**Exhibit10.1**

 

**AMENDMENTNO. 3 TO AMENDED AND RESTATED**

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**EMPLOYMENTAGREEMENT**

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ThisAMENDMENT NO. 3 TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT (“Amendment”)is entered into as of this 1st day of January, 2004, by and betweenLarry Thomas****(“Executive”) and GUITAR CENTER, INC., a Delawarecorporation (the “Company”).

 

Executive and the Companywish to amend that certain Amended and Restated Employment Agreement enteredinto between the two parties as of June 6, 2001, as amended by thatcertain Amendment to Amended and Restated Employment Agreement dated as ofMarch 24, 2003, and as further amended by that certain Amendment No. 2 toAmended and Restated Employment Agreement dated as of July 1, 2003(together, the “Prior Agreement”), to revise the base salary and bonusprovisions therein.

 

In consideration of themutual promises and covenants contained herein and other good and valuableconsideration, the receipt and sufficiency of which are hereby acknowledged,the parties hereto agree as follows:

 

# 1.                                       The Prior Agreement is amended byamending Section 3(a) in its entirety to read as follows:

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(a)                                  Duringthe Employment Period, the Executive’s base salary shall be $650,000 per annumor such higher rate as the Board or the Compensation Committee of the Board(excluding the Executive if he should be a member of the Board at the time ofsuch determination) may designate from time to time (the “Base Salary”),which salary shall be payable in such installments as is the policy of theCompany with respect to its senior executive employees and shall be subject toFederal, state and local withholding and other payroll taxes. During theEmployment Period, the Compensation Committee shall review Executive’s BaseSalary and performance bonuses on at least an annual basis and consider in goodfaith industry practices for compensation for similarly-situated executives, itbeing understood that the ultimate amount and terms of any increase incompensation, if any, shall be within the discretion of the CompensationCommittee or the Board, as the case may be. In addition, during the Employment Period, the Executive shall beentitled to participate in all employee benefit plans and programs for whichsenior executives of the Company are generally eligible and the Executive shallbe eligible to participate in all insurance plans available generally to allexecutives of the Company.

 

# 2.                                       The Prior Agreement is amended byamending Section 3(b) in its entirety to read as follows:

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(b)                                 Inaddition to the Base Salary, for each fiscal year ending during the EmploymentPeriod, Executive shall be eligible to participate in and receive incentivecompensation payments (the “Annual Bonus”) pursuant to the terms of theEmployer’s Senior Executive Performance Bonus Plan (the “Performance BonusPlan”) upon attainment of the performance goals specified thereunder by theCompensation Committee of the Board. Upon full achievement of the

 

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performance goals,the Annual Bonus will be equal to 100% of Executive’s then-current Base Salary,but for less than full achievement of the performance goals, the Annual Bonusshall be a lesser amount in accordance with a specific formula determined bythe Compensation Committee.  Inaddition, to the extent the performance goals are exceeded, the Annual Bonusshall exceed 100% of the Executive’s then-current Base Salary in accordancewith a specific formula determined by the Compensation Committee.  In no event, however, shall the Annual Bonusfor any fiscal year exceed 200% of the Executive’s then-current Base Salarypayable with respect to such fiscal year. The Annual Bonus shall be paid to Executive in a lump sum promptlyfollowing the end of the fiscal year with respect to which it is payable.  Notwithstanding the foregoing, Company andExecutive understand and agree that the Annual Bonuses are intended toconstitute “qualified performance-based compensation” satisfying therequirements of Treasury Regulations Sections 1.162-27(e)(2) through (e)(5),and that the material terms of the performance criteria under which amounts areto be paid pursuant to the Performance Bonus Plan, and the payment of anyamounts under the Performance Bonus Plan, shall be subject to approval by theshareholders of the Company.

 

# 3.                                       The Prior Agreement is amended byamending the first sentence of Section 4(a) to read as follows:

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(a)                                  Inthe event of a Qualifying Termination of Executive, the Executive shall beentitled to receive as severance, for the period beginning on the date of suchtermination and ending on the second anniversary of the date of termination,(i) the Base Salary for such severance period, (ii) an annual cash bonus to bepaid on each annual anniversary of the date of termination during the severanceperiod, in each case equal to 100% of the Base Salary, and (iii) continuationof the benefits under Section 3(e) above.

 

# 4.                                       The Prior Agreement is amended byamending the first sentence of Section 4(b) to read as follows:

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(b)                                 Inthe event of a Qualifying Termination of Executive within two years following aSale of the Company, the Executive shall be entitled to receive as severance,for the period beginning on the date of such termination and ending on thethird anniversary of the date of termination, (i) the Base Salary for such severanceperiod, (ii) an annual cash bonus to be paid on each annual anniversary of thedate of termination during the severance period, in each case equal to 100% ofthe Base Salary, and (iii) continuation of the benefits under Section 3(e)above.

 

# 5.                                       The Prior Agreement is amended byamending Section 4(d) in its entirety to read as follows:

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# (d)                                 If the Employment Period is terminated for any reason other than aQualifying Termination, the Executive shall be entitled to receive on the dateof termination only the Base Salary and then only to the extent such amount hasaccrued through the date of termination. If the Employment Period is terminated as a result of a QualifyingTermination, in addition to any severance payable to Executive pursuant toSections 4(a) and (b) above, the Executive shall be entitled to receive on thedate of termination (i) the Base Salary to the extent such amount has accruedthrough the date of termination and (ii) a cash bonus equal to 100% of the BaseSalary pro-rated for any partial year ending on the date of termination.

 

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# 6.                                       Except as expressly provided for inthis Amendment, no other term or provision of the Prior Agreement is amended ormodified in any respect.

 

(Signature PageFollows)

 

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Inwitness whereof, the parties have executed this Agreement on the day andyear first above written.

 
|   | GUITAR CENTER, INC.                  |
|--------|--------------------------------------|
|   |                                 |
|   |                                 |
|   | By:                                  | /Bruce Ross |
|   | Name:  Bruce Ross               |
|   | Title:  Chief Financial Officer |
|   |                                 |
|   |                                 |
|   | EXECUTIVE                            |
|   |                                 |
|   |                                 |
|   | /Larry Thomas                        |
|   | Larry Thomas                         |

 

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