10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

S	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005.
OR
£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE TRANSITION PERIOD FROM                TO                 , AND
COMMISSION FILE NUMBER 1-9750

SOTHEBY'S HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

Michigan (State or other jurisdiction of incorporation or organization)	38-2478409 (I.R.S. Employer Identification No.)
38500 Woodward Avenue, Suite 100 Bloomfield Hills, Michigan (Address of principal executive offices)	48303 (Zip Code)

(248) 646-2400
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Class A Limited Voting Common Stock, $0.10 Par Value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

      Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Act. Yes R No £

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes £ No R

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Act during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No £

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act). Large accelerated filer £ Accelerated filer R Non-accelerated filer £

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes £ No R

      As of June 30, 2005, the aggregate market value of the 46,160,947 shares of Class A Limited Voting Common Stock (the “Class A Stock”) and 4,024,457 shares of Class B Common Stock (the “Class B Stock”), for which there is no public market, held by non-affiliates of the registrant was $632,404,974 and $55,135,061, respectively, based upon the closing price ($13.70) on the New York Stock Exchange composite tape on such date for the Class A Stock, into which Class B Stock is freely convertible on a share-for-share basis. For these calculations, the common stock of each class beneficially owned by the registrant's then controlling Class B Stock shareholder, directors and executive officers were treated as shares owned by affiliates; such inclusion, however, should not be construed as an admission that any such person is an “affiliate” of the registrant.

      As of February 28, 2006, there were outstanding 58,477,342 shares of Class A Stock and no shares outstanding of Class B Stock.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant's proxy statement for the 2006 annual meeting of shareholders are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

		Page
PART I
Item 1.	Description of Business	1
Item 1A.	Risk Factors	7
Item 2.	Properties	8
Item 3.	Legal Proceedings	9
Item 4.	Submission of Matters to a Vote of Security Holders	9
PART II
Item 5.	Market for the Registrant's Common Equity and Related Shareholder Matters	10
Item 6.	Selected Financial Data	12
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 8.	Financial Statements and Supplementary Data
	Report of Independent Registered Public Accounting Firm	43
	Consolidated Income Statements	44
	Consolidated Balance Sheets	45
	Consolidated Statements of Cash Flows	46
	Consolidated Statements of Changes in Shareholders' Equity	47
	Notes to Consolidated Financial Statements	48
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	83
Item 9A.	Control and Procedures	83
PART III
Item 10.	Directors and Executive Officers of Registrant	86
Item 11.	Executive Compensation	86
Item 12.	Security Ownership of Certain Beneficial Owners and Management and    Related Stockholder Matters	86
Item 13.	Certain Relationships and Related Transactions	86
Item 14.	Principal Accountant Fees and Services	86
PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	87
	Schedule II	91
	Signatures	92
	Exhibit Index	93

PART I

ITEM 1: DESCRIPTION OF BUSINESS

Company Overview

      Sotheby's Holdings, Inc. (together with its subsidiaries, unless the context otherwise requires, the “Company”) is one of the world's two largest auctioneers of authenticated fine art, decorative arts and collectibles. The Company offers property through its worldwide Auction segment in approximately 70 collecting categories, among them fine art, decorative arts, jewelry and collectibles. In addition to auctioneering, the Auction segment is engaged in a number of related activities, including the purchase and resale of art and other collectibles and the brokering of private purchases and sales of art, jewelry and collectibles. The Company also conducts art-related financing activities through its Finance segment and is engaged, to a lesser extent, in licensing activities.

      The Company was incorporated in Michigan in August 1983. In October 1983, the Company acquired Sotheby Parke Bernet Group Limited, which was then a publicly held company listed on the International Stock Exchange of the United Kingdom and which, through its predecessors, had been engaged in the auction business since 1744. In 1988, the Company issued shares of Class A Limited Voting Common Stock, par value $0.10 per share (the “Class A Stock”) to the public. The Class A Stock is listed on the New York Stock Exchange (the “NYSE”). The Company's authorized capital stock also includes Class B Common Stock, par value $0.10 per share (the “Class B Stock”), which is convertible on a share for share basis into Class A Stock. There is no public market for the Class B Stock and, as a result of the transaction discussed below, there are no shares of Class B Stock outstanding.

      On September 7, 2005, the Company entered into a Transaction Agreement (the “Agreement”) with various affiliates of A. Alfred Taubman and his family (the “Shareholders”). Prior to completion of the transactions contemplated by the Agreement, the Shareholders were the Company's largest shareholders, holding in the aggregate 14,034,158 shares of the Company's Class B Stock, representing approximately 62.4% of the aggregate voting power of the Company's capital stock.

      Pursuant to the Agreement, the Company agreed to exchange all 14,034,158 shares of Class B Stock owned by the Shareholders for $168,409,896 in cash and 7.1 million shares of the Company's Class A Stock, (such exchange, the “Transaction”). (See Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations—Recapitalization” under “Mechanics of Effecting the Transaction; Funding.”)

      Completion of the Transaction was not subject to any conditions and it was completed on September 7, 2005. Because the outstanding shares of Class B Stock constituted less than fifty percent of the aggregate voting power of the Company's outstanding common stock following completion of the Transaction, pursuant to the Company's Third Amended and Restated Articles of Incorporation (the “Articles”), following completion of the Transaction each remaining outstanding share of Class B Stock held by a shareholder not a party to the Transaction was automatically converted into one share of Class A Stock without any action on the part of the holder thereof. Therefore, immediately following completion of the Transaction and such conversion, the Company had approximately 57.3 million shares of Class A Stock outstanding (of which the Shareholders owned 7.1 million, or approximately 12.4%) and no shares of Class B Stock outstanding.

      As a result of the Transaction, the dual class super-voting share structure that had been in place since the Company's initial public offering in 1988 was eliminated, allowing for a corporate governance structure that is more consistent with the best practices of public companies. Also, the Company believes that the simplified share structure will enhance share liquidity and increase the Company's strategic and financing flexibility. The Company is also planning to present to shareholders for their approval at the 2006 Annual Meeting of Shareholders a proposal to reincorporate in the State of Delaware.

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      (See Note C of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data” for further discussion of the Transaction.)

      In July 2005, the Company and The Steinmetz Diamond Group announced the creation of Sotheby's Diamonds, a retail jewelry joint venture, which offers jewels of superb quality for sale throughout Asia, Europe and North America.

Auction Segment

Description of Business

      The purchase and sale of works of art in the international art market are primarily effected through numerous dealers, the major auction houses, the smaller auction houses and also directly between collectors. Although dealers and smaller auction houses generally do not report sales figures publicly, the Company believes that dealers account for the majority of the volume of transactions in the international art market.

      The Company and Christie's International, PLC (“Christie's”), a privately held auction house, are the two largest art auction houses in the world.

      The Company auctions a wide variety of property, including fine art, decorative art, jewelry and collectibles. Most of the objects auctioned by the Company are unique items, and their value, therefore, can only be estimated prior to sale. The Company's principal role as an auctioneer is to identify, evaluate and appraise works of art through its international staff of specialists; to stimulate purchaser interest through professional marketing techniques; and to match sellers and buyers through the auction process.

      In its role as auctioneer, the Company generally functions as an agent accepting property on consignment from its selling clients. The Company sells property as agent of the consignor, billing the buyer for property purchased, receiving payment from the buyer and remitting to the consignor the consignor's portion of the buyer's payment after deducting the Company's commissions, expenses and applicable taxes. The Company's auction commission revenues include those earned from the buyer (“buyer's premium revenue”) and those earned from the consignor (“seller's commission revenue”), both of which are calculated as a percentage of the hammer price of property sold at auction. For the years ended December 31, 2005, 2004 and 2003, auction commission revenues accounted for 86%, 77% and 86%, respectively, of the Company's consolidated revenues.

      In certain situations, under negotiated contractual arrangements or when the buyer takes possession of the property purchased at auction before payment is made, the Company is liable to the consignor for the net sale proceeds. (See Note F of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)

      From time to time in the ordinary course of business, the Company will guarantee to consignors a minimum price in connection with the sale of property at auction (an “auction guarantee”). The Company must perform under its auction guarantee in the event that the property sells for less than the minimum price, in which event the Company must pay the difference between the sale price at auction and the amount of the auction guarantee. If the property does not sell, the amount of the guarantee must be paid, but the Company has the right to recover such amount through the future sale of the property. Generally, the Company is entitled to a share of the excess proceeds if the property under the auction guarantee sells above a minimum price. In addition, the Company is obligated under the terms of certain auction guarantees to advance a portion of the guaranteed amount prior to the auction. In certain situations, the Company reduces its financial exposure under auction guarantees through auction commission sharing arrangements with unaffiliated partners. Partners may also assist the Company in valuing and marketing the property to be sold at auction. (See Note P of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)

      Beginning in June 2002, the Company conducted Internet auctions through its website, sothebys.com, pursuant to the terms of a strategic alliance with eBay, Inc. (“eBay”) whereby

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sothebys.com online auctions were incorporated into the eBay marketplace. In February 2003, the Company and eBay entered into an agreement to discontinue separate online auctions on sothebys.com, effective April 30, 2003. Subsequent to that date, the Company's Internet activities have focused on promoting its live auctions.

      In addition to auctioneering, the Auction segment is engaged in a number of related activities, including the purchase and resale of art and other collectibles and the brokering of private purchases and sales of art, jewelry and collectibles. For example, the Company has a 50% equity interest in Acquavella Modern Art (“AMA”), a partnership between a wholly-owned subsidiary of the Company and Acquavella Contemporary Art, Inc. The assets of AMA consist principally of an inventory of fine art. (See Notes B and G of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)

      The worldwide art auction market has two principal selling seasons, spring and autumn. Accordingly, the Company's auction business is seasonal, with peak revenues and operating income generally occurring in the second and fourth quarters of each year. Consequently, first and third quarter results of the Auction segment typically reflect lower Net Auction Sales (as defined below in Item 6, “Selected Financial Data”) when compared to the second and fourth quarters and, accordingly, a net loss due to the fixed nature of many of the Company's operating expenses. (See Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and Note V of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)

The Auction Market and Competition

      Competition in the international art market is intense. A fundamental challenge facing any auctioneer or dealer is to obtain high quality and valuable property for sale. The Company's primary auction competitor is Christie's.

      The owner of a work of art wishing to sell it has four principal options: (1) sale or consignment to, or private sale by, an art dealer; (2) consignment to, or private sale by, an auction house; (3) private sale to a collector or museum without the use of an intermediary; or (4) for certain categories of property (in particular, collectibles) consignment to, or private sale through, an internet-based service. The more valuable the property, the more likely it is that the owner will consider more than one option and will solicit proposals from more than one potential purchaser or agent, particularly if the seller is a fiduciary representing an estate or trust. A complex array of factors may influence the seller's decision. These factors, which are not ranked in any particular order, include:

• The level and breadth of expertise of the dealer or auction house with respect to the property;

• The extent of the prior relationship, if any, between the seller and the firm;

• The reputation and historic level of achievement by the firm in attaining high sale prices in the property's specialized category;

• The desire for privacy on the part of clients;

• The amount of cash offered by a dealer, auction house or other purchaser to purchase the property outright;

• The level of auction guarantees or the terms of other financial options offered by auction houses;

• The level of pre-sale estimates offered by auction houses;

• The desirability of a public auction in order to achieve the maximum possible price (a particular concern for fiduciary sellers, such as trustees and executors);

• The amount of commission charged by dealers or auction houses to sell a work on consignment;

• The cost, style and extent of presale marketing and promotion to be undertaken by a firm;

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• Recommendations by third parties consulted by the seller;

• Relationships and personal interaction between the seller and the firm's staff;

• The desire of clients to conduct business with a publicly traded company; and

• The availability and extent of related services, such as tax or insurance appraisals and short-term financing.

      It is not possible to measure with any particular accuracy the entire international art market or to reach any conclusions regarding overall competition because dealers and auction firms frequently do not publicly report annual totals for auction sales, revenues or profits and the amounts reported are not verifiable.

Auction Regulation

      Regulation of the auction business varies from jurisdiction to jurisdiction. In many jurisdictions, the Company is subject to laws and regulations that are not directed solely toward the auction business, including, but not limited to, import and export regulations, cultural patrimony laws and value added sales taxes. Such regulations do not impose a material impediment to the worldwide business of the Company but do affect the market generally, and a material adverse change in such regulations could affect the business. In addition, the failure to comply with such local laws and regulations could subject the Company to civil and/or criminal penalties in such jurisdictions. The Company has a Compliance Department to provide training to Company employees and to audit the Company's compliance with many of these laws and regulations.

      The European Court of Justice has ruled that the standard rate of value added sales tax (“VAT”) must be paid on the buyer's premium on works imported into the United Kingdom (the “U.K.”) from outside the European Union (the “E.U.”) and sold at auction. This ruling brings into line the rate of VAT that buyers currently pay on certain lots originating from within the E.U. The Company is in discussions with the U.K. Customs authorities concerning proper implementation of the Court's decision. Although the Company will continue to analyze the ultimate impact of the Court's decision, management believes the decision will not have a material effect on the Company's business. (See statement on Forward Looking Statements.)

      Beginning on February 14, 2006, under U.K. law, subject to certain conditions and exceptions, living artists are entitled to receive a resale royalty (referred to as the “droit de suite” or “DDS”) each time their original art works are bought or sold by an art market professional. DDS is a royalty that the Company charges the buyer and is typically calculated on the hammer price (excluding buyer's premium and excluding VAT). The qualifying threshold from which DDS applies in the U.K. is €  1000 (approximately £680 or $1,200). The DDS rate is calculated as a percentage of the hammer price (using a sliding scale from 4% to 0.25%) subject to a maximum royalty payable of €  12,500 (approximately £8,500 or $15,000) for any one work for any one sale. This maximum royalty amount applies to works sold for €  2 million (approximately £1.4 million or $2.4 million) and above. As the royalty will not generally be payable on works sold in the United States (the “U.S.”) or Switzerland and the Company has selling offices in each of these locations, management believes that the imposition of this royalty will not have a material adverse effect on the Company's global business. (See statement on Forward Looking Statements.)

Finance Segment

Description of Business

      The Company's Finance segment provides certain collectors and dealers with financing, generally secured by works of art that the Company either has in its possession or permits the borrower to possess. Clients who borrow from the Finance segment are often unable to borrow on conventional terms from traditional lenders and are typically not highly interest rate sensitive. The Company's financing activities are conducted through its wholly-owned subsidiaries.

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      The general policy of the Finance segment is to make secured loans at loan to value ratios (principal loan amount divided by the low auction estimate of the collateral) of 50% or lower. The Company will also lend at loan to value ratios higher than 50%. Furthermore, the Finance segment's loans are predominantly variable interest rate loans.

      The Company generally makes two types of secured loans: (1) advances secured by consigned property to borrowers who are contractually committed, in the near term, to sell the property at auction (a “consignor advance”); and (2) general purpose term loans to collectors or dealers secured by property not presently intended for sale (a “term loan”). The consignor advance allows a consignor to receive funds shortly after consignment for an auction that will occur several weeks or months in the future, while preserving for the benefit of the consignor the potential of the auction process. Term loans allow the Company to establish or enhance mutually beneficial relationships with dealers and collectors and sometimes result in auction consignments. Term loans are generally made with full recourse against the borrower. In certain instances, however, term loans are made with recourse limited to the works of art pledged as security for the loan. To the extent that the Company is looking wholly or partially to the collateral for repayment of its loans, repayment can be adversely impacted by a decline in the art market in general or in the value of the particular collateral. In addition, in situations where the borrower becomes subject to bankruptcy or insolvency laws, the Company's ability to realize on its collateral may be limited or delayed by the application of such laws.

      Under certain circumstances, the Company also makes unsecured loans to collectors and dealers. In certain of these situations, the Company finances the purchase of works of art by certain art dealers through unsecured loans. The property purchased pursuant to such unsecured loans is sold by the dealer or at auction with any profit or loss shared by the Company and the dealer. Interest income related to such unsecured loans is reflected in the results of the Finance segment, while the Company's share of any profit or loss is reflected in the results of the Auction segment.

      (See Notes B and F of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)

      The Company funds its financing activities generally through operating cash flows supplemented by credit facility borrowings. (See Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources,” and Note J of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)

The Finance Market and Competition

      A considerable number of traditional lending sources offer conventional loans at a lower cost to borrowers than the average cost of those offered by the Company. Additionally, many traditional lenders offer borrowers a variety of integrated financial services such as wealth management services, which are not offered by the Company. Few lenders, however, are willing to accept works of art as sole collateral as they do not possess the ability both to appraise and to sell works of art within a vertically integrated organization. The Company believes that through a combination of its art expertise and skills in international law and finance, it has the ability to tailor attractive financing packages for clients who wish to obtain liquidity from their art assets.

Discontinued Operations

      In the fourth quarter of 2003, the Company committed to a plan to sell its domestic real estate brokerage business, Sotheby's International Realty, Inc. (“SIR”), as well as most of its real estate brokerage offices outside of the U.S.

      On February 17, 2004, the Company consummated the sale of SIR to a subsidiary of Cendant Corporation (“Cendant”). In conjunction with the sale, the Company entered into an agreement with Cendant to license the Sotheby's International Realty trademark and certain related trademarks for an initial 50-year term with a 50-year renewal option. This license agreement is applicable worldwide except in Australia.

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      In the fourth quarter of 2004, the Company committed to a plan to discontinue its real estate brokerage business in Australia and license the Sotheby's International Realty trademark and certain related trademarks in Australia. The Company expects to consummate a license agreement related to such trademarks some time in 2006.

      SIR and the non-U.S. real estate brokerage operations comprised the Company's former Real Estate segment. For additional information related to the Company's discontinued operations, refer to Note D of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Licensing

      As discussed under “Discontinued Operations” above, in conjunction with the sale of SIR, the Company entered into an agreement with Cendant to license the Sotheby's International Realty trademark and certain related trademarks (the “Cendant License Agreement”). The Cendant License Agreement provides for an ongoing license fee during its term based on the volume of commerce transacted under the licensed trademarks. In 2005, the Company earned $1.3 million in license fee revenue related to the Cendant License Agreement. The Company continues to consider additional opportunities to use the Sotheby's brand in businesses where appropriate.

Financial and Geographical Information About Segments

      See Note E of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data,” for financial and geographical information about the Company's segments.

Personnel

      As of December 31, 2005, the Company had 1,443 employees with 531 located in North America; 577 in the U.K., 253 in Continental Europe and 82 in Asia. The Company regards its relations with its employees as good. The table below provides a breakdown of the Company's employees as of December 31, 2005 and 2004.

December 31	2005		2004
Auction segment		1,316		1,275
Finance segment		7		7
Discontinued Operations		2		6
All Other		118		123
Total		1,443		1,411

      Employees classified within “All Other” principally relate to the Company's central corporate and information technology departments.

Technology

      Over the past five years, the Company has made substantial investments in information technology designed to improve client service. A new portfolio of enterprise systems anchored by SAP has been deployed across the organization, which has enhanced the quality of information and processing of sales and inventory tracking, as well as data management. The Company's goal is to utilize this investment to continuously improve the services provided to its clients and improve the tools available to management.

Website Address

      The Company makes available free of charge its annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K through a hyperlink from its website, www.sothebys.com, to www.shareholder.com/bid/edgar.cfm, a website maintained by an unaffiliated third-party service. Such reports are made available on the same day that they are electronically filed with or furnished to the Securities and Exchange Commission.

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ITEM 1A: RISK FACTORS

      Operating results from the Company's Auction and Finance segments, as well as the Company's liquidity, are significantly influenced by a number of risk factors, many of which are not within the Company's control. These factors, which are not ranked in any particular order, include:

The overall strength of the international economy and financial markets

      The art market in which the Company operates is influenced over time by the overall strength of the international economy and financial markets, although this correlation may not be immediately evident in the short-term. The Company's business can be particularly influenced by the economies of the U.S., the U.K., and the major countries or territories of Continental Europe and Asia (principally Japan and China).

Interest rates

      Fluctuations in interest rates influence the Company's cost of funds for borrowings under its credit facility that may be required to finance working capital needs and, in particular, the Finance segment's client loan portfolio.

Government laws and regulations

      Many of the Company's activities are subject to laws and regulations that can have an adverse impact on the Company's business. In particular, export and import laws and cultural patrimony laws could affect the availability of certain kinds of property for sale at the Company's principal auction locations or could increase the cost of moving property to such locations. See also “Auction Segment, Auction Regulations” under Item 1, “Description of Business,” for the possible effects of value added tax laws and laws requiring the payment of resale royalties to living artists upon sale of their works.

Political conditions

      Political conditions in countries in which the Company operates or from which it obtains property for sale may affect the Company's business both through their effect on the economies of those countries and to the extent that they may influence the enactment of legislation that could adversely affect the Company's business.

Foreign currency exchange rate movements

      The Company has operations throughout the world, with approximately 58.6% of its revenues from continuing operations coming from outside of the U.S. for the year ended December 31, 2005. Accordingly, fluctuations in exchange rates can have a significant impact on the Company's results of operations. (See “Use of Non-GAAP Financial Measures—Impact of Foreign Currency Translations” under Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations.”)

Seasonality of the Company's auction business

      The worldwide art auction market has two principal selling seasons, spring and autumn. Accordingly, the Company's revenues and operating income may be affected as described under “Seasonality” in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations.”

Competition

      Competition in the art market is intense, including competition both with other auctioneers and with art dealers. See “Auction Segment—The Art Market and Competition” under Item 1, “Description of Business,” for a discussion of the factors that may affect the Company's ability to compete successfully in its business.

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The amount and quality of property being consigned to art auction houses

      The amount and quality of property being consigned to art auction houses are influenced by a number of factors not within the Company's control. Many major consignments, and specifically single-owner sale consignments, become available as a result of the death or financial or marital difficulties of the owner, all of which are unpredictable. This, plus the ability of the Company to sell such property, can cause auction and related revenues to be highly variable from period to period.

The demand for fine arts, decorative arts, and collectibles

      The demand for fine arts, decorative arts, and collectibles is influenced not only by overall economic conditions, but also by changing trends in the art market as to which kinds of property and the works of which artists are most sought after and by the collecting preferences of individual collectors, all of which can be unpredictable.

Qualified personnel

      The Company's business is largely a service business in which the ability of its employees to develop and maintain relationships with potential sellers and buyers of works of art is essential to the Company's success. Moreover, the Company's business is both complicated and unique, making it important to retain key specialists and members of management. Accordingly, the Company's business is highly dependent upon its success in attracting and retaining qualified personnel.

Demand for art-related financing

      The Company's Finance segment is dependent on the demand for art-related financing, which can be significantly influenced by overall economic conditions and by the often unpredictable financial needs of owners of major art collections.

Value of artworks

      The art market is not a highly liquid trading market, as a result of which the valuation of artworks is inherently subjective and the realizable value of artworks often varies over time. Accordingly, the Company is at risk both as to the value of art held as inventory and as to the value of artworks pledged as collateral for Finance segment loans.

U.K. Pension Plan

      Future costs related to the Company's U.K. defined benefit pension plan are heavily influenced by changes in interest rates and investment performance in the debt and equity markets, both of which are unpredictable. (See “Critical Accounting Estimates—Pension Benefits” under Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations.”)

Income taxes

      The Company operates in many tax jurisdictions throughout the world. Variations in taxable income in the various jurisdictions in which the Company does business can have a significant impact on its effective tax rate. (See Note K of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)

ITEM 2: PROPERTIES

      The Company's North American Auction and Finance operations, as well as its corporate offices, are headquartered at 1334 York Avenue, New York, New York (the “York Property”). The Company acquired the York Property in July 2000. During the first quarter of 2001, the Company completed the construction of a six-story addition to and renovation of the York Property, which expanded the Company's auction, warehouse and office space in New York City and enabled the Company to consolidate many of its New York City operations. On February 7, 2003, the

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Company sold the York Property and entered into an agreement to lease it back from the buyer for an initial 20-year term, with options to extend the lease for two additional 10-year terms. (See Notes H and L of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”) The York Property is home to the Company's North American auction salesrooms and its principal North American exhibition space. In December 2005, the Company completed the consolidation of its New York warehouse space into the York Property in order to reduce premises costs in North America. The Company also leases office and exhibition space in several other major cities throughout the U.S.

      The Company's U.K. operations (primarily Auction) are centered at New Bond Street, London, where the main salesrooms, exhibition space and administrative offices of Sotheby's U.K. are located. The Company owns a portion of the New Bond Street premises, and a portion is leased under long-term leases. The lease related to a small portion of the New Bond Street complex is due to expire in September 2007 and, as a result, the Company will lose exhibition and office space. To compensate for this loss of space, the Company is planning a refurbishment of the New Bond Street premises. This refurbishment is expected to cost approximately $10 million and will take place in 2006 and 2007.

      In the U.K., the Company also leases space for its specially dedicated middle market auction salesroom at Olympia, a building located in Kensington, West London. In addition, the Company leases warehouse space at King's House in West London and owns land and a building at Billingshurst, West Sussex (the “Sussex Property”), which previously housed an auction salesroom. The Company is in advanced negotiations for the sale of vacated parts of the Sussex Property. The completion of the sale is conditional upon the receipt of planning permission for redevelopment of the land for sale. The Company is not certain when the sale of the Sussex Property will be completed. (See Note O of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)

      The Company also leases space primarily for Auction operations in various locations throughout Continental Europe, including salesrooms in Amsterdam, The Netherlands; Geneva and Zurich, Switzerland; Milan, Italy; and Paris, France; in Asia, including Hong Kong and Singapore; and in Australia.

      In management's opinion, the Company's worldwide premises are adequate for the current conduct of its business. However, management continually analyzes its worldwide premises for both its current and future business needs as part of its ongoing efforts to manage infrastructure and other overhead costs. Where appropriate, management will continue to make any necessary changes to address the Company's premises requirements.

ITEM 3: LEGAL PROCEEDINGS

      The Canadian Competition Bureau is continuing to conduct an investigation regarding anti-competitive practices relating to commissions charged by the Company and Christie's for auction services during the period 1993 to 2000. The Company also becomes involved, from time to time, in various claims and lawsuits incidental to the ordinary course of its business. Management does not believe that the outcome of any of the pending claims or proceedings described above will have a material adverse effect on the Company's business, results of operations, financial condition and/or liquidity. (See statement on Forward Looking Statements.) (See Note O of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were submitted to a vote of the Company's shareholders during the fourth quarter of 2005.

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PART II

ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market Information

      The principal U.S. market for the Company's Class A Stock is the NYSE (symbol: BID).

      The Company's authorized capital stock also includes Class B Stock, which is convertible on a share for share basis into Class A Stock. There is no public market for the Class B Stock and there are no shares of Class B Stock outstanding. (See Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations—Recapitalization.”)

      Per share cash dividends, if any, would be equal for the Class A Stock and Class B Stock.

      The quarterly price ranges on the NYSE of the Class A Stock for 2005 and 2004 are as follows:

	2005
Quarter Ended	High		Low
March 31	$	18.63	$	15.33
June 30	$	17.85	$	13.52
September 30	$	18.30	$	13.93
December 31	$	19.43	$	15.08

	2004
Quarter Ended	High		Low
March 31	$	15.93	$	12.17
June 30	$	16.60	$	12.69
September 30	$	17.23	$	14.13
December 31	$	19.24	$	15.10

      The number of holders of record of Class A Stock as of February 27, 2006 was 2,069.

      Pursuant to the Company's senior secured credit agreement, dividend payments, if any, must be paid solely out of 40% of the Company's net income arising after June 30, 2005 and computed on a cumulative basis (see Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”). The Company did not pay any dividends during 2005 and 2004. Management will continue to evaluate whether the payment of future dividends (or the repurchase of a portion of the outstanding Class A Stock) is appropriate based upon the Company's future earnings, operating cash flows and debt levels.

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Equity Compensation Plans

      The following table provides information as of December 31, 2005 with respect to shares of the Company's Class A Stock that may be issued under its existing equity compensation plans, including the Sotheby's Holdings, Inc. 1987 Stock Option Plan (the “1987 Stock Option Plan”), the Sotheby's Holdings, Inc. 1997 Stock Option Plan (the “1997 Stock Option Plan”), the Sotheby's Holdings, Inc. 2003 Restricted Stock Plan (the “Restricted Stock Plan”) and the Sotheby's Holdings, Inc. Stock Compensation Plan for Non-Employee Directors (the “Directors Stock Plan”):

	(A)		(B)		(C)
Plan Category (1)	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (2)		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (3)		Number of Securities Remaining Avaliable for Future Issuance Under Equity Compensation Plans (4) (5)
	(In thousands, except per share data)
Equity compensation plans approved by shareholders		7,528	$	16.51		7,955
Equity compensation plans not approved by shareholders		—		—		—
Total		7,528	$	16.51		7,955

(1)	See Note M of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data,” for a description of the material features of and additional information related to the 1987 Stock Option Plan, the 1997 Stock Option Plan, the Restricted Stock Plan and the Directors Stock Plan.
(2)	Includes 1,356,478 shares of Class A Stock awarded under the Restricted Stock Plan on which the restrictions have not yet lapsed.
(3)	The weighted-average exercise price does not take into account 1,356,478 shares of Class A Stock awarded under the Restricted Stock Plan, which have no exercise price.
(4)	Includes 412,594 shares of Class A Stock available for future issuance under the Restricted Stock Plan.
(5)	Includes 78,183 shares of Class A Stock available for future issuance under the Directors Stock Plan.

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ITEM 6: SELECTED FINANCIAL DATA

      The following table provides selected financial data (in thousands of dollars, except per share data) for the Company's continuing operations. See Note D of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data,” for further information related to discontinued operations.

Year Ended December 31	2005			2004			2003			2002			2001
Net Auction Sales (1)	$	2,361,830		$	2,334,937		$	1,455,970		$	1,552,703		$	1,437,214
Income statement data:
Auction and related revenues	$	502,030		$	443,130		$	308,990		$	296,744		$	286,264
License fee revenues		1,404			45,745			—			—			—
Other revenues		10,074			7,845			8,354			10,767			16,474
Total revenues	$	513,508		$	496,720		$	317,344		$	307,511		$	302,738
Net interest expense	$	(27,742	)	$	(30,270	)	$	(30,334	)	$	(20,177	)	$	(21,685	)
Income (loss) from continuing operations	$	63,169	(2)	$	62,393	(3)	$	(26,038	)(4)	$	(59,168	)(5)	$	(44,723	)(6)
Basic earnings (loss) per share from continuing operations	$	1.04	(2)	$	1.01	(3)	$	(0.42	)(4)	$	(0.96	)(5)		(0.74	)(6)
Diluted earnings (loss) per share from continuing operations	$	1.02	(2)	$	1.00	(3)	$	(0.42	)(4)	$	(0.96	)(5)		(0.74	)(6)
Balance sheet data:
Working capital (deficit)	$	141,711		$	212,318		$	82,404		$	9,544		$	(13,903	)
Total assets (7)	$	1,060,752		$	1,224,812		$	903,346		$	869,812		$	853,930
Credit facility borrowings	$	34,542		$	—		$	20,000		$	100,000		$	130,000
Long-term debt (net)	$	99,701		$	99,617		$	99,539		$	99,466		$	99,398
York Property capital lease obligation	$	172,044		$	172,169		$	172,282		$	—		$	—
Shareholders' equity (7)	$	126,276		$	235,385		$	124,654		$	134,475		$	176,337

(1)	Represents the hammer (sale) price of property sold at auction.
(2)	Amounts for the year ended December 31, 2005 include (on a pre-tax basis) $3.1 million in credit facility termination costs and antitrust related charges of $1.1 million.
(3)	Amounts for the year ended December 31, 2004 include (on a pre-tax basis) one-time License Fee Revenues of $45.6 million, Retention Costs of $0.3 million, Net Restructuring Charges of $0.1 million and antitrust related charges of $1.9 million.
(4)	Amounts for the year ended December 31, 2003 include (on a pre-tax basis) Retention Costs of $8.5 million, Net Restructuring Charges of $5 million and antitrust related charges of $3.1 million.
(5)	Amounts for the year ended December 31, 2002 include (on a pre-tax basis) Retention Costs of $22.6 million, Net Restructuring Charges of $2 million and antitrust related charges of $41 million.
(6)	Amounts for the year ended December 31, 2001 include (on a pre-tax basis) Retention Costs of $19.8 million, Net Restructuring Charges of $16.5 million and antitrust related charges of $2.5 million.
(7)	The balances above of Shareholders' Equity prior to 2005 have been restated to properly reflect the deferred tax assets of foreign subsidiaries. The amounts as originally reported incorrectly accrued a deferred tax benefit for foreign currency translation losses, which is recorded in Accumulated Other Comprehensive Income (Loss), a component of Shareholders' Equity. The restatement resulted in a reduction of deferred tax assets and a corresponding reduction in Shareholders' Equity of $0.5 million, $2.7 million, $5.9 million and $9.6 million as of December 31, 2004, 2003, 2002 and 2001, respectively. The original amounts reported for Shareholders' Equity as of the end of each applicable year prior to 2005 were as follows: $235.9 million (2004), $127.4 million (2003), $140.4 million (2002) and $185.9 million (2001).

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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Seasonality

      The worldwide art auction market has two principal selling seasons, spring and autumn. Accordingly, the Company's auction business is seasonal, with peak revenues and operating income generally occurring in the second and fourth quarters of each year. Consequently, first and third quarter results of the Auction segment typically reflect lower Net Auction Sales (as defined above in Item 6, “Selected Financial Data”) when compared to the second and fourth quarters and, accordingly, a net loss due to the fixed nature of many of the Company's operating expenses. (See Note V of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data,” for information on the Company's quarterly results for the years ended December 31, 2005 and 2004.)

Critical Accounting Estimates

      The preparation of financial statements and related disclosures in conformity with GAAP (as defined below under “Use of Non-GAAP Financial Measures”) requires management to make judgments, assumptions and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results may ultimately differ from management's original estimates as future events and circumstances sometimes do not develop as expected. Note B of Notes to Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. In addition, management believes that the following are the most critical accounting estimates that may affect the Company's financial condition and/or results of operations.

(1)	Allowance for Doubtful Accounts—The Company is required to estimate the collectibility of its accounts receivable balances, which are almost entirely related to the Auction segment. A considerable amount of judgment is required in assessing the collectibility of these receivables, including judgments about the current creditworthiness and financial condition of each client and aging of any past due balances. Management evaluates specific accounts receivable balances when it becomes aware of a situation where a client may not be able to meet its financial obligations to the Company. The amount of the required allowance is based on the facts available to management and is reevaluated and adjusted as additional information is received. Allowances are also established for probable losses inherent in the remainder of the accounts receivable balance. Management's judgments about the creditworthiness of the Company's clients may prove, with the benefit of hindsight, to be inaccurate. Accordingly, adjustments to the allowance for doubtful accounts have historically been and may continue to be required to reflect changes in facts and circumstances that are beyond the Company's control. If the creditworthiness of the Company's clients were to deteriorate, additional allowances would be required resulting in an adverse impact on the operating results of the Auction segment. Alternatively, if the creditworthiness of certain of the Company's clients were to improve, reductions in the allowance for doubtful accounts would be required resulting in a favorable impact on the operating results of the Auction segment.
	(See Note F of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)
(2)	Allowance for Credit Losses—The Company is required to estimate the collectibility of the notes receivable balances within the client loan portfolio of the Finance segment. A considerable amount of judgment is required in assessing the collectibility of these loans, including judgments about the estimated realizable value of any underlying collateral and the ability of the borrower to repay the loan. Management reevaluates the value of the collateral for specific loans when it becomes aware of a situation where the estimated realizable value of the collateral may be less than the loan balance, and with respect to which the under-collateralized amount may not be collectible from the borrower. The amount of the required allowance is based on the facts available to management and is reevaluated and adjusted as additional information is received. To the extent that the Company is looking wholly or partially to the collateral for repayment of its loans, repayment can be adversely impacted by a decline in the art market in general or in the value of the particular collateral. In addition, in situations where the borrower becomes subject to bankruptcy or insolvency laws, the Company's ability to realize on its collateral may be limited or delayed by the application of such laws. Unsecured loans are analyzed based on management's estimate of the current collectibility of each loan, taking into account the ability of the borrower to repay the loan. A reserve is also established for probable losses inherent in the remainder of the loan portfolio based on historical data related to loan write-offs.

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	If the estimated realizable value of any underlying collateral and/or the ability of borrowers in the Company's client loan portfolio to repay were to deteriorate, additional allowances may be required resulting in an adverse impact on the Company's operating results. However, historical losses relating to the Company's client loan portfolio have been infrequent and minimal and the data used by management to develop the allowance for credit losses has been reliable in developing historically accurate estimates.
	(See Note F of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)
(3)	Inventory—Inventory consists principally of objects obtained incidental to the auction process, primarily as a result of the failure of guaranteed property to sell at auction at or above the minimum price guaranteed by the Company (see Note P of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data”), defaults by purchasers after consignors have been paid and the honoring of purchasers' claims. Inventory also includes objects purchased for investment purposes. Inventory is valued at the lower of cost or management's estimate of net realizable value. This estimate is based on management's judgments about the art market in general and the value of individual items held in inventory. If the market value of this inventory were to decline, the Company would be required to evaluate whether to record a loss in the Auction segment to reduce the carrying value of the inventory. From time-to-time in the past, adjustments have been required to reduce the net realizable value of the Company's inventory to reflect changes in management's judgments about the art market in general and the value of individual items held in inventory. Due to the unpredictability of the art market, which is an important factor in valuing individual works of art, it is possible that such adjustments will be required in the future.
(4)	Investments—The Company uses the equity method to account for its investment in AMA. The carrying value of this investment is based on an estimate of the fair value of the underlying inventory of fine art owned by the Partnership, which is carried at the lower of cost or market value. This estimate is based on judgments about the art market in general and the value of individual items in AMA's inventory. If the market value of this inventory were to decline, the Company would be required to record a loss in the Auction segment to reduce the carrying value of the Company's investment in AMA. Although historical inventory losses relating to AMA have been infrequent, due to the unpredictability of the art market, which is an important factor in valuing individual works of art, it is possible that such adjustments may be required in the future.
	(See Note G of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)
(5)	Pension Benefits—The pension obligations related to the Company's U.K. defined benefit pension plan (the “U.K. Pension Plan”) are developed from an actuarial valuation. Inherent in this valuation are key assumptions and estimates, including the discount rate, expected long-term return on plan assets, future compensation increases, and other factors, which are updated on an annual basis. In determining these assumptions and estimates, management considers current market conditions, market indices and other relevant data.

14

      The discount rate assumption represents the approximate weighted average rate at which the Company's pension obligations could be effectively settled and is based on a hypothetical portfolio of high-quality corporate bonds with maturity dates approximating the length of time remaining until individual benefit payment dates. The discount rate used to calculate the $4.4 million in net periodic pension cost related to the U.K. Pension Plan for the year ended December 31, 2005 was 5.4%. A hypothetical increase or decrease of 0.1% in this assumption (i.e., from 5.4% to 5.5% or from 5.4% to 5.3%) would result in a decrease or increase in net periodic pension cost of approximately $0.6 million. As of the date of the most recent actuarial valuation (September 30, 2005), the discount rate used to calculate the $248.9 million projected benefit obligation related to the U.K. Pension Plan was 4.9%. A hypothetical increase or decrease of 0.1% in this assumption (i.e., from 4.9% to 5% or from 4.9% to 4.8%) would result in a decrease or increase in the projected benefit obligation of approximately $5 million.

      The assumption for the expected long-term return on plan assets is based on expected future appreciation, as well as dividend and interest yields available in equity and bond markets as of the plan's measurement date and weighted according to the composition of invested plan assets. The long-term return on plan assets used to calculate the $4.4 million in net periodic pension cost related to the U.K. Pension Plan for the year ended December 31, 2005 was 7.75% per annum. A hypothetical increase or decrease of 0.25% in this assumption (i.e., from 7.75% to 8% or from 7.75% to 7.5%) would result in a decrease or increase in net periodic pension cost of approximately $0.5 million.

      The assumption for future compensation increases is established after considering historical data for the Company and current economic data for inflation, as well as management's expectations for future salary growth. The assumption for future compensation increases used to calculate the $4.4 million in net periodic pension cost related to the U.K. Pension Plan for the year ended December 31, 2005 was 4.75% per annum. A hypothetical increase or decrease of 0.25% in this assumption (i.e., from 4.75% to 5% or from 4.75% to 4.5%) would result in an increase or decrease in net periodic pension cost of approximately $0.5 million. As of the date of the most recent actuarial valuation (September 30, 2005), the assumption for future compensation increases used to calculate the $248.9 million projected benefit obligation related to the U.K. Pension Plan was 4.5% per annum. A hypothetical increase or decrease of 0.25% in this assumption (i.e., from 4.5% to 4.75% or from 4.5% to 4.25%) would result in an increase or decrease in the projected benefit obligation of approximately $2.1 million.

      During the three-year period from 2000 to 2002, actual asset returns were less than the Company's assumed rate of return on plan assets, principally contributing to unrecognized net losses of approximately $54 million at December 31, 2005. These unrecognized losses will be systematically recognized as an increase in future net periodic pension cost in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 87, “Employers' Accounting for Pensions.” Unrecognized losses in excess of 10% of the greater of the market-related value of plan assets or the plan's projected benefit obligation are recognized over a period of approximately 14 years, which represents the average remaining service period of active employees expected to receive benefits under the plan. In 2006, the Company expects the amortization of such unrecognized losses to increase by approximately $1.1 million when compared to 2005 (from $2.1 million to $3.2 million); significantly contributing to the $1.7 million expected overall increase in costs related to the U.K. Pension Plan. In accordance with SFAS No. 87, the market-related value of plan assets was derived using a method that adjusts for 20% of the last five years' actual gains and losses.

(See Note N of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data,” for a description of the U.K. Pension Plan, as well as the Company's other material pension arrangements.)

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(6)	Legal and Other Contingencies—The Company is subject to legal proceedings, lawsuits and other claims. Management is required to assess the likelihood of any adverse judgments or outcomes in these matters, as well as potential ranges of probable losses. A determination of the amount of reserves, if any, required for these contingencies is based on a careful analysis of each individual exposure with, in some cases, the assistance of outside legal counsel. The required reserves may change in the future due to new developments in each matter or a change in settlement strategy.
	(See Note O of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)
(7)	Settlement Liabilities—In conjunction with the settlement of certain civil litigation related to the investigation by the Antitrust Division of the U.S. Department of Justice (the “DOJ”), in May 2003 the Company issued to the class of plaintiffs vendor's commission discount certificates (“Discount Certificates”) with a face value of $62.5 million. The Discount Certificates are fully redeemable in connection with any auction conducted by the Company or Christie's in the U.S. or in the U.K. and may be used to satisfy consignment charges involving vendor's commission, risk of loss and/or catalogue illustration. The court determined that the $62.5 million face value of the Discount Certificates had a fair market value of not less than $50 million, which represents the amount recorded by the Company as settlement liabilities in the third quarter of 2000. The Discount Certificates will expire on May 14, 2008 and cannot be redeemed subsequent to that date; however, any unused Discount Certificates may be redeemed for cash at their face value at any time between May 15, 2007 and May 14, 2008.
	As of December 31, 2005, the outstanding face value of unused Discount Certificates that the Company could be required to redeem was $50.7 million and the carrying value of such Discount Certificates reflected in the Consolidated Balance Sheets was approximately $47 million. This carrying value represents management's estimate of future Discount Certificate redemptions between December 31, 2005 and May 14, 2008. However, due to the unpredictability of Discount Certificate redemption activity, actual future redemptions could be materially less than management's estimate, which would result in the reversal of any remaining liability upon the expiration of the Discount Certificates on May 14, 2008.
	(See Note Q of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)
(8)	Income Taxes—At December 31, 2005, the Company had net deferred tax assets of $61 million primarily resulting from net operating loss carryforwards and deductible temporary differences, which will reduce taxable income in future periods over a number of years. Included in this net deferred tax asset is a valuation allowance of $24.9 million to reduce the Company's deferred tax assets to the amount that is more likely than not to be realized. In assessing the need for the valuation allowance management considers, among other things, its projections of future taxable income and ongoing prudent and feasible tax planning strategies. If the Company's projections of future taxable income and other positive evidence considered in evaluating the need for a valuation allowance prove, with the benefit of hindsight, to be inaccurate, it will be more difficult to support the realization of these deferred tax assets. As a result, an additional valuation allowance may be required, which would have an adverse impact on the Company's results. Conversely, should management determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would have a favorable impact on the Company's results in the period such determination was made.
	(See Note K of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)

16

Use of Non-GAAP Financial Measures

      GAAP refers to generally accepted accounting principles in the United States of America. Included in Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are financial measures presented in accordance with GAAP and also on a non-GAAP basis.

      Specifically, in MD&A, the Company makes reference to Adjusted EBITDA, which is defined as income from continuing operations excluding income tax expense, net interest expense, and depreciation and amortization expense, as well as costs associated with the termination of the GE Capital Credit Agreement in 2005 and one-time license fee revenues and transaction costs in 2004 related to the Company's license agreement with Cendant. Management believes that Adjusted EBITDA provides a useful supplemental performance measure of the Company's operations and financial performance. Management also believes that EBITDA-based measures are used by many investors, equity analysts and rating agencies as a measure of the Company's financial performance. It is important to note that Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies and should not be considered as an alternative to income from continuing operations determined in accordance with GAAP.

      Additionally, when material, the Company excludes the impact of changes in foreign currency exchange rates when comparing current year results to the prior year. Consequently, such period-to-period comparisons are provided on a constant dollar basis by eliminating the impact of changes in foreign currency exchange rates from the prior year.

      Management also utilizes these non-GAAP financial measures in analyzing its operating results. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is presented in the “Overview” and “Impact of Foreign Currency Translations” sections below.

17

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

      Note E (“Segment Reporting”) of Notes to Consolidated Financial Statements should be read in conjunction with this discussion.

Overview

      The Company's results for the year ended December 31, 2005 reflect the continuing strength of the international art market as Net Auction Sales and Private Sales (both defined below) remained strong. In 2005, income from continuing operations increased 1% to $63.2 million even though 2004 results included one-time license fee revenues of $45.6 million earned in conjunction with the consummation of the Cendant License Agreement (see “License Fee Revenues” below). The Company's strong financial performance in 2005 was largely the result of a significant improvement in auction commission margins. Management currently anticipates a continuation of the strong international art market and is encouraged by the Company's sales results to date in the first quarter of 2006. (See statement on Forward Looking Statements.)

      The Company's results from continuing operations for the years ended December 31, 2005 and 2004 are summarized below (in thousands of dollars):

Year Ended December 31	2005			2004			$ Change			% Change
Revenues:
Auction and related revenues	$	502,030		$	443,130		$	58,900			13.3	%
License fee revenues		1,404			45,745			(44,341	)		–96.9	%
Other revenues		10,074			7,845			2,229			28.4	%
Total revenues		513,508			496,720			16,788			3.4	%
Expenses		390,314			370,058			20,256			5.5	%
Operating income		123,194			126,662			(3,468	)		–2.7	%
Net interest expense		(27,742	)		(30,270	)		(2,528	)		–8.4	%
Credit facility termination costs		(3,069	)		—			(3,069	)		*
Other expense		(1,470	)		261			(1,731	)		*
Income from continuing operations before taxes		90,913			96,653			(5,740	)		–5.9	%
Equity in earnings of investees, net of taxes		829			740			89			12.0	%
Income tax expense		28,573			35,000			(6,427	)		–18.4	%
Income from continuing operations	$	63,169		$	62,393		$	776			1.2	%
Key performance indicators:
Aggregate Auction Sales (a)	$	2,752,185		$	2,694,544		$	57,641			2.1	%
Net Auction Sales (b)	$	2,361,830		$	2,334,937		$	26,893			1.2	%
Private Sales (c)	$	271,936		$	262,891		$	9,045			3.4	%
Auction commission margin (d)		18.7%			16.4%			N/A			14.0	%
Average loan portfolio (e)	$	102,605		$	82,519		$	20,086			24.3	%
Adjusted EBITDA (f)	$	145,074		$	108,402		$	36,672			33.8	%

      Legend:

*	Represents a change in excess of 100%.
(a)	Represents the hammer (sale) price of property sold at auction plus buyer's premium.
(b)	Represents the hammer (sale) price of property sold at auction.
(c)	Represents the total purchase price of property sold in private sales brokered by the Company.
(d)	Represents total auction commission revenues as a percentage of Net Auction Sales.
(e)	Represents the average loan portfolio of the Company's Finance segment.
(f)	See “Use of Non-GAAP Financial Measures” above and reconciliation to corresponding GAAP amount below.

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      Please see below for a more detailed discussion of the significant factors impacting the Company's results from continuing operations for the year ended December 31, 2005.

      The following is a reconciliation of Adjusted EBITDA (see “Use of Non-GAAP Financial Measures” above) to income from continuing operations for the years ended December 31, 2005 and 2004 (in thousands of dollars):

Year Ended December 31	2005			2004
Adjusted EBITDA	$	145,074		$	108,402
Income tax expense related to continuing operations		(28,573	)		(35,000	)
Income tax expense related to earnings from equity investees		(446	)		(398	)
Net interest expense		(27,742	)		(30,270	)
Depreciation and amortization expense		(22,075	)		(23,830	)
Credit facility termination costs		(3,069	)		—
One-time Cendant license fee revenue		—			45,650
Cendant License Agreement transaction costs		—			(2,161	)
Income from continuing operations	$	63,169		$	62,393

Impact of Foreign Currency Translations

      For the year ended December 31, 2005, income from continuing operations before taxes decreased $5.7 million, or 6%, to $90.9 million, when compared to the prior year. During 2005, the unfavorable impact of foreign currency translations on income from continuing operations before taxes was approximately $2.4 million. Excluding the unfavorable impact of foreign currency translations, income from continuing operations before taxes decreased $3.3 million, or 3%, to $93.3 million for the year ended December 31, 2005 (see “Use of Non-GAAP Financial Measures” above). In 2005, the unfavorable impact of foreign currency translations on income from continuing operations before taxes consists of the following (in thousands of dollars):

Year Ended December 31, 2005	Favorable/ (Unfavorable)
Total revenues	$	(5,075	)
Total expenses		2,633
Operating income		(2,442	)
Net interest expense and other		16
Income from continuing operations before taxes	$	(2,426	)

Recapitalization

      On September 7, 2005, the Company entered into a Transaction Agreement (previously defined as the “Agreement”) with various affiliates of A. Alfred Taubman and his family (previously defined as the “Shareholders”). Prior to completion of the transactions contemplated by the Agreement, the Shareholders were the Company's largest shareholders, holding in the aggregate 14,034,158 shares of the Company's Class B Stock, representing approximately 62.4% of the aggregate voting power of the Company's capital stock.

      Pursuant to the Agreement, the Company agreed to exchange all 14,034,158 shares of Class B Stock owned by the Shareholders for $168,409,896 in cash and 7.1 million shares of the Company's Class A Stock, (such exchange, previously defined as the “Transaction”). Completion of the Transaction was not subject to any conditions and it was completed on September 7, 2005. Because the outstanding shares of Class B Stock constituted less than fifty percent of the aggregate voting power of the Company's outstanding common stock following completion of the Transaction, pursuant to the Company's Third Amended and Restated Articles of Incorporation (previously defined as the “Articles”), following completion of the Transaction each remaining outstanding share of Class B Stock held by shareholders not a party to the Transaction was automatically converted into one share of Class A Stock without any action on the part of the holder thereof. Therefore, immediately following completion of the Transaction and such conversion, the Company

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had approximately 57.3 million shares of Class A Stock outstanding (of which the Shareholders owned 7.1 million, or approximately 12.4%) and no shares of Class B Stock.

      The Company's Board of Directors appointed a Special Committee to carefully examine all details of the Transaction. The Special Committee consisted of four disinterested Directors who, after careful deliberation and negotiation, and based on the advice of independent legal and financial advisors retained by the Special Committee, unanimously recommended that the Company's Board of Directors approve the Transaction.

      As a result of the Transaction, the dual class super-voting share structure that had been in place since the Company's initial public offering in 1988 was eliminated; allowing for a corporate governance structure that is more consistent with the best practices of public companies. Also, the Company believes that the simplified share structure will enhance share liquidity and increase the Company's strategic and financing flexibility. The Company is also planning to present to shareholders for their approval at the 2006 Annual Meeting of Shareholders a proposal to reincorporate in the State of Delaware.

      The Transaction is expected to have a favorable impact on earnings per share in periods subsequent to September 30, 2005. (See statement on Forward Looking Statements.)

      Mechanics of Effecting the Transaction; Funding—Under the terms of the Agreement, the Transaction was effected by means of: (1) the Shareholders voluntarily converting, on a one-for-one basis pursuant to the Articles, 7.1 million shares of Class B Stock into shares of Class A Stock, and (2) the Company acquiring the remaining shares of Class B Stock owned by the Shareholders for aggregate cash consideration of $168,409,896. The Company funded the cash portion of the consideration plus direct transaction and financing costs with then existing cash balances and $100 million in borrowings under a new credit facility (see “Liquidity and Capital Resources” below and Note J of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data,” for information related to the Company's credit arrangements).

      The total cost to acquire the Class B Stock owned by the Shareholders of $177.2 million (including $8.8 million in direct transaction costs) was accounted for as a treasury stock transaction in the third quarter of 2005, with common stock and additional paid-in capital being reduced by $177.1 million. Additionally, the Company ascribed $100,000 of the cost to the Standstill and the Restrictions on Transfer (as described below) based on their fair value as determined by an independent valuation expert. Such amount was expensed as incurred within Other Expense in the period of the Transaction.

      Standstill—In the Agreement, each Shareholder agreed to a customary standstill lasting until the earlier of (1) the fourth anniversary of the Transaction or (2) 30 days after the date on which (a) the Shareholders, together with their affiliates, own, in the aggregate, securities representing less than ten percent of the Company's total outstanding voting power and (b) no affiliate of any Shareholder is a member of the Board of Directors of the Company (however, if such 30th day would otherwise occur on or before the second anniversary of the Transaction, such 30th day would not be deemed to occur until such second anniversary). The terms of the Standstill generally state that, each Shareholder shall not (unless requested by the Company): (1) acquire or propose to acquire ownership of or the ability to vote any securities or other property of the Company or any of its subsidiaries or (2) act to seek to control or influence the management, Board of Directors, shareholders, business, operations or policies of the Company.

      Restrictions on Transfer—In the Agreement, each Shareholder agreed that, prior to the second anniversary of the Transaction, such Shareholder would not transfer any shares of Class A Stock or any economic interest therein, except to an affiliate of such Shareholder in connection with tax or estate-planning transactions, or, to the extent permitted by law, for sales of shares of Class A Stock in any three month period, that when aggregated with sales by all other shareholders in such period, would not exceed the greater of one percent of the outstanding shares of Class A Stock or the average weekly trading volume of the Class A Stock during the four weeks preceding such sale.

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      Registration Rights—In the Agreement, the Company agreed that, following the second anniversary of the Transaction and on not more than two occasions, the Shareholders would have the right to require the Company to file a registration statement under the federal securities laws registering the sale of all or a portion of the shares of Class A Stock owned by the Shareholders that are not otherwise freely tradable, provided that the market value of the securities proposed to be sold exceeds specified thresholds. The Company has the right to defer the filing of such registration statement under certain circumstances. The Company also agreed to allow the Shareholders to participate in any registration statement proposed to be effected by the Company following the second anniversary of the Transaction, subject to certain restrictions.

      The Company agreed to pay all expenses incurred in connection with such registration, other than any underwriting discounts or commissions, and also agreed to indemnify each Shareholder from losses incurred as a result of material misstatements or omissions in such registration statement (other than those that are the responsibility of the Shareholders, losses incurred by the Company as a result of which would be subject to indemnification from the Shareholders).

Revenues

      For the years ended December 31, 2005 and 2004, revenues from continuing operations consist of the following (in thousands of dollars):

Year Ended December 31	2005		2004		$ Change			% Change
Auction and related revenues:
Auction commission revenues	$	441,301	$	383,142	$	58,159			15.2	%
Auction expense recoveries		19,312		17,633		1,679			9.5	%
Private sales commissions		21,200		21,492		(292	)		–1.4	%
Principal activities		3,225		2,603		622			23.9	%
Catalogue subscription revenues		9,690		9,700		(10	)		–0.1	%
Other		7,302		8,560		(1,258	)		–14.7	%
Total auction and related revenues		502,030		443,130		58,900			13.3	%
License fee revenues		1,404		45,745		(44,341	)		–96.9	%
Other revenues:
Finance segment revenues		8,302		5,907		2,395			40.5	%
Other		1,772		1,938		(166	)		–8.6	%
Total other revenues		10,074		7,845		2,229			28.4	%
Total revenues	$	513,508	$	496,720	$	16,788			3.4	%

Auction and Related Revenues

      For the year ended December 31, 2005, auction and related revenues increased $58.9 million, or 13%, to $502 million, when compared to the prior year. This improvement is almost entirely due to a $58.2 million, or 15%, increase in auction commission revenues. The significant factors contributing to the improvement in auction commission revenues are explained in more detail below.

      Auction Commission Revenues—The higher level of auction commission revenues during 2005 is principally due to a 14% improvement in auction commission margin (from 16.4% to 18.7%) and, to a much lesser extent, a slight increase in Net Auction Sales. See “Auction Commission Margin” and “Net Auction Sales” below for a detailed discussion of these key performance indicators. The overall increase in auction commission revenues was partially offset by the unfavorable impact of foreign currency translations, which decreased auction commission revenues by approximately $5 million during the year.

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      Auction Commission Margin—Auction commission margin represents total auction commission revenues as a percentage of Net Auction Sales. Typically, auction commission margins are higher for lower value works of art or collections, while higher valued property earns lower margins.

      Effective January 1, 2005, the Company increased its buyer's premium charged on certain auction sales. In salesrooms in the U.S., the buyer's premium is now 20% of the hammer (sale) price on the first $200,000 and 12% of any remaining amount over $200,000. In foreign salesrooms, these U.S. dollar thresholds were translated into an appropriate fixed local currency amount upon the effective date of the change. Previously, the buyer's premium charged on auction sales was generally 20% of the hammer (sale) price on the first $100,000 and 12% of any remaining amount over $100,000.

      As discussed above, for the year ended December 31, 2005, auction commission margin increased 14% (from 16.4% to 18.7%) when compared to the prior year principally due to the following factors:

• A $19.6 million decrease in shared auction commissions as certain significant consignments for property sold in 2004 were subject to commission sharing arrangements with unaffiliated third parties. These arrangements were primarily the result of the competitive environment for such consignments, as well as the Company's decision to reduce its auction guarantee risk through sharing arrangements with partners, whereby the Company reduced its financial exposure under the auction guarantee in exchange for sharing the auction commission with the partner.

• A favorable change in sales mix as a more significant portion of Net Auction Sales in 2004 were at the high-end of the Company's business where auction commission margins are traditionally lower.

• The increase in the buyer's premium rate structure discussed above.

      Net Auction Sales—For the year ended December 31, 2005, Net Auction Sales increased $26.9 million, or 1%, to $2.4 billion, when compared to the prior year. This increase is attributable to the following factors:

• A $57.3 million increase in various-owner sales of Contemporary art, reflecting the strength of this market.

• A $51.2 million, or 36%, increase in Net Auction Sales conducted by Sotheby's Asia (which includes auction salerooms in Hong Kong, Singapore and Australia) primarily due to a higher level of Chinese Ceramics and Paintings sales, in addition to a $20 million improvement in Asian art sales in New York and London, both which reflect the continued growth of the Chinese art market.

• A $42.4 million increase in Russian art sales, reflecting the rapid growth of that market.

• Net Auction Sales attributable to the November 2005 sale of property from the single-owner decorative arts collection of Lilly and Edmond J. Safra in New York ($41.9 million) and the October 2005 off-premises single-owner sale of property from the Royal House of Hanover in Germany ($41.4 million). Except for the historic May 2004 sale of property from the Greentree Foundation discussed below, there were no comparable single-owner sales in the prior year.

• Several increases in Net Auction Sales related to recurring sales, such as those for 19th Century Paintings ($23 million improvement) and Jewelry in the U.S. and Europe ($20 million improvement).

      These increases in Net Auction Sales in 2005 are largely offset as prior year results include the May 2004 sale of property from the Greentree Foundation, which totaled $189.4 million and for which there was no comparable event in the current year. To a lesser extent, the comparison to the prior year is unfavorably influenced by a $46.7 million decrease in various-owner sales of Impressionist art primarily due to several high-value works sold in the November 2004 Impressionist sale in New York for which there were no comparable works sold in the same sale in 2005. Also partially offsetting the overall increase in Net Auction Sales versus the prior year is a $30 million decrease in various-owner American Paintings sales, which, in 2004, included the sale

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of John Singer Sargent's “Group of Parasols (A Siesta)” for $21 million. There was no comparable picture sold at auction in the current year American Paintings sales.

      Private Sales Commissions—The level of private sales commissions earned by the Company in any period is typically variable. In 2005, private sales commissions remained at a historically high level totaling $21.2 million, representing a slight decrease compared to the prior year even though 2004 results included private sales commissions related to the landmark private sale of the Forbes Collection of Faberge.

      Principal Activities—Principal activities consist mainly of gains or losses on sales of inventory, income or loss related to auction guarantees and gains or losses related to the sales of loan collateral, as well as any decreases in the carrying value of the Company's inventory. The level of principal activities in a period is largely attributable to the success of the Company in selling property acquired in connection with auction guarantees, as well as the supply of quality property available for investment and resale and the demand by buyers for such property. For the year ended December 31, 2005, principal activities increased $0.6 million, or 24%, to $3.2 million, when compared to the prior year primarily due to slightly more favorable auction guarantee experience and a lower level of inventory writedowns.

License Fee Revenues

      For the year ended December 31, 2005, license fee revenues decreased $44.3 million to $1.4 million, when compared to the prior year as 2004 results include $45.6 million in one-time license fee revenues earned in conjunction with the consummation of the Cendant License Agreement (see Note D of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data”). In 2005, license fee revenues includes $1.3 million in ongoing license fees earned as a result of Cendant's continued use of the Company's licensed trademarks.

Other Revenues

      For the year ended December 31, 2005, other revenues increased $2.2 million, or 28%, to $10.1 million, when compared to the prior year principally due to a $2.4 million, or 41%, improvement in Finance segment revenues resulting from a 24% increase in the average loan portfolio balance (from $82.5 million to $102.6 million). This increase is due in part to the availability of capital to fund new loans and marketing efforts to increase client loan activity. As discussed in more detail below under “Liquidity and Capital Resources,” management expects to continue to look for opportunities to expand the Finance segment's client loan portfolio. (See statement on Forward Looking Statements.) The comparison of 2005 Finance segment revenues to the prior year is unfavorably influenced by $1 million in interest income recognized in the second quarter of 2004 as a result of the collection of a disputed client loan, for which there was no comparable event in the current year.

Expenses

      For the years ended December 31, 2005 and 2004, expenses from continuing operations consist of the following (in thousands of dollars):

Year Ended December 31	2005		2004		$ Change			% Change
Direct costs of services	$	65,772	$	55,526	$	10,246			18.5	%
Salaries and related costs		187,608		177,583		10,025			5.6	%
General and administrative expenses		114,859		112,688		2,171			1.9	%
Depreciation and amortization expense		22,075		23,830		(1,755	)		–7.4	%
Retention costs		—		285		(285	)		–100.0	%
Net restructuring charges		—		146		(146	)		–100.0	%
Total expenses	$	390,314	$	370,058	$	20,256			5.5	%

Direct Costs of Services

      Direct costs of services consist largely of catalogue production and distribution costs, as well as sale marketing costs and corporate marketing expenses. The level of direct costs incurred in any

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period is generally dependent upon the volume and composition of the Company's auction offerings. For example, direct costs attributable to single-owner collections are typically higher than those associated with various-owner sales, mainly due to higher promotional costs for catalogues, special events and traveling exhibitions.

