<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From _______ to ________
Commission File Number 0-26964
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Carnegie Group, Inc.
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Delaware 25-1435252
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(State or other Jurisdiction of (I.R.S Employer
Incorporation or Organization) Identification Number)
Five PPG Place, Pittsburgh, Pennsylvania 15222
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(Address of principal executive offices) (Zip Code)
(412) 642-6900
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to files such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date:
<TABLE>
<S> <C>
Class Outstanding at April 30, 1996
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Common Stock, $.01 par value 6,186,788
</TABLE>
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FORM 10-Q
CARNEGIE GROUP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Number
<S> <C> <C>
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
Carnegie Group, Inc. and Subsidiaries 3
Consolidated Statements
of Operations for the three months
ended March 31, 1996 and 1995
Carnegie Group, Inc. and Subsidiaries 4
Consolidated Balance Sheets
Carnegie Group, Inc. and Subsidiaries 5
Consolidated Statements of
Cash Flows
Note to Unaudited Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of 7-11
Financial Condition and Results of Operations
PART 2 OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
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PART I - FINANCIAL INFORMATION
CARNEGIE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March 31, March 31,
1996 1995
---- ----
<S> <C> <C>
Revenue
Software services--Unrelated parties $7,442,750 $4,569,869
Software services--Related parties 750,649 1,388,255
---------- ----------
Total software services 8,193,399 5,958,124
Software licenses 129,941 93,553
---------- ----------
Total revenue 8,323,340 6,051,677
---------- ----------
Costs and expenses:
Cost of revenue - Unrelated parties 4,701,682 3,112,588
Cost of revenue - Related parties 362,511 663,627
---------- ----------
Total cost of revenue 5,064,193 3,776,215
Research and development 179,014 153,848
Selling, general and administrative 2,135,969 1,550,123
---------- ----------
Total costs and expenses 7,379,176 5,480,186
---------- ----------
Income from operations 944,164 571,491
Other income (expense):
Interest income 147,166 5,928
Other income 6,099 6,099
Interest expense (4,857) (2,969)
---------- ----------
Total other income 148,408 9,058
---------- ----------
Income before income taxes 1,092,572 580,549
Income tax provision (409,387) (102,117)
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Net income $ 683,185 $ 478,432
========== ==========
Earnings per share of common stock $ .10 $ .09
========== ==========
Weighted average number of common shares outstanding 7,176,127 5,534,202
========== ==========
<FN>
The accompanying note is an integral part of these financial statements.
</TABLE>
3
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CARNEGIE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
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(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $12,239,817 $12,394,588
Accounts receivable 5,145,880 5,131,922
Accounts receivable from related parties 553,137 76,296
Accounts receivable--unbilled 2,861,227 2,048,609
Accounts receivable related parties--unbilled 211,763 87,690
Deferred income taxes 1,076,468 1,222,061
Other current assets 382,108 397,883
----------- -----------
Total current assets 22,470,400 21,359,049
----------- -----------
Property and equipment, net of
accumulated depreciation and amortization 1,957,312 1,812,894
Deferred income taxes 1,567,838 1,779,792
Other assets 34,346 36,900
----------- -----------
Total assets $26,029,896 $24,988,635
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 902,339 $ 1,107,592
Payables to related parties 626,315 967,673
Accrued compensation 848,905 1,130,479
Advance billings and deferred revenue 871,135 537,541
Accrued rent 621,734 626,253
Other accrued liabilities 1,606,789 801,544
Obligations under capital leases--current portion 48,691 48,691
----------- -----------
Total current liabilities 5,525,908 5,219,773
----------- -----------
Obligations under capital leases--noncurrent portion 26,336 39,671
----------- -----------
Total liabilities 5,552,244 5,259,444
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 20,000,000
shares authorized, 6,436,300 and 6,386,200 shares
issued at March 31, 1996 and December 31, 1995
respectively 64,363 63,862
Capital in excess of par value 30,901,092 30,836,317
Accumulated deficit (10,012,803) (10,695,988)
Treasury stock, 190,000 shares at March 31, 1996 and
December 31, 1995 (at cost) (475,000) (475,000)
----------- -----------
Total stockholders' equity 20,477,652 19,729,191
----------- -----------
Total liabilities and stockholders' equity $26,029,896 $24,988,635
=========== ===========
<FN>
The accompanying note is an integral part of these financial statements.
</TABLE>
4
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CARNEGIE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March 31, March 31,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 683,185 $ 478,432
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 224,679 156,441
Deferred income taxes 357,547 65,457
Changes in working capital component:
Accounts receivable (826,576) (1,231,683)
Accounts receivable - Related parties (600,914) 550,143
Other assets 18,329 (164,343)
Trade accounts payable (205,253) 769,940
Payables to related parties (341,358) (571,212)
Accrued compensation (281,844) (461,818)
Accrued rent (4,519) (56,924)
Other accrued liabilities 805,515 651,291
Advance billings and deferred revenue 333,594 (159,570)
----------- -----------
Net cash (used in) provided by operating
activities 162,385 26,154
Cash flows from investing activities:
Proceeds from the sale of fixed assets, net -- --
Capital expenditures (369,097) (480,878)
----------- -----------
Net cash used in investing activities (369,097) (480,878)
Cash flows from financing activities:
Principal payments under capital lease obligations (13,335) (12,220)
Proceeds from sales of common stock, net 65,276 4,175
----------- -----------
Net cash (used in) provided by
financing activities 51,941 (8,045)
----------- -----------
Net change in cash (154,771) (462,769)
Cash and cash equivalents:
Beginning of period 12,394,588 915,237
End of period $12,239,817 $ 452,468
=========== ===========
<FN>
The accompanying note is an integral part of these financial statements.
</TABLE>
5
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NOTE TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
In the opinion of the management of Carnegie Group, Inc. (the Company),
these unaudited consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, considered necessary for a
fair presentation of operating results for the three month period ended March
31, 1996. Results for the interim periods are not necessarily indicative of
results for the full year. The accompanying statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the Securities and
Exchange Commission and therefore do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. Accordingly, the information contained in this Form 10-Q should be
read in conjunction with the financial statements and notes thereto contained
in the Company's Form 10-K for the year ended December 31, 1995 as filed with
the Securities and Exchange Commission.
6
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General
Carnegie Group, Inc. ("Carnegie Group" or the "Company") provides
client/server software development services that integrate advanced software
technologies with clients' existing computing infrastructures to automate and
enhance complex business processes. The Company focuses on performing software
development, systems integration and technical consulting services to create
knowledge-intensive software solutions that improve its clients' productivity
and competitive market position in three business areas: customer contact;
customer service; and logistics, planning and scheduling. Carnegie Group
targets its services to clients in the telecommunications, financial services,
manufacturing, defense and healthcare industries.
The Company's expertise encompasses a wide range of advanced software
technologies, including knowledge-based systems, object-oriented technology,
advanced graphical user interfaces, constraint-directed search and distributed
computing. The Company captures certain aspects of its business area experience
and advanced technology expertise in a portfolio of reusable software templates
that can be used as building blocks to create software solutions quickly and
effectively. In addition, Carnegie Group employs an iterative or "spiral"
approach to software design that begins with the construction of a prototype
and continues through testing of successive versions of the software against
project requirements. This iterative design facilitates rapid software
development, encourages client feedback and leads to greater congruence with
client needs and expectations.
