, insurance, electrical & physical plan,
            table with PC and phone, configuration of PC, etc)

      3.2.5 Install and commission trial systems

            Ambient and Utilities will install the Cisco supplied equipment per
            the Network architecture/design document, and commission by
            configuring and bringing-up of the equipment to an operating level.

            Acceptance criteria: All CPEs are IP-visible from Utility data
            center. Internet data can be accessed from computer. Phone call can
            be made on-net to on-net, and on-net to off-net.

      3.2.6 Manage the trials

            While there are many tasks that will not be listed here, the
            following is notable here:

            1.    Provide feedback on the Quality of the Trials - Ambient will
                  monitor and collect network data and customer feedback to
                  determine whether the Users are sufficiently exercising the
                  equipment, if not, new Users should provisioned. No additional
                  equipment will be provided by Cisco.

      3.2.7 Obtain from the Utilities, and provide to Cisco the following
            information

            1.    Relevant standards and certifications that Utilities' field
                  equipment must meet
            2.    Architectures of the Utilities' low voltage distribution
                  wiring
            3.    Architectures of the Utilities' data network, which should
                  include:

                  -     Detailed network diagrams and equipment configuration
                        information
                  -     IP routing and addressing information, including DNS /
                        DHCP info
                  -     Location and type of network connections for PLT
                        equipment
                  -     Any special connectivity or configuration information
                        (i.e., space? security?)
                  -     Identification of all network demarcation locations and
                        types

<PAGE>

                  -     Type, location and configuration of any third party
                        networking equipment
                  -     Telephony configuration information (i.e., dial plan
                        info, telco circuits provided, etc.)

3.3   Cisco and Ambient - Detail

      3.3.1 Trial site selection criteria.

            A list of required and preferred criteria will be developed that
            will help select sites for the trials (e.g. strategic value, level
            of commitment, supportive Utility, existing infrastructure,
            location, knowledgeable Engineering and Field staff, etc).

      3.3.2 Customer (end-user) selection criteria.

            A list of required and preferred criteria will be developed that
            will help select end-users for the trials. (E.g. no other PLT in
            premises, promise to use the computer and telephony equipment for 2
            hours minimum per week, etc).

      3.3.3 Selection of Utilities

            Ambient has the prime responsibility onthis task, Cisco may
            recommend or veto

      3.3.4 Selection of PLT Vendors

            Cisco has the prime responsibility on this task, Ambient may
            recommend or veto.

      3.3.5 Trial configuration and plan

            A document will be produced for each Trial site, which details the
            backhaul network connectivity and services, the LV distribution and
            User details. It also includes details of what tests will be run
            during the trials.

            Acceptance criteria: This task will be deemed completed when all
            Trial sites have received from Cisco and reviewed the completed
            trial network design / configuration document. This document will
            include detailed network diagrams for the trial network (i.e.,
            In-home / LV / backhaul PLT network for integrated data and
            telephony transport), IP routing and addressing information, any
            special requirements (e.g., phone lines needed, space requirements,
            etc.), telco circuit requirements for T1's, software configurations
            for each PLT device, etc.

            It is assumed that any questions / concerns / issues with the
            proposed network design will be addressed and that jointly agreed
            modifications will be incorporated within days of their being
            raised.

4     ASSUMPTIONS

      This Statement of Work was prepared based on the following key
      assumptions. Any deviations from these Assumptions that arise during the
      Project shall be managed through the Change Management Procedure as
      specified in section 7. Parties agree that any changes in the Assumptions
      may result in an adjustment in the pricing.

      1.    One or more PLT Vendors participate

<PAGE>

      2.    One or more PLT Vendors are able to provide communications over
            powerlines

      3.    One or more PLT Vendors are able to provide modules that meet
            Utilities environmental and electrical standards.

      4.    One or more PLT Vendors are able to provide PLT data throughput
            rates over a quiet line will be over 1Mb/s

      5.    The HeadEnd router developed will be suitable for field trial, but
            will require further development for production release.

      6.    The CPE developed will be suitable for field trial, but will require
            further development for production release.

      7.    The trial sites are limited to 5.

      8.    The trial sites are located in the USA

      9.    The trials last for each powerline technology for 60 calendar days,
            in a fixed location, with a start defined by section 3.2.5.

      10.   The total number of Hrouters to be deployed is 5 or less.

      11.   The total number of CPEs to be deployed is 100 or less.

      12.   All documents will be generated using Microsoft's products

      13.   Unless specified otherwise in this SOW, work occurs during the
            Normal Business Hours, Eastern US time.

      14.   Staging will occur at Cisco's facility.

      15.   The information in the SOW is key to all phases of the
            implementation. This document shall be completed and approved prior
            to starting any of the work activities.

      16.   The Utilities' network architecture design shall not change between
            the date of the Design Review and the deployment of the trials at
            their site(s).

      17.   All Ambient responsibility tasks shall be completed prior to the
            scheduled date. Delays caused by the lack of their timely
            completion, or Ambient' failure to meet any responsibilities as
            specified herein, may delay the overall schedule. Any additional
            costs incurred by Ambient as a result of delays shall be the sole
            responsibility of Ambient.

