Document:

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                                                                   Exhibit 10.46

                                            ***TEXT OMITTED AND FILED SEPARATELY
                                                CONFIDENTIAL TREATMENT REQUESTED
                                           UNDER 17 C.F.R. SECTION 200.80(b)(4),
                                                            200.83 AND 240.24b-2

                    CODE SHARE AND REVENUE SHARING AGREEMENT

This CODE SHARE AND REVENUE SHARING AGREEMENT (the "Agreement") is made and
entered into as of March 20, 2001, to be effective retroactive to February 1,
2001 (the "Contract Date"), by and between AMERICA WEST AIRLINES, INC., a
Delaware corporation ("AWA"), and MESA AIRLINES, INC., a Nevada corporation
("Mesa").

                                    RECITALS

A. AWA holds a certificate of public convenience and necessity issued by the
Department of Transportation ("DOT") authorizing AWA to engage in the interstate
and overseas air transportation of persons, property and mail between all points
in the United States, its territories and possessions.

B. Mesa holds a certificate of public convenience and necessity issued by the
DOT authorizing Mesa to engage in the interstate transportation of persons,
property and mail in the United States, its territories and possessions.

C. AWA owns various trademarks, service marks and logos, including "America West
Airlines," "America West Express," and distinctive exterior color decor and
patterns on its aircraft, hereinafter referred to individually and collectively
as the "AWA Service Marks."

D. AWA and Mesa entered into that certain Code Share and Revenue Sharing
Agreement, dated July 15, 1998, as amended by those certain First and Second
Amendments to Code Share and Revenue Sharing Agreement, dated January 4, 2000
and May 10, 2000, respectively (the "Original Agreement"), in order to provide
scheduled air transportation services as America West Express and to share in
revenue and costs of such services.

E. AWA and Mesa desire to terminate the Original Agreement and replace the
Original Agreement, in its entirety, with the terms and conditions of this
Agreement.

NOW, THEREFORE, in consideration of the promises, covenants, representations and
warranties hereinafter set forth, and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, AWA and Mesa agree as
set forth below.

                                   AGREEMENT

1. Effectiveness. This Agreement replaces the Original Agreement effective upon
the date (the "Effective Date") that Mesa executes a binding agreement to
acquire the CRJ Aircraft required to be provided by Mesa pursuant to Section
2.2.2 of this Agreement (the "Aircraft Contract"). Mesa shall provide AWA with
written notice of the date the Aircraft Contract is executed together with
copies of the Aircraft Contract. On the date of execution of the Aircraft
Contract, all of the terms and provisions of this Agreement shall be effective
retroactive to the Contract Date. On the Effective Date, the Original Agreement
shall be terminated in its entirety. All sums payable pursuant to Section 6 of
the Original Agreement between the Contract Date and Effective Date shall be
recalculated pursuant to the terms of Section 7 of this Agreement, and AWA,
subject to the rights regarding disputed amounts contained in Section 7.8, shall
pay
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additional and undisputed sums payable within 30 days after receipt of a written
invoice for such recalculation. Until the Effective Date, AWA and Mesa shall
continue to perform pursuant to the Original Agreement. If the Aircraft Contract
is not executed by May 1, 2001, then this Agreement shall automatically
terminate and the terms and conditions of the Original Agreement shall remain in
full force and effect. Simultaneously with the execution of this Agreement, AWA
and Mesa shall enter into an amendment to the Original Agreement providing for
the addition of 3 CRJs under the Original Agreement if this Agreement is
terminated pursuant to this Section.

As of the Contract Date, AWA and Mesa dispute certain amounts that are payable
between AWA and Mesa under the Original Agreement (the "Disputed Amounts"). Mesa
and AWA shall continue to work to resolve their respective obligations
concerning the Disputed Amounts pursuant to the terms of the Original Agreement.
This is a new and separate agreement from the Original Agreement. The terms of
this Agreement shall not be used by either Mesa or AWA to determine or interpret
the respective payment obligations of the parties for the Disputed Amounts. The
respective obligations for the Disputed Amounts and other matters and disputes
arising under the Original Agreement prior to the Contract Date shall be
resolved pursuant to the terms, covenants, rights and remedies of the Original
Agreement, shall not affect the rights, duties and obligations of AWA or Mesa
under this Agreement and shall not permit AWA or Mesa to exercise any remedies
under this Agreement. The intent of AWA and Mesa is to resolve any disputes
concerning the Disputed Amounts or any other matters and disputes under the
Original Agreement under the Original Agreement and not pursuant to this
Agreement.

2. Rights, Responsibilities and Obligations of Mesa:

         2.1      Flight Service. During the term of this Agreement, Mesa shall
                  operate America West Express air transportation services (the
                  "Flight Services"), using the Fleet of Aircraft established
                  pursuant to Section 2.2, to and from the cities and based upon
                  the schedule established from time to time by AWA (the
                  "Schedule") in written notice to Mesa (a "Schedule Notice").
                  For purposes of this Agreement, "Flights" means flights
                  operated pursuant to the Schedule. AWA may change the Schedule
                  by issuance of a Schedule Notice at any time. When creating a
                  Schedule, AWA shall: (i) take into account Mesa's aircraft
                  maintenance requirements; (ii) create a Schedule which will
                  permit Mesa to schedule flight crews in a manner consistent
                  with industry operational practices; (iii) schedule block
                  times based on AWA's internal block time policy; (iv) provide
                  for the following turn times: (a) in a hub location: 20
                  minutes for Beech 1900s and Dash 8s and 25 minutes for CRJs;
                  and (b) in other stations: 10 minutes for Beech 1900s, 15
                  minutes for Dash 8s and 20 minutes for CRJs; (v) take into
                  account airport facilities available for Aircraft handling;
                  (vi) provide for maintenance as required by Section 2.6.3 and
                  scheduled heavy maintenance on Aircraft as required from time
                  to time; and (vii) provide for at least 45 days prior notice
                  of any holiday cancellations. Mesa shall implement all changes
                  in the Schedule contained in a Schedule Notice in accordance
                  with AWA'S scheduling requirements within 60 days after
                  receipt of a Schedule Notice. Mesa or any of its affiliates
                  shall not provide any flight service for any other airline for
                  flights that originate in or end in Phoenix, Arizona.

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So long as Air Midwest ("AM") is a wholly-owned subsidiary of Mesa Air Group,
Inc., Mesa may subcontract with AM for the performance of those Flight Services,
Other Services (as hereinafter defined), and other related obligations under
this Agreement, which are to be performed by Mesa using the Beech 1900s (the "AM
Services"). Mesa has delivered to AWA an assumption agreement pursuant to which
AM agrees to perform all the duties and obligations of Mesa under this Agreement
relating to the AM Services and to be bound by all of the liabilities,
obligations, and duties of Mesa under this Agreement applicable to the AM
Services, including, without limitation, the providing of flights, maintenance
of aircraft, compliance with laws, maintenance of insurance and indemnification
of AWA (the "Assumption Agreement"). AWA shall have no duty, obligation or
liability to AM under this Agreement. All payments for the use and operation of
the Beech 1900 Subfleet to be made by AWA under this Agreement shall be paid to
Mesa. Mesa shall pay all sums payable to AM for the operation of the Beech 1900
Subfleet pursuant to a separate agreement between AM and Mesa to which AWA is
not a party. Notwithstanding the foregoing, Mesa shall not be released,
discharged, or relieved from any duties, liabilities or obligations set forth in
this Agreement, including those arising from the AM Services performed by AM. AM
shall be deemed a subcontractor of Mesa, and Mesa shall cause AM's performance
of the AM Services to comply with all relevant terms and conditions of this
Agreement. If either: (i) AM ceases to be a wholly-owned subsidiary of Mesa Air
Group, Inc.; or (ii) AM fails to comply with the terms and conditions of this
Agreement as required by the Assumption Agreement, then Mesa, within thirty (30)
days after receipt of written notice from AWA, shall terminate the subcontractor
relationship with AM, acquire the Beech 1900 Subfleet and perform the duties and
obligations applicable to the Beech 1900 Subfleet pursuant to this Agreement.

Mesa, with the prior written consent of AWA, which consent shall not be
unreasonably withheld, delayed or conditioned, may subcontract with a
wholly owned subsidiary of Mesa Air Group, Inc. for the performance of certain
Flight Services, Other Services and other related obligations under this
Agreement, which are to be performed by Mesa using certain Aircraft on terms and
conditions similar to the terms and conditions applicable to the subcontracting
of the AM Services (the "Subcontracting of Services"). If AWA consents to the
Subcontracting of Services, then AWA and Mesa shall execute an amendment to this
Agreement permitting the Subcontracting of Services and setting forth the terms
and conditions pursuant to which the Subcontracting of Services may occur (the
"Subcontracting Amendment"). The Subcontracting of Services shall not occur
until the Subcontracting Amendment and any documents required from the
wholly-owned subsidiary have been executed by Mesa and the affiliate and
delivered by AWA.

AM and any other affiliate to which services are subcontracted under this
Agreement are referred to as the "Affiliated Service Providers."

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2.2 Fleet.

         2.2.1    Initial Fleet. As of the Contract Date, Mesa and AM provide
                  the Flight Services using the following aircraft
                  (collectively, the "Fleet"; with respect to any one aircraft
                  type, the "Subfleet"; and individually, the "Aircraft"):

<TABLE>
<CAPTION>
                           Number           Aircraft Type ("Subfleet")
                           ------           --------------------------
<S>                                         <C>
                           12               deHavilland DHC-8-200 ("Dash 8")
                           5                Hawker-Beech 1900 ("Beech 1900")
                           22               Canadair Regional Jet-50 ("CRJ")
</TABLE>

         2.2.2    CRJ Fleet Expansion. Pursuant to the Aircraft Contract, Mesa
                  shall have the right to acquire an additional 83 CRJ Aircraft,
                  43 by virtue of firm orders (the "Firm Aircraft") and 40 by
                  virtue of options (the "Option Aircraft"), in the
                  configuration, with the seating capacity and at the times set
                  forth on Exhibit A, attached hereto. The Firm Aircraft and
                  Option Aircraft will consist of CRJ Models 200s, 700s and 900s
                  as set forth in Exhibit A. For purposes of this Agreement, the
                  CRJ Model 200s shall be a "CRJ Subfleet" and the CRJ Model
                  700s and 900s shall be a "CRJ Subfleet".

                  (a)      Each of the Firm Aircraft shall be placed into Flight
                           Services by Mesa in the calendar months set forth on
                           Exhibit A (the "Delivery Schedule"). The Firm
                           Aircraft to be delivered in each of the calendar
                           months from and including October, 2003 to and
                           including June, 2004 may be either CRJ Model 700s or
                           900s (the "Convertible Firm Aircraft"). AWA, by
                           written notice to Mesa, given on or before the last
                           day of the 18th calendar month prior to the delivery
                           of each Convertible Firm Aircraft, shall advise Mesa
                           as to which model is to be added to the Fleet (the
                           "Firm Selection Notice"). For example, for the CRJ to
                           be delivered in October, 2003, AWA must provide the
                           Firm Selection Notice by April 31, 2002. If AWA does
                           not provide the Firm Selection Notice timely, then
                           AWA shall be deemed to have elected to have a CRJ
                           Model 700 added to the Fleet. Mesa shall provide AWA
                           with at least 90 days' prior written notice of the
                           week each of the Firm Aircraft will be placed into
                           Flight Service under this Agreement and at least 60
                           days' prior written notice of the date on which each
                           of the Firm Aircraft will be placed into Flight
                           Service under this Agreement (each, a "Scheduled
                           Delivery Date").

                  (b)      AWA shall have the options to expand the CRJ Fleet by
                           up to 40 additional CRJs from the Option Aircraft. On
                           or before each option "Exercise Date" (as set forth
                           on Exhibit A), AWA, by written notice to Mesa (the
                           "Option Notice"), shall have the option to require
                           Mesa to increase the CRJ Subfleet by the addition of
                           the applicable CRJ Aircraft in the applicable "In
                           Service Months" (as set for on Exhibit A)(each, a
                           "Fleet Expansion Option"). Each Option Notice shall
                           specify whether AWA is selecting either a CRJ Model
                           700 or 900. If

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                           the Option Notice does not specify the CRJ Model,
                           then AWA shall be deemed to have selected a CRJ Model
                           700. The Fleet Expansion Options are separate and
                           individual options and may be exercised or not
                           exercised on a separate and individual basis. The
                           Aircraft that are the subject of each Fleet Expansion
                           Option shall be added to the Fleet by Mesa in the
                           applicable In Service Months. Mesa shall provide AWA
                           with at least 90 days prior written notice of the
                           week each Option Aircraft will be placed into Flight
                           Service under this Agreement and at least 60 days'
                           prior written notice of the Scheduled Delivery Date
                           for each Option Aircraft that is the subject of each
                           exercised Fleet Expansion Option.

                  (c)      Mesa shall not be liable to AWA for the failure to
                           deliver any Firm Aircraft or Option Aircraft on the
                           Scheduled Delivery Date (a "Failed Delivery") if (i)
                           the failure to deliver is the result of the
                           manufacturer's failure to deliver the Aircraft to
                           Mesa as a result of acts of terrorism, hostilities,
                           war, strikes, labor disputes, work stoppages beyond
                           the manufacturer's control, fire, act of government
                           or court order; (ii) Mesa uses commercially
                           reasonable efforts to acquire a replacement aircraft
                           for the Aircraft that was not delivered; and (iii)
                           Mesa pays to AWA any compensation, damages or award
                           obtained by Mesa from the manufacturer as a result of
                           the Failed Delivery (an "Excused Failure"). In the
                           event of a Failed Delivery, Mesa shall use
                           commercially reasonable efforts to obtain the
                           applicable Aircraft as soon as practicable after the
                           Scheduled Delivery Date. If the Aircraft that is the
                           subject of a Failed Delivery is not delivered within
                           90 days after the Scheduled Delivery Date, then AWA
                           shall have the option to elect not to include such
                           Aircraft under this Agreement by providing written
                           notice to Mesa at any time prior to the actual
                           delivery of such Aircraft. If a Failed Delivery is
                           not the result of an Excused Failure, then AWA shall
                           have all rights and remedies under this Agreement for
                           such Failed Delivery.