Since inception, Carnegie Group has emphasized relationships with leading
corporations in its targeted industries. These relationships have provided the
Company with opportunities for growth through the provision of additional
services to existing clients and through references to other companies within
the Company's targeted industries. Carnegie Group's clients include U S WEST
Communications, Inc., the United States Transportation Command, Caterpillar
Inc., the U.S. Army, BellSouth Telecommunications, Inc., First USA Bank, Ford
Motor Company and Blue Cross of Western Pennsylvania.
The Company only includes in backlog signed contracts that either have
milestones yet to be attained or for which the Company can make a reasonable
estimate of work yet to be performed. The Company's backlog was $14.1 million
at March 31, 1996 compared to $9.6 million at March 31, 1995. Backlog at March
31, 1996 decreased from backlog of $18.7 million at December 31, 1995,
reflecting the renegotiation of a large fixed-price contract with a major
customer, which partially offset new bookings for the quarter. As most of the
contracts in backlog are terminable by the Company or the client upon short
notice, there can be no assurance that contracts reflected in backlog are a
reliable measure of future revenue.
7
<PAGE> 8
COMPARISON OF QUARTERS ENDED MARCH 31, 1996 AND MARCH 31, 1995.
Revenue. Total revenue was $8.3 million in the first quarter of 1996
compared to $6.1 million in the first quarter of 1995, an increase of
$2.2 million or 37.5%. This growth resulted principally from volume increases
in sales of software services.
Total software services revenue was $8.2 million in the first quarter of
1996 compared to $6.0 million in the first quarter of 1995, an increase of $2.2
million or 37.5%. This increase was primarily attributable to an extension of a
logistics, planning and scheduling engagement for a defense industry client and
the commencement of a customer contact engagement for a new client in the
telecommunications industry. Revenue from software services-unrelated parties
was $7.4 million in the first quarter of 1996 compared to $4.6 million in the
first quarter of 1995, an increase of $2.8 million or 62.9%. This increase was
primarily attributable to the extension of a logistics, planning and scheduling
engagement and the commencement of a customer contact engagement, both of which
are described above. A portion of the increase was also attributable to the
enlargement of the scope of a customer services engagement for a manufacturing
industry client. Revenue from software services-related parties was $.8 million
in the first quarter of 1996 compared to $1.4 million in the first quarter of
1995, a decrease of $.6 million or 45.9%. This decrease was primarily
attributable to the completion of customer contact engagements for a
telecommunications industry client.
Revenue from software licenses was $130,000 in the first quarter of 1996
compared to $93,000 in the first quarter of 1995, an increase of $37,000 or
38.9%. This increase was attributable to an increase in revenue from licenses
of the Company's TestBench template.
Cost of Revenue. Cost of revenue consists primarily of salaries and
related benefits for personnel, and also includes an allocated portion of rent,
building services and computer equipment services and expenses. Total cost of
revenue was $5.1 million in the first quarter of 1996, compared to $3.8 million
in the first quarter of 1995, an increase of $1.3 million or 34.1%. This
increase was primarily attributable to additional professional staff hired to
perform the increased volume of software services. Total cost of revenue was
60.8% of total revenue in the first quarter of 1996, compared to 62.4% of total
revenue in the first quarter of 1995. This percentage decrease was primarily
attributable to increased productivity of professional staff and lower company
fixed costs as a percentage of total revenue. Cost of revenue-unrelated
parties was $4.7 million in the first quarter of 1996 compared to $3.1 million
in 1995, an increase of $1.6 million or 51.1%. This increase was primarily
attributable to additional professional staff hired or reassigned to perform
the increased volume of software services. Cost of revenue-related parties was
$.4 million in the first quarter of 1996 compared to $.7 million in the first
quarter of 1995, a decrease of $.3 million or 45.4%. This decrease was
primarily attributable to the reallocation of professional staff to provide
additional software services to unrelated parties following the completion of
customer contact engagements for a telecommunications industry client.
Research and Development. Research and development expenses were $179,000
in the first quarter of 1996 compared to $154,000 in the first quarter of 1995,
an increase of $25,000 or 16.4%. This increase was primarily due to product
development related to the TestBench template.
Selling, General and Administrative. Selling, general and administrative
expenses include costs of proposal development and proposal writing, marketing
communications and advertising, sales and management staff, and corporate
services functions including accounting, human resources and legal services,
along with corporate executive staff. Selling, general and administrative
expenses were $2.1 million in the first quarter of 1996 compared to $1.6
million in the first quarter of 1995, an increase of $.6 million or 37.8%. This
dollar increase resulted primarily from increases in sales and marketing
expenses to support growth in the Company's total revenue.
8
<PAGE> 9
These expenses increased slightly as a percentage of total revenue from 25.6%
in the first quarter of 1995 to 25.7% in the first quarter of 1996.
Other Income (Expense). Other income (expense) was $148,000 in the first
quarter of 1996 compared to $9,000 in the first quarter of 1995, an increase of
$139,000 or 1,538.4%. This increase was due primarily to interest income
earned on net proceeds received in December, 1995 from the Company's initial
public offering, which were invested in an interest-bearing account.
Income Tax Provision. An income tax provision of $409,000 was recorded in
the first quarter of 1996. The effective income tax rate in the first quarter
of 1996 was higher than the effective income tax rate in the first quarter of
1995 as a result of the Company's current estimate of the deferred tax asset
believed more likely than not to be realized.
SFAS No. 109, "Accounting for Income Taxes," requires a valuation
allowance when it is "more likely than not that some portion or all of the
deferred tax assets will not be realized." It further states that "forming a
conclusion that a valuation allowance is not needed is difficult when there is
negative evidence such as cumulative losses in recent years." The ultimate
realization of its deferred income tax asset depends on the Company's ability
to generate sufficient taxable income in the future. The Company has weighed
the negative objective evidence of recent results and dependence upon limited
number of customers, as well as other risk factors on the one hand, and the
positive subjective evidence of future expectations, on the other hand, and has
concluded that losses in recent years and other risk factors make it
appropriate to record a valuation allowance. This reflects the Company's
conclusion under SFAS 109 as to the portion of the deferred tax asset expected
not to be realized in light of that standard's requirement to give greater
weight to the more objective evidence.
In estimating the amount of its realizable deferred tax asset, the Company
gives substantial weight to recent historical results. Significant changes in
circumstances or in enacted tax laws which affect the valuation allowance are
recorded when they occur. The Company's annual strategic business planning
process takes place in the fourth quarter of the year, and the valuation
allowance is adjusted for future years' income expectations resulting from that
process. When preparing subsequent interim and annual financial statements,
the Company reevaluates whether there has been any significant change in the
assumptions underlying its plan and adjusts the valuation allowance as
necessary.
9
<PAGE> 10
Liquidity and Capital Resources
The Company has funded its operations in recent years primarily through
cash generated from operations and the use of cash reserves. In 1995 the
Company also funded its operations in part through borrowing under available
lines of credit and through the net proceeds of the initial public offering of
its Common Stock consummated in December 1995.
