EMPLOYMENT AGREEMENT

March 31, 2006

William F. Ruprecht

President and Chief Executive Officer

Sotheby’s Holdings, Inc.

1334 York Avenue

New York, New York 10021

Dear Bill,

The attached Terms of Employment together with its Exhibits (the “Terms”) sets forth our mutual understanding with respect to the terms of your employment by Sotheby’s Holdings, Inc. (“Sotheby’s”) for the period April 1, 2006 through March 31, 2011. With respect to the Terms, you and Sotheby’s hereby agree as follows:

This letter agreement and the Terms (collectively, the “Letter Agreement”) will, as of April 1, 2006, supersede any and all existing agreements between you and Sotheby’s, including without limitation the Employment Agreement dated as of July 1, 2003 by and between Sotheby’s and you, but excluding the Confidentiality Agreement dated March 31, 2006 between Sotheby’s and you.

This Letter Agreement shall be binding upon and inure to your benefit, to the benefit of Sotheby’s and to the benefit of your respective successors and assigns. Neither this Letter Agreement nor any of the rights of the parties hereunder may be assigned by either party hereto except that Sotheby’s may assign its rights and obligations hereunder to a corporation or other entity into which it is merged or that acquires substantially all of its assets. Any assignment or transfer of the Letter Agreement in violation of the foregoing provisions will be void.

This Letter Agreement will be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and/or to be performed in that State, without regard to any choice of law provisions thereof.

Any dispute, controversy or claim arising out of or relating to the Letter Agreement or breach thereof 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. The losing party in such arbitration shall be liable for any costs, including attorney’s fees. If there is a dispute as to which party lost, or if a party shall have prevailed on one or more but not all of the issues subject to arbitration, costs and fees shall be allocated by the arbitrator.

If this Letter Agreement correctly sets forth your understanding with Sotheby’s regarding the terms of your employment by Sotheby’s, please acknowledge your agreement by signing in the space indicated below.

ACCEPTED AND AGREED:

________________________

Exhibit A

Executive’s cash bonus in each year during the term shall be determined by the Compensation Committee in its sole discretion. 50% of his bonus shall be based on the degree to which the Company has achieved the Management Objectives or Company Objectives approved by the Board of Directors for that year and 50% of his bonus shall be based on the performance of the Executive in respect of non-financial objectives established by the Compensation Committee in consultation with the Chairman of the Board at the beginning of each year. For 2006, the non-financial objectives are:

1. Develop the competence and capacity of the management talent pool

A. Recruit and integrate external talent into 3 senior management roles to develop management talent pool for succession planning. New hires must have potential to move laterally as well as at least one level above the immediate role.

B. Implement management development plans for key high potential managers and begin coaching using an internal and/or external coach for each.

C. Pilot and evaluate a 360 feedback process integrated with the management development process for CEO and other selected managers.

D. Continue support and participation in Leadership Development Program.

2. Increase loyalty among buyers

A. Be a visible role model for providing preferred and continuous relationship support to buyers with whom you play an active role.

B. Otherwise actively sponsor and support the Client Management Strategy.

3. Develop a strategic plan for the Company and increase organizational alignment (clarity about what needs to be done, and commitment based on the compelling nature of the potential benefits to the business and to the employee) around the strategy of the Company and the action needed to achieve it. Create a greater degree of shared knowledge among experts/business-getters. Accomplish both of these through improved personal and organizational leadership communication.

Exhibit A (cont’d)

A. Develop a company-wide communication program of quarterly meetings/emails that increases alignment around strategic objectives, improves the understanding and appreciation of the worldwide business (highlight new initiatives, financial issues reported in earnings releases, recent successes/disappointments, upcoming sales/events, process improvements) and acknowledges outstanding contributions.

B. Create and evaluate quarterly forums of experts/business getters to improve business getting and information sharing: discuss changes in the marketplace, new tactics, and deployment of new internal client systems.

Exhibit B

If the payout multiple under the EBP in any year during the Term is at the minimum multiple established by the Compensation Committee for that year (the “Minimum Multiple”), the Executive shall receive a restricted stock award with a fair market value of $1,700,000 as of the date of grant. If the payout multiple under the EBP in any year is at the maximum multiple established by the Compensation Committee for that year (the “Maximum Multiple”), the Executive shall receive a restricted stock award with a fair market value of $2,200,000 as of the date of grant. If the payout multiple under the EBP in any year is any other multiple (other than zero), such multiple being calculated taking into account the aggregate cap on EBP payouts (the “Actual Multiple”), the Executive shall receive a restricted stock award with a fair market value of $1,700,000 as of the date of grant plus an additional amount determined pursuant to the following formula:

(Actual Multiple – Minimum Multiple)

(Maximum Multiple – Minimum Multiple)

