EXHIBIT 10.1

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement (this “Agreement”) is entered
into as of October 5, 2007 between Digital Music Group, Inc., a Delaware
corporation (“DMGI”), and Greg Scholl, a resident of New York (the “Executive”),
but this Agreement shall only became effective, and is contingent upon, the
consummation of the merger (the “Merger”) contemplated by that certain Agreement
and Plan of Merger, dated the date hereof, among Orchard Enterprises, Inc., a
New York corporation (“Orchard”), DMGI and DMGI New York Inc., a wholly-owned
subsidiary of DMGI (the “Effective Date”).

Introduction

On July 10, 2007, the Executive and DMGI entered into that certain Employment
Agreement (the “Old Agreement”) pursuant to which the Executive was to become
the President and Chief Executive Officer of DMGI subject to and upon the
completion of the Merger. The parties now wish to modify certain of the terms of
the Old Agreement and amend and restate the Old Agreement in its entirety in
accordance with the terms of this Agreement.

Agreement

In consideration of the promises and the terms and conditions set forth in this
Agreement, the parties agree as follows:

1. Position and Duties. During the term of this Agreement, DMGI will employ
Executive, and Executive will serve DMGI as its President and Chief Executive
Officer. As such, Executive shall have such responsibilities, duties and
authority as reasonably accorded to and expected of a President and Chief
Executive Officer. The responsibilities, duties and authority of Executive will
include, among other things, managing and growing the business of DMGI and its
subsidiaries and managing and directing all aspects of the business customary
for a Chief Executive Officer. In addition, Executive shall be appointed to the
Board of Directors of DMGI at the Effective Date and will serve as a Director of
DMGI, consistent with the terms and conditions of all Directors, and shall have
such responsibilities, duties and authority as reasonably accorded to and
expected of such. Subject to the terms of Sections 7.5 and 8.4 hereof,
additional or different duties, titles or positions may from time to time be
assigned to or taken from Executive by the Board of Directors of DMGI; provided,
however, that any such changes are consistent and compatible with Executive’s
position as President & Chief Executive Officer of DMGI. Executive will report
directly to the Chairman of the Executive Committee of the Board of Directors,
the Board of Directors or its designee committee(s).

2. Performance of Duties. Executive will be based at and perform his duties
under this Agreement primarily at the New York, NY offices of DMGI. Executive
hereby represents and warrants that he is free to enter into and fully perform
this Agreement and the agreements referred to herein without breach of any
agreement or contract to which he is a party or by which he is bound. Executive
hereby further represents and warrants that he has provided DMGI with copies of
any employment, confidentiality, non-competition or non-solicitation agreements
currently binding upon him.

3. Exclusive Service. Executive shall devote his full time and efforts (from a
business perspective) exclusively to this employment and apply all his skills,
effort and experience to the performance of his duties and advancing DMGI’s
interests. Executive shall not be engaged in any other business activity pursued
for salary, fees, profit, gain or other pecuniary advantage if such activity
interferes with Executive’s duties and responsibilities hereunder. Executive
will not engage in any professional consulting activity nor serve on any
corporate

 

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boards except with the prior written approval of DMGI’s Board of Directors, and
Executive will otherwise refrain from engaging in any activities inconsistent or
in conflict with the performance of his duties hereunder. However, the foregoing
limitations shall not be construed as prohibiting Executive from making personal
investments in a passive form or manner that will not require his services in
the operation or affairs of the companies or enterprises in which such
investments are made or from engaging in charitable, civic or community
activities that do not interfere with his duties to DMGI.

4. Compliance with Policies. DMGI has established policies, procedures and
practices, and Executive will comply with and be bound by all such policies,
procedures and practices from time to time in effect during Executive’s
employment to the extent DMGI has informed Executive thereof. Executive will be
employed in a position of leadership within DMGI and will be expected to
faithfully adhere to, execute and fulfill all corporate policies established by
DMGI, now and in the future, in addition to establishing systems for monitoring
compliance with such policies by other officers, employees and directors,
particularly DMGI’s Code of Business Conduct.