      For the year ended December 31, 2005, direct costs of services increased $10.2 million, or 19%, to $65.8 million when compared to the prior year principally due to the higher number and type of single-owner sales during the period. Specifically, in 2005, direct costs include expenses related to significant off-premises single-owner sales for which there were no comparable events in the prior period, including the sale of property from the Royal House of Hanover in Germany ($4.8 million); the sale of cars and memorabilia at Ferrari headquarters in Maranello, Italy ($1.5 million) and the Easton Neston house sale in Northamptonshire, U.K. ($0.8 million). Also contributing to the higher level of direct costs in 2005 are increases of $2 million and $1.9 million related to sales conducted during the period in Asia and the U.K. (excluding the Easton Neston sale discussed above), respectively. These increases are generally consistent with the higher level of Net Auction Sales achieved in those regions. The overall increase in direct costs is partially offset by the favorable impact of foreign currency translations, which decreased direct costs by approximately $0.8 million during the year.

Salaries and Related Costs

      For the years ended December 31, 2005 and 2004, salaries and related costs consist of the following (in thousands of dollars):

Year Ended December 31	2005		2004		$ Change			% Change
Full-time salaries	$	101,273	$	98,383	$	2,890			2.9	%
Incentive bonus costs		30,479		25,909		4,570			17.6	%
Employee benefits		20,914		19,326		1,588			8.2	%
Payroll taxes		14,079		13,332		747			5.6	%
Option Exchange		4,553		7,688		(3,135	)		–40.8	%
Stock compensation expense		3,716		1,098		2,618			*
Other**		12,594		11,847		747			6.3	%
Total salaries and related costs	$	187,608	$	177,583	$	10,025			5.6	%

      Legend:

       * Represents a change in excess of 100%.

      ** Principally includes the cost of temporary labor and overtime.

      In recent years, the Company's compensation strategy has evolved towards having greater variability in pay, dependent upon the Company's profitability. Also, the Company's equity compensation strategy has evolved towards a preference for restricted stock as opposed to stock options. The $10 million, or 6%, increase in salaries and related costs during 2005 reflects this change in strategy as the significant drivers of this increase are higher levels of incentive bonus costs and restricted stock compensation expense. Also contributing to the increase versus the prior year is a 3% increase in full-time salaries, principally due to limited salary and headcount increases in 2005, and increased employee benefit costs. The overall increase in salaries and related costs for the period is partially offset by lower Option Exchange costs, as well as the favorable impact of foreign currency translations, which decreased salaries and related costs by approximately $1.3 million during the year. See discussion below for a more detailed explanation of certain of these factors.

      Incentive Bonus Costs—For the year ended December 31, 2005, incentive bonus costs increased $4.6 million, or 18%, to $30.5 million, when compared to the prior year. This increase is attributable to the Company's strong financial performance during 2005, even when compared to the prior year's results from continuing operations which included one-time license fee revenues of $45.6 million earned in conjunction with the consummation of the Cendant License Agreement (see “License Fee Revenues” above).

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      Stock Compensation Expense—For the year ended December 31, 2005, stock compensation expense related to restricted stock shares granted pursuant to the Restricted Stock Plan (excluding shares issued in conjunction with the Exchange Offer discussed below) increased $2.6 million when compared to the prior year. This increase is primarily due to the amortization of stock compensation expense associated with restricted stock shares granted in 2005. Excluding shares issued in conjunction with the Exchange Offer discussed below, stock compensation expense related to the Restricted Stock Plan for the year ended December 31, 2006 is expected to be approximately $5 million. This amount relates to restricted stock shares granted through March 16, 2006. The Company anticipates granting additional shares of restricted stock in 2006, which would result in additional stock compensation expense. (See statement on Forward Looking Statements.)

      (See “Future Impact of Recently Issued Accounting Standards” below for information relating to the Company's adoption of SFAS No. 123(R), “Share-Based Payment,” on January 1, 2006.)

      (See Note M of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data,” for information related to the Restricted Stock Plan.)

      Employee Benefits—For the year ended December 31, 2005, employee benefits increased $1.6 million, or 8%, to $20.9 million, when compared to the prior year. The higher level of employee benefits for the period is primarily due to a $1.7 million, or 61%, increase in costs related to the U.K. Pension Plan (see Note N of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data”). To a lesser extent, the increase in employee benefits is attributable to incremental profit-sharing costs of $0.8 million related to the Company's U.S. pension plans, reflecting the Company's strong financial performance for 2005 (see “Incentive Bonus Costs” above), as well as increased other benefit costs attributable to limited salary and headcount increases and market inflation for such costs. In the prior year, certain contributions to the Company's U.S. pension plans were determined as a fixed percentage of an employee's eligible compensation rather than via a profit-sharing formula. Also unfavorably impacting the comparison to the prior year is a $0.9 million one-time charge for retirement benefits in Germany. The overall increase in employee benefit costs in 2005 is largely offset by a $2.8 million decrease in severance costs.

      As discussed above under “Critical Accounting Estimates,” during the three-year period from 2000 to 2002, actual asset returns for the U.K. Pension Plan were less than management's assumed rate of return on plan assets, principally contributing to unrecognized net losses of approximately $54 million at December 31, 2005. These unrecognized losses will be systematically recognized as an increase in future net periodic pension cost in accordance with SFAS No. 87, “Employers' Accounting for Pensions.” In 2006, management currently anticipates an increase of approximately $1.7 million in costs related to the U.K Pension Plan principally due to higher amortization of such unrecognized losses. (See statement on Forward Looking Statements.)

      Option Exchange Program—In February 2003, the Compensation Committee approved an exchange offer of cash or restricted stock for certain stock options held by eligible employees under the 1997 Stock Option Plan (the “Exchange Offer”). The Exchange Offer was tendered during the first half of 2004. In 2005, compensation expense related to the Exchange Offer decreased $3.1 million, or 41%, to $4.6 million, as prior year results include $2.2 million of expense recognized in the first quarter of 2004 representing the one-time cash payment made to employees upon acceptance of the Exchange Offer on March 31, 2004. The comparison to the prior period is also favorably influenced by lower amortization of stock compensation related to the issuance of 1.1 million restricted shares as a result of the Exchange Offer, the expense relating to which is being amortized over a graded four-year vesting period. The amortization of stock compensation expense related to the Exchange Offer is expected to be approximately $2.5 million and $1.2 million for the years ended December 31, 2006 and 2007, respectively. (See statement on Forward Looking Statements.)

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General and Administrative Expenses

      For the year ended December 31, 2005, general and administrative expenses increased $2.2 million, or 2%, to $114.9 million, when compared to the prior year. This increase is largely attributable to the following factors:

• An insurance recovery of approximately $4 million, which reduced general and administrative expenses in the second quarter of 2004, for which there was no comparable event in 2005.

• A $2.7 million increase in travel and entertainment costs principally due to the higher level of travel for pursuing business opportunities during 2005, reflecting the strength of the current art market.

• A $1.4 million increase in professional fees, primarily due to $1.1 million in incremental fees incurred as a result of outsourcing management of the Company's catalogue production operations in the U.S. Outsourcing has allowed the Company to achieve improved quality along with cost efficiencies and headcount reductions in this area.

• A $1.4 million increase in facility related expenses primarily as a result of higher costs for utilities and security.

• A $1.2 million increase in property taxes related to the Company's headquarters building at 1334 York Avenue in New York as a result of a tax reassessment that became effective on July 1, 2004.

• The recovery of $1 million in previously paid real estate taxes in the U.K. recorded in the third quarter of 2004, for which there was no comparable event in 2005.

• $0.9 million in lease abandonment costs in the U.K. incurred in the fourth quarter of 2005, for which there was no comparable event in 2004.

      The overall increase in general and administrative expenses for the year ended December 31, 2005 is partially offset by the following factors:

• A $2.9 million benefit recorded in the fourth quarter of 2005 due to the reversal of certain sales tax estimates that are no longer necessary, for which there was no comparable event in the prior year.

• A $2.4 million decrease in client goodwill gestures, authenticity claims and litigation settlements primarily as a result of fewer and less costly occurrences of such matters in 2005.

• $2.2 million in transaction costs incurred in 2004 related to the consummation of the Company's agreement with Cendant to license the Sotheby's International Realty trademark, for which there were no comparable fees incurred in 2005 (see Note D of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data”).

• A $1 million reduction in insurance costs, reflecting management's cost reduction efforts and lower overall premiums available in the market.

• A $0.8 million decrease in settlement administration costs and legal fees associated with certain civil antitrust litigation (see Notes B and Q of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data”).

• The reversal of a $0.7 million legal accrual in the fourth quarter of 2005 as a result of favorable changes in circumstances, for which there was no comparable event in 2004.

• A $0.6 million decrease in computer costs principally as a result of the favorable renegotiation of a maintenance outsourcing agreement.

Depreciation and Amortization Expense

      For the year ended December 31, 2005, depreciation and amortization expense decreased $1.8 million, or 7%, to $22.1 million when compared to the prior year principally due to the timing and rate of capital spending on depreciable assets, as well as $0.3 million in accelerated depreciation expense recognized in the third quarter of 2004 for assets retired as a result of the consolidation

26

of the Company's New York warehouse space into its headquarters building at 1334 York Avenue in New York.

Net Interest Expense

      For the year ended December 31, 2005, net interest expense decreased $2.5 million, or 8%, to $27.7 million, when compared to the prior year. This decrease is largely attributable to a $2.4 million improvement in interest income resulting from higher average balances of cash and short-term investments, as well as higher interest rates due in part to a change in investment composition during the first nine months of the year. To a lesser extent, the decrease in net interest expense versus the prior year is attributable to lower amortization of the discount associated with the DOJ antitrust fine, which was being paid over a five-year period. The final payment of $15 million owed under the fine was paid by the Company on February 6, 2006 and the liability to the DOJ was extinguished (see Note Q of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data”). The overall improvement in net interest expense in 2005 is partially offset by an increase of $0.9 million in credit facility borrowing costs primarily as a result of higher average borrowings outstanding during the period largely due to the funding requirements for new client loans, as well as decreased cash balances resulting from the Transaction described under “Recapitalization” above. (See “Liquidity and Capital Resources” below and Note J of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data” for information on the Company's credit arrangements.)

Termination of GE Capital Credit Agreement

      On September 7, 2005, in connection with the Transaction described above under “Recapitalization,” the Company terminated its senior secured credit agreement with General Electric Capital Corporation (the “GE Capital Credit Agreement”). As a result of the termination of the GE Capital Credit Agreement, the Company incurred a $1 million termination fee and wrote off approximately $2.1 million in related arrangement fees, which were previously being amortized over the term of the agreement. These charges are combined and reflected as a separate caption in the Consolidated Income Statement for the year ended December 31, 2005. (See “Liquidity and Capital Resources” below and Note J of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data,” for information related to the Company's credit arrangements.)

Cumulative Effect of a Change in Accounting Principle

      In March 2005, the Financial Accounting Standards Board (the “FASB”) issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations—an interpretation of FASB Statement No. 143” (“FIN 47”). FIN 47 requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. FIN 47 states that a conditional asset retirement obligation is a legal obligation to perform an asset retirement activity in which the timing or method of settlement are conditional upon a future event that may or may not be within the control of the entity. FIN 47 was effective no later than the end of fiscal years ending after December 15, 2005. The Company adopted FIN 47 effective December 2005 and accordingly recorded an after-tax charge of approximately $1.1 million ($1.6 million, pre-tax), or $0.02 per diluted share, as a cumulative effect of a change in accounting principle in the Consolidated Income Statement for the year ended December 31, 2005. This charge relates primarily to those lease agreements that require the Company to restore the underlying facilities to their original condition at the end of the leases. The Company was uncertain of the timing of payment for these asset retirement obligations; therefore a liability was not previously recognized in the financial statements under GAAP. On a prospective basis, this accounting change requires recognition of these costs ratably over the lease term. The adoption of FIN 47 initially resulted in a non-cash addition to Properties of $1 million with a corresponding increase in long-term liabilities. The assets as of December 31, 2005 were

27

$0.2 million, consisting of gross assets of $1 million less accumulated depreciation of $0.8 million. The asset retirement obligation as of December 31, 2005 was $1.8 million, consisting of a liability of $1 million and accretion expense of $0.8 million. In future periods, when cash is paid upon the settlement of the asset retirement obligation, the payments will be classified as a component of operating cash flow in the Consolidated Statements of Cash Flows.

Provision for Income Taxes

      The effective tax rate related to continuing operations was approximately 31.4% in 2005, compared to approximately 36.2% in 2004. The overall decrease in the effective tax rate in 2005 from 2004 is primarily the result of a $7.1 million benefit arising from the release of valuation allowances in 2005 related to the Company's U.S. Federal and certain foreign tax operating loss carryovers, as well as the tax rate differential between U.S. and foreign jurisdictions as more of the Company's earnings in 2005 arose overseas in jurisdictions with tax rates lower than in the U.S. These items are partially offset by the impact of the Company's repatriation of earnings accumulated outside the U.S. under its domestic reinvestment plan as discussed in more detail below, as well as increased passive income arising overseas.

      In October 2004, the President signed the American Jobs Creation Act of 2004 (the “AJCA”). The AJCA creates a temporary incentive for companies to repatriate earnings accumulated outside the U.S. by allowing them to reduce taxable income by 85% of certain eligible dividends received from non-U.S. subsidiaries by the end of 2005 at an effective tax rate of 5.25%.

      On November 7, 2005, the Company's Chief Executive Officer and Board of Directors approved a domestic reinvestment plan to repatriate up to $72.4 million of foreign earnings under the AJCA during the fourth quarter of 2005. These foreign earnings were previously considered to be indefinitely reinvested outside of the U.S. The Company repatriated approximately $72.4 during the fourth quarter of 2005 and accordingly, the Company recorded income tax expense of $3.8 million. Planned uses of the repatriated funds include domestic expenditures relating to capital asset costs and investments, as well as other permitted activities.

      (See Item 1A, “Risk Factors,” and Note K of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)

Discontinued Operations

      For information related to Discontinued Operations, see Note D of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

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RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

Overview

      During 2004, the recovery in the international art market, which began in the fourth quarter of 2003, continued and the Company experienced significantly better results when compared to the prior year. The Company's pre-tax results from continuing operations for the years ended December 31, 2004 and 2003 are summarized below (in thousands of dollars):

Year Ended December 31	2004			2003			$ Change			% Change
Revenues:
Auction and related revenues	$	443,130		$	308,990		$	134,140			43	%
License fee revenues		45,745			—			45,745			*
Other revenues		7,845			8,354			(509	)		–6	%
Total revenues		496,720			317,344			179,376			57	%
Expenses		370,058			324,770			45,288			14	%
Operating income (loss)		126,662			(7,426	)		134,088			*
Net interest expense and other		(30,009	)		(29,661	)		348			1	%
Income (loss) from continuing operations before taxes	$	96,653		$	(37,087	)	$	133,740			*
Key performance indicators:
Aggregate Auction Sales (a)	$	2,694,544		$	1,690,655		$	1,003,889			59	%
Net Auction Sales (b)	$	2,334,937		$	1,455,970		$	878,967			60	%
Auction commission margin (c)		16.4	%		18.8	%		N/A			–13	%
Average loan portfolio	$	82,519		$	86,564		$	(4,045	)		–5	%

      Legend:

*	Represents a change in excess of 100%.
(a)	Represents the hammer (sale) price of property sold at auction plus buyer's premium.
(b)	Represents the hammer (sale) price of property sold at auction.
(c)	Represents total auction commission revenues as a percentage of Net Auction Sales.

      The improvement in the Company's results from continuing operations during 2004 was due to increased auction and related revenues principally resulting from a significant improvement in Net Auction Sales during the spring and fall auction seasons, as well as a higher level of private sale commissions. Also favorably influencing the comparison of 2004 results to the prior year was a $45 million one-time license fee earned in the first quarter of 2004 in conjunction with the sale of the Company's domestic real estate brokerage business, as well as significantly lower employee retention costs and restructuring charges. The overall improvement in the Company's full year results was partially offset by increased incentive bonus costs and costs associated with the Company's option exchange program, as well as higher professional fees and employee benefit costs.

      For the year ended December 31, 2004, the Company's pre-tax income from discontinued operations was $38.8 million; a significant improvement when compared to the same period in 2003 when the Company's discontinued operations had pre-tax income of approximately $9.4 million. This improvement was largely due to a pre-tax gain of $32 million recognized principally on the sale of the Company's discontinued domestic real estate brokerage business. (See Note D of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data” for information related to the Company's discontinued real estate brokerage business.)

      Please refer to the discussion below for a more detailed discussion of the significant factors impacting the Company's results for the year ended December 31, 2004.

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Revenues

      For the years ended December 31, 2004 and 2003, revenues from continuing operations consisted of the following (in thousands of dollars):

Year Ended December 31	2004		2003		$ Change			% Change
Auction and related revenues:
Auction commission revenues	$	383,142	$	273,525	$	109,617			40	%
Auction expense recoveries		17,633		15,296		2,337			15	%
Private sales commissions		21,492		5,360		16,132			*
Principal activities		2,603		1,830		773			42	%
Catalogue subscription revenues		9,700		8,862		838			9	%
Other		8,560		4,117		4,443			*
Total auction and related revenues		443,130		308,990		134,140			43	%
License fee revenues		45,745		—		45,745			*
Other revenues:
Finance segment revenues		5,907		5,310		597			11	%
Other		1,938		3,044		(1,106	)		–36	%
Total other revenues		7,845		8,354		(509	)		–6	%
Total revenues	$	496,720	$	317,344	$	179,376			57	%

      Legend:

      * Represents a change in excess of 100%.

Auction and Related Revenues

      For the year ended December 31, 2004, auction and related revenues increased $134.1 million, or 43%, to $443.1 million, when compared to the same period in the prior year. During 2004, the favorable impact of foreign currency translations on auction and related revenues was approximately $21.3 million. Excluding the favorable impact of foreign currency translations, auction and related revenues increased $112.8 million, or 37%, to $421.8 million for the year ended December 31, 2004.

      The increased level of auction and related revenues in 2004 was principally due to higher auction commission revenues, as well as increased private sale commissions and, to a lesser extent, increased catalogue subscription revenues and principal activities. Each of the significant factors impacting the overall change in auction and related revenues for the year is explained in more detail below.

      Auction Commission Revenues—For the year ended December 31, 2004, auction commission revenues increased $109.6 million, or 40%, to $383.1 million, when compared to the same period in the prior year. During 2004, the favorable impact of foreign currency translations on auction commission revenues was approximately $18.8 million. Excluding the impact of favorable foreign currency translations, auction commission revenues increased $90.8 million, or 33%, to $364.3 million for the year ended December 31, 2004.

      The higher level of auction commission revenues during 2004 was largely attributable to a significant increase in property sold at auction; partially offset by a decrease in auction commission margin. See “Net Auction Sales” and “Auction Commission Margin” below for a detailed discussion of these key performance indicators.

      Net Auction Sales—For the year ended December 31, 2004, Net Auction Sales increased $879 million, or 60%, to $2,334.9 million, when compared to the same period in the prior year. During 2004, the favorable impact of foreign currency translations on Net Auction Sales was approximately $94.2 million. Excluding the favorable impact of foreign currency translations, Net Auction Sales increased $784.7 million, or 54%, to $2,240.7 million for the year ended December 31, 2004.

      The significant increase in Net Auction Sales during 2004 reflects the continued recovery of the international art market, as well as improved global economic conditions when compared to

30

the prior year. Specifically, the overall increase in Net Auction Sales for the year ended December 31, 2004 was favorably influenced by:

• The spring 2004 sales of property from the Greentree Foundation, which totaled approximately $189.4 million in Net Auction Sales and for which there was no comparable sale in 2003.

• A $175 million, or 53%, increase in Net Auction Sales related to the various-owner spring and fall Impressionist and Contemporary sales in New York, as well as a $70 million, or 50%, improvement in the February and June Impressionist and Contemporary sales in London.

• The successful December 2004 American Paintings sale, which contributed $68.4 million to the overall increase for the year and included the sale of John Singer Sargent's “Group with Parasols (A Siesta)” for $21 million.

• A $64.6 million increase in single-owner auction sales during the fourth quarter of 2004, when compared to the same period in the prior year. This improvement was principally the result of a series of successful single-owner sales in New York and in London for which there were fewer comparable events in 2003.

• The successful July 2004 Old Master Paintings sale in London, which contributed $17.4 million to the overall increase for the period and included the sale of Johannes Vermeer's painting “Young Woman seated at the Virginals” for $26.8 million.

• Significantly improved various-owner sale results generated by the Company's salesrooms in Hong Kong, Geneva, Milan, Amsterdam and Paris, which contributed approximately $85 million to the overall increase for the year.

      Auction Commission Margin—For the year ended December 31, 2004, the Company experienced a 13% decrease in auction commission margin when compared to the same period in the prior year. This decrease was principally due to the fact that a significant portion of the increase in Net Auction Sales was at the high-end of the Company's business where auction commission margins are traditionally lower. Several of the Impressionist and Contemporary collections offered during the spring and fall seasons carried lower auction commission margins than comparable sales in the recent past. This was primarily due to the competitive environment, as well as the Company's decision to reduce its auction guarantee risk through auction commission sharing arrangements with partners, whereby the Company reduces its financial exposure under the auction guarantee in exchange for sharing in the auction commissions with unaffiliated partners. At certain times, the partners will also assist the Company in valuing and marketing the property to be sold at auction. These factors significantly contributed to a $30.8 million increase in auction commissions owed or paid by the Company to unaffiliated third parties.

      Private Sales Commissions—For the year ended December 31, 2004, private sale commissions increased $16.1 million to $21.5 million when compared to the same period in the prior year. The higher level of private sale activity for the period reflects the traditionally variable nature of such sales, as well as management's expanded efforts in this area. Most significantly, 2004 results included the landmark private sale of the Forbes Collection of Faberge. Also favorably influencing the comparison of private sale commissions to the prior year were several significant private sales for which there were no comparable events in the prior year.

      Principal Activities—For the year ended December 31, 2004, principal activities increased $0.8 million, or 42%, to $2.6 million when compared to the same period in the prior year. This increase was partially due to a $1.8 million gain recognized in May 2004 on the sale of a painting purchased by the Company for investment purposes, for which there was no comparable event in the prior year. Also favorably impacting the comparison of principal activities to the prior year was a $0.8 million improvement in results from the sale of property purchased in partnership with art dealers. Generally, property purchased pursuant to such partnerships is sold directly by the dealer or at auction with any net profit or loss shared by the Company and the dealer. The overall increase in principal activities in 2004 was partially offset by less favorable auction guarantee experience during the year, which reduced principal activities by approximately $1.1 million.

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License Fee Revenues

      In the first quarter of 2004, the Company recognized revenue of $45 million related to a one-time license fee received as consideration for entering into an agreement with Cendant to license the Sotheby's International Realty trademark and certain related trademarks. Additionally, in the fourth quarter of 2004, the Company recognized $0.6 million of license fee revenue as a result of Cendant's exercise of the International Options. (See Note D of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data” for information related to the license agreement with Cendant and the International Options.)

Other Revenues

      For the year ended December 31, 2004, other revenues decreased $0.5 million, or 6%, when compared to the same period in the prior year. During 2004, the favorable impact of foreign currency translations on other revenues was approximately $0.4 million. Excluding the favorable impact of foreign currency translations, other revenues decreased $0.9 million, or 10%, for the year ended December 31, 2004. This decrease was principally due to a reduction in art education revenues resulting from the sale of the Company's U.K. art education business on September 30, 2003, partially offset by a $0.4 million, or 7%, increase in Finance segment revenues, as discussed in more detail below.

      Finance Segment Revenues—For the year ended December 31, 2004, the overall increase in Finance segment revenues was principally due to $1 million in interest income recognized in the second quarter of 2004 as a result of the collection of a disputed client loan, for which there was no comparable event in the prior year; partially offset by the impact of the 5% decrease in the average loan portfolio balance and lower interest rates charged on certain significant client loans. See “Average Loan Portfolio” below for a detailed discussion of this key performance indicator.

      Average Loan Portfolio—For the year ended December 31, 2004, the Finance segment's average loan portfolio balance decreased $4.0 million, or 5%, when compared to the same period in the prior year. Although this represents only a marginal decrease when compared to the prior year, 2004 marked the end of a four-year trend in which the Finance segment's average loan portfolio decreased by approximately 56%. The decrease over this period was principally due to the limited availability of cash to fund new loans prior to the initiation of the GE Capital Credit Agreement and the consummation of the sale of the Company's domestic real estate brokerage business in the first quarter of 2004.

Expenses

      For the years ended December 31, 2004 and 2003, expenses from continuing operations consisted of the following (in thousands of dollars):

Year Ended December 31	2004		2003		$ Change			% Change
Direct costs of services	$	55,526	$	45,631	$	9,895			22	%
Salaries and related costs		177,583		143,540		34,043			24	%
General and administrative expenses		112,688		96,773		15,915			16	%
Depreciation and amortization expense		23,830		25,321		(1,491	)		–6	%
Retention costs		285		8,466		(8,181	)		–97	%
Net restructuring charges		146		5,039		(4,893	)		–97	%
Total expenses	$	370,058	$	324,770	$	45,288			14	%

Direct Costs of Services

      For the year ended December 31, 2004, direct costs increased $9.9 million, or 22%, to $55.5 million, when compared to the same period in the prior year. During 2004, the unfavorable impact of foreign currency translations on direct costs was approximately $2.9 million. Excluding the unfavorable impact of foreign currency translations, direct costs increased $7.0 million, or 15%, to $52.6 million for the year ended December 31, 2004.

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      The increased level of direct costs was consistent with the higher level of sales activity, and in particular single-owner sales, during 2004. For example, direct costs for the year ended December 31, 2004 included $1.2 million in catalogue production, advertising and promotional costs related to single-owner sales of property from the Greentree Foundation, for which there was no comparable sale in the prior year. The overall increase in direct costs for the year was partially offset by $0.9 million in cost reductions achieved as a result of the elimination of direct costs associated with the Company's former e-commerce and U.K. art education activities.

Salaries and Related Costs

      For the years ended December 31, 2004 and 2003, salaries and related costs consisted of the following (in thousands of dollars):

Year Ended December 31	2004		2003		$ Change		% Change
Full-time salaries	$	98,383	$	96,134	$	2,249		2	%
Employee benefits		19,326		15,174		4,152		27	%
Payroll taxes		13,332		10,680		2,652		25	%
Incentive bonus costs		25,909		10,364		15,545		*
Option Exchange		7,688		—		7,688		*
Stock compensation expense		1,098		387		711		*
Other		11,847		10,801		1,046		10	%
Total salaries and related costs	$	177,583	$	143,540	$	34,043		24	%

Legend:
* Represents a change in excess of 100%.

      For the year ended December 31, 2004, salaries and related costs increased $34.0 million, or 24%, to $177.6 million, when compared to the same period in the prior year. During 2004, the unfavorable impact of foreign currency translations on salaries and related costs was approximately $8.7 million. Excluding the impact of unfavorable foreign currency translations, salaries and related costs increased $25.3 million, or 18%, to $168.9 million for the year ended December 31, 2004. This increase was principally due to significantly higher incentive bonus costs. Additionally, costs associated with the Company's option exchange program, a higher level of employee benefit costs and increased payroll taxes significantly contributed to the overall increase for the year. These increases were partially offset by lower full-time salaries (excluding the unfavorable impact of foreign currency translations).

      The overall variance in salaries and related costs for 2004 versus the prior year is indicative of the evolution in the Company's compensation philosophy whereby a greater proportion of employee compensation is variable, dependent upon the Company's profitability. See discussion below for a more detailed explanation of each of the factors that contributed to the unfavorable variance versus the prior year.

      Incentive Bonus Costs—For the year ended December 31, 2004, incentive bonus costs increased $15.5 million, when compared to the same period in the prior year. The significant increase in incentive bonus costs was consistent with the Company's substantial improvement in overall 2004 results versus the prior year and also reflected performance-based compensation awarded principally in the first quarter of 2004 in connection with the high level of private sale transactions during the period. The increase in incentive bonus costs for 2004 is indicative of the evolution in the Company's compensation philosophy discussed above whereby a greater proportion of employee compensation is variable, dependent upon the Company's profitability.

      Option Exchange Program—As explained in more detail in the discussion of 2005 results above, in February 2003, the Compensation Committee approved an exchange offer of cash or restricted stock for certain stock options held by eligible employees under the 1997 Stock Option Plan (previously defined as the “Exchange Offer”). The Exchange Offer was tendered during the first half of 2004. For the year ended December 31, 2004, the Company recognized stock compensation expense of $5.5 million related to the Exchange Offer. The cash payment made in

33

conjunction with the Exchange Offer was approximately $2.2 million and was expensed in full upon acceptance on March 31, 2004.

      Employee Benefits—For the year ended December 31, 2004, employee benefits increased $4.2 million, or 27%, when compared to the same period in the prior year. The higher level of employee benefits in 2004 was due in part to a $1.9 million increase in severance costs principally due to termination benefits paid as a result of headcount reductions in Continental Europe and North America. Also unfavorably impacting the comparison of employee benefits to the prior year was a $1.6 million increase in costs related to the Company's U.K. defined benefit pension plan (see Note N of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data”), as well as increased medical and pension benefit costs for U.S. employees. The overall increase in employee benefits for 2004 was partially offset by lower benefits costs achieved as a result of headcount reductions which took effect throughout 2003.

      Full-Time Salaries—For the year ended December 31, 2004, full-time salaries increased $2.2 million, or 2%, to $98.4 million, when compared to the same period in the prior year. During 2004, the unfavorable impact of foreign currency translations on full-time salaries was approximately $5.2 million. Excluding the unfavorable impact of foreign currency translations, full-time salaries decreased $3 million, or 3%, to $93.2 million. The lower level of full-time salaries (excluding the unfavorable impact of foreign currency translations) was principally due to savings achieved as a result of headcount reductions which took effect throughout 2003.

      Payroll Taxes—For the year ended December 31, 2004, payroll taxes increased $2.7 million, or 25%, when compared to the same period in the prior year. This increase was principally due to incremental payroll taxes incurred as a result of the higher level of incentive bonus costs, as well as payroll taxes related to the Option Exchange program.

      Stock Compensation Expense—For the years ended December 31, 2004 and 2003, the Company recognized stock compensation expense of $1.1 million and $0.4 million, respectively, related to restricted stock shares granted pursuant to the Restricted Stock Plan (excluding shares issued in conjunction with the Exchange Offer discussed above).

General and Administrative Expenses

      For the year ended December 31, 2004, general and administrative expenses increased $15.9 million, or 16%, to $112.7 million, when compared to the same period in the prior year. During 2004, the unfavorable impact of foreign currency translations on general and administrative expenses was approximately $5.2 million. Excluding the unfavorable impact of foreign currency translations, general and administrative expenses increased $10.7 million, or 11%, to $107.5 million.

      In 2004, the overall increase in general and administrative expenses was principally due to an $8.4 million increase in professional fees, which was largely attributable to the following factors:

• $4.1 million in external costs incurred as a result of the Company's implementation of Section 404 of the Sarbanes-Oxley Act.

• $2.2 million of transaction costs related to the consummation of the Company's agreement with Cendant to license the Sotheby's International Realty trademark and certain related trademarks (see Note D of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data” for information related to the license agreement with Cendant).

• $1.5 million in consulting costs related to the outsourced management of the Company's catalogue production operations to an unaffiliated third party, allowing the Company to achieve improved quality along with cost efficiencies and headcount reductions in this area.

• An overall higher level of other legal and consulting costs incurred during the year related to various projects, initiatives and legal matters.

      The overall increase in professional fees for 2004 was partially offset by a $1.2 million decrease in settlement administration costs and legal fees associated with certain civil antitrust litigation (see Notes B and Q of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data”).

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      Also unfavorably impacting the comparison to the prior period was a $3.6 million increase in non-recurring client goodwill gestures, authenticity claims and litigation settlements, as well as a $1.4 million increase in travel and entertainment costs principally due to the higher level of business opportunities during the year. Additionally, for the year ended December 31, 2004, property taxes related to the Company's headquarters building at 1334 York Avenue in New York increased $1.1 million as a result of a tax reassessment that became effective on July 1, 2004.

      The overall increase in general and administrative expenses for the year was partially offset by an insurance recovery of approximately $4 million recorded in the second quarter of 2004 related to the collateral underlying a loan for which the Company recorded a loan loss reserve of $9 million in the fourth quarter of 2000 and subsequently wrote off in the first quarter of 2001. To a lesser extent, the comparison of general and administrative expenses to the prior year was also favorably impacted by the recovery of $1 million in previously paid real estate taxes in the U.K. recorded in the third quarter of 2004, as well as $0.9 million in cost savings achieved as a result of the discontinuation of the Company's former e-commerce and U.K. art education activities.

Depreciation and Amortization Expense

      For the year ended December 31, 2004, depreciation and amortization expense decreased $1.5 million, or 6%, to $23.8 million, when compared to the same period in the prior year. During 2004, the unfavorable impact of foreign currency translations on depreciation and amortization expense was approximately $0.6 million. Excluding the unfavorable impact of foreign currency translations, depreciation and amortization expense decreased $2.1 million, or 8%, to $23.2 million. This decrease was principally due to the impact of fixed assets that became fully depreciated in 2003 and 2004, partially offset by the impact of capital expenditures in those periods.

Retention Costs

      In 2001 and 2002, the Company implemented retention programs that provided cash awards payable to certain key employees upon fulfillment of full-time employment through certain dates. All amounts related to the retention programs were amortized over the corresponding contractual service periods. For the years ended December 31, 2004 and 2003, the Company recognized retention costs of $0.3 million and $8.5 million, respectively.

      The final cash payment of $0.4 million due under the retention programs was made in January 2004 and, as a result, the retention programs concluded.

Net Restructuring Charges

      During the fourth quarter of 2002, management approved plans to further restructure the Auction segment, as well as to carry out additional headcount reductions in certain corporate departments (the “2002 Restructuring Plan”). The goal of the 2002 Restructuring Plan was to improve profitability through further cost savings and other strategic actions. Net annual cost savings achieved as a result of the 2002 Restructuring Plan were approximately $17 million. For the years ended December 31, 2004 and 2003, the Company recorded net restructuring charges of $0.1 million and $5 million, respectively, related to the 2002 Restructuring Plan.

Net Interest Expense

      For the year ended December 31, 2004, net interest expense was essentially unchanged when compared to the same period in the prior year as increases of approximately $0.7 million to both interest expense and interest income largely offset each other.

      The increase in interest expense was primarily due to $1.8 million in additional interest expense related to the York Property capital lease obligation that was initiated in February 2003, as well as an additional $1.1 million in interest expense related to the vendor's commission discount certificates issued as part of the U.S. Antitrust Litigation settlement in May 2003 (see Note Q of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and

35

Supplementary Data”). These increases were partially offset by a $2 million reduction in interest expense associated with the Company's credit facility principally resulting from lower average outstanding borrowings.

      The increase in interest income was primarily attributable to higher average cash balances throughout the year and slightly higher interest rates, partially offset by $0.7 million in interest income recorded in the prior year related to a delinquent client account that was determined to be collectible, for which there was no comparable event in the current year.

Provision for Income Taxes

      The effective tax rate for continuing operations was approximately 36% in 2004, compared to approximately 30% in 2003. The change in the effective tax rate was primarily attributable to non-deductible payments related to the antitrust settlement, changes in the valuation allowance related to foreign taxes and stock option deductions, permanent disallowances of employee compensation and certain other one time adjustments. (See Notes K and Q of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)

FINANCIAL CONDITION AS OF DECEMBER 31, 2005

      This discussion should be read in conjunction with the Consolidated Statements of Cash Flows (see Item 8, “Financial Statements and Supplementary Data”).

      For the year ended December 31, 2005, total cash and cash equivalents decreased $22.1 million primarily due to the factors discussed below.

      Cash Provided by Operating Activities—Net cash provided by operating activities of $58.8 million for the year ended December 31, 2005 is principally due to the cash flow generated from the Company's income from continuing operations during the period and, to a much lesser extent, the collection of $12.5 million in cash related to an amount due from the Company's partner in an auction guarantee; partially offset by the following:

• A $45.1 million net decrease in amounts owed to clients principally due to the timing and settlement of auction sales in the fourth quarter of 2004 and throughout 2005.

• The funding of $12 million of the fine payable to the DOJ in February 2005 and the redemption of $6.2 million in vendor's commission discount certificates (see Note Q of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data”).

• A $14.5 million net increase in inventory principally due to investments made during 2005 ($13.7 million), partially offset by the impact of sales during the period. Also contributing to the overall increase in inventory was property relating to auction guarantees that did not sell at auction during the 2005 spring and autumn auction seasons ($7.9 million).

• The funding of a $15 million voluntary contribution to the U.K. Pension Plan in May 2005. The Company will continue to consider voluntary contributions to the U.K. Pension Plan on an annual basis. (See statement on Forward Looking Statements.) (See Note N of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data,” for detailed information related to the U.K. Pension Plan.)

      Cash Provided by Investing Activities—Net cash provided by investing activities of $52.9 million for the year ended December 31, 2005 is largely due to $433.2 million in proceeds received from the maturity of short-term investments during the period and, to a lesser extent, the collection of $164.9 million in client loans, a $4 million decrease in restricted cash and $3.7 million in cash distributions received from an equity investee. These investing cash inflows are partially offset by the funding of $323.2 million in short-term investments, the funding of $214.9 million in new client loans and $14.9 million in capital expenditures.

      Cash Used by Financing Activities—Net cash used by financing activities of $133.5 million for the year ended December 31, 2005 is principally due to $177.2 million in cash used to fund the repurchase of common stock in the transaction described under “Recapitalization” above and the

36

repayment of $140 million in credit facility borrowings; partially offset by $174.5 million of credit facility borrowings (of which $100 million was used to fund a portion of the stock purchase described in the previous sentence) and, to a much lesser extent, $9.3 million in proceeds received from the exercise of stock options.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

      The following table summarizes the Company's material contractual obligations and commitments as of December 31, 2005:

	Payments Due by Period
	Total		2006		2007 to 2008		2009 to 2010		After 2010
	(Thousands of dollars)
Principal payments on borrowings:
Credit facility borrowings (1)	$	34,542	$	—	$	—	$	34,542	$	—
Long-term debt (2)		100,000		—		—		100,000		—
Sub-total		134,542		—		—		134,542		—
Interest payments on borrowings:
Credit facility borrowings (1)		637		637		—		—		—
Long-term debt (2)		23,490		6,875		13,750		2,865		—
Sub-total		24,127		7,512		13,750		2,865		—
Other commitments:
York Property capital lease (3)		388,935		19,264		38,574		41,250		289,847
Operating lease obligations (4)		78,804		13,570		23,072		12,643		29,519
DOJ antitrust fine (5)		15,000		15,000		—		—		—
Employment agreements (6)		3,265		2,333		932		—		—
Sub-total		486,004		50,167		62,578		53,893		319,366
Total	$	644,673	$	57,679	$	76,328	$	191,300	$	319,366

(1)	Represents the outstanding principal and approximate interest payments related to the Company's credit facility borrowings. Interest payments are due at short term intervals. (See “Liquidity and Capital Resources” below and Note J of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data,” for information related to the Company's credit arrangements.)
(2)	Represents the aggregate outstanding principal and semi-annual interest payments due on the Company's long-term debt. (See “Liquidity and Capital Resources” below and Note J of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data,” for information related to the Company's credit arrangements.)
(3)	Represents rental payments due under the capital lease obligation for the York Property, as discussed in Notes H and L of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”
(4)	Represents rental payments due under the Company's operating lease obligations. (See Note L of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)
(5)	Represents the remaining fine payable to the DOJ. The final payment of $15 million owed under the fine was paid by the Company on February 6, 2006 and the liability to the DOJ was extinguished. (See Note Q of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)
(6)	Represents the remaining commitment for future salaries as of December 31, 2005 related to employment agreements with a number of employees, excluding incentive bonuses. (See Note O of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)

37

      The Discount Certificates that were distributed in conjunction with the settlement of certain civil litigation related to the investigation by the DOJ are fully redeemable in connection with any auction that is conducted by the Company or Christie's in the U.S. or in the U.K. The Discount Certificates may be used to satisfy consignment charges involving vendor's commission, risk of loss and/or catalogue illustration. The Discount Certificates will expire on May 14, 2008 and cannot be redeemed subsequent to that date; however, any unused Discount Certificates may be redeemed for cash at their face value at any time between May 15, 2007 and May 14, 2008. As of December 31, 2005, the outstanding face value of unused Discount Certificates that the Company could be required to redeem was $50.7 million. (See Note Q of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)

OFF-BALANCE SHEET ARRANGEMENTS

Auction Guarantees

      From time to time in the ordinary course of business, the Company will guarantee to consignors a minimum price in connection with the sale of property at auction. The Company must perform under its auction guarantee in the event that the property sells for less than the minimum price, in which event the Company must pay the difference between the sale price at auction and the amount of the auction guarantee. If the property does not sell, the amount of the auction guarantee must be paid, but the Company has the right to recover such amount through future sale of the property. Generally, the Company is entitled to a share of the excess proceeds if the property under the auction guarantee sells above a minimum price. In addition, the Company is obligated under the terms of certain guarantees to advance a portion of the guaranteed amount prior to the auction. In certain situations, the Company reduces its financial exposure under auction guarantees through commission sharing arrangements with unaffiliated partners. Partners may also assist the Company in valuing and marketing the property to be sold at auction.

      As of December 31, 2005, the Company had outstanding auction guarantees totaling $21.6 million, the property relating to which had a mid-estimate sales price (1) of $25.8 million. The Company's financial exposure under these auction guarantees is reduced by $0.9 million as a result of sharing arrangements with unaffiliated partners. The property related to such auction guarantees is being offered at auctions during the first half of 2006. As of December 31, 2005, $2.5 million of the guaranteed amount had been advanced by the Company and is recorded within notes receivable and consignor advances in the Consolidated Balance Sheets (see Note F of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data”). As of December 31, 2005 and 2004, the carrying amount of the liability related to the Company's auction guarantees was approximately $0.3 million and $0.1 million, respectively, and was reflected in the Consolidated Balance Sheets within accounts payable and accrued liabilities.

      As of February 28, 2006, the Company had outstanding auction guarantees totaling $99.7 million, the property relating to which had a mid-estimate sales price (1) of $109.1 million. The property related to such auction guarantees is being offered at auctions in the first half of 2006. As of February 28, 2006, $18 million of the guaranteed amount had been advanced by the Company, which will be recorded in notes receivable and consignor advances.

(1) The mid-estimate sales price is calculated as the average of the low and high pre-sale auction estimates for the property under the auction guarantee. Pre-sale estimates are not always accurate predictions of auction sale results.

Lending Commitments

      In certain situations, the Company's Finance segment enters into legally binding arrangements to lend, primarily on a collateralized basis and subject to certain limitations and conditions, to potential consignors and other individuals who have collections of fine art or other objects. Unfunded commitments to extend additional credit were $24 million at December 31, 2005.

38

DERIVATIVE FINANCIAL INSTRUMENTS

      The Company utilizes forward exchange contracts to manage exposures related to foreign currency risks, which primarily arise from short-term foreign currency denominated intercompany balances. Generally, such intercompany balances are centrally managed by the Company's global treasury function. The Company's objective for holding derivative instruments is to minimize foreign currency risks using the most effective methods to eliminate or reduce the impacts of these exposures.

      The forward exchange contracts entered into by the Company are used as economic cash flow hedges of the Company's exposure to short-term foreign currency denominated intercompany balances. Such forward exchange contracts are typically short-term with settlement dates no more than one month from their inception. These contracts are not designated as hedging instruments under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, and are recorded in the Consolidated Balance Sheets at fair value, which is based on referenced market rates. Changes in the fair value of the Company's forward exchange contracts are recognized currently in earnings and are generally offset by the revaluation of the underlying intercompany balances in accordance with SFAS No. 52, “Foreign Currency Translation.”

      (See Note B of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)

CONTINGENCIES

      For information related to Contingencies, see Note O of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

LIQUIDITY AND CAPITAL RESOURCES

      On September 7, 2005, in connection with the Transaction described under “Recapitalization” above, the Company terminated its previous senior secured credit agreement (see “Termination of GE Capital Credit Agreement” above) and entered into a new senior secured credit agreement with an international syndicate of lenders arranged by Banc of America Securities LLC (“BofA”) and LaSalle Bank N.A. (the “BofA Credit Agreement”). The BofA Credit Agreement provides for borrowings of up to $250 million through a revolving credit facility. The amount of borrowings available at any time under the BofA Credit Agreement is limited to a borrowing base, which is generally equal to 100% of eligible loans made by the Company in the U.S. and the U.K. (i.e., notes receivable and consignor advances) plus 15% of the Company's net tangible assets (calculated as total assets less current liabilities, goodwill, unamortized debt discount and eligible loans). As of December 31, 2005, the amount of unused borrowing capacity available under the BofA Credit Agreement was $201.9 million, consisting of a borrowing base of $236.4 million less $34.5 million in borrowings outstanding on that date. Such outstanding borrowings are classified as long-term liabilities in the Consolidated Balance Sheet as of December 31, 2005. As of February 28, 2006, the amount of unused borrowing capacity available under the BofA Credit Agreement was $165.5 million, consisting of a borrowing base of $201 million less $35.5 million in borrowings outstanding on that date.

      The BofA Credit Agreement is available through September 7, 2010; provided that in the event that any of the $100 million in long-term debt securities (the “Notes”) issued by the Company in February 1999 (as discussed in more detail in Note J of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data”) are still outstanding on July 1, 2008, then either: (a) the Company shall deposit cash in an amount equal to the aggregate outstanding principal amount of the Notes on such date into an account in the sole control and dominion of BofA for the benefit of the lenders and the holders of the Notes or (b) the Company shall have otherwise demonstrated its ability to redeem and pay in full the Notes; otherwise the BofA Credit Agreement shall terminate and all amounts outstanding thereunder shall be due and payable in full on July 1, 2008.

39

      Borrowings under the BofA Credit Agreement are available to be used to: (a) finance in part the Transaction and related fees and expenses and (b) provide ongoing working capital and for other general corporate purposes of the Company. The Company's obligations under the BofA Credit Agreement are secured by substantially all of the non-real estate assets of the Company, as well as the non-real estate assets of its subsidiaries in the U.S. and the U.K.

      The BofA Credit Agreement contains financial covenants requiring the Company not to exceed a maximum level of capital expenditures and dividend payments (as discussed in more detail below) and to have a quarterly interest coverage ratio of not less than 2.0 and a quarterly leverage ratio of not more than: (i) 4.0 for quarters ending September 30, 2005 to September 30, 2006, (ii) 3.5 for quarters ending December 31, 2006 to September 30, 2007 and (iii) 3.0 for quarters ending December 31, 2007 and thereafter. The maximum level of annual capital expenditures permitted under the BofA Credit Agreement is $15 million through 2007 and $20 million thereafter with any unused amounts carried forward to the following year. At the option of the Company, any borrowings under the BofA Credit Agreement generally bear interest at a rate equal to: (i) LIBOR plus 1.75%, or (ii) 0.5% plus the higher of the Prime Rate or the Federal Funds Rate plus 0.5%. For the year ended December 31, 2005, the weighted average interest rate incurred by the Company on outstanding borrowings under the BofA Credit Agreement was approximately 6.3%.

      The Company paid underwriting, structuring and amendment fees of $2.8 million related to the BofA Credit Agreement, which are being amortized on a straight-line basis to interest expense over the term of the facility.

      The Company generally relies on operating cash flows supplemented by borrowings to meet its liquidity requirements. The Company currently believes that operating cash flows, current cash balances and borrowings available under the BofA Credit Agreement will be adequate to meet its presently contemplated or anticipated short-term and long-term commitments, operating needs and capital requirements through September 7, 2010. Additionally, as a result of the liquidity provided by the BofA Credit Agreement, management expects to continue to look for opportunities to expand the client loan portfolio of the Company's Finance segment. (See statement on Forward Looking Statements.)

      Due to potential funding requirements for new client loans, as well as decreased cash balances resulting from funding the Transaction described under “Recapitalization” above, the Company expects to have a higher level of outstanding revolving credit facility borrowings in the foreseeable future, when compared to recent past periods prior to the Transaction. Therefore, the Company expects to periodically borrow amounts under the BofA Credit Agreement in order to potentially fund new client loans and meet peak seasonal working capital requirements. As a result of these factors, management anticipates an increased level of net interest expense in 2006. (See statement on Forward Looking Statements.)

      The Company's short-term operating needs and capital requirements include peak seasonal working capital requirements, other short-term commitments to consignors, the funding of the Finance segment's client loan portfolio and the funding of capital expenditures, as well as the short-term commitments to be funded prior to December 31, 2006 included in the table of contractual obligations above.

      The Company's long-term operating needs and capital requirements include peak seasonal working capital requirements, the funding of the Finance segment's client loan portfolio and the funding of capital expenditures, as well as the funding of the Company's presently contemplated or anticipated long-term contractual obligations and commitments included in the table of contractual obligations above through September 7, 2010.

      In addition to the short-term and long-term operating needs and capital requirements described above, the Company is obligated to fund the redemption of the Discount Certificates distributed in conjunction with the settlement of certain civil litigation related to the investigation by the DOJ (see Note Q of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data”). As discussed above, the Discount Certificates are fully

40

redeemable in connection with any auction that is conducted by the Company or Christie's in the U.S. or the U.K. The Discount Certificates may be used to satisfy consignment charges involving vendor's commission, risk of loss and/or catalogue illustration. The Discount Certificates will expire on May 14, 2008 and cannot be redeemed subsequent to that date; however, any unused Discount Certificates may be redeemed for cash at their face value at any time between May 15, 2007 and May 14, 2008. As of December 31, 2005, the outstanding face value of unused Discount Certificates that the Company could be required to redeem was approximately $50.7 million.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The Company continually evaluates its market risk associated with its financial instruments and forward exchange contracts during the course of its business. The Company's financial instruments include cash and cash equivalents, restricted cash, short-term investments, notes receivable, consignor advances, credit facility borrowings, long-term debt and the Discount Certificates issued in connection with the settlement of certain civil litigation related to the DOJ investigation. (See Note B of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data,” for information on the fair value of these financial instruments.)

      The Company believes that its interest rate risk is minimal as a hypothetical 10% increase or decrease in interest rates is immaterial to the Company's cash flow, earnings and fair value related to financial instruments. (See statement on Forward Looking Statements.)

      The Company utilizes forward exchange contracts to manage exposures related to foreign currency risks, which primarily arise from short-term foreign currency denominated intercompany balances. Changes in the fair value of the Company's forward exchange contracts are generally offset by the revaluation of the underlying intercompany balances in accordance with SFAS No. 52, “Foreign Currency Translation.” At December 31, 2005, the Company had $100.6 million of notional value forward exchange contracts outstanding. Notional amounts do not quantify risk or represent assets or liabilities of the Company, but are used in the calculation of cash settlements under such contracts. The Company is exposed to credit-related losses in the event of nonperformance by the counterparty to its forward exchange contracts, but the Company does not expect the counterparty to fail to meet its obligations given its high credit ratings. (See “Derivative Instruments” above and Note B of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”)

      At December 31, 2005, a hypothetical 10% strengthening or weakening of the U.S. dollar relative to all other currencies would result in a decrease or increase in cash flow of approximately $20.4 million.

FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

      In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R) requires the recognition of compensation expense equal to the fair value of stock options or other share-based payments. Under SFAS No. 123(R), the Company would have been required to implement the standard as of July 1, 2005. In April 2005, the Securities and Exchange Commission announced the adoption of a new rule that amended the compliance date for SFAS No. 123(R). As a result of this change in compliance date, the Company adopted SFAS No. 123(R) as of January 1, 2006 using the modified prospective method, which will result in the amortization of stock compensation expense related to unvested stock options outstanding on the date of adoption, as well as any stock options granted subsequent to that date. The Company has elected to use the transition election of FASB Staff Position FAS 123 (R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards,” to determine the pool of windfall tax benefits, if any, upon adoption. The adoption of SFAS No. 123(R) will result in the recording of pre-tax compensation expense of approximately $1.8 million in 2006 related to unvested stock options outstanding on the date of adoption, as well as an expected 2006 stock option grant resulting from an existing employment agreement. (See statement on Forward Looking Statements.)

41

      In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” which changes the requirements for the accounting and reporting of a change in accounting principle and error corrections. SFAS No. 154 applies to all voluntary changes in accounting principle, as well as to changes required by an accounting pronouncement that does not include specific transition provisions. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company adopted SFAS No. 154 on January 1, 2006 and will apply its provisions on a prospective basis when applicable.

FORWARD LOOKING STATEMENTS

      This Form 10-K contains certain forward looking statements; as such term is defined in Section 21E of the Securities Exchange Act of 1934, as amended, relating to future events and the financial performance of the Company. Such statements are only predictions and involve risks and uncertainties, resulting in the possibility that the actual events or performance will differ materially from such predictions. Major factors which the Company believes could cause the actual results to differ materially from the predicted results in the forward looking statements include, but are not limited to, the factors listed under Item 1A, “Risk Factors,” which are not ranked in any particular order.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      See the discussion under this caption contained in Item 7.

42

ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
SOTHEBY'S HOLDINGS, INC.
New York, New York

      We have audited the accompanying consolidated balance sheets of Sotheby's Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of income, cash flows, and changes in shareholders' equity for each of the three years in the period ended December 31, 2005. Our audits also included the consolidated financial statement schedule listed in the Index at Item 15(d). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Sotheby's Holdings, Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

      As discussed in Note B to the consolidated financial statements, in 2005, the Company adopted FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations—an interpretation of FASB Statement No. 143,” effective December 31, 2005.

      We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2006 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Deloitte & Touche LLP
New York, New York
March 16, 2006

43

SOTHEBY'S HOLDINGS, INC.
CONSOLIDATED INCOME STATEMENTS
(Thousands of dollars, except per share data)

Year Ended December 31	2005			2004			2003
Revenues:
Auction and related revenues	$	502,030		$	443,130		$	308,990
License fee revenues		1,404			45,745			—
Other revenues		10,074			7,845			8,354
Total revenues		513,508			496,720			317,344
Expenses:
Direct costs of services		65,772			55,526			45,631
Salaries and related costs		187,608			177,583			143,540
General and administrative expenses		114,859			112,688			96,773
Depreciation and amortization expense		22,075			23,830			25,321
Retention costs		—			285			8,466
Net restructuring charges		—			146			5,039
Total expenses		390,314			370,058			324,770
Operating income (loss)		123,194			126,662			(7,426	)
Interest income		5,679			3,281			2,498
Interest expense		(33,421	)		(33,551	)		(32,832	)
Credit facility termination costs		(3,069	)		—			—
Other (expense) income		(1,470	)		261			673
Income (loss) from continuing operations before taxes		90,913			96,653			(37,087	)
Equity in earnings of investees, net of taxes		829			740			31
Income tax expense (benefit)		28,573			35,000			(11,018	)
Income (loss) from continuing operations		63,169			62,393			(26,038	)
Discontinued operations:
(Loss) income from discontinued operations before taxes		(783	)		38,802			9,431
Income tax (benefit) expense		(346	)		14,516			4,049
(Loss) income from discontinued operations		(437	)		24,286			5,382
Cumulative effect of a change in accounting principle, net of taxes		(1,130	)		—			—
Net income (loss)	$	61,602		$	86,679		$	(20,656	)
Basic earnings (loss) per share:
Earnings (loss) from continuing operations	$	1.04		$	1.01		$	(0.42	)
(Loss) earnings from discontinued operations		(0.01	)		0.39			0.09
Cumulative effect of a change in accounting principle, net of taxes		(0.02	)		—			—
Basic earnings (loss) per share	$	1.01		$	1.40		$	(0.34	)
Diluted earnings (loss) per share:
Earnings (loss) from continuing operations	$	1.02		$	1.00		$	(0.42	)
(Loss) earnings from discontinued operations		(0.01	)		0.39			0.09
Cumulative effect of a change in accounting principle, net of taxes		(0.02	)		—			—
Diluted earnings (loss) per share	$	1.00		$	1.38		$	(0.34	)

See accompanying Notes to Consolidated Financial Statements

44

SOTHEBY'S HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)

December 31	2005			2004
ASSETS
Current Assets:
Cash and cash equivalents	$	124,956		$	147,023
Restricted cash		7,679			12,401
Short-term investments		—			110,000
Accounts receivable, net of allowance for doubtful accounts of $5,345 and $6,172		354,741			410,910
Notes receivable and consignor advances, net of allowance for credit losses of $792 and $1,759		85,272			56,716
Inventory		45,087			34,126
Deferred income taxes		15,055			—
Prepaid expenses and other current assets		54,166			61,079
Total Current Assets		686,956			832,255
Non-Current Assets:
Notes receivable		56,678			35,575
Properties, net of accumulated depreciation and amortization of $135,651 and $122,319		225,434			238,533
Goodwill		13,447			13,753
Investments		25,871			28,343
Deferred income taxes		46,033			72,649
Other assets		6,333			3,704
Total Assets	$	1,060,752		$	1,224,812
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Due to consignors	$	376,079		$	470,946
Accounts payable and accrued liabilities		131,354			112,871
Deferred revenues		5,186			4,799
Accrued income taxes		8,918			10,153
Deferred income taxes		42			5,462
York Property capital lease obligation		1,438			123
Deferred gain on sale of York Property		1,129			1,129
Settlement liabilities		21,099			14,454
Total Current Liabilities		545,245			619,937
Long-Term Liabilities:
Long-term debt, net of unamortized discount of $299 and $383		99,701			99,617
Credit facility borrowings		34,542			—
Settlement liabilities		40,794			61,085
York Property capital lease obligation		170,606			172,046
Deferred gain on sale of York Property		18,245			19,374
Other liabilities		25,343			17,368
Total Liabilities		934,476			989,427
Commitments and contingencies (see Note O)
Shareholders' Equity:
Common Stock, $0.10 par value		5,777			6,374
Authorized shares—125,000,000 of Class A and 75,000,000 of Class B, Issued and outstanding shares—57,847,878 and 45,923,612 of Class A, and 0 and 17,850,808 of Class B at December 31, 2005 and December 31, 2004, respectively
Additional paid-in capital		69,808			230,124
Retained earnings		69,741			8,139
Deferred compensation expense		(7,876	)		(10,341	)
Accumulated other comprehensive (loss) income		(11,174	)		1,089
Total Shareholders' Equity		126,276			235,385
Total Liabilities and Shareholders' Equity	$	1,060,752		$	1,224,812

See accompanying Notes to Consolidated Financial Statements

45

SOTHEBY'S HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)

Year Ended December 31	2005			2004			2003
Operating Activities:
Net income (loss)*	$	61,602		$	86,679		$	(20,656	)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation and amortization expense		22,075			23,830			25,321
Gain on sale of discontinued operations		—			(32,005	)		—
Equity in earnings of investees		(829	)		(740	)		(31	)
Deferred income tax expense (benefit)		8,757			23,215			(16,557	)
Tax benefit of stock option exercises		1,069			—			4
Restricted stock compensation expense		8,269			6,646			387
Impact of consolidating variable interest entity		323			133			—
Defined benefit pension expense		4,438			2,757			1,861
Cumulative effect of a change in accounting principle		1,130			—			—
Asset provisions		3,667			4,033			1,311
Write-off of fees and direct costs related to terminated credit agreement		2,069			—			—
Amortization of discount related to antitrust matters		3,988			4,885			4,125
Other		962			1,469			1,052
Changes in assets and liabilities:
Decrease (increase) in accounts receivable		34,833			(172,482	)		51,080
Increase in inventory		(14,526	)		(19,312	)		(2,771	)
Increase in prepaid expenses and other current assets		(5,228	)		(17,518	)		(7,566	)
Increase in other long-term assets		(2,863	)		(372	)		(484	)
Funding of settlement liabilities		(18,214	)		(10,822	)		(50,457	)
(Decrease) increase in due to consignors		(79,899	)		208,655			(19,626	)
(Increase) decrease in deferred income tax assets		(204	)		(677	)		5,235
(Decrease) increase in accrued income taxes and deferred income tax liabilities		(3,297	)		6,191			103
Increase (decrease) in accounts payable and accrued liabilities and other liabilities		30,664			28,225			(20,057	)
Adjustments related to discontinued operations		—			3,461			(722	)
Net cash provided (used) by operating activities		58,786			146,251			(48,448	)
Investing Activities:
Funding of notes receivable and consignor advances		(214,918	)		(145,663	)		(113,014	)
Collections of notes receivable and consignor advances		164,856			160,940			98,381
Purchases of short-term investments		(323,163	)		(288,414	)		—
Proceeds from maturities of short-term investments		433,163			178,414			—
Capital expenditures		(14,862	)		(13,468	)		(6,593	)
Proceeds from York Property sale-leaseback		—			—			167,054
Distributions from equity investees		3,748			2,900			1,731
Decrease (increase) in restricted cash		4,032			(4,489	)		1,057
Proceeds from sale of discontinued operations		—			53,863			—
Acquisition related to discontinued operations		—			—			(4,944	)
Capital expenditures related to discontinued operations		—			(194	)		(2,252	)
Decrease in restricted cash related to discontinued operations		—			755			2,881
Net cash provided (used) by investing activities		52,856			(55,356	)		144,301
Financing Activities:
Proceeds from revolving credit facility borrowings		174,542			65,000			145,000
Repayments of revolving credit facility borrowings		(140,000	)		(85,000	)		(225,000	)
Repurchase of common stock		(177,215	)		—			—
Decrease in York Property capital lease obligation		(125	)		(113	)		(1,584	)
Proceeds from exercise of stock options		9,322			9,945			43
Net cash used by financing activities		(133,476	)		(10,168	)		(81,541	)
Effect of exchange rate changes on cash and cash equivalents		(233	)		893			2,539
(Decrease) increase in cash and cash equivalents		(22,067	)		81,620			16,851
Cash and cash equivalents at beginning of period		147,023			65,403			48,552
Cash and cash equivalents at end of period	$	124,956		$	147,023		$	65,403
Cash and cash equivalents at end of period:
Continuing operations	$	124,956		$	147,023		$	62,387
Discontinued operations		—			—			3,016
	$	124,956		$	147,023		$	65,403
Discontinued Operations:
*Net (loss) income from discontinued operations	$	(437	)	$	24,286		$	5,382
Non-cash Activities:
York Property capital lease asset and obligation	$	—		$	—		$	173,866

See accompanying Notes to Consolidated Financial Statements

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SOTHEBY'S HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(Thousands of dollars)

	Comprehensive Income (Loss)			Common Stock			Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Deferred Compensation Expense			Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2003				$	6,153		$	202,406		$	(57,884	)	$	—		$	(16,200	)*
Comprehensive loss:
Net loss	$	(20,656	)								(20,656	)
Other comprehensive income—foreign currency translation*		10,161															10,161
Comprehensive loss	$	(10,495	)
Stock options exercised					1			70
Tax benefit associated with exercise of stock options								4
Restricted stock shares issued					16			1,878						(1,894	)
Amortization of restricted stock compensation expense														387
Shares issued to directors					3			209
Balance at December 31, 2003					6,173			204,567			(78,540	)		(1,507	)		(6,039	)
Comprehensive income:
Net income	$	86,679									86,679
Other comprehensive income—foreign currency translation*		7,128															7,128
Comprehensive income	$	93,807
Stock options exercised					84			10,141
Restricted stock shares issued					117			15,286						(15,643	)
Restricted stock shares forfeited					(1	)		(162	)					163
Amortization of restricted stock compensation expense														6,646
Shares issued to directors					1			292
Balance at December 31, 2004					6,374			230,124			8,139			(10,341	)		1,089
Comprehensive income:
Net income	$	61,602									61,602
Other comprehensive loss—foreign currency translation		(12,263	)														(12,263	)
Comprehensive income	$	49,339
Repurchase of common stock					(694	)		(176,422	)
Adjustment to deferred tax asset valuation allowance related to stock option exercises								1,719
Stock options exercised					76			9,342
Tax benefit associated with exercise of stock options								1,069
Restricted stock shares issued					34			5,919						(5,956	)
Restricted shares withheld to satisfy employee tax obligations					(13	)		(2,190	)
Restricted stock shares forfeited					(1	)		(110	)
Amortization of restricted stock compensation expense														8,421
Shares issued to directors					1			357
Balance at December 31, 2005				$	5,777		$	69,808		$	69,741		$	(7,876	)	$	(11,174	)

* As restated, see Note B.

