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Sales Agreement - RedEnvelope Inc. and Vargo Material Handling Inc.

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Sales Agreement Page 1

SALES AGREEMENT

DATE: APRIL 30, 2004

This Sales Agreement, hereinafter, called "Agreement", made by and between
redEnvelope with offices at 201 Spear Street, Suite 300, San Francisco,
California 94105, hereinafter called "Purchaser", and Vargo Material Handling,
Inc. with offices at 3709 Parkway Lane, Hilliard, OH 43026, hereinafter called
"Supplier", constitutes Agreement of the parties as follows:

A: PURCHASE AND SALE; DELIVERY AND INSTALLATION

1. Supplier agrees to sell to Purchaser and Purchaser agrees to
purchase from Supplier, the equipment and any services described in
the Sedlak Request for Proposal dated February 18, 2004 (See Exhibit
1) with supplier exceptions and additions as agreed to and listed in
Exhibit 2, for the price set forth in Supplier's Proposal 4104-001
and subsequent correspondence as summarized below:

Equipment and System Engineering [ * ]
Freight (Prepaid) [ * ]
Unloading [ * ]
Permits and Bonds [ * ]
Installation (Non-Union) [ * ]
----------------------------------------------------------
SUBTOTAL [ * ]
Alternate # 1 [ * ]
Alternate # 8 [ * ]
Alternate #10 [ * ]
Alternate #11 [ * ]
Alternate #13 [ * ]
Alternate #14 [ * ]
Alternate #15 [ * ]
----------------------------------------------------------
GRAND TOTAL [ * ]

To the extent Exhibits 1 and 2 contain terms inconsistent with this
Agreement, the terms of this Agreement shall prevail.

2. Terms of Payment
The initial payment of 10% [ * ] shall be paid upon Sedlak's review
of engineering drawings. The final payment of 10% [ * ] shall be
paid net 30 days from acceptance of system by redENVELOPE. The
balance shall be paid monthly based upon equipment received and
services completed.

* Confidential treatment has been requested for portions of this exhibit.
The copy filed herewith omits the information subject to the
confidentiality request. Omissions are designated as [*]. A complete
version of this exhibit has been filed separately with the Securities and
Exchange Commission.

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Sales Agreement Page 2

3. This agreement constitutes the entire agreement between parties and
no oral representation shall prevail, notwithstanding any other
terms and conditions of any order submitted by Purchaser. Any
changes, modifications, or additions to this Agreement are binding
and enforceable only if made in writing and signed by both parties.

4. Correspondence between parties to be addressed as follows:

Purchaser

John Roberts, Senior Vice President
redEnvelope
201 Spear St.
San Francisco, California 94105

Consultant

Ron Montgomery, Senior Consultant
Sedlak Management Consultants, Inc.
4020 Kinross Lakes Parkway
Richfield, OH 44286

Supplier

Carlos Ysasi, Senior Project Manager
Vargo Material Handling, Inc.
3709 Parkway Lane
Hilliard, OH 43026-1729

The Installation Site is:

Lockbourne Fulfillment Center

redEnvelope
4000 Creekside Parkway
Lockbourne, OH 43137

5. All original invoices shall be sent to Purchaser with a copy to
Consultant.

6. All matters relating to this invoice are to be coordinated through
the Consultant.

7. The overall activity schedule encompasses a period of 16 weeks
beginning March 26, 2004 and ending July 16, 2004, and an
installation start date of April 28, 2004.

8. All equipment is to be ship via truck prepaid.

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Sales Agreement Page 3

9. One (1) duplicate copy of all released data such as acknowledgement,
shipping documents, invoices, et cetera, must be submitted to
Consultant, in addition to the normal standard procedures.

10. One (1) reproducible set of installation drawings of layouts, major
elevations and cross sections must be submitted to Consultant for
review prior to manufacturing.

11. It shall be Supplier's final responsibility to field check critical
equipment and layout dimensions to avoid building, equipment, and
merchandise handling.

12. Reserved.

13. Two- (2) weeks' advance notification must be given Consultant prior
to the initial shipment of equipment for confirmation of site
readiness.

14. An introductory meeting at Purchaser's offices is to take place
within two (2) weeks, and will include all Suppliers with their
assigned project manager(s). This will assure a smooth transition
between the points of contact with each Supplier, Purchaser, and
Consultant.

15. Supplier shall advise Purchaser in advance of Supplier's
contractors' and subcontractors' on-site working schedule for proper
personnel clearance and working arrangements.

16. All Supplier's work and the work of Supplier's subcontractors are to
be coordinated with other equipment/building contractors.

17. One (1) set of unfolded reproducible drawings and one (1) set of
unfolded prints shall be furnished of "as built" drawings and shall
include equipment layouts and elevation details. Electronic copies
of said drawings shall be provided on CD.

18. Three (3) sets of maintenance manuals including catalog information
covering all purchased and/or subcontracted items supplied under
this contract shall be submitted to Purchaser by Supplier. These
shall also include the bills of material for all system components
and a recommended spare parts list with pricing information.

19. A kick-off meeting will be scheduled prior to the installation start
date at Purchaser's offices with Supplier's Project Manager,
Installation Supervisor, and Purchaser and Consultant for review of
a detailed timetable of installation and interface with other
subcontractors, and review of Purchaser's procedures.

20. Supplier shall provide a final system, which is free, clean, and
clear of debris. A final wipe down is required.

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Sales Agreement Page 4

21. Time is of the essence and adherence to the schedule noted herein is
required. Should Vargo be late in delivering the system by August 1,
2004, at no fault of RedEnvelope, a penalty of 1% of the contract
will be imposed per day. This penalty shall not apply to delays
caused solely by vendors engaged by Vargo in connection with this
agreement.

22. Housekeeping and safety standards must be maintained as requested in
the Request for Proposal.

B. GENERAL TERMS

1. TAXES

Unless otherwise indicated, the price does not include any sales,
use, excise, or similar taxes, and Purchaser shall be responsible
for all such taxes, whether or not invoiced by Supplier.

2. WARRANTY:

a. The supplier shall warrant that the system shall be free of
defects in material and workmanship and provide other
customary warranties for a minimum of one year following final
acceptance (completion of all above items). Supplier shall
provide repair service (parts and labor) with respect to valid
warranty claims at no cost or expense to Red Envelope during
the warranty period.

a. Supplier's warranty and obligation to repair, or replace, as
set forth above, does not apply to (1) any equipment damaged
by overloading, exposure to corrosive or abrasive substances
or abnormal dampness or other misuse, neglect, or accident,
unless caused by Supplier; or (2) any equipment which has been
improperly installed, adjusted, operated, maintained,
repaired, modified, or altered by persons other than Supplier,
its employees, or subcontractors.

b. If the equipment includes computer hardware or software, which
Supplier acquires from original manufacturers, Supplier agrees
to convey and transfer to Purchaser whatever interest, rights,
warranties, or guarantees Supplier may obtain, if any.
Supplier makes no representation nor assumes any obligation
for these items other than that offered in the preceding
sentence.

c. SUPPLIER MAKES NO ADDITIONAL WARRANTIES, EXPRESS OR IMPLIED,
AS TO ANY EQUIPMENT, SOFTWARE, OR SERVICES SOLD UNDER THIS
AGREEMENT, AND IN PARTICULAR SUPPLIER MAKES NO WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE EXCEPT
AS PROVIDED IN THIS ARTICLE 2.

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Sales Agreement Page 5

3. INSURANCE BY SUPPLIER

Supplier will maintain insurance covering its operations as follows.

a. Worker's Compensation Insurance as required by the state
having jurisdiction over Supplier and Employer's Liability
with limit of $500,000.

b. Comprehensive General Liability Insurance with combined single
limit for bodily injuries and property damage of $1,000,000
with a general umbrella policy of $5,000,000.

c. Automotive Liability Insurance for bodily injuries, including
death and property damage with a combined single limit of
$1,000,000.

Supplier shall furnish to Consultant immediately, and in triplicate,
copies of insurance certificates in accordance with these
requirements. A ten- (10) day prior notice clause must be approved
in the event of cancellation, alteration or revision to the
stipulated insurance coverage.

4. It is the responsibility of Supplier to provide, prior to the
manufacture of system components, written concurrence of its
agreement that the system resulting from this turn-key installation
meets all applicable safety codes with regards to the equipment
components used and the resulting system, as well as to the
ergonomics of conveyor related work stations and their elevations.
Where Supplier does not agree, a written description of those
instances where safety codes and the ergonomics of work stations and
their elevations are not satisfactorily met, shall be provided with
suggestions for correcting those instances.

5. CHANGE ORDER

The parties may agree at any time prior to final payment of the
Agreement to make additions, deletions, or other revisions by Change
Order or Work Order (as defined below) without invalidating the
Agreement. Supplier will perform no such change until an approved
Change Order or Work Order is executed as provided below.

a. When the price, schedule and other conditions relating to the
change can be determined prior to the start of work under the
change, the Purchaser will issue a document describing this
change (Change Order) for execution.

b. When the change requires immediate action and the issuance of
an executed Change Order with firm price would unreasonably
delay the change; Purchaser shall place its signature upon a
document authorizing

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Sales Agreement Page 6

Supplier to proceed with the change (Work Order). After the
change under the Work Order has been completed, Supplier will
calculate the firm price for the change using actual costs
(including overhead and reasonable profit) current at time of
performance of the work. The parties will incorporate
completed Work Order(s) into a Change Order for execution.

Unless expressly modified by a Change Order or Work Order, the
provisions of the Agreement will govern all work performed under
such Change Order or Work Order.

7. LIENS

Supplier will protect Purchaser as to any lien asserted against
Purchaser's property for work, material, or services furnished by
others at Supplier's request when Purchaser makes the payments
provided for in the Agreement.

8. RIGHTS AND REMEDIES

If Supplier defaults in the performance of any of its obligations
under the Agreement (other than it's obligations under Section B(2)
hereof) and if the default continues for a period of 20 days after
Purchaser shall have given Supplier written notice of the default,
Purchaser shall have the right to terminate the Agreement upon
written notice to Supplier.

9. SECURITY INTEREST AND TITLE

a. Reserved.

b. Supplier hereby grants Purchaser a single site
non-transferable and non-exclusive license to use all computer
software manufactured and provided by Supplier under the
Agreement. Title to the software and documentation, if any,
provided hereunder shall at all times remain with Supplier.
Purchaser agrees to use such software strictly in compliance
with the terms of the agreement, and for the use(s)
contemplated herein, and specifically agrees not to copy,
furnish, disclose, or otherwise make said software, or any
portion thereof, available to any third party.

c. The Supplier manufactured and provided software is a
proprietary trade secret of Supplier. Purchaser agrees to
maintain confidentiality of Supplier software, and to restrict
access to Purchaser's employees or agents directly concerned
with Purchaser's licensed use of same.

d. Refer to Section B(2)(b) for provisions of title for software,
which Supplier acquires from original manufacturers.

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Sales Agreement Page 7

10. DELAYS

If Supplier's performance is delayed or prevented by Purchaser or
other cause beyond the reasonable control of Supplier (such as
casualty, labor trouble, governmental action, inability to obtain
supplies or transportation, or any order modification by Purchaser):

a. Purchaser agrees to pay Supplier invoices upon notification
that equipment is ready for shipment in accordance with the
shipping schedule and to reimburse Supplier for expenses
incident to such delay including, without limitation, the cost
of engineering, equipment and installation escalations;
maintaining, repairing and refurbishing equipment; storage,
demurrage, and pullout charges from installation site; and

b. The time for delivery of the equipment and performance of the
services will be extended accordingly, and Supplier will not
be liable for any damages caused by the delay; and

c. The stated purchase price shall be revised based upon labor
wage rates and other conditions prevailing at the time of
actual performance.

11. INFRINGEMENT

Supplier agrees to indemnify, defend and hold Purchaser harmless
from any damages that may be awarded against Purchaser in any final
judgment based upon a claim that the equipment or its use infringes
any copyrights, trade secrets, United States patents or other
intellectual property rights, provided that Purchaser notifies
Supplier in writing, within 10 days of Purchaser's knowledge of any
such claim, and gives Supplier the exclusive control of the defense
and settlement of any claim, including the right to make changes in
the equipment (provided that such changes do not impair the
functionality, performance or appearance of the equipment) to avoid
any alleged infringement. Purchaser is responsible for any
infringement claim arising from any modifications of the equipment
by purchaser or any combining by Purchaser of the equipment with
other equipment not furnished by Supplier.

12. ASSIGNMENT/SUBCONTRACTS

Neither party to this Agreement may assign this Agreement without
the consent of the other party, except that either party may assign
any of the obligators and benefits under this Agreement in
connection with the sale or transfer of all or substantially all of
its assets or business.

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Sales Agreement Page 8

Supplier reserves the right to use subcontractors in the performance
of any services to be performed by Supplier. Supplier is responsible
for the acts and omissions of any subcontractor so engaged.

13. LIMITATION OF REMEDIES/GOVERNING LAW

The Agreement sets forth Purchaser's sole and exclusive remedies for
any defect in or non-conformity of any equipment or services and for
any negligent design, manufacture, or installation of the equipment,
and for any breach of the Agreement by Supplier. Supplier in no
event shall be liable for incidental or consequential damages
(including loss of profits).

14. REPRESENTATIONS BY PURCHASER

Purchaser hereby represents to Supplier hat the person executing
this agreement on behalf of Purchaser has legal and corporate
authority to do so, and that Supplier may rely on such execution to
evidence Purchaser's agreement to be bound hereby and to perform all
Purchaser's obligations hereunder.

15. LEGAL PROVISIONS

This agreement shall be interpreted in accordance with the laws of
the State of California, exclusive of provisions regarding choice of
law.

The parties evidence their agreement with the terms contained herein by causing
this Agreement to be executed by their respective officers as of the date first
written above.

Approved and Executed By:

Supplier Purchaser
--------------------------------------------------------------------------------

/s/ J. MICHAEL VARGO 5/18/04 /s/ JOHN ROBERTS 5/6/04
--------------------------------------------------------------------------------
Signature Date Signature Date

PRESIDENT SVP TECHNOLOGY
--------------------------------------------------------------------------------
Title Title

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Sales Agreement Page 9

EXHIBITS

Exhibit 1: Sedlak RFP

Exhibit 2: Vargo Material Handling, Project Proposal.

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EXHIBIT 1

redENVELOPE
REQUEST FOR PROPOSAL

ISSUED DATE: February 18, 2004

ITEM 1.0: Material Handling Equipment
(MHE)

PROJECT NUMBER: S-1808

LOCATION: Columbus, Ohio

PROPOSAL DUE DATE: March 5, 2004

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CONTENTS

MHE-PAGE

1.0 INSTRUCTIONS TO OFFERORS................................... 3

2.0 SCHEDULES.................................................. 5

3.0 DRAWINGS REQUIRED.......................................... 7

4.0 WORKING CONDITIONS AND WORKMANSHIP......................... 10

5.0 INSURANCE AND BOND REQUIREMENTS............................ 13

6.0 SPARE PARTS, TRAINING AND MANUALS.......................... 15

7.0 DRAWINGS FURNISHED......................................... 17

8.0 ACCEPTANCE, WARRANTIES AND TESTING......................... 18

9.0 SCOPE OF WORK.............................................. 21

10.0 DESCRIPTION OF OPERATION................................... 26

11.0 MATERIAL TO BE HANDLED AND FLOW RATES...................... 29

12.0 EQUIPMENT SPECIFICATIONS SUMMARY FORM...................... 31

13.0 PRICING FORMS.............................................. 40

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RedEnvelope
February 18, 2004

1.0 INSTRUCTIONS TO OFFERORS

Sedlak, on behalf of our client, redENVELOPE submits the accompanying
Request For Proposal and asks that this proposal be prepared in accordance
with the following "Instructions to Offerors."

1. It is the supplier's responsibility to review the proposed package
conveyor system, racking and building to verify all dimensions and
elevations. All dimensions and elevations shown on drawings are for
the sole purpose of developing performance specifications for this
system. It is the equipment supplier's responsibility to verify the
proposed system will meet or exceed the system's performance
requirements while complying with American Disability Act, all
local, state, national, safety or OSHA codes.

2. Offerors are to submit specifications, and drawings when applicable,
outlining the proposed equipment in sufficient detail to permit a
thorough evaluation of their proposal.

3. Exceptions to specifications are to be shown separately and with
alternate pricing.

4. Alternates to specified equipment, or components, are to be shown
separately and with alternate pricing.

5. Drawings and specifications for this proposal request are to be used
in conjunction with each other, and that which is shown in one and
not mentioned in the other, or vice versa, shall be interpreted as
though mentioned in both. Scaling of drawings shall not be a means
of determining dimensions. Should the drawings or specifications be
contradictory in any particular, or should there be any doubt to the
meaning of either, offeror shall refer the matter to redENVELOPE
whose decision thereon shall rule.

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RedEnvelope
February 18, 2004

6. Proposals are to be received at the offices of Sedlak no later than
12:00 noon on Friday, March 5, 2002.

7. Proposals are to consist of an original and two (2) copies. Include
three (3) copies of any drawings, literature, brochures or
illustrations that may be helpful in describing the proposed
equipment.

8. All blank spaces in Sections 12 and 13 shall be totally completed.
Where required, amounts shall be written in words as well as
figures. Oral telephone proposals, modifications or notifications
will not be considered or recognized.

9. Proposals will not be opened publicly, but will be opened as soon
as feasible after the due date.

10. All offerors may be requested to make a formal presentation of their
proposals.

11. All requests for proposal materials shall be returned in the event
of an unsuccessful proposal or a decline to quote.

12. The offeror shall include the cost of securing any permits that may
be required.

13. Inquires are to be directed to:

Sedlak
4020 Kinross Lakes Parkway
Richfield, Ohio 44286
Attn: Ron Montgomery or Dave Teeple
Senior Consultant Project Manager
rmontgomery@jasedlak.com dteeple@jasedlak.com
Phone:(330) 908-2225 330-908-2352
Fax: (330) 908-2160 330-908-2166

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RedEnvelope
February 18, 2004

2.0 SCHEDULES

1. Activity schedule:

A. Bid due: March 5, 2004.

B. Contract to be issued on or about: March 12, 2004.

C. Delivery, de-installation and installation start-up to be
during week of May 10, 2004.

D. Installation, including adjusting, final alignment and punch
list correction of all equipment shall be completed by July
20, 2004.

2. The supplier shall protect the purchaser in relation to start-up
scheduling by prompt attention to matters affecting start-up, such
as damaged and/or defective components. On receipt of
acknowledgments from sub-suppliers of purchased items, supplier
shall submit to the purchaser or their representative the schedule
of material and equipment deliveries to the site. The supplier and
sub-suppliers shall allocate sufficient resources to meet the
contemplated schedules with adequate margin for the unforeseen.

3. Implementation plan shall consist of the following steps:

4. Schedule of payment will be as follows:

A progressive milestone payment schedule shall be presented in the
proposal. These milestones shall show monies due at the following
milestones:

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RedEnvelope
February 18, 2004

A. All Drawings Approved

B. Equipment Delivery (Monthly as applicable)

C. Installation Labor (Monthly as applicable)

D. System Acceptance

Purchaser (owner) shall pay invoices as per the following:

A. 10% in receipt of each invoice will be deducted and held as
retainage.

B. 90% in receipt of each invoice will be paid by Purchaser
within 30 days following the receipt of invoice.

The total retainage shall become due and payable as described in
"Acceptance, Warranties and Testing" section.

3.0 DRAWINGS REQUIRED

1. The supplier shall provide the purchaser and Sedlak all engineering
and installation drawings required for the installation of the
system along with any additional drawings required.

2. The supplier must notify Sedlak of any discrepancies between the
Sedlak drawings and the drawings by the supplier.

3. The supplier's engineering and installation drawings shall be
reviewed prior to manufacture and installation of equipment. One (1)
set of reproducible drawings shall be submitted for review to Sedlak
within sufficient time after receipt of order to avoid any delay in
the project schedule.

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RedEnvelope
February 18, 2004

As applicable, the material to be submitted for review shall
include, but not be limited to:

A. Systems layouts and elevation drawings.

B. Work platforms and maintenance platforms.

C. Special equipment design drawings.

D. Building loadings and drawings.

E. Mechanical components drawings.

Items A, B, C and E are to be to an approved scale.

F. Air piping schematics and layout drawings.

G. Electrical controls and systems operation descriptions.

H. Front face layouts of control cabinets and control consoles
including system schematic mimic panels showing lights, color
graphic display layouts, push buttons, et cetera.

I. Seismic drawings and supporting calculations.

4. The submission of drawings for review by the supplier shall certify
that the information contained on such drawings conforms to the
contract documents. Review of submitted drawings by Sedlak or its
representatives shall not relieve the supplier of liability for any
variation between the drawings and the contract documents, unless
the supplier has notified Sedlak in writing of such variation when
submitting the drawings and Sedlak gives specific written approval
thereof.

5. The supplier shall make original engineering drawings that shall be
submitted for review and may use Sedlak drawings as reference only.

6. The supplier shall make contingencies to insure that there will be
sufficient time in

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RedEnvelope
February 18, 2004

the schedule to complete the review process, including revisions to
original issues. This shall be done prior to the manufacturing
and/or installation of equipment. This will be particularly enforced
on special design and/or non-standard equipment. The supplier shall
take full responsibility for changing, as required by the purchaser,
any items which have been manufactured and/or installed without
receiving prior approval.

7. Reproducible field drawings showing all changes (electrical,
mechanical, et cetera) shall be maintained on site. These drawings
shall be updated weekly (as minimum) and be subject to review by the
purchaser or their representative. These reproducible drawings shall
remain on site until replaced by the updated "as built" drawings.

8. Upon completion of the installation, the supplier shall furnish to
the owner within three (3) weeks, one (1) set of prints and one (1)
set of reproducible "as built" drawings. Drawing size shall not
exceed "D" (24" x 36") size and shall be of "original" quality
vellums, or better. All text shall be a minimum size of 3/32".
Diskettes shall be submitted to the purchaser and contain duplicated
versions of the reproducible "as built" drawings.

9. The supplier shall provide drawings and calculations for the correct
seismic zone in which the building site is located. These drawings
shall include, but not be limited to, the forces at the connection
points on the building structure (not on the conveyor support
drops).

10. The supplier shall submit plans, calculations and documents, and
shall obtain all approvals relating to his equipment from the
appropriate regulating authorities (local, state, et cetera) when
such approval is required.

11. The supplier shall provide two (2) copies of documents certifying
that the system(s) provided are designed to perform according to
these functional specifications. These

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RedEnvelope
February 18, 2004

documents shall contain all calculations certified by a professional
engineer pertinent to the designs supplied. These documents shall be
supplied within two weeks after the award of the contract and are
for record purposes only and will be neither reviewed nor approved
by the purchaser.

4.0 WORKING CONDITIONS AND WORKMANSHIP

1. All equipment and work performed shall be free of defects and done
in a professional manner, and must also conform to Americans with
Disability Act (ADA), all current national, state and local safety
codes and OSHA requirements. The purchaser will not be responsible
for installation means, methods, techniques, sequences or
procedures, or safety precautions and programs. When specifications
exceed code requirements, the specifications shall govern. If the
supplier furnishes any equipment or work not in conformance with
such laws, ordinances, rules and regulations, all costs arising from
the correction thereof shall be borne by the supplier.

2. Work will be performed during day and/or night shift as to NOT
INTERFERE WITH DAILY OPERATIONS. Activities that could interfere
with daily operations shall be performed after hours. Work will be
performed by skilled labor under the proper supervision of a
qualified representative of the supplier. The supplier shall notify
Sedlak at least ten (10) working days before any material is shipped
to the site. The current hours of operation are - 7AM thru 12PM
Monday thru Friday (with replenishment on third shift).

3. The supplier shall coordinate their work schedule in the various
areas of the building so that interference with the daily operations
of installers and daily business operations of redENVELOPE is kept
to a minimum. It is expected that the supplier's installer will work
closely with other contractors and Sedlak during engineering and
installation and furnish all information requested.

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RedEnvelope
February 18, 2004

4. The supplier shall be responsible for a daily cleanup to keep the
working area and adjacent areas free and clear of all surplus and
unnecessary materials and rubbish that accumulates during the course
of the installation. The supplier shall make arrangements for trash
removal resulting from the installation work.

5. The supplier shall provide all machinery, supplies and other
materials and labor required to install the equipment. The
connection by a certified electrician of the electrical equipment to
the building's permanent power system shall be the responsibility of
the equipment installer. Electrical welders may be used to reduce
fumes in the building. Only propane fuel is acceptable should
permanent power not be available. If propane fuel is used, the tanks
shall be handled and stored in accordance with OSHA and the
purchaser's safety standards.

6. The supplier shall abide by and enforce the purchaser's instructions
regarding signs, advertisements, safety rules, personal conduct,
fires and smoking at the job site.

7. The supplier's installation crew shall be established on-site prior
to the receipt of the first equipment shipment. The crew shall be
headed by an experienced Field Operations Manager with an on-site
office (telephone, et cetera) for the duration of the installation
phase of the project.

8. Unloading of equipment prior to and during the installation period
shall be accomplished through area(s) designated by the purchaser.
Trailer loads of material may not be unloaded inside the building.
The purchaser will allocate areas for storing components/equipment
prior to installation.

9. The supplier shall protect the building and structure, and the work
materials and supplies of others, from damage. Welding by the
supplier shall be coordinated at times and by rules approved by
Sedlak.

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RedEnvelope
February 18, 2004

10. The supplier shall provide concrete dust control devices and/or
incorporate concrete dust control practices during the anchoring of
equipment to concrete, cutting of concrete, removal of concrete or
while concrete finishing and leveling.

11. Prior to final acceptance, each piece of equipment shall be wiped
down to eliminate excess construction/installation dirt, dust and
debris. It is intended that the equipment will be immediately
operational after completion of installation without delays for
cleanup. On-site scheduling, subject to redENVELOPE approval, is
required before cleanup can begin. It is intended that only one
cleanup be performed; therefore, it may be necessary to employ a
special cleanup crew to perform this work. Show costs for this
separately. It is suggested that the supplier prepare each shipment
so as to reduce the cleanup required caused by road grime, et
cetera, accumulated while in transit.

12. The purchaser may, at any time before completion of the project,
order additions to, omissions from, or alterations in the project.
All terms and conditions of the original contract shall become a
part of each change order.

Before any change is made or work done, the purchaser shall specify
the same in detail and in writing. Promptly after receipt of such
specifications, the supplier shall submit to the purchaser a
detailed estimate showing the cost of the proposed change in the
work, or the credit to be allowed and the extension of time, if any.
The purchaser shall promptly notify the supplier whether the
estimate is acceptable and, if so, authorize in writing the change
to be made or work to be done. The purchaser reserves the right to
reject any such proposal and to have the work done by others.

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RedEnvelope
February 18, 2004

5.0 INSURANCE AND BOND REQUIREMENTS

1. The supplier shall furnish Certificates of Insurance to the
consultant prior to start of on-site work. As evidence of the
insurance being maintained, clauses shall be included obligating the
insurer to give the purchaser ten (10) working days' written notice
prior to the cancellation of, or any change in, the coverage or the
insurance policy.

2. The supplier shall require its sub-suppliers to provide Certificates
of Insurance prior to the start of on-site work.

3. The supplier and its sub-suppliers shall review the scope and
magnitude of this project with their respective insurance carriers
so that insurance coverage provided by the supplier shall hold
harmless the purchaser and its representatives.

4. Insurance coverage for the following suggested categories, but not
limited to these categories, shall meet or exceed the statutory
requirements of the State of Ohio.

A. Workers' Compensation

B. Employers' Liability Insurance

C. Comprehensive General Liability Insurance

D. Comprehensive Automobile Liability Insurance

E. Builder's Risk Insurance

F. Umbrella Insurance

5. Certificate holder to be:

redENVELOPE
San Francisco, CA

<PAGE>

RedEnvelope
February 18, 2004

6. Installation location to be:

redENVELOPE
4000 Creekside Parkway
Lockbourne, OH 43137

7. It is the responsibility of the supplier to provide, prior to the
manufacture of system components, written concurrence of its
agreement that the system resulting from this turn-key installation
meets all applicable safety codes with regards to the equipment
components used and the resulting system, as well as to the
ergonomics of conveyor related work stations and their elevations.
Where the supplier does not agree, a written description of those
instances where safety codes and the ergonomics of work stations and
their elevations are not satisfactorily met, shall be provided with
suggestions for correcting those instances.

8. Certificates of Insurance shall be provided to Sedlak and/or its
on-site representatives prior to the start of on-site work.

6.0 SPARE PARTS, TRAINING AND MANUALS

6.1 SPARE PARTS

1. The offeror shall quote in the proposal the total cost for
recommended spare parts required at the purchaser's facility
to properly cover repair contingencies and normal preventative
maintenance operations. Should the purchaser elect not to
stock the spare parts or only a portion thereof, the value or
value remaining (as stated in the proposal) shall be credited
to the contract.

2. An adequate supply of spare parts shall be provided and
located on-site during installation to prevent delays due to
failure of an item with a long lead-time (greater than 7
working days).

<PAGE>

RedEnvelope
February 18, 2004

3. The parts list shall be supplied to the purchaser
electronically along with hard copies.

6.2 TRAINING

1. The offeror shall quote in the proposal the location and
duration of the training to be furnished. The proposal shall
be specific in outlining the main elements of this training.

2. The offeror shall furnish detailed information, including
costs, for a computerized maintenance program, if such is
available. This shall be offered as an option in the proposal.

3. The supplier shall be responsible for training the purchaser's
personnel for safety, operations and maintenance of the
equipment furnished. Completion of training shall be required
prior to final acceptance of system.

4. redENVELOPE reserves the right to videotape all initial
training for use in future training and as refresher training.

5. These training programs shall place special emphasis on the
safety features of the system including the operation of
emergency stops, pull cord stops and restart procedures as
well as general safety do's and don'ts with regard to safe
conveyor operations. Safety training shall include the review
of all safety signage installed as part of the contract.

6. If Allen Bradley (or other manufacturers, if available) PLC's
are used, the supplier shall include a troubleshooting video
administrator's package and a minimum of six (6) lesson
guides. This program shall be part of the training provided
with the system and remain with the purchaser.

<PAGE>

RedEnvelope
February 18, 2004

6.3 MANUALS

1. The supplier shall furnish three (3) maintenance and operating
manuals, including catalog information, covering all purchased
and/or subcontracted items supplied under the contract. The
supplier shall also include, as a part of the above manuals, a
recommended spare parts list with pricing information. This
list shall specifically note those parts which are critical or
are long-lead-time parts. These manuals are to be submitted to
the consultant for approval not later than thirty (30) days
before the scheduled completion date of the equipment
installation. Copies of the manuals shall be available to the
purchaser's maintenance personnel during the formal
maintenance training sessions to be held by the supplier's
personnel.

7.0 DRAWINGS FURNISHED

Drawings are furnished to bidder as part of the specifications. Please
note the legend on the drawings, which describes actions required within
color-coded equipment.

These drawings are instruments of service and are the property of Sedlak
and its engineering representatives. All information contained on these
drawings is project specific and shall not be used otherwise. Sedlak makes
no warranties, expressed or implied with respect to these drawings.

Drawings in AutoCAD release 2000i format will be made available from the
consultant after the award of the contract.

Drawing No. File Name Rev Drawing Name
------------------------------------------------------------------------------

CP1-EX 1808 CP1 - Composite Equipment Layout - Existing

CP1-11 1808 CP1 - Composite Equipment Layout -

<PAGE>

RedEnvelope
February 18, 2004

8.0 ACCEPTANCE, WARRANTIES AND TESTING

1. The offeror shall include as an alternate in the proposal, the
annual cost of a maintenance contract for the system effective after
the expiration of the one-year warranty.

