10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2004

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)

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  X  No __.

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  X   No __.

As of October 29, 2004, there were outstanding 45,607,727 shares of Class A Limited Voting Common Stock, par value $0.10 per share, and 17,875,645 shares of Class B Common Stock, par value $0.10 per share, of the Registrant. Each share of Class B Common Stock is freely convertible into one share of Class A Limited Voting Common Stock.

TABLE OF CONTENTS

		PAGE
PART I:	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Income Statements for the Three and Nine Months Ended September 30, 2004 and 2003	3
	Consolidated Balance Sheets at September 30, 2004, December 31, 2003 and September 30, 2003	4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57
Item 4.	Controls and Procedures	58
PARTII:	OTHER INFORMATION
Item 1.	Legal Proceedings	59
Item 6.	Exhibits and Reports on Form 8-K	60
SIGNATURE		62
EXHIBIT INDEX		63

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

	Three Months Ended						Nine Months Ended
	September 30, 2004			September 30, 2003			September 30, 2004			September 30, 2003
Revenues:
Auction and related revenues	$	42,866		$	29,006		$	268,305		$	174,719
License fee revenue		—			—			45,000			—
Other revenues		1,724			1,553			5,990			6,704
Total revenues		44,590			30,559			319,295			181,423
Expenses:
Direct costs of services		6,615			4,810			32,731			26,252
Salaries and related costs		37,125			30,863			125,715			99,945
General and administrative expenses		28,562			22,856			77,580			66,361
Depreciation and amortization expense		6,042			6,309			17,534			18,818
Retention costs		—			1,807			285			8,150
Net restructuring charges		—			(308	)		146			5,033
Special charges		368			1,195			1,652			2,571
Total expenses		78,712			67,532			255,643			227,130
Operating (loss) income		(34,122	)		(36,973	)		63,652			(45,707	)
Interest income		555			356			1,657			1,984
Interest expense		(8,494	)		(8,986	)		(25,299	)		(24,007	)
Other (expense) income		(49	)		225			339			614
(Loss) income from continuing operations before taxes		(42,110	)		(45,378	)		40,349			(67,116	)
Income tax (benefit) expense		(13,834	)		(15,900	)		14,122			(23,727	)
(Loss) income from continuing operations		(28,276	)		(29,478	)		26,227			(43,389	)
Discontinued operations (Note 3):
(Loss) income from discontinued operations before taxes		(480	)		3,810			38,662			5,208
Income tax (benefit) expense		(80	)		1,767			14,368			2,678
(Loss) income from discontinued operations		(400	)		2,043			24,294			2,530
Net (loss) income		($28,676	)		($27,435	)	$	50,521			($40,859	)
Basic (loss) earnings per share:
(Loss) earnings from continuing operations		($0.46	)		($0.48	)	$	0.42			($0.70	)
(Loss) earnings from discontinued operations		(0.01	)		0.03			0.39			0.04
Basic (loss) earnings per share		($0.46	)		($0.45	)	$	0.82			($0.66	)
Diluted (loss) earnings per share:
(Loss) earnings from continuing operations		($0.46	)		($0.48	)	$	0.42			($0.70	)
(Loss) earnings from discontinued operations		(0.01	)		0.03			0.39			0.04
Diluted (loss) earnings per share		($0.46	)		($0.45	)	$	0.81			($0.66	)
Weighted average shares outstanding (in thousands):
Basic		61,941			61,643			61,734			61,577
Diluted		61,941			61,643			62,432			61,577

See accompanying Notes to Consolidated Financial Statements

3

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

	September 30, 2004 (UNAUDITED)			December31, 2003			September 30, 2003 (UNAUDITED)
A S S E T S
Current Assets:
Cash and cash equivalents	$	56,097		$	62,498		$	7,222
Restricted cash		1,588			8,179			1,046
Accounts receivable, net of allowance for doubtful accounts of $6,011, $5,948 and $6,350		195,979			231,684			119,752
Notes receivable and consignor advances, net of allowance for credit losses of $1,463, $1,600 and $1,565		72,915			82,253			45,260
Inventory, net		14,375			14,848			25,013
Deferred income taxes		6,649			5,117			6,558
Prepaid expenses and other current assets		59,972			45,822			41,881
Assets held for sale (Note 3)		153			29,668			17,930
Total Current Assets		407,728			480,069			264,662
Non-Current Assets:
Notes receivable		38,948			26,689			44,676
Properties, less accumulated depreciation and amortization of $111,994, $98,120, and $90,295		238,564			248,248			248,100
Goodwill		13,540			13,565			13,411
Investments		27,885			28,633			28,854
Deferred income taxes		77,568			101,684			113,172
Other assets		3,562			2,582			3,042
Total Assets	$	807,795		$	901,470		$	715,917
L I A B I L I T I E SA N DS H A R EH O L D E R S’E Q U I T Y
Current Liabilities:
Due to consignors	$	145,421		$	255,198		$	86,279
Credit facility borrowings		—			20,000			55,000
Accounts payable and accrued liabilities		76,643			81,741			61,701
Deferred revenues		5,467			4,787			4,878
Accrued income taxes		6,220			4,441			2,096
York Property capital lease obligation		122			113			109
Deferred gain on sale of York Property		1,129			1,129			1,129
Settlement liabilities		13,941			5,281			7,073
Liabilities held for sale (Note 3)		150			15,198			11,393
Total Current Liabilities		249,093			387,888			229,658
Long-Term Liabilities:
Long-term debt, net of unamortized discount of $422, $461 and $480		99,597			99,539			99,520
Settlement liabilities		61,546			75,498			72,647
York Property capital lease obligation		172,076			172,169			172,208
Deferred gain on sale of York Property		19,656			20,502			20,784
Other liabilities		18,382			18,466			17,965
Total Liabilities		620,350			774,062			612,782
Shareholders’ Equity:
Common Stock, $0.10 par value		6,326			6,173			6,166
Authorized shares—125,000,000 of Class A and 75,000,000 of Class B, issued and outstanding shares—45,526,812, 45,052,339 and 45,044,926 of Class A, and 17,874,272, 16,681,150 and 16,646,150 of Class B at September 30, 2004, December 31, 2003 and September 30, 2003, respectively
Additional paid-in capital		225,884			204,567			203,577
Accumulated deficit		(28,020	)		(78,540	)		(98,744	)
Deferred compensation expense		(12,556	)		(1,507	)		(936	)
Accumulated other comprehensive loss		(4,189	)		(3,285	)		(6,928	)
Total Shareholders’ Equity		187,445			127,408			103,135
Total Liabilities and Shareholders’ Equity	$	807,795		$	901,470		$	715,917

See accompanying Notes to Consolidated Financial Statements

4

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

	For the Nine Months Ended September 30,
	2004				2003
Operating Activities:
Net income (loss) from continuing operations	$	26,227			($43,389	)
Adjustments to reconcile net income (loss) from continuing operations to net cash used by operating activities:
Depreciation and amortization expense		17,534			18,818
Deferred income tax expense (benefit)		349			(23,920	)
Tax benefit of stock option exercises		553			—
Restricted stock compensation expense		4,300			83
Asset provisions		2,975			148
Other		4,044			3,263
Changes in assets and liabilities:
Decrease in accounts receivable		43,877			161,484
Decrease (increase) in inventory		1,152			(11,889	)
Increase in prepaid expenses and other current assets		(12,873	)		(1,088	)
Increase in other long-term assets		(231	)		(572	)
Decrease in settlement liabilities		(9,498	)		(50,173	)
Decrease in due to consignors		(115,559	)		(187,558	)
Increase (decrease) in accrued income taxes		9,287			(2,609	)
Decrease in accounts payable and accrued liabilities and other liabilities		(7,755	)		(33,231	)
Operating Cash Outflow from discontinued operations (Note 3)		(4,120	)		(2,928	)
Net cash used by operating activities		(39,738	)		(173,561	)
Investing Activities:
Funding of notes receivable and consignor advances		(134,657	)		(56,941	)
Collections of notes receivable and consignor advances		127,857			62,060
Capital expenditures		(10,995	)		(4,897	)
Proceeds from sale of domestic real estate brokerage business (Note 3)		53,863			—
Proceeds from York Property sale-leaseback		—			167,054
Decrease in investments		1,428			1,921
Decrease in restricted cash		6,105			7,813
Investing Cash Flow from discontinued operations (Note 3)		969			661
Net cash provided by investing activities		44,570			177,671
Financing Activities:
Proceeds from credit facility borrowings		65,000			142,000
Repayments of credit facility borrowings		(85,000	)		(187,000	)
Decrease in York Property capital lease obligation		(84	)		(1,549	)
Proceeds from exercise of stock options		5,220			—
Net cash used by financing activities		(14,864	)		(46,549	)
Impact of consolidating variable interest entity		749			—
Effect of exchange rate changes on cash and cash equivalents		(23	)		1,174
Decrease in cash and cash equivalents		(9,306	)		(41,265	)
Cash and cash equivalents at beginning of period		65,403			48,552
Cash and cash equivalents at end of period	$	56,097		$	7,287
Cash and cash equivalents at end of period:
Continuing operations	$	56,097		$	7,222
Discontinued Operations		—			65
	$	56,097		$	7,287

See accompanying Notes to Consolidated Financial Statements

5

SOTHEBY’S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. Basis of Presentation

The Consolidated Financial Statements included herein have been prepared by Sotheby’s Holdings, Inc. (together with its subsidiaries, the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto on Form 10-K for the year ended December 31, 2003.

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 other non-U.S. real estate brokerage offices. The assets and liabilities of such operations are classified as held for sale in the Consolidated Balance Sheets, and the related operating results are reported as discontinued operations in the Consolidated Income Statements. (See Note 3)

The Company has concluded that an entity with whom its Finance segment has outstanding loans and to whom the Company provides management consulting services meets the definition of a variable interest entity under Financial Accounting Standards Board Interpretation No. 46, as revised. As primary beneficiary of the variable interest entity, the Company was required to consolidate the entity as part of the Auction segment beginning on March 31, 2004. (See Note 16)

In the opinion of the management of the Company, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial statements included herein, have been made.

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2. Seasonality of Business

The worldwide art auction market has two principal selling seasons, spring and fall. Consequently, first and third quarter results of the Auction segment typically reflect lower Aggregate Auction Sales (as defined below) and lower operating results than the second and fourth quarters due to the fixed nature of many of the Company’s operating expenses. “Aggregate Auction Sales” represents the hammer price of property sold at auction by the Company plus buyer’s premium. The table below demonstrates that approximately 80% of the Company’s Aggregate Auction Sales are derived from the second and fourth quarters of the year.

	PercentageofAnnual AggregateAuctionSales
	2003		2002		2001
January – March	12	%	11	%	13	%
April – June	34	%	38	%	45	%
July – September	7	%	12	%	7	%
October – December	47	%	39	%	35	%
	100	%	100	%	100	%

3. Discontinued Operations

In the fourth quarter of 2003, the Company committed to a plan to sell SIR, its domestic real estate brokerage business, as well as most of its non-U.S. real estate brokerage offices. The assets and liabilities of such operations are classified as held for sale in the Consolidated Balance Sheets, and the related operating results are reported as discontinued operations in the Consolidated Income Statements.

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 “License Agreement”). The License Agreement is applicable to Canada, Israel, Mexico, the U.S. 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 a license to use the related trademarks in other countries outside the U.S., which may be exercised during the five-year period following February 17, 2004 for a nominal amount (the “International Options”).

7

The total consideration paid by Cendant at closing for SIR’s company-owned real estate brokerage business and affiliate network, as well as the License Agreement and the International Options was $100.7 million, consisting of $98.9 million in cash and the assumption of a $1.8 million note payable. Net cash proceeds from the sale, after deducting $4.9 million in transaction costs, were $94.0 million. In addition to the consideration received at closing, the 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 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 License Agreement and $0.6 million was allocated to the International Options.

As a result of the sale of SIR’s company-owned real estate brokerage business and affiliate network, the Company recognized a pre-tax gain of $32.3 million, consisting of the $55.1 million in allocated proceeds less SIR’s closing book value and transaction related costs. The $32.3 million pre-tax gain is recorded within income from discontinued operations before taxes in the Company’s Consolidated Income Statements. As a result of this gain, the Company utilized approximately $12.7 million of the net Deferred Tax Asset related to its net operating loss carryforwards.

The $45 million of proceeds allocated to the License Agreement represents a one-time non-refundable upfront license fee received by the Company as consideration for entering into the 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 will report ongoing license fees earned during the term of the License Agreement, as well as license fee revenue earned in the future from other potential licensing opportunities. As a result of this one-time license fee, the Company utilized approximately $15 million of the net Deferred Tax Asset related to its net operating

8

loss carryforwards during the first quarter of 2004. The Company incurred transaction costs of approximately $2.2 million related to the consummation of the License Agreement principally in the first quarter of 2004, which are recorded within General and Administrative Expenses in the Consolidated Income Statements.

The fair value of the International Options is being marked to market on a quarterly basis with any changes in fair value recorded in the Consolidated Income Statements. For the three and nine months ended September 30, 2004, there was no change in the fair value of the International Options. Management currently expects the International Options related to the Company’s existing non-U.S. real estate brokerage operations and affiliates to be exercised in the near term. As a result, beginning in the third quarter of 2004, the assets and liabilities of such operations are classified as held for sale in the Consolidated Balance Sheets, and the related operating results are reported as discontinued operations in the Consolidated Income Statements.

The following is a summary of the operating results of the Company’s discontinued operations for the three and nine months ended September 30, 2004 and 2003:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
	(Thousands of dollars)
Revenues	$	688		$	11,719		$	15,910		$	27,509
Expenses:
Direct costs of services		196			958			1,185			3,604
Salaries and related costs		253			3,633			5,103			9,265
General and administrative expenses		671			2,739			3,154			7,765
Depreciation and amortization expense		14			574			36			1,660
Total expenses		1,134			7,904			9,478			22,294
Operating (loss) income		(446	)		3,815			6,432			5,215
Gain on sale of SIR		—			—			32,268			—
Other expense		(34	)		(5	)		(38	)		(7	)
(Loss) income from discontinued operations before taxes		(480	)		3,810			38,662			5,208
Income tax (benefit) expense		(80	)		1,767			14,368			2,678
(Loss) income from discontinued operations		($400	)	$	2,043		$	24,294		$	2,530

9

According to the terms of the Stock Purchase Agreement related to the transaction, the Company is due to receive 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 three and nine months ended September 30, 2004, revenues from discontinued operations included $0.3 million and $8.6 million, respectively, of such amounts.

The following is a summary of the assets and liabilities classified as held for sale as of September 30, 2004, December 31, 2003 and September 30, 2003:

	September30, 2004			December31, 2003			September30, 2003
	(Thousandsofdollars)
Assets:
Cash and cash equivalents		$	—		$	2,905		$	65
Restricted cash			—			1,157			1,442
Accounts receivable, net			95			1,185			622
Properties, net			30			10,693			10,336
Goodwill			—			10,089			3,338
Other current assets			28			3,639			2,127
Assets held for sale		$	153		$	29,668		$	17,930
Liabilities:
Accounts payable and accrued liabilities		$	150		$	11,360		$	8,031
Other current liabilities			—			3,838			3,362
Liabilities held for sale		$	150		$	15,198		$	11,393

4. 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 3 for further information on discontinued operations.)

The table below presents revenues for the Company’s operating segments, as well as a reconciliation of segment revenues to total revenues from continuing operations for the three and nine months ended September 30, 2004 and 2003:

10

	ThreeMonthsEnded September30,				NineMonthsEnded September30,
	2004		2003		2004		2003
	(Thousandsofdollars)
Auction	$	42,866	$	29,006	$	268,305	$	174,719
Finance		1,324		1,199		4,405		3,976
All Other		400		354		1,585		2,728
Total segment revenues		44,590		30,559		274,295		181,423
Unallocated amounts:
License fee revenue (see Note 3)		—		—		45,000		—
Total revenues from continuing operations	$	44,590	$	30,559	$	319,295	$	181,423

The table below presents (loss) income before taxes for the Company’s operating segments, as well as a reconciliation of segment (loss) income before taxes to (loss) income from continuing operations before taxes for the three and nine months ended September 30, 2004 and 2003:

	ThreeMonthsEnded September30,				NineMonthsEnded September30,
	2004		2003		2004			2003
	(Thousandsofdollars)
Auction	($39,791	)	($39,356	)	$	4,309		($44,718	)
Finance	(515	)	(523	)		(515	)	(1,338	)
All Other	(209	)	(644	)		(528	)	(1,089	)
Segment (loss) income before taxes	(40,515	)	(40,523	)		3,266		(47,145	)
Unallocated amounts:
License fee revenue (see Note 3)	—		—			45,000		—
License Agreement transaction costs (see Note 3)*	(16	)	—			(2,158	)	—
Unallocated expenses related to discontinued operations **	—		(521	)		—		(1,386	)
Special charges (see Note 12)	(368	)	(1,195	)		(1,652	)	(2,571	)
Amortization of discount - DOJ antitrust fine (see Note 12)	(506	)	(584	)		(1,543	)	(1,775	)
Amortization of discount - Discount Certificates (see Note 12)	(705	)	(1,056	)		(2,133	)	(1,056	)
Net restructuring charges (see Note 13)	—		308			(146	)	(5,033	)
Retention costs	—		(1,807	)		(285	)	(8,150	)
(Loss) income from continuing operations before taxes	($42,110	)	($45,378	)	$	40,349		($67,116	)

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* Represents transaction costs related to the consummation of the License Agreement, which are not allocated to the Company’s operating segments. This is consistent with how the related license fee revenue is presented for segment reporting purposes.

** Represents amounts previously allocated to the Company’s discontinued real estate brokerage business (see Note 3), which represent expenses of the Company’s ongoing operations.

The table below presents assets for the Company’s operating segments, as well as a reconciliation of segment assets to consolidated assets as of September 30, 2004, December 31, 2003 and September 30, 2003:

	September30, 2004		December31, 2003		September30, 2003
	(Thousandsofdollars)
Auction	$	632,634	$	651,150	$	488,462
Finance		89,684		107,678		83,436
All Other		1,107		1,150		1,691
Total segment assets		723,425		759,978		573,589
Unallocated amounts:
Deferred tax assets		84,217		106,801		119,730
Assets held for sale (see Note 3)		153		29,668		17,930
Unallocated assets related to discontinued operations ***		—		5,023		4,668
Consolidated Assets	$	807,795	$	901,470	$	715,917

*** Represents amounts previously allocated to the Company’s discontinued real estate brokerage business (see Note 3), which represent assets of the Company’s ongoing operations.

5. Receivables

Accounts Receivable – Accounts Receivable primarily relates to the Company’s Auction segment. 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 auction or negotiate a private sale.

At September 30, 2004, approximately $69.4 million, or 35%, of the net Accounts Receivable balance was due from one purchaser. The Company received a $34.7 million payment related to this receivable on November 2, 2004 and is due to collect the remaining $34.7 million in January 2005.

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Notes Receivable and Consignor Advances – The Company 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. Although 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 lend at loan to value ratios higher than 50%. 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. 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. The general purpose secured loans allow the Company to establish or enhance a mutually beneficial relationship with dealers and collectors. The loans are generally made with full recourse to the borrower. In certain instances, however, 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 Notes Receivable and Consignor Advances are unsecured loans totaling $5.8 million, $11.3 million and $14.6 million at September 30, 2004, December 31, 2003 and September 30, 2003, 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 directly sold by the dealer or at auction with any net 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. The total of all such unsecured loans was $5.1 million, $7.8 million and $11.0 million at September 30, 2004, December 31, 2003 and September 30, 2003, respectively. These amounts are included in the total unsecured loan balances provided in the previous paragraph.

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At September 30, 2004, two consignor advances comprised approximately 11% and 10%, respectively, of the net Notes Receivable and Consignor Advances balance. One of these consignor advances totaling approximately $11 million was collected on October 22, 2004.

The weighted average interest rates earned on Notes Receivable and Consignor Advances were 5.0% and 5.6% for the three months ended September 30, 2004 and 2003, respectively. The weighted average interest rates earned on Notes Receivable and Consignor Advances were 5.9% and 5.7% for the nine months ended September 30, 2004 and 2003, respectively.