         2.2.3    Intentionally Omitted.

         2.2.4    Fleet Reduction. Except as otherwise permitted by Section
                  2.2.5, upon 180 days' prior written notice from AWA, AWA,
                  subject to limitations set forth below, may require Mesa to
                  reduce the number of Aircraft in any Subfleet. AWA shall not
                  require Mesa to reduce: (i) the number of Aircraft in the Dash
                  8 Subfleet, Beech 1900 Subfleet or the combined CRJ Subfleets
                  by more than one Aircraft in any Six Calendar Month Period.
                  For purposes of this Agreement, "Six Calendar Month Period"
                  means each period during the Term (as defined below)
                  commencing on January l and ending on June 30 and commencing
                  on July 1 and ending on December 30, with the first Six
                  Calendar Month Period commencing on January 1, 2002; (ii) the
                  number of CRJ Model 200s for a period of 1 year measured from
                  the last date that a CRJ Model 200 is added to the CRJ
                  Subfleet; provided, however, that the Scheduled Delivery Date
                  shall be used to

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                  measure the date each CRJ Model 200 is added to the CRJ
                  Subfleet; (iii) the number of CRJ Model 700s and 900s for a
                  period of 1 year measured from the last date that a CRJ Model
                  700 or 900 is added to the CRJ Subfleet; provided, however,
                  that the Scheduled Delivery Date shall be used to measure the
                  date such CRJ Model 700 or 900 is added to the CRJ Subfleet;
                  and (iv) the Dash 8 Subfleet below 6 Aircraft.

         2.2.5    Elimination of Beech 1900s and Dash 8s. Notwithstanding the
                  provisions of Section 2.2.4, AWA, at any time during the Term
                  after August 25, 2004, may require the Subfleet of Beech 1900s
                  to be reduced to zero by providing Mesa with at least 180 days
                  prior written notice of AWA's election to eliminate the Beech
                  1900s on or after such date (the "1900 Elimination Notice").
                  Notwithstanding the provisions of Section 2.2.4, AWA, at any
                  time during the Term after August 25, 2006, may require Mesa
                  to reduce the Subfleet of Dash 8s to zero by providing Mesa
                  with at least 180 days' prior written notice of AWA's election
                  to eliminate the Dash 8s on or after such date (the "Dash 8
                  Elimination Notice"). The 1900 Elimination Notice may be given
                  at any time during the Term on or after February 27, 2004. The
                  Dash 8 Elimination Notice may be given at any time during the
                  Term on or after February 27, 2006.

         2.2.6    Spares. Mesa shall have available at least 1 spare Aircraft
                  available for Flight Services under this Agreement at any time
                  there are 35 or more CRJ Aircraft and at least 2 spare
                  Aircraft available for Flight Services under this Agreement at
                  any time there are 65 or more CRJ Aircraft. AWA shall pay the
                  Actual Costs, Guaranteed Non-Maintenance Costs (other than
                  overhead) and Guaranteed Maintenance Costs actually incurred
                  by or payable to Mesa for each spare Aircraft as provided in
                  Section 7.

         2.2.7    Transition Costs. As of the Contract Date, all of the CRJ
                  Aircraft are 50 seat Aircraft. The Firm Aircraft and Option
                  Aircraft include CRJ-700 and CRJ-900 seat configurations (the
                  "New CRJ Types"). AWA shall reimburse Mesa for actual out-of
                  pocket costs and expenses incurred by Mesa in connection with
                  the induction of the New CRJ Types into Flight Services for a
                  period of 180 days after the induction of the first of each of
                  the New CRJ Types, not to exceed [...***...] for each of the
                  New CRJ Types (the "Transition Reimbursement"). The Transition
                  Reimbursement shall be paid by AWA within 30 days after
                  receipt of monthly written invoices together with commercially
                  reasonable evidence of the costs actually incurred by Mesa.

2.3      Other Services. In addition to the Flight Services, Mesa, subject to
         AWA's payment of costs pursuant to Section 7.1.8, shall provide the
         following services in connection with the Flight Services (the "Other
         Services"): (i) curb-side service, other than at AWA Service Locations
         (as defined below), in all locations where it is normal and customary
         or where another airline offers curbside check-in; (ii) check-in
         service with automated baggage tags and boarding pass printers in all
         locations, other than AWA Service Locations; (iii) ticketing and
         security services

                                             ***CONFIDENTIAL TREATMENT REQUESTED

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         in accordance with the Federal Aviation Administration ("FAA") and AWA
         directives and guidelines, as may be issued from time to time, and any
         other directives or guidelines as Mesa and AWA may mutually approve, in
         all locations, other than the AWA Service Locations; (iv) Qik-Check
         service, to the extent used and supplied by AWA, at all gates used by
         Mesa; (v) transfer of all baggage for passengers connecting from
         Flights to AWA flights in a timely manner to ensure all baggage is
         placed on those connecting flights; and (vi) transportation of mail and
         other cargo (other than hazardous materials) on Flights, at the order
         of AWA, to the extent of available aircraft capacity. Mesa, at its
         expense, shall provide all facilities, machinery, equipment and
         inventory required to efficiently, timely and in a manner consistent
         with best airline industry practices provide the Other Services. Mesa
         shall require personnel providing the Other Services to comply with all
         rules, regulations and directives promulgated for all AWA operations
         from time to time.

         Mesa may outsource the Other Services performed by Mesa at any station
         with the prior written consent of AWA, which consent shall not be
         unreasonably withheld or delayed. Mesa shall cause any subcontractor to
         which the Other Services are outsourced to comply with and perform all
         of the duties and obligations imposed on Mesa in this Agreement
         applicable to the Other Services that have been outsourced.

         Notwithstanding the foregoing, AWA shall provide the services set forth
         in subsections (i) - (iii) above at Phoenix Sky Harbor International
         Airport, McCarron International Airport and any other airport that AWA
         designates with at least 90 days' prior written notice to Mesa (the
         "AWA Service Locations"). In the event AWA elects to convert any
         airport to an AWA Service Location, then AWA shall: (i) either assume
         Mesa's lease at the airport or reimburse Mesa for the actual
         out-of-pocket costs and expenses incurred by Mesa in terminating the
         lease, at AWA's election; (ii) reimburse Mesa for up to one week's
         compensation actually paid to airport employees that are not offered
         employment by AWA; and (iii) offer to purchase from Mesa or assume the
         lease of any equipment owned or leased by Mesa at the airport that may
         be used by AWA in AWA's operations and is in good condition and repair
         for a price equal to the fair market value of such equipment at the
         time of such offer.

2.4      Personnel; Training. Mesa shall hire, engage, employ and maintain a
         sufficient number of competent, trained personnel and subcontractors,
         including, but not limited to pilots, flight attendants, ground crew,
         maintenance and cleaning personnel, baggage handling personnel and
         customer service personnel necessary to provide the Flight Services and
         Other Services as required by this Agreement. Subject to FAA approval,
         CRJ pilots shall be qualified to fly all models of CRJs providing
         Flight Services pursuant to this Agreement. CRJ pilots shall not be
         scheduled or dedicated to any particular model line of CRJs without the
         prior written consent of AWA. In addition, Mesa shall employ and
         maintain a commercially reasonable number of reserve pilots and flight
         attendants based in the Phoenix Metropolitan area based on the Flight
         Services to be provided

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         pursuant to this Agreement. Mesa shall cause all Mesa personnel
         providing Flight Services or Other Services to wear uniforms approved
         by AWA and shall comply with all appearance guidelines required of all
         AWA personnel.

         Mesa shall provide initial training, recurrent training and customer
         service training to personnel and subcontractors reasonably identified
         by AWA at programs approved by AWA. AWA shall provide applicable
         training materials. In the event AWA becomes a hazardous materials
         carrier, Mesa, at AWA's expense, shall conduct all hazardous materials
         training required by AWA or AWA's other code share partners.

2.5      Service Quality and Level. All Flight Services and Other Services shall
         be provided by Mesa at a service quality and level of service equal to
         or greater than the service quality and level of service provided by
         AWA to the extent applicable to the type of Aircraft used to provide
         the Flight Services. All Aircraft shall be equipped with service
         amenities necessary to provide the service quality and level of service
         required by this Section. If AWA changes AWA's service requirements and
         as a result Mesa will be required to make any capital upgrades to any
         Aircraft, Mesa, in writing, shall advise AWA of the need for such
         upgrades together with the estimated cost to complete such upgrades
         (the "Upgrade Notice"). If, after receipt of the Upgrade Notice, AWA,
         in writing, elects to require Mesa to comply with such changes in
         service requirements, then AWA, within 30 days after receipt of a
         written notice, shall reimburse Mesa for the actual out-of-pocket
         capital costs incurred by Mesa in making such capital upgrades. If AWA
         does not approve the making of the capital upgrades, then Mesa shall
         not be required to meet the new AWA service requirements.

2.6      Maintenance.

         2.6.1    Obligation. Mesa, at its own cost and expense, shall be
                  responsible for the service, repair, maintenance, overhauling
                  and testing of each Aircraft: (i) in compliance with the
                  maintenance program for each Aircraft as approved by the FAA
                  and pursuant to all applicable aircraft maintenance manuals
                  applicable to each Aircraft; (ii) so as to keep each Aircraft
                  in good and safe operating condition; and (iii) so as to keep
                  the Aircraft in such operating condition as may be necessary
                  to enable the airworthiness certification of the Aircraft to
                  be maintained in good standing. Mesa shall retain full
                  authority and control over the service, repair, maintenance,
                  overhauling and testing of each Aircraft. AWA shall have no
                  obligations or duties with respect to the service, repair,
                  maintenance, overhauling or testing of any Aircraft.

         2.6.2    Ground Equipment. Mesa, at its sole cost and expense, shall
                  service, repair, maintain and clean (or cause to be serviced,
                  repaired, maintained or cleaned) all ground equipment and
                  facilities in accordance with AWA guidelines, provided by AWA
                  to Mesa, for cleaning, maintenance and appearance.

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         2.6.3    Location. Mesa shall maintain three maintenance bases,
                  currently located in Fresno, California for CRJs, Grand
                  Junction, Colorado for Dash 8s, and Farmington, New Mexico for
                  Beech 1900s. Each Schedule prepared by AWA shall provide for
                  not less than 20% of the Dash 8s and CRJs and 1 of the Beech
                  1900s to remain overnight at the applicable maintenance base
                  each night. AWA acknowledges that a separate maintenance base
                  shall be maintained by Mesa for each CRJ Subfleet. One
                  Aircraft shall remain overnight for 10 hours and the remainder
                  for at least 8 hours. Mesa shall not relocate any maintenance
                  base, without the prior written consent of AWA, which consent
                  may be withheld if the new location fails to meet AWA's
                  maintenance base requirements. Each CRJ maintenance base shall
                  be staffed and equipped to maintain a fleet of up to 25
                  Aircraft. Mesa shall add maintenance bases as necessary to
                  provide the Flight Services and Other Services at locations
                  which meet AWA's maintenance base requirements and are
                  approved by AWA. AWA, by providing Mesa with at least 180
                  days' prior written notice, may require Mesa to close any
                  maintenance base. Upon Mesa assigning to AWA all of its right,
                  title and interest in the lease of the maintenance base that
                  is closed (together with any required landlord consent), AWA
                  shall reimburse Mesa for all actual out-of-pocket costs and
                  expenses incurred by Mesa in closing such maintenance bases.

2.7      Emergency Operations. Mesa and AWA shall coordinate to develop a plan
         that complies with applicable Regulations (as defined below) to be
         implemented in the event of any incident involving personal injury or
         death to a passenger or crew member on a Flight. The emergency response
         teams of AWA and Mesa shall coordinate their efforts and shall
         cooperate fully in response to such emergency.

2.8      Fleet Configuration, Cleanliness and Appearance.

         2.8.1    Configuration. All Dash 8 and Beech 1900 Aircraft in the Fleet
                  on the Contract Date and Dash 8 and Beech 1900 Aircraft added
                  to the Fleet shall have a passenger seating configuration and
                  seating capacity as provided on the Aircraft in the Fleet on
                  the Contract Date. Each CRJ in the Fleet on the Contract Date
                  shall retain the seating configuration and capacity as exists
                  on the Contract Date. Each CRJ added to the Fleet pursuant to
                  Section 2.2 shall have the seating configuration and capacity
                  as provided for such Aircraft on Exhibit A. AWA, at AWA,s cost
                  and expense, may require Mesa to reconfigure or change the
                  seating capacity of an Aircraft. All such requested changes
                  shall be implemented within 180 days after Mesa's receipt of
                  written request from AWA.

         2.8.2    Cleanliness. Mesa, at its sole cost and expense, shall cause
                  all Aircraft to be cleaned and maintained in an appearance in
                  accordance with cleaning standards, requirements and
                  guidelines promulgated by AWA from time to time and provided
                  to Mesa in writing.

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2.9      Post-Departure Procedures. Mesa shall perform airport post-departure
         procedures (as defined in AWA's Customer Service Manual) and be
         responsible for securing and controlling all the contents in the ticket
         lift envelopes. All ticket lift envelopes should be forwarded and
         co-mailed to ELP/NPC within 24 hours after flight operations. Mesa
         shall be liable for losses to AWA as a result of the loss, misuse,
         theft or forgery of AWA passenger tickets (including lifted flight
         coupons and auditor's coupons for sold tickets) in Mesa's possession or
         control or the associated cash receipts. If actual documented losses to
         AWA resulting from erroneous or fraudulent system transactions due to
         Mesa's or its employees' failure to adhere to AWA policies and
         procedures exceed the actual documented losses incurred by AWA from
         erroneous or fraudulent system transactions, calculated monthly on a
         rate per passenger per month basis for each airline (the "Excess
         Losses"), then Mesa, within 10 days after receipt of written demand
         together with the calculation of Excess Losses, shall pay to AWA an
         amount equal to the Excess Losses times the number of passengers flown
         on Flights during the applicable calendar month.

2.10     Other Aircraft Handling and Ground Services. Mesa, at AWA's request,
         shall provide the Other Services and aircraft ground handling services
         for flights and aircraft operated by AWA and its code share partners at
         stations at which Mesa provides the Other Services pursuant to Section
         2.3. The costs and expenses of providing such Other Services and
         aircraft ground handling shall be charged to the airline (other than
         AWA) at market rates and in the case of AWA at actual out-of-pocket
         cost to Mesa plus 8%.

