<PAGE>
                           THIRD AMENDED AND RESTATED

                        AGREEMENT OF LIMITED PARTNERSHIP

                                       OF

                               PRIME RETAIL, L.P.


                          Dated as of October 15, 1998

                          Effective as of June 15, 1998
<PAGE>


                                TABLE OF CONTENTS

                                                                            PAGE


ARTICLE I
DEFINITIONS; ETC...............................................................2
    Accountants................................................................2
    Act........................................................................3
    Adjusted Capital Account Deficit...........................................3
    Administrative Expenses....................................................3
    Affiliate..................................................................4
    Agreement..................................................................4
    Antidilution Provisions....................................................4
    Audited Financial Statements...............................................4
    Bankruptcy.................................................................5
    Capital Account............................................................6
    Capital Contribution.......................................................8
    Certificate................................................................8
    Closing Price..............................................................8
    Code.......................................................................9
    Common Distribution........................................................9
    Common Stock...............................................................9
    Common Units...............................................................9
    Consent of the Partners...................................................10
    Contributed Partnership Interests.........................................10
    Control...................................................................10
    Convertible Preferred Distribution........................................11
    Convertible Preferred Distribution Shortfall..............................11
    Convertible Preferred Rights..............................................11
    Convertible Preferred Stock...............................................11
    Convertible Preferred Unit Redemption Amount..............................11
    Convertible Preferred Units...............................................11
    Current Per Share Market Price............................................11
    Depreciation..............................................................12
    Entity....................................................................12
    ERISA.....................................................................12
    GAAP......................................................................13
    General Partner...........................................................13
    Gross Asset Value.........................................................13
    Hart Scott Act............................................................14
    Horizon Limited Partnership...............................................14
    Horizon Properties........................................................14
<PAGE>
                                                                            PAGE
    Immediate Family..........................................................14
    Incentive Option..........................................................14
    Incentive Option Agreement................................................15
    Lien......................................................................15
    Limited Partner...........................................................15
    Liquidating Events........................................................15
    Liquidating Trustee.......................................................15
    Major Decisions...........................................................15
    Majority-in-Interest of the Partners......................................15
    Merger....................................................................16
    Merger Agreement..........................................................16
    Minimum Gain Capital Account..............................................16
    Net Cash Flow.............................................................16
    Net Income or Net Loss....................................................18
    Nonrecourse Deductions....................................................19
    Nonrecourse Liabilities...................................................19
    Original Agreement........................................................19
    Partner Minimum Gain......................................................19
    Partner Nonrecourse Debt..................................................19
    Partner Nonrecourse Deductions............................................20
    Partners..................................................................20
    Partnership...............................................................20
    Partnership Interest......................................................20
    Partnership Minimum Gain..................................................20
    Partnership Payment Date..................................................20
    Partnership Record Date...................................................20
    Partnership Units.........................................................21
    Permitted Transferee......................................................21
    Person....................................................................21
    Preferred Distribution....................................................21
    Preferred Distribution Shortfall..........................................21
    Preferred Stock...........................................................21
    Preferred Unit Redemption Amount..........................................21
    Preferred Units...........................................................21
    Prime/Horizon Merger......................................................22
    Property..................................................................22
    Property Partnership Interests............................................22
    Property Partnerships.....................................................22
    Purchase Price............................................................22
    Quarter...................................................................22
<PAGE>
                                                                            PAGE
    Regulations...............................................................22
    Regulatory Allocations....................................................23
    REIT......................................................................23
    REIT Expenses.............................................................23
    REIT Requirements.........................................................24
    Rights....................................................................24
    SEC.......................................................................24
    Section 704(c) Tax Items..................................................24
    September 9, 1997 Agreement...............................................24
    Series C Preferred Distribution...........................................24
    Series C Preferred Distribution Shortfall.................................24
    Series C Preferred Purchase Agreement.....................................24
    Series C Preferred Rights.................................................24
    Series C Preferred Stock..................................................24
    Series C Preferred Unit Redemption Amount.................................25
    Series C Preferred Units..................................................25
    Service...................................................................25
    Shopping Center Project...................................................25
    Special Distribution......................................................25
    Stock Incentive Plan......................................................25
    Substituted Limited Partner...............................................26
    Tax Items.................................................................26
    Trading Day...............................................................26
    Transfer..................................................................26
1.2 Exhibits, Etc.............................................................26

ARTICLE II
ORGANIZATION..................................................................27
2.1 Formation and Continuation................................................27
2.2 Name......................................................................27
2.3 Character of the Business.................................................28
2.4 Location of the Principal Place of Business...............................29
2.5 Registered Agent and Registered Office....................................29
2.6 Power of Attorney.........................................................29

ARTICLE III
TERM; DISSOLUTION.............................................................31
3.1 Term......................................................................31
3.2 Dissolution...............................................................32
3.3 Bankruptcy of a Limited Partner...........................................32
<PAGE>
                                                                            PAGE
ARTICLE IV
CONTRIBUTIONS TO CAPITAL; FINANCING...........................................33
4.1 General Partner Capital Contribution......................................33
4.2 Limited Partner Capital Contributions.....................................33
4.3 Additional Funds; Restrictions on General Partner.........................34
4.5 Stock Incentive Plan......................................................38
4.6 No Third Party Beneficiary................................................38
4.7 No Interest; No Return....................................................39
4.8 Conversion of Convertible Preferred Units or Series C Preferred Units; 
    Redemption or Purchase of Series C Preferred Units, Convertible Preferred
    Units or Preferred Units..................................................39
4.9 Redemption of Series C Preferred Units....................................41
4.10Redemption of Convertible Preferred Units.................................44

ARTICLE V
INTENTIONALLY OMITTED.........................................................46

ARTICLE VIALLOCATIONS, DISTRIBUTIONS AND OTHER TAX AND ACCOUNTING MATTERS.....46
6.1 Allocations...............................................................46
6.2 Distributions.............................................................46
6.3 Books of Account..........................................................51
6.4 Reports...................................................................51
6.5 Audits....................................................................52
6.6 Tax Elections and Returns.................................................52
6.7 Tax Matters Partner.......................................................53

ARTICLE VII
RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER........................53
7.1 Expenditures by Partnership...............................................53
7.2 Powers and Duties of General Partner......................................54
7.3 Major Decisions...........................................................58
7.4 No Removal................................................................59
7.5 General Partner Participation.............................................59
7.6 Proscriptions.............................................................59
7.7 Additional Partners.......................................................60
7.8 Title Holder..............................................................60
7.9 Compensation of the General Partner.......................................60
<PAGE>
                                                                            PAGE
7.10Waiver and Indemnification................................................60
7.11Operation in Accordance with REIT Requirements............................65

ARTICLE VII
DISSOLUTION, LIQUIDATION AND WINDING-UP.......................................65
8.1 Winding Up................................................................66
8.2 Distribution on Dissolution and Liquidation...............................68
8.3 Timing Requirements.......................................................68
8.4 Deemed Distribution and Recontribution....................................69
8.5 Distributions in Kind.....................................................69
8.6 Documentation of Liquidation..............................................70
8.7 Deficit Capital Account Balance...........................................70

ARTICLE IX
TRANSFER OF PARTNERSHIP INTERESTS; 
WITHDRAWAL; ADMISSION OF ADDITIONAL PARTNERS..................................70
9.1 General Partner Transfer; Withdrawal; Substitute General Partner..........70
9.2 Transfers by Limited Partners.............................................72
9.3 Restrictions on Transfer..................................................74

ARTICLE X
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS................................79
10.1 No Participation in Management; No Personal Liability....................79
10.2 Duties and Conflicts.....................................................79

ARTICLE XI
GRANT OF RIGHTS TO LIMITED PARTNERS...........................................80
11.1 Grant of Rights..........................................................80
11.2 Terms of Rights..........................................................81
11.3 Reissuance or Reallocation of Common Units...............................81
11.1AGrant of Rights..........................................................81
11.2ATerms of Convertible Preferred Rights....................................82
11.3AReissuance or Reallocation of Convertible Preferred Units................82
<PAGE>
                                                                            PAGE
ARTICLE XIIGRANT OF RIGHTS TO LIMITED PARTNERS HOLDING SERIES C
PREFERRED UNITS; REDEMPTION OF SERIES C PREFERRED UNITS.......................83
12.1 Grant of Rights..........................................................83
12.2 Terms of Rights..........................................................84
12.3 Reissuance or Reallocation of Series C Preferred Unit....................84

ARTICLE XIII
PARTNER REPRESENTATIONS AND WARRANTIES........................................84
       (a)    Organization....................................................85
       (b)    Due Authorization; Binding Agreement............................85
       (c)    Consents and Approvals..........................................85

ARTICLE XIV
GENERAL PROVISIONS............................................................85
14.1 Notices..................................................................85
14.2 Successors...............................................................86
14.3 Effect and Interpretation................................................86
14.4 Counterparts.............................................................86
14.5 Partners Not Agents......................................................86
14.6 Entire Understanding, Etc................................................86
14.7 Amendments...............................................................86
14.8 Severability.............................................................90
14.9 Trust Provision..........................................................90
14.10Pronouns and Headings....................................................91
14.11Assurances...............................................................91
14.12Remedies Cumulative......................................................91
14.13Construction.............................................................91
14.14Incorporation by Reference...............................................92
14.15Waiver of Action for Partition...........................................92
<PAGE>
                                                                        
EXHIBITS

A Common Units, Preferred Units, Convertible Preferred Units and Series C 
  Preferred Units
B Allocations
C Rights Terms
D Conversion Rights of Series C Preferred Units
E Section 6.2(e) Agreements
F Conversion Rights of Convertible Preferred Units
G Form of Specimen [Common, Series B, Preferred, Etc.] Unit Certificate

SCHEDULES TO EXHIBIT C

1 Exchange Exercise Notice
2 Election Notice
3 Registration Rights Agreement

<PAGE>

                           THIRD AMENDED AND RESTATED
                        AGREEMENT OF LIMITED PARTNERSHIP
                                       OF
                               PRIME RETAIL, L.P.


     THIS THIRD AMENDED AND RESTATED  AGREEMENT OF LIMITED  PARTNERSHIP  is made
and entered into as of the 15th day of October,  1998 and is effective as of the
15th day of June, 1998.
                              W I T N E S S E T H:

     WHEREAS, the Partnership's Agreement of Limited Partnership dated March 22,
1994 (the "Original Agreement"),  was amended by a First Amendment thereto dated
as of June 24, 1996, and amended and restated in its entirety as of September 7,
1997 (the "September 9, 1997 Agreement") to provide for, among other things, the
creation  and  issuance of Series C  Preferred  Units and the  admission  of the
holder or holders  thereof  as a limited  partner  or  limited  partners  of the
Partnership;

     WHEREAS,  the  Partnership  entered  into a certain  amended  and  restated
agreement  and  plan of  merger  dated  as of  February  1,  1998  (the  "Merger
Agreement"),  pursuant to which the  Partnership  merged  with and into  Horizon
Limited Partnership, which merger is effective as of June 15, 1998;
<PAGE>
     WHEREAS, the Partners of the Partnership amended and restated the September
9, 1997 Agreement (the "Second  Amended and Restated  Agreement") to reflect the
consummation  of the merger of the  Partnership,  the Special  Distribution  (as
defined  herein),  the Common  Distribution  (as  defined  herein) and the other
transactions  contemplated  by the Merger  Agreement,  and the admittance of the
persons listed on Exhibit A as limited partners in the Partnership;

     WHEREAS,  pursuant to Section  14.7(d) of the Second  Amended and  Restated
Agreement,  the General Partner of the Partnership  desires to further amend and
restate the Second  Amended and Restated  Agreement to cure certain  ambiguities
and correct certain  provisions  which are  inconsistent  with other  provisions
therein;

     WHEREAS,  this Third Amended and Restated Agreement is effective as of June
15,  1998;  NOW,  THEREFORE,  in  consideration  of  the  mutual  covenants  and
agreements  herein  contained  and other good and  valuable  consideration,  the
receipt, adequacy and sufficiency of which are hereby acknowledged, the partners
of the  Partnership  hereto,  intending  legally to be bound,  hereby  amend and
restate the September 9, 1997 Agreement and otherwise agree as follows:


                                    ARTICLE I
                                DEFINITIONS; ETC.

<PAGE>

     I.1  Definitions.  Except  as  otherwise  herein  expressly  provided,  the
following terms and phrases shall have the meanings set forth below:

     "Accountants" shall mean the firm or firms of independent  certified public
accountants selected by the General Partner on behalf of the Partnership and the
Property  Partnerships to audit the books and records of the Partnership and the
Property  Partnerships  and to prepare  statements  and  reports  in  connection
therewith.  "Act"  shall mean the Revised  Uniform  Limited  Partnership  Act as
enacted in the State of Delaware,  and as the same may hereafter be amended from
time to time.

     "Adjusted Capital Account Deficit" shall mean, with respect to any Partner,
the deficit balance,  if any, in such Partner's Capital Account as of the end of
any relevant  Partnership  taxable year and after giving effect to the following
adjustments:
(a) credit to such Capital  Account any amounts  which such Partner is obligated
or treated as obligated  to restore with respect to any deficit  balance in such
Capital  Account  pursuant  to  this  Agreement  or the  provisions  of  Section
1.704-1(b)(2)(ii)(c) of the Regulations, or is deemed to be obligated to restore
with respect to any deficit  balance  pursuant to the  penultimate  sentences of
Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and
<PAGE>

     (b)  debit  to  such  Capital  Account  the  items  described  in  Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.

     The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the requirements of the alternate test for economic effect contained
in Section  1.704-1(b)(2)(ii)(d)  of the  Regulations  and shall be  interpreted
consistently therewith.

     "Administrative  Expenses" shall mean (i) all  administrative and operating
costs  and  expenses  incurred  by the  Partnership,  (ii)  all  administrative,
operating  and other costs and expenses  incurred by the Property  Partnerships,
which  expenses  are being  assumed by the  Partnership  pursuant to Section 7.1
hereof,  (iii) those  administrative  costs and expenses of the General Partner,
including  salaries paid to officers of the General Partner,  and accounting and
legal expenses undertaken by the General Partner on behalf or for the benefit of
the Partnership, and (iv) to the extent not included in clause (iii) above, REIT
Expenses.

     "Affiliate" shall mean, with respect to any Partner (or with respect to any
other Person whose affiliates are relevant for purposes of any of the provisions
of this Agreement),  (i) any member of the Immediate Family of such Partner or a
trust  established  for the benefit of such member;  (ii) any  beneficiary  of a
trust described in (i); or (iii) any Entity which directly or indirectly through
one or more  intermediaries,  Controls,  is  Controlled  by, or is under  common
Control with, any Partner or any Person referred to in the preceding clauses (i)
and (ii).
<PAGE>

     "Agreement" shall mean this Third Amended and Restated Agreement of Limited
Partnership,  as originally executed and as amended,  modified,  supplemented or
restated from time to time, as the context requires.  "Antidilution  Provisions"
shall mean the provisions of Section XI of Exhibit C hereto.

     "Audited Financial Statements" shall mean financial statements (which shall
consist of a balance sheet,  statement of income,  statement of partners' equity
and statement of cash flows) prepared in accordance with GAAP.

     "Bankruptcy" shall mean, with respect to any Partner,  (i) the commencement
by such Partner of any proceeding  seeking relief under any provision or chapter
of the federal  Bankruptcy  Code or any other  federal or state law  relating to
insolvency, bankruptcy or reorganization; (ii) an adjudication that such Partner
is  insolvent  or  bankrupt;  (iii) the entry of an order for  relief  under the
federal Bankruptcy Code with respect to
<PAGE>

     such Partner;  (iv) the filing of any petition or the  commencement  of any
case or proceeding  against such Partner  seeking  relief under any provision or
chapter of the federal  Bankruptcy  Code or other federal or state laws relating
to insolvency,  bankruptcy or receivership, unless such petition and the case or
proceeding initiated thereby are dismissed within ninety (90) days from the date
of such  filing;  (v) the  filing  of an answer by such  Partner  admitting  the
allegations of any petition  described in (iv) above;  (vi) the appointment of a
trustee,  receiver or custodian  for all or  substantially  all of the assets of
such Partner unless such  appointment is vacated or dismissed within ninety (90)
days from the date of such  appointment  but not less than five (5) days  before
the proposed  sale of any assets of such Partner;  (vii) the  insolvency of such
Partner or the execution by such Partner of a general assignment for the benefit
of  creditors;  (viii)  the  convening  by  such  Partner  of a  meeting  of its
creditors,  or any class thereof, for purposes of effecting a moratorium upon or
extension or composition of its debts; (ix) the levy,  attachment,  execution or
other  seizure of  substantially  all of the assets of such  Partner  where such
seizure  is not  discharged  within  thirty  (30)  days  thereafter;  or (x) the
admission by such  Partner in writing of its  inability to pay its debts as they
mature or that it is generally not paying its debts as they become due. 

<PAGE>

          "Capital Account" shall mean, with respect to any Partner, the Capital
     Account  maintained  for such  Partner  in  accordance  with the  following
     provisions: 
          (i) To each  Partner's  Capital  Account  there shall be credited such
     Partner's Capital  Contributions,  such Partner's distributive share of Net
     Income and any items in the  nature of income or gain  which are  specially
     allocated  pursuant to Section II or III of Exhibit B hereto and the amount
     of any Partnership liabilities assumed by such Partner or which are secured
     by any asset distributed to such Partner.

          (ii) To each  Partner's  Capital  Account  there  shall be debited the
     amount of cash and the Gross Asset  Value of any  Property  distributed  to
     such Partner  pursuant to any provision of this  Agreement,  such Partner's
     distributive share of Net Losses and any items in the nature of expenses or
     losses  which are  specially  allocated  pursuant  to  Section II or III of
     Exhibit B hereto, and the amount of any liabilities of such Partner assumed
     by the  Partnership  or which are secured by any asset  contributed by such
     Partner to the Partnership.

