-----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, WuPbTsh6BbcgBqKBHEG1DK/AvW2eI0GJrjsHlqRKmMR1hFso9BesEPX0wD7znqO5 tIRzda0/Y0G13RNwQr1+vA== 0000950128-97-001066.txt : 19971117 0000950128-97-001066.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950128-97-001066 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: 97720104 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 SEPTEMBER 30, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------------------ ------------------ COMMISSION FILE NUMBER 0-26964 CARNEGIE GROUP, INC. - -------------------------------------------------------------------------------- DELAWARE 25-1435252 - -------------------------------------------------------------------------------- (State or other Jurisdiction of (I.R.S Employer Identification Number) Incorporation or Organization) 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 OCTOBER 31, 1997 ----- ------------------------------- Common Stock, $.01 par value 6,465,255 - 1 - 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 nine months ended September 30, 1997 and 1996 Carnegie Group, Inc. and Subsidiaries 4 Consolidated Balance Sheets Carnegie Group, Inc. and Subsidiaries 5 Consolidated Statements of Cash Flows Notes to Unaudited Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of 7 Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures about 15 Market Risks PART 2 OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 Exhibit Index 18
- 2 - 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CARNEGIE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED ---------------------------- ----------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1997 1996 ---- ---- ---- ---- Revenue Software services--Unrelated parties $ 5,657,403 $ 5,317,571 $ 17,235,707 $18,396,585 Software services--Related parties 2,163,790 793,347 4,851,972 2,038,273 ---------- ---------- ---------- ---------- Total software services 7,821,193 6,110,918 22,087,679 20,434,858 Software licenses 122,518 398,351 845,957 1,061,112 ----------- ---------- ---------- ------------ Total revenue 7,943,711 6,509,269 22,933,636 21,495,970 ---------- ---------- ---------- ---------- Costs and expenses: Cost of revenue - Unrelated parties 3,669,785 3,454,845 11,292,810 12,064,410 Cost of revenue - Related parties 1,308,871 507,078 2,815,565 1,282,354 ------------ ---------- ---------- ------------ Total cost of revenue 4,978,656 3,961,923 14,108,375 13,346,764 Research and development 505,140 346,868 1,255,686 814,158 Selling, general and administrative 2,108,397 1,671,435 6,046,420 5,822,321 ---------- ---------- ---------- ---------- Total costs and expenses 7,592,193 5,980,226 21,410,481 19,983,243 ---------- ---------- ---------- ---------- Income from operations 351,518 529,043 1,523,155 1,512,727 Other income (expense): Interest income 179,743 153,011 512,619 451,701 Other income 6,749 7,931 19,347 20,729 Interest expense (3,242) (4,262) (10,295) (13,683) ---------- ---------- ----------- ----------- Total other income (expense) 183,250 156,680 521,671 458,747 ---------- ---------- ---------- ---------- Income before income taxes 534,768 685,723 2,044,826 1,971,474 Income tax provision (212,678) (276,215) (812,980) (757,958) ---------- ----------- ---------- ---------- Net income $ 322,090 $ 409,508 $ 1,231,846 $ 1,213,516 ---------- ---------- ------------ ------------ Earnings per share of common stock $ 0.05 $ 0.06 $ 0.18 $ 0.17 ========== ========== ========= ========== Weighted average number of common shares and 7,053,755 6,971,076 6,969,017 7,120,084 equivalents outstanding ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. - 3 - 4 CARNEGIE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(UNAUDITED) SEPTEMBER 30, DECEMBER 31, 1997 1996 ---- ---- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 13,841,553 $ 14,691,765 Accounts receivable 5,394,024 2,751,316 Accounts receivable from related parties 1,021,148 769,223 Accounts receivable--unbilled 2,012,664 3,660,765 Accounts receivable related parties--unbilled 968,649 188,302 Deferred income taxes 1,957,139 2,179,426 Other current assets 732,271 403,508 ------------ ------------ Total current assets 25,927,448 24,644,305 ------------ ------------ Property and equipment, net of accumulated depreciation and amortization 2,726,594 2,046,415 Deferred income taxes 1,283,514 1,775,480 Long term notes receivable--from officer 325,000 0 Other assets 16,135 23,055 ------------ ------------ Total assets $ 30,278,691 $ 28,489,255 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 1,094,907 $ 614,458 Payables to related parties 292,352 1,034,608 Accrued compensation 707,764 706,965 Advance billings and deferred revenue 2,091,210 1,101,221 Accrued rent 361,518 538,641 Other accrued liabilities 629,930 821,752 Obligations under capital leases--current portion 167 33,242 ------------ ------------ Total liabilities 5,177,848 4,850,887 ------------ ------------ STOCKHOLDERS' EQUITY: Common stock, $.01 par value; 20,000,000 shares authorized, 6,689,970 and 6,512,038 shares issued at September 30, 1997 and December 31, 1996 respectively 66,900 65,120 Capital in excess of par value 31,612,929 31,384,080 Accumulated deficit (6,103,986) (7,335,832) Treasury stock, 190,000 shares (475,000) (475,000) ------------ ------------ Total stockholders' equity 25,100,843 23,638,368 ------------ ------------ Total liabilities and stockholders' equity $ 30,278,691 $ 28,489,255 ============ ============
The accompanying notes are an integral part of these financial statements. - 4 - 5 CARNEGIE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1997 1996 ---- ---- Cash flows from operating activities: Net income $ 1,231,846 $ 1,213,516 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 937,908 698,989 (Gain) loss on sale of fixed assets 503 0 Deferred income taxes 714,253 661,952 Changes in working capital component: Accounts receivable (994,607) 1,531,603 Accounts receivable - Related parties (1,032,272) (993,120) Other assets (321,843) 144,153 Trade accounts payable 480,449 (568,524) Payables to related parties (742,256) (37,772) Accrued compensation 799 (211,810) Accrued rent (177,123) (52,855) Long term notes receivable--from officer (325,000) 0 Other accrued liabilities (125,058) 68,927 Advance billings and deferred revenue 989,989 75,981 ------------ ------------ Net cash (used in) provided by operating activities 637,588 2,531,040 Cash flows from investing activities: Proceeds from the sale of fixed assets, net 1,000 -- Capital expenditures (1,619,592) (940,464) ------------ ------------ Net cash used in investing activities (1,618,592) (940,464) ------------ ------------ Cash flows from financing activities: Borrowings on line of credit -- -- Repayments on line of credit -- -- Principal payments under capital lease obligations (33,075) (40,909) Proceeds from sales of common stock, net 163,867 251,617 ------------ ------------ Net cash (used in) provided by financing activities 130,792 210,708 ------------ ------------ Net change in cash and cash equivalents (850,212) 1,801,284 Cash and cash equivalents: Beginning of period 14,691,765 12,394,588 End of period $ 13,841,553 $ 14,195,872 ============ ============
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 nine month periods ended September 30, 1997. Results for the interim periods are not necessarily indicative of results for the full year. The accompanying statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission and therefore do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. Accordingly, the information contained in this Form 10-Q should be read in conjunction with the financial statements and notes thereto contained in the Company's Form 10-K for the year ended December 31, 1996 as filed with the Securities and Exchange Commission. RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share." SFAS No. 128 establishes new standards for computing and presenting earnings per share. The Company is required to adopt the provisions of SFAS No. 128 for its consolidated financial statements for the year ended December 31, 1997 and subsequent interim periods. Upon adoption, the standard also requires the restatement of all prior period earnings per share information presented. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components. The Company is required to adopt the provisions of SFAS No. 130 beginning with its consolidated financial statements for the three months ending March 31, 1998. SFAS No. 131 requires certain disclosures about segment information in interim and annual financial statements and related information about products and services, geographic areas and major customers. The Company must adopt the provisions of SFAS No. 131 for its consolidated financial statements for the year ending December 31, 1998. The adoptions of SFAS No. 128, SFAS No. 130 and SFAS No. 131 are not expected to have a material effect on the measurement of the Company's financial position, results of operations or cash flows; the Company is reviewing possible changes in disclosures that may be called for. - 6 - 7 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL Carnegie Group, Inc. ("Carnegie Group" or the "Company") provides client/server software development services that integrate advanced user-centered, intelligent software technologies with clients' existing computing infrastructures to automate and enhance complex business processes. The Company performs business and technical consulting, custom software development, and systems integration services to improve clients' productivity and market position in two business areas: customer interaction; and logistics, planning and scheduling. Within these areas, the Company targets its services to clients in the financial services, government, manufacturing and telecommunications industries. The Company's expertise encompasses a wide range of advanced software technologies, including knowledge-based systems, object-oriented technology, advanced graphical user interfaces, constraint-directed search and distributed computing. The Company captures certain aspects of its business area experience and advanced technology expertise in a portfolio of reusable software templates that can be used as building blocks to create software solutions quickly and effectively. In addition, Carnegie Group employs an iterative or "spiral" approach to software design that begins with the construction of a prototype and continues through testing of successive versions of the software against project requirements. This iterative design facilitates rapid software development, encourages client feedback and leads to greater congruence with client needs and expectations. Since inception, Carnegie Group has emphasized relationships with leading corporations in its targeted industries. These relationships have provided the Company with opportunities for growth through the provision of additional services to existing clients and through references to other companies within the Company's targeted industries. Carnegie Group's clients include the United States Transportation Command, U S WEST Communications, Inc., BellSouth Telecommunications, Inc., U.S. Army, Caterpillar, Inc., First USA Bank, Highmark Blue Cross Blue Shield and Philips Medical Systems. The Company only includes in backlog signed contracts that either have milestones yet to be attained or for which the Company can make a reasonable estimate of work yet to be performed. The Company's backlog at September 30, 1997 was $7.2 million, compared to $11.6 million at September 30, 1996 and $9.6 million at December 31, 1996. As most of the contracts in backlog are terminable by the Company or the client upon short notice, there can be no assurance that contracts reflected in backlog are a reliable measure of future revenue. - 7 - 8 COMPARISON OF QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996. Revenue. Total revenue for the quarter ended September 30, 1997 was $7.9 million compared to $6.5 million for the quarter ended September 30, 1996, an increase of $1.4 million or 22%. For the nine months ended September 30, 1997 revenue was $22.9 million compared to $21.5 million for the nine months ended September 30, 1996, an increase of $1.4 million or 7%. Total software services revenue for the quarter ended September 30, 1997 was $7.8 million compared to $6.1 million for the quarter ended September 30, 1996, an increase of $1.7 million or 28%. For the nine months ended September 30, 1997 software services revenue was $22.1 million compared to $20.4 million for the nine months ended September 30, 1996, an increase of $1.7 million or 8%. Revenue from software services-related parties was $4.8 million for the nine months ended September 30, 1997 compared to $2.0 million for the nine months ended September 30, 1996, an increase of $2.8 million or 140%. This increase was primarily due to an increase in customer contact engagements for a telecommunications industry client. Revenue from software licenses was $123,000 for the three month period ended September 30, 1997, compared to $398,000 for the same three month period in 1996, a decrease of $275,000 or 69%. The decrease in software licenses in the third quarter of 1997 when compared to 1996 was attributable to the failure to close a certain major template license during the third quarter of 1997. Revenue from software licenses was $846,000 for the nine months ended September 30, 1997 compared to $1,061,000 for the nine months ended September 30, 1996, a decrease of $215,000 or 20%. Cost of Revenue. Cost of revenue consists primarily of salaries and related benefits for personnel, and also includes an allocated portion of rent, building services and expenses. For the third quarter of 1997, total cost of revenue was $5.0 million compared to $4.0 million for the third quarter of 1996, an increase of $1.0 million or 25%. For the nine months ended September 30, 1997, total cost of revenue was $14.1 million compared to $13.3 million for the nine months ended September 30, 1996, an increase of $.8 million or 6%. The nine month increase was primarily attributable to an increase in the number of software engineers deployed on customer contact engagements. Cost of revenue-related parties was $2.8 million for the nine months ended September 30, 1997 compared to $1.3 million for the nine months ended September 30, 1996, an increase of $1.5 million or 115%. This increase was primarily attributable to an increase in customer contact engagements for a telecommunications industry client. Research and Development. Research and development expenses for the quarter ended September 30, 1997 were $505,000 compared to $347,000 for the third quarter of 1996, an increase of $158,000 or 46%. For the nine months ended September 30, 1997 research and development expenses were $1.2 million compared to $.8 million for the nine months ended September 30, 1996, an increase of $.4 million or 50%. These increases were primarily attributable to continued investment in template and methodology development. Selling, General and Administrative. Selling, general and administrative expenses include costs of proposal development and proposal writing, marketing communications and advertising, sales and management staff, and corporate services functions including accounting, human resources and legal services, along with corporate executive staff. Selling, general and administrative expenses were $6.0 million for the nine months ended September 30, 1997 compared to $5.8 million for the nine months ended September 30, 1996, an increase of $.2 million or 3%. Other Income (Expense). Total other income for the third quarter of 1997 was $183,000 compared to total other income of $157,000 in 1996, an increase of $26,000 or 17%. For the nine months ended September 30, 1997, total other income was $522,000 compared to total other income of $459,000 for the same period in 1996, an increase of $63,000 or 14%. This income is primarily interest income earned on the net - 8 - 9 proceeds received in December 1995 from the Company's initial public offering, which were invested in an interest-bearing account. Income Tax Provision. An income tax provision of $213,000 was recorded for the third quarter of 1997 and $813,000 for the nine months ended September 30, 1997 based on the Company's estimate of the effective tax rate for the year. SFAS No. 109, "Accounting for Income Taxes," requires a valuation allowance when it is "more likely than not that some portion or all of the deferred tax assets will not be realized." It further states that "forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years." The ultimate realization of its deferred income tax asset depends on the Company's ability to generate sufficient taxable income in the future. The Company has weighed the positive evidence of sustained profitability over the last three years and future income expectations within the Company's three year strategic planning horizon against the negative evidence of dependence upon a limited number of customers and other uncertainties and has concluded that retaining a valuation allowance related to net operating losses is no longer necessary. In estimating the amount of its realizable deferred tax asset, the Company gives substantial weight to recent historical results. Significant changes in circumstances or in enacted tax laws which affect the valuation allowance are recorded when they occur. The Company's annual strategic business planning process takes place in the fourth quarter of the year, and the valuation allowance is adjusted for future years' income expectations resulting from that process. When preparing subsequent interim and annual financial statements, the Company reevaluates whether there has been any significant change in the assumptions underlying its plan and adjusts the valuation allowance as necessary. Net Income. Net income for the quarter ended September 30, 1997 was $322,000 compared to $410,000 for the quarter ended September 30, 1996. This decrease of $88,000 was due to the aforementioned decrease in software licenses sold in the third quarter of 1997 when compared to 1996 which was attributed to the failure to close a certain major template license. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations in recent years primarily through cash generated from operations and the use of cash reserves, and in part by borrowing under available lines of credit. The Company has also funded its operations through the net proceeds of the initial public offering of its Common Stock consummated in December 1995. During the first nine months of 1997 the Company generated $637,000 in positive cash flow from operating activities, although overall, the Company had a net use of cash amounting to $850,000. This negative cash flow was the result of a substantial nine month investment of $1.6 million in capital expenditures. In comparison, capital equipment spending for the nine months ended September 30, 1996 was $940,000. The Company's net accounts receivable increased by $2.0 million for the nine months ended September 30, 1997 which reflects increases in revenue. Invoicing of amounts to clients generally occurs within 45 days of time and materials cost incurrence, unless a specific schedule is agreed upon, and payment follows invoicing in accordance with customary terms. The Company has not experienced any significant write-downs of receivables, nor does the Company expect that payments are doubtful; accordingly, the Company has not made any allowance for doubtful accounts. Advance billings and deferred revenue increased $1.0 million for the nine months ended September 30, 1997. Advanced billings and deferred revenue balances will normally change from period to period. Any increase reflects billings in advance of revenue earned, but which were billed in accordance with established or agreed billings schedules. These amounts are recorded as deferred revenue until earned. The - 9 - 10 timing and magnitude of such advance billings vary from contract to contract and from client to client. The Company currently has a committed line of credit agreement in the amount of $3.5 million in place with PNC Bank, N.A. (the "Bank"). Borrowings under this agreement are collateralized by accounts receivable. The line of credit bears interest at the Bank's prime interest rate and the Bank charges a 0.15% fee per annum on the unused portion of that line of credit. The Bank's prime interest rate was 8.50% at September 30, 1997 compared to 8.25% at December 31, 1996. This agreement was amended on July 1, 1997 by extending the expiration date to June 30, 1998. No borrowings were outstanding against the line of credit at September 30, 1997 or December 31, 1996. The Company believes that the current cash balances, together with cash generated from operations and borrowing available under its line of credit, will satisfy the Company's working capital and capital expenditure requirements during fiscal year 1997 and the foreseeable period thereafter. In the longer term, the Company may require additional sources of liquidity to fund future growth. Such sources of liquidity may include additional equity offerings or debt financings. Capital expenditures are typically made for computing equipment, software, physical plant, and furniture and fixtures in order to seek enhancements in the productivity of the Company's employees and to support growth. RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share." SFAS No. 128 establishes new standards for computing and presenting earnings per share. The Company is required to adopt the provisions of SFAS No. 128 for its consolidated financial statements for the year ended December 31, 1997 and subsequent interim periods. Upon adoption, the standard also requires the restatement of all prior period earnings per share information presented. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components. The Company is required to adopt the provisions of SFAS No. 130 beginning with its consolidated financial statements for the three months ending March 31, 1998. SFAS No. 131 requires certain disclosures about segment information in interim and annual financial statements and related information about products and services, geographic areas and major customers. The Company must adopt the provisions of SFAS No. 131 for its consolidated financial statements for the year ending December 31, 1998. The adoptions of SFAS No. 128, SFAS No. 130 and SFAS No. 131 are not expected to have a material effect on the measurement of the Company's financial position, results of operations or cash flows; the Company is reviewing possible changes in disclosures that may be called for. MATERIAL FACTORS AFFECTING THE COMPANY'S BUSINESS The Company's business is subject to a number of risks and uncertainties that could materially affect future results. To the extent that any of the statements made in this report on Form 10-Q (including, without limitation, statements with respect to growth in the Company's business and client engagements) may be deemed to be forward-looking statements, or to the extent that the Company or its representatives may in the future be deemed to make oral forward-looking statements, the following is a list of important factors, among others, that could cause actual results to differ materially from those expressed in any such forward-looking statements: Dependence Upon Limited Number of Clients. The Company has derived in the past, and expects to derive in the future, a significant portion of its revenue from a - 10 - 11 relatively limited number of major clients. For example, approximately 83%, 87% and 80% of total software services revenue in the years ended December 31, 1996, 1995 and 1994, respectively, was derived from the Company's five largest clients in each such period. In 1996, revenue from billings to each of the United States Transportation Command, BellSouth Telecommunications, Inc. and Caterpillar Inc. accounted for more than 10% of the Company's total revenue. In 1995, revenue from billings to each of such customers and U S WEST Communications, Inc. accounted for more than 10% of the Company's total revenue. The Company's business depends in large part upon its ability to establish and maintain relationships with a limited number of large clients. The loss of, or any significant reduction in the services provided to, any existing major clients, or the failure of the Company to establish and maintain relationships with new major clients, would have a material adverse effect on the Company's business, financial position and results of operations. Project Risks. Many of the Company's engagements involve projects which are critical to the operations of its clients' businesses and which provide benefits that may be difficult to quantify. Moreover, many of these engagements are significant to the Company, in that each may represent a significant portion of the Company's total revenue. For example, the Company's ten largest engagements accounted for approximately 76%, 68%, and 56% of total software services revenue in the years ended December 31, 1996, 1995 and 1994, respectively. The Company's failure or inability to meet a client's expectations in the performance of an engagement could have a material adverse effect on the Company's business, financial position and results of operations, including damage to the Company's reputation that could adversely affect its ability to attract new business. In addition, the Company's engagements generally are terminable by clients on short or no notice. An unanticipated termination of a major engagement could require the Company either to maintain under-utilized employees, resulting in a higher than expected number of unassigned persons and concomitant lower utilization rate, or to terminate such employees, resulting in higher severance expenses. The Company must maintain a sufficient number of senior professionals to oversee existing client engagements and to participate with the Company's sales force in securing new client engagements; thus, professional staff expenses are relatively fixed. Although the majority of the Company's contracts are performed on a time-and-materials basis, some contracts are performed on a fixed-price basis, exposing the Company to the risks of cost overruns and inflation. Variability of Quarterly Operating Results; Future Operating Results Uncertain. The Company has experienced significant quarterly and other variations in revenue and operating results. Because the Company's business is characterized by significant client concentration and relatively large projects, the timing of performance for each client engagement can result in significant variability in the Company's revenue and cost of revenue from quarter to quarter. In addition, variations in the Company's revenue and operating results occur as a result of a number of other factors, such as employee hiring and utilization rates and the number of working days in a quarter. The timing of revenue is difficult to forecast because the Company's sales cycle is relatively long and may depend on factors such as the size and scope of assignments and general economic conditions. Because a high percentage of the Company's expenses, particularly employee compensation, are relatively fixed, a variation in the timing of the initiation or completion of client engagements, especially at or near the end of any quarter, can cause significant variations in operating results from quarter to quarter and could result in quarterly losses. Future revenue and operating results may vary as a result of these and other factors, including the demand for the Company's services and solutions and the competitive conditions in the industry. Moreover, much of the Company's revenue from software licenses is realized upon the licensing of individual copies of software, rather than in the course of a specific services engagement. Accordingly, the timing of software license revenue can be difficult to predict and may vary significantly from quarter to quarter. Many of the factors that could result in quarterly variations are not within the Company's control. The Company believes that quarter-to-quarter comparisons of its financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. - 11 - 12 In addition, quarterly variations, together with the Company's dependence upon a limited number of clients and the Company's experience of adverse operating results in years prior to 1994, make it difficult for management to engage in strategic planning that contemplates a horizon of more than three years. Thus, income expectations beyond three years are viewed by management as very uncertain, and management's past assessments of its ability to realize its deferred tax asset through future taxable income have reflected this. Prior to December 31, 1996, the Company's interim and annual financial statements included a valuation allowance that was intended to reflect management's estimation, in light of these and other risk factors, of the realizability of its deferred tax asset. In determining the amount of any valuation allowance and the possible need to adjust that amount, the Company weighs the negative evidence of its dependence upon a limited number of clients and the other risks described herein, on the one hand, against the positive evidence of recent results and future expectations over its three-year planning horizon, on the other hand. The Company then adjusts the valuation allowance, if any, to reflect the portion of the deferred tax asset that the Company believes it will, more likely than not, be unable to realize. Any valuation allowance that may be shown on the Company's financial statements would reflect that the Company does not believe that it is more likely than not to realize certain deferred tax assets. Dependence on Key Management Personnel. The Company's success depends in significant part upon the retention of key senior management and technical personnel. The Company does not have employment agreements with any of its personnel other than Dennis Yablonsky, its President and Chief Executive Officer, nor does it maintain key man life insurance on any of its personnel. The loss of one or more of its key management employees or the inability to attract and retain other qualified management employees could have a material adverse effect on the Company's business, financial position and results of operations. Attraction and Retention of Employees. Carnegie Group's business involves the delivery of software development services and is labor-intensive. The Company's success depends in large part upon its ability to attract, retain and motivate highly skilled employees, particularly project managers, sales and marketing personnel, engineers and other senior personnel. Qualified project managers and engineers are in particularly great demand and are likely to remain a limited resource in the foreseeable future. Although the Company expects to continue to attract sufficient numbers of highly skilled employees and to retain existing project managers, sales and marketing personnel, engineers and other senior personnel for the foreseeable future, there can be no assurance that the Company will be able to do so. The Company, like others in the information technology services industry, is subject to a relatively high annual rate of turnover in personnel. The loss of project managers, sales and marketing personnel, engineers and other senior personnel could have a material adverse effect on the Company's business, financial position and results of operations, including its ability to secure and complete engagements. No project managers, sales and marketing personnel, engineers or other senior personnel have entered into employment agreements, other than Dennis Yablonsky, the Company's President and Chief Executive Officer. Management of Growth. Carnegie Group is currently experiencing a period of growth which has placed, and could continue to place, a strain on the Company's financial and other resources. The Company was founded in 1983 by computer scientists at Carnegie Mellon University in Pittsburgh, Pennsylvania. The Company was initially funded through equity investments and technology alliances with Digital Equipment Corporation, Generale de Service Informatique, The Boeing Company, Texas Instruments Incorporated, Ford Motor Company and U S WEST, Inc. From January 1, 1994 through December 31, 1996, the size of the Company's staff increased from 124 to 238 employees and independent contractors. In addition, the Company has opened offices in Atlanta, Georgia and Fairview Heights, Illinois since January 1, 1995. In order to manage any further growth in its staff and facilities, the Company must continue to improve its operational, financial and other internal systems, and to attract, train, motivate and manage its personnel. If the Company is unable to manage growth effectively and new personnel are unable to achieve anticipated performance levels, - 12 - 13 the Company's business, financial position and results of operations would be adversely affected. Competition. The information technology services market includes a large number of participants, is subject to rapid change and is highly competitive. The Company competes with and faces potential competition for client assignments and experienced personnel from a number of companies that have significantly greater financial, technical and marketing resources and greater name recognition. Primary competitors include: the consulting practices of the "Big Six" accounting firms; systems consulting and integration firms such as American Management Systems, Inc. and Cambridge Technology Partners, Inc.; and the professional services groups of large companies, such as International Business Machines Corporation, Digital Equipment Corporation and AT&T Corporation. In addition, clients may elect to use their internal information systems resources to satisfy their needs for software development, systems integration and technical consulting services, rather than using those services offered by the Company. The Company also faces competition from organizations providing outsourcing services to the information systems departments of existing and potential clients. In addition, the information technology services market is highly fragmented and is served by numerous firms; some of these firms compete nationally and internationally, while others serve only their respective local markets. While the Company has not experienced competition from foreign providers of information technology services, there can be no assurance that the Company will not experience such competition in the future. Carnegie Group has targeted, and expects to continue to target, industries that are characterized by business areas (such as customer interaction, and logistics, planning and scheduling) to which the Company's services and technology are particularly well-suited, and by participants who possess the financial resources and scale of operations necessary to support the engagement of service providers such as the Company. A growing number of professional services firms are seeking engagements from that same client group. The Company believes that the principal competitive factors in the information technology services industry include the nature of the service offering, quality of service, timeliness, responsiveness to client needs, experience with the client's industry and competitive environment, technical expertise, access to replicable technology, such as software templates, and price. The Company believes that its ability to compete also depends in part upon a number of competitive factors outside its control, including: the ability of its competitors to hire, retain and motivate project managers, sales and marketing personnel and engineers; competitors' ownership of or access to software and technology used by potential clients; the development by others of software that is competitive with the Company's solutions and services; the price at which others offer comparable services; and the extent of competitors' responsiveness to customer needs. While the information technology services market remains highly fragmented and continues to be served by numerous firms, the Company notes that this market has been subject to recent consolidation. Accordingly, the Company from time to time considers possible acquisitions, consolidations and other strategic alternatives. In addition, business combinations among the Company's competitors may result in the creation of additional large information technology service providers with greater financial, marketing and other resources, than those of the Company. Developing Market; Technological Advances. The market for client/server software development services is continuing to develop. The Company's success is dependent in part upon the acceptance of information processing systems utilizing client/server architectures. While the Company believes that corporations and government agencies will continue to accept the use of client/server architectures, a decline in this trend could have a material adverse effect on the Company's business, financial position and results of operations. The Company's success will also depend in part on its ability to develop software solutions that incorporate and keep pace with continuing changes in advanced software technologies, evolving industry standards and changing client preferences. There can be no assurance that the Company will be successful in adequately addressing these developments on a timely basis or that, if these developments are addressed, the Company will be successful in the marketplace. The Company's failure to address these developments could have a material adverse effect on the Company's business, financial position and results of - 13 - 14 operations. In addition, there can be no assurance that products or technologies developed by others will not render the Company's services uncompetitive or obsolete. Intellectual Property Rights. The Company's success is dependent in part upon reusable software templates and other intellectual property. The Company's business includes the development of custom software solutions in connection with specific client engagements. Ownership of certain custom components of such software is generally assigned to the client. The Company has licensed through December 1997 certain custom software components developed in the course of an engagement for a client. In addition, the Company also develops core software technology and reusable software templates, often in the course of engagements for clients, as well as object-oriented software components and certain software "tools," which can be reused in software application development and which generally remain the property of the Company. The Company relies upon a combination of patent, trade secret, non-disclosure and other contractual arrangements, and patent, copyright and trademark laws, to protect its proprietary rights and the proprietary rights of third parties from whom the Company licenses intellectual property. The Company enters into confidentiality agreements with its employees, consultants, clients and potential clients and limits access to and distribution of proprietary information. There can be no assurance that the steps taken by the Company in this regard will be adequate to deter misappropriation of proprietary information or that the Company will be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights. Although the Company believes that its services and solutions (including its reusable software templates) do not infringe on the intellectual property rights of others and that it has all rights necessary to utilize the intellectual property employed in its business, the Company is subject to the risk of litigation alleging infringement of third party intellectual property rights. There can be no assurance that third parties (including the parties for whom the Company has been engaged to develop solutions, from which its reusable software templates have been derived) will not assert infringement claims against the Company in the future with respect to intellectual property utilized by the Company now or in the future. Any such claims could require the Company to expend significant sums in litigation, pay damages, develop non-infringing intellectual property or acquire licenses to the intellectual property which is the subject of asserted infringement. - 14 - 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 10.01 Loan Agreement, dated as of September 11, 1997, between Dennis Yablonsky and Carnegie Group, Inc. 10.02 Agreement No. 9700050785, effective as of July 1, 1997, between U S WEST Business Resources, Inc., as agent for various U S WEST Companies, and Carnegie Group, Inc. (confidential treatment with respect to certain information in this exhibit has been requested of the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended). 10.03 Schedule Number 230397, effective as of July 21, 1997, to Agreement No. 9700050785 between U S WEST Business Resources, Inc., as agent for various U S WEST Companies, and Carnegie Group, Inc. (confidential treatment with respect to certain information in this exhibit has been requested of the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended). 10.04 Schedule Number 230597, effective as of August 18, 1997, to Agreement No. 9700050785 between U S WEST Business Resources, Inc., as agent for various U S WEST Companies, and Carnegie Group, Inc. (confidential treatment with respect to certain information in this exhibit has been requested of the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended). 11.1 Statement regarding computation of per share earnings 27. Financial Data Schedule (b) Reports on Form 8-K The registrant did not file any reports on Form 8-K during the quarter ended September 30, 1997. - 16 - 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 14, 1997 CARNEGIE GROUP, INC. /s/ DENNIS YABLONSKY -------------------------- Dennis Yablonsky President, and Chief Executive Officer /s/ JOHN W. MANZETTI -------------------------- John W. Manzetti Executive Vice President, Chief Financial Officer and Treasurer - 17 - 18 EXHIBIT INDEX
SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NUMBER - ----------- ----------- ----------- 10.01 Loan Agreement, dated as of September 11, 1997, between Dennis Yablonsky and Carnegie Group, Inc. 10.02 Agreement No. 9700050785, effective as of July 1, 1997, between U S WEST Business Resources, Inc., as agent for various U S WEST Companies, and Carnegie Group, Inc. (confidential treatment with respect to certain information in this exhibit has been requested of the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended). 10.03 Schedule Number 230397, effective as of July 21, 1997, to Agreement No. 9700050785 between U S WEST Business Resources, Inc., as agent for various U S WEST Companies, and Carnegie Group, Inc. (confidential treatment with respect to certain information in this exhibit has been requested of the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended). 10.04 Schedule Number 230597, effective as of August 18, 1997, to Agreement No. 9700050785 between U S WEST Business Resources, Inc., as agent for various U S WEST Companies, and Carnegie Group, Inc. (confidential treatment with respect to certain information in this exhibit has been requested of the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended). 11.1 Statement Regarding Computation of Per Share Earnings 27 Financial Data Schedule
