-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PHE1mZ8aEbkOx0anzdinSq7mKULTeP1EydLKH78lisCnHdf60vWS4n14CwGWDfIB agNLGzBIR+qewQFfr7PeCg== 0000950128-96-000297.txt : 19960731 0000950128-96-000297.hdr.sgml : 19960731 ACCESSION NUMBER: 0000950128-96-000297 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARNEGIE GROUP INC CENTRAL INDEX KEY: 0001001188 STANDARD INDUSTRIAL CLASSIFICATION: 7374 IRS NUMBER: 251435252 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26964 FILM NUMBER: 96564057 BUSINESS ADDRESS: STREET 1: FIVE PPG PLACE CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4126426900 MAIL ADDRESS: STREET 1: FIVE PPG PLACE CITY: PITTSBURGH STATE: PA ZIP: 15222 10-Q 1 CARNEGIE GROUP INC. 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended March 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Transition Period From _______ to ________ Commission File Number 0-26964 ------------- Carnegie Group, Inc. - - -------------------------------------------------------------------------------- Delaware 25-1435252 - - -------------------------------------------------------------------------------- (State or other Jurisdiction of (I.R.S Employer Incorporation or Organization) Identification Number) Five PPG Place, Pittsburgh, Pennsylvania 15222 - - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (412) 642-6900 - - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to files such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock as of the latest practicable date: Class Outstanding at April 30, 1996 ----- ----------------------------- Common Stock, $.01 par value 6,186,788
2 FORM 10-Q CARNEGIE GROUP, INC. TABLE OF CONTENTS
Page Number PART 1 FINANCIAL INFORMATION Item 1. Financial Statements Carnegie Group, Inc. and Subsidiaries 3 Consolidated Statements of Operations for the three months ended March 31, 1996 and 1995 Carnegie Group, Inc. and Subsidiaries 4 Consolidated Balance Sheets Carnegie Group, Inc. and Subsidiaries 5 Consolidated Statements of Cash Flows Note to Unaudited Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of 7-11 Financial Condition and Results of Operations PART 2 OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13
2 3 PART I - FINANCIAL INFORMATION CARNEGIE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended --------------------------- March 31, March 31, 1996 1995 ---- ---- Revenue Software services--Unrelated parties $7,442,750 $4,569,869 Software services--Related parties 750,649 1,388,255 ---------- ---------- Total software services 8,193,399 5,958,124 Software licenses 129,941 93,553 ---------- ---------- Total revenue 8,323,340 6,051,677 ---------- ---------- Costs and expenses: Cost of revenue - Unrelated parties 4,701,682 3,112,588 Cost of revenue - Related parties 362,511 663,627 ---------- ---------- Total cost of revenue 5,064,193 3,776,215 Research and development 179,014 153,848 Selling, general and administrative 2,135,969 1,550,123 ---------- ---------- Total costs and expenses 7,379,176 5,480,186 ---------- ---------- Income from operations 944,164 571,491 Other income (expense): Interest income 147,166 5,928 Other income 6,099 6,099 Interest expense (4,857) (2,969) ---------- ---------- Total other income 148,408 9,058 ---------- ---------- Income before income taxes 1,092,572 580,549 Income tax provision (409,387) (102,117) ---------- ---------- Net income $ 683,185 $ 478,432 ========== ========== Earnings per share of common stock $ .10 $ .09 ========== ========== Weighted average number of common shares outstanding 7,176,127 5,534,202 ========== ========== The accompanying note is an integral part of these financial statements.
3 4 CARNEGIE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1996 1995 ---- ---- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $12,239,817 $12,394,588 Accounts receivable 5,145,880 5,131,922 Accounts receivable from related parties 553,137 76,296 Accounts receivable--unbilled 2,861,227 2,048,609 Accounts receivable related parties--unbilled 211,763 87,690 Deferred income taxes 1,076,468 1,222,061 Other current assets 382,108 397,883 ----------- ----------- Total current assets 22,470,400 21,359,049 ----------- ----------- Property and equipment, net of accumulated depreciation and amortization 1,957,312 1,812,894 Deferred income taxes 1,567,838 1,779,792 Other assets 34,346 36,900 ----------- ----------- Total assets $26,029,896 $24,988,635 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 902,339 $ 1,107,592 Payables to related parties 626,315 967,673 Accrued compensation 848,905 1,130,479 Advance billings and deferred revenue 871,135 537,541 Accrued rent 621,734 626,253 Other accrued liabilities 1,606,789 801,544 Obligations under capital leases--current portion 48,691 48,691 ----------- ----------- Total current liabilities 5,525,908 5,219,773 ----------- ----------- Obligations under capital leases--noncurrent portion 26,336 39,671 ----------- ----------- Total liabilities 5,552,244 5,259,444 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value; 20,000,000 shares authorized, 6,436,300 and 6,386,200 shares issued at March 31, 1996 and December 31, 1995 respectively 64,363 63,862 Capital in excess of par value 30,901,092 30,836,317 Accumulated deficit (10,012,803) (10,695,988) Treasury stock, 190,000 shares at March 31, 1996 and December 31, 1995 (at cost) (475,000) (475,000) ----------- ----------- Total stockholders' equity 20,477,652 19,729,191 ----------- ----------- Total liabilities and stockholders' equity $26,029,896 $24,988,635 =========== =========== The accompanying note is an integral part of these financial statements.
4 5 CARNEGIE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended --------------------------- March 31, March 31, 1996 1995 ---- ---- Cash flows from operating activities: Net income $ 683,185 $ 478,432 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 224,679 156,441 Deferred income taxes 357,547 65,457 Changes in working capital component: Accounts receivable (826,576) (1,231,683) Accounts receivable - Related parties (600,914) 550,143 Other assets 18,329 (164,343) Trade accounts payable (205,253) 769,940 Payables to related parties (341,358) (571,212) Accrued compensation (281,844) (461,818) Accrued rent (4,519) (56,924) Other accrued liabilities 805,515 651,291 Advance billings and deferred revenue 333,594 (159,570) ----------- ----------- Net cash (used in) provided by operating activities 162,385 26,154 Cash flows from investing activities: Proceeds from the sale of fixed assets, net -- -- Capital expenditures (369,097) (480,878) ----------- ----------- Net cash used in investing activities (369,097) (480,878) Cash flows from financing activities: Principal payments under capital lease obligations (13,335) (12,220) Proceeds from sales of common stock, net 65,276 4,175 ----------- ----------- Net cash (used in) provided by financing activities 51,941 (8,045) ----------- ----------- Net change in cash (154,771) (462,769) Cash and cash equivalents: Beginning of period 12,394,588 915,237 End of period $12,239,817 $ 452,468 =========== =========== The accompanying note is an integral part of these financial statements.
