Document:

Exhibit 10.2

 

GUITAR CENTER, INC.

2005 LONG TERM INCENTIVE PLAN

 

ARTICLE 1.

 

PURPOSE

 

The purpose of the Guitar
Center, Inc. 2005 Long Term Incentive Plan (the “Plan”) is to promote
the success and enhance the value of Guitar Center, Inc. (the “Company”)
by linking the personal interests of the senior members of management to those
of Company stockholders and by providing such individuals with an incentive for
outstanding performance to generate superior long-term returns to Company
stockholders and to enable the Company to retain highly qualified managers.

 

ARTICLE 2.

 

DEFINITIONS AND CONSTRUCTION

 

Wherever the following terms
are used in the Plan they shall have the meanings specified below, unless the
context clearly indicates otherwise.  The
singular pronoun shall include the plural where the context so indicates.

 

2.1           “Award” means an Option,
Performance Share award or such other award determined by the Committee
pursuant to Section 4.6.

 

2.2           “Award Limit” means “Award
Limit” as defined in the Stock Award Plan.

 

2.3           “Base Compensation” means
regular compensation paid by the Company to the Participant including sick pay,
vacation pay, and other Company paid time off. 
Base Compensation shall exclude any special payments including but not
limited to bonuses, awards, moving or auto allowances, severance, educational
reimbursements, welfare benefits, amounts realized from the exercise, sale,
exchange or other disposition of any stock option or other equity award and
premiums for life and disability insurance.

 

2.4           “Board” means the Board of
Directors of the Company.

 

2.5           “Cause”
means any termination by the Company of Participant’s employment within ninety
(90) days after the Board becomes aware of the occurrence of any of the
following:

 

(a)           the
ongoing and repeated failure by the Participant to perform such lawful duties
consistent with Participant’s position as are reasonably requested by either
the Chief Executive Officer of the Company or the Board in good faith as
documented in writing to the Participant;

 

(b)           the
Participant’s ongoing and repeated material neglect of his duties on a general
basis, notwithstanding written notice of objection from either the Chief
Executive Officer of the Company or the Board and the expiration of a thirty
(30) day cure period;

 

 

(c)           the
commission by the Participant of any act of fraud, theft or criminal dishonesty
with respect to the Company or any of its affiliates, or the conviction of the
Participant of any felony;

 

(d)           the
Participant’s failure to adhere to all policies and procedures established by
the Company from time to time in its discretion, generally applicable to all
executives of the Company and disclosed to Participant, including without
limitation, any policies related to sexual harassment, anti-discrimination and
similar employment practices;

 

(e)           the
commission of any act involving moral turpitude which (i) brings the Company or
any of its affiliates into public disrepute or disgrace, or (ii) causes
material injury to the customer relations, operations or the business prospects
of the Company or any of its affiliates; or

 

(f)            material
breach by the Participant of any agreement with the Company, including, without
limitation, any breach by the Participant of any written employment agreement
or Confidentiality and Noncompetition Agreement, not cured within thirty (30)
days after written notice to Participant from either the Chief Executive
Officer of the Company or the Board; provided, however, that in
the event of an intentional breach of the provisions of any Confidentiality and
Noncompetition Agreement, the Participant shall not have the opportunity to
cure.

 

Notwithstanding the foregoing, if “Cause” is
otherwise defined in a Participant’s written employment agreement, the
definition contained in such employment agreement shall apply.

 

2.6           “Change in Control” means “Change
in Control” as defined in the Stock Award Plan.

 

2.7           “Code” means the Internal
Revenue Code of 1986, as amended.

 

2.8           “Committee” means the
Compensation Committee of the Board of Directors of the Company, or any
successor or alternative committee designated by the Board that consists of at
least two (2) members of the Board who qualify as “outside directors” under
Section 162(m) of the Code.

 

2.9           “Confidentiality and
Noncompetition Agreements” means any confidentiality, noncompetition and/or
nonsolicitation agreements entered into by Participant with the Company and/or
its affiliates.

 

2.10         “Covered Executive” means an
Employee who is, or could be, a “covered employee” within the meaning of Section
162(m) of the Code as determined by the Committee in its sole discretion.