During the first quarter of 1996, the Company had a net use of cash of
$155,000, working capital increased in accounts receivable and property and
equipment to support business growth.
The Company experienced growth in revenue earned but not yet billed, and
consequently an increase in the number of days' revenue in accounts receivable
for the quarter ended March 31, 1996. Invoicing of amounts to clients
generally occurs within 45 days of time and materials cost incurrence, unless a
specific schedule is agreed upon, and payment follows invoicing in accordance
with customary terms. The Company has not experienced any significant
write-downs of receivables, nor does the Company expect that payments are
doubtful; accordingly, the Company has not made any allowance for doubtful
accounts.
Advance billings and deferred revenue increased at March 31, 1996 when
compared to December 31, 1995. The increase reflects billings in advance of
revenue earned, but which were billed in accordance with established or agreed
billings schedules. These amounts are recorded as deferred revenue until
earned. The timing and magnitude of such advance billings vary from contract
to contract and from client to client.
The Company currently has a committed line of credit agreement in the
amount of $3.0 million in place with PNC Bank, N.A. (the "Bank"), and a
discretionary line of credit agreement in the amount of $500,000 in place with
the Bank, both of which expire June 30, 1996. Borrowings under these agreements
are collateralized by accounts receivable. These lines of credit bear interest
at the Bank's prime interest rate plus 0.75% per annum, and the Bank charges a
0.25% fee per annum on the unused portion of the committed line of credit. The
Bank's prime interest rate was 8.5% at both March 31, 1996 and December 31,
1995. Availability of $3.0 million of the funds under the committed line of
credit is also subject to the Company's compliance with certain covenants
customary with commercial loans, including covenants related to maintenance of
certain levels of working capital and tangible net worth. The $500,000 under
the discretionary line of credit is available at the discretion of the Bank. No
borrowings were outstanding against the committed line of credit or the
discretionary line of credit at March 31, 1996 and December 31, 1995.
The Company believes that the net proceeds from the sale of Common Stock
in the Company's initial public offering, together with cash balances, cash
generated from operations and borrowing available under its lines of credit,
will satisfy the Company's working capital and capital expenditure requirements
during fiscal year 1996 and the foreseeable period thereafter. In the longer
term, the Company may require additional sources of liquidity to fund future
growth. Such sources of liquidity may include additional equity offerings or
debt financings. Capital expenditures are typically made for computing
equipment, software, physical plant, and furniture and fixtures in order to
seek enhancements in the productivity of the Company's employees and to support
growth.
In the normal course of business, the Company evaluates acquisitions of
businesses, products and technologies that complement the Company's business.
The Company has no present plans, intentions, understandings, commitments or
agreements, nor is it currently engaged in any negotiations, with respect to
any such transaction. However, the Company may acquire businesses, products or
technologies in the future.
10
<PAGE> 11
To the extent that any written or oral statement made by the Company,
including statements made herein, are deemed to be forward looking statements,
reference is made to the factors beginning on page 27 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, as filed with the
Securities and Exchange Commission, as important factors that could cause
actual results to differ materially from those in any such forward looking
statements.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Exhibits Description
<S> <C>
10.01 Development Agreement, dated as of January 2, 1996,
by and between U S WEST Advanced Technologies, Inc.,
U S WEST Communications Inc. and Carnegie Group, Inc.
(confidential treatment with respect to certain
information contained in this Exhibit has been
requested of the Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended).
10.02 Development Agreement, dated as of March 1, 1996,
by and between U S WEST Advanced Technologies, Inc.,
U S WEST Communications, Inc. and Carnegie Group, Inc.
(confidential treatment with respect to certain
information contained in this Exhibit has been
requested of the Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended).
27 Financial Data Schedule
Reports on Form 8-K
The registrant did not file any reports on Form 8-K during
the quarter ended March 31, 1996.
</TABLE>
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: May 14, 1996 CARNEGIE GROUP, INC.
/s/ DENNIS YABLONSKY
--------------------------------------
Dennis Yablonsky
President, and Chief
Executive Officer
/s/ JOHN W. MANZETTI
--------------------------------------
John W. Manzetti
Executive Vice President,
Chief Financial Officer and Treasurer
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description page number
<S> <C> <C>
10.01 Development Agreement, dated as of January 2, 1996,
by and between U S WEST Advanced Technologies, Inc.,
U S WEST Communications Inc. and Carnegie Group, Inc.
(confidential treatment with respect to certain
information contained in this Exhibit has been
requested of the Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended).
10.02 Development Agreement, dated as of March 1, 1996,
by and between U S WEST Advanced Technologies, Inc.,
U S WEST Communications, Inc. and Carnegie Group, Inc.
(confidential treatment with respect to certain
information contained in this Exhibit has been
requested of the Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended).
27 Financial Data Schedule
</TABLE>
14
<PAGE> 1
EXHIBIT 10.01
Confidential treatment with respect to certain information in
this Exhibit has been requested of the Commission pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The
bracketed portions of this Exhibit have been omitted from the
material filed in accordance with Rule 24b-2 and have been filed
separately with the Commission.
<PAGE> 2
DEVELOPMENT AGREEMENT NO. 19-001-96
SSAM ASSESSMENT
This Development Agreement is entered into on the 2nd day of
JANUARY, 1996 by and between U S West Advanced Technologies, Inc.,
a Colorado corporation ("USW-Technologies"), U S WEST Communications, Inc., a
Colorado corporation ("USW-Communications"), (hereinafter USW-Technologies,
USW-Communications and their Affiliates will be collectively referred to as
"Licensee"), and Carnegie Group, Inc., a Delaware corporation with a principal
place of business at Five PPG Place, Pittsburgh, PA 15222 ("CGI").
ARTICLE 1 - RECITALS
1.1 Licensee and CGI entered into a General License Agreement (the
"GLA") on December 17, 1992 in which the parties committed to enter into a
series of Artificial Intelligence ("AI") technology research, experimentation
and development agreements ("Development Agreements") over a period beginning
on the Effective Date, as defined in the GLA, and ending on the fourth
anniversary of the Effective Date.
1.2 Licenses and CGI now desire to enter into this Development
Agreement pursuant to which the parties, as contemplated by the GLA, will
commit to a project of specific research, experimentation and development as
stated herein.
NOW, THEREFORE, in consideration of the mutual covenants set forth in
this Development Agreement, Licensee and CGI agree as follows:
ARTICLE 2 - DEFINITIONS
2.1 Defined terms used in this Development Agreement shall have
the meanings set forth in Article 2 of the GLA, unless different meanings are
specifically set forth in this Development Agreement.
2.2 "Project" means the specific research, experimentation and
development which CGI will perform for Licensee under this Development
Agreement.
19-001-96 JANUARY 2, 1996
<PAGE> 3
2.3 "Project Description" means a detailed written description of
the Project, including but not limited to:
(a) any Deliverable Performance Specifications; and
(b) a listing which identifies and describes, as to
the Project:
(i) any Deliverables intended to be created in
the course of the Project; and
(ii) any Licensee Specific Technology intended
to be created in the course of the Project;
and
(iii) any Licensee Proprietary Information or
Licensee Confidential Information to be
made available to CGI in the course of
the Project; and
(iv) any Generic Research Technology intended to
be created in the course of the Project.