5 6 NOTE TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION In the opinion of the management of Carnegie Group, Inc. (the Company), these unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of operating results for the three month period ended March 31, 1996. Results for the interim periods are not necessarily indicative of results for the full year. The accompanying statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission and therefore do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. Accordingly, the information contained in this Form 10-Q should be read in conjunction with the financial statements and notes thereto contained in the Company's Form 10-K for the year ended December 31, 1995 as filed with the Securities and Exchange Commission. 6 7 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. General Carnegie Group, Inc. ("Carnegie Group" or the "Company") provides client/server software development services that integrate advanced software technologies with clients' existing computing infrastructures to automate and enhance complex business processes. The Company focuses on performing software development, systems integration and technical consulting services to create knowledge-intensive software solutions that improve its clients' productivity and competitive market position in three business areas: customer contact; customer service; and logistics, planning and scheduling. Carnegie Group targets its services to clients in the telecommunications, financial services, manufacturing, defense and healthcare industries. The Company's expertise encompasses a wide range of advanced software technologies, including knowledge-based systems, object-oriented technology, advanced graphical user interfaces, constraint-directed search and distributed computing. The Company captures certain aspects of its business area experience and advanced technology expertise in a portfolio of reusable software templates that can be used as building blocks to create software solutions quickly and effectively. In addition, Carnegie Group employs an iterative or "spiral" approach to software design that begins with the construction of a prototype and continues through testing of successive versions of the software against project requirements. This iterative design facilitates rapid software development, encourages client feedback and leads to greater congruence with client needs and expectations. Since inception, Carnegie Group has emphasized relationships with leading corporations in its targeted industries. These relationships have provided the Company with opportunities for growth through the provision of additional services to existing clients and through references to other companies within the Company's targeted industries. Carnegie Group's clients include U S WEST Communications, Inc., the United States Transportation Command, Caterpillar Inc., the U.S. Army, BellSouth Telecommunications, Inc., First USA Bank, Ford Motor Company and Blue Cross of Western Pennsylvania. The Company only includes in backlog signed contracts that either have milestones yet to be attained or for which the Company can make a reasonable estimate of work yet to be performed. The Company's backlog was $14.1 million at March 31, 1996 compared to $9.6 million at March 31, 1995. Backlog at March 31, 1996 decreased from backlog of $18.7 million at December 31, 1995, reflecting the renegotiation of a large fixed-price contract with a major customer, which partially offset new bookings for the quarter. As most of the contracts in backlog are terminable by the Company or the client upon short notice, there can be no assurance that contracts reflected in backlog are a reliable measure of future revenue. 7 8 COMPARISON OF QUARTERS ENDED MARCH 31, 1996 AND MARCH 31, 1995. Revenue. Total revenue was $8.3 million in the first quarter of 1996 compared to $6.1 million in the first quarter of 1995, an increase of $2.2 million or 37.5%. This growth resulted principally from volume increases in sales of software services. Total software services revenue was $8.2 million in the first quarter of 1996 compared to $6.0 million in the first quarter of 1995, an increase of $2.2 million or 37.5%. This increase was primarily attributable to an extension of a logistics, planning and scheduling engagement for a defense industry client and the commencement of a customer contact engagement for a new client in the telecommunications industry. Revenue from software services-unrelated parties was $7.4 million in the first quarter of 1996 compared to $4.6 million in the first quarter of 1995, an increase of $2.8 million or 62.9%. This increase was primarily attributable to the extension of a logistics, planning and scheduling engagement and the commencement of a customer contact engagement, both of which are described above. A portion of the increase was also attributable to the enlargement of the scope of a customer services engagement for a manufacturing industry client. Revenue from software services-related parties was $.8 million in the first quarter of 1996 compared to $1.4 million in the first quarter of 1995, a decrease of $.6 million or 45.9%. This decrease was primarily attributable to the completion of customer contact engagements for a telecommunications industry client. Revenue from software licenses was $130,000 in the first quarter of 1996 compared to $93,000 in the first quarter of 1995, an increase of $37,000 or 38.9%. This increase was attributable to an increase in revenue from licenses of the Company's TestBench template. Cost of Revenue. Cost of revenue consists primarily of salaries and related benefits for personnel, and also includes an allocated portion of rent, building services and computer equipment services and expenses. Total cost of revenue was $5.1 million in the first quarter of 1996, compared to $3.8 million in the first quarter of 1995, an increase of $1.3 million or 34.1%. This increase was primarily attributable to additional professional staff hired to perform the increased volume of software services. Total cost of revenue was 60.8% of total revenue in the first quarter of 1996, compared to 62.4% of total revenue in the first quarter of 1995. This percentage decrease was primarily attributable to increased productivity of professional staff and lower company fixed costs as a percentage of total revenue. Cost of revenue-unrelated parties was $4.7 million in the first quarter of 1996 compared to $3.1 million in 1995, an increase of $1.6 million or 51.1%. This increase was primarily attributable to additional professional staff hired or reassigned to perform the increased volume of software services. Cost of revenue-related parties was $.4 million in the first quarter of 1996 compared to $.7 million in the first quarter of 1995, a decrease of $.3 million or 45.4%. This decrease was primarily attributable to the reallocation of professional staff to provide additional software services to unrelated parties following the completion of customer contact engagements for a telecommunications industry client. Research and Development. Research and development expenses were $179,000 in the first quarter of 1996 compared to $154,000 in the first quarter of 1995, an increase of $25,000 or 16.4%. This increase was primarily due to product development related to the TestBench template. Selling, General and Administrative. Selling, general and administrative expenses include costs of proposal development and proposal writing, marketing communications and advertising, sales and management staff, and corporate services functions including accounting, human resources and legal services, along with corporate executive staff. Selling, general and administrative expenses were $2.1 million in the first quarter of 1996 compared to $1.6 million in the first quarter of 1995, an increase of $.6 million or 37.8%. This dollar increase resulted primarily from increases in sales and marketing expenses to support growth in the Company's total revenue. 