<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________, AND
COMMISSION FILE NUMBER 1-9750.
------------------------
SOTHEBY'S HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MICHIGAN 38-2478409
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 NORTH WOODWARD AVENUE, SUITE 100 48304
BLOOMFIELD HILLS, MICHIGAN (Zip Code)
(Address of principal executive
office)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (248) 646-2400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Class A Limited Voting Common Stock, New York Stock Exchange
$0.10 Par Value London Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
------------------------
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 periods that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
As of March 6, 2000, the aggregate market value of the 24,568,738 shares of
Class A Limited Voting Common Stock held by non-affiliates of the registrant was
$540,512,236 based upon the closing price ($22.00) on the New York Stock
Exchange composite tape on such date. (For this computation, the registrant has
excluded the market value of all shares of its Class A Limited Voting Common
Stock reported as beneficially owned by executive officers and directors of the
registrant; such exclusion shall not be deemed to constitute an admission that
any such person is an "affiliate" of the registrant.) As of March 6, 2000, there
were outstanding 42,269,201 shares of Class A Limited Voting Common Stock (the
"Class A Common Stock") and 16,585,650 shares of Class B Common Stock (the
"Class B Common Stock"), freely convertible into 16,585,650 shares of Class A
Common Stock. There is no public market for the registrant's Class B Common
Stock, which is held by affiliates and non-affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the 2000 annual meeting of shareholders
are incorporated by reference into Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Sotheby's Holdings, Inc. (together with its subsidiaries, unless the context
otherwise requires, the "Company") is one of the world's two largest auctioneers
of fine arts, antiques and collectibles, offering property in over 80 collecting
categories, among them paintings, jewelry, decorative arts, and books. The
worldwide auction segment of the Company's business is conducted through a
division known as "Sotheby's". In addition to both live and internet
auctioneering, the auction segment is engaged in a number of related activities,
including the purchase and resale of art and other collectibles and the
brokering of art and collectible purchases and sales through private treaty
sales. In certain circumstances the Company provides loans to finance the
purchase of property, which is pledged as collateral for the loans, and shares
in the gain (loss) if the property sells either above or below its investment.
The Company also markets and brokers luxury residential real estate through its
real estate segment, conducts art-related financing activities through its
finance segment and is engaged in insurance brokerage, art education and
restoration activities.
The Company believes it is one of the world's leaders in art-related
financing activities. The Company lends money generally secured by consigned art
in order to facilitate clients' bringing property to auction and also makes
loans to collectors, dealers, and museums secured by collections not presently
intended for sale.
The Company, through its subsidiary, Sotheby's International Realty, Inc.
("SIR"), is engaged in the marketing and brokering of luxury residential real
estate.
The Company was incorporated in Michigan in August 1983. In October 1983,
the Company acquired Sotheby Parke Bernet Group Limited, which was then a
publicly held company listed on the International Stock Exchange of the United
Kingdom and the Republic of Ireland Limited (the "London Stock Exchange") and
which, through its predecessors, had been engaged in the auction business since
1744. In 1988, the Company issued shares of Class A Common Stock to the public.
The Class A Common Stock is listed on the New York Stock Exchange (the "NYSE")
and the London Stock Exchange.
THE AUCTION SEGMENT
The purchase and sale of works of art in the international art market are
effected through numerous dealers, the two major auction houses, the smaller
auction houses and also directly between collectors. Although dealers and
smaller auction houses generally do not report sales figures publicly, the
Company believes that dealers account for the majority of the volume of
transactions in the international art market.
The Company and Christie's, a privately held auction house based in the
United Kingdom, are the two largest art auction houses in the world. The Company
conducted aggregate auction sales in 1999 of approximately $2.3 billion
(approximately L1.4 billion). Christie's aggregate auction sales in 1999 were
approximately $2.3 billion (L1.4 billion reported).
The Company auctions a wide variety of property, including fine arts,
jewelry, decorative arts, and rare books. In 1999, the Company's auction sales
by type of property were as follows: fine arts accounted for approximately
$1,299.6 million, or 58%, of auction sales; decorative arts accounted for
approximately $642.6 million, or 28%, of auction sales; and jewelry, rare books
and other property accounted for approximately $316.8 million, or 14%, of
auction sales.
Most of the objects auctioned by the Company are unique items, and their
value, therefore, can only be estimated prior to sale. The Company's principal
role as an auctioneer is to identify, evaluate and appraise works of art through
its international staff of specialists; to stimulate purchaser interest through
professional marketing techniques; and to match sellers and buyers through the
auction process.
In its role as auctioneer, the Company generally functions as an agent
accepting property on consignment from its selling clients. The Company sells
property as agent of the consignor, billing the
<PAGE>
buyer for property purchased, receiving payment from the buyer and remitting to
the consignor the consignor's portion of the buyer's payment after deducting the
Company's commissions, expenses, and applicable taxes. From time to time, the
Company releases property sold at auction to buyers before the Company receives
payment. In such event, the Company must pay the seller the net sale proceeds
for the released property at the time payment is due to the consignor, even if
the Company has not received payment from the buyer.
On certain occasions, the Company will guarantee to the consignor 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 or the property does not sell, and, therefore, the
Company must pay the difference between the sale price at auction and the amount
of the guarantee. See Note N to the Consolidated Financial Statements under Item
8. Under certain guarantees, the Company participates in a share of the proceeds
if the property under guarantee sells above an agreed minimum price. In
addition, the Company is obligated under the terms of certain guarantees to fund
a portion of the guarantee prior to the auction.
All buyers pay a buyer's premium to the Company on auction purchases. The
buyer's premium for internet purchases is 10% of the hammer (sale) price. For
live auction purchases made at principal auction locations and for most
collecting categories, it is 15% of the hammer (sale) price on items sold for
$50,000 or less and, if the property is sold for more than $50,000, 15% of the
first $50,000 and 10% on the remainder of the purchase price. On April 1, 2000,
the Company will begin charging a buyer's premium, for live auction purchases at
principal auction locations and for most collecting categories, of 20% of the
hammer price on the first $15,000, 15% on the next $85,000 up to $100,000 and
10% on any amount over $100,000.
The Company also charges consignors a selling commission. Until
February 29, 2000, for sales over $100,000, a seller paid a commission equal to
the lesser of (a) the rate applicable based on the total amount of property sold
in a particular consignment; (b) the rate based on the total amount of property
sold by the seller through the Company and its subsidiaries during the previous
calendar year; or (c) the rate based upon the total amount of property sold to
date by the seller through the Company and its subsidiaries during the current
calendar year.
On February 29, 2000, the Company instituted a new seller's commission
structure which gives credit to the seller both for auction sales through the
Company during the current year and for auction purchases made from the Company
during the current year when determining the applicable commission rate to be
paid. Under the new seller's commission structure, the applicable rate paid will
continue to vary according to the type of seller, as it did under the old
structure, with different rate schedules for private parties, art dealers, and
museums. For sales under $100,000, the Company will continue to charge a
seller's commission determined on a per lot basis according to a fixed schedule.
In addition to auctioneering, the auction segment is engaged in a number of
related activities, including the brokering of art and collectible purchases and
sales through private treaty sales and the purchase and resale of art and other
collectibles. For example, the Company acts as a principal through its
investment in Acquavella Modern Art (the "Partnership" or "AMA"), a partnership
consisting of a wholly-owned subsidiary of the Company and Acquavella
Contemporary Art, Inc. The Company accounts for its investment in AMA under the
equity method of accounting in the Consolidated Financial Statements under Item
8. The assets of the Partnership consist principally of art inventory. The
Company reflects its 50% interest in the net assets of the Partnership in
Investments in the Consolidated Balance Sheets under Item 8. This investment
totaled $33.0 million and $34.3 million at December 31, 1999 and 1998,
respectively. Since the Company has received the return of its initial
investment, cash distributions are made on a 50-50 basis. To the extent that the
Partnership requires working capital, the Company has agreed to lend the same to
the Partnership. Any amounts loaned to the Partnership by the Company would
2
<PAGE>
bear interest, compounded monthly, at the prime rate, plus 1%. As of
December 31, 1999, no such amounts were outstanding. See Note F to the
Consolidated Financial Statements under Item 8.
The Company's auction business is seasonal, with peak revenues and operating
income occurring in the second and fourth quarters of each year as a result of
the traditional spring and fall art auction seasons. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition-Seasonality" under Item 7.
THE AUCTION MARKET AND COMPETITION
Competition in the international art market is intense. A fundamental
challenge facing any auctioneer or dealer is to obtain high quality and valuable
property for sale. The Company's primary auction competitor is Christie's
although a variety of Internet auction sites are beginning to provide
competition in certain areas. See further discussion under this heading.
The owner of a work of art wishing to sell it has three options: sale or
consignment to, or private brokerage by, an art dealer; consignment to, or
private sale by, an auction house; or private sale to a collector or museum
without the use of an intermediary. The more valuable the property, the more
likely it is that the owner will consider more than one option and will solicit
proposals from more than one potential purchaser or agent, particularly if the
seller is a fiduciary representing an estate or trust.
A complex array of factors may influence the seller's decision. These
factors include: the level of expertise of the dealer or auction house with
respect to the property; the extent of the prior relationship, if any, between
the seller and the firm; the reputation and historic level of achievement by a
firm in attaining high sale prices in the property's specialized category; the
breadth of staff expertise; the desire for privacy on the part of sellers and
buyers; the amount of cash offered by a dealer or other purchaser to purchase
the property outright compared with the estimates, guarantees or other financial
options given by auction houses; the time that will elapse before the seller
will receive sale proceeds; the desirability of a public auction in order to
achieve the maximum possible price (a particular concern for fiduciary sellers);
the amount of commission proposed by dealers or auction houses to sell a work on
consignment; the cost, style and extent of presale marketing and promotion to be
undertaken by a firm; recommendations by third parties consulted by the seller;
personal interaction between the seller and the firm's staff; and the
availability and extent of related services, such as a tax or insurance
appraisal and short-term financing. The Company's ability to obtain high quality
and valuable property for sale depends, in part, on the relationships that
certain employees of the Company, particularly its senior art specialists or
management, have established with potential sellers.
In January 1999 the Company announced its plans to create a new distribution
channel for auction sales on the Internet. In November 1999, the Company
launched SOTHEBYS.AMAZON.COM, a co-branded auction site with Amazon.com
Auctions, Inc., a subsidiary of Amazon.com, Inc. ("Amazon.com"). The Company and
the more than 4,700 fine art, antique and collectibles professionals ("Dealer
Associates") who are eligible to sell property on SOTHEBYS.AMAZON.COM offer
property in the categories of collectibles and general art, antiques, jewelry
and books. Amazon.com manages the day-to-day design and operations of
SOTHEBYS.AMAZON.COM, markets SOTHEBYS.AMAZON.COM to its users, and provides a
link to the Company's wholly-owned site, SOTHEBYS.COM.
The Company relaunched its own website, SOTHEBYS.COM, in December 1999,
adding Internet auctions, new design and content. More than 3,500 of the Dealer
Associates, as well as the Company, have been selected to sell traditional fine
and decorative arts, jewelry and books on SOTHEBYS.COM. The Company manages all
operations of SOTHEBYS.COM.
The Company believes that Internet distribution channels complement its live
auction business and will permit it to reach a larger audience of potential
buyers than was possible through more traditional marketing and sales channels.
3
<PAGE>
The Company's success in developing and implementing its Internet strategy
is substantially dependent upon the following factors: 1) competition in the
Internet auction business; 2) the level of use of the Internet and online
services; 3) consumer confidence in and acceptance of the Internet and other
online services for commerce; 4) consumer confidence in Internet security;
5) the Company's ability to attract and maintain an active customer base and an
active base of selected professional dealers selling property on its sites;
6) the functionality of the Company's computer and communication systems;
7) the Company's ability to upgrade and develop its systems and infrastructure
to accommodate growth; 8) the success of the Company in attracting and retaining
qualified personnel; and 9) government regulation of e-commerce generally.
The market for auctioning items over the Internet has grown substantially in
the past year and continues to evolve. There are a number of companies that
provide business-to-consumer art and collectibles auction services, such as
eBay's "Great Collections," iCollector.com and Artnet.com. Other Internet sites
that offer art and collectibles at fixed prices include nextmonet.com, guild.com
and art.com. Person-to-person auction sites such as eBay, Yahoo! and Amazon.com
may also be competitors of the Company's Internet sites, particularly in the
collectibles category. There are numerous companies that provide online
person-to-person auction services such as eBay Inc. and Yahoo! Inc. as well as
internet art auction firms such as Artnet.com and iCollector. Christie's, the
Company's principal auction competitor, has not commenced Internet auction
sales; however, it has announced that it intends to use its website as an
adjunct to its traditional auctions.
With respect to all statements made herein regarding the Company's Internet
initiative, see Statement on Forward Looking Statements, incorporated by
reference from Item 7.
It is not possible to measure the entire international art market or to
reach any conclusions regarding overall competition because dealers and smaller
auction firms frequently do not publicly report annual sales totals.
AUCTION REGULATION
Regulation of the auction business varies from jurisdiction to jurisdiction.
In many jurisdictions, the Company is subject to laws and regulations that are
not directed solely toward the auction business, including, but not limited to,
import and export regulations and value added sales taxes. Such regulations do
not impose a material impediment to the worldwide business of the Company but do
affect the market generally, and a material adverse change in such regulations
could affect the business. In addition, the failure to comply with such local
laws and regulations could subject the Company to civil and/or criminal
penalties in such jurisdictions.
THE FINANCE SEGMENT
The Company provides financing generally secured by works of art and other
personal property owned by its clients. The Company's financing activities are
conducted through its wholly-owned direct and indirect subsidiaries.
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 or privately (a "consignor advance"); and
(2) general purpose loans to collectors, museums 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,
4
<PAGE>
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. The majority of the Company's loans are variable interest rate loans.
At December 31, 1999, $148.3 million of the total $190.8 million loan portfolio
was due within one year.
The Company regularly reviews its loan portfolio. Each loan is analyzed
based on the current estimated realizable value of collateral securing the loan.
For financial statement purposes, the Company establishes reserves for certain
loans that the Company believes are under-collateralized and with respect to
which the under-collateralized amount may not be collectible from the borrower.
Reserves are established for probable losses inherent in the remainder of the
loan portfolio based on historical data and current market conditions. See Notes
B and D to the Consolidated Financial Statements under Item 8.
The Company funds its financing activities through internally generated
funds, through the issuance of commercial paper, through the issuance of its
senior unsecured debt securities, and through its bank credit lines. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition-Liquidity and Capital Resources" under Item 7 and Note H to the
Consolidated Financial Statements under Item 8.
THE FINANCE MARKET AND COMPETITION
A considerable number of traditional lending sources offer conventional
loans at a lower cost to borrowers than the average cost of those offered by the
Company. However, the Company believes that only Christie's and a few other
lenders are as willing to accept works of art as sole collateral. The Company
believes that its financing alternatives are attractive to clients who wish to
obtain liquidity from their art assets.
THE REAL ESTATE SEGMENT
SIR was founded in 1976 as a wholly-owned subsidiary of the Company. A
natural extension of the Company's auction services, SIR's early mission was to
assist fine arts, furniture and collectibles clients in buying and selling
distinctive properties. Since that time SIR has evolved into a worldwide
organization serving an international customer base. Today, SIR provides
brokerage, marketing and consulting services for luxury residential, resort,
farm and ranch properties nationally and internationally.
SIR offers real estate clients a global network of brokerage operations,
including 16 company-owned brokerage offices, five regional offices, and a
buyers' representative in Hong Kong.
The company-owned brokerage offices of SIR are located on the upper East
Side and SoHo in Manhattan; Southampton, Bridgehampton and East Hampton, N.Y.;
Palm Beach, Fla; Beverly Hills, Brentwood, Santa Barbara and San Francisco, CA.;
Greenwich, Conn.; Santa Fe, N.M.; Sydney, Australia; London, England and, most
recently, Jackson Hole, Wyoming and Paris, France. The Santa Fe office, formed
from the acquisition of a local affiliate, and the SoHo, Santa Barbara and
London offices were established in 1998. In 1999, The Jackson Hole office was
formed through the acquisition of an affiliate, and the Paris Office was opened.
SIR's five regional offices, located in Manhattan; Palm Beach, Fla.; Newport
Beach, CA.; Boston, MA.; and Munich, Germany, manage the Company's affiliation
with more than 180 independent brokerage offices in the U.S., Europe, Canada and
the Caribbean. In selecting its affiliates, SIR evaluates a firm's expertise in
the high-end segment of its local market, community reputation and dedication to
customer service. Each affiliate is the exclusive SIR representative in its
respective territory.
Through the SIR global network, company-owned and affiliate offices offer
buyers access to distinctive properties, in a range of prices, in both domestic
and international luxury real estate markets. The
5
<PAGE>
network, combined with SIR's connection to the Company's auction and finance
businesses, provides sellers access to a unique, qualified group of buyers.
REAL ESTATE COMPETITION
SIR's primary competitors are small, local real estate brokerage firms that
deal exclusively with luxury real estate and the "distinctive property"
divisions of large regional and national real estate firms. Competition in the
luxury real estate business takes many forms, including competition in
commission rates, marketing expertise and the provision of personalized service
to sellers and buyers.
REAL ESTATE REGULATION
The real estate brokerage business is subject to regulation in most
jurisdictions in which SIR operates. Typically, individual real estate brokers
and brokerage firms are subject to licensing requirements. Depending on a
jurisdiction's requirements and the nature of SIR's business conducted there,
SIR may register to conduct business, maintain a real estate brokerage license,
and/or act as an exclusive marketing agent providing services to licensed real
estate brokers in a particular jurisdiction.
FACTORS EFFECTING OPERATING REVENUES
The Company's Auction, Finance and Real Estate operating revenues are
significantly influenced by a number of factors not within the Company's
control, including: the overall strength of the international economy and
financial markets and, in particular, the economies of the United States, the
United Kingdom, and the major countries of continental Europe and Asia
(principally Japan and Hong Kong); political conditions in various nations; the
presence of export and exchange controls; local taxation of sales and donations
of potential auction property; competition; and the amount of property being
consigned to art auction houses.
FINANCIAL AND GEOGRAPHICAL INFORMATION ABOUT OPERATING SEGMENTS
See Note C to the Consolidated Financial Statements under Item 8 for
financial and geographical information about the Company's operating segments.
PERSONNEL
At December 31, 1999, the Company had 2,172 employees: 995 located in North
America; 806 in the United Kingdom and 371 in the rest of the world. The
following table provides a breakdown of employees by operating segment as of
December 31, 1999:
<TABLE>
<CAPTION>
OPERATING SEGMENT NUMBER OF EMPLOYEES
- ----------------- -------------------
<S> <C>
Auction..................................................... 1,804
Realty...................................................... 103
Finance..................................................... 9
Others...................................................... 256
Total....................................................... 2,172
</TABLE>
The Company regards its relations with its employees as good.
ITEM 2. PROPERTIES
Sotheby's, Inc., a wholly-owned subsidiary of the Company, is headquartered
at 1334 York Avenue, New York, New York (the "York Property"). The Company also
leases office and warehouse space in four other locations in the New York City
area, and leases office and exhibition space in several other major
6
<PAGE>
cities throughout the United States, including Los Angeles, San Francisco,
Chicago, Palm Beach, Philadelphia, and Boston. The aforementioned office space
is primarily utilized by Auction and Finance employees.
York Avenue Development, Inc. ("York"), a wholly-owned subsidiary of
Sotheby's, Inc., currently leases the York Property, comprising approximately
404,000 square feet, from an unaffiliated party under a 30-year lease expiring
in 2009.
In September 1999, York exercised its option under the York Property lease
to purchase the York Property, entering into an Agreement of Sale and Purchase,
dated as of September 9, 1999, between the current owner and York, which York
then assigned to Sotheby's, Inc. Sotheby's, Inc. expects to assign this
agreement to a controlled affiliate in the near future. The closing of this
purchase will take place no later than July 2000. The Company has guaranteed
Sotheby's, Inc.'s (and any assignee's) obligations under the purchase agreement.
Upon the closing of this purchase, the Company has agreed to grant a mortgage on
the property to the banks under its Bank Credit Agreement. (See "Management's
Discussion and Analysis of Results of Operation and Financial
Condition--Liquidity and Capital Resources" under Item 7).
The Company is in the process of completing construction of a six-story
addition at, and renovation of, the York Avenue Property. This construction will
expand auction, warehouse and office space in New York City and will enable the
Company to consolidate many of its operations in New York City. The capital
expenditures relating to the construction and renovation project are currently
estimated to be in the range of $151 million.
SIR leases approximately 10,900 square feet of office space at 980 Madison
Avenue, New York, New York, from unaffiliated parties under leases expiring in
2001. SIR also leases satellite office space at a number of locations, totaling
another 59,400 square feet.
The Company's U.K. operations (primarily Auction) are centered at New Bond
Street, London, where the main salesrooms and administrative offices of
Sotheby's (U.K.) are located. The New Bond Street premises are approximately
200,000 square feet in gross space. In addition, warehouse space is leased at
King's House in West London. The Company also owns a salesroom in Sussex where
it conducts auctions.
The Company also leases office space primarily for Auction operations in
various locations throughout continental Europe, including Amsterdam, Geneva,
Madrid, Milan, Munich, Paris, and Zurich; in Asia, including Hong Kong, Seoul,
Singapore, Taipei, and Tokyo; in Australia; in South America and in Canada.
In management's opinion, the Company's worldwide premises are generally
adequate for the current conduct of its business.
ITEM 3. LEGAL PROCEEDINGS
In May 1997, the Antitrust Division of the United States Department of
Justice began an investigation of certain art dealers and major auction houses,
including the Company and its principal competitor, Christie's. Among other
matters, the investigation has reviewed whether Sotheby's and Christie's had any
agreement regarding the amounts charged for commissions in connection with
auctions. The Company has recently met with the Department of Justice in order
to discuss a prompt and appropriate resolution of this investigation. The
European Commission has also recently commenced an inquiry, and the Australian
Competition Commission an investigation, regarding commissions charged by the
Company and Christie's for auction services.
A number of private civil complaints, styled as class action complaints,
have also been filed against the Company alleging violation of federal and state
antitrust laws based upon alleged agreements between Christie's and the Company
regarding commission pricing. In addition, several shareholder class action
complaints have been filed against the Company and certain of its directors and
officers, alleging failure to disclose the alleged agreements and their impact
on the Company's financial condition and results of
7
<PAGE>
operations. And, a number of shareholder derivative suits have been filed
against the directors of the Company based on allegations related to the
foregoing lawsuits and investigations. Although the outcome of the investigation
by the Department of Justice, other governmental inquiries and investigations
and these various lawsuits cannot presently be determined, any loss resulting
from these matters could well have a material impact on the Company's financial
condition and/or results of operations. The amount of any such loss is not
currently estimatable. (See Statement on Forward Looking Statements contained in
Item 7 below).
Included in the lawsuits described above are fifty-six purported class
action lawsuits that have been filed against the Company and/or its wholly-owned
subsidiary, Sotheby's, Inc., beginning January 30, 2000, alleging violations of
the federal antitrust laws. Christie's International PLC or Christie's Inc.
(collectively "Christie's") has also been named as a defendant in these actions.
Fifty-three of these actions were filed in the United States District Court for
the Southern District of New York, one was filed in the Eastern District of
Michigan, one was filed in the Eastern District of Pennsylvania, and one was
filed in the Northern District of California, which has since been withdrawn
without prejudice. The complaints in these lawsuits purport to be brought on
behalf of individuals that purchased and/or sold items auctioned by the
defendants during various periods from January 1, 1992, to the present. The
complaints generally allege, among other things, that the Company along with
Christie's conspired to fix and raise the commissions charged to purchasers and
sellers of art and other items at auction. The complaints seek treble damages,
injunctive relief, attorneys' fees and costs. The Company has not yet answered
or otherwise responded to these complaints.
On February 23, 2000, the United States District Court for the Southern
District of New York entered an Order consolidating virtually all of the actions
filed in that court and all subsequently filed class action lawsuits. It is
expected that the remaining filed actions in the Southern District of New York
will also be part of the same consolidation action. It is also expected that the
action filed in the Eastern District of Pennsylvania will be consolidated with
the New York action. The Court's consolidation Order requires that a
consolidated complaint be filed by March 15, 2000, and be referred to as IN RE
AUCTION HOUSE ANTITRUST LITIGATION, No. 00 Civ. 0648.
The complaint filed in the United States District Court for the Eastern
District of Michigan is captioned SILVERMAN AND THE ESTATE OF CHARLES TOMICK V.
SOTHEBY'S HOLDINGS, INC. AND CHRISTIES'S INTERNATIONAL PLC, No. 00-70660 (filed
February 4, 2000). The complaint filed in the United States District Court for
the Eastern District of Pennsylvania is captioned MASLOW V. CHRISTIE'S
INTERNATIONAL PLC AND SOTHEBY'S HOLDINGS, INC., No. 00-CV-610 (filed February 2,
2000).
In addition, on February 29, 2000, March 1, 2000 and March 10, 2000, three
indirect purchaser class action lawsuits were filed against the Company, its
subsidiary, Sotheby's, Inc., and Christie's in the Superior Court of the State
of California, City and County of San Francisco, alleging violations of the
Cartwright Act, California's antitrust statute, and the California Unfair
Competition Act. The complaints are captioned CHRISTENSEN V. CHRISTIE'S
INTERNATIONAL PLC, ET AL., No. 310313 (filed Feb. 29, 2000);
HOWARD V. CHRISTIE'S INTERNATIONAL PLC, ET AL., No. 310362 (filed March 1, 2000)
and LANG V. CHRISTIE'S INTERNATIONAL PLC ET AL., No. 310616 (filed March 10,
2000). The complaints in these lawsuits purport to be brought on behalf of the
individuals that indirectly purchased items in California from one or more of
the defendants. One complaint includes purchases during the period January 1,
1992 to February 6, 2000, one includes purchases during the period April 4, 1994
to March 1, 2000 and the third includes purchases from January 1, 1992 to
March 10, 2000. The complaints generally allege, among other things, that the
Company along with Christie's conspired to fix and raise the commissions charged
to buyers and sellers of art and other items at auction, and that, as a result,
such indirect purchasers paid more for art and other items than they otherwise
would have paid in the absence of defendants' conduct. The complaints seek,
among other things, treble damages in unspecified amounts, interest,
disgorgement of gains, equitable relief, attorneys' fees and costs. The Company
has not yet answered or otherwise responded to these complaints.
8
<PAGE>
The shareholder class action complaints referred to above are captioned:
WEISS V. SOTHEBY'S HOLDING INC., ET AL., No. 00 Civ. 1041 (S.D.N.Y.) (filed
Feb. 10, 2000); GOLDFEIN V. SOTHEBY'S HOLDINGS INC., ET AL., 00 Civ. 1125
(S.D.N.Y.) (filed Feb. 15, 2000); PATEL V. SOTHEBY'S HOLDINGS INC., ET AL., No.
00 Civ. 1258 (S.D.N.Y.) (filed Feb. 18, 2000); SLOAN V. SOTHEBY'S HOLDINGS INC.,
ET AL., No. 00 Civ. 1412 (S.D.N.Y.) (filed Feb. 24, 2000); MCGEEVER V. SOTHEBY'S
HOLDINGS INC., ET AL., 00 Civ. 1570 (S.D.N.Y) (filed Feb 29, 2000);
MAZZARINO V. SOTHEBY'S HOLDINGS, INC., 00 Civ. 1605 (S.D.N.Y) (filed March 2,
2000); EVERITT V. SOTHEBY'S HOLDINGS INC., ET AL., 00 CV7 0872DT (E.D. Mich.)
(filed Feb. 16, 2000); LAKE V. SOTHEBY'S HOLDINGS INC., ET AL., No. 00 Civ. 1936
(S.D.N.Y.) (filed March 10, 2000) and CALDWELL V. SOTHEBY'S HOLDINGS, INC.,
ET AL., No. 00 Civ. 71216DT (E.D. Mich.) (filed March 7, 2000).
These complaints allege violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder.
Plaintiffs seek to recover damages in unspecified amounts on behalf of
themselves and all other purchasers of the Company's common stock during
different class periods, most commonly February 11, 1997 through February 21,
2000. The Company has not yet answered or otherwise responded to these
complaints.
The shareholder derivative actions referred to above are styled CRANDON
CAPITAL PARTNERS, L.P. V. TAUBMAN, ET AL., 00 Civ. 1373 (S.D.N.Y.) (filed
February 23, 2000), and HUSCHER V. CURLEY, Case No. 00-021379-CZ (Mich. Cir. Ct.
Oakland County) (filed Mar. 3, 2000). They name as defendants certain of the
Company's directors, and the Company as a nominal defendant. The CRANDON
complaint also names Sotheby's, Inc., a subsidiary of the Company, as a nominal
defendant. These complaints allege various breaches of fiduciary duties, gross
mismanagement and constructive fraud arising from the alleged agreements between
the Company and Christie's. The CRANDON complaint also seeks indemnification
from the defendants on behalf of the Company and Sotheby's Inc. to the extent
that the Company and/or Sotheby's, Inc. is found liable for the individual
defendants' failure to act in compliance with state law. The complaints seek
damages in unspecified amounts on behalf of the Company (and in CRANDON, also on
behalf of Sotheby's, Inc.). The Company has not yet answered or otherwise
responded to these complaints.
In addition, the Company's Board of Directors has recently received two
letters on behalf of putative shareholders (including one letter from the
plaintiff in the HUSCHER action), requesting that the Company investigate and
commence litigation against the individuals responsible for the possible damage
to the Company and Sotheby's, Inc. resulting from the alleged agreements between
the Company and Christie's.
The Company is also aware of governmental investigations in Italy and India
arising from certain allegations of improper conduct by current and former
Company employees. These allegations arose from an early 1997 television program
aired in the United Kingdom as well as the publication of a related book. The
Company has been in contact during the past several years with and is continuing
to work with these authorities.
The Company also becomes involved, from time to time, in various claims and
lawsuits incidental to the ordinary course of its business. The Company does not
believe that the outcome of any such pending claims or proceedings will have a
material effect upon its business or financial condition. (See Statement on
Forward Looking Statements, in Item 7 below.)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of 1999.
9
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
MARKET INFORMATION
The principal U.S. market for the Company's Class A Common Stock is the NYSE
(symbol: BID). The Class A Common Stock is also traded on the London Stock
Exchange.
The Company also has Class B Common Stock, convertible on a share for share
basis into Class A Common Stock. There is no public market for the Class B
Common Stock. Per share cash dividends are equal for the Class A and Class B
Common Stock.
The quarterly price ranges on the New York Stock Exchange of the Class A
Common Stock and dividends per share for 1999 and 1998 are shown in the
following schedules:
<TABLE>
<CAPTION>
1999
------------------- CASH DIVIDEND
QUARTER ENDED HIGH LOW DECLARED
- ------------- -------- -------- -------------
<S> <C> <C> <C>
March 31....................................... 41.500 27.062 $0.10
June 30........................................ 46.750 30.688 $0.10
September 30................................... 36.625 25.562 $0.10
December 31.................................... 36.000 25.167 $0.10
</TABLE>
<TABLE>
<CAPTION>
1998
------------------- CASH DIVIDEND
QUARTER ENDED HIGH LOW DECLARED
- ------------- -------- -------- -------------
<S> <C> <C> <C>
March 31....................................... 23.250 17.188 $0.10
June 30........................................ 24.500 21.438 $0.10
September 30................................... 24.375 16.500 $0.10
December 31.................................... 38.000 15.500 $0.10
</TABLE>
The Company has announced that it will not pay a dividend for the first
quarter of 2000. (See "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Liquidity and Capital Resources" under
Item 7).
The number of holders of record of the Class A Common Stock as of March 6,
2000 was 947. The number of holders of record of the Class B Common Stock as of
March 6, 2000 was 27.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
AUCTION SALES(1).............. $2,258,752 $1,939,743 $1,843,335 $1,599,595 $1,665,378
AUCTION AND RELATED
REVENUES.................... 390,101 367,204 335,511 302,196 282,096
OTHER REVENUES................ 52,484 79,848 46,281 34,300 30,784
---------- ---------- ---------- ---------- ----------
TOTAL REVENUES................ $ 442,585 $ 447,052 $ 381,792 $ 336,496 $ 312,880
---------- ---------- ---------- ---------- ----------
OPERATING INCOME.............. $ 54,173 $ 80,778 (2) $ 67,759 (3) $ 68,208 $ 56,841
---------- ---------- ---------- ---------- ----------
INCOME BEFORE TAXES........... $ 52,150 $ 73,813 (2) $ 64,457 (3) $ 68,244 $ 54,303
NET INCOME.................... $ 32,854 $ 45,025 (4) $ 40,608 (5) $ 40,946 $ 32,582
BASIC EARNINGS PER SHARE...... $ 0.57 $ 0.79 (4) $ 0.73 (5) $ 0.73 $ 0.58
DILUTED EARNINGS PER SHARE.... $ 0.56 $ 0.79 (4) $ 0.72 (5) $ 0.73 $ 0.58
CASH DIVIDENDS DECLARED PER
SHARE....................... $ 0.40 $ 0.40 $ 0.40 $ 0.32 $ 0.24
WORKING CAPITAL............... $ 159,460 $ 132,326 $ 123,522 $ 57,966 $ 101,394
TOTAL ASSETS.................. 1,073,512 769,646 860,241 656,098 600,104
COMMERCIAL PAPER.............. -- -- 117,000 -- 38,000
LONG-TERM DEBT................ 100,000 -- -- -- --
NET (DEBT) CASH(6)............ (57,953) 69,140 (85,526) 63,675 (3,103)
SHAREHOLDERS' EQUITY.......... 377,044 319,674 260,068 253,972 227,482
</TABLE>
- ------------------------
(1) Auction sales represent sales at the hammer price plus buyer's premium.
(2) Includes 1998 non-recurring charges of $15.2 million
(3) Includes 1997 non-recurring charges of $11.7 million
(4) Includes 1998 non-recurring charges of $9.3 million, after tax.
(5) Includes 1997 non-recurring charges of $7.4 million, after tax.
(6) Long-term debt, short-term borrowings and commercial paper less cash and
cash equivalents
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999 AND 1998 Note C
("Segment Reporting") of the Consolidated Financial Statements should be read in
conjunction with this discussion.
Auction sales for Sotheby's Holdings, Inc. (together with its subsidiaries,
the "Company") totaled $2,258.8 million during 1999, an increase of
$319.0 million, or 16%, compared to the prior year. The increase in worldwide
sales was due to a 24% increase in the average selling price per lot sold in
1999 as compared to 1998, partially offset by a 6% decrease in the number of
lots sold. Auction sales recorded by the Company's foreign operations were not
materially affected by translation to United States ("U.S.") dollars.
The following is a geographical breakdown of the Company's auction sales for
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
NORTH AMERICA........................................ $1,264,475 $1,074,428
EUROPE............................................... 904,515 803,931
ASIA................................................. 89,762 61,384
---------- ----------
TOTAL................................................ $2,258,752 $1,939,743
========== ==========
</TABLE>
The sales increase in North America of $190.1 million, or 18%, during 1999
was primarily a result of successful single-owner sales, most notably the
paintings and sculptures from the Collection of Mr. and Mrs. John Hay Whitney,
the Collection of Eleanore and Daniel Saidenberg, the sale of furniture,
decorative and fine arts from the Estate of Mrs. John Hay Whitney, Masterpieces
from the Time Museum including Watches, Clocks and Scientific Instruments and
the Barry Halper Collection of baseball memorabilia, all of which there were no
comparable sales in the prior year. The growth was also due to increases in
Impressionist and Modern art and Contemporary art. The increase in sales was
partially offset by a decrease in Old Masters Paintings and Drawings. Also,
influencing the year to year comparison are single-owner sales in 1998 for which
there were no comparable sales in 1999. The single owner sales in 1998 included
the Reader's Digest Corporate Collection; the Collection of Jaime Ortiz-Patino
comprised of silver, furniture, rare books and manuscripts and the Collection of
H.R.H. the Duke and Duchess of Windsor. Sales in Europe, which for purposes of
this discussion consist of the United Kingdom ("U.K.") and continental Europe
("the Continent"), increased $100.6 million, or 13%. The increase was primarily
attributable to growth in Impressionist and Modern art, Old Masters Paintings
and Drawings and French and Continental Furniture. Similarly contributing to the
growth were the results of the single-owner sale of Important French and Italian
Furniture, Porcelain, Paintings, Silver and Decorative Arts from the Estate of
dott. Giuseppe Rossi and the sale of twenty-five works by Picasso from the
private collection of Gianni Versace, for which there were no comparable sales
in 1998. Asian sales increased $28.4 million, or 46%, primarily due to increases
in Ceramics and Works of art and a successful single-owner sale for which there
was no comparable sale in 1998.
Worldwide revenues from auction and related operations increased
$22.9 million, or 6%, in 1999 compared to 1998. This increase is primarily due
to higher buyer's premium that resulted from the increased auction sales
discussed above partially offset by decreased seller's commissions and expense
recoveries. The decrease in seller's commissions is primarily due to sales mix
and margin pressure for high-end single-owner collections, most notably in North
America. The decrease in expense recoveries was primarily due to the inclusion
in 1998 of recoveries from the Collection of H.R.H. the Duke and Duchess of
Windsor for which there was no comparable sale in the current year. The Company
cannot presently determine the impact, if any, on future sales and future
revenues of the Department of Justice investigation and other related
investigations and civil lawsuits, as discussed in more detail below. (See
Statement on Forward Looking Statements)
12
<PAGE>
On February 29, 2000, the Company announced a new commission structure for
both buyers and sellers at its principal auction locations. The Company's new
seller's commission represents a reduction in the fees charged to its sellers
for all levels of aggregate transactions over $100,000. For buyers in most
collecting categories, the Company will charge a buyer's premium of 20% of the
hammer price on the first $15,000, 15% on the next $85,000 up to $100,000 and
10% on any amount over $100,000 on property sold. The buyer's premium on
internet purchases is 10% of the hammer price. The Company is currently
evaluating the estimated full impact of this commission change on its future
revenues.
Other revenues consist primarily of revenues from the Company's Real Estate
and Finance operating segments. Other revenues decreased $27.4 million, or 34%,
in 1999 compared to 1998. This decrease was primarily due to a decrease in
Finance revenues, partially offset by an increase in Real Estate revenues. The
decrease in Finance revenue was partially due to a decrease in the average loan
portfolio balance to $176.8 million in 1999 from $301.2 in 1998. Also,
significantly influencing the year to year comparison of revenues was the
recognition of $21.0 million in origination fee revenue related to a significant
loan, as discussed below, in 1998 with no comparable transaction in 1999. The
decrease in the average loan portfolio balance was primarily due to a
significant loan extended in May 1998 to a group of affiliated corporate
borrowers, for which there was no comparable loan in 1999. The loan to this
group was scheduled to mature on December 31, 2001; however, during the fourth
quarter of 1998 it was repaid in full. The prepayment of this loan resulted in
the recognition of $18.7 million of additional revenue in the fourth quarter of
1998 relating to the origination fee that would have been amortized through
2001. The increase in Real Estate revenue was primarily due to increased real
estate unit sales from both mature and new Company owned brokerage offices.
Direct costs of services (consisting of catalogue production and
distribution costs as well as corporate marketing and sale marketing expenses)
totaled $85.6 million in 1999, an increase of $9.3 million, or 12%, compared to
1998. This increase was primarily due to increased marketing expenses, a direct
result of the Company's Internet initiative. Also, influencing the year to year
comparison are the impact of costs associated with the sale of the Collection of
H.R.H. the Duke and Duchess of Windsor which were partially recovered and
reflected in auction and related revenue in 1998 with no comparable costs in
1999.
Excluding non-recurring charges of $15.2 million in 1998, all other
operating expenses (which consist of salaries and related costs, general and
administrative expenses and depreciation and amortization) increased
$28.1 million, or 10%, in 1999 compared to 1998. This increase was primarily due
to a $17.5 million, or 16%, increase in general and administrative expenses, a
$5.8 million, or 4%, increase in salaries and related costs and a $4.8 million,
or 38%, increase in depreciation and amortization. The increase in general and
administrative expenses was primarily due to Internet related expenses and, to a
lesser extent, increased Information Technology costs related to new
initiatives, provisions for property claims and associated legal fees, and costs
associated with the Company's consolidation of its operations to the York
Property. These increases were partially offset by a decrease in write-offs and
provisions of uncollectible auction receivable accounts in 1999 as compared to
1998. The increase in salaries and related costs was primarily due to the
Internet initiative and annual merit increases. Offsetting the aforementioned
salaries and related costs increase was a reduction of accrued compensation
costs of approximately $5.9 million previously expensed by the Company for its
1997 and 1998 Performance Share Purchase Plan ("PSP") option grants. The
Company's management determined that fulfillment of the financial performance
criteria for the 1997 and 1998 grants (necessary for these options to ultimately
become exercisable under terms of the plan) are not likely to be achieved
primarily due to the increased expenses related to the Company's Internet
initiative. Also, influencing the year to year comparison was the $9.0 million
of expense recorded in 1998 related to the PSP due to the appreciation of the
Company's stock price during 1998. The increase in depreciation was primarily
related to the commencement of depreciation on the floors currently in service
of the York Property during the fourth quarter of 1999 and other capital
projects that were placed in service during 1999.
13
<PAGE>
On January 19, 1999 the Company announced its intention to launch
sothebys.com, a new Internet auction business for art, antiques, jewelry and
collectibles. In July 1999, the Company and Amazon.com, Inc. entered into an
agreement to launch a co-branded auction site, sothebys.amazon.com, that will be
devoted to the general antiques collector and to the world of collectibles. In
the fourth quarter of 1999, the Company launched sothebys.amazon.com and
sothebys.com. Total Internet related expenses amounted to $42.1 million for the
twelve months ended December 31, 1999. These expenses include primarily
marketing, salary and related costs, professional fees and technology related
costs. The Company continues to evaluate its planned expenditures for
sothebys.com and sothebys.amazon.com. Although these investments are likely to
have a dilutive effect on the Company's results in the near term, the Company
believes that these expenditures are appropriate in light of the potential of
the Internet business.
During 1998, the Company recorded a non-recurring charge of $15.2 million
relating to the construction of the York Property. Approximately $14.1 million
of this amount was a non-cash charge resulting from the impairment of existing
leasehold improvements and related furniture and fixtures. The remaining amount
of approximately $1.1 million was a provision resulting from the cost of future
rental obligations on rental space in New York City that will be abandoned as
part of the Company's plan to consolidate many of its operations in New York
City. As of December 31, 1999 and 1998, the Company has recorded in other
liabilities on the Consolidated Balance Sheets approximately $1.1 million
related to these future rental obligations, which will be paid out starting
approximately in October, 2000 through September, 2003. The impact on future
earnings related to the write-off of leasehold improvements and related
furniture and fixtures will be immaterial as the assets written off are being
replaced by the depreciable assets of the York Property.
Interest income increased $0.8 million in 1999 compared to 1998 due to
higher average cash balances throughout the year. Interest expense decreased
$5.0 million in 1999 as compared to 1998 as a result of lower borrowings related
to the decreased average loan portfolio and capitalized interest on the
Company's York Property construction.
The consolidated effective tax rate was 37% in 1999 compared to 39% in 1998.
This decrease was primarily a result of higher earnings during 1998 in the
United States.
Net income decreased $12.2 million, or 27%, in 1999 compared to 1998.
Diluted earnings per share for 1999 decreased to $0.56 from $0.79 in 1998. The
impact on diluted earnings per share related to the Company's Internet operating
loss was ($0.44) per share. The impact of the non-recurring charge on diluted
earnings per share in 1998 was ($0.16). Movements in foreign currencies did not
have a material impact on 1999 and 1998 revenues or expenses.
In May 1997, the Antitrust Division of the United States Department of
Justice began an investigation of certain art dealers and major auction houses,
including the Company and its principal competitor, Christie's. Among other
matters, the investigation has reviewed whether Sotheby's and Christie's had any
agreement regarding the amounts charged for commissions in connection with
auctions. The Company has recently met with the Department of Justice in order
to discuss a prompt and appropriate resolution of this investigation. The
European Commission has also recently commenced an inquiry, and the Australian
Competition Commission an investigation, regarding commissions charged by the
Company and Christie's for auction services.
A number of private civil complaints, styled as class action complaints,
have also been filed against the Company alleging violation of federal and state
antitrust laws based upon alleged agreements between Christie's and the Company
regarding commission pricing. In addition, several shareholder class action
complaints have also been filed against the Company and certain of its directors
and officers, alleging failure to disclose the alleged agreements and their
impact on the Company's financial condition and results of operations. And, a
number of shareholder derivative suits have been filed against the directors of
the Company based on allegations related to the foregoing lawsuits and
investigations. Although the outcome of the investigation by the Department of
Justice, other governmental inquiries and investigations
14
<PAGE>
and these various lawsuits cannot presently be determined, any loss resulting
from these matters could well have a material impact on the Company's financial
condition and/or results of operations. The amount of any such loss is not
currently estimatable. (See Statement on Forward Looking Statements and "Legal
Proceedings.")
In February 2000, the Board of Directors of the Company announced a number
of management changes. A. Alfred Taubman resigned as Chairman of the Company and
Diana D. Brooks resigned as President and Chief Executive Officer of the
Company. Concurrently, the Company announced the appointment of Michael Sovern,
former President of Columbia University, as the new Chairman of the Company and
the appointment of William F. Ruprecht as the President and Chief Executive
Officer of the Company.
RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1998 AND 1997 Note C
("Segment Reporting") of the Consolidated Financial Statements should be read in
conjunction with this discussion.
Auction sales for Sotheby's Holdings, Inc. (together with its subsidiaries,
the "Company") totaled $1,939.7 million during 1998, an increase of
$96.4 million, or 5%, compared to the prior year. The increase in worldwide
sales was due to a 10% increase in the average selling price per lot sold in
1998 as compared to 1997, offset by a 4% decrease in the number of lots sold.
Overall, worldwide sales of Fine Art increased 11%, led by increases in
Contemporary art, 19(th) Century paintings and drawings, American paintings and
drawings and Impressionist and Modern art, offset by a decrease in Old Master
paintings. Other sales increases included Silver, English Furniture and French
and Continental Furniture. Auction sales recorded by the Company's foreign
operations were not materially affected by translation to United States ("U.S.")
dollars.
The following is a geographical breakdown of the Company's auction sales for
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
NORTH AMERICA........................................ $1,074,428 $ 919,028
EUROPE............................................... 803,931 828,192
ASIA................................................. 61,384 96,115
---------- ----------
TOTAL................................................ $1,939,743 $1,843,335
========== ==========
</TABLE>
The sales increase in North America of $155.4 million, or 17%, during 1998
was primarily a result of broad-based growth in virtually every collecting
category. The growth was due to increases in American paintings and drawings,
19(th) Century paintings and drawings, Impressionist and Modern art and
Contemporary art. The growth was also due to the result of several outstanding
single-owner sales, most notably the Reader's Digest Corporate Collection; the
Collection of Jaime Ortiz-Patino comprised of silver, furniture, rare books and
manuscripts, the Eulich Collection of American Western art and the Collection of
H.R.H. the Duke and Duchess of Windsor. Sales in Europe, which for purposes of
this discussion consists of the United Kingdom ("U.K.") and continental Europe
("the Continent"), decreased $24.3 million, or 3%. The decrease was primarily
due to 1997 single-owner sales, most notably the sale of Illuminated Manuscripts
from the Beck Collection for which there were no comparable sales in the current
year, as well as a broad-based decrease in virtually every collecting category.
Asian sales decreased $34.7 million, or 36%, primarily due to the slow down of
the economies within Asia. Historically, Asia has accounted for approximately
five percent of annual sales. Asia accounted for three percent of sales in 1998.
Worldwide revenues from auction and related operations increased
$31.7 million, or 9%, in 1998 compared to 1997. This increase is primarily due
to a significant increase in principal activities and higher commission revenue
(which consists of buyer's premium, seller's commission and expense recoveries)
that resulted from the increased auction sales discussed above and expense
recoveries associated with the sale of the Collection of H.R.H. the Duke and
Duchess of Windsor. Principal activities include: net gains
15
<PAGE>
(losses) on sales of inventory (including inventory obtained as a result of the
auction process as well as inventory obtained for investment purposes); the
Company's share of operating earnings (losses) from its investments in
Acquavella Modern Art ("AMA") and other equity investments; net income (loss)
earned from guarantees; and the net gains (losses) related to sales of secured
loan collateral where the Company shares in the gain (loss) if the property
sells either above or below a targeted amount. The increase in principal
activities was primarily due to an increase in net income earned on guarantees,
an increase in net gains related to sales of secured loan collateral that
exceeded a targeted amount and an increase in the Company's share of operating
results of AMA.
Other revenues consist primarily of revenues from the Company's Real Estate
and Finance operating segments. Other revenues increased $33.6 million, or 73%,
in 1998 compared to 1997. This growth was primarily due to increases in both
real estate and financing activities. The increase in Real Estate revenue was
due primarily to increased real estate unit sales and from both mature and new
Company owned brokerage and regional offices in the U.S. The increase in Finance
revenue was due to an increase in the average loan portfolio balance to
$301.2 million in 1998 from $215.8 in 1997 and the recognition of $21.0 million
in origination fee revenue. The increase in the average loan portfolio balance
was due to a loan extended in May 1998 to a group of affiliated corporate
borrowers. The loan to this group was to mature on December 31, 2001; however,
during the fourth quarter of 1998 it was repaid in full. The prepayment of this
loan resulted in the recognition of $18.7 million of additional revenue in the
fourth quarter relating to the origination fee that would have been amortized
through 2001.
Direct costs of services (consisting of catalogue production and
distribution costs as well as corporate marketing and sale marketing expenses)
totaled $76.3 million in 1998, an increase of $5.9 million, or 8%, compared to
1997. This increase was primarily a result of increased auction sales in 1998
and the impact of costs associated with the sale of the Collection of H.R.H. the
Duke and Duchess of Windsor which were partially recovered and reflected in
auction and related revenue. The increase was also due, to a lesser extent, to
an increase in direct costs in the Real Estate segment related to an increase in
units sold in 1998. Direct costs as a percentage of sales was consistent in 1998
and 1997.
Excluding non-recurring charges of $15.2 and $11.7 million in 1998 and 1997,
respectively, all other operating expenses (which consist of salaries and
related costs, general and administrative expenses and depreciation and
amortization) increased $42.8 million, or 18%, in 1998 compared to 1997. This
increase was primarily due to a $22.0 million, or 17%, increase in salaries and
related costs and a $19.2 million, or 22%, increase in general and
administrative expenses. These increases were primarily a result of new
initiatives and expertise; long term incentive plans, primarily the PSP, for
which the related expense increased approximately $7.7 million in 1998 due to
the appreciation of the Company's stock price and an increase in options
granted; costs incurred by the Auction segment relating to the startup of the
Paris office and initial internet related expenses; write-offs and provisions of
uncollectible auction receivable accounts; and expenses for authenticity claims
and settlements.
