-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UjRnnKNLsFTIhRVSN+t75nMKUVBhH2hEzeKPocxIBRdvo/FB65TqzXmgwkDg58T9 31q1K0FlYY32iHRH/rYAMA== 0000891618-97-003436.txt : 19970815 0000891618-97-003436.hdr.sgml : 19970815 ACCESSION NUMBER: 0000891618-97-003436 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIXAR \CA\ CENTRAL INDEX KEY: 0001002114 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 680086179 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26976 FILM NUMBER: 97660244 BUSINESS ADDRESS: STREET 1: 1001 WEST CUTTING BLVD CITY: RICHMOND STATE: CA ZIP: 94808 BUSINESS PHONE: 5102364000 MAIL ADDRESS: STREET 1: 1001 WEST CUTTING BLVD CITY: RICHMOND STATE: VA ZIP: 94804 10-Q 1 FORM 10-Q FOR PERIOD ENDING JUNE 30, 1997 1 \ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997. 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: 0-26976 PIXAR (Exact name of registrant as specified in its charter) California 68-0086179 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1001 West Cutting Boulevard, Richmond, California 94804 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (510) 236-4000 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 for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ( X ) No ( ) The number of shares outstanding of the registrant's Common Stock as of August 7, 1997 was 41,753,138 2 PART I -- FINANCIAL INFORMATION ITEM 1.FINANCIAL STATEMENTS PIXAR BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
June 30, December 31, 1997 1996 ------------ ------------ (Unaudited) ASSETS Current assets: Cash and short-term investments $ 178,779 $ 160,969 Trade and other accounts receivable, net 3,016 4,328 Capitalized film production costs, current portion 121 1,372 Prepaid expenses and other current assets 619 982 Net assets from discontinued operations (see Note 5) 297 1,469 ------------ ------------ Total current assets 182,832 169,120 Property and equipment, net 17,911 4,655 Capitalized film production costs, net of current portion 19,512 1,578 Other assets 129 1,588 ------------ ------------ Total assets $ 220,384 $ 176,941 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,717 $ 1,060 Income taxes payable 4,826 -- Film costs payable 7,500 -- Accrued liabilities 5,147 4,740 Unearned revenue 535 337 ------------ ------------ Total current liabilities 19,725 6,137 ------------ ------------ Commitments and contingencies Shareholders' equity: Preferred stock; no par value; 5,000,000 shares authorized and no shares issued and outstanding -- -- Common stock; no par value; 100,000,000 shares authorized and 41,464,542 shares issued and outstanding 202,699 187,308 Other adjustments (710) (1,097) Accumulated deficit (1,330) (15,407) ------------ ------------ Total shareholders' equity 200,659 170,804 ------------ ------------ Total liabilities and shareholders' equity $ 220,384 $ 176,941 ============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. -2- 3 PIXAR STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 -------- -------- -------- -------- Revenues: Software $ 1,060 $ 722 $ 2,478 $ 1,633 Animation services 269 799 269 1,584 Film 11,596 5,000 17,897 5,076 Patent licensing 1,451 396 1,599 6,891 -------- -------- -------- -------- Total revenues 14,376 6,917 22,243 15,184 -------- -------- -------- -------- Cost of revenues: Software 14 7 22 61 Animation services 174 785 174 1,501 Film 769 414 1,327 423 -------- -------- -------- -------- Total cost of revenues 957 1,206 1,523 1,985 -------- -------- -------- -------- Gross margin 13,419 5,711 20,720 13,199 -------- -------- -------- -------- Operating expenses: Research and development 1,427 1,209 2,508 2,310 Sales and marketing 353 600 605 1,019 General and administrative 1,026 1,068 2,253 2,056 -------- -------- -------- -------- Total operating expenses 2,806 2,877 5,366 5,385 -------- -------- -------- -------- Income from continuing operations 10,613 2,834 15,354 7,814 Other income, net 1,912 1,922 4,046 3,790 -------- -------- -------- -------- Income from continuing operations before income taxes 12,525 4,756 19,400 11,604 Income tax expense 3,596 239 5,246 580 -------- -------- -------- -------- Net income from continuing operations 8,929 4,517 14,154 11,024 -------- -------- -------- -------- Discontinued operations: Income (loss) from discontinued operations (see Note 5) -- 273 (77) 45 -------- -------- -------- -------- Net income $ 8,929 $ 4,790 $ 14,077 $ 11,069 ======== ======== ======== ======== Shares used in computing net income per share 48,020 47,002 47,553 47,028 ======== ======== ======== ======== Net income per share from continuing operations (see Note 2) $ 0.19 $ 0.09 $ 0.30 $ 0.24 -------- -------- -------- -------- Net income (loss) per share from discontinued operations (see Note 2) $ -- $ 0.01 $ -- $ -- -------- -------- -------- -------- Net income per share (see Note 2) $ 0.19 $ 0.10 $ 0.30 $ 0.24 ======== ======== ======== ========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. -3- 4 PIXAR STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Six Months Ended June 30, 1997 1996 -------- -------- Cash flows from operating activities: Net income $ 14,077 $ 11,069 Adjustments to reconcile net income to net cash provided by continuing operating activities: Discontinued operations 77 (45) Amortization of deferred compensation 365 704 Non-cash revenue attributable to film overbudget -- (2,324) Depreciation and amortization 887 251 Loss on disposition of property and equipment 423 -- Amortization of capitalized film production costs 1,327 423 Credits from patent license, net of expense items (1,491) (891) Changes in operating assets and liabilities: Trade and other accounts receivable 1,312 (3,385) Prepaid expenses and other current assets 450 (145) Accounts payable 657 (318) Income taxes payable 4,826 295 Accrued liabilities 407 41 Unearned revenue 259 366 -------- -------- Net cash provided by continuing operations 23,576 6,041 Net cash provided by discontinued operations 1,095 45 -------- -------- Net cash provided by operating activities 24,671 6,086 -------- -------- Cash flows from investing activities: Purchase of property and equipment (11,690) (276) Maturities of investments in short-term securities 56,422 42,032 Purchases of short-term securities, net of unrealized losses (56,276) (76,999) Capitalized film production costs (10,497) (475) Change in other assets (74) (374) -------- -------- Net cash used in investing activities (22,115) (36,092) -------- -------- Cash flows from financing activities: Net proceeds from issuance of common stock and warrants, net 14,885 -- Repayment of note payable to shareholder -- (2,373) Proceeds from exercised stock options 506 36 -------- -------- Net cash provided by (used in) financing activities 15,391 (2,337) -------- -------- Net increase (decrease) in cash and cash equivalents 17,947 (32,343) Cash and cash equivalents at beginning of period 44,648 97,286 -------- ======== Cash and cash equivalents at end of period $ 62,595 $ 64,943 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for income taxes $ 280 $ 305 ======== ======== Supplemental disclosure of non-cash investing and financing activities: Credits from patent license $ 1,599 $ 891 ======== ======== Film overbudget reductions $ -- $ 3,324 ======== ======== Non-cash film production costs capitalized $ 7,514 $ 27 ======== ======== Unrealized gain (loss) on investments $ (9) $ (150) ======== ========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. -4- 5 PIXAR NOTES TO FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of Pixar's financial condition, results of operations, and cash flows for the periods presented. These financial statements should be read in conjunction with the audited financial statements as of December 31, 1996 and 1995, and for each of the years in the three-year period ended December 31, 1996, including notes thereto, incorporated by reference into Pixar's Annual Report on Form 10-K for the year ended December 31, 1996. The results of operations for the three- and six-month periods ended June 30, 1997, are not necessarily indicative of the results expected for the current year or any other period. Certain amounts reported in previous periods have been reclassified to conform to the 1997 financial statement presentation. (2) NET INCOME PER SHARE Net income per share is computed using net income from continuing operations, and net income (loss) from discontinued operations, and is based on the weighted average number of shares of common stock outstanding and common equivalent shares from stock options (under the treasury stock method, if dilutive). The Financial Accounting Standards Board (FASB) recently issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. SFAS No. 128 requires the presentation of basic earnings per share (EPS) and, for companies with potentially dilutive securities, such as options and warrants, diluted EPS. SFAS No. 128 is effective for annual and interim periods ending after December 15, 1997. The Company expects basic EPS for profitable periods will be higher than primary EPS as presented in the accompanying financial statements and diluted EPS for profitable periods will not differ materially from primary EPS as presented in the accompanying financial statements. Computations for loss periods should not change significantly. (3) PATENT LICENSING ARRANGEMENTS In March 1996, Pixar delivered all rights to utilize certain technology underlying a patent license to Silicon Graphics, Inc. (SGI), and received a non-refundable fixed-fee payment of $6.0 million in cash and $5.0 million in the form of credits for products to be purchased from SGI by Pixar over four years. Following the release of the rights to utilize the patents to SGI, Pixar maintained no significant vendor obligations to the licensee; therefore, as of June 30, 1996, the Company recognized as revenue the fixed and determinable amounts of the $6.0 million cash payment received, plus $891,000 which represented that portion of the credits Pixar had used through June 30, 1996. For the six months ended June 30, 1997, revenue of $1.6 million was recognized representing credits used by Pixar during that period. Since March 1996, Pixar has used a total of $4.7 million worth of credits, with $270,000 of credits remaining which are expected to be used during 1997. -5- 6 (4) FEATURE FILM PRODUCTION AND CO-PRODUCTION AGREEMENT FEATURE FILM AGREEMENT In 1991, Pixar entered into a feature film agreement with Walt Disney Pictures, a wholly owned subsidiary of The Walt Disney Company (together with its subsidiaries and affiliates collectively referred to herein as "Disney") to develop and produce up to three computer animated feature films (the Feature Film Agreement). The first feature film, Toy Story, was released in November 1995. Under the Feature Film Agreement Pixar is entitled to receive compensation based on the revenue from the distribution of animated feature films and related products, and recognized revenues on Toy Story of $5.1 million and $17.9 million for the six months ended June 30, 1996 and 1997, respectively, for a total of $36.7 million since the film's release. Pixar incurred film production costs that were reimbursed by Disney, inclusive of salaries and overhead. All payments to Pixar from Disney for costs of feature film production were recorded as cost reimbursements; accordingly, no revenues were recorded for such reimbursements; rather, Pixar netted the reimbursements against the related costs. CO-PRODUCTION AGREEMENT On February 24, 1997, Pixar and Disney entered into a co-production agreement (Co-Production Agreement) which will now govern the second and third feature films planned under the Featue Film Agreement, three additional films, sequels, and other derivative works. The second and third feature films, and a made-for-home video sequel to Toy Story, were in production as of June 30, 1997. Under the Co-Production Agreement, Pixar, on an exclusive basis, will produce five computer animated feature-length theatrical motion pictures (the Pictures) for distribution by Disney over approximately the next ten years. Pixar and Disney will co-own and co-brand the Pictures and co-finance the production costs. Pixar and Disney will share equally in the profits of each Picture and any related merchandise and other ancillary products, after recovery of all marketing and distribution costs (which will be financed by Disney), a distribution fee paid to Disney and any other fees or costs, including participations provided to talent and the like. The Co-Production Agreement generally provides that Pixar will produce each Picture and Disney will control all decisions relating to marketing, promotion, publicity, advertising and distribution of each Picture. The first Picture under the Co-Production Agreement is A Bug's Life. The Co-Production Agreement also contemplates that with respect to interactive media products and other derivative works related to the Pictures, Pixar will have the opportunity to co-finance and produce such products or to earn passive royalties on such products. (5) DISCONTINUED OPERATIONS Pixar determined in March 1997 to discontinue its business of producing CD-ROM and other interactive products and redirect the approximately 60 employees in this division to film and related projects within Pixar. In the three months ended March 31, 1997, the net loss from the CD-ROM division was $77,000. In the three months ended June 30, 1997, no gain or loss has been recorded for the disposal of the CD-ROM division as the Company anticipates future royalty income will exceed future expenses. In the six months ended June 30, 1996 the division produced net income of $45,000. Net assets of the discontinued operations of $297,000 and $1.5 million at June 30, 1997 and December 31, 1996, respectively, primarily consist of reimbursements and royalties receivable from Disney. (6) EQUITY TRANSACTIONS In connection with the Co-Production Agreement, Pixar sold to Disney 1,000,000 shares of the Company's Common Stock which Disney has agreed to hold for at least three years. Pixar also granted two warrants to Disney: one warrant to purchase 750,000 shares of Common Stock at an exercise price of $20 per share, and another warrant to purchase 750,000 shares of Common Stock at $25 per share. Pixar granted certain registration rights for the shares issuable upon exercise of the warrants. Gross proceeds on the transaction were $15.0 million. -6- 7 (7) RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income". This Statement establishes standards for reporting and displaying comprehensive income and its components in the financial statements. It does not, however, require a specific format for the statement, but requires the Company to display an amount representing total comprehensive income for the period in that financial statement. The Company is in the process of determining its preferred format. This Statement is effective for fiscal years beginning after December 15, 1997. Also, in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Statement establishes standards for the manner in which public business enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. This Statement is effective for financial statements for periods beginning after December 15, 1997, and is not expected to have a significant impact on the Company's reporting of segment information. -7- 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations, estimates and projections about Pixar's industry, management's beliefs, and assumptions made by management. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results and outcomes may differ materially from what is expressed or forecasted in any such forward-looking statements. Such risks and uncertainties include those set forth in the Form 10-K (as defined below) under "Certain Factors Affecting Business, Operating Results and Financial Condition" on pages 15 through 26, as well as those noted in the documents incorporated therein by reference. Particular attention should be paid to the cautionary language in the Form 10-K entitled "Certain Factors Affecting Business, Operating Results and Financial Condition--Anticipated Decline in Operating Results in 1997 and Net Losses in 1998," "--Dependence on Toy Story, A Bug's Life and Toy Story Video Sequel," "--Liquidity Risks," "--Scheduled Concurrent Release of Films; Management of Growth" and "--Risks Associated With Co-Production Agreement." Unless required by law, Pixar undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. The Company's operating performance each quarter is subject to various risks and uncertainties as discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (the "Form 10-K"). The following discussion should be read in conjunction with the sections entitled "Certain Factors Affecting Business, Operating Results and Financial Condition" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Form 10-K. In particular, the factors set forth below in "Factors Affecting Operating Results and Financial Condition" could affect the Company's operating results and financial condition. NEW AGREEMENT WITH DISNEY On February 24, 1997, Pixar and Walt Disney Pictures, a wholly owned subsidiary of The Walt Disney Company (together with its subsidiaries and affiliates collectively referred to herein as "Disney") entered into a co-production agreement (the "Co-Production Agreement") pursuant to which Pixar, on an exclusive basis, will produce five computer animated feature-length theatrical motion pictures (the "Pictures"), for distribution by Disney over approximately the next ten years. Pixar and Disney will co-finance the production costs of the Pictures, co-own the Pictures (with Disney having exclusive distribution and exploitation rights), co-brand the Pictures and share equally in the profits of each Picture and any related merchandise and other ancillary products, after recovery of all marketing and distribution costs (which will be financed by Disney), a distribution fee paid to Disney and any other fees or costs, including participations provided to talent and the like. The Co-Production Agreement generally provides that Pixar will produce each Picture and that Disney will control all decisions relating to marketing, promotion, publicity, advertising and distribution of each Picture. Disney and Pixar have agreed that the first Picture under the Co-Production Agreement is the Picture with the working title "A Bug's Life". The Co-Production Agreement also contemplates that with respect to interactive media products and other derivative works related to the Pictures, Pixar will have the opportunity to co-finance and produce such products or to earn passive royalties on such products. Disney and Pixar have also agreed to produce a made-for-home-video sequel to Toy Story (the "Toy Story Video Sequel"), and Pixar is working on the production under the terms of the Co-Production Agreement. Pixar will not share in any theme park revenues generated as a result of the Pictures. Pixar does not expect to receive revenues under the Co-Production Agreement from either A Bug's Life nor the Toy Story Video Sequel until 1999 at the earliest. In May 1991, Pixar entered into a feature film agreement (the "Feature Film Agreement") with Disney, pursuant to which Toy Story and the Toy Story home video were developed, produced and distributed. The Feature Film Agreement was largely superseded by the Co-Production Agreement above. However, the Feature Film Agreement remains in effect with respect to Pixar's financial participation in Toy Story and related products. -8- 9 RESULTS OF OPERATIONS REVENUES Total revenues increased 108% to $14.4 million in the three months ended June 30, 1997 from $6.9 million in the same period of the prior year, and increased by 46% to $22.2 million in the six months ended June 30, 1997 from $15.2 million in the same period of the prior year. The increase for the three months ended June 30, 1997 was primarily due to higher film revenue of $11.6 million compared to $5.0 million in the same period of the prior year. The increase in total revenues of $7.1 million for the six months ended June 30, 1997 over the same period in the prior year was primarily attributable to an increase in film revenue of $12.8 million, offset by a decrease in patent licensing revenue of $5.3 million and a decrease in animation services revenue of $1.3 million. Software revenues consist mainly of software license revenue, principally from RenderMan. Software revenues increased 47% to $1.1 million in the three months ended June 30, 1997 from $722,000 in the prior year period and increased 52% to $2.5 million in the six months ended June 30, 1997 from $1.6 million in the same period of the prior year. The increase in software revenues resulted from a general increase in the number of RenderMan software licenses. Due to Pixar's focus on content creation for animated feature films and related products, Pixar expects that revenue derived from software licenses may decline. All historical and future royalty income associated with Pixar's discontinued CD-ROM division is now and will continue to be excluded from software revenue and presented in results of discontinued operations. See "Results From Discontinued Operations." Animation services revenues of $799,000 and $1.6 million in the three and six months ended June 30, 1996, respectively, was primarily attributable to revenue generated from the production of animated television commercials. In July 1996, Pixar announced plans to substantially discontinue its production of television commercials for third parties and to redirect the talent in its television commercial group to animated feature films and related products. Accordingly, there has been no television commercials revenue generated in 1997, and animation services revenues of $269,000 in the three and six months ended June 30, 1997 represents revenue for projects related to A Bug's Life. Pixar expects that revenue in this area will vary significantly from quarter to quarter. There are likely to be individual quarters, such as occurred in the first quarter of 1997, or possibly even prolonged periods of time, in which Pixar generates no animation services revenue. Film revenues increased 132% to $11.6 million in the three months ended June 30, 1997 from $5.0 million in the prior year period and 253% to $17.9 million in the six months ended June 30, 1997 from $5.1 million in the prior year period. Film revenues in 1997 were higher than in prior year periods for two reasons. First, during the three and six months ended June 30, 1997, Pixar received the majority of its share of Toy Story home video revenue. Pixar does not expect to recognize significant revenue from the Toy Story home video in the third and fourth quarters of 1997 or in any quarter in 1998. Second, film revenues represent Pixar's share of Toy Story home video revenues as determined under the original Feature Film Agreement in which Pixar's percentage of Toy Story revenues is calculated on a sliding scale. Lower percentages were earned by Pixar at the outset while Disney recovered related production, marketing and distribution costs for the film, and higher percentages are earned once Disney has recovered these costs. Disney's costs were recovered in the quarter ended June 30, 1997 which increased Pixar's revenue in the quarter. Pixar expects a substantial decline in Toy Story-related revenue in the second half of 1997 as most revenues have been received. Since the Toy Story home video is the last major release window for Toy Story, and since Pixar's next feature film is not targeted for release until the end of 1998 at the earliest, Pixar's revenue and earnings will decrease in subsequent periods as compared to 1996 and the first half of 1997. -9- 10 Patent licensing revenues of $1.5 million in the three months ended June 30, 1997 and $1.6 million in the six months ended June 30, 1997 include almost all of the remaining revenue from Pixar's 1996 patent license with Silicon Graphics, Inc. ("SGI"), whereby Pixar granted to SGI and its subsidiaries a non-exclusive license to use certain of Pixar's patents covering techniques for creating computer-generated photorealistic images. Under the agreement, SGI agreed to pay Pixar total compensation of $11.0 million, of which $6.0 million was paid in cash in March 1996 and $5.0 million was to be paid in the form of purchase credits for SGI hardware and software through the year 2000. Recognition of the $5.0 million in credits depends upon purchases of the hardware and software to be obtained from SGI in lieu of payment. In the six months ended June 30, 1996, Pixar recognized the $6.0 million cash payment from SGI, and $891,000 representing that portion of the $5.0 million in hardware and software credits Pixar had used through June 30, 1996. In the six months ended June 30, 1997, revenue of $1.6 million was recognized representing credits used during that period. Of the original $5.0 million in credits, Pixar has credits of $270,000 remaining to be recognized as revenue in future periods as credits are used. In the three and six months ended June 30, 1997, Disney accounted for 83% and 82%, respectively, of Pixar's total revenue. The revenues from Disney consisted primarily of film, animation services and software revenues. Pixar expects to continue to be dependent upon Disney for at least a majority of its revenue. In the three months ended June 30, 1996, and in the six months ended June 30, 1996, Disney accounted for 77% and 38%, respectively, of Pixar's total revenues. All patent revenues in periods presented were generated from a one-time patent license sale to SGI. In the three and six month periods ended June 30, 1997, SGI accounted for 10% and 7% of total revenues, respectively, and in the three and six month periods ended June 30, 1996, SGI accounted for 6% and 45% of total revenues, respectively. Pixar expects that revenue from SGI will not be generated on an ongoing basis. COST OF REVENUES Cost of software revenues consists of the direct costs and manufacturing overhead required to reproduce and package software products. Cost of software revenues as a percentage of the related revenues was 1% in both the three and six months ended June 30, 1997. As compared to the prior year periods, in which cost of software revenues were 1% and 4%, respectively, the change was insignificant. Cost of software revenues includes no amortization of capitalized software development expenses. Cost of animation services