-----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, A/hldqQ9DijngkBz4iF8A7+5pvYbxqfNS+8Cq31Xob3ysHesW+1+CoTMxYnTSYF3 XIWi4BjWSy/+UXKDfgUt/A== 0000950128-98-000988.txt : 19980817 0000950128-98-000988.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950128-98-000988 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARNEGIE GROUP INC CENTRAL INDEX KEY: 0001001188 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 251435252 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26964 FILM NUMBER: 98691281 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. 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 JUNE 30, 1998 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 JULY 31, 1998 ----- ---------------------------- Common Stock, $.01 par value 6,553,624 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 and six months ended June 30, 1998 and 1997 Carnegie Group, Inc. and Subsidiaries 4 Consolidated Balance Sheets at June 30, 1998 and December 31, 1997 Carnegie Group, Inc. and Subsidiaries 5 Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997 Notes to Unaudited Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of 8 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
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CARNEGIE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED --------------------------------------------------------- JUNE JUNE JUNE JUNE 30, 30, 30, 30, 1998 1997 1998 1997 --------------------------------------------------------- Revenue Software services--Unrelated parties $4,858,684 $6,078,572 $ 8,693,518 $11,578,304 Software services--Related parties 3,483,209 1,681,074 6,892,174 2,688,182 ---------- ---------- ----------- ----------- Total software services 8,341,893 7,759,646 15,585,692 14,266,486 Software licenses 214,828 98,361 574,458 723,439 ---------- ---------- ----------- ----------- Total revenue 8,556,721 7,858,007 16,160,150 14,989,925 ---------- ---------- ----------- ----------- Costs and expenses: Cost of revenue - Unrelated parties 3,459,181 3,785,525 6,360,486 7,623,025 Cost of revenue - Related parties 2,346,750 924,949 4,625,847 1,506,694 ---------- ---------- ----------- ----------- Total cost of revenue 5,805,931 4,710,474 10,986,333 9,129,719 Research and development 366,141 392,864 560,776 750,546 Selling, general and administrative 2,153,967 2,061,187 4,257,878 3,938,023 Write-off of purchased in-process research and development -- -- 2,425,000 -- ---------- ---------- ----------- ----------- Total costs and expenses 8,326,039 7,164,525 18,229,987 13,818,288 ---------- ---------- ----------- ----------- Income (loss) from operations 230,682 693,482 (2,069,837) 1,171,637 Other income (expense): Interest income 88,844 168,978 287,207 332,876 Other income 2,033 6,399 8,132 12,598 Interest expense 0 (3,408) (12,403) (7,053) ---------- ---------- ----------- ----------- Total other income 90,877 171,969 282,936 338,421 ---------- ---------- ----------- ----------- Income (loss) before income taxes 321,559 865,451 (1,786,901) 1,510,058 Income tax provision (149,757) (343,942) (273,478) (600,302) ---------- ---------- ----------- ----------- Net income (loss) $ 171,802 $ 521,509 $(2,060,379) $ 909,756 ---------- ---------- ----------- ----------- Basic earnings (loss) per share $ 0.03 $ 0.08 $ (0.32) $ 0.14 ========== ========== =========== =========== Diluted earnings (loss) per share $ 0.03 $ 0.08 $ (0.32) $ 0.13 ========== ========== =========== ===========
The accompanying notes are an integral part of these financial statements. 3 4 CARNEGIE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(UNAUDITED) JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,812,171 $13,483,284 Accounts receivable 4,048,633 2,955,241 Accounts receivable from related parties 1,786,399 3,396,859 Accounts receivable--unbilled 3,141,758 1,390,650 Accounts receivable related parties--unbilled 1,363,627 211,885 Deferred income taxes 1,908,639 2,005,855 Other current assets 1,028,088 871,931 ----------- ----------- Total current assets 19,089,315 24,315,705 ----------- ----------- Property and equipment, net of accumulated depreciation and amortization 2,717,148 2,568,758 Deferred income taxes 1,769,228 1,910,760 Long term notes receivable--from officers 803,356 784,984 Goodwill and other intangible assets 3,028,639 -- Other assets 3,982 10,597 ----------- ----------- Total assets 27,411,668 29,590,804 ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 1,194,419 $ 663,667 Payables to related parties 111,171 182,145 Accrued compensation 998,955 933,004 Advance billings and deferred revenue 1,865,987 2,388,660 Accrued rent 328,586 330,981 Accrued restructuring 162,882 598,723 Other accrued liabilities 547,821 423,544 Obligations under capital leases--current portion 167,927 -- ----------- ----------- Total current liabilities 5,377,748 5,520,724 ----------- ----------- Obligations under capital leases-noncurrent portion 77,565 -- ----------- ----------- Total liabilities 5,455,313 5,520,724 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value; 20,000,000 shares authorized, 6,775,704 and 6,707,934 shares issued at June 30, 1998 and December 31, 1997 respectively 67,757 67,079 Capital in excess of par value 31,807,444 31,704,241 Accumulated deficit (9,286,614) (7,226,240) Treasury stock, 242,400 and 190,000 shares (at cost) (632,232) (475,000) ----------- ----------- Total stockholders' equity 21,956,355 24,070,080 ----------- ----------- Total liabilities and stockholders' equity $27,411,668 $29,590,804 =========== ===========
The accompanying notes are an integral part of these financial statements. 4 5 CARNEGIE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED ---------------------------- JUNE 30, JUNE 30, 1998 1997 ------------ ----------- Cash flows from operating activities: Net income $(2,060,379) $ 909,756 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 791,562 602,433 Deferred income taxes 205,682 528,522 Write-off of purchased in-process research and development 2,425,000 -- Changes in working capital components, net of acquisition of business: Accounts receivable (2,042,939) (383,673) Accounts receivable - related parties 458,718 (1,183,253) Other assets (92,520) (226,140) Trade accounts payable 333,458 677,002 Payables to related parties (70,974) (741,731) Accrued compensation 65,951 91,578 Accrued rent (2,395) (135,726) Interest receivable (18,372) -- Accrued restructuring (435,842) -- Other accrued liabilities 72,942 720 Advance billings and deferred revenue (803,238) 1,084,068 ----------- ----------- Net cash (used in) provided by operating activities (1,173,346) 1,223,556 Cash flows from investing activities: Capital expenditures (609,713) (1,159,726) Acquisition of business (5,834,703) -- ----------- ----------- Net cash used in investing activities (6,444,416) (1,159,726) ----------- ----------- Cash flows from financing activities: Principal payments under capital lease obligations -- (27,899) Purchase of treasury stock (157,232) -- Proceeds from sales of common stock, net 103,881 91,762 ----------- ----------- Net cash (used in) provided by financing activities (53,351) 63,863 ----------- ----------- Net change in cash and cash equivalents (7,671,113) 127,693 Cash and cash equivalents: Beginning of period 13,483,284 14,691,765 End of period $ 5,812,171 $14,819,458 =========== ===========
The accompanying notes are an integral part of these financial statements. 5 6 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 six month periods ended June 30, 1998. 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, 1997 as filed with the Securities and Exchange Commission. ACQUISITION The Company acquired the capital stock of Advantage kbs, Inc. (Advantage kbs) on March 19, 1998. The initial consideration paid was $5,000,000 in cash, with terms of the transaction providing for additional consideration of up to $2,500,000 in cash, which is dependent on revenue and earnings of Advantage kbs for the year ending December 31, 1998. Financing for the initial consideration was obtained from available cash remaining from the proceeds of a public offering by the Company in December of 1995. The additional consideration, if incurred, will also be paid from the remaining proceeds of the December 1995 public offering. Advantage kbs, based in Edison, New Jersey, provides problem resolution software and professional services for automating customer support. The acquisition was treated as a purchase for financial accounting purposes, and accordingly the Company's results of operations include the results of Advantage kbs since the acquisition date. The purchase price was allocated to the net assets acquired based upon their estimated fair market values and $2,425,000 was written off as purchased in-process research and development. The excess of the purchase price over the fair market value of net assets acquired (related to capitalized software, goodwill and other intangible assets) amounted to approximately $3.1 million and is being amortized over periods ranging from 5 to 15 years using the straight line method. This allocation was based on preliminary estimates and may be revised as the year proceeds. The following unaudited proforma summary presents the Company's results of operations as if the acquisition had occurred at the beginning of the periods presented and does not purport to be indicative of what would have occurred had the acquisition been made as of those dates or of results which may occur in the future. JUNE 30, DECEMBER 31, 1998 1997 ----------- ------------ Sales $16,996,135 $32,589,000 Net income (loss) 165,219 (622,211) Basic earnings (loss) per share $ 0.03 $ (0.10) Diluted earnings (loss) per share $ 0.02 $ (0.10) EARNINGS PER COMMON SHARE The computation of basic and diluted earnings per common share is performed as follows:
6 months ended 3 months ended June 30, June 30, -------------------------- ------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Net Income (loss) $(2,060,379) $ 909,756 $ 171,802 $ 521,509 =========== ========== ========== ========== Weighted average common shares outstanding 6,512,252 6,287,407 6,528,036 6,296,648 Effect of dilutive options 309,564 642,635 310,593 608,700 ------- ------- ------- ------- Dilutive shares outstanding 6,821,816 6,930,042 6,838,629 6,905,348 =========== ========== ========== ========== Earnings (loss) per common share Basic $(0.32) $0.14 $ 0.03 $0.08 ====== ===== ====== ===== Diluted $(0.32) $0.13 $ 0.03 $0.08 ====== ===== ====== =====
RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." 6 7 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 adoption of SFAS No. 131 is 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. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 establishes standards for accounting for costs incurred in developing or procuring computer software for internal use. The Company will be required to adopt this standard effective January 1, 1999. The adoption of this standard is not expected to have a material effect on the Company's financial position, results of operations or cash flows. 7 8 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL Carnegie Group, Inc. ("Carnegie Group" or the "Company") provides business and technical consulting, client/server and Internet-based custom software development, third-party package implementation and systems integration services. The Company focuses on two business areas in the information technology professional services marketplace: customer interaction; and logistics, planning and scheduling. Within these areas, the Company helps clients in the financial services, government, manufacturing and telecommunications industries improve business processes, customer relations, productivity and market position. The Company's expertise encompasses a wide range of advanced software technologies, including knowledge management 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 its three-phased RAPID methodology to help provide speed and repeatable reliability in creating software solutions across different client engagements. RAPID begins with an Analysis phase, is followed by an Implementation phase, and ends with a Deployment phase. On March 19, 1998, the Company acquired all the outstanding stock of Advantage kbs for a purchase price of $5 million, plus an additional contingent payment of up to $2.5 million which is dependent upon revenue and earnings of Advantage kbs for the year ending December 31, 1998. Based in Edison, New Jersey, Advantage kbs provides problem resolution software and professional services for automating customer support. The Company believes that the acquisition of Advantage kbs will enhance its customer interaction and call center strategy by enabling the Company to offer Advantage's IQSupport Application Suite in the call center and help desk markets. In addition, the Company believes that the acquisition will broaden its capacity to offer business consulting services to its customers. The integration of Advantage kbs is subject to certain risks. The possible business and financial advantages of the acquisition may not be achieved unless the operations of Advantage kbs are successfully integrated with the Company in a timely manner. 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, the U. S. Army, Diebold, BellSouth Telecommunications, 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 June 30, 1998 was $10.4 million, compared to $12.4 million at June 30, 1997 and $8.7 million at December 31, 1997. 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. COMPARISON OF QUARTER AND SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997. Revenue. Total revenue for the quarter ended June 30, 1998 was $8.6 million compared to $7.9 million for the quarter ended June 30, 1997, an increase of $.7 million or 9%. For the six months ended June 30, 1998 revenue was $16.1 million compared to $15.0 million for the period ended June 30, 1997, an increase of $1.1 million or 7%. Total software services revenue for the quarter ended June 30, 1998 was $8.3 million compared to $7.8 million for the quarter ended June 30, 1997, an increase of $.5 million or 6%. This increase was the result of the inclusion of Advantage Kbs. Software service revenue for the six month period ended June 30, 1998 was $15.6 million compared to $14.3 million for the six month period ended June 30, 1997, an increase of $1.3 million or 9%. This increase was primarily due to the inclusion of Advantage Kbs along with an increase in the number of customer contact engagements. 8 9 Revenue from software licenses was $215,000 for the quarter ended June 30, 1998 compared to $98,000 for the quarter ended June 30, 1997, an increase of $117,000 or 119%. Revenue from software licenses was $574,000 for the six month period ended June 30, 1998 compared to $723,000 for the six month period ended June 30, 1997, a decrease of $149,000 or 21%. This decrease was attributable to the decreased sales of reusable software templates. 