2. The system shall be a turn-key installation with complete
responsibility for the installation and its operation by the
supplier. Prior to final acceptance, the supplier shall test the
system during the commissioning period in the presence of the
purchaser, or a representative of the purchaser. Final acceptance
shall occur upon:

A. Completion of the successful system acceptance test.

B. Completion of all commissioning and punch list items.

C. Issuance of a completion certificate by Sedlak with respect to
system testing.

D. Receipt by purchaser of waivers of liens and such other
evidence as may be required by the purchaser to evidence that
the supplier has made payment of all amounts due for
equipment, materials, payroll or other items purchased by
supplier and delivered to the purchaser in connection with the
project.

E. Receipt of "as built" drawings.

F. Receipt by purchaser of both the approved maintenance and
operating manuals.

G. Completion of all training requirements.

H. The delivery of all project services to be provided by the
supplier.

Purchaser shall provide supplier with written indication of final
acceptance. Following final acceptance, all retainage payments shall
then become due and payable, upon submission of an appropriate
invoice.

3. In no event shall the operation or beneficial use by the purchaser
prior to final acceptance of any equipment, whether for business,
system acceptance testing or any

<PAGE>

RedEnvelope
February 18, 2004

other purpose, or the payment of any progress payment relating
thereto, constitute, or be deemed to constitute, acceptance thereof
by the purchaser.

4. Provided purchaser is not in default of the contract documents,
supplier shall indemnify the purchaser from and against any and all
liens on the property of materials supplied by supplier, its
subcontractors, suppliers and tradesmen. Any lien filed in violation
of this paragraph shall be removed by supplier within ten (10) days
from receipt of notice from purchaser or if after said ten (10) days
such lien has not been removed, purchaser shall have the option to
have same removed and deduct the cost (including legal fees) from
payments due under this contract.

5. The supplier and the sub-suppliers, together with their material
vendors shall provide mechanics' lien releases covering all work,
materials and equipment performed or delivered to the job site
during the entire construction period. Releases shall state the
names of such persons or firms, together with the amount releases
and signed by an officer of the firm. Applicable releases shall be
submitted with each invoice. The retainer shall not be paid until
release of lien is received.

6. The supplier shall promptly and diligently pursue and complete any
corrective action as may be necessary to cause the system or any
component to perform in accordance with the specifications prior to
final acceptance by purchaser.

7. The purchaser's representative shall punch list each system only
once. If, at the agreed upon time for punch listing, the purchaser's
representative finds the system not ready for punch listing, the
supplier shall be back-charged for any extra expense incurred.

8. The punch list shall be discussed with the supplier. All corrections
shall be positively performed within ten (10) working days. Failure
to do so will allow the owner to exercise the option of
back-charging the supplier for the estimated costs of the items

<PAGE>

RedEnvelope
February 18, 2004

and services in question.

9. Testing - All equipment, components and systems shall be
demonstrated to Red Envelope and/or its representative. These items
are to include, but are not limited to, the following:

A. Flow rates - short duration. (Peak Flow Rate)

B. Flow rates - long duration - minimum 60 minutes. (Average Flow
Rate)

C. E-stops.

D. Operating push buttons.

E. Full line conditions.

F. Accumulation (without jams).

G. All controls.

H. All safety and warning devices.

10. The supplier shall submit for review a detailed test plan for
approval a minimum of 30 working days prior to acceptance testing.

11. The supplier shall warrant that the system shall be free of defects
in material and workmanship and provide other customary warranties
for a minimum of one year following final acceptance (completion of
all above items). Supplier shall provide repair service (parts and
labor) with respect to valid warranty claims at no cost or expense
to Red Envelope during the warranty period.

12. After hand-over and acceptance, the supplier shall provide a
qualified control engineer experienced with the system for a minimum
of four (4) shifts to assist the purchaser with operations.

<PAGE>

RedEnvelope
February 18, 2004

9.0 SCOPE OF WORK

redENVELOPE is a source of fine collectibles and gifts through
multi-channel operations including Direct, Catalog, Internet, Classics and
Merchandising. redENVELOPE's current distribution operations are held in
an approximately 194,400 square foot facility (187,800 SF distribution
center and 6,600 SF offices) located in Columbus, Ohio. Due to continuing
growth, redENVELOPE has decided to modify its equipment layout within its
existing facility.

The reengineering of the existing material handling equipment layout will
include the relocation of rack, carton flow, and jewelry cage and
modifications to existing conveyor system (refer to drawings for specific
equipment). Fulfillment operations will continue throughout the
de-install/reinstall process. Supplier will also be accountable for
establishing temporary areas or lines to enable continuing operations. The
supplier is responsible to determine what additional equipment, if
necessary, will be required to establish these temporary areas or lines.
The supplier is urged to have existing conveyors removed as part of this
project and acquire used equipment as possible for additional
requirements.

The building clear height will be 28'+.

The rack vendor will be responsible for the relocation of the designated
existing pallet rack, the relocation of existing carton flow rack, and the
relocation & installation of new shelving.

The conveyor supplier will be responsible for the de-installation of
conveyor as detailed in the drawings. Where possible, the conveyor
supplier will re-use existing conveyor equipment, controls, etc. in the
new layout. Supplier is responsible to perform an on-site inspection of
conveyor equipment to verify suitability for re-use. The conveyor supplier
will be responsible for installation of new conveyor, sorters, diverts,
scanners, scales,

<PAGE>

RedEnvelope
February 18, 2004

controls, conveyor cross overs, stiles, service walkways, safety
requirements (emergency stop pull cords), etc. throughout the remainder of
the system. The conveyor supplier will verify all existing field
obstructions and certify that the necessary clearances exist, including
but not limited to aisle clearances, for package conveyance. ALL DRIVES
AND CONVEYOR FLOOR SUPPORTS WILL BE LOCATED SO AS TO NOT INTERFERE WITH
LIFT TRUCK AISLES OR PERSONNEL ACCESS AISLES. Further, the supplier will
verify that redENVELOPE has adequate air supply to support the system, and
provide air supply if necessary.

Sedlak will coordinate the sequence of installation events; however,
vendors are responsible to coordinate support issues amongst each other.
If the selected vendor expects to use other vendor's equipment for
support, or expects other vendors to use the selected vendor's equipment
for support, the vendors will be responsible to notify each other in the
beginning of the design process.

Equipment shall be designed, fabricated and installed according to the
latest local, state and national codes, and OSHA standards and
specifications for the seismic zone in which the facility is located.

The scope of work for the successful conveyor supplier shall include the
design, engineering, manufacture, delivery and turn-key installation of
all conveyor components shown on the accompanying drawings and described
within this specification. The successful supplier shall also be
responsible for design and installation of all conveyor controls and
electrical work deemed necessary to ensure desired operations. Further,
any conveyor related work platforms, chutes, stairs, railings, highway
guardrail, guard posts or related equipment proposed are to be included
within this proposal.

The offeror shall supply a complete listing of all equipment proposed.
This listing shall include, but not be limited to, conveyor speeds,
length, widths, roller types and sizes and spacing, belt types and sizes,
control devices, elevations, et cetera. Note that all belt

<PAGE>

RedEnvelope
February 18, 2004

conveyor inclines and declines shall not exceed 18 degrees.

All conveyors within the facility have been identified on the drawings as
being a member of a specific system and pricing is to be provided for each
specific system. Proposals will not be accepted which simply provide a
lump sum total for all systems.

The following is a list of tasks to be performed by the MHE contractor for
this project....

- Remove forty (40) sections of 8'-3" C.T.C. Selective Pallet Rack
with four levels of beams with wire decking on them. All will be
re-erected in other areas of the building. Any left over beams, wire
decks and other miscellaneous parts will be stored on pallets in the
DC.

- Remove seven (7) Pallet Flow Lanes (approx 10 ft. long) along with
lift truck angle stops mounted along charge end. Seven (7) will be
reinstalled and twelve (12) new lanes installed as part of the
Pallet Pick Area extension (adjacent to engraving area). The lift
truck angle stops will be required for the reinstalled and new
lanes.

- Remove 815 Lin.Ft. of powered HK brand conveyor and 635 Lin.Ft. of
gravity conveyor by various manufacturers. A list of units to be
reused in this facility are included in RFP equipment list

- Reconfigure existing Picking area by 1) Adding 260 Lin.Ft. of
powered conveyor with three (3) line scanners and three (3)
bi-directional right angle transfers discharging totes to six (6) 67
Ft. long relocated gravity spurs. Each spur to have fixed end stops
and full line controls and 2) relocating fifteen (15) existing
Kingway carton flow racks with four picking levels each.

- Relocate existing Jewelry Cage by 1) Re-locating two hundred and ten
(210) Lin.Ft. of existing 10 Ft. high chain link fence enclosure
with one (1) sliding gate and two (2) conveyor openings with
security doors; 2) Add one hundred and seventy five (175) Lin.Ft. of
new 10 Ft. high chain link fencing with four (4) conveyor openings
(2-new+2-relocated) and the sliding gate reinstalled; 3) Install
used/new conveyors to convey totes and shipping cartons...1) inbound
totes from picking system, 2) outbound totes to merge with the
existing packing sorter and 3) outbound oversize packing line
passing through the jewelry cage to allow direct conveyance
completed jewelry cartons to the shipping system.

- Reconfigure conveyors adjacent to the jewelry cage to provide a new
line scanner and new kickoff to the jewelry cage (replacing existing
retro reflective disc/photoeye arrangement) before continuing to the
existing merge junction onto the packing sorter.

- The existing jewelry cage contents...1) Relocate twelve (12)
existing sections of carton shelving and add twelve (12) new
sections of 48" W x 60" L x 7' H with 4 shelves plus a top; 2)
Relocate six (6) existing packing tables and add six (6) new packing
tables.

<PAGE>

RedEnvelope
February 18, 2004

- Jewelry cage conveyors are to be reconfigured using used/new
conveyors as follows...

- Inbound - Once diverted from the feed conveyor from
picking; the inbound conveyor will incline to an
elevation which will allow the inbound & outbound
conveyors to be stacked inside the jewelry cage and
continue on to discharge onto a gravity accumulator with
a fixed end stop and full line controls.

- Outbound - The outbound leg will consist off a live
roller conveyor (below the inbound leg) to join into the
existing merge junction to the packing sorter. A
stop/start pull chord will be provided to control the
outbound conveyors.

- Box Insertion Spur - This spur would originate from the existing
second packing sorter pop-up divert and would then transfer totes
onto an accumulating gravity line with a fixed end stop and full
line controls. Boxes would then be inserted and the tote be pushed
onto the adjacent conveyor from packing sorter headed towards the
gift/ final lines. As part of this option, sixteen (16) new pallet
flow lanes with lift truck angle stops are to be installed adjacent
to this conveyor spur.

