RedGage

As you probably know, Yahoo! and Google entered a partnership, whereby Yahoo will be able to run ads supplied by Google alongside Yahoo!'s search results and on some of its web properties in the United States and Canada.

The agreement is set for four years and Yahoo! has option to extend the agreement for up to two additional periods of three years each.

But Google gave itself an out as well. In a filing with the SEC, the escape clause was detailed in paragraph 4 of Item 1.01:

Either party may terminate the Services Agreement upon notice to the other party (i) in the event of an uncured material breach of the Services Agreement by the other party, subject to dispute resolution procedures and certain limitations; (ii) in the event of a Change in Control (as defined below) involving either party; (iii) 120 days after the Effective Date in order to avoid or end a lawsuit or similar action filed on competition law grounds if the terminating party has taken all actions required under the Services Agreement with respect to regulatory matters and defending such action is not commercially reasonable for that party (taking all factors into account); or (iv) if a court of competent jurisdiction has entered an order enjoining the implementation of the Services Agreement. In addition, Google may terminate the Services Agreement if, after ten months after the Services are first launched, and each month thereafter, the gross revenues recognized by Google under the Services Agreement are less than $83,333,333 for the four prior calendar months.

What does all this mean? Google is guaranteed gross revenue of $83 million for each four month period or it can bail. And the four month window keeps rolling forward as time goes on.

If the agreement is terminated by a "Change in Control" within the first 24 months - except in the case of Microsoft (is Yahoo! still hoping for a deal?) - Yahoo! will owe Google $250,000,000, minus one-half the net revenue received by Google during the time period.

Still more complications (these provisions are all really complex). Google can escape the deal unless:

Yahoo! controls at least 50% of the company's voting power. In any transaction between Yahoo! and Microsoft, Time Warner or News Corp., Yahoo must retain at least 65% of voting power.

In the case of a "beneficial" ownership change, where a party does not own title but controls certain rights, the filing states Yahoo! must retain 35% of voting control if the deal involves Time-Warner or News Corp. or 15% if Microsoft is involved.

Looks like Google has every angle covered. Merrill Lynch feels that Google will net $0.15 a share extra due to this deal, and Google's stock rose $18.65, or 3.4%, to $571.51 on Friday.