<PAGE>


                                                                   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.

                                            [SEDLAK MANAGEMENT CONSULTANTS LOGO]

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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.

                                            [SEDLAK MANAGEMENT CONSULTANTS LOGO]

<PAGE>

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.

                                            [SEDLAK MANAGEMENT CONSULTANTS LOGO]

<PAGE>

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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<PAGE>

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]

<PAGE>

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:

<TABLE>
<CAPTION>
Supplier                                 Purchaser
--------------------------------------------------------------------------------
<S>                        <C>           <C>                             <C>
/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]

<PAGE>

Sales Agreement                                                           Page 9

EXHIBITS

      Exhibit 1:        Sedlak RFP

      Exhibit 2:        Vargo Material Handling, Project Proposal.

                                            [SEDLAK MANAGEMENT CONSULTANTS LOGO]
<PAGE>

                                                                       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]

<PAGE>

                                    CONTENTS

<TABLE>
<CAPTION>
                                                                    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

<PAGE>

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.

<PAGE>

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

<PAGE>

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.

<PAGE>

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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      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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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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            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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      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>
<CAPTION>
Drawing No.     File Name       Rev               Drawing Name
------------------------------------------------------------------------------
<S>             <C>             <C>      <C>
 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 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

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            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

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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.

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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,

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      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

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      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.

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      -     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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      -     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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      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.

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      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

<PAGE>


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:

<TABLE>
<CAPTION>
                                    CARTON SPECIFICATIONS
                                                           WEIGHT
                           LENGTH   WIDTH   HEIGHT     Min       Max
                           ------   -----   ------   --------   ------
<S>                        <C>      <C>     <C>      <C>        <C>
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
</TABLE>

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.

<PAGE>

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

<TABLE>
<S>                                                               <C>
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
</TABLE>

<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

<TABLE>
<S>                                             <C>
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.
</TABLE>

<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.

<TABLE>
<CAPTION>
                                     CARTON SPECIFICATIONS
                           LENGTH                             WEIGHT
                                                           Min       Max
<S>                        <C>        <C>       <C>      <C>        <C>
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
</TABLE>

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...


                  -     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

<PAGE>

                        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.

      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:

<TABLE>
<S>                            <C>
Drawings for Approval........  2 Weeks
Manufacturing................  4 Weeks
Installation ................  11 Weeks
Completion Date .............  July 16, 2004
</TABLE>


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

<TABLE>
<S>                                                              <C>
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.
                                                                 ------------
</TABLE>

                                                                          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

<TABLE>
<S>                                                              <C>
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
                                                                 ------------
</TABLE>

                                                                          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

<TABLE>
<S>                                                              <C>
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
                                                                 ------------
</TABLE>

                                                                          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

<TABLE>
<S>                                                              <C>
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
                                                                 ------------
</TABLE>

                                                                          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

<TABLE>
<S>                                                              <C>
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
                                                                 ------------
</TABLE>

            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.

<TABLE>
<S>                                                           <C>
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
                                                              -------------------
                                                              -------------------
                                                              -------------------

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

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

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

                                                              -------------------
                                                              -------------------
                                                              -------------------
</TABLE>

                                                                          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

<TABLE>
<S>                                                              <C>
    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
                                                                 ----------------------
                                                                 ----------------------
                                                                 ----------------------
</TABLE>

                                                                          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

<TABLE>
<S>                                                              <C>
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
                                                                 ------------
                                                                 ------------
                                                                 ------------
</TABLE>

            9.    EXTENDIBLE CONVEYORS

<TABLE>
<S>                                                              <C>
Receiving/Shipping Systems

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

    -  RC Receiving
                                                                 ------------
    -  SH Shipping
                                                                 ------------
</TABLE>

            10.   SAFETY GUARDING

<TABLE>
<S>                                                              <C>
Conveyor:

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

    Quantity (Sq. Ft.)                                                       Sq. Ft.
                                                                 ------------
</TABLE>

            11.   NOISE LEVEL

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

<TABLE>
<S>                                                              <C>
Means to Reduce Noise (Describe)
                                                                 ------------
                                                                 ------------
                                                                 ------------
New Noise Level                                                      60db
                                                                 ------------
                                                                 ------------
</TABLE>

                                                                          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

<TABLE>
<S>                                                              <C>
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
                                                                 -------------
</TABLE>

                                                                          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.

<TABLE>
<CAPTION>
                                              CONVEYOR      FENCING RELOCATION &         RACK & SHELVING
                                           MODIFICATIONS        INSTALLATION         RELOCATION & INSTALLATION       TOTAL
                                           -------------    --------------------     -------------------------    ------------
<S>                                        <C>              <C>                      <C>                          <C>
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                                                                                            [ * ]
</TABLE>

* 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.

<TABLE>
<S>                                                                               <C>         <C>
    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                                                                   $     -
</TABLE>

* 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>

<TABLE>
<S>                                                                                                 <C>
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
</TABLE>

* 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>

<TABLE>
<S>                                                                                               <C>
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
</TABLE>

* 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.