In early 1997, a television program aired in the U.K. and a related book was
published both of which contain certain allegations of improper or illegal
conduct by current and former employees of the Company. In response to these
allegations, the Board of Directors in February 1997 established a committee of
independent directors to review the issues raised by the book and related
matters. The Independent Review Committee retained outside independent counsel
in the U.S. and the U.K. to assist and advise the Committee in its review. The
Company's management also conducted its own internal review. Both reviews were
completed in 1997. In 1997, the Company incurred $11.7 million of non-recurring
charges that consisted primarily of legal and other professional fees associated
with the Board of Directors' Independent Review Committee. These charges were
paid in full as of December 31, 1999.
16
<PAGE>
Interest income increased $0.5 million in 1998 compared to 1997 due to
higher average cash balances throughout the year. Interest expense increased
$4.5 million in 1998 as compared to 1997 as a result of additional commercial
paper borrowings to fund the higher average loan portfolio.
The consolidated effective tax rate was 39% in 1998 compared to 37% in 1997.
This increase was primarily a result of higher earnings during 1998 in higher
tax rate jurisdictions.
Net income increased $4.4 million, or 11%, in 1998 compared to 1997. Diluted
earnings per share for 1998 increased to $0.79 from $0.72 in 1997. Excluding
non-recurring charges, net income increased 13% to $54.3 million. The impact of
the non-recurring charges on diluted earnings per share was ($0.16) and ($0.13)
in 1998 and 1997, respectively. Movements in foreign currencies did not have a
material impact on 1998 revenues or expenses.
LIQUIDITY AND CAPITAL RESOURCES The Company's net debt position (total
debt, which includes long-term debt, short-term borrowings and commercial paper
less cash and cash equivalents) totaled $58.0 million at December 31, 1999,
compared to a net cash position of $69.1 million at December 31, 1998 and net
debt of $85.5 million at December 31, 1997. The significant change in net debt
in 1999 compared to 1998 was primarily due to the Company's use of the proceeds
from the $100 million unsecured debt offering in February 1999, as described in
more detail below. Working capital (current assets less current liabilities) at
December 31, 1999 was $159.5 million, compared to $132.3 million and
$123.5 million at December 31, 1998 and 1997, respectively.
The Company's client loan portfolio increased to $190.8 million at
December 31, 1999, from $155.6 million at December 31, 1998. The client loan
portfolio at December 31, 1997 was $276.4 million. These amounts include
$42.5 million, $17.1 million and $112.0 million of loans that have a maturity of
more than one year at December 31, 1999, 1998 and 1997, respectively. During the
fourth quarter of 1998, a significant loan to a group of affiliated corporate
borrowers was repaid in full. The loan to this group was scheduled to mature on
December 31, 2001.
The Company relies on internally generated funds and borrowings to meet its
financing requirements. As a result of the recent events related to the
Department of Justice investigation and other related investigations and civil
lawsuits, as discussed previously, the Company amended and restated its
$300 million Bank Credit Agreement during the first quarter of 2000. Under the
amended and restated Bank Credit Agreement (the "Credit Agreement"), the Company
has up to $300 million of committed senior secured financing with an
international banking syndicate arranged through Chase Manhattan Bank available
through July 11, 2001. The Company's obligations under the Credit Agreement are
secured by substantially all the assets of the Company and its domestic
subsidiaries. In addition, borrowings by the Company's U.K. based affiliates are
secured by the Company's U.K. loan portfolio. The Company incurred arrangement
and amendment fees of $4.1 million, which will be amortized over the expected
term of the commitment. The Company may also issue up to $300 million of
short-term notes pursuant to its U.S. commercial paper program. At December 31,
1999, there was no commercial paper outstanding. The Company supports any
short-term notes issued under its U.S. commercial paper program with its
committed credit facility under the Credit Agreement. The amount available for
borrowings under the Credit Agreement is reduced by the outstanding commercial
paper. Additionally, the Company has a $200 million shelf registration with the
Securities and Exchange Commission for issuing senior unsecured debt securities,
under which $100 million was available for issuance as of December 31, 1999. In
February 1999, the Company sold a tranche of these debt securities for an
aggregate offering price of $100 million at an effective interest rate of 6.98%.
Subsequent to December 31, 1999, Moody's Investors Service, Standard and Poor's
Ratings Group and other credit agencies downgraded the Company's long-term and
short-term credit ratings. Both ratings remain on review.
On July 23, 1999, Amazon.com, Inc. purchased one million of newly issued
shares of the Company's Class A Common Stock at $35.44 per share, and purchased
for $10 million, a three year warrant to purchase an additional one million
shares at $100 per share.
17
<PAGE>
During 1999, the Company's primary sources of liquidity were derived from
the issuance of the long-term debt securities, proceeds from the common stock
and warrant, and operations, excluding the increase in accounts receivable and
other receivables. The most significant cash uses during 1999 were the increase
in accounts receivable and other receivables, capital expenditures, the net
funding of the client loan portfolio, payment of shareholder dividends and the
Internet initiative.
During 1998, the Company's primary sources of liquidity were derived from
collections of notes receivable, operations, and available cash balances. The
most significant cash uses during 1998 were the funding of the client loan
portfolio, repayment of commercial paper borrowings, capital expenditures, and
payment of shareholder dividends.
During 1998, the Company incurred a significant non-cash expense of
$14.1 million related to the impairment of existing leasehold improvements and
related furniture and fixtures, as noted previously. Such item did not have an
impact on the Company's liquidity.
During 1997, the Company's primary sources of liquidity were derived from
commercial paper borrowings supplemented by available cash balances and
operations. The most significant cash uses during 1997 were the net funding of
the client loan portfolio, payment of shareholder dividends and repurchases of
common stock.
While the Company paid shareholder dividends in 1999, 1998 and 1997, due to
the significant cash needs required for the funding of the Internet initiative,
capital expenditures anticipated for the completion of the construction of the
York Property, as well as uncertainties surrounding the Department of Justice
investigation and other related investigations and civil lawsuits, the Company
did not declare a cash dividend for the first quarter of 2000. Management
believes that this is an appropriate decision due to the Company's present and
anticipated cash needs. Management will continue to assess the dividend in
conjunction with operating results, capital spending needs, Internet spending
requirements and developments in the Department of Justice investigation and
other related investigations and civil lawsuits.
Capital expenditures in 1999, consisting primarily of costs associated with
the construction of the York Property, as defined below, the cost of replacing a
significant majority of the Company's worldwide financial and information
systems and Internet related costs, totaled $120.7 million. For 1998 and 1997,
capital expenditures were $53.7 million and $17.5 million, respectively. The
capital expenditures relating to the construction of the Company's current
facility on York Avenue ("the York Property") are currently estimated to be in
the range of $151 million, of which the Company has paid approximately
$95 million through February 24, 2000. As of February 24, 2000, the Company had
financial commitments in relation to this project of approximately
$22.8 million. In September 1999, York Avenue Development, Inc. ("York"), a
wholly owned subsidiary of Sotheby's Inc. (itself a wholly owned subsidiary of
the Company), exercised its right, under its operating lease, to purchase the
York Property. The closing of this purchase will take place no later than July
2000. The Company believes that it has sufficient capital resources to carry out
planned capital spending relating to this project.
From time to time, the Company has off-balance sheet commitments which
include short-term commitments to consignors that property will sell at a
minimum price and legally binding lending commitments in conjunction with the
client loan program (See Note N to the Consolidated Financial Statements). The
Company does not believe that material liquidity risk exists related to these
commitments.
The Company currently believes that operating cash flows and borrowings
under the Credit Agreement will be adequate to meet its 2000 working capital
requirements, which include the funding of the Company's client loan program,
peak working capital requirements, other short-term commitments to consignors,
the project on the York Property, the Company's Internet initiative and any
legal fees and other amounts required to resolve the Department of Justice
investigation. The Company currently believes that long-term capital
requirements will be satisfied with future operating cash flows and current
18
<PAGE>
capital resources, subject to the resolution of the Department of Justice
investigation and other related investigations and civil lawsuits, as discussed
previously.
YEAR 2000. The Company has dedicated substantial resources over the past few
years to address the potential issues related to Year 2000 programming concerns.
As a result of those efforts, the Company has not experienced to date any
material disruption in its operations in connection with, or following, the
transition to the Year 2000.
EUROPEAN MONETARY UNION. The Euro was introduced on January 1, 1999 as a
wholesale currency. The eleven participating European Monetary Union member
countries established fixed conversion rates between their existing currencies
and the Euro. The existing currencies will continue to be used as legal tender
through January 1, 2002; thereafter, on July 1, 2002, the existing currencies
will be cancelled and Euro bills and coins will be used for cash transactions in
the participating countries.
The Company's European financial and cash management operations affected by
the Euro conversion were adequately prepared for its introduction. For the
transition period and the period after January 1, 2002, the Company's management
will continue to analyze the potential business implications of converting to a
common currency. The Company is unable to determine the ultimate financial
impact of the Euro conversion on its operations, if any, given that the impact
will be dependent upon the competitive situations that exist in the various
regional markets in which the Company participates. (See Statement on Forward
Looking Statements.)
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company
continuously 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, notes receivable, short
term borrowings and long-term debt. The Company believes that its interest rate
risk is minimal as a hypothetical ten percent increase or decrease in interest
rates is immaterial to the Company's cash flow, earnings and fair value related
to financial instruments. (See Statement on Forward Looking Statements.)
The Company enters into forward exchange contracts to hedge foreign currency
transactions. The Company's forward exchange contracts do not subject the
Company to risk from exchange rate movements because gains and losses on such
contracts offset gains and losses on the assets or transactions being hedged.
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. At December 31, 1999, the Company has $8.7 million of notional value
forward currency 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 the contracts. The carrying amounts of
these contracts approximates their fair value at December 31, 1999.
The Company believes that its foreign currency translation risk is minimal
as a hypothetical 10% strengthening or weakening of the U.S. dollar relative to
all other currencies is immaterial to the Company's cash flow and fair value
related to financial instruments. (See statement on Forward Looking Statements.)
FORWARD LOOKING STATEMENTS
This Annual Report 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,
particularly with respect to the adequacy of working capital as well as
additional capital necessary for the continued construction of the York
Property. Such statements are only predictions and involve risks and
uncertainties, resulting in the possibility that the actual events or
performance will differ materially from such predictions. Major factors which
the Company believes could
19
<PAGE>
cause the actual results to differ materially from the predicted results in the
forward-looking statements include, but are not limited to, the following, which
are not listed in any particular rank order:
(I) The Company's business is seasonal, with peak revenues and operating
income occurring in the second and fourth quarters of each year as a
result of the traditional spring and fall art auction season
(II) The overall strength of the international economy and financial
markets and, in particular, the economies of the United States, the
United Kingdom and the major countries of continental Europe and Asia
(principally Japan and Hong Kong)
(III) Competition with other auctioneers and art dealers
(IV) The volume of consigned property and the marketability at auction of
such property
(V) The expansion of the York Property
(VI) The resolution of the Department of Justice Investigation and other
related investigations and civil lawsuits
(VII) The European Monetary Union
(VIII) The Company's Internet initiative
(IX) The demand for loans
(X) Market risk
SEASONALITY The worldwide art auction market has two principal selling
seasons, spring and fall. During the summer and winter auction sales are
considerably lower. The table below demonstrates that approximately 80% of the
Company's auction sales are derived from the second and fourth quarters of the
year (see Note Q to the Consolidated Financial Statements).
<TABLE>
<CAPTION>
PERCENTAGE OF
ANNUAL AUCTION
SALES
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
JANUARY-MARCH.............................................. 11% 13% 11%
APRIL-JUNE................................................. 35 37 35
JULY-SEPTEMBER............................................. 6 8 8
OCTOBER-DECEMBER........................................... 48 42 46
--- --- ---
100% 100% 100%
</TABLE>
FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities" which is required to be adopted for fiscal quarters of fiscal years
beginning after June 15, 2000. The Company expects to adopt SFAS No. 133
effective January 1, 2001. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The Company is
currently evaluating the impact that the adoption of this statement will have on
its financial position and results of operations.
20
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the discussion under this caption contained in Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
TO THE DIRECTORS AND SHAREHOLDERS
OF SOTHEBY'S HOLDINGS, INC.
We have audited the accompanying consolidated balance sheets of Sotheby's
Holdings, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Sotheby's Holdings, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- ----------------------------
DELOITTE & TOUCHE LLP
New York, New York
February 24, 2000
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
REVENUES (Note B)
Auction and related......................................... $390,101 $367,204 $335,511
Other....................................................... 52,484 79,848 46,281
-------- -------- --------
Total revenues.............................................. 442,585 447,052 381,792
EXPENSES
Direct costs of services (Note B)........................... 85,563 76,313 70,364
Salaries and related costs (Notes K, L and N)............... 159,686 153,869 131,874
General and administrative (Note J)......................... 125,711 108,240 89,038
Depreciation and amortization (Notes B and G)............... 17,452 12,652 11,057
Non-recurring charges (Note O).............................. -- 15,200 11,700
-------- -------- --------
Total expenses.............................................. 388,412 366,274 314,033
-------- -------- --------
Operating income............................................ 54,173 80,778 67,759
-------- -------- --------
Interest income............................................. 4,373 3,560 3,047
Interest expense (Note H)................................... (5,589) (10,545) (6,018)
Other income (expense)...................................... (807) 20 (331)
-------- -------- --------
Income before taxes......................................... 52,150 73,813 64,457
Income taxes (Note I)....................................... 19,296 28,788 23,849
-------- -------- --------
Net income.................................................. $ 32,854 $ 45,025 $ 40,608
-------- -------- --------
Basic earnings per share (Note B)........................... $ 0.57 $ 0.79 $ 0.73
Diluted earnings per share (Note B)......................... $ 0.56 $ 0.79 $ 0.72
Dividends per share......................................... $ 0.40 $ 0.40 $ 0.40
</TABLE>
See accompanying Notes to Consolidated Financial Statements
22
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1999 1998
---------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note B) $ 42,319 $ 71,238
Accounts and notes receivable, net of allowance for doubtful
accounts of $11,085 and $14,585 (Note D)
Accounts receivable....................................... 495,986 303,426
Notes receivable.......................................... 145,359 135,592
---------- --------
Total accounts and notes receivable, net.................... 641,345 439,018
---------- --------
Inventory, net (Note E)..................................... 20,843 16,915
Deferred income taxes (Note I).............................. 12,986 16,251
Prepaid expenses and other current assets (Note L).......... 18,754 23,756
---------- --------
Total current assets........................................ 736,247 567,178
NON-CURRENT ASSETS:
Notes receivable (Note D)................................... 42,535 17,115
Properties, less allowance for depreciation and amortization
of $72,463 and $60,154
(Notes G and J)........................................... 232,661 108,914
Intangible assets, less allowance for amortization of
$15,903 and $17,753 (Note G).............................. 24,124 34,088
Investments (Note F)........................................ 35,982 36,737
Other assets................................................ 1,963 5,614
---------- --------
Total assets................................................ $1,073,512 $769,646
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to consignors (Note D).................................. $ 422,552 $289,987
Short-term borrowings (Note H).............................. 272 2,098
Accounts payable and accrued liabilities.................... 126,263 98,766
Deferred revenues........................................... 7,273 5,057
Accrued income taxes (Note I)............................... 20,427 38,944
---------- --------
Total current liabilities................................... 576,787 434,852
LONG-TERM LIABILITIES:
Long-term debt (Note H)..................................... 100,000 --
Deferred income taxes (Note I).............................. 9,126 6,202
Other liabilities........................................... 10,555 8,918
---------- --------
Total liabilities........................................... 696,468 449,972
SHAREHOLDERS' EQUITY (Note K)
Common stock, $.10 par value authorized shares--125,000,000
of class A and 75,000,000 of class B; Issued and
outstanding shares 42,258,393 and 40,164,388 of class A,
and 16,585,650 and 16,995,299 of class B at
December 31, 1999 and 1998, respectively.................. 5,885 5,716
Additional paid-in capital.................................. 156,125 104,092
Retained earnings........................................... 228,261 219,383
Accumulated other comprehensive income...................... (13,227) (9,517)
---------- --------
Total shareholders' equity.................................. 377,044 319,674
---------- --------
Total liabilities and shareholders' equity.................. $1,073,512 $769,646
========== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
23
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 32,854 $ 45,025 $ 40,608
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Depreciation and amortization 17,452 12,652 11,057
Stock compensation expense................................ (5,851) 9,025 1,300
Deferred income taxes..................................... 6,501 (9,969) (2,699)
Tax benefit of stock option exercises................... 2,450 2,965 1,766
Write-off of leasehold improvements and furniture and
fixtures.............................................. -- 14,100 --
Asset provisions........................................ 2,127 8,253 4,390
Other................................................... -- 402 307
Change in assets and liabilities:
Decrease (increase) in prepaid expenses and other current
assets.................................................. 4,556 (5,612) (3,830)
(Increase) decrease in accounts and other receivables..... (198,539) 33,802 (96,924)
(Increase) decrease in inventory.......................... (4,105) 4,960 (10,773)
Decrease in intangible and other assets................... 3,179 507 633
Increase (decrease) in due to consignors.................. 136,503 (59,766) 75,097
(Decrease) increase in accrued income taxes............... (17,984) 15,376 (2,197)
Increase in accounts payable, accrued liabilities, and
other liabilities....................................... 17,973 20,524 7,371
--------- --------- ---------
Net cash (used) provided by operating activities.......... (2,884) 92,244 26,106
INVESTING ACTIVITIES
Increase in notes receivable................................ (164,003) (268,098) (215,323)
Collections of notes receivable............................. 128,070 387,363 90,920
Capital expenditures........................................ (120,691) (53,735) (17,507)
Decrease (increase) in investments.......................... 755 728 (1,632)
Acquisitions, net of cash acquired.......................... (750) (1,875) (6,900)
--------- --------- ---------
Net cash (used) provided by investing activities............ (156,619) 64,383 (150,442)
FINANCING ACTIVITIES
Increase in long-term debt.................................. 100,000 -- --
(Decrease) increase in commercial paper..................... -- (117,000) 117,000
(Decrease) increase in short-term borrowings................ (1,826) 18 (2,260)
Proceeds from issuance of common stock...................... 35,440 -- --
Proceeds from issuance of warrant to purchase common
stock..................................................... 10,000 -- --
Proceeds from exercise of stock options and shares issued to
directors................................................. 10,163 19,608 11,473
Repurchase of common stock.................................. -- -- (19,999)
Dividends paid.............................................. (23,976) (22,669) (22,386)
--------- --------- ---------
Net cash provided (used) by financing activities............ 129,801 (120,043) 83,828
Effect of exchange rate changes on cash..................... 783 1,012 7,264
--------- --------- ---------
(Decrease) increase in cash and cash equivalents............ (28,919) 37,596 (33,244)
Cash and cash equivalents at beginning of year.............. 71,238 33,642 66,886
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 42,319 $ 71,238 $ 33,642
--------- --------- ---------
Non Cash investing activities:
Capital asset and lease obligation additions.............. $ 12,323 $ -- $ --
--------- --------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
24
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMPREHENSIVE COMMON PAID-IN RETAINED COMPREHENSIVE
INCOME STOCK CAPITAL EARNINGS INCOME
-------------- -------- ---------- -------- -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996..................... $5,589 $ 78,882 $178,805 $ (5,856)
------ -------- -------- --------
Comprehensive income:
Net Income..................................... $40,608 40,608
Other comprehensive income, net of tax
Foreign currency translation................. (3,886) (3,886)
-------
Other comprehensive income..................... (3,886)
-------
Comprehensive income............................. 36,722
=======
Stock options exercised.......................... 112 11,361
Tax benefit associated with exercise of stock
options........................................ 1,766
Shares issued to directors....................... 1 242
Repurchase of common stock....................... (120) (20,619)
Stock compensation expense....................... 1,300
Dividends........................................ (22,386)
------ -------- -------- --------
BALANCE AT DECEMBER 31, 1997..................... $5,582 $ 72,932 $197,027 $ (9,742)
------ -------- -------- --------
Comprehensive income:
Net Income..................................... $45,025 45,025
Other comprehensive income, net of tax
Foreign currency translation................. 225 225
-------
Other comprehensive income..................... 225
-------
Comprehensive income............................. 45,250
=======
Stock options exercised.......................... 133 19,475
Tax benefit associated with exercise of stock
options........................................ 2,965
Shares issued to directors....................... 1 179
Stock compensation expense....................... 8,541
Dividends........................................ (22,669)
------ -------- -------- --------
BALANCE AT DECEMBER 31, 1998..................... $5,716 $104,092 $219,383 $ (9,517)
------ -------- -------- --------
Comprehensive income:
Net Income..................................... $32,854 32,854
Other comprehensive income, net of tax
Foreign currency translation................. (3,710) (3,710)
-------
Other comprehensive income..................... (3,710)
-------
Comprehensive income............................. 29,144
=======
Stock options exercised.......................... 68 9,568
Tax benefit associated with exercise of stock
options........................................ 2,450
Issuance of common stock......................... 100 35,340
Issuance of warrant to purchase common stock..... 10,000
Shares issued to directors....................... 1 526
Stock compensation expense....................... (5,851)
Dividends........................................ (23,976)
------ -------- -------- --------
BALANCE AT DECEMBER 31, 1999..................... $5,885 $156,125 $228,261 $(13,227)
------ -------- -------- --------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
25
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE-A ORGANIZATION AND BUSINESS
Sotheby's Holdings, Inc. (together with its subsidiaries, the "Company")
conducts live and internet auctions and private sales of fine art, jewelry and
decorative art. Auction activities occur primarily in New York and London, but
are also conducted elsewhere in North America, Europe and Asia. In addition, the
Company is engaged in art-related financing activities, the marketing and
brokering of luxury real estate, fine arts education and art-related
restoration.
NOTE-B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The Consolidated Financial Statements include
the accounts of Sotheby's Holdings, Inc., and its wholly-owned subsidiaries. The
Company's investments in Acquavella Modern Art ("AMA") and another affiliate
(see Note F) are accounted for under the equity method.
REVENUE RECOGNITION Auction and related revenues are generally recognized
at the date of sale less estimates for allowances. Subscription revenue from
auction catalogues is recognized over the twelve-month period of the
subscription from the date of receipt of the proceeds. Auction and related
revenues also include principal activities. Principal activities consist of net
gains (losses) on sales of inventories, the Company's share of operating
earnings (losses) from its investment in AMA and its other equity investment,
net income (loss) earned from guarantees, and the net gains (losses) related to
sales of secured loan collateral where the Company shares in the gain (loss) if
the property sells either above or below a targeted amount. Other revenues
consist principally of revenues from art-related financing activities and real
estate operations. Other revenues are generally recognized at the time service
is rendered or revenue is earned by the Company. Revenues from the Real Estate
segment are net of commission payments to independent contractors.
DIRECT COSTS OF SERVICES Direct costs of services primarily include the
costs of obtaining and marketing property for auctions.
CASH EQUIVALENTS Cash equivalents are liquid investments comprised
primarily of bank and time deposits with an original maturity of three months or
less. These investments are carried at cost, which approximates market value.
PROPERTIES Properties, consisting primarily of buildings and improvements,
leaseholds and leasehold improvements, furniture and fixtures and equipment, are
stated on the cost basis. Direct external and internal computer software
development costs subsequent to the preliminary stage of development are
capitalized. Depreciation is computed principally on the straight-line method
over the assets' estimated useful lives. Leaseholds and leasehold improvements
are amortized over the lesser of the life of the lease or the estimated useful
life of the improvement. Equipment includes capitalized software which reflects
costs related to purchased software. These costs are amortized on a
straight-line basis over the estimated useful life of the software.
The Company capitalizes interest on projects when construction requires a
period of time to get the assets ready for their intended use. Capitalized
interest is allocated to properties and amortized over the life of the related
assets. Capitalized interest totaled approximately $2.8 million and
$0.5 million in 1999 and 1998, respectively.
General and administrative expenses include repairs and maintenance.
FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents,
short-term borrowings and notes receivable are a reasonable estimate of their
fair value due to the variable interest rates
26
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
associated with each of these financial instruments. The fair value of long-term
debt is approximately $94.1 million.
DERIVATIVES The Company enters into forward exchange contracts to hedge
foreign currency transactions. The Company's forward exchange contracts do not
subject the Company to risk from exchange rate movements because gains and
losses on such contracts offset gains and losses on the assets or transactions
being hedged. 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. Gains and losses on contracts to hedge identifiable foreign
currency commitments are recognized in income and offset the foreign exchange
gains and losses on the underlying transactions. Premium or discount on forward
contracts is amortized to interest expense over the life of the contract. At
December 31, 1999, the Company has 8.7 million of notional value forward
currency 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 the contracts. The carrying amounts of
these contracts approximate their fair vlaue at December 31, 1999.
INVENTORY Inventory consists of objects obtained incidental to the auction
process as well as for investment purposes. Inventory is valued at the lower of
cost or management's estimate of net realizable value.
ALLOWANCE FOR LOAN LOSSES The Company regularly reviews its loan portfolio.
Each loan is analyzed based on the current estimated realizable value of the
collateral securing the loan. The Company establishes reserves for specific
loans that the Company believes are under-collateralized and with respect to
which the under-collateralized amount may not be collectible from the borrower.
A general reserve is established for probable losses inherent in the remainder
of the loan portfolio based on historical data and current market conditions.
INTANGIBLE ASSETS Intangible assets include goodwill and subscriber lists.
Goodwill is being amortized over fifteen to forty years. The amounts assigned to
other intangible assets are amortized on a straight-line basis over estimated
useful lives not to exceed twenty-five years.
IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable.
EARNINGS PER SHARE Basic earnings per share is based on the weighted
average number of outstanding shares of common stock. Diluted earnings per share
is based on the weighted average number of shares of common stock and common
stock equivalents (stock options and warrant). The basic and diluted weighted
average number of shares used for the earnings per share calculations were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
BASIC..................................................... 58.1 56.7 56.0
DILUTIVE EFFECT OF OPTIONS................................ 1.0 0.6 0.3
---- ---- ----
DILUTED................................................... 59.1 57.3 56.3
</TABLE>
There were no reconciling items between net income for basic and diluted
earnings per share.
FOREIGN CURRENCY TRANSLATION Assets and liabilities of foreign subsidiaries
are translated at year-end exchange rates. Income statement amounts are
translated using weighted average monthly
27
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
exchange rates during the year. Gains and losses resulting from translating
foreign currency financial statements are recorded in accumulated other
comprehensive income until the subsidiary is sold or substantially liquidated.
STOCK-BASED COMPENSATION The Company accounts for stock-based compensation
in accordance with Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees." Accordingly, pro forma net income
and earnings per share information has been presented in Note K as required
under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation."
RECLASSIFICATIONS Certain amounts in the 1998 and 1997 financial statements
have been reclassified to conform with the current presentation.
USE OF ESTIMATES The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
COMPREHENSIVE INCOME The Company has adopted SFAS No. 130 "Reporting
Comprehensive Income" which requires certain transactions to be included as
adjustments to net income in order to report comprehensive income. These
transactions referred to as other comprehensive income represent items that,
under previous accounting standards, bypassed the statement of income and were
reported directly as adjustments to the equity section of the balance sheet. The
Company's other comprehensive income consists of the change in the foreign
currency translation adjustment amount during the period and is reported in the
consolidated statement of changes in shareholders' equity. The foreign currency
translation adjustment amount previously reported as a separate component of
shareholders' equity is now included in accumulated other comprehensive income
in the Consolidated Balance Sheets.
PENSION ARRANGEMENTS The Company has adopted the provisions of SFAS
No. 132, "Employer's Disclosures about Pensions and Other Postretirement
Benefits"
NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted for fiscal
quarters of fiscal years beginning after June 15, 2000. The Company expects to
adopt SFAS No. 133 effective January 1, 2001. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
The Company is currently evaluating the impact that the adoption of this
statement will have on its financial position and results of operations.
NOTE-C SEGMENT REPORTING
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial statements. It also establishes
standards for related disclosures about products and services, major customers
and geographic areas. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance. The
Company's chief operating decision
28
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-C SEGMENT REPORTING (CONTINUED)
making group is comprised of the Chief Executive Officer and the senior
executives of each of the Company's operating segments.
The Company has three reportable operating segments consisting of Auction,
Real Estate and Finance. The Auction segment is an aggregation of operations in
North America, Europe and Asia as they are similar in service, customers, and
the way the service is provided. The Auction segment conducts auctions of
property in which the Company generally functions as an agent accepting property
on consignment from its selling clients. In addition to auctioneering, the
auction segment is engaged in a number of related activities including the
purchase and resale of art and other collectibles and the brokering of art
collectible purchases and sales through private treaty sales. The Real Estate
segment markets and brokers luxury real estate. The Finance segment provides
art-related financing generally secured by works of art and other personal
property owned by its clients. The Other segment primarily includes art
education and restoration activities.
The Company's reportable operating segments are strategic business units
that offer different services. They are managed separately because each business
requires different resources and strategies. The Company evaluates performance
based on segment profit or loss from operations before income taxes, not
including nonrecurring charges and foreign exchange gains and losses.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (NOTE B). Revenues are attributed
to geographic areas based on the location of the actual sale. All amounts in the
tables below are in thousands of dollars.
For the year ended December 31, 1999:
<TABLE>
<CAPTION>
AUCTION REAL ESTATE FINANCE OTHER TOTAL
-------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues..................................... $390,101 $30,264 $14,804 $7,416 $442,585
Interest Income.............................. 13,109 24 1 58 13,192
Interest Expense............................. 5,573 -- 16 -- 5,589
Depreciation and Amortization................ 15,673 1,389 -- 390 17,452
Segment Profit/(Loss)........................ 43,015 6,570 3,283 (718) 52,150
</TABLE>
For the year ended December 31, 1998:
<TABLE>
<CAPTION>
AUCTION REAL ESTATE FINANCE OTHER TOTAL
-------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues..................................... $367,204 $25,097 $47,876 $6,875 $447,052
Interest Income.............................. 19,044 -- 44 43 19,131
Interest Expense............................. 10,480 14 48 3 10,545
Depreciation and Amortization................ 11,218 1,124 -- 310 12,652
Segment Profit/(Loss)........................ 58,156 4,053 27,501 (697) 89,013
</TABLE>
For the year ended December 31, 1997:
<TABLE>
<CAPTION>
AUCTION REAL ESTATE FINANCE OTHER TOTAL
-------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.................................... $335,511 $19,359 $20,235 $ 6,687 $381,792
Interest Income............................. 14,931 10 -- 35 14,976
Interest Expense............................ 5,960 13 39 6 6,018
Depreciation and Amortization............... 9,978 774 -- 305 11,057
Segment Profit/(Loss)....................... 67,992 3,938 5,337 (1,110) 76,157
</TABLE>
29
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-C SEGMENT REPORTING (CONTINUED)
A reconciliation of the totals reported for the operating segments to the
applicable line items in the Consolidated Financial Statements is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Total revenues for reportable segments...... $435,169 $440,177 $375,105
Other revenues.............................. 7,416 6,875 6,687
-------- -------- --------
Total consolidated revenues............... $442,585 $447,052 $381,792
======== ======== ========
PROFIT:
Total profit for reportable segments........ $ 52,868 $ 89,710 $ 77,267
Other profit (loss)......................... (718) (697) (1,110)
Unallocated amounts:
Non-Recurring Charges..................... -- (15,200) (11,700)
-------- -------- --------
Consolidated income before tax............ $ 52,150 $ 73,813 $ 64,457
======== ======== ========
</TABLE>
Other Significant items:
<TABLE>
<CAPTION>
SEGMENT TOTALS ELIMINATIONS CONSOLIDATED TOTAL
-------------- ------------ ------------------
<S> <C> <C> <C>
1999
Interest income..................... $13,192 ($ 8,819)(1) $ 4,373
Interest expense.................... 5,589 -- 5,589
Depreciation and amortization....... 17,452 -- 17,452
1998
Interest income..................... $19,131 ($15,571)(1) $ 3,560
Interest expense.................... 10,545 -- 10,545
Depreciation and amortization....... 12,652 -- 12,652
1997
Interest income..................... $14,976 ($11,929)(1) $ 3,047
Interest expense.................... 6,018 -- 6,018
Depreciation and amortization....... 11,057 -- 11,057
</TABLE>
- ------------------------
(1) Represents the elimination of interest charged by Auction to Finance for
funding Finance's loan portfolio.
30
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-C SEGMENT REPORTING (CONTINUED)
Information concerning geographical areas was as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
United States............................... $248,223 $272,182 $175,899
United Kingdom.............................. 141,115 132,325 138,509
Other International Countries............... 53,247 42,545 67,384
-------- -------- --------
Total..................................... $442,585 $447,052 $381,792
======== ======== ========
</TABLE>
NOTE-D ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31
-----------------------
1999 1998
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ACCOUNTS AND OTHER RECEIVABLES.......................... $504,167 $315,137
ALLOWANCE FOR DOUBTFUL ACCOUNTS......................... (8,181) (11,711)
-------- --------
495,986 303,426
-------- --------
NOTES RECEIVABLE........................................ 190,798 155,581
ALLOWANCE FOR DOUBTFUL ACCOUNTS......................... (2,904) (2,874)
-------- --------
187,894 152,707
-------- --------
TOTAL................................................. $683,880 $456,133
======== ========
</TABLE>
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 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.
In certain situations, when the purchaser takes possession of the property
before payment is made, the Company is liable to the seller for the net sale
proceeds. As of December 31, 1999 and 1998, accounts receivable included
approximately $237.0 million and $137.4 million, respectively, of such sales. As
of February 24, 2000, $86.3 million of the amount outstanding at December 31,
1999 had been paid. Amounts outstanding at December 31, 1998 which remained
outstanding at December 31, 1999 totaled $6.6 million. Management believes that
adequate allowances have been established to provide for potential losses on
these amounts.
As of December 31, 1999, an amount equal to approximately 11% of the
Company's accounts receivable balance was due from one purchaser.
Notes receivable included $0.5 million at December 31, 1999, relating to
loans to employees. The weighted average interest rate on these loans was 11.0%
at December 31, 1999.
The Company provides collectors, museums and dealers with financing
generally secured by works of art that the Company typically controls and other
personal property owned by its clients. The Company generally makes two types of
secured loans: (1) advances secured by consigned property to borrowers who
31
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-D ACCOUNTS AND NOTES RECEIVABLE (CONTINUED)
are contractually committed, in the near term, to sell the property at auction
or privately (a "consignor advance"); and (2) general purpose loans to
collectors, museums or dealers secured by property not presently intended for
sale. The consignor advance enables 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.
One individual loan amounted to approximately 11% of the notes receivable
balance (current and non-current) at December 31, 1999. 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, on a secured basis, at loan to value ratios higher than
50%. In addition, the Company will also lend, on a secured basis, amounts at
loan to value ratios higher than 50% where the Company participates in a share
of the sale proceeds if the property sells for more than an agreed target amount
and the Company shares in a portion of the loss if the property does not sell at
or above the target amount.
The average interest rates charged on notes receivable were 8.2% and 8.7% at
December 31, 1999 and 1998, respectively. The estimated fair value of notes
receivable was $190.8 million and $155.6 million at December 31, 1999 and 1998.
Interest income on impaired loans is recognized to the extent cash is
received. Where there is doubt regarding the ultimate collectibility of
principal for impaired loans, cash receipts, whether designated as principal or
interest, are thereafter applied to reduce the recorded investment in the loan.
Changes in the allowance for credit losses relating to notes receivable are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------------
1999 1998
-------- --------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
ALLOWANCE FOR CREDIT LOSSES AT DECEMBER 31, 1998 AND 1997... $2,874 $3,620
PROVISIONS.................................................. 50 250
WRITEOFFS AND OTHER......................................... (20) (996)
------ ------
ALLOWANCE FOR CREDIT LOSSES AT DECEMBER 31, 1999 AND 1998... $2,904 $2,874
====== ======
</TABLE>
NOTE-E INVENTORY
Inventory consists principally of objects obtained incidental to the auction
process primarily as a result of honoring authenticity claims of purchasers,
purchasers defaulting on accounts receivable after the
32
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-E INVENTORY (CONTINUED)
consignor has been paid, purchasing property at the minimum price guaranteed by
the Company and purchases of property for investment purposes.
The inventory and related allowances to adjust the cost of inventory to
management's estimated net realizable value are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31
-------------------
1999 1998
-------- --------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
INVENTORY, AT COST........................................ $29,983 $26,337
NET REALIZABLE VALUE ALLOWANCES........................... (9,140) (9,422)
------- -------
TOTAL..................................................... $20,843 $16,915
======= =======
</TABLE>
NOTE-F INVESTMENTS
On May 23, 1990, the Company purchased the common stock of the Pierre
Matisse Gallery Corporation ("Matisse") for approximately $153 million. The
assets of Matisse consisted of a collection of fine art (the "Matisse
inventory"). Upon consummation of the purchase, the Company contributed the
Matisse inventory to AMA and entered into the AMA partnership agreement with
Acquavella Contemporary Art, Inc. to sell the Matisse inventory. The Company
accounts for its investment in AMA under the equity method of accounting in the
Consolidated Financial Statements, including its share of AMA's operating
earnings (losses) in auction and related revenue. The total net assets of the
partnership consist principally of the inventory described above. The Company
reflects its 50% interest in the net assets of the partnership in investments in
the Consolidated Balance Sheets. This investment totaled $33.0 million and
$34.3 million at December 31, 1999 and 1998, respectively.
To the extent that the partnership requires working capital, the Company has
agreed to lend the same to the partnership. As of December 31, 1999, no such
amounts were outstanding.
In 1999 and 1998 the Company's investment in another affiliate totaled
$3.0 million and $2.4 million, respectively.
NOTE-G PROPERTIES
Properties consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31
-----------------------
1999 1998
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
LAND.................................................... $ 17,786 $ 276
BUILDINGS AND BUILDING IMPROVEMENTS..................... 102,775 9,868
LEASEHOLDS AND LEASEHOLD IMPROVEMENTS................... 58,440 53,414
FURNITURE, FIXTURES AND EQUIPMENT....................... 110,284 66,638
CONSTRUCTION IN PROGRESS................................ 14,193 34,551
OTHER................................................... 1,646 4,321
-------- --------
305,124 169,068
LESS: ACCUMULATED DEPRECIATION.......................... (72,463) (60,154)
-------- --------
TOTAL................................................. $232,661 $108,914
======== ========
</TABLE>
33
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-G PROPERTIES (CONTINUED)
Included in Properties are costs related to the construction of the
Company's current facility on York Avenue (the "York Property"). In September of
1999, York Avenue Development, Inc. ("York"), a wholly owned subsidiary of
Sotheby's, Inc. (itself a wholly owned subsidiary of the Company), exercised its
right, under its operating lease, to purchase the York Property. The closing of
this purchase will take place no later than July 2000.
In connection with exercising the option, the Company reclassified
approximately $9.6 million of intangible assets, previously accounted for as
beneficial lease and air rights to Properties.
Construction in progress relates principally to the expenditures on the
construction of the York Property. These assets will be depreciated when they
are put into use.
NOTE-H CREDIT ARRANGEMENTS
Short-term borrowings consist of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31
-------------------
1999 1998
-------- --------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
BANK LINES OF CREDIT........................................ $248 $2,076
OTHER SHORT-TERM OBLIGATIONS................................ 24 22
---- ------
$272 $2,098
==== ======
</TABLE>
BANK LINES OF CREDIT At December 31, 1999 and 1998, $0.3 million and
$2.1 million, respectively, were outstanding under domestic and foreign lines of
credit at weighted average annual interest rates of 4.00% and 3.97%,
respectively.
COMMERCIAL PAPER The Company may issue up to $300 million in notes under
its U.S. commercial paper program. At December 31, 1999 and 1998 there were no
outstanding commercial paper borrowings. The notes do not bear interest but are
issued at a discount, which is negotiated by the Company and purchaser prior to
each issuance.
BANK CREDIT FACILITIES During the first quarter of 2000, the Company
entered into an amended and restated Bank Credit Agreement (the "Credit
Agreement") with its existing banking group, replacing its former Bank Credit
Agreement dated July 11, 1996. The Credit Agreement is maintained to support the
Company's commercial paper program and is available for general corporate
purposes. The amount available for borrowings under the Credit Agreement is
reduced by the outstanding commercial paper. Under the Credit Agreement, the
Company has up to $300 million of committed senior secured financing with an
international syndicate of banks arranged through Chase Manhattan Bank available
through July 11, 2001. The Company's obligations under the Credit Agreement are
secured by substantially all of the assets of the Company and its domestic
subsidiaries. In addition, borrowings by the Company's U.K. based affiliates are
secured by the Company's U.K. loan portfolio. Borrowings under the Credit
Agreement are permitted in either U.S. dollars or pounds sterling. Interest
rates on borrowings under the Credit Agreement are determined on a pricing
matrix based on the Company's long-term debt rating assigned by Standard and
Poor's Ratings Group and Moody's Investors Services. The Company incurred
arrangement and amendment fees of $4.1 million, which will be amortized over the
expected term of the
34
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-H CREDIT ARRANGEMENTS (CONTINUED)
commitment. Commitment fees are determined on a similar pricing matrix based on
the Company's long-term debt rating and charged quarterly in arrears. Commitment
fees charged under the Company's prior credit agreement totaled $0.3 million in
each of the years ended December 31, 1999, 1998 and 1997, respectively. The
Credit Agreement contains certain financial covenants, including covenants
requiring the Company to maintain a minimum net worth and interest coverage
ratio (as defined) and to limit dividend payments. The Company had no
outstanding borrowings under these facilities at December 31, 1999 and 1998.
SENIOR UNSECURED DEBT In February 1999, the Company issued a tranche of
long-term debt securities, 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 for placing liens on property
and entering into certain sales-leaseback transactions. The Company was in
compliance with these covenants at December 31, 1999. If and to the extent and
only for so long as such obligations are required to be secured pursuant to the
Trust Indenture under which the notes were issued, the obligations thereunder
will be equally and ratably secured with certain specified indebtedness under
the Credit Agreement.
Interest paid on borrowings, net of capitalized interest, totaled
$3.9 million, $9.3 million and $5.5 million in the years ended December 31,
1999, 1998, and 1997, respectively.
NOTE-I INCOME TAXES
The significant components of income tax expense attributed to continuing
operations consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
INCOME BEFORE TAXES
Domestic.................................................. $26,423 $65,963 $19,514
Foreign................................................... 25,727 7,850 44,943
------- ------- -------
Total..................................................... $52,150 $73,813 $64,457
------- ------- -------
INCOME TAXES CURRENT
Federal................................................... $ 1,546 $17,876 $ 7,136
State and local........................................... 1,098 13,009 3,824
Foreign................................................... 8,283 7,872 15,220
------- ------- -------
10,927 38,757 26,180
------- ------- -------
INCOME TAXES DEFERRED
Federal and State......................................... $ 7,478 $(6,887) $(3,426)
Foreign................................................... 891 (3,082) 1,095
------- ------- -------
8,369 (9,969) (2,331)
------- ------- -------
Total..................................................... $19,296 $28,788 $23,849
======= ======= =======
</TABLE>
35
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-I INCOME TAXES (CONTINUED)
The components of deferred income tax assets and liabilities are disclosed
below:
<TABLE>
<CAPTION>
AS OF DECEMBER 31
-------------------
1999 1998
-------- --------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
DEFERRED TAX ASSETS
Asset provisions and accrued liabilities.................. $15,622 $16,633
Tax loss and credit carryforwards......................... 9,199 8,595
------- -------
24,821 25,228
Valuation allowance....................................... (4,068) (3,389)
------- -------
Total..................................................... $20,753 $21,839
------- -------
DEFERRED TAX LIABILITIES
Basis difference in partnership assets.................... $11,998 $12,507
Difference between book and tax basis of depreciable
amortizable assets...................................... 4,895 (718)
------- -------
Total..................................................... $16,893 $11,789
======= =======
</TABLE>
At December 31, 1999, the Company has tax loss and credit carryforwards of
$9.2 million, having expiration dates ranging from 2002 to 2009. The Company
provided a valuation allowance for certain foreign losses and tax credit
carryforwards of $4.1 million and $3.4 million at December 31, 1999 and 1998,
respectively. The valuation allowance increased (decreased) by $0.7 million and
($3.1) million at December 31, 1999 and 1998, respectively. The change in the
valuation allowance in 1999 compared to 1998 resulted from management's
evaluation of the utilization of U.S. and certain foreign operating loss and
credit carryforwards.
The effective tax rate varied from the statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
STATUTORY FEDERAL INCOME TAX RATE........................... 35.0% 35.0% 35.0%
STATE AND LOCAL TAXES, NET OF FEDERAL TAX BENEFIT........... 5.4 5.7 3.9
FOREIGN TAXES AT RATES (LESS) GREATER THAN U.S. RATES....... (2.0) 0.8 (0.3)
TAXABLE FOREIGN SOURCE INCOME............................... (5.6) (4.8) (2.5)
EFFECT OF OPERATING LOSSES AND TAX CREDITS.................. 3.1 2.0 1.2
OTHER....................................................... 1.1 0.3 (0.3)
---- ---- ----
EFFECTIVE INCOME TAX RATE................................... 37.0% 39.0% 37.0%
==== ==== ====
</TABLE>
Undistributed earnings of foreign subsidiaries included in consolidated
retained earnings at December 31, 1999 and 1998 amounted to $41.2 million and
$38.0 million, respectively. Such amounts are considered to be reinvested
indefinitely or will be distributed from income that would not incur a
significant tax consequence and, therefore, no provision has been made for taxes
that would be payable upon distribution of these earnings.
36
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-I INCOME TAXES (CONTINUED)
Total income tax payments, net of refunds, during 1999, 1998 and 1997 were
$22.0 million, $25.4 million and $24.2 million respectively.
The related tax (benefit) expense for the years ended December 31, 1999,
1998 and 1997 related to the foreign currency translation adjustment included in
other comprehensive income was approximately ($2.2) million, $0.1 million and
($2.3) million, respectively.
NOTE-J LEASE COMMITMENTS
The Company conducts its business on premises leased in various locations
under long-term operating leases expiring through 2060. Net rental payments
under operating leases amounted to $16.8 million, $15.5 million and
$13.1 million, respectively for the years ended December 31, 1999, 1998 and
1997.
Future minimum lease payments under noncancelable operating leases in effect
at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
<S> <C>
2000...................................................... $ 14,538
2001...................................................... 12,099
2002...................................................... 10,910
2003...................................................... 10,017
2004...................................................... 8,537
THEREAFTER................................................ 63,008
--------
TOTAL FUTURE MINIMUM LEASE PAYMENTS....................... $119,109
========
</TABLE>
The future minimum lease payments have not been reduced by minimum sublease
rental of $12.9 million due in the future under noncancelable subleases.
In addition to the above rentals, under the terms of certain of the leases,
the Company pays real estate taxes, utility costs and other increases based on a
price-level index.
The Company also has approximately $0.7 million in capital lease obligations
of which a significant amount will be paid in 2000.
NOTE-K SHAREHOLDERS' EQUITY
COMMON STOCK Each share of Class A Common Stock is entitled to one vote and
each share of Class B Common Stock is entitled to ten votes. Both classes of
common stock share equally in cash dividend distributions, if any. The Class A
Common Stock is traded on stock exchanges in both the U.S. and the U.K.
On July 23, 1999, Amazon.com, Inc. purchased one million of newly issued
shares of the Company's Class A Common Stock at $35.44 per share, and purchased
for $10 million a three year warrant to purchase an additional one million
shares at $100 per share.
PREFERRED STOCK In addition to Class A and B Common Stock outstanding, the
Company has the authority to issue 50,000,000 shares of Preferred Stock, no par
value. No such shares were issued and outstanding at December 31, 1999 and 1998.
37
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-K SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS At December 31, 1999, the Company has reserved 9,125,000
shares of Class B Common Stock for future issuance in connection with the 1987
Stock Option Plan and the 1997 Stock Option Plan ("the Plan"). The Plan
succeeded the 1987 Stock Option Plan.
Pursuant to both stock option plans, options are granted with an exercise
price equal to or greater than fair market value at the date of grant. Pursuant
to the 1987 Stock Option Plan, options granted through September 1992 vest and
become exercisable ratably during each of the fourth, fifth and sixth years
after the date of grant. For options granted subsequent to September 1992 and
through December 31, 1996, pursuant to the 1987 Stock Option Plan, and for
options granted subsequent to January 1997, pursuant to the Plan, options vest
and become exercisable ratably in each of the second, third, fourth, fifth and
sixth years after the date of grant (except in the U.K. where options vest
three-fifths in the fourth year and one-fifth in each of the fifth and sixth
years after the date of grant). The options are exercisable into shares of
Class B Common Stock, which are authorized but unissued shares. The shares of
Class B Common Stock issued upon exercise are freely convertible into an
equivalent number of shares of Class A Common Stock.
At December 31, 1999, there were outstanding options under the Plan and the
1987 Stock Option Plan for the purchase of 9,198,593 shares, at prices ranging
from $10.87 to $42.63 per share. Stock option transactions during 1999, 1998 and
1997 are summarized as follows (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------------
SHARES
RESERVED FOR
ISSUANCE UNDER WEIGHTED
THE PLAN SHARES PRICES AVERAGE PRICE
-------------- -------- ------------ -------------
<S> <C> <C> <C> <C>
INITIAL GRANT SEPTEMBER 1, 1987............... 12,507 7,628 $1.50 $ 1.50
------- ------ ------------ ------
BALANCE AT JANUARY 1, 1997.................... 8,397 5,775 $ 1.50-22.62 $12.86
OPTIONS EXPIRED--1987 OPTION PLAN........... (2,169)
INITIAL GRANT JANUARY 1, 1997 FOR THE PLAN.... 6,000
Options granted............................. 2,279 $15.75-18.94 $17.72
Options canceled............................ (237) $10.87-17.13 $13.64
Options Exercised........................... (1,121) (1,121) $ 1.50-18.00 $10.23
------- ------ ------------ ------
BALANCE AT DECEMBER 31, 1997.................. 11,107 6,696 $ 3.50-22.62 $14.92
Options granted............................. 3,037 $20.06-24.25 $22.67
Options canceled............................ (508) $10.87-22.62 $16.61
Options exercised........................... (1,329) (1,329) $ 3.50-18.69 $13.19
------- ------ ------------ ------
BALANCE AT DECEMBER 31, 1998.................. 9,778 7,896 $10.87-24.25 $17.84
Options granted............................. 2,033 $25.63-42.63 $36.76
Options canceled............................ (77) $10.87-37.94 $23.72
Options exercised........................... (653) (653) $10.87-24.25 $14.45
------- ------ ------------ ------
BALANCE AT DECEMBER 31, 1999.................. 9,125 9,199 $10.87-42.63 $21.94
======= ====== ============ ======
</TABLE>
38
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-K SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about options outstanding at
December 31, 1999 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------- OPTIONS EXERCISABLE
WEIGHTED ---------------------------
OUTSTANDING AVERAGE REMAINING WEIGHTED EXERCISABLE WEIGHTED
RANGE OF PRICES AT 12/31/99 CONTRACTUAL LIFE AVERAGE PRICE AT 12/31/99 AVERAGE PRICE
- --------------- ----------- ----------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$7.01-14.00..................... 1,406 3.9 years $12.17 1,223 $12.36
$14.01-21.00.................... 3,978 7.0 years $18.03 1,624 $17.36
$21.01-28.00.................... 2,125 8.9 years $24.35 362 $24.16
$28.01-35.00.................... 585 9.7 years $33.05 -- --
$35.01-42.00.................... 1,088 9.3 years $37.85 127 $37.94
$42.01-42.63.................... 17 9.3 years $42.40 -- --
----- ------ ------
9,199 3,336 $17.05
===== ====== ======
</TABLE>
The weighted average fair value per share of options granted during the
years ended December 31, 1999, 1998 and 1997 was $5.05, $7.36 and $6.47,
respectively. At December 31, 1998 and 1997, 2,422,700 and 2,492,455 options
were exercisable at a weighted average exercise price of $14.31 and $13.57,
respectively.