5. Confidential or Proprietary Information and Inventions.

5.1 Company Information. Executive agrees at all times during the term of his
employment and thereafter, to hold in strictest confidence and not to use,
except for the benefit of DMGI, or to disclose to any person, firm or
corporation (except within the scope of his employment) without written
authorization of the Chairman of the Board of Directors of DMGI, any
Confidential Information of DMGI. Executive understands that “Confidential
Information” means any DMGI financial or operating information, contents of
music libraries, data bases, technical data, trade secrets or know-how,
including, but not limited to, research, product plans, products and processes,
services, customer lists, channel partner lists, target acquisition lists and
customers, channel partners and target acquisitions (including, but not limited
to, customers, channel partners and target acquisitions of DMGI on whom
Executive called or with whom Executive became acquainted during the term of his
employment), market data, software, inventions, music processing techniques,
formulas, technology, designs, drawings, engineering, hardware configuration
information, marketing, financial reports or other business information
disclosed to Executive by DMGI or prepared by Executive during his employment by
DMGI, either directly or indirectly, in writing, orally, by drawings, or by
observation of documents, technology or equipment. DMGI and Executive
acknowledge that Confidential Information does not include any of the foregoing
items which have become publicly known and made generally available through no
wrongful act of Executive’s or of others who were under confidentiality
obligations as to the item or items involved.

5.2 Third Party Information. Executive recognizes that DMGI has received and in
the future will receive from third parties (including, but not limited to,
vendors, customers, channel partners and acquisition targets) their confidential
or proprietary information subject to a duty on DMGI’s part to maintain the
confidentiality of such information and to use it only for certain limited
purposes. Executive agrees to hold all such confidential or proprietary
information in the strictest confidence and not to disclose it to any person,
firm or corporation or to use it except as necessary in carrying out his work
for DMGI consistent with DMGI’s agreement with such third party.

5.3 No Prior Inventions. Executive represents that, as of the Effective Date of
this Agreement, other than musical composition and sound recording copyrights,
he has no inventions, original works of authorship, developments, improvements
or trade secrets which were made by him prior to his employment with DMGI, which
relate to DMGI’s business, operations, digitization processes, music library or
research and development.

 

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5.4 Future Inventions. DMGI shall own all right, title and interest (including
patent rights, copyrights, trade secret rights, mask work rights, sui generis
database rights and all other intellectual and industrial property rights of any
sort) to any and all inventions (whether or not patentable), works of
authorship, mask works, designs, know-how, ideas and information made or
conceived or reduced to practice, in the whole or in part, by Executive during
the term of his employment with DMGI to and only to the fullest extent allowed
by applicable law; provided, however, the foregoing shall only apply to any of
the foregoing that are directly related to the business of DMGI (collectively
referred to herein as “ Inventions “). Executive agrees that he will promptly
make full written disclosure to DMGI, will hold in trust for the sole right and
benefit of DMGI, and hereby assign to DMGI or its designee, all his right,
title, and interest in and to any and all Inventions. To the extent allowed by
law, this section includes all right of paternity, integrity, disclosure and
withdrawal and any other rights that may be known as or referred to as “moral
rights” or the like. To the extent Executive retains any such moral rights under
applicable law, Executive hereby ratifies and consents to any action that may be
taken with respect to such moral rights by or authorized by DMGI and agrees not
to assert any moral rights with respect thereto. Executive will confirm any such
ratifications, consents and agreements from time to time as requested by DMGI.

5.5 Maintenance of Records. Executive agrees to keep and maintain adequate and
current written records of all Inventions made by him (solely or jointly with
others) during the term of his employment with DMGI. The records will be in the
form of notes, sketches, drawings and any other format that may be specified by
DMGI. The records will be available to and remain the sole property of DMGI at
all times.

5.6 Patent and Copyright Registrations. Executive agrees to assist DMGI, or its
designee, at DMGI’s expense, in every proper way to secure DMGI’s rights in any
Inventions and any copyrights, patents, mask work rights or other intellectual
property rights relating thereto in any and all countries, including the
disclosure to DMGI of all pertinent information and data with respect thereto,
the execution of all applications, specifications, oaths, assignments and all
other instruments which DMGI shall reasonably deem necessary in order to apply
for and obtain such rights and in order to assign and convey to DMGI, its
successors, assigns and nominees the sole and exclusive rights, title and
interest in and to such Inventions, and any copyrights, patents, mask work
rights or other intellectual property rights relating thereto. Executive further
agrees that his obligation to execute or cause to be executed, when it is in his
power to do so, any such instrument or papers shall continue after the
termination of this Agreement. If DMGI is unable because of his mental or
physical incapacity or for any other reason to secure his signature to apply for
or to pursue any application for any United States or foreign patents or
copyright registrations covering Inventions or original works of authorship
assigned to DMGI as above, then Executive hereby irrevocably designates and
appoints DMGI and its duly authorized officers and agents as his agent and
attorney in fact, to act for and in his behalf and stead to execute and file any
such applications and to do all other lawfully permitted acts to further the
processing and issuance of letters patent or copyright registrations thereon
with the same legal force and effect as if executed by Executive.

