-----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, N5LWruR3Bc5jg4DnKYttB6WhtEGM+2QYAVOYiKueVuU1+lRb+wLpmXX46einMSO9 Lc5CQ9ovQ0sfOsICJT6fag== 0000891618-97-002433.txt : 19970523 0000891618-97-002433.hdr.sgml : 19970523 ACCESSION NUMBER: 0000891618-97-002433 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970625 FILED AS OF DATE: 19970522 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: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-26976 FILM NUMBER: 97612927 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 DEF 14A 1 DEFINITIVE PROXY STATEMENT 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Section 240.14a-11(c)or Section 240.14a-12 PIXAR (Exact Name of Registrant as Specified In Its Charter) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed per Exchange Act Rules 14a-6(i)(4) and 0-11. [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11 (a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 2 LOGO ------------------------------------ NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 25, 1997 To the Shareholders: Notice is hereby given that the Annual Meeting of Shareholders (the "Annual Meeting") of Pixar, a California corporation, will be held on Wednesday, June 25, 1997 at 2:00 p.m., local time, in the Wattis Theater at the San Francisco Museum of Modern Art located at 151 Third Street, San Francisco, California 94103, for the following purposes: 1. To elect directors to serve for the ensuing year and until their successors are duly elected and qualified. 2. To approve an amendment to Pixar's 1995 Stock Plan to (i) increase the number of shares reserved for issuance thereunder by 1,000,000 shares and (ii) to provide for an automatic annual increase in the number of shares available for issuance thereunder by an amount equal to three percent (compared to two percent prior to this amendment) of the number of shares of Pixar's common stock outstanding on the first day of each calendar year, beginning on January 1, 1998. 3. To ratify the appointment of KPMG Peat Marwick LLP as independent auditors of Pixar for the fiscal year ending December 31, 1997. 4. To transact such other business as may properly come before the meeting or any adjournment thereof. The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice. Only holders of record of Pixar's common stock at the close of business on May 13, 1997 are entitled to notice of and to vote at the Annual Meeting. All shareholders are cordially invited to attend the Annual Meeting in person. However, to assure your representation at the Annual Meeting, you are urged to mark, sign, date and return the enclosed proxy card as promptly as possible in the postage-prepaid envelope enclosed for that purpose. Any shareholder attending the Annual Meeting may vote in person even if he or she has returned a proxy card. By Order of the Board of Directors /s/ Lawrence B. Levy LAWRENCE B. LEVY Executive Vice President, Chief Financial Officer and Secretary Richmond, California May 22, 1997 IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED. 3 PIXAR ---------------------- PROXY STATEMENT FOR 1997 ANNUAL MEETING OF SHAREHOLDERS ---------------------- PROCEDURAL MATTERS GENERAL The enclosed proxy is solicited on behalf of the Board of Directors of Pixar, a California corporation, for use at Pixar's Annual Meeting of Shareholders (the "Annual Meeting") to be held on Wednesday, June 25, 1997 at 2:00 p.m, local time, and at any adjournment thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting will be held in the Wattis Theater at the San Francisco Museum of Modern Art located at 151 Third Street, San Francisco, California 94103. The telephone number at that location is (415) 357-4000. Pixar's headquarters are located at 1001 West Cutting Boulevard, Richmond, California 94804, and the telephone number at that location is (510) 236-4000. This Proxy Statement and the enclosed proxy card were mailed on or about May 22, 1997, together with Pixar's 1996 Annual Report to Shareholders, to all shareholders entitled to vote at the Annual Meeting. RECORD DATE Only holders of record of Pixar's common stock, no par value (the "Common Stock"), at the close of business on May 13, 1997 (the "Record Date") are entitled to notice of and to vote at the Annual Meeting. As of the Record Date, 41,169,988 shares of Pixar's Common Stock were outstanding. For information regarding security ownership by management and by the beneficial owners of more than 5% of Pixar's Common Stock, see "Security Ownership of Certain Beneficial Owners and Management." PROXIES; REVOCABILITY OF PROXIES All shares entitled to vote and represented by properly executed proxies received prior to the Annual Meeting, and not revoked, will be voted at the Annual Meeting in accordance with the instructions indicated on those proxies. If no instructions are indicated on a properly executed proxy, the shares represented by that proxy will be voted as recommended by the Board of Directors. If any other matters are properly presented for consideration at the Annual Meeting, the persons named in the enclosed proxy and acting thereunder will have discretion to vote on those matters in accordance with their best judgment. The Company does not currently anticipate that any other matters will be raised at the Annual Meeting. A shareholder may revoke any proxy given pursuant to this solicitation at any time before it is voted by delivering to Pixar's Corporate Secretary a written notice of revocation or a duly executed proxy bearing a date later than that of the previously submitted proxy, or by attending the Annual Meeting and voting in person. VOTING AND SOLICITATION Each shareholder is entitled to one vote for each share of Common Stock on all matters presented at the Annual Meeting. Shareholders do not have the right to cumulate their votes in the election of directors. The cost of soliciting proxies will be borne by Pixar. Pixar may reimburse brokerage firms and other persons representing beneficial owners of shares for their reasonable expenses in forwarding solicitation 4 materials to such beneficial owners. Proxies may also be solicited by certain of Pixar's directors, officers, and regular employees, without additional compensation, personally or by telephone, telegram, letter or facsimile. QUORUM; ABSTENTIONS; BROKER NON-VOTES The presence at the Annual Meeting, either in person or by proxy, of the holders of a majority of the outstanding shares of Common Stock entitled to vote shall constitute a quorum for the transaction of business. Pixar intends to include abstentions and broker non-votes as present or represented for purposes of establishing a quorum for the transaction of business, but to exclude abstentions and broker non-votes from the calculation of shares entitled to vote. DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS Any proposal of a shareholder of Pixar which is intended to be presented by such shareholder at Pixar's 1998 Annual Meeting of Shareholders must be received by Pixar no later than January 22, 1998 in order for such proposal to be considered for inclusion in Pixar's proxy statement and form of proxy relating to such meeting. 2 5 PROPOSAL NO. 1 ELECTION OF DIRECTORS NOMINEES A board of four directors is to be elected at the Annual Meeting. Unless otherwise instructed, the proxy holders will vote the proxies received by them for Pixar's four nominees named below, all of whom are presently directors of Pixar. In the event that any nominee of Pixar is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who shall be designated by the present Board of Directors to fill the vacancy. It is not expected that any nominee will be unable or will decline to serve as a director. The term of office of each person elected as a director will continue until the next annual meeting of shareholders or until a successor has been duly elected and qualified. The name and certain information regarding each nominee are set forth below. There are no family relationships among directors or executive officers of Pixar.
