<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
GUITAR CENTER, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
GUITAR CENTER, INC.
5155 CLARETON DRIVE
AGOURA HILLS, CALIFORNIA 91301
[LOGO]
March 29, 1999
To Our Stockholders:
You are cordially invited to attend the Guitar Center, Inc. annual meeting
of stockholders which will be held on April 26, 1999, at 12:00 p.m. Pacific
time, at the Hyatt Westlake Plaza, 880 South Westlake Boulevard, Westlake
Village, California 91361. All stockholders of record as of March 29, 1999 are
entitled to vote at the meeting.
The meeting will be held to:
- elect a board of eight directors for the ensuing year or until the
election and qualification of their respective successors;
- approve an amendment to our Amended 1997 Equity Participation Plan to
increase the number of shares that may be issued under the plan from
1,375,000 shares to 2,225,000 shares; and
- transact any other business which is properly brought before the meeting
or any adjournment or postponement thereof.
We hope you will attend the meeting in person. Whether or not you expect to
attend the meeting, however, we ask that you please complete, sign, date and
return the enclosed proxy card promptly to ensure that your shares will be
represented at the meeting. If you attend the annual meeting, you may vote in
person even if you have sent in your proxy card.
Sincerely,
[/S/ LARRY THOMAS]
Larry Thomas
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
GUITAR CENTER, INC.
5155 CLARETON DRIVE
AGOURA HILLS, CALIFORNIA 91301
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 26, 1999
------------------------
To The Stockholders:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Guitar
Center, Inc. will be held at the Hyatt Westlake Plaza, 880 South Westlake
Boulevard, Westlake Village, California 91361, on Monday, April 26, 1999, at
12:00 p.m. Pacific time, for the following purposes:
- to elect a board of eight directors for the ensuing year or until the
election and qualification of their respective successors;
- to approve an amendment to our Amended 1997 Equity Participation Plan to
increase the number of shares that may be issued under the plan from
1,375,000 shares to 2,225,000 shares; and
- to transact any other business which is properly brought before the
meeting or any adjournment or postponement thereof.
Please refer to the attached proxy statement, which forms a part of this
Notice and is incorporated herein by reference, for further information with
respect to the business to be transacted at the annual meeting.
Stockholders of record at the close of business on March 29, 1999 are
entitled to notice of, and to vote at, the annual meeting or any adjournment or
postponement thereof. The list of stockholders will be available for examination
for ten days prior to the annual meeting at Guitar Center, Inc., 5155 Clareton
Drive, Agoura Hills, California 91301. All stockholders are cordially invited to
attend the annual meeting.
By Order of the Board of Directors
[/S/ BRUCE ROSS]
Bruce Ross
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND SECRETARY
Agoura Hills, California
March 29, 1999
<PAGE>
GUITAR CENTER, INC.
------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
APRIL 26, 1999
------------------------
INTRODUCTION
GENERAL
This proxy statement is furnished to our stockholders in connection with the
solicitation of proxies for use at our annual meeting of stockholders to be held
on April 26, 1999 at 12:00 p.m. Pacific time, for the purposes of:
- electing a board of eight directors for the ensuing year or until the
election and qualification of their respective successors;
- approving an amendment to our Amended 1997 Equity Participation Plan to
increase the number of shares that may be issued under the plan from
1,375,000 shares to 2,225,000 shares; and
- transacting any other business which is properly brought before the
meeting or any adjournment or postponement thereof.
A copy of our Annual Report on Form 10-K for the year ended December 31,
1998 and this proxy statement and accompanying proxy card will be first mailed
to stockholders on or about April 2, 1999.
This solicitation is made on behalf of our Board of Directors and we will
pay the costs of solicitation. Our directors, officers and employees may also
solicit proxies by telephone, telegraph, fax or personal interview. We will
reimburse banks, brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending proxy material to our
stockholders. We have retained ChaseMellon Shareholder Services, L.L.C. to
assist in the solicitation of proxies with respect to shares of our common stock
held of record by brokers, nominees and institutions. The estimated cost of the
services of ChaseMellon Shareholder Services, L.L.C. is $2,500, plus expenses.
Our principal executive offices are located at 5155 Clareton Drive, Agoura
Hills, California 91301, telephone (818) 735-8800.
SHARES ENTITLED TO VOTE AND REQUIRED VOTE
Our outstanding common stock constitutes the only class of securities
entitled to vote at the meeting. Stockholders of record of the common stock at
the close of business on March 29, 1999 are entitled to notice of, and to vote
at, the meeting. On that date, 20,111,858 shares of our common stock were
outstanding. The presence at the meeting, in person or by proxy, of a majority
of the shares of the common stock issued and outstanding on March 29, 1999, will
constitute a quorum. Each share of common stock is entitled to one vote.
VOTING PROCEDURES
A proxy card is enclosed for your use. We ask that you sign, date and return
the proxy card in the accompanying envelope, which is postage prepaid if you
mail it in the United States.
1
<PAGE>
You have choices on each of the matters to be voted upon at the meeting.
Concerning the election of the directors, by checking the appropriate box on
your proxy card you may:
- vote for the director nominees; or
- withhold authority to vote for the director nominees.
Concerning the approval of the amendment to the Amended 1997 Equity
Participation Plan, which we refer to as the "1997 Plan," you may:
- approve the amendment;
- disapprove the amendment; or
- abstain from voting for or against the amendment.
Unless there are different instructions on the proxy, all shares represented
by valid proxies (and not revoked before they are voted) will be voted at the
meeting FOR (1) the election of the director nominees listed on page 4 and (2)
the amendment of the 1997 Plan. With respect to any other business which may
properly come before the meeting and be submitted to a vote of stockholders,
proxies will be voted in accordance with the best judgment of the designated
proxy holders.
Shares represented by proxies that reflect abstentions or "broker non-votes"
(I.E., shares held by a broker or nominee which are represented at the meeting,
but with respect to which the broker or nominee is not empowered to vote on a
particular proposal) will be counted as shares that are present and entitled to
vote for purposes of determining the presence of a quorum. The director nominees
shall be elected by a plurality of the votes of the shares present or
represented by proxy at the meeting and entitled to vote on the election of a
director. Approval of the amendment to the 1997 Plan requires the affirmative
vote of a majority of the outstanding shares of common stock represented at and
entitled to vote at the meeting.
Stockholders of record may vote by either completing and returning the
enclosed proxy card prior to the meeting, voting in person at the meeting, or
submitting a signed proxy card at the meeting.
YOUR VOTE IS IMPORTANT. ACCORDINGLY, PLEASE SIGN AND RETURN THE ACCOMPANYING
PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON.
You may revoke your proxy at any time before it is actually voted at the
meeting by:
- delivering written notice of revocation to our Secretary at 5155 Clareton
Drive, Agoura Hills, California 91301;
- submitting a later dated proxy; or
- attending the meeting and voting in person.
Your attendance at the meeting will not, by itself, constitute revocation of
your proxy. You may also be represented by another person present at the meeting
by executing a form of proxy designating that person to act on your behalf.