revenues consists of production costs, which include salaries and benefits and, to a lesser extent, facility expenses and department overhead costs. Costs of animation services revenues as a percentage of related revenues decreased to 65% in the three months ended June 30, 1997 from 98% in the same period of the prior year and decreased to 65% for the six months ended June 30, 1997 from 95% in the same period of the prior year. These decreases reflect Pixar's decision in July 1996 to substantially discontinue the animated television commercials division, which had higher associated costs, in favor of working on animated productions related to feature films, which have relatively lower associated costs. Pixar's focus is now on other short term animation services projects related to its feature films. Pixar expects that costs in this area will vary significantly from quarter to quarter. Cost of film revenues represent amortization of film costs capitalized by Pixar. See "Capitalized Film Production Costs." Cost of film revenues as a percentage of the related revenues remained relatively flat at 7% in the three and six months ended June 30, 1997, as compared to 8% in the prior year periods. There were no costs of revenue associated with patent licensing revenues, which resulted in an unusually high overall gross margin in the three and six months ended June 30, 1997 and in the prior year period. OPERATING EXPENSES While Pixar has continued to increase its spending levels, total operating expenses for the three and six months ended June 30, 1997 were slightly lower than in the prior year periods. This is a result of the Co-Production Agreement signed in February, 1997 pursuant to which Disney pays half of total film production costs and certain allocations of Pixar's operating expenses that benefit the productions, such as certain research and development and certain general and administrative expenses. The result is that certain of Pixar's operating expenses are now partially funded by Disney. -10- 11 Pixar intends to continue to increase its spending levels in a number of areas. First, as a result of intense competition for animators, Pixar continues to have to pay higher salaries to attract new creative personnel and technical directors. Pixar expects compensation for such new and existing personnel to continue to increase substantially. In the three and six months ended June 30, 1997, Pixar expanded its administrative staff and facilities and expanded other operations. Pixar expects continued growth in operating expenses in these areas. To the extent that such expenses are not capitalized by Pixar, nor allocated to and paid for by Disney under the Co-Production Agreement, and precede or are not subsequently followed by an increase in revenues, Pixar's business, operating results and financial condition will be materially adversely affected. Research and development expenses consist primarily of salaries and support for personnel conducting research and development for the RenderMan product and for Pixar's proprietary Marionette and Ringmaster software. Research and development expenses increased 18% to $1.4 million in the three months ended June 30, 1997 from $1.2 million in the prior year period, and increased 9% to $2.5 million in the six months ended June 30, 1997 from $2.3 million in the prior year period. In each period, this reflects increased personnel costs offset by recovery of certain research and development costs that were reimbursed by Disney under the Co-Production Agreement. To date, all software development costs have been expensed as incurred. Sales and marketing expenses consist primarily of salaries and related overhead, as well as advertising, technical support, public relations and trade show costs required to support the software segment. Sales and marketing expenses decreased 41% to $353,000 in the three months ended June 30, 1997 from $600,000 in the prior year period and decreased 41% to $605,000 in the six months ended June 30, 1997 from $1.0 million in the prior year period due to discontinued marketing efforts for television commercials. Pixar expects that marketing expenses may increase in absolute dollars in future periods, particularly in the areas of corporate marketing and public relations. General and administrative expenses consist primarily of salaries of management and administrative personnel, insurance costs and professional fees. General and administrative expenses decreased 4% to $1.0 million in the three months ended June 30, 1997 from $1.1 million in prior year period, and increased 10% to $2.3 million in the six months ended June 30, 1997 from $2.1 million in the prior year period. For the three months ended June 30, 1997, general and administrative expenses were relatively flat as compared to the prior year period. The increase in the six months ended June 30, 1997 was primarily due to increased staffing, increased professional fees associated with the protection of intellectual property and increased costs associated with being a public company. Growth in these costs was somewhat offset by the recovery of certain general and administrative costs reimbursed by Disney under the Co-Production Agreement. Pixar continues to expect general and administrative expenses to increase in absolute dollars in future periods as Pixar incurs additional costs to expand its administrative staff and facilities. OTHER INCOME, NET In both 1996 and 1997, other income consisted primarily of interest income on investments. Other income, net was $1.9 million and $4.0 million in the three and six months ended June 30, 1997, respectively. These amounts reflect the impact of a loss on the disposal of certain computer equipment of approximately $350,000. Other income net in the three and six months ended June 30, 1996 was $1.9 million and $3.8 million, respectively. INCOME TAXES Income tax expense for the three and six months ended June 30, 1997 reflects Pixar's federal and state income tax liability after utilization of available federal net operating loss carryforwards and federal and state tax credits. Income taxes increased in the three and six months ended June 30, 1997 due to expected full utilization of the net operating loss carryforwards in 1997. -11- 12 RESULTS OF DISCONTINUED OPERATIONS After the Co-Production Agreement was executed in February 1997, Pixar evaluated the merits of staying in the business of producing CD-ROM products and compared those opportunities with opportunities in film and other potential projects under the Co-Production Agreement. Management determined that, despite the fact that Pixar's first CD-ROM titles were successful on relative terms, the resources devoted to its interactive products division would be better allocated to other projects arising from the Co-Production Agreement which Pixar believes will have greater potential than the CD-ROM titles, such as theatrical films, home video sequels and short animation projects. Moreover, the CD-ROM and interactive product market is not growing as fast as expected, the production costs of such products are increasing and one project under negotiation with a third party was canceled. For these reasons, Pixar determined in March 1997 to discontinue its business of producing CD-ROM and other interactive products and redirect the approximately 60 employees in the division to film and related projects within Pixar. Because the CD-ROM business previously represented an ongoing potential source of revenue, this decision is expected to have a material adverse impact on Pixar's future revenues and results of operations in the future. In the first quarter ended March 31, 1997, Pixar recorded a loss from discontinued operation of its CD-ROM division of $77,000, net of tax. In the three months ended June 30, 1997, no gain or loss was recorded for the anticipated discontinuation of the CD-ROM division as Pixar anticipates future royalty income will exceed costs incurred during the three months ended June 30, 1997 and related costs incurred in all future periods. In the three and six month periods ended June 30, 1996, income from discontinued operations was $45,000 and $273,000, respectively, net of taxes. FACTORS AFFECTING OPERATING RESULTS AND FINANCIAL CONDITION The following is a discussion of certain factors which currently impact or may impact Pixar's business, operating results and/or financial condition. Anyone making an investment decision with respect to Pixar's capital stock or other securities is cautioned to carefully consider these factors. ANTICIPATED DECLINE IN OPERATING RESULTS IN 1997 AND NET LOSSES IN 1998 A number of factors are expected to lead to a substantial decline in Pixar's operating results in the remainder of 1997 and net losses in 1998, as discussed more fully below. END OF TOY STORY REVENUES As of June 30, 1997, Pixar has recognized the vast majority of the revenue it expects to receive from the domestic and international theatrical releases of Toy Story and substantially all of the home video revenue from Toy Story. Pixar does not expect to recognize significant revenue from the Toy Story home video in the third or fourth quarters of 1997 or in any quarter in 1998. REDUCED CD-ROM ROYALTIES Although its first two CD-ROM products were successful on relative terms, Pixar determined in March 1997 to discontinue its business of producing CD-ROM and other interactive products in favor of other opportunities arising, in part, as a result of entering into the Co-Production Agreement. This decision is expected to continue to have a material adverse impact on Pixar's operating results in the remainder of 1997 and in 1998. Pixar has not and will not recognize any CD-ROM income from this discontinued operation in 1997 or 1998, other than royalty income attributable to the two Toy Story CD-ROM products, and Pixar continues to expect to receive less CD-ROM royalty income than was previously anticipated. Pixar has reassigned most of the approximately 60 employees previously employed in the CD-ROM division to feature film productions and other departments within Pixar. -12- 13 TIMING OF A BUG'S LIFE AND TOY STORY VIDEO SEQUEL RELEASES A Bug's Life is not expected to be released until the end of 1998 at the earliest, and revenue from A Bug's Life is not expected to be recognized until all marketing and distribution costs and fees have been recovered by Disney. Recovery of all costs depends on many factors and may not occur until six to twelve months after its release at the earliest, ensuring that Pixar will not recognize any revenue from A Bug's Life until the second half of 1999 at the earliest. The Toy Story Video Sequel is currently targeted for completion in the second half of 1998, but its release date could be at the end of 1998 or later depending on a number of factors. First, Pixar may be unable, for technical or other reasons, to complete the production of the Toy Story Video Sequel in the second half of 1998. Second, even if completed, Disney and Pixar may choose to delay release of the Toy Story Video Sequel until the 1998 holiday season or thereafter. Depending on the timing of receipt of revenues by Disney, Pixar may not recognize revenue from the Toy Story Video Sequel until three to six months after its release at the earliest, meaning that if the Toy Story Video Sequel were released in late 1998 or thereafter, Pixar would not recognize any revenue from the Toy Story Video Sequel until 1999 at the earliest. Third, it is possible that the Toy Story Video Sequel could be released to the theaters instead of as a made-for-home video. In such event, Pixar would not expect to recognize any revenue until six to twelve months after the theatrical release, with the result that Pixar would not recognize any revenue from such film until the second half of 1999 at the earliest. POSSIBLE DECLINE IN LICENSING OF RENDERMAN DUE TO SHIFT IN FOCUS As a result of Pixar's reduced emphasis on the commercialization of software in favor of products sold for their content, Pixar continues to expect to dedicate less time and resources to distributing and marketing RenderMan than it has in the past and further expects that licensing of RenderMan may decline. INCREASE IN OPERATING EXPENSES AND TAX RATE In 1996, Pixar significantly increased its operating expenses, and Pixar plans to continue to increase its operating expenses to fund greater levels of research and development and to expand operations. Specifically, Pixar expects its spending levels to increase significantly due to continued investment in proprietary software systems, increased compensation costs as a result of intense competition for animators, creative personnel, technical directors and other personnel, and increased costs associated with the expansion of its facilities. To the extent that such expenses are not capitalized by Pixar nor allocated to and paid for by Disney, Pixar's operating expenses would significantly increase in the remainder of 1997 and in 1998. Finally, Pixar's tax rate has increased in the six months ended June 30, 1997 and may continue to increase in the remainder of 1997 and future years as the result of utilization of net operating losses in 1997. IMPACT ON OPERATING RESULTS As a result of the above factors, Pixar expects revenue to decline substantially in the third and fourth quarters of 1997 and to not recognize substantial revenue in 1998. At the same time, Pixar's operating expenses may increase in the third and fourth quarters of 1997 and in 1998, even after giving effect to the allocation of certain operating expenses to Disney under the Co-Production Agreement. Therefore, Pixar expects revenue and operating results in the third and fourth quarters of 1997 to decline substantially from the first and second quarters of 1997 and from the third and fourth quarters of 1996. It is possible that Pixar could even incur operating and net losses in each of the last two quarters of 1997. Pixar also expects to incur operating and net losses throughout 1998. -13- 14 POTENTIAL FLUCTUATIONS IN OPERATING RESULTS In addition to the factors set forth above, Pixar continues to expect to generally experience significant fluctuations in its future annual and quarterly operating results caused by a variety of factors. Pixar expects that its annual and quarterly operating results, particularly its revenue, will fluctuate due to factors such as the timing of the domestic and international releases of the animated feature films, the success of the animated feature films (which can fluctuate significantly from film to film), the timing of the release of related products into their respective markets, the demand for the related products (which is often a function of the success of the related animated feature film), film production costs, Disney's costs to distribute and promote the feature films and related products, Disney's success at marketing the films and related products, the timing of receipt of proceeds from the animated feature films and related products by Disney, the timing of revenue recognition under the Co-Production Agreement, the Feature Film Agreement or the CD-ROM Agreement, as the case may be, the introduction of new feature films or products by Pixar's competitors, and general economic conditions. In particular, since Pixar's revenue under the Co-Production Agreement is directly related to the success of a feature film, Pixar's operating results are likely to fluctuate depending on the level of success of its animated feature films and related products. The revenues derived from the production and distribution of an animated feature film depend primarily on the film's acceptance by the public, which cannot be predicted and does not necessarily bear a direct correlation to the production or distribution costs incurred. The commercial success of a motion picture also depends upon promotion and marketing, production costs and other factors. Further, the theatrical success of a feature film can be a significant factor in determining the amount of revenues generated from the sale of the related products. Moreover, Pixar's operating expenses will continue to be extremely difficult to forecast. The direct costs of film production are budgeted in agreement with Disney and shared equally. Pixar's share of these direct costs of film production are capitalized by Pixar in accordance with Statement of Financial Accounting Standards ("SFAS") No. 53, "Financial Reporting by Producers and Distributors of Motion Picture Films." A substantial portion of all of Pixar's other costs are incurred for the benefit of feature films ("Pixar's Overhead"), including research and development expenses and general and administrative expenses. Portions of Pixar's Overhead are included in the budgets for the Pictures and will be shared equally with Disney under the Co-Production Agreement. The portion of Pixar's Overhead that is not reimbursed by Disney is either capitalized as film production costs, if required under SFAS No. 53, or charged to operating expense in the period incurred. Because a substantial portion of Pixar's Overhead is allocated to the Pictures and reimbursed by Disney and other amounts are capitalized by Pixar in accordance with SFAS No. 53, Pixar's future reported operating expenses will not reflect the true level of spending on the production of animated feature films, related products and overhead. Pixar may not be able to recognize the tax benefits of net operating losses to be generated in the future. Pixar had a valuation allowance as of December 31, 1996 which fully offset its gross deferred tax assets due to Pixar's historical losses and the fact that there is no guarantee Pixar will generate sufficient taxable income in the future to be able to realize all of its deferred tax assets. As a result of all of the foregoing, Pixar believes that period-to-period comparisons of its results of operations are not necessarily meaningful, and its annual and quarterly results of operations should not be relied upon as any indication of future performance. Due to all of the foregoing factors, it is likely that in some future period Pixar's operating results will be below the expectations of public market analysts and investors. In such event, the price of Pixar's Common Stock would likely be materially adversely affected. -14- 15 DEPENDENCE ON TOY STORY, A BUG'S LIFE AND TOY STORY VIDEO SEQUEL DEPENDENCE ON TOY STORY For at least 1997, Pixar's revenue and operating results have been and will continue to be almost entirely dependent upon the success of the Toy Story home video and merchandising of Toy Story products. Pixar recognized substantially all of the Toy Story home video revenue in the first two quarters of 1997 and expects little revenue from Toy Story or related products thereafter. In its discontinued CD-ROM operations, Pixar also expects limited royalty income from its Toy Story CD-ROM products in the last two quarters of 1997 and little or no income from such products in 1998. Because A Bug's Life and the Toy Story Video Sequel are not expected to be released until the end of 1998 at the earliest, all other revenues in the last half of 1997 and for all of 1998 will be primarily dependent upon Pixar's other businesses, from which Pixar expects limited revenue. DEPENDENCE ON A BUG'S LIFE AND TOY STORY VIDEO SEQUEL Beyond 1998, Pixar expects to be significantly dependent upon the success of A Bug's Life and the Toy Story Video Sequel (the "Current Projects") and related products. Although production on each of the Current Projects is underway, there can be no assurance that either of the Current Projects will be successfully produced and released when scheduled or thereafter. In addition, given the escalation in compensation rates of people required to work on the Current Projects, the number of people required to work on the Current Projects, and the equipment needs, the budget for the Current Projects and subsequent films and related products will be substantially greater than the budget for Toy Story and will be financed equally by Pixar and Disney under the Co-Production Agreement. There can be no assurance that Pixar will not experience difficulties that could delay or prevent the successful development or production of either of the Current Projects or subsequent animated feature films or related products. If Pixar is unable to produce and develop on a timely basis the Current Projects and subsequent animated feature films and related products that meet with broad market acceptance, Pixar's business, operating results and financial condition will be materially adversely affected. RISKS ASSOCIATED WITH A BUG'S LIFE. Under the Co-Production Agreement, Pixar shares the production costs of A Bug's Life. These costs will initially be capitalized as film production costs under SFAS No. 53 and then be amortized over A Bug's Life's expected revenue stream when revenue is recognized. If A Bug's Life is not an extraordinary box office success similar to Toy Story, the amount of revenue recognized will not be significant, and the capitalized production costs will have to be amortized in large amounts over a limited number of quarters, resulting in significant costs of film revenue in those quarters and, potentially, significant quarterly operating and net losses. Animated feature films that become extraordinary box office successes are rare. Pixar believes, based on available information, that there is a reasonable basis to conclude that of the more than 40 animated feature films introduced since 1990, only two movies generated domestic box office revenues greater than Toy Story, and both of those films were produced and distributed solely by Disney. During at least the last five years, Pixar believes that there has been no fully animated feature film (other than Toy Story) produced or developed by a studio other than Disney that has achieved more than $25 million in domestic box office revenues. While A Bug's Life will be co-financed, promoted and marketed by Disney, it will have a different look, theme and musical style than Disney's other recent animated films (except for Toy Story), and there can be no assurance that it will have the same audience appeal as Disney's other animated films. For example, The Nightmare Before Christmas, released in 1993, was an animated feature film with a different appearance than traditional, hand drawn cel animated feature films such as Beauty and the Beast, The Lion King, Aladdin, Pocahontas, The Hunchback of Notre Dame and Hercules and did not experience the same box office returns as those films. As a result, A Bug's Life and related products may not generate significant revenue and operating results for Pixar, even if A Bug's Life is critically acclaimed and achieves substantial, but not extraordinary, box office success. -15- 16 RISKS ASSOCIATED WITH TOY STORY VIDEO SEQUEL. There are several additional risks unique to the Toy Story Video Sequel. First, Pixar has no experience developing sequels, either theatrical or made-for-home video. Moreover, the made-for-home video market has only recently begun to develop. As is typical in the case of an undeveloped market, demand and market acceptance are uncertain. Competition in this market is expected to increase dramatically. Disney alone has announced its intention to distribute several made-for-home video sequels in the next year, as have other studios. Pixar is at a disadvantage in the made-for-home video sequel market as compared to other animation studios in that Pixar cannot produce low cost animation, which typically characterizes sequels to animated feature films. Finally, the Toy Story Video Sequel will need to be an extraordinary success on relative terms in order to generate profits for Pixar. If the Toy Story Video Sequel is not an extraordinary success on relative terms, Pixar will incur substantial costs of film revenue in those quarters in which revenue is recognized, which will have a material adverse effect on its results of operations. There can be no assurance that the Toy Story Video Sequel will be an extraordinary success on relative terms, particularly given the recent emergence and uncertainty of the made-for-home video market. LIQUIDITY RISKS Pursuant to the Co-Production Agreement, Pixar will co-finance the next five animated feature films which it produces, including A Bug's Life and the second theatrical film being developed under the Co-Production Agreement (the "Second Theatrical Film"), and will also co-finance the Toy Story Video Sequel. In the future, Pixar may co-finance other derivative works such as theatrical sequels, interactive products and television productions. As Pixar does not expect to generate substantial, if any, cash from operations in the second half of 1997 and in 1998, the production costs of A Bug's Life, the Second Theatrical Film and the Toy Story Video Sequel are expected to have a material adverse impact on Pixar's cash and short-term investment balances. As of June 30, 1997, Pixar had approximately $178.8 million in cash and short-term investments. Pixar believes that these funds will be sufficient to meet its anticipated cash needs for working capital and capital expenditures, including the production costs of A Bug's Life, the Second Theatrical Film and the Toy Story Video Sequel, until Pixar begins receiving cash from the release of these films (which is generally not expected to occur until 1999 at the earliest). However, even if these films generate cash, unless each is a success such that Pixar recovers on a timely basis its share of the production costs, as well as other operating expenses and capital expenditures, Pixar will be required to seek financing for its ongoing commitments under the Co-Production Agreement and any other requirements of its operations. Pixar may also seek additional financing in connection with the expansion of its facilities (See Liquidity and Capital Resources). The sale of additional equity or convertible debt securities would result in additional dilution to Pixar's shareholders. Moreover, there can be no assurance that Pixar will be successful in obtaining future financing, or even if such financing is available, that it will be obtained on terms favorable to Pixar or on terms providing Pixar with sufficient funds to meet its obligations and objectives. The failure to obtain such financing would have a material adverse effect on Pixar's business, operating results and financial condition. CAPITALIZED FILM PRODUCTION COSTS Although Disney funded the entire production of