NAME AGE(1) POSITION WITH PIXAR - ------------------------------------------ ------ ------------------------------------------ Steve Jobs................................ 42 Chairman, Chief Executive Officer and Office of the President Larry W. Sonsini.......................... 56 Director Skip M. Brittenham........................ 55 Director Joseph A. Graziano........................ 53 Director
- --------------- (1) As of May 13, 1997. Mr. Jobs is a co-founder of Pixar and has served as its Chairman since March 1991, as its Chief Executive Officer since February 1986 and in the Office of the President since February 1995. He has been a director of Pixar since February 1986 and served as Chairman from February 1986 to November 1988. Mr. Jobs was also a co-founder of NeXT Software, Inc. ("NeXT"), which developed and marketed object-oriented software for client/server business applications and the Internet, and served as the Chairman and Chief Executive Officer of NeXT from October 1985 until February 1997, when NeXT was acquired by Apple Computer, Inc. ("Apple"). Mr. Jobs was a co-founder of Apple. Mr. Sonsini has served as a director of Pixar since April 1995 and served as Secretary from April 1995 to October 1995. He has been an attorney with the law firm of Wilson Sonsini Goodrich & Rosati since 1966 and currently serves as the Chairman of the firm's Executive Committee. Mr. Sonsini also serves as a director of Lattice Semiconductor Corporation and Novell, Inc. Mr. Sonsini received A.B. and L.L.B. degrees from the University of California, Berkeley. Mr. Brittenham has served as a director of Pixar since August 1995. He has been an attorney with the law firm of Ziffren, Brittenham, Branca & Fischer, an entertainment law firm, since 1978. Mr. Brittenham currently serves on the board of, or is a trustee of, numerous charitable organizations, including Conservation International, the American Oceans Campaign, the Environmental Media Association and the Alternative Medical AIDS Foundation. Mr. Brittenham received a B.S. from the United States Air Force Academy and a J.D. from the University of California at Los Angeles. Mr. Graziano has served as a director of Pixar since August 1995. From June 1989 to December 1995, he was the Executive Vice President and Chief Financial Officer of Apple and was a member of the Board of Directors of Apple from June 1993 until October 1995. From May 1987 to June 1989, Mr. Graziano served as Chief Financial Officer of Sun Microsystems, Inc. and from October 1981 to May 1985 as Chief Financial Officer of Apple. In addition, he has held accounting positions with various technology companies in the Silicon Valley. Mr. Graziano also serves as a director of IntelliCorp, Inc. Mr. Graziano received a B.S. in accounting from Merrimack College and is a certified public accountant. 3 6 BOARD MEETINGS AND COMMITTEES The Board of Directors held a total of three meetings (including regularly scheduled and special meetings) during fiscal 1996 and also took certain actions by written consent. No incumbent director during the last fiscal year attended fewer than 75% of the aggregate of (i) the total number of meetings of the Board of Directors and (ii) the total number of meetings held by all committees on which he served. The Board of Directors of Pixar has two standing committees which were established in October 1995: an Audit Committee and a Compensation Committee. Pixar has no nominating committee or a committee performing a similar function. The Audit Committee, which currently consists of Messrs. Graziano and Sonsini, is responsible for (i) recommending engagement of Pixar's independent auditors, (ii) approving the services performed by such auditors, (iii) consulting with such auditors and reviewing with them the results of their examination, (iv) reviewing and approving any material accounting policy changes affecting Pixar's operating results, (v) reviewing Pixar's control procedures and personnel, and (vi) reviewing and evaluating Pixar's accounting principles and its system of internal accounting controls. Mr. Brittenham is an alternate member of the Audit Committee and will serve when another member is unable to attend a committee meeting. The Audit Committee held four meetings during fiscal 1996. The Compensation Committee, which currently consists of Messrs. Brittenham and Graziano, is responsible for (i) reviewing and approving the compensation and benefits for Pixar's officers and other employees, (ii) administering Pixar's stock option plans and (iii) making recommendations to the Board of Directors regarding such matters. The Compensation Committee did not hold any meetings during fiscal 1996; however, Pixar's Board of Directors performed similar functions during fiscal 1996. DIRECTOR COMPENSATION Directors who are not employees of Pixar receive a fee of $1,000 for each meeting attended of the Board of Directors and a fee of $1,000 for each meeting attended of a committee of the Board of Directors if such committee meeting is not held in conjunction with a meeting of the Board of Directors. All directors are reimbursed for expenses incurred in attending such meetings. Non-employee directors are eligible to receive option grants pursuant to Pixar's 1995 Director Option Plan (the "Director Plan") which was adopted by the Board of Directors in October 1995, approved by the shareholders in November 1995 and took effect in November 1995. A total of 200,000 shares of Common Stock has been reserved for issuance under the Director Plan. As of May 13, 1997, there were no options outstanding under the Director Plan. The Director Plan provides for an automatic grant of an option to purchase 30,000 shares of Common Stock (the "First Option") to each nonemployee director who first becomes a non-employee director (other than an employee director who ceases to be an employee but remains a director) after the effective date of the Director Plan on the date on which such person first becomes a non-employee director. Beginning on the third anniversary of the date he or she became an outside director, each nonemployee director will automatically be granted an option to purchase 10,000 shares of Common Stock (a "Subsequent Option") each year on the date of such anniversary, provided he or she is then a non-employee director. Each nonemployee director will be eligible to receive a Subsequent Option, regardless of whether such non-employee director was eligible to receive a First Option. First Options and each Subsequent Option will have a term of ten years. One-third of the shares subject to a first Option will vest one year after its date of grant and an additional one-third will vest at the end of each year thereafter, provided that the optionee continues to serve as a director on such dates. All of the shares subject to a Subsequent Option will vest one year after the date of the option grant, provided that the optionee continues to serve as a director on such date. The exercise prices of the First Option and each Subsequent Option will be 100% of the fair market value per shares of Pixar's Common Stock on the date of the grant of the option. Messrs. Brittenham, Graziano and Sonsini, all of whom are non-employee directors of Pixar, will be eligible for Subsequent Options under the Director Plan on the third anniversary of the date they became directors. 