Shares may only be voted by or on behalf of the record holder of shares as
indicated in our stock transfer records.
All votes cast at the meeting will be tabulated by the persons appointed by
us to act as inspectors of election for the meeting.
2
<PAGE>
PROPOSAL NO. 1:
ELECTION OF NOMINEES TO BOARD OF DIRECTORS
GENERAL INFORMATION
Directors are elected at each annual meeting and hold office until their
resignation or removal and until their successors are duly elected and qualified
at the next annual meeting. Our Amended and Restated Bylaws provide that our
Board of Directors shall consist of nine directors. Presently, however, there
are eight incumbent directors with one vacancy. As of the date of this proxy
statement, we have no present intention to fill this vacancy and, accordingly,
only eight persons are nominated for election. Proxies cannot be voted for more
people than those named below.
Each nominee for director has indicated his willingness to serve if elected.
Proxies received by us will be voted for the nominees. Although we do not
anticipate that any nominee will be unavailable for election, if a nominee is
unavailable for election, we will vote the proxies for any substitute nominee we
may designate.
Each nominee for election to the Board of Directors currently serves as one
of our directors and has continually served as a director since the date he
initially became a director, which is set forth below. In 1998, our Board of
Directors met 4 times and each director attended at least 75% of the meetings
held during the year. The following table sets forth information with respect to
the eight people nominated for election at the meeting.
<TABLE>
<CAPTION>
DIRECTOR
NOMINEES FOR DIRECTOR AGE POSITION SINCE
- ----------------------------------- --- -------------------------------------------------- --------
<S> <C> <C> <C>
Larry Thomas....................... 49 President, Chief Executive Officer and Director 1984
Marty Albertson.................... 45 Executive Vice President, Chief Operating Officer
and Director 1996
Steven Burge(2).................... 42 Director 1996
David Ferguson(1).................. 43 Director 1996
Harvey Kibel(2).................... 61 Director 1997
Michael Lazarus(1)................. 43 Director 1996
Peter Starrett(1).................. 51 Director 1997
Jeffrey Walker(2).................. 43 Director 1996
</TABLE>
- ------------------------
(1) member of compensation committee
(2) member of audit committee
The principal occupations and positions for the past five years, and in some
cases prior years, of the directors named above are as follows:
LARRY THOMAS has been with Guitar Center since 1977. He has served as a
director since 1984 and has been our President and Chief Executive Officer since
1992. After working as a salesperson in the San Francisco, California store, Mr.
Thomas became the store's manager. In 1980, Mr. Thomas became the San Francisco
area regional manager. In 1984, Mr. Thomas assumed the role of Corporate General
Manager and Chief Operating Officer. Mr. Thomas is currently a member of the Los
Angeles Chapter of the Young Presidents' Organization and is a former board
member of the National Association of Music Merchants.
MARTY ALBERTSON has served as Executive Vice President and our Chief
Operating Officer since 1990. Mr. Albertson was elected as a director in 1996.
Mr. Albertson joined Guitar Center as a salesperson
3
<PAGE>
in 1979 and has held various positions of increasing responsibility with Guitar
Center since that time. In 1980, he served as Advertising Director and in 1984
became National Sales Manager. Thereafter, in 1985, Mr. Albertson became Vice
President of Corporate Development, and then became the Vice President of Sales
and Marketing in 1987.
STEVEN BURGE is a Partner of Norwest Equity Partners, which was formerly
Wells Fargo Equity Capital. He became a director of Guitar Center in 1996. From
1996 to 1999, Mr. Burge was a Managing Director of Wells Fargo Small Business
Investment Company, Inc. ("Wells Fargo"). From 1987 through 1995, Mr. Burge was
a Managing General Partner of Wedbush Capital Partners, a private investment
fund, and was an executive in the Corporate Finance Department of Wedbush Morgan
Securities, a regional investment banking firm. Prior to joining Wedbush Morgan
Securities, Mr. Burge held various positions with Wells Fargo Bank, N.A.
DAVID FERGUSON is a General Partner of Chase Capital Partners, the sole
general partner of Chase Venture Capital Associates, L.P. ("Chase Ventures"). He
became a director of Guitar Center in 1996. Prior to joining Chase Capital
Partners, Mr. Ferguson was a member of the mergers and acquisitions groups of
Bankers Trust New York Corporation and Prudential Securities, Inc. Mr. Ferguson
currently serves as a director of Restoration Hardware, Inc., Wild Oats Markets,
Inc. and various privately held companies. Mr. Ferguson is a certified public
accountant.
HARVEY KIBEL is the Chief Executive Officer of Kibel Green, Inc., a
privately held management consulting company which he co-founded in 1982. He
became a director of Guitar Center in 1997. Mr. Kibel is currently on the Board
of Directors of the UCLA Medical School and various privately held companies.
MICHAEL LAZARUS is a General Partner of Weston Presidio Capital Management
II, L.P., a venture capital firm and the sole general partner of Weston Presidio
Capital II, L.P. ("Weston Presidio"). From 1986 to 1991, he served as Managing
Director and Director of the Private Placement Department of Montgomery
Securities. He became a director of Guitar Center in 1996. Mr. Lazarus is
currently on the Board of Directors of Just For Feet, Inc., Restoration
Hardware, Inc. and various privately held companies.
PETER STARRETT is President of Peter Starrett Associates, a retail advisory
firm. From 1990 to 1998, Mr. Starrett was President of Warner Bros. Studio
Stores. Prior to Warner Bros., Mr. Starrett held various executive positions
with May Department Stores and Federated Department Stores, including serving as
Chairman and CEO of Federated's Specialty Store Division. He became a director
of Guitar Center in 1997. Mr. Starrett is currently on the Board of Directors of
Petco Animal Supplies, Inc., Brylane, Inc. and various privately held companies
JEFFREY WALKER is the Managing General Partner of Chase Capital Partners,
and a senior managing director and member of the Policy Council of The Chase
Manhattan Corporation. He became a director of Guitar Center in 1996. Prior to
co-founding Chase Capital Partners in 1984, Mr. Walker worked in the Investment
Banking and Finance Divisions of Chemical Bank and the Audit and Consulting
Divisions of Arthur Young & Co. Mr. Walker is a certified public accountant and
a certified management accountant. Mr. Walker currently serves as a director of
various privately held companies and was Vice Chairman of the National
Association of Small Business Investment Companies.
DIRECTOR COMPENSATION
Each member of our Board of Directors who is not a full-time employee is
paid $3,000 for attendance at each board meeting and $1,000 for attendance at
each meeting of a committee of the Board of Directors, and all directors are
reimbursed for reasonable out-of-pocket expenses arising from
4
<PAGE>
their attendance at any meetings. The 1997 Plan provides for the grant of
options to directors who are not also our employees:
- upon being elected to the Board of Directors, each non-employee director
is granted an option to purchase 15,000 shares of our common stock; and
- upon being re-elected to the Board of Directors on the date of each annual
meeting, each non-employee director is granted an option to purchase 5,000
shares of our common stock.