Toy Story, Pixar contractually guaranteed certain of the film budget overages and was liable to Disney for those amounts under the Feature Film Agreement. Because these are "production costs" under Statement of Financial Accounting Standards (SFAS) No. 53, "Financial Reporting by Producers and Distributors of Motion Picture Films," the costs were capitalized and amortized against film revenue. In the three and six months ended June 30, 1997, $769,000 and $1.3 million of these costs, respectively, were amortized against film revenues. As of June 30, 1997, Pixar had approximately $19.6 million of capitalized film production costs, consisting primarily of costs related to A Bug's Life and the Toy Story Video Sequel, both of which are being co-financed by Pixar under the Co-Production Agreement. RECENTLY-ISSUED ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income". This Statement establishes standards for reporting and displaying comprehensive income and its components in the financial statements. It does not, however, require a specific format for the statement, but requires the Company to display an amount representing total comprehensive income for the period in that financial statement. The Company is in the process of determining its preferred format. This Statement is effective for fiscal years beginning after December 15, 1997. Also, in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Statement establishes standards for the manner in which public business enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. This Statement is effective for financial statements for periods beginning after December 15, 1997, and is not expected to have a significant impact on the Company's reporting of segment information. -16- 17 LIQUIDITY AND CAPITAL RESOURCES Cash and short-term investments increased $17.8 million to $178.8 million at June 30, 1997 from $161.0 million at December 31, 1996. Working capital increased slightly to $163.1 million at June 30, 1997 from $163.0 million at December 31, 1996. Net cash provided by operations in the six months ended June 30, 1997 was primarily attributable to cash received from film revenues and other operations. Net cash used in investing activities was due primarily to the purchase of real property and computer equipment of $11.7 million and funding of film production costs of $10.5 million. Net cash provided by financing activities was due primarily to $14.9 million of net proceeds from issuance of common stock and warrants to Disney. In May 1997, Pixar exercised its option (which option Pixar purchased in 1996) and paid $5.8 million to purchase land in Emeryville, California to build a new headquarters and studio facility. To construct the facility, Pixar currently expects to incur capital expenditures of more than $10 million in 1997 and more than $12 million in 1998. Pixar may choose to use its existing cash resources for such expenditures or to finance such capital expenditures through the issuance of additional equity or debt securities, by obtaining a credit facility or by some other financing mechanism. Further utilization of cash in the last half of 1997 will occur when Pixar reimburses Disney for Pixar's share of the production costs incurred to date for A Bug's Life. This obligation to Disney is currently included in film cost payable of $7.5 million. As of June 30, 1997, Pixar's principal source of liquidity was approximately $178.8 million in cash and short-term investments. Pixar believes that these funds will be sufficient to meet the Company's operating requirements through the next twelve months. Thereafter, if cash generated by operations is insufficient to satisfy Pixar's liquidity requirements, Pixar may sell additional equity or debt securities or obtain credit facilities. The sale of additional equity or convertible debt securities will result in additional dilution to Pixar's shareholders. There can be no assurance that financing will be available to Pixar in an amount and on terms acceptable to Pixar. -17- 18 PART II -- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The following matters were submitted to the shareholders at Pixar's Annual Meeting of Shareholders held June 25, 1997. Each of these matters was approved by a majority of the shares present at the meeting. 1. The uncontested election of four directors to serve a one-year term until their successors are duly elected and qualified. The following is a summary of the nominees and voting results:
Votes For Votes Withheld ---------- -------------- Steven P. Jobs 37,687,142 93,539 Larry W. Sonsini 37,690,060 90,621 Skip M. Brittenham 37,691,292 89,389 Joseph A. Graziano 37,691,448 89,233
2. The adoption of an amendment to the 1995 Stock Plan to: (i) increase the number of shares reserved for issuance by an additional 1,000,000 shares of Common Stock, for an aggregate of 14,000,000 shares reserved for issuance thereunder and (ii) increase the size of the annual adjustment (beginning January 1, 1998) from two percent of the number of shares of Common Stock outstanding on the first day of each calendar year to three percent of such number. Results of the voting included 36,448,989 shares for, 862,317 shares against, 95,162 shares abstained and 374,213 shares broker non-votes. 3. The ratification of the appointment of KPMG Peat Marwick LLP as the independent auditors for the Company for the fiscal year ending December 31, 1997. Results of the voting included 37,698,226 shares for, 44,218 shares against and 38,237 shares abstained. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 3.4 Amended and Restated Bylaws, as amended. 10.1 1995 Stock Plan, as amended. 10.19 Agreement of Purchase and Sale between the Registrant and Del Monte Corporation dated as of September 6, 1996, as amended. 11.1 Statement of Computation of Net Income Per Share. 27.1 Financial Data Schedule. (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed by Pixar during the quarter ended June 30, 1997. ITEMS 1, 2, 3 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED. -18- 19 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PIXAR Date: AUGUST 14 , 1997 By: /s/ Lawrence B. Levy --------------------------- -------------------------------------- Lawrence B. Levy, Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer) -19- 20 INDEX TO EXHIBITS EXHIBIT NUMBER EXHIBITS - ------- -------- 3.4 Amended and Restated Bylaws, as amended 10.1 1995 Stock Plan, as amended 10.19 Agreement of Purchase and Sale between the Registrant and Del Monte Corporation dated as of September 6, 1996, as amended. 11.1 Statement of Computation of Net Income Per Share 27.1 Financial Data Schedule -20- EX-3.4 2 AMENDED AND RESTATED BYLAWS, AS AMENDED 1 EXHIBIT 3.4 AMENDED AND RESTATED BYLAWS OF PIXAR ARTICLE I CORPORATE OFFICES 1.1 PRINCIPAL OFFICE The board of directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside such state and the corporation has one or more business offices in such state, then the board of directors shall fix and designate a principal business office in the State of California. 1.2 OTHER OFFICES The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF SHAREHOLDERS 2.1 PLACE OF MEETINGS Meetings of shareholders shall be held at any place within or outside the State of California designated by the board of directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation. 2.2 ANNUAL MEETING The annual meeting of shareholders shall be held each year on a date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of shareholders shall be held on the third Wednesday of May in each year at 10 am. However, if such day falls on a legal holiday, then the meeting 2 shall be held at the same time and place on the next succeeding full business day. At the meeting, directors shall be elected, and any other proper business may be transacted. 2.3 SPECIAL MEETING A special meeting of the shareholders may be called at any time by the board of directors, or by the chairman of the board, or by the president, or by one or more shareholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting. If a special meeting is called by any person or persons other than the board of directors or the president or the chairman of the board, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, then the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held. 2.4 NOTICE OF SHAREHOLDERS' MEETINGS All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than ten (10) (or, if sent by third-class mail pursuant to Section 2.5 of these bylaws, thirty (30)) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date, and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted (no business other than that specified in the notice may be transacted) or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders (but subject to the provisions of the next paragraph of this Section 2.4 any proper -2- 3 matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the board intends to present for election. If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California (the "Code"), (ii) an amendment of the articles of incorporation, pursuant to Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, then the notice shall also state the general nature of that proposal. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of shareholders shall be given either (i) personally or (ii) by first-class mail or (iii) by third-class mail but only if the corporation has outstanding shares held of record by five hundred (500) or more persons (determined as provided in Section 605 of the Code) on the record date for the shareholders' meeting, or (iv) by telegraphic or other written communication. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, then all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder on written demand of the shareholder at the principal -3- 4 executive office of the corporation for a period of one (1) year from the date of the giving of the notice. An affidavit of the mailing or other means of giving any notice of any shareholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice. 2.6 QUORUM The presence in person or by proxy of the holders of a majority of the shares entitled to vote thereat constitutes a quorum for the transaction of business at all meetings of shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. 2.7 ADJOURNED MEETING; NOTICE Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy. In the absence of a quorum, no other business may be transacted at that meeting except as provided in Section 2.6 of these bylaws. When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken. However, if a new record date for the adjourned meeting is fixed or if the adjournment is for more than forty-five (45) days from the date set for the original meeting, then notice of the adjourned meeting shall be given. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. 2.8 VOTING The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of -4- 5 Section 2.11 of these bylaws, subject to the provisions of Sections 702 through 704 of the Code (relating to voting shares held by a fiduciary, in the name of a corporation or in joint ownership). The shareholders' vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder at the meeting and before the voting has begun. Except as provided in the last paragraph of this Section 2.8, or as may be otherwise provided in the articles of incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the shareholders. Any shareholder entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or, except when the matter is the election of directors, may vote them against the proposal; but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares which the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented and voting at a duly held meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or a vote by classes is required by the Code or by the articles of incorporation. At a shareholders' meeting at which directors are to be elected, a shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such shareholder normally is entitled to cast) if the candidates' names have been placed in nomination prior to commencement of the voting and the shareholder has given notice prior to commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination either (i) by giving one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are normally entitled or (ii) by distributing the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of affirmative votes, up to the number of directors to be elected, -5- 6 shall be elected; votes against any candidate and votes withheld shall have no legal effect. 2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though they had been taken at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. The waiver of notice or consent or approval need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 2.4 of these bylaws, the waiver of notice or consent or approval shall state the general nature of the proposal. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall also constitute a waiver of notice of and presence at that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice of the meeting but not so included, if that objection is expressly made at the meeting. 2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors. However, a director may be elected at any time to fill any vacancy on the board of directors, provided that it was not created by removal of a director and that it has not been filled by the directors, by the writ- -6- 7 ten consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares, or a personal representative of the shareholder, or their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the secretary. If the consents of all shareholders entitled to vote have not been solicited in writing and if the unanimous written consent of all such shareholders has not been received, then the secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. Such notice shall be given to those shareholders entitled to vote who have not consented in writing and shall be given in the manner specified in Section 2.5 of these bylaws. In the case of approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval. 2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS For purposes of determining the shareholders entitled to notice of any meeting or to vote thereat or entitled to give consent to corporate action without a meeting, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting nor more than sixty (60) days before any such action without a meeting, and in such event only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Code. -7- 8 If the board of directors does not so fix a record date: (a) the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; and (b) the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action by the board has been taken, shall be at the close of business on the day on which the board adopts the resolution relating to that action, or the sixtieth (60th) day before the date of such other action, whichever is later. The record date for any other purpose shall be as provided in Article VIII of these bylaws. 2.12 PROXIES Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholder's attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) the person who executed the proxy revokes it prior to the time of voting by delivering a writing to the corporation stating that the proxy is revoked or by executing a subsequent proxy and presenting it to the meeting or by voting in person at the meeting, or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided in the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Code. -8- 9 2.13 INSPECTORS OF ELECTION Before any meeting of shareholders, the board of directors may appoint an inspector or inspectors of election to act at the meeting or its adjournment. If no inspector of election is so appointed, then the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint an inspector or inspectors of election to act at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting pursuant to the request of one (1) or more shareholders or proxies, then the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, then the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. Such inspectors shall: (a) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) receive votes, ballots or consents; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes or consents; (e) determine when the polls shall close; (f) determine the result; and (g) do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. -9- 10 ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the Code and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS The number of directors of the corporation shall be not less than two (2) nor more than three (3). The exact number of directors shall be two (2) until changed, within the limits specified above, by a bylaw amending this Section 3.2, duly adopted by the board of directors or by the shareholders. The indefinite number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the authorized number of directors is five (5) or more, an amendment reducing the fixed number or the minimum number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon. No amendment may change the stated maximum number of authorized directors to a number greater than two (2) times the stated minimum number of directors minus one (1). No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS Directors shall be elected at each annual meeting of shareholders to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. -10- 11 3.4 RESIGNATION AND VACANCIES Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. Vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; however, a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum), or by the unanimous written consent of all shares entitled to vote thereon. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified. A vacancy or vacancies in the board of directors shall be deemed to exist (i) in the event of the death, resignation or removal of any director, (ii) if the board of directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, (iii) if the authorized number of directors is increased, or (iv) if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be elected at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election other than to fill a vacancy created by removal, if by written consent, shall require the consent of the holders of a majority of the outstanding shares entitled to vote thereon. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE Regular meetings of the board of directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held at any place within or outside the -11- 12 State of California that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such directors shall be deemed to be present in person at the meeting. 3.6 REGULAR MEETINGS Regular meetings of the board of directors may be held without notice if the times of such meetings are fixed by the board of directors. 3.7 SPECIAL MEETINGS; NOTICE Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.8 QUORUM A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 3.10 of these bylaws. Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum is present shall be regarded as the act -12- 13 of the board of directors, subject to the provisions of Section 310 of the Code (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the Code (as to appointment of committees), Section 317(e) of the Code (as to indemnification of directors), the articles of incorporation, and other applicable law. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 WAIVER OF NOTICE Notice of a meeting need not be given to any director (i) who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or (ii) who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such directors. All such waivers, consents, and approvals shall be filed with the corporate records or made part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the board of directors. 3.10 ADJOURNMENT A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. 3.11 NOTICE OF ADJOURNMENT Notice of the time and place of holding an adjourned meeting need not be given unless the meeting is adjourned for more than twenty-four (24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.7 of these bylaws, to the directors who were not present at the time of the adjournment. 3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Any action required or permitted to be taken by the board of directors may be taken without a meeting, provided that all members of the board individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. -13- 14 Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board. 3.13 FEES AND COMPENSATION OF DIRECTORS Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors. This Section 3.13 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services. 3.14 APPROVAL OF LOANS TO OFFICERS* The corporation may, upon the approval of the board of directors alone, make loans of money or property to, or guarantee the obligations of, any officer of the corporation or its parent or subsidiary, whether or not a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties provided that (i) the board of directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation, (ii) the corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605 of the Code) on the date of approval by the board of directors, and (iii) the approval of the board of directors is by a vote sufficient without counting the vote of any interested director or directors. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one (1) or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one (1) or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires - -------- * This section is effective only if it has been approved by the shareholders in accordance with Sections 315(b) and 152 of the Code. -14- 15 the vote of a majority of the authorized number of directors. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to: (a) the approval of any action which, under the Code, also requires shareholders' approval or approval of the outstanding shares; (b) the filling of vacancies on the board of directors or in any committee; (c) the fixing of compensation of the directors for serving on the board or any committee; (d) the amendment or repeal of these bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable; (f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or (g) the appointment of any other committees of the board of directors or the members of such committees. 4.2 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section 3.12 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government -15- 16 of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS 5.1 OFFICERS The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. 5.2 ELECTION OF OFFICERS The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws, shall be chosen by the board, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS The board of directors may appoint, or may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors at any regular or special meeting of the board or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of -16- 17 the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to that office. 5.6 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws. 5.7 PRESIDENT Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the shareholders and, in the absence or non- existence of a chairman of the board, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. 5.8 VICE PRESIDENTS In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to -17- 18 all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. 5.9 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors and shareholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.10 CHIEF FINANCIAL OFFICER The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all money and other valuables in the name and to the credit of the corporation with -18- 19 such depositaries as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the maximum extent and in the manner permitted by the Code, indemnify each of its directors and officers against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Article VI, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS The corporation shall have the power, to the extent and in the manner permitted by the Code, to indemnify each of its employees and agents (other than directors and officers) against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Article VI, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of -19- 20 the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 PAYMENT OF EXPENSES IN ADVANCE Expenses incurred in defending any civil or criminal action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI. 6.4 INDEMNITY NOT EXCLUSIVE The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the Articles of Incorporation. 6.5 INSURANCE INDEMNIFICATION The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation against any liability asserted against or incurred by such person in such capacity or arising out of such person's status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. 6.6 CONFLICTS No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: -20- 21 (1) That it would be inconsistent with a provision of the Articles of Incorporation, these bylaws, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER The corporation shall keep either at its principal executive office or at the office of its transfer agent or registrar (if either be appointed), as determined by resolution of the board of directors, a record of its shareholders listing the names and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation who holds at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who holds at least one percent (1%) of such voting shares and has filed a Schedule 14B with the Securities and Exchange Commission relating to the election of directors, may (i) inspect and copy the records of shareholders' names, addresses, and shareholdings during usual business hours on five (5) days' prior written demand on the corporation, (ii) obtain from the transfer agent of the corporation, on written demand and on the tender of such transfer agent's usual charges for such list, a list of the names and addresses of the shareholders who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which that list has been compiled or as of a date specified by the shareholder after the date of demand. Such list shall be made available to any such shareholder by the transfer agent on or before the later of five (5) days after the demand is received or five (5) days after the date specified in the demand as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose -21- 22 reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. Any inspection and copying under this Section 7.1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand. 7.2 MAINTENANCE AND INSPECTION OF BYLAWS The corporation shall keep at its principal executive office or, if its principal executive office is not in the State of California, at its principal business office in California the original or a copy of these bylaws as amended to date, which bylaws shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in such state, then the secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of these bylaws as amended to date. 