- 18 - EX-10.01 2 CARNEGIE GROUP, INC. 1 Exhibit 10.01 LOAN AGREEMENT ------------------------------------- THIS AGREEMENT is made as of this 11th day of September, 1997, by and between CARNEGIE GROUP, INC., a Delaware corporation (the "Company") located in Pittsburgh, Pennsylvania, and DENNIS YABLONSKY, an individual residing at 682 Osage Road, Pittsburgh, Pennsylvania 15243 (the "Executive"). WHEREAS, to induce the Executive to become the President and Chief Executive Officer of the Company, the Company entered into certain agreements with the Executive, including a Signing Bonus Stock Option Agreement (the "Bonus Agreement") and a Tax Offset Payments Agreement (the "Tax Agreement"), each dated as of August 11, 1987; and WHEREAS, on August 5, 1997, the Executive exercised the "Bonus Option" as defined in, and granted pursuant to, the Bonus Agreement; and WHEREAS, as a result of such exercise of the Bonus Option, the Executive incurred liabilities for income and employment taxes; and WHEREAS, the Company and the Executive desire that the Company loan to the Executive a sum sufficient to enable the Executive to pay such tax liabilities, all in accordance with the terms and conditions set forth herein; NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows: ARTICLE 1 Loan ---------------- 1.1 The Company hereby loans to the Executive the sum of $325,000 (the "Principal Sum"). The Principal Sum, together with interest compounded annually at the rate of 6.39% per annum on the outstanding balance of the Principal Sum, shall be repaid in a single installment on August 31, 2002 (the "Repayment Date"), provided, however, that the "Net Portion," as hereinafter defined, of any Bonus Amount, as defined in, and payable to the Executive under, the Tax Agreement shall, in lieu of being paid to the Executive, be credited against the Principal Sum on each applicable Payment Date, as defined in the Tax Agreement, and the Principal Sum shall be deemed to have been reduced by the Net Portion of the Bonus Amount payable as of each applicable Payment Date. For the purposes hereof, the term "Net Portion" shall mean that portion of the Bonus Amount which remains after the Company has withheld all federal, state and local taxes required to be withheld from the Bonus Amount. The Executive shall have the 2 right at any time and from time to time to prepay, without penalty or premium, all or part of the outstanding Principal Sum or any interest accrued hereunder. 1.2 In the event that a "Change in Control" (as defined in the Severance Agreement (the "Severance Agreement"), dated as of May 28, 1993, as amended, between the Company and the Executive) occurs, any remaining Principal Sum as of the date of the Change in Control, together with all accrued and unpaid interest under this Agreement, shall be deemed to have been paid in full and such Principal Sum and interest, from and after the date of the Change in Control, shall no longer be payable by the Executive to the Company, nor shall any Bonus Amounts, from and after the date of the Change in Control, be payable by the Company to the Executive to the extent such Bonus Amounts (in the aggregate) are less than such Principal Sum and interest which are deemed to have been paid in full under this Section 1.2. If such Bonus Amounts exceed such Principal Sum and interest, only such excess shall be paid by the Company to the Executive when such Bonus Amounts otherwise would be payable. ARTICLE 2 Certain Tax Payments ---------------------------------- 2.1 In the event that, following a Change in Control, the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Excise Tax"), or any similar tax, is imposed on the Executive, the Company shall pay to the Executive an amount equal to the amount of the Excise Tax that is imposed as a result of Section 1.2 hereof (calculated as set forth in the last sentence of this Section 2.1), plus any applicable federal, state and local income and employment taxes and any additional Excise Tax payable by or on behalf of Executive as a result of the amounts payable under this Section 2.1 such that the total amount payable to Executive under this Section 2.1 equals the Excise Tax imposed as a result of the provisions of Section 1.2 hereof plus all applicable federal, state and local income and employment taxes and Excise Tax payable by or on behalf of Executive on the total amount payable to Executive under this Section 2.1. All such payments shall be made, in immediately available funds, no later than twenty days following the Change in Control. For the purposes of determining the Excise Tax attributable to this Agreement by reason of the provisions of this Section 2.1, the provisions of Section 1.2 shall be taken into account after all other payments made to the Executive by the Company are taken into account in determining the total Excise Tax liability of the Executive. 2.2 The determinations required under this Article 2 shall be made by a nationally recognized accounting firm appointed by the Company (which shall not be the same firm serving as auditor for the party effecting the Change in Control). The Company shall bear the fees and expenses of the accounting firm for such services, and shall direct the accounting firm to furnish its determinations and supporting calculations to the Company and the Executive within fifteen days following the Change in Control. 2.3 In the event that the Internal Revenue Service subsequently requires the Executive to pay a greater amount of Excise Tax than the amount paid to the Executive specifically for such 2 3 Excise Tax under Section 2.1 hereof, the Company shall immediately reimburse the Executive in an amount equal to any such additional Excise Tax and for the federal, state and local income and employment taxes and Excise Tax payable as a result of all amounts payable to Executive under this Section 2.3 such that the total amount payable to Executive under this Section 2.3 equals such additional Excise Tax plus all applicable federal, state and local income and employment taxes and Excise Tax payable by or on behalf of Executive on the total amount payable to Executive under this Section 2.3. ARTICLE 3 Miscellaneous -------------------------- 3.1 This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of the Executive and the successors and assigns of the Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of assets or stock, liquidation or otherwise), by agreement in form and substance reasonably satisfactory to Executive, expressly to assume and agree to perform this Agreement. Regardless whether such an agreement is executed, this Agreement shall be binding upon any successor of the Company. 3.2 This Agreement contains the entire understanding between the parties hereto with respect to the subject matter set forth herein, but in no way supersedes (except as specifically set forth herein) the provisions of the Bonus Agreement, the Tax Agreement, the Severance Agreement or any applicable Employment Agreement or other agreement between the Executive and the Company. This Agreement may be modified only by means of a written agreement signed by both parties. 3.3 The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 3.4 This Agreement may be executed in several counterparts each of which shall be deemed an original. 3.5 The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania. 3.6 All disputes and controversies arising out of or relating to this Loan Agreement, or any breach thereof, will be settled by arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules then in effect. An arbitral award will be final and binding on both parties hereto and may be enforced by any court or judicial authority having competent jurisdiction over either party or its assets against whom the arbitral award is to be enforced. 3 4 IN WITNESS WHEREOF, the parties have duly executed this Agreement. CARNEGIE GROUP, INC. By: /s/ JOHN W. MANZETTI -------------------------------------- Title: Executive Vice President and Chief Financial Officer --------------------------------------- /s/ DENNIS YABLONSKY --------------------------------------- Dennis Yablonsky 4 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 material filed in accordance with Rule 24b-2 and have been filed separately with the Commission. 2 Agreement No. 970050785 ================================================================================ AGREEMENT This Agreement is made by and between U S WEST Business Resources, Inc. with offices for transaction of business located at 188 Inverness Drive West, Englewood, CO 80112, as agent for the U S WEST Company(is) identified herein ("Customer"), and Carnegie Group, Inc. with offices for transaction of business located at Five PPG Place, Pittsburgh, PA 15222 ("Supplier"). RECITALS Customer and Supplier entered into a General License Agreement (the "1992 GLA") on December 17, 1992, as amended, the term of which expires on July 1, 1997. Customer and Supplier desire to terminate the 1992 GLA on and as of the effective date, as hereinafter defined in Article 2, of this Agreement. In consideration of the mutual covenants and agreements contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ================================================================================ GENERAL TERMS AND CONDITIONS 1. DEFINITIONS: The terms defined herein shall have the meanings set forth below. 1.1 "Acceptance," if applicable, is defined in the Special Provisions Module(s). 1.2 "Agreement" means this written contract between Customer and Supplier, including the General Terms and Conditions and all Special Provisions Modules, together with Schedule(s), exhibits, any other attachments, Order(s), and amendments to this Agreement. 1.3 "Confidential Information" is defined in Article 6. 1.4 "Customer" means U S WEST Communications Group, Inc. Customer shall also have the right to designate Affiliate(s) who may purchase under this Agreement as Customer, and such Affiliate(s) shall become additional Customer(s) under this Agreement upon Customer's written notice to Supplier. For purposes of this paragraph 1.4, "Affiliate" means any entity which directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, Customer. For purposes of this paragraph 1.4, "control" means (i) in the case of corporate entities, direct or indirect ownership of twenty percent (20%) or more of the stock or shares entitled to vote for the election of the board of directors or other governing body of the entity; and (ii) in the case of non-corporate entities, direct or indirect ownership of twenty percent (20%) or greater of the equity interest. 1.5 "Deliver" ("Delivery") means Customer's receipt of Purchases at the location specified in any Order(s) or in this Agreement. 1.6 "Documentation" means tangible or intangible information necessary for the use, planning, engineering, installation, operation and maintenance of Purchases, including but not limited to: Specifications, user manuals, test data, flow charts, data file listings, loading and unloading procedures, machine configuration information, programs, routines, subroutines, or related information. 1.7 "Error" is defined in Article 1.4 of the Special Provisions Module--Software License and Services. 1.8 "Liabilities" shall mean all liabilities, claims, judgments, losses, orders, awards, damages, costs, fines, penalties, costs of defense, and attorneys' fees. 1.9 "Order(s)" means a written or electronic offer by Customer which shall be deemed to incorporate all provisions of this Agreement. 1.10 "Product(s) means those goods, supplies, materials, articles, items, parts, components, assemblies, and the incidental associated Software, listed and/or described in this Agreement or any CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 3 Agreement No. 970050785 Module(s), Schedule(s), Order(s) and/or other attachments to this Agreement. 1.11 "Purchases" means all Product(s), Software and/or Services described in this Agreement, Module(s), or on Schedule(s), Order(s) and/or other attachments to this Agreement. 1.12 "Schedule(s)' means a written instrument made part of this Agreement describing such things as the Purchase(s), price, Specifications, warranty terms and related shipping and delivery instructions. 1.13 "Services" means any work performed by or for Supplier under this Agreement, including any deliverables resulting from or incidental to the Services, as listed and/or described in this Agreement, Module(s), or any Schedule(s), Order(s) and/or other attachments to this Agreement. 1.14 "Software" means computer programs as listed and/or described in this Agreement, Module(s) or any Schedule(s), Order(s) and/or other attachments to this Agreement, and the related Documentation. "Software includes, without limitation, all versions and all updates, enhancements and corrections, together with operating instructions, user manuals, training materials and other Documentation. "Software" does not include source code or proprietary design documentation, unless otherwise agreed to in writing by the parties. 1.15 "Special Provisions Module(s)" or "Module(s)" means, as applicable, the Special Provisions Module-Software License and Services, and/or the Special Provisions Module-Services, and/or the Special Provisions Module-Product(s), and/or any other similar set of provisions which are attached to the General Terms and Conditions and form part of this Agreement. 1.16 "Specifications" means technical, functional, operational and other criteria and/or performance requirements for Purchases, in any medium, which criteria and/or requirements are referenced in or made part of this Agreement, and schematics, prototypes, models, Supplier's proposals and literature, and/or Documentation furnished to Customer. 2. TERM: This Agreement shall be effective as of July 1, 1997 and shall continue through June 30, 1999. This Agreement shall thereafter automatically renew for successive periods of one (1) year each unless a party gives written notice of intention to terminate at least one hundred twenty (120) days before the end of any term, or this Agreement is terminated or canceled under Articles 21 or 22. The Special Provisions Modules, Schedules and/or other parts of this Agreement may specify a different term(s) applicable specifically to that portion of this Agreement. If any such specific term continues beyond this Agreement, the General Terms and Conditions and other applicable provisions of this Agreement shall continue to govern that portion of this Agreement. 3. INVOICES, PAYMENTS, SETOFF, TAXES: 3.1 Supplier shall issue invoices in the format required by Customer within thirty (3) days following Delivery of Products or Software or completion of Services, which itemize all charges, costs, taxes and Software license fees separately. No term or condition of any invoice shall be binding upon Customer, and Customer hereby objects to any terms inconsistent with or additional to the terms and conditions of this Agreement. 3.2 Correct and undisputed amounts on invoices shall be paid within thirty (30) days following receipt of the invoice and following Delivery of Products or Software or completion of Services, unless otherwise provided in a Schedule or other attachment. Notwithstanding the foregoing, payment shall not be due then if on or before the due date Customer notifies Supplier of rejection or non-Acceptance of Purchase(s). Disputed amounts on invoices shall be paid within thirty (30) days after resolution of dispute. Supplier agrees to provide to Customer reasonable supporting documentation concerning any disputed amount within thirty (30) days after Customer notifies Supplier of the dispute. 3.3 Credits due to Customer may be applied against amounts owed to Supplier. If no amounts are owned by Customer to Supplier, Supplier shall issue payment within thirty (30) days of Customer's written request. 3.4 Payment shall not constitute Acceptance or approval of the Purchases or a waiver by Customer of any right to require fulfillment of all terms and conditions of this Agreement. 3.5 The act of submission of an invoice constitutes Supplier's certification that all claims, liens and causes of action, if any, for the payment of wages or salaries or the payment of charges for materials, tools, machinery or supplies have been satisfied, released or settled. Customer reserves the right before making payments to require Supplier to furnish sufficient evidence that all claims, liens and causes of action have been satisfied, released or settled. If satisfactory evidence is not furnished, the amount of such claims, CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 4 Agreement No. 970050785 liens and causes of action may be withheld from any monies otherwise payable to Supplier hereunder until such evidence of payment or a bond to indemnify Customer against any such claims, liens, and causes of action has been furnished. 3.6 All claims for monies due from Customer shall be subject to deduction or setoff by Customer for any claim arising out of any transaction with supplier. 3.7 All taxes imposed or based on the Purchase(s) and/or the fees and charges for Purchase(s) which would be paid or payable by Supplier (excluding taxes based on Supplier's income) shall be added to the invoice and paid by Customer. 4. RECORDS: Supplier shall maintain complete and accurate records of all amounts billable to and payments made by Customer hereunder in accordance with recognized accounting practices. Supplier shall retain such records for a period of four (4) years from the date of payment for Purchases covered thereby. During the terms of this Agreement and the respective periods in which Supplier is required to maintain such records, Customer and its authorized agents and representatives shall have access to such records for purposes of audit during Supplier's normal business hours. 5. WARRANTIES: 5.1 Supplier warrants that it has all rights, title, and interest, free of all liens and encumbrances, in and to all Product(s) and Software sold, leased or licensed to Customer; except that for Software which is not owned by Supplier, Supplier warrants that it has the right to grant the licenses granted hereunder. 5.2 Supplier warrants that Purchases shall substantially conform in all material respects to all descriptions, Specifications, statements of work, representations, and other requirements set forth in this Agreement, Module(s), Schedule(s) and/or any Order(s). Supplier further warrants it will use commercially reasonable efforts to perform Services with promptness and diligence to the reasonable satisfaction of Customer. 5.3 Any specific warranty provisions are set forth in the Special Provisions Module(s) and/or Schedule(s). 5.4 Supplier represents and warrants that the Products and Software will record, store, process, calculate and present calendar dates falling on and after (and if applicable, spans of time including) January 1, 2000, and will calculate any information dependent on or relating to such dates in the same manner, and with the functionality, data integrity and performance, as the Products and Software record, store, process, calculate and present calendar dates on or before December 31, 1999, or calculate any information dependent on or relating to such dates ("2000 Compliant"). Supplier represents and warrants that the Products and Software (1) will lose no functionality with respect to the introduction of records containing dates falling on or after January 1, 2000. Upon request by Customer, Supplier agrees to provide a test script to validate that the Products and Software are 2000 Compliant. The warranties and representations in this paragraph are not subject to any limited or specific warranty periods in the General Terms and Conditions, or in any Special Provisions, Module(s) and/or Schedule(s). Supplier shall have no responsibility or liability for any Customer or third party products that present improper date data or improperly process, store or calculate date data received from the products provided by Supplier. However, the Software will be interoperable from a date data perspective with third party products that are year 2000 Compliant. 5.5 Warranties will not be affected by removal, relocation, or resale of Product(s), and warranties shall survive inspection, Acceptance and payment. Warranties shall run to Customer, its agents, successors in interest, assigns and customers. 5.6 If Supplier is not the manufacturer or licensor, or, with respect to Software, the owner, Supplier shall obtain the same warranty as specified herein from the manufacturer, licensor or owner, and the complete warranty will pass to Customer. Supplier shall have primary responsibility for and shall assist and cooperate with Customer in making claims under such warranty. 5.7 Subject to the provisions of this Section 5, Supplier shall promptly correct or make good non-conforming Purchases, to the reasonable approval and acceptance of Customer, at no cost to Customer. In the event an Error in the Software is reported by Customer to Supplier and such Error causes the Software to not conform to the provisions of Sections 5.2 or 5.3 hereof, then Supplier shall take the applicable action as set forth below with regard to such Error. 