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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 SEPTEMBER 30, 1997
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
CARNEGIE GROUP, INC.
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DELAWARE 25-1435252
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(State or other Jurisdiction of (I.R.S Employer Identification Number)
Incorporation or Organization)
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
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Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date:
CLASS OUTSTANDING AT OCTOBER 31, 1997
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Common Stock, $.01 par value 6,465,255
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FORM 10-Q
CARNEGIE GROUP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
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<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 and nine months ended
September 30, 1997 and 1996
Carnegie Group, Inc. and Subsidiaries 4
Consolidated Balance Sheets
Carnegie Group, Inc. and Subsidiaries 5
Consolidated Statements of Cash Flows
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about 15
Market Risks
PART 2 OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibit Index 18
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARNEGIE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
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SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Revenue
Software services--Unrelated parties $ 5,657,403 $ 5,317,571 $ 17,235,707 $18,396,585
Software services--Related parties 2,163,790 793,347 4,851,972 2,038,273
---------- ---------- ---------- ----------
Total software services 7,821,193 6,110,918 22,087,679 20,434,858
Software licenses 122,518 398,351 845,957 1,061,112
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Total revenue 7,943,711 6,509,269 22,933,636 21,495,970
---------- ---------- ---------- ----------
Costs and expenses:
Cost of revenue - Unrelated parties 3,669,785 3,454,845 11,292,810 12,064,410
Cost of revenue - Related parties 1,308,871 507,078 2,815,565 1,282,354
------------ ---------- ---------- ------------
Total cost of revenue 4,978,656 3,961,923 14,108,375 13,346,764
Research and development 505,140 346,868 1,255,686 814,158
Selling, general and administrative 2,108,397 1,671,435 6,046,420 5,822,321
---------- ---------- ---------- ----------
Total costs and expenses 7,592,193 5,980,226 21,410,481 19,983,243
---------- ---------- ---------- ----------
Income from operations 351,518 529,043 1,523,155 1,512,727
Other income (expense):
Interest income 179,743 153,011 512,619 451,701
Other income 6,749 7,931 19,347 20,729
Interest expense (3,242) (4,262) (10,295) (13,683)
---------- ---------- ----------- -----------
Total other income (expense) 183,250 156,680 521,671 458,747
---------- ---------- ---------- ----------
Income before income taxes 534,768 685,723 2,044,826 1,971,474
Income tax provision (212,678) (276,215) (812,980) (757,958)
---------- ----------- ---------- ----------
Net income $ 322,090 $ 409,508 $ 1,231,846 $ 1,213,516
---------- ---------- ------------ ------------
Earnings per share of common stock $ 0.05 $ 0.06 $ 0.18 $ 0.17
========== ========== ========= ==========
Weighted average number of common shares and 7,053,755 6,971,076 6,969,017 7,120,084
equivalents outstanding ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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CARNEGIE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1997 1996
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ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,841,553 $ 14,691,765
Accounts receivable 5,394,024 2,751,316
Accounts receivable from related parties 1,021,148 769,223
Accounts receivable--unbilled 2,012,664 3,660,765
Accounts receivable related parties--unbilled 968,649 188,302
Deferred income taxes 1,957,139 2,179,426
Other current assets 732,271 403,508
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Total current assets 25,927,448 24,644,305
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Property and equipment, net of accumulated
depreciation and amortization 2,726,594 2,046,415
Deferred income taxes 1,283,514 1,775,480
Long term notes receivable--from officer 325,000 0
Other assets 16,135 23,055
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Total assets $ 30,278,691 $ 28,489,255
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 1,094,907 $ 614,458
Payables to related parties 292,352 1,034,608
Accrued compensation 707,764 706,965
Advance billings and deferred revenue 2,091,210 1,101,221
Accrued rent 361,518 538,641
Other accrued liabilities 629,930 821,752
Obligations under capital leases--current
portion 167 33,242
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Total liabilities 5,177,848 4,850,887
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 20,000,000
shares authorized, 6,689,970 and
6,512,038 shares issued at
September 30, 1997 and December 31, 1996
respectively 66,900 65,120
Capital in excess of par value 31,612,929 31,384,080
Accumulated deficit (6,103,986) (7,335,832)
Treasury stock, 190,000 shares (475,000) (475,000)
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Total stockholders' equity 25,100,843 23,638,368
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Total liabilities and stockholders'
equity $ 30,278,691 $ 28,489,255
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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CARNEGIE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,231,846 $ 1,213,516
Adjustments to reconcile net income
to net cash (used in) provided
by operating activities:
Depreciation and amortization 937,908 698,989
(Gain) loss on sale of fixed assets 503 0
Deferred income taxes 714,253 661,952
Changes in working capital component:
Accounts receivable (994,607) 1,531,603
Accounts receivable - Related parties (1,032,272) (993,120)
Other assets (321,843) 144,153
Trade accounts payable 480,449 (568,524)
Payables to related parties (742,256) (37,772)
Accrued compensation 799 (211,810)
Accrued rent (177,123) (52,855)
Long term notes receivable--from officer (325,000) 0
Other accrued liabilities (125,058) 68,927
Advance billings and deferred revenue 989,989 75,981
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Net cash (used in) provided by
operating activities 637,588 2,531,040
Cash flows from investing activities:
Proceeds from the sale of fixed assets, net 1,000 --
Capital expenditures (1,619,592) (940,464)
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Net cash used in investing
activities (1,618,592) (940,464)
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Cash flows from financing activities:
Borrowings on line of credit -- --
Repayments on line of credit -- --
Principal payments under capital
lease obligations (33,075) (40,909)
Proceeds from sales of common stock, net 163,867 251,617
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Net cash (used in) provided by
financing activities 130,792 210,708
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Net change in cash and cash equivalents (850,212) 1,801,284
Cash and cash equivalents:
Beginning of period 14,691,765 12,394,588
End of period $ 13,841,553 $ 14,195,872
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
In the opinion of the management of Carnegie Group, Inc. (the "Company"),
these unaudited interim 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 and
nine month periods ended September 30, 1997. 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, 1996 as filed with the Securities and Exchange Commission.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share." SFAS No.
128 establishes new standards for computing and presenting earnings per share.
The Company is required to adopt the provisions of SFAS No. 128 for its
consolidated financial statements for the year ended December 31, 1997 and
subsequent interim periods. Upon adoption, the standard also requires the
restatement of all prior period earnings per share information presented.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components. The Company is required to
adopt the provisions of SFAS No. 130 beginning with its consolidated financial
statements for the three months ending March 31, 1998. SFAS No. 131 requires
certain disclosures about segment information in interim and annual financial
statements and related information about products and services, geographic areas
and major customers. The Company must adopt the provisions of SFAS No. 131 for
its consolidated financial statements for the year ending December 31, 1998.
The adoptions of SFAS No. 128, SFAS No. 130 and SFAS No. 131 are not
expected to have a material effect on the measurement of the Company's financial
position, results of operations or cash flows; the Company is reviewing possible
changes in disclosures that may be called for.
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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
user-centered, intelligent software technologies with clients' existing
computing infrastructures to automate and enhance complex business processes.
The Company performs business and technical consulting, custom software
development, and systems integration services to improve clients' productivity
and market position in two business areas: customer interaction; and logistics,
planning and scheduling. Within these areas, the Company targets its services to
clients in the financial services, government, manufacturing and
telecommunications 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 the United
States Transportation Command, U S WEST Communications, Inc., BellSouth
Telecommunications, Inc., U.S. Army, Caterpillar, Inc., First USA Bank, Highmark
Blue Cross Blue Shield and Philips Medical Systems.
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 at September 30,
1997 was $7.2 million, compared to $11.6 million at September 30, 1996 and $9.6
million at December 31, 1996. 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.
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COMPARISON OF QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30,
1996.
Revenue. Total revenue for the quarter ended September 30, 1997 was $7.9
million compared to $6.5 million for the quarter ended September 30, 1996, an
increase of $1.4 million or 22%. For the nine months ended September 30, 1997
revenue was $22.9 million compared to $21.5 million for the nine months ended
September 30, 1996, an increase of $1.4 million or 7%.
Total software services revenue for the quarter ended September 30, 1997
was $7.8 million compared to $6.1 million for the quarter ended September 30,
1996, an increase of $1.7 million or 28%. For the nine months ended September
30, 1997 software services revenue was $22.1 million compared to $20.4 million
for the nine months ended September 30, 1996, an increase of $1.7 million or 8%.
Revenue from software services-related parties was $4.8 million for the nine
months ended September 30, 1997 compared to $2.0 million for the nine months
ended September 30, 1996, an increase of $2.8 million or 140%. This increase was
primarily due to an increase in customer contact engagements for a
telecommunications industry client.
Revenue from software licenses was $123,000 for the three month period
ended September 30, 1997, compared to $398,000 for the same three month period
in 1996, a decrease of $275,000 or 69%. The decrease in software licenses in the
third quarter of 1997 when compared to 1996 was attributable to the failure to
close a certain major template license during the third quarter of 1997. Revenue
from software licenses was $846,000 for the nine months ended September 30, 1997
compared to $1,061,000 for the nine months ended September 30, 1996, a decrease
of $215,000 or 20%.
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 expenses. For the third quarter of 1997, total cost of revenue was
$5.0 million compared to $4.0 million for the third quarter of 1996, an increase
of $1.0 million or 25%. For the nine months ended September 30, 1997, total cost
of revenue was $14.1 million compared to $13.3 million for the nine months ended
September 30, 1996, an increase of $.8 million or 6%. The nine month increase
was primarily attributable to an increase in the number of software engineers
deployed on customer contact engagements. Cost of revenue-related parties was
$2.8 million for the nine months ended September 30, 1997 compared to $1.3
million for the nine months ended September 30, 1996, an increase of $1.5
million or 115%. This increase was primarily attributable to an increase in
customer contact engagements for a telecommunications industry client.
Research and Development. Research and development expenses for the quarter
ended September 30, 1997 were $505,000 compared to $347,000 for the third
quarter of 1996, an increase of $158,000 or 46%. For the nine months ended
September 30, 1997 research and development expenses were $1.2 million compared
to $.8 million for the nine months ended September 30, 1996, an increase of $.4
million or 50%. These increases were primarily attributable to continued
investment in template and methodology development.
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 $6.0 million for the nine months ended September 30, 1997 compared
to $5.8 million for the nine months ended September 30, 1996, an increase of $.2
million or 3%.
Other Income (Expense). Total other income for the third quarter of 1997
was $183,000 compared to total other income of $157,000 in 1996, an increase of
$26,000 or 17%. For the nine months ended September 30, 1997, total other income
was $522,000 compared to total other income of $459,000 for the same period in
1996, an increase of $63,000 or 14%. This income is primarily interest income
earned on the net
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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 $213,000 was recorded for
the third quarter of 1997 and $813,000 for the nine months ended September 30,
1997 based on the Company's estimate of the effective tax rate for the year.
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 positive
evidence of sustained profitability over the last three years and future income
expectations within the Company's three year strategic planning horizon against
the negative evidence of dependence upon a limited number of customers and other
uncertainties and has concluded that retaining a valuation allowance related to
net operating losses is no longer necessary.
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.
Net Income. Net income for the quarter ended September 30, 1997 was
$322,000 compared to $410,000 for the quarter ended September 30, 1996. This
decrease of $88,000 was due to the aforementioned decrease in software licenses
sold in the third quarter of 1997 when compared to 1996 which was attributed to
the failure to close a certain major template license.
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, and in part by
borrowing under available lines of credit. The Company has also funded its
operations through the net proceeds of the initial public offering of its Common
Stock consummated in December 1995.
During the first nine months of 1997 the Company generated $637,000 in
positive cash flow from operating activities, although overall, the Company had
a net use of cash amounting to $850,000. This negative cash flow was the result
of a substantial nine month investment of $1.6 million in capital expenditures.
In comparison, capital equipment spending for the nine months ended September
30, 1996 was $940,000.
The Company's net accounts receivable increased by $2.0 million for the
nine months ended September 30, 1997 which reflects increases in revenue.
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 $1.0 million for the nine
months ended September 30, 1997. Advanced billings and deferred revenue balances
will normally change from period to period. Any 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
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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 $3.5 million in place with PNC Bank, N.A. (the "Bank"). Borrowings
under this agreement are collateralized by accounts receivable. The line of
credit bears interest at the Bank's prime interest rate and the Bank charges a
0.15% fee per annum on the unused portion of that line of credit. The Bank's
prime interest rate was 8.50% at September 30, 1997 compared to 8.25% at
December 31, 1996. This agreement was amended on July 1, 1997 by extending the
expiration date to June 30, 1998. No borrowings were outstanding against the
line of credit at September 30, 1997 or December 31, 1996.
The Company believes that the current cash balances, together with cash
generated from operations and borrowing available under its line of credit, will
satisfy the Company's working capital and capital expenditure requirements
during fiscal year 1997 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share." SFAS No.
128 establishes new standards for computing and presenting earnings per share.
The Company is required to adopt the provisions of SFAS No. 128 for its
consolidated financial statements for the year ended December 31, 1997 and
subsequent interim periods. Upon adoption, the standard also requires the
restatement of all prior period earnings per share information presented.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components. The Company is required to
adopt the provisions of SFAS No. 130 beginning with its consolidated financial
statements for the three months ending March 31, 1998. SFAS No. 131 requires
certain disclosures about segment information in interim and annual financial
statements and related information about products and services, geographic areas
and major customers. The Company must adopt the provisions of SFAS No. 131 for
its consolidated financial statements for the year ending December 31, 1998.
The adoptions of SFAS No. 128, SFAS No. 130 and SFAS No. 131 are not
expected to have a material effect on the measurement of the Company's financial
position, results of operations or cash flows; the Company is reviewing possible
changes in disclosures that may be called for.
MATERIAL FACTORS AFFECTING THE COMPANY'S BUSINESS
The Company's business is subject to a number of risks and uncertainties
that could materially affect future results. To the extent that any of the
statements made in this report on Form 10-Q (including, without limitation,
statements with respect to growth in the Company's business and client
engagements) may be deemed to be forward-looking statements, or to the extent
that the Company or its representatives may in the future be deemed to make oral
forward-looking statements, the following is a list of important factors, among
others, that could cause actual results to differ materially from those
expressed in any such forward-looking statements:
Dependence Upon Limited Number of Clients. The Company has derived in the
past, and expects to derive in the future, a significant portion of its revenue
from a
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relatively limited number of major clients. For example, approximately 83%, 87%
and 80% of total software services revenue in the years ended December 31, 1996,
1995 and 1994, respectively, was derived from the Company's five largest clients
in each such period. In 1996, revenue from billings to each of the United States
Transportation Command, BellSouth Telecommunications, Inc. and Caterpillar Inc.
accounted for more than 10% of the Company's total revenue. In 1995, revenue
from billings to each of such customers and U S WEST Communications, Inc.
accounted for more than 10% of the Company's total revenue. The Company's
business depends in large part upon its ability to establish and maintain
relationships with a limited number of large clients. The loss of, or any
significant reduction in the services provided to, any existing major clients,
or the failure of the Company to establish and maintain relationships with new
major clients, would have a material adverse effect on the Company's business,
financial position and results of operations.
Project Risks. Many of the Company's engagements involve projects which are
critical to the operations of its clients' businesses and which provide benefits
that may be difficult to quantify. Moreover, many of these engagements are
significant to the Company, in that each may represent a significant portion of
the Company's total revenue. For example, the Company's ten largest engagements
accounted for approximately 76%, 68%, and 56% of total software services revenue
in the years ended December 31, 1996, 1995 and 1994, respectively. The Company's
failure or inability to meet a client's expectations in the performance of an
engagement could have a material adverse effect on the Company's business,
financial position and results of operations, including damage to the Company's
reputation that could adversely affect its ability to attract new business. In
addition, the Company's engagements generally are terminable by clients on short
or no notice. An unanticipated termination of a major engagement could require
the Company either to maintain under-utilized employees, resulting in a higher
than expected number of unassigned persons and concomitant lower utilization
rate, or to terminate such employees, resulting in higher severance expenses.
The Company must maintain a sufficient number of senior professionals to oversee
existing client engagements and to participate with the Company's sales force in
securing new client engagements; thus, professional staff expenses are
relatively fixed. Although the majority of the Company's contracts are performed
on a time-and-materials basis, some contracts are performed on a fixed-price
basis, exposing the Company to the risks of cost overruns and inflation.
Variability of Quarterly Operating Results; Future Operating Results
Uncertain. The Company has experienced significant quarterly and other
variations in revenue and operating results. Because the Company's business is
characterized by significant client concentration and relatively large projects,
the timing of performance for each client engagement can result in significant
variability in the Company's revenue and cost of revenue from quarter to
quarter. In addition, variations in the Company's revenue and operating results
occur as a result of a number of other factors, such as employee hiring and
utilization rates and the number of working days in a quarter. The timing of
revenue is difficult to forecast because the Company's sales cycle is relatively
long and may depend on factors such as the size and scope of assignments and
general economic conditions. Because a high percentage of the Company's
expenses, particularly employee compensation, are relatively fixed, a variation
in the timing of the initiation or completion of client engagements, especially
at or near the end of any quarter, can cause significant variations in operating
results from quarter to quarter and could result in quarterly losses. Future
revenue and operating results may vary as a result of these and other factors,
including the demand for the Company's services and solutions and the
competitive conditions in the industry. Moreover, much of the Company's revenue
from software licenses is realized upon the licensing of individual copies of
software, rather than in the course of a specific services engagement.