          (iii) In the event all or a portion of an Interest in the  Partnership
     is  transferred  in  accordance  with  the  terms  of this  Agreement,  the
     transferee  shall succeed to the Capital  Account of the  transferor to the
     extent it relates to the transferred Interest.

          (iv) In  determining  the amount of any  liability for purposes of the
     foregoing  subparagraphs  (i) and (ii),  there shall be taken into  account
     Code Section  752(c) and any other  applicable  provisions  of the Code and
     Regulations.

<PAGE>

     for purposes of this definition,  in the event that (i) the date on which a
     Limited Partner is paid, or constructively receives (if earlier), an amount
     of Net Cash Flow under Section 6.2(e) in respect of subsection  (a)(vii) of
     Section  6.2 is after the date on which the Cash  Conversion  Price is paid
     and (ii) such Limited Partner  otherwise owns no Common Units at such time,
     such  distribution  of Net Cash Flow shall be treated as a distribution  to
     the General Partner.  The foregoing  provisions and the other provisions of
     this Agreement relating to the maintenance of Capital Accounts are intended
     to comply with  Sections  1.704-1(b)  and 1.704-2 of the  Regulations,  and
     shall  be  interpreted  and  applied  in  a  manner  consistent  with  such
     Regulations.  In the event the General Partner shall  reasonably  determine
     that it is prudent to modify the manner in which the Capital  Accounts,  or
     any debits or credits thereto  (including,  without  limitation,  debits or
     credits  relating  to  liabilities  which are  secured  by  contributed  or
     distributed  assets or which are  assumed by the  Partnership,  the General
     Partner or any Limited  Partner)  are computed in order to comply with such
     Regulations, the General Partner may make such modification;  provided that
     it does not have an  adverse  effect on the  amounts  distributable  to any
     Partner  pursuant  to  Article  VIII  hereof  upon the  dissolution  of the
     Partnership.  The General Partner also shall (i) make any adjustments  that
     are  necessary  or  appropriate  to maintain  equality  between the Capital
     Accounts of the Partners and the amount of Partnership capital reflected on
     the  Partnership's  balance  sheet,  as  computed  for  book  purposes,  in
     accordance with Section  1.704-1(b)(2)(iv)(q) of the Regulations,  and (ii)
     make any appropriate  modifications in the event unanticipated events might
     otherwise  cause this  Agreement not to comply with Sections  1.704-1(b) or
     1.704-2 of the Regulations.

"Capital  Contribution"  shall mean, with respect to any Partner,  the amount of
money and the initial  Gross  Asset Value of any asset other than money,  net of
the amount of any  liabilities  to which such asset is subject,  contributed  or
treated as  contributed  to the  Partnership  with  respect  to the  Partnership
Interest held by such Partner. The principal amount of a promissory note that is
not readily tradable on an established securities market and that is contributed
to the Partnership by the maker of the note shall not be included in the Capital
Account of any Person until the Partnership  makes a taxable  disposition of the
note or until (and to the extent) such Partner makes  principal  payments on the
note, all in accordance with Section 1.704-1(b)(2)(iv)(d)(2) of the Regulations.

"Certificate" shall mean the Certificate of Limited Partnership establishing the
Partnership,  as filed with the office of the Delaware Secretary of State, as it
may be amended from time to time in accordance  with the terms of this Agreement
and the Act.

<PAGE>

"Closing Price" on any date shall mean the last sale price,  regular way, or, in
case no such sale takes  place on such day,  the  average of the closing bid and
asked  prices,  regular  way,  in  either  case  as  reported  in the  principal
consolidated  transaction  reporting system with respect to securities listed or
admitted to trading on the New York Stock  Exchange  or, if the Common  Stock is
not listed or admitted to trading on the New York Stock Exchange, as reported in
the  principal  consolidated   transaction  reporting  system  with  respect  to
securities  listed on the principal  national  securities  exchange on which the
Common  Stock is listed or admitted  to trading  or, if the Common  Stock is not
listed or  admitted to trading on any  national  securities  exchange,  the last
quoted  price,  or if not so quoted,  the  average of the high bid and low asked
prices in the  over-the-counter  market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System or, if such system is no
longer in use, the principal other automated  quotations system that may then be
in use or,  if the  Common  Stock is not  quoted by any such  organization,  the
average of the  closing  bid and asked  prices as  furnished  by a  professional
market maker making a market in the Common Stock as such person is selected from
time to time by the Board of Directors of the General Partner.

"Code"  shall mean the Internal  Revenue  Code of 1986,  as amended from time to
time or any successor statute thereto.

"Common  Distribution"  shall mean the  Partnership  distribution  described  in
Section 6.2(c) hereof.
<PAGE>

"Common  Stock"  shall mean the shares of the common  stock,  par value $.01 per
share, of the General Partner.

"Common Units" shall mean the Partnership Units designated as Common Units under
this  Agreement,  received  by  the  Partners  in  exchange  for  their  capital
contributions  or a portion of their  capital  contributions  or pursuant to the
Merger Agreement and having the rights  described in this Agreement.  The number
of Common Units outstanding, and the allocation of Common Units to each Partner,
is as set forth opposite its or his name in Exhibit A, as amended by the General
Partner from time to time.

"Consent of the Partners" means the written consent of a Majority-in-Interest of
the Partners,  which consent shall be obtained prior to the taking of any action
for which it is  required  by this  Agreement  and may be given or withheld by a
Majority-in-Interest  of  the  Partners,  unless  otherwise  expressly  provided
herein, in their sole and absolute discretion.

"Contributed  Partnership  Interests"  shall mean,  with respect to each Limited
Partner, the partnership interests in the Property Partnership(s) contributed to
the  Partnership  by  such  Limited  Partner  on the  date of  formation  of the
Partnership.
"Control" shall mean the ability, whether by the direct or indirect ownership of
shares or other equity interests,  by contract or otherwise, to elect a majority
of  the  directors  of a  corporation,  to  select  the  managing  partner  of a
partnership,  or  otherwise  to  select,  or have the power to  remove  and then
select,  a majority of those  persons  exercising  governing  authority  over an
Entity. In the case of a limited  partnership,  the sole general partner, all of
the  general  partners  to the  extent  each has equal  management  control  and
authority,  or the managing general partner or managing general partners thereof
shall be deemed to have control of such partnership and, in the case of a trust,
any trustee  thereof or any Person  having the right to select any such  trustee
shall be deemed to have control of such trust.

"Convertible  Preferred  Distribution"  means an amount  equal to the  quarterly
dividend  payable in respect of one share of Convertible  Preferred Stock of the
General Partner pursuant to Section 4.5.1(a) of the General  Partner's  Articles
of Incorporation.

"Convertible Preferred Distribution  Shortfall" shall have the meaning set forth
in Section 6.2(a)(iii).

"Convertible  Preferred  Rights"  shall  have the  meaning  set forth in Section
11.1A.

"Convertible  Preferred  Stock"  means  the  Series B  Cumulative  Participating
Convertible Preferred Stock, par value $.01 per share, of the General Partner.
<PAGE>

"Convertible  Preferred  Unit  Redemption  Amount"  means,  with  respect to any
Convertible Preferred Unit, the amount payable by the General Partner on account
of the  redemption  of one share of  Convertible  Preferred  Stock  pursuant  to
Section 4.5.3 of the General Partner's Articles of Incorporation.

"Convertible  Preferred  Units" shall mean the Partnership  Units  designated as
Convertible  Preferred Units under this Agreement having the rights described in
this Agreement.  The number of Convertible Preferred Units outstanding from time
to time is as set forth on Exhibit A, as amended  by the  General  Partner  from
time to time.

"Current  Per Share  Market  Price" on any date  shall  mean the  average of the
Closing Price for the five consecutive Trading Days ending on such date.

"Depreciation"  shall mean, with respect to any asset of the Partnership for any
Partnership   taxable  year  or  other  period,  the  depreciation,   depletion,
amortization  or other cost recovery  deduction,  as the case may be, allowed or
allowable  for  Federal  income tax  purposes  in respect of such asset for such
Partnership taxable year or other period; provided,  however, that if there is a
difference  between  the Gross Asset  Value and the  adjusted  tax basis of such
asset  at the  beginning  of such  Partnership  taxable  year or  other  period,
Depreciation  for such asset shall be an amount that bears the same ratio to the
beginning   Gross  Asset  Value  of  such  asset  as  the  Federal   income  tax
depreciation,  depletion, amortization or other cost recovery deduction for such
Partnership  taxable year or other period  bears to the  beginning  adjusted tax
basis  of  such  asset;  provided,  further,  that  if the  Federal  income  tax
depreciation,  depletion, amortization or other cost recovery deduction for such
asset for such  Partnership  taxable year or other period is zero,  Depreciation
for such asset shall be determined  with reference to the beginning  Gross Asset
Value of such asset using any reasonable method selected by the General Partner.

"Entity" shall mean any general partnership,  limited partnership,  corporation,
joint venture, trust, business trust, limited liability company,  cooperative or
association.

"ERISA"  shall mean the Employee  Retirement  Income  Security  Act of 1974,  as
amended from time to time (or any corresponding provisions of succeeding laws).

"GAAP" shall mean generally accepted accounting principles consistently applied.

"General Partner" shall mean Prime Retail, Inc., a Maryland corporation, and any
other Person who is admitted as a successor  general  partner of the Partnership
at the time of reference thereto.
<PAGE>
"Gross Asset Value"  shall mean,  with respect to any asset of the  Partnership,
such asset's adjusted basis for Federal income tax purposes, except as follows:

                    (a) the initial  Gross Asset Value of any asset  contributed
               by a Partner to the  Partnership  shall be the gross fair  market
               value of such asset as determined by the contributing Partner and
               the Partnership;

                    (b) if the General  Partner  reasonably  determines  that an
               adjustment  is necessary or  appropriate  to reflect the relative
               economic interests of the Partners, the Gross Asset Values of all
               Partnership  assets  shall be adjusted to equal their  respective
               gross fair market values, as reasonably determined by the General
               Partner, as of the following times:

                         (i) a Capital  Contribution  (other  than a de  minimis
                    Capital  Contribution)  to  the  Partnership  by  a  new  or
                    existing   Partner  as   consideration   for  a  Partnership
                    Interest;

                         (ii) the  distribution  by the Partnership to a Partner
                    of more than a de minimis  amount of  Partnership  assets as
                    consideration for the redemption of a Partnership  Interest;
                    and  

                         (iii) the  liquidation  of the  Partnership  within the
                    meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations;

                    (c) the Gross Asset Values of Partnership assets distributed
               to any  Partner  shall be the gross  fair  market  values of such
               assets  (taking  Section  7701(g)  of the Code into  account)  as
               reasonably  determined  by the General  Partner as of the date of
               distribution; and
<PAGE>

                    (d) the Gross Asset  Values of  Partnership  assets shall be
               increased  (or  decreased)  to  reflect  any  adjustments  to the
               adjusted  basis of such assets  pursuant  to  Sections  734(b) or
               743(b) of the Code, but only to the extent that such  adjustments
               are taken into account in determining  Capital Accounts  pursuant
               to Section  1.704-1(b)(2)(iv)(m)  of the Regulations (See Exhibit
               B);  provided,  however,  that Gross  Asset  Values  shall not be
               adjusted  pursuant to this  paragraph  (d) to the extent that the
               General Partner reasonably determines that an adjustment pursuant
               to paragraph (b) above is necessary or  appropriate in connection
               with a transaction  that would otherwise  result in an adjustment
               pursuant to this paragraph (d). 

At all times,  Gross Asset  Values shall be adjusted by any  Depreciation  taken
into account with respect to the Partnership's  assets for purposes of computing
Net Income and Net Loss. Any adjustment to the Gross Asset Values of Partnership
assets shall require an adjustment to the Partners' Capital Accounts; as for the
manner in which such  adjustments  are  allocated to the Capital  Accounts,  see
Exhibit  B.  
<PAGE>

     "Hart Scott Act" shall mean the  Hart-Scott-Rodino  Antitrust  Improvements
Act of 1976, as amended. 

     "Horizon  Limited  Partnership"  shall  mean  Horizon/Glen  Outlet  Centers
Limited Partnership, a Delaware limited partnership.

     "Horizon  Properties"  shall mean the Partnership  property acquired by the
Partnership pursuant to the Merger.

     "Immediate  Family" shall mean,  with respect to any Person,  such Person's
spouse,  parents,  parents-in-law,   descendants,   nephews,  nieces,  brothers,
sisters,   brothers-in-law,   sisters-in-law,   stepchildren,   sons-in-law  and
daughters-in-law.

     "Incentive  Option" means an option to purchase  Common Stock granted under
the Stock Incentive Plan.

     "Incentive  Option  Agreement"  means the Incentive  Option Agreement to be
used under the Stock Incentive Plan.

     "Lien" shall mean any liens, security interests, mortgages, deeds of trust,
charges, claims, encumbrances,  pledges, options, rights of first offer or first
refusal  and any other  rights  or  interests  of others of any kind or  nature,
actual or contingent, or other similar encumbrances of any nature whatsoever.

     "Limited  Partner"  shall mean any Person  named as a "Limited  Partner" on
Exhibit A hereto, as it may be amended from time to time, or any Person admitted
as a Substituted Limited Partner or additional Limited Partner, in such Person's
capacity as a limited partner of the Partnership.
<PAGE>

     "Liquidating Events" shall have the meaning set forth in Section 3.2.

     "Liquidating  Trustee"  shall mean the  General  Partner or, if there is no
remaining General Partner, such Person as is selected as the Liquidating Trustee
hereunder by the Consent of the Partners,  which Person may include an Affiliate
of the General Partner or any Limited Partner; provided such Liquidating Trustee
agrees in writing to be bound by the terms of this Agreement.  

     "Major Decisions" shall have the meaning set forth in Section 7.3 hereof.

     "Majority-in-Interest  of the Partners"  shall mean  Partner(s) who hold in
the aggregate more than fifty percent (50%) of the Common Units.

     "Merger"  shall  mean the merger of the  Partnership  and  Horizon  Limited
Partnership pursuant to the Merger Agreement.

     "Merger Agreement" has the meaning set forth in the Recitals hereof.

     "Minimum Gain Capital  Account" shall mean, with respect to a Partner,  the
sum of such  Partner's  Capital  Account  plus such  Partner's  share of Partner
Minimum  Gain, as described in Section  
<PAGE>

1.704-2(i)(5) of the Regulations,  and Partnership Minimum Gain, as described in
Section 1.704-2(g) of the Regulations.  For purposes of determining Minimum Gain
Capital Account, Nonrecourse Deductions and Partner Nonrecourse Deductions for a
Partnership  taxable  year or other  applicable  period  shall be allocated in a
manner that is consistent  with the method of  allocation  adopted under Section
9.4 or Section 9.6(c) (to the extent Section 9.4 or Section 9.6(c) is applicable
to such Partnership taxable year or other applicable period).

          "Net Cash  Flow"  means,  with  respect  to the  applicable  period of
     measurement  (i.e.,  any  period  beginning  on the first day of the fiscal
     year, quarter or other period commencing  immediately after the last day of
     the fiscal  year,  quarter or other  applicable  period for purposes of the
     most  recent  calculation  of Net Cash Flow for or with  respect to which a
     distribution  has been made, and ending on the last day of the fiscal year,
     quarter or other applicable  period  immediately  preceding the date of the
     calculation)  the excess,  if any,  as of such date,  of (a) the gross cash
     receipts of the  Partnership  for such period from all sources  whatsoever,
     including, without limitation, the following:

          (i)  all  rents,   revenues,   income  and  proceeds  derived  by  the
     Partnership   from   its   operations,   including,   without   limitation,
     distributions  received  by the  Partnership  from any  Entity in which the
     Partnership has an interest;
<PAGE>

          (ii) all proceeds and revenues  received by the Partnership on account
     of any sales of  property  of the  Partnership  or as a  refinancing  of or
     payments of principal,  interest,  costs,  fees,  penalties or otherwise on
     account of any borrowings or loans made by the Partnership or financings or
     refinancings  of any property of the  Partnership;  (iii) the amount of any
     insurance  proceeds and  condemnation  awards received by the  Partnership;
     (iv) all capital  contributions  or loans received by the Partnership  from
     its Partners;  (v) any reduction in the cash amounts previously reserved by
     the Partnership  and described in subsection  (b)(ix) below, if the General
     Partner  determines  that such amounts are no longer  needed;  and (vi) the
     proceeds of liquidation of the  Partnership's  property in accordance  with
     this Agreement,

over (b) the sum of:

          (i) all operating  costs and expenses of the  Partnership  and capital
     expenditures made during such period (without deduction,  however,  for any
     capital  expenditures,  charges for depreciation or other expenses not paid
     in cash or expenditures  from reserves  described in (ix) below);  (ii) all
     costs and expenses  expended or paid during such period in connection  with
     the sale or other disposition,  or financing or refinancing, of property of
     the  Partnership  or the recovery of insurance  or  condemnation  proceeds;
     (iii) all fees  provided for under this  Agreement;  (iv) all debt service,
     including   principal  and  interest,   paid  during  such  period  on  all
     indebtedness of the Partnership;  (v) all capital contributions,  advances,
     reimbursements  or  similar  payments  made  to any  Entity  in  which  the
     Partnership  has an  interest;  (vi) all loans made by the  Partnership  in
     accordance with the terms of this Agreement;  (vii) all  reimbursements  to
     the  General  Partner  or its  Affiliates  during  such  period,  including
     Administrative Expenses (exclusive of REIT Expenses) to the extent not paid
     or payable by the General Partner  pursuant to the last sentence of Section
     7.1;  (viii)  any  distributions  pursuant  to  Section  6.2(f);  (ix)  any
     increases in reserves  reasonably  determined by the General  Partner to be
     necessary for working capital,  capital improvements,  payments of periodic
     expenditures,  debt service or other  purposes for the  Partnership  or any
     Person in which the Partnership  has an interest;  and (x) any amounts paid
     pursuant  to  Section  4.8(b)  in  redemption  of any  Preferred  Units  or
     Convertible Preferred Units.
<PAGE>

          "Net Income or Net Loss" shall mean, for each Partnership taxable year
     or other applicable period, an amount equal to the Partnership's net income
     or loss for such  year or period  as  determined  for  federal  income  tax
     purposes by the General  Partner,  determined  in  accordance  with Section
     703(a) of the Code (for this purpose,  all items of income,  gain,  loss or
     deduction  required to be stated  separately  pursuant to Section 703(a) of
     the Code shall be included in taxable income or loss), adjusted as follows:
     (i) by including as an item of gross income any tax-exempt  income received
     by the  Partnership  and not otherwise  taken into account in computing Net
     Income  or  Net  Loss;  (ii)  by  treating  as  a  deductible  expense  any
     expenditure of the  Partnership  described in Section  705(a)(2)(B)  of the
     Code and not  otherwise  taken into account in computing  Net Income or Net
     Loss,  including  amounts  paid or  incurred to  organize  the  Partnership
     (unless an election is made  pursuant to Section  709(b) of the Code) or to
     promote  the  sale of  interests  in the  Partnership;  (iii)  by  treating
     deductions for any losses  incurred in connection with the sale or exchange
     of Partnership property which are disallowed pursuant to Sections 267(a)(1)
     or 707(b) of the Code as expenditures  described in Section 705(a)(2)(B) of
     the Code; (iv) by taking into account Depreciation in lieu of depreciation,
     depletion,  amortization,  and other cost  recovery  deductions  taken into
     account in computing  taxable income or loss; (v) by computing gain or loss
     resulting  from any  disposition  of  Partnership  property with respect to
     which  gain or loss is  recognized  for  federal  income  tax  purposes  by
     reference  to the  Gross  Asset  Value  of such  property  rather  than its
     adjusted tax basis;  (vi) in the event of an  adjustment of the Gross Asset
     Value of any Partnership  asset which requires that the Capital Accounts of
     the Partnership be adjusted pursuant to Sections 1.704-1(b)(2)(iv)(e),  (f)
     and (m) of the  Regulations,  by taking  into  account  the  amount of such
     adjustment as additional  Net Income or Net Loss pursuant to Exhibit B; and
     (vii) subject to the  immediately  preceding  clause (vi), by excluding the
     Partnership  items of income,  gain,  loss or deduction  that are specially
     allocated  pursuant  to  Sections  II or III of Exhibit B attached  hereto.
    
