FPI BOARD OF DIRECTORS' DECISION ON INTERACTIVE KIOSKS The Board of Directors of Federal Prison Industries, Inc. (FPI) now issues its decision regarding FPI's proposal to initiate production of interactive kiosks. As required by statute, FPI prepared a comprehensive impact study, which analyzed the potential impact that FPI's production may have on the private sector. FPI announced, in the June 2, 1998, edition of the Commerce Business Daily, its plans to present this proposal to the Board of Directors; described the procedures for obtaining a copy of the impact study; and invited public comment on its proposal. Copies of the impact study analyzing the proposal to produce interactive kiosks were sent directly to the principal trade associations, various manufacturers, and other interested parties. FPI received written comments on its proposal from eight sources, prepared responses to those comments, and submitted all such information to FPI's Board of Directors, along with it request to produce interactive kiosks. One manufacturer of interactive kiosks requested to make oral comments to the FPI Board of Directors but failed to appear on the designated date. Members of the Board reviewed all of the materials. The Board of Directors wishes to thank those parties who took the time and effort to comment. The Board of Directors is called on by statute to make a determination as to whether production in the interactive kiosk industry would result in FPI's assuming no more than a reasonable share of the market and not unduly impact the industry. In reaching our decision, we have relied on the entire record, including the impact study, written comments submitted and informal oral presentations from individuals from North Communications and Correctional Products and Services, Inc. On the basis of all the information before us, it is the Board's decision to approve FPI's request to manufacture interactive kiosks. THE INTERACTIVE KIOSKS MARKET In reaching this decision, the Board carefully reviewed all of the information presented regarding the market for interactive kiosks. Below is a summary of the Board's analysis and findings. Background information Federal Prison Industries, Inc. in an effort to diversify its product base announced its intent to manufacture interactive kiosks. FPI intends to enter into a partnership agreement with Correctional Products and Services, Inc. (CPSI) and North Communications to manufacture this product. FPI plans to start with the manufacturing of the cabling and the wiring components associated with the interactive kiosk. In addition, FPI will also be involved in the assembling process and will eventually manufacture the enclosure used to house the interactive computer. North Communications will supply the computer hardware and software used for the interactive kiosk. Federal market The Federal market is embarking on a new era of providing better customer service to the people they serve. People today are seeking new and easier ways to access government at the same time government agencies are reengineering service delivery. The increasing demand for quality services coupled with the decreasing availability of resources offered by the Federal government, created a situation that needs a solution. Many Federal government agencies are exploring the possibility of providing better government services through the use of interactive kiosk networks. Agencies with direct contact with the general public will be the main buyers of the interactive kiosk. These agencies include but are not limited to the Social Security Administration, the U.S. Postal Service, the Internal Revenue Service, the National Park Service, the Immigration and Naturalization Service, and the Government Printing Office. Ten out of the thirty-nine manufacturers identified in the impact study, have sales recorded to the Federal government at the present time. It does not appear that of the thirty-nine companies identified, any of them will be significantly impacted if FPI manufactures interactive kiosks. Based on data outlined in the impact study, in 1993, the total Federal multimedia kiosk application market, which includes application software and computer hardware, had estimated sales of $4.7 million. By 1994, sales increased by a phenomenal 74 percent. The future for the Federal market for the next five years continues to show substantial increases in the Federal interactive kiosk market. Federal sales for the interactive kiosk market are expected to reach $191.2 million by 2003. The rate of growth is expected to continue because of the demand for faster service and easier access to government services. Domestic market The domestic market for interactive kiosks was estimated at $830.8 million in 1998 and is expected to reach $2.94 billion in 2003. FPI sales would represent 1.9 percent of the domestic market in 1999 and increase to 3.3 percent of the domestic market in 2003. PRODUCTION LEVELS It is the finding of the Board that sales levels proposed by FPI for interactive kiosks represent a reasonable share of the market and that proposed production at these levels will not impose an undue burden of competition on the industry. Therefore, the Board authorizes FPI to produce interactive kiosks at the levels outlined below. 1999 -- FPI projected sales $15.7 million, projected market share 19%; 2000 -- FPI projected sales $27.5 million, projected market share 24%; 2001 -- FPI projected sales $45.0 million, projected market share 29%; 2002 -- FPI projected sales $65.8 million, projected market share 33%; and, 2003 -- FPI projected sales $96.7 million and projected market share 38%. The Board recognizes that it is difficult to achieve exact sales levels each year. It is therefore understood that FPI may exceed the annual limits by insubstantial amounts, as long as the aggregate over the five-year period does not exceed the five-year approved total of $250.7 million. While the sales levels equate to a projected market share, as reflected in the study, primarily for ease of reference and tracking, it is the decision of the Board to use sales dollars as the measure for expansion. Should any party believe that circumstances such as (but not limited to) overall industry growth or Federal procurements have changed sufficiently that FPI's authorized production is having a substantially greater impact than anticipated in this decision, that party may provide such written information to the Board. The Board will then review the information and, if warranted in light of the information supplied, reexamine FPI's authorized production levels. Decided on the 8th day of December, 1998. For the Board: Joseph M. Aragon, Chairman Posted 12/11/98 (W-SN279503).

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