Accordingly, each of Messrs. Burge, Ferguson, Kibel, Lazarus, Starrett and
Walker, if elected at the meeting, will be granted options to purchase 5,000
shares of our common stock. All options granted to non-employee directors have a
per share exercise price equal to the fair market value of a share of our common
stock on the date of the grant.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors has two standing committees, the audit committee and
the compensation committee. The audit committee has responsibility for reviewing
and making recommendations regarding our employment of independent accountants,
the annual audit of our financial statements, and our internal controls,
accounting practices and policies. The members of the audit committee are
Messrs. Burge, Kibel and Walker. In 1998, the audit committee met 4 times and
each member of the audit committee attended at least 75% of those meetings. The
compensation committee has responsibility for determining the nature and amount
of compensation for our management and for administering our employee benefit
plans (including the 1997 Plan). The members of the compensation committee are
Messrs. Ferguson, Lazarus and Starrett. In 1998, the compensation committee met
4 times and each member of the compensation committee attended at least 75% of
those meetings.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our Restated Certificate of Incorporation provides that a director will not
be personally liable to us or our stockholders for monetary damages for any
breach of his fiduciary duty as a director, except in certain cases where
liability is mandated by the Delaware General Corporation Law. The provision has
no effect on any non-monetary remedies that may be available to us or our
stockholders, nor does it relieve us or our directors from compliance with
federal or state securities laws. Our Amended and Restated Bylaws generally
provide that we shall indemnify, to the fullest extent permitted by law, any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, investigation, administrative
hearing or any other proceeding by reason of the fact that he is or was a
director or officer, or is or was serving at our request as a director, officer,
employee or agent of another entity, against expenses (including attorneys'
fees) and losses, claims, liabilities, judgments, fines and amounts paid in
settlement actually incurred by him in connection with the proceeding. We have
entered into agreements to provide indemnification for our directors and some of
our officers in addition to the indemnification provided for in the Amended and
Restated Bylaws. These agreements, among other things, will indemnify our
directors and officers for some of the expenses (including attorney's fees), and
all losses, claims, liabilities, judgments, fines and settlement amounts
incurred by the specific officer or director arising out of or in connection
with his service as one of our directors or officers to the fullest extent
permitted by applicable law.
COMPLIANCE WITH SECTION 16(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires that our executive officers and
directors, and persons who own more than ten percent of a registered class of
our equity securities, file reports of ownership and changes in ownership (Forms
3, 4 and 5) with the Securities and Exchange Commission. Executive officers,
directors and greater-than-ten-percent holders are required to furnish us with
copies of all of these forms which they file.
5
<PAGE>
Based solely on our review of these reports or written representations from
certain reporting persons, we believe that during the fiscal year ended December
31, 1998, all filing requirements applicable to our officers, directors,
greater-than-ten-percent beneficial owners and other persons subject to Section
16(a) of the Exchange Act were complied with, except in the following instances:
(1) Mr. Ross filed a Form 4 covering two transactions one month after the form
was required to be filed and (2) Mr. Thomas filed a Form 4 covering one
transaction two months after the form was required to be filed and a Form 4
covering two transactions one month after the form was required to be filed.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR THE DIRECTORS
NOMINATED IN PROPOSAL NO. 1.
6
<PAGE>
PROPOSAL NO. 2:
APPROVAL OF THE AMENDMENT TO THE
AMENDED 1997 EQUITY PARTICIPATION PLAN
Our 1997 Plan was originally adopted by the Board of Directors and approved
by the stockholders in January 1997. The 1997 Plan was subsequently amended by
the Board of Directors in February 1998 and approved by the stockholders in
April 1998. In March 1999 the Board of Directors approved another amendment to
the 1997 Plan to increase the number of shares of common stock that may be
issued or sold under the 1997 Plan from 1,375,000 shares to 2,225,000 shares.
Under the terms of the 1997 Plan, in order for the Board of Directors' amendment
to be effective, it must be approved by our stockholders.
- WHY DOES THE 1997 PLAN NEED TO BE AMENDED?
We believe that, in order to continue to provide an incentive to secure and
retain directors, officers, key employees and consultants of outstanding ability
and to provide added incentives to those directors, officers, employees and
consultants responsible for our development and financial success, additional
shares should be made available under the 1997 Plan. At March 29, 1999, a total
of only 283,560 shares were available for future grants. In order to continue
our goal of using stock incentives to secure and retain key employees of
outstanding ability, the Board of Directors has approved an amendment of the
1997 Plan that would increase by 850,000 the number of shares of common stock
approved for issuance under the 1997 Plan from 1,375,000 to 2,225,000.
- WHAT TYPES OF AWARDS ARE GRANTED?
Our officers, employees and consultants are granted options, restricted
stock, stock appreciation rights, dividend equivalent performance awards and
deferred stock awards, all of which we refer to as "awards." In addition to
awards made to officers, employees or consultants, the 1997 Plan permits the
granting of options to our non-employee directors, which we refer to as
"director options."
- WHO DETERMINES WHO RECEIVES THE AWARDS AND THE TERMS OF THE AWARDS?
The compensation committee administers the 1997 Plan with respect to grants
to our employees or consultants and the full Board of Directors administers the
1997 Plan with respect to non-employee directors. Subject to the terms of the
1997 Plan, the Board of Directors or compensation committee has the authority to
select the persons to whom awards are to be made, to determine the number of
shares granted and the terms and conditions the award, and to make all other
determinations with respect to the administration of the 1997 Plan. Similarly,
the Board of Directors has discretion to determine the terms and conditions of
director options and to interpret and administer the 1997 Plan with respect to
director options. The compensation committee and the Board of Directors is also
authorized to adopt, amend and rescind rules relating to the administration of
the 1997 Plan.
- WHO IS ON THE COMPENSATION COMMITTEE?
The compensation committee consists of at least two members of the Board of
Directors, each of whom is a "non-employee director" for purposes of Rule 16b-3
under the Exchange Act and an "outside director" for the purposes of Section
162(m) of the Internal Revenue Code.
- WHAT TYPES OF AWARDS MAY BE GRANTED?
The 1997 Plan provides that the compensation committee may grant or issue
stock options, stock appreciation rights, restricted stock, deferred stock,
dividend equivalents, performance awards, stock
7
<PAGE>
payments and other stock related benefits, or any combination thereof. Each
award is set forth in a separate agreement with the person receiving the award
and will indicate the type, terms and conditions of the award as determined by
the compensation committee.
- WHO IS ELIGIBLE TO RECEIVE THE AWARDS?
Our employees and consultants may be awarded options, stock appreciation
rights, restricted stock and other awards and our non-employee directors may be
granted nonqualified stock options.
- HOW MANY SHARES CAN SOMEONE RECEIVE IN ONE YEAR?
The maximum number of shares which may be subject to options or stock
appreciation rights granted under the 1997 Plan to any individual in any
calendar year cannot exceed 150,000.