2.11     Airport Slots. Upon each written request by AWA to Mesa, Mesa or the
         Affiliated Service Providers, as applicable, shall transfer the rights
         to airport slots operated by Mesa and used for America West Express
         service at New York LaGuardia (LGA), Chicago O'Hare (ORD), Ronald
         Reagan Washington National (DCA) and any other slot controlled airports
         to any carrier(s) designated by AWA; provided, however, that Mesa or
         the Affiliated Service Providers, as applicable, shall not be required
         to transfer any slots at slot controlled airports acquired by Mesa or
         the Affiliated Service Providers, as applicable, and used for flights
         other than Flights pursuant to this Agreement. Upon receiving such
         request from AWA, Mesa shall prepare and process, within thirty (30)
         days, all documentation necessary to execute the transfer of the
         airport slots requested by AWA in its notice.

2.12     MAPPER System. AWA and Mesa, at AWA's cost and expense, shall use
         commercially reasonable efforts to install AWA's internal MAPPER System
         ("MAPPER System") at all airport stations to and from which Flight
         Services are provided by September 1, 2001. AWA, at AWA's cost and
         expense, shall train Mesa personnel on the use of the MAPPER System.
         The MAPPER System shall be installed in all new stations when such
         stations are activated. Mesa shall cause its employees and
         subcontractors to input all flight and other operational and passenger
         data and information that the MAPPER System is capable of receiving as
         soon as such data and information is available. All operational
         statistics for each Flight shall be input into the MAPPER System within
         1 hour after each

                                       10
<PAGE>   11
         departure. Commencing on the 90th day after the MAPPER System is
         installed at a station, if Mesa fails to input any information or data
         into the MAPPER System, then Mesa, within 10 days after receipt of
         written demand, shall pay to AWA an amount equal to $100.00 for each
         entry not made. Mesa shall not be required to pay a penalty for any
         data not entered into the MAPPER System as a result of a system
         failure. Absent manifest error, MAPPER System data, information and
         records shall be the controlling data, information and records for all
         statistics used for purposes of calculation of penalties, payments and
         bonuses under this Agreement. No penalty for failure to input data
         shall be assessed more than 180 days after the date the data was to be
         entered.

3. Rights, Responsibilities and Obligations of AWA.

         3.1      Flight Management Items. AWA, in its sole discretion, shall:
                  (i) designate from time to time, pursuant to each Schedule
                  Notice, the routes on and destinations to which Mesa is to
                  provide the Flight Services and the times of departure for the
                  Flights; (ii) set the fares to be paid for such Flights by the
                  passengers; and (iii) be responsible for the passenger
                  booking, yield management and overbooking of Flights, limited
                  only by the Fleet required to be maintained by Mesa pursuant
                  to this Agreement.

         3.2      Marketing/Revenue. AWA, in its sole discretion and at its sole
                  cost, shall market, advertise and sell tickets on all Flights.
                  AWA shall provide all reservation services for the Flight
                  Services and shall pay all ticketing and advertising expenses,
                  credit card charges, travel agent commissions and CRS fees
                  applicable to such services. AWA shall be entitled to retain,
                  and Mesa shall pay to AWA, all revenue and income generated by
                  the Flight Services. Mesa shall provide to AWA all tickets and
                  other revenue documentation collected or lifted by Mesa. Mesa,
                  on a daily basis, shall remit to AWA any revenue collected by
                  Mesa in connection with the Flight Services and Other Services
                  into bank accounts established by AWA. Mesa shall be
                  responsible for any revenue shortfall not remitted to AWA and
                  shall pay such shortfall within 10 days after receipt of
                  written demand from AWA which demand shall document the
                  shortfall in reasonable detail. AWA shall process Mesa lifted
                  passenger lift documents using standard industry pricing
                  procedures. Mesa agrees to cooperate with AWA on any special
                  pricing or reporting requirements. Mesa shall supply AWA with
                  specific traffic reporting requirements.

         3.3      Airport Services. AWA, at its sole cost and expense, shall:
                  (i) provide curb-side service, check-in service, ticketing and
                  security services at AWA Service Locations for all Flights;
                  (ii) transfer all baggage for passengers connecting from AWA
                  flights to Flights in a timely manner to ensure all baggage is
                  placed on those connecting Flights; and (iii) provide such
                  other ground services selected by AWA at locations selected by
                  AWA in writing to Mesa. To the extent Other Services are
                  provided by AWA, the costs of such services shall not be
                  included in the Actual Costs or Guaranteed Non-Maintenance
                  Costs. AWA shall pay the rent for the terminal and gates at
                  Sky Harbor Airport.

                                       11

<PAGE>   12
         3.4      Other Code Share Partners. AWA shall have the right to enter
                  into code share, joint marketing, charter or other
                  alliance-type agreements with any other flight service
                  commuter operator to provide flight services to any
                  destinations or for any routes. AWA may permit any of AWA's
                  other code share partners to place their code on any Flight.
                  AWA or its code share partners shall pay all costs and
                  expenses incurred by Mesa in placing such other code on such
                  Flights.

         3.5      Charters. AWA, at its sole discretion, may market charter
                  flights on the Aircraft. Mesa shall operate such charter
                  flights provided flight crews and Aircraft are available and
                  not otherwise subject or committed to maintenance
                  requirements. Mesa is required to operate the charters in a
                  manner consistent with the terms of this Agreement. In respect
                  of any charter flight, AWA and Mesa, in good faith, shall
                  negotiate the costs and expenses to be paid by AWA for such
                  services. Mesa, upon 90 days' prior written notice to AWA, may
                  use any Aircraft for company business; provided, however, that
                  no such trips may disrupt scheduled Flights. If such trips
                  disrupt scheduled Flights, Mesa, within 10 days after receipt
                  of written demand, shall pay to AWA an amount equal to
                  [...***...] times the number of Flights disrupted (the
                  "Disruption Fee"). If the Disruption Fee is not paid timely,
                  then AWA may offset the Disruption Fee against the next
                  amounts due by AWA to Mesa.

         3.6      Executive Travel. AWA shall provide Mesa with travel cards for
                  the five top executives of Mesa for business travel and
                  personal travel on AWA flights on the same terms and
                  conditions as provided to AWA officers. Mesa is not permitted
                  to offer barter travel on AWA flights or Flights in exchange
                  for goods or services. In the event of any breach of the terms
                  of this Section, Mesa, within 10 days after receipt of written
                  request, shall pay to AWA the full coach fare for the
                  flight(s) taken in violation of the terms of this Section.

4. Compliance with Regulations.

         4.1      Regulations. Mesa shall perform its obligations and duties
                  under this Agreement, including, without limitation, all
                  Flight Services and Other Services in full compliance with any
                  and all applicable laws, ordinances, codes, statutes, orders,
                  directives, mandates, requirements, rules and regulations,
                  whether now in effect or hereafter adopted or promulgated, of
                  all governmental agencies having jurisdiction over Mesa's
                  operations, including but not limited to the FAA and the DOT
                  (collectively, "Regulations").

         4.2      Flight Operations. Mesa shall be responsible for the operation
                  of each Aircraft and the safe performance of the Flights in
                  accordance with the Regulations and airline industry standard
                  practice and shall retain full authority, operational control
                  and possession of the Aircraft to do so. Mesa, its agents or
                  employees, for the purpose of the safe performance of the
                  Flights, shall have absolute discretion in and shall have sole
                  responsibility for all matters concerning the preparation of
                  each Aircraft for its Flights, and all other matters relating
                  to the technical operation of the Aircraft. Mesa, insofar as
                  such relates to the safe operation of a Flight, shall have
                  sole and absolute discretion as to the load carried and its

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       12
<PAGE>   13
                  distribution and as to the decision whether such Flight shall
                  be taken. Mesa shall be solely responsible for and AWA shall
                  have no obligations or duties with respect to the dispatch of
                  all Flights.

         4.3      Registration. All Aircraft shall remain registered in the
                  United States of America in accordance with the Regulations.

         4.4      Disclosure. Mesa, upon 2 business days' prior written request,
                  shall provide AWA the opportunity to review all operating
                  specifications, operational regulations, manuals and
                  calculations with respect to all Aircraft and flight
                  statistics with respect to all Flights at Mesa's corporate or
                  other relevant offices where such records are located.

         4.5      Review/Audit. AWA or its independent accountants, upon 2
                  business days' prior written notice, may review, at Mesa's
                  corporate office, airport ticket offices and other relevant
                  offices, all records, books, logs, files, documentation and
                  information maintained by Mesa, or any of its maintenance or
                  service contracts, in connection with Flight operation, safety
                  and regulatory compliance, employee training, Flight dispatch,
                  Aircraft use, operation, maintenance and repair, Flight
                  incidents and governmental orders, mandates and requirements.
                  AWA, to the extent AWA deems necessary, may make unannounced
                  visits and inspections at airport ticket offices and stations
                  to insure Mesa's and its employees', agents' and contractors'
                  compliance with the terms and conditions of this Agreement.

         4.6      Reporting. This Agreement shall be treated as a code share for
                  DOT reporting requirements. AWA shall provide Mesa with such
                  information necessary for Mesa to make the DOT reports and
                  disclosures.

5. Operational Performance Criteria, Incentives and Penalties.

         5.1      DOT Complaint Rate Criteria. Mesa shall not permit its annual
                  DOT Complaint Rate (defined below) for Flight Services to
                  exceed the annual DOT Complaint Rate of AWA. The "DOT
                  Complaint Rate" is defined as the number of consumer
                  complaints received by the DOT for a given calendar year
                  expressed in terms of the number of complaints per 100,000
                  passengers flown during that calendar year by Mesa and AWA;
                  provided, however, that the DOT Complaint Rate shall exclude
                  consumer complaints relating solely to (i) overbooking; (ii)
                  fares; (iii) Aircraft size or suitability; (iv) schedule; and
                  (v) food service. For purposes of this Agreement, "AWA's DOT
                  Complaint Rate" shall mean AWA's actual DOT Complaint Rate
                  multiplied by [...***...]. DOT complaints made against AWA for
                  America West Express service shall be allocated to Mesa for
                  the purpose of calculating Mesa's and AWA's DOT Complaint
                  Rates. If Mesa's DOT Complaint Rate exceeds AWA's DOT
                  Complaint Rate in any calendar year during the Term of this
                  Agreement, Mesa, within 10 days after receipt of written
                  demand from AWA, shall pay to AWA a penalty equal to
                  [...***...] multiplied by the amount by which Mesa's DOT
                  Complaint Rate exceeds AWA's DOT Complaint Rate. For example,
                  if AWA's DOT Complaint Rate for a given year is [...***...]
                  per 100,000 passengers and Mesa's is [...***...] per 100,000
                  passengers, Mesa

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       13
<PAGE>   14
                  would pay AWA the product of [...***...] x [...***...]
                  or [...***...]. On each anniversary date of the Contract Date,
                  the penalty payment amount shall be increased by the increase
                  in the CPI, as determined in accordance with Section 7.4.

         5.2      Mishandled Baggage Rate Criteria. Commencing January 1, 2002,
                  Mesa shall not permit its monthly MBR (defined below) for
                  Flight Services to exceed the monthly MBR of AWA. The "MBR" is
                  defined as the number of lost baggage claims entered into the
                  world tracer system for a given month expressed in the terms
                  of the number of entries per 1,000 bags handled during that
                  calendar month by Mesa and AWA. Mesa shall enter all lost
                  baggage claims into the world tracer system within 2 hours
                  after the lost baggage claim is made by a passenger. If Mesa's
                  MBR exceeds AWA's MBR by [...***...] or more in any calendar
                  month during the Term of this Agreement, Mesa, within 10 days
                  after receipt of written demand from AWA, shall pay to AWA a
                  penalty equal to [...***...]. If Mesa's MBR exceeds AWA's MBR
                  for three consecutive calendar months, Mesa, within 10 days
                  after receipt of written demand, shall pay to AWA an
                  additional penalty of [...***...] for such three-month period
                  and for each consecutive month thereafter that Mesa's MBR
                  exceeds AWA's MBR, the penalty shall be [...***...] per month.
                  On each anniversary date of the Contract Date, the penalty
                  payment amount shall be increased by the increase in the CPI,
                  as determined in accordance with Section 7.4.

         5.3      On Time Performance Rate Criteria. Mesa shall not permit

                  Mesa's OTP Rate (as defined below) for any Six Month Period
                  (as defined below) to fall below: (i) [...***...] percentage
                  points above AWA's OTP Rate for Schedules operated by Mesa out
                  of the Phoenix Sky Harbor International hub; and (ii)
                  [...***...] percentage points below the AWA's OTP Rate for
                  Schedules operated out of the Columbus, Ohio hub (the "OTP
                  Rate Threshold"). The Phoenix Sky Harbor International hub and
                  Columbus hub are each referred to as a "Hub." The "OTP Rate"
                  is defined as the percentage determined by dividing the number
                  of flight segments not Delayed (as defined below) by the total
                  number of flight segments during the applicable Six Month
                  Period. For purposes of this Agreement, "Delayed" means a
                  flight segment that does not arrive at the destination within
                  15 minutes after the scheduled arrival time. All Flights will
                  be included for calculating the OTP Rate. A canceled flight
                  (except ones cancelled because of no passengers and the
                  reasons set out in Section 5.4(v)) is a Delayed flight. To the
                  extent that Mesa's OTP Rate for either Hub Schedule falls
                  below the applicable OTP Rate Threshold for any Six Month
                  Period, Mesa, within 10 days after receipt of written demand,
                  shall pay to AWA the OTP Penalty Amount (as defined below) for
                  each percentage point, or portion thereof, by which Mesa's OTP
                  Rate for either Hub Schedule falls below the OTP Rate
                  Threshold for such Six Month Period. The "OTP Penalty Amount"
                  for each Hub is an amount equal to [...***...] times a
                  fraction, the numerator of which is the daily average of
                  Aircraft providing Flight Services to and from the Hub during
                  the applicable Six Month Period and the denominator of which
                  is the daily average of all Aircraft providing Flight Services
                  during the applicable Six Month Period. On each anniversary
                  date of the Contract Date the dollar amounts used for
                  calculating the OTP Penalty Amount shall be increased

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       14
<PAGE>   15
                  by the increase in the CPI, as determined in accordance with
                  Section 7.4. AWA, within 10 days after receipt of written
                  demand, shall pay to Mesa [...***...] for each percentage
                  point, or portion thereof, by which Mesa's OTP Rate system
                  wide exceeds [...***...] for any Calendar Quarter. On each
                  anniversary date of the Contract Date, the bonus amount shall
                  be increased by the increase in CPI, as determined in
                  accordance with Section 7.4. "Six Month Period" means each
                  January 1 - June 30 and July 1 - December 31 and "Calendar
                  Quarter" means each 3 calendar month period commencing January
                  1 of each year.