8 9 These expenses increased slightly as a percentage of total revenue from 25.6% in the first quarter of 1995 to 25.7% in the first quarter of 1996. Other Income (Expense). Other income (expense) was $148,000 in the first quarter of 1996 compared to $9,000 in the first quarter of 1995, an increase of $139,000 or 1,538.4%. This increase was due primarily to interest income earned on net proceeds received in December, 1995 from the Company's initial public offering, which were invested in an interest-bearing account. Income Tax Provision. An income tax provision of $409,000 was recorded in the first quarter of 1996. The effective income tax rate in the first quarter of 1996 was higher than the effective income tax rate in the first quarter of 1995 as a result of the Company's current estimate of the deferred tax asset believed more likely than not to be realized. SFAS No. 109, "Accounting for Income Taxes," requires a valuation allowance when it is "more likely than not that some portion or all of the deferred tax assets will not be realized." It further states that "forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years." The ultimate realization of its deferred income tax asset depends on the Company's ability to generate sufficient taxable income in the future. The Company has weighed the negative objective evidence of recent results and dependence upon limited number of customers, as well as other risk factors on the one hand, and the positive subjective evidence of future expectations, on the other hand, and has concluded that losses in recent years and other risk factors make it appropriate to record a valuation allowance. This reflects the Company's conclusion under SFAS 109 as to the portion of the deferred tax asset expected not to be realized in light of that standard's requirement to give greater weight to the more objective evidence. In estimating the amount of its realizable deferred tax asset, the Company gives substantial weight to recent historical results. Significant changes in circumstances or in enacted tax laws which affect the valuation allowance are recorded when they occur. The Company's annual strategic business planning process takes place in the fourth quarter of the year, and the valuation allowance is adjusted for future years' income expectations resulting from that process. When preparing subsequent interim and annual financial statements, the Company reevaluates whether there has been any significant change in the assumptions underlying its plan and adjusts the valuation allowance as necessary. 9 10 Liquidity and Capital Resources The Company has funded its operations in recent years primarily through cash generated from operations and the use of cash reserves. In 1995 the Company also funded its operations in part through borrowing under available lines of credit and through the net proceeds of the initial public offering of its Common Stock consummated in December 1995. During the first quarter of 1996, the Company had a net use of cash of $155,000, working capital increased in accounts receivable and property and equipment to support business growth. The Company experienced growth in revenue earned but not yet billed, and consequently an increase in the number of days' revenue in accounts receivable for the quarter ended March 31, 1996. Invoicing of amounts to clients generally occurs within 45 days of time and materials cost incurrence, unless a specific schedule is agreed upon, and payment follows invoicing in accordance with customary terms. The Company has not experienced any significant write-downs of receivables, nor does the Company expect that payments are doubtful; accordingly, the Company has not made any allowance for doubtful accounts. Advance billings and deferred revenue increased at March 31, 1996 when compared to December 31, 1995. The increase reflects billings in advance of revenue earned, but which were billed in accordance with established or agreed billings schedules. These amounts are recorded as deferred revenue until earned. The timing and magnitude of such advance billings vary from contract to contract and from client to client. The Company currently has a committed line of credit agreement in the amount of $3.0 million in place with PNC Bank, N.A. (the "Bank"), and a discretionary line of credit agreement in the amount of $500,000 in place with the Bank, both of which expire June 30, 1996. Borrowings under these agreements are collateralized by accounts receivable. These lines of credit bear interest at the Bank's prime interest rate plus 0.75% per annum, and the Bank charges a 0.25% fee per annum on the unused portion of the committed line of credit. The Bank's prime interest rate was 8.5% at both March 31, 1996 and December 31, 1995. Availability of $3.0 million of the funds under the committed line of credit is also subject to the Company's compliance with certain covenants customary with commercial loans, including covenants related to maintenance of certain levels of working capital and tangible net worth. The $500,000 under the discretionary line of credit is available at the discretion of the Bank. No borrowings were outstanding against the committed line of credit or the discretionary line of credit at March 31, 1996 and December 31, 1995. The Company believes that the net proceeds from the sale of Common Stock in the Company's initial public offering, together with cash balances, cash generated from operations and borrowing available under its lines of credit, will satisfy the Company's working capital and capital expenditure requirements during fiscal year 1996 and the foreseeable period thereafter. In the longer term, the Company may require additional sources of liquidity to fund future growth. Such sources of liquidity may include additional equity offerings or debt financings. Capital expenditures are typically made for computing equipment, software, physical plant, and furniture and fixtures in order to seek enhancements in the productivity of the Company's employees and to support growth. In the normal course of business, the Company evaluates acquisitions of businesses, products and technologies that complement the Company's business. The Company has no present plans, intentions, understandings, commitments or agreements, nor is it currently engaged in any negotiations, with respect to any such transaction. However, the Company may acquire businesses, products or technologies in the future. 10 11 To the extent that any written or oral statement made by the Company, including statements made herein, are deemed to be forward looking statements, reference is made to the factors beginning on page 27 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, as filed with the Securities and Exchange Commission, as important factors that could cause actual results to differ materially from those in any such forward looking statements. 11 12 PART II - OTHER INFORMATION ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits Description 10.01 Development Agreement, dated as of January 2, 1996, by and between U S WEST Advanced Technologies, Inc., U S WEST Communications Inc. and Carnegie Group, Inc. (confidential treatment with respect to certain information contained in this Exhibit has been requested of the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended). 10.02 Development Agreement, dated as of March 1, 1996, by and between U S WEST Advanced Technologies, Inc., U S WEST Communications, Inc. and Carnegie Group, Inc. (confidential treatment with respect to certain information contained in this Exhibit has been requested of the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended). 27 Financial Data Schedule Reports on Form 8-K The registrant did not file any reports on Form 8-K during the quarter ended March 31, 1996.
12 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 14, 1996 CARNEGIE GROUP, INC. /s/ DENNIS YABLONSKY -------------------------------------- Dennis Yablonsky President, and Chief Executive Officer /s/ JOHN W. MANZETTI -------------------------------------- John W. Manzetti Executive Vice President, Chief Financial Officer and Treasurer 13 14 EXHIBIT INDEX
Sequential Exhibit No. Description page number 10.01 Development Agreement, dated as of January 2, 1996, by and between U S WEST Advanced Technologies, Inc., U S WEST Communications Inc. and Carnegie Group, Inc. (confidential treatment with respect to certain information contained in this Exhibit has been requested of the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended). 10.02 Development Agreement, dated as of March 1, 1996, by and between U S WEST Advanced Technologies, Inc., U S WEST Communications, Inc. and Carnegie Group, Inc. (confidential treatment with respect to certain information contained in this Exhibit has been requested of the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended). 27 Financial Data Schedule