Accordingly, the timing of software license revenue can be difficult to predict
and may vary significantly from quarter to quarter. Many of the factors that
could result in quarterly variations are not within the Company's control. The
Company believes that quarter-to-quarter comparisons of its financial results
are not necessarily meaningful and should not be relied upon as an indication of
future performance.
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In addition, quarterly variations, together with the Company's dependence
upon a limited number of clients and the Company's experience of adverse
operating results in years prior to 1994, make it difficult for management to
engage in strategic planning that contemplates a horizon of more than three
years. Thus, income expectations beyond three years are viewed by management as
very uncertain, and management's past assessments of its ability to realize its
deferred tax asset through future taxable income have reflected this. Prior to
December 31, 1996, the Company's interim and annual financial statements
included a valuation allowance that was intended to reflect management's
estimation, in light of these and other risk factors, of the realizability of
its deferred tax asset. In determining the amount of any valuation allowance and
the possible need to adjust that amount, the Company weighs the negative
evidence of its dependence upon a limited number of clients and the other risks
described herein, on the one hand, against the positive evidence of recent
results and future expectations over its three-year planning horizon, on the
other hand. The Company then adjusts the valuation allowance, if any, to reflect
the portion of the deferred tax asset that the Company believes it will, more
likely than not, be unable to realize. Any valuation allowance that may be shown
on the Company's financial statements would reflect that the Company does not
believe that it is more likely than not to realize certain deferred tax assets.
Dependence on Key Management Personnel. The Company's success depends in
significant part upon the retention of key senior management and technical
personnel. The Company does not have employment agreements with any of its
personnel other than Dennis Yablonsky, its President and Chief Executive
Officer, nor does it maintain key man life insurance on any of its personnel.
The loss of one or more of its key management employees or the inability to
attract and retain other qualified management employees could have a material
adverse effect on the Company's business, financial position and results of
operations.
Attraction and Retention of Employees. Carnegie Group's business involves
the delivery of software development services and is labor-intensive. The
Company's success depends in large part upon its ability to attract, retain and
motivate highly skilled employees, particularly project managers, sales and
marketing personnel, engineers and other senior personnel. Qualified project
managers and engineers are in particularly great demand and are likely to remain
a limited resource in the foreseeable future. Although the Company expects to
continue to attract sufficient numbers of highly skilled employees and to retain
existing project managers, sales and marketing personnel, engineers and other
senior personnel for the foreseeable future, there can be no assurance that the
Company will be able to do so. The Company, like others in the information
technology services industry, is subject to a relatively high annual rate of
turnover in personnel. The loss of project managers, sales and marketing
personnel, engineers and other senior personnel could have a material adverse
effect on the Company's business, financial position and results of operations,
including its ability to secure and complete engagements. No project managers,
sales and marketing personnel, engineers or other senior personnel have entered
into employment agreements, other than Dennis Yablonsky, the Company's President
and Chief Executive Officer.
Management of Growth. Carnegie Group is currently experiencing a period of
growth which has placed, and could continue to place, a strain on the Company's
financial and other resources. The Company was founded in 1983 by computer
scientists at Carnegie Mellon University in Pittsburgh, Pennsylvania. The
Company was initially funded through equity investments and technology alliances
with Digital Equipment Corporation, Generale de Service Informatique, The Boeing
Company, Texas Instruments Incorporated, Ford Motor Company and U S WEST, Inc.
From January 1, 1994 through December 31, 1996, the size of the Company's staff
increased from 124 to 238 employees and independent contractors. In addition,
the Company has opened offices in Atlanta, Georgia and Fairview Heights,
Illinois since January 1, 1995. In order to manage any further growth in its
staff and facilities, the Company must continue to improve its operational,
financial and other internal systems, and to attract, train, motivate and manage
its personnel. If the Company is unable to manage growth effectively and new
personnel are unable to achieve anticipated performance levels,
- 12 -
<PAGE> 13
the Company's business, financial position and results of operations would be
adversely affected.
Competition. The information technology services market includes a large
number of participants, is subject to rapid change and is highly competitive.
The Company competes with and faces potential competition for client assignments
and experienced personnel from a number of companies that have significantly
greater financial, technical and marketing resources and greater name
recognition. Primary competitors include: the consulting practices of the "Big
Six" accounting firms; systems consulting and integration firms such as American
Management Systems, Inc. and Cambridge Technology Partners, Inc.; and the
professional services groups of large companies, such as International Business
Machines Corporation, Digital Equipment Corporation and AT&T Corporation. In
addition, clients may elect to use their internal information systems resources
to satisfy their needs for software development, systems integration and
technical consulting services, rather than using those services offered by the
Company. The Company also faces competition from organizations providing
outsourcing services to the information systems departments of existing and
potential clients. In addition, the information technology services market is
highly fragmented and is served by numerous firms; some of these firms compete
nationally and internationally, while others serve only their respective local
markets. While the Company has not experienced competition from foreign
providers of information technology services, there can be no assurance that the
Company will not experience such competition in the future. Carnegie Group has
targeted, and expects to continue to target, industries that are characterized
by business areas (such as customer interaction, and logistics, planning and
scheduling) to which the Company's services and technology are particularly
well-suited, and by participants who possess the financial resources and scale
of operations necessary to support the engagement of service providers such as
the Company. A growing number of professional services firms are seeking
engagements from that same client group. The Company believes that the principal
competitive factors in the information technology services industry include the
nature of the service offering, quality of service, timeliness, responsiveness
to client needs, experience with the client's industry and competitive
environment, technical expertise, access to replicable technology, such as
software templates, and price. The Company believes that its ability to compete
also depends in part upon a number of competitive factors outside its control,
including: the ability of its competitors to hire, retain and motivate project
managers, sales and marketing personnel and engineers; competitors' ownership of
or access to software and technology used by potential clients; the development
by others of software that is competitive with the Company's solutions and
services; the price at which others offer comparable services; and the extent of
competitors' responsiveness to customer needs.
While the information technology services market remains highly fragmented
and continues to be served by numerous firms, the Company notes that this market
has been subject to recent consolidation. Accordingly, the Company from time to
time considers possible acquisitions, consolidations and other strategic
alternatives. In addition, business combinations among the Company's
competitors may result in the creation of additional large information
technology service providers with greater financial, marketing and other
resources, than those of the Company.
Developing Market; Technological Advances. The market for client/server
software development services is continuing to develop. The Company's success is
dependent in part upon the acceptance of information processing systems
utilizing client/server architectures. While the Company believes that
corporations and government agencies will continue to accept the use of
client/server architectures, a decline in this trend could have a material
adverse effect on the Company's business, financial position and results of
operations. The Company's success will also depend in part on its ability to
develop software solutions that incorporate and keep pace with continuing
changes in advanced software technologies, evolving industry standards and
changing client preferences. There can be no assurance that the Company will be
successful in adequately addressing these developments on a timely basis or
that, if these developments are addressed, the Company will be successful in the
marketplace. The Company's failure to address these developments could have a
material adverse effect on the Company's business, financial position and
results of
- 13 -
<PAGE> 14
operations. In addition, there can be no assurance that products or
technologies developed by others will not render the Company's services
uncompetitive or obsolete.
Intellectual Property Rights. The Company's success is dependent in part
upon reusable software templates and other intellectual property. The Company's
business includes the development of custom software solutions in connection
with specific client engagements. Ownership of certain custom components of such
software is generally assigned to the client. The Company has licensed through
December 1997 certain custom software components developed in the course of an
engagement for a client. In addition, the Company also develops core software
technology and reusable software templates, often in the course of engagements
for clients, as well as object-oriented software components and certain software
"tools," which can be reused in software application development and which
generally remain the property of the Company.
The Company relies upon a combination of patent, trade secret,
non-disclosure and other contractual arrangements, and patent, copyright and
trademark laws, to protect its proprietary rights and the proprietary rights of
third parties from whom the Company licenses intellectual property. The Company
enters into confidentiality agreements with its employees, consultants, clients
and potential clients and limits access to and distribution of proprietary
information. There can be no assurance that the steps taken by the Company in
this regard will be adequate to deter misappropriation of proprietary
information or that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights.
Although the Company believes that its services and solutions (including
its reusable software templates) do not infringe on the intellectual property
rights of others and that it has all rights necessary to utilize the
intellectual property employed in its business, the Company is subject to the
risk of litigation alleging infringement of third party intellectual property
rights. There can be no assurance that third parties (including the parties for
whom the Company has been engaged to develop solutions, from which its reusable
software templates have been derived) will not assert infringement claims
against the Company in the future with respect to intellectual property utilized
by the Company now or in the future. Any such claims could require the Company
to expend significant sums in litigation, pay damages, develop non-infringing
intellectual property or acquire licenses to the intellectual property which is
the subject of asserted infringement.
- 14 -
<PAGE> 15
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
- 15 -
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS DESCRIPTION
10.01 Loan Agreement, dated as of September 11,
1997, between Dennis Yablonsky and
Carnegie Group, Inc.
10.02 Agreement No. 9700050785, effective as of
July 1, 1997, between U S WEST Business
Resources, Inc., as agent for various
U S WEST Companies, and Carnegie Group,
Inc. (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).
10.03 Schedule Number 230397, effective as of
July 21, 1997, to Agreement No. 9700050785
between U S WEST Business Resources, Inc.,
as agent for various U S WEST Companies, and
Carnegie Group, Inc. (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).
10.04 Schedule Number 230597, effective as of
August 18, 1997, to Agreement No. 9700050785
between U S WEST Business Resources, Inc.,
as agent for various U S WEST Companies, and
Carnegie Group, Inc. (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).
11.1 Statement regarding computation of per share earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the quarter
ended September 30, 1997.
- 16 -
<PAGE> 17
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: November 14, 1997 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
- 17 -
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NUMBER
- ----------- ----------- -----------
<S> <C> <C>
10.01 Loan Agreement, dated as of September 11,
1997, between Dennis Yablonsky and
Carnegie Group, Inc.
10.02 Agreement No. 9700050785, effective as of
July 1, 1997, between U S WEST Business
Resources, Inc., as agent for various
U S WEST Companies, and Carnegie Group,
Inc. (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).
10.03 Schedule Number 230397, effective as of
July 21, 1997, to Agreement No. 9700050785
between U S WEST Business Resources, Inc.,
as agent for various U S WEST Companies, and
Carnegie Group, Inc. (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).
10.04 Schedule Number 230597, effective as of
August 18, 1997, to Agreement No. 9700050785
between U S WEST Business Resources, Inc.,
as agent for various U S WEST Companies, and
Carnegie Group, Inc. (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).
11.1 Statement Regarding Computation
of Per Share Earnings
27 Financial Data Schedule
</TABLE>
- 18 -
<PAGE> 1
Exhibit 10.01
LOAN AGREEMENT
-------------------------------------
THIS AGREEMENT is made as of this 11th day of September, 1997, by and
between CARNEGIE GROUP, INC., a Delaware corporation (the "Company") located in
Pittsburgh, Pennsylvania, and DENNIS YABLONSKY, an individual residing at 682
Osage Road, Pittsburgh, Pennsylvania 15243 (the "Executive").
WHEREAS, to induce the Executive to become the President and Chief
Executive Officer of the Company, the Company entered into certain agreements
with the Executive, including a Signing Bonus Stock Option Agreement (the "Bonus
Agreement") and a Tax Offset Payments Agreement (the "Tax Agreement"), each
dated as of August 11, 1987; and
WHEREAS, on August 5, 1997, the Executive exercised the "Bonus Option"
as defined in, and granted pursuant to, the Bonus Agreement; and
WHEREAS, as a result of such exercise of the Bonus Option, the
Executive incurred liabilities for income and employment taxes; and
WHEREAS, the Company and the Executive desire that the Company loan to
the Executive a sum sufficient to enable the Executive to pay such tax
liabilities, all in accordance with the terms and conditions set forth herein;
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, and intending to be legally bound, the parties hereto
agree as follows:
ARTICLE 1
Loan
----------------
1.1 The Company hereby loans to the Executive the sum of $325,000
(the "Principal Sum"). The Principal Sum, together with interest compounded
annually at the rate of 6.39% per annum on the outstanding balance of the
Principal Sum, shall be repaid in a single installment on August 31, 2002 (the
"Repayment Date"), provided, however, that the "Net Portion," as hereinafter
defined, of any Bonus Amount, as defined in, and payable to the Executive under,
the Tax Agreement shall, in lieu of being paid to the Executive, be credited
against the Principal Sum on each applicable Payment Date, as defined in the Tax
Agreement, and the Principal Sum shall be deemed to have been reduced by the Net
Portion of the Bonus Amount payable as of each applicable Payment Date. For the
purposes hereof, the term "Net Portion" shall mean that portion of the Bonus
Amount which remains after the Company has withheld all federal, state and local
taxes required to be withheld from the Bonus Amount. The Executive shall have
the
<PAGE> 2
right at any time and from time to time to prepay, without penalty or premium,
all or part of the outstanding Principal Sum or any interest accrued hereunder.
1.2 In the event that a "Change in Control" (as defined in the
Severance Agreement (the "Severance Agreement"), dated as of May 28, 1993, as
amended, between the Company and the Executive) occurs, any remaining Principal
Sum as of the date of the Change in Control, together with all accrued and
unpaid interest under this Agreement, shall be deemed to have been paid in full
and such Principal Sum and interest, from and after the date of the Change in
Control, shall no longer be payable by the Executive to the Company, nor shall
any Bonus Amounts, from and after the date of the Change in Control, be payable
by the Company to the Executive to the extent such Bonus Amounts (in the
aggregate) are less than such Principal Sum and interest which are deemed to
have been paid in full under this Section 1.2. If such Bonus Amounts exceed such
Principal Sum and interest, only such excess shall be paid by the Company to the
Executive when such Bonus Amounts otherwise would be payable.
ARTICLE 2
Certain Tax Payments
----------------------------------
2.1 In the event that, following a Change in Control, the tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Excise Tax"), or any similar tax, is imposed on the Executive, the Company
shall pay to the Executive an amount equal to the amount of the Excise Tax that
is imposed as a result of Section 1.2 hereof (calculated as set forth in the
last sentence of this Section 2.1), plus any applicable federal, state and local
income and employment taxes and any additional Excise Tax payable by or on
behalf of Executive as a result of the amounts payable under this Section 2.1
such that the total amount payable to Executive under this Section 2.1 equals
the Excise Tax imposed as a result of the provisions of Section 1.2 hereof plus
all applicable federal, state and local income and employment taxes and Excise
Tax payable by or on behalf of Executive on the total amount payable to
Executive under this Section 2.1. All such payments shall be made, in
immediately available funds, no later than twenty days following the Change in
Control. For the purposes of determining the Excise Tax attributable to this
Agreement by reason of the provisions of this Section 2.1, the provisions of
Section 1.2 shall be taken into account after all other payments made to the
Executive by the Company are taken into account in determining the total Excise
Tax liability of the Executive.
2.2 The determinations required under this Article 2 shall be made
by a nationally recognized accounting firm appointed by the Company (which shall
not be the same firm serving as auditor for the party effecting the Change in
Control). The Company shall bear the fees and expenses of the accounting firm
for such services, and shall direct the accounting firm to furnish its
determinations and supporting calculations to the Company and the Executive
within fifteen days following the Change in Control.
2.3 In the event that the Internal Revenue Service subsequently
requires the Executive to pay a greater amount of Excise Tax than the amount
paid to the Executive specifically for such
2
<PAGE> 3
Excise Tax under Section 2.1 hereof, the Company shall immediately reimburse the
Executive in an amount equal to any such additional Excise Tax and for the
federal, state and local income and employment taxes and Excise Tax payable as a
result of all amounts payable to Executive under this Section 2.3 such that the
total amount payable to Executive under this Section 2.3 equals such additional
Excise Tax plus all applicable federal, state and local income and employment
taxes and Excise Tax payable by or on behalf of Executive on the total amount
payable to Executive under this Section 2.3.
ARTICLE 3
Miscellaneous
--------------------------
3.1 This Agreement shall be binding upon and inure to the benefit
of the heirs and representatives of the Executive and the successors and assigns
of the Company. The Company shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
assets or stock, liquidation or otherwise), by agreement in form and substance
reasonably satisfactory to Executive, expressly to assume and agree to perform
this Agreement. Regardless whether such an agreement is executed, this Agreement
shall be binding upon any successor of the Company.
3.2 This Agreement contains the entire understanding between the
parties hereto with respect to the subject matter set forth herein, but in no
way supersedes (except as specifically set forth herein) the provisions of the
Bonus Agreement, the Tax Agreement, the Severance Agreement or any applicable
Employment Agreement or other agreement between the Executive and the Company.
This Agreement may be modified only by means of a written agreement signed by
both parties.
3.3 The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
3.4 This Agreement may be executed in several counterparts each of
which shall be deemed an original.