         5.4      Flight Completion Factor. Mesa shall not permit its FCF

                  (defined below) for any Calendar Quarter to fall below: (i)
                  [...***...] for Schedules operated out of the Phoenix Sky
                  Harbor International Airport Hub; and (ii) [...***...] for
                  Schedules operated out of the Columbus, Ohio Hub (each, an
                  "FCF Threshold"). "FCF" is defined as the percentage of
                  published, scheduled Flights completed for a Calendar Quarter.
                  Flights not completed due to: (i) weather; (ii) cancellation
                  or overflight because of no passengers; (iii) air traffic
                  control cancellations; (iv) cancellations resulting from an
                  emergency airworthiness directive from the FAA affecting all
                  aircraft similarly equipped to the Aircraft in any Subfleet
                  (not just those owned or operated by Mesa); or (v)
                  cancellations resulting from the sole acts or omissions of AWA
                  or its employees, including, without limitation, damage to an
                  Aircraft, will not be included in either the numerator or
                  denominator for calculating the FCF. Mesa, within 10 days
                  after receipt of written demand, shall pay to AWA the FCF
                  Penalty Amount for each tenth of a percentage point, or
                  portion thereof, by which Mesa's FCF for either Hub Schedule
                  falls below the applicable FCF Threshold. The "FCF Penalty
                  Amount" for each Hub is an amount equal to [...***...] times a
                  fraction, the numerator of which is the daily average of
                  Aircraft providing Flight Services to and from the Hub during
                  the Calendar Quarter and the denominator of which is the daily
                  average of all Aircraft providing Flight Services under this
                  Agreement during the Calendar Quarter. On each anniversary
                  date of the Contract Date the dollar amount used for
                  calculating the FCF Penalty Amount shall be increased by the
                  increase in the CPI, as determined in accordance with Section
                  7.4. AWA, within 10 days after receipt of written demand,
                  shall pay to Mesa [...***...] for each tenth of a percentage
                  point by which Mesa's FCF system wide exceeds [...***...] in
                  any Calendar Quarter. On each anniversary date of the Contract
                  Date, the bonus amount shall be increased by the increase in
                  CPI, as determined in accordance with Section 7.4.

         5.5      Records. Within 5 days after the end of each calendar month
                  Mesa shall provide to AWA statements certified by Mesa's chief
                  financial officer as to Mesa's OTP Rate and FCF for the prior
                  calendar month and, as applicable, the prior Calendar Quarter
                  and Six Month Period, together with such supporting
                  documentation and information as AWA may request. AWA or its
                  designee, upon 2 business days' prior written notice, may
                  review, at Mesa's corporate or other relevant offices, all
                  records and files maintained by Mesa in connection with
                  on-time performance and flight completions. If AWA's or its
                  designee's review of the records or files reveals that Mesa
                  has under or overstated, as applicable, Mesa's OTP Rate or
                  FCF, then Mesa, upon demand, shall pay all sums due based on
                  the accurate calculations, the actual out-of-pocket costs and
                  expenses of AWA in completing

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       15
<PAGE>   16
                  such review and the applicable penalties payable based on such
                  new calculation. If such under or overstatement is willful
                  or intentional, then Mesa, within 10 days after receipt
                  of written demand, shall pay to AWA an amount equal to
                  [...***...] per occurrence.

         5.6      Limitation on Applicability of Standards, Criteria,
                  Incentives, and Penalties. AWA acknowledges that Mesa and the
                  Affiliated Service Providers operate flights and provide
                  flight services and other services under their own names
                  and/or under names or service marks other than America West
                  Express using aircraft that are not included in the Fleet and
                  that are not subject to this Agreement. Notwithstanding any
                  other term, condition or provision hereof to the contrary, the
                  standards, criteria, incentives and penalties set forth above
                  in this Section 5 apply only to Flight Services, Flights and
                  Other Services performed by Mesa and the Affiliated Service
                  Providers hereunder operating as America West Express and not
                  to any other flights, flight services or other services
                  performed by Mesa and the Affiliated Service Providers under
                  their own names or under a name or service mark other than
                  America West Express. Thus, in calculating Mesa's DOT
                  Complaint Rate, the MBR, the OTP rate, the FCF, and all
                  incentives and penalties set forth above, only Flight Services
                  and Other Services performed by Mesa and the Affiliated
                  Service Providers under the service mark America West Express
                  shall be taken into account in calculating such rates and
                  assessing such incentives and penalties.

6. Irregular Operations. The misconnect and denied boarding benefits provided by
Mesa to passengers (each, a "Misconnect Benefit Package") shall be similar in
amount and scope to those offered by AWA in similar circumstances and geographic
areas (the "AWA Standards"). AWA shall not be required to reimburse Mesa for any
Misconnect Benefit Package which is in excess of the AWA Standards.

7. Payment of Fees/Revenue Sharing. Commencing on the Effective Date and
retroactive to the Contract Date, Mesa and AWA hereby agree to pay the following
sums as consideration for this Agreement and the provision of the Flight
Services and Other Services provided for herein:

         7.1      Mesa Actual Costs. AWA, in accordance with Section 7.5, shall
                  reimburse to Mesa the following actual costs and expenses
                  actually paid by Mesa in connection with performing the Flight
                  Services and Other Services ("Actual Costs"):

                  7.1.1    Hull insurance premiums and commissions paid by Mesa
                           for each Aircraft for the prior calendar month.
                           Insurance shall be allocated and paid by AWA on a
                           monthly basis equally over the applicable premium
                           period for which the insurance is paid. Insurance
                           shall be prorated by Mesa in any premium period
                           during which an Aircraft is added or deleted from
                           this Agreement. If the monthly insurance payments
                           made by AWA are less than the actual premiums paid by
                           Mesa, then AWA shall pay such excess in the month
                           Mesa pays the insurance premiums. If the monthly
                           payments made by AWA exceed the actual insurance
                           premiums, then AWA shall be entitled to a credit
                           against the next payment of the Actual Costs in an

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       16
<PAGE>   17
                           amount equal to such overpayment. Mesa, within 10
                           days after receipt, shall provide AWA with copies of
                           all premium notices received for insurance premiums.

                  7.1.2    Liability insurance premiums and commissions paid by
                           Mesa for the Flight Services on a revenue passenger
                           mile basis. Insurance shall be allocated and paid on
                           a monthly basis equally over the applicable premium
                           period for which the insurance is paid. Insurance
                           shall be prorated by Mesa in any premium period
                           during which this Agreement commences, terminates or
                           expires. If the monthly insurance payments made by
                           AWA are less than the actual premiums paid by Mesa,
                           then AWA shall pay such excess in the month Mesa pays
                           the insurance premiums. If the monthly payments made
                           by AWA exceed the actual insurance premiums, then AWA
                           shall be entitled to a credit against the next
                           payment of the Actual Costs in an amount equal to
                           such overpayment. Mesa, within 10 days after receipt,
                           shall provide AWA with copies of all premium notices
                           received for insurance premiums.

                  7.1.3    Property taxes paid by Mesa for each Aircraft or the
                           Fleet. Property taxes shall be allocated and paid on
                           a monthly basis equally over the applicable tax
                           period for which the property taxes are assessed and
                           paid. If an Aircraft is added to the Fleet after
                           property taxes are assessed for a tax period and Mesa
                           does not owe taxes for such Aircraft for such tax
                           period, then AWA shall not pay property taxes on the
                           Aircraft for such tax period. AWA shall pay the full
                           year property taxes for the year in which an Aircraft
                           is deleted from the Fleet in the manner provided
                           herein if such Aircraft is not placed in revenue
                           service outside this Agreement (in which case such
                           taxes shall be prorated). If the monthly tax payments
                           made by AWA are less than the actual property taxes
                           assessed and paid by Mesa, then AWA shall pay such
                           excess in the month Mesa pays the property taxes. If
                           the monthly payments made by AWA exceed the actual
                           property taxes assessed, then AWA shall be entitled
                           to a credit against the next payment of Actual Costs
                           in an amount equal to such overpayment. Mesa, within
                           10 days after receipt, shall provide AWA with copies
                           of all tax notices received for property taxes
                           assessed against any portion of the Fleet.

                  7.1.4    De-Icing expenses paid by Mesa for each Aircraft for
                           the prior calendar month.

                  7.1.5    Fuel costs paid by Mesa during the prior calendar
                           month, calculated as gallons of fuel burned per hour.
                           If in any calendar month Mesa's estimated fuel costs
                           exceed the Actual Costs for fuel for such calendar
                           month by more than 3%, then thereafter, for the
                           purpose of calculating Estimated Costs pursuant to
                           Section 7.5 below, Mesa shall use AWA's fuel forecast
                           for the fuel costs.

                                       17
<PAGE>   18
                  7.1.6    Landing fees calculated per Flight departure incurred
                           during the prior calendar month.

                  7.1.7    Security outside AWA Service Locations calculated per
                           America West Express passenger.

                  7.1.8    Passenger and ground handling costs incurred at
                           stations maintained by Mesa more particularly
                           described on Exhibit B ("Station Costs"), not to
                           exceed in each calendar year the amount set forth in
                           the budget for each calendar year (the "Station
                           Budget"); provided, however, that if AWA changes a
                           Schedule and such change in the Schedule directly
                           results in any Station Costs exceeding the amount set
                           forth in the Station Budget, then Station Costs shall
                           include such costs in excess of the Station Budget to
                           the extent directly attributable to the Schedule
                           change. The Station Budget for each calendar year,
                           together with such backup information requested by
                           AWA, shall be prepared and provided to AWA by Mesa on
                           or before October 1 of the prior calendar year. The
                           Station Budget shall be based on Mesa's commercially
                           reasonable estimate of the actual costs that are to
                           be incurred during the next calendar year. If AWA
                           does not approve the Station Budget for any station,
                           then AWA may convert such station to an AWA Service
                           Location pursuant to Section 2.3.

                  Mesa shall not enter into any contract with an affiliate to
                  provide the services or materials for which AWA pays the
                  Actual Costs unless such contract is on commercially
                  reasonable terms substantially similar to those available in
                  the market place for arms-length transactions with third
                  parties. In the event any of the services or materials for
                  which AWA pays the Actual Costs are purchased for the Flight
                  Services and Other Services provided by this Agreement and for
                  other services provided by Mesa and its affiliates, then the
                  costs of such services and materials shall be equitably
                  allocated to Actual Costs payable by AWA such that AWA only
                  pays for the portion of such costs attributable to the Flight
                  Services or Other Services provided by this Agreement. Mesa
                  shall use commercially reasonable efforts to operate the
                  Flight Services and Other Services in an efficient and cost
                  effective manner to minimize the Actual Costs payable by AWA
                  while maintaining the quality and quantity of services
                  required by this Agreement. Mesa shall take all commercially
                  reasonable actions to minimize the taxes imposed on the Fleet.
                  If requested by AWA, in writing, AWA on behalf of Mesa may
                  pursue any tax protest or contest for property taxes imposed
                  on the Fleet or any Aircraft in the Fleet in the manner
                  prescribed by applicable law. An "affiliate" of Mesa means any
                  person or entity controlling, controlled by or under common
                  control with Mesa.

         7.2      Mesa Guaranteed Costs. AWA, in accordance with Section 7.5,
                  shall pay to Mesa:

                  (a)      the lesser of (i) the actual costs and expenses
                           associated with certain of the Flight Services and
                           Other Services (the "Guaranteed Non-Maintenance
                           Costs") set forth in the cost and expense categories
                           set forth in Exhibit C, attached hereto (the
                           "Guaranteed Non-Maintenance Costs Schedule"), or

                                       18
<PAGE>   19
                           (ii) the amounts set forth in the Guaranteed
                           Non-Maintenance Costs Schedule for each cost and
                           expense category set forth in Exhibit C, attached
                           hereto (the "Guaranteed Non-Maintenance Costs Caps");
                           and

                  (b)      an amount for maintenance costs and expenses equal to
                           the amounts set forth on Exhibit D (the "Guaranteed
                           Maintenance Costs").

                  The Guaranteed Non-Maintenance Costs Caps and Guaranteed
                  Maintenance Costs shall be adjusted on each anniversary of the
                  Contract Date in accordance with Section 7.4 below. If the
                  Term of this Agreement commences or expires or an Aircraft is
                  added or eliminated from the Fleet on other than the first or
                  last day of a calendar month, then the Guaranteed
                  Non-Maintenance Costs and Guaranteed Maintenance Costs payable
                  by AWA under this Agreement or for such Aircraft shall be
                  prorated based on the actual number of days this Agreement is
                  in effect or the Aircraft is in the Fleet during such month
                  and the actual number of days in such month. Payment of
                  Guaranteed Non-Maintenance Costs and Guaranteed Maintenance
                  Costs for an Aircraft shall commence on the Aircraft Scheduled
                  Delivery Date unless the Aircraft is delivered late in which
                  case payment will begin on the actual delivery date. If an
                  Aircraft, at AWA's written request, is placed into Flight
                  Services prior to the Scheduled Delivery Date, then payment of
                  the Guaranteed Non-Maintenance Costs and Guaranteed
                  Maintenance Costs for such Aircraft shall commence on the date
                  requested by AWA.

         7.3      Contract Negotiation. AWA may assist Mesa in the negotiation
                  of contracts for the provision of materials or services
                  subject to the Actual Costs, Guaranteed Non-Maintenance Costs
                  and Guaranteed Maintenance Costs provided Mesa is not subject
                  to an existing contract for such services or materials.