14 EX-10.01 2 CARNEGIE GROUP INC. 10-Q 1 EXHIBIT 10.01 Confidential treatment with respect to certain information in this Exhibit has been requested of the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The bracketed portions of this Exhibit have been omitted from the material filed in accordance with Rule 24b-2 and have been filed separately with the Commission. 2 DEVELOPMENT AGREEMENT NO. 19-001-96 SSAM ASSESSMENT This Development Agreement is entered into on the 2nd day of JANUARY, 1996 by and between U S West Advanced Technologies, Inc., a Colorado corporation ("USW-Technologies"), U S WEST Communications, Inc., a Colorado corporation ("USW-Communications"), (hereinafter USW-Technologies, USW-Communications and their Affiliates will be collectively referred to as "Licensee"), and Carnegie Group, Inc., a Delaware corporation with a principal place of business at Five PPG Place, Pittsburgh, PA 15222 ("CGI"). ARTICLE 1 - RECITALS 1.1 Licensee and CGI entered into a General License Agreement (the "GLA") on December 17, 1992 in which the parties committed to enter into a series of Artificial Intelligence ("AI") technology research, experimentation and development agreements ("Development Agreements") over a period beginning on the Effective Date, as defined in the GLA, and ending on the fourth anniversary of the Effective Date. 1.2 Licenses and CGI now desire to enter into this Development Agreement pursuant to which the parties, as contemplated by the GLA, will commit to a project of specific research, experimentation and development as stated herein. NOW, THEREFORE, in consideration of the mutual covenants set forth in this Development Agreement, Licensee and CGI agree as follows: ARTICLE 2 - DEFINITIONS 2.1 Defined terms used in this Development Agreement shall have the meanings set forth in Article 2 of the GLA, unless different meanings are specifically set forth in this Development Agreement. 2.2 "Project" means the specific research, experimentation and development which CGI will perform for Licensee under this Development Agreement. 19-001-96 JANUARY 2, 1996 3 2.3 "Project Description" means a detailed written description of the Project, including but not limited to: (a) any Deliverable Performance Specifications; and (b) a listing which identifies and describes, as to the Project: (i) any Deliverables intended to be created in the course of the Project; and (ii) any Licensee Specific Technology intended to be created in the course of the Project; and (iii) any Licensee Proprietary Information or Licensee Confidential Information to be made available to CGI in the course of the Project; and (iv) any Generic Research Technology intended to be created in the course of the Project. 2.4 "Projected Cost" means that projected cost referred to in Article 9 of the GLA and set forth in Article 5 hereof. 2.5 "Projected Date" means the projected date for completion of the Project agreed upon by the parties and set forth in Article 6 hereof, including any Agreed Completion Date. ARTICLE 3 - EFFECT OF THE GLA This Development Agreement is subject in all respects to the terms and conditions of the GLA. Ownership of Generic Research Technology developed hereunder is vested in U S WEST, in accordance with Article 3.3 of the GLA and the payment of ALLIANCE rates by Licensee to CGI as provided in Exhibit 2, attached hereto. ARTICLE 4 - PROJECT DESCRIPTION 4.1 The Project Description is set forth in Exhibit 1 attached hereto. 4.2 CGI shall use its best efforts to complete the Project in accordance with the Project Description. Except for the warranties set forth in Article 8 of the GLA regarding any Deliverable Performance Specifications set forth in 19-001-96 JANUARY 2, 1996 4 Exhibit 1 of this Development Agreement, CGI hereby disclaims any express or implied warranty that all or any portion of the Project intended to be created or developed pursuant to this Development Agreement will perform in accordance with the Project Description or any other criteria. ARTICLE 5 - PROJECTED COST; PAYMENT 5.1 CGI's Projected Cost for the Project is $ [ ]. An itemized account of the Projected Cost including person-year rates applied as Alliance, Technology and/or Co-Development Rates as defined in the GLA is set forth in Exhibit 2 attached hereto. Modifications to the Projected Cost (and any payments under Section 5.2) shall be governed by Sections 9.4 and 14.7 of the GLA. 5.2 Licensee shall pay to CGI, in consideration for CGI's performance of its obligations under this Development Agreement, the sum of $ [ ] in accordance with the payment schedule set forth in Article 5 of the GLA. ARTICLE 6 - PROJECTED DATE 6.1 The Projected Date for completion of the Project is FEBRUARY 29, 1996. A time schedule listing projected dates for completion of interim stages of the Project is set forth in Exhibit 3 attached hereto. 6.2 CGI shall use its best efforts to complete the Project by the Projected Date. Except for the obligations set forth in Article 9 of the GLA regarding any Agreed Completion Date set forth in Exhibit 3 of this Development Agreement, CGI hereby disclaims any express or implied warranty that all or any portion of the Project intended to be created or developed pursuant to this Development Agreement will be completed on any date certain, including the Projected Date. ARTICLE 7 - TERMS OF DELIVERY AND RISK OF LOSS 7.1 CGI will deliver, at its expense, to Licensee any Deliverables and Licensee Specific Technology in accordance with the Exhibits hereto. 19-001-96 JANUARY 2, 1996 5 7.2 CGI will bear the risk of loss or destruction of such Deliverables and Licensee Specific Technology until the delivery of such items to Licensee at the location designated by Licensee. For the purposes hereof, "delivery" shall mean physical delivery to a facility and shall not include installation. ARTICLE 8 - INSTALLATION 8.1 CGI will provide, at Licensee's request and expense, technical assistance to Licensee sufficient for the proper installation of Deliverables and Licensee Specific Technology in Licensee facilities. Such assistance may include, if deemed necessary by Licensee, the presence of one or more CGI employees at Licensee facilities to assist in such installation. Licensee will pay, in accordance with the GLA, travel, room and board expense incurred by such employees of CGI. 8.2 Licensee will bear the risk of loss or destruction of the Deliverables, Licensee Specific Technology or any other items delivered to Licensee facilities during and after installation. ARTICLE 9 - OPERATIONAL TRAINING CGI will provide, in accordance with Article 6 of the GLA, adequate training to no more than 0 Licensee employees regarding the proper operation and use of Deliverables, Licensee Specific Technology and Generic Research Technology created in the course of the Project. ARTICLE 10 - MAINTENANCE CGI will perform maintenance and repair services on Deliverables, Licensee Specific Technology and Generic Research Technology in accordance with the GLA. ARTICLE 11 - MODIFICATIONS AND AMENDMENTS Any modifications to the Project or to this Development Agreement, including but not limited to modifications to the Project Description, the Projected Costs, or the Projected Date, to which the parties agree after the date of execution of the Development Agreement, will be evidenced by a written supplement to this Development Agreement executed by both parties. 19-001-96 JANUARY 2, 1996 6 ARTICLE 12 - INTEGRATION This Development Agreement, the Exhibits attached hereto and the terms of the GLA set forth the entire and exclusive agreement and understanding of the parties relating to the subject matter contained herein, and supersede all prior and contemporary discussions. Neither party will be bound by any definition, condition, warranty or representation except as expressly set forth in this Development Agreement or the GLA or as subsequently set forth in writing signed by authorized representatives of each party. IN WITNESS WHEREOF, Licensee and CGI have executed this Development Agreement in duplicate by their respective authorized representatives. CARNEGIE GROUP, INC. LICENSEE BY: /s/ DENNIS YABLONSKY BY: /s/ CAT REUSSWIG -------------------- ------------------ TITLE: President/CEO TITLE: Director -------------------- ------------------ 19-001-96 JANUARY 2, 1996 7 EXHIBIT 1 PROJECT DESCRIPTION This agreement covers the consulting services to be performed by Carnegie Group, Inc. for U S WEST in support of the Sales Support and Account Management (SSAM) Assessment project and is the follow-on agreement to Development Agreement 19-001-95. The objective of this assessment is to develop an integrated sales support and account management strategy (i.e., systems