UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

 

Check the appropriate box:

THE ORCHARD ENTERPRISES, INC.

(Name of Registrant as Specified in Its Charter)

N/A

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

Common Stock, par value $0.01 per share, of The Orchard Enterprises, Inc. (“Common Stock”)

3,645,888 shares of Common Stock⁽¹⁾

The maximum aggregate value of the transaction was determined by multiplying 3,645,882 shares of Common Stock by $2.05 per share, the per share cash merger consideration.⁽²⁾ In accordance with Exchange Act Rule 0-11(c), the filing fee was determined by multiplying 0.00007130 by the amount of the preceding sentence.

$7,474,070

$532.90

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PRELIMINARY PROXY STATEMENT, SUBJECT TO COMPLETION
DATED APRIL 27, 2010

THE ORCHARD ENTERPRISES, INC.
23 East 4^th Street, 3^rd Floor
New York, New York 10003

To Our Stockholders:

On  , 2010, The Orchard Enterprises, Inc. will hold its 2010 Annual Meeting of Stockholders at the offices of Chadbourne & Parke LLP, 30 Rockefeller Plaza, New York, New York 10112. The meeting will begin at 10:00 a.m., Eastern Daylight Time. The Board of Directors has fixed the close of business on  , 2010 as the record date for the purpose of determining the stockholders entitled to receive notice of and vote at the annual meeting and any adjournment or postponement of the annual meeting.

At the annual meeting, you will be asked to consider and vote upon a proposal to approve and adopt the Agreement and Plan of Merger dated as of March 15, 2010, as amended, among The Orchard Enterprises, Inc., a Delaware corporation, Dimensional Associates, LLC, a New York limited liability company, and Orchard Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Dimensional Associates, and the transactions contemplated thereby. If the merger is completed, the Company’s stockholders, other than Dimensional Associates and its affiliates, will have the right to receive, for each share of our common stock they hold at the time of the merger, $2.05 in cash and a contingent right to receive additional consideration, under certain circumstances if Dimensional Associates or The Orchard or any of their affiliates enters into a commitment to sell at least 80% of The Orchard’s voting securities or assets within six months of the consummation of the merger.

After careful consideration, our Board of Directors has determined that the merger is advisable and that the terms of the merger are fair to, and in the best interest of, the company and its stockholders and, therefore, has approved the merger agreement and the transactions contemplated thereby, including the merger, and recommends that you vote “FOR” approval of the merger agreement and the transactions contemplated thereby. This recommendation is based upon the unanimous recommendation of a special committee of the Board of Directors consisting of five independent and disinterested directors.

In addition, you are being asked at the annual meeting (1) to approve an amendment to the Certificate of Designations of our Series A convertible preferred stock, necessary to permit the transactions contemplated by the merger agreement to be effected, (2) to elect seven (7) directors, each for a one (1) year term, until his successor is duly elected and qualified, (3) to ratify the appointment of Marcum LLP as our independent registered public accounting firm for fiscal year 2010 and (4) to approve the adjournment of the annual meeting, if necessary, to permit further solicitation and vote of proxies if there are insufficient votes at the time of the annual meeting to approve the merger and to approve and adopt the merger agreement. Our Board of Directors unanimously recommends that you vote (1) “FOR” the amendment to our Certificate of Designations, (2) “FOR” the election of each nominee for director as proposed, (3) “FOR” the ratification of our independent registered public accounting firm for fiscal year 2010 and (4) “FOR” the adjournment of the annual meeting, if necessary, to permit further solicitation and vote of proxies if there are insufficient votes at the time of the annual meeting to approve the merger and to approve and adopt the merger agreement. The accompanying notice of annual meeting and proxy statement provide information regarding the matters to be acted on at the annual meeting, including any adjournment or postponement of the annual meeting. Please read these materials carefully.

YOUR VOTE IS VERY IMPORTANT, regardless of the number of shares you own. We cannot complete the merger unless the holders of a majority of all the outstanding shares of the company’s voting securities entitled to vote on the matter, other than voting securities held by Dimensional Associates and its affiliates,

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vote to approve the merger and to approve and adopt the merger agreement. Once you have read the accompanying materials, please take the time to vote on the matters submitted to stockholders at the annual meeting, whether or not you plan to attend the annual meeting. I urge you to vote your shares promptly by using the telephone or Internet or by signing and returning the enclosed proxy card. Voting by proxy will not prevent you from voting your shares in person if you subsequently choose to attend the annual meeting in person. Your vote in person will revoke any proxy previously submitted.

If your shares are held in “street name” by your broker, bank or other nominee, your broker, bank or other nominee will be unable to vote your shares on the merger proposal or any of the other proposals, other than the ratification of the appointment of our independent registered public accounting firm, without instructions from you. You should instruct your broker, bank or other nominee to vote your shares by following the procedures provided by your broker, bank or other nominee.

Our Board of Directors and management urge you to vote “FOR” all of the proposals.

		Sincerely, Michael J. Donahue Chair of the Special Committee and Chairman of the Board of Directors

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

The proxy statement is dated  , 2010, and is first being mailed to stockholders on or about  , 2010.

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THE ORCHARD ENTERPRISES, INC.
  
23 East 4th Street, 3rd Floor
New York, New York 10003

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held  , 2010

To Our Stockholders:

On  , 2010, The Orchard Enterprises, Inc., a Delaware corporation (the “Company” or “Orchard”), will hold its 2010 Annual Meeting of Stockholders at the offices of Chadbourne & Parke LLP, 30 Rockefeller Plaza, New York, New York 10112. The meeting will begin at 10:00 a.m., Eastern Daylight Time, for the following purposes:

Only stockholders who owned shares of our common stock or our Series A convertible preferred stock at the close of business on  , 2010 will be entitled to notice of, and to vote at, this meeting or any adjournments or postponements of the meeting. A complete list of stockholders entitled to vote at the meeting will be available for examination by any stockholder, for any purpose relating to the meeting, during ordinary business hours at our principal offices located at 23 East 4^th Street, 3^rd Floor, New York, New York 10003, at least ten days before the meeting.

We urge you to read the accompanying proxy statement carefully as it sets forth details of each proposal to be voted on, including the proposed merger and other important information related to the merger.

Under Delaware law, if the merger is completed, holders of our common stock who do not vote in favor of approval and adoption of the merger agreement will have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery. In order to exercise your appraisal rights, you must (i) submit a written demand for an appraisal prior to the stockholder vote on the merger agreement,

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(ii) not vote in favor of approval and adoption of the merger agreement and (iii) comply with other Delaware law procedures explained in the proxy statement.

Your vote is important and we urge you to submit your proxy for voting at the annual meeting on the Internet, by telephone or by completing, signing, dating and returning your proxy card as promptly as possible by mail, whether or not you expect to attend the annual meeting. If you are unable to attend in person and you return your properly executed proxy card in time for the annual meeting, your shares will be voted at the annual meeting in accordance with your instructions as reflected on your proxy. Properly executed proxies that do not contain voting instructions will be voted “FOR” the approval of the Merger Proposal, “FOR” the approval of the Certificate Amendment Proposal, “FOR” each director nominee, “FOR” the ratification of our independent public accounting firm and “FOR” approval of the Adjournment Proposal. If your shares are held in “street name” by your broker, bank or other nominee, only that holder can vote your shares unless you obtain a valid legal proxy from such broker, bank or nominee. You should follow the directions provided by your broker, bank or nominee regarding how to instruct such broker, bank or nominee to vote your shares.

The merger is described in the accompanying proxy statement, which we urge you to read carefully. A copy of the merger agreement and the amendments to the merger agreement are attached as Appendices A, A-1 and A-2 to the proxy statement.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on  , 2010. Our proxy statement is attached. Financial and other information concerning The Orchard is contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed with the Securities and Exchange Commission (SEC) on March 25, 2010, a copy of which is enclosed with this proxy statement as part of our 2009 Annual Report to Stockholders. This proxy statement and our fiscal 2009 Annual Report are available on our website at www.theorchard.com/about/investor-relations. Additionally, and in accordance with SEC rules, registered stockholders may access our proxy materials at www.envisionreports.com/ORCD and beneficial stockholders may access our proxy materials at www.edocumentview.com/ORCD.

Your Board of Directors recommends that you vote in favor of the five proposals outlined in the proxy statement. Please refer to the proxy statement for detailed information on each of the proposals.

		By Order of the Board of Directors,    Alexis H. Shapiro Senior Vice President, General Counsel and Secretary

New York, New York
 , 2010

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THE ORCHARD ENTERPRISES, INC.
  
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		Page
SUMMARY TERM SHEET			1
The Parties to the Merger			1
The Merger and its Effects			1
Merger Consideration			1
Treatment of Options, Restricted Stock, Stock Appreciation Rights and Warrants			2
Interests of Certain Persons in the Merger			2
Required Vote for Merger Proposal			3
Recommendation of the Special Committee and the Board of Directors			3
Opinion of Fesnak and Associates, LLP			3
Restrictions on Solicitation of Other Offers			4
Conditions to the Completion of the Merger			5
Termination of the Merger Agreement			5
Expense Reimbursement			6
Share Ownership of Directors and Executive Officers			6
Rights of Appraisal			7
Market Price of Our Common Stock			7
Material United States Federal Income Tax Consequences			7
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE ANNUAL MEETING OF STOCKHOLDERS			8
SPECIAL FACTORS			13
Background of the Merger			13
Fairness of the Merger, Recommendation of the Special Committee and the Board of Directors			24
Opinion of the Special Committee’s Financial Advisor			28
Purpose and Reasons for the Merger for Dimensional Associates, Merger Sub and Certain of Their Affiliates			33
Position of Dimensional Associates and Merger Sub as to the Fairness of the Merger			33
Plans for The Orchard After the Merger			35
Financing of the Merger			36
Certain Financial Projections			36
Interests of Certain Persons in the Merger			41
Material United States Federal Income Tax Consequences of the Merger to our Stockholders			43
Fees and Expenses of the Merger			47
Provisions for the Non-Continuing Stockholders			47
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS			48
THE ANNUAL MEETING			50
Date, Time and Place of the Annual Meeting			50
Purpose of Annual Meeting			50

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		Page
Record Date; Shares Entitled to Vote; Quorum			50
Vote Required			50
Voting of Proxies			51
Revocability of Proxies			52
Attendance at Annual Meeting			52
Rights of Stockholders Who Object to the Merger			52
Solicitation of Proxies			52
Other Business			52
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT			53
Proposal			53
Vote Required			53
Recommendation of the Board			53
THE MERGER AGREEMENT			54
The Merger			54
Effective Time			54
Merger Consideration			54
Payment Procedures			55
Appraisal Rights			56
Treatment of Options, Restricted Stock, Stock Appreciation Rights and Warrants			56
Representations and Warranties			57
Definition of Company Material Adverse Change			59
Covenants Relating to the Conduct of Our Business			60
Restrictions on Solicitations of Other Offers			62
Stockholders’ Meeting			64
Restrictions on Change of Recommendation to Stockholders			64
Other Actions; Notification			65
Indemnification and Insurance			66
Employee Matters			66
Other Covenants			67
Conditions to the Completion of the Merger			67
Termination of the Merger Agreement			68
Expense Reimbursement			69
Amendment and Waiver			70
IMPORTANT INFORMATION REGARDING THE ORCHARD			71
Summarized Financial Data			71
Book Value Per Share			71
Transactions in Common Stock			72
Market Price of our Common Stock and Dividend Information			73
Description of Business			73

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		Page
Description of Property			73
Legal Proceedings			73
IMPORTANT INFORMATION REGARDING MERGER SUB			74
IMPORTANT INFORMATION REGARDING DIMENSIONAL ASSOCIATES AND CERTAIN OF ITS AFFILIATES			75
HISTORICAL RELATIONSHIP BETWEEN DIMENSIONAL ASSOCIATES AND THE ORCHARD			75
APPRAISAL RIGHTS			76
APPROVAL OF AMENDMENT TO CERTIFICATE OF DESIGNATIONS OF SERIES A CONVERTIBLE PREFERRED STOCK			80
Proposal			80
Vote Required			80
Recommendation of the Board			80
ELECTION OF DIRECTORS			81
Nominees			81
Director Independence			83
Attendance at Board Meetings and Board Committees			83
Consideration of Director Nominees			85
Code of Business Conduct			86
Communications with the Board by Stockholders			86
Director Compensation			87
Vote Required			88
Recommendation of the Board			88
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			89
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm			89
Fee Information			89
Vote Required			90
Recommendation of the Board			90
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS			91
APPROVAL OF ADJOURNMENT OF ANNUAL MEETING			92
EQUITY COMPENSATION PLAN INFORMATION			93
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			94
COMPENSATION OF EXECUTIVE OFFICERS			96
Executive Officers			96
Summary Compensation Table			97
Outstanding Equity Awards at Fiscal Year-End			98
Employment Agreements and Post-Termination Payments			99
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE			100

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		Page
CERTAIN TRANSACTIONS			100
TRANSACTIONS WITH RELATED PERSONS			100
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING			101
TRANSACTION OF OTHER BUSINESS			102
WHERE YOU CAN FIND MORE INFORMATION			102
APPENDIX A — AGREEMENT AND PLAN OF MERGER DATED AS OF MARCH 15, 2010 AMONG THE ORCHARD ENTERPRISES, INC., DIMENSIONAL ASSOCIATES, LLC AND ORCHARD MERGER SUB, INC.			A-1
APPENDIX A-1 — AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER AMONG THE ORCHARD ENTERPRISES, INC., DIMENSIONAL ASSOCIATES, LLC AND ORCHARD MERGER SUB, INC., DATED AS OF MARCH 16, 2010			A-1-1
APPENDIX A-2 — AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER AMONG THE ORCHARD ENTERPRISES, INC., DIMENSIONAL ASSOCIATES, LLC AND ORCHARD MERGER SUB, INC., DATED AS OF APRIL 14, 2010			A-2-1
APPENDIX B — AMENDMENT TO CERTIFICATE OF DESIGNATIONS			B-1
APPENDIX C — OPINION OF FESNAK AND ASSOCIATES			C-1
APPENDIX D — SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE			D-1

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Summary Term Sheet

References to “The Orchard”, the “Company”, “we”, “our” or “us” in this proxy statement refer to The Orchard Enterprises, Inc. and its subsidiaries unless otherwise indicated by context. The following summary, together with “Questions and Answers About the Merger and the Annual Meeting of Stockholders” highlights selected information contained in this proxy statement. You should carefully read this entire proxy statement and the other documents to which this proxy statement refers you for a more complete understanding of the matters being considered at the annual meeting. In addition, this proxy statement incorporates by reference important business and financial information about The Orchard. You may obtain the information incorporated by reference into this proxy statement without charge by following the instructions under “Where You Can Find More Information”.

The Parties to the Merger (Page 53)

The Orchard Enterprises, Inc., a Delaware corporation, controls and distributes more than 1.8 million music and audio recordings and approximately 5,000 titles of video programming through digital stores, such as Amazon, eMusic, Hulu, iTunes, Rhapsody and YouTube, and mobile carriers, such as Orange, Telefonica, Verizon and 3, worldwide.

Dimensional Associates, LLC, a New York limited liability company, which we refer to as “Dimensional Associates”, is a private equity investment fund sponsored by JDS Capital, L.P.

Orchard Merger Sub., Inc., a Delaware corporation, which we refer to as “Merger Sub”, is a wholly owned subsidiary of Dimensional Associates. Merger Sub was formed solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. Merger Sub has not engaged in any business except for activities incident to its incorporation and in connection with the transactions contemplated by the merger agreement.

The Merger and its Effects (Page 54)

You are being asked to vote to approve and adopt the agreement and plan of merger dated as of March 15, 2010, as amended, among The Orchard, Dimensional Associates and Merger Sub, which agreement we refer to as the “merger agreement”, and to approve the merger and the other transactions contemplated by the merger agreement, which proposal we refer to as the “Merger Proposal”. Pursuant to the merger agreement, Merger Sub will merge with and into The Orchard, which we refer to as the “merger”. The Orchard will be the surviving corporation in the merger, which we refer to as the “surviving corporation”, and will continue to do business as “The Orchard Enterprises, Inc.” following the merger. Upon completion of the proposed merger, The Orchard will cease to be a publicly traded company and Dimensional Associates will own more than 99% of the outstanding securities of the Company, assuming that none of the current Series A convertible preferred stock holders convert their shares into common stock. As a result, you will no longer have any direct or indirect equity interest in The Orchard or any interest in our future earnings or growth, if any. Following completion of the merger, the registration of our common stock and our reporting obligations with respect to our common stock under the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act”, are expected to be terminated. In addition, upon completion of the proposed merger, our shares of common stock will no longer be listed on the Nasdaq Stock Market.

Merger Consideration (Page 54)

Each share of our common stock issued and outstanding immediately prior to the effective time of the merger (other than shares of common stock held by Dimensional Associates, its affiliates or Merger Sub) will be automatically cancelled and converted at the effective time of the merger into the right to receive the following merger consideration: (1) $2.05 in cash, which we refer to as the “cash merger consideration”, and (2) a contingent right to receive a share of additional merger consideration, which we refer to as the “additional consideration”.

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The additional consideration will be paid, if on or prior to the six-month anniversary of the consummation of the merger, we, Dimensional Associates or any of our respective affiliates enter into a commitment, which we refer to as a “resale transaction”, to sell at least 80% of our outstanding voting securities or at least 80% of our assets. The additional consideration will be an amount equal to 15% of the difference between our enterprise value in the resale transaction and our enterprise value immediately prior to the consummation of the merger, as calculated in accordance with the terms of the merger agreement, which amount we refer to as the “resale profit”. The portion of any additional consideration payable to a holder of our shares and, if applicable, our stock options, restricted stock and stock appreciation rights, will be calculated in accordance with the terms of the merger agreement.

Treatment of Options, Restricted Stock, Stock Appreciation Rights and Warrants (Page 56)

Immediately prior to the effective time of the merger and in accordance with the Amended and Restated Orchard Enterprises, Inc. 2008 Stock Plan, which we refer to as the Company Stock Plan, we will provide that:

Each outstanding and unexercised stock option and stock appreciation right under the Company Stock Plan has an exercise price greater than $2.05 and, consequently, holders thereof will not receive any cash merger consideration at the effective time of the merger.

Interests of Certain Persons in the Merger (Page 41)

In considering the recommendation of the special committee and our board of directors with respect to the merger agreement, you should be aware that some of our directors and executive officers have interests in the merger that are different from, or in addition to, the interests of our stockholders generally. These interests include, among others:

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The special committee and our board of directors were aware of these interests and considered them, among other matters, in reaching their decision to approve the merger agreement and recommend that The Orchard’s stockholders vote in favor of approving and adopting the merger agreement.

Required Vote for Merger Proposal (Page 53)

The approval of the Merger Proposal will require the affirmative vote of:

Pursuant to the terms of the merger agreement, Dimensional Associates and its affiliates have agreed to vote their shares in favor of the Merger Proposal. Because Dimensional Associates and its affiliates hold approximately 54% of our voting stock as of the record date for the annual meeting, we expect that the Company Stockholder Approval will be obtained.

Abstentions and broker non-votes in the case of both the Company Stockholder Approval and the Minority Stockholder Approval will have the same effect as votes against the Merger Proposal.