 

2.11         “Disability” means “Disability”
as defined in the Stock Award Plan unless otherwise defined in a Participant’s
written employment agreement, in which case, the definition contained in such
employment agreement shall apply.

 

2.12         “Effective Date” means July 1,
2005.

 

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2.13         “Employee” means any officer or
other employee (as defined in accordance with Section 3401(c) of the Code) of
the Company or any Subsidiary.

 

2.14         “Fair Market Value” means “Fair
Market Value” as defined in the Stock Award Plan.

 

2.15         “Good Reason” means any
voluntary termination by the Participant of his employment with the Company
within ninety (90) days after the occurrence of any of the following events
without Participant’s written consent:

 

(a)           the Participant is directed to
perform an act that the Participant reasonably believes after consultation with
counsel to be in contravention of law, or which the Participant reasonably
believes would subject the Company and himself to material liability, despite
his prior express written objection addressed to the Board with respect to such
action;

 

(b)           there has been any material reduction
in the nature or scope of Participant’s responsibilities, or the Participant is
assigned duties that are materially inconsistent with his position (in each
case, other than on a temporary basis);

 

(c)           there is any material reduction in
the Participant’s Base Compensation or a material reduction in Participant’s
other benefits (other than reductions in benefits that generally affect all
employees entitled to such benefits ratably);

 

(d)           the Participant is required by the
Company or any of its affiliates, after written objection by the Participant
addressed to the Chief Executive Officer of the Company, to relocate his
principal place of employment outside a radius of fifty (50) miles from
Participant’s place of employment immediately prior to such relocation; or

 

(e)           there is a material failure by the
Company or any of its affiliates to perform any of its obligations to the
Participant under any written employment agreement;

 

provided ,
however, that with respect to breaches of
Section 2.15(b), (c) and (e), the Company shall be given written notice by
Participant of such breach and thirty (30) days to cure such breach.

 

Notwithstanding the foregoing,
if “Good Reason” or any corresponding term (e.g., “Reasonable Justification”)
is otherwise defined in a Participant’s written employment agreement, the
definition of such term contained in such employment agreement shall apply.

 

2.16         “Incentive Stock Option” means
an Option that is intended to meet the requirements of Section 422 of the Code
or any successor provision thereto.

 

2.17         “Option”
means a right granted to a Participant pursuant to Article 4 of the Plan.

 

2.18         “Participant”
means an Employee who has been granted an Award pursuant to the Plan.

 

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2.19         “Performance
Criteria” means “Performance Criteria” as defined in the Stock Award Plan
which the Committee selects for purposes of establishing the Performance Goal
or Performance Goals for Participants for the Performance Period.

 

2.20         “Performance Goals” means, for a
Performance Period, the goals established in writing by the Committee for the
Performance Period based upon the Performance Criteria.  Depending on the Performance Criteria used to
establish such Performance Goals, the Performance Goals may be expressed in
terms of overall Company performance or the performance of a division, business
unit, or an individual.  The Committee,
in its discretion, may, subject to the limitations of Section 162(m) of the
Code, adjust or modify the calculation of Performance Goals for such Performance
Period in order to prevent the dilution or enlargement of the rights of
Participants (a) in the event of, or in anticipation of, any unusual or
extraordinary corporate item, transaction, event, or development, or (b) in
recognition of, or in anticipation of, any other unusual or nonrecurring events
affecting the Company, or the financial statements of the Company, or in
response to, or in anticipation of, changes in applicable laws, regulations,
accounting principles, or business conditions.

 

2.21         “Performance Period” means the
period of time beginning on July 1, 2005 and ending on December 31, 2007 over
which the attainment of one or more Performance Goals will be measured for the
purpose of determining a Participant’s right to, and the payment of,
Performance Shares.

 

2.22         “Performance Share” means a
right granted to a Participant pursuant to Article 5, to receive shares of
Stock, the payment of which is contingent upon achieving certain Performance
Goals or other performance-based targets established by the Committee.

 

2.23         “Plan Year” means a calendar
year except that the initial Plan Year shall be the two fiscal quarter period
of time beginning on July 1, 2005 and ending on December 31, 2005.