6. Compensation and Benefits.

6.1 Base Salary. Beginning on the Effective Date, DMGI shall pay Executive a
base salary of Two-hundred and fifty thousand dollars ($250,000) per year,
adjusted as provided herein (the “Base Salary”), payable as earned in accordance
with DMGI’s customary payroll practice. On at least an annual basis, the
Compensation Committee of the Board of Directors will review Executive’s
performance and make an increase to the then current Base Salary as it deems
warranted by individual and corporate performance, market conditions and other
factors. For 2008, such increase in Base Salary will not be less than 10% of
such Base Salary. No reductions will be made to Executive’s Base Salary unless
it is part of a company-wide

 

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expense reduction plan authorized by the Board of Directors of DMGI, applying
ratably to the base salaries of all senior executives and to the fees earned by
Directors; provided, however, that in no event may Executive’s Base Salary be
reduced by more than fifteen percent (15%) at any one time or in the aggregate
over any twenty-four (24) month period without his consent.

6.2 Additional Benefits. Executive will be eligible to participate in DMGI’s
employee benefit plans of general application to DMGI’s senior executives in
effect from time to time, as amended, including without limitation, those plans
covering pension and profit sharing, executive perquisites, stock purchases, and
those plans covering life, health, and dental insurance in accordance with the
rules established for individual participation in any such plan and applicable
law. Once Executive is eligible for health and dental insurance coverage
hereunder, Executive’s spouse and dependents shall also be eligible for such
coverage in accordance with the terms of DMGI’s policies and plans and the
contracts with third party providers. In addition, beginning on the Effective
Date, Executive will receive such other benefits, including vacation, holidays
and sick leave, as DMGI generally provides to its senior executives.

6.3 Incentive Bonus Plan. For 2008 and all subsequent years during the Term,
subject to the terms of DMGI’s management incentive bonus plan, as amended from
time to time (the “Bonus Plan”), Executive will be eligible to earn cash bonuses
on an annual basis up to his Base Salary, payable as determined under the Bonus
Plan, but not until such time as the Compensation Committee of the Board of
Directors of DMGI determines the targets, milestones, performance objectives and
measurement criteria to be met each fiscal year and approves the payment of
specific cash bonuses after the end of each fiscal year based upon the objective
calculations and discretionary judgments as called for in the Bonus Plan. For
2007, Executive shall be entitled to receive a discretionary cash bonus in an
amount and in accordance with the parameters set forth on Schedule A attached
hereto.

6.4 Expenses. Executive shall prepare and submit timely expense reports and DMGI
will reimburse Executive for all reasonable and necessary travel and other
expenses incurred by Executive in connection with DMGI’s business, provided that
such expenses are in accordance with DMGI’s applicable expense reporting and
reimbursement policy and are properly documented and accounted for in accordance
with the requirements of the Internal Revenue Service.

6.5 Vacation. Executive will be entitled to paid vacation as set forth in DMGI’s
policies and/or employee manual (as they may be applicable to DMGI’s executive
officers and key employees), as approved by the Board of Directors.

6.6 Equity Incentive Awards. At the Effective Date, Executive will receive
options to purchase 100,000 shares of DMGI’s Common Stock (“Common Stock”) and
100,000 restricted shares of Common Stock, with such options and shares being
granted and awarded pursuant to and under the terms and conditions of DMGI’s
Amended and Restated 2005 Stock Plan (the “DMGI Stock Plan”). Such stock options
and shares of restricted Common Stock shall vest quarterly in six (6) equal
installments such that they will be fully vested eighteen (18) months from the
Effective Date. The stock options will expire on the seventh anniversary of the
Effective Date.

7. Term and Termination. This Agreement will commence on the Effective Date and
will continue until the earlier of three (3) years after the Effective Date or
when terminated pursuant to any one of the following:

7.1 Death. The death of Executive shall immediately terminate this Agreement.

 

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7.2 Disability. If, as a result of incapacity due to physical or mental illness
or injury, Executive shall have been absent from his full-time duties hereunder
or unable to materially fulfill his full-time duties hereunder for three
(3) consecutive months, then thirty (30) days after receiving written notice
(which notice may occur on or after the end of such three (3) month period),
DMGI may terminate Executive’s employment hereunder provided Executive is unable
to resume his full-time duties at the conclusion of such notice period. Also,
Executive may initiate termination of his employment under this Section 7.2 if
his health should become impaired to an extent that makes the continued
performance of his duties hereunder hazardous to his physical or mental health,
provided that Executive shall have furnished DMGI with a written statement from
a qualified doctor to such effect and provided, further, that, at DMGI’s request
made within ten (10) days from the date of receipt of such written statement,
Executive shall submit on a timely basis to an examination by a qualified doctor
selected by DMGI who is acceptable to Executive or Executive’s doctor (such
acceptability will not be unreasonably withheld) and such doctor shall have
concurred with the conclusion of Executive’s doctor.

