EXHIBIT 10.1

Severance Agreement

As of July 1, 2006

BY HAND
William S. Sheridan
Sotheby’s
1334 York Avenue
New York, NY 10021

Dear Bill:

          This letter sets forth our understanding and agreement (the
“Agreement”) with respect to your rights and obligations in the event of the
termination of your employment with Sotheby’s (together with all of its
subsidiaries and related entities, “Sotheby’s” or the “Company”). This Agreement
is being provided to you because you are a key employee at the Company and
perform highly specialized and unique duties for the Company. Consequently,
Sotheby’s is offering you the following terms and financial enhancements to
ensure your continued loyalty to the Company, and so that you will focus fully
and exclusively on your job duties at Sotheby’s. Defined terms used herein are
used with the meanings given to them in Exhibit A.

 

 

 

 

(1)

Severance Arrangements.

 

 

 

a)

If at any time from the date hereof through June 30, 2011 (the “Applicable
Period”), your employment by the Company is terminated by you for Good Reason or
by the Company without Cause, the Company shall pay or provide you with the
following:

 

 

 

 

 

a)

The sum of your base salary through the date of termination to the extent not
theretofore paid, any declared and earned but unpaid bonus amount for the prior
calendar year and reimbursement for any unreimbursed expenses incurred through
the date of termination (“Accrued Obligations”); and

 

 

 

 

 

 

b)

$1,550,000.

 

 

 

 

 

 

Notwithstanding the foregoing, if during the Applicable Period your employment
by the Company is terminated and as a result of such termination you become
eligible to receive payments and/or benefits under the Sotheby’s, Inc. Severance
Plan, then you shall be entitled to receive and retain the full amount payable
to you under the terms of such Plan, but the amount you receive under such Plan

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shall reduce (but not below zero) the amounts you shall be entitled to receive
pursuant to Subparagraph (1)(a)(ii) above.

 

 

 

 

 

b)

If during the Applicable Period your employment by the Company is terminated on
account of your Permanent Disability or your death, the Company shall pay or
provide you (or, in the event of your death, your estate) with an amount equal
to the sum of the amounts you would receive in the event of termination of your
employment by you for Good Reason or by the Company without Cause pursuant to
Subparagraph (1)(a) above.

 

 

 

 

 

c)

If during the Applicable Period your employment by the Company is terminated by
the Company for Cause, this Agreement shall terminate without further obligation
to you, except that the Company shall pay or provide you with the sum of your
base salary through the date of termination to the extent not theretofore paid.
You will not be eligible for any bonus after the date of termination of your
employment.

 

 

 

 

 

d)

Any payments payable pursuant to this Paragraph 1 beyond Accrued Obligations
shall only be payable if you deliver to the Company a release, as similarly
required under the Sotheby’s, Inc. Severance Plan, of any and all your claims
(except with regard to claims for payments or benefits specifically payable or
providable hereunder which are not yet paid as of the effective date of the
release, claims for vested accrued benefits, claims under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) or claims
relating to any rights of indemnification under the Company’s certificate of
incorporation or by-laws or claims under any directors and officers liability
insurance policy) occurring up to the release date with regard to the Company
and its respective past or present officers, directors and employees in such
form as may be reasonably requested by the Company.

 

 

 

 

(2)

Certain Agreements. In consideration of the undertakings by the Company in
Paragraph (1), you agree to be bound by the covenants and agreements set forth
in Exhibit B.

 

 

 

 

(3)

Miscellaneous. You may not assign your rights or delegate your obligations under
this Agreement. Sotheby’s shall be entitled to withhold from any payments or
deemed payments under this Agreement any amount of withholding required by law.
This Agreement constitutes the entire agreement between you and Sotheby’s
concerning the subject matter of your employment, with the exception of letters
and documents specifically referenced herein, and it supersedes all prior
agreements including, but not limited to, any prior employment agreements and
Notice and Non-Compete Agreements, written or oral, discussions, and
negotiations on that subject (other than the documents specifically referenced
herein). Any waiver or amendment of any provision of this Agreement must be done
in writing and signed by both parties.

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(4)

Legal and Equitable Remedies. Sotheby’s shall be entitled to enjoin a violation
by you of any provision hereof. Moreover, the parties hereto acknowledge that
the damages suffered by Sotheby’s as a result of any violation of this Agreement
may be difficult to ascertain. Accordingly, the parties agree that in the event
of a breach of this Agreement by you, Sotheby’s shall be entitled to specific
enforcement by injunctive relief of your obligations to Sotheby’s. The remedies
referred to above shall not be deemed to be exclusive of any other remedies
available to Sotheby’s, including to enforce the performance or observation of
the covenants and agreements contained in this Agreement.