 

2.24         “Qualified Performance-Based
Compensation” means any compensation that is intended to qualify as “qualified
performance-based compensation” as described in Section 162(m)(4)(C) of
the Code.

 

2.25         “Stock” means the common stock
of the Company, par value $0.01 per share.

 

2.26         “Stock Award Plan” means The
2004 Guitar Center, Inc. Incentive Stock Award Plan, as amended from time to
time and any successor plan thereto.

 

2.27         “Subsidiary” means any “subsidiary
corporation” as defined in Section 424(f) of the Code and any applicable
regulations promulgated thereunder or any other entity of which a majority of
the outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Company.

 

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ARTICLE 3.

 

SOURCE OF SHARES AND ELIGIBILITY

 

3.1           Source of Shares.  Awards under the Plan shall be granted
pursuant to the Stock Award Plan and upon exercise or issuance, as applicable,
shall reduce the number of shares of Stock available for issuance under the
Stock Award Plan. 

 

3.2           Eligibility.  From time to time, the Committee may select
the Employees that may participate in the Plan (each such Employee an “Eligible
Employee”).  Employees hired on or
after January 1, 2007 shall not be eligible to participate in the Plan.

 

ARTICLE 4.

 

STOCK OPTIONS

 

4.1           General.  All Options under the Plan shall be granted
pursuant to the Stock Award Plan and shall be Incentive Stock Options to the
maximum extent permissible by applicable law.

 

4.2           Aggregate Limits.  The aggregate number of Options that may be
granted pursuant to this Plan in any Plan Year shall not exceed the number of
Options remaining available for issuance under the Stock Award Plan.  In addition, the number of Options that can
be granted to a Participant in any Plan Year shall not exceed the Award Limit,
as adjusted in accordance with the Stock Award Plan and the requirements of
Section 162(m) of the Code.

 

4.3           Individual Grants.  Subject to the limits of Section 4.2, the
Committee, in its sole discretion, shall determine the number of Options to
grant to each Participant and, subject to Section 4.5, the exercise price for
such Options.

 

4.4           Timing of Grants.  Unless otherwise determined by the Committee
in its sole discretion, Grants of Options pursuant to the Plan shall coincide
with the Company’s regular annual option grants.

 

4.5           Terms; Vesting.  Unless otherwise provided in such Participant’s
written employment agreement, all Options granted pursuant to the Plan shall
have a per share exercise price not less than the Fair Market Value of a share
of Stock on the date of grant and shall vest over four (4) years with
twenty-five percent (25%) of each grant becoming vested on each anniversary of
the date of such grant based solely on the continued performance of services by
the Participant and shall have a term of ten (10) years unless such Options
expire earlier as a result of the Participant’s termination of employment with
the Company or a Change in Control of the Company.

 

4.6           Alternative Awards.  Notwithstanding that initial grants pursuant
to this Article 4 shall be in the form of Options, the Committee shall retain
the authority in its sole discretion to make subsequent grants in any form of
award permissible under the Stock Award Plan.

 

4.7           Termination of Employment. 
Except as otherwise may be provided in a Participant’s written
employment agreement, including but not limited to any retirement

 

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provisions thereof, upon a
Participant’s termination of employment, such Participant shall be ineligible
for future Option grants under the Plan, all unvested Options granted pursuant
to the Plan shall cease to vest and any vested Options granted pursuant to the
Plan shall be exercisable pursuant to the terms of the Stock Award Plan, or, if
no such terms are applicable, for ninety (90) days following the date of
Participant’s termination of employment.

 

ARTICLE 5.

 

PERFORMANCE SHARES

 

5.1           Performance Goals.  The Committee shall establish Performance
Goals in writing for the purposes of this Article 5 prior to September 28,
2005.

 

5.2           Target Amount.  Each Participant shall be awarded the right
to receive a target amount of Performance Shares determined by the Committee in
its discretion (the “Target Performance Share Amount”).  For Participants who become eligible to
participate in the Plan after July 1, 2005, the Target Performance Share Amount
shall be adjusted to that pro-rata portion calculated by dividing the number of
days during the Performance Period such Participant was an Employee by the
number of days of the Performance Period.