2.4 "Projected Cost" means that projected cost referred to in
Article 9 of the GLA and set forth in Article 5 hereof.
2.5 "Projected Date" means the projected date for completion of
the Project agreed upon by the parties and set forth in Article 6 hereof,
including any Agreed Completion Date.
ARTICLE 3 - EFFECT OF THE GLA
This Development Agreement is subject in all respects to the terms and
conditions of the GLA. Ownership of Generic Research Technology developed
hereunder is vested in U S WEST, in accordance with Article 3.3 of the GLA
and the payment of ALLIANCE rates by Licensee to CGI as provided in Exhibit 2,
attached hereto.
ARTICLE 4 - PROJECT DESCRIPTION
4.1 The Project Description is set forth in Exhibit 1 attached
hereto.
4.2 CGI shall use its best efforts to complete the Project in
accordance with the Project Description. Except for the warranties set forth
in Article 8 of the GLA regarding any Deliverable Performance Specifications
set forth in
19-001-96 JANUARY 2, 1996
<PAGE> 4
Exhibit 1 of this Development Agreement, CGI hereby disclaims any express or
implied warranty that all or any portion of the Project intended to be created
or developed pursuant to this Development Agreement will perform in accordance
with the Project Description or any other criteria.
ARTICLE 5 - PROJECTED COST; PAYMENT
5.1 CGI's Projected Cost for the Project is $ [ ]. An
itemized account of the Projected Cost including person-year rates applied as
Alliance, Technology and/or Co-Development Rates as defined in the GLA is set
forth in Exhibit 2 attached hereto. Modifications to the Projected Cost (and
any payments under Section 5.2) shall be governed by Sections 9.4 and 14.7 of
the GLA.
5.2 Licensee shall pay to CGI, in consideration for CGI's
performance of its obligations under this Development Agreement, the sum
of $ [ ] in accordance with the payment schedule set forth in Article 5
of the GLA.
ARTICLE 6 - PROJECTED DATE
6.1 The Projected Date for completion of the Project is FEBRUARY
29, 1996. A time schedule listing projected dates for completion of interim
stages of the Project is set forth in Exhibit 3 attached hereto.
6.2 CGI shall use its best efforts to complete the Project by the
Projected Date. Except for the obligations set forth in Article 9 of the GLA
regarding any Agreed Completion Date set forth in Exhibit 3 of this Development
Agreement, CGI hereby disclaims any express or implied warranty that all or any
portion of the Project intended to be created or developed pursuant to this
Development Agreement will be completed on any date certain, including the
Projected Date.
ARTICLE 7 - TERMS OF DELIVERY AND RISK OF LOSS
7.1 CGI will deliver, at its expense, to Licensee any Deliverables
and Licensee Specific Technology in accordance with the Exhibits hereto.
19-001-96 JANUARY 2, 1996
<PAGE> 5
7.2 CGI will bear the risk of loss or destruction of such
Deliverables and Licensee Specific Technology until the delivery of such items
to Licensee at the location designated by Licensee. For the purposes hereof,
"delivery" shall mean physical delivery to a facility and shall not include
installation.
ARTICLE 8 - INSTALLATION
8.1 CGI will provide, at Licensee's request and expense, technical
assistance to Licensee sufficient for the proper installation of Deliverables
and Licensee Specific Technology in Licensee facilities. Such assistance may
include, if deemed necessary by Licensee, the presence of one or more CGI
employees at Licensee facilities to assist in such installation. Licensee will
pay, in accordance with the GLA, travel, room and board expense incurred by
such employees of CGI.
8.2 Licensee will bear the risk of loss or destruction of the
Deliverables, Licensee Specific Technology or any other items delivered to
Licensee facilities during and after installation.
ARTICLE 9 - OPERATIONAL TRAINING
CGI will provide, in accordance with Article 6 of the GLA, adequate
training to no more than 0 Licensee employees regarding the proper operation
and use of Deliverables, Licensee Specific Technology and Generic Research
Technology created in the course of the Project.
ARTICLE 10 - MAINTENANCE
CGI will perform maintenance and repair services on Deliverables,
Licensee Specific Technology and Generic Research Technology in accordance with
the GLA.
ARTICLE 11 - MODIFICATIONS AND AMENDMENTS
Any modifications to the Project or to this Development Agreement,
including but not limited to modifications to the Project Description, the
Projected Costs, or the Projected Date, to which the parties agree after the
date of execution of the Development Agreement, will be evidenced by a written
supplement to this Development Agreement executed by both parties.
19-001-96 JANUARY 2, 1996
<PAGE> 6
ARTICLE 12 - INTEGRATION
This Development Agreement, the Exhibits attached hereto and the terms
of the GLA set forth the entire and exclusive agreement and understanding of
the parties relating to the subject matter contained herein, and supersede all
prior and contemporary discussions. Neither party will be bound by any
definition, condition, warranty or representation except as expressly set forth
in this Development Agreement or the GLA or as subsequently set forth in
writing signed by authorized representatives of each party.
IN WITNESS WHEREOF, Licensee and CGI have executed this Development
Agreement in duplicate by their respective authorized representatives.
CARNEGIE GROUP, INC. LICENSEE
BY: /s/ DENNIS YABLONSKY BY: /s/ CAT REUSSWIG
-------------------- ------------------
TITLE: President/CEO TITLE: Director
-------------------- ------------------
19-001-96 JANUARY 2, 1996
<PAGE> 7
EXHIBIT 1
PROJECT DESCRIPTION
This agreement covers the consulting services to be performed by Carnegie
Group, Inc. for U S WEST in support of the Sales Support and Account
Management (SSAM) Assessment project and is the follow-on agreement to
Development Agreement 19-001-95. The objective of this assessment is to
develop an integrated sales support and account management strategy (i.e.,
systems approach) for Mass Markets to coordinate the efforts currently underway
to meet the needs of the sales consultants in the business centers.
[ ]
[ ]
[ ]
[ ]
19-001-96 JANUARY 2, 1996
<PAGE> 8
EXHIBIT 2
PROJECTED COST
The total cost of the work to be performed will be $ [ ] based on
estimated time and materials and 1995 actual and 1996 estimated travel
expenses. The 1995 actual travel expenses are a result of work that was
performed under the preceding Development Agreement 19-001-95 and have been
approved by U S WEST for deferral and payment under this Agreement.
U S WEST may, at its discretion, close the consulting project or the
involvement of CGI resources by providing a written notice to the CGI Program
Manager. If such an eventuality occurs, the respective resources will be given
a ramp down period of two weeks to find other work.
Estimated costs for the project are provided below. Note that the Alliance and
Volume discounts are subtracted from the standard time and material costs.