5.7.1 Pursuant to Section 5.3 hereof, Supplier shall correct such Error in accordance with any specific warranty provisions set forth in the Modules and/or Schedules. If such Module and/or Schedule provide a time period in which the Software or portion thereof associated with such Module and/or Schedule is warranted and such time has not expired, but such Module and/or Schedule does not provide a process for correcting Errors in the Software or portion thereof, CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 5 Agreement No. 970050785 then Supplier shall correct such Errors in accordance with the Error correction procedures set forth in the Schedule for Software Support and Maintenance Services, or as otherwise agreed to by the parties. 5.7.2 If such Software or portion thereof in which the Error occurs is not covered under any specific warranty provisions set forth in the Module and/or Schedule and such Software or portion thereof in which the Error occurred was delivered by Supplier to Customer within ninety (90) days of the date on which Customer notified Supplier of such Error, then Supplier shall correct such Error in accordance with the terms and conditions of the Schedule for Software Support and Maintenance Services or as otherwise agreed to, at no charge to Customer. 5.7.3 If (a) the Module and/or Schedule states that no warranty is provided for the Software or portion thereof in which the Error occurred or the Software or portion thereof is provided "AS IS," or (b) pursuant to Sections 5.7.1 or 5.7.2 above, the warranty period associated with the Software or portion thereof in which the Error occurred has expired, then Supplier may, at it option, provide a correction to the Error. 5.8 These Warranties are not sole and exclusive but are in addition to, and do not limit, any rights afforded to Customer by this Agreement or as provided by law. 6. CONFIDENTIAL INFORMATION 6.1 Confidential information shall mean any technical or business information, including third-party information, marked as confidential or proprietary and furnished, disclosed or made available in connection with this Agreement, in any form or medium, by one party to the other, including, without limitation, Specifications, prototypes, Software, models, drawings, marketing plans, financial data and personnel statistics. Confidential Information in oral form must be identified as confidential at the time of disclosure and confirmed as such in writing within thirty (30) days of such disclosure. Confidential Information does not include information which (1) the recipient knew or had in its possession, prior to disclosure, without confidential limitations; (2) is independently developed by the recipient without breach of this Agreement; (3) becomes publicly available without breach of this Agreement; (4) is received rightfully from a third party and without obligation of confidentiality; or (5) is disclosed without restriction by the disclosing party. This Agreement shall not be construed to limit Supplier's rights to independently develop or acquire products without use of the Customer's Confidential Information. Further, Supplier shall be free to use for any purpose the residuals resulting from access to work with such Customer Confidential Information, provided that Supplier maintain the confidentiality of the Customer Confidential Information as provided herein. The term "residuals" means non-tangible skills which may be gained by persons who have had access to the Customer Confidential Information, including programming skills and techniques contained therein. Supplier shall have no obligation to limit or restrict the assignment of such persons or to pay royalties for any work resulting from the use of residuals. Supplier agrees that such persons shall be bound by the confidentiality provisions of this Agreement. However, the foregoing shall not be deemed to grant Supplier a license under Customer's copyrights or patents. 6.2 If the parties deem it necessary and request to receive Confidential Information from each other, the parties agree: 6.2.1 To maintain and use Confidential Information only for the purposes of this Agreement and only as permitted herein. To only make copies as specifically authorized and with the same confidential or proprietary notices as are on the original. 6.2.2 To restrict access and disclosure of Confidential Information to their employees, agents and contractors who have a "need to know" and who agree to maintain confidentiality in accordance with this Article. 6.2.3 To treat Confidential Information as confidential for a period of three (3) years from the date of receipt. 6.3 Confidential Information shall at all times remain the property of the disclosing party. Upon request, Confidential Information shall be returned to the disclosing party upon termination, cancellation or expiration of this Agreement. 6.4 Except as may be required by applicable law, regulations, legal or agency order, demand or process, neither party shall disclose to a third party any Confidential Information or the contents of this Agreement without the prior written consent of the other party. In the case of required disclosures, the owner of Confidential Information shall, to the extent reasonably possible, be given notice prior to the disclosure and an opportunity to seek an appropriate protective order. The obligations of this Article shall be satisfied by handling Confidential Information with the same degree of care which the receiving party applies to its own similar confidential information but in no event less than reasonable care. Customer's CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 6 Agreement No. 970050785 liability under this Article shall be subject to the same limitations as set forth in Article 22.4. The obligations of this Article shall survive the expiration, cancellation or termination of this Agreement. 7. OWNERSHIP: 7.1 "Work Product(s)" means all information, materials, products, Software, drawings, specifications, reports, proposals, and any other items, and inventions, discoveries, concepts and the like, in any medium, developed, prepared or originated by or for Supplier specifically for Customer at Customer's request in connection with Purchase(s) under this Agreement. Unless otherwise expressly provided in application Schedule(s) or other attachments, Work Product(s) shall be the property of Customer and Customer shall have all right, title and interest in and to the Work Product(s), and they shall be deemed to be works made for hire. Supplier hereby assigns to Customer all rights, title and interest in and to those Work Product(s) which by law are not considered to be works made for hire. All such items shall be considered Customer's "Confidential Information" under this Agreement whether or not so marked. If such Work Product(s) include materials previously prepared by Supplier or a third party and not originally prepared for Customer in connection with Purchase(s), Supplier hereby grants to Customer a non-exclusive royalty-free, perpetual license to copy, use, disclose, modify and sublicense such material for any lawful purpose. For portions of the Work Product(s) that are provided by third parties, Supplier shall grant Customer a sublicense to, or assist Customer in obtaining a license for, the portions of the Work Product(s) provided by such third parties. 7.2 "Other Intellectual Property" means inventions, discoveries, improvements, concepts, methods, processes, ideas, information, software, and other intellectual property which is not deemed to be "Work Product(s)", but which is originated, developed or prepared in connection with Purchase(s) under this Agreement. Unless otherwise expressly provided in applicable Schedule(s) or other attachments, "Other Intellectual Property" which is originated, developed or prepared: (1) by employees of one party shall belong to that party; and/or (2) jointly by employees of both parties shall belong jointly to both, and each party hereby grants the other an unrestricted, non-exclusive, royalty-free, perpetual license to copy, use, disclose and sublicense such jointly developed Other Intellectual Property in connection with its business. 7.3 At the request and expense of Customer, Supplier will assist Customer and sign all appropriate documents, during and after the term of this Agreement, to enable Customer to obtain intellectual property protection for its interests in Work Product(s) and/or Other Intellectual Property. Customer will, at the request and expense of Supplier, provide the same assistance to Supplier with respect to Other Intellectual Property owned by Supplier. The assisting party will not charge any fees or other charges of any kind in connection with such activities. Supplier shall obtain from its employees, consultants or other representatives who perform work hereunder, appropriate assignments and/or rights to ensure that Supplier is authorized to grant the rights provided to Customer hereunder. 7.4 Neither party grants the other party any express or implied licenses under any patents, copyrights or trademarks, except to the extent necessary for each party to fulfill its obligations to the other under this Agreement. 7.5 Each party agrees to promptly notify the other party in writing upon the discovery or learning by a party of a potential or actual infringement of any intellectual property rights of the other party. 8. INDEPENDENT CONTRACTOR: 8.1 SUPPLIER WARRANTS AND AGREES THAT IT IS ENGAGED IN AN INDEPENDENT BUSINESS AND THAT ITS EMPLOYEES AND AGENTS WILL PERFORM UNDER THIS AGREEMENT AS INDEPENDENT CONTRACTORS AND NOT AS AGENTS OR EMPLOYEES OF CUSTOMER; AND THAT IT WILL MAINTAIN COMPLETE CONTROL OVER PERFORMANCE BY ITS EMPLOYEES, AGENTS AND SUBCONTRACTORS. CUSTOMER IS NOT LIABLE FOR DEBTS OR EXPENSES INCURRED BY SUPPLIER, ITS EMPLOYEES, AGENTS AND SUBCONTRACTORS. NOTHING IN THIS AGREEMENT OR ANY SUBCONTRACT SHALL CREATE ANY CONTRACTUAL RELATIONSHIP OR LIABILITIES BETWEEN ANY AGENT OR SUBCONTRACTOR AND CUSTOMER. SUPPLIER SHALL BE RESPONSIBLE FOR ITS OWN ACTS AND THOSE OF ITS AGENTS, EMPLOYEES AND SUBCONTRACTORS IN CONNECTION WITH PERFORMANCE OF THIS AGREEMENT. 8.2 SUPPLIER WILL BE SOLELY RESPONSIBLE FOR ALL MATTERS RELATING TO PAYMENT OF ITS EMPLOYEES, INCLUDING COMPLIANCE WITH WORKERS' COMPENSATION, UNEMPLOYMENT, DISABILITY INSURANCE, SOCIAL SECURITY WITHHOLDING, AND ALL OTHER FEDERAL, STATE AND LOCAL LAWS, RULES AND REGULATIONS GOVERNING SUCH MATTERS. SUPPLIER AND ITS EMPLOYEES ARE NOT ENTITLED TO UNEMPLOYMENT INSURANCE BENEFITS AS A RESULT OF PERFORMING UNDER THIS AGREEMENT UNLESS UNEMPLOYMENT COMPENSATION COVERAGE IS PROVIDED BY SUPPLIER. SUPPLIER IS RESPONSIBLE FOR AND SHALL CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 7 Agreement No. 970050785 PAY ALL ASSESSABLE FEDERAL AND STATE INCOME TAX ON AMOUNTS PAID UNDER THIS AGREEMENT. 9. SUBCONTRACTORS: Supplier shall obtain Customer's written consent, which consent will not be unreasonably withheld, prior to subcontracting any obligations hereunder. Such requirement shall not apply to purchases of incidental, standard commercial supplies or raw materials. 10. PLANT AND WORK RULES: Each party while on the premises of the other shall comply with all plant rules and regulations including, where required by governmental regulation, submission of satisfactory clearance from the appropriate governmental authorities. 11. INDEMNITY: 11.1 Supplier shall indemnify and hold harmless Customer, its owners, parents, subsidiaries, affiliates, agents, directors and employees against all Liabilities to the extent they arise from or it in connection with: (1) the fault or negligence of Supplier, its officers, employees, agents, subcontractors and/or representatives; and/or (2) failure by Supplier, its officers, employees, agents, subcontractors and/or representatives to comply with Article 19 "Compliance with Laws"; and/or (3) assertions under workers' compensation or similar employee benefit acts by Supplier or its employees, agents, subcontractors, or subcontractors' employees or agents. 11.2 Customer shall indemnify and hold harmless Supplier, its owners, parents, subsidiaries, affiliates, agents, directors and employees against all Liabilities to the extent they arise from or in connection with: (1) the fault or negligence of Customer, its officers, employees, agents, subcontractors and/or representatives; and/or (2) failure by Customer, its officers, employees, agents, subcontractors and/or representatives to comply with Article 19 "Compliance with Laws", and/or (3) assertions under workers' compensation or similar employee benefit acts by Customer or its employees, agents, subcontractors, or subcontractors' employees or agents. Customer's liability under this Article shall be subject to the same limitations as set forth in Article 22.4. 12. PATENT, TRADEMARK, COPYRIGHT OR TRADE SECRET INDEMNIFICATION: 12.1 Supplier shall, at its expense, hold harmless, and defend Customer, its owners, parents, subsidiaries, affiliates, agents, directors, and employees against all Liabilities that arise from or in connection with any infringement or claim of infringement of any patent, trademark, copyright, trade secret or other intellectual property right, relating to the Purchases and/or the use thereof. Customer may have its own counsel participate in the defense of any such claim or action at its expense. Supplier shall not be liable for any infringement where Purchase has been combined with another product or modified by Customer or any third party without authorization and where the claim of infringement would not have occurred but for such unauthorized combination or modification. Customer agrees to notify Supplier promptly in writing of any claim to permit Supplier to defend, compromise and settle such claim, and to provide reasonable assistance to Supplier at Supplier's expense. 12.2 If any Purchase becomes, or in Supplier's reasonable opinion is likely to become, the subject of a preliminary or final order or judgement against Customer's use of any Purchase(s) due to such a claim of infringement, Supplier shall, at its expense, either procure the right for Customer to continue using such Purchase(s) or replace or modify the same so as to become non-infringing, while remaining compatible, functionally equivalent and in conformity with the requirements of this Agreement. If neither of the foregoing alternatives is reasonably possible, Supplier shall refund to Customer an appropriate pro rata portion of amounts paid pursuant to this Agreement and reimburse Customer for all reasonable expenses of removal and replacement. 13. INSURANCE: Supplier shall, at all times during the term of this Agreement, at its own cost and expense, carry and maintain at a minimum, the insurance coverage listed below with insurers having a "Best's" rating of at least B+XIII. Supplier shall not commence any work hereunder until Supplier has fulfilled all insurance requirements herein. Supplier shall require its subcontractors and agents to maintain the same insurance coverage listed below. 13.1 Workers' Compensation insurance with statutory limits as required in the state(s) of operation; and providing coverage for any Supplier employee entering onto Customer premises, even if not required by statute. Employers' Liability or "Stop Gap" insurance with limits of not less than $100,00 each accident. 13.2 Commercial General Liability Insurance covering claims for bodily injury, death, personal injury or property damage occurring or arising out of the performance of this Agreement, including coverage for independent contractor's protection (required if any CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 8 Agreement No. 970050785 work will be subcontracted), premises-operations, products/completed operations and contractual liability with respect to the liability assumed by Supplier hereunder. The limits of insurance shall not be less than: Each Occurrence $1,000,000.00 General aggregate Limit $2,000,000.00 Products-Completed Operations Limit $1,000,000.00 Personal and Advertising Injury Limit $1,000,000.00
13.3 Errors and Omissions/Professional Liability insurance covering errors and omissions of the Supplier with limits of not less than $1,000,000 per occurrence and endorsed to provide coverage for contractual liability with respect to liability assumed by Supplier hereunder. Such insurance shall provide a retroactive date prior to the date of this Agreement and an extended claims reporting period of not less than three (3) years after the termination of this Agreement. 13.4 Comprehensive Automobile Liability Insurance covering ownership, operation and maintenance of all owned, non-owned and hired motor vehicles used in connection with the performance of this Agreement, with limits of at least $1,000,000 per occurrence for bodily injury and property damage. 13.5 The insurance limits required herein may be obtained through any combination of primary and excess or umbrella liability insurance. Supplier shall forward to Customer certificates of such insurance upon execution of this Agreement and upon any renewal of such insurance during the term of this Agreement. The certificate(s) shall provide that (1) Customer (including all participating affiliates) be named as an additional insured(s) as their interest may appear with respect to this Agreement; (2) thirty (30) days prior written notice of cancellation, material change or exclusions in the policy shall be given to Customer; and (3) coverage is primary and not excess, or contributory with, any other valid and collectible insurance purchased or maintained by Customer. 13.6 Any additional or different insurance requirements shall be specified in Module(s), Schedule(s) or Attachment(s) to this Agreement. 14. ADVERTISING; PUBLICITY: Neither party shall use the other party's names, marks, codes, drawings or Specifications in any advertising, promotional efforts or any publicity of any kind without the prior written permission of such other party. 15. ASSIGNMENT: 15.1 This Agreement shall be binding upon the parties' respective successors and permitted assigns. Neither party may assign or delegate this Agreement and/or any of its rights and obligations hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld. Any such attempted assignment shall be void. However, Customer may assign this Agreement and delegate any of its rights and/or obligations hereunder to its parents, Affiliates of its parents, or other Affiliates, without the consent of Supplier. For purposes of this Section 15, the definition of "control" used in Section 1.4 of this Agreement shall apply, except that the ownership level for control shall be established at fifty percent (50%) rather than at twenty percent (20%). Any assignment of amounts payable is void to the extent that it attempts to impose on Customer obligations to the assignee, or to preclude Customer from dealing solely and directly with Supplier in all matters under this Agreement. Either party to this Agreement may transfer this Agreement to the purchaser of all or substantially all of the assets or equity of such party or to the surviving party of a merger or consolidation, and the transferring party agrees to notify the other party to this Agreement upon the occurrence of such transfer. 16. FORCE MAJEURE: Neither party shall be liable for failure to perform solely caused by unforeseeable force majeure circumstances beyond their control ("Force Majeure"). If such circumstances occur, the party injured by the other's inability to perform may elect to: (1) terminate this Agreement in whole or in part; or (2) suspend the Agreement, in whole or in part, for the duration of the Force Majeure circumstances; or (3) terminate any affected Order(s) and delete the canceled quantity from its committed quantity for the year in which the canceled quantity was to have been purchased. The party experiencing the Force Majeure circumstances shall cooperate with and assist the injured party in all reasonable ways to minimize the impact of such circumstances on the injured party, including assisting in location and arranging for substitute Purchases. 17. TIME IS OF THE ESSENCE: Performance according to the dates specified in Schedule(s) is a significant and material term hereof. 18. WAIVER: The failure of either party to exercise any right shall not be construed to be a waiver unless agreed upon in writing. A waiver in any one instance will not constitute an amendment to this Agreement or CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 9 Agreement No. 970050785 indicate any continued waiver of such right on any other occasion. 