Exhibit 10.1


 


PERSONAL AND CONFIDENTIAL


 


October 5, 2004


 


Mr. Gerald Putnam


Chief Executive Officer


Archipelago Holdings, Inc.


100 South Wacker Drive


Suite 1800


Chicago, IL  60606


 


Dear Mr. Putnam:


 


We are pleased to confirm the arrangements under which
Goldman, Sachs & Co. (“Goldman Sachs”) is engaged by Archipelago Holdings,
Inc. (the “Company”) as financial advisor in connection with the possible
acquisition of all or a portion of the stock or assets of Pacific Exchange,
Inc. (“Pacific”).  This engagement is
exclusive to Goldman Sachs except that it is understood and agreed that the
Company may also engage other investment banks for the sole purpose of
providing a fairness opinion in connection with this transaction pursuant to a
separate engagement letter.


 


During the term of our engagement, we will provide you
with financial advice and assistance in connection with this potential
transaction, which may include assisting you in negotiating the financial
aspects of the transaction.


 


The fees of our engagement will depend upon the
outcome of this assignment.  If 50% or
more of the outstanding common stock of Pacific or 50% or more of the assets
(based on the book value thereof) of Pacific is acquired by the Company or one
of its subsidiaries in one or more transactions, we will charge a transaction
fee of $500,000.  If less than 50% of the
outstanding common stock or assets (based on the book value thereof) of Pacific
is acquired, we will charge a mutually acceptable transaction fee.  The Company agrees to pay the transaction fee
to us in cash upon consummation of such acquisition.


 


If the Company or any of its subsidiaries enters into
an agreement to acquire Pacific (the “Agreement”) and the Agreement provides
for a payment at any time to the Company in the event the transaction
contemplated thereby is terminated or otherwise not consummated (the “Payment”),
the Company agrees to pay to Goldman Sachs a transaction fee of the lesser of
(i) $500,000 and (ii) 20% of such Payment in cash if and when such Payment is
made to the Company.


 





















 


You also agree to reimburse us periodically, upon
request, and upon consummation of the transaction or transactions contemplated
hereby or upon termination of our services pursuant to this letter, for our
reasonable out-of-pocket expenses, including the fees and disbursements of our
attorneys, plus any sales, use or similar taxes (including additions to such
taxes, if any) arising in connection with any matter referred to in this
letter.  The fees and disbursements of
counsel to be reimbursed pursuant to the immediately preceding sentence shall
not exceed $100,000 without the prior written consent of the Company, which
shall not be unreasonably withheld; provided, however, this sentence shall in
no way affect the Company’s obligations as set forth in Annex A to this letter.


 


In order to coordinate most effectively our efforts to
effect a transaction satisfactory to you during the period of our engagement,
the Company and its management will promptly inform Goldman Sachs of any further
discussions concerning any acquisition of the stock or assets of Pacific and of
any inquiries they may receive with respect to such a transaction.


 


Please note that any written or oral advice provided
by Goldman Sachs in connection with our engagement is exclusively for the
information of the Board of Directors and senior management of the Company, and
such advice and the terms of this letter may not be disclosed to any third
party or circulated or referred to publicly without our prior written consent, except
as may be required pursuant to a subpoena or order issued by a court of
competent jurisdiction or by a judicial, administrative, legislative or
regulatory body or committee, provided that the Company shall have (a) notified
Goldman Sachs of the receipt of any such subpoena or order, (b) consulted with
Goldman Sachs as to the advisability of taking steps to resist or narrow the
scope of the disclosure contemplated thereby and (c) cooperated with Goldman
Sachs in any reasonable efforts it may make to obtain an order or other
reliable assurance that confidential treatment will be accorded to such advice
and the terms of this letter.


 


In connection with engagements such as this, it is our
firm policy to receive indemnification. 
The Company agrees to the provisions with respect to our indemnity and
other matters set forth in Annex A, which is incorporated by reference into
this letter.


 


As you know, Goldman Sachs is a full service
securities firm engaged, either directly or through its affiliates in various
activities, including securities trading, investment management, financing and
brokerage activities and financial planning and benefits counseling for both
companies and individuals.  In the
ordinary course of these activities, Goldman Sachs and its affiliates may
actively trade the debt and equity securities (or related derivative
securities) of the Company and other companies which may be the subject of the
engagement contemplated by this letter for their own account and for the
accounts of their customers and may at any time hold long and short positions
in such securities.


 


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Our services may be terminated by you or us at any
time with or without cause effective upon receipt of written notice to that effect;
provided, however, that our services will automatically terminate on the date
one year after the date of this letter unless we shall agree in writing to
extend them for a specified period.  We
will be entitled to the applicable transaction fees set forth above in the
event that at any time prior to the expiration of one year after such
termination (i) an agreement is entered into with respect to an acquisition of
all or a portion of the stock or assets of Pacific which is eventually
consummated by the Company or any of its affiliates or (ii) an Agreement is
entered into pursuant to which a Payment is eventually made; provided, however,
in the event Goldman Sachs terminates its services hereunder without cause, Goldman
Sachs will not be entitled to any transaction fee provided for by the foregoing
provisions of this letter.