         7.4      Guaranteed Costs Adjustment.

                  7.4.1    CPI Adjustment. For the purposes of calculating CPI
                           increases in Guaranteed Non-Maintenance Costs Caps,
                           increases in the Guaranteed Maintenance Costs,
                           increases in bonuses or penalties pursuant to Section
                           5 or increases in the base EAS Subsidies pursuant to
                           Section 7.7 the following definitions and formulas
                           shall be applied:

                           (a)      Definition. "CPI" shall mean the Consumer
                                    Price Index, U.S. City Average, Urban Wage
                                    Earners and Clerical Workers, All Items
                                    (base index year 1982-84 = 100) as published
                                    by the United States Department of Labor,
                                    Bureau of Labor Statistics. If the manner in
                                    which the Consumer Price Index as determined
                                    by the Bureau of Labor Statistics shall be
                                    substantially revised, including, without
                                    limitation, a change in the base index year,
                                    an adjustment shall be made by the parties
                                    in such revised index which would produce
                                    results equivalent, as nearly as possible,
                                    to those which would have been obtained if
                                    such Consumer Price Index had not been so
                                    revised. If the Consumer Price Index shall
                                    become unavailable to the public because
                                    publication is not readily available to
                                    enable the

                                       19
<PAGE>   20
                                    parties to make the adjustment referred to
                                    in this Section, then the parties shall
                                    mutually agree to substitute therefor a
                                    comparable index based upon changes in the
                                    cost of living or purchasing power of the
                                    consumer dollar published by any other
                                    governmental agency or, if no such index
                                    shall be available, then a comparable index
                                    published by a major bank or other financial
                                    institution or by a university or a
                                    recognized financial publication.

                           (b)      Adjustment Formula. On each anniversary of
                                    the Contract Date (each an "Adjustment
                                    Date"), to determine the amount of
                                    adjustment or increase based on CPI, the
                                    applicable Guaranteed Non-Maintenance Costs
                                    Caps, the Guaranteed Maintenance Costs,
                                    bonuses or penalties and EAS Subsidies, as
                                    applicable, in effect for the prior year,
                                    shall be adjusted by multiplying the
                                    Guaranteed Non-Maintenance Costs Caps on the
                                    Guaranteed Non-Maintenance Costs Schedule,
                                    the Guaranteed Maintenance Costs, bonuses or
                                    penalties and EAS Subsidies, as applicable,
                                    in effect for the prior year, by a fraction,
                                    the numerator which shall be the CPI for the
                                    third full calendar month immediately
                                    preceding the Adjustment Date, and the
                                    denominator of which shall be the CPI for
                                    the same calendar month in the immediately
                                    preceding calendar year (the "Adjustment").

                  7.4.2    Governmental Requirements. If any governmental rule,
                           order, regulation or requirement affecting: (i) all
                           aircraft similarly equipped as the Aircraft in any
                           Subfleet (not just those owned by Mesa); or (ii) all
                           airlines flying similar equipment as the Aircraft
                           (not just Mesa), results in an increase in any of the
                           Guaranteed Non-Maintenance Costs or Guaranteed
                           Maintenance Costs such that the actual Guaranteed
                           Non-Maintenance Costs or Guaranteed Maintenance Costs
                           will exceed the then applicable Guaranteed
                           Non-Maintenance Costs Cap or amounts set forth on
                           Exhibit _D for the Guaranteed Maintenance Costs, then
                           the applicable Guaranteed Non-Maintenance Costs Cap
                           or Guaranteed Maintenance Costs shall be increased by
                           such amount, as of the effective date of such
                           governmental regulation, rule, order or requirement.

                  7.4.3    Amendment. Mesa and AWA shall execute an amendment to
                           Exhibit C and Exhibit D within 10 days after each
                           adjustment occurs pursuant to this Section 7.4. The
                           failure to execute such an amendment shall not affect
                           the effectiveness of any adjustment or the bases for
                           any subsequent adjustment. Each adjusted Guaranteed
                           Non-Maintenance Costs Cap and Guaranteed Maintenance
                           Costs shall be effective until the next adjustment of
                           such Guaranteed Non-Maintenance Costs Cap and
                           Guaranteed Maintenance Costs pursuant to this Section
                           7.4.

                  7.4.4    Guaranteed Maintenance Costs Reconciliation. Within
                           180 days after the expiration or termination of this
                           Agreement, AWA, by written notice to Mesa, may review
                           and audit Mesa's records and files relevant to the
                           actual

                                       20
<PAGE>   21
                           maintenance costs paid by Mesa in the categories set
                           forth on Exhibit D. If AWA's review of the records
                           and files reveals that the actual maintenance costs
                           paid by Mesa during the term of this Agreement was
                           less than the sum of all the Guaranteed Maintenance
                           Costs paid by AWA during the term of this Agreement
                           (the "Excess Maintenance Payments"), then Mesa,
                           within 30 days after receipt of written demand, shall
                           pay to AWA an amount equal to the Excess Maintenance
                           Payments. The terms and conditions of this Section
                           shall survive the termination or expiration of this
                           Agreement. Mesa shall maintain and retain all
                           maintenance cost and expense records and files for
                           the entire Term of this Agreement and for at least
                           one year after the expiration or termination of this
                           Agreement.

         7.5      Payment of Actual and Guaranteed Non-Maintenance Costs.

                  7.5.1    Estimates. AWA shall pay to Mesa the estimated Actual
                           Costs, Guaranteed Non-Maintenance Costs (using the
                           Guaranteed Maintenance Costs Caps) and Guaranteed
                           Maintenance Costs for each calendar month based on a
                           98% FCF (the "Estimated Costs") as follows: By the
                           20th day of each calendar month, Mesa shall provide
                           AWA with a good faith statement of the Estimated
                           Costs for the following calendar month. On or before
                           the 7th, 14th, 21s' and 28th day of each calendar
                           month (or next business day thereafter if any such
                           dates is other than a business day), AWA shall pay
                           25% of the Estimated Costs for such calendar month.

                  7.5.2    Monthly Reconciliation. On or before the 120th day
                           after the last day of each calendar month, Mesa shall
                           submit to AWA a statement of the actual Guaranteed
                           Non-Maintenance Costs (using for each monthly
                           statement the applicable Guaranteed Non-Maintenance
                           Costs Caps), the Guaranteed Maintenance Costs and
                           Actual Costs incurred by Mesa (the "Incurred Costs")
                           and payable by AWA for such calendar month (the
                           "Incurred Costs Statement"). If the Estimated Costs
                           paid by AWA in any calendar month exceed the Incurred
                           Costs in any calendar month, then Mesa, together with
                           the Incurred Costs Statement for such calendar month,
                           shall reimburse AWA the amount by which the Estimated
                           Costs paid by AWA exceeded the Incurred Costs. If the
                           Incurred Costs in any calendar month exceed the
                           Estimated Costs paid by AWA in any calendar month,
                           then AWA, subject to the rights and procedures set
                           forth in Section 7.8, within 45 days after receipt of
                           the Incurred Costs Statement, shall reimburse and pay
                           to Mesa the amount by which the Incurred Costs exceed
                           the Estimated Costs paid by AWA for the subject
                           calendar month.

                  7.5.3    Annual Reconciliation. At any time within 120 days
                           after the expiration of each Contract Year (as
                           defined below), AWA, upon 2 Business Days prior
                           written notice to Mesa, may review and audit, or
                           cause its independent accountants to review and
                           audit, all records and files (including computer
                           databases) maintained by Mesa and relevant to the
                           calculation of the actual Guaranteed Non-Maintenance
                           Costs incurred by Mesa during the prior Contract Year
                           (the "GNMC Audit"). If the GNMC

                                       21
<PAGE>   22
                           Audit reveals that the actual Guaranteed
                           Non-Maintenance Costs actually paid by Mesa during
                           the prior Contract Year was less than the sum of all
                           the Guaranteed Non-Maintenance Costs Caps paid by AWA
                           during such Contract Year (the "Excess
                           Non-Maintenance Payments"), then Mesa, within 30 days
                           after receipt of written demand from AWA, shall pay
                           AWA an amount equal to the Excess Non-Maintenance
                           Payment. If Mesa does not pay the Excess
                           Non-Maintenance Payments to AWA timely, then AWA
                           shall have the setoff rights contained in Section 7.9
                           below. For the purposes of this section, "Contract
                           Year" means each one year period commencing on April
                           1 of each calendar year and expiring on March 31 of
                           the next calendar year. For the purposes of the first
                           "Contract Year", the year shall commence on the
                           Contract Date and expire on March 31, 2002. For
                           purposes of the last Contract Year, the Contract Year
                           shall commence on April 1 and expire on the
                           Expiration Date. For the purpose of determining the
                           actual Guaranteed Non-Maintenance Costs incurred in
                           providing the Flight Services and Other Services,
                           Guaranteed Non-Maintenance Costs subject to
                           allocation to the Flight Services and Other Services
                           shall be allocated to this Agreement by Mesa using
                           the same methodology used by Mesa in establishing the
                           Guaranteed Non-Maintenance Costs Caps.

                  7.5.4    Finality. The Incurred Costs Statement issued by Mesa
                           shall include all and be the final statement for the
                           Guaranteed Non-Maintenance Costs and Actual Costs
                           payable by AWA for the period covered by each
                           Incurred Costs Statement. AWA shall not be obligated
                           to pay any Guaranteed Non-Maintenance Costs or Actual
                           Costs for a period that are not included in the
                           applicable Incurred Costs Statement when initially
                           issued by Mesa to AWA.

         7.6      Revenue Sharing. Commencing in the first calendar month after
                  the month in which the Effective Date occurs, AWA shall pay to
                  Mesa, by the 20th day of each calendar month, an amount equal
                  to the product obtained by multiplying the Segment Revenue
                  Percentage by the Segment Revenue generated during the prior
                  calendar month. For purposes of this Agreement, the following
                  terms have the following definitions:

                  "Segment Revenue" means the portion of the total fares paid by
                  passengers allocated to the Flights flown by Mesa or the
                  Affiliated Service Providers pursuant to this Agreement, less
                  all taxes, assessments, airport charges and other governmental
                  and quasi-governmental charges included in the fares. For
                  calculating Segment Revenue, the portion of the revenue
                  attributed to the Mesa Flight segment shall be determined in
                  accordance with Straight Prorate Rule 11B of the Passenger
                  Tariff Manual produced by the Airline Tariff Publishing
                  Company.

                  "Segment Revenue Percentage" means the following percentages
                  based on the type of Aircraft used to fly the Flight which
                  creates the Segment Revenue allocable to Mesa Flight segment:

                                       22
<PAGE>   23
<TABLE>
<CAPTION>
Aircraft                                              Segment Revenue Percentage
------------                                          --------------------------
<S>                                                   <C>
Beech 1900                                                    [...***...]
Dash 8                                                        [...***...]
CRJ Model 200                                                 [...***...]
CRJ Model 700                                                 [...***...]
CRJ Model 900                                                 [...***...]
</TABLE>

         7.7      Subsidies. Mesa, within 30 days after receipt, shall rebate to
                  AWA all EAS subsidies paid to Mesa by any governmental
                  entities for Flights (the "EAS Subsidies"). Notwithstanding
                  the foregoing to the contrary, if Mesa causes any EAS
                  Subsidies to be increased to an amount in excess of the EAS
                  Subsidies in effect on the Contract Date, increased annually
                  on the anniversary of each Contract Date by an amount equal to
                  an increase in the CPI as calculated pursuant to Section
                  7.4.1, then AWA shall pay to Mesa 50% of any such increase
                  within 30 days after receipt of written demand. AWA shall not
                  be responsible to the DOT for continuing service in any EAS
                  market. Notwithstanding the foregoing, if AWA directs Mesa to
                  bid to provide flight service to any EAS market, then AWA
                  shall be responsible for all liabilities incurred in
                  connection with discontinuing such service prior to the
                  expiration of any DOT hold-in order. AWA shall be entitled to
                  retain all payments, subsidies, revenue guarantees or other
                  similar payments generated from the Flight Services flown
                  under this Agreement and negotiated by AWA.

         7.8      Records, Statements and Audit Rights. Mesa shall maintain
                  separate accounting books and records for the Flight Services
                  and Other Services performed by Mesa under this Agreement. All
                  Incurred Costs Statements and other requests for payment made
                  by Mesa pursuant to this Section 7 shall be accompanied by
                  such supporting information, documentation and calculations
                  described on Exhibit E, attached hereto, and as AWA may
                  reasonably request from time to time (the "Backup
                  Information"). If AWA disputes the amount set forth in any
                  statement or the Backup Information is inadequate, incomplete
                  or inaccurate, then AWA shall pay the undisputed portion of
                  such statement and the portions for which the Backup
                  Information is adequate, complete and accurate, timely, and
                  together with such payment provide Mesa with a written
                  statement of any disputed amount and the amounts for which the
                  Backup Information is inadequate, incomplete or inaccurate.
                  AWA and Mesa shall meet and confer to resolve any disputed
                  amount and inadequate, incomplete or inaccurate Backup
                  Information within 30 days after AWA provides notice of the
                  dispute. Disputed amounts and amounts for which the Backup
                  Information is inadequate, incomplete or inaccurate shall not
                  be payable until the dispute is resolved and then shall be
                  payable within 10 days after the dispute is resolved.

                  AWA, upon 2 business days' prior written notice, may review
                  and audit, or cause its independent accountants to review and
                  audit, all records and files (including computer data bases)
                  maintained by Mesa and relevant to the calculation of the
                  payments required to be made by AWA pursuant to this
                  Agreement. If AWA's review of the records and files reveals
                  that Mesa has overcharged AWA or

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       23
<PAGE>   24
                  underpaid AWA, then Mesa shall pay to AWA, upon demand, the
                  overpayments and/or underpayments and the costs and expenses
                  of AWA incurred in completing such review and audit and, if
                  such overcharge or underpayment is willful or intentional or
                  exceeds more than 10% of the sums actually payable or
                  receivable by AWA, then Mesa, within 10 days after receipt of
                  written demand, shall pay to AWA an amount equal to 3 times
                  the overcharge or underpayment. Mesa shall maintain all
                  records, files, information, data and documentation (including
                  computer data bases) used in calculating the sums payable or
                  receivable by AWA under this Agreement in good condition and
                  order at Mesa's corporate headquarters. AWA shall not be
                  required to pay any sums, and shall be entitled to receive a
                  refund of any sum paid, for which Mesa is unable to provide
                  supporting information, documentation or data.

         7.9      Setoff. All undisputed sums payable by Mesa to AWA pursuant to
                  this Agreement may, at AWA's election, be setoff against
                  amounts next due by AWA to Mesa pursuant to this Agreement.