3.5 The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania.
3.6 All disputes and controversies arising out of or relating to
this Loan Agreement, or any breach thereof, will be settled by arbitration
administered by the American Arbitration Association in accordance with its
Commercial Arbitration Rules then in effect. An arbitral award will be final and
binding on both parties hereto and may be enforced by any court or judicial
authority having competent jurisdiction over either party or its assets against
whom the arbitral award is to be enforced.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
CARNEGIE GROUP, INC.
By: /s/ JOHN W. MANZETTI
--------------------------------------
Title: Executive Vice President
and Chief Financial Officer
---------------------------------------
/s/ DENNIS YABLONSKY
---------------------------------------
Dennis Yablonsky
4
<PAGE> 1
Exhibit 10.02
Confidential treatment with respect to certain information in this Exhibit has
been requested of the Securities and Exchange 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 material filed in accordance with Rule
24b-2 and have been filed separately with the Commission.
<PAGE> 2
Agreement No. 970050785
================================================================================
AGREEMENT
This Agreement is made by and between U S WEST Business Resources, Inc. with
offices for transaction of business located at 188 Inverness Drive West,
Englewood, CO 80112, as agent for the U S WEST Company(is) identified herein
("Customer"), and Carnegie Group, Inc. with offices for transaction of business
located at Five PPG Place, Pittsburgh, PA 15222 ("Supplier").
RECITALS
Customer and Supplier entered into a General License Agreement (the "1992 GLA")
on December 17, 1992, as amended, the term of which expires on July 1, 1997.
Customer and Supplier desire to terminate the 1992 GLA on and as of the
effective date, as hereinafter defined in Article 2, of this Agreement.
In consideration of the mutual covenants and agreements contained herein, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
================================================================================
GENERAL TERMS AND CONDITIONS
1. DEFINITIONS: The terms defined herein shall have the meanings set forth
below.
1.1 "Acceptance," if applicable, is defined in the Special Provisions Module(s).
1.2 "Agreement" means this written contract between Customer and Supplier,
including the General Terms and Conditions and all Special Provisions Modules,
together with Schedule(s), exhibits, any other attachments, Order(s), and
amendments to this Agreement.
1.3 "Confidential Information" is defined in Article 6.
1.4 "Customer" means U S WEST Communications Group, Inc. Customer shall also
have the right to designate Affiliate(s) who may purchase under this Agreement
as Customer, and such Affiliate(s) shall become additional Customer(s) under
this Agreement upon Customer's written notice to Supplier. For purposes of this
paragraph 1.4, "Affiliate" means any entity which directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, Customer. For purposes of this paragraph 1.4, "control"
means (i) in the case of corporate entities, direct or indirect ownership of
twenty percent (20%) or more of the stock or shares entitled to vote for the
election of the board of directors or other governing body of the entity; and
(ii) in the case of non-corporate entities, direct or indirect ownership of
twenty percent (20%) or greater of the equity interest.
1.5 "Deliver" ("Delivery") means Customer's receipt of Purchases at the
location specified in any Order(s) or in this Agreement.
1.6 "Documentation" means tangible or intangible information necessary for the
use, planning, engineering, installation, operation and maintenance of
Purchases, including but not limited to: Specifications, user manuals, test
data, flow charts, data file listings, loading and unloading procedures,
machine configuration information, programs, routines, subroutines, or related
information.
1.7 "Error" is defined in Article 1.4 of the Special Provisions Module--Software
License and Services.
1.8 "Liabilities" shall mean all liabilities, claims, judgments, losses,
orders, awards, damages, costs, fines, penalties, costs of defense, and
attorneys' fees.
1.9 "Order(s)" means a written or electronic offer by Customer which shall be
deemed to incorporate all provisions of this Agreement.
1.10 "Product(s) means those goods, supplies, materials, articles, items,
parts, components, assemblies, and the incidental associated Software, listed
and/or described in this Agreement or any
CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS
WHO HAVE A NEED TO KNOW.
<PAGE> 3
Agreement No. 970050785
Module(s), Schedule(s), Order(s) and/or other attachments to this Agreement.
1.11 "Purchases" means all Product(s), Software and/or Services described in
this Agreement, Module(s), or on Schedule(s), Order(s) and/or other attachments
to this Agreement.
1.12 "Schedule(s)' means a written instrument made part of this Agreement
describing such things as the Purchase(s), price, Specifications, warranty
terms and related shipping and delivery instructions.
1.13 "Services" means any work performed by or for Supplier under this
Agreement, including any deliverables resulting from or incidental to the
Services, as listed and/or described in this Agreement, Module(s), or any
Schedule(s), Order(s) and/or other attachments to this Agreement.
1.14 "Software" means computer programs as listed and/or described in this
Agreement, Module(s) or any Schedule(s), Order(s) and/or other attachments to
this Agreement, and the related Documentation. "Software includes, without
limitation, all versions and all updates, enhancements and corrections,
together with operating instructions, user manuals, training materials and
other Documentation. "Software" does not include source code or proprietary
design documentation, unless otherwise agreed to in writing by the parties.
1.15 "Special Provisions Module(s)" or "Module(s)" means, as applicable, the
Special Provisions Module-Software License and Services, and/or the Special
Provisions Module-Services, and/or the Special Provisions Module-Product(s),
and/or any other similar set of provisions which are attached to the General
Terms and Conditions and form part of this Agreement.
1.16 "Specifications" means technical, functional, operational and other
criteria and/or performance requirements for Purchases, in any medium, which
criteria and/or requirements are referenced in or made part of this Agreement,
and schematics, prototypes, models, Supplier's proposals and literature, and/or
Documentation furnished to Customer.
2. TERM: This Agreement shall be effective as of July 1, 1997 and shall
continue through June 30, 1999. This Agreement shall thereafter automatically
renew for successive periods of one (1) year each unless a party gives written
notice of intention to terminate at least one hundred twenty (120) days before
the end of any term, or this Agreement is terminated or canceled under Articles
21 or 22. The Special Provisions Modules, Schedules and/or other parts of this
Agreement may specify a different term(s) applicable specifically to that
portion of this Agreement. If any such specific term continues beyond this
Agreement, the General Terms and Conditions and other applicable provisions of
this Agreement shall continue to govern that portion of this Agreement.
3. INVOICES, PAYMENTS, SETOFF, TAXES:
3.1 Supplier shall issue invoices in the format required by Customer within
thirty (3) days following Delivery of Products or Software or completion of
Services, which itemize all charges, costs, taxes and Software license fees
separately. No term or condition of any invoice shall be binding upon Customer,
and Customer hereby objects to any terms inconsistent with or additional to the
terms and conditions of this Agreement.
3.2 Correct and undisputed amounts on invoices shall be paid within thirty (30)
days following receipt of the invoice and following Delivery of Products or
Software or completion of Services, unless otherwise provided in a Schedule or
other attachment. Notwithstanding the foregoing, payment shall not be due then
if on or before the due date Customer notifies Supplier of rejection or
non-Acceptance of Purchase(s). Disputed amounts on invoices shall be paid
within thirty (30) days after resolution of dispute. Supplier agrees to provide
to Customer reasonable supporting documentation concerning any disputed amount
within thirty (30) days after Customer notifies Supplier of the dispute.
3.3 Credits due to Customer may be applied against amounts owed to Supplier. If
no amounts are owned by Customer to Supplier, Supplier shall issue payment
within thirty (30) days of Customer's written request.
3.4 Payment shall not constitute Acceptance or approval of the Purchases or a
waiver by Customer of any right to require fulfillment of all terms and
conditions of this Agreement.
3.5 The act of submission of an invoice constitutes Supplier's certification
that all claims, liens and causes of action, if any, for the payment of wages
or salaries or the payment of charges for materials, tools, machinery or
supplies have been satisfied, released or settled. Customer reserves the right
before making payments to require Supplier to furnish sufficient evidence that
all claims, liens and causes of action have been satisfied, released or
settled. If satisfactory evidence is not furnished, the amount of such claims,
CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS
WHO HAVE A NEED TO KNOW.
<PAGE> 4
Agreement No. 970050785
liens and causes of action may be withheld from any monies otherwise payable to
Supplier hereunder until such evidence of payment or a bond to indemnify
Customer against any such claims, liens, and causes of action has been
furnished.
3.6 All claims for monies due from Customer shall be subject to deduction or
setoff by Customer for any claim arising out of any transaction with supplier.
3.7 All taxes imposed or based on the Purchase(s) and/or the fees and charges
for Purchase(s) which would be paid or payable by Supplier (excluding taxes
based on Supplier's income) shall be added to the invoice and paid by Customer.
4. RECORDS: Supplier shall maintain complete and accurate records of all
amounts billable to and payments made by Customer hereunder in accordance with
recognized accounting practices. Supplier shall retain such records for a
period of four (4) years from the date of payment for Purchases covered
thereby. During the terms of this Agreement and the respective periods in which
Supplier is required to maintain such records, Customer and its authorized
agents and representatives shall have access to such records for purposes of
audit during Supplier's normal business hours.
5. WARRANTIES:
5.1 Supplier warrants that it has all rights, title, and interest, free of all
liens and encumbrances, in and to all Product(s) and Software sold, leased or
licensed to Customer; except that for Software which is not owned by Supplier,
Supplier warrants that it has the right to grant the licenses granted
hereunder.
5.2 Supplier warrants that Purchases shall substantially conform in
all material respects to all descriptions, Specifications, statements of work,
representations, and other requirements set forth in this Agreement, Module(s),
Schedule(s) and/or any Order(s). Supplier further warrants it will use
commercially reasonable efforts to perform Services with promptness and
diligence to the reasonable satisfaction of Customer.
5.3 Any specific warranty provisions are set forth in the Special Provisions
Module(s) and/or Schedule(s).
5.4 Supplier represents and warrants that the Products and Software will
record, store, process, calculate and present calendar dates falling on and
after (and if applicable, spans of time including) January 1, 2000, and will
calculate any information dependent on or relating to such dates in the same
manner, and with the functionality, data integrity and performance, as the
Products and Software record, store, process, calculate and present calendar
dates on or before December 31, 1999, or calculate any information dependent on
or relating to such dates ("2000 Compliant"). Supplier represents and warrants
that the Products and Software (1) will lose no functionality with respect to
the introduction of records containing dates falling on or after January 1,
2000. Upon request by Customer, Supplier agrees to provide a test script to
validate that the Products and Software are 2000 Compliant. The warranties and
representations in this paragraph are not subject to any limited or specific
warranty periods in the General Terms and Conditions, or in any Special
Provisions, Module(s) and/or Schedule(s). Supplier shall have no responsibility
or liability for any Customer or third party products that present improper
date data or improperly process, store or calculate date data received from the
products provided by Supplier. However, the Software will be interoperable
from a date data perspective with third party products that are year 2000
Compliant.
5.5 Warranties will not be affected by removal, relocation, or resale of
Product(s), and warranties shall survive inspection, Acceptance and payment.
Warranties shall run to Customer, its agents, successors in interest, assigns
and customers.
5.6 If Supplier is not the manufacturer or licensor, or, with respect to
Software, the owner, Supplier shall obtain the same warranty as specified
herein from the manufacturer, licensor or owner, and the complete warranty will
pass to Customer. Supplier shall have primary responsibility for and shall
assist and cooperate with Customer in making claims under such warranty.
5.7 Subject to the provisions of this Section 5, Supplier shall promptly
correct or make good non-conforming Purchases, to the reasonable approval and
acceptance of Customer, at no cost to Customer. In the event an Error in the
Software is reported by Customer to Supplier and such Error causes the Software
to not conform to the provisions of Sections 5.2 or 5.3 hereof, then Supplier
shall take the applicable action as set forth below with regard to such Error.
5.7.1 Pursuant to Section 5.3 hereof, Supplier shall correct such Error in
accordance with any specific warranty provisions set forth in the Modules
and/or Schedules. If such Module and/or Schedule provide a time period in which
the Software or portion thereof associated with such Module and/or Schedule is
warranted and such time has not expired, but such Module and/or Schedule does
not provide a process for correcting Errors in the Software or portion thereof,
CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS
WHO HAVE A NEED TO KNOW.
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then Supplier shall correct such Errors in accordance with the Error correction
procedures set forth in the Schedule for Software Support and Maintenance
Services, or as otherwise agreed to by the parties.
5.7.2 If such Software or portion thereof in which the Error occurs is not
covered under any specific warranty provisions set forth in the Module and/or
Schedule and such Software or portion thereof in which the Error occurred was
delivered by Supplier to Customer within ninety (90) days of the date on which
Customer notified Supplier of such Error, then Supplier shall correct such
Error in accordance with the terms and conditions of the Schedule for Software
Support and Maintenance Services or as otherwise agreed to, at no charge to
Customer.
5.7.3 If (a) the Module and/or Schedule states that no warranty is provided for
the Software or portion thereof in which the Error occurred or the Software or
portion thereof is provided "AS IS," or (b) pursuant to Sections 5.7.1 or 5.7.2
above, the warranty period associated with the Software or portion thereof in
which the Error occurred has expired, then Supplier may, at it option, provide
a correction to the Error.
5.8 These Warranties are not sole and exclusive but are in addition to, and do
not limit, any rights afforded to Customer by this Agreement or as provided by
law.
6. CONFIDENTIAL INFORMATION
6.1 Confidential information shall mean any technical or business information,
including third-party information, marked as confidential or proprietary and
furnished, disclosed or made available in connection with this Agreement, in
any form or medium, by one party to the other, including, without limitation,
Specifications, prototypes, Software, models, drawings, marketing plans,
financial data and personnel statistics. Confidential Information in oral form
must be identified as confidential at the time of disclosure and confirmed as
such in writing within thirty (30) days of such disclosure. Confidential
Information does not include information which (1) the recipient knew or had in
its possession, prior to disclosure, without confidential limitations; (2) is
independently developed by the recipient without breach of this Agreement; (3)
becomes publicly available without breach of this Agreement; (4) is received
rightfully from a third party and without obligation of confidentiality; or (5)
is disclosed without restriction by the disclosing party. This Agreement shall
not be construed to limit Supplier's rights to independently develop or acquire
products without use of the Customer's Confidential Information. Further,
Supplier shall be free to use for any purpose the residuals resulting from
access to work with such Customer Confidential Information, provided that
Supplier maintain the confidentiality of the Customer Confidential Information
as provided herein. The term "residuals" means non-tangible skills which may be
gained by persons who have had access to the Customer Confidential Information,
including programming skills and techniques contained therein. Supplier shall
have no obligation to limit or restrict the assignment of such persons or to
pay royalties for any work resulting from the use of residuals. Supplier agrees
that such persons shall be bound by the confidentiality provisions of this
Agreement. However, the foregoing shall not be deemed to grant Supplier a
license under Customer's copyrights or patents.
6.2 If the parties deem it necessary and request to receive Confidential
Information from each other, the parties agree:
6.2.1 To maintain and use Confidential Information only for the purposes of
this Agreement and only as permitted herein. To only make copies as
specifically authorized and with the same confidential or proprietary notices
as are on the original.
6.2.2 To restrict access and disclosure of Confidential Information to their
employees, agents and contractors who have a "need to know" and who agree to
maintain confidentiality in accordance with this Article.
6.2.3 To treat Confidential Information as confidential for a period of three
(3) years from the date of receipt.
6.3 Confidential Information shall at all times remain the property of the
disclosing party. Upon request, Confidential Information shall be returned to
the disclosing party upon termination, cancellation or expiration of this
Agreement.
6.4 Except as may be required by applicable law, regulations, legal or agency
order, demand or process, neither party shall disclose to a third party any
Confidential Information or the contents of this Agreement without the prior
written consent of the other party. In the case of required disclosures, the
owner of Confidential Information shall, to the extent reasonably possible, be
given notice prior to the disclosure and an opportunity to seek an appropriate
protective order. The obligations of this Article shall be satisfied by
handling Confidential Information with the same degree of care which the
receiving party applies to its own similar confidential information but in no
event less than reasonable care. Customer's
CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS
WHO HAVE A NEED TO KNOW.
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Agreement No. 970050785
liability under this Article shall be subject to the same limitations as set
forth in Article 22.4. The obligations of this Article shall survive the
expiration, cancellation or termination of this Agreement.
7. OWNERSHIP:
7.1 "Work Product(s)" means all information, materials, products, Software,
drawings, specifications, reports, proposals, and any other items, and
inventions, discoveries, concepts and the like, in any medium, developed,
prepared or originated by or for Supplier specifically for Customer at
Customer's request in connection with Purchase(s) under this Agreement. Unless
otherwise expressly provided in application Schedule(s) or other attachments,
Work Product(s) shall be the property of Customer and Customer shall have all
right, title and interest in and to the Work Product(s), and they shall be
deemed to be works made for hire. Supplier hereby assigns to Customer all
rights, title and interest in and to those Work Product(s) which by law are not
considered to be works made for hire. All such items shall be considered
Customer's "Confidential Information" under this Agreement whether or not so
marked. If such Work Product(s) include materials previously prepared by
Supplier or a third party and not originally prepared for Customer in
connection with Purchase(s), Supplier hereby grants to Customer a non-exclusive
royalty-free, perpetual license to copy, use, disclose, modify and sublicense
such material for any lawful purpose. For portions of the Work Product(s) that
are provided by third parties, Supplier shall grant Customer a sublicense to,
or assist Customer in obtaining a license for, the portions of the Work
Product(s) provided by such third parties.
