Document:

Exhibit
4.01

[FACE OF NOTE]

Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) to the issuer or its agent for registration of transfer, exchange or
payment, and any certificate issued is registered in the name of Cede & Co.
or such other name as requested by an authorized representative of The
Depository Trust Company and any payment is made to Cede & Co., ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest
herein.

 

	
  REGISTERED 

  	
   

  	
  CUSIP: 225434CF4 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PRINCIPAL AMOUNT: $1,000,000

  
	
  NO. 1

  	
   

  	
   

  

 

CREDIT SUISSE (USA), INC.

Reverse Convertible Securities Linked to the Performance of Norfolk Southern
Corp.

due
August 9, 2007

 

CREDIT SUISSE (USA), INC., a Delaware corporation (the
“Company”, which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to Cede
& Co., or registered assigns, at the office or agency of the Company in New
York, New York, the Redemption Amount (as defined on the reverse hereof) on the
Maturity Date (as defined on the reverse hereof), in the coin or currency of
the United States and to pay a coupon of 9.70% per annum on the
principal amount from August 9, 2006. 
The coupon payment will be payable quarterly in arrears on November 9,
2006, February 9, 2007, May 9, 2007, and August 9, 2007.

Reference is hereby made to the further provisions of
this Note set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.

This Note shall not be valid or become obligatory for
any purpose until the certificate of authentication hereon shall have been
manually signed by the Trustee under the Indenture referred to on the reverse
hereof.

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IN WITNESS WHEREOF, the
Company has caused this Note to be duly executed under its corporate seal.

	
  

  	
  CREDIT SUISSE (USA), INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  [SEAL]

  	
  By:

  	
  /s/ Peter Feeney

  
	
   

  	
   

  	
  Name: Peter Feeney

  
	
   

  	
   

  	
  Title:  Authorized Signatory

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CREDIT SUISSE (USA), INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Grace Koo

  
	
   

  	
   

  	
  Name: Grace Koo

  
	
   

  	
   

  	
  Title:   Authorized
  Signatory

  

 

 

CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated
therein referred to in the within-mentioned Indenture.

Dated:  August
9, 2006

	
  

  	
  JPMORGAN CHASE, N.A.,

  	
   

  	
   

  	
   

  
	
   

  	
  as Trustee

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ignazio Tamburello

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Ignazio Tamburello

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:   Authorized Signatory

  	
   

  	
   

  	
   

  

 

 

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[REVERSE OF NOTE]

CREDIT SUISSE
(USA), INC.

Reverse Convertible Securities Linked to the Performance of Norfolk Southern
Corp.

due August 9, 2007

This Note is one
of a duly authorized issue of debentures, notes, bonds or other evidences of
indebtedness of the Company (the “Securities”) of the series hereinafter
specified, all issued or to be issued under and pursuant to a senior indenture,
dated as of June 1, 2001 (the “Indenture”), between the Company and JPMorgan
Chase Bank, as trustee (the “Trustee”), to which Indenture and all indentures
supplemental thereto reference is hereby made for a description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Trustee, the Company, and the Holders of the Securities.  The Securities may be issued in one or more
series, which different series may be issued in various aggregate principal
amounts, may mature at different times, may bear interest (if any) at different
rates, may be subject to different redemption provisions (if any), may be
subject to different sinking, purchase or analogous funds (if any) and may
otherwise vary as provided in the Indenture. 
This Note is one of a series designated as the Reverse Convertible
Securities Linked to the Performance of Norfolk Southern Corp. due August 9, 2007 (the “Note”).

A coupon will be payable on this Note of
9.70% per annum on the principal amount from August 9, 2006.  The coupon payment will be payable quarterly
in arrears on November 9, 2006, February 9, 2007, May 9, 2007 and August 9,
2007.

This Note is payable in the manner, with the effect
and subject to the conditions provided in the Indenture.

If a payment date is not a business day as defined in
the Indenture at a place of payment, payment may be made at that place on the next
succeeding day that is a business day, and no interest shall accrue for the
intervening period.

The Indenture provides that, without prior notice to
any Holders, the Company and the Trustee may amend the Indenture and the
Securities of any series with the written consent of the Holders of a majority
in principal amount of the outstanding Securities of all series affected by
such amendment (all such series voting as one class), and the Holders of a
majority in principal amount of the outstanding Securities of all series
affected thereby (all such series voting as one class) may waive future
compliance by the Company with any provision of the Indenture or the Securities
of such series by written notice to the Trustee; provided that, without the
consent of each Holder of the Securities of each series affected thereby, an
amendment or waiver, including a waiver of past defaults, may not: (i) extend
the stated maturity of the Principal of, or any sinking fund obligation or any
installment of interest on, such Holder’s Security, or reduce the principal
amount thereof or the rate of interest thereon (including any amount in respect
of original issue discount), or any premium payable with respect thereto, or
adversely affect the rights of such Holder under any mandatory redemption or
repurchase provision or any right of redemption or repurchase at the option of
such Holder, or reduce the amount of the Principal of an Original Issue
Discount Security that would be due and payable upon an acceleration of the
maturity thereof or the amount thereof provable in bankruptcy, or

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change any place of
payment where, or the currency in which, any Security of such series or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the due date therefor;
(ii) reduce the percentage in principal amount of outstanding Securities of the
relevant series the consent of whose Holders is required for any such
supplemental indenture, for any waiver of compliance with certain provisions of
the Indenture or certain Defaults and their consequences provided for in the
Indenture; (iii) waive a Default in the payment of Principal of or interest on
any Security of such Holder; or (iv) modify any of the provisions of the
Indenture governing supplemental indentures with the consent of Securityholders
except to increase any such percentage or to provide that certain other
provisions of the Indenture cannot be modified or waived without the consent of
the Holder of each outstanding Security affected thereby.

The Indenture provides that, subject to certain
conditions, the Holders of at least a majority in principal amount (or, if any
Securities are Original Issue Discount Securities, such portion of the
Principal as is then accelerable) of the outstanding Securities of all series
affected (voting as a single class), by notice to the Trustee, may waive an
existing Default or Event of Default with respect to the Securities of such
series and its consequences, except a Default in the payment of Principal of or
interest on any Security or in respect of a covenant or provision of the
Indenture which cannot be modified or amended without the consent of the Holder
of each outstanding Security affected. 
Upon any such waiver, such Default shall cease to exist, and any Event
of Default with respect to the Securities of such series arising therefrom
shall be deemed to have been cured, for every purpose of the Indenture; but no
such waiver shall extend to any subsequent or other Default or Event of Default
or impair any right consequent thereto.