Recommendation of the Special Committee and the Board of Directors (Page 24)

The special committee is a committee of our board of directors that was formed on October 19, 2009. The special committee has authority to establish, monitor and direct the process and procedures related to the review and evaluation of one or more proposals made to The Orchard by Dimensional Associates and any alternative transaction. The special committee had the authority to solicit other proposals, to determine not to proceed with any such proposal or transaction, to reject or approve any such proposal or transaction, or recommend such rejection or approval to the board of directors, and to recommend to the board of directors whether any such proposal or transaction is advisable and is fair to, and in the best interests of, The Orchard and its stockholders. The special committee unanimously determined that the merger, the consideration to be paid in the merger, and the other terms and provisions of the merger agreement are fair to, advisable and in the best interests of The Orchard and its unaffiliated stockholders. The special committee unanimously recommended that the board of directors approve and adopt the merger agreement and determine that the terms and conditions of the merger and the merger agreement are fair to, advisable and in the best interests of The Orchard and its unaffiliated stockholders, and recommend adoption of the merger agreement by the holders of The Orchard’s common stock.

Our board of directors, acting upon the unanimous recommendation of the special committee and without the participation (either in the deliberations or voting) of Daniel Stein, a director of ours who is also an executive officer and a director of Dimensional Associates, recommends that our stockholders vote “FOR” the Merger Proposal.

Opinion of Fesnak and Associates, LLP (Page 28 and Appendix C)

Fesnak and Associates, LLP (“Fesnak”), the special committee’s financial advisors, delivered a written opinion, dated March 15, 2010, to the special committee that, as of March 15, 2010 and based upon the assumptions and limitations set forth therein, the merger consideration to be offered in the merger to the holders of our common stock (other than shares held by Dimensional Associates and its affiliates) was fair from a financial point of view to such holders.

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The full text of the written opinion of Fesnak, dated March 15, 2010, is attached as Appendix C to this proxy statement. The written opinion of Fesnak sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the reviews undertaken in connection with rendering the opinion. Fesnak provided its opinion for the information and assistance of the special committee in connection with its consideration of the merger agreement. The Fesnak opinion is not a recommendation as to how any holder of our common stock should vote with respect to the merger or any other matter.

Restrictions on Solicitation of Other Offers (Page 62)

Until 12:01 a.m., Eastern Daylight Time, on April 22, 2010, referred to as the “no-shop period start date”, we and our subsidiaries (and our respective representatives) were permitted to:

From the no-shop period start date until the earlier of the effective time of the merger and the termination of the merger agreement, we and our subsidiaries are required not to (and shall cause our representatives not to), directly or indirectly:

Notwithstanding the restrictions described above, we may:

provided that, among other things, (1) we have not breached or violated certain provisions in the merger agreement regarding the restrictions on our ability to solicit proposals or offers and the ability of our board of directors to change its recommendation, (2) our board of directors or the special committee determines in good faith that failure to take such action would reasonably be expected to be inconsistent with its fiduciary

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duties under applicable law and (3) we have not entered into any agreement restricting our ability to negotiate, enter into and consummate a transaction with a third party other than such person.

Conditions to the Completion of the Merger (Page 67)

The obligations of The Orchard, Dimensional Associates and Merger Sub to complete the merger depend on a number of conditions being met. These conditions include, without limitation:

Where the law permits, the parties to the merger agreement could choose to waive a condition to its obligation to complete the merger (other than the stockholder approval conditions in the first and second bullets above), although that condition has not been satisfied. We cannot be certain when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed.

Termination of the Merger Agreement (Page 68)

The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after stockholder approval has been obtained:

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Expense Reimbursement (Page 69)

Upon termination of the merger agreement under specified circumstances, including failure to obtain the requisite stockholder votes in favor of the Merger Proposal, we may be required to reimburse Dimensional Associates for their documented out-of-pocket expenses in connection with the proposed merger up to $350,000.

Share Ownership of Directors and Executive Officers (Page 50)

As of , 2010, the record date for the annual meeting, our directors (other than Mr. Stein) and executive officers had the right to vote, in the aggregate, 437,657 shares of our common stock, which represented approximately 7.2% of the outstanding shares of our common stock on the record date for the meeting. These directors and executive officers have informed us that they intend to vote all of their shares of common stock “FOR” the approval of the Merger Proposal, “FOR” the Certificate Amendment Proposal and “FOR” the Adjournment Proposal.

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Rights of Appraisal (Page 56)

Holders of our common stock who object to the merger may elect to pursue their appraisal rights to receive the judicially determined “fair value” of their shares, which could be more or less than, or the same as, the per share merger consideration for the common stock, but only if they comply with the procedures required under Delaware law. In order to qualify for these rights, you must (1) not vote in favor of approval and adoption of the merger agreement, nor consent thereto in writing, (2) make a written demand for appraisal prior to the taking of the vote on the approval and adoption of the merger agreement at the annual meeting and (3) otherwise comply with the Delaware law procedures for exercising appraisal rights. For a summary of these Delaware law procedures, see “Appraisal Rights”. An executed proxy that is not marked “AGAINST” or “ABSTAIN” will be voted for approval of the Merger Proposal and will disqualify the stockholder submitting that proxy from demanding appraisal rights. A copy of Section 262 of the DGCL is also attached as Appendix D to this proxy statement. Failure to follow the procedures set forth in Section 262 of the DGCL will result in the loss of appraisal rights.

Market Price of Our Common Stock (Page 73)

On October 14, 2009, the last trading day before Dimensional Associates first presented its acquisition proposal to The Orchard’s board of directors, the high and low sales prices of our common stock were $1.50 and $1.35, respectively. The cash merger consideration of $2.05 per share represents a premium of approximately 52% over the closing trading price of $1.35 per share on October 14, 2009. On March 15, 2010, the last trading day before we announced the execution of the merger agreement, the high and low reported sales price of our common stock was $1.66. The cash merger consideration of $2.05 per share represents a premium of approximately 23% over the closing trading price of $1.66 per share on March 15, 2010, and approximately 19% over the average closing prices of our common stock for the 30-trading day period ending on March 15, 2010. On April 23, 2010, the most recent practicable date before the printing of this proxy statement, the high and low reported sales prices of our common stock were $2.01 and $2.00, respectively. You are urged to obtain a current market price quotation for our common stock.

Material United States Federal Income Tax Consequences (Page 43)

The receipt of the per share merger consideration and the per share additional consideration, as applicable, by a U.S. holder will be a taxable transaction for U.S. federal income tax purposes. The amount of gain or loss a U.S. holder recognizes, and the timing and potentially the character of a portion of such gain or loss, depends on the U.S. federal income tax treatment of the right to receive the per share additional consideration, with respect to which there is substantial uncertainty. Any gain realized by a non-U.S. holder as a result of the receipt of the per share merger consideration and the per share additional consideration will generally not be subject to U.S. federal income tax, except in certain situations. Please see the section entitled “Material United States Federal Income Tax Consequences of the Merger to our Stockholders” below for a more detailed discussion. Stockholders should consult their tax advisors regarding the U.S. federal income tax considerations relevant to the merger, as well as the effects of state, local, and foreign tax laws.

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QUESTIONS AND ANSWERS ABOUT THE MERGER AND
THE ANNUAL MEETING OF STOCKHOLDERS

The following questions and answers are intended to address briefly some commonly asked questions regarding the merger, the merger agreement and the 2010 annual meeting. These questions and answers may not address all questions that may be important to you as an Orchard stockholder. Please refer to the “Summary Term Sheet” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement, which you should read carefully.

Q: When and where is the annual meeting?

A: The annual meeting of stockholders will be held on  , 2010, 10:00 a.m., Eastern Daylight Time, at Chadbourne & Parke LLP, 30 Rockefeller Plaza, New York, New York 10112. The approximate date on which this proxy statement and the accompanying proxy card will first be sent or given to stockholders is  , 2010.

Q: What matters will be voted on at the annual meeting?

A: At the annual meeting of stockholders, and any postponements or adjournments thereof, you will be asked to consider and vote on the following proposals:

Q: How does the Board of Directors recommend that I vote on the proposals?

A: Our board of directors recommends that you vote “FOR” the approval of the Merger Proposal, “FOR” the approval of the Certificate Amendment Proposal, “FOR” all of the nominees for director, “FOR” the ratification of the appointment of our independent registered public accounting firm for fiscal year 2010 and “FOR” the Adjournment Proposal.

Q: Who is entitled to attend and vote at the annual meeting?

A: Stockholders of record holding The Orchard’s voting securities as of the close of business on  , 2010, the record date for the annual meeting, are entitled to vote at the annual meeting. As of the record date, there were 6,378,252 shares of The Orchard’s common stock outstanding and 448,707 shares of Series A convertible preferred stock outstanding. Every holder of The Orchard’s common stock is entitled to one vote for each such share the stockholder held as of the record date and every holder of The Orchard’s Series A convertible preferred stock outstanding is entitled to three and one-third (3 1/3) votes per share of our Series A convertible preferred stock held as of the record date.

If you want to attend the annual meeting and your shares are held in “street name” by your broker, bank or other nominee, you must bring to the annual meeting a proxy from the record holder (your broker, bank or nominee) of the shares authorizing you to vote at the annual meeting.

Q: What constitutes a quorum for the annual meeting?

A: The required quorum for the transaction of business at the annual meeting is a majority of the votes eligible to be cast by holders of shares of our common stock and Series A convertible preferred stock issued and outstanding on the record date voting together as a single class. Shares that are voted “FOR”, “WITHHOLD”, “ABSTAIN” or “AGAINST” a matter are treated as being present at the annual meeting for

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purposes of establishing a quorum. In the event that there are not sufficient votes for a quorum, the annual meeting may be adjourned in order to permit further solicitation of proxies. However, the presence in person or by proxy of Dimensional Associates, our majority stockholder, will assure that a quorum is present at the meeting.

Q: What vote is required to approve the Merger Proposal?

A: The approval of the Merger Proposal will require the affirmative vote of:

Pursuant to the terms of the merger agreement, Dimensional Associates and its affiliates have agreed to vote their shares in favor of the Merger Proposal. Because Dimensional Associates and its affiliates hold approximately 54% of our voting stock as of the record date for the annual meeting, we expect that the Company Stockholder Approval will be obtained.

Abstentions and broker non-votes in the case of both the Company Stockholder Approval and the Minority Stockholder Approval will have the same effect as votes against the approval of the Merger Proposal.

Q: What vote is required to approve the Certificate Amendment Proposal?

A: The affirmative vote of the holders of a majority of our voting stock and the affirmative vote of the holders of a majority of our Series A convertible preferred stock, voting as a separate class, is required for the approval of the Certificate Amendment Proposal. Management of the Company anticipates that Dimensional Associates will vote all of its shares of common stock and Series A convertible preferred stock in favor of this proposal, and in such an event, the approval of the Certificate Amendment Proposal will be assured.

Q: What vote is required for the election of directors?

A: The seven (7) nominees for director receiving the highest number of affirmative votes cast at the annual meeting will be elected as a director.

Q: What vote is required to ratify the appointment of the Company’s independent registered public accounting firm for the year ending December 31, 2010?

A: The affirmative vote of a majority of the votes cast on the proposal at the annual meeting is necessary for the ratification of our independent registered public accounting firm for the year ending December 31, 2010.

Q: What vote is required to approve the Adjournment Proposal?

A: Approval of the Adjournment Proposal requires the affirmative vote of the holders of a majority of The Orchard’s shares of voting stock voting on the matter.

Q: Who is soliciting my vote?

A: The enclosed proxy is being solicited on behalf of our board of directors for use in voting at the annual meeting, including any postponements or adjournments thereof. We are paying for this proxy solicitation. In addition, we have retained Georgeson, Inc., which we refer to as “Georgeson” to assist in the solicitation. We will pay Georgeson (i) an initial fee of $8,000, (ii) $5.00 per phone call and per telephonic vote and (iii) $1.00 for each vote confirmation, plus out-of-pocket expenses for its assistance. Our directors, officers and employees may also solicit proxies by personal interview, mail, e-mail, telephone, facsimile or by other means of communication. These persons will not be paid additional compensation for their efforts. We will also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of our common stock and the brokers and fiduciaries hold of record. We will reimburse them for their reasonable out-of-pocket expenses.

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Q: What do I need to do now?

A: After you carefully read this proxy statement in its entirety, consider how the merger affects you and then vote or provide voting instructions as described in this proxy statement. Even if you plan to attend the annual meeting, after carefully reading and considering the information contained in this proxy statement, if you hold your shares in your own name as the stockholder of record, please vote your shares by completing, signing, dating and returning the enclosed proxy card; using the telephone number printed on the enclosed proxy card; or using the Internet voting instructions printed on the enclosed proxy card. You can also attend the annual meeting and vote, or change your prior vote, in person. Do NOT enclose or return your stock certificate(s) with your proxy. If you hold your shares in “street name” through a broker, bank or other nominee, then you received this proxy statement from the nominee, along with the nominee’s instruction card which includes voting instructions and instructions on how to change your vote.

Q: How do I vote? How can I revoke my vote?

A: You may vote by signing and dating each proxy card you receive and returning it in the enclosed prepaid envelope or as described below if you hold your shares in “street name”, or you may vote by telephone or electronically through the Internet as described below. If you return your signed proxy card, but do not mark the boxes showing how you wish to vote, your shares will be voted “FOR” the Merger Proposal, “FOR” the Certificate Amendment Proposal, “FOR” each of the director nominees, “FOR” the proposal ratifying the appointment of our independent public accounting firm and “FOR” the Adjournment Proposal. You have the right to revoke your proxy at any time before the vote taken at the annual meeting by:

If you have instructed a broker, bank or other nominee to vote your shares, you may revoke your proxy only by following the directions received from your broker, bank or other nominee to change those instructions.

Q: Can I vote by telephone or through the Internet?

A: If you hold your shares in your name as a stockholder of record, you may vote by telephone or electronically through the Internet by following the instructions included with your proxy card. If your shares are held by your broker, bank or other nominee, often referred to as held in “street name”, please check your instruction card or contact your broker, bank or nominee to determine whether you will be able to vote by telephone or electronically.

Q: If my shares are held by my broker, bank or other nominee, how do I vote my shares?

A: If your shares are held in a stock brokerage account, by a bank or by another nominee, then the broker, bank or other nominee is considered to be the stockholder of record with respect to those shares. However, you still are considered to be the beneficial owner of those shares, with your shares being held in “street name”. Street name holders generally cannot vote their shares directly and must instead instruct the broker, bank or other nominee how to vote their shares. Your broker, bank or other nominee will be permitted to vote your shares for you only if you instruct them how to vote. Therefore, it is important that you promptly follow the directions provided by your broker, bank or other nominee regarding how to instruct them to vote your shares.

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In addition, because any shares you may hold in “street name” will be deemed to be held by a different stockholder than any shares you hold of record, shares held in street name will not be combined for voting purposes with shares you hold of record. To be sure your shares are voted, you should instruct your broker, bank or other nominee to vote your shares. Similarly, if you own shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and will need to sign and return, a separate proxy card for those shares because they are held in a different form of record ownership. Shares held by a corporation or business entity must be voted by an authorized officer of the entity.

Q: What if I fail to instruct my broker, bank or other nominee how to vote?

A: Without instructions, your broker, bank or other nominee will not vote any of your shares held in “street name” on any of the proposals, other than the ratification of the appointment of the independent registered public accounting firm. For your shares to be voted on these matters, you must instruct your broker, bank or other nominee to vote your shares. When a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee has not received instructions from the beneficial owner, this is called a “broker non-vote”.

Q: What do I do if I receive more than one proxy or set of voting instructions?

A: If you receive more than one proxy, it means that you hold shares that are registered in more than one account. To ensure that all of your shares are voted, you will need to submit each proxy you receive.

Q: What happens if I do not vote or abstain from voting?

A: Abstentions and broker non-votes will have the same legal effect as a vote against the Merger Proposal and Certificate Amendment Proposal. Abstentions and broker non-votes are not counted as votes cast with respect to the election of directors, the ratification of our independent public accounting firm or the approval of the Adjournment Proposal. Accordingly, abstentions and broker non-votes will not have an effect on whether a director is elected, the ratification of our independent public accounting firm or the approval of the Adjournment Proposal.

Q: What will an Orchard stockholder receive when the merger occurs?

A: If the Merger is completed, you will receive for each share of our common stock that you own immediately prior to the effective time of the merger (i) $2.05 in cash and (ii) a right to receive, under certain circumstances, additional consideration, unless you exercise and perfect your appraisal rights under Delaware law.

Q: What happens if the merger is not completed?

A: If the Merger Proposal is not approved by our stockholders, or if the merger is not completed for any other reason, our stockholders will not receive any payment for their shares pursuant to the merger agreement. Instead, The Orchard will remain as a public company and our common stock will continue to be registered under the Exchange Act and listed and traded on the Nasdaq Stock Market. Under specified circumstances, we may be required to reimburse Dimensional Associates for up to $350,000 of its documented out of pocket expenses, as described in “The Merger Agreement — Expense Reimbursement”. In addition, the directors elected at the annual meeting would continue to serve as directors of The Orchard.

Q: When is the merger expected to be completed?

A: We are working toward completing the merger as quickly as possible, and we anticipate that it will be completed in the third quarter of 2010 or as soon as practicable thereafter. In order to complete the merger, we must obtain stockholder approval and the other closing conditions under the merger agreement must be satisfied or waived (as permitted by law and the merger agreement). See “The Merger Agreement — Conditions to Completion of the Merger”.

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Q: Should I send my stock certificate now?

A: No. After the merger is completed, you will be sent a letter of transmittal with detailed written instructions for exchanging your shares of The Orchard’s common stock for the merger consideration. If your shares are held in “street name” by your broker, bank or other nominee you will receive instructions from your broker, bank or other nominee as to how to effect the surrender of your “street name” shares in exchange for the merger consideration. Please do not send your certificates now.

Q: How can I obtain additional information about The Orchard?

A: We will provide a copy of our Annual Report to Stockholders, which includes our Annual Report on Form 10-K for the year ended December 31, 2009, as filed on March 25, 2010, excluding certain of its exhibits, and other filings, with the SEC, without charge to any stockholder who makes a written or oral request to the Secretary, The Orchard Enterprises, Inc., 23 East 4th Street, New York, New York 10003; telephone (212) 201-9280. Our Annual Report on Form 10-K and other SEC filings also may be accessed on the Internet at www.sec.gov or on the Investor Relations page of the Company’s website at www.theorchard.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement and, therefore, is not incorporated by reference. For a more detailed description of the information available, please refer to “Where You Can Find More Information”.

Q: Who can help answer my questions?

A: If you have additional questions about the merger or the other proposals to be voted on at the annual meeting after reading this proxy statement or need assistance voting your shares, please call our proxy solicitor, Georgeson, toll-free at (800) 509-0957. Banks and brokers should contact Georgeson at (212) 440-9800.

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SPECIAL FACTORS

Background of the Merger

Our board of directors and senior management continually review our long-term strategic plan with the goal of maximizing stockholder value. As part of this ongoing process, the board of directors has also periodically reviewed strategic alternatives.

On November 12, 2008, Daniel Stein, a director of ours and an executive officer and a director of Dimensional Associates, contacted Michael Donahue, our Chairman of the Board, and informed him that Dimensional Associates wanted to solicit parties interested in either acquiring The Orchard or participating in the acquisition by Dimensional Associates of all of our outstanding common stock not then owned by Dimensional Associates. Mr. Stein requested that the board of directors (i) permit management to cooperate with Dimensional Associates, (ii) enter into a non-disclosure agreement to permit Dimensional Associates to share confidential information with interested parties and (iii) authorize management to meet with interested parties. Dimensional Associates retained Canaccord Adams, Inc. as its investment advisor, and Dimensional Associates asked the board of directors for its approval to approach potential interested parties. Mr. Stein further requested that we provide a waiver permitting Dimensional Associates to retain Reed Smith LLP, the Company’s regular outside legal counsel at that time, as its legal advisor in this matter. Upon conferring with our general counsel and reviewing our Security Trading Policy and Special Policy on Securities Trading for Directors, Mr. Donahue requested that the board of directors and certain management employees refrain from trading in our securities until such time that a potential transaction was announced or no longer a possibility.

