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Exhibit 10.38

GUITAR CENTER, INC.

EMPLOYEE STOCK PURCHASE PLAN

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GUITAR CENTER, INC.

EMPLOYEE STOCK PURCHASE PLAN

TABLE OF CONTENTS

 
   
  Page

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1.   Definitions   1 2.   Stock Subject to the Plan   3 3.   Grant of Options  
3 4.   Exercise of Options; Option Price   4 5.   Withdrawal from the Plan   5
6.   Termination of Employment   5 7.   Restriction upon Assignment   6 8.   No
Rights of Stockholders until Shares Issued   6 9.   Changes in the Stock and
Corporate Events; Adjustment of Options   6 10.   Use of Funds; No Interest Paid
  7 11.   Dividends   7 12.   Amendment, Suspension or Termination of the Plan  
8 13.   Administration by Committee; Rules and Regulations   8 14.   Designation
of Subsidiary Corporations   9 15.   No Rights as an Employee   9 16.   Term;
Approval by Stockholders   9 17.   Effect upon Other Plans   9 18.   Conditions
to Issuance of Stock Certificates   9 19.   Notification of Disposition   10 20.
  Notices   10 21.   Headings   10

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GUITAR CENTER, INC.

EMPLOYEE STOCK PURCHASE PLAN

    Guitar Center, Inc., a Delaware corporation (the "Company"), hereby adopts
the Guitar Center, Inc. Employee Stock Purchase Plan (the "Plan"), effective as
of February 8, 2001.

    The purposes of the Plan are as follows:

    (1) To assist eligible employees of the Company and its Designated
Subsidiary Corporations (as defined below) in acquiring stock ownership in the
Company pursuant to a plan which is intended to qualify as an "employee stock
purchase plan," within the meaning of Section 423(b) of the Code (as defined
below); and

    (2) To help such employees provide for their future security and to
encourage them to remain in the employment of the Company and its Subsidiary
Corporations.

    1.  Definitions.  Whenever any of the following terms is used in the Plan
with the first letter or letters capitalized, it shall have the following
meaning unless the context clearly indicates to the contrary (such definitions
to be equally applicable to both the singular and the plural forms of the terms
defined):

    (a) "Account" shall mean the account established for an Eligible Employee
under the Plan with respect to an Offering Period.

    (b) "Agent" shall mean the brokerage firm, bank or other financial
institution, entity or person(s) engaged, retained, appointed or authorized to
act as the agent of the Company or an Employee with regard to the Plan.

    (c) "Authorization" shall mean an Eligible Employee's payroll deduction
authorization with respect to an Offering Period provided by such Eligible
Employee in accordance with Section 3(b).

    (d) "Base Compensation" of an Eligible Employee shall mean the gross base
compensation received by such Eligible Employee on each Payday as compensation
for services to the Company or any Designated Subsidiary Corporation, excluding
overtime payments, sales commissions, incentive compensation, bonuses, expense
reimbursements, fringe benefits and other special-payments.

    (e) "Board" means the Board of Directors of the Company.

    (f)  "Code" means the Internal Revenue Code of 1986, as amended.

    (g) "Committee" means the committee of the Board appointed to administer the
Plan pursuant to Section 13.

    (h) "Company" means Guitar Center, Inc., a Delaware corporation.

    (i)  "Date of Exercise" of any Option means the date on which such Option is
exercised, which shall be the last day of the Offering Period with respect to
which the Option was granted, in accordance with Section 4(a) (except as
provided in Section 9).

    (j)  "Date of Grant" of any Option means the date on which such Option is
granted, which shall be the first day of the Offering Period with respect to
which the Option was granted, in accordance with Section 3(a).

    (k) "Designated Subsidiary Corporation" means any Subsidiary Corporation
designated by the Board in accordance with Section 14.