In February 2000, the Company approved an additional grant of 4,390,000
options pursuant to the Plan. See Note N.
PERFORMANCE SHARE PURCHASE PLAN At December 31, 1999, the Company had
reserved 2,000,000 shares of Class B Common Stock for issuance in connection
with the Performance Share Purchase Plan (the "Performance Plan"). At
December 31, 1999, 658,000 options were outstanding under the Performance Plan.
The following table summarizes information about options outstanding at
December 31, 1999 under the Performance Plan:
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS OUTSTANDING SHARES PRICES AVERAGE PRICE
- ------------------- -------- ---------- -------------
<S> <C> <C> <C>
INITIAL GRANT FEBRUARY 1996 AND BALANCE AT DECEMBER 31,
1996...................................................... 215,000 $ 3.69 $3.69
Options granted........................................... 271,500 $ 4.29 $4.29
Options canceled.......................................... (56,000) $3.69-4.29 $4.02
------- ---------- -----
BALANCE AT DECEMBER 31, 1997................................ 430,500 $3.69-4.29 $4.03
Options granted........................................... 315,000 $ 5.03 $5.03
Options canceled.......................................... (50,000) $3.69-4.29 $3.99
------- ---------- -----
BALANCE AT DECEMBER 31, 1998................................ 695,500 $3.69-5.03 $4.48
Options canceled.......................................... (12,500) $4.29-5.03 $4.59
Options exercised......................................... (25,000) $ 3.69 $3.69
------- ---------- -----
BALANCE AT DECEMBER 31, 1999................................ 658,000 $3.69-5.03 $4.52
======= ========== =====
</TABLE>
39
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-K SHAREHOLDERS' EQUITY (CONTINUED)
Options granted under the Performance Plan will be exercisable upon the
fulfillment of certain performance criteria, based on the Company's earnings per
share or return on equity, or both, as determined by the Compensation Committee
of the Board of Directors or the Section 162(m) Subcommittee thereof, as
applicable, as well as fulfillment of time vesting requirements. The options,
which generally have a three-year performance period, time vest regardless of
achieving the performance goal, in one third increments on each of the third,
fourth and fifth anniversaries of the date of grant. If the performance goal has
been achieved at the time these options begin time vesting, the options will
become exercisable when the time vesting requirement is met. If the performance
goal has not been achieved by the end of the performance period, the options
will not become exercisable upon vesting. Rather, the designated performance
goal will automatically be adjusted and the performance period will be extended
one year. Upon achievement of the adjusted performance goal, the options will be
exercisable to the extent they have time vested. If the adjusted performance
goal is not achieved by the end of the fifth year after the date of grant, the
options will expire. During the term of each Performance Plan option, the option
accrues dividend equivalents which are payable to the option holder when the
option becomes exercisable. During 1997, the Audit and Compensation Committee
approved an acceleration of the time vesting for options granted during 1996 and
1997. These options will time vest on the third anniversary of the date of the
grant, provided that the performance goal is achieved. The performance goal for
the 1996 grant was achieved and the options became exercisable on January 31,
1999.
Pursuant to the Performance Plan, options are granted with an exercise price
equal to at least 25% of the fair market value of the Class B Common Stock at
the date of grant.
During 1999, the Company's management determined that fulfillment of the
financial performance criteria for the 1997 and 1998 grants (necessary for these
options to ultimately become exercisable under the terms of the plan) are not
likely to be achieved, even on an adjusted basis as described above.
Accordingly, the Company recorded a reduction of accrued compensation cost of
approximately $5.9 million previously expensed for its 1997 and 1998 Performance
Share Purchase Plan option grants. The Company recognized compensation expense
of $9.0 million and $1.3 million in 1998 and 1997 respectively, relating to the
Performance Plan.
The weighted average fair value per share of options granted during 1998 and
1997 was $14.02 and $11.99 respectively.
PRO FORMA DISCLOSURE OF THE COMPENSATION COST FOR STOCK OPTION PLANS As
permitted under SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company has elected to continue to measure stock-based compensation using the
intrinsic value approach under APB Opinion No. 25, the former standard. If the
former standard for measurement is elected, SFAS No. 123 requires supplemental
disclosure to show the effects of using the new measurement criteria.
Had compensation cost for the Plan and the Performance Plan been determined
based on the fair value at the grant date for awards in 1999, 1998 and 1997
consistent with the provisions of SFAS No. 123,
40
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-K SHAREHOLDERS' EQUITY (CONTINUED)
the Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET INCOME--AS REPORTED..................................... $32,854 $45,025 $40,608
NET INCOME--PRO FORMA....................................... $19,410 $42,704 $38,044
BASIC EARNINGS PER SHARE--AS REPORTED....................... $ 0.57 $ 0.79 $ 0.73
DILUTED EARNINGS PER SHARE--AS REPORTED..................... $ 0.56 $ 0.79 $ 0.72
BASIC EARNINGS PER SHARE--PRO FORMA......................... $ 0.33 $ 0.75 $ 0.68
DILUTED EARNINGS PER SHARE--PRO FORMA....................... $ 0.33 $ 0.75 $ 0.68
</TABLE>
The pro forma information reflected above may not be representative of the
amounts to be expected in future years as the fair value method of accounting
contained in SFAS No.123 had not been applied to options granted prior to
January 1995.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for all grants prior to 1999: dividend yield of 2.1%; expected
volatility of 30%; risk-free rate of return of 6%; and expected life of
7.5 years. For 1999, the following weighted average assumptions used were:
dividend yield of 1.0%; expected volatility of 35%; risk-free rate of return of
5.4% and expected life of 7.5 years. The compensation cost generated by the
Black-Scholes model may not be indicative of the future benefit received by the
option holder.
STOCK COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS Effective April 30,
1998, the Company amended the Director Stock Ownership Plan. At December 31,
1999, the Company has reserved 145,910 shares of Class A Common Stock for
issuance in connection with the Stock Compensation Plan for Non-employee
Directors (the "Plan"). During 1999 and 1998, 15,255 and 15,255 shares,
respectively, were issued to non-employee directors under the Plan. During 1998
and 1997, 3,690, and 15,390 shares, respectively were issued to non-employee
directors under the Director Stock Ownership Plan.
STOCK REPURCHASE PROGRAMS In June of 1996, the Company authorized an
increase in the number of shares of its outstanding Class A Common Stock to be
acquired under the November 30, 1995 stock repurchase program from 1 million
shares to 4 million shares. As of December 31, 1999, 2.5 million shares had been
repurchased under this program. There were no repurchases of stock in 1999 and
1998.
NOTE-L PENSION ARRANGEMENTS
The Company has a U.S. defined contribution plan (the "Retirement Savings
Plan") that covers employees after 90 days of service. The Company contributes
2% of each participant's compensation to the plan. In addition, participants may
elect to contribute between 2% and 12% of their compensation, up to the maximum
amount allowable under IRS regulations, on a pre-tax basis. Employee savings are
matched by a Company contribution of up to an additional 6% of the participant's
compensation. The Company's contributions amounted to $3.7 million,
$2.7 million and $2.5 million for the years ended December 31, 1999, 1998 and
1997, respectively.
41
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-L PENSION ARRANGEMENTS (CONTINUED)
The Company has an unfunded Benefits Equalization Plan ("BEP"). The BEP
provides for certain officers eligible for the Retirement Savings Plan who are
affected by limitations imposed by IRS regulations. Such officers may enter into
agreements pursuant to which their salaries will be reduced and the Company will
maintain accounts on their behalf in the amount of the difference between the
aggregate amount of contributions that would have been made to the Retirement
Savings Plan in the absence of the limitations, and the aggregate amount of
contributions actually made to the Retirement Savings Plan. Employee savings are
matched by a Company contribution of up to an additional 6%. The participant
deferrals earn interest at a rate equal to 3.3% above the 10 year U.S. Treasury
Bond rate. As of December 31, 1999 and 1998, the total unfunded liability of the
BEP was $9.4 and $7.0 million respectively, and is included in other
liabilities. The Company's contributions amounted to $0.9, $0.6 and
$0.5 million for the years ended December 31, 1999, 1998 and 1997 respectively.
The Company also contributes to a defined benefit pension plan covering
substantially all employees in the U.K. on an annual basis.
The following disclosure related to the defined benefit pension plan is in
accordance with the provisions of SFAS No. 132 (see NOTE B).
THE CHANGE IN THE PROJECTED BENEFIT OBLIGATION ("PBO") IS AS FOLLOWS:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
PBO at beginning of year.................................... $104,259 $ 97,400
Service Cost................................................ 5,118 4,891
Interest Cost............................................... 6,554 6,767
Employee contributions...................................... 794 818
Actuarial loss.............................................. (1,825) (3,746)
Benefits paid............................................... (2,231) (2,161)
Foreign currency exchange rate changes...................... (2,411) 290
-------- --------
PBO at end of year.......................................... $110,258 $104,259
======== ========
</TABLE>
42
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-L PENSION ARRANGEMENTS (CONTINUED)
The change in the plan assets, the funded status and the amounts recognized
in the Consolidated Balance Sheets are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Fair value of plan assets at beginning of year.............. $137,436 $142,023
Actual return (loss) on plan assets......................... 25,950 (4,658)
Employer contributions...................................... 1,456 983
Employee contributions...................................... 794 818
Benefits paid............................................... (2,231) (2,161)
Foreign currency exchange rate changes...................... (3,196) 431
-------- --------
Fair value of plan assets at end of year.................... $160,209 $137,436
-------- --------
Funded status............................................... $ 49,951 $ 33,178
Unrecognized transitional asset............................. (1,451) (1,973)
Unrecognized prior service cost............................. 2,222 2,571
Unrecognized actuarial gain................................. (38,835) (24,435)
-------- --------
Prepaid pension cost recorded in the consolidated balance
sheet..................................................... $ 11,887 $ 9,341
======== ========
</TABLE>
The components of net pension benefit are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost................................................ $ 5,118 $ 4,891 $ 3,656
Interest cost............................................... 6,554 6,767 6,568
Expected return on plan assets.............................. (11,985) (11,129) (9,510)
Amortization of prior service cost.......................... 297 304 285
Amortization of actuarial loss.............................. (812) (2,007) (1,447)
Amortization of transition asset............................ (481) (493) (493)
-------- -------- -------
Net pension benefit......................................... $ (1,309) $ (1,667) $ (941)
======== ======== =======
</TABLE>
The weighted average discount rate used in determining actuarial values for
the U.K. pension plan was 6.5% in 1999 and 1998, the increase in future
compensation levels was 5.0% in 1999 and 1998, and the expected weighted average
long-term rate of return on plan assets was 9.0% in 1999 and 1998.
NOTE-M RELATED PARTY TRANSACTIONS
Prior to December 1995, the Company had a loan program whereby the Company
would directly lend money to certain officers and staff for a term of 15 years
to purchase a residence under notes bearing interest at an annual rate equal to
1 to 2 percentage points below the prime rate. Outstanding direct loans amounted
to $0.1 million at December 31, 1999 and 1998. In December 1995, the majority of
the loans under this program were refinanced and replaced by a bank loan program
providing comparable loan terms and interest rates. All repayment obligations
under this bank loan program are guaranteed by the Company. This program is
available to employees at the Chief Executive Officer's discretion. For loans
43
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-M RELATED PARTY TRANSACTIONS (CONTINUED)
under this program exceeding $0.4 million, the approval of either the
Compensation Committee or Executive Committee of the Board of Directors is
required. All loans are repayable when an employee leaves the Company. The
amount of guarantees outstanding was $4.8 million at December 31, 1999. In
December 1999, the Company loaned a total of $1.6 million to two employees on an
unsecured, short-term basis bearing interest at approximately the prime rate. As
of February 11, 2000, $1.5 million of these loans had been repaid. See Note N
for additional related party disclosure.
NOTE-N COMMITMENTS AND CONTINGENCIES
COMMITMENTS The capital expenditures relating to the construction of the
York Property are currently estimated to be in the range of $151.0 million. As
of February 24, 2000, the Company had financial commitments in relation to this
project of approximately $22.8 million.
During the first quarter of 2000, the Compensation Committee of the Board of
Directors approved a special grant of 3 million stock options under the terms of
the 1997 Stock Option Plan in addition to the normal annual grant (See Note K),
approved a cash award pool of up to $7 million and considered a number of other
incentives, for the retention of certain key employees. The cash awards will be
paid only upon the fulfillment of full-time employment through a future date to
be determined which should be no earlier than December 1, 2001.
LEGAL ACTIONS The Company, in the normal course of business, is a defendant
in various legal actions.
In May 1997, the Antitrust Division of the United States Department of
Justice began an investigation of certain art dealers and major auction houses,
including the Company and its principal competitor, Christie's. Among other
matters, the investigation has reviewed whether Sotheby's and Christie's had any
agreement regarding the amounts charged for commissions in connection with
auctions. The Company has recently met with the Department of Justice in order
to discuss a prompt and appropriate resolution of this investigation. The
European Commission has also recently commenced an inquiry, and the Australian
Competition Commission an investigation, regarding commissions charged by the
Company and Christie's for auction services.
A number of private civil complaints, styled as class action complaints,
have also been filed against the Company alleging violation of federal and state
antitrust laws based upon alleged agreements between Christie's and the Company
regarding commission pricing. In addition, several shareholder class action
complaints have been filed against the Company and certain of its directors and
officers, alleging failure to disclose the alleged agreements and their impact
on the Company's financial condition and results of operations. And, a number of
shareholder derivative suits have been filed against the directors of the
Company based on allegations related to the foregoing lawsuits and
investigations. Although the outcome of the investigation by the Department of
Justice, other governmental inquiries and investigations and these various
lawsuits cannot presently be determined, any loss resulting from these matters
could well have a material impact on the Company's financial condition and/or
results of operations. The amount of any such loss is not currently estimatable.
LENDING AND OTHER CONTINGENCIES The Company enters into legal binding
arrangements to lend, on a collateralized basis, to potential consignors and
other individuals who have collections of fine art or other objects. Unfunded
commitments to extend additional credit were approximately $20.0 million and
$84.0 million at December 31, 1999 and 1998, respectively.
44
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-N COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has a bank loan guarantee program available to certain employees
at the Chief Executive Officer's discretion whereby the employee borrows
directly from a bank on a demand note basis and pays an annual interest rate
equal to the prime rate. All of the repayment obligations of the employee are
guaranteed by the Company and repayable when an employee leaves the Company.
These obligations totaled $0.6 million at December 31, 1999.
On certain occasions, the Company will guarantee to the consignor 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 or the property does not sell and, therefore, the Company
must pay the difference between the sale price at auction and the amount of the
guarantee. At December 31, 1999, the Company had no outstanding guarantees. At
February 24, 2000, the Company had outstanding guarantees totaling approximately
$6.8 million, which covers auction property having a mid-estimate sales price of
approximately $8.4 million. Under certain guarantees, the Company participates
in a share of the proceeds if the property under guarantee sells above a minimum
price. In addition, the Company is obligated under the terms of certain
guarantees to fund a portion of the guarantee prior to the auction.
In the opinion of management, the commitments and contingencies described
above and in Note J currently are not expected to have a material adverse effect
on the Company's financial statements, with the possible exception of the
investigation by the Department of Justice, other governmental investigations
and inquiries, and related civil lawsuits, as any loss resulting from these
matters could well have a material impact on the Company's financial condition
and/or results of operations.
NOTE-O NON-RECURRING CHARGES
In 1998, the Company recorded a non-recurring charge of $15.2 million
relating to the construction of the York Property, as defined in Note G.
Approximately $14.1 million of this amount is a non-cash charge resulting from
the impairment of existing leasehold improvements and related furniture and
fixtures. The remaining amount of approximately $1.1 million is a provision
resulting from the cost of future rental obligations on rental space in New York
City that will be abandoned as part of the Company's plan to consolidate many of
its operations in New York City. As of December 31, 1999 and 1998, the Company
has recorded in other liabilities in the Consolidated Balance Sheet,
approximately $1.1 million related to these future obligations, which will be
paid out starting approximately October, 2000 through September, 2003.
In early 1997, a television program aired in the U.K. and a related book was
published both of which contain certain allegations of improper or illegal
conduct by current and former employees of the Company. In response to these
allegations, the Board of Directors in February 1997 established a committee of
independent directors to review the issues raised by the book and related
matters. The Independent Review Committee retained outside independent counsel
in the U.S. and the U.K. to assist and advise the Committee in its review. The
Company's management also conducted its own internal review. Both reviews were
completed in 1997. In 1997, the Company incurred $11.7 million of non-recurring
charges that consisted primarily of legal and other professional fees associated
with the Board of Directors' Independent Review Committee. The Company does not
expect to incur any additional material expenses in relation to this matter.
These charges were paid in full as of December 31, 1999.
45
<PAGE>
SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE-P ACQUISITIONS
In January 1999, the Company's Real Estate segment (Note C) acquired Teton
Shadows Realty, Inc., a real estate brokerage firm in Jackson Hole, Wyoming.
This acquisition has been accounted for as a purchase and did not have a
material effect on the Company's financial statements, thus pro-forma results of
operations have not been included herein.
In June, 1998, the Company's Real Estate segment acquired Christopher
Webster Real Estate of Sante Fe, Inc., a real estate brokerage firm in Sante Fe,
New Mexico. In October, 1998, the Company's Auction segment acquired Davis and
Co., a wine auctioneer in Chicago, Illinois. Both of these acquisitions have
been accounted for as a purchase. These acquisitions did not have a material
effect on the Company's financial statements, thus pro-forma results of
operations have not been included herein.
In March 1997, the Company acquired Braverman, Newbold and Brennan, a real
estate brokerage firm in Southampton, New York. In July 1997, the Company
acquired Leslie Hindman Auctioneers, an auction house in Chicago, IL. Both of
these acquisitions have been accounted for as a purchase. These acquisitions did
not have a material effect on the Company's financial statements, thus pro-forma
results of operations have not been included herein.
NOTE-Q QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- -----------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1999
Auction sales.......................................... $235,673 $799,647 $129,492 $1,093,940
Auction and related revenues........................... $ 51,665 $131,694 $ 32,677 $ 174,065
Other revenues......................................... 11,537 14,315 12,598 14,034
-------- -------- -------- ----------
Total revenues......................................... 63,202 146,009 45,275 188,099
-------- -------- -------- ----------
Operating income (loss) before non-recurring charges... (14,611) 50,999 (37,953) 55,738
Operating income (loss) after non-recurring charges.... (14,611) 50,999 (37,953) 55,738
Net income (loss)...................................... $ (9,526) $ 31,697 $(23,757) $ 34,440
Basic earnings (loss) per share........................ $ (0.17) $ 0.55 $ (0.41) $ 0.59
Diluted earnings (loss) per share...................... $ (0.17) $ 0.53 $ (0.41) $ 0.57
-------- -------- -------- ----------
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1998
Auction sales............................................ $251,805 $715,770 $157,691 $814,447
Auction and related revenues............................. $ 55,266 $129,916 $ 34,478 $147,544
Other revenues........................................... 13,057 16,900 16,810 33,081
-------- -------- -------- --------
Total revenues........................................... 68,323 146,816 51,288 180,625
-------- -------- -------- --------
Operating income (loss) before non-recurring charges..... (7,769) 55,009 (15,167) 63,905
Operating income (loss) after non-recurring charges...... (7,769) 55,009 (30,367) 63,905
Net income (loss)........................................ $ (6,283) $ 33,562 $(20,792) $ 38,538
Basic earnings (loss) per share.......................... $ (0.11) $ 0.59 $ (0.37) $ 0.68
Diluted earnings (loss) per share........................ $ (0.11) $ 0.59 $ (0.37) $ 0.66
-------- -------- -------- --------
</TABLE>
46
<PAGE>
REPORT OF MANAGEMENT
The Company's consolidated financial statements were prepared by management,
which is responsible for their integrity and objectivity. The financial
statements have been prepared in accordance with generally accepted accounting
principles and, as such, include amounts based on management's best estimates
and judgments.
Management is further responsible for maintaining systems of internal
control and related policies and procedures designed to provide reasonable
assurance that assets are adequately safeguarded and that the accounting records
reflect transactions executed in accordance with management's authorization.
<TABLE>
<S> <C> <C>
/s/ WILLIAM F. RUPRECHT /s/ WILLIAM S. SHERIDAN /s/ JOSEPH A. DOMONKOS
- -------------------------- -------------------------- --------------------------
William F. Ruprecht William S. Sheridan Joseph A. Domonkos
President and Senior Vice President and Senior Vice President,
Chief Executive Officer Chief Financial Officer Controller and Chief
Accounting Officer
</TABLE>
AUDIT COMMITTEE CHAIRMAN'S LETTER
The Audit Committee (the "Committee") of the Board of Directors consisted of
four independent directors. Information as to these persons, as well as the
scope of duties of the Committee, is provided in the Proxy Statement. During
1999, the Committee met four times and reviewed with Deloitte & Touche LLP, the
Director of the Internal Audit Department and management the various audit
activities and plans, together with the results of selected internal audits. The
Committee also reviewed the reporting of consolidated financial results and the
adequacy of internal controls. The Committee recommended the appointment of
Deloitte & Touche LLP to the Board of Directors. The Director of the Internal
Audit Department and Deloitte & Touche LLP met privately with the Committee on
occasion to encourage confidential discussion as to any auditing matters.
/s/ MICHAEL BLAKENHAM
- ------------------------
Michael Blakenham
Chairman, Audit Committee
47
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Information required by this item is incorporated by reference to the
Company's definitive proxy statement for the annual meeting of shareholders to
be held in 2000 (the "Proxy Statement") under the captions "Election of
Directors" and "Management-Executive Officers." In addition, A. Alfred Taubman
and Diana D. Brooks presently serve as directors of the Company, but are not
standing for reelection as directors at the Company's 2000 annual meeting.
Mr. Taubman, age 75, served as Chairman of the Company from 1983 until his
resignation in February 2000. He is Chairman of Taubman Centers, Inc., a company
engaged in the regional retail shopping center business. Mr. Taubman also serves
as a director of Hollinger International Inc., a publisher of newspapers.
Mrs. Brooks, age 49, served as President and Chief Executive Officer of the
Company from April 1994 until her resignation in February 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
material appearing in the Proxy Statement under the captions
"Management-Compensation of Executive Officers" and "Compensation of Directors."
Notwithstanding anything to the contrary herein, the Compensation Committee
Report and the Performance Graph in the Proxy Statement are not incorporated by
reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
table and related footnotes appearing in the Proxy Statement under the caption
"Class A and Class B Common Stock Ownership of Directors, Executive Officers and
5% Shareholders."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
material appearing in the Proxy Statement under the captions "Certain Employment
and Compensation Arrangements", "Certain Transactions" and "Compensation
Committee Interlocks and Insider Participation."
48
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.
<TABLE>
<C> <S>
14(a)(1) The following consolidated financial statements of Sotheby's
Holdings, Inc. and subsidiaries, are contained in Item 8:
Consolidated Statements of Income-Years ended December 31,
1999, 1998 and 1997; Consolidated Balance Sheets-December
31, 1999, 1998 and 1997; Consolidated Statements of Cash
Flows-Years ended December 31, 1999, 1998 and 1997;
Consolidated Statement of Changes in Shareholders'
Equity-Years ended December 31, 1999, 1998 and 1997; Notes
to Consolidated Financial Statements-December 31, 1999.
14(a)(2) The following is a list of the consolidated financial
statement schedules of Sotheby's Holdings, Inc. and
subsidiaries and the Independent Auditors' Report required
by Item 14(d): Independent Auditors' Report on Financial
Statement Schedule Schedule II-Valuation and Qualifying
Accounts
14(a)(3)
1 Underwriting Agreement, dated as of February 2, 1999 among
Sotheby's Holdings, Inc., Morgan Stanley and Co.
Incorporated, Chase Securities Inc. and Merrill Lynch,
Pierce, Fenner and Smith Incorporated, incorporated by
reference to Exhibit 1 to the current report on Form 8-K,
filed on February 10, 1999 with the Securities and Exchange
Commission.
3(a) Amended and Restated Articles of Incorporation of Sotheby's
Holdings, Inc., as amended, incorporated by reference to
Exhibit 4(b) to Registration Statement No. 33-26008, SEC
File No. 1-9750, on file at the Washington D.C. office of
the Securities and Exchange Commission.
3(b) Restated By-Laws of Sotheby's Holdings, Inc., as amended,
through February 24, 2000.
4(a) See Exhibits 3(a) and 3(b).
4(b) Indenture, dated as of February 5, 1999, between Sotheby's
Holdings Inc. and The Chase Manhattan Bank as Trustee,
incorporated by reference to Exhibit 4(a) to the current
report on Form 8-K, filed on February 10, 1999 with the
Securities and Exchange Commission.
4(c) Fixed Rate Note, dated February 5, 1999, made by Sotheby's
Holdings, Inc. in favor of Cede & Co., incorporated by
reference to Exhibit 4(b) to the current report on Form 8-K,
filed on February 10, 1999 with the Securities and Exchange
Commission.
10(a) Issuing and Paying Agency Agreement, dated February 15,
1989, between Sotheby's, Inc. and The Chase Manhattan Bank,
N.A. relating to the issuance of short-term notes ("U.S.
Notes") in the U.S. Commercial Paper market, incorporated by
reference to Exhibit 10(g) to the 1988 Form 10-K, SEC File
No. 1-9750, on file at the Washington, D.C. office of the
Securities and Exchange Commission.
10(b) U.S. Commercial Paper Dealer Agreement, dated July 29, 1998,
between Sotheby's, Inc., Sotheby's Holdings, Inc. and Chase
Securities Inc. relating to the issuance of the U.S. Notes,
incorporated by reference to Exhibit 10(a) to the Third
Quarter Form 10-Q for 1998.
10(c) U.S. Commercial Paper Dealer Agreement, dated February 15,
1989, between Sotheby's, Inc. and Merrill Lynch Money
Markets, Inc. relating to the issuance of the U.S. Notes,
incorporated by reference to the Exhibit 10(i) of the 1988
Form 10-K, SEC File No. 1-9750, on file at the Washington,
D.C. office of the Securities and Exchange Commission.
</TABLE>
49
<PAGE>
<TABLE>
<C> <S>
10(d) Amendment, dated July 13, 1998, to U.S. Commercial Paper
Dealer Agreement, dated February 15, 1989, between
Sotheby's, Inc., and Merrill Lynch Money Markets Inc.
relating to the issuance of the U.S. Notes, incorporated by
reference to Exhibit 10(b) to the Third Quarter Form 10-Q
for 1998.
10(e) Lease, dated as of July 25, 1979, among The Benenson Capital
Company, Lawrence A. Benenson, Raymond E. Benenson
(collectively, "Benenson") to Sotheby Parke Bernet Inc., and
amendments thereto, all relating to 1334 York Avenue, New
York, New York (the "York Avenue Property"), incorporated by
reference to Exhibit 10(g) to Registration Statement No.
33-17667, SEC File No. 1-9750, on file at the Washington
D.C. office of the Securities and Exchange Commission
("Registration Statement No. 33-17667").
10(f) Option Agreement with Form of Exchange Agreement, dated July
25, 1979, among Benenson and 089 Nosidam Corp. (as nominee
of Sotheby Parke Bernet Inc.) assignments thereof and
amendments thereto, all relating to the York Avenue
Property, incorporated by reference to Exhibit 10(h) to
Registration Statement No. 33-17667.
10(g) Exchange Agreement, dated October 27, 1986, among Benenson
and York Avenue Development, Inc., and Letter, dated October
27, 1986, from Benenson to Sotheby's, Inc. and York Avenue
Development, Inc., concerning zoning matters and security
relating to the York Avenue Property, incorporated by
reference to Exhibit 10(i) to Registration Statement No.
33-17667.
10(h) Guarantee, made November 6, 1986, by A. Alfred Taubman in
favor of Benenson relating to the York Avenue Property (the
"Taubman Guarantee"), incorporated by reference to Exhibit
10(j) to Registration Statement No. 33-17667.
10(i) Letter from Sotheby's, Inc. and York Avenue Development,
Inc., dated October 27, 1986, agreeing to indemnify A.
Alfred Taubman from all liabilities, damages, losses and
judgments arising under the Taubman Guarantee, incorporated
by reference to Exhibit 10(k) to Registration Statement No.
33-17667.
10(j) Memorandum of Option Agreement, dated January 31, 1981,
among Benenson and 089 Nosidam Corp., relating to the York
Avenue Property, incorporated by reference to Exhibit 10(hh)
to Registration Statement No. 33-17667.
10(k) Letter Agreement, dated October 27, 1986, among Benenson and
York Avenue Development, Inc. relating to the York Avenue
Property, incorporated by reference to Exhibit 10(ii) to
Registration Statement No. 33-17667.
10(l) Agreement of Sale and Purchase, dated as of September 9,
1999, between Benenson and York Avenue Development, Inc.,
for the York Property.
10(m) Assignment and Assumption of Agreement of Sale and Purchase,
dated as of September 9, 1999, between York Avenue
Development, Inc. and Sotheby's, Inc.
10(n) Guaranty, dated September 9, 1999, made by Sotheby's
Holdings, Inc. in favor of Benenson.
10(o)* Sotheby's Inc. 1988 Benefit Equalization Plan, incorporated
by reference to Exhibit 10(t) to Registration Statement No.
33-17667.
10(p)* Sotheby's Holdings, Inc. 1987 Stock Option Plan as amended
and restated effective June 1, 1994 incorporated by
reference to Exhibit 10(o) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994 (the "1994
Form 10-K").
10(q)* Sotheby's Holdings, Inc. Performance Share Purchase Plan,
incorporated by reference to Exhibit 10(a) to the Second
Quarter Form 10-Q for 1996.
</TABLE>
50
<PAGE>
<TABLE>
<C> <S>
10(r)* Sotheby's Holdings, Inc. 1997 Stock Option Plan incorporated
herein by reference to Exhibit 10(b) to the Second Quarter
Form 10-Q for 1996.
10(s)* First Amendment to Sotheby's Holdings, Inc. 1997 Stock
Option Plan, dated September 30, 1997, and effective as of
December 12, 1997, incorporated by reference to Exhibit
10(o) of the 1997 Form 10-K.
10(t)* Second Amendment to Sotheby's Holdings, Inc. 1997 Stock
Option Plan, dated October 29, 1998.
10(u)* Third Amendment to Sotheby's Holdings, Inc. 1997 Stock
Option Plan, incorporated herein by reference to Exhibit
10(r) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 (the "1998 Form 10-K").
10(v) Agreement of Partnership of Acquavella Modern Art, dated May
29, 1990, between Sotheby's Nevada, Inc. and Acquavella
Contemporary Art, Inc., incorporated herein by reference to
Exhibit 10(b) to the Form 8-K, filed on June 7, 1990, SEC,
File No. 1-9750, on file at the Washington, D.C. office of
the Securities and Exchange Commission.
10(w)* Amended and Restated Sotheby's Holdings, Inc. Director Stock
Ownership Plan, incorporated herein by reference to Exhibit
10(v) to the 1996 Form 10-K.
10(x)* Sotheby's Holdings, Inc. 1998 Stock Compensation Plan for
Non-Employee Directors, dated as of March 3, 1998,
incorporated herein by reference to Exhibit 10(u) to the
1998 Form 10-K.
10(y) Amendment, dated as of April 19, 1991, between The Benenson
Capital Company, Lawrence A. Benenson and Raymond E.
Benenson and York Avenue Development, Inc. to Amendment to
Option Agreement and to Related Agreements, incorporated
herein by reference to Exhibit 10(kk) to the Company's
Annual Report on Form 10-K, for the year ended December 31,
1991, SEC File No. 1-9750, on file at the Washington D.C.
office of the Securities and Exchange Commission.
10(z) Amended and Restated Credit Agreement, dated as of
March 10, 2000, among Sotheby's Holdings, Inc., Sotheby's
Inc., Oatshare Limited, Sotheby's, the lenders named
therein, and The Chase Manhattan Bank.
(21) Subsidiaries of the Registrant
(23) Consent of Deloitte & Touche LLP
(24) Powers of Attorney
(27) Financial Data Schedule
(14)(b) Current Reports on Form 8-K: None.
(14)(c) The list of exhibits filed with this report is set forth in
response to Item 14(a)(3). The required exhibit index has
been filed with the exhibits.
(14)(d) The financial statement schedules of the Company listed in
response to Item 14(a)(2) are filed pursuant to this Item
14(d).
</TABLE>
- ------------------------
* A compensatory agreement or plan required to be filed pursuant to Item 14(c)
of Form 10-K
51
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
SOTHEBY'S HOLDINGS, INC.:
We have audited the consolidated financial statements of Sotheby's Holdings,
Inc. and subsidiaries as of December 31, 1999 and 1998, and for each of the
three years in the period ended December 31, 1999 and have issued our report
thereon dated February 24, 2000; such consolidated financial statements and
report are included elsewhere in this Form 10-K. Our audits also included the
consolidated financial statement schedule of Sotheby's Holdings, Inc. and
subsidiaries listed in Item 14. This consolidated financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
February 24, 2000
52
<PAGE>
SCHEDULE II
SOTHEBY'S HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------------- ---------- ----------------------- ---------- ----------
DESCRIPTION BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COST AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS PERIOD
- ----------------------------------------------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Valuation reserve deducted in the balance sheet
from the asset to which it applies:
Accounts and notes receivable:
1999 Allowance for doubtful accounts........... $14,585 $3,476 $1,858 $8,834 $11,085
1998 Allowance for doubtful accounts........... $10,419 $6,598 $ 285 $2,717 $14,585
1997 Allowance for doubtful accounts........... $10,156 $1,227 $1,811 $2,775 $10,419
Inventory:
1999 Realizable value allowance................ $ 9,422 $1,337 $ 186 $1,805 $ 9,140
1998 Realizable value allowance................ $15,726 $1,653 $ 855 $8,812 $ 9,422
1997 Realizable value allowance................ $16,799 $1,540 $ 262 $2,875 $15,726
</TABLE>
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
SOTHEBY'S HOLDINGS, INC.
By: /s/ WILLIAM F. RUPRECHT
-----------------------------------------
William F. Ruprecht
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DATE: March 14, 2000
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
- ----------------------- Chairman of the Board March 14, 2000
Michael I. Sovern
*
- ----------------------- Vice Chairman of the Board March 14, 2000
Max M. Fisher
*
- -----------------------
The Marquess Of Deputy Chairman of the Board March 14, 2000
Hartington
/s/ WILLIAM F.
RUPRECHT
- ----------------------- President, Chief Executive Officer and Director March 14, 2000
William F. Ruprecht
*
- ----------------------- Executive Vice President and Director March 14, 2000
Robin Woodhead
*
- ----------------------- Executive Vice President and Director March 14, 2000
Deborah Zoullas
*
- ----------------------- Director March 14, 2000
Conrad Black
*
- ----------------------- Director March 14, 2000
Michael Blakenham
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
- ----------------------- Director March 14, 2000
Diana D. Brooks
*
- ----------------------- Director March 14, 2000
Walter J. P. Curley
*
- ----------------------- Director March 14, 2000
Henry R. Kravis
*
- ----------------------- Director March 14, 2000
Jeffrey H. Miro
*
- -----------------------
Sharon Percy Director March 14, 2000
Rockefeller
*
- ----------------------- Director March 14, 2000
A. Alfred Taubman
/s/ WILLIAM S.
SHERIDAN Senior Vice President and Chief Financial
- ----------------------- Officer March 14, 2000
William S. Sheridan
/s/ JOSEPH A.
DOMONKOS Senior Vice President, Controller and Chief
- ----------------------- Accounting Officer March 14, 2000
Joseph A. Domonkos
/s/ WILLIAM S.
SHERIDAN
- ----------------------- March 14, 2000
*William S. Sheridan
AS ATTORNEY-IN-FACT
</TABLE>
55
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<C> <S>
1 Underwriting Agreement, dated as of February 2, 1999 among
Sotheby's Holdings, Inc., Morgan Stanley and Co.
Incorporated, Chase Securities Inc. and Merrill Lynch,
Pierce, Fenner and Smith Incorporated, incorporated by
reference to Exhibit 1 to the current report on Form 8-K,
filed on February 10, 1999 with the Securities and Exchange
Commission.
3(a) Amended and Restated Articles of Incorporation of Sotheby's
Holdings, Inc., as amended, incorporated by reference to
Exhibit 4(b) to Registration Statement No. 33-26008, SEC
File No. 1-9750, on file at the Washington D.C. office of
the Securities and Exchange Commission.
3(b) Restated By-Laws of Sotheby's Holdings, Inc., as amended,
through February 24, 2000.
4(a) See Exhibits 3(a) and 3(b).
4(b) Indenture, dated as of February 5, 1999, between Sotheby's
Holdings Inc. and The Chase Manhattan Bank as Trustee,
incorporated by reference to Exhibit 4(a) to the current
report on Form 8-K, filed on February 10, 1999 with the
Securities and Exchange Commission.
4(c) Fixed Rate Note, dated February 5, 1999, made by Sotheby's
Holdings, Inc. in favor of Cede & Co., incorporated by
reference to Exhibit 4(b) to the current report on
Form 8-K, filed on February 10, 1999 with the Securities and
Exchange Commission.
10(a) Issuing and Paying Agency Agreement, dated February 15,
1989, between Sotheby's, Inc. and The Chase Manhattan Bank,
N.A. relating to the issuance of short-term notes ("U.S.
Notes") in the U.S. Commercial Paper market, incorporated by
reference to Exhibit 10(g) to the 1988 Form 10-K, SEC File
No. 1-9750, on file at the Washington, D.C. office of the
Securities and Exchange Commission.
10(b) U.S. Commercial Paper Dealer Agreement, dated July 29, 1998,
between Sotheby's, Inc., Sotheby's Holdings, Inc. and Chase
Securities Inc. relating to the issuance of the U.S. Notes,
incorporated by reference to Exhibit 10(a) to the Third
Quarter Form 10-Q for 1998.
10(c) U.S. Commercial Paper Dealer Agreement, dated February 15,
1989, between Sotheby's, Inc. and Merrill Lynch Money
Markets, Inc. relating to the issuance of the U.S. Notes,
incorporated by reference to the Exhibit 10(i) of the 1988
Form 10-K, SEC File No. 1-9750, on file at the Washington,
D.C. office of the Securities and Exchange Commission.
10(d) Amendment, dated July 13, 1998, to U.S. Commercial Paper
Dealer Agreement, dated February 15, 1989, between
Sotheby's, Inc., and Merrill Lynch Money Markets Inc.
relating to the issuance of the U.S. Notes, incorporated by
reference to Exhibit 10(b) to the Third Quarter Form 10-Q
for 1998.
10(e) Lease, dated as of July 25, 1979, among The Benenson Capital
Company, Lawrence A. Benenson, Raymond E. Benenson
(collectively, "Benenson") to Sotheby Parke Bernet Inc., and
amendments thereto, all relating to 1334 York Avenue, New
York, New York (the "York Avenue Property"), incorporated by
reference to Exhibit 10(g) to Registration Statement No.
33-17667, SEC File No. 1-9750, on file at the Washington
D.C. office of the Securities and Exchange Commission
("Registration Statement No. 33-17667").
10(f) Option Agreement with Form of Exchange Agreement, dated July
25, 1979, among Benenson and 089 Nosidam Corp. (as nominee
of Sotheby Parke Bernet Inc.) assignments thereof and
amendments thereto, all relating to the York Avenue
Property, incorporated by reference to Exhibit 10(h) to
Registration Statement No. 33-17667.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<C> <S>
10(g) Exchange Agreement, dated October 27, 1986, among Benenson
and York Avenue Development, Inc., and Letter, dated October
27, 1986, from Benenson to Sotheby's, Inc. and York Avenue
Development, Inc., concerning zoning matters and security
relating to the York Avenue Property, incorporated by
reference to Exhibit 10(i) to Registration Statement No.
33-17667.
10(h) Guarantee, made November 6, 1986, by A. Alfred Taubman in
favor of Benenson relating to the York Avenue Property (the
"Taubman Guarantee"), incorporated by reference to
Exhibit 10(j) to Registration Statement No. 33-17667.
10(i) Letter from Sotheby's, Inc. and York Avenue Development,
Inc., dated October 27, 1986, agreeing to indemnify A.
Alfred Taubman from all liabilities, damages, losses and
judgments arising under the Taubman Guarantee, incorporated
by reference to Exhibit 10(k) to Registration Statement No.
33-17667.
10(j) Memorandum of Option Agreement, dated January 31, 1981,
among Benenson and 089 Nosidam Corp., relating to the York
Avenue Property, incorporated by reference to
Exhibit 10(hh) to Registration Statement No. 33-17667.
10(k) Letter Agreement, dated October 27, 1986, among Benenson and
York Avenue Development, Inc. relating to the York Avenue
Property, incorporated by reference to Exhibit 10(ii) to
Registration Statement No. 33-17667.
10(l) Agreement of Sale and Purchase, dated as of September 9,
1999, between Benenson and York Avenue Development, Inc.,
for the York Property.
10(m) Assignment and Assumption of Agreement of Sale and Purchase,
dated as of September 9, 1999, between York Avenue
Development, Inc. and Sotheby's, Inc.
10(n) Guaranty, dated September 9, 1999, made by Sotheby's
Holdings, Inc. in favor of Benenson.
10(o)* Sotheby's Inc. 1988 Benefit Equalization Plan, incorporated
by reference to Exhibit 10(t) to Registration Statement No.
33-17667.
10(p)* Sotheby's Holdings, Inc. 1987 Stock Option Plan as amended
and restated effective June 1, 1994 incorporated by
reference to Exhibit 10(o) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994 (the "1994
Form 10-K").
10(q)* Sotheby's Holdings, Inc. Performance Share Purchase Plan,
incorporated by reference to Exhibit 10(a) to the Second
Quarter Form 10-Q for 1996.
10(r)* Sotheby's Holdings, Inc. 1997 Stock Option Plan incorporated
herein by reference to Exhibit 10(b) to the Second Quarter
Form 10-Q for 1996.
10(s)* First Amendment to Sotheby's Holdings, Inc. 1997 Stock
Option Plan, dated September 30, 1997, and effective as of
December 12, 1997, incorporated by reference to
Exhibit 10(o) of the 1997 Form 10-K.
10(t)* Second Amendment to Sotheby's Holdings, Inc. 1997 Stock
Option Plan, dated October 29, 1998.
10(u)* Third Amendment to Sotheby's Holdings, Inc. 1997 Stock
Option Plan incorporated by herein by reference to
Exhibit 10(r) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 (the "1998
Form 10-K").
10(v) Agreement of Partnership of Acquavella Modern Art, dated May
29, 1990, between Sotheby's Nevada, Inc. and Acquavella
Contemporary Art, Inc., incorporated herein by reference to
Exhibit 10(b) to the Form 8-K, filed on June 7, 1990, SEC,
File No. 1-9750, on file at the Washington, D.C. office of
the Securities and Exchange Commission.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<C> <S>
10(w)* Amended and Restated Sotheby's Holdings, Inc. Director Stock
Ownership Plan, incorporated herein by reference to
Exhibit 10(u) to the 1998 Form 10-K.
10(x)* Sotheby's Holdings, Inc. 1998 Stock Compensation Plan for
Non-Employee Directors, dated as of March 3, 1998
incorporated herein by reference to Exhibit 10(u) the 1998
Form 10-K.
10(y) Amendment, dated as of April 19, 1991, between The Benenson
Capital Company, Lawrence A. Benenson and Raymond E.
Benenson and York Avenue Development, Inc. to Amendment to
Option Agreement and to Related Agreements, incorporated
herein by reference to Exhibit 10(kk) to the Company's
Annual Report on Form 10-K, for the year ended December 31,
1991, SEC File No. 1-9750, on file at the Washington D.C.
office of the Securities and Exchange Commission.
10(z) Amended and Restated Credit Agreement, dated as of
March 10, 2000, among Sotheby's Holdings, Inc., Sotheby's
Inc., Oatshare Limited, Sotheby's, the lenders named
therein, and The Chase Manhattan Bank.
(21) Subsidiaries of the Registrant
(23) Consent of Deloitte & Touche LLP
(24) Powers of Attorney
(27) Financial Data Schedule
</TABLE>
- ------------------------
* A compensatory agreement or plan required to be filed pursuant to Item 14(c)
of Form 10-K.
<PAGE>
Exhibit 3(b)
AMENDED AND RESTATED BY-LAWS
OF
SOTHEBY'S HOLDINGS, INC.
AS AMENDED
THROUGH FEBRUARY 24, 2000
<PAGE>
INDEX
TO
AMENDED AND RESTATED BY-LAWS
OF
SOTHEBY'S HOLDINGS, INC.
<TABLE>
<CAPTION>
Page
----
ARTICLE I - MEETINGS OF SHAREHOLDERS
<S> <C>
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......................................................................3
Section 1.11 Organization of Shareholders' Meetings........................................4
ARTICLE II - DETERMINATION OF VOTING, DIVIDEND, AND OTHER RIGHTS.........................................4
ARTICLE III - 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
Section 3.09 Resignations..................................................................7
Section 3.10 Vacancies.....................................................................7
Section 3.11 Organization of Board Meeting.................................................7
ARTICLE IV - ADVISORY COMMITTEE
ii
<PAGE>
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
ARTICLE V - COMMITTEES OF THE BOARD .....................................................................8
ARTICLE VI - 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....................................................10
Section 6.07 The President................................................................10
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..................................................11
Section 6.12 The Treasurer................................................................11
ARTICLE VII - INDEMNIFICATION
Section 7.01 Indemnification .............................................................11
Section 7.02 Advancement of Expenses......................................................12
Section 7.03 Indemnification: Insurance..................................................12
Section 7.04 Indemnification: Constituent Corporations...................................12
ARTICLE VIII - SHARE CERTIFICATES
Section 8.01 Form; Signature..............................................................13
Section 8.02 Transfer Agents and Registrars...............................................13
Section 8.03 Transfers of Shares..........................................................13
Section 8.04 Registered Shareholders......................................................14
Section 8.05 Lost Certificates............................................................14
ARTICLE IX
Section 9.01 Fiscal Year..................................................................14
Section 9.02 Signatures on Negotiable Instruments.........................................14
Section 9.03 Dividends....................................................................15
Section 9.04 Reserves.....................................................................15
Section 9.05 Seal.........................................................................15
Section 9.06 Corporation Offices..........................................................15
ARTICLE X - AMENDMENTS
Section 10.01 Power to Amend...............................................................16
iii
<PAGE>
ARTICLE XI - ELECTION NOT TO BE GOVERNED BY CHAPTER 7B
OF THE BUSINESS CORPORATION ACT............................................................16
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
SOTHEBY'S HOLDINGS, INC.
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.
<PAGE>
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.
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
2
<PAGE>
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 authorized 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, 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.
3
<PAGE>
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 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
4
<PAGE>
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 fifteen (15) 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 eight (8)
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 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
5
<PAGE>
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 bylaws, 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 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
6
<PAGE>
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
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.
7
<PAGE>
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 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
8
<PAGE>
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 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.
9
<PAGE>
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.
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
10
<PAGE>
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.
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
11
<PAGE>
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, 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 its employee. 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 be issued by
the corporation with the same effect as if he were such officer at the date of
issue.
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
12
<PAGE>
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.
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
13
<PAGE>
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.
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.
14
<PAGE>
Article X
AMENDMENTS
SECTION 10.01. POWER TO AMEND.
Except as otherwise specifically provided in the articles of incorporation,
these bylaws 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
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.
15
<PAGE>
AGREEMENT OF SALE AND PURCHASE
BETWEEN
THE BENENSON CAPITAL COMPANY,
LAWRENCE A. BENENSON AND RAYMOND E. BENENSON
SELLER
AND
YORK AVENUE DEVELOPMENT, INC.
PURCHASER
DATE: SEPTEMBER 9, 1999
PREMISES:
1334 YORK AVENUE
NEW YORK, NEW YORK
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I INCLUSIONS IN SALE AND EXCLUSIONS FROM SALE............1
ARTICLE 2 PURCHASE PRICE.........................................2
ARTICLE 3 REPRESENTATIONS AND WARRANTIES.........................3
ARTICLE 4 STATE OF TITLE OF PROPERTY.............................4
ARTICLE 5 TITLE INSURANCE AND ABILITY OF SELLER TO CONVEY........5
ARTICLE 6 CLOSING COSTS..........................................6
ARTICLE 7 INTENTIONALLY OMITTED..................................6
ARTICLE 8 INTENTIONALLY OMITTED..................................6
ARTICLE 9 ACKNOWLEDGMENTS OF PURCHASER;
CONDITION OF PROPERTY..................................7
ARTICLE 10 OPERATIONS PRIOR TO CLOSING............................8
ARTICLE 11 CASUALTY AND EMINENT DOMAIN............................8
ARTICLE 12 INTENTIONALLY OMITTED..................................9
ARTICLE 13 CLOSING ADJUSTMENTS....................................9
ARTICLE 14 CLOSING DOCUMENTS; OBLIGATIONS OF PURCHASER
AND SELLER AT CLOSING..................................9
ARTICLE 15 VIOLATIONS............................................11
ARTICLE 16 SALES TAX.............................................11
ARTICLE 17 UNPAID TAXES; LIENS OR ENCUMBRANCES...................12
ARTICLE 18 THE CLOSING...........................................12
ARTICLE 18A NOTICES...............................................13
ARTICLE 19 DEFAULTS; GUARANTY....................................14
<PAGE>
ARTICLE 20 CONDITIONS; SURVIVAL..................................15
ARTICLE 21 SUCCESSORS AND ASSIGNS................................16
ARTICLE 22 BROKERS...............................................16
ARTICLE 23 ESCROW........................................17
ARTICLE 24 MISCELLANEOUS.................................18
</TABLE>
EXHIBITS
Schedule A - Description of the Land
Schedule B - Permitted Encumbrances
Schedule C - FIRPTA Certificates
Schedule D - Guaranty of Sotheby's, Inc.