7.3 For Cause. DMGI may terminate Executive’s employment under this Agreement
for “cause,” which shall be defined herein as follows: (a) Executive’s material
and irreparable breach of this Agreement; (b) Executive’s gross negligence or
willful insubordination in the performance or intentional nonperformance
(continuing for ten (10) days after receipt of written notice from DMGI of the
need to cure) of any of Executive’s assigned duties and responsibilities
hereunder; (c) Executive’s willful dishonesty, fraud, misrepresentation or
misconduct with respect to the business and affairs of DMGI which adversely
affects the operations, reputation or business prospects of DMGI;
(d) Executive’s willful, reckless or grossly negligent violation of a material
provision of DMGI’s Code of Business Conduct or other written corporate policy;
(e) Executive’s willful or reckless violation of any federal, state or local law
or regulation applicable to DMGI’s business; (f) Executive’s conviction of any
felony crime; (g) Executive entering a plea of nolo contendere to any crime
involving any act of moral turpitude; or (h) chronic alcohol abuse or chronic
illegal drug use by Executive (“ Termination for Cause”).

7.4 Without Cause. This Agreement may be terminated by DMGI thirty (30) days
after the effective date of a written notice sent to Executive stating that DMGI
is terminating his employment, without cause, which notice can be given by DMGI
at any time after the Effective Date at DMGI’s sole discretion, for any reason
or for no reason (“Termination Without Cause”); provided, however, that a
Termination Without Cause must be approved by a majority of the members of the
Board of Directors of DMGI.

7.5 For Good Reason. Executive may elect to terminate his employment with DMGI
on the effective date of a written notice sent to DMGI from Executive stating
that he is terminating employment for “good reason,” which shall be defined
herein as follows: (a) Executive’s position with DMGI is changed in a manner
which materially reduces his level of responsibility or materially changes the
overall nature of his duties and responsibilities or Executive is demoted, in
any case so as to no longer be serving as President and CEO of DMGI, and the
continuance thereof for a period of ten (10) days after written notice from
Executive that he is unwilling to accept such changes in duties or
responsibilities; provided, however, that a reduction in position or
responsibilities solely by virtue of DMGI being acquired and made part of a
larger entity will not constitute “good reason” so long as Executive continues
to serve as the senior-most executive of the operating unit that encompasses,
operates or holds DMGI’s business activities; (b) Executive’s level of
compensation (including Base Salary, fringe benefits and participation in
non-discretionary bonus programs under which awards are payable pursuant to
objective financial or performance standards) is reduced without his consent;
provided, however, that a reduction of Executive’s compensation in accordance
with Section 6.1 will not constitute “good reason”; (c) Executive is required to
relocate his principal office of employment with DMGI outside of New York, NY
without his consent; or (d) a breach by DMGI of any material provision of this
Agreement which remains uncorrected for thirty (30) days following written
notice by Executive of such breach (“Termination for Good Reason”).

 

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7.6 Voluntary. This Agreement may be terminated by Executive on the effective
date of a written notice sent to DMGI from Executive stating that Executive is
electing to terminate his employment with DMGI without “good reason” as defined
in Section 7.5 hereof (“ Voluntary Termination “).

8. Effect of Termination.

8.1 Termination as a Result of Death. In the event of any termination of this
Agreement pursuant to Section 7.1 hereof, no severance compensation is due to
Executive’s estate; provided, however, that DMGI will pay accrued but unpaid
salary, accrued vacation and any other accrued but unpaid benefits and
unreimbursed expenses through the last day of the month in which Executive’s
death occurs.

8.2 Termination as a Result of Disability. In the event of any termination of
this Agreement pursuant to Section 7.2 hereof, Executive shall receive from DMGI
in a lump-sum payment due within ten (10) business days of the effective date of
termination, the Base Salary at the rate then in effect for whatever time period
is remaining under the term of this Agreement or for twelve (12) months,
whichever amount is lesser. In the event of a disability termination pursuant to
Section 7.2 hereof, Executive will not be eligible to receive any ongoing
benefits subsequent to the effective date of termination, other than continued
participation in any applicable DMGI disability plan, nor will there be any
proration of any potential annual incentive bonus under Section 6.3 hereof for
the fiscal year in which such termination occurs; provided, however, that DMGI
will pay accrued but unpaid salary, accrued vacation and any other accrued but
unpaid benefits and unreimbursed expenses through the last day of the month in
which Executive’s termination occurs.