19. COMPLIANCE WITH LAWS: 19.1 Supplier shall obtain and maintain at its own expense all permits and licenses and pay all fees required by law with respect to any Purchases and/or performance of this Agreement. The parties shall, in connection with performance of and Purchases under this Agreement, comply with all applicable federal, state, and local laws, ordinances, rules, regulations, court orders, and governmental or regulatory agency orders ("Laws"), including, without limitation: 19.1.1 The Telecommunications Act of 1996 and all rules, regulations and orders issued in connection with that Act and this Agreement shall, to the greatest extent possible, be construed to be consistent with the same; 19.1.2 Laws relating to non-discrimination in employment, fair employment practices, equal employment opportunity, employment opportunities for veterans, non-segregated facilities, and/or employment of the disabled, except to the extent a party is exempt therefrom; and the Laws and contract clauses required by those Laws to be made a part of this Agreement are incorporated herein by this reference; 19.1.3 The Laws referred to in Article 8 "Independent Contractor"; 19.1.4 The U.S. Export Administration Laws, including without limitation, Laws prohibiting the export or re-export of certain items to residents of countries listed in Section 779.4(f), U.S. Export Administration Regulations (as amended), unless properly authorized; 19.1.5 The Occupational Safety and Health Act of 1970 (as amended) and all other Laws relating to safety and health, including applicable motor carrier safety regulations. Supplier shall be solely responsible for its safety, the safety of its employees, its subcontractors and agents, and its general work area, and the safety of Purchases hereunder so that all Purchases comply with safety and health Laws when used or performed. Supplier shall promptly remedy any non-compliance and indemnify and hold Customer harmless from any penalty, fine or Liabilities in connection therewith; and 19.1.6 The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (as amended), and all other Laws relating to that Act, and all other applicable environmental Laws, including Laws relating to hazardous materials, asbestos or toxic items. Supplier shall furnish Customer with Material Safety Data Sheets that comply with Laws and other environmental compliance data requested by Customer and as may be applicable to Supplier. 19.2 The requirements of this Article 19 shall survive the expiration, termination or cancellation of this Agreement. All provisions of this Article shall also apply to all subcontractors and similar terms shall be included in all Supplier's contracts with subcontractors. 20. SEVERABILITY: Any term or provision of this Agreement which is held to be invalid, void, unenforceable or illegal will in no way affect, impair or invalidate the remaining terms or provisions, which will remain in full force and effect, consistent with the original intent of the parties. However, if such provision is an essential element of the Agreement, the parties shall promptly attempt to negotiate a substitute therefore. 21. TERMINATION OF AGREEMENT OR ORDER(S): 21.1 Customer shall have the right to terminate this Agreement and/or any Order(s), in whole or in part, upon thirty (30) days written notice to Supplier. Upon receipt of notice of termination, Supplier shall place no further orders, terminate contracts, take such action as directed by Customer, and cease work, all in accordance with Customer's notice. 21.2 Supplier's remedies for termination under this Article 21 shall be limited to: (1) payment pursuant to the prices set forth in the Agreement for Purchases properly performed or Delivered in accordance with this Agreement prior to termination; and (2) partial payment for Purchases priced by flat fee based on the percentage of proper completion in accordance with this Agreement at the time of termination. Customer shall have no further liability to Supplier as a result of the termination. 22. CANCELLATION OF AGREEMENT FOR DEFAULT: 22.1 Either party may cancel this Agreement and/or any Order(s), in whole or in part, without liability, by giving written notice of breach or default if the other (1) becomes insolvent, unable to pay debts when due, or the subject of bankruptcy proceedings not terminated within thirty (30) days of any filing; or makes a general assignment for the benefit of creditors; or if a receiver is appointed for substantially all of its property; or (2) materially breaches or defaults on its obligations under this Agreement and, if the breach or default can be cured, fails to cure the breach or default within thirty CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 10 Agreement No. 970050785 (30) days after receipt of written notice to cure; or (3) commits breaches on obligations other than payment, repetitively, or at least three separate significant times within any four-month period. Customer may cancel any Order(s) in whole or in part, without liability, if Supplier fails to Deliver conforming Purchases under that Order on time. Customer shall promptly pay Supplier for all Purchases completed and Accepted prior to cancellation. 22.2 If Services are being provided, Customer shall have the right to take over and complete the Services at Supplier's expense. 22.3 If Customer cancels this Agreement and/or any Order(s) for Supplier's default or breach, it shall be entitled to recover from Supplier all losses, damages and expenses incurred as a result of Supplier's default or breach. Supplier shall refund to Customer amounts previously paid for Purchases which, due to such cancellation, cannot reasonably be used by Customer, and shall bear all expenses for their removal and return. Supplier shall, at Customer's option, promptly remove Purchases or bear the cost of removal. Supplier shall restore or bear the expenses of restoration of Customer's property to its original condition at the direction of Customer and refund to Customer all monies previously paid for such Purchases. 22.4 If Supplier cancels this Agreement and/or any Order(s) for Customer's default or breach, it ma recover from Customer reasonable expenses incurred as a direct result of Customer's default or breach, which shall not exceed the amounts which Customer has not yet paid under the terms hereof. Customer shall not be liable for incidental, consequential or indirect damages, including but not limited to lost profits or unallocated overhead. 22.5 Any cancellation by Customer under this Article which is set aside or deemed wrongful will be deemed a termination under Article 21 "Termination of Agreement or Order(s)" of this Agreement. 23. DISPUTE RESOLUTION: 23.1 Any claim, controversy or dispute which arises between the parties, their agents, employees, officers, directors or affiliates ("Dispute") which the parties are unable to settle through consultation and negotiation may be mediated under the Commercial Mediation Rules of the American Arbitration Association ("AAA") by a mutually acceptable mediator. Any Dispute which cannot be resolved through negotiation or mediation shall be resolved by binding arbitration as provided in this Article. The arbitrability of claims shall be determined under the Federal Arbitration Act, 9 USC Secs. 1-16. Notwithstanding the foregoing, the parties may cancel or terminate this Agreement in accordance with its terms and conditions without being required to follow the procedures set forth in this Article. 23.2 A single arbitrator engaged in the practice of law, who is knowledgeable about the subject matter of this Agreement and the matter in Dispute, shall conduct the arbitration under the rules of the AAA then in effect, except as otherwise provided herein. The arbitrator shall be selected in accordance with AAA procedures from a list of qualified people maintained by the AAA. The arbitration shall be conducted in Denver, Colorado, and all expedited procedures prescribed by the AAA rules shall apply. The laws of Colorado shall govern the construction and interpretation of this Agreement. The arbitrator's decision and award shall be final, conclusive and binding, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. 23.3 Either party may request from the arbitrator injunctive relief to maintain the status quo until such time as the arbitration award is rendered or the Dispute is otherwise resolved. The arbitrator shall not have authority to award punitive damages. Each party shall bear its own costs and attorneys' fees, and the parties shall share equally the fees and expenses of the mediator and arbitrator. 23.4 If any party files a judicial or administrative action asserting claims subject to arbitration, as prescribed herein, and another party successfully stays such action and/or compels arbitration of said claims, the party filing said action shall pay the other party's costs and expenses incurred in seeking such stay and/or compelling arbitration, including reasonable attorneys' fees. 23.5 Supplier agrees that in the event of any Dispute between the parties, it will continue to provide Purchases without interruption. 23.6 Supplier shall include in all contracts with its subcontractors provisions similar to those in this Article 23, requiring that all disputes in any way involving Customer shall be settled by binding arbitration. 24. SEVERAL LIABILITY AND JOINT DISCOUNTS: The term Customer as used herein may be applicable to one or more parties and the singular shall include the plural. If more than one party is referred to as Customer herein, then their obligations and liabilities shall be CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 11 Agreement No. 970050785 several, not joint. Notwithstanding the foregoing, all Purchases under this Agreement and/or related agreements shall be cumulative for purposes of determining: (1) whether Customer has met any minimum purchase requirements; (2) credits which may be applicable; (3) Customer's forecasts: (4) the level of discount, if any, which shall apply to any Purchases; and (5) any other requirements or incentives based upon the volume or amount of Purchases. 25. NONEXCLUSIVE AGREEMENT: It is expressly understood and agreed that this Agreement does not grant to Supplier any exclusive privileges or rights and Customer may contract with other suppliers for the procurement of comparable Purchases. Customer makes no guarantee or commitment for any minimum or maximum amount of Purchases hereunder. 26. REMEDIES CUMULATIVE: The remedies provided herein shall be cumulative and in addition to any other remedies provided by law or equity. 27. LIMITATION OF LIABILITY: NEITHER PARTY IS LIABLE TO THE OTHER FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, PUNITIVE OR SPECIAL DAMAGES, INCLUDING COMMERCIAL LOSS AND LOST PROFITS, HOWEVER CAUSED AND REGARDLESS OF LEGAL THEORY OR FORESEEABILITY, WHICH DIRECTLY OR INDIRECTLY ARISES UNDER THIS AGREEMENT, EXCEPT THAT THE PARTIES ARE LIABLE IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT AND THIS LIMITATION OF LIABILITY SHALL NOT APPLY TO THE FOLLOWING PROVISIONS OF THIS AGREEMENT: (1) THE INDEMNIFICATION OBLIGATIONS, AND (2) THE LIABILITY FOR PERSONAL INJURY AND PROPERTY DAMAGES, AND (3) LIABILITY UNDER ARTICLE 19 "COMPLIANCE WITH LAWS" AND/OR ARTICLE 12 "PATENT, TRADEMARK, COPYRIGHT OR TRADE SECRET INDEMNIFICATION." 28. SURVIVAL: The provisions of this Agreement that, by their sense and context, are intended to survive performance by either or both parties shall also survive the completion, expiration, termination or cancellation of this Agreement. 29. AMENDMENTS: No change or modification of any terms or conditions herein shall be valid or binding on either party unless made in writing and signed by authorized representatives of both parties. 30. M/WBE SUBCONTRACTING PLAN: Support of Minority and Women Businesses is part of Customer's ongoing business strategy. If required by Customer, Supplier agrees and commits to subcontract in accordance with its subcontracting plan as approved by Customer, and such subcontracting plan shall be incorporated herein as an attachment to the General Terms and Conditions entitled "M/WBE Subcontracting Plan". 31. ELECTRONIC DATA INTERCHANGE ("EDI"): It is Customer's objective to procure Purchases utilizing EDI. If Supplier is EDI capable, Customer and Supplier shall enter into a Trading Partner Arrangement to implement EDI transactions and such arrangement will be incorporated herein as an attachment to the General Terms and Conditions, entitled "Electronic Data Interchange." 32. ENTIRE AGREEMENT: Terms and Conditions and all Special Provisions Modules, together with all incorporated Schedules, exhibits, Order(s), any other attachments, and amendments, shall constitute the entire Agreement between the parties. Any pre-printed terms and conditions on Order(s), acknowledgment forms, or other forms or documents shall not apply and are objected to. This Agreement supersedes all prior oral and written communications, agreements and understandings of the parties with respect to the subject of this Agreement. 33. COUNTERPARTS: This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same instrument. 34. AUTHORITY; JOINT PREPARATION: The parties represent and warrant that they are duly authorized and have received all necessary consents to enter into this Agreement, and that the signatories are duly authorized to bind the parties to this agreement. Each party acknowledges that it has reviewed this Agreement and participated in its preparation and understands the provisions of this Agreement. This agreement and any ambiguous language shall not be construed against either party for having prepared it. 35. SUPPLIER RELATIONSHIP: It is the parties' objective to support and strengthen their working relationship to ensure performance and mutual satisfaction under this Agreement. In support of this objective, the parties may enter into and attach to the General Terms and Conditions as attachment, entitled "Working Relationship." CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 12 Agreement No. 970050785 U S WEST BUSINESS RESOURCES, INC., SUPPLIER AS AGENT FOR CUSTOMER /s/ MARIAN RATHBUN /s/ BRUCE RUSSELL - ------------------------------------- --------------------------------------- (Authorized Signature) (Authorized Signature) Marian Rathbun Bruce Russell - ------------------------------------- --------------------------------------- (Print or Type Name of Signatory) (Print or Type Name of Signatory) Contract Agent EVP/COO - ------------------------------------- --------------------------------------- (Title) (Title) 6/27/97 7/1/97 - ------------------------------------- --------------------------------------- (Execution Date) (Execution Date) Approved By: /s/ DAVID R. LAUBE - ------------------------------------- (Authorized Signature) David R. Laube - ------------------------------------- (Print or Type Name of Signatory) Vice President Chief Information Officer - ------------------------------------- (Title) 6-27-97 - ------------------------------------- (Date) CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 13 Agreement No. 970050785 ================================================================================ SPECIAL PROVISIONS MODULE--SOFTWARE LICENSE AND SERVICES This Special Provisions Module--Software License and Services ("this Module") is hereby attached to the General Terms and Conditions and is a part of Agreement No. 9700050785, effective as of July 1, 1997, between U S WEST Communications Group, Inc. ("Customer") and Carnegie Group, Inc. ("Supplier"). This Module is subject in all respects to the General Terms and Conditions, except that in the event of a conflict between this Module and the Agreement, the terms and conditions of this Module shall govern for the purposes of this Module only. This Module establishes the terms and conditions under which Customer may procure Software licenses and services from Supplier from time to time pursuant to Schedule(s), Order(s) or other similar documents, in which the parties may agree to non-pre-printed additional terms and conditions which would apply for that Schedule or Order only. Any pre-printed terms and conditions on such documents shall not apply and are objected to. ================================================================================ 1. DEFINITIONS: In addition to the terms defined in the General Terms and Conditions, the following capitalized terms used in this Module shall have the following meanings for purposes of this Module only: 1.1 "Acceptance" (or "Accepted" or "Accept") is defined in Article 4 of this Module. 1.2 "Customer" for purposes of this Module means U S WEST Communications, Inc. 1.3 "Customer Specific Technology" shall mean that technology, including, but not limited to, software, technical information, documentation and know-how created under this Agreement or any Schedule(s) created or performed by Supplier at Customer's request, except that Customer Specific Technology shall not include any technology owned or licensed by Supplier that was not created specifically for Customer pursuant to this Agreement. Customer Specific Technology shall be deemed "Work Product" pursuant to Article 7.1 of the General Terms and Conditions. 1.4 "Error" shall mean an error in the Software or a failure of the Software to conform to the Specifications, which negatively impacts the performance of Customer's operations. Errors can occur as (i) errors in the Software or (ii) errors in the documentation. 1.5 "Jointly Owned Product" shall mean Other Intellectual Property, as defined in the General Terms and Conditions, that the parties agree in the Schedule(s) shall be owned jointly by both parties. The rights granted to each party shall be as specified in Article 7.2 of the General Terms and Conditions. 1.6 "Modifications" means changes, modifications, enhancements or corrections to the Software performed by Supplier at Customer's request. 1.7 "Software" means, in addition to the items defined as Specifications in the General Terms and Conditions, any Supplier Licensable Technology, Standard Supplier Product(s), Modifications and/or Customer Specific Technology. 1.8 "Specifications" means, in addition to the items defined as Specifications in the General Terms and Conditions, the functional and operational characteristics of the Software which may include, without limitation, samples, results of benchmark testing, Supplier's descriptions, drawings, and technical criteria, including physical, operating, timing, maintenance, compatibility and modularity characteristics. 1.9 "Supplier Licensable Technology" shall mean software in machine-readable object code form and any related documentation provided by Supplier that is proprietary to Supplier and related to the experimentation, research and development of technology which Supplier has created or acquired any right, title, or interest in, including, without limitation, the right to sublicense , provided that Supplier Licensable Technology shall not include Standard Supplier Products, Jointly Owned Products, Customer Specific Technology and Customer Confidential Information. Supplier Licensable Technology is identified in the Schedule(s). The rights granted to Customer shall be the same as those provided for Standard Supplier Product(s) as set forth in Article 2.1 of this Module. Page 1 of 5 CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 14 Agreement No. 970050785 1.10 "Standard Supplier Products" shall mean software products in machine-readable object code form which incorporate or otherwise require the use of proprietary information of Supplier or a third party and which are marketed or supported on a regular basis by Supplier without Modifications and are identified in the Schedule(s). 2. SCOPE AND TERM OF LICENSE: 2.1 Supplier grants Customer a nonexclusive, perpetual license for the Standard Supplier Product(s) ordered by Customer, from time to time, in object code form, to use and make copies for its business with no right to sublicense, unless otherwise specified in a Schedule, Order or other writing by the parties. Title to Standard Supplier Product(s) shall remain with Supplier. Supplier agrees that any licenses granted hereunder may be extended to any Affiliate on the terms and conditions of this Agreement, without additional royalty, license fee or other charge. Any such Affiliate shall be added to this Module as an additional Customer. In addition, Customer shall have the right to provide access, as Customer may be required, pursuant to the Telecommunications Act of 1996 and Federal and State rules, regulations and orders without charge. 2.2 Supplier grants to Customer a license to use and make copies of Documentation for Software at no cost. 2.3 Copies shall retain Supplier's copyright notices and proprietary markings. Customer may modify, correct or enhance Documentation and training materials in any manner, and any such modifications, enhancements and/or corrections and any related materials and documentation (and all proprietary rights therein, including copyrights) shall belong exclusively to Customer to the extent that the modifications, enhancements or corrections do not embody any material proprietary to Supplier. 2.4 Customer may terminate this Module upon ninety (90) days written notice to Supplier. Such termination, and/or cancellation or expiration of the Agreement, shall not affect: (1) the licenses granted prior to the effective date of termination; (2) the remaining term of any Software Support and Maintenance Services; and/or (3) any obligations with respect to escrow of Standard Supplier Product(s). 3. SOFTWARE SERVICES: Customer may elect to have Supplier perform certain Services as set forth in a Schedule(s), Order(s) or other document, such as Software installation, Support and Maintenance, training, evaluation, Modification, Custom Development and/or consultation. 3.1 Custom Software Development Services: Supplier agrees to develop and provide Customer Specific Technology along with related Documentation, under terms and conditions as mutually agreed upon by the parties in writing and as described in the Schedule(s) and/or Order(s) in accordance with the requirements of the Agreement. Such Customer Specific Technology shall be deemed to be Work Product(s) as described in Article 7 "Ownership" of the General Terms and Conditions, other than preexisting work of Supplier or a third party. Supplier shall provide to Customer a detailed written description of any preexisting works it desires to incorporate into the Customer Specific Technology and/or Documentation and obtain Customer's prior written consent ("Preexisting Works"). Customer shall have, subject to the terms and conditions of this Module or any Schedule, a fully paid-up license to use, reproduce, distribute, modify and otherwise exploit the Preexisting Works which are incorporated in the Customer Specific Technology and/or Documentation. Customer Specific Technology shall be delivered to Customer in course (except as otherwise provided in this Module) and object codes together with all programmers comments and other relevant work products. Other than the ownership provisions as set forth in this Section, the term "Customer Specific Technology" shall be deemed to include Preexisting Works. 