WEB SITE COMPANY FORMATION DEVELOPMENT AND SERVICES AGREEMENT

WEB SITE COMPANY FORMATION

DEVELOPMENT AND SERVICES AGREEMENT

THIS AGREEMENT (the “ Agreement”) is entered into as of December 2005 by and between Ocean-7 Development, Inc., a New York corporation “OCEAN”) and DAG Media, Inc., a New York corporation ( “ DAGM”). Capitalized terms used in this Agreement and not defined herein shall have the meanings ascribed to such terms in this Agreement..

RECITALS

WHEREAS, DAGM is a publicly traded corporation engaged in the business of publishing and distributing yellow pages classified business telephone directories; and

WHEREAS, OCEAN is a privately held publishing/technology corporation engaged in the business of providing full-service programming and specializes in web and database solutions; and

WHEREAS, MARK ALHADEFF (“MARK”) is an OCEAN shareholder and an executive and key professional at OCEAN; and

WHEREAS, SHERRY DAVIS (“SHERRY”) is a majority shareholder at OCEAN; and

WHEREAS, DAGM desires to launch a new subsidiary (“NEWCO”) to focus on an online referral service; and

WHEREAS, DAGM desires to cooperate and partner with OCEAN for purpose of forming NEWCO, developing its business and launching it business;

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth below, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, DAGM and OCEAN intending to be legally bound, hereby agree as follows.

1.     FORMATION OF NEWCO

On or before December 5, 2005 DAGM will establish NEWCO under the Delaware Corporation Law by filing a certificate of incorporation with the Secretary of State of Delaware. Immediately after incorporation, DAGM shall hold an organization meeting to adopt bylaws, elect directors, elect officers and to transact any other business necessary or appropriate under this Agreement. After incorporation, NEWCO’s Board of Directors shall issue shares of capital stock to DAGM and OCEAN in the percentages described in Paragraph 3.3, in exchange for the consideration described in this Agreement; provided that these shares shall be deemed fully paid and non assessable upon issuance. The parties hereto agree that the form on NEWCO’s certificate of incorporation and bylaws shall be determined by DAGM, but in any event, for as long as this Agreement is in effect and NEWCO is in existence, NEWCO shall be governed by the following provisions: (a) NEWCO’s Board of Directors will be comprised of at least 2 individuals; and (b) DAGM, as incorporator or shareholder, agrees to elect MARK as one of the directors of NEWCO for as long as NEWCO is in existence and OCEAN is providing Services (as defined below) to NEWCO.

2.     SCOPE OF SERVICES  

OCEAN will provide NEWCO with professional services as outlined below:

2.1     Until production release of the web site,, OCEAN shall provide professional services including: (i) development; (ii) programming; (iii) specifications; (iv) design implementations; (v) testing; and (vi) hosting (as described in Statement of Work) resulting in the production availability of NEWCO's referral web service (description of which is set forth in Statement of Work) and allowing the commercial functionality for end-users to interact with the service and support potential high capacity nationwide use, including large numbers of transactions and large scale revenues. Support for this high capacity usage will require a hardware environment to be specified by Ocean. The referral service experience by end users will conform to a reasonable industry standard of other offerings on the Internet. The services shall be deemed to have satisfied the above requirements and be complete, delivered and accepted by NEWCO upon the full functionality of the web site according to the specifications set forth in Statement of Work and the web site being commercially used and there have been 200 successfully processed consumer requests. Acceptance as provided under this Paragraph may not be revoked in whole or in part without the written consent of OCEAN.

2.2     OCEAN will provide comprehensive support and maintenance services and hosting for the web site (as described in Statement of Work) for 2 consecutive months after completion of Services and acceptance by NEWCO of the web site developed under Statement of Work. Except as provided in Paragraph 8.4, OCEAN will provide such support services as part of the Services and at no additional charge to NEWCO.