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS The accounting books and records and the minutes of proceedings of the shareholders, of the board of directors, and of any committee or committees of the board of directors shall be kept at such place or places as are designated by the board of directors or, in absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form, and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney and shall include the right to copy and make extracts. Such rights of inspection shall extend to the records of each subsidiary corporation of the corporation. 7.4 INSPECTION BY DIRECTORS Every director shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind as -22- 23 well as the physical properties of the corporation and each of its subsidiary corporations. Such inspection by a director may be made in person or by an agent or attorney. The right of inspection includes the right to copy and make extracts of documents. 7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER The board of directors shall cause an annual report to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal year adopted by the corporation. Such report shall be sent at least fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days) before the annual meeting of shareholders to be held during the next fiscal year and in the manner specified in Section 2.5 of these bylaws for giving notice to shareholders of the corporation. The annual report shall contain (i) a balance sheet as of the end of the fiscal year, (ii) an income statement, (iii) a statement of changes in financial position for the fiscal year, and (iv) any report of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation. The foregoing requirement of an annual report shall be waived so long as the shares of the corporation are held by fewer than one hundred (100) holders of record. 7.6 FINANCIAL STATEMENTS If no annual report for the fiscal year has been sent to shareholders, then the corporation shall, upon the written request of any shareholder made more than one hundred twenty (120) days after the close of such fiscal year, deliver or mail to the person making the request, within thirty (30) days thereafter, a copy of a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year. If a shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the then current fiscal year ended more than thirty (30) days before the date of the request, and for a balance sheet of the corporation as of the end of that period, then the chief financial officer shall cause that statement to be prepared, -23- 24 if not already prepared, and shall deliver personally or mail that statement or statements to the person making the request within thirty (30) days after the receipt of the request. If the corporation has not sent to the shareholders its annual report for the last fiscal year, the statements referred to in the first paragraph of this Section 7.6 shall likewise be delivered or mailed to the shareholder or shareholders within thirty (30) days after the request. The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of any independent accountants engaged by the corporation or by the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation. 7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chairman of the board, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. ARTICLE VIII GENERAL MATTERS 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the shareholders entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action. In that case, only shareholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, -24- 25 notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the Code. If the board of directors does not so fix a record date, then the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later. 8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.4 CERTIFICATES FOR SHARES A certificate or certificates for shares of the corporation shall be issued to each shareholder when any of such shares are fully paid. The board of directors may authorize the issuance of certificates for shares partly paid provided that these certificates shall state the total amount of the consideration to be paid for them and the amount actually paid. All certificates shall be signed in the name of the corporation by the chairman of the board or the vice chairman of the board or the president or a vice president and by the chief financial officer or an assistant treasurer or the secretary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. -25- 26 In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate ceases to be that officer, transfer agent or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent or registrar at the date of issue. 8.5 LOST CERTIFICATES Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of replacement certificates on such terms and conditions as the board may require; the board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate. 8.6 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Code shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. ARTICLE IX AMENDMENTS 9.1 AMENDMENT BY SHAREHOLDERS New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, then the authorized number of directors may be changed only by an amendment of the articles of incorporation. -26- 27 9.2 AMENDMENT BY DIRECTORS Subject to the rights of the shareholders as provided in Section 9.1 of these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the authorized number of directors (except to fix the authorized number of directors pursuant to a bylaw providing for a variable number of directors), may be adopted, amended or repealed by the board of directors. -27- 28 AMENDMENT TO PIXAR'S BYLAWS Effective upon this corporation's becoming a "listed corporation" within the meaning of Section 301.5 of the California Corporations Code, Section 2.8 of the Bylaws of this corporation shall be amended in its entirety to read as follows: "2.8 VOTING The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 702 through 704 of the Code (relating to voting shares held by a fiduciary, in the name of a corporation or in joint ownership). The shareholders' vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder at the meeting and before the voting has begun. Except as provided in the articles of incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the shareholders. Any shareholder entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or, except when the matter is the election of directors, may vote them against the proposal; but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares which the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented and voting at a duly held meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or a vote by classes is required by the Code or by the articles of incorporation. No shareholder entitled to vote at any election of directors shall be entitled to cumulate votes for candidates in nomination either (i) by giving one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are normally entitled or (ii) by distributing the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit. This paragraph shall become effective only when the corporation becomes a "listed corporation" within the meaning of Section 301.5 of the California Corporations Code. This paragraph may not be modified, amended, rescinded or repealed except by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of the holders of a majority of the outstanding shares entitled to vote." -28- 29 CERTIFICATE OF THE SECRETARY OF PIXAR I, Larry W. Sonsini, being the duly elected and acting Secretary of Pixar (the "Company"), do hereby certify that the following is a true and correct copy of a resolution adopted by the Company's Board of Directors by unanimous written consent dated June 1, 1995, and by the Company's sole shareholder by written consent effective June 1, 1995 and that such resolution has not been amended or rescinded, and is now in full force and effect: RESOLVED: That the Board approves the amendment of Article III, Section 3.2 of the Corporation's Bylaws such that the first two sentences of such section shall read in full as follows: "The number of directors of the corporation shall be not less than four (4) nor more than seven (7). The exact number of directors shall be four (4) until changed, within the limits specified above, by a bylaw amending this Section 3.2, duly adopted by the board of directors or by the shareholders." IN WITNESS WHEREOF, I have hereunto subscribed my name. DATE: June 1, 1995 /s/ LARRY W. SONSINI ---------------------- Larry W. Sonsini Secretary -29- 30 CERTIFICATE OF THE SECRETARY OF PIXAR I, Lawrence B. Levy, being the duly elected and acting Secretary of Pixar (the "Company"), do hereby certify that the following is a true and correct copy of a resolution of the Company adopted by the Board of Directors by unanimous written consent dated July 7, 1997, and that such resolution has not been amended or rescinded, and is now in full force and effect: RESOLVED: That the Board hereby approves an amendment to Article III, Section 3.2 of the Company's Bylaws such that the second sentence of the section shall read in full as follows: "The exact number of directors shall be five (5) until changed, within the limits specified above, by a bylaw amending this Section 3.2, duly adopted by the board of directors or by the shareholders." IN WITNESS WHEREOF, I have hereunto subscribed my name. DATE: July 15, 1997 /s/ LAWRENCE B. LEVY ------------------------ Lawrence B. Levy Executive Vice President, Chief Financial Officer and Secretary EX-10.1 3 1995 STOCK PLAN, AS AMENDED 1 EXHIBIT 10.1 PIXAR 1995 STOCK PLAN (as amended April 16, 1997) 1. Purposes of the Plan. The purposes of this Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant of an Option and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated thereunder. Stock Purchase Rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees appointed pursuant to Section 4 of the Plan. (b) "Board" means the Board of Directors of the Company. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Committee" means a Committee appointed by the Board of Directors in accordance with Section 4 of the Plan. (e) "Common Stock" means the Common Stock of the Company. (f) "Company" means PIXAR, a California corporation. (g) "Consultant" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services and is compensated for such services. The term Consultant shall not include Directors who are not compensated for their services or are paid only a Director's fee by the Company. (h) "Continuous Status as an Employee or Consultant" means that the employment or consulting relationship with the Company, any Parent or Subsidiary is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company. For purposes of Incentive Stock Options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract, including Company policies. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 91st day of such leave any 2 Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. (i) "Director" means a member of the Board of Directors of the Company. (j) "Employee" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (l) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination and reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is quoted on the NASDAQ System (but not on the Nasdaq National Market thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (m) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (n) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (o) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (p) "Option" means a stock option granted pursuant to the Plan. (q) "Optioned Stock" means the Common Stock subject to an Option or a Stock Purchase Right. -2- 3 (r) "Optionee" means an Employee or Consultant who receives an Option or Stock Purchase Right. (s) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (t) "Plan" means this 1995 Stock Plan. (u) "Restricted Stock" means shares of Common Stock acquired pursuant to a grant of a Stock Purchase Right under Section 11 below. (v) "Share" means a share of the Common Stock, as adjusted in accordance with Section 12 below. (w) "Stock Purchase Right" means a right to purchase Common Stock pursuant to Section 11 below. (x) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to Section 12, the maximum aggregate number of Shares which may be subject to option and sold under the Plan is 14,000,000 Shares provided, however, that beginning January 1, 1998, the number of Shares shall be increased each January 1 by three percent (3%) of the total issued and outstanding Shares on such date. In no event, except as subject to Section 12, shall more than 14,000,000 Shares be issued upon the exercise of Incentive Stock Options under the Plan. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of either an Option or Stock Purchase Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, and the original purchaser of such Shares did not receive any benefits of ownership of such Shares, such Shares shall become available for future grant under the Plan. For purposes of the preceding sentence, voting rights shall not be considered a benefit of Share ownership. -3- 4 4. Administration of the Plan. (a) Procedure. (i) Multiple Administrative Bodies. If permitted by Rule 16b-3, the Plan may be administered by different bodies with respect to Directors and Officers, and Employees and Consultants who are neither Directors nor Officers. (ii) Administration With Respect to Directors and Officers. With respect to grants of Options and Stock Purchase Rights to Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board if the Board may administer the Plan in compliance with Rule 16b-3 promulgated under the Exchange Act or any successor thereto ("Rule 16b-3") with respect to a plan intended to qualify thereunder as a discretionary plan, or (B) a Committee designated by the Board to administer the Plan, which Committee shall be constituted in such a manner as to permit the Plan to comply with Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan. (iii) Administration With Respect to Other Employees and Consultants . With respect to grants of Options and Stock Purchase Rights to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which committee shall be constituted in such a manner as to satisfy the legal requirements relating to the administration of incentive stock option plans, if any, of California corporate and securities laws, of the Code, and of any applicable stock exchange (the "Applicable Laws"). Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any stock exchange upon which the Common Stock is listed, the Administrator shall have the authority in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(l) of the Plan; -4- 5 (ii) to select the Consultants and Employees to whom Options and Stock Purchase Rights may be granted hereunder; (iii) to determine whether and to what extent Options and Stock Purchase Rights or any combination thereof, are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each Option and Stock Purchase Right granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vii) to reduce the exercise price of any Option or Stock Purchase Right to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option or Stock Purchase Right shall have declined since the date the Option or Stock Purchase Right was granted; (viii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (x) to modify or amend each Option or Stock Purchase Right (subject to Section 14 of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; (xi) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Stock Purchase Right previously granted by the Administrator; (xii) to determine the terms and restrictions applicable to Options and Stock Purchase Rights and any Restricted Stock; and -5- 6 (xiii) to make all other determinations deemed necessary or advisable for administering the Plan. (c) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options or Stock Purchase Rights. 5. Eligibility. (a) Nonstatutory Stock Options and Stock Purchase Rights may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option or Stock Purchase Right may, if otherwise eligible, be granted additional Options or Stock Purchase Rights. (b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value of Shares subject to an Optionee's Incentive Stock Options granted by the Company, any Parent or Subsidiary, which become exercisable for the first time during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds the limit imposed by Section 422(d) of the Code or any successor thereto, such excess Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (c) Neither the Plan nor any Option or Stock Purchase Right shall confer upon any Optionee any right with respect to continuation of his or her employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. (d) Upon the Company or a successor corporation issuing any class of common equity securities required to be registered under Section 12 of the Exchange Act or upon the Plan being assumed by a corporation having a class of common equity securities required to be registered under Section 12 of the Exchange Act, the following limitations shall apply to grants of Options and Stock Purchase Rights to Employees: (i) No Employee shall be granted, in any fiscal year of the Company, Options and Stock Purchase Rights to purchase more than 3,000,000 Shares. (ii) The foregoing limitation shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 12. -6- 7 (iii) If an Option or Stock Purchase Right is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 12), the cancelled Option shall be counted against the limit set forth in Section 5(d)(i). For this purpose, if the exercise price of an Option is reduced, such reduction will be treated as a cancellation of the Option and the grant of a new Option. 6. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company, as described in Section 18 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 7. Term of Option. The term of each Option shall be the term stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. Option Exercise Price and Consideration. (a) The per Share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option (1) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (2) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may consist of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the -7- 8 aggregate exercise price of the Shares as to which such Option shall be exercised, (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and a broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, (6) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement, or (7) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. Exercise of Option. (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 8(b) hereof. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote, receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 hereof. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Employment or Consulting Relationship. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant (but not in the event of an Optionee's change of status from Employee to Consultant (in which case an Employee's Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the ninety-first (91st) day following such change of status) or from Consultant to Employee), such Optionee may, but only within such period of time as is determined by the Administrator, with such determination in the case of an Incentive Stock Option not exceeding three (3) months after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in -8- 9 the Option Agreement), exercise his or her Option to the extent that the Optionee was entitled to exercise it at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of such termination, or if the Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (c) Disability of Optionee. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her "Disability," as such term is defined in Section 22(c)(3) of the Code, the Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of termination, or if the Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. In the event of the death of an Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant) by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option on the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after the Optionee's death, the Optionee's estate or a person who acquires the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Rule 16b-3. Options granted to persons subject to Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. (f) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 10. Non-Transferability of Options and Stock Purchase Rights. Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. -9- 10 11. Stock Purchase Rights. (a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer, which shall in no event exceed thirty (30) days from the date upon which the Administrator makes the determination to grant the Stock Purchase Right. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right shall be referred to herein as "Restricted Stock." (b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine. (c) Rule 16b-3. Stock Purchase Rights granted to Insiders, and Shares purchased by Insiders in connection with Stock Purchase Rights, shall be subject to any restrictions applicable thereto in compliance with Rule 16b-3. An Insider may only purchase Shares pursuant to the grant of a Stock Purchase Right, and may only sell Shares purchased pursuant to the grant of a Stock Purchase Right, during such time or times as are permitted by Rule 16b-3. (d) Other Provisions. The Restricted Stock purchase agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock purchase agreements need not be the same with respect to each purchaser. (e) Rights as a Shareholder. Once the Stock Purchase Right is exercised, the purchaser shall have rights equivalent to those of a shareholder and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan. 12. Adjustments Upon Changes in Capitalization or Merger. (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option or Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted -10- 11 or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company. The conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option or Stock Purchase Right shall terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be exercisable. If an Option or Stock Purchase Right is exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee that the Option or Stock Purchase Right shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the -11- 12 Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 13. Time of Granting Options and Stock Purchase Rights. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Employee or Consultant to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant. 14. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of the NASD or an established stock exchange), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amendment or termination of the Plan shall not affect Options or Stock Purchase Rights already granted, and such Options and Stock Purchase Rights shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. 15. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. -12- 13 16. Reservation of Shares. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. Agreements. Options and Stock Purchase Rights shall be evidenced by written agreements in such form as the Administrator shall approve from time to time. 18. Shareholder Approval. Continuance of the Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any stock exchange upon which the Common Stock is listed. -13- EX-10.19 4 DEL MONTE AGREEMENT FOR PURCHASE AND SALE 1 AGREEMENT OF PURCHASE AND SALE THIS AGREEMENT OF PURCHASE AND SALE (the "Agreement") is made and entered into as of this 6th day of September, 1996, by and between DEL MONTE CORPORATION, a New York corporation ("Del Monte"), and PIXAR ANIMATION STUDIOS, a California corporation ("Pixar"). RECITALS: This Agreement is entered into on the basis of the following facts, understandings and intentions of the parties: A. Del Monte is the owner of certain real property more particularly described in Exhibit A hereto (the "Real Property"). Pixar desires to purchase from Del Monte the Real Property, all appurtenances to the Real Property (the "Appurtenances"), and all intangible property pertaining to the Real Property and Appurtenances (the "Intangible Property"; the Real Property, Appurtenances and Intangible Property being hereinafter collectively referred to as the "Property"). B. Pixar desires to develop the Real Property for its headquarters facility (the "Headquarters Facility"). Such development is dependent upon Pixar assuring itself, in its sole discretion, that the Real Property, and Appurtenances and Intangible Property, to the extent applicable, may be developed for the Headquarters Facility. Specifically, but without limiting the generality of the foregoing, Pixar desires to assure that it can obtain the governmental and other approvals necessary -1- 2 or appropriate to develop and construct the Headquarters Facility; that the soils and environmental conditions on, and access and utilities available to, the Real Property are suitable for development, construction, operation and use of the Real Property for the Headquarters Facility; and that the state of title of the Property is acceptable to Pixar. Pixar desires to enter into this Agreement to purchase the Property, subject to performance of due diligence necessary in Pixar's sole discretion to satisfy itself with respect to such matters. C. Del Monte is willing to sell the Property to Pixar, subject to Pixar satisfying itself with respect to such matters. In order to effectuate the foregoing, the parties desire to enter into this Agreement. NOW, THEREFORE, IN CONSIDERATION of the foregoing Recitals, and the mutual covenants and obligations of the parties herein contained, the parties agree as follows: 1. Purchase and Sale. Del Monte shall sell the Property to Pixar, and Pixar shall purchase the Property from Del Monte, upon all of the terms, covenants and conditions set forth in this Agreement. 