See accompanying Notes to Consolidated Financial Statements

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SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note A—Organization and Business

      Sotheby's Holdings, Inc. (together with its subsidiaries, unless the context otherwise requires, the “Company”) is one of the world's two largest auctioneers of authenticated fine arts, decorative arts and collectibles. The Company offers property through its worldwide Auction segment in approximately 70 collecting categories, among them fine art, decorative arts, jewelry and collectibles. In addition to auctioneering, the Auction segment is engaged in a number of related activities, including the purchase and resale of art and other collectibles and the brokering of private purchases and sales of art, jewelry and collectibles. The Company also conducts art-related financing activities through its Finance segment, and is engaged, to a lesser extent, in licensing activities.

      The Company was incorporated in Michigan in August 1983. In October 1983, the Company acquired Sotheby Parke Bernet Group Limited, which was then a publicly held company listed on the International Stock Exchange of the United Kingdom and which, through its predecessors, had been engaged in the auction business since 1744. In 1988, the Company issued shares of Class A Common Stock to the public. The Class A Common Stock is listed on the New York Stock Exchange.

      (See Note C below for information related to a recapitalization transaction consummated by the Company on September 7, 2005.)

Note B—Summary of Significant Accounting Policies

      Principles of Consolidation—The Consolidated Financial Statements include the accounts of Sotheby's Holdings, Inc. and its wholly-owned subsidiaries, as well as those of an entity for which the Company is the primary beneficiary (see Note R). Intercompany transactions and balances have been eliminated. Equity investments in which the Company exercises significant influence over the investee but does not have control and is not the primary beneficiary are accounted for using the equity method (see Note G).

      Revenue Recognition (Auction and Related Revenues)—The principal components of Auction and Related Revenues are, (1) auction commission revenues, (2) private sales commissions, (3) principal activities, (4) auction expense recoveries and (5) catalogue subscription revenues. The revenue recognition policy for each of these is described below.

      Auction Commission Revenues—In its role as auctioneer, the Company generally functions as an agent accepting property on consignment from its selling clients. The Company sells property as agent of the consignor, billing the buyer for property purchased, receiving payment from the buyer and remitting to the consignor the consignor's portion of the buyer's payment after deducting the Company's commissions, expenses and applicable taxes. The Company's commissions include those earned from the buyer (“buyer's premium revenue”) and those earned from the consignor (“seller's commission revenue”), both of which are calculated as a percentage of the hammer price of property sold at auction. Buyer's premium and seller's commission revenues are recognized at the time of the auction sale (i.e., when the auctioneer's hammer falls) and are recorded net of commissions owed to unaffiliated third parties. Commissions owed to third parties are typically the result of the competitive environment or as a result of risk sharing arrangements, whereby the Company reduces its financial exposure under certain auction guarantees in exchange for sharing in the auction commissions with a partner. Also, in certain situations, a partner will assist the Company in valuing and marketing the property to be sold at auction.

      Private Sales Commissions—Private sales commissions are earned through the brokering of art and collectible purchases and sales and are recognized when an agreement with the purchaser is finalized and the Company has fulfilled its obligations with respect to the transaction.

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      Principal Activities—Principal activities consist mainly of gains or losses on sales of inventory, income or loss related to auction guarantees and gains or losses related to the sales of loan collateral, as well as any decreases in the carrying value of the Company's inventory.

      Gains or losses on sales of inventory and loan collateral are recognized when an agreement with the purchaser is finalized and the Company has fulfilled its obligations with respect to the transaction. The recognition of a loss is accelerated when and if the Company determines that an impairment of the inventory's value has occurred.

      From time to time in the ordinary course of business, the Company will guarantee to consignors a minimum price in connection with the sale of property at auction. The Company must perform under its auction guarantee only in the event the property does not sell, or sells for less than the minimum price, in which event the Company must pay the difference between the sale price at auction and the amount of the auction guarantee. Generally, the Company is entitled to a share of the excess proceeds if the property under the auction guarantee sells above a minimum price. The Company's share of any excess proceeds, as well as any shortfall between the sale price at auction and the amount of the auction guarantee are recognized as a principal gain or loss at the time of the related auction sale.

      Auction Expense Recoveries—According to the terms of certain consignment agreements, the Company has the right to recover certain direct costs of services from the consignor. Such auction expense recoveries are recognized in the period of the related sale.

      Catalogue Subscription Revenues—Catalogue subscription revenues are earned from the sale of auction catalogues and are recognized ratably over the period of the subscriptions.

      Revenue Recognition (Other Revenues)—Other revenues consist principally of interest income earned on Notes Receivable and Consignor Advances. Such interest income is recognized when earned based on the amount of the outstanding loan and the length of time the loan was outstanding during the period. Where there is doubt regarding the ultimate collectibility of principal for impaired loans, any cash receipts subsequently received are thereafter directly applied to reduce the recorded investment in the loan.

      Direct Costs of Services—Direct Costs of Services consists largely of catalogue production and distribution costs and sale marketing costs, which are expensed at the time of sale, as well as corporate marketing expenses, which are expensed as incurred.

      Cash and Cash Equivalents—Cash equivalents are liquid investments comprised primarily of bank and time deposits and other short-term investments with effective maturities of three months or less. These investments are carried at cost, which approximates fair value.

      Restricted Cash—Restricted Cash principally consists of amounts or deposits whose use is restricted by either law or contract and primarily includes deposits supporting rental obligations in the U.S. and Europe and net auction proceeds owed to consignors in certain non-U.S. jurisdictions.

      Short-Term Investments—From time-to-time, the Company invests in money-market instruments which are classified as available for sale. These investments are reflected in the Consolidated Balance Sheets at fair value, which is the equivalent of their par value. The Company did not hold any Short-Term Investments as of December 31, 2005.

      Properties—Properties (see Note H) are stated at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Leaseholds and leasehold improvements are amortized using the straight-line method over the lesser of the life of the lease or the estimated useful life of the improvement. Computer software consists of the capitalized cost of purchased computer software, as well as direct external and internal computer software development costs incurred in the acquisition or development of software for internal use. These costs are amortized on a straight-line basis over the estimated useful life of the software.

      The Company capitalizes interest expense on projects when construction or development requires more than one year for the assets to be ready for their intended use. Capitalized interest is allocated to properties once placed in service and amortized over the life of the related assets.

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The Company did not capitalize any interest expense for the years ended December 31, 2005, 2004 and 2003.

      Financial Instruments—The carrying amounts of Cash and Cash Equivalents, Restricted Cash, Short-Term Investments (if any), Notes Receivable, Consignor Advances and Credit Facility Borrowings do not materially differ from their estimated fair value due to their nature and the variable interest rates associated with each of these financial instruments.

      The fair value of the Company's long-term debt was approximately $100 million as of December 31, 2005. This amount is based on quoted market prices. (See Note J.)

      The remaining fine payable to the United States Department of Justice (the “DOJ”), which represents its fair value, was approximately $15 million as of December 31, 2005. The final payment of $15 million owed under the fine was paid by the Company on February 6, 2006 and the liability to the DOJ was extinguished. The carrying amount of the settlement liability related to the Discount Certificates issued in connection with the settlement of certain civil litigation related to the DOJ investigation approximates its fair value. (See Note Q.)

      Derivative Financial Instruments—The Company utilizes forward exchange contracts to manage exposures related to foreign currency risks, which primarily arise from short-term foreign currency denominated intercompany balances. Generally, such intercompany balances are centrally managed by the Company's global treasury function. The Company's objective for holding derivative instruments is to minimize foreign currency risks using the most effective methods to eliminate or reduce the impacts of these exposures.

      The forward exchange contracts entered into by the Company are used as economic cash flow hedges of the Company's exposure to short-term foreign currency denominated intercompany balances. Such forward exchange contracts are typically short-term with settlement dates no more than one month from their inception. These contracts are not designated as hedging instruments under Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, and are recorded in the Consolidated Balance Sheets at fair value, which is based on referenced market rates. Changes in the fair value of the Company's forward exchange contracts are recognized currently in earnings and are generally offset by the revaluation of the underlying intercompany balances in accordance with SFAS No. 52, “Foreign Currency Translation.”

      At December 31, 2005, the Company had $100.6 million of notional value forward exchange contracts outstanding. Notional amounts do not quantify risk or represent assets or liabilities of the Company, but are used in the calculation of cash settlements under such contracts. As of December 31, 2005 and 2004, the Consolidated Balance Sheets included $92,000 and $30,000, respectively, recorded within Prepaid Expenses and Other Current Assets reflecting the fair value of the Company's outstanding forward exchange contracts on those dates.

      Inventory—Inventory consists principally of objects obtained incidental to the auction process, primarily as a result of the failure of guaranteed property to sell at auction at or above the minimum price guaranteed by the Company (see Note P), defaults by purchasers after the consignor has been paid and the honoring of purchasers' claims. Inventory also consists of objects purchased for investment purposes. In situations where guaranteed property fails to sell at auction, the Company has the right to recover the minimum guaranteed amount through the future sale of the property. Inventory is valued on a specific identification basis at the lower of cost or management's estimate of net realizable value.

      Allowance for Doubtful Accounts—Management evaluates specific accounts receivable balances when it becomes aware of a situation where a client may not be able to meet its financial obligations to the Company. The amount of the required allowance is based on the facts available to management and is reevaluated and adjusted as additional information is received. Allowances are also established for probable losses inherent in the remainder of the accounts receivable balance.

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      Allowance for Credit Losses—Management evaluates specific loans when it becomes aware of a situation where a borrower may not be able to repay the loan. The amount of the required allowance is based on the facts available to management and is reevaluated and adjusted as additional information is received. Secured loans that may not be collectible are analyzed based on the current estimated realizable value of the collateral securing each loan, as well as the ability of the borrower to repay the loan. Reserves are established for secured loans that management believes are under-collateralized, and with respect to which the under-collateralized amount may not be collectible from the borrower. Unsecured loans are analyzed based on management's estimate of the current collectibility of each loan, taking into account the ability of the borrower to repay the loan. A reserve is also established for probable losses inherent in the remainder of the loan portfolio based on historical data related to loan write-offs. (See Note F.)

      Goodwill—Goodwill is tested for impairment on an annual basis as of October 31, and between annual tests if indicators of potential impairment exist, using a fair-value-based approach. No impairment of goodwill has been identified during any of the periods presented. (See Note I.)

      Impairment of Long-Lived Assets—Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In such situations, long-lived assets are considered impaired when estimated future cash flows (undiscounted and without interest charges) resulting from the use of the asset and its eventual disposition are less than the asset's carrying amount.

      Auction Guarantees—The liability related to the Company's outstanding auction guarantees is recorded within Accounts Payable and Accrued Liabilities in the Consolidated Balance Sheets at fair value, which is estimated based on an analysis of historical loss experience related to auction guarantees. (See Note P.)

      Earnings (Loss) Per Share—Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of outstanding shares of common stock. Because the Company reported a net loss for the year ended December 31, 2003, stock options and unvested shares of restricted stock were excluded from the calculation of the weighted average number of shares for those years, as they would be anti-dilutive. The weighted average number of shares used for calculating basic and diluted earnings (loss) per share are as follows:

Year Ended December 31	2005		2004		2003
	(In millions)
Basic weighted average shares outstanding		60.7		61.9		61.6
Dilutive effect of stock options and unvested restricted stock		1.2		0.8		—
Diluted weighted average shares outstanding		61.9		62.7		61.6

      (See Note M for information on stock options outstanding.)

      For the years ended December 31, 2005, 2004 and 2003, there were no reconciling items between the net income (loss) used in calculating basic and diluted earnings (loss) per share.

      Foreign Currency Translation—Assets and liabilities of foreign subsidiaries are translated at year-end exchange rates. Income statement amounts are translated using weighted average monthly exchange rates during the year. Gains and losses resulting from translating foreign currency financial statements are recorded in accumulated other comprehensive income (loss) until the subsidiary is sold or liquidated.

      Stock-Based Compensation—As currently permitted under SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company has elected to measure stock-based compensation related to its employee stock option plans using the intrinsic value approach under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” When the intrinsic value approach is used, SFAS No. 123 requires supplemental disclosure to show the effects of using this approach on net income (loss) and earnings (loss) per share.

      Compensation expense related to restricted stock shares issued pursuant to the 2003 Restricted Stock Plan (the “Restricted Stock Plan”) is determined based on the fair value of the shares issued on the date of grant. Such compensation expense is subsequently amortized to Salaries and Related Costs over the corresponding graded vesting period.

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      The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to its employee stock compensation plans:

Year Ended December 31	2005			2004			2003
	(Thousands of dollars, except per share data)
Net income (loss), as reported	$	61,602		$	86,679		$	(20,656	)
Add: Stock-based employee compensation expense included in reported net income (loss), net of tax effects		5,701			4,240			272
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax effects		(7,288	)		(6,158	)		(8,376	)
Pro forma net income (loss)	$	60,015		$	84,761		$	(28,760	)
Earnings (loss) per share:
Basic earnings (loss) per share, as reported	$	1.01		$	1.40		$	(0.34	)
Basic earnings (loss) per share, pro forma	$	0.99		$	1.37		$	(0.47	)
Diluted earnings (loss) per share, as reported	$	1.00		$	1.38		$	(0.34	)
Diluted earnings (loss) per share, pro forma	$	0.97		$	1.35		$	(0.47	)

      The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants issued in 2005, 2004 and 2003:

	2005	2004	2003
Dividend yield	—	—	—
Expected volatility	44.0%	47.9%	49.8%
Risk-free rate of return	3.9%	3.8%	3.2%
Expected life	4.5 years	4.5 years	4.5 years

      The compensation cost generated by the Black-Scholes model may not be indicative of the future benefit received by the option holder.

      In December 2004, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R) requires the recognition of compensation expense equal to the fair value of stock options or other share-based payments. Under SFAS No. 123(R), the Company would have been required to implement the standard as of July 1, 2005. In April 2005, the Securities and Exchange Commission (the “SEC”) announced the adoption of a new rule that amended the compliance date for SFAS No. 123(R). As a result of this change in compliance date, the Company adopted SFAS No. 123(R) as of January 1, 2006 using the modified prospective method, which will result in the amortization of stock compensation expense related to unvested stock options outstanding on the date of adoption, as well as any stock options granted subsequent to that date. The Company has elected to use the transition election of FASB Staff Position FAS 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards,” to determine the pool of windfall tax benefits, if any, upon adoption. The adoption of SFAS No. 123(R) will result in the recording of pre-tax compensation expense of approximately $1.8 million in 2006 related to unvested stock options outstanding on the date of adoption, as well as an expected 2006 stock option grant resulting from an existing employment agreement.

      (See Note M for additional information on the Company's employee stock option plans and the Restricted Stock Plan.)

      Valuation Allowance for Deferred Tax Assets—The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. In assessing the need for the valuation allowance management considers, among other things, its

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projections of future taxable income and ongoing prudent and feasible tax planning strategies. (See Note K.)

      Use of Estimates—The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and could change in the short-term.

      Reclassifications—Prior to 2005, expenses related to the investigation by the DOJ, other governmental investigations and the related civil litigation were classified as Special Charges in the Consolidated Income Statements. Beginning in 2005, such expenses, consisting principally of settlement administration costs and legal fees, are classified within General and Administrative Expenses for all periods presented as they are no longer significant to the Company's results. For the years ended December 31, 2005, 2004 and 2003, antitrust related expenses were $1.1 million, $1.9 million and $3.1 million, respectively.

      Prior to 2004, the Company's share of earnings from equity method investments was presented on a pre-tax basis within Auction and Related Revenues in the Consolidated Income Statements. Beginning in the fourth quarter of 2004, such amounts are presented net of taxes in the Consolidated Income Statements as a separate line below Income from Continuing Operations Before Taxes. Prior year amounts in the Consolidated Income Statements and in Note E below have been adjusted to conform to the current period presentation.

      In the 2003 Consolidated Statement of Cash Flows, approximately $2.9 million related to Restricted Cash for the Company's discontinued operations has been reclassified from Operating Activities to Investing Activities to conform to the current year presentation.

      Comprehensive Income (Loss)—SFAS No. 130, “Reporting Comprehensive Income,” requires certain transactions to be included as adjustments to net income (loss) in order to report comprehensive income (loss). The Company's comprehensive income (loss) includes the net income (loss) for the period, as well as other comprehensive income (loss). Other comprehensive income (loss) consists of the change in the foreign currency translation adjustment during the period and is reported in the Consolidated Statements of Changes in Shareholders' Equity. The foreign currency translation adjustment is included in Accumulated Other Comprehensive Gain (Loss) in the Consolidated Balance Sheets. For the year ended December 31, 2005, other comprehensive loss was $12.3 million due to the strengthening of the U.S. dollar against the Pound Sterling and the Euro during the period.

      Comprehensive Income (Loss) reported in the Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2004 and 2003 has been restated to properly reflect the deferred tax assets of foreign subsidiaries. The amounts as originally reported incorrectly accrued a deferred tax benefit for foreign currency translation losses, which is recorded in Other Comprehensive Income (Loss), a component of Comprehensive Income (Loss). The restatement resulted in an increase (decrease) in Comprehensive Income (Loss) of $2.2 million and ($3.1) million for the years ended December 31, 2004 and 2003, respectively. The original amounts reported for Comprehensive Income (Loss) for the years ended December 31, 2004 and 2003 were $91.6 million and ($13.6) million, respectively. This restatement also resulted in a reduction of deferred tax assets and a corresponding reduction in Shareholders’ Equity of $0.5 million as of December 31, 2004.

      Cumulative Effect of a Change in Accounting Principle—In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations—an interpretation of FASB Statement No. 143” (“FIN 47”). FIN 47 requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. FIN 47 states that a conditional asset retirement obligation is a legal obligation to perform an asset retirement activity in which the timing or method of settlement are conditional upon a future event that may or may not be within the control of the entity. FIN 47 was effective no later than the end of fiscal years ending after December 15, 2005. The Company adopted FIN 47 effective December 2005 and accordingly recorded an after-tax charge of

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approximately $1.1 million ($1.6 million, pre-tax), or $0.02 per diluted share, as a cumulative effect of a change in accounting principle in the Consolidated Income Statement for the year ended December 31, 2005. This charge relates primarily to those lease agreements that require the Company to restore the underlying facilities to their original condition at the end of the leases. The Company was uncertain of the timing of payment for these asset retirement obligations; therefore a liability was not previously recognized in the financial statements under generally accepted accounting principles. On a prospective basis, this accounting change requires recognition of these costs ratably over the lease term. The adoption of FIN 47 initially resulted in a non-cash addition to Properties of $1 million with a corresponding increase in long-term liabilities. The assets as of December 31, 2005 were $0.2 million, consisting of gross assets of $1 million less accumulated depreciation of $0.8 million. The asset retirement obligation as of December 31, 2005 was $1.8 million, consisting of a liability of $1 million and accretion expense of $0.8 million. In future periods, when cash is paid upon the settlement of the asset retirement obligation, the payments will be classified as a component of operating cash flow in the Consolidated Statements of Cash Flows. If the provisions of FIN 47 would have been applied during periods prior to adoption, the asset retirement obligation as of December 31, 2004 and 2003 would have been $1.7 million and $1.6 million, respectively.

      Recently Issued Accounting Standards—As discussed in more detail above under “Stock-Based Compensation,” the Company adopted SFAS No. 123(R) on January 1, 2006 using the modified prospective method.

      In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” which changes the requirements for the accounting and reporting of a change in accounting principle and error corrections. SFAS No. 154 applies to all voluntary changes in accounting principle, as well as to changes required by an accounting pronouncement that does not include specific transition provisions. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company adopted SFAS No. 154 on January 1, 2006 and will apply its provisions on a prospective basis when applicable.

Note C—Recapitalization

      On September 7, 2005, the Company entered into a Transaction Agreement (the “Agreement”), dated as of such date, with various affiliates of A. Alfred Taubman and his family (the “Shareholders”). Prior to completion of the transactions contemplated by the Agreement, the Shareholders were the Company's largest shareholders, holding in the aggregate 14,034,158 shares of the Company's Class B Common Stock, par value $0.10 per share (the “Class B Stock”), representing approximately 62.4% of the aggregate voting power of the Company's capital stock. In addition, Robert S. Taubman, A. Alfred Taubman's son, is a director of the Company.

      Pursuant to the Agreement, the Company agreed to exchange all 14,034,158 shares of Class B Stock owned by the Shareholders for $168,409,896 in cash and 7.1 million shares of the Company's Class A Limited Voting Common Stock, par value $0.10 per share (the “Class A Stock”), (such exchange, the “Transaction”). (See “Mechanics of Effecting the Transaction; Funding” below.) Completion of the Transaction was not subject to any conditions and it was completed on September 7, 2005. Because the outstanding shares of Class B Stock constituted less than fifty percent of the aggregate voting power of the Company's outstanding common stock following completion of the Transaction, pursuant to the Company's Third Amended and Restated Articles of Incorporation (the “Articles”), following completion of the Transaction each remaining outstanding share of Class B Stock held by shareholders not a party to the Transaction was automatically converted into one share of Class A Stock without any action on the part of the holder thereof. Therefore, immediately following completion of the Transaction and such conversion, the Company had approximately 57.3 million shares of Class A Stock outstanding (of which the Shareholders owned 7.1 million, or approximately 12.4%) and no shares of Class B Stock.

      The Company's Board of Directors appointed a Special Committee to carefully examine all details of the Transaction. The Special Committee consisted of four disinterested Directors who,

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after careful deliberation and negotiation, and based on the advice of independent legal and financial advisors retained by the Special Committee, unanimously recommended that the Company's Board of Directors approve the Transaction.

      As a result of the Transaction, the dual class super-voting share structure that had been in place since the Company's initial public offering in 1988 was eliminated; allowing for a corporate governance structure that is more consistent with the best practices of public companies. Also, the Company believes that the simplified share structure will enhance share liquidity and increase the Company's strategic and financing flexibility. The Company is also planning to present to shareholders for their approval at the 2006 Annual Meeting of Shareholders a proposal to reincorporate in the State of Delaware.

      Mechanics of Effecting the Transaction; Funding—Under the terms of the Agreement, the Transaction was effected by means of: (1) the Shareholders voluntarily converting, on a one-for-one basis pursuant to the Articles, 7.1 million shares of Class B Stock into shares of Class A Stock, and (2) the Company acquiring the remaining shares of Class B Stock owned by the Shareholders for aggregate cash consideration of $168,409,896. The Company funded the cash portion of the consideration plus direct transaction and financing costs with then existing cash balances and $100 million in borrowings under a new credit facility (see Note J).

      The total cost to acquire the Class B Stock owned by the Shareholders of $177.2 million (including $8.8 million in direct transaction costs) was accounted for as a treasury stock transaction in the third quarter of 2005, with Common Stock and Additional Paid-In Capital being reduced by $177.1 million. Additionally, the Company ascribed $100,000 of the cost to the Standstill and the Restrictions on Transfer (as described below) based on their fair value as determined by an independent valuation expert. Such amount was expensed as incurred within Other Expense in the period of the Transaction.

      Direct financing costs of $3.7 million attributable to the new credit facility are being amortized on a straight-line basis over the term of the facility (see Note J).

      Standstill—In the Agreement, each Shareholder agreed to a customary standstill lasting until the earlier of (1) the fourth anniversary of the Transaction or (2) 30 days after the date on which (a) the Shareholders, together with their affiliates, own, in the aggregate, securities representing less than ten percent of the Company's total outstanding voting power and (b) no affiliate of any Shareholder is a member of the Board of Directors of the Company (however, if such 30th day would otherwise occur on or before the second anniversary of the Transaction, such 30th day would not be deemed to occur until such second anniversary). The terms of the Standstill generally state that, each Shareholder shall not (unless requested by the Company): (1) acquire or propose to acquire ownership of or the ability to vote any securities or other property of the Company or any of its subsidiaries or (2) act to seek to control or influence the management, Board of Directors, shareholders, business, operations or policies of the Company.

      Restrictions on Transfer—In the Agreement, each Shareholder agreed that, prior to the second anniversary of the Transaction, such Shareholder would not transfer any shares of Class A Stock or any economic interest therein, except to an affiliate of such Shareholder in connection with tax or estate-planning transactions, or, to the extent permitted by law, for sales of shares of Class A Stock in any three month period, that when aggregated with sales by all other shareholders in such period, would not exceed the greater of one percent of the outstanding shares of Class A Stock or the average weekly trading volume of the Class A Stock during the four weeks preceding such sale.

      Registration Rights—In the Agreement, the Company agreed that, following the second anniversary of the Transaction and on not more than two occasions, the Shareholders would have the right to require the Company to file a registration statement under the federal securities laws registering the sale of all or a portion of the shares of Class A Stock owned by the Shareholders that are not otherwise freely tradable, provided that the market value of the securities proposed to be sold exceeds specified thresholds. The Company has the right to defer the filing of such registration statement under certain circumstances. The Company also agreed to allow the

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Shareholders to participate in any registration statement proposed to be effected by the Company following the second anniversary of the Transaction, subject to certain restrictions.

      The Company agreed to pay all expenses incurred in connection with such registration, other than any underwriting discounts or commissions, and also agreed to indemnify each Shareholder from losses incurred as a result of material misstatements or omissions in such registration statement (other than those that are the responsibility of the Shareholders, losses incurred by the Company as a result of which would be subject to indemnification from the Shareholders).

Note D—Discontinued Operations

      In the fourth quarter of 2003, the Company committed to a plan to sell its domestic real estate brokerage business, Sotheby's International Realty, Inc. (“SIR”), as well as most of its real estate brokerage offices outside of the United States (the “U.S.”). As a result, such operations qualified for treatment as discontinued operations in the Consolidated Income Statements as of December 31, 2003.

      On February 17, 2004, the Company consummated the sale of SIR to a subsidiary of Cendant Corporation (“Cendant”). In conjunction with the sale, the Company entered into an agreement with Cendant to license the Sotheby's International Realty trademark and certain related trademarks for an initial 50-year term with a 50-year renewal option (the “Cendant License Agreement”). Initially, the Cendant License Agreement was applicable to the U.S., Canada, Israel, Mexico and certain Caribbean countries.

      Also in conjunction with the sale, Cendant received options to acquire most of the other non-U.S. offices of the Company's real estate brokerage business and to expand the Cendant License Agreement to cover the related trademarks in other countries outside the U.S., excluding Australia and New Zealand (the “International Options”). The International Options were exercised by Cendant and the Cendant License Agreement was amended to cover New Zealand during 2004. As a result, such operations qualified for treatment as discontinued operations in the Consolidated Income Statements in 2004.

      The total consideration received at closing for SIR's company-owned real estate brokerage business and affiliate network, as well as the Cendant License Agreement was $100.7 million, consisting of $98.9 million in cash and Cendant's assumption of a $1.8 million note payable. Net cash proceeds from the sale, after deducting $4.9 million in transaction costs, were $94 million. In addition to the consideration received at closing, the Cendant License Agreement provides for an ongoing license fee during its term based on the volume of commerce transacted under the licensed trademarks.

      The consideration received at closing was allocated among each of the following components based on a valuation of their respective fair values: (i) SIR's company-owned real estate brokerage business and affiliate network, (ii) the Cendant License Agreement and (iii) the International Options. Based on this valuation, $55.1 million was allocated to SIR's company-owned real estate brokerage business and affiliate network, $45 million was allocated to the Cendant License Agreement and $0.6 million was allocated to the International Options.

      As a result of the sale of the real estate brokerage business and affiliate network to Cendant, in 2004, the Company recognized a pre-tax gain of $32 million, which is recorded within Income from Discontinued Operations Before Taxes in the Consolidated Income Statements, and utilized approximately $14.2 million of the net Deferred Tax Asset related to its net operating loss carryforwards.

      The $45 million of proceeds allocated to the Cendant License Agreement represents a one-time non-refundable upfront license fee received by the Company as consideration for entering into the Cendant License Agreement. The Company has no significant future performance obligations associated with the non-refundable upfront license fee. As a result, the Company recognized license fee revenue of $45 million in the first quarter of 2004, which is classified within the continuing operations section of the Consolidated Income Statements. This classification is consistent with how the Company is reporting ongoing license fees earned during the term of the

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Cendant License Agreement, as well as license fee revenue earned in the future from transactions that involve licensing the Company's trademarks. The Company incurred transaction costs of $2.2 million related to the consummation of the Cendant License Agreement, which were recorded within General and Administrative Expenses in the Consolidated Income Statements.

      Similar to the license fee received by the Company in connection with the Cendant License Agreement, the $0.6 million of proceeds allocated to the International Options represents a one-time non-refundable upfront license fee received by the Company for Cendant's use of the Sotheby's International Realty trademarks in countries outside the U.S. (excluding Australia). As a result of the exercise of the International Options by Cendant, the Company recognized license fee revenue of $0.6 million in the fourth quarter of 2004, which is classified within the continuing operations section of the Consolidated Income Statements. This classification is consistent with how the Company will report ongoing license fees earned as a result of Cendant's use of the trademarks.

      In the fourth quarter of 2004, the Company committed to a plan to discontinue its real estate brokerage business in Australia and license the Sotheby's International Realty trademark and certain related trademarks in Australia. The Company expects to consummate a license agreement related to such trademarks some time in 2006. Accordingly, the operating results of the Australia real estate brokerage business are reported as discontinued operations in the Consolidated Income Statements for all periods presented. The Australia real estate brokerage business, which is the only remaining component of the Company's former Real Estate segment, is not material to the Company's results of operations, financial condition or liquidity.

      The following is a summary of the results of the Company's discontinued operations for the years ended December 31, 2005, 2004 and 2003:

Year Ended December 31	2005			2004		2003
	(Thousands of dollars)
Revenues	$	879		$	17,716	$	39,752
Expenses:
Direct costs of services		35			1,461		4,645
Salaries and related costs		157			5,656		13,327
General and administrative expenses		1,144			3,775		10,305
Depreciation and amortization expense		6			54		2,262
Total expenses		1,342			10,946		30,539
Operating (loss) income		(463	)		6,770		9,213
Gain on sale of discontinued operations		—			32,005		—
Other (expense) income		(320	)		27		218
(Loss) income from discontinued operations before taxes		(783	)		38,802		9,431
Income tax (benefit) expense		(346	)		14,516		4,049
(Loss) income from discontinued operations	$	(437	)	$	24,286	$	5,382

      According to the terms of the Stock Purchase Agreement related to the sale of SIR, the Company received amounts collected by Cendant for the closing of real estate transactions subsequent to February 17, 2004 that were under contract prior to that date. For the years ended December 31, 2005 and 2004, revenues from discontinued operations included $0.5 million and $9.5 million, respectively, of such amounts.

Note E—Segment Reporting

      The Company's continuing operations are organized under two business segments—Auction and Finance. The Company's discontinued real estate brokerage business, which comprised its former Real Estate segment, is not included in this presentation. (See Note D for further information on discontinued operations.)

      The Company's segments are strategic business units that offer different services. They are managed separately because each business requires different resources and strategies. The

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Company's chief operating decision making group, which is comprised of the Chief Executive Officer, the Chief Financial Officer and the senior executives of each segment, regularly evaluates financial information about each segment in deciding how to allocate resources and in assessing performance. The performance of each segment is measured based on its profit or loss from operations before taxes and excluding the unallocated items highlighted below in the reconciliation of segment income (loss) to income (loss) from continuing operations before taxes.

      The Auction segment is an aggregation of Auction operations in North America, Europe and Asia as they have similar economic characteristics and they are similar in service, customers and the way in which the service is provided. The Auction segment conducts auctions of fine arts, decorative arts, jewelry and collectibles in which the Company generally functions as an agent accepting property on consignment from its selling clients. In addition to auctioneering, the Auction segment is engaged in a number of related activities including the purchase and resale of art and other collectibles and the brokering of private purchases and sales of art, jewelry and other collectibles. The Finance segment provides art-related financing generally secured by works of art that the Company either has in its possession or that the Company permits the borrower to possess (see Note F). All Other primarily includes amounts related to the Company's licensing activities and other ancillary businesses.

      The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note B). Auction segment revenues are attributed to geographic areas based on the location of the actual sale. Finance segment revenues are attributed to geographic areas based on the location of the entity that originated the loan.

      Prior to 2004, the Company had presented its share of earnings from its equity investments as part of Auction and Related Revenues. Since 2004, such amounts have been presented net of taxes as a separate line below income (loss) from continuing operations before taxes in the Consolidated Income Statements. Amounts in the presentation below for the year ended December 31, 2003 have been adjusted to conform to this presentation.

      The following tables present the Company's segment information for the years ended December 31, 2005, 2004 and 2003:

Year Ended December 31, 2005	Auction		Finance			All Other		Total
	(Thousands of dollars)
Revenues	$	502,030	$	8,302		$	3,176	$	513,508
Interest income	$	9,793	$	—		$	—	$	9,793
Interest expense	$	29,356	$	—		$	77	$	29,433
Depreciation and amortization	$	21,992	$	62		$	21	$	22,075
Segment income (loss)	$	100,414	$	(921	)	$	880	$	100,373

Year Ended December 31, 2004
Revenues	$	443,130	$	5,907		$	2,033		$	451,070
Interest income	$	7,611	$	—		$	10		$	7,621
Interest expense	$	28,682	$	(87	)	$	71		$	28,666
Depreciation and amortization	$	23,800	$	—		$	30		$	23,830
Segment income (loss)	$	63,046	$	(1,032	)	$	(468	)	$	61,546

Year Ended December 31, 2003
Revenues	$	308,990		$	5,310		$	3,044		$	317,344
Interest income	$	6,795		$	—		$	15		$	6,810
Interest expense	$	28,358		$	294		$	55		$	28,707
Depreciation and amortization	$	24,975		$	—		$	133		$	25,108
Segment loss	$	(10,913	)	$	(1,957	)	$	(1,190	)	$	(14,060	)

      For the year ended December 31, 2004, total revenues from continuing operations include $45.6 million in one-time license fee revenues earned in conjunction with the consummation of the Cendant License Agreement (see Note D), which are not included in the presentation of segment revenues above. Ongoing license fees earned during the term of the Cendant License Agreement are reflected in All Other.

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      The table below presents a reconciliation of segment income (loss) before taxes to income (loss) from continuing operations before taxes for years ended December 31, 2005, 2004 and 2003:

Year Ended December 31	2005			2004			2003
	(Thousands of dollars)
Segment income (loss) before taxes	$	100,373		$	61,546		$	(14,060	)
Unallocated amounts and reconciling items:
Credit facility termination costs (a)		(3,069	)		—			—
One-time license fee revenue and related costs (b)		—			43,489			—
Unallocated expenses related to discontinued operations (c)		—			—			(2,237	)
Antitrust related expenses (d)		(1,127	)		(1,928	)		(3,112	)
Amortization of interest related to Antitrust matters (e)		(3,988	)		(4,885	)		(4,125	)
Retention costs (see Note T)		—			(285	)		(8,466	)
Net restructuring charges (see Note U)		—			(146	)		(5,039	)
Equity in earnings of investees (f)		(1,276	)		(1,138	)		(48	)
Income (loss) from continuing operations before taxes	$	90,913		$	96,653		$	(37,087	)

(a)	Represents a $1 million termination fee and the write-off of approximately $2.1 million in arrangement fees and other direct costs related to the termination of the Company's senior secured credit agreement with General Electric Capital Corporation (see Note J).
(b)	Represents one-time license fee revenues earned in conjunction with the consummation of the Cendant License Agreement (approximately $45.6 million) and the related transaction costs ($2.2 million), which are not allocated to the Company's operating segments (see Note D).
(c)	Represents amounts previously allocated to the Company's discontinued real estate brokerage business, which represent expenses of the Company's ongoing operations (see Note D).
(d)	Represents antitrust related expenses consisting principally of settlement administration costs and legal fees, which are classified within General and Administrative Expenses.
(e)	Represents the amortization of interest charges related to the DOJ antitrust fine and certain related civil litigation (see Note Q).
(f)	Represents the Company's pre-tax share of earnings related to its equity investees. Such amounts are included in the table above in income (loss) before taxes for the Auction segment, but are presented net of taxes below Income (Loss) from Continuing Operations Before Taxes in the Consolidated Income Statements.

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      The table below presents other reconciling items related to the Company's segment information for the years ended December 31, 2005, 2004 and 2003:

	Segment Totals		Reconciling Items			Consolidated Total
	(Thousands of dollars)
Year Ended December 31, 2005
Interest income	$	9,793	$	(4,114	)(g)	$	5,679
Interest expense	$	29,433	$	3,988	(h)	$	33,421
Year Ended December 31, 2004
Interest income	$	7,621	$	(4,340	)(g)	$	3,281
Interest expense	$	28,666	$	4,885	(h)	$	33,551
Year Ended December 31, 2003
Interest income	$	6,810	$	(4,312	)(g)	$	2,498
Interest expense	$	28,707	$	4,125	(h)	$	32,832
Depreciation expense	$	25,108	$	213	(i)	$	25,321

(g)	Represents the elimination of interest charged by Auction to Finance for funding Finance's loan portfolio.
(h)	Represents the amortization of interest charges related to the DOJ antitrust fine and certain related civil litigation (see Note Q).
(i)	Represents unallocated corporate depreciation and amortization expense related to discontinued operations (see Note D).

      The table below presents information concerning revenues from continuing operations for geographical areas for the years ended December 31, 2005, 2004 and 2003:

Year Ended December 31	2005		2004		2003
	(Thousands of dollars)
United States:
Auction	$	206,561	$	194,245	$	119,820
Finance		4,023		3,763		4,514
All Other		2,140		878		901
Sub-total		212,724		198,886		125,235
United Kingdom:
Auction		189,606		167,379		126,025
Finance		4,093		1,983		586
All Other		541		700		1,937
Sub-total		194,240		170,062		128,548
China:
Auction		32,793		23,306		15,813
Finance		98		39		64
Sub-total		32,891		23,345		15,877
Other Countries:
Auction (j)		73,070		58,200		47,332
Finance		88		122		146
All Other		495		455		206
Sub-total		73,653		58,777		47,684
One-time license fee revenues (k)		—		45,650		—
Total	$	513,508	$	496,720	$	317,344

(j) No other individual country exceeds 5% of total revenues for any of the periods presented.

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(k) Represents one-time license fee revenues earned in conjunction with the consummation of the Cendant License Agreement, which are not allocated to the Company's operating segments (see Note D).

      The table below presents assets for the Company's segments, as well as a reconciliation of segment assets to consolidated assets as of December 31, 2005 and 2004:

December 31	2005		2004
	(Thousands of dollars)
Auction	$	850,978	$	1,064,091
Finance		148,576		86,601
All Other		110		1,471
Total segment assets		999,664		1,152,163
Unallocated amounts:
Deferred tax assets		61,088		72,649
Consolidated assets	$	1,060,752	$	1,224,812

Note F—Receivables

      Accounts Receivable—In its role as auctioneer, the Company generally functions as an agent accepting property on consignment from its selling clients. The Company sells property as agent of the consignor, billing the buyer for property purchased, receiving payment from the buyer and remitting to the consignor the consignor's portion of the buyer's payment after deducting the Company's commissions, expenses and applicable taxes. The amounts billed to buyers are recorded as Accounts Receivable in the Consolidated Balance Sheets. Under the standard terms and conditions of the Company's auction sales, the Company is not obligated to pay consignors for items that have not been paid for by the purchaser. If the purchaser defaults on payment, the Company has the right to cancel the sale and return the property to the owner, re-offer the property at a future auction or negotiate a private sale.

      In certain situations, under negotiated contractual arrangements or when the buyer takes possession of the property before payment is made, the Company is liable to the consignor for the net sale proceeds whether or not the buyer makes payment. As of December 31, 2005 and 2004, Accounts Receivable included approximately $180.1 million and $158 million, respectively, of such amounts due from buyers. As of December 31, 2005, substantially all of the amount outstanding at December 31, 2004 had been collected. As of February 24, 2006, approximately $117.1 million of the amount outstanding at December 31, 2005 had been collected. Management believes that adequate allowances have been established to provide for potential losses on any uncollected amounts.

      Notes Receivable and Consignor Advances—The Company's Finance segment provides certain collectors and dealers with financing generally secured by works of art that the Company either has in its possession or permits the borrower to possess. The Company's general policy is to make secured loans at loan to value ratios (principal loan amount divided by the low auction estimate of the collateral) of 50% or lower. The Company will also lend at loan to value ratios higher than 50%. As of December 31, 2005, such loans totaled $39.3 million and represented 28% of net Notes Receivable and Consignor Advances. The property related to such loans had a low pre-sale auction estimate of approximately $62.8 million. Furthermore, the Company's loans are predominantly variable interest rate loans.

      The Company generally makes two types of secured loans: (1) advances secured by consigned property to borrowers who are contractually committed, in the near term, to sell the property at auction (a “consignor advance”); and (2) general purpose term loans to collectors or dealers secured by property not presently intended for sale (a “term loan”). The consignor advance allows a consignor to receive funds shortly after consignment for an auction that will occur several weeks or months in the future, while preserving for the benefit of the consignor the potential of the auction process. Term loans allow the Company to establish or enhance mutually beneficial

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relationships with dealers and collectors and sometimes result in auction consignments. Term loans are generally made with full recourse against the borrower. In certain instances, however, term loans are made with recourse limited to the works of art pledged as security for the loan. To the extent that the Company is looking wholly or partially to the collateral for repayment of its loans, repayment can be adversely impacted by a decline in the art market in general or in the value of the particular collateral. In addition, in situations where the borrower becomes subject to bankruptcy or insolvency laws, the Company's ability to realize on its collateral may be limited or delayed by the application of such laws. Under certain circumstances, the Company also makes unsecured loans to collectors and dealers. Included in gross Notes Receivable and Consignor Advances are unsecured loans totaling $0.6 million and $6 million at December 31, 2005 and 2004, respectively.

      In certain situations, the Company also finances the purchase of works of art by certain art dealers through unsecured loans. The property purchased pursuant to such unsecured loans is sold by the dealer or at auction with any profit or loss shared by the Company and the dealer. Interest income related to such unsecured loans is reflected in the results of the Finance segment within Other Revenues, while the Company's share of any profit or loss is reflected in the results of the Auction segment within Auction and Related Revenues. The total of all such unsecured loans was $0.3 million and $5.4 million at December 31, 2005 and 2004, respectively. These amounts are included in the total unsecured loan balances provided in the previous paragraph.

      At December 31, 2005, two term loans issued to the same borrower in the amounts of $19.3 million and $32.3 million with maturity dates of September 2006 and May 2007, respectively, comprised in the aggregate approximately 36% of the net Notes Receivable and Consignor Advances balance. The estimated value of the collateral related to these loans is approximately $102.3 million and consists entirely of Chinese Works of Art.

      As of December 31, 2005 and 2004, Notes Receivable and Consignor Advances consist of the following:

Year Ended December 31	2005			2004
	(Thousands of dollars)
Current:
Consignor advances	$	21,596		$	44,319
Term loans		64,468			14,156
Sub-total		86,064			58,475
Non-current:
Consignor advances		1,925			281
Term loans		54,753			35,294
Sub-total		56,678			35,575
Notes receivable and consignor advances		142,742			94,050
Allowance for credit losses		(792	)		(1,759	)
Notes receivables and consignor advances (net)	$	141,950		$	92,291

      The weighted average interest rates charged on Notes Receivable and Consignor Advances were 6.8%, 5.9% and 5.5% for the years ended December 31, 2005, 2004 and 2003, respectively.

      As of December 31, 2005 and 2004, Notes Receivable and Consignor Advances includes employee loans of $0.4 million and $0.9 million, respectively. For the years ended December 31, 2005 and 2004, the weighted average interest rates charged on these loans were 8.1% and 7.5%, respectively.

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      Changes in the Allowance for Credit Losses relating to Notes Receivable and Consignor Advances during 2005 and 2004 were as follows:

	2005			2004
	(Thousands of dollars)
Allowance for credit losses at January 1	$	1,759		$	1,600
Change in loan loss provision		(935	)		250
Write-offs		—			(103	)
Foreign currency exchange rate changes		(32	)		12
Allowance for credit losses at December 31	$	792		$	1,759

Note G—Investments

      Prior to 2004, the Company had presented its share of earnings from the equity investments described below as part of Auction and Related Revenues. Beginning in 2004, such amounts are being presented net of taxes as a separate line below income (loss) from continuing operations before taxes in the Consolidated Income Statements. Prior year amounts have been adjusted to conform to the current year presentation throughout the Consolidated Financial Statements and related notes, where necessary.

      On May 23, 1990, the Company purchased the common stock of the Pierre Matisse Gallery Corporation (“Matisse”) for approximately $153 million. The assets of Matisse consisted of a collection of fine art (the “Matisse Inventory”). Upon consummation of the purchase, the Company entered into an agreement with Acquavella Contemporary Art, Inc. (“ACA”) to form Acquavella Modern Art (“AMA”), a partnership through which the Matisse Inventory would be sold. The Company contributed the Matisse Inventory to AMA in exchange for a 50% interest in the partnership. Although the original term of the AMA partnership agreement was for ten years and was due to expire in 2000, it has been renewed on an annual basis since then with the most recent extension due to expire on March 31, 2007.

      The Company does not control AMA and is not its primary beneficiary; consequently, the Company uses the equity method to account for its investment in AMA and records its share of AMA's earnings or losses, net of taxes, within Equity in Earnings of Investees in the Consolidated Income Statements. The Company's 50% interest in the net assets of AMA is included in Investments in the Consolidated Balance Sheets. The carrying value of the Company's investment in AMA totaled $23.5 million and $26.4 million as of December 31, 2005 and 2004, respectively. For the years ended December 31, 2005, 2004 and 2003, the Company's share of AMA's earnings, net of taxes, was $0.5 million, $0.5 million and $0.1 million, respectively.

      Pursuant to the AMA partnership agreement, upon the death of the majority shareholder of ACA, the successors-in-interest to ACA have the right, but not the obligation, to require the Company to purchase their interest in AMA at a price equal to the fair market value of such interest. The fair market value shall be determined by independent accountants pursuant to a process and a formula set forth in the partnership agreement that includes an appraisal of the works of art held by AMA at such time. The net assets of AMA consist principally of the Matisse Inventory. At December 31, 2005, the carrying value of this inventory was $71.3 million.

      To the extent that AMA requires working capital, the Company has agreed to lend the same to AMA. As of December 31, 2005 and 2004, no such amounts were outstanding.

      As of December 31, 2005 and 2004, the carrying value of the Company's investment in another affiliate was $2.4 million and $2 million, respectively. The Company does not control this affiliate and is not its primary beneficiary; consequently, the Company uses the equity method to account for its investment. For the years ended December 31, 2005, 2004 and 2003, the Company's share of this affiliate's earnings or (losses), net of taxes, was $0.3 million, $0.2 million and ($39,000), respectively.

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Note H—Properties

      As of December 31, 2005 and 2004, Properties consisted of the following:

December 31	2005			2004
	(Thousands of dollars)
Land	$	6,340		$	2,427
York Property capital lease (see Note L)		173,866			173,866
Buildings and building improvements		4,914			3,943
Leasehold improvements		64,222			67,549
Computer hardware and software		59,438			60,380
Furniture, fixtures and equipment		49,299			49,282
Construction in progress		1,293			1,665
Other		1,713			1,740
		361,085			360,852
Less: accumulated depreciation and amortization		(135,651	)		(122,319	)
Total	$	225,434		$	238,533

      On February 7, 2003, the Company completed the sale of its headquarters building at 1334 York Avenue in New York, New York (the “York Property”) and leased it back from the buyer for an initial 20-year term, with options for the Company to extend the lease for two additional 10-year terms. The resulting lease is being accounted for as a capital lease, with the related asset being amortized over the initial 20-year lease term (see Note L). Included in Accumulated Depreciation and Amortization above is $25.3 million and $16.6 million as of December 31, 2005 and 2004, respectively, related to the York Property capital lease. The sale of the York Property resulted in a deferred gain of approximately $23 million, which is being amortized on a straight-line basis against Depreciation and Amortization Expense over the initial 20-year lease term.

Note I—Goodwill

      Goodwill is entirely attributable to the Auction segment. The Company has completed its annual impairment test and concluded that its goodwill was not impaired as of October 31, 2005. For the years ended December 31, 2005 and 2004, changes in the carrying value of Goodwill were as follows:

	2005			2004
	(Thousands of dollars)
Balance as of January 1	$	13,753		$	13,565
Foreign currency exchange rate changes and other activity		(306	)		188
Balance as of December 31	$	13,447		$	13,753

Note J—Credit Arrangements

      Bank Credit Facilities—On September 7, 2005, in connection with the Transaction described in Note C above, the Company terminated its senior secured credit agreement with General Electric Capital Corporation (the “GE Capital Credit Agreement”). The GE Capital Credit Agreement provided for borrowings of up to $200 million through an international syndicate of lenders and was available through March 4, 2007.

      As a result of the termination of the GE Capital Credit Agreement, the Company incurred a $1 million termination fee and wrote off approximately $2.1 million in related arrangement fees and other direct costs, which were previously being amortized over the term of the agreement. These charges are combined and reflected as a separate caption in the Consolidated Income Statements for the year ended December 31, 2005.

      On September 7, 2005, also in connection with the Transaction described in Note C above, the Company entered into a new senior secured credit agreement with an international syndicate of

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lenders arranged by Banc of America Securities LLC (“BofA”) and LaSalle Bank N.A. (the “BofA Credit Agreement”). The Company paid underwriting, structuring and amendment fees of $2.8 million related to the BofA Credit Agreement, which are being amortized on a straight-line basis to Interest Expense over the term of the facility.

      The BofA Credit Agreement provides for borrowings of up to $250 million through a revolving credit facility. The amount of borrowings available at any time under the BofA Credit Agreement is limited to a borrowing base, which is generally equal to 100% of eligible loans made by the Company in the U.S. and the U.K. (i.e., notes receivable and consignor advances) plus 15% of the Company's net tangible assets (calculated as total assets less current liabilities, goodwill, unamortized debt discount and eligible loans). As of December 31, 2005, the amount of unused borrowing capacity available under the BofA Credit Agreement was $201.9 million, consisting of a borrowing base of $236.4 million less $34.5 million in borrowings outstanding on that date. Such outstanding borrowings are classified as long-term liabilities in the Consolidated Balance Sheet as of December 31, 2005. As of February 28, 2006, the amount of unused borrowing capacity available under the BofA Credit Agreement was $165.5 million, consisting of a borrowing base of $201 million less $35.5 million in borrowings outstanding on that date.

      The BofA Credit Agreement is available through September 7, 2010; provided that in the event that any of the $100 million in long-term debt securities (the “Notes”) issued by the Company in February 1999 (as discussed in more detail below) are still outstanding on July 1, 2008, then either: (a) the Company shall deposit cash in an amount equal to the aggregate outstanding principal amount of the Notes on such date into an account in the sole control and dominion of BofA for the benefit of the lenders and the holders of the Notes or (b) the Company shall have otherwise demonstrated its ability to redeem and pay in full the Notes; otherwise the BofA Credit Agreement shall terminate and all amounts outstanding thereunder shall be due and payable in full on July 1, 2008.

      Borrowings under the BofA Credit Agreement are available to be used to: (a) finance in part the Transaction and related fees and expenses and (b) provide ongoing working capital and for other general corporate purposes of the Company. The Company's obligations under the BofA Credit Agreement are secured by substantially all of the non-real estate assets of the Company, as well as the non-real estate assets of its subsidiaries in the U.S. and the U.K.

      The BofA Credit Agreement contains financial covenants requiring the Company not to exceed a maximum level of capital expenditures and dividend payments (as discussed in more detail below) and to have a quarterly interest coverage ratio of not less than 2.0 and a quarterly leverage ratio of not more than: (i) 4.0 for quarters ending September 30, 2005 to September 30, 2006, (ii) 3.5 for quarters ending December 31, 2006 to September 30, 2007 and (iii) 3.0 for quarters ending December 31, 2007 and thereafter. The maximum level of annual capital expenditures permitted under the BofA Credit Agreement is $15 million through 2007 and $20 million thereafter with any unused amounts carried forward to the following year. Dividend payments, if any, must be paid solely out of 40% of the Company's net income arising after June 30, 2005 and computed on a cumulative basis. The BofA Credit Agreement also has certain non-financial covenants and restrictions. The Company is in compliance with its covenants.

      At the option of the Company, any borrowings under the BofA Credit Agreement generally bear interest at a rate equal to: (i) LIBOR plus 1.75%, or (ii) 0.5% plus the higher of the Prime Rate or the Federal Funds Rate plus 0.5%. For the year ended December 31, 2005, the weighted average interest rate incurred by the Company on outstanding borrowings under the BofA Credit Agreement was approximately 6.3%. For the years ended December 31, 2004 and 2003, the weighted average interest rate incurred by the Company on outstanding borrowings under its previous revolving credit facilities was approximately 6.3% and 5.2%, respectively.

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      Senior Unsecured Debt—In February 1999, the Company issued a tranche of long-term debt securities (defined above as the “Notes”), pursuant to the Company's $200 million shelf registration with the SEC, for an aggregate offering price of $100 million. The ten-year Notes have an effective interest rate of 6.98% payable semi-annually in February and August.

      The Notes have covenants that impose limitations on the Company from placing liens on certain property and entering into certain sale-leaseback transactions. The Company is in compliance with these covenants.

      As of December 31, 2005, aggregate principal and interest payments due under these long-term debt securities are as follows (in thousands):

2006	$	6,875
2007		6,875
2008		6,875
2009		102,865
Total future principal and interest payments	$	123,490

      Interest Expense—For the years ended December 31, 2005, 2004 and 2003, interest expense related to the Company's continuing operations consisted of the following:

Year Ended December 31	2005		2004		2003
	(Thousands of dollars)
Credit Facility Borrowings:
Interest expense on outstanding borrowings	$	1,513	$	298	$	1,979
Amortization of amendment and arrangement fees		844		1,114		1,929
Commitment fees		851		869		358
Sub-total		3,208		2,281		4,266
Interest expense on York Property capital lease obligation (see Note L)		17,899		17,911		16,119
Interest expense on long-term debt		6,959		6,952		6,948
Amortization of discount—DOJ antitrust fine (see Note Q)		1,246		2,049		2,358
Amortization of discount—Discount Certificates (see Note Q)		2,742		2,836		1,767
Other interest expense		1,367		1,522		1,374
Total	$	33,421	$	33,551	$	32,832

      Other interest expense principally relates to interest accrued on the obligations under the Sotheby's, Inc. Benefit Equalization Plan and its successor, the Sotheby's, Inc. 2005 Benefit Equalization Plan, which are unfunded defined contribution plans available to certain U.S. officers of the Company whose contributions to the Sotheby's, Inc. Retirement Savings Plan are limited by Internal Revenue Service regulations (see Note N).

      Interest Paid—For the years ended December 31, 2005, 2004 and 2003, interest paid totaled $29.2 million, $29 million and $27.5 million, respectively. Interest paid consists of cash payments related to the Company's credit facility borrowings (including interest and fees) and long-term debt securities, as well as the portion of lease payments for the York Property capital lease obligation related to interest.

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Note K—Income Taxes

      The significant components of income tax expense (benefit) from continuing operations consist of the following:

Year ended December 31	2005			2004		2003
	(Thousands of dollars)
Income (loss) from continuing operations before taxes:
Domestic	$	(13,217	)	$	27,763	$	(43,103	)
Foreign		104,130			68,890		6,016
Total	$	90,913		$	96,653	$	(37,087	)
Income tax expense (benefit)—current:
Federal and state	$	4,505		$	1,515	$	—
Foreign		15,311			10,270		5,539
		19,816			11,785		5,539
Income tax (benefit) expense—deferred:
Federal and state		(2,375	)		9,216		(12,457	)
Foreign		11,132			13,999		(4,100	)
		8,757			23,215		(16,557	)
Total	$	28,573		$	35,000	$	(11,018	)

      For the years ended December 31, 2005 and 2004, income tax expense related to the Company's equity in earnings of investees was approximately $0.4 million.

      The components of deferred income tax assets and liabilities are disclosed below:

December 31	2005			2004
Deferred tax assets:
Asset provisions and accrued liabilities	$	33,847		$	24,898
Capital lease obligation		73,076			60,429
Tax loss and credit carryforwards		49,412			76,313
Sub-total		156,335			161,640
Valuation allowance		(24,885	)		(33,762	)
Total		131,450			127,878
Deferred tax liabilities:
Difference between book and tax basis of depreciable and amortizable assets		60,617			52,295
Basis differences in minority owned investments		9,787			8,396
		70,404			60,691
Total	$	61,046		$	67,187

      As of December 31, 2005, the Company has a tax asset related to U.S. Federal tax loss carryovers of $24.1 million, which begin to expire in 2020. The Company also has a tax asset related to various foreign and state loss carryovers totaling $23.1 million that expire in 2006 and thereafter. The Company provided a valuation allowance for certain deferred tax assets including state, Federal and foreign loss carryforwards of $24.9 million and $33.8 million at December 31, 2005 and 2004, respectively. The valuation allowance decreased by $8.9 million during 2005 and decreased by $0.7 million during 2004. In 2005, the decrease was primarily due to the reduction of the entire valuation allowance in respect of federal losses amounting to $5.3 million, as well as a $3.2 million reduction in the valuation allowance related to certain foreign losses. Of this, $7.1 million was reversed through tax expense and $1.4 million through Additional Paid-In Capital as it related to the tax benefit of stock option exercises. The changes in the valuation allowance resulted from management's evaluation of the utilization of state, Federal and foreign operating losses. In assessing the need for the valuation allowance management considers, among other

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things, its projections of future taxable income and ongoing prudent and feasible tax planning strategies.

      During 2005, the Company had $3.1 million of stock option deductions, the tax benefit of which was recorded to Additional Paid-In Capital when realized. In 2004, stock option deductions were $2.9 million.

      The effective rate from continuing operations varied from the statutory rate as follows:

Year ended December 31	2005		2004		2003
Statutory federal income tax rate		35.00%		35.00%		35.00%
State and local taxes, net of Federal tax benefit		0.57%		–2.42%		8.13%
Foreign taxes at rates different than U.S. rates		–8.48%		–2.11%		2.55%
Non-deductible antitrust expenses		0.72%		0.98%		–2.56%
Passive income from foreign jurisdictions		5.42%		—		—
Valuation allowance		–7.88%		3.26%		–8.13%
Foreign earnings repatriation		4.35%		—		—
Other		1.73%		1.50%		–5.26%
Effective income tax rate		31.43%		36.21%		29.73%

      Undistributed earnings of foreign subsidiaries included in consolidated Retained Earnings at December 31, 2005 and 2004 were $91.6 million and $109 million, respectively. Such amounts are considered to be reinvested indefinitely or will be distributed from income in such a way that would not incur a significant tax consequence and, therefore, no provision has been made for taxes that would be payable upon distribution of these earnings.

      In October 2004, the President signed the American Jobs Creation Act of 2004 (the “AJCA”). The AJCA creates a temporary incentive for the Company to repatriate earnings accumulated outside the U.S. by allowing the company to reduce its taxable income by 85% of certain eligible dividends received from non-U.S. subsidiaries by the end of 2005. In order to benefit from this incentive, the company must reinvest the qualifying dividends in the U.S. under a domestic reinvestment plan approved by the Chief Executive Officer and Board of Directors.

      On November 7, 2005, after approval by the Company's Chief Executive Officer, the Board of Directors approved a plan to repatriate foreign earnings in accordance with the temporary repatriation incentive under the AJCA. The amount repatriated was $72.4 million. The company recorded a tax charge and related tax liability of $3.8 million in the fourth quarter of 2005. The liability will be settled by cash tax payments of approximately of $2.4 million and the utilization of existing alternative minimum tax credits of $1.4 million. Planned uses of the repatriated funds include capital and leased asset investments as permitted under the AJCA.

      Total net income tax payments related to the Company's continuing operations during 2005, 2004 and 2003 were $20.4 million, $7.8 million and $5.7 million, respectively.

Note L—Lease Commitments

      Capital Lease—On February 7, 2003, the Company sold the York Property (see Note H) and leased it back from the buyer for an initial 20-year term, with options for the Company to extend the lease for two additional 10-year terms. The resulting lease is being accounted for as a capital lease. Under the lease agreement, rental payments escalate 7% every three years during the initial term.

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      The following is a schedule, by year, of the future minimum lease payments due under the York Property capital lease, together with the present value of the future minimum lease payments as of December 31, 2005 (in thousands of dollars):

2006	$	19,264
2007		19,287
2008		19,287
2009		20,613
2010		20,637
Thereafter		289,847
Total future minimum lease payments		388,935
Less: amount representing interest		216,891
Present value of future minimum lease payments	$	172,044

      In addition to the lease payments above, under the terms of the York Property capital lease, the Company is required to pay real estate taxes and operating costs related to the premises.

      Operating Leases—The Company also conducts business on premises leased in various locations under long-term operating leases expiring through 2060. For the years ended December 31, 2005, 2004 and 2003, net rental expense under operating leases was as follows:

Year Ended December 31	2005		2004		2003
	(Thousands of dollars)
Continuing operations	$	13,571	$	13,053	$	11,589
Discontinued operations (see Note D)		40		864		4,674
Total	$	13,611	$	13,917	$	16,263

      Future minimum lease payments under noncancelable operating leases in effect at December 31, 2005 related to the Company's continuing operations are as follows (in thousands of dollars):

2006	$	13,570
2007		12,314
2008		10,758
2009		8,257
2010		4,386
Thereafter		29,519
Total future minimum lease payments	$	78,804

      Future minimum lease payments exclude minimum sublease rental receipts of $2.7 million owed to the Company in the future under non-cancelable subleases.

      In addition to the lease payments above, under the terms of certain leases, the Company is required to pay real estate taxes and utility costs and may be subject to escalations in the amount of future minimum lease payments based on certain contractual provisions.