4 7 REQUIRED VOTE The four nominees receiving the highest number of affirmative votes of the shares present or represented and entitled to be voted for them shall be elected as directors. Votes withheld from any director are counted for purposes of determining the presence or absence of a quorum for the transaction of business, but have no other legal effect under California law. RECOMMENDATION THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" RE-ELECTION OF MESSRS. JOBS, SONSINI, BRITTENHAM AND GRAZIANO. 5 8 PROPOSAL NO. 2 APPROVAL OF AMENDMENT TO PIXAR'S 1995 STOCK PLAN GENERAL Pixar's 1995 Stock Plan was adopted by the Board of Directors and approved by the shareholders in May 1995 and provides for the granting to employees (including employee directors and officers) of Pixar of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and for the granting of nonstatutory stock options and stock purchase rights to employees and consultants of Pixar. A total of 13,000,000 shares of Common Stock has been reserved for issuance under the 1995 Stock Plan. Beginning on January 1, 1998, the number of shares of Common Stock available for issuance under the 1995 Stock Plan will automatically be increased on the first day of each calendar year by an amount equal to two percent of the number of shares of Common Stock outstanding on such date. As of May 13, 1997, a total of 555,538 shares remained available for future grant under the 1995 Stock Plan. PROPOSAL In April 1997, the Board of Directors adopted, subject to shareholder approval, 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 on 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. This amendment will enable Pixar to continue to grant options to eligible employees and consultants under the terms and conditions of the 1995 Stock Plan. The Board of Directors believes that the approval of the amendment to the 1995 Stock Plan is in the best interests of Pixar and its shareholders, as the availability of an adequate number of shares for issuance under the 1995 Stock Plan and the ability to grant stock options is an important factor in attracting, motivating and retaining qualified personnel essential to the success of Pixar. REQUIRED VOTE The affirmative vote of the holders of a majority of the Common Stock entitled to vote at the Annual Meeting is required to approve the amendment to the 1995 Stock Plan. RECOMMENDATION THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE AMENDMENT TO THE 1995 STOCK PLAN. SUMMARY OF 1995 STOCK PLAN The following summary of the 1995 Stock Plan is qualified in its entirety by the specific language of the 1995 Stock Plan, a copy of which is available to any shareholder upon written request to the Corporate Secretary. Purpose. The purposes of the 1995 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 Pixar and to promote the success of Pixar's business. Administration. The 1995 Stock Plan may be administered by the Board or a committee of the Board (the "Administrator"), which committee is required to be constituted to comply with Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and applicable laws. Subject to the other provisions of the 1995 Stock Plan, the Administrator has the power to determine the employees and consultants to whom options and stock purchase rights may be granted, the number of shares subject to the option or stock purchase right and the exercisability thereof. The Administrator also has the power to reprice 6 9 options if the exercise price of outstanding options exceeds the fair market value of Pixar's Common Stock. In September 1996, the Administrator offered employees the opportunity to exchange outstanding stock options that had exercise prices in excess of $13.00 per share for new options that had exercise prices of $12.50 per share. See "Report of the Compensation Committee of the Board of Directors." Eligibility; Limitations. The 1995 Stock Plan provides that nonstatutory stock options may be granted to employees and consultants. Incentive stock options may be granted only to employees. An optionee who has been granted an option or stock purchase right may, if he or she is otherwise eligible, be granted additional options or stock purchase rights. Section 162(m) of the Code limits the deductibility of compensation paid to certain executive officers of Pixar. To maximize Pixar's deduction attributable to options granted to such persons, the 1995 Stock Plan provides that no employee may be granted, in any fiscal year, options and stock purchase rights to purchase more than 3,000,000 shares of Common Stock. Terms and Conditions of Options. Each option granted under the 1995 Stock Plan is evidenced by a written stock option agreement between the optionee and Pixar and is subject to the following terms and conditions: (a) Exercise Price. The Administrator determines the exercise price of options to purchase shares of Common Stock at the time the options are granted. However, the exercise price of an incentive stock option must not be less than 100% (110% if issued to any person possessing more than 10% of the voting power of all classes of stock of Pixar (a "10% Shareholder")) of the fair market value of the Common Stock on the date the option is granted. For so long as Pixar's Common Stock is traded on the Nasdaq National Market, the fair market value of a share of Common Stock will be the closing sales price for such stock (or the closing bid if no sales were reported) on the last trading day prior to the date of grant as quoted on such system. (b) Exercise of the Option. Each stock option agreement will specify the term of the option and the date when the option is to become exercisable. The terms of such vesting are to be determined by the Administrator. Options granted under the 1995 Stock Plan to date generally become exercisable over four years at a rate of one-fourth of the shares subject to the options at the end of one year from the date of grant and 1/48th at the end of each month thereafter and have a ten-year term. The maximum term of an option granted to a 10% Shareholder is five years. An option is exercised by giving written notice of exercise to Pixar, specifying the number of full shares of Common Stock to be purchased and by tendering full payment of the purchase price to Pixar. (c) Form of Consideration. The consideration to be paid for the shares of Common Stock issued