Total Time and Materials Costs [ ]
Less 5% Alliance Discount [ ]
Less 5% Volume Discount [ ]
Total Contract Engineering $[ ]
Estimated Travel [ ]
---------------- ---------
TOTAL PROJECT COSTS $[ ]
Additionally, we are providing the estimated hours by functional labor
category:
CATEGORY HOURS
- - ---------------------------------------------
Sr. Manager [ ]
- - ---------------------------------------------
Sr. Business Consultant [ ]
- - ---------------------------------------------
Business Consultant [ ]
- - ---------------------------------------------
Admin Support [ ]
- - ---------------------------------------------
CGI Total Hours [ ]
- - ---------------------------------------------
19-001-96 JANUARY 2, 1996
<PAGE> 9
EXHIBIT 3
SCHEDULE
The proposed work was initiated in 1995 under Development Agreement 19-001-95
and will be continued in 1996 with a continuation date of January 1, 1996 and
completion scheduled for no later than February 29, 1996.
19-001-96 JANUARY 2, 1996
<PAGE> 10
EXHIBIT 4
DELIVERABLES
CGI will provide two (2) detailed Analysis Reports to U S WEST, one each for
SBG and H&PS. The reports will detail the investigations, analysis,
requirements and recommendations for addressing the high priority needs of
each organization. The reports will include a mapping of the functional
requirements found during the analysis across Mass Markets to specific
applications: [ ] etc. The reports will also include an asset
evaluation of the [ ] and [ ] systems, and will incorporate the
recommended transition implementation steps to achieve the consolidation of
these systems.
Additionally, CGI will provide U S WEST with regular status updates in the form
of scheduled meetings that detail the efforts performed and the time consumed
to perform those efforts.
Other than these reports, CGI does not have any specific project deliverables
but is providing expertise on an hourly basis. Project deliverables are under
U S WEST direction.
19-001-96 JANUARY 2, 1996
<PAGE> 1
EXHIBIT 10.02
Confidential treatment with respect to certain information in
this Exhibit has been requested of the Commission pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The
bracketed portions of this Exhibit have been omitted from the
material filed in accordance with Rule 24b-2 and have been filed
separately with the Commission.
<PAGE> 2
DEVELOPMENT AGREEMENT NO. 35-001-96
CALL HANDLING / FRONT END SCREEN & ROUTE
This Development Agreement is entered into on the 1st day of March,
1996 by and between U S WEST Advanced Technologies, Inc., a Colorado corporation
("USW-Technologies"), U S WEST Communications, Inc., a Colorado corporation
("USW-Communications"), (hereinafter USW-Technologies, USW-Communications and
their Affiliates will be collectively referred to as "Licensee"), and Carnegie
Group, Inc., a Delaware corporation with a principal place of business at Five
PPG Place, Pittsburgh, PA 15222 ("CGI").
ARTICLE 1 - RECITALS
1.1 Licensee and CGI entered into a General License Agreement (the
"GLA") on December 17, 1992 in which the parties committed to enter into a
series of Artificial Intelligence ("AI") technology research, experimentation
and development agreements ("Development Agreements") over a period beginning
on the Effective Date, as defined in the GLA, and ending on the fourth
anniversary of the Effective Date.
1.2 Licenses and CGI now desire to enter into this Development
Agreement pursuant to which the parties, as contemplated by the GLA, will
commit to a project of specific research, experimentation and development as
stated herein.
NOW, THEREFORE, in consideration of the mutual covenants set forth in
this Development Agreement, Licensee and CGI agree as follows:
ARTICLE 2 - DEFINITIONS
2.1 Defined terms used in this Development Agreement shall have
the meanings set forth in Article 2 of the GLA, unless different meanings are
specifically set forth in this Development Agreement.
2.2 "Project" means the specific research, experimentation and
development which CGI will perform for Licensee under this Development
Agreement.
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 3
2.3 "Project Description" means a detailed written description of
the Project, including but not limited to:
(a) any Deliverable Performance Specifications; and
(b) a listing which identifies and describes, as to the
Project:
(i) any Deliverables intended to be created in the
course of the Project; and
(ii) any Licensee Specific Technology intended to be
created in the course of the Project; and
(iii) any Licensee Proprietary Information or Licensee
Confidential Information to be made available to
CGI in the course of the Project; and
(iv) any Generic Research Technology intended to be
created in the course of the Project.
2.4 "Projected Cost" means that projected cost referred to in
Article 9 of the GLA and set forth in Article 5 hereof.
2.5 "Projected Date" means the projected date for completion of
the Project agreed upon by the parties and set forth in Article 6 hereof,
including any Agreed Completion Date.
ARTICLE 3 - EFFECT OF THE GLA
This Development Agreement is subject in all respects to the terms and
conditions of the GLA. Ownership of Generic Research Technology developed
hereunder is vested in U S WEST, in accordance with Article 3.3 of the GLA and
the payment of Alliance rates by Licensee to CGI as provided in Exhibit 2,
attached hereto.
ARTICLE 4 - PROJECT DESCRIPTION
4.1 The Project Description is set forth in Exhibit 1 attached
hereto.
4.2 CGI shall use its best efforts to complete the Project in
accordance with the Project Description. Except for the warranties set forth
in Article 8 of the GLA
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 4
regarding any Deliverable Performance Specifications set forth in Exhibit 1 of
this Development Agreement, CGI hereby disclaims any express or implied
warranty that all or any portion of the Project intended to be created or
developed pursuant to this Development Agreement will perform in accordance
with the Project Description or any other criteria.
ARTICLE 5 - PROJECTED COST; PAYMENT
5.1 CGI's Projected Cost for the Project is $ [ ]. An
itemized account of the Projected Cost including person-year rates applied as
Alliance, Technology and/or Co-Development Rates as defined in the GLA is set
forth in Exhibit 2 attached hereto. Modifications to the Projected Cost (and
any payments under Section 5.2) shall be governed by Sections 9.4 and 14.7 of
the GLA.
5.2 Licensee shall pay to CGI, in consideration for CGI's
performance of its obligations under this Development Agreement, the sum of
$ * in accordance with the payment schedule set forth in Article 5 of the
GLA.
*represents time and material costs in accordance with Exhibit 2 of this
Development Agreement
ARTICLE 6 - PROJECTED DATE
6.1 The Projected Date for completion of the Project is September
6, 1996. A time schedule listing projected dates for completion of interim
stages of the Project is set forth in Exhibit 3 attached hereto.
6.2 CGI shall use its best efforts to complete the Project by the
Projected Date. Except for the obligations set forth in Article 9 of the GLA
regarding any Agreed Completion Date set forth in Exhibit 3 of this Development
Agreement, CGI hereby disclaims any express or implied warranty that all or any
portion of the Project intended to be created or developed pursuant to this
Development Agreement will be completed on any date certain, including the
Projected Date.
ARTICLE 7 - TERMS OF DELIVERY AND RISK OF LOSS
7.1 CGI will deliver, at its expense, to Licensee any Deliverables
and Licensee Specific Technology in accordance with the Exhibits hereto.
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 5
7.2 CGI will bear the risk of loss or destruction of such
Deliverables and Licensee Specific Technology until the delivery of such items
to Licensee at the location designated by Licensee. For the purposes hereof,
"delivery" shall mean physical delivery to a facility and shall not include
installation.
ARTICLE 8 - INSTALLATION
8.1 CGI will provide, at Licensee's request and expense, technical
assistance to Licensee sufficient for the proper installation of Deliverables
and Licensee Specific Technology in Licensee facilities. Such assistance may
include, if deemed necessary by Licensee, the presence of one or more CGI
employees at Licensee facilities to assist in such installation. Licensee will
pay, in accordance with the GLA, travel, room and board expense incurred by such
employees of CGI.
