UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


SCHEDULE TO

(Rule 13e-4)

 

Tender Offer Statement Under Section 14(d)(1) or 13(e)(1)
of the Securities Exchange Act of 1934


 

The Walt Disney Company

(Name of Subject Company (Issuer) and Filing Person (Offeror))


Options to Purchase Common Stock, $0.01 Par Value Per Share
(Title of Class of Securities)


254687106
(CUSIP Number of Class of Securities Underlying Options to Purchase Common Stock)

Alan N. Braverman
Senior Executive Vice President, General Counsel and Secretary
The Walt Disney Company
500 South Buena Vista Street
Burbank, California 91521
(818) 560-1000
(Name, address and telephone number of person authorized to receive notices and communications on behalf of filing person)

Copy to:
Meredith B. Cross
Wilmer Cutler Pickering Hale and Dorr LLP
1875 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
202-663-6000


CALCULATION OF FILING FEE

Transaction Valuation*

 

Amount of Filing Fee

$323,000,000

 

$9,916

*                                         Estimated solely for the purposes of calculating the Amount of Filing Fee. The calculation of the Transaction Valuation assumes that all options to purchase the Issuer’s common stock that are eligible for exchange will be tendered pursuant to this offer. These options have an aggregate fair value of $323,000,000 as of April 5, 2007, calculated based on the Black-Scholes-Merton option pricing model.

 

o                                    Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

Amount Previously Paid:

Not applicable.

 

Form or Registration No.:

Not applicable.

 

Filing party:

Not applicable.

 

Date filed:

Not applicable.

 

o                                    Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.

                                                Check the appropriate boxes below to designate any transactions to which the statement relates:

o            third party tender offer subject to Rule 14d-1.

x           issuer tender offer subject to Rule 13e-4.

o            going-private transaction subject to Rule 13e-3.

o            amendment to Schedule 13D under Rule 13d-2.

Check the following box if the filing is a final amendment reporting the results of the tender offer:   o

 




SCHEDULE TO

This Tender Offer Statement on Schedule TO relates to an offer (the “Offer”) by The Walt Disney Company, a Delaware corporation (“The Walt Disney Company”, “Disney” or the “Company”), to amend certain options (the “Eligible Options”) that were granted by Pixar before the acquisition of Pixar by The Walt Disney Company (the “Pixar acquisition”), which was completed on May 5, 2006.  The Eligible Options were granted by Pixar under The Walt Disney Company/Pixar 1995 Stock Plan, as amended, or the Amended and Restated The Walt Disney Company/Pixar 2004 Equity Incentive Plan (collectively, the “Disney/Pixar Plans”) before the Pixar acquisition and were converted to options to purchase shares of common stock of The Walt Disney Company in accordance with the Pixar acquisition agreements.  The Eligible Options include only those stock options granted by Pixar: (i) that had original exercise prices per share that were less than the fair market value per share of the common stock underlying the option on the correct option grant date as determined by us, (ii) that were unvested, either in whole or in part, as of December 31, 2004, (iii) that are outstanding as of the last date on which the Offer remains open for acceptance, and (iv) that are held by individuals who are subject to taxation in the United States and are an employee of The Walt Disney Company or its subsidiaries, including Pixar, on the last date on which the Offer remains open for acceptance.

Eligible holders may elect to (i) amend Eligible Options to increase the exercise price per share to the fair market value of a share of the common stock of Pixar on the correct option grant date as determined by us and as adjusted in connection with the Pixar acquisition (the “New Exercise Price”), and (ii) for each amended Eligible Option, receive a cash payment equal to the difference between the New Exercise Price and the original exercise price per share as adjusted in connection with the Pixar acquisition. Cash payments will be paid on or promptly following January 4, 2008, and all such payments will be subject to any applicable tax withholding. The cash payments will not be subject to any vesting conditions and will be made without regard to whether the Eligible Option is vested and without regard to whether an eligible holder is an employee of the Company on the payment date.

The amendment of the Eligible Options will be made pursuant to the terms and subject to the conditions set forth in: (i) the Offer to Amend the Exercise Price of Certain Options, dated April 9, 2007 (the “Offer to Amend”), attached to this Schedule TO as Exhibit (a)(1)(A), (ii) the E-mail to All Eligible Holders, dated April 9, 2007, attached to this Schedule TO as Exhibit (a)(1)(B), and (iii) the election form, attached to this Schedule TO as Exhibits (a)(1)(F) and (a)(1)(N). These documents, as they may be amended or supplemented from time to time, together constitute the “Offer Documents”. An “Eligible Holder” refers to an individual who (1) is subject to taxation in the United States, (2) holds Eligible Options to purchase shares of common stock of The Walt Disney Company that are outstanding on the last date on which this offer remains open for acceptance, and (3) is an employee of The Walt Disney Company or its subsidiaries, including Pixar, on the last date on which the Offer remains open for acceptance.  The Offer is not being made to any of our Directors or executive officers or any persons who served as directors or executive officers of Pixar before the Pixar acquisition.

This Offer is being made upon the terms and subject to the conditions set forth in the Offer to Amend, which, as may be amended or supplemented from time to time, constitutes the Offer, and which is filed as Exhibit (a)(1)(A) hereto. This Tender Offer Statement on Schedule

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TO is intended to satisfy the reporting requirements of Section 13(e) of the Securities Exchange Act of 1934, as amended. The information in the Offer Documents, including all schedules and annexes to the Offer Documents, is incorporated by reference in answer to the items required in this Schedule TO.

Item 1. Summary Term Sheet.

The information set forth under the caption “Summary Term Sheet and Questions and Answers” in the Offer to Amend is incorporated herein by reference.

Item 2. Subject Company Information.

(a)           Name and Address.

The Walt Disney Company is the issuer of the securities subject to the Offer to Amend. The address of the Company’s principal executive office is 500 South Buena Vista Street, Burbank, California 91521 and the telephone number at that address is (818) 560-1000. The information set forth in the Offer to Amend in the section under the caption “The Offer” entitled “Information concerning the Company” is incorporated herein by reference.

(b)           Securities.

This Tender Offer Statement on Schedule TO relates to an offer by the Company to holders of Eligible Options granted under the Disney/Pixar Plans to amend such Eligible Options and to receive a cash payment with respect to each amended Eligible Option, as set forth in the Offer to Amend and upon the terms and subject to the conditions described in (i) the Offer to Amend attached hereto as Exhibit (a)(1)(A), (ii) the E-mail to All Eligible Holders attached hereto as Exhibit (a)(1)(B) and (iii) the election form attached hereto as Exhibits (a)(1)(F) and (a)(1)(N).

As of March 30, 2007, there were options to purchase 15,478,029 shares of the Company’s common stock outstanding and eligible to participate in this Offer.

(c)           Trading Market and Price.

The information set forth in the Offer to Amend under the caption “The Offer” in the section entitled “Price range of shares underlying the options” is incorporated herein by reference.

Item 3. Identity and Background of Filing Person.

(a)           Name and Address.

The filing person is the issuer. The information set forth under Item 2(a) above is incorporated by reference.

Pursuant to General Instruction C to Schedule TO, the information set forth on Schedule A to the Offer to Amend is incorporated herein by reference.

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Item 4. Terms of the Transaction.

(a)           Material Terms.

The information set forth in the Offer to Amend under the caption “Summary Term Sheet and Questions and Answers” and under the caption “The Offer” in the sections “Eligibility” (Section 1), “Number of options and amount of consideration; expiration of the offer” (Section 2), “Procedures for electing to participate in this offer” (Section 4), “Withdrawal rights and change of election” (Section 5), “Acceptance of options for amendment, issuance of cash payments, and amended options” (Section 6), “Conditions of the offer” (Section 7), “Source and amount of consideration; terms of amended options” (Section 9), “Status of options amended by us in the offer; accounting consequences of the offer” (Section 12), “Legal matters; regulatory approvals” (Section 13), “Material United States income tax consequences” (Section 14), and “Extension of offer; termination; amendment” (Section 15), is incorporated herein by reference.

(b)           Purchases.

None of the members of the Company’s Board of Directors or the Company’s executive officers may participate in the offer. None of the persons who served as members of Pixar’s board of directors or executive officers of Pixar before the Pixar acquisition may participate in the offer. The information set forth in the Offer to Amend under Section 11, “Interests of directors and executive officers; transactions and arrangements concerning the options,” is incorporated herein by reference.

Item 5. Past Contacts, Transactions, Negotiations and Arrangements.

(e)           Agreements Involving the Subject Company’s Securities.

The information set forth in the Offer to Amend under Section 9, “Source and amount of consideration; terms of amended options,” and Section 11, “Interests of directors and executive officers; transactions and arrangements concerning the options,” is incorporated herein by reference. The following items are incorporated herein by reference: (1) the form of stock option agreement under the Amended and Restated The Walt Disney Company/Pixar 2004 Equity Incentive Plan, which is incorporated herein by reference to Exhibit 10.1 to Pixar’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”) on November 10, 2005; (2) Amended and Restated The Walt Disney Company/Pixar 2004 Equity Incentive Plan, which is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 1, 2006; (3) the form of stock option agreement under The Walt Disney Company/Pixar 1995 Stock Plan, as amended, which is attached hereto as Exhibit (a)(1)(P)(i); and (4) The Walt Disney Company/Pixar 1995 Stock Plan, as amended, which is incorporated herein by reference to Exhibit 10.1 to the Company’s Form S-8 filed with the SEC on May 5, 2006.

Item 6. Purposes of the Transaction and Plans or Proposals.

(a)           Purposes.

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The information set forth in the Offer to Amend under the caption “Summary Term Sheet and Questions and Answers” and under the caption “The Offer” in the section entitled “Purpose of the Offer” is incorporated herein by reference.

(b)           Use of Securities Acquired.

The information set forth in the Offer to Amend under the caption “The Offer” in the sections entitled “Acceptance of options for amendment, issuance of cash payments, and amended options” and “Status of options amended by us in the offer; accounting consequences of the offer” is incorporated herein by reference.

(c)           Plans.

The information set forth in the Offer to Amend under the caption “The Offer” in the sections entitled “Purpose of the offer” and “Information concerning the Company” is incorporated herein by reference.

Item 7. Source and Amount of Funds or Other Consideration.

(a)           Source of Funds.

The information set forth in the Offer to Amend under the caption “The Offer” in the section entitled “Source and amount of consideration; terms of amended options” is incorporated herein by reference.

(b)           Conditions.

The information set forth in the Offer to Amend under the caption “The Offer” in the section entitled “Conditions of the offer” is incorporated herein by reference.

(d)           Borrowed Funds.

Not applicable.

Item 8. Interest in Securities of the Subject Company.

(a)           Securities Ownership.

The information set forth in the Offer to Amend under the caption “The Offer” in the section entitled “Interests of directors and executive officers; transactions and arrangements concerning the options” is incorporated herein by reference.

(b)           Securities Transactions.

The information set forth in the Offer to Amend under the caption “The Offer” in the section entitled “Interests of directors and executive officers; transactions and arrangements concerning the options” is incorporated herein by reference.

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Item 9. Person/Assets, Retained, Employed, Compensated or Used.

(a)           Solicitations or Recommendations.

Not applicable.

Item 10. Financial Statements.

(a)           Financial Information.

The information set forth in Schedule B to the Offer to Amend and in the Offer to Amend under the caption “The Offer” in the sections entitled “Information concerning the Company,” “Financial statements,” and “Additional information” is incorporated herein by reference. The financial information included in The Walt Disney Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2006, filed with the SEC on November 22, 2006, and The Walt Disney Company’s Quarterly Reports on Form 10-Q for the fiscal quarters ended December 30, 2006 and December 31, 2005, filed with the SEC on February 7, 2007 and February 6, 2006, respectively, is incorporated herein by reference. The Walt Disney Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q can also be accessed electronically on the SEC’s website at http://www.sec.gov.

(b)           Pro Forma Information.

Not applicable.

(c)           Summary Information.

The information set forth in Schedule B to the Offer to Amend and in the Offer to Amend under the caption “The Offer” in the sections entitled “Information concerning the Company” is incorporated herein by reference.

Item 11. Additional Information.

(a)           Agreements, Regulatory Requirements and Legal Proceedings.

The information set forth in the Offer to Amend under the caption “The Offer” in the section entitled “Legal matters; regulatory approvals” is incorporated herein by reference.

(b)           Other Material Information.

Not applicable.

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Item 12. Exhibits.

Exhibit Number

 

Description

(a)(1)(A)

 

Offer to Amend the Exercise Price of Certain Options, dated April 9, 2007

(a)(1)(B)

 

Draft e-mail to all eligible holders

(a)(1)(C)

 

Draft transmittal to eligible holders receiving printed copies of offer to amend and election form

(a)(1)(D)

 

Screen shot of login page to offer website at http://tenderoffer.pixar.com

(a)(1)(E)

 

Screen shot of welcome page to offer website at http://tenderoffer.pixar.com

(a)(1)(F)

 

Screen shot of electronic election form

(a)(1)(G)

 

Screen shot of election amendment review

(a)(1)(H)

 

Screen shots of agreement to terms of election

(a)(1)(I)

 

Screen shot of election confirmation statement

(a)(1)(J)

 

Screen shots of instructions to election form

(a)(1)(K)

 

Form of amendment to stock option agreement and promise to make cash payment

(a)(1)(L)

 

Form of acknowledgement of receipt of election form

(a)(1)(M)

 

Form of e-mail confirmation and reminders to eligible holders

(a)(1)(N)

 

Paper election form

(a)(1)(O)

 

Form of e-mail confirming that eligible holder has elected not to participate

(a)(1)(P)(i)

 

Form of stock option agreement under The Walt Disney Company/Pixar 1995 Stock Plan, as amended

(a)(1)(P)(ii)

 

The Walt Disney Company/Pixar 1995 Stock Plan, as amended (incorporated herein by reference to Exhibit 10.1 to the Company’s Form S-8 filed with the SEC on May 5, 2006)

(a)(1)(P)(iii)

 

Form of stock option agreement under Amended and Restated The Walt Disney Company/Pixar 2004 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Pixar’s Quarterly Report on Form 10-Q filed with the SEC on November 10, 2005)

(a)(1)(P)(iv)

 

Amended and Restated The Walt Disney Company/Pixar 2004 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 1, 2006)

(b)

 

Not applicable

(d)(1)

 

Agreement and Plan of Merger by and among The Walt Disney Company, Lux Acquisition Corp. and Pixar dated as of January 24, 2006 (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 26, 2006)

(g)

 

Not applicable

(h)

 

Not applicable

 

Item 13. Information Required by Schedule 13E-3.

(a)           Not applicable.

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SIGNATURE

After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule TO is true, complete and correct.

THE WALT DISNEY COMPANY

 

 

 

 

 

 

 

 

/s/ Thomas O. Staggs

 

 

Thomas O. Staggs

 

 

Senior Executive Vice President and Chief Financial Officer

 

Date: April 9, 2007

 

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INDEX TO EXHIBITS

Exhibit Number

 

Description

(a)(1)(A)

 

Offer to Amend the Exercise Price of Certain Options, dated April 9, 2007

(a)(1)(B)

 

Draft e-mail to all eligible holders

(a)(1)(C)

 

Draft transmittal to eligible holders receiving printed copies of offer to amend and election form

(a)(1)(D)

 

Screen shot of login page to offer website at http://tenderoffer.pixar.com

(a)(1)(E)

 

Screen shot of welcome page to offer website at http://tenderoffer.pixar.com

(a)(1)(F)

 

Screen shot of electronic election form

(a)(1)(G)

 

Screen shot of election amendment review

(a)(1)(H)

 

Screen shot of agreement to terms of election

(a)(1)(I)

 

Screen shot of election confirmation statement

(a)(1)(J)

 

Screen shots of instructions to election form

(a)(1)(K)

 

Form of amendment to stock option agreement and promise to make cash payment

(a)(1)(L)

 

Form of acknowledgement of receipt of election form

(a)(1)(M)

 

Form of e-mail confirmation and reminders to eligible holders

(a)(1)(N)

 

Paper election form

(a)(1)(O)

 

Form of e-mail confirming that eligible holder has elected not to participate

(a)(1)(P)(i)

 

Form of stock option agreement under The Walt Disney Company/Pixar 1995 Stock Plan, as amended

(a)(1)(P)(ii)

 

The Walt Disney Company/Pixar 1995 Stock Plan, as amended (incorporated herein by reference to Exhibit 10.1 to the Company’s Form S-8 filed with the SEC on May 5, 2006)

(a)(1)(P)(iii)

 

Form of stock option agreement under Amended and Restated The Walt Disney Company/Pixar 2004 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Pixar’s Quarterly Report on Form 10-Q filed with the SEC on November 10, 2005)

(a)(1)(P)(iv)

 

Amended and Restated The Walt Disney Company/Pixar 2004 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 1, 2006)

(b)

 

Not applicable

(d)(1)

 

Agreement and Plan of Merger by and among The Walt Disney Company, Lux Acquisition Corp. and Pixar dated as of January 24, 2006 (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 26, 2006)

(g)

 

Not applicable

(h)

 

Not applicable

 

 



Exhibit (a)(1)(A)

 


THE WALT DISNEY COMPANY


OFFER TO AMEND THE EXERCISE PRICE OF CERTAIN OPTIONS


This document constitutes part of the prospectus relating to The Walt Disney Company/Pixar 1995 Stock Plan, as amended, and Amended and Restated The Walt Disney Company/Pixar 2004 Equity Incentive Plan covering securities that have been registered under the Securities Act of 1933, as amended.

Monday, April 9, 2007

 




THE WALT DISNEY COMPANY


Offer to Amend the Exercise Price of Certain Options


This offer and withdrawal rights will expire at
5:00 p.m., Pacific Time, on Friday, May 4, 2007 unless we extend them.


 

By this Offer to Amend the Exercise Price of Certain Options (the “Offer to Amend”), we are giving all eligible holders of eligible options to purchase shares of our common stock the opportunity to amend the exercise price of eligible options and to receive cash payments equal to the difference between the current exercise price and the new exercise price (we refer to this as the “offer”; “eligible holder” and “eligible options” are defined below).

In connection with the acquisition of Pixar by The Walt Disney Company (together with its subsidiaries, “Disney,” the “Company,” “we,” “our” or “us”), all options to acquire shares of Pixar common stock became options to purchase shares of Disney common stock and the number of shares and the exercise price per share for each Pixar option were adjusted.  The Audit Committee of Disney’s Board of Directors recently completed a review of stock options granted to Pixar employees prior to the date of the acquisition.  Based on that review, we have determined that an incorrect date was used to set the original exercise price of some stock options that you received and that the original exercise price, and therefore the exercise price as adjusted in the acquisition, would have been higher if the correct option grant date as determined by us had been used.  These options are therefore considered “discounted options.”

Discounted options that vested after December 31, 2004 are subject to adverse tax consequences under Section 409A of the United States Internal Revenue Code of 1986, as amended (the “Code”), including taxation when options vest (in addition to taxation when they are exercised) and a tax of 20% in addition to your normal rate, plus interest. Corresponding provisions of some states’ tax laws, including California’s, also impose adverse tax consequences on discounted options, including taxation upon vesting, an additional 20% tax and interest.  We refer to these additional federal and state taxes collectively as “Section 409A taxes.”

As you are aware, the Company has undertaken to pay your Section 409A taxes on options exercised in 2006 and in 2007 before you received the notice dated March 15, 2007. The Company will not pay your Section 409A taxes on options exercised after that date and will not reimburse you if you pay the taxes.  However, if you elect to amend the exercise price of eligible options by participating in this offer, your eligible options should not be subject to Section 409A taxes.

You are an “eligible holder” only if you (1) are subject to taxation in the United States, (2) hold eligible options to purchase shares of Disney common stock that are outstanding on the last date on which this offer remains open for acceptance and (3) are an employee of The Walt Disney Company or its subsidiaries, including Pixar, on the last date on which this offer remains open for acceptance.  The offer is not being made to any of our Directors or executive officers or any persons who served as a director or executive officer of Pixar before the Pixar acquisition.

i




An option to purchase our common stock is eligible for this offer (an “eligible option”) only if each of the following conditions is met:

·                                          the option was assumed by us in connection with the Pixar acquisition, which was completed on May 5, 2006;

·                                          the option was granted by Pixar before the Pixar acquisition under The Walt Disney Company/Pixar 1995 Stock Plan, as amended (the “1995 Stock Plan”), or the Amended and Restated The Walt Disney Company/Pixar 2004 Equity Incentive Plan (the “2004 Equity Incentive Plan” and together with the 1995 Stock Plan, the “Disney/Pixar Plans”);

·                                          the option had an original exercise price per share that was less than the fair market value per share of the common stock underlying the option on the correct option grant date as determined by us;

·                                          the option was unvested as of December 31, 2004 (if only a portion of an option was unvested as of December 31, 2004, only the unvested portion of the option as of December 31, 2004, is an “eligible option”); and

·                                          the option is outstanding as of the last date on which this offer remains open for acceptance.

If you participate in this offer, then for each eligible option for which you accept this offer, the following will occur:

1.             Your eligible options will be amended to increase the exercise price per share to the fair market value of a share of Pixar common stock on the correct option grant date as determined by us and as adjusted in connection with the Pixar acquisition (the “new exercise price”).