          "Nonrecourse  Deductions" shall have the meaning set forth in Sections
     1.704-2(b)(1) and 1.704-2(c) of the Regulations.  

          "Nonrecourse  Liabilities" shall have the meaning set forth in Section
     1.704-2(b)(3)  of the  Regulations.  
<PAGE>

          "Original  Agreement" shall have the meaning set forth in the Recitals
     to this Agreement.

          "Partner  Minimum  Gain"  shall mean an amount,  with  respect to each
     Partner  Nonrecourse Debt, equal to the Partnership Minimum Gain that would
     result if such  Partner  Nonrecourse  Debt were  treated  as a  Nonrecourse
     Liability,  determined  in  accordance  with Section  1.704-2(i)(3)  of the
     Regulations.

          "Partner Nonrecourse Debt" shall have the meaning set forth in Section
     1.704-2(b)(4) of the Regulations.

          "Partner  Nonrecourse  Deductions" shall have the meaning set forth in
     Section 1.704-2(i)(2) of the Regulations.

          "Partners"  shall mean the General  Partner and the Limited  Partners.

          "Partnership"  shall mean the limited  partnership  constituted by the
     Original  Agreement,  as such limited  partnership may from time to time be
     constituted.

          "Partnership  Interest"  shall  mean  the  ownership  interest  now or
     hereafter held by a Partner in the  Partnership  from time to time pursuant
     to this  Agreement,  including,  but not  limited  to,  Partnership  Units,
     exchange rights,  capital accounts,  and profits and distributions relating
     thereto,  all other  payments  (if any) due or to become  due in respect of
     such ownership interest pursuant to this Agreement,  all rights, powers and
     remedies of a Partner under this Agreement,  and all proceeds of all or any
     of the foregoing.
<PAGE>

          "Partnership  Minimum  Gain"  shall  have  the  meaning  set  forth in
     Sections  1.704-2(b)(2)  and (d) of the Regulations.

     "Partnership  Payment Date" shall mean the payment date  established by the
General  Partner for the  distribution  of Net Cash Flow pursuant to Section 6.2
hereof,  which payment date shall be the same as the payment date established by
the General Partner for a distribution to its shareholders of some or all of its
portion of such distribution.

     "Partnership  Record Date" for any distribution shall mean the same date as
the record date  established by the General  Partner for a  distribution  to its
shareholders.

     "Partnership Units" shall mean fractional,  undivided shares of Partnership
Interests issued pursuant to this Agreement.  The ownership of Partnership Units
of any class or series may be evidenced by a  certificate  for such  Partnership
Units in substantially the form of Exhibit G (including the restrictive  legends
thereon), or as the General Partner may determine from time to time.

     "Permitted  Transferee" shall mean any Person to whom any Partnership Units
are transferred in a Transfer permitted under the terms of this Agreement.

     "Person" shall mean any individual or Entity.

     "Preferred  Distribution"  means an amount equal to the quarterly  dividend
payable  in  respect  of one share of  Preferred  Stock of the  General  Partner
pursuant to Section 4.3.1(a) of the General Partner's Articles of Incorporation.

     "Preferred  Distribution  Shortfall"  shall have the  meaning  set forth in
Section 6.2.

     "Preferred Stock" means the Series A Senior Cumulative Preferred Stock, par
value $.01 per share, of the General Partner.

     "Preferred  Unit  Redemption  Amount" means,  with respect to any Preferred
Unit, the amount payable by the General  Partner on account of the redemption of
one share of Preferred Stock pursuant to Section 4.3.3 of the General  Partner's
Articles of Incorporation.

<PAGE>

     "Preferred  Units" shall mean the Partnership Units designated as Preferred
Units under this Agreement  having the rights  described in this Agreement.  The
number  of  Preferred  Units  outstanding  from  time to time is as set forth on
Exhibit A, as amended by the General Partner.

     "Prime/Horizon  Merger" shall mean the "Prime/Horizon Merger" as defined in
the Merger Agreement.

     "Property"  shall mean any  Shopping  Center  Project or other real  estate
project  in which the  Partnership  or any  Property  Partnership,  directly  or
indirectly, acquires ownership of a fee or leasehold interest.

     "Property Partnership Interests" shall mean and include the interest of the
Partnership as a partner or other equity participant in any Property Partnership
currently owned or hereafter acquired by the Partnership.

     "Property  Partnerships"  shall mean and include any  partnership  or other
Entity in which the Partnership, directly or indirectly, is or becomes a partner
or other equity  participant  and which is formed for the purpose of  acquiring,
developing or owning a Property or a proposed  Property. 

     "Purchase Price" shall have the meaning set forth in Exhibit C.

     "Quarter"  shall mean each of the three (3) month  periods  ending on March
31, June 30, September 30 and December 31 of any year.


     "Regulations"  shall  mean the  final,  temporary  or  proposed  Income Tax
Regulations  promulgated under the Code, as such regulations may be amended from
time to time  (including  corresponding  provisions of succeeding  regulations).
"Regulatory  Allocations"  shall have the meaning set forth in Exhibit B. "REIT"
shall mean a real estate investment trust as defined in Section 856 of the Code.

<PAGE>

     "REIT Expenses" shall mean (i) costs and expenses relating to the formation
and continuity of existence of the General Partner and its subsidiaries, if any,
(which  subsidiaries  shall,  for purposes of this definition be included within
the  definition  of General  Partner),  including  taxes,  fees and  assessments
associated  therewith  and any and all costs,  expenses  or fees  payable to any
director,  officer  or  trustee  of the  General  Partner  or such  subsidiaries
(including,  without limitation,  any costs of indemnification),  (ii) costs and
expenses  relating to any offer or  registration  of  securities  by the General
Partner and all  statements,  reports,  fees and  expenses  incidental  thereto,
including,  without limitation,  underwriting  discounts and selling commissions
applicable to any such offer of securities and any costs and expenses associated
with any claims  made by any holder of such  securities  or any  underwriter  or
placement  agent  therefor,   (iii)  costs  and  expenses  associated  with  the
preparation  and filing of any  periodic  reports by the General  Partner  under
federal,  state or local laws or  regulations,  including  filings with the SEC,
(iv) costs and expenses  associated  with compliance by the General Partner with
laws, rules and regulations  promulgated by any regulatory  body,  including the
SEC, and (v) all other operating or administrative  costs of the General Partner
incurred in the ordinary course of its business.

     "REIT  Requirements"  shall have the  meaning  set forth in Section  6.2(b)
hereof.

     "Rights" shall have the meaning set forth in Section 11.1 hereof.

     "SEC" shall mean the United States Securities and Exchange Commission.

     "Section 704(c) Tax Items" shall have the meaning set forth in Exhibit B.

     "September 9, 1997  Agreement" has the meaning set forth in the Recitals to
this Agreement.

     "Series C Preferred  Distribution"  means an amount equal to the  quarterly
dividend payable in respect of one share of Series C Preferred Stock pursuant to
Section 3 of the General Partner's Articles of Incorporation.
<PAGE>

     "Series C  Preferred  Distribution  Shortfall"  shall have the  meaning set
forth in Section 6.2.

     "Series C Preferred Purchase Agreement" shall have the meaning set forth in
Section 4.2.

     "Series C  Preferred  Rights"  shall have the  meaning set forth in Section
12.1.

     "Series C Preferred  Stock" shall mean the Series C Cumulative  Convertible
Redeemable Preferred Stock, $.01 par value, of the General Partner.

     "Series C Preferred  Unit  Redemption  Amount"  means,  with respect to any
Series C Preferred  Unit, the amount payable by the General Partner with respect
to the  redemption  of a share of Series C Preferred  Stock  pursuant to Section
5(a) of the General Partner's  Articles of Incorporation and subject to Sections
5(b)  and 5(c)  thereof,  using  the  amount,  if any,  of  Series  C  Preferred
Distribution shortfall as the amount of accrued and unpaid dividends thereon.

     "Series C Preferred  Units" shall mean the Partnership  Units designated as
Series C Preferred  Units under this Agreement,  having the rights  described in
this Agreement.  The number of Series C Preferred Units outstanding from time to
time is set forth in Exhibit A hereto,  as amended by the General  Partner  from
time to time.

<PAGE>

     "Service"  shall  mean  the  Internal  Revenue  Service  and any  successor
governmental agency.

     "Shopping  Center  Project"  shall  mean  any  shopping  center,  including
construction  and  improvement  activities  undertaken  with respect thereto and
off-site  improvements,  on-site  improvements,   structures,  buildings  and/or
related parking and other facilities.

     "Special Distribution" shall mean the Partnership distribution described in
Section 6.2(b) hereof.

     "Stock Incentive Plan" means the  Partnership's  1994 Stock Incentive Plan,
employee  bonus plan and any other plan adopted from time to time by the General
Partner  pursuant to which the General Partner issues Common Stock or options to
acquire  Common Stock to employees  or  directors in partial  consideration  for
services.

     "Substituted  Limited  Partner"  means any Person who (i) is  permitted  to
become a Limited Partner  pursuant to the terms of Sections 9.2 and 9.3 and (ii)
agrees in writing to be bound by the terms of this  Agreement  by execution of a
copy of this  Agreement  or by another  written  undertaking  acceptable  to the
General Partner.

     "Tax Items" shall have the meaning set forth in Exhibit B.

     "Trading Day" shall mean a day on which the principal  national  securities
exchange on which the Common  Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any  national  securities  exchange,  shall mean any day other than a
Saturday,  a Sunday or a day on which banking  institutions  in the State of New
York are authorized or obligated by law or executive order to close. 
<PAGE>

     "Transfer" as a noun, shall mean any sale, assignment,  conveyance, pledge,
hypothecation, gift, encumbrance or other transfer, and as a verb, shall mean to
sell, assign, convey, pledge, hypothecate, give, encumber or otherwise transfer.

     Certain additional terms and phrases have the meanings set forth in Exhibit
B, C or D.

     I.2 Exhibits,  Etc.  References to "Exhibit" or to a "Schedule" are, unless
otherwise  specified,  to one of the  Exhibits  or  Schedules  attached  to this
Agreement,  and references to an "Article" or a "Section" are, unless  otherwise
specified,  to one of the Articles or Sections of this  Agreement.  Each Exhibit
and Schedule  attached hereto is hereby  incorporated  herein by reference as if
fully set forth herein.
<PAGE>


                                   ARTICLE II
                                  ORGANIZATION

     2.1 Formation and  Continuation.  The parties hereto do hereby continue the
Partnership as a limited partnership  pursuant to the provisions of the Act, and
all other pertinent laws of the State of Delaware, for the purposes and upon the
terms and conditions  hereinafter set forth.  The Partners agree that the rights
and  liabilities  of the  Partners  shall be as  provided  in the Act  except as
otherwise  herein expressly  provided.  Promptly upon the execution and delivery
hereof,  the  General  Partner  shall  cause  any  requisite  amendment  to  the
Certificate of Limited Partnership and such other notice, instrument,  document,
or certificate as may be required by applicable  law, and which may be necessary
to enable the  Partnership to conduct its business,  and to own its  properties,
under the Partnership  name, to be filed or recorded in all  appropriate  public
offices.

     2.2 Name. The business of the Partnership shall be conducted under the name
of Prime Retail,  L.P. or such other name as the General Partner may select, and
all transactions of the Partnership,  to the extent permitted by applicable law,
shall be carried on and completed in such name.

<PAGE>

     2.3 Character of the Business.  The purpose of the Partnership  shall be to
acquire, hold, own, develop, construct, improve, maintain, operate, sell, lease,
transfer,  encumber, convey, exchange, mortgage, pledge and otherwise dispose of
or deal  with  (either  directly  or  indirectly  through  one or more  Property
Partnerships)  the  Properties;  to  acquire,  hold,  own,  develop,  construct,
improve,  maintain,  operate, manage, sell, lease, transfer,  encumber,  convey,
exchange,  mortgage,  pledge  and  otherwise  dispose  of or deal  with  (either
directly or  indirectly  through  one or more  Property  Partnerships)  real and
personal  property of all kinds;  to exercise  all of the powers of a partner in
Property  Partnerships;  to  acquire,  own,  deal with and  dispose of  Property
Partnership  Interests;  to undertake such other activities as may be necessary,
advisable,  desirable or convenient to the business of the  Partnership,  and to
engage in such other activities as shall be necessary or desirable to effect the
foregoing purposes. The Partnership shall have all powers necessary or desirable
to accomplish the purposes  herein set forth.  In connection with the foregoing,
but subject to all of the terms, covenants, conditions and limitations contained
in this Agreement, the Partnership shall have full power and authority, directly
or through its interest in Property  Partnerships,  to enter into, perform,  and
carry out  contracts  of any kind,  to borrow  money and to issue  evidences  of
indebtedness,  whether or not secured by mortgage,  trust deed,  pledge or other
lien,  and,  directly  or  indirectly,   to  acquire  and  construct  additional
Properties necessary or useful in connection with its business.

     2.4  Location  of the  Principal  Place of  Business.  The  location of the
principal  place of  business  of the  Partnership  shall  be at 100 East  Pratt
Street, 19th Floor, Baltimore,  Maryland,  21202 or such other location as shall
be selected from time to time by the General Partner in its sole discretion.

     2.5 Registered  Agent and Registered  Office.  The registered  agent of the
Partnership  in the State of Delaware  shall be The  Corporation  Trust Company,
1209  Orange  Street,  Wilmington,  Delaware  19801 or such other  Person as the
General Partner may select in its sole discretion.  The registered office of the
Partnership  in the State of Delaware  shall be The  Corporation  Trust Company,
1209 Orange  Street,  Wilmington,  Delaware  19801 or such other location as the
General Partner may select in its sole and absolute discretion.
<PAGE>


          2.6 Power of Attorney. 
                    (a) Each  Limited  Partner  and each  assignee  of a Limited
               Partner hereby constitutes and appoints the General Partner,  any
               Liquidating Trustee and authorized officers and attorneys-in-fact
               of each, and each of those acting singly,  in each case with full
               power  of  substitution,   as  its  true  and  lawful  agent  and
               attorney-in-fact,  with  full  power and  authority  in its name,
               place and stead to:

                    (i) execute, swear to, acknowledge, deliver, file and record
               in the appropriate public offices (a) all certificates, documents
               and  other  instruments  (including,   without  limitation,  this
               Agreement and the  Certificate and all amendments or restatements
               thereof)  that the  General  Partner or the  Liquidating  Trustee
               deems  appropriate or necessary to form,  qualify or continue the
               existence  or  qualification  of  the  Partnership  as a  limited
               partnership (or a partnership in which the Limited  Partners have
               limited  liability)  in the  State of  Delaware  and in all other
               jurisdictions  in which the  Partnership  may or plans to conduct
               business or own property;  (b) all  instruments  that the General
               Partner or the Liquidating Trustee deems appropriate or necessary
               to reflect any amendment,  change, modification or restatement of
               this Agreement in accordance with its terms;  (c) all conveyances
               and other instruments or documents that the General Partner deems
               appropriate   or  necessary  to  reflect  the   dissolution   and
               liquidation  of the  Partnership  pursuant  to the  terms of this
               Agreement,   including,  without  limitation,  a  certificate  of
               cancellation;  (d) all  instruments  relating  to the  admission,
               withdrawal,  removal or substitution of any Partner  pursuant to,
               or other events  described in,  Articles IV, VIII or IX hereof or
               the   Capital   Contribution   of  any   Partner;   and  (e)  all
               certificates,  documents  and other  instruments  relating to the
               determination  of  the  rights,  preferences  and  privileges  of
               Partnership Interests; and
<PAGE>

                    (ii)  execute,  swear  to,  seal,  acknowledge  and file all
               ballots,  consents,  approvals,  waivers,  certificates and other
               instruments  appropriate  or necessary,  in the sole and absolute
               discretion of the General Partner or any Liquidating  Trustee, to
               evidence,   confirm  or  ratify  any  vote,  consent,   approval,
               agreement  or other action which is made or given by the Partners
               hereunder or is  consistent  with the terms of this  Agreement or
               appropriate or necessary,  in the sole  discretion of the General
               Partner or any Liquidating Trustee, to effect the terms or intent
               of this Agreement.

