SALES AGREEMENT

Sales Agreement

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Title: SALES AGREEMENT
Governing Law: California Date: 6/22/2004
Industry: Retail (Catalog and Mail Order) Sector: Services

SALES AGREEMENT, Parties: redenvelope inc , vargo material handling inc.

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EXHIBIT 10.38

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

[SEDLAK MANAGEMENT CONSULTANTS LOGO]

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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.

[SEDLAK MANAGEMENT CONSULTANTS LOGO]

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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:

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Supplier Purchaser

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

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

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

Signature Date Signature Date

PRESIDENT SVP TECHNOLOGY

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

Title Title

</TABLE>

[SEDLAK MANAGEMENT CONSULTANTS LOGO]

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Sales Agreement Page 9

EXHIBITS

Exhibit 1: Sedlak RFP

Exhibit 2: Vargo Material Handling, Project Proposal.

[SEDLAK MANAGEMENT CONSULTANTS LOGO]

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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

[SEDLAK LOGO]

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CONTENTS

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MHE-PAGE

<S> <C>

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

</TABLE>

[SEDLAK LOGO]

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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

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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).

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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.

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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.

<TABLE>

Drawing No. File Name Rev Drawing Name

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

CP1-EX 1808 CP1 - Composite Equipment Layout - Existing

CP1-11 1808 CP1 - Composite Equipment Layout -

</TABLE>

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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

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