8.       Term and Termination.

         8.1      Term. The term of this Agreement (the "Term") commences on the
                  Effective Date retroactive to the Contract Date (the
                  "Commencement Date") and shall expire ("Expiration Date") on
                  the 8th anniversary of the date that the last CRJ Aircraft is
                  added to the Fleet pursuant to Section 2.2.2 of the Agreement
                  (the "Last Delivery Date), unless earlier terminated as
                  provided in this Agreement. AWA, by written notice to Mesa at
                  least 180 days prior to the Expiration Date, may extend the
                  Expiration Date to the 10th anniversary of the Last Delivery
                  Date.

         8.2      Early Termination. If (i) Mesa's OTP Rate for the Phoenix Hub
                  falls below AWA's OTP Rate for the Phoenix Hub for five of any
                  six calendar months or (ii) Mesa's FCF for the Phoenix Hub
                  falls below 96% for five of any of six consecutive calendar
                  months (each, a "Cancellation Event"), AWA, at its election,
                  may by written notice (a "Performance Notice") inform Mesa
                  that if the Cancellation Event is not cured within one hundred
                  twenty (120) days from receipt of such Performance Notice (the
                  "Cure Period"), AWA, at its option may give a Termination
                  Notice (as defined below). If the Cancellation Event relates
                  to Mesa's OTP Rate, the cure shall be effected by Mesa
                  bringing its OTP Rate for such Hub to a rate that is equal to
                  or above AWA's OTP Rate at the Phoenix Hub during the Cure
                  Period. If the Cancellation Event relates to the Mesa's FCF
                  for the Phoenix Hub, the cure shall be effected by Mesa
                  bringing its FCF at the Phoenix Hub to 97% or higher during
                  the Cure Period. If, after the Cure Period has expired and
                  Mesa has not cured the Cancellation Event as set forth above,
                  then AWA at any time during the thirty (30) day period
                  following the lapse of the Cure Period without cure may; upon
                  90 days' prior written notice to Mesa ("Termination Notice"),
                  terminate this Agreement. Such termination right shall be in
                  addition to any penalty payments set forth in Section 5 and
                  termination rights for an Event of Default pursuant to Section
                  13.

                                       24
<PAGE>   25
      8.3   Change of Control. This Agreement may be terminated by either AWA or
            Mesa providing the other party with at least 90 days' prior written
            notice (the "Change Termination Notice") in the event of a change of
            control of the other party or a sale of substantially all of the
            other party's assets. "Change of Control" means any "person" or
            "group" (each as used in Sections 13(d)(3) and 14(d)(2) of the
            Exchange Act) either becomes the beneficial owner (as defined in
            Rule 13d-3 of the Exchange Act), directly or indirectly, of voting
            securities of either party (or securities converted into or
            exchangeable for such voting securities) representing 50% or more of
            the combined voting power of all voting securities of the party (on
            a fully diluted basis) or otherwise has the ability, directly or
            indirectly, to elect a majority of the board of directors of the
            party or any person or two or more persons acting in concert shall
            have acquired by contract or otherwise, or shall have entered into a
            contract or arrangement that, upon consummation thereof, will result
            in its or their acquisition of the power to exercise, directly or
            indirectly, a controlling influence on the management or policies of
            the party.

      8.4   Effect of Termination. If AWA elects to terminate this Agreement
            pursuant to this Section 8, AWA, in the Termination Notice, shall
            establish as the termination date any date between 90 and 180 days
            after delivery of the Termination Notice or Change Termination
            Notice, as applicable. Mesa shall continue to provide the Flight
            Services and Other Services required by this Agreement until the
            termination date set forth in the Termination Notice or Change
            Termination Notice, as applicable. AWA and Mesa shall make all
            payments as required by this Agreement for the period through and
            including the termination date set forth in the Termination Notice
            or Change Termination Notice, as applicable.

9. Service Mark License For Services Provided By Mesa.

      9.1   Grant of License. For the payment of $1.00, AWA hereby grants to
            Mesa a non exclusive, non-transferable license to use such AWA
            Service Marks as AWA may designate, in writing, from time to time in
            connection with the Flight Services and Other Services to be
            rendered by Mesa; provided, however, that at any time prior to
            expiration or termination of this Agreement AWA may alter, amend or
            revoke the license hereby granted and require Mesa's use of any new
            or different AWA Service Mark in conjunction with the Flight
            Services and Other Services provided hereunder as AWA may determine
            in its sole discretion and judgment.

      9.2   Operation under AWA Service Marks/Aircraft Decor. Mesa, at its
            expense (subject to reimbursement in the next sentence), shall cause
            the Fleet and any replacement or additional Aircraft utilized by
            Mesa, or any of the Affiliated Service Providers, to provide the
            Flight Services, to be painted, marked and decorated to bear AWA
            Service Marks, consisting of AWA aircraft exterior and interior
            color decor and pattern provided by AWA and the name "America West
            Express." AWA shall reimburse Mesa for 50% of the costs of painting,
            decorating or marking any new CRJ added to the Fleet pursuant to
            Section 2.2. Upon written notice from AWA, which shall include the
            specifications for any such changes in AWA Service Marks and
            exterior or interior aircraft decor and patterns, Mesa shall effect
            changes in the aircraft decor and patterns within 12

                                       25
<PAGE>   26
            months from the date of such notice. AWA shall reimburse Mesa for
            the cost of repainting the Fleet in the event that AWA changes its
            logo and color decor and pattern from the design existing as of the
            Effective Date. Mesa shall use and display suitable signs on the
            interior and exterior of each Aircraft identifying Mesa as the
            operator of the Services, such signs shall be subject to the prior
            written consent of AWA as to nature, size and location provided that
            the signs shall comply with all Regulations. AWA shall reimburse
            Mesa for the actual costs and expenses of repainting any Aircraft
            eliminated from the Fleet pursuant to Section 2.2. All
            announcements, displays or literature used or viewed by Mesa
            customers on Flights shall highlight "America West Express." No such
            announcements, displays or literature shall reference "Mesa
            Airlines," other than to identify Mesa or the operator of the
            Services, on briefing cards or as required by the Regulations.

      9.3   Terms and Conditions Governing Service Mark License.

            9.3.1 Mesa hereby acknowledges AWA's ownership of the AWA Service
                  Marks, further acknowledges the validity of the AWA Service
                  Marks, and agrees that it shall not do anything in any way to
                  infringe or abridge upon AWA's rights in the AWA Service Marks
                  or directly or indirectly to challenge the validity of the AWA
                  Service Marks.

            9.3.2 To assure that the production, appearance and quality of the
                  AWA Service Marks is consistent with AWA's reputation for high
                  quality and the goodwill associated with the AWA Service
                  Marks, Mesa agrees to maintain a level of quality consistent
                  with AWA's quality in the Flight Services and Other Services
                  it provides pursuant to this Agreement and to follow AWA's
                  written instructions regarding use of AWA's Service Marks, as
                  they may be amended from time to time.

            9.3.3 Mesa agrees that, in providing the Flight Services and Other
                  Services, it shall not advertise or make use of the AWA
                  Service Marks without the prior written consent of AWA. AWA
                  shall have absolute discretion to withhold its consent
                  concerning any and all such advertising and use of the AWA
                  Service Marks in any advertising by Mesa. In the event AWA
                  approves the use of such AWA Service Marks in any advertising,
                  such advertising shall identify AWA as the owner of such
                  Service Marks and conform with any additional requirements
                  specified by AWA.

            9.3.4 To the extent that Mesa is licensed to use the AWA Service
                  Marks, the AWA Service Marks shall be used only in connection
                  with the Flight Services and Other Services specifically
                  covered by this Agreement and not in connection with any other
                  business or activity of Mesa or any other entity.

            9.3.5 Nothing in this Agreement shall be construed to give Mesa the
                  exclusive right to use the AWA Service Marks or abridge AWA's
                  right to use and license the AWA Service Marks, and AWA hereby
                  reserves the right to

                                       26
<PAGE>   27
                  continue to use the AWA Service Marks and to license such
                  other uses of the AWA Service Marks as AWA may desire.

            9.3.6 No term or provision of this Agreement shall be construed to
                  preclude the use of the AWA Service Marks, including "America
                  West Express," or the aircraft exterior color decor and
                  patterns by other individuals or entities not covered by this
                  Agreement.

            9.3.7 Upon the termination or expiration of this Agreement, the
                  license and use of the AWA Service Marks by Mesa shall cease
                  and such use shall not thereafter occur.

10. Liability and Indemnification.

      10.1  Relationship Between the Parties. Nothing contained in this
            Agreement will be deemed to create any agency or partnership or
            similar relationship between AWA and Mesa. Nothing contained in this
            Agreement will be deemed to authorize either AWA. or Mesa to bind or
            obligate the other. Mesa and the Affiliated Service Providers and
            their employees engaged in performing the Flight Services and Other
            Services shall be employees of Mesa or the Affiliated Service
            Providers for all purposes, and under no circumstances shall be
            deemed to be employees, agents or independent contractors of AWA.
            AWA and its employees engaged in performing the obligations of AWA
            under this Agreement shall be employees, agents and independent
            contractors of AWA for all purposes, and under no circumstances
            shall be deemed to be employees, agents or independent contractors
            of Mesa. Pursuant to this Agreement, Mesa and the Affiliated Service
            Providers shall act, for all purposes, as independent contractors
            and not as agents for AWA. AWA shall have no supervisory power or
            control over any employees engaged by Mesa and the Affiliated
            Service Providers in connection with their performance hereunder,
            and all complaints or requested changes in procedures shall be
            transmitted by AWA to a designated officer of Mesa. Nothing
            contained in this Agreement shall be intended to limit or condition
            Mesa's and the Affiliated Service Providers' control over their
            operations or the conduct of their business as air carriers, and
            Mesa and the Affiliated Service Providers and their principals
            assume all risks of financial losses which may result from the
            operation of the Flight Services and Other Services to be provided
            by Mesa and the Affiliated Service Providers hereunder.

      10.2  Indemnification by Mesa. Mesa agrees to indemnify, defend and hold
            harmless AWA, its directors, officers, employees, agents, parent
            corporation, subsidiaries and affiliates for, from and against any
            and all loss, liability, claim, damage, penalty, fine, charge, cause
            of action, demand, cost and expense (including attorneys' and
            consultants' fees and costs) whatsoever (collectively, "Damages"),
            as incurred, arising out of, resulting from or incurred in
            connection with: (i) the provision of the Flight Services and Other
            Services by Mesa and the Affiliated Service Providers or any of
            their employees, agents, licensees, contractors, suppliers, officers
            or directors; (ii) Mesa's or the Affiliated Service Providers'
            breach of this Agreement; (iii) damage or destruction of property of
            any person,

                                       27
<PAGE>   28
            or injury or death of any person, caused by, arising out of, or in
            connection with any act or omission of Mesa or the Affiliated
            Service Providers, their employees, agents, licensees, contractors,
            suppliers, officers or directors; (iv) any taxes, impositions,
            assessments or other governmental charges incurred by Mesa in
            providing the Flight Services or Other Services or imposed on any
            revenue generated by this Agreement (except as set forth in Section
            7.1.3); (v) passenger complaints or claims by passengers using the
            Flight Services; (vi) the failure or discontinuance of service to
            any EAS market (except as specified in Section 7.7); and (vii)
            failure to comply with any Regulations. Mesa agrees to indemnify,
            defend and hold harmless AWA, its officers, directors, employees,
            agents, parent corporation, subsidiaries and affiliates for, from
            and against any and all Damages as incurred, arising out of,
            resulting from or incurred in connection with any claims for
            consideration for performance by the Affiliated Service Providers.
            Mesa shall reimburse AWA or other Indemnified Party (as defined
            below) for any legal and any other expenses reasonably incurred in
            investigating, preparing or defending against any claim or action
            arising out of or relating to any of the foregoing.

      10.3  Indemnification by AWA. AWA agrees to indemnify, defend and hold
            harmless Mesa, its directors, officers, employees, agents, parent
            corporation, subsidiaries and affiliates for, from and against any
            and all Damages, as incurred, arising out of, resulting from or
            incurred in connection with: (i) AWA's breach of this Agreement;
            (ii) damage or destruction of property of any person, or injury or
            death of any person, caused by, arising out of, or in connection
            with any act or omission of AWA, its employees, agents, licensees,
            contractors, suppliers, officers or directors in performing AWA's
            obligations under this Agreement to the extent not covered by Mesa's
            or the Affiliated Service Providers' insurance required to be
            maintained by this Agreement; and (iii) any taxes, impositions,
            assessments or other governmental charges incurred by AWA for
            revenue received by AWA under this Agreement. AWA shall reimburse
            Mesa or other Indemnified Party (as defined below) for any legal and
            any other expenses reasonably incurred in investigating, preparing
            or defending against any claim or action arising out of or relating
            to any of the foregoing.

      10.4  Conduct of Indemnification Proceedings. The person or entity
            claiming indemnification hereunder is referred to as the
            "Indemnified Party" and the party against whom such claims are
            asserted hereunder is referred to as the "Indemnifying Party". Each
            Indemnified Party shall give reasonably prompt notice to the
            Indemnifying Party of any action or proceeding or assertion or
            threat of claim commenced against it in respect of which indemnity
            may be sought hereunder, but failure to so notify the Indemnifying
            Party (i) shall not relieve the Indemnifying Party from any
            liability which it may have under the indemnity agreement provided
            in this Agreement, unless and to the extent it did not otherwise
            learn of such action, threat or claim and the lack of notice by the
            Indemnified Party results in the forfeiture by the Indemnifying
            Party of substantial rights and defenses and (ii) shall not, in any
            event, relieve the Indemnifying Party from any obligations to the
            Indemnified Party other than the indemnification obligation provided
            under Sections 10.2 and 10.3 above. If the

                                       28
<PAGE>   29
            Indemnifying Party elects within a reasonable time after receipt of
            notice, the Indemnifying Party may assume the defense of the action
            or proceeding at Indemnifying Party's own expense with counsel
            chosen by the Indemnifying Party and approved by the Indemnified
            Party; provided, however, that, if the Indemnified Party reasonably
            determines upon advice of counsel that a conflict of interest exists
            where it is advisable for the Indemnified Party to be represented by
            separate counsel or that, upon advice of counsel, there may be legal
            defenses available to it which are different from or in addition to
            those available to the Indemnifying Party, then the Indemnified
            Party shall be entitled to separate counsel at the Indemnifying
            Party's expense, which counsel shall be chosen by the Indemnified
            Party in its sole discretion. If the Indemnifying Party does not
            assume the defense, after having received the notice referred to in
            the second sentence of this Section, the Indemnifying Party will pay
            the reasonable fees and expenses of counsel for the Indemnified
            Party. Unless and until a final judgment that an Indemnified Party
            is not entitled to the costs of defense under the foregoing
            provision, the Indemnifying Party shall reimburse, promptly as they
            are incurred, the Indemnified Party's costs of defense. The
            Indemnifying Party shall not settle or compromise any claim for
            which an Indemnified Party is entitled to indemnity without the
            prior written consent of the Indemnified Party.