Note M—Shareholders' Equity

      Common Stock—The principal U.S. market for the Company's Class A Stock is the New York Stock Exchange. Each share of the Class A Stock is entitled to one vote. The Class A Stock is traded on the New York Stock Exchange. The Company also has the authority to issue 75 million shares of $0.10 par value Class B Stock, which is entitled to ten votes and is convertible on a share for share basis into Class A Stock. There is no public market for the Class B Stock and there were no shares of Class B Stock issued and outstanding as of December 31, 2005 (see Note C). Per share cash dividends, if any, would be equal for the Class A Stock and Class B Stock.

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      Preferred Stock—In addition to the Class A Stock outstanding, the Company has the authority to issue 50 million shares of no par value Preferred Stock. No such shares were issued and outstanding as of December 31, 2005 and 2004.

      Restricted Stock Plan—In February 2003, the Compensation Committee of the Company's Board of Directors (the “Compensation Committee”) approved the adoption of the Restricted Stock Plan, effective May 1, 2003. The Restricted Stock Plan was approved by a vote of shareholders on April 29, 2003. The Restricted Stock Plan was amended on November 7, 2005 to conform the plan to the Company's capital structure following completion of the Transaction (see Note C). The purpose of the Restricted Stock Plan is to enable the Company to retain valued employees and to continue to attract the finest executives.

      The Restricted Stock Plan provides for the issuance of restricted shares of Class A Stock (“Restricted Stock”) to eligible employees, as determined by the Compensation Committee. In making such selections, the Compensation Committee may take into account the nature of the services rendered by such employees, their present and potential contributions to the Company's success, and such other factors as the Compensation Committee in its discretion shall deem relevant. The maximum aggregate amount of Restricted Stock which may be issued from the Company's authorized but unissued or reacquired shares of Class A Stock is 2 million shares.

      Restricted Stock shares granted pursuant to the Restricted Stock Plan generally vest ratably after each of the first, second, third and fourth years following the date of grant; however, shares issued in connection with the Sotheby's Holdings, Inc. Executive Bonus Plan (discussed below) and certain employment agreements vest over a shorter period. Prior to vesting, the participants have voting rights and receive dividends, if any, but the shares may not be sold, assigned, transferred, pledged or otherwise encumbered.

      In February 2003, the Compensation Committee also approved an exchange offer of cash or Restricted Stock for certain stock options held by eligible employees under the Sotheby's Holdings, Inc. 1997 Stock Option Plan (the “Exchange Offer”). The Exchange Offer was tendered during the first half of 2004. As a result of the Exchange Offer, approximately 5.6 million stock options were cancelled and 1.1 million shares of Restricted Stock were issued. The Restricted Stock shares were issued upon acceptance of the Exchange Offer at the closing market price of the Company's Class A Stock on the dates of grant and resulted in the recording of Deferred Compensation Expense and Additional Paid-In Capital of approximately $14 million. The amount recorded as Deferred Compensation Expense is being amortized to Salaries and Related Costs ratably after each of the first, second, third and fourth years following the date of grant. For the years ended December 31, 2005 and 2004, the Company recognized stock compensation expense of $4.6 million and $5.5 million related to the Exchange Offer, respectively. The cash payment made in conjunction with the Exchange Offer was approximately $2.2 million and was expensed in full upon acceptance on March 31, 2004.

      In addition to the Restricted Stock issued in conjunction with the Exchange Offer, the Company issued 375,697 shares, 120,000 shares and 160,000 shares of Restricted Stock with fair values of $6.2 million, $1.6 million and $1.4 million, during 2005, 2004 and 2003, respectively. For the years ended December 31, 2005, 2004 and 2003, the Company recognized compensation expense of $3.7 million, $1.1 million and $0.4 million, respectively, related to these Restricted Stock grants. A small portion of these Restricted Stock shares were granted pursuant to a three-year employment agreement and vest and become exercisable over the remaining term of the agreement following the date of grant.

      In February 2005, the Compensation Committee approved the adoption of the Sotheby's Holdings, Inc. Executive Bonus Plan (the “EBP”) effective retroactively to January 1, 2005. The EBP was approved by a vote of shareholders on May 4, 2005. The Plan provides for the issuance of Restricted Stock, generally governed by the Restricted Stock Plan, and cash awards based on satisfaction of objective performance criteria set by the Compensation Committee, or if applicable, the Section 162(m) Sub-Committee. Restricted Stock shares issued pursuant to EBP vest ratably after each of the first, second and third years following the date of grant. In February 2006, the

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Compensation Committee approved the issuance of 201,621 shares of Restricted Stock with a fair value of $4.1 million pursuant to the EBP.

      When a participant in the Restricted Stock Plan incurs a tax liability subject to tax withholding in connection with the vesting of Restricted Stock, the participant's withholding tax obligation may be satisfied by the Company withholding shares having a fair market value equal to the minimum tax withholding obligation. For the year ended December 31, 2005, the Company withheld approximately 130,000 of such shares with a value of approximately $2.2 million.

      Stock Option Plans—Stock options issued pursuant to the Sotheby's Holdings, Inc. 1987 Stock Option Plan (the “1987 Stock Option Plan”) and the Sotheby's Holdings, Inc. 1997 Stock Option Plan (the “1997 Stock Option Plan”) are exercisable into authorized but unissued shares of the Company's Class A Stock. The 1997 Stock Option Plan succeeded the 1987 Stock Option Plan. The 1997 Stock Option Plan was amended on November 7, 2005 to conform the plan to the Company's capital structure following completion of the Transaction (see Note C).

      Pursuant to both plans, stock options are granted with an exercise price equal to or greater than fair market value at the date of grant and generally expire ten years after the date of grant. Stock options granted pursuant to the 1997 Stock Option Plan, generally vest and become exercisable ratably after each of the first, second, third, fourth and fifth years following the date of grant (except in the U.K. where certain options vest three-fifths after the third year and one-fifth after each of the fourth and fifth years following the date of grant). Stock options granted on or after April 29, 1997 vest immediately upon a change in control of the Company (as defined in the plan document for the 1997 Stock Option Plan).

      In 2003, the Company granted 940,000 stock options pursuant to the 1997 Stock Option Plan. Such stock options, which were granted at an exercise price equal to the fair market value of the Class A Stock at the date of grant, generally vest and become exercisable ratably after each of the first, second, third and fourth years following the date of grant and expire ten years after the date of grant.

      In June 2004 and August 2004, the Company granted 140,000 and 100,000 stock options, respectively, pursuant to the 1997 Stock Option Plan. These stock options were granted at an exercise price equal to the fair market value of the Class A Stock at the date of the grant and expire ten years after the date of grant. The stock options granted in June vest and become exercisable ratably after each of the first and second years following the date of grant pursuant to the terms of an employment agreement. The stock options granted in August vest and become exercisable ratably after each of the first, second, third and fourth years following the date of grant.

      In 2005, the Company granted 136,500 stock options pursuant to the 1997 Stock Option Plan. These stock options, which were granted at an exercise price equal to the fair market value of the Class A Stock at the date of the grant, vest on June 30, 2006 pursuant to the terms of an employment agreement and expire ten years after the date of grant.

      As of December 31, 2005, the Company has reserved 13.6 million shares of Class A Stock for future issuance pursuant to the 1997 Stock Option Plan. As of December 31, 2005, there were outstanding stock options issued pursuant to the 1997 Stock Option Plan and the 1987 Stock Option Plan for the purchase of 6.2 million shares of Class A Stock, at prices ranging from $8.65 to $37.94 per share. Stock option transactions for the years ended December 31, 2005, 2004 and 2003 are summarized as follows (shares in thousands):

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				Options Outstanding
	Shares Reserved for Issuance			Shares			Prices		Weighted Average Price
Balance at January 1, 2003		15,825			14,474			$10.87–$38.25	$	21.18
Options granted					940			$ 8.65–$10.89	$	9.08
Options canceled					(728	)		$17.00–$38.25	$	23.39
Options expired—1987 Plan		(382	)		(382	)		$10.88–$16.50	$	13.55
Options exercised		(7	)		(7	)		$10.87	$	10.87
Balance at December 31, 2003		15,436			14,297			$ 8.65–$38.25	$	20.47
Options granted					240			$15.50–$15.51	$	15.50
Options canceled					(6,306	)		$13.69–$38.25	$	26.02
Options expired—1987 Plan		(231	)		(231	)		$10.88–$16.50	$	16.33
Options exercised		(810	)		(810	)		$ 8.65–$17.13	$	12.51
Balance at December 31, 2004		14,395			7,190			$ 8.65–$37.94	$	16.44
Options granted					137			$13.78–$15.26	$	14.50
Options canceled					(396	)		$17.13–$37.94	$	22.31
Options expired—1987 Plan		(3	)		(3	)		$10.88–$14.75	$	13.36
Options exercised		(756	)		(756	)		$ 8.65–$18.88	$	12.45
Balance at December 31, 2005		13,636			6,172			$ 8.65–$37.94	$	16.51

      The following table summarizes information about stock options outstanding as of December 31, 2005 (shares in thousands):

	Options Outstanding						Options Exercisable
Range of Prices	Outstanding as of 12/31/05		Weighted Average Remaining Contractual Life		Weighted Average Price		Exercisable as of 12/31/05		Weighted Average Price
$ 8.6500–$12.7875		873		7.2 years	$	9.51		343	$	9.80
$12.7876–$17.0500		1,335		3.2 years	$	14.20		1,019	$	13.92
$17.0501–$21.3125		3,931		3.5 years	$	18.73		3,931	$	18.73
$21.3126–$25.5750		16		4.4 years	$	24.71		14	$	24.68
$25.5751–$34.5000		4		3.9 years	$	34.50		4	$	34.50
$34.5001–$37.9400		13		3.3 years	$	37.94		13	$	37.94
		6,172		3.9 years	$	16.51		5,324	$	17.31

      The weighted average fair value per share of stock options granted for the years ended December 31, 2005, 2004 and 2003 was $6.03, $6.84 and $3.78, respectively. As of December 31, 2005, 2004 and 2003, 5.3 million, 5.5 million and 10.8 million stock options were exercisable at weighted average exercise prices of $17.31, $17.27 and $21.22, respectively.

      Stock Compensation Plan for Non-Employee Directors—Effective April 30, 1998, the Company amended the Director Stock Ownership Plan. As of December 31, 2005, the Company has reserved 78,183 shares of Class A Stock for issuance in connection with the Sotheby's Holdings, Inc. Stock Compensation Plan for Non-Employee Directors (the “Amended Plan”). For the years ended December 31, 2005, 2004 and 2003, the number of shares issued to non-employee directors under the Amended Plan (including deferred stock units) was 22,053, 19,250 and 22,074, respectively.

Note N—Pension Arrangements

      Retirement Savings Plan—The Company has a defined contribution plan for U.S. employees who have completed three consecutive months of employment (the “Retirement Savings Plan”). Prior to January 1, 2005, the Company contributed a standard amount equal to 2% of each participant's eligible compensation to the Retirement Savings Plan. Effective January 1, 2005, the Retirement Savings Plan was amended to replace the standard 2% contribution with a discretionary annual Company contribution that varies as a percentage of each participant's eligible compensation depending on the Company's profitability and subject to the maximum amount

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allowable under Internal Revenue Service (“IRS”) regulations. For the year ended December 31, 2005, the expense related to the Company's discretionary contribution to the Retirement Savings Plan was 3% of each participant's eligible compensation.

      Additionally, prior to January 1, 2005, participants could elect to contribute between 2% and 12% of their eligible compensation, up to the maximum amount allowable under IRS regulations, on a pre-tax basis. Effective January 1, 2005, participants may elect to contribute between 2% and 20% of their eligible compensation, up to the maximum amount allowable under IRS regulations, on a pre-tax basis. Employee savings have been and will continue to be matched by a Company contribution of up to an additional 6% of each participant's eligible compensation.

      For the years ended December 31, 2005, 2004 and 2003, pension expense recorded within Salaries and Related Costs for the Retirement Savings Plan, net of forfeitures, was as follows:

Year Ended December 31	2005		2004		2003
	(Thousands of dollars)
Continuing operations	$	3,459	$	2,808	$	2,130
Discontinued operations (see Note D)		—		56		308
Total	$	3,459	$	2,864	$	2,438

      Benefit Equalization Plan—The Company has an unfunded defined contribution Benefit Equalization Plan, the Sotheby's, Inc. 2005 Benefit Equalization Plan (the “2005 BEP”), which is available to certain officers of the Company for whom contributions to the Retirement Savings Plan are limited by IRS regulations. Such officers may enter into agreements pursuant to which their salaries will be reduced and the Company will maintain accounts on their behalf in the amount of the difference between the contribution election made in the participant's salary reduction agreement and the aggregate amount of contributions actually made by the participant under the Retirement Savings Plan. Employees may elect to contribute up to 12% of their eligible compensation and employee savings are matched by a Company contribution of up to 6% of the participant's eligible compensation. Additionally, there is a discretionary annual Company contribution for those participants for whom discretionary contributions to the Retirement Savings Plan are limited by IRS regulations. Contributions to the 2005 BEP earn interest at a rate equal to 3.3% above the 10-year U.S. Treasury Bond rate.

      On December 15, 2004, the Compensation Committee approved the establishment of the 2005 BEP, which superseded an existing Benefit Equalization Plan (the “BEP”) on January 1, 2005. The 2005 BEP was established solely to comply with provisions of the AJCA, which placed new restrictions on deferred compensation arrangements, including limiting the ability of both companies and individuals to revise deferral elections or to accelerate distributions from a deferred compensation plan. With the exception of these changes, the 2005 BEP remained the same as the previously existing BEP, which was deemed frozen with no deferrals or employer contributions permitted after December 31, 2004.

      The total unfunded liability of the BEP was $18.6 million and $15.8 million as of December 31, 2005 and 2004, respectively, and is included within Other Liabilities in the Consolidated Balance Sheets.

      For the years ended December 31, 2005, 2004 and 2003, pension expense recorded within Salaries and Related Costs for the 2005 BEP and the BEP (for periods prior to 2005) was as follows:

Year Ended December 31	2005		2004		2003
	(Thousands of dollars)
Continuing operations	$	1,054	$	630	$	633
Discontinued operations (see Note D)		—		—		63
Total	$	1,054	$	630	$	696

      Defined Benefit Plan—The Company makes contributions to a defined benefit pension plan covering substantially all U.K. employees (the “U.K. Pension Plan”). The Company uses a

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September 30th measurement date for the U.K. Pension Plan. Effective April 1, 2004, the U.K. Pension Plan was closed to new employees. From that date, a defined contribution plan was made available to new employees in the U.K.

      The table below details the change in the benefit obligation, the change in the fair value of plan assets, the funded status and the net pension asset recognized related to the U.K. Pension Plan as of December 31, 2005 and 2004:

Year Ended December 31	2005			2004
	(Thousands of dollars)
Change in benefit obligation
Benefit obligation at beginning of year	$	247,937		$	212,884
Service cost		6,275			6,705
Interest cost		12,525			11,240
Contributions by plan participants		1,101			1,048
Actuarial loss		11,917			2,168
Benefits paid		(3,810	)		(4,419	)
Special termination benefits		7			49
Foreign currency exchange rate changes		(27,088	)		18,262
Benefit obligation at end of year		248,864			247,937
Change in plan assets
Fair value of plan assets at beginning of year		197,960			166,688
Actual return on plan assets		42,809			17,430
Employer contributions		17,699			2,725
Contributions by plan participants		1,101			1,048
Benefits paid		(3,810	)		(4,419	)
Foreign currency exchange rate changes		(23,877	)		14,488
Fair value of plan assets at end of year		231,882			197,960
Amount underfunded		(16,982	)		(49,977	)
Unrecognized prior service cost		373			697
Unrecognized net actuarial loss		54,048			77,488
Net pension asset recognized	$	37,439		$	28,208

      The accumulated benefit obligation for the U.K. Pension Plan was $188.4 million and $185.3 million as of December 31, 2005 and 2004, respectively.

Components of Net Pension Cost

      For the years Ended December 31, 2005, 2004 and 2003, the components of net periodic pension cost were:

Year Ended December 31	2005			2004			2003
	(Thousands of dollars)
Service cost	$	6,275		$	6,705		$	5,928
Interest cost		12,525			11,240			9,355
Expected return on plan assets		(16,719	)		(16,559	)		(14,441	)
Amortization of prior service cost		266			267			239
Amortization of actuarial loss		2,084			1,055			—
Amortization of transitional asset		—			—			(10	)
Sub-total		4,431			2,708			1,071
Special termination benefits		7			49			790
Net pension cost	$	4,438		$	2,757		$	1,861

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Assumptions

      The following assumptions were used in determining the benefit obligation related to the U.K. Pension Plan:

	2005		2004
Weighted average discount rate		4.90%		5.40%
Weighted average rate of compensation increase		4.50%		4.75%

      The following assumptions were used in determining the net pension cost related to the U.K. Pension Plan:

	2005		2004		2003
Weighted average discount rate		5.40%		5.20%		5.50%
Weighted average rate of compensation increase		4.75%		4.25%		4.00%
Weighted average expected long-term rate of return on plan assets		7.75%		8.00%		8.00%

      The expected long-term rate of return on plan assets was based on dividend and interest yields currently available on equity and bond markets as of the measurement date and weighted according to the composition of invested assets as of that date.

Plan Assets

      As of September 30, 2005 and 2004, the weighted average asset allocations for the U.K. Pension Plan, by category, were as follows:

September 30	2005		2004
Equity securities		67%		74%
Debt securities		27%		19%
Real estate		3%		3%
Other		3%		4%

      The investment policy for the U.K. Pension Plan is established by its trustees (the “Trustees”) in consultation with the management of the Company. The Trustees' investment objective is to maximize the return on assets while controlling the level of risk so as to ensure that sufficient assets are available to pay participants' benefits as and when they arise. The Trustees have agreed that a diversified portfolio of assets with a relatively high concentration of equity securities is appropriate. In order to avoid an undue concentration of risk, a diverse spread of assets is held. The diversification is both within and across asset categories. In setting specific asset allocation targets, the Trustees take expert advice as required from professional investment advisors. Additionally, the Trustees require that 95% of the assets be realizable at short notice. The Trustees' current investment strategy includes target allocation percentages of approximately 68% for equity securities and approximately 32% for debt securities and other assets. These target allocation percentages are spread across different categories within each asset class and permit actual allocation percentages to fall within a reasonable range of these targets.

      The investment managers for the U.K. Pension Plan have full discretion in making investment decisions, subject to broad guidelines established by the Trustees. It is the Trustees' policy not to invest in shares of the Company or any of its subsidiaries. The performance of the investment managers is benchmarked against suitable indices.

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Estimated Future Benefit Payments

      The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows (in thousands of dollars):

Period	Amount
October 1, 2005 to September 30, 2006	$	5,648
October 1, 2006 to September 30, 2007		5,159
October 1, 2007 to September 30, 2008		6,154
October 1, 2008 to September 30, 2009		7,319
October 1, 2009 to September 30, 2010		6,663
October 1, 2010 to September 30, 2015		53,930

Contributions

      In 2005, the Company contributed approximately $18 million to the U.K. Pension Plan, consisting of a $15 million voluntary contribution made in May 2005 and a $3 million contribution agreed by management and the Trustees. In 2006, the Company expects to contribute approximately $3 million to the U.K. Pension Plan.

Note O—Commitments and Contingencies

      Employment Agreements—The Company has employment agreements with a number of employees, which expire in June 2006, August 2008 and June 2009. Such agreements provide, among other benefits, for minimum salary levels, as well as incentive bonuses which are payable only if specified Company and individual goals are attained. The aggregate remaining commitment for salaries related to these employment agreements, excluding incentive bonuses, was approximately $5 million as of March 1, 2006.

      Lending Commitments—In certain situations, the Company's Finance segment enters into legally binding arrangements to lend, primarily on a collateralized basis and subject to certain limitations and conditions, to potential consignors and other individuals who have collections of fine art or other objects. Unfunded commitments to extend additional credit were $24 million at December 31, 2005.

      Legal Actions—The Canadian Competition Bureau is continuing to conduct an investigation regarding anti-competitive practices relating to commissions charged by the Company and Christie's International, PLC (“Christie's”) for auction services during the period 1993 to 2000. The Company also becomes involved, from time to time, in various claims and lawsuits incidental to the ordinary course of its business. Management does not believe that the outcome of any of the pending claims or proceedings described above will have a material adverse effect on the Company's business, results of operations, financial condition and/or liquidity.

      Gain Contingencies—The Company owns land and a building at Billingshurst, West Sussex (the “Sussex Property”), which previously housed an auction salesroom. The Company is in advanced negotiations for the sale of vacated parts of the Sussex Property. The completion of the sale is conditional upon the receipt of planning permission for redevelopment of the land for sale. If completed, the sale of the Sussex Property would result in a pre-tax gain in the range of approximately $4 million to $5 million. The Company is not certain when the sale of the Sussex Property will be completed and when the contingency will be resolved.

      On March 10, 2003, the Company and Christie's agreed to each pay $20 million to settle the International Antitrust Litigation, which alleged violations of the Federal antitrust laws and international law on behalf of purchasers and sellers in auctions conducted outside the U.S. (the “International Antitrust Litigation”). On April 7, 2003, pursuant to the settlement agreement for the International Antitrust Litigation, the Company deposited $10 million into an escrow account for the benefit of the members of the class of plaintiffs. The remaining $10 million due under the settlement agreement was paid on June 23, 2003 following final court approval of the settlement. The settlement agreement for the International Antitrust Litigation also provides that if, as of

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June 7, 2006, there are any remaining settlement funds following the payment all submitted claims, the Company and Christie's will be reimbursed for the administration costs incurred in distributing the settlement funds. During the period 2003 to 2005, the Company has incurred approximately $2 million in such costs. Based on the level of claims submitted to date, the Company expects to receive reimbursement for a substantial portion of such costs in the second half of 2006 following the resolution of this contingency.

      (See Notes G, L and P for other commitments. See Notes G, P and Q for other contingencies.)

Note P—Auction Guarantees

      From time to time in the ordinary course of business, the Company will guarantee to consignors a minimum price in connection with the sale of property at auction. The Company must perform under its auction guarantee in the event the property sells for less than the minimum price, in which event the Company must pay the difference between the sale price at auction and the amount of the auction guarantee. If the property does not sell, the amount of the auction guarantee must be paid, but the Company has the right to recover such amount through future sale of the property. Generally, the Company is entitled to a share of the excess proceeds if the property under the auction guarantee sells above a minimum price. In addition, the Company is obligated under the terms of certain guarantees to advance a portion of the guaranteed amount prior to the auction. In certain situations, the Company reduces its financial exposure under auction guarantees through auction sharing arrangements with unaffiliated partners. Partners may also assist the Company in valuing and marketing the property to be sold at auction.

      As of December 31, 2005, the Company had outstanding auction guarantees totaling $21.6 million, the property relating to which had a mid-estimate sales price (1) of $25.8 million. The Company's financial exposure under these auction guarantees is reduced by $0.9 million as a result of sharing arrangements with unaffiliated partners. The property related to such auction guarantees is being offered at auctions during the first half of 2006. As of December 31, 2005, $2.5 million of the guaranteed amount had been advanced by the Company and is recorded within Notes Receivable and Consignor Advances in the Consolidated Balance Sheets (see Note F). As of December 31, 2005 and 2004, the carrying amount of the liability related to the Company's auction guarantees was approximately $0.3 million and $0.1 million, respectively, and was reflected in the Consolidated Balance Sheets within Accounts Payable and Accrued Liabilities.

      As of February 28, 2006, the Company had outstanding auction guarantees totaling $99.7 million, the property relating to which had a mid-estimate sales price (1) of $109.1 million. The property related to such auction guarantees is being offered at auctions in the first half of 2006. As of February 28, 2006, $18 million of the guaranteed amount had been advanced by the Company, which will be recorded within Notes Receivable and Consignor Advances.

(1) The mid-estimate sales price is calculated as the average of the low and high pre-sale auction estimates for the property under the auction guarantee. Pre-sale estimates are not always accurate predictions of auction sale results.

Note Q—Settlement Liabilities

      In April 1997, the DOJ began an investigation of certain art dealers and major auction houses, including the Company and its principal competitor, Christie's. The Company has pled guilty to a violation of U.S. antitrust laws in connection with a conspiracy to fix auction commission rates charged to sellers in the U.S. and elsewhere. In February 2001, the U.S. District Court for the Southern District of New York imposed on the Company a fine of $45 million payable to the DOJ without interest over a period of five years. As a result, in the third quarter of 2000, the Company recorded Settlement Liabilities of $34.1 million representing the present value of the fine payable. The $10.9 million discount on the fine payable was amortized to interest expense over the five-year period during which the fine was paid. As of December 31, 2005, the carrying value of the fine payable to the DOJ was $14.9 million and was reflected as a current

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liability in the Consolidated Balance Sheets. The final payment of $15 million owed under the fine was paid by the Company on February 6, 2006 and the liability to the DOJ was extinguished.

      In conjunction with the settlement of certain civil litigation related to the investigation by the DOJ, in May 2003, the Company issued to the class of plaintiffs vendor's commission discount certificates (“Discount Certificates”) with a face value of $62.5 million. The Discount Certificates are fully redeemable in connection with any auction conducted by the Company or Christie's in the U.S. or in the U.K. and may be used to satisfy consignment charges involving vendor's commission, risk of loss and/or catalogue illustration. The court determined that the $62.5 million face value of the Discount Certificates had a fair market value of not less than $50 million, which represents the amount recorded by the Company as Settlement Liabilities in the third quarter of 2000. The Discount Certificates will expire on May 14, 2008 and cannot be redeemed subsequent to that date; however, any unused Discount Certificates may be redeemed for cash at their face value at any time between May 15, 2007 and May 14, 2008. The $12.5 million discount on the face value of the Discount Certificates is being amortized to interest expense over the four-year period prior to May 15, 2007, the first date at which the Discount Certificates are redeemable for cash. As of December 31, 2005, the outstanding face value of unused Discount Certificates that the Company could be required to redeem was $50.7 million and the carrying value of such Discount Certificates reflected in the Consolidated Balance Sheets was approximately $47 million.

      As of December 31, 2005 and December 31, 2004, Settlement Liabilities consisted of the following:

December 31	2005		2004
	(Thousands of dollars)
Current:
Discount Certificates (net)	$	6,200	$	3,700
DOJ antitrust fine (net)		14,899		10,754
Sub-total		21,099		14,454
Long-term:
Discount Certificates (net)		40,794		46,186
DOJ antitrust fine (net)		—		14,899
Sub-total		40,794		61,085
Total	$	61,893	$	75,539

      The current portion of the liability for the Discount Certificates represents management's estimate of redemptions expected during the twelve-month period after the balance sheet date and is based on an analysis of historical redemption activity.

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      During the period January 1, 2003 to December 31, 2005, amounts charged to and cash payments made against Settlement Liabilities with respect to the Discount Certificates and the DOJ antitrust fine were as follows:

	Discount Certificates (net)			DOJ Antitrust Fine (net)			Total
	(Thousands of dollars)
Balance at January 1, 2003	$	50,000		$	33,246		$	83,246
Cash payment to DOJ		—			(6,000	)		(6,000	)
Redemption of Discount Certificates		(724	)		—			(724	)
Amortization of discount		1,767			2,358			4,125
Loss on redemption of Discount Certificates		132			—			132
Balance at December 31, 2003		51,175			29,604			80,779
Cash payment to DOJ		—			(6,000	)		(6,000	)
Redemption of Discount Certificates		(4,823	)		—			(4,823	)
Amortization of discount		2,836			2,049			4,885
Loss on redemption of Discount Certificates		698			—			698
Balance at December 31, 2004		49,886			25,653			75,539
Cash payment to DOJ		—			(12,000	)		(12,000	)
Redemption of Discount Certificates		(6,214	)		—			(6,214	)
Amortization of discount		2,742			1,246			3,988
Loss on redemption of Discount Certificates		580			—			580
Balance at December 31, 2005	$	46,994		$	14,899		$	61,893

Note R—Variable Interest Entity

      In December 2003, the FASB issued a revision to FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), which was originally issued in January 2003. FIN 46, as revised, requires that if an entity is the primary beneficiary of a variable interest entity (“VIE”), the assets, liabilities, and results of operations of the VIE should be included in the consolidated financial statements of the entity.

      The Company has concluded that an entity with whom its Finance segment has outstanding loans of approximately $3.7 million and to whom the Company provides management consulting services meets the definition of a VIE under FIN 46, as revised. As primary beneficiary of the VIE, the Company was required to consolidate the entity as part of the Auction segment beginning on March 31, 2004.

      The entity is an art gallery which is engaged in business as a broker/dealer in works of art. The Company provides management consulting services to the entity in exchange for a management fee, which is equal to 50% of the entity's net income (excluding the management fee and certain other specified revenues and expenses). Included in the Company's consolidated assets as of December 31, 2005 and December 31, 2004 is inventory with a carrying value of approximately $4.7 million and $3.4 million, respectively. Such inventory consists entirely of artwork and is the collateral for the $3.7 million in outstanding loans discussed above, which are eliminated in consolidation. The Company has no equity investment in the entity.

      The Company accounts for its interest in the entity on a quarter lag applied on a consistent basis. As of September 30, 2005, the entity had total assets of $5.5 million, total liabilities of $4.7 million and capital of $0.8 million.

Note S—Employee Loans

      Prior to December 1995, the Company had two bank loan programs available to certain employees whereby a bank would directly lend money to certain officers and staff at favorable interest rates. The Company guaranteed all repayment obligations under these bank loan programs,

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and all loans were immediately repayable in the event an employee left the Company. Effective March 8, 2004, the entire $0.6 million of outstanding loans under these programs was sold and assigned to the Company. The amount of outstanding loans under this program was $0.2 million and $0.6 million at December 31, 2005 and December 31, 2004, respectively. The Company does not intend to grant any new loans to employees under this program in the future.

      (See Note F for the disclosure of employee loans made by the Company's Finance segment. Such loans are secured by works of art owned by the employees.)

Note T—Retention Costs

      In 2001 and 2002, the Company implemented retention programs that provided cash awards payable to certain key employees upon the fulfillment of full-time employment through certain dates. All amounts related to the retention programs were amortized over the corresponding contractual service periods. For the years ended December 31, 2004 and 2003, the Company recognized Retention Costs of $0.3 million and $8.5 million, respectively. The final cash payment of $0.4 million due under the retention programs was made in January 2004 and, as a result, the retention programs have concluded.

Note U—Restructuring Plans

      In the fourth quarter of 2002, management approved a restructuring plan impacting the Auction segment, as well as certain corporate departments (the “2002 Restructuring Plan”). The 2002 Restructuring Plan improved profitability through cost savings and other strategic actions. For the years ended December 31, 2004 and 2003, Net Restructuring Charges related to the 2002 Restructuring Plan totaled $0.1 million and $5.0 million, respectively, principally relating to severance benefit costs. During 2004, all remaining amounts due under the 2002 Restructuring Plan were paid out and the related restructuring liability was extinguished.

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Note V—Quarterly Results (Unaudited)

	First			Second		Third			Fourth
	(Thousands of dollars, except per share data)
Year ended December 31, 2005
Net Auction Sales (a)	$	305,052		$	838,747	$	228,133		$	989,898
Income Statement Data:
Auction and related revenues	$	72,175		$	175,558	$	53,693		$	200,604
License fee revenues		176			448		385			395
Other revenues		1,676			2,250		2,321			3,827
Total revenues	$	74,027		$	178,256	$	56,399		$	204,826
(Loss) income from continuing operations	$	(9,743	)	$	42,480	$	(21,219	)	$	51,651
Net (loss) income (b)	$	(9,721	)	$	41,977	$	(20,961	)	$	50,307
Basic and Diluted Earnings (Loss) Per Share:
Basic (loss) earnings from continuing operations	$	(0.16	)	$	0.68	$	(0.35	)	$	0.92
Basic (loss) earnings per share (b)	$	(0.16	)	$	0.67	$	(0.34	)	$	0.89
Diluted (loss) earnings from continuing operations	$	(0.16	)	$	0.67	$	(0.35	)	$	0.90
Diluted (loss) earnings per share (b)	$	(0.16	)	$	0.66	$	(0.34	)	$	0.87
Balance Sheet Data:
Shareholders' equity (c)	$	224,825		$	264,211	$	69,818		$	126,276
Year ended December 31, 2004
Net Auction Sales (a)	$	200,806		$	972,867	$	167,217		$	994,047
Income Statement Data:
Auction and related revenues	$	58,853		$	166,166	$	42,606		$	175,505
License fee revenues		45,000			—		—			745
Other revenues		1,573			2,599		1,656			2,017
Total revenues	$	105,426		$	168,765	$	44,262		$	178,267
Income (loss) from continuing operations	$	13,488		$	41,089	$	(28,272	)	$	36,088
Net income (loss)	$	36,720		$	42,477	$	(28,676	)	$	36,158
Basic and Diluted Earnings (Loss) Per Share:
Basic earnings (loss) from continuing operations	$	0.22		$	0.67	$	(0.46	)	$	0.58
Basic earnings (loss) per share	$	0.60		$	0.69	$	(0.46	)	$	0.58
Diluted earnings (loss) from continuing operations	$	0.22		$	0.66	$	(0.46	)	$	0.57
Diluted earnings (loss) per share	$	0.59		$	0.68	$	(0.46	)	$	0.57
Balance Sheet Data:
Shareholders' equity (d)	$	161,568		$	206,963	$	184,467		$	235,385

Legend:
(a)	Represents the hammer (sale) price of property sold at auction.
(b)	In the fourth quarter of 2005, the Company recorded the cumulative effect of a change in accounting principle of $1.1 million (net of taxes) related to the adoption of FIN No. 47 (see Note B).
(c)	The 2005 quarterly balances above of Shareholders' Equity have been restated to properly reflect the deferred tax assets of foreign subsidiaries. The amounts as originally reported incorrectly accrued a deferred tax benefit for foreign currency translation losses, which is recorded in Accumulated Other Comprehensive Income (Loss), a component of Shareholders' Equity. The restatement resulted in a reduction of deferred tax assets and a corresponding reduction in Shareholders' Equity of $2 million, $3.5 million and $4.3 million for the quarters ended March 31, 2005 (first quarter), June 30, 2005 (second quarter) and September 30, 2005 (third quarter), respectively. The original amounts reported for Shareholders' Equity for the quarters ended March 31, 2005 (first quarter), June 30, 2005 (second quarter) and September 30, 2005 (third quarter) were $226.8 million, $267.7 million and $74.1 million, respectively.

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(d) The 2004 quarterly balances above of Shareholders' Equity have been restated to properly reflect the deferred tax assets of foreign subsidiaries. The amounts as originally reported incorrectly accrued a deferred tax benefit for foreign currency translation losses, which is recorded in Accumulated Other Comprehensive Income (Loss), a component of Shareholders' Equity. The restatement resulted in a reduction of deferred tax assets and a corresponding reduction in Shareholders' Equity of $2.8 million, $3.7 million, $2.9 million and $0.5 million for the quarters ended March 31, 2004 (first quarter), June 30, 2004 (second quarter), September 30, 2004 (third quarter) and December 31, 2004 (fourth quarter), respectively. The original amounts reported for Shareholders' Equity for the quarters ended March 31, 2004 (first quarter), June 30, 2004 (second quarter), September 30, 2004 (third quarter) and December 31, 2004 (fourth quarter) were $164.4 million, $210.7 million, $187.4 million and $235.9 million, respectively.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
             ACCOUNTING AND FINANCIAL DISCLOSURE

      Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

      As of December 31, 2005, the Company has carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) were effective as of December 31, 2005.

Management's Report on Internal Control over Financial Reporting

      The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Management evaluates the effectiveness of the Company's internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control—Integrated Framework.” Management, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2005 and concluded that it is effective.

      The Company's independent registered public accounting firm, Deloitte & Touche LLP, has audited the effectiveness of the Company's internal control over financial reporting and management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, and has expressed unqualified opinions in their report which is included herein.

Changes in Internal Control over Financial Reporting

      There was no change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
SOTHEBY'S HOLDINGS, INC.
New York, New York

      We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that Sotheby's Holdings, Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

      A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

      Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

      We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and consolidated financial statement schedule as of and for the year ended December 31, 2005 of the Company and our report dated

84

March 16, 2006 expressed an unqualified opinion and includes an explanatory paragraph referring to the Company's adoption of FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations—an interpretation of FASB Statement No. 143,” effective December 31, 2005, on those financial statements and financial statement schedule.

/s/ DELOITTE & TOUCHE LLP

Deloitte & Touche LLP
New York, New York
March 16, 2006

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

      Information required by this item is incorporated herein by reference to the Company's definitive proxy statement for the annual meeting of shareholders to be held in 2006 (the “Proxy Statement”) under the captions “Election of Directors,” “Management—Executive Officers,” “Management—Section 16(a) Beneficial Ownership Reporting Compliance,” and “Corporate Governance” and “Section 16(a) Beneficial Ownership Compliance.”

ITEM 11. EXECUTIVE COMPENSATION

      The information required by this item is incorporated herein by reference to the material appearing in the Proxy Statement under the captions “Compensation of Executive Officers” and “Compensation of Directors.” Notwithstanding anything to the contrary herein, the Audit Committee Report, the Compensation Committee Report and the Performance Graph in the Proxy Statement are not incorporated by reference herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT AND RELATED STOCKHOLDER MATTERS

      The information required by this item is incorporated herein by reference to the table and related text and footnotes appearing in the Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management.”

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information required by this item is incorporated herein by reference to the material appearing in the Proxy Statement under the captions “Certain Compensation Arrangements,” “Certain Transactions” and “Compensation Committee Interlocks and Insider Participation.”

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The information required by this item is incorporated herein by reference to the material appearing in the Proxy Statement under the caption “Ratification of the Appointment of Independent Auditors.”

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

15(a)(1)		—	The following consolidated financial statements and the related notes thereto of Sotheby's Holdings, Inc. and subsidiaries are contained in Item 8, “Financial Statements and Supplementary Data”: Consolidated Income Statements—Years ended December 31, 2005, 2004 and 2003; Consolidated Balance Sheets—December 31, 2005 and 2004; Consolidated Statements of Cash Flows—Years ended December 31, 2005, 2004 and 2003; Consolidated Statements of Changes in Shareholders' Equity—Years ended December 31, 2005, 2004 and 2003.
15(a)(2)		—	The following is the consolidated financial statement schedule of Sotheby's Holdings, Inc. and subsidiaries required by Item 15(d): Schedule II—Valuation and Qualifying Accounts for the years ended December 31, 2005, 2004 and 2003.
15(a)(3)
3.1		—	Amended and Restated Articles of Incorporation of Sotheby's Holdings, Inc., as amended, incorporated by reference to Exhibit 4(b) to Registration Statement No. 33-26008, SEC File No. 1-9750, on file at the Washington, D.C. office of the Securities and Exchange Commission.
3.2		—	Amended and Restated By-Laws of Sotheby's Holdings, Inc., as amended, through November 7, 2005, incorporated by reference to Exhibit 3.1 to the Company's Third Quarter Form 10-Q for 2005.
4.1		—	See Exhibits 3.1 and, 3.2.
4.2		—	Indenture, dated as of February 5, 1999, between Sotheby's Holdings, Inc. and The Chase Manhattan Bank as Trustee, incorporated by reference to Exhibit 4(a) to the Company's current report on Form 8-K, filed on February 10, 1999 with the Securities and Exchange Commission.
4.3		—	Fixed Rate Note, dated February 5, 1999, made by Sotheby's Holdings, Inc. in favor of Cede & Co., incorporated by reference to Exhibit 4(b) to the Company's current report on Form 8-K, filed on February 10, 1999 with the Securities and Exchange Commission.
10.1	*	—	Sotheby's, Inc. 2005 Benefit Equalization Plan, incorporated by reference to Exhibit 10.2 to the Company's current report on Form 8-K filed on December 15, 2004.
10.2	*	—	Sotheby's Holdings, Inc. 1987 Stock Option Plan as amended and restated effective June 1, 1994, incorporated by reference to Exhibit 10(o) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
10.3	*	—	Sotheby's Holdings, Inc. 1997 Stock Option Plan Composite Plan Document, effective January 1, 2000, incorporated by reference to Exhibit 10(k) to the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
10.4	*	—	Sotheby's Holdings, Inc. 1997 Stock Option Plan Composite Plan Document, as amended and restated on November 7, 2005, effective September 8, 2005.
10.5		—	Agreement of Partnership of Acquavella Modern Art, dated May 29, 1990, between Sotheby's Nevada, Inc. and Acquavella Contemporary Art, Inc., incorporated by reference to Exhibit 10(b) to the Company's current report on Form 8-K, filed on June 7, 1990, SEC File No. 1-9750, on file at the Washington, D.C. office of the Securities and Exchange Commission.
10.6		—	First Amendment to Agreement of Partnership, dated December 31, 2000, of Acquavella Modern Art, between Sotheby's Nevada, Inc. and Acquavella Contemporary Art, Inc., incorporated by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K for the year ended December 31, 2000.

87

10.7		—	Second Amendment to Agreement of Partnership, dated December 15, 2001, of Acquavella Modern Art, between Sotheby's Nevada, Inc. and Acquavella Contemporary Art, Inc., incorporated by reference to Exhibit 10(k) to the Company's Annual Report on Form 10-K for the year ended December 31, 2001.
10.8		—	Third Amendment to Agreement of Partnership, dated February 10, 2003, of Acquavella Modern Art, between Sotheby's Nevada, Inc. and Acquavella Contemporary Art, Inc., incorporated by reference to Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year ended December 31, 2002.
10.9		—	Fourth Amendment to Agreement of Partnership, dated January 13, 2004, of Acquavella Modern Art, between Sotheby's Nevada, Inc. and Acquavella Contemporary Art, Inc., incorporated by reference to Exhibit 10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2003.
10.10		—	Fifth Amendment to Agreement of Partnership, dated December 8, 2004, of Acquavella Modern Art, between Sotheby's Nevada, Inc. and Acquavella Contemporary Art, Inc., incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 2003.
10.11		—	Sixth Amendment to Agreement of Partnership, dated March 1, 2006, of Acquavella Modern Art, between Sotheby's Nevada, Inc. and Acquavella Contemporary Art, Inc.
10.12	*	—	1998 Stock Compensation Plan for Non-Employee Directors, as amended and restated on March 14, 2005, effective May 4, 2005, incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004.
10.13		—	Amended and Restated Credit Agreement dated as of November 14,, 2005, among Sotheby's Inc., as the Company, Sotheby's Holdings, Inc., as Holdings, Certain U.K. Subsidiaries of Holdings, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, LaSalle Bank N.A., as Syndication Agent and the Other Lenders Party Hereto, Banc of America Securities, LLC and LaSalle Bank N.A., as Joint Lead Arrangers and Joint Book Managers.
10.14		—	Purchase and Sale Agreement between SIBS, LLC, as Seller and RFR Holding Corp., as Purchaser; Dated: As of December 16, 2002; Property: 1334 York Avenue, New York, New York 10021, incorporated by reference to Exhibit 10(a) to the Company's First Quarter Form 10-Q for 2003.
10.15		—	Lease between 1334 York Avenue L.P., “Landlord,” and Sotheby's, Inc., “Tenant,” February 7, 2003; Premises: 1334 York Avenue, New York, New York, incorporated by reference to Exhibit 10(b) to the Company's First Quarter Form 10-Q for 2003.
10.16	*	—	Employment Agreement between Sotheby's Holdings, Inc. and William F. Ruprecht, incorporated by reference to Exhibit 99.1 to the Company's Third Quarter Form 10-Q for 2003.
10.17	*	—	First Amendment to Employment Agreement between Sotheby's Holdings, Inc. and William F. Ruprecht, incorporated by reference to Exhibit 10.1 to the Company's current report on Form 8-K, filed on April 12, 2004.
10.18	*	—	Second Amendment to Employment Agreement between Sotheby's Holdings, Inc. and William F. Ruprecht.
10.19	*	—	Employment Agreement between Sotheby's Holdings, Inc. and William S. Sheridan, incorporated by reference to Exhibit 99.1 to the Company's Third Quarter Form 10-Q for 2003.
10.20	*	—	Sotheby's Holdings, Inc. 2003 Restricted Stock Plan, dated April 29, 2003, incorporated by reference to Exhibit 10(s) to the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

88

10.21	*	—	First Amendment to Sotheby's Holdings, Inc. 2003 Restricted Stock Plan, dated August 5, 2004, incorporated by reference to Exhibit 10.1 to the Company's Third Quarter Form 10-Q for 2004.
10.22	*	—	Second Amendment to Sotheby's Holdings, Inc. 2003 Restricted Stock Plan, dated November 7, 2005 and effective September 8, 2005.
10.23		—	Stock Purchase Agreement, dated as of February 17, 2004, by and among NRT Incorporated as the Purchaser, Sotheby's Holdings, Inc., as the Seller, and Cendant Corporation as the Purchaser Guarantor, incorporated by reference to Exhibit 99.1 to the Company's current report on Form 8-K, filed on March 2, 2004.
10.24		—	Trademark License Agreement, dated as of February 17, 2004, among SPTC, Inc., as Licensor, Sotheby's Holdings, Inc. as Guarantor, Monticello Licensee Corporation, as Licensee, and Cendant Corporation, as Guarantor, incorporated by reference to Exhibit 99.2 to the Company's current report on Form 8-K, filed on March 2, 2004.
10.25		—	Amendment No. 1 to Trademark License Agreement, dated as of May 2, 2005, among SPTC Delaware, LLC (as an assignee of SPTC, Inc) and Sotheby's Holdings, Inc. and Cendant Corporation and Sotheby's International Realty Licensee Corporation (formerly known as Monticello Licensee Corporation), incorporated by reference to Exhibit 10.1 to the Company's Second Quarter Form 10-Q for 2005.
10.26		—	Amendment No. 2 to Trademark License Agreement, dated as of May 2, 2005, among SPTC Delaware, LLC (as an assignee of SPTC, Inc) and Sotheby's Holdings, Inc. and Cendant Corporation and Sotheby's International Realty Licensee Corporation (formerly known as Monticello Licensee Corporation), incorporated by reference to Exhibit 10.2 to the Company's Second Quarter Form 10-Q for 2005.
10.27	*	—	Sotheby's Holdings, Inc Executive Bonus Plan, dated as of February 7, 2005 and effective January 1, 2005, incorporated by reference to Exhibit 10.1 to the Company's First Quarter Form 10-Q for 2005.
10.28		—	Transaction Agreement by and among Sotheby's Holdings, Inc., and The Investors, dated as of September 7, 2005, incorporated by reference to Exhibit 10.1 to the Company's Third Quarter Form 10-Q for 2005.
21		—	Subsidiaries of the Registrant
23		—	Consent of Deloitte & Touche LLP
24		—	Powers of Attorney
31.1		—	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		—	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		—	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		—	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(15)(b)		—	On October 16, 2005, the Company filed a current report on Form 8-K under Item 2.03, “Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.”
			On November 10, 2005, the Company filed a current report on Form 8-K under Item 2.02, “Results of Operations and Financial Condition” and Item 9.01, “Financial Statements and Exhibits.”
			On November 16, 2005, the Company filed a current report on Form 8-K under Item 1.01, “Entry into a Material Definitive Agreement.”

89

(15)(c)	—	The list of exhibits filed with this report is set forth in response to Item 15(a)(3). The required exhibit index has been filed with the exhibits.
(15)(d)	—	The financial statement schedule of the Company listed in response to Item 15(a)(2) is filed pursuant to this Item 15(d).

* A compensatory agreement or plan required to be filed pursuant to Item 15(c) of Form 10-K

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SCHEDULE II

SOTHEBY'S HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

Column A	Column B		Column C				Column D		Column E
Description (a)	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts		Deductions		Balance at End of Period
	(Thousands of dollars)
Valuation reserve deducted in the balance sheet from the asset to which it applies:
Receivables (b):
2005 Allowance for doubtful accounts and credit losses	$	7,931	$	1,820	$	156	$	3,770	$	6,137
2004 Allowance for doubtful accounts and credit losses	$	7,548	$	5,530	$	—	$	5,147	$	7,931
2003 Allowance for doubtful accounts and credit losses	$	9,242	$	2,489	$	594	$	4,777	$	7,548
Deferred tax assets:
2005 Valuation allowance	$	33,762	$	—	$	—	$	8,877	$	24,885
2004 Valuation allowance	$	34,493	$	3,167	$	—	$	3,898	$	33,762
2003 Valuation allowance	$	37,240	$	—	$	—	$	2,747	$	34,493

(a)	The schedule above relates to the Company's continuing operations and excludes amounts related to the Company's discontinued real estate brokerage business (see Note D of Notes to Consolidated Financial Statements under Part II, Item 8, “Financial Statements and Supplementary Data”).
(b)	Consists of Accounts Receivable and Notes Receivables and Consignor Advances.

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SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SOTHEBY'S HOLDINGS, INC.
	By:	/s/ WILLIAM F. RUPRECHT
Date: March 16, 2006		William F. Ruprecht President and Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ MICHAEL I. SOVERN* Michael I. Sovern	Chairman of the Board	March 16, 2006
/s/ DEVONSHIRE* Duke of Devonshire	Deputy Chairman of the Board	March 16, 2006
/s/ WILLIAM F. RUPRECHTWilliam F. Ruprecht	President, Chief Executive Officer and Director	March 16, 2006
/s/ ROBIN G. WOODHEAD* Robin G. Woodhead	Executive Vice President and Director	March 16, 2006
/s/ BLAKENHAM* Michael Blakenham	Director	March 16, 2006
/s/ STEVEN B. DODGE* Steven B. Dodge	Director	March 16, 2006
/s/ ALLEN QUESTROM* Allen Questrom	Director	March 16, 2006
/s/ DONALD H. STEWART* Donald H. Stewart	Director	March 16, 2006
/s/ ROBERT S. TAUBMAN* Robert S. Taubman	Director	March 16, 2006
/s/ WILLIAM S. SHERIDANWilliam S. Sheridan	Executive Vice President and Chief Financial Officer	March 16, 2006
/s/ MICHAEL L. GILLISMichael L. Gillis	Senior Vice President, Controller and Chief Accounting Officer	March 16, 2006
/s/ WILLIAM S. SHERIDAN*William S. Sheridan as Attorney-in-Fact		March 16, 2006

92

EXHIBIT INDEX

Exhibit No.			Description
3	.1	—	Amended and Restated Articles of Incorporation of Sotheby's Holdings, Inc., as amended, incorporated by reference to Exhibit 4(b) to Registration Statement No. 33-26008, SEC File No. 1-9750, on file at the Washington, D.C. office of the Securities and Exchange Commission.
3	.2	—	Amended and Restated By-Laws of Sotheby's Holdings, Inc., as amended, through November 7, 2005, incorporated by reference to Exhibit 3.1 to the Company's Third Quarter Form 10-Q for 2005.
4	.1	—	See Exhibits 3.1 and 3.2.
4	.2	—	Indenture, dated as of February 5, 1999, between Sotheby's Holdings, Inc. and The Chase Manhattan Bank as Trustee, incorporated by reference to Exhibit 4(a) to the Company's current report on Form 8-K, filed on February 10, 1999 with the Securities and Exchange Commission.
4	.3	—	Fixed Rate Note, dated February 5, 1999, made by Sotheby's Holdings, Inc. in favor of Cede & Co., incorporated by reference to Exhibit 4(b) to the Company's current report on Form 8-K, filed on February 10, 1999 with the Securities and Exchange Commission.
10	.1*	—	Sotheby's, Inc. 2005 Benefit Equalization Plan, incorporated by reference to Exhibit 10.2 to the Company's current report on Form 8-K filed on December 15, 2004.
10	.2*	—	Sotheby's Holdings, Inc. 1987 Stock Option Plan as amended and restated effective June 1, 1994, incorporated by reference to Exhibit 10(o) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
10	.3*	—	Sotheby's Holdings, Inc. 1997 Stock Option Plan Composite Plan Document, effective January 1, 2000, incorporated by reference to Exhibit 10(k) to the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
10	.4*	—	Sotheby's Holdings, Inc. 1997 Stock Option Plan Composite Plan Document, as amended and restated on November 7, 2005, effective September 8, 2005.
10	.5	—	Agreement of Partnership of Acquavella Modern Art, dated May 29, 1990, between Sotheby's Nevada, Inc. and Acquavella Contemporary Art, Inc., incorporated by reference to Exhibit 10(b) to the Company's current report on Form 8-K, filed on June 7, 1990, SEC File No. 1-9750, on file at the Washington, D.C. office of the Securities and Exchange Commission.
10	.6	—	First Amendment to Agreement of Partnership, dated December 31, 2000, of Acquavella Modern Art, between Sotheby's Nevada, Inc. and Acquavella Contemporary Art, Inc., incorporated by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
10	.7	—	Second Amendment to Agreement of Partnership, dated December 15, 2001, of Acquavella Modern Art, between Sotheby's Nevada, Inc. and Acquavella Contemporary Art, Inc., incorporated by reference to Exhibit 10(k) to the Company's Annual Report on Form 10-K for the year ended December 31, 2001.
10	.8	—	Third Amendment to Agreement of Partnership, dated February 10, 2003, of Acquavella Modern Art, between Sotheby's Nevada, Inc. and Acquavella Contemporary Art, Inc., incorporated by reference to Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year ended December 31, 2002.
10	.9	—	Fourth Amendment to Agreement of Partnership, dated January 13, 2004, of Acquavella Modern Art, between Sotheby's Nevada, Inc. and Acquavella Contemporary Art, Inc., incorporated by reference to Exhibit 10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

93

10	.10	—	Fifth Amendment to Agreement of Partnership, dated December 8, 2004, of Acquavella Modern Art, between Sotheby's Nevada, Inc. and Acquavella Contemporary Art, Inc., incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 2003.
10	.11	—	Sixth Amendment to Agreement of Partnership, dated March 1, 2006, of Acquavella Modern Art, between Sotheby's Nevada, Inc. and Acquavella Contemporary Art, Inc.
10	.12*	—	1998 Stock Compensation Plan for Non-Employee Directors, as amended and restated on March 14, 2005, effective May 4, 2005, incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004.
10	.13	—	Amended and Restated Credit Agreement dated as of November 14, 2005, among Sotheby's Inc., as the Company, Sotheby's Holdings, Inc., as Holdings, Certain U.K. Subsidiaries of Holdings, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, LaSalle Bank N.A., as Syndication Agent and the Other Lenders Party Hereto, Banc of America Securities, LLC and LaSalle Bank N.A., as Joint Lead Arrangers and Joint Book Managers.
10	.14	—	Purchase and Sale Agreement between SIBS, LLC, as Seller and RFR Holding Corp., as Purchaser; Dated: As of December 16, 2002; Property: 1334 York Avenue, New York, New York 10021, incorporated by reference to Exhibit 10(a) to the Company's First Quarter Form 10-Q for 2003.
10	.15	—	Lease between 1334 York Avenue L.P., “Landlord,” and Sotheby's, Inc., “Tenant,” February 7, 2003; Premises: 1334 York Avenue, New York, New York, incorporated by reference to Exhibit 10(b) to the Company's First Quarter Form 10-Q for 2003.
10	.16*	—	Employment Agreement between Sotheby's Holdings, Inc. and William F. Ruprecht, incorporated by reference to Exhibit 99.1 to the Company's Third Quarter Form 10-Q for 2003.
10	.17*	—	First Amendment to Employment Agreement between Sotheby's Holdings, Inc. and William F. Ruprecht, incorporated by reference to Exhibit 10.1 to the Company's current report on Form 8-K, filed on April 12, 2004.
10	.18*	—	Second Amendment to Employment Agreement between Sotheby's Holdings, Inc. and William F. Ruprecht.
10	.19*	—	Employment Agreement between Sotheby's Holdings, Inc. and William S. Sheridan, incorporated by reference to Exhibit 99.1 to the Company's Third Quarter Form 10-Q for 2003.
10	.20*	—	Sotheby's Holdings, Inc. 2003 Restricted Stock Plan, dated April 29, 2003, incorporated by reference to Exhibit 10(s) to the Company's Annual Report on Form 10-K for the year ended December 31, 2003.
10	.21*	—	First Amendment to Sotheby's Holdings, Inc. 2003 Restricted Stock Plan, dated August 5, 2004, incorporated by reference to Exhibit 10.1 to the Company's Third Quarter Form 10-Q for 2004.
10	.22*	—	Second Amendment to Sotheby's Holdings, Inc. 2003 Restricted Stock Plan, dated November 7, 2005 and effective September 8, 2005.
10	.23	—	Stock Purchase Agreement, dated as of February 17, 2004, by and among NRT Incorporated as the Purchaser, Sotheby's Holdings, Inc., as the Seller, and Cendant Corporation as the Purchaser Guarantor, incorporated by reference to Exhibit 99.1 to the Company's current report on Form 8-K, filed on March 2, 2004.
10	.24	—	Trademark License Agreement, dated as of February 17, 2004, among SPTC, Inc., as Licensor, Sotheby's Holdings, Inc. as Guarantor, Monticello Licensee Corporation, as Licensee, and Cendant Corporation, as Guarantor, incorporated by reference to Exhibit 99.2 to the Company's current report on Form 8-K, filed on March 2, 2004.

94

10	.25	—	Amendment No. 1 to Trademark License Agreement, dated as of May 2, 2005, among SPTC Delaware, LLC (as an assignee of SPTC, Inc) and Sotheby's Holdings, Inc. and Cendant Corporation and Sotheby's International Realty Licensee Corporation (formerly known as Monticello Licensee Corporation), incorporated by reference to Exhibit 10.1 to the Company's Second Quarter Form 10-Q for 2005.
10	.26	—	Amendment No. 2 to Trademark License Agreement, dated as of May 2, 2005, among SPTC Delaware, LLC (as an assignee of SPTC, Inc) and Sotheby's Holdings, Inc. and Cendant Corporation and Sotheby's International Realty Licensee Corporation (formerly known as Monticello Licensee Corporation), incorporated by reference to Exhibit 10.2 to the Company's Second Quarter Form 10-Q for 2005.
10	.27*	—	Sotheby's Holdings, Inc Executive Bonus Plan, dated as of February 7, 2005 and effective January 1, 2005, incorporated by reference to Exhibit 10.1 to the Company's First Quarter Form 10-Q for 2005.
10	.28	—	Transaction Agreement by and among Sotheby's Holdings, Inc., and The Investors, dated as of September 7, 2005, incorporated by reference to Exhibit 10.1 to the Company's Third Quarter Form 10-Q for 2005.
21		—	Subsidiaries of the Registrant
23		—	Consent of Deloitte & Touche LLP
24		—	Powers of Attorney
31	.1	—	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31	.2	—	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	.1	—	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32	.2	—	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* A compensatory agreement or plan required to be filed pursuant to Item 15(c) of Form 10-K

95

EX-10

Exhibit 10.4

SEVENTH AMENDMENT TO
SOTHEBY’S HOLDINGS, INC.
1997 STOCK OPTION PLAN

          THIS SEVENTH AMENDMENT to the Sotheby’s Holdings, Inc. 1997 Stock Option Plan (“Seventh Amendment”), dated the 7^th day of November, 2005, is adopted by Sotheby’s Holdings, Inc. (the “Corporation”).

RECITALS:

          A.The Sotheby’s Holdings, Inc. 1997 Stock Option Plan (the “Plan”) was adopted by the Board of Directors of the Corporation on April 30, 1996 and approved by the shareholders of the Corporation at the Corporation’s 1996 Annual Meeting of Shareholders on June 19, 1996. The Plan has been amended from time to time.

          B. Pursuant to Section 8.1 of the Plan, the Corporation has the authority to amend the Plan. The Corporation desires to and does hereby amend the Plan, as hereinafter set forth, to provide that, as a result of the Corporation’s recapitalization plan announced September 8, 2005, the Class B Shares made the subject of Options granted under the Plan have been automatically converted to Class A Shares. Accordingly, the Plan is amended (1) to clarify that only Options covering Class A Shares are available for issuance under the Plan; (2) to change Plan references from Class B Common Stock to Class A Common Stock as provided below, and (3) to make such other changes as the Corporation desires.

          NOW, THEREFORE, the Plan is hereby amended as follows:

1.	Section 2.5 of the Plan is amended in its entirety by substituting the following:
	“2.5 Class A Common Stock means the Class A Limited Voting Common Stock of the Corporation, par value $0.10 per share, entitling every holder thereof, on all matters submitted to a vote of the shareholders of the Corporation, to cash one vote for each share standing in his name.”