 


The Company shall offer Goldman Sachs the opportunity
to make a proposal to act (i) as book-running lead manager or agent in the case
of any offering or placement of securities, including, but not limited to,
debt, equity, preferred and other hybrid equity securities, and as lead
arranger and book-runner, syndication agent and administrative agent in the
case of a syndicated bank loan or bridge loan related to (A) the financing of any
transaction referred to in the first paragraph hereof and/or (B) the
refinancing of any bank loan, commercial paper or other short-term borrowing
undertaken in connection with the financing of any transaction referred to in
the first paragraph hereof if such refinancing occurs within one year of the
consummation of such transaction, (ii) as financial advisor in the case of any
disposition of assets of Pacific or the Company in connection with or following
the consummation of any such transaction or transactions, and (iii) as dealer
manager, solicitation agent or exclusive financial advisor, as applicable, in
the case of any liability management undertaken by the Company, including, but
not limited to, any exchange or tender offer, open market repurchase, and
consent solicitation, in connection with or following the consummation of any
such transaction or transactions.  If the
Company agrees to accept Goldman Sachs’ proposal and Goldman Sachs agrees to
act in any such capacity, the Company and Goldman Sachs will enter into a
mutually agreed form of underwriting, placement agency, commitment, engagement,
dealer manager or other agreement relating to the type of transaction
involved.  In addition, the Company shall
offer Goldman Sachs the opportunity to make a proposal to act as principal or
counterparty in the case of any foreign exchange or commodities transaction,
currency or interest rate swap or other hedging transaction related to the
financing of any transaction referred to in the first paragraph hereof.  Where the Company accepts Goldman Sachs’
proposal to act as the principal or counterparty in a swap, hedging or other
transaction with the Company, such transactions will be based on documentation
mutually agreed by the Company and Goldman Sachs.  The Company acknowledges that this letter is
neither an expressed nor an implied commitment by Goldman Sachs to act, and
Goldman Sachs acknowledges that this letter is neither an expressed nor an
implied commitment by the Company to engage Goldman Sachs or to accept a
proposal by Goldman Sachs to act, in any capacity in any such transaction, to
provide financing or to purchase or


 


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place any securities, which commitment shall only be
set forth in a separate underwriting, placement agency, commitment, engagement,
dealer manager, swap or other applicable type of agreement.]


 


The Company’s obligations to offer Goldman Sachs the opportunity
to make a proposal to act in the capacities set forth above in connection with certain
specific transactions shall survive any such termination for a period of one
year from the date of such termination, provided, however, that Goldman Sachs
did not terminate its services hereunder without cause.


 


The Company recognizes that, in providing our services
pursuant to this letter, we will rely upon and assume the accuracy and
completeness of all of the financial, accounting, tax and other information
discussed with or reviewed by us for such purposes, and we do not assume
responsibility for the accuracy or completeness thereof.  Goldman Sachs will have no obligation to
conduct any independent evaluation or appraisal of the assets or liabilities of
the Company, Pacific, or any other party or to advise or opine on any related
solvency issues.  It is understood and
agreed that Goldman Sachs will act under this letter as an independent
contractor with duties solely to the Company and nothing in this letter or the
nature of our services shall be deemed to create a fiduciary or agency
relationship between us and the Company or its stockholders, employees or
creditors.  Except as set forth in Annex
A hereto, nothing in this letter is intended to confer upon any other person
(including stockholders, employees or creditors of the Company) any rights or
remedies hereunder or by reason hereof.


 


Goldman Sachs does not provide accounting, tax or
legal advice.  The Company is authorized,
subject to applicable law, to disclose any and all aspects of this potential
transaction that are necessary to support any U.S. federal income tax benefits
expected to be claimed with respect to such transaction, and all materials of
any kind (including tax opinions and other tax analyses) related to those
benefits, without Goldman Sachs imposing any limitation of any kind.


 


You acknowledge that Spear, Leeds & Kellogg, LP (“SLK”)
provides clearing and technical services to the Company.  In addition, you acknowledge that Goldman
Sachs or its affiliates hold an interest of approximately 15.6% of the common
stock of the Company, and from time to time may maintain an investment in, or a
commercial relationship (including investment banking relationships) with
entities or organizations with which the Company may determine to explore a
potential transaction.  You hereby
acknowledge and agree that notwithstanding Goldman Sachs’ engagement pursuant
to this letter, (i) SLK, Goldman Sachs and their affiliates may continue to
manage, hold and pursue such investments and relationships, including by taking
such actions as they deem appropriate in their economic interest with respect
to their investments, or otherwise, and (ii) SLK may continue to provide the
aforementioned technical and clearing services. 
You hereby agree not to claim that Goldman Sachs has a conflict of
interest by virtue of the foregoing, or that SLK, Goldman Sachs or


 


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their affiliates must act in a particular manner in
respect to their investments, board representations or commercial relationships
as a result of this engagement.


 


You acknowledge that Goldman Sachs (or its affiliates)
has a minority equity investment of approximately 3.5% in Pacific.  You also acknowledge and agree that
notwithstanding Goldman Sachs’ engagement pursuant to this letter, Goldman
Sachs (or its affiliates) may vote its shareholdings in its own economic
interest in connection with any proposed transaction.  You hereby agree not to claim that Goldman
Sachs has a conflict of interest by virtue of such shareholdings, or that
Goldman Sachs in its capacity as a shareholder must act in a particular manner
as a result of this engagement.


 


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Please confirm that the foregoing is in accordance
with your understanding by signing and returning to us the enclosed copy of
this letter, which shall become a binding agreement upon our receipt.  We are delighted to accept this engagement
and look forward to working with you on this assignment.


 


	
  Very truly yours,

  	
  Confirmed:

  
	
   

  	
   

  
	
  /s/ [ILLEGIBLE]

  	
   

  	
   

  
	
  (GOLDMAN, SACHS & CO.)

  	
  ARCHIPELAGO HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/  Gerald D. Putnam

  	
   

  
	
   

  	
   

  	
    Name: Gerald D. Putnam

  
	
   

  	
   

  	
    Title:  
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
					



 


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