<PAGE> 1
- --------------------------------------------------------------------------------
FORM 10-Q/A
AMENDMENT NO. 1
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, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From _______ to ________
Commission File Number 0-26964
Carnegie Group, Inc.
Delaware 25-1435252
------------------------------- --------------------------------------
(State or other Jurisdiction of (I.R.S Employer 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, 1996
----- -------------------------------
Common Stock, $.01 par value 6,261,235
- --------------------------------------------------------------------------------
<PAGE> 2
FORM 10-Q/A
CARNEGIE GROUP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Number
<S> <C> <C>
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
Carnegie Group, Inc. and Subsidiaries 3
Consolidated Statements of Operations for the
three months and nine months ended September 30, 1996
and 1995
Carnegie Group, Inc. and Subsidiaries 4
Consolidated Balance Sheets
Carnegie Group, Inc. and Subsidiaries 5
Consolidated Statements of Cash Flows
Note to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 7-10
Financial Condition and Results of Operations
PART 2 OTHER INFORMATION 11
Signatures 12
Exhibit Index 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARNEGIE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
----------------------- ----------------------
<S> <C> <C> <C> <C>
Revenue
Software services--Unrelated parties $5,317,571 $5,489,125 $18,396,585 $15,245,338
Software services--Related parties 793,347 537,165 $2,038,273 2,693,631
---------- ---------- ----------- -----------
Total software services 6,110,918 6,026,290 20,434,858 17,938,969
Software licenses 398,351 361,391 1,061,112 1,121,997
---------- ---------- ----------- -----------
Total revenue 6,509,269 6,387,681 21,495,970 19,060,966
---------- ---------- ----------- -----------
Costs and expenses:
Cost of revenue - Unrelated parties 3,454,845 3,303,375 12,064,410 9,869,843
Cost of revenue - Related parties 507,078 353,060 1,282,354 1,396,620
---------- ---------- ----------- -----------
Total cost of revenue 3,961,923 3,656,435 13,346,764 11,266,463
Research and development 346,868 146,590 814,158 471,779
Selling, general and administrative 1,671,435 1,908,493 5,822,321 5,262,094
---------- ---------- ----------- -----------
Total costs and expenses 5,980,226 5,711,518 19,983,243 17,000,336
---------- ---------- ----------- -----------
Income from operations 529,043 676,163 1,512,727 2,060,630
Other income (expense):
Interest income 153,011 2,086 451,701 8,922
Other income 7,931 7,099 20,729 17,547
Interest expense (4,262) (18,496) (13,683) (49,613)
---------- ---------- ----------- -----------
Total other income (expense) 156,680 (9,311) 458,747 (23,144)
---------- ---------- ----------- -----------
Income before income taxes 685,723 666,852 1,971,474 2,037,486
Income tax provision (276,215) (117,266) (757,958) (358,361)
---------- ---------- ----------- -----------
Net income $ 409,508 $ 549,586 $ 1,213,516 $ 1,679,125
---------- ---------- ----------- -----------
Earnings per share of common stock $ 0.06 $ 0.10 $ 0.17 $ 0.30
========== ========== =========== ===========
Weighted average number of common shares
outstanding 6,971,076 5,591,687 7,120,084 5,591,687
========== ========== =========== ===========
</TABLE>
The accompanying note is an integral part of these financial statements.
3
<PAGE> 4
CARNEGIE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $14,195,872 $12,394,588
Accounts receivable 2,380,699 5,131,922
Accounts receivable from related parties 786,837 76,296
Accounts receivable--unbilled 3,268,229 2,048,609
Accounts receivable related parties--unbilled 370,269 87,690
Deferred income taxes 952,517 1,222,061
Other current assets 262,899 397,883
----------- -----------
Total current assets 22,217,322 21,359,049
----------- -----------
Property and equipment, net of accumulated depreciation
and amortization 2,054,367 1,812,894
Deferred income taxes 1,387,384 1,779,792
Other assets 27,731 36,900
----------- -----------
Total assets $25,686,804 $24,988,635
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 539,068 $ 1,107,592
Payables to related parties 929,901 967,673
Accrued compensation 918,669 1,130,479
Advance billings and deferred revenue 613,522 537,541
Accrued rent 573,398 626,253
Other accrued liabilities 692,144 801,544
Obligations under capital leases--current portion 47,452 48,691
----------- -----------
Total current liabilities 4,314,154 5,219,773
----------- -----------
Obligations under capital leases--noncurrent portion - 39,671
----------- -----------
Total liabilities 4,314,154 5,259,444
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 20,000,000 shares authorized, 6,489,315 and
6,386,200 shares issued at September 30, 1996
and December 31, 1995 respectively 64,893 63,862
Capital in excess of par value 31,265,229 30,836,317
Accumulated deficit (9,482,472) (10,695,988)
Treasury stock, 190,000 shares at September 30, 1996 and
December 31, 1995 (at cost) (475,000) (475,000)
----------- -----------
Total stockholders' equity 21,372,650 19,729,191
----------- -----------
Total liabilities and stockholders' equity $25,686,804 $24,988,635
=========== ===========
</TABLE>
The accompanying note is an integral part of these financial statements.
4
<PAGE> 5
CARNEGIE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------
September 30, September 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,213,516 $ 1,679,125
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 698,989 501,539
Deferred income taxes 661,952 229,731
Changes in working capital component:
Accounts receivable 1,531,603 (4,554,426)
Accounts receivable - Related parties (993,120) 1,193,549
Other assets 144,153 (257,352)
Trade accounts payable (568,524) (223,881)
Payables to related parties (37,772) 509,244
Accrued compensation (211,810) (1,609)
Accrued rent (52,855) (132,525)
Other accrued liabilities 68,927 375,507
Advance billings and deferred revenue 75,981 (499,466)
----------- -----------
Net cash (used in) provided by operating
activities 2,531,040 (1,180,564)
Cash flows from investing activities:
Proceeds from the sale of fixed assets, net -- --
Capital expenditures (940,464) (857,423)
----------- -----------
Net cash used in investing activities (940,464) (857,423)
Cash flows from financing activities:
Borrowings on line of credit -- 2,750,271
Repayments on line of credit -- (1,795,917)
Principal payments under capital lease obligations (40,909) (37,418)
Proceeds from sales of common stock, net 251,617 231,647
----------- -----------
Net cash provided by financing
activities 210,708 1,148,583
----------- -----------
Net change in cash and cash equivalents 1,801,284 (889,404)
Cash and cash equivalents:
Beginning of period 12,394,588 915,237
----------- -----------
End of period $14,195,872 $ 25,833
=========== ===========
</TABLE>
The accompanying note is an integral part of these financial statements.