3.2 SOFTWARE SUPPORT AND MAINTENANCE SERVICES: For as long as Supplier offers support and/or maintenance services for the Software or similar software to any of its customers, Customer shall, at Customer's option and expense, be entitled to receive such Services. Customer may request Support and Maintenance Services in accordance with the applicable schedule(s). 4. ACCEPTANCE: Page 2 of 5 CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 15 Agreement No. 970050785 4.1 ACCEPTANCE OF STANDARD SUPPLIER PRODUCT(S) AND SUPPLIER LICENSABLE TECHNOLOGY: For Standard Supplier Product(s) and Supplier Licensable Technology, "Acceptance" (or "Accept" or "Acceptable" or "Accepted") means Customers acknowledgment that Standard Supplier Product(s) conforms to the requirements of this Agreement. Acceptance shall be deemed to occur on the earlier of: (1) the date Customer gives written acknowledgment, or (2) passage of thirty (30) days after installation of such Software. Notwithstanding the foregoing, Acceptance shall not occur upon the passage of that time period if on or before the end of that period Customer notifies Supplier of any material nonconformance with respect to Standard Supplier Product(s), which must be in written form. 4.2 ACCEPTANCE OF CUSTOMER SPECIFIC TECHNOLOGY: Customer shall test Customer Specific Technology upon installation according to the Acceptance Test(s) described in the Schedule(s), Order(s) or other applicable document(s). The Customer Specific Technology shall be deemed Acceptable after successful completion of the Acceptance Test(s) and the determination by Customer that the Customer Specific Technology are substantially free from material error, operating in substantial conformance with the Documentation Specifications and other requirements as set forth in the Agreement. In the event of any material nonconformity, revealed during the Acceptance Tests, Supplier shall promptly correct such nonconformity. Supplier further agrees to provide support services during Acceptance Test(s) at no expense to Customer, Other than reimbursement of Supplier's expenses to extent allowed under this Agreement. 4.3 ACCEPTANCE OF DOCUMENTATION FOR MODIFICATIONS OF CUSTOMER SPECIFIC TECHNOLOGY: Customer will review the Documentation delivered by Supplier for errors or defects, for conformance to the terms of this Agreement, including Specifications, and for consistency with the Software. Customer shall have the later of forty-five (45) days following Acceptance of the Software or delivery of all Documentation to Customer to complete such review. Customer shall notify Supplier during this period if Customer reasonably determines that revisions to the Documentation are required under this Section. Supplier shall make such revisions and deliver the revised Documentation within fifteen (15) days after notification, unless Customer agrees in writing to a longer time period. If Supplier fails to make such revisions, then Customer may in its sole discretion" (a) provide in writing additional time to Supplier to make changes; or (b) notwithstanding any earlier acceptance of the Software, terminate this Agreement upon written notice to Supplier. Customer will return the subject Software and Documentation upon receipt of the refund. 4.4 NON-ACCEPTANCE: In the event the Software and/or Documentation is not Accepted by Customer, Supplier agrees to make any necessary corrections to the Software and/or Documentation. Unless otherwise agreed, the corrected Software and/or Documentation shall be delivered within fifteen (15) days after Customer notifies Supplier that the Software and/or Documentation has not been Accepted and the reasons for non-Acceptance. If the corrected Software and/or Documentation still fails to pass the Acceptance test, Customer may, at its option, terminate the applicable Schedule(s) and/or Order(s) in whole or in part, effective immediately upon such notice, and shall receive reimbursement of all payments made to Supplier, as set forth in the Schedule or Order and required refunds of payments under the terminated Schedule(s) and/or Order(s) within five (5) days following the termination notice. 5. OWNERSHIP: Each Schedule shall identify any Customer Specific Technology, Standard Supplier Products, Supplier Licensable Technology, and/or Jointly Owned Products. Unless otherwise agreed to in a Schedule, Customer shall own exclusively, Customer Specific Technology and Modifications. Notwithstanding the above, the parties may agree in writing signed by both parties, at any time during the Schedule Term, to modify such ownership rights. 6. FEES AND CHARGES: All fees, charges and timing of payments shall be specified in the Schedule(s), Order(s) or other applicable attachment, according to the schedule of fees and discounts attached hereto as Exhibit 1. Customer shall only be bound to pay the amounts specifically agreed to in writing. Supplier must submit any rate increases to Customer no later than October 1 for increases to be effective January 1 of the following year. No single increase shall be greater than [ ] ([ ]%). 7. ESCROW: Supplier agrees that the entire source code for Standard Supplier Product(s), together with all related listings and Documentation, as now exists or Page 3 of 5 CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 16 Agreement No. 970050785 hereafter becomes available including, without limitation, the then current version(s) of Standard Supplier Product(s) being used by Customer ("Escrow Materials") will, at Customer's option, be deposited, maintained and updated at Customer's expense in escrow pursuant to an Escrow Agreement which may be executed between the parties. Unless otherwise agreed, Supplier shall execute the escrow agreement and deposit the Escrow Materials within thirty (30) days of Customer's exercise of its option. 8. ADDITIONAL WARRANTIES: 8.1 In addition to all Warranties stated in the Agreement, Supplier warrants that the Software shall operate substantially in accordance with and conform to the requirements of this Agreement (including Specifications) in all material respects. This warranty shall not be voided by Customer's modification of the Software or combination of Software with other software so long as Supplier can reasonably discharge any warranty obligations notwithstanding such modifications or combinations or, where required, following their removal by Customer and restoration of the Software to the state as originally delivered by Supplier to Customer. Supplier's warranty with respect to Software shall be for the period set forth in the applicable Schedule ("Warranty Period"). Supplier's obligation during the Warranty Period shall be as specified in the Agreement. 8.2 Disabling Code. Supplier represents and warrants that to the best of its knowledge no disabling code or devices are incorporated or present within the Software at the time the Software is licensed by Supplier to Customer. 9. WORK AUTHORIZATION: The parties agree that no work will commence under this Agreement without a Schedule executed by the parties, or in the absence of such schedule, the written approval of the Customer. Such written approval must be signed by the Customer department or business unit head as appropriate for the estimated cost of the work to be performed. In addition, such written approval must state the time frame in which the parties agree to have the applicable Schedule executed and in place. Supplier agrees that no invoices shall be submitted until such Schedule has been executed. 10. NOTICES: All notices in connection with this Module, unless otherwise specified, shall be addressed as set forth below and shall be deemed given: (1) the second day after the day they are deposited with DHL, Federal Express, Airborne or similar overnight courier, charges prepaid, return receipt requested, with a confirming telefax; or (2) as of the day of receipt if they are deposited in first class U. S. Mail, charges prepaid, return receipt requested; or (3) as of the day of receipt if they are hand delivered: Page 4 of 5 CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 17 Agreement No. 970050785 SUPPLIER: CUSTOMER: U S WEST Business Resources, Inc. --------------------------------------- Carnegie Group, Inc. 188 Inverness Drive West --------------------------------- --------------------------------------- Five PPG Place Room 200 --------------------------------- --------------------------------------- Pittsburgh, PA 15222 Englewood, CO 80112 --------------------------------- --------------------------------------- ATTENTION: Contract Agent for Agreement --------------------------------- --------------------------------------- ATTENTION: Maria Wilkin No. 9700050785 --------------------------------- --------------------------------------- TELEFAX: 412-642-6906 TELEFAX: 303-397-8862 --------------------------------- --------------------------------------- Either party may change its notice address or recipient by giving notice to the other party of the change. The parties intending to be legally bound have caused this Special Provisions Module--Software License and Services to be executed by their duly authorized representatives and shall be deemed effective as of July 1, 1997. U S WEST BUSINESS RESOURCES, INC., SUPPLIER AS AGENT FOR CUSTOMER /s/ MARIAN RATHBUN /s/ BRUCE RUSSELL - ------------------------------------- ----------------------------------------- (Authorized Signature) (Authorized Signature) Marian Rathbun Bruce Russell - ------------------------------------- ----------------------------------------- (Print or Type Name of Signatory) (Print or Type Name of Signatory) Contract Agent EVP/COO - ------------------------------------- ----------------------------------------- (Title) (Title) 6/27/97 7/1/97 - ------------------------------------- ----------------------------------------- (Execution Date) (Execution Date) Approved By: /s/ DAVID R. LAUBE - ------------------------------------- (Authorized Signature) David R. Laube - ------------------------------------- (Print or Type Name of Signatory) Vice President Chief Information Officer - ------------------------------------- (Title) 6-27-97 - ------------------------------------- (Date) Page 5 of 5 CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 18 Agreement No. 970050785 ================================================================================ EXHIBIT 1 TO SPECIAL PROVISIONS MODULE SOFTWARE LICENSE AND SERVICES PRICING: Unless otherwise agreed to in a Schedule, the following hourly rates and corresponding discounts shall apply: ================================================================================ HOURLY RATES: --------------------------------------- -------------- Administrative Support $[ ] --------------------------------------- -------------- Technical Support $[ ] --------------------------------------- -------------- Technical Writer $[ ] --------------------------------------- -------------- Sr. Technical Writer $[ ] --------------------------------------- -------------- Associate Engineer $[ ] --------------------------------------- -------------- Engineer/Knowl Engineer $[ ] --------------------------------------- -------------- Sr. Eng I/Knowl Eng I $[ ] --------------------------------------- -------------- Sr. Eng II/Knowl Eng II $[ ] --------------------------------------- -------------- Sr. Eng III/Knowl Eng III $[ ] --------------------------------------- -------------- Principal Engineer $[ ] --------------------------------------- -------------- Proj Mgr/Bus Conslt $[ ] --------------------------------------- -------------- Manager $[ ] --------------------------------------- -------------- Sr. Manager/Sr. Bus Conslt $[ ] --------------------------------------- -------------- DISCOUNT STRUCTURE: As set forth in the table below, Supplier will apply a minimum discount rate to prices for Supplier services within a Schedule, based on the total value of the supplier's standard hourly rates before any discounts are applied (hereinafter referred to as "Services Price"). Additionally and if applicable, Supplier will apply a project volume discount based on a Schedule's Services Price or the cumulative Services Price of related Schedules representing follow on work or change orders to existing work in accordance with the table below. All applicable discounts will be represented in each Schedule in accordance with the following classifications: - -------------------------------------------------------------------------------------------------------------------- MINIMUM DISCOUNT [ ]% Applied to the Services Price within each Schedule - --------------------------------------------------------------------------------------------------------------------
Page 1 of 3 CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 19 Agreement No. 970050785 - -------------------------------------------------------------------------------------------------------------------- PROJECT VOLUME DISCOUNT Services Price Volume Discount Individual Schedules will be $[ ] - $[ ] [ ]% eligible for a project specific $[ ] - $[ ] [ ]% discount, in addition to the [ ]% Minimum discount, if the $[ ] - $[ ] [ ]% Services Price within the $[ ] - Schedule is [$ ] or more. - ------------------------------- ------------------------------------------------- ---------------------------------- CUMULATIVE PROJECT VOLUME A new Schedule which represents DISCOUNT direct follow on work to previously executed Schedule(s) (i.e., continuous work on one project) or which represents a change order thereto, will be eligible for a Project Volume Discount based upon the aggregate price of the Services Prices of the related Scheduled and change order documents. Qualification for the Cumulative Project Volume Discount is based on the following criteria, all of which must be verified within each applicable Schedule: o continuous performance by the Supplier and Customer project teams; o the project must be scoped (as mutually agreed) and classified as a "follow on" effort; o reference made to related Schedule(s) and corresponding Service Price which are included in the aggregate Services Price for the calculation of the Cumulative Project Volume Discount. ==================================================================================================================== CUMULATIVE NET Cash Rebate of [ ]% of Cumulative Net billings Defined as cumulative billings BILLINGS/REBATES at one or more dates mutually agreed to, for for work performed by Supplier Cumulative Net Billings of $[ ] or more pursuant to Schedules under the within a calendar year. Agreement on a calendar year basis, with the exception of 1997 in which case the calendar year will begin with the
Page 2 of 3 CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 20 Agreement No. 970050785 - -------------------------------------------------------------------------------------------------------------------- effective date of the Agreement and end on December 31, 1997. Work contacted and performed under the terms and conditions of the General License Agreement dated December 17, 1992 between the parties as amended ("GLA") is independent and exclusive of the Agreement and the terms and conditions of this Exhibit 1. *Note: Cumulative Net Billings include all billings pursuant to the Schedules, i.e., Services, Software and Maintenance. Expenses that are billed at cost with no markup, "Pass Through Expenses", will be included in Cumulative Net Billings up to a maximum of []%. - --------------------------------------------------------------------------------------------------------------------
*Note: Except for purposes of Rebates only, the discounts provided in this Exhibit 1 to not apply to Supplier software license and maintenance fees, travel related expenses or any Pass Through expenses. Page 3 of 3 CONFIDENTIAL. DISCLOSE AND DISTRIBUTE SOLELY TO THOSE INDIVIDUALS WHO HAVE A NEED TO KNOW. 21 [ PROJECT TITLE FINAL VERSION SCHEDULE NUMBER "X"/(AGREEMENT NO.) PROJECT TITLE This Schedule Number "X", effective __________ issued pursuant to the General Terms and Conditions of Agreement No. __________ dated June 30, 1997 between U S WEST and Carnegie Group, Inc. ("CGI") including the Special Provisions Module - Software License and Services dated June 30, 1997 (collectively, the "Agreement") and is made a part thereto. This Schedule contains the following sections: 1. Project Description 2. Schedule, Statement of Work and Deliverables 3. Projected Cost This Schedule specifically overrides the terms and conditions of the Agreement pursuant to "Exceptions/Definitions to the Agreement" in section 1.3 below. In the event that such section 1.3 conflicts with the provisions of the Agreement, the terms of section 1.3 shall control for purposes of this Schedule only. In consideration of the mutual covenants and agreements contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. PROJECT DESCRIPTION 1.1 INTRODUCTION This Schedule covers the services and deliverables to be provided by Carnegie Group, Inc. for U S WEST in support of PROJECT TITLE. The work to be provided by CGI represents a follow on effort to Schedule No. ___ OR represents a new effort between the parties. 1.2 OVERVIEW Describe project here. 1.3 EXCEPTIONS/DEFINITIONS TO THE AGREEMENT The following exceptions and definitions apply to this Schedule: (1) Standard Supplier Products: (any required definition and exceptions) - -------------------------------------------------------------------------------- Schedule Number ___ Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 1 22 [ (2) Jointly Owned Product: (any required definition and exceptions) (3) Supplier Licensable Technology: (any required definition and exceptions) (4) Work Authorization: (reference to any previous agreement to start work prior to signing this Schedule and any clarifications and exceptions) (5) Special Rampdown provisions: (may need to take exception to subsec. 21.1 of the General Terms and Conditions) (6) Services Warranty terms: (reference subsec. 5.3 for Services) (7) Product Warranty term: (reference Special Provisions Module) (8) Acceptance exceptions: (reference Special Provisions Module) (9) Management of project resources: (9.1) The CGI project manager assigned to this PROJECT TITLE has exclusive control of and over the CGI resources on the project, including but not limited to responsibility for staff assignment, project team makeup, and transition of CGI resources either onto or from a project. U S WEST may request the CGI project manager to make changes relating to the CGI resources. CGI will respond with consent or an objection to consent an reasons why consent will be withheld; consent will not be unreasonably withheld. (9.2) The CGI project manager and the U S WEST project manager have the authority to mutually agree on the location, either at a U S WEST site or CGI site, where each CGI resource may work during the project, including an associated period of time, based on not compromising the schedule and deliverables set forth in this Schedule. (10) Review of the Schedule (10.1) The parties agree that the U S WEST team leader, the U S WEST project manager and the CGI project manager will meet within the first week after the effective date of this Schedule to review the details of this Schedule, including but not limited to the Exceptions to the Agreement provided above ("Review") (10.2) The Review will occur more than once should a new U S WEST team leader, U S WEST project manager or CGI project manager be assigned by U S WEST or CGI respectfully to the PROJECT TITLE after the initial Review, unless as otherwise mutually agreed by the parties. - -------------------------------------------------------------------------------- Schedule Number ___ Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 2 23 [ 1.4 CGI ROLES AND RESPONSIBILITIES The following activities (such as design, development, testing, documentation and delivery of system, based on multiple tasks) are to be performed by CGI: (1) (2) (3) (4) The following tasks (including details involved in the activities provided above) are to be performed by CGI: (1) (2) (3) (4) 1.5 U S WEST ROLES AND RESPONSIBILITIES The following activities (such as design, development, testing, documentation and delivery of system, based on multiple tasks) are to be performed by U S WEST: (1) (2) (3) (4) 1.6 JOINT CGI AND U S WEST ROLES AND RESPONSIBILITIES (1) (2) (3) (4) - -------------------------------------------------------------------------------- Schedule Number ___ Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 3 24 [ 1.7 SCOPE Detailed specifications may be incorporated by reference for SEC purposes. 1.8 DELIVERABLES Provide a high level description of the Deliverables here. 1.9 SUMMARY The services and deliverables provided hereunder ... This Schedule covers efforts to be performed from __________ through __________. 2. SCHEDULE, STATEMENT OF WORK AND DELIVERABLES 2.1 TASKS, SCHEDULE, AND DELIVERABLES The following table summarizes the tasks, schedule and deliverables included in this Schedule.