<PAGE>
AGREEMENT OF SALE AND PURCHASE (this "AGREEMENT") is made and entered
into as of September __, 1999, by and between THE BENENSON CAPITAL COMPANY, a
New York general partnership, having an office at 708 Third Avenue, 28th Floor,
New York, New York 10017, LAWRENCE A. BENENSON, residing at 866 United Nations
Plaza, New York, New York 10312 and RAYMOND E. BENENSON, residing at 1122
Ruffner Road, Niskayuna, New York 12309 (collectively "SELLER"), and YORK AVENUE
DEVELOPMENT, INC., a New York corporation, having an office at 1334 York Avenue,
New York, New York 10021 ("PURCHASER").
W I T N E S S E T H :
Seller hereby agrees to sell and convey to Purchaser, and Purchaser
hereby agrees to purchase from Seller, upon the terms and conditions hereinafter
set forth, the land and the buildings known as and located at 1334 York Avenue,
New York, New York (the "PROPERTY").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and subject to the terms,
provisions and conditions hereof, Seller and Purchaser hereby covenant and agree
as follows:
ARTICLE I
INCLUSIONS IN SALE AND EXCLUSIONS FROM SALE
1.1 The term "PROPERTY" shall mean the following:
1.1.1 The land described on SCHEDULE "A" annexed hereto (the
"LAND").
1.1.2 The building, structures and improvements, together with
the tenements, hereditaments and appurtenances thereto belonging or in any way
appertaining, now erected or situate on the Land (collectively, the "BUILDING").
1.1.3 All of Seller's right, title and interest, if any, in
and to the fixtures, equipment, machinery and personal property used in
connection with the operation of the Property and owned by Seller and not being
the property of Tenant (as hereinafter defined) or any other party.
1.1.4 All right, title and interest of Seller, if any, in and
to any land lying in the bed of any street, road or avenue, opened or proposed,
in front of or adjoining the Land, to the center line thereof, and any strips
and gores adjacent to the Land, and all right, title and interest of Seller, if
any, in and to any award made or to be made in lieu thereof and in and to any
unpaid award for damage to the Land and Building by reason of change of grade of
any street.
1
<PAGE>
1.1.5 All of Seller's interest, as lessor, in the lease
between Seller, as lessor, and Sotheby Park Bernet, Inc ("TENANT"), as lessee,
dated as of July 25, 1979 as the same may have been assigned and amended from
time to time to date (the "LEASE").
1.1.6 All right, title and interest of Seller, in and to any
easements, rights-of-way, interests, appurtenances and other rights of any
kind relating to or pertaining to the Land.
ARTICLE 2
PURCHASE PRICE
2.1 PURCHASE PRICE. The purchase price for the Property to be
paid by Purchaser to Seller shall be the amount of ELEVEN MILLION THREE HUNDRED
SIXTY EIGHT THOUSAND AND 00/100 ($11,368,000.00) DOLLARS (the "PURCHASE PRICE").
2.2 PAYMENT OF PURCHASE PRICE. Purchaser agrees to pay the
Purchase Price to Seller as follows:
2.2.1 DEPOSIT. ONE MILLION ONE HUNDRED THIRTY-SIX THOUSAND
EIGHT HUNDRED AND 00/100 ($1,136,800.00) DOLLARS (the "DEPOSIT") paid
simultaneously herewith by wire transfer of immediate clearance Federal Reserve
Funds (as such term is hereinafter defined in Section 2.2.2) to, at Seller's
direction, the escrow account of Goldfarb & Fleece or to Chicago Deferred
Exchange Corporation. The proceeds of the Deposit, and all interest accrued
thereon, shall be held in escrow and shall be payable in accordance with Article
23 hereof.
2.2.2 PAYMENT AT CLOSING. TEN MILLION TWO HUNDRED THIRTY-ONE
THOUSAND TWO HUNDRED AND 00/100 ($10,231,200.00) DOLLARS (the "CASH BALANCE")
shall be paid by Purchaser to Seller at the Closing. The Cash Balance shall be
paid by wire transfer of immediate clearance " Federal Reserve Funds" (as such
term is hereinafter defined) to such account and bank or other institution as
Seller may, in writing, designate, provided that Seller may designate on not
less than one (1) business day's prior notice that the Cash Balance be wire
transferred to not more than three (3) designated recipients. As used herein,
the term "FEDERAL RESERVE FUNDS" shall be deemed to mean the receipt by a bank
or banks or other institution in the continental United States designated by
Seller of U.S. dollars in form that does not require further clearance, and may
be applied at the direction of Seller by such recipient bank or banks or other
institution on the day of receipt of advice that such funds have been wire
transferred. The description of the manner in which such funds are to be
transmitted, and the number of designated recipients thereof, shall apply with
respect to the Cash Balance as well as to any other funds to be paid to Seller
hereunder, including, but not limited to, any funds to be paid to Seller as a
result of the adjustments to be made pursuant to Article 13 hereof.
2
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS OF SELLER. Seller hereby represents and
warrants to Purchaser that the following facts and conditions exist on the date
hereof.
3.1.1 THE LEASE. The Property is leased to Tenant pursuant to
the Lease, which is in full force and effect.
3.1.2 NO FOREIGN PERSON. Seller is not a "foreign person" as
such term is defined in Section 1445 of the Internal Revenue Code of 1954,
as amended (the "CODE").
3.2 AUTHORITY AND BINDING EFFECT; NO BREACH OR PROHIBITION. Each party
hereto represents to the other that each person or entity executing this
Agreement by or on behalf of the representing party has the authority to act on
its behalf, has been or will be duly authorized to act on its behalf, and that
the performance of this Agreement will not be in violation of its by-laws,
charter, operating, partnership or trust agreement, or any law, ordinance, rule,
regulation or order of any governmental body having jurisdiction, or the
provisions of any agreements to which it is a party or by the terms of which it
is bound, and, at the Closing, each party shall furnish to the other party and
to the "Title Company" (as such term is defined in Section 5.1 hereof),
reasonably satisfactory evidence of such authority and approval.
3.3 PURCHASER'S KNOWLEDGE; DISCLOSURE. To the extent that Purchaser
has, subsequent to the date hereof, actual knowledge of any default or any
misrepresentation or incorrect warranty of Seller made in this Agreement,
Purchaser shall promptly notify Seller of same. Reference is made to Section
20.1 hereof with respect to the effect of Purchaser's knowledge of any
misrepresentation or incorrect warranty at or before the Closing.
3.4 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. Purchaser
acknowledges that, except as expressly provided herein, neither Seller nor
anyone acting for or on behalf of Seller has made any representation, warranty,
or promise to Purchaser concerning (a) the physical aspects and conditions of
the Property or any portion of the Property, (b) the feasibility or desirability
of the purchase of the Property; (c) the market status, projected income from or
development expenses of the Property; (d) the Property's compliance or
non-compliance with any requirements of laws, or (e) any other matter whatsoever
with respect to the Property (except as contained herein), express or implied,
including, by way of description but not limitation, those of fitness for a
particular purpose, tenantability, habitability and use; and that all matters
concerning the Property are to be independently verified by Purchaser. Purchaser
acknowledges that, except as otherwise expressly provided in this Agreement, it
is purchasing the Property in its physical condition as of the Closing Date.
3
<PAGE>
3.5 RIGHT TO ADJOURN CLOSING. Seller shall have the right to
adjourn the Closing for up to sixty (60) days, for the purpose of curing any
default, misrepresentation or incorrect warranty.
ARTICLE 4
STATE OF TITLE OF PROPERTY
4.1 PERMITTED ENCUMBRANCES. Purchaser shall accept title to the
Property subject to the following (the "PERMITTED ENCUMBRANCES"):
4.1.1 The matters set forth in SCHEDULE B attached hereto and
made a part hereof.
4.1.2 In addition to the restrictive covenants referred to in
SCHEDULE B, such other covenants, restrictions, easements and agreements of
record, if any, affecting the Property, or any part thereof.
4.1.3 Any mechanic's lien or other lien which is the
obligation of the Tenant under the Lease to bond or remove of record.
4.1.4 Any exception to coverage by the Title Company, other
than a Permitted Encumbrance, provided that the Title Company insures same
against collection out of or enforcement against the Property.
4.1.5 Any easement or right of use created in favor of any
public utility company for electricity, steam, gas, telephone, water or other
service, and the right to install, use, maintain, repair and replace wires,
cables, terminal boxes, lines, service connections, poles, mains, facilities and
the like, upon, under and across the Property.
4.1.6 The printed exceptions contained in the form of title
insurance policy then issued by the Title Company which shall insure Purchaser's
title.
4.1.7 Possible lack of right to maintain vaults, fences
retaining walls, chutes, cornices and other installations encroaching beyond the
property line and possible variance between the record description and the tax
map.
4.1.8 Any state of facts an accurate survey or personal
inspection of the Property would disclose.
4.1.9 Liens, encumbrances or any other matters created or
suffered by Tenant including, but not limited to, those which are the
obligation of Tenant to pay, discharge, remove or comply with.
4
<PAGE>
4.1.10 Anything or matter arising, directly or indirectly,
out of, under or in connection with the Lease and which is the obligation or
responsibility of Tenant.
ARTICLE 5
TITLE INSURANCE AND ABILITY OF SELLER TO CONVEY
5.1 TITLE INSURANCE. Seller shall give and Purchaser shall accept a
title search as Chicago Title Insurance Company (the "TITLE COMPANY") will be
willing to insure subject only to the matters provided for in this Agreement.
Purchaser agrees to make, promptly after the signing hereof, application for a
title insurance report directly from the Title Company. Purchaser shall deliver
to Seller's attorneys, Goldfarb & Fleece, 345 Park Avenue, New York, New York
10154, Attention: Emanuel Lubin, Esq., not more than twenty (20) days from the
date hereof, a copy of the title report issued by Title Company together with a
written notice by Purchaser of any objections to title which are not Permitted
Encumbrances and which Purchaser is unwilling to waive. In the event Seller is
required or desires to remove any objection, but is unable to do so prior to the
Closing Date, Purchaser hereby grants to Seller a reasonable adjournment of the
Closing Date during which time Seller may attempt to remedy same for a period up
to one hundred twenty (120) days.
5.2 TITLE OBJECTIONS. (i) If there are any liens, charges,
easements, agreements of record, encumbrances or other objections to title
(collectively, "TITLE OBJECTIONS"), other than (x) the Permitted Encumbrances or
(y) Title Objections which Purchaser has waived or agreed to take title subject
to, which are not waived in accordance with the provisions of Section 5.1 which
were caused by, resulted from or arose out of a grant by Seller to any person or
entity of a mortgage or other security interest affecting the Property, or the
performance of work on behalf of Seller upon all or any portion of the Property,
then Seller shall remove such Title Objections. If Seller fails to remove any
Title Objection(s) in accordance with the provisions of the immediately
preceding sentence, Purchaser, nevertheless, may elect (at or prior to Closing)
to consummate the transaction provided for herein subject to any such Title
Objection(s) as may exist as of the Closing Date, with a credit allocated
against the Cash Balance payable at the Closing equal to the sum necessary to
remove such Title Objection(s), provided, however, if Purchaser makes such
election, Purchaser shall not be entitled to any other credit, nor shall Seller
bear any further liability, with respect to any such Title Objections(s). If
Purchaser shall not so elect, Purchaser may terminate this Agreement and (a)
Seller's sole liability thereafter shall be to cause the Deposit, together with
any interest earned thereon while in escrow, to be refunded to Purchaser, and,
upon the return of the Deposit and any such interest, this Agreement shall be
terminated and the parties hereto shall be relieved of all further obligations
and liability under this Agreement, other than with respect to the provisions of
this Agreement which expressly survive a termination of this Agreement and (b)
such termination shall not otherwise affect the Lease or the Option Agreement
dated July 25, 1979 between Seller as Optioner and 089 Nosidam Corp., as
Optionee, as the same may have been heretofore assigned and amended from time to
time to date (the "OPTION AGREEMENT").
5
<PAGE>
(ii)....If, at the time of the conveyance of
the Property, the Property is affected by or subject to the lien of unpaid
franchise taxes or New York City Corporation Business Taxes of any corporation
or trust in the chain of title, Purchaser shall take title subject thereto,
provided that the Title Company will insure against collection of such taxes out
of the Property without the payment of any additional premium therefor by
Purchaser.
5.3 NO FURTHER ACTION. Except as expressly set forth in Sections
5.1 and 5.2 hereof, nothing contained in this Agreement shall be deemed to
require Seller to take or bring any action or proceeding or any other steps to
remove any Title Objections, or to expend any moneys therefor, nor shall
Purchaser have any right of action against Seller, at law or in equity, for
Seller's inability to convey title in accordance with the terms of this
Agreement. However, Seller agrees to discharge any lien imposed on the Property
during the time Seller has owned the Property, which may be discharged by a
liquidated ascertainable sum of money and which is not a Permitted Encumbrance.
ARTICLE 6
CLOSING COSTS
6.1 PURCHASER'S OBLIGATIONS. Purchaser shall pay the costs of
examination of title and any owner's policy of title insurance to be issued
insuring Purchaser's title to the Property, as well as all other title charges,
survey fees, mortgage recording tax, if applicable, and any and all other costs
or expenses incident to the recordation of the Deed (as hereinafter defined).
6.2 SELLER'S OBLIGATIONS. Seller shall pay the following amounts
payable in connection with the delivery of the Deed:
(i) the amount imposed pursuant to Article 31 of the New
York State Tax Law; and
(ii) the amount due in connection with the Real Property
Transfer Tax imposed by Title 11 of Chapter 21 of the Administrative Code of the
City of New York.
ARTICLE 7
INTENTIONALLY OMITTED
ARTICLE 8
INTENTIONALLY OMITTED
6
<PAGE>
ARTICLE 9
ACKNOWLEDGMENTS OF PURCHASER; CONDITION OF PROPERTY
9.1 ANALYSIS AND EVALUATION OF THE PROPERTY. Purchaser acknowledges
that Purchaser has made its own analysis and evaluation of the Property, the
operation, the income potential, profits and expenses thereof, its condition and
all other matters affecting or relating to the transaction underlying this
Agreement as Purchaser deemed necessary, including, without limitation, the
layout, the Lease, square footage, rents, income, expenses and operation of the
Property. In entering into this Agreement, Purchaser has not been induced by,
and has not relied upon any, representations, warranties, statements or
covenants, express or implied, made by Seller or any agent, employee or other
representative of Seller which are not expressly set forth in this Agreement.
9.2 NO EFFECT ON PURCHASER'S OBLIGATIONS. Purchaser further
acknowledges that its covenants, agreements and obligations under this Agreement
shall not be excused or modified by: (i) the business or financial condition of
Tenant, (ii) the physical condition of the Building or personal property, or its
fitness, merchantability or suitability for any use or purpose, (iii) rents,
income or expenses of the Property, (iv) the compliance or non-compliance of the
Property with any laws, codes, ordinances, rules or regulations of any
Governmental Authority and any violations thereof existing or subsequently
imposed, (v) the environmental condition of the Property or the Property's
compliance or non-compliance with any laws, codes, ordinances, rules or
regulations or any Governmental Authority relating to the presence, use,
storage, handling or removal of any hazardous substances, (vi) the current or
future use of the Property, including, but not limited to, the Property's use
for commercial, retail, industrial or other purposes, (vii) the current or
future real estate tax liability, assessment or valuation of the Property,
(viii) the availability or nonavailability or any benefits conferred by Federal,
state or municipal laws, whether for subsidiaries, special real estate treatment
or other benefits of any kind, (ix) the availability or unavailability of any
licenses, permits, approvals or certificates which may be required in connection
with the operation of the Property, (x) the compliance or non-compliance of the
Property, in its current zoning or a variance with respect to the Property's
non-compliance, if any, with any zoning ordinances, except as herein
specifically set forth, or (xi) the conformity of the use of the Property with
any certificate of occupancy.
9.3 NO OTHER REPRESENTATIONS. Purchaser hereby expressly
acknowledges that, except as expressly provided in Section 3.1, neither Seller
nor anyone acting for or on behalf of Seller has made any representation,
warranty, or promise to Purchaser concerning any of the foregoing, nor: (a) the
physical aspect and condition of any portion of the Property; (b) the
feasibility or desirability of the purchase of the Property; (c) the market
status, projected income from or development expenses for the Property; or (d)
any other matter whatsoever with respect to the Property (except as contained
herein), express or implied, including by way of description, but not
limitation, those of fitness for a particular purpose, tenantability,
habitability and use, and that all matters concerning
7
<PAGE>
the Property have been independently verified by Purchaser. Purchaser
acknowledges and agrees to take the Property "as is", in its physical condition
and state of repair as of the Closing Date.
9.4 OUTSIDE REPRESENTATIONS. Seller is not liable or bound in any
manner by any verbal or written statements, representations, real estate
"set-ups," offering memorandum or information pertaining to the Property or its
physical condition, layout, the Lease, footage, rents, income, expenses,
operation or any other matter or thing furnished by any agent, employee,
servant, or any other person, unless specifically set forth in this Agreement.
Purchaser hereby waives, to the extent permitted by law, any and all implied
warranties.
9.5 ENVIRONMENTAL INVESTIGATION OF THE PROPERTY. Purchaser
acknowledges that it has had an opportunity to conduct its own environmental
investigation of the Property. Purchaser is aware of the environmental
conditions affecting or related to the Property and Purchaser agrees to take the
Property subject to such conditions. Purchaser agrees to assume all
environmental costs and liabilities arising out of or in any way connected to
the Property and the condition thereof. Purchaser agrees to indemnify Seller
from any obligation to pay any such costs and liabilities and to indemnify and
hold harmless Seller from and against any and all claims, demands, payments,
losses, costs and expenses, including attorneys' fees, relating to any such
investigation or condition as well as any such costs and liabilities. The
provisions of this Section 9.5 shall survive the Closing.
ARTICLE 10
OPERATIONS PRIOR TO CLOSING
10.1 CONTINUED OPERATION. Purchaser acknowledges that the Property
is leased to Tenant pursuant to the Lease and, accordingly, Tenant, and not
Seller, has control over and operates the Property.
ARTICLE 11
CASUALTY AND EMINENT DOMAIN
11.1 CASUALTY. Restoration of any damage or destruction to the Property
or any part thereof due to fire or other casualty shall not affect the Purchase
Price or the Closing hereunder or any other rights or obligations of the parties
under this Agreement. Provided Closing occurs, Seller agrees to deliver to
Purchaser any proceeds of insurance actually received by Seller in connection
with any such fire or casualty.
8
<PAGE>
11.2 EMINENT DOMAIN. In the event of condemnation of the Property
or any part thereof between the date hereof and the Closing Date, such
condemnation shall not affect the Purchase Price or the Closing hereunder or any
other rights or obligations of the parties under this Agreement, provided,
however, so long as Closing occurs, Purchaser shall be entitled to any and all
awards then or thereafter made in condemnation proceeding and Seller shall
assign, or in the case of any award previously made, deliver to Purchaser at
Closing, such award as may be made or all rights thereto.
11.3. SURVIVAL. This Article 11 shall survive the Closing and is
intended to be an express provision to the contrary within the meaning of
Section 5-1311 of the General Obligations Law.
ARTICLE 12
INTENTIONALLY OMITTED
ARTICLE 13
CLOSING ADJUSTMENTS
13.1 ADJUSTMENTS AND PRORATIONS. The following matters and items
shall be apportioned or adjusted between the parties hereto at the closing of
title to the Property pursuant to this Agreement (the "Closing"), as of 12:01.
A.M. on the day of the Closing.
13.1.1 BASIC RENT. Basic Rent paid or payable by Tenant
under the Lease shall be adjusted and prorated.
13.2. OTHER. Except as otherwise provided in this Agreement,
the customs regarding title closings, as recommended by The Real Estate Board
of New York, Inc., shall apply to all apportionments.
ARTICLE 14
CLOSING DOCUMENTS; OBLIGATIONS OF PURCHASER
AND SELLER AT CLOSING
9
<PAGE>
14.1 SELLER'S OBLIGATION TO CLOSE. In the event of a default by
Tenant under the Lease and the termination of the Lease as a result thereof
prior to Closing, this Agreement shall immediately expire upon such termination
of the Lease and, thereupon, the rights and privileges of Purchaser hereunder
shall be null and void and Seller shall have no obligation of any kind or nature
whatsoever to Purchaser hereunder except that, so long as (i) Purchaser is not
otherwise in default of any of its obligations hereunder and (ii) Seller is not
entitled to a refund of the Deposit and any interest thereon pursuant to any
provision of this Agreement, the Deposit and any interest thereon shall be
returned to Purchaser. Upon the return of the Deposit and any such interest, the
parties hereto shall be relieved of all further obligations and liability under
this Agreement other than with respect to provisions of this Agreement which
expressly survive a termination of this Agreement including, but not limited to,
the next succeeding sentence of this Section 14.1. At the request of Seller,
Purchaser will execute and deliver to Seller a written statement, in recordable
form, that this Agreement is null and void.
14.2 SELLER'S OBLIGATIONS AT CLOSING. On the Closing Date, Seller
shall deliver or cause to be delivered to Purchaser the following:
14.2.1 A bargain and sale deed without covenant conveying
title to the Property (which deed shall not contain the covenant required by
Section 13 of the Lien Law) (the "Deed").
14.2.2 A letter to Tenant advising Tenant of the change of
ownership of the Property (the "Tenant Notice Letter"), and Purchaser agrees
to deliver the Tenant Notice Letter to Tenant promptly after the Closing.
14.2.3 Evidence reasonably acceptable to the Title Company
authorizing the consummation by Seller of the transaction contemplated by this
Agreement, and the execution and delivery of documents on behalf of Seller.
14.2.4 The certificate with respect to FIRPTA compliance in
the form of SCHEDULE C annexed hereto.
14.2.5 The New York City Department of Finance Real Property
Transfer Tax Return (the "RPT Return") and the New York State Combined Real
Estate Transfer Tax Return and Credit Line Mortgage Certificate
(the "Form TP-584").
14.2.6 A release of the Escrow Agent from its duties, if
applicable, and direction to disburse the Deposit, together with interest
thereon, to Seller.
14.2.7 Such other documents as may be reasonably and
customarily required by the Title Company to consummate the transaction
contemplated by this Agreement.
14.3 PURCHASER'S OBLIGATIONS AT CLOSING. Purchaser shall deliver or
cause to be delivered to Seller on the Closing Date the following:
10
<PAGE>
14.3.1 The Cash Balance.
14.3.2 Duplicate originals of the RPT Return, Form TP-584 and
the Tenant Notice Letter.
14.3.3 Evidence reasonably acceptable to Seller and the Title
Company authorizing the consummation by Purchaser of the transaction which is
the subject of this Agreement, and the execution and delivery of documents on
behalf of Purchaser.
14.3.4 A release of the Escrow Agent from its duties, if
applicable, and direction to disburse the Deposit, together with interest
thereon to, or as directed by, Seller.
14.3.5 Such other documents as may be reasonably and
customarily required by the Title Company to consummate the transaction
contemplated by this Agreement.
ARTICLE 15
VIOLATIONS
15.1 Without limiting the generality of the provisions of this
Article 15, Purchaser agrees to purchase the Property subject to any and all
notes or notices of violations of law, ordinances, orders or requirements
whatsoever noted in or issued by any federal, state, municipal or other
governmental department, agency or bureau, or any other Governmental Authority
having jurisdiction over the Property (individually, a "Violation",
collectively, "Violations"), or any lien imposed in connection with any of the
foregoing, or any condition or state of repair or disrepair or other matter or
thing, whether or not noted, which, if noted, would result in a Violation being
placed on the Property. Seller shall have no duty to remove or comply with or
repair any condition, matter or thing, whether or not noted, which, if noted,
would result in a Violation being placed on the Property. Seller shall have no
duty to remove or comply with or repair any of the aforementioned Violations,
liens or other conditions, and Purchaser shall accept the Property subject to
all such Violations and liens, the existence of any conditions at the Property
which would give rise to such Violations or liens, if any, and any governmental
claims arising from the existence of such Violations and liens, in each case
without any abatement of or credit against the Purchase Price.
ARTICLE 16
SALES TAX
16.1 Although it is not anticipated by the parties that any sales
tax shall be due and payable, Purchaser agrees that Purchaser shall pay any
sales tax assessed in connection with the sale of the Property to Purchaser and
save, defend, indemnify and hold Seller harmless from and against
11
<PAGE>
any and all liability for any sales tax which may now or hereafter be imposed
upon Seller or the Property with respect to the sale of any personal property.
The parties hereto agree that no part of the Purchase Price is attributable to
personal property. The provisions of this Section shall survive the Closing.
ARTICLE 17
UNPAID TAXES; LIENS OR ENCUMBRANCES
17.1. Seller may use any portion of the Cash Balance to satisfy any
liens or encumbrances which exist on the Closing Date which are not Permitted
Encumbrances, provided that Seller delivers to Purchaser at Closing instruments
in recordable form sufficient to satisfy such liens and encumbrances of record,
together with the cost of recording or filing said instruments, or pay such sums
or perform such acts as will enable the Title Company to insure Purchaser that
such lien(s) will not be collected out of the Property, or deposit with
Purchaser's attorneys reasonably sufficient funds to enable Purchaser's
attorneys to obtain and record such instruments.
17.2. If Seller requests within a reasonable time prior to the
Closing Date, Purchaser agrees to provide at the Closing separate certified
checks or official cashier's checks, which in the aggregate equal the amount of
the Cash Balance, in order to pay the amounts payable by Seller pursuant to
Section 6.2 hereof.
ARTICLE 18
THE CLOSING
18.1 THE CLOSING. The sale and purchase of the Property
contemplated by the terms and conditions of this Agreement shall, subject to the
provisions of this Agreement including, but not limited to, Section 14.1 hereof,
be consummated at the Closing.
18.1.1 LOCATION AND DATE OF CLOSING. (a) The Closing shall
occur on January 31, 2000 (the "Closing Date") and shall take place at the
offices of Seller's attorneys, Goldfarb & Fleece, 345 Park Avenue, New York, New
York at 10:00 A.M., on the Closing Date.
(b) Seller shall have the right to extend the
Closing Date to May 1, 2000 by notice given to Purchaser no later than
January 21, 2000.
(c) Provided Seller shall have extended the
Closing Date pursuant to the provisions of subparagraph (b) hereof, Seller
shall have the further right to again extend the Closing Date to July 31,
2000 by notice given to Purchaser no later than April 21, 2000.
12
<PAGE>
(d) Notwithstanding the provisions of the preceding
subparagraphs (a), (b), (c) and (d) hereof, Seller, shall have the right to
accelerate the Closing Date to any date after the date which shall be thirty
(30) days following the date of this Agreement by notice given to Purchaser at
least fifteen (15) days prior to the date fixed in such notice.
18.1.2 DELIVERY OF DOCUMENTS. At the Closing, the closing
documents referred to in Section 14.1 shall be delivered to Purchaser upon
Seller's receipt of the payments provided for in Article 2, and the delivery of
the documents referred to in Section 14.2.
18.2 BUSINESS DAY. For purposes of this Agreement, the term
"Business Day" shall mean all days except Saturdays, Sundays, and all days
observed by the Federal Government or New York State as legal holidays.
ARTICLE 18A
NOTICES
18.A.1 Except as otherwise provided in this Agreement, any
and all notices, elections, demands, requests and responses permitted or
required to be given pursuant to this Agreement shall be in writing, signed by
the party giving the same or by its attorneys, and shall be deemed to have been
duly given and effective upon being: (i) personally delivered with receipt for
delivery; or (ii) deposited with a nationally recognized express overnight
delivery service (e.g., Federal Express) for next Business Day delivery with
receipt for delivery; or (iii) deposited in the United States mail, postage
prepaid, certified with return receipt requested, to the other party at the
address of such other party set forth below, or at such other address within the
continental United States as may be designated by a notice of change of address
and given in accordance herewith. The time period in which a response to any
such notice, election, demand or request must be given shall commence on the
date of receipt thereof. Personal delivery to a party or to any officer,
partner, agent or employee of such party at said address shall be deemed given
and received at the time delivered. Rejection or other refusal to accept, or
inability to deliver because of changed address of which no notice has been
received, shall also constitute receipt. Any such notice, election, demand,
request or response shall be addressed to the respective parties as follows:
(i) if to Seller, to
The Benenson Capital Company,
Lawrence A. Benenson and Raymond E. Benenson
708 Third Avenue, 28th Floor
New York, New York10017
Attention: Richard Kessler
with a copy by like manner to:
13
<PAGE>
Goldfarb & Fleece
345 Park Avenue
New York, New York 10154
Attention: Emanuel Lubin, Esq.
(ii) if to Purchaser, to:
York Avenue Development, Inc.
1334 York Avenue
New York, New York 10021
Attention: Ms Karen S. Schuster
with a copy by like manner to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attention: Susanna S. Fodor, Esq.
Any notice executed or received by Goldfarb & Fleece, Esqs., Attention:
Emanuel Lubin, Esq., 345 Park Avenue, New York, New York 10154, Attorneys for
Seller, or Jones, Day, Reavis & Pogue, Esqs., Attention: Susanna S. Fodor, Esq.,
Attorneys for Purchaser, shall have the same force and effect as though signed
or received by the principal.
ARTICLE 19
DEFAULTS; GUARANTY
19.1 PURCHASER'S DEFAULT. If Purchaser is in default after
five (5) days written notice thereof from Seller of any of the terms or
conditions of this Agreement on its part to be kept and performed or fails to
accept title and pay the Cash Balance in accordance with this Agreement, (i) the
Deposit, together with all interest accrued thereon, if any, shall be refunded
to Seller, (ii) Seller may pursue against Purchaser an action or actions for
specific performance and for such other relief, legal or equitable, as Seller
deems appropriate, (iii) Purchaser shall be liable to Seller for any and all
losses, costs, damages and expenses, including attorneys' fees, incurred by
Seller and arising, directly or indirectly, out of, under or in connection with
any such default or failure, and (iv) the Option Agreement shall thereupon be
null and void and of no further force or effect, but such termination shall not
otherwise affect the Lease.
19.2. GUARANTY. As a material inducement for Seller to enter into
this Agreement, Purchaser will deliver to Seller, upon the execution hereof, a
guaranty (the "Guaranty") of Sotheby's Holdings, Inc., a Michigan corporation
(the "GUARANTOR") in the form annexed hereto as SCHEDULE D.
14
<PAGE>
19.3 SELLER'S DEFAULT. Reference is hereby made to Sections 20.1
and 20.2 hereof for Purchaser's exclusive remedies in the event of a breach of
representation or failure to perform any provision set forth in this Agreement
on the part of Seller. If Seller shall default in the performance of its
obligations hereunder, whether or not Purchaser shall have elected to accept
title in accordance with the provisions of Section 5.2 hereof, then Purchaser's
sole remedy shall be either to (i) terminate this Agreement and receive a refund
of the Deposit together with any interest accrued thereon, together with the
cost of title examination charged by the Title Company, without the issuance of
a title insurance policy, or (ii) bring an action for specific performance of
Seller's obligations under this Agreement, provided, however, that if Purchase
shall not have commenced such action within a period of ninety (90) days
following the date scheduled for Closing hereunder, Purchaser shall be deemed to
have waived its right to proceed under this clause (ii) and shall be deemed
instead to have elected the remedy provided for in clause (i) of this sentence.
If Purchaser shall terminate this Agreement under subdivision (i) above, such
termination shall not otherwise affect the Lease or the Option Agreement.
ARTICLE 20
CONDITIONS; SURVIVAL
20.1 CONDITIONS. (a) If Purchaser has actual knowledge, or should
have actual knowledge by inspection of the Property or of the public records at
or before the Closing, that (i) any representation of Seller hereunder is
untrue, as of the date represented, or (ii) Seller has failed to perform,
observe or comply with any covenant, agreement or condition on Seller's part to
be performed hereunder, Purchaser shall notify Seller of such within five (5)
days after discovery by Purchaser. Purchaser's failure to so notify Seller shall
be deemed to constitute Purchaser's waiver of same as a condition to Closing and
otherwise.
(b) In the event that (A) any of Seller's representations made
in Section 3.1 are not true as of the date of this Agreement (and for the
purposes hereof, a representation shall be untrue only if factually untrue and
having a material and materially adverse business or legal impact on Purchaser),
and (B) Purchaser has actual knowledge, or should have actual knowledge by
inspection of the Property or of the public records at or before the Closing,
that any of Seller's representations referred to in clause (A) of this sentence
are untrue, then Purchaser's sole remedy shall be either to pursue the
provisions of subdivision (i) or (ii) in Section 19.3 hereof. If Purchaser shall
terminate this Agreement under subdivision (i) such termination shall not
otherwise affect the Lease or the Option Agreement.
20.2 SURVIVAL. Except as specifically set forth to the contrary in
this Agreement, none of the representations, warranties, covenants, indemnities,
agreements, obligations or commitments made by Seller in this Agreement shall
survive the Closing, the same being merged in the conveyance.
15
<PAGE>
ARTICLE 21
SUCCESSORS AND ASSIGNS
21.1 ASSIGNMENT. Neither this Agreement nor any of the rights of
Purchaser hereunder (nor the benefits of such rights) may be assigned,
transferred or encumbered without Seller's prior written consent, which consent
may be granted or denied in Seller's sole and absolute discretion, and any
purported assignment, transfer or encumbrance without Seller's prior written
consent shall be void. Notwithstanding the foregoing, Purchaser may assign this
Agreement to any Affiliate of Purchaser as such term "Affiliate" is defined in
Paragraph Third of the Option Agreement, provided that a duplicate original of
such Assignment, executed and acknowledged by Purchaser and Assignee, which
shall provide that Assignee shall agree to observe and perform all of the terms
and provisions of this Agreement on the part of Purchaser to be observed and
performed, shall be delivered to Seller, at least ten (10) business days prior
to the Closing Date.
ARTICLE 22
BROKERS
22.1 PURCHASER'S REPRESENTATION. Purchaser represents and warrants
to Seller that it has not dealt with any broker, finder or consultant in
connection with the transaction which is the subject of this Agreement.
Purchaser further represents and warrants that in the event any claim is made
against Seller for a broker's, finder's or consultant's commission or fee by
anyone as a result of any acts or actions, claimed acts or actions of Purchaser
or its representatives with respect to the within transaction, Purchaser, its
heirs, successors and assigns do hereby agree to indemnify and hold Seller
harmless from any and all loss, liability, cost, damage or expense with respect
to such claims (including, without limitation, reasonable attorneys' fees and
disbursements) without any charge or cost to Seller. This Section shall survive
the Closing or earlier termination of this Agreement.
16
<PAGE>
ARTICLE 23
ESCROW
23.1. DESIGNATION OF ESCROW AGENT. The parties hereto have mutually
requested that Goldfarb & Fleece ("G&F"), to act as escrow agent (the "ESCROW
AGENT") for the purpose of holding the Deposit in accordance with the terms of
this Agreement. Purchaser recognizes that G&F represents Seller herein and, if
it acts as Escrow Agent, has agreed to act as Escrow Agent as an accommodation
to both parties hereto. Purchaser further acknowledges and agrees that in the
event of any dispute between the parties to this Agreement, G&F shall be free to
continue its representation of Seller with regard to these matters.
23.2. ESCROW OF DEPOSIT. The proceeds of the Deposit shall be held by
the Escrow Agent until the Closing or sooner termination of this Agreement and
Escrow Agent shall pay over the interest or income earned thereon, if any, to
the party entitled to the ESCROW DEPOSIT (as hereinafter defined) and the party
receiving such interest or income shall pay any income taxes due thereon. The
proceeds of the Deposit are sometimes referred to herein as the "ESCROWED
PROCEEDS" and the Escrowed Proceeds, together with any interest or income earned
thereon, if any, are sometimes referred to herein as the "ESCROW DEPOSIT". In
the event the Closing shall occur in accordance with the provisions of this
Agreement, then, Seller and Purchaser shall deliver to Escrow Agent written
instructions directing Escrow Agent to deliver the Escrow Deposit to Seller or
an institution designated by Seller. If for any reason the Closing does not
occur pursuant to the provisions of this Agreement and either party makes a
written demand upon Escrow Agent, for payment of the Escrow Deposit, then Escrow
Agent shall give written notice, in accordance with the provisions of this
Agreement to the other party of such demand. If Escrow Agent does not receive a
written objection from the other party to the proposed payment of the Escrow
Deposit pursuant to the aforesaid demand within ten (10) days after the delivery
of such notice by Escrow Agent, Escrow Agent is hereby authorized to make such
payment in accordance with the aforesaid demand. If Escrow Agent receives
written objection from the other party to the proposed payment of the Escrow
Deposit pursuant to the aforesaid demand within such ten (10) day period or if
for any other reason Escrow Agent in good faith shall elect not to make such
payment, Escrow Agent shall continue to hold the Escrow Deposit until otherwise
directed by written instructions from Seller and Purchaser or a final judgment
or a court of competent jurisdiction. Escrow Agent, however, shall have the
right at any time to deposit the Escrow Deposit with the clerk of any court of
competent jurisdiction in the State of New York, and Escrow Agent shall give
written notice of such deposit to Seller and Purchaser, and upon such deposit
being made, Escrow Agent shall be discharged from all obligations and
responsibilities hereunder. The parties acknowledge that Escrow Agent is acting
solely as a stakeholder at their request and for their convenience, that Escrow
Agent may act upon any writing believed by it in good faith to be genuine and to
be signed and presented by the proper person and the Escrow Agent shall not be
deemed to be the agent of either of the parties, and that Escrow Agent shall not
be liable to either of the parties for any act or omission on its part unless
taken or suffered in bad faith, in willful disregard of this contract or
involving gross negligence. Escrow Agent shall have no duties or
responsibilities except as set
17
<PAGE>
forth herein. Escrow Agent shall not be bound by any modification of the
Agreement unless the same is in writing and signed by Purchaser and Seller and
if Escrow Agent's duties hereunder are affected, unless Escrow Agent shall have
given prior written consent thereto. Seller and Purchaser shall jointly and
severally indemnify and hold Escrow Agent harmless from and against all costs,
claims and expenses, including reasonable attorneys' fees, incurred in
connection with the performance of Escrow Agent's duties hereunder, except with
respect to actions or omissions taken or suffered by Escrow Agent in bad faith,
in willful disregard of this Agreement or involving gross negligence on the part
of Escrow Agent. If the Escrow Deposit shall not earn any interest or income, or
if no interest or income shall be paid thereon by reason of the withdrawal of
proceeds, or part thereof, under the provisions of this Agreement or before
interest shall be earned or credited, or during any period of reasonable delay
in opening the account, Escrow Agent shall not be liable by reason thereof.
ARTICLE 24
MISCELLANEOUS
24.1 TAX FREE EXCHANGE. Purchaser acknowledges that Seller or one or
more of the parties comprising Seller may structure this transaction as a tax
free exchange under IRC Section 1031 and agrees to execute such documents as
such Seller may reasonably request in connection therewith. This provision shall
survive Closing.
24.2 MERGER. This Agreement constitutes the entire understanding
between the parties with respect to the transaction contemplated herein, and all
prior or contemporaneous oral agreements, understandings, representations and
statements are merged into this Agreement. Neither this Agreement nor any
provisions hereof may be modified, amended, discharged or terminated except by
an instrument in writing signed by the party against which the enforcement of
such modification, amendment, discharge or termination is sought, and then only
to the extent set forth in such instrument. Unless otherwise provided herein, no
provision of this Agreement may be waived except by an instrument in writing
signed by the party against which the enforcement of such waiver is sought.
24.3 HEADINGS. The Article, Section, Schedule and Exhibit
headings used herein are for convenience only, and are not to be used in
determining the meaning of this Agreement or any part hereof.
24.4 GOVERNING LAW. This Agreement and its interpretation and
enforcement shall be governed by the laws of the State of New York without
regard to conflict of law principles.
24.5 JURISDICTION. For the purposes of any suit, action or
proceeding involving this Agreement, Seller and Purchaser hereby expressly
submit to the jurisdiction of all federal and state courts sitting in the State
of New York, and consent that any order, process, notice of motion or
18
<PAGE>
other application to or by any such court, or a judge thereof, may be served
within or without such court's jurisdiction by registered mail or by personal
service, provided that a reasonable time for appearance is allowed, and Seller
and Purchaser agree that such courts shall have the exclusive jurisdiction over
any such suit, action or proceeding commenced by either or both of said parties.
In furtherance of such agreement, Seller and Purchaser agree upon the request of
the other party to discontinue (or agree to the discontinuance of) any such
suit, action or proceeding pending in any other jurisdiction.
24.6 WAIVER OF VENUE AND INCONVENIENT FORUM CLAIMS. Seller and
Purchaser hereby irrevocably waive any objection that it may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement brought in any federal or state court sitting in the
State of New York, and hereby further irrevocably waive any claim that any such
suit, action or proceeding is brought in any inconvenient forum.
24.7 WAIVER OF JURY TRIAL. Each of the parties hereto waives,
irrevocably and unconditionally, any and all right to trial by jury in any
action brought on, under, or by virtue of, or relating in any way to this
Agreement or the transactions contemplated hereby, or any of the documents
executed in connection herewith, the Property, or any claims, defenses, rights
of set-off or other actions pertaining hereto or to any of the foregoing.
24.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding on
and inure to the benefit of the successors and permitted assigns of the parties
hereto.
24.9 INVALID PROVISIONS. If any term or provision of this
Agreement, or any part of any term or provision, or the application thereof to
any person or circumstance shall to any extent be held invalid or unenforceable,
the remainder of this Agreement or the application of such term or provision or
remainder thereof to persons or circumstances other than those as to which it is
held invalid and unenforceable shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
24.10 SCHEDULES AND EXHIBITS. All Schedules and Exhibits which are
annexed to this Agreement are a part of this Agreement and are incorporated
herein by reference.
24.11 NO OTHER PARTIES. The provisions of this Agreement are for the
sole benefit of the parties to this Agreement and their successors and permitted
assigns, and shall not give rise to any rights by or on behalf of anyone other
than such parties, and no party is intended to be a third party beneficiary
hereof. No provisions of this Agreement, or of any of the documents and
instruments executed in connection herewith, shall be construed as creating in
any person or entity other than Purchaser and Seller and their permitted assigns
any rights of any nature whatsoever.
24.12 INTERPRETATION. This Agreement shall be construed without
regard to any presumption or other rule requiring construction against the party
causing this Agreement to be drafted.
19
<PAGE>
24.13 COUNTERPARTS; FAXED SIGNATURES. This Agreement may be executed
in multiple counterparts, each of which shall, when executed, be deemed to be an
original, and all of which when taken together shall constitute but one
agreement. Each party may rely upon a faxed counterpart of this Agreement
executed and delivered by the other party as if such counterpart were an
original counterpart.
24.14 BINDING EFFECT. This Agreement shall not become a binding
obligation upon Seller until the same has been fully executed by Purchaser and
Seller, and until a fully executed original counterpart thereof has been
delivered by Seller to Purchaser.
24.15 RECORDATION. Neither this Agreement, nor any other document
related hereto, nor any memorandum thereof shall be recorded, and any such
recording shall be void and of no force or effect.
24.16 LITIGATION FEES. In the event that any litigation arises under
this Agreement, the prevailing party (which term shall mean the party which
obtains substantially all of the relief sought by such party) shall be entitled
to recover, as part of its judgment, reasonable attorneys' fees.
24.17 SINGULAR/PLURAL. The use of the singular shall be deemed to
include the plural, and vice versa, whenever the context so requires.
24.18 SIGNATORIES OF SELLER. The individual executing this Agreement
as a Trustee is acting solely in his capacity as trustee, and not in his
individual capacity, and shall incur no personal liability on account of such
execution.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement of Sale and Purchase as of the date first above written.
THE BENENSON CAPITAL COMPANY, a New York
general partnership
By: The Charles B. Benenson Family Trust, a partner
By: /s/ Charles B. Benenson
-------------------------------------------
Charles B. Benenson, Trustee
/s/ Lawrence A. Benenson
-------------------------------------------
Lawrence A. Benenson
/s/ Raymond E. Benenson
-------------------------------------------
Raymond E. Benenson
, as Seller
YORK AVENUE DEVELOPMENT, INC.
By: /s/ William F. Ruprecht
------------------------------------------------
WILLIAM F. RUPRECHT, as Purchaser
The undersigned, Escrow Agent, agrees to hold the proceeds of the Deposit in
accordance with the provisions of Section 23.2.
Goldfarb & Fleece
By: /s/ Emmanuel Lubin
-------------------------------------------
EMMANUEL LUBIN
21
<PAGE>
SCHEDULE A
ALL that certain plot, piece or parcel of land, situate, lying and being in the
Borough of Manhattan, City, County and State of New York, bounded and described
as follows:
BEGINNING at the corner formed by the intersection of the easterly side of York
Avenue (formerly Avenue A) and the southerly side of 72nd Street; running thence
in a southerly direction along the easterly side of York Avenue 204 feet 4
inches to the corner formed by the intersection of the easterly side of York
Avenue and the northerly side of 71st Street; running thence in an easterly
direction along the northern side of 71st Street, 198 feet; thence in a
northerly direction and parallel with York Avenue 204 feet 4 inches to the
southerly side of 71st Street; and thence in a westerly direction along the
southerly side of 72nd Street 198 feet to the point or place of BEGINNING.
22
<PAGE>
SCHEDULE B
1. Consent by any former owner of the Property for the erection of any
structure or structures on, under or above any street or streets on which the
Property may abut.
2. Present and future zoning laws, ordinances, resolutions and
regulations of the City of New York and all present and future ordinances, laws,
regulations, requirements and orders of all departments, boards, bureaus,
commissions, bodies and authorities of the federal, state or municipal
governments now or hereafter having or acquiring jurisdiction of the Property
and the use and improvement thereof.
3. Revocable nature of the right, if any, to maintain vaults, vault
spaces, basement and subbasement spaces, areas, marquees or signs, beyond the
building lines.
4. Violations of laws, ordinances, orders or requirements that might be
disclosed by an examination and inspection or search of the Property by any
federal, state or municipal department or authority having jurisdiction, as the
same may exist on the Closing Date.
5. The condition and state of repair of the Property as the same may be
on the Closing.
6. Restrictive covenants recorded in Liber 1199 of Conveyances, page 151.
7. The Lease as referenced in Memorandum of Lease dated as of July 25,
1979, recorded in Reel 490, Page 1477.
8. Any liens or encumbrances affecting Lessee's interest in the Lease.
9. Unpaid real estate taxes, assessments, water rates, sewer rents and
charges, and governmental impositions, duties and charges of every kind or
nature whatsoever, levied, assessed or imposed or a lien upon the Property.
10. Rights of subtenants and occupants under the Lease.
11. Section 4.1 of the Agreement of which this Schedule is a part.
12. The Option Agreement as referenced in Memorandum thereof recorded in
Reel 556 Page 868.
13. Exchange Agreement between Seller and 089 Nosidam Corp. as the same
may have been amended to date.
14. Exchange Agreements, between Seller and Purchaser and a Memorandum
thereof recorded in Reel 1180, Page 1573 as the same may have been amended to
date.
<PAGE>
SCHEDULE C
CERTIFICATE OF NON-FOREIGN STATUS
To inform _____________ _______________ ____________ ______
___________ __________________________________________________________________
("Transferee"), that withholding of tax under Section 1445 of the Internal
Revenue Code of 1954, as amended ("Code") will not be required by, THE BENENSON
CAPITAL COMPANY, a New York general partnership ("Transferor"), the undersigned
hereby certifies the following on behalf of Transferor:
1. Transferor is not a foreign corporation, foreign partnership, foreign
trust, estate or foreign person (as those terms are defined in the Code and the
Income Tax Regulations promulgated thereunder);
2. Transferor's U.S. employer identification number is 13-6593262.
Transferor understands that this certification may be disclosed to the
Internal Revenue Service by Transferee and that any false statement contained
herein could be punished by fine, imprisonment, or both.
Under penalty of perjury I declare that I have examined this
Certification and to the best of my knowledge and belief, it is true, correct
and complete, and I further declare that I have authority to sign this document
on behalf of Transferor.
THE BENENSON CAPITAL COMPANY,
a New York general partnership
By: The Charles B. Benenson Family Trust, a partner
By:______________________________________
Charles B. Benenson, Trustee
__________, 2000
SCHEDULE C-1
<PAGE>
CERTIFICATE OF NON-FOREIGN STATUS
To inform ___________________________________________________
______________________________________________________________________________
("Transferee"), that withholding of tax under Section 1445 of the Internal
Revenue Code of 1954, as amended ("Code") will not be required by LAWRENCE A.
BENENSON ("Transferor"), the undersigned hereby certifies the following on
behalf of Transferor:
1. Transferor is not a foreign corporation, foreign partnership,
foreign trust, estate or foreign person (as those terms are defined in the Code
and the Income Tax Regulations promulgated thereunder);
2. Transferor's U.S. social security number is ###-##-####.
Transferor understands that this certification may be disclosed to the
Internal Revenue Service by Transferee and that any false statement contained
herein could be punished by fine, imprisonment, or both.
Under penalty of perjury I declare that I have examined this
Certification and to the best of my knowledge and belief, it is true, correct
and complete, and I further declare that I have authority to sign this document
on behalf of Transferor.
------------------------------------
Lawrence A. Benenson
__________, 2000
SCHEDULE C-2
<PAGE>
CERTIFICATE OF NON-FOREIGN STATUS
To inform ___________________________________________________
________________________________________________________________________________
("Transferee"), that withholding of tax under Section 1445 of the Internal
Revenue Code of 1954, as amended ("Code") will not be required by RAYMOND E.
BENENSON("Transferor"), the undersigned hereby certifies the following on behalf
of Transferor:
1. Transferor is not a foreign corporation, foreign partnership,
foreign trust, estate or foreign person (as those terms are defined in the Code
and the Income Tax Regulations promulgated thereunder);
2. Transferor's U.S. social security number is ###-##-####.
Transferor understands that this certification may be disclosed to the
Internal Revenue Service by Transferee and that any false statement contained
herein could be punished by fine, imprisonment, or both.
Under penalty of perjury I declare that I have examined this
Certification and to the best of my knowledge and belief, it is true, correct
and complete, and I further declare that I have authority to sign this document
on behalf of Transferor.
------------------------------------
Raymond E. Benenson
__________, 2000
SCHEDULE C-3
<PAGE>
SCHEDULE D
GUARANTY
KNOW ALL MEN BY THESE PRESENTS THAT
WHEREAS:
1. The Benenson Capital Company, a New York general
partnership, Lawrence A. Benenson and Raymond E. Benenson, (referred to
collectively herein as "SELLER") having an office at 708 Third Avenue, New York,
New York 10017, concurrently with the delivery of this instrument has entered
into an Agreement of Sale and Purchase of even date herewith, with York Avenue
Development, Inc. (referred to herein as "PURCHASER"), a New York corporation,
having an office at 1334 York Avenue, New York, New York 10021, affecting
premises known as and by the street number 1334 York Avenue in the Borough of
Manhattan, City, County and State of New York, which aforesaid agreement is
hereby incorporated in this instrument by reference (the aforesaid agreement is
referred to herein as the "AGREEMENT" and the premises demised therein is
referred to herein as the "PREMISES"); and
2. The undersigned, Sotheby's Holdings, Inc., a Michigan
corporation (referred to herein as "GUARANTOR"), having an office at 1334 York
Avenue, New York, New York 10021, is the indirect owner of all of the issued
and outstanding stock of Purchaser; and
3. Guarantor acknowledges that Seller would not enter into the
Agreement unless this Guaranty accompanied the execution and delivery of the
Agreement.
NOW, THEREFORE, in consideration of the execution and delivery
of the Agreement by Seller and Purchaser, and of other good and valuable
consideration, the receipt and sufficiency whereof is hereby acknowledged by
Guarantor;
<PAGE>
FIRST: The undersigned Guarantor does hereby:
11 Covenant and agree with Seller that if Purchaser, its
successors or assigns, shall default at any time in the payment of the
Purchase Price or any part thereof or any other payments provided to
be paid by Purchaser in the Agreement (collectively, the "Amounts"),
or in the observance or performance of any of the terms, covenants or
conditions of the Agreement on Purchaser's part to be observed or
performed, and such defaults shall not be cured before the expiration
of any applicable grace period, then Guarantor will, on not less than
ten (10) days prior written notice, well and truly observe and perform
said terms, covenants and conditions and pay to Seller the Amounts and
any other charges payable by Purchaser under the Agreement, or any
arrears thereof that may remain due to Seller, and all damages,
including, but not limited to, any damages payable pursuant to the
Agreement that may arise in consequence of Purchaser's insolvency or
such default in the observance or performance of any of said terms,
covenants or conditions; and
12 Covenant and agree with Seller that Guarantor may, at Seller's
option, be joined in any action or proceeding commenced by Seller
against Purchaser in connection with or based upon the Agreement or
any term, covenant or condition thereof, and that recovery may be had
against Guarantor in such action or proceeding or in any independent
action or proceeding against Guarantor without Seller, or its assigns,
first asserting, prosecuting or exhausting any remedy or claim against
Purchaser, its successors or assigns; and
13 Covenant and agree with Seller that this Guaranty shall
remain and continue in full force and effect notwithstanding any
modifications or amendments of the Agreement; and
14 Covenant to indemnify and save Seller harmless of and from all
cost, liability, damage and expense including, but not limited to,
reasonable counsel fees, which may arise by reason of Purchaser's
default under the Agreement and not cured before the expiration of any
applicable grace period, or Purchaser's insolvency, or Guarantor's
default hereunder; and
15 Covenant and agree with Seller that this Guaranty shall not be
terminated, affected or impaired by reason of any action which Seller
may take or fail to take against Purchaser or by reason of any waiver
of, or failure to enforce, any of the rights or remedies reserved to
Seller in the Agreement, or otherwise, provided, however, that
Guarantor shall be entitled to the same defenses that may legally be
asserted by Purchaser; and
2
<PAGE>
16 Waive notice of the acceptance of this Guaranty and of any
and all defaults by Purchaser in the payment of the Amounts, and of
any and all defaults by Purchaser in the observance or performance of
any of the terms, covenants or conditions of the Agreement on
Purchaser's part to be observed or performed, and of any and all
notices or demands which may be given by Seller to Purchaser, whether
or not required to be given to Purchaser under the terms of the
Agreement; and
17 Acknowledge that this Guaranty is a guarantee of payment and
not of collection in respect to any obligations which may accrue to
Seller from Purchaser under the provisions of the Agreement; and
18 Covenant to and agree with Seller that the validity hereunder
shall in no way be terminated, affected or otherwise impaired by
reason of any assignment or transfer of Purchaser's interest in the
Agreement; and
19 Covenant to and agree with Seller that no failure to exercise
and no delay in exercising, on the part of Seller, of any right, power
or privilege under this Guaranty or at law shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power
or privilege preclude any other or further exercise thereof, or the
exercise of any other power or right. The rights and remedies provided
in this Guaranty are cumulative and not exclusive of any rights or
remedies provided by law.
SECOND: The provisions of this Guaranty shall be binding upon said
Guarantor, its successors and assigns and shall inure to the benefit of Seller,
its successors and assigns, and shall not be deemed waived or modified unless
specifically set forth in writing, executed by Seller and delivered to
Guarantor.
THIRD: Guarantor agrees that any bills, statements, notices, demands,
requests or other communications given or required to be given to Guarantor
under this Guaranty at Seller's election, shall be addressed to Guarantor at the
above address, by certified mail, return receipt optional.
FOURTH: The officer executing this Guaranty on behalf of the
undersigned Guarantor represents to Seller that said officer has been duly
authorized by the undersigned
3
<PAGE>
Guarantor to execute and deliver this Guaranty on behalf of the undersigned
Guarantor and that execution and delivery of this Guaranty is a proper and
authorized act of the undersigned Guarantor and does not violate the Articles of
Incorporation or the By-Laws of the undersigned Guarantor or the Laws of the
State of New York.
IN WITNESS WHEREOF, the undersigned Guarantor has signed and sealed
this Guaranty this day of September, 1999.
Sotheby's Holdings, Inc.
By: ------------------------
4
<PAGE>
CERTIFICATE OF ACKNOWLEDGMENT
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the _____ day of _______________, in the year ___ before
me, the undersigned, a Notary Public in and said State, personally appeared
____________________________________, personally known to me or proved to me on
the basis of satisfactory evidence to be the individual(s) whose name(s) is
(are) subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their capacity (ies), and that by
his/her/their signature (s) on the instrument, the individual(s), or the person
upon behalf of which the individual(s) acted, executed the instrument.
--------------------------
Notary Public
<PAGE>
RE: PROPERTY: 1334 YORK AVENUE, NEW YORK CITY
Sotheby's, Inc., Lessee ("Lessee") under the Lease ("Lease")
described in Section 1.1.5 of the Agreement of Sale and Purchase dated
__________, 1999 between THE BENENSON CAPITAL COMPANY, LAWRENCE A. BENENSON and
RAYMOND E. BENENSON, as Seller, and YORK AVENUE DEVELOPMENT, INC., as Purchaser,
does hereby waive Lessee's First Refusal Option on Sale contained in Section 57
of the Lease with reference to the sale and conveyance to Lessee of the fee of
the property covered by said Lease.
Dated: September __, 1999
SOTHEBY'S, INC.
By: /s/ William F. Ruprecht
-----------------------------------------
WILLIAM F. RUPRECHT
<PAGE>
Exhibit 10(m)
ASSIGNMENT AND ASSUMPTION OF AGREEMENT OF SALE AND PURCHASE
THIS ASSIGNMENT AND ASSUMPTION OF AGREEMENT OF SALE
AND PURCHASE made as of this 9th day of September, 1999 between YORK
AVENUE DEVELOPMENT, INC., a New York Corporation, with an office at
1334 York Avenue, New York, New York 10021 (the "Assignor") and
SOTHEBY'S, INC., a New York corporation, with offices at 1334 York
Avenue, New York, New York 10021 (the "Assignee").
W I T N E S S E T H:
WHEREAS, Assignor, as purchaser, entered into an Agreement of
Sale and Purchase dated as of September 9, 1999 with The Benenson Capital
Company, Lawrence A. Benenson and Raymond E. Benenson, as sellers, relating to
the purchase of the property at 1334 York Avenue, New York, New York (the
"Agreement");
NOW, THEREFORE, in consideration of the sum of One ($1.00)
Dollar and other good and valuable consideration paid by Assignee to Assignor,
the receipt and sufficiency whereof is hereby acknowledged by Assignor does
hereby sell, assign and transfer unto Assignee all of Assignor's right, title
and interest in and to the Agreement, including without limitation, all of the
Assignor's right, title and interest in and to any down payment deposited with
Seller's attorney in escrow in accordance with the Agreement.
Assignee hereby accepts the assignment and assumes all the
terms, covenants and conditions of the Agreement on Assignor's part to be
performed.
<PAGE>
TO HAVE AND TO HOLD unto Assignee, its successors and assigns
forever, subject to the terms of the Agreement.
IN WITNESS WHEREOF, the undersigned have executed this
Assignment and Assumption of Agreement of Sale and Purchase as of the date set
forth above.
ASSIGNOR:
YORK AVENUE DEVELOPMENT, INC.
By: /s/ William F. Ruprecht
---------------------------
Name: William F. Ruprecht
Title:
ASSIGNEE:
SOTHEBY'S, INC.
By: /s/ William F. Ruprecht
---------------------------
Name: William F. Ruprecht
Title:
<PAGE>
Exhibit 10(n)
GUARANTY
KNOW ALL MEN BY THESE PRESENTS THAT
WHEREAS:
1. The Benenson Capital Company, a New York general
partnership, Lawrence A. Benenson and Raymond E. Benenson, (referred to
collectively herein as "SELLER") having an office at 708 Third Avenue, New York,
New York 10017, concurrently with the delivery of this instrument has entered
into an Agreement of Sale and Purchase of even date herewith, with York Avenue
Development, Inc. (referred to herein as "PURCHASER"), a New York corporation,
having an office at 1334 York Avenue, New York, New York 10021, affecting
premises known as and by the street number 1334 York Avenue in the Borough of
Manhattan, City, County and State of New York, which aforesaid agreement is
hereby incorporated in this instrument by reference (the aforesaid agreement is
referred to herein as the "AGREEMENT" and the premises demised therein is
referred to herein as the "PREMISES"); and
2. The undersigned, Sotheby's Holdings, Inc., a Michigan
corporation (referred to herein as "GUARANTOR"), having an office at 1334 York
Avenue, New York, New York 10021, is the indirect owner of all of the issued and
outstanding stock of Purchaser; and
3. Guarantor acknowledges that Seller would not enter into the
Agreement unless this Guaranty accompanied the execution and delivery of the
Agreement.
NOW, THEREFORE, in consideration of the execution and delivery
of the Agreement by Seller and Purchaser, and of other good and valuable
consideration, the receipt and sufficiency whereof is hereby acknowledged by
Guarantor;
FIRST: The undersigned Guarantor does hereby:
11 Covenant and agree with Seller that if Purchaser, its
successors or assigns, shall default at any time in the payment of the
Purchase Price or any part thereof or any other payments provided to be
paid by Purchaser in the Agreement (collectively, the "Amounts"), or in
the observance or performance of
<PAGE>
any of the terms, covenants or conditions of the Agreement on
Purchaser's part to be observed or performed, and such defaults shall
not be cured before the expiration of any applicable grace period, then
Guarantor will, on not less than ten (10) days prior written notice,
well and truly observe and perform said terms, covenants and conditions
and pay to Seller the Amounts and any other charges payable by
Purchaser under the Agreement, or any arrears thereof that may remain
due to Seller, and all damages, including, but not limited to, any
damages payable pursuant to the Agreement that may arise in consequence
of Purchaser's insolvency or such default in the observance or
performance of any of said terms, covenants or conditions; and
12 Covenant and agree with Seller that Guarantor may, at
Seller's option, be joined in any action or proceeding commenced by
Seller against Purchaser in connection with or based upon the Agreement
or any term, covenant or condition thereof, and that recovery may be
had against Guarantor in such action or proceeding or in any
independent action or proceeding against Guarantor without Seller, or
its assigns, first asserting, prosecuting or exhausting any remedy or
claim against Purchaser, its successors or assigns; and
13 Covenant and agree with Seller that this Guaranty shall
remain and continue in full force and effect notwithstanding any
modifications or amendments of the Agreement; and
14 Covenant to indemnify and save Seller harmless of and from
all cost, liability, damage and expense including, but not limited to,
reasonable counsel fees, which may arise by reason of Purchaser's
default under the Agreement and not cured before the expiration of any
applicable grace period, or Purchaser's insolvency, or Guarantor's
default hereunder; and
15 Covenant and agree with Seller that this Guaranty shall not
be terminated, affected or impaired by reason of any action which
Seller may take or fail to take against Purchaser or by reason of any
waiver of, or failure to enforce, any of the rights or remedies
reserved to Seller in the Agreement, or otherwise, provided, however,
that Guarantor shall be entitled to the same defenses that may legally
be asserted by Purchaser; and
16 Waive notice of the acceptance of this Guaranty and of any
and all defaults by Purchaser in the payment of the Amounts, and of any
and all defaults by Purchaser in the observance or performance of any
of the terms, covenants or conditions of the Agreement on Purchaser's
part to be observed or performed, and of any and all notices or demands
which may be given by Seller to Purchaser, whether or not required to
be given to Purchaser under the terms of the Agreement; and
2
<PAGE>
17 Acknowledge that this Guaranty is a guarantee of payment
and not of collection in respect to any obligations which may accrue to
Seller from Purchaser under the provisions of the Agreement; and
18 Covenant to and agree with Seller that the validity
hereunder shall in no way be terminated, affected or otherwise impaired
by reason of any assignment or transfer of Purchaser's interest in the
Agreement; and
19 Covenant to and agree with Seller that no failure to
exercise and no delay in exercising, on the part of Seller, of any
right, power or privilege under this Guaranty or at law shall operate
as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege preclude any other or further exercise
thereof, or the exercise of any other power or right. The rights and
remedies provided in this Guaranty are cumulative and not exclusive of
any rights or remedies provided by law.
SECOND: The provisions of this Guaranty shall be binding upon
said Guarantor, its successors and assigns and shall inure to the benefit of
Seller, its successors and assigns, and shall not be deemed waived or modified
unless specifically set forth in writing, executed by Seller and delivered to
Guarantor.
THIRD: Guarantor agrees that any bills, statements, notices,
demands, requests or other communications given or required to be given to
Guarantor under this Guaranty at Seller's election, shall be addressed to
Guarantor at the above address, by certified mail, return receipt optional.
FOURTH: The officer executing this Guaranty on behalf of the
undersigned Guarantor represents to Seller that said officer has been duly
authorized by the undersigned Guarantor to execute and deliver this Guaranty on
behalf of the undersigned Guarantor and that execution and delivery of this
Guaranty is a proper and authorized act of the undersigned Guarantor and does
not violate the Articles of Incorporation or the By-Laws of the undersigned
Guarantor or the Laws of the State of New York.
IN WITNESS WHEREOF, the undersigned Guarantor has signed and
sealed this Guaranty this 9th day of September, 1999.
3
<PAGE>
Sotheby's Holdings, Inc.
By: /s/ William S. Sheridan
-------------------------
William S. Sheridan
4
<PAGE>
CERTIFICATE OF ACKNOWLEDGMENT
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the _____ day of _______________, in the year ___ before
me, the undersigned, a Notary Public in and said State, personally appeared
____________________________________, personally known to me or proved to me on
the basis of satisfactory evidence to be the individual(s) whose name(s) is
(are) subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their capacity (ies), and that by
his/her/their signature (s) on the instrument, the individual(s), or the person
upon behalf of which the individual(s) acted, executed the instrument.
Notary Public
<PAGE>
EXHIBIT 10(z)
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of March 10, 2000,
Among
SOTHEBY'S HOLDINGS, INC.,
SOTHEBY'S, INC.,
OATSHARE LIMITED,
SOTHEBY'S,
THE LENDERS NAMED HEREIN
and
THE CHASE MANHATTAN BANK
as Administrative Agent, Collateral Agent and Issuing Bank
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS
<S> <C> <C>
SECTION 1.01. Defined Terms.............................................................................1
SECTION 1.02. Terms Generally..........................................................................16
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments..............................................................................17
SECTION 2.02. Loans....................................................................................18
SECTION 2.03. Letters of Credit........................................................................19
SECTION 2.04. Standby Borrowing Procedure..............................................................23
SECTION 2.05. Refinancings.............................................................................23
SECTION 2.06. Fees.....................................................................................24
SECTION 2.07. Repayment of Loans.......................................................................25
SECTION 2.08. Interest on Loans........................................................................25
SECTION 2.09. Default Interest.........................................................................25
SECTION 2.10. Alternate Rate of Interest...............................................................26
SECTION 2.11. Termination and Reduction of Commitments.................................................26
SECTION 2.12. Prepayment...............................................................................26
SECTION 2.13. Reserve Requirements; Change in Circumstances............................................27
SECTION 2.14. Change in Legality.......................................................................28
SECTION 2.15. Indemnity................................................................................29
SECTION 2.16. Pro Rata Treatment.......................................................................30
SECTION 2.17. Sharing of Setoffs.......................................................................30
SECTION 2.18. Payments.................................................................................31
SECTION 2.19. Taxes....................................................................................31
SECTION 2.20. Assignment of Commitments Under Certain
Circumstances...............................................................33
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Corporate Existence and Good Standing....................................................33
SECTION 3.02. Corporate Power, Authorization and Compliance
with the Law.................................................................34
SECTION 3.03. Financial Information; Absence of Material
Adverse Change...............................................................34
SECTION 3.04. Employee Benefit Plans...................................................................34
SECTION 3.05. Environmental Matters....................................................................35
SECTION 3.06. Litigation...............................................................................35
SECTION 3.07. Taxes....................................................................................35
SECTION 3.08. Subsidiaries.............................................................................35
SECTION 3.09. Investment Company Act...................................................................35
SECTION 3.10. No Material Misstatements................................................................35
SECTION 3.11. Federal Reserve Regulations..............................................................35
SECTION 3.12. Title to Properties......................................................................36
SECTION 3.13. Use of Proceeds..........................................................................36
SECTION 3.14. Security Documents.......................................................................36
</TABLE>
<PAGE>
2
<TABLE>
<CAPTION>
ARTICLE IV
CONDITIONS OF LENDING
<S> <C> <C>
SECTION 4.01. Each Borrowing Date......................................................................37
SECTION 4.02. Initial Borrowing Date...................................................................37
ARTICLE V
AFFIRMATIVE COVENANTS
SECTION 5.01. Financial Statements.....................................................................38
SECTION 5.02. Payment of Obligations...................................................................39
SECTION 5.03. Maintain Property and Insurance..........................................................39
SECTION 5.04. Maintain Existence.......................................................................39
SECTION 5.05. Compliance with Laws.....................................................................40
SECTION 5.06. Inspection...............................................................................40
SECTION 5.07. ERISA....................................................................................40
SECTION 5.08. Collateral and Borrowing Base Evaluations................................................40
SECTION 5.09. Further Assurances.......................................................................40
SECTION 5.10. Art Loans................................................................................41
SECTION 5.11. York Avenue Property.....................................................................41
ARTICLE VI
NEGATIVE COVENANTS
SECTION 6.01. Liens....................................................................................42
SECTION 6.02. Subsidiary Indebtedness..................................................................43
SECTION 6.03. Consolidations, Mergers, and Sales of Assets.............................................43
SECTION 6.04. Lines of Business........................................................................44
SECTION 6.05. Transactions with Affiliates.............................................................44
SECTION 6.06. Restrictions on Dividends................................................................44
SECTION 6.07. Consolidated Leverage Ratio..............................................................44
SECTION 6.08. Adjusted Consolidated Net Worth..........................................................44
SECTION 6.09. Consolidated Coverage Ratio..............................................................44
SECTION 6.10. Restricted Payments; Certain Payments in
Respect of Indebtedness......................................................44
SECTION 6.11. Art Loans................................................................................44
ARTICLE VII
EVENTS OF DEFAULT.......................................................................................45
ARTICLE VIII
THE AGENTS..............................................................................................48
ARTICLE IX
GUARANTEE
SECTION 9.01. Guarantee................................................................................50
SECTION 9.02. Obligations Unconditional................................................................50
SECTION 9.03. Reinstatement............................................................................51
SECTION 9.04. Subrogation..............................................................................51
SECTION 9.05. Remedies.................................................................................51
SECTION 9.06. Continuing Guarantee.....................................................................51
</TABLE>
<PAGE>
3
<TABLE>
<CAPTION>
ARTICLE X
MISCELLANEOUS
<S> <C> <C>
SECTION 10.01. Notices.................................................................................51
SECTION 10.02. Survival of Agreement...................................................................52
SECTION 10.03. Binding Effect..........................................................................52
SECTION 10.04. Successors and Assigns..................................................................52
SECTION 10.05. Expenses; Indemnity.....................................................................55
SECTION 10.06. Right of Setoff.........................................................................56
SECTION 10.07. Applicable Law..........................................................................56
SECTION 10.08. Waivers; Amendment......................................................................56
SECTION 10.09. Interest Rate Limitation................................................................56
SECTION 10.10. Entire Agreement........................................................................57
SECTION 10.11. Waiver of Jury Trial....................................................................57
SECTION 10.12. Severability............................................................................57
SECTION 10.13. Judgment Currency.......................................................................57
SECTION 10.14. Counterparts............................................................................58
SECTION 10.15. Headings................................................................................58
SECTION 10.16. Jurisdiction; Consent to Service of Process.............................................58
SECTION 10.17. Confidentiality.........................................................................59
SECTION 10.18. Release of Liens and Guarantees.........................................................59
Exhibit A-5 Form of Standby Borrowing Request
Exhibit B Administrative Questionnaire
Exhibit C Form of Assignment and Acceptance
Exhibit D-1 Form of Opinion of Weil, Gotshal & Manges LLP
Exhibit D-2 Form of Opinion of Freshfields
Exhibit E Form of Perfection Certificate
Exhibit F Form of Subsidiary Guarantee Agreement
Schedule 1.01A Other Obligations
Schedule 1.01B Specified Assets
Schedule 2.01 Commitments
Schedule 3.08 Subsidiaries
Schedule 6.01 Liens
</TABLE>
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT (this
"Agreement") dated as of March 10, 2000, among
SOTHEBY'S HOLDINGS, INC., a Michigan corporation
("Holdings"), SOTHEBY'S, INC., a New York
corporation, OATSHARE LIMITED, a company registered
in England, and SOTHEBY'S, a company registered in
England (each referred to individually as a
"Borrower" and collectively as the "Borrowers"); the
lenders listed in Schedule 2.01 hereto or
subsequently becoming parties hereto as provided
herein (the "Lenders"); and THE CHASE MANHATTAN BANK,
a New York banking corporation, as administrative
agent (in such capacity, the "Administrative Agent")
and as collateral agent (in such capacity, the
"Collateral Agent") for the Lenders and as the
issuing bank (in such capacity, the "Issuing Bank").
WHEREAS the parties hereto have previously entered into a
Credit Agreement dated as of August 3, 1994 (the "Original Credit Agreement");
WHEREAS the Original Credit Agreement was amended and restated
by the Amendment and Restatement dated as of July 11, 1996 (the "Existing
Agreement");
WHEREAS the Borrowers have requested the Lenders and the Agent
to amend and restate the Existing Agreement in the form of this Amended and
Restated Credit Agreement and, upon the terms set forth herein, to extend credit
to enable the Borrowers to borrow on a revolving credit basis on and after the
date hereof and at any time and from time to time prior to the Maturity Date (as
herein defined) a principal amount not in excess of $300,000,000 or an
equivalent amount in Sterling at any time outstanding, subject to the Borrowing
Base referred to herein. The proceeds of such borrowings are to be used for
general corporate purposes including, without limitation, refinancing commercial
paper or other borrowings and providing funds for capital expenditures and
working capital. The Lenders are willing to enter into this Amended and Restated
Credit Agreement and to extend such credit to the Borrowers on the terms and
subject to the conditions herein set forth.
Accordingly, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. DEFINED TERMS. As used in this Agreement,
the following terms shall have the meanings specified below:
"ABR BORROWING" shall mean a Borrowing comprised of ABR
Loans.
"ABR LOAN" shall mean any Standby Loan bearing interest at a
rate determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"ADJUSTED CONSOLIDATED NET WORTH" shall mean at any date
Consolidated Net Worth at such date minus, to the extent not reflected in
Consolidated Net Worth and without duplication, the aggregate amount of (a) all
payments made by Holdings and the Subsidiaries in respect of
<PAGE>
2
Litigation Liabilities, (b) all accounting reserves established by Holdings and
the Subsidiaries in respect of anticipated Litigation Liabilities, (c) all
amounts escrowed or otherwise segregated from the general assets of Holdings and
the Subsidiaries to provide for Litigation Liabilities and (d) all amounts that
Holdings and the Subsidiaries have become obligated to pay, but have not yet
paid, pursuant to fines, judgments, settlements or agreements entered into in
respect of Litigation Liabilities.
"ADMINISTRATIVE FEES" shall have the meaning assigned to
such term in Section 2.06(b).
"ADMINISTRATIVE QUESTIONNAIRE" shall mean an Administrative
Questionnaire in the form of Exhibit B hereto.
"AFFILIATE" shall mean, as to any person, another person
(other than a subsidiary of such first person) that directly, or indirectly
through one or more intermediaries, Controls or is Controlled by or is under
common Control with such first person.
"AGENTS" shall mean the Administrative Agent and the
Collateral Agent.
"ALTERNATE BASE RATE" shall mean, for any day, a rate per
annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof, "PRIME
RATE" shall mean the rate of interest per annum publicly announced from time to
time by the Administrative Agent as its prime rate in effect at its principal
office in New York City; each change in the Prime Rate shall be effective on the
date such change is publicly announced as effective. "FEDERAL FUNDS EFFECTIVE
RATE" shall mean, for any day, the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for the day of
such transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate for any reason, including the inability of the
Administrative Agent to obtain sufficient quotations in accordance with the
terms thereof, the Alternate Base Rate shall be determined without regard to
clause (b) of the first sentence of this definition until the circumstances
giving rise to such inability no longer exist.
"ALTERNATIVE CURRENCY" shall mean Sterling.
"ALTERNATIVE CURRENCY BORROWING" shall mean a Borrowing
comprised of Alternative Currency Loans.
"ALTERNATIVE CURRENCY EQUIVALENT" shall mean, with respect to
an amount of Dollars on any date in relation to the Alternative Currency, the
amount of the Alternative Currency that may be purchased with such amount of
Dollars at the Spot Exchange Rate with respect to Dollars on such date.
<PAGE>
3
"ALTERNATIVE CURRENCY LOAN" shall mean any Loan denominated
in the Alternative Currency.
"APPLICABLE MARGIN" shall mean on any date, with respect to
ABR Loans and Eurocurrency Loans, the applicable spreads set forth below based
upon the ratings of S&P and Moody's applicable on such date to the senior,
unsecured, non-credit enhanced long-term debt for borrowed money of Holdings
(the "Index Debt"):
<TABLE>
<CAPTION>
ABR EUROCURRENCY
SPREAD LOAN SPREAD
------ -----------
<S> <C> <C>
CATEGORY 1
BBB/Baa2 0 1.00%
- -
CATEGORY 2
BBB-/Baa3 .50% 1.50%
CATEGORY 3
BBB-/Baa3 1.00% 2.00%
</TABLE>
PROVIDED, HOWEVER, that for the first six months following the date hereof, the
Applicable Margins with respect to ABR Loans and Eurocurrency Loans shall not be
less than those corresponding to Category 2 in the table above. For purposes of
determining the Applicable Margin, (a) if S&P or Moody's shall not have in
effect a rating for Index Debt because of an action (or failure to take action)
on the part of Holdings or any Subsidiary, then such rating agency will be
deemed to have established a rating for Index Debt in Category 3, (b) if the
ratings established or deemed to have been established by S&P and Moody's shall
fall within different Categories, the Applicable Margin shall be determined by
reference to the ratings in the inferior (or numerically higher) Category; and
(c) if any rating established or deemed to have been established by S&P or
Moody's shall be changed (other than as a result of a change in the rating
system of either S&P or Moody's), such change shall be effective as of the date
on which such change is first announced by the rating agency making such change.
Each change in the Applicable Margin shall apply to all Loans that are
outstanding at any time during the period commencing on the effective date of
such change and ending on the date immediately preceding the effective date of
the next such change. If (a) the rating system of S&P or Moody's shall change,
(b) any such rating agency shall cease to be in the business of rating corporate
debt obligations or (c) any such rating agency shall otherwise cease to have in
effect a rating for Index Debt (other than because of an action (or failure to
take action) on the part of Holdings or any Subsidiary) then the Borrowers and
the Lenders shall negotiate in good faith to amend the references to specific
ratings in this definition to reflect such changed rating system or the non-
availability of ratings from such rating agency, and pending any such amendment
the Applicable Margin shall be determined by reference to the ratings in effect
immediately prior to such change or cessation.
"APPLICABLE PERCENTAGE" shall mean, with respect to any Lender
at any time, the percentage of the Total Commitment represented by such Lender's
Commitment at such time. If the Commitments have terminated or expired, the
Applicable Percentages shall be determined based upon the Commitments most
recently in effect, giving effect to any assignments.
<PAGE>
4
"ART LOANS" shall mean loans made by the Lending Subsidiaries
to customers of Holdings and the Subsidiaries, to finance the purchase or
carrying of, or in anticipation of the potential sale of, or secured by, works
of art.
"ASSIGNED DOLLAR VALUE" shall mean, in respect of any
Borrowing, Letter of Credit or LC Disbursement denominated in the Alternative
Currency, the Dollar Equivalent thereof determined based upon the applicable
Spot Exchange Rate as of the Denomination Date for such Borrowing, Letter of
Credit or LC Disbursement.
"ASSIGNMENT AND ACCEPTANCE AGREEMENT" shall mean an assignment
and acceptance agreement entered into by a Lender and an assignee, and accepted
by the Administrative Agent and, where required, the Borrowers, in the form of
Exhibit C or such other form as shall be approved by the Administrative Agent.
"BOARD" shall mean the Board of Governors of the Federal
Reserve System of the United States.
"BORROWERS" shall mean Sotheby's Holdings, Inc., Sotheby's,
Inc., Oatshare Limited and Sotheby's.
"BORROWING" shall mean a group of Loans of a single Type
made by the Lenders.
"BORROWING BASE" shall mean, at any time, an amount equal to
the sum of (a) the aggregate outstanding principal amount of all Art Loans that
are (i) owned by Lending Subsidiaries that are Domestic Subsidiaries and (ii)
subject to perfected, first priority pledges or security interests in favor of
the Collateral Agent created under the Security Documents to secure the
Obligations, as contemplated by the definition of "Collateral and Guarantee
Requirement", (b) the lesser of (i) the aggregate outstanding principal amount
of Borrowings of Oatshare Limited and Sotheby's and (ii) the aggregate
outstanding principal amount of all Art Loans that are (A) owned by Sotheby's
Financial Services Ltd. and (B) subject to perfected, first priority pledges or
security interests in favor of the Collateral Agent created under the Security
Documents to secure the Obligations of Oatshare Limited and Sotheby's, as
contemplated by the definition of "Collateral and Guarantee Requirement", and
(c) an amount equal to 15% of Consolidated Net Tangible Assets, it being
understood that this clause (c) will be determined by reference to the most
recent Borrowing Base Certificate.
"BORROWING BASE CERTIFICATE" shall mean a certificate in a
form approved by the Administrative Agent, together with all attachments
contemplated thereby.
"BORROWING REQUEST" shall mean a request by a Borrower for a
Loan.
"BUSINESS DAY" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York) on which banks are
open for business in New York City; PROVIDED, HOWEVER, that, when used in
connection with a Eurocurrency Loan, the term "BUSINESS DAY" shall also exclude
any day on which banks are not open for dealings in deposits in Dollars or
Sterling, as the case may be, in the London interbank market.
"CAPITAL LEASE OBLIGATIONS" of any person shall mean the
obligations of such person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal
<PAGE>
5
property, or a combination thereof, which obligations are required to be
classified and accounted for as capital leases on a balance sheet of such person
under GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such time
determined in accordance with GAAP.
A "CHANGE IN CONTROL" shall be deemed to have occurred if (a)
A. Alfred Taubman shall sell, transfer or otherwise dispose of shares of capital
stock of Holdings and, following such sale, transfer or other disposition shall
not beneficially own, directly or indirectly, shares of capital stock of
Holdings representing more than 50% of the aggregate ordinary voting power
represented by all the issued and outstanding capital stock of Holdings, unless
the Lenders shall have been notified, at least 20 days prior to such sale,
transfer or other disposition, of the identity of the intended transferee and
the Required Lenders have delivered to Holdings a notice of their approval of
such transferee; or (b) a majority of the seats (other than vacant seats) on the
Board of Directors shall be occupied by persons other than Continuing Directors.
"CLOSING DATE" shall mean the date of this Agreement.
"CODE" shall mean the Internal Revenue Code of 1986, as the
same may be amended from time to time.
"COLLATERAL" shall mean any and all "Collateral", as defined
in any applicable Security Document.
"COLLATERAL AND GUARANTEE REQUIREMENT" shall mean, at any
time, that the following requirements shall be satisfied at and as of such time:
(i) a Subsidiary Guarantee Agreement (or a supplement
thereto) shall have been executed by each Domestic Subsidiary
existing at such time, other than any Borrower, shall have
been delivered to the Collateral Agent and shall be in full
force and effect;
(ii) one or more Pledge Agreements (or supplements
thereto) shall have been duly executed and delivered by
Holdings, each Domestic Subsidiary existing at such time and
Sotheby's Financial Services Ltd. and there shall have been
duly and validly pledged to the Collateral Agent thereunder,
for the ratable benefit of the holders of the Obligations (and
the holders of the Senior Notes, to the extent required under
the Senior Note Indenture after giving effect to baskets and
exceptions provided for therein in a manner satisfactory to
the Collateral Agent) (A) all the outstanding Equity Interests
(other than Equity Interests in any Foreign Subsidiary) owned
directly by Holdings or any Domestic Subsidiary, (B) 65% of
the outstanding voting Equity Interests, and 100% of the
outstanding non-voting Equity Interests (or, in each case,
such lesser percentages as shall be owned by Holdings and the
Domestic Subsidiaries) in each Foreign Subsidiary owned in
whole or in part directly by Holdings or any Domestic
Subsidiary, (C) all Art Loans and other Indebtedness owed to
Holdings or any Domestic Subsidiary and (D) solely as security
for the Obligations of Oatshare Limited and Sotheby's, all Art
Loans
<PAGE>
6
and other Indebtedness owed to Sotheby's Financial Services
Ltd.; and all steps required under applicable law or
reasonably requested by the Collateral Agent to ensure that
the Pledge Agreements create valid, first priority, perfected
Liens on all the Collateral subject thereto shall have been
taken to the satisfaction of the Collateral Agent, it being
understood that to the extent effective under applicable law,
perfection on the Art Loans will be accomplished by means of
filings under the Uniform Commercial Code or other applicable
statutes, PROVIDED that if the Collateral Agent shall deliver
to Holdings a notice stating that the Collateral Agent
believes (x) that the financial condition of Holdings and the
Subsidiaries has deteriorated and (y) that the interests of
the Lenders would be more effectively protected if the
Collateral Agent possessed the instruments evidencing the Art
Loans, Holdings will cause each Lending Subsidiary promptly to
deliver such instruments to the Collateral Agent, accompanied
by undated instruments of transfer satisfactory to the
Collateral Agent and executed in blank by the appropriate
Lending Subsidiary;
(iii) the Security Agreement (or supplements thereto)
(and, with respect to any trademark, a Trademark Security
Agreement) shall have been duly executed and delivered by
Holdings and each Domestic Subsidiary existing at such time
and there shall have been subjected to security interests in
favor of the Collateral Agent thereunder, for the ratable
benefit of the holders of the Obligations (and the holders of
the Senior Notes, to the extent required under the Senior Note
Indenture after giving effect to baskets and exceptions
provided for therein in a manner satisfactory to the
Collateral Agent), all the tangible and intangible assets of
Holdings and each Domestic Subsidiary (including all Art Loans
and other Indebtedness owed to Holdings or any Domestic
Subsidiary) in which security interests can be created under
the Uniform Commercial Code as in effect in the State of New
York or other applicable law, and all documents and
instruments, including UCC financing statements, required by
law or reasonably requested by the Collateral Agent to be
filed, registered or recorded to create and perfect the Liens
intended to be created by the Security Agreement and the
Trademark Security Agreement shall have been filed, registered
or recorded (or arrangements satisfactory to the Collateral
Agent for such filing, registration or recording shall have
been made);
(iv) the Collateral Agent shall have received (A)
counterparts of a Mortgage with respect to each Mortgaged
Property, duly executed and delivered by the record owner of
such Mortgaged Property, (B) at the reasonable request of the
Collateral Agent or the Required Lenders, in the case of each
Mortgaged Property with a book or fair market value in excess
of $1,000,000, a policy or policies of title insurance issued
by a nationally recognized title insurance company insuring
the Lien of each such Mortgage as a valid first Lien on the
Mortgaged Property described therein, free of any other Liens
except as expressly permitted by Section 6.01, together with
endorsements, coinsurance and reinsurance, and (C) such
surveys, abstracts, legal opinions and other documents as the
Collateral Agent or the Required Lenders may reasonably
request with respect to any such Mortgage or Mortgaged
Property;
<PAGE>
7
(v) the Indemnity, Subrogation and Contribution
Agreement (or a supplement thereto) shall have been executed
by Holdings and each Domestic Subsidiary party to the
Guarantee Agreement or any Security Document, shall have been
delivered to the Collateral Agent and shall be in full force
and effect; and
(vi) each Borrower shall have obtained all consents
and approvals required to be obtained by it in connection with
the execution and delivery of all Security Documents to which
it is a party, the performance of its obligations thereunder
and the creation by it of the Liens provided for therein.
The foregoing definition shall not require the creation or perfection of pledges
of or security interests in (a) the Specified Assets or (b) particular assets of
Holdings and the Subsidiaries if and for so long as, in the judgment of the
Administrative Agent with respect to this clause (b), the cost or effort to
create or perfect such pledges or security interests in such assets, or the
effort to do so, shall be excessive in view of the benefits to be obtained by
the Lenders therefrom. The Administrative Agent may grant extensions of time for
the perfection of security interests in or the obtaining of title insurance with
respect to particular assets (including extensions beyond the Initial Borrowing
Date for the perfection of security interests in assets of Holdings and the
Subsidiaries on such date) where it determines that perfection cannot be
accomplished without undue effort or expense by the time or times at which it
would otherwise be required by this Agreement or the Security Documents.
"COMMITMENT" shall mean, with respect to each Lender, the
commitment of such Lender hereunder as set forth in Schedule 2.01 hereto, as
such Lender's Commitment may be permanently terminated or reduced from time to
time pursuant to Section 2.11.
"COMMITMENT FEE PERCENTAGE" shall mean, on any date, the
applicable percentage set forth below based upon the ratings of S&P and Moody's
applicable on such date to the Index Debt:
<TABLE>
<CAPTION>
COMMITMENT
FEE
PERCENTAGE
----------
<S> <C>
CATEGORY 1
BBB/Baa2 .250%
CATEGORY 2
BBB-/Baa3 .375%
CATEGORY 3
BBB-/Baa3 .500%
</TABLE>
PROVIDED, HOWEVER, that for the first six months following the date hereof, the
Commitment Fee Percentage shall not be less than the percentage corresponding to
Category 2 in the table above. For purposes of the foregoing, (a) if S&P or
Moody's shall not have in effect a rating for Index Debt because of an action
(or failure to take action) on the part of Holdings or any Subsidiary, then such
rating agency will be deemed to have established a rating for Index Debt in
Category 3;
<PAGE>
8
(b) if the ratings established or deemed to have been established by S&P and
Moody's shall fall within different Categories, the Commitment Fee Percentage
shall be determined by reference to the rating in the inferior (or numerically
higher) Category; and (c) if any rating established or deemed to have been
established by S&P or Moody's shall be changed (other than as a result of a
change in the rating system of S&P or Moody's), such change shall be effective
as of the date on which such change is first announced by the rating agency
making such change. Each change in the Commitment Fee Percentage shall apply
during the period commencing on the effective date of such change and ending on
the date immediately preceding the effective date of the next such change. If
(a) the rating system of S&P or Moody's shall change, (b) any such rating agency
shall cease to be in the business of rating corporate debt obligations or (c)
any such rating agency shall otherwise cease to have in effect a rating for
Index Debt (other than because of an action (or failure to take action) on the
part of Holdings or any Subsidiary) then the Borrowers and the Lenders shall
negotiate in good faith to amend the references to specific ratings in this
definition to reflect such changed rating system or the non-availability of
ratings from such rating agency, and pending any such amendment the Commitment
Fee Percentage shall be determined by reference to the ratings in effect
immediately prior to such change or cessation.
"CONSOLIDATED COVERAGE RATIO" shall mean with respect to
Holdings and its consolidated subsidiaries for any period, the ratio of (a)
Consolidated EBITDA for such period to (b) Consolidated Interest Expense for
such period.
"CONSOLIDATED EBITDA" with respect to Holdings and its
consolidated subsidiaries for any period shall mean the sum of (a) Consolidated
Net Income for such period, (b) Consolidated Interest Expense for such period,
(c) all Federal, state, local and foreign income taxes deducted in determining
such Consolidated Net Income and (d) depreciation, amortization and other
non-cash charges deducted in determining such Consolidated Net Income.
"CONSOLIDATED INTEREST EXPENSE" shall mean with respect to
Holdings and its consolidated subsidiaries for any period, the consolidated
gross interest expense of Holdings and its consolidated subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP consistently
applied.
"CONSOLIDATED LEVERAGE RATIO" shall mean, as to Holdings and
its consolidated subsidiaries, the ratio of (a) the consolidated Indebtedness of
Holdings and its consolidated subsidiaries to (b) the sum of the consolidated
Indebtedness of Holdings and its consolidated subsidiaries and Consolidated Net
Worth.
"CONSOLIDATED NET INCOME" shall mean, for Holdings and its
consolidated subsidiaries for any period, the aggregate net income (or net
deficit) of such persons determined on a consolidated basis for such period, in
accordance with GAAP on a basis consistent with that used in preparing the
Financial Statements referred to in Section 3.03; PROVIDED, HOWEVER, that in
computing "Consolidated Net Income", any extraordinary gains and losses and any
non-recurring losses relating to the Litigation Liabilities shall be excluded.
"CONSOLIDATED NET TANGIBLE ASSETS" shall mean the aggregate
amount of assets (less applicable reserves and other properly deductible
<PAGE>
9
items) after deducting therefrom (a) all current liabilities, and (b) all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, all as set forth on the books and records of
Holdings and its consolidated subsidiaries and computed in accordance with GAAP.
"CONSOLIDATED NET WORTH" shall mean at any date shareholders'
equity, as shown on a consolidated balance sheet of Holdings and its
Subsidiaries prepared in accordance with GAAP at such date.
"CONSTRUCTION AND IMPROVEMENT AMOUNT" shall mean, at any time,
the aggregate amount then or theretofore expended by Sotheby's, Inc. on the
purchase price, cost of construction and cost of substantial improvements to the
York Avenue Property.
"CONTINUING DIRECTOR" shall mean any Director of Holdings that
shall have been a Director on the Closing Date or shall have been nominated or
appointed by a majority of the then Continuing Directors.
"CONTROL" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and the terms "CONTROLLING" and "CONTROLLED" shall have meanings
correlative thereto.
"DEFAULT" shall mean any event or condition which upon notice,
lapse of time or both would constitute an Event of Default.
"DENOMINATION DATE" shall mean (a) in relation to any
Alternative Currency Borrowing, the date that is three Business Days before the
date such Borrowing is made, (b) in relation to any Letter of Credit denominated
in the Alternate Currency, the most recent date that is (i) the date three
Business Days before the date of issuance or renewal of such Letter of Credit
(the "INITIAL VALUATION DATE") or (ii) a date corresponding to the Initial
Valuation Date in the third, sixth or ninth month following the month in which
the Initial Valuation Date shall have occurred and (c) in relation to any LC
Disbursement, the Denomination Date applicable to the Letter of Credit under
which such LC Disbursement shall have been made.
"DESIGNATED DATE" shall mean, at any time, the date of the
most recent borrowing hereunder (other than a Tranche B Borrowing) (a) prior to
which the aggregate principal amount of the Loans outstanding hereunder (other
than Tranche B Loans) and LC Exposures shall not have exceeded 15% of
Consolidated Net Tangible Assets as of such date and (b) after which the
aggregate principal amount of the Loans outstanding hereunder (other than
Tranche B Loans) and LC Exposures shall have exceeded 15% of Consolidated Net
Tangible Assets as of such date.
"DOLLAR EQUIVALENT" shall mean, with respect to an amount of
the Alternative Currency on any date, (A) for any Loan, the amount of Dollars
that may be purchased with such amount of such Alternative Currency at the Spot
Exchange Rate with respect to the Alternative Currency on such date and (B) for
any Letter of Credit, the Dollar equivalent of the face amount of such Letter of
Credit determined at the most recent of (i) the exchange rate at the date such
Letter of Credit was issued and (ii) the exchange rate at the three month
anniversary of such date.
"DOLLARS" or "$" shall mean lawful money of the United
States of America.
<PAGE>
10
"DOMESTIC SUBSIDIARIES" shall mean all Subsidiaries
incorporated or organized under the laws of the United States of America, any
State thereof or the District of Columbia.
"EQUITY INTERESTS" shall mean any shares of capital stock,
partnership interests, membership interests in a limited liability company,
beneficial interests in a trust or other equity ownership interests in a person,
and any warrants, options or other rights to acquire any such equity ownership
interests.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may be amended from time to time.
"ERISA AFFILIATE" shall mean any trade or business (whether or
not incorporated) that together with the Borrowers is treated as a single
employer under Section 414 of the Code.
"EUROCURRENCY BORROWING" shall mean a Borrowing comprised of
Eurocurrency Loans.
"EUROCURRENCY LOAN" shall mean any Eurocurrency Standby
Loan.
"EUROCURRENCY STANDBY BORROWING" shall mean a Standby
Borrowing comprised of Eurocurrency Standby Loans.
"EUROCURRENCY STANDBY LOAN" shall mean any Standby Loan
bearing interest at a rate determined by reference to the LIBO Rate in
accordance with the provisions of Article II.
"EVENT OF DEFAULT" shall have the meaning assigned to such
term in Article VII.
"FEES" shall mean the Administrative Fees and the Commitment
Fee.
"FINANCIAL OFFICER" of any corporation shall mean the Chief
Financial Officer, principal accounting officer, Treasurer or Controller of such
corporation.
"FOREIGN SUBSIDIARIES" shall mean all Subsidiaries other
than Domestic Subsidiaries.
"GAAP" shall mean United States generally accepted accounting
principles, applied on a basis consistent with the financial statements referred
to in Section 3.03.
"GOVERNMENTAL AUTHORITY" shall mean any Federal, state, local
or foreign court or governmental agency, authority, instrumentality or
regulatory body.
"GUARANTEE" of or by any person shall mean any obligation,
contingent or otherwise, of such person guaranteeing or having the economic
effect of guaranteeing any Indebtedness of any other person (the "primary
obligor") in any manner, whether directly or indirectly, and including any
obligation of such person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or to
purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Indebtedness, (b) to purchase property, securities or
services for the purpose of assuring the owner of such Indebtedness of the
payment of such Indebtedness or (c) to maintain working capital, equity capital
or other financial statement condition or liquidity of the primary obligor so as
<PAGE>
11
to enable the primary obligor to pay such Indebtedness; PROVIDED, HOWEVER, that
the term Guarantee shall not include endorsements for collection or deposit, or
guarantees in the ordinary course of business including, without limitation,
guarantees by the Borrowers to consignors of minimum prices in connection with
sales of property.
"GUARANTOR" shall mean the Borrowers in their capacity as
guarantors under Section 9.01 except that Oatshare Limited and Sotheby's will
not be Guarantors in respect of any obligations of Holdings and Sotheby's, Inc.
"INDEBTEDNESS" of any person shall mean, without duplication,
(a) all obligations of such person for borrowed money or with respect to
deposits or advances of any kind, (b) all obligations of such person evidenced
by bonds, debentures, notes or similar instruments, (c) all obligations of such
person upon which interest charges are customarily paid, (d) all obligations of
such person under conditional sale or other title retention agreements relating
to property or assets purchased by such person, (e) all obligations of such
person issued or assumed as the deferred purchase price of property or services,
(f) all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such person, whether or not the
obligations secured thereby have been assumed, (g) all Guarantees by such person
of Indebtedness of others, (h) all Capital Lease Obligations of such person, (i)
all obligations of such person in respect of interest rate protection
agreements, foreign currency exchange agreements or other interest or exchange
rate hedging arrangements and (j) all obligations of such person as an account
party in respect of letters of credit and bankers' acceptances; PROVIDED,
HOWEVER, that Indebtedness shall not include trade accounts payable in the
ordinary course of business (whether or not any such trade accounts have terms
providing a discount if paid within a certain time or an interest factor if not
paid within a certain time), and for purposes of determining compliance with the
financial covenants contained in Sections 6.02, 6.07 and 6.09, Indebtedness will
not include the items referred to in (i) and (j) above. The Indebtedness of any
person shall include the Indebtedness of any partnership in which such person is
a general partner to the extent that the Indebtedness of such partnership is
attributed to such person in accordance with GAAP.
"INDEMNITY, SUBROGATION AND CONTRIBUTION AGREEMENT" shall mean
an Indemnity, Subrogation and Contribution Agreement in form and substance
satisfactory to Holdings and the Collateral Agent.
"INDEX DEBT" shall have the meaning given such term in the
definition of "Applicable Margin".
"INITIAL BORROWING DATE" shall mean the date of the first
borrowing hereunder after the date of this Agreement.
"INTEREST PAYMENT DATE" shall mean, with respect to any Loan,
the last day of each Interest Period applicable thereto and, in the case of a
Eurocurrency Loan with an Interest Period of more than three months' duration,
each day that would have been an Interest Payment Date for such Loan had
successive Interest Periods of three months' duration or 90 days duration, as
the case may be, been applicable to such Loan and, in addition, the date of any
refinancing of such Loan with a Loan of a different Type.