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 quarter ended June 30, 1998 total cost of revenue was $5.8 million compared to $4.7 million for the quarter ended June 30, 1997, an increase of $1.1 million or 23%. For the six month period ended June 30, 1998 total cost of revenue was $11.0 million compared to $9.1 million for the six month period ended June 30, 1997, an increase of $1.9 million or 21%. Cost of revenue-related parties was $4.6 million for the six month period ended June 30, 1998 compared to $1.5 million for the six month period ended June 30, 1997, an increase of $3.1 million or 207%. This increase in cost of revenue was primarily attributed to the acquisition or Advantage Kbs. Research and Development. Research and development expenses for the quarter ended June 30, 1998 were $366,000 compared to $393,000 for the quarter ended June 30, 1997, a decrease of $27,000 or 7%. For the six month period ended June 30, 1998 research and development expenses were $561,000 compared to $751,000 for the six month ended June 30, 1997, a decrease of $190,000 or 25%. 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 $4.3 million for the six month period ended June 30, 1998 compared to $3.9 million for the six month period ended June 30, 1997, an increase of $.4 million or 10%. This increase was due primarily to the acquisition of Advantage Kbs. Write-off of Purchased In Process Research and Development. During the first six months of 1998, $2.4 million of purchased in process research and development was written off related to the acquisition of Advantage kbs. Other Income (Expense). Other income (expense) for the quarter ended June 30, 1998 was $91,000 compared to $172,000 for the quarter ended June 30, 1997, a decrease of $81,000 or 47%. Other income for the 6 month period ended June 30, 1998 was $283,000 compared to $338,000 for the 6 month period ended June 30, 1997, a decrease of $55,000 or 16%. This income is primarily interest income earned on the company's cash reserves. Income Tax Provision. An income tax provision of $150,000 was recorded in the second quarter ended June 30, 1998 and $273,000 for the six months ended June 30, 1998 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 four years and future income expectations against the negative evidence of dependence upon a limited number of customers and other uncertainties and concluded that retaining a valuation allowance related to net operating losses was not necessary at December 31, 1996 and continues to be unnecessary. 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. For example, in the forth quarter of 1996 and 1995, as a result of its annual strategic business planning process, the Company reevaluated its future years' income expectations and recorded a discrete income tax benefit as an adjustment to the valuation allowance in each of those quarters. 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, 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 six months of 1998 the Company used $1,173,000 in cash for operating activities. Overall, the Company had a net use of cash amounting to $7,671,113. Approximately $5,000,000 was used in the acquisition of Advantage kbs. The Company's net accounts receivable increased by $1,584,221 in the six months ended June 30, 1998. 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-offs 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 decreased $803,000 in the six months ended June 30, 1998. 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 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 June 30, 1998 and December 31, 1997. This agreement was amended on June 30, 1998 by extending the expiration date to July 30, 1998, and is pending further extension to June 29, 1999. No borrowings were outstanding against the line of credit at June 30, 1998 or December 31, 1997. 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 1998 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 financing. 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. IMPACT OF YEAR 2000 ISSUE During 1997, the Company began a strategic project to replace and enhance its existing financial systems technology. While the decision to embark on this project was solely business-related, the new software that the Company implemented is Year 2000 compliant. Therefore, the Year 2000 issue will not pose significant operational problems for the Company's computer systems. The Company has designed a systems environment that is Year 2000 compliant and all systems are verified for Year 2000 compliance prior to purchase from suppliers. However, there can be no guarantee that the systems of other companies on which the Company's system rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have material adverse effect on the Company. The Company believes that it has no material exposure to contingencies related to the year 2000 Issue for systems it has developed for its clients. The Company is and will continue to utilize both internal and external resources to implement and test the software for Year 2000 modifications. The Company plans to complete the Year 2000 project by December 31, 1998. The total cost of the Year 2000 project is estimated at $550,000 and is being funded through operating cash flows. Of the total project cost, approximately $150,000 is attributed to the purchase of new software which was purchased and capitalized in 1997. The Company believes the remaining $80,000, some of which will be capitalized or expensed as incurred during 1998, will not have a material effect on the results of operations. To date, the Company has capitalized or expensed approximately $540,000 related to the assessment of, and preliminary efforts in connection with, its Year 2000 project. The costs of the project and the date on which the Company plans to complete the Year 2000 modifications are based on 10 11 management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modifications and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." 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 adoption of SFAS No. 131 is 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. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 establishes standards for accounting for costs incurred in developing or procuring computer software for internal use. The Company will be required to adopt this standard effective January 1, 1999. The adoption of this standard is not expected to have a material effect on the Company's financial position, results of operations or cash flows. 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 relatively limited number of major clients. For example, approximately 79%, 83% and 87% of total software services revenue in the years ended December 31, 1997, 1996 and 1995, respectively, was derived from the Company's five largest clients in each such period. In 1997, revenue from billings to each of the United States Transportation Command, U S WEST Communications, Inc. and BellSouth Telecommunications accounted for more than 10% of the Company's total revenue. In 1996, revenue from billings to the United States Transportation Command, the U S Army, Caterpillar, Inc. and BellSouth Telecommunications 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 68%, 76%, and 68% of total software services revenue in the years ended December 31, 1997, 1996 and 1995, 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. 11 12 Risks Associated with the Integration of Advantage kbs. On March 19, 1998, the Company acquired all the outstanding capital stock of Advantage kbs which became a wholly owned subsidiary of the Company. The integration of companies in the information technology services industry may be more difficult to achieve than in other industries. There can be no assurance that the acquisition of Advantage kbs will result in any business and financial benefits to the Company. The realization of any such benefit requires, among other things, that the operations of Advantage kbs be successfully integrated with those of the Company in a timely manner. The successful integration of the Company and Advantage kbs will require the coordination of research and development and sales and marketing efforts. The difficulties of such integration may be increased by the need to coordinate geographically separated organizations and integrating personnel with disparate business backgrounds. In addition, the Company's senior management has not had previous experience in integrating acquisitions. There can be no assurance that the Company will be able successfully to manage the integration of Advantage kbs. 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. 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 more uncertain, and management's assessments of its ability to realize its deferred tax asset through future taxable income reflects this. The Company's interim and annual financial statements included a valuation allowance that is 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 on the other hand. The Company then adjusts the valuation allowance to reflect the portion of the deferred tax asset that the Company believes it will, more likely than not, be unable to realize. The valuation allowance reflects the Company's belief that it is more likely than not to realize most but not all of its 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 12 13 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. 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, 1997 through December 31, 1997, the size of the Company's staff increased from 238 to 257 employees and independent contractors. In addition, the Company has opened offices in Atlanta, Georgia and Fairview Heights, Illinois, Oakland, California and Arlington, Virginia 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, 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 Five" 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 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 13 14 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 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 15 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable 15 16 PART II - OTHER INFORMATION ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS DESCRIPTION The exhibits listed below are filed or incorporated by reference as part of this quarterly report on Form 10-Q. 10.01 Letter Agreement, effective as of January 1, 1998, to amend Schedule Number 34-001-97, effective as of October 10, 1997, to Agreement No. 970050785 between US WEST Business Resources, Inc., as agent for various US 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). 10.02 Schedule Number 29-001-98, effective as of January 1, 1998, to Agreement No. 9700050785 between US WEST Business Resources, Inc., as agent for various US 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 38-002-98, effective as of January 1, 1998, to Agreement No. 9700050785 between US WEST Business Resources, Inc., as agent for various US 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 34-002-98, effective as of March 13, 1998, to Agreement No. 9700050785 between US WEST Business Resources, Inc., as agent for various US 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). 10.05 Letter Agreement, dated May 7, 1998, to amend Schedule Number 23-07-97, effective as of December 1, 1997, to Agreement No. 9700050785 between US WEST Business Resources, Inc., as agent for various US 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 Company did not file any reports on Form 8-K during the quarter ended June 30, 1998. 16 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: August 14, 1998 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 18 EXHIBIT INDEX
SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NUMBER - ----------- ----------- ----------- 10.01 Letter Agreement, effective as of January 1, 1998, to amend Schedule Number 34-001-97, effective as of October 10, 1997, to Agreement No. 970050785 between US WEST Business Resources, Inc., as agent for various US 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). 10.02 Schedule Number 29-001-98, effective as of January 1, 1998, to Agreement No. 9700050785 between US WEST Business Resources, Inc., as agent for various US 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 38-002-98, effective as of January 1, 1998, to Agreement No. 9700050785 between US WEST Business Resources, Inc., as agent for various US 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 34-002-98, effective as of March 13, 1998, to Agreement No. 9700050785 between US WEST Business Resources, Inc., as agent for various US 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). 10.05 Letter Agreement, dated May 7, 1998, to amend Schedule Number 23-07-97, effective as of December 1, 1997, to Agreement No. 9700050785 between US WEST Business Resources, Inc., as agent for various US 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