·                                          If your Pixar stock option was granted under the 1995 Stock Plan, the new exercise price will be the closing price of a share of Pixar common stock on the last trading day before the correct option grant date as determined by us and as adjusted in connection with the Pixar acquisition.

·                                          If your Pixar stock option was granted under the 2004 Equity Incentive Plan, the new exercise price will be the closing price of a share of Pixar common stock on the correct option grant date as determined by us and as adjusted in connection with the Pixar acquisition.

If only a portion of your option was unvested as of December 31, 2004, then only the portion that was unvested on December 31, 2004, is an eligible option and only that portion will be amended to increase the exercise price if you accept this offer with respect to that option.

2.             For each eligible option amended in this offer, you will receive, on or promptly following January 4, 2008, a cash payment equal to the difference between the new exercise

ii




price of the amended option and the current exercise price, multiplied by the number of unexercised shares of our common stock subject to the eligible option.

If you are an eligible holder, you will receive on the commencement of the offer an e-mail announcing the offer and containing a link to the offer website.  After you have logged onto the offer website and clicked on the MAKE OR CHANGE AN ELECTION link, you will be directed to your election form that contains personalized information with respect to each eligible option you hold:

·                                          the original grant date;

·                                          the option number;

·                                          the name of the Disney/Pixar Plan under which that option was granted;

·                                          the number of unexercised shares subject to that option, as adjusted in connection with the Pixar acquisition;

·                                          the original exercise price, as adjusted in connection with the Pixar acquisition (referred to as the “current exercise price”);

·                                          the new exercise price, should you accept this offer to amend that option;

·                                          the cash payment per share subject to each option that you will be entitled to receive should you accept this offer to amend that option; and

·                                          the total cash payment you will be entitled to receive with respect to that option should you accept this offer to amend that option.

If you do not have access to e-mail or the offer website, we will deliver the announcement of the offer and your election form to you in paper.

Receipt of Amended Options and Cash Payments

If you elect to receive an amended option for an eligible option, the eligible option will be amended on the date this offer expires (but following the expiration of the offer), which is currently expected to be Friday, May 4, 2007, at 5:00 p.m., Pacific Time. Promptly following the expiration of the offer, you will receive a document entitled “Amendment to Stock Option Agreements and Promise to Make Cash Payment” evidencing the amendment of the options you elected to amend. Each amended option will be subject to the terms and conditions of (1) the Disney/Pixar Plan under which your option was originally granted, as adjusted in connection with the Pixar acquisition and as amended in accordance with this offer, and (2) the existing option agreement pursuant to which your option was originally granted, as adjusted in connection with the Pixar acquisition and as amended in accordance with this offer. Any amended option you receive will continue to be subject to the same vesting schedule, expiration date and other terms and conditions currently in place.

iii




In addition, the “Amendment to Stock Option Agreements and Promise to Make Cash Payment” will evidence your right to receive a cash payment for the eligible options you elected to have amended. The cash payments will be paid on or promptly following January 4, 2008, and all such payments will be subject to any applicable tax withholding. Cash payments will not be subject to any vesting conditions, so you will receive any cash payments to which you are entitled on or promptly following January 4, 2008, regardless of whether the eligible option is vested at that time and regardless of whether you are employed with us at that time.

Other Matters

The offer is not conditioned on its acceptance by any minimum number of participants or outstanding eligible options, but the offer is subject to the conditions that we describe in Section 7 of this Offer to Amend, “Conditions of the offer.” You are not required to accept this offer.

Shares of our common stock are traded on the New York Stock Exchange under the symbol “DIS.” On April 5, 2007, the closing price of our common stock was $34.91 per share as reported on the New York Stock Exchange. You should evaluate current market quotes for our common stock, among other factors, before deciding to participate in this offer.

See “Risks of Participating in the Offer” beginning on page 20 for a discussion of risks that you should consider before participating in this offer.

IMPORTANT— STEPS YOU MUST TAKE TO PARTICIPATE

If you participate in this offer, you must properly complete and submit the election form in accordance with the applicable instructions for that form before 5:00 p.m., Pacific Time, on Friday, May 4, 2007.  You can complete this process by accessing the offer website at http://tenderoffer.pixar.com.  Only election forms that are completed, submitted, and actually received via the offer website or by fax to Yvonne Brazil at (510) 922-3540 by us by the deadline will be accepted. Election forms may be submitted only via the offer website or by fax. Election forms that are submitted by any other means or that are received after the deadline will not be accepted. The delivery of your election form is at your risk.

We intend to confirm the receipt of your election form by e-mail within two U.S. business days. If you have not received an e-mail confirmation that we have received your response, we recommend that you confirm that we have received your election form.  If you need to confirm receipt after two U.S. business days have elapsed, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742 to confirm receipt.

Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this offer. Any representation to the contrary is a criminal offense.

We will provide general tax information to eligible holders regarding this offer. We will not provide tax advice specific to an individual’s circumstances or make any tax recommendation. We strongly recommend that you consult with your financial, legal and/or tax advisors regarding the federal, state and local tax consequences to you of participating

iv




or not participating in the offer.  If you have general questions about the terms of this offer or requests for general tax information about this offer, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742 with your question.

Offer to Amend the Exercise Price of Certain Options, dated April 9, 2007.

You should rely only on the information contained in this Offer to Amend or documents to which we have referred you. We have not authorized anyone to provide you with different information. We strongly recommend that you consult with your financial, legal and/or tax advisors regarding the federal, state and local tax consequences to you of participating or not participating in the offer.  Although our Board of Directors has approved making this offer, neither we nor our Board of Directors makes any recommendation as to whether you should accept this offer. The decision to participate in the offer must be your own, after taking into account your personal circumstances and preferences.

We are not making an offer of the cash payment or amended options in any jurisdiction in which the offer is not permitted. We are not aware of any jurisdiction where the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction where the making of the offer is not in compliance with any valid applicable law, we will make a good faith effort to comply with such law. If, after such good faith effort, we cannot comply with such law, the offer will not be made to, nor will options be accepted for amendment from, the eligible holders residing in such jurisdiction.

The information provided in this Offer to Amend is accurate only as of the date such information is shown, or if no date is indicated, the date of this offer.

 

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TABLE OF CONTENTS

Summary Term Sheet and Questions and Answers

 

1

Risks of Participating in the Offer

 

20

The Offer

 

22

1.

 

Eligibility.

 

22

2.

 

Number of options and amount of consideration; expiration of the offer.

 

22

3.

 

Purpose of the offer.

 

25

4.

 

Procedures for electing to participate in this offer.

 

27

5.

 

Withdrawal rights and change of election.

 

30

6.

 

Acceptance of elections for amendment, issuance of cash payments, and amended options.

 

31

7.

 

Conditions of the offer.

 

33

8.

 

Price range of shares underlying the options.

 

35

9.

 

Source and amount of consideration; terms of amended options.

 

36

10.

 

Information concerning the Company.

 

40

11.

 

Interests of directors and executive officers; transactions and arrangements concerning the options.

 

41

12.

 

Status of options amended by us in the offer; accounting consequences of the offer.

 

41

13.

 

Legal matters; regulatory approvals.

 

41

14.

 

Material United States federal income tax consequences.

 

42

15.

 

Extension of offer; termination; amendment.

 

44

16.

 

Additional information.

 

45

17.

 

Financial statements.

 

46

18.

 

Miscellaneous.

 

47

Schedule A

 

Information concerning the directors and executive officers of The Walt Disney Company

 

 

Schedule B

 

Summary financial information of The Walt Disney Company and subsidiaries

 

 

 

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Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the Act) provides a safe harbor for “forward-looking statements” made by or on behalf of The Walt Disney Company. We may from time to time make written or oral statements that are “forward-looking.” Forward-looking statements may be contained in this Offer to Amend, including the section entitled “Risks of Participating in the Offer,” and in other filings we make with the SEC and in reports to our shareholders. All forward-looking statements are made on the basis of management’s views and assumptions regarding future events and business performance as of the time the statements are made and the Company does not undertake any obligation to update its disclosure relating to forward-looking matters. Actual results may differ materially from those expressed or implied. Factors that might cause such differences include, but are not limited to, those discussed in the “Risks of Participating in the Offer” section of this Offer to Amend, those described in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2006, and Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2006, and those otherwise described from time to time in the Company’s SEC reports filed after that report.

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SUMMARY TERM SHEET AND QUESTIONS AND ANSWERS

The following are answers to some of the questions that you may have about this offer. You should carefully read this entire offer, the e-mail to all eligible holders dated April 9, 2007 and the election form together with their associated instructions. This offer is made subject to the terms and conditions of these documents as they may be amended. The information in this summary is not complete. Additional important information is contained in the remainder of this Offer to Amend and the other offer documents. We have included in this summary references to other sections in this offer to help you find a more complete description of these topics.

Q1.

 

What is the offer?

 

3

Q2.

 

Why is Disney making this offer?

 

5

Q3.

 

Who is eligible to participate in this offer?

 

6

Q4.

 

Which options are eligible for amendment in this offer?

 

6

Q5.

 

How do I participate in this offer?

 

6

Q6.

 

If I decide to participate in the offer, what will happen to my eligible options?

 

8

Q7.

 

What will I receive in return for my options?

 

9

Q8.

 

When will I receive my amended options and cash payments?

 

10

Q9.

 

Why won’t I receive my cash payment immediately following the expiration of the offer?

 

10

Q10.

 

Am I required to participate in this offer?

 

11

Q11.

 

Once my election has been accepted, is there anything I must do to receive the amended options or cash payments?

 

11

Q12.

 

Will the terms and conditions of my amended options be the same as my existing options?

 

11

Q13.

 

When will my amended options vest and when can I exercise my amended options?

 

11

Q14.

 

What happens to my options if I elect to participate in the offer to amend eligible options but then exercise those options before expiration of the offer?

 

12

Q15.

 

What happens to my options if I do not submit my election form by the deadline, choose not to participate or my election to amend is not accepted?

 

12

Q16.

 

How does this offer relate to the actions the Company announced in the March 15, 2007, letter that it would take regarding exercises of discounted stock options during 2006 and 2007?

 

12

Q17.

 

What are the tax consequences if I participate in the offer?

 

13

Q18.

 

What are the tax consequences if I do not participate in the offer?

 

13

Q19.

 

If I choose to participate in this offer, are there circumstances under which my eligible options would be amended but I would not receive a cash payment for them?

 

14

Q20.

 

What happens to my options and cash payment if I elect to participate in the offer but then my employment with Disney or its subsidiaries, including Pixar, terminates after expiration of the offer?

 

14

Q21.

 

What happens if I elect to participate in the offer but then my employment with Disney or its subsidiaries, including Pixar, terminates before the expiration of the offer?

 

15

Q22.

 

How will the Company confirm to me that my election form has been received?

 

15

 

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Q23.

 

Will my decision to participate in the offer have an impact on my ability to receive options in the future?

 

15

Q24.

 

How will the Company determine whether I have properly accepted this offer?

 

15

Q25.

 

When will my amended options expire?

 

15

Q26.

 

Will I receive any paperwork indicating my options have been amended?

 

15

Q27.

 

Are there any conditions to this offer?

 

16

Q28.

 

If you extend the offer, how will you notify me?

 

16

Q29.

 

How will you notify me if the offer is changed?

 

16

Q30.

 

Can I change my mind and withdraw an election to participate in this offer?

 

16

Q31.

 

How do I withdraw my election?

 

16

Q32.

 

What if I withdraw my election and then decide again that I want to participate in this offer?

 

16

Q33.

 

Can I change my mind about the options for which I want to accept this offer?

 

17

Q34.

 

How should I decide whether or not to accept this offer?

 

17

Q35.

 

What happens if I have an option that is subject to a domestic relations order or comparable legal document as the result of the end of a marriage?

 

17

Q36.

 

Will my amended options remain nonqualified stock options for United States tax purposes?

 

18

Q37.

 

Has The Walt Disney Company made a recommendation regarding the offer?

 

18

Q38.

 

What are some of the key dates to remember?

 

18

Q39.

 

Whom can I contact if I need to confirm the Company’s receipt of my election form, if I have questions about the offer, or if I need additional copies of the offer documents?

 

19

 

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Q1.                            What is the offer?

A1.                             This offer is a voluntary opportunity for eligible holders to elect to amend the exercise price of certain options that were issued by Pixar and assumed by Disney in the Pixar acquisition in order to eliminate adverse federal and state tax consequences applicable to those options.  Eligible holders who participate in the offer will receive amended options and a cash payment. This opportunity is described in the following questions and answers, and in the remainder of this Offer to Amend.

Terms Used in the Offer

The following are some terms that are frequently used in this Offer to Amend.

·                                          “amended options” refers to eligible options that are amended pursuant to this offer.

·                                          “amendment date and time” refers to the date and time when the eligible options for which you accept this offer will be amended to reflect the new exercise price. We expect that the amendment date and time will be the date that this offer expires (but following the expiration of the offer), which is currently expected to be Friday, May 4, 2007. If the expiration of the offer is extended, then the amendment date and time will be similarly extended to the new date of the expiration of the offer.

·                                          “cash payment” refers to the cash you will be entitled to receive for each eligible option that is amended pursuant to this offer.  The amount of the cash payment is equal to the difference between the new exercise price of the amended eligible option and the current exercise price multiplied by the number of shares corresponding to the unexercised portion of the eligible option that was amended.  Your election form lists the cash payment that you will receive for each eligible option, if amended.  The cash payments (1) will be paid on or promptly following January 4, 2008, (2) will be subject to any applicable tax withholding, (3) will not be subject to any vesting conditions and (4) will be made without regard to whether the eligible option is vested and without regard to whether you are an employee of the Company on the payment date.

·                                          “current exercise price” refers to the original exercise price of an eligible option as adjusted in connection with the Pixar acquisition.  Your election form lists the current exercise price of each of your eligible options.

·                                          “directors and executive officers” refers to those Directors and officers of The Walt Disney Company listed on Schedule A, including those who are officers for purposes of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). None of our Directors or executive officers holds eligible options and none of the persons who served as directors or executive officers of Pixar before the Pixar acquisition is eligible to participate in this offer.

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·                                          “discounted options” refers to stock options that have an exercise price that is less than the fair market value of the stock on the correct option grant date as determined by us.  We have determined that all eligible options are discounted options.

·                                          “Disney/Pixar Plans” refers to the following stock plans:  (1) The Walt Disney Company/Pixar 1995 Stock Plan, as amended, and (2) the Amended and Restated The Walt Disney Company/Pixar 2004 Equity Incentive Plan.

·                                          “election form” refers to the form you must use to notify the Company as to the eligible options for which you accept this offer, which lists your eligible options and, for each eligible option, the original grant date, the option number, the name of the Disney/Pixar Plan under which that option was granted, the number of unexercised shares subject to that option, as adjusted in connection with the Pixar acquisition, the current exercise price, the new exercise price should you accept this offer to amend that option, the cash payment per share subject to the option you will be entitled to receive should you accept this offer to amend that option, and the total cash payment you will be entitled to receive with respect to that option should you accept this offer to amend that option.

·                                          “eligible holder” refers to all individuals who (1) are subject to United States taxation, (2) hold eligible options if those options are outstanding as of the last date on which this offer remains open for acceptance, and (3) are employees of The Walt Disney Company or its subsidiaries, including Pixar, on the last date on which this offer remains open for acceptance. None of our Directors or executive officers and none of the persons who served as directors or executive officers of Pixar before the Pixar acquisition is eligible to participate in this offer.

·                                          “eligible options” refers to options that satisfy each of the conditions described in Question and Answer 4. You may accept this offer to amend eligible options and receive cash payments, as described in Question and Answer 4 and Section 1 of this Offer to Amend.

·                                          “expiration of the offer” refers to the date and time that this offer expires. The expiration of the offer will occur at 5:00 p.m., Pacific Time, on Friday, May 4, 2007, unless the offer is extended. We may extend the expiration of the offer at our discretion. If we extend the offer, the term “expiration of the offer” will refer to the date and time at which the extended offer expires.

·                                          “fair market value” with respect to shares of Pixar common stock on a given date refers to the closing price of Pixar common stock on the Nasdaq National Market on such date.

·                                          “new exercise price” refers to the exercise price per share at which amended options may be exercised to purchase our common stock. An amended option’s new exercise price will be equal to the fair market value of a share of Pixar

4




common stock on the correct option grant date as determined by us and as adjusted in connection with the Pixar acquisition.

·                  If your Pixar stock option was granted under the 1995 Stock Plan, the new exercise price will be the closing price of a share of Pixar common stock on the last trading day before the correct option grant date as determined by us and as adjusted in connection with the Pixar acquisition.

·                  If your Pixar stock option was granted under the 2004 Equity Incentive Plan, the new exercise price will be the closing price of a share of Pixar common stock on the correct option grant date as determined by us and as adjusted in connection with the Pixar acquisition.

Your election form lists the new exercise price for each of your eligible options should you accept this offer to amend such options.

·                                          “offer period” or “offering period” refers to the period from the commencement of this offer to the expiration of the offer.  The offer commenced on Monday, April 9, 2007, and ends at 5:00 p.m., Pacific Time, on Friday, May 4, 2007, unless the offer is extended.

·                                          “Section 409A” refers to Section 409A of the United States Internal Revenue Code of 1986, as amended, and the proposed regulations and other guidance issued thereunder. Section 409A was enacted under the American Jobs Creation Act of 2004.  The State of California has also adopted Section 409A under its tax laws.  (See Question and Answer 18 for a discussion of the uncertainty caused by the fact that the tax regulations are proposed and not final.)

·                                          “Section 409A taxes” refers to the additional taxes on discounted options - 20% imposed under federal law and 20% imposed under certain state laws - plus interest, which amounts are in addition to all other income and employment taxes applicable to stock options.  Both the United States and the State of California impose Section 409A taxes.  Only those eligible holders who are subject to taxation in a state that imposes state-level Section 409A taxes will be subject to the state portion of the Section 409A taxes.

·                                          “trading day” refers to each day on which the New York Stock Exchange is open for trading.

Q2.                            Why is Disney making this offer?

A2.                             We assumed stock options granted by Pixar as part of the Pixar acquisition.  We have determined that for some of these stock options, the grant date used to determine the exercise price preceded the correct option grant date as determined by us.  If the correct option grant date as determined by us had been used, the exercise price of the stock option would have been higher.  These options are therefore considered discounted options.  Discounted options are subject to adverse tax consequences under Section 409A.  These consequences include taxable ordinary income recognition for you in the

5




year the options vest (in addition to taxation when they are exercised) and the imposition of the Section 409A taxes described in the “Terms Used in the Offer” above.  If you elect to participate in this offer, your eligible options should not be subject to the adverse tax consequences under Section 409A, as described in Section 14 of this Offer to Amend. (See Section 3)

Q3.                            Who is eligible to participate in this offer?

A3.                             You may participate in this offer if you (1) are subject to United States taxation, (2) hold eligible options, if those options are outstanding as of the last date on which this offer remains open for acceptance, and (3) are an employee of The Walt Disney Company or its subsidiaries, including Pixar, on the last date on which this offer remains open for acceptance.

Our Directors and executive officers and persons who served as directors and executive officers of Pixar before the Pixar acquisition are not eligible to participate in this offer. (See Section 1)

Q4.                            Which options are eligible for amendment in this offer?

A4.                             An option to purchase common stock is an eligible option under this offer only if each of the following conditions is met:

·                                          the option was assumed by us in connection with the Pixar acquisition;

·                                          the option was granted by Pixar before the Pixar acquisition under either of the Disney/Pixar Plans;

·                                          the option had an original exercise price per share that was less than the fair market value per share of the common stock underlying the option on the correct option grant date as determined by us;

·                                          the option was unvested as of December 31, 2004 (if only a portion of an option was unvested as of December 31, 2004, only the unvested portion of the option as of December 31, 2004, is an “eligible option”); and

·                                          the option is outstanding as of the last date this offer remains open for acceptance.

Q5.                            How do I participate in this offer?

A5.                             If you choose to participate in this offer, you must do the following before 5:00 p.m., Pacific Time, on Friday, May 4, 2007 (which we refer to as the “expiration of the offer”):

1.                                       You must log on to the offer website at http://tenderoffer.pixar.com using your LDAP login and password for entry into the site.  You will be redirected to the welcome page of the offer website.  If the site does not recognize you, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.

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2.                                       You must click on the MAKE OR CHANGE AN ELECTION link to proceed with your election.  You will be redirected to the first page of the election form.  You will need to check the appropriate boxes next to each of your eligible options to indicate whether you elect to accept this offer to amend such options in accordance with the terms of this offer.

You may obtain instructions to the election form by clicking on the INSTRUCTIONS TO ELECTION FORM link from either the welcome page or the Make or Change an Election page.

3.                                       After completing the election form, you will be allowed to review the elections you have made with respect to your eligible options.  If you are satisfied with your elections, you will proceed to the Agreement to Terms of Election page.  Only after you agree to the Agreement to the Terms of Election by clicking the I AGREE button will you be directed to the Election Confirmation Statement page.

4.                                       Please print and keep a copy of the Election Confirmation Statement for your records.  You will then be deemed to have completed the election process.  Note that our receipt of your election form and delivery of the Election Confirmation Statement is not by itself an acceptance of your election to amend.  We will be deemed to have accepted valid elections only when we give notice of our acceptance of election.