The Indenture provides that a series of Securities may
include one or more tranches (each a “tranche”) of Securities, including
Securities issued in a Periodic Offering. 
The Securities of different tranches may have one or more different
terms, including authentication dates and public offering prices, but all the
Securities within each such tranche shall have identical terms, including
authentication date and public offering price. 
Notwithstanding any other provision of the Indenture, subject to certain
exceptions, with respect to sections of the Indenture concerning the execution,
authentication and terms of the Securities, redemption of the Securities,
Events of Default of the Securities, defeasance of the Securities and amendment
of the Indenture, if any series of Securities includes more than one tranche,
all provisions of such sections applicable to any series of Securities shall be
deemed equally applicable to each tranche of any series of Securities in the
same manner as though originally designated a series unless otherwise provided
with respect to such series or tranche pursuant to a board resolution or a
supplemental indenture establishing such series or tranche.

No reference herein to the Indenture and no provision
of this Note or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the Redemption Amount of
this Note in the manner, at the place, at the time and in the coin or currency
herein prescribed.

The Securities are issuable initially only in
registered form without coupons in denominations of $1,000 and any integral
multiples of $1,000 in excess of that amount at the office or agency of the
Company in the Borough of Manhattan, The City of New York, and in the manner
and subject to the limitations provided in the Indenture.

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The Securities will not be redeemable at the option of
the Company prior to maturity.

The Company will not be required to pay any Additional
Amounts on the Securities.

Maturity
Date

The Maturity Date of the Securities is August 9, 2007 (the “Maturity Date”);
however, if a market disruption event exists on the Valuation Date, as
determined by the Calculation Agent, the Maturity Date will be the later of August
9, 2007, and the third business day following the date on which the closing
price for the reference shares is calculated.

Redemption
Amount

The Company will redeem the Securities at maturity for
a redemption amount in cash that will be based on the performance of the
reference shares during the term of the Securities (the “redemption amount”):

(1)          If
the closing price of the reference shares on the New York Stock Exchange (the “relevant
exchange”) is not less than the knock-in level, which is 75% of the Initial
Share Price, on any day from but not including August 4, 2006, which is the
initial setting date, to and including August 3, 2007 (the “Valuation Date”),
the redemption amount will equal a cash payment equal to 100% of the principal
amount of the Securities.

(2)          If
(i) the closing price of the reference shares on the relevant exchange is less
than the knock-in level on any day from but not including August 4, 2006, which
is the initial setting date, to and including the Valuation Date and (ii) the
closing price of the reference shares on the relevant exchange on the Valuation
Date, which we refer to as the final share price, is greater than or equal to
the Initial Share Price, the redemption amount will equal a cash payment equal
to 100% of the principal amount of the Securities.

(3)          Otherwise,
the redemption amount will be the physical delivery amount.  The physical delivery amount will be the
number of reference shares per $1,000 principal amount of Securities equal to
$1,000 divided by the Initial Share Price. 
The market value of the physical delivery amount will be less than the
principal amount of the Securities and may be zero.

The “Initial Share Price” is $41.93.

A “business day” means a day, other than a Saturday,
Sunday or a day on which banking institutions in New York, New York are
generally authorized or obligated by law, regulation or executive order to
close and that is also a Trading Day.

A “trading day” means any day, as determined by the
Calculation Agent, on which trading is generally conducted for reference shares
(or, but for the occurrence of a market disruption event, would have been
generally conducted) on the relevant exchange and for options

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and other derivative instruments on the reference
shares on the Chicago Mercantile Exchange and the Chicago Board Options
Exchange, which we refer to collectively as the related exchanges, other than a
day on which the relevant exchange or the related exchanges are scheduled to
close prior to their regular weekday closing time.

Market
Disruption Events

If no final share price is available on the Valuation
Date because of a market disruption event, as determined by the Calculation
Agent in its sole discretion, the Calculation Agent may postpone the
calculation of the final share price until the earlier of the date such market
disruption event has ceased or three trading days after the Valuation Date, as
the case may be.  On such third trading
day, in the event there still exists a market disruption event, the Calculation
Agent will determine the final share price using its good faith estimate of the
value for the reference shares as of the closing time on the relevant exchange
on such date.  If a market disruption
event exists on the Valuation Date, the Maturity Date of the Securities will be
the later of the original Maturity Date and the third business day following
the day on which the final share price is calculated.  No interest will accrue or other payment be
payable because of any postponement of the Maturity Date.

A “market disruption event” means the occurrence or
existence of any suspension of or limitation imposed on trading (by reason of
movements in price exceeding limits permitted by any relevant exchange or
market or otherwise) of, or the unavailability, through a recognized system of
public dissemination of transaction information, of accurate price, volume or
related information in respect of (a) the reference shares or (b) any options
or futures contracts, or any options on such futures contracts, relating to the
reference shares if, in each case, in the determination of the Calculation
Agent, in its sole discretion, any such suspension, limitation or
unavailability is material.

For purposes of determining whether a market
disruption event has occurred:  (1) a
limitation on the hours or number of days of trading will not constitute a
market disruption event if it results from an announced change in the regular
business hours of the relevant exchange; (2) a decision permanently to
discontinue trading in the relevant options or futures contract will not
constitute a market disruption event; (3) limitations pursuant to New York
Stock Exchange Rule 80A—Index Arbitrage Trading Restrictions (or any applicable
rule or regulation enacted or promulgated by the New York Stock Exchange, any
other self-regulatory organization or the SEC of similar scope as determined by
the Calculation Agent) on trading during significant market fluctuations will
constitute a market disruption event; (4) a suspension of trading in an options
contract on the reference shares by the primary securities market trading in
such options, if available, by reason of (x) a price change exceeding limits
set by such securities exchange or market, (y) an imbalance of orders relating
to such contracts or (z) a disparity in bid and ask quotes relating to such
contracts will constitute a suspension or material limitation of trading in
options contracts related to the reference shares notwithstanding that such
suspension or material limitation is less than two hours; (5) a suspension,
absence or material limitation of trading on the primary securities market on
which options contracts related to the reference shares are traded will not
include any time when such securities market is itself closed for trading under
ordinary circumstances; and (6) a “suspension or material limitation” on an
exchange or in a market will include a suspension or material limitation of
trading by one class

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of investors provided
that such suspension continues for more than two hours of trading or during the
last one-half hour period preceding the close of trading on the relevant
exchange or market (but will not include limitations imposed on certain types
of trading under New York Stock Exchange Rule 80A or any applicable rule or
regulation enacted or promulgated by the New York Stock Exchange, NASDAQ, any
other self-regulatory organization or the SEC of a similar scope or as a
replacement for Rule 80A, as determined by the Calculation Agent) and will not
include any time when such exchange or market is closed for trading as part of
such exchange’s or market’s regularly scheduled business hours.

Antidilution
Adjustments

General

The Calculation Agent will adjust the Initial Share Price
and the physical delivery amount if certain corporate actions and other events
described below (each of which, an “adjustment event”), occur, and the
Calculation Agent determines that such adjustment event has a diluting or
concentrative effect on the theoretical value of the reference shares.  Set forth below are examples of how
adjustment events may lead to adjustments to the Initial Share Price and the
physical delivery amount.