2. Purchase Price. Pixar shall pay, as the "Purchase Price" for the Property, the sum of Six Million Three Hundred Thirty-Two Thousand Forty Dollars ($6,332,040.00). Pixar shall pay the Purchase Price, after crediting against the Purchase Price the Deposit paid under Section 3(a) below (the "Net Purchase Price"), and subject to any withhold effected pursuant to Section 8(c) below, in cash through escrow as hereinafter provided. -2- 3 3. Deposit: Liquidated Damages. (a) Deposit. As an earnest money deposit on account of the Purchase Price, Pixar shall, (i) concurrently with the execution of this Agreement by the parties, deposit with Chicago Title Company of Alameda County, One Kaiser Plaza, Oakland, California ("Title Company"), the sum of One Hundred Fifty Thousand Dollars ($150,000.00) (the "Initial Deposit"); and (ii) within ninety (90) days after the date of this Agreement, if Pixar has not previously terminated this Agreement pursuant to Section 4(c) below, instruct Title Company to (A) pay to Del Monte the Initial Deposit, and (B) pay to Del Monte the additional sum of One Hundred Fifty Thousand Dollars ($150,000.00) (the "Additional Deposit"; the Initial Deposit, Additional Deposit and, if made pursuant to Section 8(b) below, the Demolition Contribution, being hereinafter collectively referred to as the "Deposit"; and the date on which Pixar is obligated to pay the Additional Deposit to Del Monte or may terminate this Agreement pursuant to Section 4(c) below being hereinafter referred to as the "Additional Deposit Date"). The Deposit shall be applied against the Purchase Price for the Property. If Pixar terminates this Agreement pursuant to Section 4(c) below within the time period therein specified, then the Initial Deposit shall be promptly repaid by Title Company to Pixar. (b) Non-Refundable Deposit: Liquidated Damages. THE PARTIES ACKNOWLEDGE THAT, AS OF THE ADDITIONAL DEPOSIT DATE, AND AT ALL TIMES THEREAFTER, THE DEPOSIT IS NON-REFUNDABLE, -3- 4 EXCEPT IN THE EVENT OF A DEFAULT BY DEL MONTE ON ITS OBLIGATIONS UNDER THIS AGREEMENT WHICH PREVENTS THE CLOSE OF ESCROW. UPON ANY TERMINATION OF THIS AGREEMENT FROM ANY CAUSE WHATSOEVER AFTER THE ADDITIONAL DEPOSIT DATE (INCLUDING THE DEFAULT OF PIXAR ON ITS OBLIGATIONS UNDER THIS AGREEMENT, SUCH AS THE OBLIGATION TO MAKE THE ADDITIONAL DEPOSIT IF PIXAR DOES NOT TIMELY TERMINATE THIS AGREEMENT PURSUANT TO SECTION 4(c) BELOW), DEL MONTE SHALL HAVE THE ABSOLUTE, UNCONDITIONAL RIGHT TO RETAIN THE DEPOSIT AS COMPENSATION IN FULL FOR ALL COSTS, EXPENSES AND DAMAGES RESULTING FROM TERMINATION OF THIS AGREEMENT, INCLUDING ON ACCOUNT OF THE DEFAULT OF PIXAR IN THE PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT. THE PARTIES HAVE DETERMINED, AFTER DUE CONSIDERATION OF ALL FACTS AND CIRCUMSTANCES PERTAINING AS OF THE DATE OF THIS AGREEMENT THAT, IN THE EVENT OF A DEFAULT OF PIXAR IN THE PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT, THE DAMAGES WHICH DEL MONTE WOULD SUFFER AS A RESULT OF SUCH DEFAULT WOULD BE IMPRACTICABLE OR IMPOSSIBLE TO ASCERTAIN. THEREFORE, AFTER DUE CONSIDERATION OF ALL SUCH FACTS AND CIRCUMSTANCES, THE PARTIES HAVE DETERMINED THAT THE AMOUNT OF THE DEPOSIT IS A FAIR AND REASONABLE AMOUNT TO COMPENSATE DEL MONTE FOR ALL SUCH DAMAGES AND SHALL CONSTITUTE DEL MONTE'S LIQUIDATED DAMAGES ON ACCOUNT OF SUCH DEFAULT IN LIEU OF ANY OTHER RIGHT OR REMEDY AVAILABLE AT LAW OR IN EQUITY (INCLUDING THE RIGHT TO PURSUE SPECIFIC ENFORCEMENT OF THIS AGREEMENT OR OTHER EXTRAORDINARY EQUITABLE RELIEF) WHICH DEL MONTE MIGHT HAVE ON ACCOUNT OF SUCH DEFAULT OF PIXAR, AND DEL MONTE HEREBY KNOWINGLY, AFTER FULL ADVICE FROM COUNSEL AND OTHER CONSULTANTS -4- 5 OF ITS CHOICE, WAIVES ANY RIGHT TO PROCEED IN LAW OR IN EQUITY ON ANY CAUSE OF ACTION OR FOR EXTRAORDINARY RELIEF, OTHER THAN TO RECOVER THE AMOUNT OF THE DEPOSIT HEREUNDER AS LIQUIDATED DAMAGES PURSUANT TO THIS SECTION 3(b). TO EVIDENCE THE FOREGOING AGREEMENT, THE PARTIES HAVE INITIALED THIS Section 3(b) WHERE INDICATED BELOW. _______ INITIALS OF DEL MONTE ______ INITIALS OF PIXAR 4. Conditions Precedent. (a) Right to Review Property. Pixar's obligation to purchase the Property is conditioned upon Pixar's review and approval, in Pixar's sole discretion, of all aspects of the Property related or germane, in Pixar's sole judgment, to Pixar's contemplated development, construction, use and operation of the Property for the Headquarters Facility. Specifically, but without limiting the generality of the foregoing, Pixar shall have the right to review and satisfy itself, in its sole discretion, that (i) it will have the ability to obtain all governmental and quasi-governmental (such as public utilities) approvals, consents and permits upon terms and conditions acceptable to Pixar, in its sole discretion, necessary or appropriate to develop, construct, use, operate and maintain the Headquarters Facility; (ii) the soils and environmental conditions on, under and about the Real Property are satisfactory for development, construction, use, operation and maintenance of the Headquarters Facility; (iii) utilities and services sufficient to support the Headquarters Facility are available and with sufficient capacity; (iv) Del Monte is in a position to -5- 6 fulfill the covenants concerning title set forth in Section 5 below in the manner and within the time periods therein specified; (v) the cost to Pixar for the design, construction, development, use, operation and maintenance of the Headquarters Facility is feasible and appropriate; and (vi) all other matters germane to Pixar's decision to proceed with the purchase and sale of the Property pursuant to this Agreement in order to develop, construct, use, maintain and operate the Headquarters Facility on the Real Property are satisfactory. (b) Efforts to Review Property. Pixar shall conduct and complete its review of the Property under Section 4(a) above with due diligence and within ninety (90) days after the date of this Agreement (the "Review Period"). Should Pixar determine at any time during the Review Period not to purchase the Property as a result of its due diligence review under Section 4(a) above, Pixar shall promptly so notify Del Monte. The parties shall cooperate in Pixar's review of the Property, communicating with each other on the progress of such review and making timely requests for cooperation where such cooperation would be useful in such review. Del Monte shall execute any and all documents reasonably necessary to assist Pixar in conducting such review, including serving as the applicant for governmental approvals to the extent required by applicable laws, ordinances, rules and regulations. Del Monte's cooperation with Pixar hereunder shall be without cost or expense to Del Monte, and to the extent such cooperation creates any liabilities for Del Monte, Pixar shall indemnify, defend, protect -6- 7 and hold Del Monte harmless from any and all such liabilities, including losses, claims, damages, causes of action, costs and expenses (such as reasonable attorneys' fees), associated with such liabilities. (c) Fulfillment and Waiver. If Pixar determines within the Review Period not to purchase the Property as a result of its due diligence review of the Property pursuant to Section 4(a) above, then Pixar shall terminate this Agreement by notice to Del Monte given within and prior to the expiration of the Review Period. The due diligence review of the Property is solely for the benefit of Pixar, and Pixar may waive such review at any time during the Review Period, but only by a notice signed by Pixar. If Pixar has not given notice of its approval of the Property or termination of this Agreement within the Review Period, then Pixar shall be deemed to have approved the Property, Pixar shall have no further right to terminate this Agreement pursuant to this Section 4(c), and the Deposit shall become nonrefundable as specified in Section 3(b) above. If Pixar terminates this Agreement as provided in this Section 4(c), then the parties shall have no further rights, obligations or liability hereunder, except for the express indemnity obligations contained in this Agreement. (d) Right of Entry: Applications for Approvals Indemnification. Del Monte shall at all times allow Pixar, and its authorized representatives and agents, full and complete access to all documents and records prepared by or on behalf of Del Monte, and surveys, inspection reports, tests and test -7- 8 results, relating to the physical and environmental condition, and utility availability and capacity, of the Real Property, (the "Property Data"). Del Monte shall, within one (1) week after the execution of this Agreement by the parties, deliver to Pixar true, correct and complete copies of all Property Data (i) previously delivered to Del Monte by Kaiser Foundation Health Plan, Inc. ("Kaiser"), in connection with Kaiser's due diligence investigation of the Property for Kaiser's contemplated acquisition of the Property, or (ii) received, prepared or generated by, or on behalf of, Del Monte in connection with its ownership, occupancy, use or sale of the Property. In addition to the Property Data from Kaiser delivered pursuant to clause (i) above, Del Monte shall, from time to time upon request of Pixar, use reasonable good faith efforts to obtain such additional surveys, inspections, reports, tests and test results from Kaiser which Kaiser may have prepared or received from consultants in connection with Kaiser's due diligence investigation of the Property for Kaiser's contemplated acquisition of the Property, but, except for using such good faith due diligence efforts, Del Monte shall have no liability to Pixar for any refusal or failure of Kaiser to supply such Property Data to Del Monte for delivery to Pixar. Pixar, and its authorized representatives and agents, shall have the right at all times, after reasonable advance notice to Del Monte and, at Del Monte's option, in the company of a Del Monte representative, to enter the Property in order to perform such tests, inspections, sampling or surveys deemed necessary or appropriate by Pixar, in its sole discretion, in -8- 9 connection with Pixar's analysis of the Real Property or attainment of governmental or other approvals for its development. As soon as reasonably practicable after performing any test, inspection or survey hereunder, Pixar shall restore the affected portion of the Real Property to a condition reasonably similar to that immediately prior to such test, inspection or survey, taking into consideration the Demolition Work to be performed by Del Monte pursuant to Section 8(b) below. Pixar shall effect entry under this Section 4(d) so as to minimize any interference with the performance of Del Monte's remediation of the Real Property under the Remediation Plan pursuant to Section 7(a)(iii) below, or with the performance of the Demolition Work. Del Monte shall cooperate with Pixar in connection with any sampling, test, inspection or survey hereunder. Del Monte shall be responsible for disposal of any drilling spoils which are generated as a result of any test, inspection or survey undertaken by Pixar hereunder, if such spoils contain hazardous materials. Del Monte shall effect such disposal pursuant to the applicable provisions of Section 7(a)(ii) below. Pixar shall indemnify, defend, protect and hold Del Monte harmless from and against any and all claims, losses, damages, liabilities, injuries, costs or expenses (including reasonable attorneys' fees) arising out of or related to such entry, or performance of such tests, sampling, inspections or surveys, except that Pixar shall have no liability under this Section 6 for any decrease in the value of the Real Property due to the discovery of any previously undiscovered hazardous materials contamination or -9- 10 other previously undiscovered property defect. (e) Hazardous Materials Tests. Notwithstanding the provisions of Section 4(d) above, if Pixar desires to perform any test, sampling or inspection with respect to the presence of hazardous materials (as defined in Section 7(a)(vi) below) in, about, on or under the Real Property, then Pixar shall so notify Del Monte, and Del Monte shall promptly perform such testing, sampling or inspection on behalf of Pixar in accordance with Pixar's specifications, utilizing Del Monte's consultants, and shall provide Pixar with the results of such testing, sampling or inspection. The reasonable cost and expense of such testing, survey or inspection (and restoration of the Real Property, if necessary) shall be paid by Pixar. Prior to commencing any testing, survey or inspection hereunder, Del Monte shall deliver to Pixar the estimate of costs and expenses thereof, and Pixar shall have the right to review and approve the amount of such costs and expenses; and if Pixar disapproves, then it shall have the right to modify the scope and/or specifications of such testing, survey or inspection, or decline to have such testing, survey or inspection performed. Pixar shall have the right to have its consultants observe, review and approve any testing, sampling or inspection performed on Pixar's behalf by Del Monte hereunder and to require Del Monte's consultants to perform at Pixar's cost as herein provided any additional testing, sampling or inspection resulting from such observation, review and approval. If Del Monte believes that performing such testing, sampling or inspection is unreasonable, it shall so -10- 11 notify Pixar and the parties shall confer and consult in good faith (together with their respective consultants, if necessary or appropriate) to attempt to agree on whether or what testing, sampling or inspection is reasonable. If the parties are unable to agree within five (5) days of Del Monte's notice to Pixar, the issue of the reasonableness of the testing, sampling or inspection requested by Pixar shall be submitted to arbitration pursuant to Section 15 below. For purposes of the foregoing, it shall be reasonable for Pixar to request and Del Monte shall not refuse to approve, as unreasonable, the following testing, sampling or inspection: (i) testing requested by any governmental agency to allow Pixar's development of the Real Property pursuant to applicable law, ordinance, order, policy, rule or regulation; (ii) soil sampling and analysis for halogenated volatile organic compounds, petroleum hydrocarbons, and/or industrial solvents, or other chemical compounds that may be related to historic activities at that location, in the vicinity of the former paint and oil storage area, located north of the former boiler house on the Real Property; (iii) sampling and analysis for polychlorinated biphenyls in the vicinity of any former or existing electrical transformers; (iv) groundwater sampling and analysis for volatile organic compounds and/or petroleum hydrocarbons on the northern and eastern property boundaries; and (v) testing, sampling, analysis and/or inspection for newly discovered conditions as a result of performance by Del Monte of the Demolition Work pursuant to Section 8 below. -11- 12 5. Title Matters. (a) Manner of Conveyance. Title to the Real Property and Appurtenances shall be conveyed from Del Monte to Pixar by grant deed in fee simple absolute (the "Deed"), subject to no exceptions to title of any kind or character other than: (i) a lien to secure payment of real estate taxes not delinquent; and (ii) the exceptions to title listed in Exhibit B hereto (collectively, the "Conditions of Title"). (b) Survey. At any time within forty-five (45) days after the date of this Agreement, Pixar may, at Pixar's cost and expense, procure an ALTA survey of the Real Property, prepared by a licensed surveyor or civil engineer acceptable to Pixar, and in form and substance acceptable, and properly certified, to Pixar and Title Company, so as to enable Title Company to issue to Pixar an Owner's ALTA 1970 Form B extended coverage title insurance policy on Close of Escrow pursuant to Section 6 below. If (i) the results of such survey show an encroachment, easement or other title defect not comprised in the Conditions of Title, and (ii) any such matter is not acceptable to Pixar in its sole discretion, Pixar shall notify Del Monte of such unacceptable condition within thirty (30) days after Pixar's receipt of the survey hereunder. Del Monte shall have thirty (30) days after receipt of Pixar's notice to cure the unacceptable defect in title to Pixar's sole satisfaction. If within such 30-day period Del Monte cannot make reasonably adequate arrangements to remove and/or relocate such matter, or obtain title insurance protection with respect thereto, then -12- 13 Pixar may either terminate this Agreement or consummate the purchase of the Property pursuant to this Agreement. If Pixar elects to consummate this transaction, any matter disclosed by the Survey shall constitute a Condition of Title. (c) Intangible Property. Del Monte shall convey the Intangible Property to Pixar by the Assignment of Intangible Property attached hereto as Exhibit C (the "Assignment"). (d) Title Insurance. Evidence of delivery of title to the Real Property in accordance with this Section 5 shall be the willingness of Title Company to issue, upon payment of its regularly scheduled premium, its Owner's 1970 Form B ALTA extended coverage policy of title insurance, with any endorsements specified by Pixar, in the amount of the Purchase Price (or such greater amount as Pixar may specify and Title Company may accept), showing title to the Real Property and Appurtenances, as applicable, vested of record in Pixar, subject to no exceptions, conditions, easements, reservations or encumbrances of any kind or character, other than the Conditions of Title (the "Title Policy"). 6. Consummation of Transaction Through Escrow. The parties shall consummate the transactions under this Agreement through escrow established at the offices of Title Company. The parties shall close escrow (the "Close of Escrow") on the date which is not later than (i) the date which is six (6) months after the date of this Agreement, or (ii) if Pixar exercises its right to cause Del Monte to commence the Demolition Work prior to the close of escrow pursuant to Section 8(b) below within ten -13- 14 (10) days after the Additional Deposit Date, then the later of (A) the date established under clause (i) above, or (B) the date of full and final completion of the Demolition Work by Del Monte pursuant to Section 8(b) below (the date established under either of the foregoing clauses (i) or (ii) being hereinafter referred to as the "Closing Date"). The parties shall make the following deposits and close escrow in the following manner: (a) Del Monte. Del Monte shall deposit into escrow: (i) the Deed, duly executed and acknowledged by Del Monte; (ii) the Assignment, duly executed and acknowledged by Del Monte; and (iii) such other documents as are necessary to close escrow in accordance with the terms and conditions of this Agreement, including appropriate escrow instructions. (b) Pixar. Pixar shall deposit into escrow: (i) the Net Purchase Price, together with such other funds as are required to pay Pixar's share of closing costs and prorations, all in immediately available funds; and (ii) such other documents as are necessary to close escrow in accordance with the terms and conditions of this Agreement, including appropriate escrow instructions. (c) Close. Title Company shall close escrow by performing the following steps in the order set forth below: (i) Record Deed. Record the Deed in the appropriate Official Records and deliver it to Pixar; (ii) Delivery of Assignment. Deliver the Assignment to Pixar; (iii)Purchase Price. After deducting Del -14- 15 Monte's share of closing costs and prorations, and effecting any withhold required pursuant to Section 8(c) below, pay the balance of the Net Purchase Price to or for the account of Del Monte; (iv) Title Insurance. Issue and deliver to Pixar one (1) original and two (2) duplicate copies of the Title Policy; and (v) Conformed Copies. Deliver to each party certified and conformed copies of all documents and instruments deposited by either party in escrow under this Section 6. (d) Costs and Fees. Del Monte shall pay one half (1/2) of the escrow fee, the premium for the CLTA premium attributable to the Title Policy in the amount of the Purchase Price and the cost of any endorsements to ensure against title defects under Section 5(b) above, recording costs for the Deed, all documentary transfer taxes and conveyancing taxes (other than transfer taxes imposed by the City of Emeryville), and one half (1/2) of any transfer taxes imposed by the City of Emeryville. Pixar shall pay the cost of any survey procured by it under Section 5(b) above, one half (1/2) of the escrow fee, and one half (1/2) of any transfer taxes imposed by the City of Emeryville, the premium for the Title Policy above the CLTA premium attributable to the Title Policy in excess of the Purchase Price and for ALTA extended coverage thereunder, together with endorsements requested by Pixar as part of the Title Policy. Any other costs or expenses of escrow shall be paid in accordance with custom and usage in the County of Alameda, California. Real estate taxes and assessments for the -15- 16 Real Property shall be prorated as of the date the Deed is recorded. (e) Delivery of Possession. Upon Close of Escrow, Del Monte shall deliver to Pixar exclusive possession of the Real Property and Appurtenances, free and clear of any rights, claims or occupancy of third parties, subject, however, to the Conditions of Title. 7. Del Monte's Covenants. Warranties and Representations. Del Monte covenants, represents and warrants to Pixar as follows: (a) Hazardous Materials. (i) Warranty and Representation. To Del Monte's knowledge, and except as disclosed by the "Environmental Reports" listed in Exhibit D hereto, there are no hazardous materials on, in, under, at or from, the Real Property, nor has any release of hazardous materials occurred or come to be located on, in, under, at or from the Real Property, and no such release threatens to enter the Real Property. Del Monte shall be solely responsible for the investigation, monitoring, removal, treatment, disposal, transport, and remediation, in accordance with all applicable laws, ordinances, rules and regulations, of all hazardous materials located on, in, under, at or from, the Real Property, or of those hazardous materials which come on to, or are released on, in, under or at the Real Property, on or before the Close of Escrow under this Agreement. Del Monte shall undertake and accomplish the foregoing in a manner acceptable to, and obtain no further action letters from, all governmental -16- 17 agencies having jurisdiction over such hazardous materials under applicable laws, ordinances, rules and regulations. (ii) Remediation of Real Property. Except as otherwise provided in Section 7(a)(iii) below, if, after the Close of Escrow under this Agreement, any hazardous material covered by this Section 7(a)(ii), regardless of whether it was previously disclosed to Pixar, remains on the Real Property, or is uncovered, encountered or discovered or otherwise revealed (including as a result of Pixar's development of the Real Property, such as grading of the Real Property for construction of improvements thereon), and Pixar is either required to perform or undertake some act or prevented from undertaking or doing some act by a governmental agency (including undertaking development, construction, use, operation or maintenance of the Headquarters Facility) on account of such hazardous materials under any applicable law, ordinance, order, policy, rule or regulation, then Pixar shall so notify Del Monte. At Pixar's option, Pixar may prepare a construction and post-construction risk management plan in consultation with governmental agencies having jurisdiction which, if prepared by Pixar, Pixar shall submit to Del Monte for review and comment and, to the extent it relates to performance by Del Monte of its obligations under this Section 7(a)(ii), for approval by Del Monte. Upon approval thereof by governmental agencies having jurisdiction and Del Monte, such risk management plan shall govern, to the extent applicable, performance by Del Monte of its obligations following Close of Escrow under this Section 7(a)(ii). Del Monte shall review, -17- 18 comment on, and approve, such risk management plan within ten (10) days after receipt thereof from Pixar and, if Del Monte fails to notify Pixar of any comment or approval thereon within such 10-day period, Del Monte shall be deemed to have approved the same. Upon receipt of Pixar's notice, Del Monte shall promptly apply for and obtain any and all necessary permits and approvals from governmental agencies having jurisdiction (including remediation, monitoring, removal, treatment, health and safety risk management and other plans related to the presence of hazardous materials on, in, under, at or from the Property) and, immediately after obtaining such permits and approvals, perform its obligations under this Section 7(a)(ii) using all due diligence. Prior to submitting any application or other information to any governmental agency to fulfill its obligations under this Section 7(a)(ii) following Close of Escrow, Del Monte shall submit such application and/or information to Pixar for review, comment and approval. Pixar shall render any approval within five (5) business days after receipt thereof from Del Monte; Pixar shall approve such application and/or information if it is consistent with the obligations of Del Monte and the applicable standards and requirements of this Section 7(a)(ii); and if Pixar has not approved such application and/or information within such 5 business-day period, then Pixar will be deemed to have approved such application and/or information. Pixar will cooperate with Del Monte in Del Monte's efforts to obtain the necessary permits and approvals from governmental agencies having jurisdiction. If -18- 19 Del Monte does not, within ten (10) days after obtaining such