7.2 "Other Intellectual Property" means inventions, discoveries, improvements,
concepts, methods, processes, ideas, information, software, and other
intellectual property which is not deemed to be "Work Product(s)", but which is
originated, developed or prepared in connection with Purchase(s) under this
Agreement. Unless otherwise expressly provided in applicable Schedule(s) or
other attachments, "Other Intellectual Property" which is originated, developed
or prepared: (1) by employees of one party shall belong to that party; and/or
(2) jointly by employees of both parties shall belong jointly to both, and each
party hereby grants the other an unrestricted, non-exclusive, royalty-free,
perpetual license to copy, use, disclose and sublicense such jointly developed
Other Intellectual Property in connection with its business.
7.3 At the request and expense of Customer, Supplier will assist Customer and
sign all appropriate documents, during and after the term of this Agreement, to
enable Customer to obtain intellectual property protection for its interests in
Work Product(s) and/or Other Intellectual Property. Customer will, at the
request and expense of Supplier, provide the same assistance to Supplier with
respect to Other Intellectual Property owned by Supplier. The assisting party
will not charge any fees or other charges of any kind in connection with such
activities. Supplier shall obtain from its employees, consultants or other
representatives who perform work hereunder, appropriate assignments and/or
rights to ensure that Supplier is authorized to grant the rights provided to
Customer hereunder.
7.4 Neither party grants the other party any express or implied licenses under
any patents, copyrights or trademarks, except to the extent necessary for each
party to fulfill its obligations to the other under this Agreement.
7.5 Each party agrees to promptly notify the other party in writing upon the
discovery or learning by a party of a potential or actual infringement of any
intellectual property rights of the other party.
8. INDEPENDENT CONTRACTOR:
8.1 SUPPLIER WARRANTS AND AGREES THAT IT IS ENGAGED IN AN INDEPENDENT BUSINESS
AND THAT ITS EMPLOYEES AND AGENTS WILL PERFORM UNDER THIS AGREEMENT AS
INDEPENDENT CONTRACTORS AND NOT AS AGENTS OR EMPLOYEES OF CUSTOMER; AND THAT IT
WILL MAINTAIN COMPLETE CONTROL OVER PERFORMANCE BY ITS EMPLOYEES, AGENTS AND
SUBCONTRACTORS. CUSTOMER IS NOT LIABLE FOR DEBTS OR EXPENSES INCURRED BY
SUPPLIER, ITS EMPLOYEES, AGENTS AND SUBCONTRACTORS. NOTHING IN THIS AGREEMENT
OR ANY SUBCONTRACT SHALL CREATE ANY CONTRACTUAL RELATIONSHIP OR LIABILITIES
BETWEEN ANY AGENT OR SUBCONTRACTOR AND CUSTOMER. SUPPLIER SHALL BE RESPONSIBLE
FOR ITS OWN ACTS AND THOSE OF ITS AGENTS, EMPLOYEES AND SUBCONTRACTORS IN
CONNECTION WITH PERFORMANCE OF THIS AGREEMENT.
8.2 SUPPLIER WILL BE SOLELY RESPONSIBLE FOR ALL MATTERS RELATING TO PAYMENT OF
ITS EMPLOYEES, INCLUDING COMPLIANCE WITH WORKERS' COMPENSATION, UNEMPLOYMENT,
DISABILITY INSURANCE, SOCIAL SECURITY WITHHOLDING, AND ALL OTHER FEDERAL, STATE
AND LOCAL LAWS, RULES AND REGULATIONS GOVERNING SUCH MATTERS. SUPPLIER AND ITS
EMPLOYEES ARE NOT ENTITLED TO UNEMPLOYMENT INSURANCE BENEFITS AS A RESULT OF
PERFORMING UNDER THIS AGREEMENT UNLESS UNEMPLOYMENT COMPENSATION COVERAGE IS
PROVIDED BY SUPPLIER. SUPPLIER IS RESPONSIBLE FOR AND SHALL
CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS
WHO HAVE A NEED TO KNOW.
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Agreement No. 970050785
PAY ALL ASSESSABLE FEDERAL AND STATE INCOME TAX ON AMOUNTS PAID UNDER THIS
AGREEMENT.
9. SUBCONTRACTORS: Supplier shall obtain Customer's written consent, which
consent will not be unreasonably withheld, prior to subcontracting any
obligations hereunder. Such requirement shall not apply to purchases of
incidental, standard commercial supplies or raw materials.
10. PLANT AND WORK RULES: Each party while on the premises of the other shall
comply with all plant rules and regulations including, where required by
governmental regulation, submission of satisfactory clearance from the
appropriate governmental authorities.
11. INDEMNITY:
11.1 Supplier shall indemnify and hold harmless Customer, its owners, parents,
subsidiaries, affiliates, agents, directors and employees against all
Liabilities to the extent they arise from or it in connection with: (1) the
fault or negligence of Supplier, its officers, employees, agents,
subcontractors and/or representatives; and/or (2) failure by Supplier, its
officers, employees, agents, subcontractors and/or representatives to comply
with Article 19 "Compliance with Laws"; and/or (3) assertions under workers'
compensation or similar employee benefit acts by Supplier or its employees,
agents, subcontractors, or subcontractors' employees or agents.
11.2 Customer shall indemnify and hold harmless Supplier, its owners, parents,
subsidiaries, affiliates, agents, directors and employees against all
Liabilities to the extent they arise from or in connection with: (1) the fault
or negligence of Customer, its officers, employees, agents, subcontractors
and/or representatives; and/or (2) failure by Customer, its officers,
employees, agents, subcontractors and/or representatives to comply with Article
19 "Compliance with Laws", and/or (3) assertions under workers' compensation or
similar employee benefit acts by Customer or its employees, agents,
subcontractors, or subcontractors' employees or agents. Customer's liability
under this Article shall be subject to the same limitations as set forth in
Article 22.4.
12. PATENT, TRADEMARK, COPYRIGHT OR TRADE SECRET INDEMNIFICATION:
12.1 Supplier shall, at its expense, hold harmless, and defend Customer, its
owners, parents, subsidiaries, affiliates, agents, directors, and employees
against all Liabilities that arise from or in connection with any infringement
or claim of infringement of any patent, trademark, copyright, trade secret or
other intellectual property right, relating to the Purchases and/or the use
thereof. Customer may have its own counsel participate in the defense of any
such claim or action at its expense. Supplier shall not be liable for any
infringement where Purchase has been combined with another product or modified
by Customer or any third party without authorization and where the claim of
infringement would not have occurred but for such unauthorized combination or
modification. Customer agrees to notify Supplier promptly in writing of any
claim to permit Supplier to defend, compromise and settle such claim, and to
provide reasonable assistance to Supplier at Supplier's expense.
12.2 If any Purchase becomes, or in Supplier's reasonable opinion is likely to
become, the subject of a preliminary or final order or judgement against
Customer's use of any Purchase(s) due to such a claim of infringement, Supplier
shall, at its expense, either procure the right for Customer to continue using
such Purchase(s) or replace or modify the same so as to become non-infringing,
while remaining compatible, functionally equivalent and in conformity with the
requirements of this Agreement. If neither of the foregoing alternatives is
reasonably possible, Supplier shall refund to Customer an appropriate pro rata
portion of amounts paid pursuant to this Agreement and reimburse Customer for
all reasonable expenses of removal and replacement.
13. INSURANCE: Supplier shall, at all times during the term of this Agreement,
at its own cost and expense, carry and maintain at a minimum, the insurance
coverage listed below with insurers having a "Best's" rating of at least
B+XIII. Supplier shall not commence any work hereunder until Supplier has
fulfilled all insurance requirements herein. Supplier shall require its
subcontractors and agents to maintain the same insurance coverage listed below.
13.1 Workers' Compensation insurance with statutory limits as required in the
state(s) of operation; and providing coverage for any Supplier employee
entering onto Customer premises, even if not required by statute. Employers'
Liability or "Stop Gap" insurance with limits of not less than $100,00 each
accident.
13.2 Commercial General Liability Insurance covering claims for bodily injury,
death, personal injury or property damage occurring or arising out of the
performance of this Agreement, including coverage for independent contractor's
protection (required if any
CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS
WHO HAVE A NEED TO KNOW.
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Agreement No. 970050785
work will be subcontracted), premises-operations, products/completed operations
and contractual liability with respect to the liability assumed by Supplier
hereunder. The limits of insurance shall not be less than:
<TABLE>
<S> <C>
Each Occurrence $1,000,000.00
General aggregate Limit $2,000,000.00
Products-Completed
Operations Limit $1,000,000.00
Personal and Advertising
Injury Limit $1,000,000.00
</TABLE>
13.3 Errors and Omissions/Professional Liability insurance covering errors and
omissions of the Supplier with limits of not less than $1,000,000 per
occurrence and endorsed to provide coverage for contractual liability with
respect to liability assumed by Supplier hereunder. Such insurance shall
provide a retroactive date prior to the date of this Agreement and an extended
claims reporting period of not less than three (3) years after the termination
of this Agreement.
13.4 Comprehensive Automobile Liability Insurance covering ownership, operation
and maintenance of all owned, non-owned and hired motor vehicles used in
connection with the performance of this Agreement, with limits of at least
$1,000,000 per occurrence for bodily injury and property damage.
13.5 The insurance limits required herein may be obtained through any
combination of primary and excess or umbrella liability insurance. Supplier
shall forward to Customer certificates of such insurance upon execution of this
Agreement and upon any renewal of such insurance during the term of this
Agreement. The certificate(s) shall provide that (1) Customer (including all
participating affiliates) be named as an additional insured(s) as their
interest may appear with respect to this Agreement; (2) thirty (30) days prior
written notice of cancellation, material change or exclusions in the policy
shall be given to Customer; and (3) coverage is primary and not excess, or
contributory with, any other valid and collectible insurance purchased or
maintained by Customer.
13.6 Any additional or different insurance requirements shall be specified in
Module(s), Schedule(s) or Attachment(s) to this Agreement.
14. ADVERTISING; PUBLICITY: Neither party shall use the other party's names,
marks, codes, drawings or Specifications in any advertising, promotional
efforts or any publicity of any kind without the prior written permission of
such other party.
15. ASSIGNMENT:
15.1 This Agreement shall be binding upon the parties' respective successors
and permitted assigns. Neither party may assign or delegate this Agreement
and/or any of its rights and obligations hereunder without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
Any such attempted assignment shall be void. However, Customer may assign this
Agreement and delegate any of its rights and/or obligations hereunder to its
parents, Affiliates of its parents, or other Affiliates, without the consent of
Supplier. For purposes of this Section 15, the definition of "control" used in
Section 1.4 of this Agreement shall apply, except that the ownership level for
control shall be established at fifty percent (50%) rather than at twenty
percent (20%). Any assignment of amounts payable is void to the extent that it
attempts to impose on Customer obligations to the assignee, or to preclude
Customer from dealing solely and directly with Supplier in all matters under
this Agreement. Either party to this Agreement may transfer this Agreement to
the purchaser of all or substantially all of the assets or equity of such party
or to the surviving party of a merger or consolidation, and the transferring
party agrees to notify the other party to this Agreement upon the occurrence of
such transfer.
16. FORCE MAJEURE: Neither party shall be liable for failure to perform solely
caused by unforeseeable force majeure circumstances beyond their control
("Force Majeure"). If such circumstances occur, the party injured by the
other's inability to perform may elect to: (1) terminate this Agreement in
whole or in part; or (2) suspend the Agreement, in whole or in part, for the
duration of the Force Majeure circumstances; or (3) terminate any affected
Order(s) and delete the canceled quantity from its committed quantity for the
year in which the canceled quantity was to have been purchased. The party
experiencing the Force Majeure circumstances shall cooperate with and assist
the injured party in all reasonable ways to minimize the impact of such
circumstances on the injured party, including assisting in location and
arranging for substitute Purchases.
17. TIME IS OF THE ESSENCE: Performance according to the dates specified in
Schedule(s) is a significant and material term hereof.
18. WAIVER: The failure of either party to exercise any right shall not be
construed to be a waiver unless agreed upon in writing. A waiver in any one
instance will not constitute an amendment to this Agreement or
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WHO HAVE A NEED TO KNOW.
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Agreement No. 970050785
indicate any continued waiver of such right on any other occasion.
19. COMPLIANCE WITH LAWS:
19.1 Supplier shall obtain and maintain at its own expense all permits and
licenses and pay all fees required by law with respect to any Purchases and/or
performance of this Agreement. The parties shall, in connection with
performance of and Purchases under this Agreement, comply with all applicable
federal, state, and local laws, ordinances, rules, regulations, court orders,
and governmental or regulatory agency orders ("Laws"), including, without
limitation:
19.1.1 The Telecommunications Act of 1996 and all rules, regulations and orders
issued in connection with that Act and this Agreement shall, to the greatest
extent possible, be construed to be consistent with the same;
19.1.2 Laws relating to non-discrimination in employment, fair employment
practices, equal employment opportunity, employment opportunities for veterans,
non-segregated facilities, and/or employment of the disabled, except to the
extent a party is exempt therefrom; and the Laws and contract clauses required
by those Laws to be made a part of this Agreement are incorporated herein by
this reference;
19.1.3 The Laws referred to in Article 8 "Independent Contractor";
19.1.4 The U.S. Export Administration Laws, including without limitation, Laws
prohibiting the export or re-export of certain items to residents of countries
listed in Section 779.4(f), U.S. Export Administration Regulations (as
amended), unless properly authorized;
19.1.5 The Occupational Safety and Health Act of 1970 (as amended) and all
other Laws relating to safety and health, including applicable motor carrier
safety regulations. Supplier shall be solely responsible for its safety, the
safety of its employees, its subcontractors and agents, and its general work
area, and the safety of Purchases hereunder so that all Purchases comply with
safety and health Laws when used or performed. Supplier shall promptly remedy
any non-compliance and indemnify and hold Customer harmless from any penalty,
fine or Liabilities in connection therewith; and
19.1.6 The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 (as amended), and all other Laws relating to that Act, and all
other applicable environmental Laws, including Laws relating to hazardous
materials, asbestos or toxic items. Supplier shall furnish Customer with
Material Safety Data Sheets that comply with Laws and other environmental
compliance data requested by Customer and as may be applicable to Supplier.
19.2 The requirements of this Article 19 shall survive the expiration,
termination or cancellation of this Agreement. All provisions of this Article
shall also apply to all subcontractors and similar terms shall be included in
all Supplier's contracts with subcontractors.
20. SEVERABILITY: Any term or provision of this Agreement which is held to be
invalid, void, unenforceable or illegal will in no way affect, impair or
invalidate the remaining terms or provisions, which will remain in full force
and effect, consistent with the original intent of the parties. However, if
such provision is an essential element of the Agreement, the parties shall
promptly attempt to negotiate a substitute therefore.
21. TERMINATION OF AGREEMENT OR ORDER(S):
21.1 Customer shall have the right to terminate this Agreement and/or any
Order(s), in whole or in part, upon thirty (30) days written notice to
Supplier. Upon receipt of notice of termination, Supplier shall place no
further orders, terminate contracts, take such action as directed by Customer,
and cease work, all in accordance with Customer's notice.
21.2 Supplier's remedies for termination under this Article 21 shall be limited
to: (1) payment pursuant to the prices set forth in the Agreement for Purchases
properly performed or Delivered in accordance with this Agreement prior to
termination; and (2) partial payment for Purchases priced by flat fee based on
the percentage of proper completion in accordance with this Agreement at the
time of termination. Customer shall have no further liability to Supplier as a
result of the termination.
22. CANCELLATION OF AGREEMENT FOR DEFAULT:
22.1 Either party may cancel this Agreement and/or any Order(s), in whole or in
part, without liability, by giving written notice of breach or default if the
other (1) becomes insolvent, unable to pay debts when due, or the subject of
bankruptcy proceedings not terminated within thirty (30) days of any filing; or
makes a general assignment for the benefit of creditors; or if a receiver is
appointed for substantially all of its property; or (2) materially breaches or
defaults on its obligations under this Agreement and, if the breach or default
can be cured, fails to cure the breach or default within thirty
CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS
WHO HAVE A NEED TO KNOW.
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Agreement No. 970050785
(30) days after receipt of written notice to cure; or (3) commits breaches on
obligations other than payment, repetitively, or at least three separate
significant times within any four-month period. Customer may cancel any Order(s)
in whole or in part, without liability, if Supplier fails to Deliver conforming
Purchases under that Order on time. Customer shall promptly pay Supplier for all
Purchases completed and Accepted prior to cancellation.
22.2 If Services are being provided, Customer shall have the right to take over
and complete the Services at Supplier's expense.
22.3 If Customer cancels this Agreement and/or any Order(s) for Supplier's
default or breach, it shall be entitled to recover from Supplier all losses,
damages and expenses incurred as a result of Supplier's default or breach.