Upon the occurrence of an adjustment event that the
Calculation Agent determines has a diluting or concentrative effect on the
theoretical value of the reference shares, for purposes only of determining
whether (i) the price of the reference shares is less than or equal to the
knock-in level and (ii) the final share price is less than or equal to the
Initial Share Price, the Calculation Agent will typically adjust the Initial
Share Price according to the following formula:

	
  

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  prior
  physical delivery amount

  
	
  

  	
  adjusted initial share price

  	
   

  	
  =

  	
   

  	
  initial
  share price X

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  adjusted
  physical delivery amount

  
								

 

The physical delivery amount will be adjusted by the
Calculation Agent as set forth in the specific examples below.

The adjustments described below do not cover all events
that could affect the value of the Securities.

Adjustments

If an adjustment event occurs and the Calculation Agent
determines that the event has a diluting or concentrative effect on the
theoretical value of the reference shares, the Calculation Agent will calculate
a corresponding adjustment to the Initial Share Price and the physical delivery
amount as the Calculation Agent determines appropriate to account for that
diluting or concentrative effect.  The
Calculation Agent will also determine the effective date of that adjustment,
and the replacement of the reference shares, if applicable, in the event of
consolidation or merger.  Upon making any
such adjustment, the Calculation Agent will give notice as soon as practicable
to the Trustee, stating the adjustment of the Initial Share Price and physical
delivery amount.

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If more than one adjustment event occurs, the Calculation
Agent will make an adjustment for each such adjustment event in the order in
which they occur, and on a cumulative basis. 
Accordingly, having adjusted the Initial Share Price and the physical
delivery amount for the first such adjustment event, the Calculation Agent will
adjust the Initial Share Price and the physical delivery amount for the second
adjustment event, applying the required adjustment to the Initial Share Price
and the physical delivery amount as already adjusted for the first adjustment
event, and so on for each subsequent adjustment event.

The Calculation Agent will not have to adjust the Initial
Share Price and the physical delivery amount for any adjustment event unless the adjustment would result in a
change to the Initial Share Price or the physical delivery amount of at least
0.1% in the Initial Share Price or the physical delivery amount that would
apply without the adjustment.  The
Initial Share Price and the physical delivery amount resulting from any
adjustment would be rounded up or down, as appropriate, to, in the case of the
Initial Share Price, the nearest cent, and, in the case of the physical
delivery amount, the nearest thousandth, with one-half cent and five
ten-thousandths, respectively, being rounded upwards.

If an adjustment event requiring antidilution adjustment
occurs, the Calculation Agent will make any adjustments with a view to
offsetting, to the extent practical, any change in the Holders’ economic
position relative to the Securities that results solely from that event.  The Calculation Agent may, in its sole
discretion, modify any antidilution adjustments as necessary to ensure an
equitable result.

The Calculation Agent has sole discretion in making all
determinations with respect to antidilution adjustments, including any
determination as to whether an adjustment event requiring an antidilution
adjustment has occurred, as to the nature of the adjustment required and how it
will be made.  In the absence of manifest
error, those determinations will be conclusive for all purposes and will be
binding on the Holders and the Company, without any liability on the part of
the Calculation Agent.  Upon written
request, the Calculation Agent will provide information about any adjustments
it makes.

Events requiring an antidilution
adjustment

The following is a list of adjustment events that may
require an antidilution adjustment:

(a)                                  a subdivision, consolidation
or reclassification of the reference shares or a free distribution or dividend
of any reference shares to existing holders of reference shares by way of
bonus, capitalization or similar issue;

(b)                                 a dividend or other
distribution to existing holders of reference shares of (i) the reference
shares, (ii) other share capital or securities granting the right to payment of
dividends equally or proportionately with such payments to holders of the
reference shares or (iii) any other type of securities, rights or warrants in
any case for payment (in cash or otherwise) at less than the prevailing market
price as determined by the Calculation Agent;

(c)                                  the declaration by the
issuer of the reference shares of an extraordinary or special dividend or other
distribution whether in cash or reference shares or other assets;

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(d)                                 a repurchase of its common
stock by the issuer of the reference shares whether out of profits or capital
and whether the consideration for such repurchase is cash, securities or
otherwise;

(e)                                  a consolidation of the
issuer of the reference shares with another company or merger of the issuer of
the reference shares with another company; and

(f)                                    any other similar event that
may have a diluting or concentrative effect on the theoretical value of the
reference shares.

Certain
adjustment events are discussed in greater detail below.

Stock splits

A stock split is an increase in the number of a corporation’s
outstanding shares of stock without any change in its stockholders’
equity.  As a result of a stock split,
each outstanding share will be worth less.

If the reference shares are subject to a stock split, the
Calculation Agent will adjust the physical delivery amount to equal the sum of
the prior physical delivery amount—i.e., the physical delivery amount before
that adjustment—and the product of (i) the number of additional shares issued
in the stock split with respect to each of the reference shares times (ii) the
prior physical delivery amount.

Reverse stock splits

A reverse stock split is a decrease in the number of a
corporation’s outstanding shares of stock without any change in its
stockholders’ equity.  As a result of a
reverse stock split, each outstanding share will be worth more.

If the reference shares are subject to a reverse stock
split, the Calculation Agent will adjust the physical delivery amount to equal
the product of the prior physical delivery amount and the quotient of (i) the
number of reference shares outstanding immediately after the reverse stock
split becomes effective divided by (ii) the number of reference shares
outstanding immediately before the reverse stock split becomes effective.

Stock dividends

In a stock dividend, a corporation issues additional shares
of its stock to all holders of its outstanding stock in proportion to the
shares they own.  As a result of a stock
dividend, each outstanding share will be worth less.

If the reference shares are subject to a stock dividend
payable in the reference shares, then the Calculation Agent will adjust the
physical delivery amount to equal the sum of the prior physical delivery amount
and the product of (i) the number of additional shares issued in the stock
dividend with respect to each of the reference shares times (ii) the prior
physical delivery amount.

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Other dividends and distributions

If the issuer of the reference shares declares a dividend
to be distributed to holders of record of the reference shares as of a date
falling in the period that begins on the day immediately following the
Valuation Date and ends on the day immediately prior to the Maturity Date, any
such dividend will not be paid to Holders.

The physical delivery amount will not be adjusted to
reflect any dividends or distributions paid with respect to the reference
shares, other than (i) stock dividends described above; (ii) issuances of
transferable rights and warrants as described in “—Transferable rights and
warrants” below; and (iii) extraordinary dividends as described below.

A dividend or other distribution with respect to the
reference shares will be deemed to be an “extraordinary dividend” if its per
share value exceeds that of the immediately preceding non-extraordinary
dividend, if any, for the reference shares by an amount equal to at least
10.00% of the market price of the reference shares on the business day before
the extraordinary dividend date.  The ex
dividend date for any dividend or other distribution is the first day on which
the reference shares trade without the right to receive that dividend or
distribution.  If an extraordinary
dividend occurs, the Calculation Agent will adjust the physical delivery amount
to equal the product of (1) the prior physical delivery amount times (2) a
fraction, the numerator of which is the market price of the reference shares on
the business day before the ex dividend date and the denominator of which is
the amount by which that market price exceeds the extraordinary dividend
adjustment amount.  The “extraordinary
dividend adjustment amount” with respect to an extraordinary dividend for the
reference shares equals:  (i) for an
extraordinary dividend that is paid in lieu of a regular quarterly dividend,
the amount of the extraordinary dividend per share of the reference shares
minus the amount per share of the immediately preceding dividend, if any, that
was not an extraordinary dividend for the reference shares, or (ii) for an
extraordinary dividend that is not paid in lieu of a regular quarterly
dividend, the amount per share of the extraordinary dividend.