8.3 Termination for Cause or Voluntary Termination. In the event of any
termination of this Agreement pursuant to Sections 7.3 or 7.6 hereof, DMGI shall
pay Executive the compensation and benefits otherwise payable to Executive under
Section 6 hereof through the date of termination, except that there will be no
proration of any potential annual incentive bonus under Section 6.3 hereof for
the fiscal year in which such termination occurs.

8.4 Termination Without Cause or for Good Reason. In the event of any
termination of this Agreement pursuant to Sections 7.4 or 7.5 hereof:

(a) DMGI shall continue to pay Executive his Base Salary under Section 6.1
hereof at Executive’s then-current salary and maintain his benefits under
Section 6.2 hereof (i) through the remaining term of this Agreement which ends
on the third anniversary of the Effective Date, or (ii) for twelve (12) months,
whichever period is longer. If such benefits contemplated under Section 6.2
hereof cannot be maintained under the provisions and eligibility of the specific
plans (see Section 8.6 below), then DMGI shall pay during the post-termination
period the cash equivalent of the cost of benefits under any such plan;

(b) DMGI will pay unreimbursed expenses and accrued vacation through the date of
termination pursuant to Sections 6.4 and 6.5 of this Agreement;

(c) For the fiscal year of termination, DMGI shall pay the pro rata portion of
the annual incentive bonus otherwise due to Executive pursuant to Section 6.3
hereof, such pro rata bonus amount to be determined at the sole discretion of
the Compensation Committee of the Board of Directors based upon the targets,
milestones, performance objectives and measurement criteria established for the
fiscal year and DMGI’s and Executive’s, as the case may be, actual performance
against such targets, milestones, performance objectives and measurement
criteria; and

 

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(d) The Restricted Stock Award Agreement and the Stock Option Agreement that
Executive enters into with DMGI for the equity incentive awards set forth in
Section 6.6 hereof will contain a provision that such awards shall become fully
vested in the event of a termination of employment pursuant to Sections 7.4 or
7.5 hereof.

(e) In all cases, post-termination payments to Executive will be reduced for
applicable withholding taxes and will be payable on DMGI’s normal payroll dates
or bonus payment dates during the periods; provided, however, that if the total
amount of the benefits available to Executive under this Section 8.4, either
alone or together with other payments which Executive has the right to receive
from DMGI, would constitute a “parachute payment” as defined in Section 280G of
the Internal Revenue Code of 1986, as amended (the “ Code “), then DMGI shall
pay to Executive at the time of termination an additional amount such that the
net amount retained by Executive, after deduction of the excise tax imposed by
Section 4999 of the Code and any federal, state and local income tax and excise
tax imposed on such additional amount, shall be equal to the amount payable to
the Executive under this Section 8.4 as originally determined prior to the
deduction of the excise tax. In the event of any termination of this Agreement
pursuant to Sections 7.4 or 7.5, Executive shall have no duty or obligation
whatsoever to seek similar or substitute employment or otherwise mitigate his
damages.

(f) If upon termination Executive is a “specified employee” within the meaning
of Code section 409A(a)(2)(B)(i) and the regulations promulgated thereunder,
then the payments under Sections 8.4(a) and (c) will not begin sooner than the
date that is six (6) months following the date of termination. In the event of a
delay in payment provided under this Section 8.4(f), DMGI shall, on the first
day of the seventh month following such termination, pay Executive in a lump sum
all amounts that would have been paid under Section 8.4(a) and (c) through such
date if such six-month delay had not occurred.

(g) Executive will only be deemed to have incurred a separation from service
under Section 8.4(a) and (c) if it is reasonably anticipated that Executive will
not provide significant services for DMGI or an affiliate following such
termination (a “Separation from Service”). Whether a termination of employment
is considered a Separation from Service will be determined in accordance with
Internal Revenue Code Section 409A, and such determination will be based upon
the facts and circumstances surrounding the termination of employment. While
Executive is on military leave, sick leave, or another bona fide leave of
absence, the employment relationship is treated as continuing intact if the
period of leave does not exceed six months, or, if longer, so long as Executive
has a guaranteed right to return to employment either by law or by contract.

8.5 Termination as a Result of Expiration of Agreement. If this Agreement is
allowed to expire three (3) years from the Effective Date without being renewed
or otherwise extended, then all the specific rights and obligations of the
parties under this Agreement shall cease, including, without limitation,
Executive’s obligations under Section 9, and Executive shall become an at-will
employee of DMGI subject to its human resources and other corporate policies and
its Employee Handbook in effect at such time.