 

5.3           Timing of Issuances.  The Company shall issue Performance Shares
pursuant to the Stock Award Plan upon the Committee’s written certification of
the attainment of Performance Goals for the Performance Period.

 

5.4           Number of Performance Shares.  The actual number of Performance Shares
issued to each Participant shall be determined based on the Company’s
performance during the Performance Period as compared to the Performance
Goals.  The maximum number of Performance
Shares issuable to each Participant shall be the Award Limit, as adjusted in
accordance with the Stock Award Plan and the requirements of Section 162(m) of
the Code or such lesser number as determined by the Committee in its sole
discretion; provided, however, that if the number of Performance
Shares issuable pursuant to this section is reduced because of the Award Limit,
the value of the number of Performance Shares exceeding the Award Limit shall
be paid to the Participant in cash pursuant to Section 5.7.

 

5.5           Aggregate Limits.  The number of Performance Shares issuable
pursuant to this Article 5 to any Participant in any Plan Year shall not exceed
the number of shares of Stock issuable pursuant to the Stock Award Plan,
subject to the Award Limit.

 

5.6           Fully Vested.  All Performance Shares issued pursuant to
this Article 5 shall be fully vested upon issuance.

 

5.7           Alternative Payment.  The Committee shall have the discretion to
make payment in cash in lieu of Performance Shares for any Award granted
pursuant to this Article 5 provided that such discretion does not result in
adverse accounting consequences for the Company, as determined by the
Committee.  The amount of such cash
payment shall be the value of the Performance Shares thereby substituted.  Notwithstanding the foregoing, the maximum
amount payable to a Participant in any Plan Year pursuant to this Section 5.7
shall be the Award Limit,

 

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as adjusted in accordance with
the Stock Award Plan and the requirements of Section 162(m) of the Code.

 

5.8           Termination of Employment Other Than for Cause or for Good Reason.  An Award of Performance Shares shall only be
payable if the Participant remains continuously employed by the Company through
the last day of the Performance Period; provided, however,
that upon a Participant’s termination of employment following December 31, 2006
(i) by the Company for other than Cause or (ii) voluntarily for Good Reason, a
pro-rata portion of such Participant’s Performance Shares, determined in
accordance with the immediately following sentence, shall be issued, if at all,
following the end of the Performance Period based on the Committee’s written
certification of the attainment of Performance Goals measured as of the fiscal
year end closest to the Participant’s date of termination.  For the purposes of the preceding sentence,
for a Participant whose employment terminates between January 1, 2007 and June
30, 2007 the pro-rated portion shall be two-thirds (2/3), and for a Participant
whose employment terminates after June 30, 2007, the pro-rated potion shall be
calculated by dividing (x) the number of days during the Performance Period
such Participant was an Employee by (y) the number of days in the Performance
Period.  For the avoidance of doubt, upon
a Participant’s termination of employment for any reason (except Disability or
death) prior to January 1, 2007 or by the Company for Cause or by the
Participant without Good Reason prior to the last day of the Performance
Period, the right to any Performance Shares shall be forfeited.

 

5.9           Termination Because of Death or
Disability.  Notwithstanding Section
5.8 and except as otherwise provided in a Participant’s written employment
agreement, upon a Participant’s termination because of Disability or death, a
pro-rata portion of such Participant’s Performance Shares, calculated by
dividing (i) the number of days during the Performance Period such Participant
was an Employee by (ii) the number of days in the Performance Period, shall be
issued, if at all, following the end of the Performance Period based on the
Committee’s written certification of the attainment of Performance Goals for
the full Performance Period.

 

5.10         Section 162(m).  It is expressly intended that each Award of
Performance Shares to a Covered Executive be Qualified Performance-Based
Compensation and shall be subject to any additional limitations set forth in
Section 162(m) of the Code (including any amendment to Section 162(m) of the
Code) or any regulations, rulings or guidance issued thereunder, including
without limitation any such regulations, rulings or other guidance that may be
issued after the Effective Date, that are requirements for qualification as
qualified performance-based compensation as described in Section 162(m)(4)(C)
of the Code, and the Plan shall be deemed amended to the extent necessary to
conform to such requirements. 
Notwithstanding the foregoing, for Covered Executives who become
eligible to participate in the Plan after September 28, 2005, the Award of
Performance Shares shall not be Qualified Performance-Based Compensation.