Nothing  contained  herein shall be construed as authorizing the General Partner
or any  Liquidating  Trustee to amend this Agreement  except in accordance  with
Section 14.7 hereof.

          (b)  The  foregoing  power  of  attorney  is  hereby  declared  to  be
     irrevocable  and a power coupled with an interest,  in  recognition  of the
     fact  that  each of the  Partners  will be  relying  upon the  power of the
     General Partner and any Liquidating  Trustee to act as contemplated by this
     Agreement in any filing or other action by it on behalf of the Partnership,
     and it shall  survive and not be affected by the  subsequent  incapacity of
     any Limited  Partner or assignee of a Limited  Partner and the  transfer of
     all or any portion of such  Limited  Partner's  or  assignee's  Partnership
     Units and shall  extend to such  Limited  Partner's  or  assignee's  heirs,
     successors, assigns and personal representatives. Each such Limited Partner
     or  assignee  of a  Limited  Partner  hereby  agrees  to be  bound  by  any
     representation  made by the  General  Partner or any  Liquidating  Trustee,
     acting in good  faith  pursuant  to such power of  attorney,  and each such
     Limited Partner or assignee hereby waives any and all defenses which may be
     available to contest, negate or disaffirm the action of the General Partner
     or any  Liquidating  Trustee,  taken  in good  faith  under  such  power of
     attorney and in  accordance  with the  provisions of this  Agreement.  Each
     Limited  Partner or assignee of a Limited Partner shall execute and deliver
     to the General Partner or the Liquidating Trustee, within fifteen (15) days
     after receipt of the General  Partner's or  Liquidating  Trustee's  request
     therefor,   such  further   designation,   powers  of  attorney  and  other
     instruments as the General Partner or the Liquidating  Trustee, as the case
     may be, deems necessary to effect the provisions of this Section 2.6.
<PAGE>

                                                     ARTICLE III
                                                  TERM; DISSOLUTION

          3.1 Term.  The  Partnership  shall  continue  until December 31, 2050,
     unless the  Partnership is dissolved  sooner  pursuant to the provisions of
     Section 3.2 or as otherwise provided by law.

          3.2  Dissolution.  Except as set forth in this Section 3.2, no Partner
     shall have the right to dissolve the Partnership. The Partnership shall not
     be dissolved by the admission of Substituted Limited Partners or additional
     Limited  Partners or by the  admission  of a successor  General  Partner in
     accordance  with the terms of this  Agreement.  Upon the  withdrawal of the
     General Partner,  any successor General Partner shall continue the business
     of the Partnership.  The Partnership shall dissolve,  and its affairs shall
     be wound up, upon the first to occur of any of the following  ("Liquidating
     Events"):

               (a) an event described in Section  17-402(a) of the Act by reason
          of which the General Partner ceases to be the general partner, unless,
          within ninety (90) days after such event,  a  Majority-in-Interest  of
          the  Partners  (other than the General  Partner)  that remain agree in
          writing to continue  the business of the  Partnership  and to appoint,
          effective as of the date of such event, a successor General Partner;

               (b) an election to dissolve the  Partnership  made by the General
          Partner with the Consent of the Partners;

<PAGE>

               (c)  the  sale  of all or  substantially  all of the  assets  and
          properties of the Partnership;

               (d) entry of a decree of judicial  dissolution of the Partnership
          pursuant to the provisions of the Act; or

               (e) the expiration of the term of the  Partnership as provided in
          Section 3.1 hereof.

          3.3  Bankruptcy of a Limited  Partner.  The  Bankruptcy of any Limited
     Partner shall not cause a dissolution of the Partnership, but the rights of
     such  Limited  Partner  to  share  in the  Net  Income  or Net  Loss of the
     Partnership and to receive distributions from the Partnership shall, on the
     happening of such event,  devolve on its successors or assigns,  subject to
     and in accordance with the terms and conditions of this Agreement,  and the
     Partnership shall continue as a limited  partnership.  However, in no event
     shall such  assignee(s)  become a  Substituted  Limited  Partner  except in
     accordance with Article IX hereof.


                                   ARTICLE IV
                       CONTRIBUTIONS TO CAPITAL; FINANCING

          4.1 General Partner Capital Contribution.  

          (a) The General Partner has made  contributions to the Partnership and
     has the Common Units,  Preferred  Units,  Convertible  Preferred  Units and
     Series C Preferred Units (if any) as set forth on Exhibit A.

<PAGE>

          (b) In the event the General  Partner issues Series C Preferred  Stock
     pursuant to the Series C Preferred  Stock Purchase  Agreement,  the General
     Partner shall  contribute to the Partnership the proceeds or  consideration
     received  therefor  and receive  from the  Partnership  an equal  number of
     Series C Preferred  Units,  as contemplated by clause (B) of subsection (b)
     of Section 4.3.

          4.2 Limited Partner Capital Contributions.

          (a) Each Limited Partner had made  contributions to the capital of the
     Partnership and has the Common Units, Convertible Preferred Units or Series
     C Preferred Units set forth opposite its name on Exhibit A.

          (b) The General  Partner is  authorized  to cause the  Partnership  to
     issue Series C Preferred  Units to an  institutional  investor from time to
     time  pursuant  to that  certain  Series C Purchase  Agreement  dated as of
     August  8, 1997 by and  among  such  institutional  investor,  the  General
     Partner and the Partnership (the "Series C Preferred  Purchase  Agreement")
     for  the  consideration  set  forth  therein,  and  upon  payment  of  such
     consideration  such Person  shall be  admitted as a Limited  Partner of the
     Partnership.

          (c) The General  Partner is  authorized  to cause the  Partnership  to
     issue Common Units and Convertible  Preferred Units to limited  partners of
     Horizon Limited  Partnership as contemplated by the Merger  Agreement,  and
     upon issuance thereof upon  consummation of the Merger,  such Persons shall
     be admitted as Limited Partners of the Partnership.

          4.3 Additional Funds; Restrictions on General Partner.

          (a) The sums of money  required to finance the business and affairs of
     the  Partnership  shall be derived from the initial  Capital  Contributions
     made to the Partnership  from the Partners as set forth in Sections 4.1 and
     4.2 hereof (including the issuance of Series C Preferred Units from time to
     time) and from funds  generated  from the  operation  and  business  of the
     Partnership,   including  without  limitation   distributions  directly  or
     indirectly received by the Partnership from the Property  Partnerships.  In
     the event  additional  financing is needed from  sources  other than as set
     forth in the preceding sentence for any reason, the General Partner may, in
     its sole  discretion,  in such amounts and at such times as it solely shall
     determine to be necessary or appropriate,  (i) issue additional Partnership
     Interests  in  accordance  with  Section 4.4 hereof;  (ii) make  additional
     Capital Contributions to the Partnership (subject to Section 4.3(b) below);
     (iii) cause the Partnership to borrow money,  enter into loan arrangements,
     issue debt  securities,  obtain letters of credit or otherwise borrow money
     on a  secured  or  unsecured  basis;  (iv)  make a  loan  or  loans  to the
     Partnership  (subject to Section 4.3(b)  below);  or (v) sell any assets or
     properties of the  Partnership.  In no event shall the Limited  Partners be
     required to make any additional  Capital  Contributions  or any loan to, or
     otherwise  provide  any  financial  accommodation  for the  benefit of, the
     Partnership.


<PAGE>

          (b) The  General  Partner  shall not issue  any debt  securities,  any
     preferred  stock  (including any additional  Preferred Stock or Convertible
     Preferred Stock (other than Series C Preferred Stock issued in exchange for
     Series C Preferred Units)) or common stock (including  additional shares of
     Common Stock  (other than (i)  consideration  to be issued  pursuant to the
     Merger Agreement or any subsequent merger, consolidation,  recapitalization
     or similar transaction which has been approved by the General Partner, (ii)
     in connection with the exercise by a Limited Partner of Rights, Convertible
     Preferred Rights or Series C Preferred Rights pursuant to Article XI or XII
     hereof,  (iii) in connection  with the conversion of Convertible  Preferred
     Stock as  contemplated  by Section  4.8 hereof or any other  conversion  or
     exchange of  securities  of the General  Partner  solely in  conversion  or
     exchange for other  securities of the General  Partner or (iv) Common Stock
     exchanged  for Series C Preferred  Stock or Series C  Preferred  Units)) or
     rights,  options,   warrants  or  convertible  or  exchangeable  securities
     containing  the right to  subscribe  for or purchase  any of the  foregoing
     (collectively, "Securities"), other than to all holders of Common Stock (in
     which  event  the  Antidilution   Provisions  shall  apply  to  the  extent
     applicable),  unless  the  General  Partner  shall  (A) in the case of debt
     securities,  lend  to the  Partnership  the  proceeds  of or  consideration
     received for such  Securities on the same terms and  conditions,  including
     interest rate and repayment  schedule,  as shall be applicable with respect
     to or incurred in connection  with such  Securities and from any subsequent
     exercise,  exchange or conversion thereof (if applicable);  (B) in the case
     of Preferred Stock,  Convertible  Preferred Stock, Series C Preferred Stock
     or other  equity  Securities  senior or junior  to the  Common  Stock as to
     dividends and  distributions on liquidation,  contribute to the Partnership
     the proceeds or  consideration  (including  any property or other  non-cash
     assets)  received for such  Securities  and from any  subsequent  exercise,
     exchange or  conversion  thereof  (if  applicable),  and  receive  from the
     Partnership   Preferred  Units,   Convertible  Preferred  Units,  Series  C
     Preferred  Units or other  interests in the  Partnership  in  consideration
     therefor with the same terms and conditions,  including dividend,  dividend
     priority and liquidation preference,  as are applicable to such Securities;
     and (C) in the case of Common Stock or other equity  Securities on a parity
     with the Common Stock as to dividends  and  distributions  on  liquidation,
     contribute to the Partnership  the net proceeds  (including any property or
     other non-cash  assets) received for such Securities or from any subsequent
     exercise, exchange or conversion thereof (if applicable),  and receive from
     the  Partnership  a number  of  additional  Common  Units in  consideration
     therefor  equal to the product of (x) the number of shares of Common  Stock
     or other equity Securities issued by the General Partner, multiplied by (y)
     a fraction the  numerator of which is one and the  denominator  of which is
     the Exchange  Factor (as defined in Exhibit C hereto) in effect on the date
     of such contribution.
<PAGE>

          4.4  Issuance  of  Additional  Partnership  Interests;   Admission  of
     Additional Limited Partners.

          (a)  In  addition  to  any  Partnership   Interests  issuable  by  the
     Partnership pursuant to the Merger Agreement or Section 4.2, Section 4.3 or
     Section  4.8  hereof,  the  General  Partner  is  authorized  to cause  the
     Partnership  to  issue  additional  Partnership  Interests  in the  form of
     Convertible  Preferred  Units or Common Units to any Persons at any time or
     from time to time, for  consideration not less than the fair value thereof,
     and on such terms and conditions, as the General Partner shall establish in
     each case in its sole and absolute  discretion,  without any approval being
     required from any Limited Partner or any other Person;  provided,  however,
     that there is no  material  adverse  impact on (i) the right of any Limited
     Partner to exercise the Rights  pursuant to Article XI or (ii) the economic
     effect upon the existing  Limited  Partners of the allocations set forth in
     Exhibit B. Subject to the limitations set forth in the preceding  sentence,
     the  General  Partner  may  take  such  steps  as  it,  in  its  reasonable
     discretion, deems necessary or appropriate to admit any Person as a Limited
     Partner of the Partnership,  including,  without  limitation,  amending the
     Certificate, Exhibit A or any other provision of this Agreement. 
<PAGE>

          4.5  Stock  Incentive  Plan.  If at any  time  or  from  time  to time
     Incentive  Options  granted in connection with the Stock Incentive Plan are
     exercised in accordance with the terms of the Incentive Option Agreement:

          (a) the  General  Partner  shall,  as soon as  practicable  after such
     exercise,  contribute to the capital of the  Partnership an amount equal to
     the exercise price paid, if any, to the General  Partner by such exercising
     party in connection with the exercise of the Incentive Option; and

          (b) the  General  Partner  shall  receive  the number of Common  Units
     corresponding  to the  number of shares of Common  Stock  delivered  by the
     General  Partner to such  exercising  party  multiplied  by a fraction  the
     numerator  of which  is one and the  denominator  of which is the  Exchange
     Factor  (as  defined  in  Exhibit C  hereto)  in effect on the date of such
     contribution.

          4.6 No Third  Party  Beneficiary.  No  creditor  or other  third party
     having  dealings with the  Partnership  shall have the right to enforce the
     right or obligation of any Partner to make Capital  Contributions  or loans
     or to pursue any other right or remedy hereunder or at law or in equity, it
     being  understood and agreed that the provisions of this Agreement shall be
     solely for the  benefit  of,  and may be  enforced  solely by, the  parties
     hereto and their respective  successors and assigns.  None of the rights or
     obligations of the Partners herein set forth to make Capital  Contributions
     or loans to the Partnership shall be deemed an asset of the Partnership for
     any purpose by any  creditor or other third  party,  nor may such rights or
     obligations be sold,  transferred or assigned by the Partnership or pledged
     or encumbered by the Partnership to secure any debt or other  obligation of
     the Partnership or of any of the Partners.

          4.7 No Interest;  No Return.  No Partner shall be entitled to interest
     on its Capital Contribution or on such Partner's Capital Account. Except as
     provided  herein or by law,  no  Partner  shall have any right to demand or
     receive the return of its Capital Contribution from the Partnership.

          4.8  Conversion of Convertible  Preferred  Units or Series C Preferred
     Units;  Redemption  or Purchase of Series C  Preferred  Units,  Convertible
     Preferred Units or Preferred Units.


<PAGE>

          (a) If at  any  time  holders  of the  General  Partner's  Convertible
     Preferred  Stock shall  exercise  their rights under the General  Partner's
     Articles of  Incorporation  to convert any shares of Convertible  Preferred
     Stock  to  Common  Stock,  in  whole or in part  (including  any  fractions
     thereof),  then,  simultaneously  with such conversion,  an equal number of
     Convertible  Preferred  Units  shall be  automatically  converted  into the
     number of Common  Units equal to the product of (x) the number of shares of
     Common  Stock  into which the  Convertible  Preferred  Stock is  converted,
     multiplied  by (y) a  fraction  the  numerator  of  which  is one  and  the
     denominator  of which is the  Exchange  Factor  (as  defined  in  Exhibit C
     hereto) in effect on such date.

          (b) If at any time shares of the General Partner's Preferred Stock are
     to be redeemed pursuant to the General Partner's  Articles of Incorporation
     or purchased by the General Partner,  the Partnership shall redeem an equal
     number  of  Preferred  Units  by  payment  to the  General  Partner  of the
     Preferred  Unit  Redemption  Amount  or  purchase  price  to be paid by the
     General Partner  immediately  prior to or concurrently with such redemption
     or  purchase.  If at any time shares of the General  Partner's  Convertible
     Preferred  Stock  are to be  redeemed  pursuant  to the  General  Partner's
     Articles  of  Incorporation  or  purchased  by  the  General  Partner,  the
     Partnership shall redeem an equal number of Convertible  Preferred Units by
     payment of the  Convertible  Preferred Unit  Redemption  Amount therefor or
     purchase  price  paid  by  the  General  Partner  immediately  prior  to or
     concurrently with such redemption or purchase. If at any time shares of the
     General  Partner's Series C Preferred Stock are to be redeemed  pursuant to
     the General Partner's Articles of Incorporation or purchased by the General
     Partner, the Partnership shall redeem an equal number of Series C Preferred
     Units by  payment  of the  Series C  Preferred  Unit  Redemption  Amount or
     purchase price to be paid by the General  Partner  immediately  prior to or
     concurrently with such redemption or purchase.
<PAGE>

          (c) If at any time holders of the General Partner's Series C Preferred
     Stock shall exercise their rights under the General  Partner's  Articles of
     Incorporation  to convert any shares of Series C Preferred  Stock to Common
     Stock, in whole or in part, then,  simultaneously with such conversion,  an
     equal number of Series C Preferred Units shall be  automatically  converted
     into the number of Common  Units  which is equal to the number of shares of
     Common  Stock  into  which the  shares of the  General  Partner's  Series C
     Preferred Stock which are being converted are so converted,  as such number
     is determined pursuant to the General Partner's Articles of Incorporation.

          (d) The Series C Preferred Units may be redeemed by the Partnership at
     the option of the General Partner pursuant to the terms of Section 4.9.

          (e) The General  Partner  shall amend  Exhibit A hereto to reflect (i)
     each  conversion  of  Convertible  Preferred  Units,  and the  issuance  of
     additional  Common Units in connection  therewith,  (ii) each exchange by a
     Limited Partner of Series C Preferred Units for Series C Preferred Stock or
     Common Stock of the General  Partner,  and the  allocation or reissuance of
     such Series C Preferred Units in the name of the General Partner,  pursuant
     to Section 12.3 as Series C Preferred  Units or Common  Units,  as the case
     may be, and (iii) each redemption of Convertible Preferred Units, Preferred
     Units and  Series C  Preferred  Units and (iv) each  exchange  by a Limited
     Partner of Convertible Preferred Units for Common Units or Common Units for
     Convertible  Preferred Units pursuant to the exchange offer contemplated by
     the Merger Agreement. 