      18.   All Cisco's responsibility tasks shall be completed prior to the
            scheduled date. Delays caused by the lack of their timely
            completion, or Cisco's failure to meet any responsibilities as
            specified herein, may delay the overall schedule. Any additional
            costs incurred by Cisco as a result of delays shall be the sole
            responsibility of Cisco.

      19.   Cisco personnel are not requested to, or required to join a union.

      20.   Ambient will take actions to avoid union issues.

      21.   The following is not covered under this SOW - Support or replacement
            of Product that is altered, modified, mishandled, destroyed or
            damaged by natural causes or damaged due to a negligent or wilful
            act or omission by Ambient or Utility or use by Ambient or Utility
            other than as specified in the applicable Cisco-supplied
            documentation. However, any HeadEnd router or CPE will be replaced
            during the period of the trial due to a component failure due to
            causes not listed above.

      22.   Following delivery to the Utilities, Ambient owns the HeadEnd and
            CPE trial units.

      23.   60 calendar days after a trial site goes live it will be
            decommissioned by Ambient via the retrieval of the CPE from the
            associated User's locations.

      24.   The trial periods at different sites are not planned to be
            synchronised, they are expected to be overlapping.

<PAGE>

5     PROJECT MANAGEMENT

      5.1   Implementation Schedule

            Cisco's Project Manager will generate and maintain a schedule that
            will document, defined tasks, deliverable and defined milestones for
            the overall project associated with this SOW

      5.2   Communications

            5.2.1 Primary Contacts

            Unless specified otherwise in writing, the primary contacts for
            Ambient and Cisco shall be:

                  Ambient Contact: Ram Rao             Cisco Contact: Philip
                                                         Jacobs
                  Telephone Number: 617-735-9395       Telephone Number:
                                                         978-244-3948
                  Facsimile Number: 617-566-3035       Facsimile Number:
                                                         978-244-8528
                  E-mail address: ram@ambientcorp.com  E-mail address:
                                                         phjacobs@cisco.com
                  Mobile number: 617-331-4953          E-page address:
                                                       phjacobs@epage.cisco.com

            5.2.2 Secondary contacts

                  Unless specified otherwise in writing, the secondary contacts
                  for Ambient and Cisco shall be:

                  Ambient Contact: Yehuda Cern         Cisco Contact: Tom
                                                         O'Donnell
                  Telephone Number: 917-545-5461       Telephone Number:
                                                         978-244-8563
                  E-mail address: cern@ambientcorp.com Facsimile Number:
                                                         978-244-8528

                  E-mail address: todonnel@cisco.com   E-page address:
                                                        todonnel@epage.cisco.com
                                                       Mobile Number:
                                                         508-254-6205

                  Note that Tom O'Donnell should initially be contacted directly
                  for all 3rd level support issues.

      5.2.3 Joint Project meetings

            Joint Project meetings will be attended by Cisco and Ambient via
            phone conference on a weekly basis. These will cover:

            o     Status of current work items
            o     Readiness for upcoming work items
            o     Concerns and Issues
            o     Quality of Trials Report Summary
            o     Schedule outlook

      5.2.4 Steering Meetings

<PAGE>

            Face-to-face meetings will be held on a periodic basis whose focus
            is to look at the "bigger picture". While status, plans and
            component commitments, concerns and issues are reviewed, the purpose
            of this meeting is to broadly steer the project. Any major changes
            in direction should be discussed here. Those initially required to
            attend these meetings are:

            Cisco: Phil Hunt, Phil Jacobs, Tom O'Donnell
            Ambient: Mark Isaacson, Wilfred Kopwlowitz, Yehuda Cern, Ram Rao

      5.2.5 Electronic Communications E-mail distribution lists will be set up
            for various purposes.

6.    RESPONSIBILITIES OF THE PARTIES.

      6.1   Project Management:

            6.1.1 Cisco shall be responsible for the following:

                  a)    Provide a single point of contact for all project
                        support issues.
                  b)    Participate in regularly scheduled Project and Steering
                        meetings.
                  c)    Develop and deliver the Implementation Plan for formal
                        review and acceptance.
                  d)    Co-ordinate and manage all implementation activities of
                        the Cisco implementation team.
                  e)    Act as the focal point for change management under this
                        SOW.
                  f)    Interface to Cisco project personnel.
                  g)    Escalate any project-related issues requiring assistance
                        through the project manager, not the Utilities' Cisco
                        account team, who will be kept informed.
                  h)    Co-ordinate the activities of the staging centre and
                        delivery of Trial Units.
                  i)    Return COMPLETION CERTIFICATE to Ambient upon acceptance
                        of a Milestone/Deliverable/Task (Appendix A).

