Pixar and Disney originally had a seven film distribution agreement that gave Disney full ownership of Pixar's feature films and characters, as well as sequel rights.
With the success of Toy Story 2 in the end of 1999, then Disney CEO Michael Eisner and then owner of Pixar, Steve Jobs, began to disagree on how Pixar should be run and the terms of a continued relationship.

Eisner claimed that Toy Story 2, as it was a sequel, did not count towards the "original" film count of the agreement, though Jobs disagreed.

Jobs announced in January 2004 — after ten months of negotiations — that Pixar would not renew their agreement with Disney, and would seek out other distributors for releases starting in 2006.
Jobs wanted Pixar to receive most of the profits that their films made (giving Disney the standard 10% distribution fee) as well as full ownership of any future films and characters that the studio would create after Cars (2006).

Eisner found these terms unacceptable.
Pixar executive producer John Lasseter, who had personally directed Toy Story (1995), A Bug's Life (1998), and Toy Story 2 (1999), was distraught over the breakdown of the relationship of Disney:Pixar, as he was worried about what Disney might do with the characters Pixar had created.

When he had to announce what had happened at a meeting of Pixar's eight hundred employees, Lasseter reportedly said, through tears, "It's like you have these dear children and you have to give them up to be adopted by convicted child molesters."
Pixar and Disney originally had a seven film distribution agreement that gave Disney full ownership of Pixar's feature films and characters, as well as sequel rights. With the success of Toy Story 2 in the end of 1999, then Disney CEO Michael Eisner and then owner of Pixar, Steve Jobs, began to disagree on how Pixar should be run and the terms of a continued relationship.
Eisner claimed that Toy Story 2, as it was a sequel, did not count towards the "original" film count of the agreement, though Jobs disagreed.
Jobs announced in January 2004 — after ten months of negotiations — that Pixar would not renew their agreement with Disney, and would seek out other distributors for releases starting in 2006. Jobs wanted Pixar to receive most of the profits that their films made (giving Disney the standard 10% distribution fee) as well as full ownership of any future films and characters that the studio would create after Cars (2006). 
Eisner found these terms unacceptable. Pixar executive producer John Lasseter, who had personally directed Toy Story (1995), A Bug's Life (1998), and Toy Story 2 (1999), was distraught over the breakdown of the relationship of Disney:Pixar, as he was worried about what Disney might do with the characters Pixar had created.
When he had to announce what had happened at a meeting of Pixar's eight hundred employees, Lasseter reportedly said, through tears, "It's like you have these dear children and you have to give them up to be adopted by convicted child molesters."
Circle 7 Animation