          4.9 Redemption of Series C Preferred Units.

          (a) On and after August 8, 2007, the Partnership, at the option of the
     General  Partner,  may redeem the Series C Preferred Units, in whole at any
     time or from time to time in part at a  redemption  price for each Series C
     Preferred  Unit,  payable  in cash,  in an  amount  equal  to the  Series C
     Preferred Unit Redemption Amount therefor.
<PAGE>

          (b) Notice of the redemption of any Series C Preferred  Units shall be
     mailed by first class mail to each  Partner  which is a holder of record of
     Series C Preferred Units to be redeemed at the address of each such Partner
     as shown on the  Partnership's  records,  not less than 30 nor more than 90
     days prior to the date fixed for redemption (the "Call Date").  Neither the
     failure  to mail any  notice  required  by this  paragraph,  nor any defect
     therein or in the mailing thereof, to any particular Partner,  shall affect
     the  sufficiency  of the  notice or the  validity  of the  proceedings  for
     redemption  with  respect to the other  Partners.  Each such mailed  notice
     shall state, as appropriate:  (1) the Call Date; (2) the number of Series C
     Preferred  Units  to be  redeemed  and,  if  fewer  than  all the  Series C
     Preferred Units held by such Partner are to be redeemed, the number of such
     Series  C  Preferred  Units  to be  redeemed  from  such  Partner;  (3) the
     redemption  price;  (4)  the  place  or  places  of the  closing  for  such
     redemption;  (5) the then-current conversion price; and (6) that the Series
     C Preferred Distribution with respect to the Series C Preferred Units shall
     cease to  accrue on such Call Date  except as  otherwise  provided  herein.
     Notice  having  been  mailed  as  aforesaid,  from and  after the Call Date
     (unless  the  Partnership  shall fail to make  available  an amount of cash
     necessary  to effect such  redemption),  (i) except as  otherwise  provided
     herein, the Series C Preferred Distribution on the Series C Preferred Units
     so  called  for  redemption  shall  cease to  accrue,  (ii)  such  Series C
     Preferred Units shall no longer be deemed to be outstanding,  and (iii) all
     rights of the holders  thereof as holders of Series C Preferred Units shall
     cease (except the rights to receive the cash payable upon such  redemption,
     without interest thereon). The Partnership's  obligation to provide cash in
     accordance with the preceding  sentence shall be deemed fulfilled if, on or
     before the Call Date,  the  Partnership  shall deposit with a bank or trust
     company (which may be an affiliate of the  Partnership)  that has an office
     in the  Borough  of  Manhattan,  City of New York,  and that has,  or is an
     affiliate of a bank or trust  company  that has,  capital and surplus of at
     least   $50,000,000,   necessary  for  such  redemption,   in  trust,  with
     irrevocable instructions that such cash be applied to the redemption of the
     Series C Preferred Units so called for redemption. No interest shall accrue
     for the benefit of the  holders of Series C Preferred  Units to be redeemed
     on any cash so set aside by the Partnership.  Subject to applicable escheat
     laws,  any such cash  unclaimed  at the end of two years from the Call Date
     shall revert to the general funds of the Partnership, after which reversion
     the holders of such Series C Preferred Units so called for redemption shall
     look only to the general funds of the  Partnership  for the payment of such
     cash.
          If fewer than all the  outstanding  Series C Preferred Units are to be
     redeemed,  units to be redeemed  shall be  selected by the General  Partner
     from  outstanding  Series C  Preferred  Units  not  previously  called  for
     redemption  pro rata (as nearly as may be),  by lot or by any other  method
     determined by the General Partner in its sole discretion to be equitable.
<PAGE>

          4.10 Redemption of Convertible Preferred Units.

          (a) On and after March 31, 1999, the Partnership, at the option of the
     General  Partner,  may redeem the Convertible  Preferred Units, in whole at
     any  time or from  time to time  in part at a  redemption  price  for  each
     Convertible  Preferred  Unit,  payable in cash,  in an amount  equal to the
     Convertible Preferred Unit Redemption Amount therefor.

          (b) Notice of the redemption of any Convertible  Preferred Units shall
     be mailed by first class mail to each  Partner  which is a holder of record
     of Convertible  Preferred  Units to be redeemed at the address of each such
     Partner as shown on the  Partnership's  records,  not less than 30 nor more
     than 90 days prior to the date  fixed for  redemption  (the  "Call  Date").
     Neither the failure to mail any notice required by this paragraph,  nor any
     defect therein or in the mailing thereof, to any particular Partner,  shall
     affect the sufficiency of the notice or the validity of the proceedings for
     redemption  with  respect to the other  Partners.  Each such mailed  notice
     shall  state,  as  appropriate:  (1)  the  Call  Date;  (2) the  number  of
     Convertible  Preferred  Units to be  redeemed  and,  if fewer  than all the
     Convertible  Preferred  Units held by such Partner are to be redeemed,  the
     number  of such  Convertible  Preferred  Units  to be  redeemed  from  such
     Partner;  (3) the redemption  price; (4) the place or places of the closing
     for such redemption;  (5) the then-current  conversion  price; and (6) that
     the  Convertible  Preferred  Distribution  with respect to the  Convertible
     Preferred Units shall cease to accrue on such Call Date except as otherwise
     provided herein. Notice having been mailed as aforesaid, from and after the
     Call Date (unless the Partnership shall fail to make available an amount of
     cash necessary to effect such redemption), (i) except as otherwise provided
     herein, the Convertible Preferred Distribution on the Convertible Preferred
     Units so called for redemption shall cease to accrue, (ii) such Convertible
     Preferred Units shall no longer be deemed to be outstanding,  and (iii) all
     rights of the holders  thereof as holders of  Convertible  Preferred  Units
     shall  cease  (except  the rights to  receive  the cash  payable  upon such
     redemption,  without interest  thereon).  The  Partnership's  obligation to
     provide cash in  accordance  with the  preceding  sentence  shall be deemed
     fulfilled  if, on or before the Call Date,  the  Partnership  shall deposit
     with a bank or trust company (which may be an affiliate of the Partnership)
     that has an office in the Borough of Manhattan,  City of New York, and that
     has, or is an  affiliate of a bank or trust  company that has,  capital and
     surplus of at least $50,000,000,  necessary for such redemption,  in trust,
     with irrevocable  instructions  that such cash be applied to the redemption
     of the Convertible  Preferred  Units so called for redemption.  No interest
     shall accrue for the benefit of the holders of Convertible  Preferred Units
     to be  redeemed  on any cash so set aside by the  Partnership.  Subject  to
     applicable  escheat laws,  any such cash  unclaimed at the end of two years
     from the Call Date shall  revert to the general  funds of the  Partnership,
     after which  reversion the holders of such  Convertible  Preferred Units so
     called  for  redemption  shall  look  only  to  the  general  funds  of the
     Partnership for the payment of such cash. 

          If fewer than all the outstanding  Convertible  Preferred Units are to
     be redeemed,  units to be redeemed shall be selected by the General Partner
     from  outstanding  Convertible  Preferred  Units not previously  called for
     redemption  pro rata (as nearly as may be),  by lot or by any other  method
     determined by the General Partner in its sole discretion to be equitable.
<PAGE>


                                    ARTICLE V
                              INTENTIONALLY OMITTED

                                   ARTICLE VI
         ALLOCATIONS, DISTRIBUTIONS AND OTHER TAX AND ACCOUNTING MATTERS

          6.1  Allocations.  The Net Income,  Net Loss and/or other  Partnership
     items shall be allocated pursuant to the provisions of Exhibit B.

          6.2 Distributions.

          (a) Except for the Special  Distribution,  the Common Distribution and
     distributions  pursuant to Section 8.2 in connection  with the  dissolution
     and  liquidation of the  Partnership,  the General  Partner shall cause the
     Partnership  to  distribute  all Net Cash Flow to the Partners from time to
     time as  determined  by the  General  Partner,  but in any  event  not less
     frequently  than  quarterly,  in such amounts as the General  Partner shall
     determine, and in the following priority:

               (i) First,  to the extent that the amount of cash  distributed to
          the  General  Partner  for all  prior  Quarters  pursuant  to  Section
          6.2(a)(ii)  (other than the  immediately  preceding  Quarter) was less
          than the Preferred  Distribution for each of the outstanding Preferred
          Units for all such  Quarters,  and such  deficiency was not previously
          distributed  pursuant  to  this  subsection  (i) or  paid as part of a
          Preferred   Unit   Redemption   Amount  (a   "Preferred   Distribution
          Shortfall"), Net Cash Flow shall be distributed to the General Partner
          in an amount equal to such  Preferred  Distribution  Shortfall for all
          such prior Quarters.

               (ii) Second,  Net Cash Flow shall be  distributed  to the General
          Partner  on the  Partnership  Payment  Date in an amount  equal to the
          Preferred  Distribution for the immediately preceding Quarter for each
          outstanding Preferred Unit then held by the General Partner.


<PAGE>

               (iii) Third, to the extent the amount of cash  distributed to the
          Partners  holding  Convertible  Preferred  Units  pursuant  to Section
          6.2(a)(iv)  for  all  prior  Quarters   (other  than  the  immediately
          preceding   Quarter)   was  less   than  the   Convertible   Preferred
          Distribution for each of the outstanding  Convertible  Preferred Units
          for  all  such  Quarters,  and  such  deficiency  was  not  previously
          distributed  pursuant  to  this  subsection  (iii)  or paid as part of
          Convertible Preferred Unit Redemption Amount (a "Convertible Preferred
          Distribution  Shortfall"),  Net Cash Flow shall be  distributed to the
          Partners holding  Convertible  Preferred Units, pro rata in accordance
          with their respective  Convertible Preferred Units, in an amount equal
          to such  Convertible  Preferred  Distribution  Shortfall  for all such
          prior Quarters.

               (iv) Fourth,  Net Cash Flow shall be  distributed to the Partners
          holding Convertible Preferred Units on the Partnership Payment Date in
          an amount  equal to the  Convertible  Preferred  Distribution  for the
          immediately   preceding  Quarter  for  each  outstanding   Convertible
          Preferred Unit then held by the Partners holding Convertible Preferred
          Units,  pro  rata in  accordance  with  their  respective  Convertible
          Preferred Units.

               (v) Fifth,  to the extent that the amount of cash  distributed to
          Partners pursuant to Section  6.2(a)(vi) for all prior Quarters (other
          than the  immediately  preceding  Quarter)  was less than the Series C
          Preferred  Distribution for each of the outstanding Series C Preferred
          Units for all such  Quarters,  and such  deficiency was not previously
          distributed  pursuant  to  this  subsection  (v) or  paid as part of a
          Series C  Preferred  Unit  Redemption  Amount (a  "Series C  Preferred
          Distribution  Shortfall"),  Net Cash Flow in an  amount  equal to such
          Series C Preferred  Distribution Shortfall for all such prior quarters
          shall be distributed to the Partners  holding Series C Preferred Units
          on the Partnership Payment Date for the immediately preceding Quarter,
          pro rata,  in  accordance  with their  respective  Series C  Preferred
          Units.  

               (vi) Sixth,  Net Cash Flow shall be distributed to the Partners
          holding  Series C Preferred  Units in an amount  equal to the Series C
          Preferred  Distribution for the immediately preceding Quarter for each
          outstanding  Series C Preferred  Unit,  pro rata, in  accordance  with
          their respective Series C Preferred Units.


<PAGE>

               (vii)   Seventh,   the  balance  of  any  Net  Cash  Flow  to  be
          distributed,  if any,  shall be  distributed  to the Partners  holding
          Common  Units on the  Partnership  Payment  Date with  respect  to the
          immediately  preceding  Quarter,  pro rata in  accordance  with  their
          respective Common Units. (b) On June 9, 1998, the Partnership formally
          declared a cash distribution of (i) $0.50 per outstanding  Common Unit
          and Series C Preferred Unit and (ii) $0.60 per outstanding Convertible
          Preferred Unit, in each case to each holder of record of Common Units,
          Convertible  Preferred  Units and Series C  Preferred  Units as of the
          close of the transfer books of the  Partnership  immediately  prior to
          the Merger (the "Special Distribution"). The payment date with respect
          to the Special Distribution shall be on June 15, 1998.

          (c) On June 15, 1998 immediately after consummation of the Merger, the
     Partnership   formally   declared  the  distribution  of  each  issued  and
     outstanding  common unit of Horizon Group  Properties,  L.P. (each, an "HGP
     Common  Unit")  to each  holder of  record  of  Common  Units,  Convertible
     Preferred  Units  and  Series  C  Preferred  Units  as of the  close of the
     transfer books of the Partnership immediately after the consummation of the
     Merger such that (i) for every twenty (20) Convertible Preferred Units held
     by a holder,  such holder  shall be entitled to receive  1.19617 HGP Common
     Units,  (ii) for every  twenty  (20)  Series C  Preferred  Units  held by a
     holder,  such holder  shall be entitled to receive one (1) HGP Common Unit,
     and (iii) for every twenty (20) Common Units held by a holder,  such holder
     shall  be  entitled  to  receive  one  (1) HGP  Common  Unit  (the  "Common
     Distribution").  The payment date with  respect to the Common  Distribution
     shall occur  fifteen (15) days after June 15, 1998 or on such other date as
     determined  in the  General  Partner's  sole  discretion.  

          (d) The  General  Partner  shall  use its best  efforts  to cause  the
     Partnership to distribute  sufficient amounts to enable the General Partner
     to pay  shareholder  dividends that will (i) satisfy the  requirements  for
     qualifying as a REIT under the Code and Regulations ("REIT  Requirements"),
     and (ii) avoid any federal  income or excise tax  liability  of the General
     Partner.
<PAGE>

          (e) With  respect  to any  Limited  Partner(s)  from whom the  General
     Partner  receives an Exercise  Notice to exercise Rights in accordance with
     Article XI for which the General  Partner  elects to pay the Cash  Purchase
     Price  pursuant  to  Exhibit  C,  the  General   Partner  shall  cause  the
     Partnership to distribute to such Limited  Partner(s),  with respect to the
     Common  Units  for  which  the Cash  Purchase  Price  is  paid,  (i) on the
     Partnership Payment Date, if any,  thereafter  occurring during the Quarter
     in which the Cash  Purchase  Price is paid,  an amount  equal to a full pro
     rata share of any Net Cash Flow to which such  Limited  Partner  would have
     been entitled to receive  pursuant to Section  6.2(a)(vii) had such Limited
     Partner held such Common Units on the Partnership Payment Date occurring in
     such Quarter and (ii) on the  Partnership  Payment Date, if any,  occurring
     during the next succeeding  Quarter after such Exercise Notice is received,
     an amount  equal to the Net Cash Flow to which such Limited  Partner  would
     have been  entitled  to receive  pursuant to Section  6.2(a)(vii)  had such
     Limited  Partner held such Common Units on the  Partnership  Payment  Date,
     multiplied  by a fraction,  the numerator of which is the number of days in
     the  preceding  Quarter  (based on three  30-day  months)  that the Limited
     Partner  held such  Common  Units and the  denominator  of which is 90. 

          (f) Notwithstanding  any other provision in this Agreement,  from time
     to time and at such times as the General Partner shall determine, and prior
     to any  determination  or distribution of Net Cash Flow pursuant to Section
     6.2(a),  there  shall  be  distributed  to the  General  Partner  from  the
     revenues,  proceeds or other funds of the  Partnership,  an amount equal to
     any REIT  Expenses  (other  than  those  described  in  clause  (ii) of the
     definition  of REIT  Expenses),  to the  extent  not paid or payable by the
     General Partner from cash distributions which it receives directly from any
     Property   Partnerships   on  account  of  any  interest  in  the  Property
     Partnership   which  it  holds   directly   (as   opposed  to  through  the
     Partnership).

          (g) The  provisions of Section 6.2 of this  Agreement are not intended
     to supersede or replace,  and are subject to, the  agreements  set forth on
     Exhibit E hereto.


<PAGE>

          6.3 Books of  Account.  At all times  during  the  continuance  of the
     Partnership,  the General  Partner shall maintain or cause to be maintained
     full,  true,  complete and correct books of account in accordance with GAAP
     wherein  shall be  entered  particulars  of all  monies,  goods or  effects
     belonging to or owing to or by the Partnership,  or paid, received, sold or
     purchased  in the  course of the  Partnership's  business,  and all of such
     other  transactions,  matters and things  relating  to the  business of the
     Partnership  as are  usually  entered in books of  account  kept by persons
     engaged in a business of a like kind and character as the  Partnership.  In
     addition,  the  Partnership  shall keep all  records as required to be kept
     pursuant to the Act. The books and records of account  shall be kept at the
     principal  office  of  the  Partnership,  and  each  Partner  shall  at all
     reasonable times, and upon reasonable notice, have access to such books and
     records and the right to inspect the same.

          6.4 Reports.  The General  Partner  shall cause to be submitted to the
     Limited Partners promptly upon receipt of the same from the Accountants and
     in no event  later than April 1 of each year,  copies of Audited  Financial
     Statements prepared on a consolidated basis for the Partnership and each of
     the  Property  Partnerships,  together  with the reports  thereon,  and all
     supplementary schedules and information,  prepared by the Accountants.  The
     Partnership also shall cause to be prepared such reports and/or information
     as are necessary for the General Partner to determine its  qualification as
     a REIT and its compliance with REIT Requirements.

          6.5 Audits.  Not less frequently than annually,  the books and records
     of the Partnership shall be audited by the Accountants. The General Partner
     shall, unless determined  otherwise by the General Partner with the Consent
     of the Partners,  engage the  Accountants to audit the books and records of
     the Property Partnerships.
<PAGE>

          6.6 Tax Elections and Returns.  All elections required or permitted to
     be made by the  Partnership  under any  applicable tax law shall be made by
     the General Partner in its sole discretion  (including the election to be a
     "large partnership" under Code Section 775; provided, however, if requested
     by a transferee  (or if the General  Partner is a  transferee,  as it shall
     determine  in its sole  discretion),  the  General  Partner  shall  file an
     election on behalf of the  Partnership  pursuant to Section 754 of the Code
     to adjust the basis of the  Partnership  property in the case of a transfer
     of a Partnership Interest,  including transfers made in connection with the
     exercise  of  Rights,  made  in  accordance  with  the  provisions  of this
     Agreement.  The General  Partner  shall be  responsible  for  preparing and
     filing all federal and state tax returns for the Partnership and furnishing
     copies  thereof  to  the  Partners,   together  with  required  Partnership
     schedules showing allocations of Tax Items and copies of the tax returns of
     all Property  Partnerships  all within the period of time prescribed by law
     (including  extensions).  The General  Partner  shall consult in good faith
     with the Limited Partners  regarding any proposed  modifications to the tax
     returns of the Partnership and/or the Property  Partnerships by the Limited
     Partners.