            6.1.2 Ambient shall be responsible for the following:

                  a) Designate a person to whom all Cisco communications may be
                  addressed and who has the authority to act on all aspects of
                  the Project. This individual shall be responsible for all
                  Ambient and Utilities tasks.
                  b)    Unless otherwise agreed to by the parties, ensure that
                        Cisco request for information or documentation needed
                        for the project is met within two (2) business days of
                        Cisco's request.
                  c)    Identify primary and backup Ambient contacts plus a
                        contact for all targeted sites, who shall be accountable
                        to act as the lead escort, and shall also be accountable
                        for providing necessary information and obtaining access
                        clearances.
                  d)    Define detailed requirements and needs and ensure that
                        these requirements are met as defined in the
                        Implementation Plan.
                  e)    Notify the Cisco Project Manager of any schedule changes
                        within ten (10) business days of any scheduled activity.

<PAGE>

                  f)    Ensure that trial products covered under this SOW are
                        insured against loss or damage during the shipping
                        process.
                  g)    Will furnish proof to Cisco of adequate liability
                        insurance before fielding trial equipment.
                  h)    Return COMPLETION CERTIFICATE to Cisco upon acceptance
                        of a Milestone/Deliverable/Task (Appendix A).

      6.2   Field Responsibilities:

            6.2.1 Cisco shall be responsible for the following:

                  a)    Review and validate collected site preparation
                        checklist(s) information with Ambient. The site-specific
                        information is required to create configuration file(s).
                  b)    Finalize site preparation checklist documentation.

            6.2.2 Ambient shall be responsible for the following:

                  a)    Complete and document detailed site preparation
                        checklist(s).
                  b)    When requested by Cisco, provide network physical and
                        logical schematics.
                  c)    Document and implement Customer Provided Equipment (CPE)
                        configuration as needed to implement the Cisco Product.
                        Provide IP addresses and subnet masks for the Product
                        network ports.
                  d)    Provide access to HeadEnd routers for out of band access
                        via modem.
                  e)    Install and verify the operation of all external
                        communications equipment not provided by Cisco.
                  f)    Provide a phone line and a modem and/or Internet access
                        to a Cisco server for Software downloads.
                  g)    When requested by Cisco, provide complete and documented
                        network architecture and diagram.
                  h)    When requested by Cisco, provide the Utilities' and
                        Customer's building layout, including the floor plans,
                        cabling and power locations for all applicable sites.

      6.3   Installation Responsibilities:

            6.3.1 Cisco shall be responsible for the following:

                  a)    Third level support

            6.3.2 Ambient shall be responsible for the following:

                  Uncrate and/or un-box Cisco provided Product.

                  a)    Inventory and inspect all Products.
                  b)    Where applicable, install Product associated with the
                        network installation or upgrade.
                  c)    Install, configure and test the Cisco delivered Products
                        in accordance with the documentation provided.

<PAGE>

                  d)    Connect Cisco Product to Utility facilities (telco
                        circuits, modems, dial-up lines and CPE) at the agreed
                        upon demarcation locations.
                  e)    Troubleshoot and replace hardware failures relating to
                        the installation/ upgrade of the Cisco provided Product.
                  f)    Test and verify operation of all newly installed network
                        components.
                  g)    Deliver installation report (includes equipment list,
                        date of commission, safety sign-off from Utilities, etc)
                  h)    Prepare the installation site(s) and in particular,
                        ensure that proper environmental conditions are met and
                        adequate power is available.
                  i)    Order and install all data circuits prior to the network
                        installation date.
                  j)    Ensure that telco demarcations/PTTNTUs (Post Telephone &
                        Telegraph Network Termination Units) and circuit
                        identifications are clearly identified.
                  k)    Ensure that any new telco circuits are installed, marked
                        and properly tested prior to installation date.
                  l)    Verify that all necessary cabling is delivered and
                        installed prior to the installation date.
                  m)    Handle delivery, installation, and configuration of
                        Product not provided by Cisco.
                  n)    Provide a voice telephone line and number (near the
                        Cisco Product) for use by the installer.
                  o)    Verify all distance and interference limitations of
                        interface cables to be used at installation.
                  p)    Provide access to a proper grounding system at each
                        site.
                  q)    Provide a modem line and number (near the Cisco Product)
                        for the installer to use if needed.
                  r)    Provide earthquake bracing, if required.
                  s)    Provide proper security clearances and/or escorts as
                        required to access the site for Product installation.
                  t)    Provide any special safety equipment if required for the
                        site.