On November 14, 2008, the board of directors determined that it was advisable and in the best interests of The Orchard and our stockholders to form a special committee to consider the unsolicited request of Dimensional Associates, to manage the solicitation process on behalf of The Orchard and to negotiate with Dimensional Associates and any prospective party that becomes interested in a transaction with The Orchard. In appointing members to the special committee, the board of directors considered (a) whether a director has a financial interest in the transaction different from the other stockholders (for example, a director appearing on both sides of a transaction or a director receiving a personal benefit from a transaction not received by the stockholders generally); (b) whether the transaction would entrench management or directors; (c) whether the decisions at issue would have a detrimental impact on the director, but not on The Orchard or our stockholders; (d) whether there is an “indirect” interest (including being beholden to an individual or entity interested in the transaction) and (e) whether the “interest” identified is material.

The board of directors determined that each of Messrs. Michael Donahue, Viet Dinh, Nathan Peck and Joel Straka was an independent member of the board of directors and each qualified as “independent” under NASDAQ rules. Each such director confirmed that he had no financial or other relationship with Dimensional Associates. The board of directors then appointed these four directors to serve on a special committee of the board of directors, which we refer to as the “First Special Committee”. Upon the formation of the First Special Committee, representatives of Reed Smith discussed the Delaware standards and law applicable to the proposed transactions with Dimensional Associates and explained the directors’ fiduciary duties under Delaware law.

At a meeting held on November 25, 2008, the First Special Committee resolved to engage Patterson Belknap Webb & Tyler LLP, which we refer to as “Patterson Belknap”, as its legal adviser and to appoint Mr. Donahue to serve as its Chairman. Patterson Belknap confirmed that it had not previously been engaged to provide services to The Orchard or Dimensional Associates. At the first meeting of the First Special Committee, representatives from Patterson Belknap reviewed the applicable Delaware legal standards, the First Special Committee’s fiduciary duties under Delaware law and the authority of the First Special Committee under the resolutions adopted by the board of directors.

At this meeting, the First Special Committee reviewed The Orchard’s strategic alternatives and recent discussions between The Orchard and companies that had expressed interest in a transaction with The Orchard. One strategic buyer, which we refer to as “Bidder A”, and The Orchard had been engaged in on-and-off discussions about a potential transaction many times over the years, but nothing concrete had emerged from such discussions. The Orchard and Bidder A had entered into a non-disclosure agreement on November 5, 2008, but the discussions had not produced a term sheet or even an outline of a transaction.

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The First Special Committee determined to move forward with potential interested parties on a case-by-case basis. Further, the First Special Committee determined that depending on the type of proposed transaction, the First Special Committee would need to engage its own financial advisor and may need to conduct a formal independent solicitation of interested parties.

On November 19, 2008, we entered into an a non-disclosure agreement with Dimensional Associates pursuant to which Dimensional Associates was permitted (1) to review The Orchard’s confidential information and (2) to provide The Orchard’s confidential information to interested parties pursuant to a non-disclosure agreement with restrictions substantially identical to the one entered into between us and Dimensional Associates. The First Special Committee further established a process whereby no confidential information of The Orchard would be released to Dimensional Associates without it first having been reviewed and vetted by the First Special Committee.

At the request of Dimensional Associates, The Orchard and the First Special Committee compiled and reviewed financial and operational information about The Orchard to facilitate discussions by Dimensional Associates with Bidder A and other third parties. Our management developed a set of documents describing the core business, ancillary business, organization, infrastructure, competitive marketplace and financial projections, which were provided to Canaccord Adams for use in preparing an Information Memorandum distributed to interested parties. Our management also prepared, and the First Special Committee reviewed, a detailed response to a list of questions submitted by Bidder A on November 20, 2008. This response was provided to Bidder A on December 3, 2008.

Between November 2008 and March 2009, with the assistance of Canaccord Adams, Dimensional Associates contacted 53 potential strategic and financial buyers in addition to Bidder A, and distributed 34 Information Memoranda about The Orchard. We entered into non-disclosure agreements with eleven of these potential buyers, and our management conducted eight face-to-face business diligence meetings. None of these discussions, however, produced any credible offers and, after nearly five months of actively marketing The Orchard, Dimensional Associates and Canaccord Adams terminated the solicitation activities in March 2009.

Through March 2009, The Orchard continued its discussions with Bidder A and provided Bidder A with additional diligence materials. Ultimately, discussions with Bidder A did not produce any proposal. The First Special Committee held four meetings, on November 25, 2008, December 17, 2008, February 18, 2009 and March 13, 2009. The First Special Committee was never presented with any offers for its consideration, and after a period of inactivity, the First Special Committee was dissolved by the board of directors on April 17, 2009.

In September 2009, a representative of Craig-Hallum Capital Group LLC, which we refer to as “Craig-Hallum”, informed our board that it had identified a party interested in a potential transaction with The Orchard. Craig-Hallum had been introduced to us by Greg Scholl, then our Chief Executive Officer and a director, and had periodically contacted The Orchard about providing investment banking services, but we never engaged Craig-Hallum. On September 15, 2009, we entered into a non-disclosure agreement with Craig-Hallum to permit it to conduct due diligence and to prepare materials in connection with the interested party it had identified. Our management conducted face-to-face business diligence meetings with the interested party, but none of these discussions produced an offer and the interested party terminated discussions in early October 2009.

Going Private Transaction

On October 9, 2009, Mr. Stein contacted each of the independent directors (Mr. Donahue, David Altschul, Viet Dinh, Nathan Peck and Joel Straka) individually to inform them that, as part of its regular, ongoing review of its investments, Dimensional Associates was considering making a proposal to buy the outstanding shares of capital stock of The Orchard not already owned by Dimensional Associates. He further informed each of them that, while no decisions had been made by Dimensional Associates as to any specific proposal, he wanted to raise the prospect for discussion with the board of directors at the next meeting of the board of directors. On October 13, 2009, the board of directors held a meeting at which, after the transaction of certain regular board business, Mr. Stein, acting in his capacity as a representative of Dimensional Associates, informed the board of directors that, as part of its regular, ongoing review of its investments,

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Dimensional Associates was considering making a proposal to buy the outstanding shares of capital stock of The Orchard not already owned by Dimensional Associates, but provided no specific details as to any proposed structure, price or other terms.

On October 15, 2009, Dimensional Associates delivered to our board of directors a letter in which Dimensional Associates proposed entering into non-binding discussions regarding a potential transaction whereby Dimensional Associates would acquire all of the outstanding shares of our common stock not then owned by Dimensional Associates at a price of $1.68 per share. We refer to the Dimensional Associates proposal as the “Dimensional Proposal”. Dimensional Associates also presented the board of directors with a form of exclusivity agreement, requiring us to cease, and refrain from initiating, discussions and activities that may lead to a third party proposal to consummate an alternative transaction.

On October 19, 2009, the board of directors (Messrs. Dinh and Peck being unable to attend) determined that it was advisable and in the best interests of The Orchard and our stockholders to form a special committee to review and evaluate the Dimensional Proposal. Following this determination, Mr. Stein and Greg Scholl withdrew from the meeting and did not participate in any further deliberations or voting at this meeting. In appointing members to the special committee, the board of directors considered (a) whether a director has a financial interest in a transaction with Dimensional Associates different from the other stockholders (for example, a director appearing on both sides of a transaction or a director receiving a personal benefit from a transaction not received by the stockholders generally); (b) whether a transaction with Dimensional Associates would entrench management or directors; (c) whether the decisions at issue would have a detrimental impact on the director, but not on The Orchard or our stockholders; (d) whether there is an “indirect” interest (including being beholden to an individual or entity interested in the transaction) and (e) whether the “interest” identified is material.

The board of directors determined, and each such director who was present confirmed, that each of Messrs. Donahue, Altschul and Straka is an independent member of the board of directors, and the board of directors appointed each of them to serve on the special committee of the board of directors, which we refer to as the “special committee”. Representatives of Chadbourne & Parke LLP, our outside legal counsel, which we refer to as “Chadbourne”, then discussed the Delaware standards and law applicable to the proposed transaction with Dimensional Associates and explained the directors’ fiduciary duties under Delaware law. At a subsequent meeting of the board held on October 20, 2009 (which included Messrs. Dinh and Peck, but not Mr. Stein), the board of directors determined, and each such director confirmed, that each of Messrs. Dinh and Peck is an independent member of the board of directors, and the board of directors appointed each of them to serve on the special committee.

The special committee held its first meeting on October 22, 2009 and resolved to engage Patterson Belknap as its legal adviser and to appoint Mr. Donahue to serve as its Chairman. Patterson Belknap had served as legal counsel to the First Special Committee until it was dissolved in April 2009 and confirmed that it had not provided services to The Orchard or Dimensional Associates since that date. Representatives from Patterson Belknap reviewed the applicable Delaware legal standards, the special committee’s fiduciary duties under Delaware law and the authority of the special committee under the resolutions adopted by the board of directors, including the power of the special committee to reject the Dimensional Proposal in its entirety. At this meeting, the special committee reviewed the basic terms of the Dimensional Proposal, the process and timeline pursuant to which the special committee would evaluate the Dimensional Proposal and whether we should disclose publicly its receipt of the Dimensional Proposal.

On October 22, 2009, legal counsel for The Orchard, including representatives of each of Patterson Belknap and Chadbourne, as well as The Orchard’s general counsel, and legal counsel for Dimensional Associates, Sonnenschein Nath & Rosenthal LLP, which we refer to as “Sonnenschein”, participated in a conference call to discuss the process and timing for consideration of and response by the special committee with respect to the Dimensional Proposal.

On October 22, 2009, Mr. Donahue and Mr. Stein discussed by telephone Mr. Stein’s continued management role at The Orchard in light of the Dimensional Proposal and our consideration of whether and when to disclose publicly receipt of the Dimensional Proposal. Mr. Stein had been appointed Interim Chief Executive Officer in September 2009 effective October 1, 2009 to provide for an orderly management transition as a

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result of the announced resignation of Mr. Scholl as President, Chief Executive Officer and director effective November 1, 2009. In connection with the resignation of Mr. Scholl, in September 2009 our board of directors established a committee of the board, designated as the “search committee”, to identify a permanent replacement for Mr. Scholl as Chief Executive Officer. Mr. Stein was initially appointed a member of the search committee but was removed on October 20, 2009 in light of the Dimensional Proposal.

On October 24, 2009, the special committee held a meeting to discuss the Dimensional Proposal and Mr. Stein’s continued management role at The Orchard and determined that due to Mr. Stein’s conflicting interests as an executive of both Dimensional Associates and The Orchard, it was not desirable for Mr. Stein to continue to hold the position of Interim Chief Executive Officer of The Orchard while the special committee was negotiating a potential transaction with Dimensional Associates.

Following this meeting of the special committee, all of the members of the special committee held a meeting with Mr. Stein, acting in his capacity as an executive of Dimensional Associates, by telephone to discuss the Dimensional Proposal. Mr. Donahue informed Mr. Stein that the price offered by Dimensional Associates was too low and encouraged Dimensional Associates to increase its offer. Mr. Donahue further informed Mr. Stein that the special committee would be engaging an independent financial advisor to assist it in its review and evaluation. Finally, Mr. Donahue informed Mr. Stein of the special committee’s determination regarding his continued role as Interim Chief Executive Officer if Dimensional Associates were interested in pursuing the Dimensional Proposal.

After this discussion with Mr. Stein, the special committee reconvened to continue its discussion of the Dimensional Proposal. The special committee authorized and directed Mr. Donahue to continue his search for firms to serve as the special committee’s independent financial advisor.

Later in the day on October 24, 2009, Mr. Stein called Mr. Donahue to inform him that Dimensional Associates would be willing to increase its initial proposed price from $1.68 to $1.84 per share.

On October 27, 2009, in light of the parties’ desire to continue substantive discussions regarding the Dimensional Proposal and the special committee’s determination, Mr. Stein resigned from his position as Interim Chief Executive Officer, and the board of directors appointed Mr. Bradley Navin, then our Executive Vice President and General Manager, as Interim Chief Executive Officer. After his resignation, Mr. Stein remained on the board as a director and chairman of the board’s executive, nominating and corporate governance committee.

On October 28, 2009, the special committee engaged Fesnak and Associates, LLP, which we refer to as “Fesnak”, to be the financial advisor to the special committee. Fesnak had been recommended to the special committee by Patterson Belknap. Mr. Donahue interviewed three firms to be the special committee’s financial advisor. Mr. Donahue recommended Fesnak to the special committee because of its competitive fee structure, reputation as a respected valuation firm and its independence from The Orchard and Dimensional Associates. Fesnak confirmed that it had not previously been engaged to provide services to The Orchard or Dimensional Associates and that it had no financial interest in the transaction other than its engagement by the special committee.

On October 30, 2009, we filed a Current Report on Form 8-K with the SEC to report the resignation of Mr. Stein as Interim Chief Executive Officer and the appointment of Mr. Navin as Interim Chief Executive Officer. In connection with the disclosure of the management change, we disclosed receipt of the Dimensional Proposal and the increase in the proposed price offered by Dimensional Associates from $1.68 to $1.84 per share. On November 2, 2009, Dimensional Associates filed an amendment to its Schedule 13D with the SEC to report the Dimensional Proposal and the change in its intent with respect to The Orchard.

From October 22, 2009 through November 7, 2009, the special committee and Dimensional Associates negotiated the terms of an exclusivity agreement and non-disclosure agreement. On October 26, 2009, at the direction of the special committee, Patterson Belknap informed Sonnenschein that the special committee would not agree to the exclusivity and non-solicitation restrictions in the exclusivity agreement because it wanted to facilitate potential third party interest in The Orchard. Dimensional Associates agreed, and the proposed exclusivity agreement was not entered into. On November 7, 2009, the parties entered into a non-disclosure agreement which permitted access by Dimensional Associates to our electronic data room and also

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prohibited Dimensional Associates from communicating with our management without the prior consent of the special committee (except for communications by Mr. Stein with other directors and with management during duly called meetings of the board or any of its committees).

On November 3, 2009, the special committee received the first of five communications from stockholders expressing interest in or concern about the Dimensional Proposal. These shareholder communications included requests for additional information about the special committee's evaluation process, suggestions that the special committee hire an independent financial advisor to value The Orchard and an investment bank to shop The Orchard, and recommendations that The Orchard reject the Dimensional Proposal and remain an independent public company. At a meeting held on November 3, 2009, the special committee established a procedure for communicating with such stockholders so that it could consider their input in its evaluation of the Dimensional Proposal. The special committee responded to four of the stockholders in writing and solicited such holders’ views of the value of The Orchard. The fifth shareholder communication was rendered moot by our public disclosure announcing the merger agreement. The special committee considered the views of these stockholders as it evaluated the Dimensional Proposal.

Also on November 3, 2009, the special committee was contacted by a minority stockholder, who we refer to as “Bidder B”, requesting information about the special committee’s process and seeking direction about how to propose an alternative transaction.

On November 4, 2009, Mr. Donahue had a telephone meeting with Bidder B during which he explained the special committee’s process and encouraged Bidder B to submit a proposal in writing for the special committee’s consideration.

Also on November 4, 2009, Mr. Donahue contacted a potential strategic buyer that had previously expressed interested in a potential transaction with The Orchard. We refer to this potential buyer as “Bidder C”. Mr. Donahue held a further telephone conversation with Bidder C on November 11, during which Bidder C informed Mr. Donahue that it was not interested in pursuing a transaction with The Orchard at that time.

On November 7, 2009, the special committee received a letter from Bidder B, in which he requested to be considered for our Chief Executive Officer position and also stated his desire to propose an alternative transaction. Bidder B was included in a list of candidates to be considered for our Chief Executive Officer position and was vetted by the search committee of the board of directors. Bidder B was ultimately informed on February 22, 2010 that he would not be hired as our Chief Executive Officer.

On November 12, 2009, the special committee held a meeting to discuss the Dimensional Proposal. Representatives of Patterson Belknap and Fesnak attended the meeting. Representatives of Fesnak discussed its valuation methodologies and its analysis of The Orchard, and then answered questions posed by the special committee. Representatives of Patterson Belknap reviewed the fiduciary duties of the directors under applicable Delaware law and confirmed the right of the special committee under its authorizing resolutions to reject the Dimensional Proposal.

On November 18, 2009, Bidder B submitted to the special committee a written indication of interest to lead a group of investors in (1) the acquisition of all of the outstanding shares of our common stock (including those held by Dimensional Associates and its affiliates) for cash consideration in the range of $2.36 to $2.84 per share, (2) the acquisition of all of the outstanding shares of our Series A convertible preferred stock (including those held by Dimensional Associates and its affiliates) for a combination of cash and equity in the surviving entity, and (3) a possible concurrent combination with one or more third party entities in our industry. Bidder B stated that the transaction would be financed by a concurrent capital raise, and it submitted to the special committee letters of support from two investment banks. These investment bank letters were not financing commitment letters, but rather one-page acknowledgements that the investment firms named therein had engaged, and would continue to engage, in discussions with Bidder B about the proposed transaction. Bidder B requested time to undertake a diligence review of The Orchard.

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On November 23, 2009, Mr. Donahue and Mr. Stein discussed the status of the Dimensional Proposal and the special committee’s timeline for finishing its evaluation. Mr. Donahue pressed Mr. Stein to increase the price offered by Dimensional Associates. Mr. Donahue also informed Mr. Stein that the special committee had received an alternative proposal that offered a higher price per share for our common stock than Dimensional Associates had offered and included the acquisition of all of the outstanding shares of Series A convertible preferred stock. Mr. Stein indicated that Dimensional Associates would consider an alternative transaction as long as it provided the holders of the Series A convertible preferred stock with the full value of the “liquidation preference” of the Series A convertible preferred stock. The Orchard has a contractual obligation to holders of its Series A convertible preferred stock that requires it under certain circumstances including a transaction resulting in a change of control of The Orchard to pay such holders prior to any amounts being paid to the holders of our common stock a “liquidation preference” in cash equal to the greater of (1) $55.70 per share of Series A convertible preferred stock and (2) such amount per share as would have been payable had each share of Series A preferred stock been converted into common stock immediately prior to such transaction. Prior to this discussion, Dimensional Associates had not indicated that it would consider being a seller of its ownership position in The Orchard. Any third party proposing to acquire all of our outstanding shares of capital stock, including our shares of Series A convertible preferred stock, must satisfy the contractual obligation to pay to the holders of the Series A convertible preferred stock an aggregate amount equal to approximately $24.99 million in cash before any consideration is paid to the holders of our common stock.

At a meeting on November 24, 2009, the special committee reviewed the then current Dimensional Proposal and recent developments in The Orchard’s business. Representatives of Patterson Belknap and Fesnak attended this meeting. Representatives of Fesnak discussed its analysis of The Orchard. Representatives of Patterson Belknap reviewed the fiduciary duties of the directors under applicable Delaware law in light of Bidder B’s proposal.

The special committee also reviewed the proposal by Bidder B. The cash consideration offered by Bidder B for the shares of the common stock was higher than the Dimensional Proposal, but the special committee noted that the proposed acquisition of the outstanding shares of our Series A convertible preferred stock would require a direct negotiation between Bidder B and Dimensional Associates, as holder of 99% of such stock. Given the necessity of Dimensional Associates’ agreement to the success of Bidder B’s proposed transaction, the special committee requested that Bidder B contact Dimensional Associates directly to determine whether it would sell its position in the Series A convertible preferred stock as proposed. The special committee also directed Mr. Donahue and Patterson Belknap to arrange giving Bidder B access to our electronic data room upon execution of a non-disclosure agreement. We entered into the special committee’s standard non-disclosure agreement with Bidder B on November 30, 2009.