    (l)  "Eligible Employee" means an Employee of the Company or any Designated
Subsidiary Corporation: (i) who does not, immediately after the Option is
granted, own (directly or through

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attribution) stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of Stock or other stock of the Company, a
Parent Corporation or a Subsidiary Corporation (as determined under
Section 423(b)(3) of the Code); (ii) whose customary employment is for more than
twenty (20) hours per week; and (iii) whose customary employment is for more
than five (5) months in any calendar year. For purposes of paragraph (i) above,
the rules of Section 424(d) of the Code with regard to the attribution of stock
ownership shall apply in determining the stock ownership of an individual, and
stock which an Employee may purchase under outstanding options shall be treated
as stock owned by the Employee. During a leave of absence meeting the
requirements of Treasury Regulation Section 1.421-7(h)(2), an individual shall
be treated as an Employee of the Company or Subsidiary Corporation employing
such individual immediately prior to such leave.

    (m) "Employee" shall mean an individual who renders services to the Company
or a Subsidiary Corporation in the status of an "employee," within the meaning
of Code Section 3401(c). "Employee" shall not include any director of the
Company or a Subsidiary Corporation who does not render services to the Company
or a Subsidiary Corporation in the status of an "employee," within the meaning
of Code Section 3401(c).

    (n) "Offering Period" shall mean each six-month offering period or such
shorter or longer offering periods, as shall be established by the Committee in
its discretion. Options shall be granted on the Date of Grant and exercised on
the Date of Exercise, as provided in Sections 3(a) and 4(a), respectively.

    (o) "Option" means an option to purchase shares of Stock granted under the
Plan to an Eligible Employee in accordance with Section 3(a).

    (p) "Option Price" means the option price per share of Stock determined in
accordance with Section 4(b).

    (q) "Parent Corporation" means any corporation, other than the Company, in
an unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of the corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.

    (r) "Payday" means the regular and recurring established day for payment of
Base Compensation to an Employee of the Company or any Subsidiary Corporation.

    (s) "Plan" means this Guitar Center, Inc. Employee Stock Purchase Plan.

    (t)  "Stock" means the shares of the Company's Common Stock, $.01 par value.

    (u) "Subsidiary Corporation" means any corporation, other than the Company,
in an unbroken chain of corporations beginning with the Company if, at the time
of the granting of the Option, each of the corporations other than the last
corporation in an unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

    2.  Stock Subject to the Plan.  Subject to the provisions of Section 9
hereof (relating to adjustments upon changes in the Stock) and Section 12 hereof
(relating to amendments of the Plan), the Stock that may be sold pursuant to
Options granted under the Plan shall not exceed in the aggregate Five Hundred
Thousand (500,000) shares of Stock. The shares of Stock sold pursuant to Options
granted under the Plan may be unissued shares or treasury shares of Stock, or
shares of Stock bought on the Nasdaq National Market, or other market or stock
exchange, or repurchased in private transactions, for purposes of the Plan.

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    3.  Grant of Options.  

    (a) Option Grants. The Company shall grant Options under the Plan to all
Eligible Employees in successive Offering Periods until the earlier of: (i) the
date on which the number of shares of Stock available under the Plan have been
sold, or (ii) the date on which the Plan is suspended or terminates. Each
Employee who is an Eligible Employee on the first day of an Offering Period
shall be granted an Option with respect to such Offering Period. The Date of
Grant of such an Option shall be the first day of the Offering Period with
respect to which such Option was granted. Each Option shall expire on the Date
of Exercise immediately after the automatic exercise of the Option in accordance
with Section 4(a), unless such Option terminates earlier in accordance with
Section 5, 6 or 9. The number of shares of Stock subject to an Eligible
Employee's Option shall equal the cumulative payroll deductions authorized by
such Eligible Employee in accordance with subsection (b) for the Option Period
(if any), divided by the Option Price; provided, however, that the number of
shares of Stock subject to such Option shall not exceed Two Thousand (2,000)
shares; and, provided, further, that the number of shares of Stock subject to
such Option shall not exceed the number determined in accordance with subsection
(c). The Company shall not grant an Option with respect to an Offering Period to
any individual who is not an Eligible Employee on the first day of such Offering
Period.