If you are not able to submit your election form electronically via the offer website as a result of technical problems, such as the website being unavailable or the website not accepting your election, or if you do not otherwise have access to the offer website for any reason (including lack of internet services), you must complete and sign a paper election form and submit it to Disney by fax to Yvonne Brazil at (510) 922-3540.  To obtain a paper form, please e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.

Election forms must be received by Disney no later than 5:00 p.m., Pacific Time, on Friday, May 4, 2007, unless extended by us.

If you participate in this offer, you will be required to accept the offer for the entire eligible portion of each eligible option you elect to amend. In other words, you must accept the offer for all the shares subject to a particular eligible option, but not necessarily for all your eligible options if you hold more than one eligible option. To help you determine your outstanding eligible options, the election form lists your eligible options and, for each eligible option, (1) the original grant date; (2) the option number; (3) the name of the Disney/Pixar Plan under which that option was granted; (4) the number of unexercised shares subject to that option, as adjusted in connection with the Pixar acquisition; (5) the current exercise price; (6) the new exercise price should you accept this offer to amend that option; (7) the cash payment per share subject to each option that you will be entitled to receive should you accept this offer to amend that  option; and (8) the total cash payment for that option you will be entitled to receive

7




 

should you accept this offer to amend that option.  Options that are not listed on the election form are not eligible options.

This is a one-time offer, and we will strictly enforce the election period. We reserve the right to reject any election for options that we determine are not eligible options or that we determine are not permissible to accept. Subject to the terms and conditions of this offer, we will accept promptly after the expiration of this offer all proper elections. (See Section 4)

Your election to participate becomes irrevocable after 5:00 p.m., Pacific Time, on Friday, May 4, 2007 (the expiration of the offer), unless the offer is extended, in which case your election will become irrevocable after the date and time of the extended expiration of the offer. The only exception is that if we have not accepted your election by 5:00 p.m., Pacific Time, on June 4, 2007, you may withdraw your election at any time thereafter.

We may extend this offer. If we extend this offer, we will issue an e-mail or other communication disclosing the extension no later than 6:00 a.m., Pacific Time, on the U.S. business day following the previously scheduled expiration of the offer.

If you participate in this offer, you must complete and submit the election form and submit it via the offer website or by fax to Yvonne Brazil at (510) 922-3540 before 5:00 p.m., Pacific Time, on Friday, May 4, 2007. Only election forms that are complete, submitted and actually received via the offer website or by fax by the Company by the deadline will be accepted. Election forms received after the deadline will not be accepted. The delivery of election form is at your risk. We intend to confirm the receipt of your election form by e-mail within two U.S. business days. If you have not received an e-mail confirmation that we have received your response, we recommend that you confirm that we have received your election form. If you need to confirm receipt after two U.S. business days have elapsed, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.  Election forms may only be submitted via the offer website or by fax. Election forms submitted by any other means are not permitted.

Q6.                            If I decide to participate in the offer, what will happen to my eligible options?

A6.                             If you elect to participate in the offer, your eligible options will be amended immediately following the expiration of the offer. The expiration of the offer will take place on Friday, May 4, 2007, unless the offer period is extended. In addition, if you elect to participate in this offer, you will be entitled to receive the cash payment described below, less any applicable tax withholding.

The amended option will continue to be subject to the terms and conditions of the Disney/Pixar Plan under which the option was originally granted and the existing option agreement pursuant to which the option was originally granted, as adjusted in connection with the Pixar acquisition and as amended in accordance with this offer. (See Section 6)

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Q7.                            What will I receive in return for my options?

A7.                             If you participate in this offer, then for each eligible option for which you accept this offer, the following will occur:

1.                                       Your eligible options will be amended to increase the exercise price per share to the new exercise price. The new exercise price will be the fair market value of a share of Pixar common stock on the correct option grant date as determined by us and as adjusted in connection with the Pixar acquisition.

·                  If your Pixar stock option was granted under the 1995 Stock Plan, the new exercise price will be the closing price of a share of Pixar common stock on the last trading day before the correct option grant date as determined by us and as adjusted in connection with the Pixar acquisition.

·                  If your Pixar stock option was granted under the 2004 Equity Incentive Plan, the new exercise price will be the closing price of a share of Pixar common stock on the correct option grant date as determined by us and as adjusted in connection with the Pixar acquisition.

If only a portion of your option was unvested as of December 31, 2004, then only the portion of the option that was unvested on that date is an eligible option and only that portion will be amended to increase the exercise price. The portion that vested on or before December 31, 2004, is not subject to the adverse tax consequences under Section 409A that this offer is designed to allow you to eliminate. Instead, the portion of any option that vested on or before December 31, 2004, will remain outstanding in accordance with its original terms, including its current exercise price.

Your election form lists the current exercise price of your eligible options, as well as the new exercise price of such options, should you accept this offer to amend those options.

2.                                       In addition, you will receive, on or promptly following January 4, 2008, a cash payment equal to the difference between the new exercise price of the amended option and the current exercise price multiplied by the number of shares corresponding to the unexercised portion of the eligible option that was amended, in the manner described below.

Your election form lists the number of shares under your eligible options, as adjusted in connection with the Pixar acquisition, and the cash payment you will be entitled to receive for each eligible option you elect to have amended. Note that your cash payment is subject to any applicable tax withholding.

For purposes of this offer, the term “option” generally refers to an option to purchase one or more shares of our common stock.

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Eligible Option Example

Assume you were granted an option to purchase 1,000 shares of Pixar common stock with an exercise price per share equal to $23.00 per share (this is the option’s original exercise price).  In connection with the Pixar acquisition, this option would have been assumed by the Company and adjusted to represent an option to purchase 2,300 shares of Company common stock at an exercise price per share equal to $10.00 (this is the option’s current exercise price).  Assume that, of the adjusted number of shares subject to your option, no shares vested on or before December 31, 2004. Assume that on the correct option grant date as determined by us, the fair market value of Pixar common stock was $25.00 per share, which, adjusted in connection with the Pixar acquisition, would be $10.87 per share of Company common stock.  If, as of the expiration date, you had not exercised any portion of the option, then:

1.                                     The option to purchase 2,300 shares would be amended to increase the exercise price to $10.87 per share; and

2.                                     A cash payment of $2,001.00 (which is equal to $10.87 minus $10.00, multiplied by 2,300) (the portion of the option eligible as of the expiration date of the offer), less applicable tax withholding, would be paid to you on or promptly following January 4, 2008.

Q8.                            When will I receive my amended options and cash payments?

A8.                             Any eligible options for which you have elected to accept this offer will be amended on the date this offer expires (but following the expiration of the offer), which is currently expected to be Friday, May 4, 2007. If the expiration of the offer is extended, the amendment date and time will be similarly extended.  Promptly after the expiration of the offer, you will receive an “Amendment to Stock Option Agreements and Promise to Make Cash Payment” evidencing the amendment of the options you elected to amend. (See Section 6)

In addition, the “Amendment to Stock Option Agreements and Promise to Make Cash Payment” will evidence your right to receive a cash payment for the eligible options you elected to have amended. Any cash payment owed to you will be paid, less any applicable tax withholding, on or promptly following January 4, 2008. This payment will not be subject to any vesting conditions and will be made without regard to whether the eligible option is vested and without regard to whether you are employed by us on the payment date. (See Section 6)

Q9.                            Why won’t I receive my cash payment immediately following the expiration of the offer?

A9.                             The Internal Revenue Service (the “IRS”) guidance that allows us to offer you the opportunity to eliminate the adverse tax consequences under Section 409A by amending your options also imposes certain requirements regarding the timing of the cash payments. This guidance does not allow us to make the cash payments in the same calendar year in which the options are amended. Therefore, the earliest we can make

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these cash payments to eligible holders who participate in the offer is January 1, 2008 and we are making the payment on the first payroll date following January 1, 2008.

Q10.                     Am I required to participate in this offer?

A10.                       No. Participation in this offer is completely voluntary.

However, if you do participate in this offer, for each eligible option that you elect to have amended in this offer, you must accept this offer to amend the entire outstanding portion of that option, to the extent that it was unvested as of December 31, 2004. (See Section 2)

If you do not participate in this offer, you will be subject to adverse tax consequences under Section 409A on your eligible options and the Company will not reimburse you for any such taxes. Please also see Question and Answer 18 for a description of the tax consequences to you if you decide not to participate in the offer and instead keep your current options without amendment.

Q11.                     Once my election has been accepted, is there anything I must do to receive the amended options or cash payments?

A11.                       Once your election has been accepted, there is nothing that you must do to receive your amended options. Your amended options will be amended on the amendment date and time, which is expected to be immediately following the expiration of the offer.  (See Section 2)

You also do not need to do anything in order to receive your cash payments for the eligible options. Note that you will receive a cash payment only for your eligible options that are amended in this offer. The cash payment for these options, less any applicable tax withholding, will be made on or promptly following January 4, 2008. Promptly following the expiration of the offer, we will send you an “Amendment to Stock Option Agreements and Promise to Make Cash Payment” evidencing your right to receive a cash payment for these options. You will receive the cash payment regardless of whether the eligible option is vested on the payment date and regardless of whether you continue to be employed by us on the payment date.

Q12.                     Will the terms and conditions of my amended options be the same as my existing options?

A12.                       Yes. Except for the new exercise price of your amended options, the terms and conditions of your amended options will remain the same as the terms and conditions of your existing eligible options.  Note that your existing eligible options were adjusted in connection with the Pixar acquisition. (See Sections 2, 9 and 14)

Q13.                     When will my amended options vest and when can I exercise my amended options?

A13.                       If your options are amended, they will continue to vest according to the vesting schedule of your original options. Future vesting is subject to your continued employment with us

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through each relevant vesting date.  If your eligible option is partially or fully vested, then your amended option will be vested to the same extent.  (See Section 9)

You may exercise any of your amended options at any time following its amendment subject to normal restrictions on trading on the basis of material non-public information and the vesting provisions of such option and prior to the termination of the option pursuant to its terms.  We will process the option amendments in our stock option database as soon as the offer is completed and we expect your amended options will be exercisable within a few business days following the expiration of the offer.

Q14.                     What happens to my options if I elect to participate in the offer to amend eligible options but then exercise those options before expiration of the offer?

A14.                       If you elect to participate in the offer but exercise your eligible options prior to expiration of the offer, those options that you exercise will no longer be eligible to be amended in this offer and you will not receive a cash payment for such options. Your options instead will terminate when you exercise those options, in accordance with their terms. In addition, for those eligible options you exercise prior to expiration of the offer, you will be required pay the Section 409A taxes, which amounts are in addition to all other income and employment taxes that you owe with respect to your stock option exercise.  The Company will not reimburse you for these taxes.  (See Section 14)

Q15.                     What happens to my options if I do not submit my election form by the deadline, choose not to participate or my election to amend is not accepted?

A15.                       If we do not receive your properly completed election form by the deadline, you choose not to participate, or your election to amend is not accepted by us under this offer, your existing options will (1) remain outstanding until they expire by their terms, including but not limited to expiration in connection with your termination of employment, (2) retain their current exercise price, (3) remain exercisable for the same number of shares, (4) retain their current terms for exercise, and (5) retain their current vesting schedule and expiration date. As described in Question and Answer 2, you will be subject to taxation upon the vesting of the option at your regular income tax rates, plus you will be subject to the Section 409A taxes at that time.  These adverse tax consequences will continue to apply annually until your option is exercised or expires and the Company will not reimburse you for those taxes. We strongly recommend that you consult with your financial, legal and/or tax advisors regarding the federal, state and local tax consequences to you of participating or not participating in the offer. (See Section 14)

Q16.                     How does this offer relate to the actions the Company announced in the March 15, 2007, letter that it would take regarding exercises of discounted stock options during 2006 and 2007?

A16.                       In our letter dated March 15, 2007, to certain holders of discounted stock options, we announced that we would pay the Section 409A taxes that are due as a result of exercises by our employees of discounted stock options at any time in 2006 and in 2007 at any time

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before receipt of the March 15, 2007, letter.  We further announced that we would not pay the Section 409A taxes that are due as a result of exercises by our employees of discounted stock options after receipt of the March 15, 2007, letter.  The reason we are not paying the Section 409A taxes for exercises after March 15, 2007, is because your participation in this offer should eliminate the Section 409A taxes applicable to those options.  If you do not participate in this offer, you will be responsible for the Section 409A taxes due on discounted stock options and the Company will not reimburse you.

Q17.                     What are the tax consequences if I participate in the offer?

A17.                       Section 409A provides that discounted options will, to the extent the option was not vested on or before December 31, 2004, be subject to adverse tax consequences. If you participate in this offer, your eligible options that are amended should not be subject to the adverse tax consequences under Section 409A.

If you participate in this offer for your eligible options, you will not be required to recognize income for United States federal or California income tax purposes at the time of the acceptance and amendment of such options. We believe that the acceptance and amendment of options will be treated as a non-taxable exchange for United States federal and California income tax purposes.  The cash payment to you in January 2008 will be taxable compensation income to you for 2008 and will be subject to applicable tax withholding.

Q18.                     What are the tax consequences if I do not participate in the offer?

A18.                       Section 409A provides that discounted options will, to the extent the option was not vested on or before December 31, 2004, be subject to adverse tax consequences. As a result, if you do not participate in this offer, your eligible options will be subject to the adverse tax consequences under Section 409A.

The adverse tax consequences include a 40% tax — 20% imposed under federal law and 20% imposed under California law — plus interest, which amounts are in addition to all other income and employment taxes applicable to options.  These taxes and interest will begin to apply when your option vests.  Further, it is possible that during each subsequent tax year (until the option is exercised or expires), any increase in the fair market value of shares underlying the options will be taxed and may also be subject to the additional 40% tax and interest, in addition to other income and employment taxes.  We will withhold taxes and report income amounts to the IRS and other taxing authorities as required by applicable laws and will not reimburse you for those taxes.

Unfortunately, the IRS has not issued definitive final guidance under Section 409A. It is possible that final guidance issued by the IRS may differ from our current good-faith interpretation of the law and that you and your personal tax advisor may advocate a position under the current statute and IRS guidance that your eligible options are exempt from Section 409A. We cannot guarantee any particular tax results related to your options or predict the effect of any future IRS guidance.

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In addition, if you are subject to taxation in the United States and also are subject to taxation in another country, there may be additional tax consequences relating to your participation in this offer.

We strongly recommend that you consult with your financial, legal and/or tax advisors regarding the federal, state and local tax consequences to you of participating or not participating in the offer.  If you have general questions regarding the terms of this offer or requests for general tax information about this offer, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742 with your question.

Q19.                     If I choose to participate in this offer, are there circumstances under which my eligible options would be amended but I would not receive a cash payment for them?

A19.                       No. However, your option will not be amended and cash payment will not be made if we are prohibited from doing so by applicable laws or rules. For example, we could become prohibited from amending options as a result of changes in SEC, National Association of Securities Dealers or New York Stock Exchange rules. We do not anticipate any such prohibitions at this time. (See Section 13)

Q20.                     What happens to my options and cash payment if I elect to participate in the offer but then my employment with Disney or its subsidiaries, including Pixar, terminates after expiration of the offer?

A20.                       If you elect to participate in this offer regarding your eligible options, such options will be amended on the amendment date and time, which is expected to be immediately following the expiration of the offer.  Your amended options will continue to vest according to the vesting schedule of your original options under the terms of the Disney/Pixar Plan under which your option was granted. Therefore, if your employment with the Company or its subsidiaries, including Pixar, terminates after your eligible options are amended pursuant to this offer, your amended eligible options will cease to vest in accordance with their terms and will be exercisable only as set forth in the applicable Disney/Pixar Plan and your option agreement. However, if you elect to participate in this offer prior to the termination of your employment with the Company or its subsidiaries, including Pixar, and your options are amended, you will still be entitled to receive a cash payment for the amended options, less any applicable tax withholding, as described in Question and Answer 1 above. You will receive any cash payments to which you are entitled on or promptly following January 4, 2008, regardless of whether the amended options are vested on the payment date and regardless of whether you are employed with us on the payment date. (See Questions and Answers 8 and 11 and Sections 2 and 6)  You will be responsible for notifying us of any change of address following your termination of employment so that we can send your cash payment to you.

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Q21.                     What happens if I elect to participate in the offer but then my employment with Disney or its subsidiaries, including Pixar, terminates before the expiration of the offer?

A21.                       You will not be eligible to participate in this offer if you are not an employee of Disney or its subsidiaries, including Pixar, on the last day on which this offer remains open for acceptance.  Your options will continue to be subject to the adverse tax consequences under Section 409A.  (See Question and Answer 18)

Q22.                     How will the Company confirm to me that my election form has been received?

A22.                       We intend to confirm the receipt of your election form by e-mail within two U.S. business days. If you have not received an e-mail confirmation within two U.S. business days, we recommend that you confirm that we have received your election form. If you need to confirm receipt after two U.S. business days have elapsed, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742. (See Section 4)

Q23.                     Will my decision to participate in the offer have an impact on my ability to receive options in the future?

A23.                       No. Your election to participate or not to participate in the offer will not have any effect on our decisions about future option grants or other compensation. (See Section 7)

Q24.                     How will the Company determine whether I have properly accepted this offer?

A24.                       We will determine, at our discretion, all questions about the validity, form, eligibility (including time of receipt), and acceptance of any options. Our determination of these matters will be final and binding on all parties. We reserve the right to reject any election form that we determine is not in good order or that we determine it would be unlawful to accept. We will accept, subject to the terms of this offer, all proper elections that are not validly withdrawn. No election for eligible options will be deemed to have been properly made until all defects or irregularities have been cured by you or waived by us. We have no obligation to give notice of any defects or irregularities in any election form, and we will not incur any liability for failure to give any notice. (See Section 4)

Q25.                     When will my amended options expire?

A25.                       Your amended options, if any, will expire on same date your original eligible options were scheduled to expire under the terms of the Disney/Pixar Plan and option agreement under which your options were granted. (See Section 9)

Q26.                     Will I receive any paperwork indicating my options have been amended?

A26.                       Yes. Promptly after the expiration of the offer, we will send you an “Amendment to Stock Option Agreements and Promise to Make Cash Payment” evidencing the amendment of the options you elected to amend. (See Section 9)

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Q27.                     Are there any conditions to this offer?

A27.                       Yes. The completion of this offer is subject to a number of conditions that are described in Section 7 of this Offer to Amend. (See Section 7)  However, the implementation of this offer is not conditioned upon its acceptance by a minimum number of participants or outstanding eligible options.

Q28.                     If you extend the offer, how will you notify me?

A28.                       If we extend this offer, we will issue an e-mail or other form of communication disclosing the extension no later than 6:00 a.m., Pacific Time, on the next U.S. business day following the previously scheduled expiration of the offer. (See Sections 2 and 15)

Q29.                     How will you notify me if the offer is changed?

A29.                       If we change the offer, we will issue an e-mail or other form of communication disclosing the change no later than 6:00 a.m., Pacific Time, on the next U.S. business day following the day we change the offer. (See Section 15)

Q30.                     Can I change my mind and withdraw an election to participate in this offer?

A30.                       Yes. You may change your mind after you have submitted an election form and withdraw your election for some or all of your eligible options at any time before the expiration of the offer. If we extend the expiration of the offer, you may withdraw your election for some or all of your eligible options at any time until the extended offer expires.  If you again change your mind, you may submit another election form and you will be bound by the last properly submitted election form we receive before the expiration of the offer. However, if we have not accepted your election by 5:00 p.m., Pacific Time, on June 4, 2007, you may withdraw your election at any time thereafter. (See Section 5)

Q31.                     How do I withdraw my election?

A31.                       To withdraw your election for some or all of your eligible options, you must submit a properly completed new election form before the expiration of the offer in accordance with the procedures described in Question and Answer 5 and Sections 4 and 5.  On the election form, you will need to check the appropriate boxes next to each of your eligible options to indicate that you elect not to accept this offer to amend such options in accordance with the terms of this offer.  Please print and keep a copy of your new Election Confirmation Statement for your records.

Any election for options you do not withdraw will remain in effect under this offer pursuant to the last properly submitted election form.

Q32.                     What if I withdraw my election and then decide again that I want to participate in this offer?

A32.                       If you have withdrawn your election to participate and then decide again that you would like to participate in this offer, you may re-elect to participate by submitting a new

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properly completed election form before the expiration of the offer in accordance with the procedures described in Question and Answer 5 and Section 4.  You may elect to accept this offer for some or all of the eligible options. The new election form must be completed after the date of your withdrawal. (See Section 5)

Q33.                     Can I change my mind about the options for which I want to accept this offer?

A33.                       Yes. You may change your mind after you have submitted an election form and change the options for which you elect to accept this offer at any time before the expiration of the offer by submitting a new properly completed election form before the expiration of the offer in accordance with the procedures described in Question and Answer 5 and Section 4.  On the election form, you will need to check the appropriate boxes next to each of your eligible options to indicate whether you elect to accept this offer to amend such options in accordance with the terms of this offer.

If we extend the expiration of the offer, you may change your election at any time until the extended offer expires. You may elect to accept this offer for additional options, or you may choose to accept this offer for fewer options.  If you again change your mind, you may submit another election form and you will be bound by the last properly submitted election form we receive before the expiration of the offer.  Please be sure that any new election form you submit includes all the eligible options for which you want to accept this offer and is clearly dated after your last-submitted election form.

Q34.                     How should I decide whether or not to accept this offer?

A34.                       We understand that it may be difficult for you to decide whether or not to accept this offer. The program does carry risk (see “Risks of Participating in the Offer” beginning on page 20 for information regarding some of these risks), and it is possible that opportunities to exercise your options before the end of the offer might be more beneficial to you than the opportunities available after the completion of the offer, after considering the tax consequences of exercising unamended options (as described in Section 14). The decision to participate in the offer must be your own. We strongly recommend that you consult with your financial, legal and/or tax advisors regarding the federal, state and local tax consequences to you of participating or not participating in the offer.  If you have general questions regarding the terms of this offer or requests for general tax information about this offer, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742 with your question. (See Section 3)

Q35.                     What happens if I have an option that is subject to a domestic relations order or comparable legal document as the result of the end of a marriage?

A35.                       If you have an eligible option that is subject to a domestic relations order (or comparable legal document as the result of the end of a marriage) and a person who is not an eligible holder beneficially owns a portion of that option, you may accept this offer for the entire remaining outstanding portion of the option if so directed by the beneficial owner as to

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his or her portion, in accordance with the domestic relations order or comparable legal document. We will respect an election properly made by you, as legal owner of the eligible option, and accepted by us, and will not be responsible to you or the beneficial owner of the eligible option for any errors made by you regarding such an election. (See Section 2)

Q36.                     Will my amended options remain nonqualified stock options for United States tax purposes?

A36.                       Your amended options will remain nonqualified stock options for purposes of United States tax law.

For more detailed information, please read the rest of the Offer to Amend, and see the tax disclosure set forth under the section entitled “Material United States federal income tax consequences.” (Section 14)

We strongly recommend that you consult with your financial, legal and/or tax advisors regarding the federal, state and local tax consequences to you of participating or not participating in the offer.  (See Sections 9 and 14)

Q37.                     Has The Walt Disney Company made a recommendation regarding the offer?

A37.                       Although our Board of Directors has approved making the offer, neither we nor our Board of Directors makes any recommendation as to whether you should accept or refrain from accepting the offer to amend your eligible option. You must make your own decision whether to accept the offer, after taking into account your own personal circumstances and preferences. You should be aware that adverse tax consequences under Section 409A will apply to your eligible option if it is not amended. (Section 14)

Q38.                     What are some of the key dates to remember?

A38.                       The commencement date of the offer is Monday, April 9, 2007.

Question and answer sessions will be held on Thursday, April 12, 2007, at 10:30-11:30 a.m., 1:00-2:00 p.m., and 2:30-3:30 p.m., Pacific Time, in the main theater.

The offer expires at 5:00 p.m. Pacific Time on Friday, May 4, 2007 (unless we extend it).

The eligible options for which you have elected to accept this offer will be amended on the amendment date and time (following the expiration of the offer), which is expected to be Friday, May 4, 2007 (unless we extend the offer).

The cash payment will be made on or promptly following January 4, 2008.

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Q39.                     Whom can I contact if I need to confirm the Company’s receipt of my election form, if I have questions about the offer, or if I need additional copies of the offer documents?

A39.                       We intend to confirm the receipt of your election form by e-mail within two U.S. business days. If you have not received an e-mail confirmation that we have received your response, we recommend that you confirm that we have received your election form. If you need to confirm receipt after two U.S. business days have elapsed, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742 with your question.

If you need additional copies of the offer documents or the election form, or for general questions concerning this offer or general questions about the tax consequences discussed in this offer, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742. Copies will be furnished promptly at the Company’s expense.

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RISKS OF PARTICIPATING IN THE OFFER

Participating in the offer involves a number of risks, including those described below. This description and items discussed in “Risk Factors” in The Walt Disney Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2006, the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2006 and the Company’s subsequent SEC reports, which are incorporated herein by reference, highlight the material risks of participating in this offer. You should carefully consider these risks and you are encouraged to speak with your financial, legal and/or tax advisors as necessary before deciding to participate in the offer. In addition, we strongly urge you to read the sections in this Offer to Amend discussing the tax consequences in the United States, as well as the rest of this Offer to Amend for a more in-depth discussion of the risks that may apply to you before deciding to participate in the offer.

Federal Tax-Related Risks

The IRS could change the expected Section 409A tax consequences.

In order to participate in the offer, you may not exercise your options until after the offer is completed.  The IRS is expected to provide in the near future additional guidance and to finalize its regulations regarding the application of Section 409A to discounted options. It is possible that such guidance could be significantly different from the current guidance. New guidance could impose less onerous tax consequences on discounted options.  If that were to occur, it is possible that opportunities to exercise your options before the end of the offer might be more beneficial to you than the opportunities available after the completion of the offer, after considering the tax consequences of exercising unamended options.  Moreover, as a result of the offer, you will receive cash with respect to your amended options sooner than you might otherwise have received it had you not participated in the offer and at a time that may not be advantageous to you given your particular tax situation.  If either of these circumstances occurred, it may have been more beneficial to you not to have participated in the offer and to have retained your eligible options in their current form.

Although we have designed this offer in a way that is specifically contemplated by the U.S. Treasury Department and the IRS to eliminate adverse tax treatment under Section 409A, there can be no guarantee of any specific tax treatment regarding this offer.  Moreover, the tax laws may change again in a manner that would adversely affect your new options, and we cannot provide any assurance that an offer similar to this one will be made.

Cash payments will be a taxable event even if amended options are not exercised.

Any cash payments received for eligible options that you elect to amend will be subject to regular income and employment tax withholding at the time of receipt.  Your resulting tax liability when you file your income tax return could differ from the amount of taxes we are required to withhold and, as a result, it is possible that additional taxes may be due for the year you receive the cash payment.  You cannot elect to receive this payment at a different time.

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Tax-related risks for tax residents of multiple countries.

If you are subject to the tax laws in more than one jurisdiction, you should be aware that there may be tax and social insurance consequences of more than one country that may apply to you. You should also be certain to consult your personal tax advisor to discuss these consequences.

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THE OFFER

1.                                      Eligibility.

You are an “eligible holder” only if you (1) are subject to taxation in the United States, (2) hold eligible options, if those options are outstanding as of the last date on which this offer remains open for acceptance, and (3) are an employee of The Walt Disney Company or our subsidiaries, including Pixar (collectively referred to as “The Walt Disney Company,” the “Company,” “we,” “our” or “us”), on the last date on which this offer remains open for acceptance.

If you are an employee of the Company, unless expressly provided by an agreement between you and the Company or by the requirements of applicable law, your employment with the Company will remain “at will” and can be terminated by you or us at any time, with or without cause or notice. You must be an employee of the Company in order to be an eligible holder.

None of our Directors or executive officers listed on Schedule A to this Offer to Amend, including those who are officers for purposes of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is eligible to participate in this offer.  In addition, none of the persons who served as directors or executive officers of Pixar before the acquisition of Pixar by Disney is eligible to participate in this offer.

2.                                      Number of options and amount of consideration; expiration of the offer.

Subject to the terms and conditions of this offer, we will accept for amendment eligible options that are held by eligible holders and for which proper elections are made, and are not validly withdrawn, before the expiration of the offer.

An option to purchase common stock is eligible for this offer only if each of the following conditions is met:

·                                          the option was assumed by us in connection with the acquisition of Pixar by Disney (the “Pixar acquisition”), which was completed on May 5, 2006;

·                                          the option was granted by Pixar before the Pixar acquisition under The Walt Disney Company/Pixar 1995 Stock Plan, as amended (the “1995 Stock Plan”), or the Amended and Restated The Walt Disney Company/Pixar 2004 Equity Incentive Plan (the “2004 Equity Incentive Plan” and together with the 1995 Stock Plan, the “Disney/Pixar Plans”);

·                                          the option had an original exercise price per share that was less than the fair market value per share of the common stock underlying the option on the correct option grant date as determined by us;

·                                          the option was unvested as of December 31, 2004 (if only a portion of an option was unvested as of December 31, 2004, only the unvested portion of the option as of December 31, 2004, is an “eligible option”); and

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·                                          the option is outstanding as of the last date on which this offer remains open for acceptance.

As noted above, in order to be eligible, options must be outstanding as of the expiration of the offer. For example, if a particular option expires after commencement, but before the expiration of the offer, that option is not eligible for this offer.

You may choose to accept this offer to amend some, but not all, of your eligible options in this offer. However, if you do choose to accept this offer to amend an eligible option, you must accept this offer for all of the shares subject to that option that were unvested as of December 31, 2004. If you have exercised a portion of an eligible option, your election will apply to the portion that remains outstanding and unexercised.

If you have an eligible option that is subject to a domestic relations order (or comparable legal document as the result of the end of a marriage) and a person who is not an eligible holder beneficially owns a portion of that option, you may accept this offer for the entire remaining outstanding portion of the option if so directed by the beneficial owner as to his or her portion in accordance with the applicable domestic relations order or comparable legal document. As legal owner of the eligible option, Disney will respect an election properly made by you and accepted by Disney and will not be responsible to you or the beneficial owner of the eligible option for any errors made by you in such an election.

Subject to the terms of this offer, and upon our acceptance of your election to accept this offer, for each eligible option for which you accept this offer, the following will occur:

1.                                       Your eligible options will be amended to increase the exercise price per share to the new exercise price.  The “new exercise price” will be the fair market value of a share of the common stock of Pixar on the correct option grant date as determined by us and as adjusted in connection with the Pixar acquisition.

·                                          If your Pixar stock option was granted under the 1995 Stock Plan, the new exercise price will be the closing price of a share of Pixar common stock on the last trading day before the correct option grant date as determined by us and as adjusted in connection with the Pixar acquisition.

·                                          If your Pixar stock option was granted under the 2004 Equity Incentive Plan, the new exercise price will be the closing price of a share of Pixar common stock on the correct option grant date as determined by us and as adjusted in connection with the Pixar acquisition.

If only a portion of your option was unvested as of December 31, 2004, then only the unvested portion of the option as of December 31, 2004, is an eligible option and will be amended to increase the exercise price. Your election form lists (1) the original exercise price of your eligible options, as adjusted in connection with the Pixar acquisition (referred to as the “current exercise price”), and (2) the new exercise price of such options, should you accept this offer to amend those options; and

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2.                                       For each such eligible option amended in this offer, you will receive, on or promptly following January 4, 2008, a cash payment equal to the difference between the new exercise price of the amended option and the current exercise price, multiplied by the number of unexercised shares of our common stock subject to the eligible option that was amended in the manner described below, as adjusted in connection with the Pixar acquisition.  Your election form lists (1) the number of unexercised shares subject to your eligible options, as adjusted in connection with the Pixar acquisition, and (2) the cash payment you will be entitled to receive for each eligible option should you accept this offer in connection with those options.  Note that your cash payment is subject to any applicable tax withholding.

For purposes of this offer, the term “option” generally refers to an option to purchase one or more shares of our common stock.

In connection with the Pixar acquisition, each of your eligible options was assumed by Disney.  When the options were assumed, they were adjusted so that they became options to purchase shares of Disney common stock rather than shares of Pixar common stock.  To ensure that the options were adjusted in a manner that works to preserve the overall value of the options, the agreement between the Company and Pixar that governed the Pixar acquisition required that the exercise price and number of shares subject to each assumed option were adjusted as follows: each assumed option was exercisable for a number of shares of Disney common stock determined by multiplying the number of shares issuable upon the exercise of the option held by you by 2.3 (the “Exchange Ratio”), rounded down to the nearest whole number of shares.  The exercise price per share for each option adjusted in connection with the Pixar acquisition was determined by dividing the exercise price per share of each Pixar option held by you by the Exchange Ratio, rounded up to the nearest one-hundredth of a cent.

Eligible Option Example

Assume you were granted an option to purchase 1,000 shares of Pixar common stock with an exercise price per share equal to $23.00 per share (this is the option’s original exercise price).  In connection with the Pixar acquisition, this option would have been assumed by the Company and adjusted to represent an option to purchase 2,300 shares of Company common stock at an exercise price per share equal to $10.00 (this is the option’s current exercise price).  Assume that, of the adjusted number of shares subject to your option, no shares vested on or before December 31, 2004. Assume that on the correct option grant date as determined by us, the fair market value of Pixar common stock was $25.00 per share, which, adjusted in connection with the Pixar acquisition, would be $10.87 per share of Company common stock. If, as of the expiration date, you had not exercised any portion of the option, then:

1.                                     The option to purchase 2,300 shares would be amended to increase the exercise price to $10.87 per share; and

2.                                     A cash payment of $2,001.00 (which is equal to $10.87 minus $10.00, multiplied by 2,300) (the portion of the option eligible as of the expiration date of the offer), less applicable tax withholding, would be paid to you on or promptly following

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January 4, 2008.

The vesting of your amended options will not change. As a result, once you cease to be an employee, there will be no further vesting of your amended option and the option will be exercisable only as set forth in the applicable Disney/Pixar Plan and your option agreement.

All amended options will be subject to the terms of the Disney/Pixar Plan under which the option was granted and the option agreements under which the option was granted, as adjusted in connection with the Pixar acquisition and as amended in accordance with this offer. The current forms of option agreements under the Disney/Pixar Plan under which the options were granted are incorporated by reference as exhibits into the Schedule TO with which this offer has been filed. See Section 9 of this Offer to Amend for a description of the Disney/Pixar Plans.

The expiration of the offer will occur on 5:00 p.m., Pacific Time, on Friday, May 4, 2007, unless we extend the offer. We may, in our discretion, extend the offer, in which event the expiration of the offer will refer to the latest time and date at which the extended offer expires. See Section 15 of this Offer to Amend for a description of our rights to extend, terminate and amend the offer.

3.                                      Purpose of the offer.

In connection with the acquisition of Pixar by Disney, all options to acquire shares of Pixar common stock became options to purchase shares of Disney common stock and the number of shares and the exercise price per share for each Pixar option were adjusted.  The Audit Committee of Disney’s Board of Directors recently completed a review of stock options granted to Pixar employees prior to the date of the acquisition.  Based on that review, we have determined that an incorrect date was used to set the original exercise price of some stock options that you received and that the original exercise price, and therefore the exercise price as adjusted in the acquisition, would have been higher if the correct option grant date as determined by us had been used.  These options are therefore considered “discounted options.”

Discounted options that vested after December 31, 2004 are subject to adverse tax consequences under Section 409A of the United States Internal Revenue Code of 1986, as amended (the “Code”), including taxation when options vest (in addition to taxation when they are exercised) and a tax of 20% in addition to your normal rate, plus interest.  Corresponding provisions of some states’ tax laws, including California’s, also impose adverse tax consequences on discounted options, including taxation upon vesting, an additional 20% tax and interest.  We refer to these additional federal and state taxes collectively as “Section 409A taxes.”

As you are aware, the Company has undertaken to reimburse you for the Section 409A taxes on options exercised in 2006 and in 2007 before you received the notice dated March 15, 2007.  The Company is not compensating you for Section 409A taxes on options exercised after that date.  However, if you elect to amend the exercise price of eligible options by participating in this offer, your eligible options should not be subject to Section 409A taxes.

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Except as described below or otherwise disclosed in this offer or in our SEC filings, we presently have no plans or proposals that relate to or would result in:

·                                          any extraordinary transaction, such as a merger, reorganization or liquidation involving the Company;

·                                          any purchase, sale or transfer of a material amount of our assets;

·                                          any material change in our present dividend rate or policy, or our indebtedness or capitalization;

·                                          any change in our present Board of Directors or management, including a change in the number or term of directors or to fill any existing Board of Director vacancies or to change any executive officer’s material terms of employment;

·                                          any other material change in our corporate structure or business;

·                                          our common stock being delisted from the New York Stock Exchange;

·                                          our common stock becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act;

·                                          the suspension of our obligation to file reports pursuant to Section 15(d) of the Exchange Act;

·                                          the acquisition by any person of additional securities of the Company or the disposition of securities of the Company, other than in the ordinary course or pursuant to existing options or other rights or in accordance with our previously announced stock repurchase plans; or

·                                          any change in our articles of incorporation or bylaws, or any actions that may impede the acquisition of control of us by any person.

On February 6, 2006, we announced that we had agreed to separate the assets of certain ABC Radio businesses and merge those businesses with Citadel Broadcasting Corporation (the “ABC Radio transaction”).  Following the closing of the ABC Radio transaction, outstanding options to purchase our common stock may be adjusted on an equitable basis for the impact of the ABC Radio transaction.  We anticipate that any such adjustment would occur after the expiration of this offer.  If an adjustment is made to our options as a result of the ABC Radio transaction, the eligible options will be adjusted in the same manner as all other Company options, without regard to whether the eligible option is amended in this offer.

The Board of Directors is actively considering the addition of one new member to the Board of Directors, which could be announced before completion of this offer.

The Board of Directors has agreed that it will amend its bylaws to provide for a majority vote standard for the election of Directors in uncontested elections.  The bylaw will provide that in uncontested elections Director nominees must be elected by the majority of votes cast at the

26




annual meeting of shareholders.  Incumbent Directors who fail to receive a majority of votes — and who would otherwise remain in office until a successor is elected under Delaware law — would be required to offer a letter of resignation for consideration by the Board, which shall be required to act promptly.  Plurality voting will continue to apply if the number of nominees exceeds the number of open Director positions. The Company will adopt the bylaw in time to apply to the Company’s 2008 annual meeting.

At the Company’s 2007 annual meeting, the Company received a shareholder proposal to amend the Company’s bylaws to place limitations on the adoption of shareholder rights plans by the Board of Directors.  Although the proposal did not receive the required approval of two-thirds of the outstanding shares of common stock, the Board of Directors has determined to promptly and seriously consider the matters raised by the proposal.

Neither we nor our Board of Directors makes any recommendation as to whether you should accept this offer, nor have we authorized any person to make any such recommendation. The Company will prepare communications regarding this offer and will provide general tax information to eligible holders regarding this offer. The Company will not provide tax advice specific to an individual’s circumstances or make any tax recommendation. You must make your own decision about whether to participate in this offer. We strongly recommend that you consult with your financial, legal and/or tax advisors regarding the federal, state and local tax consequences to you of participating or not participating in the offer.  If you have general questions regarding the terms of this offer or requests for general tax information about this offer, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742 with your question.

4.                                      Procedures for electing to participate in this offer.

Proper election to participate in this offer.

Participation in this offer is voluntary. To participate in this offer, you must, in accordance with the instructions of the election form, properly complete, sign and submit the election form to the Company. The Company must receive the properly completed and signed election forms via the offer website or by fax to Yvonne Brazil at (510) 922-3540 before the expiration of the offer. The expiration of the offer will occur at 5:00 p.m., Pacific Time, on Friday, May 4, 2007, unless we extend the offer. Election forms and related documents may only be submitted via the offer website or by fax to Yvonne Brazil at (510) 922-3540.

If you are an eligible holder, you will receive on the commencement of the offer an e-mail announcing the offer and containing a link to the offer website.  If you choose to participate in this offer, you must do the following before 5:00 p.m., Pacific Time, on Friday, May 4, 2007 (which we refer to as the “expiration of the offer”):

1.                                       You must log on to the offer website at http://tenderoffer.pixar.com using your LDAP login and password for entry into the site.  You will be redirected to the welcome page of the offer website.  If the site does not recognize you, you should

27




e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.

2.                                       You must click on the MAKE OR CHANGE AN ELECTION link to proceed with your election.  You will be redirected to the first page of the election form. You will need to check the appropriate boxes next to each of your eligible options to indicate whether you elect to accept this offer to amend such options in accordance with the terms of this offer.

You may obtain instructions to the election form by clicking on the INSTRUCTIONS TO ELECTION FORM link from either the welcome page or the Make or Change an Election page.

3.                                       After completing the election form, you will be allowed to review the elections you have made with respect to your eligible options.  If you are satisfied with your elections, you will proceed to the Agreement to Terms of Election page.  Only after you agree to the Agreement to the Terms of Election by clicking the I AGREE button will you be directed to the Election Confirmation Statement page.

4.                                       Please print and keep a copy of the Election Confirmation Statement for your records.  You will then be deemed to have completed the election process.  Note that our receipt of your election form and delivery of the Election Confirmation Statement is not by itself an acceptance of your election to amend.  We will be deemed to have accepted valid elections only when we give notice of our acceptance of election.

If you are not able to submit your election form electronically via the offer website as a result of technical problems, such as the website being unavailable or the website not accepting your election, or if you do not otherwise have access to the offer website for any reason (including lack of internet services), you must complete and sign a paper election form and submit it to Disney by fax to Yvonne Brazil at (510) 922-3540.  To obtain a paper form, please e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.

Election forms must be received by Disney no later than 5:00 p.m., Pacific Time, on Friday, May 4, 2007, unless extended by us.

If you participate in this offer, you will be required to accept the offer for the entire eligible portion of each eligible option you elect to amend. In other words, you must accept the offer for all the shares subject to a particular eligible option, but not necessarily for all your eligible options, if you hold more than one eligible option. To help you determine your outstanding eligible options, the election form lists your eligible options and, for each eligible option, (1) the original grant date; (2) the option number; (3) the name of the Disney/Pixar Plan under which that option was granted; (4) the number of unexercised shares subject to that option, as adjusted in connection with the Pixar acquisition; (5) the current exercise price; (6) the new exercise price should you accept this offer to amend that option; (7) the cash payment per share

28




subject to each option that you will be entitled to receive should you accept this offer to amend that option; and (8) the total cash payment with respect to each option that you will be entitled to receive should you accept this offer to amend that option.  Options that are not listed on the election form are not eligible options.

Except as noted in Section 5, your election to participate becomes irrevocable after 5:00 p.m., Pacific Time, on Friday, May 4, 2007, unless the offer is extended, in which case your election will become irrevocable after the date and time of the extended expiration of the offer. You may change your mind after you have submitted an election form and withdraw your election for some or all of your eligible options at any time before the expiration of the offer, as described in Section 5 of this Offer to Amend.  If you again change your mind, you may submit another election form and you will be bound by the last properly submitted election form we receive before the expiration of the offer.

If you submit an election form, and then decide that you would like to elect to accept this offer for additional eligible options, you must properly complete and submit a new election form via the tender offer website or by fax to Yvonne Brazil at (510) 922-3540 before the expiration of the offer. This new election form must also list all of the eligible options for which you wish to accept this offer, because your original election form will no longer be valid. If you again change your mind, you may submit another election form and you will be bound by the last properly submitted election form we receive before the expiration of the offer.

The delivery of all documents, including election forms, is at your risk.  Disney intends to confirm the receipt of your election form by e-mail within two U.S. business days. If you have not received an e-mail confirmation, we recommend that you confirm that we have received your election form. If you need to confirm receipt after two U.S. business days have elapsed, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742 with your question. Only election forms that are completed, submitted and actually received via the offer website or by fax by the Company by the deadline will be accepted. Election forms may only be submitted via the offer website or by fax. Election forms submitted by any other means are not permitted.

This is a one-time offer, and we will strictly enforce the election period. We reserve the right to reject any election that we determine is not in good order or that we determine is unlawful to accept. Subject to the terms and conditions of this offer, we will accept all proper elections promptly after the expiration of this offer.

Our receipt of your election form is not by itself an acceptance of your election. For purposes of this offer, we will be deemed to have accepted options for which proper elections that are properly made and have not been properly withdrawn as of the time when we give notice to the eligible holders generally of our acceptance of elections. We may issue this notice of acceptance by e-mail or other methods of communication. Options accepted will be amended on the date that this offer expires (but following the expiration of the offer), which is currently expected to be Friday, May 4, 2007. If the expiration of the offer is extended, the amendment date and time will be similarly extended.

29




Determination of validity; rejection of elections; waiver of defects; no obligation to give notice of defects.

We will determine, at our discretion, all questions as to the validity, form, eligibility (including time of receipt) and acceptance of any elections. Our determination of these matters will be final and binding on all parties. We reserve the right to reject any election that we determine is not in good order or that we determine is unlawful to accept. We will accept all proper elections that are not validly withdrawn. We also reserve the right to waive any of the conditions of the offer or any defect or irregularity in any election for any particular options or for any particular eligible holder, provided that if we grant any such waiver, it will be granted for all eligible holders and options for which elections have been made. No elections will be deemed to have been properly made until all defects or irregularities have been cured by the eligible holder or waived by us. Neither we nor any other person is obligated to give notice of any defects or irregularities in elections, nor will anyone incur any liability for failure to give any notice. This is a one-time offer. We will strictly enforce the election period, subject only to an extension that we may grant in our discretion.

Our acceptance constitutes an agreement.

Your election through the procedures described above constitutes your acceptance of the terms and conditions of this offer. Our acceptance of your elections for amendment will constitute a binding agreement between the Company and you upon the terms and subject to the conditions of this offer.

5.                                      Withdrawal rights and change of election.

You may withdraw or change your election only in accordance with the provisions of this section.

If you have previously elected to accept this offer to amend your eligible options, you may withdraw that election for some or all of these options at any time before the expiration of the offer, which is expected to be 5:00 p.m., Pacific Time, on Friday, May 4, 2007. If we extend the offer, you may withdraw your election for some or all of your eligible options at any time until the extended offer expires.

In addition, although we intend to accept, promptly after the expiration of this offer, all valid elections, if we have not accepted your election by 5:00 p.m., Pacific Time, on June 4, 2007, you may withdraw your election at any time thereafter.

To validly withdraw an earlier election, you must submit, in accordance with the procedures listed in Section 4 above, a properly completed new election form to the Company via the offer website or by fax while you still have the right to withdraw the election for those options. On the election form, you will need to check the appropriate boxes next to each of your eligible options to indicate that you elect not to accept this offer to amend such options in accordance with the terms of this offer.  Please print and keep a copy of your new Election Confirmation Statement for your records. Any election you do not withdraw will remain effective pursuant to your prior election form.  If you again change your mind, you may submit another election form and you will be bound by the last properly submitted election form we

30




receive before the expiration of the offer.  The Company must receive the properly completed new election form before the expiration of the offer. The expiration of the offer will occur at 5:00 p.m., Pacific Time, on Friday, May 4, 2007, unless we extend the offer.

Any election for options you do not withdraw will remain in effect under this offer pursuant to the last properly submitted election form.

You may not rescind any withdrawal but can re-elect to accept the offer. Your elections for withdrawn eligible options will be deemed not properly made for purposes of the offer, unless you properly re-elect to accept this offer for your eligible options before the expiration of the offer. To re-elect to accept this offer, you must submit via the offer website or by fax a new election form before the expiration of the offer by following the procedures described in Section 4 of this Offer to Amend. This new election form must be properly completed and submitted after your original election form and after your withdrawal.

Neither we nor any other person is obligated to give you notice of any defects or irregularities in any election form, nor will anyone incur any liability for failure to give any notice. We will determine, in our discretion, all questions as to the form and validity, including time of receipt, of any withdrawals. Our determination of these matters will be final and binding.

The delivery of all documents, including any election forms, is at your risk. The Company intends to confirm the receipt of your election form by e-mail within two U.S. business days. If you have not received an e-mail confirmation, we recommend that you confirm that we have received your election form. If you need to confirm receipt after two U.S. business days have elapsed, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.  Only election forms that are completed, submitted and actually received via the offer website or by fax by the Company by the deadline will be accepted. Election forms may be submitted only via the offer website or by fax. Election forms submitted by any other means are not permitted.

6.                                      Acceptance of elections for amendment, issuance of cash payments, and amended options.

Upon the terms and conditions of this offer and promptly following the expiration of the offer, we will accept all proper elections that have been made and have not been validly withdrawn before the expiration of the offer.

Subject to the terms and conditions of this offer, if elections for your eligible options are properly made and accepted by us, the options subject to the elections will be amended as of the amendment date and time.  We expect that the amendment date and time will be the date that this offer expires (but following the expiration of the offer), which is currently expected to be Friday, May 4, 2007. If the expiration of the offer is extended, then the amendment date and time will be similarly extended to the new date of the expiration of the offer. Once eligible options for which you elect to accept this offer are amended, those options will be replaced in full by the amended options.

31




For purposes of the offer, we will be deemed to have accepted valid elections that have been made and not properly withdrawn as of the time when we give notice to the eligible holders generally of our acceptance for amendment. This notice may be made by e-mail or other method of communication. Subject to our rights to terminate the offer, discussed in Section 15 of this Offer to Amend, we currently expect that we will accept promptly after the expiration of the offer all proper elections that have been made that are not validly withdrawn.

In lieu of the eligible options for which you choose to accept this offer, you will be entitled to receive amended options and a cash payment, as described in Section 2 of this Offer to Amend.  Eligible options for which you choose to accept this offer will be amended on the amendment date and time.  We expect that the amendment date and time will be the date that this offer expires (but following the expiration of the offer), which is currently expected to be Friday, May 4, 2007. If the expiration of the offer is extended, then the amendment date and time will be similarly extended to the new date of the expiration of the offer.  Promptly following the expiration of the offer, you will receive an “Amendment to Stock Option Agreements and Promise to Make Cash Payment” evidencing the amendment of the options you elected to amend.

In addition, if you elected to amend any eligible option, the “Amendment to Stock Option Agreements and Promise to Make Cash Payment” will evidence your right to receive the cash payment. Any cash payment owed to you for an eligible option for which you have chosen to accept this offer will be paid to you, less any applicable tax withholding, on or promptly following January 4, 2008. This payment will not be subject to any vesting conditions, so you will receive any cash payments to which you are entitled on or promptly following January 4, 2008, regardless of whether the eligible option is vested and regardless of whether you are employed by us at that time. If you do not receive an “Amendment to Stock Option Agreements and Promise to Make Cash Payment” within seven U.S. business days after the expiration of the offer, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.

The IRS guidance under Section 409A that allows us to offer you the opportunity to eliminate the adverse tax consequences under Section 409A by amending your options also imposes certain requirements regarding the timing of the cash payments for your eligible options that are amended. The guidance does not allow us to make the cash payments in the same calendar year in which the options are amended.

Options that we do not accept for amendment will remain outstanding until they expire by their terms and will retain their current exercise price, current exercise terms and current vesting schedule. If you elect to participate in the offer but exercise your eligible options prior to expiration of the offer, the options that you exercise will no longer be eligible to be amended in this offer and you will not receive a cash payment for those options. Please see Section 14 of this Offer to Amend for a description of the tax consequences to you of participating or not participating in this offer.

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7.                                      Conditions of the offer.

Notwithstanding any other provision of this offer, we will not be required to accept any options for amendment, and we may terminate the offer, or postpone our acceptance and amendment of elections to amend that have been made, in each case, subject to Rule 13e-4(f)(5) under the Exchange Act, if at any time on or after the date this offer begins, and before the expiration of the offer, any of the following events has occurred, or has been determined by us to have occurred:

·                                          there shall have been threatened or instituted or be pending any action, proceeding or litigation seeking to enjoin, make illegal or delay completion of the offer or otherwise relating in any manner, to the offer;

·                                          any order, stay, judgment or decree is issued by any court, government, governmental authority or other regulatory or administrative authority and is in effect, or any statute, rule, regulation, governmental order or injunction shall have been proposed, enacted, enforced or deemed applicable to the offer, any of which might restrain, prohibit or delay completion of the offer or impair the contemplated benefits of the offer to us;

·                                          there shall have occurred:

·                                          any general suspension of trading in, or limitation on prices for, our securities on any national securities exchange or in an over-the-counter market in the United States,

·                                          the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States,

·                                          any limitation, whether or not mandatory, by any governmental, regulatory or administrative agency or authority on, or any event that, in our reasonable judgment, might affect the extension of credit to us by banks or other lending institutions in the United States,

·                                          in our reasonable judgment, any extraordinary or material adverse change in United States financial markets generally, including a decline of at least 10% in either the Dow Jones Industrial Average, the New York Stock Exchange Index, the NASDAQ Composite Index, or the Standard & Poor’s 500 Index from the date of the commencement of the offer,

·                                          the commencement or continuation of a war or other national or international calamity directly or indirectly involving the United States, which could reasonably be expected to affect materially or adversely, or to delay materially, the completion of the offer, or

·                                          if any of the situations described above existed at the time of commencement of the offer and that situation, in our reasonable judgment, deteriorates materially after commencement of the offer;

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·                                          a tender or offer, other than this offer by us, for some or all of our shares of outstanding common stock, or a merger, acquisition or other business combination proposal involving us, shall have been proposed, announced or made by another person or entity or shall have been publicly disclosed or we shall have learned that:

·                                          any person, entity or group has purchased all or substantially all of our assets,

·                                          any person, entity or “group” within the meaning of Section 13(d)(3) of the Exchange Act acquires more than 5% of our outstanding shares of common stock, other than a person, entity or group which had publicly disclosed such ownership with the SEC prior to the date of commencement of the offer,

·                                          any such person, entity or group which had publicly disclosed such ownership prior to such date shall acquire additional common stock constituting more than 1% of our outstanding shares,

·                                          any new group shall have been formed that beneficially owns more than 5% of our outstanding shares of common stock that in our judgment in any such case, and regardless of the circumstances, makes it inadvisable to proceed with the offer or with such acceptance for amendment of eligible options, or

·                                          any person, entity or group shall have filed a Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or made a public announcement reflecting an intent to acquire us or any of our subsidiaries or any of the assets or securities of us or any of our subsidiaries;

·                                          there shall have occurred any change, development, clarification or position taken in generally accepted accounting principles that could or would require us to record for financial reporting purposes compensation expense against our earnings in connection with the offer other than as contemplated as of the commencement date of this offer (as described in Section 12);

·                                          any change or changes shall have occurred in the business, condition (financial or other), assets, income, operations or stock ownership of the Company that have resulted or may result, in our reasonable judgment, in a material impairment of the contemplated benefits of the offer to us; or

·                                          any rules or regulations by any governmental authority, the New York Stock Exchange, or other regulatory or administrative authority or any national securities exchange have been enacted, enforced or deemed applicable to the Company, which might restrain, prohibit, or delay completion of the offer or impair the contemplated benefits of the offer to us.

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If any of the above events occur, we may:

·                                          terminate the offer;

·                                          complete and/or extend the offer, subject to your withdrawal rights;

·                                          amend the terms of the offer; or

·                                          waive any unsatisfied condition and, subject to any requirement to extend the period of time during which the offer is open, complete the offer.

The conditions to this offer are for our benefit. We may assert them in our discretion regardless of the circumstances giving rise to them before the expiration of the offer. We may waive any condition, in whole or in part, at any time and from time to time before the expiration of the offer, in our discretion, whether or not we waive any other condition to the offer. Our failure at any time to exercise any of these rights will not be deemed a waiver of such rights, but will be deemed a waiver with respect to that particular circumstance under which we failed to exercise our rights.  Any determination we make concerning the events described in this Section 7 will be final and binding upon all persons.

8.                                      Price range of shares underlying the options.

There is no established trading market for eligible options, or any other options granted under the Disney/Pixar Plans.

The Disney common stock that underlies your options is quoted on the New York Stock Exchange under the symbol “DIS.”  The following table shows, for the periods indicated, the high and low intraday sales price per share of our common stock as reported by the New York Stock Exchange.

Quarter Ended

 

High

 

Low

 

Fiscal Year Ending September 30, 2007

 

 

 

 

 

2nd Quarter

 

$

36.09

 

$

32.65

 

1st Quarter

 

34.89

 

30.40

 

Fiscal Year Ending September 30, 2006

 

 

 

 

 

4th Quarter

 

$

31.46

 

$

28.15

 

3rd Quarter

 

31.03

 

26.75

 

2nd Quarter

 

28.85

 

23.77

 

1st Quarter

 

26.19

 

22.89

 

Fiscal Year Ending September 30, 2005

 

 

 

 

 

4th Quarter

 

$

26.50

 

$

22.90

 

3rd Quarter

 

29.00

 

24.96

 

2nd Quarter

 

29.99

 

27.05

 

1st Quarter

 

28.03

 

22.51

 

 

On April 5, 2007, the closing sales price per share of our common stock, as reported by the New York Stock Exchange, was $34.91 per share.

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You should evaluate current market quotes for our common stock, among other factors, before deciding whether or not to accept this offer.

9.                                      Source and amount of consideration; terms of amended options.

Consideration.

We will issue cash payments for eligible options for which proper elections have been made and accepted as described in Section 2 of this Offer to Amend. Cash payments will be made from the Company’s general corporate assets, and you will be a general creditor of the Company for the cash payments until they are received.

If we receive and accept elections from eligible holders of all options eligible for this offer, subject to the terms and conditions of this offer, we will amend options to purchase a total of approximately 15,478,029 shares of our common stock, or approximately 0.77% of the total shares of our common stock outstanding as of March 30, 2007, and the maximum aggregate cash payments payable pursuant to the offer will be approximately $33.5 million including associated employer social security and Medicare tax contributions.

General terms of amended options.

If we have accepted your election to amend your options, you will receive the consideration described in Section 2 of this Offer to Amend. Each amended option will be amended on the amendment date and time, which is expected to be Friday, May 4, 2007, unless we extend the offer, but following the time of the expiration of the offer. All amended options will be evidenced by an “Amendment to Stock Option Agreements and Promise to Make Cash Payment”, which will be sent to you promptly after the expiration of the offer.

Except for the new exercise price of your amended options, the terms and conditions of your amended options will remain the same as the terms and conditions of your eligible options (as described in Section 2).

The following description summarizes the material terms of the Disney/Pixar Plans. Our statements in this Offer to Amend concerning the Disney/Pixar Plans and the amended options are merely summaries and do not purport to be complete. The statements are subject to, and are qualified in their entirety by reference to, the Disney/Pixar Plans, and the forms of option agreements in effect for the eligible options, which have been filed as exhibits to the Schedule TO of which this offer is a part. Please e-mail corp.409AQuestions@disney.com or call Yvonne Brazil at (510) 922-3742 to receive a copy of the Disney/Pixar Plans and the form of option agreements. We will promptly furnish you copies of these documents upon request at our expense.

Summary of the Disney/Pixar Plans.

The 1995 Stock Plan permitted the granting of incentive stock options, nonstatutory stock options and stock purchase rights to eligible participants.  In August 2004, Pixar approved the 2004 Equity Incentive Plan and terminated the 1995 Stock Plan (except with respect to awards previously granted under the 1995 Stock Plan that remained outstanding).  No options or other

36




equity awards have been granted under the 1995 Stock Plan after August 20, 2004, and none will be granted in the future.  As of March 30, 2007, the maximum number of common shares subject to options currently outstanding under the 1995 Stock Plan is approximately 17,748,556 shares, after adjustment of such options in connection with the Pixar acquisition.

The 2004 Equity Incentive Plan permits the granting of stock options, stock appreciation rights, restricted stock, performance units and performance shares to eligible participants.  As of March 30, 2007, the maximum number of common shares subject to options currently outstanding under the 2004 Equity Incentive Plan, is approximately 21,940,148 shares, after adjustment of such options in connection with the Pixar acquisition.

Term of options.

The term of options granted under the Disney/Pixar Plans is as stated in the option agreements.  All options amended pursuant to this offer will expire on the same date as the scheduled expiration of the eligible options they amend.  Amended options will expire earlier upon your termination of employment with the Company in accordance with the terms of the Disney/Pixar Plans.

Termination of employment.

If you are currently an employee of Disney, your employment or other service will remain “at-will” regardless of your participation in the offer and can be terminated by you or us at any time, with or without cause or notice. If your employment terminates before the expiration of this offer, you will not be eligible to participate in this offer.

Options granted before August 15, 2005 under either Disney/Pixar Plan generally are exercisable, to the extent vested, for thirty (30) days from the date of termination if the optionee’s employment terminates for a reason other than his or her death or disability.  Options granted on or after August 15, 2005 under the 2004 Equity Incentive Plan generally are exercisable, to the extent vested, for ninety (90) days from the date of termination if the optionee’s employment terminates for a reason other than his or her death or disability.  Under the Disney/Pixar Plans, if the optionee’s employment or other service terminates by reason of death or disability, the optionee generally will have twelve (12) months from the date of termination to exercise the vested portion of the options.

If you participate in this offer, any amended options will continue to be subject to the same vesting schedule in place under the terms of your option immediately prior to such amendment. If you participate in this offer, you will be entitled to receive a cash payment, less any applicable tax withholding, regardless of whether you remain employed with or otherwise in service to the Company on the payment date.

Exercise price.

The administrator of the Disney/Pixar Plans generally determined the exercise price at the time the option was granted. The amended options will have an exercise price per share equal to the fair market value of a share of the underlying stock on the correct option grant date as determined by us and as adjusted in connection with the Pixar acquisition.  If your Pixar stock

37




option was granted under the 1995 Stock Plan, the new exercise price of your amended options will be the closing price of a share of Pixar common stock on the last trading day before the correct option grant date as determined by us and as adjusted in connection with the Pixar acquisition.  If your Pixar stock option was granted under the 2004 Equity Incentive Plan, the new exercise price your amended options will be the closing price of a share of Pixar common stock on the correct option grant date as determined by us and as adjusted in connection with the Pixar acquisition.

Vesting and exercise.

The administrator of the Disney/Pixar Plans generally determined the vesting terms. Any amended option you receive will be subject to the same vesting schedule as the option it amends, and you will receive vesting credit for any vesting that accrued under the eligible option. That means that upon the amendment date and time, your amended options will be vested to the same extent and will continue to vest at the same rate as the eligible options they amend. Continued vesting is subject to your continued employment with us through each relevant vesting date.

Adjustments upon certain events.

Following the closing of the ABC Radio transaction, outstanding options to purchase our common stock may be adjusted on an equitable basis for the impact, if any, of the ABC Radio transaction.  We anticipate that any such adjustment would occur after the expiration of this offer.  If an adjustment is made to our options as a result of the ABC Radio transaction, the eligible options will be adjusted in the same manner as all other Company options, without regard to whether the eligible option is amended in this offer.

Although we do not currently anticipate any such merger or acquisition, if we merge or consolidate into, or are acquired by, another entity, prior to the expiration of the offer, you may choose to withdraw any options with respect to which you elected to accept this offer pursuant to the procedures described elsewhere in this offer and your options will be treated in accordance with the option plan under which they were granted and with your option agreement without amendment. Further, if we are acquired prior to the expiration of the offer, we reserve the right to withdraw the offer, in which case your options and your rights under them will remain intact and remain exercisable for the time period set forth in your option agreement and you will receive no amended options, cash payments or other consideration for the options. If we are acquired prior to the expiration of the offer but we do not withdraw the offer, we (or the successor entity) will notify you of any material changes to the terms of the offer or amended options, including any additional adjustments to the exercise price or number of shares that will be subject to the amended options. Under such circumstances, we expect that the type of security, exercise price and the number of shares covered by each amended option would be adjusted based on the consideration per share given to holders of options to acquire our common stock that are outstanding at the time of the acquisition. As a result of such adjustments, you may receive options for more or fewer shares of the acquirer’s common stock than the number of shares subject to the eligible options with respect to which you accept this offer.