2.3     At the expiration of the initial 2 month support period, NEWCO will pay for its own support and maintenance expenses while MARK will supervise, advise and consult NEWCO at no cost for as long as OCEAN has outstanding options that have not been vested pursuant to section 3.2 below. If services of independent contractors are needed at the expiration of the 2 month period, MARK will use best efforts to help NEWCO acquire technical services and support at lowest cost possible. In the event NEWCO wishes that OCEAN will provide the technical support and maintenance at the expiration of the 2 month period, NEWCO will pay OCEAN $1350 per month. The services provided under this fee will not include implementation of new features, enhancements of features, or hosting. If NEWCO wishes that OCEAN 7 provide hosting after the expiration of the 2 month period, the compensation will be $700 per month (with the non-refundable fee of $8400 for the full 12-months payable in 12 equal installments of $700 a month due upon invoice at the beginning of each month). This hosting fee is based upon less than 10,000 consumer requests per day. In the event that the number of consumer requests exceeds 10,000 per day, more robust hosting may be needed and the pricing for this hosting will be negotiated separately. All monthly fees quoted in this paragraph are valid for a 12-month period beginning at the expiration of the 2 month period.

2.4     Unless otherwise agreed in writing by DAGM, OCEAN shall not utilize any contractors to perform Services. In the event OCEAN utilizes independent contractors approved by DAGM to perform certain portions of the Services, OCEAN shall be responsible for the quality of the Services performed by the independent contractors and for the payment to the independent contractors.

2.5     The parties agree that, except as provided below, the Services shall be supervised and directed by MARK. MARK will be the contact person, unless Mark is prevented, by illness, accident, disability, death, or act of god, from doing so, in which case OCEAN will appoint another contact person with comparable skills.

3.     COMPENSATION AND PAYMENT

DAGM shall pay OCEAN the following complete and inclusive compensation for Services performed by OCEAN under this Agreement as follows:

3.1     DAGM shall issue OCEAN 60,000 restricted shares of its common stock (“DAGM COMMON STOCK”) pursuant to RULE 144 promulgated under the Securities Act of 1933, as amended (the “ACT”) and according to the following schedule: (i) 20,000 shares upon signing of this Agreement and kick off of the project; (ii) 20,000 shares 10 days following delivery of an internal 80% functional beta site of the referral service; and (iii) 20,000 shares 30 days following production release of the web site.

3.2       On or about the signing of this Agreement, DAGM shall grant to OCEAN an option to purchase 75,000 shares of DAGM COMMON STOCK under DAGM’s stock option plan at an exercise price equal to the fair market value at date of grant according to the following vesting schedule: (i) 25,000 options will be vested on the first anniversary of this Agreement, if NEWCO is still a solvent entity; (ii) 25,000 options will be vested on the second anniversary of this Agreement, if NEWCO is still a solvent entity; and (iii) 25,000 options will be vested at the third anniversary of this Agreement, if NEWCO is still a solvent entity. Notwithstanding to the contrary, the vesting will not continue according to the schedule above if DAGM lost its majority ownership in NEWCO, unless such change in DAGM majority share position was due to a sale of DAGM shares in NEWCO in which OCEAN did not have equal right to participate in.

3.3     OCEAN will receive 20% stock ownership in NEWCO and DAGM shall receive 80% stock ownership in NEWCO. The final legal structure of NEWCO, its Certificate of Incorporation and bylaws will be determined by DAGM subject to Section 1 hereof.

3.4      The compensation provided under Paragraphs 3.1-3.3 above is for services provided under this Agreement excluding: (i) services provided pursuant to Paragraph 2.3 above for any services performed at the expiration of the initial 2 months support period; and (ii) services performed pursuant to the exceptions under Paragraph 8.4 below.

3.5      OCEAN and DAGM agree that when NEWCO reaches $10M in annual gross revenue, the parties will use their best efforts to take NEWCO to IPO or otherwise spin it off of DAGM.