approach) for Mass Markets to coordinate the efforts currently underway to meet the needs of the sales consultants in the business centers. [ ] [ ] [ ] [ ] 19-001-96 JANUARY 2, 1996 8 EXHIBIT 2 PROJECTED COST The total cost of the work to be performed will be $ [ ] based on estimated time and materials and 1995 actual and 1996 estimated travel expenses. The 1995 actual travel expenses are a result of work that was performed under the preceding Development Agreement 19-001-95 and have been approved by U S WEST for deferral and payment under this Agreement. U S WEST may, at its discretion, close the consulting project or the involvement of CGI resources by providing a written notice to the CGI Program Manager. If such an eventuality occurs, the respective resources will be given a ramp down period of two weeks to find other work. Estimated costs for the project are provided below. Note that the Alliance and Volume discounts are subtracted from the standard time and material costs. Total Time and Materials Costs [ ] Less 5% Alliance Discount [ ] Less 5% Volume Discount [ ] Total Contract Engineering $[ ] Estimated Travel [ ] ---------------- --------- TOTAL PROJECT COSTS $[ ] Additionally, we are providing the estimated hours by functional labor category: CATEGORY HOURS - - --------------------------------------------- Sr. Manager [ ] - - --------------------------------------------- Sr. Business Consultant [ ] - - --------------------------------------------- Business Consultant [ ] - - --------------------------------------------- Admin Support [ ] - - --------------------------------------------- CGI Total Hours [ ] - - --------------------------------------------- 19-001-96 JANUARY 2, 1996 9 EXHIBIT 3 SCHEDULE The proposed work was initiated in 1995 under Development Agreement 19-001-95 and will be continued in 1996 with a continuation date of January 1, 1996 and completion scheduled for no later than February 29, 1996. 19-001-96 JANUARY 2, 1996 10 EXHIBIT 4 DELIVERABLES CGI will provide two (2) detailed Analysis Reports to U S WEST, one each for SBG and H&PS. The reports will detail the investigations, analysis, requirements and recommendations for addressing the high priority needs of each organization. The reports will include a mapping of the functional requirements found during the analysis across Mass Markets to specific applications: [ ] etc. The reports will also include an asset evaluation of the [ ] and [ ] systems, and will incorporate the recommended transition implementation steps to achieve the consolidation of these systems. Additionally, CGI will provide U S WEST with regular status updates in the form of scheduled meetings that detail the efforts performed and the time consumed to perform those efforts. Other than these reports, CGI does not have any specific project deliverables but is providing expertise on an hourly basis. Project deliverables are under U S WEST direction. 19-001-96 JANUARY 2, 1996 EX-10.02 3 CARNEGIE GROUP INC. 10-Q 1 EXHIBIT 10.02 Confidential treatment with respect to certain information in this Exhibit has been requested of the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The bracketed portions of this Exhibit have been omitted from the material filed in accordance with Rule 24b-2 and have been filed separately with the Commission. 2 DEVELOPMENT AGREEMENT NO. 35-001-96 CALL HANDLING / FRONT END SCREEN & ROUTE This Development Agreement is entered into on the 1st day of March, 1996 by and between U S WEST Advanced Technologies, Inc., a Colorado corporation ("USW-Technologies"), U S WEST Communications, Inc., a Colorado corporation ("USW-Communications"), (hereinafter USW-Technologies, USW-Communications and their Affiliates will be collectively referred to as "Licensee"), and Carnegie Group, Inc., a Delaware corporation with a principal place of business at Five PPG Place, Pittsburgh, PA 15222 ("CGI"). ARTICLE 1 - RECITALS 1.1 Licensee and CGI entered into a General License Agreement (the "GLA") on December 17, 1992 in which the parties committed to enter into a series of Artificial Intelligence ("AI") technology research, experimentation and development agreements ("Development Agreements") over a period beginning on the Effective Date, as defined in the GLA, and ending on the fourth anniversary of the Effective Date. 1.2 Licenses and CGI now desire to enter into this Development Agreement pursuant to which the parties, as contemplated by the GLA, will commit to a project of specific research, experimentation and development as stated herein. NOW, THEREFORE, in consideration of the mutual covenants set forth in this Development Agreement, Licensee and CGI agree as follows: ARTICLE 2 - DEFINITIONS 2.1 Defined terms used in this Development Agreement shall have the meanings set forth in Article 2 of the GLA, unless different meanings are specifically set forth in this Development Agreement. 2.2 "Project" means the specific research, experimentation and development which CGI will perform for Licensee under this Development Agreement. CH/FES&R 35-001-96 MARCH 27, 1996 3 2.3 "Project Description" means a detailed written description of the Project, including but not limited to: (a) any Deliverable Performance Specifications; and (b) a listing which identifies and describes, as to the Project: (i) any Deliverables intended to be created in the course of the Project; and (ii) any Licensee Specific Technology intended to be created in the course of the Project; and (iii) any Licensee Proprietary Information or Licensee Confidential Information to be made available to CGI in the course of the Project; and (iv) any Generic Research Technology intended to be created in the course of the Project. 2.4 "Projected Cost" means that projected cost referred to in Article 9 of the GLA and set forth in Article 5 hereof. 2.5 "Projected Date" means the projected date for completion of the Project agreed upon by the parties and set forth in Article 6 hereof, including any Agreed Completion Date. ARTICLE 3 - EFFECT OF THE GLA This Development Agreement is subject in all respects to the terms and conditions of the GLA. Ownership of Generic Research Technology developed hereunder is vested in U S WEST, in accordance with Article 3.3 of the GLA and the payment of Alliance rates by Licensee to CGI as provided in Exhibit 2, attached hereto. ARTICLE 4 - PROJECT DESCRIPTION 4.1 The Project Description is set forth in Exhibit 1 attached hereto. 4.2 CGI shall use its best efforts to complete the Project in accordance with the Project Description. Except for the warranties set forth in Article 8 of the GLA CH/FES&R 35-001-96 MARCH 27, 1996 4 regarding any Deliverable Performance Specifications set forth in Exhibit 1 of this Development Agreement, CGI hereby disclaims any express or implied warranty that all or any portion of the Project intended to be created or developed pursuant to this Development Agreement will perform in accordance with the Project Description or any other criteria. ARTICLE 5 - PROJECTED COST; PAYMENT 5.1 CGI's Projected Cost for the Project is $ [ ]. An itemized account of the Projected Cost including person-year rates applied as Alliance, Technology and/or Co-Development Rates as defined in the GLA is set forth in Exhibit 2 attached hereto. Modifications to the Projected Cost (and any payments under Section 5.2) shall be governed by Sections 9.4 and 14.7 of the GLA. 5.2 Licensee shall pay to CGI, in consideration for CGI's performance of its obligations under this Development Agreement, the sum of $ * in accordance with the payment schedule set forth in Article 5 of the GLA. *represents time and material costs in accordance with Exhibit 2 of this Development Agreement ARTICLE 6 - PROJECTED DATE 6.1 The Projected Date for completion of the Project is September 6, 1996. A time schedule listing projected dates for completion of interim stages of the Project is set forth in Exhibit 3 attached hereto. 