permits and approvals (or if none are required, within thirty (30) days after receipt of notice from Pixar), commence to perform such obligations and thereafter diligently pursue such obligations to completion, then Pixar shall have the right, at its sole option, to perform on behalf of Del Monte the obligations of Del Monte under this Section 7(a)(ii), utilizing those methods Pixar reasonably deems acceptable, and Del Monte shall promptly upon demand reimburse to Pixar all reasonable costs and expenses incurred by Pixar in the performance of such obligations on behalf of Del Monte. Pixar grants a non-exclusive license to Del Monte, and its authorized representatives and agents, to enter the Real Property under such terms and conditions as Pixar may from time to time reasonably prescribe to perform Del Monte's obligations hereunder. Prior to effecting such entry, Del Monte shall notify Pixar of its request to enter the Real Property hereunder, describe the purpose for which entry is requested and the activities to be undertaken by Del Monte, and provide to Pixar for its review and approval all plans, specifications, reports, criteria or other relevant information with respect to such activities on the Real Property hereunder. Pixar shall have ten (10) business days after receipt to comment on and approve such information; and if Del Monte has not received such comment and approval within such ten (10) business day period, then Pixar will be deemed to have approved such information. Del Monte shall effect entry solely to perform the activities described in its notice hereunder, and solely within -19- 20 the scope of the information approved by Pixar hereunder. If any portion or condition of the Real Property, or any improvements then located thereon, are damaged by any activities of Del Monte in effecting such entry or carrying out its activities hereunder, Del Monte shall restore the affected portion of the Real Property and/or improvements to the condition which existed immediately prior to such entry utilizing methods and within a time frame for performance acceptable to Pixar. Del Monte shall effect entry under this Section 7(a)(ii) so as to minimize any interference with the use and occupancy by Pixar of, or conduct of business by Pixar on, the Real Property and the improvements then located thereon. Del Monte shall indemnify, defend, protect and hold Pixar harmless from and against any and all claims, liens, losses, damages, liabilities, injuries, costs or expenses (including reasonable attorneys' fees) arising out of or related to any entry effected hereunder. To the extent applicable, transportation and disposal of hazardous materials from the Real Property (including pursuant to Section 7(a)(iii) below) shall take place under a hazardous waste manifest designating Del Monte as the generator and utilizing Del Monte's hazardous waste generator number or, if a hazardous waste manifest is not applicable to the hazardous material, pursuant to a substantially equivalent non-hazardous material manifest showing that Del Monte is the party responsible for the generation, shipment, transportation and disposal of the hazardous material. All costs and expenses of compliance by Del Monte with its obligations under this Section 7(a)(ii) shall be borne solely by Del Monte. -20- 21 In addition, if as a result of an occurrence or circumstance pursuant to which Del Monte must perform its obligations under this Section 7(a)(ii) and (i) as a result thereof, Pixar is required to uncover or reperform work of construction in its Headquarters Facility, or (ii) the completion of the critical path construction schedule for construction of the Headquarters Facility is delayed by more than five (5) days, then in either such event Del Monte shall reimburse Pixar for all actual, reasonable out-of-pocket expenses incurred by Pixar on account of such occurrence or events. Subject to the foregoing, Del Monte shall have no liability to Pixar for consequential damages arising out of any occurrence or events giving rise to performance by Del Monte, or the actual performance by Del Monte, of its obligations under this Section 7(a)(ii). (iii) Remediation of Existing Conditions. With respect to the conditions identified in the Environmental Reports (other than the Asbestos Reports identified in Exhibit F hereto), Del Monte has developed and implemented a plan to remediate all such conditions (the "Remediation Plan"). The Remediation Plan has been preliminarily approved by the California Regional Water Quality Control Board for the San Francisco Bay Region (the "Regional Board") and Alameda County Department of Environmental Health (the "Alameda County DEH") and Del Monte is in the process of obtaining, and shall obtain as soon as possible after the date of this Agreement, the Regional Board's and Alameda County DEH's final approval of implementation of the Remediation Plan. Promptly after obtaining such final -21- 22 approval, Del Monte shall complete implementation of the Remediation Plan as required by the Regional Board, Alameda County DEH and any other agencies having jurisdiction over such activities (the Regional Board, Alameda County DEH and such other agencies being hereinafter collectively referred to as the "Jurisdictional Agencies"), and shall diligently continue to perform the Remediation Plan to completion in accordance with its terms, subject only to the monitoring and any further actions hereinafter specified. If Pixar elects to require Del Monte to perform the Demolition Work prior to the Close of Escrow pursuant to Section 8(b) below, then Del Monte shall complete the Remediation Plan as herein specified on or before Close of Escrow (subject to extensions only for force majeure causes beyond Del Monte's reasonable control, in which event the Closing Date determined in accordance with Section 6 above shall be delayed by one day for each day of delay in completion of the Remediation Plan in accordance with the foregoing provisions); and if Pixar does not elect to require Del Monte to perform the Demolition Work prior to the Close of Escrow pursuant to Section 8(b) below, then Del Monte shall complete the Remediation Plan as herein specified as soon as possible after the completion of the Demolition Work. Upon completion of the Remediation Plan hereunder, Del Monte shall obtain and provide to Pixar a true, correct and complete copy of all no further action letters from the Jurisdictional Agencies, in standard form and substance (exemplars of which are attached hereto as Exhibit E), which approves Del Monte's remediation activities, the Remediation -22- 23 Plan, and the implementation of the Remediation Plan, and which requires no further remediation action, other than monitoring of wells, if any, pursuant to the Remediation Plan (the "No Action Letters"). Del Monte shall continue to undertake those actions (including monitoring of wells if required) necessary to complete the Remediation Plan, obtain any final approvals or sign-offs from any Jurisdictional Agencies as may be required under applicable laws, ordinances, rules and regulations, and remediate all hazardous materials as required by the Remediation Plan, consistent with the requirements of all Jurisdictional Agencies. If, after completion of the Remediation Plan and issuance of the No Action Letters, monitoring, remediation, removal or investigatory work is required by the Jurisdictional Agencies for any hazardous materials which were located on, in, under, at or from the Real Property on or before the Close of Escrow under this Agreement, whether or not covered by the Remediation Plan, then Del Monte shall promptly perform such work pursuant to Section 7(a)(ii) above. If any of the Jurisdictional Agencies requires continued maintenance or installation of monitoring wells on the Real Property which will remain in place after Close of Escrow, Pixar shall have the right to review and approve the location of such monitoring wells and shall have the right to decline to approve the location of such monitoring wells if such monitoring wells are to be located under planned buildings, improvements or structures which Pixar intends to locate on the Property. If, after approval of the location of such monitoring wells, a Jurisdictional Agency requires that a monitoring well be -23- 24 relocated, then Del Monte shall be responsible for affecting such relocation pursuant to Section 7(a)(ii) above and shall pay the cost of such relocation; but if Pixar desires to relocate a monitoring well after Pixar's approval of the location thereof, then Pixar shall, subject to obtaining the prior approval of the Jurisdictional Agencies, be responsible for affecting such relocation and the cost thereof. Upon approval by the Jurisdictional Agencies of closure of any monitoring well maintained hereunder, Del Monte shall effect such closure in accordance with the applicable requirements of the Jurisdictional Agencies, and any other governmental agencies having jurisdiction. To the extent applicable, the provisions of Section 7(a)(ii) shall apply to Del Monte's obligations hereunder, including the access license granted thereunder and the use of Del Monte's hazardous waste generator number for effecting the Hazardous Materials Plans described hereunder. Del Monte shall bear all costs and expenses of performing its obligations under this Section 7(a)(iii). (iv) Disclaimer. Subject to the matters set forth in Sections 7(a)(i) and (iii), Del Monte has not received any notice of any action or proceeding relating to any hazardous materials or any release thereof on, in, under, at or from the Real Property. Except as disclosed by the Environmental Reports, neither Del Monte, nor to Del Monte's best knowledge, any predecessor in interest as owner, occupant or operator of the Real Property, or any portion of the Real Property, or any facility located thereon, nor any other third person, used, -24- 25 generated, manufactured, stored, released or disposed of on, in, at or under the Real Property, or transported to or from the Real Property, any hazardous materials. (v) Indemnification by Del Monte. Del Monte shall retain and assume responsibility for, and shall indemnify, defend, protect and hold harmless, Pixar and its directors, officers, employees, agents, licensees, invitees, contractors, and their respective directors, officers, employees and agents, from and against any and all liabilities, losses, damages, claims, causes of action, costs or expenses arising out of or relating to the presence or release of hazardous materials on, under, at or from the Real Property on or before the Close of Escrow under this Agreement, including: (i) all damages directly or indirectly arising out of the use, generation, storage, release or disposal of hazardous materials; (ii) all reasonable attorneys' and consultants' fees; and (iii) the costs of preparing, obtaining approval of and implementing the Remediation Plan or the measures described in Section 7(a)(ii), or of any other repair, cleanup, removal or decontamination required of Del Monte by this Section 7(a), and the preparation and implementation of any closure plans, whether such action is required of Del Monte prior to or following transfer of title of the Real Property to Pixar or the issuance of any No Action Letter. (vi) Definition of Hazardous Materials. As used herein, "hazardous materials" includes: petroleum; asbestos; radioactive materials; and all substances defined as -25- 26 "hazardous substances," "hazardous materials," "hazardous wastes," "solid wastes," "pollutants" or "contaminants" (or words of similar import) in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801, et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Porter-Cologne Water Quality Control Act (California Water Code 13000, et seq.), the Hazardous Waste Control Law (California Health and Safety Code 25100, et seq.), and any other similar applicable laws or the regulations promulgated thereunder. (vii) Successors Bound. In addition to the provisions of Section 13 below regarding successors to and assigns of the parties, if a third-party acquires all or substantially all of Del Monte's assets by a transaction other than the acquisition of all or substantially all of the outstanding shares of Del Monte (or such portion thereof that such third-party obtains effective control of the management and affairs of Del Monte), then Del Monte shall in connection with such transaction require that such third-party assume in writing all of the obligations and be bound by the provisions of this Section 7(a). In the event of such a transaction, Del Monte shall deliver to Pixar such written assumption agreement promptly after the consummation of such transaction. (b) Pending Assessments and Eminent Domain. Del Monte has no knowledge, and has received no notice, of any pending proceeding for the imposition of any special assessment, -26- 27 or the formation of a special assessment district, or for a proceeding in eminent domain, any of which would affect in any manner the Real Property, or any portion thereof. (c) Copies of Documents. All of the plans, specifications, documents, reports, studies and other materials which Del Monte has prepared and provides to Pixar under this Agreement are complete, true and correct copies thereof; and all of the plans, specifications, documents, reports, studies and other materials prepared by third parties which Del Monte provides to Pixar under this Agreement are, to Del Monte's knowledge, complete, true and correct copies thereof. (d) Non-Foreign Status. Del Monte is not a foreign person, foreign corporation, foreign partnership, foreign trust or foreign estate, as those terms are defined in the Internal Revenue Code and Regulations thereunder. At the Close of Escrow, Del Monte shall deliver to Pixar a fully executed affidavit in the form attached hereto as Exhibit H. (e) Authority. Del Monte has full power and authority, and has obtained all necessary consents, to enter into this Agreement, to sell and transfer the Property to Pixar and to otherwise perform its obligations under this Agreement. The persons executing this Agreement on behalf of Del Monte have full power and authority so to do in accordance with the foregoing. (f) No Litigation or Other Breach. No litigation, proceeding (administrative or otherwise), order, or judgment is pending or outstanding against, or affects, Del Monte, or the Real Property, or any portion thereof, and Del -27- 28 Monte has not committed any breach of any agreement, document or instrument to which Del Monte is a party, any of which could in any manner adversely affect the Real Property, or any portion thereof, or adversely affect Del Monte's ability to perform its obligations under this Agreement. (g) Compliance With Laws. To Del Monte's knowledge, the Real Property, and every portion thereof, is in compliance with all laws, ordinances, rules and regulations governing the use and operation thereof and Del Monte has not received any notice of violation of any such laws, ordinances, rules or regulations, except as disclosed in the Environmental Reports. (h) Agreements With Respect to Property. On or before the Close of Escrow, Del Monte shall not enter into any contracts, agreements or leases which would create any rights in or encumbrance on the Property, or any portion thereof or interest therein, which would survive the Close of Escrow. On or before the Close of Escrow, Del Monte shall terminate all contracts, agreements or leases which would create any rights in or encumbrances on the Property, or any portion thereof or interest therein. On or before the Close of Escrow, Del Monte shall perform all obligations which pertain to the Property, or the ownership, use or occupancy thereof, and shall indemnify, defend, protect and hold harmless Pixar, and its directors, officers, employees, agents and authorized representatives, from and against any and all claims, liabilities, losses, damages, causes of action, costs or expenses (including reasonable -28- 29 attorneys' fees), arising out of or in connection with the Property, or the use or occupancy thereof, and accruing on or before the Close of Escrow, other than those arising out of Pixar's entry of the Real Property pursuant to Section 4(d) above. (i) Disclosure by Del Monte of Material Information. To Del Monte's knowledge, Del Monte has, or will, prior to the Close of Escrow, disclose to Pixar all material information regarding the physical condition and state of title of, and utility availability to, the Real Property. The warranties and representations of Del Monte under this Section 7 shall be deemed restated and remade by Del Monte in their entirety as of Close of Escrow under this Agreement. In addition to the other indemnities contained in this Section 7, Del Monte shall indemnify, defend, protect and hold harmless Pixar, and its directors, officers, employees, agents, and authorized representatives, from and against all liabilities, losses, damages, claims, causes of action, costs or expenses (including reasonable attorneys' fees), arising out of or relating to any breach by Del Monte of any of the warranties, representations or covenants contained in this Section 7. Whenever in this Section 7 reference is made to the "knowledge" of Del Monte in connection with Del Monte's warranties and representations contained in this Section 7, such reference shall mean the actual knowledge, as of the date of this Agreement, of Steven P. Ronzone, Director of Property Management of Del Monte, -29- 30 and any former and current employee of Del Monte that Del Monte could reasonably expect to have such knowledge and in connection with the environmental condition of the Real Property also the knowledge of CH2MHill, Inc., or any other consultant retained by Del Monte in connection with rendering services to Del Monte on the environmental condition of the Real Property, which has been communicated in writing or otherwise by such consultant to any employee of Del Monte. 8. Demolition and Asbestos Removal: Pixar Right to Grade Site. (a) Del Monte Demolition Work and Asbestos Removal. Del Monte has informed Pixar that the improvements on the Real Property contain asbestos, and that some asbestos has been removed by Environmental Control Industries under the supervision of Clayton Environmental pursuant to the requirements of governmental agencies having jurisdiction over such activities and pursuant to the Asbestos Reports and specifications prepared by Clayton Environmental identified in Exhibit F hereto (the "Asbestos Specifications"). Except as otherwise provided in Section 8(b), Del Monte shall, using a qualified, reputable, experienced, licensed contractor or contractors selected by Del Monte in its sole discretion, promptly after the Close of Escrow, demolish all improvements located on the Real Property (the "Demolition Work") in accordance with the specifications attached hereto as Exhibit G (the "Demolition Specifications") and, in connection with the Demolition Work, remove and dispose of all debris and all asbestos from the Real Property in accordance with -30- 31 the requirements of the Demolition Specifications and of governmental agencies having jurisdiction, all applicable laws, ordinances, rules and regulations, and the Asbestos Reports and Asbestos Specifications. Prior to bidding or negotiating a contract for performance of the Demolition Work, Del Monte shall provide to Pixar complete copies of all plans and specifications prepared by or on behalf of Del Monte for the Demolition Work; and Pixar shall have the right to review and comment on such plans and specifications to ensure consistency with the Asbestos Specifications and Demolition Specifications. Pixar shall complete such review and comment within ten (10) days after receipt of such plans and specifications from Del Monte and, if Pixar has not notified Del Monte of any comments thereon within such 10-day period, then Pixar shall be deemed to have no comments thereon. Del Monte shall complete the Demolition Work (including removal and disposal of all debris and all asbestos from the Real Property) not later than four (4) months after the Close of Escrow (subject to extensions only for force majeure causes beyond Del Monte's reasonable control). Transportation and disposal of the asbestos from the demolished improvements shall take place under a hazardous waste manifest designating Del Monte as the generator and utilizing Del Monte's hazardous waste generator number. Upon completion of the Demolition Work, Del Monte shall deliver to Pixar all permits, notices, approvals and sign-offs required from or by governmental agencies having jurisdiction under applicable laws, ordinances, rules and regulations and copies of all manifests and receipts with respect -31- 32 to completion of the Demolition Work and the removal and disposal of asbestos and other materials from the Real Property. If, after the Close of Escrow, Pixar discovers during the course of initial development of the Real Property for Pixar's intended purposes any materials or structures which were required to be removed by Del Monte in accordance with the Demolition Specifications, Pixar shall so notify Del Monte and shall upon giving such notice have the right to effect such removal, transport and disposal, and Del Monte shall reimburse Pixar for all reasonable costs and expenses incurred by Pixar for such removal, transport and disposal; or, upon written notice from Pixar to Del Monte, Del Monte shall promptly effect such removal, transport and disposal at Del Monte's sole cost and expense, but without undue interference with the performance by Pixar of its development activities on the Real Property. If, upon receipt by Del Monte of Pixar's notice hereunder, Del Monte disputes that it was required to remove any or all of the materials or structures identified in Pixar's notice in accordance with the Demolition Specifications, such dispute shall be resolved by arbitration pursuant to Section 15 below. (b) Performance of Demolition Work and Asbestos Removal Prior to Close of Escrow. Pixar may elect, at any time after the date of this Agreement and before ten (10) days after the Additional Deposit Date, to require that Del Monte perform the Demolition Work (including removal and disposal of all debris and all asbestos from the Real Property) pursuant to Section 8(a) above, in accordance with the terms and conditions of this -32- 33 Section 8(b). Pixar shall make such election by written notice to Del Monte and, if Pixar makes such election prior to the Additional Deposit Date, such election shall be accompanied by the Additional Deposit, the instructions to title company to pay to Del Monte the Initial Deposit and a waiver by Pixar of any right to terminate this Agreement pursuant to Section 4(c) above. Promptly after receipt of Pixar's notice, Del Monte shall commence the Demolition Work and complete the Demolition Work not later than four (4) months after the date of Pixar's notice (subject to force majeure causes beyond Del Monte's reasonable control) in accordance with the provisions of Section 8(a) above. Pixar shall reimburse Del Monte for fifty percent (50%) of the cost of performing the Demolition Work up to an amount not exceeding Two Hundred Thousand Dollars ($200,000) (the "Maximum Reimbursement Amount"). Reimbursement to Del Monte by Pixar of the cost of the Demolition Work hereunder shall be effected on a progress payments basis as the Demolition Work proceeds upon receipt by Pixar of Del Monte's contractor's applications for payment, conditional (or final, if applicable) lien releases and waivers from such contractor and all subcontractors and material suppliers in the form required by applicable California law, and a certification by an authorized officer or representative of Del Monte that the costs shown due by the contractor's application for payment have been duly incurred and are due and owing by Del Monte, and that the Demolition Work has progressed to the point indicated in accordance with the contractor's application in accordance with the -33- 34 requirements of Section 8(a) above. Within twenty (20) days after receipt of such information by Pixar, Pixar shall reimburse Del Monte for fifty percent (50%) of the amount shown due on the contractor's application for payment up to, but not exceeding in the aggregate, the Maximum Reimbursement Amount. Upon reimbursement by Pixar of the Maximum Reimbursement Amount, Del Monte shall bear all further costs for performance of the Demolition Work hereunder. All amounts paid by Pixar to Del Monte as reimbursement for the cost of the Demolition Work hereunder shall be credited against the Net Purchase Price at the Close of Escrow. (c) Establishment of Cost of Demolition Work and Asbestos Removal: Withhold at Escrow. The cost for performance of the Demolition Work by Del Monte pursuant to Section 8(a) shall be established either by competitive bidding, or by a negotiated bid. Del Monte shall have the right, in its sole discretion, to utilize either procedure, and shall establish the cost for the performance of the Demolition Work in all events prior to the Close of Escrow (or if Pixar elects to cause Del Monte to perform the Demolition Work prior to the close of escrow pursuant to Section 8(b) above, in a manner which enables Del Monte to perform the Demolition Work in accordance with the time period for completion therein specified). Upon establishment of the cost of the Demolition Work hereunder, Del Monte shall provide to Pixar a copy of the contract with the contractor performing the Demolition Work, setting forth the cost of the Demolition Work. Unless Pixar exercises its option to require -34- 35 Del Monte to commence the Demolition Work prior to the Close of Escrow pursuant to Section 8(b) above, an amount equal to one hundred-twenty-five percent (125%) of the cost of the Demolition Work as established hereunder shall be withheld with Title Company in escrow until completion by Del Monte of the Demolition Work pursuant to the provisions of Section 8(a) above. Upon submission by Del Monte to Title Company and to Pixar of the final application for payment from the contractor performing the Demolition Work, final lien releases and waivers in accordance with applicable California law from such contractor and all subcontractors and material suppliers, and a certification by an authorized officer or representative of Del Monte that final payment is due such contractor, and that the Demolition Work (including removal and disposal of all debris and all asbestos from the Real Property) has been completed in accordance with Section 8(a) above, then the amount withheld in escrow hereunder shall be released and paid to Del Monte within five (5) business days after such submission in accordance with its instructions. (d) Pixar Right to Grade Site. Upon completion by Del Monte of the Demolition Work, Pixar shall have the right to enter the Real Property in order to commence grading of the Real Property pursuant to Pixar's grading specifications therefor. Pixar shall effect entry hereunder pursuant to the applicable provisions of Section 4(d) above (including the indemnity provisions therein contained), shall pay all costs and expenses of its grading activities hereunder (unless such cost or expense is attributable to, or any other liability arises as a -35- 36 consequence of, the presence of hazardous materials on, in, under or about the Real Property covered by Section 7(a)(ii) above), and shall perform grading activities in order to prepare the Real Property for development by Pixar of the improvements thereon for Pixar's intended use of the Real Property in accordance with applications made by Pixar for .applicable governmental permits and approvals for such development. Pixar shall provide to Del Monte copies of all specifications for such grading work for Del Monte's review and approval prior to effecting entry to commence grading hereunder. 