- Add two (2) mechanical 'traffic cops' to existing live roller
conveyor merge junctions of the packing sorter. As an option the
existing pop-up roller stops on these junctions may be repaired to
their intended job (they currently do not project high enough to
stop totes).

- In the packing area, remove five (5) existing quality control
gravity spur conveyors and equipment from existing packing sorter.
From the quality control area, remove 435 Lin.Ft. of existing
powered conveyor feeding the gift wrap and over wrap packing lines.

- In the new layout the packing stations will no longer separate gift
wrap from over wrap totes. All stations will completely pack all
orders, eliminating the difference between the stations. From the
packing sorter, totes will be diverted at the third existing pop-up
on the packing sorter to feed both of the existing packing lines. A
swing arm divert will be provided at the first packing line to
divert totes on an as needed basis only to keep both lines full.

- Incomplete Order Spur - The first divert spur on the existing
packing sorter will be converted to a incomplete pick order spur
prior to packing. RF pick verification in the pick area will signal
the new packing scanner that the tote has not received all of the
items required for that order. If incomplete, the sorter will divert
the tote to accumulate on gravity conveyor. The spur will have a
fixed end stop and full line controls. Totes will be dispersed
manually from here to the pick conveyor system to acquire the
missing item.

- Outbound cartons (w/ all wrapping complete and shipping bar code
label attached) will merge from four different sources (singles
packing, oversize packing, existing pack line #1 and existing pack
line #2) onto one central takeaway line to the shipping sorter.
Existing conveyors in the pack areas do not change their original
direction or function.

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RedEnvelope
February 18, 2004

- Install approximately 230 Lin.Ft. of used/new conveyor as a take
away from oversize packing stations to the central packing takeaway
line/shipping sorter. No merge controls are required for this line.

- Add a line scanner and inline scale to the existing shipping sorter.
The scanner will assign destinations to the six (6) existing sorter
spurs while the scale will accumulate carton IDs & weight
information for manifesting.

- Add a 30 linear foot gravity runout to the existing shipping sorter.
This runout is to have fixed end stop and full line controls which
stop the sorter.

- SHIPPING RECIRC & OUTBOUND ACCUMULATION OPTION - Provide pricing to
purchase and install used/new conveyors to expand the existing
shipping sorter by continuing from the end of the existing sorter
(the existing sorter presently dead ends) up an incline and around a
curve to accumulate above the existing over pack line and merge with
a parallel accumulation conveyor from oversize packing, singles
packing, and the middle pack line (the existing gift wrap line)
before continuing down a decline before allowing the other pack line
(the existing over pack line) to merge using a traffic cop to
control flow.

10.0 DESCRIPTION OF OPERATION

The following Description of Operation pertains to the proposed systems
required for this proposal.

- WCS Enhancements - As part of this project systems and software will be
instituted to enable the controls systems of the conveyors to communicate
with the host PKMS computer for order tracking and real time interfaces
for manifesting

- Order Processing - Orders/collates are printed in the offices and manually
dispersed to the 1) Monogram/Engrave areas, 2) Two (2) order start points
in the Pick areas, 3) the Jewelry Cage, or 4) in the Reserve Storage Area
(for case plus quantities for single item orders, to be palletized and
delivered to a singles pack station).

- Order Starting - From the order start points, the collates are joined to
the license plate bar code of a tote by means of scanning the collate bar
code and the tote license plate (LPN) bar code using an RF scanner gun.
The collate bar code will contain all destination information for that
order and will be tracked through the system using the license plate bar
code on the tote.

- Line Scanners - The existing conveyor system sorters do not currently use
any scanner tracking devices for what they are doing. Three (6) line
scanners will be added to the existing and new equipment...(3) in the
picking area, (1) at the jewelry divert, (1) at existing packing sorter
and (1) at existing shipping sorter.

- Monogram & Engraving Area - Orders are issued to the machine used to
process that item. Items to be processed are selected from the carton flow
rack using RF scanners to

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RedEnvelope
February 18, 2004

verify picks. Once picked these items are prepped and placed onto cookie
sheets adjacent to the Monogram/Engraving machine to do the work. When
completed, the item will be placed in a tote; the collate & tote LPN are
scanned and placed on the takeaway conveyor to the picking area. Single
item orders may be manually transferred to the existing packing sorter
prior to the scanner to shortcut the pick system.

- Tote Tracking - Totes traveling the conveyor system will use the tote
license plate number (LPN) to track and verify diverts to the various
automated portions of the system.

- Pick Area Conveyors - Totes from Monogram/Engrave area travel the conveyor
system to the pick area where line scanners in each of the six (6) pick
zones will bi-directionally right angle transfer any tote which requires
an item from that zone. Once the pick has been completed and verified with
an RF scanner by the picker, the tote is pushed back onto the center
takeaway conveyor to proceed thru the pick area to packing.

- Active Picking Order Start - If an order does not have any Monogrammed or
Engraved items the order may be started in the first pick zone required or
in one of two orders start areas of the pick module. The collate and tote
LPN bar codes are scanned and the tote is placed on the pick conveyor
system to be pulled at the proper pick zone(s).

- Totes which have no further picks continue on the conveyor system to the
jewelry divert.

- Multi Item Orders With Jewelry - At the jewelry divert the tote is scanned
and if a jewelry item is required to complete the order, the tote is
diverted to accumulate in the jewelry cage. The picked jewelry item is RF
verified to have been picked; any gift box packing is done and the tote is
placed on the takeaway conveyor to rejoin totes on their way to packing
area.

- Jewelry Only Orders - If the order does not contain any other items
(jewelry only), it may be started in the jewelry cage by scanning the
collate and shipping label. The required item is then picked and RF
verified, gift wrapped & placed into a shipping carton with a shipping
label then placed on the takeaway conveyor to shipping sorter area.

- Existing Packing Sorter - The existing packing sorter is currently being
used to deliver totes to one of five quality control diverts on a round
robin keep full basis. The new line scanner added to this sorter will
enable the sorter sort to one of three destinations using the tote LPN to
direct the tote to 1) Incomplete order line, 2) Inbound to box insertion
spur, and 3) Inbound to gift/final packing stations.

- Incomplete Order Spur - Existing packing sorter divert #1 will be used for
this spur. When the tote LPN is read at the scanner, the collate will be
compared to the divert & pick verifications and if all diverts or picks
have not been completed, the tote will be diverted to this spur so that
missing items may be added before packing. From the spur the totes will be
manually transported to point where the missing item can be acquired.

<PAGE>
RedEnvelope
February 18, 2004

Full line controls will required for this spur and deactivate the divert
and cause the tote to be recirculated.

- Box Insertion Spur - When the LPN is read at the scanner, the gift box
insertion area will be listed as a destination. The tote will be diverted
here to a gravity accumulation line with a fixed end stop and full line
controls. Once the required gift box has been inserted into the tote, the
tote is pushed to the adjacent takeaway conveyor feeding the Gift/Final
packing stations.

- Gift/Final Packing Spur - This spur will feed two (2) existing packing
accumulation lines. A swing arm divert at the first pack line will
activate to divert totes based on full line signals from the first pack
line. Or the tote may continue past the divert to the second pack line
using full line signals from the accumulator to signal need.

- Gift/Final Packing - Packers will be responsible for all packing required
for any order. Using the collate to verify all items have been picked, the
packer will then gift wrap any items requiring gift wrapping to be place
in a gift box which has been placed in the tote in picking and tie with a
decorative bow. Then all of the items and the invoice will be placed in a
shipping carton, which has been taped on the bottom only and placed on the
takeaway conveyor to the shipping sorter.

- Empty Totes - Empty totes will also be placed on the takeaway conveyor to
the shipping sorter and be manually collected at a point along the
conveyor prior to the sorter.

- Oversize & Single Item Packing - Conveyable ship alone items too large for
a tote will be picked from the reserve area using a walkie rider and moved
to a oversize pack station where they will be gift wrapped if necessary
and placed in a shipping carton with a shipping label. Note: some cartons
may only have a shipping label applied to the manufacturer's carton. Also
Completed cartons are placed on a takeaway conveyor to the shipping
sorter. Non-conveyable items will be weighed at the oversize pack station
and manually transported to a waiting trailer.

- Shipping Sortation - The current shipping sorter is currently being used
to deliver totes to one of six fill and seal diverts on a round robin keep
full basis. The new line scanner added to this sorter will enable the
sorter sort to one of six specific lines based on the carrier to be used
(Airborne, FedEx, etc.) using the tote LPN bar code to direct the tote.
Lane assignments may be changed to accommodate different carrier
assignments throughout the day. Also added to the existing sorter feed
conveyors at the scanner is an inline scale, which shall communicate with
the host computer to assign a shipping weight to all cartons for
manifesting. Each shipping divert will contain an air-pillow dunnage
dispenser and a semi automatic taping machine. Taped cartons are then
fluid loaded with gravity best-flex conveyors onto a waiting trailer or
palletized for future shipment.

- Sorter Runout - A gravity runout will be added to the discharge end of the
existing

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RedEnvelope
February 18, 2004

shipping sorter to accumulate no-reads and mis-directs from the sorter.
Cartons will be manually moved to intended ship line or reintroduced prior
to ship scanner.

11.0 MATERIAL TO BE HANDLED AND FLOW RATES

MATERIALS HANDLED

The conveyor system will be used to transport totes and cartons of
miscellaneous products in routings as shown on the drawings. Refer to
drawings for detailed flow rates. Cartons and totes will vary in size and
weight within the limits listed below and be readily conveyable. Those
that are not conveyable will be classified as non-conveyable.

A minimum of 6" vertical clearance over maximum carton height is required
over all conveyors.

Sizes of cartons, cases and totes to be transported over the conveyor
system are as follows:

CARTON SPECIFICATIONS
WEIGHT
LENGTH WIDTH HEIGHT Min Max
------ ----- ------ -------- ------

Minimum 8" 7" 4" 1/2 lbs 2 Lbs
Average (or most popular
size) 10" 8" 4" 1/2 lbs 3 Lbs
Maximum 29" 22" 22" 10 Lbs 60 Lbs
Tote 24.5" 19" 9.5" 5 Lbs 65 Lbs

NOTES: (1) All dimensions relative to direction of flow on conveyor.

(2) The size indicated may not be for an actual carton but be a
composite of extremes for design of the system.

(3) The above carton weights and sizes are for conveyor design and
not to be used to determine what a person can handle.

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RedEnvelope
February 18, 2004

(4) Handling of totes will require that any accumulation units
must be furnished with double sensors or electronic sensors on
each zone.