Supplier shall refund to Customer amounts previously paid for Purchases which,
due to such cancellation, cannot reasonably be used by Customer, and shall bear
all expenses for their removal and return. Supplier shall, at Customer's
option, promptly remove Purchases or bear the cost of removal. Supplier shall
restore or bear the expenses of restoration of Customer's property to its
original condition at the direction of Customer and refund to Customer all
monies previously paid for such Purchases.
22.4 If Supplier cancels this Agreement and/or any Order(s) for Customer's
default or breach, it ma recover from Customer reasonable expenses incurred as
a direct result of Customer's default or breach, which shall not exceed the
amounts which Customer has not yet paid under the terms hereof. Customer shall
not be liable for incidental, consequential or indirect damages, including but
not limited to lost profits or unallocated overhead.
22.5 Any cancellation by Customer under this Article which is set aside or
deemed wrongful will be deemed a termination under Article 21 "Termination of
Agreement or Order(s)" of this Agreement.
23. DISPUTE RESOLUTION:
23.1 Any claim, controversy or dispute which arises between the parties, their
agents, employees, officers, directors or affiliates ("Dispute") which the
parties are unable to settle through consultation and negotiation may be
mediated under the Commercial Mediation Rules of the American Arbitration
Association ("AAA") by a mutually acceptable mediator. Any Dispute which cannot
be resolved through negotiation or mediation shall be resolved by binding
arbitration as provided in this Article. The arbitrability of claims shall be
determined under the Federal Arbitration Act, 9 USC Secs. 1-16. Notwithstanding
the foregoing, the parties may cancel or terminate this Agreement in accordance
with its terms and conditions without being required to follow the procedures
set forth in this Article.
23.2 A single arbitrator engaged in the practice of law, who is knowledgeable
about the subject matter of this Agreement and the matter in Dispute, shall
conduct the arbitration under the rules of the AAA then in effect, except as
otherwise provided herein. The arbitrator shall be selected in accordance with
AAA procedures from a list of qualified people maintained by the AAA. The
arbitration shall be conducted in Denver, Colorado, and all expedited
procedures prescribed by the AAA rules shall apply. The laws of Colorado shall
govern the construction and interpretation of this Agreement. The arbitrator's
decision and award shall be final, conclusive and binding, and judgment may be
entered upon it in accordance with applicable law in any court having
jurisdiction thereof.
23.3 Either party may request from the arbitrator injunctive relief to maintain
the status quo until such time as the arbitration award is rendered or the
Dispute is otherwise resolved. The arbitrator shall not have authority to award
punitive damages. Each party shall bear its own costs and attorneys' fees, and
the parties shall share equally the fees and expenses of the mediator and
arbitrator.
23.4 If any party files a judicial or administrative action asserting claims
subject to arbitration, as prescribed herein, and another party successfully
stays such action and/or compels arbitration of said claims, the party filing
said action shall pay the other party's costs and expenses incurred in seeking
such stay and/or compelling arbitration, including reasonable attorneys' fees.
23.5 Supplier agrees that in the event of any Dispute between the parties, it
will continue to provide Purchases without interruption.
23.6 Supplier shall include in all contracts with its subcontractors provisions
similar to those in this Article 23, requiring that all disputes in any way
involving Customer shall be settled by binding arbitration.
24. SEVERAL LIABILITY AND JOINT DISCOUNTS: The term Customer as used herein may
be applicable to one or more parties and the singular shall include the plural.
If more than one party is referred to as Customer herein, then their
obligations and liabilities shall be
CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS
WHO HAVE A NEED TO KNOW.
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Agreement No. 970050785
several, not joint. Notwithstanding the foregoing, all Purchases under this
Agreement and/or related agreements shall be cumulative for purposes of
determining: (1) whether Customer has met any minimum purchase requirements; (2)
credits which may be applicable; (3) Customer's forecasts: (4) the level of
discount, if any, which shall apply to any Purchases; and (5) any other
requirements or incentives based upon the volume or amount of Purchases.
25. NONEXCLUSIVE AGREEMENT: It is expressly understood and agreed that this
Agreement does not grant to Supplier any exclusive privileges or rights and
Customer may contract with other suppliers for the procurement of comparable
Purchases. Customer makes no guarantee or commitment for any minimum or maximum
amount of Purchases hereunder.
26. REMEDIES CUMULATIVE: The remedies provided herein shall be cumulative and
in addition to any other remedies provided by law or equity.
27. LIMITATION OF LIABILITY: NEITHER PARTY IS LIABLE TO THE OTHER FOR ANY
CONSEQUENTIAL, INCIDENTAL, INDIRECT, PUNITIVE OR SPECIAL DAMAGES, INCLUDING
COMMERCIAL LOSS AND LOST PROFITS, HOWEVER CAUSED AND REGARDLESS OF LEGAL THEORY
OR FORESEEABILITY, WHICH DIRECTLY OR INDIRECTLY ARISES UNDER THIS AGREEMENT,
EXCEPT THAT THE PARTIES ARE LIABLE IN ACCORDANCE WITH THE PROVISIONS OF THIS
AGREEMENT AND THIS LIMITATION OF LIABILITY SHALL NOT APPLY TO THE FOLLOWING
PROVISIONS OF THIS AGREEMENT: (1) THE INDEMNIFICATION OBLIGATIONS, AND (2) THE
LIABILITY FOR PERSONAL INJURY AND PROPERTY DAMAGES, AND (3) LIABILITY UNDER
ARTICLE 19 "COMPLIANCE WITH LAWS" AND/OR ARTICLE 12 "PATENT, TRADEMARK,
COPYRIGHT OR TRADE SECRET INDEMNIFICATION."
28. SURVIVAL: The provisions of this Agreement that, by their sense and
context, are intended to survive performance by either or both parties shall
also survive the completion, expiration, termination or cancellation of this
Agreement.
29. AMENDMENTS: No change or modification of any terms or conditions herein
shall be valid or binding on either party unless made in writing and signed by
authorized representatives of both parties.
30. M/WBE SUBCONTRACTING PLAN: Support of Minority and Women Businesses is part
of Customer's ongoing business strategy. If required by Customer, Supplier
agrees and commits to subcontract in accordance with its subcontracting plan as
approved by Customer, and such subcontracting plan shall be incorporated herein
as an attachment to the General Terms and Conditions entitled "M/WBE
Subcontracting Plan".
31. ELECTRONIC DATA INTERCHANGE ("EDI"): It is Customer's objective to procure
Purchases utilizing EDI. If Supplier is EDI capable, Customer and Supplier
shall enter into a Trading Partner Arrangement to implement EDI transactions
and such arrangement will be incorporated herein as an attachment to the
General Terms and Conditions, entitled "Electronic Data Interchange."
32. ENTIRE AGREEMENT: Terms and Conditions and all Special Provisions Modules,
together with all incorporated Schedules, exhibits, Order(s), any other
attachments, and amendments, shall constitute the entire Agreement between the
parties. Any pre-printed terms and conditions on Order(s), acknowledgment
forms, or other forms or documents shall not apply and are objected to. This
Agreement supersedes all prior oral and written communications, agreements and
understandings of the parties with respect to the subject of this Agreement.
33. COUNTERPARTS: This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
34. AUTHORITY; JOINT PREPARATION: The parties represent and warrant that they
are duly authorized and have received all necessary consents to enter into this
Agreement, and that the signatories are duly authorized to bind the parties to
this agreement. Each party acknowledges that it has reviewed this Agreement and
participated in its preparation and understands the provisions of this
Agreement. This agreement and any ambiguous language shall not be construed
against either party for having prepared it.
35. SUPPLIER RELATIONSHIP: It is the parties' objective to support and
strengthen their working relationship to ensure performance and mutual
satisfaction under this Agreement. In support of this objective, the parties
may enter into and attach to the General Terms and Conditions as attachment,
entitled "Working Relationship."
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<PAGE> 12
Agreement No. 970050785
U S WEST BUSINESS RESOURCES, INC., SUPPLIER
AS AGENT FOR CUSTOMER
/s/ MARIAN RATHBUN /s/ BRUCE RUSSELL
- ------------------------------------- ---------------------------------------
(Authorized Signature) (Authorized Signature)
Marian Rathbun Bruce Russell
- ------------------------------------- ---------------------------------------
(Print or Type Name of Signatory) (Print or Type Name of Signatory)
Contract Agent EVP/COO
- ------------------------------------- ---------------------------------------
(Title) (Title)
6/27/97 7/1/97
- ------------------------------------- ---------------------------------------
(Execution Date) (Execution Date)
Approved By:
/s/ DAVID R. LAUBE
- -------------------------------------
(Authorized Signature)
David R. Laube
- -------------------------------------
(Print or Type Name of Signatory)
Vice President Chief Information Officer
- -------------------------------------
(Title)
6-27-97
- -------------------------------------
(Date)
CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS
WHO HAVE A NEED TO KNOW.
<PAGE> 13
Agreement No. 970050785
================================================================================
SPECIAL PROVISIONS MODULE--SOFTWARE LICENSE AND SERVICES
This Special Provisions Module--Software License and Services ("this Module")
is hereby attached to the General Terms and Conditions and is a part of
Agreement No. 9700050785, effective as of July 1, 1997, between U S WEST
Communications Group, Inc. ("Customer") and Carnegie Group, Inc. ("Supplier").
This Module is subject in all respects to the General Terms and Conditions,
except that in the event of a conflict between this Module and the Agreement,
the terms and conditions of this Module shall govern for the purposes of this
Module only. This Module establishes the terms and conditions under which
Customer may procure Software licenses and services from Supplier from time to
time pursuant to Schedule(s), Order(s) or other similar documents, in which the
parties may agree to non-pre-printed additional terms and conditions which
would apply for that Schedule or Order only. Any pre-printed terms and
conditions on such documents shall not apply and are objected to.
================================================================================
1. DEFINITIONS: In addition to the terms defined in the General Terms and
Conditions, the following capitalized terms used in this Module shall have the
following meanings for purposes of this Module only:
1.1 "Acceptance" (or "Accepted" or "Accept") is defined in Article 4 of
this Module.
1.2 "Customer" for purposes of this Module means U S WEST Communications,
Inc.
1.3 "Customer Specific Technology" shall mean that technology, including,
but not limited to, software, technical information, documentation and
know-how created under this Agreement or any Schedule(s) created or
performed by Supplier at Customer's request, except that Customer Specific
Technology shall not include any technology owned or licensed by Supplier
that was not created specifically for Customer pursuant to this Agreement.
Customer Specific Technology shall be deemed "Work Product" pursuant to
Article 7.1 of the General Terms and Conditions.
1.4 "Error" shall mean an error in the Software or a failure of the
Software to conform to the Specifications, which negatively impacts the
performance of Customer's operations. Errors can occur as (i) errors in
the Software or (ii) errors in the documentation.
1.5 "Jointly Owned Product" shall mean Other Intellectual Property, as
defined in the General Terms and Conditions, that the parties agree in the
Schedule(s) shall be owned jointly by both parties. The rights granted to
each party shall be as specified in Article 7.2 of the General Terms and
Conditions.
1.6 "Modifications" means changes, modifications, enhancements or
corrections to the Software performed by Supplier at Customer's request.
1.7 "Software" means, in addition to the items defined as Specifications
in the General Terms and Conditions, any Supplier Licensable Technology,
Standard Supplier Product(s), Modifications and/or Customer Specific
Technology.
1.8 "Specifications" means, in addition to the items defined as
Specifications in the General Terms and Conditions, the functional and
operational characteristics of the Software which may include, without
limitation, samples, results of benchmark testing, Supplier's
descriptions, drawings, and technical criteria, including physical,
operating, timing, maintenance, compatibility and modularity
characteristics.
1.9 "Supplier Licensable Technology" shall mean software in
machine-readable object code form and any related documentation provided
by Supplier that is proprietary to Supplier and related to the
experimentation, research and development of technology which Supplier has
created or acquired any right, title, or interest in, including, without
limitation, the right to sublicense , provided that Supplier Licensable
Technology shall not include Standard Supplier Products, Jointly Owned
Products, Customer Specific Technology and Customer Confidential
Information. Supplier Licensable Technology is identified in the
Schedule(s). The rights granted to Customer shall be the same as those
provided for Standard Supplier Product(s) as set forth in Article 2.1 of
this Module.
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Agreement No. 970050785
1.10 "Standard Supplier Products" shall mean software products in
machine-readable object code form which incorporate or otherwise require
the use of proprietary information of Supplier or a third party and which
are marketed or supported on a regular basis by Supplier without
Modifications and are identified in the Schedule(s).
2. SCOPE AND TERM OF LICENSE:
2.1 Supplier grants Customer a nonexclusive, perpetual license for the
Standard Supplier Product(s) ordered by Customer, from time to time, in
object code form, to use and make copies for its business with no right to
sublicense, unless otherwise specified in a Schedule, Order or other
writing by the parties. Title to Standard Supplier Product(s) shall remain
with Supplier. Supplier agrees that any licenses granted hereunder may be
extended to any Affiliate on the terms and conditions of this Agreement,
without additional royalty, license fee or other charge. Any such
Affiliate shall be added to this Module as an additional Customer. In
addition, Customer shall have the right to provide access, as Customer may
be required, pursuant to the Telecommunications Act of 1996 and Federal
and State rules, regulations and orders without charge.
2.2 Supplier grants to Customer a license to use and make copies of
Documentation for Software at no cost.
2.3 Copies shall retain Supplier's copyright notices and proprietary
markings. Customer may modify, correct or enhance Documentation and
training materials in any manner, and any such modifications, enhancements
and/or corrections and any related materials and documentation (and all
proprietary rights therein, including copyrights) shall belong exclusively
to Customer to the extent that the modifications, enhancements or
corrections do not embody any material proprietary to Supplier.
2.4 Customer may terminate this Module upon ninety (90) days written
notice to Supplier. Such termination, and/or cancellation or expiration of
the Agreement, shall not affect: (1) the licenses granted prior to the
effective date of termination; (2) the remaining term of any Software
Support and Maintenance Services; and/or (3) any obligations with respect
to escrow of Standard Supplier Product(s).
3. SOFTWARE SERVICES: Customer may elect to have Supplier perform certain
Services as set forth in a Schedule(s), Order(s) or other document, such as
Software installation, Support and Maintenance, training, evaluation,
Modification, Custom Development and/or consultation.
3.1 Custom Software Development Services: Supplier agrees to develop and
provide Customer Specific Technology along with related Documentation,
under terms and conditions as mutually agreed upon by the parties in
writing and as described in the Schedule(s) and/or Order(s) in accordance
with the requirements of the Agreement. Such Customer Specific Technology
shall be deemed to be Work Product(s) as described in Article 7
"Ownership" of the General Terms and Conditions, other than preexisting
work of Supplier or a third party. Supplier shall provide to Customer a
detailed written description of any preexisting works it desires to
incorporate into the Customer Specific Technology and/or Documentation and
obtain Customer's prior written consent ("Preexisting Works"). Customer
shall have, subject to the terms and conditions of this Module or any
Schedule, a fully paid-up license to use, reproduce, distribute, modify
and otherwise exploit the Preexisting Works which are incorporated in the
Customer Specific Technology and/or Documentation. Customer Specific
Technology shall be delivered to Customer in course (except as otherwise
provided in this Module) and object codes together with all programmers
comments and other relevant work products. Other than the ownership
provisions as set forth in this Section, the term "Customer Specific
Technology" shall be deemed to include Preexisting Works.
3.2 SOFTWARE SUPPORT AND MAINTENANCE SERVICES: For as long as Supplier
offers support and/or maintenance services for the Software or similar
software to any of its customers, Customer shall, at Customer's option and
expense, be entitled to receive such Services. Customer may request
Support and Maintenance Services in accordance with the applicable
schedule(s).
4. ACCEPTANCE:
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Agreement No. 970050785
4.1 ACCEPTANCE OF STANDARD SUPPLIER PRODUCT(S) AND SUPPLIER LICENSABLE
TECHNOLOGY: For Standard Supplier Product(s) and Supplier Licensable
Technology, "Acceptance" (or "Accept" or "Acceptable" or "Accepted") means
Customers acknowledgment that Standard Supplier Product(s) conforms to the
requirements of this Agreement. Acceptance shall be deemed to occur on the
earlier of: (1) the date Customer gives written acknowledgment, or (2)
passage of thirty (30) days after installation of such Software.
Notwithstanding the foregoing, Acceptance shall not occur upon the passage
of that time period if on or before the end of that period Customer
notifies Supplier of any material nonconformance with respect to Standard
Supplier Product(s), which must be in written form.
4.2 ACCEPTANCE OF CUSTOMER SPECIFIC TECHNOLOGY: Customer shall test
Customer Specific Technology upon installation according to the Acceptance
Test(s) described in the Schedule(s), Order(s) or other applicable
document(s). The Customer Specific Technology shall be deemed Acceptable
after successful completion of the Acceptance Test(s) and the
determination by Customer that the Customer Specific Technology are
substantially free from material error, operating in substantial
conformance with the Documentation Specifications and other requirements
as set forth in the Agreement. In the event of any material nonconformity,
revealed during the Acceptance Tests, Supplier shall promptly correct such
nonconformity. Supplier further agrees to provide support services during
Acceptance Test(s) at no expense to Customer, Other than reimbursement of
Supplier's expenses to extent allowed under this Agreement.
