Development & Hosting Agreement

DEVELOPMENT AND HOSTING AGREEMENT



THIS AGREEMENT (this "Agreement") is made and entered into as of the 18th day of June, 1999 (the "Effective Date"), by and between Fry Multimedia, Inc., a Michigan corporation, with offices at 3971 South Research Park Drive, Ann Arbor, Michigan 48108 ("Fry"), and 800-Gifthouse, Inc. a New York corporation, with offices at 1600 Stewart Avenue, Westbury, New York 115901 ("Client").





WHEREAS, Fry is in the business of offering Internet services relating to, among other things, development, maintenance and hosting of Internet sites, including those on the World Wide Web portion of the Internet;



WHEREAS, Fry has, and continues to, provide Internet development, maintenance and hosting services to Client; and



WHEREAS, Client owns various web sites, including without limitation at the domains www.1800flowers.com, www.plowhearth.com and www.bloomlink.net and from time to time will develop, own and operate other web sites (collectively, the "Client Sites");



WHEREAS, Client desires to engage Fry to continue to provide, and Fry desires to continue to be engaged by Client, to provide such services with respect to the Client Sites on the terms and subject to the conditions set forth below.



NOW, THEREFORE, in consideration of the mutual promises set forth herein, Fry and Client (each a "Party," collectively, the "Parties") hereby agree as follows:



1. Fry Services. Fry agrees to provide to Client the development, maintenance and hosting services set forth in this Agreement (the "Services"). Each [****], by on or about [****], Client shall submit to Fry a written plan with the proposed development, maintenance and hosting requirements of Client for the [****] period commencing [****] of that year. Within [****] days of receipt of such plan, Fry shall respond to Client in writing with respect to its capacity, pricing (on a fixed-price basis unless otherwise specified) and timetable for each of the development, maintenance and hosting services for such upcoming year (provided that pricing as to all hourly rates shall not increase as to any service or item at more than at the rate of [****] during the most recent [****] month period). Client and Fry shall then negotiate in good faith to agree upon a final plan for such period and upon execution by each party of such plan and the Specifications, Deliverables (each as defined below), terms and conditions thereof shall become an exhibit to this Agreement and incorporated herein as the "Annual Plan." In addition to the Annual Plan, Client may request additional services from Fry and Fry shall provide such additional services as set forth in this Agreement. With respect to the period from the date hereof until [****] or such later date as the next Annual Plan shall be





**** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406 of the Securities Act of 1933, as amended.





agreed upon by the parties, the Annual Plan attached as Exhibit A hereto shall be deemed to be the current Annual Plan hereunder. In the event for any reason that the Annual Plan for a year is not agreed upon by the parties by [****] of any year, the Annual Plan then in effect (for the prior period) shall remain in effect until the new Annual Plan is agreed upon.



2. Development Services.



2.1 Specifications; Deliverables, Pricing and Timetable. Fry shall perform the development services set forth in the Annual Plan in accordance with the specifications (the "Specifications"), deliverables (the "Deliverables"), pricing and timetable therefor contained in the Annual Plan, or if Client desires to engage Fry for the provision of any other development services from time to time, in a project brief negotiated in good faith by the parties containing such information (each a "Project Brief") in the form attached hereto as Exhibit B as mutually agreed by the parties. Each fully executed Project Brief shall be incorporated into the then applicable Annual Plan and shall be subject to the terms and conditions of this Agreement (except as specifically superseded by the relevant Project Brief).