6.2 CGI shall use its best efforts to complete the Project by the Projected Date. Except for the obligations set forth in Article 9 of the GLA regarding any Agreed Completion Date set forth in Exhibit 3 of this Development Agreement, CGI hereby disclaims any express or implied warranty that all or any portion of the Project intended to be created or developed pursuant to this Development Agreement will be completed on any date certain, including the Projected Date. ARTICLE 7 - TERMS OF DELIVERY AND RISK OF LOSS 7.1 CGI will deliver, at its expense, to Licensee any Deliverables and Licensee Specific Technology in accordance with the Exhibits hereto. CH/FES&R 35-001-96 MARCH 27, 1996 5 7.2 CGI will bear the risk of loss or destruction of such Deliverables and Licensee Specific Technology until the delivery of such items to Licensee at the location designated by Licensee. For the purposes hereof, "delivery" shall mean physical delivery to a facility and shall not include installation. ARTICLE 8 - INSTALLATION 8.1 CGI will provide, at Licensee's request and expense, technical assistance to Licensee sufficient for the proper installation of Deliverables and Licensee Specific Technology in Licensee facilities. Such assistance may include, if deemed necessary by Licensee, the presence of one or more CGI employees at Licensee facilities to assist in such installation. Licensee will pay, in accordance with the GLA, travel, room and board expense incurred by such employees of CGI. 8.2 Licensee will bear the risk of loss or destruction of the Deliverables, Licensee Specific Technology or any other items delivered to Licensee facilities during and after installation. ARTICLE 9 - OPERATIONAL TRAINING CGI will provide, in accordance with Article 6 of the GLA, adequate training to no more than 0 Licensee employees regarding the proper operation and use of Deliverables, Licensee Specific Technology and Generic Research Technology created in the course of the Project. ARTICLE 10 - MAINTENANCE CGI will perform maintenance and repair services on Deliverables, Licensee Specific Technology and Generic Research Technology in accordance with the GLA. ARTICLE 11 - MODIFICATIONS AND AMENDMENTS Any modifications to the Project or to this Development Agreement, including but not limited to modifications to the Project Description, the Projected Costs, or the Projected Date, to which the parties agree after the date of execution of the Development Agreement, will be evidenced by a written supplement to this Development Agreement executed by both parties. CH/FES&R 35-001-96 MARCH 27, 1996 6 ARTICLE 12 - INTEGRATION This Development Agreement, the Exhibits attached hereto and the terms of the GLA set forth the entire and exclusive agreement and understanding of the parties relating to the subject matter contained herein, and supersede all prior and contemporary discussions. Neither party will be bound by any definition, condition, warranty or representation except as expressly set forth in this Development Agreement or the GLA or as subsequently set forth in writing signed by authorized representatives of each party. IN WITNESS WHEREOF, Licensee and CGI have executed this Development Agreement in duplicate by their respective authorized representatives. CARNEGIE GROUP, INC. LICENSEE By: /s/ BRUCE RUSSELL By: /s/ DENNIS A. DEMPSEY ------------------ --------------------- Title: EVP/COO Title: VP-IDA ------------------ --------------------- CH/FES&R 35-001-96 MARCH 27, 1996 7 EXHIBIT 1 PROJECT DESCRIPTION INTRODUCTION This agreement covers efforts to be performed by CGI from March 1, 1996 through September 6, 1996 for U S WEST in support of the Call Handling/Front End Screen & Route (FES&R) project. The overall Call Handling/FES&R project is being undertaken by U S WEST to deliver two system deployments: Phase I in February 1996, which has been delivered, and Phase II in July 1996. The deliverables covered by this agreement are in support of both the Phase I and Phase II deployments, however because of the time period covered, most of the deliverables are in support of the Phase II Deployment. The Call Handling Project Scope was defined in a Memorandum from Rod Morgan, Technologies Project Manager, Call Handling dated September 5, 1995 and is attached for reference to this agreement. CGI used this memorandum and the Functional Requirements: Call Handling Capabilities document dated October 5, 1995 to estimate this agreement. Any changes to the Project Scope or the Functional Requirements would require Change Orders to this agreement. CGI ROLES AND RESPONSIBILITIES Based on the defined scope and deliverables and the architecture design and the detailed design work that was done by CGI and U S WEST, the following roles and responsibilities can be defined for the Call Handling Project: CGI will be responsible for detail design, development, test (unit test and component integration test), documentation, and delivery of the Routing Engine. The specific modules that CGI will be responsible for include: [ ] [ ] [ ] CH/FES&R 35-001-96 MARCH 27, 1996 8 [ ] [ ] [ ] CGI will be responsible for the detailed design, development, test (unit test and component integration test), documentation, and delivery of the Verification/Validation Utilities. The five specific utilities that CGI will be responsible for include: [ ] [ ] [ ] [ ] [ ] [ ] CGI will be responsible for the engineering management of the CGI resources and delivery management of the CGI deliverables. CGI will be responsible for status reporting to U S WEST and participating in status meetings. CGI will be responsible for system support (problem tracking and resolution) during the integration testing, the system testing, the production and user acceptance testing, and the deployment tasks. U S WEST ROLES AND RESPONSIBILITIES(1) U S WEST will be responsible either directly or indirectly (from outside vendors) for the design, development, testing, integration, documentation and deployment of all other modules, including but not limited to: ____________________ (1) Some of the tasks involved in delivering the U S WEST Responsibilities may be assigned to CGI in other Development Agreements, but are listed here to clearly indicate that they are not in the scope of this Agreement. CH/FES&R 35-001-96 MARCH 27, 1996 9 AT&T VRU Interface AT&T ACD/MIS Feed AT&T ACD Upgrades-TN to ACD Set VRU Hardware Upgrades VRU Scripting Data Models - Logical and Physical Data Extract Programs for: [ ] [ ] [ ] [ ] [ ] Data Batch Load Programs/Conversion Programs for: [ ] [ ] [ ] [ ] SYAD Tools End-User Table Maintenance Tools - including Users Guide and Consistency & Validation Rules, but excluding the Verification/Validation Utilities supplied by CGI. Setup and population of the databases including: the development database the unit test database the integration test database the system test database the production test database the production database U S WEST will be responsible for assigning the full-time equivalent engineers needed to take over the maintenance and support of the Routing Engine and the Verification/Validation Utilities. CGI will transfer the technology required to these engineers starting May 29, 1996. U S WEST will be responsible for ordering, installing, and making available the Development Environment (including HP and Sequent File Servers), the Test Environments (unit, integration, system, and production test environments), and the Production Environment in a timely manner. U S WEST will assume overall project management responsibility. U S WEST will be responsible for the Deployment Strategy and Deployment Plan. U S WEST will be responsible for the Operational Impact Analysis. U S WEST will be responsible for defining the Change Control Methodology. U S WEST will be responsible for defining the Call Flow Definitions and the Current/New Process Definitions. CH/FES&R 35-001-96 MARCH 27, 1996 10 U S WEST will be responsible for porting the existing VRU Applications to the new platforms. U S WEST will be responsible for developing the Communications Plan. U S WEST will be responsible for developing the Technical Trial Plan. U S WEST will be responsible for scope and expectation setting with the Clients. U S WEST will provide Subject Matter Experts (SMES) for the CGI design and development efforts, including expertise on tuning and programming on the Sequent Platform, as well as Call Routing Expertise. U S WEST will be responsible for the move of the Development Code to the Test and Production Hosts. U S WEST will be responsible for the management and implementation of the System and Production Testing Processes. U S WEST will be responsible for the management and implementation of the Training Program for Call Handling, including both end-user and SYAD training. U S WEST was responsible for the completion of the Business Case and obtaining the funding for the two phase delivery. JOINT CGI AND U S WEST ROLES AND RESPONSIBILITIES CGI will share the responsibility of managing the Clients expectations in all meetings by presenting perceived changes in direction or scope to the Call Handling Project Manager. CGI will share the responsibility