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Agreement and Plan of Merger

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Title:

Agreement and Plan of Merger

Entities:

Digital Music Group, Inc.

Date:

2007

Size:

Preview shows 85KB of 309KB total

Price:

$74

ID:

#2943573

► Plans ► Agreements ► Agreements & Plans of Merger

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AGREEMENT AND PLAN OF MERGER

by and among

DIGITAL MUSIC GROUP, INC.

DMGI NEW YORK, INC.

and

THE ORCHARD ENTERPRISES INC.

DATED AS OF JULY 10, 2007

TABLE OF CONTENTS


ARTICLE I THE MERGER		1

1.1	The Merger	1
1.2	Effective Time	1
1.3	Effects of the Merger	1
1.4	Conversion of the Orchard Stock	2
1.5	Merger Sub Stock	4
1.6	DMGI Stock	4
1.7	Certificate of Incorporation of the Orchard	4
1.8	Bylaws of the Orchard	4
1.9	Tax Consequences	4
1.10	Name of Surviving Corporation	4

ARTICLE II EXCHANGE OF CERTIFICATES		4

2.1	Exchange Procedures	4
2.2	Lost, Stolen or Destroyed Certificates	4
2.3	No Further Ownership Rights in Stock	5

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE ORCHARD		5

3.1	Corporate Organization	5
3.2	Capitalization	6
3.3	Authority; No Violation	6
3.4	Consents and Approvals	7
3.5	Financial Statements	7
3.6	Receivables	8
3.7	Broker?s Fees	8
3.8	Absence of Certain Changes or Events	8
3.9	Legal Proceedings	9
3.10	Taxes and Tax Returns	9
3.11	Employees	11
3.12	SEC Reports	12
3.13	Compliance with Applicable Law	12
3.14	Certain Contracts	13
3.15	Environmental Liability	14
3.16	Property	14
3.17	Intellectual Property	15
3.18	State Takeover Laws	15
3.19	The Orchard Information	15

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF DMGI AND MERGER SUB		16

4.1	Corporate Organization	16
4.2	Capitalization	16
4.3	Authority; No Violation	17
4.4	Consents and Approvals	17
4.5	Financial Statements	18
4.6	Broker?s Fees	19

Page i


4.7	Absence of Certain Changes or Events	19
4.8	Legal Proceedings	19
4.9	Taxes and Tax Returns	19
4.10	Employees	21
4.11	SEC Reports	22
4.12	Compliance with Applicable Law	22
4.13	Certain Contracts	23
4.14	Environmental Liability	24
4.15	Property	24
4.16	Intellectual Property	24
4.17	State Takeover Laws; DMGI Rights	25
4.18	Opinion	25
4.19	DMGI Information	25
4.20	Merger Sub?s Operations	25
4.21	Receivables	25
4.22	Registration Rights	25

ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS		26

5.1	Conduct of Businesses Prior to the Effective Time	26
5.2	Forbearances	26

ARTICLE VI ADDITIONAL AGREEMENTS		27

6.1	Regulatory Matters	27
6.2	Access to Information	28
6.3	Stockholders? Approvals	29
6.4	Legal Conditions to Merger	29
6.5	Stock Exchange Listing	30
6.6	Employee Benefit Plans	30
6.7	Indemnification; Directors? and Officers? Insurance	31
6.8	Additional Agreements	32
6.9	Advice of Changes	32
6.10	Officers following Effective Time	32
6.11	Board of Directors	32
6.12	Acquisition Proposals	33
6.13	Agreement of Affiliates	35
6.14	Amendments to DMGI Articles	35
6.15	Certain Tax Matters	35
6.16	Headquarters	35
6.17	Financial Statements	36
6.18	NY Office Lease	36
6.19	Advances	36
6.20	DMGI Options	36
6.21	Deferred Stock Awards	36