You should be aware that these types of transactions could significantly affect our stock price, including potentially substantially increasing the price of our shares. Depending on the

38




timing and structure of a transaction of this type, you might lose the benefit of any price appreciation in our common stock resulting from a merger or acquisition. This could result in eligible holders who do not participate in this offer receiving a greater financial benefit than eligible holders who do participate, even after taking into account the potential adverse tax consequences of not participating. In addition, your amended options may be exercisable for stock of the acquirer, not common stock of Disney, while eligible holders who decide not to participate in this offer might be able to exercise their options before the effective date of the merger or acquisition and sell their Disney common stock before the effective date.

If we are acquired, it is possible that an acquirer could terminate your employment and therefore, to the extent that you have any amended options subject to vesting, such options will cease to vest and will terminate in accordance with their terms. Regardless of whether you remain an employee on the scheduled payment date, you will still receive any cash payments to which you are entitled as a result of your participation in this offer.

Finally, if we are acquired after the options with respect to which you have chosen to accept this offer have been amended, the treatment of your amended options in such a transaction will be governed by the terms of the transaction agreement or the terms of the option plan under which they were granted and as amended in accordance with this offer.

Changes in capitalization.

The Disney/Pixar Plans generally provide that in the event of any stock split, stock dividend, combination or reclassification, or other increase or decrease in the number of issued shares of common stock effected without receipt of consideration, the Administrator will proportionately adjust the number of shares of common stock which may be delivered under the Disney/Pixar Plans, and the number and price of shares of common stock subject to outstanding awards thereunder.

Transferability of options.

Options granted under the Disney/Pixar Plans generally may not be sold, pledged, assigned, hypothecated, transferred or disposed of other than by will or by the applicable laws of descent and distribution.

Amendment and termination of the Disney/Pixar Plans.

Our Board of Directors generally may amend or alter the Disney/Pixar Plans at any time and for any reason. The 1995 Stock Plan has been terminated for purposes of future grants.

Registration of shares underlying the options.

All of the shares of our common stock issuable upon exercise of amended options have been registered under the United States Securities Act of 1933, as amended (the “Securities Act”), on registration statements on Form S-8 filed with the SEC. Unless you are an employee who is considered an affiliate of the Company for purposes of the Securities Act, you will be able to sell the shares issuable upon exercise of your amended options free of any transfer restrictions under applicable United States securities laws.

39




United States federal income tax consequences.

You should refer to Section 14 of this Offer to Amend for a discussion of the United States federal income tax consequences of the amended options and the options with respect to which you choose to accept this offer, as well as the consequences of accepting or rejecting this offer. We strongly recommend that you consult with your financial, legal and/or tax advisors regarding the federal, state and local tax consequences to you of participating or not participating in the offer.

In addition, some states, including California, impose additional Section 409A taxes. We strongly recommend that you consult with your financial, legal and/or tax advisors regarding the federal, state and local tax consequences to you of participating or not participating in the offer.

Federal income tax consequences in multiple jurisdictions.

If you are a citizen or resident of the United States, and are also subject to the tax laws of another non-United States jurisdiction, you should be aware that there might be other tax and social insurance consequences that may apply to you. We strongly recommend that you consult with your financial, legal and/or tax advisors regarding the federal, state and local tax consequences to you of participating or not participating in the offer.

10.                               Information concerning the Company.

The Walt Disney Company, together with its subsidiaries, is a diversified worldwide entertainment company with operations in four business segments:  media networks, parks and resorts, studio entertainment, and consumer products.

The Walt Disney Company is incorporated in Delaware. Our principal executive offices are located at 500 South Buena Vista Street, Burbank, California 91521 and our telephone number at that address is (818) 560-1000.  If you have questions regarding how to participate in this offer, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742 with your question.

A summary of the financial information included in our annual report on Form 10-K for the fiscal year ended September 30, 2006, and in our quarterly reports on Form 10-Q for the fiscal quarters ended December 30, 2006 and December 31, 2005, which are incorporated herein by reference, is attached as Schedule B to this Offer to Amend. The financial information included in our annual report on Form 10-K for the fiscal year ended September 30, 2006, and our quarterly reports on Form 10-Q for the fiscal quarters ended December 30, 2006 and December 31, 2005, is incorporated herein by reference. Please see Section 16 of this Offer to Amend entitled, “Additional Information,” for instructions on how you can obtain copies of our SEC filings, including filings that contain our financial statements.

The book value per share of our common stock was $15.86 at December 30, 2006.

40




11.                               Interests of directors and executive officers; transactions and arrangements concerning the options.

A list of our current Directors and executive officers is attached to this Offer to Amend as Schedule A.  None of our Directors or executive officers is an eligible holder.  None of the persons who served as directors or executive officers of Pixar before the Pixar acquisition is an eligible holder.

Neither we, nor any of our Directors or executive officers, nor any affiliates of ours, were engaged in transactions involving options to purchase our common stock during the 60 days before and including the commencement of this offer, except for the following:

·                                          On March 1, 2007, we granted options to purchase 6,000 shares of our common stock at an exercise price of $34.01 to each of our non-management Directors as of that date; and

·                                          On March 1, 2007, Director Father Leo O’Donovan exercised options to acquire 4,800 shares at an exercise price of $24.60 and then sold all of the shares at a price of $34.40.  Father O’Donovan retired as a Director effective March 8, 2007.

12.                               Status of options amended by us in the offer; accounting consequences of the offer.

Options that we accept for amendment through the acceptance of elections under this offer will be amended under the Disney/Pixar Plans.

For accounting purposes, all options amended pursuant to the offer will be considered modified.  Accordingly, the Company will record additional stock-based compensation charges to the extent the cash payments made under this offer exceed the difference between the fair value of the options as of the closing of the offer and the fair value of the amended option.

13.                               Legal matters; regulatory approvals.

We are not aware of any license or regulatory permit that we believe to be material to our business that might be adversely affected by our acceptance of elections and issuance of amended options as contemplated by the offer, or of any approval or other action by any government or governmental, administrative or regulatory authority or agency or any New York Stock Exchange listing requirements that would be required for the amendment or ownership of our options as contemplated herein. Should any additional approval or other action be required, we presently contemplate that we will seek such approval or take such other action. We cannot assure you that any such approval or other action, if needed, could be obtained or what the conditions imposed in connection with such approvals would entail or whether the failure to obtain any such approval or other action would result in adverse consequences to our business. Our obligation under the offer to accept elections for eligible options and to issue amended options is subject to the conditions described in Section 7 of this Offer to Amend.

If we are prohibited by applicable laws or proposed tax regulations from amending options on the amendment date and time, we will not amend any options subject to such provisions. We are unaware of any such prohibition at this time, and we will use reasonable

41




efforts to affect the amendment, but if the amendment is prohibited on the amendment date and time we will not amend any options subject to such provisions.

14.                               Material United States federal income tax consequences.

The following is a summary of the material United States federal income tax consequences of the offer for those eligible holders subject to United States federal income tax. The following also includes a summary of the California income tax consequences of the offer for those eligible holders subject to California income tax.  We include a section that summarizes the tax consequences of participating in the offer and a section that summarizes the tax consequences of not participating in the offer.  You should read both sections before you decide whether to participate in the offer.

This summary is based on the United States Internal Revenue Code of 1986, as amended, its legislative history, final or proposed tax regulations thereunder and administrative and judicial interpretations (the “Code” or “Internal Revenue Code”) and the California Revenue and Taxation Code as of the date of this Offer to Amend, all of which are subject to change, possibly on a retroactive basis. These tax laws may change and the federal, state and local tax consequences for each eligible holder will depend upon that eligible holder’s individual circumstances. This summary does not discuss all of the tax consequences that may be relevant to you in light of your particular circumstances, nor is it intended to be applicable in all respects to all categories of eligible holders. If you are subject to taxation in the United States, and are also subject to the tax laws of another country, you should be aware that there might be other tax and social insurance consequences that may apply to you.

We strongly recommend that you consult with your financial, legal and/or tax advisors regarding the federal, state and local tax consequences to you of participating or not participating in the offer.  If you have any general questions regarding the terms of this offer or requests for general tax information about this offer, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742 with your question.

If You Participate in this Offer.

If you participate in this offer, you should eliminate adverse tax consequences associated with your eligible options.  Please read this section carefully, as well as the following section summarizing the tax consequences to you if you decide not to participate in the offer.

Amended Options.

Section 409A of the Code provides that stock options granted with an exercise price below the fair market value at the date of grant of the underlying stock will, to the extent the option was not vested on or before December 31, 2004, be subject to adverse tax consequences. Corresponding provisions of California law also impose similar adverse tax consequences on discounted options.  If you participate in this offer, your eligible options that are amended should not be subject to the adverse tax consequences under federal or California law because the exercise price will equal the fair market value at the date of grant of the underlying stock.

42




If you participate in this offer for your eligible options, you will not be required to recognize income for United States federal or California income tax purposes at the time of the acceptance and amendment of such options. We believe that the acceptance and amendment of options will be treated as a non-taxable exchange for United States federal and California income tax purposes.

All eligible options are nonqualified stock options for purposes of United States and California tax law. Your amended options will continue to be nonqualified stock options. Under current tax law, you generally will not realize taxable income upon the grant of a nonqualified stock option. However, when you exercise the option, the difference between the exercise price of the option and the fair market value of the shares subject to the option on the date of exercise will be ordinary compensation income taxable to you in the year of exercise.  If you were a Pixar employee at the time of the grant of the option, any income recognized upon exercise of a nonqualified stock option generally will constitute wages for which withholding will be required.  We generally will be entitled to a deduction equal to the amount of compensation income taxable to you if we comply with applicable reporting requirements.

Cash Payments.

The cash payments you will receive in connection with the amendment of your eligible options under this offer will be taxable as ordinary compensation income.  If you were a Pixar employee at the time the eligible options for which you accepted this offer were granted, any income recognized upon your receipt of a cash payment will constitute wages for which withholding will be required.  We generally will be entitled to a deduction equal to the amount of ordinary compensation income taxable to you if we comply with applicable reporting requirements.

In addition, if you are a resident of more than one country, you should be aware that there might be tax and social insurance consequences for more than one country that may apply to you. We strongly recommend that you consult with your financial, legal and/or tax advisors regarding the federal, state and local tax consequences to you of participating or not participating in the offer.  If you have general questions regarding the terms of this offer or requests for general tax information about this offer, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742 with your question.

If You Do Not Participate in this Offer.

If you do not participate in this offer, you will be subject to adverse tax consequences with respect to your eligible options.  If you do not participate in this offer, you will keep your current options.  Please read this section carefully and talk to your tax advisors about your decision regarding participation in this offer.

Section 409A of the Code provides that stock options granted with an exercise price below the fair market value at the date of grant of the underlying stock will, to the extent the option was not vested on or before December 31, 2004, be subject to adverse tax consequences. Corresponding provisions of California law also impose similar adverse tax consequences on

43




discounted options.  As a result, if you do not participate in this offer, your eligible options will be subject to the adverse tax consequences under federal and California law.

The adverse tax consequences include a 40% tax — 20% imposed under federal law and 20% imposed under California law for persons subject to California income tax — plus interest, which amounts are in addition to all other income and employment taxes applicable to options.  These taxes and interest will likely begin to apply when your option vests. Further, it is possible that during each subsequent tax year (until the option is exercised or expires), any increase in value of the underlying stock will be taxed and may also be subject to the additional 40% tax (or 20% for persons not subject to California income tax) and interest, in addition to other income and employment taxes. We will withhold taxes and report income amounts to the IRS and other taxing authorities as required by applicable laws and will not reimburse you for those taxes.

If you do not participate in the offer, you will not be entitled to the cash payment.

Uncertainty

Unfortunately, the IRS has not issued definitive final guidance under Section 409A. It is possible that final guidance issued by the IRS may differ from our current good-faith interpretation of the law and that you and your personal tax advisor may advocate a position under the current statute and IRS guidance that your eligible options are exempt from Section 409A. We cannot guarantee the effect of any future IRS guidance.

We cannot guarantee any particular tax results related to your options; furthermore, there is uncertainty because the proposed tax regulations under Section 409A are not final. Because this offer involves complex tax considerations, we urge you to consult your financial, legal and/or tax advisor before you make any decisions about participating in this offer.

In addition, if you are subject to taxation in the United States, and also are subject to taxation in another country, there may be additional tax consequences relating to your participation in this offer. We strongly recommend that you consult with your financial, legal and/or tax advisors regarding the federal, state and local tax consequences to you of participating or not participating in the offer.  If you have any general questions regarding the terms of this offer or requests for general tax information about this offer, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742 with your question.

15.                               Extension of offer; termination; amendment.

We reserve the right, at our discretion, at any time and regardless of whether or not any event listed in Section 7 of this Offer to Amend has occurred or is deemed by us to have occurred, to extend the period of time during which the offer is open and delay the acceptance for amendment of any options. If we elect to extend the period of time during which this offer is open, we will give you written notice of the extension and delay, as described below. If we extend the expiration of the offer, we will also extend your right to withdraw elections for eligible options until the new date of the expiration of the offer. In the case of an extension, we will issue an e-mail or other form of communication no later than 6:00 a.m., Pacific Time, on the next U.S. business day after the previously scheduled expiration of the offer.

44




We also reserve the right, in our reasonable judgment, before the expiration of the offer to terminate or amend the offer and to postpone the expiration of the offer (resulting in a delay of our acceptance and amendment of any options for which elections have been made) if any of the events listed in Section 7 of this Offer to Amend occurs, by giving written notice of the termination or postponement to you or by making a public announcement of the termination. Our reservation of the right to delay our acceptance and amendment of options for which elections have been made is limited by Rule 13e-4(f)(5) under the Exchange Act which requires that we must pay the consideration offered or return the options promptly after termination or withdrawal of an offer like this.

Subject to compliance with applicable law, we further reserve the right, before the expiration of the offer, in our discretion, and regardless of whether any event listed in Section 7 of this Offer to Amend has occurred or is deemed by us to have occurred, to amend the offer in any respect, including by decreasing or increasing the consideration offered in this offer to eligible holders or by decreasing or increasing the number of options being sought in this offer. As a reminder, if a particular option expires after commencement, but before amendment under the offer, that particular option is not eligible for amendment. Therefore, if we extend the offer for any reason and if a particular option for which an election to accept the offer was made before the originally scheduled expiration of the offer expires after such originally scheduled expiration of the offer but before the actual amendment date and time under the extended offer, that option would not be eligible for amendment.

The minimum period during which the offer will remain open following material changes in the terms of the offer or in the information concerning the offer, other than a change in the consideration being offered by us or a change in amount of existing options sought, will depend on the facts and circumstances of such change, including the relative materiality of the terms or information changes. If we modify the number of eligible options being sought in this offer or the consideration being offered by us for the eligible options in this offer, the offer will remain open for at least ten U.S. business days from the date of notice of such modification. If any term of the offer is amended in a manner that we determine constitutes a material change adversely affecting any holder of eligible options, we will promptly disclose the amendments in a manner reasonably calculated to inform holders of eligible options of such amendment, and we will extend the offer’s period so that at least five U.S. business days, or such longer period as may be required by the tender offer rules, remain after such change.

For purposes of the offer, a “business day” means any day other than a Saturday, Sunday or a United States federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, U.S. Eastern Time.

16.                               Additional information.

This Offer to Amend is part of a Tender Offer Statement on Schedule TO that we have filed with the SEC. This Offer to Amend does not contain all of the information contained in the Schedule TO and the exhibits to the Schedule TO. We recommend that you review the Schedule TO, including its exhibits, and the following materials that we have filed with the SEC before making a decision on whether to elect to accept this offer for your options:

 

45




1.                                       Our Annual Report on Form 10-K for our fiscal year ended September 30, 2006, filed with the SEC on November 22, 2006;

2.                                       Our Quarterly Reports on Form 10-Q for our fiscal quarters ended December 30, 2006 and December 31, 2005, filed with the SEC on February 7, 2007 and February 6, 2006, respectively;

3.                                       Our definitive proxy statement on Schedule 14A for our 2007 annual meeting of shareholders, filed with the SEC on January 12, 2007;

4.                                       Our Current Reports on Form 8-K as filed with the SEC on December 1, 2006, December 15, 2006, February 7, 2007 and March 13, 2007; and

5.                                       The description of our common stock included in our registration statement on Form 8-A, filed with the SEC on November 17, 1999, including any amendments or reports we file for the purpose of updating that description.

The SEC file number for these filings is 000-1001039. These filings, our other annual, quarterly and current reports, our proxy statements and our other SEC filings may be examined, and copies may be obtained, at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the SEC at (202) 551-8090. Our SEC filings are also available to the public on the SEC’s Internet site at www.sec.gov.

Each person to whom a copy of this Offer to Amend is delivered may obtain a copy of any or all of the documents to which we have referred you, other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into such documents, at no cost, by e-mailing corp.409AQuestions@disney.com or calling Yvonne Brazil at (510) 922-3742.

As you read the documents listed above, you may find some inconsistencies in information from one document to another. If you find inconsistencies between the documents, or between a document and this Offer to Amend, you should rely on the statements made in the most recent document.

The information contained in this Offer to Amend about us should be read together with the information contained in the documents to which we have referred you, in making your decision as to whether or not to participate in this offer.

17.                               Financial statements.

Attached as Schedule B to this Offer to Amend is our summary financial information from our annual report on Form 10-K for our fiscal year ended September 30, 2006 and our quarterly reports on Form 10-Q for our fiscal quarters ended December 30, 2006 and December 31, 2005. More complete financial information may be obtained by accessing our public filings with the SEC by following the instructions in Section 17 of this Offer to Amend.

46




 

18.                               Miscellaneous.

We are not aware of any jurisdiction where the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction where the making of the offer is not in compliance with any valid applicable law, we will make a good faith effort to comply with such law. If, after such good faith effort, we cannot comply with such law, the offer will not be made to, nor will options be accepted from the eligible holders residing in such jurisdiction.

We have not authorized any person to make any recommendation on our behalf as to whether you should elect to accept this offer to amend your options. Disney will prepare communications regarding this offer and provide general tax information to eligible holders regarding this offer.  Disney will not provide tax advice specific to an individual’s circumstances or make any tax recommendation. You should rely only on the information in this document or documents to which we have referred you. We have not authorized anyone to give you any information or to make any representations in connection with the offer other than the information and representations contained in this Offer to Amend the Exercise Price of Certain Options and in the related offer documents. If anyone makes any recommendation or representation to you or gives you any information, you must not rely upon that recommendation, representation or information as having been authorized by us.

 

47




SCHEDULE A

INFORMATION CONCERNING
THE DIRECTORS AND EXECUTIVE OFFICERS
OF THE WALT DISNEY COMPANY

The Directors and executive officers of The Walt Disney Company as of April 9, 2007, are set forth in the following table:

Name

 

Position and Offices Held

John E. Bryson

 

Director

John S. Chen

 

Director

Judith L. Estrin

 

Director

Robert A. Iger

 

President, Chief Executive Officer and Director

Steven P. Jobs

 

Director

Fred H. Langhammer

 

Director

Aylwin B. Lewis

 

Director

Monica C. Lozano

 

Director

Robert W. Matschullat

 

Director

John E. Pepper, Jr.

 

Chairman of the Board of Directors

Orin C. Smith

 

Director

Thomas O. Staggs

 

Senior Executive Vice President and Chief Financial Officer

Alan N. Braverman

 

Senior Executive Vice President, General Counsel and Secretary

Wesley A. Coleman

 

Executive Vice President and Chief Human Resources Officer

Kevin A. Mayer

 

Executive Vice President, Corporate Strategy, Business Development and Technology

Christine M. McCarthy

 

Executive Vice President, Corporate Finance and Real Estate and Treasurer

 

Our Directors and executive officers and persons who served as directors and executive officers of Pixar before the Pixar acquisition are not eligible to participate in this offer.

The address of each Director and executive officer is: c/o The Walt Disney Company, 500 South Buena Vista Street, Burbank, California 91521, and the telephone number is (818) 560-1000.