    (b) Election to Participate; Payroll Deduction Authorization. Except as
provided in subsection (d), an Eligible Employee shall participate in the Plan
only by means of payroll deduction. Each Eligible Employee who elects to
participate in the Plan with respect to an Offering Period shall deliver to the
Company, not later than ten (10) days before the first day of the Offering
Period, a completed and executed written payroll deduction authorization in a
form prepared by the Committee (the "Authorization"). An Eligible Employee's
Authorization shall give notice of such Eligible Employee's election to
participate in the Plan for the next following Offering Period (and subsequent
Offering Periods) and shall designate a whole percentage of such Eligible
Employee's Base Compensation to be withheld by the Company or the Designated
Subsidiary Corporation employing such Eligible Employee on each Payday during
the Offering Period. An Eligible Employee may designate any whole percentage of
Base Compensation which is not be less than one percent (1%) and not more than
fifteen percent (15%). An Eligible Employee's Base Compensation payable during
an Offering Period shall be reduced each Payday through payroll deduction in an
amount equal to the percentage specified in the Authorization, and such amount
shall be credited to such Eligible Employee's Account under the Plan. An
Eligible Employee may change the percentage of Base Compensation designated in
the Authorization, subject to the limits of this subsection (b), or may suspend
the Authorization, at any time during the Offering Period, provided, that any
such change or suspension shall become effective as promptly as reasonably
practicable after receipt by the Company. Any Authorization shall remain in
effect for each subsequent Offering Period, unless the Eligible Employee submits
a new Authorization pursuant to this subsection (b), withdraws from the Plan
pursuant to Section 5, ceases to be an Eligible Employee as defined in
Section 1(l) or terminates employment as provided in Section 6.

    (c) $25,000 Limitation. No Eligible Employee shall be granted an Option
under the Plan which permits his or her rights to purchase shares of Stock under
the Plan, together with other options to purchase shares of Stock or other stock
under all other employee stock purchase plans of the Company, any Parent
Corporation or any Subsidiary Corporation subject to the Section 423, to accrue
at a rate which exceeds $25,000 of fair market value of such shares of Stock or
other stock (determined at the time the Option or other option is granted) for
each calendar year in which the Option is outstanding at any time. For purpose
of the limitation imposed by this subsection, (i) the right to purchase shares
of Stock or other stock under an Option or other option accrues when the Option
or other option (or any portion thereof) first becomes exercisable during the
calendar year, (ii) the right to purchase shares of Stock or other stock under
an Option or other option accrues at the rate provided in the Option or other
option, but in no case may

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such rate exceed $25,000 of the fair market value of such Stock or other stock
(determined at the time such Option or other option is granted) for any one
calendar year, and (iii) a right to purchase Stock or other stock which has
accrued under an Option or other option may not be carried over to any Option or
other option. This limitation shall be applied in accordance with
Section 423(b)(8) of the Code and the Treasury Regulations thereunder.

    (d) Leaves of Absence. During a leave of absence meeting the requirements of
Treasury Regulation Section 1.421-7(h)(2), an Employee may continue to
participate in the Plan by making cash payments to the Company on each Payday
equal to the amount of the Employee's payroll deduction under the Plan for the
Payday immediately preceding the first day of such Employee's leave of absence.

    4.  Exercise of Options; Option Price.  

    (a) Option Exercise. Each Employee automatically and without any act on such
Employee's part shall be deemed to have exercised such Employee's Option on the
Date of Exercise to the extent that the balance then in the Employee's Account
is sufficient to purchase, at the Option Price, whole shares of the Stock
subject to the Option. Any amounts remaining in an Employee Account following
the purchase of whose shares of Stock pursuant to the preceding sentence because
such amounts were insufficient to purchase a whole share of the Stock shall be
carried over and remain credited to the Employee Account.