      10.5  Insurance.

            10.5.1  Mesa, at all times during the Term of this Agreement, shall
                    have and maintain and shall cause the Affiliated Service
                    Providers to have and maintain in full force and effect,
                    policies of insurance satisfactory to AWA, of the types of
                    coverage, and in the minimum amounts stated below with
                    insurance companies satisfactory to AWA and under terms and
                    conditions satisfactory to AWA, including insurance coverage
                    on all Aircraft used to provide Flight Services. Unless
                    otherwise specified, the minimum amounts of insurance
                    coverage required hereunder shall be per occurrence,
                    combined single limit for all insurance coverage required
                    hereunder.

<TABLE>
<S>                                                                    <C>
                  1.   Aircraft Liability and Ground                   $250,000,000 per Occurrence Combined
                       Liability Insurance (including                  Single Limit of Liability for CRJs and
                       Commercial General Liability)                   Dash 8s and $150,000,000 per Occurrence
                                                                       Combined Single Limit of Liability for
                                                                       Beech 1900s

                       a. Bodily Injury and Personal                   Included in Combined Single Limit
                          Injury - Passengers

                       b. Bodily Injury and Personal                   Included in Combined Single Limit
                          Injury - Third Parties
</TABLE>

                                       29
<PAGE>   30
<TABLE>
<S>                                                                    <C>
                       c. Property Damage                              Included in Combined Single
                                                                       Limit Per Accident

                  2.    Worker's Compensation Insurance                Statutory
                        (Company Employees)

                  3.    Employers' Liability (Company                  $500,000
                        Employees)

                  4.    All Risk Hull Insurance on Aircraft            Replacement Cost or Such
                        Performing Services Hereunder                  Lesser Amount as may be
                                                                       Consented to by AWA, in writing

                  5.    Baggage Liability                              $2,500 (per Passenger)

                  6.    Cargo Liability                                $100,000 any One Aircraft

                                                                       $100,000 any One Disaster with Terms,
                                                                       Limitations and Conditions Acceptable to AWA
</TABLE>

            10.5.2  The parties hereby agree that from time to time during the
                    Term of this Agreement, AWA may require Mesa and the
                    Affiliated Service Providers to have and maintain amounts of
                    insurance coverage different from those amounts set forth in
                    Section 10.5.1, should AWA, in its reasonable judgment, deem
                    the circumstances and conditions of the Flight Services and
                    Other Services to require increases in any or all of the
                    foregoing minimum insurance coverages.

            10.5.3  Mesa shall cause all policies of insurance which it and the
                    Affiliated Service Providers maintain pursuant to this
                    Agreement, to be duly and properly endorsed by Mesa's and
                    the Affiliated Service Providers' insurance underwriters as
                    follows:

                        10.5.3.1    To provide that any waiver of rights of
                                    subrogation against other parties by Mesa or
                                    the Affiliated Service Providers shall not
                                    affect the coverage provided hereunder with
                                    respect to AWA.

                        10.5.3.2    To provide that Mesa's and the Affiliated
                                    Service Providers' underwriters shall waive
                                    any and all subrogation rights against AWA,
                                    its directors, officers, agents and
                                    employees without regard to any breach of
                                    warranty by Mesa or the Affiliated Service
                                    Providers or to provide other evidence of
                                    such waiver of recourse against AWA, its

                                       30
<PAGE>   31
                                    directors, officers, agents, or employees as
                                    shall be acceptable to AWA.

                        10.5.3.3    Be duly and properly endorsed to provide
                                    that each such policy or policies or any
                                    part or parts thereof shall not be canceled,
                                    terminated, or materially altered, changed
                                    or amended by Mesa's and the Affiliated
                                    Service Providers' insurance underwriters,
                                    until after 30 days' written notice to AWA
                                    which 30 days' written notice shall commence
                                    to run from the date such notice is actually
                                    received by AWA.

            10.5.4  With respect to policies of insurance described as Aircraft
                    Liability and Ground Liability Insurance, Mesa will provide
                    that Mesa's and the Affiliated Service Providers' policies:

                        10.5.4.1    Endorse AWA, its directors, officers,
                                    agents, parents, subsidiaries and employees
                                    as Additional Insureds thereunder.

                        10.5.4.2    Constitute primary insurance for such claims
                                    and acknowledge that any other insurance
                                    policy or policies of AWA will be secondary
                                    or excess insurance;

                        10.5.4.3    Cover AWA's costs of defending against such
                                    insured claims including, without
                                    limitation, to the extent permitted by the
                                    policies, costs incurred in the retention of
                                    separate legal counsel of its choice; and

                        10.5.4.4    Provide a cross-liability clause acceptable
                                    to AWA, and a specific contractual liability
                                    insurance provision covering liability
                                    assumed by Mesa and the Affiliated Service
                                    Providers under this Agreement.

            10.5.5  With respect to policies of insurance for coverage described
                    as Aircraft Liability and Ground Liability Insurance and All
                    Risk Hull Insurance, Mesa shall cause its insurance
                    underwriters to provide a breach of warranty clause.

            10.5.6  All aircraft hull insurance provided pursuant to this
                    Agreement shall be provided on agreed value basis and,
                    except with the consent of AWA, shall not be subject to more
                    than the standard market deductibles. In the event of loss,
                    settled on the basis of a total loss, all losses shall be
                    payable in full.

            10.5.7  Upon request by AWA, Mesa shall furnish to AWA evidence
                    satisfactory to AWA of the aforesaid insurance coverage and
                    endorsements, including certificates certifying that the
                    aforesaid insurance policy or policies with the aforesaid
                    policy limits are duly and properly endorsed as aforesaid
                    and are in full force and effect.

                                       31
<PAGE>   32
            10.5.8  With respect to policies of insurance obtained directly from
                    foreign underwriters, Mesa shall cause such insurance
                    underwriters to provide that AWA may maintain against Mesa's
                    and the Affiliated Service Providers' underwriters a direct
                    action in the United States upon such insurance policies and
                    to this end to provide a standard service of suit clause
                    designating an agent for service of process in the United
                    States of America.

            10.5.9  In the event Mesa or the Affiliated Service Providers fails
                    to maintain in full force and effect any of the insurance
                    and endorsements described in Section 10.5, AWA shall have
                    the right (but not the obligation) to procure and maintain
                    such insurance or any part thereof. The cost of such
                    insurance shall be payable by Mesa to AWA upon demand by
                    AWA. The procurement of such insurance or any part thereof
                    by AWA shall not discharge or excuse Mesa's or the
                    Affiliated Service Providers' obligation to comply with the
                    provisions of Section 10.5. Mesa agrees not to cancel,
                    terminate or materially alter, change or amend any of the
                    policies referred to in Section 10.5 without 30 days' prior
                    written notice to AWA of its intent to cancel, terminate or
                    materially alter, change or amend said policies or insurance
                    which 30 day notice period shall commence to run from the
                    date notice is actually received by AWA.

            10.5.10 AWA shall maintain cargo liability coverage, in types and
                    amounts required by law, for all air freight transported by
                    Mesa or the Affiliated Service Providers under an AWA
                    airbill on any Flights.

11. Confidentiality.

      11.1  AWA and Mesa agree that the terms of this Agreement shall be treated
            as confidential and shall not be disclosed to third parties without
            the express written consent of AWA and Mesa, or as required by law.
            In the event of disclosure required by law, only those portions of
            this Agreement required to be disclosed shall be disclosed. The
            disclosing party shall make good faith efforts to minimize the
            portions to be disclosed and shall seek confidential treatment by
            the receiving party or agency for any portions disclosed. In the
            event of one party being served a subpoena or discovery request,
            prior to responding to the subpoena or request, the party served
            shall notify the other party to provide the other party an
            opportunity to contest the disclosure of any terms of this
            Agreement.

      11.2  "Confidential Information" means any information in any form,
            including, without limitation, the terms of this Agreement, written
            documents, oral communications, recordings, videos, software, data
            bases, business plans, and electronic and magnetic media, provided
            to or observed by AWA or Mesa pursuant to this Agreement, including
            information owned or provided by either party to the other party,
            except for information generally available to the public. AWA and
            Mesa agree that they shall maintain all Confidential Information in
            confidence and use such Confidential Information solely for purposes
            of performance under this Agreement. Such Confidential Information
            shall be

                                       32
<PAGE>   33
            distributed within each party's company only to personnel and to its
            legal counsel, auditors and other consultants on a need-to-know
            basis for purposes related to this Agreement or in compliance with a
            court order or statutory or regulatory requirements. Except for
            legal counsel and auditors, and as permitted by Section 11. l, in no
            event shall either party disclose Confidential Information to any
            third parties except subcontractors and independent consultants and
            then only if approved by both parties in writing in advance of such
            disclosure. Confidential Information does not include information
            that is available to the general public other than as a result of
            disclosure by the disclosing party or information that was known or
            independently developed by the receiving party prior to disclosure,
            as evidenced by records kept in the ordinary course of business.

      11.3  Mesa acknowledges and agrees that any Confidential Information
            shared or given to AWA pursuant to this Agreement may be shared by
            AWA on a confidential basis with America West Holdings Corporation,
            The Leisure Company and other subsidiaries and affiliates of AWA.
            AWA acknowledges and agrees that any Confidential Information shared
            or given to Mesa pursuant to this Agreement may be shared by Mesa on
            a confidential basis with Mesa Air Group, Inc. and other
            subsidiaries or affiliates of Mesa.

12. Taxes. Mesa shall pay, prior to delinquency, all airport, property, sales,
use, excise or any other taxes, impositions, assessments or other governmental
charges incurred in connection with the provision of the Flight Services and
Other Services under this Agreement and all taxes imposed or any sums paid by
AWA to Mesa under this Agreement. AWA shall pay, prior to delinquency, all taxes
imposed on any sums paid by Mesa to AWA under this Agreement.

13. Defaults and Remedies.

      13.1  Default by Mesa. The occurrence of any one or more of the following
            events shall constitute a material default and breach of this
            Agreement by Mesa (an "Event of Default"):

            13.1.1  The failure of Mesa to make any payment required to be made
                    by Mesa to AWA hereunder, as and when due, and such failure
                    continues for 10 business days after Mesa's receipt of
                    written notice from AWA;

            13.1.2  If Mesa or any of the Affiliated Service Providers is
                    required by the FAA or DOT to suspend a substantial portion
                    of its operations for any safety reason and has not resumed
                    such operation within 3 business days of the suspension or
                    if Mesa suspends a substantial portion of the Flight
                    Services for any other reason, except as a result of an
                    emergency airworthiness directive from the FAA affecting all
                    aircraft similarly equipped to the Aircraft (not just those
                    owned or operated by Mesa);

            13.1.3  The failure of Mesa or any of the Affiliated Service
                    Providers to observe or perform any of the covenants,
                    conditions or provisions of this Agreement to be observed or
                    performed by Mesa or any of the Affiliated

                                       33
<PAGE>   34
                    Service Providers, other than as described in Sections 8 or
                    13.1.1 or 13.1.2 above, and such failure shall continue for
                    a period of 15 days after written notice thereof from AWA to
                    Mesa or such longer period as may be reasonably necessary to
                    complete the cure of such failure (not to exceed an
                    additional 30 days); provided Mesa commences such cure
                    during the initial 15-day period and continuously and
                    diligently pursues the cure to completion;

            13.1.4  (i) the cessation of Mesa's business operations as a going
                    concern; (ii) the making by Mesa of any general assignment,
                    or general arrangement for the benefit of creditors; (iii)
                    the failure of Mesa to generally pay Mesa's debts as they
                    come due or Mesa's written admission of its inability to pay
                    its debts as they come due; (iv) the filing by or against
                    Mesa of a petition to have Mesa adjudged bankrupt or a
                    petition for reorganization or arrangement under any law
                    relating to bankruptcy (unless, in the case of petition
                    filed against Mesa, the same is dismissed, stayed or vacated
                    within 60 days); (v) an adjudication of Mesa's insolvency;
                    (vi) appointment of a trustee or receiver to take possession
                    of substantially all of Mesa's assets which is not
                    dismissed, stayed or vacated within 60 days; or (vii) the
                    attachment, execution or other judicial seizure of all of
                    Mesa's assets.

            13.1.5  Upon an Event of Default, AWA may: (a) by written notice to
                    Mesa (a "Default Termination Notice") terminate this
                    Agreement effective as of the date set forth in the Default
                    Termination Notice which date shall not be less than 30 nor
                    more than 180 days after the date of the Default unless the
                    event in 13.1.2 occurs, in which case immediate; and/or (b)
                    pursue all other rights and remedies available at law or in
                    equity to AWA for the Event of Default, including, without
                    limitation, injunctive relief, specific performance and
                    damages. After receipt of a Default Termination Notice, Mesa
                    and the Affiliated Service Providers shall continue to
                    provide the Flight Services and Other Services in accordance
                    with this Agreement until the termination date set forth in
                    the Default Termination Notice. No remedy or election by AWA
                    hereunder shall be deemed exclusive, but shall, wherever
                    possible, be cumulative with all other rights and remedies
                    at law or in equity.