of establishing Acceptance Criteria and Acceptance Test Plans for the Routing Engine and the overall system. CGI will share the responsibility for developing the System and Production Test Plans. CGI will share the responsibility for producing the System Administration Procedures and Documentation, specifically for the Routing Engine. CGI will share the responsibility of installing all hardware and software for the Routing Engine in all Environments. CGI will share the responsibility of training the "trainers" on the System Administration Functions for the Routing Engine. CGI will share the responsibility of performance modeling and tuning of the Routing Engine. CH/FES&R 35-001-96 MARCH 27, 1996 11 DETAILED PROJECT DESCRIPTION This agreement covers efforts to be performed by CGI from March 1, 1996 through September 6, 1996 for U S WEST in support of the Call Handling/FES&R project. The deliverables involved are in support of both the Phase I and Phase II Deliverables and are further described in Exhibit 4. The work covered under this agreement will deliver software modules and utilities that run on the specially configured Sequent and HP hardware. The effort also includes the work necessary to integrate and test the CGI delivered modules with the other hardware and software modules to be supplied by AT&T and the U S WEST Project Team. The currently known dependencies, risks, and assumptions associated with the integration of the CGI delivered modules with the other hardware and software modules are specified in Exhibit 3 of this agreement, which covers schedule and statement of work. [ ] A. [ ] B. [ ] C. [ ] D. [ ] E. [ ] F. [ ] CH/FES&R 35-001-96 MARCH 27, 1996 12 EXHIBIT 2 PROJECTED COST The total cost of the work to be performed will be $ [ ] based on estimated time and materials. No travel is anticipated. Should travel become a necessity for the project, U S WEST agrees to pay CGI travel expenses for all pre-approved trips. It is planned that U S WEST will provide the majority of the platforms and software for the project work environment and CGI will work at the U S WEST site. Because this reflects a cost savings benefit to CGI, a [ ]% Computer & Facilities discount is included in the project costs. Work requiring platforms and software outside of this environment will be requested by U S WEST. It is planned that U S WEST will provide availability to the nonstandard items to CGI for the duration of the project should any be required. U S WEST may, at its discretion, close the project or the involvement of CGI resources by providing a written notice to the CGI Program Manager. If such an eventuality occurs, the respective resources will be given a ramp down period of [ ] weeks to find other work. Upon completion of the [ ] week ramp down period, U S WEST will be obligated to CGI for the time and materials expended up to and including the [ ] week ramp down. Estimated costs for the project are provided below. Note that the Alliance, Volume, and Facilities discounts are subtracted from the standard time and material costs. The Volume discount for this Agreement considers the project as a whole and applies the costs from previously signed development agreement(s) with this Agreement when calculating Volume discount. Total Time and Materials Costs $ [ ] Less [ ]% Alliance Discount [ ] Less [ ]% Volume Discount [ ] Less [ ]% Computer Facilities Discount [ ] -------------------------------------- ------------- Total Contract Engineering $[ ]
CH/FES&R 35-001-96 MARCH 27, 1996 13 Additionally, we are providing the estimated hours by category:
CATEGORY EST. 96 HOURS Sr. Manager [ ] Manager [ ] Sr. Engineer 2 [ ] Sr. Engineer 1 [ ] Engineer [ ] Associate Engineer [ ] ------------------------------------------------- CGI Total Hours [ ] -------------------------------------------------
Exhibit 3 contains a further breakdown of estimated costs per task. The estimated costs provided in Exhibit 3 are based on Carnegie Group's best estimates and are subject to change, based on the interdependent nature of the tasks and the noted assumptions and dependencies in Exhibit 3. CH/FES&R 35-001-96 MARCH 27, 1996 14 EXHIBIT 3 SCHEDULE AND STATEMENT OF WORK The following table summarizes the remaining Tasks, Schedule and the Estimated Costs for the Carnegie Group (CGI) Deliverables for the Phase I Deployment that are covered under this agreement. Tasks that are already completed and were previously funded under Development Agreements: 35-001-95 and 35-002-95, are darkly shaded. The Estimated Costs given below by task are based on Carnegie Group's best estimates and are subject to change, based on the interdependent nature of the tasks and the noted assumptions and dependencies in this exhibit.
------------------------------------------------------------------------------------------------- CGI TASKS Start Finish CGI Deliverables Estimated Cost ------------------------------------------------------------------------------------------------- FES&R Phase I 1996 Release ------------------------------------------------------------------------------------------------- DESIGN ------------------------------------------------------------------------------------------------- Architecture Design 9/1/95 9/15/95 Arch Document ------------------------------------------------------------------------------------------------- Detailed Design & Prototyping 9/1/95 9/29/95 Design Notes ------------------------------------------------------------------------------------------------- CONSTRUCTION ------------------------------------------------------------------------------------------------- Programming and Unit Test - V1 10/2/95 10/27/95 V1 Software ------------------------------------------------------------------------------------------------- Demo to Client V1 11/10/95 11/10/95 Demonstration ------------------------------------------------------------------------------------------------- Programming and Unit Test - V2 11/1/95 12/15/95 V2 Software ------------------------------------------------------------------------------------------------- Demo to Client V2 12/15/95 12/15/95 Demonstration ------------------------------------------------------------------------------------------------- Documentation 11/22/95 1/15/96 SysAdmin Guide ------------------------------------------------------------------------------------------------- Integration Testing 11/15/95 1/5/96 Sys Test Release ------------------------------------------------------------------------------------------------- TESTING ------------------------------------------------------------------------------------------------- System Testing 12/18/95 2/13/96 Testing Support ------------------------------------------------------------------------------------------------- User Acceptance Testing 2/14/96 3/1/96 Testing Support ------------------------------------------------------------------------------------------------- Software Accepted 3/1/96 3/1/96 Acceptance ------------------------------------------------------------------------------------------------- DEPLOYMENT ------------------------------------------------------------------------------------------------- Production Build 3/1/96 3/14/96 Phase I Release $[ ] -------------------------------------------------------------------------------------------------
CH/FES&R 35-001-96 MARCH 27, 1996 15 ------------------------------------------------------------------------------------------------- Install Software 3/8/96 3/15/96 Installation Sup $[ ] ------------------------------------------------------------------------------------------------- Train Trainees & SYADs 3/4/96 3/15/96 Training Support $[ ] ------------------------------------------------------------------------------------------------- Begin Phase I Rollout 3/19/96 ------------------------------------------------------------------------------------------------- Support Phase I Deployment 3/1/96 Until Problem Tracking $[ ] Phase II & Resolution Rollout (8/2/96) ------------------------------------------------------------------------------------------------- Project End $[ ] -------------------------------------------------------------------------------------------------
The following table summarizes the current Work Plan and Schedule for the CGI deliverables for the Phase II Deployment. Tasks that have already been initiated under the previously funded Development Agreements: 35-001-95 and 35-002-95, are lightly shaded. The majority of the deliverables covered under this agreement are included in this table.