To the extent an extraordinary dividend is not paid in
cash, the value of the non-cash component will be determined by the Calculation
Agent.  A distribution on the reference
shares that is a dividend payable in the reference shares, an issuance of
rights or warrants or a spin-off event and that is also an extraordinary dividend
will result in an adjustment to the physical delivery amount only as described
in “Stock dividends” above, “Transferable rights and warrants” below or “Reorganization
events” below, as the case may be, and not as described here.

Transferable rights and warrants

If the issuer of the reference shares issues transferable
rights or warrants to all holders of the reference shares to subscribe for or
purchase the reference shares at an exercise price per share that is less than
the market price of the reference shares on the business day before the
extraordinary dividend date for the issuance, then the physical delivery amount
will be adjusted by multiplying the prior physical delivery amount by the
following fraction:  (i) the numerator
will be the sum of the number of reference shares outstanding at the close of
business on the day before that ex dividend date and the total number of
additional reference shares offered for

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subscription or purchase under those transferable rights or
warrants, and (ii) the denominator will be the sum of the number of reference
shares outstanding at the close of business on the day before that ex dividend
date and the product of (1) the total number of additional reference shares
offered for subscription or purchase under the transferable rights or warrants
times (2) the exercise price of those transferable rights or warrants divided
by the market price on the business day before that extraordinary dividend
date.

Reorganization events

Each of the following may be a reorganization event:  (i) the reference shares are reclassified or
changed; (ii) the issuer of the reference shares has been subject to a merger,
consolidation or other combination and either is not the surviving entity or is
the surviving entity but all outstanding reference shares are exchanged for or
converted into other property; (iii) a statutory share exchange involving
outstanding reference shares and the securities of another entity occurs, other
than as part of an event described above; (iv) the issuer of the reference
shares effects a spin-off (i.e., issues to all holders of reference shares
common stock equity securities of another issuer) other than as part of an
event described above; (v) the issuer of the reference shares sells or
otherwise transfers its property and assets as an entirety or substantially as
an entirety to another entity (each of the events in clauses (i) through (v)
above, a “merger event”); (vi) a takeover offer, tender offer, exchange offer,
solicitation, proposal or other event by any entity or person that results in
such entity or person purchasing, or otherwise obtaining or having the right to
obtain, by conversion or other means, not less than a majority of the
outstanding voting reference shares as determined by the Calculation Agent,
based upon the making of filings with governmental or self-regulatory agencies
or such other information as the Calculation Agent deems relevant, which we
refer to as a tender offer; (vii) the exchange on which the reference shares
trade announces that pursuant to the rules of such exchange, the reference
shares cease (or will cease) to be listed, traded or publicly quoted on it for
any reason (other than a merger event or tender offer) and are not immediately
re-listed, re-traded or re-quoted on another major U.S. exchange or quotation
system (a “delisting event”); and (viii) the issuer of the reference shares is
liquidated, dissolved or wound up or is subject to a proceeding under any
applicable bankruptcy, insolvency or other similar law (each, an “insolvency
event”).

Adjustments for reorganization events

If a merger event occurs and a holder of the reference
shares that makes no election, vote or decision in connection with such merger
event would receive as full or partial consideration ordinary or common shares
of any person (other than the issuer of the reference shares) that are publicly
quoted, traded or listed on any major U.S. exchange or quotation system (the “new
shares”), then the Calculation
Agent will adjust the physical delivery amount so as to consist of the amount
and type of property distributed in the reorganization event in respect of the
prior physical delivery amount.  In this
instance, if more than one type of property is distributed, the physical
delivery amount will be adjusted so as to consist of each type of property distributed,
in a proportionate amount, so that the value of each type of property
comprising the new physical delivery amount as a percentage of the total value
of the new physical delivery amount equals the value of that type of property
as a percentage of the total value of all of the property distributed in the
reorganization event.

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If a tender offer occurs, and the holder of the reference
shares can elect to receive new shares as full or partial consideration in
respect of such tender offer, then the Calculation Agent will adjust the
physical delivery amount in accordance with the preceding paragraph.

If a merger event occurs, and the consideration in respect
of such event does not consist in full or in part of new shares (or in the case
of a tender offer, a holder of the reference shares would not be able to elect
to receive in full or in part any new shares as consideration in respect of
such tender offer), then the Calculation Agent will accelerate the Maturity
Date to the day which is four business days after the approval date (as defined
below).  The amount payable at maturity
will be determined as described below under “Events of default and
acceleration.”  The approval date is the
closing date of a merger event or, in the case of a tender offer, the date on
which the person or entity making the tender offer acquires or acquires the
right to obtain the relevant percentage of reference shares.

If a delisting event or an insolvency event occurs, the
Calculation Agent will accelerate the Maturity Date to the day which is four
business days after the announcement date (as defined below).  On the Maturity Date, the Company will pay to
each Holder the physical delivery amount and for the purposes of such
calculation, the final share price will be deemed to be the closing price of
the reference shares on the business day immediately prior to the announcement
date.  The announcement date means, in
the case of a delisting event, the day of the first public announcement by the
relevant exchange that the reference shares will cease to trade or be publicly
quoted on such exchange, or, in the case of an insolvency event, the day of the
first public announcement of the institution of a proceeding or presentation of
a petition or passing of a resolution (or other analogous procedure in any
jurisdiction) that leads to an insolvency event with respect to the issuer of
the reference shares.

If a merger event or tender offer occurs, coupon payment
amounts will accrue on the Securities through the approval date and be paid on
the accelerated Maturity Date.  Such
coupon payments will be calculated using a 360-day year comprised of twelve
30-day months.  If a delisting event or
an insolvency event occurs, the Company will pay all remaining scheduled unpaid
coupon payments due to a Holder through the scheduled Maturity Date on the
accelerated Maturity Date.

For the purposes of making an adjustment required by a
reorganization event, the Calculation Agent will determine the value of each
type of property distributed in the distribution, in its sole discretion.  For any property distributed consisting of
new shares, the Calculation Agent will use the closing price of the new shares
on the approval date.  The Calculation
Agent may value other types of property in any manner it determines, in its
sole discretion, to be appropriate.  If a
holder of the common stock of the issuer of the reference shares elects to
receive different types or combinations of types of property in the
reorganization event, such property will consist of the types and amounts of
each type distributed to a holder that makes no election, as determined by the
Calculation Agent.