 

A-1




SCHEDULE B

SUMMARY FINANCIAL INFORMATION OF
The Walt Disney Company AND SUBSIDIARIES
(in millions, except per share data)

 

 

Year Ended

 

Three Months Ended

 

 

 

September 30,
2006

 

October 1,
2005

 

December 30,
2006

 

December 31,
2005

 

Consolidated Statement of Operations Data:

 

 

 

 

 

 

 

 

 

Revenues

 

$

34,285

 

$

31,944

 

$

9,725

 

$

8,854

 

Costs and expenses

 

(28,807

)

(27,837

)

(8,009

)

(7,693

)

Income before the cumulative effect of accounting change

 

3,374

 

2,569

 

1,701

 

734

 

Net income

 

3,374

 

2,533

 

1,701

 

734

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Diluted

 

$

1.64

 

$

1.22

 

$

0.79

 

$

0.37

 

Basic

 

$

1.68

 

$

1.25

 

$

0.83

 

$

0.38

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheet Data (At Period End):

 

 

 

 

 

 

 

 

 

Current assets

 

$

9,562

 

$

8,845

 

$

11,115

 

$

9,810

 

Noncurrent assets

 

50,436

 

44,313

 

49,878

 

43,857

 

Current liabilities

 

10,210

 

9,168

 

10,587

 

10,236

 

Noncurrent liabilities

 

16,625

 

16,532

 

16,540

 

16,792

 

Minority interests

 

1,343

 

1,248

 

1,358

 

1,288

 

 

B-1



Exhibit (a)(1)(B)

DRAFT E-MAIL TO ALL ELIGIBLE HOLDERS

To:

 

[E-MAIL ADDRESS]

 

 

 

From:

 

corp.409AQuestions@disney.com

 

 

 

Date:

 

April 9, 2007

 

 

 

Subject:

 

Immediate Action Required: Urgent Information Regarding Your Unexercised Stock Options

 

This e-mail contains important information about your unexercised stock options and a program we have established that should eliminate extra tax liability with respect to your unexercised options.

We have scheduled question and answer sessions to discuss this program on Thursday, April 12, 2007, in the main theater at the following times (Pacific Time):

10:30-11:30 a.m.

1:00-2:00 p.m.

2:30-3:30 p.m.

If, after reviewing the information in this e-mail and the materials referred to below you have questions about the program, please come to whichever of these sessions is convenient for you.

*              *              *

As you may know, the Audit Committee of our Board of Directors recently completed a review of the stock options granted to Pixar employees prior to the date of the acquisition of Pixar by Disney.  Based on that review, we have determined that an incorrect date was used to set the original exercise price of some stock options that you received and that the original exercise price, and therefore the exercise price as adjusted in the acquisition, would have been higher if the correct date had been used.  These options are therefore considered “discounted options.”

Discounted options that vested after December 31, 2004 are subject to adverse tax consequences under Section 409A of the Internal Revenue Code, including taxation when options vest (in addition to taxation when they are exercised) and a tax of 20% in addition to your normal rate, plus interest.  Corresponding provisions of some states’ tax laws, including California’s, also impose adverse tax consequences on discounted options, including taxation upon vesting, an additional 20% tax and interest.  We refer to these additional federal and state taxes collectively as “Section 409A taxes.”




Our records indicate that some of your stock options will be subject to Section 409A taxes. These options are listed in the election form referred to below.

To help you eliminate Section 409A taxes, Disney is offering to amend your discounted options to increase the exercise price to the price (as adjusted in connection with the Pixar acquisition) on the correct option grant date as determined by us.  Disney will then make a cash payment to you to compensate for the difference between the new exercise price and the original exercise price (as adjusted in connection with the Pixar acquisition).  Cash payments will be paid on or promptly following January 4, 2008, and will be subject to normal tax withholdings.  The remaining terms and conditions of your stock options will remain unchanged.

Changing the exercise price on your discounted options requires a “Tender Offer” to you from Disney.  The document containing the terms and conditions of the Tender Offer is the “Offer to Amend the Exercise Price of Certain Options.” Instructions for accessing or obtaining a copy of that document are provided below.  The Tender Offer is governed by strict rules imposed by the Securities and Exchange Commission, and we must comply with those rules.  As a result, the Offer to Amend the Exercise Price of Certain Options is long; however, we encourage you to familiarize yourself with its entire contents as it contains helpful information that you should consider in deciding whether to participate in the offer.

Participation in the offer is completely voluntary.  However, if you do not participate in the offer, you will be responsible for the Section 409A taxes on your discounted options and we will not reimburse you.  You will also not be entitled to the cash payment.  Action is required to participate.

It is extremely important that you carefully review the Offer to Amend the Exercise Price of Certain Options as it contains the information that you need in order to decide whether or not to participate in this offer.  You may obtain a copy of it as follows:

1.                                       Log on to the offer website at http://tenderoffer.pixar.com using your LDAP login and password for entry into the site.  You will be redirected to the welcome page of the offer website.  If the site does not recognize you, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.

2.                                       Click on the OFFER TO AMEND THE EXERCISE PRICE OF CERTAIN OPTIONS link.  You will be redirected to the first page of the Offer to Amend the Exercise Price of Certain Options.  You may use the navigation buttons to navigate through the Offer to Amend the Exercise Price of Certain Options.

To obtain a paper copy of the Offer to Amend the Exercise Price of Certain Options, please e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.

After reviewing the Offer to Amend the Exercise Price of Certain Options, if you wish to participate in the offer, you will need to do the following:

2




1.                                       You must be logged on to the offer website (as described in 1 above).  Navigate to the welcome page of the offer website.  You must then click on the MAKE OR CHANGE AN ELECTION link to proceed with your election.  You will be redirected to the first page of the election form.  You will need to check the appropriate boxes next to each of your eligible options to indicate whether you elect to accept this offer to amend such options in accordance with the terms of this offer.

You may obtain instructions to the election form by clicking on the INSTRUCTIONS TO ELECTION FORM link from either the welcome page or the Make or Change an Election page.

2.                                       After completing the election form, you will be allowed to review the elections you have made with respect to your eligible options.  If you are satisfied with your elections, you will proceed to the Agreement to Terms of Election page.  Only after you agree to the Agreement to the Terms of Election by clicking the I AGREE button will you be directed to the Election Confirmation Statement page.

3.                                       Please print and keep a copy of the Election Confirmation Statement for your records.  You will then be deemed to have completed the election process.  Note that our receipt of your election form and delivery of the Election Confirmation Statement is not by itself an acceptance of your election to amend.  We will be deemed to have accepted valid elections only when we give notice of our acceptance of election.

If you are not able to submit your election form electronically via the offer website as a result of technical problems, such as the website being unavailable or the website not accepting your election, or if you do not otherwise have access to the offer website for any reason (including lack of internet services), you must complete and sign a paper election form and submit it to Disney by fax to Yvonne Brazil at (510) 922-3540.  To obtain a paper election form, please e-mail corp.409AQuestions@disney.com and include your telephone number, and we will send it to you.  You may also call Yvonne Brazil at (510) 922-3742.

Election forms must be received by Disney no later than 5:00 p.m., Pacific Time, on Friday, May 4, 2007, unless extended by us.

We strongly recommend that you consult with your financial, legal and/or tax advisors regarding the federal, state and local tax consequences to you of participating or not participating in the offer.

If you have any questions, please e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.

KEY DATES TO REMEMBER

The commencement date of the offer is Monday, April 9, 2007.

3




Question and answer sessions will be held on Thursday, April 12, 2007, at 10:30-11:30 a.m., 1:00-2:00 p.m., and 2:30-3:30 p.m., Pacific Time, in the main theater.

The offer expires at 5:00 p.m. Pacific Time on Friday, May 4, 2007 (unless we extend it).

The eligible options for which you have elected to accept this offer will be amended on the amendment date and time (following the expiration of the offer), which is expected to be Friday, May 4, 2007 (unless we extend the offer).

The cash payment will be made on or promptly following January 4, 2008.

 

4



Exhibit (a)(1)(C)

DRAFT TRANSMITTAL TO ELIGIBLE HOLDERS RECEIVING PRINTED COPIES
OF OFFER TO AMEND AND ELECTION FORM

To:

 

[NAME]

 

 

 

From:

 

corp.409AQuestions@disney.com

 

 

 

Date:

 

April 9, 2007

 

 

 

Subject:

 

Immediate Action Required: Urgent Information Regarding Your Unexercised Stock Options

 

This document contains important information about your unexercised stock options and a program we have established that should eliminate extra tax liability with respect to your unexercised options.

We have scheduled question and answer sessions to discuss this program on Thursday, April 12, 2007, in the main theater at the following times (Pacific Time):

10:30-11:30 a.m.

1:00-2:00 p.m.

2:30-3:30 p.m.

If, after reviewing the information in this document and the materials referred to below you have questions about the program, please come to whichever of these sessions is convenient for you.

*              *              *

As you may know, the Audit Committee of our Board of Directors recently completed a review of the stock options granted to Pixar employees prior to the date of the acquisition of Pixar by Disney.  Based on that review, we have determined that an incorrect date was used to set the original exercise price of some stock options that you received and that the original exercise price, and therefore the exercise price as adjusted in the acquisition, would have been higher if the correct date had been used.  These options are therefore considered “discounted options.”

Discounted options that vested after December 31, 2004 are subject to adverse tax consequences under Section 409A of the Internal Revenue Code, including taxation when options vest (in addition to taxation when they are exercised) and a tax of 20% in addition to your normal rate, plus interest.  Corresponding provisions of some states’ tax laws, including California’s, also impose adverse tax consequences on discounted options, including taxation upon vesting, an additional 20% tax and interest.  We refer to these additional federal and state taxes collectively as “Section 409A taxes.”




Our records indicate that some of your stock options will be subject to Section 409A taxes. These options are listed in the election form referred to below.

To help you eliminate Section 409A taxes, Disney is offering to amend your discounted options to increase the exercise price to the price (as adjusted in connection with the Pixar acquisition) on the correct option grant date as determined by us.  Disney will then make a cash payment to you to compensate for the difference between the new exercise price and the original exercise price (as adjusted in connection with the Pixar acquisition).  Cash payments will be paid on or promptly following January 4, 2008, and will be subject to normal tax withholdings.  The remaining terms and conditions of your stock options will remain unchanged.

Changing the exercise price on your discounted options requires a “Tender Offer” to you from Disney.  The document containing the terms and conditions of the Tender Offer is the “Offer to Amend the Exercise Price of Certain Options.” A copy of the Offer to Amend the Exercise Price of Certain Options is attached to this document. The Tender Offer is governed by strict rules imposed by the Securities and Exchange Commission, and we must comply with those rules.  As a result, the Offer to Amend the Exercise Price of Certain Options is long; however, we encourage you to familiarize yourself with its entire contents as it contains helpful information that you should consider in deciding whether to participate in the offer.

Participation in the offer is completely voluntary.  However, if you do not participate in the offer, you will be responsible for the Section 409A taxes on your discounted options and we will not reimburse you.  You will also not be entitled to the cash payment.  Action is required to participate.

It is extremely important that you carefully review the Offer to Amend the Exercise Price of Certain Options as it contains the information that you need in order to decide whether or not to participate in this offer.

DOCUMENTS AND MATERIALS

(1)           Offer to Amend the Exercise Price of Certain Options

(2)           Election Form

After reviewing the Offer to Amend the Exercise Price of Certain Options, if you wish to participate in the offer, you will need to complete and sign the election form and submit it to Disney by fax to Yvonne Brazil at (510) 922-3540.

Election forms must be received by Disney no later than 5:00 p.m., Pacific Time, on Friday, May 4, 2007, unless extended by us.

We strongly recommend that you consult with your financial, legal and/or tax advisors regarding the federal, state and local tax consequences to you of participating or not participating in the offer.

2




If you have any questions, please e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.

KEY DATES TO REMEMBER

The commencement date of the offer is Monday, April 9, 2007.

Question and answer sessions will be held on Thursday, April 12, 2007, at 10:30-11:30 a.m., 1:00-2:00 p.m., and 2:30-3:30 p.m., Pacific Time, in the main theater.

The offer expires at 5:00 p.m. Pacific Time on Friday, May 4, 2007 (unless we extend it).

The eligible options for which you have elected to accept this offer will be amended on the amendment date and time (following the expiration of the offer), which is expected to be Friday, May 4, 2007 (unless we extend the offer).

The cash payment will be made on or promptly following January 4, 2008.

 

3



Exhibit (a)(1)(D)

 



Exhibit (a)(1)(E)

 



Exhibit (a)(1)(F)

 



Exhibit (a)(1)(G)

 



Exhibit (a)(1)(H)

 




 

2



Exhibit (a)(1)(I)

 



Exhibit (a)(1)(J)

 




2



Exhibit (a)(1)(K)

FORM OF AMENDMENT TO STOCK OPTION AGREEMENT AND
PROMISE TO MAKE CASH PAYMENT

To:

From:              The Walt Disney Company

Date:

Subject:          Amendment of Your Stock Options

You have elected to participate in the Offer to Amend the Exercise Price of Certain Options to have the exercise price of certain of your options amended. We have accepted your election to amend the options listed on the attached Schedule of Amended Options and Cash Payments (the “Options”). These Options are now exercisable, subject to vesting and the other terms of these Options, at the new exercise price as listed on the attached Schedule of Amended Options and Cash Payments.

In exchange for your agreement to amend your options to purchase shares of Disney common stock, as indicated by your election form, Disney hereby promises to pay you a cash payment as described on the Schedule of Amended Options and Cash Payments attached hereto.

Any such payment will be paid, less applicable tax withholding, promptly on or after January 4, 2008. The payments due to you are shown on the attached Schedule of Amended Options and Cash Payments. These payments are not subject to vesting and will be made to you regardless of whether the amended option is vested on the payment date and regardless of whether or not you are employed by us on the payment date.

This memo acts as an amendment to each of your Options. To the extent not amended by this memo, your Options will continue to be subject to the terms and conditions of The Walt Disney Company/Pixar 1995 Stock Plan, as amended, or the Amended and Restated The Walt Disney Company/Pixar 2004 Equity Incentive Plan, as applicable, under which the original options were granted.

This memo is subject to the terms and conditions of the offer as set forth in: (1) the Offer to Amend the Exercise Price of Certain Options; (2) the E-mail to All Eligible Holders; and (3) the election form (collectively, the “Offer Documents”), all of which are incorporated herein by reference. This memo and the Offer Documents reflect the entire agreement between you and Disney concerning this transaction. This memo may be amended only by means of a writing signed by you and an authorized officer of Disney.

 

THE WALT DISNEY COMPANY

 

 

 

 

 

By:

 

 

 

 

 

 

 

 

 

Date:

 

 

 

 

 

 

 

 

 

Title:

 

 




The Walt Disney Company
Schedule of Amended Options and Cash Payments
as of Friday, May 4, 2007

Name:
ID:

The following is the schedule of your amended Disney option grant(s):

Option Date

 

Option Number

 

Plan

 

Number of Shares Underlying Option Grant

 

New Exercise Price Per Share

 

Cash Payment Per Share

 

Total Cash Payment

[                  ]

 

[                  ]

 

[                  ]

 

[                  ]

 

[$              ]

 

[$              ]

 

[$              ]

 

If you have questions about the above list, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742 with your question.

 

2



Exhibit (a)(1)(L)

FORM OF ACKNOWLEDGEMENT OF RECEIPT OF ELECTION FORM

For [NAME]

Disney has received your election form dated [      ], 2007, by which you made the following elections with respect to your eligible options:

Option
Date

 

Option
Number

 

Plan

 

Number of
Unexercised
Shares
Subject to
the
Eligible
Option

 

Current
Exercise
Price Per
Share

 

New
Exercise
Price Per
Share
(if offer is
accepted)

 

Cash
Payment
Per Share
(if offer is
accepted)

 

Total
Cash
Payment
(if offer is
accepted)

 

Amend
Entire
Eligible
Portion?

 

[           ]

 

[             ]

 

[             ]

 

[             ]

 

[$             ]

 

[$             ]

 

[$             ]

 

[$             ]

 

[  ] Yes

 

[  ] No

 

 

If you change your mind, you may submit another election form by accessing the offer website at http://tenderoffer.pixar.com and completing a new election form no later than 5:00 p.m. Pacific Time on Friday, May 4, 2007.  If you have questions concerning the submission of your election form, please e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.

Our receipt of your election form is not by itself an acceptance of your election to amend. For purposes of the offer, we will be deemed to have accepted valid elections that have been made and have not been properly withdrawn as of when we give notice to the eligible holders generally of our acceptance of elections. We may issue this notice of acceptance by e-mail or other methods of communication. Your options with respect to which elections are accepted will be amended on the date that this offer expires (but following the expiration of the offer), which is currently expected to be Friday, May 4, 2007, at 5:00 p.m., Pacific Time. If the expiration of the offer is extended, the amendment date and time will be similarly extended.



Exhibit (a)(1)(M)

FORM OF E-MAIL TO ELIGIBLE HOLDERS TO CONFIRM RECEIPT OF
E-MAIL ANNOUNCEMENT

The Company sent you an e-mail on April 9, 2007, with important information about your unexercised stock options and a program we have established that should eliminate extra tax liability with respect to your unexercised options.

Please reply to this e-mail to confirm that you received the April 9, 2007 e-mail referred to above.




FORM OF E-MAIL REMINDER TO ELIGIBLE HOLDERS

As outlined in an e-mail dated April 9, 2007, and in the documents referred to in that e-mail, Internal Revenue Code Section 409A imposes adverse tax consequences (including recognition of taxable ordinary income at vesting, an additional 20% tax and interest charges) on stock options that (i) had an original exercise price per share that was less than the fair market value per share of the common stock underlying the option on the correct option grant date as determined by us and (ii) that vest after December 31, 2004. Corresponding provisions of some states’ tax laws, including California’s, also impose similar adverse tax consequences on certain options.  These taxes are in addition to ordinary income and employment taxes on stock options.  We refer to these additional federal and state taxes as “Section 409A taxes.”  The Company will not reimburse you for Section 409A taxes on options that were exercised after your receipt of our March 15, 2007 notice to you regarding these taxes.

You are receiving this e-mail because our records indicate that some of your Disney stock options are subject to Section 409A taxes. The Company has offered you, through a “Tender Offer,” the opportunity to eliminate the Section 409A taxes on your unexercised affected stock options by amending the exercise price of such options and receiving cash payments. Note that if you wish to participate in the Tender Offer and eliminate the Section 409A taxes, you will need to access the offer website at http://tenderoffer.pixar.com to complete the required election form in accordance with the instructions posted on that website. If you are not able to submit your election form electronically via the offer website as a result of technical problems, such as the website being unavailable or the website not accepting your election, or if you do not otherwise have access to the offer website for any reason (including lack of internet services), you must complete and sign a paper election form and submit it to Disney by fax to Yvonne Brazil at (510) 922-3540.  To obtain a paper election form, please e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.

The election form must be received by the Company via the offer website or by fax no later than 5:00 p.m., Pacific Time, on Friday, May 4, 2007. However, participation in this offer is completely voluntary. You are not required to accept this offer.

All of the details of the Company’s offer to you are included in the e-mail dated April 9, 2007 and the documents referred to in that e-mail. For more information on how to participate in the offer, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.




FORM OF FINAL REMINDER E-MAIL TO ELIGIBLE HOLDERS WHO HAVE NOT
RESPONDED TO THE OFFER

Subject:  FINAL NOTICE: ACTION REQUIRED - Section 409A Income Tax Liability

As of today, we have not yet received your election form to accept the tender offer solution that has been designed to protect certain of your stock options from adverse tax consequences under Section 409A of the Internal Revenue Code and California tax law. This will be the final reminder of your ability to participate in this offer.

As outlined in an e-mail dated April 9, 2007, and in the documents included with that e-mail, Internal Revenue Code Section 409A imposes adverse tax consequences (including recognition of taxable ordinary income at vesting, an additional 20% tax and interest charges) on stock options that (i) had an original exercise price per share that was less than the fair market value per share of the common stock underlying the option on the correct option grant date as determined by us and (ii) that vest after December 31, 2004. Corresponding provisions of California law also impose similar adverse tax consequences on certain options.  These taxes are in addition to ordinary income and employment taxes on stock options.  We refer to these additional federal and state taxes as “Section 409A taxes.”  The Company will not reimburse you for Section 409A taxes on options that were exercised after your receipt of our March 15, 2007 notice to you regarding these taxes.

If you wish to participate in the Tender Offer and avoid the Section 409A taxes, you will need to access the offer website at http://tenderoffer.pixar.com to complete the required election form in accordance with the instructions posted on that website. If you are not able to submit your election form electronically via the offer website as a result of technical problems, such as the website being unavailable or the website not accepting your election, or if you do not otherwise have access to the offer website for any reason (including lack of internet services), you must complete and sign a paper election form and submit it to Disney by fax to Yvonne Brazil at (510) 922-3540.  To obtain a paper election form, please e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.

If you do not submit your completed election form to the Company by the deadline, you will likely be subject to the Section 409A taxes described above and in the April 9, 2007 e-mail and the documents attached to that e-mail.

All of the details of the Company’s offer to you, including detailed discussions of the tax consequences of participating in the offer or declining to participate in the offer, were included in the e-mail dated April 9, 2007.  For further information, you may e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.



Exhibit (a)(1)(N)

THE WALT DISNEY COMPANY

OFFER TO AMEND THE EXERCISE PRICE OF CERTAIN OPTIONS
ELECTION FORM

THIS FORM MUST BE COMPLETED AND SUBMITTED NO LATER THAN
5:00 P.M., PACIFIC TIME, ON FRIDAY, MAY 4, 2007,
UNLESS THE OFFER IS EXTENDED.

Before completing and signing this election form, please make sure you received, read and understand the documents that make up the offer, including: (1) the Offer to Amend the Exercise Price of Certain Options (the “Offer to Amend”); (2) the E-mail to All Eligible Holders; and (3) this election form. The offer is subject to the terms of these documents as they may be amended.

The offer provides eligible holders who hold eligible options the opportunity to (i) amend certain outstanding and unexercised options, and (ii) receive a cash payment for such amended options, as described in Section 2 of the Offer to Amend. The offer expires at 5:00 p.m., Pacific Time, on Friday, May 4, 2007, unless extended. PLEASE FOLLOW THE INSTRUCTIONS ATTACHED TO THIS FORM.