      6.4   Facility Responsibilities:

            6.4.1 Cisco shall be responsible for the following:

                  a)    Provide a cubicle co-located with Cisco's PLT
                        Engineering team from Contract signing until the end of
                        the field trials.
                  b)    Provide telephone and Internet access

<PAGE>

7.0   SCHEDULE

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
        Item                                  Task, Deliverable or      Timeframe       Dependencies (on other        Responsible
Item#                                         Milestone                 Targets         listed items)
-----------------------------------------------------------------------------------------------------------------------------------
<S>     <C>                                   <C>                       <C>             <C>                      <C>
 1      Signed Contract/SOW                   Deliverable                                                        Ambient/Cisco
-----------------------------------------------------------------------------------------------------------------------------------
 2      Selection of Utilities                Task                                                               Ambient/Cisco
-----------------------------------------------------------------------------------------------------------------------------------
 3      Arrange for access and support from   Task                                                               Ambient/Utilities
        Utilities
-----------------------------------------------------------------------------------------------------------------------------------
 4      Utilities' low voltage distribution   Deliverable                                                        Ambient/Utilities
        Architecture
-----------------------------------------------------------------------------------------------------------------------------------
 5      Utilities' equipment standards        Deliverable                                                        Ambient/Utilities
-----------------------------------------------------------------------------------------------------------------------------------
 6      Selection of PLT Vendors              Task                                                               Cisco/Ambient
-----------------------------------------------------------------------------------------------------------------------------------
 7      Develop a PLT-enabled HeadEnd         Task                                      Signed Contract/SOW      Cisco/PLT vendors
        Router (HRouter)
-----------------------------------------------------------------------------------------------------------------------------------
 8      Develop a PLT-enabled CPE             Task                                      Signed Contract/SOW      Cisco/PLT vendors
-----------------------------------------------------------------------------------------------------------------------------------
 9      Trial Site selection criteria         Deliverable                                                        Cisco/Ambient
-----------------------------------------------------------------------------------------------------------------------------------
10      End User selection criteria           Deliverable                                                        Cisco/Ambient
-----------------------------------------------------------------------------------------------------------------------------------
11      Utilities' Data Network Architecture  Deliverable                               Selection of Utilities   Ambient/Utilities
-----------------------------------------------------------------------------------------------------------------------------------
12      Provide Network Architectural         Task                                      Utilities' Data          Cisco
        services                                                                        Network Architecture
-----------------------------------------------------------------------------------------------------------------------------------
13      Selection of Trial sites              2. Milestone                             Trial Site and End       Ambient/Cisco
                                                                                        User selection criteria
-----------------------------------------------------------------------------------------------------------------------------------
14      Demonstration of Proof of Concept     3. Deliverable &                         Develop HeadEnd & CPE    Cisco/PLT vendors
                                              Milestone
-----------------------------------------------------------------------------------------------------------------------------------
15      Trial configuration and Plan          Deliverable                               Selection of Trial       Cisco/Ambient
                                                                                        sites, Provide Network
                                                                                        Architectural services
-----------------------------------------------------------------------------------------------------------------------------------
16      Demonstration of Staged Systems       Deliverable                               Demonstration of Proof   Cisco/PLT vendors
                                                                                        of Concept
-----------------------------------------------------------------------------------------------------------------------------------
17      Training to Ambient                   Deliverable                               Demonstration of Proof   Cisco/PLT vendors
                                                                                        of Concept
-----------------------------------------------------------------------------------------------------------------------------------
18      Arrange for preparation of the        Task                                      Trial configuration      Ambient/Utilities
        trialing premises                                                               and Plan
-----------------------------------------------------------------------------------------------------------------------------------
19      Arrange for a backhaul network at     Task                                      Trial configuration      Ambient/Utilities
        each trial site                                                                 and Plan
-----------------------------------------------------------------------------------------------------------------------------------
20      Install and commission first trial    Task & Milestone                          Demonstration of         Ambient/Utilities
        system  (Deploy Trials)                                                         Staged System, Arrange
                                                                                        for preparation of the
                                                                                        trialing premises,
                                                                                        Arrange for a backhaul
                                                                                        network at each trial
                                                                                        site
-----------------------------------------------------------------------------------------------------------------------------------
21      Provide 1st and 2nd level support     Task                                      Training to Ambient,     Ambient
                                                                                        Deploy Trials
-----------------------------------------------------------------------------------------------------------------------------------
22      Provide 3rd level field support       Task                                      Deploy trials            Cisco/PLT vendors
-----------------------------------------------------------------------------------------------------------------------------------
23      Manage the Trials                     Task                                      Deploy trials            Ambient
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

In those cases where there are multiple parties responsible, the prime is
identified by being underlined. The time period for Tasks 21, 22 and 23
corresponds to the first trial site. Subsequent sites will require similar
tasks.

<PAGE>

The baseline schedule will be jointly determined by Cisco and Ambient Project
Manager within 30 days of signing this SOW.

      8.0   CHANGE MANAGEMENT PROCEDURES

      8.1   It may become necessary to amend this Statement of Work for reasons
            including, but not limited to, the following:

            a)    Ambient or Cisco's changes to the scope of work and/or
                  specifications for the Services,
            b)    Ambient or Cisco's changes to the Implementation Plan,
            c)    Non-availability of resources which are beyond either party's
                  control; and/or, d) Environmental or architectural impediments
                  not previously identified.

      8.2   In the event either party desires to change this Statement of Work,
            the following procedures will apply:

            8.2.1 A Project Change Request (Appendix B) may be initiated by
                  either party for any material changes to the SOW. The Change
                  Request will describe the nature of the change, the reason for
                  the change, and the effect the change will have on the scope
                  of work, which may include changes to the Deliverables, and
                  the schedule.

