FEDERAL PRISON INDUSTRIES, INC. (FPI) -- ATTACHMENT TO BOARD OF DIRECTORS DECISION ON GLOVES NOTE: This notice is an attachment to an earlier notice (SN 099859) regarding the decision by the Board of Directors of Federal Prison Industries, Inc. (FPI) concerning FPI's production of gloves. JOINT FPI-INDUSTRY PROPOSAL TO FPI BOARD OF DIRECTORS CONCERNING FPI GLOVE PROCEEDING Federal Prison Industries ("FPI") and the Federal Glove Contractors Coalition ("Coalition") jointly propose that the FPI Board of Directors approve the following agreement concerning the production of gloves in federal prisons. FPI withdraws the requests for expanded production of gloves in federal prisons contained in its "Impact Study of FPI's Proposed Expansion of Glove Production" dated December 1996 and "FPI's Revised Glove Production Proposal" dated May 9, 1997, except to the extent of seeking ratification for prior unauthorized production. The parties agree to the following: 1. Annual Sales Dollar Cap a. Amount of Annual Sales Dollar Cap -- Beginning in FY 1997, FPI's total sales of gloves to the federal civilian and military markets shall not exceed $7.4 million annually1 (hereinafter "annual sales dollar cap"), which shall be calculated on the basis of shipments. 1.b. Inflation Increase -- FPI shall not increase its annual sales dollar cap, except to take into account projected annual increases in inflation which shall be deemed to be three percent per fiscal year for the duration of the agreement. FPI agrees that it will not be entitled to expand its production in accordance with the interim rules published in 62 Fed. Reg. 11,465 (1997) or any subsequent modifications thereto. 2. Preference for Federal Civilian Sales. FPI agrees to make best efforts to fill its annual sales dollar cap with sales to the federal civilian market.2 To meet this obligation, FPI agrees to assert its mandatory preference with regard to 100 percent of any purchase requirement for the federal civilian market of any type of glove that FPI is currently producing or has the capability of producing. With regard to purchase requirements for other types of gloves for the federal civilian market, FPI shall make best efforts to develop the capability of producing such gloves so that it can assert its mandatory preference for such sales. However, FPI shall not exercise its mandatory preference in a manner that will cause it to exceed the annual sales dollar cap in paragraph 1.a. 3. Federal Military Sales a. Military Pairage Cap -- Beginning in FY 1997, FPI's sales of gloves to the federal military market3 shall not exceed 1.6 million pairs annually (hereinafter "military pairage cap"), which shall be calculated on the basis of shipments. 3.b. Preference for 100% Production Military Gloves -- FPI currently produces 100 percent of the following military gloves: Men's and Women's Cotton Work (A-A-1665 -- PGC #10193); Anti-Flash, Flame Resistant, Cotton (MIL-G-2874E -- PGC #20583); Men's and Women's, Leather Palm (A-A-50021 -- PGC #10194); Men's Cloth, Leather Palm, Combination, Knitted Wristlet (A-A-50016A -- PGC #10195);Glove Inserts, Cotton, Radioactive Contaminants Protective (MIL-G-82241C -- PGC #10186) ("100% production military gloves"). FPI agrees that it will make its best efforts to fill its military pairage cap with sales of 100% production military gloves. To meet this obligation, FPI agrees to assert its mandatory preference with regard to 100 percent of any purchase requirement for 100% production military gloves. However, FPI shall not exercise its mandatory preference in a manner that will cause it to exceed the annual sales dollar cap and/or the military pairage cap in paragraphs 1.a. and 3.a., respectively. 3.c. Sales of Other Military Gloves -- In the event that FPI does not fulfill the annual sales dollar cap and military pairage cap with sales of gloves to the federal civilian market and sales of 100% production military gloves, FPI may assert its mandatory preference with regard to sales of other military gloves, provided however, that under these circumstances FPI's mandatory preference shall be limited to 20 percent or less of the pairage of any purchase requirement for other military gloves (hereinafter "percentage cap"). In addition, FPI further agrees that it shall not exercise its mandatory preference with regard to any purchase requirement for such other military gloves if the Department of Defense projects that its total annual purchase requirement for such gloves will be 60,000 pairs or less. FPI shall not exercise its mandatory preference with regard to sales of other military gloves in a manner that will cause it to exceed the annual sales dollar cap and/or military pairage cap in paragraphs 1.a. and 3.a., respectively. For example, if the Defense Department wishes to purchase a fixed quantity of 100,000 pairs of Men's and Women's Leather, Light Duty Flexor Gloves (A-A-52055 -- PGC #02113), FPI would be awarded a contract for 20,000 pairs and 80,000 pairs would be awarded to the private sector. If the Defense Department has a purchase requirement for a variable quantity with a minimum of 200,000 pairs and a maximum of 1,000,000 pairs, the initial award, if at minimum, would be 40,000 pairs to FPI and 160,000 pairs to private industry. The pairage of all subsequent awards would be split 20 percent -- 80 percent between FPI and the private sector. If exercise of its mandatory preference in this manner would cause FPI to exceed the annual sales dollar cap and/or the military pairage cap, FPI shall reduce its request accordingly. 4. Extreme Public Exigency a. Conditions for Temporary Increase in Sales And/Or Pairage -- FPI may exceed the sales and/or pairage levels specified in this agreement in cases of extreme public exigency, provided however that the additional sales and/or pairage are specifically requested in writing by senior Defense Department and/or Executive Branch officials and said request is necessitated by an extreme public exigency. 4.b. Definition of Extreme Public Exigency -- The term "extreme public exigency" shall be defined to mean national disasters (including forest fires) and national defense emergencies. 