9. Pixar Covenants, Warranties and Representations. Pixar covenants, represents and warrants to Del Monte as follows: (a) Authority. Pixar has full power and authority, and has obtained all necessary consents, to enter into this Agreement, to purchase the Real Property to Pixar and to otherwise perform its obligations under this Agreement. The persons executing this Agreement on behalf of Pixar have full power and authority so to do in accordance with the foregoing. (b) No Litigation or Other Breach. No litigation, proceeding (administrative or otherwise), order, or judgment is pending or outstanding against, or affects, Pixar, and Pixar has not committed any breach of any agreement, document or instrument to which Pixar is a party, any of which could adversely affect Pixar's ability to perform its obligations under this Agreement. (c) Agreements with Respect to Property. Except as provided in Sections 7(a) and (h) and Section 8s, after the -36- 37 Close of Escrow, Pixar shall assume all obligations with respect to the Property transferred to Pixar under this Agreement, and shall, except as otherwise provided in Sections 7(a) and (h) and Section 8 above, indemnify, defend, protect and hold harmless Del Monte, and its directors, officers, employees, agents and authorized representatives, from and against any and all claims, liabilities, losses, damages, causes of action, costs or expenses (including reasonable attorneys' fees), arising out of or in connection with the Property, or the use or occupancy thereof, and accruing after the Close of Escrow. (d) As-Is Transaction. Except for the warranties and representations made by Del Monte under Section 7 above, Pixar understands and acknowledges, and hereby warrants and represents, that it is purchasing the Property in its "as-is" condition as of the date of Close of Escrow and that, except for Del Monte's warranties and representations contained in this Agreement, it has relied entirely on its own independent investigation of the condition of the Property and the utility of the Property for Pixar's intended use. The warranties and representations of Pixar under this Section 8 shall be deemed restated and remade by Pixar in their entirety as the date of Close of Escrow under this Agreement. In addition to the other indemnity contained in this Section 9, Pixar shall indemnify, defend, protect and hold harmless Del Monte, and its directors, officers, employees, agents, and authorized representatives, from and against all liabilities, losses, -37- 38 damages, claims, causes of action, costs or expenses (including reasonable attorneys' fees), arising out of or relating to any breach by Pixar of any of the warranties, representations or covenants contained in this Section 8. 10. Exclusive Rights. The parties understand and acknowledge that, prior to the Additional Deposit Date (or earlier waiver of the right of Pixar to terminate this Agreement pursuant to Section 4(c) above), the parties have a material interest in not actively negotiating with third-parties, in the case of Pixar for alternative sites for its Headquarters Facility, and in the case of Del Monte for backup offers for the purchase and sale of the Property. Accordingly, prior to the Additional Deposit Date (or if earlier, the date Pixar waives its right to terminate this Agreement pursuant to Section 4(c) above), Pixar shall not pursue or investigate any alternative sites for its Headquarters Facility, or respond to proposals for, or engage in, negotiations for such acquisition, or physical or environmental review of any such alternative sites, and Del Monte shall not undertake any activities to market the Property to third-parties, including negotiation with third-parties who may have an interest in acquiring the Property, soliciting offers therefore or engaging real estate brokers or finders for such purpose. 11. Confidentiality Agreement. Concurrently with the execution of this Agreement by the parties, the parties shall enter into the Confidentiality Agreement in the form attached hereto as Exhibit I, pursuant to which the information, -38- 39 documents, data, studies and reports covered by the Confidentiality Agreement shall be kept confidential. The provisions of the Confidentiality Agreement are incorporated into and made a part of this Agreement as if set forth in full in this Agreement. Pixar shall provide its consultants and agents who inspect, study and evaluate the Property with a copy of this Section 11 and the Confidentiality Agreement and obtain such consultants and/or agents' agreement to be bound by the terms of this Section 11 and the Confidentiality Agreement. 12. Brokerage Commission. Pixar has informed Del Monte that Pixar retained AMB Corporate Real Estate Advisors ("AMB") as a real estate broker in connection with the transactions contemplated by this Agreement. Del Monte has informed Pixar that Del Monte has retained the Koll Company ("Koll") and Gray & Reynolds ("G&R") as real estate brokers in connection with the transactions contemplated by this Agreement. Pixar shall pay to AMB any commissions or fees due AMB on account of the transactions under this Agreement pursuant to separate agreements entered into between Pixar and AMB; and Del Monte shall pay to Koll and G&R any commissions or fees due Koll and/or G&R on account of the transactions under this Agreement pursuant to separate agreements entered into between Del Monte and Koll and G&R. Subject to the foregoing, Pixar and Del Monte each warrant and represent to the other that they have dealt with no real estate broker, agent or finder in connection with the transactions contemplated by this Agreement, in a manner which would give rise to a claim by any such person as a procuring -39- 40 cause of the transactions contemplated by this Agreement, or payment of any fee or commission on account thereof. Each party shall indemnify, defend, protect and hold the other party harmless from and against any and all claims, liabilities, losses, causes of action, costs or expenses (including reasonable attorneys' fees), arising out of- the breach by the indemnifying party of the foregoing warranty and representation. 13. Successors and Assigns. Neither party shall have the right to assign this Agreement, or any of its rights, duties, or obligations hereunder, except that Pixar shall have the right, without Del Monte's written approval, to assign this Agreement, or any of its rights, duties or obligations hereunder, or to direct that title to the Property be conveyed directly without an assignment of this Agreement to any of the following (each of which is referred to herein as a "Permitted Pixar Transferee"): (i) a subsidiary or affiliate of Pixar formed for the purpose of acquiring the Property pursuant to this Agreement, or to a third party which acquires all or substantially all of Pixar's assets or stock, or into which Pixar is merged (a "Pixar Entity"); or (ii) an entity, whether or not a Pixar Entity, in connection with the implementation of any financing for the purchase of the Property, including a sale/leaseback, any transaction commonly known as a "synthetic lease," "tax ownership/operating lease," or "off balance sheet financing," or any other arrangement with a related or unrelated entity pursuant to which the assignee grants to Pixar (or any Pixar Entity) the right to lease the Property following Close of Escrow under this Agreement. In connection -40- 41 with any assignment by Pixar permitted by this Section 13, Pixar shall not be required to delegate any of its duties under this Agreement, nor shall the Permitted Pixar Transferee be required to assume any of the obligations or liabilities of Pixar under this Agreement (including liability for Pixar's representations, indemnity obligations and warranties under this Agreement, except the obligations of Pixar under Section 7(a)(ii) which arise after the Close of Escrow, which the Permitted Pixar Transferee shall either assume or expressly delegate to Pixar the responsibility and obligation for performance of such obligations), but whether or not such duties are delegated or assumed, the obligations, indemnities, representations and warranties made by Del Monte pursuant to this Agreement (including the provisions of Section 7(a) above) shall inure to the benefit of and be enforceable by any Permitted Pixar Transferee to the extent of the assignment thereof effected by Pixar to such Permitted Pixar Transferee hereunder. Del Monte shall have the right, without Pixar's written approval, but subject to the provisions of Section 7(a)(vii), above to assign this Agreement, and the rights and obligations of Del Monte under this Agreement, to any parent, subsidiary or affiliate of Del Monte, which concurrently receives title to the Real Property. In the event either party effects an assignment of this Agreement in whole or in part, pursuant to the foregoing provisions, then the assigning party shall provide to the other party notice of such assignments, together with the name and principals of the assignee, a copy of the documents assigning the Agreement in whole or in part (including any rights -41- 42 assigned), and the basis on which the assignee satisfies the conditions of this Section 13. Subject to the foregoing, the terms, covenants and conditions herein contained shall be binding upon and inure to the benefit of the parties, and their respective heirs, successors and assigns, except that (i) the obligations of a party shall only be binding on an assignee of such party to the extent they are expressly assumed in writing by such assignee, (ii) no assignment effected by a PARTY SHALL diminish the rights of either Del Monte or Pixar or enlarge the obligations of either Del Monte or Pixar under this Agreement, and (iii) the assigning party shall remain personally liable for the performance of all of its obligations under this Agreement following any such assignment. Any assignments made in violation of the provisions of this Section 13 shall null and void and in no force or effect. 14. Notices. All notices required to be given, or otherwise formally given, under this Agreement shall, to be effective, be in writing. The address of each party for the purpose of all notices permitted or required by this Agreement is as follows: To Del Monte: One Market Plaza P.O. Box 193575 San Francisco, California 94119 Attn: Steven P. Ronzone, Director of Property Management With copies to: Del Monte Corporation One Market Plaza P.O. Box 193575 San Francisco, California 94119 Attn: Janet E. Shestakov, Associate Counsel -42- 43 To Pixar: 1001 West Cutting Richmond, California 94804 Attn: Thomas G. Carlisle, Facilities Director With copies to: Cassidy, Cheatham, Shimko & Dawson 20 California Street, Suite 500 San Francisco, California 94111 Attn: Stephen K. Cassidy The notice address of either party set forth above may be changed by written notice given not less than five (5) days prior to the date such change is to be effected. All notices under this Agreement shall be in writing, shall be properly addressed and shall be sent by personal delivery, by United States Mail (registered, certified, or Express Mail, return receipt requested and postage prepaid), or by courier delivery service. All such notices shall be considered delivered: (i) if personally delivered, on the date of delivery; (ii) if sent by United States Mail in the manner prescribed above, on the date shown on the return receipt for acceptance or rejection; or (iii) if sent by courier delivery service, on the date of delivery as shown by the written delivery record of such service. 15. Arbitration of Dispute. All disputes ensuing under this Agreement shall be made by arbitration, conducted in accordance with this Section 15, except that a party may seek prohibitory injunctive relief without first submitting such matter or dispute to arbitration. The parties may mutually agree to a different alternative dispute resolution mechanism by jointly executing an agreement in writing describing such alternative mechanism. -43- 44 (a) Selection of Arbitrators. By written notice to the other party, a party shall request a meeting to be held within twenty (20) days after sending such notice, to be attended by the other party for the purpose of resolving any such dispute. At such meeting, the parties shall attempt in good faith to resolve the dispute. If the dispute is not resolved at such meeting, or if the meeting is not held, either party may, within ten (10) days after the date of (or set for) such meeting, make a written request to resolve such dispute by arbitration. (b) Selection of Arbitrators. Within ten (10) days after the date of receipt of such notice, each party shall select an arbitrator. Such arbitrators shall meet within twenty (20) days after selection for the purpose of resolving the dispute. If, within such 20-day period such arbitrators are unable to resolve the dispute, then within an additional 5-day period after the expiration of such 20-day period, they shall select a third neutral arbitrator. If such arbitrators are unable, within such 5-day period, to appoint the third arbitrator hereunder, the parties shall jointly appoint such third arbitrator within an additional 5-day period. If the parties are unable to appoint such third arbitrator within such additional 5-day period, then either party may request appointment of such third arbitrator by the then head official of the San Francisco office of the American Arbitration Association, and neither party shall raise any objections as to the appointment made by such official or as to such official's full power and jurisdiction to entertain the application for and make the appointment. Within -44- 45 twenty (20) days after selection of the third arbitrator hereunder, the arbitrators shall meet for the purpose of resolving the dispute and shall render a decision resolving the dispute within thirty (30) days after the selection of the third arbitrator hereunder. Upon appointment of a third arbitrator hereunder, a majority decision shall be final at any stage of the proceeding, absent fraud or gross error. The arbitrators shall resolve the dispute solely in accordance with the applicable provisions of this Agreement with respect to the matter or dispute in arbitration, and the arbitrators shall have no power to modify any of the provisions of this Agreement. If an arbitrator appointed hereunder dies, resigns, refuses to act or becomes legally incapacitated, his or her replacement or successor shall be appointed in like manner specified in this Section 15. In any arbitration proceeding hereunder, each arbitrator shall have substantial training and professional experience in the subject matter of the arbitration, but shall not have been employed by a party for at least five (5) years prior to the arbitration proceeding. The losing party in the arbitration as determined by the arbitrators shall bear the costs and expense of all arbitrators. (c) Decision: Effect of Decision. The arbitrators shall render their decision in writing and as promptly as possible after the designation of the last arbitrator, but in no event later than one-hundred-eighty (180) days after the date of the designation of the last arbitrator. A copy of the decision of the arbitrators shall be signed by at least a majority of the -45- 46 arbitrators and given to each party in the manner provided in Section 14 for the giving of notice. The decision of the arbitrators shall be final, conclusive and binding on the parties, absent fraud or gross error. The decision of the arbitrators may be entered as a judgment in a court of competent jurisdiction. (d) Procedural Rules. All arbitration under this Section 15 shall be conducted in accordance with the applicable rules of the American Arbitration Association, to the extent such provisions do not conflict with the procedures herein set forth. Except as provided in this Section 15, compliance with this Section 15 is a condition precedent to the commencement by a party of judicial proceeding arising out of a matter or dispute which is subject to arbitration hereunder. All statutes of limitation that would otherwise be applicable shall apply to any arbitration proceeding hereunder. Any attorney-client privilege and other protections against disclosure of confidential information, including any protection afforded by the work product privilege for attorneys that could otherwise be claimed by a party shall be available to and may be claimed by such party in any arbitration proceeding hereunder. California Code of Civil Procedure 1283.05, and any successor statute, shall apply to any and all discovery matters in any arbitration proceeding hereunder. Neither party waives any attorney-client privilege or any other privilege against disclosure of confidential information by reason of anything contained in or done pursuant to or in connection with this Section 15. All arbitration -46- 47 proceedings hereunder may be reported by a certified shorthand court reporter and written transcripts of such proceedings made available to a party at its cost:. Any arbitration proceeding hereunder shall be conducted in the City and County of San Francisco, California. 16. Entire Agreement; Amendment. This Agreement, together with the Exhibits hereto, contains all the representations and the entire understanding between the parties with respect to the subject matter hereof. Any prior correspondence, memoranda or agreements are replaced in total by this Agreement and the Exhibits hereto. This Agreement may be amended only by a written agreement so specifying, executed by both parties. 17. Construction and Interpretation. This Agreement has been fully negotiated at arms' length between the parties, after advice by counsel and other representatives chosen independently by each party, and the parties are fully informed with respect thereto. Therefore, neither party shall be deemed the scrivener of this Agreement, and the provisions of this Agreement and Exhibits hereto shall be construed as a whole according to their common meaning and not strictly for or against either party. The captions preceding the text of each Section and subsection are included for convenience of reference only and shall be disregarded in the construction and interpretation of this Agreement. Use in this Agreement of the words "including", "such as", or words of similar import, when following any general term, statement or matter, shall not be construed to limit such -47- 48 statement, term or matter to the specific items or matter, whether or not language of non-limitation such as "without limitation" or "but not limited to", or words of similar import, are used with reference thereto, but rather shall refer to all other terms or matters that could reasonably fall within the broadest possible scope of such statement, term or matter. Unless otherwise stated, all references to "Sections" and "Exhibits" are references to the Sections and Exhibits of this Agreement. 18. No Merger. Notwithstanding anything to the contrary contained in this Agreement, all representations, warranties, indemnities and obligations contained in this Agreement, intended by their terms to survive the Close of Escrow hereunder, shall survive the Close of Escrow and shall not merge into any instrument conveying the Property, or any interest therein, to Pixar. 19. Exhibits. The following Exhibits, to which reference is made in this Agreement, are deemed incorporated into this Agreement in their entirety: Exhibit A - Description of Property Exhibit B - Conditions of Title Exhibit C - Assignment Exhibit D - Environmental Reports Exhibit E - Exemplar Closure Letters Exhibit F - Asbestos Reports and Specifications Exhibit G - Demolition Specifications Exhibit H - Non-Foreign Status Affidavit Exhibit I - Confidentiality Agreement 20. Standard of Approval and Performance. Unless otherwise provided in this Agreement, (i) each party shall act in a reasonable manner in exercising or undertaking its rights, -48- 49 duties and obligations under this Agreement, and (ii) whenever approval, consent or satisfaction (collectively, an "approval") is required of a party pursuant to this Agreement, such approval shall not be unreasonably withheld or delayed. Unless provision is made for a specific time period, approval (or disapproval) shall be given within thirty (30) days after receipt of the request for approval. Nothing contained in this Agreement, however, shall limit the right of a party to exercise its business judgment, or act, in a subjective manner, with respect to any matter as to which it has specifically been granted the right to act in its sole discretion or sole judgment, whether "objectively" reasonable under the circumstances, and any such exercise shall not be deemed inconsistent with any covenant of good faith and fair dealing otherwise implied by law to be part of this Agreement. Where the parties have stated a specific standard or procedure with respect to their rights, duties and obligations in this Agreement, the parties intend such standard or procedure to set forth their entire understanding with respect to which those rights, duties and obligations are to be judged and the performance of those rights, duties and obligations are to be measured. 21. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of California. -49- 50 IN WITNESS WHEREOF, Del Monte and Pixar have executed this Agreement as of the day and year first above written. "DEL MONTE" DEL MONTE CORPORATION, a New York corporation By [SIG] 9-5-96 -------------------------- Its DIR. / PROP. MGMT. -------------------------- By [SIG] -------------------------- Its EXEC. VICE PRESIDENT -------------------------- "PIXAR" PIXAR ANIMATION STUDIOS, a California corporation By [SIG] -------------------------- Its CEO -------------------------- -50- 51 EXHIBIT A (Description of Property) REAL PROPERTY in the City of Emeryville, County of Alameda, State of California, described as follows: PARCEL ONE: Commencing at a point on the eastern line of Hollis Street, distant thereon Two Hundred and Fifty feet northerly from the northern line of Park Avenue; thence northerly along said eastern line of Hollis Street, Seventy-five feet; thence at a right angle easterly One Hundred Twenty-five feet; thence at a right angle southerly Seventy-five feet; thence at a right westerly One Hundred Twenty-five feet to the point of commencement. Being a portion of Block Numbered 16, as said block is laid down on that certain map entitled "Map of Part of Plot 6, Kellersberger's Survey of Vicente & Domingo Peralta Rancho Property of J.S. Emery, June 1876, T.J. Arnold C.E. Oakland" - filed March 1, 1889 in the Office of the County Recorder of Alameda County in Liber 19 of Maps, Page 68. A.P. No. 049-1031-004 PARCEL TWO: Beginning at a point on the western line of Haven Street, distant thereon One Hundred Twenty-five feet northerly from the point of intersection of said western line of Haven Street with the northern line of Park Avenue, as said Haven Street and said Park Avenue are laid down, delineated and so designated upon that certain map entitled, "Map of Part of Plot 6" etc., hereinafter referred to; and running thence northerly along said westerly line of Haven Street Two Hundred feet; thence westerly and parallel with said northerly line of said Park Avenue One Hundred Twenty-five feet; thence southerly and parallel with said westerly line of said Haven Street, Two Hundred feet; and thence easterly and parallel with said northerly line of said Park Avenue One Hundred Twenty-Five feet to the point of beginning. Being a portion of Block Numbered 16, as said block is laid down, delineated and so designated upon that certain map entitled, "Map of Part of Plot 6, Kellersberger's Survey of Vicente & Domingo Peralta Rancho, property of J.S. Emery" etc. filed March 1, 1889 in the Office of the County Recorder of said County of Alameda. 52 PARCEL THREE: Beginning at a point on the easterly line of Hollis Street, distant thereon One Hundred Twenty-Five feet northerly from the point of intersection of said eastern line of said Hollis Street with the northern line of Park Avenue, as said Hollis Street and said Park Avenue are laid down, delineated and so designated upon that certain Map entitled, "Map of Plot 6" etc. hereinafter referred to: and running thence northerly along said easterly line of said Hollis Street Forty feet; thence easterly and parallel with said northern line of said Park Avenue One Hundred Twenty-five feet, thence southerly and parallel with said eastern line of said Hollis Street Forty feet; and thence westerly and parallel with said northerly line of said Park Avenue. One Hundred Twenty-five feet to the point of beginning. Being a portion of Block Numbered 16, as said block is laid down, delineated and so designated upon that certain Map entitled, "Map of Part of Plot 6, Kellersberger's Survey of Vicente & Domingo Peralta Rancho, property of J.S. Emery", etc. filed March 1, 1889, in the Office of the County Recorder of the said County of Alameda. PARCEL FOUR: Beginning at a point on the eastern line of Hollis Street, distant thereon Two Hundred Fifteen feet northerly from the point of intersection of said easterly line of said Hollis Street with the northerly line of Park Avenue, as said Hollis Street and said Park Avenue are laid down, delineated and so designated upon that certain Map entitled, "Map of Part of Plot 6", etc. hereinafter referred to; and running thence northerly along said eastern line of Hollis Street Thirty-five feet; thence easterly and parallel with said northerly line of said Park Avenue One Hundred Twenty-five feet, thence southerly and parallel with said easterly line of said Hollis Street Thirty-five feet, and thence westerly and parallel with said northern line of said Park Avenue One Hundred Twenty-five feet to the point of beginning. Being a portion of Block Numbered 16 as said block is laid down, delineated and so designated upon that certain Map entitled, "Map of Part of Plot 6, Kellersberger's Survey of Vicente & Domingo Peralta Rancho, property of J.S. Emery" etc., filed March 1, 1889, in the Office of the County Recorder of the said County of Alameda. PARCEL FIVE: Beginning at a point in the easterly line of Hollis Street, distant thereon One Hundred and Sixty-five feet northerly from the point of intersection of said easterly line of Hollis Street with the northerly line of Park Avenue as said Hollis Street and said Park Avenue are delineated and designated upon that certain Map entitled, "Map of Part of Plot 6" etc., hereinafter referred to; running thence northerly along the easterly line of said Hollis Street Fifty feet; thence easterly and parallel with said northerly line of said Park Avenue One Hundred and Twenty-five feet; thence southerly and parallel with said easterly line of said Hollis Street fifty feet; and thence westerly and parallel with said northerly line of said Park Avenue One Hundred and Twenty-five feet to the point of beginning. 53 Being a portion of Block Numbered 16, as said Block is delineated and so designated upon that certain Map entitled, "Map of Part of Plot 6, Kellersberger's Survey of Vicente & Domingo Peralta Rancho, property of J.S. Emery" etc. filed March 1st, 1889 in the Office of the County Recorder of Alameda County. PARCEL SIX: Beginning at the point of intersection of the northern line of Park Avenue, with the eastern line of Hollis Street, as said avenue and street are shown on the Map hereinafter referred to; and running thence northerly along said line of Hollis Street, One Hundred Twenty-five feet; thence at right angles easterly One Hundred feet, thence at right angles southerly one Hundred Twenty-five feet to said line of Park Avenue; and thence westerly along said line of Park Avenue One Hundred feet to the point of beginning. Being a portion of block numbered 16, as said block is delineated and so designated upon that certain map entitled, "Map of Part of Plot 6, Kellersberger's Survey of Vicente & Domingo Peralta Rancho" - filed March 1, 1889 in Book 19 of Maps, at Page 68, in the Office of the County Recorder of Alameda County. PARCEL SEVEN: All those certain lots, pieces or parcels of land, situate, lying and being in the Town of Emeryville, County of Alameda, State of California, and bounded and particularly described as follows to-wit: Parcel A: Beginning at a point on the northern line of Park Avenue, distant thereon One Hundred Sixty-seven and 50/100 feet easterly from the point of intersection thereof, with the eastern line of Hollis Street; and running thence easterly along said line of Park Avenue Fifty-seven and 50/100 feet; thence at right angles northerly One Hundred and Twenty-five feet; thence at right angles westerly Fifty-seven and 5/100 feet; and thence at right angles southerly One Hundred Twenty-five feet, to the point of beginning. Being a portion of Block numbered 16, as said block is delineated and so designated upon that certain Map entitled, "Map of Part of Plot 6, Kellersberger's Survey of Vicente & Domingo Peralta Rancho property of J.S. Emery, etc.", filed March 1, 1889 in Book 19 of Maps, at Page 65, in the Office of the County Recorder of Alameda County. Parcel B: Beginning at a point on the northern line of Park Avenue, distant thereon easterly one hundred feet from the intersection thereof with the eastern line of Hollis Street; running thence easterly along said line of Park Avenue Sixty-seven feet, six inches; thence at right angles northerly One Hundred Twenty-five feet; thence at right angles westerly Sixty-seven feet, six inches; and thence at right angles southerly One Hundred Twenty-five feet to the point of beginning. Being a portion of Block numbered 16, as the said block is delineated and so designated upon that certain Map entitled, "Map of part of Plot 6, Kellersberger's Survey of Vicente & Domingo Peralta Rancho, property of J.S. Emery, June 1876, T.J. Arnold C.E. Oakland filed March 1, 1889 in the Office of the County Recorder of Alameda County. 54 PARCEL EIGHT: Beginning at the intersection of the northern line of Park Avenue with the western line of Haven Street, as said avenue and street are shown on the Map hereinafter referred to; running thence westerly along said line of Park Avenue 25 feet, thence northerly parallel with said line of Haven Street 125 feet, thence easterly parallel with said line of Park Avenue 25 feet, to said western line of Haven Street, thence southerly along said last named line, 125 feet to the point of beginning. Being a portion of Block 16, as said block is shown on the "Map of Part of Plot 6, Kellersberger's Survey of Vicente and Domingo Peralta Rancho, property of J.S. Emery", filed March 1, 1889, in Book 19 of Maps, at Page 68, in the Office of the County Recorder of Alameda County. PARCEL NINE: That portion of Haven Street lying northwesterly on the northwestern line of Park Avenue, as said street and avenue are shown on the "Map of Part of Plot 6, Kellersberger's Survey of Vicente & Domingo Peralta Rancho, property of J.S. Emery", filed March 1, 1889 in Book 19 of Maps, at Page 68, in the Office of the County Recorder of Alameda County. A.P. No. 049-1031-003-01 Affects Parcels 2 thru 9 PARCEL TEN: Beginning at a concrete monument set at the southeast corner of angle point of the property of the Mee Estate at Emeryville, Alameda County, California; running thence along the easterly boundary line of said property of the Mee Estate north 28 degrees 17' west One Hundred Ninety-eight and 178/1000 feet to the south line of 45th Street; thence parallel with the south line of the said property of the Mee Estate south 72 degrees 28' west Four Hundred Thirty-one and 178/1000 feet to the easterly boundary line of the property of the Southern Pacific Company; thence at a right angle and along said easterly boundary line of said Southern Pacific Company land and to a point on the southern boundary line of the property of the Mee Estate south 17 degrees 32' east One Hundred Ninety-four and 70/100 feet, said point being north 72 degrees 28' east Twenty-one and 5/10 feet from the point of intersection of the center line of Haven Street and the south line of the Mee Estate property; thence along said southern boundary line of the property of the Mee Estate north 72 degrees 28' East Four Hundred Sixty-eight and 50/100 feet to the point of beginning. PARCEL ELEVEN: Beginning at the intersection of the western line of Harlan Street with the northern line of Park Avenue; running thence westerly along said northern line of Park Avenue Two Hundred Seventy feet to the eastern line of Haven Street; thence northerly along said eastern line of Haven Street Four Hundred Twenty-eight feet; five inches, more or less, to the northern line of Plot Numbered 6, as said plot is shown on the Map hereinafter referred to; thence easterly along the last named line Two Hundred Seventy feet, more or less, to the western line of Harlan Street; thence southerly along the western line of Harlan Street Four Hundred Forty-two feet, more or less to the point of beginning. 55 Beginning Block Numbered 23, as said block is delineated and so designated upon that certain Map entitled, "Map of Part of Plot 6, Kellersberger's Survey of Vicente & Domingo Peralta Rancho property of J.S. Emery, June 1876, T.J. Arnold, C.E. Oakland", filed March 1, 1889 in the Office of the County Recorder of said County of Alameda. PARCEL TWELVE: Beginning at a point on the eastern line of Harlan Street, distant thereon northerly Two Hundred Seventy-five feet from the intersection thereof with the northern line of Park Avenue; running thence easterly at right angles to said eastern line of Harlan Street One Hundred Thirty feet; thence at right angles northerly One Hundred Eighty feet, more or less, to the northern line of Plot Numbered 6, as said Plot is shown on the Map hereinafter referred to; thence westerly along said last named line One Hundred Thirty feet, more or less, to said eastern line of Harlan Street; thence southerly along said eastern line of Harlan Street One Hundred Seventy feet more or less, to the point of beginning. Being a portion of Block Numbered 10, as said block is delineated and so designated upon that certain Map entitled, "Map of Plot 6, Kellersberger's Survey of Vicente & Domingo Peralta Rancho, property of J.S. Emery, June 1876, T.J. Arnold, C.E. Oakland", filed March 1, 1889 in the Office of the County Recorder of Alameda County. PARCEL THIRTEEN: Beginning at a point on the eastern line of Harlan Street, distant thereon northerly Two Hundred Fifty feet from the intersection thereon with the northern line of Park Avenue, as said street and avenue are shown on the map hereinafter referred to; running thence northerly along said line of Harlan Street, Twenty-five feet; thence at right angles easterly One Hundred Thirty feet; thence at right angles southerly Twenty-five feet; thence at right angles westerly One Hundred Thirty feet to the point of beginning. Being a portion of Block Numbered 10, as said block is delineated and so designated on that certain Map entitled, "Map of Plot 6, Kellersberger's Survey of Vicente & Domingo Peralta Rancho, Property of J.S. Emery", filed March 1, 1889 in Liber 19 of Maps, at Page 68 in the Office of the County Recorder of said County of Alameda County. PARCEL FOURTEEN: Beginning at a point on the eastern line of Harlan Street, distant thereon northerly One Hundred Twenty-five feet from the intersection thereof with the northern line of Park Avenue, as said street and avenue are shown on the Map hereinafter referred to; running thence northerly along said line of Harlan Street One Hundred Twenty-five feet; thence at right angles easterly One Hundred Thirty feet thence at right angles southerly One Hundred Twenty-five feet; thence at right angles westerly One Hundred Thirty feet to the point of beginning. 56 Being a portion of Block Numbered 10, as said block is delineated and so designated upon that certain Map entitled, "Map of Part of Plot 6, Kellersberger's Survey of Vincent & Domingo Peralta Rancho Property of J.S. Emery" filed March 1, 1889 in Liber 19 of Maps, at Page 68 in the Office of the County Recorder of the said County of Alameda. PARCEL FIFTEEN: That portion of Harlan Street which lies northwesterly of the northwestern line of Park Avenue, extended across said street, as said street and avenue are shown on the "Map of Part of Plot 6, Kellersberger's Survey of Vincent & Domingo Peralta Rancho, property of J.S. Emery" filed March 1, 1889 in Book 19 of Maps, at Page 68, in the Office of the County Recorder of Alameda County. PARCEL SIXTEEN: Portion of Block 10, as said block is shown on the "Map of Part of Plot 6, Kellersberger's Survey of Vicente & Domingo Peralta Rancho, property of J.S. Emery" - filed March 1, 1889 in Book 19 of Maps at Page 68, in the Office of the County Recorder of Alameda County, described as follows: Beginning at the intersection of the northern line of Park Avenue with the eastern line of Harlan Street, as said avenue and street are shown on said map; running thence along said line of Harlan Street northerly 125 feet; thence at right angles easterly 60 feet; thence at right angles southerly 125 feet to said line of Park Avenue; thence along the last named westerly to feet to the point of beginning. A.P. No. 049-1029-001-04 Affects Parcels Ten thru Sixteen and a portion of Parcel 17. PARCEL SEVENTEEN: Lot 3 and a portion of Lot 2 in Block 4, as said lots and block are shown on the "Map of Portion of the Coggseshell Tract, lying west of San Pablo Avenue", filed May 14, 1883 in Book 4 of Maps, at Page 13, a portion of Plot 38, as said plot is shown on the "Map of Ranchos of Vicente & Domingo Peralta", filed January 21, 1857, in Book 17 of Maps, at Page 12 and a portion of Block 10, as said block is shown on the "Map of Part of Plot 6, Kellersberger's Survey of Vincent & Domingo Peralta Rancho, property of J.S. Emery" filed March 1, 1869 in Book 19 of Maps, at Page 68, in the Office of the County Recorder of Alameda County, described as follows: 57 Beginning at a point on the western line of Watts Street, distant thereon southerly 65 feet from the southern line of 45th Street, as said streets are shown on the first mentioned map; and running thence along said line of Watts Street southerly 579.12 feet to the northern line of Park Avenue, as said avenue is shown on said "Map of Part of Plot 6"; thence along the last named line westerly 200 feet to a point distant thereon easterly 60 feet from the eastern line of Harlan Street, as said street is shown on said "Map of Part of Plot 6"; thence at right angles northerly 125 feet; thence at right angles easterly 65 feet; thence at right angles northerly 150 feet; thence at right angles easterly 5 feet; thence at right angles northerly 176.60 feet to the northern line of said Block 10; thence along the last named line easterly 5 feet to a line drawn parallel with and distant at right angles 125 feet westerly from said western line of Watts Street; thence along the line so drawn northerly 127.27 feet to a line drawn westerly from the point of beginning parallel with said line of 45th Street; thence along the last drawn line easterly 125 feet to the point of beginning. PARCEL EIGHTEEN: Lot 1 and portion of Lot 2, in Block 4, as said lots and block are shown on the "Map of a portion of the Coggeshall Tract lying west of San Pablo Avenue, Oakland Township", filed May 14, 1883, in Book 4 of Maps, at Page 13, in the Office of the County Recorder of Alameda County, described as follows: Beginning at the intersection of the southern line of 45th Street with the western line of Watts Street; said streets are shown on said map; and running thence along said line of Watts Street southerly 65 feet; thence parallel with said line of 45th Street westerly 125 feet; thence parallel with said line of Watts Street northerly 65 feet to said line of 45th Street; and thence along the last named line easterly 125 feet to the point of beginning. PARCEL NINETEEN: Beginning at a point on the southern line of 45th Street, distant thereon south 75 degrees 20' 10" west one hundred and twenty-five feet from the point of intersection thereof with the western line of Watts Street, as said streets are delineated and so designated upon that certain map entitled, "Map of a portion of the Coggeshall Tract lying west of San Pablo Avenue Oakland Township", filed May 14, 1883 in Book 4 of Maps at Page 13, in the Office of the County Recorder of Alameda County; running thence south 75 degrees 20' 10" west along the southern line of 45th Street Fifty-One and 73/100 feet to the western boundary line of Plot Numbered 38, as said plot is shown on the Map hereinafter referred to; thence south 28 degrees 12' east along the last named line One Hundred Ninety-eight and 03/100 feet to the southern boundary line of said Plot Numbered 38; thence north 72 degrees 28' east along the last named line Five and 39/100 feet to a line drawn south 14 degrees 39' 50" east from the point of beginning thence north 14 degrees 39' 50" west one hundred ninety-two and 27/100 feet to the point of beginning. Being a portion of Plot Numbered 38, as said plot is delineated and so designated upon that certain Map entitled, "Map of the Ranchos of Vicente & Domingo Peralta", filed January 21, 1857, in Book 17 of Maps at Page 12 in the Office of the County Recorder of Alameda County. A.P. No. 49-1029-1-3 58 PARCEL TWENTY: Beginning at the point of intersection of the easterly line of Watts Street, with the northerly line of Park Avenue, as said Watts Street and said Park Avenue are laid down, delineated and so designated upon that certain Map entitled, "Map of Part of Plot 6, Kellersberger's Survey of Vicente & Domingo Peralta Rancho Property of J.S. Emery, etc," filed March 1, 1889 in the Office of the County Recorder of Alameda County; and running thence along said easterly line of Watts Street north 14 degrees 30' west 465.10 feet to the point of intersection of said easterly line of Watts Street, with the dividing line between Plots 6 and 38, as said Plots 6 and 38 are laid down and delineated upon that certain Map entitled "Map of the Ranchos of Vicente & Domingo Peralta," etc., hereinafter mentioned; thence north 75 degrees 30' east 200 feet to a point distant at right angles westerly 390 feet from the westerly line of San Pablo Avenue as said San Pablo Avenue is laid down, delineated and so designated upon that certain Map entitled, "Map of Part of Plot 6" etc. hereinafter mentioned; thence south 14 degrees 30' east and parallel with said westerly line of San Pablo Avenue 465.19 feet to said northerly line of said Park Avenue; and thence along said northerly line of said Park Avenue south 75 degrees 31-1/2' west 200 feet to the point of beginning. Being a portions of Plot 6, as said plot is shown on "Map of the Ranchos of Vicente & Domingo Peralta, containing 16970.68 acres, surveyed by Julius Kellersberger", etc., filed January 21, 1857 in the Office of the County Recorder of Alameda County, State of California. A.P. No. 049-1027-022-01 PARCEL TWENTY-ONE: Portion of Lots 23 and 24 in Block 5, as said lots and block are shown on the "Map of a Portion of the Coggeshell Tract lying west of San Pablo Avenue, Oakland Township", filed May 14, 1883 in Book 4 of Maps, Page 13, in the Office of the County Recorder of Alameda county, described as follows: Beginning at the intersection of the southern line of 45th Street, with the eastern line of Watts Street, as said streets are shown on said map; running thence along said line of 45th Street easterly 50 feet; thence parallel with said line of Watts Street southerly 54 feet; thence parallel with said line of 45th Street westerly 50 feet to the eastern line of Watts Street; thence along the last named line northerly 54 feet to the point of beginning. 59 PARCEL TWENTY-TWO: Portion of Lot 23 in Block S, as said lot and block are shown on the "Map of a portion of Coggeshall Tract lying west of San Pablo Avenue, Oakland Township", filed May 14, 1883, in Book 4 of Maps, Page 13, in the Office of the County Recorder of Alameda County, described as follows: Beginning at a point on the eastern line of Watts Street distant thereon southerly 54 feet from the southern line of 45th Street, as said streets are shown on said Map; and running thence along said line of Watts Street southerly, 31 feet; thence parallel with said line of 45th Street easterly 50 feet, thence parallel with said line of Watts Street northerly 31 feet; thence parallel with said line of 45th Street westerly 50 feet to the point of beginning. PARCEL TWENTY-THREE: A portion of Lot 22 in Block S, as said lot and block are shown on the "Map of a portion of the Coggeshall Tract, lying west of San Pablo Avenue, Oakland Township, filed May 1, 1883 in Book 4 of Maps, at Page 13, in the Office of the County Recorder of Alameda County, and also A portion of Plots 6 and 38, as said Plots are shown on the "Map of the Ranchos of Vicente & Domingo Peralta", filed January 21, 1857 in Book 17 of Maps, at Page 12, in the Office of the County Recorder of Alameda County, described as follows: Beginning at a point on the eastern line of Watts Street, distant thereon south 14 degree 30' east 85.00 feet from the southern line of 45th Street, as said streets are shown on the said "Map of a portion of the Coggeshall Tract"; running thence along the said line of Watts Street and along the eastern line of Watts Street, as said street is shown on the "Map of Part of Plot 6, Kellersbergers Survey of Vicente & Domingo Peralta Rancho Property of J.S. Emery", filed March 1, 1889 in Book 19 of Maps, at Page 68, in the Office of the County Recorder of Alameda County, south 14 degree 30' east 94.00 feet to a point on the line dividing said Plots 6 and 38; thence north 75 degree 30' east 150.00 feet; thence north 14 degree 30' west 54.00 feet; thence south 75 degree 30' west 50.00 feet to a point on the eastern boundary line of that certain parcel of land described in Deed from Mario Chembero and Jean Chembero, husband and wife, to Louis A. Lavenbarg and wife, dated March 30, 1953 and recorded April 9, 1953 under Recorder's Series No. AH/31359 in Book 6997 of Official Records of Alameda County, Page 244, and/or of the direct production southerly of the said eastern boundary line; thence along the said last mentioned line north 14 degree 30' west 40.00 feet, more or less, to a point on the northern boundary line of the said Lavenbarg parcel of land; thence westerly along the said last mentioned line and parallel with the said southern line of 45th Street, 100.00 feet to the point of beginning. A.P. No. 049-1027-028 ***** EXHIBIT A 60 FIRST AMENDMENT TO AGREEMENT OF PURCHASE AND SALE THIS FIRST AMENDMENT TO AGREEMENT OF PURCHASE AND SALE (the "Amendment") is made and entered into as of this 1st day of November, 1996, by and between DEL MONTE CORPORATION, a New York corporation ("Del Monte"), and PIXAR ANIMATION STUDIOS, a California corporation ("Pixar"). RECITALS: This Amendment is entered into on the basis of the following facts, understandings and intentions of the parties: A. Del Monte and Pixar have previously entered into that certain Agreement of Purchase and Sale, dated September 6, 1996 (the "Agreement"), pursuant to the terms and conditions of which Del Monte has agreed to sell to Pixar, and Pixar has agreed to purchase from Del Monte, the Property therein identified. B. Due to the occurrence of certain circumstances, the parties desire to extend the Review Period for completion by Pixar of its due diligence investigation of the Property and related time periods with respect to review and investigation of the state of title of the Real Property. C. In order to effectuate the foregoing, the parties desire to enter into this Amendment. NOW, THEREFORE, IN CONSIDERATION of the foregoing Recitals, and the mutual covenants and promises of the parties contained in this Amendment, the parties agree to amend the Agreement as follows: -1- 61 1. Defined Terms. Unless otherwise specified in this Amendment, all terms defined in the Agreement shall have the same meaning when used in this Amendment. 2. Extension of Additional Deposit Date. The phrase reading "ninety (90)" in clause (ii) of Section 3(a) is amended to read "one-hundred-nineteen (119)". 3. Extension of Review Period. The first sentence of Section 4(b) of the Agreement is amended in full to read as follows: Pixar shall conduct and complete its review of the Property under Section 4(a) above with due diligence and within one-hundred-nineteen (119) days after the date of this Agreement (the "Review Period"). Based on the foregoing amendment to Section 4(b), the last day of the Review Period is January 3, 1997, and Pixar shall give any notice of termination under Section 4(c) not later than the close of business on January 3, 1997. 4. Extension of Time for Procurement of Survey. The introductory phrase of Section 5(b) of the Agreement reading, "At any time within forty-five (45) days after the date of this Agreement,..." is hereby amended in its entirety to read as follows: "At any time on or before November 1, 1996,..." 5. Interpretation of Amendment. This Amendment and the Agreement shall be construed as a whole in order to effectuate the intent of the parties to amend the Agreement in the manner specified in this Amendment. All provisions of the Agreement affected by this Amendment shall be deemed amended regardless of whether so specified in this Amendment. Subject to the foregoing, if any provision of the Agreement conflicts with -2- 62 any provision of this Amendment, the provision of this Amendment shall control. 6. No Further Amendment. Except as amended by this Amendment, the Agreement shall continue in full force and effect in accordance with its terms. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. "DEL MONTE" DEL MONTE CORPORATION, a New York corporation By ______________________________ Its _____________________________ By ______________________________ Its _____________________________ "PIXAR" PIXAR ANIMATION STUDIOS, a California corporation By ______________________________ Its _____________________________ -3- EX-11.1 5 STATEMENT OF COMPUTATION OF NET INCOME PER SHARE 1 EXHIBIT 11.1 PIXAR STATEMENT OF COMPUTATIONS OF NET INCOME PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Weighted average number of shares 41,261 38,350 40,503 38,318 outstanding Common stock equivalents 6,759 8,652 7,050 8,710 ---------- ---------- ---------- ---------- Total shares used in computing net income (loss) per share 48,020 47,002 47,553 47,028 ========== ========== ========== ========== Net income from continuing operations $ 8,929 $ 4,517 $ 14,154 11,024 ========== ========== ========== ========== Net income per share from continuing operations $ 0.19 $ 0.09 $ 0.30 $ 0.24 ========== ========== ========== ========== Net income (loss) from discontinued operations $ -- $ 273 $ (77) $ 45 ========== ========== ========== ========== Net income (loss) per share from discontinued operations $ -- $ 0.01 $ -- $ -- ========== ========== ========== ========== Net income $ 8,929 $ 4,790 $ 14,077 $ 11,069 ========== ========== ========== ========== Net income per share $ 0.19 $ 0.10 $ 0.30 $ 0.24 ========== ========== ========== ==========
-21- EX-27.1 6 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 62,595 116,184 3,309 293 0 182,832 21,175 3,264 220,384 19,725 0 0 0 202,699 (2,040) 220,384 0 22,243 0 1,523 5,366 0 0 19,400 5,246 14,154 (77) 0 0 14,077 .30 .30
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