<PAGE>
12
"INTEREST PERIOD" shall mean (a) as to any Eurocurrency
Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding day (or, if there is no numerically corresponding day,
on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter,
as the applicable Borrower may elect and (b) as to any ABR Borrowing, a period
commencing on the date of such Loan and ending on the earlier of the next
succeeding March 31, June 30, September 30 and December 31 or the date on which
such Loan is repaid or prepaid; PROVIDED, HOWEVER, that if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless, in the case of Eurocurrency
Loans only, such next succeeding Business Day would fall in the next calendar
month, in which case such Interest Period shall end on the next preceding
Business Day. Interest shall accrue from and including the first day of an
Interest Period to but excluding the last day of such Interest Period.
"ISSUING BANK" means The Chase Manhattan Bank, in its capacity
as the issuer of Letters of Credit hereunder, and its successors in such
capacity as provided in Section 2.03(i). The Issuing Bank may, in its
discretion, arrange for one or more Letters of Credit to be issued by affiliates
of the Issuing Bank, in which case the term "Issuing Bank" shall include any
such affiliate with respect to Letters of Credit issued by such affiliate.
"LC DISBURSEMENT" means a payment made by the Issuing Bank
pursuant to a Letter of Credit.
"LC EXPOSURE" means, at any time, the sum of (a) the aggregate
undrawn amount of all outstanding Letters of Credit denominated in Dollars at
such time plus (b) the aggregate amount of all LC Disbursements denominated in
Dollars that have not yet been reimbursed by or on behalf of the applicable
Borrowers at such time plus (c) the sum of the Assigned Dollar Values of the
undrawn amounts of all outstanding Letters of Credit denominated in the
Alternative Currency at such time plus (d) the sum of the Assigned Dollar Values
of all LC Disbursements denominated in the Alternative Currency that have not
yet been reimbursed by or on behalf of the applicable Borrowers at such time.
The LC Exposure of any Revolving Lender at any time shall be its Applicable
Percentage of the total LC Exposure at such time.
"LENDING SUBSIDIARIES" shall mean Sotheby's Financial
Services, Inc., Sotheby's Financial Services California, Inc., Oberon Inc.,
Theta Inc., Sotheby's Ventures LLC, Sotheby's Financial Services Limited and
Sotheby's Aktiengesellschaft.
"LETTER OF CREDIT" means any letter of credit issued
pursuant to this Agreement.
"LIBO RATE" shall mean, with respect to any Eurocurrency
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the rate at which deposits in the
currency in which such Borrowing is denominated approximately equal in principal
amount to the Loan of the Administrative Agent, in its capacity as a Lender (or,
if the Administrative Agent is not a Lender in respect of such Borrowing, then
the Loan of the Lender in respect of such Borrowing with the greatest Loan
amount), included in such Eurocurrency Borrowing, and for a maturity comparable
to such Interest Period are offered to the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, on the date that is two
Business Days prior to the commencement of such Interest Period.
<PAGE>
13
"LIEN" shall mean with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, encumbrance, charge or security interest in or on
such asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement relating to such asset and
(c) in the case of securities, any purchase option, call or similar right of a
third party with respect to such securities.
"LITIGATION LIABILITIES" shall mean liabilities (whether
actual or asserted), claims, judgments, settlements and expenses resulting from
(a) the antitrust investigation by the United States Department of Justice
disclosed prior to the date hereof or related antitrust investigations by other
Governmental Authorities, (b) antitrust litigation, whether commenced by
Governmental Authorities or other persons, arising out of the matters that are
the subject of any such investigation, (c) related shareholder derivative
lawsuits and claims and (d) related securities lawsuits and claims.
"LOAN" shall mean any Standby Loan.
"LOAN DOCUMENTS" shall mean this Agreement, including all
Exhibits and Schedules, and the Security Documents.
"MARGIN STOCK" shall have the meaning given such term under
Regulation U.
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" shall
mean a materially adverse change in, or a materially adverse effect on, the
business, assets, operations or financial condition of Holdings and its
Subsidiaries taken as a whole (other than any such change or effect resulting
from the Litigation Liabilities to the extent no Default shall have resulted
therefrom under Section 6.08 or any other provision of this Agreement).
"MATERIAL SUBSIDIARY" shall mean at any time (a) each
Subsidiary that is a Borrower and (b) any other Subsidiary that either (i) has a
Subsidiary Net Worth at such time in excess of 2.5% of Consolidated Net Worth at
such time or (ii) has consolidated assets in excess of 5% of the consolidated
assets of Holdings and its consolidated subsidiaries at such time.
"MATURITY DATE" shall mean July 11, 2001.
"MOODY'S" shall mean Moody's Investors Service, Inc.
"MORTGAGE" shall mean one or more mortgages or deeds of trust
in form and substance satisfactory to Holdings and the Collateral Agent.
"MORTGAGED PROPERTY" shall mean each parcel of real
property owned by Holdings or any Domestic Subsidiary on the date hereof or
at any time hereafter and the improvements thereto.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan as
defined in Section 4001(a)(3) of ERISA to which the Borrowers or any ERISA
Affiliate (other than one considered an ERISA Affiliate only pursuant to
subsection (m) or (o) of Code Section 414) is making or accruing an obligation
to make contributions, or has within any of the preceding five plan years made
or accrued an obligation to make contributions.
"OBLIGATIONS" shall mean (a) the due and punctual payment by
<PAGE>
14
the Borrowers of the principal of and interest (including interest accruing
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Loans, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, and (ii) all other monetary
obligations, including fees, costs, expenses and indemnities, whether primary,
secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of Holdings and the Subsidiaries to the Lenders
under this Agreement and the other Loan Documents, (b) the due and punctual
payment and performance of all covenants, agreements, obligations and
liabilities of the Borrowers, monetary or otherwise, under or pursuant to this
Agreement and the other Loan Documents and (c) the due and punctual payment of
all monetary obligations of Holdings and the Subsidiaries referred to in
Schedule 1.01A hereto.
"OBLIGATION CURRENCY" shall have the meaning assigned to
such term in Section 10.13.
"OTHER TAXES" shall have the meaning assigned to such term in
Section 2.19(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation
referred to and defined in ERISA.
"PERFECTION CERTIFICATE" shall mean a perfection certificate
in form and substance satisfactory to Holdings and the Collateral Agent,
substantially in the form of Exhibit E hereto.
"PERSON" shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership, government (or any
agency or political subdivision thereof) or other entity.
"PLAN" shall mean any employee pension benefit plan (other
than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or
Section 412 of the Code which is maintained for current or former employees, or
any beneficiary thereof, of the Borrowers or any ERISA Affiliate.
"PLEDGE AGREEMENTS" shall mean one or more pledge agreements
in form and substance satisfactory to Holdings and the Collateral Agent.
"REGISTER" shall have the meaning given such term in
Section 10.04(d).
"REGULATION D" shall mean Regulation D of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"REGULATION U" shall mean Regulation U of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"REGULATION X" shall mean Regulation X of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"REPORTABLE EVENT" shall mean any reportable event as defined
in Section 4043(b) of ERISA or the regulations issued thereunder with respect to
a Plan (other than a Plan maintained by an
<PAGE>
15
ERISA Affiliate that is considered an ERISA Affiliate only pursuant to
subsection (m) or (o) of Code Section 414).
"REQUIRED LENDERS" shall mean, at any time, Lenders having
Commitments representing at least 51% of the Total Commitment or, after the
Commitments shall have been terminated or for purposes of acceleration pursuant
to paragraph (a) of Article VII, Lenders holding Loans and participations in LC
Disbursements representing at least 51% of the aggregate principal amount of the
Loans and LC Disbursements outstanding. For purposes of determining the Required
Lenders, any Loans or LC Disbursements denominated in the Alternative Currency
shall be translated into Dollars at the Spot Exchange Rate in effect on the
applicable Denomination Date.
"RESPONSIBLE OFFICER" of any corporation shall mean any
executive officer or Financial Officer of such corporation and any other officer
or similar official thereof responsible for the administration of the
obligations of such corporation in respect of this Agreement.
"RESTRICTED PAYMENT" shall mean any dividend or other
distribution (whether in cash, securities or other property) with respect to any
Equity Interests in Holdings or any Subsidiary, or any payment (whether in cash,
securities or other property), including any sinking fund or similar deposit, on
account of the purchase, redemption, retirement, acquisition, cancelation or
termination of any Equity Interests in Holdings or any Subsidiary.
"S&P" shall mean Standard and Poor's Ratings Group, a division
of McGraw-Hill, Inc.
"SCHEDULED INDEBTEDNESS" shall mean all Indebtedness incurred
under the Existing Facility or listed on Schedule B.
"SECURITY AGREEMENT" shall mean a Security Agreement in form
and substance satisfactory to Holdings and the Collateral Agent.
"SECURITY DOCUMENTS" shall mean the Security Agreement, the
Pledge Agreements, the Trademark Security Agreement, the Mortgages and each
other security agreement or other instrument or document executed and
delivered pursuant to Section 5.09.
"SENIOR NOTES" shall mean Holdings' 6-7/8% Notes due 2009 in
an aggregate principal amount outstanding on the date hereof of $100,000,000.
"SENIOR NOTE INDENTURE" shall mean the Indenture dated as of
February 5, 1999, governing the Senior Notes, as amended, supplemented or
otherwise modified from time to time.
"SPECIFIED ASSETS" shall mean those assets listed on
Schedule 1.01B.
"SPOT EXCHANGE RATE" shall mean, on any day, (a) with respect
to the Alternative Currency in relation to Dollars, the spot rate at which
Dollars are offered on such day by The Chase Manhattan Bank in London for the
Alternative Currency at approximately 11:00 a.m. (London time), and (b) with
respect to Dollars in relation to the Alternative Currency, the spot rate at
which the Alternative Currency is offered on such day by The Chase Manhattan
Bank in London for Dollars at approximately 11:00 a.m. (London time). For
purposes of determining the Spot Exchange Rate in connection with an Alternative
Currency Borrowing, such Spot Exchange Rate shall be determined as of the
Denomination Date for such Borrowing with respect to transactions in the
Alternative
<PAGE>
16
Currency that will settle on the date of such Borrowing. Each determination of a
Spot Exchange Rate will be made by the Administrative Agent and will be
conclusive absent manifest error.
"STANDBY BORROWING" shall mean a borrowing consisting of
simultaneous Standby Loans from each of the Lenders.
"STANDBY BORROWING REQUEST" shall mean a request made pursuant
to Section 2.04 in the form of Exhibit A-5.
"STANDBY LOAN" shall mean a revolving loan made by a Lender
pursuant to Section 2.04. Each Standby Loan shall be a Eurocurrency Standby
Loan or an ABR Loan.
"STANDBY LOAN EXPOSURE" shall mean, with respect to any Lender
at any time, the sum of (a) the aggregate principal amount at such time of all
outstanding Standby Loans of such Lender denominated in Dollars, plus (b) the
Assigned Dollar Value at such time of the aggregate principal amount at such
time of all outstanding Standby Loans of such Lender that are Alternative
Currency Loans.
"STATUTORY RESERVE RATE" shall mean, with respect to any
currency, a fraction (expressed as a decimal), the numerator of which is the
number one and the denominator of which is the number one minus the aggregate of
the maximum reserve, liquid asset or similar percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by any Governmental Authority of the United States or of the
jurisdiction of such currency to which banks in such jurisdiction are subject
for any category of deposits or liabilities customarily used to fund loans in
such currency or by reference to which interest rates applicable to Loans in
such currency are determined. Eurocurrency Loans shall be deemed to be subject
to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender
under Regulation D or any other applicable law, rule or regulation. The
Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
"STERLING" shall mean lawful money of the United Kingdom.
"Subsidiary" shall mean, with respect to any person (herein
referred to as the "parent"), any corporation, partnership, association or other
business entity (a) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or more than 50% of the general partnership interests are, at the time any
determination is being made, owned, Controlled or held, or (b) which is, at the
time any determination is made, otherwise Controlled, by the parent or one or
more subsidiaries of the parent or by the parent and one or more subsidiaries of
the parent.
"SUBSIDIARY" shall mean any subsidiary of Holdings.
"SUBSIDIARY GUARANTEE AGREEMENT" shall mean a guarantee
agreement substantially in the form of Exhibit F hereto.
"SUBSIDIARY NET WORTH" shall mean, as to any Subsidiary at any
date, shareholder's equity of such Subsidiary and its consolidated subsidiaries
at such date determined in accordance with GAAP.
"TAXES" shall have the meaning assigned to such term in
Section 2.19(a).
"TOTAL COMMITMENT" shall mean, at any time, the aggregate
<PAGE>
17
amount of the Commitments, as in effect at such time.
"TRADEMARK SECURITY AGREEMENT" shall mean a Trademark Security
Agreement in form and substance satisfactory to Holdings and the Collateral
Agent.
"TRANCHE A COMMITMENT" shall mean, with respect to each Lender
at any time, a portion of such Lender's Commitment equal to such Lender's
Applicable Percentage of an amount equal to 15% of Consolidated Net Tangible
Assets as of the Designated Date.
"TRANCHE A BORROWING" shall mean a Borrowing consisting of
Tranche A Loans.
"TRANCHE A LOAN" shall mean a Loan made pursuant to the
Tranche A Commitment of any Lender.
"TRANCHE B BORROWING" shall mean a Borrowing consisting of
Tranche B Loans.
"TRANCHE B LOAN" shall mean a Loan made pursuant to the
requirements of Section 5.11.
"TRANCHE B/C COMMITMENT" shall mean, with respect to each
Lender at any time, a portion of such Lender's Commitment equal to the aggregate
amount of such Lender's Commitment minus such Lender's Tranche A Commitment at
such time.
"TRANCHE C BORROWING" shall mean a Borrowing consisting of
Tranche C Loans.
"TRANCHE C LOAN" shall mean a Loan, other than a Tranche B
Loan, made pursuant to the Tranche B/C Commitment of any Lender.
"TRANSFEREE" shall have the meaning assigned to such term in
Section 2.19(a).
"TYPE", when used in respect of any Loan or Borrowing, shall
refer to the rate by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined and the currency in which such Loan or
the Loans comprising such Borrowings are denominated. For purposes hereof, the
term "rate" shall include the LIBO Rate and the Alternate Base Rate, and the
term "currency" shall include Dollars and the Alternative Currency.
"WITHDRAWAL LIABILITY" shall mean liability to a Multiemployer
Plan as a result of a complete or partial withdrawal from such Multiemployer
Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
"YORK AVENUE PROPERTY" shall mean the land, building and
improvements located at 1334 York Avenue, New York, New York.
"YORK AVENUE PURCHASE AGREEMENT" shall mean the Agreement of
Sale and Purchase dated September 9, 1999, between The Benenson Capital Company,
Lawrence A. Benenson and Raymond E. Benenson and York Avenue Development, Inc.,
and assigned by York Avenue Development, Inc., to Sotheby's, Inc.
<PAGE>
18
SECTION 1.02. TERMS GENERALLY. The definitions in Section 1.01
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; PROVIDED,
HOWEVER, that if the Borrowers notify the Administrative Agent that the
Borrowers wish to amend any covenant in Article VI or any related definition to
eliminate the effect of any change in GAAP occurring after the date of this
Agreement on the operation of such covenant (or if the Administrative Agent
notifies the Borrowers that the Required Lenders wish to amend Article VI or any
related definition for such purpose), then the Borrowers' compliance with such
covenant shall be determined on the basis of GAAP in effect immediately before
the relevant change in GAAP became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Borrowers
and the Required Lenders. The phrase "the date of this Agreement" or "the date
hereof", or words of similar effect, when used herein, shall mean the date of
this Amended and Restated Credit Agreement.
ARTICLE II. THE CREDITS
SECTION 2.01. COMMITMENTS. (a) Subject to the terms and
conditions and relying upon the representations and warranties herein set forth,
each Lender agrees, severally and not jointly, to make Standby Loans to the
Borrowers, at any time and from time to time on and after the date hereof and
until the earlier of the Maturity Date and the termination of the Commitment of
such Lender in accordance with the terms hereof, in Dollars or the Alternative
Currency (as specified in the Standby Borrowing Requests with respect thereto),
in an aggregate principal amount at any time outstanding that will not result in
such Lender's Standby Loan Exposure exceeding such Lender's Commitment, subject,
however, to the conditions that (i) at no time shall the aggregate Standby Loan
Exposures and LC Exposures of all the Lenders exceed the Total Commitment; (ii)
at no time shall the aggregate Standby Loan Exposures and LC Exposures of all
the Lenders exceed the Borrowing Base then in effect; and (iii) at all times the
outstanding aggregate principal amount of all Standby Loans made by each Lender
shall equal such Lender's Applicable Percentage of the outstanding aggregate
principal amount of all Standby Loans. Each Standby Borrowing (other than a
Tranche B Borrowing) shall be made pursuant to the Lenders' Tranche A
Commitments to the extent of the amount of such Tranche A Commitments that shall
remain unused and available at the time of such Borrowing, and each Tranche B
Borrowing and any amount of any other Standby Borrowing in excess of the Tranche
A Commitments available at the time of such Borrowing shall be made pursuant to
the Lenders' Tranche B/C Commitments. Each Lender's Commitment is set forth
opposite its name in Schedule 2.01. The Commitments may be terminated or reduced
from time to time pursuant to Section 2.11. Within the foregoing limits, the
Borrowers may borrow, pay or prepay and reborrow hereunder, on and after the
date hereof and prior to the Maturity Date, subject to the terms, conditions and
limitations set forth herein.
(b) For purposes of paragraph (a) above, if the Dollar
Equivalent of an outstanding Borrowing denominated in the Alternative Currency,
determined by the Administrative Agent based upon the
<PAGE>
19
applicable Spot Exchange Rate as of the date that is three Business Days before
the end of the Interest Period with respect to such Borrowing, does not exceed
by more than 5% the Assigned Dollar Value of such Borrowing, and if the entire
amount of such Borrowing is to be refinanced with a new Borrowing of equivalent
amount in the same currency and by the same Borrower, then such Borrowing shall
continue to have the same Assigned Dollar Value as in effect prior to such
refinancing. The Administrative Agent shall determine the applicable Spot
Exchange Rate as of the date three Business Days before the end of an Interest
Period with respect to a Borrowing denominated in the Alternative Currency and
shall promptly notify the Borrower and the Lenders whether the Dollar Equivalent
of such Borrowing exceeds by more than 5% the Assigned Dollar Value thereof.
SECTION 2.02. LOANS. (a) Each Standby Loan shall be made as
part of a Borrowing consisting of Loans made by the Lenders ratably in
accordance with their respective Commitments (and their respective Tranche A
Commitments or Tranche B/C Commitments, as the case may be); PROVIDED, HOWEVER,
that the failure of any Lender to make any Standby Loan shall not in itself
relieve any other Lender of its obligation to lend hereunder (it being
understood, however, that no Lender shall be responsible for the failure of any
other Lender to make any Loan required to be made by such other Lender). The
Standby Loans comprising any Borrowing shall be in (i) an aggregate principal
amount or Assigned Dollar Value which is not less than $10,000,000 (or the
Alternative Currency Equivalent of such amount in the case of an Alternative
Currency Borrowing) and, except in the case of Alternative Currency Borrowing,
an integral multiple of $1,000,000 or (ii) an aggregate principal amount equal
to the remaining balance of the available Commitments (or the Alternative
Currency Equivalent thereof in the case of an Alternative Currency Borrowing).
(b) Each Standby Borrowing shall be comprised entirely of
Eurocurrency Standby Loans or ABR Loans, as the Borrowers may request pursuant
to Section 2.03 or 2.04, as applicable. Each Lender may at its option make any
Eurocurrency Loan by causing any domestic or foreign branch or affiliate of such
Lender to make such Loan; PROVIDED that any exercise of such option shall not
affect the obligation of the applicable Borrower to repay such Loan in
accordance with the terms of this Agreement. Borrowings of more than one Type
may be outstanding at the same time; PROVIDED, HOWEVER, that none of the
Borrowers shall be entitled to request any Borrowing which, if made, would
result in an aggregate of more than twenty separate Standby Borrowings being
outstanding hereunder at any one time. For purposes of the foregoing, Borrowings
having different Interest Periods or denominated in different currencies,
regardless of whether they commence on the same date, shall be considered
separate Borrowings.
(c) Subject to Section 2.05, each Lender shall make each Loan
to be made by it hereunder on the proposed date thereof by wire transfer to such
account as the Administrative Agent may designate in federal funds (in the case
of any Loan denominated in Dollars) or such other immediately available funds as
may then be customary for the settlement of international transactions in
Sterling not later than 12:00 (noon), New York City time, in the case of
fundings to an account in New York City, or 11:00 a.m., local time, in the case
of fundings to an account in another jurisdiction, and the Administrative Agent
shall by 1:00 p.m., New York City time, in the case of fundings to an account in
New York City, or 12:00 (noon), local time, in the case of fundings to an
account in another jurisdiction, credit the amounts so received to an account
designated by the applicable Borrower in the applicable Borrowing Request, which
account must be in the country of the currency of the Loan (it being understood
that the funding may be for the credit
<PAGE>
20
of an account outside such country) or, if a Borrowing shall not occur on such
date because any condition precedent herein specified shall not have been met,
return the amounts so received to the respective Lenders. Standby Loans shall be
made by the Lenders pro rata in accordance with Section 2.16. Unless the
Administrative Agent shall have received notice from a Lender prior to the date
of any Borrowing that such Lender will not make available to the Administrative
Agent such Lender's portion of such Borrowing, the Administrative Agent may
assume that such Lender has made such portion available to the Administrative
Agent on the date of such Borrowing in accordance with this paragraph (c) and
the Administrative Agent may, in reliance upon such assumption, make available
to the applicable Borrower on such date a corresponding amount in the required
currency. If the Administrative Agent shall have so made funds available then to
the extent that such Lender shall not have made such portion available to the
Administrative Agent, such Lender and the applicable Borrower severally agree to
repay to the Administrative Agent forthwith on demand such corresponding amount
together with interest thereon in such currency, for each day from the date such
amount is made available to the applicable Borrower until the date such amount
is repaid to the Administrative Agent at (i) in the case of the Borrower, the
interest rate applicable at the time to the Loans comprising such Borrowing and
(ii) in the case of such Lender, a rate determined by the Administrative Agent
to represent its cost of overnight or short-term funds in the relevant currency
(which determination shall be conclusive absent manifest error). If such Lender
shall repay to the Administrative Agent such corresponding amount, such amount
shall constitute such Lender's Loan as part of such Borrowing for purposes of
this Agreement.
(d) Notwithstanding any other provision of this Agreement, no
Borrower shall be entitled to request any Borrowing if the Interest Period
requested with respect thereto would end after the Maturity Date.
SECTION 2.03. LETTERS OF CREDIT. (a) GENERAL. Subject to the
terms and conditions set forth herein, any Borrower may request the issuance of
Letters of Credit denominated in dollars or in the Alternative Currency for its
own account, in a form reasonably acceptable to the Administrative Agent and the
Issuing Bank, at any time and from time to time after the date hereof and until
the earlier of the Maturity Date and the termination of the Commitments in
accordance with the terms hereof. In the event of any inconsistency between the
terms and conditions of this Agreement and the terms and conditions of any form
of letter of credit application or other agreement submitted by the applicable
Borrower to, or entered into by the applicable Borrower with, the Issuing Bank
relating to any Letter of Credit, the terms and conditions of this Agreement
shall control. Letters of Credit will be issued solely to support obligations
owed to persons that are Lenders as of the respective date of issuance of such
Letters of Credit.
(b) NOTICE OF ISSUANCE, AMENDMENT, RENEWAL, EXTENSION; CERTAIN
CONDITIONS. To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), the applicable
Borrower shall hand deliver or telecopy (or transmit by electronic
communication, if arrangements for doing so have been approved by the Issuing
Bank) to the Issuing Bank and the Administrative Agent (reasonably in advance of
the requested date of issuance, amendment, renewal or extension) a notice
requesting the issuance of a Letter of Credit, or identifying the Letter of
Credit to be amended, renewed or extended, and specifying the date of issuance,
amendment,
<PAGE>
21
renewal or extension (which shall be a Business Day), the date on which such
Letter of Credit is to expire (which shall comply with paragraph (c) of this
Section), the amount of such Letter of Credit, the name and address of the
beneficiary thereof and such other information as shall be necessary to prepare,
amend, renew or extend such Letter of Credit. If requested by the Issuing Bank,
the applicable Borrower also shall submit a letter of credit application on the
Issuing Bank's standard form in connection with any request for a Letter of
Credit. A Letter of Credit shall be issued, amended, renewed or extended only if
(and upon issuance, amendment, renewal or extension of each Letter of Credit the
Borrower shall be deemed to represent and warrant that), after giving effect to
such issuance, amendment, renewal or extension (i) the LC Exposure shall not
exceed $50,000,000; (ii) the sum of the LC Exposure and the Standby Loan
Exposure shall not exceed the Total Commitment; and (iii) the sum of the LC
Exposure and the Standby Loan Exposure shall not exceed the Borrowing Base then
in effect.
(c) EXPIRATION DATE. Each Letter of Credit shall expire at or
prior to the close of business on the earlier of (i) the date one year after the
date of the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Maturity Date.
(d) PARTICIPATIONS. By the issuance of a Letter of Credit (or
an amendment to a Letter of Credit increasing the amount thereof) and without
any further action on the part of the Issuing Bank or the Lenders, the Issuing
Bank hereby grants to each Lender, and each Lender hereby acquires from the
Issuing Bank, a participation in such Letter of Credit equal to such Lender's
Applicable Percentage of the aggregate amount available to be drawn under such
Letter of Credit. In consideration and in furtherance of the foregoing, each
Lender hereby absolutely and unconditionally agrees to pay to the Administrative
Agent, for the account of the Issuing Bank, such Lender's Applicable Percentage
of each LC Disbursement made by the Issuing Bank and not reimbursed by the
applicable Borrower on the date due as provided in paragraph (e) of this
Section, or of any reimbursement payment required to be refunded to the
applicable Borrower for any reason. Each Lender acknowledges and agrees that its
obligation to acquire participations pursuant to this paragraph in respect of
Letters of Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including any amendment, renewal or extension of any
Letter of Credit or the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever.
(e) REIMBURSEMENT. If the Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit, the applicable Borrower shall
reimburse such LC Disbursement by paying to the Administrative Agent an amount
equal to such LC Disbursement not later than 12:00 noon, New York City time, on
the date that such LC Disbursement is made, if the Borrower shall have received
notice of such LC Disbursement prior to 10:00 a.m., New York City time, on such
date, or, if such notice has not been received by the Borrower prior to such
time on such date, then not later than 12:00 noon, New York City time, on (i)
the Business Day that the applicable Borrower receives such notice, if such
notice is received prior to 10:00 a.m., New York City time, on the day of
receipt, or (ii) the Business Day immediately following the day that the
applicable Borrower receives such notice, if such notice is not received prior
to such time on the day of receipt. If the applicable Borrower fails to make
such payment when due, the Administrative Agent shall notify each Lender of the
applicable LC Disbursement, the payment then due from the applicable Borrower in
respect thereof and such Lender's Applicable
<PAGE>
22
Percentage thereof. Promptly following receipt of such notice, each Lender shall
pay to the Administrative Agent its Applicable Percentage of the payment then
due from the applicable Borrower, in the same manner as provided in Section
2.02(c) with respect to Loans made by such Lender (and Section 2.02(c) shall
apply, MUTATIS MUTANDIS, to the payment obligations of the Lenders), and the
Administrative Agent shall promptly pay to the Issuing Bank the amounts so
received by it from the Lenders. Promptly following receipt by the
Administrative Agent of any payment from the applicable Borrower pursuant to
this paragraph, the Administrative Agent shall distribute such payment to the
Issuing Bank or, to the extent that Lenders have made payments pursuant to this
paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing
Bank as their interests may appear. Any payment made by a Lender pursuant to
this paragraph to reimburse the Issuing Bank for any LC Disbursement shall not
constitute a Loan and shall not relieve the applicable Borrower of its
obligation to reimburse such LC Disbursement.
(f) OBLIGATIONS ABSOLUTE. The applicable Borrower's obligation
to reimburse LC Disbursements as provided in paragraph (e) of this Section shall
be absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or enforceability of any
Letter of Credit or this Agreement, or any term or provision therein, (ii) any
draft or other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrower's obligations hereunder. Neither
the Administrative Agent, the Lenders nor the Issuing Bank, nor any of their
affiliates, shall have any liability or responsibility by reason of or in
connection with the issuance or transfer of any Letter of Credit or any payment
or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of the
Issuing Bank; PROVIDED that the foregoing shall not be construed to excuse the
Issuing Bank from liability to the applicable Borrower to the extent of any
direct damages (as opposed to consequential damages, claims in respect of which
are hereby waived by such Borrower to the extent permitted by applicable law)
suffered by such Borrower that are caused by the Issuing Bank's failure to
exercise care when determining whether drafts and other documents presented
under a Letter of Credit comply with the terms thereof. The parties hereto
expressly agree that, in the absence of gross negligence or wilful misconduct on
the part of the Issuing Bank (as finally determined by a court of competent
jurisdiction), the Issuing Bank shall be deemed to have exercised care in each
such determination. In furtherance of the foregoing and without limiting the
generality thereof, the parties agree that, with respect to documents presented
which appear on their face to be in substantial compliance with the terms of a
Letter of Credit, the Issuing Bank may, in its sole discretion, either accept
and make payment upon such documents without responsibility for further
investigation, regardless of any notice or information to the contrary, or
refuse to accept and make payment upon such documents if such documents are not
in strict compliance with the terms of such Letter of Credit.
<PAGE>
23
(g) DISBURSEMENT PROCEDURES. The Issuing Bank shall, promptly
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Administrative Agent and the applicable Borrower by telephone
(confirmed by telecopy) of such demand for payment and whether the Issuing Bank
has made or will make an LC Disbursement thereunder; PROVIDED that any failure
to give or delay in giving such notice shall not relieve the applicable Borrower
of its obligation to reimburse the Issuing Bank and the Lenders with respect to
any such LC Disbursement.
(h) INTERIM INTEREST. If the Issuing Bank shall make any LC
Disbursement, then, unless the applicable Borrower shall reimburse such LC
Disbursement in full on the date such LC Disbursement is made, the unpaid amount
thereof shall bear interest, for each day from and including the date such LC
Disbursement is made to but excluding the date that the applicable Borrower
reimburses such LC Disbursement, at the rate per annum then applicable to ABR
Loans; PROVIDED that, if the applicable Borrower fails to reimburse such LC
Disbursement when due pursuant to paragraph (e) of this Section, then Section
2.09 shall apply. Interest accrued pursuant to this paragraph shall be for the
account of the Issuing Bank, except that interest accrued on and after the date
of payment by any Lender pursuant to paragraph (e) of this Section to reimburse
the Issuing Bank shall be for the account of such Lender to the extent of such
payment.
(i) REPLACEMENT OF THE ISSUING BANK. The Issuing Bank may be
replaced at any time by written agreement among Holdings, the Administrative
Agent, the replaced Issuing Bank and the successor Issuing Bank. The
Administrative Agent shall notify the Lenders of any such replacement of the
Issuing Bank. At the time any such replacement shall become effective, the
applicable Borrower shall pay all unpaid fees accrued for the account of the
replaced Issuing Bank pursuant to Section 2.06. From and after the effective
date of any such replacement, (i) the successor Issuing Bank shall have all the
rights and obligations of the Issuing Bank under this Agreement with respect to
Letters of Credit to be issued thereafter and (ii) references herein to the term
"Issuing Bank" shall be deemed to refer to such successor or to any previous
Issuing Bank, or to such successor and all previous Issuing Banks, as the
context shall require. After the replacement of an Issuing Bank hereunder, the
replaced Issuing Bank shall remain a party hereto and shall continue to have all
the rights and obligations of an Issuing Bank under this Agreement with respect
to Letters of Credit issued by it prior to such replacement, but shall not be
required to issue additional Letters of Credit.
(j) CASH COLLATERALIZATION. If any Event of Default shall
occur and be continuing, on the Business Day that the applicable Borrower
receives notice from the Administrative Agent or the Required Lenders demanding
the deposit of cash collateral pursuant to this paragraph, the applicable
Borrower shall deposit in an account with the Administrative Agent, in the name
of the Administrative Agent and for the benefit of the Lenders, an amount in
cash equal to the LC Exposure as of such date plus any accrued and unpaid
interest thereon; PROVIDED that the obligation to deposit such cash collateral
shall become effective immediately, and such deposit shall become immediately
due and payable, without demand or other notice of any kind, upon the occurrence
of any Event of Default with respect to the Borrower described in clause (l) or
(m) of Article VII. Each such deposit shall be held by the Administrative Agent
as collateral for the payment and performance of the obligations of the
Borrowers under this Agreement. The Administrative Agent shall have exclusive
dominion and control,
<PAGE>
24
including the exclusive right of withdrawal, over such account. Other than any
interest earned on the investment of such deposits, which investments shall be
made at the option and sole discretion of the Administrative Agent and at the
applicable Borrower's risk and expense, such deposits shall not bear interest.
Interest or profits, if any, on such investments shall accumulate in such
account. Moneys in such account shall be applied by the Administrative Agent to
reimburse the Issuing Bank for LC Disbursements for which it has not been
reimbursed and, to the extent not so applied, shall be held for the satisfaction
of the reimbursement obligations of the applicable Borrower for the LC Exposure
at such time or, if the maturity of the Loans has been accelerated (but subject
to the consent of Revolving Lenders with LC Exposure representing a majority in
amount of the total LC Exposure), be applied to satisfy other obligations of the
Borrower under this Agreement. If any Borrower is required to provide an amount
of cash collateral hereunder as a result of the occurrence of an Event of
Default, such amount (to the extent not applied as aforesaid) shall be returned
to such Borrower within three Business Days after all Events of Default have
been cured or waived.
SECTION 2.04. STANDBY BORROWING PROCEDURE. In order to request
a Standby Borrowing, the applicable Borrower shall give telephonic notice to the
Administrative Agent (confirmed by hand delivery or telecopy of a duly completed
Standby Borrowing Request in the form of Exhibit A-5), (a) in the case of a
Eurocurrency Standby Borrowing, not later than 11:00 noon, London time, three
Business Days before a proposed borrowing and (b) in the case of an ABR
Borrowing, not later than 11:00 a.m., New York City time, on the Business Day of
a proposed borrowing. Such notice shall be irrevocable and shall in each case
specify (i) whether the Borrowing then being requested is to be a Eurocurrency
Borrowing or an ABR Borrowing; (ii) the date of such Borrowing (which shall be a
Business Day), (iii) the aggregate principal amount of such Borrowing, (iv) the
currency of such Borrowing (which, in the case of an ABR Borrowing, shall be
Dollars) and (v) if such Borrowing is to be a Eurocurrency Borrowing, the
Interest Period with respect thereto. If no election as to the currency of
Borrowing is specified in any Standby Borrowing Request, then the applicable
Borrower shall be deemed to have requested a Borrowing in Dollars. If no
election as to the Type of Borrowing is specified, then the requested Borrowing
shall be an ABR Borrowing if denominated in Dollars or a Eurocurrency Borrowing
if denominated in the Alternative Currency. If no Interest Period with respect
to any Eurocurrency Borrowing is specified, then the applicable Borrower shall
be deemed to have selected an Interest Period of one month's duration. If the
applicable Borrower shall not have given notice in accordance with this Section
2.04 of its election to refinance a Standby Borrowing prior to the end of the
Interest Period in effect for such Borrowing (or, if such Borrowing is a
Eurocurrency Borrowing, the third Business Day prior to the end of such Interest
Period), then such Borrower shall (unless such Borrowing is repaid at the end of
such Interest Period) be deemed to have given notice of an election to refinance
such Borrowing with an ABR Borrowing if denominated in Dollars or a Eurocurrency
Borrowing in the same currency and with an Interest Period of one month if
denominated in the Alternative Currency. The Administrative Agent shall promptly
advise the Lenders of any notice given pursuant to this Section 2.04 (and the
contents thereof), of each Lender's portion of the requested Borrowing and, in
the case of an Alternative Currency Borrowing, of the Dollar Equivalent of the
Alternative Currency amount specified in the applicable Borrowing Request and
the Spot Exchange Rate utilized to determine such Dollar Equivalent. Subject to
Section 2.01(b), if the Dollar Equivalent of a Lender's portion of any such
Borrowing would exceed such Lender's remaining available Commitment, such
availability to be determined by the Administrative Agent, then such Lender's
portion
<PAGE>
25
of such Borrowing shall be reduced to the Alternative Currency Equivalent of
such Lender's remaining available Commitment.
SECTION 2.05. REFINANCINGS. Each Borrower may refinance all or
any part of any Standby Borrowing with a Standby Borrowing of the same or a
different Type made pursuant to Section 2.04, subject to the conditions and
limitations set forth herein and elsewhere in this Agreement. Any Borrowing or
part thereof in a particular currency so refinanced shall be deemed to be repaid
in accordance with Section 2.07 with the proceeds of a new Borrowing hereunder
and the proceeds of the new Borrowing under the same currency, to the extent
they do not exceed the principal amount of the Borrowing being refinanced, shall
not be paid by the Lenders to the Administrative Agent or by the Administrative
Agent to the applicable Borrower pursuant to Section 2.02(c); PROVIDED, HOWEVER,
that in the case of any refinancing of a Borrowing with another Borrowing in the
same currency, (i) if the principal amount extended by a Lender in a refinancing
is greater than the principal amount extended by such Lender in the Borrowing
being refinanced, then such Lender shall pay such difference to the
Administrative Agent for distribution to the Lenders described in (ii) below,
(ii) if the principal amount extended by a Lender in the Borrowing being
refinanced is greater than the principal amount being extended by such Lender in
the refinancing, the Administrative Agent shall return the difference to such
Lender out of amounts received pursuant to (i) above, and (iii) to the extent
any Lender fails to pay the Administrative Agent amounts due from it pursuant to
(i) above, any Loan or portion thereof being refinanced with such amounts shall
not be deemed repaid in accordance with Section 2.07 and shall be payable by the
applicable Borrower.
SECTION 2.06. FEES. (a) Holdings agrees to pay to each Lender,
through the Administrative Agent, on each March 31, June 30, September 30 and
December 31 and on the Maturity Date, a commitment fee (a "Commitment Fee")
equal to the Commitment Fee Percentage of the daily average unused amount of the
Commitment of such Lender (whether or not the conditions set forth in Section
4.01 shall have been satisfied), during the preceding quarter (or shorter period
commencing with the date hereof or ending with the Maturity Date or any date on
which the Commitment of such Lender shall be terminated). All Commitment Fees
shall be computed on the basis of the actual number of days elapsed in a year of
360 days. The Commitment Fee due to each Lender shall commence to accrue on the
date of this Agreement and shall cease to accrue on the earlier of the Maturity
Date and the date on which the Commitment of such Lender shall have been
terminated and the Loans of such Lender shall have been repaid.
(b) Holdings agrees to pay the Administrative Agent, for its
own account, such fees, and at such times, as have been separately agreed upon.
(c) All Fees shall be paid on the dates due, in immediately
available funds, to the Administrative Agent for distribution, if and as
applicable, among the Lenders (and, if applicable, to the Issuing Bank with
respect to Fees owed to it). Once paid, none of the Fees shall be refundable
except in the case of errors.
(d) Holdings agrees to pay (i) to the Administrative Agent for
the account of each Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the Applicable Margin
used to determine interest on Eurocurrency Loans, on the average daily amount of
such Lender's LC Exposure (excluding any portion thereof attributable to
unreimbursed LC Disbursements) during the period from and including the date
hereof to but excluding the later of the date on which such Lender's Commitment
terminates and the date on
<PAGE>
26
which such Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a
fronting fee, which shall accrue at the rate or rates per annum separately
agreed upon between Holdings and the Issuing Bank on the average daily amount of
the LC Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the date hereof to but
excluding the later of the date of termination of the Revolving Commitments and
the date on which there ceases to be any LC Exposure, as well as the Issuing
Bank's standard fees with respect to the issuance, amendment, renewal or
extension of any Letter of Credit or processing of drawings thereunder.
Participation fees and fronting fees accrued through and including the last day
of March, June, September and December of each year shall be payable on the
third Business Day following such last day, commencing on the first such date to
occur after the Effective Date; PROVIDED that all such fees shall be payable on
the date on which the Commitments terminate and any such fees accruing after the
date on which the Commitments terminate shall be payable on demand. Any other
fees payable to the Issuing Bank pursuant to this paragraph shall be payable
within 10 days after demand. All participation fees and fronting fees shall be
computed on the basis of a year of 360 days and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
SECTION 2.07. REPAYMENT OF LOANS. (a) The outstanding
principal balance of each Loan made by each Lender to each Borrower shall be
payable on the last day of the Interest Period applicable to such Loan and on
the Maturity Date. Each Loan shall bear interest from the date of the Borrowing
of which such Loan is a part on the outstanding principal balance thereof as set
forth in Section 2.08.
(b) Each Lender shall, and is hereby authorized by the
Borrowers to, maintain, in accordance with its usual practice, records
evidencing the indebtedness of each Borrower to such Lender hereunder from time
to time, including the date, amount, currency and Type of and the Interest
Period applicable to each Loan made by such Lender from time to time and the
amounts of principal and interest paid to such Lender from time to time in
respect of each such Loan.
(c) The entries made in the records maintained pursuant to
paragraph (b) of this Section 2.07 and in the Register maintained by the
Administrative Agent pursuant to Section 10.04(d) shall be prima facie evidence
of the existence and amounts of the obligations of each Borrower to which such
entries relate; PROVIDED, HOWEVER, that the failure of any Lender or the
Administrative Agent to maintain or to make any entry in such records or the
Register, as applicable, or any error therein shall not in any manner affect the
obligation of any Borrower to repay any Loans in accordance with the terms of
this Agreement.
SECTION 2.08. INTEREST ON LOANS. (a) Subject to the provisions
of Section 2.09, the Eurocurrency Standby Loans comprising each Eurocurrency
Borrowing shall bear interest (computed on the basis of the actual number of
days elapsed over a year of 360 days), at a rate per annum equal to (i) the LIBO
Rate for the Interest Period in effect for the Borrowing of which such Loan is
part plus the Applicable Margin from time to time in effect multiplied by (ii)
the Statutory Reserve Rate.
(b) Subject to the provisions of Section 2.09, the Loans
comprising each ABR Borrowing shall bear interest (computed on the basis of the
actual number of days elapsed over a year of 365 or 366 days, as applicable,
when determined by reference to the Prime Rate and over a year of 360 days at
all other times) at a rate per annum equal to the Alternate Base Rate plus the
Applicable Margin from time to time in
<PAGE>
27
effect.
(c) Interest on each Loan shall be payable in arrears on each
Interest Payment Date applicable to such Loan except as otherwise provided in
this Agreement. The applicable LIBO Rate or Alternate Base Rate for each
Interest Period or day within an Interest Period, as the case may be, shall be
determined by the Administrative Agent, and such determination shall be
conclusive absent manifest error.
SECTION 2.09. DEFAULT INTEREST. If any Borrower shall default
in the payment of the principal of or interest on any Loan or any other amount
becoming due hereunder, whether by scheduled maturity, notice of prepayment,
acceleration or otherwise, such Borrower shall on demand from time to time from
the Administrative Agent pay interest, to the extent permitted by law, on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment) at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) equal to the Alternate
Base Rate plus 2% per annum (or, in the case of the principal of any Loan, if
higher, the rate of interest otherwise applicable, or most recently applicable,
to such Loan hereunder plus 2% per annum).
SECTION 2.10. ALTERNATE RATE OF INTEREST. In the event, and on
each occasion, that on the day two Business Days prior to the commencement of
any Interest Period for a Eurocurrency Borrowing of any Type the Administrative
Agent shall have determined that Dollar deposits or deposits in the Alternative
Currency in which such Borrowing is to be denominated in the principal amounts
of the Loans comprising such Borrowing are not generally available in the London
interbank market, or that the rates at which such deposits are being offered
will not adequately and fairly reflect the cost to any Lender of making or
maintaining its Eurocurrency Loan during such Interest Period, or that
reasonable means do not exist for ascertaining the LIBO Rate, the Administrative
Agent shall, as soon as practicable thereafter, give written or telecopy notice
of such determination to the applicable Borrower and the Lenders. In the event
of any such determination, until the Administrative Agent shall have advised the
applicable Borrower and the Lenders that the circumstances giving rise to such
notice no longer exist, any request by a Borrower for a Eurocurrency Standby
Borrowing of the affected Type or in the affected currency shall be deemed to be
a request for an ABR Borrowing denominated in Dollars. Each determination by the
Administrative Agent hereunder shall be conclusive absent manifest error.
SECTION 2.11. TERMINATION AND REDUCTION OF COMMITMENTS.
(a) The Commitments shall be automatically terminated at the
Administrative Agent's close of business in New York City on the
Maturity Date.
(b) Upon at least three Business Days' prior irrevocable
written or telecopy notice to the Administrative Agent, Holdings (on behalf of
all the Borrowers) may at any time in whole permanently terminate, or from time
to time in part permanently reduce, the Total Commitment; PROVIDED, HOWEVER,
that (i) each partial reduction of the Total Commitment shall be in an integral
multiple of $1,000,000 and in a minimum principal amount of $5,000,000 or if
less, the remaining total Commitment and (ii) no such termination or reduction
shall be made which would reduce the Total Commitment to an amount less than the
aggregate outstanding principal amount of the Standby Loans.
(c) Each reduction in the Total Commitment hereunder shall be
made ratably among the Lenders in accordance with their respective Commitments.
Holdings shall pay to the Administrative Agent for the
<PAGE>
28
account of the Lenders, on the date of each termination or reduction, the
Commitment Fees on the amount of the Commitments so terminated or reduced
accrued to but not including the date of such termination or reduction.
(d) Each reduction in the Total Commitment hereunder shall
reduce the Lenders' Tranche B/C Commitments to the extent of the amount of such
Tranche B/C Commitments that shall remain in effect at the time of such
reduction, and thereafter shall reduce the Lenders' Tranche A Commitments.
SECTION 2.12. PREPAYMENT. (a) Each Borrower shall have the
right at any time and from time to time to prepay any Borrowing, in whole or in
part, upon giving written or telecopy notice (or telephone notice promptly
confirmed by written or telecopy notice) to the Administrative Agent: (i) in the
case of Eurocurrency Loans no later than 12:00 noon, New York City time, three
Business Days prior to prepayment and (ii) in the case of ABR Loans, no later
than 11:00 a.m., New York City time, on the Business Day of the prepayment;
PROVIDED, HOWEVER, that each partial prepayment shall be in an amount which is
an integral multiple of $1,000,000 and not less than $5,000,000.
(b) On the date of any termination or reduction of the
Commitments pursuant to Section 2.11, the Borrowers shall pay or prepay so much
of the Standby Borrowings as shall be necessary in order that the aggregate
outstanding principal amount of all Loans will not exceed the Total Commitment
after giving effect to such termination or reduction.
(c) In the event and on each occasion that the sum of the
aggregate outstanding principal amount of all Loans exceeds the Borrowing Base,
the Borrowers shall prepay Borrowings in an aggregate amount equal to such
excess.
(d) Each notice of prepayment under this Section 2.12 shall
specify the prepayment date and the principal amount of each Borrowing (or
portion thereof) to be prepaid, shall be irrevocable and shall commit the
applicable Borrower to prepay such Borrowing (or portion thereof) by the amount
stated therein on the date stated therein. All prepayments under this Section
2.12 shall be subject to Section 2.15 but otherwise without premium or penalty.
(e) Each prepayment under this Section shall be applied first
against the Lenders' Tranche C Loans to the extent of the amount of such Tranche
C Loans that shall be outstanding at the time of such prepayment, second against
the Lenders' Tranche A Loans to the extent of the amount of such Tranche A Loans
that shall be outstanding at the time of such prepayment and thereafter against
the Lenders' Tranche B Loans.
SECTION 2.13. RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES.
(a) Notwithstanding any other provision herein, if after the date of this
Agreement any change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender (or any
lending office of any Lender) or the Issuing Bank of the principal of or
interest on any Eurocurrency Loan made by such Lender or any Letter of Credit or
participation therein, or any Fees or other amounts payable hereunder (other
than changes in respect of taxes imposed on the overall net income or capital
stock of such Lender by the jurisdiction in which such Lender has its principal
office or by any political subdivision or taxing authority therein), or shall
impose, modify or deem applicable
<PAGE>
29
any reserve, special deposit or similar requirement against assets of, deposits
with or for the account of or credit extended by such Lender (or any lending
office of such Lender) or the Issuing Bank, or shall impose on such Lender or
the Issuing Bank or the London interbank market any other condition affecting
this Agreement or any Eurocurrency Loan made by such Lender or any Letter of
Credit or participation therein, and the result of any of the foregoing shall be
to increase the cost to such Lender of making or maintaining any Eurocurrency
Loan or to increase the cost to such Lender or the Issuing Bank of participating
in, issuing or maintaining any Letter of Credit or to reduce the amount of any
sum received or receivable by such Lender hereunder (whether of principal,
interest or otherwise) by an amount deemed by such Lender to be material, then
Holdings shall (or shall cause the Borrowers to) pay to such Lender or the
Issuing Bank upon demand such additional amount or amounts as will compensate
such Lender or the Issuing Bank for such additional costs incurred or reduction
suffered.
(b) If any Lender or the Issuing Bank shall have determined
that any change after the date hereof in the applicability of any law, rule,
regulation or guideline adopted pursuant to or arising out of the July 1988
report of the Basel Committee on Banking Regulations and Supervisory Practices
entitled "International Convergence of Capital Measurement and Capital
Standards", or the adoption after the date hereof of any other law, rule,
regulation or guideline regarding capital adequacy, or any change in any of the
foregoing or in the interpretation or administration of any of the foregoing by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or any Lender's or the Issuing Bank's holding
company with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on such
Lender's or the Issuing Bank's capital or on the capital of such Lender's or the
Issuing Bank's holding company, if any, as a consequence of this Agreement or
the Loans or Letters of Credit or participations therein made by such Lender or
the Issuing Bank pursuant hereto to a level below that which such Lender, the
Issuing Bank or such Lender's or the Issuing Bank's holding company could have
achieved but for such applicability, adoption, change or compliance (taking into
consideration such Lender's and the Issuing Bank's policies and the policies of
such Lender's and the Issuing Bank's holding company with respect to capital
adequacy) by an amount deemed by such Lender or the Issuing Bank to be material,
then from time to time Holdings shall (or shall cause the responsible Borrower
to) pay to such Lender or the Issuing Bank such additional amount or amounts as
will compensate such Lender, the Issuing Bank or such Lender's or the Issuing
Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting
forth such amount or amounts as shall be necessary to compensate such Lender or
the Issuing Bank as specified in paragraph (a) or (b) above, as the case may be,
shall be delivered to Holdings and shall be conclusive absent manifest error.