- ------------------------ ---------------------- ---------------------- ---------------------- ---------------------- TASKS RESPONSIBILITY START DATE END DATE DELIVERABLES - ------------------------ ---------------------- ---------------------- ---------------------- ---------------------- - ------------------------ ---------------------- ---------------------- ---------------------- ---------------------- - ------------------------ ---------------------- ---------------------- ---------------------- ---------------------- - ------------------------ ---------------------- ---------------------- ---------------------- ---------------------- - ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
2.2 ASSUMPTIONS The above tasks, schedules and deliverables were developed based on the following assumptions. 1. The schedule is based on a project start date of _____. Delays in this start date may impact the delivery date of one or more Deliverables. 2. The work estimates are based on CGI Methodology and past experience. CGI will continuously monitor the status and notify U S WEST of any issues or risk situations which may impact the delivery date. 3. CGI has timely access to U S WEST personnel (i.e. SMEs). [Provide details on when access is required/what information is required of the SMEs/which and/or how many SMEs are required/under what forum will the information be gathered by CGI, etc.] 4. U S WEST to provide a sponsor and project manager to act as the liaison between the U S WEST project team and the CGI project team. - -------------------------------------------------------------------------------- Schedule Number ___ Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 4 25 [ 5. Weekly status reports and meetings to be held between the U S WEST project manager and the CGI project manager to measure progress against the workplan. Any known issues and risks are also discussed and raised to the next level if not resolved. 6. U S WEST to provide facilities, computer equipment, software, etc., as requested by CGI. 7. Any delays in dependent tasks (i.e. U S WEST tasks) may impact the delivery date of one or more Deliverables. 8. Change requests to be submitted using the CGI change process for analysis to provide estimates, costs, and impact on current deliverables. Signed approval in compliance with RPP 1001 is required before implementation of any change requests. 2.3 DELIVERABLES The table below provides a preliminary description of the deliverables.
- ----------------------------------------------------------- -------------------------------------------------------- DELIVERABLES DESCRIPTION - ----------------------------------------------------------- -------------------------------------------------------- - ----------------------------------------------------------- -------------------------------------------------------- - ----------------------------------------------------------- -------------------------------------------------------- - ----------------------------------------------------------- --------------------------------------------------------
A copy of the deliverables will be provided to the appropriate U S WEST recipients. The master copy will contain a letter to be mutually signed by the parties acknowledging delivery, receipt and acceptance of the deliverables. Should CGI not receive the signed letter or a written list of items which are not in compliance with the project specifications within ten (10) business days after delivery, then the Deliverables shall be deemed accepted. 2.4.1 DETAILED SCOPE ASSOCIATED WITH AFOREMENTIONED DELIVERABLES 3. PROJECTED COST The total cost of the worknet of discounts shall not exceed _____ based on estimated time and material expenses. Should travel be required, U S WEST agrees to pay CGI travel expenses for all pre-approved trips. OR The total price shall not exceed _____ based on fixed pricing not including travel and other expenses. [If project is fixed price, CGI will not provide any hours, rates or discounts and this section would end here.] - -------------------------------------------------------------------------------- Schedule Number ___ Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 5 26 [ This Schedule represents OR does not represent a follow-on effort or a change order effort. If it does, the following Schedule(s) and corresponding Services Prices are included in the aggregate Services Price for the calculation of the Cumulative Project Volume Discount in this Schedule. Estimated costs with applicable discounts for the project are provided below. - -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------- 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) Engineers(s) Technical Writer(s) - -------------------------------------------------------------------------------------------------------------------- TOTAL HOURS - --------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Schedule Number ___ Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 6 27 [ IN WITNESS WHEREOF, U S WEST and CGI agree and execute this Schedule in duplicate by their respective authorized representatives. CARNEGIE GROUP, INC. U S WEST BY: BY: ------------------------------- -------------------------------- NAME: NAME: ----------------------------- ------------------------------ (printed) (printed) TITLE: TITLE: ---------------------------- ----------------------------- DATE: DATE: ----------------------------- ------------------------------ U S WEST BRI BY: -------------------------------- NAME: ------------------------------ (printed) TITLE: ----------------------------- DATE: ------------------------------ - -------------------------------------------------------------------------------- Schedule Number ___ Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 7 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 material filed in accordance with Rule 24b-2 and have been filed separately with the Commission. 2 Technical/Functional Specification Development US WEST Schedule No. One SCHEDULE NUMBER "230397" / AGREEMENT NO. 9700050785 TECHNICAL/FUNCTIONAL SPECIFICATION DEVELOPMENT This Schedule Number 230397 is effective July 21, 1997 and issued pursuant to the General Terms and Conditions of Agreement No. 9700050785 dated June 30, 1997 between U S WEST and Carnegie Group, Inc. ("CGI") including the Special Provisions Module - Software License and Services dated June 30, 1997 (collectively, the "Agreement") and is made a part thereto. This Schedule contains the following sections: 1. Project Description 2. Schedule, Statement of Work and Deliverables 3. Projected Cost This Schedule specifically overrides the terms and conditions of the Agreement pursuant to "Exceptions/Definitions to the Agreement" in section 1.3 below. In the event that such section 1.3 conflicts with the provisions of the Agreement, the terms of section 1.3 shall control for purposes of this Schedule only. In consideration of the mutual covenants and agreements contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. PROJECT DESCRIPTION 1.1 INTRODUCTION This Schedule covers the services to be provided by Carnegie Group, Inc. for U S WEST in support of TECHNICAL/FUNCTIONAL SPECIFICATION DEVELOPMENT project. 1.2 OVERVIEW The CGI support team will provide hourly consulting services to U S WEST Information Technologies (IT) to collectively recommend an approach to IT by identifying the system requirements, the gaps, the risks and the solutions to the U S WEST Long Distance, Inc. (LD) Schedule Number 230397 Carnegie Group, Inc. and U S West 7/31/97 Proprietary and Confidential Page 1 3 Technical/Functional Specification Development US West Schedule No. One business objectives. Then under IT direction, the CGI support team will translate these into more detailed requirements for the project development teams; work with the project development teams; and continue to be the liaison between the project development teams, IT, and LD. 1.3 EXCEPTIONS/DEFINITIONS TO THE AGREEMENT Not applicable to this Schedule. 1.4 CGI ROLES AND RESPONSIBILITIES The following tasks are to be performed by CGI: (1) Translate the LD service delivery business requirements into detailed requirements. (2) Actively monitor and work to promote billing and service delivery are in synch with each other. (3) Actively monitor and work to promote all service delivery areas (i.e. service order, provisioning, trouble ticketing, fulfillment, etc.) are also in synch with each other. (4) Work with each area to promote the completion of their deliverables. (5) Work with the development teams to assist them with their target to meet schedule. (6) Work with development teams on the best approach to develop their solutions. (7) Coordinate the development team's delivery of their tasks. (8) Work with the development team on their systems solutions effort to promote that the systems solutions support of the Service Delivery Systems Integrated Plan. 1.5 U S WEST ROLES AND RESPONSIBILITIES The following activities are to be provided by U S WEST IT: (1) Provide subject matter expertise on U S WEST Long Distance, Inc. business objectives/requirements as required by this project. Schedule Number 230397 Carnegie Group, Inc. and U S West 7/31/97 Proprietary and Confidential Page 2 4 Technical/Functional Specification Development US West Schedule No. One (2) Specify any required documentation standards and formats that CGI is required to follow. (3) Provide project management and appropriate project sponsorship support to aid CGI in gaining access to either IT or end user organizations containing appropriate expertise. (4) Manage scope and expectations with U S WEST Long Distance. 1.6 JOINT CGI AND U S WEST ROLES AND RESPONSIBILITIES CGI and U S WEST are jointly responsible for the following activities: (1) Hold periodic status meetings where schedule, progress, plans, and issues are presented and action items are assigned for resolution. (2) Meet with U S WEST Long Distance and market unit subject matter experts for such meetings as requirements gathering and knowledge acquisition. (3) Define the success criteria for the project. 1.7 SCOPE Carnegie Group, Inc. will work as members of the U S WEST Information Technologies detailed specifications development team as a part of the Technical/Functional Specification Development project. The roles to be performed are titled Technical Functional Coordinators and will be reporting to a U S WEST site for the duration of the project. The tasks to be performed are under U S WEST IT's direction and are identified in Section 1.4 of this Schedule. 1.8 DELIVERABLES o Identify system requirements, gaps, risks and potential solutions from business requirements provided by U S WEST Long Distance. o Translate high level business requirements into detailed requirements and work with development teams to identify system requirements. o Assist development teams in the development of technical designs. o Provide detailed and accurate estimates based on input from development teams. o Work with development teams to monitor scheduled target dates. Schedule Number 230397 Carnegie Group, Inc. and U S West 7/31/97 Proprietary and Confidential Page 3 5 Technical/Functional Specification Development US West Schedule No. One (All work is to be performed within a team environment and is comprised of U S WEST IT and CGI resources.) 1.9 SUMMARY Refer to the Overview in section 1.2 of this Schedule. 2. SCHEDULE, STATEMENT OF WORK AND DELIVERABLES 2.1 TASKS, SCHEDULE, AND DELIVERABLES The tasks are defined in article 1 of this Schedule. The Services provided hereunder cover efforts to be performed from July 21, 1997 through November 30, 1997. 2.2 ASSUMPTIONS The above tasks, schedules and deliverables were developed based on the following assumptions. (1) CGI has timely access to U S WEST personnel (i.e. SMEs). (2) U S WEST to provide a sponsor and project manager to act as the liaison between the U S WEST project team and the CGI project team. (3) Weekly status reports and meetings to be held between the U S WEST project manager and the CGI team to measure progress against the workplan. Any known issues and risks are also discussed and raised to the next level if not resolved. (4) U S WEST to provide facilities, computer equipment, software, etc., as requested by CGI. 2.3 DELIVERABLES o Identify system requirements, gaps, risks and potential solutions from business requirements provided by U S WEST Long Distance. o Translate high level business requirements into detailed requirements and work with development teams to identify system requirements. Schedule Number 230397 Carnegie Group, Inc. and U S West 7/31/97 Proprietary and Confidential Page 4 6 Technical/Functional Specification Development US West Schedule No. One o Assist development teams in the development of technical designs. o Provide detailed and accurate estimates based on input from development teams. o Work with development teams to monitor scheduled target dates. (All work is to be performed within a team environment and is comprised of U S WEST IT and CGI resources.) 3. PROJECTED COST The total cost of the work net of discounts shall not exceed $[ ] based on estimated time and material expenses. Should travel be required, U S WEST agrees to pay CGI travel expenses for all pre-approved trips. This Schedule does not represent a follow-on effort or a change order effort. Estimated costs with applicable discounts for the project are provided below. - --------------------------------------------------------------------------------
- ------------------------------------------------------- ----------------------------------------------------- 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 SCHEDULE ESTIMATED PRICE $[ ] - ------------------------------------------------------- -----------------------------------------------------
Schedule Number 230397 Carnegie Group, Inc. and U S West 7/31/97 Proprietary and Confidential Page 5 7 Technical/Functional Specification Development US West Schedule No. One Estimated hours are as follows:
- ------------------------------------------------------- ----------------------------------------------------- CATEGORY ESTIMATED HOURS - ------------------------------------------------------- ----------------------------------------------------- Senior Engineer II [ ] Senior Engineer I [ ] - ------------------------------------------------------- ----------------------------------------------------- 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/ BRUCE RUSSELL BY: /s/ SHARON OLSEN ----------------------- ------------------------------- NAME: Bruce Russell NAME: Sharon Olsen ----------------------- -------------------------------- (printed) (printed) TITLE:EVP/COO TITLE: Director Customer Care Systems ----------------------- -------------------------------- DATE: 9/4/97 DATE: 8/12/97 ----------------------- -------------------------------- U S WEST BRI BY: /s/ MARIA K. RATHBUN -------------------------------- NAME: Maria K. Rathbun -------------------------------- (printed) TITLE: Contract Agent -------------------------------- DATE: 7-6-97 -------------------------------- Schedule Number 230397 Carnegie Group, Inc. and U S West 7/31/97 Proprietary and Confidential Page 6 EX-10.04 5 GARNEGIE 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 material filed in accordance with Rule 24b-2 and have been filed separately with the Commission. 2 [ ] SCHEDULE NUMBER "230597"/(AGREEMENT NO. 9700050785) [ ] This Schedule Number "230597", effective August 18, 1997 issued pursuant to the General Terms and Conditions of Agreement No. 9700050785 dated June 30, 1997 between U S WEST and Carnegie Group, Inc. ("CGI") including the Special Provisions Module - Software License and Services dated June 30, 1997 (collectively, the "Agreement") and is made a part thereto. This Schedule contains the following sections: 1. Project Description 2. Schedule, Statement of Work and Deliverables 3. Projected Cost This Schedule specifically overrides the terms and conditions of the Agreement pursuant to "Exceptions/Definitions to the Agreement" in section 1.3 below. In the event that such section 1.3 conflicts with the provisions of the Agreement, the terms of section 1.3 shall control for purposes of this Schedule only. In consideration of the mutual covenants and agreements contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. PROJECT DESCRIPTION 1.1 INTRODUCTION This Schedule covers the services and deliverables to be provided by Carnegie Group, Inc. for U S WEST in support of [ ]. 1.2 OVERVIEW [ ]. Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 1 3 [ ] [ ] 1.3 EXCEPTIONS/DEFINITIONS TO THE AGREEMENT The following exceptions and definitions apply to this Schedule: Special Rampdown provisions: Notwithstanding subsection 21.2 of the Agreement, Customer shall be responsible for continued funding of the current CGI project resources at the time of termination for a period of [ ]. Services Warranty terms: CGI will warrant the final Purchases for a period of [ ] from final Acceptance in accordance with the terms of section 5 of the Agreement. Management of project resources: (a) The CGI project manager assigned to this [ ] has exclusive control of and over the CGI resources on the project, including but not limited to responsibility for staff assignment, project team makeup, and transition of CGI resources either onto or from a project. U S WEST may request the CGI project manager to make changes relating to the CGI resources. CGI will respond with consent or an objection to consent and reasons why consent will be withheld; consent will not be unreasonably withheld. (b) The CGI project manager and the U S WEST project manager have the authority to mutually agree on the location, either at a U S WEST site or CGI site, where each CGI resource may work during the project, including an associated period of time, based on not compromising the schedule and deliverables set forth in this Schedule. Review of the Schedule (a) The parties agree that the U S WEST team leader, the U S WEST project manager and the CGI project manager will meet within the first week after the effective date of this Schedule to review the details of this Schedule, including but not limited to the Exceptions to the Agreement provided above ("Review") Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 2 4 [ ] (b) The Review will occur more than once should a new U S WEST team leader, U S WEST project manager or CGI project manager be assigned by U S WEST or CGI respectfully to the [ ] after the initial Review, unless as otherwise mutually agreed by the parties. 1.4 CGI ROLES AND RESPONSIBILITIES The following activities (such as design, development, testing, documentation and delivery of system, based on multiple tasks) are to be performed by CGI: 1. Develop an overall project schedule for this effort based on joint CGI/U S WEST input. 2. Provide project management for the CGI software development team. 3. Create weekly status reports documenting project progress. 4. Acquire and install all development software and hardware, on CGI premises, to be used for project development. 5. Provide system administration and database administration required for project development. 6. Conduct all software development processes, listed in the deliverable section, required to achieve project deliverables and schedule. 7. Provide all document and software deliverables listed in the deliverable section. 8. Provide knowledge transfer to U S WEST for maintenance, training, and ongoing support as requested. 9. Support U S WEST in all phases of installation and testing. 1.5 U S WEST ROLES AND RESPONSIBILITIES The following activities (such as design, development, testing, integration, directly or indirectly, for modules from outside vendors) are to be provided by U S WEST: Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 3 5 [ ] 1. Provide subject matter expertise on U S WEST product and product package training and delivery operations, and IT system as required by the project. 2. Document any change requests, for CGI review, required to meet the December release. 3. Acquire and install all test and production software and hardware to be used for testing and deployment. 4. Provide system administration and database administration required for project testing and deployment. 5. Specify any required documentation standards and formats that CGI is required to follow for project deliverables. 6. Provide project management and appropriate project sponsorship support to aid CGI in gaining access to either IT or end user organizations, containing appropriate expertise. 7. Review and either sign-off or provide comments on all CGI deliverables. 8. Manage scope and expectations with end user clients. 9. Conduct system and acceptance testing on U S WESTs production platform after the software is delivered to U S WEST. 10. Conduct all required end user training for using the [ ] system. 1.6 JOINT CGI AND U S WEST ROLES AND RESPONSIBILITIES CGI and U S WEST are jointly responsible for the following activities: 1. Hold periodic status meetings where schedule, progress, plans, and issues are presented and action items are assigned for resolution. 