          6.7 Tax Matters Partner.  The General Partner is hereby  designated as
     the Tax Matters Partner for the  Partnership  within the meaning of Section
     6231(a)(7) of the Code and is  authorized,  but not  required,  to take all
     actions  within its  authority  as tax matters  partner,  as  described  in
     subchapters  C and D of  Chapter  63,  subtitle  F of the  Code;  provided,
     however,  that in  exercising  its  authority as Tax Matters  Partner,  the
     General  Partner  shall be  limited  by the  provisions  of this  Agreement
     affecting tax aspects of the Partnership.
<PAGE>

                                   ARTICLE VII
             RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER

     7.1 Expenditures by Partnership.  The General Partner is hereby  authorized
     to pay  compensation  for  accounting,  administrative,  legal,  technical,
     management  and other  services  rendered  to the  Partnership.  All of the
     aforesaid  expenditures  shall be made on  behalf of the  Partnership  and,
     except  as  provided  below,  the  General  Partner  shall be  entitled  to
     reimbursement  by the  Partnership for any  expenditures  incurred by it on
     behalf of the  Partnership  which shall be made other than out of the funds
     of the Partnership.  The Partnership  shall also assume,  and pay when due,
     all  Administrative  Expenses  other  than REIT  Expenses,  but only to the
     extent not paid or payable by the General  Partner from cash  distributions
     received by the General Partner directly from any Property Partnership. The
     General Partner shall use any cash distributions which it receives directly
     from any Property  Partnerships  on account of any interest in the Property
     Partnership which it holds directly (as opposed to through the Partnership)
     to pay REIT Expenses.

          7.2 Powers and Duties of General Partner. The General Partner shall be
     responsible for the management of the  Partnership's  business and affairs.
     Except  as  otherwise  herein  expressly  provided,   and  subject  to  the
     limitations   contained  in  Section  7.3  hereof  with  respect  to  Major
     Decisions,  the General Partner shall have, and is hereby granted, full and
     complete  power,  authority  and  discretion to take such action for and on
     behalf of the  Partnership and in its name as the General Partner shall, in
     its sole and absolute  discretion,  deem  necessary or appropriate to carry
     out the  purposes  for  which  the  Partnership  was  organized.  Except as
     otherwise expressly provided herein, and subject to Section 7.3 hereof, the
     General Partner shall have the following rights, powers and authorities, to
     the extent  necessary and appropriate to pursue and accomplish the purposes
     of the Partnership:

               (a) To manage, control,  invest,  reinvest,  acquire by purchase,
          lease or  otherwise,  sell,  contract to  purchase  or sell,  hold for
          investment, grant, obtain, or exercise options to purchase, options to
          sell or conversion rights, assign, transfer, convey, deliver, endorse,
          exchange,  pledge,  mortgage,   abandon,  improve,  repair,  maintain,
          insure,  lease  for any  term  and  otherwise  deal  with  any and all
          property of whatsoever kind and nature, and wheresoever  situated,  in
          furtherance of the business or purposes of the Partnership;


<PAGE>

               (b) To acquire, directly or indirectly,  interests in real estate
          of any  kind  and of any  type,  and any and all  kinds  of  interests
          therein,  and to determine  the manner in which title thereto is to be
          held; to manage,  insure against loss,  protect and subdivide any real
          estate,  interests  therein or parts thereof;  to improve,  develop or
          redevelop any such real estate;  to  participate  in the ownership and
          development of any property; to dedicate for public use, to vacate any
          subdivisions or parts thereof, to resubdivide, to contract to sell, to
          grant  options  to  purchase  or lease,  or to sell on any  terms;  to
          convey,  mortgage,  pledge or otherwise encumber said property, or any
          part thereof;  to lease said property or any part thereof from time to
          time,  upon any  terms  and for any  period  of time,  and to renew or
          extend leases, to amend,  change or modify the terms and provisions of
          any leases and to grant  options to lease and options to renew  leases
          and  options  to  purchase;  to  partition  or to  exchange  said real
          property,  or any part thereof, for other real or personal property or
          to grant easements or charges of any kind; to relay,  convey or assign
          any right,  title or interest in or about or easement  appurtenant  to
          said  property or any part  thereof;  to  construct  and  reconstruct,
          remodel,  alter,  repair,  add to or take from  buildings  on any real
          property  in which the  Partnership  owns an  interest;  to insure any
          Person  having  an  interest  in  or  responsibility   for  the  care,
          management  or repair of such  property;  to direct the trustee of any
          land trust to mortgage,  lease,  convey or contract to convey the real
          estate  held in such  land  trust or to  execute  and  deliver  deeds,
          mortgages, notes, and any and all documents pertaining to the property
          subject to such land trust or in any matter  regarding such trust;  to
          execute  assignments of all or any part of the beneficial  interest in
          any land trust in which the Partnership owns a beneficial interest;

               (c) To employ, engage or contract with or dismiss from employment
          or engagement  Persons to the extent  deemed  necessary by the General
          Partner for the operation and management of the Partnership  business,
          including but not limited to, contractors, subcontractors,  engineers,
          architects, surveyors, mechanics, consultants, accountants, attorneys,
          insurance   brokers,   real   estate   brokers,   financial   counsel,
          professional advisers and others;
<PAGE>

               (d) To enter into, make, amend,  perform and carry out, or cancel
          and  rescind,  contracts  and  other  obligations,  including  without
          limitation   guaranties  and  indemnity  agreements  for  any  purpose
          pertaining  to  the  business  of  the  Partnership  or  any  Property
          Partnership;  and to loan  money to,  borrow  money from and engage in
          transactions with Affiliates of the Partnership or any other Person;

               (e) To borrow money or procure loans and advances from any Person
          for  Partnership  purposes,  and to  apply  for and  secure,  from any
          Person, credit or accommodations,  without limitation as to amount; to
          contract  liabilities  and  obligations,  direct or contingent  and of
          every kind and nature with or without security;  to repay,  discharge,
          settle,  adjust,  compromise,  or  liquidate  any such loan,  advance,
          credit,  obligation or liability;  and to draw, make, accept, endorse,
          execute  and  issue  promissory  notes,  drafts,  bills  of  exchange,
          warrants,  bonds,  debentures,  evidences  of  indebtedness  and other
          instruments,  and to secure the payment thereof,  the interest thereon
          and any other  obligations or  liabilities  relating  thereto,  in any
          manner, including without limitation by mortgage on, security interest
          in or pledge of, or conveyance or assignment in trust of, the whole or
          any part of the assets of the  Partnership,  real,  personal or mixed,
          including  contract  rights and options,  whether at the time owned or
          thereafter  acquired,  and  future  earnings,  and to sell,  pledge or
          otherwise  dispose  of such  securities  or other  obligations  of the
          Partnership for the furtherance of any purpose of the Partnership, and
          to  guaranty or  indemnify  any Person in  connection  with any of the
          foregoing or any other activity of the Partnership;

               (f) To pledge,  hypothecate,  mortgage, assign, deposit, deliver,
          enter  into  sale and  leaseback  arrangements  or  otherwise  give as
          security or as additional or substitute security, or sell or otherwise
          dispose of any and all Partnership  property,  tangible or intangible,
          including, but not limited to, real estate and beneficial interests in
          land trusts,  and to make  substitutions  thereof,  and to receive any
          proceeds  thereof  upon the  release or  surrender  thereof;  to sign,
          execute and deliver any and all assignments, deeds and other contracts
          and instruments in writing; to authorize,  give, make, procure, accept
          and receive moneys, payments,  property,  notices, demands,  vouchers,
          receipts,  releases,  compromises and  adjustments;  to waive notices,
          demands,  and protests and authorize and execute waivers of every kind
          and nature; to enter into, make, execute,  deliver and receive written
          agreements,  undertakings and instruments of every kind and nature; to
          give oral  instructions and make oral agreements;  and generally to do
          any and all other acts and things  incidental  to any of the foregoing
          or with  reference to any dealings or  transactions  which the General
          Partner  may  deem  necessary,   proper  or  advisable  to  effect  or
          accomplish  any of the  foregoing  or to carry  out the  business  and
          purposes of the Partnership;

               (g) To acquire and enter into any contract of insurance which the
          General  Partner deems  necessary or appropriate for the protection of
          the Partnership,  for the conservation of the Partnership's  assets or
          for any purpose convenient or beneficial to the Partnership;


<PAGE>

               (h) To conduct any and all banking  transactions on behalf of the
          Partnership;  to  adjust  and  settle  checking,  savings,  and  other
          accounts  with such  institutions  as the General  Partner  shall deem
          appropriate;  to draw,  sign,  execute,  accept,  endorse,  guarantee,
          deliver,  receive  and pay any  checks,  drafts,  bills  of  exchange,
          acceptances,  notes,  obligations,  undertakings and other instruments
          for or relating to the payment of money in, into,  or from any account
          in  the  Partnership's  name;  to  execute,  procure,  consent  to and
          authorize  extensions  and renewals of any of the  foregoing;  to make
          deposits into and withdrawals from the Partnership's bank accounts and
          to negotiate or discount  commercial  paper,  acceptances,  negotiable
          instruments,  bills of exchange and dollar drafts;  to invest funds of
          the Partnership;

               (i) To demand,  sue for,  receive,  and  otherwise  take steps to
          collect or recover all debt, rents,  proceeds,  interests,  dividends,
          goods, chattels, income from property, damages and all other property,
          to which the  Partnership  may be  entitled or which are or may become
          due the  Partnership  from  any  Person;  to  commence,  prosecute  or
          enforce, or to defend, answer or oppose, contest and abandon all legal
          proceedings   in  which  the   Partnership  is  or  may  hereafter  be
          interested;  and to settle,  compromise or submit to  arbitration  any
          accounts,  debts, claims, disputes and matters which may arise between
          the Partnership and any other Person and to grant an extension of time
          for the payment or satisfaction  thereof on any terms, with or without
          security;

               (j) To make  arrangements for financing,  including the taking of
          all action deemed  necessary or appropriate by the General  Partner to
          cause any approved loans to be closed;
<PAGE>

               (k)  To  take  all  reasonable   measures   necessary  to  insure
          compliance by the Partnership with applicable arrangements,  and other
          contractual   obligations  and   arrangements   entered  into  by  the
          Partnership  from time to time in  accordance  with the  provisions of
          this Agreement, including periodic reports as required to be submitted
          to lenders, and using all due diligence to insure that the Partnership
          is in compliance with its contractual obligations;

               (l) To maintain the Partnership's books and records;

               (m) To prepare and deliver, or cause to be prepared and delivered
          by the Partnership's Accountants, all financial and other reports with
          respect to the operations of the Partnership and all Federal and state
          tax returns and reports;

               (n) To act in any state or nation  in which the  Partnership  may
          lawfully act, for itself or as principal,  agent or representative for
          any Person with respect to any business of the Partnership;

               (o) To become a partner or member in, and perform the obligations
          of a partner  or member of, any  general  or  limited  partnership  or
          limited liability company;

               (p) To apply for, register, obtain, purchase or otherwise acquire
          trademarks,  trade names,  labels and designs relating to or useful in
          connection with any business of the Partnership, and to use, exercise,
          develop and license the use of the same;

               (q) To pay or  reimburse  any  and all  actual  fees,  costs  and
          expenses   incurred  in  the   formation  and   organization   of  the
          Partnership;
<PAGE>

               (r) To do all acts which are necessary,  customary or appropriate
          for the  protection  and  preservation  of the  Partnership's  assets,
          including the establishment of reserves; and

               (s) In general, to exercise all of the general rights, privileges
          and powers  permitted to be had and exercised by the provisions of the
          Act,  including without limitation the right to effect a merger of the
          Partnership  with another Entity in accordance  with the provisions of
          the Act.

Except as  otherwise  provided  herein,  to the extent the duties of the General
Partner require  expenditures of funds to be paid to third parties,  the General
Partner  shall not have any  obligations  hereunder  except to the  extent  that
Partnership  funds are  reasonably  available to it for the  performance of such
duties,  and  nothing  herein  contained  shall be deemed to require the General
Partner,  in its capacity as such,  to expend its  individual  funds to make any
payment  to third  parties  on behalf of the  Partnership  or to  undertake  any
individual liability or obligation on behalf of the Partnership.

               7.3 Major  Decisions.  The General Partner shall not, without the
          prior Consent of the Partners, on behalf of the Partnership, undertake
          any of the following actions (the "Major Decisions"):

                    (a)  Amend  and/or  modify  this  Agreement  other  than  as
               specified in Section 14.7. (20 Take title to any personal or real
               property,  other than in the name of the Partnership,  a Property
               Partnership  or pursuant to Section 7.5 or 7.8 hereof or pursuant
               to the transactions contemplated by the Merger Agreement.

                    (b) Dissolve the Partnership  prior to the occurrence of any
               of the Liquidating Events.
<PAGE>

          7.4 No Removal.  In no event  shall the Limited  Partners or any other
     Persons have the right to remove the General  Partner as general partner of
     the Partnership.  

          7.5 General Partner Participation. The General Partner agrees that all
     business activities of the General Partner, including activities pertaining
     to the  acquisition,  development  and  ownership of  properties,  shall be
     conducted  through the  Partnership;  provided that the General Partner may
     own up to a one percent  (1%)  interest in any  Property  Partnership.  The
     General  Partner  agrees  that all  borrowings  for the  purpose  of making
     distributions  to its  stockholders  will not be  incurred  by the  General
     Partner but will be incurred only by the  Partnership  or by one or more of
     the Property Partnerships.

          7.6  Proscriptions.  The General  Partner shall not have the authority
     to: 

          (a) Do any act in  contravention of this Agreement or which would make
     it impossible to carry on the ordinary business of the Partnership;

          (b) Possess  any  Partnership  property  or assign  rights in specific
     Partnership property for other than Partnership purposes; or

          (c) Do any act in contravention of applicable law.

Nothing herein contained shall impose any obligation on any Person or firm doing
business  with the  Partnership  to inquire  as to  whether  or not the  General
Partner has properly  exercised its authority in executing any contract,  lease,
mortgage,  deed or other instrument on behalf of the  Partnership,  and any such
third Person shall be fully  protected  in relying  upon such  authority. 

          7.7 Additional  Partners.  Additional  Partners may be admitted to the
     Partnership only as provided in Section 4.4 hereof.

          7.8 Title Holder.  To the extent allowable under applicable law, title
     to all or any part of the properties of the  Partnership may be held in the
     name of the Partnership or in the name of any other Person,  the beneficial
     interest in which shall at all times be vested in the Partnership. Any such
     title holder shall perform any and all of its  respective  functions to the
     extent and upon such terms and conditions as may be determined from time to
     time by the General  Partner,  consistent with the business and purposes of
     the Partnership.  
<PAGE>

          7.9 Compensation of the General Partner. The General Partner shall not
     be entitled to any  compensation  for services  rendered to the Partnership
     solely in its capacity as General  Partner.  The foregoing  shall not limit
     the General  Partner's right to reimbursement  for those costs and expenses
     constituting   Administrative   Expenses  as  provided  elsewhere  in  this
     Agreement.

          7.10 Waiver and Indemnification.

          (a) Neither any Partner nor any Person acting on behalf of any Partner
     (including  the (1) Neither any Partner nor any Person  acting on behalf of
     any Partner (including the Liquidating Trustee),  pursuant hereto, shall be
     liable,   responsible  or  accountable  in  damages  or  otherwise  to  the
     Partnership  or to any  Partner  for any  acts or  omissions  performed  or
     omitted to be performed  by them or for their errors of judgment;  provided
     that the  Partner's or such other  Person's  conduct or omission to act was
     taken in good faith. The Partnership shall, and hereby does,  indemnify and
     hold harmless each Partner and its Affiliates and any individual  acting on
     their behalf  (including the  Liquidating  Trustee) from any loss,  damage,
     expense,  claim or  liability,  including,  but not limited to,  reasonable
     attorneys' fees and expenses,  incurred by them by reason of the operations
     of the  Partnership as set forth in this Agreement in which such Partner or
     other  Person  may be  involved  or in  enforcing  the  provisions  of this
     indemnity,  unless it is established  that: (i) the act or omission of such
     Partner or other Person was material to the matter giving rise to the loss,
     damage,  expense,  claim or liability and either was committed in bad faith
     or was the result of active and deliberate dishonesty; (ii) such Partner or
     other  Person  actually  received  an improper  personal  benefit in money,
     property or services; or (iii) in the case of any criminal proceeding, such
     Partner or other  Person had  reasonable  cause to believe  that the act or
     omission was unlawful.  Without  limitation,  the foregoing indemnity shall
     extend to any liability of any Partner or other Person,  pursuant to a loan
     guaranty or  otherwise,  for any  indebtedness  of the  Partnership  or any
     Property  Partnership or other  subsidiary of the  Partnership  (including,
     without limitation,  any indebtedness which the Partnership or any Property
     Partnership  or other  subsidiary of the  Partnership  has assumed or taken
     subject to), and the General Partner is hereby authorized and empowered, on
     behalf of the Partnership,  to enter into one or more indemnity  agreements
     consistent with the provisions of this Section 7.10 in favor of any Partner
     or  other  Person  having  or  potentially  having  liability  for any such
     indebtedness.  The  termination  of any  proceeding  by judgment,  order or
     settlement   does  not  create  a  presumption   that  the  Person  seeking
     indemnification did not meet the requisite standard of conduct set forth in
     this Section 7.10.  The  termination  of any  proceeding by conviction of a
     Person  seeking  indemnification  or upon a plea of nolo  contendere or its
     equivalent by such Person,  or any entry of any order or probation  against
     such Person prior to judgment,  creates a rebuttable  presumption that such
     Person  acted in a manner  contrary to that  specified in this Section 7.10
     with respect to the subject  matter of such  proceeding.  No Partner  shall
     have any personal liability with respect to the foregoing  indemnification,
     any such  indemnification  to be satisfied  solely out of the assets of the
     Partnership.