Changes in the Allowance for Credit Losses relating to Notes Receivable and Consignor Advances for the nine months ended September 30, 2004 and 2003 were as follows:

	NineMonthsEnded September30,
	2004			2003
	(Thousandsofdollars)
Allowance for credit losses at January 1	$	1,600		$	1,573
Change in loan loss provision		(33	)		523
Write-offs		(103	)		(537	)
Foreign currency exchange rate changes		(1	)		6
Allowance for credit losses at September 30	$	1,463		$	1,565

6. Goodwill

Goodwill related to the Company’s continuing operations is entirely attributable to the Auction segment. For the nine months ended September 30, 2004 and 2003, changes in Goodwill were as follows:

	2004			2003
	(Thousandsofdollars)
Balance as of January 1	$	13,565		$	13,215
Foreign currency exchange rate changes		(25	)		196
Balance as of September 30	$	13,540		$	13,411

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7. Credit Arrangements

Bank Credit Facilities –On March 4, 2004, the Company used existing cash balances to repay the remaining $20 million in borrowings outstanding under the senior secured term facility of its former credit agreement (the “Amended and Restated Credit Agreement”).

Additionally, on March 4, 2004, the Company entered into a new senior secured credit agreement with General Electric Capital Corporation (the “GE Capital Credit Agreement”). The GE Capital Credit Agreement is available through March 4, 2007 and provides for borrowings of up to $200 million provided by an international syndicate of lenders.

Borrowings under the GE Capital Credit Agreement are available for the funding of the Company’s ordinary working capital requirements and general corporate needs. The Company paid arrangement fees of $3.0 million related to the GE Capital Credit Agreement, which are being amortized to interest expense over the three-year term of the agreement.

The Company’s obligations under the GE Capital Credit Agreement are secured by substantially all of the assets of the Company, as well as the assets of its subsidiaries in the U.S. and the United Kingdom (the “U.K.”). The GE Capital Credit Agreement also contains financial covenants requiring the Company to not exceed $10 million in annual capital expenditures and to have a quarterly fixed charge coverage ratio of not less than 1.0. The financial covenant relating to capital expenditures is first effective for the year ending December 31, 2004, while the financial covenant relating to the fixed charge coverage ratio tests was first effective for the quarter ended June 30, 2004. The GE Capital Credit Agreement also has a covenant that prohibits the Company from making dividend payments. In August 2004, the GE Capital Credit Agreement was amended to allow the Company’s U.K. subsidiary to incur capital expenditures of up to $4 million on or prior to December 31, 2004 in connection with the purchase of a previously leased building in London. The capital expenditure of up to $4 million allowed by this amendment is in addition to the $10 million annual permitted amount under the GE Capital Credit Agreement. The Company is in compliance with its covenants.

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At the option of the Company, borrowings under the GE Capital Credit Agreement generally bear interest equal to: (i) 1.25% plus the higher of the Prime Rate or the Federal Funds Rate plus 0.5%, or (ii) LIBOR plus 2.75%. Beginning on March 31, 2005, the applicable interest rate charged for borrowings under the GE Capital Credit Agreement may be adjusted up or down depending on the Company’s performance under the quarterly fixed charge coverage ratio tests.

As of September 30, 2004, the Company had no outstanding borrowings under the GE Capital Credit Agreement. As of December 31, 2003 and September 30, 2003, the Company had outstanding borrowings of $20 million and $55 million, respectively, under the Amended and Restated Credit Agreement.

For the nine months ended September 30, 2004, the weighted average interest rate charged on outstanding borrowings was approximately 6.2%. For the three and nine months ended September 30, 2003, the weighted average interest rates charged on outstanding borrowings were approximately 4.7% and 5.3%, respectively.

Senior Unsecured Debt – In February 1999, the Company issued a tranche of long-term debt securities (the “Notes”), pursuant to the Company’s $200 million shelf registration with the Securities and Exchange Commission, 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.

An event of default related to the GE Capital Credit Agreement does not, in and of itself, constitute an event of default under the Indenture pursuant to which the Notes were issued.

If and to the extent required under the Indenture pursuant to which the Notes were issued and subject to certain exceptions contained in the Indenture, the security documents executed in connection with the GE Capital Credit Agreement provide that the obligations under the Notes shall be secured equally and ratably with that portion of the obligations under the GE Capital Credit Agreement that exceed the permitted exceptions contained in the Indenture.

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Interest Expense – For the three and nine months ended September 30, 2004 and 2003, interest expense consisted of the following:

	ThreeMonthsEnded September30,				NineMonthsEnded September30,
	2004		2003		2004		2003
	(Thousandsofdollars)
Credit Facility Borrowings:
Interest expense on outstanding borrowings	$	—	$	295	$	298	$	1,543
Amortization of amendment and arrangement fees		250		413		864		1,517
Commitment fees		258		96		610		269
Sub-total		508		804		1,772		3,329
Interest expense on York Property capital lease obligation		4,477		4,480		13,434		11,639
Interest expense on long-term debt		1,738		1,737		5,214		5,211
Amortization of discount - Discount Certificates (see Note 12)		705		1,056		2,133		1,056
Amortization of discount - DOJ antitrust fine (see Note 12)		506		584		1,543		1,775
Other interest expense		560		325		1,203		997
Total	$	8,494	$	8,986	$	25,299	$	24,007

Other interest expense principally relates to interest accrued on the unfunded obligation under the Company’s Benefit Equalization Plan.

8. Defined Benefit Pension Plan

The Company makes contributions to a defined benefit pension plan covering substantially all U.K. employees (the “U.K. Plan”). For the three and nine months ended September 30, 2004 and 2003, the components of net periodic pension cost were as follows:

	ThreeMonthsEnded September30,						NineMonthsEnded September30,
	2004			2003			2004			2003
	(Thousandsofdollars)
Service cost	$	1,665		$	1,461		$	4,999		$	4,381
Interest cost		2,791			2,306			8,379			6,914
Expected return on plan assets		(4,111	)		(3,560	)		(12,343	)		(10,674	)
Amortization of prior service cost		66			59			199			177
Amortization of actuarial loss		262			—			786			—
Amortization of transitional asset		—			(2	)		—			(7	)
Sub-total		673			264			2,020			791
Special termination benefits		—			—			13			282
Net periodic pension cost	$	673		$	264		$	2,033		$	1,073

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The special termination benefits are reflected in the Consolidated Income Statements principally within Net Restructuring Charges.

Total contributions to the U.K. Plan in 2004 are expected to be approximately $2.8 million. For the nine months ended September 30, 2004, total contributions to the U.K. Plan were approximately $2.0 million.

Effective April 1, 2004, the U.K. Plan was closed to new employees. From that date, a defined contribution plan was made available to new employees.

9. Derivative 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 funded and settled through the Company’s global treasury function. The Company’s objective for holding such 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 Company’s 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.”

As of September 30, 2004 and December 31, 2003, the Consolidated Balance Sheets included assets relating to the Company’s forward exchange contracts of approximately $0.2 million and $0.3 million, respectively, recorded within Prepaid Expenses and Other Current Assets. As of September 30, 2003, the Consolidated Balance Sheets included a liability of $43,242 relating to the Company’s forward exchange contracts recorded within Accounts Payable and Accrued

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Liabilities. These amounts reflect the fair value of the Company’s outstanding forward exchange contracts on those dates.

10. Commitments and Contingencies

Employment Agreements –During the second half of 2003 the Company entered into employment agreements with a number of employees, which expire in June 2006. 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 commitment for future salaries for the entire three-year period, excluding incentive bonuses, is approximately $10.1 million, of which approximately $4.5 million had been paid through October 29, 2004.

Lending Commitments –In certain situations, the Company 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 (see Note 5). Unfunded commitments to extend additional credit were approximately $9.4 million at September 30, 2004.

Legal Actions – The Company becomes involved, from time to time, in various claims and lawsuits incidental to the ordinary course of its business. In the opinion of management, any such claims and lawsuits are not currently expected to have a material adverse effect on the Company’s business, results of operations, financial condition and/or liquidity.

Gain Contingency – During the third quarter of 2004, the Company signed an agreement for the sale of land and buildings at Billingshurst, West Sussex in the U.K. (the “Sussex Property”). The completion of the sale is conditional upon the receipt of planning permission for redevelopment of part of the site. If completed, the sale of the Sussex Property would result in a pre-tax gain in the range of approximately $5 to $6 million. The Company currently expects this contingency to be resolved some time in 2005.

(See Notes 11 and 12 for other commitments and contingencies.)

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11. 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 guarantee only in the event that the property sells for less than the minimum price and, therefore, the Company must pay the difference between the sale price at auction and the amount of the 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 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. Furthermore, in certain situations, the Company reduces its financial exposure under auction guarantees through sharing arrangements with unaffiliated partners.

In the first quarter of 2003, the Company adopted the recognition and measurement provisions of Financial Accounting Standards Board Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” for guarantees issued or modified after December 31, 2002.

As of September 30, 2004, the Company had outstanding auction guarantees totaling $165.0 million, the property relating to which had a mid-estimate sales price (1) of $193.3 million. The Company’s financial exposure under its outstanding auction guarantees is reduced by $41.2 million as a result of sharing arrangements with unaffiliated partners. The property related to such guarantees is being offered at auctions in the fourth quarter of 2004 and first half of 2005. As of September 30, 2004, $20.0 million of the guaranteed amount had been advanced by the Company, of which the Company has recorded its $18.5 million share within Notes Receivable and Consignor Advances in the Consolidated Balance Sheets (see Note 5).

Included in total outstanding auction guarantees as of September 30, 2004 was a $35 million auction guarantee entered into on September 22, 2004 that was cancelled by the consignor on October 1, 2004.

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As of September 30, 2004, December 31, 2003 and September 30, 2003, the carrying amount of the liability related to the Company’s outstanding auction guarantees was approximately $1.1 million, $0.5 million and $0.3 million, respectively, and was reflected in the Consolidated Balance Sheets within Accounts Payable and Accrued Liabilities.

As of November 5, 2004, the Company had outstanding auction guarantees totaling $41.8 million, the property relating to which had a mid-estimate sales price (1) of $47.3 million. The Company's financial exposure under its outstanding auction guarantees is reduced by $14.2 million principally as a result of sharing arrangements with unaffiliated partners. The property related to such guarantees is being offered at auctions in the fourth quarter of 2004 and first half of 2005. As of November 5, 2004, $9.7 million of the guaranteed amount had been advanced by the Company, of which the Company will record its $7.9 million share within Notes Receivable and Consignor Advances.

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

12. Special Charges and Settlement Liabilities

Special Charges – For the three and nine months ended September 30, 2004 and 2003, the Company recorded the following Special Charges related to the investigation by the Antitrust Division of the United States Department of Justice (the “DOJ”), other governmental investigations and the related civil antitrust litigation:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
	(Thousands of dollars)
Legal and other professional fees	$	48	$	61	$	528	$	613
Settlement administration costs		174		1,052		593		1,626
Loss on redemption of Discount Certificates		146		82		531		82
Settlement of U.S. Antitrust opt out claim		—		—		—		250
Total	$	368	$	1,195	$	1,652	$	2,571

For the three and nine months ended September 30, 2004, the legal and other professional fees noted above are principally the result of the Canadian Competition Bureau’s continuing investigation regarding the same anti-competitive practices relating to commissions charged by the Company and Christie’s International, PLC (“Christie’s”) for auction services that were the subject of the DOJ investigation. In the opinion of management, this investigation is not currently

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expected to have a material adverse effect on the Company’s business, results of operations, financial condition and/or liquidity.

On April 10, 2003, the Company and Christie’s entered into a settlement agreement with one of the parties that opted out of the class action settlement in civil antitrust litigation brought against the Company and Christie’s relating to commissions charged for auctions in the U.S. (the “U.S. Antitrust Litigation”). In the first quarter of 2003, the Company recorded $0.25 million in Special Charges as a result of the completion of the settlement of this claim.

Settlement Liabilities – In accordance with the U.S. Antitrust Litigation settlement agreement, the Company issued to the class of plaintiffs vendor’s commission discount certificates (“Discount Certificates”) with a face value of $62.5 million. 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 equals the amount that was recorded in the Consolidated Income Statements as Special Charges in the third quarter of 2000. The Discount Certificates are fully redeemable in connection with any auction conducted by the Company or Christie’s in the U.S. or the U.K. and 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. 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 September 30, 2004, the outstanding face value of unused Discount Certificates that the Company could be required to redeem was $58.3 million and the carrying value of such Discount Certificates was $50.3 million.

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 Special Charges of $34.1 million, which represents the present value of the fine payable. The $10.9 million discount on the amount due is being amortized to interest expense over the five-year period during which the fine is being paid. As of September 30, 2004, the Company had funded $18 million of the fine and the remaining $27 million of the

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fine is payable as follows: $12 million due on February 6, 2005 and $15 million due on February 6, 2006. As of September 30, 2004, the carrying value of the fine payable to the DOJ was $25.1 million.

As of September 30, 2004, December 31, 2003 and September 30, 2003, Settlement Liabilities consisted of the following:

	September 30, 2004		December 31, 2003		September 30, 2003
	(Thousands of dollars)
Current:
Discount Certificates (net)	$	3,400	$	1,330	$	3,200
DOJ antitrust fine (net)		10,541		3,951		3,873
Sub-total		13,941		5,281		7,073
Long-term:
Discount Certificates (net)		46,940		49,845		47,499
DOJ antitrust fine (net)		14,606		25,653		25,148
Sub-total		61,546		75,498		72,647
Total	$	75,487	$	80,779	$	79,720

The current portion of the liability for the Discount Certificates is based on management’s estimate of redemptions expected during the twelve-month period after the current balance sheet date.

Amounts charged to Settlement Liabilities during the nine months ended September 30, 2004 were as follows:

	Discount Certificates (net)			DOJ Antitrust Fine (net)			Total
	(Thousands of dollars)
Liability at January 1, 2004	$	51,175		$	29,604		$	80,779
Cash payment to DOJ		—			(6,000	)		(6,000	)
Redemption of Discount Certificates		(3,499	)		—			(3,499	)
Amortization of discount		2,133			1,543			3,676
Loss on redemption of Discount Certificates		531			—			531
Liability at September 30, 2004	$	50,340		$	25,147		$	75,487

13. Restructuring Liability

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. The 2002 Restructuring Plan has been fully

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implemented and the remaining liability, which is recorded within Accounts Payable and Accrued Liabilities, is expected to be funded during the fourth quarter of 2004. Amounts charged to the restructuring liability through September 30, 2004 were as follows:

	Employee Termination Benefits			Lease and Contract Termination Costs			Asset Provisions			Other Costs			Total
	(Thousands of dollars)
Restructuring charges	$	4,007		$	124		$	—		$	50		$	4,181
Cash payments		(46	)		—			—			—			(46	)
Foreign currency exchange rate changes		8			—			—			—			8
Liability at December 31, 2002		3,969			124			—			50			4,143
Restructuring charges		5,219			500			495			319			6,533
Asset write-offs		—			—			(495	)		—			(495	)
Cash payments		(6,502	)		(621	)		—			(343	)		(7,466	)
Adjustments to liability		(1,471	)		(3	)		—			(25	)		(1,499	)
Foreign currency exchange rate changes		311			—			—			—			311
Liability at December 31, 2003		1,526			—			—			1			1,527
Restructuring charges		38			47			—			61			146
Cash payments		(1,401	)		(47	)		—			(62	)		(1,510	)
Foreign currency exchange rate changes		(33	)		—			—			—			(33	)
Liability at September 30, 2004	$	130		$	—		$	—		$	—		$	130

14. Comprehensive (Loss) Income

The Company’s comprehensive (loss) income includes the net (loss) income for the period, as well as other comprehensive income (loss), which consists of the change in the foreign currency translation adjustment account during the period. For the three and nine months ended September 30, 2004 and 2003, comprehensive (loss) income is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004			2003
	(Thousands of dollars)
Net (loss) income	($28,676	)	($27,435	)	$	50,521		($40,859	)
Other comprehensive income (loss)	409		1,588			(904	)	3,379
Comprehensive (loss) income	($28,267	)	($25,847	)	$	49,617		($37,480	)

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15. Stock-Based Compensation

Stock Option Plans – The Company accounts for the 1987 Stock Option Plan and 1997 Stock Option Plan in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, compensation cost related to stock option grants to employees has been recognized only to the extent that the fair market value of the stock exceeds the exercise price of the stock option at the date of the grant. The following table illustrates the effect on net (loss) income and (loss) earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,”to stock-based employee compensation:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004			2003
	(Thousands of dollars, except per share data)
Net (loss) income, as reported	($28,676	)	($27,435	)	$	50,521		($40,859	)
Add: Stock-based employee compensation expense included in reported net (loss) income, net of tax effects	1,417		55			2,989		55
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(2,141	)	(1,457	)		(5,348	)	(5,510	)
Pro forma net (loss) income	($29,400	)	($28,837	)	$	48,162		($46,314	)
(Loss) earnings per share:
Basic (loss) earnings per share, as reported	($0.46	)	($0.45	)	$	0.82		($0.66	)
Basic (loss) earnings per share, pro forma	($0.47	)	($0.47	)	$	0.78		($0.75	)
Diluted (loss) earnings per share, as reported	($0.46	)	($0.45	)	$	0.81		($0.66	)
Diluted (loss) earnings per share, pro-forma	($0.47	)	($0.47	)	$	0.77		($0.75	)

Option Exchange Program– In February 2003, the Compensation Committee of the Board of Directors approved an exchange offer of cash or restricted stock under the 2003 Restricted Stock Plan for stock options to eligible employees that held certain stock options under the Company’s 1997 Stock Option Plan (the “Exchange Offer”). The Exchange Offer was tendered during the first half of 2004.

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The total number of options that were cancelled as a result of the Exchange Offer was approximately 5.6 million and the number of shares of restricted stock that were issued was approximately 1.1 million shares. These shares were issued upon acceptance of the Exchange Offer at the closing market price of the Company’s Class A Common Stock on the date of issuance 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 expensed over the restricted stock’s four-year vesting period. The total amount of compensation expense related to the restricted stock issuance, assuming that all restricted shares vest, will be approximately $14 million.

For the three and nine months ended September 30, 2004, the Company recognized stock compensation expense of $1.8 million and $3.7 million, respectively, related to the Exchange Offer. 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.

16. Variable Interest Entity

In December 2003, the Financial Accounting Standards Board (the “FASB”) issued a revision to FIN No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), which was originally issued in January 2003. FIN 46, as revised, provides guidance on the consolidation of certain entities when control exists through other than voting (or similar) interests and was effective immediately with respect to entities created after January 31, 2003. For certain special purpose entities created prior to February 1, 2003, FIN 46, as revised, became effective for financial statements issued after December 15, 2003. FIN 46, as revised, is effective for all other entities created prior to February 1, 2003 beginning with financial statements for reporting periods ending after March 15, 2004. FIN 46, as revised, requires consolidation by the majority holder of expected losses, expected residual returns, or both of the activities of a variable interest entity (“VIE”).

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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 September 30, 2004 is inventory with a carrying value of approximately $3.4 million. Such inventory consists entirely of artwork and is the collateral for the $3.7 million in outstanding loans discussed above, which are eliminated in the 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 June 30, 2004, the entity had total assets of $6.2 million, total liabilities of $5.9 million and capital of $0.3 million.

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ITEM 2:   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

Note 4 (“Segment Reporting”) of Notes to Consolidated Financial Statements should be read in conjunction with this discussion.

Seasonality

The worldwide art auction market has two principal selling seasons, spring and fall. Accordingly, first and third quarter results of the Auction segment typically reflect lower Aggregate Auction Sales (as defined below) and lower operating results than the second and fourth quarters due to the fixed nature of many of the Company’s operating expenses. (See Note 2 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements”).

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 Results of Operations are financial measures presented in accordance with GAAP and also on a non-GAAP basis. 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 since the prior year. Management believes the use of this non-GAAP financial measure provides a more meaningful discussion and analysis of material fluctuations in the Company’s operating results. Additionally, management utilizes this non-GAAP financial measure in analyzing its operating results.

Overview

During the first nine months of 2004, the recovery in the international art market, which began in the fourth quarter of 2003, continued and the Company experienced significantly better results as compared to the same period in the prior year. Management currently expects this recovery in the international art market to continue and is encouraged by its fourth quarter auction sales results to-date as well as by the level of consignments for upcoming auctions this quarter, which include a number of outstanding various-owner and single-owner auctions. However, it remains unlikely that Auction segment results for the second half of

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2004 will be at the level achieved in the first half of the year. Aggregate Auction Sales for the second half of the year are traditionally lower than the first half due to the timing of certain sales in the Company’s sales calendar. Additionally, we do not expect another private sale such as the landmark private sale of the Forbes Collection of Faberge in February 2004, or a replication of the May 2004 single-owner sale of property of the Greentree Foundation, both as discussed in more detail below. (See statement on Forward Looking Statements.)