18 EX-10.01 2 CARNEGIE GROUP, INC. 1 EXHIBIT 10.01 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 the material filed in accordance with Rule 24b-2 and have been filed separately with the Commission. 2 LETTER AGREEMENT TO AMEND SCHEDULE NUMBER "34-001-97"/AGREEMENT NO. 9700050785 U S WEST LIST ADMINISTRATION/DISTRIBUTION PROJECT (LMAS ENHANCEMENT PROJECT) AMENDMENT NO. 34-001-97-A ------------------------- This Letter Agreement effective January 1, 1998 is in regard to Schedule Number "34-001-97"/Agreement No. 9700050785 effective October 10, 1997 between U S WEST and Carnegie Group(R) (the "LMAS Schedule") and constitutes an Amendment to the LMAS Schedule describing the original LMAS project formerly referred to as the "List Administration/Distribution Project (CLIMATE Enhancement Project)" in accordance with Article 29 of Agreement No. 9700050785. U S WEST and CGI have agreed to extend the current LMAS Schedule from January 13, 1998 through March 9, 1998 in order for the parties to complete the deliverables presented in the original LMAS Schedule (as modified by this Amendment). Such provision of deliverables requires CGI to continue to provide development services in support of U S WEST's LMAS software and related systems solution, under U S WEST direction. The additional time needed to deliver was in direct response to delays in initiating the project, in completing requirements analysis, and in determining the scope of the project. During this extended period, Carnegie Group continued to provide resources in support of original project needs as modified hereunder. U S WEST agrees to provide additional funding for such project needs in accordance with this Amendment. Based on Carnegie Group resources previously estimated under the LMAS Schedule in respect of the original LMAS project requirements, this Amendment provides adjustments for the Carnegie Group LMAS team based on U S WEST agreement to revise the labor mix and factor in actual personnel and hours to this Amendment's costs which extended the work schedules of each of the project team members, who rolled off intermittently as follows: o Dave King: 2/5/98 o Mary Foley: 1/30/98 o Siraj Shaik: 3/9/98 o Chris Andres: 2/25/98 This Amendment includes an additional funding estimate in the amount of [ ] (based on standard time and materials rates and discounts under the Agreement) to complete the work included in the scope of this Amendment. [ 34-001-97-A March 31, 1998 1 3 ]. This Amendment includes additional funding in the amount of [ ] to the work previously scoped in the LMAS Schedule, for which payment of [ ] is due by U S WEST [ ]. The Projected Cost in Section 3 of the LMAS Schedule has been increased by [ ] over the original contract of [ ] to [ ], for which payment of [ ] is due by U S WEST in respect the entire project. Exhibit 1 is attached hereto and effectively replaces Section 3 - Projected Cost of the original LMAS Schedule. [ ]. IN WITNESS WHEREOF, Licensee and Carnegie Group have executed this Letter Agreement in duplicate by their respective authorized representatives. CARNEGIE GROUP, INC. LICENSEE By: /s/ DENNIS YABLONSKY By: /s/ FRANK T. KOGEL ------------------------ --------------------------- Name: Dennis Yablonsky Name: Frank T. Kogel ---------------------- ------------------------- Title: President/CEO Title: Director --------------------- ------------------------ Date: 8-3-98 Date: 6/29/98 ---------------------- ------------------------- U S WEST BRI By: --------------------------- Name: ------------------------- Title: ------------------------ Date: ------------------------- 34-001-97-A March 31, 1998 2 4 EXHIBIT 1 PROJECTED COST The total cost of the work net of discounts shall not exceed [ ] based on actual time and material expenses, which represents an increase of [ ] above the previous funding approved for the LMAS Project of [ ]. Should travel be required, U S WEST agrees to pay CGI travel expenses for all pre-approved trips. This Amendment 34-001-97-A represents a follow-on effort to the LMAS Schedule. Costs with applicable discounts are provided below for this Amendment No. 34-001-97- A and actual costs with applicable discounts and estimated hours for the entire project, respectively. Both cost scenarios include special payment terms below their respective cost tables [ ]. The incremental Amendment costs follow: - -------------------------------------------------------------------------------- ITEMIZATION OF COSTS AMOUNT - -------------------------------------------------------------------------------- CONTRACT ENGINEERING COSTS (TIME AND [ ] MATERIALS) - -------------------------------------------------------------------------------- LESS MINIMUM DISCOUNT AND ANY PROJECT [ ] VOLUME DISCOUNT - -------------------------------------------------------------------------------- TOTAL CONTRACT ENGINEERING/ [ ] AMENDMENT A PRICE (BEFORE CREDIT) - -------------------------------------------------------------------------------- [ ] [ ] - -------------------------------------------------------------------------------- ESTIMATED PAYMENT DUE [ ] - -------------------------------------------------------------------------------- Carnegie Group agrees to apply the above credit to U S WEST, based on the standard costs accrued during the term of this Amendment, to the billings of this Amendment. 34-001-97-A March 31, 1998 3 5 The entire project to date costs and hours follow: - -------------------------------------------------------------------------------- ITEMIZATION OF COSTS AMOUNT - -------------------------------------------------------------------------------- CONTRACT ENGINEERING COSTS (TIME AND [ ] MATERIALS) LESS [ ] MINIMUM DISCOUNT [ ] - -------------------------------------------------------------------------------- TOTAL CONTRACT ENGINEERING/TOTAL LMAS [ ] PROJECT PRICE (BEFORE CREDIT) - -------------------------------------------------------------------------------- [ ] [ ] - -------------------------------------------------------------------------------- ESTIMATED PAYMENT DUE [ ] - -------------------------------------------------------------------------------- Carnegie Group agrees to bill U S WEST actual costs accrued, not to exceed [ ], based on the term of the entire LMAS project. Estimated hours are as follows: - -------------------------------------------------------------------------------- CATEGORY ESTIMATED CARNEGIE GROUP HOURS - -------------------------------------------------------------------------------- Project Manager [ ] Senior Engineer II [ ] Senior Engineer I [ ] Engineer(s) [ ] - -------------------------------------------------------------------------------- TOTAL HOURS [ ] - -------------------------------------------------------------------------------- 34-001-97-A March 31, 1998 4 EX-10.02 3 CARNEGIE GROUP, INC. 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 the material filed in accordance with Rule 24b-2 and have been filed separately with the Commission. 2 Fetch 'n' Stuff 1998 FINAL VERSION SCHEDULE NUMBER "29-001-98"/(AGREEMENT NO. 9700050785) FETCH 'N' STUFF 1998 This Schedule Number "29-001-98", effective January 1, 1998 is 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 Fetch 'n' Stuff 1998. The work to be provided by CGI represents a follow on effort to the Fetch 'n' Stuff Phase 2 effort during 1997 between the parties. 1.2 OVERVIEW It is the desire of U S WEST and Carnegie Group to transition production support of the Fetch 'n' Stuff product ("Fetch") from the Carnegie Group development team to a U S WEST production support team in Omaha under the direction of Bettie Williams. U S WEST has requested that the 5.0 release of Fetch be defined as the completion point for the transition. Concurrent with the further development and delivery of Fetch, Carnegie Group will develop an http server to enable web-based applications to use Fetch 'n' Stuff functionality. After this point, Carnegie Group will provide consulting to the U S WEST production support team in Omaha. Based on current understanding and mutual agreement, this Schedule 29-001-98 documents the Fetch responsibilities of Carnegie Group for 1998. Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 1 3 Fetch 'n' Stuff 1998 FINAL VERSION Carnegie Group will provide the engineering tasks necessary for the 5.0 Fetch 'n' Stuff release ("Release 5.0") and the related management functions. During the period between the effective date of this Schedule 29-001-98 and the completion of Release 5.0 hereunder, Carnegie Group will be providing consulting services to assist U S WEST with the development of a plan for Carnegie Group to transition support of the Fetch 'n' Stuff product to U S WEST ("Transition Consulting"). During the development of the transition plan, the parties intend to work together to better determine what tasks a committed team from Carnegie Group will need to provide in order to adequately support U S WEST's anticipated needs for consulting after the Fetch 5.0 release as it relates to the production platform. Following the Fetch 5.0 release, Carnegie Group's contribution to Fetch production support would be limited to consulting upon request with the U S WEST Fetch 'n' Stuff team on an hourly basis ("Post-Release Consulting"). Carnegie Group must require that a minimum amount of hourly consulting be purchased by U S WEST on a monthly basis during the first six (6) months of Post-Release Consulting. Such minimum monthly payments will be considered as a retainer in order to commit a minimum number of resources who are anticipated by the parties to be required for this effort. The total Post-Release Consulting expended is subject to the funding limitations estimated in this Schedule 29-001-98. (Reference Article 3 of this Schedule for complete details on costs and hours.) The engineering tasks necessary for the Fetch 5.0 Release includes making changes that address Change Requests (CRs) based on the DDTS defect tracking database which resides at U S WEST. Crs will be submitted by U S WEST in accordance with an established change process between the parties and are subject to the funding and schedule limitations of this Schedule 29-001-98. The CRs addressed within Release Fetch 5.0 are documented by Carnegie Group on a proactive basis in the Fetch 'n' Stuff Project Plan as Release 5.0 tasks. Any CRs not included as tasks in the project plan at the time Release 5.0 is delivered hereunder have not been addressed by Carnegie Group ("open CRs) and any incorporation into later releases from addressing open Crs is the responsibility of U S WEST Fetch. Carnegie Group will provide post-release consulting on any open CRs upon request from U S WEST according to the provisions of this Schedule 29-001-98. The strategy behind the above approach to Fetch 'n' Stuff 1998 has the following advantages: o Establishes clear boundaries of responsibility for both organizations o Supports a transition from CGI to U S WEST o Permits U S WEST to learn about the project requirements through first hand experience while the Carnegie Group team is till available to support the transition o Permits U S WEST to train and use their dedicated staff effectively starting in 1998 o Removes responsibility for client and legacy management from Carnegie Group early in the project, since U S WEST is organizationally better able to manage clients and legacy systems than Carnegie Group o Carnegie Group's expertise continues to be available for production system support to U S WEST after transition completion Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 2 4 Fetch 'n' Stuff 1998 FINAL VERSION 1.3 EXCEPTIONS/DEFINITIONS TO THE AGREEMENT The following exceptions and definitions apply to this Schedule: o 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 four (4) weeks. o ACCEPTANCE TERMS: U S WEST shall test the Fetch Release 5.0 software delivered hereunder according to the Acceptance Test(s), based on an established system test process, to be mutually agreed to by the parties and provided hereunder. o SERVICES WARRANTY TERMS: Fetch 5.0 will not be subject to a Warranty Period upon final Acceptance based on Carnegie Group not having sole responsibility for development of the underlying Fetch code. o SUPPLIER LICENSABLE TECHNOLOGY: The final Fetch Release 5.0 software will contain Supplier Licensable Technology known as COE for which is defined as part of the Release 5.0 system in the description in Appendix A (attached to this Schedule 29-001-98) and licensed pursuant to the terms of the Software License and Services Module of the Agreement under Section 2.1 for U S WEST to use and make copies for its business (with no rights to modify or sublicense). Notwithstanding such Section 2.1, COE will be provided in source code form containing file headers designating them as Supplier Licensable Technology. Any grant to U S WEST of the right to modify COE would be subject to an associated license fee. o COE is approximately 5-10% of the code based on a lines-of-code estimation o The Release 5.0 files that will have the COE header in them are the sole and exclusive property of CGI except for the Message Class portion that was developed as Fetch code and will be the sole and exclusive property of U S WEST pursuant to the Agreement. o U S WEST may not modify, enhance or provides fixes to the COE code for routine maintenance, enhancement of Fetch for new clients or for any purpose without the prior written consent of Carnegie Group. o Management of project resources: o The CGI project manager assigned to Fetch 'n' Stuff 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. o 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. Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 3 5 Fetch 'n' Stuff 1998 FINAL VERSION o Review of the Schedule o 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 full execution of this Schedule to review the details of this Schedule, including but not limited to the Exceptions to the Agreement provided above ("Review") o 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 respectively to Fetch 'n' Stuff after the initial Review, unless as otherwise mutually agreed by the parties. 1.4 CGI ROLES AND RESPONSIBILITIES In the overall Fetch 'n' Stuff 1998 effort, Carnegie Group will be responsible for the following high level activities: o Requirements Analysis and Estimation for Release 5.0 and the HTTP Server o All engineering and documentation tasks relating to Release 5.0, based on the final Software Requirements Specification to be mutually agreed upon for Release 5.0 and delivered hereunder. Release/Project Management for Release 5.0 o Engineering Management for Release 5.0 o Engineering Support for Releases after 5.0 o Support for the Transition Plan The following tasks are to be performed by Carnegie Group: FETCH 5.0 RELEASE o Develop an overall project schedule for Fetch 'n' Stuff 5.0 based on joint Carnegie Group and U S WEST input. o Create weekly status reports documenting project progress. o Provide system administration required to perform project development for Fetch 'n' Stuff 5.0 on Carnegie Group premises. o Conduct all software development processes required to achieve Fetch 'n' Stuff 5.0 project deliverables and schedule. o Provide the following documentation deliverables: o Requirements Specification for Fetch 'n' Stuff 5.0 o Design Specification for Fetch 'n' Stuff 5.0 o Architecture Specification for Fetch 'n' Stuff 5.0 o Administration Guide for Fetch 'n' Stuff 5.0 o API Specification for Fetch 'n' Stuff 5.0 Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 4 6 Fetch 'n' Stuff 1998 FINAL VERSION o Provide all software deliverables for Fetch 'n' Stuff 5.0. o Installation Guide for Fetch 'n' Stuff 5.0 HTTP SERVER o Develop an http server to enable web-based applications to use Fetch 'n' Stuff applications. o Develop two GUI screens for two Fetch APIs as examples of the use of the http server. o Delivery of the following deliverables for the http server is scheduled to be approximately May 30, 1998 and is dependent on the CSR-M project: o Requirements Specification o Architecture Specification o Design Specification o System Administration Guide o Installation Guide o API Guide o Source code Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 5 7 Fetch 'n' Stuff 1998 FINAL VERSION TRANSITION CONSULTING The Transition Consulting will consist primarily of support for the U S WEST Transition Plan and the tasks may include but not be limited to the following: o Requirements Analysis and Estimation for Fetch 'n' Stuff 5.0 and for later releases of Fetch 'n' Stuff as agreed with the U S West production support team. o Tasks relating to the transition of engineering management functions of Fetch from CGI to U S WEST. o Tasks relating to the transition of engineering support functions of Fetch from CGI to U S WEST. o Tasks related to transition http server engineering support to U S WEST. By the second half of January 1998, transition of the following management functions and processes from Carnegie Group to U S West will be completed: o Release Planning for all releases after Fetch 'n' Stuff 5.0 o Change Request Process Management o Software Configuration Management o Client Management o Legacy Management o Production Support After the completion of Release 5.0, Carnegie Group will relinquish all management functions. At this time Carnegie Group's responsibilities with respect to Fetch production support will be limited to providing consulting services upon request only. POST-RELEASE CONSULTING Upon U S WEST request CGI will provide consulting to the U S West production support team regarding bug fixes, custom enhancements, new features, or modifications to Fetch] ("Fetch Consulting"), under U S WEST direction. The Fetch Consulting may include but not be limited to the following: 1. Participation in requirements, design or code walk throughs; 2. Answering questions or providing consulting on appropriate engineering solutions for bugs, enhancements, or other modifications to Fetch; 3. Providing input on architecture or design questions; 4. Contributing to requirements analysis or performing requirements analysis for specific change requests; 5. Providing additional documentation. CGI's Project Manager will acknowledge a request for Fetch Consulting from U S WEST's Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 6 8 Fetch 'n' Stuff 1998 FINAL VERSION Project Manager within one (1) business day and will agree with U S West within three (3) days on a schedule for providing the requested consulting. CGI shall use its best efforts to provide such consulting within five (5) business days of acknowledgment. Time and materials expended on this consulting is billable under this agreement. 1.5 U S WEST ROLES AND RESPONSIBILITIES Beginning in the second half of January U S WEST will take responsibility for certain management tasks that Carnegie Group had been performing, as follows: o Release Planning for all releases after Fetch 'n' Stuff 5.0 o Change Request Process Management o Software Configuration Management o Client Management o Legacy Management o Production Support After the completion of Release 5.0, U S WEST will assume all management functions relating to the production platform. At this time U S WEST will request Post-Release Consulting from Carnegie Group's committed Fetch team to provide Fetch production support in accordance with the provisions of this Schedule. 1.6 JOINT CGI AND U S WEST ROLES AND RESPONSIBILITIES CGI and U S WEST are jointly responsible for the following activities: o Develop a schedule for the transition plan o Hold periodic status meetings where schedule, progress, plans, and issues are presented and action items are assigned for resolution. o Meet with U S WEST subject matter experts for such meetings as requirements gathering and knowledge acquisition related to changes for which the respective engineering team is responsible. o Follow all project change management procedures. o Define the success criteria for the project and implement the system test process. o Participate in U S WEST project review meetings including architecture reviews and operational readiness reviews. Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 7 9 Fetch 'n' Stuff 1998 FINAL VERSION 1.7 SCOPE 1) Development, delivery and related project management of Release 5.0 and the HTTP Server; 2) Transition Consulting; 3) Post-Release Consulting. The scope of this effort is exclusive of all management functions upon the completion of Release 5.0 and the HTTP Server. Transition Consulting will be provided on an actual hourly basis prior to the Post-Release Consulting. Post-Release Consulting will follow Transition Consulting and will be provided based on monthly minimum payments or actual hourly costs, if a required monthly minimum payment is exceeded by actual labor costs during the same month. 1.8 DELIVERABLES The following Fetch 5.0 Release deliverables will be provided by Carnegie Group to U S WEST: o SOFTWARE REQUIREMENTS SPECIFICATION: This document defines the set of requirements for Fetch 'n' Stuff 5.0 as specified by the U S WEST client representatives. o ARCHITECTURE SPECIFICATION: This document describes the overall system architecture, which describes modular composition, high-level interfaces, hardware platform, and software platform. O DESIGN SPECIFICATION : This document contains a detailed description of the Fetch 'n' Stuff design for release 5.0. o API SPECIFICATION: This document contains detailed description of the application programmer's interfaces for Release 5.0 required by developers to effectively utilize all system functions. o SOURCE CODE: Release 5.0 of the Fetch 'n' Stuff 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. o STATUS REPORTS: Status reports will be developed by Carnegie Group which describes project status, progress, issues, and plans. o ADMINISTRATORS GUIDE: This document provides instructions for System Administrators describing the installation, set-up, and maintenance of Fetch 'n' Stuff Release 5.0. o INSTALLATION GUIDE: This document provides instructions describing the installation for Fetch 'n' Stuff 5.0. Additionally, the HTTP Server deliverables defined in Section 1.4 of this Schedule will be provided by Carnegie Group to U S WEST. 1.9 SUMMARY This Schedule covers efforts to be performed from January 1, 1998 through December 31, 1998. Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 8 10 Fetch 'n' Stuff 1998 FINAL VERSION 2. SCHEDULE, STATEMENT OF WORK AND DELIVERABLES 2.1 TASKS, SCHEDULE, AND DELIVERABLES The tasks relating to the Fetch 5.0 Release will be performed beginning January 1, 1998 and the corresponding deliverables are estimated to be completed by April 1, 1998. The tasks relating to the HTTP Server will be performed from January 1, 1998 through April 1, 1998. The tasks relating to the Transition Consulting are estimated to be performed from January through April 1998, under U S WEST direction. The tasks relating to the Post-Release Consulting are estimated to be performed from April through December 1998, under U S WEST direction. 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 January 1, 1998. 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). CGI assumes SME access will be available on a timely basis for any analysis work assigned to CGI. 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. 5. Weekly status reports, or other timeframe deemed appropriate by U S WEST and CGI, 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. Any delays in dependent tasks (i.e. U S WEST tasks) may impact the delivery date of one or more Deliverables. 7. 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 Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 9 11 Fetch 'n' Stuff 1998 FINAL VERSION 8. Any open Crs shall not jeopardize the Release 5.0 delivery schedule hereunder unless CGI receives a written request from U S WEST to delay and the parties agree to contract for any additional funding as estimated by CGI. 9. Since the requirements of CGI for the Transition Consulting and Post-Release Consulting to be performed in this agreement are not fully known at this time, work will be performed to efficiently maximize the quality and utility of each component subject to the funding limitations. 2.3 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. Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 10 12 Fetch 'n' Stuff 1998 FINAL VERSION 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. Estimated costs with applicable discounts are provided below for this Schedule 29-001-98,Fetch 'n' Stuff 1998 as a whole and as further break out, for the Fetch 5.0 Release, Transition Consulting and Post-Release Consulting components. As is standard with projects based on time and materials, the hours and costs provided are best estimates only, the work to be provided is subject to the collective funding limitations herein. Note the exceptional payment terms of the Post-Release Consulting which are documented beneath the related costs and hours below. The payment terms of the Fetch 5.0 Release, HTTP Server and Transition Consulting components will be standard in accordance with the Agreement. Estimated costs with applicable discounts for the entire Fetch 'n' Stuff 1998 project are provided below: Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 11 13 Fetch 'n' Stuff 1998 FINAL VERSION - -------------------------------------------------------------------------------- ITEMIZATION OF COSTS AMOUNT - -------------------------------------------------------------------------------- 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 [ ] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Estimated hours are as follows: - -------------------------------------------------------------------------------- CATEGORY ESTIMATED HOURS - -------------------------------------------------------------------------------- Manager(s) [ ] Principal Engineer [ ] Engineer(s) [ ] Technical Writer(s) - -------------------------------------------------------------------------------- TOTAL HOURS [ ] - -------------------------------------------------------------------------------- Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 12 14 Fetch 'n' Stuff 1998 FINAL VERSION Following are the costs and hours of the Fetch 5.0 Release: - -------------------------------------------------------------------------------- ITEMIZATION OF COSTS AMOUNT - -------------------------------------------------------------------------------- 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 [ ] - -------------------------------------------------------------------------------- Estimated hours are as follows: - -------------------------------------------------------------------------------- CATEGORY ESTIMATED HOURS - -------------------------------------------------------------------------------- Manager(s) [ ] Principal Engineer [ ] Engineer(s) [ ] Technical Writer(s) - -------------------------------------------------------------------------------- TOTAL HOURS [ ] - -------------------------------------------------------------------------------- Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 13 15 Fetch 'n' Stuff 1998 FINAL VERSION Following are the costs and hours of the HTTP Server: - -------------------------------------------------------------------------------- ITEMIZATION OF COSTS AMOUNT - -------------------------------------------------------------------------------- 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 [ ] - -------------------------------------------------------------------------------- Estimated hours are as follows: - -------------------------------------------------------------------------------- CATEGORY ESTIMATED HOURS - -------------------------------------------------------------------------------- Manager(s) Principal Engineer Engineer(s) [ ] Technical Writer(s) - -------------------------------------------------------------------------------- TOTAL HOURS [ ] - -------------------------------------------------------------------------------- Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 14 16 Fetch 'n' Stuff 1998 FINAL VERSION Following are the costs and hours of the Transition Consulting: - -------------------------------------------------------------------------------- ITEMIZATION OF COSTS AMOUNT - -------------------------------------------------------------------------------- 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 [ ] - -------------------------------------------------------------------------------- Estimated hours are as follows: - -------------------------------------------------------------------------------- CATEGORY ESTIMATED HOURS - -------------------------------------------------------------------------------- Manager(s) [ ] Principal Engineer [ ] Engineer(s) [ ] Technical Writer(s) - -------------------------------------------------------------------------------- TOTAL HOURS [ ] - -------------------------------------------------------------------------------- Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 15 17 Fetch 'n' Stuff 1998 FINAL VERSION Following are the costs and hours of the Post-Release Consulting and the related payment terms below: - -------------------------------------------------------------------------------- ITEMIZATION OF COSTS AMOUNT - -------------------------------------------------------------------------------- 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 [ ] - -------------------------------------------------------------------------------- Estimated hours are as follows: - -------------------------------------------------------------------------------- CATEGORY ESTIMATED HOURS - -------------------------------------------------------------------------------- Manager(s) [ ] Principal Engineer [ ] Engineer(s) [ ] Technical Writer(s) - -------------------------------------------------------------------------------- TOTAL HOURS [ ] - -------------------------------------------------------------------------------- In order for Carnegie Group to commit resources anticipated by the parties to be required for Fetch Consulting, the payment terms of the above Post-Release Consulting services are based on a minimum monthly payment if actual labor costs for a relevant month do not exceed such minimum payment. Notwithstanding the standard payment terms of the Agreement based on actual time and materials, Carnegie Group shall invoice and U S WEST shall pay a flat, nonrefundable fee of [ ] for Post-Release Consulting (only) during each of the months of April through September 1998. In the event such flat fee is exceeded in actual time and material charges for Post-Release Consulting for any month during April through September 1998, Carnegie Group shall invoice and U S WEST shall pay such actual charges, based on the rates and discounts applicable to this Schedule in accordance with the Agreement. Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 16 18 Fetch 'n' Stuff 1998 FINAL VERSION The [ ] flat fee is based on 1.5 full time equivalent resources committed by Carnegie Group for the Post-Release Consulting during April through September 1998 to provide the services described in this Schedule. 