2.2 Acceptance Testing. Promptly after the delivery of any Deliverable, Client shall test the Deliverable (the "Acceptance Tests") for up to [****] business days to determine whether the Deliverable: (i) performs in accordance with the Specifications and without failure in all material respects and (ii) operates with internal consistency. In the event that the Deliverable is accepted by Client, Client shall notify Fry in writing that it accepts the Deliverable, and the date of such written notification (the "Acceptance Date ") shall be the date on which Fry shall be entitled to invoice the payment for the Deliverable. In the event that any Deliverable is not accepted, Client shall provide written notice to Fry describing the deficiency in sufficient detail to allow Fry to attempt to correct the deficiency. After receiving written notice of a deficiency, Fry will exert its best efforts to correct the deficiency so that the Deliverable: (i) performs appropriately and repetitively without failure in all material respects and (ii) operates with internal consistency. The acceptance procedure in this Section 2.2 will be repeated with respect to the revised Deliverable to determine whether it is acceptable to Client, unless and until Client issues a final rejection of the revised Deliverable after rejecting the Deliverable on at least [****] prior occasions. If Client issues such a final rejection of the revised Deliverable or notifies Fry in writing that it chooses to not proceed with development due to failure of Fry to deliver a Deliverable within [****] days of the due date therefor in the project schedule, Fry shall promptly refund to Client any fees paid by Client for such Deliverable. In the event that any Deliverable or revised Deliverable is not rejected in writing and delivered to Fry within [****] business days after delivery, the Deliverable or revised Deliverable shall be deemed accepted by Client and Fry shall be entitled to invoice Client for payment therefor. In the event that any Deliverable or revised Deliverable is finally rejected, it shall be returned with all copies to Fry at the time of rejection.



2.3 Limited Warranty. Fry warrants to Client that each Deliverable shall perform and operate in accordance with the Specifications therefor for a period of [****] following their acceptance by Client.





**** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406 of the Securities Act of 1933, as amended.





2.4 Ongoing Consultation. Fry agrees to consult, strategize and coordinate with Client, throughout the provision of Fry's services hereunder to ensure Client's satisfaction with and approval of each aspect of its development services and Deliverables.



3. Proprietary Rights and Confidentiality.



3.1 Work for Hire; Assignment. Except for Fry Material, Fry agrees that all the results and proceeds of Fry's work on or for Client or its affiliates, including relating to any of the Client Sites, and the content of the Client Sites itself, shall be owned exclusively by Client (or Client's designee), including the copyright and other intellectual property rights thereto (including the look and feel and user interface portions of any work). Fry agrees that all work performed under this Agreement (and the results thereof) shall be deemed as "work for hire," of which Client shall be deemed the author, to the extent such works qualify as such in accordance with applicable law. In the event, for any reason, any such results or proceeds are not qualified as work for hire, Fry hereby irrevocably assigns to Client all of its right, title and interest in such results and proceeds and content to Client. Fry agrees that Fry (and his affiliates or subcontractors) will sign all papers and do all acts reasonably necessary or desirable for Client to perfect such ownership rights, provided that Fry shall not be responsible for the payment of any filing fees or other out-of-pocket costs associated with perfection of such ownership rights. Fry hereby irrevocably transfers and assigns to Client any and all Moral Rights that it may have in any of the services or work. Fry also hereby forever waives and agrees never to assert against Client, its successors or licensees, any and all Moral Rights Fry may have in any Services or work hereunder (except for Fry Material), even after expiration or termination of this Agreement. "Moral Rights" means any right to claim authorship of a work, any right to object to any distortion or other modification of the work, and any similar right, existing under the law of any country in the world or under any treaty.



3.2 Fry Material. Fry hereby grants to Client and its sublicensees, successors and assigns a nonexclusive, perpetual and irrevocable license to use the software or materials owned by Fry which is used to maintain, update, edit, modify, terminate, redesign and otherwise operate and service the Client Sites and any version or derivation thereof, without further payment ("Fry Material"), but only to the extent necessary to maintain, update, edit, modify, terminate, redesign and otherwise operate and service the Client Sites (wherever hosted) developed as a result of work directly performed and delivered under this Agreement, including without limitation any back-up, mirrored or disaster recovery sites or servers.



3.3 Third Party Licensed Material. Attached as Exhibit C is a complete inventory of the third-party software (including version numbers) used or needed to maintain, update, edit, modify, terminate, redesign and otherwise operate and service the Client Sites and a breakdown between software directly licensed by Client and software licensed by Fry. This exhibit will be updated by Fry (and to the extent of its knowledge, by Client) from time to time as soon as practicable after such software inventory changes. In the event Client desires to be a direct licensee of any software on Exhibit C for which it is not the direct licensee, Fry shall arrange for Client to be a direct licensee of such software at Client's expense. Client (or Fry as applicable) shall have perpetual irrevocable licenses to all software listed on Exhibit C (except as otherwise indicated on Exhibit C), as the same shall be modified and supplemented from time to time.