The Company’s pre-tax results from continuing operations for the three and nine months ended September 30, 2004 and 2003 are summarized below (in thousands of dollars):

	Three Months Ended September 30,
	2004			2003			$ Change		% Change
Revenues:
Auction and related revenues	$	42,866		$	29,006		$	13,860	48	%
License fee revenue		—			—			—	N/A
Other revenues		1,724			1,553			171	11	%
Total revenues		44,590			30,559			14,031	46	%
Expenses		78,712			67,532			11,180	17	%
Operating loss		(34,122	)		(36,973	)		2,851	8	%
Net interest expense and other		(7,988	)		(8,405	)		417	5	%
Loss from continuing operations before taxes		($42,110	)		($45,378	)	$	3,268	7	%

	Nine Months Ended September 30,
	2004			2003			$ Change			% Change
Revenues:
Auction and related revenues	$	268,305		$	174,719		$	93,586		54	%
License fee revenue		45,000			—			45,000		*
Other revenues		5,990			6,704			(714	)	–11	%
Total revenues		319,295			181,423			137,872		76	%
Expenses		255,643			227,130			28,513		13	%
Operating income (loss)		63,652			(45,707	)		109,359		*
Net interest expense and other		(23,303	)		(21,409	)		(1,894	)	–9	%
Income (loss) from continuing operations before taxes	$	40,349			($67,116	)	$	107,465		*

* Represents a change in excess of 100%.

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The improvement in the Company’s results for the three months ended September 30, 2004 when compared to the prior year was due to increased auction commission revenues principally resulting from a significant improvement in third quarter auction sales; partially offset by higher employee benefit costs and costs associated with the Company’s option exchange program, as well as increased professional fees.

The improvement in the Company’s results for the nine months ended September 30, 2004 when compared to the prior year was due to increased auction and related revenues principally resulting from a significant improvement in auction sales especially during the spring auction season, as well as a higher level of private treaty revenues. Also favorably influencing the comparison of September year-to-date results to the prior year is 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. The overall improvement in the Company’s results for the periods 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 nine months ended September 30, 2004, the Company’s pre-tax income from discontinued operations was $38.7 million; a significant improvement when compared to the same period in 2003 when the Company’s discontinued operations had pre-tax income of approximately $5.2 million. This improvement was largely due to a pre-tax gain of $32.3 million recognized on the sale of the Company’s discontinued domestic real estate brokerage business. (See Note 3 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements.”)

Please refer to the discussion below for a more detailed discussion of the significant factors impacting the Company’s results for the three and nine months ended September 30, 2004.

Sale of Sotheby’s International Realty, Inc.

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 non-U.S. real estate brokerage offices. On February 17, 2004, the Company consummated the sale of SIR to a subsidiary of Cendant Corporation (“Cendant”). SIR and the non-U.S. real estate brokerage offices were the principal components of the Company’s former Real Estate segment.

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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 “License Agreement”). The License Agreement is applicable to Canada, Israel, Mexico, the U.S. 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 a license to use the related trademarks in other countries outside the U.S., which may be exercised during the five-year period following February 17, 2004 for a nominal amount (the “International Options”).

The total consideration paid by Cendant at closing for SIR’s company-owned real estate brokerage business and affiliate network, as well as the License Agreement and the International Options was $100.7 million, consisting of $98.9 million in cash and the assumption of a $1.8 million note payable. Net cash proceeds from the sale, after deducting $4.9 million in transaction costs, were $94.0 million. In addition to the consideration received at closing, the License Agreement provides for an ongoing license fee during its term based on the volume of commerce transacted under the licensed trademarks. (See “Liquidity and Capital Resources” below for a discussion of the Company’s expected use of the proceeds received at closing.)

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 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 License Agreement and $0.6 million was allocated to the International Options.

As a result of the sale of SIR’s company-owned real estate brokerage business and affiliate network, the Company recognized a pre-tax gain of $32.3 million, consisting of the $55.1 million in allocated proceeds less SIR’s closing book value and transaction related costs. The $32.3 million pre-tax gain is recorded within income from discontinued operations before taxes in the Company’s Consolidated Income Statements. As a result of this gain, the Company utilized approximately $12.7 million of the net Deferred Tax Asset related to its net operating loss carryforwards.

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The $45 million of proceeds allocated to the License Agreement represents a one-time non-refundable upfront license fee received by the Company as consideration for entering into the 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 will report ongoing license fees earned during the term of the License Agreement, as well as license fee revenue earned in the future from other potential licensing opportunities. As a result of this one-time license fee, the Company utilized approximately $15 million of the net Deferred Tax Asset related to its net operating loss carryforwards during the first quarter of 2004. The Company incurred transaction costs of approximately $2.2 million related to the consummation of the License Agreement principally in the first quarter of 2004, which are recorded within general and administrative expenses in the Consolidated Income Statements.

The fair value of the International Options is being marked to market on a quarterly basis with any changes in fair value recorded in the Consolidated Income Statements. For the three and nine months ended September 30, 2004, there was no change in the fair value of the International Options. Management currently expects the International Options related to the Company’s existing non-U.S. real estate brokerage operations and affiliates to be exercised within the next twelve months. As a result, beginning in the third quarter of 2004, the assets and liabilities of such operations are classified as held for sale in the Consolidated Balance Sheets, and the related operating results are reported as discontinued operations in the Consolidated Income Statements. (See statement on Forward Looking Statements.)

(See Note 3 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements.”)

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Revenues

For the three and nine months ended September 30, 2004 and 2003, revenues from continuing operations consisted of the following (in thousands of dollars):

	Three Months Ended September 30,
	2004			2003			$ Change			% Change
Auction and related revenues:
Auction commission revenues	$	34,674		$	22,895		$	11,779		51	%
Auction expense recoveries		1,807			1,893			(86	)	–5	%
Private treaty revenues		2,076			1,561			515		33	%
Principal activities		62			93			(31	)	–33	%
Catalogue subscription revenues		2,244			2,081			163		8	%
Other		2,003			483			1,520			*
Total auction and related revenues		42,866			29,006			13,860		48	%
License fee revenue		—			—			—		N/A
Other revenues:
Finance segment revenues		1,324			1,199			125		10	%
Other		400			354			46		13	%
Total other revenues		1,724			1,553			171		11	%
Total revenues	$	44,590		$	30,559		$	14,031		46	%
Key performance indicators:
Aggregate Auction Sales **	$	194,308		$	116,791		$	77,517		66	%
Net Auction Sales ***	$	167,217		$	99,681		$	67,536		68	%
Auction commission margin ****		20.7	%		23.0	%		N/A		–10	%
Average loan portfolio	$	79,567		$	91,838			($12,271	)	–13	%

	Nine Months Ended September 30,
	2004			2003			$ Change			% Change
Auction and related revenues:
Auction commission revenues	$	222,355		$	151,899		$	70,456		46	%
Auction expense recoveries		10,387			8,972			1,415		16	%
Private treaty revenues		18,391			4,320			14,071			*
Principal activities		5,132			541			4,591			*
Catalogue subscription revenues		7,009			6,241			768		12	%
Other		5,031			2,746			2,285		83	%
Total auction and related revenues		268,305			174,719			93,586		54	%
License fee revenue		45,000			—			45,000			*
Other revenues:
Finance segment revenues		4,405			3,976			429		11	%
Other		1,585			2,728			(1,143	)	–42	%
Total other revenues		5,990			6,704			(714	)	–11	%
Total revenues	$	319,295		$	181,423		$	137,872		76	%
Key performance indicators:
Aggregate Auction Sales **	$	1,547,588		$	897,797		$	649,791		72	%
Net Auction Sales ***	$	1,340,890		$	772,496		$	568,394		74	%
Auction commission margin ****		16.6	%		19.7	%		N/A		–16	%
Average loan portfolio	$	83,288		$	86,957			($3,669	)	–4	%

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Legend:
*	Represents a change in excess of 100%.
**	Represents the hammer price of property sold at auction plus buyer’s premium.
***	Represents the hammer price of property sold at auction.
****	Represents total auction commission revenues as a percentage of Net Auction Sales.

Auction and Related Revenues

Auction and related revenues increased $13.9 million, or 48%, to $42.9 million and $93.6 million, or 54%, to $268.3 million for the three and nine months ended September 30, 2004, respectively, when compared to the same periods in the prior year. For the three and nine months ended September 30, 2004, the favorable impact of foreign currency translations on auction and related revenues was $3.6 million and $14.4 million, respectively. Excluding the impact of favorable foreign currency translations, auction and related revenues increased $10.3 million, or 36%, to $39.3 million and $79.2 million, or 45%, to $253.9 million for the three and nine months ended September 30, 2004, respectively.

The increased level of auction and related revenues for the three and nine months ended September 30, 2004 was principally due to higher auction commission revenues. Also contributing to the increase in auction and related revenues for the nine months ended September 30, 2004, was increased private treaty revenues and principal activities. Each of the factors impacting the overall change in auction and related revenues for the periods is explained in more detail below.

Auction Commission Revenues – Auction commission revenues increased $11.8 million, or 51%, to $34.7 million and $70.5 million, or 46%, to $222.4 million for the three and nine months ended September 30, 2004, respectively, when compared to the same periods in the prior year. For the three and nine months ended September 30, 2004, the favorable impact of foreign currency translations on auction commission revenues was $3.2 million and $12.8 million, respectively. Excluding the impact of favorable foreign currency translations, auction commission revenues increased $8.6 million, or 38%, to $31.5 million and $57.7 million, or 38%, to $209.6 million for the three and nine months ended September 30, 2004, respectively.

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

Aggregate Auction Sales – Aggregate Auction Sales increased $77.5 million, or 66%, to $194.3 million and $649.8 million, or 72%, to $1,547.6 million for the three and nine months ended September 30, 2004, respectively, when compared to the same periods in the prior year. For the three and nine months ended September 30, 2004, the favorable impact of foreign currency translations on Aggregate Auction Sales was $18.4 million and $76.9 million, respectively. Excluding the impact of favorable foreign currency translations, Aggregate Auction Sales increased $59.1 million, or 51%, to $175.9 million and $572.9 million, or 64%, to $1,470.7 million for the three and nine months ended September 30, 2004, respectively.

The significant increase in Aggregate Auction Sales for the three and nine months ended September 30, 2004 reflects the continued recovery of the international art market, as well as improved global economic conditions when compared to the same periods in the prior year. The impact of specific sales on the overall increase in Aggregate Auction Sales for each of the periods is discussed below.

Aggregate Auction Sales for the third quarter of 2004 were favorably impacted by the successful July 2004 Old Master Paintings sale in London, which contributed $24.2 million to the overall increase for the period and included the sale of Johannes Vermeer’s painting “Young Woman seated at the Virginals” for $30 million. Results for the period also significantly benefited from approximately $17 million in Aggregate Auction Sales from the summer Important British Pictures sale, which in 2004 occurred in July; in 2003, the equivalent sale occurred in June and was included in the Company’s second quarter results. Additionally, results for the third quarter of 2004 reflect a $5.2 million, or 50%, increase in Aggregate Auction Sales attributable to single-owner collections, principally due to the July 2004 sale in Paris of the collection of Marianne and Pierre Nahon which totaled approximately $10.1 million and for which there was no comparable sale in the prior year.

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Results for the nine months ended September 30, 2004 include approximately $213.1 million in Aggregate Auction Sales attributable to the single-owner sale of property of the Greentree Foundation, which included the record breaking sale of Pablo Picasso’s “Garçon à la Pipe” for $104.2 million and for which there was no comparable sale in the prior year. Additionally, results for the period significantly benefited from a $90.2 million, or 72%, increase in Aggregate Auction Sales from the various-owner spring Impressionist and Contemporary sales in New York. In 2003, such sales produced dramatically lower results when compared to prior years due in part to economic uncertainties related to the build up to the war in Iraq. The comparison to the prior year was also favorably impacted by a $53.7 million, or 56%, improvement in the June Impressionist and Contemporary sales in London, the increase in third quarter sales results discussed above and significantly improved second quarter results generated by the Company’s salesrooms in Hong Kong, Geneva, Milan and Amsterdam.

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 low value works of art or collections, while higher valued property earns relatively lower margins.

For the three and nine months ended September 30, 2004, the Company experienced decreases of 10% and 16%, respectively, in auction commission margin when compared to the same periods in the prior year.

The decrease in auction commission margin for the three months ended September 30, 2004 was principally due to an unfavorable change in sales mix during the period, as well as a $1.2 million auction commission share paid to an unaffiliated third party as a result of the successful July 2004 Old Master Paintings sale in London.

The decrease in auction commission margin for the nine months ended September 30, 2004 was principally due to the fact that a significant portion of the increase in 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 season in the second quarter 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 sharing arrangements with partners, whereby the Company reduces its financial exposure under the auction guarantee in exchange for sharing in the auction commissions with the partner. Both of these factors

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significantly contributed to a $20.7 million increase in auction commissions owed by the Company to unaffiliated third parties.

Private Treaty Revenues – For the nine months ended September 30, 2004, private treaty revenues increased $14.1 million when compared to the same period in the prior year. The higher level of private treaty activity for the period reflects the traditionally variable nature of such sales, as well as management’s expanded efforts in this area.

Most significantly, results for the first nine months of 2004 include the landmark private sale of the Forbes Collection of Faberge in February 2004. Also favorably influencing the comparison of private treaty revenues to the prior year is the February 2004 sale of Raphael’s “Madonna of the Pinks” to the National Gallery in London and the May 2004 sale of a collection of Old Master Drawings to the Louvre, as well as several other significant private sales for which there were no comparable events in the prior year.

Principal Activities – The level of principal activities in a period is largely attributable to the economic environment, the supply of quality property available for investment and resale and the demand by buyers for such property, as well as the level of auction guarantees issued by the Company.

For the nine months ended September 30, 2004, principal activities increased $4.6 million when compared to the same period in the prior year. This increase was due, in part, 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, as well as an increased level of guarantees issued for the spring auction season and a higher degree of success for such guarantees when compared to the prior year. Also favorably impacting the comparison of September year-to-date results to the prior year is a $2.2 million gain recognized in January 2004 on the sale of property purchased by an art dealer through an unsecured loan from the Company, for which there was no comparable event in the prior year. In certain situations, property purchased pursuant to such unsecured loans is sold directly by the dealer or at auction with any net profit or loss shared by the Company and the dealer.

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License Fee Revenue

In the first quarter of 2004, the Company recognized income 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. (See “Sale of Sotheby’s International Realty, Inc.” above and Note 3 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements.”)

Other Revenues

For the nine months ended September 30, 2004, other revenues decreased $0.7 million, or 11%, when compared to the same period in the prior year. This decrease was principally due to a reduction in art education revenues resulting from the sale of the Company’s United Kingdom (“U.K.”) art education business on September 30, 2003, partially offset by a $0.4 million, or 11%, increase in Finance segment revenues, as discussed in more detail below.

Finance Segment Revenues – For the nine months ended September 30, 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 a 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 – The Finance segment’s average loan portfolio balance decreased $12.3 million, or 13%, and $3.7 million, or 4%, for the three and nine months ended September 30, 2004, respectively, when compared to the same periods in the prior year. These decreases were due in part to the limited availability of capital to fund new loans prior to the Company entering into its new senior secured credit agreement with General Electric Capital Corporation on March 4, 2004. As discussed in more detail below under “Liquidity and Capital Resources,” the Company’s present intention is to expand the Finance segment’s loan portfolio. (See statement on Forward Looking Statements.)

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Expenses

For the three and nine months ended September 30, 2004 and 2003, expenses from continuing operations consisted of the following (in thousands of dollars):

	Three Months Ended September 30,
		2004		2003			$Change			%Change
Direct costs of services		$	6,615	$	4,810		$	1,805		38	%
Salaries and related costs			37,125		30,863			6,262		20	%
General and administrative expenses			28,562		22,856			5,706		25	%
Depreciation and amortization expense			6,042		6,309			(267	)	–4	%
Retention costs			—		1,807			(1,807	)	–100	%
Net restructuring charges			—		(308	)		308		–100	%
Special charges			368		1,195			(827	)	–69	%
Total expenses		$	78,712	$	67,532		$	11,180		17	%

	Nine Months Ended September 30,
		2004		2003		$Change			%Change
Direct costs of services		$	32,731	$	26,252	$	6,479		25	%
Salaries and related costs			125,715		99,945		25,770		26	%
General and administrative expenses			77,580		66,361		11,219		17	%
Depreciation and amortization expense			17,534		18,818		(1,284	)	–7	%
Retention costs			285		8,150		(7,865	)	–97	%
Net restructuring charges			146		5,033		(4,887	)	–97	%
Special charges			1,652		2,571		(919	)	–36	%
Total expenses		$	255,643	$	227,130	$	28,513		13	%

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 period is generally dependent upon the volume and composition of the Company’s auction sales. For example, direct costs attributable to the sale of 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.

Direct costs increased $1.8 million, or 38%, to $6.6 million and $6.5 million, or 25%, to $32.7 million for the three and nine months ended September 30, 2004, respectively, when compared to the same periods in the prior year. For the three and nine months ended September 30, 2004, the unfavorable impact of foreign currency translations on direct costs was $0.5 million and $1.8 million, respectively. Excluding the impact of unfavorable foreign currency translations, direct costs increased $1.3 million, or 27%, to $6.1 million and $4.7 million, or 18%, to $30.9

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million for the three and nine months ended September 30, 2004, respectively.

The increased level of direct costs is consistent with the higher level of sales activity, and in particular single-owner sales, during the three and nine months ended September 30, 2004. For example, direct costs for the nine months ended September 30, 2004 include $1.2 million in catalogue production, advertising and promotional costs related to the single-owner sale 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 first nine months of 2004 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 three and nine months ended September 30, 2004 and 2003, salaries and related costs consisted of the following:

	Three Months Ended September 30,
		2004		2003		$Change		%Change
Full-time salaries		$	23,864	$	23,281	$	583	3	%
Employee benefits			5,765		3,188		2,577	81	%
Payroll taxes			2,481		2,167		314	14	%
Option Exchange			1,811		—		1,811	*
Incentive bonus costs			376		117		259	*
Other			2,828		2,110		718	34	%
Total salaries and related costs		$	37,125	$	30,863	$	6,262	20	%
	Nine Months Ended September 30,
		2004		2003		$Change		%Change
Full-time salaries		$	72,825	$	71,990	$	835	1	%
Employee benefits			14,740		10,811		3,929	36	%
Payroll taxes			8,794		7,483		1,311	18	%
Option Exchange			5,899		—		5,899	*
Incentive bonus costs			14,562		2,171		12,391	*
Other			8,895		7,490		1,405	19	%
Total salaries and related costs		$	125,715	$	99,945	$	25,770	26	%

* Represents a change in excess of 100%.

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Salaries and related costs increased $6.3 million, or 20%, to $37.1 million, and $25.8 million, or 26%, to $125.7 million for the three and nine months ended September 30, 2004, respectively, when compared to the same periods in the prior year. The unfavorable impact of foreign currency translations on salaries and related costs was approximately $1.9 million and $6.3 million for the three and nine months ended September 30, 2004, respectively. Excluding the impact of unfavorable foreign currency translations, salaries and related costs increased $4.4 million, or 14%, to $35.2 million and $19.5 million, or 20%, to $119.4 million for the three and nine months ended September 30, 2004, respectively.

For the nine months ended September 30, 2004, the increase in salaries and related costs was principally due to significantly higher incentive bonus costs. Additionally, for the three and nine months ended September 30, 2004, higher employee benefit costs and costs associated with the Company’s option exchange program significantly contributed to the overall increase for the periods, which was partially offset by lower full-time salaries (excluding the impact of unfavorable foreign currency translations). See discussion below for a more detailed explanation of each of these factors contributing to the variances versus the prior year.

Incentive Bonus Costs – For the nine months ended September 30, 2004, incentive bonus costs increased $12.4 million, when compared to the same period in the prior year. The significant increase in incentive bonus costs is consistent with the Company’s substantial improvement in year to date results and also reflects performance-based compensation awarded principally in the first quarter of 2004 in connection with the high level of private treaty transactions during the period.

