FPI PRODUCTION OF DORMITORY AND QUARTERS FURNITURE The Board of Directors for Federal Prison Industries, Inc. (FPI) received and considered at its October Board meeting the joint request by the Quarters Furniture Manufacturers Association (QFMA) and FPI for its approval of production levels for FYs 2001-2005. The Board gave its interim approval, subject to this announcement, to the terms and conditions specified in an agreement between QFMA and FPI, including the future production levels specified. In its decision, the Board commended the parties' efforts to reach an agreement on future sales levels for the purpose of compromising disputed claims and as a proactive measure in furtherance of goodwill between the parties. Once comments have been received and evaluated by the Board, the Board will issue its final approval concerning the levels and submit it to the parties. In no event, will the Board approve production levels that exceed what is being jointly requested by the parties for the years in question. The agreement includes provisions concerning: FPI's sales of D&Q furniture to the Federal government from FY 2001 through FY 2005; the parties' joint recommendation for dismissal of a lawsuit regarding a prior significant expansion of FPI's D&Q furniture production; and plans for discussions between FPI and QFMA to attempt to arrive at an additional agreement concerning a pilot voluntary waiver of FPI's mandatory source status for sales of D&Q furniture. The full agreement is included at the end of this announcement. Under the terms of the agreement between FPI and QFMA, FPI's maximum authorized sales levels for D&Q furniture are as follows: FY 2001 $27.56 million FY 2002 $28.66 million FY 2003 $29.81 million FY 2004 $31.00 million FY 2005 $32.24 million The agreement holds that FPI may exceed the maximum sales level in any one year by no more than 10 percent, provided that sales over the five-year period do not exceed $149.27 million. As described in the agreement, this agreed upon level of sales does not represent a significant expansion by FPI. Nonetheless, FPI has prepared this notice as a proactive measure to provide all parties an opportunity for input and comment concerning the sales lavels for FYs 2001-2005. In 1995, FPI presented its Board of Directors with a proposal to significantly expand its production of D&Q furniture for sale to the Federal government. In submitting this proposal, FPI went through its statutorily-required public involvement guidelines process. This process involved obtaining comments on FPI's proposal from representatives of the Federal D&Q furniture industry as well as other interested parties. In its decision dated March 8, 1996, FPI's Board of Directors authorized the following annual sales levels for FPI's production of D&Q furniture. FY 1996 $21.8 million FY 1997 $22.9 million FY 1998 $24.0 million FY 1999 $25.2 million FY 2000 $26.5 million The decision by FPI's Board of Directors also noted that FPI had previously expanded its sales of D&Q furniture without first receiving the necessary approval from its Board. The decision concluded that while FPI had not complied with its expansion guidelines by failing to obtain Board approval for this earlier expansion, had FPI sought the Board's approval, it most likely would have been granted. As part of this notice, the Board is also requesting any comments related to FPI's expansion of D&Q furniture sales during the FYs 1991-1995 time period, particularly as it relates to any impact that FPI's expansion may have had on the industry during that time. FPI's Board of Directors now invites comments from interested parties regarding this announcement. All comments are to be submitted to FPI within 45 days of the publication of this notice. Comments may be addressed to: Federal Prison Industries, Inc., 320 First Street, NW, Washington, DC 20534 Attention: Manager, Planning, Research and Activation. AGREEMENT BETWEEN QFMA AND FPI The parties, Quarters Furniture Manufacturers Association (QFMA) and Federal Prison Industries, Inc. (FPI) enter into the following agreement: 1. Term. This agreement shall be in effect from the date of the parties signature below through September 30, 2005. All years shall begin and end with the Federal fiscal year. 2. Dismissal of Lawsuit. QFMA agrees to stipulate to the dismissal, with prejudice of, the pending suit in the U.S. District Court for the District of Columbia, QFMA v. FPI (Civil No. 95-2237), and to not file any further legal action challenging issues related to the lawsuit, and the 1996 FPI Board of Directors' dorm and quarters (D&Q) decision, once FPI's Board approves the terms of this agreement. The parties agree to stipulate, subject to the Court's approval, that no further proceedings on remand will be necessary pursuant to the Court's August, 1998 opinion. In addition, it is agreed by and among the parties that the stipulation of dismissal will state that the respective parties will each bear their own costs, fees and expenses related to this litigation, including attorneys fees. In the interim, at least until one week after the FPI Board meeting on October 21, 1998, the parties will seek an extension of pending litigation matters related to the suit (including an extension of time for defendants to respond to the plaintiff's motion to alter or amend the court's recent decision). This agreement shall not constitute an admission of liability or fault on the part of any party and is entered into by both parties for the purpose of compromising disputed claims and as a proactive measure in furtherance of goodwill between the parties. The terms of this paragraph are subject to the approval of the U.S. Attorney's office, Department of Justice. 3. Sales Levels. FPI and QFMA agree to jointly recommend to FPI's Board maximum sales levels for FPI's D&Q furniture sales for the years FY 2001 to FY 2005, that are based on the level previously approved by the Board for FY 2000 ($26.5 million), plus an annual compound increase of four percent (3 percent of which would constitute an estimated annual rate of adjusted inflation, and 1 percent for projected market growth). See chart below. FPI and QFMA agree to use sales as the sole means of measuring and fixing FPI's production levels. For purposes of determining sales levels, the date of shipment controls, rather than the date an order is taken. Thus, sales for a particular fiscal year will consist of orders shipped during that year. The figures below include all sales to Federal customers for D&Q furniture (whether included in packaged rooms or not) located in the fifty states, its territories, and abroad. FPI will not substitute for its mandatory D&Q product any product not produced by FPI without first consulting with QFMA. The sale of other products by FPI in the packaged room (e.g., textiles and lamps, but not those items that are D&Q furniture) are not counted against authorized sales. Except as provided in Paragraph 5 below, the maximum sales levels as set out below will remain fixed, and will not be increased or decreased regardless of the changes which may occur in the size of the federal market, or in the actual level of inflation, during the time period between FY 2001 and FY 2005. Thus, FPI's maximum authorized sales levels will be as follows: FY 2001: $27.56 FY 2002: $28.66 FY 2003: $29.81 FY 2004: $31.00 FY 2005: $32.24 5-year Aggregate: $149.27 million 4. Exceeding the Sales Limit. Because the parties recognize that it is difficult to reach but not exceed a maximum sales level in any one year, FPI may exceed the cap in any fiscal year by no more than 10 percent, provided that sales over the period covered by the agreement do not exceed in the aggregate, $149.27 million, as reflected by the chart in Paragraph 3. 5. Board Approval. This agreement is subject to the approval of the FPI Board. It will be submitted to the Board in October, 1998. QFMA and FPI will jointly ask the Board to adopt it. FPI and QFMA also agree to jointly recommend that the Board's decision include language as follows: "Should the industry believe that circumstances such as (but not limited to) the overall industry growth rate or Federal government purchases have changed sufficiently that FPI's authorized production is having a substantially greater impact than anticipated in this decision, the industry is invited to provide, at their convenience, such written information to the Board, and the Board will review this information and give it due consideration." 6. Further discussions. FPI and QFMA agree to hold discussions in efforts to arrive at an additional agreement to be presented to FPI's Board concerning a pilot voluntary waiver of FPI's mandatory source for D&Q furniture (including sales via packaged room). Both parties agree that it is desirable to reach such an agreement and that the parties will meet toward that end within 60 days of the signing of this agreement. The parties agree to strive to reach a proposed agreement to present to the FPI Board by the January, 1999, Board meeting (with a goal of initiating this pilot by FY 2001). QFMA: By Carole Snider, President By Stephen M. Ryan, Attorney FPI: By Steve Schwalb, Chief Operating Officer, FPI By Marianne S. Cantwell, Corporate Counsel Posted 11/25/98 (W-SN275092).

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