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/ DENNIS YABLONSKY BY: /s/ DENNIS DEMPSEY -------------------------- ---------------------------- NAME: Dennis Yablonsky NAME: Dennis Dempsey ------------------------ -------------------------- (printed) (printed) TITLE: President/CEO TITLE: EXEC DIR - IT ----------------------- ------------------------- DATE: 4/30/98 DATE: 4/29/98 ------------------------ -------------------------- U S WEST BRI BY: /s/ SHERYL SWAYZE ---------------------------- NAME: Sheryl Swayze -------------------------- (printed) TITLE: Commodity Manager ------------------------- DATE: 4/20/98 -------------------------- Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 17 19 Fetch 'n' Stuff 1998 FINAL VERSION APPENDIX A SCHEDULE 29-001-98 The following modules of Fetch 'n' Stuff constitute COE (Supplier Licensable Technology) with the exception of the "message class"(which constitutes a portion of each of the following modules) and was developed by CGI for U S WEST and is therefore the sole and exclusive property of U S WEST: - - T Connect Information in the Server Interface, Monitors, and Engines - - The Multiplex Client Classes in the Server Interface - - Server Class Structure in the Server Interface - - Reply to Clients in the Monitors and Engines In addition, the following module is entirely COE: - - Logging module used in the Server Interface, Monitors, and Engines In the final delivery of Fetch 5.0, all source code files that contain Supplier Licensable Technology will contain file headers designating them as such. Schedule Number 29-001-98 Carnegie Group, Inc. and US WEST 8/12/98 Proprietary and Confidential Page 18 EX-10.03 4 CARNEGIE GROUP, INC. 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 the material filed in accordance with Rule 24b-2 and have been filed separately with the Commission. 2 CALL HANDLING V.1 SCHEDULE NUMBER "38-002-98"/(9700050785) CALL HANDLING This Schedule Number "38-002-98", effective January 1, 1998 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 1.6 below. In the event that such section 1.6 conflicts with the provisions of the Agreement, the terms of section 1.6 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 DESCRIPTIONS 1.1 INTRODUCTION This Schedule covers the services and deliverables to be provided by Carnegie Group, Inc. for U S WEST in support of CALL HANDLING. The work to be provided by CGI represents a follow on effort to the ongoing Call Handling project between the parties under new terms and conditions of the Agreement as provided in this Schedule No. 38-002-98. 1.1.1 OVERVIEW It is the desire of U S WEST and Carnegie Group to add to Call Handling functionality defined by the releases: Inbound Promotions (98.02 Release), DMS Screen Pop (98.03 Release), and Global Conditions (98.04 Release). This Schedule includes the delivery of the Inbound Promotions, DMS Screen Pop, and Global Conditions releases as implemented that are related to Retail Markets, Marketing, Repair, and U S WEST Long Distance. Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 1 3 CALL HANDLING V.1 The current Call Handling system determines call routing destinations using information, such as the customer's reason for calling, where the customer lives and is calling from, other customer information and the loads on U S WEST call centers. Each call is assigned a channel functional need (CFN) using business rules, and the various routing alternatives. CFNs are used by Call Handling's business clients to segment customer calls for routing and handling. 1.2 98.02 RELEASE EXECUTIVE OVERVIEW (INBOUND PROMOTIONS) 1.2.1 98.02 RELEASE DESCRIPTION The 98.02 release provides: o The basic infrastructure for routing calls that result from promotions and advertisements; o the Screen Pop of call data to the Customer Service Representative/Agent (available when new outbound T1s are configured); o an interface to the Climate/IMDM system for specific marketing data and reports within the Integrated Marketing Database Management system; o operational reporting that will be provided with enhancements to the Call Handling Decision Support System (CH-DSS); o reporting via the CH-DSS that will be used to determine the effectiveness of using caller ID to improve the usability in Customer Access Experiences (CAEs). o adding the Aspect as a new VRU for Call Handling which can be taken advantage of by future clients. The release also includes the delivery of partial capabilities that are prerequisites to three of the Global Conditions requirements that are related to Repair and U S WEST Long Distance. The provided functions include an enhancement to enable global conditions for call routing based on NPA-NXX, Market Profile Indicator, and specific Targeted Mailing Lists. 1.2.2 BUSINESS VALUE OF 98.02 RELEASE [ ] Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 2 4 CALL HANDLING V.1 1.2.3 98.02 RELEASE BUSINESS IMPACTS [ ] 1.2.4 98.02 RELEASE SYSTEM IMPACTS [ ] Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 3 5 CALL HANDLING V.1 1.3 98.03 RELEASE EXECUTIVE OVERVIEW (DMS SCREEN POP) 1.3.1 98.03 RELEASE DESCRIPTION The release provides the basic infrastructure for the definition and implementation of screen pop for ACD groups on DMS100 ACDs for the Call Handling product. In addition, this release provides the following additional or new capabilities, change requests, and enhancements: o Data Manager o Maintenance Change Requests ("Tracker Busys") o Least Cost Routing 1.3.2 BUSINESS VALUE OF 98.03 RELEASE [ ] 1.3.3 98.03 RELEASE BUSINESS IMPACTS [ ] 1.3.4 98.03 RELEASE SYSTEM IMPACTS [ ] Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 4 6 CALL HANDLING V.1 1.4 98.04 RELEASE EXECUTIVE OVERVIEW (GLOBAL CONDITIONS) 1.4.1 98.04 RELEASE DESCRIPTION The current Call Handling system determines call routing destinations using the customer's reason for calling and the calling customer's market profile. Additionally, account activity routing uses information about the caller's account from BOSS/CARS and business-assigned special conditions for assigning calls to account activity call types. Each call is assigned a channel functional need (CFN) using business rules, through a mapping from the caller's account market profile and the call reason and optional account activity checks (such as SNP, resold, independent company, BGS/CXR). CFNs are used by Call Handling's business clients to segment customer calls for routing and handling. To enhance the account activity routing capabilities, this release provides access to additional legacy data and the capability to define global conditions in the FES&R database for routing. Global conditions are business conditions that affect large groups of telephone numbers at the wire center level, such as outages, wireless, and promotions. In addition, this release provides the following additional or new capabilities, change requests, and enhancements: o FE&SR Re-Architecture o Call Data Caching o DSS Enhancement to allow dual FES&Rs 1.4.2 BUSINESS VALUE OF 98.04 RELEASE [ ] Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 5 7 CALL HANDLING V.1 1.4.3 98.04 RELEASE BUSINESS IMPACTS [ ] 1.5 98.05 RELEASE EXECUTIVE OVERVIEW (CALL TRACKING) End-to-End Call Tracking is a product which must be capable of receiving and storing comprehensive inbound and outbound call record data. The product would enable U S WEST to accurately forecast future demand and provide administrative reports for performance diagnostics and MIS reports. The initial effort to create Call Tracking used 415 hours and included the creation of the Call Tracking Requirements Document which: o Defined and documented the high level business requirements o Defined and documented the analysis of the detailed requirements o Defined data requirements Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 6 8 CALL HANDLING V.1 1.6 OVERVIEW OF KNOWLEDGE TRANSFER, DOCUMENTATION, AND SUPPORT In order for the U S WEST maintenance team to be successful with operations and development support of Call Handling they require training in Call Handling. CGI will provide consulting to members of this maintenance staff as identified by U S WEST IT. Knowledge transfer consulting will include training sessions, documentation, coaching, and support to transfer Call Handling knowledge at mutually agreed times during the course of this effort. The total training and coaching time is limited to the 1000 hours in this Schedule 38-002-98. 1.7 EXCEPTIONS/DEFINITIONS TO THE AGREEMENT The following exceptions and definitions apply to this Schedule: o Work Authorization: It is agreed by the parties that any work provided by CGI under the Letter of Intent effective from January 1, 1998 through April 30, 1998 at the latest will be included under this Schedule as billable and in accordance with the terms and conditions hereunder. o Notification of Termination and Special Ramp down provisions: In accordance with subsection 21.1 of the Agreement, U S WEST has the right to terminate this Schedule, on a complete or partial project basis, upon thirty (30) days written notice to Carnegie Group. Notwithstanding subsection 21.2 of the Agreement, Customer shall be responsible for continued funding of the current CGI project resources for a period beyond the effective date of termination, unless such resources can be re-deployed by Carnegie Group to another billable project. Continued funding is dependent upon the number of people affected by the termination in accordance with the period of time provided below: AFFECTED RESOURCES RAMP DOWN PERIOD 1 to 3 persons on the team two (2) weeks 4 to 7 persons on the team three (3) weeks 8 or more persons on the team four (4) weeks For example, if the Carnegie Group team consists of 15 resources at the time of complete project termination, U S WEST funding for 3 resources will not exceed 2 weeks, U S WEST funding for the 4-7th resource will not exceed 3 weeks, and U S WEST funding for the last 7 resources funding will not exceed 4 weeks. U S WEST and Carnegie Group agree to make best effort attempts, respectively, to expeditiously inform of an impending project termination and, in turn, expeditiously re-deploy the resources. o Acceptance terms: U S WEST shall test the Call Handling Release 98.02, 98.03, and 98.04 software and documentation delivered hereunder according to the Acceptance Test(s), based on an established system test process, to be mutually agreed to by the parties and provided hereunder. o Services Warranty terms: No warranty period is required under this Agreement due to the close working nature of the entire Call Handling team prior to final Acceptance and the comprehensive knowledge transfer, documentation, and support services that will be provided to U S WEST by CGI during the term of this Agreement. Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 7 9 CALL HANDLING V.1 o Non-Solicitation: The parties agree that during the term of this Schedule they will not, without the prior written consent of the other, directly solicit for employment the personnel who are assigned to perform or are in involved in the performance of Services under this Schedule, and are currently employed by the other party. The provisions of this paragraph shall not preclude either party from following its normal processes of publicizing positions available to be filled, receiving communications from interested applications, working with employment agencies and other similar companies, participating in job fairs, and other similar ordinary hiring processes. o Current Call Handling Replacement Policy: U S WEST agrees that Carnegie Group may make staffing changes during the performance of Call Handling services upon two (2) weeks notice to US WEST. In the event of any staffing change, U S WEST shall not be charged for a two week time period (ten project days) normally required to ramp up the replacement, unless otherwise mutually agreed to by the U S WEST project manager and the Carnegie Group senior manager. Carnegie Group must request in writing that the amount of noncompensatory ramp up time be reduced and U S WEST shall not unreasonably withhold their determination. o Management of project resources: o The CGI senior project manager assigned to CALL HANDLING 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 senior 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. o The CGI senior 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. o Review of the Schedule o The parties agree that the U S WEST team leader, the U S WEST project manager and the CGI senior project manager will meet within the first week after the full execution of this Schedule to review the details of this Schedule, including but not limited to the Exceptions to the Agreement provided above ("Review"). o The Review will occur more than once should a new U S WEST team leader, U S WEST project manager or CGI senior project manager be assigned by U S WEST or CGI respectively to CALL HANDLING after the initial Review, unless as otherwise mutually agreed by the parties. Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 8 10 CALL HANDLING V.1 1.8 ROLES AND RESPONSIBILITIES 1.8.1 RELEASES ROLES AND RESPONSIBILITIES 1.8.1.1 CGI ROLES AND RESPONSIBILITIES [ ] 1.8.1.2 U S WEST ROLES AND RESPONSIBILITIES [ ] Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 9 11 CALL HANDLING V.1 [ ] 1.8.1.3 JOINT CGI AND U S WEST ROLES AND RESPONSIBILITIES [ ] Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 10 12 CALL HANDLING V.1 1.8.2 KNOWLEDGE TRANSFER, DOCUMENTATION, AND SUPPORT ROLES AND RESPONSIBILITIES 1.8.2.1 KNOWLEDGE TRANSFER, DOCUMENTATION, AND SUPPORT CGI ROLES AND RESPONSIBILITIES [ ] Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 11 13 CALL HANDLING V.1 [ ] 1.8.2.2 KNOWLEDGE TRANSFER, DOCUMENTATION, AND SUPPORT U S WEST ROLES AND RESPONSIBILITIES The following activities are to be provided by U S WEST: 1. Identify and schedule the necessary maintenance team resources to receive the knowledge transfer, documentation, and support as defined in the transfer schedule. 2. Release the current CGI experts with the knowledge to be transferred from their current assignments within U S WEST on a predetermined and agreed upon schedule for the actual transfer sessions. 3. Provide an environment conducive to training for the knowledge transfer, documentation, and support to take place. 1.8.2.3 KNOWLEDGE TRANSFER, DOCUMENTATION, AND SUPPORT JOINT CGI AND U S WEST ROLES AND RESPONSIBILITIES CGI and U S WEST are jointly responsible for the following activities: 1. Make available the necessary CGI resources for the knowledge transfer, documentation, and support. 2. Jointly develop a knowledge transfer, documentation, and support schedule. 3. Document the progress of the knowledge transfer, documentation, and support against the transfer schedule. 