8.2 Licensee will bear the risk of loss or destruction of the
Deliverables, Licensee Specific Technology or any other items delivered to
Licensee facilities during and after installation.
ARTICLE 9 - OPERATIONAL TRAINING
CGI will provide, in accordance with Article 6 of the GLA, adequate
training to no more than 0 Licensee employees regarding the proper operation
and use of Deliverables, Licensee Specific Technology and Generic Research
Technology created in the course of the Project.
ARTICLE 10 - MAINTENANCE
CGI will perform maintenance and repair services on Deliverables,
Licensee Specific Technology and Generic Research Technology in accordance with
the GLA.
ARTICLE 11 - MODIFICATIONS AND AMENDMENTS
Any modifications to the Project or to this Development Agreement,
including but not limited to modifications to the Project Description, the
Projected Costs, or the Projected Date, to which the parties agree after the
date of execution of the Development Agreement, will be evidenced by a written
supplement to this Development Agreement executed by both parties.
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 6
ARTICLE 12 - INTEGRATION
This Development Agreement, the Exhibits attached hereto and the terms
of the GLA set forth the entire and exclusive agreement and understanding of
the parties relating to the subject matter contained herein, and supersede all
prior and contemporary discussions. Neither party will be bound by any
definition, condition, warranty or representation except as expressly set forth
in this Development Agreement or the GLA or as subsequently set forth in
writing signed by authorized representatives of each party.
IN WITNESS WHEREOF, Licensee and CGI have executed this Development
Agreement in duplicate by their respective authorized representatives.
CARNEGIE GROUP, INC. LICENSEE
By: /s/ BRUCE RUSSELL By: /s/ DENNIS A. DEMPSEY
------------------ ---------------------
Title: EVP/COO Title: VP-IDA
------------------ ---------------------
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 7
EXHIBIT 1
PROJECT DESCRIPTION
INTRODUCTION
This agreement covers efforts to be performed by CGI from March 1, 1996 through
September 6, 1996 for U S WEST in support of the Call Handling/Front End Screen
& Route (FES&R) project. The overall Call Handling/FES&R project is being
undertaken by U S WEST to deliver two system deployments: Phase I in February
1996, which has been delivered, and Phase II in July 1996. The deliverables
covered by this agreement are in support of both the Phase I and Phase II
deployments, however because of the time period covered, most of the
deliverables are in support of the Phase II Deployment.
The Call Handling Project Scope was defined in a Memorandum from Rod Morgan,
Technologies Project Manager, Call Handling dated September 5, 1995 and is
attached for reference to this agreement. CGI used this memorandum and the
Functional Requirements: Call Handling Capabilities document dated October 5,
1995 to estimate this agreement. Any changes to the Project Scope or the
Functional Requirements would require Change Orders to this agreement.
CGI ROLES AND RESPONSIBILITIES
Based on the defined scope and deliverables and the architecture design and the
detailed design work that was done by CGI and U S WEST, the following roles and
responsibilities can be defined for the Call Handling Project:
CGI will be responsible for detail design, development, test (unit test and
component integration test), documentation, and delivery of the Routing
Engine. The specific modules that CGI will be responsible for include:
[ ]
[ ]
[ ]
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 8
[ ]
[ ]
[ ]
CGI will be responsible for the detailed design, development, test (unit
test and component integration test), documentation, and delivery of the
Verification/Validation Utilities. The five specific utilities that CGI
will be responsible for include:
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
CGI will be responsible for the engineering management of the CGI resources
and delivery management of the CGI deliverables.
CGI will be responsible for status reporting to U S WEST and participating
in status meetings.
CGI will be responsible for system support (problem tracking and
resolution) during the integration testing, the system testing, the
production and user acceptance testing, and the deployment tasks.
U S WEST ROLES AND RESPONSIBILITIES(1)
U S WEST will be responsible either directly or indirectly (from outside
vendors) for the design, development, testing, integration, documentation
and deployment of all other modules, including but not limited to:
____________________
(1) Some of the tasks involved in delivering the U S WEST Responsibilities
may be assigned to CGI in other Development Agreements, but are listed here to
clearly indicate that they are not in the scope of this Agreement.
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 9
AT&T VRU Interface
AT&T ACD/MIS Feed
AT&T ACD Upgrades-TN to ACD Set
VRU Hardware Upgrades
VRU Scripting
Data Models - Logical and Physical
Data Extract Programs for:
[ ]
[ ]
[ ]
[ ]
[ ]
Data Batch Load Programs/Conversion Programs for:
[ ]
[ ]
[ ]
[ ]
SYAD Tools
End-User Table Maintenance Tools - including Users Guide and
Consistency & Validation Rules, but excluding the
Verification/Validation Utilities supplied by CGI.
Setup and population of the databases including:
the development database
the unit test database
the integration test database
the system test database
the production test database
the production database
U S WEST will be responsible for assigning the full-time equivalent
engineers needed to take over the maintenance and support of the Routing
Engine and the Verification/Validation Utilities. CGI will transfer
the technology required to these engineers starting May 29, 1996.
U S WEST will be responsible for ordering, installing, and making available
the Development Environment (including HP and Sequent File Servers), the
Test Environments (unit, integration, system, and production test
environments), and the Production Environment in a timely manner.
U S WEST will assume overall project management responsibility.
U S WEST will be responsible for the Deployment Strategy and Deployment
Plan.
U S WEST will be responsible for the Operational Impact Analysis.
U S WEST will be responsible for defining the Change Control Methodology.
U S WEST will be responsible for defining the Call Flow Definitions and the
Current/New Process Definitions.
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 10
U S WEST will be responsible for porting the existing VRU Applications to
the new platforms.
U S WEST will be responsible for developing the Communications Plan.
U S WEST will be responsible for developing the Technical Trial Plan.
U S WEST will be responsible for scope and expectation setting with the
Clients.
U S WEST will provide Subject Matter Experts (SMES) for the CGI design and
development efforts, including expertise on tuning and programming on the
Sequent Platform, as well as Call Routing Expertise.
U S WEST will be responsible for the move of the Development Code to the
Test and Production Hosts.
U S WEST will be responsible for the management and implementation of the
System and Production Testing Processes.
U S WEST will be responsible for the management and implementation of the
Training Program for Call Handling, including both end-user and SYAD
training.
U S WEST was responsible for the completion of the Business Case and
obtaining the funding for the two phase delivery.
JOINT CGI AND U S WEST ROLES AND RESPONSIBILITIES
CGI will share the responsibility of managing the Clients expectations in
all meetings by presenting perceived changes in direction or scope to the
Call Handling Project Manager.
CGI will share the responsibility of establishing Acceptance Criteria and
Acceptance Test Plans for the Routing Engine and the overall system.
CGI will share the responsibility for developing the System and Production
Test Plans.
CGI will share the responsibility for producing the System Administration
Procedures and Documentation, specifically for the Routing Engine.
CGI will share the responsibility of installing all hardware and software
for the Routing Engine in all Environments.
CGI will share the responsibility of training the "trainers" on the System
Administration Functions for the Routing Engine.