4.3 ACCEPTANCE OF DOCUMENTATION FOR MODIFICATIONS OF CUSTOMER SPECIFIC
TECHNOLOGY: Customer will review the Documentation delivered by Supplier
for errors or defects, for conformance to the terms of this Agreement,
including Specifications, and for consistency with the Software. Customer
shall have the later of forty-five (45) days following Acceptance of the
Software or delivery of all Documentation to Customer to complete such
review. Customer shall notify Supplier during this period if Customer
reasonably determines that revisions to the Documentation are required
under this Section. Supplier shall make such revisions and deliver the
revised Documentation within fifteen (15) days after notification, unless
Customer agrees in writing to a longer time period. If Supplier fails to
make such revisions, then Customer may in its sole discretion" (a) provide
in writing additional time to Supplier to make changes; or (b)
notwithstanding any earlier acceptance of the Software, terminate this
Agreement upon written notice to Supplier. Customer will return the
subject Software and Documentation upon receipt of the refund.
4.4 NON-ACCEPTANCE: In the event the Software and/or Documentation is not
Accepted by Customer, Supplier agrees to make any necessary corrections to the
Software and/or Documentation. Unless otherwise agreed, the corrected Software
and/or Documentation shall be delivered within fifteen (15) days after Customer
notifies Supplier that the Software and/or Documentation has not been Accepted
and the reasons for non-Acceptance. If the corrected Software and/or
Documentation still fails to pass the Acceptance test, Customer may, at its
option, terminate the applicable Schedule(s) and/or Order(s) in whole or in
part, effective immediately upon such notice, and shall receive reimbursement
of all payments made to Supplier, as set forth in the Schedule or Order and
required refunds of payments under the terminated Schedule(s) and/or Order(s)
within five (5) days following the termination notice.
5. OWNERSHIP: Each Schedule shall identify any Customer Specific Technology,
Standard Supplier Products, Supplier Licensable Technology, and/or Jointly
Owned Products. Unless otherwise agreed to in a Schedule, Customer shall own
exclusively, Customer Specific Technology and Modifications. Notwithstanding
the above, the parties may agree in writing signed by both parties, at any time
during the Schedule Term, to modify such ownership rights.
6. FEES AND CHARGES: All fees, charges and timing of payments shall be
specified in the Schedule(s), Order(s) or other applicable attachment,
according to the schedule of fees and discounts attached hereto as Exhibit 1.
Customer shall only be bound to pay the amounts specifically agreed to in
writing. Supplier must submit any rate increases to Customer no later than
October 1 for increases to be effective January 1 of the following year. No
single increase shall be greater than [ ] ([ ]%).
7. ESCROW: Supplier agrees that the entire source code for Standard Supplier
Product(s), together with all related listings and Documentation, as now exists
or
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<PAGE> 16
Agreement No. 970050785
hereafter becomes available including, without limitation, the then current
version(s) of Standard Supplier Product(s) being used by Customer ("Escrow
Materials") will, at Customer's option, be deposited, maintained and updated at
Customer's expense in escrow pursuant to an Escrow Agreement which may be
executed between the parties. Unless otherwise agreed, Supplier shall execute
the escrow agreement and deposit the Escrow Materials within thirty (30) days of
Customer's exercise of its option.
8. ADDITIONAL WARRANTIES:
8.1 In addition to all Warranties stated in the Agreement, Supplier
warrants that the Software shall operate substantially in accordance with
and conform to the requirements of this Agreement (including
Specifications) in all material respects. This warranty shall not be
voided by Customer's modification of the Software or combination of
Software with other software so long as Supplier can reasonably discharge
any warranty obligations notwithstanding such modifications or
combinations or, where required, following their removal by Customer and
restoration of the Software to the state as originally delivered by
Supplier to Customer. Supplier's warranty with respect to Software shall
be for the period set forth in the applicable Schedule ("Warranty
Period"). Supplier's obligation during the Warranty Period shall be as
specified in the Agreement.
8.2 Disabling Code. Supplier represents and warrants that to the best of
its knowledge no disabling code or devices are incorporated or present
within the Software at the time the Software is licensed by Supplier to
Customer.
9. WORK AUTHORIZATION: The parties agree that no work will commence under this
Agreement without a Schedule executed by the parties, or in the absence of such
schedule, the written approval of the Customer. Such written approval must be
signed by the Customer department or business unit head as appropriate for the
estimated cost of the work to be performed. In addition, such written approval
must state the time frame in which the parties agree to have the applicable
Schedule executed and in place. Supplier agrees that no invoices shall be
submitted until such Schedule has been executed.
10. NOTICES: All notices in connection with this Module, unless otherwise
specified, shall be addressed as set forth below and shall be deemed given: (1)
the second day after the day they are deposited with DHL, Federal Express,
Airborne or similar overnight courier, charges prepaid, return receipt
requested, with a confirming telefax; or (2) as of the day of receipt if they
are deposited in first class U. S. Mail, charges prepaid, return receipt
requested; or (3) as of the day of receipt if they are hand delivered:
Page 4 of 5
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<PAGE> 17
Agreement No. 970050785
SUPPLIER: CUSTOMER:
U S WEST Business Resources, Inc.
---------------------------------------
Carnegie Group, Inc. 188 Inverness Drive West
--------------------------------- ---------------------------------------
Five PPG Place Room 200
--------------------------------- ---------------------------------------
Pittsburgh, PA 15222 Englewood, CO 80112
--------------------------------- ---------------------------------------
ATTENTION: Contract Agent for Agreement
--------------------------------- ---------------------------------------
ATTENTION: Maria Wilkin No. 9700050785
--------------------------------- ---------------------------------------
TELEFAX: 412-642-6906 TELEFAX: 303-397-8862
--------------------------------- ---------------------------------------
Either party may change its notice
address or recipient by giving notice
to the other party of the change.
The parties intending to be legally bound have caused this Special Provisions
Module--Software License and Services to be executed by their duly authorized
representatives and shall be deemed effective as of July 1, 1997.
U S WEST BUSINESS RESOURCES, INC., SUPPLIER
AS AGENT FOR CUSTOMER
/s/ MARIAN RATHBUN /s/ BRUCE RUSSELL
- ------------------------------------- -----------------------------------------
(Authorized Signature) (Authorized Signature)
Marian Rathbun Bruce Russell
- ------------------------------------- -----------------------------------------
(Print or Type Name of Signatory) (Print or Type Name of Signatory)
Contract Agent EVP/COO
- ------------------------------------- -----------------------------------------
(Title) (Title)
6/27/97 7/1/97
- ------------------------------------- -----------------------------------------
(Execution Date) (Execution Date)
Approved By:
/s/ DAVID R. LAUBE
- -------------------------------------
(Authorized Signature)
David R. Laube
- -------------------------------------
(Print or Type Name of Signatory)
Vice President Chief Information Officer
- -------------------------------------
(Title)
6-27-97
- -------------------------------------
(Date)
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<PAGE> 18
Agreement No. 970050785
================================================================================
EXHIBIT 1
TO
SPECIAL PROVISIONS MODULE
SOFTWARE LICENSE AND SERVICES
PRICING:
Unless otherwise agreed to in a Schedule, the following hourly rates and
corresponding discounts shall apply:
================================================================================
HOURLY RATES:
--------------------------------------- --------------
Administrative Support $[ ]
--------------------------------------- --------------
Technical Support $[ ]
--------------------------------------- --------------
Technical Writer $[ ]
--------------------------------------- --------------
Sr. Technical Writer $[ ]
--------------------------------------- --------------
Associate Engineer $[ ]
--------------------------------------- --------------
Engineer/Knowl Engineer $[ ]
--------------------------------------- --------------
Sr. Eng I/Knowl Eng I $[ ]
--------------------------------------- --------------
Sr. Eng II/Knowl Eng II $[ ]
--------------------------------------- --------------
Sr. Eng III/Knowl Eng III $[ ]
--------------------------------------- --------------
Principal Engineer $[ ]
--------------------------------------- --------------
Proj Mgr/Bus Conslt $[ ]
--------------------------------------- --------------
Manager $[ ]
--------------------------------------- --------------
Sr. Manager/Sr. Bus Conslt $[ ]
--------------------------------------- --------------
DISCOUNT STRUCTURE:
As set forth in the table below, Supplier will apply a minimum discount rate to
prices for Supplier services within a Schedule, based on the total value of the
supplier's standard hourly rates before any discounts are applied (hereinafter
referred to as "Services Price"). Additionally and if applicable, Supplier will
apply a project volume discount based on a Schedule's Services Price or the
cumulative Services Price of related Schedules representing follow on work or
change orders to existing work in accordance with the table below. All
applicable discounts will be represented in each Schedule in accordance with
the following classifications:
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MINIMUM DISCOUNT [ ]% Applied to the Services Price
within each Schedule
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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Agreement No. 970050785
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PROJECT VOLUME DISCOUNT Services Price Volume Discount Individual Schedules will be
$[ ] - $[ ] [ ]% eligible for a project specific
$[ ] - $[ ] [ ]% discount, in addition to the
[ ]% Minimum discount, if the
$[ ] - $[ ] [ ]% Services Price within the
$[ ] - Schedule is [$ ] or more.
- ------------------------------- ------------------------------------------------- ----------------------------------
CUMULATIVE PROJECT VOLUME A new Schedule which represents
DISCOUNT direct follow on work to
previously executed Schedule(s)
(i.e., continuous work on one
project) or which represents a
change order thereto, will be
eligible for a Project Volume
Discount based upon the aggregate
price of the Services Prices of
the related Scheduled and change
order documents.
Qualification for the Cumulative
Project Volume Discount is based
on the following criteria, all of
which must be verified within each
applicable Schedule:
o continuous performance by the
Supplier and Customer project teams;
o the project must be scoped (as
mutually agreed) and classified as
a "follow on" effort;
o reference made to related
Schedule(s) and corresponding
Service Price which are included in
the aggregate Services Price for the
calculation of the Cumulative Project
Volume Discount.
====================================================================================================================
CUMULATIVE NET Cash Rebate of [ ]% of Cumulative Net billings Defined as cumulative billings
BILLINGS/REBATES at one or more dates mutually agreed to, for for work performed by Supplier
Cumulative Net Billings of $[ ] or more pursuant to Schedules under the
within a calendar year. Agreement on a calendar year
basis, with the exception of 1997
in which case the calendar year
will begin with the
</TABLE>
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Agreement No. 970050785
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
effective date of the Agreement
and end on December 31, 1997. Work
contacted and performed under the
terms and conditions of the General
License Agreement dated December
17, 1992 between the parties as
amended ("GLA") is independent and
exclusive of the Agreement and the
terms and conditions of this
Exhibit 1.
*Note: Cumulative Net Billings
include all billings pursuant to
the Schedules, i.e., Services,
Software and Maintenance. Expenses
that are billed at cost with no
markup, "Pass Through Expenses",
will be included in Cumulative Net
Billings up to a maximum of []%.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
*Note: Except for purposes of Rebates only, the discounts provided in this
Exhibit 1 to not apply to Supplier software license and maintenance fees,
travel related expenses or any Pass Through expenses.
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<PAGE> 21
[
PROJECT TITLE FINAL VERSION
SCHEDULE NUMBER "X"/(AGREEMENT NO.)
PROJECT TITLE
This Schedule Number "X", effective __________ issued pursuant to the General
Terms and Conditions of Agreement No. __________ dated June 30, 1997 between
U S WEST and Carnegie Group, Inc. ("CGI") including the Special Provisions
Module - Software License and Services dated June 30, 1997 (collectively, the
"Agreement") and is made a part thereto.
This Schedule contains the following sections:
1. Project Description
2. Schedule, Statement of Work and Deliverables
3. Projected Cost
This Schedule specifically overrides the terms and conditions of the Agreement
pursuant to "Exceptions/Definitions to the Agreement" in section 1.3 below. In
the event that such section 1.3 conflicts with the provisions of the Agreement,
the terms of section 1.3 shall control for purposes of this Schedule only.
In consideration of the mutual covenants and agreements contained herein, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. PROJECT DESCRIPTION
1.1 INTRODUCTION
This Schedule covers the services and deliverables to be provided by Carnegie
Group, Inc. for U S WEST in support of PROJECT TITLE. The work to be provided
by CGI represents a follow on effort to Schedule No. ___ OR represents a new
effort between the parties.
1.2 OVERVIEW
Describe project here.
1.3 EXCEPTIONS/DEFINITIONS TO THE AGREEMENT
The following exceptions and definitions apply to this Schedule:
(1) Standard Supplier Products: (any required definition and exceptions)
- --------------------------------------------------------------------------------
Schedule Number ___ Carnegie Group, Inc. and U S West 6/23/97
Proprietary and Confidential Page 1
<PAGE> 22
[
(2) Jointly Owned Product: (any required definition and exceptions)
(3) Supplier Licensable Technology: (any required definition and exceptions)
(4) Work Authorization: (reference to any previous agreement to start work
prior to signing this Schedule and any clarifications and exceptions)
(5) Special Rampdown provisions: (may need to take exception to subsec. 21.1
of the General Terms and Conditions)
(6) Services Warranty terms: (reference subsec. 5.3 for Services)
(7) Product Warranty term: (reference Special Provisions Module)
(8) Acceptance exceptions: (reference Special Provisions Module)
(9) Management of project resources:
(9.1) The CGI project manager assigned to this PROJECT TITLE has
exclusive control of and over the CGI resources on the project,
including but not limited to responsibility for staff assignment,
project team makeup, and transition of CGI resources either onto
or from a project. U S WEST may request the CGI project manager
to make changes relating to the CGI resources. CGI will respond
with consent or an objection to consent an reasons why consent
will be withheld; consent will not be unreasonably withheld.
(9.2) The CGI project manager and the U S WEST project manager have the
authority to mutually agree on the location, either at a U S WEST
site or CGI site, where each CGI resource may work during the
project, including an associated period of time, based on not
compromising the schedule and deliverables set forth in this
Schedule.
(10) Review of the Schedule
(10.1) The parties agree that the U S WEST team leader, the U S WEST
project manager and the CGI project manager will meet within the
first week after the effective date of this Schedule to review the
details of this Schedule, including but not limited to the
Exceptions to the Agreement provided above ("Review")
(10.2) The Review will occur more than once should a new U S WEST team
leader, U S WEST project manager or CGI project manager be
assigned by U S WEST or CGI respectfully to the PROJECT TITLE
after the initial Review, unless as otherwise mutually agreed by
the parties.
- --------------------------------------------------------------------------------
Schedule Number ___ Carnegie Group, Inc. and U S West 6/23/97
Proprietary and Confidential Page 2
<PAGE> 23
[
1.4 CGI ROLES AND RESPONSIBILITIES
The following activities (such as design, development, testing, documentation
and delivery of system, based on multiple tasks) are to be performed by CGI:
(1)
(2)
(3)
(4)
The following tasks (including details involved in the activities provided
above) are to be performed by CGI:
(1)
(2)
(3)
(4)
1.5 U S WEST ROLES AND RESPONSIBILITIES
The following activities (such as design, development, testing, documentation
and delivery of system, based on multiple tasks) are to be performed by U S
WEST:
(1)
(2)
(3)
(4)
1.6 JOINT CGI AND U S WEST ROLES AND RESPONSIBILITIES
(1)
(2)
(3)
(4)
- --------------------------------------------------------------------------------
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<PAGE> 24
[
1.7 SCOPE
Detailed specifications may be incorporated by reference for SEC purposes.
1.8 DELIVERABLES
Provide a high level description of the Deliverables here.
1.9 SUMMARY
The services and deliverables provided hereunder ... This Schedule covers
efforts to be performed from __________ through __________.
2. SCHEDULE, STATEMENT OF WORK AND DELIVERABLES
2.1 TASKS, SCHEDULE, AND DELIVERABLES
The following table summarizes the tasks, schedule and deliverables included in
this Schedule.
<TABLE>
<CAPTION>
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
TASKS RESPONSIBILITY START DATE END DATE DELIVERABLES
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
</TABLE>
2.2 ASSUMPTIONS
The above tasks, schedules and deliverables were developed based on the
following assumptions.
1. The schedule is based on a project start date of _____. Delays in
this start date may impact the delivery date of one or more
Deliverables.
2. The work estimates are based on CGI Methodology and past
experience. CGI will continuously monitor the status and notify
U S WEST of any issues or risk situations which may impact the
delivery date.
3. CGI has timely access to U S WEST personnel (i.e. SMEs). [Provide
details on when access is required/what information is required
of the SMEs/which and/or how many SMEs are required/under what
forum will the information be gathered by CGI, etc.]
4. U S WEST to provide a sponsor and project manager to act as the
liaison between the U S WEST project team and the CGI project
team.
- --------------------------------------------------------------------------------
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<PAGE> 25
[
5. Weekly status reports and meetings to be held between the U S
WEST project manager and the CGI project manager to measure
progress against the workplan. Any known issues and risks are
also discussed and raised to the next level if not resolved.
6. U S WEST to provide facilities, computer equipment, software,
etc., as requested by CGI.
7. Any delays in dependent tasks (i.e. U S WEST tasks) may impact
the delivery date of one or more Deliverables.
8. Change requests to be submitted using the CGI change process for
analysis to provide estimates, costs, and impact on current
deliverables. Signed approval in compliance with RPP 1001 is
required before implementation of any change requests.