- WHAT DOES A GRANTEE HAVE TO AGREE TO IN ORDER TO RECEIVE AN AWARD?
Generally, in addition to the payment of any purchase price as consideration
for the issuance of an award, the grantee must agree to remain employed by us or
continue to consult for us for at least one year after the award is issued. In
addition, awards are exercisable or payable only while the grantee is an
employee or consultant of Guitar Center. However, under certain conditions, the
compensation committee may determine that any award may be exercisable or paid
after the termination of someone's employment.
- HOW IS THE 1997 PLAN AMENDED?
The 1997 Plan may be amended, suspended or terminated at any time by the
Board of Directors or the compensation committee. However, the maximum number of
shares that may be sold or issued under the 1997 Plan may not be increased
without approval of our stockholders.
- DOES THE 1997 PLAN CONFORM TO FEDERAL SECURITIES LAWS?
The 1997 Plan is intended to conform to the extent necessary with all
provisions of the Securities Act and the Exchange Act and any and all
regulations and rules promulgated by the Securities and Exchange Commission
under those acts, including Rule 16b-3. The 1997 Plan will be administered, and
options will be granted and may be exercised, only in a manner which conforms to
these laws, rules and regulations. To the extent permitted by applicable law,
the 1997 Plan and options granted under the 1997 Plan shall be deemed amended to
the extent necessary to conform to these laws, rules and regulations.
- WHAT ARE THE FEDERAL TAX CONSEQUENCES OF THE AWARDS?
Under current federal laws, in general, recipients of awards and grants of
nonqualified stock options, stock appreciation rights, restricted stock,
deferred stock, dividend equivalents, performance awards and stock payments
under the 1997 Plan are taxable under Section 83 of the Internal Revenue Code
upon their receipt of common stock or cash with respect to the awards or grants.
Subject to Section 162(m), we will be entitled to an income tax deduction with
respect to the amounts taxable to these recipients.
Under Sections 421 and 422 of the Internal Revenue Code, recipients of
incentive stock options are generally not taxable on their receipt of common
stock upon their exercises of incentive stock options if the incentive stock
options and option stock are held for minimum holding periods. We are not
entitled to income tax deductions with respect to these exercises.
8
<PAGE>
- WHERE CAN I FIND A COPY OF THE ENTIRE 1997 PLAN?
The summary we have included about the 1997 Plan is qualified in its
entirety by reference to the 1997 Plan, which is filed as an exhibit to our
Annual Report on Form 10-K for the year ended December 31, 1998 and is
incorporated into this proxy statement by reference.
- WHAT VOTE IS REQUIRED TO APPROVE THE AMENDMENT TO THE 1997 PLAN?
Approval of this proposal requires the affirmative vote of the holders of a
majority of the our outstanding shares of common stock represented at and
entitled to vote at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE 1997 EQUITY PARTICIPATION PLAN
AS SET FORTH IN PROPOSAL NO. 2.
9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information in the following table sets forth the ownership of our
common stock, as of March 29, 1999, by (i) each person who, to our knowledge,
beneficially owns more than 5% of the outstanding shares of our common stock;
(ii) each named executive officer (as listed on page 14); (iii) each of our
directors; and (iv) all of our directors and executive officers, as a group. As
of March 29, 1999, we had 20,111,858 shares of common stock outstanding.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(1) OWNERSHIP(1)
- ---------------------------------------------------------------------- --------------------- ------------
<S> <C> <C>
Chase Venture Capital Associates, L.P.(2)............................. 4,594,164 22.8%
380 Madison Avenue, 12th Floor
New York, NY 10017
Putnam Investments, Inc.(3)........................................... 2,909,149 14.5
One Post Office Square
Boston, Massachusetts 02109
The TCW Group, Inc.(4)................................................ 2,030,639 10.1
865 South Figueroa Street
Los Angeles, California 90017
Larry Thomas(5)....................................................... 1,520,169 7.6
Marty Albertson(6).................................................... 1,175,622 5.8
Provident Investment Counsel, Inc.(7)................................. 944,677 4.7
300 North Lake Avenue
Pasadena, California 91101
Barry Soosman(8)...................................................... 140,892 *
Bruce Ross(9)......................................................... 72,716 *
David Ferguson(10).................................................... 31,667 *
Peter Starrett(11).................................................... 12,346 *
Harvey Kibel(12)...................................................... 5,000 *
Steven Burge(13)...................................................... 1,667 *
Michael Lazarus(14)................................................... 1,667 *
Jeffrey Walker(15).................................................... 1,667 *
All Named Executive Officers and Directors as a group (10 persons).... 2,963,413 14.7
</TABLE>
- ------------------------
* Represents less than 1% of the issued and outstanding shares.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock subject
to options and warrants which are currently exercisable, or will become
exercisable within 60 days of March 29, 1999, are deemed outstanding for
computing the percentage of the person or entity holding such securities but
are not outstanding for computing the percentage of any other person or
entity. Except as indicated by footnote, and subject to the community
property laws where applicable, to our knowledge the persons named in the
table above have sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by them. Unless otherwise
indicated, the address for each person is our address at 5155 Clareton
Drive, Agoura Hills, California 91362.
10
<PAGE>
(2) Based solely on a filing on Schedule 13G, dated February 10, 1999, in which
Chase Ventures reported sole voting and dispositive power with respect to
such shares of common stock. Includes shares subject to investor options (as
described herein) granted by Chase Ventures to certain members of management
for the purchase of 205,011 shares of common stock. Also includes 5,000
shares of common stock issuable upon the exercise of options granted to Mr.
Ferguson under the 1997 Plan for the benefit of Chase Ventures 3,333 of
which are not currently exercisable and will not be exercisable within 60
days of March 29, 1999.
(3) Based solely on a filing on Schedule 13G, dated September 18, 1998, in which
Putnam Investments, Inc., on behalf of itself and Putnam Investment
Management, Inc., The Putnam Advisory Company, Inc., Putnam OTC & Emerging
Growth Fund and Marsh & McLennan Companies, Inc., disclosed beneficial
ownership of such shares.
(4) Based solely on a filing on Schedule 13G, dated February 28, 1999, in which
The TCW Group, Inc., on behalf of itself and Robert Day, Trust Company of
the West, TCW Asset Management Company and TCW Funds Management, Inc.,
disclosed beneficial ownership of such shares.
(5) Represents: (1) 1,012,462 shares of common stock held by a trust for the
benefit of Mr. Thomas and his spouse for which Mr. Thomas and his spouse
serve as co-trustees; (2) 109,722 shares of common stock issuable upon the
exercise of an investor option granted to Mr. Thomas by the investors (as
described herein); and (3) 397,985 shares of common stock issuable upon the
exercise of a management stock option (as described herein). Excludes 27,632
shares of common stock held by a charitable foundation for which Mr. Thomas
and his spouse serve as its sole directors and have the power to vote such
shares. Mr. Thomas disclaims beneficial ownership of such shares.