If you participate in the offer, you will be required to accept the offer for the entire eligible portion of each eligible option you elect to amend. In other words, you must accept the offer for all the shares subject to a particular eligible option, but not necessarily for all your eligible options, if you hold more than one eligible option.

BY PARTICIPATING, YOU AGREE TO ALL TERMS OF THE
OFFER AS SET FORTH IN THE OFFER DOCUMENTS.

If you would like to participate in the offer with respect to an option listed below, please check “Yes” in the “Amend Entire Eligible Portion” box for that option.  If you do not want to participate with respect to an option listed below, please check “No” in the “Amend Entire Eligible Portion” box for that option. If you do not clearly mark the “Amend Entire Eligible Portion” box with respect to an eligible option, your election with respect to that option will default to “No.”

If you elect “Yes” for an option, subject to withdrawal rights described in the Offer to Amend, the applicable option will, upon our acceptance of your election, be irrevocably amended to increase the exercise price on the last date on which this offer remains open for acceptance, which is expected to be Friday, May 4, 2007, following expiration of the offer.  If you elect “No” with respect to an option, subject to withdrawal rights described in the Offer to Amend, the applicable option will not be amended, its exercise price will remain unchanged, you will not receive the cash payment with respect to that option, you may incur Section 409A taxes with respect to that option, and the Company will not reimburse you for Section 409A taxes on that option.

You may withdraw or change your election as to some or all of your options at any time before the expiration of the offer by submitting a properly completed and signed election form

  




that indicates your change or withdrawal.  You must submit your new election form before the expiration of the offer, which will be 5:00 p.m., Pacific Time, Friday, May 4, 2007, unless extended.

Option
Date

 

Option
Number

 

Plan

 

Number of
Unexercised
Shares
Subject to
the
Eligible
Option

 

Current
Exercise 
Price Per
Share

 

New
Exercise
Price Per
Share (if
offer is
accepted)

 

Cash
Payment
Per Share
(if offer is
accepted)

 

Total
Cash
Payment
(if offer is
accepted)

 

Amend
Entire
Eligible
Portion?

 

[            ]

 

[            ]

 

[            ]

 

[            ]

 

[$          ]

 

[$          ]

 

[$          ]

 

[$          ]

 

[  ] Yes

 

[  ] No

 

 

 

 

 

 

Eligible Holder Signature

 

Employee Number

 

 

 

 

 

 

 

 

 

 

 

 

Eligible Holder Name (Please print)

 

E-mail Address

 

Date and Time

 

RETURN BY FAX TO YVONNE BRAZIL AT (510) 922-3540
NO LATER THAN 5:00 P.M., PACIFIC TIME, ON FRIDAY, MAY 4, 2007

2




Agreement to Terms of Election

1.             Promptly after the expiration of the offer, Disney shall return to me a final and completed “Amendment to Stock Option Agreements and Promise to Make Cash Payment” evidencing the amendment of the options I elect to amend and my right to receive a cash payment for the eligible options I elected to have amended.

2.             If I cease to remain employed by Disney or any of its subsidiaries after I elect to participate with respect to my eligible options but before Disney accepts my amendment election, my eligible options will not be amended, and I will not become entitled to any cash payment.

3.             Until the expiration date, I will have the right to change or withdraw my election with respect to my eligible options.  However, after the expiration date, I will have no further right to change or withdraw my election with respect to my eligible options.  If Disney has not accepted my election by 5:00 p.m., Pacific Time, on June 4, 2007, I may withdraw my election at any time thereafter.

4.             My election through the procedures described in Section 4 of the Offer to Amend and the instructions to the election form constitute my acceptance of all of the terms and conditions of the offer.  Disney’s acceptance of my elections for amendment will constitute a binding agreement between Disney and me upon the terms and subject to the conditions of the offer.

5.             I am the registered holder of the eligible options tendered hereby, and my name, employee identification number and other information appearing in this election form are true and correct.

6.             I am not required to participate in the offer.  However, if I do not elect to participate with respect to my eligible options or if those options are not otherwise amended pursuant to the offer, then I am solely responsible for Section 409A taxes with respect to those eligible options, and Disney will not reimburse me for any Section 409A taxes with respect to those eligible options.

7.             Disney will not give me tax advice with respect to the offer or specific to my individual circumstance and has advised me to consult with my own financial, legal, and/or tax advisor regarding the federal, state and local tax consequences of participating or not participating in the offer.

8.             Under certain circumstances set forth in the offer documents, Disney may terminate or amend the offer and postpone its acceptance and amendment of the elections.  In the event Disney does not accept my election to participate with respect to eligible options, those options will remain outstanding until they expire by their terms and will retain their current exercise price, current exercise terms and current vesting schedule.

9.             I understand that neither Disney nor Disney’s Board of Directors is making any recommendation as to whether I should accept or refrain from accepting the offer to amend my eligible options, and that I must make my own decision whether to elect to participate in the offer, after taking into account my own personal circumstances and preferences.  I understand

3




that the amended options resulting from the amendment of my tendered eligible options may decline in value and may be “out of the money” when I decide to exercise those options.  I further understand that past and current market prices of Disney common stock may provide little or no basis for predicting what the market price of Disney common stock will be when Disney amends my tendered option or at any other time in the future.

10.           I hereby acknowledge that I have read the documents related to the offer listed below:

·                  Offer to Amend the Exercise Price of Certain Options

·                  Election form

·                  Instructions to the election form

11.           I hereby elect to participate in the offer with respect to my eligible options as previously identified in accordance with the Offer to Amend.  I agree that the options identified are the eligible options I hold.  I agree and understand that each of the eligible options that I have elected to participate in the offer will be amended by Disney unless I submit a new, properly completed election form withdrawing my election prior to the expiration of the offer.

12.           I understand that I must fully complete, sign and deliver the election form and return it to Disney via the offer website or by fax to Yvonne Brazil at (510) 922-3540 prior to the expiration of the offer.

13.           I further understand that Disney intends to send me an e-mail at my e-mail address listed below within two U.S. business days after the submission of my election form.  If I have not received an e-mail confirmation within the two business days, I agree that it is my responsibility to confirm that Disney has received my complete submission.

14.           I acknowledge that the offer and the other documents and communications regarding the offer may have been delivered to me electronically.  Such means of electronic delivery may have included, but did not necessarily include, the delivery of a link to a Disney intranet site, the delivery of a document via e-mail or such other means of delivery specified by Disney.  By executing this Agreement, I acknowledge that I have read this provision and consent to the electronic delivery of the documents.  I acknowledge that I may receive from Disney a paper copy of any documents delivered electronically at no cost to me by contacting Disney by e-mail or telephone using the contact information on the instructions to the election form.  I further acknowledge that I will be provided with a paper copy of any documents if the attempted electronic delivery of such documents fails.  Similarly, I understand that I must provide Disney with a paper copy of any documents if my attempted delivery of such documents electronically fails.

E-mail address:

 

 

 

 

 

 

 

 

 

Employee number:

 

 

 

 

 

 

 

 

 

 

 

 

 

Signature

 

Date

 

4




INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER

1.             Delivery of Election Form.  A properly completed and signed election form must be received by Disney by 5:00 p.m. Pacific Time on May 4, 2007.

We intend to confirm the receipt of your election form by e-mail within two U.S. business days after you submit your election form via the offer website or by fax to Yvonne Brazil at (510) 922-3540.  If you have not received an e-mail that we have received your election form within two U.S. business days, you should e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.  It is your responsibility to ensure that we receive your election form by 5:00 p.m., Pacific Time, on Friday, May 4, 2007.

Our receipt of your election form is not by itself an acceptance of your election to amend. For purposes of the offer, we will be deemed to have accepted valid elections that have been made and not properly withdrawn as of when we give notice to the eligible holders generally of our acceptance of such elections. We may issue this notice of acceptance by e-mail or other methods of communication.

We will not accept any alternative, conditional or contingent elections. Although it is our intent to send you an e-mail that confirms our receipt of your election form, by signing your election form, you waive any right to receive any notice of the receipt of the election to amend your options, except as provided for in the Offer to Amend. Any confirmation of receipt sent to you will merely be a notification that we have received your election form and does not mean that your options have been amended. Your options with respect to which elections are accepted will be amended on the amendment date (but following the expiration of the offer), which is currently expected to be Friday, May 4, 2007, at 5:00 p.m., Pacific Time.

2.             Withdrawal.  If you have previously elected to accept the offer to amend your eligible options, you may withdraw that election for some or all of these options at any time before the expiration of the offer, which is currently expected to be 5:00 p.m., Pacific Time, on Friday, May 4, 2007. If we extend the offer, you may withdraw your election for some or all of your eligible options at any time until the date and time of the extended expiration of the offer.

In addition, although we intend to accept all valid elections promptly after the expiration of the offer, if we have not accepted your election by 5:00 p.m., Pacific Time on June 4, 2007, you may withdraw your election at any time after that date.

To validly change or withdraw your election, you must complete and deliver a new election form via the offer website or to us by fax to Yvonne Brazil at (510) 922-3540 prior to the expiration of the offer.  You should keep a copy of your revised election form with your other records for the offer.  If you again change your mind, you may submit another election form and you will be bound by the last properly submitted election form we receive before the expiration of the offer.  We must receive the properly completed and signed election form before the expiration of the offer. The expiration of the offer will be at 5:00 p.m., Pacific Time, on Friday, May 4, 2007, unless we extend the offer.

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3.             Elections.  If you participate in this offer, you will be required to accept the offer for the entire eligible portion of each eligible option you elect to amend. In other words, you must accept the offer for all the shares subject to a particular eligible option, but not necessarily for all your eligible options, if you hold more than one eligible option. If you have exercised a portion of an eligible option grant, your election will apply to the portion that remains outstanding and unexercised.

If you have an eligible option grant that is subject to a domestic relations order (or comparable legal document as the result of the end of a marriage) and a person who is not an eligible holder beneficially owns a portion of that option grant, you may accept this offer for the entire remaining outstanding portion of the option if so directed by the beneficial owner as to his or her portion in accordance with the applicable domestic relations order or comparable legal documents. As legal owner of the eligible option, Disney will respect an election properly made by you and accepted by Disney and will not be responsible to you or the beneficial owner of the eligible option for any errors made by you in such an election.

4.             Signatures on the Election Form; Other Information.  You must sign the election form.  If the election form is signed by the eligible holder, the signature must correspond with the name as written on the face of the option agreement or agreements to which the options are subject without alteration, enlargement or any change whatsoever.  If your name has been legally changed since your option agreement was signed, please submit proof of the legal name change by fax to Yvonne Brazil at (510) 922-3540 or by e-mailing a facsimile to Yvonne Brazil at ybrazil@pixar.com. If the election form is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, that person should so indicate when signing, and proper evidence satisfactory to the Company of the authority of that person to act in that capacity must be submitted with this election form by fax to Yvonne Brazil at (510) 922-3540 or by e-mailing a facsimile to Yvonne Brazil at ybrazil@pixar.com.  In addition to signing the election form, you must print your name and employee number and indicate the date and time at which you signed.  You must also include your e-mail address.

5.             Requests for Assistance or Additional Copies.  You should direct general questions about the terms of the offer, requests for general tax information about the election form or about the offer or any requests for additional copies of the Offer to Amend to corp.409AQuestions@disney.com and include your telephone number.  You may also call Yvonne Brazil at (510) 922-3742.  We will furnish additional copies of the Offer to Amend to you promptly and at our expense.

6.             Irregularities.  We will determine, in our discretion, all questions as to the validity, form, eligibility (including time of receipt) and acceptance of any options. Our determination of these matters will be final and binding on all parties.  We reserve the right to reject any elections that have been made that we determine are not in good order or that we determine are unlawful to accept.  We will accept all proper elections that are made and that are not validly withdrawn.  We also reserve the right to waive any of the conditions of the offer or any defect or irregularity in any election of any particular options or for any particular eligible holder, provided that if we grant any such waiver, it will be granted for all eligible holders and options for which elections have been made.  No elections will be deemed to have been properly made until all defects or

6




irregularities have been cured by the eligible holder or waived by us.  Neither we nor any other person is obligated to give notice of any defects or irregularities in elections, nor will we or anyone else incur any liability for failure to give any notice.  This is a one-time offer.  We will strictly enforce the election period, subject only to an extension that we may grant in our discretion.

7.             Important Tax Information.  You should refer to Section 14 of the Offer to Amend, which contains important U.S. federal, California and non-U.S. income tax information.  We strongly recommend that you consult with your financial, legal and/or tax advisors regarding the federal, state and local tax consequences to you of participating or not participating in the offer.  You should direct general questions about the terms of the offer or requests for general tax information about the offer to corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.

8.             Copies.  You should keep a copy of the election form, after you have completed and signed it, and retain it for your records.

IMPORTANT: THE COMPLETED AND SIGNED ELECTION FORM MUST BE RECEIVED BY DISNEY BY 5:00 P.M. PACIFIC TIME ON THE EXPIRATION DATE.

 

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Exhibit (a)(1)(O)

FORM OF E-MAIL CONFIRMING THAT ELIGIBLE HOLDER
HAS ELECTED NOT TO PARTICIPATE

We show that you have elected not to participate in the offer or have indicated “No” on the election form.

We want to make sure that you understand that your “No” election means:

1.                                       You agree that you will pay all additional federal and state taxes, including Section 409A taxes, resulting from the affected options and;

2.             You decline the amendment of your eligible option; and

3.             You decline the cash payment, if applicable, in January of 2008.

If the above is not your intent, we encourage you to log into the offer website before Friday, May 4, 2007 at http://tenderoffer.pixar.com using your LDAP login and password.

If you have questions, please e-mail corp.409AQuestions@disney.com and include your telephone number, and we will call you.  You may also call Yvonne Brazil at (510) 922-3742.

 



Exhibit (a)(1)(P)(i)

PIXAR 1995 STOCK PLAN

STOCK OPTION AGREEMENT

Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement.

I.  NOTICE OF STOCK OPTION GRANT

[Optionee’s Name and Address]

You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows:

Grant Number

 

 

 

 

Date of Grant

 

 

 

 

Vesting Commencement Date

 

 

 

 

Exercise Price per Share

 

$

 

 

Total Number of Shares Granted

 

 

 

 

Total Exercise Price

 

$

 

 

Type of Option

 

 

 

Incentive Stock Option

 

 

 

 

Nonstatutory Stock Option

Term/Expiration Date

 

 

 

 

 

Vesting Schedule:

Subject to Section 2 of the Agreement attached hereto as Part II, this Option may be exercised, in whole or in part, in accordance with the following schedule:

25% of the Shares subject to the Option shall vest one (1) year after the Vesting Commencement Date, and 25% of the Shares subject to the Option shall vest each year thereafter.




Termination Period:

This Option may be exercised for 30 days after termination of the Optionee’s employment or consulting relationship with the Company.  Upon the death or Disability of the Optionee, this Option may be exercised for such longer period as provided in the Plan.  In the event of the Optionee’s change in status from Employee to Consultant or Consultant to Employee, this Option Agreement shall remain in effect.  In no event shall this Option be exercised later than the Term/Expiration Date as provided above.

II.  AGREEMENT

1.             Grant of Option.  The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the “Optionee”) an option (the “Option”) to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the “Exercise Price”), subject to the terms and conditions of the Plan, which is incorporated herein by reference.  Subject to Section 14(b) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail.

If designated in the Notice of Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code.  However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory Stock Option (“NSO”).

2.             Exercise of Option.

                                (a)           Right to Exercise.  This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement.  In the event of Optionee’s death, disability or other termination of Optionee’s employment or consulting relationship, the exercisability of the Option is governed by the applicable provisions of the Plan and this Option Agreement.  In the event of a Company-approved leave of absence of the Optionee that is not a termination of the Optionee’s Continuous Status as an Employee or Consultant (a “Leave”) and that is for a period of three months or more, the Option shall not terminate but shall cease to vest during the term of such Leave.

(b)           Method of Exercise.  This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the “Exercise Notice”), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan.  The Exercise Notice shall be

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signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company.  The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares.  This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price.

No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with all relevant provisions of law and the requirements of any stock exchange or quotation service upon which the Shares are then listed.  Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares.

3.             Method of Payment.  Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:

(a)           cash;

(b)           check;

(c)           delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan pro­ceeds required to pay the exercise price; or

(d)           surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares.

4.             Non-Transferability of Option.  This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee.  The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

5.             Term of Option.  This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement.

6.             Tax Consequences.  Some of the federal and state tax consequences relating to this Option, as of the date of this Option, are set forth below.  THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE

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SUBJECT TO CHANGE.  THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

(a)           Exercising the Option.

(i)            Nonstatutory Stock Option.  The Optionee may incur regular federal income tax and state income tax liability upon exercise of a NSO.  The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price.  If the Optionee is an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.

(ii)           Incentive Stock Option.  If this Option qualifies as an ISO, the Optionee will have no regular federal income tax or state income tax liability upon its exercise, although the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price will be treated as an adjustment to alternative minimum taxable income for federal tax purposes and may subject the Optionee to alternative minimum tax in the year of exercise.  In the event that the Optionee undergoes a change of status from Employee to Consultant, any Incentive Stock Option of the Optionee that remains unexercised shall cease to qualify as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option on the ninety-first (91st) day following such change of status.

(b)           Disposition of Shares.

(i)            NSO.  If the Optionee holds NSO Shares for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes.

(ii)           ISO.  If the Optionee holds ISO Shares for at least one year after exercise and two years after the grant date, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes.  If the Optionee disposes of ISO Shares within one year after exercise or two years after the grant date, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the lesser of (A) the difference between the Fair Market Value of the Shares acquired on the date of exercise and the aggregate Exercise Price, or (B) the difference between the sale price of such Shares and the aggregate Exercise Price.

(c)           Notice of Disqualifying Disposition of ISO Shares.  If the Optionee sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of

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(i) two years after the grant date, or (ii) one year after the exercise date, the Optionee shall immediately notify the Company in writing of such disposition.  The Optionee agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current earnings paid to the Optionee.

7.             Entire Agreement; Governing Law.  The Plan is incorporated herein by reference.  The Plan and this Option Agreement con­sti­tute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee.  This agreement is governed by state law except for that body of law pertaining to conflict of laws.

By your signature and the signature of the Company’s representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement.  Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement.  Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement.  Optionee further agrees to notify the Company upon any change in the residence address indicated below.

OPTIONEE:

 

PIXAR

 

 

a California corporation

 

 

 

 

 

 

 

 

 

By:

 

Signature

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Title:

Office of the President

Print Name

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residence Address

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5




CONSENT OF SPOUSE

The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Option Agreement.  In consideration of the Company’s granting his or her spouse the right to purchase Shares as set forth in the Plan and this Option Agreement, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Option Agreement and further agrees that any community property interest shall be similarly bound.  The undersigned hereby appoints the undersigned’s spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Option Agreement.

 

 

 

Spouse of Optionee

 

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EXHIBIT A

NOTICE OF PIXAR 1995 STOCK PLAN OPTION EXERCISE

Be advised that I,                                           , hold a Non-Qualified / Incentive Stock Option to purchase               shares of Pixar Animation Studios Common Stock pursuant to the 1995 Stock Option Plan at $                 per share, granted to me on                        and expiring ten years henceforth (grant #              ).  This Notice represents an exercise of options to purchase                 currently fully vested and exercisable shares as of this date.

 

Please deliver such certificate(s) to:

(Name)

 

[  ]   My address given.

 

 

[  ]   For credit to my account at                          ;

 

 

       my account # is                     .

(Street)

 

 

 

 

Instructions:

 

 

[  ]   This is a cashless transaction; sell all shares at

(City, State, Zip)

 

                    (enter “Market” order or price limit).

 

 

[  ]   This is an exercise-only transaction.

 

 

[  ]   This is a partial cashless exercise; sell only

(Social Security #)

 

       enough shares to cover exercise price and taxes.

 

Same Day Sale/Partial Same Day Sale     (FOR OFFICE USE ONLY)

The total exercise price of $                     for such options which are exercised hereby is to be deducted from sale.  You are hereby authorized to receive applicable taxes due on the difference between the selling price on                 of $                per share and the exercise price for shares sold or exercised.  The gross sales price of the stock is $              ; the net gain is $                .  Please remit $                  from my margin account to Pixar Animation in order to pay for the exercise of the options and applicable taxes.

Exercise and Hold

The total exercise price of $                       for such options which are exercised hereby is enclosed.  Also enclosed is the applicable taxes on the difference between the close of market on                  of $                   per share and the exercise price for shares sold or exercised.  The net gain is $                    .

 

By:

 

 

Date:

 

 

(Employee)

 

 

 

 

RECEIPT & ACCEPTANCE:     (FOR OFFICE USE ONLY)

This is to verity Pixar’s receipt, acceptance, and authorization of the above instructions and our agreement to  promptly issue and deliver the certificate(s) referred to above to be carried out by the stock transfer agent.  The shares so issued will be fully paid and non-assessable.  These are registered shares, and a restrictive legend (is / is not) required.  This person has an (affiliate / non-affiliate) status with Pixar.

By:

 

 

Date:

 

 

(Authorized Name, Plan Administrator)