2. Meet with U S WEST CCE and Small Business market unit subject matter experts for such meetings as requirements gathering and knowledge acquisition. Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 4 6 [ ] 3. Follow all project change management procedures. 4. Define the success criteria for the project. 5. Participate in U S WEST project review meetings including architecture reviews and operational readiness reviews. 1.7 SCOPE The [ ] will be implemented to automate the following functions: o The customer's market segmentation is retrieved from [ ]. o The [ ] implements the following tasks: o The current product set and additional products being discussed are collected into the customer's product set. o Products from held and pending orders will also need to be added to the set of products. o Based on market segment and customer's product set, the knowledge base is queried to determine the candidate set of product packages. o Any packages in the knowledge base containing at least one product contained in the customer's product set is a candidate. o Package determination considers that package composition can differ slightly based on state or region. o Package availability will need to be determined to ensure that a package is currently active (or will be active when order is activated). The availability of a package can differ from states and regions. o Logic will be applied to determine the best fit if a hierarchical structure of packages can potentially match the customer's need. Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 5 7 [ ] o Logic will also be applied to consider the scenario where packages contain a common product. o Packages have associated restrictions (e.g. only applies to new customer or only applies once for lifetime of an order). [ ] will perform basic restriction checking on each potential customer match to ensure that customer qualifies for package. In the first release, certain customer package data will be gathered and the restriction checking will involve logical tests on this package data. o The additional products in a package which are not part of the customer's product set must be screened for availability before offering a package. o A threshold or some level of goodness is used to determine packages that should be recommended and those that should not. o Packages will be identified as exact match and close match. Close matches will also return the list of products contained in the package that are not part of the customer's product set. o Packages will be returned in order, from closest match to farthest match. Ordering may also reflect variation in price from customer's current state. o Packages will store benefit statements and descriptions and return this data along with the matching packages. o During the [ ] session, as products are added or removed from the set based on the customer's interest, the set of recommended packages will change to reflect the current product set. o Based on recommended packages and other product sets, [ ] calculates the price of the recommended package and the variance with the existing customer's product set cost. o The initial release will include [ ] products, Wireless products, Long Distance products, Data products, and Video products. System interfaces will be used to interface with these systems and retrieve the information required for rate comparison. Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 6 8 [ ] o [ ] computes the rate of the products by combining product costs, package costs, recurring/non/recurring charges, and tariffs to compute the overall price. o The initial knowledge base will be implemented to contain all initial product packages. This will also include packages which vary by state/region. It is expected that about 20 products exist in the initial release. o [ ] will provide a knowledge base editor GUI to support adding, changing, or removing market segmentation, packages, and products. HIGH LEVEL ARCHITECTURE [ ] MODULE DESCRIPTION Graphical User Interface (GUI) The [ ] will have its GUI for the first release but will be developed to integrate into [ ] in a latter release. This GUI design also provides a thin client minimizing impact on the client delivery platform. The [ ] GUI functions include both presentation and message management. As a message manager, the GUI sends requests for service to the server platform based on end user activities. The GUI will run on NT workstations and will implement the following functions: Display scripting prompts showing suggested "Branded" packages. o Prompt and collect the supplementary customer and product profile data. Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 7 9 [ ] o Display comparative package data offerings. o Show customer's pertinent service order information. o Display existing cost and proposed cost recommendations. o Accept user commands and send requests to the server for associated actions. BUSINESS PROCESSING LAYER (BPL) The BPL will be implemented as a server application that accepts requests from the GUI module. The BPL will contain processing logic for implementing the server functions. The BPL is also responsible for packaging and returning data to be presented to the user through the GUI. The major functions provided by the server are the full set of product descriptions as well as recommendation engine services. The BPL will interface with both the database and knowledge base to obtain data and rules for implementing the processing functions. The database interface reads and writes data which is sourced locally within the [ ] database. The knowledge base interface contains functions for accessing business rules. The BPL will be implemented for high-performance access, anticipating less than 800 simultaneous requests. The system will be designed to be fault tolerant. The BPL will implement the following [ ] functions: o Determine Customer Profile o Calculate credits to monthly billing for the proposed package o Recommend Packages o Compare product savings with non packaged cost Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 8 10 [ ] KNOWLEDGE BASE The [ ] will include a knowledge base containing business rules used in the customer contact and recommendation functions. In addition, the KB will contain scripting information to drive interactions with the customer. Examples of knowledge base structures include rules for customer and product profiling, recommendations including product and package mixes, and scripting to direct customer interactions. The knowledge base will be designed to allow rules to be easily changed over time. That is, as the particulars of the business interaction changes, the business rules can be quickly changed to reflect this. A knowledge base will also allow the sophistication of the system to grow to accommodate the evolving needs of the business. For example, as discounting based on bundling services is introduced, this data can be stored in the knowledge base. An important attribute of the knowledge base is the ability for non-developers to maintain it. The knowledge base will be complemented by a knowledge-base editor, which abstracts the rule descriptions into higher-level constructs. The editor will allow non-developers to modify, add, and delete business rules. DATABASE: The database will store all data related to the [ ]. Data included in the database will be basic data such as mappings from legacy system terminology to basic English descriptions which are understandable to the Customer Contact Employee. Other data will include information about each specific product and package that is not currently sourced in another location. UPDATE PROCESS The update process for the knowledge base business rules and database records will be manual. However, changes made to these objects will require a system administrator. Changes made in business rules or data will be reflected in the [ ] application affecting subsequent customer transactions. It is assumed that no effort will be needed to retrofit existing records to reflect changes as rules are updated. Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 9 11 [ ] [ ] CONSIDERATIONS The following design principals will be used in developing the [ ]: o High performance to handle the high transaction load expected from up to 800 agents simultaneously accessing the system. o Robust software application providing production quality in the initial release. o Scaleable to handle increased usage as the number of Customer Contact Employees grows or other segment begin to use the system. o Extensible allowing new business rules and data to be included as the business evolves. o Maintainable, enabling the system to be expanded over time. o Flexible, able to be incorporate into the [ ] application. o Compatible with U S WEST architectural directions, including minimal resource usage NT client platform. Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 10 12 [ ] TECHNOLOGY The [ ] will be implemented using the following approach: o Web Based o Client/Server communications o FORTE 3.0 suite of robust object-oriented tools or other U S WEST approved object-oriented tools o TCP/IP o API access via Fetch N Stuff to [ ] and [ ] o Oracle RDB 1.8 DELIVERABLES The following [ ] deliverables will be provided by CGI to U S WEST: o Software Project Management Plan (SPMP): The SPMP provides a project management guide for successful execution of the [ ] project. It documents such elements as project goals, points of contact, schedule, resources, risks, constraints, and assumptions. The SPMP ensures that all project elements are considered initially and managed to successful completion. o Client and User Requirements Document: This document defines the set of requirements specified by the [ ] client representatives for functional purposes and channel groups for usability purposes. o Architecture Document: This document describes the overall system architecture, which describes modular composition, high-level interfaces, hardware platform, and software platform. o Design Document: This document contains a detailed description of each [ ] application module and their respective interfaces. Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 11 13 [ ] o User Guide: This document contains detailed instructions of actions required by CCEs to effectively utilize all system functions. Will be provided in paper form and as on-line help. o Knowledge Base: The knowledge base contains the business rules defined by U S WEST for inclusion in the [ ] application. The knowledge base content will be reviewed by the designated U S WEST client organization prior to its formal acceptance. o Status Reports: Weekly (or as determined appropriate) status reports will be developed by CGI which describes project status, progress, issues, and plans. o Administrators Guide: providing instructions for System Administrators describing the installation, set-up, and maintenance of the system. o Training Materials: We will work with U S WEST market units to determine what training materials, if any, need to be provided. o Additionally, User Cases, User Requirements, Design Notes, and Test Plans will be developed. 1.9 SUMMARY This Schedule covers efforts to be performed from AUGUST 18, 1997 through DECEMBER 26, 1997. 2. SCHEDULE, STATEMENT OF WORK AND DELIVERABLES 2.1 TASKS, SCHEDULE, AND DELIVERABLES The following table summarizes the tasks, schedule and deliverables included in this Schedule.
- ----------------------------------------------------------------------------------- TASK TOTAL EFFORT START DATE END DATE (DAYS) - -----------------------------------------------------------------------------------
Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 12 14 [ ] ADDING CONSUMER PRODUCTS TO [ ] o This section briefly outlines the additional effort involved in adapting the [ ] project to support Consumer products. This estimate assumes that the impact will be non-trivial. That is, it will require extensions or modifications to the software, the knowledge base, the database, and the external system interfaces to support Consumer products. If after analysis, it is determined that support for these elements does not require this level of effort, the impact to overall development as well as schedule, will be reduced. o The level of effort estimates for the addition of Consumer product support to [ ] is the following: o Software enhancements: 6 weeks (240 hours) of a single SE I's time. o Knowledge-Base enhancements: 6 weeks (240 hours) of a single SE I's time. o Database enhancements: 6 weeks (240 hours) of an Engineer's time. o System Integration: 6 weeks (240 hours) of a single SE I's time. o The additional cost associated with this work is $[ ]. The overall schedule is impacted by adding two calendar weeks to Design time, as well as all subsequent tasks which are dependent on the completion of Design. That is, the completion date is extended by two calendar weeks. Source Code: Multiple releases of the [ ] source code will be provided to U S WEST. Releases include the initial development release, integration-tested software, system-tested software, and final production software. 2.2 ASSUMPTIONS The above tasks, schedules and deliverables were developed based on the following assumptions. 1. The schedule is based on a project start date of August 18, 1997. Delays in this start date may impact the delivery date of one or more Deliverables. 2. The work estimates are based on CGI Methodology and past experience. CGI will continuously monitor the status and notify U S WEST of any issues or risk situations which may impact the delivery date. Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 13 15 [ ] 3. CGI has timely access to U S WEST personnel (i.e. SMEs). 4. Any delays in dependent tasks (i.e. U S WEST tasks) may impact the delivery date of one or more Deliverables. 5. [ ] assumes the effort of integrating [ ] into the existing GUI. 6. The baseline cost of customer's existing product set is available from [ ]. [ ] only computes new costs based on packages. 7. Customer service record, containing existing products and services, are available to CST. 8. Market profile data is currently part of [ ]. 9. Product availability is currently part of [ ]. 10. Package restriction checking will not involve additional system interfaces. Data used in the restriction checking will either be available through [ ] or will be collected over time and applied as the data exists. 11. Pricing data on all available products is available from other systems and used within [ ]. 12. While [ ] does contain package rating logic for [ ] products, this will not be used by [ ] since [ ] needs to consider packages which consist of combinations of products from different sources. [ ] will therefore need to compute the rates. 13. Existing [ ] interfaces from [ ] can be used without modification. 14. The [ ] scope will be fully defined by all requirements prior to project start. 15. U S WEST provides a project sponsor to act as the liaison between the U S WEST and CGI. This does not require that U S WEST handle all [ ] interactions but that appropriate personnel be provided to support these activities. Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 14 16 [ ] 16. Periodic status meetings and weekly status reports to be held between the U S WEST project manager and the CGI project manager, and other selected personnel, to measure progress against the work plan. 17. All development will be done on CGI premises and facilities. Intermediate and final software products will be moved to U S WEST facilities as required. 18. Change requests to the requirements outlined in this proposal must be defined by U S WEST for analysis by CGI to provide estimates, costs, and impact on current deliverables. Signed approval by both parties is required prior to implementation of any change request. 19. The primary point of contact will be Frank Kogel who will designate a back-up contact when unavailable. 2.20 DELIVERABLES See section 1.8 for a detailed description of Product Package Generator deliverables. A copy of the deliverables will be provided to the appropriate U S WEST recipients. The master copy will contain a letter to be mutually signed by the parties acknowledging delivery, receipt and acceptance of the deliverables. Should CGI not receive the signed letter or a written list of items which are not in compliance with the project specifications within ten (10) business days after delivery, then the Deliverables shall be deemed accepted. 3.0 PROJECTED COST The total cost of the work net of discounts shall not exceed $[ ] based on estimated time and material expenses. Should travel be required, U S WEST agrees to pay CGI travel expenses for all pre-approved trips. This Schedule does not represent a follow-on effort or a change order effort. Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 15 17 [ ] Estimated costs with applicable discounts for the project are provided below:
- ------------------------------------------------------------------------------------------------------------- ITEMIZATION OF COSTS AMOUNT - ------------------------------------------------------------------------------------------------------------- CONTRACT ENGINEERING COSTS (TIME AND MATERIALS) $[ ] LESS MINIMUM DISCOUNT AND ANY PROJECT VOLUME DISCOUNT Minimum Discount ($[ ]) Volume Discount: ($[ ]) - ------------------------------------------------------------------------------------------------------------- TOTAL CONTRACT ENGINEERING $[ ] - ------------------------------------------------------------------------------------------------------------- CGI/THIRD PARTY LICENSE FEES N/A - ------------------------------------------------------------------------------------------------------------- TRAVEL EXPENSES AND OTHER PASS-THROUGH EXPENSES N/A - ------------------------------------------------------------------------------------------------------------- TOTAL SCHEDULE ESTIMATED PRICE $[ ] - -------------------------------------------------------------------------------------------------------------
Estimated hours are as follows:
- ------------------------------------------------------------------------------------------------------------- CATEGORY ESTIMATED HOURS - ------------------------------------------------------------------------------------------------------------- Manager(s) [ ] Business Consultant(s) Engineer(s) [ ] Technical Writer(s) [ ] - ------------------------------------------------------------------------------------------------------------- TOTAL HOURS [ ] - -------------------------------------------------------------------------------------------------------------
Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 16 18 [ ] IN WITNESS WHEREOF, U S WEST and CGI agree and execute this Schedule in duplicate by their respective authorized representatives. CARNEGIE GROUP, INC. U S WEST /s/ DRD BY: /s/ Bruce Russell BY: /s/ David M. McGrew for D. Dempsey ------------------------ ---------------------------------- Name: Bruce Russell NAME: Dennis Dempsey ------------------------ ---------------------------------- (printed) (printed) TITLE: Executive VP & COO TITLE: V.P. - IAD ------------------------ ---------------------------------- DATE: August 18, 1997 DATE: 8/15/97 ------------------------ ---------------------------------- Schedule Number 3 Carnegie Group, Inc. and U S West 6/23/97 Proprietary and Confidential Page 17 EX-11.1 6 CARNEGIE GROUP, INC. 1 Exhibit 11.1 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
PRIMARY EARNINGS PER SHARE THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 1997 1996 1997 1996 ---- ---- ---- ---- Weighted Average Common and Common Equivalent Shares: Weighted Average Common Stock Outstanding During the Period 6,400,898 6,206,242 6,324,907 6,231,328 Weighted Average Common Equivalent: Shares 652,857 764,834 644,110 888,756 ---------- ---------- ---------- ---------- 7,053,755 6,971,076 6,969,017 7,120,084 ---------- ---------- ---------- ---------- Net Income $ 322,090 $ 409,508 $1,231,846 $1,213,516 ========== ========== ========== ========== Net Income Per Common Share $ 0.05 $ 0.06 $ 0.18 $ 0.17 ========== ========== ========== ==========
FULLY DILUTED EARNINGS PER SHARE THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 1997 1996 1997 1996 ---- ---- ---- ---- Weighted Average Common and Common Equivalent Shares: Weighted Average Common Stock Outstanding During the Period 6,400,898 6,206,242 6,324,907 6,231,328 Weighted Average Common Equivalent: Shares 697,632 854,512 738,646 883,533 ---------- ---------- ---------- ---------- 7,098,530 7,060,754 7,063,553 7,114,861 ---------- ---------- ---------- ---------- Net Income $ 322,090 $ 409,508 $1,231,846 $1,213,516 ---------- ---------- ---------- ---------- Net Income Per Common Share $ 0.05 $ 0.06 $ 0.17 $ 0.17 ========== ========== ========== ==========
- 19 - EX-27 7 CARNEGIE GROUP, INC.
5 0001001188 CARNEGIE GROUP, INC. 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 13,841,553 0 9,396,485 0 0 25,927,448 2,726,594 0 30,278,691 5,177,848 0 0 0 66,900 25,033,943 30,278,691 845,957 22,933,636 14,108,375 7,302,106 0 0 10,295 2,044,826 812,980 1,231,846 0 0 0 1,231,846 .18 0
-----END PRIVACY-ENHANCED MESSAGE-----