Search Deal Details: 400 Yahoo! employees over to Microsoft

4-Aug-2009Entry into a Material Definitive Agreement
Item 1.01. Entry into a Material Definitive Agreement.
Binding Letter Agreement – General Terms

On July 29, 2009, Yahoo! Inc., a Delaware corporation ("Yahoo!"), and Microsoft
Corporation, a Washington corporation ("Microsoft"), entered into a binding
letter agreement (the "Letter Agreement"), pursuant to which the parties will
negotiate and execute a Search and Advertising Services and Sales Agreement and
a License Agreement (the "Definitive Agreements"), each reflecting and
supplementing the provisions of such Definitive Agreements as set forth in
annexes to the Letter Agreement, the material provisions of which are summarized
below.

Negotiation and Execution of the Definitive Agreements

Pursuant to the terms of the Letter Agreement, the parties will negotiate and
execute the Definitive Agreements as soon as practicable but in any event by
October 27, 2009 (the "Negotiation Period"). If the Definitive Agreements are
not executed during the Negotiation Period, the parties will submit any disputes
regarding the final terms of the Definitive Agreements to an arbitration panel.
The arbitration panel will render its decision based upon the terms of the
Letter Agreement, the nature of the commercial relationship to be created
thereunder, and the submissions and presentations of the parties at a hearing
conducted by the arbitration panel. The arbitration panel will render a decision
by choosing the final proposed contractual language of either Microsoft or
Yahoo! without modification, subject to a final review process to resolve any
potential inconsistencies. The decision of the arbitration panel will be binding
on the parties, and the parties agree to execute Definitive Agreements as
determined by the arbitration panel within three (3) days of the receipt of the
arbitration panel’s final decision.

Regulatory Review

Microsoft and Yahoo! agree to use their respective best efforts to cooperate in
connection with all necessary regulatory filings. In addition, as soon as
practicable after July 29, 2009, Microsoft and Yahoo! will make all filings
required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as amended
(the "HSR Act") and by any applicable foreign antitrust laws. Microsoft further
agrees to use its best efforts to obtain any consents, clearances or approvals
required under or in connection with the HSR Act or any other applicable
antitrust law, including offering, negotiating or committing to any restrictions
on the activities of Microsoft and its subsidiaries in search and paid search
and contesting and defending any threatened or pending litigation, investigation
or proceeding under applicable antitrust laws.

Conditions to Commencement and Termination Prior to Commencement

The obligations of each party to commence performance of their obligations under
the Definitive Agreements (the "Commencement Date") are only subject to


(a) termination or expiration of the HSR Act waiting period and receipt of
certain required foreign antitrust approvals and (b) the accuracy of the party’s
representations and warranties in the Letter Agreement as of the

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time immediately prior to the Commencement Date and performance by the other
party of its obligations required to be performed by it in connection with the
Letter Agreement and the Definitive Agreements at or prior to the Commencement
Date, except where the failure of such representations and warranties to be true
and accurate or the failure of such performance would not, individually or in
the aggregate, have a material adverse effect with respect to such party.

Prior to the Commencement Date, the Letter Agreement and Definitive Agreements
may be terminated only by (a) mutual consent, (b) if a breach renders a
condition incapable of being satisfied by the Termination Date (as defined
below), or (c) if the conditions to commencement have not been satisfied by
July 29, 2010 (the "Termination Date"); provided that Yahoo!, in its sole
discretion, has the right to extend the Termination Date by six (6) months if
the required antitrust approvals have not yet been obtained.

Search and Advertising Services and Sales Agreement

Pursuant to the Letter Agreement, the parties have agreed to enter into a global
Search and Advertising Services and Sales Agreement ("Search Agreement"), which
will include, among other provisions, the terms summarized below.

General Services

For a period of ten (10) years beginning on the Commencement Date (the "Term"),
Microsoft will be Yahoo!’s exclusive technology provider for algorithmic and
paid search services and Microsoft will provide contextual advertising to Yahoo!
on a non-exclusive basis. Yahoo! will be the exclusive worldwide relationship
sales force for Yahoo!’s and Microsoft’s premium search advertisers.

The services provided by Microsoft under the Search Agreement will be provided
on all web sites, applications and other online digital properties owned or
operated by or on behalf of (a) Yahoo!, Yahoo! subsidiaries and Yahoo! joint
venture relationships, as well as on software applications developed or
distributed by Yahoo! or Yahoo! subsidiaries that provide access to or enable
algorithmic search services or paid search services ("Yahoo! Properties") and


(b) Yahoo! Syndication Partners (as defined below), as well as software
applications developed or distributed by Yahoo!’s Syndication Partners that
provide access to or enable algorithmic search services or paid search services
from Yahoo! ("Syndication Properties"). "Syndication Partner" means a third
party with whom Yahoo! has contracted to provide algorithmic search services or
paid search services.

Subject to certain specified restrictions, Yahoo! will have full flexibility
with respect to the user experience, content and look and feel on all of its web
pages, and will also be entitled to use the paid search services and algorithmic
search services for non-internet search queries with minimal restriction.