If a reorganization event occurs and the Calculation Agent
adjusts the physical delivery amount to consist of the property distributed in
the reorganization event as described above, the Calculation Agent will make
further antidilution adjustments for later events that affect such property, or
any component of such property, comprising the new physical delivery amount.  The

 R-10
 

 

 

Calculation Agent will do so to the same extent that it
would make adjustments if the common stock of the issuer of the reference
shares was outstanding and was affected by the same kinds of events.  If a subsequent reorganization event affects
only a particular component of the physical delivery amount, the required
adjustment will be made with respect to that component, as if it alone were the
physical delivery amount.  For example,
if the issuer of the reference shares merges into another company and each
share of its common stock is converted into the right to receive two new shares
of the surviving company and a specified amount of cash, the physical delivery
amount will be adjusted to consist of two new shares and the specified amount
of cash per reference share.  The
Calculation Agent will adjust the common share component of the new physical
delivery amount to reflect any later stock split or other event, including any
later reorganization event, that affects the new shares, to the extent
described in this section entitled “Antidilution adjustments” as if the new
shares were the common stock of the issuer of the reference shares.  In that event, the cash component will not be
adjusted but will continue to be a component of the physical delivery amount.  Consequently, Holders who receive reference
shares at maturity will be entitled to receive, for each $1,000 of the
outstanding principal amount of the Securities being exchanged, all components
of the physical delivery amount in effect on the exchange date, with each
component having been adjusted on a sequential and cumulative basis for all
relevant events requiring adjustment on or before the exchange date.

If a reorganization event occurs, the property distributed
in the event will be substituted for the common stock of the issuer of the
reference shares as described above. 
Consequently, references to the common stock of the issuer of the
reference shares mean any property that is distributed in a reorganization
event and comprises the adjusted physical delivery amount.  Similarly, references to the issuer of the
reference shares mean any successor entity in a reorganization event.

Events of Default and Acceleration

In case an Event of Default (as defined in the
Indenture) with respect to the Securities shall have occurred and be
continuing, the amount declared due and payable upon any acceleration of the
Securities (in accordance with the acceleration provisions set forth in the
prospectus) will be determined by the Calculation Agent and will equal, for
each security, the arithmetic average, as determined by the Calculation Agent,
of the fair market value of the Securities as determined by at least three but
not more than five broker-dealers (which may include Credit Suisse Securities
(USA) LLC or any of the Company’s other subsidiaries or affiliates) as will
make such fair market value determinations available to the Calculation Agent.

The Company, the Trustee and any agent of the Company
or the Trustee may deem and treat the registered Holder hereof as the absolute owner
of this Note (whether or not this Note shall be overdue and notwithstanding any
notation of ownership or other writing hereon) for the purpose of receiving
payment of, or on account of, the redemption amount hereof, and for all other
purposes, and neither the Company nor the Trustee nor any agent of the Company
or the Trustee shall be affected by any notice to the contrary.

No recourse under or upon any obligation, covenant or
agreement contained in the Indenture or any indenture supplemental thereto or
in any Note, or because of any indebtedness evidenced thereby, shall be had
against any incorporator as such, or against any past, present or

 R-11
 

 

 

future stockholder,
officer, director or employee, as such, of the Company or of any successor,
either directly or through the Company or any successor, under any rule of law,
statute or constitutional provision or by the enforcement of any assessment or
by any legal or equitable proceeding or otherwise, all such liability being
expressly waived and released by the acceptance hereof and as part of the
consideration for the issue hereof.

The Calculation Agent for the Securities (the “Calculation
Agent”) is Credit Suisse International. 
The calculations and determinations of the Calculation Agent will be
final and binding upon all parties (except in the case of manifest error).  The Calculation Agent will have no
responsibility for good faith errors or omissions in its calculations and
determinations, whether caused by negligence or otherwise.

Terms used herein that are defined in the Indenture
and not otherwise defined herein shall have the respective meanings assigned
thereto in the Indenture.

The laws of the State of New York (without regard to
conflicts of laws principles thereof) shall govern this Note.

 R-12
 

 

 

FOR VALUE RECEIVED, the
undersigned hereby sell(s), assign(s) and transfer(s) unto

	
  [PLEASE INSERT SOCIAL SECURITY OR OTHER
  IDENTIFYING NUMBER OF ASSIGNEE]

  
	
   

  
	
   

  
	
   

  
	
   

  
	
  [PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING
  ZIP CODE, OF ASSIGNEE]

  
	
   

  
	
   

  
	
  the within Note and all rights thereunder, hereby
  irrevocably constituting and appointing

  
	
   

  
	
   

  	
   

  
	
  Attorney to transfer such Note on the books of the
  Issuer, with full power of substitution in the premises.

  
	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Signature:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  NOTICE:The signature to this assignment must
  correspond with the 

  
	
   

  	
   

  	
   

  	
   

  	
  name as written upon the face of the within Note in
  every particular without alteration or enlargement or any change whatsoever.

  
								

 

 

 R-13Exhibit
10.2

EXECUTIVE SEVERANCE
BENEFITS AGREEMENT

This EXECUTIVE SEVERANCE BENEFITS AGREEMENT (the “Agreement”)
is made and entered into effective as of April 29, 2006 (the “Commencement
Date”), between [Guitar Center,
Inc.][Musician’s Friend, Inc.][Guitar Center Stores, Inc.], a
Delaware corporation (the “Company”), and                   
(the “Executive”).

RECITALS:

A.   Executive is currently employed by the
Company.

B.   The Company and Executive wish to set forth
the compensation and benefits which Executive shall be entitled to receive in
the event Executive’s employment with the Company is terminated under the
circumstances described herein.

C.   This Agreement supercedes any prior Executive
Severance Benefits Agreement between the Company and Executive.

AGREEMENT:

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.   TERM OF
AGREEMENT.  This Agreement shall
commence on the Commencement Date hereof and shall continue in effect through
April 29, 2009 (the “Scheduled Expiration Date”); provided, however, that in the event
neither party to this Agreement has given written notice to the other party of
its intent to terminate this Agreement by the date that is one hundred twenty
(120) days prior to the Scheduled Expiration Date (as may be extended by
operation of this Section 1), the Scheduled Expiration Date shall automatically
be extended by an additional twelve (12) months.

2.   SEVERANCE.

(a)   SEVERANCE.   No
benefits shall be payable under this Agreement unless there has been a
Qualifying Termination.  For purposes of
this Agreement, a “Qualifying Termination” shall mean a termination of
Executive’s employment with the Company prior to the Scheduled Expiration Date
(i) by the Company without Cause or (ii) by the Executive with Reasonable
Justification.  A termination of
Executive’s employment as a result of Executive’s death or Disability (as
defined below) shall not be a Qualifying Termination.  In the event of a Qualifying Termination, Executive shall be entitled to receive the
following severance benefits, unless Executive has breached the provisions of
this Agreement, in which case the provisions of Section 8(a)(ii) shall apply:

(i)   ACCRUED BASE SALARY.   The
Company shall pay to the Executive his current base salary through the date of
termination.