(6) Represents: (1) 461,717 shares of common stock held by a trust for the
benefit of Mr. Albertson and his spouse for which Mr. Albertson and his
spouse serve as co-trustees; (2) 100,000 shares of common stock held by a
limited partnership of which Mr. Albertson is the general partner; (3)
52,602 shares of common stock held in trust for the benefit of Mr. Albertson
and one of his children for which Mr. Albertson serves as trustee; (4)
52,602 shares of common stock held in trust for the benefit of Mr.
Albertson's spouse and one of his children for which Mr. Albertson serves as
trustee; (5) 497 shares held by Mr. Albertson; (6) 497 shares held by Mr.
Albertson's spouse; (7) 109,722 shares of common stock issuable upon the
exercise of an investor option granted to Mr. Albertson by the investors;
and (8) 397,985 shares of common stock issuable upon the exercise of a
management stock option.
(7) Based solely on a filing on Schedule 13G, dated January 10, 1999, in which
Provident Investment Counsel, Inc. disclosed sole dispositive power over
such shares and sole voting power over 832,297 of such shares.
(8) Represents: (1) 30,910 shares of common stock held by the Soosman Family
Trust with respect to which Mr. Soosman and his spouse serve as co-trustees
and share voting and investment control; (2) 3,850 shares of common stock
issuable upon the exercise of an investor option granted to Mr. Soosman by
the investors; and (3) 106,132 shares of common stock issuable upon the
exercise of options granted to Mr. Soosman under the 1996 Performance Stock
Option Plan, as amended, which we refer to as the "1996 Plan." Excludes
53,066 shares of common stock issuable upon the exercise of options granted
to Mr. Soosman under the 1996 Plan which are not currently exercisable and
will not be exercisable within 60 days of March 29, 1999.
(9) Represents (1) 3,850 shares of common stock issuable upon the exercise of an
investor option granted to Mr. Ross by the investors; and (2) 68,866 shares
of common stock issuable upon the exercise of options granted to Mr. Ross
under the 1996 Plan. Excludes 66,332 shares of common
11
<PAGE>
stock issuable upon the exercise of options granted to Mr. Ross under the
1996 Plan which are not currently exercisable and will not be exercisable
within 60 days of March 29, 1999.
(10) Represents: (1) 30,000 shares of common stock owned directly by Mr.
Ferguson; and (2) 1,667 shares of common stock issuable upon the exercise of
options granted to Mr. Ferguson under the 1997 Plan. Excludes 3,333 shares
of common stock issuable upon the exercise of options granted to Mr.
Ferguson under the 1997 Plan which are not currently exercisable and will
not be exercisable within 60 days of March 29, 1999. In addition, Mr.
Ferguson is a General Partner of Chase Capital Partners, a New York general
partnership, and the sole general partner of Chase Ventures. Mr. Ferguson
disclaims beneficial ownership of the shares owned by Chase Ventures, except
to the extent of his pecuniary interest therein.
(11) Represents (1) 7,346 shares of common stock owned directly by Mr. Starrett;
and (2) 5,000 shares of common stock issuable upon the exercise of options
granted to Mr. Starrett under the 1997 Plan. Excludes 10,000 shares of
common stock issuable upon the exercise of options granted to Mr. Starrett
under the 1997 Plan which are not currently exercisable and will not be
exercisable within 60 days of March 29, 1999.
(12) Represents shares of common stock issuable upon the exercise of options
granted to Mr. Kibel under the 1997 Plan. Excludes 10,000 shares of common
stock issuable upon the exercise of options granted to Mr. Kibel under the
1997 Plan which are not currently exercisable and will not be exercisable
within 60 days of March 29, 1999.
(13) Represents 1,667 shares of common stock issuable upon the exercise of
options granted to Mr. Burge under the 1997 Plan. Excludes 3,333 shares of
common stock issuable upon the exercise of options granted to Mr. Burge
under the 1997 Plan which are not currently exercisable and will not be
exercisable within 60 days of March 29, 1999. In addition, Mr. Burge may be
deemed to share voting or investment control over the 918,200 shares of
common stock owned by Wells Fargo (39,111 shares of which are subject to the
investor options). Mr. Burge disclaims beneficial ownership of the shares
held by Wells Fargo, except to the extent of his pecuniary interest therein.
(14) Represents 1,667 shares of common stock issuable upon the exercise of
options granted to Mr. Lazarus under the 1997 Plan. Excludes 3,333 shares of
common stock issuable upon the exercise of options granted to Mr. Lazarus
under the 1997 Plan which are not currently exercisable and will not be
exercisable within 60 days of March 29, 1999. In addition, as a General
Partner of Weston Presidio Management II, L.P., the sole general partner of
Weston Presidio, he may be deemed to share voting and investment control
over the 688,650 shares of common stock held by Weston Presidio (29,272
shares of which are subject to the investor options). Mr. Lazarus disclaims
beneficial ownership of the shares held by Weston Presidio, except to the
extent of his pecuniary interest therein.
(15) Represents 1,667 shares of common stock issuable upon the exercise of
options granted to Mr. Walker under the 1997 Plan. Excludes 3,333 shares of
common stock issuable upon the exercise of options granted to Mr. Walker
under the 1997 Plan which are not currently exercisable and will not be
exercisable within 60 days of March 29, 1999. Mr. Walker is the Managing
General Partner of Chase Capital Partners, a New York general partnership,
and the sole general partner of Chase Ventures. Mr. Walker disclaims
beneficial ownership of the shares owned by Chase Ventures, except to the
extent of his pecuniary interest therein.
12
<PAGE>
CERTAIN INFORMATION WITH RESPECT TO EXECUTIVE OFFICERS
Set forth below is information regarding each of our executive officers as
of December 31, 1998. Further information with regard to Messrs. Thomas and
Albertson is presented under "Proposal No. 1: Election of Nominees to Board of
Directors."
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Larry Thomas....................... 49 President and Chief Executive Officer
Marty Albertson.................... 45 Executive Vice President and Chief Operating Officer
Bruce Ross......................... 50 Executive Vice President, Chief Financial Officer and
Secretary
Barry Soosman...................... 38 Executive Vice President of Corporate Development and
General Counsel
</TABLE>
The principal occupations and positions for the past five years, and in some
cases prior years, of the executive officers named above, other than Messrs.
Thomas and Albertson, as are as follows:
BRUCE ROSS joined Guitar Center in July 1994 as Chief Financial Officer. In
February 1998, Mr. Ross was promoted to Executive Vice President. Prior to
joining Guitar Center, Mr. Ross was Chief Financial Officer of Fred Hayman
Beverly Hills, Inc., a retailer of high end fashion clothing on Rodeo Drive in
California and a wholesaler of men's and women's fragrances. From 1982 to 1990,
Mr. Ross was employed by Hanimex Vivitar Corporation, a worldwide manufacturer
and distributor of photographic products. Mr. Ross served in various capacities
with Hanimex Vivitar in Australia, the United States and Europe. While working
for Hanimex Vivitar in the United States, Mr. Ross was promoted to the position
of Chief Financial Officer in 1986 and Chief Executive Officer for North America
in 1988.