            8.2.2 The designated Program/Project Manager of the requesting party
                  will review the proposed change with his/her counterpart. The
                  parties will evaluate the Change Request and negotiate in good
                  faith the changes to the SOW and the additional charges, if
                  any, required to implement the Change Request. If both parties
                  agree to implement the Change Request, the appropriate
                  authorized representatives (Mark Issaccson for Ambient, TBD
                  for Cisco) of the parties will sign the Change Request,
                  indicating the acceptance of the changes by the parties.

            8.2.3 Upon execution of the Change Request, said Change Request will
                  be incorporated into, and made a part of, this SOW.

            8.2.4 In a case where additional funding is required, following
                  receipt of a P.O. at Cisco, additional work will commence as
                  soon as commercially practical. Cisco will invoice, payment to
                  be made within 30 days of invoice.

            8.2.5 A log will be kept of each Project Change Request and their
                  disposition.

      8.3   Whenever there is a conflict between the terms and conditions set
            forth in a fully executed Project Change Request and those set forth
            in the original SOW, or previous fully executed Project Change
            Request, the terms and conditions of the most recent fully executed
            Project Change Request shall prevail.

      8.4   All Purchase Orders must be signed by an authorized representative
            of Ambient and shall include, at a minimum, the following
            information:

            |_|     Total Cost

            |_|     SOW Number

<PAGE>

            |_|     Contract Number

            |_|     Requested Start date

                  Purchase Orders shall be faxed to: Business Analyst fax
                  number: (408) 527-1221

9.0   DEFINITIONS

      1.    "Trial Site" - the physical site or site(s) where the equipment
            being implemented under this SOW is located.
      2.    "Customer" - the End User of the PLT Trial service.
      3.    "Implementation" - the physical installation plus logical activities
            which are required to place products in to a customer site,
            configure, commission and connect them together to produce a working
            network.
      4.    "Implementation Project Plan" - documented, scheduled, defined
            milestones and deliverables for the overall project associated with
            this SOW- Microsoft Project document.
      5.    "Installation" means the physical activity required to place a
            product into a Trial Site.
      6.    "Network" - a combination of connected Products to form a Customer's
            solution.
      7.    "Normal Business Hours" Monday through Friday 8:00am to 5:00pm
            Eastern US time, excluding any Cisco observed national holidays. A
            list of Cisco observed holidays will be provided upon request.
      8.    "On Site Survey" - Cisco will dispatch a field engineer on site to
            assess the readiness of the Utilities' and customer's site for the
            installation as per the specifications set forth by Cisco for the
            installation of the particular product.
      9.    "Staging" means assembly, pre-loading of software, configuration and
            test prior to installation of products at Trial site. A checklist is
            used to keep a record.
      10.   "Acceptance Test" - a set of procedures and/or tests developed by
            Cisco and agreed to by the Ambient. These tests are witnessed by
            Ambient and performed by Cisco. Successful test execution will
            signify completion of the milestone.
      11.   "Commissioning" - Following installation, commissioning involves
            configuring and bring-up of the equipment to an operating level as
            defined by - All CPEs are IP-visible from Utility data center.
            Internet data can be accessed from computer. Phone call can be made
            on-net to on-net, and on-net to off-net.

<PAGE>

--------------------------------------------------------------------------------
         APPENDIX A - MILESTONE/DELIVERABLE/TASK COMPLETION CERTIFICATE
--------------------------------------------------------------------------------
Pursuant to the above referenced Statement of Work between Cisco Systems, Inc.
("Cisco") and Ambient hereby certifies, by the signature of an authorized
representative, that the Milestone/Deliverable described below has been
completed in a satisfactory manner on the date indicated below:

Milestone/Deliverable/Task                                          Date

Submitted by:                                   Acknowledged and Agreed:

By:                                             By:
    -------------------------------------           ----------------------------
Name:                                           Name:
      ------------------------------------            --------------------------
Title:                                          Title:
       -----------------------------------             -------------------------
Date:                                           Date:
      ------------------------------------            --------------------------

<PAGE>

--------------------------------------------------------------------------------
                       APPENDIX B - PROJECT CHANGE REQUEST
--------------------------------------------------------------------------------

In reference to the section titled Change Management Procedures of the above
referenced Statement of Work between Cisco Systems, Inc. ("Cisco") and Ambient
both parties hereby certify, by the signature of an authorized representative,
that this Change Management Request will amend and be fully incorporated into
the existing Statement of Work (SOW).

Project Change Request# __________________

1. Reason for Change Request:

2. Changes to SOW:

3. Impact (cost, schedule):

4. Purchase Order Issuance (If applicable):

5. Action (Implement, On-hold, Not to be implemented)

IN WITNESS WHEREOF, the duly authorized representatives of the parties hereto
have caused this Project Change Management Request to be fully executed.