    (b) Option Price Defined. The option price per share of Stock (the "Option
Price") to be paid by an Employee upon the exercise of the Employee's Option
shall be equal to 85% of the lesser of: (i) the Fair Market Value of a share of
Stock on the Date of Exercise and (ii) the Fair Market Value of a share of Stock
on the Date of Grant. The Fair Market Value of a share of Stock as of a given
date shall be: (A) the closing price of a share of Stock on the principal
exchange on which the Stock is then trading, if any, on such date (or, if shares
of Stock were not traded on such date, then on the next preceding trading day
during which a sale occurred); (B) if the Stock is not traded on an exchange,
but is quoted on Nasdaq or a successor quotation system, (I) the last sales
price (if the Stock is then listed as a National Market Issue under the Nasdaq
National Market), or (II) the mean between the closing representative bid and
asked prices (in all other cases) for a share of Stock on such date (or, if
shares of Stock were not traded on such date, then on the next preceding trading
day during which a sale occurred) as reported by Nasdaq or such successor
quotation system; (iii) if the Stock is not publicly traded on an exchange and
not quoted on Nasdaq or a successor quotation system, the mean between the
closing bid and asked prices for a share of Stock on such date (or, if shares of
Stock were not traded on such date, then on the next preceding trading day
during which a sale occurred), as determined in good faith by the Committee; or
(iv) if the Stock is not publicly traded, the fair market value of a share of
Stock established by the Committee acting in good faith.

    (c) Book Entry/Share Certificates. As soon as practicable after the purchase
of shares of Stock upon the exercise of an Option by an Employee, the Company
shall issue the shares of Stock to such Employee and such shares shall be held
in the custody of the Agent for the benefit of the Employee. The Company or the
Agent shall make an entry on its books and records indicating that the shares of
Stock purchased in connection with such exercise have been duly issued as of
that date to such Employee. An Employee shall have the right at any time to
request in writing a certificate or certificates for all or a portion of the
whole shares of Stock purchased hereunder. Upon receipt of an Employee's written
request for any such certificate, the Company shall (or shall cause the Agent
to), as promptly as reasonably practicable after the date of such receipt,
deliver any such certificate to the Employee. Nothing in this subsection
(c) shall prohibit the sale or other disposition by an Employee of shares of
Stock purchased hereunder. In the event the Company is required to obtain
authority from any commission or agency to issue any certificate or

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certificates for all or a portion of the whole shares of Stock purchased
hereunder, the Company shall seek to obtain such authority as soon as reasonably
practicable.

    (d) Pro Rata Allocations. If the total number of shares of Stock for which
Options are to be exercised on any date exceeds the number of shares of Stock
remaining unsold under the Plan (after deduction for all shares of Stock for
which Options have theretofore been exercised), the Committee shall make a pro
rata allocation of the available remaining shares of Stock in as nearly a
uniform manner as shall be practicable and the balance of the amount credited to
the Account of each Employee which has not been applied to the purchase of
shares of Stock shall be paid to such Employee in one lump sum in cash within
thirty (30) days after the Date of Exercise, without any interest thereon.

    (e) Information Statement. The Company shall provide each Employee whose
Option is exercised with an information statement in accordance with
Section 6039(a) of the Code and the Treasury Regulations thereunder. The Company
shall maintain a procedure for identifying certificates of shares of Stock sold
upon the exercise of Options in accordance with Section 6039(b) of the Code.

    5.  Withdrawal from the Plan.  

    (a) Withdrawal Election. An Employee may withdraw from participation under
the Plan at any time, except that an Employee may not withdraw during the last
ten (10) days of any Option Period or such other period as shall be established
by the Committee in its discretion. An Employee electing to withdraw from the
Plan must deliver to the Company a notice of withdrawal in a form prepared by
the Committee (the "Withdrawal Election"), not later than ten (10) days prior to
the Date of Exercise for such Option Period. Upon receipt of an Employee's
Withdrawal Election, the Company or Subsidiary Corporation employing the
Employee shall pay to the Employee the amount credited to the Employee's Account
in one lump sum payment in cash, without any interest thereon, and subject to
Section 4(c), the Company shall (or shall cause the Agent to) deliver to the
Employee certificates for any whole shares of Stock previously purchased by the
Employee, in either case as promptly as reasonably practicable following receipt
of the Employee's Withdrawal Election. Upon receipt of an Employee's Withdrawal
Election by the Company, the Employee shall cease to participate in the Plan and
the Employee's Option for such Option Period shall terminate.