1

2.	Section 2.6 referencing Class B Common Stock is deleted in its entirety.
3.	Section 2.8 is amended in its entirety by substituting the following:
	“2.8 Common Stock means the Class A Common Stock.”
4.	Section 2.19 is amended in its entirety by substituting the following:
	“2.19 Fair Market Value means the value of each share of Option Stock, determined for a particular date as follows:
	(a) if the Class A Common Stock is listed or admitted for trading on any United States national securities exchange, the value of each share of Option Stock shall be the closing price per share of Class A Common Stock on such exchange (or, if listed on more than one United States exchange, the principal said exchange) on the relevant Valuation Date hereunder;
	(b) if the Class A Common Stock is not traded on any United States national securities exchange, but is quoted on the National Association of Securities Dealers, Inc. Automated Quotation System (the “NASDAQ System”) or any similar system of automated dissemination of quotations of prices in common use, the value of each share of Option Stock shall be the price per share equal to the mean between the closing high bid and the low asked quotations on such system on the relevant Valuation Date hereunder;
	(c) if neither paragraph (a) nor paragraph (b) of this definition is applicable, the value of each share of Option Stock shall be the fair market value as determined by the Committee, in good faith and in accordance with uniform principles consistently applied, on the last day of the relevant Fiscal Year immediately preceding the relevant date hereunder. Such uniform principles shall be the same principles applied by the Shares Valuation Division of the UK Inland Revenue as of the date the Committee makes such good faith determination of the fair market value of each share of Option Stock.”
5.	Section 2.25 is amended in its entirety by substituting the following:
	“2.25 Option Stock means those shares of Class A Common Stock made the subject of any Option granted pursuant to the Plan.”
6.	Section 4.1 is amended in its entirety by substituting the following:
	“4.1 Shares Subject to the Plan. The Option Stock to be made the subject of Options granted under the Plan shall be shares of the Corporation’s authorized but unissued or reacquired Class A Common Stock. Subject to adjustment as provided in Section 8.3 hereof, the aggregate number of shares of Class A Common Stock that may be issued by the Corporation upon the exercise of Options under the Plan is 14,900,000 shares of Class A Common

2

	Stock. The aggregate number of shares of Option Stock outstanding at any time shall not exceed the relevant number of shares of Class A Common Stock remaining available for issuance under the Plan. After termination of the Plan, the number of shares of Class A Common Stock reserved for purposes of the Plan from time to time shall be only such number of shares as are issuable under then outstanding Options.”
7.	Section 7.3(b) is amended in its entirety by substituting the following:
	“(b) For purposes of this Section 7.3, in determining the “shares made subject to such Option,” account shall be taken of any adjustments made to the shares as described in Section 8.3 hereof after the Date of Grant of the Option, such that the number of shares of Class A Common Stock with respect to which an Optionee’s Option is vested shall be redetermined at the time of an adjustment, and the number of shares of Class A Common Stock with respect to which an Optionee’s Option becomes vested on any anniversary date shall be determined by reference to the number of shares of Class A Common Stock then subject to such Option, taking any adjustments previously made into account.”
8.	Section 7.4 is amended in its entirety by substituting the following:
	“7.4 Prohibition Against Exercise of Out-of-the-Money Options. The exercise of any Option shall not be permitted if the Fair Market Value per share of Class A Common Stock that would be acquired upon such exercise, determined as of the Date of Exercise, is less than the Exercise Price of such Option.”
9.	Section 7.6 is amended in its entirety by substituting the following:
	“7.6 Acceleration of Exercise Time.
	(a) Notwithstanding anything to the contrary in the Plan, including Sections 7.3, 7.7 and 7.8 hereof, the Compensation Committee, in its discretion, may allow the exercise, in whole or in part, at any time more than six (6) months after the Date of Grant of any Option held by an Optionee, which Option has not previously become exercisable.
	(b) In the event of a Change in Control (as defined below), Options granted on or after April 29, 1997 shall become 100% vested and exercisable on the date of the Change in Control. Notwithstanding the preceding sentence, in the event of a Change in Control, Options granted on or after April 29, 1997 to Reporting Persons shall become 100% vested and exercisable on the later of (i) the date of the Change in Control, or (ii) the six (6) month anniversary of the Date of Grant of the Option.
	(c) For purposes of the Plan, a Change in Control shall mean the date upon which:

3

			(i) any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (a “Person”), shall become, directly or indirectly, the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of Common Stock of the Corporation enabling such Person to elect a majority of the members of the Board of Directors of the Corporation; or
			(ii) the individuals who constitute the Board (the “Incumbent Board”) cease for any reason within any period of 18 consecutive months to constitute at least a majority of the members of the Board; provided, however, that any individual becoming a director whose election, or nomination for election by the Corporation’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though the individual were a member of the Incumbent Board.”
	10.	Sections 7.17 and 7.18 are deleted in their entirety.
11.      Sections 8.3(c) and (d) are amended in their entirety by substituting the following:
		“(c)      The shares with respect to which Options may be granted hereunder are shares of Class A Common Stock of the Corporation as presently constituted, but if, and whenever, prior to the delivery by the Corporation of all of the shares which are subject to the Options or rights granted hereunder, the Corporation shall effect a subdivision or consolidation of shares or other capital readjustments, the payment of a stock dividend or other increase or reduction of the number of outstanding shares of Class A Common Stock, without receiving compensation therefore in money, services or property, the number of shares subject to the Plan shall be proportionately adjusted and the number of shares with respect to which Options granted hereunder may thereafter be exercised shall:
				(i) in the event of an increase in the number of outstanding shares, be proportionately increased, and the cash consideration (if any) payable per share shall be proportionately reduced; and
				(ii) in the event of a reduction in the number of outstanding shares, be proportionately reduced, and the cash consideration (if any) payable per share shall be proportionately increased.
		(d) If the Corporation merges with one or more corporations, or consolidates with one or more corporations and the Corporation shall be the surviving corporation, thereafter, upon any exercise of Options granted hereunder, the recipient shall, at no additional cost (other than the Exercise Price and any tax withholding amounts) be entitled to receive (subject to any required action by shareholders) in lieu of the number of shares as to which

4

	such Options shall then be exercisable the number and class of shares of stock or other securities to which the recipient would have been entitled pursuant to the terms of the agreement of merger or consolidation, if immediately prior to such merger or consolidation the recipient had been the holder of record of the number of shares of Class A Common Stock of the Corporation equal to the number of shares as to which such Options shall be exercisable. A reorganization, merger or consolidation in which the Corporation is not the surviving corporation, or a liquidation or dissolution of the Corporation, shall automatically and without any further action cause any outstanding Options which have not yet become exercisable in accordance with Article 7 to terminate and be cancelled as of the effective date of such reorganization, merger or consolidation, or dissolution or liquidation of the Corporation, unless the agreement of reorganization, merger or consolidation otherwise provides.”
12.	Section 9.3 is deleted in its entirety.
13.	Section 12.1(h) is amended in its entirety by substituting the following:
	“(h) Shares mean shares of Class A Common Stock in the Company, which satisfy the provisions of paragraphs 10 through 14 of Schedule 9.”
14.	The effective date of this Amendment is September 8, 2005

          IN WITNESS WHEREOF, this Amendment is hereby executed as of the day and year first above written.

SOTHEBY’S HOLDINGS, INC.
By:	/s/ Susan Alexander
Its: Executive Vice President, Human Resources

5

EX-10

EXHIBIT 10.11

SOTHEBY’S NEVADA, INC.
5600 Spring Mountain Road, Suite 104
Las Vegas, Nevada 89102

March 1, 2006

Acquavella Contemporary Art, Inc.
c/o Mr. William R. Acquavella
300 Pleasure Drive
Flanders, NY 11901

Dear Bill:

This letter agreement amends the Agreement of Partnership (the “Partnership Agreement”) of Acquavella Modern Art, a Nevada general partnership, dated May 29, 1990, between Sotheby’s Nevada, Inc., a Nevada Corporation (“Sotheby’s Partner”), and Acquavella Contemporary Art, Inc., a Nevada Corporation (“Acquavella Partner”).

By letters of amendment on December 1, 2000, December 15, 2001, February 10, 2003, January 13, 2004 and December 8, 2004 we agreed to extend the term of the Partnership Agreement through March 31, 2002, March 31, 2003, March 31, 2004, March 31, 2005, and March 31, 2006, respectively. By this letter of amendment, we are agreeing to extend the term of the Partnership Agreement for one additional year through March 31, 2007. Accordingly, each of the Sotheby’s Partner and the Acquavella Partner hereby agree to amend Section 1.5 (iii) of the Partnership Agreement to delete the reference to December 31, 2000 (subsequently amended to March 31, 2002, March 31, 2003, March 31, 2004, March 31, 2005 and March 31, 2006), and substitute therefore the date of “March 31, 2007.”

Except as amended hereby, the Partnership Agreement shall remain in full force and effect and is hereby ratified and confirmed.

Please sign this letter agreement in the space provided below. Upon execution on behalf of the Acquavella Partner, this letter agreement shall be effective as of the date of this letter.

SOTHEBY’S NEVADA, INC.

By:	/s/ William F. Ruprecht
	William F. Ruprecht, President

AGREED AND ACCEPTED
ACQUAVELLA CONTEMPORARY ART, INC.

By:	/s/ William R. Acquavella
	William R. Acquavella, President

EX-10

EXHIBIT 10.13

AMENDED AND RESTATED CREDIT AGREEMENT

Dated as of November 14, 2005

among

SOTHEBY’S, INC.,

as the Company,

SOTHEBY’S HOLDINGS, INC.,

as Holdings,

Certain U.K. Subsidiaries of Holdings named herein as the U.K. Borrowers,

BANK OF AMERICA, N.A.,
as Administrative Agent, Swing Line Lender,
L/C Issuer and Foreign Currency Lead Lender,

LASALLE BANK N.A. and HSBC BANK PLC,
as Co-Syndication Agents,

THE CIT GROUP/BUSINESS CREDIT, INC.
and
CITIBANK, N.A.
as Co-Documentation Agents

and

The Other Lenders Party Hereto

BANC OF AMERICA SECURITIES LLC

and

LASALLE BANK N.A.,
as Joint Lead Arrangers and Joint Book Managers

Sotheby’s Amended and Restated Credit Agreement

TABLE OF CONTENTS

Section		Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01	Defined Terms	1
1.02	Other Interpretive Provisions	32
1.03	Accounting Terms	32
1.04	Rounding	33
1.05	Times of Day	33
1.06	Letter of Credit Amounts	33
1.07	Currency Equivalents Generally	33
1.08	Change of Currency	34
1.09	Alternative L/C Currencies	34
ARTICLE II
THE COMMITMENTS AND CREDIT EXTENSIONS
2.01	The Loans	35
2.02	Borrowings, Conversions and Continuations of Loans	35
2.03	Letters of Credit	37
2.04	Swing Line Loans	46
2.05	Prepayments	49
2.06	Termination or Reduction of Commitments	52
2.07	Repayment of Loans	52
2.08	Interest	52
2.09	Fees	53
2.10	Computation of Interest and Fees	54
2.11	Evidence of Debt	54
2.12	Payments Generally; Administrative Agent’s Clawback	55
2.13	Sharing of Payments by Lenders	57
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01	Taxes	58
3.02	Illegality	61
3.03	Inability to Determine Rates	61
3.04	Increased Costs	62
3.05	Compensation for Losses	63
3.06	Mitigation Obligations; Replacement of Lenders	64
3.07	Survival	64

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Sotheby’s Amended and Restated Credit Agreement

ARTICLE IV
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS
4.01	Conditions of Initial Credit Extension	64
4.02	Conditions to Initial Credit Extension to U.K. Borrower	68
4.03	Conditions to all Credit Extensions	70
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01	Corporate Existence and Good Standing	71
5.02	Corporate Power, Authorization and Compliance with the Law	71
5.03	Financial Statements; No Material Adverse Effect; No Internal Control Event	72
5.04	ERISA Compliance	73
5.05	Pensions	74
5.06	Environmental Matters	74
5.07	Litigation	74
5.08	Taxes	74
5.09	Investment Company Act	74
5.10	No Material Misstatements	74
5.11	Federal Reserve Regulations	75
5.12	Ownership of Property; Liens; Investments	75
5.13	No Default	75
5.14	Insurance	76
5.15	Subsidiaries; Equity Interests; Loan Parties	76
5.16	Compliance with Laws	76
5.17	Intellectual Property; Licenses, Etc.	76
5.18	Solvency	76
5.19	Casualty, Etc.	77
5.20	Exempt Subsidiaries	77
5.21	Immaterial Subsidiaries	77
5.22	Asset Value	77
ARTICLE VI
AFFIRMATIVE COVENANTS
6.01	Financial Statements	77
6.02	Certificates; Other Information	78
6.03	Notices	80
6.04	Payment of Obligations	81
6.05	Maintain Property and Insurance	82
6.06	Maintain Existence	82
6.07	Compliance with Laws	82
6.08	Inspection	82
6.09	Eligible Loans	82
6.10	Books and Records	82
6.11	Use of Proceeds	82

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Sotheby’s Amended and Restated Credit Agreement

6.12	Covenant to Guarantee Obligations and Give Security	82
6.13	Further Assurances	86
6.14	Post-Closing Obligations	86
ARTICLE VII
NEGATIVE COVENANTS
7.01	Liens	87
7.02	Indebtedness	89
7.03	Investments	90
7.04	Fundamental Changes	91
7.05	Dispositions	92
7.06	Restricted Payments	92
7.07	Change in Nature of Business	93
7.08	Transactions with Affiliates	93
7.09	Burdensome Agreements	93
7.10	Use of Proceeds	93
7.11	Financial Covenants	93
7.12	Capital Expenditures	94
7.13	Amendments of Organization Documents	94
7.14	Accounting Changes	94
7.15	Prepayments, Etc. of Indebtedness	94
7.16	Amendment, Etc. of the Senior Notes	94
7.17	Partnerships, Etc.	94
7.18	SPTC Delaware	95
7.19	York Capital Lease	95
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
8.01	Events of Default	95
8.02	Remedies upon Event of Default	98
8.03	Application of Funds	98
ARTICLE IX
ADMINISTRATIVE AGENT
9.01	Appointment and Authority	99
9.02	Rights as a Lender	100
9.03	Exculpatory Provisions	100
9.04	Reliance by Administrative Agent	101
9.05	Delegation of Duties	101
9.06	Resignation of Administrative Agent	102
9.07	Non-Reliance on Administrative Agent and Other Lenders	102
9.08	No Other Duties, Etc.	103
9.09	Administrative Agent May File Proofs of Claim	103
9.10	Collateral and Guaranty Matters	104

iii

Sotheby’s Amended and Restated Credit Agreement

ARTICLE X
MISCELLANEOUS
10.01	Amendments, Etc.	104
10.02	Notices; Effectiveness; Electronic Communications	106
10.03	No Waiver; Cumulative Remedies	108
10.04	Expenses; Indemnity; Damage Waiver	108
10.05	Payments Set Aside	110
10.06	Successors and Assigns	110
10.07	Treatment of Certain Information; Confidentiality	114
10.08	Right of Setoff	115
10.09	Interest Rate Limitation	115
10.10	Counterparts; Integration; Effectiveness	116
10.11	Survival of Representations and Warranties	116
10.12	Severability	116
10.13	Replacement of Lenders	116
10.14	Pound and Euro L/C Issuers	117
10.15	Governing Law; Jurisdiction; Etc.	117
10.16	Waiver of Jury Trial	118
10.17	USA PATRIOT Act Notice	118
10.18	Know Your Customers	119

iv

Sotheby’s Amended and Restated Credit Agreement

SCHEDULES
	1.01	Mandatory Cost Formulae
	2.01	Commitments and Applicable Percentages
	5.03	Supplement to Interim Financial Statements
	5.12(b)	Existing Liens
	5.12(c)	Existing Investments
	5.15	Subsidiaries and Other Equity Investments; Loan Parties
	5.17	Intellectual Property Matters
	5.21	Immaterial Subsidiaries
	6.12	Guarantors
	7.02	Indebtedness
	7.05	Permitted Dispositions
	7.09	Burdensome Agreements
	10.02	Administrative Agent’s Office, Certain Addresses for Notices
	10.06	Processing and Recordation Fees

EXHIBITS
	Form of
	A	Committed Loan Notice
	B	Swing Line Loan Notice
	C-1	U.S. Note
	C-2	U.K. Note
	D	Assignment and Assumption
	E-1	Domestic Guaranty
	E-2	U.K. Guaranty
	F	Security Agreement
	G	Intellectual Property Security Agreement
	H-1	Opinion Matters – Counsel to Loan Parties
	H-2	Opinion Matters – Local Counsel to Loan Parties
	I	L/C Issuer Joinder Agreement

v

Sotheby’s Amended and Restated Credit Agreement

AMENDED AND RESTATED CREDIT AGREEMENT

                    This AMENDED AND RESTATED CREDIT AGREEMENT (“Agreement”) is entered into as of November 14, 2005, among SOTHEBY’S HOLDINGS, INC., a Michigan corporation (“Holdings”), SOTHEBY’S, INC., a New York corporation (the “Company” and, together with Holdings, the “U.S. Borrowers”), OATSHARE LIMITED, a company registered in England and Wales with registration number 01737495 (“Oatshare”), SOTHEBY’S, a company registered in England and Wales with registration number 00874867 (“Sotheby’s” and, together with Oatshare, the “U.K. Borrowers”, and collectively with the U.S. Borrowers, the “Borrowers”), each lender from time to time party hereto (collectively, the “Lenders” and individually, a “Lender”), BANK OF AMERICA, N.A., as Administrative Agent, Swing Line Lender, L/C Issuer and Foreign Currency Lead Lender, LASALLE BANK N.A and HSBC BANK PLC, as Co-Syndication Agents, and THE CIT GROUP/BUSINESS CREDIT, INC. and CITIBANK N.A., as Co-Documentation Agents.

PRELIMINARY STATEMENTS:

                    Pursuant to the Transaction Agreement dated as of September 7, 2005 (the “Transaction Agreement”) Holdings agreed, among other things, to purchase certain of its outstanding class “B” shares (the “Company Class B Shares”) from existing holders thereof (the “Sellers”) (such redemption, the “Recapitalization”).

                    The Borrowers have requested that (a) the Lenders lend funds to Holdings to pay to the Sellers the cash consideration in respect of the Recapitalization and to pay transaction fees and expenses and (b) from time to time, the Lenders lend to the Borrowers and the L/C Issuer (as hereinafter defined) issue Letters of Credit (as hereinafter defined) for the account of the Borrowers in order to provide a revolving credit facility for the Borrowers and their Subsidiaries (as hereinafter defined).

                    In connection with the foregoing, the Borrowers, the Administrative Agent and certain Lenders entered into the Credit Agreement dated as of September 7, 2005 (the “Original Credit Agreement”), pursuant to which such Lenders provided a revolving credit facility and the L/C Issuer agreed to issue Letters of Credit, in each case, on the terms and subject to the conditions set forth in the Original Credit Agreement.

                    The Borrowers, the Administrative Agent and the Lenders have agreed to amend and restate the Original Credit Agreement on the Effective Date (as hereinafter defined) in its entirety to read as set forth in this Amended and Restated Credit Agreement.

                    In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

                    1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:

Sotheby’s Amended and Restated Credit Agreement

                     “Administrative Agent” means Bank of America, in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.

                     “Administrative Agent’s Office” means, with respect to any currency, the Administrative Agent’s address and, as appropriate, account with respect to such currency as set forth on Schedule 10.02 with respect to such currency, or such other address or account with respect to such currency as the Administrative Agent may from time to time notify to the Borrowers and the Lenders.

                     “Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

                     “Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

                     “Aggregate Commitments” means the Commitments of all the Lenders.

                     “Agreement” means this Amended and Restated Credit Agreement.

                     “Alternative L/C Currency” means Canadian Dollars, Swiss Francs, Hong Kong Dollars and any other currency approved by the L/C Issuer and the Administrative Agent in accordance with Section 1.09 with respect to the incurrence of L/C Obligations in such currency (other than Dollars, Pounds or Euros).

                     “Applicable Commitment Fee Percentage” means, at any time, in respect of the Facility, (a) for the first six months following the Closing Date, 0.375% per annum and (b) thereafter, a percentage per annum determined by reference to the Consolidated Leverage Ratio as set forth in the most recent Compliance Certificate received by the Administrative Agent pursuant to Section 6.02(b):

Applicable Commitment Fee Percentage
Pricing Level	Consolidated Leverage Ratio		Commitment Fee
1		£ 1.0:1		0.250%
2		> 1.0:1		0.375%

Any increase or decrease in the Applicable Commitment Fee Percentage resulting from a change in the Consolidated Leverage Ratio shall become effective as of the first Business Day immediately following the date a Compliance Certificate is delivered pursuant to Section 6.02(b); provided, however, that if a Compliance Certificate is not delivered when due in accordance with such Section, then Pricing Level 2 shall apply as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered.

                     “Applicable Percentage” means, with respect to any Lender at any time, the percentage (carried out to the ninth decimal place) of the Facility represented by such Lender’s

2

Sotheby’s Amended and Restated Credit Agreement

Commitment at such time. If the Commitment of each Lender to make Revolving Credit Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02, or if the Commitments have expired, then the Applicable Percentage of each Lender in respect of the Facility shall be determined based on the Applicable Percentage of such Lender in respect of the Facility most recently in effect, giving effect to any subsequent assignments. The initial Applicable Percentage of each Lender in respect of each Facility is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable. Notwithstanding the foregoing, where applicable the Applicable Percentage of any Lender at any time with respect to Foreign Currency Revolving Credit Loans shall be (a) if such Lender is a Non-Qualifying Lender, 0% and (b) if such Lender is a Qualifying Lender (either directly or by designating an Affiliate to act in such capacity pursuant to Section 3.01(g)), the percentage (carried out to the ninth decimal place) of the aggregate Commitments of all Qualifying Lenders represented by such Qualifying Lender’s Commitment at such time.

                     “Applicable Rate” means (a) in the case of any Loan denominated in Dollars, 0.50% per annum for Base Rate Loans and 1.75% per annum for Eurocurrency Rate Loans and (b) in the case of any Loan denominated in Euros or Pounds, 1.75% per annum for Eurocurrency Rate Loans.

                     “Applicable Time” means, with respect to any borrowings and payments in any Foreign Currency, the local time in the place of settlement for such Foreign Currency as may be determined by the Administrative Agent or the L/C Issuer, as the case may be, to be necessary for timely settlement on the relevant date in accordance with normal banking procedures in the place of payment.

                     “Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

                    “Arrangers” means Banc of America Securities LLC and LaSalle Bank N.A., in their capacities as joint lead arrangers and joint book managers.

                    “Assignee Group” means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.

                    “Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.06(b), and accepted by the Administrative Agent, in substantially the form of Exhibit D or any other form approved by the Administrative Agent.

                    “Attributable Indebtedness” means, on any date, (a) in respect of any Capitalized Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease or similar payments under the relevant lease or other applicable agreement or instrument that would appear on a balance sheet of such

3

Sotheby’s Amended and Restated Credit Agreement

Person prepared as of such date in accordance with GAAP if such lease or other agreement or instrument were accounted for as a Capitalized Lease and (c) all Synthetic Debt of such Person.

                    “Audited Financial Statements” means the audited consolidated balance sheet of Holdings and its Subsidiaries for the fiscal year ended December 31, 2004, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year of Holdings and its Subsidiaries, including the notes thereto.

                    “Auto-Extension Letter of Credit” has the meaning specified in Section 2.03(b)(iii).

                    “Availability Period” means, the period from and including the Closing Date to the earliest of (a) the Maturity Date for the Facility, (b) the date of termination of the Commitments pursuant to Section 2.06, and (c) the date of termination of the commitment of each Lender to make Revolving Credit Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to Section 8.02.

                    “Bank of America” means Bank of America, N.A. and its successors.

                    “Base Rate” means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate.” The “prime rate” is a rate set by Bank of America based upon various factors including Bank of America’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change. Notwithstanding the foregoing, solely with respect to U.K. Swing Line Loans, the “Base Rate” shall mean the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate that appears on Telerate Page 3750 (or any successor page or similar basis of determination) as the London interbank offered rate for overnight deposits in Dollars at approximately 11:00 A.M. (London time) on each day such U.K. Swing Line Loan is outstanding.

                    “Base Rate Loan” means a Revolving Credit Loan that bears interest based on the Base Rate.

                    “Borrower Materials” has the meaning specified in Section 6.02.

                    “Borrowers” has the meaning specified in the introductory paragraph hereto.

                    “Borrowing” means a U.S. Revolving Credit Borrowing, a Foreign Currency Revolving Credit Borrowing or a Swing Line Borrowing, as the context may require.

                    “Borrowing Base” means, at any time, the sum of (a) the aggregate principal amount of any Eligible Loans outstanding at such time, plus (b) an amount equal to the excess of (i) 15% of Consolidated Net Tangible Assets as set forth on the most recent balance sheet of Holdings and its Subsidiaries delivered to the Administrative Agent pursuant to Section 6.01(a) or 6.01(b), over (ii) the sum of (x) the aggregate principal amount of “Secured Debt” (as such

4

Sotheby’s Amended and Restated Credit Agreement

term is defined in the Senior Notes Indenture) outstanding at such time, plus (y) the aggregate amount of all “Attributable Debt” (as such term is defined in the Senior Notes Indenture) of Holdings and its Significant Subsidiaries (as such term is defined in the Senior Notes Indenture) in respect of Sale and Lease-Back Transactions (as such term is defined in the Senior Notes Indenture) which would not otherwise be permitted but for the provisions of clause (b) of Section 4.04 of the Senior Notes Indenture, in the case of clause (a), to the extent that the Administrative Agent has a valid perfected security interest in such assets.

                    “Borrowing Base Certificate” means a certificate, duly executed by a Responsible Officer of Holdings, setting forth evidence to support the amount of the Borrowing Base as of the date of such certificate and such other matters as the Administrative Agent may reasonably request, in form acceptable to the Administrative Agent.

                    “Business Day” means any day other than (a) a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent’s Office is located, (b) if such day relates to any Eurocurrency Rate Loan, a day on which banks are not open for general business in London and (c) if such day relates to a Loan in Euros, any day that is not a TARGET Day.

                    “Canadian Dollars” means the lawful currency of Canada.

                    “Capital Expenditures” means, with respect to any Person for any period, any cash expenditure in respect of the purchase or other acquisition of any fixed or capital asset (excluding normal replacements and maintenance which are properly charged to current operations). For purposes of this definition, the purchase price of equipment that is purchased simultaneously with the trade-in of existing equipment or with insurance proceeds shall be included in Capital Expenditures only to the extent of the gross amount by which such purchase price exceeds the credit granted by the seller of such equipment for the equipment being traded in at such time or the amount of such insurance proceeds, as the case may be.

                    “Capitalized Leases” means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases.

                    “Cash Collateralize” has the meaning specified in Section 2.03(g).

                    “Cash Equivalents” means any of the following types of Investments, to the extent owned by Holdings or any of its Subsidiaries free and clear of all Liens (other than Liens created under the Collateral Documents and other Liens permitted hereunder):

          (a) readily marketable obligations issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof or, in the case of any Foreign Subsidiary, guaranteed by any other member country of O.E.C.D. or any agency thereof, in each case having maturities of not more than 360 days from the date of acquisition thereof; provided that the full faith and credit of the United States of America or such other member country of O.E.C.D, as the case may be, is pledged in support thereof;

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Sotheby’s Amended and Restated Credit Agreement

          (b) time deposits with, or insured certificates of deposit or bankers’ acceptances of, any commercial bank that (i) (A) is a Lender or (B) is organized under the laws of the United States of America, any state thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States of America, any state thereof or the District of Columbia, and is a member of the Federal Reserve System, or, in the case of any Foreign Subsidiary, under the laws of any other member country of O.E.C.D., (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c) of this definition and (iii) has combined capital and surplus of at least $1,000,000,000, in each case with maturities of not more than 180 days from the date of acquisition thereof;

          (c) commercial paper or other marketable debt securities in an aggregate amount of no more than $15,000,000 per issuer outstanding at any time issued by any Person organized under the laws of any state of the United States of America and rated, in the case of commercial paper, at least “Prime-1” (or the then equivalent grade) by Moody’s or at least “A-1” (or the then equivalent grade) by S&P, and in the case of other debt securities, at least Aa (or the then equivalent grade) by Moody’s or at least AA (or the then equivalent grade) by S&P, in each case with maturities of not more than 180 days from the date of acquisition thereof; and

          (d) Investments, classified in accordance with GAAP as current assets of the Borrowers or any of their Subsidiaries, in money market investment programs registered under the Investment Company Act of 1940, which are administered by financial institutions that have the highest rating obtainable from either Moody’s or S&P, and the portfolios of which are limited solely to Investments of the character, quality and maturity described in clauses (a), (b) and (c) of this definition.

                    “Cash Management Agreement” means any agreement to provide cash management services, including treasury, depository, overdraft, credit or debit card, electronic funds transfer and other cash management arrangements.

                    “Cash Management Bank” means any Person that, at the time it enters into a Secured Cash Management Agreement, is a Lender or an Affiliate of a Lender, in its capacity as a party to such Secured Cash Management Agreement.

                    “CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980.

                    “CERCLIS” means the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the U.S. Environmental Protection Agency.

                    “CFC” means a Person that is a controlled foreign corporation under Section 957 of the Code.

                    “Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application

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Sotheby’s Amended and Restated Credit Agreement

thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.

                    “Change of Control” means an event or series of events by which:

          (a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire (such right, an “option right”), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 35% or more of the equity securities of Holdings entitled to vote for members of the board of directors or equivalent governing body of Holdings on a fully diluted basis (and taking into account all such securities that such “person” or “group” has the right to acquire pursuant to any option right); or

          (b) during any period of 12 consecutive months, a majority of the members of the board of directors or other equivalent governing body of Holdings cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors); or

          (c) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of Holdings, or control over the equity securities of Holdings entitled to vote for members of the board of directors or equivalent governing body of Holdings on a fully diluted basis (and taking into account all such securities that such “person” or “group” has the right to acquire pursuant to any option right) representing 35% or more of the combined voting power of such securities; or

          (d) a “change of control” or any comparable term under, and as defined in, the Senior Notes Documents shall have occurred.

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Sotheby’s Amended and Restated Credit Agreement

                    “Closing Date” means the first date all the conditions precedent in Section 4.01 of the Original Credit Agreement were satisfied or waived in accordance with Section 10.01 of the Original Credit Agreement.

                    “Code” means the Internal Revenue Code of 1986.

                    “Collateral” means all of the “Collateral” referred to in the Collateral Documents and all of the other property that is or is intended under the terms of the Collateral Documents to be subject to Liens in favor of the Administrative Agent for the benefit of the Secured Parties.

                    “Collateral Documents” means, collectively, the Security Agreement, the Intellectual Property Security Agreement, the Local Law Collateral Documents, the U.K. Collateral Documents and each of the mortgages, collateral assignments, Security Agreement Supplements, IP Security Agreement Supplements, security agreements, pledge agreements or other similar agreements delivered to the Administrative Agent pursuant to Section 6.12, and each of the other agreements, instruments or documents that creates or purports to create a Lien in favor of the Administrative Agent for the benefit of the Secured Parties.

                    “Commitment” means, as to each Lender, its obligation to (a) make Revolving Credit Loans to the Borrowers pursuant to Section 2.01, (b) purchase participations in L/C Obligations and (c) purchase participations in Swing Line Loans, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01 under the caption “Commitment” or opposite such caption in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement; provided, however, that with respect to any Foreign Currency Revolving Credit Loan, the Commitment of the Foreign Currency Lead Lender will include the aggregate unused Commitments of each Non-Qualifying Lender at the time of such Foreign Currency Revolving Credit Loan.

                    “Committed Loan Notice” means a notice of (a) a U.S. Revolving Credit Borrowing or a Foreign Currency Revolving Credit Borrowing, as the case may be, (b) a conversion of U.S. Revolving Credit Loans from one Type to the other, or (c) a continuation of Eurocurrency Rate Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A.

                    “Company” has the meaning specified in the recital of parties hereto.

                    “Company Class B Shares” has the meaning specified in the recital of parties hereto.

                    “Compliance Certificate” means a certificate, duly executed by a Responsible Officer of Holdings, demonstrating compliance with the terms of this Agreement and such other matters as the Administrative Agent may reasonably request, in form acceptable to the Administrative Agent.

                    “Consolidated EBITDA” means, at any date of determination, an amount equal to Consolidated Net Income of Holdings and its Subsidiaries on a consolidated basis for the most

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Sotheby’s Amended and Restated Credit Agreement

recently completed Measurement Period plus (a) the following to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Interest Charges, (ii) the provision for Federal, state, local and foreign income taxes, (iii) depreciation and amortization expense, (iv) any such deduction to Consolidated Net Income as a result of any grant of stock or restricted stock and (v) other non-recurring expenses reducing such Consolidated Net Income which either (A) do not represent a cash item in such period or any future period (in each case of or by Holdings and its Subsidiaries for such Measurement Period) or (B) do not exceed $10,000,000 in the aggregate (when added to all other amounts determined under this subclause (B)) and minus (b) the following to the extent included in calculating such Consolidated Net Income: (i) Federal, state, local and foreign income tax credits and (ii) all non-cash items increasing Consolidated Net Income (in each case of or by Holdings and its Subsidiaries for such Measurement Period).

                    “Consolidated Funded Indebtedness” means, as of any date of determination, for Holdings and its Subsidiaries on a consolidated basis, the sum of (a) the outstanding principal amount of all obligations, whether current or long-term, for borrowed money (including Obligations hereunder) and all obligations evidenced by bonds, debentures, notes, loan agreements or other similar instruments, (b) all purchase money Indebtedness, (c) all direct obligations arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments to the extent such obligations are considered funded debt in accordance with GAAP, (d) all obligations in respect of the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business), (e) Attributable Indebtedness (other than with respect to the York Capital Lease and Indebtedness permitted under Section 7.02(i)), (f) without duplication, all Guarantees with respect to outstanding Indebtedness of the types specified in clauses (a) through (e) above of Persons other than the Borrowers or any Subsidiary, and (g) all Indebtedness of the types referred to in clauses (a) through (f) above of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which a Borrower or a Subsidiary is a general partner or joint venturer, unless such Indebtedness is expressly made non-recourse to such Borrower or such Subsidiary.

                    “Consolidated Interest Charges” means, for any Measurement Period, the sum of (a) all interest, premium payments, debt discount, fees, charges and related expenses in connection with borrowed money (excluding capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP and (b) the portion of rent expense under Capitalized Leases that is treated as interest in accordance with GAAP, in each case, of or by Holdings and its Subsidiaries on a consolidated basis for the most recently completed Measurement Period.

                    “Consolidated Interest Coverage Ratio” means, as of any date of determination, the ratio of (a) Consolidated EBITDA minus principal and interest expense relating to the York Capital Lease to (b) Consolidated Interest Charges minus the principal and interest expenses relating to the York Capital Lease, minus any amounts included in Consolidated Interest Charges for such period in respect of amortization of (i) discounts on the payment of settlements with the Department of Justice and related anti-trust matters, (ii) discounts on the existing Senior Notes, (iii) closing fees incurred in conjunction with the amendments and restatements of the Existing Credit Agreement and this Agreement (including any fee related to termination of the Existing

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Sotheby’s Amended and Restated Credit Agreement

Credit Agreement) and (iv) interest accrued on amounts payable on the unfunded senior management benefit plan of Holdings and its Subsidiaries, in each case, of or by Holdings and its Subsidiaries on a consolidated basis for the most recently completed Measurement Period.

                    “Consolidated Leverage Ratio” means, as of any date of determination, the ratio of (a) Consolidated Funded Indebtedness as of such date (calculated in respect of Loans hereunder on the average daily aggregate principal amount of such Loans during such Measurement Period) to (b) Consolidated EBITDA for the most recently completed Measurement Period.

                    “Consolidated Net Income” means, at any date of determination, the net income of Holdings and its Subsidiaries (excluding extraordinary gains and extraordinary losses) on a consolidated basis for the most recently completed Measurement Period.

                    “Consolidated Net Tangible Assets” means, at any date of determination, the aggregate amount of assets (less applicable reserves and other properly deductible items) after deducting therefrom (a) all current liabilities, (b) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, and (c) the aggregate principal amount of any Eligible Loans included in the Borrowing Base, all as set forth on the books and records of Holdings and its consolidated subsidiaries and computed in accordance with GAAP at such date.

                    “Consolidated Net Worth” means at any date shareholders’ equity, as shown on a consolidated balance sheet of Holdings and its Subsidiaries prepared in accordance with GAAP at such date.

                    “Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

                    “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

                    “Credit Extension” means each of the following: (a) a Borrowing and (b) an L/C Credit Extension.

                    “Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, administration, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

                    “Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

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Sotheby’s Amended and Restated Credit Agreement

                     “Default Rate” means (a) when used with respect to Obligations other than Letter of Credit Fees, an interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate, if any, applicable to Base Rate Loans plus (iii) 2% per annum; provided, however, that with respect to a Eurocurrency Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate and any Mandatory Cost) otherwise applicable to such Loan plus 2% per annum and (b) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Rate plus 2% per annum.

                    “Defaulting Lender” means any Lender that (a) has failed to fund any portion of the Revolving Credit Loans, participations in L/C Obligations or participations in Swing Line Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute, or (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.

                    “Disposition” or “Dispose” means the sale, transfer or other disposition (including any sale and leaseback transaction) of any property by any Person (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.

                    “Dollar” and “$” mean lawful money of the United States.

                    “Domestic Guarantors” means, collectively, the Subsidiaries of Holdings listed on Part I of Schedule 6.12 and each other Domestic Subsidiary of Holdings that shall be required to execute and deliver a guaranty or guaranty supplement pursuant to Section 6.12.

                    “Domestic Guaranty” means, collectively, the Domestic Guaranty made by the Domestic Guarantors in favor of the Secured Parties, substantially in the form of Exhibit E-1, together with each other guaranty and guaranty supplement delivered by a Domestic Subsidiary pursuant to Section 6.12.

                    “Domestic Subsidiary” means any Subsidiary that is organized under the laws of any political subdivision of the United States.

                    “Effective Date” means the first date on which the “Required Lenders” (as defined in the Original Credit Agreement) have executed this Agreement.

                    “Eligible Assignee” means (a) a Lender; (b) an Affiliate of a Lender; (c) an Approved Fund; and (d) any other Person (other than a natural person) approved by (i) the Administrative Agent, (ii) in the case of any assignment of a Revolving Commitment, the L/C Issuer and the Swing Line Lender, and (iii) unless an Event of Default has occurred and is continuing, the Borrowers (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding the foregoing, “Eligible Assignee” shall not include Holdings or any of Holdings’ Affiliates or Subsidiaries; and provided further that an Eligible Assignee shall only include a Lender, and Affiliate of a Lender or another Person which, through its Lending

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Sotheby’s Amended and Restated Credit Agreement

Offices, is capable of lending the applicable Foreign Currencies to the relevant Borrowers without the imposition of any Taxes or additional Taxes, as the case may be.

                    “Eligible Loans” means notes made in favor of, or loan advances made by, Holdings or any of its Subsidiaries in connection with Holdings’ or such Subsidiary’s lending and financing activities; provided that no Lien shall be in existence on such notes or loan advances, except for any Liens under the Collateral Documents.

                    “EMU” means the economic and monetary union in accordance with the Treaty of Rome 1957, as amended by the Single European Act 1986, the Maastricht Treaty of 1992 and the Amsterdam Treaty of 1998.

                    “EMU Legislation” means the legislative measures of the European Council for the introduction of, changeover to or operation of a single or unified European currency.

                    “Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

                    “Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.

                    “Equivalent” in Dollars of any Foreign Currency on any date means the equivalent in Dollars of such Foreign Currency as determined by the Administrative Agent or the L/C Issuer, as the case may be, at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of Dollars with such Foreign Currency and the “Equivalent” in any Foreign Currency of Dollars on any date means the equivalent in such Foreign Currency of Dollars as determined by the Administrative Agent or the L/C Issuer, as the case may be, at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of such Foreign Currency with Dollars.

                    “ERISA” means the Employee Retirement Income Security Act of 1974.

                    “ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with a Borrower within the meaning of Section 414(b) or (c) of the Code

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Sotheby’s Amended and Restated Credit Agreement

(and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

                    “ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by a Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by a Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon a Borrower or any ERISA Affiliate; or (g) any other event similar to those described in clauses (a) through (f) above with respect to any Foreign Plan.

                    “Euro” and “EUR” mean the lawful currency of the Participating Member States introduced in accordance with the EMU Legislation.

                    “Eurocurrency Rate” means, for any Interest Period, with respect to a Eurocurrency Rate Loan, the rate per annum (rounded upward, if necessary, to the next 1/100th of 1%) determined by the Administrative Agent as follows:

Eurocurrency Rate =	Eurocurrency Base Rate
	1.00 - Eurocurrency Reserve Percentage

                                        Where,

                    “Eurocurrency Base Rate” means, for such Interest Period, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for deposits in Dollars or Euros and at approximately 11:00 a.m. London time on the first day of such Interest Period for deposits in Pounds (in each case, for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period. If such rate is not available at such time for any reason, then the “Eurocurrency Base Rate” for such Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate at which deposits for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurocurrency Rate Loan being made, continued or converted by Bank of America and with a term equivalent to such Interest Period would be offered by Bank of America’s London Branch to major banks in the London interbank eurocurrency market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period in the case of deposits in Dollars or Euros and on the first day of such Interest Period for deposits in Pounds.

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Sotheby’s Amended and Restated Credit Agreement

                    “Eurocurrency Rate Loan” means a Revolving Credit Loan that bears interest at a rate based on the Eurocurrency Rate.

                    “Eurocurrency Reserve Percentage” means for any day during any Interest Period the reserve percentage (expressed as a decimal, carried out to five decimal places) in effect on such day, whether or not applicable to any Lender, under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as “Eurocurrency liabilities”). The Eurocurrency Rate for each outstanding Eurocurrency Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurocurrency Reserve Percentage.

                    “Event of Default” has the meaning specified in Section 8.01.

                    “Excluded Taxes” means, with respect to the Administrative Agent, any Lender, the L/C Issuer or any other recipient of any payment to be made by or on account of any obligation of the Borrowers hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which a Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by a Borrower under Section 10.13), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with Section 3.01(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from a Borrower with respect to such withholding tax pursuant to Section 3.01(a).

                    “Exempt Subsidiaries” means the First-Tier Foreign CFC Subsidiaries (other than Sotheby’s Hong Kong Ltd. and its Subsidiaries) the Equity Interests of which are not subject to any Local Law Collateral Documents and their respective Subsidiaries which are not party to any Collateral Documents.

                    “Existing Credit Agreement” means that certain Credit Agreement dated as of March 4, 2004 among Holdings, the Company and certain of their subsidiaries as borrowers, General Electric Capital Corporation, as agent, and a syndicate of lenders as amended to the date hereof.

                    “Extraordinary Receipt” means any cash received by or paid to or for the account of any Person not in the ordinary course of business, including pension plan reversions, proceeds of insurance (other than proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof), indemnity payments and any purchase price adjustments; provided, however, that an Extraordinary Receipt shall not include cash receipts from proceeds of insurance, condemnation

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Sotheby’s Amended and Restated Credit Agreement

awards (or payments in lieu thereof) or indemnity payments to the extent that such proceeds, awards or payments (a) in respect of loss or damage to equipment, fixed assets or real property are applied (or in respect of which expenditures were previously incurred) to replace or repair the equipment, fixed assets or real property in respect of which such proceeds were received in accordance with the terms of Section 2.05(b)(iii) or (b) are received by any Person in respect of any third party claim against such Person and applied to pay (or to reimburse such Person for its prior payment of) such claim and the costs and expenses of such Person with respect thereto.

                    “Facility” means, at any time, the aggregate amount of the Lenders’ Commitments at such time.

                    “Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined by the Administrative Agent.

                    “Fee Letter” means collectively (a) the letter agreement, dated September 1, 2005 among Holdings, the Administrative Agent and the Arrangers and (b) the letter agreement, dated September 1, 2005 among Holdings, the Administrative Agent and Banc of America Securities LLC.

                    “First-Tier Foreign CFC Subsidiary” means a CFC that is directly owned by Holdings or one or more Domestic Subsidiaries.

                    “Foreign Currency” means each of Euro and Pounds and each other currency that is approved as an Alternative L/C Currency.

                    “Foreign Currency Incremental Loan” has the meaning specified in Section 2.09.

                    “Foreign Currency Lead Lender” means Bank of America, in its capacity as Foreign Currency Lead Lender, or any successor Foreign Currency Lead Lender hereunder.

                    “Foreign Currency Revolving Credit Borrowing” means a borrowing consisting of simultaneous Foreign Currency Revolving Credit Loans having the same Interest Period made by the applicable Lenders pursuant to Section 2.01.

                    “Foreign Currency Revolving Credit Loan” has the meaning specified in Section 2.01.

                    “Foreign Currency Sublimit” means an amount equal to the lesser of the Commitments and the Equivalent in the applicable foreign currencies of $80,000,000. The Foreign Currency Sublimit is part of, and not in addition to, the Commitments.

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                    “Foreign Government Scheme or Arrangement” has the meaning specified in Section 5.04(d).

                    “Foreign Lender” means any Lender other than a U.K. Lender that is organized under the laws of a jurisdiction other than that in which a Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

                    “Foreign Plan” has the meaning specified in Section 5.04(d).

                    “Foreign Subsidiary” means each Subsidiary of Holdings that is not a Domestic Subsidiary.

                    “FRB” means the Board of Governors of the Federal Reserve System of the United States.

                    “Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

                    “GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.

                    “Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

                    “Granting Lender” has the meaning specified in Section 10.06(i).

                    “Guarantee” means, as to any Person, any (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or

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Sotheby’s Amended and Restated Credit Agreement

performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.

                    “Guarantors” means, collectively, the Domestic Guarantors and the U.K. Guarantors.

                    “Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

                    “Hedge Bank” means any Person that, at the time it enters into a Secured Hedge Agreement, is a Lender or an Affiliate of a Lender, in its capacity as a party to such Secured Hedge Agreement.

                    “Holdings” has the meaning specified in the introductory paragraph hereto.

                    “Hong Kong Dollars” means the lawful currency of the Hong Kong Special Administrative Region of the People’s Republic of China.

                    “Immaterial Subsidiary” means any Domestic Subsidiary or any Foreign Subsidiary organized under the laws of England, in each case listed on Schedule 5.21, unless such entity shall have executed a Domestic Guaranty or a U.K. Guaranty, as the case may be, and such other Collateral Documents as the Administrative Agent shall reasonably request.

                    “Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

          (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

          (b) the maximum amount of all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

          (c) net obligations of such Person under any Swap Contract;

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Sotheby’s Amended and Restated Credit Agreement

          (d) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and not past due for more than 60 days after the date on which such trade account was created);

          (e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

          (f) all Attributable Indebtedness in respect of Capitalized Leases and Synthetic Lease Obligations of such Person and all Synthetic Debt of such Person;

          (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person or any warrant, right or option to acquire such Equity Interest, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and

          (h) all Guarantees of such Person in respect of any of the foregoing.

                    For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date.

                    “Indemnified Taxes”means Taxes other than Excluded Taxes.

                    “Indemnitees” has the meaning specified in Section 10.04(b).

                    “Information” has the meaning specified in Section 10.07.

                    “Information Memorandum” means the information memorandum used by the Arrangers in connection with the syndication of the Commitments.

                    “Intellectual Property Security Agreement” has the meaning specified in Section 4.01(a)(iv).

                    “Interest Payment Date” means, (a) as to any Eurocurrency Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided, however, that if any Interest Period for a Eurocurrency Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan or Swing Line Loan, the last Business Day of each March, June, September and December and the Maturity Date.

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Sotheby’s Amended and Restated Credit Agreement

                    “Interest Period” means, as to each Eurocurrency Rate Loan, the period commencing on the date such Eurocurrency Rate Loan is disbursed or converted to or continued as a Eurocurrency Rate Loan and ending on the date one, two, three or six months thereafter, or, to the extent that the Administrative Agent has confirmed to the applicable Borrower that such a period is available, 7 Business Days thereafter, in each case, as selected by the applicable Borrower in its Committed Loan Notice; provided that:

          (a) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

          (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and

          (c) no Interest Period shall extend beyond the Maturity Date.

                    “Internal Control Event” means a material weakness in, or fraud that involves management or other employees who have a significant role in, Holdings’ internal controls over financial reporting, in each case as described in the Securities Laws.

                    “Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or interest in, another Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit or all or a substantial part of the business of, such Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

                    “IP Rights” has the meaning specified in Section 5.17.

                    “IP Security Agreement Supplement” has the meaning specified in Section 10(g) of the Security Agreement.

                    “IRS” means the United States Internal Revenue Service.

                    “ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).

                    “Issuer Documents” means with respect to any Letter of Credit, the Letter of Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and a Borrower (or any Subsidiary) or in favor the L/C Issuer and relating to any such Letter of Credit.

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Sotheby’s Amended and Restated Credit Agreement

                    “Laws” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

                    “L/C Advance” means, with respect to each Lender, such Lender’s funding of its participation in any L/C Borrowing in accordance with its Applicable Percentage.

                    “L/C Borrowing” means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Revolving Credit Borrowing.

                    “L/C Credit Extension” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.

                    “L/C Issuer” means Bank of America in its capacity as issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder, or, with respect to Letters of Credit denominated in Pounds or Euros, any Eligible Assignee that has been approved by the Administrative Agent as an L/C Issuer and that has executed and delivered to the Administrative Agent an L/C Issuer Joinder Agreement pursuant to Section 10.14, unless such Eligible Assignee has been released from its obligation as an L/C Issuer pursuant to Section 10.14.

                    “L/C Issuer Joinder Agreement” means an agreement in substantially the form of Exhibit I hereto.

                    “L/C Obligations” means, as at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.

                    “Lender” has the meaning specified in the introductory paragraph hereto and, as the context requires, includes the Swing Line Lender and/or the Foreign Currency Lead Lender. In connection with Foreign Currency Revolving Credit Loans, the term “Lender” shall also include any Affiliate of a Lender designated in writing by such Lender to the Administrative Agent as a “Lender” solely for purposes of making Foreign Currency Revolving Credit Loans.

                    “Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrowers and the Administrative Agent.

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Sotheby’s Amended and Restated Credit Agreement

                    “Letter of Credit” means any standby letter of credit, or similar instrument customarily issued in the applicable Foreign Currency including, without limitation, bank guaranties, issued hereunder.

                    “Letter of Credit Application” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.

                    “Letter of Credit Expiration Date” means the day that is seven days prior to the Maturity Date then in effect for the Facility (or, if such day is not a Business Day, the next preceding Business Day).

                    “Letter of Credit Fee” has the meaning specified in Section 2.03(i).

                    “Letter of Credit Sublimit” means an amount equal to $50,000,000. The Letter of Credit Sublimit is part of, and not in addition to, the Facility.

                    “Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).

                    “Loan” means an extension of credit by a Lender to a Borrower under Article II in the form of a U.S. Revolving Credit Loan, a Foreign Currency Revolving Credit Loan or a Swing Line Loan.

                    “Loan Documents” means, collectively, (a) this Agreement, (b) the Notes, (c) the Domestic Guaranty, (d) the U.K. Guaranty, (e) the Collateral Documents, (f) the Fee Letter, (g) each Issuer Document, (h) each Secured Hedge Agreement and (i) each Secured Cash Management Agreement; provided that for purposes of the definition of “Material Adverse Effect” and Articles IV through IX, “Loan Documents” shall not include Secured Hedge Agreements or Secured Cash Management Agreements.

                    “Loan Parties” means, collectively, the Borrowers and each Guarantor.

                    “Local Law Collateral Documents” means, in respect of the Equity Interests in any First-Tier Foreign CFC Subsidiaries contemplated to be pledged by the terms hereof for the benefit of the Secured Parties, all documents necessary to grant and perfect, under the laws of the jurisdiction of organization of such First-Tier Foreign CFC Subsidiary, the security interest granted or contemplated to be granted, pursuant to the Security Agreement, in the Equity Interests of such First-Tier Foreign CFC Subsidiary, together with an opinion of local counsel qualified in such jurisdiction of organization in form and substance satisfactory to the Administrative Agent.

                    “Master Subordination Agreement” has the meaning specified in Section 6.14.

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Sotheby’s Amended and Restated Credit Agreement

                    “Mandatory Cost” means, with respect to any period, the percentage rate per annum determined in accordance with Schedule 1.01.

                    “Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), condition (financial or otherwise) or prospects of Holdings and its Subsidiaries taken as a whole; (b) a material impairment of the rights and remedies of the Administrative Agent or any Lender under any Loan Document, or of the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.

                    “Maturity Date” means September 7, 2010; provided that in the event that any of the Senior Notes are outstanding on July 1, 2008 and (i) the Borrowers shall not have deposited cash and Cash Equivalents in an amount sufficient to redeem and pay in full such Senior Notes in a deposit account under the sole dominion and control of the Administrative Agent upon terms and conditions satisfactory to the Administrative Agent or (ii) the Borrowers shall not have demonstrated their ability to redeem and pay in full such Senior Notes in a manner satisfactory to the Administrative Agent and the Lenders, then the Maturity Date shall be July 1, 2008.

                    “Measurement Period” means, at any date of determination, the most recently completed four fiscal quarters of Holdings.

                    “Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.

                    “Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which a Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

                    “Net Cash Proceeds” means:

          (a) with respect to any Disposition by any Loan Party or any of its Subsidiaries, or any Extraordinary Receipt received or paid to the account of any Loan Party or any of its Subsidiaries, the excess, if any, of (i) the sum of cash and Cash Equivalents received in connection with such transaction (including any cash or Cash Equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) over (ii) the sum of (A) the principal amount of any Indebtedness that is secured by the applicable asset and that is required to be repaid in connection with such transaction (other than Indebtedness under the Loan Documents), (B) the reasonable and customary out-of-pocket expenses incurred by such Loan Party or such Subsidiary in connection with such transaction and (C) income taxes reasonably estimated to be actually payable within two years of the date of the relevant transaction as a result of any gain recognized in connection therewith; provided that, if the amount of any estimated taxes pursuant to subclause (C) exceeds the amount of taxes actually required to be paid in cash in respect of such Disposition, the aggregate amount of such excess shall constitute Net Cash Proceeds;

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Sotheby’s Amended and Restated Credit Agreement

          (b) with respect to the incurrence or issuance of any Indebtedness by any Loan Party or any of its Subsidiaries, the excess of (i) the sum of the cash and Cash Equivalents received in connection with such transaction over (ii) the underwriting discounts and commissions, and other reasonable and customary out-of-pocket expenses, incurred by such Loan Party or such Subsidiary in connection therewith; and

          (c) with respect to any license of intellectual property by any Loan Party or any of its Subsidiaries, the amount of the cash and Cash Equivalents received in connection with such transaction as an upfront one time payment (or a similar payment or related payments) made in excess of scheduled royalty or similar payments in connection with such license.

                    “Non-Extension Notice Date” has the meaning specified in Section 2.03(b)(iii).

                    “Non-Qualifying Lender” means a Lender that is not a Qualifying Lender that has been approved as a Non-Qualifying Lender for purposes of this Agreement by the Foreign Currency Lead Lender and the Swing Line Lender in their sole discretion.

                    “Note” means a promissory note made by the Borrowers in favor of a Lender evidencing Revolving Credit Loans or Swing Line Loans, as the case may be, made by such Lender, substantially in the form of Exhibit C-1 or Exhibit C-2, as applicable.

                    “NPL” means the National Priorities List under CERCLA.

                    “Oatshare” has the meaning specified in the recital of parties hereto.

                    “Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

                    “Original Credit Agreement” has the meaning set forth in the Preliminary Statements hereto.

                    “Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction and, with respect to corporations incorporated in the United Kingdom, certificates of incorporation on any change of name); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental

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Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

                    “Other Taxes” means all present or future stamp, documentary or other similar taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

                    “Outstanding Amount” means (a) with respect to Revolving Credit Loans and Swing Line Loans on any date, the aggregate outstanding principal amount thereof (calculated in respect of Loans denominated in a Foreign Currency on the Equivalent thereof in Dollars at such time) after giving effect to any borrowings and prepayments or repayments of Revolving Credit Loans and Swing Line Loans, as the case may be, occurring on such date; and (b) with respect to any L/C Obligations on any date, the amount (calculated in respect of Letters of Credit denominated in a Foreign Currency on the Equivalent thereof in Dollars at such time) of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements by the Borrowers of Unreimbursed Amounts.

                    “Overnight Rate” means, for any day, (a) with respect to any amount denominated in Dollars, the greater of (i) the Federal Funds Rate and (ii) an overnight rate determined by the Administrative Agent, the L/C Issuer, or the Swing Line Lender, as the case may be, in accordance with banking industry rules on interbank compensation, and (b) with respect to any amount denominated in a Foreign Currency, the rate of interest per annum at which overnight deposits in the applicable Foreign Currency, in an amount approximately equal to the amount with respect to which such rate is being determined, would be offered for such day by a branch or Affiliate of Bank of America in the applicable offshore interbank market for such currency to major banks in such interbank market.

                    “Participant” has the meaning specified in Section 10.06(d).

                    “Participating Member State” means each state so described in any EMU Legislation.

                    “PBGC” means the Pension Benefit Guaranty Corporation.

                    “Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by a Borrower or any ERISA Affiliate or to which a Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.

                    “Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

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Sotheby’s Amended and Restated Credit Agreement

                    “Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by a Borrower or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.

                    “Pledged Debt” has the meaning specified in Section 1(d)(iv)of the Security Agreement.

                    “Pledged Equity” has the meaning specified in Section 1(d)(iii)of the Security Agreement.

                    “Pounds” or “£” means lawful money of the United Kingdom.

          “Qualifying Lender” means a “U.K. Qualified Lender”, as such term is defined in Section 3.01(g).

                    “Recapitalization” has the meaning set forth in the Preliminary Statements hereto.

                    “Register” has the meaning specified in Section 10.06(c).

                    “Registered Public Accounting Firm” has the meaning specified by the Securities Laws and shall be independent of Holdings as prescribed by the Securities Laws.

                    “Related Documents” means the Transaction Agreement and such other documents effecting the Recapitalization, if any.

                    “Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees and agents of such Person and of such Person’s Affiliates.

                    “Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.

                    “Request for Credit Extension” means (a) with respect to a Borrowing, conversion or continuation of Revolving Credit Loans, a Committed Loan Notice, (b) with respect to an L/C Credit Extension, a Letter of Credit Application, and (c) with respect to a Swing Line Loan, a Swing Line Loan Notice.

                    “Required Lenders” means, as of any date of determination, Lenders holding more than 50% of the sum of the (a) Total Outstandings (with the aggregate amount of each Lender’s risk participation and funded participation in L/C Obligations and Swing Line Loans being deemed “held” by such Lender for purposes of this definition) and (b) aggregate unused Commitments; provided that the unused Commitment of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.

                    “Responsible Officer” means, in the case of a Loan Party incorporated under the Laws of England and Wales, a director of such U.K. Loan Party and, in the case of any other Loan Party, the chief executive officer, president, chief financial officer, treasurer or assistant

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Sotheby’s Amended and Restated Credit Agreement

treasurer of a Loan Party and any other officer of the applicable Loan Party so designated by any of the foregoing officers in a notice to the Administrative Agent. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

                    “Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other Equity Interest of any Person or any of its Subsidiaries, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, defeasance, acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on account of any return of capital to any Person’s stockholders, partners or members (or the equivalent of any thereof), or any option, warrant or other right to acquire any such dividend or other distribution or payment.

                    “Revaluation Date” means (a) with respect to any Loan, each of the following: (i) each date of a Borrowing of a Eurocurrency Rate Loan denominated in a Foreign Currency, (ii) each date of a continuation of a Eurocurrency Rate Loan denominated in a Foreign Currency pursuant to Section 2.02, and (iii) such additional dates as the Administrative Agent shall determine or the Required Lenders shall require; and (b) with respect to any Letter of Credit, each of the following: (i) each date of issuance of a Letter of Credit denominated in a Foreign Currency, (ii) each date of an amendment of any such Letter of Credit having the effect of increasing the amount thereof (solely with respect to the increased amount), (iii) each date of any payment by the L/C Issuer under any Letter of Credit denominated in a Foreign Currency, and (iv) such additional dates as the Administrative Agent or the L/C Issuer shall determine or the Required Lenders shall require.

                    “Revolving Credit Borrowing” means a U.S. Revolving Credit Borrowing and/or a Foreign Currency Revolving Credit Borrowing, as the context may require.

                    “Revolving Credit Loan” means a U.S. Revolving Credit Loan and/or a Foreign Currency Revolving Credit Loan, as the context may require.

                    “S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor thereto.

                    “Sarbanes-Oxley” means the Sarbanes-Oxley Act of 2002.

                    “SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

                    “Secured Cash Management Agreement” means any Cash Management Agreement that is entered into by and between any Borrower and any Cash Management Bank.

                    “Secured Hedge Agreement” means any interest rate Swap Contract permitted under Article VI or VII that is entered into by and between any Borrower and any Hedge Bank.

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Sotheby’s Amended and Restated Credit Agreement

                    “Secured Parties” means, collectively, the Administrative Agent, the Lenders, the L/C Issuer, the Hedge Banks, the Cash Management Banks, each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 9.05, and the other Persons the Obligations owing to which are or are purported to be secured by the Collateral under the terms of the Collateral Documents.

                    “Securities Laws” means the Securities Act of 1933, the Securities Exchange Act of 1934, Sarbanes-Oxley, and the applicable accounting and auditing principles, rules, standards and practices promulgated, approved or incorporated by the SEC or the Public Company Accounting Oversight Board.

                    “Security Agreement” has the meaning specified in Section 4.01(a)(iii).

                    “Security Agreement Supplement” has the meaning specified in Section 21(b) of the Security Agreement.

                    “Sellers” has the meaning specified in the Preliminary Statements hereto.

                    “Senior Notes” means the 6 7/8% senior notes of Holdings due 2009 in an aggregate principal amount of $100,000,000 issued and sold pursuant to the Senior Notes Documents.

                    “Senior Notes Documents” means the Senior Notes Indenture, the Senior Notes and all other agreements, instruments and other documents pursuant to which the Senior Notes have been or will be issued or otherwise setting forth the terms of the Senior Notes.

                    “Senior Notes Indenture” means the Indenture dated as of June 17, 1998 and entered into by Holdings and Chase Manhattan Bank, as trustee, as supplemented by the Indenture dated as of February 5, 1999.

                    “Solvent” and “Solvency” mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital and (e) in the case of any Person which is a company incorporated under the laws of England and Wales or Scotland, such company is not unable to pay its debts within the meaning of Section 123 of the Insolvency Act 1986. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

                    “Sotheby’s” has the meaning specified in the recital of parties hereto.

                    “SPC” has the meaning specified in Section 10.06(i).

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                    “Spot Rate” for a currency means the rate determined by the Administrative Agent or the L/C Issuer, as applicable, to be the rate quoted by the Person acting in such capacity as the spot rate for the purchase by such Person of such currency with another currency through its principal foreign exchange trading office at approximately 11:00 a.m. on the date two Business Days prior to the date as of which the foreign exchange computation is made; provided that the Administrative Agent or the L/C Issuer may obtain such spot rate from another financial institution designated by the Administrative Agent or the L/C Issuer if the Person acting in such capacity does not have as of the date of determination a spot buying rate for any such currency; and provided further that the L/C Issuer may use such spot rate quoted on the date as of which the foreign exchange computation is made in the case of any Letter of Credit denominated in a Foreign Currency.

                    “SPTC Delaware” means SPTC Delaware LLC, a Delaware limited liability company, and each other “Eligible SPV” (as such term is defined in the Trademark License Agreement).

                    “Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of Holdings.

                    “Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

                    “Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or

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other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).

                    “Swiss Francs” means the lawful currency of Switzerland.

                    “Swing Line” means the revolving credit facility made available by the Swing Line Lender pursuant to Section 2.04.

                    “Swing Line Borrowing” means a borrowing of a Swing Line Loan pursuant to Section 2.04.

                    “Swing Line Lender” means Bank of America in its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder.

                    “Swing Line Loan” means a U.S. Swing Line Loan and/or a U.K. Swing Line Loan, as the context may require.

                    “Swing Line Loan Notice” means a notice of a Swing Line Borrowing pursuant to Section 2.04(b), which, if in writing, shall be substantially in the form of Exhibit B.

                    “Swing Line Sublimit” means (a) with respect to U.S. Swing Line Loans, an amount equal to the lesser of (i) $20,000,000 and (ii) the Facility and (b) with respect to U.K. Swing Line Loans, an amount equal to the lesser of (i) $20,000,000 (or the Equivalent thereof in the applicable foreign currencies) and (ii) the Facility. The Swing Line Sublimit is part of, and not in addition to, the Facility.

                    “Synthetic Debt” means, with respect to any Person as of any date of determination thereof, all obligations of such Person in respect of transactions entered into by such Person that are intended to function primarily as a borrowing of funds (including any minority interest transactions that function primarily as a borrowing) but are not otherwise included in the definition of “Indebtedness” or as a liability on the consolidated balance sheet of such Person and its Subsidiaries in accordance with GAAP.

                    “Synthetic Lease Obligation” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property (including sale and leaseback transactions), in each case, creating obligations that do not appear on the balance sheet of such Person but which, upon the application of any Debtor Relief Laws to such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).

                    “TARGET Day” means any day on which the Trans-European Automated Real-time Gross settlement Express Transfer payment system is open for the settlement of payments in Euros.

                    “Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

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                    “Transaction Agreement” has the meaning set forth in the Preliminary Statements hereto.

                    “Threshold Amount” means $10,000,000.

                    “Total Outstandings” means the aggregate Outstanding Amount of all Revolving Credit Loans, Swing Line Loans and L/C Obligations.

                    “Trademark License Agreement” means the Trademark License Agreement dated as of February 17, 2004 and entered into by and among SPTC, Inc., as licensor, Holdings, as guarantor, Monticello Licensee Corporation, as licensee, and Cendant Corporation, as guarantor.

                    “Transaction” means, collectively, (a) the consummation of the Recapitalization, (b) the entering into by the Loan Parties and their applicable Subsidiaries of the Loan Documents and the Related Documents to which they are or are intended to be a party, (c) the termination of all commitments with respect to the Existing Credit Agreement and (d) the payment of the fees and expenses incurred in connection with the consummation of the foregoing.

                    “Type” means, with respect to a Loan denominated in Dollars, its character as a Base Rate Loan or a Eurocurrency Rate Loan.