 

ARTICLE 6.

 

CHANGES IN CAPITAL STRUCTURE

 

6.1           Adjustments. In the event of any stock
dividend, stock split, combination or exchange of shares, merger,
consolidation, spin-off, recapitalization or other distribution (other

 

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than normal cash dividends) of Company assets to stockholders, or any
other change affecting the shares of Stock or the share price of the Stock, the
Committee shall make such proportionate adjustments, if any, as the Committee
in its discretion may deem appropriate to reflect such change with respect to
the terms and conditions of any outstanding Awards (including, without
limitation, any applicable performance targets or criteria with respect
thereto) and the exercise price per share for any outstanding Awards under the
Plan.  Any adjustment affecting an Award
intended as Qualified Performance-Based Compensation shall be made consistent
with the requirements of Section 162(m) of the Code.

 

6.2           Acceleration Upon a Change in Control.  Notwithstanding Section 6.1, and except as
may otherwise be provided in a Participant’s written employment agreement, if a
Change in Control occurs during the Performance Period than all outstanding
Options shall be subject to the terms of the Stock Award Plan. In addition
immediately prior to such Change in Control a Participant shall be issued that
number of Performance Shares equal to the greater of (a) fifty percent (50%) of
such Participant’s Target Performance Share Amount or (b) that number of
Performance Shares to which such Participant shall have been entitled based on
the Committee’s written certification of the attainment of Performance Goals
measured by the Committee as of the most recently completed fiscal year
preceding the execution of the definitive agreement giving rise to such Change
in Control; provided, however, that notwithstanding the foregoing
in the event of a Change in Control consummated prior to December 31, 2005 such
Participant shall be issued that number of Performance Shares equal to one
hundred percent (100%) of such Participant’s Target Performance Share Amount.

 

ARTICLE 7.

 

AMENDMENT, MODIFICATION, AND TERMINATION

 

7.1           Amendment, Modification and
Termination.  Subject to Sections
5.10 and 8.16, with the approval of the Board, at any time and from time to
time, the Committee may terminate, amend or modify the Plan.

 

7.2           Awards Previously Granted. 
Except with respect to amendments made pursuant to Section 5.10 or
Section 8.16, no termination, amendment, or modification of the Plan shall
adversely affect in any material way any Award previously granted pursuant to
the Plan without the prior written consent of the Participant.

 

ARTICLE 8.

 

GENERAL PROVISIONS

 

8.1           Decisions Binding.  The
interpretation of the Plan, any Awards granted pursuant to the Plan and all
decisions and determinations with respect to the Plan shall be made by the
Committee in its sole discretion and be final, binding, and conclusive on all
parties.

 

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8.2           No Rights to Awards.  No
person shall have any claim to be granted any Award pursuant to the Plan, and
neither the Company nor the Committee is obligated to treat Eligible Employees,
Participants or any other persons uniformly.

 

8.3           No Stockholders Rights. 
Except as otherwise provided herein, a Participant shall have none of
the rights of a stockholder with respect to shares of Stock covered by any
Award until the Participant becomes the record owner of such shares of Stock.

 

8.4           Withholding.  The
Company or any Subsidiary shall have the authority and the right to deduct or
withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state, local and foreign taxes (including the
Participant’s employment tax obligations) required by law to be withheld with
respect to any taxable event concerning a Participant arising as a result of
this Plan.  The Committee may in its
discretion and in satisfaction of the foregoing requirement allow a Participant
to satisfy any such requirements using any method allowable under the Stock
Award Plan.

 

8.5          No Right to Employment or Services.  Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any Subsidiary to terminate any
Participant’s employment or services at any time, with or without cause and
with or without prior notice, nor confer upon any Participant any right to
continue in the employ or service of the Company or any Subsidiary. 

 

8.6           Limits on Transfer.  No
right or interest of a Participant in any Award may be pledged, encumbered, or
hypothecated to or in favor of any party other than the Company or a
Subsidiary, or shall be subject to any lien, obligation, or liability of such
Participant to any other party other than the Company or a Subsidiary.  Except as otherwise consented to by the
Committee, no Award shall be assigned, transferred, or otherwise disposed of by
a Participant other than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
any regulations, rulings or guidance issued thereunder (a “QDRO”).