BARRY SOOSMAN joined Guitar Center in July 1996 as Vice President of
Corporate Development and General Counsel. In January 1999, Mr. Soosman was
promoted to Executive Vice President. Mr. Soosman had been a practicing attorney
for twelve years specializing in real estate, commercial and corporate law.
Since 1992 and prior to joining Guitar Center, Mr. Soosman had been our outside
general counsel. In June 1996 Mr. Soosman became of counsel to the law firm of
Buchalter, Nemer, Fields & Younger, a Professional Corporation. Mr. Soosman is a
former Adjunct Professor at Southwestern School of Law.
EXECUTIVE COMPENSATION
The following table provides for the periods shown summary information
concerning compensation paid or accrued by us to or on behalf of our Chief
Executive Officer and each of our three highest paid executive officers
(collectively referred to as the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ($) -----------------
----------------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION ($)(1) OPTIONS/SAR #(2) COMPENSATION ($)(3)
- -------------------------------- --------- --------- --------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Larry Thomas ................... 1998 $ 500,000 $ 425,854 -- -- $ 12,000
President and Chief Executive 1997 500,000 500,000 $ 18,917,192(4) -- 11,250
Officer 1996 500,000 -- 10,660,728(5) 397,985 11,250
Marty Albertson ................ 1998 $ 375,000 $ 319,416 -- -- $ 12,000
Executive Vice President and 1997 375,000 375,000 $ 12,611,441(4) -- 11,250
Chief Operating Officer 1996 375,000 -- 7,107,146(5) 397,985 11,250
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ($) -----------------
----------------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION ($)(1) OPTIONS/SAR #(2) COMPENSATION ($)(3)
- -------------------------------- --------- --------- --------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Bruce Ross ..................... 1998 $ 225,000 $ 70,710 -- -- $ 12,000
Executive Vice President and 1997 214,000 225,000 -- -- 11,250
Chief Financial Officer 1996 195,000 58,500 -- 159,198 11,250
Barry Soosman .................. 1998 $ 225,000 $ 104,020 -- -- $ 12,000
Executive Vice President of 1997 225,000 112,500 -- -- --
Corporate Development and 1996 112,500 10,000 -- 159,198 --
General Counsel
</TABLE>
(1) Excludes perquisites and other personal benefits, securities or property
aggregating less than $50,000 or 10% of the total annual salary and bonus
reported for each named executive officer.
(2) The securities underlying the options are shares of common stock.
(3) All other compensation consists of contributions made by us to our profit
sharing plan on behalf of each named executive officer.
(4) Other annual income consists of non-cash compensation that is considered to
have been earned by such named executive officer for federal and state
income tax purposes upon the termination of the trading and other
restrictions associated with the junior preferred stock, $.01 par value,
held by the named executive officer at the time the shares of junior
preferred stock were converted into common stock in connection with our
initial public offering.
(5) Other annual compensation consists of cash compensation received by the
named executive officer in connection with our recapitalization in 1996 and
related transactions. Excludes restricted shares of junior preferred stock
received by the named executive officer upon the cancellation of employee
stock options in connection with the recapitalization that were converted
into common stock in connection with our initial public offering.
During the periods indicated above, none of the named executive officers
received any awards under any long-term incentive plan, and we do not have a
pension plan.
EMPLOYMENT AGREEMENTS
On June 5, 1996, we entered into a five-year employment agreement with each
of Larry Thomas and Marty Albertson, a three-year employment agreement with
Bruce Ross and a three and one-half year employment agreement with Barry
Soosman. On July 1, 1998, we extended the term of the employment agreement with
each of Mr. Ross and Mr. Soosman to June 5, 2001. The employment agreements
provide Messrs. Thomas, Albertson, Ross and Soosman with base salaries of
$500,000, $375,000, $225,000 and $225,000, respectively. Each of these executive
officers is entitled to participate in all insurance and benefit plans generally
available to executives of Guitar Center. In addition to their base salary,
Messrs. Thomas and Albertson will be paid an annual bonus equal to 57.14% and
42.86%, respectively, of a bonus pool determined at the end of each year, not to
exceed $900,000. The amount of the bonus pool with respect to any fiscal year
will be a percentage ranging from 10% to 30% of the excess of our actual
earnings before interest expense, tax expense, depreciation expense and
amortization expense, or EBITDA, over our target EBITDA (as determined by the
Board of Directors). Messrs. Ross and Soosman will receive annual bonuses at the
discretion of the Board of Directors. Pursuant to their employment agreements,
each of Messrs. Ross and Soosman were granted options under our 1996 Plan to
purchase 79,599 shares of common stock at an exercise price of $10.89 per share.
Such options vest ratably over a three-year period. We have also granted each of
Messrs. Ross and Soosman options under our 1996 Plan to purchase an additional
79,599 shares of common stock at an exercise price of $10.89 per share. Mr.
Ross' options vest ratably on July 1, 1998, December 31, 1998, December 31, 1999
and December 31, 2000. Mr. Soosman's options vest ratably on
14
<PAGE>
July 31, 1998, December 31, 1998 and December 31, 1999. The vesting of Mr. Ross'
and Mr. Soosman's options may be accelerated upon death, the sale of Guitar
Center and other major events.
Under the terms of each employment agreement, if an executive officer is
terminated without cause or resigns with reasonable justification, the executive
officer will be entitled to receive his base salary, annual cash bonus (equal to
the last annual bonus he received prior to termination) and continuation of his
benefits through the term of the agreement. With certain exceptions, if an
executive officer is terminated without cause, all stock options held by the
executive officer will immediately vest. If an executive officer's employment is
terminated for any other reason, he will be entitled only to his accrued base
salary through the date of termination.
MANAGEMENT STOCK OPTION AGREEMENTS
In June 1996, we granted options which we refer to as "management options"
to each of Messrs. Thomas and Albertson to purchase 397,985 shares of common
stock at an exercise price of $10.89 per share pursuant to stock option
agreements. Unless terminated or accelerated, each management option was to vest
in three equal installments in 2003, 2004 and 2005 and will terminate upon the
first to occur of:
- June 5, 2005;
- the consummation of a sale of Guitar Center, as more fully described in
the management option agreement; or
- the termination, either voluntarily or for cause, of the employment of the
respective executive officer.
The vesting of each management option was subject to acceleration upon the
attainment of certain performance targets. Each management option became
exercisable in full in 1997 as a result of the performance targets being
satisfied.
OTHER OPTION ARRANGEMENTS
Chase Ventures, Wells Fargo and Weston Presidio granted some members of
management options to purchase an aggregate of 273,344 shares of common stock at
a purchase price of $4.33 per share. Each grant of one of these options, which
we refer to as "investor options," is deemed to be granted by each investor to
the members of management in the same ratio as granted by each investor (I.E.,
75.00% by Chase Ventures, 14.29% by Wells Fargo and 10.71% by Weston Presidio).