The scope of the services to be provided by Microsoft under the Search Agreement
are limited to web sites, applications and other online digital properties
designed for use and consumption on personal computers. In addition, Yahoo! may
at its option elect to receive

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Microsoft’s mapping services and mobile search services. Yahoo! may implement
each of the mapping services and the mobile search services on a non-exclusive
or an exclusive basis. Yahoo! also has the option to work with Microsoft to
implement the services on other platforms. If Yahoo! elects to receive services
for other platforms, it must receive such services on an exclusive basis.

Revenue Share Payments and Other Payments

During the first five years of the Term, Yahoo! will be entitled to receive 88%
of the net revenues generated from Microsoft’s services on Yahoo! Properties
(the "Revenue Share Rate"). Yahoo! will also be entitled to receive its share
(at the Revenue Share Rate) of the net revenues generated on Syndication
Properties after the Syndication Partner’s share of net revenues is deducted.
For new Syndication Properties during the Term, and for all Syndication
Properties after the first five years of the Term, Yahoo! will receive its share
(at the Revenue Share Rate) of the net revenues generated from Microsoft’s
services on Syndication Properties after the Syndication Partner’s share of net
revenues and certain Microsoft costs are deducted.

On the fifth anniversary of the Commencement Date, Microsoft will have the
option to terminate Yahoo!’s sales exclusivity for premium search advertisers.
If Microsoft exercises its option, the Revenue Share Rate will increase to 93%
for the remainder of the Term, unless Yahoo! exercises its option to retain its
sales exclusivity, in which case the Revenue Share Rate would be reduced to 83%
for the remainder of the Term. If Microsoft does not exercise such option, the
Revenue Share Rate will be 90% for the remainder of the Term.

Microsoft will also pay Yahoo! a payment of $50 million annually during the
first three (3) years of the Search Agreement. Yahoo! may use these payments to
partially cover transition and implementation costs not otherwise covered under
the Search Agreement.

Microsoft will provide in each country an 18-month guarantee for the gross
revenue per search (the "RPS") for Yahoo! Properties. The guarantee will be
based on the RPS average for the trailing 12-month period prior to the initial
implementation of paid search services in such country.

Termination Provisions

In addition to the termination rights described in the Letter Agreement above,
the Search Agreement may only be terminated as follows (each, a "Termination
Event"): (a) either party may terminate upon repeated material breaches of
material provisions of the Search Agreement such that it is unlikely that the
breaching party is willing or able to continue to perform its obligations under
the Search Agreement without continuing to materially breach it; (b) Yahoo! may
terminate if Microsoft attempts to exit the business of algorithmic search or
search monetization, either by ceasing to offer the services or by selling or
attempting to sell all or substantially all of either its algorithmic search
services business or paid search services business to an unaffiliated third
party; (c) Yahoo! may terminate the Search Agreement if the trailing 12-month
average of the RPS in the United States (the "U.S. RPS") of Yahoo! and
Microsoft’s combined queries falls below a specified percentage of Google Inc.’s
("Google") estimated RPS measured on a comparable basis or if the combined
Yahoo! and Microsoft query market share in the United States falls below a
specified percentage; (d) on the fifth anniversary of the Search Agreement, and
any time thereafter, Yahoo! has the right to terminate the Search Agreement if
the trailing 12-month average of

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Yahoo!’s U.S. RPS is less than a specified percentage of Google’s estimated RPS;
or (e) subject to exceptions, either party may terminate if a law, regulation or
order would have a significant, adverse impact on a primary aspect of such
party’s intended benefit of the Search Agreement.

If a Termination Event occurs in the United States, the entire Search Agreement
may be terminated. If a Termination Event does not occur in the United States a
party’s termination right is limited to the specific country or countries in
which the event occurs.

If Microsoft proposes or attempts to sell all or substantially all of either its
algorithmic search services business or paid search services business to an
unaffiliated third party, Yahoo! will have a right of first refusal and right of
last offer to purchase such businesses.

Service Level Agreements

The Search Agreement will provide (a) for service parity under which applicable
application programming interfaces ("Microsoft API") will be made available to
Yahoo! at full parity with that which is made available to Microsoft’s internal
teams; (b) for ranking and content parity under which Microsoft will provide the
same algorithmic and paid search results in the same order as would be provided
in response to the same inputs on web sites that are owned or operated by or for
Microsoft, its subsidiaries and its joint venture relationships ("Microsoft O&O
Properties") in a particular country, including any content that is included in
Microsoft’s algorithmic index; (c) for prioritization parity, under which Yahoo!
will have full visibility into Microsoft product roadmap and parity with
Microsoft’s internal teams in the product update prioritization process; and

(d) for advertising parity under which neither party will allow advertisers to
designate paid listings from Microsoft’s paid search or encourage advertisers to
designate paid listings from Microsoft’s contextual advertising services to be
displayed exclusively on Microsoft’s or Yahoo!’s respective results web pages.
Furthermore, Microsoft will not treat Yahoo! or Yahoo!’s Syndication Partners
less favorably than Microsoft and Microsoft’s partners in connection with its
delivery and operation of the services.

Microsoft will optimize the delivery of paid listings by evaluating performance
across all Microsoft O&O Properties and the Yahoo! Properties. The paid listings
provided by Microsoft for Yahoo! will be optimized at parity with Microsoft’s
optimization for Microsoft O&O Properties. Yahoo! may further optimize based on
its own desired implementation.

Yahoo! may, at its option, elect to have Microsoft deliver the algorithmic
search services and paid search services through a search results page hosted by
Microsoft (the "White Label Solution") on a country by country basis (if the
United States is also a White Label Solution country), instead of through the
Microsoft API. The White Label Solution will be in all material respects the
same as Microsoft’s search results pages. Yahoo! may substitute Yahoo!
applications or services for Microsoft applications or services within the White
Label Solution.

Data Provisions

Microsoft will provide Yahoo! all data it collects as a result of its
implementation of the services on Yahoo! Properties and Syndication Properties
and, subject to Yahoo!’s privacy

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policies and applicable law, Yahoo! may use such data without contractual
restriction in connection with its businesses. Microsoft will also use
commercially reasonable efforts to enable Yahoo! and its Syndication Partners to
obtain any other data that Yahoo! currently collects with respect to its own
algorithmic search services and paid search services. Microsoft may obtain and
use the data it collects as a result of its implementation of the services
(including any derivative information that results from this data) only for the
purpose of operating and enhancing the services and not for other Microsoft
products and services.

Transition and Implementation Plan

As promptly as practicable, Yahoo! and Microsoft will agree on a detailed
transition and implementation plan and schedule for implementing Microsoft’s
algorithmic search services and paid search services on all Yahoo! Properties
and Syndication Properties. The transition and implementation plan will be for a
period of no longer than 24 months from the Commencement Date, subject to an
extension for up to three additional months if the end of the 24-month period
ends during the fourth quarter of a calendar year. The parties intend that the
transition and implementation plan will be either set forth in a separate
transition services agreement or as part of the Search Agreement.

Following the Commencement Date, Microsoft will hire not less than 400 Yahoo!
employees (the "Transferred Employees") and will offer the Transferred Employees
market competitive compensation packages. In addition, Yahoo! and Microsoft will
mutually agree on a retention plan to be paid for by Microsoft to assist in
retaining the Transferred Employees and an additional 150 Yahoo! employees to be
mutually agreed upon between Microsoft and Yahoo! to assist with providing the
transition services.

License Agreement

Pursuant to the Letter Agreement, the parties have agreed to enter into a
License Agreement (the "License Agreement"), which will include, among other
provisions, the terms summarized below.

Exclusive Technology License

During the Term (as defined in the summary of the Search Agreement above),
Yahoo! will grant to Microsoft a worldwide license (the "Technology License")
under copyrights and trade secrets relating to specified Yahoo! algorithmic and
paid search technology for Microsoft to use in connection with providing
specified algorithmic search, paid search and contextual advertising services
(the "Field of Use"). The Technology License will be exclusive (even as to
Yahoo!) as to certain algorithmic search and paid search services in the Field
of Use. Upon termination or expiration of the Search Agreement, the Technology
License will remain in effect but will become non-exclusive.

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Limited Non-Exclusive Patent Cross License

During the Term, Yahoo! will grant to Microsoft a worldwide, non-exclusive
limited patent license solely for Microsoft to provide services in the Field of
Use to Yahoo!; and Microsoft will grant to Yahoo! a worldwide, non-exclusive
limited patent license for Yahoo! to use and implement the services provided by
Microsoft, as contemplated by the Search Agreement (the "Limited Patent Cross
License"). The Limited Patent Cross License terminates upon the termination of
the Search Agreement.

Patent License Option

Microsoft will also have an option to obtain from Yahoo! a worldwide,
non-exclusive license under Yahoo!’s patents for Microsoft to provide online
services in the Field of Use both with Microsoft’s owned and operated websites
and to third parties ("Patent License"). The option will expire upon the earlier
of July 29, 2011 and the date six (6) months following the Commencement Date.
Should Microsoft exercise its option to obtain the Patent License, Microsoft
will pay for such Patent License at a specified discount from fair market value.
Such Patent License will also terminate upon termination of the Search
Agreement.

Yahoo! may terminate the Patent License if Microsoft files an infringement
action against Yahoo!, Yahoo! subsidiaries or Yahoo! joint venture
relationships. Termination of the Patent License does not affect Microsoft’s
obligations under the Search Agreement.

Assignment and Transfer

Microsoft may not assign the License Agreement without Yahoo!’s
permission. Assignment or transfer of the licensed technology will be subject to
the licenses. Neither party is prevented or restricted from licensing, selling
or otherwise disposing of any of its patent assets, and Microsoft’s option to
obtain the Patent License will not apply to any patents sold or otherwise
disposed of by Yahoo! prior to the exercise of the option.

[Source: Yahoo!]