upon exercise of an option shall be determined by the Administrator and is set forth in the stock option agreement. Such form of consideration may vary for each option, and may consist entirely of cash, check, promissory note, other shares of Pixar's Common Stock, any combination thereof, or any other legally permissible form of consideration as may be provided in the stock option agreement. (d) Termination of Employment. In the event an optionee's continuous status as an employee or consultant terminates for any reason (other than upon the optionee's death or disability), the optionee may exercise his or her option within such period of time as is specified in such optionee's stock option agreement but only to the extent that the optionee was entitled to exercise the option at the date of such termination (but in no event later than the expiration of the term of such option as set forth in the stock option agreement). Options granted under the 1995 Stock Plan to date have generally provided that optionees may exercise their options within thirty days from the date of termination of employment (other than for death or disability). (e) Disability. In the event an optionee's continuous status as an employee or consultant terminates as a result of permanent and total disability (as defined in Section 22(e)(3) of the Code), the optionee may exercise his or her option, but only within twelve months from the date of such termination, and only to the extent that the optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such option as set forth in the stock option agreement). 7 10 (f) Death. In the event of an optionee's death, the optionee's estate or a person who acquired the right to exercise the deceased optionee's option by bequest or inheritance may exercise the option, but only within twelve months following the date of death, and only to the extent that the optionee was entitled to exercise it at the date of death (but in no event later than the expiration of the term of such option as set forth in the stock option agreement). (g) Term of Options. The term of each option is the term stated in the stock option agreement; provided, however, that the term may not exceed ten years from the date of grant. In the case of an incentive stock option granted to a 10% Shareholder, the term may not exceed 5 years from the date of grant. No option may be exercised by any person after the expiration of its term. (h) Nontransferability of Options. An option is nontransferable by the optionee, other than by will or the laws of descent and distribution, and is exercisable during the optionee's lifetime only by the optionee. In the event of the optionee's death, options may be exercised by a person who acquires the right to exercise the option by bequest or inheritance. (i) Value Limitation. If the aggregate fair market value (as determined on date of grant) of all shares of Common Stock subject to an optionee's incentive stock option which are exercisable for the first time during any calendar year exceeds $100,000, the excess options shall be treated as nonstatutory options. (j) Other Provisions. The stock option agreement may contain such other terms, provisions and conditions not inconsistent with the 1995 Stock Plan as may be determined by the Administrator. Stock Purchase Rights. A stock purchase right gives the purchaser a period of no longer than 30 days from the date of grant to purchase Common Stock. A stock purchase right is accepted by the execution of a restricted stock purchase agreement between Pixar and the purchaser, accompanied by the payment of the purchase price for the shares. Unless the Administrator determines otherwise, the restricted stock purchase agreement shall give Pixar a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment or consulting relationship with Pixar for any reason (including death and disability). The purchase price for any shares repurchased by Pixar shall be the original price paid by the purchaser. The repurchase option lapses at a rate determined by the Administrator. A stock purchase right is nontransferable other than by will or the laws of descent and distribution, and may be exercisable during the optionee's lifetime only by the optionee. Adjustment Upon Changes in Capitalization; Corporate Transactions. In the event of changes in the outstanding Common Stock of Pixar by reason of any stock splits, reverse stock splits, stock dividends, combinations, reclassifications or other similar change in the capital structure of Pixar, an appropriate adjustment shall be made by the Administrator in the following: (i) the number of shares of Common Stock subject to the 1995 Stock Plan, (ii) the number and class of shares of stock subject to any option or stock purchase right outstanding under the 1995 Stock Plan, (iii) and the exercise price of any such outstanding option or stock purchase right. The determination of the Administrator as to which adjustments shall be made shall be conclusive. In the event of a proposed dissolution or liquidation of Pixar, the Board will notify the holders of options or stock purchase rights at least fifteen days prior to such action and all outstanding options and stock purchase rights will terminate immediately prior to the consummation of such proposed action. Notwithstanding the above, in the event of a merger of Pixar with or into another corporation or the sale of substantially all of the assets of Pixar, the 1995 Stock Plan requires that each outstanding option and stock purchase right be assumed or an equivalent option or stock purchase right be substituted by the successor corporation; provided, however, if such successor or purchaser refuses to assume or substitute the then outstanding options or stock purchase rights, the 1995 Stock Plan provides for the full acceleration of the exercisability of all outstanding options and stock purchase rights for a period of 15 days from the date of notice of acceleration to the holder and all options or stock purchase rights will terminate upon the expiration of such period. Amendment and Termination of the 1995 Stock Plan. The Board may at any time amend, alter, suspend or terminate the 1995 Stock Plan. Pixar shall obtain shareholder approval of any amendment to the 1995 Stock Plan in such a manner and to such a degree as is necessary and desirable to comply with Rule 16b- 8 11 3 under the Exchange Act and Sections 162(m) and 422 of the Code (or any other applicable law or regulation, including the requirements of any exchange or quotation system on which the Common Stock is traded). Any amendment or termination of the 1995 Stock Plan shall not affect options already granted and such options shall remain in full force and effect as if the 1995 Stock Plan had not been amended or terminated, unless mutually agreed otherwise between the optionee and Pixar, which agreement must be in