2.3 DELIVERABLES
The table below provides a preliminary description of the deliverables.
<TABLE>
<CAPTION>
- ----------------------------------------------------------- --------------------------------------------------------
<S> <C>
DELIVERABLES DESCRIPTION
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------
</TABLE>
A copy of the deliverables will be provided to the appropriate U S WEST
recipients. The master copy will contain a letter to be mutually signed by the
parties acknowledging delivery, receipt and acceptance of the deliverables.
Should CGI not receive the signed letter or a written list of items which are
not in compliance with the project specifications within ten (10) business days
after delivery, then the Deliverables shall be deemed accepted.
2.4.1 DETAILED SCOPE ASSOCIATED WITH AFOREMENTIONED DELIVERABLES
3. PROJECTED COST
The total cost of the worknet of discounts shall not exceed _____ based on
estimated time and material expenses. Should travel be required, U S WEST
agrees to pay CGI travel expenses for all pre-approved trips.
OR
The total price shall not exceed _____ based on fixed pricing not including
travel and other expenses. [If project is fixed price, CGI will not provide any
hours, rates or discounts and this section would end here.]
- --------------------------------------------------------------------------------
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[
This Schedule represents OR does not represent a follow-on effort or a change
order effort. If it does, the following Schedule(s) and corresponding Services
Prices are included in the aggregate Services Price for the calculation of the
Cumulative Project Volume Discount in this Schedule. Estimated costs with
applicable discounts for the project are provided below.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ITEMIZATION OF COSTS AMOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
CONTRACT ENGINEERING COSTS (TIME AND MATERIALS)
LESS MINIMUM DISCOUNT AND ANY PROJECT VOLUME DISCOUNT
- --------------------------------------------------------------------------------------------------------------------
TOTAL CONTRACT ENGINEERING
- --------------------------------------------------------------------------------------------------------------------
CGI/THIRD PARTY LICENSE FEES
- --------------------------------------------------------------------------------------------------------------------
TRAVEL EXPENSES AND OTHER PASS-THROUGH EXPENSES
- --------------------------------------------------------------------------------------------------------------------
TOTAL SCHEDULE ESTIMATED PRICE
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Estimated hours are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CATEGORY ESTIMATED HOURS
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Manager(s)
Business Consultant(s)
Engineers(s)
Technical Writer(s)
- --------------------------------------------------------------------------------------------------------------------
TOTAL HOURS
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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<PAGE> 27
[
IN WITNESS WHEREOF, U S WEST and CGI agree and execute this Schedule in
duplicate by their respective authorized representatives.
CARNEGIE GROUP, INC. U S WEST
BY: BY:
------------------------------- --------------------------------
NAME: NAME:
----------------------------- ------------------------------
(printed) (printed)
TITLE: TITLE:
---------------------------- -----------------------------
DATE: DATE:
----------------------------- ------------------------------
U S WEST BRI
BY:
--------------------------------
NAME:
------------------------------
(printed)
TITLE:
-----------------------------
DATE:
------------------------------
- --------------------------------------------------------------------------------
Schedule Number ___ Carnegie Group, Inc. and U S West 6/23/97
Proprietary and Confidential Page 7
<PAGE> 1
Exhibit 10.03
Confidential treatment with respect to certain information in this Exhibit has
been requested of the Securities and Exchange 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 material filed in accordance with Rule 24b-2
and have been filed separately with the Commission.
<PAGE> 2
Technical/Functional Specification Development US WEST
Schedule No. One
SCHEDULE NUMBER "230397" / AGREEMENT NO. 9700050785
TECHNICAL/FUNCTIONAL SPECIFICATION DEVELOPMENT
This Schedule Number 230397 is effective July 21, 1997 and issued pursuant to
the General Terms and Conditions of Agreement No. 9700050785 dated June 30, 1997
between U S WEST and Carnegie Group, Inc. ("CGI") including the Special
Provisions Module - Software License and Services dated June 30, 1997
(collectively, the "Agreement") and is made a part thereto.
This Schedule contains the following sections:
1. Project Description
2. Schedule, Statement of Work and Deliverables
3. Projected Cost
This Schedule specifically overrides the terms and conditions of the Agreement
pursuant to "Exceptions/Definitions to the Agreement" in section 1.3 below. In
the event that such section 1.3 conflicts with the provisions of the Agreement,
the terms of section 1.3 shall control for purposes of this Schedule only.
In consideration of the mutual covenants and agreements contained herein, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. PROJECT DESCRIPTION
1.1 INTRODUCTION
This Schedule covers the services to be provided by Carnegie Group, Inc. for U S
WEST in support of TECHNICAL/FUNCTIONAL SPECIFICATION DEVELOPMENT project.
1.2 OVERVIEW
The CGI support team will provide hourly consulting services to U S WEST
Information Technologies (IT) to collectively recommend an approach to IT by
identifying the system requirements, the gaps, the risks and the solutions to
the U S WEST Long Distance, Inc. (LD)
Schedule Number 230397 Carnegie Group, Inc. and U S West 7/31/97
Proprietary and Confidential Page 1
<PAGE> 3
Technical/Functional Specification Development US West
Schedule No. One
business objectives. Then under IT direction, the CGI support team will
translate these into more detailed requirements for the project development
teams; work with the project development teams; and continue to be the liaison
between the project development teams, IT, and LD.
1.3 EXCEPTIONS/DEFINITIONS TO THE AGREEMENT
Not applicable to this Schedule.
1.4 CGI ROLES AND RESPONSIBILITIES
The following tasks are to be performed by CGI:
(1) Translate the LD service delivery business requirements into detailed
requirements.
(2) Actively monitor and work to promote billing and service delivery are in
synch with each other.
(3) Actively monitor and work to promote all service delivery areas (i.e.
service order, provisioning, trouble ticketing, fulfillment, etc.) are
also in synch with each other.
(4) Work with each area to promote the completion of their deliverables.
(5) Work with the development teams to assist them with their target to meet
schedule.
(6) Work with development teams on the best approach to develop their
solutions.
(7) Coordinate the development team's delivery of their tasks.
(8) Work with the development team on their systems solutions effort to
promote that the systems solutions support of the Service Delivery
Systems Integrated Plan.
1.5 U S WEST ROLES AND RESPONSIBILITIES
The following activities are to be provided by U S WEST IT:
(1) Provide subject matter expertise on U S WEST Long Distance, Inc. business
objectives/requirements as required by this project.
Schedule Number 230397 Carnegie Group, Inc. and U S West 7/31/97
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Technical/Functional Specification Development US West
Schedule No. One
(2) Specify any required documentation standards and formats that CGI is
required to follow.
(3) Provide project management and appropriate project sponsorship support
to aid CGI in gaining access to either IT or end user organizations
containing appropriate expertise.
(4) Manage scope and expectations with U S WEST Long Distance.
1.6 JOINT CGI AND U S WEST ROLES AND RESPONSIBILITIES
CGI and U S WEST are jointly responsible for the following activities:
(1) Hold periodic status meetings where schedule, progress, plans, and
issues are presented and action items are assigned for resolution.
(2) Meet with U S WEST Long Distance and market unit subject matter experts
for such meetings as requirements gathering and knowledge acquisition.
(3) Define the success criteria for the project.
1.7 SCOPE
Carnegie Group, Inc. will work as members of the U S WEST Information
Technologies detailed specifications development team as a part of the
Technical/Functional Specification Development project. The roles to be
performed are titled Technical Functional Coordinators and will be reporting to
a U S WEST site for the duration of the project. The tasks to be performed are
under U S WEST IT's direction and are identified in Section 1.4 of this
Schedule.
1.8 DELIVERABLES
o Identify system requirements, gaps, risks and potential solutions from
business requirements provided by U S WEST Long Distance.
o Translate high level business requirements into detailed requirements
and work with development teams to identify system requirements.
o Assist development teams in the development of technical designs.
o Provide detailed and accurate estimates based on input from development
teams.
o Work with development teams to monitor scheduled target dates.
Schedule Number 230397 Carnegie Group, Inc. and U S West 7/31/97
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Technical/Functional Specification Development US West
Schedule No. One
(All work is to be performed within a team environment and is comprised of U S
WEST IT and CGI resources.)
1.9 SUMMARY
Refer to the Overview in section 1.2 of this Schedule.
2. SCHEDULE, STATEMENT OF WORK AND DELIVERABLES
2.1 TASKS, SCHEDULE, AND DELIVERABLES
The tasks are defined in article 1 of this Schedule.
The Services provided hereunder cover efforts to be performed from July 21, 1997
through November 30, 1997.
2.2 ASSUMPTIONS
The above tasks, schedules and deliverables were developed based on the
following assumptions.
(1) CGI has timely access to U S WEST personnel (i.e. SMEs).
(2) U S WEST to provide a sponsor and project manager to act as the liaison
between the U S WEST project team and the CGI project team.
(3) Weekly status reports and meetings to be held between the U S WEST
project manager and the CGI team to measure progress against the
workplan. Any known issues and risks are also discussed and raised to
the next level if not resolved.
(4) U S WEST to provide facilities, computer equipment, software, etc., as
requested by CGI.
2.3 DELIVERABLES
o Identify system requirements, gaps, risks and potential solutions from
business requirements provided by U S WEST Long Distance.
o Translate high level business requirements into detailed requirements
and work with development teams to identify system requirements.
Schedule Number 230397 Carnegie Group, Inc. and U S West 7/31/97
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Technical/Functional Specification Development US West
Schedule No. One
o Assist development teams in the development of technical designs.
o Provide detailed and accurate estimates based on input from development
teams.
o Work with development teams to monitor scheduled target dates. (All work
is to be performed within a team environment and is comprised of U S WEST IT
and CGI resources.)
3. PROJECTED COST
The total cost of the work net of discounts shall not exceed $[ ] based on
estimated time and material expenses. Should travel be required, U S WEST agrees
to pay CGI travel expenses for all pre-approved trips.
This Schedule does not represent a follow-on effort or a change order effort.
Estimated costs with applicable discounts for the project are provided below.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------- -----------------------------------------------------
ITEMIZATION OF COSTS AMOUNT
- ------------------------------------------------------- -----------------------------------------------------
<S> <C>
CONTRACT ENGINEERING COSTS (TIME AND MATERIALS) $[ ]
LESS [ ]% MINIMUM DISCOUNT
($[ ])
- ------------------------------------------------------- -----------------------------------------------------
TOTAL CONTRACT ENGINEERING $[ ]
- ------------------------------------------------------- -----------------------------------------------------
CGI/THIRD PARTY LICENSE FEES
- ------------------------------------------------------- -----------------------------------------------------
TRAVEL EXPENSES AND OTHER PASS-THROUGH EXPENSES
- ------------------------------------------------------- -----------------------------------------------------
TOTAL SCHEDULE ESTIMATED PRICE $[ ]
- ------------------------------------------------------- -----------------------------------------------------
</TABLE>
Schedule Number 230397 Carnegie Group, Inc. and U S West 7/31/97
Proprietary and Confidential Page 5
<PAGE> 7
Technical/Functional Specification Development US West
Schedule No. One
Estimated hours are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------- -----------------------------------------------------
CATEGORY ESTIMATED HOURS
- ------------------------------------------------------- -----------------------------------------------------
<S> <C>
Senior Engineer II [ ]
Senior Engineer I [ ]
- ------------------------------------------------------- -----------------------------------------------------
TOTAL HOURS
[ ]
- ------------------------------------------------------- -----------------------------------------------------
</TABLE>
IN WITNESS WHEREOF, U S WEST and CGI agree and execute this Schedule in
duplicate by their respective authorized representatives.
CARNEGIE GROUP, INC. U S WEST
BY: /s/ BRUCE RUSSELL BY: /s/ SHARON OLSEN
----------------------- -------------------------------
NAME: Bruce Russell NAME: Sharon Olsen
----------------------- --------------------------------
(printed) (printed)
TITLE:EVP/COO TITLE: Director Customer Care Systems
----------------------- --------------------------------
DATE: 9/4/97 DATE: 8/12/97
----------------------- --------------------------------
U S WEST BRI
BY: /s/ MARIA K. RATHBUN
--------------------------------
NAME: Maria K. Rathbun
--------------------------------
(printed)
TITLE: Contract Agent
--------------------------------
DATE: 7-6-97
--------------------------------
Schedule Number 230397 Carnegie Group, Inc. and U S West 7/31/97
Proprietary and Confidential Page 6
<PAGE> 1
Exhibit 10.04
Confidential treatment with respect to certain information in this Exhibit has
been requested of the Securities and Exchange 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 material filed in accordance with Rule
24b-2 and have been filed separately with the Commission.
<PAGE> 2
[ ]
SCHEDULE NUMBER "230597"/(AGREEMENT NO. 9700050785)
[ ]
This Schedule Number "230597", effective August 18, 1997 issued pursuant to the
General Terms and Conditions of Agreement No. 9700050785 dated June 30, 1997
between U S WEST and Carnegie Group, Inc. ("CGI") including the Special
Provisions Module - Software License and Services dated June 30, 1997
(collectively, the "Agreement") and is made a part thereto.
This Schedule contains the following sections:
1. Project Description
2. Schedule, Statement of Work and Deliverables
3. Projected Cost
This Schedule specifically overrides the terms and conditions of the Agreement
pursuant to "Exceptions/Definitions to the Agreement" in section 1.3 below. In
the event that such section 1.3 conflicts with the provisions of the Agreement,
the terms of section 1.3 shall control for purposes of this Schedule only.
In consideration of the mutual covenants and agreements contained herein, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. PROJECT DESCRIPTION
1.1 INTRODUCTION
This Schedule covers the services and deliverables to be provided by Carnegie
Group, Inc. for U S WEST in support of [ ].
1.2 OVERVIEW
[ ].
Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97
Proprietary and Confidential Page 1
<PAGE> 3
[ ]
[ ]
1.3 EXCEPTIONS/DEFINITIONS TO THE AGREEMENT
The following exceptions and definitions apply to this Schedule:
Special Rampdown provisions: Notwithstanding subsection 21.2 of the Agreement,
Customer shall be responsible for continued funding of the current CGI project
resources at the time of termination for a period of [ ].
Services Warranty terms: CGI will warrant the final Purchases for a period of
[ ] from final Acceptance in accordance with the terms of section 5 of the
Agreement.
Management of project resources:
(a) The CGI project manager assigned to this [ ] has exclusive
control of and over the CGI resources on the project,
including but not limited to responsibility for staff
assignment, project team makeup, and transition of CGI
resources either onto or from a project. U S WEST may
request the CGI project manager to make changes relating
to the CGI resources. CGI will respond with consent or
an objection to consent and reasons why consent will be
withheld; consent will not be unreasonably withheld.
(b) The CGI project manager and the U S WEST project manager have
the authority to mutually agree on the location, either at a
U S WEST site or CGI site, where each CGI resource may work
during the project, including an associated period of time,
based on not compromising the schedule and deliverables set
forth in this Schedule.
Review of the Schedule
(a) The parties agree that the U S WEST team leader, the U S WEST
project manager and the CGI project manager will meet within
the first week after the effective date of this Schedule to
review the details of this Schedule, including but not
limited to the Exceptions to the Agreement provided above
("Review")
Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97
Proprietary and Confidential Page 2
<PAGE> 4
[ ]
(b) The Review will occur more than once should a new U S WEST
team leader, U S WEST project manager or CGI project manager
be assigned by U S WEST or CGI respectfully to the [ ] after
the initial Review, unless as otherwise mutually agreed by
the parties.
1.4 CGI ROLES AND RESPONSIBILITIES
The following activities (such as design, development, testing, documentation
and delivery of system, based on multiple tasks) are to be performed by CGI:
1. Develop an overall project schedule for this effort based on
joint CGI/U S WEST input.
2. Provide project management for the CGI software development
team.
3. Create weekly status reports documenting project progress.
4. Acquire and install all development software and hardware, on
CGI premises, to be used for project development.
5. Provide system administration and database administration
required for project development.
6. Conduct all software development processes, listed in the
deliverable section, required to achieve project deliverables
and schedule.
7. Provide all document and software deliverables listed in the
deliverable section.
8. Provide knowledge transfer to U S WEST for maintenance,
training, and ongoing support as requested.
9. Support U S WEST in all phases of installation and testing.
1.5 U S WEST ROLES AND RESPONSIBILITIES
The following activities (such as design, development, testing, integration,
directly or indirectly, for modules from outside vendors) are to be provided by
U S WEST:
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<PAGE> 5
[ ]
1. Provide subject matter expertise on U S WEST product and
product package training and delivery operations, and IT
system as required by the project.
2. Document any change requests, for CGI review, required to
meet the December release.
3. Acquire and install all test and production software and
hardware to be used for testing and deployment.
4. Provide system administration and database administration
required for project testing and deployment.
5. Specify any required documentation standards and formats that
CGI is required to follow for project deliverables.
6. Provide project management and appropriate project
sponsorship support to aid CGI in gaining access to either IT
or end user organizations, containing appropriate expertise.
7. Review and either sign-off or provide comments on all CGI
deliverables.
8. Manage scope and expectations with end user clients.
9. Conduct system and acceptance testing on U S WESTs production
platform after the software is delivered to U S WEST.