                    “UCC” means the Uniform Commercial Code as in effect in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.

                    “U.K. Borrowers” has the meaning specified in the recital of parties hereto.

                    “U.K. Collateral Documents” means the U.K. Debenture and the U.K. Share Charges executed by the U.K. Loan Parties and Local Law Collateral Documents in respect of the Equity Interests of First-Tier Foreign CFC Subsidiaries that are U.K. Subsidiaries pursuant to Section 4.02 and all similar agreements entered into by the U.K. Loan Parties granting a Lien upon property of any U.K. Subsidiary as security for payment of the Obligations of the U.K. Loan Parties pursuant to Section 6.12.

                    “U.K. Debenture” means collectively, one or more debentures as amended, supplemented or otherwise modified from time to time entered into by the U.K. Loan Parties, in form and substance satisfactory to the Administrative Agent.

                    “U.K. Guarantors” means, collectively, the U.K. Subsidiaries of Holdings listed on Part II of Schedule 6.12 and each other U.K. Subsidiary of Holdings that shall be required to execute and deliver a guaranty or guaranty supplement pursuant to Section 6.12.

                    “U.K. Guaranty” means, collectively, the U.K. Guaranty made by the U.K. Guarantors and the Domestic Guarantors in favor of the Secured Parties, substantially in the

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form of Exhibit E-2, together with each other guaranty and guaranty supplement delivered by a Foreign Subsidiary pursuant to Section 6.12.

                    “U.K. Lender” means a Lender in respect of a Borrower incorporated in the United Kingdom.

                    “U.K. Loan Parties” means, collectively, the U.K. Borrowers and the U.K. Guarantors.

                    “U.K. Share Charges” means (a) the share charge entered into by the Company over the shares in Oatshare, and (b) the share charge entered into by Oatshare over the shares of the Subsidiaries owned directly by Oatshare, in each case, in form and substance satisfactory to the Administrative Agent.

                    “U.K. Subsidiary” means each Subsidiary of Holdings incorporated in the United Kingdom.

                    “U.K. Swing Line Loan” has the meaning specified in Section 2.04(a).

                    “Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.

                    “United States” and “U.S.” mean the United States of America.

                    “Unreimbursed Amount” has the meaning specified in Section 2.03(c)(i).

                    “U.S. Borrowers” has the meaning specified in the recital of parties hereto.

                    “U.S. Revolving Credit Borrowing” means a borrowing consisting of simultaneous U.S. Revolving Credit Loans of the same Type and, in the case of Eurocurrency Rate Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01.

                    “U.S. Revolving Credit Loan” has the meaning specified in Section 2.01.

                    “U.S. Loan Parties” means, collectively, the U.S. Borrowers and the Domestic Guarantors.

                    “U.S. Swing Line Loan” has the meaning specified in Section 2.04(a).

                    “York Avenue Property” means the land, building and improvements located at 1334 York Avenue, New York, New York.

                    “York Capital Lease” means the Lease dated February 7, 2003 and entered into by and between 1334 York Avenue L.P., as landlord and Company, as tenant.

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Sotheby’s Amended and Restated Credit Agreement

                    1.02 Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

          (a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “herein,” “hereof” and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Preliminary Statements, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Preliminary Statements, Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

          (b) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

          (c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

                    1.03 Accounting Terms. (a) Generally. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein.

                    (b) Changes in GAAP. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrowers or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrowers shall negotiate in good faith to amend such ratio or requirement to preserve the

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original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrowers shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

                    (c) Consolidation of Variable Interest Entities. All references herein to consolidated financial statements of Holdings and its Subsidiaries or to the determination of any amount for Holdings and its Subsidiaries on a consolidated basis or any similar reference shall, in each case, be deemed to include each variable interest entity that Holdings is required to consolidate pursuant to FASB Interpretation No. 46 – Consolidation of Variable Interest Entities: an interpretation of ARB No. 51 (January 2003) as if such variable interest entity were a Subsidiary as defined herein.

                    1.04 Rounding. Any financial ratios required to be maintained by the Borrowers pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

                    1.05 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).

                    1.06 Letter of Credit Amounts. Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount of such Letter of Credit in effect at such time; provided, however, that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.

                    1.07 Currency Equivalents Generally. (a) The Administrative Agent or the L/C Issuer, as applicable, shall determine the Spot Rates as of each Revaluation Date to be used for calculating the Equivalent in Dollars of Credit Extensions and Outstanding Amounts denominated in Foreign Currencies. Such Spot Rates shall become effective as of such Revaluation Date and shall be the Spot Rates employed in converting any amounts between the applicable currencies until the next Revaluation Date to occur. Except for purposes of financial statements delivered by Loan Parties hereunder or calculating financial covenants hereunder or except as otherwise provided herein, the applicable amount of any currency (other than Dollars) for purposes of the Loan Documents shall be such Equivalent in Dollars as so determined by the Administrative Agent or the L/C Issuer, as applicable.

                    (b) Wherever in this Agreement in connection with a Borrowing, conversion, continuation or prepayment of a Eurocurrency Rate Loan or the issuance, amendment or extension of a Letter of Credit, an amount, such as a required minimum or multiple amount, is

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Sotheby’s Amended and Restated Credit Agreement

expressed in Dollars, but such Borrowing, Eurocurrency Rate Loan or Letter of Credit is denominated in a Foreign Currency, such amount shall be the Equivalent in the relevant Foreign Currency of such Dollar amount (rounded to the nearest unit of such Foreign Currency, with 0.5 of a unit being rounded upward), as determined by the Administrative Agent or the L/C Issuer, as the case may be.

                    1.08 Change of Currency. (a) Each obligation of the Borrowers to make a payment denominated in the national currency unit of any member state of the European Union that adopts the Euro as its lawful currency after the date hereof shall be redenominated into Euro at the time of such adoption (in accordance with the EMU Legislation). If, in relation to the currency of any such member state, the basis of accrual of interest expressed in this Agreement in respect of that currency shall be inconsistent with any convention or practice in the London interbank market for the basis of accrual of interest in respect of the Euro, such expressed basis shall be replaced by such convention or practice with effect from the date on which such member state adopts the Euro as its lawful currency; provided that if any Borrowing in the currency of such member state is outstanding immediately prior to such date, such replacement shall take effect, with respect to such Borrowing, at the end of the then current Interest Period.

                    (b) Each provision of this Agreement shall be subject to such reasonable changes of construction as the Administrative Agent may from time to time specify to be appropriate to reflect the adoption of the Euro by any member state of the European Union and any relevant market conventions or practices relating to the Euro.

                    (c) Each provision of this Agreement also shall be subject to such reasonable changes of construction as the Administrative Agent may from time to time specify to be appropriate to reflect a change in currency of any other country and any relevant market conventions or practices relating to the change in currency.

                    1.09 Alternative L/C Currencies. (a) The Borrowers may from time to time request that Letters of Credit be issued in a currency other than Dollars, Pounds, Euros, Canadian Dollars, Swiss Francs or Hong Kong Dollars; provided, that such requested currency is a lawful currency that is readily available and freely transferable and convertible into Dollars as determined by the L/C Issuer and the Administrative Agent.

                    (b) Notwithstanding anything contained in Section 2.03(b) to the contrary, any such request shall be made to the Administrative Agent not later than 11:00 a.m., five Business Days prior to the date of the desired L/C Advance (or such other time or date as may be agreed by the Administrative Agent and the L/C Issuer, in their sole discretion). In the case of any such request, the Administrative Agent shall promptly notify the L/C Issuer thereof. The L/C Issuer shall notify the Administrative Agent, not later than 11:00 a.m., three Business Days after receipt of such request whether it consents, in its sole discretion, to the issuance of Letters of Credit in such requested currency.

                    (c) Any failure by the L/C Issuer to respond to such request within the time period specified in the preceding sentence shall be deemed to be a refusal by the L/C Issuer to permit Letters of Credit to be issued in such requested currency. If the Administrative Agent and the L/C Issuer consent to the issuance of Letters of Credit in such requested currency, the

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Administrative Agent shall so notify the applicable Borrower and such currency shall thereupon be deemed for all purposes to be an “Alternative L/C Currency” hereunder. If the Administrative Agent shall fail to obtain consent to any request for an additional currency under this Section 1.09, the Administrative Agent shall promptly so notify the applicable Borrower.

ARTICLE II
THE COMMITMENTS AND CREDIT EXTENSIONS

                    2.01 The Loans. Subject to the terms and conditions set forth herein, (a) each Lender severally agrees to make loans denominated in Dollars (each such loan, a “U.S. Revolving Credit Loan”) to the U.S. Borrowers and (b) each Qualifying Lender severally agrees to make loans denominated in Dollars, Pounds or Euros (each such loan, a “Foreign Currency Revolving Credit Loan”) to the U.K. Borrowers, in each case from time to time, on any Business Day during the Availability Period in an aggregate amount not to exceed at any time outstanding the amount of such Lender’s Commitment; provided, however, that after giving effect to any Revolving Credit Borrowing, (i) the Total Outstandings shall not exceed the Facility, (ii) the aggregate Outstanding Amount of the Revolving Credit Loans of any Lender, plus such Lender’s Applicable Percentage of the Outstanding Amount of all L/C Obligations, plus such Lender’s Applicable Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender’s Commitment and (iii) the aggregate Outstanding Amount of the Foreign Currency Revolving Credit Loans, plus the Outstanding Amount of all L/C Obligations in respect of Letters of Credit denominated in Foreign Currencies, plus the aggregate Outstanding Amount of the U.K. Swing Line Loans will not exceed the Foreign Currency Sublimit. Within the limits of each Lender’s Commitment, and subject to the other terms and conditions hereof, the Borrowers may borrow under this Section 2.01, prepay under Section 2.05, and reborrow under this Section 2.01. U.S. Revolving Credit Loans may be Base Rate Loans or Eurocurrency Rate Loans, as further provided herein.

                    2.02 Borrowings, Conversions and Continuations of Loans. (a) Each Revolving Credit Borrowing, each conversion of U.S. Revolving Credit Loans from one Type to the other, and each continuation of Eurocurrency Rate Loans shall be made upon the applicable Borrower’s (or Holdings on behalf of such Borrower) irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than (i) 11:00 a.m. (New York City time) three Business Days prior to the requested date of any U.S. Revolving Credit Borrowing of, conversion to or continuation of Eurocurrency Rate Loans or of any conversion of Eurocurrency Rate Loans to Base Rate Loans, (ii) 11:00 a.m. (New York City time) on the requested date of any U.S. Revolving Credit Borrowing of Base Rate Loans, (iii) 3:00 p.m. (London time) one Business Day prior to the requested date of any Foreign Currency Revolving Credit Borrowing or continuation of Eurocurrency Rate Loans in Pounds or Dollars and (iv) 3:00 p.m. (London time) two Business Days prior to the requested date of any Foreign Currency Revolving Credit Borrowing or continuation of Eurocurrency Rate Loans in Euros. Each telephonic notice by any Borrower (or Holdings on behalf of such Borrower) pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a written Committed Loan Notice, appropriately completed and signed by a Responsible Officer of such Borrower (it being

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Sotheby’s Amended and Restated Credit Agreement

understood that no Foreign Currency Revolving Credit Loan shall be required to be made for which a written Committed Loan Notice has not been so provided). Each Borrowing of, conversion to or continuation of Eurocurrency Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof in the case of U.S. Revolving Credit Loans, £3,000,000 or a whole multiple of £1,000,000 in excess thereof in the case of Foreign Currency Revolving Credit Loans denominated in Pounds, €5,000,000 or a whole multiple of €1,000,000 in excess thereof in the case of Foreign Currency Revolving Credit Loans denominated in Euros, and $5,000,000 or a whole multiple of $1,000,000 in excess thereof in the case of Foreign Currency Revolving Credit Loans denominated in Dollars. Except as provided in Sections 2.03(c) and 2.04(c), each Borrowing of or conversion to Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. Each Committed Loan Notice (whether telephonic or written) shall specify (i) the Borrower to which the Loan is to be made, (ii) the currency in which the Loan is to be denominated, (iii) whether such Borrower is requesting a Revolving Credit Borrowing, a conversion of U.S. Revolving Credit Loans from one Type to the other, or a continuation of Eurocurrency Rate Loans, (iv) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (v) the principal amount of Loans to be borrowed, converted or continued, (vi) the Type of Loans to be borrowed or to which existing U.S. Revolving Credit Loans are to be converted, and (vii) if applicable, the duration of the Interest Period with respect thereto. If a Borrower fails to specify a Type of Loan in a Committed Loan Notice in respect of U.S. Revolving Credit Loans or if a Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Revolving Credit Loans shall be made as, or converted to, Base Rate Loans in the case of U.S. Revolving Credit Loans, or Eurocurrency Loans with an Interest Period of one month, in the case of Foreign Currency Revolving Credit Loans. Any such automatic conversion to Base Rate Loans or Eurocurrency Rate Loans with an Interest Period of one month shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurocurrency Rate Loans. If a Borrower requests a Borrowing of, conversion to, or continuation of Eurocurrency Rate Loans in any such Committed Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month. Notwithstanding anything to the contrary herein, a Swing Line Loan may not be converted to a Eurocurrency Rate Loan. No Loan may be converted into or continued as a Loan denominated in a different currency, but instead must be prepaid in the original currency of such Loan and reborrowed in the other currency.

                    (b) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Applicable Percentage of the applicable Revolving Credit Loans, and if no timely notice of a conversion or continuation is provided by a Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans or Eurocurrency Rate Loans with an Interest Period of one month described in Section 2.02(a). In the case of a U.S. Revolving Credit Borrowing, each Lender shall make the amount of its Loan available to the Administrative Agent in immediately available funds at the applicable Administrative Agent’s Office not later than 10:00 a.m. (local time) on the Business Day specified in the applicable Committed Loan Notice. In the case of a Foreign Currency Revolving Credit Borrowing, each Qualifying Lender shall make the amount of its Loan available to the Administrative Agent in immediately available funds at the applicable Administrative Agent’s Office not later than 12:00 p.m. (local time) on the Business Day specified in the applicable Committed Loan Notice. Upon satisfaction of the applicable

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Sotheby’s Amended and Restated Credit Agreement

conditions set forth in Section 4.03 (and, if such Borrowing is the initial Credit Extension, Section 4.01 or if such Borrowing is the initial Credit Extension to a U.K. Borrower, Section 4.02), the Administrative Agent shall make all funds so received available to the applicable Borrower in like funds as received by the Administrative Agent either by (i) crediting the account of such Borrower on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by such Borrower; provided, however, that if, on the date a Committed Loan Notice with respect to a Revolving Credit Borrowing is given by a Borrower, there are L/C Borrowings outstanding, then the proceeds of such Revolving Credit Borrowing, first, shall be applied to the payment in full of any such L/C Borrowings, and second, shall be made available to such Borrower as provided above.

                    (c) Except as otherwise provided herein, a Eurocurrency Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurocurrency Rate Loan. During the existence of a Default, no Loans denominated in Dollars may be requested as, converted to or continued as Eurocurrency Rate Loans and no Foreign Currency Revolving Credit Loans may be requested as or continued as Eurocurrency Rate Loans with an Interest Period of greater than one month, in each case without the consent of the Required Lenders.

                    (d) The Administrative Agent shall promptly notify the applicable Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurocurrency Rate Loans upon determination of such interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the U.S. Borrowers and the Lenders of any change in Bank of America’s prime rate used in determining the Base Rate promptly following the public announcement of such change.

                    (e) After giving effect to all Revolving Credit Borrowings, all conversions of Revolving Credit Loans from one Type to the other, and all continuations of Revolving Credit Loans as the same Type, there shall not be more than 10 Interest Periods in effect in respect of the Facility.

                    (f) Anything in this Section 2.02 to the contrary notwithstanding, the applicable Borrowers may not select Interest Periods for Eurocurrency Rate Loans that have a duration of more than one month during the period from the date hereof until the earlier of 90 days thereafter or the completion of “successful syndication” as defined in the Fee Letter (or such earlier date as shall be specified by the Administrative Agent in a notice to the Borrowers and the Lenders).

                    2.03 Letters of Credit. (a) The Letter of Credit Commitment. (i) Subject to the terms and conditions set forth herein, (A) the L/C Issuer agrees, in reliance upon the agreements of the Lenders set forth in this Section 2.03, (1) from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue Letters of Credit denominated in Dollars (or, in accordance with Section 1.09, an Alternative L/C Currency) for the account of the U.S. Borrowers or their Subsidiaries, and to amend Letters of Credit denominated in Dollars (or an Alternative L/C Currency) previously issued by it, in accordance with Section 2.03(b), (2) from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue Letters of Credit denominated in Euros or Pounds (or, in accordance with Section 1.09, an Alternative L/C

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Currency) for the account of the U.K. Borrowers or their Subsidiaries, and to amend Letters of Credit denominated in Euros or Pounds (or an Alternative L/C Currency) previously issued by it in accordance with Section 2.03(b), and (3) to honor drawings under the Letters of Credit; and (B) the Lenders severally agree to participate in Letters of Credit issued for the account of the Borrowers or their Subsidiaries and any drawings thereunder; provided that after giving effect to any L/C Credit Extension with respect to any Letter of Credit, (w) the Total Outstandings shall not exceed the Facility, (x) the aggregate Outstanding Amount of the Revolving Credit Loans of any Lender, plus such Lender’s Applicable Percentage of the Outstanding Amount of all L/C Obligations, plus such Lender’s Applicable Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender’s Commitment, (y) the Outstanding Amount of the L/C Obligations shall not exceed the Letter of Credit Sublimit, and (z) the aggregate Outstanding Amount of the Foreign Currency Revolving Credit Loans, plus the Outstanding Amount of all L/C Obligations in respect of Letters of Credit denominated in Foreign Currencies, plus the aggregate Outstanding Amount of the U.K. Swing Line Loans shall not exceed the Foreign Currency Sublimit. Each request by a Borrower for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by such Borrower that the L/C Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrowers’ ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrowers may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.

          (ii) The L/C Issuer shall not issue any Letter of Credit if:

          (A) the expiry date of such requested Letter of Credit would occur more than twelve months after the date of issuance (without giving effect to any Auto-Extension provision therein) unless the Required Lenders have approved such expiry date; or

          (B) the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless all the Lenders have approved such expiry date.

                    (iii) The L/C Issuer shall not be under any obligation to issue any Letter of Credit if:

          (A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the L/C Issuer from issuing such Letter of Credit, or any Law applicable to the L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or request that the L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the L/C Issuer in good faith deems material to it;

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          (B) the issuance of such Letter of Credit would violate one or more policies of the L/C Issuer generally applicable to the issuance of letters of credit;

          (C) except as otherwise agreed by the Administrative Agent and the L/C Issuer, such Letter of Credit is in an initial stated amount less than the Equivalent of $50,000;

          (D) such Letter of Credit is to be denominated in a currency other than Dollars or an Alternative L/C Currency;

          (E) such Letter of Credit contains any provisions for automatic reinstatement of the stated amount after any drawing thereunder;

          (F) a default of any Lender’s obligations to fund under Section 2.03(c) exists or any Lender is at such time a Defaulting Lender hereunder, unless the L/C Issuer has entered into satisfactory arrangements with the Borrowers or such Lender to eliminate the L/C Issuer’s risk with respect to such Lender; or

          (G) the L/C Issuer does not as of the issuance date of such requested Letter of Credit issue Letters of Credit in the requested currency.

                    (iv) The L/C Issuer shall not amend any Letter of Credit if the L/C Issuer would not be permitted at such time to issue such Letter of Credit in its amended form under the terms hereof.

                    (v) The L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) the L/C Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.

                    (vi) The L/C Issuer shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and the L/C Issuer shall have all of the benefits and immunities (A) provided to the Administrative Agent in Article IX with respect to any acts taken or omissions suffered by the L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and Issuer Documents pertaining to such Letters of Credit as fully as if the term “Administrative Agent” as used in Article IX included the L/C Issuer with respect to such acts or omissions, and (B) as additionally provided herein with respect to the L/C Issuer.

                    (b) Procedures for Issuance and Amendment of Letters of Credit. (i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the applicable Borrower (or Holdings on behalf of such Borrower) delivered to the L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of such Borrower. Such Letter of Credit Application must be received by the L/C Issuer and the Administrative Agent (x) not later than 11:00 a.m. at least two Business Days prior to the proposed issuance date or date of amendment, as the case may be, of any Letter of Credit denominated in Dollars, and (y) not later than 11:00 a.m. at least two Business Days prior to the proposed issuance date or date of amendment, as the case may be, of

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any Letter of Credit denominated in a Foreign Currency; or in each case such later date and time as the Administrative Agent and the L/C Issuer may agree in a particular instance in their sole discretion. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount and currency thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; and (G) such other matters as the L/C Issuer may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer (1) the Letter of Credit to be amended; (2) the proposed date of amendment thereof (which shall be a Business Day); (3) the nature of the proposed amendment; and (4) such other matters as the L/C Issuer may require. Additionally, the applicable Borrower shall furnish to the L/C Issuer and the Administrative Agent such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as the L/C Issuer or the Administrative Agent may require.

                    (ii) Promptly after receipt of any Letter of Credit Application, the L/C Issuer will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the applicable Borrower and, if not, the L/C Issuer will provide the Administrative Agent with a copy thereof. Unless the L/C Issuer has received written notice from any Lender, the Administrative Agent or any Loan Party, at least one Business Day prior to the requested date of issuance or amendment of the applicable Letter of Credit, that one or more applicable conditions contained in Article IV shall not then be satisfied, then, subject to the terms and conditions hereof, the L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the applicable Borrower (or the applicable Subsidiary) or enter into the applicable amendment, as the case may be, in each case in accordance with the L/C Issuer’s usual and customary business practices. Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the L/C Issuer a risk participation in such Letter of Credit in an amount equal to the product of such Lender’s Applicable Percentage times the amount of such Letter of Credit.

                    (iii) If the applicable Borrower so requests in any applicable Letter of Credit Application, the L/C Issuer may, in its sole and absolute discretion, agree to issue a Letter of Credit that has automatic extension provisions (each, an “Auto-Extension Letter of Credit”); provided that any such Auto-Extension Letter of Credit must permit the L/C Issuer to prevent any such extensions at least once in each twelve-month period (commencing with the date of issuance o f such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the “Non-Extension Notice Date”) in each such twelve-month period to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the L/C Issuer, the applicable Borrower shall not be required to make a specific request of the L/C Issuer for any such extension. Once an Auto-Extension Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the L/C Issuer to permit the extension of such Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; provided, however, that the L/C Issuer

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shall not permit any such extension if (A) the L/C Issuer has determined that it would not be permitted, or would have no obligation, at such time to issue such Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of clause (ii) or (iii) of Section 2.03(a) or otherwise), or (B) it has received notice (which may be by telephone or in writing) on or before the day that is a five Business Days before the Non-Extension Notice Date (1) from the Administrative Agent that the Require d Lenders have elected not to permit such extension or (2) from the Administrative Agent, any Lender or Holdings that one or more of the applicable conditions specified in Section 4.03 is not then satisfied, and in each such case directing the L/C Issuer not to permit such extension.

                    (iv) Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the L/C Issuer will also deliver to the applicable Borrower and the Administrative Agent a true and complete copy of such Letter of Credit or amendment.

                    (c) Drawings and Reimbursements; Funding of Participations. (i) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the L/C Issuer shall notify the applicable Borrower and the Administrative Agent thereof. In the case of a Letter of Credit denominated in a Foreign Currency, the applicable Borrower (on its or its applicable Subsidiary’s behalf) shall reimburse the L/C Issuer in such Foreign Currency, unless the applicable Borrower shall have notified the L/C Issuer promptly following receipt of the notice of drawing that the applicable Borrower will reimburse the L/C Issuer in Dollars. In the case of any such reimbursement in Dollars of a drawing under a Letter of Credit denominated in a Foreign Currency, the L/C Issuer shall notify the Company of the Dollar Equivalent of the amount of the drawing promptly following the determination thereof. Not later than 11:00 a.m. on the date of any payment by the L/C Issuer under a Letter of Credit to be reimbursed in Dollars, or the Applicable Time on the date of any payment to the L/C Issuer under a Letter of Credit to be reimbursed in a Foreign Currency (each such date, an “Honor Date”), such Borrower (on its or its applicable Subsidiary’s behalf) shall reimburse the L/C Issuer through the Administrative Agent in an amount equal to the amount of such drawing and in the applicable currency. If the applicable Borrower fails to so reimburse the L/C Issuer by such time, the Administrative Agent shall promptly notify each Lender of the Honor Date, the amount of the unreimbursed drawing (expressed in Dollars in the amount of the Equivalent in Dollars thereof in the case of a Letter of Credit denominated in a Foreign Currency) (the “Unreimbursed Amount”), and the amount of such Lender’s Applicable Percentage thereof. In such event, such Borrower shall be deemed to have requested a Revolving Credit Borrowing of Base Rate Loans to be disbursed on the Honor Date in an amount equal to the Unreimbursed Amount, without regard to the minimum and multiples specified in Section 2.02 for the principal amount of Base Rate Loans, but subject to the amount of the unutilized portion of the Commitments and the conditions set forth in Section 4.03 (other than the delivery of a Committed Loan Notice). Any notice given by the L/C Issuer or the Administrative Agent pursuant to this Section 2.03(c)(i) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.

                    (ii) Each Lender shall upon any notice pursuant to Section 2.03(c)(i) make funds available to the Administrative Agent for the account of the L/C Issuer, in Dollars, at the Administrative Agent’s Office Dollar-denominated payments in an amount equal to its Applicable Percentage of the Unreimbursed Amount not later than 1:00 p.m. on the Business

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Day specified in such notice by the Administrative Agent, whereupon, subject to the provisions of Section 2.03(c)(iii), each Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the applicable Borrower in such amount. The Administrative Agent shall remit the funds so received to the L/C Issuer in Dollars.

                    (iii) With respect to any Unreimbursed Amount that is not fully refinanced by a Revolving Credit Borrowing of Base Rate Loans because the conditions set forth in Section 4.03 cannot be satisfied or for any other reason, the applicable Borrower shall be deemed to have incurred from the L/C Issuer an L/C Borrowing in the amount of the Unreimbursed Amount that is not so refinanced, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate. In such event, each Lender’s payment to the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(ii) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this Section 2.03.

                    (iv) Until each Lender funds its U.S. Revolving Credit Loan or L/C Advance pursuant to this Section 2.03(c) to reimburse the L/C Issuer for any amount drawn under any Letter of Credit, interest in respect of such Lender’s Applicable Percentage of such amount shall be solely for the account of the L/C Issuer.

                    (v) Each Lender’s obligation to make Revolving Credit Loans or L/C Advances to reimburse the L/C Issuer for amounts drawn under Letters of Credit, as contemplated by this Section 2.03(c), shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the L/C Issuer, the Borrowers or any other Person for any reason whatsoever; (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided, however, that each Lender’s obligation to make Revolving Credit Loans pursuant to this Section 2.03(c) is subject to the conditions set forth in Section 4.03 (other than delivery by the applicable Borrower of a Committed Loan Notice ). No such making of an L/C Advance shall relieve or otherwise impair the obligation of the Borrowers to reimburse the L/C Issuer for the amount of any payment made by the L/C Issuer under any Letter of Credit, together with interest as provided herein.

                    (vi) If any Lender fails to make available to the Administrative Agent for the account of the L/C Issuer any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.03(c) by the time specified in Section 2.03(c)(ii), the L/C Issuer shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the L/C Issuer at a rate per annum equal to the applicable Overnight Rate from time to time in effect. A certificate of the L/C Issuer submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this Section 2.03(c)(vi) shall be conclusive absent manifest error.

                    (d) Repayment of Participations. (i) At any time after the L/C Issuer has made a payment under any Letter of Credit and has received from any Lender such Lender’s L/C

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Advance in respect of such payment in accordance with Section 2.03(c), if the Administrative Agent receives for the account of the L/C Issuer any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the applicable Borrower or otherwise, including proceeds of Cash Collateral applied thereto by the Administrative Agent), the Administrative Agent will distribute to such Lender its Applicable Percentage thereof (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s L/C Advance was outstanding) in Dollars and in the same funds as those received by the Administrative Agent.

                    (ii) If any payment received by the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(i) is required to be returned under any of the circumstances described in Section 10.05 (including pursuant to any settlement entered into by the L/C Issuer in its discretion), each Lender shall pay to the Administrative Agent for the account of the L/C Issuer its Applicable Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the applicable Overnight Rate from time to time in effect. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.

                    (e) Obligations Absolute. The obligation of each applicable Borrower to reimburse the L/C Issuer for each drawing under each Letter of Credit and to repay each L/C Borrowing shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:

          (i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other Loan Document;

          (ii) the existence of any claim, counterclaim, setoff, defense or other right that any Borrower or any Subsidiary may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the L/C Issuer or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;

          (iii) any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;

          (iv) any payment by the L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by the L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law;

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Sotheby’s Amended and Restated Credit Agreement

          (v) any adverse change in the relevant exchange rates or in the availability of the relevant Foreign Currency to any Borrower or any Subsidiary or in the relevant currency markets generally; or

          (vi) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Borrower or any of their Subsidiaries.

                    Each Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with such Borrower’s instructions or other irregularity, such Borrower will immediately notify the L/C Issuer. Each Borrower shall be conclusively deemed to have waived any such claim against the L/C Issuer and its correspondents unless such notice is given as aforesaid.

                    (f) Role of L/C Issuer. Each Lender and each Borrower agree that, in paying any drawing under a Letter of Credit, the L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable to any Lender for (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Revolving Lenders, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Issuer Document. Each Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, preclude the Borrowers’ pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable or responsible for any of the matters described in clauses (i) through (vi) of Section 2.03(e); provided, however, that anything in such clauses to the contrary notwithstanding, the Borrowers may have a claim against the L/C Issuer, and the L/C Issuer may be liable to the Borrowers, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrowers which the Borrowers prove were caused by the L/C Issuer’s willful misconduct or gross negligence or the L/C Issuer’s willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, the L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and the L/C Issuer shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.

                    (g) Cash Collateral. Upon the request of the Administrative Agent, (i) if the L/C Issuer has honored any full or partial drawing request under any Letter of Credit and such

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drawing has resulted in an L/C Borrowing, or (ii) if, as of the Letter of Credit Expiration Date, any L/C Obligation for any reason remains outstanding, the Borrowers shall, in each case, immediately Cash Collateralize the then Outstanding Amount of all L/C Obligations. Sections 2.05 and 8.02(c) set forth certain additional requirements to deliver Cash Collateral hereunder. For purposes of this Section 2.03, Section 2.05 and Section 8.02(c), “Cash Collateralize” means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Administrative Agent and the L/C Issuer (which documents are hereby consented to by the Lenders). Derivatives of such term have corresponding meanings. The Borrowers hereby grant to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash Collateral shall be maintained in blocked, deposit accounts at Bank of America on the terms and conditions to be mutually agreed. In addition, if the Administrative Agent notifies the Borrowers at any time that the Outstanding Amount of all L/C Obligations at such time exceeds 105% of the Letter of Credit Sublimit then in effect, then, within two Business Days after receipt of such notice, the Borrowers shall Cash Collateralize the L/C Obligations in an amount equal to the amount by which the Outstanding Amount of all L/C Obligations exceeds the Letter of Credit Sublimit. If at any time the Administrative Agent determines that any funds held as Cash Collateral are subject to any right or claim of any Person other than the Administrative Agent or that the total amount of such funds is less than the aggregate Outstanding Amount of all L/C Obligations, the Borrowers will, forthwith upon demand by the Administrative Agent, pay to the Administrative Agent, as additional funds to be deposited as Cash Collateral, an amount equal to the excess of (x) such aggregate Outstanding Amount over (y) the total amount of funds, if any, then held as Cash Collateral that the Administrative Agent determines to be free and clear of any such right and claim. Upon the drawing of any Letter of Credit for which funds are on deposit as Cash Collateral, such funds shall be applied, to the extent permitted under applicable Laws, to reimburse the L/C Issuer.

                    (h) Applicability of ISP. Unless otherwise expressly agreed by the L/C Issuer and the applicable Borrower when a Letter of Credit is issued, the rules of the ISP shall apply to each Letter of Credit.

                    (i) Letter of Credit Fees. The Borrowers shall pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Percentage, in Dollars, a Letter of Credit fee (the “Letter of Credit Fee”) for each Letter of Credit equal to 1.75% times the Equivalent in Dollars of the daily amount available to be drawn under such Letter of Credit. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06. Letter of Credit Fees shall be (A) computed on a quarterly basis in arrears and (B) due and payable on the first Business Day after the end of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. If there is any change in the Applicable Rate during any quarter, the daily amount available to be drawn under each Letter of Credit shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect. Notwithstanding anything to the contrary contained

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herein, upon the request of the Required Revolving Lenders, while any Event of Default exists, all Letter of Credit Fees shall accrue at the Default Rate.

                    (j) Fronting Fee and Documentary and Processing Charges Payable to L/C Issuer. The applicable Borrower shall pay directly to the L/C Issuer for its own account, in Dollars, a fronting fee with respect to each Letter of Credit, at a rate of 0.125% per annum, computed on the Equivalent in Dollars of the daily amount available to be drawn under such Letter of Credit on a quarterly basis in arrears. Such fronting fee shall be due and payable on the tenth Business Day after the end of each March, June, September and December in respect of the most recently-ended quarterly period (or portion thereof, in the case of the first payment), commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06. In addition, the applicable Borrower shall pay directly to the L/C Issuer for its own account, in Dollars, the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the L/C Issuer relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.

                    (k) Conflict with Issuer Documents. In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control.

                    (l) Letters of Credit Issued for Subsidiaries. Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Subsidiary of a Borrower, the applicable Borrower shall be obligated to reimburse the L/C Issuer hereunder for any and all drawings under such Letter of Credit. Each Borrower hereby acknowledges that the issuance of Letters of Credit for the account of the Subsidiaries of such Borrower inures to the benefit of such Borrower, and that such Borrower’s business derives substantial benefits from the businesses of such Subsidiaries.

                    (m) Letter of Credit Reports. Each Issuing Bank shall furnish (i) to the Administrative Agent on the first Business Day of each week a written report summarizing issuance and expiration dates of Letters of Credit issued by such Issuing Bank during the previous week and drawings during such week under all Letters of Credit issued by such Issuing Bank, (ii) to each Lender on the first Business Day of each month a written report summarizing issuance and expiration dates of Letters of Credit issued by such Issuing Bank during the preceding month and drawings during such month under all Letters of Credit issued by such Issuing Bank and (iii) to the Administrative Agent and each Lender on the first Business Day of each calendar quarter a written report setting forth the average daily maximum amount available to be drawn under such Letters of Credit during the preceding calendar quarter of all Letters of Credit issued by such Issuing Bank.

                    2.04 Swing Line Loans. (a) The Swing Line. Subject to the terms and conditions set forth herein, the Swing Line Lender agrees, in reliance upon the agreements of the other Lenders set forth in this Section 2.04, to make (i) loans denominated in Dollars to the U.S. Borrowers (each such loan, a “U.S. Swing Line Loan”) and (ii) loans denominated in Dollars or Pounds to the U.K. Borrowers (each such loan, a “U.K. Swing Line Loan”) from time to time on

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any Business Day during the Availability Period in an aggregate amount not to exceed at any time outstanding the amount of the Swing Line Sublimit, notwithstanding the fact that such Swing Line Loans, when aggregated with the Applicable Percentage of the Outstanding Amount of Revolving Credit Loans and L/C Obligations of the Lender acting as Swing Line Lender, may exceed the amount of such Lender’s Commitment; provided, however, that after giving effect to any Swing Line Loan, (i) the Total Outstandings shall not exceed the Facility at such time, (ii) the aggregate Outstanding Amount of the Revolving Credit Loans of any Lender at such time, plus such Lender’s Applicable Percentage of the Outstanding Amount of all L/C Obligations at such time, plus such Lender’s Applicable Percentage of the Outstanding Amount of all Swing Line Loans at such time shall not exceed such Lender’s Commitment and (iii) the aggregate Outstanding Amount of the Foreign Currency Revolving Credit Loans, plus the Outstanding Amount of all L/C Obligations in respect of Letters of Credit denominated in Foreign Currencies, plus the aggregate Outstanding Amount of the U.K. Swing Line Loans shall not exceed the Foreign Currency Sublimit, and provided further that the Borrowers shall not use the proceeds of any Swing Line Loan to refinance any outstanding Swing Line Loan. Within the foregoing limits, and subject to the other terms and conditions hereof, the Borrowers may borrow under this Section 2.04, prepay under Section 2.05, and reborrow under this Section 2.04. Each Swing Line Loan shall bear interest only at a rate based on the Base Rate. Immediately upon the making of a Swing Line Loan, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Swing Line Lender a risk participation in such Swing Line Loan in an amount equal to the product of such Lender’s Applicable Percentage times the amount of such Swing Line Loan.

                    (b) Borrowing Procedures. Each Swing Line Borrowing shall be made upon the applicable Borrower’s irrevocable notice to the Swing Line Lender and the Administrative Agent, which may be given by telephone. Each such notice must be received by the Swing Line Lender and the Administrative Agent not later than (x) 1:00 p.m. (local time), in respect of any U.S. Swing Line Loan, and (y) 10:30 a.m. (London time), in respect of any U.K. Swing Line Loan, in each case, on the requested borrowing date, and shall specify (i) the amount to be borrowed, which shall be a minimum of $500,000, in the case of any U.S. Swing Line Loan, and $5,000,000 (or the Equivalent thereof in the applicable foreign currency), in the case of any U.K. Swing Line Loan, and (ii) the requested borrowing date, which shall be a Business Day. Each such telephonic notice must be confirmed promptly by delivery to the Swing Line Lender and the Administrative Agent of a written Swing Line Loan Notice, appropriately completed and signed by a Responsible Officer of the applicable Borrower. Promptly after receipt by the Swing Line Lender of any telephonic Swing Line Loan Notice, the Swing Line Lender will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has also received such Swing Line Loan Notice and, if not, the Swing Line Lender will notify the Administrative Agent (by telephone or in writing) of the contents thereof. Unless the Swing Line Lender has received notice (by telephone or in writing) from the Administrative Agent (including at the request of any Lender) prior to 2:00 p.m. (local time) on the date of the proposed Swing Line Borrowing (A) directing the Swing Line Lender not to make such Swing Line Loan as a result of the limitations set forth in the proviso to the first sentence of Section 2.04(a), or (B) that one or more of the applicable conditions specified in Article IV is not then satisfied, then, subject to the terms and conditions hereof, the Swing Line Lender will, not later than 3:00 p.m. on the borrowing date specified in such Swing Line Loan Notice, make the amount of its Swing Line Loan available to the applicable Borrower.

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                    (c) Refinancing of Swing Line Loans. (i) The Swing Line Lender at any time in its sole and absolute discretion may request, on behalf of each of the Borrowers (each of which hereby irrevocably authorizes the Swing Line Lender to so request on its behalf), that each Lender make a Base Rate Loan to such Borrower in an amount equal to such Lender’s Applicable Percentage of the amount of Swing Line Loans then outstanding to such Borrower. Such request shall be made in writing (which written request shall be deemed to be a Committed Loan Notice for purposes hereof) and in accordance with the requirements of Section 2.02, without regard to the minimum and multiples specified therein for the principal amount of Base Rate Loans, but subject to the unutilized portion of the Facility and the conditions set forth in Section 4.03. The Swing Line Lender shall furnish the applicable Borrower with a copy of the applicable Committed Loan Notice promptly after delivering such notice to the Administrative Agent. Each Lender shall make an amount equal to its Applicable Percentage of the amount specified in such Committed Loan Notice available to the Administrative Agent in immediately available funds for the account of the Swing Line Lender at the Administrative Agent’s Office not later than 1:00 p.m. (local time) on the day specified in such Committed Loan Notice, whereupon, subject to Section 2.04(c)(ii), each Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the applicable Borrower in such amount. The Administrative Agent shall remit the funds so received to the Swing Line Lender.

                    (ii) If for any reason any Swing Line Loan cannot be refinanced by such a Revolving Credit Borrowing in accordance with Section 2.04(c)(i), the request for Base Rate Loans submitted by the Swing Line Lender as set forth herein shall be deemed to be a request by the Swing Line Lender that each of the Lenders fund its risk participation in the relevant Swing Line Loan and each Lender’s payment to the Administrative Agent for the account of the Swing Line Lender pursuant to Section 2.04(c)(i) shall be deemed payment in respect of such participation.

                    (iii) If any Lender fails to make available to the Administrative Agent for the account of the Swing Line Lender any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.04(c) by the time specified in Section 2.04(c)(i), the Swing Line Lender shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the Swing Line Lender at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by the Swing Line Lender in accordance with banking industry rules on interbank compensation. A certificate of the Swing Line Lender submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (iii) shall be conclusive absent manifest error.

                    (iv) Each Lender’s obligation to make Revolving Credit Loans or to purchase and fund risk participations in Swing Line Loans pursuant to this Section 2.04(c) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, any Borrower or any other Person for any reason whatsoever, (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided, however, that each Lender’s obligation to make Revolving Credit Loans pursuant to this Section 2.04(c) is subject to the conditions set forth in

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Section 4.03. No such funding of risk participations shall relieve or otherwise impair the obligation of the applicable Borrower to repay Swing Line Loans, together with interest as provided herein.

                    (d) Repayment of Participations. (i) At any time after any Lender has purchased and funded a risk participation in a Swing Line Loan, if the Swing Line Lender receives any payment on account of such Swing Line Loan, the Swing Line Lender will distribute to such Lender its Applicable Percentage of such payment (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s risk participation was funded) in the same funds as those received by the Swing Line Lender.

                    (ii) If any payment received by the Swing Line Lender in respect of principal or interest on any Swing Line Loan is required to be returned by the Swing Line Lender under any of the circumstances described in Section 10.05 (including pursuant to any settlement entered into by the Swing Line Lender in its discretion), each Lender shall pay to the Swing Line Lender its Applicable Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned, at a rate per annum equal to the Federal Funds Rate. The Administrative Agent will make such demand upon the request of the Swing Line Lender. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.

                    (e) Interest for Account of Swing Line Lender. The Swing Line Lender shall be responsible for invoicing the applicable Borrower for interest on the Swing Line Loans. Until each Lender funds its Base Rate Loan or risk participation pursuant to this Section 2.04 to refinance such Lender’s Applicable Percentage of any Swing Line Loan, interest in respect of such Applicable Percentage shall be solely for the account of the Swing Line Lender.

                    (f) Payments Directly to Swing Line Lender. Each Borrower shall make all payments of principal and interest in respect of the Swing Line Loans borrowed by such Borrower directly to the Swing Line Lender.

                    2.05 Prepayments. (a) Optional. (i) Each Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Revolving Credit Loans in whole or in part without premium or penalty; provided that (A) such notice must be received by the Administrative Agent not later than 11:00 a.m. (1) three Business Days prior to any date of prepayment of Eurocurrency Rate Loans, (2) three Business Days prior to any date of prepayment of Eurocurrency Rate Loans denominated in Foreign Currencies, and (3) on the date of prepayment of Base Rate Loans; (B) any prepayment of Eurodollar Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof; (C) any prepayment of Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof; (D) any prepayment of Eurocurrency Rate Loans denominated in Pounds shall be in a principal amount of £3,000,000 or a whole multiple of £1,000,000 in excess thereof; and (E) any prepayment of Eurocurrency Rate Loans denominated in Euros shall be in a principal amount of €5,000,000 or a whole multiple of €1,000,000 in excess thereof, or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the currency and, if applicable, Type(s) of Loans to be prepaid. The Administrative Agent will promptly notify each Lender of its receipt of each

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such notice, and of the amount of such Lender’s ratable portion of such prepayment (based on such Lender’s Applicable Percentage in respect of the relevant Facility). If such notice is given by a Borrower, such Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of a Eurocurrency Rate Loan shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05. Each such prepayment shall be paid to the Lenders in accordance with their respective Applicable Percentages.

                    (ii) Each Borrower may, upon notice to the Swing Line Lender (with a copy to the Administrative Agent), at any time or from time to time, voluntarily prepay Swing Line Loans borrowed by such Borrower in whole or in part without premium or penalty; provided that (A) such notice must be received by the Swing Line Lender and the Administrative Agent not later than 1:00 p.m. (local time) on the date of the prepayment, and (B) any such prepayment shall be in a minimum principal amount of $100,000 (or the Equivalent thereof in the applicable foreign currency). Each such notice shall specify the date and amount of such prepayment. If such notice is given by a Borrower, such Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein.

                    (b) Mandatory. (i) If any Loan Party or any of its Subsidiaries Disposes of any property (other than any Disposition of any property permitted by Section 7.05(a), (b), (c), (d) or (e)) which results in the realization by such Person of Net Cash Proceeds, Holdings shall prepay, or shall cause any other Borrower to prepay, an aggregate principal amount of Loans equal to 100% of such Net Cash Proceeds immediately upon receipt thereof by such Person; provided that no such prepayment will be required in respect of such Dispositions for the first U.S. $5,000,000 in the aggregate in any fiscal year of Net Cash Proceeds received therefrom.

                    (ii) Upon the incurrence or issuance by any Loan Party or any of its Subsidiaries of any Indebtedness (other than Indebtedness expressly permitted to be incurred or issued pursuant to Section 7.02(a) through (i)), Holdings shall prepay, or shall cause any other Borrower to prepay, an aggregate principal amount of Loans equal to 100% of all Net Cash Proceeds received therefrom immediately upon receipt thereof by such Loan Party or such Subsidiary.

                    (iii) Upon any Extraordinary Receipt received by or paid to or for the account of any Loan Party or any of its Subsidiaries, and not otherwise included in clause (i) or (ii) of this Section 2.05(b), Holdings shall prepay, or shall cause any other Borrower to prepay, an aggregate principal amount of Loans equal to 100% of all Net Cash Proceeds received therefrom immediately upon receipt thereof by such Loan Party or such Subsidiary; provided, that such Net Cash Proceeds are in excess of $1,000,000 in the aggregate per fiscal year, and provided further, that with respect to any proceeds of insurance, condemnation awards (or payments in lieu thereof) or indemnity payments, at the election of the Borrowers (as notified by the Borrowers to the Administrative Agent on or prior to the date of receipt of such insurance proceeds, condemnation awards or indemnity payments), and so long as no Default shall have occurred and be continuing, such Loan Party or such Subsidiary may, prior to or within 180 days after the receipt of such cash proceeds, replace or repair the equipment, fixed assets or real property in respect of which such cash proceeds were or will be received; and provided further, however,

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that any cash proceeds not so applied shall be immediately applied to the prepayment of the Loans as set forth in this Section 2.05(b)(iii).

                    (iv) If any Loan Party or any of its Subsidiaries licenses any intellectual property that results in the realization by such Person of Net Cash Proceeds of at least $25,000,000, Holdings shall prepay, or shall cause any other Borrower to prepay, an aggregate principal amount of Loans equal to 100% of such Net Cash Proceeds immediately upon receipt thereof by such Person.

                    (v) If for any reason the Total Outstandings at any time exceed the Borrowing Base at such time, Holdings shall immediately prepay, or shall cause any other Borrower to immediately prepay, Revolving Credit Loans, Swing Line Loans and L/C Borrowings and/or to immediately terminate any L/C Obligations (other than the L/C Borrowings) in an aggregate amount equal to such excess.

                    (vi) If for any reason the Total Outstandings at any time exceed the Facility at such time, Holdings shall immediately prepay, or shall cause any other Borrower to immediately prepay, Revolving Credit Loans, Swing Line Loans and L/C Borrowings and/or Cash Collateralize the L/C Obligations (other than the L/C Borrowings) in an aggregate amount equal to such excess.

                    (vii) If the Administrative Agent notifies the Borrowers at any time that the Outstanding Amount of all Loans and L/C Obligations denominated in Foreign Currencies at such time exceeds an amount equal to 105% of the Foreign Currency Sublimit then in effect, then, within two Business Days after receipt of such notice, the Borrowers shall prepay Loans and L/C Obligations in an aggregate amount sufficient to reduce such Outstanding Amount as of such date of payment to an amount not to exceed 100% of the Foreign Currency Sublimit then in effect.

                    (viii) Prepayments of the Facility made by any Borrower pursuant to this Section 2.05(b), first, shall be applied ratably to the L/C Borrowings and the Swing Line Loans of such Borrower, second, shall be applied ratably to the outstanding Revolving Credit Loans of such Borrower, and, third, if an Event of Default has occurred and is continuing, shall be used to Cash Collateralize the remaining L/C Obligations of such Borrower; and, the amount remaining, if any, after the prepayment in full of all such L/C Borrowings, Swing Line Loans and Revolving Credit Loans outstanding at such time and the Cash Collateralization of such remaining L/C Obligations in full shall be applied to the prepayment and Cash Collateralization of the Total Outstandings of the other Borrowers in the same order of priority and any amounts remaining after such application may be retained by such Borrower for use in the ordinary course of its business. Upon the drawing of any Letter of Credit that has been Cash Collateralized, the funds held as Cash Collateral shall be applied (without any further action by or notice to or from the Borrowers or any other Loan Party) to reimburse the L/C Issuer or the Lenders, as applicable.

                    (ix) Notwithstanding any other provision of this Section 2.05 or any other provision herein or in any other Loan Document to the contrary, (A) no U.K. Borrower or U.K. Guarantor shall be liable for or required to repay any Obligation of the U.S. Loan Parties under the Loan Documents and (B) any Obligation payable in respect of any Revolving Credit Loan

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shall be required to be paid by the applicable Borrower in respect of such Revolving Credit Loan.

                    2.06 Termination or Reduction of Commitments. (a) Optional. Holdings may, upon notice to the Administrative Agent, terminate the Facility, the Letter of Credit Sublimit, the Swing Line Sublimit or the Foreign Currency Sublimit, or from time to time permanently reduce the Facility, the Letter of Credit Sublimit, the Swing Line Sublimit or the Foreign Currency Sublimit; provided that (i) any such notice shall be received by the Administrative Agent not later than 11:00 a.m. five Business Days prior to the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of $10,000,000 or any whole multiple of $1,000,000 in excess thereof and (iii) Holdings shall not terminate or reduce (A) the Facility if, after giving effect thereto and to any concurrent prepayments hereunder, the Total Outstandings would exceed the Facility, (B) the Letter of Credit Sublimit if, after giving effect thereto, the Outstanding Amount of L/C Obligations not fully Cash Collateralized hereunder would exceed the Letter of Credit Sublimit, (C) the Swing Line Sublimit if, after giving effect thereto and to any concurrent prepayments hereunder, the Outstanding Amount of Swing Line Loans would exceed the Letter of Credit Sublimit, or (D) the Foreign Currency Sublimit if, after giving effect thereto and to any concurrent prepayments hereunder, the Outstanding Amount of any Loans denominated in Foreign Currencies together with the Outstanding Amount of any L/C Obligations denominated in Foreign Currencies would exceed the Foreign Currency Sublimit.

                    (b) Mandatory. If after giving effect to any reduction or termination of Commitments under this Section 2.06, the Letter of Credit Sublimit, the Swing Line Sublimit or the Foreign Currency Sublimit exceeds the Facility at such time, the Letter of Credit Sublimit, the Swing Line Sublimit or the Foreign Currency Sublimit, as the case may be, shall be automatically reduced by the amount of such excess.

                    (c) Application of Commitment Reductions; Payment of Fees. The Administrative Agent will promptly notify the Lenders of any termination or reduction of the Letter of Credit Sublimit, Swing Line Sublimit, Foreign Currency Sublimit or the Commitments under this Section 2.06. Upon any reduction of the Commitments, the Commitment of each Lender shall be reduced by such Lender’s Applicable Percentage of such reduction amount. All fees in respect of the Facility accrued until the effective date of any termination of the Facility shall be paid on the effective date of such termination.

                    2.07 Repayment of Loans. (a) Revolving Credit Loans. Each Borrower shall repay to the Lenders on the Maturity Date for the Facility the aggregate principal amount of all Revolving Credit Loans made to such Borrower and outstanding on such date.

                    (b) Swing Line Loans. Each Borrower shall repay each Swing Line Loan made to such Borrower on the earlier to occur of (i) the date ten Business Days after such Loan is made and (ii) the Maturity Date for the Facility.

                    2.08 Interest. (a) Subject to the provisions of Section 2.08(b), (i) each Eurocurrency Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurocurrency Rate for such Interest Period plus the Applicable Rate plus (in the case of a Eurocurrency Rate Loan of any Lender which is lent

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from a Lending Office in the United Kingdom or a Participating Member State) the Mandatory Cost; (ii) each Base Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate; and (iii) each Swing Line Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate.

                    (b) (i) If any amount of principal of any Loan is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

                    (ii) If any amount (other than principal of any Loan) payable by any Borrower under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

                    (iii) Upon the request of the Required Lenders, while any Event of Default exists, each Borrower shall pay interest on the principal amount of all outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

                    (iv) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

                    (c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.

                    2.09 Fees. In addition to certain fees described in Sections 2.03(i) and (j):

                    (a) Commitment Fee. The Borrowers shall pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Percentage, a commitment fee in Dollars equal to the Applicable Commitment Fee Percentage times the actual daily amount by which the aggregate Commitments exceed the sum of (i) the Outstanding Amount of Revolving Credit Loans plus (ii) the Outstanding Amount of L/C Obligations. The commitment fee shall accrue at all times during the Availability Period, including at any time during which one or more of the conditions in Article IV is not met, and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the Maturity Date. The commitment fee shall be calculated quarterly in arrears, and if there is any change in the Applicable Commitment Fee Percentage during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Commitment Fee Percentage separately for each period during such quarter that such Applicable Commitment Fee Percentage was in effect.

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                    (b) Foreign Currency Lead Lender Fee. To the extent a Foreign Currency Revolving Credit Loan is required to be made by the Foreign Currency Lead Lender in an amount greater than it would otherwise be required to make if all Lenders at the time of such Foreign Currency Revolving Credit Loan were Qualifying Lenders (each such incremental amount being, a “Foreign Currency Incremental Loan”), the Borrowers shall pay to the Administrative Agent for the account of the Foreign Currency Lead Lender a fee on the principal balance of each Foreign Currency Incremental Loan outstanding from time to time determined at a rate equal to 0.25% per annum. Such fee shall be (i) computed on a quarterly basis in arrears and (ii) due and payable quarterly on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Effective Date, and on the Maturity Date.

                    (c) Other Fees. (i) The Borrowers shall pay to the Arrangers and the Administrative Agent for their own respective accounts, in Dollars, fees in the amounts and at the times specified in the Fee Letter. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.

                    (ii) The Borrowers shall pay to the Lenders, in Dollars, such fees as shall have been separately agreed upon in writing in the amounts and at the times so specified. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.

                    2.10 Computation of Interest and Fees. All computations of interest for Base Rate Loans when the Base Rate is determined by Bank of America’s “prime rate” shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year), or, in the case of interest in respect of Loans denominated in Foreign Currencies as to which market practice differs from the foregoing, in accordance with such market practice. Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.12(a), bear interest for one day. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

                    2.11 Evidence of Debt. (a) The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made by the Lenders to the Borrowers and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrowers hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent (set forth in the Register) shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrowers shall execute and deliver to such Lender (through the Administrative

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Agent) a Note, which shall evidence such Lender’s Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount, currency and maturity of its Loans and payments with respect thereto.

                    (b) In addition to the accounts and records referred to in Section 2.11(a), each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit and Swing Line Loans. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.

                    2.12 Payments Generally; Administrative Agent’s Clawback. (a) General. Except as otherwise expressly provided herein, all payments to be made by the Borrowers shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrowers hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent’s Office in Dollars or the applicable Foreign Currency and in immediately available funds not later than 2:00 p.m. (New York time) on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Applicable Percentage (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office. All payments received by the Administrative Agent after 2:00 p.m. (New York time) shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by a Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.

                    (b) (i) Funding by Lenders; Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing of Eurocurrency Rate Loans (or, in the case of any Borrowing of Base Rate Loans, prior to 12:00 noon on the date of such Borrowing) that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.02 (or, in the case of a Borrowing of Base Rate Loans, that such Lender has made such share available in accordance with and at the time required by Section 2.02) and may, in reliance upon such assumption, make available to the applicable Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrowers severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to the applicable Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, at a rate per annum equal to the applicable Overnight Rate from time to time in effect and (B) in the case of a payment to be made by the Borrowers, the interest rate applicable to Base Rate Loans (in the case of payments denominated in Dollars) or the interest rate applicable to Eurocurrency Rate Loans with an interest period of one month (in the case of payments denominated in a Foreign Currency). If a

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Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the applicable Borrower the amount of such interest paid by such Borrower for such period. If such Lender pays its share of the applicable Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Loan included in such Borrowing. Any payment by any Borrower shall be without prejudice to any claim such Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.

                    (ii) Payments by Borrowers; Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from a Borrower prior to the time at which any payment is due by such Borrower to the Administrative Agent for the account of the Lenders or the L/C Issuer hereunder that such Borrower will not make such payment, the Administrative Agent may assume that such Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the L/C Issuer, as the case may be, the amount due. In such event, if the applicable Borrower has not in fact made such payment, then each of the Lenders or the L/C Issuer, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or the L/C Issuer, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at a rate per annum equal to the applicable Overnight Rate from time to time in effect.

                    A notice of the Administrative Agent to any Lender or any Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.

                    (c) Failure to Satisfy Conditions Precedent. If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the applicable Borrower by the Administrative Agent because the conditions to the applicable Credit Extension set forth in Article IV are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.

                    (d) Obligations of Lenders Several. The obligations of the Lenders hereunder to make Revolving Credit Loans, to fund participations in Letters of Credit and Swing Line Loans and to make payments pursuant to Section 10.04(c) are several and not joint. The failure of any Lender to make any Loan, to fund any such participation or to make any payment under Section 10.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan, to purchase its participation or to make its payment under Section 10.04(c).

                    (e) Funding Source. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.

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                    (f) Insufficient Payment. Whenever any payment received by the Administrative Agent under this Agreement or any of the other Loan Documents is insufficient to pay in full all amounts due and payable to the Administrative Agent and the Lenders under or in respect of this Agreement and the other Loan Documents on any date, such payment shall be distributed by the Administrative Agent and applied by the Administrative Agent and the Lenders in the order of priority set forth in Section 8.03.

                    (g) Currencies. To the extent that the Administrative Agent receives funds for application to the amounts owing by any Borrower under or in respect of this Agreement in currencies other than the currency or currencies required to enable the Administrative Agent to distribute funds to the Lenders in accordance with the terms of this Agreement, the Administrative Agent shall be entitled to convert or exchange such funds into Dollars or into a Foreign Currency or from Dollars to a Foreign Currency or from a Foreign Currency to Dollars, as the case may be, to the extent necessary to enable the Administrative Agent to distribute such funds in accordance with the terms of this Agreement; provided that each Borrower and each of the Lenders hereby agree that the Administrative Agent shall not be liable or responsible for any loss, cost or expense suffered by such Borrower or such Lender as a result of any conversion or exchange of currencies affected pursuant to this Section 2.12(g) or as a result of the failure of the Administrative Agent to effect any such conversion or exchange; and provided further that each applicable Borrower agrees to indemnify the Administrative Agent and each Lender, and hold the Administrative Agent and each Lender harmless, for any and all losses, costs and expenses incurred by the Administrative Agent or any Lender for any conversion or exchange of currencies (or the failure to convert or exchange any currencies) or which result in the Administrative Agent or the Lenders receiving a lower amount that they would have received had such currency not been required to be so converted or exchanged, in accordance with this Section 2.12(g).

                    2.13 Sharing of Payments by Lenders. If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of the Loans made by it, or the participations in L/C Obligations or in Swing Line Loans held by it resulting in such Lender’s receiving payment of a proportion of the aggregate amount of such Loans or participations and accrued interest thereon greater than its pro rata share thereof of the Facility as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Revolving Credit Loans and subparticipations in L/C Obligations and Swing Line Loans of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and other amounts owing them under the Facility, provided that:

          (i) if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and

          (ii) the provisions of this Section shall not be construed to apply to (A) any payment made by the Borrowers pursuant to and in accordance with the express terms of

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this Agreement or (B) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or subparticipations in L/C Obligations or Swing Line Loans to any assignee or participant, other than to a Borrower or any Subsidiary thereof (as to which the provisions of this Section shall apply).

                    Each Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Borrower in the amount of such participation.

ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY

                    3.01 Taxes. (a) Payments Free of Taxes. Any and all payments by or on account of any obligation of any Loan Party hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes (including any Other Taxes), provided that if any Loan Party shall be required by applicable law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, any Lender or the L/C Issuer, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Loan Party shall make such deductions and (iii) such Loan Party shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

                    (b) Payment of Other Taxes by the Loan Parties. Without limiting the provisions of subsection (a) above, the Loan Parties shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

                    (c) Indemnification by the Loan Parties. The Loan Parties shall, jointly and severally, indemnify the Administrative Agent, each Lender and the L/C Issuer, within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent, such Lender or the L/C Issuer, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to a Loan Party by a Lender or the L/C Issuer (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender or the L/C Issuer, shall be conclusive absent manifest error.

                    (d) Evidence of Payments. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by any Loan Party to a Governmental Authority, such Loan Party shall deliver to the Administrative Agent the original or a certified copy of a receipt issued

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by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

                    (e) Status of Lenders. Any Foreign Lender or any U.K. Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the relevant Borrower with respect to that Foreign Lender or U.K. Lender is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to such Borrower or the relevant Governmental Authority (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by such Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if requested by a Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by such Borrower or the Administrative Agent as will enable such Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.

Without limiting the generality of the foregoing, if a Borrower is resident for tax purposes in the United States, any Foreign Lender shall deliver to such Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of such Borrower or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:

          (i) duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States is a party,

          (ii) duly completed copies of Internal Revenue Service Form W-8ECI,

          (iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (A) a certificate to the effect that such Foreign Lender is not (1) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (2) a “10 percent shareholder” of any Borrower within the meaning of section 881(c)(3)(B) of the Code, or (3) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code and (B) duly completed copies of Internal Revenue Service Form W-8BEN, or

          (iv) any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit the Borrowers to determine the withholding or deduction required to be made.

                    (f) Treatment of Certain Refunds. If the Administrative Agent, any Lender or the L/C Issuer determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by a Loan Party or with respect to which a Loan Party

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has paid additional amounts pursuant to this Section, it shall pay to such Loan Party an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by such Loan Party under this Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent, such Lender or the L/C Issuer, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that each Loan Party, upon the request of the Administrative Agent, such Lender or the L/C Issuer, agrees to repay the amount paid over to such Loan Party (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent, such Lender or the L/C Issuer if the Administrative Agent, such Lender or the L/C Issuer is required to repay such refund to such Governmental Authority. This subsection shall not be construed to require the Administrative Agent, any Lender or the L/C Issuer to make available its tax returns (or any other information relating to its taxes that it deems confidential) to any Loan Party or any other Person.