writing and signed by the optionee and Pixar. In any event, the 1995 Stock Plan shall terminate in May 2005. Any options outstanding under the 1995 Stock Plan at the time of its termination shall remain outstanding until they expire by their terms. FEDERAL INCOME TAX CONSEQUENCES Incentive Stock Options. An optionee who is granted an incentive stock option does not recognize taxable income at the time the option is granted or upon its exercise, although the exercise may subject the optionee to the alternative minimum tax. Upon a disposition of the shares more than two years after grant of the option and one year after exercise of the option, any gain or loss is treated as long-term capital gain or loss. If these holding periods are not satisfied, the optionee recognizes ordinary income at the time of disposition equal to the difference between the exercise price and the lower of (i) the fair market value of the shares at the date of the option exercise or (ii) the sale price of the shares. Any gain or loss recognized on such a premature disposition of the shares in excess of the amount treated as ordinary income is treated as long-term or short-term capital gain or loss, depending on the holding period. A different rule for measuring ordinary income upon such a premature disposition may apply if the optionee is also an officer, director, or 10% Shareholder of Pixar. Pixar is entitled to a deduction in the same amount as the ordinary income recognized by the optionee. Nonstatutory Stock Options. An optionee does not recognize any taxable income at the time he or she is granted a nonstatutory stock option. Upon exercise, the optionee recognizes taxable income generally measured by the excess of the then fair market value of the shares over the exercise price. Any taxable income recognized in connection with an option exercise by an employee of Pixar is subject to tax withholding by Pixar. Pixar is entitled to a deduction in the same amount as the ordinary income recognized by the optionee. Upon a disposition of such shares by the optionee, any difference between the sale price and the optionee's exercise price, to the extent not recognized as taxable income as provided above, is treated as long-term or short-term capital gain or loss, depending on the holding period. Stock Purchase Rights. Stock purchase rights will generally be taxed in the same manner as nonstatutory stock options. However, restricted stock is generally purchased upon the exercise of a stock purchase right. At the time of purchase, restricted stock is subject to a "substantial risk of forfeiture" within the meaning of Section 83 of the Code. As a result, the purchaser will not recognize ordinary income at the time of purchase. Instead, the purchaser will recognize ordinary income on the dates when the stock ceases to be subject to a substantial risk of forfeiture. The stock will generally cease to be subject to a substantial risk of forfeiture when it is no longer subject to Pixar's right to repurchase the stock upon the purchaser's termination of employment with Pixar. At such times, the purchaser will recognize ordinary income measured as the difference between the purchase price and the fair market value of the stock on the date the stock is no longer subject to a substantial risk of forfeiture. The purchaser may accelerate to the date of purchase his or her recognition of ordinary income, if any, and the beginning of any capital gain holding period by timely filing an election pursuant to Section 83(b) of the Code. In such event, the ordinary income recognized, if any, is measured as the difference between the purchase price and the fair market value of the stock on the date of purchase, and the capital gain holding period commences on such date. The ordinary income recognized by a purchaser who is an employee will be subject to tax withholding by Pixar. Different rules may apply if the purchaser is also an officer, director, or 10% Shareholder of Pixar. The foregoing is only a summary of the effect of federal income taxation upon optionees, holders of stock purchase rights, and Pixar with respect to the grant and exercise of options and stock purchase rights under the 1995 Stock Plan. It does not purport to be complete, and does not discuss the tax consequences of the 9 12 employee's or consultant's death or the provisions of the income tax laws of any municipality, state or foreign country in which the employee or consultant may reside. PARTICIPATION IN THE 1995 STOCK PLAN Pixar did not grant any stock options to executive officers during the fiscal year ended December 31, 1996. Pixar granted stock options to purchase a total of 1,297,000 shares of Common Stock with a weighted average exercise price of $15.18 per share to non-executive officer employees during fiscal 1996 pursuant to the 1995 Stock Plan. Such number includes options to purchase a total of 334,500 shares of Common Stock granted on September 11, 1996 pursuant to a stock option exchange program offered by the Board of Directors to all employees. See "Report of the Compensation Committee of the Board of Directors." Non-employee directors are not currently eligible to participate in the 1995 Stock Plan. Grants under the 1995 Stock Plan are made at the discretion of the Administrator. Accordingly, future grants under the 1995 Stock Plan are not yet determinable. 10 13 PROPOSAL NO. 3 RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS The Board of Directors has selected KPMG Peat Marwick LLP, independent certified public accountants, to audit the financial statements of Pixar for the fiscal year ending December 31, 1997. KPMG Peat Marwick LLP has audited Pixar's financial statements since Pixar's inception. A representative of KPMG Peat Marwick LLP is expected to be present at the meeting, will have the opportunity to make a statement, and is expected to be available to respond to appropriate questions. REQUIRED VOTE The Board of Directors has conditioned its appointment of Pixar's independent auditors upon the receipt of the affirmative vote of a majority of the shares represented, in person or by proxy, and voting at the Annual Meeting. In the event that the shareholders do not approve the selection of KPMG Peat Marwick LLP, the appointment of the independent auditors will be reconsidered by the Board of Directors. RECOMMENDATION THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS PIXAR'S INDEPENDENT AUDITORS. 11 14 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the beneficial ownership of Common Stock of Pixar as of May 13, 1997 for the following: (i) each person who is known by Pixar to own beneficially more than 5% of the outstanding shares of Pixar's Common Stock; (ii) each of Pixar's directors; (iii) each of the executive officers named in the Summary Compensation Table; and (iv) all directors and executive officers of Pixar as a group.