10. Conduct all required end user training for using the [ ]
system.
1.6 JOINT CGI AND U S WEST ROLES AND RESPONSIBILITIES
CGI and U S WEST are jointly responsible for the following activities:
1. Hold periodic status meetings where schedule, progress,
plans, and issues are presented and action items are assigned
for resolution.
2. Meet with U S WEST CCE and Small Business market unit subject
matter experts for such meetings as requirements gathering
and knowledge acquisition.
Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97
Proprietary and Confidential Page 4
<PAGE> 6
[ ]
3. Follow all project change management procedures.
4. Define the success criteria for the project.
5. Participate in U S WEST project review meetings including
architecture reviews and operational readiness reviews.
1.7 SCOPE
The [ ] will be implemented to automate the following functions:
o The customer's market segmentation is retrieved from [ ].
o The [ ] implements the following tasks:
o The current product set and additional products being discussed
are collected into the customer's product set.
o Products from held and pending orders will also need to be added
to the set of products.
o Based on market segment and customer's product set, the knowledge
base is queried to determine the candidate set of product
packages.
o Any packages in the knowledge base containing at least one
product contained in the customer's product set is a candidate.
o Package determination considers that package composition can
differ slightly based on state or region.
o Package availability will need to be determined to ensure that
a package is currently active (or will be active when order is
activated). The availability of a package can differ from
states and regions.
o Logic will be applied to determine the best fit if a
hierarchical structure of packages can potentially match the
customer's need.
Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97
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<PAGE> 7
[ ]
o Logic will also be applied to consider the scenario where
packages contain a common product.
o Packages have associated restrictions (e.g. only applies to
new customer or only applies once for lifetime of an order).
[ ] will perform basic restriction checking on each potential
customer match to ensure that customer qualifies for package.
In the first release, certain customer package data will be
gathered and the restriction checking will involve logical
tests on this package data.
o The additional products in a package which are not part of the
customer's product set must be screened for availability before
offering a package.
o A threshold or some level of goodness is used to determine
packages that should be recommended and those that should not.
o Packages will be identified as exact match and close match. Close
matches will also return the list of products contained in the
package that are not part of the customer's product set.
o Packages will be returned in order, from closest match to
farthest match. Ordering may also reflect variation in price from
customer's current state.
o Packages will store benefit statements and descriptions and
return this data along with the matching packages.
o During the [ ] session, as products are added or removed from the
set based on the customer's interest, the set of recommended
packages will change to reflect the current product set.
o Based on recommended packages and other product sets, [ ] calculates
the price of the recommended package and the variance with the
existing customer's product set cost.
o The initial release will include [ ] products, Wireless
products, Long Distance products, Data products, and Video
products. System interfaces will be used to interface with
these systems and retrieve the information required for rate
comparison.
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<PAGE> 8
[ ]
o [ ] computes the rate of the products by combining product costs,
package costs, recurring/non/recurring charges, and tariffs to
compute the overall price.
o The initial knowledge base will be implemented to contain all
initial product packages. This will also include packages which vary
by state/region. It is expected that about 20 products exist in the
initial release.
o [ ] will provide a knowledge base editor GUI to support adding,
changing, or removing market segmentation, packages, and products.
HIGH LEVEL ARCHITECTURE
[ ]
MODULE DESCRIPTION
Graphical User Interface (GUI)
The [ ] will have its GUI for the first release but will be developed
to integrate into [ ] in a latter release. This GUI design also
provides a thin client minimizing impact on the client delivery
platform.
The [ ] GUI functions include both presentation and message
management. As a message manager, the GUI sends requests for service
to the server platform based on end user activities.
The GUI will run on NT workstations and will implement the following
functions:
Display scripting prompts showing suggested "Branded" packages.
o Prompt and collect the supplementary customer and product profile
data.
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<PAGE> 9
[ ]
o Display comparative package data offerings.
o Show customer's pertinent service order information.
o Display existing cost and proposed cost recommendations.
o Accept user commands and send requests to the server for
associated actions.
BUSINESS PROCESSING LAYER (BPL)
The BPL will be implemented as a server application that accepts
requests from the GUI module. The BPL will contain processing logic
for implementing the server functions.
The BPL is also responsible for packaging and returning data to be
presented to the user through the GUI.
The major functions provided by the server are the full set of product
descriptions as well as recommendation engine services.
The BPL will interface with both the database and knowledge base to
obtain data and rules for implementing the processing functions. The
database interface reads and writes data which is sourced locally
within the [ ] database. The knowledge base interface contains
functions for accessing business rules.
The BPL will be implemented for high-performance access, anticipating
less than 800 simultaneous requests. The system will be designed to be
fault tolerant.
The BPL will implement the following [ ] functions:
o Determine Customer Profile
o Calculate credits to monthly billing for the proposed package
o Recommend Packages
o Compare product savings with non packaged cost
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<PAGE> 10
[ ]
KNOWLEDGE BASE
The [ ] will include a knowledge base containing business rules used
in the customer contact and recommendation functions. In addition, the
KB will contain scripting information to drive interactions with the
customer.
Examples of knowledge base structures include rules for customer and
product profiling, recommendations including product and package
mixes, and scripting to direct customer interactions.
The knowledge base will be designed to allow rules to be easily
changed over time. That is, as the particulars of the business
interaction changes, the business rules can be quickly changed to
reflect this. A knowledge base will also allow the sophistication of
the system to grow to accommodate the evolving needs of the business.
For example, as discounting based on bundling services is introduced,
this data can be stored in the knowledge base.
An important attribute of the knowledge base is the ability for
non-developers to maintain it. The knowledge base will be complemented
by a knowledge-base editor, which abstracts the rule descriptions into
higher-level constructs. The editor will allow non-developers to
modify, add, and delete business rules.
DATABASE:
The database will store all data related to the [ ]. Data included in
the database will be basic data such as mappings from legacy system
terminology to basic English descriptions which are understandable to
the Customer Contact Employee. Other data will include information
about each specific product and package that is not currently sourced
in another location.
UPDATE PROCESS
The update process for the knowledge base business rules and database
records will be manual. However, changes made to these objects will
require a system administrator. Changes made in business rules or data
will be reflected in the [ ] application affecting subsequent customer
transactions. It is assumed that no effort will be needed to retrofit
existing records to reflect changes as rules are updated.
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[ ]
[ ]
CONSIDERATIONS
The following design principals will be used in developing the [ ]:
o High performance to handle the high transaction load expected from up
to 800 agents simultaneously accessing the system.
o Robust software application providing production quality in the initial
release.
o Scaleable to handle increased usage as the number of Customer Contact
Employees grows or other segment begin to use the system.
o Extensible allowing new business rules and data to be included as the
business evolves.
o Maintainable, enabling the system to be expanded over time.
o Flexible, able to be incorporate into the [ ] application.
o Compatible with U S WEST architectural directions, including minimal
resource usage NT client platform.
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[ ]
TECHNOLOGY
The [ ] will be implemented using the following approach:
o Web Based
o Client/Server communications
o FORTE 3.0 suite of robust object-oriented tools or other U S WEST
approved object-oriented tools
o TCP/IP
o API access via Fetch N Stuff to [ ] and [ ]
o Oracle RDB
1.8 DELIVERABLES
The following [ ] deliverables will be provided by CGI to U S WEST:
o Software Project Management Plan (SPMP): The SPMP provides a project
management guide for successful execution of the [ ] project. It
documents such elements as project goals, points of contact, schedule,
resources, risks, constraints, and assumptions. The SPMP ensures that
all project elements are considered initially and managed to
successful completion.
o Client and User Requirements Document: This document defines the set
of requirements specified by the [ ] client representatives for
functional purposes and channel groups for usability purposes.
o Architecture Document: This document describes the overall system
architecture, which describes modular composition, high-level
interfaces, hardware platform, and software platform.
o Design Document: This document contains a detailed description of each
[ ] application module and their respective interfaces.
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[ ]
o User Guide: This document contains detailed instructions of actions
required by CCEs to effectively utilize all system functions. Will be
provided in paper form and as on-line help.
o Knowledge Base: The knowledge base contains the business rules defined
by U S WEST for inclusion in the [ ] application. The knowledge base
content will be reviewed by the designated U S WEST client
organization prior to its formal acceptance.
o Status Reports: Weekly (or as determined appropriate) status reports
will be developed by CGI which describes project status, progress,
issues, and plans.
o Administrators Guide: providing instructions for System Administrators
describing the installation, set-up, and maintenance of the system.
o Training Materials: We will work with U S WEST market units to
determine what training materials, if any, need to be provided.
o Additionally, User Cases, User Requirements, Design Notes, and Test
Plans will be developed.
1.9 SUMMARY
This Schedule covers efforts to be performed from AUGUST 18, 1997 through
DECEMBER 26, 1997.
2. SCHEDULE, STATEMENT OF WORK AND DELIVERABLES
2.1 TASKS, SCHEDULE, AND DELIVERABLES
The following table summarizes the tasks, schedule and deliverables included in
this Schedule.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
TASK TOTAL EFFORT START DATE END DATE
(DAYS)
- -----------------------------------------------------------------------------------
</TABLE>
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[ ]
ADDING CONSUMER PRODUCTS TO [ ]
o This section briefly outlines the additional effort involved in
adapting the [ ] project to support Consumer products. This estimate
assumes that the impact will be non-trivial. That is, it will require
extensions or modifications to the software, the knowledge base, the
database, and the external system interfaces to support Consumer
products. If after analysis, it is determined that support for these
elements does not require this level of effort, the impact to overall
development as well as schedule, will be reduced.
o The level of effort estimates for the addition of Consumer product
support to [ ] is the following:
o Software enhancements: 6 weeks (240 hours) of a single SE I's time.
o Knowledge-Base enhancements: 6 weeks (240 hours) of a single SE I's
time.
o Database enhancements: 6 weeks (240 hours) of an Engineer's time.
o System Integration: 6 weeks (240 hours) of a single SE I's time.
o The additional cost associated with this work is $[ ].
The overall schedule is impacted by adding two calendar weeks to Design time,
as well as all subsequent tasks which are dependent on the completion of
Design. That is, the completion date is extended by two calendar weeks. Source
Code: Multiple releases of the [ ] source code will be provided to U S WEST.
Releases include the initial development release, integration-tested software,
system-tested software, and final production software.
2.2 ASSUMPTIONS
The above tasks, schedules and deliverables were developed based on the
following assumptions.
1. The schedule is based on a project start date of August 18,
1997. Delays in this start date may impact the delivery date
of one or more Deliverables.
2. The work estimates are based on CGI Methodology and past
experience. CGI will continuously monitor the status and
notify U S WEST of any issues or risk situations which may
impact the delivery date.
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[ ]
3. CGI has timely access to U S WEST personnel (i.e. SMEs).
4. Any delays in dependent tasks (i.e. U S WEST tasks) may
impact the delivery date of one or more Deliverables.
5. [ ] assumes the effort of integrating [ ] into the existing
GUI.
6. The baseline cost of customer's existing product set is
available from [ ]. [ ] only computes new costs based on
packages.
7. Customer service record, containing existing products and
services, are available to CST.
8. Market profile data is currently part of [ ].
9. Product availability is currently part of [ ].
10. Package restriction checking will not involve additional
system interfaces. Data used in the restriction checking will
either be available through [ ] or will be collected over
time and applied as the data exists.
11. Pricing data on all available products is available from
other systems and used within [ ].
12. While [ ] does contain package rating logic for [ ] products,
this will not be used by [ ] since [ ] needs to consider
packages which consist of combinations of products from
different sources. [ ] will therefore need to compute the
rates.
13. Existing [ ] interfaces from [ ] can be used without
modification.
14. The [ ] scope will be fully defined by all requirements prior
to project start.
15. U S WEST provides a project sponsor to act as the liaison
between the U S WEST and CGI. This does not require that U S
WEST handle all [ ] interactions but that appropriate
personnel be provided to support these activities.
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[ ]
16. Periodic status meetings and weekly status reports to be held
between the U S WEST project manager and the CGI project
manager, and other selected personnel, to measure progress
against the work plan.
17. All development will be done on CGI premises and facilities.
Intermediate and final software products will be moved to U S
WEST facilities as required.
18. Change requests to the requirements outlined in this proposal
must be defined by U S WEST for analysis by CGI to provide
estimates, costs, and impact on current deliverables. Signed
approval by both parties is required prior to implementation
of any change request.
19. The primary point of contact will be Frank Kogel who will
designate a back-up contact when unavailable.
2.20 DELIVERABLES
See section 1.8 for a detailed description of Product Package Generator
deliverables.
A copy of the deliverables will be provided to the appropriate U S WEST
recipients. The master copy will contain a letter to be mutually signed by the
parties acknowledging delivery, receipt and acceptance of the deliverables.
Should CGI not receive the signed letter or a written list of items which are
not in compliance with the project specifications within ten (10) business days
after delivery, then the Deliverables shall be deemed accepted.
3.0 PROJECTED COST
The total cost of the work net of discounts shall not exceed $[ ] based on
estimated time and material expenses. Should travel be required, U S WEST
agrees to pay CGI travel expenses for all pre-approved trips.
This Schedule does not represent a follow-on effort or a change order effort.
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[ ]
Estimated costs with applicable discounts for the project are provided below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
ITEMIZATION OF COSTS AMOUNT
- -------------------------------------------------------------------------------------------------------------
<S> <C>
CONTRACT ENGINEERING COSTS (TIME AND MATERIALS) $[ ]
LESS MINIMUM DISCOUNT AND ANY PROJECT
VOLUME DISCOUNT Minimum Discount ($[ ])
Volume Discount: ($[ ])
- -------------------------------------------------------------------------------------------------------------
TOTAL CONTRACT ENGINEERING $[ ]
- -------------------------------------------------------------------------------------------------------------
CGI/THIRD PARTY LICENSE FEES N/A
- -------------------------------------------------------------------------------------------------------------
TRAVEL EXPENSES AND OTHER PASS-THROUGH EXPENSES N/A
- -------------------------------------------------------------------------------------------------------------
TOTAL SCHEDULE ESTIMATED PRICE $[ ]
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Estimated hours are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CATEGORY ESTIMATED HOURS
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Manager(s) [ ]
Business Consultant(s)
Engineer(s) [ ]
Technical Writer(s) [ ]
- -------------------------------------------------------------------------------------------------------------
TOTAL HOURS [ ]
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97
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[ ]
IN WITNESS WHEREOF, U S WEST and CGI agree and execute this Schedule in
duplicate by their respective authorized representatives.
CARNEGIE GROUP, INC. U S WEST
/s/ DRD
BY: /s/ Bruce Russell BY: /s/ David M. McGrew for D. Dempsey
------------------------ ----------------------------------
Name: Bruce Russell NAME: Dennis Dempsey
------------------------ ----------------------------------
(printed) (printed)
TITLE: Executive VP & COO TITLE: V.P. - IAD
------------------------ ----------------------------------
DATE: August 18, 1997 DATE: 8/15/97
------------------------ ----------------------------------
Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97
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<PAGE> 1
Exhibit 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER SHARE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted Average Common and
Common Equivalent Shares:
Weighted Average Common Stock
Outstanding During the Period 6,400,898 6,206,242 6,324,907 6,231,328
Weighted Average Common Equivalent:
Shares 652,857 764,834 644,110 888,756
---------- ---------- ---------- ----------
7,053,755 6,971,076 6,969,017 7,120,084
---------- ---------- ---------- ----------
Net Income $ 322,090 $ 409,508 $1,231,846 $1,213,516
========== ========== ========== ==========
Net Income Per Common Share $ 0.05 $ 0.06 $ 0.18 $ 0.17
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
FULLY DILUTED EARNINGS PER SHARE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted Average Common and
Common Equivalent Shares:
Weighted Average Common Stock
Outstanding During the Period 6,400,898 6,206,242 6,324,907 6,231,328
Weighted Average Common Equivalent:
Shares 697,632 854,512 738,646 883,533
---------- ---------- ---------- ----------
7,098,530 7,060,754 7,063,553 7,114,861
---------- ---------- ---------- ----------
Net Income $ 322,090 $ 409,508 $1,231,846 $1,213,516
---------- ---------- ---------- ----------
Net Income Per Common Share $ 0.05 $ 0.06 $ 0.17 $ 0.17
========== ========== ========== ==========
</TABLE>
- 19 -
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001001188
<NAME> CARNEGIE GROUP, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 13,841,553
<SECURITIES> 0
<RECEIVABLES> 9,396,485
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,927,448
<PP&E> 2,726,594
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,278,691
<CURRENT-LIABILITIES> 5,177,848
<BONDS> 0
0
0
<COMMON> 66,900
<OTHER-SE> 25,033,943
<TOTAL-LIABILITY-AND-EQUITY> 30,278,691
<SALES> 845,957
<TOTAL-REVENUES> 22,933,636
<CGS> 14,108,375
<TOTAL-COSTS> 7,302,106
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,295
<INCOME-PRETAX> 2,044,826
<INCOME-TAX> 812,980
<INCOME-CONTINUING> 1,231,846
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,231,846
<EPS-PRIMARY> .18
<EPS-DILUTED> 0
</TABLE>