<PAGE>

          (b) Any Person entitled to indemnification  under this Agreement shall
     be entitled to receive,  upon application  therefor,  advances to cover the
     costs of defending any proceeding against such Person;  provided,  however,
     that such advances shall be repaid to the Partnership, without interest, if
     such Person is found by a court of competent  jurisdiction  upon entry of a
     final  judgment not to be entitled to such  indemnification.  All rights of
     the indemnitee  hereunder shall survive the dissolution of the Partnership;
     provided,  however,  that a claim for indemnification  under this Agreement
     must be made by or on behalf of the Person seeking indemnification prior to
     the  time  the   liquidation   of  the   Partnership   is  completed.   The
     indemnification  rights contained in this Agreement shall be cumulative of,
     and in addition to, any and all rights,  remedies and recourse to which the
     Person  seeking  indemnification  shall be  entitled,  whether at law or in
     equity. Indemnification pursuant to this Agreement shall be made solely and
     entirely from the assets of the  Partnership and no Partner shall be liable
     therefor. 

          (c) The  Partnership  shall,  and  hereby  does,  indemnify  and  hold
     harmless the General  Partner from any loss,  damage,  claim or  liability,
     including,  but not limited to,  reasonable  attorneys'  fees and expenses,
     incurred by the General Partner by reason of (i) any indebtedness  incurred
     by the  General  Partner  in  compliance  with  Section  4.3  hereof or any
     indebtedness  of  the  Partnership  or  any  subsidiary   thereof  that  is
     guaranteed by the General Partner or (ii) vicarious  liability by reason of
     its status as General Partner of the  Partnership.  The Partners agree that
     in the event the  Partnership  becomes a debtor in a bankruptcy  proceeding
     under a plan of  reorganization,  any funds  distributable  to the  General
     Partner and any funds distributable to the Limited Partners under such plan
     of  reorganization,  after  discharging  claims against the General Partner
     from such  funds,  will be  distributed  to the  Limited  Partners  and the
     stockholders   of  the  General   Partner  among  the  various  classes  of
     Partnership  Units in accordance  with the agreed  priorities  set forth in
     Section 6.2. Each Partner agrees to turn over any such funds to the General
     Partners to be so distributed.

          (d) The  Limited  Partners  expressly  acknowledge  that  the  General
     Partner is acting on behalf of the  Partnership  and the General  Partner's
     shareholders, collectively, that the General Partner is under no obligation
     to consider the  separate  interests  of the Limited  Partners  (including,
     without  limitation,  the tax consequences to the Limited Partners or their
     assignees) in deciding whether to cause the Partnership to take (or decline
     to take) any actions and that the General  Partner  shall not be liable for
     monetary damages for losses sustained, liabilities incurred or benefits not
     derived by Limited  Partners in connection  with such  decisions;  provided
     that the  General  Partner  has acted in good  faith.  

          (e) Subject to its obligations and duties as General Partner set forth
     in Section 7.2 hereof,  the General  Partner may exercise any of the powers
     granted to it by this  Agreement and perform any of the duties imposed upon
     it hereunder either directly or through its agents.
<PAGE>

          (f) The  Partnership  may, but shall not be obligated to, purchase and
     maintain  insurance,  on  behalf  of any  Person  potentially  entitled  to
     indemnification  and  such  other  Persons  as the  General  Partner  shall
     determine,  against any liability that may be asserted  against or expenses
     that may be incurred by such Person in  connection  with the  Partnership's
     activities,  regardless of whether the Partnership  would have the power to
     indemnify such Person  against such liability  under the provisions of this
     Agreement. 

          7.11  Operation  in  Accordance  with REIT  Requirements.  The General
     Partner agrees and the Limited  Partners  acknowledge  that the Partnership
     shall be operated  in a manner that will enable the General  Partner to (a)
     satisfy the REIT  Requirements  and (b) avoid the imposition of any federal
     income or excise  tax  liability,  unless  the  General  Partner  ceases to
     qualify as a REIT for reasons other than the conduct of the business of the
     Partnership.  In connection  with the foregoing,  and without  limiting the
     General  Partner's  rights in its sole discretion to cease  qualifying as a
     REIT, the Partners acknowledge that the General Partner's current status as
     a REIT  inures to the  benefit of all  Partners  and not solely the General
     Partner.  The Partnership  shall avoid taking any action, or permitting any
     Property  Partnership to take any action, which would result in the General
     Partner  ceasing to satisfy the REIT  Requirements  or would  result in the
     imposition  of any federal  income or excise tax  liability  on the General
     Partner.
<PAGE>
                                  ARTICLE VIII
                     DISSOLUTION, LIQUIDATION AND WINDING-UP

          8.1 Winding Up.
          (a)  Upon the  occurrence  of an event  of  dissolution  described  in
     Section  3.2, the  Partnership  shall  continue  solely for the purposes of
     winding up its  affairs in an orderly  manner,  liquidating  its assets and
     satisfying the claims of its creditors and Partners.  No Partner shall take
     any action that is  inconsistent  with, or not necessary to or  appropriate
     for,  the  winding  up of  the  Partnership's  business  and  affairs.  The
     Liquidating  Trustee shall be responsible for overseeing the winding up and
     liquidation of the Partnership's  assets and shall take full account of the
     Partnership's  liabilities and property and the Partnership's  assets shall
     be liquidated as promptly as is  consistent  with  obtaining the fair value
     thereof, and the proceeds therefrom (which may, to the extent determined by
     the Liquidating  Trustee,  include shares of stock in the General  Partner)
     shall be applied and  distributed  in  accordance  with the  provisions  of
     Section 8.2.

          (b) In the discretion of the Liquidating  Trustee,  a pro rata portion
     of the  distributions  that would  otherwise be made to the General Partner
     and Limited Partners pursuant to this Article VIII may be:
<PAGE>

               (i)  distributed  to a trust  established  for the benefit of the
          General  Partner and Limited  Partners for the purposes of liquidating
          Partnership  assets,  collecting  amounts owed to the  Partnership and
          paying any contingent or unforeseen  liabilities or obligations of the
          Partnership or of the General  Partner arising out of or in connection
          with  the  Partnership.   The  assets  of  any  such  trust  shall  be
          distributed to the General  Partner and Limited  Partners from time to
          time, in the reasonable  discretion of the Liquidating Trustee, in the
          same  proportions  as the  amount  distributed  to such  trust  by the
          Partnership  would  otherwise  have been  distributed  to the  General
          Partner and the Limited  Partners  pursuant to this Agreement;  or 

               (ii)  withheld  or escrowed  to provide a  reasonable reserve for
          Partnership  liabilities  (contingent or otherwise) and to reflect the
          unrealized  portion  of  any  installment   obligations  owed  to  the
          Partnership;  provided that such withheld or escrowed amounts shall be
          distributed to the General Partner and Limited  Partners in the manner
          and order of priority set forth in Section 8.2 as soon as possible.

          (c) A reasonable  time shall be allowed for the orderly  winding-up of
     the  business and affairs of the  Partnership  and the  liquidation  of its
     assets  pursuant  to Section 8.1  hereof,  in order to minimize  any losses
     otherwise  attendant  upon  such  winding-up,  and the  provisions  of this
     Agreement  shall remain in effect between the Partners during the period of
     liquidation.  


<PAGE>

          (d) The  liquidation  of the  Partnership  shall not be deemed finally
     completed until the  Partnership  shall have received cash payments in full
     with respect to obligations  such as notes,  installment  sale contracts or
     other similar  receivables  received by the  Partnership in connection with
     the  sale of  Partnership  assets  and  all  remaining  obligations  of the
     Partnership have been satisfied or assumed by the Liquidating  Trustee. The
     Liquidating  Trustee shall  continue to act to enforce all of the rights of
     the Partnership pursuant to any such obligations until such obligations are
     paid in full or otherwise  satisfied.  The  Liquidating  Trustee  shall use
     reasonable  efforts to liquidate the  Partnership in the same year in which
     substantially all of the assets of the Partnership being disposed of in the
     liquidation  are sold or exchanged.  

          (e) The  Liquidating  Trustee  shall be  empowered to give and receive
     notices,   reports  and  payments  in  connection  with  the   dissolution,
     liquidation  and/or  winding-up  of the  Partnership  and  shall  hold  and
     exercise  such other  rights and powers as are  necessary  or  required  to
     permit all parties to deal with the Liquidating  Trustee in connection with
     the dissolution, liquidation and/or winding-up of the Partnership.


          8.2 Distribution on Dissolution and  Liquidation.  In the event of the
     dissolution and  liquidation of the Partnership for any reason,  the assets
     of the  Partnership  shall be liquidated for  distribution in the following
     rank and order: 

               (a) Payment of creditors of the Partnership (other than Partners)
          in the order of  priority as provided  by law;  


<PAGE>

              (b)  Establishment  of reserves as determined by the  Liquidating
          Trustee to provide for contingent liabilities, if any;

               (c) Payment of debts of the  Partnership to Partners,  if any, in
          the order of priority provided by law;

               (d) To the Partners in accordance  with the positive  balances in
          their   respective   Capital  Accounts  after  giving  effect  to  all
          contributions,   distributions   and   allocations  for  all  periods,
          including  the period in which such  distribution  occurs  (other than
          those adjustments made pursuant to this Section 8.2(d)).

Whenever  the  Liquidating  Trustee  reasonably  determines  that  any  reserves
established  pursuant  to  paragraph  (b) above are in excess of the  reasonable
requirements  of the  Partnership,  the amount  determined to be excess shall be
distributed  to the Partners in accordance  with  paragraphs  (c) and (d) above.


          8.3  Timing  Requirements.  In  the  event  that  the  Partnership  is
     "liquidated"  within the  meaning of  Section  1.704-1(b)(2)(ii)(g)  of the
     Regulations,  any and all distributions to the Partners pursuant to Section
     8.2(d)  hereof  shall be made no later  than the  later to occur of (i) the
     last day of the taxable year of the  Partnership in which such  liquidation
     occurs or (ii) ninety (90) days after the date of such liquidation.


<PAGE>

          8.4 Deemed Distribution and Recontribution.  Notwithstanding any other
     provision of this Article VIII, in the event the  Partnership is considered
     liquidated within the meaning of Regulations  Section  1.704-1(b)(2)(ii)(g)
     but no dissolution and liquidation has occurred pursuant to this Agreement,
     including  pursuant the Prime/Horizon  Merger,  the Partnership's  property
     shall not be liquidated, the Partnership's liabilities shall not be paid or
     discharged,  and the Partnership's  affairs shall not be wound up. Instead,
     for  federal  and  applicable  state and local  income  tax  purposes,  the
     Partnership  shall be deemed to have  contributed the property in kind to a
     new limited  partnership,  which shall be deemed to have  assumed and taken
     such property  subject to all  Partnership  liabilities,  in return for the
     interests in such  partnership.  Immediately  thereafter,  the  Partnership
     shall be  deemed  to have  distributed  the  interests  in the new  limited
     partnership to the General  Partner and the Limited  Partners in proportion
     to their  respective  interests in the  Partnership  in  liquidation of the
     Partnership.  

          8.5  Distributions in Kind. In the event that it becomes  necessary to
     make a  distribution  of  Partnership  property  in kind,  the  Liquidating
     Trustee  may,  with the Consent of the  Partners,  transfer and convey such
     property  to  the  distributees  as  tenants  in  common,  subject  to  any
     liabilities  attached thereto, so as to vest in the distributees  undivided
     interests in the whole of such property in  proportion to their  respective
     rights to share in the proceeds of the sale of such property (other than as
     a creditor) in accordance with the provisions of Section 8.2 hereof.

          8.6   Documentation  of  Liquidation.   Upon  the  completion  of  the
     dissolution  and  liquidation of the  Partnership,  the  Partnership  shall
     terminate and the  Liquidating  Trustee shall have the authority to execute
     and record any and all  documents  or  instruments  required  to effect the
     dissolution, liquidation and termination of the Partnership.

          8.7  Deficit  Capital  Account  Balance.  If any Partner has a deficit
     Capital  Account (after giving effect to all  contributions,  distributions
     and  allocations  for all taxable years of the  Partnership,  including the
     year during which a liquidation of the  Partnership  occurs),  such Partner
     shall have no  obligation  to make any  contribution  to the capital of the
     Partnership  with respect to such  deficit,  and such deficit  shall not be
     considered  a debt owed to the  Partnership  or to any other Person for any
     purpose whatsoever.

<PAGE>

                                   ARTICLE IX

                       TRANSFER OF PARTNERSHIP INTERESTS;
                  WITHDRAWAL; ADMISSION OF ADDITIONAL PARTNERS

      9.1 General Partner Transfer; Withdrawal; Substitute General Partner.

          (a) The General Partner shall not voluntarily withdraw (as provided in
     Section  17-602(a) of the Act) as general  partner of the  Partnership  and
     shall not sell, assign, pledge, encumber or otherwise dispose of all or any
     portion of its interest in the Partnership without the unanimous consent of
     all of the Limited Partners which consent may be withheld in their sole and
     absolute  discretion.  

          (b) Upon any Transfer of a Partnership Interest in accordance with the
     provisions of this Section 9.1, the transferee General Partner shall become
     vested with the powers and rights of the transferor  General  Partner,  and
     shall be liable for all  obligations  and responsible for all duties of the
     General Partner,  once such transferee has executed such instruments as may
     be necessary to effect such  admission and to confirm the agreement of such
     transferee to be bound by all the terms and  provisions  of this  Agreement
     with respect to the Partnership Interest so acquired.  It is a condition to
     any Transfer otherwise  permitted  hereunder that the transferee assumes by
     operation  of law or  express  agreement  all  of  the  obligations  of the
     transferor  General  Partner  under  this  Agreement  with  respect to such
     transferred  Partnership Interest and no such Transfer (other than pursuant
     to  a  statutory  merger  or  consolidation  wherein  all  obligations  and
     liabilities  of the transferor  General  Partner are assumed by a successor
     corporation  or  other  Entity  by  operation  of law)  shall  relieve  the
     transferor  General Partner of its obligations under this Agreement without
     the Consent of the Partners, in their reasonable discretion.
<PAGE>

          (c) In the event the General Partner  withdraws from the  Partnership,
     in violation of this Agreement or otherwise,  or dissolves or terminates or
     upon the Bankruptcy of the General Partner, a  Majority-in-Interest  of the
     Limited  Partners  may  elect  to  continue  the  Partnership  business  by
     selecting  a  substitute   general  partner.   Upon  any  such  event,  the
     Partnership  Interest of the General Partner shall cease to be the interest
     of a general partner,  and shall be converted to the interest of a "Special
     Limited Partner." Upon such a conversion, the Special Limited Partner shall
     retain all  Partnership  Units  allocated to the General  Partner and shall
     have the right to (i) receive  distributions  of Net Cash Flow  pursuant to
     Section 6.2 and 8.2, (ii) inspect,  copy or review financial records of the
     Partnership  and (iii) vote or exercise  consent rights with respect to the
     number of Common  Units  held by it from  time to time for any  matter  for
     which the Consent of the  Partners  is required or sought.  Notwithstanding
     the  conversion  of the General  Partner's  Partnership  Interest  into the
     Interest  of a Special  Limited  Partner  pursuant to Section  9.1(c),  the
     General  Partner shall retain all  management  powers and shall continue to
     manage the business and affairs of the  Partnership in accordance  with the
     terms of this Agreement  until such time as a successor  General Partner is
     so selected and thereafter  admitted,  or a Liquidating  Trustee other than
     the General Partner is selected.

          9.2 Transfers by Limited Partners. No Limited Partner may Transfer any
     part of its  Partnership  Interest except in accordance with the provisions
     of this  Sections 9.2 and 9.3. Any  purported  Transfer of any  Partnership
     Interest  by a  Limited  Partner  in  violation  of any  provision  of this
     Agreement  shall be void ab initio  and shall not be given  effect  for any
     purpose by the Partnership.


<PAGE>

          (a) Subject to the provisions of Section 9.3, a Limited  Partner shall
     have the  right to  exchange  all or a  portion  of its  Common  Units  for
     Convertible  Preferred  Units,  or Convertible  Preferred  Units for Common
     Units, pursuant to the terms of any exchange offer effected as contemplated
     by the Merger Agreement.

          (b) Each Limited  Partner shall,  subject to the provisions of Section
     9.3, have the right to Transfer all or any portion of its Partnership Units
     to any Person,  whether or not in connection with the exercise of a Limited
     Partner's  Rights.  It is a condition to any Transfer  otherwise  permitted
     under this Section 9.2(b) that the  transferee  assumes by operation of law
     or  express  agreement  (which  agreement,  in the  event  of a  pledge  of
     Partnership  Units, may be entered into and become effective at the time of
     foreclosure or other realization on such pledged  Partnership Units) all of
     the obligations of the transferor Limited Partner under this Agreement with
     respect to such transferred  Partnership  Units and no such Transfer (other
     than  pursuant  to  a  statutory  merger  or   consolidation   wherein  all
     obligations  and  liabilities  of the  transferor  Partner are assumed by a
     successor  corporation  or other Entity by operation of law) shall  relieve
     the transferor  Partner of its obligations under this Agreement without the
     approval of the General Partner, in its reasonable discretion.

          (c) Upon any  Transfer  in  accordance  with  the  provisions  of this
     Section  9.2 and  Section  9.3,  the  transferee  shall  be  admitted  as a
     Substituted  Limited Partner (as such term is defined in the Act) and shall
     succeed  to  all  of  the  rights  and  obligations   (including,   without
     limitation,  the  Rights)  of the  transferor  Limited  Partner  under this
     Agreement with respect to the transferred  Partnership  Units, in the place
     and stead of such  transferor  Limited  Partner (which  succession,  in the
     event of a pledge of  Partnership  Units,  may be  entered  into and become
     effective at the time of foreclosure  or other  realization on such pledged
     Partnership   Units).  Any  transferee,   whether  or  not  admitted  as  a
     Substituted Limited Partner,  shall take the transferred  Partnership Units
     subject to the obligations of the transferor hereunder.  Unless admitted as
     a  Substituted  Limited  Partner,  no  transferee,  whether by a  voluntary
     Transfer,  by  operation of law or  otherwise,  shall have any rights under
     this Agreement or with respect to the Partnership  Property,  other than to
     receive such portion of the  distributions  made by the  Partnership as are
     allocable to the Partnership Units transferred.
<PAGE>

          (d) Intentionally Omitted.