    (b) Eligibility following Withdrawal. An Employee who withdraws from the
Plan with respect to an Option Period, and who is still an Eligible Employee,
may elect to participate again in the Plan for any subsequent Offering Period by
delivering to the Company an Authorization pursuant to Section 3(b).

    6.  Termination of Employment.  

    (a) Termination of Employment Other than by Death. If the employment of an
Employee with the Company and any Designated Subsidiary Corporation terminates
other than by death, the Employee's participation in the Plan automatically and
without any act on the Employee's part shall terminate as of the date of the
termination of the Employee's employment. As soon as practicable after such a
termination of employment, the Company or Subsidiary Corporation employing the
Employee shall pay to the Employee the amount credited to the Employee's Account
in one lump sum payment in cash, without any interest thereon, and subject to
Section 4(c), the Company shall (or shall cause the Agent to) deliver to the
Employee certificates for any whole shares of Stock previously purchased by the
Employee. Upon an Employee's termination of employment covered by this
subsection, the Employee's Authorization and Option under the Plan shall
terminate.

    (b) Termination by Death. If the employment of an Employee is terminated by
the Employee's death, the executor of the Employee's will or the administrator
of the Employee's estate, by

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written notice to the Company, may request payment of the balance in the
Employee's Account, in which event the Company or Subsidiary Corporation
employing the Employee shall pay the amount credited to the Employee's Account
in one lump sum payment in cash, without any interest thereon, and subject to
Section 4(c), the Company shall (or shall cause the Agent to) deliver to the
Employee's estate or beneficiary certificates for any whole shares of Stock
previously purchased by the Employee as promptly as reasonably practicable after
receiving such notice. Upon receipt of such notice, the Employee's Authorization
and Option under the Plan shall terminate. If the Company does not receive such
notice prior to the next Date of Exercise, the Employee's Option shall be deemed
to have been exercised on such Date of Exercise.

    7.  Restriction upon Assignment.  An Option granted under the Plan shall not
be transferable other than by will or the laws of descent and distribution, and
is exercisable during the Employee's lifetime only by the Employee. Except as
provided in Section 6(b) hereof, an Option may not be exercised to any extent
except by the Employee. The Company shall not recognize and shall be under no
duty to recognize any assignment or alienation of the Employee's interest in the
Plan, the Employee's Option or any rights under the Employee's Option.

    8.  No Rights of Stockholders until Shares Issued.  With respect to shares
of Stock subject to an Option, an Employee shall not be deemed to be a
stockholder of the Company, and the Employee shall not have any of the rights or
privileges of a stockholder, until such shares have been issued to the Employee
or his or her nominee following exercise of the Employee's Option. No
adjustments shall be made for dividends (ordinary or extraordinary, whether in
cash securities, or other property) or distribution or other rights for which
the record date occurs prior to the date of such issuance, except as otherwise
expressly provided herein.

    9.  Changes in the Stock and Corporate Events; Adjustment of Options.  

    (a) Subject to Section 9(c), in the event that the Committee, in its sole
discretion, determines that any dividend or other distribution (whether in the
form of cash, Stock, other securities, or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, or exchange of Stock or other
securities of the Company, issuance of warrants or other rights to purchase
Stock or other securities of the Company, or other similar corporate transaction
or event, affects the Stock such that an adjustment is appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan or with respect to an Option, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of:

    (i)  the number and kind of shares of Stock (or other securities or
property) with respect to which Options may be granted (including, but not
limited to, adjustments of the limitation in Section 3(a) on the maximum number
of shares of Stock which may be purchased);

    (ii) the number and kind of shares of Stock (or other securities or
property) subject to outstanding Options; and

    (iii) the exercise price with respect to any Option.

    (b) Subject to Section 9(c), in the event of any transaction or event
described in Section 9(a) or any unusual or nonrecurring transactions or events
affecting the Company, any affiliate of the Company, or the financial statements
of the Company or any affiliate, or of changes in applicable laws, regulations,
or accounting principles, the Committee, in its sole discretion, and on such
terms and conditions as it deems appropriate, either by the terms of the Option
or by action taken prior to the occurrence of such transaction or event and
either automatically or upon the Employee's request, is hereby authorized to
take any one or more of the following actions whenever the

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Committee determines that such action is appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan or with respect to any Option under the Plan, to
facilitate such transactions or events or to give effect to such changes in
laws, regulations or principles:

    (i)  To provide that all Options outstanding shall terminate without being
exercised on such date as the Committee determines in its sole discretion;

    (ii) To provide that all Options outstanding shall be exercised prior to the
Date of Exercise of such Options on such date as the Committee determines in its
sole discretion and such Options shall terminate immediately after such
exercises;

    (iii) To provide for either the purchase of any Option outstanding for an
amount of cash equal to the amount that could have been obtained upon the
exercise of such Option had such Option been currently exercisable, or the
replacement of such Option with other rights or property selected by the
Committee in its sole discretion;

    (iv) To provide that such Option be assumed by the successor or survivor
corporation, or a parent or subsidiary thereof, or shall be substituted for by
similar options, covering the stock of the successor or survivor corporation, or
a parent or subsidiary thereof, with appropriate adjustments as to the number
and kind of shares and prices; and

    (v) To make adjustments in the number and type of shares of Stock (or other
securities or property) subject to outstanding Options, or in the terms and
conditions of (outstanding Options, or Options which may be granted in the
future.

    (c) No adjustment or action described in this Section 9 or in any other
provision of the Plan shall be authorized to the extent that such adjustment or
action would cause the Plan to fail to satisfy the requirements of Section 423
of the Code. Furthermore, no such adjustment or action shall be authorized to
the extent such adjustment or action would result in short-swing profits
liability under Section 16 of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), or violate the exemptive conditions of Rule 16b-3
unless the Committee determines that the Option is not to comply with such
exemptive conditions. The number of shares of Common Stock subject to any Option
shall always be rounded to the next whole number.

    (d) The existence of the Plan and the Options granted hereunder shall not
affect or restrict in any way the right or power of the Company or the
stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any issue
of stock or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose rights are superior to or
affect the Stock or the rights thereof of which are convertible into or
exchangeable for Stock, or the dissolution or liquidation of the company, or any
sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.

    10.  Use of Funds; No Interest Paid.  All funds received or held by the
Company under the Plan shall be included in the general funds of the Company
free of any trust or other restriction and may be used for any corporate
purpose. No interest will be paid to any Employee or credited to any Employee's
Account with respect to such funds.

    11.  Dividends.  

    (a) Cash dividends and other cash distributions received by the Agent with
respect to Stock held in its custody hereunder will be credited to each
Employee's Account in accordance with such Employee's interests in such Stock,
and shall be applied, as soon as practicable after the receipt thereof by the
Agent, to the purchase in the open market at prevailing market prices of the

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number of whole shares of Stock that may be purchased with such funds (after
deductions of any bank service fees, brokerage charges, transfer taxes, and any
other transaction fee, expense or cost payable in connection with the purchase
of such shares of Stock and not otherwise paid by the Employer.)

    (b) All purchases of shares of Stock made pursuant to this Section 11 will
be made in the name of the Agent or its nominee, and shall be transferred and
credited to the Account(s) of the Employees to which such dividends or other
distributions were credited. Dividends paid in the form of shares of Stock will
be allocated by the Agent, as and when received, with respect to Stock held in
its custody hereunder to the Account of each Employee in accordance with such
Employee's interests in such Stock. Property, other than Stock or cash, received
by the Agent as a distribution on Stock held in its custody hereunder, shall be
sold by the Agent for the accounts of Employees, and the Agent shall treat the
proceeds of such sale in the same manner as cash dividends received by the Agent
on Stock held in its custody hereunder.

    12.  Amendment, Suspension or Termination of the Plan.  The Board may amend,
suspend, or terminate the Plan at any time and from time to time, provided that
approval by a vote of the holders of the outstanding shares of the Company's
capital stock entitled to vote shall be required to amend the Plan to:
(a) change the number of shares of Stock that may be sold pursuant to Options
under the Plan, (b) alter the requirements for eligibility to participate in the
Plan, or (c) in any manner that would cause the Plan to no longer be an
"employee stock purchase plan" within the meaning of Section 423(b) of the Code.

    13.  Administration by Committee; Rules and Regulations.  

    (a) Appointment of Committee. The Plan shall be administered by the
Committee, which shall be composed of not less than two members of the Board,
each of whom shall be a "non-employee director" within the meaning of Rule 16b-3
which has been adopted by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended. Each member of the Committee shall
serve for a term commencing on a date specified by the Board and continuing
until the member dies, resigns or is removed from office by the Board. The Board
or the Committee at its option may utilize the services of an agent to assist in
the administration of the Plan, including establishing and maintaining an
individual securities account under the Plan for each Employee or may delegate
some or all of its authority to administer the Plan to a committee comprised of
one or more members of the Company's management.

    (b) Duties and Powers of Committee. It shall be the duty of the Committee to
conduct the general administration of the Plan in accordance with the provisions
of the Plan. The Committee shall have the power to interpret the Plan and the
terms of the Options and to adopt such rules for the administration,
interpretation, and application of the Plan as are consistent therewith and to
interpret, amend or revoke any such rules. In its absolute discretion, the Board
may at any time and from time to time exercise any and all rights and duties of
the Committee under the Plan.

    (c) Majority Rule. The Committee shall act by a majority of its members in
office. The Committee may act either by vote at a meeting or by a memorandum or
other written instrument signed by a majority of the Committee.

    (d) Compensation; Professional Assistance; Good Faith Actions. All expenses
and liabilities incurred by members of the Committee in connection with the
administration of the Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and its
officers and directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon all Employees, the Company and all other interested persons. No member of
the Committee shall be personally liable for any action, determination or

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interpretation made in good faith with respect to the Plan or the Options, and
all members of the Committee shall be fully protected by the Company in respect
to any such action, determination, or interpretation.

    14.  Designation of Subsidiary Corporations.  The Board shall designate from
among the Subsidiary Corporations, as determined from time to time, the
Subsidiary Corporation or Subsidiary Corporations whose Employees shall be
eligible to be granted Options under the Plan. The Board may designate a
Subsidiary Corporation, or terminate the designation of a Subsidiary
Corporation, without the approval of the stockholders of the Company.

    15.  No Rights as an Employee.  Nothing in the Plan shall be construed to
give any person (including any Eligible Employee) the right to remain in the
employ of the Company, a Parent Corporation or a Subsidiary Corporation or to
affect the right of the Company, any Parent Corporation or any Subsidiary
Corporation to terminate the employment of any person (including any Eligible
Employee) at any time, with or without cause.

    16.  Term; Approval by Stockholders.  Subject to approval by the
stockholders of the Company in accordance with this Section, the Plan shall be
in effect until December 31, 2010, unless sooner terminated in accordance with
Section 12. No Option may be granted during any period of suspension of the Plan
or after termination of the Plan. The Plan shall be submitted for the approval
of the Company's stockholders within twelve (12) months after the date of the
adoption of the Plan by the Board. Options may be granted prior to such
stockholder approval; provided, however, that such Options shall not be
exercisable prior to the time when the Plan is approved by the Company's
stockholders; and, provided, further, that if such approval has not been
obtained by the end of said 12-month period, all Options previously granted
under the Plan shall thereupon terminate without being exercised.

    17.  Effect upon Other Plans.  The adoption of the Plan shall not affect any
other compensation or incentive plans in effect for the Company, any Parent
Corporation or any Subsidiary Corporation. Nothing in this Plan shall be
construed to limit the right of the Company, any Parent Corporation or any
Subsidiary Corporation to: (a) establish any other forms of incentives or
compensation for employees of the Company, any Parent Corporation or any
Subsidiary Corporation or (b) grant or assume options otherwise than under the
Plan in connection with any proper corporate purpose, including, but not by way
of limitation, the grant or assumption of options in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, firm or association.

    18.  Conditions to Issuance of Stock Certificates.  The Company shall not be
required to issue or deliver any certificate or certificates for shares of Stock
purchased upon the exercise of Options prior to fulfillment of all the following
conditions:

    (a) The admission of such shares to listing on all stock exchanges, if any,
on which is then listed;

    (b) The completion of any registration or other qualification of such shares
under any state or federal law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
which the Committee shall, in its absolute discretion, deem necessary or
advisable;

    (c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable;

    (d) The payment to the Company of all amounts which it is required to
withhold under federal, state or local law upon exercise of the Option; and

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    (e) The lapse of such reasonable period of time following the exercise of
the Option as the Committee may from time to time establish for reasons of
administrative convenience.

    19.  Notification of Disposition.  Each Employee shall give prompt notice to
the Company of any disposition or other transfer of any shares of Stock
purchased upon exercise of an Option if such disposition or transfer is made:
(a) within two (2) years from the Date of Grant of the Option, or (b) within one
(1) year after the transfer of such shares of Stock to such Employee upon
exercise of such Option. Such notice shall specify the date of such disposition
or other transfer and the amount realized, in cash, other property, assumption
of indebtedness or other consideration, by the Employee in such disposition or
other transfer.

    20.  Notices.  Any notice to be given under the terms of the Plan to the
Company shall be addressed to the Company in care of its Secretary and any
notice to be given to any Employee shall be addressed to such Employee at such
Employee's last address as reflected in the Company's records. By a notice given
pursuant to this Section, either party may designate a different address for
notices to be given to it, him or her. Any notice which is required to be given
to an Employee shall, if the Employee is then deceased, be given to the
Employee's personal representative if such representative has previously
informed the Company of his status and address by written notice under this
Section. Any notice shall have been deemed duly given if enclosed in a properly
sealed envelope or wrapper addressed as aforesaid at the time it is deposited
(with postage prepaid) in a post office or branch post office regularly
maintained by the United States Postal Service.

    21.  Compliance with Laws.  All Eligible Employees will have equal rights
and privileges under this Plan so that this Plan qualifies as an "employee stock
purchase plan" within the meaning of Section 423 of the Code or applicable
Treasury regulations thereunder. Any provision of this Plan that is inconsistent
with Section 423 or applicable Treasury regulations will, without further act or
amendment by the Company or the Board, be reformed to comply with the equal
rights and privileges requirement of Section 423 or applicable Treasury
regulations. This Plan is intended to conform to the extent necessary with all
provisions of the Securities Act of 1933, as amended, and the Exchange Act and
any and all regulations and rules promulgated by the Securities and Exchange
Commission under those acts, including Rule 16b-3. This Plan is intended to be
administered, and options will be granted and may be exercised, only in a manner
which conforms to these laws, rules and regulations. To the extent permitted by
applicable law, this Plan and Options granted hereunder shall be deemed amended
to the extent necessary to conform to these laws, rules and regulations.

    22.  Headings.  Headings are provided herein for convenience only and are
not to serve as a basis for interpretation or construction of the Plan.

* * * * * * *

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Exhibit 10.38

GUITAR CENTER, INC. EMPLOYEE STOCK PURCHASE PLAN
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