 

 

(5)

Arbitration. Any dispute, controversy or claim arising out of or relating to
this agreement, or breach thereof (other than an action or proceeding for an
injunction or other equitable relief pursuant to Paragraph 4 hereof), shall be
settled by arbitration in New York City in accordance with the National Rules
for the Resolution of Employment Disputes of the American Arbitration
Association by a single arbitrator. The arbitrator’s award shall be final and
binding upon both parties, and judgment upon the award may be entered in any
court of competent jurisdiction in any state of the United States or country or
application may be made to such court for a judicial acceptance of the award and
such enforcement as the law of such jurisdiction may require or allow.

 

 

(6)

Attorney’s Fees. At your request, the Company shall pay up to $5,000 of your
reasonable attorney’s fees incurred by you in connection with preparation,
execution and delivery of this Agreement.

 

 

(7)

Severability. If at any time there is a judicial determination by any court of
competent jurisdiction that any provision of this Agreement is unenforceable
against you, the other provisions of this Agreement shall not be rendered void
but shall be deemed amended to apply as to such maximum extent as the court may
judicially determine or indicate to be enforceable under New York law.

 

 

(8)

Choice of Law/Choice of Forum. This Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of New York irrespective
of the principles of conflicts of law, and you consent to the jurisdiction of
the state and federal courts situated in New York City for the purpose of
adjudicating any dispute relating to this Agreement.

 

 

(9)

Binding on Successor Company. This Agreement shall remain in effect and binding
upon any successor or assign of Sotheby’s including any entity that (whether
directly or indirectly, by purchase, merger, reorganization, consolidation,
acquisition of property or stock, liquidation or otherwise) is the survivor of
the Company or that acquires the Company and/or substantially all the assets of
the Company in accordance with the operation of law, and such successor entity
shall be deemed the “Company” for purposes of this Agreement. In the situations
set forth in this Paragraph 9, if this Agreement is not assumed as a matter of
law, the Company will require its assumption by the successor entity.

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(10)

409A. Notwithstanding any other provision of this Agreement, if at the time of
the termination of your employment you are a “specified employee” (as defined in
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)) and
any payments upon such termination under Subparagraphs 1(a) or (b) will result
in additional tax or interest to you if paid on or about the date of termination
of your employment, you will not be paid such payments until the earlier of (i)
the date which is six months after the termination of your employment for any
reason, other than as a result of your death or disability (as such term is used
in Section 409A(a)(2)(C) of the Code), (ii) the date of your death or disability
(as such term is used in Section 409A(a)(2)(C) of the Code), (iii) a Change in
Ownership of the Company (as defined by the Company in a manner that does not
result in any additional tax or interest to you under Section 409A of the Code
or any regulations or Treasury guidance promulgated thereunder (together with
Section 409A of the Code the “409A Regulations)) or (iv) any earlier date that
does not result in any additional tax or interest to you under the 409A
Regulations. In addition, if any provision of this Agreement would subject you
to any additional tax or interest under the 409A Regulations, then the Company
shall reform such provision to the extent reasonably practicable; provided that
the Company shall (x) maintain, to the maximum extent practicable, the original
intent of the applicable provision without subjecting you to such additional tax
or interest and (y) not incur any additional compensation expense as a result of
such reformation.

 

 

(11)

Notices. For the purpose of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be delivered
personally or mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed to you at the address set forth on
the initial page of this Agreement and to the Company at Sotheby’s Holdings,
Inc., 1334 York Avenue, New York, New York 10021, Attention: General Counsel, or
to such other address as either party may have furnished to the other in writing
in accordance herewith. Any such notice shall be deemed given when so delivered
personally, or, if mailed, five (5) days after the date of deposit in the United
States mail, except that notice of change of address shall be effective only
upon receipt.

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Please review this Agreement carefully and, if it correctly states our
agreement, sign and return to me the enclosed copy.