8.6 Rights under DMGI’s Stock Plan and Benefit Plans. In the event of
termination and the requirement for any benefits to be provided under this
Section 8, except as otherwise expressly provided herein, Executive’s rights
hereunder and under DMGI’s Stock Plan, which governs stock options and
restricted stock awards, and all other benefit plans

 

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of general application, including DMGI’s employee health and dental insurance
coverage, shall be subject to and determined in accordance with the provisions
and eligibility of those plans, the related award agreements and the provisions
of applicable law.

9. Covenant Not to Compete or Solicit.

9.1 During the term of this Agreement and for a period of time thereafter equal
to the longer of (a) twelve (12) months or (b) the period of time during which
the Executive continues to receive compensation or benefits pursuant to
Section 8 hereof (the “Non-Competition Period”), Executive shall not, other than
on behalf of DMGI or any entity owned by or directly affiliated with DMGI,
directly or indirectly, without the prior written consent of DMGI: (i) engage
in, anywhere in the United States or the world in which DMGI or any of its
affiliates and subsidiaries are conducting business (the “Restricted Area”),
whether as an employee, agent, consultant, advisor, independent contractor,
proprietor, partner, officer, director or otherwise, or have any ownership
interest in (except for ownership of two and one-half percent (2.5%) or less of
any publicly-held entity), or participate in or facilitate the financing,
operation, management or control of, any firm, partnership, corporation, entity
or business that engages or participates in, a Competing Business Purpose (as
defined below); or (ii) approach, contact or solicit clients or customers of
DMGI or any of its affiliates and subsidiaries, including content owners and
channel outlets with which they have a relationship, in connection with a
Competing Business Purpose. For purposes of this Agreement, “Competing Business
Purpose” shall mean the acquisition of digital rights to Independently Owned
Content (as defined below) (whether by purchase, license or through digital
distribution arrangements), the processing of Independently Owned Content into
digital format for placement in online music, mobile or video stores and other
channel outlets, and the distribution of digital music and video content to
online music, mobile or video stores and other channel outlets for purchase by
consumers via electronic means such as transmissions, mobiletones and streaming.
Notwithstanding anything to the contrary herein, a Competing Business Purpose
shall not include the activities of any business unit or division of a major
record label group (as of the date hereof, SonyBMG, Universal Music Group,
Warner Music Group or EMI Recorded Music) or other entity, so long as the
activities of such business unit or division are not related to the acquisition,
processing or distribution of Independently Owned Content. For purposes hereof,
“Independently Owned Content” means music content not owned or controlled by one
of the four major record label groups and video content not owned or controlled
by a major movie or television studio (as of the date hereof, Paramount Motion
Pictures Group, Fox Filmed Entertainment, Sony Pictures Entertainment,
NBC/Universal, Warner Brothers Entertainment, and Buena Vista Motion Pictures
Group, together with the television production affiliates thereof).

9.2 During the Non-Competition Period, Executive shall not, directly or
indirectly, either for himself or for any other person or entity, without the
prior written consent of DMGI, solicit, encourage or take any other action which
is intended to induce or encourage, or has the effect of inducing or
encouraging, any employee of DMGI or any of their affiliates or subsidiaries to
terminate his or her employment with DMGI or such affiliate or subsidiary, for
any purpose.

9.3 The covenants contained in Sections 9.1 and 9.2 hereof shall be construed as
a series of separate covenants, one for each country, province, state, city or
other political subdivision of the Restricted Area. Except for geographic
coverage, each such separate covenant shall be deemed identical in terms to the
covenant contained in Section 9.1 and Section 9.2, respectively. If, in any
judicial proceeding, a court refuses to enforce any of such

 

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separate covenants (or any part thereof), then such unenforceable covenant (or
such part) shall be eliminated from this Agreement to the extent necessary to
permit the remaining separate covenants (or portions thereof) to be enforced. In
the event that the provisions of this Section 9 are deemed to exceed the time,
geographic or scope limitations permitted by applicable law, then such
provisions shall be reformed to the maximum time, geographic or scope
limitations, as the case may be, permitted by applicable laws.