Option Exchange Program – In February 2003, the Compensation Committee of the Board of Directors approved an exchange offer of cash or restricted stock under the 2003 Restricted Stock Plan for stock options to eligible employees that held certain stock options under the Company’s 1997 Stock Option Plan (the “Exchange Offer”). The Exchange Offer was tendered during the first half of 2004.

The total number of options that were cancelled as a result of the Exchange Offer was approximately 5.6 million and the number of shares of restricted stock that were issued was approximately 1.1 million shares. These shares were issued upon acceptance of the Exchange Offer at the closing market price of the Company’s Class A Common Stock on the date of issuance and resulted in the recording of deferred compensation expense and additional paid-in capital of approximately $14 million. The

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amount recorded as deferred compensation expense is being expensed over the restricted stock’s four-year vesting period. The total amount of compensation expense related to the restricted stock issuance, assuming that all restricted shares vest, will be approximately $14 million.

For the three and nine months ended September 30, 2004, the Company recognized stock compensation expense of $1.8 million and $3.7 million, respectively, related to the Exchange Offer. 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.

Employee Benefits – For the three months and nine months ended September 30, 2004, employee benefits increased $2.6 million, or 81%, and $3.9 million, or 36%, when compared to the same periods in the prior year. The higher level of employee benefits for the three and nine months ended September 30, 2004 was due in part to $1.4 million and $2.3 million, respectively, of severance costs related to headcount reductions in Continental Europe and North America. Also unfavorably impacting the comparison of employee benefits to the prior period are increases of $0.4 million and $1.2 million in costs related to the Company’s U.K. defined benefit pension plan for the three and nine months ended September 30, 2004, respectively, as well as increased medical and pension benefit costs for U.S. employees. The overall increase in employee benefits for the periods was partially offset by lower benefits costs achieved as a result of headcount reductions taking effect throughout 2003.

As a result of the recent unfavorable trend in employee health and retirement benefit costs in the U.S., management is currently analyzing various cost containment options for the Company’s U.S. health and retirement benefit plans. (See statement on Forward Looking Statements.)

Full-Time Salaries – For the three months ended September 30, 2004, full-time salaries increased $0.6 million, or 3%, to $23.9 million, when compared to the same period in the prior year. For the three months ended September 30, 2004, the unfavorable impact of foreign currency translations on full-time salaries was $1.3 million. Excluding the impact of unfavorable foreign currency translations, full-time salaries decreased $0.7 million, or 3%, to $22.6 million.

For the nine months ended September 30, 2004, full-time salaries increased $0.8 million, or 1%, to $72.8 million, when compared to the same period in the prior year. For the nine months ended September 30, 2004, the unfavorable impact of foreign currency translations on full-time salaries was $4.0 million. Excluding the impact of unfavorable

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foreign currency translations, full-time salaries decreased $3.2 million, or 4%, to $68.8 million.

The lower level of full-time salaries (excluding the impact of unfavorable foreign currency translations) was principally due to savings achieved as a result of headcount reductions taking effect throughout 2003.

General and Administrative Expenses

General and administrative expenses increased $5.7 million, or 25%, to $28.6 million, and $11.2 million, or 17%, to $77.6 million for the three and nine months ended September 30, 2004, respectively, when compared to the same periods in the prior year. The unfavorable impact of foreign currency translations on general and administrative expenses was approximately $1.3 million and $3.9 million for the three and nine months ended September 30, 2004, respectively. Excluding the impact of unfavorable foreign currency translations, general and administrative expenses increased $4.4 million, or 19%, to $27.3 million and $7.3 million, or 11%, to $73.7 million for the three and nine months ended September 30, 2004, respectively.

For the three months ended September 30, 2004, the overall increase in general and administrative expenses was largely due to a $2.7 million increase in professional fees principally related to the Company’s ongoing implementation of Section 404 of the Sarbanes-Oxley Act and increased legal fees, a $0.7 million increase in travel and entertainment costs primarily resulting from the higher level of business opportunities during the period and higher real estate taxes related to the Company’s premises in New York and London. Also unfavorably influencing the comparison to the prior year are $0.5 million in settlement costs related to a legal claim for which there was no comparable event in the prior year. The overall increase in general and administrative expenses for the period was partially offset by the recovery of $1 million in previously paid real estate taxes in the U.K.

For the nine months ended September 30, 2004, the overall increase in general and administrative expenses was largely due to a $7.0 million increase in professional fees principally resulting from $2.2 million of transaction costs related to the consummation of the License Agreement (see “Sale of Sotheby’s International Realty, Inc.” above and Note 3 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements”) and increased legal fees, as well as professional fees incurred during the first nine months of 2004 related to the Company’s ongoing implementation of Section 404 of the Sarbanes-Oxley Act. Also

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unfavorably impacting the comparison to the prior period was a $2.5 million increase in non-recurring client goodwill gestures, authenticity claims and litigation settlements. Additionally, for the nine months ended September 30, 2004, travel and entertainment costs increased $1.2 million principally due to the higher level of business opportunities during the period.

The overall increase in general and administrative expenses for the nine months ended September 30, 2004 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 is 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 year-to-date 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

Depreciation and amortization expense decreased $0.3 million, or 4%, to $6.0 million and $1.3 million, or 7%, to $17.5 million for the three and nine months ended September 30, 2004, respectively, when compared to the same periods in the prior year principally due to fixed assets that became fully depreciated subsequent to September 30, 2003.

Retention Costs

In 2001 and 2002, the Company implemented retention programs to certain key employees upon fulfillment of full-time employment through certain dates. All amounts related to the retention programs were amortized over the related contractual service periods. For the nine months ended September 30, 2004, the Company recognized retention costs of $0.3 million. For the three and nine months ended September 30, 2003, the Company recognized retention costs of $1.8 million and $8.2 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.

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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, as described below. Net annual cost savings achieved as a result of the 2002 Restructuring Plan were approximately $17 million. See below for a more detailed discussion of these cost savings.

In December 2002, the Company committed to the termination of approximately 60 employees as a result of the 2002 Restructuring Plan and recorded restructuring charges of $4.2 million in the fourth quarter of 2002, principally consisting of $4.0 million in employee termination benefits, as well as $0.2 million in lease termination and other costs. These headcount reductions impacted the Auction segment primarily in North America, as well as certain corporate departments. Estimated annual savings achieved in salaries and related costs as a result of the headcount reductions and attrition were approximately $5 million.

In February 2003, as part of the 2002 Restructuring Plan, the Company and eBay entered into an agreement pursuant to which separate online auctions on sothebys.com were discontinued on April 30, 2003. As a result, the Company recorded restructuring charges of approximately $2.0 million in the first quarter of 2003 consisting of approximately $1.0 million for employee termination benefits, $0.5 million for a minimum guaranteed fee owed to eBay for which the Company would receive no future economic benefit and approximately $0.5 million for impairment losses related to certain technology assets. These actions resulted in estimated net annual cost savings of approximately $8 million, which have been achieved principally through lower salaries and related costs resulting from the termination of approximately 30 employees and through attrition. Additionally, savings have been achieved in direct costs of services and general and administrative expenses.

During 2003, as part of the 2002 Restructuring Plan, management committed to approximately 40 additional headcount reductions in Europe in the Auction segment. As a result, the Company recorded restructuring charges of $3.7 million and $0.5 million in the first and fourth quarters of 2003, respectively, for employee termination benefits. Additionally, in the first quarter of 2004, the Company recorded restructuring charges of $0.1 million for employee termination benefits, lease termination costs and other incremental costs incurred in the first quarter of 2004 related to this phase of the 2002 Restructuring

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Plan. These actions resulted in estimated annual cost savings of approximately $4 million, which have been achieved principally through lower salaries and related costs.

During the first quarter of 2003, as part of the 2002 Restructuring Plan, the Company entered into an agreement to outsource the operation of its mainframe computer systems. In conjunction with the decision to outsource such operations, management committed to the termination of six employees in the corporate Information Technology department and, as a result, the Company recorded restructuring charges of approximately $0.1 million in the first quarter of 2003 for employee termination benefits. These actions have resulted in estimated net annual cost savings of approximately $0.3 million. Such savings, have been achieved primarily through lower salaries and related costs.

(See Note 13 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements.”)

Special Charges

For the three and nine months ended September 30, 2004 and 2003, the Company recorded the following Special Charges related to the investigation by the Antitrust Division of the United States Department of Justice (the “DOJ”), other governmental investigations and the related civil antitrust litigation:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
	(Thousands of dollars)
Legal and other professional fees	$	48	$	61	$	528	$	613
Settlement administration costs		174		1,052		593		1,626
Loss on redemption of Discount Certificates		146		82		531		82
Settlement of U.S. Antitrust opt out claim		—		—		—		250
Total	$	368	$	1,195	$	1,652	$	2,571

(See Note 12 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements,” for information on special charges.)

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Net Interest Expense

For the three months ended September 30, 2004, net interest expense decreased $0.7 million, or 8%, compared to the same period in 2003. This decrease was partially due to a $0.3 million reduction in interest expense associated with the Company’s credit facility due to the fact that there were no borrowings oustanding during the period. Also contributing to the favorable variance is a $0.4 million decrease 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 12 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements”) and a $0.2 million increase in interest income principally resulting from higher average cash balances.

For the nine months ended September 30, 2004, net interest expense increased $1.6 million, or 7%, compared to the same period in the prior year. This increase was primarily due to $1.8 million in additional interest expense related to the York Property capital lease obligation, which was initially recorded in February 2003, as well as $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 12 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements”). These increases were partially offset by a $1.6 million reduction in interest expense associated with the Company’s credit facility principally resulting from lower average outstanding borrowings.

(See Note 7 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements.”)

Income Tax Expense (Benefit)

For the three and nine months ended September 30, 2004, the effective tax rate related to continuing operations was approximately 33% and 35%, respectively, when compared to an effective tax rate of approximately 35% for the three and nine months ended September 30, 2003. The change in the effective tax benefit rate for the three months ended September 30, 2004 resulted primarily from a difference in foreign tax rates, as well as an increase in the valuation allowance on a non-U.S. net operating loss.

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FACILITIES REVIEW

Management remains committed to further reducing costs. Accordingly, the Company continues to analyze, and when sensible, implement solutions that can bring efficiencies and cost savings to its business. For example, management is continuing to analyze its current premises, in particular the Company’s New York headquarters, for both its current and future business needs in an effort to reduce its overhead costs. (See statement on Forward Looking Statements.)

FINANCIAL CONDITION AS OF SEPTEMBER 30, 2004

This discussion should be read in conjunction with the Company’s Consolidated Statements of Cash Flows (see Part I, Item 1, “Financial Statements.”)

For the nine months ended September 30, 2004, total cash and cash equivalents related to the Company’s continuing and discontinued operations decreased approximately $9.3 million primarily due to the factors discussed below.

Net cash used by operations was approximately $39.7 million for the nine months ended September 30, 2004 and was significantly influenced by a $115.6 million decrease in due to consignors, partially offset by a $43.9 million decrease in accounts receivable, both principally due to the settlement of auction sales. Also contributing to the use of cash in operating activities was a $12.9 million increase in prepaid expenses and other current assets, a $7.8 million decrease in accounts payable and accrued liabilities and a $9.5 million decrease in settlement liabilities. The increase in prepaid expenses and other current assets was principally attributable to a $14.0 million receivable due from the Company’s partners in auction guarantees. The decrease in settlement liabilities was principally due to a $6 million payment made in February 2004 to fund a portion of the fine payable to the DOJ, as well as the redemption of $3.5 million of Discount Certificates (see Note 12 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements”). These cash outflows from operations were partially offset by the Company’s net income from continuing operations during the period.

Net cash provided by investing activities was approximately $44.6 million for the nine months ended September 30, 2004 and was principally due to the collection of maturing client loans during the period, as well as the proceeds received from the sale of the Company’s domestic real estate brokerage business on February 17, 2004 (see “Sale of

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Sotheby’s International Realty, Inc.” above and Note 3 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements”). These investing cash inflows were partially offset by the funding of consignor advances during the period and $11.0 million in capital expenditures.

Net cash used by financing activities was approximately $14.9 million for the nine months ended September 30, 2004 and was principally due to the net repayment of credit facility borrowings, partially offset by 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 September 30, 2004.

	Payments Due by Period
	Total		Less Than One Year		1 to 3 Years		3 to 5 Years		After 5 Years
	(Thousands of dollars)
Long-term debt (1):
Principal payments	$	100,000	$	—	$	—	$	100,000	$	—
Interest payments		30,365		6,875		13,750		9,740		—
Sub-total		130,365		6,875		13,750		109,740		—
Other commitments:
York Property capital lease		411,466		18,025		38,236		39,562		315,643
Operating lease obligations		80,266		13,718		20,861		11,754		33,933
DOJ antitrust fine (2)		27,000		12,000		15,000		—		—
Employment agreements (3)		5,906		3,375		2,531		—		—
Sub-total		524,638		47,118		76,628		51,316		349,576
Total	$	655,003	$	53,993	$	90,378	$	161,056	$	349,576

(1) Represents the aggregate outstanding principal and semi-annual interest payments due on the Company’s long-term debt. (See Note 7 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements.”)

(2) Represents the remaining fine payable to the DOJ. (See Note 12 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements.”)

(3) Represents the remaining commitment for future salaries related to employment agreements with a number of employees, excluding incentive bonuses. (See Note 10 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements.”)

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The vendor’s commission discount certificates (the “Discount Certificates”) that were distributed as part of the U.S. Antitrust Litigation settlement (see Note 12 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements”) are fully redeemable in connection with any auction that is conducted by the Company or Christie’s International, PLC 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 September 30, 2004, the outstanding face value of unused Discount Certificates that the Company could be required to redeem was approximately $58.3 million.

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 guarantee only in the event that the property sells for less than the minimum price and, therefore, the Company must pay the difference between the sale price at auction and the amount of the 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 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. Furthermore, in certain situations, the Company reduces its financial exposure under auction guarantees through sharing arrangements with unaffiliated partners.

As of September 30, 2004, the Company had outstanding auction guarantees totaling $165.0 million, the property relating to which had a mid-estimate sales price (1) of $193.3 million. The Company’s financial exposure under its outstanding auction guarantees is reduced by $41.2 million as a result of sharing arrangements with unaffiliated partners. The property related to such guarantees is being offered at auctions in the fourth quarter of 2004 and first half of 2005. As of September 30, 2004, $20.0 million of the guaranteed amount had been advanced by the Company, of which the Company has recorded its $18.5 million share within notes receivable and consignor advances in the Consolidated

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Balance Sheets (see Note 5 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements”).

Included in total outstanding auction guarantees as of September 30, 2004 was a $35 million auction guarantee entered into on September 22, 2004 that was cancelled by the consignor on October 1, 2004.

As of November 5, 2004, the Company had outstanding auction guarantees totaling $41.8 million, the property relating to which had a mid-estimate sales price (1) of $47.3 million. The Company's financial exposure under its outstanding auction guarantees is reduced by $14.2 million principally as a result of sharing arrangements with unaffiliated partners. The property related to such guarantees is being offered at auctions in the fourth quarter of 2004 and first half of 2005. As of November 5, 2004, $9.7 million of the guaranteed amount had been advanced by the Company, of which the Company will record its $7.9 million share within notes receivable and consignor advances.

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

(See Note 11 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements”.)

Lending Commitments

In certain situations, the Company 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 approximately $9.4 million at September 30, 2004. (See Notes 5 and 10 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements.”)

DERIVATIVE 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 funded and settled through the Company’s global treasury function. The Company’s objective for holding such derivative instruments is to minimize foreign currency risks using the most effective methods to eliminate or reduce the impacts of these exposures.

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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 Company’s 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.”

As of September 30, 2004 and December 31, 2003, the Consolidated Balance Sheets included assets relating to the Company’s forward exchange contracts of approximately $0.2 million and $0.3 million, respectively, recorded within Prepaid Expenses and Other Current Assets. As of September 30, 2003, the Consolidated Balance Sheets included a liability of $43,242 relating to the Company’s forward exchange contracts recorded within Accounts Payable and Accrued Liabilities. These amounts reflect the fair value of the Company’s outstanding forward exchange contracts on those dates.

(See Note 9 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements.”)

CONTINGENCIES

See Notes 10, 11 and 12 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements” for information on contingencies.

LIQUIDITY AND CAPITAL RESOURCES

As discussed in more detail above, on February 17, 2004, the Company consummated the sale of its domestic real estate brokerage business and received net cash proceeds of approximately $94.0 million. (See “Sale of Sotheby’s International Realty, Inc.” above and Note 3 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements.”) On March 4, 2004, the Company used existing cash balances to repay the remaining $20 million in borrowings outstanding under the senior secured term facility of its former credit agreement (the “Amended and Restated Credit Agreement”). Additionally, on March 4, 2004, the Company entered into a new senior secured credit agreement

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with General Electric Capital Corporation (the “GE Capital Credit Agreement”). The GE Capital Credit Agreement is available through March 4, 2007 and provides for borrowings of up to $200 million provided by an international syndicate of lenders.

Borrowings under the GE Capital Credit Agreement are available for the funding of the Company’s ordinary working capital requirements and general corporate needs. The Company paid arrangement fees of $3.0 million related to the GE Capital Credit Agreement, which are being amortized to interest expense over the three-year term of the agreement.

The Company’s obligations under the GE Capital Credit Agreement are secured by substantially all of the assets of the Company, as well as the assets of its subsidiaries in the U.S. and the U.K. The GE Capital Credit Agreement also contains financial covenants requiring the Company to not exceed $10 million in annual capital expenditures and to have a quarterly fixed charge coverage ratio of not less than 1.0. The financial covenant relating to capital expenditures is first effective for the year ending December 31, 2004, while the financial covenant relating to the fixed charge coverage ratio tests was first effective for the quarter ended June 30, 2004. The GE Capital Credit Agreement also has a covenant that prohibits the Company from making dividend payments. In August 2004, the GE Capital Credit Agreement was amended to allow the Company’s U.K. subsidiary to incur capital expenditures of up to $4 million on or prior to December 31, 2004 in connection with the purchase of a previously leased building in London. The capital expenditure of up to $4 million allowed by this amendment is in addition to the $10 million annual permitted amount under the GE Capital Credit Agreement. The Company is in compliance with its covenants.

At the option of the Company, borrowings under the GE Capital Credit Agreement generally bear interest equal to: (i) 1.25% plus the higher of the Prime Rate or the Federal Funds Rate plus 0.5%, or (ii) LIBOR plus 2.75%. Beginning on March 31, 2005, the applicable interest rate charged for borrowings under the GE Capital Credit Agreement may be adjusted up or down depending on the Company’s performance under the quarterly fixed charge coverage ratio tests.

As of September 30, 2004, the Company had no outstanding borrowings under the GE Capital Credit Agreement.

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The Company generally relies on operating cash flows supplemented by borrowings to meet its liquidity requirements. With the cash proceeds received upon the consummation of the sale of SIR and borrowings available under the GE Capital Credit Agreement, the Company has considerably more liquidity and financial flexibility than it has had in the recent past. It is the Company’s present intention to use this additional liquidity to expand its loan portfolio. (See statement on Forward Looking Statements.)

The Company currently believes that operating cash flows, current cash balances and borrowings available under the GE Capital Credit Agreement will be adequate to meet its short-term and long-term commitments, operating needs and capital requirements through March 4, 2007.

The Company’s short-term operating needs and capital requirements include peak seasonal working capital requirements, other short-term commitments to consignors, the potential funding of the Company’s client loan portfolio and the funding of capital expenditures, as well as the short-term commitments to be funded prior to October 1, 2005 included in the table of contractual obligations above.

The Company’s long-term operating needs and capital requirements include the potential funding of the Company’s client loan portfolio and the funding of capital expenditures beyond the next twelve months and through March 4, 2007, as well as the funding of the Company’s long-term contractual obligations and commitments included in the table of contractual obligations above through March 4, 2007.

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 as part of the U.S. Antitrust Litigation settlement (see Note 11 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements”). As discussed above, the Discount Certificates are fully 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 September 30, 2004, the outstanding face value of unused Discount Certificates that the Company could be required to redeem was approximately $58.3 million.