CGI will share the responsibility of performance modeling and tuning of the
Routing Engine.
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 11
DETAILED PROJECT DESCRIPTION
This agreement covers efforts to be performed by CGI from March 1, 1996 through
September 6, 1996 for U S WEST in support of the Call Handling/FES&R project.
The deliverables involved are in support of both the Phase I and Phase II
Deliverables and are further described in Exhibit 4.
The work covered under this agreement will deliver software modules and
utilities that run on the specially configured Sequent and HP hardware. The
effort also includes the work necessary to integrate and test the CGI delivered
modules with the other hardware and software modules to be supplied by AT&T and
the U S WEST Project Team. The currently known dependencies, risks, and
assumptions associated with the integration of the CGI delivered modules with
the other hardware and software modules are specified in Exhibit 3 of this
agreement, which covers schedule and statement of work.
[ ]
A. [ ]
B. [ ]
C. [ ]
D. [ ]
E. [ ]
F. [ ]
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 12
EXHIBIT 2
PROJECTED COST
The total cost of the work to be performed will be $ [ ] based on
estimated time and materials. No travel is anticipated. Should travel become
a necessity for the project, U S WEST agrees to pay CGI travel expenses for
all pre-approved trips.
It is planned that U S WEST will provide the majority of the platforms and
software for the project work environment and CGI will work at the U S WEST
site. Because this reflects a cost savings benefit to CGI, a [ ]% Computer &
Facilities discount is included in the project costs. Work requiring platforms
and software outside of this environment will be requested by U S WEST. It is
planned that U S WEST will provide availability to the nonstandard items to CGI
for the duration of the project should any be required.
U S WEST may, at its discretion, close the project or the involvement of CGI
resources by providing a written notice to the CGI Program Manager. If such an
eventuality occurs, the respective resources will be given a ramp down period
of [ ] weeks to find other work. Upon completion of the [ ] week ramp down
period, U S WEST will be obligated to CGI for the time and materials expended
up to and including the [ ] week ramp down.
Estimated costs for the project are provided below. Note that the Alliance,
Volume, and Facilities discounts are subtracted from the standard time and
material costs. The Volume discount for this Agreement considers the project as
a whole and applies the costs from previously signed development agreement(s)
with this Agreement when calculating Volume discount.
<TABLE>
<S> <C>
Total Time and Materials Costs $ [ ]
Less [ ]% Alliance Discount [ ]
Less [ ]% Volume Discount [ ]
Less [ ]% Computer Facilities Discount [ ]
-------------------------------------- -------------
Total Contract Engineering $[ ]
</TABLE>
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 13
Additionally, we are providing the estimated hours by category:
<TABLE>
<CAPTION>
CATEGORY EST. 96
HOURS
<S> <C>
Sr. Manager [ ]
Manager [ ]
Sr. Engineer 2 [ ]
Sr. Engineer 1 [ ]
Engineer [ ]
Associate Engineer [ ]
-------------------------------------------------
CGI Total Hours [ ]
-------------------------------------------------
</TABLE>
Exhibit 3 contains a further breakdown of estimated costs per task. The
estimated costs provided in Exhibit 3 are based on Carnegie Group's best
estimates and are subject to change, based on the interdependent nature of the
tasks and the noted assumptions and dependencies in Exhibit 3.
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 14
EXHIBIT 3
SCHEDULE AND STATEMENT OF WORK
The following table summarizes the remaining Tasks, Schedule and the Estimated
Costs for the Carnegie Group (CGI) Deliverables for the Phase I Deployment that
are covered under this agreement. Tasks that are already completed and were
previously funded under Development Agreements: 35-001-95 and 35-002-95, are
darkly shaded. The Estimated Costs given below by task are based on Carnegie
Group's best estimates and are subject to change, based on the interdependent
nature of the tasks and the noted assumptions and dependencies in this exhibit.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
CGI TASKS Start Finish CGI Deliverables Estimated
Cost
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FES&R Phase I 1996 Release
-------------------------------------------------------------------------------------------------
DESIGN
-------------------------------------------------------------------------------------------------
Architecture Design 9/1/95 9/15/95 Arch Document
-------------------------------------------------------------------------------------------------
Detailed Design & Prototyping 9/1/95 9/29/95 Design Notes
-------------------------------------------------------------------------------------------------
CONSTRUCTION
-------------------------------------------------------------------------------------------------
Programming and Unit Test - V1 10/2/95 10/27/95 V1 Software
-------------------------------------------------------------------------------------------------
Demo to Client V1 11/10/95 11/10/95 Demonstration
-------------------------------------------------------------------------------------------------
Programming and Unit Test - V2 11/1/95 12/15/95 V2 Software
-------------------------------------------------------------------------------------------------
Demo to Client V2 12/15/95 12/15/95 Demonstration
-------------------------------------------------------------------------------------------------
Documentation 11/22/95 1/15/96 SysAdmin Guide
-------------------------------------------------------------------------------------------------
Integration Testing 11/15/95 1/5/96 Sys Test Release
-------------------------------------------------------------------------------------------------
TESTING
-------------------------------------------------------------------------------------------------
System Testing 12/18/95 2/13/96 Testing Support
-------------------------------------------------------------------------------------------------
User Acceptance Testing 2/14/96 3/1/96 Testing Support
-------------------------------------------------------------------------------------------------
Software Accepted 3/1/96 3/1/96 Acceptance
-------------------------------------------------------------------------------------------------
DEPLOYMENT
-------------------------------------------------------------------------------------------------
Production Build 3/1/96 3/14/96 Phase I Release $[ ]
-------------------------------------------------------------------------------------------------
</TABLE>
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------
Install Software 3/8/96 3/15/96 Installation Sup $[ ]
-------------------------------------------------------------------------------------------------
Train Trainees & SYADs 3/4/96 3/15/96 Training Support $[ ]
-------------------------------------------------------------------------------------------------
Begin Phase I Rollout 3/19/96
-------------------------------------------------------------------------------------------------
Support Phase I Deployment 3/1/96 Until Problem Tracking $[ ]
Phase II & Resolution
Rollout
(8/2/96)
-------------------------------------------------------------------------------------------------
Project End $[ ]
-------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes the current Work Plan and Schedule for the CGI
deliverables for the Phase II Deployment. Tasks that have already been
initiated under the previously funded Development Agreements: 35-001-95 and
35-002-95, are lightly shaded. The majority of the deliverables covered under
this agreement are included in this table.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
CGI TASKS Start Finish CGI Deliverables Estimated
Cost
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FES&R Phase II 1996 Release
-------------------------------------------------------------------------------------------------
DESIGN
-------------------------------------------------------------------------------------------------
Architecture Design Review 1/2/96 3/18/96 $[ ]
-------------------------------------------------------------------------------------------------
Detailed Design for Extensions 1/2/96 3/18/96 Design Notes $[ ]
-------------------------------------------------------------------------------------------------
CONSTRUCTION
-------------------------------------------------------------------------------------------------
Programming and Unit Test - V3 3/19/96 4/16/96 V3 Software $[ ]
-------------------------------------------------------------------------------------------------
Demo to Client V3 4/17/96 4/17/96 Demonstration $[ ]