 

(ii)   CASH SEVERANCE.   Subject to the
provisions of Section 8(o), Executive shall be entitled to receive, at the
times specified in Section 2(b), severance pay in an amount equal to the sum
of:

(A)   Executive’s
current annual base salary as in effect immediately prior to the date of
termination, payable over the twelve (12) month period commencing on the date
of termination (the “Severance Period”); plus

(B)   an
annual cash bonus equal to the last annual cash bonus (excluding any portion
thereof that the Chief Executive Officer of the Company considered
extraordinary and non-recurring) Executive received prior to termination, if
any (except as set forth in the immediately preceding clause, the Company shall
not be obligated to pay any bonus with respect to the year in which the date of
termination occurs or for any completed year for which bonuses have not yet
been allocated, regardless of the financial performance of the Company or any
other Company policy or prior practice); plus

(C)   any
unpaid vacation accrued through the date of termination in accordance with
Company policy; plus

(D)   reimbursement
for all outstanding expenses incurred by Executive prior to the date of
termination and in the course of performing Executive’s duties as an employee
of the Company which are consistent with the Company’s policies in effect from
time to time with respect to travel, entertainment and other business expenses,
subject to the Company’s requirements with respect to reporting and documenting
such expenses.

(iii)   BENEFITS.   In the event that
Executive elects to continue group health insurance coverage for himself and
his eligible dependents who were covered under the Company’s medical plans as
of the date of termination, at the same level in effect as of the date of
termination, pursuant to the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended (“COBRA”), the Company shall pay for the amount of his premium
payments for such coverage for the Severance Period (or, if such
continuation is not permitted by the Company’s insurers beyond the date of
termination, a cash payment equal to the average annual premium the Company
pays to obtain health insurance for an employee).  In the event Executive desires to discontinue
this coverage, he shall notify the Company in writing which shall promptly
terminate the coverage benefit.

(iv)   COMPANY
CAR.   Executive may at his sole expense elect to (A) assume the lease
on any Company-provided automobile used by Executive as of the date of
termination, if any, or, if such vehicle is owned by the Company, purchase such
vehicle at a price equal to its wholesale “blue book” value or (B) return such
vehicle to the Company as provided for in Section 8(h).

 2
 

 

(v)   EQUITY
INCENTIVE PROGRAMS.   Following the date of termination, Executive’s
equity incentives, if any, shall continue to be governed by the terms of the
plan and agreements pursuant to which such equity incentives were granted.

(A)   Notwithstanding
the above, if at any time that Executive is employed by the Company hereunder
there is a Change in Control (as defined in the Guitar Center, Inc. 2004
Incentive Stock Award Plan), all stock options then held by the Executive shall
immediately vest and
become exercisable and/or all restrictions on shares of restricted stock or
restricted stock units then issued to and held by the Executive (but
excluding unissued equity interests including without limitation performance
shares allocated but not earned under any long-term incentive plan) shall immediately lapse.

(B)   Notwithstanding the above, in the event of a Qualifying
Termination, Executive shall be permitted to exercise any of his non-qualified
stock options granted on or after April 29, 2006 for a period of one (1) year
following the date of such Qualifying Termination.

(vi)   LONG
TERM INCENTIVE PLAN.   Following the date of termination, Executive’s
participation in the Guitar Center, Inc. 2005 Long Term Incentive Plan
(collectively with any successor plan or plans, the “LTIP”) shall continue to
be governed solely by the terms of the LTIP, it being expressly understood that
Section 2(a)(v) shall not be applicable to the LTIP or any interests therein.

(b)   TIMING OF
POST-TERMINATION PAYMENTS.   Subject to Section 8(o), the severance
payments provided for in Section 2(a)(ii)(A) above shall be paid periodically
in the same amounts and at the same intervals as Executive’s base salary was
paid immediately prior to the date of termination.  The severance payment provided for in Section
2(a)(ii)(B) above shall be paid on the last day of the Severance Period.  If
Executive has breached the provisions of this Agreement, the Company shall have
the right to terminate the severance payments provided for in this Section 2
pursuant to the provisions of Section 8(a)(ii).

(c)   TAXES.   Executive
understands and agrees that all payments under this Agreement will be subject
to appropriate tax withholding and other deductions, as and to the extent required by law.  To the extent any taxes may be payable by the
Executive for the benefits provided to him by this Agreement beyond those
withheld by the Company, the Executive agrees to pay them himself and to
indemnify and hold the Company and the other entities released herein harmless
for any tax claims or penalties, and associated attorneys’ fees and costs,
resulting from any failure by him to make required payments.

(d)   EXCLUSIVE
REMEDY.   Except as otherwise expressly required by law (e.g., COBRA)
or as specifically provided herein, all of the Executive’s rights to salary,
severance, benefits, bonuses and other amounts hereunder (if any) accruing
after the termination of Executive’s employment shall cease upon such
termination.  In the event of a
termination of Executive’s employment with the Company, the Executive’s sole
and exclusive remedy shall be to receive the severance payments and benefits
described in this Section 2.  Executive
shall have no duty to mitigate any damages which Executive may suffer as a
result of any termination of 

 3
 

 

employment nor shall the severance benefits payable to
Executive be reduced by any sums actually earned by Executive as a result of
any other employment obtained by Executive.

(e)   RELEASE.   As
a condition to the Executive’s receipt of any post-termination benefits
described in this Agreement, the Executive shall be required to execute a
general release of all claims arising out of his employment or the termination
thereof, which general release will also include a customary non-disparagement
covenant from Executive (the “Executive Release”), in a form reasonably
acceptable to the Company.  Such
Executive Release shall specifically relate to all of the Executive’s rights
and claims in existence at the time of such execution but shall exclude any
continuing obligations the Company or any of its affiliates may have to the
Executive following the date of termination under this Agreement or any other
agreement expressly providing for obligations to survive the Executive’s
termination of employment.

(f)   OTHER
TERMINATION.   If the Employment Period is terminated prior to the
Scheduled Expiration Date for any reason other than by the Company without Cause
or by the Executive with Reasonable Justification, including as a result of
Executive’s death or Disability, the Executive shall be entitled to receive
only his base salary and then only to the extent such amount has accrued
through the date of termination.

(g)   DEFINITION
OF CAUSE.   For purposes of this Agreement, “Cause” means any
termination by the Company of Executive’s employment within ninety (90) days
after the Board of Guitar Center, Inc. (“Parent”) becomes aware of the
occurrence of any of the following:

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

(ii)   the
Executive’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 of Parent and the expiration of a
thirty (30) day cure period;

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

(iv)   the
Executive’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 Executive, including without
limitation, any policies related to sexual harassment, anti-discrimination and
similar employment practices;

(v)   the
commission of any act involving moral turpitude which (y) brings the Company or
any of its affiliates into public disrepute or disgrace, or (z) 

 4
 

 

causes material injury to
the customer relations, operations or the business prospects of the Company or any
of its affiliates; or

(vi)   material
breach by the Executive of this Agreement, including, without limitation, any
breach by the Executive of the Confidentiality and Noncompetition Agreements
(as defined in Section 3 below), not cured within thirty (30) days after
written notice to Executive from either the Chief Executive Officer of the
Company or the Board of Parent; provided, however, that in the
event of an intentional breach of the provisions of the Confidentiality and
Noncompetition Agreements, the Executive shall not have the opportunity to
cure.