 

 

 

 

Very truly yours,

 

 

 

SOTHEBY’S

 

 

 

By:

/s/ William F. Ruprecht

 

 

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William F. Ruprecht

 

 

President and Chief Executive Officer

 

 

 

Read, accepted and agreed to this
day of August 3, 2006

 

 

 

 

 

/s/ William S. Sheridan

 

 

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William S. Sheridan

 

 

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EXHIBIT A

DEFINITIONS

“Cause” shall mean and be limited to:

 

 

 

 

a)

conviction of a felony crime, or

 

 

 

 

b)

fraud, willful malfeasance or gross negligence in performance of your duties
which is materially injurious to the Company.

 

 

 

 

The Chief Executive Officer shall determine, in his sole discretion, whether the
occurrence or non-occurrence of an event constitutes Cause within the meaning of
this Agreement. Such determination shall be final, binding and conclusive on the
parties hereto.

 

 

 

 

You shall have thirty (30) days following the receipt of notice from the Company
of the existence of circumstances constituting Cause to correct such
circumstances. Any notice of termination for Cause must be given within sixty
(60) days following the date on which the Chief Executive Officer or the
Chairman of the Board of Directors of the Company learns of the circumstances
constituting Cause.

 

 

 

“Good Reason” shall mean the occurrence of any of the following events:

 

 

 

 

a)

failure by the Company to pay you a base salary of not less than $600,000,
reduction of your annual incentive bonus target below $350,000, reduction of
your target bonus under Sotheby’s Executive Bonus Plan (“EBP”) below $350,000 or
discontinuance of your participation in the EBP or a comparable plan which pays
out based on the Company’s meeting certain financial performance goals
determined annually by the Compensation Committee;

 

 

 

 

b)

your being required to relocate to a principal place of business more than fifty
(50) miles outside New York, New York without your express consent;

 

 

 

 

c)

any action by the Company that results in a material diminution in your position
without your express consent (except in connection with the termination of your
employment for Cause or as a result of your death or Permanent Disability or
temporarily as a result of your illness or other absence);

 

 

 

 

d)

failure of the Company to maintain directors and officers liability insurance
for your benefit on a basis no less favorable than the basis on which it
generally maintains such insurance for the benefit of other senior executives of
the Company;

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e)

failure of the Company’s successor to assume this Agreement in accordance with
Paragraph 9 without your express consent

 

 

 

 

provided, however, that the Company shall have thirty (30) days following the
receipt of notice from you of the existence of circumstances constituting Good
Reason to correct such circumstances.

“Permanent Disability” shall mean, and be limited to, any physical or mental
illness, disability or impairment that has prevented you from continuing the
performance of your normal duties and responsibilities hereunder for a period in
excess of six (6) consecutive months.

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EXHIBIT B

CERTAIN AGREEMENTS

Non-Compete and Non-Solicitation Agreement.

Because of the importance of confidentiality, and because you have specialized,
unique confidential knowledge vital to the Company, you agree that during the
Restricted Period (defined below), you will not, without the consent of the
Company, directly or indirectly, in New York, California, England, France or
Switzerland engage directly or indirectly in the live or on-line Art Auction
Business or in any other business in which the Company is engaged or is actively
seeking to be engaged as of the time that your employment terminates, whether
such engagement by you is as an officer, director, proprietor, employee,
partner, owner, consultant, advisor, agent, sales representative or other
participation. For purposes of this Agreement, the Art Auction Business involves
auctions of the property in the collecting categories that the Company offers
for sale in its core business at the time of termination. For purposes of this
Agreement, the “Restricted Period” is during the course of your employment and
the earlier of (i) six months after the end of the Applicable Period or (ii)
twelve (12) months after the termination of your employment.

In addition to the foregoing, during the Restricted Period, you agree that you
will not, either alone or in concert with others, and will not cause another to,
in any such case directly or indirectly, hire, recruit, solicit or induce any
Sotheby’s employees to terminate their employment with Sotheby’s.

If at any time there is a judicial determination by any court of competent
jurisdiction that the time period, geographical scope, or any other restriction
contained in this Agreement is unenforceable against you, the provisions of this
Agreement shall not be deemed void but shall be deemed amended to apply as to
such maximum time period, geographical scope and to such other maximum extent as
the court may judicially determine or indicate to be enforceable.

Confidentiality Agreement.

As a condition to your continued employment by the Company, you shall continue
to be bound by the Company’s Confidentiality Agreement, Auction Rules,
Compliance Policy, Code of Business Conduct and Ethics, Conflict of Interest
Policy and House Rules, (collectively, the “Rules and Policies”). You
acknowledge that you have read, understood and signed each of the foregoing.

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