3.4 Proprietary Rights of Client; Domain Names. As between Client and Fry, all data, information and other property, tangible and intangible, provided by or created on behalf of Client or its subcontractors or information providers, including without limitation software (including algorithms and source code), firmware and hardware, technical processes and formulas, source codes, product designs, sales data, store data, product data, transaction data, customer data, usage data, advertising data, cost and pricing data, other non-publicly disclosed financial information, product information, product, marketing and business plans, advertising revenues and relationships, usage rates, projections and marketing data and all other data received, transmitted or stored on behalf of Client. or relating to Client and/or Client Sites or those of its affiliates ("Client Content") shall remain the sole and exclusive property of Client, including, without limitation, all copyrights, trademarks, patents, trade secrets and any other proprietary rights therein. Nothing in this Agreement shall be construed to grant Fry any ownership right in, or license to, the Client Content. Fry shall assist Client at Fry's standard charges (plus third party registration fees) in obtaining domain names (and, if applicable, Internet Protocol addresses) but shall ensure that Client's designated employee is named as the Administrative Contact for each such registration on behalf of Client.



3.5 Client's Ownership. Client shall be the exclusive owner of the Client Sites and all aspects thereof, except as set forth in Sections 3.2 and 3.3 above. Client shall have the right to modify, edit, destroy, license, exploit or use the Client Sites in any way, without compensation or consultation with Fry. Fry shall have no obligation to repair, modify or maintain the Client Sites to the extent that Client's use of such component of the Client Sites is in violation of law or regulation.



3.6 Confidentiality. Fry acknowledges that Client has provided Fry to date with extensive confidential information concerning its business, procedures, plans, and other confidential information and each party agrees that during the course of this Agreement, that such confidential information and other information that is confidential or proprietary may be disclosed to the other party, including, but not limited to all software (including without limitation source code (including algorithms) written on behalf of Client by Fry, except as otherwise provided herein), technical processes and formulas, source codes, product designs, sales data, store data, product data, transaction data, customer data, usage data, advertising data, cost and pricing data, other non-publicly disclosed financial information, product information and product and business plans, , advertising revenues and relationships, usage rates, projections and marketing data and all other data received, transmitted or stored on behalf of Client. or relating to Client and/or Client Sites or those of its affiliates, ("Confidential Information"). Confidential Information shall not include information that the receiving party can demonstrate (a) is, as of the time of its disclosure, or thereafter becomes part of the public domain through a source other than the receiving party, (b) was known to the receiving party as of the time of its disclosure, (c) is independently developed by the receiving party w/o use of the Confidential Information, or (d) is subsequently learned from a third party not under a confidentiality obligation to the providing party. Except as provided for in this Agreement, each party shall not make any disclosure of the Confidential Information to anyone other than its employees who have a need to know in connection with this Agreement. Each party shall notify its employees of their confidentiality obligations with respect to the Confidential Information and shall require its employees to comply with these obligations. In the event that either Party is compelled by law (whether through court order or subpoena) to disclose Confidential Information, the disclosing





Party shall provide the other Party with notice of such compelled disclosure and a reasonable opportunity to contest it and shall seek a protective order. In the event that a Party divulges or seeks to divulge or otherwise improperly use any such Confidential Information, the other Party shall have the right, in addition to any other remedies available to it, to seek injunctive relief to enjoin such acts, it being specifically acknowledged by the Parties that any other remedies are inadequate. The confidentiality obligations of each party and its employees shall survive the expiration or termination of this Agreement. The particular terms and conditions of this Agreement are confidential and shall not be disclosed by either party without the prior written consent of the other party (except as deemed necessary or appropriate by counsel to Client to comply with securities and other applicable laws or as required pursuant to judicial or other government order provided that notice of such order is given to the other party promptly after its receipt). Except for mutually agreeable press releases (with each party's prior written consent, which shall not be unreasonably withheld or delayed), no public announcements relating to this Agreement shall be issued by either party. Notwithstanding anything stated herein, the parties agree to allow each other to issue individual press releases announcing the relationship initiated or continued hereunder and as appropriate to cooperate in other joint promotional opportunities and announcements.



3.7 Grant of License -- Client. Client hereby grants to Fry a non-exclusive, worldwide, royalty-free license for the Initial Term and any Renewal Term (as those terms are hereinafter defined) to edit, modify, adapt, translate, exhibit, publish, transmit, participate in the transfer of, reproduce, create derivative works at Client's direction from, distribute, perform, display and otherwise use Client Content as necessary to render the Services to Client under this Agreement. In no event will Fry remove or alter any proprietary notice of Client, or any third party, contained on any of the Client Sites without the prior written consent of Client.



3.8 Grant of License -- Fry. Fry hereby grants to Client a limited, non-exclusive, non-transferable perpetual license to make use of Fry Materials which are incorporated in the Client Sites and which are required for the operation of the Client Sites solely to operate the Client Sites on the Fry Server as well as on any back-up, disaster recovery or mirrored servers and web sites of Client or its affiliates whether hosted by Fry, Client or by a third party. Fry hereby reserves for itself all rights in and to the Fry Materials not expressly granted to Client in the immediately foregoing sentence. In no event shall Client use any trademarks or service marks of Fry without Fry's prior written consent.



4. Hosting, Communications and Maintenance Services



4.1 Hosting Services. Fry agrees to provide Client with services for hosting of each of the Client Sites specified in the Annual Plan. Fry shall provide the hosting services in a professional, workmanlike manner, and high grade of service, so that the Client Sites are accessible to third parties via the Internet as specified herein and in the Configuration.



4.2 Availability of the Client Sites. Unless otherwise indicated on Schedule 1.2 hereto, the Client Sites shall be accessible to third parties and Client via the Internet and otherwise as specified in the Annual Plan or the Configuration twenty-four (24) hours a day, seven (7) days a week, except for scheduled maintenance and required repairs





during such non-Key Time Periods as Client and Fry mutually agreed in advance ("Scheduled Maintenance").



4.3 Updates. As part of the hosting Services, Fry shall provide Client with a system and the necessary software to allow Client to transmit revisions, updates, deletions, Deliverables or modifications (the "Updates") to a staging server designated and maintained by Fry (the "Staging Server"). Fry shall update the Fry Server with the Updates according to a written schedule agreed upon by Client and Fry and contained in the Annual Plan.



4.4 Proprietary Rights of Client. As between Client and Fry, Client Content shall remain the sole and exclusive property of Client, including, but not limited to data generated by the Client Sites such as Client, end user and usage data. Nothing in this Agreement shall be construed to grant to Fry any ownership right in, license to, or authority to edit, modify or adapt the Client Content provided by Client to Fry.



4.5 Access and Security. Fry shall maintain a secure room(s) in which all of Client's equipment and data shall be located and stored (the "Client Area"). Access to the Client Area shall be limited by Fry solely to (i) the individuals identified and authorized by Client to have access to the Client Area in accordance with this Agreement, as identified in the writing to Fry, as amended from time to time, which is hereby incorporated by this reference (the "Representatives") and Fry's engineers, senior engineers, system administrators, equivalent systems personnel and senior management (and as necessary and with appropriate supervision, other service personnel) authorized by Fry based on their need to have access to perform the services hereunder. Representatives shall have access to the Client Area and any other location in where any Client equipment or data is located twenty-four (24) hours a day, seven (7) days a week.



4.6 Backup; Redundancy. Fry shall provide Client at all times with the equipment, software, communications capacity and carriers and power backup and redundancy set forth in the Configuration attached hereto as Exhibit D, provided that in any event Fry shall always provide Client with sufficient local generator backup power capacity to fully operate all of Client's equipment and each of the Client Sites for at least [****] consecutive hours. The parties acknowledge that Fry currently has [****] under construction in [****] and that Fry shall use its best efforts to provide complete redundancy for each of the Client Sites (and all related data and Client Content) in at least one such facility as soon as possible and in accordance with the Annual Plan and Configuration, but not later than [****].



All Client data and customer data and all transaction and other data generated by any of the Sites (including all Client Content contained on or generated by any of the Sites) , directly or indirectly, will be copied and stored off-site by Fry (or through a subcontractor to be identified by Fry and approved by Fry) on at least weekly basis with a third-party fireproof storage facility.



4.7 Communications Services. Fry shall provide the communications services and capacities set forth in the Annual Plan and Configuration.





**** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406 of the Securities Act of 1933, as amended.







4.8 Client Equipment. Fry acknowledges that the computer hardware and other tangible equipment listed on Exhibit E hereto is owned by Client and shall be returned unencumbered to Client in good working order (ordinary wear and tear excepted) promptly upon Client's request; provided however if any such equipment is leased by Client from a third party, Fry shall cooperate with Client with respect to the return and safekeeping of such equipment as required by the lessor.



4.9 Maintenance, Error Correction and Support Obligations.



(a) Definitions.



Authorized Caller. "Authorized Caller" means a person or persons designated by Client as the technical/engineering support interface for the Work performed hereunder or any of the Client Sites.



Designated Support Engineer. "Designated Support Engineer" means a person or persons designated by Fry as the technical/engineering support interface for the Work performed hereunder or any of the Client Sites.



End User. "End User" means a customer or other user of any of the Client Sites.



Error. "Error" means a defect in the Services performed or provided under this Agreement or in the operation of any of the Client Sites which causes such Services performed hereunder or the performance of any of the Client Sites not to function substantially in conformance with the documentation, end user documentation, or other related documentation, including without limitation any functional documentation or other engineering documentation for the Services performed hereunder or in any of the Client Sites, or commonly accepted operating principles as defined by industry standards. Errors are classified as follows:



Severity 1: System or subsystem failure which results in a critical impact to business operations. No viable workaround is known to Client.



Severity 2: Critical System or subsystem service interruption or degradation creating difficulty in the execution of a material function. Client acceptable workaround is available.



Severity 3: Significant system or subsystem problems which prevent some material functions from meeting the Specifications. Some business operations are impaired, but the system and subsystems continue to function. Client acceptable workaround is available.



Severity 4: Failure to perform in substantial accordance with the Documentation, but not a Severity 1-3 Error.



Severity 5: Deliverable requests for hardware, software, manuals or services.





Incident. "Incident" means a situation which necessitates an End User to contact Client for assistance.



Problem. "Problem" means the perceived failure or functional impairment that causes reduced functionality to the Work performed hereunder or in any of the Client Sites.



Problem Priorities. "Problem Priorities" classify the criticality of a problem at a Client site. Problem Priorities are assigned at the time of Client's initial contact with Fry. Problem Priorities may be changed based upon new information or Client situation. Problem Priorities refer the classification of the Incident, not any resulting Error which may be identified during the resolution of the Incident. Problem Priorities are classified as follows:



Severity 1: Client is "hot"; there is risk of losing business.



Severity 2: Client "temperature is rising"; there is potential risk of losing actual or future business.



Severity 3: The problem is impacting the Client's day to day business; there is no risk of losing business.



Severity 4: The problem is not currently impacting the Client's day to day business, but may in the future; there is no risk of losing business.



Repair. "Repair" means the repair or replacement of a Work performed hereunder or in any of the Client Sites or part.



Technical Support Levels. "Level" means a certain class of service provided to authorized resellers and end users. Definitions are as follows:



Level One: First call support on all Client calls; technical support staff answers technical inquiries regarding Work performed hereunder or in any of the Client Sites, performs Work performed hereunder or in any of the Client Sites installation and configuration support, provides broad troubleshooting expertise.



Level Two: Specialist level technical support; technical support/escalation staff performs Problem isolation and replication, lab simulations and interoperability testing, provides remote diagnostics capabilities and on-Client Sites troubleshooting, if required, and implements a solution for a Problem that is not the result of a Work performed hereunder or in any of the Client Sites Error. In the case of a Work performed hereunder or in any of the Client Sites Error, the technical staff is able to identify the source of the Error, create a reproducible test case, and document the details of the Error for escalation to Fry.



Level Three: Backup engineering and technical support; staff isolates a Work performed hereunder or in any of the Client Sites error and implements a solution through a Work performed hereunder or in any of the Client Sites change.





Workaround. A "Workaround" is a feasible change in operating procedures whereby an end user can avoid any deleterious effects of an Error.



(b) Error Correction. Client and Fry shall promptly agree in good faith to any information and/or documentation which may be required to permit Fry to identify and resolve Errors (meaning to correct the Error to restore compliance with specifications and Documentation) in any ...