<PAGE>

RedEnvelope
February 18, 2004 MHE - 28

[FLOW DIAGRAM OF SEDLAK MANAGEMENT CONSULTANTS]

<PAGE>

[VARGO MATERIAL HANDLING INC LOGO]

[MATERIAL HANDLING SYSTEMS LOGO]

EXHIBIT 2

June 18, 2004

Mr. Dave Teeple
Sedlak Management Consultants
4020 Kinross Lakes Parkway
Richfield, OH 44286

RE: RED ENVELOPE

Dear Dave,

Thank you for the opportunity to submit a proposal to reconfigure the Red
Envelope facility.

Per our conversation here are the following revised prices for the system. We
will follow up with pricing breakdowns in the proper format tomorrow.

System cost excluding pallet rack.................... [ * ]

System cost including pallet rack.................... [ * ]
Base System.......................................... [ * ]
Pallet Rack.......................................... [ * ]

*Pallet Rack is a combination of new uprights and used 96" beams.

Again, thank you for the opportunity and we look forward to implementing our
proposal. If you have any questions, please do not hesitate to call me at
614-876-1163.

Sincerely, * Confidential treatment has been requested for portions
of this exhibit. The copy filed herewith omits the
information subject to the confidentiality request.
Omissions are designated as [*]. A complete version of
this exhibit has been filed separately with the
Carlos N. Ysasi Securities and Exchange Commission.

<PAGE>

Sedlak Management Consultants
Ref: redEnvelope
4020 Kinross Lakes Parkway
Richfield, Ohio 44286

Re: Proposal 4104-001

SECTION 1: COMPANY OVERVIEW:................................. 2

SECTION 2: PROPOSAL OVERVIEW:................................ 4

SECTION 3: DESIGN PARAMETERS:................................ 5

SECTION 4: SCOPE OF WORK:.................................... 6

SECTION 5: PROJECT DURATIONS AND IMPLEMENTATION PLAN:........ 8

SECTION 6: PRICING:.......................................... 9

SECTION 7: TERMS AND CONDITIONS:............................. 10

SECTION 8: LITERATURE FROM SELECT VENDORS:................... 11

<PAGE>

SECTION 1: COMPANY OVERVIEW:

MATERIAL HANDLING SYSTEM SERVICES

SALES and INTEGRATION SERVICES

Siemens Dematic, Rapistan Division conveyor components and systems
Ermanco Conveyor components and systems
Omni Metal Craft conveyor components and systems
Versa Conveyor components and systems
Overhead chain and power & free systems
Retail Distribution
Engineering and layout service
Feasibility and budgetary studies
Electrified Monorails
Garment conveyors and storage
Order selection systems
Facilities engineering
Rack and shelving - warehouse design
Systems electronic repair and diagnostic services
Recycling/Balers/Shredders
Automated Storage and Retrieval
Automated Guided Vehicle System
Pneumatic Tube Systems
Safety Rails/Guards
Conveyor related equipment
Mezzanine and Platforms

INSTALLATION AND ERECTION SERVICES

Conveyors installations - package and overhead chain conveyor

Towlines
Racks and shelving Erection of modular offices
Monorails Bridge cranes and hoists
Conveyor and rack guarding Storage mezzanines
Vertical Lifts Pallet Handling Systems

MAINTENANCE AND REPAIR SERVICES

Baler repair
Cart repairs and caster replacement
Conveyors - repair and preventative maintenance inspections
Cranes and hoists
Pallet Handling Systems
Rack damage repair
Vertical Lifts

<PAGE>

SAMPLE CUSTOMER LISTING

American Airlines American Eagle Outfitters (2 Distribution Centers)
AMPSCO Corporation Baxter Health Care
Big Lots Dial Corporation
Eagle Trading Co. (Mexico) Filene's Basement
Ft. Dodge Labs G M Volvo
Gatx Logistics General Electric
General Motors Corporation Glazers Distributors of Ohio
Grainger Hesco
Honda of America JC Penney's
Kal Kan Foods Inc. Keebler
Limited Distribution Limited Express
Limited Stores Lucent Technologies
Micro Center Mid Atlantic Canners
National Logistics Services (Ontario)
Northwest Airlines Oasis/Ebco
Ogihara America Inc. Premier
Ross Laboratories Roxane Labs
Shonac Corporation Showa Aluminum
Siemens Dematic Stanley Electric US
Techneglas Thomson Consumer Electronics (RCA)
TS Tech United Airlines
Value City Department Stores Value City Furniture
Wal-Mart Warehouse Associates
Whirlpool Corporation Xerox Corporation
Yamaha Motors Inc.

<PAGE>

SECTION 2: PROPOSAL OVERVIEW:

This Proposal covers the conveyor, storage equipment, controls / field wiring,
commissioning and training.

The proposed equipment has been selected to provide a system for the following
functional areas:

1 Reserve

2 Pallet flow

3 Carton flow pick module(s)

4 Jewelry

5 Single Line Item Processing

6 Over Pack Processing

7 Gift - Box Insertion

8 Packing

9 Outbound Sorter

The equipment for this material handling reconfiguration is selected based on
our previous experience with similar applications. The following factors were
considered during the selection process:

1 The equipment must meet and exceed the demands of the system
rates and product handling data outlined in Section 3: Design
Parameters

2 The use of standard components will be employed where
practical to aid in servicing or replacement of parts, should
the need arise.

3 Accessibility for maintenance and service

4 Personnel safety

The Layout of the proposed equipment is illustrated on the 4104-Q-4

WARRANY:

Vargo will warrant that the system shall be free of defects in material and
workmanship and provide other customary warranties for a minimum of one year
following final acceptance (completion of all above items). Supplier shall
provide repair service (parts and labor) with respect to valid warranty claims
at no cost or expense to Red Envelope during the warranty period.

<PAGE>

SECTION 3: DESIGN PARAMETERS:

MATERIAL TO BE HANDLED AND FLOW RATES:

The equipment will convey materials having the dimensions, weights, shapes,
surfaces and other characteristics, as set forth in this section. The equipment
will have the mechanical capability to convey materials at the rates specified
in this section.

CARTON SPECIFICATIONS
LENGTH WEIGHT
Min Max

Minimum 8" 7" 4" 1/2 lbs 2 Lbs
Average (or most popular
size) 10" 8" 4" 1/2 lbs 3 Lbs
Maximum 29" 22" 22" 10 Lbs 60 Lbs
Tote 24.5" 19" 9.5" 5 Lbs 65 Lbs

Conveyor live load is calculated at 25 lbs. per ft.

The products must by conveyable, and components inside must not overhang the
parameter. They must also have a flat bottom +/- 1/32".

Inclines and declines are limited to 18 degrees

Nose-overs and power feeders units are included

FLOW RATES:

(Attached)

<PAGE>

SECTION 4: SCOPE OF WORK:

The following is a list of tasks that Vargo has quoted:

1 Remove forty (40) sections of 8'-3" C.T.C. Selective Pallet Rack
with four levels of beams with wire decking on them. All will be
re-erected in other areas of the building. Any left over beams, wire
decks and other miscellaneous parts will be stored on pallets in the
DC.

2 Remove seven (7) Pallet Flow Lanes (approx 10 ft. long) along with
lift truck angle stops mounted along charge end. Seven (7) will be
reinstalled and twelve (12) new lanes installed as part of the
Pallet Pick Area extension (adjacent to engraving area). The lift
truck angle stops will be required for the reinstalled and new
lanes.

3 Remove 815 Lin.Ft. of powered HK brand conveyor and 635 Lin.Ft. of
gravity conveyor by various manufacturers. A list of units to be
reused in this facility are included in RFP equipment list

4 Reconfigure existing Picking area by 1) Adding 260 Lin.Ft. of
powered conveyor with three (3) line scanners and three (3)
bi-directional right angle transfers discharging totes to six (6) 67
Ft. long relocated gravity spurs. Each spur to have fixed end stops
and full line controls and 2) relocating fifteen (15) existing
Kingway carton flow racks with four picking levels each.

5 Relocate existing Jewelry Cage by 1) Re-locating two hundred and ten
(210) Lin.Ft. of existing 10 Ft. high chain link fence enclosure
with one (1) sliding gate and two (2) conveyor openings with
security doors; 2) Add one hundred and seventy five (175) Lin.Ft. of
new 10 Ft. high chain link fencing with four (4) conveyor openings
(2-new+2-relocated) and the sliding gate reinstalled; 3) Install
used/new conveyors to convey totes and shipping cartons...1) inbound
totes from picking system, 2) outbound totes to merge with the
existing packing sorter and 3) outbound oversize packing line
passing through the jewelry cage to allow direct conveyance
completed jewelry cartons to the shipping system.

6 Reconfigure conveyors adjacent to the jewelry cage to provide a new
line scanner and new kickoff to the jewelry cage (replacing existing
retro reflective disc/photoeye arrangement) before continuing to the
existing merge junction onto the packing sorter.

7 The existing jewelry cage contents...1) Relocate twelve (12)
existing sections of carton shelving and add twelve (12) new
sections of 48" W x 60" L x 7' H with 4 shelves plus a top; 2)
Relocate six (6) existing packing tables and add six (6) new packing
tables.

8 Jewelry cage conveyors are to be reconfigured using used/new
conveyors as follows...

<PAGE>

a fixed end stop and full line controls.

9 Box Insertion Spur - This spur would originate from the existing
second packing sorter pop-up divert and would then transfer totes
onto an accumulating gravity line with a fixed end stop and full
line controls. Boxes would then be inserted and the tote be pushed
onto the adjacent conveyor from packing sorter headed towards the
gift/ final lines. As part of this option, sixteen (16) new pallet
flow lanes with lift truck angle stops are to be installed adjacent
to this conveyor spur.

10 Add two (2) mechanical 'traffic cops' to existing live roller
conveyor merge junctions of the packing sorter. As an option the
existing pop-up roller stops on these junctions may be repaired to
their intended job (they currently do not project high enough to
stop totes).

11 In the packing area, remove five (5) existing quality control
gravity spur conveyors and equipment from existing packing sorter.
From the quality control area, remove 435 Lin.Ft. of existing
powered conveyor feeding the gift wrap and over wrap packing lines.

12 In the new layout the packing stations will no longer separate gift
wrap from over wrap totes. All stations will completely pack all
orders, eliminating the difference between the stations. From the
packing sorter, totes will be diverted at the third existing pop-up
on the packing sorter to feed both of the existing packing lines. A
swing arm divert will be provided at the first packing line to
divert totes on an as needed basis only to keep both lines full.

13 Incomplete Order Spur - The first divert spur on the existing
packing sorter will be converted to a incomplete pick order spur
prior to packing. RF pick verification in the pick area will signal
the new packing scanner that the tote has not received all of the
items required for that order. If incomplete, the sorter will divert
the tote to accumulate on gravity conveyor. The spur will have a
fixed end stop and full line controls. Totes will be dispersed
manually from here to the pick conveyor system to acquire the
missing item.