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FACTORS AFFECTING OPERATING RESULTS AND LIQUIDITY

Operating results from the Company’s Auction and Finance segments, as well as the Company’s liquidity, are significantly influenced by a number of 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 and, in particular, the economies of the U.S., the U.K., and the major countries or territories of Continental Europe and Asia (principally Japan and Hong Kong);

• Interest rates, particularly with respect to the Finance segment’s client loan portfolio and the Company’s credit facility borrowings;

• The impact of political conditions in various nations on the international economy and financial markets;

• Government laws and regulations which the Company is subject to, including, but not limited to, import and export regulations, cultural patrimony laws and value added sales taxes;

• The effects of foreign currency exchange rate movements;

• The seasonality of the Company’s auction business;

• Competition with other auctioneers and art dealers, specifically in relation to the following factors: (a) the level of expertise of the dealer or auction house with respect to the property, (b) the extent of the prior relationship, if any, between the seller and the firm, (c) the reputation and historic level of achievement by a firm in attaining high sale prices in the property’s specialized category, (d) the breadth of staff expertise, (e) the desire for privacy on the part of sellers and buyers, (f) the amount of cash offered by a dealer, auction house or other purchaser to purchase the property outright compared with the estimates, guarantees or other financial options offered by the Company, (g) the time that will elapse before the seller will receive sale proceeds, (h) the desirability of a public auction in order to achieve the maximum possible price, (i) the amount of commission proposed by dealers or auction houses to sell a work on consignment, (j) the cost, style and extent of presale marketing and promotion to be undertaken by a

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firm, (k) recommendations by third parties consulted by the seller, (l) personal interaction between the seller and the firm’s staff and (m) the availability and extent of related services, such as tax or insurance appraisal and short-term financing;

• The amount of quality property being consigned to art auction houses (and, in particular, the number of single-owner sale consignments), as well as the ability of the Company to sell such property, both of which factors can cause auction and related revenues to be highly variable from period-to-period;

• The demand for fine arts, antiques and collectibles;

• The success of the Company in attracting and retaining qualified personnel, who have or can develop relationships with certain potential sellers and buyers;

• The demand for art-related financing;

• The restrictive covenants in the Company’s bank credit facility and senior unsecured debt, which could adversely affect the Company’s business by limiting its flexibility;

• The impact of any decline in the equity markets or decrease in interest rates on the assets and obligations of the Company’s U.K. defined benefit pension plan;

• The uncertainty in future pension costs related to the Company’s U.K. defined benefit pension plan;

• The impact of the variability in taxable income between the various jurisdictions where the Company does business on the effective tax rate; and

• The ability of the Company to utilize its deferred tax assets.

FORWARD LOOKING STATEMENTS

This Form 10-Q 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

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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 above under “Factors Affecting Operating Results and Liquidity”, which are not ranked in any particular order.

ITEM 3: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, notes receivable, consignor advances, credit facility borrowings, long-term debt, the fine payable to the United States Department of Justice and the settlement liability related to the Discount Certificates issued in connection with the U.S. Antitrust Litigation.

At September 30, 2004, a hypothetical 10% strengthening or weakening of the United States dollar relative to all other currencies would result in a decrease or increase in cash flow of approximately $5.4 million. Excluding the potential impact of this hypothetical strengthening or weakening of the United States dollar, the market risk of the Company’s financial instruments has not changed significantly as of September 30, 2004 from that set forth in the Company’s Form 10-K for the year ended December 31, 2003.

At September 30, 2004, the Company had $93.4 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. See Note 9 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements,” for additional information on the Company’s use of derivative instruments.

The Company is exposed to credit-related losses in the event of nonperformance by counterparties to forward exchange contracts, but the Company does not expect any counterparties to fail to meet their obligations given their high credit ratings.

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ITEM 4:CONTROLS AND PROCEDURES

As of September 30, 2004, 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 pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective as of September 30, 2004. There has been no change in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that occurred during the Company’s fiscal quarter ended September 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II:OTHER INFORMATION

ITEM 1:LEGAL PROCEEDINGS

In April 1997, the Antitrust Division of the United States Department of Justice (the “DOJ”) began an investigation of certain art dealers and major auction houses, including the Company and its principal competitor, Christie’s International PLC (“Christie’s”). The Company has pled guilty to a violation of the United States (“U.S.”) antitrust laws in connection with a conspiracy to fix auction commission rates charged to sellers in the U.S. and elsewhere and, on February 2, 2001, the U.S. District Court for the Southern District of New York accepted the Company’s plea and imposed on the Company a fine of $45 million payable without interest over a period of five years. The Company has funded $18 million of the fine payable to the DOJ, and the remaining $27 million of the fine is payable as follows: (a) $12 million due February 6, 2005 and (b) $15 million due February 6, 2006. The Canadian Competition Bureau is continuing to conduct an investigation regarding the same anti-competitive practices relating to commissions charged by the Company and Christie’s for auction services that were the subject of the DOJ investigation.

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 Notes 10 and 12 of Notes to Consolidated Financial Statements under Part I, Item 1, “Financial Statements.”)

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ITEM 6:EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.1 Amended and Restated By-Laws of Sotheby’s Holdings, Inc., dated November 8, 2004

10.1 First Amendment to Sotheby’s Holdings, Inc. 2003 Restricted Stock Plan, dated August 5, 2004

10.2 Amendment No. 2 to Credit Agreement, dated August 3, 2004, by and among Sotheby’s Holdings, Inc., Sotheby’s, Inc., Sotheby’s Financial Services, Inc., Sotheby’s Financial Services California, Inc., Oberon, Inc., Theta, Inc., Sotheby’s Ventures, LLC, Oatshare Limited, Sotheby’s and Sotheby’s Financial Services Limited; and General Electric Capital Corporation and the other Lenders signatory thereto

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

(b) Reports on Form 8-K

(i) On August 9, 2004, the Company filed a Form 8-K related to the issuance of a press release discussing its results of operations for the quarter ended June 30, 2004.

(ii) On September 2, 2004, the Company filed a 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”

(iii) On September 24, 2004, the Company filed a 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”

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(iv) On October 1, 2004, the Company filed a 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”

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SOTHEBY’S HOLDINGS, INC.
By:	/s/ Michael L. Gillis
	Michael L. Gillis Senior Vice President, Controller and Chief Accounting Officer
Date:	November 8, 2004

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Exhibit Index

Exhibit No.	Description
3.1	Amended and Restated By-Laws of Sotheby’s Holdings, Inc., dated November 8, 2004
10.1	First Amendment to Sotheby’s Holdings, Inc. 2003 Restricted Stock Plan, dated August 5, 2004
10.2	Amendment No. 2 to Credit Agreement, dated August 3, 2004, by and among Sotheby’s Holdings, Inc., Sotheby’s, Inc., Sotheby’s Financial Services, Inc., Sotheby’s Financial Services California, Inc., Oberon, Inc., Theta, Inc., Sotheby’s Ventures, LLC, Oatshare Limited, Sotheby’s and Sotheby’s Financial Services Limited; and General Electric Capital Corporation and the other Lenders signatory thereto
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

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EX-3

Exhibit 3.1

AMENDED AND RESTATED BY-LAWS

OF

SOTHEBY’S HOLDINGS, INC.

(As amended through November 8, 2004)

Article I

MEETINGS OF SHAREHOLDERS

Section 1.01. PLACE OF MEETINGS.

Annual and special meetings of the shareholders shall be held at such place within or outside the State of Michigan as may be fixed from time to time by the board of directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof.

Section 1.02. ANNUAL MEETING.

The annual meeting of the shareholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on such date during the months of April, May, or June as the Chairman of the Board, the chief executive officer or the board of directors shall designate, and at such hour as may be named, in the notice of said meeting. If the election of directors shall not be held on the date so designated for any annual meeting or at any adjournment of such meeting, the board of directors shall cause the election to be held at a special meeting as soon thereafter as it conveniently may be held.

Section 1.03. SPECIAL MEETINGS.

A special meeting of the shareholders may be called at any time and for any purpose or purposes by the Chairman of the Board, the President, or pursuant to a resolution of the Board of Directors, or upon written request by a shareholder or shareholders holding of record at least twenty-five percent (25%) of the combined voting power of all outstanding shares (including the Class A Limited Voting Stock and Class B Common Stock) of the corporation.

Section 1.04. NOTICE OF MEETINGS.

A written notice of the place, date, and hour of each meeting, whether annual or special, and any adjournment thereof, shall be given personally or by mail to each shareholder of record entitled to vote thereat at least ten (10) but not more than sixty (60) days prior to the meeting unless a shorter time is provided by the Michigan Business Corporation Act and is fixed by the board of directors. The notice of any special meeting shall also state the purpose or purposes for which the meeting is called and by or at whose direction it is being issued. If, at any meeting, whether annual or special, action is proposed to be taken which would, if taken, entitle shareholders fulfilling requirements of law to receive payment for their shares, the notice of such meeting shall include a statement of that purpose and to that effect. If any notice, as provided in this Section 1.04 is mailed, it shall be directed to the shareholder in a postage prepaid envelope at his address as it appears on the corporation’s record of shareholders.

Section 1.05. WAIVER OF NOTICE.

Notice of meeting need not be given to any shareholder who submits a waiver of notice, signed in person or by proxy, whether before or after the meeting. The attendance of any shareholder at a meeting, in person or by proxy, shall constitute a waiver of notice by him except when the shareholder attends such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

Section 1.06. INSPECTORS OF ELECTION.

The board of directors, or any officer or officers duly authorized by the board of directors, in advance of any meeting of shareholders, may appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed, the person presiding at the meeting may, and on the request of any shareholder entitled to vote thereat shall, appoint one or more inspectors. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the board of directors in advance of the meeting or at the meeting by the chairman of the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots, or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots, or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting or any shareholder entitled to vote thereat, the inspectors shall make a report in writing of any facts or matters found or determined by them and execute a certificate with respect thereto.

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Section 1.07. QUORUM AND ADJOURNMENT.

At all meetings of shareholders, except as otherwise provided by statute or the articles of incorporation, the holders of the number of shares possessing a majority of the voting power of all shares entitled to vote thereat, present in person or by proxy, shall be necessary and sufficient to constitute a quorum for the transaction of business. The shareholders present in person or by proxy at any of such meetings at which a quorum is initially present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. By a vote of the majority of shareholders present, in person or by proxy, whether or not a quorum is present, the meeting may, from time to time, be adjourned, by resolution to another place and time, for a period not exceeding fourteen (14) days in any one case. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called.

Section 1.08. VOTE OF SHAREHOLDERS.

Each shareholder having the right to vote shall be entitled at every meeting of shareholders to (i) one (1) vote for every share of Class A Limited Voting Common Stock and (ii) ten (10) votes for every share of Class B Common Stock standing in his name on the record date of shareholders fixed by the board of directors pursuant to Article II of these by-laws. Whenever any corporate action is to be taken by vote at a meeting of the shareholders, it shall, except as otherwise required by statute or by the articles of incorporation, be authorized by a majority of the votes cast by such holders present in person or by proxy and entitled to vote, a quorum being present as provided in Section 1.07.

Section 1.09. PROXIES.

Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize another person or persons to act for him by proxy. A shareholder may authorize a valid proxy by executing a written instrument signed by such shareholder, or by causing his signature to be affixed to such writing by any reasonable means, including, but not limited to, by facsimile signature, or by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission (including, but not limited to, telephone, e-mail, the Internet or such other electronic means as the Board of Directors may determine from time to time) to the person or persons designated as the holder of the proxy, a proxy solicitation firm or a like authorized agent. Proxies by telegram, cablegram, or other electronic transmission must either set forth or be submitted with information (such as, by way of example and not of limitation, a passcode) from which it can be determined that the telegram, cablegram, or other electronic transmission was authorized by the shareholder. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used,

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provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original or writing or transmission. No proxy shall be valid after the expiration of one (1) year from the date thereof unless otherwise provided in the proxy.

Section 1.10. CONSENTS.

Any action required or permitted by the Michigan Business Corporation Act to be taken at a meeting of shareholders may be taken without a meeting, without prior notice and without a vote, if all of the shareholders entitled to vote thereon consent thereto in writing; provided, however, if authorized by the articles of incorporation, any action required or permitted by the Michigan Business Corporation Act or by these by-laws to be taken at an annual or special meeting of shareholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent, as herein provided, shall be given to shareholders who have not consented in writing.

Section 1.11. ORGANIZATION OF SHAREHOLDERS’ MEETINGS.

At every meeting of the shareholders, the Chairman of the Board or, in the Chairman’s absence or at his direction, the President or, in his absence, a Vice-President, or, in the absence of the Chairman of the Board, the President and Vice-President, a chairman chosen by a majority in interest of the shareholders of the corporation present in person or by proxy and entitled to vote, shall act as chairman; and the Secretary, or in his absence any person appointed by the chairman, shall act as secretary.

Article II

DETERMINATION OF VOTING,
DIVIDEND, AND OTHER RIGHTS

For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or for the purpose of any other action, the board of directors may fix, in advance, a date as the record date for any such determination of shareholders. Such date shall not be more than sixty (60) nor less than ten (10) days before the date of any such meeting, nor more than thirty (30) days prior to any other action. If a record date is so fixed, such shareholders and

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only such shareholders as shall be shareholders of record on that date so fixed shall be entitled to notice of, and to vote at, such meeting and any adjournment thereof, or to express such consent or dissent, or to receive payment of such dividend or such allotment of rights, or otherwise to be recognized as shareholders for the purpose of any other action, notwithstanding any transfer of any shares on the books of the corporation after any such record date so fixed.

Article III

DIRECTORS

Section 3.01. GENERAL POWERS.

The business and all the powers of the corporation, and the stock, property, and affairs of the corporation, except as otherwise provided by the articles of incorporation, the by-laws, or by statute, shall be managed by the board of directors.

Section 3.02. NUMBER, QUALIFICATIONS, AND TERM OF OFFICE.

The number of directors shall be not more than sixteen (16) nor less than seven (7), but each such number may be decreased or increased by amendment of these by-laws by a vote of the shareholders of record holding the number of shares possessing a majority of the voting power entitled to vote. The board, at the time of the adoption of these restated by-laws, shall consist of eleven (11) directors. Thereafter, within the limits above specified, the number of directors may be determined, between annual meetings of the shareholders, by resolution of the board of directors. Except as otherwise provided by statute, the articles of incorporation, or these by-laws, the directors, who need not be shareholders, shall be elected at the annual meeting of the shareholders and shall hold office for the period of one (1) year and until their successors shall be duly elected and qualified, or until death, resignation, or removal.

Section 3.03. PLACE OF MEETINGS.

Meetings of the board of directors, annual or special, shall be held at any place within or outside the State of Michigan as may from time to time be determined by the board of directors.

Section 3.04. ANNUAL MEETING.

The board of directors shall meet as soon as practicable after each annual election of directors for the purpose of organization, election of officers, and the transaction of other business, on the same day and at the same place at which the shareholders’ meeting is held. Notice of such meeting need

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not be given. Such meeting may be held at such other time and place as shall be specified in a notice to be given as hereinafter provided for special meetings of the board of directors, or according to consent and waiver of notice thereof signed by all directors.

Section 3.05. SPECIAL MEETINGS.

Special meetings of the board of directors shall be held whenever called by any director. Notice of any special meeting, and any adjournment thereof, stating the place, date, hour, and purpose of the meeting, shall be mailed to each director, addressed to him at his residence or usual place of business, or shall be sent to him at such place by telegraph, telecopier, cable, or radio, or be delivered personally or by telephone, not later than the fifth (5th) calendar day before the day on which the meeting is to be held. Notice of any meeting of the board of directors need not be given to any director who submits a signed waiver of notice before or after the meeting, or who attends the meeting without protesting, either prior to or at the commencement of such meeting, the lack of notice to him. Unless limited by statute, the articles of incorporation, these by-laws, or the terms of the notice thereof, any and all business may be transacted at any special meeting.

Section 3.06. QUORUM AND MANNER OF ACTION.

A majority of the directors in office at the time of any annual or special meeting of the board of directors, present in person, shall be necessary and sufficient to constitute a quorum for the transaction of business. The vote of a majority of the directors present at the time of such vote, if a quorum is present at the time of such vote, shall be the act of the board of directors, except as otherwise required by statute or the articles of incorporation. A majority of the directors present, whether or not a quorum is present, may by resolution, from time to time, adjourn any meeting to another place and time for a period not exceeding fourteen (14) days in any one case. If the directors shall severally and/or collectively consent in writing to any act taken or to be taken by the corporation, such action shall be valid corporate action as though it had been authorized at a meeting of the board of directors.

Section 3.07. COMPENSATION.

By resolution of the board of directors a fixed annual or other fee as well as a fixed sum and expenses may be allowed for attendance at each annual or special meeting of the board of directors; provided, however, that nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

Section 3.08. REMOVAL OF DIRECTORS.

By a vote of the number of shares possessing a majority of the voting power of all shares of stock outstanding and entitled to vote, one or more or all of the directors may be removed from

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office at any time for or without cause.

Section 3.09. RESIGNATIONS.

Any director may resign at any time by giving written notice to the board of directors, the Chairman of the Board, the President, or the Secretary of the corporation. Such resignation shall take effect at the time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 3.10. VACANCIES.

Any newly created directorships and vacancies occurring on the board of directors by reason of death, resignation, retirement, disqualification, or removal shall be temporarily filled by a vote of a majority of the directors then in office, even though less than a quorum. Any director elected by the board of directors to fill a vacancy temporarily shall hold office for the unexpired portion of the term of his predecessor subject to these by-laws.

Section 3.11. ORGANIZATION OF BOARD MEETING.

At each meeting of the board of directors, the Chairman or, in his absence or at the Chairman’s direction, the President or, in his absence, a director chosen by a majority of the directors present shall act as chairman of the meeting. The Secretary or, in his absence, any person appointed by the chairman shall act as secretary of the meeting.

Article IV

ADVISORY COMMITTEE

Section 4.01. ADVISORY COMMITTEE: CONSTITUTION AND POWERS.

The board of directors, by resolution adopted by a majority of the entire board, may designate an advisory committee (to be known as the “Advisory Committee” or “Advisory Board”), the members of which need not be directors of the corporation but shall be prominent members of the art or business communities of the world. The advisory committee and its members shall serve at the pleasure of the board of directors and shall advise the board as to matters relating to conditions in the national and international art markets and shall recommend actions that the corporation may take in respect thereto. The compensation, if any, of the members of the advisory committee shall be fixed

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from time to time by the board of directors. The advisory committee, as such, shall have no rights, powers, duties, authority, or responsibilities in respect of the corporation or its shareholders but shall be entitled to all of the indemnifications to which a member of the board of directors is entitled.

Section 4.02. MEETINGS OF ADVISORY COMMITTEE.

Meetings of the advisory committee shall be held at least annually or more frequently, and at such time and place, as shall from time to time be determined by resolution of the advisory committee or its chairman, who shall be the Chairman of the Board. In case the day so determined shall be a legal holiday, such meeting shall be held on the next succeeding day, not a legal holiday, at the same hour.

Section 4.03. VACANCIES IN ADVISORY COMMITTEE.

Any newly created memberships and vacancies occurring in the advisory committee may be filled only by resolution adopted by a majority of the entire board of directors.

ARTICLE V

COMMITTEES OF THE BOARD

The corporation may have such committees of the board, consisting of two or more directors, as the board of directors shall, by resolution from time to time, determine, which shall have such powers and authority as designated by the board of directors. The operation of each such committee shall be as determined by the board of directors.

Article VI

OFFICERS

Section 6.01. OFFICERS.

The elected officers of the corporation shall be a Chairman of the Board (sometimes herein referred to as the “Chairman”), a President, one or more Vice-Presidents, a Secretary, a Chief Financial Officer and a Treasurer. The board of directors may also appoint one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers and agents as may from time to time appear to be necessary or advisable in the conduct of the affairs of the corporation. Any two

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or more offices, whether elective or appointive, may be held by the same person, except that an officer shall not execute, acknowledge or verify any instrument in more than one capacity if the instrument is required by law or the articles of incorporation or the by-laws to be executed, acknowledged or verified by two or more officers.

Section 6.02. TERM OF OFFICE AND RESIGNATION.