------------------------------------------------------------------------------------------------- CGI TASKS Start Finish CGI Deliverables Estimated Cost ------------------------------------------------------------------------------------------------- FES&R Phase II 1996 Release ------------------------------------------------------------------------------------------------- DESIGN ------------------------------------------------------------------------------------------------- Architecture Design Review 1/2/96 3/18/96 $[ ] ------------------------------------------------------------------------------------------------- Detailed Design for Extensions 1/2/96 3/18/96 Design Notes $[ ] ------------------------------------------------------------------------------------------------- CONSTRUCTION ------------------------------------------------------------------------------------------------- Programming and Unit Test - V3 3/19/96 4/16/96 V3 Software $[ ] ------------------------------------------------------------------------------------------------- Demo to Client V3 4/17/96 4/17/96 Demonstration $[ ] ------------------------------------------------------------------------------------------------- Programming and Unit Test - V4 4/17/96 5/3/96 V4 Software $[ ] ------------------------------------------------------------------------------------------------- Documentation 1/2/96 5/31/96 Sys Admin Doc $[ ] ------------------------------------------------------------------------------------------------- Integration Testing 5/6/96 5/31/96 Sys Test Release $[ ] ------------------------------------------------------------------------------------------------- Demo to Client V4 5/29/96 5/29/96 Demonstration $[ ] ------------------------------------------------------------------------------------------------- TESTING ------------------------------------------------------------------------------------------------- System Testing 5/29/96 6/28/96 Testing Support $[ ] ------------------------------------------------------------------------------------------------- User Acceptance Testing 6/28/96 7/19/96 Testing Support $[ ] -------------------------------------------------------------------------------------------------
CH/FES&R 35-001-96 MARCH 27, 1996 16 ------------------------------------------------------------------------------------------------- Software Accepted 7/19/96 7/19/96 Acceptance ------------------------------------------------------------------------------------------------- DEPLOYMENT ------------------------------------------------------------------------------------------------- Production Builds 7/19/96 7/31/96 Phase II Releases $[ ] ------------------------------------------------------------------------------------------------- Install Software 7/31/96 8/2/96 Installation Sup $[ ] ------------------------------------------------------------------------------------------------- Train Trainees & SYADs 7/31/96 8/2/96 Training Support $[ ] ------------------------------------------------------------------------------------------------- Begin Phase II Rollout 8/2/96 ------------------------------------------------------------------------------------------------- Support Phase II Release 8/2/96 9/6/96 Problem Tk & Res $[ ] ------------------------------------------------------------------------------------------------- TRANSFER TECHNOLOGY 5/29/96 9/6/96 Technology Trans. $[ ] ------------------------------------------------------------------------------------------------- Project End 9/6/96 $[ ] -------------------------------------------------------------------------------------------------
The following assumptions/dependencies were assumed in creating the above Work Plans/Schedules and changes in the assumptions/dependencies may effect the schedule, costs and deliverables listed in this agreement. CGI, when providing their monthly project status reports, will identify issues and jeopardies that are being caused by any of the following assumption/dependencies being violated, and jeopardies will indicate that, unless the situation is resolved, a change order to this agreement will have to be issued because of the schedule/cost impacts. CH/FES&R 35-001-96 MARCH 27, 1996 17 ASSUMPTIONS/DEPENDENCIES The Detailed Design for the CGI Module Extensions for the Phase II Routing Engine Release can only be completed by March 18, 1996 if U S WEST provides the client SMEs to detail and agree on the detailed functional requirements by March 11, 1996. The Development Environment: Sequent & HP machines, user ids, directory structure, SCM tools, database structures and DDL, some data population, desks, terminals, etc., must remain stable and available through out the Phase II Development process. Other modules/components not being developed/purchased by CGI must be in place and configured by May 6, 1996, for the start date for the Integration Testing. These include, but are not limited to: [ ] and new voice scripts. It is assumed that Integration Testing will be done using the Development Environment. The system can not be released to System Test until it passes the Integration Test (with zero critical problems) and it can not be released to Production without first passing System Test and the User Acceptance Testing. User Acceptance Testing takes place in the System Test Environment. The development of the User Acceptance Test Plan and Criteria are the responsibility of U S WEST and the Clients. The System Test Environment must be established and made available by U S WEST by May 29, 1996. Establishment of the Environment is the responsibility of the U S WEST System Test Group. The Production Data, [ ], must be specified and populated by U S WEST by July 31, 1996 for Production Release. The Production Environment must be established and made available by U S WEST by July 31, 1996. CH/FES&R 35-001-96 MARCH 27, 1996 18 Test Plans, Environments, Scenarios and Test Data must be identified by U S WEST and in place by the start of the Integration (5/6/96), User Acceptance (6/28/96), and System Test (5/29/96) Phases. The Test Data and Scenarios are the responsibility of the U S WEST Clients but will be shared by CGI. The System Test Plan is the responsibility of the U S WEST System Test Group. The dates for the final production builds for both Phase I & II are dependent on the dates that the U S WEST Project Manager sets for the start of each phases deployment, which may be sometime after the software has been accepted. CGI assumes that this date will be within two weeks after the software is accepted. Additional, specific CGI assumptions include: The detailed design and prototyping tasks need to be completed before the programming and unit testing tasks can begin. Formal technology transfer from CGI to U S WEST will be done in parallel to system and user acceptance testing and production support for the Phase II Release. This requires that the U S WEST engineers who will take over support and maintenance of the technology be brought on-board by May 29, 1996. 12. The Customer Access Experience Scripts and associating routing data need to be specified for integration with the routing engine modules. 13. The Account Activity Module is dependant upon extracts from Legacy Systems. ([ ]) CH/FES&R 35-001-96 MARCH 27, 1996 19 EXHIBIT 4 DELIVERABLES The deliverables covered under this agreement are classified as Licensee Specific Technology. It is not intended that any new Generic Research Technology will be created in the course of this Project. The following are the deliverables covered under this agreement for the Phase I Deployment: PHASE I DELIVERABLES SOFTWARE Routing Engine Software - Production Build Routing Engine Software - Phase I Emergency Builds (if required) SERVICES AND SUPPORT User Acceptance Testing Support Installation Support System Administration Training Support System Support (Problem Tracking & Resolution - Bug Fixes) CH/FES&R 35-001-96 MARCH 27, 1996 20 The following are the deliverables covered under this Agreement for the Phase II Deployment: PHASE II DELIVERABLES SOFTWARE Routing Engine Software - System Test Release Routing Engine Software - User Acceptance Test Release Routing Engine Software - Production Release Routing Engine Software - Phase II Emergency Builds (if required) DOCUMENTATION Routing Engine Design Document/Notes Extension/Updates Input/Review of System Admin Guide for Routing Engine Unit/Component Integration Test Plan for Routing Engine Input/Review to User Acceptance Test Plan Input/Review to System Test Plan SERVICES AND SUPPORT V3 Client Demonstration V4 Client Demonstration Unit Testing Integration Testing Integration Testing Support System Testing Support Installation Support User Acceptance Testing Support System Administration Training Support System Support (Problem Tracking & Resolution - Bug Fixes) Technology Transfer to U S WEST Operational Support CH/FES&R 35-001-96 MARCH 27, 1996 21 CGI will deliver one copy of each Deliverable to the appropriate U S WEST Project Manager along with a letter to be mutually signed by the parties, acknowledging delivery, receipt and acceptance of the Deliverable. If U S WEST does not sign and return the letter or provide a written list of the items that are not in compliance with the project specifications within ten (10) business days after delivery, then the Deliverable shall be deemed accepted. In addition, CGI will provide U S WEST with monthly status reports including blue angels (tasks completed/delivered), issues (yellow status), and jeopardies (red status), as well as the hours expended by month and to date on specific task breakdowns. A monthly meeting between CGI and U S WEST will be held to review the project status and discuss any proposed changes, including functionality/scope changes that would necessitate a change order being written against this agreement. CH/FES&R 35-001-96 MARCH 27, 1996 EX-27 4 CARNEGIE GROUP INC. 10-Q
5 0001001188 CARNEGIE GROUP, INC. 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 12,239,817 0 8,772,007 0 0 22,470,400 1,957,312 0 26,029,896 5,525,908 0 64,363 0 0 20,413,289 26,029,896 129,941 8,323,340 5,064,193 2,314,983 0 0 4,857 1,092,572 409,387 683,185 0 0 0 683,185 0 .10
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