14 Outbound cartons (w/ all wrapping complete and shipping bar code
label attached) will merge from four different sources (singles
packing, oversize packing, existing pack line #1 and existing pack
line #2) onto one central takeaway line to the shipping sorter.
Existing conveyors in the pack areas do not change their original
direction or function.

15 Install approximately 230 Lin.Ft. of used/new conveyor as a take
away from oversize packing stations to the central packing takeaway
line/shipping sorter. No merge controls are required for this line.

16 Add a line scanner and inline scale to the existing shipping sorter.
The scanner will assign destinations to the six (6) existing sorter
spurs while the scale will accumulate carton IDs & weight
information for

<PAGE>

manifesting.

17 Add a 30 linear foot gravity runout to the existing shipping sorter.
This runout is to have fixed end stop and full line controls which
stop the sorter.

The option requested to add a brake meter belt, scanner & right angle transfer
to the existing conveyors in the pallet flow active pick area has been included
here.

<PAGE>

SECTION 5: PROJECT DURATIONS AND IMPLEMENTATION PLAN:

SCHEDULES:

Drawings for Approval........ 2 Weeks
Manufacturing................ 4 Weeks
Installation ................ 11 Weeks
Completion Date ............. July 16, 2004

IMPLEMENTATION PLAN:

(Attached)

<PAGE>

SECTION 6: PRICING:

(Attached)

<PAGE>

SECTION 7: (AGREED UPON TERMS AND CONDITIONS):

1. Standard terms are Net 30 days with Sedlak approval for invoiced
work and materials for all portions of this contract.

2. Vargo will be available to sign, unload and inspect all materials at
the site. No redENVELOPE employee will be asked to be responsible
for any shipment or package sent to the site.

3. Vargo will be responsible for all freight collection arrangements as
part of this fixed price quote. redENVELOPE will not be responsible
for any freight payments or unloading.

4. Vargo included the cost of any required building permits with their
quotation.

5. redENVELOPE will maintain existing operations throughout this
project. Areas to be cleared for installation work must be approved
by Sedalk at least one week in advance of the requirement and the
date when the area will be reusable by redENVELOPE must be included.

6. Vargo will be responsible for any shipment receiving and staging.
Areas required for staging must also be approved by Sedalk at least
one week in advance of the requirement and the date when the area
will be reusable by redENVELOPE must be included

7. Vargo will be responsible for all work area cleanup, trash removal
and equipment wipe downs.

8. redENVELOPE will maintain existing operations throughout this
project. Areas to be cleared for installation work or staging must
be approved by Sedalk at least one week in advance of the
requirement and the date when the area will be reusable by
redENVELOPE must be included. Unlimited access can not be
guaranteed.

9. Delay charges must be discussed and agreed to by both parties.

10. Vargo must include the cost of any required building permits with
their quotation.

Added From Proposal 3

11. (5) No verbal orders are accepted. Customer purchase order or signed
quote is required to process your order.

12. (11) Buyer is responsible for payment of all applicable taxes, if
any.

13. (21) Vargo Material Handling, Inc. is responsible for a final system
wipedown prior to acceptance of each unit of work.

14. (22) Power to be supplied by customer for installation equipment.

15. (23) One dock height door with dock plate to be provided by customer
for unloading closed vans.

16. (24) Truck access to concrete pads for unloading.

17. (25) Ambient temperature for installation.

18. (28) If outside staging of material is required in unpaved areas,
Vargo Material Handling is not responsible for mud, dirt, snow,
rain, ice and/or rust on materials.

19. (30) Vargo Material Handling shall pay to repair any damage (chips
and gouges to the concrete slab) but will not be responsible for
normal scratches and abrasions that occur during rack or Vargo
equipment installation.
<PAGE>

REDENVELOPE
FEBRUARY 18, 2004 MHE-31

12.0 EQUIPMENT SPECIFICATIONS SUMMARY FORMS (NEW EQUIPMENT)

These forms must be filled in and returned with your equipment proposal.
These forms are a necessary part of you proposal and your proposal will
not be accepted without them.

12.1 MECHANICAL SPECIFICATIONS

1. GRAVITY SKATEWHEEL CONVEYOR

Conveyor Width

Overall 30 "
------------
Between Frames 28 "
------------
Rated Capacity of Frame Supported on 10'-0" Center 350 Lbs.
------------
Deflection of Frame at Rated Capacity on 10'-0" Center L/720 Lbs.
------------
Roller Diameter x Gauge 1 - 15/16" Ga.
------------
Roller Capacity (Lbs./Each) 65 Lbs.
------------
Roller Spacing 3" / 24WPF "
------------
Roller Setting High
------------
Support Spacing 10 Ft.
------------
Support Adjustability 6
------------
Rollers Galvanized Zinc Coated
------------
Total Feet 50
------------
Pick Module (Light Green) Ft.
------------
Packing (Light Blue) Ft.
------------
Gift-Wrap (Tan) 50 Ft.
------------
Shipping (Dark Green) Ft.
------------
Shipping - Direct-to-Trailer Line (Dark Blue) Ft.
------------
Tote Return (Magenta) Ft.
------------
Trash (Red) Ft.
------------
"Bulk By-Pass" Conveyor System (Gray) Ft.
------------

SEDLAK

<PAGE>

REDENVELOPE
FEBRUARY 18, 2004 MHE-32

12.0 EQUIPMENT SPECIFICATIONS SUMMARY FORMS (NEW EQUIPMENT)

These forms must be filled in and returned with your equipment proposal.
These forms are a necessary part of you proposal and your proposal will
not be accepted without them.

2. LIVE ROLLER CONVEYOR

Conveyor Width

Overall 24 & 30 "
------------
Between Frames 22 & 28 "
------------
Rated Capacity of Frame Supported on 10'-0" Center 650 Lbs.
------------
Deflection of Frame at Rated Capacity on 10'-0" Center L/720 Lbs.
------------
Roller Diameter x Gauge 2 x 16 Ga.
------------
Roller Capacity (Lbs./Each) 250 Lbs.
------------
Roller Spacing 3 "
------------
Roller Setting High
------------
Support Spacing 10 Ft.
------------
Support Adjustability 6
------------
Rollers Galvanized Yes
------------
Type Drive (Belt, Chain) Lineshaft
------------
Belt Return Roller Spacing - Ft.
------------
Belting Type O-Ring
------------
Total Feet 306
------------

SEDLAK

<PAGE>

REDENVELOPE
FEBRUARY 18, 2004 MHE-33

12.0 EQUIPMENT SPECIFICATIONS SUMMARY FORMS (NEW EQUIPMENT)

These forms must be filled in and returned with your equipment proposal.
These forms are a necessary part of you proposal and your proposal will
not be accepted without them.

3. ACCUMULATION CONVEYOR

Conveyor Width

Overall 24 "
------------
Between Frames 22 "
------------
Frame Depth 4-1/2
------------
Rated Capacity of Frame Supported on 10'-0" Center 650 Lbs.
------------
Deflection of Frame at Rated Capacity on 10'-0" Center L/720 Lbs.
------------
Roller Diameter x Gauge 2 x 16 Ga.
------------
Roller Capacity (Lbs./Each) 250 Lbs.
------------
Roller Spacing 3 "
------------
Roller Setting High
------------
Support Spacing 10 Ft.
------------
Support Adjustability 6
------------
Rollers Galvanized Yes
------------
Type Accumulation Mechanical
------------
------------
------------
Type of Release Singulation
------------
Typical Zone Length (Inches) 36 "
------------
Number of P.E. Sensors Per Accumulation Zone 0
------------
Total Feet 262
------------

SEDLAK

<PAGE>

REDENVELOPE
FEBRUARY 18, 2004 MHE-34

12.0 EQUIPMENT SPECIFICATIONS SUMMARY FORMS (NEW EQUIPMENT)

These forms must be filled in and returned with your equipment proposal.
These forms are a necessary part of you proposal and your proposal will
not be accepted without them.

4. BELT CONVEYOR FOR PACKAGE HANDLING

Conveyor Width

Overall 24 & 30 "
------------
Between Frames 22 & 28 "
------------
Frame Depth 4-1/2"
------------
Rated Capacity of Frame Supported on 10'-0" Center 650 Lbs.
------------
Deflection of Frame at Rated Capacity on 10'-0" Center Lbs.
------------
Bed Type (Slider, Roller, Etc.) Roller
------------
Belt Width 18 & 24
------------
Belt Type PVK-90
------------
Incline/Decline Rough Top
------------
Level Smooth
------------
Brake/Index Rough Top
------------
Belt Return Roller Spacing 5' Ft.
------------
Side Guard Height 12"
------------
Support Spacing 10 Ft.
------------
Support Adjustability 6
------------
Rollers Galvanized Yes
------------
Total Feet 166
------------

SEDLAK

<PAGE>

REDENVELOPE
FEBRUARY 18, 2004 MHE-35

12.0 EQUIPMENT SPECIFICATIONS SUMMARY FORMS (NEW EQUIPMENT)

These forms must be filled in and returned with your equipment proposal.
These forms are a necessary part of you proposal and your proposal will
not be accepted without them.

5. ROLLER CURVES

Conveyor Width

Overall 24 & 30 "
------------
Between Frames 22 & 28 "
------------
Tapered Rollers Yes
------------
Roller Size x Gauge 2 x 16
------------
Roller Spacing 3
------------
Roller Capacity 250
------------
Type of Drive (e.g., V-Belt) Lineshaft
------------
Support Adjustability 6
------------
Rollers Galvanized Yes
------------
Quantity Provided 11
------------

6. SORTATION EQUIPMENT

Describe type of sortation equipment provided (diverts,
scanners, in-motion weigh scales, in-motion cube, etc.).
State applicable information such as conveyor lengths,
througput volume, speeds (fpm), product size limits, scanner
type, quantity, etc. to be employed. List by system.

Urethane Belt Transfers 2'-8" OAL x 24" OAW
-------------------
4-Strand, 60 FPM
-------------------
Qty (11)
-------------------

Metler Toledo Inline Scale 5'-0" OAL x 30" OAW
-------------------
-------------------
-------------------

---------------------------------------------------- -------------------
-------------------
-------------------

-------------------
-------------------

---------------------------------------------------- -------------------

-------------------
-------------------
-------------------

SEDLAK

<PAGE>

REDENVELOPE
FEBRUARY 18, 2004 MHE-36

12.0 EQUIPMENT SPECIFICATIONS SUMMARY FORMS (NEW EQUIPMENT)

These forms must be filled in and returned with your equipment proposal.
These forms are a necessary part of you proposal and your proposal will
not be accepted without them.