So far as practicable, all elected officers shall be elected at the first meeting of the board of directors following the annual meeting of shareholders in each year and, except as otherwise hereinafter provided, shall hold office until the first meeting of the board of directors following the next annual meeting of shareholders and until their respective successors shall have been elected or appointed and qualified. All other officers shall hold office at the pleasure of the board of directors. Any elected or appointed officer may resign at any time by giving written notice to the board of directors, the Chairman, the President, or the Secretary of the corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 6.03. REMOVAL OF ELECTED OFFICERS.

Any elected officer may be removed at any time, with or without cause, by vote at any meeting of the board of directors of a majority of the entire board of directors.

Section 6.04. VACANCIES.

If any vacancy shall occur in any office for any reason, the board of directors may elect or appoint a successor to fill such vacancy for the remainder of the term.

Section 6.05. COMPENSATION.

The compensation, if any, of all elected or appointed officers of the corporation shall be fixed by the board of directors or by a committee of the board of directors established for such purpose.

Section 6.06. THE CHAIRMAN OF THE BOARD.

The Chairman of the Board (sometimes herein the “Chairman”) shall preside at all meetings of the shareholders and board of directors and shall appoint all standing and special committees as are deemed necessary in the conduct of the business. The Chairman of the Board shall exercise any and all powers and perform any and all duties which are required by the by-laws and which the board of directors may additionally confer upon him. The board of directors may also designate one or more

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Vice Chairman(men) of the board.

Section 6.07. THE PRESIDENT.

The President shall, if the board of directors shall so determine, be the chief executive officer and/or the chief operating officer and in the absence of the Chairman of the Board shall preside at all meetings of the board of directors. The President shall perform such other duties as are usually ascribed to that office, such as are directed by the Chairman, and such as are required by the by-laws or the resolutions of the board of directors.

Section 6.08. THE CHIEF OPERATING OFFICER.

The Chief Operating Officer shall perform such duties as are usually ascribed to that office, as are directed by the Chairman of the Board or the President, and as are required by the by-laws or action of the board of directors.

Section 6.09. THE VICE-PRESIDENT.

The Vice-President, and such grades thereof (including, but not limited to, the grades of Executive Vice President and Senior Vice President) as shall be determined by the board of directors from time to time, or if there is more than one Vice-President, each Vice-President, shall have such powers and discharge such duties as may be assigned to him from time to time by the Chairman of the Board, the President, the Chief Operating Officer, any more senior grade of Vice-President and/or the board of directors.

Section 6.10. THE SECRETARY.

The Secretary shall attend all meetings of the board of directors and the shareholders and shall record all votes and the minutes of all proceedings in a book to be kept for that purpose and shall, when requested, perform like duties for all committees of the board of directors. He shall attend to the giving of notice of all meetings of the shareholders, and special meetings of the board of directors and committees thereof; he shall have custody of the corporate seal, and, when authorized by the board of directors, shall have authority to affix the same to any instrument and, when so affixed, it shall be attested by his signature or by the signatures of the Treasurer or an Assistant Secretary or an Assistant Treasurer. He shall keep an account for all books, documents, papers, and records of the corporation, except those for which some other officer or agent is properly accountable. He shall have authority to sign stock certificates, and shall generally perform all the duties appertaining to the office of secretary of a corporation. In the absence of the Secretary, such person as shall be designated by the Chairman or the President shall perform his duties.

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Section 6.11. THE CHIEF FINANCIAL OFFICER.

The Chief Financial Officer shall have the care and custody of all the funds of the corporation and shall deposit the same in such banks or other depositories as the board of directors, or any officer and agent jointly, duly authorized by the board of directors, shall, from time to time, direct or approve. He shall keep a full and accurate account of all monies received and paid on account of the corporation, and shall render a statement of his accounts whenever the board of directors shall require. He shall perform all other necessary acts and duties in connection with the administration of the financial affairs of the corporation, and shall generally perform all duties usually appertaining to the office of Chief Financial Officer of a corporation. When required by the board of directors, he shall give bonds for the faithful discharge of his duties in such sums and with such sureties as the board of directors shall approve. In the absence of the Chief Financial Officer, such person as shall be designated by the Chairman or the President shall perform his duties.

Section 6.12. TREASURER.

The Treasurer shall perform such duties and have such powers and responsibilities as shall be assigned to him from time to time by the Chief Financial Officer, the Chairman, the President, and/or the board of directors. When required by the board of directors, he shall give bonds for the faithful discharge of his duties in such sums and with such sureties as the board of directors shall approve. In the absence of the Treasurer, such person as shall be designated by the Chief Financial Officer, the Chairman or the President shall perform his duties.

Article VII

INDEMNIFICATION

Section 7.01. INDEMNIFICATION.

Subject to and in accordance with the provisions of the corporation’s articles of incorporation, the corporation has the power to (and shall if so provided in the corporation’s articles of incorporation) indemnify any person (and the heirs, executors, and administrators of any such person) against any loss, cost, damage, fine, penalty, or expense (including attorneys’ fees) suffered, incurred, assessed, or imposed by reason of the fact that such person is or was a director, officer, employee, or agent of the corporation or is or was serving, at the request of the corporation, as a director, officer, employee, agent, partner, or trustee of another corporation, partnership, joint venture, trust, or other enterprise.

Section 7.02. ADVANCEMENT OF EXPENSES.

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Expenses incurred in defending or settling a civil or criminal action, suit, or proceeding to which any person described in Section 7.01 is or was a party, or is or was threatened to be made a party, may be paid by the corporation in advance in accordance with and subject to the provisions of the corporation’s articles of incorporation.

Section 7.03. INDEMNIFICATION: INSURANCE.

The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation or is liable as a director of the corporation, or is or was serving, at the request of the corporation, as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, regardless of whether the corporation would have power to indemnify him against such liability under the provisions of this Article VII or under the applicable provisions of law.

Section 7.04. INDEMNIFICATION: CONSTITUENT CORPORATIONS.

For the purposes of this Article VII, references to the corporation include all constituent corporations absorbed in a consolidation or merger and the resulting or surviving corporation, so that a person who is or was a director or officer of such constituent corporation or is or was serving at the request of such constituent corporation as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise shall (as shall his heirs, executors, and administrators) stand in the same position, under the provisions of this Article, with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity.

Article VIII

SHARE CERTIFICATES

Section 8.01. FORM; SIGNATURE.

The shares of the corporation shall be represented by certificates in such form or forms as shall be determined by the board of directors and shall be signed by the Chairman of the Board, the President, or a Vice-President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the corporation, and shall be sealed with the seal of the corporation or a facsimile thereof. The signatures of the officers upon a certificate may be facsimiles if the certificate is countersigned by a Transfer Agent or registered by a Registrar other than the corporation or one of its employees. In case any officer who has signed or whose facsimile has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may issued by the corporation with the same effect as if he were such officer at the date of issue. Notwithstanding the

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foregoing, the board of directors may provide by resolution or resolutions that some or all of any or all classes or series of the corporation’s shares shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Within a reasonable time after the issuance or transfer of shares without certificates, the corporation shall send the shareholder a written statement containing the information Michigan law requires to be on certificates. Notwithstanding the adoption of a resolution by the board of directors providing that any class or series of shares of the corporation shall be uncertificated, every holder of uncertificated shares shall be entitled to receive from the corporation a certificate representing the number of shares registered in such holder’s name.

Section 8.02. TRANSFER AGENTS AND REGISTRARS.

The board of directors may, in its discretion, appoint one or more banks or trust companies in the State of Michigan and in such other state or states or localities within or outside the United States as the board of directors may deem advisable, from time to time, to act as Transfer Agents and Registrars of the shares of the corporation; and upon such appointments being made, no certificate representing shares shall be valid until countersigned by one of such Transfer Agents and registered by one of such Registrars.

Section 8.03. TRANSFERS OF SHARES.

Transfers of shares shall be made on the books of the corporation only upon written request by the person named in the certificate, or by his attorney lawfully constituted in writing, and upon surrender and cancellation of a certificate or certificates for a like number of shares of the same class, with duly executed assignment and a power of transfer endorsed thereon or attached thereto, and with such proof of the authenticity of the signatures as the corporation or its agents may reasonably require. Any such transfer shall be made without charge to the transferor or transferee except for stock transfer taxes levied by any governmental authority having jurisdication over such transfer. To the extent that all shares represented by a certificate are not transferred, a certificate representing the balance of the shares shall be issued to the transferor without charge.

Section 8.04. REGISTERED SHAREHOLDERS.

The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and other distributions, and to vote as such owner, and to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.

Section 8.05. LOST CERTIFICATES.

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In case any certificate representing shares shall be lost, stolen, or destroyed, the board of directors, or any officer or officers duly authorized by the board of directors, may authorize, without charge, except as hereinafter provided, the issuance of a substitute certificate in place of the certificate so lost, stolen, or destroyed, and may cause or authorize such substitute certificate to be countersigned by the appropriate Transfer Agent and registered by the appropriate Registrar. In each such case the applicant for a substitute certificate shall furnish to the corporation and to such of its Transfer Agents and Registrars as may require the same, evidence to their satisfaction, in their discretion, of the loss, theft, or destruction of such certificate and of the ownership thereof, and also such security or indemnity, at such applicant’s sole cost and expense, as may by them be required.

Article IX

MISCELLANEOUS

Section 9.01. FISCAL YEAR.

The board of directors from time to time shall determine the fiscal year of the corporation.

Section 9.02. SIGNATURES ON NEGOTIABLE INSTRUMENTS.

All bills, notes, checks, or other instruments for the payment of money shall be signed or countersigned by such officers or agents and in such manner as from time to time may be prescribed by resolution of the board of directors, or may be prescribed by any officer or officers, or any officer and agent jointly, duly authorized by the board of directors.

Section 9.03. DIVIDENDS.

Except as otherwise provided in the articles of incorporation, dividends upon the shares of the corporation may be declared and paid as permitted by law in such amounts as the board of directors may determine at any annual or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock of the corporation, subject to the articles of incorporation.

Section 9.04. RESERVES.

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Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the board of directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the board of directors deems conducive to the interest of the corporation; and in its discretion, the board of directors may decrease or abolish any such reserve.

Section 9.05. SEAL.

The board of directors shall provide a corporate seal which shall consist of two concentric circles between which shall be the name of the corporation and in the center of which shall be inscribed “SEAL”.

Section 9.06. CORPORATION OFFICES.

The registered office of the corporation shall be as set forth in the articles of incorporation. The corporation may also have offices in such places as the board of directors may from time to time appoint or the business of the corporation require. Such offices may be outside the State of Michigan.

Article X

AMENDMENTS

Except as otherwise specifically provided in the articles of incorporation, these by-laws may be amended, repealed, or adopted by vote of the holders of the number of shares possessing a majority of the voting power of all shares at the time entitled to vote (determined without regard to the second paragraph of Section 2.A. of Article III of the articles of incorporation) or by majority of the entire board of directors. Except as otherwise specifically provided in the articles of incorporation, any by-law adopted by the board of directors may be amended or repealed by shareholders entitled to vote thereon as herein provided, and any by-law adopted by the shareholders may be amended or repealed by the board of directors, except as limited by statute and except when the shareholders have expressly provided otherwise with respect to any particular by-law.

Article XI

ELECTION NOT TO BE GOVERNED BY CHAPTER 7B

15

OF THE BUSINESS CORPORATION ACT

The Corporation shall not be governed by, or be subject to, any of the terms, provisions or restrictions set forth in Chapter 7B of the Michigan Business Corporation Act (the “Act”), being Act No. 58 of the Public Acts of 1988, Michigan Compiled Laws Sections 790 through 799. This Article XI is intended to provide, as permitted in Section 794 of the Act, that said Chapter 7B of the Act shall not apply to any “control share acquisition,” as defined in Chapter 7B of the Act, of shares of the Corporation.

Reference is made to Article X of the Third Amended and Restated Articles of Incorporation. Pursuant to said Article X, for so long as there shall be shares of Class B Common Stock issued and outstanding, this Article XI of the by-laws shall not be amended, rescinded or repealed unless such action to amend, rescind or repeal is approved by the affirmative vote of the holders of a majority in voting power of the then issued and outstanding shares of Class A and Class B Common Stock voting as a single class. As provided in Article X of the Third Amended and Restated Articles of Incorporation, at such time as there shall be no shares of Class B Common Stock issued and outstanding, this Article XI may be amended, rescinded or repealed in any manner provided in Article X of these by-laws.

AMENDED AND RESTATED BY-LAWS

OF

SOTHEBY’S HOLDINGS, INC.

16

As amended
through November 8, 2004

ii

INDEX

TO

AMENDED AND RESTATED BY-LAWS

OF

SOTHEBY’S HOLDINGS, INC.

			Page
ArticleI - MEETINGS OF SHAREHOLDERS
	Section 1.01	Place of Meetings	1
	Section 1.02	Annual Meeting	1
	Section 1.03	Special Meetings of Business; Agent for Service of Process	1
	Section 1.04	Notice of Meetings	2
	Section 1.05	Waiver of Notice	2
	Section 1.06	Inspectors of Election	2
	Section 1.07	Quorum and Adjournment	3
	Section 1.08	Vote of Shareholders	3
	Section 1.09	Proxies	3
	Section 1.10	Consents	4
	Section 1.11	Organization of Shareholders’ Meetings	4
ArticleII - DETERMINATION OF VOTING, DIVIDEND, AND OTHER RIGHTS			4
ArticleIII - DIRECTORS
	Section 3.01	General Powers	5
	Section 3.02	Number, Qualifications, and Term of Office	5
	Section 3.03	Place of Meetings	5
	Section 3.04	Annual Meeting	5
	Section 3.05	Special Meetings	6
	Section 3.06	Quorum and Manner of Action	6
	Section 3.07	Compensation	6
	Section  3.08	Removal of Directors	6

iii

	Section 3.09	Resignations	7
	Section 3.10	Vacancies	7
	Section 3.11	Organization of Board Meeting	7
ArticleIV - ADVISORY COMMITTEE
	Section 4.01	Advisory Committee: Constitution and Powers	7
	Section 4.02	Meetings of Advisory Committee	8
	Section 4.03	Vacancies in Advisory Committee	8
ArticleV - COMMITTEESOFTHEBOARD			8
ArticleVI - OFFICERS
	Section 6.01	Officers	8
	Section 6.02	Term of Office and Resignation	9
	Section 6.03	Removal of Elected Officers	9
	Section 6.04	Vacancies	9
	Section 6.05	Compensation	9
	Section 6.06	The Chairman of the Board	9
	Section 6.07	The President	9
	Section 6.08	The Chief Operating Officer	10
	Section 6.09	The Vice President	10
	Section 6.10	The Secretary	10
	Section 6.11	The Chief Financial Officer	10
	Section 6.12	The Treasurer	11
ArticleVII - INDEMNIFICATION
	Section 7.01	Indemnification	11
	Section 7.02	Advancement of Expenses	11
	Section 7.03	Indemnification: Insurance	11
	Section 7.04	Indemnification: Constituent Corporations	12
ArticleVIII - SHARECERTIFICATES
	Section 8.01	Form; Signature	12
	Section 8.02	Transfer Agents and Registrars	13
	Section 8.03	Transfers of Shares	13
	Section 8.04	Registered Shareholders	13
	Section 8.05	Lost Certificates	13
ArticleIX
	Section 9.01	Fiscal Year	14

iv

	Section 9.02	Signatures on Negotiable Instruments	14
	Section 9.03	Dividends	14
	Section 9.04	Reserves	14
	Section 9.05	Seal	14
	Section 9.06	Corporation Offices	15
ArticleX – AMENDMENTS			15
ArticleXI - ELECTION NOT TO BE GOVERNED BY CHAPTER 7B OF THE BUSINESS CORPORATION ACT			15

v

EX-10

Exhibit 10.1

FIRST AMENDMENT TO
SOTHEBY’S HOLDINGS, INC.
2003 RESTRICTED STOCK PLAN

THIS FIRST AMENDMENT to the Sotheby’s Holdings, Inc. 2003 Restricted Stock Plan (the “First Amendment”), dated the 5th day of August, 2004, 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 clarify that shares of Restricted Stock that are withheld to satisfy tax withholding obligations are considered to be surrendered by the holder and therefore will be eligible for reissuance under the Plan.

NOW, THEREFORE, Section 4.2 of the Plan is hereby amended by adding the following sentence at the end of thereof:

“If a Participant elects or is deemed to have elected to have shares of Restricted Stock withheld in satisfaction of withholding tax obligations prior to the vesting of such shares at any time prior to April 29, 2013, the withheld shares of Restricted Stock shall, for purposes of this Section 4.2, be considered to have been surrendered before the Period of Restriction has been satisfied and shall therefore again be available for Awards subsequently granted under the Plan.”

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

	SOTHEBY’S HOLDINGS, INC.
By:
Its:

EX-10

Exhibit 10.2

EXECUTION COPY

AMENDMENT NO. 2 TO CREDIT AGREEMENT

This AMENDMENT NO. 2 TO CREDIT AGREEMENT (this “Amendment”), dated as of August 3, 2004, by and among Sotheby’s Holdings, Inc., a Michigan corporation (“Holdings”), Sotheby’s, Inc., a New York corporation (“Sotheby’s, Inc.”), Sotheby’s Financial Services, Inc., a Nevada corporation (“SFS Inc.”), Sotheby’s Financial Services California, Inc., a Nevada corporation (“SFS California”), Oberon, Inc., a Delaware corporation (“Oberon”), Theta, Inc., a Delaware corporation (“Theta”), Sotheby’s Ventures, LLC, a New York limited liability company (“Ventures LLC”), Oatshare Limited, a company registered in England (“Oatshare”), Sotheby’s, a company registered in England (“Sotheby’s U.K.”), and Sotheby’s Financial Services Limited, a company registered in England (“SFS Ltd.” and, collectively with Holdings, Sotheby’s, Inc., SFS Inc., SFS California, Oberon, Theta, Ventures LLC, Oatshare and Sotheby’s U.K., the “Borrowers”), the Guarantors identified as such on the signature pages hereof (each, a “Guarantor” and, collectively, the “Guarantors”), General Electric Capital Corporation, a Delaware corporation (“GE Capital”), as a Lender, as the Fronting Lender and as Agent for the Lenders (in such capacity, “Agent”), HSBC Bank plc and PNC Bank, National Association, as Co-Syndication Agents, GE Capital in its separate capacity as Fronting Lender, and the other Lenders, amends that certain Credit Agreement dated as of March 4, 2004, as amended as of March 24, 2004 (as so amended, the “Credit Agreement”) and that certain Domestic Subsidiary Guaranty, dated as of March 4, 2004 (the “Domestic Subsidiary Guaranty”). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in Annex A to the Credit Agreement.

RECITALS

A.The Borrowers and Guarantors have requested that the Lenders and Agent amend the Credit Agreement and the Domestic Subsidiary Guaranty as set forth herein.

B.The Lenders and Agent have agreed, on the terms and conditions set forth below, to so amend the Credit Agreement and the Domestic Subsidiary Guaranty.

AGREEMENT

NOW, THEREFORE, in consideration of the continued performance by the Borrowers and the Guarantors of their respective promises and obligations under the Credit Agreement and the other Loan Documents, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrowers, the Guarantors, the Lenders, the Fronting Lender and Agent hereby agree as follows:

1.Amendment to Credit Agreement. Subject to the satisfaction of the conditions precedent set forth in Paragraph 2 of this Amendment, the Credit Agreement is hereby amended as follows:

(a)The Credit Agreement is hereby amended to incorporate solely the blacklined changes shown on the marked pages attached hereto as Exhibit A.

(b)Annex A to the Credit Agreement is hereby amended to incorporate solely the blacklined changes shown on the marked pages attached hereto as Exhibit B.

(c)Annex E to the Credit Agreement is hereby amended to incorporate solely the blacklined changes shown on the marked pages attached here to as Exhibit C.

(d)Annex G to the Credit Agreement is hereby amended to incorporate solely the blacklined changes shown on the marked pages attached here to as Exhibit D.

(e)Notwithstanding anything to the contrary in the Credit Agreement or the Joinder Agreement to which LaSalle Business Credit, LLC (“LaSalle”) is a party, LaSalle shall be a Non-Sterling Lender, not a Sterling Lender, for all purposes under the Credit Agreement. In addition, for purposes of clarification, (i) each of PNC Bank, National Association, Comerica Bank, Webster Business Credit Corporation, National City Business Credit, Inc. (f/k/a/ National City Commercial Finance, Inc.) and Siemens Financial Services, Inc. shall be a Non-Sterling Lender for all purposes under the Credit Agreement and (ii) HSBC Bank plc shall be a Sterling Lender for all purposes under the Credit Agreement.