Also on November 30, 2009, at the direction of the special committee, Mr. Donahue again contacted Bidder C as well as another potential strategic buyer that had previously expressed interested in a potential transaction with The Orchard. Bidder C informed Mr. Donahue that it was now interested in a potential transaction with The Orchard and would further consider the matter internally. The other potential buyer informed Mr. Donahue that it was not interested in pursuing a transaction at this time.

On December 8, 2009, Mr. Donahue and Mr. Stein further negotiated the material terms of the proposed transaction and discussed the alternative proposal by Bidder B. Mr. Donahue pressed Mr. Stein to increase the price offered by Dimensional Associates.

The special committee was advised by Mr. Stein as follows: On December 10, 2009, Mr. Stein received from Bidder B a preliminary summary of the terms of a proposed transaction involving the acquisition by an investor group led by Bidder B of all of the shares of Series A convertible preferred stock owned by Dimensional Associates. Later that day, Mr. Stein received a call from Bidder B, during which the terms of the proposed transaction for the acquisition of Dimensional Associates’ shares of The Orchard’s Series A convertible preferred stock were discussed. After an extensive discussion of Bidder B’s proposal, Mr. Stein informed Bidder B that Bidder B’s proposal was not acceptable to Dimensional Associates due to the fact that (1) it did not contemplate a purchase by Bidder B of Dimensional Associates’ shares of The Orchard’s Series A convertible preferred stock at their full liquidation value and (2) the consideration offered by Bidder B was a combination of cash, a promissory note and equity interests in the surviving entity, which, given the fact that

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Bidder B’s proposal was conditioned upon Bidder B’s obtaining third party financing for which commitments had not been secured by Bidder B, acceptance by Dimensional Associates of Bidder B’s proposal would involve the assumption by Dimensional Associates of unacceptable additional completion and investment risk.

On December 11, 2009, the special committee received a letter from Bidder B withdrawing its proposal to acquire The Orchard. According to the letter, on December 10, 2009, Bidder B contacted Dimensional Associates and proposed acquiring all of the outstanding shares of our Series A convertible preferred stock for a combination of cash, a promissory note and equity in the surviving entity. Bidder B would lead an investor group in taking The Orchard private and simultaneously combining it with another entity in our industry. The transaction would be financed in part by a capital raise held concurrently with the acquisition. Dimensional Associates rejected Bidder B’s bid and made a counteroffer. According to the letter, Bidder B rejected the counteroffer by Dimensional Associates because it was “neither economically viable nor with solid financial justification”.

The special committee held a meeting on December 11, 2009. Representatives of Patterson Belknap attended, and at the invitation of the special committee, Mr. Stein attended a portion of the meeting to describe the discussions between Dimensional Associates and Bidder B. Mr. Stein informed the special committee that Bidder B had proposed to purchase all of the outstanding shares of our Series A convertible preferred stock, but that Bidder B had not provided for the full cash payment of the Series A liquidation preference. Instead, Bidder B offered a combination of cash, debt obligations and equity in the surviving entity. Dimensional Associates made a counteroffer to Bidder B, asking that Bidder B purchase the outstanding Series A convertible preferred stock for an amount in cash equal to its liquidation preference. Bidder B rejected this counteroffer as economically infeasible. Though Dimensional Associates deemed Bidder B’s proposal to be economically inadequate, Mr. Stein confirmed that Dimensional Associates would consider selling its position in The Orchard in a transaction that provided for the full cash payment of the liquidation preference as required by the terms of the Series A convertible preferred stock.

After Mr. Stein left the meeting, the special committee directed Mr. Donahue to contact Mr. Stein and inform Dimensional Associates that the special committee would consider a transaction with Dimensional Associates only if it met three conditions: (1) the price offered for the outstanding common stock must be at least in the range of $2.05 to $2.15 per share, subject to Fesnak’s confirmation that such price would be fair; (2) the consummation of the merger must be subject to the affirmative vote of a majority of the minority stockholders; and (3) the merger agreement must provide for a “go-shop” period during which we could continue to solicit third party interest in an alternative transaction.

On December 14, 2009, Mr. Donahue contacted Mr. Stein to inform him of the special committee’s conditions. Mr. Stein told Mr. Donahue that Dimensional Associates was not prepared to proceed with the transaction on such terms.

On December 15, 2009, Mr. Stein contacted Mr. Donahue and informed him that Dimensional Associates would agree to increase its offer price from $1.84 to $2.00 per share and that it would accept and support a “go-shop” period, but that it would not agree to the majority of the minority vote condition. Mr. Stein further confirmed that Dimensional Associates would be a willing seller pursuant to a “credible bid” that included the purchase of its holdings of our Series A convertible preferred stock at not less than its full liquidation preference.

On December 16, 2009, the special committee held a meeting to discuss the status of negotiations with Dimensional Associates. Mr. Donahue described his discussions with Mr. Stein and outlined the counteroffer made by Dimensional Associates on the previous day. The special committee determined it to be in the best interests of the minority stockholders to require a majority of the minority vote condition in approving the transaction with Dimensional Associates. In addition, the special committee discussed the increased price offered by Dimensional Associates and decided that it must continue to negotiate with Dimensional Associates to increase the price.

Also on December 16, 2009, Mr. Donahue received a call from Bidder C informing him that Bidder C had received corporate clearance to pursue a transaction with The Orchard. Patterson Belknap sent Bidder C the form of non-disclosure agreement on December 18, 2009.

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During the weeks of December 14 and 21, 2009, Mr. Donahue and Mr. Stein continued to discuss the special committee’s price and majority of the minority vote conditions. On December 18, 2009, Mr. Stein contacted Mr. Donahue to inform him that the final offer from Dimensional Associates would be $2.10 per share with the “go-shop” provision but with a simple majority vote, not a majority of the minority vote condition.

On December 23, 2009, the special committee held a meeting to discuss the latest offer by Dimensional Associates. Representatives from Patterson Belknap and Fesnak participated in this meeting. Representatives of Patterson Belknap reviewed the majority of the minority vote condition and recent developments under Delaware law regarding such conditions. Representatives of Fesnak discussed its analysis of the valuation of The Orchard. The special committee discussed the revised Dimensional Proposal, including the increased price offered by Dimensional Associates and the legal and practical aspects of the majority of the minority vote condition. The special committee directed Mr. Donahue to push Dimensional Associates to accept the majority of the minority vote condition.

On December 28, 2009, another third party strategic buyer contacted us with an indication of interest in pursuing a transaction and, at the direction of the special committee, we sent the potential buyer the form of non-disclosure agreement approved by the special committee. Following a period of discussion regarding an appropriate form of non-disclosure agreement, including the potential buyer’s form of non-disclosure agreement and a revised form of the special committee’s form, the potential buyer withdrew its interest without further discussion on January 28, 2010, citing differences in approach.

In a letter to the special committee dated January 7, 2010, Dimensional Associates (a) reaffirmed its interest in acquiring the outstanding shares of our common stock other than those held by it and (b) described certain circumstances under which it would be willing to enter into a transaction with The Orchard, including (1) a price of $2.00 per share for each outstanding share of our common stock not held by it; (2) the consummation of the transaction would be subject to the affirmative vote of a majority of the minority shares; and (3) Dimensional Associates would be reimbursed for its expenses under certain standard termination events, including the failure to receive the majority of the minority vote. The letter stated that if Dimensional Associates did not receive a countersigned copy of the letter on or before January 21, 2010, then it would consider the letter and the revised Dimensional Proposal set forth in the letter to have been fully and finally rejected by the special committee.

On January 8, 2010, Mr. Stein contacted Mr. Donahue to discuss the Dimensional Proposal and the conditions for moving forward with a transaction. Mr. Stein explained that Dimensional Associates was willing to condition the consummation of the transaction on the approval of a majority of the minority holders only if The Orchard would reimburse Dimensional Associates for its documented out-of-pocket expenses if the transaction was not consummated as a result of the failure to obtain the requisite stockholder vote, as well as certain other standard termination events.

On January 12, 2010, the special committee held a meeting to consider the Dimensional Proposal and the letter sent to the special committee. Representatives of Patterson Belknap and Fesnak attended this meeting. The special committee discussed the latest terms of the Dimensional Proposal and the value of The Orchard. Representatives of Patterson Belknap reviewed the conditions of the letter sent by Dimensional Associates. Representatives of Fesnak reviewed its analysis of the valuation of The Orchard in light of the price offered by Dimensional Associates in its letter. The special committee authorized and directed Mr. Donahue to contact Mr. Stein and ask Dimensional Associates to increase its price to $2.10 per share, while keeping Dimensional Associates engaged in the negotiations.

Also on January 12, 2010, Dimensional Associates filed an amendment to its Schedule 13D with the SEC to report that it had delivered the January 7, 2010 letter to the special committee in which it “(a) reaffirmed its interest regarding its proposal that was the subject of the October 15, 2009 letter and (b) described the circumstances under which it would be willing to increase its proposed price in any such proposed transaction to $2.00 per share”.

On January 13, 2010, Mr. Donahue contacted Mr. Stein and asked him to raise his price to $2.10 per share. Mr. Stein acknowledged that Dimensional Associates had offered $2.10 per share in his conversation

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with Mr. Donahue on December 18, 2009, but he stated that the offer at the time was contingent on, among other things, having a simple majority vote condition, and Dimensional Associates had since withdrawn that offer. Mr. Donahue and Mr. Stein generally discussed the value of The Orchard. Mr. Stein said that Dimensional Associates would consider the special committee’s request. Mr. Stein called Mr. Donahue later that day to state that Dimensional Associates would be willing to raise its offer to $2.05 per share, with a majority of the minority vote condition and the “go-shop” provision, and that it represented Dimensional Associates’ best and final offer.

On January 14, 2010, the special committee held a meeting to discuss the terms and conditions proposed by Dimensional Associates. Representatives of Patterson Belknap and Fesnak attended this meeting. Representatives of Patterson Belknap reviewed the material terms of the latest Dimensional Proposal and the protections provided to our minority stockholders. Representatives of Fesnak reviewed its analysis of the valuation of The Orchard and the $2.05 per share offer by Dimensional Associates. The special committee determined that Dimensional Associates had agreed to three of the key requirements of the special committee: (1) a price within the desired range; (2) a majority of the minority vote condition; and (3) a “go-shop” provision. The special committee then authorized and directed Patterson Belknap to negotiate the terms and conditions of a merger agreement with Dimensional Associates based on the material terms agreed to in principle by the parties.

From that day until the merger agreement was executed on March 15, 2010, the parties and their respective representatives negotiated the terms of a definitive merger agreement. Representatives of Sonnenschein had sent representatives of Patterson Belknap and the special committee a proposed draft merger agreement on November 20, 2009. At the time, the special committee determined that it was not in the best interests of The Orchard and our stockholders to begin review and negotiation of the agreement until the parties were in agreement in principle on the key material terms of an agreement. Once those terms had been agreed upon, negotiation of the merger agreement followed.

On January 22, 2010, Patterson Belknap provided a revised draft of the merger agreement to Sonnenschein, and on January 29, 2010, legal representatives from The Orchard, Patterson Belknap, Sonnenschein and Chadbourne discussed open items in the merger agreement. On February 12, 2010, Sonnenschein provided a revised merger agreement to Patterson Belknap, and on February 18, 2010, Mr. Donahue, Mr. Stein and legal representatives of The Orchard, Patterson Belknap, Sonnenschein and Chadbourne held a conference call to discuss open items in the merger agreement. Significant issues discussed during this call included the scope of the representations and warranties of both parties, our right to entertain higher offers after the end of the “go-shop” period, the nature and amount of expenses to be reimbursed by The Orchard if the transaction is not consummated and the circumstances under which such amounts are reimbursable, and the conditions under which the parties may elect not to consummate the transaction.

On February 19, 2010, Patterson Belknap provided a revised draft of the merger agreement to Sonnenschein, including revisions the parties had agreed to during the call the previous day. The parties then engaged in a series of telephone discussions and written communications from February 26, 2010 to March 15, 2010, during which the parties negotiated a number of issues, including:

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On March 4, 2009, the special committee held negotiations with Mr. Stein at our headquarters. The parties resolved open issues regarding the representations and warranties, the amount of the cap on the reimbursement of expenses, the length of the “go-shop” period and other open items relating to the parties’ termination rights. During these discussions, at the request of the special committee, Dimensional Associates agreed to include a provision that would require the payment of additional consideration to the current minority stockholders under certain circumstances if Dimensional Associates, The Orchard or any of their affiliates enters into a subsequent transaction to sell 80% of The Orchard or its assets within six months of the consummation of the merger.

After these conversations with Mr. Stein on March 4, 2009, the special committee held a meeting to review the negotiation of the merger agreement. Representatives from Patterson Belknap participated in this meeting and described the status of its negotiations with Sonnenschein on the merger agreement. At this meeting, the special committee also determined to engage Craig-Hallum as its investment banker to solicit third party interest in an alternative transaction and otherwise manage the activities of the special committee in connection with the “go-shop” provision in the proposed merger agreement. In September 2009, prior to our receipt of the Dimensional Proposal, Craig-Hallum had introduced a potential buyer to us, but we never engaged Craig-Hallum for this or any other purpose. The discussions in September 2009 did not progress, but Craig-Hallum had undertaken certain diligence activities in connection with those discussions.

Mr. Donahue interviewed three firms to be the special committee’s investment banker with respect to its “go-shop” activities. Mr. Donahue recommended Craig-Hallum to the special committee because of its competitive fee structure, perspective on the digital distribution industry and because its knowledge of The Orchard would permit it to begin solicitation activities immediately upon its engagement so that the special committee could fully utilize the “go-shop” period. Craig-Hallum had confirmed that it had never been engaged to provide services to The Orchard or Dimensional Associates, and that it had no financial interest in the transaction other than its engagement by the special committee.

On February 18, 2010, the board of directors elected Mr. Navin as Chief Executive Officer and a director of The Orchard. Mr. Navin’s election was unanimously recommended by the search committee.

On March 15, 2010, the special committee held a special meeting to continue its consideration of the Dimensional Proposal and the draft merger agreement. Representatives of Patterson Belknap and Fesnak participated in the meeting. Representatives of Patterson Belknap reviewed with the special committee the fiduciary duties of the directors under applicable Delaware law, the history of the negotiations with Dimensional Associates and other parties, and the terms of the draft merger agreement. Representatives of Fesnak reviewed with the special committee its financial analyses of The Orchard and the Dimensional Proposal. Fesnak then delivered its oral opinion to the special committee that, as of March 15, 2010, and based upon and subject to the various assumptions and qualifications described in such opinion, the per share merger consideration to be received by holders, other than Dimensional Associates and its affiliates, of the common stock in the merger is fair, from a financial point of view, to such holders.

Then following discussion, the special committee unanimously determined that the merger agreement is fair to and in the best interests of The Orchard and our stockholders, declared advisable the merger, the merger agreement and the transactions contemplated thereby, and recommended that the board of directors approve the merger, the merger agreement and the transactions contemplated thereby, that the board of directors recommend to our stockholders that they vote to approve and adopt the merger agreement, and that our stockholders vote to approve and adopt the merger agreement.

The board of directors thereafter convened and unanimously determined (other than Mr. Stein, who abstained from deliberations and voting on the matter) to adopt the recommendation of the special committee, that the merger is fair to and in the best interests of The Orchard and our stockholders, approved and declared advisable the merger agreement, the merger and the transactions contemplated thereby, resolved that the merger agreement be submitted for consideration by our stockholders at a meeting of stockholders, and recommended that our stockholders vote to approve and adopt the merger agreement.

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On the afternoon of March 15, 2010, The Orchard, Dimensional Associates and The Orchard Merger Sub, Inc., a wholly owned subsidiary of Dimensional Associates, executed the merger agreement, and on the morning of March 16, 2010, we issued a press release and filed a Current Report on Form 8-K with the SEC announcing the execution of the merger agreement. On the afternoon of March 16, 2010, Dimensional Associates filed an amendment to its Schedule 13D with the Securities and Exchange Commission announcing the execution of the merger agreement.

On March 16, 2010, The Orchard, Dimensional Associates and The Orchard Merger Sub executed Amendment No. 1 to the merger agreement, and on March 18, 2010, we filed a Current Report on Form 8-K with the SEC reporting the execution of the amendment to the merger agreement. The amendment clarifies the intention of the parties that the condition to the completion of the merger requiring the merger agreement and the merger to be approved and adopted by holders of a majority of our outstanding voting securities not owned by Dimensional Associates, its affiliates or Merger Sub, is not waivable. On March 18, 2010, Dimensional Associates filed an amendment to its Schedule 13D with the SEC reporting the execution of the amendment to the merger agreement.

On April 14, 2010, the special committee held a meeting at which Patterson Belknap was present. Representatives of Patterson Belknap updated the special committee on the status of a civil action challenging the merger that had been filed in the Delaware Court of Chancery on March 25, 2010. The special committee resolved to engage the Delaware law firm of Morris, Nichols, Arsht & Tunnell LLP, which we refer to as “Morris Nichols”, as its Delaware legal counsel with respect to the litigation and any action challenging the merger that may be filed in the future in the Delaware Court of Chancery. Patterson Belknap had recommended Morris Nichols to the special committee. Mr. Donahue interviewed two firms to be the special committee’s legal counsel in Delaware with respect to the litigation. Mr. Donahue recommended Morris Nichols to the special committee because of its reputation and familiarity with the type of litigation filed in Delaware. Morris Nichols confirmed that it had never been engaged to provide services to The Orchard or Dimensional Associates, and that it had no financial interest in the transaction other than its engagement by the special committee.

Also on April 14, 2010, The Orchard, Dimensional Associates and The Orchard Merger Sub executed Amendment No. 2 to the merger agreement, and on April 15, 2010, we filed a Current Report on Form 8-K with the SEC reporting the execution of the amendment to the merger agreement. The amendment extended the “go-shop” period in the merger agreement by one week, to 37 days from 30 days, giving us the right to solicit and engage in discussions and negotiations with respect to an alternative transaction through April 21, 2010. The parties agreed to extend the “go-shop” period to permit Craig-Hallum to complete discussions with two parties that remained interested in a transaction with The Orchard as of the end of the original “go-shop” period. On April 19, 2010, Dimensional Associates filed an amendment to its Schedule 13D with the SEC reporting the execution of the amendment to the merger agreement.

The merger agreement, as amended, provides that, until 12:01 a.m., New York time, on April 22, 2010, we were allowed to initiate, solicit and encourage any alternative acquisition proposals from third parties, provide non-public information and participate in discussions and negotiate with third parties with respect to acquisition proposals. Upon execution of the merger agreement, we engaged Craig-Hallum to conduct this “go-shop” process. From March 16th through April 21, 2010, Craig-Hallum contacted 35 potential interested parties, consisting of 23 strategic parties that operate in our industry, including Bidder C, and 12 potential financial buyers that invest in companies in our industry. Four of these potential interested parties entered into non-disclosure agreements with us and were provided access to our electronic data room. In addition, one financial buyer held face-to-face business diligence meetings with our management. None of these discussions, however, produced any offers for an alternative transaction to acquire The Orchard. On April 22, 2010, the “go-shop” period expired, and we ceased our solicitation activities. The merger agreement permits us to engage or participate in discussions or negotiations with any person that makes a bona fide acquisition proposal in writing that the special committee reasonably determines in good faith (after consultation with its financial advisor) constitutes or is reasonably likely to lead to a superior proposal, and the special committee will consider each such proposal that is submitted. See “The Merger Agreement — Restrictions on Solicitations of Other Offers”.

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Fairness of the Merger, Recommendation of the Special Committee and the Board of Directors

On March 15, 2010, the special committee determined that the proposed merger and the terms and provisions of the merger agreement were substantively and procedurally fair to and in the best interests of our unaffiliated stockholders and that the merger was advisable. Based on such determinations, the special committee unanimously recommended to the board of directors that the board of directors approve and authorize the merger agreement and the transactions contemplated thereby.