Included in the investor options are options to purchase 109,722 shares of
common stock that were granted to each of Messrs. Thomas and Albertson and 3,850
shares of common stock that were granted to each of Messrs. Ross and Soosman.
The investor options were granted in December 1996, are presently exercisable
and will expire on December 30, 2001. We are not a party to this agreement and
have not, and will not, incur any obligation in connection with these options.
AMENDED 1997 EQUITY PARTICIPATION PLAN
Our 1997 Plan is described under "Proposal No. 2: Approval of the Amendment
to the Amended 1997 Equity Participation Plan."
OPTION GRANTS IN 1998; AGGREGATE OPTION EXERCISES IN 1998; 1998 YEAR-END OPTION
VALUES
In 1998, we granted options to purchase 778,782 shares of common stock under
the 1997 Plan. No options were granted to any of the named executive officers in
1998.
15
<PAGE>
The following table sets forth, on an aggregated basis, information
regarding securities underlying unexercised options during the year ended
December 31, 1998 by the named executive officers:
<TABLE>
<CAPTION>
OPTION VALUES AT DECEMBER 31, 1998
-------------------------------------------------------
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
VALUE FISCAL YEAR-END (1)(#) FISCAL YEAR-END ($)
SHARES ACQUIRED REALIZED -------------------------- ---------------------------
NAME AT EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- --------------- ------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Larry Thomas........... 397,985 -- $ 5,466,323 --
Marty Albertson........ 397,985 -- 5,466,323 --
Bruce Ross............. 24,000 $ 282,166 68,866 66,332 971,131 $ 911,070
Barry Soosman.......... 106,132 53,066 1,482,979 728,861
</TABLE>
- ------------------------
(1) The securities underlying the options are shares of common stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, the compensation committee consisted of Messrs.
Ferguson, Lazarus and Starrett, none of whom (1) is a present or former officer
or employee of Guitar Center, or (2) is engaged in any transactions described
under the heading "Certain Transactions."
CERTAIN TRANSACTIONS
TRANSACTIONS WITH AN AFFILIATE OF NORWEST EQUITY PARTNERS
Wells Fargo Bank, N.A., an affiliate of Norwest Equity Partners, acts as a
lender under our existing credit facility and provides banking related services
for which it receives customary fees.
16
<PAGE>
COMPENSATION COMMITTEE REPORT
During 1998, the compensation committee of the Board of Directors was
comprised of Mr. Ferguson, Mr. Lazarus and Mr. Starrett, three non-employee
directors, who administered our executive compensation programs and policies.
Our executive compensation programs are designed to attract, motivate and retain
the executive talent needed to optimize shareholder value in a competitive
environment. The programs are intended to support the goal of increasing
shareholder value while facilitating our business strategies and long-range
plans.
The following is the compensation committee's report submitted to the Board
of Directors addressing the compensation of our executive officers for fiscal
1998.
COMPENSATION POLICY AND PHILOSOPHY
Our executive compensation policy is:
- designed to establish an appropriate relationship between executive pay
and our annual performance, its long term growth objectives and its
ability to attract and retain qualified executive officers; and
- based on the belief that the interests of the executives should be closely
aligned with our stockholders.
The compensation committee attempts to achieve these goals by integrating
competitive annual base salaries with:
- annual incentive bonuses based on corporate performance and on the
achievement of specified performance objectives set forth in our financial
plan for the respective fiscal year; and
- stock options through various plans.
In support of this philosophy, a meaningful portion of each executive's
compensation is placed at-risk and linked to the accomplishment of specific
results that are expected to lead to the creation of value for our stockholders
from both the short-term and long-term perspectives. The compensation committee
believes that cash compensation in the form of salary and performance-based
incentive bonuses provides our executives with short term rewards for success in
operations, and that long term compensation through the award of stock options
encourages growth in management stock ownership which leads to expansion of
management's stake in our long term performance and success. The compensation
committee considers all elements of compensation and the compensation policy
when determining individual components of pay.
The Board of Directors believes that leadership and motivation of our
employees are critical to achieving the objective of becoming a leader in
musical products retailing in the United States. The compensation committee is
responsible to the Board of Directors for ensuring that its executive officers
are highly qualified and that they are compensated in a way that furthers our
business strategies and which aligns their interests with those of our
stockholders. To support this philosophy, the following principles provide a
framework for executive compensation:
- offer compensation opportunities that attract the best talent;
- motivate individuals to perform at their highest levels;
- reward outstanding achievement;
- retain those with leadership abilities and skills necessary for building
long-term shareholder value;
17
<PAGE>
- maintain a significant portion of executives' total compensation at risk,
tied to both our annual and long-term financial performance and the
creation of incremental shareholder value; and
- encourage executives to manage from the perspective of owners with an
equity stake in Guitar Center.
EXECUTIVE COMPENSATION COMPONENTS
As discussed below, our executive compensation package is primarily
comprised of three components: base salary, annual incentive bonuses and stock
options.
BASE SALARY. In 1998, all four named executive officers were employed under
contracts established in 1996, subject, in one instance, to an adjustment in
base compensation approved in 1997 and also subject, in two instances, to an
extension in the term of the agreements approved in 1998.
ANNUAL INCENTIVE BONUSES. For fiscal 1998, annual incentive bonuses for the
Chief Executive Officer and Chief Operating Officer were based upon their
employment contracts signed in 1996. The employment contracts state that annual
bonuses will be paid out of a bonus pool not to exceed $900,000. The amount of
the bonus pool with respect to any fiscal year will be a percentage ranging from
10% to 30% of the excess of our actual EBITDA over our target EBITDA (as
determined by the Board of Directors). Bonuses for the other named executive
officers are determined at the discretion of the committee and include the
following components: (1) our targeted net income and earnings per share
estimates for fiscal 1998, and (2) individual merit. Target awards for each
executive officer were set in relation to base salary. On average, executive
officers' actual bonuses were 69.4% of each executive's base salary for fiscal
year 1998. See "Summary Compensation Table."
LONG TERM INCENTIVE COMPENSATION. No stock options were granted to the
Chief Executive Officer or the other named executive officers in 1998.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The compensation committee believes that Larry Thomas, our Chief Executive
Officer, provides valuable services and that his compensation should therefore
be competitive with that paid to executives at comparable companies. In
addition, the compensation committee believes that an important portion of his
compensation should be based on our performance. Mr. Thomas' annual base salary
for fiscal 1998 was $500,000. Mr. Thomas' base salary was determined by his
employment agreement, which expires June 5, 2002. The annual incentive bonus
paid to Mr. Thomas for fiscal 1998, which was $425,854, was paid for his
performance and role in effectuating our achievement of certain targeted
earnings and growth estimates during fiscal 1998.
INTERNAL REVENUE CODE SECTION 162(m)
Under Section 162(m) of the Internal Revenue Code, the amount of
compensation paid to certain executives that is deductible with respect to our
corporate taxes is limited to $1,000,000 annually. It is the current policy of
the compensation committee to maximize, to the extent reasonably possible, our
ability to obtain a corporate tax deduction for compensation paid to our
executive officers to the extent consistent with the best interests of Guitar
Center and our shareholders.