(h)   DEFINITION
OF DISABILITY.   For purposes of this Agreement the term “Disability”
means any long-term disability or incapacity which (i) renders the Executive
unable to substantially perform all of his duties hereunder for ninety (90)
days during any one hundred eighty (180) day period or (ii) would reasonably be
expected to render the Executive unable to substantially perform all of his
duties for ninety (90) days during any one hundred eighty (180) day period, in
each case as determined by the Board of Parent (excluding the Executive if he
should be a member of the Board of Parent at the time of such determination) in
its good faith judgment after seeking and reviewing advice from a qualified
physician.

(i)   DEFINITION
OF REASONABLE JUSTIFICATION.   For purposes of this Agreement, “Reasonable
Justification” means any voluntary termination by the Executive of his
employment with the Company within ninety (90) days after the occurrence of any
of the following events without Executive’s written consent:

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

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

(iii)   there
is any material reduction in the Executive’s compensation or a material
reduction in Executive’s other benefits (other than reductions in benefits that
generally affect all employees entitled to such benefits ratably);

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

(v)   there is
a material failure by the Company or any of its affiliates to perform any of its
obligations to the Executive under this Agreement;

 5
 

 

provided,
however, that with respect to breaches of Section 2(h)(ii), (iii) and
(v), the Company shall be given written notice by Executive of such breach and
thirty (30) days to cure such breach.

3.   CONFIDENTIALITY
AND NONCOMPETITION AGREEMENTS.   Executive acknowledges and reaffirms
his obligations to the Company pursuant to any confidentiality, noncompetition
and/or nonsolicitation agreements entered into by Executive with the Company
and/or its affiliates (the “Confidentiality and Noncompetition Agreements”).

4.   NON-DISPARAGEMENT.   Executive
agrees that he will not disparage or denigrate to any person any aspect of his
past relationship with the Company or any of its affiliates, nor the character
of the Company or any of its affiliates or their respective agents,
representatives, products, or operating methods, whether past, present, or
future, and whether or not based on or with reference to their past
relationship; provided, however, that this paragraph shall have
no application to any evidence or testimony requested of Executive by any court
or government agency.  In the event any
government agency or any of Company’s or any of its affiliates’ present or
future labor unions, adverse parties in actual or potential litigation,
suppliers, service providers, employees or customers initiate communications
with the Executive, the Executive agrees that he will only inform any such
persons, consistent with this paragraph, of his change in status and direct such
persons to an appropriate office or current employee of the Company.

5.   TRANSITIONAL
INQUIRIES.   For a reasonable period of time following the date of
termination, Executive agrees to make himself available to the Company to
answer telephone inquiries related to the transition of his duties.  Executive’s obligations pursuant to this
Section 5 are a material inducement to the Company’s entering into this
Agreement with Executive.

6.   Right to
Consult Counsel.   EXECUTIVE REPRESENTS AND AGREES THAT HE FULLY
UNDERSTANDS HIS RIGHT TO DISCUSS ALL ASPECTS OF THIS AGREEMENT WITH HIS PRIVATE
ATTORNEY, AND THAT TO THE EXTENT, IF ANY, THAT HE DESIRED, HE AVAILED HIMSELF
OF SUCH RIGHT.  EXECUTIVE FURTHER
REPRESENTS THAT HE HAS CAREFULLY READ AND FULLY UNDERSTANDS ALL OF THE
PROVISIONS OF THIS AGREEMENT, THAT HE IS COMPETENT TO EXECUTE THIS AGREEMENT,
THAT HIS AGREEMENT TO EXECUTE THIS AGREEMENT HAS NOT BEEN OBTAINED BY ANY
DURESS AND THAT HE FREELY AND VOLUNTARILY ENTERS INTO IT, AND THAT HE HAS READ
THIS DOCUMENT IN ITS ENTIRETY AND FULLY UNDERSTANDS THE MEANING, INTENT AND
CONSEQUENCES OF THIS DOCUMENT.

7.   NOTICES.   All
notices, requests, demands, claims, and other communications hereunder shall be
in writing.  Any notice, request, demand,
claim or other communication hereunder shall be delivered personally to the
recipient, delivered by United States Post Office mail (postage prepaid and
return receipt requested), telecopied to the intended recipient at the number
set forth therefor below (with hard copy to follow), or sent to the recipient
by reputable express courier service (charges prepaid) and addressed to the
intended recipient as set forth below:

 6
 

 

If to the Company, to:

Guitar
Center, Inc.

5795
Lindero Canyon Road

Westlake
Village, California  91362

Attention:  General Counsel

Telephone:  (818) 735-8800

Telecopier:  (818) 735-4923

If to the Executive, to the address noted on the
signature page of this Agreement or such other address as the recipient party
to whom notice is to be given may have furnished to the other party in writing
in accordance herewith.  Any such
communication shall be deemed to have been delivered and received (a) when
delivered, if personally delivered, sent by telecopier or sent by overnight
courier, and (b) on the fifth business day following the date posted, if sent
by mail.

8.   GENERAL PROVISIONS.

(a)   SEVERABILITY/ENFORCEMENT.   (i)  It
is the desire and intent of the parties hereto that the provisions of this
Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is
sought.  Accordingly, if any particular
provision of this Agreement shall be adjudicated by a court of competent
jurisdiction to be invalid, prohibited or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without invalidating
the remaining provisions of this Agreement or affecting the validity or
enforceability of this Agreement or affecting the validity or enforceability of
such provision in any other jurisdiction. 
Notwithstanding the foregoing, if such provision could be more narrowly
drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.

(ii)   In addition to the foregoing, and not in
any way in limitation thereof, or in limitation of any right or remedy
otherwise available to the Company, if the Executive materially violates any
provision of this Agreement, including, without limitation, Section 5 hereof,
or Executive’s Confidentiality and Noncompetition Agreements, (and such
violation, if unintentional on the part of the Executive, continues for a
period of twenty-one (21) days following receipt of written notice from the
Company), any severance payments then or thereafter due from the Company to the
Executive may be terminated forthwith and upon such election by the Company,
the Company’s obligation to pay and the Executive’s right to receive such
severance payments shall terminate and be of no further force or effect.  The Executive’s obligations under this
Agreement, including, without limitation, Section 5 hereof,  or Executive’s Confidentiality and Noncompetition
Agreements shall not be limited or affected by, and such provisions shall
remain in full force and effect notwithstanding the termination of any
severance payments by the Company in accordance with this Section 8(a)(ii).  The exercise of the right to terminate such
payments shall not be deemed to be an election of remedies by the Company and
shall not in any manner modify, limit or preclude the Company from exercising
any other rights or seeking any other remedies available to it at law or in
equity.