5
<PAGE> 6
NOTE 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, 1996. Results for the interim periods
are not necessarily indicative of results for the full year. The accompanying
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission and therefore do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. Accordingly, the information
contained in this Form 10-Q/A should be read in conjunction with the financial
statements and notes thereto contained in the Company's Form 10-K for the year
ended December 31, 1995 as filed with the Securities and Exchange Commission
6
<PAGE> 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
user-centered software solutions in two business areas: customer interaction
and logistics, planning, and scheduling. The Company's client/server systems
integrate advanced software technologies with clients' existing computing
infrastructures to automate and enhance complex business processes. The Company
targets its services to clients in the telecommunications, financial services,
manufacturing, government and healthcare industries.
The Company's expertise encompasses a wide range of advanced software
technologies, including knowledge-based systems, object-oriented technology,
advanced graphical user interfaces, constraint-directed search and distributed
computing. The Company captures certain aspects of its business area experience
and advanced technology expertise in a portfolio of reusable software templates
that can be used as building blocks to create software solutions quickly and
effectively. In addition, Carnegie Group employs an iterative or "spiral"
approach to software design that begins with the construction of a prototype
and continues through testing of successive versions of the software against
project requirements. This iterative design facilitates rapid software
development, encourages client feedback and leads to greater congruence with
client needs and expectations.
Since inception, Carnegie Group has emphasized relationships with leading
corporations in its targeted industries. These relationships have provided the
Company with opportunities for growth through the provision of additional
services to existing clients and through references to other companies within
the Company's targeted industries. Carnegie Group's clients include U S WEST
Communications, Inc., the United States Transportation Command, Caterpillar
Inc., the U.S. Army, BellSouth Telecommunications, Inc., First USA Bank, Ford
Motor Company and Blue Cross of Western Pennsylvania.
Backlog at September 30, 1996 decreased to $11.6 million, compared to
$15.1 million at June 30, 1996 and $10.3 million at September 30, 1995. 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. As most of the contracts in backlog are terminable by
the Company or the client upon short notice, there can be no assurance that
contracts reflected in backlog are a reliable measure of future revenue.
7
<PAGE> 8
COMPARISON OF QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER
30, 1995.
Revenue. Total revenue for the quarter ended September 30, 1996 was
$6.5 million compared to $6.4 million for the quarter ended September 30, 1995,
an increase of $.1 million or 1.9%. For the nine months ended September 30,
1996 revenue was $21.5 million compared to $19.1 million for the nine months
ended September 30, 1995, an increase of $2.4 million or 12.8%. This growth
resulted principally from volume increases in sales of software services.
Total software services revenue for the quarter ended September 30,
1996 was $6.1 million compared to $6.0 million for the quarter ended September
30, 1995, an increase of $.1 million or 1.4%. Software services revenue was
$20.4 million for the nine months ended September 30, 1996 compared to $17.9
million for the nine months ended September 30, 1995, an increase of $2.5
million or 13.9% These increases were primarily due to an extension of a
logistics, planning and scheduling engagement for a defense industry client.
This engagement was the primary reason that revenue from software
services-unrelated parties was $18.4 million for the nine months ended
September 30, 1996 compared to $15.2 million for the nine months ended
September 30, 1995. Revenue from software services-related parties was $2.0
million for the nine months ended September 30, 1996 compared to $2.7 million
for the nine months ended September 30, 1995, a decrease of $.7 million or
24.3%. This decrease was primarily due to the completion of customer contact
engagements for a telecommunications industry client. Also, results for the
third quarter and the first nine months of 1996 were affected by the
renegotiation of a fixed-price contract, which resulted in engineers related to
that contract being underutilized.
Revenue from software licenses was $398,000 for the three month period
ended September 30, 1996, compared to $361,000 for the same three month period
in 1995, an increase of $37,000 or 10.2%. Revenue from software licenses was
$1,061,000 for the nine months ended September 30, 1996 compared to $1,122,000
for the nine months ended September 30, 1995, a decrease of $61,000 or 5.4%.
The decrease was due to the fact that the sales of reusable software templates
to a telecommunications industry client in 1995 did not reoccur in the first
nine months of 1996.
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 1996, total cost of
revenue was $4.0 million compared to $3.7 million for the third quarter of
1995, an increase of $.3 million or 8.4%. For the nine months ended September
30, 1996, total cost of revenue was $13.4 million compared to $11.3 million for
the nine months ended September 30, 1995, an increase of $2.1 million or 18.5%.
These increases were primarily attributable to the additional hiring of
professional staff to perform the increased volume of software services. Cost
of revenue-related parties was $1.3 million for the nine months ended September
30, 1996 compared to $1.4 million for the nine months ended September 30, 1995,
a decrease of $.1 million or 8.2%. Cost of revenue-unrelated parties during the
same nine month period was $12.1 million compared to $9.9 million for the nine
month period ended September 30, 1995, an increase of $2.2 million or 22.2%.
The increase was primarily attributable to the reallocation of professional
staff to provide additional software services to unrelated parties following
the completion of customer contact engagements for a telecommunications
industry client. Also, as mentioned earlier, the increased revenue from
software services-unrelated parties for the extension of a logistics planning
and scheduling engagement for a defense industry client required an increase in
associated costs.
Research and Development. Research and development expenses for the
quarter ended September 30, 1996 were $347,000 compared to $147,000 for the
third quarter of 1995, an increase of $200,000 or 136.6%. For the nine months
ended September 30, 1996 research and development expenses were $814,000
compared to $472,000 for the nine months ended September 30, 1995, an increase
of $342,000 or 72.6%. These increases were primarily due to development of
various templates for the services areas of the business.
8
<PAGE> 9
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. For the third quarter of
1996, selling, general and administrative expenses were $1.6 million compared
to $1.9 million for the third quarter of 1995, a decrease of $.3 million or
12.4%. This decrease was primarily due to lower expense accruals for
performance-based incentive compensation. Selling, general and administrative
expenses for the nine months ended September 30, 1996 were $5.8 million
compared to $5.3 million for the nine months ended September 30, 1995, an
increase of $.5 million or 10.7%. These increases resulted primarily from
increased sales and marketing expenses needed to support the Company's total
revenue growth along with increased insurance and professional services
expenses related to being a newly public company. As a percentage of total
revenue, these expenses decreased slightly from 27.6% for the nine months ended
September 30, 1995 to 27.1% in 1996.
Other Income (Expense). Total other income for the third quarter of
1996 was $157,000 compared to total other expense of $10,000 in 1995, an
increase of $167,000 or 1,682.7%. For the nine months ended September 30, 1996,
total other income was $459,000 compared to total other expense of $23,000 in
1995 an increase of $482,000 or 1,982.2%. These increases were due primarily to
interest income earned on the net proceeds received in December, 1995 from the
Company's initial public offering, which were invested in an interest-bearing
account.