COMPENSATION COMMITTEE
David Ferguson
Michael Lazarus
Peter Starrett
THE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION SHALL NOT BE
DEEMED INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY
REFERENCE THIS PROXY STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OR THE
EXCHANGE ACT, AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER THESE ACTS.
18
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares our cumulative total stockholder return on the
common stock (no dividends have been paid thereon) with the cumulative total
return of (1) the S&P 500 Index and (2) the S&P Retail (Specialty) Index, for
1997 and 1998.
The historical stock market performance of the common stock shown below is
not necessarily indicative of future stock performance.
COMPARISON OF 21 MONTH CUMULATIVE TOTAL RETURN*
AMONG GUITAR CENTER, INC., THE S&P 500 INDEX
AND THE S&P RETAIL (SPECIALTY) INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GUITAR CENTER, INC. S & P 500 S & P RETAIL (SPECIALTY)
<S> <C> <C> <C>
3/14/97 $100 $100 $100
3/97 $107 $96 $103
6/97 $113 $113 $118
9/97 $165 $121 $121
12/97 $153 $125 $110
3/98 $158 $142 $116
6/98 $201 $147 $106
9/98 $125 $132 $71
12/98 $164 $160 $94
</TABLE>
* Assumes a $100 investment on March 14, 1997 in Guitar Center stock or on
February 28, 1997 in Index stocks, including reinvestment of dividends.
THE STOCK PERFORMANCE GRAPH ABOVE SHALL NOT BE DEEMED INCORPORATED BY
REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY
STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OR THE EXCHANGE ACT, EXCEPT
TO THE EXTENT WE SPECIFICALLY INCORPORATE THIS INFORMATION BY REFERENCE, AND
SHALL NOT OTHERWISE BE DEEMED FILED UNDER THESE ACTS.
19
<PAGE>
OTHER INFORMATION
OTHER MATTERS AT THE MEETING
We do not know of any matters to be presented at the annual meeting other
than those mentioned in this proxy statement. If any other matters are properly
brought before the annual meeting, it is intended that the proxies will be voted
in accordance with the best judgment of the person or persons voting the
proxies.
INDEPENDENT PUBLIC ACCOUNTANTS
Our auditors for the fiscal year ended December 31, 1998 were KPMG Peat
Marwick, LLP. A representative of KPMG Peat Marwick, LLP will be present at the
meeting, will have an opportunity to make a statement if he so desires and is
expected to be available to respond to appropriate questions.
ANNUAL REPORT ON FORM 10-K; AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission an Annual Report
on Form 10-K. Each stockholder receiving this proxy statement has also been
provided with a copy of our Annual Report on Form 10-K, without exhibits. We
will provide without charge a copy of the 1997 Plan upon written request to our
Secretary at Guitar Center, Inc., 5155 Clareton Drive, Agoura Hills, California
91301. Copies of other exhibits to our Annual Report on Form 10-K are available
from us upon reimbursement of our reasonable costs in providing these documents.
Our filings with the Securities and Exchange Commission may be inspected at the
offices of the Securities and Exchange Commission located in Washington, D.C.,
New York, New York and Chicago, Illinois. Documents filed electronically with
the Securities and Exchange Commission may also be accessed through the website
maintained by it at: www.sec.gov.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Any stockholder who meets the requirements of the proxy rules under the
Exchange Act may submit to the Board of Directors proposals to be considered for
submission to the stockholders at the annual meeting in 2000. Your proposal must
comply with the requirements of Rule 14a-8 under the Exchange Act and be
submitted in writing by notice delivered or mailed by first-class United States
mail, postage prepaid, to our Secretary at Guitar Center, Inc., 5155 Clareton
Drive, Agoura Hills, California 91301 and must be received no later than
December 1, 1999. Your notice must include:
- your name and address and the text of the proposal to be introduced;
- the number of shares of stock you hold of record, beneficially own and
represent by proxy as of the date of your notice; and
- a representation that you intend to appear in person or by proxy at the
meeting to introduce the proposal specified in your notice.
The chairman of the meeting may refuse to acknowledge the introduction of
your proposal if it is not made in compliance with the foregoing procedures or
the applicable provisions of our Amended and Restated Bylaws. Our Amended and
Restated Bylaws provide for notice procedures to recommend a person for
nomination as a director or to propose business to be considered by stockholders
at a meeting.
By Order of the Board of Directors
[/S/ LARRY THOMAS]
Larry Thomas
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Agoura Hills, California
March 29, 1999
20
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GUITAR CENTER, INC.
BOARD OF DIRECTORS PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
AT 12:00 P.M., MONDAY, APRIL 26, 1999
HYATT WESTLAKE PLAZA
880 SOUTH WESTLAKE BOULEVARD
WESTLAKE VILLAGE, CALIFORNIA 91361
The undersigned stockholder of Guitar Center, Inc. hereby revokes any proxy
or proxies previously granted and appoints Larry Thomas, Marty Albertson,
Bruce Ross and Barry Soosman, or any of them, as proxies, each with full
powers of substitution and resubstitution, to vote the shares of the
undersigned at the above-stated Annual Meeting and at any adjournment or
postponement thereof:
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Please mark
your votes as
indicated in X
this example
FOR all nominees listed below (except WITHHOLD AUTHORITY
as provided to the contrary below) to vote for all nominees FOR AGAINST ABSTAIN
below
1. Election of Directors. 2. To approve an amendment to
our Amended 1997 Equity
Participation Plan to increase
the number of shares that may
be issued under the plan from
1,375,000 shares to 2,225,000
shares.
Larry Thomas, Marty Albertson, Steven Burge, David
Ferguson, Harvey Kibel, Michael Lazarus, Peter Starrett
and Jeffrey Walker
(INSTRUCTION: To withhold authority to vote for any
individual nominee(s), write that nominee's name in the
space provided below.)
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This proxy is solicited on behalf of
the Board of Directors and will be
clear area voted in accordance with the
specifications made on the reverse
side. If a choice is not indicated
with respect to items (1) this proxy
will be voted FOR each of the
nominees listed. If a choice is not
indicated with respect to item (2) or
(3), this proxy will be voted FOR
such items. The proxies are
authorized to use their discretion
with respect to any other business
that may properly come before the
meeting. This proxy is revocable at
any time before it is exercised.
Receipt herewith of the Company's
Annual Report to Stockholders and
Notice of Meeting and Proxy
Statement, dated March 29, 1999, is
hereby acknowledged. Please sign,
date and mail today.
(Signature of Stockholder(s))__________________________________________________________________________Dated______________, 1999
(Joint owners must EACH sign. Please sign EXACTLY as your name(s) appear(s) on this card. When signing as attorney, trustee,
executor, administrator, guardian or corporate officer, please give your FULL title.)
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