NUMBER OF PERCENT NAME OF BENEFICIAL OWNER SHARES(1) OF TOTAL(1) - ----------------------------------------------------------------------- ---------- ----------- Steve Jobs............................................................. 30,000,001 72.9% c/o Pixar 1001 West Cutting Boulevard Richmond, CA 94804 Disney Enterprises, Inc.(2)............................................ 2,500,100 5.9 500 South Buena Vista Street Burbank, CA 91521 John Lasseter(3)....................................................... 1,063,333 2.5 Edwin E. Catmull(4).................................................... 871,833 2.1 Lawrence B. Levy(5).................................................... 851,666 2.0 William T. Reeves(6)................................................... 741,667 1.8 Larry W. Sonsini(7).................................................... 10,000 * Skip M. Brittenham(8).................................................. 10,000 * Joseph A. Graziano(9).................................................. 10,000 * All directors and executive officers as a group (8 persons)(10)........ 32,816,833 76.1
- --------------- * Represents less than 1% of the total. (1) Based on 41,169,988 shares outstanding on May 13, 1997. The number and percentage of shares beneficially owned is determined under rules of the Securities and Exchange Commission ("SEC"), and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within sixty days of May 13, 1997 through the exercise of any stock option or other right. Unless otherwise indicated in the footnotes, each person has sole voting and investment power (or shares such powers with his or her spouse) with respect to the shares shown as beneficially owned. (2) Includes 1,500,000 shares issuable upon exercise of warrants. (3) Includes 723,333 shares subject to options that are exercisable within 60 days of May 13, 1997. (4) Includes 423,333 shares subject to options that are exercisable within 60 days of May 13, 1997. (5) Includes 751,666 shares subject to options that are exercisable within 60 days of May 13, 1997. (6) Includes 141,667 shares subject to options that are exercisable within 60 days of May 13, 1997. (7) Includes 10,000 shares subject to options that are exercisable within 60 days of May 13, 1997. (8) Includes 10,000 shares subject to options that are exercisable within 60 days of May 13, 1997. (9) Includes 10,000 shares subject to options that are exercisable within 60 days of May 13, 1997. (10) Includes 1,928,332 shares subject to options that are exercisable within 60 days of May 13, 1997. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act ("Section 16(a)") requires Pixar's executive officers, directors and persons who own more than ten percent of Pixar's Common Stock, to file initial reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the SEC and the National Association of Securities Dealers, Inc. Such executive officers, directors and ten-percent shareholders are also required by SEC rules to furnish Pixar with copies of all such forms that they file. 12 15 Based solely on its review of the copies of such forms received by Pixar and written representations from certain reporting persons that no Forms 5 were required for such persons, Pixar believes that during fiscal 1996 all Section 16(a) filing requirements applicable to its executive officers, directors and ten-percent shareholders were complied with. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Pixar's Compensation Committee was formed in October 1995 and is currently composed of Messrs. Brittenham and Graziano. No interlocking relationship exists between any member of Pixar's Board of Directors or Compensation Committee and any member of the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past. No member of the Compensation Committee is or was formerly an officer or an employee of Pixar. EXECUTIVE OFFICER COMPENSATION SUMMARY COMPENSATION TABLE The following table shows, as to the Chief Executive Officer and each of the four most highly compensated executive officers whose salary plus bonus exceeded $100,000 during the last fiscal year (the "Named Officers"), information concerning compensation paid for services to Pixar in all capacities during the last three fiscal years.
LONG TERM COMPENSATION AWARDS ------------ ANNUAL COMPENSATION SECURITIES ---------------------- UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) - -------------------------------------------------- ---- --------- -------- ------------ Steve Jobs........................................ 1996 $ -- $ -- -- Chairman, Chief Executive Officer 1995 -- -- -- and Office of the President 1994 -- -- -- Edwin E. Catmull.................................. 1996 198,512 -- -- Executive Vice President, Chief Technical 1995 182,646 -- 1,600,000 Officer and Office of the President 1994 170,697 -- -- Lawrence B. Levy(1)............................... 1996 197,789 -- -- Executive Vice President, Chief Financial 1995 158,509 -- 1,600,000 Officer and Office of the President 1994 -- -- -- John Lasseter..................................... 1996 256,203 -- -- Vice President, Creative Development 1995 200,463 35,000 1,600,000 1994 149,396 -- -- William T. Reeves................................. 1996 211,899 -- -- Technical Director, Feature Films 1995 172,430 -- 840,000 1994 133,374 -- --
- --------------- (1) Mr. Levy joined Pixar in February 1995. OPTION GRANTS IN LAST FISCAL YEAR There were no stock options granted to the Named Officers during the fiscal year ended December 31, 1996. 13 16 OPTION EXERCISES AND HOLDINGS The following table sets forth, for each of the Named Officers, certain information concerning stock options exercised during fiscal 1996, and the number of shares subject to both exercisable and unexercisable stock options as of December 31, 1996. Also reported are values for "in-the-money" options that represent the positive spread between the respective exercise prices of outstanding stock options and the fair market value of Pixar's Common Stock as of December 31, 1996. AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND FISCAL 1996 YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END($)(1) ACQUIRED ON VALUE --------------------------- --------------------------- NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - -------------------------- ----------- ---------- ----------- ------------- ----------- ------------- Steve Jobs................ -- $ -- -- -- $ -- $ -- Edwin E. Catmull.......... 260,000 3,617,063 606,667 483,333 7,765,338 6,186,662 Lawrence B. Levy.......... 105,000 1,771,125 628,334 866,666 8,042,676 11,093,325 John Lasseter............. 180,000 2,422,250 686,667 483,333 8,789,338 6,186,662 William T. Reeves......... 50,000 1,006,875 165,833 24,167 2,122,662 309,338