                    (g) U.K. Qualified Lenders. A Loan Party is not required to pay additional amounts to a Lender (other than an assignee pursuant to a request by a Borrower under Section 10.13) pursuant to Section 3.01(a) in respect of any Indemnified Tax that is required by the United Kingdom to be withheld from a payment of interest on a loan made to a Borrower incorporated in the United Kingdom if at the time that that withholding is made: (i) the relevant Lender is not a U.K. Qualified Lender and that Indemnified Tax would not have been required to be withheld had that Lender been a U.K. Qualified Lender unless the reason that that Lender is not a U.K. Qualified Lender is a change after the date on which it became a Lender under this Agreement in (or in the interpretation, administration or application of) any law or double taxation agreement or any published practice or published concession of any relevant Tax authority; or (ii) the relevant Lender is a Treaty Lender (as defined below) and the relevant Loan Party is able to demonstrate that that Indemnified Tax is required to be withheld as a result of the failure of the relevant Lender to comply with its obligations under Section 3.01(e); and for purposes of this Section 3.01(g), “U.K. Qualified Lender” means (i) a Lender or (ii) a Lender (which otherwise would not be a U.K. Qualified Lender) that has designated in writing to the Administrative Agent an Affiliate of such Lender as a “Lender” for purposes of Foreign Currency Revolving Credit Loans, which is, or such Affiliate is, beneficially entitled to interest payable to that Lender or such Affiliate, as the case may be, in respect of a loan made under this Agreement to a Borrower incorporated in the United Kingdom and which Lender or Affiliate is either:

(i) a Lender or an Affiliate of a Lender that is designated in writing by such Lender to the Administrative Agent as a “Lender” for purposes of Foreign Currency Revolving Credit Loans:
	(A)	which is a bank (as defined for the purposes of Section 349 of the UK Income and Corporation Taxes Act 1988) making an advance under this Agreement; or
	(B)	in respect of an advance made under this Agreement by a person that was a bank (as defined for the purposes of Section 349 of the UK Income and Corporation Taxes Act 1988) at the time that the advance was made; or

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	(C)	which is resident in the United Kingdom;
	and in either case is within the charge to UK corporation tax as respects any payment of interest made in respect of that advance; or
(ii) a Lender or an Affiliate of a Lender that is designated in writing by such Lender to the Administrative Agent as a “Lender” for purposes of Foreign Currency Revolving Credit Loans which is treated as resident (for the purposes of the relevant double taxation agreement) in a jurisdiction having a double taxation agreement with the United Kingdom which makes provision for full exemption from Tax imposed by the United Kingdom on interest and does not carry on business in the United Kingdom through a permanent establishment with which that Lender’s participation in that loan is effectively connected (a “Treaty Lender”).

                    3.02 Illegality. If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Eurocurrency Rate Loans, or to determine or charge interest rates based upon the Eurocurrency Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars, Euros or Pounds in the London interbank market, then, on notice thereof by such Lender to the Borrowers through the Administrative Agent, any obligation of such Lender to make or continue Eurocurrency Rate Loans or to convert Base Rate Loans to Eurocurrency Rate Loans, shall be suspended until such Lender notifies the Administrative Agent and the Borrowers that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrowers shall, upon demand from such Lender (with a copy to the Administrative Agent), (a) with respect to Loans denominated in Dollars prepay or, if applicable, convert all Eurocurrency Rate Loans of such Lender to Base Rate Loans, and (b) with respect to Loans denominated in Euros or Pounds, exchange all such Loans into the Equivalent thereof in Dollars and convert such Loans to Base Rate Loans, in each case either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurocurrency Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurocurrency Rate Loans. Upon any such prepayment or conversion, the Borrowers shall also pay accrued interest on the amount so prepaid or converted.

                    3.03 Inability to Determine Rates. If the Required Lenders determine that for any reason in connection with any request for a Eurocurrency Rate Loan or a conversion to or continuation thereof that (a) Dollar, Pound or Euro deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount and Interest Period of such Eurocurrency Rate Loan, (b) adequate and reasonable means do not exist for determining the Eurocurrency Rate for any requested Interest Period with respect to a proposed Eurocurrency Rate Loan, or (c) the Eurocurrency Rate for any requested Interest Period with respect to a proposed Eurocurrency Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Borrowers and each Lender. Thereafter, the obligation of the Lenders to make or maintain Eurocurrency Rate Loans shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, the Borrowers may revoke any pending request for a Borrowing of, conversion to or continuation of Eurocurrency Rate Loans or, failing

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that (x) in the case of requests for Borrowings denominated in Dollars, will be deemed to have converted such request into a request for a Committed Borrowing of Base Rate Loans in the amount specified therein and (y) in the case of requests for Borrowings of Loans denominated in Pounds or Euros, will be deemed to have revoked such request.

                    3.04 Increased Costs. (a) Increased Costs Generally. If any Change in Law shall:

          (i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except (A) any reserve requirement reflected in the Eurocurrency Rate and (B) the requirements of the Bank of England and the Financial Services Authority or the European Central Bank reflected in the Mandatory Cost, other than as set forth below) or the L/C Issuer;

          (ii) subject any Lender or the L/C Issuer to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any participation in a Letter of Credit or any Eurocurreny Rate Loan made by it, or change the basis of taxation of payments to such Lender or the L/C Issuer in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 3.01 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender or the L/C Issuer);

          (iii) shall cause the Mandatory Cost, as calculated hereunder, not to represent the cost to any Lender of complying with the requirements of the Bank of England and/or the Financial Services Authority or the European Central Bank in relation to its making, funding or maintaining Eurocurrency Rate Loans; or

          (iv) impose on any Lender or the L/C Issuer or the London interbank market any other condition, cost or expense affecting this Agreement or Eurocurrency Rate Loans made by such Lender or any Letter of Credit or participation therein;

and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurocurrency Rate Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or the L/C Issuer of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or the L/C Issuer hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or the L/C Issuer, the Borrowers will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer, as the case may be, for such additional costs incurred or reduction suffered.

                    (b) Capital Requirements. If any Lender or the L/C Issuer determines that any Change in Law affecting such Lender or the L/C Issuer or any Lending Office of such Lender or such Lender’s or the L/C Issuer’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s or the L/C Issuer’s capital or on the capital of such Lender’s or the L/C Issuer’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in

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Letters of Credit held by, such Lender, or the Letters of Credit issued by the L/C Issuer, to a level below that which such Lender or the L/C Issuer or such Lender’s or the L/C Issuer’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or the L/C Issuer’s policies and the policies of such Lender’s or the L/C Issuer’s holding company with respect to capital adequacy), then from time to time the Borrowers will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer or such Lender’s or the L/C Issuer’s holding company for any such reduction suffered.

                    (c) Certificates for Reimbursement. A certificate of a Lender or the L/C Issuer setting forth the amount or amounts necessary to compensate such Lender or the L/C Issuer or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section and delivered to the Borrowers shall be conclusive absent manifest error. The Borrowers shall pay such Lender or the L/C Issuer, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof.

                    (d) Delay in Requests. Failure or delay on the part of any Lender or the L/C Issuer to demand compensation pursuant to the foregoing provisions of this Section shall not constitute a waiver of such Lender’s or the L/C Issuer’s right to demand such compensation, provided that the Borrowers shall not be required to compensate a Lender or the L/C Issuer pursuant to the foregoing provisions of this Section for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender or the L/C Issuer, as the case may be, notifies the Borrowers of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or the L/C Issuer’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).

                    3.05 Compensation for Losses. Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrowers shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:

          (a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);

          (b) any failure by the Borrowers (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by any Borrower;

          (c) any failure by any Borrower to make payment of any Loan or drawing under any Letter of Credit (or interest due thereon) denominated in a Foreign Currency on its scheduled due date or any payment thereof in a different currency; or

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          (d) any assignment of a Eurocurrency Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by any Borrower pursuant to Section 10.13;

including any loss of anticipated profits, any foreign exchange losses and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan, from fees payable to terminate the deposits from which such funds were obtained or from the performance of any foreign exchange contract. The Borrowers shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.

For purposes of calculating amounts payable by the Borrowers to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Eurocurrency Rate Loan made by it at the Eurocurrency Base Rate used in determining the Eurocurrency Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for such currency for a comparable amount and for a comparable period, whether or not such Eurocurrency Rate Loan was in fact so funded.

                    3.06 Mitigation Obligations; Replacement of Lenders. (a) Designation of a Different Lending Office. If any Lender requests compensation under Section 3.04, or the Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, then such Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04, as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrowers hereby agree to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

                    (b) Replacement of Lenders. If any Lender requests compensation under Section 3.04, or if the Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, the Borrowers may replace such Lender in accordance with Section 10.13.

                    3.07 Survival. All of the Borrowers’ obligations under this Article III shall survive termination of the Aggregate Commitments and repayment of all other Obligations hereunder.

ARTICLE IV
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS

                    4.01 Conditions of Initial Credit Extension. The obligation of the L/C Issuer and each Lender to make its initial Credit Extension under the Original Credit Agreement was subject to satisfaction of the following conditions precedent:

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(a) The Administrative Agent’s receipt of the following, each of which shall be originals or telecopies (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to the Administrative Agent and each of the Lenders:
	(i) executed counterparts of this Agreement, the Domestic Guaranty, sufficient in number for distribution to the Administrative Agent, each Lender and Holdings;
	(ii) a Note executed by each Borrower in favor of each Lender requesting a Note;
	(iii) a security agreement, in substantially the form of Exhibit F (together with each other security agreement and security agreement supplement delivered pursuant to Section 6.12, in each case as amended, the “Security Agreement”), duly executed by each U.S. Loan Party, together with:
		(A) certificates representing the Pledged Equity referred to therein accompanied by undated stock powers executed in blank and instruments evidencing the Pledged Debt indorsed in blank,
		(B) proper Financing Statements in form appropriate for filing under the Uniform Commercial Code of all jurisdictions that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created under the Security Agreement, covering the Collateral described in the Security Agreement,
		(C) completed requests for information, dated on or before the date of the initial Credit Extension, listing all effective financing statements filed in the jurisdictions referred to in clause (B) above that name any Loan Party as debtor, together with copies of such other financing statements,
		(D) evidence of the completion of all other actions, recordings and filings of or with respect to the Security Agreement that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created thereby, and
		(E) evidence that all other action that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created under the Security Agreement has been taken (including receipt of duly executed payoff letters and UCC-3 termination statements);
	(iv) an intellectual property security agreement, in substantially the form of Exhibit G (together with each other intellectual property security agreement and intellectual property security agreement supplement delivered

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pursuant to Section 6.12, in each case as amended, the “Intellectual Property Security Agreement”), duly executed by each U.S. Loan Party, together with evidence that all action that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created under the Intellectual Property Security Agreement has been taken;

          (v) (A) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each U.S. Loan Party as the Administrative Agent may require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party or is to be a party and (B) a copy of a certificate of the appropriate Governmental Authority of the jurisdiction of incorporation of each U.S. Loan Party certifying (1) as to a true or correct and up to date copy of the Organization Documents of such Loan Party and each amendment thereto on file in the office of such Governmental Authority and (2) that such amendments are the only amendments to such Loan Party’s Organization Documents on file in such office;

          (vi) such documents and certifications as the Administrative Agent may reasonably require to evidence that each U.S. Loan Party is duly organized or formed, and that each U.S. Loan Party is validly existing, in good standing and qualified to engage in business in the jurisdiction of its organization;

          (vii) a favorable opinion of Weil, Gotshal & Manges LLP, counsel to the Loan Parties, addressed to the Administrative Agent and each Lender, as to the matters set forth in Exhibit H-1 and such other matters concerning the Loan Parties and the Loan Documents as the Required Lenders may reasonably request;

          (viii) a favorable opinion of local counsel to the Loan Parties in Michigan and Nevada, in each case addressed to the Administrative Agent and each Lender, as to the matters set forth in Exhibit H-2 and such other matters concerning the Loan Parties and the Loan Documents as the Required Lenders may reasonably request;

          (ix) a certificate of a Responsible Officer of each U.S. Loan Party either (A) attaching copies of all consents, licenses and approvals required in connection with the execution, delivery and performance by such Loan Party and the validity against such Loan Party of the Loan Documents to which it is a party, and such consents, licenses and approvals shall be in full force and effect, or (B) stating that no such consents, licenses or approvals are so required;

          (x) a certificate signed by a Responsible Officer of Holdings certifying (A) that the conditions specified in Sections 4.03(a) and (b) have been satisfied, and (B) that there has been no event or circumstance since the date of the Audited Financial Statements that has had or could be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect;

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	(xi) certificates attesting to the Solvency of each Loan Party and of Holdings and its Subsidiaries, taken as a whole, before and after giving effect to the Transaction, from the chief financial officer of Holdings;
	(xii) evidence that all insurance required to be maintained pursuant to the Loan Documents has been obtained and is in effect, together with the certificates of insurance, naming the Administrative Agent, on behalf of the Lenders, as an additional insured or loss payee, as the case may be, under all insurance policies maintained with respect to the assets and properties of the Loan Parties that constitute Collateral;
	(xiii) certified copies of each of the Related Documents, duly executed by the parties thereto and in form and substance satisfactory to the Lenders, together with all agreements, instruments and other documents delivered in connection therewith as the Administrative Agent shall request;
	(xiv) a Borrowing Base Certificate duly certified by a Responsible Officer of Holdings relating to the initial Credit Extension (calculated solely in respect of clause (b) of the definition of “Borrowing Base” as of the end of July 2005, with such adjustments as have been approved by the Arrangers, in their sole discretion);
	(xv) a duly completed Compliance Certificate as of the last day of the fiscal quarter of Holdings ended June 30, 2005, signed by a Responsible Officer of Holdings;
	(xvi) evidence that the Existing Credit Agreement has been, or concurrently with the Closing Date is being, terminated and all Liens securing obligations under the Existing Credit Agreement have been, or concurrently with the Closing Date are being, released;
	(xvii) unaudited consolidated and consolidating balance sheets of Holdings and its Subsidiaries dated June 30, 2005 for the fiscal quarter ended on that date and pro forma consolidated financial statements as to Holdings and its Subsidiaries, in each case in form satisfactory to the Lenders; and
	(xxi) such other assurances, certificates, documents, consents or opinions as the Administrative Agent, the L/C Issuer, the Swing Line Lender or any Lender reasonably may require.
(b) All fees required to be paid to the Administrative Agent, the Arrangers and the Lenders on or before the Closing Date shall have been paid.
(c) Unless waived by the Administrative Agent, the Borrowers shall have paid all fees, charges and disbursements of counsel to the Administrative Agent to the extent invoiced prior to or on the Closing Date, plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings

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(provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrowers and the Administrative Agent).

          (d) The Transaction Agreement shall be in full force and effect.

          (e) The Recapitalization shall have been consummated in accordance with the terms of the Transaction Agreement, without any waiver or amendment adverse to the Lenders not consented to by the Lenders of any material term, provision or condition set forth therein, and in compliance with all applicable requirements of Law.

          (f) After giving effect to the Transaction, including all Credit Extensions made in connection therewith, the amount by which (A) the lesser of (i) the Facility and (ii) the Borrowing Base exceeds (B) the sum of (i) the Outstanding Amount of Revolving Credit Loans and Swing Line Loans and (ii) the Outstanding Amount of L/C Obligations, shall be no less than $25 million.

Without limiting the generality of the provisions of Section 9.04, for purposes of determining compliance with the conditions specified in this Section 4.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.

                    4.02 Conditions to Initial Credit Extension to U.K. Borrower. The obligation of each Lender to make its initial Credit Extension to a U.K. Borrower is subject to the Administrative Agent’s receipt from each U.K. Loan Party of the following, each in form and substance satisfactory to the Administrative Agent and each of the Lenders:

                    (a) the U.K. Collateral Documents duly executed by each U.K. Loan Party, together with:

          (i) all share certificates (including the Equity Interests of each First-Tier Foreign CFC Subsidiary that is a U.K. Subsidiary) and stock transfer forms executed in blank and any other documents of title to be provided under the U.K. Collateral Documents;

          (ii) signed notices in respect of the charges over insurances and intra-group loans to be provided under the U.K. Collateral Documents; and

          (iii) all third party consents required in connection with the creation or registration of any security interest contained in the U.K. Collateral Documents; including releases for the U.K. Loan Parties if registers show charges are outstanding plus a section 403 certificate (release of security) and the return of title deeds and share certificates;

          (b) the U.K. Guaranty duly executed by each U.K. Guarantor;

          (c) a directors’ certificate signed by two authorized directors certifying:

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          (i) that attached thereto is a true, complete and up-to-date copy of (A) its certificate of incorporation, (B) all certificates of incorporation on any change of its name, and (C) its constitutional documents consisting of its memorandum of association and articles of association;

          (ii) that attached thereto is a true and complete extract from the minutes of a meeting of its board of directors duly convened and held (during which a quorum was present throughout) recording resolutions passed at such meeting (which resolutions are in full force and effect and have not been rescinded or varied) and which approve its entering into the Loan Documents to which it is a party;

          (iii) that attached thereto is a true and complete copy of a resolution of its shareholder(s) unanimously passed authorizing and directing the performance by it of the Loan Documents to which it is a party;

          (iv) the specimen signature of each director or officer authorized to execute the Loan Documents to which it is a party on its behalf;

          (v) that neither the borrowings nor the grant of the guaranty and security will breach any borrowing, guaranty, security or other limit binding on it;

                    (d) a copy of its constitutional documents including its certificate of incorporation, any certificate of incorporation on a change of its name and its memorandum of association and articles of association;

                    (e) a copy of a resolution of its board of directors (A) approving the terms of and the transactions contemplated by the Loan Documents to which it is a party and resolving that it execute those documents, (B) authorizing a specified person or persons to execute the Loan Documents to which it is a party on its behalf, and (C) authorizing a specified person or persons on its behalf to sign and/or dispatch all other documents and notices (including, if it is a Borrower, any Credit Extension) to be signed and/or dispatched by it under or in connection with the Loan Documents;

                    (f) a specimen signature of each person authorized by the resolution referred to in paragraph (d) above;

                    (g) a copy of a resolution signed by all the holders of its issued shares approving the terms of, and the transactions contemplated by, the Loan Documents and any related document to which it will be a party;

                    (h) a search at the Companies Registry or other applicable commercial register showing, to the extent a search showing such information is available, inter alia, no Lien over any of its assets (other than as permitted under the terms of this Agreement) and no appointment of a receiver, liquidator or administrator or the presentation of any petition or application in respect of the same (or equivalent);

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                    (i) official priority searches relating to properties charged under the U.K. Collateral Documents in favor of the Collateral Agent in respect of any registered and unregistered titles giving a sufficient period of priority and showing that no adverse entry exists;

                    (j) a supplement to Schedule 5.12(b) that sets forth a complete and accurate list of all Liens on the property or assets of each U.K. Loan Party and each U.K. Subsidiary, showing as of the date of such supplement the lienholder thereof, the principal amount of the obligations secured thereby and the property or assets of such Loan Party or such Subsidiary subject thereto.

                    (k) a favorable opinion of U.K. counsel to the Loan Parties addressed to the Administrative Agent and each Lender, as to such matters concerning the U.K. Loan Parties and the U.K. Collateral Documents that the Administrative Agent and the Required Lenders may reasonably request;

                    (l) the appointment of a U.S. process agent for each U.K. Loan Party in respect of each U.S. Law governed Loan Document to which a U.K. Loan Party is a party; and

                    (m) such other assurances, certificates, documents, consents or opinions as the Administrative Agent or any Lender may reasonably request.

                    4.03 Conditions to all Credit Extensions. The obligation of each Lender to honor any Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Loans denominated in Dollars to the other Type, or a continuation of Eurocurrency Rate Loans) is subject to the following conditions precedent:

          (a) The representations and warranties of the Borrowers and each other Loan Party contained in Article V or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct in all material respects on and as of the date of such Credit Extension, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date, and except that for purposes of this Section 4.03, the representations and warranties contained in Sections 5.03(a) and (b) shall be deemed to refer to the most recent statements furnished pursuant to Sections 6.01(a) and (b), respectively.

          (b) No Default shall exist, or would result from such proposed Credit Extension or from the application of the proceeds thereof.

          (c) The Administrative Agent and, if applicable, the L/C Issuer or the Swing Line Lender shall have received a Request for Credit Extension in accordance with the requirements hereof.

          (d) The Administrative Agent shall have received such other approvals, opinions or documents as any Lender through the Administrative Agent may reasonably request.

          (e) the Borrowing Base exceeds the Outstanding Amount of the sum of the U.S. Revolving Credit Loans, the Foreign Currency Revolving Credit Loans, the Swing Line Loans and the L/C Obligations at such time, after giving effect to such Credit Extension.

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                    Each Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Loans denominated in Dollars to the other Type or a continuation of Eurocurrency Rate Loans) submitted by a Borrower shall be deemed to be a representation and warranty that the conditions specified in Sections 4.03(a) and (b) have been satisfied on and as of the date of the applicable Credit Extension.

ARTICLE V
REPRESENTATIONS AND WARRANTIES

                    Each Borrower represents and warrants to the Administrative Agent and the Lenders that:

                    5.01 Corporate Existence and Good Standing. Each Loan Party and each of its Subsidiaries: (a) is a corporation, partnership or other entity duly organized or formed, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) has all requisite corporate or other power and authority and has all material governmental licenses, authorizations, consents and approvals, necessary to own or lease its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify or to be in good standing could reasonably be expected to (either individually or in the aggregate) result in a Material Adverse Effect.

                    5.02 Corporate Power, Authorization and Compliance with the Law. (a) The execution, delivery and performance by each Loan Party of each Loan Document and Related Documents to which they are or are to be party are within their respective corporate powers, have been duly authorized by all necessary corporate action and will not violate any provision of law of or their articles of incorporation, by-laws or memoranda or articles of association, or result in the breach of or constitute a default under or require any consent under any indenture or other material agreement or instrument to which such Person is a party or by which such Person or any Subsidiary or their respective properties may be bound or affected, or cause any of its properties to become subject to any Lien; this Agreement has been, and each other Loan Document, when delivered hereunder, will have been duly executed and delivered by each Loan Party that is party thereto; this Agreement and each other Loan Document constitutes the legal, valid and binding obligation of each Loan Party party thereto enforceable against such Person in accordance with its terms.

                    (b) The conduct by Holdings and its Subsidiaries of their respective businesses as they are presently operated does not violate any material provision of law or material rule or regulation of any Governmental Authority in a manner which, when taken together with all other such violations, could reasonably be expected to result in a Material Adverse Effect; and Holdings and its Subsidiaries have obtained all material consents and approvals of Governmental Authorities required to conduct their respective businesses as they are presently operated, except to the extent that failure to obtain any such consents or approvals could not reasonably be expected to result in a Material Adverse Effect.

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                    (c) No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with (a) the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document or Related Document, or for the consummation of the Transaction, (b) the grant by any Loan Party of the Liens granted by it pursuant to the Collateral Documents, (c) except as specifically contemplated herein or by the Collateral Documents, the perfection or maintenance of the Liens created under the Collateral Documents (including the first priority nature thereof) or (d) the exercise by the Administrative Agent or any Lender of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents. All applicable waiting periods in connection with the Transaction have expired without any action having been taken by any Governmental Authority restraining, preventing or imposing materially adverse conditions upon the Transaction or the rights of the Loan Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them. The Recapitalization has been, or concurrently with the Closing Date is being, consummated in accordance with the Transaction Agreement.

                    5.03 Financial Statements; No Material Adverse Effect; No Internal Control Event. (a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present the financial condition of Holdings and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) show all material indebtedness and other liabilities, direct or contingent, of Holdings and its Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.

                    (b) The unaudited consolidated and consolidating balance sheets of Holdings and its Subsidiaries dated June 30, 2005, and the related consolidated and consolidating statements of income or operations and consolidated shareholders’ equity and cash flows for the fiscal quarter ended on that date (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present the financial condition of Holdings and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to normal year-end audit adjustments. Schedule 5.03 sets forth all material indebtedness of Holdings and its consolidated Subsidiaries as of the date of such financial statements.

                    (c) Since the date of the Audited Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect. Since the date of the Audited Financial Statements, no Internal Control Event has occurred.

                    (d) The consolidated pro forma balance sheets of Holdings and its Subsidiaries as at June 30, 2005, certified by a Responsible Officer of Holdings, copies of which have been furnished to each Lender, fairly present the consolidated pro forma financial condition of Holdings and its Subsidiaries as at such date and the consolidated pro forma results of operations

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of Holdings and its Subsidiaries for the period ended on such date, in each case giving effect to the Transaction, all in accordance with GAAP.

                    (e) The consolidated forecasted balance sheets, statements of income and cash flows of Holdings and its Subsidiaries delivered pursuant to Section 4.01 or Section 6.01 were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in light of the conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Holdings’ best estimate of its future financial performance.

                    5.04 ERISA Compliance. (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or state Laws. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the best knowledge of the Borrowers, nothing has occurred which would prevent, or cause the loss of, such qualification. Each of the Borrowers and each ERISA Affiliate have made all required contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.

                    (b) There are no pending or, to the best knowledge of the Borrowers, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.

                    (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) none of the Borrowers and none of the ERISA Affiliates has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) none of the Borrowers and none of the ERISA Affiliates has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) none of the Borrowers and none of the ERISA Affiliates has engaged in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA.

                    (d) With respect to each scheme or arrangement mandated by a government other than the United States (a “Foreign Government Scheme or Arrangement”) and with respect to each employee benefit plan maintained or contributed to by any Loan Party or any Subsidiary of any Loan Party that is not subject to United States law (a “Foreign Plan”):

          (i) any employer and employee contributions required by law or by the terms of any Foreign Government Scheme or Arrangement or any Foreign Plan have been made, or, if applicable, accrued, in accordance with normal accounting practices;

          (ii) the fair market value of the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance or the book

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reserve established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations, as of the date hereof, with respect to all current and former participants in such Foreign Plan according to the actuarial assumptions and valuations most recently used to account for such obligations in accordance with applicable generally accepted accounting principles; and

          (iii) each Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities.

                    5.05 Pensions. In the case of the U.K. Loan Parties, the pension schemes are funded to the extent required by law or otherwise to comply with the requirements of any material law applicable in the jurisdiction in which the relevant pension’s charge is maintained, in each case where failure to do so would have a Material Adverse Effect.

                    5.06 Environmental Matters. The Borrowers are aware of no events, conditions or circumstances involving environmental pollution or contamination or employee health or safety that could reasonably be expected to result in a Material Adverse Change.

                    5.07 Litigation. There are no suits, investigations or proceedings pending or, to the best of its knowledge, threatened against or affecting Holdings or the Subsidiaries which call into question the validity of, or purport to affect, this Agreement, any other Loan Document, any Related Document or the consummation of the Transaction or could reasonably be expected to result in a Material Adverse Effect.

                    5.08 Taxes. Holdings and its Subsidiaries have filed all Federal and other material tax returns required to be filed and paid all Federal and other material taxes, assessments and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, including interest and penalties, except for taxes which are being contested in good faith and by applicable proceedings, and for which Holdings and its Subsidiaries have made adequate reserves on the books of Holdings and its Subsidiaries. There is no proposed tax assessment against any Borrower or any Subsidiary that would, if made, have a Material Adverse Effect. Neither any Loan Party nor any Subsidiary thereof is party to any tax sharing agreement.

                    5.09 Investment Company Act. Neither Holdings nor any Subsidiary (a) is or is required to be registered as an “investment company,” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended or (b) is a “holding company,” or a “subsidiary company” of a “holding company” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company” within the meaning of the Public Utility Holding Company Act of 1935.

                    5.10 No Material Misstatements. No information, report, financial statement, exhibit or schedule furnished by or on behalf of any Borrower to the Administrative Agent or any Lender in connection with this Agreement or included herein or delivered pursuant hereto (including, without limitation, the Information Memorandum (upon completion)) contained or contains any material misstatement of fact or omitted or omits any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, or

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are made, not misleading. The Borrowers have disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or others restrictions to which it or they or any of their Subsidiaries are subject, and all other matters known to them, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.

                    5.11 Federal Reserve Regulations. (a) Neither Holdings nor any of its Subsidiaries is engaged principally, or as one if its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB).

                    (b) No part of the proceeds of any Loan will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, (i) to purchase or carry margin stock, or (ii) for any purpose which entails a violation of the provisions of the Regulations of the Board, including Regulation U or X.

                    5.12 Ownership of Property; Liens; Investments. (a) Each Loan Party and each of its Subsidiaries has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

                    (b) Schedule 5.12(b) sets forth a complete and accurate list of all Liens on the property or assets of each Loan Party and each of its Subsidiaries (other than the U.K. Loan Parties and the U.K. Subsidiaries), showing as of the date hereof the lienholder thereof, the principal amount of the obligations secured thereby and the property or assets of such Loan Party or such Subsidiary subject thereto. Upon delivery of the supplement to Schedule 5.12(b) pursuant to Section 4.02, such supplement to Schedule 5.12(b) sets forth a complete and accurate list of all Liens on the property or assets of each U.K. Loan Party and each U.K. Subsidiary, showing as of the date of such supplement the lienholder thereof, the principal amount of the obligations secured thereby and the property or assets of such Loan Party or such Subsidiary subject thereto. The property of each Loan Party and each of its Subsidiaries (other than the U.K. Loan Parties and the U.K. Subsidiaries) is subject to no Liens, other than Liens set forth on such supplement to Schedule 5.12(b), and as otherwise permitted by Section 7.01. Upon delivery of the supplement to Schedule 5.12(b) pursuant to Section 4.02, the property of each U.K. Loan Party and each U.K. Subsidiary is subject to no Liens, other than Liens set forth on such supplement to Schedule 5.12(b), and as otherwise permitted by Section 7.01.

                    (c) Schedule 5.12(c) sets forth a complete and accurate list of all Investments held by any Loan Party or any Subsidiary of a Loan Party on the date hereof, showing as of the date hereof the amount, obligor or issuer and maturity, if any, thereof.

                    5.13 No Default. None of the Loan Parties nor any Subsidiary is in default under or with respect to, or a party to, any Contractual Obligation that could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.

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                    5.14 Insurance. The properties of the Borrowers and their Subsidiaries are insured with financially sound and reputable insurance companies, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the applicable Borrower or the applicable Subsidiary operates.

                    5.15 Subsidiaries; Equity Interests; Loan Parties. As of the Closing Date, no Loan Party has any Subsidiaries other than those specifically disclosed in Part (a) of Schedule 5.15, and all of the outstanding Equity Interests in such Subsidiaries have been validly issued, are fully paid and non-assessable and are owned by a Loan Party in the amounts specified on Part (a) of Schedule 5.15 free and clear of all Liens except those created under the Collateral Documents. No Loan Party has any equity investments in any other corporation or entity other than those specifically disclosed in Part (b) of Schedule 5.15. Set forth on Part (c) of Schedule 5.15 is a complete and accurate list of all Loan Parties, showing as of the Closing Date (as to each Loan Party) the jurisdiction of its organization, the address of its principal place of business and its U.S. taxpayer identification number or, in the case of a U.K. Loan Party, its registered number at Companies House or, in the case of any non-U.S. Loan Party that does not have a U.S. taxpayer identification number, its unique identification number issued to it by the jurisdiction of its incorporation. The copy of the Organization Documents of each Loan Party and each amendment thereto provided pursuant to Section 4.01(a)(v) is a true and correct copy of each such document, each of which is valid and in full force and effect.

                    5.16 Compliance with Laws. Each Loan Party and each of its Subsidiaries is in compliance in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

                    5.17 Intellectual Property; Licenses, Etc. Each Loan Party and each of its Subsidiaries own, or possess the right to use, all of the trademarks, service marks, trade names, copyrights, patents, patent rights, franchises, licenses and other intellectual property rights (collectively, “IP Rights”) that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person, and Schedule 5.17 sets forth a complete and accurate list of all such IP Rights owned or used by each Loan Party and each of its Subsidiaries. To the best knowledge of Holdings, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by any Loan Party or any of its Subsidiaries infringes upon any rights held by any other Person. No claim or litigation regarding any of the foregoing is pending or, to the best knowledge of the Borrowers, threatened, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

                    5.18 Solvency. Each Loan Party is, individually and together with its Subsidiaries, Solvent. In the case of any Loan Party incorporated under the laws of England and Wales, no administrator, receiver, liquidator or similar officer has been appointed with respect to it or any of its Subsidiaries or any of its respective assets nor (so far it is aware) is any petition or

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proceedings or application for any such appointment pending nor has any resolution for such appointment been passed or notice of intention to make such appointment been delivered.

                    5.19 Casualty, Etc. Neither the businesses nor the properties of any Loan Party or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

                    5.20 Exempt Subsidiaries. The Exempt Subsidiaries shall not have assets in an amount in excess of 10% of the consolidated assets of Holdings and its Subsidiaries as of the last day of the most recently completed fiscal quarter for which the Lenders have received financial statements of Holdings and its Subsidiaries pursuant to Section 6.01(a) or 6.01(b).

                    5.21 Immaterial Subsidiaries. Each Immaterial Subsidiary (i) owns assets having a book value of which the Dollar Equivalent is less than $100,000 and (ii) had earnings during the most recently ended fiscal year of which the Dollar Equivalent was less than $100,000.

                    5.22 Asset Value. The U.S. Loan Parties and the U.K Loan Parties shall have assets having a book value in an amount equal to at least 70% of the consolidated assets of Holdings and its Subsidiaries as of the last day of the most recently completed fiscal quarter for which the Lenders have received financial statements of Holdings and its Subsidiaries pursuant to Section 6.01(a) or 6.01(b).

ARTICLE VI
AFFIRMATIVE COVENANTS

                    So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, each Borrower shall, and shall (except in the case of the covenants set forth in Sections 6.01, 6.02, 6.03 and 6.11) cause each Subsidiary to:

                    6.01 Financial Statements. Deliver to the Administrative Agent on behalf of each Lender (and, with respect to paragraph (c) below, in form and detail satisfactory to the Administrative Agent):

          (a) as soon as available, but in any event within 90 days after the end of each fiscal year of Holdings, a consolidated and consolidating balance sheet of Holdings and its Subsidiaries as at the end of such fiscal year, and the related consolidated and consolidating statements of income or operations and consolidated shareholders’ equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, such consolidated statements to be audited and accompanied by (i) a report and opinion of a Registered Public Accounting Firm of nationally recognized standing reasonably acceptable to the Required Lenders, which report and opinion shall be prepared in accordance with generally accepted auditing standards and applicable Securities Laws and shall not be subject to any “going concern” or like qualification or

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exception or any qualification or exception as to the scope of such audit and (ii) an attestation report of such Registered Public Accounting Firm as to Holdings’ internal controls pursuant to Section 404 of Sarbanes-Oxley expressing an adverse conclusion to which the Required Lenders do not reasonably object, and such consolidating statements to be certified by a Responsible Officer of Holdings to the effect that such statements are fairly stated in all material respects when considered in relation to the consolidated financial statements of Holdings and its Subsidiaries;

          (b) as soon as available, but in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of Holdings (commencing with the fiscal quarter ended September 30, 2005), a consolidated and consolidating balance sheet of Holdings and its Subsidiaries as at the end of such fiscal quarter, and the related consolidated and consolidating statements of income or operations and consolidated shareholders’ equity and cash flows for such fiscal quarter and for the portion of Holdings’ fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail, such consolidated statements to be certified by a Responsible Officer of Holdings as fairly presenting the financial condition, results of operations, shareholders’ equity and cash flows of Holdings and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes and such consolidating statements to be certified by a Responsible Officer of Holdings to the effect that such statements are fairly stated in all material respects when considered in relation to the consolidated financial statements of Holdings and its Subsidiaries; and

          (c) as soon as available, but in any event at least 30 days after the end of each fiscal year of Holdings, forecasts prepared by management of Holdings, in form satisfactory to the Administrative Agent and the Required Lenders, of consolidated balance sheets and statements of income or operations and cash flows of Holdings and its Subsidiaries on a quarterly basis for the immediately following fiscal year.

As to any information contained in materials furnished pursuant to Section 6.02(d), the Borrowers shall not be separately required to furnish such information under Sections 6.01(a) or (b) above, but the foregoing shall not be in derogation of the obligation of the Borrowers to furnish the information and materials described in Sections 6.01(a) and (b) above at the times specified therein.

                    6.02 Certificates; Other Information. Deliver to the Administrative Agent on behalf of each Lender, in form and detail satisfactory to the Administrative Agent and the Required Lenders:

          (a) concurrently with the delivery of the financial statements referred to in Section 6.01(a), a certificate of its independent certified public accountants certifying such financial statements and stating that in making the examination necessary therefore no knowledge was obtained of any Default under the financial covenants set forth herein or, if any such Default shall exist, stating the nature and status of such event;

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          (b) concurrently with the delivery of the financial statements referred to in Sections 6.01(a) and (b), (i) a duly completed Compliance Certificate signed by a Responsible Officer of Holdings and (ii) a copy of management’s discussion and analysis with respect to such financial statements;

          (c) promptly after any request by the Administrative Agent or any Lender, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of any Loan Party by independent accountants in connection with the accounts or books of any Loan Party or any of its Subsidiaries, or any audit of any of them, except to the extent such accountants shall restrict the ability of Holdings to deliver such documents to the Administrative Agent or such Lender, as the case may be;

          (d) copies of all annual, regular, periodic and special reports and registration statements which Holdings may file or be required to file with the SEC under Section 13 or 15(d) of the Securities Exchange Act of 1934, or with any national securities exchange, and in any case not otherwise required to be delivered to the Administrative Agent pursuant hereto;

          (e) as soon as available, but in any event within 30 days after the end of each fiscal year of Holdings, a report summarizing the material insurance coverage (specifying type, amount and carrier) in effect for each Loan Party and its Subsidiaries;

          (f) promptly, and in any event within five Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of each notice or other correspondence received from the SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation or possible investigation or other inquiry by such agency regarding financial or other operational results of any Loan Party or any Subsidiary thereof;

          (g) as soon as available, but in any event within 15 days (or if the 15^th day of such month is not a Business Day, the next succeeding Businesses Day) after the end of each (i) month (if there are Revolving Loans outstanding) or (ii) fiscal quarter (if there are no Revolving Loans outstanding), a Borrowing Base Certificate, as at the end of such month or fiscal quarter, duly certified by a Responsible Officer of Holdings;

          (h) promptly, such additional information regarding the business, financial, legal or corporate affairs of any Loan Party or any Subsidiary thereof, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may from time to time reasonably request;

          (i) in the case of a U.K. Loan Party, promptly notify the Administrative Agent of any change of name, change of office address or change its center of main interests; and

          (j) in addition to the requirements of Section 10.18, in the case of any Loan Party, promptly after any request by the Administrative Agent or the Lender, supply or procure the supply of such documentation in order for the Administrative Agent, such

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Lender or any prospective lender to carry out and be satisfied with the results of any necessary “know your customer checks” or other checks in relation to any person that it is required by directive or law in relation to the transactions contemplated by the Agreement.

                    Documents required to be delivered pursuant to Section 6.01(a) or (b) or Section 6.02(d) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrowers post such documents, or provides a link thereto on the Company’s website on the Internet at the website address listed on Schedule 10.02; or (ii) on which such documents are posted on the Borrowers’ behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that the Borrowers shall notify the Administrative Agent and each Lender (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Borrowers shall be required to provide paper copies of the Compliance Certificates required by Section 6.02(b) to the Administrative Agent. Except for such Compliance Certificates, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrowers with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.

                    The Borrowers hereby acknowledges that (a) the Administrative Agent and/or the Arrangers will make available to the Lenders and the L/C Issuer materials and/or information provided by or on behalf of the Borrowers hereunder (collectively, “Borrower Materials”) by posting the Borrower Materials on IntraLinks or another similar electronic system (the “Platform”) and (b) certain of the Lenders may be “public-side” Lenders (i.e., Lenders that do not wish to receive material non-public information with respect to Holdings or its securities) (each, a “Public Lender”). Each of the Borrowers hereby agrees that it will use commercially reasonable efforts to identify that portion of the Borrower Materials that may be distributed to the Public Lenders and that (w) all such Borrower Materials shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof; (x) by marking Borrower Materials “PUBLIC,” the Borrowers shall be deemed to have authorized the Administrative Agent, the Arrangers, the L/C Issuer and the Lenders to treat such Borrower Materials as either publicly available information or not material information (although it may be sensitive and proprietary) with respect to Holdings or its securities for purposes of United States Federal and state securities laws; (y) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Investor;” and (z) the Administrative Agent and the Arrangers shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Investor.”

          6.03 Notices. Promptly notify the Administrative Agent and each Lender:

          (a) of the occurrence of any Event of Default;

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          (b) of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of any Loan Party or any Subsidiary thereof; (ii) any dispute, litigation, investigation, proceeding or suspension between any Loan Party or any Subsidiary thereof and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting any Loan Party or any Subsidiary thereof;

          (c) of the occurrence of any ERISA Event;

          (d) of any material change in accounting policies or financial reporting practices by any Loan Party or any Subsidiary thereof;

          (e) of the occurrence of any Internal Control Event; and

          (f) of the (i) occurrence of any Disposition of property or assets for which a Borrower is required to make a mandatory prepayment pursuant to Section 2.05(b)(ii), (ii) occurrence of any sale of capital stock or other Equity Interests for which a Borrower is required to make a mandatory prepayment pursuant to Section 2.05(b)(iii), (iii) incurrence or issuance of any Indebtedness for which a Borrower is required to make a mandatory prepayment pursuant to Section 2.05(b)(v), (iv) receipt of any Extraordinary Receipt for which a Borrower is required to make a mandatory prepayment pursuant to Section 2.05(b)(vi) and (v) effectiveness of any merger of Holdings pursuant to Section 7.04(f).

                    Each notice pursuant to Section 6.03(a), (b), (c) or (d) shall be accompanied by a statement of a Responsible Officer of the applicable Borrower setting forth details of the occurrence referred to therein and stating what action such Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.

                    6.04 Payment of Obligations. Pay and discharge or cause to be paid and discharged promptly when due, all its obligations and liabilities, including (a) all material and lawful taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become in default, as well as all material and lawful claims which, if unpaid, might become a lien or charge upon such properties or any part thereof; provided, however, that neither Holdings nor any of the Subsidiaries shall be required to pay and discharge or to cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as the validity, applicability or amount thereof shall be contested in good faith by applicable proceedings and Holdings or such Subsidiary, as the case may be, shall have set aside on its books reserves reasonably deemed adequate by it with respect thereto, (b) all unlawful claims which, if unpaid, would by law become a Lien upon its property and (c) all Indebtedness as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness.

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                    6.05 Maintain Property and Insurance. (a) Maintain and preserve all material properties which are used in the conduct of the business of Holdings and its Subsidiaries in good working order and condition, ordinary wear and tear excepted, and (b) maintain in respect of the assets of Holdings and its Subsidiaries, insurance in such amounts and against such risks as is generally maintained by companies operating similar businesses in the same general area. All insurance policies hereunder shall be maintained with sound and reputable insurance carriers of recognized standing.

                    6.06 Maintain Existence. Preserve, maintain or renew (a) the legal existence and good standing of Holdings and its Subsidiaries except in a transaction permitted by Section 7.04 or 7.05, (b) all the material rights, privileges and franchises necessary and desirable in the normal conduct of the business of Holdings and its Subsidiaries, except to the extent failure to do so could not reasonably be expected to have a Material Adverse Effect and (c) all of its registered patents, trademarks, tradenames and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect.

                    6.07 Compliance with Laws. Comply with the requirements of all applicable laws (including ERISA), regulations and orders of any Governmental Authority, a violation of which would materially affect the business or financial condition of Holdings and its Subsidiaries taken as a whole, except any such law, regulation or order which is being contested by Holdings or any Subsidiary in good faith by applicable proceedings.

                    6.08 Inspection. Give, upon the request of any Lender upon reasonable advance notice, any representative of such Lender access during normal business hours to inspect, and permit such representative to inspect, all properties belonging to it and permit such representative to examine, copy and make extracts from, corporate, financial and operating records relating to its affairs, at the expense of the Borrowers and as such representative may reasonably require.

                    6.09 Eligible Loans. Cause each Subsidiary, in connection with each Eligible Loan made or to be made by it, to apply credit standards and loan to collateral value requirements, and to follow practices with respect to documentation and the perfection of security interests, not less strict than those generally applied and followed in the Subsidiaries’ art lending business prior to the Closing Date.

                    6.10 Books and Records. Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of such Borrower or such Subsidiary, as the case may be.

                    6.11 Use of Proceeds. Use the proceeds of the Credit Extensions for general corporate purposes not in contravention of any Law or of any Loan Document.

                    6.12 Covenant to Guarantee Obligations and Give Security. (a) Upon the formation or acquisition of any new direct or indirect Subsidiary (other than any CFC or a Subsidiary that is held directly or indirectly by a CFC) by any U.S. Loan Party, then such Loan Party shall, at its expense:

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	(i) within 10 days after such formation or acquisition, cause such Subsidiary, and cause each direct and indirect parent of such Subsidiary (if it has not already done so), to duly execute and deliver to the Administrative Agent a Domestic Guaranty or supplement to the Domestic Guaranty, in form and substance satisfactory to the Administrative Agent, guaranteeing the other Loan Parties’ obligations under the Loan Documents,
	(ii) within 15 days after such formation or acquisition, cause such Subsidiary and each direct and indirect parent of such Subsidiary (if it has not already done so) to duly execute and deliver to the Administrative Agent, Security Agreement Supplements, IP Security Agreement Supplements and other security and pledge agreements, as specified by and in form and substance satisfactory to the Administrative Agent (including delivery of all pledged Equity Interests in and of such Subsidiary, and other instruments of the type specified in Section 4.01(a)(iii)), securing payment of all the Obligations of such Subsidiary or such parent, as the case may be, under the Loan Documents and constituting Liens on all such personal properties,
	(iii) within 30 days after such formation or acquisition, cause such Subsidiary and each direct and indirect parent of such Subsidiary (if it has not already done so) to take whatever action (including the filing of Uniform Commercial Code financing statements and the giving of notices) may be necessary or advisable in the opinion of the Administrative Agent to vest in the Administrative Agent (or in any representative of the Administrative Agent designated by it) valid and subsisting Liens on the properties purported to be subject to the Security Agreement Supplements, IP Security Agreement Supplements and security and pledge agreements delivered pursuant to this Section 6.12(a), enforceable against all third parties in accordance with their terms, and
	(iv) within 60 days after such formation or acquisition, deliver to the Administrative Agent, upon the request of the Administrative Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Administrative Agent and the other Secured Parties, of counsel for the U.S. Loan Parties acceptable to the Administrative Agent as to the matters contained in clauses (i), (iii) and (iv) above, and as to such other matters as the Administrative Agent may reasonably request.
(b) Upon the formation or acquisition of any new direct or indirect U.K. Subsidiary by any U.K. Loan Party, then such Loan Party shall, at its expense:
	(i) within 10 days after such formation or acquisition, cause such Subsidiary, and cause each direct and indirect parent of such Subsidiary which is also a U.K. Subsidiary (if it has not already done so), to duly execute and deliver to the Administrative Agent a U.K. Guaranty or supplement to the U.K. Guaranty, in form and substance satisfactory to the Administrative Agent, guaranteeing the other U.K. Loan Parties’ obligations under the Loan Documents,
	(ii) within 15 days after such formation or acquisition, cause such Subsidiary and each direct and indirect parent of such Subsidiary which is also a U.K. Subsidiary (if it has not already done so) to duly execute and deliver to the Administrative Agent,

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	supplements to any U.K. Collateral Documents and other security and pledge agreements, as specified by and in form and substance satisfactory to the Administrative Agent (including delivery of all pledged Equity Interests in and of such Subsidiary, and other instruments of the type specified in Section 4.02(a)), securing payment of all the Obligations of the U.K. Loan Parties under the Loan Documents and constituting Liens on all such personal properties,
	(iii) within 30 days after such formation or acquisition (or such earlier period as may be required by law), cause such Subsidiary and each direct and indirect parent of such Subsidiary which is also a U.K. Subsidiary (if it has not already done so) to take whatever action (including the giving of notices) may be necessary or advisable in the opinion of the Administrative Agent to vest in the Administrative Agent (or in any representative of the Administrative Agent designated by it) valid and subsisting Liens on the properties purported to be subject to any such supplements to any U.K. Collateral Documents and security and pledge agreements delivered pursuant to this Section 6.12(b), enforceable against all third parties in accordance with their terms, and
	(iv) within 60 days after such formation or acquisition, deliver to the Administrative Agent, upon the request of the Administrative Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Administrative Agent and the other Secured Parties, of counsel for the U.K. Loan Parties acceptable to the Administrative Agent as to the matters contained in clauses (i), (iii) and (iv) above, and as to such other matters as the Administrative Agent may reasonably request.
(c) Upon the acquisition of any material property (other than real property) by any Loan Party, if such property, in the reasonable judgment of Holdings, shall not already be subject to a perfected first priority security interest in favor of the Administrative Agent for the benefit of the Secured Parties, then the Borrowers shall, at the Borrowers’ expense:
	(i) within 10 days after such acquisition, furnish to the Administrative Agent a description of the property so acquired in detail satisfactory to the Administrative Agent,
	(ii) within 15 days after such acquisition, cause the applicable Loan Party to duly execute and deliver to the Administrative Agent Security Agreement Supplements, IP Security Agreement Supplements, supplements to any U.K. Collateral Documents and other security and pledge agreements, as specified by and in form and substance satisfactory to the Administrative Agent, securing payment of all the Obligations of the applicable Loan Party under the Loan Documents and constituting Liens on all such properties,
	(iii) within 30 days after such acquisition, cause the applicable Loan Party to take whatever action (including the filing of Uniform Commercial Code financing statements and the giving of notices, but excluding taking possession) may be necessary or advisable in the opinion of the Administrative Agent to vest in the Administrative Agent (or in any representative of the Administrative Agent designated by it) valid and subsisting Liens on such property, enforceable against all third parties, and

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	(iv) within 60 days after such acquisition, deliver to the Administrative Agent, upon the request of the Administrative Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Administrative Agent and the other Secured Parties, of counsel for the applicable Loan Parties acceptable to the Administrative Agent as to the matters contained in clauses (ii) and (iii) above and as to such other matters as the Administrative Agent may reasonably request.
(d) Upon the request of the Administrative Agent following the occurrence and during the continuance of an Event of Default, the Borrowers shall, at the Borrowers’ expense:
	(i) within 30 days after such request, furnish to the Administrative Agent a description of the real and personal properties of the Loan Parties and their respective Subsidiaries in detail satisfactory to the Administrative Agent,
	(ii) within 60 days after such request, duly execute and deliver, and cause each Subsidiary (other than any CFC or a Subsidiary that is held directly or indirectly by a CFC) of a Borrower (if it has not already done so) to duly execute and deliver, to the Administrative Agent deeds of trust, trust deeds, mortgages, leasehold mortgages, leasehold deeds of trust, Security Agreement Supplements, IP Security Agreement Supplements and other security and pledge agreements, as specified by and in form and substance satisfactory to the Administrative Agent (including delivery of all Pledged Equity and Pledged Debt in and of such Subsidiary, and other instruments of the type specified in Section 4.01(a)(iii)), securing payment of all the Obligations of such Subsidiary under the Loan Documents and constituting Liens on all such properties,
	(iii) within 75 days after such request, take, and cause each Subsidiary (other than any CFC or a Subsidiary that is held directly or indirectly by a CFC) of a Borrower to take, whatever action (including the recording of mortgages, the filing of Uniform Commercial Code financing statements, the giving of notices and the endorsement of notices on title documents) may be necessary or advisable in the opinion of the Administrative Agent to vest in the Administrative Agent (or in any representative of the Administrative Agent designated by it) valid and subsisting Liens on the properties purported to be subject to the deeds of trust, trust deeds, mortgages, leasehold mortgages, leasehold deeds of trust, Security Agreement Supplements, IP Security Agreement Supplements and security and pledge agreements delivered pursuant to this Section 6.12, enforceable against all third parties in accordance with their terms,
	(iv) within 90 days after such request, deliver to the Administrative Agent, upon the request of the Administrative Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Administrative Agent and the other Secured Parties, of counsel for the Loan Parties acceptable to the Administrative Agent as to the matters contained in clauses (ii) and (iii) above, and as to such other matters as the Administrative Agent may reasonably request, and
	(v) as promptly as practicable after such request, deliver, upon the request of the Administrative Agent in its sole discretion, to the Administrative Agent with respect to each parcel of real property owned or held by the Borrowers and their Subsidiaries,

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title reports, surveys and engineering, soils and other reports, and environmental assessment reports, each in scope, form and substance satisfactory to the Administrative Agent, provided, however, that to the extent that any Loan Party or any of its Subsidiaries shall have otherwise received any of the foregoing items with respect to such real property, such items shall, promptly after the receipt thereof, be delivered to the Administrative Agent.

                    (e) If at any time the representation and warranty set forth in Section 5.20 shall be incorrect, within 30 days after the date thereof, the Borrowers shall enter into Local Law Collateral Documents with respect to the Equity Interests of one or more First Tier Foreign CFC Subsidiaries so that after delivery of such Local Law Collateral Documents, such representation and warranty shall be true and correct (it being understood and agreed that no Local Law Collateral Documents shall be required in respect of Sotheby’s Hong Kong Ltd. or any of its Subsidiaries).

                    (f) At any time upon request of the Administrative Agent, promptly execute and deliver any and all further instruments and documents and take all such other action as the Administrative Agent may deem necessary or desirable in obtaining the full benefits of, or (as applicable) in perfecting and preserving the Liens of, such guaranties, Security Agreement Supplements, IP Security Agreement Supplements and other security and pledge agreements.

                    6.13 Further Assurances. Promptly upon request by the Administrative Agent, or any Lender through the Administrative Agent, (a) correct any material defect or error that may be discovered in any Loan Document or in the execution, acknowledgment, filing or recordation thereof, and (b) do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, certificates, assurances and other instruments as the Administrative Agent, or any Lender through the Administrative Agent, may reasonably require from time to time in order to (i) carry out more effectively the purposes of the Loan Documents, (ii) to the fullest extent permitted by applicable law, subject any Loan Party’s or any of its Subsidiaries’ properties, assets, rights or interests to the Liens now or hereafter intended to be covered by any of the Collateral Documents, (iii) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and any of the Liens intended to be created thereunder and (iv) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Secured Parties the rights granted or now or hereafter intended to be granted to the Secured Parties under any Loan Document or under any other instrument executed in connection with any Loan Document to which any Loan Party or any of its Subsidiaries is or is to be a party, and cause each of its Subsidiaries to do so.

                    6.14 Post-Closing Obligations.

          (a) On or prior to the 90th day following the Closing Date (or such date 30 days later as may be agreed to by the Administrative Agent in its sole discretion), deliver to the Administrative Agent a duly executed master subordination agreement (the “Master Subordination Agreement”) entered into by Holdings and each of its wholly owned Subsidiaries whereby each such Subsidiary that is not a Loan Party subordinates, upon terms and conditions acceptable to the Administrative Agent, all intercompany obligations owed to such Subsidiary by a Loan Party to the payment of the Obligations.

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          (b) On or prior to the 30^th day following the Closing Date, deliver to the Administrative Agent U.K. Collateral Documents executed by each U.K. Loan Party and in respect of the Equity Interests of each First-Tier Foreign CFC Subsidiary that is a U.K. Subsidiary, each properly executed by a Responsible Officer of the signing Loan Party and each in form and substance satisfactory to the Administrative Agent, together with all deliveries, filings, registrations and other actions required to be made or taken pursuant thereto and with a favorable opinion of U.K. counsel to the Loan Parties addressed to the Administrative Agent and each Lender, as to such matters concerning the U.K. Loan Parties and the U.K. Collateral Documents that the Administrative Agent and the Required Lenders may reasonably request.

          (c) Upon the reasonable request of the Administrative Agent, and at the expense of the Loan Parties, within 20 days after such request, furnish to the Administrative Agent proper termination statements on Form UCC-3 covering such financing statements as the Administrative Agent may reasonably request.

ARTICLE VII
NEGATIVE COVENANTS

                    So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, each Borrower shall not, nor shall it permit any Subsidiary to, directly or indirectly, and solely in the case of Section 7.18 SPTC Delaware shall not, nor shall Holdings permit SPTC Delaware to:

                    7.01 Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, or sign or file or suffer to exist under the Uniform Commercial Code of any jurisdiction a financing statement that names any Borrower or any of their Subsidiaries as debtor, or assign any accounts or other right to receive income, other than the following:

          (a) Liens incurred or pledges and deposits made in connection with workmen’s compensation, unemployment insurance, old-age pensions, social security and public liability and similar legislation;

          (b) Liens securing the performance of bids, tenders, leases, contracts (other than for the repayment of borrowed money), statutory obligations, surety and appeal bonds and other obligations of like nature, incurred incident to and in the ordinary course of business;

          (c) statutory Liens of landlords and other Liens imposed by law, such as carriers’, warehousemen’s, mechanics’, materialmen’s and vendors’ Liens, incurred in good faith in the ordinary course of business, including but not limited to those relating to the construction of the York Avenue Property;

          (d) Liens securing the payment of taxes, assessments and governmental charges or levies, either (i) not delinquent or (ii) being contested in good faith by appropriate proceedings with adequate reserves;

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	(e) zoning restrictions, easements, licenses, reservations, restrictions on the use of real property or minor irregularities incident thereto which do not in the aggregate materially detract from the value of the property or assets of Holdings and its Subsidiaries taken as a whole or materially impair the operation of the business of Holdings and its Subsidiaries taken as a whole;
	(f) Liens incurred in the ordinary course of business provided that these liens are not given as security for Indebtedness;
	(g) Liens on property or assets of any Subsidiary securing Indebtedness of such Subsidiary to Holdings or to a Loan Party;
	(h) Liens for judgments or awards, so long as the finality of such judgment or award is being contested in good faith and execution thereof is stayed; provided that the aggregate amount of Liens permitted by this clause may not exceed the Threshold Amount;
	(i) any Lien existing on any property or assets of any corporation at the time it becomes a Subsidiary of Holdings, or existing prior to the time of acquisition upon any property or assets acquired by Holdings or any of its Subsidiaries through purchase, merger or consolidation or otherwise, whether or not assumed by Holdings or such Subsidiary; provided that such Liens were not created in contemplation of such acquisition, purchase, merger, consolidation or investment and do not extend to any assets other than those of the Person merged into or consolidated with Holdings or such Subsidiary or organized, purchased or invested in by Holdings or such Subsidiary;
	(j) any Lien placed upon property or assets within 90 days of the time of acquisition of such property or assets by Holdings or any of its Subsidiaries to secure all or a portion of (or to secure Indebtedness incurred to pay all or a portion of) the purchase price thereof; provided that any such Lien shall not encumber any other property or assets of Holdings or any Subsidiary;
	(k) Liens, other than the liens permitted by clauses (a) through (j) above (including any such Liens in existence as of the date hereof), existing as of the date hereof and set forth on Schedule 5.12(b); provided, however, that no such Lien shall be permitted under this clause (k) if it extends to property other than the property subject to such Lien on the date hereof;
	(l) any Lien renewing, extending or refunding any Lien permitted by clause (i), (j) or (k) above, provided that (i) the principal amount secured is not increased, and the Lien is not extended to other property and (ii) any renewal, extension or refunding of the obligations secured or benefited thereby is permitted by this Agreement; and
	(m) Liens created under the Loan Documents;
provided, that notwithstanding anything proved for in this Section 7.01, (x) Liens on assets and property of Sotheby’s Hong Kong Ltd. and its Subsidiaries securing Indebtedness at any one time outstanding shall not exceed $8,000,000 and (y) Liens on assets and property of Exempt

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Subsidiaries securing Indebtedness at any one time outstanding shall not exceed $5,000,000, provided that no such Lien shall extend to or cover any Collateral.
7.02 Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except:
	(a) obligations (contingent or otherwise) existing or arising under any Swap Contract, provided that (i) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments, investments, assets, or property held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person, and not for purposes of speculation or taking a “market view;” and (ii) such Swap Contract does not contain any provision exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party;
	(b) Indebtedness evidenced by the Senior Notes;
	(c) Indebtedness of any Subsidiary the proceeds of which are used by such Subsidiary to make secured loans to consignors, dealers or clients in the ordinary course of business of the Borrowers and their Subsidiaries and in a manner that is consistent with established practices pursuant to the auction finance business of the Borrowers and their Subsidiaries;
	(d) Indebtedness of any Subsidiary or available to any Subsidiary, not in excess of $20,000,000 in the aggregate with respect to all Subsidiaries;
	(e) Indebtedness of a Subsidiary of any Borrower owed to such Borrower or a wholly owned Subsidiary of such Borrower, which Indebtedness shall (i) in the case of Indebtedness owed to a Loan Party, constitute “Pledged Debt” under the Security Agreement, (ii) in the case of Indebtedness owed by a Loan Party, be subject to the provisions of the Master Subordination Agreement and (iii) be otherwise permitted under the provisions of Section 7.03;
	(f) Indebtedness under the Loan Documents;
	(g) Indebtedness outstanding on the date hereof and listed on Schedule 7.02 and any refinancings, refundings, renewals or extensions thereof; provided that the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder and the direct or any contingent obligor with respect thereto is not changed, as a result of or in connection with such refinancing, refunding, renewal or extension; and provided still further that the terms relating to principal amount, amortization, maturity, collateral (if any) and subordination (if any), and other material terms taken as a whole, of any such refinancing, refunding, renewing or extending Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Loan Parties or the Lenders than the terms of any agreement

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	or instrument governing the Indebtedness being refinanced, refunded, renewed or extended and the interest rate applicable to any such refinancing, refunding, renewing or extending Indebtedness does not exceed the then applicable market interest rate;
	(h) Guarantees of any Borrower or any Guarantor in respect of Indebtedness otherwise permitted hereunder of such Borrower or any other Guarantor;
	(i) Indebtedness in respect of Capitalized Leases, Synthetic Lease Obligations and purchase money obligations for fixed or capital assets within the limitations set forth in Section 7.01(j); provided, however, that the aggregate amount of all such Indebtedness at any one time outstanding shall not exceed $5,000,000;
	(j) unsecured Indebtedness in an aggregate principal amount not to exceed 10% of Consolidated Net Worth at any time outstanding; and
	(k) Indebtedness in respect of letters of credit in an aggregate amount at any one time outstanding not to exceed $10,000,000;
; provided, that notwithstanding anything provided for in this Section 7.02, (x) Indebtedness of Sotheby’s Hong Kong Ltd. and its Subsidiaries at any one time outstanding shall not exceed $8,000,000 and (y) Indebtedness of Exempt Subsidiaries at any one time outstanding shall not exceed $5,00,000.
	7.03 Investments. Make or hold any Investments, except:
	(a) Investments held by the Borrowers and their Subsidiaries in the form of Cash Equivalents;
	(b) advances to officers, directors and employees of the Borrowers and Subsidiaries in an aggregate amount not to exceed $2,000,000 at any time outstanding, for travel, entertainment, relocation and analogous ordinary business purposes;
	(c) (i) Investments by the Borrowers and their Subsidiaries in their respective Subsidiaries outstanding on the date hereof, (ii) additional Investments by the Borrowers and their Subsidiaries in Loan Parties, (iii) additional Investments by Subsidiaries of the Borrowers that are not Loan Parties in other Subsidiaries that are not Loan Parties and (iv) so long as no Default has occurred and is continuing or would result from such Investment, additional Investments by the Loan Parties in Subsidiaries that are not Loan Parties (other than any Immaterial Subsidiary) in an aggregate amount invested from the date hereof not to exceed $20,000,000;
	(d) Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;
	(e) Guarantees permitted by Section 7.02;

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	(f) Investments existing on the date hereof (other than those referred to in Section 7.03(c)) and set forth on Schedule 5.12(c);
	(g) Investments by any Borrower in Swap Contracts permitted under Section 7.02(a);
	(h) Investments consisting of Eligible Loans; and
	(i) other Investments not exceeding $15,000,000 in the aggregate in any fiscal year of Holdings (other than in any Immaterial Subsidiary).
7.04 Fundamental Changes. Merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except that, so long as no Default exists or would result therefrom:
	(a) any Subsidiary may merge with (i) any Borrower, provided that such Borrower shall be the continuing or surviving Person, or (ii) any one or more other Subsidiaries, provided that (x) when any U.S. Loan Party (other than Holdings) is merging with another Subsidiary, such Loan Party shall be the continuing or surviving Person and (y) when any U.K. Loan Party is merging with another Subsidiary, such U.K. Loan Party shall be the continuing or surviving Person and such merger could not reasonably be expected to have a Material Adverse Effect;
	(b) (x) any U.S. Loan Party may Dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to any U.S. Borrower or to another U.S. Loan Party and (y) any U.K. Loan Party may Dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to any U.K. Borrower or to another U.K. Loan Party;
	(c) any Subsidiary that is not a Loan Party may dispose of all or substantially all its assets to a Loan Party or another Subsidiary that is not a Loan Party;
	(d) in connection with any acquisition permitted under Section 7.03, any Subsidiary of a Borrower may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; provided that the Person surviving such merger shall be a wholly owned Subsidiary of a Borrower;
	(e) each Borrower and any of its Subsidiaries may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; provided, however, that in each case, immediately after giving effect thereto (i) in the case of any such merger to which a Borrower is a party, such Borrower is the surviving corporation (ii) in the case of any such merger to which any U.S. Loan Party (other than a U.S. Borrower) is a party, such U.S. Loan Party is the surviving corporation and (iii) in the case of any such merger in which any U.K. Loan Party (other than a U.K. Borrower) is a party, such U.K. Loan Party is the surviving corporation; and

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	(f) Holdings may merge with any Subsidiary or any other Person in order to reincorporate under the laws of Delaware; provided, that the surviving corporation assumes all of the obligations of Holdings under this Agreement and under each of the other Loan Documents to which Holdings is a party.
7.05 Dispositions. Make any Disposition or enter into any agreement to make any Disposition, except:
	(a) Dispositions of obsolete or worn out property, whether now owned or hereafter acquired, in the ordinary course of business;
	(b) Dispositions in the ordinary course of business;
	(c) Dispositions of equipment or real property to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property or (ii) the proceeds of such Disposition are reasonably promptly applied to the purchase price of such replacement property;
	(d) Dispositions of property by any Subsidiary to any Borrower or to a wholly owned Subsidiary; provided that if the transferor of such property is a Guarantor, the transferee thereof must either be a Borrower or a Guarantor;
	(e) Dispositions permitted by Section 7.04;
	(f) Dispositions by the Borrowers and their Subsidiaries not otherwise permitted under this Section 7.05; provided that (i) at the time of such Disposition, no Default shall exist or would result from such Disposition, (ii) the aggregate book value of all property Disposed of in reliance on this clause (f) in any fiscal year shall not exceed $15,000,000, (iii) except for up to $2,500,000 in the aggregate in any fiscal year, the purchase price for such asset shall be paid to such Borrower or such Subsidiary solely in cash, and (iv) any Disposition pursuant to this Section 7.05(f) shall be for fair market value; and
	(g) Dispositions set forth on Schedule 7.05.
7.06 Restricted Payments. Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, or issue or sell any Equity Interests or accept any capital contributions, except that, so long as no Default shall have occurred and be continuing at the time of any action described below or would result therefrom:
	(a) each Subsidiary may make Restricted Payments to Holdings, any Subsidiaries of Holdings that are Borrowers or Guarantors and any other Person that owns a direct Equity Interest in such Subsidiary, ratably according to their respective holdings of the type of Equity Interest in respect of which such Restricted Payment is being made;
	(b) each Borrower and each Subsidiary may declare and make dividend payments or other distributions payable solely in the common stock or other common Equity Interests of such Person;

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          (c) each Borrower and each Subsidiary may purchase, redeem or otherwise acquire its common Equity Interests with the proceeds received from the substantially concurrent issue of new common Equity Interests;

          (d) Holdings may (i) declare or pay cash dividends to its stockholders and (ii) purchase, redeem or otherwise acquire shares of its capital stock or warrants, rights or options to acquire any such shares solely out of 40% of net income of Holdings and its Subsidiaries arising after June 30, 2005 and computed on a cumulative consolidated basis; and

          (e) Holdings may consummate the Recapitalization.