2.Amendment to Guaranty. Section 2.1 of the Domestic Subsidiary Guaranty is hereby amended to delete the phrase “Obligations of all of the Borrowers” set forth therein and to replace such phrase with the following phrase: “Secured Obligations of all of the Borrowers”.

3.Effectiveness of this Amendment; Conditions Precedent. The provisions of Paragraph 1 of this Amendment shall be deemed to have become effective as of the date of this Amendment, but such effectiveness shall be expressly conditioned upon Agent’s receipt of a counterpart of this Amendment executed and delivered by duly authorized officers of each Borrower, each Guarantor, the Fronting Lender, the Requisite Lenders and Agent.

4.Miscellaneous.

(a)Headings. The various headings of this Amendment are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Amendment or any provisions hereof.

(b)Counterparts. This Amendment may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart thereof.

(c)Interpretation. No provision of this Amendment shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party’s having or being deemed to have structured, drafted or dictated such provision.

2

(d)Complete Agreement; Conflict of Terms. This Amendment constitutes the complete agreement between the parties with respect to the subject matter hereof, and supersedes any prior written or oral agreements, writings, communications or understandings of the parties with respect thereto. In the event of any inconsistency between the provisions of this Amendment and any provision of the Credit Agreement, the terms and provisions of this Amendment shall govern and control.

(e)Representations, Warranties and Covenants.

(i)Each Credit Party hereby represents and warrants that this Amendment and the Credit Agreement as amended by this Amendment constitute the legal, valid and binding obligations of such Credit Party, enforceable against it in accordance with their respective terms except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditor’s rights generally or by equitable principles relating to enforceability.

(ii)Each Credit Party hereby represents and warrants that its execution, delivery and performance of this Amendment and its performance of the Credit Agreement as amended by this Amendment, to the extent a party thereto, have been duly authorized by all necessary corporate action and do not: (1) contravene the terms of any of such Credit Party’s charter, bylaws or operating agreement, as applicable, (2) violate any law or regulation, or any order or decree of any court or Governmental Authority; (3) conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which any Sotheby Entity is a party or by which any Sotheby Entity or any of its property is bound, (4) result in the creation or imposition of any Lien upon any of the property of any Sotheby Entity other than those in favor of Agent, on behalf of itself and the other Secured Parties, pursuant to the Loan Documents; or (5) require the consent or approval of any Governmental Authority or any other Person.

(iii)Each Credit Party hereby represents and warrants that (i) no Default or Event of Default has occurred and is continuing and (ii) all of the representations and warranties of such Credit Party contained in the Credit Agreement and in each other Loan Document to which it is a party (other than representations and warranties which, in accordance with their express terms, are made only as of an earlier specified date) are true and correct as of the date of such Credit Party’s execution and delivery hereof or thereof as though made on and as of such date.

(f)Reaffirmation, Ratification and Acknowledgment; Reservation. Each Borrower and each Guarantor hereby (a) ratifies and reaffirms all of its payment and performance obligations, contingent or otherwise, and each grant of security interests and liens in favor of Agent, under each Loan Document to which it is a party, (b) agrees and acknowledges that such ratification and reaffirmation is not a condition to the continued effectiveness of such Loan Documents, and (c) agrees that neither such ratification and reaffirmation, nor Agent’s, the Fronting Lender’s, or any Lender’s solicitation of such ratification and reaffirmation, constitutes a course of dealing giving rise to any obligation or condition requiring a similar or any other ratification or reaffirmation from such Borrower or such Guarantor with respect to any

3

subsequent modifications to the Credit Agreement or the other Loan Documents. The Credit Agreement is in all respects ratified and confirmed. Each of the Loan Documents shall remain in full force and effect and is hereby ratified and confirmed. Neither the execution, delivery nor effectiveness of this Amendment shall operate as a waiver of any right, power or remedy of Agent, the Fronting Lender or the Lenders, or of any Default or Event of Default (whether or not known to Agent or the Lenders) under any of the Loan Documents, all of which rights, powers and remedies, with respect to any such Default or Event of Default or otherwise, are hereby expressly reserved by Agent and the Lenders. This Amendment shall constitute a Loan Document for purposes of the Credit Agreement.

(g)Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

(h)Effect. Upon the effectiveness of this Amendment, each reference in the Credit Agreement to “this Amendment,” “hereunder,” “hereof” or words of like import shall mean and be a reference to the Credit Agreement as amended hereby and each reference in the other Loan Documents to the Credit Agreement, “thereunder,” “thereof,” or words of like import shall mean and be a reference to the Credit Agreement as amended hereby. Except as expressly provided in this Amendment, all of the terms, conditions and provisions of the Credit Agreement and the other Loan Documents shall remain the same. Each Borrower hereby represents and warrants to each Lender, the Fronting Lender and Agent that all authorizations, consents and approvals of such Borrower’s board of directors and shareholders, and all other Persons, necessary to permit such Borrower to execute and deliver this Amendment and to perform its obligations hereunder and under the Credit Agreement as amended hereby, and to permit the Lenders, the Fronting Lender and the Agent to enforce such obligations, have been obtained.

(i)No Novation or Waiver. Except as specifically set forth in this Amendment, the execution, delivery and effectiveness of this Amendment shall not (a) limit, impair, constitute a waiver by, or otherwise affect any right, power or remedy of, Agent, the Fronting Lender or any Lender under the Credit Agreement or any other Loan Document, (b) constitute a waiver of any provision in the Credit Agreement or in any of the other Loan Documents or of any Default or Event of Default that may have occurred and be continuing or (c) alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or in any of the other Loan Documents, all of which are ratified and affirmed in all respects and shall continue in full force and effect.

(j)Agent’s Expenses. The Borrowers hereby jointly and severally agree to promptly reimburse Agent for all of the reasonable out-of-pocket expenses, including, without limitation, attorneys’ and paralegals’ fees, it has heretofore or hereafter incurred or incurs in connection with the preparation, negotiation and execution of this Amendment.

******

4

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written.

SOTHEBY’S HOLDINGS, INC.		OATSHARE LIMITED
By:		By:
Name:	William S. Sheridan	Name:	William S. Sheridan
Title:	Chief Financial Officer	Title:	Director

SOTHEBY’S, INC.		SOTHEBY’S
By:		By:
Name:	William S. Sheridan	Name:	William S. Sheridan
Title:	Executive Vice President	Title:	Director

SOTHEBY’S FINANCIAL SERVICES, INC. SOTHEBY’S FINANCIAL SERVICES CALIFORNIA, INC. OBERON, INC. THETA, INC. SOTHEBY’S VENTURES, LLC		SOTHEBY’S FINANCIAL SERVICES LIMITED
By:		By:
Name:	William S. Sheridan	Name:	William S. Sheridan
Title:	Vice President	Title:	Director

Signature Page to
Amendment No. 2

SOTHEBYS.COM LLC,as a Guarantor
By:
Name:	William S. Sheridan
Title:	Senior Vice President

SOTHEBY’SFINEARTHOLDINGS, INC. SOTHEBY’SASIA, INC. YORKWAREHOUSE,INC. SPTC,INC. SOTHEBYPARKEBERNET,INC. YORKAVENUEDEVELOPMENT,INC. SOTHEBY’STHAILAND,INC. SOTHEBY’SHOLDINGSINTERNATIONAL,INC. SOTHEBY’SNEVADA,INC. SOTHEBYS.COMAUCTIONS,INC. SIBS,LLC, each as a Guarantor
By:
Name:	William S. Sheridan
Title:	Vice President

Signature Page to
Amendment No. 2

GENERAL ELECTRIC CAPITALCORPORATION, as Agent, a Lender and the Fronting Lender
By:
	Duly Authorized Signatory

HSBC BANK PLC, as a Lender
By:
	Name:
	Title:

PNC BANK, NATIONAL ASSOCIATION, as a Lender
By:
	Name:
	Title:

COMERICA BANK, as a Lender
By:
	Name:
	Title:

LASALLE BUSINESS CREDIT, LLC, as a Lender
By:
	Name:
	Title:

Signature Page to
Amendment No. 2

GENERAL ELECTRIC CAPITALCORPORATION, as Agent, a Lender and the Fronting Lender
By:
	Duly Authorized Signatory

HSBC BANK PLC, as a Lender
By:
	Name:	PAUL HAGGER
	Title:	SENIOR CORPORATE RELATIONSHIP MANAGER

PNC BANK, NATIONAL ASSOCIATION, as a Lender
By:
	Name:
	Title:

COMERICA BANK, as a Lender
By:
	Name:
	Title:

LASALLE BUSINESS CREDIT, LLC, as a Lender
By:
	Name:
	Title:

Signature Page to
Amendment No. 2

GENERAL ELECTRIC CAPITAL CORPORATION, as Agent, a Lender and the Fronting Lender
By:
	Duly Authorized Signatory

HSBC BANK PLC, as a Lender
By:
	Name:
	Title:

PNC BANK, NATIONAL ASSOCIATION, as a Lender
By:
	Name:	Kysha A. White
	Title:	Vice President

COMERICA BANK, as a Lender
By:
	Name:
	Title:

LASALLE BUSINESS CREDIT, LLC, as a Lender
By:
	Name:
	Title:

Signature Page to
Amendment No. 2

GENERAL ELECTRIC CAPITAL CORPORATION, as Agent, a Lender and the Fronting Lender
By:
	Duly Authorized Signatory

HSBC BANK PLC, as a Lender
By:
	Name:
	Title:

PNC BANK, NATIONAL ASSOCIATION, as a Lender
By:
	Name:
	Title:

COMERICA BANK, as a Lender
By:
	Name:	Scott M. Kowalski
	Title:	Account Officer

LASALLE BUSINESS CREDIT, LLC, as a Lender
By:
	Name:
	Title:

Signature Page to
Amendment No. 2

GENERAL ELECTRIC CAPITAL CORPORATION, as Agent, a Lender and the Fronting Lender
By:
	Duly Authorized Signatory

HSBC BANK PLC, as a Lender
By:
	Name:
	Title:

PNC BANK, NATIONAL ASSOCIATION, as a Lender
By:
	Name:
	Title:

COMERICA BANK, as a Lender
By:
	Name:
	Title:

LASALLE BUSINESS CREDIT, LLC, as a Lender
By:
	Kevin D. Copenspire
	Vice President

Signature Page to
Amendment No. 2

NATIONAL CITY BUSINESS CREDIT, INC. (f/k/a/ National City Commercial Finance, Inc.), as a Lender
By:
	Name:	William E. Welsh, Jr.
	Title:	Senior Associate

SIEMENS FINANCIAL SERVICES, INC., as a Lender
By:
	Name:
	Title:

WEBSTER BUSINESS CREDIT CORPORATION, as a Lender
By:
	Name:
	Title:

Signature Page to
Amendment No. 2

NATIONAL CITY BUSINESS CREDIT, INC. (f/k/a/ National City Commercial Finance, Inc.), as a Lender
By:
	Name:
	Title:

SIEMENS FINANCIAL SERVICES, INC., as a Lender
By:
	Name:	Frank Amodio
	Title:	Vice President - Credit

WEBSTER BUSINESS CREDIT CORPORATION, as a Lender
By:
	Name:
	Title:

Signature Page to
Amendment No. 2

NATIONAL CITY BUSINESS CREDIT, INC. (f/k/a/ National City Commercial Finance, Inc.), as a Lender
By:
	Name:
	Title:

SIEMENS FINANCIAL SERVICES, INC., as a Lender
By:
	Name:
	Title:

WEBSTER BUSINESS CREDIT CORPORATION, as a Lender
By:
	Name:	Joe Zautha
	Title:	Vice President

Signature Page to
Amendment No. 2

EXHIBIT A
(AMENDMENT NO. 2 TO CREDIT AGREEMENT)

This CREDIT AGREEMENT (this “Agreement”), dated as of March 4, 2004, among Sotheby’s Holdings, Inc., a Michigan corporation (“Holdings”), Sotheby’s, Inc., a New York corporation (“Sotheby’s, Inc.”), Sotheby’s Financial Services, Inc., a Nevada corporation (“SFS Inc.”), Sotheby’s Financial Services California, Inc., a Nevada corporation (“SFS California”), Oberon, Inc., a Delaware corporation (“Oberon”), Theta, Inc., a Delaware corporation (“Theta ”), Sotheby’s Ventures, LLC, a New York limited liability company (“Ventures LLC” and, collectively with Holdings, Sotheby’s, Inc., SFS Inc., SFS California, Oberon and Theta, the “U.S. Borrowers”), Oatshare Limited, a company registered in England (“Oatshare”), Sotheby’s, a company registered in England (“Sotheby’s U.K.”), and Sotheby’s Financial Services Limited, a company registered in England (“SFS Ltd.” and, collectively with Oatshare and Sotheby’s U.K., the “U.K. Borrowers” and, collectively with the U.S. Borrowers, the “Borrowers”); the other Credit Parties signatory hereto; General Electric Capital Corporation, a Delaware corporation (in its individual capacity, “GE Capital”), for itself, as a Lender and as Fronting Lender, and as Agent for the Lenders and the Fronting Lender (in such capacity, “Agent”), HSBC Bank plc and PNC Bank, National Association, as Co-Syndication Agents, and the other Lenders signatory hereto from time to time.

RECITALS

WHEREAS, Borrowers have requested that Lenders extend revolving credit facilities to Borrowers of up to Two Hundred Million Dollars ($200,000,000) in the aggregate to provide (a) working capital financing for Borrowers, (b) funds for other general corporate purposes of Borrowers and (c) funds for other purposes permitted hereunder; and for these purposes, Lenders are willing to make certain loans and other extensions of credit to Borrowers of up to such amount upon the terms and conditions set forth herein; and

WHEREAS, Borrowers have agreed to secure all of the Secured Obligations by granting to Agent, for the benefit of Agent and the other Secured Parties, a security interest in and lien upon all of their existing and after-acquired personal property; and

WHEREAS, capitalized terms used in this Agreement shall have the meanings ascribed to them in Annex A and, for purposes of this Agreement and the other Loan Documents, the rules of construction set forth in Annex A shall govern. All Annexes, Disclosure Schedules, Exhibits and other attachments (collectively, “Appendices”) hereto, or expressly identified to this Agreement, are incorporated herein by reference, and taken together with this Agreement, shall constitute but a single agreement. These Recitals shall be construed as part of the Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and for other good and valuable consideration, the parties hereto agree as follows:

Loan, (ii) the aggregate outstanding principal balance of Revolving Credit Advances and Swing Line Advances made to U.S. Borrowers and the Dollar Equivalent of the Letter of Credit Obligations incurred for the benefit of the U.S. Borrowers would, in the aggregate, exceed the U.S. Borrowing Base, (iii) the Dollar Equivalent of the outstanding amount of the Letter of Credit Obligations would exceed the L/C Sublimit, (iv) the aggregate outstanding principal amount of the Swing Line Loan would exceed Swing Line Availability or (v) the Dollar Equivalent of the aggregate outstanding principal balance of Revolving Credit Advances made to U.K. Borrowers and the Dollar Equivalent of the outstanding amount of the Letter of Credit Obligations incurred for the benefit of the U.K. Borrowers would, in the aggregate, exceed either the Sterling Subfacility Limit or the U.K. Borrowing Base; or

(d) notwithstanding the provisions of Annex F, the Borrowers shall not have delivered to Agent a Borrowing Base Certificate and Art Loan Receivables Report (accompanied in each case by such supporting detail and documentation as shall be requested by Agent in its reasonable discretion), in each case prepared as of (i) with respect to any Advance to be made or Letter of Credit Obligation to be incurred during the first thirteen days of any Fiscal Month, the last of day of the second preceding Fiscal Month or (ii) with respect to any Advance to be made or Letter of Credit Obligation to be incurred during the remainder of any Fiscal Month, the last day of the preceding Fiscal Month.

The request and acceptance by any Borrower of the proceeds of any Advance, the incurrence of any Letter of Credit Obligations or the conversion or continuation of any portion of the outstanding Revolving Loan into, or as, a LIBOR Loan shall be deemed to constitute, as of the date thereof, (i) a representation and warranty by Borrowers that the conditions in this Section 2.2 have been satisfied and (ii) a reaffirmation by Borrowers of the cross-guaranty provisions set forth in Section 12 and of the granting and continuance of Agent’s Liens, on behalf of itself and the other Secured Parties, pursuant to the Collateral Documents.

3.      REPRESENTATIONS AND WARRANTIES

To induce Lenders and the Fronting Lender to make the Loans and to incur Letter of Credit Obligations (and to purchase participation interests in the Loans and Letter of Credit Obligations hereunder, the Credit Parties, jointly and severally, make the following representations and warranties to Agent and each Lender with respect to all Sotheby Entities, each and all of which shall survive the execution and delivery of this Agreement.

3.1 Corporate Existence; Compliance with Law.

(a) Each Credit Party (i) is a corporation, limited liability company or limited partnership (or, in the case of Sotheby’s U.K., an unlimited liability company) duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation or organization set forth in Disclosure Schedule (3.1); (ii) is duly qualified to conduct business and is in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not result in exposure to losses or liabilities which could reasonably be expected to have a Material Adverse Effect; (iii) has the requisite power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease and to conduct its business as now conducted or proposed

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9.6 Indemnification. Lenders agree to indemnify Agent (to the extent not reimbursed by Credit Parties and without limiting the obligations of Credit Parties hereunder), ratably according to their respective Pro Rata Shares, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against Agent in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted to be taken by Agent in connection therewith; provided, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Agent’s gross negligence or willful misconduct. Without limiting the foregoing, each Lender agrees to reimburse Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement and each other Loan Document, to the extent that Agent is not reimbursed for such expenses by Credit Parties.

9.7 Successor Agent and Fronting Lender; Co-Syndication Agents.

(a) Agent may resign at any time by giving not less than thirty (30) days’ prior written notice thereof to Lenders and Borrower Representative. Upon any such resignation, the Requisite Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Requisite Lenders and shall have accepted such appointment within thirty (30) days after the resigning Agent’s giving notice of resignation, then the resigning Agent may, on behalf of Lenders, appoint a successor Agent, which shall be a Lender, if a Lender is willing to accept such appointment, or otherwise shall be a commercial bank or financial institution or a subsidiary of a commercial bank or financial institution if such commercial bank or financial institution is organized under the laws of the United States of America or of any State thereof and has a combined capital and surplus of at least $300,000,000. If no successor Agent has been appointed pursuant to the foregoing, within thirty (30) days after the date such notice of resignation was given by the resigning Agent, such resignation shall become effective and the Requisite Lenders shall thereafter perform all the duties of Agent hereunder until such time, if any, as the Requisite Lenders appoint a successor Agent as provided above. Any successor Agent appointed by Requisite Lenders hereunder shall be subject to the approval of Borrower Representative, such approval not to be unreasonably withheld or delayed; provided that such approval shall not be required if a Default or an Event of Default has occurred and is continuing. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall succeed to and become vested with all the rights, powers, privileges and duties of the resigning Agent. Upon the earlier of the acceptance of any appointment as Agent hereunder by a successor Agent or the effective date of the resigning Agent’s resignation, the resigning Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents, except that any indemnity rights or other rights in favor of such resigning Agent shall continue. After any resigning Agent’s resignation hereunder, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was acting as Agent under this Agreement and the other Loan Documents.

(b) The Fronting Lender may resign at any time by giving sixty (60) days prior written notice thereof to Agent, the Non-Sterling Lenders and the Borrowers; provided, such resignation shall not become effective until the date upon which a replacement Fronting Lender

65

reasonably acceptable to Agent and Non-Sterling Lenders having aggregate Commitments equal to greater than 50% of the Fronted Percentage and, so long as no Default or Event of Default has occurred and is continuing, to the Borrowers, has been selected and has assumed the rights and obligations of a Fronting Lender hereunder. If no successor Fronting Lender shall have been so appointed and shall have accepted such appointment within thirty (30) days after the resigning Fronting Lender’s giving of notice of resignation, then the resigning Fronting Lender may, on behalf of the Non-Sterling Lenders, appoint a successor Fronting Lender, which shall be a financial institution having a rating of not less than A or its equivalent by Standard & Poor’s, and having otherwise the ability to fund the Sterling Revolving Credit Advances (and the parties hereto agree to use reasonable efforts to appoint a successor Fronting Lender which will not cause an increase in the tax withholding liability for the Borrowers). Upon the acceptance of any appointment as Fronting Lender hereunder by a successor Fronting Lender, such successor Fronting Lender shall thereupon succeed to and become vested with all the rights, powers, privileges, duties and obligations of the resigning Fronting Lender, and the resigning Fronting Lender shall be discharged from its duties and obligations hereunder. After any resigning Fronting Lender’s resignation, the provisions of this Agreement and the other Loan Documents shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Fronting Lender.