4.c. Duration -- Increases in FPI's gloves sales and/or pairage under this paragraph shall be temporary and shall not continue beyond the duration of the extreme public exigency. Nothing in this paragraph shall increase the annual sales dollar cap or the military pairage cap after the extreme public exigency has terminated. 4.d. Notification -- The Coalition, through its representatives David Shmikler and Ron Chapman, shall be notified by facsimile at the numbers set forth in paragraph 7 of any request for additional sales and/or pairage under subparagraph (a) and of the termination of an extreme public exigency within 10 days of said request or termination. 5. Term of the Agreement a. Duration -- This agreement shall be in forced through FY 2007. FPI will not request an expansion of glove sales for the duration of this agreement. 5.b. Provisional Measures -- FPI agrees that contract #SPO100-97-D-EC48, dated June 2, 1997, delivery order 0001 and all subsequent delivery orders, for the production of Men's and Women's Leather, Light Duty Flexor Gloves (A-A-52055 -- PGC #02113) shall be subject to the terms of this agreement and its sales under that contract shall be modified accordingly. To implement this provision, FPI agrees that the purchase requirement for said gloves was 420,000 pairs (336,000 pairs of which were awarded to the private sector and 84,000 pairs of which were awarded to FPI). FPI therefore agrees that it will not accept orders for the additional 156,000 pairs of the unawarded gloves under said contract and further agrees that, given the initial delivery order of 60,000 pairs, it shall only accept additional awards under this contract for 24,000 pairs of gloves. Should the Defense Department issue a new purchase requirement for these gloves at a later date, FPI shall be free to assert its mandatory preference in accordance with the terms of this agreement. 6. Breach of Agreement a. Reduction in Caps -- FPI promises to be vigilant in honoring the terms of this agreement and to institute measures to accurately track its glove operations, including but not limited to its contract awards and shipments (by value, pairage and delivery date). If FPI exceeds the annual sales dollar cap in paragraph 1.a., the military pairage cap in paragraph 3.a., and/or the percentage cap in paragraph 3.c., FPI agrees that it will reduce the relevant cap during the following fiscal year to compensate for the prior year's excessive sales. If FPI exceeds any of said caps during the final fiscal year of this agreement, FPI agrees that this agreement will be automatically extended for an additional fiscal year and that the relevant cap will be reduced to compensate for the prior year's excessive sales. This latter requirement will remain in effect (and the agreement automatically extended for subsequent fiscal years) until FPI does not exceed the applicable caps. 6.b. Notification -- If FPI exceeds the caps identified in subparagraph (a), FPI shall notify the appropriate personnel at the Department of Defense (including the Director of Clothing and Textiles of the Defense Personnel Support Center) and the representatives of the Coalition, at the facsimile numbers set forth in paragraph 7, of exceeding said caps and expressly specify in the notification the consequences thereof as set forth in subparagraph (a). Said notification shall take place within 45 days after the end of each six months of the fiscal year, or within the 45 days thereafter if the data is later revised. 7. Monitoring a. Notification of Production Requests -- FPI agrees to notify the Coalition by facsimile of any request to FPI for glove production from the Department of Defense within 10 days of said request. The notification shall include a copy of the request for glove production and be forwarded by facsimile to the following Coalition representatives: (1) David Shmikler at facsimile number (847) 291-7722 (confirmation telephone number: (847) 291-1700 (ext. 122)); and (2) Ron Chapman at facsimile number (615) 756-5874 (confirmation telephone number: (615) 265-4513). 7.b. Semi-Annual Report -- FPI shall also prepare a report setting forth its glove sales by individual contract, including the contract number, type of glove, military specification or commercial item description, quantity, unit price, award date, month of shipments, shipping costs and name of purchaser for each six months of the fiscal year. Said report shall be forwarded within 45 days after the end of each six-month period to the Coalition's representatives at the following addresses: Mr. David Shmikler, Federal Glove Contractors Coalition, c/o Illinois Glove Company, 3701 Commercial Avenue, Northbrook, IL 60062-1830 (or) Mr. Ron Chapman, Federal Glove Contractors Coalition, c/o Genco Corporation, P.O. Box 231, Chattanooga, TN 37401. A revised version of the report shall be forwarded to the same representatives within 90 days after the end of each six-month period if subsequently available data alters the information presented in the initial report. 8. Ratification of Prior Unauthorized Production. The Coalition agrees that the Board should ratify FPI's prior unauthorized production of gloves during the period FY 1990 through FY 1996. 9. Union Approval. The Union of Needletrades, Industrial and Textile Employees, AFL-CIO, CLC ("UNITE") participated in the negotiations of this agreement and it is the parties' understanding that UNITE approves the terms of this agreement. IN WITNESS WHEREOF, we have hereunto set our hands and seals this 17th day of June, 1997. Steve Schwalb, Chief Operating Officer, Federal Prison Industries, Inc. (and) Lauren R. Howard, Counsel for the Federal Glove Contractors Coalition. Endnotes: 1) The terms "annually" or "annual" refer to the federal government's fiscal year, October 1 through September 30. 2) Sales to the federal civilian market include sales to non-military federal departments, agencies and institutions, such as the General Services Administration, the U.S. Postal Service and the U.S. Forest Service. 3) Sales to the federal military market include sales to federal defense department, agencies and institutions, such as the Department of Defense (and more specifically, the Defense Personnel Support Center).

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