                    7.07 Change in Nature of Business. Engage in any material line of business substantially different from those lines of business conducted by Holdings and its Subsidiaries on the date hereof or any business substantially related or incidental thereto.

                    7.08 Transactions with Affiliates. Enter into any transaction of any kind with any Affiliate of Holdings, whether or not in the ordinary course of business, other than on fair and reasonable terms substantially as favorable to such Borrower or such Subsidiary as would be obtainable by such Borrower or such Subsidiary at the time in a comparable arm’s length transaction with a Person other than an Affiliate; provided that the foregoing restriction shall not apply to transactions between or among the Loan Parties otherwise permitted hereunder.

                    7.09 Burdensome Agreements. Enter into or permit to exist any Contractual Obligation (other than this Agreement or any other Loan Document) that (a) limits the ability (i) of any Subsidiary to make Restricted Payments to any Borrower or any Guarantor or to otherwise transfer property to or invest in any Borrower or any Guarantor, except for any agreement in effect (A) on the date hereof and set forth on Schedule 7.09 or (B) at the time any Subsidiary becomes a Subsidiary of a Borrower, so long as such agreement was not entered into solely in contemplation of such Person becoming a Subsidiary of such Borrower, (ii) of any Subsidiary to Guarantee the Indebtedness of the Borrowers or (iii) of any Borrower or any Subsidiary to create, incur, assume or suffer to exist Liens on property of such Person; provided, however, that this clause (iii) shall not prohibit any negative pledge incurred or provided in favor of any holder of Indebtedness permitted under Section 7.02(i) solely to the extent any such negative pledge relates to the property financed by or the subject of such Indebtedness; or (b) requires the grant of a Lien to secure an obligation of such Person if a Lien is granted to secure another obligation of such Person, except as set forth in the Senior Notes Indenture or any refinancing thereof.

                    7.10 Use of Proceeds. Use the proceeds of any Credit Extension, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB).

                    7.11 Financial Covenants. (a) Consolidated Interest Coverage Ratio. Permit the Consolidated Interest Coverage Ratio as of the end of any fiscal quarter of Holdings to be less than 2.0:1.0:

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                    (b) Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio at any time during any period of four fiscal quarters of Holdings set forth below to be greater than the ratio set forth below opposite such period:

Four Fiscal Quarter Periods Ending	Maximum Consolidated Leverage Ratio
September 30, 2005 through September 30, 2006	4.0:1.0
December 31, 2006 through September 30, 2007	3.5:1.0
December 31, 2007 and each fiscal quarter thereafter	3.0:1.0

                    7.12 Capital Expenditures. Make or become legally obligated to make any Capital Expenditure exceeding, in the aggregate for Holdings and its Subsidiaries during each fiscal year set forth below, the amount set forth opposite such fiscal year:

Fiscal Year	Amount
2005	$15,000,000
2006	$15,000,000
2007	$15,000,000
2008	$20,000,000
2009	$20,000,000
2010	$20,000,000

; provided, however, that so long as no Default has occurred and is continuing or would result from such expenditure, (a) any portion of any amount set forth above, if not expended in the fiscal year for which it is permitted above, may be carried over for expenditure in the next following fiscal year and (b) up to an additional $10,000,000 in the aggregate may be used by the Borrowers to purchase and refurbish real property located in England.

                    7.13 Amendments of Organization Documents. Amend any of its Organization Documents in a manner adverse to Holdings and its Subsidiaries, the Administrative Agent or the Lenders.

                    7.14 Accounting Changes. Make any change in (a) accounting policies or reporting practices, except as required by GAAP, or (b) fiscal year.

                    7.15 Prepayments, Etc. of Indebtedness. Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, the Senior Notes, other than (i) repurchases in an aggregate amount not to exceed $20,000,000 and (ii) any refinancing, refunding, renewal or extension in accordance with Section 7.02(g).

                    7.16 Amendment, Etc. of the Senior Notes. Amend, modify or change in any manner any term or condition of the Senior Notes, except for any refinancing, refunding, renewal or extension thereof permitted by Section 7.02(g).

                    7.17 Partnerships, Etc. Become a general partner in any general or limited partnership or joint venture, except that any Subsidiary the sole assets of which consist of its interest in a partnership or joint venture may become a general partner in such partnership or joint venture.

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                    7.18 SPTC Delaware. Permit SPTC Delaware to enter into a Guarantee (other than a Guarantee of the Obligations of the Loan Parties) or create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, or sign or file or suffer to exist under the Uniform Commercial Code of any jurisdiction a financing statement that names SPTC Delaware as debtor, or assign any accounts or other rights to receive income, except as contemplated by Section 6.12(d).

                    7.19 York Capital Lease. Change or amend any document related to the York Capital Lease in a manner adverse to the interests of the Administrative Agent and the Lenders in any material respect.

ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES

                    8.01 Events of Default. Any of the following shall constitute an Event of Default:

         (a) Non-Payment. Any Borrower or any other Loan Party fails to (i) pay when and as required to be paid herein, any amount of principal of any Loan or any L/C Obligation or deposit any funds as Cash Collateral in respect of L/C Obligations, or (ii) pay within three days after the same becomes due, any interest on any Loan or on any L/C Obligation, or any fee due hereunder, or (iii) pay within five days after the same becomes due, any other amount payable hereunder or under any other Loan Document; or

         (b) Specific Covenants. Any Loan Party fails to perform or observe any term, covenant or agreement contained in any of Section 6.01, 6.02, 6.03, 6.06, 6.08, 6.12, or Article VII; or

         (c) Other Defaults. Any Loan Party fails to perform or observe any other covenant or agreement (not specified in Section 8.01(a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for 30 days; or

         (d) Representations and Warranties. Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of any Borrower or any other Loan Party herein, in any other Loan Document, or in any document delivered in connection herewith or therewith shall be incorrect or misleading when made or deemed made; or

          (e) Cross-Default. (i) Any Loan Party or any Subsidiary thereof (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness under Swap Contracts) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than the Threshold Amount, or (B) fails to observe or perform any

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other agreement or condition relating to any such Indebtedness or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to which a Loan Party or any Subsidiary thereof is the Defaulting Party (as defined in such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to which a Loan Party or any Subsidiary thereof is an Affected Party (as so defined) and, in either event, the Swap Termination Value owed by such Loan Party or such Subsidiary as a result thereof is greater than the Threshold Amount; or

         (f) Insolvency Proceedings, Etc. (i) Any Loan Party or any Subsidiary thereof institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for 60 calendar days, or an order for relief is entered in any such proceeding or (ii) in the case of any U.K. Loan Party or any of its Subsidiaries, any corporate action, legal proceedings or other procedure or step is taken in relation to:

1.	the suspension of payments, a moratorium of any indebtedness, winding up, dissolution, administration or reorganization (by way of voluntary arrangement, scheme of arrangement or otherwise) of any such Person other than a solvent liquidation or reorganization permitted under this Agreement which is not in respect of a Borrower;
2.	a composition, compromise, assignment or arrangement with any creditor of any such Person;
3.	the appointment of a liquidator (other than in respect of a solvent liquidation of any such Person permitted under this Agreement which is not in respect of a Borrower) receiver, administrative receiver, administrator, compulsory manager or other similar officer in respect of any such Person or any of its assets or the passing of a resolutions for filing of a petition or application for

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	such appointment or the delivery of a notice of intention to make such an appointment;
4.	enforcement of any Lien over any assets of any such Person; or
5.	any winding up petition presented by a creditor (other than a petition which is frivolous or vexatious and is contested in good faith and with diligence and is discharged, stayed or dismissed within 60 days of commencement or, if earlier, the date on which it is advertised); or

          (g) Inability to Pay Debts; Attachment. (i) Any Loan Party or any Subsidiary thereof admits in writing its inability to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within 30 days after its issue or levy or (iii) or in the case of any U.K. Loan Party, is deemed unable to pay its debts within the meaning of section 123(1) of the Insolvency Act 1986; or

          (h) Judgments. There is entered against any Loan Party or any Subsidiary thereof (i) a final judgment or order for the payment of money in an aggregate amount exceeding the Threshold Amount (to the extent not covered by independent third-party insurance as to which the insurer is rated at least “A” by A.M. Best Company, has been notified of the potential claim and does not dispute coverage), or (ii) any one or more non-monetary final judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of 30 consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or

          (i) ERISA. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of Holdings under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC or similar liabilities of any Loan Party under a Foreign Plan, in each case in an aggregate amount in excess of the Threshold Amount, or (ii) a Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan, or a similar event occurs with respect to any Foreign Plan or the U.K. Pensions Regulators (being the body corporate established as such under Part 1 of the Pensions Act 2004) issues a financial support direction under section 43 of the Pensions Act 2004 or a contribution notice under section 38 or 47 of the Pensions Act 2004 to Holdings or any of its Subsidiaries, in each case in or in respect of an aggregate amount in excess of the Threshold Amount; or

          (j) Invalidity of Loan Documents. Any provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party or any other Person contests in any manner the

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	validity or enforceability of any provision of any Loan Document; or any Loan Party denies that it has any or further liability or obligation under any provision of any Loan Document, or purports to revoke, terminate or rescind any provision of any Loan Document; or
	(k) Change of Control. There occurs any Change of Control; or
	(l) Collateral Documents. Any Collateral Document after delivery thereof pursuant to Section 4.01 or 6.12 shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority Lien (subject to Liens permitted by Section 7.01) on the Collateral purported to be covered thereby.
8.02 Remedies upon Event of Default. If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, take any or all of the following actions:

          (a) declare the commitment of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions to be terminated, whereupon such commitments and obligation shall be terminated;

          (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrowers;

           (c) require that the Borrowers Cash Collateralize the L/C Obligations (in an amount equal to the then Outstanding Amount thereof); and

          (d) exercise on behalf of itself, the Lenders and the L/C Issuer all rights and remedies available to it and the Lenders under the Loan Documents;

provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to any U.S. Borrower under the Bankruptcy Code of the United States or under any Debtor Relief Law with respect to any other Borrower, the obligation of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Borrowers to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of the Administrative Agent or any Lender.

                    8.03 Application of Funds. After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable and the L/C Obligations have automatically been required to be Cash Collateralized as set forth in the proviso to Section 8.02), any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:

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          First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;

          Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal, interest and Letter of Credit Fees) payable to the Lenders and the L/C Issuer (including fees, charges and disbursements of counsel to the respective Lenders and the L/C Issuer and amounts payable under Article III, ratably among them in proportion to the respective amounts described in this clause Second payable to them;

          Third, to payment of that portion of the Obligations constituting accrued and unpaid Letter of Credit Fees and interest on the Loans, L/C Borrowings and other Obligations, ratably among the Lenders and the L/C Issuer in proportion to the respective amounts described in this clause Third payable to them;

          Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans, L/C Borrowings and amounts owing under Secured Hedge Agreements and Secured Cash Management Agreements, ratably among the Lenders, the L/C Issuer, the Hedge Banks and the Cash Management Banks in proportion to the respective amounts described in this clause Fourth held by them;

          Fifth, to the Administrative Agent for the account of the L/C Issuer, to Cash Collateralize that portion of L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit; and

          Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrowers or as otherwise required by Law.

Subject to Section 2.03(c), amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fifth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.

ARTICLE IX
ADMINISTRATIVE AGENT

                    9.01 Appointment and Authority. (a) Each of the Lenders and the L/C Issuer hereby irrevocably appoints Bank of America to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders and the L/C Issuer, and the Borrowers shall not have rights as a third party beneficiary of any of such provisions.

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                    (b) The Administrative Agent shall also act as the “collateral agent” under the Loan Documents, and each of the Lenders (in its capacities as a Lender, Swing Line Lender (if applicable), potential Hedge Bank and potential Cash Management Banks) and the L/C Issuer hereby irrevocably appoints and authorizes the Administrative Agent to act as the agent and trustee of such Lender and the L/C Issuer for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Obligations, together with such powers and discretion as are reasonably incidental thereto. In this connection, the Administrative Agent, as “collateral agent” and any co-agents, sub-agents and attorneys-in-fact appointed by the Administrative Agent pursuant to Section 9.05 for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Collateral Documents, or for exercising any rights and remedies thereunder at the direction of the Administrative Agent), shall be entitled to the benefits of all provisions of this Article IX and Article X (including Section 10.04(c), as though such co-agents, sub-agents and attorneys-in-fact were the “collateral agent” under the Loan Documents) as if set forth in full herein with respect thereto.

                    9.02 Rights as a Lender. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with any Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.

                    9.03 Exculpatory Provisions. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent:

          (a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;

          (b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law; and

          (c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to Holdings or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.

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                    The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 10.01 and 8.02) or (ii) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent by any Borrower, a Lender or the L/C Issuer.

                    The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, or the creation, perfection or priority of any Lien purported to be created by the Collateral Documents, (v) the value or the sufficiency of any Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

                    9.04 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the L/C Issuer, the Administrative Agent may presume that such condition is satisfactory to such Lender or the L/C Issuer unless the Administrative Agent shall have received notice to the contrary from such Lender or the L/C Issuer prior to the making of such Loan or the issuance of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrowers), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

                    9.05 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

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                    9.06 Resignation of Administrative Agent. The Administrative Agent may at any time give notice of its resignation to the Lenders, the L/C Issuer and the Borrowers. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrowers, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders and the L/C Issuer, appoint a successor Administrative Agent meeting the qualifications set forth above; provided that if the Administrative Agent shall notify the Borrowers and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (a) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders or the L/C Issuer under any of the Loan Documents, the retiring Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (b) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and the L/C Issuer directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section). The fees payable by the Borrowers to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrowers and such successor. After the retiring Administrative Agent’s resignation hereunder and under the other Loan Documents, the provisions of this Article and Section 10.04 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.

                    Any resignation by Bank of America as Administrative Agent pursuant to this Section shall also constitute its resignation as L/C Issuer, Foreign Currency Lead Lender and Swing Line Lender. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, (i) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer, Foreign Currency Lead Lender and Swing Line Lender, (ii) the retiring L/C Issuer, Foreign Currency Lead Lender and Swing Line Lender shall be discharged from all of their respective duties and obligations hereunder or under the other Loan Documents, and (iii) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to the retiring L/C Issuer to effectively assume the obligations of the retiring L/C Issuer with respect to such Letters of Credit.

                    9.07 Non-Reliance on Administrative Agent and Other Lenders. Each Lender and the L/C Issuer acknowledges that it has, independently and without reliance upon the

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Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender and the L/C Issuer also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

                    9.08 No Other Duties, Etc. Anything herein to the contrary notwithstanding, none of the Co-Syndication Agents, the Documentation Agent, the Bookrunners or Arrangers listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent, a Lender or the L/C Issuer hereunder.

                    9.09 Administrative Agent May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan or L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrowers) shall be entitled and empowered, by intervention in such proceeding or otherwise

          (a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, L/C Obligations and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the L/C Issuer and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the L/C Issuer and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders, the L/C Issuer and the Administrative Agent under Sections 2.03(i) and (j), 2.09) allowed in such judicial proceeding; and

          (b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and the L/C Issuer to make such payments to the Administrative Agent and, if the Administrative Agent shall consent to the making of such payments directly to the Lenders and the L/C Issuer, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.09.

                    Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or the L/C Issuer any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights

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of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.

                    9.10 Collateral and Guaranty Matters. The Lenders and the L/C Issuer irrevocably authorize the Administrative Agent, at its option and in its discretion,

          (a) to release any Lien on any property granted to or held by the Administrative Agent under any Loan Document (i) upon termination of the Aggregate Commitments and payment in full of all Obligations (other than contingent indemnification obligations) and the expiration or termination of all Letters of Credit, (ii) that is sold or to be sold as part of or in connection with any sale permitted hereunder or under any other Loan Document, or (iii) if approved, authorized or ratified in writing in accordance with Section 10.01;

          (b) to release any Guarantor from its obligations under the U.K. Guaranty or the Domestic Guaranty, as the case may be, if such Person ceases to be a Subsidiary as a result of a transaction permitted hereunder; and

          (c) to subordinate or release any Lien on any property granted to or held by the Administrative Agent under any Loan Document to the holder of any Lien on such property that is permitted by Section 7.01(i) or 7.01(j).

                    Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s authority to release or subordinate its interest in particular types or items of property, or to release any Guarantor from its obligations under the U.K. Guaranty or the Domestic Guaranty, as the case may be, pursuant to this Section 9.10. In each case as specified in this Section 9.10, the Administrative Agent will, at the Borrowers’ expense, execute and deliver to the applicable Loan Party such documents as such Loan Party may reasonably request to evidence the release of such item of Collateral from the assignment and security interest granted under the Collateral Documents or to subordinate its interest in such item, or to release such Guarantor from its obligations under the U.K. Guaranty or the Domestic Guaranty, in each case in accordance with the terms of the Loan Documents and this Section 9.10.

ARTICLE X
MISCELLANEOUS

                    10.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by any Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrower, or the applicable Loan Party, as the case may be, and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall:

          (a) waive any condition set forth in Section 4.01(a), or, in the case of the initial Credit Extension, Section 4.03, without the written consent of each Lender;

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          (b) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 8.02) without the written consent of such Lender;

          (c) postpone any date fixed by this Agreement or any other Loan Document for any payment (excluding mandatory prepayments) of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under such other Loan Document without the written consent of each Lender entitled to such payment;

          (d) reduce the principal of, or the rate of interest specified herein on, any Loan or L/C Borrowing, or (subject to clause (iv) of the second proviso to this Section 10.01) any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender entitled to such amount; provided, however, that only the consent of the Required Lenders shall be necessary to amend the definition of “Default Rate” or to waive any obligation of the Borrowers to pay interest or Letter of Credit Fees at the Default Rate;

          (e) change Section 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender;

          (f) change any provision of this Section 10.01 or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender;

          (g) release all or substantially all of the Collateral in any transaction or series of related transactions, without the written consent of each Lender; or

          (h) release all or substantially all of the value of the Domestic Guaranty and the U.K. Guaranty, without the written consent of each Lender;

and provided further that (i) no amendment, waiver or consent shall, unless in writing and signed by the L/C Issuer in addition to the Lenders required above, affect the rights or duties of the L/C Issuer under this Agreement or any Issuer Document relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Lender in addition to the Lenders required above, affect the rights or duties of the Swing Line Lender under this Agreement; (iii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; (iv) no amendment, waiver or consent shall, unless in writing and signed by the Foreign Currency Lead Lender in addition to the Lenders required above, affect the rights or duties of the Foreign Currency Lead Lender under this Agreement; (iv) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto; and (v) Section 10.06(i) may not be amended, waived or otherwise modified without the consent of each Granting Lender all or any part of whose Loans are being funded by an SPC at the time of such amendment, renewal or other modification. Notwithstanding anything to the

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contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased or extended without the consent of such Lender.

                    10.02 Notices; Effectiveness; Electronic Communications. (a) Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:

          (i) if to Holdings, the Borrowers, the Administrative Agent, the L/C Issuer, the Foreign Currency Lead Lender or the Swing Line Lender, to the address, telecopier number, electronic mail address or telephone number specified for such Person on Schedule 10.02; and

          (ii) if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in subsection (b) below shall be effective as provided in such subsection (b).

                    (b) Electronic Communications. Notices and other communications to the Lenders and the L/C Issuer hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender or the L/C Issuer pursuant to Article II if such Lender or the L/C Issuer, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or any Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.

                    Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at

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its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

                    (c) The Platform. THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.” THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to any Borrower, any Lender, the L/C Issuer or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of the Borrower’s or the Administrative Agent’s transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party; provided, however, that in no event shall any Agent Party have any liability to any Borrower, any Lender, the L/C Issuer or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).

                    (d) Change of Address, Etc. Each of Holdings, each Borrower, the Administrative Agent, the L/C Issuer, the Foreign Currency Lead Lender and the Swing Line Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Borrower, the Administrative Agent, the L/C Issuer, Foreign Currency Lead Lender and the Swing Line Lender. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.

                    (e) Reliance by Administrative Agent, L/C Issuer and Lenders. The Administrative Agent, the L/C Issuer and the Lenders shall be entitled to rely and act upon any notices (including telephonic Committed Loan Notices and Swing Line Loan Notices) purportedly given by or on behalf of a Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. Each Borrower shall indemnify the Administrative Agent, the L/C Issuer, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.

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                    10.03 No Waiver; Cumulative Remedies. No failure by any Lender, the L/C Issuer or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided, and provided under each other Loan Document, are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

                    10.04 Expenses; Indemnity; Damage Waiver. (a) Costs and Expenses. The Borrowers shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent), in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the L/C Issuer in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all out-of-pocket expenses incurred by the Administrative Agent, any Lender or the L/C Issuer (including the fees, charges and disbursements of any counsel for the Administrative Agent, any Lender or the L/C Issuer) (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.

                    (b) Indemnification by the Borrowers. Each Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender and the L/C Issuer, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by any Borrower or any other Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the L/C Issuer to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by any Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to any Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on

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contract, tort or any other theory, whether brought by a third party or by any Borrower or any other Loan Party or any of the Borrower’s or such Loan Party’s directors, shareholders or creditors, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by any Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if such Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction.

                    (c) Reimbursement by Lenders. To the extent that the Borrowers for any reason fail to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by them to the Administrative Agent (or any sub-agent thereof), the L/C Issuer or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the L/C Issuer or such Related Party, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) or the L/C Issuer in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) or L/C Issuer in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.12(d).

                    (d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable law, each Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.

                    (e) Payments. All amounts due under this Section shall be payable not later than ten Business Days after demand therefor.

                    (f) Survival. The agreements in this Section shall survive the resignation of the Administrative Agent and the L/C Issuer, the replacement of any Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations.

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                    10.05 Payments Set Aside. To the extent that any payment by or on behalf of the Borrowers is made to the Administrative Agent, the L/C Issuer or any Lender, or the Administrative Agent, the L/C Issuer or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent, the L/C Issuer or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender and the L/C Issuer severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Overnight Rate from time to time in effect. The obligations of the Lenders and the L/C Issuer under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.

                    10.06 Successors and Assigns. (a) Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that none of the Borrowers may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of Section 10.06(b), (ii) by way of participation in accordance with the provisions of Section 10.06(d), (iii) by way of pledge or assignment of a security interest subject to the restrictions of Section 10.06(f), or (iv) to an SPC in accordance with the provisions of Section 10.06(i) (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the L/C Issuer and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

                    (b) Assignments by Lenders. Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans (including for purposes of this Section 10.06(b), participations in L/C Obligations and in Swing Line Loans) at the time owing to it); provided that

          (i) except in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to

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such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, Holdings otherwise consents (each such consent not to be unreasonably withheld or delayed); provided, however, that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single Eligible Assignee (or to an Eligible Assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met;

          (ii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loans or the Commitment assigned, except that this clause (ii) shall not (A) apply to rights in respect of Swing Line Loans or (B) prohibit any Lender from assigning all or a portion of its rights and obligations among separate Facilities on a non-pro rata basis;

          (iii) any assignment of a Commitment must be approved by the Administrative Agent, the L/C Issuer and the Swing Line Lender unless the Person that is the proposed assignee is itself a Lender (whether or not the proposed assignee would otherwise qualify as an Eligible Assignee), provided, that any assignment of a Commitment to a Non-Qualified Lender must also be approved by the Foreign Currency Lead Lender and the Swing Line Lender;

          (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount, if any, required as set forth in Schedule 10.06, and the Eligible Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire

Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05 and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment). Upon request, each Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 10.06(d).

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                    (c) Register. The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans and L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrowers, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by each of the Borrowers and the L/C Issuer at any reasonable time and from time to time upon reasonable prior notice. In addition, at any time that a request for a consent for a material or substantive change to the Loan Documents is pending, any Lender may request and receive from the Administrative Agent a copy of the Register.

                    (d) Participations. Any Lender may at any time, without the consent of, or notice to, the Borrowers or the Administrative Agent, sell participations to any Person (other than a natural person or any Borrowers or any of the Borrowers’ Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans (including such Lender’s participations in L/C Obligations and/or Swing Line Loans) owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrowers, the Administrative Agent, the Lenders and the L/C Issuer shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 that affects such Participant. Subject to subsection (e) of this Section, the Borrowers agree that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 10.06(b). To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08as though it were a Lender, provided such Participant agrees to be subject to Section 2.13 as though it were a Lender.

                    (e) Limitations upon Participant Rights. A Participant shall not be entitled to receive any greater payment under Section 3.01 or 3.04than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with Holdings’ prior written consent. A Participant that would be a Foreign Lender or a U.K. Lender if it were a Lender shall not be entitled to the benefits of Section 3.01 unless the Borrowers are notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrowers, to comply with Section 3.01(e) as though it were a Lender.

                    (f) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any)

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to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

                    (g) Electronic Execution of Assignments. The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

                    (h) Resignation as L/C Issuer, Foreign Currency Lead Lender or Swing Line Lender after Assignment. Notwithstanding anything to the contrary contained herein, if at any time Bank of America assigns all of its Commitments and Revolving Credit Loans pursuant to Section 10.06(b), Bank of America may, (i) upon 30 days’ notice to the Borrowers and the Lenders, resign as L/C Issuer, (ii) upon 30 days’ notice to the Borrowers, resign as Foreign Currency Lead Lender and/or (iii) upon 30 days’ notice to the Borrowers, resign as Swing Line Lender. In the event of any such resignation as L/C Issuer, Foreign Currency Lead Lender or Swing Line Lender, the Borrowers shall be entitled to appoint from among the Lenders a successor L/C Issuer, Foreign Currency Lead Lender or Swing Line Lender hereunder; provided, however, that no failure by the Borrowers to appoint any such successor shall affect the resignation of Bank of America as L/C Issuer, Foreign Currency Lead Lender or Swing Line Lender, as the case may be. If Bank of America resigns as L/C Issuer, it shall retain all the rights, powers, privileges and duties of the L/C Issuer hereunder with respect to all Letters of Credit outstanding as of the effective date of its resignation as L/C Issuer and all L/C Obligations with respect thereto (including the right to require the Lenders to make Base Rate Loans or fund risk participations in Unreimbursed Amounts pursuant to Section 2.03(c)). If Bank of America resigns as Foreign Currency Lead Lender, it shall retain all the rights, powers, privileges and duties of the Foreign Currency Lead Lender hereunder with respect to all Foreign Currency Revolving Credit Loans outstanding as of the effective date of its resignation as Foreign Currency Lead Lender. If Bank of America resigns as Swing Line Lender, it shall retain all the rights of the Swing Line Lender provided for hereunder with respect to Swing Line Loans made by it and outstanding as of the effective date of such resignation, including the right to require the Lenders to make Base Rate Loans or fund risk participations in outstanding Swing Line Loans pursuant to Section 2.04(c). Upon the appointment of a successor L/C Issuer, Foreign Currency Lead Lender and/or Swing Line Lender, (a) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer, Foreign Currency Lead Lender or Swing Line Lender, as the case may be, and (b) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to Bank of America to effectively assume the obligations of Bank of America with respect to such Letters of Credit.

                    (i) Special Purpose Funding Vehicles. Notwithstanding anything to the contrary contained herein, any Lender (a “Granting Lender”) may grant to a special purpose funding

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vehicle identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrowers (an “SPC”) the option to provide all or any part of any Loan that such Granting Lender would otherwise be obligated to make pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to fund any Loan, and (ii) if an SPC elects not to exercise such option or otherwise fails to make all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof or, if it fails to do so, to make such payment to the Administrative Agent as is required under Section 2.12(b)(ii). Each party hereto hereby agrees that (A) neither the grant to any SPC nor the exercise by any SPC of such option shall increase the costs or expenses or otherwise increase or change the obligations of the Borrowers under this Agreement (including its obligations under Section 3.04), (B) no SPC shall be liable for any indemnity or similar payment obligation under this Agreement for which a Lender would be liable, and (C) the Granting Lender shall for all purposes, including the approval of any amendment, waiver or other modification of any provision of any Loan Document, remain the lender of record hereunder. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior debt of any SPC, it will not institute against, or join any other Person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency, or liquidation proceeding under the laws of the United States or any State thereof. Notwithstanding anything to the contrary contained herein, any SPC may (1) with notice to, but without prior consent of any Borrower and the Administrative Agent and with the payment of a processing fee of $2,500, assign all or any portion of its right to receive payment with respect to any Loan to the Granting Lender and (2) disclose on a confidential basis any non-public information relating to its funding of Loans to any rating agency, commercial paper dealer or provider of any surety or Guarantee or credit or liquidity enhancement to such SPC.

                    10.07 Treatment of Certain Information; Confidentiality. Each of the Administrative Agent, the Lenders and the L/C Issuer agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’ respective partners, directors, officers, employees, agents, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrowers and their obligations, (g) with the consent of Holdings or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this

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Section or (ii) becomes available to the Administrative Agent, any Lender, the L/C Issuer or any of their respective Affiliates on a nonconfidential basis from a source other than a Borrower.

                    For purposes of this Section, “Information” means all information received from any Loan Party or any Subsidiary thereof relating to any Loan Party or any Subsidiary thereof or their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or the L/C Issuer on a nonconfidential basis prior to disclosure by any Loan Party or any Subsidiary thereof, provided that, in the case of information received from a Loan Party or any such Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

                    Each of the Administrative Agent, the Lenders and the L/C Issuer acknowledges that (a) the Information may include material non-public information concerning a Borrower or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Law, including Federal and state securities Laws.

                    10.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender, the L/C Issuer and each of their respective Affiliates is hereby authorized at any time and from time to time to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender, the L/C Issuer or any such Affiliate to or for the credit or the account of any Borrower against any and all of the obligations of such Borrower now or hereafter existing under this Agreement or any other Loan Document to such Lender or the L/C Issuer, irrespective of whether or not such Lender or the L/C Issuer shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrowers may be contingent or unmatured or are owed to a branch or office of such Lender or the L/C Issuer different from the branch or office holding such deposit or obligated on such indebtedness. The rights of each Lender, the L/C Issuer and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, the L/C Issuer or their respective Affiliates may have. Each Lender and the L/C Issuer agrees to notify the Borrowers and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.

                    10.09 Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Rate”). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrowers. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender

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exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

                    10.10 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.

                    10.11 Survival of Representations and Warranties. All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding.

                    10.12 Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

                    10.13 Replacement of Lenders. If any Lender requests compensation under Section 3.04, or if the Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender is a Defaulting Lender, then the Borrowers may, at their sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:

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          (a) the Borrowers shall have paid to the Administrative Agent the assignment fee specified in Section 10.06(b);

          (b) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and L/C Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.05) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrowers (in the case of all other amounts);

          (c) in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01, such assignment will result in a reduction in such compensation or payments thereafter; and

          (d) such assignment does not conflict with applicable Laws.

                    A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling a Borrower to require such assignment and delegation cease to apply.

                    10.14 Pound and Euro L/C Issuers. Each Eligible Assignee who agrees to become an L/C Issuer in respect of Letters of Credit denominated in Pounds or Euros hereunder, shall execute and deliver to the Administrative Agent an L/C Issuer Joinder Agreement hereunder prior to issuing any Letters of Credit at the request or for the benefit of the U.K. Borrowers. Upon execution and delivery of such L/C Issuer Joinder Agreement, such Eligible Assignee shall become a party to this Agreement and shall have all rights and obligations of the L/C Issuer as set forth herein with respect to Letters of Credit denominated in Pounds and Euros. Any such Eligible Assignee may be released from its obligations hereunder as an L/C Issuer upon notice to the Administrative Agent.

                    10.15 Governing Law; Jurisdiction; Etc. (a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

                    (b) SUBMISSION TO JURISDICTION. EACH BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE FOR THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR

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PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR THE L/C ISSUER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

                    (c) WAIVER OF VENUE. EACH BORROWER IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

                    (d) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW

                    10.16 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

                    10.17 USA PATRIOT Act Notice. Each Lender that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrowers that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Loan Party in accordance with the Act.

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                    10.18 Know Your Customers. (a) Borrower Information. If:

          (i) any change in applicable law;

          (ii) any change in the status of any Borrower after the date of this Agreement; or

          (iii) a proposed assignment or transfer by a Lender of any of its rights and obligations under this Agreement to a party that is not a Lender prior to such assignment or transfer,

requires the Administrative Agent or any Lender (or, in the case of paragraph (iii) above, any prospective new Lender) to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, each Borrower shall promptly upon the request of the Administrative Agent or any Lender supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Administrative Agent (for itself or on behalf of any Lender) or such Lender (for itself or, in the case of the event described in paragraph (iii) above, on behalf of any prospective new Lender) in order for the Administrative Agent, such Lender or, in the case of the event described in paragraph (iii) above, such prospective new Lender to carry out and be satisfied it has complied with all necessary “know your customer” or similar checks under all applicable laws in connection with the transactions contemplated by the Loan Documents.

                    (b) Lender Information. Each Lender shall promptly upon the request of the Administrative Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Administrative Agent to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws in connection with the transactions contemplated in the Loan Documents.

                    (c) Additional Loan Parties. Following the acquisition or formation of any new direct or indirect Subsidiary that will become a Loan Party pursuant to Section 6.12, if the accession of such Subsidiary requires any Lender to comply with “know your customer” or similar identifications procedures in circumstances where the necessary information is not already available to it, Holdings shall promptly upon the request of such Lender supply, or procure the supply of, such documentation and other evidence as is reasonably requested by such Lender (for itself or on behalf of any prospective new Lender) in order for such Lender (or such prospective new Lender) to carry out and be satisfied it has complied with the results of all necessary “know your customer” or other similar checks under all applicable laws in connection with the accession of such Subsidiary as a Loan Party.

                    (d) Limitation on Assignments. Notwithstanding Section 10.06, an assignment will only be effective on performance by the Administrative Agent of all “know your customer” or other checks that is required to carry out with respect to any Person in connection with such assignment, the completion of which the Administrative Agent shall promptly notify to the assigning Lender and the applicable Assignee.

                    (e) Lender Responsibility. Nothing in this Agreement shall require the Administrative Agent or the Arrangers to carry out any “know your customer” or other checks in

119

Sotheby’s Amended and Restated Credit Agreement

relation to any Person on behalf of any Lender, and each Lender confirms to the Administrative Agent and the Arrangers that it is solely responsible for any such checks it is required to carry out and that it may not rely on any statement in relation to such checks made by the Administrative Agent or the Arrangers.

{Signature Pages Begin On The Next Page}

120

Sotheby’s Amended and Restated Credit Agreement

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

SOTHEBY’S HOLDINGS, INC.
By:	/s/ William S. Sheridan
Name:	WILLIAM S. SHERIDAN
Title:	EVP & CFO
SOTHEBY’S, INC.
By:	/s/ William S. Sheridan
Name:	WILLIAM S. SHERIDAN
Title:	EVP & CFO
OATSHARE LIMITED
By:	/s/ William S. Sheridan
Name:	WILLIAM S. SHERIDAN
Title:	DIRECTOR
SOTHEBY’S
By:	/s/ William S. Sheridan
Name:	WILLIAM S. SHERIDAN
Title:	DIRECTOR

Sotheby’s Amended and Restated Credit Agreement

BANK OF AMERICA, N.A., as Administrative Agent, L/C Issuer, Swing Line Lender, Foreign Currency Lead Lender and Lender
By:	/s/ John Walkiewicz
Name:	John Walkiewicz
Title:	Vice President

Sotheby’s Amended and Restated Credit Agreement

LASALLE BANK N.A., as a Co-Syndication Agent and Lender
By:	/s/ Thomas J. Brennan
Name:	Thomas J. Brennan
Title:	First Vice President

Sotheby’s Amended and Restated Credit Agreement

HSBC BANK PLC, as a Co-Syndication Agent and Lender
By:	/s/ Paul Hagger
Name:	PAUL HAGGER
Title:	CORPORATE BANKING MANAGER

Sotheby’s Amended and Restated Credit Agreement

THE CIT GROUP/BUSINESS CREDIT, INC., as a Co-Documentation Agent and Lender
By:	/s/ Frank Bertelle
Name:	Frank Bertelle
Title:	Vice President

Sotheby’s Amended and Restated Credit Agreement

CITIBANK N.A., as a Co-Documentation Agent
By:	/s/ Alan Ackbarali
Name:	Alan Ackbarali
Title:	Vice President
CITIBANK N.A., as a Lender
By:	/s/ Alan Ackbarali
Name:	Alan Ackbarali
Title:	Vice President

Sotheby’s Amended and Restated Credit Agreement

United Overseas Bank Limited, New York Agency, as a Lender
By:	/s/ Kwong Yew Wong
Name:	Kwong Yew Wong
Title:	FVP & General Manager
By:	/s/ Philip Cheong
Name:	Philip Cheong
Title:	VP & Deputy General Manager

Sotheby’s Amended and Restated Credit Agreement

COMERICA BANK, as a Lender
By:	/s/ Sarah R. West
Name:	Sarah R. West
Title:	Account Officer

Sotheby’s Amended and Restated Credit Agreement

ISRAEL DISCOUNT BANK OF NEW YORK as a Lender
By:	/s/ Andy Ballta
Name:	Andy Ballta
Title:	Vice President
By:	/s/ Ronald Bongiovanni
Name:	Ronald Bongiovanni
Title:	Senior Vice President

Sotheby’s Amended and Restated Credit Agreement

NORTH FORK BUSINESS CAPITAL CORPORATION, as a Lender
By:	/s/ Stephen K. Goetschius
Name:	Stephen K. Goetschius
Title:	Senior Vice President

Sotheby’s Amended and Restated Credit Agreement

Webster Business Credit Corporation, as a Lender
By:	/s/ Joseph J. Zautra
Name:	Joseph J. Zautra
Title:	Vice President

Sotheby’s Amended and Restated Credit Agreement

SCHEDULE 1.01

MANDATORY COST FORMULAE

1.	The Mandatory Cost (to the extent applicable) is an addition to the interest rate to compensate Lenders for the cost of compliance with:
	(a)	the requirements of the Bank of England and/or the Financial Services Authority (or, in either case, any other authority which replaces all or any of its functions); or
	(b)	the requirements of the European Central Bank.
2.	On the first day of each Interest Period (or as soon as practicable thereafter) the Administrative Agent shall calculate, as a percentage rate, a rate (the “Additional Cost Rate”) for each Lender, in accordance with the paragraphs set out below. The Mandatory Cost will be calculated by the Administrative Agent as a weighted average of the Lenders’ Additional Cost Rates (weighted in proportion to the percentage participation of each Lender in the relevant Loan) and will be expressed as a percentage rate per annum. The Administrative Agent will, at the request of any Borrower or any Lender, deliver to such Borrower or such Lender as the case may be, a statement setting forth the calculation of any Mandatory Cost.
3.	The Additional Cost Rate for any Lender lending from a Lending Office in a Participating Member State will be the percentage notified by that Lender to the Administrative Agent. This percentage will be certified by such Lender in its notice to the Administrative Agent as the cost (expressed as a percentage of such Lender’s participation in all Loans made from such Lending Office) of complying with the minimum reserve requirements of the European Central Bank in respect of Loans made from that Lending Office.
4.	The Additional Cost Rate for any Lender lending from a Lending Office in the United Kingdom will be calculated by the Administrative Agent as follows:
	(a)	in relation to any Loan in Pounds:

AB+C(B-D)+E × 0.01
100 - (A+C)	per cent per annum

  (b) in relation to any Loan in any currency other than Pounds:

E × 0.01
	per cent per annum
300

Sotheby’s Amended and Restated Credit Agreement

Where:

	“A”	is the percentage of Eligible Liabilities (assuming these to be in excess of any stated minimum) which that Lender is from time to time required to maintain as an interest free cash ratio deposit with the Bank of England to comply with cash ratio requirements.
	“B”	is the percentage rate of interest (excluding the Applicable Rate, the Mandatory Cost and any interest charged on overdue amounts pursuant to the first sentence of Section 2.08(b) and, in the case of interest (other than on overdue amounts) charged at the Default Rate, without counting any increase in interest rate effected by the charging of the Default Rate) payable for the relevant Interest Period of such Loan.
	“C”	is the percentage (if any) of Eligible Liabilities which that Lender is required from time to time to maintain as interest bearing Special Deposits with the Bank of England.
	“D”	is the percentage rate per annum payable by the Bank of England to the Administrative Agent on interest bearing Special Deposits.
	“E”	is designed to compensate Lenders for amounts payable under the Fees Regulations and is calculated by the Administrative Agent as being the average of the most recent rates of charge supplied by the Lenders to the Administrative Agent pursuant to paragraph 7 below and expressed in pounds per £1,000,000.
5.	For the purposes of this Schedule:
	(a)	“Eligible Liabilities” and “Special Deposits” have the meanings given to them from time to time under or pursuant to the Bank of England Act 1998 or (as may be appropriate) by the Bank of England;
	(b)	“Fees Regulations” means the FSA Supervision Manual or such other law or regulation as may be in force from time to time in respect of the payment of fees for the acceptance of deposits;
	(c)	“Fee Tariffs” means the fee tariffs specified in the Fees Regulations under the activity group A.1 Deposit acceptors (ignoring any minimum fee or zero rated fee required pursuant to the Fees Regulations but taking into account any applicable discount rate); and
	(d)	“Tariff Base” has the meaning given to it in, and will be calculated in accordance with, the Fees Regulations.
6.	In application of the above formulae, A, B, C and D will be included in the formulae as percentages (i.e. 5% will be included in the formula as 5 and not as 0.05). A negative result obtained by subtracting D from B shall be taken as zero. The resulting figures shall be rounded to four decimal places.

Sotheby’s Amended and Restated Credit Agreement

7.	If requested by the Administrative Agent or any Borrower, each Lender with a Lending Office in the United Kingdom or a Participating Member State shall, as soon as practicable after publication by the Financial Services Authority, supply to the Administrative Agent and such Borrower, the rate of charge payable by such Lender to the Financial Services Authority pursuant to the Fees Regulations in respect of the relevant financial year of the Financial Services Authority (calculated for this purpose by such Lender as being the average of the Fee Tariffs applicable to such Lender for that financial year) and expressed in pounds per £1,000,000 of the Tariff Base of such Lender.
8.	Each Lender shall supply any information required by the Administrative Agent for the purpose of calculating its Additional Cost Rate. In particular, but without limitation, each Lender shall supply the following information in writing on or prior to the date on which it becomes a Lender:
	(a)	its jurisdiction of incorporation and the jurisdiction of the Lending Office out of which it is making available its participation in the relevant Loan; and
	(b)	any other information that the Administrative Agent may reasonably require for such purpose.
Each Lender shall promptly notify the Administrative Agent in writing of any change to the information provided by it pursuant to this paragraph.
9.	The percentages or rates of charge of each Lender for the purpose of A, C and E above shall be determined by the Administrative Agent based upon the information supplied to it pursuant to paragraphs 7 and 8 above and on the assumption that, unless a Lender notifies the Administrative Agent to the contrary, each Lender’s obligations in relation to cash ratio deposits, Special Deposits and the Fees Regulations are the same as those of a typical bank from its jurisdiction of incorporation with a Lending Office in the same jurisdiction as such Lender’s Lending Office.
10.	The Administrative Agent shall have no liability to any Person if such determination results in an Additional Cost Rate which over- or under-compensates any Lender and shall be entitled to assume that the information provided by any Lender pursuant to paragraphs 3, 7 and 8 above is true and correct in all respects.
11.	The Administrative Agent shall distribute the additional amounts received as a result of the Mandatory Cost to the Lenders on the basis of the Additional Cost Rate for each Lender based on the information provided by each Lender pursuant to paragraphs 3, 7 and 8 above.
12.	Any determination by the Administrative Agent pursuant to this Schedule in relation to a formula, the Mandatory Cost, an Additional Cost Rate or any amount payable to a Lender shall, in the absence of manifest error, be conclusive and binding on all parties hereto.
13.	The Administrative Agent may from time to time, after consultation with the Company and the Lenders, determine and notify to all parties any amendments which are required to be made to this Schedule in order to comply with any change in law, regulation or any

Sotheby’s Amended and Restated Credit Agreement

requirements from time to time imposed by the Bank of England, the Financial Services Authority or the European Central Bank (or, in any case, any other authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and binding on all parties hereto.

Sotheby’s Amended and Restated Credit Agreement

SCHEDULE 10.02

ADMINISTRATIVE AGENT’S OFFICE;
CERTAIN ADDRESSES FOR NOTICES

Borrowers:

c/o Sotheby’s Holdings, Inc.
1334 York Avenue
NY, NY 10021
Attention: Chief Financial Officer
Telephone: (212) 606-7132
Telecopier: (212) 606-7372
Web site: http:\\www.sothebys.com

with a copy to:

c/o Sotheby’s Holdings, Inc.
1334 York Avenue
NY, NY 10021
Attention: General Counsel
Telephone: (212) 606-7574
Telecopier: (212) 606-7533

Administrative Agent’s Office:

For payments and requests for Credit Extensions for Dollar Loans in the U.S.:

Bank of America, N.A.
Street Address: 901 Main Street
Mail Code: TX1-492-14-12
City, State ZIP code: Dallas, TX 75202
Attention: Charlotte Conn
Telephone: 214.209.1225
Telecopier: 214.290.9653
Email: charlotte.a.conn@bankofamerica.com

Account No. (for Dollars): 1292000883
Ref: Sotheby’s, Attn: Credit Services
ABA# 111000012

Sotheby’s Amended and Restated Credit Agreement

For payments and requests for Credit Extensions for Dollar, Euro & Sterling Loans in the U.K.:

Bank of America, N.A.
5 Canada Square
London E14 5AQ
Attn: Loans Agency
Telephone: +44 20 8313 2992
Telecopier: +44 20 8313 2149
Email: emea.7115loansagency@bankofamerica.com

For Dollar Loans:
Bank of America, N.A., New York
ABA# 026009593
Account: Bank of America, N.A., London
Account No.: 360564
Attention: Karen Hall, Loans Agency

For Sterling Loans:
Bank of America, N.A., London
CHAPS: 16-50-50
Attn: Karen Hall

For Euro Loans:
Bank of America, N.A., London
Attn: Karen Hall

For other Notices as Administrative Agent:

Bank of America, N.A.
Agency Management
Street Address: 335 Madison Ave.
Mail Code: NY1-503-04-03
City, State ZIP code: New York, NY 10017
Attention: Steven Gazzillo
Telephone: 212.503.8328
Telecopier: 212.901.7842
Email: steven.gazzillo@bankofamerica.com

L/C Issuer:

Bank of America, N.A.
Trade Operations-Los Angeles
1000 W. Temple Street, 7th Floor
Mail Code: CA7-705-07-05
Los Angeles, CA 90012-1514
Attention: Hermann J. Schutterle, VP
Telephone: 213.481.7826
Facsimile: 213.580.8441
Electronic Mail: hermann.schutterle@bankofamerica.com

Sotheby’s Amended and Restated Credit Agreement

Swing Line Lender:

Same as Administrative Agent’s Office.

Foreign Currency Lead Lender:

Same as Administrative Agent’s Office (for payments and requests for Credit Extensions in Euros and Pounds).

Sotheby’s Amended and Restated Credit Agreement

EXHIBIT B
to the Credit Agreement

FORM OF SWING LINE LOAN NOTICE

Date: ___________, _____

To:          Bank of America, N.A., as Swing Line Lender
Bank of America, N.A., as Administrative Agent

Ladies and Gentlemen:

                    Reference is made to that certain Amended and Restated Credit Agreement, dated as of November 14, 2005 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement;” the terms defined therein being used herein as therein defined), among Sotheby’s Holdings, Inc., a Michigan corporation, Sotheby’s Inc., a New York corporation, Oatshare Limited, a company registered in England and Wales with registration number 01737495, Sotheby’s, a company registered in England and Wales with registration number 00874867, the Lenders from time to time party thereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender, L/C Issuer and Foreign Currency Lead Lender, LaSalle Bank N.A. and HSBC Bank PLC, as Co-Syndication Agents, and The CIT Group/Business Credit, Inc. and Citibank N.A., as Co-Documentation Agents.

                    The undersigned hereby requests a [U.S.] [U.K.] Swing Line Loan:

1.	On _____________________ (a Business Day).
2.	In the amount of [$] [£] [€]_________________.

                    The Swing Line Borrowing requested herein complies with the requirements of the provisos to the first sentence of Section 2.04(a) of the Agreement.

                    [The Borrower hereby represents and warrants that the conditions specified in Sections 4.03(a) and (b) shall be satisfied on and as of the date of the applicable Credit Extension.]¹

	[SOTHEBY’S HOLDINGS, INC.]
	[SOTHEBY’S, INC.]
	[OATSHARE LIMITED]
	[SOTHEBY’S]
	By:
	Name:
Title:

          ¹          To be added only if not requesting a conversion of Loans denominated in Dollars to the other Type or a continuation of Eurocurrency Rate Loans.

Sotheby’s Amended and Restated Credit Agreement

EX-10

EXHIBIT 10.18

SECOND AMENDMENT TO

EMPLOYMENT AGREEMENT

WHEREAS, Sotheby's Holdings, Inc. (the "Company") and William F. Ruprecht (the "Executive") entered into an employment agreement dated as of July 1, 2003, as amended by a First Amendment dated as of April 12, 2005 (the "Agreement");

WHEREAS, the Company and the Executive desire to amend the Agreement in certain respects;

WHEREAS, Section 8(c) of the Agreement requires that any amendment to the Agreement be in writing signed by the Executive and the Company;

NOW THEREFORE, for good and valuable consideration the receipt of which the parties each acknowledge, the Agreement is hereby amended as follows:

1.	Section 5(d) of the Agreement is amended in its entirety to read as follows:
	"(d) Expiration of the Term. If the Company does not offer to renew this Agreement by March 31, 2006 on terms at least as favorable as those in the final year of the Executive's employment (except that (i) its Term need be no longer than two (2) years, (ii) payments for termination without Cause or for Good Reason need be no greater than two years' Base Salary and Annual Incentive Compensation, (iii) Subparagraph 4(d)(6) need not be included and (iv) the provisions of Subparagraph 3(c) may be satisfied by a plan comparable to the Company's Partnership Plan that provides the Executive with the opportunity to earn substantially equivalent economic benefits based on the financial performance of the Company), the Executive shall, upon the expiration of the Term, be entitled to receive compensation and benefits as if his employment were terminated by him for Good Reason immediately prior to the expiration of the Term."
2.	Except as hereinabove provided, the Agreement is ratified and confirmed in all respects and shall continue in full force and effect.

IN WITNESS WHEREOF, the Company and the Executive have executed this First Amendment to the Agreement as of the 13^th day of February, 2006.

SOTHEBY'S HOLDINGS, INC.
By:	/s/ SUSAN ALEXANDER
Susan Alexander, Executive Vice President
/s/ WILLIAM F. RUPRECHT WILLIAM F. RUPRECHT

EX-10

Exhibit 10.22

SECOND AMENDMENT TO
SOTHEBY’S HOLDINGS, INC.
2003 RESTRICTED STOCK PLAN

          THIS SECOND AMENDMENT to the Sotheby’s Holdings, Inc. 2003 Restricted Stock Plan (“Second Amendment”), dated the 7^th day of November, 2005, is adopted by Sotheby’s Holdings, Inc. (the “Corporation”).

RECITALS:

          A. The Sotheby’s Holdings, Inc. 2003 Restricted Stock Plan (the “Plan”) was adopted by the Compensation Committee of the Board of Directors of the Corporation on February 18, 2003 and approved by the shareholders of the Corporation at the Corporation’s 2003 Annual Meeting of Shareholders on April 29, 2003.

          B. Pursuant to Section 8.1 of the Plan, the Corporation has the authority to amend the Plan. The Corporation desires to and does hereby amend the Plan, as hereinafter set forth, to provide that, as a result of the Corporation’s recapitalization plan announced September 8, 2005, the Class B Shares which are the subject of Restricted Stock Awards under the Plan have been automatically converted to Class A Shares. Accordingly, the Plan is amended (1) to clarify that only Class A Shares are available for issuance as Restricted Stock Awards under the Plan; (2) to change various Plan references from Class B Common Stock to Class A Common Stock as provided below, and (3) to make such other changes as the Corporation desires.

          NOW, THEREFORE, the Plan is hereby amended as follows:

          1.         Section 2.7 of the Plan is amended in its entirety by substituting the following:

“2.7 Class A Common Stock means the Class A Limited Voting Common Stock of the Corporation, par value $0.10 per share, entitling every holder

1

	thereof, on all matters submitted to a vote of the shareholders of the Corporation, to cash one vote for each share standing in his name.”
2.	Section 2.8 referencing Class B Common Stock is deleted in its entirety.
3.	Section 2.10 is amended in its entirety by substituting the following:
	“2.10 Common Stock means the Class A Common Stock.”
4.	Section 2.21 is amended in its entirety by substituting the following:
	“2.21 Fair Market Value means the value of each share of Restricted Stock, determined for a particular date as follows:
	(a)     if the Class A Common Stock is listed or admitted for trading on any United States national securities exchange, the value of each share of Restricted Stock shall be the closing price per share of Class A Common Stock on such exchange (or, if listed on more than one United States exchange, the principal said exchange) on the relevant Valuation Date hereunder;
	(b)     if the Class A Common Stock is not traded on any United States national securities exchange, but is quoted on the National Association of Securities Dealers, Inc. Automated Quotation System (the “NASDAQ System”) or any similar system of automated dissemination of quotations of prices in common use, the value of each share of Restricted Stock shall be the price per share equal to the mean between the closing high bid and the low asked quotations on such system on the relevant Valuation Date hereunder;
	(c)     if neither paragraph (a) nor paragraph (b) of this definition is applicable, the value of each share of Restricted Stock shall be the fair market value as determined by the Committee, in good faith and in accordance with uniform principles consistently applied, on the last day of the relevant Fiscal Year immediately preceding the relevant date hereunder.”
5.	Section 2.31 is amended in its entirety by substituting the following:
	“2.31 Restricted Stock means those shares of Class A Common Stock made the subject of any Award granted pursuant to the Plan.”
6.	Section 4.1 is amended in its entirety by substituting the following:
	“4.1 Shares Subject to the Plan. The Restricted Stock to be made the subject of Awards granted under the Plan shall be shares of the Corporation’s authorized but unissued or reacquired Class A Common Stock. Subject to adjustment as provided in Section 8.3 hereof, the aggregate number of shares of Class A Common Stock that may be issued by the Corporation under the Plan is 2,000,000 shares of Class A Common Stock. The aggregate number

2

	of shares of Restricted Stock outstanding at any time shall not exceed the relevant number of shares of Class A Common Stock remaining available for issuance under the Plan.”
7.	Sections 7.7 and 7.8 are deleted in their entirety.
8.	Section 9.3 is deleted in its entirety.
9.	The effective date of this Amendment is September 8, 2005

          IN WITNESS WHEREOF, this Amendment is hereby executed as of the day and year first above written.

SOTHEBY’S HOLDINGS, INC.
By:	/s/ Susan Alexander
Its: Executive Vice President, Human Resources

3

EX-21

EXHIBIT 21

SUBSIDIARIES OF SOTHEBY'S HOLDINGS, INC.

As of December 31, 2005, the significant subsidiaries of Sotheby's Holdings, Inc. which are wholly owned except where indicated are as follows:

	JURISDICTION OF INCORPORATION
Sotheby's Holdings, Inc.	Michigan
Sotheby's Financial Services, Inc.	Nevada
SPTC, Inc.	Nevada
SPTC Delaware, LLC	Delaware
Sotheby's Fine Art Holdings, Inc.	Delaware
Fine Art Insurance Ltd.	Bermuda
Sotheby's Inc.	New York
Oatshare Limited	United Kingdom
Sotheby's	United Kingdom
Sotheby's Global Trading Company GmbH	Switzerland
Sotheby's Asia, Inc.	Michigan

Other than the subsidiaries listed above, the Registrant has 22 directly and indirectly controlled domestic subsidiaries and 34 directly and indirectly controlled foreign subsidiaries.

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 33-26008 , Registration Statement No. 33-54057, Registration Statement No, 333-02315, Registration Statement No. 333-28007, Registration Statement No. 333-34621, Registration Statement No. 333-34623, Registration Statement No. 333-92193, Registration Statement No. 333-113647 and Registration Statement No. 333-131638, each on Form S-8, and Registration Statement No. 333-55995 on Form S-3, of our report on the consolidated financial statements and consolidated financial statement schedule of Sotheby’s Holdings, Inc., dated March 16, 2006, which expresses an unqualified opinion and includes an explanatory paragraph relating to the Company's adoption of FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations—an interpretation of FASB Statement No. 143," effective December 31, 2005, and our report dated March 16, 2006 relating to management's report on the effectiveness of internal control over financial reporting appearing in Item 8, “Financial Statements and Supplementary Data,” in this Annual Report on Form 10-K of Sotheby’s Holdings, Inc. for the year ended December 31, 2005.

/s/ DELOITTE & TOUCHE LLP

Deloitte & Touche LLP

New York, New York

March 16, 2006

EX-24

EXHIBIT 24

POWER OF ATTORNEY

          Each of the undersigned, being a Director of Sotheby’s Holdings, Inc., a Michigan corporation (the “Company”), does hereby constitute and appoint William F. Ruprecht and William S. Sheridan, and each of them, with full power of substitution, as his true and lawful attorney and agent to execute and file in his name and on his behalf, as a Director of the Company, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, the exhibits thereto and all documents in connection therewith and any and all amendments to such Form 10-K and to do and perform any and all acts and things requisite and necessary to be done in connection with the foregoing as fully as he might or could do in person, and each of the undersigned hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof.

          IN WITNESS WHEREOF, the undersigned have each hereunto subscribed their respective signatures as of this 16th day of March 2006.

/s/ Michael I. Sovern	/s/ Allen Questrom
Michael I. Sovern	Allen Questrom
/s/ Devonshire	/s/ Donald M. Stewart
The Duke of Devonshire	Donald M. Stewart
/s/ Blakenham	/s/ Robert S. Taubman
Michael Blakenham	Robert S. Taubman
/s/ Steven B. Dodge	/s/ Robin Woodhead
Steven B. Dodge	Robin G. Woodhead

EX-31

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William F. Ruprecht, President and Chief Executive Officer of Sotheby’s Holdings, Inc. (the “Company”), certify that:

(1) I have reviewed this annual report on Form 10-K for the period ended December 31, 2005 of the Company;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

(4) The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

(5) The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

/s/ William F. Ruprecht

William F. Ruprecht
President and
Chief Executive Officer
Sotheby’s Holdings, Inc.
March 16, 2006

EX-31

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William S. Sheridan, Executive Vice President and Chief Financial Officer of Sotheby’s Holdings, Inc. (the “Company”), certify that:

(1) I have reviewed this annual report on Form 10-K for the period ended December 31, 2005 of the Company;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

(4) The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

(5) The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

/s/ William S. Sheridan

William S. Sheridan
Executive Vice President and
Chief Financial Officer
Sotheby’s Holdings, Inc.
March 16, 2006

EX-32

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Sotheby’s Holdings, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William F. Ruprecht, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William F. Ruprecht

William F. Ruprecht
President and
Chief Executive Officer
Sotheby’s Holdings, Inc.
March 16, 2006

EX-32

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Sotheby’s Holdings, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William S. Sheridan, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William S. Sheridan

William S. Sheridan
Executive Vice President and
Chief Financial Officer
Sotheby’s Holdings, Inc.
March 16, 2006