 

8.7           Unfunded Status of Awards. 
The Plan is intended to be an “unfunded” plan for incentive
compensation.  With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan shall give the Participant any rights that are greater than those
of a general creditor of the Company or any Subsidiary.

 

8.8           Good Faith Actions.  No members of the Committee or Board shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or Awards, and all members of the Committee and
the Board shall be fully protected by the Company in respect of any such
action, determination or interpretation.

 

8.9           Relationship to other Benefits.  No payment pursuant to the Plan shall be
taken into account in determining any benefits pursuant to any pension,
retirement, savings, profit sharing, group insurance, welfare or other benefit
plan of the Company or any Subsidiary except to the extent otherwise expressly
provided in writing in such other plan or an agreement thereunder.

 

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8.10         Expenses.  The expenses
of administering the Plan shall be borne by the Company and its
Subsidiaries.  Without limiting the
generality of the foregoing, the Committee is authorized to continue to retain
such independent experts, including but not limited to compensation
consultants, as it deems appropriate.

 

8.11         Titles and Headings. 
The titles and headings of the Sections in the Plan are for convenience
of reference only and, in the event of any conflict, the text of the Plan,
rather than such titles or headings, shall control.

 

8.12         Fractional Shares.  No
fractional shares of Stock shall be issued and the Committee shall determine,
in its discretion, whether cash shall be given in lieu of fractional shares or
whether such fractional shares shall be eliminated by rounding up or down as
appropriate.

 

8.13         Limitations Applicable to Section 16
Persons.  Notwithstanding any other
provision of the Plan, the Plan, and any Award granted or awarded to any
Participant who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable exemptive
rule under Section 16 of the Exchange Act (including any amendment to Rule
16b-3 under the Exchange Act) that are requirements for the application of such
exemptive rule.  To the extent permitted
by applicable law, the Plan and Awards granted or awarded hereunder shall be
deemed amended to the extent necessary to conform to such applicable exemptive
rule.

 

8.14         Government and Other Regulations.  The obligation of the Company to make payment
of awards in Stock or otherwise shall be subject to all applicable laws, rules,
and regulations, and to such approvals by government agencies as may be required.  The Company shall be under no obligation to
register pursuant to the Securities Act, as amended, any of the shares of Stock
paid pursuant to the Plan.  If the shares
paid pursuant to the Plan may in certain circumstances be exempt from
registration pursuant to the Securities Act, as amended, the Company may
restrict the transfer of such shares in such manner as it deems advisable to
ensure the availability of any such exemption.

 

8.15         Governing Law.  The Plan
and all Award Agreements shall be construed in accordance with and governed by
the laws of the State of Delaware without regard to principles of conflicts of
laws.

 

8.16         Section 409A.  To the extent applicable, the Plan shall be
interpreted in accordance with Section 409A of the Code or any regulations,
rulings or guidance issued thereunder, including without limitation any such
regulations, rulings or other guidance that may be issued after the Effective
Date.  Notwithstanding any provision of
the Plan to the contrary, in the event that following the Effective Date the
Committee determines that any Award may be subject to Section 409A of the Code
and related Department of Treasury guidance (including such Department of
Treasury guidance as may be issued after the Effective Date), the Committee may
adopt such amendments to the Plan and the applicable Award Agreement or adopt
other policies and procedures (including amendments, policies and procedures
with retroactive effect), or take any other actions, that the Committee
determines are necessary or appropriate to (a) exempt the Award from Section
409A of the Code and/or preserve the intended tax treatment of

 

10

 

the benefits provided with
respect to the Award, or (b) comply with the requirements of Section 409A of
the Code and related Department of Treasury guidance.

 

*              *              *              *              *              *

 

11Exhibit 10.3

 

AMENDMENT NO. 1

TO

SECOND AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

 

This AMENDMENT
NO. 1 TO SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Amendment”)
is made effective as of July 28, 2005 between GUITAR CENTER, INC., a
Delaware corporation (the “Company”), and Marty Albertson (the “Executive”).  This Amendment amends that certain Second
Amended and Restated Employment Agreement, made effective as of October 8,
2004 (the “Employment Agreement”), between the Company and Executive.