- --------------- (1) Market value of underlying securities based on the closing price of Pixar's Common Stock on December 31, 1996 (the last trading day of fiscal 1996) on the Nasdaq National Market of $13.00 minus the exercise price. EMPLOYMENT AGREEMENTS Pixar has employment agreements with Edwin E. Catmull and William T. Reeves that extend until the earlier of (i) the delivery of Pixar's animated feature film that has the working title A Bug's Life, (ii) the date the feature film agreement between Pixar and Walt Disney Pictures dated May 3, 1991 terminates or (iii) July 31, 1998. During the term of their employment agreements, Mr. Catmull and Mr. Reeves are prohibited from seeking other employment, except during the last six months of the term of the agreement, and from becoming financially interested or associated with any entity engaged in a related or competitive business. The employment agreements can be terminated by Pixar only upon the respective employee's death or disability or, subject to the consent of Walt Disney Pictures, for cause. The employment agreements provide for a current annual salary of $214,000 for Mr. Catmull and $219,350 for Mr. Reeves, with 7% annual increases for each. In February 1997, Pixar entered into a new employment agreement with John Lasseter that extends until February 23, 2004. Pursuant to the agreement, Mr. Lasseter received a signing bonus of $1,250,000 and was granted additional stock options to purchase 125,000 shares of Pixar's Common Stock which vest over four years. The agreement provides for a current annual salary of $700,000 with 8% annual increases. The agreement also provides for the payment of a bonus (the "Motion Picture Bonus") based upon domestic theatrical box office gross receipts from feature-length animated motion pictures ("Feature Films") directed by Mr. Lasseter. Under the agreement, Mr. Lasseter will direct three Feature Films and has the option to direct certain sequels to Feature Films he directed if Pixar elects to produce such sequels within twelve years after the initial release of the applicable picture. During the term of the agreement, Mr. Lasseter is prohibited from accepting other employment and from becoming financially interested or associated with any entity engaged in a related or competitive business. Pixar can terminate the agreement at any time for any reason. However, if Pixar terminates Mr. Lasseter's employment without cause, Pixar must pay Mr. Lasseter (i) an amount equal to 75% of the balance of the salary Mr. Lasseter would have earned through the remainder of the term of the agreement and (ii) any portion of the Motion Picture Bonus as and if due. In addition, the vesting of Mr. Lasseter's stock options would accelerate so that they would be exercisable in full and Mr. Lasseter could accept employment with any third party. 14 17 CERTAIN TRANSACTIONS In December 1993, Pixar advanced $15,000 to Edwin Catmull, an executive officer of Pixar, pursuant to a promissory note that bore interest at the annual rate of 5%. The principal and accrued interest, which totaled $16,976, was repaid in August 1996. In May 1995, Pixar loaned $200,000 to Edwin E. Catmull, an executive officer of Pixar, for the purchase of a new principal residence pursuant to a promissory note that bore interest of 6.62%, compounded annually. The principal and accrued interest, which totaled $217,490, was repaid in August 1996. Pixar has engaged the law firm of Ziffren, Brittenham, Branca & Fischer ("ZBB&F") to handle certain matters. Skip M. Brittenham, a director of Pixar, is a senior partner of the firm. Pixar has also engaged the law firm of Wilson Sonsini Goodrich & Rosati ("WSGR") to handle certain legal matters. Larry W. Sonsini, a director of Pixar, is a member of the firm. Payments by Pixar to each of ZBB&F and WSGR did not exceed five percent of either law firm's respective gross revenues in the last fiscal year of either such firm. Pixar believes that all of the transactions set forth above were made on terms no less favorable to Pixar than could have been obtained from unaffiliated third parties. All future transactions, including loans, between Pixar and its officers, directors and principal shareholders and their affiliates will be approved by a majority of the Board of Directors, including a majority of the independent and disinterested directors of the Board of Directors, and will be on terms no less favorable to Pixar than could be obtained from unaffiliated third parties. 15 18 REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS The Compensation Committee of the Board of Directors (the "Committee") was formed in October 1995 and is responsible for reviewing the compensation and benefits for Pixar's executive officers, as well as supervising and making recommendations to the Board on compensation matters generally. The Committee also administers Pixar's stock option plans and makes grants to executive officers under the 1995 Stock Plan. COMPENSATION PHILOSOPHY The Committee's compensation philosophy is to provide cash and equity incentives to Pixar's executive officers and other employees to attract personnel of the highest caliber in order to maintain Pixar's competitive position. The goals of the Committee are to: - attract, retain and motivate highly qualified executive officers and employees who contribute to the long-term success of Pixar - align the compensation of executive officers with business objectives and performance - align incentives for executive officers with the interests of shareholders in maximizing value Pixar currently intends to take the necessary steps to conform its compensation practices to comply with the $1 million compensation deduction cap under Section 162(m) of the Internal Revenue Code. ELEMENTS OF COMPENSATION The compensation for executive officers is based on two elements: Base Compensation and Long-Term Incentive Compensation. Base Compensation is determined on the basis of the level of responsibility, expertise and experience of the executive officer, taking into account competitive conditions in the industry. Certain of Pixar's executive officers are compensated pursuant to employment agreements. The compensation of the other executive officers, except for the Chief Executive Officer who receives no compensation, is reviewed annually by the Committee and increased on the basis of performance, Pixar's financial results for the previous year and competitive conditions. Long-Term Incentive Compensation is provided through grants of stock options pursuant to Pixar's 1995 Stock Plan. Ownership of Pixar's Common Stock is a key element of executive compensation and is intended to provide additional incentives to the executive officers to maximize shareholder value. The 1995 Stock Plan was adopted in May 1995 and all executive officers received option grants at that time based mainly on his or her ability to effect Pixar's performance. Certain executive officers received additional stock options in 1995 pursuant to a provision in their employment agreements which provided that upon termination of the 1993 Cash Profit Sharing Plan (which terminated concurrently with the adoption of the 1995 Stock Plan), such individuals would be granted certain stock options. No stock options were granted to executive officers during fiscal 1996; however, additional stock options may be granted to executive officers in the future to reward exceptional performance or to provide additional unvested equity incentives. All options are granted at the current market price and generally utilize vesting periods which encourage executive officers to remain with Pixar. 