Holdings shall (or shall cause the responsible Borrower to) pay each Lender or
the Issuing Bank the amount shown as due on any such certificate delivered by it
within 10 days after the receipt of the same.
(d) Except as provided below in this paragraph (d), failure on
the part of any Lender or the Issuing Bank to demand compensation for
<PAGE>
30
any increased costs or reduction in amounts received or receivable or reduction
in return on capital with respect to any period shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand compensation with respect to
such period or any other period. The protection of this Section shall be
available to each Lender and the Issuing Bank regardless of any possible
contention of the invalidity or inapplicability of the law, rule, regulation,
guideline or other change or condition which shall have occurred or been
imposed. Neither the Issuing Bank nor any Lender shall be entitled to
compensation under this Section 2.13 for any costs incurred or reductions
suffered with respect to any date unless it shall have notified Holdings that it
will demand compensation for such costs or reductions not more than 90 days
after the later of (i) such date and (ii) the date on which it shall have become
aware of such costs or reductions.
SECTION 2.14. CHANGE IN LEGALITY. (a) Notwithstanding any
other provision herein, if, after the date hereof, (i) any change in any law or
regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or maintain any Eurocurrency Loan or Alternative Currency
Loan or to give effect to its obligations as contemplated hereby with respect to
any Eurocurrency Loan or Alternative Currency Loan, or (ii) there shall have
occurred any change in national or international financial, political or
economic conditions (including the imposition of or any change in exchange
controls) or currency exchange rates which would make it impracticable for any
Lender to make Loans denominated in the Alternative Currency or to any Borrower,
then, by written notice to the Borrowers and to the Administrative Agent, such
Lender may:
(i) declare that Eurocurrency Loans or Alternative Currency
Loans (in the affected currency or to the affected Borrower), as the
case may be, will not thereafter (for the duration of such unlawfulness
or impracticability) be made by such Lender hereunder, whereupon any
request by a Borrower for a Eurocurrency Standby Borrowing or
Alternative Currency Borrowing (in the affected currency or to the
affected Borrower), as the case may be, shall, as to such Lender only,
be deemed a request for an ABR Loan or a Loan denominated in Dollars,
as the case may be, unless such declaration shall be subsequently
withdrawn (or, if a Loan to the requesting Borrower cannot be made for
the reasons specified above, such request shall be deemed to have been
withdrawn); and
(ii) require that all outstanding Eurocurrency Loans or
Alternative Currency Loans (in the affected currency or to the affected
Borrower), as the case may be, made by it be converted to ABR Loans or
Loans denominated in Dollars, as the case may be, in which event all
such Eurocurrency Loans or Alternative Currency Loans (in the affected
currency or to the affected Borrower) shall be automatically converted
to ABR Loans or Loans denominated in Dollars, as the case may be, as of
the effective date of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied to
repay the Eurocurrency Loans or Alternative Currency Loans, as the case may be,
that would have been made by such Lender or the converted Eurocurrency Loans or
Alternative Currency Loans, as the case may be, of such Lender shall instead be
applied to repay the ABR Loans or Loans denominated in Dollars, as the case may
be, made by such Lender in lieu of, or resulting from the conversion of, such
Eurocurrency Loans or Loans denominated in Dollars, as the case may be.
<PAGE>
31
(b) For purposes of this Section 2.14, a notice to the
Borrowers by any Lender shall be effective as to each Loan, if lawful, on the
last day of the Interest Period currently applicable to such Loan; in all other
cases such notice shall be effective on the date of receipt by the Borrowers.
SECTION 2.15. INDEMNITY. The Borrowers agree to indemnify each
Lender against any actual loss or expense which such Lender may sustain or incur
as a consequence of (a) any failure by such Borrower to fulfill on the date of
any borrowing hereunder the applicable conditions set forth in Article IV, (b)
any failure by such Borrower to borrow or to refinance or continue any Loan
hereunder after irrevocable notice of such borrowing, refinancing or
continuation has been given or deemed given pursuant to Section 2.04, (c) any
payment, prepayment, conversion or transfer of a Eurocurrency Loan required by
any other provision of this Agreement or otherwise made or deemed made on a date
other than the last day of the Interest Period applicable thereto, (d) any
default in payment or prepayment of the principal amount of any Loan or any part
thereof or interest accrued thereon, as and when due and payable (at the due
date thereof, whether by scheduled maturity, acceleration, irrevocable notice of
prepayment or otherwise) or (e) the occurrence of any other Event of Default,
including, in each such case, any actual loss or reasonable expense sustained or
incurred or to be sustained or incurred in liquidating or employing deposits
from third parties acquired to effect or maintain such Loan or any part thereof
as a Eurocurrency Loan. Such loss or reasonable expense shall include an amount
equal to the excess, if any, as reasonably determined by such Lender, of (i) its
cost of obtaining the funds for the Loan being paid, prepaid, converted,
transferred or not borrowed (assumed to be the LIBO Rate) for the period from
the date of such payment, prepayment, conversion, transfer or failure to borrow
to the last day of the Interest Period for such Loan (or, in the case of a
failure to borrow, the Interest Period for such Loan which would have commenced
on the date of such failure) over (ii) the amount of interest (as reasonably
determined by such Lender) that would be realized by such Lender in reemploying
the funds so paid, prepaid, converted, transferred or not borrowed for such
period or Interest Period, as the case may be. A certificate of any Lender
setting forth any amount or amounts which such Lender is entitled to receive
pursuant to this Section shall be delivered to the Borrowers and shall be
conclusive absent manifest error.
SECTION 2.16. PRO RATA TREATMENT. Except as required under
Section 2.14, each Standby Borrowing, each payment or prepayment of principal of
any Standby Borrowing, each payment of interest on the Standby Loans, each
payment of the Commitment Fees, each payment constituting reimbursement of an LC
Disbursement, each reduction of the Commitments and each refinancing of any
Borrowing with a Standby Borrowing of any Type, shall be allocated pro rata
among the Lenders in accordance with their respective Commitments (and their
respective Tranche A Commitments or Tranche B Commitments, as the case may by)
or, if such Commitments shall have expired or been terminated, in accordance
with the respective principal amounts of their outstanding Standby Loans. Each
Lender agrees that in computing such Lender's portion of any Borrowing to be
made hereunder, the Administrative Agent may, in its discretion, round each
Lender's percentage of such Borrowing to the next higher or lower whole Dollar
(or comparable unit of the Alternative Currency) amount.
SECTION 2.17. SHARING OF SETOFFS. Each Lender agrees that if
it shall, through the exercise of a right of banker's lien, setoff or
counterclaim against any Borrower, or pursuant to a secured claim under
<PAGE>
32
Section 506 of Title 11 of the United States Code or other security or interest
arising from, or in lieu of, such secured claim, received by such Lender under
any applicable bankruptcy, insolvency or other similar law or otherwise, or by
any other means, obtain payment (voluntary or involuntary) in respect of any
Standby Loan or Standby Loans or reimbursement obligations in respect of any LC
Disbursement as a result of which the unpaid principal portion of its Standby
Loans or LC Disbursements shall be proportionately less than the unpaid
principal portion of the Standby Loans or LC Disbursements of any other Lender,
it shall be deemed simultaneously to have purchased from such other Lender at
face value, and shall promptly pay to such other Lender the purchase price for,
a participation in the Standby Loans and LC Disbursements of such other Lender,
so that the aggregate unpaid principal amount of the Standby Loans and LC
Disbursements and participations in the Standby Loans and LC Disbursements held
by each Lender shall be in the same proportion to the aggregate unpaid principal
amount of all Standby Loans and LC Disbursements then outstanding as the
principal amount of its Standby Loans and LC Disbursements prior to such
exercise of banker's lien, setoff or counterclaim or other event was to the
principal amount of all Standby Loans and LC Disbursements outstanding prior to
such exercise of banker's lien, setoff or counterclaim or other event; PROVIDED,
HOWEVER, that, if any such purchase or purchases or adjustments shall be made
pursuant to this Section 2.17 and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustment restored without interest. The Borrowers expressly consent to the
foregoing arrangements and agree that any Lender holding a participation in a
Standby Loan or LC Disbursement deemed to have been so purchased may exercise
any and all rights of banker's lien, setoff or counterclaim with respect to any
and all moneys owing by such Borrower to such Lender by reason thereof as fully
as if such Lender had made a Standby Loan or LC Disbursement directly to such
Borrower in the amount of such participation.
SECTION 2.18. PAYMENTS. (a) Each Borrower shall make each
payment (including principal of or interest on any Borrowing, reimbursements of
LC Disbursements or any Fees or other amounts) hereunder and under each other
Loan Document not later than 12:00 noon, local time at the place of payment, on
the date when due in immediately available funds. Each such payment shall be
made to the Administrative Agent at its offices at 270 Park Avenue, New York,
New York. Each such payment (other than principal of and interest on Alternative
Currency Loans, which shall be made in the Alternative Currency) shall be made
in Dollars and each Alternative Currency payment should be made at the offices
of the Administrative Agent at 125 London Wall, London, England EC2Y5AJ, or any
other account that the Administrative Agent may designate.
(b) Whenever any payment (including principal of or interest
on any Borrowing, reimbursements of LC Disbursements or any Fees or other
amounts) hereunder or under any other Loan Document shall become due, or
otherwise would occur, on a day that is not a Business Day, such payment may be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of interest or Fees, if applicable.
SECTION 2.19. TAXES. (a) Each Borrower covenants and agrees
that, whether or not any Loans are made by the Lenders or Letters of Credit are
issued by the Issuing Bank hereunder:
(i) all payments on account of the principal of and interest
on the Loans, and all other amounts payable by each Borrower hereunder,
to or for the account of the Lenders including, without
<PAGE>
33
limitation, amounts payable under clause (ii) of this Section 2.19(a),
shall be made without any setoff or counterclaim and free and clear of,
and without reduction by reason of, all present and future income,
stamp, documentary, registration, excise, property and other taxes and
levies, deductions, charges, compulsory loans and withholdings
whatsoever (other than income or franchise taxes imposed on the overall
net income or capital stock of the Agent, the Issuing Bank or any
Lender, including any transferee or assignee thereof ("Transferee"), by
the taxing authority of the jurisdiction in which the Agent or such
Lender, as applicable, has its principal lending office or under the
laws of which the Agent, the Issuing Bank or such Lender, as
applicable, is organized) and all interest, penalties or similar
amounts with respect thereto, now or hereafter imposed, assessed,
levied or collected by any country or any political subdivision or
taxing authority thereof or therein or by any federation or association
of or with which any country may be a member or associated or by any
jurisdiction from which any payment hereunder is made or any taxing
authority thereof or therein, on or in respect of this Agreement, the
recording, registration, notarization or other formalization of any
thereof, the enforcement thereof or the introduction thereof in any
judicial proceedings, or on or in respect of any payments of principal,
interest, premiums, charges, fees or other amounts made on, under or in
respect of any thereof (hereinafter called "Taxes"), all of which will
be paid by the appropriate Borrower, for its own account, prior to the
date on which penalties attach thereto;
(ii) the Borrowers shall indemnify the Agent, the Issuing Bank and
Lenders against, and reimburse the Agent, the Issuing Bank and Lenders
(or Transferees) on demand for, any Taxes and any loss, liability,
claim or expense arising therefrom or with respect thereto including
interest, penalties and reasonable legal fees and disbursements, which
the Agent or the Issuing Bank may incur, whether or not such Taxes were
correctly or legally asserted by the relevant taxing authority. A
certificate as to the amount of such Tax, loss, liability, claim or
expense prepared by the Agent or the Issuing Bank, absent manifest
error, shall be final, conclusive and binding for all purposes. Such
indemnification shall be made within 30 days after the date the Agent
or the Issuing Bank makes a written demand therefor;
(iii) in the event that a Borrower is required by applicable law,
decree or regulation to deduct or withhold Taxes from any amounts
payable on, under or in respect to this Agreement, such Borrower shall
pay to the Agent, the Issuing Bank or the applicable Lenders, as the
case may be, such additional amount(s) as may be required, after the
deduction or withholding of Taxes (including any deduction or
withholding of Taxes with respect to such additional amounts), to
enable the Agent, the Issuing Bank or such Lender to receive from such
Borrower an amount equal to the amount stated to be payable by such
Borrower to the Agent, the Issuing Bank or such Lender under this
Agreement;
(iv) each Borrower shall furnish to the Agent the official tax
receipts in respect of each payment of Taxes required under this
Section 2.19(a) within 30 days after the date such payment is due
pursuant to applicable law, and each Borrower shall promptly furnish
to the Bank, at the Agent's request, any other information, documents
and receipts that the Agent may, from time to time, reasonably require
to establish to its reasonable satisfaction that full and timely
payment has been made of all Taxes required to be paid under this
Section 2.19(a);
<PAGE>
34
(v) in the event that the payments by a Borrower become exempt
from or not subject to Taxes, such Borrower will, upon the reasonable
request of the Agent, furnish to the Agent either a certificate from
each appropriate taxing authority or an opinion of counsel reasonably
acceptable to the Agent, in either case stating that payments hereunder
are exempt from or not subject to taxes; and
(vi) if a Lender (or Transferee), the Issuing Bank or the
Agent shall become aware that it is entitled to receive a refund in
respect of Taxes as to which it has been indemnified by the Borrower,
or with respect to which the Borrower has paid additional amounts,
pursuant to this Section 2.19, it shall promptly notify the Borrower of
the availability of such refund and shall, within 30 days after receipt
of a request by the Borrower make a claim to the relevant taxing
authority or other Governmental Authority for such refund at the
Borrower's expense. If any Lender (or Transferee), the Issuing Bank or
the Agent receives a refund (including pursuant to a claim for refund
made pursuant to the preceding sentence) in respect of any Taxes as to
which it has been indemnified by the Borrower or with respect to which
the Borrower has paid additional amounts pursuant to this Section 2.19,
it shall promptly repay such refund (but only to the extent of
indemnity payments made, or additional amounts paid, by the Borrower
under this Section 2.19 with respect to the Taxes giving rise to such
refund), net of all out-of-pocket expenses of such Lender (or
Transferee), the Issuing Bank or the Agent to the Borrower, PROVIDED
that the Borrower, upon the request of such Lender (or Transferee) or
the Agent, agrees to return such refund (plus penalties, interest or
other charges) to such Lender (or Transferee), the Issuing Bank or the
Agent in the event such Lender (or Transferee), the Issuing Bank or the
Agent is required to repay such refund to the relevant taxing authority
or other Governmental Authority.
(vii) Any Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which
a Borrower is located, or any treaty to which such jurisdiction is a
party, with respect to payments under this Agreement shall deliver to
Holdings (with a copy to the Administrative Agent), at the time or
times prescribed by applicable law, such properly completed and
executed documentation prescribed by applicable law or reasonably
requested by Holdings as will permit such payments to be made without
withholding or at a reduced rate, provided that such Lender has
received written notice from the Borrower advising it of the
availability of such exemption or reduction and supplying all
applicable documentation.
(b) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations of each Borrower pursuant to
this Section 2.19 shall survive the payment in full of the principal of and
interest on the Loans.
SECTION 2.20. ASSIGNMENT OF COMMITMENTS UNDER CERTAIN
CIRCUMSTANCES. (a) Any Lender (or Transferee) claiming any additional amounts
payable pursuant to Section 2.13 or Section 2.19 shall use reasonable efforts
(consistent with legal and regulatory restrictions) to file any certificate or
document requested by a Borrower or to change the jurisdiction of its applicable
lending office if the making of such a filing or change would avoid the need for
or reduce the amount of any such additional amounts which may thereafter accrue
and would not, in the judgment of such Lender (or Transferee), be otherwise
<PAGE>
35
disadvantageous to such Lender (or Transferee).
(b) In the event that any Lender shall have delivered a notice
or certificate pursuant to Section 2.13 or 2.14, or a Borrower shall be required
to make additional payments to any Lender under Section 2.19, Holdings shall
have the right, at its own expense, upon notice to such Lender and the
Administrative Agent, to require such Lender to transfer and assign without
recourse (in accordance with and subject to the restrictions contained in
Section 10.04) all its interests, rights and obligations under this Agreement to
another financial institution approved by the Administrative Agent (which
approval shall not be unreasonably withheld) which shall assume such
obligations; PROVIDED that (i) no such assignment shall conflict with any law,
rule or regulation or order of any Governmental Authority and (ii) the assignee
shall pay to the affected Lender in immediately available funds on the date of
such assignment the principal of and interest accrued to the date of payment on
the Loans made by it hereunder and a Borrower shall pay to the affected Lender
in immediately available funds on such date all other amounts accrued for its
account or owed to it hereunder.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
Holdings and each Borrower represents and warrants that:
SECTION 3.01. CORPORATE EXISTENCE AND GOOD STANDING. Holdings
and each of its Material Subsidiaries: (a) is a corporation, partnership or
other entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization; (b) has all requisite corporate or
other power, and has all material governmental licenses, authorizations,
consents and approvals, necessary to own its assets and carry on its business as
now being or as proposed to be conducted; and (c) is qualified to do business
and is in good standing in all jurisdictions in which the nature of the business
conducted by it makes such qualification necessary and where failure so to
qualify or to be in good standing could reasonably be expected to (either
individually or in the aggregate) result in a Material Adverse Effect.
SECTION 3.02. CORPORATE POWER, AUTHORIZATION AND COMPLIANCE
WITH THE LAW. (a) The execution, delivery and performance by the Borrowers of
this Agreement and by Holdings and the Subsidiaries of the other Loan Documents
to which they are to be party are within their respective corporate powers, have
been duly authorized by all necessary corporate action and will not violate any
provision of law of or their articles of incorporation, by-laws or memoranda or
articles of association, or result in the breach of or constitute a default
under or require any consent under any indenture or other material agreement or
instrument to which Holdings or any Subsidiary is a party or by which Holdings
or any Subsidiary or its respective properties may be bound or affected, or
cause any of its properties to become subject to any Lien; this Agreement
constitutes the legal, valid and binding obligation of each Borrower, and each
other Loan Document constitutes the legal, valid and binding obligation of
Holdings and each Subsidiary (to the extent Holdings or such Subsidiary is party
thereto) enforceable against such person in accordance with its terms.
(b) The conduct by Holdings and its Subsidiaries of their
respective businesses as they are presently operated does not violate any
material provision of law or material rule or regulation of any Governmental
Authority in a manner which, when taken together with all other such violations,
could reasonably be expected to result in a
<PAGE>
36
Materially Adverse Effect; and Holdings and its Subsidiaries have obtained all
material consents and approvals of Governmental Authorities required to conduct
their respective businesses as they are presently operated, except to the extent
that failure to obtain any such consents or approvals could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 3.03. FINANCIAL INFORMATION; ABSENCE OF MATERIAL
ADVERSE CHANGE. (a) The audited consolidated financial statements of Holdings
and its Subsidiaries for the fiscal year ended December 31, 1998, certified by
independent public accountants selected by Holdings, fairly present the
financial condition of Holdings and its Subsidiaries at the date of such
statements and the results of their respective operations for the fiscal year
ended on said date, all in conformity with generally accepted accounting
principles consistently applied.
(b) The consolidating balance sheets by geographic region of
Holdings and its Subsidiaries as of December 31, 1998, were prepared by
management of Holdings in good faith.
(c) Since December 31, 1998, there has occurred no Material
Adverse Change (other than any change resulting from the Litigation Liabilities
to the extent no Default shall have resulted therefrom under Section 6.08 or any
other provision of this Agreement).
SECTION 3.04. EMPLOYEE BENEFIT PLANS. Each of the Borrowers
and its ERISA Affiliates are in compliance in all material respects with the
applicable provisions of ERISA and the Code and the regulations and published
interpretations thereunder. No Reportable Event has occurred in respect of any
Plan of any Borrower or any ERISA Affiliate. The present value of all benefit
liabilities of all underfunded Plans (based on those assumptions used to fund
each such Plan) did not, as of the last annual valuation dates applicable
thereto, exceed by more than $5,000,000 the value of the assets of all such
underfunded Plans. Neither the Borrowers nor any ERISA Affiliate have incurred
any Withdrawal Liability that materially adversely affects the financial
condition of any Borrower and its ERISA Affiliates taken as a whole. Neither the
Borrowers nor any ERISA Affiliate have received any notification that any
Multiemployer Plan is in reorganization or has been terminated, within the
meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably expected
to be in reorganization or to be terminated, where such reorganization or
termination has resulted or can reasonably be expected to result in an increase
in the contributions required to be made to such Plan that would materially and
adversely affect the financial condition of any Borrower and its ERISA
Affiliates taken as a whole.
SECTION 3.05. ENVIRONMENTAL MATTERS. The Borrowers are aware
of no events, conditions or circumstances involving environmental pollution or
contamination or employee health or safety that could reasonably be expected to
result in a Material Adverse Change.
SECTION 3.06. LITIGATION. There are no suits, investigations
or proceedings pending or, to the best of its knowledge, threatened, against or
affecting Holdings or the Subsidiaries which call into question the validity of
this Agreement or could reasonably be expected to result in a Material Adverse
Effect (other than suits, investigations or proceedings referred to in the
definition of "Litigation Liabilities" to the extent no Default shall have
resulted therefrom under Section 6.08 or any other provision of this Agreement).
SECTION 3.07. TAXES. Holdings and its Subsidiaries have filed
all Federal and other material tax returns required to be filed
<PAGE>
37
and paid all Federal and other material taxes due or assessed indicated thereon,
including interest and penalties, except for taxes which are being contested in
good faith and by applicable proceedings, and for which Holdings and its
Subsidiaries have made adequate reserves on the books of Holdings and its
Subsidiaries.
SECTION 3.08. SUBSIDIARIES. Schedule 3.08, as the same shall
be updated by Holdings from time to time by means of one or more notices
delivered to the Administrative Agent, correctly sets forth the name of each
Subsidiary of Holdings, its jurisdiction of incorporation and the percentage of
each class of issued and outstanding capital stock owned by Holdings and any
Subsidiary, respectively, if any; the corporations listed on Schedule 3.08 are
the only Subsidiaries of Holdings as of the date of this Agreement.
SECTION 3.09. INVESTMENT COMPANY ACT. Neither Holdings nor
any of its Subsidiaries is an "investment company", or a company
"controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
SECTION 3.10. NO MATERIAL MISSTATEMENTS. No information,
report, financial statement, exhibit or schedule furnished by or on behalf of
any Borrower to the Administrative Agent or any Lender in connection with this
Agreement or included herein or delivered pursuant hereto contained or contains
any material misstatement of fact or omitted or omits any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, or are made, not misleading.
SECTION 3.11. FEDERAL RESERVE REGULATIONS. (a) Neither
Holdings, nor any of its Subsidiaries is engaged principally, or as one
if its important activities, in the business of extending credit for the
purpose of purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately, (i)
to purchase or carry Margin Stock or to extend credit to others for the purpose
of purchasing or carrying Margin Stock or to refund indebtedness originally
incurred for such purpose, or (ii) for any purpose which entails a violation of,
or which is inconsistent with, the provisions of the Regulations of the Board,
including Regulation U or X.
SECTION 3.12. TITLE TO PROPERTIES. Holdings and its
Subsidiaries have good title in fee simple to, or valid and subsisting leasehold
interests in, all their respective material real properties, and good title to
all their respective material other properties, reflected on the financial
statements of Holdings and its Subsidiaries referred to in Section 3.03 above,
except for property disposed of in the ordinary course of business, and none of
such properties or documents of title relating to such properties are subject to
any Lien, except Liens for taxes not yet due and Liens which will not materially
interfere with the occupation, use and enjoyment of Holdings and its
Subsidiaries of such properties and assets in the normal course of business of
Holdings and its Subsidiaries taken as a whole.
SECTION 3.13. USE OF PROCEEDS. The Borrowers will use the
proceeds of the Loans only for the purposes specified in the preamble to
this Agreement.
SECTION 3.14. SECURITY DOCUMENTS. (a) The Pledge Agreement
will, when executed and delivered, be effective to create in favor of the
Collateral Agent a legal, valid and enforceable security interest in
<PAGE>
38
the Collateral (as defined therein), and when the Collateral is delivered to the
Collateral Agent or the appropriate filings are made under the Uniform
Commercial Code the Pledge Agreement will constitute a perfected first priority
Lien on and security interest in all right, title and interest of each pledgor
thereunder in and to such Collateral.
(b) The Security Agreement will, when executed and delivered,
be effective to create in favor of the Collateral Agent a legal, valid and
enforceable security interest in the Collateral (as defined therein), and when
financing statements in appropriate form are filed in the offices specified in
the Perfection Certificate or other comparable actions are taken in foreign
jurisdictions, the Security Agreement will constitute a perfected first priority
Lien on and security interest in all right, title and interest of each grantor
thereunder in and to such Collateral to the extent it can be perfected by such
filing or such other actions, subject only to Liens existing on the date hereof
and expressly permitted by Section 6.01.
(c) When the Trademark Security Agreement is filed in the
United States Patent and Trademark Office and the United States Copyright
Office, the Trademark Security Agreement will constitute a perfected Lien on and
security interest in all right, title and interest of the grantors thereunder in
the Intellectual Property (as defined in the Security Agreement) that is
registered in the United States.
(d) The Mortgages will, when executed and delivered, be
effective to create in favor of the Collateral Agent, legal, valid and
enforceable Liens on all right, title and interest of the grantors thereunder in
and to the Mortgaged Properties and the proceeds thereof, and when the Mortgages
are filed in the offices specified in the Perfection Certificate, the Mortgages
will constitute perfected first priority Liens on and security interests in all
right, title and interest of such grantors in and to the Mortgaged Properties
and the proceeds thereof, subject only to Liens existing on the date hereof and
expressly permitted by Section 6.01.
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Lenders to make Loans hereunder and of
the Issuing Bank to issue Letters of Credit are subject to the satisfaction of
the following conditions:
SECTION 4.01. EACH BORROWING DATE. On the date of each
Borrowing, including each Borrowing in which Loans are refinanced with new Loans
as contemplated by Section 2.05, or on the date of issuance of any Letter of
Credit:
(a) The Administrative Agent shall have received a notice of
such Borrowing as required by Section 2.04.
(b) The representations and warranties set forth in Article
III hereof shall be true and correct in all material respects on and as
of the date of such Borrowing with the same effect as though made on
and as of such date, except to the extent such representations and
warranties expressly relate to an earlier date.
(c) Each Borrower shall be in compliance with all the terms
and provisions set forth herein and at the time of and immediately
after such Borrowing no Event of Default or Default shall have occurred
and be continuing.
<PAGE>
39
(d) After giving effect to such Borrowing, the aggregate
outstanding principal amount of all Loans shall not exceed the
Borrowing Base.
(e) The Collateral and Guarantee Requirement shall have been
satisfied at all times on and after the Initial Borrowing Date.
Each Borrowing shall be deemed to constitute a representation and warranty by
each Borrower on the date of such Borrowing as to the matters specified in
paragraphs (b), (c) and (d) of this Section 4.01.
SECTION 4.02. INITIAL BORROWING DATE. On the Initial
Borrowing Date:
(a) The Administrative Agent shall have received the favorable
written opinions of Weil, Gotshal & Manges LLP and Freshfields, counsel
for the Borrowers, and Mr. Donaldson C. Pillsbury, General Counsel of
Sotheby's Holdings, Inc. dated the Initial Borrowing Date and addressed
to the Lenders, the Administrative Agent and the Issuing Bank to the
effect set forth in Exhibits D-1 and D-2, respectively; the Borrowers
hereby instruct such counsel to deliver such opinions to the
Administrative Agent.
(b) All legal matters incident to this Agreement and the
borrowings hereunder shall be satisfactory to the Lenders and to
Cravath, Swaine & Moore, counsel for the Administrative Agent.
(c) The Administrative Agent shall have received such evidence
as it shall reasonably have requested as to the power and authority of
Holdings and each Subsidiary to enter into and perform its obligations
under each Loan Document to which it is party and as to the due
execution and delivery of each such Loan Document.
(d) The Administrative Agent shall have received a certificate
of Holdings, dated the Initial Borrowing Date and signed by a Financial
Officer of Holdings, confirming compliance with the conditions
precedent set forth in paragraphs (b), (c) and (d) of Section 4.01.
(e) The Administrative Agent shall have received all Fees and
other amounts due and payable on or prior to the Initial Borrowing
Date.
(f) The Administrative Agent shall have received a completed
Borrowing Base Certificate dated as of a recent date and signed by a
Financial Officer on behalf of Holdings.
(g) The Collateral and Guarantee Requirement shall have been
satisfied at or prior to the earlier of (i) the Initial Borrowing Date
and (ii) March 10, 2000.
(h) The Collateral Agent shall have received the results of
such lien searches as it shall reasonably have requested, together with
copies of the financing statements (or similar documents) disclosed by
such searches, and accompanied by evidence
<PAGE>
40
satisfactory to the Collateral Agent that the Liens indicated in any
such financing statement (or similar document) are permitted under
Section 6.01 or have been released.
(i) The Collateral Agent shall have received a Perfection
Certificate dated the Initial Borrowing Date and duly executed by a
Financial Officer of Holdings.
ARTICLE V. AFFIRMATIVE COVENANTS
The Borrowers covenant and agree with each Lender that, so
long as this Agreement shall remain in effect or the principal of or interest on
any Loan, any Fees or any other expenses or amounts payable under any Loan
Document shall be unpaid, or any Letter of Credit shall remain in effect, unless
the Required Lenders shall otherwise consent in writing, Holdings will, and will
cause each of its Subsidiaries to:
SECTION 5.01. FINANCIAL STATEMENTS. In the case of
Holdings, furnish to the Agent and each Lender:
(a) within 90 days after the end of each fiscal year, (i) a
consolidated balance sheet at the end of such fiscal year and the
related statements of income and operations and changes in financial
position and of shareholder's equity for such year, all prepared in
accordance with GAAP and audited by and accompanied by the opinion of
Deloitte & Touche or other independent public accountants reasonably
satisfactory to the Required Lenders and (ii) a consolidating balance
sheet by geographic region;
(b) within 60 days after the end of the first, second and
third quarter of each fiscal year, a consolidated balance sheet (and a
consolidating balance sheet by geographic region) at the end of such
quarter and the related statement of income for such period, all
prepared in accordance with GAAP and certified by the Financial Officer
of Holdings;
(c) (i) at the time of each delivery of financial statements
pursuant to (a) or (b) above, a certificate signed by a Responsible
Officer of Holdings stating whether or not Holdings and its
Subsidiaries are in compliance with Article VI and setting forth in
detail satisfactory to the Administrative Agent calculations of the
amounts, ratios and baskets referred to in Sections 6.07, 6.08, 6.09
and 6.10, and (ii) within 45 days after the end of each calendar
quarter, a completed Borrowing Base Certificate setting forth the
calculation of and certifying the Borrowing Base as of the last day of
such calendar quarter, certified as complete and correct and signed on
behalf of Holdings by a Financial Officer, together with such other
supporting documentation and additional reports with respect to the
Borrowing Base as the Administrative Agent shall reasonably request;
(d) promptly after the filing thereof, copies of all forms and
reports filed by it with the Securities and Exchange Commission and,
promptly after knowledge thereof shall have come to the attention of
any Responsible Officer, written notice of (i) any threatened or
pending litigation or arbitral or governmental or administrative
proceeding against Holdings or any of its Subsidiaries which could
reasonably be expected to result in a Material Adverse Effect and (ii)
any Event of Default (or event which with notice or the passage of time
or both would constitute an Event of Default) together with a statement
by a Responsible Officer describing the action, if any, which Holdings
proposes to
<PAGE>
41
take with respect thereto; and
(e) promptly, such further information regarding the business
affairs, legal affairs relating to the Litigation Liabilities,
financial condition and contingent liabilities (including Litigation
Liabilities) of Holdings and its Subsidiaries as the Administrative
Agent may reasonably request.
SECTION 5.02. PAYMENT OF OBLIGATIONS. (a) Pay and discharge or
cause to be paid and discharged promptly when due all material and lawful taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or in respect of its property, before the same shall become in
default, as well as all material and lawful claims which, if unpaid, might
become a lien or charge upon such properties or any part thereof; PROVIDED,
HOWEVER, that neither Holdings nor any of the Subsidiaries shall be required to
pay and discharge or to cause to be paid and discharged any such tax,
assessment, charge, levy or claim so long as the validity, applicability or
amount thereof shall be contested in good faith by applicable proceedings and
Holdings or such Subsidiary, as the case may be, shall have set aside on its
books reserves reasonably deemed adequate by it with respect thereto.
SECTION 5.03. MAINTAIN PROPERTY AND INSURANCE. (a) Maintain
and preserve all properties which are used in the conduct of the business of
Holdings and the Material Subsidiaries in good working order and condition,
ordinary wear and tear excepted, and (b) maintain in respect of the assets of
Holdings and the Material Subsidiaries, insurance in such amounts and against
such risks as is generally maintained by companies operating similar businesses
in the same general area. All insurance policies hereunder shall be maintained
with sound and reputable insurance carriers of recognized standing.
SECTION 5.04. MAINTAIN EXISTENCE. Preserve (a) the corporate
existence and good standing of Holdings and the Material Subsidiaries and (b)
all the material rights, privileges and franchises necessary and desirable in
the normal conduct of the business of Holdings and the Material Subsidiaries.
SECTION 5.05. COMPLIANCE WITH LAWS. Comply with the
requirements of all applicable laws (including ERISA), regulations and orders of
any Governmental Authority, a violation of which would materially affect the
business or financial condition of Holdings and its Subsidiaries taken as a
whole, except any such law, regulation or order which is being contested by
Holdings or any Subsidiary in good faith by applicable proceedings.
SECTION 5.06. INSPECTION. Give, upon the request of any Lender
upon reasonable advance notice, any representative of such Lender access during
normal business hours to inspect, and permit such representative to inspect, all
properties belonging to it and permit such representative to examine, copy and
make extracts from, financial records relating to its affairs, as such
representative may reasonably require.
SECTION 5.07. ERISA. (a) Comply in all material respects with
the applicable provisions of ERISA and the Code and (b) furnish to the
Administrative Agent and each Lender (i) as soon as possible, and in any event
within 30 days after any Responsible Officer of Holdings or any ERISA Affiliate
either knows or has reason to know that any Reportable Event has occurred that
alone or together with any other Reportable Event could reasonably be expected
to result in liability of Holdings to the PBGC in an aggregate amount exceeding
$5,000,000, a
<PAGE>
42
statement of a Financial Officer setting forth details as to such
Reportable Event and the action proposed to be taken with respect thereto,
together with a copy of the notice, if any, of such Reportable Event given to
the PBGC, (ii) promptly after receipt thereof, a copy of any notice Holdings or
any ERISA Affiliate may receive from the PBGC relating to the intention of the
PBGC to terminate any Plan or Plans (other than a Plan maintained by an ERISA
Affiliate which is considered an ERISA Affiliate only pursuant to subsection (m)
or (o) of Section 414 of the Code) or to appoint a trustee to administer any
Plan or Plans, (iii) within 10 days after the due date for filing with the PBGC
pursuant to Section 412(n) of the Code of a notice of failure to make a required
installment or other payment with respect to a Plan, a statement of a Financial
Officer setting forth details as to such failure and the action proposed to be
taken with respect thereto, together with a copy of such notice given to the
PBGC and (iv) promptly and in any event within 30 days after receipt thereof by
any Borrower or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a
copy of each notice received by such Borrower or any ERISA Affiliate concerning
(A) the imposition of Withdrawal Liability or (B) a determination that a
Multiemployer Plan is, or is expected to be, terminated or in reorganization,
both within the meaning of Title IV of ERISA.
SECTION 5.08. COLLATERAL AND BORROWING BASE EVALUATIONS.
Permit any representatives designated by the Administrative Agent (including
consultants or other advisors retained by the Administrative Agent) to conduct
evaluations of its computation of the Borrowing Base and the assets included in
the Borrowing Base, all at such reasonable times and as often as reasonably
requested; PROVIDED that, if no Default shall have occurred and be continuing,
no more than one such evaluation will be requested by the Administrative Agent
during any fiscal year; and PROVIDED FURTHER that any consultants or other
advisors retained by the Administrative Agent (i) shall not be employed by a
competing auction house and (ii) shall be subject to the confidentiality
provisions of Section 10.17. Holdings shall pay the reasonable fees and expenses
of any such evaluation.
SECTION 5.09. FURTHER ASSURANCES. Execute any and all further
documents, financing statements, agreements and instruments, and take all such
further actions (including the filing and recording of financing statements,
fixture filings, mortgages, deeds of trust and other documents), which may be
required under any applicable law, or which the Collateral Agent or the Required
Lenders may reasonably request, to cause the Collateral and Guarantee
Requirement to be and remain satisfied at all times, all at the expense of
Holdings. Holdings also agrees to provide to the Administrative Agent from time
to time upon request evidence reasonably satisfactory to the Collateral Agent as
to the perfection and priority of the Liens created or intended to be created by
the Security Documents.
SECTION 5.10. ART LOANS. Cause each Lending Subsidiary, in
connection with each Art Loan made or to be made by it, to apply credit
standards and loan to collateral value requirements, and to follow practices
with respect to documentation and the perfection of security interests, not less
strict than those generally applied and followed in the Lending Subsidiaries'
art lending business prior to the Closing Date.
SECTION 5.11. YORK AVENUE PROPERTY. (a) Sotheby's, Inc.
agrees that it shall, within 30 days of the date hereof (i) transfer all
<PAGE>
43
its rights under the Agreement of Sale and Purchase dated September 9,
1999 between The Beneson Capital Company, Lawrence A. Beneson, Raymond
E. Beneson and York Avenue Development, Inc. (which entity assigned its
rights to Sotheby's, Inc. by an Assignment and Assumption Agreement
dated September 9, 1999) to a wholly owned subsidiary of Sotheby's,
Inc., which has no significant assets, operations or liabilities (the
"YORK AVENUE HOLDING SUBSIDIARY"), and (ii) pledge all the capital stock
of the York Avenue Holding Subsidiary to the Collateral Agent, for the
ratable benefit of the holders of the Obligations.
(b) Sotheby's, Inc. agrees to maintain records that will
enable it to determine the Construction and Improvement Amount at any time and
to furnish copies of such records to the Administrative Agent from time to time
upon request. Sotheby's, Inc. further agrees (i) to cause the York Avenue
Holding Subsidiary or another Subsidiary of Holdings to acquire title to the
York Avenue Property at the time provided in the York Avenue Purchase Agreement,
(ii) at such time as the York Avenue Holding Subsidiary or such other Subsidiary
shall have acquired such title, (A) to prepay or cause other Borrowers to prepay
Loans outstanding hereunder in the amount, if any, required in order for the
aggregate amount available for borrowing hereunder (taking into account the
Borrowing Base at such time) to be at least equal to the Construction and
Improvement Amount at such time, (B) promptly thereafter, execute and deliver a
mortgage on the York Avenue Property as contemplated in the definition of
Collateral and Guarantee Requirement and (C) promptly thereafter, to borrow
hereunder in a principal amount equal to the Construction and Improvement Amount
at such time to finance or refinance, as the case may be, the costs of
construction and substantial improvements related to the York Avenue Property
and (iii) from time to time after such Borrowing, to pay all costs of
construction and substantial improvements related to the York Avenue Property
with the proceeds of separate Borrowings, it being understood that the proceeds
of the Borrowings relating to the costs of construction and substantial
improvements will not be used for any other purpose. Sotheby's, Inc. agrees that
any Borrowing made pursuant to this Section will be identified as such in the
Borrowing Request submitted with respect thereto.
ARTICLE VI. NEGATIVE COVENANTS
The Borrowers covenant and agree with each Lender that, so
long as this Agreement shall remain in effect or the principal of or interest on
any Loan, any Fees or any other expenses or amounts payable under any Loan
Document shall be unpaid, or any Letters of Credits remain in outstanding,
unless the Required Lenders shall otherwise consent in writing, Holdings will
not, either directly or indirectly, and will not cause or permit any of its
Subsidiaries to:
SECTION 6.01. LIENS. Incur, create, assume or permit to exist
any mortgage, pledge, security interest, lien, charge or other encumbrance of
any nature whatsoever (including conditional sales or other title retention
agreement) on any of its property or assets, whether owned at the date hereof or
hereafter acquired, other than:
(a) liens incurred or pledges and deposits made in connection
with workmen's compensation, unemployment insurance, old-age pensions,
social security and public liability and similar legislation;
(b) liens securing the performance of bids, tenders, leases,
contracts (other than for the repayment of borrowed money),
<PAGE>
44
statutory obligations, surety and appeal bonds and other obligations of
like nature, incurred incident to and in the ordinary course of
business;
(c) statutory liens of landlords and other liens imposed by
law, such as carriers', warehousemen's, mechanics', materialmen's and
vendors' liens, incurred in good faith in the ordinary course of
business, including but not limited to those relating to the
construction of the York Avenue Property;
(d) liens securing the payment of taxes, assessments and
governmental charges or levies, either (i) not delinquent or (ii) being
contested in good faith by appropriate proceedings with adequate
reserves;
(e) zoning restrictions, easements, licenses, reservations,
restrictions on the use of real property or minor irregularities
incident thereto which do not in the aggregate materially detract from
the value of the property or assets of Holdings and the Subsidiaries
taken as a whole or materially impair the operation of the business of
Holdings and the Subsidiaries taken as a whole;
(f) liens incurred in the ordinary course of business (other
than consensual liens on assets constituting Collateral) provided that
these liens are not given as security for Indebtedness;
(g) liens on property or assets of any Subsidiary securing
Indebtedness of such Subsidiary to Holdings or to a wholly owned
Subsidiary of Holdings;
(h) liens for judgments or awards, so long as the finality of
such judgment or award is being contested in good faith and execution
thereof is stayed; PROVIDED that the aggregate amount of liens
permitted by this clause may not exceed $10,000,000;
(i) any lien existing on any property or assets of any
corporation at the time it becomes a Subsidiary of Holdings, or
existing prior to the time of acquisition upon any property or assets
acquired by Holdings or any of its Subsidiaries through purchase,
merger or consolidation or otherwise, whether or not assumed by
Holdings or such Subsidiary;
(j) any lien placed upon property or assets within 90 days of
the time of acquisition of such property or assets by Holdings or any
of its Subsidiaries to secure all or a portion of (or to secure
Indebtedness incurred to pay all or a portion of) the purchase price
thereof, provided that any such lien shall not encumber any other
property or assets of Holdings or any Subsidiary;
(k) liens, other than the liens permitted by clauses (a)
through (j) above (including any such liens in existence as of the date
hereof), existing as of the date hereof and set forth on Schedule 6.01;
PROVIDED, HOWEVER, that no such lien shall be permitted under this
clause (k) if it extends to property other than the property subject to
such lien on the date hereof;
(l) any lien renewing, extending or refunding any lien
permitted by clause (i), (j) or (k) above, provided that the principal
amount secured is not increased, and the lien is not extended to other
property;
(m) liens, in addition to the liens permitted by clauses (a)
<PAGE>
45
through (l) above, on assets not constituting Collateral securing
obligations in an aggregate amount not greater than 10% of Consolidated
Net Worth; and
(n) liens created under the Security Documents.
SECTION 6.02. SUBSIDIARY INDEBTEDNESS. Permit any
Subsidiary to create, incur, assume or permit to exist any Indebtedness except:
(a) in the case of any Subsidiary that is a Borrower,
Indebtedness not prohibited under any other Section of this
Agreement;
(b) Indebtedness of any Subsidiary the proceeds of which are
used by such Subsidiary to make secured loans to consignors, dealers or
clients in the ordinary course of business of the Borrowers and their
subsidiaries and in a manner that is consistent with established
practices pursuant to the auction finance business of the Borrowers and
their subsidiaries;
(c) Indebtedness of any Subsidiary to another Subsidiary or
any Borrower;
(d) Indebtedness of any Subsidiary outstanding on the date
hereof or available to any Subsidiary under credit facilities existing
on the date hereof, not in excess of $20,000,000 in the aggregate with
respect to all Subsidiaries; and
(e) other Indebtedness, provided that the aggregate principal
amount of all such other Indebtedness of all Subsidiaries outstanding
at any time (excluding amounts permitted under clauses (a) through (d)
above) does not exceed 10% of Consolidated Net Worth at such time.
SECTION 6.03. CONSOLIDATIONS, MERGERS, AND SALES OF ASSETS.
(a) Merge or consolidate with any other corporation, except that (i) any
Borrower may merge or consolidate with a Subsidiary so long as the Borrower is
the surviving entity in such merger or consolidation, (ii) any Subsidiary may
merge or consolidate with a Subsidiary so long as the surviving entity in such
merger or consolidation is a Subsidiary (and, if either constituent corporation
is a Domestic Subsidiary, a Domestic Subsidiary) or (iii) any Borrower may merge
or consolidate with any other Person so long as the Borrower is the surviving
entity in such merger or consolidation and, after giving effect to such merger
or consolidation, no Event of Default exists.
(b) Sell, lease, transfer or otherwise dispose of all or a
substantial part of its assets, other than assets no longer used or useful in
the conduct of its business or leases for space used in the ordinary course of
business which are near the end of their term, except dispositions in the
ordinary course of business for a full and adequate consideration.
(c) Sell, lease, transfer or otherwise dispose of any Art
Loan.
SECTION 6.04. LINES OF BUSINESS. Engage to any substantial
extent in any line or lines of business activity fundamentally different
<PAGE>
46
from the business presently engaged in.
SECTION 6.05. TRANSACTIONS WITH AFFILIATES. Sell or transfer
any property or assets to, or purchase or acquire any property or assets from,
or otherwise engage in any other transactions with, any of its Affiliates,
except that as long as no Default or Event of Default shall have occurred and be
continuing, Holdings or any of its Subsidiaries may engage in any of the
foregoing transactions in the ordinary course of business at prices and on terms
and conditions not less favorable to Holdings or any Subsidiary than could be
obtained on an arm's-length basis from unrelated third parties.
SECTION 6.06. RESTRICTIONS ON DIVIDENDS. Enter into any
agreement, contract or arrangement which expressly limits the right of
any Subsidiary to pay dividends to its parent corporation.
SECTION 6.07. CONSOLIDATED LEVERAGE RATIO. Permit the
Consolidated Leverage Ratio at any time to exceed .50 to 1.0.
SECTION 6.08. ADJUSTED CONSOLIDATED NET WORTH. Permit
Adjusted Consolidated Net Worth at any time to be less than
$315,000,000.
SECTION 6.09. CONSOLIDATED COVERAGE RATIO. Permit the
Consolidated Coverage Ratio for any period of four consecutive financial
quarters ending after the date hereof to be less than 4.5 to 1.0.
SECTION 6.10. RESTRICTED PAYMENTS; CERTAIN PAYMENTS IN RESPECT
OF INDEBTEDNESS. (a) Declare or make, or agree to make, directly or indirectly,
any Restricted Payment, or incur any obligation (contingent or otherwise) to do
so, except that (i) Subsidiaries may declare and pay dividends ratably with
respect to their capital stock and (ii) if no Default or Event of Default has
occurred and is continuing or would occur as a result thereof, Holdings may make
any Restricted Payment that, taken together with all other Restricted Payments
made after the date hereof, would not exceed 40% of Consolidated Net Income of
Holdings, adjusted to exclude nonrecurring or extraordinary reserves and charges
relating to the Litigation Liabilities, for the period (treated as one
accounting period) commencing January 1, 2000, and ending at the most recent
fiscal quarter end for which financial statements shall have been delivered
under Section 5.01(a) or (b).
(b) Make any payment on account of the purchase, redemption,
prepayment, retirement or defeasance of the Senior Notes.
SECTION 6.11. ART LOANS. Permit any of the Pledged Art Loans
(as such term is defined in the Pledge Agreement) to be represented or evidenced
by an instrument or a certificate, or permit any agreement relating to any
Pledged Art Loan to provide that any of the documentation evidencing such
Pledged Art Loan is a security governed by Article 8 of the Uniform Commercial
Code as in effect in any applicable jurisdiction.