ARTICLE VII CONDITIONS PRECEDENT		37

7.1	Conditions to Each Party?s Obligation To Effect the Merger	37
7.2	Conditions to Obligations of DMGI	37
7.3	Conditions to Obligations of the Orchard	38

Page ii


ARTICLE VIII TERMINATION AND AMENDMENT		39

8.1	Termination	39
8.2	Effect of Termination	41
8.3	Amendment	43
8.4	Extension; Waiver	43

ARTICLE IX GENERAL PROVISIONS		43

9.1	Closing	43
9.2	Nonsurvival of Representations, Warranties and Agreements	43
9.3	Expenses	44
9.4	Notices	44
9.5	Interpretation	45
9.6	Counterparts	45
9.7	Entire Agreement	45
9.8	Governing Law	45
9.9	Publicity	45
9.10	Assignment; Third Party Beneficiaries	45
9.11	Specific Performance	45


Exhibit A ? Form of Affiliate Letter		A-1

Exhibit B ? Terms of Series A Preferred Stock		B-1

Exhibit C ? Form of Release		C-1

Exhibit D ? Registration Rights Agreement		D-1

Schedule 6.10(a)

Schedule 6.10(b)

Schedule 6.11(a)

Schedule 6.11(b)

Page iii

INDEX OF DEFINED TERMS


Acquisition Agreement		41
Acquisition Proposal		34
Acting Party		33
Agreement		1
Audited Financial Statements		7
CERCLA		14
Certificate		3
Certificate of Merger		1
Change in Recommendation		33
Channel Outlets		13
Closing		43
Closing Date		43
Code		1
Common Stock		3
Common Stock Ratio		3
Confidentiality Agreement		29
Content		13
Deferred B Shares		3
Deferred Stock Awards		36
Dimensional		36
DMGI Benefit Plans		21
DMGI Common Stock		2
DMGI Disclosure Schedule		16
DMGI ERISA Affiliate		21
DMGI Indemnified Parties		31
DMGI Leased Properties		24
DMGI Meeting		29
DMGI Options		4
DMGI Owned Properties		24
DMGI Preferred Limit		2
DMGI Real Property		24
DMGI Reports		22
DMGI Rights		16
DMGI Series A Preferred Stock		2
DMGI Stock Plans		16
Draft Quarterly Statements		7
Effective Time		1
ERISA		11
Exchange Act		12
Fairness Opinion		25
GAAP		5
Governmental Entity		7
HSR Act		7
Intellectual Property		15
Junior DMGI Preferred Limit		2

Page iv


Knowledge of DMGI		19
Knowledge of the Orchard		9
Liens		6
Material Adverse Effect		5
Merger		1
Merger Sub		1
Merger Sub Common Stock		3
New Benefit Plans		30
New Plans		30
New York Department		1
Non-Subsidiary Affiliate		6
NYBCL		1
Orchard		1
Orchard Articles		4
Orchard Benefit Plans		11
Orchard Disclosure Schedule		5
Orchard ERISA Affiliate		11
Orchard Indemnified Parties		31
Orchard Leased Properties		15
Orchard Meeting,		29
Orchard Owned Properties		14
Orchard Real Property		15
Orchard Rights		6
Orchard Subsidiary		5
Permitted Encumbrances		14
Pre-Termination Takeover Proposal Event		42
Proxy Statement		25
Recipients		36
Remaining DMGI Common Stock		3
Requisite Regulatory Approvals		37
Reserved Shares		37
Reviewed		36
Reviewed Quarterly Statements		36
Securities Act		6
Series A Preference		2
Series A Preferred Stock		2
Series B Preference		2
Series B Preferred Stock		2
Series B Remainder		3
State and Foreign Approvals		7
Stockholder Vote Option		34
Subsidiary		6
Surviving Corporation		1
Surviving Corporation Common Stock		4
Takeover Statutes		15
Tax		10

Page v


Tax Return		10
Tax Sharing Agreement		10
Taxes		10
Taxing Authority		11
Unaudited Financial Statements		7

Page vi

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of July 10, 2007 (this ?Agreement?), by and among The Orchard Enterprises Inc., a New York corporation (the ?Orchard?), Digital Music Group, Inc., a Delaware corporation (?DMGI?), and DMGI New York, Inc., a New York corporation (?Merger Sub?).