      13.2  AWA Default. The occurrence of any one or more of the following
            events shall constitute a material default and breach of this
            Agreement by AWA (an "AWA Event of Default"):

            13.2.1  The failure of AWA to make any payment required to be made
                    to Mesa by AWA hereunder, as and when due, and such failure
                    continues for 10 business days after AWA's receipt of
                    written notice from Mesa;

            13.2.2  The failure of AWA to observe or perform any of the
                    covenants, conditions or provisions of this Agreement to be
                    observed or performed by AWA, and such failure shall
                    continue for a period of 15 days after written

                                       34
<PAGE>   35
                    notice thereof from Mesa to AWA or such longer period as may
                    be reasonably necessary to complete the cure of such failure
                    (not to exceed an additional 30 days); provided AWA
                    commences such cure during the initial 15-day period and
                    continuously and diligently pursues the cure to completion;

            13.2.3(i) the cessation of AWA's business operations as a going
                    concern; (ii) the making by AWA of any general assignment,
                    or general arrangement for the benefit of creditors; (iii)
                    the failure of AWA to generally pay AWA's debts as they come
                    due or AWA's written admission of its inability to pay its
                    debts as they come due; (iv) the filing by or against AWA of
                    a petition to have AWA adjudged bankrupt or a petition for
                    reorganization or arrangement under any law relating to
                    bankruptcy (unless, in the case of petition filed against
                    AWA, the same is dismissed, stayed or vacated within 60
                    days); (v) an adjudication of AWA's insolvency; (vi)
                    appointment of a trustee or receiver to take possession of
                    substantially all of AWA's assets which is not dismissed,
                    stayed or vacated within 60 days; or (vii) the attachment,
                    execution or other judicial seizure of all of AWA's assets
                    which is not dismissed, stayed or vacated within 60 days.

            13.2.4  Upon the occurrence and continuance of an AWA Event of
                    Default, Mesa may: (a) by written notice to AWA (an "AWA
                    Default Notice") terminate this Agreement effective as of
                    the date set forth in the AWA Default Notice which date
                    shall not be less than 30 nor more than 180 days after the
                    date of the AWA Event of Default; and/or (b) pursue all
                    other rights and remedies available at law or in equity to
                    Mesa for the AWA Event of Default, including, without
                    limitation, injunctive relief, specific performance and
                    damages. After receipt of an AWA Default Notice, AWA shall
                    continue to perform its obligations under this Agreement
                    until the termination date set forth in the AWA Default
                    Notice. No remedy or election by Mesa hereunder shall be
                    deemed exclusive, but shall, wherever possible, be
                    cumulative with all other rights and remedies at law or in
                    equity.

14. Records and Reports.

      14.1  Retention of Records. Mesa shall keep accurate and complete books
            and records of all Flight Services and Other Services performed
            under this Agreement as well as any additional records that the
            parties agree may be required in accordance with AWA's procedures
            and the Regulations. Mesa shall retain such records in accordance
            with applicable law, AWA's procedures and the Regulations.

       14.2 Provision of Financial Records. Upon AWA's request, and until such
            time as AWA advises Mesa that such reports are no longer necessary,
            Mesa shall furnish to AWA, within 60 days following the close of the
            first three fiscal quarters of Mesa, unaudited financial statements
            including Mesa's current corporate balance sheets and profit and
            loss statements, and within 120 days after the close of its fiscal
            year, Mesa shall furnish AWA with audited financial statements of
            Mesa

                                       35
<PAGE>   36
            (or its parent company) including, either separately or on a
            consolidated basis, the balance sheet and profit and loss statements
            of that party. The appropriate reports filed on Form 10-Q and 10-K
            shall be satisfactory to fulfill such obligation.

      14.3  Provision of Additional Records. Mesa shall promptly furnish AWA
            with a copy of every report that it prepares and is required to
            submit to the DOT, FAA, National Transportation Safety Board or any
            other governmental agency, relating to any accident or incident
            involving an Aircraft used in performing Flight Services under this
            Agreement, when such accident or incident is claimed to have
            resulted in the death of or substantial injury to any person or the
            loss of, damage to, or destruction of any property.

      14.4  Additional Reports. Mesa shall promptly notify AWA in writing of:
            (i) any change in or relinquishment of control of Mesa; (ii) any
            agreement contemplating such a change or relinquishment with a copy
            of such agreement, if in writing, to AWA; or (iii) any change or
            contemplated change in the Chief Executive Officer position of Mesa.

15. Miscellaneous Provisions.

      15.1  Notices. All notices, consents, approvals or other instruments
            required or permitted to be given by either party pursuant to this
            Agreement shall be in writing and given by: (i) hand delivery; (ii)
            facsimile; (iii) express overnight delivery service; or (iv)
            certified or registered mail, return receipt requested. Notices
            shall be provided to the parties and addresses (or facsimile
            numbers, as applicable) specified below and shall be effective upon
            receipt or the rejection of such delivery, except if delivered by
            facsimile outside of business hours in which case they shall be
            effective on the next succeeding business day:

            If to AWA:         America West Airlines, Inc.
                               4000 E. Sky Harbor Blvd.
                               Phoenix, Arizona 85034
                               Attn: Vice President and General Counsel
                               Telephone: (602) 693-5805
                               Facsimile: (602) 693-5932
            If to Mesa:        Mesa Air Group
                               410 N. W Street, Suite 700
                               Phoenix, Arizona 85008
                               Attn: General Counsel
                               Telephone: (602) 685-4051
                               Facsimile: (602) 685-4352

      15.2  Waiver and Amendment. No provisions of this Agreement shall be
            deemed waived or amended except by a written instrument
            unambiguously setting forth the matter waived or amended and signed
            by the party against which enforcement of such waiver or amendment
            is sought. Waiver of any matter shall not be deemed a waiver of the
            same or any other matter on any future occasion.

                                       36
<PAGE>   37
      15.3  Captions. Captions are used throughout this Agreement for
            convenience of reference only and shall not be considered in any
            manner in the construction or interpretation hereof.

      15.4  Attorneys' Fees. In the event of any judicial or other adversarial
            proceeding between the parties concerning this Agreement, the
            prevailing party shall be entitled to recover its attorneys' fees
            and other costs in addition to any other relief to which it may be
            entitled.

      15.5  Entire Agreement. This Agreement constitutes the entire agreement
            between the parties with respect to the subject matter hereof, and
            there are no other representations, warranties or agreements,
            written or oral, between AWA and Mesa with respect to the subject
            matter of this Agreement.

      15.6  Jurisdiction; Choice of Law. For purposes of any action or
            proceeding arising out of this Agreement, the parties hereto hereby
            expressly submit to the jurisdiction of all federal and state courts
            located in the State of Arizona. This Agreement shall be governed by
            and construed in accordance with the laws of the State of Arizona.

      15.7  Severability. If this Agreement, any one or more of the provisions
            of this Agreement, or the applicability of this Agreement or any one
            or more of the provisions of this Agreement to a specific situation,
            shall be held invalid, illegal or unenforceable or in violation of
            any contract or agreement to which Mesa or AWA are a party, then AWA
            and Mesa shall in good faith amend and modify this Agreement,
            consistent with the intent of Mesa and AWA, as evidenced by this
            Agreement, to the minimum extent necessary to make it or its
            application valid, legal and enforceable and in accordance with the
            applicable agreement or contract, and the validity or enforceability
            of all other provisions of this Agreement and all other applications
            of any such provision shall not be affected thereby.

      15.8  Counterparts. This Agreement may be executed in one or more
            counterparts, each of which shall be deemed an original.

      15.9  Binding Effect. This Agreement shall be binding upon and inure to
            the benefit of AWA and Mesa and their respective successors and
            permitted assigns.

                                       37
<PAGE>   38
      15.10 No Assignment. The rights, obligations and duties of AWA and Mesa
            under this Agreement may not be assigned or delegated, except as may
            otherwise be mutually agreed by AWA and Mesa, in their sole and
            absolute discretion.

                                            AWA:

                                            America West Airlines, Inc.,
                                            a Delaware corporation

                                            /s/ William A. Franke
                                            ------------------------------------
                                            William A. Franke
                                            Chairman of the Board and
                                            Chief Executive Officer

                                            MESA:

                                            Mesa Airlines, Inc.,
                                            a Nevada corporation

                                            /s/ Jonathan G. Ornstein
                                            ------------------------------------
                                            Jonathan G. Ornstein
                                            Chief Executive Officer

                                       38
<PAGE>   39
                                   EXHIBITS

Exhibit A          Delivery Schedule
Exhibit B          Station Costs
Exhibit C          Guaranteed Non-Maintenance Costs
Exhibit D          Guaranteed Maintenance Costs
Exhibit E          Backup Information
<PAGE>   40
                                    EXHIBIT A
                                DELIVERY SCHEDULE
<TABLE>
<CAPTION>
 In Service Months                                                             Convertible
                                      Add'l          Firm          Firm            Firm           Option
 Delivery   Month                    CRJ-200       CRJ-700       CRJ-900        CRJ-7/900        CRJ 7/900
------------------------------------------------------------------------------------------------------------
Seating Configuration                  50Y    6F/58Y   6F/74Y
------------------------------------------------------------------------------------------------------------
<S>                                 <C>           <C>           <C>            <C>              <C>
        Apr-01                      [...***...]   [...***...]   [...***...]     [...***...]      [...***...]
        May-01
        Jun-01
        Jul-01
        Aug-01
        Sep-01
        Oct-01
        Nov-01
        Dec-01
------------------------------------------------------------------------------------------------------------
        Jan-02
        Feb-02
        Mar-02
        Apr-02
        May-02
        Jun-02
        Jul-02
        Aug-02
        Sep-02
        Oct-02
        Nov-02
        Dec-02
------------------------------------------------------------------------------------------------------------
        Jan-03
        Feb-03
        Mar-03
        Apr-03
        May-03
        Jun-03
        Jul-03
        Aug-03
        Sep-03
        Oct-03
        Nov-03
        Dec-03
-----------------------------------------------------------------------------------------------------------
        Jan-04
        Feb-04
        Mar-04
        Apr-04
        May-04
        Jun-04
        Jul-04
        Aug-04
        Sep-04
        Oct-04
        Nov-04
        Dec-04
------------------------------------------------------------------------------------------------------------
 Each calender month
 thereafter through
 Oct-07
------------------------------------------------------------------------------------------------------------
                                    [...***...]   [...***...]   [...***...]     [...***...]      [...***...]
</TABLE>

[...***...]

[...***...]

                                            *** CONFIDENTIAL TREATMENT REQUESTED

<PAGE>   41
                     EXHIBIT B - STATION COSTS

[...***...]

Note 1 - Some or all of these expenses are already included in pass through
amounts.

                                            *** CONFIDENTIAL TREATMENT REQUESTED

<PAGE>   42
                                EXHIBITS C AND D
                                  (SEE NOTE 3)

GUARANTEED NON-MAINTENANCE COSTS (EXHIBIT C)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
         COST CATEGORY                        UNIT                           B1900D    DHC-82    CRJ 200   CRJ 700     CRJ 900
------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                                <C>       <C>       <C>       <C>         <C>
[...***...]
</TABLE>

GUARANTEED MAINTENANCE COSTS (EXHIBIT D)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
         COST CATEGORY                        UNIT                           B1900D    DHC-82    CRJ 200   CRJ 700     CRJ 900
------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                              <C>         <C>       <C>       <C>         <C>
[...***...]
</TABLE>

Note 1 - These items will be adjusted on each contract date based on CPI as
defined in the contract.

Note 2 - [...***...]

Note 3 - The maintenance rates above are based on the following operating
assumptions - changes to these assumptions will result in revised costs and/or
guarantees from our engine and airframe manufacturers. If that occurs both
parties agree to mutually agree to new rates as stated above. Mesa will furnish
America West with a sensitivity chart of these costs as part of our final
contract with the manufacturer.

<TABLE>
<CAPTION>
            ASSUMPTIONS:

<S>                                                                 <C>
            Flight Hours Per Year                                   [...***...]

            Average Flight Hours Per Cycle                          [...***...]

</TABLE>

                                            *** CONFIDENTIAL TREATMENT REQUESTED

<PAGE>   43
                           EXHIBITS C AND D - PAGE 2

                        CRJ - 200 A/C OWNERSHIP SCHEDULE

<TABLE>
<CAPTION>

                         MONTHLY
TAIT                     AMOUNT
-----------------------------------
<S>                      <C>
 1   [...***...]          [...***...]
 2
 3
 4
 5
 6
 7
 8
 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
-----------------------------------

        AVERAGE          [...***...]

</TABLE>

                                   *** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   44
                                                                       Exhibit E

MESA CODESHARE
MINIMUM REQUIRED BACKUP - TRUEUP BILLINGS

<TABLE>
<CAPTION>

COSTS                        BACKUP REQUIRED                     MINIMUM FREQUENCY
------------------------  --------------------------          --------------------------
<S>                       <C>                                  <C>
Actual Costs (All are
  actual $ rates)
   Hull Insurance            Insurance Policy/Bill               Annually or when changes occur
   Liability Insurance       Insurance Policy/Bill               Annually or when changes occur
   Property Taxes            All Invoices & Assessment Notices   Semi-Annually
   De-icing                  All Invoices                        Monthly
   Fuel Costs                Station Invoices                    Audited Basis
   Catering                  All Invoices                        Monthly
   Landing Fees              All Invoices                        Monthly
   Security Service          All Invoices                        Monthly
   Station Rent              All Invoices                        Monthly
   CRJ Leases                Lease Payment Schedule              Every New Delivery or Change in Lease
   Station Costs             All Invoices                        Monthly

</TABLE>EXHIBIT 10.39

                        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 30th 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

<PAGE>

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

<PAGE>

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.

<PAGE>

      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.

<PAGE>

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.

<PAGE>

            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

<PAGE>

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.

<PAGE>

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.

<PAGE>

            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

<PAGE>

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

<PAGE>

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.

<PAGE>

      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")

/s/ Mark Isaacson                         /s/ Michael Frendo
________________________________          ____________________________________
Authorized Signature                      Authorized Signature

Mark Isaacson                             Michael Frendo
________________________________          ____________________________________
Name                                      Name

December 20, 2000                         January 3, 2001
________________________________          ____________________________________
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: /s/ Michael J. Frendo                        By: /s/ Mark Isaacson
    --------------------------------------          ----------------------------
Name: Michael J. Frendo                          Name: Mark Isaacson
      ------------------------------------            --------------------------
Title: VP Technology Center                      Title: CEO
       -----------------------------------              ------------------------
Date: January 3, 2001                            Date: December 20, 2000
      ------------------------------------             -------------------------

<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")

/s/ Mark Isaacson                         /s/ Michael Frendo
________________________________          ____________________________________
Authorized Signature                      Authorized Signature

Mark Isaacson                             Michael Frendo
________________________________          ____________________________________
Name                                      Name

December 20, 2000                         January 3, 2001
________________________________          ____________________________________
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

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