4. Jointly develop a Call Handling Developer Standards based on a limit of hours within the Knowledge Transfer, Documentation and Support funding limitation of this Schedule. Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 12 14 CALL HANDLING V.1 2. SCOPE 2.1.1 RELEASES 2.1.1.1 RELEASE MANAGEMENT STRATEGY Please refer to the Baselined 98.02 Release Management Plan for a detailed description of the Release Management Strategy for Inbound Promotions. Please refer to the Baselined 98.03 Release Management Plan for a detailed description of the Release Management Strategy for DMS Screen Pop. Please refer to the Baselined 98.04 Release Management Plan for a detailed description of the Release Management Strategy for Global Conditions. 2.1.2 KNOWLEDGE TRANSFER, DOCUMENTATION, AND SUPPORT SCOPE This is a U S WEST IT and Carnegie Group led effort to transfer specific Call Handling knowledge from CGI to U S WEST maintenance employees. The Carnegie Group employees required for this effort are current members of the Call Handling project development team. They will be substituting time from their current responsibilities to perform this transfer. This knowledge transfer, documentation, and support effort will include training, documentation, and coaching on the Call Handling system from existing 1997 deployments in the U S WEST production environment. The total CGI training and coaching time is limited to the 1000 hours in this Schedule 38-002-98. 2.2 DELIVERABLES The deliverables related to the 98.02, 98.03, and 98.04 Releases are described below. 2.2.1 98.02 RELEASE (INBOUND PROMOTIONS) o For details of the deliverables associated with Inbound Promotions, refer to the Baselined 98.02 Release Management Plan. 2.2.2 98.03 RELEASE (DMS SCREEN POP) o For details of the deliverables associated with DMS Screen Pop, refer to the Baselined 98.03 Release Management Plan. 2.2.3 98.04 RELEASE (GLOBAL CONDITIONS) o For details of the deliverables associated with Global Conditions, refer to the Baselined 98.04 Release Management Plan. Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 13 15 CALL HANDLING V.1 2.3 SUMMARY This Schedule covers efforts to be performed from January 1, 1998 through December 31, 1998. 2.4 SCHEDULE, STATEMENT OF WORK AND DELIVERABLES 2.4.1 TASKS, SCHEDULE, AND DELIVERABLES Please refer to the Baselined 98.02 Release Management Plan for a detailed description of the project milestones and deliverables. Please refer to the Baselined 98.03 Release Management Plan for a detailed description of the project milestones and deliverables. Please refer to the Baselined 98.04 Release Management Plan for a detailed description of the project milestones and deliverables. 2.4.2 KNOWLEDGE TRANSFER, DOCUMENTATION, AND SUPPORT TASKS The following table summarizes the tasks, schedule and deliverables included in this Schedule. - -------------------------------------------------------------------------------- TASKS Responsibility Deliverables - -------------------------------------------------------------------------------- Develop U S WEST Complete a transfer and detailed transfer schedule Carnegie schedule with Group date, milestones, and identified resources. Knowledge Transfer, U S WEST Knowledge Documentation, and transfer, and Carnegie Documentation, Support Group and Support as defined in the transfer schedule - -------------------------------------------------------------------------------- 2.4.3 HIGH LEVEL RELEASE SCHEDULE: Please refer to the Baselined 98.02, 98.03, 98.04 Release Management Plans for a detailed description of the respective release schedules. Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 14 16 CALL HANDLING V.1 2.5 ASSUMPTIONS 2.5.1 HIGH LEVEL RELEASE ASSUMPTIONS [ ] 2.5.2 98.02 RELEASE ASSUMPTIONS (INBOUND PROMOTIONS) Please refer to the Baselined 98.02 Release Management Plan for a detailed description of the Assumptions for this release. 2.5.2.1 HIGH LEVEL SUCCESS FACTORS FOR THE 98.02 RELEASE Please refer to the Baselined 98.02 Release Management Plan for a detailed description of the High Level Success Factors for this release. 2.5.3 98.03 RELEASE ASSUMPTIONS(DMS SCREEN POP) Please refer to the Baselined 98.03 Release Management Plan for a detailed description of the Assumptions for this release. Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 15 17 CALL HANDLING V.1 2.5.3.1 LIMITATIONS AND CONSTRAINTS FOR THE 98.03 RELEASE Please refer to the Baselined 98.03 Release Management Plan for a detailed description of the Limitations and Constraints for this release. 2.5.3.2 RISKS FOR THE 98.03 RELEASE Please refer to the Baselined 98.03 Release Management Plan for a detailed description of the Risks for this release. 2.5.4 98.04 RELEASE ASSUMPTIONS (GLOBAL CONDITIONS) Please refer to the Baselined 98.04 Release Management Plan for a detailed description of the Assumptions for this release. 2.5.4.1 LIMITATIONS AND CONSTRAINTS FOR THE 98.04 RELEASE Please refer to the Baselined 98.04 Release Management Plan for a detailed description of the Limitations and Constraints for this release. 2.5.4.2 HIGH LEVEL SUCCESS FACTORS FOR THE 98.04 RELEASE Please refer to the Baselined 98.04 Release Management Plan for a detailed description of the Measures of Success for this release. 2.5.4.3 RISKS FOR THE 98.04 RELEASE Please refer to the Baselined 98.04 Release Management Plan for a detailed description of the risks associated with this release. Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 16 18 CALL HANDLING V.1 2.5.5 KNOWLEDGE TRANSFER, DOCUMENTATION, AND SUPPORT ASSUMPTIONS [ ] 2.6 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. Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 17 19 CALL HANDLING V.1 2.7 DEFINITIONS: - -------------------------------------------------------------------------------- ACD Automatic Call Distributor - -------------------------------------------------------------------------------- ANI Automatic Number Identification - -------------------------------------------------------------------------------- ATE Automated Trouble Entry - -------------------------------------------------------------------------------- Baseline(d) A document which has gone through a formal Document review process and has been signed-off by all approvers for that document. - -------------------------------------------------------------------------------- BTN Billing Telephone Number - -------------------------------------------------------------------------------- CSR Customer Service Record - -------------------------------------------------------------------------------- DMS Brand name of a Northern Telecomm switch used by U S WEST - -------------------------------------------------------------------------------- DNIS Dialed Number Identification Service - -------------------------------------------------------------------------------- ETN Entered Telephone Number - -------------------------------------------------------------------------------- FESR Front End Screen and Routing application system - -------------------------------------------------------------------------------- FID Functional Identification - -------------------------------------------------------------------------------- NPA/NXX Area code and prefix portion of a telephone number - -------------------------------------------------------------------------------- IMDM Integrated Marketing Database Management system - -------------------------------------------------------------------------------- PRI Primary Rate Interface circuit - -------------------------------------------------------------------------------- RSA Repair Service Attendant - -------------------------------------------------------------------------------- SNP Status of a customer who has not paid their telephone bill and has been "Suspended for Non- Payment" - -------------------------------------------------------------------------------- USOC Universal Service Order Code - -------------------------------------------------------------------------------- VRU Voice Response Unit - -------------------------------------------------------------------------------- Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 18 20 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 that adhere to U S WEST travel standards. The following costs have been estimated for this release: Estimated costs with applicable discounts for the entire Call Handling 1998 project are provided below: - --------------------------------------------------------------------------- ITEMIZATION OF COSTS AMOUNT - --------------------------------------------------------------------------- CONTRACT ENGINEERING COSTS (TIME AND [ ] MATERIALS) LESS [ ] MINIMUM DISCOUNT AND [ ] [ ] PROJECT VOLUME DISCOUNT - --------------------------------------------------------------------------- TOTAL CONTRACT ENGINEERING [ ] - --------------------------------------------------------------------------- CGI/THIRD PARTY LICENSE FEES - --------------------------------------------------------------------------- TRAVEL EXPENSES AND OTHER PASS-THROUGH EXPENSES - --------------------------------------------------------------------------- TOTAL SCHEDULE ESTIMATED PRICE [ ] - --------------------------------------------------------------------------- Estimated hours are as follows: - ------------------------------------------------------------------------------- CATEGORY ESTIMATED HOURS - ------------------------------------------------------------------------------- Manager(s) [ ] Business Consultant(s) Engineer(s) [ ] Technical Writer(s) [ ] - ------------------------------------------------------------------------------- TOTAL HOURS [ ] - ------------------------------------------------------------------------------- Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 19 21 Following are the costs and hours of the 98.02 Inbound Promotions Release: - ------------------------------------------------------------------------------- ITEMIZATION OF COSTS AMOUNT - ------------------------------------------------------------------------------- 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 [ ] - ------------------------------------------------------------------------------- Estimated hours are as follows: - ------------------------------------------------------------------------------- CATEGORY ESTIMATED HOURS - ------------------------------------------------------------------------------- Manager(s) [ ] Business Consultant(s) Engineer(s) [ ] Technical Writer(s) [ ] - ------------------------------------------------------------------------------- Total Hours [ ] - ------------------------------------------------------------------------------- Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 20 22 Following are the costs and hours of the 98.03 DMS Screen Pop Release: - ------------------------------------------------------------------------------- ITEMIZATION OF COSTS AMOUNT - ------------------------------------------------------------------------------- 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 [ ] - ------------------------------------------------------------------------------- Estimated hours are as follows: - ------------------------------------------------------------------------------- CATEGORY ESTIMATED HOURS - ------------------------------------------------------------------------------- Manager(s) [ ] Business Consultant(s) Engineer(s) [ ] Technical Writer(s) - ------------------------------------------------------------------------------- TOTAL HOURS [ ] - ------------------------------------------------------------------------------- Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 21 23 Following are the costs and hours of the 98.04 Global Conditions Release: - ------------------------------------------------------------------------------- ITEMIZATION OF COSTS AMOUNT - ------------------------------------------------------------------------------- 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 [ ] - ------------------------------------------------------------------------------- Estimated hours are as follows: - ------------------------------------------------------------------------------- CATEGORY ESTIMATED HOURS - ------------------------------------------------------------------------------- Manager(s) [ ] Business Consultant(s) Engineer(s) [ ] Technical Writer(s) [ ] - ------------------------------------------------------------------------------- TOTAL HOURS [ ] - ------------------------------------------------------------------------------- Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 22 24 Following are the costs and hours of the 98.05 Call Tracking: - ------------------------------------------------------------------------------- ITEMIZATION OF COSTS AMOUNT - ------------------------------------------------------------------------------- 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 [ ] - ------------------------------------------------------------------------------- Estimated hours are as follows: - ------------------------------------------------------------------------------- CATEGORY ESTIMATED HOURS - ------------------------------------------------------------------------------- Manager(s) [ ] Business Consultant(s) Engineer(s) [ ] Technical Writer(s) - ------------------------------------------------------------------------------- TOTAL HOURS [ ] - ------------------------------------------------------------------------------- Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 23 25 Following are the costs and hours of the Knowledge Transfer, Documentation, and Support tasks: - ------------------------------------------------------------------------------- ITEMIZATION OF COSTS AMOUNT - ------------------------------------------------------------------------------- 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 [ ] - ------------------------------------------------------------------------------- Estimated hours are as follows: - ------------------------------------------------------------------------------- CATEGORY ESTIMATED HOURS - ------------------------------------------------------------------------------- Manager(s) Business Consultant(s) Engineer(s) [ ] Technical Writer(s) - ------------------------------------------------------------------------------- TOTAL HOURS [ ] - ------------------------------------------------------------------------------- Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 24 26 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/ DENNIS YABLONSKY By: /s/ BARBARA IRWIN --------------------------------- -------------------------- Name: Dennis Yablonsky Name: ------------------------------- ------------------------ (printed) (printed) Title: President/CEO Title: ------------------------------ ------------------------ Date: 5-18-98 Date: ------------- ------------------------ U S WEST BRI By /s/ MARTA L. TURNBULL ---------------------------- Name: Marta L. Turnbull ------------------------- (printed) Title: Contract Agent ------------------------ Date: 5/20/98 ------------------------- Schedule Number 38-002-98 US West and Carnegie Group, Inc. 4/22/98 Proprietary and Confidential Page 25 EX-10.04 5 CARNEGIE GROUP, INC. 