(c)The Co-Syndication Agents referenced in the introductory paragraph of this Agreement shall have no duties or rights in their capacities as such Co-Syndication Agents, such designations being assigned to such Lenders hereunder solely as titles and not with any legal effect intended.

66

for the failure of any Non-Funding Lender to make a Revolving Credit Advance, purchase a participation or make any other payment required hereunder. Notwithstanding anything set forth herein to the contrary, a Non-Funding Lender shall not have any voting or consent rights under or with respect to any Loan Document or constitute a “Lender” or a “Lender” (or be included in the calculation of “Requisite Lenders” or “Supermajority Lenders” hereunder) for any voting or consent rights under or with respect to any Loan Document. At Borrower Representative’s request, Agent or a Person reasonably acceptable to Agent shall have the right with Agent’s consent and in Agent’s sole discretion (but shall have no obligation) to purchase from any Non-Funding Lender, and each Non-Funding Lender agrees that it shall, at Agent’s request, sell and assign to Agent or such Person, all of its interests in the Obligations and the Commitments held by that Non-Funding Lender for an amount equal to the principal balance of all Loans and participations held by such Non-Funding Lender and all accrued interest and fees with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed Assignment Agreement.

(e)Non-Sterling Lenders.

(i)Participation Interests. On any date upon which the Fronting Lender shall be required to (i) make available the Fronted Percentage of any Sterling Revolving Credit Advance pursuant to Section 1.1(a), Section 1.1(b)(iv) or pursuant to paragraph (b)(ii) of Annex B or (ii) purchase a participation interest in a Swing Line Advance denominated in Sterling pursuant to Section 1.1(b)(v), each Non-Sterling Lender shall on such date be deemed to have irrevocably and unconditionally purchased from the Fronting Lender an undivided participation interest in such Advance in an amount equal to its Pro Rata Share of such Advance. The purchase price of any such participation interest shall be an amount, in Dollars, equal to the Dollar Equivalent of such Pro Rata Share as of the date payment by such Non-Sterling Lenders of such purchase price is required hereunder; provided, however, that such purchase price need not be funded by any Non-Sterling Lender unless and until the Fronting Lender, in its discretion, shall have made a demand therefor in writing to Agent (which Agent shall promptly forward to each Non-Sterling Lender) with respect to each such participation interest following the occurrence of any Default or Event of Default. Payment of such purchase price in respect of any such participation interest shall be made by each Non-Sterling Lender in immediately available funds by wire transfer to the Fronting Lender’s account as set forth in Annex H not later than 2:00 p.m. (New York time) on the Business Day immediately following the date such demand is delivered to Agent with respect to then outstanding Advances and on each applicable purchase date thereafter with respect to any subsequent Advances, in the case of Advances made as Index Rate Loans, and not later than 10:00 a.m. (New York time) on the Business Day immediately following the date such demand is delivered to Agent with respect to then outstanding Advances and on each applicable purchase date thereafter with respect to any subsequent Advances, in the case of Advances made as LIBOR Loans. On any date upon which the Fronting Lender shall be required to purchase an undivided interest and participation in any Letter of Credit Obligation in respect of a Letter of Credit issued for the benefit of a U.K. Borrower pursuant to paragraph (b)(v) of Annex B, immediately and without further action whatsoever, each Non-Sterling Lender shall be deemed to have irrevocably and unconditionally purchased from the Fronting Lender an undivided interest and participation in such participation interest. Each Non-Sterling Lender shall fund its participation in all payments made under such Letters of Credit in the same manner as provided in the first sentence of this Section 9.9(e)(i) with respect to Sterling Revolving Credit Advances, each of which Sterling Revolving Credit Advances shall be in an amount equal to the Sterling Equivalent of such payment as of the date thereof.

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(ii)Obligation of Non-Sterling Lenders. Each Non-Sterling Lender’s obligation to purchase participation interests (and to fund the purchase price thereof) in accordance with Section 9.9(e)(i) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right that such Non-Sterling Lender may have against the Fronting Lender, Agent, any Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of any Default or Event of Default; (C) any inability of any Borrower to satisfy the conditions precedent to borrowing set forth in this Agreement at any time or (D) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.

(iii)Payments to Non-Sterling Lenders. On each Settlement Date (or, if the Fronting Lender shall not be acting as Agent, on the Business Day following each Settlement Date), the Fronting Lender shall advise each Non-Sterling Lender by telephone or telecopy of the amount to be disbursed to such Person in accordance with this Section 9.9(e)(iii). Except with respect to any Non- Sterling Lender that is a Non-Funding Lender, (a) prior to the funding of the purchase price of the participation interests of the Non-Sterling Lenders in Advances made by the Fronting Lender in accordance with Section 9.9(e)(i), the Fronting Lender shall pay to each Non-Sterling Lender the Dollar Equivalent (calculated as of the date of such payment by the Fronting Lender) of such Lender’s Pro Rata Share of the Applicable Margin paid by the Borrowers for the benefit of the Lenders and the Fronting Lender with respect to interest on the portion of the Revolving Loan Outstandings denominated in Sterling (to the extent such amounts have actually been received by the Fronting Lender) less a portion of such Applicable Margin equal to one-half of one percent (0.50%) per annum of such Non-Sterling Lender’s Pro Rata Share of the Revolving Loan Outstandings denominated in Sterling, the latter amount being retained by the Fronting Lender for its own account in compensation for the Fronting Lender’s willingness to bear the foreign exchange rate fluctuation risk with respect to such Revolving Loan Outstandings and (b) at all times after the funding of the purchase price of the participation interests of the Non-Sterling Lenders in Advances made by the Fronting Lender in accordance with Section 9.9(e)(i), the Fronting Lender shall pay to each Non-Sterling Lender the Dollar Equivalent (calculated as of the date of such payment by the Fronting Lender) of such Lender’s Pro Rata Share of interest and principal paid by the Borrowers for the benefit of the Lenders and the Fronting Lender with respect to the portion of the Revolving Loan Outstandings denominated in Sterling (to the extent such amounts have actually been received by the Fronting Lender). To the extent that any Non-Sterling Lender has failed to pay the purchase price, when due, of any participation interest required to be purchased by pursuant to Section 9.9(e)(i), the Fronting Lender shall be entitled to set off the funding short-fall against that Non-Sterling Lender’s share of all payments received by the Fronting Lender. Such payments shall be made by wire transfer to such Non-Sterling Lender’s account (as specified by such Lender in Annex H or the applicable Joinder Agreement or Assignment Agreement) not later than 5:00 p.m. (New York time) on each applicable Settlement Date (or, if the Fronting Lender shall not be acting as Agent, on the Business day following each Settlement Date).

(iv)Availability of Non-Sterling Lender’s Pro Rata Share. The Fronting Lender may assume that each Non-Sterling Lender will make its Pro Rata Share of each Sterling Revolving Credit Advance available to the Fronting Lender on each date on which such Non-Sterling Lender is required to pay the purchase price of its participation interests therein pursuant to the terms hereof. If any Non-Sterling Lender does not make available to the Fronting Lender any amount required pursuant to Section 9.9(e)(i), the Fronting Lender shall be entitled to recover such amount on demand from such Non-Sterling Lender, together with interest thereon for each day from the date of

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EXHIBIT B
(AMENDMENT NO. 2 TO CREDIT AGREEMENT)

ANNEX A (Recitals)
to
CREDIT AGREEMENT

DEFINITIONS

Capitalized terms used in the Loan Documents shall have (unless otherwise provided elsewhere in the Loan Documents) the following respective meanings, and all references to Sections, Exhibits, Schedules or Annexes in the following definitions shall refer to Sections, Exhibits, Schedules or Annexes of or to the Agreement:

“Acceptable Cash Equivalents” has the meaning ascribed to it in Annex B.

“Account Debtor” means any Person who may become obligated to any Sotheby Entity under, with respect to, or on account of, an Account, Chattel Paper (including, without limitation, an Art Loan) or General Intangibles (including a payment intangible).

“Accounting Changes” has the meaning ascribed thereto in Annex G.

“Accounts” means all “accounts,” as such term is defined in the Code, now owned or hereafter acquired by any Sotheby Entity, including (a) all accounts receivable, other receivables, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper or Instruments), (including any such obligations that may be characterized as an account under the Code), (b) all of each Sotheby Entity’s rights in, to and under all purchase orders or receipts for goods or services, (c) all of each Sotheby Entity’s rights to any goods represented by any of the foregoing (including unpaid sellers’ rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), (d) all rights to payment due to any Sotheby Entity for property sold, leased, licensed, assigned or otherwise disposed of, for a policy of insurance issued or to be issued, for a secondary obligation incurred or to be incurred, for energy provided or to be provided, for the use or hire of a vessel under a charter or other contract, arising out of the use of a credit card or charge card, or for services rendered or to be rendered by such Sotheby Entity or in connection with any other transaction (whether or not yet earned by performance on the part of such Sotheby Entity), (e) all health care insurance receivables and (f) all collateral security of any kind, given by any Account Debtor or any other Person with respect to any of the foregoing.

“Activation Event” shall mean, as of any date when the aggregate Revolving Loan then outstanding and the aggregate Swing Line Loan then outstanding, in the aggregate, shall be greater than zero, the occurrence of either of the following: (i) an Event of Default shall have occurred and shall have been continuing for at least ten (10) days as of such date or (ii) the Liquidity Amount shall be less than $15,000,000 as of such date.

“Activation Notice” has the meanings ascribed to it in Annex C.

“Art Loans” shall mean loans made by the Borrowers to customers of Holdings and its Subsidiaries to finance the purchase or carrying of, or in anticipation of the potential sale of, or secured by, Works of Art.

“Assignment Agreement” has the meaning ascribed to it in Section 9.1(a).

“Available U.K. Art Loan Balance” means the Dollar Equivalent of the aggregate outstanding principal balance of all Eligible Art Loans owned by U.K. Borrowers minus (a) the amount, if any, by which the Dollar Equivalent of the aggregate outstanding principal balance of all Eligible Venture Loans owned by U.K. Borrowers exceeds an amount equal to $10,000,000 less the Dollar Equivalent of the outstanding principal balance of Eligible Venture Loans included in the Available U.S. Art Loan Balance minus (b) the amount, if any, by which the Dollar Equivalent of the outstanding principal balance of Unhedged U.K. Art Loans exceeds 25% of the Dollar Equivalent of the aggregate outstanding principal balance of all El igible Art Loans owned by the U.K. Borrowers minus (c) 1.0% of the Dollar Equivalent of the average outstanding amount of all Art Loans owned by the U.K. Borrowers for the four Fiscal Quarters most recently ended.

“Available U.S. Art Loan Balance” means the Dollar Equivalent of the aggregate outstanding principal balance of all Eligible Art Loans owned by U.S. Borrowers minus (a) the amount, if any, by which the Dollar Equivalent of the aggregate outstanding principal balance of all Eligible Venture Loans owned by U.S. Borrowers exceeds $10,000,000 minus (b) the amount, if any, by which the Dollar Equivalent of the outstanding principal balance of Unhedged U.S. Art Loans exceeds 25% of the Dollar Equivalent of the aggregate outstanding principal balance of all Eligible Art Loans owned by the U.S. Borrowers minus (c) 1.0% of the Dollar Equivalent of the average outstanding principal balance of all Art Loans owned by the U.S. Borrowers for the four Fiscal Quarters most recently ended.

“Bank Product and Hedging Obligations” means any and all obligations of any Sotheby Entity, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), to any Lender or any affiliate of any Lender under or in respect of (i) any and all Rate Management Transactions, (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any Rate Management Transactions and (iii) any and all Bank Products.

“Bank Products” means any of the following services provided to any Sotheby Entity: (i) commercial credit card services, (ii) cash management and other treasury management services (including, without limitation, controlled disbursements, automated clearinghouse transactions, return items, and interstate depository network services) and (iii) foreign exchange related services.

“Bankruptcy Code” means the provisions of Title 11 of the United States Code, 11 U.S.C. §§101 etseq.

“Benefit Equalization Plan” means the Sotheby’s, Inc. 1988 Benefit Equalization Plan.

“Blocked Accounts” has the meaning ascribed to it in Annex C.

provided, that, except as otherwise agreed by Agent, no Person proposed to become a Lender after the Closing Date and determined by Agent to be acting in the capacity of a vulture fund or distressed debt purchaser shall be a Qualified Assignee, and, unless otherwise agreed by Agent, no Person or Affiliate of such Person proposed to become a Lender after the Closing Date and that holds Senior Notes or Stock issued by any Sotheby Entity shall be a Qualified Assignee.

“Qualifying Lender” means:

(i) in respect of a payment made by a U.K. Credit Party, a Lender which is beneficially entitled to amounts payable to that Lender in respect of an advance under this Agreement or the other Loan Documents and is:

(A) a Lender:

(1) which is a bank (as defined for the purpose of section 349 of the Taxes Act) making an advance under this Agreement or the other Loan Documents; or

(2) in respect of an advance made under this Agreement by a person that was a bank (as defined for the purpose of section 349 of the Taxes Act) at the time that that advance was made,

and which is within the charge to United Kingdom corporation tax as respects any payments of interest made in respect of that advance; or

(B) a Lender which is:

(1) a company resident in the United Kingdom for United Kingdom tax purposes;

(2) a partnership each member of which is a company resident in the United Kingdom for United Kingdom tax purposes;

(3) a company not so resident in the United Kingdom which carries on a trade in the United Kingdom through a permanent establishment and which brings into account interest payable in respect of that advance in computing its chargeable profits (within the meaning given by section 11(2) of the Taxes Act); or

(C) a Treaty Lender.

(ii) in respect of a payment made by a U.S. Credit Party which would be required under the Code to pay United States source interest in connection with this Agreement or the other Loan Documents, a Lender which is:

EXHIBIT C
(AMENDMENT NO. 2 TO CREDIT AGREEMENT)

ANNEX E (Section 4.1(a))
to
CREDIT AGREEMENT

FINANCIAL STATEMENTS AND PROJECTIONS -- REPORTING

Borrowers shall deliver or cause to be delivered to Agent or to Agent and Lenders, as indicated, the following:

(a)Monthly Financials. To Agent and Lenders, within thirty (30) days after the end of each Fiscal Month beginning with the Fiscal Month ending March 31, 2004 (or within forty-five (45) days after the end of each Fiscal Month ending on or about the last day of each June, September, December and March thereafter), financial information regarding Borrowers and their Subsidiaries, certified by a Financial Officer of Borrower Representative, consisting of consolidated (with respect to Holdings and its Subsidiaries) and consolidating (i) unaudited balance sheets as of the close of such Fiscal Month and the related statements of income and (consolidated) cash flows (relating solely to depreciation, amortization and capital expenditures) for that por tion of the Fiscal Year ending as of the close of such Fiscal Month; (ii) unaudited statements of income, if available, on a consolidated basis for such Fiscal Month, setting forth in comparative form the figures for the corresponding period in the prior year, all prepared in accordance with GAAP (subject to normal year-end adjustments); (iii) a calculation of 15% of Consolidated Net Tangible Assets as of the last day of that Fiscal Month, net of any “Secured Debt” or “Attributable Debt” (in each case as defined in the Senior Note Indenture), (iv) a calculation of amounts payable to consignors as of the last day of that Fiscal Month and (v) a calculation of the aggregate unfunded commitment of the Borrowers to make future Art Loans as of the last day of that Fiscal Month. Such financial information shall be accompanied by the certification of a Financial Officer of Borrower Representative that (i) such financial information presents fairly (in the case of the consolidated Financial Statements with respect to Holdings and its Subsidiaries, in accordance with GAAP (subject to normal year-end adjustments)) the financial position and results of operations of Borrowers and their Subsidiaries, on a consolidated (with respect to Holdings and its Subsidiaries) and consolidating basis, in each case as at the end of such Fiscal Month and for that portion of the Fiscal Year then ended; provided, that such certification shall, in the case of any financial information provided with respect to the Fiscal Month ending on the last day of December of any year, be subject to a qualification that such financial information is preliminary in nature and is subject to year-end adjustments as may be required in accordance with GAAP and (ii) any other information presented is true, correct and complete in all material respects and that there was no Default or Event of Default in existence as of such time or, if a Default or Event of Default has occurred and is continuing, describing the nature thereof and all efforts undertaken to cure such Default or Event of Default.

(b)Quarterly Financials. To Agent and Lenders, within forty-five (45) days after the end of each Fiscal Quarter, consolidated (with respect to Holdings and its Subsidiaries) and consolidating financial information, certified by a Financial Officer of Borrower Representative, including (i) unaudited balance sheets as of the close of such Fiscal Quarter and the related statements of income and (consolidated) cash flow for that portion of the Fiscal Year ending as of the close of such Fiscal Quarter and (ii) unaudited statements of income for such Fiscal Quarter, in each case setting forth in

EXHIBIT D
(AMENDMENT NO. 2 TO CREDIT AGREEMENT)

ANNEX G (Section 6.10)
to
CREDIT AGREEMENT

FINANCIAL COVENANTS

Borrowers shall not breach or fail to comply with any of the following financial covenants, each of which shall be calculated in accordance with GAAP consistently applied:

(a)Maximum Capital Expenditures. Holdings and its Subsidiaries on a consolidated basis shall not make Capital Expenditures (other than portions of such Capital Expenditures financed by the Lenders hereunder) in excess of $10,000,000 during any Fiscal Year; provided, that, in addition to the foregoing, Sotheby’s U.K. may incur Capital Expenditures not exceeding a Dollar Equivalent of $4,000,000 in the aggregate in connection with the purchase of the Real Estate commonly known as 9 St. George Street, London, England, if Sotheby’s U.K. consummates such purchase and, in accordance with Section 5.9, provides a mortgage on such Real Estate on or prior to December 31, 2004 or as otherwise agreed by Agent.

(b)Minimum Fixed Charge Coverage Ratio. Holdings and its Subsidiaries shall have on a consolidated basis at the end of each Fiscal Quarter (beginning with the Fiscal Quarter ending June 30, 2004), a Fixed Charge Coverage Ratio for the four Fiscal-Quarter period then ended of not less than 1.0.

Unless otherwise specifically provided herein, any accounting term used in the Agreement shall have the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed in accordance with GAAP consistently applied. That certain items or computations are explicitly modified by the phrase “in accordance with GAAP” shall in no way be construed to limit the foregoing. If any “Accounting Changes” (as defined below) occur and such changes result in a change in the calculation of the financial covenants, standards or terms used in the Agreement or any other Loan Document, then Borrowers, Agent and Lenders agree to enter into negotiations in order to amend such provisions of the Agreement so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating Borrowers’ and their Subsidiaries’ financial condition shall be the same after such Accounting Changes as if such Accounting Changes had not been made; provided, however, that the agreement of Requisite Lenders to any required amendments of such provisions shall be sufficient to bind all Lenders. “Accounting Changes” means (i) changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants (or successor thereto or any agency with similar functions), (ii) changes in accounting principles concurred in by any Borrower’s certified public accountants; (iii) purchase accounting adjustments under A.P.B. 16 or 17 and EITF 88-16, and the application of the accounting principles set forth in FASB 109, including the establishment of reserves pursuant thereto and any subsequent reversal (in whole or in part) of such reserves; and (iv) the reversal of any reserves established as a result of purchase accounting adjustments. All such adjustments resulting from expenditures made subsequent to the Closing Date (including capitalization of costs and expenses or

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 quarterly report on Form 10-Q for the period ended September 30, 2004 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)) 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) 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

(c) 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.
November 8, 2004

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 quarterly report on Form 10-Q for the period ended September 30, 2004 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)) 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) 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

(c) 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.
November 8, 2004

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 Quarterly Report of Sotheby’s Holdings, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2004 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.
November 8, 2004

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 Quarterly Report of Sotheby’s Holdings, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2004 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.
November 8, 2004