 7
 

 

(b)   COMPLETE
AGREEMENT; SURVIVAL.   This Agreement, those documents expressly
referred to herein and all other documents of even date herewith embody the
complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof
in any way including, without limitation, any prior Executive Severance
Benefits Agreement between the Company and Executive; provided, however,
that this Agreement shall not amend, supercede or terminate any rights granted
to Executive pursuant to any indemnification agreement between Executive and
the Company or any affiliate of the Company. 
The representations, warranties, covenants and agreements made herein
shall, as applicable, survive any termination of this Agreement in accordance
with their respective terms.

(c)   SUCCESSORS
AND ASSIGNS.   Except as otherwise provided herein, this Agreement
shall bind and inure to the benefit of and be enforceable by the Executive and
the Company and their respective successors, assigns, heirs, representatives
and estate; provided, however, that the rights and obligations of
the Executive under this Agreement shall not be assigned without the prior
written consent of the Company.  Without
limiting the foregoing, it is expressly acknowledged that the Company may
transfer Executive and assign this Agreement to any present or future affiliate
of the Company.

(d)   GOVERNING
LAW.   THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE DOMESTIC LAWS OF THE STATE OF CALIFORNIAWITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICTING PROVISION OR RULE THAT WOULD CAUSE THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF CALIFORNIA
TO BE APPLIED.

(e)   ARBITRATION.

(i)   Unless
otherwise provided herein, in the event that there shall be a dispute (a “Dispute”)
among the parties arising out of or relating to this Agreement, or the breach
thereof, the parties agree that such dispute shall be resolved by final and
binding arbitration before a single arbitrator in Los Angeles County,
California, administered by the American Arbitration Association (the “AAA”), in accordance with AAA’s Employment ADR Rules.  The arbitrator’s decision shall be final and
binding upon the parties, and may be entered and enforced in any court of
competent jurisdiction by either of the parties.  The arbitrator shall have the power to grant
temporary, preliminary and permanent relief, including without limitation,
injunctive relief and specific performance.

(ii)   The
Company will pay the direct costs and expenses of the arbitration.  Executive and the Company are responsible for
their respective attorneys’ fees incurred in connection with enforcing this
Agreement; however, Executive and the Company agree that, except as may
be prohibited by law, the arbitrator may, in his or her discretion, award
reasonable attorneys’ fees to the prevailing party.

(iii)   This
Section 8(e) shall not apply to the Confidentiality and Noncompetition
Agreements.

 8
 

 

(f)   JURISDICTION,
ETC.

(i)   Without
limiting the generality of the arbitration provisions contained in Section
8(e), each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of any California State
court or Federal court of the United States of America sitting in the State of California, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to
this Agreement not required to be submitted to arbitration pursuant to Section
8(e) or for recognition or enforcement of any judgment, and each of the parties
hereto hereby irrevocably and unconditionally agrees that all claims in respect
of any such action or proceeding may be heard and determined in any such California State
court or, to the extent permitted by law, in such Federal court.  Each of the parties hereto agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.

(ii)   Each of
the parties hereto irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection that it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement in any California State or
Federal court.  Each of the parties hereto irrevocably waives,
to the fullest extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.

(iii)   The
Company and the Executive further agree that the mailing by certified or
registered mail, return receipt requested, of any process required by any such court shall constitute valid and
lawful service of process against them, without the necessity for service by
any other means provided by law.

(g)   AMENDMENT
AND WAIVER.   The provisions of this Agreement may be amended and
waived by mutual agreement of the parties only by a written instrument executed
by the Company and Executive which makes express reference to this Agreement
and no course of conduct or failure or delay in enforcing the provisions of
this Agreement shall affect the validity, binding effect or enforceability of this
Agreement or any provision hereof.

(h)   TRANSFER OF COMPANY PROPERTY.   On or
before the commencement of the Severance Period, Executive agrees to turn over
to the Company any and all property, tangible or intangible, relating to
its business, which he possessed or had control over at any time (including,
but not limited to, Executive’s Company-provided credit cards, building or
office access cards, keys, computer equipment, manuals, files, documents,
records, software, customer data base and other data), and that he shall not
retain any copies, compilations, extracts, excerpts, summaries or other notes
of any such manuals, files, documents, records, software, customer data base or
other datafiles, memoranda, records,
and other documents, and any other physical or personal property which are the
property of the Company and which he had in his possession, custody or control,
including any computers, cellular phones, PDA’s or similar business equipment.

 9
 

 

(i)   HEADINGS.   The
section headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this
Agreement.

(j)   COUNTERPARTS.   This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
instrument.

(k)   CONSTRUCTION.   The
parties participated jointly in the negotiation and drafting of this Agreement
and the language used in this Agreement shall be deemed to be the language
chosen by the parties to express their mutual intent.  If an ambiguity or question of intent or
interpretation arises, then this Agreement will accordingly be construed as
drafted jointly by the parties to this Agreement, and no presumption or burden
of proof will arise favoring or disfavoring any party to this Agreement by
virtue of the authorship of any of the provisions of this Agreement.

(l)   AT-WILL EMPLOYMENT.   The
Company and Executive acknowledge that Executive’s employment is and shall
continue to be at-will, as defined under applicable law.  Executive acknowledges and agrees that
nothing in this Agreement shall confer upon Executive any right with respect to
continuation of employment by the Company, nor shall it interfere in any way with
Executive’s right or the Company’s right to terminate Executive’s employment at
any time, with or without cause and with or without prior notice.

(m)   NO THIRD
PARTY BENEFICIARIES.   Nothing in this Agreement, expressed or implied,
is intended to confer on any person other than the parties and their respective
successors and permitted assigns any rights or remedies under or by reason of
this Agreement.

(n)   RESIGNATION AS OFFICER AND DIRECTOR.   Effective
as of the date of termination of employment with the Company for any reason,
Executive shall be deemed to have resigned from all offices and directorships,
if any, then held with the Company or any of its affiliates.

(o)   INTERNAL REVENUE CODE SECTION 409A.   This
Agreement shall be interpreted, construed and administered in a manner that
satisfies the requirements of Section 409A of the Internal Revenue Code of
1986, as amended (the “Code”), and the Treasury
Regulations thereunder, and any payment scheduled to be made hereunder that
would otherwise violate Section 409A of the Code shall be delayed to the extent
necessary for this Agreement and such payment to comply with Section 409A and
the Treasury Regulations thereunder.

 10

 

IN WITNESS WHEREOF, the parties hereto have executed
this Executive Severance Benefits Agreement as of the date first written above.

	
  

  	
  [GUITAR CENTER, INC.]

  
	
   

  	
  [MUSICIAN’S FRIEND, INC.]

  
	
   

  	
  [GUITAR CENTER STORES, INC.]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Authorized Signatory

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  EXECUTIVE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [Name of Executive]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address for Notice:

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