 

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

 

1.                                       EQUITY COMPENSATION.  Section 4(f) of the Employment Agreement
is hereby amended in its entirety to read as follows:

 

“(f)

 

(i)                                     Except as otherwise set forth in clause (ii) to
this Section 4(f), on or before August 15 each year during the
Employment Period, Executive shall be granted options to purchase a minimum
of 80,000 shares (as adjusted for stock splits and similar transactions) of the
common stock of the Company (each, an “Annual Grant”), which options
shall vest in equal annual installments over three years, or such other more
favorable vesting as is consistent with the annual grants to the Company’s
senior executive team generally.  During
the Employment Period, the Compensation Committee of the Board shall review the
size of the Annual Grants on at least an annual basis and consider in good
faith industry practices for ongoing option grants to similarly-situated
executives, it being understood that any increase in the amount of any Annual
Grant above 80,000 shares (as adjusted for stock splits and similar
transactions) and terms of any Annual Grant shall be within the discretion of
the Board or the Compensation Committee, as the case may be.  Notwithstanding
the foregoing, the Annual Grants shall have an exercise price not greater than
the fair market value of the common stock of the Company on the date of grant
(unless otherwise required by applicable law), shall have a 10-year term
(subject to such post-termination exercise provisions and other
post-termination rights set forth in the option agreements governing the Annual
Grants, which provisions and rights shall be consistent with the Guitar Center, Inc.
2004 Incentive Stock Award Plan, or a successor broad-based stock option plan)
and shall be granted under and pursuant to the terms of the Guitar Center, Inc.
2004 Incentive Stock Award Plan, or a successor broad-based stock option
plan.  Notwithstanding anything to the
contrary in this Section 3(f), if the accounting rules applicable to
the Company change to require the expensing of stock options by the Company,
the Compensation Committee may, after consultation with the Executive, provide
a modified equity incentive program using restricted stock or other
instruments.

 

 

(ii)                                  In
lieu of the Annual Grant, it is agreed that for the fiscal years 2005, 2006 and
2007, the Company’s obligations under this Section 4(f) to grant an
equity incentive to Executive shall be satisfied in full by granting to
Executive, upon the terms and subject to the conditions set forth in the Guitar
Center, Inc. 2005 Long Term Incentive Plan (the “2005 LTIP”), (x)
an annual grant of options to purchase 32,000 shares of the common stock of the
Company and (y) 76,800 Performance Shares (as defined in the 2005 LTIP, and
subject to increase or decrease based on performance as provided in the 2005
LTIP).  The terms and conditions set forth
in the third sentence of Section 4(f)(i) shall apply to all stock
options granted under the 2005 LTIP and such stock options shall vest in equal
annual installments over three years, or such other more favorable vesting as
is consistent with the annual grants to the Company’s senior executive team
generally.  Commencing January 1,
2008, all of the provisions of Section 4(f)(i) shall again become
operative absent a subsequent written agreement between the Company and
Executive to the contrary.  In the event
of a Qualifying Termination of Executive prior to the end of the Performance
Period provided for in the 2005 LTIP, (x) the vesting of options granted under
the 2005 LTIP shall be governed by Section 5(c) of this Agreement,
and (y) the vesting of the Performance Shares shall be governed by the
operative terms of the 2005 LTIP.”

 

2.             COMPLETE AGREEMENT.  From and after the execution of this
Amendment, the Employment Agreement and the Amendment shall be read together as
one single agreement.

 

IN WITNESS WHEREOF, the
parties hereto have executed this Amendment No. 1 to Second Amended and
Restated Employment Agreement as of the date first written above.

 

	
   

  	
  GUITAR CENTER,
  INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Leland P.
  Smith

  	
   

  
	
   

  	
   

  	
  Name: Leland P. Smith

  	
   

  
	
   

  	
   

  	
  Title: Executive Vice President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Marty
  Albertson

  	
   

  
	
   

  	
   

  	
  Marty Albertson

  	
   

  

 

2

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00088-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00088-of-00352.parquet"}]]