16 19 COMPENSATION OF THE CHIEF EXECUTIVE OFFICER Pixar's Chief Executive Officer did not receive compensation for his services in 1996. STOCK OPTION EXCHANGE On September 11, 1996, the Board of Directors offered all employees the opportunity to exchange their outstanding stock options that had exercise prices in excess of $13.00 per share for new options that would be exercisable at $12.50 per share, the fair market value of the Company's Common Stock on such date. These new options were otherwise identical to the old options. The stock option exchange was an acknowledgment of the importance to the Company of its employees and of the incentive to employees represented by stock options, especially in considering alternative opportunities. The Board considered such factors as the competitive environment for obtaining and retaining qualified employees and the overall benefit to the shareholders from a highly motivated group of employees. No executive officers of Pixar participated in the stock option exchange. THE BOARD OF DIRECTORS Steve Jobs Larry W. Sonsini Skip M. Brittenham Joseph A. Graziano 17 20 PIXAR STOCK PRICE PERFORMANCE GRAPH The following graph compares Pixar's cumulative total shareholder return with those of the H&Q Technology Index, the Nasdaq Stock Market Index-U.S. and the Standard & Poor's Entertainment Index. The graph assumes that $100 was invested on November 29, 1995 (the date of Pixar's initial public offering) in (i) Pixar's Common Stock and (ii) the H&Q Technology Index, the Nasdaq Stock Market Index-U.S. and the Standard & Poor's Entertainment Index, including reinvestment of dividends. No dividends have been paid or declared on Pixar's Common Stock. Note that historic stock price performance is not necessarily indicative of future stock price performance.
S&P Measurement Period H&Q Technology Nasdaq Stock Entertainment (Fiscal Year Covered) Pixar Index Market - US Index Nov. 29 1995 100 100 100 100 Dec. 1995 131.25 96.34 99.64 97.07 March 1996 57.05 96 100 98.37 June 1996 50 103 108 94.17 Sept. 1996 41.67 109 104 91.29 Dec. 1996 33.33 115 105 98.76 March 1997 45.83 125 95 105.63
18 21 OTHER MATTERS Pixar knows of no other matters to be submitted to the meeting. If any other matters properly come before the meeting, it is the intention of the persons named in the enclosed proxy to vote the shares they represent as Pixar may recommend. It is important that your shares be represented at the meeting, regardless of the number of shares which you hold. You are, therefore, urged to execute and return, at your earliest convenience, the accompanying proxy in the envelope which has been enclosed. THE BOARD OF DIRECTORS Richmond, California May 22, 1997 19 22 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 Incentive 23 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- 24 (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- 25 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- 26 (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- 27 (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. (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 -6- 28 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 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 -7- 29 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 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 -8- 30 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. 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 -9- 31 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 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 -10- 32 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 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 -11- 33 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. 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. -12- 34 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- 35 PIXAR PROXY FOR ANNUAL MEETING OF SHAREHOLDERS P R THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS O X The undersigned shareholder of PIXAR, a California Y corporation, hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement, each dated May 22, 1997, and hereby appoints Steve Jobs and Lawrence B. Levy, and each of them, proxies, with full power of substitution, to represent the undersigned and to vote as designated on the reverse side, all shares of Common Stock of PIXAR that the undersigned is entitled to vote at the Annual Meeting of Shareholders of PIXAR to be held on June 25, 1997 at 2:00 p.m., local time, in the Wattis Theater at the San Francisco Museum of Modern Art located at 151 Third Street, San Francisco, California 94103, and at any adjournment thereof. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS ON THE REVERSE SIDE HEREOF AND FOR SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AS THE PROXIES DEEM ADVISABLE. CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE 36 [X] PLEASE MARK VOTES AS IN THIS EXAMPLE A VOTE FOR THE FOLLOWING PROPOSALS IS RECOMMENDED BY THE BOARD OF DIRECTORS. 1. Election of four Directors: FOR WITHHELD NOMINEES: Steve Jobs, Larry W. Sonsini, [ ] [ ] [ ] Skip M. Brittenham and Joseph A. Graziano ______________________________________ For all nominees except as noted above 2. Proposal to amend Pixar's 1995 Stock Plan as described in the FOR AGAINST ABSTAIN accompanying Proxy Statement. [ ] [ ] [ ] 3. Proposal to ratify the appointment of KPMG Peat Marwick FOR AGAINST ABSTAIN LLP as Pixar's independent auditors for the fiscal year ending [ ] [ ] [ ] December 31, 1997.
4. In their discretion, the Proxies are authorized to vote upon such other business which may properly come before the meeting or any adjournments thereof. Mark here for address change and note at left [ ] Please sign exactly as your name appears on your stock certificate. If the stock is held by Signature:________________Date_______ joint tenants or as community property, both should sign. Executors, administrators, trustees, guardians, attorneys and corporate officers should give their titles. Signature:________________Date_______
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