At a meeting of the board of directors held immediately following the special committee’s determination, at which all of the directors were present, the board of directors considered the recommendation of the special committee. The board of directors adopted the special committee’s analysis and determined that the terms and provisions of the merger agreement and the proposed merger were substantively and procedurally fair to and in the best interests of our unaffiliated stockholders and that the merger was advisable, approved and authorized the merger agreement and recommended that our stockholders adopt the merger agreement. This approval and authorization by the board of directors was unanimous, except that Mr. Stein abstained from deliberations and voting on the matter.

In evaluating the fairness and advisability of the merger agreement and the merger, the special committee considered the following factors, each of which the special committee believes supports its determination as to fairness:

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The special committee also considered the following potentially negative factors:

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In considering the fairness of the merger to our stockholders, other than Dimensional Associates and its affiliates, the special committee considered whether the $2.05 per share price represented fair value in relation to the following:

The cash consideration offered to the holders of our common stock in the merger exceeded the range indicated in each of these analyses other than the implied equity value based on multiples of last-twelve-month revenues of selected comparable companies, which resulted in an implied value of the our common stock equal to $3.90 per share. The special committee considered this valuation to be an outlier because it was not supported by any of the other valuation methodologies.

The special committee did not separately consider net book value, pre-merger going concern value or bankruptcy liquidation value in determining the fairness of the merger to our stockholders. The special committee noted that The Orchard continues to be viable as a going concern and that liquidation was not considered a viable alternative to The Orchard remaining an independent business, or the sale of The Orchard as a going concern.

Although the foregoing discussion sets forth all of the material factors considered by the special committee in reaching their recommendations, it may not include all of the factors considered by the special committee. Each director may have weighed these factors differently and considered additional factors. In view of the variety of factors and the amount of information considered, the special committee did not find it practicable to, and did not, make specific assessments of, quantify or otherwise assign relative weights to the specific factors considered in reaching their recommendations. The recommendations were made after consideration of all of the factors as a whole.

The special committee believes that the proposed merger is procedurally fair to our unaffiliated stockholders because, among other things: (1) the special committee consisted of independent directors with no economic interest or expectation of an economic interest in Dimensional Associates or its affiliates and was appointed by the board of directors to represent solely the interests of our unaffiliated stockholders; (2) the terms and conditions of the merger agreement resulted from extensive arm’s length bargaining between the special committee (and its counsel) and Dimensional Associates (and its counsel), with the participation of

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management of The Orchard (and its counsel); and (3) the terms and conditions of the merger agreement include significant procedural protections for the unaffiliated stockholders, including the non-waivable condition that the merger agreement and merger be approved by holders of a majority of our outstanding voting stock other than Dimensional Associates and its affiliates.

The board of directors, after receiving the recommendation of the special committee, adopted the special committee’s analysis, and (1) approved, declared advisable and authorized the merger agreement and the transactions contemplated by the merger agreement, including the proposed merger; (2) determined that the proposed merger and the transactions contemplated by the merger agreement are substantively and procedurally fair to and in the best interests of our unaffiliated stockholders; and (3) recommends that our stockholders vote FOR the approval of the merger and the approval and adoption of the merger agreement.

Opinion of the Special Committee’s Financial Advisor

The special committee retained Fesnak and Associates, LLP, which we refer to as “Fesnak”, as its financial advisor in connection with the offer by Dimensional Associates. Fesnak is an accounting, valuation and consulting firm that is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions and for corporate and other purposes. Fesnak orally rendered its opinion, which we refer to as the “Fesnak Opinion”, to the special committee and subsequently confirmed in writing, that as of March 15, 2010, and based upon and subject to the factors and assumptions set forth in the written opinion, the merger consideration to be paid by Dimensional Associates to the holders of our common stock (other than Dimensional Associates and its affiliates), taken in the aggregate, pursuant to the offer was fair from a financial point of view to such holders.

The full text of the Fesnak Opinion, dated March 15, 2010, is attached as Appendix C to this proxy statement. This summary is qualified in its entirety by reference to the full text of the Fesnak Opinion. You are encouraged to, and should, read the Fesnak Opinion in its entirety for a discussion of the assumptions made, procedures followed, factors considered and limitations of the review undertaken by Fesnak in rendering such opinion. Fesnak provided its opinion for the information of and assistance to the special committee in connection with its consideration of the offer by Dimensional Associates and addresses only the fairness from a financial point of view as of the date of the opinion of the merger consideration to be received by the holders of our capital stock (other than Dimensional Associates and its affiliates) pursuant to the merger agreement. The Fesnak Opinion does not in any manner address any other aspects of the merger or the merger agreement. Fesnak expressed no opinion or recommendation to the stockholders as to how to vote at the annual meeting to be held in connection with the merger or what particular course of action should be taken with respect to the contemplated transaction or any other matter.

In connection with rendering its opinion, Fesnak, among other things:

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In arriving at its opinion, Fesnak assumed and relied on, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to Fesnak by us. With respect to the financial forecasts Fesnak assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of our management of the future financial performance of The Orchard. In addition, Fesnak assumed that the merger will be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay of any terms or conditions.

Fesnak was not engaged as a legal, tax or regulatory advisor to the special committee. Fesnak was engaged to be financial advisor only and has relied on, without independent verification, the assessment of The Orchard and its legal, tax, and regulatory advisors with respect to legal, tax, and regulatory matters. Fesnak did not make any independent valuation or appraisal of the assets or liabilities of The Orchard, nor was Fesnak furnished with any such appraisals. The Fesnak Opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Fesnak as of, the date of the opinion. Events occurring after the date of the opinion may affect the opinion and the assumptions used in preparing it, and Fesnak did not undertake any obligation to update, revise or reaffirm the opinion.

The Fesnak Opinion does not address the relative merits of the merger as compared with any other alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved. In arriving at its opinion, Fesnak was not authorized to solicit, and did not solicit, interest from any party with respect to the acquisition, business combination or other extraordinary transaction involving The Orchard, nor did Fesnak negotiate with any party with respect to the possible acquisition, business combination or other extraordinary transaction involving The Orchard.

The following is a summary of the material financial analyses used by Fesnak in connection with providing its opinion to the special committee.

Comparable Public Company Analysis

Fesnak compared certain financial information for The Orchard to corresponding financial information, ratios and public market multiples for a sample of publicly traded companies selected based on their involvement in the digital media services industry, size, profitability, leverage, growth prospects, market position and risk. After discussions with The Orchard’s management and its own analysis, Fesnak selected the following nine publicly traded companies to serve as comparables:

Glue Mobile Inc.
EDGAR Online, Inc.
Limelight Networks, Inc.
Salary.Com, Inc.
WebMediaBrands Inc.
Image Entertainment, Inc.
RealNetworks Inc.
Internap Network Services Corporation
LiveWire Mobile, Inc.

Fesnak analyzed publicly available information for the comparable companies, including market and financial data from such companies’ public filings with the SEC. Fesnak used this information to formulate valuation multiples which were applied to the appropriate revenue and earnings streams for The Orchard. None of the comparable companies is identical to The Orchard. As a result, in evaluating the comparable companies, Fesnak made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters.

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Fesnak calculated and compared various financial multiples and ratios using closing market share prices and other publicly available historical financial data for the selected companies, based on results as of September 30, 2009 (and December 31, 2009 when available) and stock prices as of March 10, 2010. Because we had a loss from operations and negative EBITDA for the twelve months ended September 30, 2009, Fesnak calculated “market value of invested capital”, which we refer to as MVIC, and applied the MVIC to revenue multiples for the last twelve months for the nine comparable companies to The Orchard’s revenues, rather than more commonly used income multiples, such as MVIC to EBITDA. However, because the MVIC to EBITDA ratio is instructive, Fesnak also decided to apply the comparable companies’ MVIC to EBITDA multiples to The Orchard’s forecasted EBITDA for 2010. The multiples calculated by Fesnak for the comparable companies are as follows:

		Industry Multiples
Selected Pricing Multiple		Low				High				Mean				Median				Selected
MVIC/Revenues			0.31				1.83				0.82				0.64				0.60
MVIC/EBITDA			3.41				41.35				18.61				11.08				10.00

Fesnak selected a multiple of 0.60 for the MVIC to Revenue calculation, which approximates the median, because our financial results are in line with the comparable companies except for the liquidity ratios, which were below the public comparables. Fesnak selected a multiple of 10.00 for the MVIC to EBITDA calculation, which is slightly below the median, because these multiples represent the historical performance of the comparable companies but they are being applied to forecasted performance for The Orchard since we had negative EBITDA during the period of analysis.

In order to calculate a residual value available to the holders of our common stock, Fesnak made several adjustments to the analysis, including (i) adding back $4.5 million of cash that was on the balance sheet of The Orchard but had been excluded from the calculation because cash was excluded from the MVIC multiples calculated for the comparable companies, (ii) the application of a 20% control premium in order to determine equity value on a controlling interest basis, and (iii) the subtraction of approximately $24.99 million from the overall value, representing the liquidation preference of our outstanding Series A convertible preferred stock.

Based on the multiples and adjustments described above, Fesnak calculated an equity value ranging from $1.58 per share of common stock, using the MVIC to EBITDA multiple, to $3.90 per share, using the MVIC to Revenue multiple. Fesnak considered the MVIC to Revenue calculation of $3.90 to be an outlier because of its significant difference from each of the other valuation metrics utilized.

Selected Relevant Transactions Analysis

Fesnak also analyzed certain information relating to the following transactions, which were selected because the target companies operate in the digital media services industry, as well as the size of the target companies and the availability of information about the transactions. Fesnak derived valuation multiples from the acquisition prices of these target companies and then applied such multiples to The Orchard.

Target		Acquirer		Acquisition Date		Consideration
Visual Connection, a.s.		KIT Digital, Inc.		October 2008		$4.3 million
Audible, Inc.		Amazon.com, Inc.		March 2008		$277.4 million
Vyvx Ads Business (Level 3 Communications Inc.)		DG Fast Channel Inc.		June 2008		$129 million
Applied Graphics Technologies Inc.		Digital Generation Systems, Inc.		June 2004		$14.1 million
Good Times Entertainment		GAIAM, Inc.		September 2005		$34.4 million
Movielink, LLC		Blockbuster, Inc.		August 2007		$7 million
Creatas, LLC		Jupitermedia Corp.		March 2005		$60.4 million
Trusonic Inc.		Fluid Media Networks, Inc.		October 2007		$6 million
Ringtone.com, LLC		New Motion, Inc.		June 2008		$8.6 million
AMV Holding Limited		Mandalay Media, Inc.		October 2008		$22.5 million

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Fesnak calculated multiples of MVIC to last-twelve-month revenue for the ten guideline transactions and applied a selected multiple based on these transactions to the revenues reported by the Company for the twelve-month period ended September 30, 2009. The multiples for the guideline transactions are as follows:

Industry Multiples

Selected Pricing Multiple

Low

High

Mean

Median

Selected

MVIC/Revenues

0.24

3.54

1.44

1.12

0.60

Fesnak selected a multiple of 0.60 for this MVIC to Revenue calculation, which was between the low and the median. The lower than median revenue multiple was selected because (i) several of the guideline companies had positive EBITDA, which The Orchard did not, (ii) most of the selected transactions occurred prior to the economic recession, when valuation multiples for such transactions were higher, (iii) transactions for the guideline companies that had negative EBITDA had a 0.85 median multiple and transactions with negative EBITDA and greater than $10 million in revenues had a 0.42 median multiple, and (iv) The Orchard had negative working capital.

In order to calculate a residual value available to the holders of our common stock, Fesnak made several adjustments to the analysis, including the subtraction of approximately $24.99 million from the overall value, representing the liquidation preference of our outstanding Series A convertible preferred stock.

Based on the multiples and modifications described above, Fesnak calculated an equity value of $1.89 per share of common stock.

Historical Trading and Selected Price Analysis

Fesnak reviewed the recent stock price performance of our common stock. The closing stock price of our common stock on March 12, 2010, prior to the announcement of the signing of the merger agreement but after the announcement of the $2.00 per share offer by Dimensional Associates for the outstanding shares of common stock not held by it, was $1.70 per share. Adding a control premium of 20% to such price resulted in an approximate price of $2.04 per common share.

Discounted Cash Flows Analysis

Based on cash flow forecasts provided by our management in November 2009, Fesnak performed a discounted cash flow analysis of The Orchard using the present value of forecasted cash flows to be generated for fiscal years ending December 31, 2010 through 2014 and the value of The Orchard at the end of such period, or the terminal value.

Our management provided Fesnak with “base case”, “worst case” and “aggressive case” forecasts of net cash flows for each of these years as described under “Certain Financial Projections — Additional Cash Flow Projections”, which were updated by Fesnak with management input. Fesnak considered two scenarios using the discounted cash flow method. The first scenario assumes The Orchard would remain an independent public company and that it would continue to take advantage of its net operating tax loss carryforwards. The second scenario assumes that Dimensional Associates would (i) acquire the remaining common shares, integrate the operations of The Orchard with its other digital media assets, thereby creating synergies and cost savings, (ii) share these post-merger savings equally with our pre-merger holders of common stock other than Dimensional Associates and its affiliates, and (iii) be unable to take full advantage of our net operating tax loss carryforwards because of limitations as a result of certain changes in ownership.

For each scenario, a sensitivity analysis was also performed using management’s base case, worst case and aggressive case scenarios. However, in calculating the per share value, Fesnak utilized only the aggressive case scenario because it represents the highest potential value that The Orchard would be expected to achieve in the forecast period.

The discounted cash flow technique has two value components. The first equals the sum of the present value of the cash flows over the forecast period. The second — the residual value, or terminal value — equals the present value of the forecasted cash flow in the terminal year, capitalized into perpetuity using a capitalization rate derived from the discount rate. The residual value reflects the ongoing potential of the business.

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Available cash flows are typically equal to the sum of net income plus non-cash charges such as depreciation and amortization, less capital expenditures and working capital requirements. A company’s cost of capital, or discount rate, is equal to the weighted average of its after-tax cost of debt and equity. This rate represents a rate of return that could be expected by an investor given the risk associated with the investment. Fesnak concluded that the appropriate discount rate, based on the weighted average cost of capital of The Orchard was 20% as of the fairness opinion date.

The discounted cash flow analysis completed by Fesnak under the first scenario, which assumes The Orchard would remain a public company and that it would continue to take advantage of its net operating tax loss carryforwards, resulted in an implied value of $1.05 per share of our common stock. The discounted cash flow analysis completed by Fesnak under the second scenario, which assumes a sharing of the savings and synergies resulting from integration of the operations of The Orchard with the other digital media assets of Dimensional Associates, resulted in an implied value of $1.37 per share of our common stock.

General

In connection with the review of the merger by the special committee, Fesnak performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Fesnak considered the results of all of its analyses and believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Fesnak may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be the view of Fesnak of the actual value of The Orchard.

Fesnak conducted the analyses described above solely as part of its analysis of the fairness of the merger consideration to be received by holders of shares of our common stock, other than Dimensional Associates and its affiliates, pursuant to the merger agreement from a financial point of view to such holders and in connection with the delivery of its opinion to the special committee. These analyses do not purport to be appraisals or to reflect the prices at which shares of our common stock might actually trade on an open market.

The merger consideration to be paid pursuant to the merger agreement was determined through arm’s-length negotiations between the special committee and Dimensional Associates and was recommended by the special committee for approval by the board of directors of The Orchard and was approved by our board of directors and Dimensional Associates. Fesnak provided advice to the special committee during these negotiations. Fesnak did not, however, recommend any specific merger consideration to the special committee or that any specific merger consideration constituted the only appropriate merger consideration for the merger.

The Fesnak Opinion and its presentation to the special committee was one of many factors taken into consideration by the special committee in deciding to recommend that the board of directors approve, adopt and authorize the merger agreement. Consequently, the analyses described above should not be viewed as determinative of the opinion of the special committee with respect to the consideration to be received by our stockholders pursuant to the merger agreement or of whether the special committee would have been willing to agree to a different merger consideration. The foregoing summary describes the material analyses performed by Fesnak but does not purport to be a complete description of the analyses performed by Fesnak.

The special committee retained Fesnak as its financial advisor because of its reputation in accounting, valuation and consulting and because of its independence from The Orchard and Dimensional Associates. Fesnak provided the special committee with financial advisory services and a fairness opinion in connection with the merger, and as compensation for its services in connection with the merger, we agreed to pay Fesnak a fee of approximately $150,000, $96,000 of which was paid upon delivery of the Fesnak Opinion. We also agreed to reimburse Fesnak for certain expenses incurred by Fesnak and to indemnify Fesnak and related parties against certain liabilities and expenses arising out of the special committee’s engagement of Fesnak.

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Purpose and Reasons for the Merger for Dimensional Associates, Merger Sub and Certain of their Affiliates

Under applicable SEC rules, Dimensional Associates and Merger Sub are deemed to be engaged in a “going private” transaction with respect to the proposed merger. Therefore, Dimensional Associates, Merger Sub and certain of their affiliates, namely JDS Capital, L.P., JDS Capital Management, LLC, Joseph D. Samberg and Daniel C. Stein, which we refer to collectively as the “Dimensional Affiliates”, are required to express their reasons for the merger to our unaffiliated stockholders, as defined in Rule 13e-3 under the Exchange Act. Merger Sub, Dimensional Associates and the Dimensional Affiliates are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act.

For Merger Sub, Dimensional Associates and the Dimensional Affiliates, the primary purpose for the merger is to increase Dimensional’s ownership of our common stock from its current position of approximately 42% to over 99% (with the remaining shares of our common stock being owned by Mr. Stein), so that we can be operated as a privately held, majority owned company by Dimensional Associates. Dimensional Associates and Merger Sub will achieve this purpose by way of the merger of Merger Sub with and into The Orchard, pursuant to which all of the shares of our common stock not already owned by Dimensional Associates and its affiliates will be cancelled in exchange for $2.05 per share in cash and a contingent right to receive additional consideration, under certain circumstances if Dimensional Associates or The Orchard or any of their affiliates enters into a commitment to sell at least 80% of our voting securities or assets within six months of the consummation of the merger. Dimensional Associates and the Dimensional Affiliates will benefit from any future earnings and growth of The Orchard after the merger, and Dimensional Associates and the Dimensional Affiliates will bear the risks of its investment in The Orchard. Our non-continuing stockholders will not benefit from any future earnings and growth of The Orchard after the merger, and they will not bear the risk of investment in The Orchard. Dimensional Associates, Merger Sub and the Dimensional Affiliates believe that structuring the transaction as a merger is preferable to other transaction structures because it will enable Dimensional Associates to acquire all of the outstanding shares of our common stock (other than those held by Dimensional Associates and its affiliates) at the same time and also provides an opportunity to the non-continuing stockholders to receive cash for their investment at a fair value for their shares. Dimensional Associates, Merger Sub and the Dimensional Affiliates also believe that the proposed merger will provide additional means to enhance stockholder value for the continuing stockholders after the merger, including improved profitability due to the elimination of the expenses associated with public company reporting and compliance and increased flexibility and responsiveness in management of the business to achieve growth and respond to competition without the restrictions of quarterly earnings comparisons.

Position of Dimensional Associates and Merger Sub as to the Fairness of the Merger

Under applicable SEC rules, Dimensional Associates and Merger Sub are deemed to be engaged in a “going private” transaction with respect to the proposed merger and therefore are required to express their beliefs as to the fairness of the merger to our unaffiliated stockholders. Dimensional Associates and Merger Sub are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. Dimensional Associates’ and Merger Sub’s views as to the fairness of the proposed merger should not be construed as a recommendation to any of our stockholders as to how that stockholder should vote on the proposal to approve the merger and to approve and adopt the merger agreement and the other transactions contemplated thereby. Dimensional Associates and its affiliates have interests in the proposed merger that are different from, and in addition to, those of our other stockholders. These interests are described under “— Interests of Certain Persons in the Merger”.

Our stockholders, other than Dimensional Associates and its affiliates, were represented by the special committee, which negotiated the terms and conditions of the merger agreement on their behalf, with the assistance of the special committee’s independent financial and legal advisors. Accordingly, neither Dimensional Associates nor Merger Sub undertook any independent evaluation of the fairness of the proposed merger to our unaffiliated stockholders or engaged a financial advisor for such purposes. Dimensional Associates and Merger Sub did not participate in the deliberations of the special committee regarding, or receive advice from the special committee’s legal or financial advisors as to, the fairness of the proposed merger.

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Merger Sub and Dimensional Associates do, however, believe that the proposed merger and the merger agreement are substantively and procedurally fair to our unaffiliated stockholders, based on the following factors:

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In arriving at the $2.05 per share cash merger consideration, Dimensional Associates and Merger Sub did not consider the liquidation value of The Orchard because they considered The Orchard to be a viable, going concern and therefore did not consider liquidation value to be a relevant valuation method. Further, Dimensional Associates and Merger Sub did not consider net book value, which is an accounting concept, as a factor because they believe that net book value is not a material indicator of the value of The Orchard as a going concern but rather is indicative of historical costs. In addition, Dimensional Associates and Merger Sub did not consider firm offers made by unaffiliated persons during the last two years, as, to their knowledge, no such offers were made during the last two years.

While Mr. Stein is currently one of our directors, because of his interest in the proposed merger he did not participate in our board of directors’ or the special committee’s evaluation, deliberation or approval of the proposed merger, or its approval and adoption of the merger agreement and the other transactions contemplated thereby. For these reasons, Dimensional Associates and Merger Sub do not believe that their interests in the proposed merger influenced the decision of the special committee or our board of directors with respect to the merger or the merger agreement and the transactions contemplated thereby.

The foregoing discussion of the information and factors considered and given weight by Dimensional Associates and Merger Sub in connection with the fairness of the proposed merger and the merger agreement is not intended to be exhaustive but is believed to include all material factors considered by Dimensional Associates and Merger Sub. Merger Sub and Dimensional Associates did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching its position as to the fairness of the proposed merger and the merger agreement. Rather, the fairness determinations were made after consideration of all of the foregoing factors as a whole. Dimensional Associates and Merger Sub believe that the foregoing factors provide a reasonable basis for their belief that the proposed merger is fair to our unaffiliated stockholders.

Plans for The Orchard After the Merger

It is expected that, upon consummation of the proposed merger, The Orchard’s business and other operations will be conducted in substantially the same manner as they are currently being conducted, except that the directors of Dimensional Associates will become the directors of the surviving corporation and our common stock will cease to be publicly traded. While Dimensional Associates does not have any current plans to effectuate any extraordinary transactions with respect to The Orchard, including by way of its merger or sale or other disposition of a material amount of its assets, following the consummation of the proposed merger, the management and/or board of directors of the surviving corporation will continue to assess the assets, capital structure, operations, business and personnel of The Orchard and, as a result, may implement changes they believe are appropriate to enhance the business and operations of the surviving corporation at any time following the merger. Following the consummation of the merger, the registration of our common stock and our reporting obligation under the Exchange Act with respect to our common stock will be terminated upon application to the SEC. In addition, upon consummation of the merger, our common stock will no longer be listed on any exchange or quotation system, including the Nasdaq Global Market, and price quotations will no longer be available. The surviving corporation will not be subject to the obligations and constraints, and the related direct and indirect costs, associated with having publicly traded equity securities, but may experience positive effects on its profitability, due to elimination of the expenses associated with public company reporting, and increased flexibility in its operations.

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Financing of the Merger

Dimensional Associates estimates that the total amount of funds required to purchase all of the outstanding shares of our common stock not currently owned by it or its affiliates, to pay the amounts owed to the holders of options and restricted stock awards under the Company Stock Plan, and to pay Dimensional’s and Merger Sub’s estimated fees and expenses of the merger, will be approximately $7.9 million. Dimensional Associates will fund the aggregate merger consideration and associated fees and expenses of Dimensional Associates and Merger Sub through the use of working capital on hand.

Certain Financial Projections

The Orchard does not, as a matter of course, publicly disclose financial projections as to future financial performance, earnings or other results and is especially cautious of making financial forecasts for extended periods because of unpredictability of the underlying assumptions and estimates. However, in connection with the evaluation of a possible transaction involving The Orchard, we provided Dimensional Associates (and other interested bidders), the board of directors, the special committee and their respective advisors certain non-public financial forecasts that were prepared by our management and not for public disclosure.

A summary of these financial projections is being included in this document not to influence your decision whether to vote for or against the proposal to adopt the merger agreement, but because these financial forecasts were made available to Dimensional Associates (and other interested bidders), the board of directors, the special committee and their respective advisors. The inclusion of this information should not be regarded as an indication that our board of directors, the special committee, their respective advisors or any other person considered, or now considers, such financial projections to be material or to be a reliable prediction of actual future results. Our management’s internal financial forecasts, upon which the financial projections were based, are subjective in many respects. There can be no assurance that these financial projections will be realized or that actual results will not be significantly higher or lower than forecasted. The financial forecasts cover multiple years and such information by its nature becomes subject to greater uncertainty with each successive year. As a result, the inclusion of the financial projections in this proxy statement should not be relied on as necessarily predictive of actual future events.

In addition, the financial projections were prepared solely for internal use in assessing strategic direction and other management decisions and to provide performance targets for management (including for purposes of performance based compensation), and not with a view toward public disclosure or toward complying with generally accepted accounting principles, which we refer to as GAAP, the published guidelines of the SEC regarding projections and the use of non-GAAP measures or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The financial projections included below were prepared by, and are the responsibility of, our management. Neither our independent registered public accounting firm, nor any other independent registered public accounting firm, have compiled, examined or performed any procedures with respect to the financial forecasts contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability. The report of the independent registered public accounting firm, which is incorporated by reference in this proxy statement, relates to The Orchard’s historical financial information. It does not extend to the financial projections and should not be read to do so.

These financial projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of The Orchard. Important factors that may affect actual results and cause these financial projections to not be achieved include, but are not limited to, risks and uncertainties relating to The Orchard’s business (including its ability to achieve strategic goals, objectives and targets over the applicable periods), industry performance, general business and economic conditions and other factors described under “Special Note Regarding Forward-Looking Statements”. In addition, the projections do not reflect revised prospects for The Orchard’s business, changes in general business or economic conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the financial projections were prepared in December 2009. Accordingly, there can be no assurance that these financial projections will be realized or that The Orchard’s future financial results will not materially vary from these financial projections.

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No one has made or makes any representation to any stockholder or anyone else regarding the information included in the financial projections set forth below. Readers of this proxy statement are cautioned not to rely on the projected financial information. We have not updated and do not intend to update, or otherwise revise the financial projections to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions are shown to be in error. The Orchard has made no representation to Dimensional Associates, Merger Sub or any other person in the merger agreement or otherwise, concerning these financial projections.

The financial projections are forward-looking statements. For information on factors that may cause The Orchard’s future financial results to materially vary, see “Special Note Regarding Forward-Looking Statements”.

The following is a summary of the financial projections prepared by management of The Orchard and provided to Dimensional Associates (and other interested bidders), the board of directors, the special committee and their respective advisors. These financial projections are called the “base case scenario”:

Base Case Scenario

		2010				2011				2012
Revenue		$	71,566,622			$	82,558,045			$	94,651,209
Cost of Goods			53,602,205				63,074,346				72,313,523
Gross Margin			17,964,417				19,483,699				22,337,685
Gross Margin %			25.1	%			23.6	%			23.6	%
Operating Expenses			17,578,840				18,457,782				19,446,416
Operating Profit Excluding One-Time and Transition Costs			775,577				1,025,917				2,891,269
One-Time and Transition Costs			390,000				—				—
Operating Profit Including One-Time and Transition Costs			385,577				1,025,917				2,891,269
Net Profit			305,577				945,917				2,811,269
EBITDA			2,223,343				3,773,445				4,595,885

In addition to these financial projections, The Orchard provided Dimensional Associates (and other interested bidders), the board of directors, the special committee and their respective advisors with a set of financial projections called the “worst case scenario” (a sensitivity case that reflects a lower rate of growth of The Orchard’s core products and services in the fiscal years 2010, 2011 and 2012 and lower growth than the base case scenario financial projections summarized above in terms of revenue from planned new products and services and therefore lower Gross Margin, EBITDA and Operating Profit) and a set of financial projections called the “aggressive case scenario” (a sensitivity case which reflects faster growth of The Orchard’s core products and services in the fiscal years 2010, 2011 and 2012 and incremental growth above the base case scenario financial projections summarized above in terms of revenue from planned new products and services and therefore higher Gross Margin, EBITDA and Operating Profit).

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The following are summaries of the worst case scenario and aggressive case scenario:

Worst Case Scenario

		2010				2011				2012
Revenue		$	65,466,622			$	75,548,481			$	86,578,560
Cost of Goods			49,058,486				57,945,683				66,492,334
Gross Margin			16,408,136				17,602,798				20,086,226
Gross Margin %			25.1	%			23.3	%			23.2	%
Operating Expenses			17,031,754				17,883,341				18,777,508
Operating Profit Excluding One-Time and Transition Costs			(233,618	)			(280,543	)			1,308,717
One-Time and Transition Costs			390,000				—				—
Operating Profit Including One-Time and Transition Costs			(623,618	)			(280,543	)			1,308,717
Net Profit			(703,618	)			(360,543	)			1,228,717
EBITDA			1,214,148				2,466,985				3,013,333

Aggressive Case Scenario

		2010				2011				2012
Revenue		$	76,566,622			$	88,319,598			$	100,684,343
Cost of Goods			57,347,121				67,476,173				76,922,838
Gross Margin			19,219,501				20,843,425				23,761,505
Gross Margin %			25.1	%			23.6	%			23.6	%
Operating Expenses			17,578,840				18,457,782				19,446,416
Operating Profit Excluding One-Time and Transition Costs			2,030,661				2,385,643				4,315,089
One-Time and Transition Costs			390,000				—				—
Operating Profit Including One-Time and Transition Costs			1,640,661				2,385,643				4,315,089
Net Profit			1,560,661				2,305,643				4,235,089
EBITDA			3,478,427				5,133,171				6,019,704

Additional Cash Flow Projections

In November 2009, management of The Orchard provided Fesnak with “base case”, “worst case” and “aggressive case” forecasts of cash flows for the fiscal years ending December 31, 2010 through 2014, which are summarized below. These forecasts were not provided to Dimensional Associates or other interested bidders. In connection with its discounted cash flow analysis, Fesnak updated these projections with management input. As a result, the cash flow projections summarized below may not be the same as the cash flow projections utilized by Fesnak and included in their materials presented to the special committee in connection with the Fesnak Opinion, which are filed as an exhibit to the Transaction Statement on Schedule 13E-3 filed with the SEC with respect to the proposed merger. These cash flow projections are forward-looking statements. For information on factors that may cause The Orchard's future financial results to materially vary, see “Special Note Regarding Forward-Looking Statements”.

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Base Case Scenario

		2010				2011				2012				2013				2014
Revenue		$	72,566,839			$	83,711,878			$	95,974,056			$	105,571,462			$	114,017,179
Cost of Sales			54,683,467				63,955,875				73,324,179				81,078,883				87,565,193
Gross Margin			17,883,372				19,756,003				22,649,877				24,492,579				26,451,985
Operating Expenses			17,786,027				18,202,828				19,177,807				19,944,919				20,742,716
Stock Based Compensation			(1,100,000	)			(1,100,000	)			(1,100,000	)			(1,100,000	)			(1,100,000	)
Adjusted Operating Expenses			16,686,027				17,102,828				18,077,807				18,844,919				19,642,716
Pretax Income			1,197,345				2,653,175				4,572,070				5,647,660				6,809,269
Income Taxes @40%			—				—				—				572,540				2,563,708
Net Income			1,197,345				2,653,175				4,572,070				5,075,120				4,245,562
Less (Add):
Capital Expenditures			843,000				579,000				540,000				500,000				500,000
Depreciation			(769,000	)			(758,000	)			(682,000	)			(668,360	)			(654,993	)
Amortization			(930,425	)			(930,425	)			(930,425	)			(930,425	)			(875,942	)
Changes to Working Capital			110,668				111,450				122,622				95,974				84,457
Net Cash Flow			1,943,102				3,651,150				5,521,874				6,077,931				5,192,039
Years to Discount			0.50				1.50				2.50				3.50				4.50
Discount Factors 17%			0.92				0.79				0.68				0.58				0.49
Present Value of Cash Flows		$	1,796,398			$	2,885,034			$	3,729,253			$	3,508,369			$	2,561,543

		Net Operating Losses
As of December 31, 2009		$	10,596,250
2010			797,345
As of December 31, 2010			9,946,455
2011			2,253,175
As of December 31, 2011			7,840,830
2012			4,172,070
As of December 31, 2012			3,816,310
2013			5,247,660
As of December 31, 2013		$	(1,283,799	)

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Worst Case Scenario

		2010				2011				2012				2013				2014
Revenue		$	65,966,839			$	76,125,732			$	87,240,088			$	95,964,097			$	103,641,225
Cost of Sales			49,346,494				58,388,436				67,000,388				73,700,426				79,596,460
Gross Margin			16,620,345				17,737,296				20,239,700				22,263,670				24,044,764
Operating Expenses			17,520,128				17,923,634				18,819,816				19,572,609				20,355,513
Stock Based Compensation			(1,100,000	)			(1,100,000	)			(1,100,000	)			(1,100,000	)			(1,100,000	)
Adjusted Operating Expenses			16,420,128				16,823,634				17,719,816				18,472,609				19,255,513
Pretax Income			200,217				913,662				2,519,884				3,791,062				4,789,251
Income Taxes @40%			—				—				—				—				(388,950	)
Net Income			200,217				913,662				2,519,884				3,791,062				5,178,201
Less (Add):
Capital Expenditures			843,000				579,000				540,000				500,000				500,000
Depreciation			(769,000	)			(758,000	)			(682,000	)			(668,360	)			(654,993	)
Amortization			(930,425	)			(930,425	)			(930,425	)			(930,425	)			(875,942	)
Changes to Working Capital			44,668				101,589				111,144				87,240				76,771
Net Cash Flow			1,011,974				1,921,498				3,481,166				4,802,607				6,132,364
Years to Discount			0.50				1.50				2.50				3.50				4.50
Discount Factors 17%			0.92				0.79				0.68				0.58				0.49
Present Value of Cash Flows		$	935,570			$	1,518,312			$	2,351,040			$	2,772,213			$	3,025,461

		Net Operating Losses
As of December 31, 2009		$	10,596,250
2010			(199,783	)
As of December 31, 2010			10,943,583
2011			513,662
As of December 31, 2011			10,577,472
2012			2,119,884
As of December 31, 2012			8,605,138
2013			3,391,062
As of December 31, 2013			5,361,626
2014			4,389,251
As of December 31, 2014		$	1,174,408

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Aggressive Case Scenario

		2010				2011				2012				2013				2014
Revenue		$	77,566,839			$	89,473,349			$	101,999,618			$	112,199,580			$	121,175,546
Cost of Sales			58,330,263				68,357,639				77,927,708				86,169,277				93,062,819
Gross Margin			19,236,576				21,115,710				24,071,910				26,030,303				28,112,727
Operating Expenses			17,786,027				18,202,828				19,177,807				19,944,919				20,742,716
Stock Based Compensation			(1,100,000	)			(1,100,000	)			(1,100,000	)			(1,100,000	)			(1,100,000	)
Adjusted Operating Expenses			16,686,027				17,102,828				18,077,807				18,844,919				19,642,716
Pretax Income			2,550,549				4,012,882				5,994,103				7,185,383				8,470,011
Income Taxes @40%			—				—				186,474				2,714,153				3,228,004
Net Income			2,550,549				4,012,882				5,807,629				4,471,230				5,242,006
Less (Add):
Capital Expenditures			843,000				579,000				540,000				500,000				500,000
Depreciation			(769,000	)			(758,000	)			(682,000	)			(668,360	)			(654,993	)
Amortization			(930,425	)			(930,425	)			(930,425	)			(930,425	)			(875,942	)
Changes to Working Capital			160,668				119,065				125,263				102,000				89,760
Net Cash Flow			3,246,306				5,003,243				6,754,792				5,468,016				6,183,181
Years to Discount			0.50				1.50				2.50				3.50				4.50
Discount Factors 17%			0.92				0.79				0.68				0.58				0.49
Present Value of Cash Flows		$	3,001,211			$	3,953,418			$	4,561,916			$	3,156,307			$	3,050,532

		Net Operating Losses
As of December 31, 2009		$	10,596,250
2010			2,150,549
As of December 31, 2010			8,593,251
2011			3,612,882
As of December 31, 2011			5,127,919
2012			5,594,103
As of December 31, 2012		$	(318,634	)

In addition to these financial projections, The Orchard provided the board of directors, the special committee and their respective advisors with “base case” forecast of cash flow for 2010. The best case forecast of cash flow for 2010 was not furnished to Dimensional Associates or other interested bidders and is accordingly not included herein.

Interests of Certain Persons in the Merger

In considering the recommendation of the special committee and our board of directors with respect to the merger agreement, you should be aware that some of our directors and executive officers have interests in the merger that are different from, or in addition to, the interests of our stockholders generally, as more fully described below. The special committee and our board of directors were aware of these interests and considered them, among other matters, in reaching their decision to approve the merger agreement and recommend that The Orchard’s stockholders vote in favor of approving the merger and approving and adopting the merger agreement.

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Daniel C. Stein

Daniel C. Stein, an executive officer and a director of Dimensional Associates and a director and the sole officer of Merger Sub, has been a member of The Orchard’s board of directors since 2007. Mr. Stein will continue to own an equity interest in the surviving corporation after consummation of the merger. See “Important Information Regarding Merger Sub”, “Important Information Regarding Dimensional Associates and Certain of its Affiliates” and “Historical Relationship Between Dimensional Associates and The Orchard”.

Treatment of Awards Under the Amended and Restated Orchard Enterprises, Inc. 2008 Stock Plan

As of April 14, 2010, there were approximately 109,401 outstanding restricted share awards subject to vesting criteria that were held by our directors and executive officers. The merger agreement provides that prior to the effective time of the merger and in accordance with the Company Stock Plan, we will provide that that each share that is subject to a restricted share award that is outstanding immediately prior to the effective time of the merger will vest and become free of all restrictions at the effective time of the merger, and at the effective time of the merger the holder will be entitled to receive the per share cash merger consideration and the per share additional consideration, if any, in exchange for each restricted share, less any required withholding taxes.

The following table identifies, for each of our directors and executive officers holding restricted share awards, the aggregate number of shares of common stock of the Company underlying unvested restricted share awards as of April 14, 2010, and the pre-tax value of such restricted share awards that will become fully vested in connection with the merger as calculated by multiplying $2.05 by the number of shares of common stock underlying such restricted share awards. In the event of a resale transaction, the holders of the restricted share awards will also be entitled to receive a share of the additional consideration, if any.