Exhibit C

Subject to the satisfaction of the performance criteria described below, the restrictions on 60% of the VCP Shares will lapse on the third anniversary of the date of grant (the “2009 Vesting Date”) and the restrictions on the remaining 40% of the VCP Shares will lapse on March 31, 2011 (the “2011 Vesting Date”). Restrictions will lapse on the 2009 Vesting Date if either (i) the compound annual growth rate (“CAGR”) in Sotheby’s common stock, including dividends, shall have been equal to or greater than 7.2% per annum from April 1, 2006 through March 31, 2009 or (ii) the cumulative CAGR of the Company’s net income shall have been equal to or greater than 10% per annum through the year ended December 31, 2008 as compared with the Company’s net income for the year ended December 31, 2005. Restrictions will lapse on the 2011 Vesting Date if either (i) the CAGR in Sotheby’s common stock, including dividends, shall have been equal to or greater than 7.2% per annum from April 1, 2006 through March 31, 2011 or (ii) the cumulative CAGR of the Company’s net income shall have been equal to or greater than 10% through the year ended December 31, 2010 as compared with the Company’s net income for the year ended December 31, 2005. If the performance criteria for the 2009 Vesting Date shall not have been satisfied by that date, but the performance criteria for the 2011 Vesting Date are satisfied, then restrictions on 100% of the VCP Shares will lapse on the 2011 Vesting Date. If Executive’s employment is terminated prior to the 2011 Vesting Date as a result of a Change in Control, by the Company without Cause, by the Employee with Good Reason, or as a result of Executive’s death or Disability, (i) if the performance criteria for either or both of the 2009 Vesting Date or the 2011 Vesting Date have already been satisfied as of the date of termination of employment, the restrictions on the VCP Shares that would otherwise have lapsed on the applicable measurement date will lapse immediately and (ii) if the performance criteria have not yet been satisfied for either the 2009 Vesting Date or the 2011 Vesting Date, but have been satisfied for one or more full 12-month periods prior to the date of termination of employment, then the restrictions on a fraction of the VCP Shares shall lapse immediately, the numerator of such fraction being the number of full 12-month periods for which the performance criteria have been satisfied and the denominator of such fraction being 5.

If Executive’s employment is terminated on or after March 31, 2009 and before the 2009 Vesting Date as a result of a Change of Control, by the Company without Cause, by the Employee with Good Reason or as a result of death or Disability, the Company shall on the 2009 Vesting Date pay to the Executive or his estate, as the case may be, an amount in cash equal to the fair market value on the 2009 Vesting Date of any VCP Shares that would have vested on the 2009 Vested Date but for such termination of employment.

For purposes of measuring the CAGR in Sotheby’s common stock, the value of such common stock as of April 1, 2006 shall be the daily average closing price of Sotheby’s common stock on the New York Stock Exchange for the period January 3 through March 31, 2006 and the value of such common stock at the end of each measurement period shall be the daily average of the closing price of Sotheby’s common stock on the New York Stock Exchange during the 30 calendar days prior to the end of such measurement period.

Exhibit C (cont’d)

The cumulative CAGR in the Company’s net income for any measurement period will be deemed to be equal to or greater than 10% if (i) the actual cumulative net income (net of any net loss) of the Company for such period equals or exceeds (ii) what the Company’s cumulative net income would have been had the CAGR of its net income during such measurement period been 10% as compared with the Company’s net income for the year ended December 31, 2005.

For purposes hereof, net income shall be determined in accordance with generally accepted accounting principles in the United States (“GAAP”); provided, however, that consistent with the Company’s objective to reward Executive based on the normalized operating performance of the Company, the Compensation Committee shall have the discretion to adjust the Company’s net income to account for extraordinary or unforeseen business events or developments during any measurement period, including, but not limited to, income or loss from discontinued operations, gains or losses from the sale of significant assets or business units, restructurings, asset impairments, unusual adjustments to tax valuation reserves, special charges, extraordinary items as defined by GAAP, material changes in GAAP, or other non-recurring events. Notwithstanding the foregoing, no adjustment shall increase the amount of compensation otherwise payable if such increase is prohibited by Code Section 162(m).

Exhibit D

“Cause” means:

The Executive 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 Chairman of the Board of Directors learning of circumstances constituting Cause. During such thirty (30) day period, the Executive shall be given an opportunity, together with his counsel, to be heard before the Board of Directors of the Company and the Executive shall only be deemed to have been terminated for Cause if no less than 60% of the members of the Board of Directors determine in good faith that the Executive was guilty of conduct set forth in clauses (1) or (2) above.

“Change of Control” shall have the meaning set forth in the Company’s 1997 Stock Option Plan, as amended.

“Disability” means a determination by the Company in accordance with applicable law that, as a result of a physical or mental illness, the Executive is unable to perform the essential functions of his job with or without reasonable accommodation that does not present an undue burden on the Company.

“Good Reason” means: