**Exhibit10.1**

 

**GUITAR CENTER, INC.**

 

**STOCK OPTION AGREEMENT**

 

**1.**             **PlanIncorporated by Reference****. **This option isissued pursuant to The 2004 Guitar Center, Inc. Incentive Stock Award Plan (the“Plan”), the terms of which are hereby incorporated by reference and therebyconstitute part of this Agreement. Capitalized terms not otherwise defined herein shall have the meaningsgiven to them in the attached Notice of Grant of Stock Options and in the Plan.  In the event of any conflict between theprovisions of this Agreement and those of the Plan, the provisions of the Planshall control.  You acknowledgereceipt of a copy of the Plan and represent that you are familiar with theterms and provisions of the Plan.  Youhereby agree to accept as binding, conclusive and final all decisions orinterpretations of the Administrator of the Plan upon any questions related tothis Agreement or arising under the Plan.

 

**2.**             **Option Sharesand Exercise Price****. **The Company hereby grants toyou an option to purchase the Common Stock (the “Shares”) set forth in theNotice of Grant of Stock Options, at the exercise price per Share set forth inthe Notice of Grant of Stock Options.  Tothe extent provided in the Notice of Grant of Stock Options, this option is intendedto qualify as an incentive stock option within the meaning of Section 422of the Internal Revenue Code of 1986, as amended.

 

**3.****            ****Exercisability Schedule****. **Provided you have remained in continuous service as an Employee,Director or Consultant as of each applicable vesting date, as required by thePlan, this option shall become vested and exercisable in accordance with theVesting Schedule set forth in the Notice of Grant of Stock Options.  You acknowledge and agreethat the vesting of shares pursuant to this option is earned only by continuingservice as an Employee, Director or Consultant at the will of the Company (notthrough the act of being hired, being granted this option or acquiring shareshereunder).

 

**4.****            ****Payment of Exercise Price****.**  Payment of the exercise price per share isdue in full upon exercise of all or any part of each installment which hasaccrued to you pluspayment of any applicable withholding tax. You may elect, to the extent permitted by applicable statutes andregulations, to make payment of the exercise price under one of the followingalternatives:

 

(a)           Payment of the exercise price per share in cash (including check)at the time of exercise;

 

(b)           With the consent of the Administrator ofthe Plan, payment, in whole or in part, through the delivery of shares ofCommon Stock owned by you for at least six (6) months, duly endorsed fortransfer to the Company with a Fair Market Value on the date of delivery equalto the aggregate exercise price of the option or exercised portion thereof; 

 

(c)           With the consent of the Administrator ofthe Plan, payment, in whole or in part, through the surrender of shares ofCommon Stock then issuable upon exercise of the option having a Fair MarketValue on the date of option exercise equal to the aggregate exercise price ofthe option or exercised portion; 

 

(d)           With the consent of the Administrator ofthe Plan, payment, in whole or in part, through the delivery of property of anykind which constitutes good and valuable consideration;

 

(e)           With the consent of the Administrator ofthe Plan, payment, in whole or in part, through the delivery of a full recoursepromissory note bearing interest (at no less than a market rate of interestwhich then precludes the imputation of interest under the Code) and payableupon such terms as may be prescribed by the Administrator of the Plan;

 

(f)            With the consent of the Administrator ofthe Plan, payment, in whole or in part, through the delivery of a notice thatthe Optionee has placed a market sell order with a broker with respect to sharesof Common Stock then issuable upon exercise of the option, and that the brokerhas been directed to pay a sufficient portion of the net proceeds of the saleto the Company in satisfaction of the option exercise price, *provided*, that payment of such proceeds isthen made to the Company upon settlement of such sale; or

 

(g)           With theconsent of the Administrator of the Plan, payment by a combination of the methods of payment permittedby subparagraphs 4(a) through 4(f) above.

 

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**5.**             **No FractionalShares****. **This option maynot be exercised for any number of shares which would require the issuance ofanything other than whole shares.

 

**6.**             **OptionTerm****. **The term ofthis option commences on the date of grant of the option set forth in theNotice of Grant of Stock Option and, unless sooner terminated as set forthbelow or in the Plan, terminates on the expiration date of the option set forthin the Notice of Grant of Stock Option. This option may not be exercised to any extent by anyone after the firstto occur of the following events:

 

(a)           The expiration date of the option setforth in the Notice of Grant of Stock Option (which date shall be no more than ten (10) years from thedate of grant of the option);

 

(b)           The expiration of three (3) months fromthe date of the later of Optionee’s Termination of Employment, Termination ofDirectorship or Termination of Consultancy for any reason other than as aresult of the Optionee’s death or permanent and total disability (within themeaning of Section 22(e)(3) of the Code) (“Disability”);

 

(c)           The expiration of one (1) year from thedate of the later of Optionee’s Termination of Employment, Termination ofDirectorship or Termination of Consultancy by reason of Optionee’s Disability;or

 

(d)           The expirationof one (1) year from the date of the Optionee’s death.

 

However, this option may beexercised following Optionee’s termination only as to that number of shares asto which it was vested and exercisable on the date of such termination.

 

**7.****            ****Method of Exercise****. **This option maybe exercised, to the extent specified above, by delivering a notice of exercise(in a form designated by the Company) together with the exercise price to theSecretary of the Company, or to such other person as the Company may designate,during regular business hours, together with such additional documents as theCompany may then require pursuant to the Plan. By exercising this option you agree that the Company may require you toenter into an arrangement providing for the payment by you to the Company ofany tax withholding obligation of the Company.

 

**8.**             **Option NotTransferable****. **This option isnot transferable, except by will or by the laws of descent and distribution or,with respect to Non-Qualified Stock Options only, pursuant to a DRO, and isexercisable during your life only by you unless, with respect to Non-QualifiedStock Options only, the option has been transferred pursuant to a DRO.  By delivering written notice to the Company,in a form satisfactory to the Company, you may designate a third party who, inthe event of your death, shall thereafter be entitled to exercise this option.

 

**9.**             **No Right toEmployment/Continued Consultancy****. **You acknowledge and agreethat nothing in this Agreement nor in the Plan shall confer upon you any rightwith respect to continuation of employment or consultancy by the Company, norshall it interfere in any way with your right or the Company’s right toterminate your employment or consultancy at any time, with or without noticeand with or without cause.  You acknowledgethat you are an “employee at will.”

 

**10.****         ****Notices****. **Any notices provided for in this Agreement or the Plan shall begiven in writing and shall be deemed effectively given upon receipt or, in thecase of notices delivered by the Company to you, five (5) days after deposit inthe United States mail, postage prepaid, addressed to you at the addressspecified on the Notice of Grant of Stock Options or at such other address asyou hereafter designate by express written notice to the Company.

 

**11.****         ****ISO Limitation****.**  To the extent that the aggregate Fair MarketValue (determined at the time of grant) of Common Stock with respect to whichIncentive Stock Options are exercisable for the first time by the optionholderduring any calendar year (under all plans of the Company and its affiliates)exceeds $100,000, the options or portions thereof which exceed such limit(according to the order in which they were granted) shall be treated asNon-Qualified Stock Options.

 

**12.****         ****Forfeiture Provisions****.** Any shares of Common Stock received by youupon any exercise of this option, and any proceeds, gains or other economic benefitactually or constructively received by you upon the resaleof any Common Stock underlying this option, must be paid to the Company, andthis option shall terminate and any unexercised portion of this option (whetheror not vested) shall be forfeited, if (i)  at any time prior to six (6) months after any exerciseof this option, you provide services for any organization or engage directly orindirectly  in anybusiness in competition with the Company or any Subsidiary, or engagein any conduct which is inimical, contrary or

 

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harmfulto the interests of the Company or any such Subsidiary, or (ii)you, during the term of this option, incur a Termination of Employment orTermination of Consultancy for Cause.  Forpurposes hereof, the term “Cause” means (1) “Cause” as defined in an individualemployment agreement between you and the Company or any Subsidiary, if any, (2)in the judgment of the Chief Executive Officer of the Company or the Board, youare negligent in the course of providing services to the Company or anySubsidiary, or commit any act of personal dishonesty, fraud or breach offiduciary duty or trust, (3) conduct of a criminal nature that has or that mayhave an adverse effect on the Company or any Subsidiary’s reputation orstanding in the community, or on its continuing relationships with customers orthose who purchase or use its products or services, (4) any act or acts by youof personal conduct that are in violation of a policy or policies as set forthin the Employee Handbook of the Company or any Subsidiary in effect at the timeof the act or acts, (5) any act or acts by you in violation of specificdirections of the your supervisor or continued or repeated failure by you toperform duties assigned by such supervisor, or (6) any materialmisrepresentation or omission regarding employment history, education orexperience made by you in connection with your negotiations to become anemployee of the Company or any Subsidiary.

 

**13.****         ****Amendments and Waivers****.**  Except as otherwise set forth in the Plan,the provisions of this Agreement andthe attached Notice of Grant of Stock Options may be amended andwaived only with the written consent of the Company and you.  No course of conduct or failure or delay inenforcing the provisions of this Agreement shall affect the validity, bindingeffect or enforceability of this Agreement or any provision hereof.

 

**14.****         ****Governing Law****.**  The Plan, this Agreement and the attachedNotice of Grant of Stock Options shall be administered, interpreted andenforced under the internal laws of the State of Delaware without regard toconflicts of laws thereof.

 

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