Name		Aggregate Number of Shares Subject to Unvested Restricted Share Awards				Value of Unvested Restricted Share Awards
Executive Officers
Bradley Navin			8,474			$	17,371.70
Nathan Fong			11,114				22,783.70
Steve Haase			7,086				14,526.30
Alexis Shapiro			—				—
Non-Employee Directors
David Altschul			12,926			$	26,498.30
Viet Dinh			12,926				26,498.30
Michael Donahue			18,097				37,098.85
Nathan Peck			12,926				26,498.30
Daniel Stein			12,926				26,498.30
Joel Straka			12,926				26,498.30

In addition, certain of our directors and executive officers were granted stock option awards under the Company Stock Plan. The exercise price per share of each of the stock options granted by these awards is greater than $2.05, the per share cash merger consideration to be paid to stockholders pursuant to the merger agreement. These stock options will be cancelled immediately prior to the effective time of the merger in accordance with the merger agreement. In the event of a resale transaction, the holders of the stock options will be entitled to receive the portion of the per share additional consideration that is the excess, if any, of the per share cash merger consideration plus the per share additional consideration over the option exercise price per share, less any merger consideration amounts already received by the holder for such stock options, and less any required withholding taxes. See “The Merger Agreement — Treatment of Options, Restricted Stock, Stock Appreciation Rights and Warrants”.

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Directors’ and Officers’ Insurance

The merger agreement provides that for six years from the effective time of the merger, the surviving corporation must maintain in effect The Orchard’s current directors’ and officers’ liability insurance covering acts or omissions occurring at or prior to the effective time of the merger of those persons who are currently covered by our directors’ and officers’ liability insurance policy. Alternatively, the surviving corporation must maintain in effect for six years from the effective time of the merger directors’ and officers’ insurance with benefits and levels of coverage at least as favorable as provided in our existing policies, or use reasonable best efforts to purchase comparable insurance for such six year period. If the aggregate annual premium for such insurance exceeds 200% of the current annual premium, then the surviving corporation must obtain a policy with the greatest coverage available for a cost not exceeding such amount. See “The Merger Agreement — Indemnification and Insurance”.

Compensation Paid to Members of the Special Committee

Mr. Donahue received $80,000 for his service as chairman of both the special committee and the search committee of the board of directors. Each of Messrs. Altschul, Dinh, Peck and Straka received $15,000 for their service on the special committee.

Retention Agreement with Alexis Shapiro

On April 26, 2010, The Orchard entered into a letter agreement with Alexis H. Shapiro, Executive Vice President, General Counsel and Secretary, which provides for Ms. Shapiro's continued employment in that position with The Orchard following the consummation of the merger until December 31, 2010, except in the event of a termination for “cause” (as defined in the letter agreement). Ms. Shapiro's employment will be on the same terms and conditions, at the same base salary and with the same employee benefits in effect immediately prior to the consummation of the merger, except that The Orchard may change (1) her employee benefits to the same extent that employee benefits are changed for other similarly-situated employees and (2) her duties and responsibilities to the extent it deems necessary to reflect the structure and operations of The Orchard.

Material United States Federal Income Tax Consequences of the Merger to our Stockholders

The following is a summary of the material U.S. federal income tax considerations relevant to holders of our common stock, which in this section we refer to as the “Shares”, whose Shares will be converted into the right to receive the per share merger consideration and the per share additional consideration in the merger and who will not own (actually or constructively) any Shares after the merger. This summary is based upon existing U.S. federal income tax law, which is subject to change or differing interpretations (possibly with retroactive effect). This summary does not address all aspects of U.S. federal income taxation which may be relevant to particular stockholders in light of their individual investment circumstances, such as stockholders subject to special tax rules (e.g., financial institutions, insurance companies, controlled foreign corporations, broker-dealers and tax-exempt organizations) or to stockholders who acquired Shares in connection with stock option, stock purchase or restricted stock plans or in other compensatory transactions, or as part of a straddle, hedge, conversion, constructive sale or other integrated security transaction for U.S. federal income tax purposes, all of whom may be subject to tax rules that differ significantly from those discussed below.

This summary is limited to our stockholders who hold their Shares as “capital assets” (generally, property held for investment) under the Internal Revenue Code of 1986, as amended, which we refer to as the “Code”. You are urged to consult your tax advisor regarding the U.S. federal income tax considerations relevant to the merger, as well as the effects of state, local, and foreign tax laws.

For purposes of this summary, a “U.S. holder” is a beneficial owner of Shares that is, for U.S. federal income tax purposes, (i) an individual who is a citizen or resident of the United States; (ii) a corporation or other entity taxable as a corporation that is created in, or organized under the law of, the United States or any state or political subdivision thereof; (iii) an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or (iv) a trust, (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise elected to be treated as U.S. person under the Code.

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A “non-U.S. holder” is a beneficial owner (other than a partnership) of Shares that is not a U.S. holder.

If a partnership holds Shares, the tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership that holds Shares, you should consult your tax advisor regarding the tax considerations relevant to the merger.

This discussion is for general information only and should not be construed as tax advice. It is a summary and does not purport to be a comprehensive analysis or description of all potential U.S. federal income tax consequences of the merger. We urge you to consult your tax advisor regarding the U.S. federal income tax considerations relevant to the merger, as well as the effects of state, local, and foreign tax laws.

U.S. Holders

The receipt of the per share merger consideration and the per share additional consideration, as applicable, by a U.S. holder will be a taxable transaction for U.S. federal income tax purposes. The amount of gain or loss a U.S. holder recognizes, and the timing and potentially the character of a portion of such gain or loss, depends on the U.S. federal income tax treatment of the right to receive the per share additional consideration, with respect to which there is substantial uncertainty.

The right to receive the per share merger consideration and the per share additional consideration may be treated as either a “closed transaction” or an “open transaction” for U.S. federal income tax purposes. The installment method of reporting any gain attributable to the right to receive the per share additional consideration will not be available because the Shares are traded on an established securities market. The following sections discuss the U.S. federal income tax consequences if the receipt of the merger consideration is treated as an open transaction or as a closed transaction. There is no authority directly addressing whether contingent payment rights with characteristics similar to the right to receive per share additional consideration should be taxed as “open transactions” or “closed transactions”, and such question is inherently factual in nature. Accordingly, you are urged to consult your tax advisors regarding this issue. The right to receive per share additional consideration also may be treated as a debt instrument for U.S. federal income tax purposes. However, as such treatment is unlikely, the discussion below does not address the tax consequences of such a characterization. We urge you to consult your tax advisor with respect to the proper characterization of the right to receive the per share additional consideration.

Treatment as Open Transaction

Receipt of the merger consideration would generally be treated as an “open transaction” if the value of the right to receive the per share additional consideration cannot be “reasonably ascertained”. If the receipt of the merger consideration is treated as an “open transaction” for U.S. federal income tax purposes, a U.S. holder generally should recognize capital gain or loss for U.S. federal income tax purposes upon consummation of the merger in an amount equal to the difference, if any, between the amount of cash received and such U.S. holder’s adjusted tax basis in the Shares converted into the right to receive the merger consideration pursuant to the merger. Gain or loss recognized in the transaction must be determined separately for each identifiable block of Shares converted pursuant to the merger (i.e., Shares acquired at the same cost in a single transaction). Any such capital gain or loss should be long-term if the Shares were held for more than one year prior to such disposition. The deductibility of capital losses is subject to certain limitations.

If the transaction is treated as an “open transaction” for U.S. federal income tax purposes, the right to receive the per share additional consideration would not be taken into account in determining the holder’s taxable gain upon receipt of the merger consideration, and a U.S. holder would take no tax basis in the right to receive the per share additional consideration, but would be subject to tax as the per share additional consideration is paid or deemed paid in accordance with the U.S. holder’s regular method of accounting. A portion of such payments would be treated as interest income under Section 483 of the Code (as described below) and the balance, in general, as capital gain. It is the position of the Internal Revenue Service, as reflected in Treasury Regulations, that only in “rare and extraordinary cases” is the value of property so uncertain as to warrant open transaction treatment.

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Treatment as Closed Transaction

If the value of the right to receive the per share additional consideration can be “reasonably ascertained”, the transaction generally should be treated as a “closed transaction” for U.S. federal income tax purposes, and gain or loss would be determined upon consummation of the merger in the same manner as if the transaction were an “open transaction”, except that a U.S. holder would take into account the fair market value of the right to receive the per share additional consideration, determined on the date of the consummation of the merger, as an additional amount realized for purposes of calculating gain or loss with respect to the disposition of Shares. It is possible that the trading value of the Shares would be considered along with other factors in determining whether the value of the right to receive the per share additional consideration is reasonably ascertainable.

If the transaction is treated as a “closed transaction” for U.S. federal income tax purposes, a U.S. holder’s initial tax basis in the right to receive the per share additional consideration will equal its fair market value on the date of the consummation of the merger. The holding period of the right to receive the per share additional consideration will begin on the day following the date of the consummation of the merger.

Future Contingent Cash Consideration Payments

Treatment as Open Transaction.  If the transaction is treated as an “open transaction”, a payment in the future to a U.S. holder of a right to receive the per share additional consideration should be treated as a payment under a contract for the sale or exchange of Shares to which Section 483 of the Code applies. Under Section 483, a portion of the payment made pursuant to a right to receive per share additional consideration will be treated as interest, which will be ordinary income to the U.S. holder of a right to receive per share additional consideration. The interest amount will equal the excess of the amount received over the present value of the right to receive per share additional consideration at the consummation of the merger, calculated using the applicable federal rate as the discount rate. The applicable federal rate is a rate reflecting an average of market yields on Treasury debt obligations for different ranges of maturities that is published monthly by the Internal Revenue Service. The U.S. holder of a right to receive per share additional consideration must include in its taxable income interest pursuant to Section 483 of the Code using such U.S. holder’s regular method of accounting (such amount being taken into account when paid, in the case of a cash method holder, and, when fixed, in the case of an accrual method holder). The portion of the payment pursuant to a right to receive per share additional consideration that is not treated as interest under Section 483 of the Code should be treated as gain from the sale of a capital asset, as discussed above.

Treatment as Closed Transaction.  If the transaction is treated as a “closed transaction”, there is no authority directly on point with respect to the treatment of contingent payment rights similar to the per share additional consideration. You should therefore consult your tax advisor as to the taxation of such payments. Under such a characterization, a portion of the per share additional consideration payment would likely be treated as a non-taxable return of a U.S. holder’s adjusted tax basis in the right to receive the per share additional consideration. To the extent that a payment is not treated as such, it may be treated as either (i) a payment with respect to a sale of a capital asset, (ii) income taxed at ordinary rates, or (iii) a dividend. Additionally, it is possible that, were a payment to be treated as being with respect to the sale of a capital asset, a portion of such payment would constitute imputed interest under Section 483 of the Code (as described above).

Due to the legal and factual uncertainty regarding the valuation and tax treatment of the right to receive per share additional consideration, you are urged to consult your tax advisors concerning the recognition of gain, if any, resulting from the right to receive the per share additional consideration in the merger.

Non-U.S. Holders

Any gain realized by a non-U.S. holder pursuant to the merger generally will not be subject to U.S. federal income tax unless:

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Generally, if payments are made to a non-U.S. holder with respect to the per share additional consideration, we expect to cause the paying agent to withhold and pay over to the U.S. Treasury tax equal to 30% of the portion of any such payments treated as imputed interest (as discussed above). A non-U.S. holder that provides a properly completed Form W-8BEN may qualify for no withholding or a reduced rate of holding on such payments to the extent provided in an income tax treaty between the United States and the non-U.S. holder’s country of residence. In addition, because the portion of any payment with respect to per share additional consideration treated as imputed interest could possibly be treated as “portfolio interest” that is exempt from the U.S. withholding tax, non-U.S. holders with respect to whom withholding occurs should consult their own tax advisors about the advisability of applying for a refund of withheld amounts.

If payments are made to a non-U.S. holder with respect to the per share additional consideration, the payments are effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States and the non-U.S. holder properly certifies this fact on Form W-8ECI or a successor form, then no tax withholding would be made and such effectively connected gain would be taxed as described in the first bullet above.

Information Reporting and Backup Withholding

Information reporting to the Internal Revenue Service generally will be required with respect to payments of the per share merger consideration and the per share additional consideration to stockholders other than corporations and other exempt recipients. In addition, under the “backup withholding” provisions of the U.S. federal income tax laws, the paying agent may be required to withhold a portion of the amount of payments made to certain holders pursuant to the merger, as applicable, and possibly a portion of the amount of any per share additional consideration. In order to prevent U.S. federal income tax backup withholding with respect to payments, a U.S. holder must provide the paying agent with such holder’s correct taxpayer identification number and certify that such holder is not subject to backup withholding by completing the Form W-9 in the letter of transmittal to be sent to our stockholders in connection with the merger. Certain holders (including, among others, all corporations and certain foreign individuals and entities) may not be subject to backup withholding. If a holder does not provide its correct taxpayer identification number or fails to provide the certifications described above, the Internal Revenue Service may impose a penalty on the holder, and payments to the holder pursuant to the merger, as well as payments pursuant to the right to receive per share additional consideration, may be subject to backup withholding. All U.S. holders should complete and sign the Form W-9 included in the letter of transmittal to provide the information necessary to avoid backup withholding. Foreign stockholders should complete and sign the appropriate Form W-8 (a copy of which may be obtained from the paying agent) in order to avoid backup withholding. Such stockholders should consult a tax advisor to determine which Form W-8 is appropriate.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a holder’s U.S. federal income tax liability, if any, provided the required information is timely furnished to the Internal Revenue Service.

The discussion set forth above is included for general information only. Each beneficial owner of shares of our common stock should consult his, her or its own tax advisor with respect to the specific tax consequences of the merger to him, her or it, including the application and effect of state, local and foreign tax laws.

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Fees and Expenses of the Merger

Except as described below, under the merger agreement, each of the parties will bear all fees and expenses that it incurs in connection with the merger and the merger agreement, whether or not the transaction is consummated.

We estimate that we will incur, and will be responsible for paying, transaction-related fees and expenses, consisting primarily of financial, legal, accounting and other advisory fees, SEC filing fees and other related charges for both the company and the special committee totaling approximately $840,000. This amount includes the following estimated fees and expenses:

Description		Amount to Be Paid
SEC filing fee		$	550
Printing, proxy solicitation and mailing expenses			40,000
Financial, legal, accounting and other advisory fees			625,000
Directors’ and officers’ insurance deductible			150,000
Miscellaneous			24,450
Total		$	840,000

In addition, it is expected that Dimensional Associates and Merger Sub will incur approximately $350,000 of legal and other advisory fees. If the merger agreement is terminated under certain circumstances, described under “The Merger Agreement — Expense Reimbursement”, we have agreed to pay Dimensional Associates for its reasonable documented out-of-pocket expenses incurred in connection with the merger agreement up to $350,000 in the aggregate.

Provisions for Non-Continuing Stockholders

No provision has been made to grant the non-continuing stockholders access to the corporate files of The Orchard, Merger Sub or Dimensional Associates or any of their respective affiliates, or to obtain counsel or appraisal services at the expense of The Orchard or any other such party.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement contains forward-looking statements within the meaning of the federal securities laws. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “likely”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue” or the negative of these terms or other comparable terminology. These forward-looking statements are subject to a number of risks that could cause them to differ from our expectations. These include, but are not limited to, risks relating to:

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You should not place undue reliance on these forward-looking statements, which are based on our current views and assumptions. In evaluating these statements, you should specifically consider various factors, including the foregoing risks and those outlined under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009. Many of these factors are beyond our control. Our forward-looking statements represent estimates and assumptions only as of the date of this proxy statement. Except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date hereof.

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THE ANNUAL MEETING

This proxy statement is furnished in connection with the solicitation of proxies by our board of directors in connection with the annual meeting of our stockholders.

Date, Time and Place of the Annual Meeting

We will hold the annual meeting at the offices of Chadbourne & Parke LLP, 30 Rockefeller Plaza, New York, New York 10112, at 10:00 a.m., local time, on  , 2010.

Purpose of the Annual Meeting

At the annual meeting, we will ask the holders of our common stock and Series A convertible preferred stock to (i) approve the Merger Proposal, (ii) approve the Certificate Amendment Proposal, (iii) elect seven (7) directors, (iv) ratify the appointment of Marcum LLP as our independent registered public accounting firm and (v) approve the Adjournment Proposal.

Record Date; Shares Entitled to Vote; Quorum

Only holders of record of our common stock and Series A convertible preferred stock at the close of business on  , 2010, the record date, are entitled to notice of, and to vote at, the annual meeting. On the record date, there were 6,378,252 shares of our common stock and 448,707 shares of our Series A convertible preferred stock issued and outstanding, of which 2,709,276 shares of our common stock and 446,918 shares of our Series A convertible preferred stock were held by Dimensional Associates. Each holder of shares of common stock is entitled to one (1) vote per share and each holder of shares of our Series A convertible preferred stock is entitled to three and one-third (3 1/3) votes per share on each proposal presented in this proxy statement. There is no cumulative voting in the election of directors.

The required quorum for the transaction of business at the annual meeting is a majority of the votes eligible to be cast by holders of shares of our common stock and Series A convertible preferred stock issued and outstanding on the record date voting together as a single class. Shares that are voted “FOR”, “WITHHOLD”, “ABSTAIN” or “AGAINST” a matter are treated as being present at the annual meeting for purposes of establishing a quorum. In the event that there are not sufficient votes for a quorum, the Annual Meeting may be adjourned in order to permit further solicitation of proxies. However, the presence in person or by proxy of Dimensional Associates, our majority stockholder, will assure that a quorum is present at the meeting.

Vote Required

The approval of the Merger Proposal requires the affirmative vote of (i) the holders of a majority of all of The Orchard’s outstanding shares of voting stock as of the record date, which vote we refer to as the Company Stockholder Approval, and (ii) the holders of a majority of the outstanding shares of The Orchard’s outstanding shares of voting stock as of the record date, other than Dimensional Associates and its affiliates, which vote we refer to as the Minority Stockholder Approval. Approval of the Merger Proposal is a condition to the completion of the merger.

Abstentions and broker non-votes in the case of both the Company Stockholder Approval and the Minority Stockholder Approval will have the same effect as votes against the approval of the Merger Proposal.

Pursuant to the terms of the merger agreement, Dimensional Associates and its affiliates have agreed to vote their shares in favor of the Merger Proposal. Because Dimensional Associates and its affiliates hold approximately 54% of our voting stock as of the record date of the annual meeting, we expect that the Company Stockholder Approval will be obtained.

In addition, as of the record date, our directors and executive officers (other than Mr. Stein) had the right to vote, in the aggregate, 437,657 shares of our common stock, which represented approximately 7.2% of the outstanding shares of our common stock on the record date for the meeting. These directors and executive officers have informed us that they intend to vote all of their shares of common stock “FOR” the approval of the Merger Proposal.

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The approval of the Certificate Amendment Proposal requires the affirmative vote of (i) the holders of a majority of all of The Orchard’s outstanding shares of voting stock and (ii) the holders of a majority of the outstanding shares of The Orchard’s Series A convertible preferred stock, voting as a separate class. Approval of the Certificate Amendment Proposal is a condition to the completion of the merger. If the Merger Proposal is not approved, this proposal will not be presented at the meeting.

Because Dimensional Associates and its affiliates hold approximately 54% of The Orchard’s voting stock and 99% of the outstanding shares of The Orchard’s Series A convertible preferred stock, we expect that approval of the Certificate Amendment Proposal will be obtained if it is presented at the meeting.

The seven (7) nominees for directors receiving the highest number of affirmative votes cast will be elected as a director.

Ratification of our independent registered public accounting firm requires the affirmative vote of the holders of a majority of The Orchard’s shares of voting stock voting on the matter.

Approval of the Adjournment Proposal requires the affirmative vote of the holders of a majority of The Orchard’s shares of voting stock voting on the matter.

Voting of Proxies

If your shares are registered in your name, you may cause your shares to be voted by returning a signed proxy card or voting in person at the meeting. Additionally, you may submit a proxy authorizing the voting of your shares via the Internet at www.investorvote.com/orcd or by telephone by calling 1-800-652-8683.