7. OTHER REQUIREMENTS

Motor Drives - Total:

Type Reliance TEFC
----------------------
Quantity 19
----------------------
Type Guardrail:

Package Conveyors

Roller 2" Angle
----------------------
Adjustable Channel
----------------------
----------------------
Belt (Product) Adjustable Channel
----------------------
Type of Floor Supports H-Stand Adjustable
----------------------
Type of Ceiling Supports -
----------------------
Type of Automatic Take-Up -
----------------------
Type of Gravity Roller Gates 4' Lineshaft, Qty. (2)
----------------------
----------------------
Quantity
----------------------
Lock-In Roller Safety Feature for Overhead Conveyors Enclosed Frame
----------------------
Type Bearings:

Life (Hours) Hrs.
----------------------
Quantity of Precision Bearings -
----------------------
Make/Model Number -
----------------------
Describe -
----------------------
Explain Method of Maintaining Carton Columnization on
Accumulation Conveyor Skewed Rollers
----------------------
Belts
----------------------
Describe Urethane O-ring
----------------------
----------------------
----------------------

SEDLAK

<PAGE>

REDENVELOPE
FEBRUARY 18, 2004 MHE-37

12.0 EQUIPMENT SPECIFICATIONS SUMMARY FORMS (NEW EQUIPMENT)

These forms must be filled in and returned with your equipment proposal.
These forms are a necessary part of you proposal and your proposal will
not be accepted without them.

8. COMPRESSED AIR REQUIREMENTS

Supplier to list compressed air requirements (CFM) and
description for all systems, including number of compressors,
capacity, type, make, model number and size of each as
required. 3 CFM
------------
------------
------------

9. EXTENDIBLE CONVEYORS

Receiving/Shipping Systems

Make
------------
Model Number
------------
Extended Length
------------
Collapsed Length
------------
Height Top of Belt
------------
Belt Width
------------
Quantity:

- RC Receiving
------------
- SH Shipping
------------

10. SAFETY GUARDING

Conveyor:

Type (Describe)
------------
------------

Quantity (Sq. Ft.) Sq. Ft.
------------

11. NOISE LEVEL

Specification is 80 db. If noise level is exceeded, provide
the following:

Means to Reduce Noise (Describe)
------------
------------
------------
New Noise Level 60db
------------
------------

SEFLAK

<PAGE>

REDENVELOPE
FEBRUARY 18, 2004 MHE-38

12.0 EQUIPMENT SPECIFICATIONS SUMMARY FORMS (NEW EQUIPMENT)

These forms must be filled in and returned with your equipment proposal.
These forms are a necessary part of you proposal and your proposal will
not be accepted without them.

12. ELECTRICAL SPECIFICATIONS

List of systems control cabinets by system, including
location, size (length, height, depth) and amperage 72x72x12

Rating of disconnect(s) 100 a
-------------
Total horsepower and amperage required @ (230,460 or 575)
volts, 60 hertz, 3 phase by system (specify panel location) 30 hp
-------------
75 FLA
-------------
Number of Push Button Consoles 0
-------------
Number of Start/Stop Push Buttons 3
-------------
Number of Emergency Stops 1
-------------
Number of Photoelectric Units 35
-------------
Number of Operating Pull Cords 16
-------------
Number of Starting Horns 2
-------------
Number of Warning Lights and Strobes with Associated
Alarm/Horn 0
-------------
Special Control Stations (List) 0
-------------
Number of Graphic Display Panels, Monitors and Locations 0
-------------
-------------
Type of:

Electric Eyes Chammer E65
-------------
Starters AB 100/140
-------------
Motors
-------------
Plug-In Relays Kuhnke
-------------
Type of Conduit EMT
-------------
Make, Model and Quantity of Programmable Controllers Siemens Qty 1
-------------
CPU - TBD
Program Logic Controller:

Make and Model of PLC Siemens S7
-------------
Memory Supplied TBD RAM
-------------
Memory Available After Programming TBD RAM
-------------
Make and Model of Industrial Terminal Being Supplied None
-------------
Make and Model of Printer Being Supplied None
-------------
Battery Shall Maintain Program (Days) TBD Days
-------------
Battery Life Minimum (Months) TBD Months
-------------

SEDLAK

<PAGE>

REDENVELOPE
FEBRUARY 18, 2004 MHE-39

12.0 EQUIPMENT SPECIFICATIONS SUMMARY FORMS (NEW EQUIPMENT)

These forms must be filled in and returned with your equipment proposal.
These forms are a necessary part of you proposal and your proposal will
not be accepted without them.

13. EXCEPTIONS

Offeror shall include a list of specific exceptions (if any)
take to the base specifications. Descriptions of exceptions
will be helpful.

1.
-------------
2.
-------------
3.
-------------

SEDLAK

<PAGE>

13.0 PRICING FORMS:

These forms must be filled in and returned with your equipment proposal.
These forms are a necessary part of your proposal and your proposal will
not be accepted without them.

CONVEYOR FENCING RELOCATION & RACK & SHELVING
MODIFICATIONS INSTALLATION RELOCATION & INSTALLATION TOTAL
------------- -------------------- ------------------------- ------------

13.1 TOTAL COST

System Engineering [ * ] [ * ] [ * ] $ -
------------
Equipment [ * ] [ * ] [ * ] [ * ]

Freight (Prepaid - Jobsite) [ * ] [ * ] [ * ] [ * ]

Unloading [ * ] [ * ] [ * ] $ -
------------
Mechanical Installation [ * ] [ * ] [ * ] [ * ]

Electrical Installation [ * ] $ - $ - [ * ]
-------------------- -------------------------
Final Clean-Up [ * ] [ * ] [ * ] $ -
------------
TOTAL INSTALLED COST [ * ] [ * ] [ * ] [ * ]

13.2 RECOMMENDED SPARE PARTS COST $ -
============= ==================== ========================= ============

13.3 LABOR RATE SCHEDULE FOR ADDED WORK STRAIGHT HR. STRAIGHT HR. STRAIGHT HR. STRAIGHT HR.
------------- -------------------- ------------------------- ------------
- Mechanical Supervisor [ * ] [ * ] [ * ] $ -
------------
- Millwright [ * ] [ * ] [ * ] $ -
------------
- Electrical Supervisor [ * ] $ - $ - $ -
-------------------- ------------------------- ------------
- Electrical [ * ] $ - $ - $ -
-------------------- ------------------------- ------------
- Laborer [ * ] [ * ] [ * ] $ -
============= ==================== ========================= ============
13.4 TOTAL TAXES

- State (Combined) 0.0675 [ * ]

- Local $ -

13.5 PERMITS
Permits [ * ]
Other - Weekend Tie-in [ * ]

TOTAL [ * ]

13.6 PERFORMANCE BOND [ * ]

13.7 PROPOSAL GRAND TOTAL [ * ]

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [*]. A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.
<PAGE>

13.8 ALTERNATE PRICING

List by system and describe any alternate pricing to base proposal.
Include whether it is an addition (Add) or deletion (Deduct) to base
proposal.

Number 1 - Computerized maintenance
program. Includes 1 license and eng.
RSView Diagnostics System (+) [ * ]

Number 2 - Annual cost of maintenance contract (+) [ * ]

Number 3 - Shipping sorter recirculation and
accumulation conveyors (+) [ * ]

Number 4 - Cost to move shipping sorter & fill
and seal approximately 20 feet south
of present location (+) [ * ]

Number 5 - Cost to move one existing pack line
approximately 10 feet from current
position (+) [ * ]

Number 6 Cost to provide and install 294
sections of new selective pallet rack (+) [ * ]

Number 7 Cost to provide and install 294
sections of used and new selective
rack with 96 clear load beams. (+) [ * ]

Number 8 Shipping Accumulation Reference Sedlak
ShippingOption. drawing
(1808cp1revAwalt) (+) [ * ]

Number 9 Weekend Tie-In (+) 6,000 Reference Sedlak
drawing
(1808cp1revAwalt) (+) [ * ]

Number 10 Base Bid Clear Aisle and Reference Sedlak
Jewelry Cage relocation drawing
(CP1REVB-31704.dwg) (+) [ * ]

Number 11 Additional line scanner per (+) [ * ]

Number 12 Additional Software License(s) (+) [ * ]

Number 13 Deduct for PC per License (-) [ * ]

SUMMARY
Base Bid [ * ]
Base Bid Clear Aisle [ * ]
Base Bid Clear Aisle (Accumulation) [ * ]
Base Bid Clear Aisle (Accumulation) + Recirculation [ * ]
Base Bid Clear Aisle (Accumulation) + Recirculation + Options 1, 11 & 13 [ * ]
NOTE: SUMMARY PRICING INCLUDES PERMITS AND WEEKEND TIE-INS.

TOTAL ALTERNATE PRICING $ -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [*]. A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.
<PAGE>

13.9 SCHEDULES

Supplier shall list the following preliminary schedule for the overall
system; reference Section 2.0 - Schedules of this specification.

- Engineering Layout Drawings for Approval 2 Weeks

- Manufacturing 5 Weeks

- Installation 11 Weeks

- Total Time Required After Receipt of Order 15 Weeks

- Completion Date -

13.10 TOTAL WEIGHT OF NEW COMPONENTS

13.11 TRAINING INCLUDED

- Operations Included

- Main Elements (List) Included

- Safety Included

- Main Elements (List) Included

- Location (where training occurs) Included

Maintenance:

- Mechanical Included

- Electrical Included

Total

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [*]. A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.
<PAGE>

13.12 GENERAL PURCHASING TERMS

PAYMENT MILESTONES % of Contract

- All Drawings Approved 10%

- Equipment Delivery (Monthly) 20%

- Installation Labor (Monthly) 70%

- Systems Acceptable

- 30 Days Less 10% Retainer (Yes/No) Yes

PAYMENT TERMS
(Describe Briefly) See Attached Terms and Condition

WARRANTY
(Describe Briefly) OEM's Factory warranty and Re-Used "As-Is"
and Used supplied by Vargo, 1 year.

COMPLIANCE TO SAFETY CODES,
INCLUDING OSHA (Yes/No) Yes

INSURANCE LIMITS

- Workers' Compensation OH - Unlimited

- Employers' Liability $ 2,000,000.00

- Comprehensive General Liability
- Bodily Injury $ 2,000,000.00
- Property Damage $ 1,000,000.00
- Comprehensive Automobile Liability
- Bodily Injury $ 1,000,000.00
- Property Damage $ 1,000,000.00

- Builder's Risk Insurance $ 1,000,000.00

- Umbrella Insurance $ 5,000,000.00

13.13 AUTHENTICATION

Price Quotation Expiration Date:

Submitted by: Carlos N .Ysasi
Address: 3709 Parkway Lane
Hilliard, OH. 43026
Name: Carlos N. Ysasi
Title: Senior Project Engineer
Phone: (614) 876-1163
Fax: (614) 876-0706
Date: 22-Mar-04

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [*]. A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.