3.6      If OCEAN desires to sell or transfer its ownership in the NEWCO, in whole or in part, OCEAN shall first notify DAGM in writing of the proposed sale or transfer (including the price and proposed transferee). DAGM shall have a right of first refusal for 90 days to purchase OCEAN’s shares at the proposed sale price. If DAGM doesn’t exercise its right of first refusal within the period provided, OCEAN will have additional 90 days to conclude the transfer of shares to the proposed transferee at the proposed terms, provided DAGM approves the proposed transferee in writing. DAGM will not unreasonably hold such approval.

3.7      Upon execution of this Agreement and approval by DAGM Board of Director, MARK will be nominated to the DAGM Board of Directors. MARK and Assaf Ran, the CEO of DAGM will be nominated to NEWCO Board of Directors for as long as OCEAN desires and maintains an ownership interest in NEWCO. DAGM agrees to vote its shares in NEWCO such that MARK will be elected to the NEWCO Board of Directors. MARK’s nomination to the DAGM Board of Directors is subject to DAGM Bylaws.

3.8     To the extent that DAGM has paid OCEAN for a third party provider's invoices, OCEAN shall bear the responsibility to make payment to the third party provider and OCEAN shall indemnify and hold harmless DAGM from OCEAN’s failure to do so.

3.9     OCEAN shall be responsible for all costs and expenses incurred by OCEAN and its approved contractors in performing the Services.

4.     NON-COMPETITION

4.1     OCEAN, MARK and SHERRY agree that for so long as OCEAN is providing Services to NEWCO hereunder or owns any shares in NEWCO, and for a period of three (3) years thereafter it shall not independently, through an affiliate or with a third party, directly or indirectly, perform services on its own or for another company that are substantially similar to the Services performed for NEWCO hereunder to enable itself or such other company to provide an on-line referral service or that is competing with any current (as of the date of this Agreement) DAGM product.

4.2     OCEAN acknowledges and agrees that the restrictions set forth in Paragraph 4.1 are reasonable in scope and duration and are necessary to protect NEWCO, and to enable NEWCO to receive the anticipated benefits of this Agreement and the arrangements contemplated herein. The parties hereto agree that, if any of the length of time, restriction, the scope or another parameter of the restrictions set forth in Paragraph 4.1 is deemed to be unlawfully restrictive by a court of competent jurisdiction, such provision shall be deemed to be amended and shall be construed by such court to have the broadest type, scope and duration permissible under applicable law, and if no validating construction is possible, shall be severable from the rest of this Agreement, and the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby.

5.     INDEMNIFICATION/LIMITATION OF LIABILITY

5.1     Subject to the exception in Paragraph 8.5, Each party shall indemnify, defend and hold the other, its agents, officers, and employees harmless from and against any and all claims, damages, liabilities and losses, including reasonable attorney and litigation fees arising out of any alleged or actual breach of this Agreement or the inaccuracy of any warranty or representation made by it or any act or omission by it in the performance of this Agreement.

5.2     As a condition to the obligations under Paragraphs 5.1, the party seeking indemnification under this Agreement shall give the indemnifying party prompt written notice of any claim for which it is seeking indemnification and shall cooperate with the indemnifying party in the defense of any such claim or action.

5.3     Except with respect to the indemnity obligation , neither party shall be liable for any indirect, incidental, punitive or other consequential damages (including, without limitation, lost profits) arising out of or in relation to this Agreement.

6.     CONFIDENTIALITY

6.1     OCEAN acknowledges that DAGM is a publicly traded corporation and therefore has to comply with certain disclosures as required by law. OCEAN further acknowledges and agrees that DAGM only will make any public announcement or disclosure pertaining to the nature or scope of this venture. In no event shall OCEAN make any public disclosure or announcement concerning this venture without prior written approval by DAGM.

6.2     In the course of performing this Agreement, OCEAN and DAGM may disclose to each other and each other’s respective employees, directors, officers, agents and other representatives, including financial advisors, accountants and attorneys, and any affiliates of the foregoing (each a “ Recipient ” ), confidential or proprietary information, including, but not limited to, the business affairs, property, methods of operation, databases, information contained in such databases and other records related thereto of a DAGM customer or potential customer, information concerning the terms of this Agreement, software code (both so