-------------------------------------------------------------------------------------------------
Programming and Unit Test - V4 4/17/96 5/3/96 V4 Software $[ ]
-------------------------------------------------------------------------------------------------
Documentation 1/2/96 5/31/96 Sys Admin Doc $[ ]
-------------------------------------------------------------------------------------------------
Integration Testing 5/6/96 5/31/96 Sys Test Release $[ ]
-------------------------------------------------------------------------------------------------
Demo to Client V4 5/29/96 5/29/96 Demonstration $[ ]
-------------------------------------------------------------------------------------------------
TESTING
-------------------------------------------------------------------------------------------------
System Testing 5/29/96 6/28/96 Testing Support $[ ]
-------------------------------------------------------------------------------------------------
User Acceptance Testing 6/28/96 7/19/96 Testing Support $[ ]
-------------------------------------------------------------------------------------------------
</TABLE>
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 16
<TABLE>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Software Accepted 7/19/96 7/19/96 Acceptance
-------------------------------------------------------------------------------------------------
DEPLOYMENT
-------------------------------------------------------------------------------------------------
Production Builds 7/19/96 7/31/96 Phase II Releases $[ ]
-------------------------------------------------------------------------------------------------
Install Software 7/31/96 8/2/96 Installation Sup $[ ]
-------------------------------------------------------------------------------------------------
Train Trainees & SYADs 7/31/96 8/2/96 Training Support $[ ]
-------------------------------------------------------------------------------------------------
Begin Phase II Rollout 8/2/96
-------------------------------------------------------------------------------------------------
Support Phase II Release 8/2/96 9/6/96 Problem Tk & Res $[ ]
-------------------------------------------------------------------------------------------------
TRANSFER TECHNOLOGY 5/29/96 9/6/96 Technology Trans. $[ ]
-------------------------------------------------------------------------------------------------
Project End 9/6/96 $[ ]
-------------------------------------------------------------------------------------------------
</TABLE>
The following assumptions/dependencies were assumed in creating the above Work
Plans/Schedules and changes in the assumptions/dependencies may effect the
schedule, costs and deliverables listed in this agreement. CGI, when providing
their monthly project status reports, will identify issues and jeopardies that
are being caused by any of the following assumption/dependencies being
violated, and jeopardies will indicate that, unless the situation is resolved,
a change order to this agreement will have to be issued because of the
schedule/cost impacts.
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 17
ASSUMPTIONS/DEPENDENCIES
The Detailed Design for the CGI Module Extensions for the Phase II Routing
Engine Release can only be completed by March 18, 1996 if U S WEST provides
the client SMEs to detail and agree on the detailed functional requirements
by March 11, 1996.
The Development Environment: Sequent & HP machines, user ids, directory
structure, SCM tools, database structures and DDL, some data population,
desks, terminals, etc., must remain stable and available through out the
Phase II Development process.
Other modules/components not being developed/purchased by CGI must be in place
and configured by May 6, 1996, for the start date for the Integration
Testing. These include, but are not limited to: [ ] and new voice
scripts. It is assumed that Integration Testing will be done using the
Development Environment.
The system can not be released to System Test until it passes the Integration
Test (with zero critical problems) and it can not be released to Production
without first passing System Test and the User Acceptance Testing.
User Acceptance Testing takes place in the System Test Environment. The
development of the User Acceptance Test Plan and Criteria are the
responsibility of U S WEST and the Clients.
The System Test Environment must be established and made available by U S WEST
by May 29, 1996. Establishment of the Environment is the responsibility of
the U S WEST System Test Group.
The Production Data, [ ], must be specified and populated by U S
WEST by July 31, 1996 for Production Release.
The Production Environment must be established and made available by U S WEST
by July 31, 1996.
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 18
Test Plans, Environments, Scenarios and Test Data must be identified by U S
WEST and in place by the start of the Integration (5/6/96), User Acceptance
(6/28/96), and System Test (5/29/96) Phases. The Test Data and Scenarios
are the responsibility of the U S WEST Clients but will be shared by CGI.
The System Test Plan is the responsibility of the U S WEST System Test
Group.
The dates for the final production builds for both Phase I & II are dependent
on the dates that the U S WEST Project Manager sets for the start of each
phases deployment, which may be sometime after the software has been
accepted. CGI assumes that this date will be within two weeks after the
software is accepted.
Additional, specific CGI assumptions include:
The detailed design and prototyping tasks need to be completed before the
programming and unit testing tasks can begin.
Formal technology transfer from CGI to U S WEST will be done in parallel
to system and user acceptance testing and production support for the
Phase II Release. This requires that the U S WEST engineers who will take
over support and maintenance of the technology be brought on-board by May
29, 1996.
12. The Customer Access Experience Scripts and associating routing data need to
be specified for integration with the routing engine modules.
13. The Account Activity Module is dependant upon extracts from Legacy Systems.
([ ])
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 19
EXHIBIT 4
DELIVERABLES
The deliverables covered under this agreement are classified as Licensee
Specific Technology. It is not intended that any new Generic Research
Technology will be created in the course of this Project.
The following are the deliverables covered under this agreement for the Phase I
Deployment:
PHASE I DELIVERABLES
SOFTWARE
Routing Engine Software - Production Build
Routing Engine Software - Phase I Emergency Builds (if required)
SERVICES AND SUPPORT
User Acceptance Testing Support
Installation Support
System Administration Training Support
System Support (Problem Tracking & Resolution - Bug Fixes)
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 20
The following are the deliverables covered under this Agreement for the
Phase II Deployment:
PHASE II DELIVERABLES
SOFTWARE
Routing Engine Software - System Test Release
Routing Engine Software - User Acceptance Test Release
Routing Engine Software - Production Release
Routing Engine Software - Phase II Emergency Builds (if required)
DOCUMENTATION
Routing Engine Design Document/Notes Extension/Updates
Input/Review of System Admin Guide for Routing Engine
Unit/Component Integration Test Plan for Routing Engine
Input/Review to User Acceptance Test Plan
Input/Review to System Test Plan
SERVICES AND SUPPORT
V3 Client Demonstration
V4 Client Demonstration
Unit Testing
Integration Testing
Integration Testing Support
System Testing Support
Installation Support
User Acceptance Testing Support
System Administration Training Support
System Support (Problem Tracking & Resolution - Bug Fixes)
Technology Transfer to U S WEST
Operational Support
CH/FES&R 35-001-96 MARCH 27, 1996
<PAGE> 21
CGI will deliver one copy of each Deliverable to the appropriate U S WEST
Project Manager along with a letter to be mutually signed by the parties,
acknowledging delivery, receipt and acceptance of the Deliverable. If U S WEST
does not sign and return the letter or provide a written list of the items that
are not in compliance with the project specifications within ten (10) business
days after delivery, then the Deliverable shall be deemed accepted.
In addition, CGI will provide U S WEST with monthly status reports including
blue angels (tasks completed/delivered), issues (yellow status), and jeopardies
(red status), as well as the hours expended by month and to date on specific
task breakdowns. A monthly meeting between CGI and U S WEST will be held to
review the project status and discuss any proposed changes, including
functionality/scope changes that would necessitate a change order being written
against this agreement.
CH/FES&R 35-001-96 MARCH 27, 1996
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