W I T N E S S E T H:

WHEREAS, the Boards of Directors of the Orchard, DMGI and Merger Sub have determined that it is in the best interests of their respective companies and their stockholders to consummate the strategic business combination transaction provided for herein, pursuant to which Merger Sub will, subject to the terms and conditions set forth herein, merge with and into the Orchard (the ?Merger?), so that the Orchard is the surviving corporation (hereinafter sometimes referred to in such capacity as the ?Surviving Corporation?) in the Merger; and

WHEREAS, for Federal income tax purposes, it is intended by the Orchard, DMGI and Merger Sub that the Merger shall qualify as a ?reorganization? within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the ?Code?), and this Agreement shall constitute a ?plan of reorganization? within the meaning of Treasury Regulation Section 1.368-2(g); and

WHEREAS, the parties desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe certain conditions to the Merger.

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows:

ARTICLE I

THE MERGER

1.1 The Merger. Subject to the terms and conditions of this Agreement, in accordance with the New York Business Corporation Law (the ?NYBCL?), at the Effective Time (?Effective Time?), Merger Sub shall merge with and into the Orchard. The Orchard shall be the Surviving Corporation in the Merger, and shall continue its corporate existence under the laws of the State of New York. Upon consummation of the Merger, the separate corporate existence of Merger Sub shall terminate.

1.2 Effective Time. The Merger shall become effective as set forth in the certificate of merger (the ?Certificate of Merger?) to be filed with the Department of State of the State of New York (the ?New York Department?), on the Closing Date. The term ?Effective Time? shall be the date and time when the Merger becomes effective, as set forth in the Certificate of Merger.

1.3 Effects of the Merger. At and after the Effective Time, the Merger shall have the effects set forth in Section 906 of the NYBCL.

Page 1

1.4 Conversion of the Orchard Stock. At the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, DMGI, the Orchard or the holder of any of the following securities:

(a) Subject to Article II, each share of Series A preferred stock, par value $0.001, of the Orchard issued and outstanding immediately prior to the Effective Time (the ?Series A Preferred Stock?), except for shares of the Series A Preferred Stock owned by the Orchard as treasury stock or owned, directly or indirectly, by the Orchard or any of its wholly-owned Subsidiaries, shall be converted into the right to receive:

(i) that number of shares of the Series A preferred stock, par value $0.001 per share of DMGI (the ?DMGI Series A Preferred Stock?) equal to the quotient of (A) the sum of (1) the $1.00 liquidation preference on such share of Series A Preferred Stock plus (2) all accrued but unpaid dividends on such share of Series A Preferred Stock (collectively, the ?Series A Preference?), divided by (B) $5.57; provided that the aggregate number of shares of DMGI Series A Preferred Stock issuable pursuant to this Section 1.4(a)(i) shall not exceed 4,488,330 (the ?DMGI Preferred Limit?); and

(ii) to the extent that the aggregate number of shares of DMGI Series A Preferred Stock issuable pursuant to Section 1.4(a)(i) would exceed the DMGI Preferred Limit, then, in lieu thereof, any share of Series A Preferred Stock (or portion thereof) that otherwise would have converted into shares of DMGI Series A Preferred Stock shall instead convert into that number of shares of the common stock, par value $0.001 per share, of DMGI (the ?DMGI Common Stock?) equal to the quotient of (A) the Series A Preference, divided by (b) $4.07.

For the avoidance of doubt, to the extent that the aggregate Series A Preference exceeds $25,000,000, the holders of Series A Preferred Stock shall be allocated shares of DMGI Series A Preferred Stock and DMGI Common Stock to be issued pursuant to this Section 1.4(a) on a pro rata basis.

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