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..
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.
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.
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.
4.1 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.
6.1 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