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 the material filed in accordance with Rule 24b-2 and have been filed separately with the Commission. 2 SCHEDULE NUMBER "34-002-98"/(9700050785) ECPIC This Schedule Number "34-002-98", effective March 13, 1998 is 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 the ECPIC project. The work to be provided by CGI represents a new effort between the parties. 1.2 OVERVIEW The Electronic Communications Primary Interexchange Carrier ("ECPIC") process will provide external customers the opportunity to submit electronic PICs to U S WEST for faster processing. Changes and modifications will need to be made to current systems within U S WEST to allow ECPIC to be effective. New program interfaces will need to be developed to support ECPIC's ability to perform faster PIC changes between the external customers (Carriers) and U S WEST. This will include development of an interface into U S WEST's Operating Support Systems (OSS) for use by external customers via the OSS Gateway and development of an internal business services platform that interfaces with Regional Subscription Services (RSS) and APRIL. Schedule Number 34-002-98 Carnegie Group, Inc. and US WEST 8/10/98 Proprietary and Confidential Page 1 3 The ECPIC services discussed in this overview summarize the ECPIC project to be managed by U S WEST as supported by Carnegie Group under this Agreement. More specifically, Carnegie Group will provide hourly consulting work as part of the ECPIC project team under U S WEST direction. 1.3 EXCEPTIONS/DEFINITIONS TO THE AGREEMENT The following exceptions and definitions apply to this Schedule: o WORK AUTHORIZATION: It is agreed by the parties that any work provided by CGI under the Letter of Intent effective from March 13, 1997 through April 11, 1998 will be included under this Schedule as billable and in accordance with the terms and conditions hereunder. o SPECIAL RAMPDOWN PROVISIONS: Notwithstanding subsection 21.2 of the Agreement, Customer shall be responsible for continued funding of the current CGI project resource at the time of termination for a period of two (2) weeks or at the expiration of this Schedule whichever comes first. o REVIEW OF THE SCHEDULE: The parties agree that the U S WEST team leader, the U S WEST project manager and the CGI resource will meet within the first week after the effective date of this Schedule to review the details of this Schedule. The Review will occur more than once should a new U S WEST team leader, U S WEST project manager or CGI resource be assigned by U S WEST or CGI respectfully to the ECPIC effort after the initial Review, unless as otherwise mutually agreed by the parties. 1.4 ROLES AND RESPONSIBILITIES The Roles and Responsibilities of the ECPIC PROJECT are separated and defined in this document by individual company and collectively between U S WEST and Carnegie Group. The project team has been assembled such that CGI is playing a role on the team. Each team member within this collective group may be asked to perform any one of the responsibilities listed below. Therefore, the listing of Roles and Responsibilities has been duplicated and listed separately and jointly between U S WEST and Carnegie Group. 1.4.1 CGI ROLES AND RESPONSIBILITIES The following activities are to be performed by CGI in accordance with U S WEST direction: o Complete Architecture Design presentation o Design and construct Alarm Attribute File o Complete Management Strategy Document o Provide test configuration specs to UNIX Support o Provide production configuration specs to UNIX Support Schedule Number 34-002-98 Carnegie Group, Inc. and US WEST 8/10/98 Proprietary and Confidential Page 2 4 o Deliver Oracle Database Specs to Production DBA o Complete the Management Admin Guide o Deliver Alarm Attribute File and Management Admin Guide to Enterprise Services o Complete Application Disaster Recovery Plan o Convey questions and information between all technical teams o Assist project managers with Q-gate requirements o Weekly status reports to IT project manager 1.4.2 U S WEST ROLES AND RESPONSIBILITIES The following activities are to be provided by U S WEST: o Project Management o Hardware Installation o Network Circuit Installation o Install Backup and Recovery Software o Hardware Disaster Recovery Plan o Document Final Operations Guide o Work with Konark on software development o Work with Konark on developing test cases o Take care of licensing agreements 1.4.3 JOINT CGI AND U S WEST ROLES AND RESPONSIBILITIES CGI and U S WEST are jointly responsible for the following activities: o Hold weekly project manager meetings. o Hold bi-weekly ECPIC core team meetings. o Assist Konark with loading their software on the server. o Communicate technical questions/problems as they arise and develop feasible solutions and/or alternatives. o Test Manageability Package with Enterprise Services. o Begin Manageability SOAK test. o Complete Manageability Compliance Certificate. o Deployment 1.5 SCOPE Carnegie Group will work under U S WEST leadership and management. U S WEST's goal is for ECPIC to complete a PIC change order at the network switch within a 2-hour cycle from the time a change order is received. Schedule Number 34-002-98 Carnegie Group, Inc. and US WEST 8/10/98 Proprietary and Confidential Page 3 5 1.6 DELIVERABLES Actual deliverables will be determined by U S WEST during the early phases of the project. For the purpose of this Schedule No. 34-002-98, such deliverables will be the sole and exclusive property of U S WEST. 1.7 SUMMARY This Schedule covers efforts to be performed from March 13, 1998 through June 26, 1998. 2. SCHEDULE, STATEMENT OF WORK AND DELIVERABLES 2.1 TASKS AND SCHEDULE The following summarizes the tasks, schedule and deliverables included in this Schedule. o Requirements Analysis March 1998 (End date) o System Architecture February 1998 (End date) o Design March 1998 (End date) o Development March 1998 (End date) o Integration/System Test April 13, 1998 (Start date) o Production Deployment June 12, 1998 (Start date) June 30, 1998 (End date) 2.2 ASSUMPTIONS The above tasks, schedules and deliverables were developed based on the following assumptions. 1. The schedule is based on a resource start date of March 13, 1998. Delays in this start date may impact the delivery date of one or more Deliverables. 2. The work estimates are based on fixed dates provided by U S WEST. CGI will continuously monitor the overall effort's status and notify U S WEST of any issues or risk situations that may impact one or more delivery dates. 3. CGI has timely access to U S WEST personnel (i.e. SMEs). 4. U S WEST to provide a sponsor or project manager to act as the liaison between the U S WEST project team and the CGI project team. 5. Status reports and meetings to be held between the U S WEST project manager and the CGI project resource to measure progress against the workplan as mutually agreed upon by U S WEST and CGI. 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. Schedule Number 34-002-98 Carnegie Group, Inc. and US WEST 8/10/98 Proprietary and Confidential Page 4 6 7. Any delays in dependent tasks (i.e. U S WEST tasks) may impact the delivery date of one or more Deliverables. 2.3 DELIVERABLES A copy of the documentation 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. 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. Estimated costs with applicable discounts for the project are provided below: - -------------------------------------------------------------------------------- ITEMIZATION OF COSTS AMOUNT - -------------------------------------------------------------------------------- CONTRACT ENGINEERING COSTS (TIME AND [ ] MATERIALS) LESS MINIMUM DISCOUNT AND ANY PROJECT VOLUME DISCOUNT [ ] - -------------------------------------------------------------------------------- TOTAL CONTRACT ENGINEERING [ ] - -------------------------------------------------------------------------------- TRAVEL EXPENSES AND OTHER PASS- THROUGH EXPENSES - -------------------------------------------------------------------------------- TOTAL SCHEDULE ESTIMATED PRICE [ ] - -------------------------------------------------------------------------------- Schedule Number 34-002-98 Carnegie Group, Inc. and US WEST 8/10/98 Proprietary and Confidential Page 5 7 Estimated hours are as follows: - -------------------------------------------------------------------------------- CATEGORY ESTIMATED HOURS - -------------------------------------------------------------------------------- Manager(s) Business Consultant(s) Engineer(s) [ ] Technical Writer(s) - -------------------------------------------------------------------------------- TOTAL HOURS [ ] - -------------------------------------------------------------------------------- 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/ DENNIS YABLONSKY BY: /s/ BARBARA IRWIN ----------------------------- --------------------------- NAME: Dennis Yablonsky NAME: Barbara Irwin --------------------------- ------------------------- (printed) (printed) TITLE: President/CEO TITLE: Sr. Director -------------------------- ------------------------ DATE: 4-19-98 DATE: 09/24/98 --------------------------- ------------------------- U S WEST BRI BY: /s/ SHERYL SWAYZE --------------------------- NAME: Sheryl Swayze ------------------------- (printed) TITLE: Commodity Manager ------------------------ DATE: 4/23/98 ------------------------- Schedule Number 34-002-98 Carnegie Group, Inc. and US WEST 8/10/98 Proprietary and Confidential Page 6 EX-10.05 6 CARNEGIE GROUP, INC. 1 EXHIBIT 10.05 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 the material filed in accordance with Rule 24b-2 and have been filed separately with the Commission. 2 LETTER AGREEMENT TO AMEND Schedule Number "23-07-97" / Agreement No. 9700050785 AMENDMENT NO. 23-07-97-A This Letter Agreement dated May 7,1998 is in regard to Schedule Number "23-07-97"/ Agreement No. 9700050785 effective December 1, 1997 (the "CSR [ ] (CSRM) Schedule"), and constitutes an Amendment to the CSRM Schedule in accordance with Article 29 of Agreement No. 9700050785. Under this Amendment, CGI will be modifying the CSRM Schedule by extending the project schedule out by a period of eleven (11) weeks and by expanding the scope through increasing the tasks to be completed, based on mutual agreement by the parties. The overall schedule for the CSRM Project will be modified hereunder from a 15 week effort (actual period of performance of December 1, 1997 to March 15, 1998) to at least a 26 week effort (December 1, 1997 to May 31, 1998). ADDITIONAL PROJECT TASKS : The following seven (7) tasks will be performed in addition to those in the original CSRM Statement of Work. Five of these tasks are estimated to completion while the other two are estimated for requirements assessment only. Estimation to complete the latter two tasks will be performed after the requirements are understood. For all tasks, a description of the task, the level of effort, and related assumptions are also provided. These tasks were preliminarily defined in email memorandums between U S WEST and Carnegie Group in April, 1998 (attached as Appendix A to this Amendment 23-07-97-A for background information). 1. INTEGRATE WITH FNS RELEASE 5.05 - -------------------------------------------------------------------------------- Description The first deployment of CSRM in production uses FnS 4.61. When FnS 5.05 is deployed in production, CSRM will need slight modifications to interface to the updated FnS. The filtering functionality will also need to be updated to work with the new FnS CSR format. Integration testing will also be performed. - -------------------------------------------------------------------------------- Effort [ ] hours - -------------------------------------------------------------------------------- Assumptions o - -------------------------------------------------------------------------------- 2. INTEGRATE WITH IMA RELEASE 3.1 23-07-97-A May 8, 1998 1 3 - -------------------------------------------------------------------------------- Description The first phase of CSRM was not designed to fully support IMA. The accessors RSID, ZCID, ListSection, BillSection, and SnESection will be added to the ResCSR. We will also support handling of duplicate CSRs which are provided by the FnS methods csrDupDataCount, and csrDupDataIndex. The Java servlets will need to be modified to match these interface changes. The CSRM client lib will be merged with the FnS client lib. - -------------------------------------------------------------------------------- Effort [ ] hours - -------------------------------------------------------------------------------- Assumptions o CSRM has its own CLEC database. Estimates for this task do not include interfacing to IMA's CLEC database. - -------------------------------------------------------------------------------- 3. INTEGRATE WITH FNS RELEASE 5.1 - -------------------------------------------------------------------------------- Description When FnS 5.1 is deployed in production, CSRM will need to go through integration testing with that FnS release. Based on our current understanding of the changes made in FnS 5.1, this should not require source code changes to CSRM - only testing to verify interoperability. - -------------------------------------------------------------------------------- Effort [ ] hours - -------------------------------------------------------------------------------- Assumptions o No code changes to CSRM are required and integration testing is only needed to verify interoperability. CSRM changes forced by FnS 5.1 changes are not included in this task. - -------------------------------------------------------------------------------- 4. MODIFY [ ] FUNCTIONALITY - -------------------------------------------------------------------------------- Description [ ] - -------------------------------------------------------------------------------- Effort [ ] hours - -------------------------------------------------------------------------------- Assumptions o The approach taken in this task estimate is a short term approach due to the short delivery time frame. Additional work needed to implement a more robust long term solution is not included in this task. - -------------------------------------------------------------------------------- 5. ASSESS REQUIREMENTS FOR ENHANCEMENTS SUGGESTED BY EXISTING CSRM USERS 23-07-97-A May 8, 1998 2 4 - -------------------------------------------------------------------------------- Description In a conference call with the on-site manager of the end user group, a number of enhancements were suggested which would improve CSRM usability for both the users and their customers (CLECs). We would need to investigate the user requirements to determine the effort involved in implementing the enhancements. This assessment would also be coordinated with other efforts related to usability of CSRM. - -------------------------------------------------------------------------------- Effort [ ] hours - -------------------------------------------------------------------------------- Assumptions o There will be no coding or any implementation work provided based on the findings of this assessment; the requirements findings as documented and an estimation of the scope and cost to implement the requirements will be provided only. - -------------------------------------------------------------------------------- 6. ASSESS REQUIREMENTS FOR ENHANCEMENTS TO SUPPORT ADDITIONAL CSRM USERS WHO ARE INTERNAL TO U S WEST - -------------------------------------------------------------------------------- Description Additional internal U S WEST users may start using CSRM. Enhancements or modifications to support these users may be required. We would need to investigate the requirements here to determine the effort involved. This assessment would also be coordinated with other efforts related to usability of CSRM. - -------------------------------------------------------------------------------- Effort [ ] hours - -------------------------------------------------------------------------------- Assumptions o There will be no coding or any implementation work provided based on the findings of this assessment; the requirements findings as documented and an estimation of the scope and cost to implement the requirements will be provided only. - -------------------------------------------------------------------------------- 7. INCORPORATE CSRM PMR 100 (HANDLING OF DUPLICATE CSRS) - -------------------------------------------------------------------------------- Description CSRM Phase 1 does not handle duplicate CSRs and does not present a useful message to the user when this situation is encountered. This task would enhance CSRM to allow handling of this case. When a duplicate CSR is encountered, the user would be presented with a list of customer codes for the telephone number and would then pick the desired one. A new CSR request would be issued with that customer code appended to the telephone number. The ability to enter the customer code on the request screen would also be added. - -------------------------------------------------------------------------------- Effort [ ] hours - -------------------------------------------------------------------------------- Assumptions o This estimate is for GUI work only. The server side portion of this task is assumed to have been performed in support of IMA Release 3.1. o This task and estimate is based on modifying the existing GUI. This task and estimate could change, upon U S WEST request, based on the outcome of the assessments in the previous tasks. - -------------------------------------------------------------------------------- 23-07-97-A May 8, 1998 3 5 OVERALL ASSUMPTIONS: In addition to the assumptions stated above and in the CSRM Schedule, the following assumptions also apply to the tasks and estimates presented in this amendment. o Availability of a test environment at U S WEST which allows access to the current FnS version and the associated test BOSS/CARS systems. o System and production testing to be performed by U S WEST. o The deliverables from the above coding tasks will be incorporated into the existing corresponding deliverables provided under the CSRM Schedule; Tasks 5 and 6 assessment findings will be incorporated as an addendum the User Requirements Document unless otherwise agreed by the parties. o Any additional hours beyond those estimated and any additional scope beyond what is described in the above seven tasks will be provided upon the execution of a change order or amendment document. AMENDMENT COSTS: This Amendment also includes an additional funding estimate in the amount of [ ] for additional tasks determined and agreed to by Carnegie Group and U S WEST. Therefore, the Projected Cost in Article 3 of Schedule 23-07-97 has been increased by [ ] to [ ] in accordance with Exhibit 1 as attached hereto to effectively replace the original Article 3 in its entirety. This Amendment describes the project extension and scope, in accordance with the current intent of the parties, for which the CSRM Schedule is being modified hereunder. It is understood by the parties that the consulting services will continue to be provided by CGI under Schedule 23- 07-97 and this Amendment as subject to change in accordance with U S WEST direction and within the funding constraints of this Amendment. Except as expressly set forth in this Letter Agreement, the terms of Schedule 23-07-97 and all signed amendments shall remain in full force and effect. 23-07-97-A May 8, 1998 4 6 IN WITNESS WHEREOF, LICENSEE AND CGI HAVE EXECUTED THIS LETTER AGREEMENT IN DUPLICATE BY THEIR RESPECTIVE AUTHORIZED REPRESENTATIVES. CARNEGIE GROUP, INC. LICENSEE BY: /s/ DENNIS YABLONSKY BY: /s/ BARBARA IRWIN ---------------------------- ------------------------- TITLE: President/CEO TITLE: Executive Director ------------------------- ---------------------- DATE: 8/3/98 DATE: 6/29/98 ------------------------- ----------------------- U S WEST BUSINESS RESOURCES, INC. ACTING AS AGENT FOR: LICENSEE BY: -------------------------- TITLE: ----------------------- DATE: ------------------------ 23-07-97-A May 8, 1998 5 7 Exhibit 1 - Projected Cost The total cost of the work net of discounts shall not exceed [ ] based on estimated time and material expenses, which represents an increase of [ ] above the previous funding approved for the CSRM Project of [ ]. Travel to end user sites may be necessary for this project. Should travel be required, U S WEST agrees to pay CGI travel expenses for all pre-approved trips. This Amendment No. 23-07-97-A is directly linked to the CSRM Schedule No. 23-07-97. Estimated costs with applicable discounts and estimated hours according to the project extension, including special payment terms, and the additional tasks are provided separately below. They collectively represent this Amendment's costs and hours. Lastly, the same is provided for the entire project incorporating the Amendment's costs and hours and those from the original Schedule. - -------------------------------------------------------------------------------- ITEMIZATION OF COSTS Amount - -------------------------------------------------------------------------------- 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 Incremental Estimated Price [ ] - -------------------------------------------------------------------------------- Estimated hours for this amendment are as follows: - -------------------------------------------------------------------------------- CATEGORY Estimated Hours - -------------------------------------------------------------------------------- Project Manager [ ] Engineering [ ] Technical Writer [ ] - -------------------------------------------------------------------------------- Total Hours [ ] - -------------------------------------------------------------------------------- 23-07-97-A May 8, 1998 6 8 The CSRM Project entire project to date, inclusive of this Amendment, costs and hours follow: - -------------------------------------------------------------------------------- ITEMIZATION OF COSTS Amount - -------------------------------------------------------------------------------- Contract Engineering Costs (time and materials) [ ] less [ ] Minimum Discount [ ] - -------------------------------------------------------------------------------- CGI/Third Party License Fees - -------------------------------------------------------------------------------- Travel Expenses and other pass-through expenses - -------------------------------------------------------------------------------- Total Schedule Estimated Price [ ] - -------------------------------------------------------------------------------- Total estimated hours for this schedule are as follows: - -------------------------------------------------------------------------------- CATEGORY ESTIMATED CARNEGIE GROUP HOURS - -------------------------------------------------------------------------------- Project Manager [ ] Engineering [ ] Technical Writer [ ] - -------------------------------------------------------------------------------- Total Hours [ ] - -------------------------------------------------------------------------------- 23-07-97-A May 8, 1998 7 9 Appendix A TO: Jeff Thompson, Nikki Smidt CC: Jeff Ellery & Glenn Hoy, CGI FROM: Cathy Butcher DATE: April 7, 1998 SUBJECT: CSRM Plan & Schedule Post Production CSRM is in production. Users are trained and using CSRM. The following are future plans for CSRM as we know them today. With your support, I would like to extend the contract and working relationship with CGI to complete these items. - -------------------------------------------------------------------------------- DATE WHAT VALUE - -------------------------------------------------------------------------------- 4/25/98 Move to Fetch V 5.0.4 CSR appearance is more BOSS/CARS like in appearance. Reduce churn for recipient of CSRM CSR - -------------------------------------------------------------------------------- TBD Move to Fetch V 5.1 Working on this. The value to CSRM may be staying current with Fetch. - -------------------------------------------------------------------------------- 6/26/98 [ ] [ (IMA 3.1) ] - -------------------------------------------------------------------------------- TBD FBL (CSRM GUI) Enhancements Netscape 3.0 compatible Add option to get [ ] CSR Add "by state, by USOC" filter - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PMR/CR Severity FIX/CHANGE - -------------------------------------------------------------------------------- PMR100 2 Ability to resolve duplicate CSR. (Occasionally a live and final account with the same telephone number appears in BOSS/CARS. CSRM does not know how to deal with this situation and therefore does nothing. CSRM does need the capability of presenting both accounts to the requester who in turn can select the account they are requesting.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Please advise if you have any questions or issues with this plan. 23-07-97-A May 8, 1998 8 10 Appendix A, cont. TO: Jeff Thompson FROM: Cathy Butcher DATE: April 16, 1998 SUBJECT: CSRM Enhancement Requests The ICS ATC Dallas Texas group, initial users of CSRM, have identified the following CSRM enhancements and problems. - -------------------------------------------------------------------------------- Priority Enhancement Functional Impact - -------------------------------------------------------------------------------- 1 Ability to EMAIL multiple CSRs CSRM output is a 1 to 1 at one time relationship (CSR to EMAIL, fax or print). The vast majority of CLEC requests are for multiple CSRs. CLECs expect to receive multiple CSRs in a single EMAIL, fax or print. CLECs immediately registered a complaint when ATC started using CSRM and received 1 CSR per EMAIL. This feature is currently provided by their CSR copy program - predecessor to CSRM. - -------------------------------------------------------------------------------- 2 Add subject line to EMAIL and Larger CLECs distribute incoming fax deliveries CSRs based on a subject line that states originator and date of the request. This feature is currently provided by their CSR copy program - predecessor to CSRM. - -------------------------------------------------------------------------------- 3 Add notes section Ability to convey comments to CLECs re their request attached to the CSRM EMAIL, fax or print. This feature is currently provided by their CSR copy program - predecessor to CSRM. - -------------------------------------------------------------------------------- 4 EMAIL alias list Non CLEC impactive. EMAIL is primary method of delivering CSRs and vast majority of requests come from a few CLECs. ATC users would like to be able to select an EMAIL address rather than entering it with each request - saves time and less prone to errors. This feature is currently provided by their CSR copy program - predecessor to CSRM. - -------------------------------------------------------------------------------- These are low priority problems and not considered show stoppers by the clients. 23-07-97-A May 8, 1998 9 11 - -------------------------------------------------------------------------------- Problem Solution - -------------------------------------------------------------------------------- Authorized Name field does not allow Redefine field spacing and displays in caps - -------------------------------------------------------------------------------- ATC CSRM input window is not ATC screen resolution different than displayed on one screen developments. Improve spacing and/or remove unnecessary fields. - -------------------------------------------------------------------------------- Sometimes CSRM does not refresh Workaround described by CGI. Known correctly JAVA bug that may have fix in recent JAVA upgrade. - -------------------------------------------------------------------------------- 23-07-97-A May 8, 1998 10 EX-11 7 CARNEGIE GROUP, INC. 1 Exhibit 11.1 CARNEGIE GROUP, INC. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
6 months ended 3 months ended June 30, June 30, ------------------------ ------------------------ 1998 1997 1998 1997 ----------- ---------- ----------- ---------- Net income (loss) $(2,060,379) $ 909,756 $ 171,802 $ 521,509 =========== ========== =========== ========== Weighted average common shares outstanding 6,512,252 6,287,407 6,528,036 6,296,648 Effect of dilutive shares outstanding 309,564 642,635 310,593 608,700 ----------- ---------- ----------- ---------- Dilutive shares outstanding 6,821,816 6,930,042 6,838,629 6,905,348 ============ ========== ============ ========== Earnings (loss) per common share Basic $(0.32) $0.14 $ 0.03 $0.08 ====== ===== ====== ===== Diluted $(0.32) $0.13 $ 0.03 $0.08 ====== ===== ====== =====
EX-27 8 CARNEGIE GROUP, INC.
5 0001001188 CARNEGIE GROUP, INC. 3-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 5,812,171 0 10,340,417 0 0 19,089,315 2,717,148 0 27,411,668 5,377,748 0 0 0 67,757 21,888,598 27,411,668 0 8,556,721 0 5,805,931 2,520,108 0 84,357 321,559 149,757 171,802 0 0 0 171,802 0 0
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