Income Tax Provision. An income tax provision of $276,000 was recorded
for the third quarter of 1996 and $758,000 for the nine months ended September
30, 1996 compared to $118,000 and $359,000 respectively for the quarter and
nine months ended September 30, 1995. The effective tax rates for 1996 are
higher than the effective rates for the comparable periods of 1995, due
principally to changes in estimates of the realization of deferred tax assets
related to the Company's net operating loss carryforwards in accordance with
Accounting Standard No. 109.
SFAS No. 109, "Accounting for Income Taxes," requires a valuation
allowance when it is "more likely than not that some portion or all of the
deferred tax assets will not be realized." It further states that "forming a
conclusion that a valuation allowance is not needed is difficult when there is
negative evidence such as cumulative losses in recent years." The ultimate
realization of its deferred income tax asset depends on the Company's ability
to generate sufficient taxable income in the future. The Company has weighed
the negative objective evidence of recent results and dependence upon limited
number of customers, as well as other risk factors on the one hand, and the
positive subjective evidence of future expectations, on the other hand, and has
concluded that retaining a portion of the valuation allowance is appropriate.
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.
Liquidity and Capital Resources
The Company has funded its operations in recent years primarily
through cash generated from operations and the use of cash reserves. In 1995
the Company also funded its operations in
9
<PAGE> 10
part through borrowing under available lines of credit and through the net
proceeds of the initial public offering of its Common Stock consummated in
December 1995.
During the first nine months of 1996 the Company had a net cash
increase of $1,801,000 on increases in cash from operating activities.
The Company experienced growth in revenue earned but not yet billed for
the quarter ended September 30, 1996. Due to strong collection efforts,
receivables billed and collected have decreased. The net change of all accounts
receivable was a decrease of $538,000 for the quarter. 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 at September 30, 1996 increased
$76,000 when compared to December 31, 1995. Advanced billings and deferred
revenue balances normally will change from period to period. Any increase would
reflect billings in advance of revenue earned, but which were billed in
accordance with established or agreed billings schedules. These amounts are
recorded as deferred revenue until earned. The timing and magnitude of such
advance billings vary from contract to contract and from client to client.
The Company has a committed line of credit agreement in the amount of
$3.5 million in place with PNC Bank, N.A. (the "Bank"). No borrowings were
outstanding against the committed line of credit at September 30, 1996 and
December 31, 1995. Borrowings under this agreement are collateralized by
accounts receivable. This 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 at September 30, 1996
was 8 1/4% compared to 8 1/2% at December 31, 1995.
The Company believes that the net proceeds from the sale of Common
Stock in the Company's initial public offering, together with cash balances,
cash generated from operations and borrowing available under its line of
credit, will satisfy the Company's working capital and capital expenditure
requirements during fiscal year 1996 and the foreseeable period thereafter. In
the longer term, the Company may require additional sources of liquidity to
fund future growth. Such sources of liquidity may include additional equity
offerings or debt financings. Capital expenditures are typically made for
computing equipment, software, physical plant, and furniture and fixtures in
order to seek enhancements in the productivity of the Company's employees and
to support growth.
In the normal course of business, the Company evaluates acquisitions
of businesses, products and technologies that complement the Company's
business. The Company has no present plans, intentions, understandings,
commitments or agreements, nor is it currently engaged in any negotiations,
with respect to any such transaction. However, the Company may acquire
businesses, products or technologies in the future.
To the extent that any written or oral statement made by the Company,
including statements made herein, are deemed to be forward looking statements,
reference is made to the factors beginning on page 27 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, as filed with the
Securities and Exchange Commission, as important factors that could cause
actual results to differ materially from those in any such forward looking
statements.
10
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed below are filed or incorporated by reference as part of
this quarterly report on Form 10-Q:
3.1 Restricted Certificate of Incorporation of Carnegie Group, Inc.
(Incorporated by reference to Exhibit 3.01 to the Company's
Registration Statement on Form S-1, File No. 33-97118).
3.2 Amended and restated By-Laws of Carnegie Group, Inc.
(Incorporated by reference to Exhibit 3.02 to the Company's
Registration Statement on Form S-1, File No. 33-97118).
10.1 Development Agreement, dated as of July 1, 1996, by and between
US WEST Business Resources, Inc., US WEST Communications, Inc.
and Carnegie Group, Inc. Confidential treatment with respect to
certified 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.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
September 30, 1996.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this Amendment to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: November 18, 1996 CARNEGIE GROUP, INC.
/s/ DENNIS YABLONSKY
--------------------------
Dennis Yablonsky
President, and
Chief Executive Officer
/s/ JOHN W. MANZETTI
--------------------------
John W. Manzetti
Executive Vice President,
Chief Financial Officer
and Treasurer
12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description page number
- ----------- ----------- -----------
<S> <C> <C>
3.1 Restricted Certificate of Incorporation of Carnegie Group, Inc.
(Incorporated by reference to Exhibit 3.01 to the Company's
Registration Statement on Form S-1, File No. 33-97118).
3.2 Amended and restated By-Laws of Carnegie Group, Inc.
(Incorporated by reference to Exhibit 3.02 to the Company's
Registration Statement on Form S-1, File No. 33-97118).
10.1 Development Agreement, dated as of July 1, 1996, by and between
US WEST Business Resources, Inc., US WEST Communications, Inc.
and Carnegie Group, Inc. Confidential treatment with respect to
certified 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.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
Confidential treatment with respect to certain information in this Exhibit has
been requested of the Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended. The bracketed portions of this Exhibit have
been omitted from the material filed in accordance with Rule 24b-2 and have
been filed separately with the Commission.
<PAGE> 2
Exhibit 10.1
DEVELOPMENT AGREEMENT NO. 35-003-96
CALL HANDLING
This Development Agreement is entered into on the 1ST day of JULY,
1996 by and between U S WEST Business Resources, Inc. as agent for U S WEST
Advanced Technologies, Inc., a Colorado corporation ("USW-Technologies"), U S
WEST Communications, Inc., a Colorado corporation ("USW-Communications"),
(hereinafter USW-Technologies, USW-Communications and their Affiliates will be
collectively referred to as "Licensee"), and Carnegie Group, Inc., a Delaware
corporation with a principal place of business at Five PPG Place, Pittsburgh,
PA 15222 ("CGI").
ARTICLE 1 - RECITALS
1.1 Licensee and CGI entered into a General License Agreement (the
"GLA") on December 17, 1992 in which the parties committed to enter into a
series of Artificial Intelligence ("AI") technology research, experimentation
and development agreements ("Development Agreements") over a period beginning
on the Effective Date, as defined in the GLA, and ending on the fourth
anniversary of the Effective Date.
1.2 Licenses and CGI now desire to enter into this Development
Agreement pursuant to which the parties, as contemplated by the GLA, will
commit to a project of specific research, experimentation and development as
stated herein.
NOW, THEREFORE, in consideration of the mutual covenants set forth in
this Development Agreement, Licensee and CGI agree as follows:
ARTICLE 2 - DEFINITIONS
2.1 Defined terms used in this Development Agreement shall have the
meanings set forth in Article 2 of the GLA, unless different meanings are
specifically set forth in this Development Agreement.
2.2 "Project" means the specific research, experimentation and
development which CGI will perform for Licensee under this Development
Agreement.
1
<PAGE> 3
2.3 "Project Description" means a detailed written description of the
Project, including but not limited to:
(a) any Deliverable Performance Specifications; and
(b) a listing which identifies and describes, as to the Project:
(i) any Deliverables intended to be created in the course
of the Project; and
(ii) any Licensee Specific Technology intended to be
created in the course of the Project; and
(iii) any Licensee Proprietary Information or Licensee
Confidential Information to be made available to CGI
in the course of the Project; and
(iv) any Generic Research Technology intended to be created
in the course of the Project.
2.4 "Projected Cost" means that projected cost referred to in Article 9 of
the GLA and set forth in Article 5 hereof.
2.5 "Projected Date" means the projected date for completion of the
Project agreed upon by the parties and set forth in Article 6 hereof, including
any Agreed Completion Date.
ARTICLE 3 - EFFECT OF THE GLA
This Development Agreement is subject in all respects to the terms and
conditions of the GLA. Ownership of Generic Research Technology developed
hereunder is vested in US WEST, in accordance with Article 3.3 of the GLA
and the payment of ALLIANCE rates by Licensee to CGI as provided in Exhibit
2, attached hereto.
ARTICLE 4 - PROJECT DESCRIPTION
4.1 The Project Description is set forth in Exhibit 1 attached hereto.
4.2 CGI shall use its best efforts to complete the Project in accordance
with the Project Description. Except for the warranties set forth in Article 8
of the GLA regarding any Deliverable Performance Specifications set forth in
2
<PAGE> 4
Exhibit 1 of this Development Agreement, CGI hereby disclaims any express or
implied warranty that all or any portion of the Project intended to be created
or developed pursuant to this Development Agreement will perform in accordance
with the Project Description or any other criteria.
ARTICLE 5 - PROJECTED COST; PAYMENT
5.1 CGI's Projected Cost for the Project is $[ ]. An
itemized account of the Projected Cost including person-year rates applied as
Alliance, Technology and/or Co-Development Rates as defined in the GLA is set
forth in Exhibit 2 attached hereto. Modifications to the Projected Cost (and
any payments under Section 5.2) shall be governed by Sections 9.4 and 14.7 of
the GLA.
5.2 Licensee shall pay to CGI, in consideration for CGI's performance
of its obligations under this Development Agreement, the sum of $ * in
accordance with the payment schedule set forth in Article 5 of the GLA.
"*" REPRESENTS TIME AND MATERIAL COSTS IN ACCORDANCE WITH EXHIBIT 2 OF THIS
DEVELOPMENT AGREEMENT
ARTICLE 6 - PROJECTED DATE
6.1 The Projected Date for completion of the Project is
DECEMBER 31, 1996. A time schedule listing projected dates for completion of
interim stages of the Project is set forth in Exhibit 3 attached hereto.
6.2 CGI shall use its best efforts to complete the Project by the
Projected Date. Except for the obligations set forth in Article 9 of the GLA
regarding any Agreed Completion Date set forth in Exhibit 3 of this Development
Agreement, CGI hereby disclaims any express or implied warranty that all or any
portion of the Project intended to be created or developed pursuant to this
Development Agreement will be completed on any date certain, including the
Projected Date.
ARTICLE 7 - TERMS OF DELIVERY AND RISK OF LOSS
7.1 CGI will deliver, at its expense, to Licensee any Deliverables and
Licensee Specific Technology in accordance with the Exhibits hereto.
3
<PAGE> 5
7.2 CGI will bear the risk of loss or destruction of such Deliverables
and Licensee Specific Technology until the delivery of such items to Licensee
at the location designated by Licensee. For the purposes hereof, "delivery"
shall mean physical delivery to a facility and shall not include installation.
ARTICLE 8 - INSTALLATION
8.1 CGI will provide, at Licensee's request and expense, technical
assistance to Licensee sufficient for the proper installation of Deliverables
and Licensee Specific Technology in Licensee facilities. Such assistance may
include, if deemed necessary by Licensee, the presence of one or more CGI
employees at Licensee facilities to assist in such installation. Licensee will
pay, in accordance with the GLA, travel, room and board expense incurred by
such employees of CGI.
8.2 Licensee will bear the risk of loss or destruction of the
Deliverables, Licensee Specific Technology or any other items delivered to
Licensee facilities during and after installation.
ARTICLE 9 - OPERATIONAL TRAINING
CGI will provide, in accordance with Article 6 of the GLA, adequate
training to no more than 0 Licensee employees regarding the proper
operation and use of Deliverables, Licensee Specific Technology and Generic
Research Technology created in the course of the Project.
ARTICLE 10 - MAINTENANCE
CGI will perform maintenance and repair services on Deliverables,
Licensee Specific Technology and Generic Research Technology in accordance with
the GLA.
ARTICLE 11 - MODIFICATIONS AND AMENDMENTS
Any modifications to the Project or to this Development Agreement,
including but not limited to modifications to the Project Description, the
Projected Costs, or the Projected Date, to which the parties agree after the
date of execution of the Development Agreement, will be evidenced by a written
supplement to this Development Agreement executed by both parties.
4
<PAGE> 6
ARTICLE 12 - INTEGRATION
This Development Agreement, the Exhibits attached hereto and the terms
of the GLA set forth the entire and exclusive agreement and understanding of
the parties relating to the subject matter contained herein, and supersede all
prior and contemporary discussions. Neither party will be bound by any
definition, condition, warranty or representation except as expressly set forth
in this Development Agreement or the GLA or as subsequently set forth in
writing signed by authorized representatives of each party.
IN WITNESS WHEREOF, Licensee and CGI have executed this Development
Agreement in duplicate by their respective authorized representatives.
CARNEGIE GROUP, INC. LICENSEE
By: /s/ Dennis Yablonsky By: /s/ Dennis R. Dempsey
--------------------- ---------------------
Title: President/CEO Title: VP/IAP
----------------- ----------------------
Date: 9/5/96 Date: 9/3/96
------------------- ----------------------
U S WEST Business Resources, Inc.
Acting as Agent for: LICENSEE
By:
------------------------------
Title:
---------------------------
Date:
----------------------------
5
<PAGE> 7
EXHIBIT 1
PROJECT DESCRIPTION
INTRODUCTION
This agreement covers efforts to be performed by CGI from July 1, 1996 through
December 31, 1996 for U S WEST in support of the Call Handling / Front End
Screen & Route (FES&R) project. The overall Call Handling project is being
undertaken by U S WEST to deliver several system deployments: Phase I in
February 1996 (which has been delivered), the Summer Maintenance Release in
July 1996, the Load Balance Release in October 1996, and the Voice Over Data
(Screen Pop) Pilot in 1996. The deliverables covered by this agreement are in
support of the Summer Maintenance Release, the Load Balance Release and the
Voice Over Data Pilot, however because of the time period covered, most of the
deliverables are in support of the Load Balance and Voice Over Data Releases.
CGI ROLES AND RESPONSIBILITIES
Based on the defined scope and deliverables, and the architecture design and
detailed design work that has been accomplished through June of 1996 by CGI and
U S WEST (reference U S WEST/CGI Development Agreements 35-002-95, 35-002-96,
35-001-96 and Change Order 35-001-96-A), the following roles and
responsibilities can be defined for the Call Handling / FES&R project:
o CGI will be responsible for Project Management and the functional
specification, detail design, development, test (unit test and
component integration test), documentation, and delivery of the
following:
LOAD BALANCE
o LOAD BALANCE I: The Load Balance I release will provide
equitable routing for queued and non-queued Call Handing
situations for resource groups. It will balance the
queues to equal and different teams and performing ratio
routing. It also provides for a direct data feed from
the 5ESS to capture additional parameters required for
equitable resource routing. For a subset of the toolset
screens, a sharper GUI that is more efficient with a
quick and easy update capability will also be provided.
The GUI will also provide field level validation,
consistency checking, and rule validation.
o LOAD BALANCE II: The Load Balance II release will provide
for a direct data feed from the DMS 100 to capture
additional
6
<PAGE> 8
parameters required for equitable resource
routing. Provide possible enhancements to Load Balance I
release.
VOICE OVER DATA
o Voice Over Data is a client project to pilot multiple new
features for the Call Handling system. CGI is responsible
for the functional specification and project plan for
Voice Over Data pilot.
o CGI will be responsible for the Functional
Specification and Project Plan for the Voice Over
Data Prototype
o CGI will be responsible for contacting Lucent and
Northern Telecom to obtain the required information
o The purpose of Voice Over Data Pilot is to:
o Demonstrate the viability of adding Voice Over Data
to the Call Handling application for existing
infrastructure of Automatic Call Distributors. i.e.,
Group Based Routing (GBR)
o Demonstrate the feasibility of adding Individual
Skills Based Routing (ISBR) with Voice Over Data
Prototype to the Call Handling application.
o Simulate dynamic load balancing using the ISBR
capability for various call load conditions and
Channel Functional Need distributions to a
geographically distributed multi-functional resource
base.
o Demonstrate the capability to add Single Point Of
Contact (SPOC) routing. With SPOC an individual is
designated at the preferred contact for a customer.
Calls from the customer will be routed to the
specified individual.
o Demonstrate the viability of user work location
portability. User work location portability allows a
user to work from any location with an IWS
workstation served off ISDN and a business line
telephone.
o Estimate at [ ] accuracy level, the cost for
deployment of these capabilities by per [ ]
costs with [ ] considerations and for full
deployment across the [ ]. It is not
anticipated that the ISBR will be utilized beyond
the [ ] individuals level for any given channel or
function.
ROUTING ENGINE
o Specific Routing Engine modules that CGI is responsible
for include:
7
<PAGE> 9
o FES&R INTERFACE SERVER MODULE - this module handles
FES&R Server call routing requests from the VRU
Interface Client Module.
o CALL CONTROL MANAGER (ROUTING ENGINE) - this module
handles an individual call, from the receipt of the
new call request until a routing message is returned
for the call. Enhanced routing capabilities will
[ ], [ ], [
] and [ ] requests.
o ACD DATA FEED MANAGER - this module receives
periodic ACD queue status data feeds from the MIS
nodes.
o MARKET PROFILE LOADER - this module accepts the
extract file from the [ ] Database, parses
the [ ] associated with each [
] into the appropriate [ ], applies
the [ ] to [ ] and [ ] the
[ ] to a [ ] [ ] and a
particular [ ] for [ ], and
loads the [ ] table which associates each
[ ] with the appropriate [
] functional group for every possible
[ ] [ ] per application. This module may also
load the [ ] data associated with each
[ ] into the FES&R database if
required for reporting.
o * ACCOUNT ACTIVITY LOADER (AA): [ ],
identified by a [ ] number, at times
have activities associated with them. These
activities include [ ],
and [ ]. The [ ] Engine will
access and utilize [ ] activity in determining a
[ ] for a call.
o * [ ] CONDITIONS LOADER (PC): [ ]
conditions are associated with individual [ ]
[ ]. These originate when a customer initiates
multiple transactions (calls) of the same type in a
given time period. The routing engine will use
business rules that will indicate the routing for a
call when a [ ] condition for a customer
exists.
"*" THESE ROLES AND RESPONSIBILITIES WILL BE
ADDRESSED IF TIME PERMITS IN ACCORDANCE WITH THE
PROJECT SCHEDULE AND IF ALL REQUIRED RESOURCES ARE
AVAILABLE. ALTHOUGH IT IS ASSUMED THE LOAD BALANCE
AND VOICE OVER DATA DELIVERABLES ARE THE PRIMARY
RESPONSIBILITY, IF TIME AND RESOURCES ARE AVAILABLE
DURING THE CONTRACT PERIOD, THESE AREAS WILL BE
PRIORITIZED BY U S WEST AND CGI EFFORTS WILL BE
DIRECTED TOWARD THEM.
8
<PAGE> 10
o CGI will be responsible for the detailed design,
development, test (unit test and component integration
test), documentation, and delivery of the
Verification / Validation Utilities. The five specific
utilities that CGI will be responsible for include:
o * RULE VALIDATION - this utility will validate both the
[ ] rules and the [ ] rules to
test for validity, prioritization, exclusiveness, and
execution hit rate. The valid range, relational
operators, and combinations of all attributes found in
if-condition [ ] will be checked.
o * [ ] ([ ]) ANALYSIS - this utility
will provide a summary picture to the [ ] that
combines data from several database tables into one
report that lists the [ ] used and their selection
criteria. This will provide the end user with a
[ ] from result to [ ].
o * ACD GROUP VALIDATION - this utility will perform an
analysis of ACD Group-related data; and provide checks
for ACD Group definition completeness and provide reports
on ACD Group utilization. This utility will also validate
routing alternative lists in several ways.
o * DATA COMPLETENESS CHECKS - this utility will be built
to run as a part of the installation or maintenance of
the database. The scripts will run completeness checks
for such items as required minimal data in reference
tables and required minimal data in end-user populated
tables. More complicated completeness checks could
include: verification that each routing [ ] has a routing
alternative list defined for each reference location,
verification that each non-remote ACD group have a
primary and alternate resource selection rule,
verification that each channel functional need assignment
map to a valid (effective) [ ], and verification that
each call reason map to a valid default [ ].
o * INFORMATION REQUEST (PING-PONG) VALIDATION - this
utility will ensure that there is no possibility of
looping back with the same voice script being played
multiple times to the calling customer. This utility will
also monitor the call logs for ping-pong requests and
provide a report to the end-users.
"*" THESE ROLES AND RESPONSIBILITIES WILL BE ADDRESSED IF
TIME PERMITS IN ACCORDANCE WITH THE PROJECT SCHEDULE AND
IF ALL REQUIRED RESOURCES ARE AVAILABLE. ALTHOUGH IT IS
ASSUMED THE LOAD BALANCE AND VOICE OVER DATA DELIVERABLES
ARE THE
9
<PAGE> 11
PRIMARY RESPONSIBILITY, IF TIME AND RESOURCES ARE
AVAILABLE DURING THE CONTRACT PERIOD, THESE AREAS WILL BE
PRIORITIZED BY U S WEST AND CGI EFFORTS WILL BE DIRECTED
TOWARD THEM.
o CGI will be responsible for transferring the technology for the
Routing Engine and the Verification/Validation Utilities over to
US WEST.
o CGI will be responsible for the engineering management of the
CGI resources and delivery management of the CGI Deliverables.
o CGI will be responsible for status reporting to U S WEST and
participating in status meetings.
o CGI will be responsible for system support (problem tracking and
resolution) during the integration testing, the system testing,
the production and user acceptance testing, and the deployment
tasks.
U S WEST ROLES AND RESPONSIBILITIES(1)
o U S WEST will be responsible either directly or indirectly if
required (from outside vendors) for the design, development,
testing, integration, documentation and deployment of all other
modules, including but not limited to:
o AT&T ACD/MIS Feed
o VRU Hardware Upgrades
o Data Models - Logical and Physical
o Data Extract Programs for:
o [ ]
o [ ]
o Promotions
o [ ]
o Repair
o Data Batch Load Programs/Conversion Programs for:
o [ ]
o Promotions
o [ ]
o Repair
o Setup and population of the databases including:
o the system test database
- --------
(1) Some of the tasks involved in delivering the U S WEST Responsibilities may
be assigned to CGI in other Development Agreements, but are listed here to
clearly indicate that they are not in the scope of this Agreement.
10
<PAGE> 12
o the production test database
o the production database
o U S WEST will be responsible for ordering, installing, and
making available the Development Environment (including HP and
Sequent File Servers), the Test Environments ( unit, integration,
system, and production test environments), and the Production
Environment in a timely manner.
o U S WEST will assume overall project management responsibility.
o U S WEST will be responsible for the Deployment Strategy and
Deployment Plan.
o U S WEST will be responsible for the Operational Impact Analysis.
o U S WEST will be responsible for defining the Change Control
Methodology.
o U S WEST will be responsible for defining the Call Flow
Definitions and the Current/New Process Definitions.
o U S WEST will be responsible for porting the existing VRU
Applications to the new platforms.
o U S WEST will be responsible for developing the Communications
Plan.
o U S WEST will be responsible for developing the Technical Trial
Plan.
o U S WEST will be responsible for scope and expectation setting
with the Clients.
o U S WEST will provide Subject Matter Experts (SMEs) for the CGI
design and development efforts, including expertise on tuning and
programming on the Sequent Platform, as well as Call Routing
Expertise.
o U S WEST will be responsible for the move of the Development
Code to the Test and Production Hosts.
o U S WEST will be responsible for the management and
implementation of the System and Production Testing Processes.
o U S WEST will be responsible for the management and
implementation of the Training Program for Call Handling,
including both end-user and SYAD training.
o U S WEST will be responsible for establishing the development,
test, and demonstration environment(s), including a VRU, a Lucent
ACD, a Northern Telecom ACD, a FES&R Server, a Voice Over Data
Prototype Server, an IWS Server, and several CCE terminals and
phone sets.
o U S WEST will facilitate Carnegie Group's access to technical
experts from Lucent and Northern Telecom.
11
<PAGE> 13
o U S WEST will facilitate Carnegie Group's access to the internal
IWS group, for integration of the Voice Over Data Pilot with the
IWS Server or reasonable facsimile.
o U S WEST will provide realistic test data and test cases for
demonstrating the Voice Over Data Pilot.
o U S WEST will arrange and coordinate the necessary demonstration
sessions within U S WEST.
o U S WEST will facilitate CGI Access to legacy system experts.
JOINT CGI AND U S WEST ROLES AND RESPONSIBILITIES
o U S WEST will provide engineering resources per the project
plan. CGI will manage the assigned resources.
o CGI will share the responsibility of managing the Clients
expectations in all meetings by presenting perceived changes in
direction or scope to the Call Handling Project Manager.
o CGI will share the responsibility of establishing Acceptance
Criteria and Acceptance Test Plans for the Routing Engine and the
overall system.
o CGI will share the responsibility for developing the System and
Production Test Plans.
o CGI will share the responsibility for producing the System
Administration Procedures and Documentation, specifically for the
Routing Engine.
o CGI will share the responsibility of installing all hardware and
software for the Routing Engine in all Environments.
o CGI will share the responsibility of training the "trainers" on
the System Administration Functions for the Routing Engine.
o CGI will share the responsibility of performance modeling and
tuning of the Routing Engine.
o CGI will share the responsibility of managing the Clients
expectations in all meetings by presenting perceived changes in
direction or scope to the Call Handling Project Manager.
o CGI will share the responsibility for developing the prototype
test and demonstration plan.
o CGI will share the responsibility for detailed design, code, test
and demonstration of Voice Over Data Pilot.
o CGI will share the responsibility for the design, development,
testing, integration, documentation and deployment of
additional modules, including but not limited to:
o AT&T VRU Interface
12
<PAGE> 14
o AT&T ACD Upgrades-TN to ACD Set
o VRU Scripting
o CGI will share the responsibility of setup and population of the
databases including:
o the development database
o the unit test database
o the integration test database
o CGI will share the responsibility for maintenance and support of
the Routing Engine and the Verification / Validation Utilities.
13
<PAGE> 15
EXHIBIT 2
PROJECTED COST
The total cost of the work to be performed will be $[ ] based on
estimated time and materials. No travel is anticipated. Should travel become a
necessity for the project, U S WEST agrees to pay CGI travel expenses for all
pre-approved trips.
It is planned that U S WEST will provide the majority of the platforms and
software for the project work environment and CGI will work at the U S WEST
site. Because this reflects a cost savings benefit to CGI, a []% Computer &
Facilities discount is included in the project costs. Work requiring platforms
and software outside of this environment will be requested by U S WEST. It is
planned that U S WEST will provide availability to the nonstandard items to CGI
for the duration of the project should any be required.
U S WEST may, at its discretion, close the project or the involvement of CGI
resources by providing a written notice to the CGI Program Manager. If such an
eventuality occurs, the respective resources will be given a ramp down period of
[ ] weeks to find other work. Upon completion of the [ ] week ramp down
period, US WEST will be obligated to CGI for the time and materials expended
up to and including the [ ] week ramp down.
Estimated costs for the project are provided below. Note that the Alliance,
Volume, and Facilities discounts are subtracted from the standard time and
material costs. The Volume discount for this Agreement considers the project as
a whole and applies the costs from previously signed Development Agreement(s)
with this Agreement when calculating Volume discount.
<TABLE>
<S> <C>
Total Time and Materials Costs $[ ]
Less []% Alliance Discount -[ ]
Less []% Volume Discount -[ ]
Less []% Computer Facilities Discount -[ ]
Total Contract Engineering $[ ]
</TABLE>
14
<PAGE> 16
Additionally, we are providing the estimated hours by category:
<TABLE>
<CAPTION>
CATEGORY EST. 96 HOURS
<S> <C>
Director [ ]
Manager [ ]
Sr. Engineer 2 [ ]
Sr. Engineer 1 [ ]
Engineer [ ]
Associate Engineer [ ]
- -----------------------------------------------------
CGI Total Hours [ ]
</TABLE>
15
<PAGE> 17
EXHIBIT 3
SCHEDULE AND STATEMENT OF WORK
The following table summarizes the CGI Tasks, Schedule and Deliverables that
are covered under this agreement.
<TABLE>
<CAPTION>
- -------------------------------------------------- ------------- ---------------- -----------------------------------
CGI TASKS: Start Finish CGI Deliverables
- -------------------------------------------------- ------------- ---------------- -----------------------------------
SUMMER MAINT. RELEASE
- -------------------------------------------------- ------------- ---------------- -----------------------------------
<S> <C> <C> <C>
User Acceptance Testing and Deployment Support 07/1/96 07/12/96 Support includes Production
Est. Cost Builds, Install Software,
$[ ] Training, Load Balance Rollout
and support for Load Balance
Deployment.
- -------------------------------------------------- ------------- ---------------- -----------------------------------
LOAD BALANCE
- -------------------------------------------------- ------------- ---------------- -----------------------------------
Design/prototype 7/01/96 7/26/96 Design activities will include
Est. Cost prototyping to minimize risks,
$[ ] validate design concepts, test
performance
- -------------------------------------------------- ------------- ---------------- -----------------------------------
Construction 7/29/96 9/6/96 Software development
Est. Cost
$[ ]
- -------------------------------------------------- ------------- ---------------- -----------------------------------
Integration Testing 9/9/96 9/27/96 Testing Support
Est. Cost
$[ ]
- -------------------------------------------------- ------------- ---------------- -----------------------------------
System Testing 9/30/96 10/25/96 Testing Support
Est. Cost
$[ ]
- -------------------------------------------------- ------------- ---------------- -----------------------------------
User Acceptance Testing and Deployment Support 10/28/96 12/31/96 Support includes Production
Builds, Install Software,
Est. Cost Training, Load Balance Rollout
$[ ] and support for Load Balance
Deployment.
- -------------------------------------------------- ------------- ---------------- -----------------------------------
Production Maintenance and On-going Support 7/1/96 12/31/96 Maintenance & Support includes:
Est. Cost Bug Tracking and Resolution,
$[ ] Emergency Builds,
Installation Support
- -------------------------------------------------- ------------- ---------------- -----------------------------------
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
- -------------------------------------------------- ------------- ---------------- -----------------------------------
CGI TASKS: Start Finish CGI Deliverables
- -------------------------------------------------- ------------- ---------------- -----------------------------------
VOICE OVER DATA
- -------------------------------------------------- ------------- ---------------- -----------------------------------
<S> <C> <C> <C>
Develop Functional Specification 7/1/96 7/19/96 Functional Specification
Est. Cost
$[ ]
- -------------------------------------------------- ------------- ---------------- -----------------------------------
Develop Project Plan 7/22/96 7/26/96 Project Plan
Est. Cost
$[ ]
- -------------------------------------------------- ------------- ---------------- -----------------------------------
Project Management/Software Engineering 7/1/96 12/31/96 Voice Over Data project
Est. Cost management and dedicated software
$[ ] engineering support
- -------------------------------------------------- ------------- ---------------- -----------------------------------
Project End
- -------------------------------------------------- ------------- ---------------- -----------------------------------
</TABLE>
17
<PAGE> 19
The following assumptions/dependencies were assumed in creating the above Work
Plans/Schedules and changes in the assumptions/dependencies may effect the
schedule, costs and deliverables listed in this agreement. CGI, when providing
their monthly project status reports, will identify issues and jeopardies that
are being caused by any of the following assumption/dependencies being
violated, and jeopardies will indicate that, unless the situation is resolved,
a change order to this agreement will have to be issued because of the
schedule/cost impacts.
ASSUMPTIONS/DEPENDENCIES - LOAD BALANCE
1. The Development Environment: Sequent & HP machines, user ids, directory
structure, SCM tools, database structures and DDL, some data population,
desks, terminals, etc., must remain stable and available through out the
development process.
2. Other modules/components not being developed/purchased by CGI must be in
place and configured by September 9, 1996, for the start date for the
Integration Testing. These include, but are not limited to: U S WEST VRU
Scripting, the Physical Integration U S WEST Test Database with the
Routing tables populated integration with all SYAD tool sets, and new
voice scripts. It is assumed that Integration Testing will be done using
the Development Environment.
3. The system can not be released to System Test until it passes the
Integration Test (with zero critical problems) and it can not be released
to Production without first passing System Test and the User Acceptance
Testing.
4. User Acceptance Testing takes place in the System Test Environment. The
development of the User Acceptance Test Plan and Criteria are the
responsibility of U S WEST and the Clients.
5. The System Test Environment must be established and made available by U S
WEST by September 27, 1996. Establishment of the Environment is the
responsibility of the U S WEST System Test Group.
18
<PAGE> 20
6. Test Plans, Environments, Scenarios and Test Data must be identified by
U S WEST and in place by the start of the Integration (9/9/96), User
Acceptance (10/28/96), and System Test (9/30/96) Phases. The Test Data and
Scenarios are the responsibility of the U S WEST Clients but will be
shared by CGI. The System Test Plan is the responsibility of the U S WEST
System Test Group.
7. The dates for the final production builds for Load Balance is dependent on
the dates that the U S WEST Project Manager sets for the start of each
phases deployment, which may be sometime after the software has been
accepted. CGI assumes that this date will be within two weeks after the
software is accepted.
8. Additional, specific CGI assumptions include:
a) The detailed design and prototyping tasks need to be completed before
the programming and unit testing tasks can begin.
b) Formal technology transfer from CGI to U S WEST will be done in
parallel to system and user acceptance testing and production
support for the Releases.
9. The Customer Access Experience Scripts, if applicable, and associating
routing data need to be specified for integration with the routing engine
modules.
10. * The Account Activity Module is dependent upon extracts from Legacy
Systems. [ ]
"*" THESE ROLES AND RESPONSIBILITIES WILL BE ADDRESSED IF TIME
PERMITS IN ACCORDANCE WITH THE PROJECT SCHEDULE AND IF ALL REQUIRED
RESOURCES ARE AVAILABLE. ALTHOUGH IT IS ASSUMED THE LOAD BALANCE AND
VOICE OVER DATA DELIVERABLES ARE THE PRIMARY RESPONSIBILITY, IF TIME
AND RESOURCES ARE AVAILABLE DURING THE CONTRACT PERIOD, THESE AREAS
WILL BE PRIORITIZED BY U S WEST AND CGI EFFORTS WILL BE DIRECTED
TOWARD THEM.
ASSUMPTIONS/DEPENDENCIES - VOICE OVER DATA
1. The existing prototype runs under the assumption that only one window is
required that gets refreshed when the CCE goes into the ready state on
their phone set and receives a new call. Upon receiving a new call, the
window refreshes and displays the customer contact information. For the
purposes of the Voice Over Data pilot, these same assumptions will remain
the same.
2. Lucent (AT&T) must provide technical expertise on how the LINK II & III
log stream can be passed to the Sun Sparc 1000 and what it contains.
19
<PAGE> 21
3. Northern Telecom must provide technical expertise on how the Compucall
log stream can be passed to the Sun Sparc 1000 and what it contains.
4. U S WEST must provide the development, test, and demonstration environment
to build the Voice Over Data pilot. CGI assumes that only one environment
will be needed.
5. U S WEST must provide the existing prototype software, so that it can be
ported (if necessary) and extended to demonstrate more complete
functionality.
20
<PAGE> 22
EXHIBIT 4
DELIVERABLES
The deliverables covered under this agreement are classified as Licensee
Specific Technology. It is not intended that any new Generic Research
Technology will be created in the course of this project.
The following are the deliverables covered under this agreement:
LOAD BALANCE
SOFTWARE
o Routing Engine & SYAD Toolset Software - System Test Build
o Routing Engine & SYAD Toolset Software - User Acceptance Build
o Routing Engine & SYAD Toolset Software - Production Build
o Routing Engine & SYAD Toolset Software - Emergency Builds (if
required)
SERVICES AND SUPPORT
o Client Demonstration
o Unit Testing
o Integration Testing
o Integration Testing Support
o System Testing Support
o User Acceptance Testing Support
o Installation Support
o System Administration Training Support
o System Support (Problem Tracking & Resolution - Bug Fixes)
o Technology Transfer to U S WEST
o Operational Support
DOCUMENTATION
o Functional Specification
o Input/Review of System Admin Guide for Routing Engine
o Unit/Component Integration Test Plan for Routing Engine
o Input/Review to User Acceptance Test Plan
o Input/Review to System Test Plan
VOICE OVER DATA
21
<PAGE> 23
SERVICES AND SUPPORT
o Project Management/Software Engineering
DOCUMENTATION
o Functional Specification
o Project Plan
CGI will deliver one copy of each Deliverable to the appropriate U S WEST
Project Manager along with a letter to be mutually signed by the parties,
acknowledging delivery, receipt and acceptance of the Deliverable. If U S WEST
does not sign and return the letter or provide a written list of the items that
are not in compliance with the project specifications within ten (10) business
days after delivery, then the Deliverable shall be deemed accepted.
In addition, CGI will provide U S WEST with status reports including tasks
completed/delivered, issues (yellow status), and jeopardies (red status), as
well as the hours expended by month and to date on specific task breakdowns. A
monthly meeting between CGI and U S WEST will be held to review the project
status and discuss any proposed changes, including functionality/scope changes
that would necessitate a change order being written against this agreement.
22
<PAGE> 1
Exhibit 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
------------------------ -----------------------
<S> <C> <C> <C> <C>
Weighted Average Common and
Common Equivalent Shares:
Weighted Average Common Stock
Outstanding During the Period 6,206,242 4,758,492 6,231,328 4,757,112
Weighted Average Common Equivalent:
Shares 764,834 833,195 888,756 834,575
---------- ---------- ---------- ----------
6,971,076 5,591,687 7,120,084 5,591,687
---------- ---------- ---------- ----------
Net Income $ 409,508 $ 549,586 $1,213,516 $1,679,125
========== ========== ========== ==========
Net Income Per Common Share $ 0.06 $ 0.10 $ 0.17 $ 0.30
========== ========== ========== ==========
</TABLE>
FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
------------------------ -----------------------
<S> <C> <C> <C> <C>
Weighted Average Common and
Common Equivalent Shares:
Weighted Average Common Stock
Outstanding During the Period 6,206,242 4,758,492 6,231,328 4,757,112
Weighted Average Common Equivalent:
Shares 854,512 833,195 883,533 834,575
---------- ---------- ---------- ----------
7,060,754 5,591,687 7,114,861 5,591,687
---------- ---------- ---------- ----------
Net Income $ 409,508 $ 549,586 $1,213,516 $1,679,125
========== ========== ========== ==========
Net Income Per Common Share $ 0.06 $ 0.10 $ 0.17 $ 0.30
========== ========== ========== ==========
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001001188
<NAME> CARNEGIE GROUP, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,195,872
<SECURITIES> 0
<RECEIVABLES> 6,806,034
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,217,322
<PP&E> 2,054,367
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,686,804
<CURRENT-LIABILITIES> 4,314,154
<BONDS> 0
0
0
<COMMON> 64,893
<OTHER-SE> 21,307,757
<TOTAL-LIABILITY-AND-EQUITY> 25,686,804
<SALES> 1,061,112
<TOTAL-REVENUES> 21,495,970
<CGS> 13,346,764
<TOTAL-COSTS> 6,636,479
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,683
<INCOME-PRETAX> 1,971,474
<INCOME-TAX> 757,958
<INCOME-CONTINUING> 1,213,516
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,213,516
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0
</TABLE>