Submitted by:                                   Acknowledged and Agreed:

By:                                             By:
    -------------------------------------           ----------------------------
Name:                                           Name:
      ------------------------------------            --------------------------
Title:                                          Title:
       -----------------------------------             -------------------------
Date:                                           Date:
      ------------------------------------            --------------------------

<PAGE>

                                    EXHIBIT B

                              FIELD TRIAL AGREEMENT
                                     between
                      Cisco Systems and Ambient Corporation

This Field Trial Agreement (the "Agreement") by and between Cisco Systems, Inc.,
a California corporation having its principal place of business at 170 West
Tasman Drive, San Jose, California, 95134, and its affiliates ("Cisco") and
Ambient Corporation, a Delaware corporation with offices at 1033 Beacon Street,
Brookline, Massachusetts ("Ambient"), is entered into as of the date last
written below (the "Effective Date").

This Agreement is attached at Exhibit B to the Development and License Agreement
between Cisco and Ambient (the "Development Agreement") and shall be governed by
the terms and conditions of the Development Agreement and the Statement of Work
attached as Exhibit A to the Development Agreement.

OBLIGATIONS OF AMBIENT

      1.1 Testing. During the Field Trial Period, Ambient agrees to implement
and run such test suites and other test programs on the Products as agreed by
the parties. Ambient also agrees to use such special and non-standard operating
procedures as may be reasonably required to accomplish testing of the Products.

      1.2 Contacts. The Ambient Project Manager shall provide to the Cisco
Project Manager written reports on all test and performance results of the
Products on a weekly basis.

      1.3 Error Notice. Ambient's Project Manager shall notify Cisco Project
Manager of any failure, error or other malfunction of any part of the Products
within twenty-four (24) hours of such occurrence.

      1.4 Modifications. Ambient agrees to promptly implement such modifications
and changes that Cisco may make to the Products during the Field Trial Period as
they are provided by Cisco. Ambient understands that these modifications and
changes may be incompatible with previous modifications and could include
substantial changes to the Utilities' systems and their operating procedures.

      1.5   Type of Traffic. Ambient agrees that if it runs mission-critical or
            production traffic using the Products during the Field Trial Period
            that Ambient does so at its sole risk. Ambient agrees to indemnify
            and hold Cisco harmless from claims from third parties arising from
            or related to the Utilities' use of the Products in a production
            environment or with live data.

2. OBLIGATIONS OF CISCO

<PAGE>

      2.1 Delivery. Cisco agrees that it will deliver the Products to Ambient
within a reasonable time after execution of this Agreement by both parties, or
at a time otherwise agreed to in writing by Cisco.

      2.2 Technical Assistance and Support. Cisco will provide Ambient such
technical assistance and support as set forth in the Statement of Work.

      2.3   Modifications. During the Field Trial Period, Cisco will consult
            with Ambient's Project Manager regarding the performance of the
            Products and will evaluate the test data and error reports provided
            by Ambient. Cisco will undertake to make such modifications and
            improvements to the Products as deemed appropriate by Cisco and
            provide the same to Ambient at no cost for use during the Field
            Trial Period; provided, however, Cisco is not obligated to make any
            modifications or improvements.

3. FIELD TRIAL LICENSE

      3.1 Ownership. Cisco retains ownership of all right, title and interest to
the Products, the Product design and Documentation, and the intellectual
property rights therein and thereto (including without limitation, all patent
rights, design rights, copyrights and trade secret rights). Ambient agrees not
to (i) copy, modify, or attempt to reverse engineer the Product hardware,
software, or design, make derivative works based upon the Products, or use the
Products to develop any products, without Cisco's prior written approval or (ii)
sell, license, rent, or transfer the Products to any third party. Ambient shall
keep the Products in good condition and working order and insure the Products
against loss, theft, or damage in the amount of $1 million.

      3.2 Software License Grant. Cisco hereby grants to Ambient a non-exclusive
license to use and be used by the Utilities, the Products and any modifications
thereto and including such Software as embedded and related to the Products,
during the Field Trial Period solely for the purpose of testing and evaluating
the Products subject to the following restrictions: (i) the Software may only be
used at the Cisco-approved Sites; (ii) the Software may be used only with the
Products and (iii) Ambient may make only one (1) copy of Software for archival
purposes .

      3.3 Modifications. Ambient hereby assigns to Cisco, Ambient's entire
right, title and interest (including, without limitation, all patent rights,
design rights, copyrights and trade secrets) in any modifications or
improvements to the Products which Ambient or the Utilities may propose or make
during the Field Trial Period or which Ambient and Cisco may jointly make during
the Field Trial Period.

      3.4   Restricted Rights. Cisco's computer software and computer software
            documentation, when delivered under a contract with a Department of
            Defense entity, is commercial Computer Software and Commercial
            Computer Software Documentation and is provided with the commercial
            rights and restrictions described herein for non-governmental
            customers. This Computer Software (including documentation thereof),
            when delivered under a contract with other U.S. Government entities,
            is

<PAGE>

            "RESTRICTED RIGHTS SOFTWARE" pursuant to FAR 52.227-14(g)(3) (Jun
            1987), without regard to the existence or absence of any physical
            markings, if such clause is included in this contract, and otherwise
            is "RESTRICTED COMPUTER SOFTWARE" subject to the restrictions set
            forth in FAR 52.227-19(c) (Jun 1987), which are incorporated herein
            by reference.

4. TERMINATION

      4.1 This Agreement shall terminate upon completion of the final Field Test
and may be otherwise terminated for the same reasons as the Development
Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed. Each party warrants and represents that its respective signatories
whose signatures appear below have been and are, on the date of signature, duly
authorized to execute this Agreement.

AMBIENT CORPORATION ("Ambient")           CISCO SYSTEMS, INC. ("Cisco")

__________________________________        ______________________________________
Authorized Signature                      Authorized Signature

__________________________________        ______________________________________
Name                                      Name

__________________________________        ______________________________________
Date                                      Date

Ambient Corporation                       Cisco Systems, Inc.
1285 Avenue of the Americas               170 W. Tasman Drive
New York, NY 10019                        San Jose, CA 95134-1706

<PAGE>

                                    Exhibit C

                    Ambient Announces Development and License
                       Agreement with Cisco Systems, Inc.

Ambient Corporation (OTC BB:ABTG) announced today the signing of a Development
and Licensing Agreement with Cisco Systems, Inc. (NASDAQ: CSCO) in the area of
power-line telecommunications.

Under the terms of the Development Agreement, Cisco and Ambient will collaborate
on development efforts to create a communications access solution that uses the
power distribution grid as a means of delivering data communications, and
leverages this technology as a vehicle for end-to-end deployment of network
services to end-users.

Mark Isaacson, CEO of Ambient, said, "Imagine a world where everyone that has
electric power can also attach to the Internet and more. Our resulting solution
will allow Utility companies to do just that, and over existing powerlines!"

Ambient will field test solutions using technology supplied by Cisco Systems and
PLT partners.

Ambient has also developed its own unique technology that facilitates the
transfer of Internet and high-speed data through existing power-lines. The same
electric wiring that is ordinarily used to transmit electric power to individual
homes and businesses can also be used to transmit high-speed data.

The use of existing power-lines to transfer high-speed data is not only an
advantage to the consumer, but the same technology is designed to enable
electric utilities and power companies to create a basket of products which will
add value to utility operational services.

About Ambient:

Ambient Corporation (OTC BB: ABTG) is a publicly traded company incorporated in
the United States that operates technology companies in both Israel and the
U.S., focusing on Power Line Telecommunication (PLT), telephony-related product
offerings, Internet and E-commerce for a variety of exciting new consumer
applications, plus a basket of utility related services.

This press release may contain forward-looking statements that involve risks and
uncertainties. These statements may differ materially from actual future events
or results. Readers are referred to the documents filed by Ambient Corporation
with the SEC, including the company's most recent report on Form 10-K and 10-Q,
which identify important risk factors that could cause actual results to differ
from those contained in forward-looking statements.

Ambient is a trademark of Ambient Corporation registered in the U.S. Patent and
Trademark Office.

<PAGE>

For more information, contact Ambient Corporation at:
Tel: (617) 735-9395
Visit us at: www.ambient.com<PAGE>

                                                                     EXHIBIT 4.2

                                FIRST AMENDMENT

                                     to the

                       PREFERRED SHARES RIGHTS AGREEMENT

                                    between

                       SOMNUS MEDICAL TECHNOLOGIES, INC.

                                      and
                       COMPUTERSHARE TRUST COMPANY, INC.
             (formerly American Securities Transfer, Incorporated)

          This first Amendment (the "Amendment") to the Preferred Shares Rights
Agreement is made and entered into as of May 4, 2001 between SOMNUS MEDICAL
TECHNOLOGIES, INC., a Delaware corporation (the "Company"), and COMPUTERSHARE
TRUST COMPANY, INC., as Rights Agent (the "Rights Agent").

                                R E C I T A L S

          WHEREAS, the Company and American Securities Transfer, Incorporated,
predecessor in interest to the Rights Agent, entered into the Preferred Shares
Rights Agreement dated as of November 6, 1998 (the "Rights Agreement");

          WHEREAS, American Securities Transfer, Incorporated was acquired by
ComputerShare Trust Company, Inc. and its affiliates, and ComputerShare Trust
Company, Inc. has assumed the duties of Rights Agents pursuant to Section 19 of
the Rights Agreement;

          WHEREAS, Section 27 of the Rights Agreement provides that prior to the
Distribution Date (as defined in the Rights Agreement), the Company may
supplement or amend the Rights Agreement in any respect without the approval of
any holders of Rights;

          WHEREAS, the Company, Gyrus Group, PLC, a public limited company
incorporated and existing under the laws of England and Wales ("Parent") and a
wholly owned Delaware corporation subsidiary of Parent ("Merger Sub") intend to
enter into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to
which, among other things, Merger Sub will commence a tender offer for shares
of Common Stock of the Company (the "Offer") and thereafter Merger Sub intends
to merge with the Company (the "Merger") and each remaining share of Common
Stock of the
<PAGE>

Company will be converted into the right to receive a cash amount equal to $3.11
per share, upon the terms and subject to the conditions of the Merger Agreement;
and

          WHEREAS, on May 4, 2001, the Board of Directors of the Company
resolved to amend the Rights Agreement to render the Rights inapplicable to the
Offer, the Merger, the Option Agreement and the other transactions contemplated
by the Merger Agreement.

          WHEREAS, the Company intends to modify the terms of the Rights
Agreement in certain respects as set forth herein, and in connection therewith,
is entering into this Amendment and directing the Rights Agent to enter into
this Amendment.

          NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:

          1.  Effect of Amendment.  Except as expressly provided herein, the
Rights Agreement shall be and remain in full force and effect.

          2.  Capitalized Terms.  All capitalized, undefined terms used in this
Amendment shall have the meanings assigned thereto in the Rights Agreement.

          3.  Supplement to Definitions.  The definitions contained in Section 1
of the Rights Agreement shall be supplemented by adding the following:

          "PARENT" shall mean Gyrus Group, PLC, a public limited company
incorporated and existing under the laws of England and Wales.

          4.  Section 1(cc) of the Rights Agreement is hereby amended to read in
its entirety as follows:

          "RIGHTS AGENT" shall mean ComputerShare Trust Company, Inc. or its
successor or replacement as provided in Sections 19 and 21 hereof.

          5.  Section 1(a) of the Rights Agreement is hereby amended by adding
the following new addition at the end of Section 1(a):

          "Notwithstanding anything in this Agreement that might otherwise be
deemed to the contrary, neither Parent nor any of its Affiliates or Associates
shall be deemed an Acquiring Person and none of the Distribution Date,
Transaction or Triggering Event shall be deemed to occur, in each such case, by:
(i) the approval, execution, delivery or performance of the Agreement and Plan
of Merger dated as of May 4, 2001, including any amendment or supplement thereto
(the "Merger Agreement") among Parent, a wholly owned subsidiary of Parent and
the Company; (ii) the
<PAGE>

announcement, commencement or consummation of the Offer or the Merger (as
defined in the Merger Agreement); or (iii) the consummation of the other
transactions contemplated by the Merger Agreement, including the execution of
the Company Stockholder Agreements (and the irrevocable proxies attached
thereto), dated as of May 4, 2001 between Parent and certain stockholders of the
Company and the fulfillment of the obligations thereunder. In the event the
Offer and Merger are consummated, or any of the other transactions contemplated
by the Merger Agreement occur, Common Shares for which Parent is the Beneficial
Owner as a result of any such transaction or transactions, shall not entitle or
permit the holders of the Rights to exercise the Rights or otherwise affect the
rights of the holders of Rights, including giving the holders of the Rights the
right to acquire securities of any party to the Merger Agreement."

          6.  Effective Date.  This Amendment shall become effective as of the
date first above written but such effectiveness is contingent upon (a) the
execution of this Amendment by the Company and authorization by the Board of
Directors of the Company approving the Amendment; (b) delivery of a certificate
from an appropriate officer of the Company stating that this Amendment is in
compliance with Section 27 of the Rights Agreement; and (c) the execution and
delivery of this Amendment by the Rights Agent.

          7.  Governing Law.  This Amendment shall be governed by, construed and
enforced in accordance with the laws of the State of Delaware without reference
to the conflicts or choice of law principles thereof.

          8.  Counterparts.  This Amendment may be executed in separate
counterparts, each of which when executed and delivered is an original but all
of which taken together constitute one and the same instrument.

          9.  Fax Transmission.  A facsimile, telecopy or other reproduction of
this Amendment may be executed by one or more parties hereto, and an executed
copy of this Amendment may be delivered by one or more parties hereto by
facsimile or similar instantaneous electronic transmission device pursuant to
which the signature of or on behalf of such party can be seen, and such
execution and delivery shall be considered valid, binding and effective for all
purposes. At the request of any party hereto, all parties hereto agree to
execute an original of the Amendment as well as any facsimile, telecopy or other
reproduction thereof.
<PAGE>

       IN WITNESS WHEREOF, the Company and the Rights Agent have caused this
Amendment to be duly executed as of the day first above written.

                                    SOMNUS MEDICAL TECHNOLOGIES, INC.

                                    By: /s/ Robert D. McCulloch
                                        -------------------------------------
                                    Name:   Robert D. McCulloch
                                    Title:  Vice President Finance, Chief
                                            Financial Officer and Chief
                                            Information Officer

                                    COMPUTERSHARE TRUST COMPANY, INC.,
                                    as Rights Agent

                                    By: /s/ Ian Yewer
                                        -------------------------------------

                                    Name:   Ian Yewer
                                          -----------------------------------

                                    Title:  President
                                           ----------------------------------

                                    By: /s/ Margo Ankele
                                        -------------------------------------

                                    Name:   Margo Ankele
                                          -----------------------------------

                                    Title:  Marketing Officer
                                           ----------------------------------

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