9.4 All of the covenants in this Section 9 shall be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of Executive against DMGI, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
DMGI of such covenants. Because of the difficulty of measuring economic loss to
DMGI as a result of any breach of the covenants in this Section 9, and because
of the immediate and potentially irreparable damage that could be caused to DMGI
for which it would have no other adequate remedy, Executive agrees that these
covenants may be enforced by DMGI in the event of a breach by him, by
injunctions and/or restraining orders. It is further agreed by the parties that
the covenants in this Section 9 impose a reasonable restraint on Executive in
light of the activities and business of Orchard and DMGI on the date of
execution of this Agreement and the current plans of Orchard and DMGI, including
the Merger. Executive acknowledges that (i) the goodwill associated with the
existing business, customers and assets of Orchard and DMGI prior to the Merger
is an integral component of the value of the Merger to the respective companies,
and (ii) Executive’s agreement as set forth herein is necessary to preserve the
value of the Orchard and DMGI following the Merger. Executive also acknowledges
that the limitations of time, geography and scope of activity agreed to in this
Agreement are reasonable because, among other things: (A) Orchard and DMGI are
engaged in a highly competitive industry, (B) Executive has unique access to,
and will continue to have access to, the trade secrets and know-how of Orchard
and DMGI, including, without limitation, the plans and strategy (and, in
particular, the competitive strategy) of Orchard and DMGI, and (C) in the event
Executive’s employment with DMGI terminated, Executive should be able to obtain
suitable and satisfactory employment without violation of this Agreement.

10. Return of DMGI Property. All records, documents, designs, patents, business
plans, financial information, manuals, correspondence, memoranda, data bases,
lists and other property delivered to or compiled by Executive by or on behalf
of DMGI or its representatives, vendors, customers, channel partners and
acquisition targets which pertain to the business of DMGI shall be and remain
the property of DMGI and be subject at all times to its discretion and control.
Upon termination of Executive’s employment for any reason, all such material
which has been collected or accumulated by Executive shall be delivered promptly
to DMGI without request by it.

11. Miscellaneous.

11.1 Arbitration. Executive and DMGI agree that any unresolved dispute,
controversy or claim arising out of, or relating to, this Agreement or any
alleged breach hereof shall be settled exclusively by binding arbitration,
provided, however, that DMGI and Executive retain their right to, and shall not
be prohibited, limited or in any other way restricted from, seeking or obtaining
equitable relief from a court having jurisdiction over the parties. Any such
arbitration proceedings shall be conducted in New York, NY, in accordance with
the commercial arbitration rules of the American Arbitration Association in
effect at that time. The arbitrator(s) shall not have the authority to add to,
detract from or modify any provision hereof nor to award punitive damages to any
injured party. The arbitrator(s) shall have the authority to order back pay,
severance compensation, vesting of options or other restricted

 

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equity awards (or cash compensation in lieu of vesting), reimbursement of costs,
including legal fees and other costs incurred to enforce this Agreement or to
defend against charges brought hereunder, and interest thereon in the event the
arbitrator(s) determines that DMGI has breached this Agreement. The
arbitrator(s) shall have the authority to order reimbursement of costs and any
damages actually sustained by DMGI, including legal fees and other costs
incurred to enforce this Agreement or to defend against charges brought
hereunder, and interest thereon in the event the arbitrator(s) determines that
Executive has breached this Agreement. A decision by the arbitrator or a
majority of the members of an arbitration panel (not to exceed three
(3) arbitrators) shall be final and binding, and judgment upon the determination
or award rendered by the arbitrator(s) may be entered in any court having
jurisdiction. The direct expense of any arbitration proceeding shall initially
be borne by DMGI, but the arbitrator(s) shall have the authority to reallocate
such cost among the parties upon conclusion of the proceedings.

11.2 Severability. If any provision of this Agreement shall be found by any
arbitrator or court of competent jurisdiction to be invalid or unenforceable,
then the parties hereby waive such provision to the extent that it is found to
be invalid or unenforceable and to the extent that to do so would not deprive
one of the parties of the substantial benefit of its bargain. Such provision
shall, to the extent allowable by law and the preceding sentence, be modified by
such arbitrator or court so that it becomes enforceable and, as modified, shall
be enforced as any other provision hereof, all the other provisions continuing
in full force and effect.

11.3 Remedies. DMGI and Executive acknowledge that the service to be provided by
Executive is of a special, highly skilled, extraordinary and intellectual
character, which gives it peculiar value the loss of which cannot be reasonably
or adequately compensated in damages in an action at law. Accordingly, Executive
hereby consents and agrees that for any breach or violation by Executive of any
of the provisions of this Agreement including, without limitation, Sections 3,
4, 5, 9 and 10 hereof, a restraining order and/or injunction may be issued
against Executive, in addition to any other rights and remedies DMGI may have,
at law or equity, including without limitation the recovery of money damages.

11.4 No Waiver. The failure by either party at any time to require performance
or compliance by the other of any of its obligations or agreements shall in no
way affect the right to require such performance or compliance at any time
thereafter. The waiver by either party of a breach of any provision hereof shall
not be taken or held to be a waiver of any preceding or succeeding breach of
such provision or as a waiver of the provision itself. No waiver of any kind
shall be effective or binding, unless it is in writing and is signed by the
party against whom such waiver is sought to be enforced.

11.5 Assignment. This Agreement and all rights hereunder are personal to
Executive and may not be transferred or assigned by Executive at any time. DMGI
may assign its rights, together with its obligations hereunder, to any parent,
subsidiary, affiliate or successor, or in connection with any sale, transfer or
other disposition of all or substantially all of its business and assets,
provided, however, that any such assignee assumes DMGI’s obligations hereunder.

11.6 Withholding. All sums payable to Executive hereunder shall be reduced by
all federal, state, local and other withholding and similar taxes and payments
required by applicable law or by DMGI company policy and practice.

11.7 Entire Agreement. This Agreement constitutes the entire and only agreement
between the parties relating to employment of Executive with DMGI, and this
Agreement supersedes and cancels any and all previous contracts, arrangements or
understandings with respect thereto, whether verbal or in writing. For the
avoidance of doubt, this Agreement amends, restates and supersedes the Old
Agreement in its entirety and the Old Agreement is hereby null and void and of
no further force or effect.

 

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11.8 Amendment. This Agreement may not be amended or modified, except by an
agreement in writing executed by both parties hereto and approved by the Board
of Directors of DMGI or its Compensation Committee.

11.9 Notices. All notices and other communications required or permitted under
this Agreement shall be in writing and hand delivered, sent by telecopier, sent
by certified first class mail, postage pre-paid, or sent by nationally
recognized express courier service. Such notices and other communications shall
be effective upon receipt if hand delivered or sent by telecopier, five (5) days
after mailing if sent by mail, and one (l) day after dispatch if sent by express
courier, to the following addresses, or such other addresses as any party shall
notify the other party:

 

If to DMGI:    Digital Music Group, Inc    100 Park Avenue    Second Floor   
New York, NY 10017    Attention: Chairman of the Board of Directors   
Facsimile: (212) 201-9292 With a copy to:    Reed Smith LLP    599 Lexington
Avenue    New York, NY 10022    Attention:   David M. Grimes      Antone P.
Manha, Jr.    Facsimile: (212) 521-5450 If to Executive:    Greg Scholl    191
Claremont Avenue, #2    New York, NY 10027 With a copy to:    Law Offices of
George Edward Regis    121 East 27th Street, #1003B    New York, NY 10001

11.10 Binding Nature. This Agreement shall be binding upon, and inure to the
benefit of, the successors and personal representatives of the respective
parties hereto.

11.11 Headings. The headings contained in this Agreement are for reference
purposes only and shall in no way affect the meaning or interpretation of this
Agreement. In this Agreement, the singular includes the plural, the plural
included the singular, the masculine gender includes both male and female
referents and the word “or” is used in the inclusive sense.

 

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11.12 Counterparts. This Agreement may be executed in two or more counterparts,
including by facsimile, each of which shall be deemed to be an original but all
of which, taken together, constitute one and the same agreement.

11.13 Governing Law. This Agreement and the rights and obligations of the
parties hereto shall be construed in accordance with the laws of the State of
New York, without giving effect to the principles of conflict of laws.

IN WITNESS WHEREOF, DMGI and Executive have executed this Agreement as of the
date first above written.

 

DIGITAL MUSIC GROUP, INC.   EXECUTIVE By:     Name:   Clayton Trier   Greg
Scholl Title:   Chairman of the Board  

 

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Schedule A

Bonus Amount: Executive is eligible to receive a bonus of up to $250,000 or 100%
of Executive’s base salary for 2007 with The Orchard Enterprises, Inc. (the
“Orchard”) based on the following parameters and performance criteria:

1. Gross Revenue: If the Orchard has gross revenues for 2007 of (a) $26,000,000
or more, the Executive is entitled to a bonus equal 33 1/3% of his Base Salary,
(b) $22,000,000 or less, the Executive is not entitled to any bonus with respect
to the Orchard’s gross revenues and (c) more than $22,000,000 but less than
$26,000,000, the Executive is entitled to a pro rata portion of 33 1/3% of his
Base Salary;

2. Gross Margin: If the Orchard achieves a gross margin for 2007 equal to
(a) 25% or greater, the Executive is entitled to a bonus equal 33 1/3% of his
Base Salary, (b) 23% or less, the Executive is not entitled to any bonus with
respect to the Orchard’s gross margin and (c) greater than 23% but less than
25%, the Executive is entitled to a pro rata portion of 33 1/3% of his Base
Salary; and

3. Discretionary Component: The discretionary component is to be determined
solely by the Board of Directors of The Orchard Enterprises, Inc. and may be any
amount up to 33 1/3% of the Executive’s Base Salary.

 

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