Bankruptcy Judge OKs WorldCom EDS Contract

Under the ruling by Manhattan federal bankruptcy Judge Arthur J. Gonzalez, EDS will also recoup all $98.6 million it was owed by WorldCom, which is now calling itself MCI, when it filed for Chapter 11 bankruptcy protection last July.

As part of its restructuring, WorldCom moved its headquarters from Jackson, Miss., to Ashburn, Va., last month and is seeking to change its name to MCI.

The ruling represented another setback for Edward S. Weisfelner, the lawyer representing some dissatisfied creditors of MCI Communications Corp., a WorldCom unit, who had sought to block the amendment.

In his ruling, Judge Gonzalez noted that while WorldCom must make the nearly $100 million "cure" payment to resolve the EDS claim, WorldCom will save the entire amount "within the first twelve months of the amended contract due to favorable pricing adjustments."

WorldCom actually owed EDS $114 million under the Global Information Technology Services Agreement, or GITSA, when it filed for bankruptcy, but EDS agreed to reduce that figure to $98.7 million in December. The GITSA is an 11-year, $5 billion pact forged by the companies in 1999.

The contract, WorldCom said, must be approved by the judge immediately to ensure that it would get the full $83 million in savings during the first year.

As amended, WorldCom agreed to spend at least $600 million annually on EDS services over the next three years. That three-year period ends Jan. 31, 2006. But after that date, WorldCom will no longer be committed to a minimum level of spending.

Eliminating that minimum is a key provision, WorldCom said in court, because it gives the company flexibility in the future to seek another IT partner.

WorldCom actually owed EDS $114 million under the Global Information Technology Services Agreement, or GITSA, when it filed for bankruptcy, but EDS agreed to reduce that figure to $98.7 million in December. The GITSA is an 11-year, $5 billion pact forged by the companies in 1999.

The contract, WorldCom said, must be approved by the judge immediately to ensure that it would get the full $83 million in savings during the first year.

As amended, WorldCom agreed to spend at least $600 million annually on EDS services over the next three years. That three-year period ends Jan. 31, 2006. But after that date, WorldCom will no longer be committed to a minimum level of spending.

Eliminating that minimum is a key provision, WorldCom said in court, because it gives the company flexibility in the future to seek another IT partner.