ARTICLE VII. EVENTS OF DEFAULT
In case of the happening of any of the following events
("Events of Default"):
(a) default shall be made in the payment of any principal of
any Loan or any amount due in respect of the reimbursement of any LC
Disbursement when and as the same shall become due and payable,
<PAGE>
47
whether at the due date thereof or at a date fixed for prepayment
thereof or by acceleration thereof or otherwise;
(b) default shall be made in the payment of any interest on
any Loan or LC Disbursement or any Fee or any other amount due under
any Loan Document, when and as the same shall become due and payable,
and such default shall continue unremedied for a period of five days;
(c) default shall be made in the due observance or performance
by a Borrower or any Subsidiary of any other covenant, condition or
agreement contained in Section 5.04(a) or 5.10 or in Article VI;
(d) default shall be made in the due observance or performance
by a Borrower or any Subsidiary of any other covenant, condition or
agreement contained in any Loan Document and such default shall
continue unremedied for a period of 30 days after notice thereof from
the Administrative Agent or any Lender to Holdings, or default shall be
made in the due observance or performance by a Borrower or any
Subsidiary of any other covenant, condition or agreement contained in
any Security Document and such default shall continue unremedied for a
period of 5 Business Days after notice thereof from the Administrative
Agent or any Lender to Holdings;
(e) Holdings or any Subsidiary shall fail to pay any
Indebtedness greater than $1,000,000, or fail during any 30-day period
to pay Indebtedness aggregating more than $1,000,000, owing by Holdings
or such Subsidiary, or any interest or premium thereon aggregating
$1,000,000 or more, when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) and such failure shall
continue after the applicable grace period, if any, specified in the
agreement or instrument relating to such Indebtedness;
(f) Any event or condition shall occur or exist under any
agreement or instrument of Holdings or any Subsidiary evidencing or
securing or relating to any Indebtedness exceeding $10,000,000, if the
effect of such event or condition is to accelerate, or to permit the
holder or holders of such Indebtedness or the trustee or trustees under
any such agreement or instrument to accelerate, the maturity of such
Indebtedness;
(g) any representation or warranty made or deemed made in or
in connection with any Loan Document or the borrowings hereunder, or
any representation, warranty, statement or information contained in any
report, certificate, financial statement or other instrument furnished
in connection with or pursuant to any Loan Document, shall prove to
have been false or misleading in any material respect when so made,
deemed made or furnished;
(h)(i) a Reportable Event or Reportable Events, or a failure
to make a required installment or other payment (within the meaning of
Section 412(n)(1) of the Code), shall have occurred with respect to any
Plan or Plans that reasonably could be expected to result in liability
of Holdings to the PBGC or to a Plan in an aggregate amount exceeding
$5,000,000 and, within 30 days after the reporting of any such
Reportable Event to the Agent or after the receipt by the Agent of a
statement required pursuant to Section 5.07(b(iii) hereof, the Agent
shall have notified the Borrower in writing that (A) the Required
Lenders have made a determination that, on the basis of such Reportable
Event or
<PAGE>
48
Reportable Events or the failure to make a required payment, there are
reasonable grounds for the termination of such Plan or Plans by the
PBGC, the appointment by the appropriate United States district court
of a trustee to administer such Plan or Plans or the imposition of a
lien in favor of a Plan and (B) as a result thereof an Event of Default
exists hereunder; or (ii) a trustee shall be appointed by a United
States district court to administer any such Plan or Plans; or (iii)
the PBGC shall institute proceedings (including giving notice of intent
thereof) to terminate any such Plan or Plans;
(i)(i) the Borrowers or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan, (ii) such Borrower or
such ERISA Affiliate does not have reasonable grounds for contesting
such Withdrawal Liability or is not contesting such Withdrawal
Liability in a timely and appropriate manner and (iii) the amount of
such Withdrawal Liability specified in such notice, when aggregated
with all other amounts required to be paid to Multiemployer Plans in
connection with Withdrawal Liabilities (determined as of the date or
dates of such notification), either (A) exceeds $5,000,000 or requires
payments exceeding $1,000,000 in any year or (B) is less than
$5,000,000 but any Withdrawal Liability payment remains unpaid 30 days
after such payment is due;
(j) the Borrower or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or is being terminated, within the meaning of
Title IV of ERISA, if solely as a result of such reorganization or
termination the aggregate annual contributions of the Borrower and its
ERISA Affiliates to all Multiemployer Plans that are then in
reorganization or have been or are being terminated have been or will
be increased over the amounts required to be contributed to such
Multiemployer Plans for their most recently completed plan years by an
amount exceeding $1,000,000;
(k) a judgment or judgments for the payment of money in excess
of $5,000,000 in the aggregate shall have been rendered against
Holdings or any Subsidiary and the same shall have remained unsatisfied
and in effect, without stay of execution, for any period of 60 days;
(l) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of Holdings or any Material
Subsidiary, or of a substantial part of the property or assets of
Holdings or any Material Subsidiary, under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other
Federal or state bankruptcy, insolvency, receivership or similar law
(or similar statute or law in any other jurisdiction), (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for Holdings or any Material Subsidiary
or for a substantial part of the property or assets of Holdings or a
Material Subsidiary or (iii) the winding-up or liquidation of Holdings
or any Material Subsidiary; and such proceeding or petition shall
continue undismissed for 30 days or an order or decree approving or
<PAGE>
49
ordering any of the foregoing shall be entered;
(m) Holdings or any Material Subsidiary shall (i) volun tarily
commence any proceeding or file any petition seeking relief under Title
11 of the United States Code, as now constituted or hereafter amended,
or any other Federal or state bankruptcy, insolvency, receivership or
similar law (or similar statute or law in any other jurisdiction), (ii)
consent to the institution of, or fail to contest in a timely and
applicable manner, any proceeding or the filing of any petition
described in (g) above, (iii) apply for or consent to the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar
official for Holdings or any Material Subsidiary or for a substantial
part of the property or assets of Holdings or any Material Subsidiary,
(iv) file an answer admitting the Material allegations of a petition
filed against it in any such proceeding, (v) make a general assignment
for the benefit of creditors, (vi) become unable, admit in writing its
inability or fail generally to pay its debts as they become due or
(vii) take any action for the purpose of effecting any of the
foregoing;
(n) A Change in Control shall occur; or
(o) any Lien purported to be created under any Security
Document shall cease to be, or shall be asserted in writing by any
Borrower or any Subsidiary party to a Security Document not to be, a
valid and perfected Lien on any Collateral, with the priority required
by the applicable Security Document, except (i) as a result of the sale
or other disposition of the applicable Collateral in a transaction
permitted under the Loan Documents or (ii) as a result of the
Administrative Agent's failure to maintain possession of any stock
certificates, promissory notes or other instruments delivered to it
under the Pledge Agreement or to make or continue UCC filings; provided
that no such cessation shall give rise to an Event of Default unless
such cessation (x) affects Collateral that is or should be subject to a
Lien in favor of the Collateral Agent having an aggregate value in
excess of $1,000,000 or (y) is not corrected upon request by the
Collateral Agent upon reasonable notice.
then, and in every such event (other than an event with respect to any Borrower
described in paragraph (l) or (m) above), and at any time thereafter during the
continuance of such event, the Administrative Agent shall at the request of the
Required Lenders, by notice to the Borrowers, take either or both of the
following actions, at the same or different times: (i) terminate forthwith the
Commitments and (ii) declare the Loans then outstanding to be forthwith due and
payable in whole or in part, whereupon the principal of the Loans so declared to
be due and payable, together with accrued interest thereon and any unpaid
accrued Fees and all other liabilities of the Borrowers accrued hereunder, shall
become forthwith due and payable, without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived by the
Borrowers, anything contained herein to the contrary notwithstanding; and, in
any event with respect to a Borrower described in paragraph (l) or (m) above,
the Commitments shall automatically terminate and the principal of the Loans
then outstanding, together with accrued interest thereon and any unpaid accrued
Fees and all other liabilities of the Borrowers accrued hereunder, shall
automatically become due and payable, without presentment, demand, protest or
any other notice of any kind, all of which are hereby expressly waived by the
Borrowers, anything contained herein to the contrary notwithstanding. Any
Letters of Credit issued to Lenders to support the obligations listed on
Schedule 1.01A hereto may be drawable
<PAGE>
50
on or after an Event of Default.
ARTICLE VIII. THE AGENTS
In order to expedite the transactions contemplated by this
Agreement, The Chase Manhattan Bank is hereby appointed to act as Administrative
Agent and Collateral Agent on behalf of the Lenders. Each of the Lenders hereby
irrevocably authorizes the Agents to take such actions on behalf of such Lender
and to exercise such powers as are specifically delegated to the Agents by the
terms and provisions hereof and of the other Loan Documents, together with such
actions and powers as are reasonably incidental thereto. The Administrative
Agent is hereby expressly authorized by the Lenders, without hereby limiting any
implied authority, (a) to receive on behalf of the Lenders all payments of
principal of and interest on the Loans and all other amounts due to the Lenders
hereunder, and promptly to distribute to each Lender its proper share of each
payment so received; (b) as provided in Article VII, to give notice on behalf of
each of the Lenders to the Borrowers of any Event of Default specified in this
Agreement of which the Administrative Agent has actual knowledge acquired in
connection with its agency hereunder; and (c) to distribute to each Lender
copies of all notices, financial statements and other materials delivered by any
Borrower pursuant to this Agreement as received by the Administrative Agent.
Neither the Agents nor any of their directors, officers,
employees or agents shall be liable as such for any action taken or omitted by
any of them except for its or his own gross negligence or wilful misconduct, or
be responsible for any statement, warranty or representation herein or the
contents of any document delivered in connection herewith, or be required to
ascertain or to make any inquiry concerning the performance or observance by the
Borrowers of any of the terms, conditions, covenants or agreements contained in
any Loan Document. The Agents shall not be responsible to the Lenders for the
due execution, genuineness, validity, enforceability or effectiveness of this
Agreement, or any other Loan Documents or other instruments or agreements. The
Agents shall in all cases be fully protected in acting, or refraining from
acting, in accordance with written instructions signed by the Required Lenders
and, except as otherwise specifically provided herein, such instructions and any
action or inaction pursuant thereto shall be binding on all the Lenders. The
Agents shall, in the absence of knowledge to the contrary, be entitled to rely
on any instrument or document believed by them in good faith to be genuine and
correct and to have been signed or sent by the proper person or persons. Neither
the Agents nor any of their directors, officers, employees or agents shall have
any responsibility to the Borrowers on account of the failure of or delay in
performance or breach by any Lender of any of its obligations hereunder or to
any Lender on account of the failure of or delay in performance or breach by any
other Lender or a Borrower of any of their respective obligations hereunder or
under any other Loan Document or in connection herewith or therewith. The Agents
may execute any and all duties hereunder and under the other Loan Documents by
or through agents or employees and shall be entitled to rely upon the advice of
legal counsel selected by them with respect to all matters arising hereunder and
shall not be liable for any action taken or suffered in good faith by them in
accordance with the advice of such counsel.
The Lenders hereby acknowledge that the Agents shall be under
no duty to take any discretionary action permitted to be taken by them pursuant
to the provisions of this Agreement or any other Loan Document unless they shall
be requested in writing to do so by the Required Lenders.
<PAGE>
51
Subject to the appointment and acceptance of a successor
Administrative Agent as provided below, the Administrative Agent may resign at
any time by notifying the Lenders, the Issuing Bank and the Borrowers. Upon any
such resignation, the Required Lenders shall have the right to appoint a
successor. If no successor shall have been so appointed by the Required Lenders
and shall have accepted such appointment within 30 days after the retiring
Administrative Agent gives notice of its resignation, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent which shall be a bank with an office in New York, New York,
having a combined capital and surplus of at least $500,000,000 or an affiliate
of any such bank. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor bank, such successor shall succeed to and become vested
with all the rights, powers, privileges and duties of the retiring
Administrative Agent and the retiring Administrative Agent shall be discharged
from its duties and obligations hereunder. After the Administrative Agent's
resignation hereunder, the provisions of this Article and Section 10.05 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 Administrative Agent.
With respect to the Loans made by it hereunder, the Agents in
their individual capacity and not as Agents shall have the same rights and
powers as any other Lender and may exercise the same as though they were not the
Agents, and the Agents and their affiliates may accept deposits from, lend money
to and generally engage in any kind of business with Holdings or any Subsidiary
or other Affiliate thereof as if they were not the Agents.
Each Lender agrees (a) to reimburse the Agents, on demand, in
the amount of its pro rata share (based on its Commitment hereunder or, if the
Commitments shall have been terminated, its outstanding Loans) of any expenses
incurred for the benefit of the Lenders by the Agents, including counsel fees
and compensation of agents and employees paid for services rendered on behalf of
the Lenders, which shall not have been reimbursed by one of the Borrowers and
(b) to indemnify and hold harmless the Agents and any of their directors,
officers, employees or agents, on demand, in the amount of such pro rata share,
from and against any and all liabilities, taxes, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against them in their capacity as Agents or any of them in any way relating to
or arising out of this Agreement or any other Loan Document or any action taken
or omitted by any of them under this Agreement or any other Loan Document, to
the extent the same shall not have been reimbursed by the Borrowers; PROVIDED
that no Lender shall be liable to the Agents for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the gross negligence or wilful
misconduct of the Agents or any of their directors, officers, employees or
agents.
Each Lender acknowledges that it has, independently and
without reliance upon the Agents or any other Lender and based on such documents
and information as it has deemed applicable, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agents or any other Lender and
based on such documents and informa tion as it shall from time to time deem
applicable, continue to make its own decisions in taking or not taking action
under or based upon this Agreement or any other Loan Document, any related
agreement or
<PAGE>
52
any document furnished hereunder or thereunder.
ARTICLE IX. GUARANTEE
SECTION 9.01. GUARANTEE. (a) Subject to the last sentence of
this Section 9.01(a), each Guarantor hereby guarantees to each Lender and the
Administrative Agent and their respective successors and assigns the prompt
payment in full when due (whether at stated maturity, by acceleration, by
optional prepayment or otherwise) of the principal of and interest (accruing at
the rate specified herein after the filing or commencement of any bankruptcy or
similar proceeding) on the Loans made by the Lenders to any Borrower and all
other amounts from time to time owing to the Lenders or the Administrative Agent
by any Borrower under this Agreement, strictly in accordance with the terms
thereof (such obligations being herein collectively called the "Guaranteed
Obligations"). Each Guarantor hereby further agrees that if any Borrower shall
fail to pay in full when due (whether at stated maturity, by acceleration, by
optional prepayment or otherwise) any of the Guaranteed Obligations, the
Guarantor will promptly pay the same, without any demand or notice whatsoever,
and that in the case of any extension of time of payment or renewal of any of
the Guaranteed Obligations, the same will be promptly paid in full when due
(whether at extended maturity, by acceleration or otherwise) in accordance with
the terms of such extension or renewal. Notwithstanding anything in this Article
IX to the contrary, Oatshare Limited and Sotheby's will not be liable as
Guarantors for the obligations of Sotheby's Holdings, Inc. and Sotheby's, Inc.
(b) Anything herein to the contrary notwithstanding, the
maximum liability of each Guarantor hereunder shall in no event exceed the
amount which can be guaranteed by such Guarantor under applicable federal and
state laws relating to the insolvency of debtors.
SECTION 9.02. OBLIGATIONS UNCONDITIONAL. The obligations of
each Guarantor under Section 9.01 hereof are absolute and unconditional
irrespective of the value, genuineness, validity, regularity or enforceability
of the obligations of any Borrower under this Agreement or any other agreement
or instrument referred to herein or therein, or any substitution, release or
exchange of any other guarantee of or security for any of the Guaranteed
Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever which might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent of this Section 9.02 that the obligations of each Guarantor
hereunder shall be absolute and unconditional under any and all circumstances.
Without limiting the generality of the foregoing, it is agreed that the
occurrence of any one or more of the following shall not affect the liability of
any Guarantor hereunder:
(a) at any time or from time to time, without notice to the
Guarantors, the time for any performance of or compliance with any of
the Guaranteed Obligations shall be extended, or such performance or
compliance shall be waived;
(b) any of the acts mentioned in any of the provisions of this
Agreement or any other agreement or instrument referred to herein or
therein shall be done or omitted; or
<PAGE>
53
(c) the maturity of any of the Guaranteed Obligations shall
be accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this
Agreement or any other agreement or instrument referred to herein or
therein shall be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with.
Each Guarantor hereby expressly waives diligence, presentment, demand of
payment, protest and all notices whatsoever, and any requirement that the
Administrative Agent or any Lender exhaust any right, power or remedy or proceed
against any Borrower under this Agreement or any other agreement or instrument
referred to herein or therein, or against any other person under any other
guarantee of, or security for, any of the Guaranteed Obligations.
SECTION 9.03. REINSTATEMENT. The obligations of each Guarantor
under this Article IX shall be automatically reinstated if and to the extent
that for any reason any payment by or on behalf of any Borrower in respect of
the Guaranteed Obligations is rescinded or must be otherwise restored by any
holder of any of the Guaranteed Obligations, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise, and each Guarantor
agrees that it will indemnify the Administrative Agent and each Lender on demand
for all reasonable costs and expenses (including, without limitation, fees of
counsel) incurred by the Administrative Agent or such Lender in connection with
such rescission or restoration.
SECTION 9.04. SUBROGATION. Each Guarantor hereby irrevocably
waives all rights of subrogation or contribution, whether arising by operation
of law (including, without limitation, any such right arising under Title 11 of
the United States Code) or otherwise, by reason of any payment by it pursuant to
the provisions of this Article IX and further agrees for the benefit of each of
its creditors (including, without limitation, each Lender and the Administrative
Agent) that any such payment by it of the Guaranteed Obligations of any Borrower
shall constitute a contribution of capital or a dividend, as the case may be, by
such Guarantor to such Borrower.
SECTION 9.05. REMEDIES. Each Guarantor agrees that, as between the
Guarantors and the Lenders, the obligations of any Borrower under this Agreement
may be declared to be forthwith due and payable as provided in Article VII
hereof (and shall be deemed to have become automatically due and payable in the
circumstances provided in said Article VII) for purposes of Section 9.01 hereof
notwithstanding any stay, injunction or other prohibition preventing such
declaration (or preventing such obligations from becoming automatically due and
payable) as against any Borrower and that, in the event of such declaration (or
such obligations being deemed to have become automatically due and payable),
such obligations (whether or not due and payable by such Approved Borrower)
shall forthwith become due and payable by each Guarantor for purposes of such
Section 9.01.
SECTION 9.06. CONTINUING GUARANTEE. The guarantee in this
Article IX is a continuing guarantee, and shall apply to all Guaranteed
Obligations whenever arising.
ARTICLE X. MISCELLANEOUS
SECTION 10.01. NOTICES. Notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail or
<PAGE>
54
sent by telecopy, as follows:
(a) if to any Borrower, to it in care of Holdings at 1334 York
Avenue, New York, New York 10021, Attention of the Chief Financial
Officer (Telecopy No. (212) 606-7132);
(b) if to the Administrative Agent, to The Chase Manhattan
Bank, One Chase Plaza, 8th Floor, New York, New York, 10005 Attention
of Jackie Carter (Telecopy No. 212-552-7500), with copies to The Chase
Manhattan Bank, 270 Park Avenue, New York, New York 10017, Attention of
Margaret Lane (Telecopy No. 212- 270-5646);
(c) if to the Issuing Bank, to The Chase Manhattan Bank, 270
Park Avenue, New York, New York 10017, Attention of Margaret Lane
(Telecopy No. 212-270-5646);
(d) if to the Collateral Agent, to The Chase Manhattan Bank,
270 Park Avenue, New York, New York 10017, Attention of Margaret Lane
(Telecopy No. 212-270-5646); and
(e) if to a Lender, to it at its address (or telecopy number)
set forth in Schedule 2.01 or in the Assignment and Acceptance pursuant
to which such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy, or on the date five Business Days after dispatch by certified or
registered mail, in each case delivered, sent or mailed (properly addressed) to
such party as provided in this Section 10.01 or in accordance with the latest
unrevoked direction from such party given in accordance with this Section 10.01.
SECTION 10.02. SURVIVAL OF AGREEMENT. All covenants,
agreements, representations and warranties made by the Borrowers herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and shall survive the making by the Lenders
of the Loans and the issuance of the Letters of Credit by the Issuing Bank,
regardless of any investigation made by the Lenders or on their behalf, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any Fee or any other amount payable under this
Agreement or any other Loan Document is outstanding and unpaid and so long as
the Commitments have not been terminated.
SECTION 10.03. BINDING EFFECT. This Agreement shall become
effective when it shall have been executed by the Borrowers and the
Administrative Agent and when the Administrative Agent shall have received
copies hereof which, when taken together, bear the signatures of the Required
Lenders, and thereafter shall be binding upon and inure to the benefit of the
Borrowers, the Administrative Agent and each Lender and their respective
successors and assigns, except that the Borrowers shall not have the right to
assign rights hereunder or any interest herein without the prior consent of all
the Lenders.
SECTION 10.04. SUCCESSORS AND ASSIGNS. (a) Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party (including any
affiliate of the Issuing Bank that issues any Letter of Credit); and all
covenants, promises and agreements by or on behalf of
<PAGE>
55
the Borrowers, the Administrative Agent, the Issuing Bank or the Lenders that
are contained in this Agreement shall bind and inure to the benefit of their
respective successors and assigns (including any affiliate of the Issuing Bank
that issues any Letter of Credit).
(b) Each Lender may assign to one or more assignees all or a
portion of its interests, rights and obligations under this Agreement (including
all or a portion of its Commitment or outstanding Loans or Letters of Credit at
the time owing to it); PROVIDED, HOWEVER, that (i) except in the case of (A) an
assignment to a Lender or an affiliate of such Lender or (B) an assignment after
the occurrence and during the continuance of an Event of Default referred to in
paragraph (l) or (m) of Article VII, Holdings and the Administrative Agent (and,
in the case of an assignment of all or a portion of any Lender's LC Exposure,
the Issuing Bank) must give their prior written consent to such assignment
(which consent shall not be unreasonably withheld), (ii) each such assignment
shall be of a constant, and not a varying, percentage of all the assigning
Lender's rights and obligations under this Agreement, (iii) the amount of the
Commitment of the assigning Lender subject to each such assignment (determined
as of the date the Assignment and Acceptance Agreement with respect to such
assignment is delivered to the Administrative Agent) shall not be less than
$5,000,000 (or, if smaller, such Lender's remaining Commitment) and the amount
of the Commitment of such Lender remaining after such assignment shall not be
less than $5,000,000 or shall be zero, (iv) the parties to each such assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance Agreement and a processing and recordation fee of $4,000 and (v) the
assignee, if it shall not be a Lender, shall deliver to the Administrative Agent
an Administrative Questionnaire. Upon acceptance and recording pursuant to
paragraph (e) of this Section 10.04, from and after the effective date specified
in each Assignment and Acceptance Agreement, which effective date shall be at
least five Business Days after the execution thereof, (A) the assignee
thereunder shall be a party hereto and, to the extent of the interest assigned
by such Assignment and Acceptance Agreement, have the rights and obligations of
a Lender under this Agreement and (B) the assigning Lender thereunder shall, to
the extent of the interest assigned by such Assignment and Acceptance Agreement,
be released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance Agreement covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto (but shall continue to be entitled to the
benefits of Sec tions 2.13, 2.15, 2.19 and 10.05, as well as to any Fees accrued
for its account hereunder and not yet paid)).
(c) By executing and delivering an Assignment and Acceptance
Agreement, the assigning Lender thereunder and the assignee thereunder shall be
deemed to confirm to and agree with each other and the other parties hereto as
follows: (i) such assigning Lender warrants that it is the legal and beneficial
owner of the interest being assigned thereby free and clear of any adverse claim
and that its Commitment, if any, and the outstanding balances of its Standby
Loans, if any, in each case without giving effect to assignments thereof which
have not become effective, are as set forth in such Assignment and Acceptance
Agreement, (ii) except as set forth in (i) above, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement, or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto or the financial condition of
the Borrowers or any Subsidiary or the performance or observance by any Borrower
of any of its obligations under this Agreement, any other Loan Document or any
<PAGE>
56
other instrument or document furnished pursuant hereto; (iii) such assignee
represents and warrants that it is legally authorized to enter into such
Assignment and Acceptance Agreement; (iv) such assignee confirms that it has
received a copy of this Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 5.01 and such other documents
and information as it has deemed applicable to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (v) such assignee will
independently and without reliance upon the Administrative Agent, such assigning
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (vi) such assignee appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all the obligations which by the terms of
this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at one of its
offices in The City of New York a copy of each Assignment and Acceptance
Agreement delivered to it and a register for the recordation of the names and
addresses of the Lenders, and the Commitment of, and principal amount of the
Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof
from time to time (the "Register"). The entries in the Register shall be
conclusive in the absence of manifest error and the Borrower, the Administrative
Agent and the Lenders may treat each person whose name is recorded in the
Register pursuant to the terms hereof as a Lender hereunder for all purposes of
this Agreement. The Register shall be available for inspection by the Borrowers
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance Agreement executed by an assigning Lender and an assignee, an
Administrative Questionnaire completed in respect of the assignee (unless the
assignee shall already be a Lender hereunder), the processing and recordation
fee referred to in paragraph (b) above and, as required, the written consent of
Holdings and the Administrative Agent to such assignment, the Administrative
Agent shall (i) accept such Assignment and Acceptance Agreement, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Lenders.
(f) Each Lender may without the consent of Holdings, the
Issuing Bank or the Administrative Agent sell participations to one or more
banks or other entities in all or a portion of its rights and obligations under
this Agreement (including all or a portion of its Commitment and the Loans or LC
Disbursements owing to it); PROVIDED, HOWEVER, that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) the participating banks or other entities shall be
entitled to the benefit of the cost protection provisions contained in Sections
2.13, 2.15 and 2.19 to the same extent as if they were Lenders and (iv) the
Borrowers, the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, and such Lender shall retain the sole right to
enforce the obligations of the Borrowers relating to the Loans and to approve
any amendment, modification or waiver of any provision of this Agreement (other
than amendments, modifications or waivers decreasing any fees payable hereunder
or the
<PAGE>
57
amount of principal of or the rate at which interest is payable on the Loans,
extending any scheduled principal payment date or date fixed for the payment of
interest on the Loans or changing or extending the Commitments).
(g) Any Lender or participant may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section 10.04, disclose to the assignee or participant or proposed assignee
or participant any information relating to the Borrowers furnished to such
Lender by or on behalf of the Borrowers; PROVIDED that, prior to any such
disclosure of information, each such assignee or participant or proposed
assignee or participant shall execute an agreement whereby such assignee or
participant shall agree on terms substantially similar to those set forth in
Section 10.17 to preserve the confidentiality of such confidential information.
(h) Any Lender may at any time assign all or any portion of
its rights under this Agreement to a Federal Reserve Bank; PROVIDED that no such
assignment shall release a Lender from any of its obligations hereunder. In
order to facilitate such an assignment to a Federal Reserve Bank, the applicable
Borrower shall, at the request of the assigning Lender, duly execute and deliver
to the assigning Lender a promissory note or notes evidencing the Loans made to
such Borrower by the assigning Lender hereunder.
(i) The Borrowers shall not assign or delegate any of their
rights or duties hereunder, except pursuant to a merger permitted by Section
6.03.
SECTION 10.05. EXPENSES; INDEMNITY. (a) Each Borrower agrees
to pay all reasonable out-of-pocket expenses incurred by the Administrative
Agent in connection with the preparation of this Agree ment and the other Loan
Documents or in connection with any amendments, modifications or waivers of the
provisions hereof or thereof (whether or not the transactions hereby
contemplated shall be consummated) or incurred by the Administrative Agent or
any Lender in connection with the enforcement or protection of their rights in
connection with this Agreement and the other Loan Documents or in connection
with the Loans made hereunder, including the reasonable fees, charges and
disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agent,
and, in connection with any such enforcement or protection, the reasonable fees,
charges and disbursements of any other counsel for the Administrative Agent or
any Lender and all reasonable out-of-pocket expenses incurred by the Issuing
Bank in connection with the issuance, amendment, renewal or extension of any
Letter of Credit or any demand for payment thereunder. Each Borrower further
agrees that it shall indemnify the Lenders from and hold them harmless against
any docu mentary taxes, assessments or charges made by any Governmental
Authority by reason of the execution and delivery of this Agreement or any of
the other Loan Documents.
(b) Each Borrower agrees to indemnify the Administrative
Agent, the Issuing Bank, each Lender and each of their respective directors,
officers, employees and agents (each such person being called an "Indemnitee")
against, and to hold each Indemnitee harmless from, any and all actual losses,
claims, damages, liabilities and related expenses, including reasonable counsel
fees, charges and disbursements, incurred by or asserted against any Indemnitee
arising out of, in any way connected with, or as a result of (i) the execution
or delivery of this Agreement or any other Loan Document or any agreement or
instrument
<PAGE>
58
contemplated thereby, the performance by the parties thereto of their respective
obligations thereunder or the consummation of the transactions contemplated
thereby, (ii) the actual or proposed use of the proceeds of the Loans or (iii)
any claim, litigation, investigation or proceeding relating to any of the
foregoing, whether or not any Indemnitee is a party thereto; PROVIDED that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or wilful misconduct of such Indemnitee.
(c) The provisions of this Section 10.05 shall remain
operative and in full force and effect regardless of the expiration of the term
of this Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the expiration of the Letters of Credit, the
invalidity or unenforceability of any term or provision of this Agreement or any
other Loan Document, or any investigation made by or on behalf of the
Administrative Agent, the Issuing Bank or any Lender. All amounts due under this
Section 10.05 shall be payable on written demand therefor.
SECTION 10.06. RIGHT OF SETOFF. If an Event of Default shall
have occurred and be continuing, each Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Lender
to or for the credit or the account of any Borrower against any of and all the
obligations of such Borrower now or hereafter existing under this Agreement,
irrespective of whether or not such Lender shall have made any demand under this
Agreement or such other Loan Document and although such obligations may be
unmatured. The rights of each Lender under this Section are in addition to other
rights and remedies (including other rights of setoff) which such Lender may
have.
SECTION 10.07. APPLICABLE LAW. THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 10.08. WAIVERS; AMENDMENT. (a) No failure or delay of
the Administrative Agent or any Lender in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
the Administrative Agent, the Issuing Bank and the Lenders hereunder are
cumulative and are not exclusive of any rights or remedies which they would
otherwise have. No waiver of any provision of this Agreement or consent to any
departure by any Borrower therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice or demand on any Borrower in any case shall entitle such
Borrower to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrowers and the Required Lenders; PROVIDED,
HOWEVER, that no such agreement shall (i) decrease the principal amount of, or
extend the maturity of or any scheduled principal payment date or date for the
payment of any interest on any
<PAGE>
59
Loan, or waive or excuse any such payment or any part thereof, or decrease the
rate of interest on any Loan, without the prior written consent of each Lender
affected thereby, (ii) change or extend the Commitment or decrease the
Commitment Fees of any Lender or extend any payment date therefor without the
prior written consent of such Lender, or (iii) amend or modify the provisions of
Section 2.16, the provisions of Article IX, the provisions of this Section or
the definition of the term "Required Lenders", without the prior written consent
of each Lender; PROVIDED FURTHER that no such agreement shall amend, modify or
otherwise affect the rights or duties of the Administrative Agent hereunder
without the prior written consent of the Administrative Agent.
SECTION 10.09. INTEREST RATE LIMITATION. Notwithstanding
anything herein to the contrary, if at any time the applicable interest rate,
together with all fees and charges which are treated as interest under
applicable law (collectively the "Charges"), as provided for herein or in any
other document executed in connection herewith, or otherwise contracted for,
charged, received, taken or reserved by any Lender, shall exceed the maximum
lawful rate (the "Maximum Rate") which may be contracted for, charged, taken,
received or reserved by such Lender in accordance with applicable law, the rate
of interest payable on the Loans of such Lender, together with all Charges
payable to such Lender, shall be limited to the Maximum Rate.
SECTION 10.10. ENTIRE AGREEMENT. This Agreement and the other
Loan Documents constitute the entire contract between the parties relative to
the subject matter hereof. Any previous agreement among the parties with respect
to the subject matter hereof is superseded by this Agreement and the other Loan
Documents. Nothing in this Agreement or in the other Loan Documents, expressed
or implied, is intended to confer upon any party other than the parties hereto
and thereto any rights, remedies, obligations or liabilities under or by reason
of this Agreement or the other Loan Documents.
SECTION 10.11. WAIVER OF JURY TRIAL. Each party hereto hereby
waives, to the fullest extent permitted by applicable law, any right it may have
to a trial by jury in respect of any litigation directly or indirectly arising
out of, under or in connection with this Agreement or any of the other Loan
Documents. Each party hereto (a) certifies that no representative, agent or
attorney of any other party has represented, expressly or otherwise, that such
other party would not, in the event of litigation, seek to enforce the foregoing
waiver and (b) acknowledges that it and the other parties hereto have been
induced to enter into this Agreement and the other Loan Documents, as
applicable, by, among other things, the mutual waivers and certifications in
this Section 10.11.
SECTION 10.12. SEVERABILITY. In the event any one or more of
the provisions contained in this Agreement or in any other Loan Document should
be held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby. The parties shall endeavor
in good-faith negotia tions to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
SECTION 10.13. JUDGMENT CURRENCY. (a) The Borrowers'
obligations hereunder and under the other Loan Documents to make payments in
Dollars or in the Alternative Currency (the "Obligation Currency") shall not be
discharged or satisfied by any tender or recovery pursuant to any judgment
expressed in or converted into any currency other than the Obligation Currency,
except to the extent that
<PAGE>
60
such tender or recovery results in the effective receipt by the Administrative
Agent or a Lender of the full amount of the Obligation Currency expressed to be
payable to the Administrative Agent or such Lender under this Agreement or the
other Loan Documents. If, for the purpose of obtaining or enforcing judgment
against any Borrower or in any court or in any jurisdiction, it becomes
necessary to convert into or from any currency other than the Obligation
Currency (such other currency being hereinafter referred to as the "Judgment
Currency") an amount due in the Obligation Currency, the conversion shall be
made at the Alternative Currency Equivalent or Dollar Equivalent, in the case of
any Alternative Currency or Dollars, and, in the case of other currencies, the
rate of exchange (as quoted by the Administrative Agent or if the Administrative
Agent does not quote a rate of exchange on such currency, by a known dealer in
such currency designated by the Administrative Agent) determined, in each case,
as of the date immediately preceding the day on which the judgment is given
(such Business Day being hereinafter referred to as the "Judgment Currency
Conversion Date").
(b) If there is a change in the rate of exchange prevailing
between the Judgment Currency Conversion Date and the date of actual payment of
the amount due, the Borrower covenants and agrees to pay, or cause to be paid,
as a separate obligation and notwithstanding any judgment, such additional
amounts, if any (but in any event not a lesser amount), as may be necessary to
ensure that the amount paid in the Judgment Currency, when converted at the rate
of exchange prevailing on the date of payment, will produce the amount of the
Obligation Currency which could have been purchased with the amount of Judgment
Currency stipulated in the judgment or judicial award at the rate of exchange
prevailing on the Judgment Currency Conversion Date.
(c) For purposes of determining the Alternative Currency
Equivalent or Dollar Equivalent or rate of exchange for this Section, such
amounts shall include any premium and costs payable in connection with the
purchase of the Obligation Currency.
SECTION 10.14. COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract, and shall become
effective as provided in Section 10.03.
SECTION 10.15. HEADINGS. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and are not to affect the construction of, or to be taken
into consideration in interpreting, this Agreement.
SECTION 10.16. JURISDICTION; CONSENT TO SERVICE OF PROCESS.
(a) Each Borrower hereby irrevocably and unconditionally submits, for itself and
its property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that any
Lender may otherwise have to bring any action or proceeding relating to this
Agreement or the other Loan Documents against any Borrower or its properties in
the courts of
<PAGE>
61
any jurisdiction.
(b) Each Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this agreement or the other
Loan Documents in any New York State or Federal court. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
(c) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 10.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 10.17. CONFIDENTIALITY. Except as otherwise provided
in Section 10.04(g), the Administrative Agent, the Issuing Bank, the Collateral
Agent and each of the Lenders agrees to keep confidential (and (i) to cause its
respective officers, directors and employees to keep confidential and (ii) to
use its best efforts to cause its respective agents and representatives to keep
confidential) the Information (as defined below) and all copies thereof,
extracts therefrom and analyses or other materials based thereon, except that
the Agent or any Lender shall be permitted to disclose Information (a) to such
of its respective affiliates, officers, directors employees, agents and
representatives as need to know such Information, (b) to the extent requested by
any bank regulatory authority, (c)(i) to the extent otherwise required by
applicable laws and regulations or by any subpoena or similar legal process or
(ii) in connection with the enforcement of this Agreement, (d) to the extent
such Information (i) becomes publicly available other than as a result of a
breach of this Agreement or (ii) becomes available to the Administrative Agent
or any Lender on a nonconfidential basis from a source other than the Borrowers
or (e) to the extent Holdings shall have consented to such disclosure in
writing. For the purposes of this Section, "Information" shall mean all
information that is received from and relates to Holdings or any of its
Subsidiaries other than any such information available to the Administrative
Agent or any Lender on a nonconfidential basis prior to its disclosure thereto
by Holdings or any such Subsidiary. The provisions of this Section 10.17 shall
remain operative and in full force and effect regardless of the expiration of
this Agreement.
SECTION 10.18. RELEASE OF LIENS AND GUARANTEES. (a) Except as
provided in paragraph (b) below, no amendment to the Loan Documents that has the
effect of releasing all or substantially all the Collateral or any of the
guarantees under the Subsidiary Guarantee Agreements or hereunder shall be
effective except pursuant to an agreement or agreements in writing entered into
by the Borrowers and all the Lenders. It is expressly understood that an
amendment providing that additional obligations will be secured under the
Security Documents will not constitute a release of Collateral for purposes of
this paragraph.
(b) In the event that Holdings or any Subsidiary sells,
transfers or otherwise disposes of all or any portion of any of the Equity
Interests, assets or property owned by Holdings or such Subsidiary in a
transaction not prohibited by this Agreement, the Administrative Agent and the
Collateral Agent shall promptly (and the Lenders hereby authorize and instruct
the Administrative Agent and the Collateral Agent to) take such action and
execute any such documents as may be reasonably requested by the Borrower to
release any Liens created by any Loan Document in respect of such Equity
Interests, assets or property, including the release and satisfaction of record
<PAGE>
62
of any mortgage or deed of trust granted in connection herewith, and, in the
case of a disposition of all or substantially all the Equity Interests or
assets of any Subsidiary, to terminate such Subsidiary's obligations under
the Subsidiary Guarantee Agreement and each other Loan Document. In addition,
the parties hereto acknowledge and agree that the Liens and security
interests created by the Security Documents will automatically terminate when
all the Obligations have been paid in full and the Commitments have been
terminated, and the Administrative Agent and the Collateral Agent will take
such actions as are reasonably requested by the Borrower to evidence such
termination. Holdings agrees to pay all out-of-pocket expenses of the
Administrative Agent and the Collateral Agent in connection with releases of
Liens and obligations under the Subsidiary Guarantee Agreement provided for
in this Section.
<PAGE>
63
IN WITNESS WHEREOF, the Borrowers (in their capacity as
Borrowers and Guarantors), the Administrative Agent and the Lenders have caused
this Agreement to be duly executed by their respective authorized officers as of
the day and year first above written.
SOTHEBY'S HOLDINGS, INC.,
by /s/ William S. Sheridan
----------------------------
Name: William S. Sheridan
Title: Senior Vice President and
Chief Financial Officer
SOTHEBY'S, INC.,
by /s/ William S. Sheridan
----------------------------
Name: William S. Sheridan
Title: Senior Vice President and
Chief Financial Officer
OATSHARE LIMITED,
by /s/ William S. Sheridan
----------------------------
Name: William S. Sheridan
Title: Director
SOTHEBY'S,
by /s/ William S. Sheridan
----------------------------
Name: William S. Sheridan
Title: Director
THE CHASE MANHATTAN BANK, N.A.,
individually and as Administrative Agent,
Collateral Agent, and Issuing Bank,
by /s/ Thomas H. Newkirk
----------------------------
Name: Thomas H. Newkirk
Title: Vice President
<PAGE>
64
BARCLAYS BANK PLC,
by /s/ Dennis J. Diczok
----------------------------
Name: Dennis J. Diczok
Title: Director
<PAGE>
65
THE BANK OF NEW YORK,
by /s/ Eliza S. Adams
----------------------------
Name: Eliza S. Adams
Title: Vice President
<PAGE>
66
COMERICA BANK,
by /s/ Robert M. Porterfield
----------------------------
Name: Robert M. Porterfield
Title: Vice President
<PAGE>
67
UBS AG, STAMFORD BRANCH,
by /s/ Paul R. Morrison
----------------------------
Name: Paul R. Morrison
Title: Executive Director
by /s/ Dorothy McKinley
----------------------------
Name: Dorothy McKinley
Title: Associate Director
Loan Portfolio Support
<PAGE>
68
THE BANK OF NOVA SCOTIA,
by /s/ J. Alan Edwards
----------------------------
Name: J. Alan Edwards
Title: Managing Director
<PAGE>
69
BANCA COMMERCIALE ITALIANA, NEW YORK
BRANCH
by /s/ E. Bermant
----------------------------
Name: E. Bermant
Title: FVP/Deputy Manager
by /s/ Joseph Carlani
----------------------------
Name: Joseph Carlani
Title: Vice President
<PAGE>
70
BANCA MONTE dei PASCHI di SIENA S.P.A.
by /s/ G. Natalizoni
----------------------------
Name: G. Natalizoni
Title: Senior Vice President
and General Manager
by /s/ Brian R. Landy
----------------------------
Name: Brian R. Landy
Title: Vice President
<PAGE>
71
BANK ONE, NA (Main Office Chicago)
by /s/ Stephen McDonald
----------------------------
Name: Stephen McDonald
Title: Senior Vice President
<PAGE>
72
BBL INTERNATIONAL (U.K.) LIMITED,
by
----------------------------
Name:
Title:
<PAGE>
73
BANK HAPPALIM,
by
----------------------------
Name:
Title:
<PAGE>
74
FUJI BANK,
by /s/ Raymond Ventura
----------------------------
Name: Raymond Ventura
Title: Vice President and
Manager
<PAGE>
75
VIA BANQUE (PARIS),
by /s/ Christel Prot
----------------------------
Name: Christel Prot
Title: Vice President
by /s/ Jean Francois Vitte
----------------------------
Name: Jean Francois Vitte
Title: DGA
<PAGE>
76
BAYERSCHE HYPO-UND VEREINSBANK AG (NEW
YORK BRANCH),
by /s/ Marianne Weinzinger
----------------------------
Name: Marianne Weinzinger
Title: Director
by /s/ Imke Engelmann
----------------------------
Name: Imke Engelmann
Title: Associate Director
<PAGE>
77
SCHEDULE 1.01A
OTHER OBLIGATIONS OF THE LENDERS
1. All obligations of Holdings and any Subsidiary owed to Barclay's Bank
PLC ("Barclay's") or any affiliate of Barclay's in connection with rent
guarantees and overdraft guarantees in France in the amount of FFR 26.7
million and rent guarantees in Monaco in the amount of FFR 40,000.
2. All obligations of Holdings and any Subsidiary owed to Barclay's or any
affiliate of Barclay's in connection with a guarantee line in the
amount of L20.5 million.
3. All obligations of Holdings and any Subsidiary owed to any Lender in
connection with cash management services provided by such Lender or
commitments to provide such services.
4. All guarantee obligations of Holdings and any Subsidiary owed to Chase
or any affiliate of Chase in connection with loans and other extensions
of credit make by Chase for officers and employees of Holdings and its
Subsidiaries.
5. All obligations of Holdings and any Subsidiary in connection with
interest rate and foreign exchange rate hedging agreements with persons
that are Lenders on the date hereof or were Lenders at the time such
agreements were entered into.
6. All obligations of Holdings and any Subsidiary in connection with
Letters of Credit provided by persons that are Lenders on the date
hereof or were Lenders at the time such letters of credit were entered
into.
<PAGE>
78
SCHEDULE 1.01B
100 shares of Common Stock, no par value, of Sotheby's-Deitch Holdings, Inc.
owned by Sotheby's, Inc.
50% membership interest in Deitch Projects LLC, held by Sotheby's-Deitch
Holdings, Inc.
49% membership interest in a limited liability company (in formation),
to be held by Sotheby's, Inc., and operating as a fine jewelry designer and
dealer.
50% partnership interest in Acquavella Modern Art held by Sotheby's Nevada, Inc.
49.99% membership interest in a joint venture to be formed by Sotheby's
International Realty, Inc. with a major investment bank for a residential
mortgage program.
Sotheby's, Inc.'s rights under that certain Agreement of Sale and Purchase dated
September 9, 1999, between The Benenson Capital Company, Lawrence A. Benenson,
Raymond E. Benenson and York Avenue Development, Inc. (which entity assigned its
rights to Sotheby's, Inc. by an Assignment and Assumption Agreement dated
September 9, 1999), until such time that Sotheby's, Inc. or an affiliate of
Sotheby's, Inc. is the owner of the York Avenue Property.
The rights under any other real property lease or software license agreement to
which any of the Borrowers or any Subsidiary is a party that would require the
consent of the counter-party thereto in connection with the grant of security
interests contemplated hereunder.
Issued and outstanding shares (and assets, if any) of York Storage, Inc.
(Inactive and in process of liquidation) , for so long as York Storage, Inc.
remains an inactive subsidiary or holds no significant assets and conducts no
significant operations
Issued and outstanding shares (and assets, if any) of Sotheby's Art Sales
Corporation (Inactive and in process of liquidation) , for so long as Sotheby's
Art Sales Corporation remains an inactive subsidiary or holds no significant
assets and conducts no significant operations
Issued and outstanding shares (and assets, if any) of Sotheby's International
Realty of Colorado, Inc. (inactive and in process of liquidation) , for so long
as Sotheby's International Realty of Colorado, Inc. remains an inactive
subsidiary or holds no significant assets and conducts no significant operations
Issued and outstanding shares (and assets, if any) of Sotheby's Holdings
International, Inc. (Inactive and in process of liquidation) , for so long as
Sotheby's Holdings International, Inc. remains an inactive subsidiary or holds
no significant assets and conducts no significant operations
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF SOTHEBY'S HOLDINGS, INC.
The significant subsidiaries of Sotheby's Holdings, Inc., which are
wholly owned except where indicated, are as follows:
JURISDICTION OF
INCORPORATION
---------------
Sotheby's Holdings, Inc. Michigan
Sotheby's Financial Services, Inc. Nevada
SPTC, Inc. Nevada
SFS Holdings, Inc. Delaware
Fine Art Insurance Ltd. Bermuda
Sotheby's, Inc. New York
Oatshare Limited United Kingdom
Sotheby's United Kingdom
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement No. 33-26008 of Sotheby's Holdings, Inc. on Form S-8, Registration
Statement No. 33-54057 of Sotheby's Holdings, Inc. on Form S-8, Registration
Statement No. 333-02315 on Form S-8, Registration Statement No. 333-28007 on
Form S-8, Registration Statement No. 333-34621 on Form S-8, Registration
Statement No. 333-34623 on Form S-8, Registration Statement No. 333-92193 on
Form S-8 and Registration Statement No. 333-55995 on Form S-3 of our reports
dated February 24, 2000, appearing in Item 8 "Financial Statements and
Supplementary Data" on Form 10-K of Sotheby's Holdings, Inc. for the year
ended December 31, 1999.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
March 14, 2000
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana D.
Brooks and William S. Sheridan, with full power of substitution, as his true and
lawful attorney and agent to execute in his name and on his behalf, as a
Director of the Company, the Company's Annual Report on form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended. Each such attorney
or agent shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 16th day of February, 2000.
/s/ A. Alfred Taubman
----------------------------------
A. ALFRED TAUBMAN
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana D.
Brooks and William S. Sheridan with full power of substitution, as his true and
lawful attorney and agent to execute in his name and on his behalf, as a
Director of the Company, the Company's Annual Report on form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended. Each such attorney
or agent shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 2nd day of February, 2000.
/s/ Max M. Fisher
----------------------------------
MAX M. FISHER
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana D.
Brooks and William S. Sheridan with full power of substitution, as his true and
lawful attorney and agent to execute in his name and on his behalf, as a
Director of the Company, the Company's Annual Report on form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended. Each such attorney
or agent shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 2nd day of February, 2000.
/s/ Viscount Blakenham
----------------------------------
VISCOUNT BLAKENHAM
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a
Michigan corporation (the "Company"), does hereby constitute and appoint each of
Diana D. Brooks and William S. Sheridan with full power of substitution, as his
true and lawful attorney and agent to execute in his name and on his behalf, as
a Director of the Company, the Company's Annual Report on form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended. Each such attorney
or agent shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed
his signature this 1st day of February, 2000.
/s/ Walter J.P. Curley
----------------------------------
WALTER J.P. CURLEY
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana D.
Brooks and William S. Sheridan with full power of substitution, as her true and
lawful attorney and agent to execute in her name and on her behalf, as a
Director of the Company, the Company's Annual Report on form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended. Each such attorney
or agent shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed her
signature this 3rd day of February, 2000.
/s/ Sharon Percy Rockefeller
----------------------------------
SHARON PERCY ROCKEFELLER
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana D.
Brooks and William S. Sheridan with full power of substitution, as his true and
lawful attorney and agent to execute in his name and on his behalf, as a
Director of the Company, the Company's Annual Report on form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended. Each such attorney
or agent shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 3rd day of February, 2000.
/s/ The Marquess of Hartington
----------------------------------
THE MARQUESS OF HARTINGTON
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana D.
Brooks and William S. Sheridan, with full power of substitution, as his true and
lawful attorney and agent to execute in his name and on his behalf, as a
Director of the Company, the Company's Annual Report on form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended. Each such attorney
or agent shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 9th day of February, 2000.
/s/ Henry R. Kravis
----------------------------------
HENRY R. KRAVIS
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana D.
Brooks and William S. Sheridan, with full power of substitution, as his true and
lawful attorney and agent to execute in his name and on his behalf, as a
Director of the Company, the Company's Annual Report on form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended. Each such attorney
or agent shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 1st day of February, 2000.
/s/ Conrad Black
----------------------------------
CONRAD BLACK
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana D.
Brooks and William S. Sheridan, with full power of substitution, as his true and
lawful attorney and agent to execute in his name and on his behalf, as a
Director of the Company, the Company's Annual Report on form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended. Each such attorney
or agent shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 16th day of February, 2000.
/s/ Jeffrey H. Miro
----------------------------------
JEFFREY H. MIRO
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of William
F. Ruprecht and William S. Sheridan, with full power of substitution, as his
true and lawful attorney and agent to execute in his name and on his behalf, as
a Director of the Company, the Company's Annual Report on form 10-K, and any and
all amendments thereto to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended. Each such attorney
or agent shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 29th day of February, 2000.
/s/ Michael I. Sovern
---------------------------------------
MICHAEL I. SOVERN
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a
Michigan corporation (the "Company"), does hereby constitute and appoint each
of William F. Ruprecht and William S. Sheridan, with full power of
substitution, as her true and lawful attorney and agent to execute in her
name and on her behalf, as a Director of the Company, the Company's Annual
Report on form 10-K, and any and all amendments thereto to be filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended. Each such attorney or agent shall have, and may exercise,
all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed
his signature this 9th day of March, 2000.
/s/ Diana D. Brooks
-----------------------------------
DIANA D. BROOKS
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a
Michigan corporation (the "Company"), does hereby constitute and appoint each of
William F. Ruprecht and William S. Sheridan, with full power of substitution, as
his true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, the Company's Annual Report on form 10-K, and any
and all amendments thereto to be filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended. Each
such attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed
his signature this 10th day of March, 2000.
/s/ Robin Woodhead
-------------------------------
ROBIN WOODHEAD
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a
Michigan corporation (the "Company"), does hereby constitute and appoint each of
William F. Ruprecht and William S. Sheridan, with full power of substitution, as
her true and lawful attorney and agent to execute in her name and on her behalf,
as a Director of the Company, the Company's Annual Report on form 10-K, and any
and all amendments thereto to be filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended. Each
such attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed
his signature this 9th day of March, 2000.
/s/ Deborah Zoullas
------------------------------------
DEBORAH ZOULLAS
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 42,319
<SECURITIES> 0
<RECEIVABLES> 652,430
<ALLOWANCES> 11,085
<INVENTORY> 20,843
<CURRENT-ASSETS> 736,247
<PP&E> 305,124
<DEPRECIATION> 72,463
<TOTAL-ASSETS> 1,073,512
<CURRENT-LIABILITIES> 576,787
<BONDS> 100,000
0
0
<COMMON> 5,885
<OTHER-SE> 371,159
<TOTAL-LIABILITY-AND-EQUITY> 1,073,512
<SALES> 0
<TOTAL-REVENUES> 442,585
<CGS> 0
<TOTAL-COSTS> 85,563
<OTHER-EXPENSES> 302,849
<LOSS-PROVISION> 3,476
<INTEREST-EXPENSE> 5,589
<INCOME-PRETAX> 52,150
<INCOME-TAX> 19,296
<INCOME-CONTINUING> 32,854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,854
<EPS-BASIC> 0.57
<EPS-DILUTED> 0.56
</TABLE>