You must have the enclosed proxy card available, and follow the instructions on the proxy card, in order to submit a proxy via the Internet or telephone.

If your shares are registered in your name and you plan to attend the annual meeting and wish to vote in person, you will be given a ballot at the meeting. If your shares are registered in your name, you are encouraged to submit a proxy even if you plan to attend the annual meeting in person.

Voting instructions are included on your proxy card. All shares represented by properly executed proxies received in time for the annual meeting will be voted at the annual meeting in accordance with the instructions of the stockholder. Properly executed proxies that do not contain voting instructions will be voted “FOR” the approval of the Merger Proposal, “FOR” the approval of the Certificate Amendment Proposal, “FOR” each director nominee, “FOR” the ratification of our independent public accounting firm and “FOR” approval of the Adjournment Proposal.

If your shares are held in “street name” through a broker, bank or other nominee, you may provide voting instructions by completing and returning the voting form provided by your broker, bank or nominee or via the Internet or by telephone through your broker, bank or nominee if such a service is provided. To provide voting instructions via the Internet or telephone, you should follow the instructions on the voting form provided by your broker, bank or nominee. If you plan to attend the annual meeting, you will need a proxy from your broker, bank or nominee in order to be given a ballot to vote the shares. If you do not return your broker’s, bank’s or nominee’s voting form, provide voting instructions via the Internet or telephone through your broker, bank or nominee, if possible, or attend the annual meeting and vote in person with a proxy from your broker, bank or nominee, it will have the same effect as if you voted “AGAINST” approval of the Merger Proposal and “AGAINST” the Certificate Amendment Proposal and “AGAINST” the Adjournment Proposal. Failure to return your broker’s, bank’s or nominee’s voting form, provide voting instructions via the Internet or telephone through your broker, bank or nominee, if possible, or attend the annual meeting and vote in person with a proxy from your broker, bank or nominee, will not affect the outcome of the other proposals.

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Revocability of Proxies

Any proxy you give pursuant to this solicitation may be revoked by you at any time before it is voted. Proxies may be revoked as follows:

If you have sent a proxy directly to The Orchard you may revoke it by:

If you have instructed a broker, bank or nominee to vote your shares, you may revoke your proxy only by following the directions received from your broker, bank or nominee to change those instructions.

Attendance at the Annual Meeting

Admission to the meeting is limited to stockholders and their proxies and seating will be limited. Each stockholder may be asked to present valid picture identification such as a driver’s license or passport. Please note that if you hold your shares through a broker, bank or other nominee in “street name”, you will need to provide a copy of a brokerage or bank statement reflecting your stock ownership as of the record date to be admitted to the meeting. Cameras, recording devices and other electronic devices will not be permitted at the meeting.

Rights of Stockholders Who Object to the Merger

Our stockholders are entitled to appraisal rights under Section 262 of the DGCL in connection with the merger. This means that you are entitled to have the value of your shares determined by the Delaware Court of Chancery and to receive payment based on that valuation. The ultimate amount you receive as a dissenting stockholder in an appraisal proceeding may be more than, the same as or less than the amount you would have received under the merger agreement.

To exercise your appraisal rights, you must submit a written demand for appraisal to The Orchard before the vote is taken on the merger agreement and you must not vote in favor of the adoption of the merger agreement. Your failure to follow exactly the procedures specified under Delaware law will result in the loss of your appraisal rights. See “Appraisal Rights” and the text of the Delaware appraisal rights statute reproduced in its entirety as Appendix D.

Solicitation of Proxies

This proxy solicitation is being made and paid for by The Orchard on behalf of its board of directors. In addition, we have retained Georgeson to assist in the solicitation. We will pay Georgeson (i) an initial fee of $8,000, (ii) $5.00 per phone call and per telephonic vote and (iii) $1.00 for each vote confirmation, plus out-of-pocket expenses for its assistance. Our directors, executive officers and employees may also solicit proxies by personal interview, mail, e-mail, telephone, facsimile or other means of communication. These persons will not be paid additional compensation for their efforts. We will also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of our common stock that the brokers and fiduciaries hold of record. We will reimburse them for their reasonable out-of-pocket expenses. In addition, we will indemnify Georgeson against any losses arising out of that firm’s proxy soliciting services on our behalf.

Other Business

We are not currently aware of any business to be acted upon at the annual meeting other than the matters discussed in this proxy statement.

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APPROVAL AND ADOPTION OF THE MERGER AGREEMENT

Proposal

You are being asked to consider and vote upon a proposal to approve and adopt the Agreement and Plan of Merger dated as of March 15, 2010, as amended, among The Orchard, Dimensional Associates and Merger Sub, and the transactions contemplated thereby. If the merger is completed, the Company’s stockholders, other than Dimensional Associates and its affiliates, will have the right to receive, for each share of our common stock they hold at the time of the merger, $2.05 in cash and a contingent right to receive additional consideration, under certain circumstances post-closing if Dimensional Associates or The Orchard or any of their affiliates enters into a commitment to sell at least 80% of The Orchard’s voting securities or assets within six months of the consummation of the merger.

The Orchard Enterprises, Inc., a Delaware corporation, controls and distributes more than 1.8 million music and audio recordings and approximately 5,000 titles of video programming through digital stores, such as Amazon, eMusic, Hulu, iTunes, Rhapsody and YouTube, and mobile carriers, such as Orange, Telefonica, Verizon and 3, worldwide.

Dimensional Associates, LLC, a New York limited liability company, is a private equity investment fund sponsored by JDS Capital, L.P.

Orchard Merger Sub., Inc., a Delaware corporation, is a wholly owned subsidiary of Dimensional Associates. Merger Sub was formed solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. Merger Sub has not engaged in any business except for activities incident to its incorporation and in connection with the transactions contemplated by the merger agreement.

Vote Required

The approval of the Merger Proposal will require the affirmative vote of:

Pursuant to the terms of the merger agreement, Dimensional Associates and its affiliates have agreed to vote their shares in favor of the Merger Proposal. Because Dimensional Associates and its affiliates hold approximately 54% of our voting stock as of the record date of the annual meeting, we expect that the Company Stockholder Approval will be obtained.

Abstentions and broker non-votes in the case of both the Company Stockholder Approval and the Minority Stockholder Approval will have the same effect as votes against the approval of the Merger Proposal.

Recommendation of the Board

The special committee unanimously determined that the merger, the consideration to be paid in the merger, and the other terms and provisions of the merger agreement are fair to, advisable and in the best interests of The Orchard and its stockholders, other than Dimensional and its affiliates. The special committee recommended that the board of directors approve and adopt the merger agreement and determine that the terms and conditions of the merger and the merger agreement are fair to, advisable and in the best interests of The Orchard and its stockholders, other than Dimensional and its affiliates, and recommend adoption of the merger agreement by the holders of The Orchard’s common stock.

Our board of directors, acting upon the unanimous recommendation of the special committee, unanimously (other than Daniel Stein, a director of ours who is also an executive officer and a director of Dimensional Associates, who abstained from deliberations and voting on the matter) recommends that our stockholders vote “FOR” the Merger Proposal.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” APPROVAL OF THE MERGER PROPOSAL.

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THE MERGER AGREEMENT

The following is a summary of the material terms and provisions of the merger agreement, but does not purport to describe all of the terms and provisions of the merger agreement. The following summary is qualified in its entirety by reference to the complete text of the merger agreement and the amendments to the merger agreement, which are attached as Appendices A, A-1 and A-2 to this proxy statement and incorporated into this proxy statement by reference. We urge you to read the full text of the merger agreement because it is the legal document that governs the merger.

The merger agreement and this summary of its terms and provisions have been included to provide you with information regarding the terms and provisions of the merger agreement. Factual disclosures about us, Dimensional Associates or Merger Sub contained in this proxy statement or in our public reports filed with the SEC may supplement, update or modify the factual disclosures about us, Dimensional Associates or Merger Sub contained in the merger agreement. In your review of the representations and warranties contained in the merger agreement and described in this summary it is important to bear in mind that the representations and warranties have been negotiated with the principal purpose of establishing the circumstances in which a party to the merger agreement may have the right not to close the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise, and allocates risk between the parties to the merger agreement, rather than establishing matters as facts. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to stockholders and in some cases have been qualified in a number of important respects, including through the use of negotiated exceptions for certain matters disclosed by each party to the other parties.

The Merger

Under the merger agreement, Merger Sub, a wholly owned subsidiary of Dimensional Associates, will merge with and into us. After the merger, we will continue as the surviving corporation.

Following the merger, the directors of Merger Sub will be the initial directors of the surviving corporation until their successors are duly elected or appointed and qualified or their earlier death, resignation or removal.

At the effective time of the merger, our certificate of incorporation will be amended and restated as provided in the merger agreement and will be the certificate of incorporation of the surviving corporation, until amended as provided by the certificate of incorporation or applicable law. Our bylaws as in effect at the effective time of the merger will be the bylaws of the surviving corporation, until amended as provided by the bylaws or applicable law.

Effective Time

The merger will be effective at the time, which we refer to as the effective time of the merger, when the certificate of merger is filed with the Secretary of State of the State of Delaware (or at such later time as is agreed upon by the parties to the merger agreement and specified in the certificate of merger). Unless otherwise mutually agreed by the parties to the merger agreement, the closing of the merger will take place on the first business day after the satisfaction or waiver of the closing conditions stated in the merger agreement (other than those conditions that by their nature are to be satisfied at the closing, but subject to the fulfillment or waiver of such conditions) or as otherwise agreed by the parties.

Merger Consideration

Other than the excluded shares described below, each share of our common stock issued and outstanding immediately prior to the effective time of the merger will be automatically cancelled and converted at the effective time of the merger into the right to receive the following merger consideration: (1) $2.05 in cash, which we refer to as the “cash merger consideration”; and (2) a contingent right to receive a share of additional merger consideration, which we refer to as the “additional consideration”.

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The additional consideration will be paid, if, on or prior to the six-month anniversary of the consummation of the merger, we, Dimensional Associates or any of our respective affiliates enter into a commitment, which we refer to as a resale transaction, to sell at least 80% of our outstanding voting securities or at least 80% of our assets. The additional consideration will be an amount equal to 15% of the difference between our enterprise value in the resale transaction and our enterprise value, immediately prior to the consummation of the merger as calculated in accordance with the terms of the merger agreement, which amount we refer to as the “resale profit”. The portion of any additional consideration payable to a holder of our shares will be calculated in accordance with the terms of the merger agreement.

The following shares will be excluded shares and will receive the following treatment in the merger:

In addition, following the merger, each share of our Series A convertible preferred stock will remain outstanding.

If we change the number of shares or securities convertible or exchangeable into or exercisable for shares issued and outstanding prior to the effective time of the merger as a result of a reclassification, stock split (including a reverse stock split), stock dividend or distribution, recapitalization, merger, issuer tender or exchange offer, or other similar transaction, the merger consideration will be equitably adjusted to reflect the change.

Payment Procedures

Dimensional Associates will select a paying agent (with the prior approval of the special committee of our board of directors) to receive the aggregate merger consideration for the benefit of the holders of shares of our common stock. At the effective time of the merger, Dimensional Associates will deposit with the paying agent an amount in cash equal to the aggregate cash merger consideration. If any cash amounts in respect of the additional consideration is to be paid, Dimensional Associates will pay to the paying agent, for the benefit of, and distribution to, our pre-merger stockholders and, if applicable, our pre-merger option and stock appreciation rights holders, an amount in cash equal to the aggregate cash amount payable in respect of the additional consideration.

Immediately after the effective time of the merger, Dimensional Associates or the surviving corporation will cause the paying agent to mail to each stockholder of record, other than holders of excluded shares, a letter of transmittal, instructions advising how to surrender or exchange certificates or book-entry shares for the merger consideration, and information describing the holder’s contingent rights to receive his, her or its share of the additional consideration.

Upon surrender of a certificate or book-entry shares to the paying agent in accordance with the terms of the letter of transmittal, together with a signed letter of transmittal, and any other documents specified in the letter of transmittal or required by the paying agent, the holder of the certificate or book-entry shares will receive in exchange a cash amount for each share surrendered equal to the merger consideration. The paying agent will reduce the amount of any merger consideration paid to the holder by any applicable withholding taxes and no interest will be paid or accrued with respect to the merger consideration. The certificate or book-entry shares so surrendered will be cancelled. YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO THE PAYING AGENT WITHOUT A LETTER OF TRANSMITTAL, AND YOU SHOULD NOT RETURN YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY.

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In the event of a transfer of ownership of shares that is not registered in our transfer records, payment may be issued to the transferee upon surrender of the certificate formerly representing such shares to the paying agent, accompanied by all documents evidencing the transfer and evidencing that any applicable stock transfer taxes have been paid or are not applicable.

At the effective time of the merger, we will close our stock transfer books. After that time, there will be no further transfer of shares of our common stock that were outstanding immediately prior to the effective time of the merger, except for shares owned by Dimensional Associates or its affiliates.

Any cash deposited with the paying agent (including the proceeds of any investments thereof and any amount of additional consideration deposited) that remains unclaimed for one year after the effective time of the merger will be delivered to the surviving corporation. Subject to any applicable unclaimed property laws, after that time, any holder of shares will be entitled to look only to the surviving corporation for payment of the cash merger consideration and the additional consideration, if any, upon surrender of its certificates or book-entry shares.

If a certificate has been lost, stolen or destroyed, the paying agent will deliver the merger consideration in exchange for the lost, stolen or destroyed certificate only upon the making of an affidavit of loss and, if required by Dimensional Associates or the surviving corporation, the posting of a bond as indemnity against any claim that may be made against Dimensional Associates or the surviving corporation with respect to the lost certificate.

Appraisal Rights

Shares of our common stock issued and outstanding immediately prior to the effective time of the merger that are held by any holder who has perfected a demand for appraisal rights with respect to such shares will not be converted into the right to receive the merger consideration. Instead such stockholder will only be entitled to payment of the appraised value of such shares in accordance with the DGCL. At the effective time of the merger, all such shares will automatically be cancelled and will cease to exist or be outstanding, and each holder will cease to have any rights with respect to the shares, except for rights granted under Section 262 of the DGCL. In the event a stockholder withdraws or loses (through failure to perfect or otherwise) the right to appraisal under the DGCL, then the rights of such holder will be deemed to have been converted at the effective time of the merger into the right to receive the merger consideration described above. Dimensional Associates has the right to participate in all negotiations and proceedings with respect to demands for appraisal under the DGCL. We may not, without Dimensional Associates’ prior written consent, voluntarily make any payment with respect to, or settle or offer to settle, or approve any withdrawal of any demands for appraisal.

These rights in general are discussed more fully under “Appraisal Rights” below.

Treatment of Options, Restricted Stock, Stock Appreciation Rights and Warrants

Immediately prior to the effective time of the merger and in accordance with the Company Stock Plan, we will provide that:

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Each outstanding and unexercised stock option and stock appreciation right has an exercise price greater than $2.05 and, consequently, holders thereof will not receive any cash merger consideration at the effective time of the merger.

Representations and Warranties

The merger agreement contains representations and warranties made by The Orchard and by Dimensional Associates and Merger Sub to and solely for the benefit of each other party. The assertions embodied in those representations and warranties may be qualified by information contained in confidential disclosure schedules we provided in connection with signing the merger agreement that modify, qualify and create exceptions to the representations and warranties contained in the merger agreement.

Accordingly, you should not rely on the representations and warranties as characterizations of the actual state of facts, because (a) they were made only as of the date of the merger agreement or a prior specified date, (b) in some cases they are subject to qualifications with respect to materiality and knowledge, (c) they are modified in important part by the associated disclosure schedule and (d) in the case of our representations and warranties, are also qualified by certain disclosure in the registration statements, reports and proxy statements filed or furnished by us with or to the SEC since December 31, 2007 and prior to the date of the merger agreement. The disclosure schedule contains information that has been included in our prior public disclosures, as well as non-public information. Moreover, information concerning the subject matter of the representations and warranties may have changed since the date of the merger agreement, which subsequent information may or may not be fully reflected in our public disclosures.

We make various representations and warranties in the merger agreement that are subject, in some cases, to exceptions and qualifications (including exceptions that would not reasonably be expected to constitute a Company Material Adverse Change). See “— Definition of Company Material Adverse Change” below. Our representations and warranties relate to, among other things:

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The merger agreement also contains various representations and warranties made by Dimensional Associates and Merger Sub that are subject, in some cases, to exceptions and qualifications. The representations and warranties of Dimensional Associates and Merger Sub relate to, among other things:

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The representations and warranties of the parties will not survive consummation of the merger.

Definition of Company Material Adverse Change

Many of the representations and warranties made by us in the merger agreement and certain conditions to performance by Dimensional Associates and Merger Sub of their obligations under the merger agreement are qualified by reference to whether the item in question would constitute a “Company Material Adverse Change”. The merger agreement provides that a “Company Material Adverse Change” means any fact, circumstance, change, occurrence or effect that, individually or in the aggregate with all other facts, circumstances, changes, occurrences or effects, is or would reasonably be expected to be materially adverse to the condition (financial or otherwise), assets, liabilities, business or results of operations of The Orchard and our subsidiaries, taken as a whole.

However, any fact, circumstance, change, occurrence or effect arising or resulting from any of the following, in and of itself or themselves, will not constitute, and will not be taken into account in determining whether a Company Material Adverse Change has occurred or may occur:

provided that, with respect to the first, fourth and fifth bullets above, if such fact, circumstance, change, occurrence or effect results in the termination of our business relationship with either (a) iTunes, or (b) any of our 2009 top five digital revenue generating content providers, such fact, circumstance, change, occurrence or effect will constitute a Company Material Adverse Change for all purposes under the merger agreement.

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Covenants Relating to the Conduct of Our Business

We have agreed in the merger agreement that, from the date of the merger agreement until the effective time of the merger, except as expressly contemplated by the merger agreement or required by law, we will, and will cause our subsidiaries to:

We have also agreed in the merger agreement that, from the date of the merger agreement until the earlier of the effective time of the merger or the termination of the merger agreement, subject to certain agreed upon exceptions and except as expressly contemplated by the merger agreement or required by law or consented to in writing by Dimensional Associates (which consent will not be unreasonably withheld or delayed), we will not, and will cause our subsidiaries not to:

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Restrictions on Solicitations of Other Offers

Until 12:01 a.m., Eastern Daylight Time, on April 22, 2010, referred to as the “no-shop period start date”, we and our subsidiaries (and our respective representatives) were permitted to:

From the no-shop period start date until the earlier of the effective time of the merger and the termination of the merger agreement, we and our subsidiaries are required not to (and shall cause our representatives not to), directly or indirectly:

Notwithstanding the restrictions described above, we may:

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provided that (1) we have not breached or violated the provisions in the merger agreement regarding the restrictions on our ability to solicit proposals or offers, the ability of our board of directors to change its recommendation and related provisions described above, (2) our board of directors or the special committee determines in good faith (after receiving the advice of its outside legal counsel) that failure to take such action would reasonably be expected to be inconsistent with its fiduciary duties under applicable law, (3) we have not entered into any exclusivity agreement or other agreement restricting our ability to negotiate, enter into and consummate a transaction with a third party other than such person, (4) we notify Dimensional Associates of the identity of the person and the material terms and conditions of such Acquisition Proposal at least 48 hours prior to engaging or participating in any discussions or negotiations, or furnishing any non-public information concerning an Acquisition Proposal, and (5) we provide Dimensional Associates with certain information and documents regarding the Acquisition Proposal at the same time we provide it to others and keep Dimensional Associates reasonably informed on a prompt basis of the status and details regarding any Acquisition Proposal, request or inquiry and any amendments or revisions thereto.

An “Acquisition Proposal” means any offer, proposal or any third party indication of interest or intent relating to any transaction or series of related transactions involving: