He has an one year contract, with the possibility of a further two years extension.
Ross Brawn said in a interview with BBC Sport yesturday that it is a 3-year contract.
I see Mercedes Sauber GP failing, and Schumi returning to Ferrari, to replace Alonso in 2011 
You mean Mercedes GP Petronas, Sauber is a different team, which was BMW Sauber before.