          (e)  Notwithstanding  anything in this Agreement to the contrary,  any
     transferee of any transferred Partnership Units shall be subject to any and
     all ownership limitations contained in the corporate charter of the General
     Partner as may be amended from time to time applicable to Persons which may
     limit or restrict such transferee's ability to exercise the Rights.

          (f) No Limited Partner may withdraw from the  Partnership  without the
     prior written consent of the General  Partner,  other than as a result of a
     Transfer  of  all  of  such  Limited  Partner's   Partnership  Interest  in
     accordance  with this  Agreement  or pursuant to the exercise of the Rights
     with respect to all of such Limited  Partner's  Partnership  Units.  Except
     pursuant to Section  6.2(e),  no Limited  Partner  shall be entitled to any
     distribution  in  respect  of  its  Partnership   Interest  upon  any  such
     withdrawal.

          9.3 Restrictions on Transfer. In addition to any other restrictions on
     Transfer  contained  in this  Agreement,  in no event may any Transfer of a
     Partnership Interest by any Partner be made (i) to any person or entity who
     lacks the legal  right,  power or capacity to own a  Partnership  Interest;
     (ii) in  violation  of  applicable  securities  or other law;  (iii) of any
     component  portion of a Partnership  Unit, such as the Capital Account,  or
     rights to Net Cash Flow,  separate and apart from all other components of a
     Partnership Unit; (iv)if the General Partner  determines that such Transfer
     may reasonably  cause the General  Partner to cease to comply with the REIT
     Requirements;  (v) if  such  Transfer  would  cause  a  termination  of the
     Partnership  for federal income tax purposes;  (vi) if the General  Partner
     determines that such Transfer may reasonably cause the Partnership to cease
     to be classified as a partnership  for Federal income tax purposes or to be
     treated as a publicly traded  partnership as provided in Code Section 7704;
     (vii) if such Transfer would cause the Partnership to become,  with respect
     to  any   employee   benefit   plan   subject  to  Title  1  of  ERISA,   a
     "party-in-interest"   (as   defined  in  Section   3(14)  of  ERISA)  or  a
     "disqualified  person" (as defined in Section 4975(c) of the Code);  (viii)
     if such Transfer
<PAGE>

          would, in the opinion of counsel to the Partnership, cause any portion
     of the  assets of the  Partnership  to  constitute  assets of any  employee
     benefit plan  pursuant to  Department  of Labor  Section  2510.3-101 of the
     Regulations;  and (ix) to a lender to the  Partnership or any Person who is
     related  (within the meaning of Section  1.752-4(b) of the  Regulations) to
     any  lender  to the  Partnership  whose  loan  constitutes  a  "nonrecourse
     liability" (within the meaning of Section 1.752-1(a)(2) of the Regulations)
     without  the  consent  of the  General  Partner,  in its sole and  absolute
     discretion,  unless the Partnership's basis in the Property Partnerships or
     applicable Property or any Partner's basis in its Partnership  Interest for
     tax purposes would not be reduced as a result of such  Transfer;  provided,
     however,  that the restriction set forth in this clause (ix) of Section 9.3
     shall not  apply to any  Transfer  to a lender or a related  Person to such
     lender if the  interest  (direct  or  indirect)  of such  lender or related
     Person in each item of Partnership income,  gain, loss, deduction or credit
     for every taxable year that the partner is a partner in the  Partnership is
     ten percent (10%) or less and the loan  constitutes  qualified  nonrecourse
     financing  within  the  meaning of  Section  465(b)(6)  of the Code and the
     Regulations thereunder (without regard to the type of activity financed).

          9.4 Proration in Event of Transfers.  If any  Partnership  Interest is
     transferred  or assigned in compliance  with the provisions of this Article
     IX or  exchanged  or  transferred  pursuant to Article XI, on any day other
     than the first day of a Partnership  taxable year, Net Income,  Net Losses,
     each item  thereof and all other items  attributable  to such  interest for
     such  Partnership  taxable year shall be divided and allocated  between the
     transferor  Partner and the transferee Partner by taking into account their
     varying  interests  during the Partnership  taxable year in accordance with
     Section 706(d) of the Code, using the pro ration method (unless the General
     Partner,  in its sole and  absolute  discretion,  elects  to adopt  another
     reasonable  method  permitted  by law).  Other than as  provided in Section
     6.2(e), all distributions of Net Cash Flow attributable to such Partnership
     Unit with respect to which the Partnership  Payment Date is before the date
     of such transfer,  assignment or redemption shall be made to the transferor
     Partner or the exchanging  Partner, as the case may be, and, in the case of
     a transfer or assignment other than a redemption,  all distributions of Net
     Cash Flow thereafter attributable to such Partnership Unit shall be made to
     the transferee Partner.
<PAGE>

          9.5 Admission of Successor General Partner.  A successor to all of the
     General Partner's  Partnership  Interest pursuant to Section 9.1 hereof who
     is proposed to be admitted as a successor General Partner shall be admitted
     to the  Partnership as the General  Partner,  effective upon such transfer.
     The admission of any such  transferee  shall not cause a dissolution of the
     Partnership,  and  such  successor  shall  carry  on  the  business  of the
     Partnership. In each case, the admission of such successor shall be subject
     to  the  successor   General  Partner   executing  and  delivering  to  the
     Partnership  an  acceptance  of all of the  terms  and  conditions  of this
     Agreement  and such other  documents or  instruments  as may be required to
     effect the  admission.  In the case of such admission on any day other than
     the first day of a partnership year, all items  attributable to the General
     Partner's  Partnership  Interest for such Partnership taxable year shall be
     allocated  between the General  Partner  and its  successor  as provided in
     Section 9.4 hereof.

          9.6 Admission of Additional Limited Partners.

          (a) A Person who makes a Capital  Contribution  to the  Partnership in
     accordance  with this  Agreement  or who  exercises  the  right to  receive
     Partnership  Units pursuant to the Merger  Agreement or any other option to
     receive any  Partnership  Units shall be admitted to the  Partnership as an
     additional  Limited Partner only upon furnishing to the General Partner (i)
     evidence of acceptance in form  satisfactory  to the General Partner of all
     of  the  terms  and  conditions  of  this  Agreement,   including,  without
     limitation,  the power of  attorney  granted in Section 2.6 hereof and (ii)
     such other documents or instruments as may be required in the discretion of
     the  General  Partner  in order to effect  such  Person's  admission  as an
     additional Limited Partner.

          (b)  Notwithstanding  anything to the contrary in this Section 9.6, no
     Person  shall be  admitted as an  additional  Limited  Partner  without the
     consent of the General  Partner,  which consent may be given or withheld in
     the General  Partner's sole and absolute  discretion.  The admission of any
     Person as an additional  Limited Partner shall become effective on the date
     upon which the name of such  Person is recorded on the books and records of
     the  Partnership,  following  the  consent of the  General  Partner to such
     admission.


<PAGE>

          (c) If any additional  Limited  Partner is admitted to the Partnership
     on any day other  than the first day of a  Partnership  taxable  year,  Net
     Income,  Net Losses,  each item thereof and all other items allocable among
     Partners  and  assignees  of Partners  for such  Partnership  Year shall be
     allocated among such additional  Limited Partner and all other Partners and
     assignees  by taking  into  account  their  varying  interests  during  the
     Partnership  taxable year in  accordance  with Section  706(d) of the Code,
     using the pro  ration  method;  provided,  however,  that in respect of the
     admission of Limited Partners  pursuant to the Merger,  the General Partner
     shall use the interim  closing of the books method.  Solely for purposes of
     making such allocations, each of such items for the calendar month in which
     an admission of any  additional  Limited  Partner occurs shall be allocated
     among all the Partners and  assignees  including  such  additional  Limited
     Partner.  All  distributions  of Net Cash  Flow with  respect  to which the
     Partnership  Record Date is before the date of such admission shall be made
     solely to Partners and assignees other than the additional Limited Partner,
     and all  distributions of Net Cash Flow thereafter shall be made to all the
     Partners and assignees including such additional Limited Partner.


                                    ARTICLE X
                 RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS

          10.1 No Participation in Management; No Personal Liability.  Except as
     expressly permitted hereunder,  the Limited Partners shall not take part in
     the management of the Partnership's business,  transact any business in the
     Partnership's  name or have the power to sign  documents  for or  otherwise
     bind the Partnership.  Except for any liability to the Partnership pursuant
     to Section 17-607 of the Act for the amount of certain distributions and as
     otherwise specifically provided in this Agreement, no Limited Partner shall
     have any personal  liability,  beyond the amount of such Limited  Partner's
     Capital Contributions,  whether to the Partnership,  to the General Partner
     or to the creditors of the Partnership,  including, without limitation, for
     the debts,  obligations,  expenses or liabilities of the Partnership or any
     of its losses.
<PAGE>

          10.2 Duties and Conflicts.  The General  Partner  recognizes  that the
     Limited  Partners  and their  Affiliates  have or may have  other  business
     interests,  activities and investments, some of which may be in conflict or
     competition with the business of the Partnership,  and that, subject to the
     provisions of any separate noncompete or similar restrictive agreement with
     the Partnership or the General Partner,  such persons are entitled to carry
     on such other business interests, activities and investments and may engage
     in or possess an  interest  in any other  business  or venture of any kind,
     independently  or with  others,  on their own  behalf or on behalf of other
     entities with which they are affiliated or associated, and such persons may
     engage in any activities,  whether or not competitive with the Partnership,
     without any  obligation  to offer any  interest in such  activities  to the
     Partnership or to any Partner. Except as otherwise provided in any separate
     noncompete or similar  restrictive  agreement  with the  Partnership or the
     General  Partner,  neither the  Partnership  nor any Partner shall have any
     right, by virtue of this Agreement, in or to such activities, or the income
     or profits derived  therefrom,  or any portion thereof or interest therein,
     and the pursuit of such  activities,  even if competitive with the business
     of the Partnership, shall not be deemed wrongful, improper or actionable.


<PAGE>

                                   ARTICLE XI
                       GRANT OF RIGHTS TO LIMITED PARTNERS

                    PART I.


               11.1 Grant of Rights.  The General  Partner  does hereby grant to
          the Limited Partners holding Common Units and such Limited Partners do
          hereby accept the right,  but not the  obligations  (hereinafter  such
          right  sometimes  referred to as the  "Rights"),  to exchange all or a
          portion  of  their  Common  Units  on the  terms  and  subject  to the
          conditions and restrictions contained in Exhibit C. The Rights granted
          hereunder may be exercised by any one or more of the Limited Partners,
          on the terms and subject to the conditions and restrictions  contained
          in Exhibit C, upon  delivery  to the  General  Partner of an  Exchange
          Exercise  Notice in the form of Schedule 1 to Exhibit C, which  notice
          shall  specify  the  Common  Units  to be  exchanged  by such  Limited
          Partner.  Once  delivered,  the  Exchange  Exercise  Notice  shall  be
          irrevocable, subject to payment by the General Partner of the Purchase
          Price in respect of such  Common  Units in  accordance  with the terms
          hereof.

               11.2 Terms of Rights. The terms and provisions  applicable to the
          Rights,  including certain  registration rights, shall be as set forth
          in Exhibit C.
<PAGE>

               11.3 Reissuance or Reallocation of Common Units. Any Common Units
          acquired by the General Partner pursuant to an exercise by any Limited
          Partner  of  the  Rights  shall  be  deemed  to  be  acquired  by  and
          reallocated or reissued to the General  Partner.  The General  Partner
          shall  amend  Exhibit  A hereto to  reflect  each  such  exchange  and
          reallocation  or  reissuance  of Common  Units and each  corresponding
          recalculation of the Common Units of the Partners.

                  PART II.

               11.1A Grant of Rights.  The General  Partner does hereby grant to
          any Limited  Partner  holding  Convertible  Preferred  Units the right
          (hereinafter  such right  sometimes  referred  to as the  "Convertible
          Preferred  Rights"),  to exchange all or a portion of its  Convertible
          Preferred  Units  on the  terms  and  subject  to the  conditions  and
          restrictions  contained in Exhibit F. The Convertible Preferred Rights
          granted  hereunder  may be  exercised  on the terms and subject to the
          conditions  and  restrictions  contained in Exhibit F upon delivery to
          the  General  Partner of an  Exchange  Exercise  Notice in the form of
          Schedule 1 to Exhibit F, which  notice shall  specify the  Convertible
          Preferred  Units  to  be  exchanged  by  such  Limited  Partner.  Once
          delivered, the Exchange Exercise Notice shall be irrevocable,  subject
          to  payment  by  the  General  Partner  of the  Convertible  Preferred
          Purchase  Price in  respect  of such  Convertible  Preferred  Units in
          accordance with the terms hereof.
<PAGE>

               11.2A  Terms of  Convertible  Preferred  Rights.  The  terms  and
          provisions  applicable to the Convertible Preferred Rights shall be as
          set forth in Exhibit F.

               11.3A Reissuance or Reallocation of Convertible  Preferred Units.
          Any  Convertible  Preferred  Units  acquired  by the  General  Partner
          pursuant  to an exercise  by any  Limited  Partner of the  Convertible
          Preferred  Rights shall be deemed to be acquired by and reallocated or
          reissued to the General  Partner.  In the event that a Limited Partner
          exercising  Convertible  Preferred Rights elects to receive the Common
          Stock Purchase Price and not the Convertible  Preferred Purchase Price
          (as  such  terms  are  defined  in  Exhibit  F)  with  respect  to any
          Convertible  Preferred  Units,  then the  Convertible  Preferred Units
          acquired  by the  General  Partner  upon  payment of the Common  Stock
          Purchase  Price  shall  be  reallocated  to the  General  Partner  and
          reissued as the number of Common Units which is equal to the number of
          shares of the General  Partner's  Common Stock paid to the  exercising
          Limited  Partner  pursuant  to the  terms of  Exhibit  F hereto as the
          Common Stock Purchase Price therefor.  The General Partner shall amend
          Exhibit A hereto to reflect  each such  exchange and  reallocation  or
          reissuance  of  Convertible  Preferred  Units  and each  corresponding
          recalculation  of the  Convertible  Preferred Units or Common Units of
          the Partners.
<PAGE>

                                   ARTICLE XII

              GRANT OF RIGHTS TO LIMITED PARTNERS HOLDING SERIES C
             PREFERRED UNITS; REDEMPTION OF SERIES C PREFERRED UNITS

               12.1 Grant of Rights.  The General  Partner  does hereby grant to
          any  Limited  Partner  holding  Series C  Preferred  Units  the  right
          (hereinafter  such  right  sometimes  referred  to as  the  "Series  C
          Preferred  Rights"),  to exchange  all or a portion of their  Series C
          Preferred  Units  on the  terms  and  subject  to the  conditions  and
          restrictions  contained  in Exhibit D. The Series C  Preferred  Rights
          granted  hereunder  may be  exercised  on the terms and subject to the
          conditions  and  restrictions  contained in Exhibit D upon delivery to
          the  General  Partner of an  Exchange  Exercise  Notice in the form of
          Schedule  1 to  Exhibit D, which  notice  shall  specify  the Series C
          Preferred  Units  to  be  exchanged  by  such  Limited  Partner.  Once
          delivered, the Exchange Exercise Notice shall be irrevocable,  subject
          to payment by the  General  Partner of the Series C Purchase  Price in
          respect of such Series C Preferred  Units in accordance with the terms
          hereof.

               12.2 Terms of Rights. The terms and provisions  applicable to the
          Series C Preferred Rights shall be as set forth in Exhibit D.

               12.3 Reissuance or Reallocation of Series C Preferred  Units. Any
          Series C Preferred Units acquired by the General  Partner  pursuant to
          an exercise by any  Limited  Partner of the Series C Preferred  Rights
          shall be deemed to be acquired by and  reallocated  or reissued to the
          General Partner. In the event that a Limited Partner exercising Series
          C Preferred  Rights elects to receive the Common Stock  Purchase Price
          and not the  Series C  Preferred  Purchase  Price  (as such  terms are
          defined in Exhibit D) with  respect to any Series C  Preferred  Units,
          then the Series C Preferred Units acquired by the General Partner upon
          payment of the Common Stock Purchase Price shall be reallocated to the
          General  Partner and  reissued as the number of Common  Units which is
          equal to the number of shares of the General  Partner's  Common  Stock
          paid to the  exercising  Limited  Partner  pursuant  to the  terms  of
          Exhibit D hereto as the Common  Stock  Purchase  Price  therefor.  The
          General  Partner  shall  amend  Exhibit A hereto to reflect  each such
          exchange and  reallocation  or reissuance of Series C Preferred  Units
          and each  corresponding  recalculation of the Series C Preferred Units
          or Common Units of the Partners.
<PAGE>

                                  ARTICLE XIII
                     PARTNER REPRESENTATIONS AND WARRANTIES

               Each Partner severally represents and warrants to the Partnership
          and the other Partners as follows:

               (a) Organization.  Such Partner (if such Partner is an Entity) is
          duly organized,  validly  existing and in good standing under the laws
          of its state of organization.

               (b) Due Authorization; Binding Agreement. The execution, delivery
          and  performance  of this  Agreement  by it has been duly and  validly
          authorized by all necessary action of such Partner. This Agreement has
          been  duly   executed   and   delivered   by  it,  or  an   authorized
          representative,   and  constitutes   its  legal,   valid  and  binding
          obligation,  enforceable  against  it in  accordance  with  the  terms
          hereof.

               (c)  Consents  and  Approvals.  No consent,  waiver,  approval or
          authorization  of, or filing,  registration or qualification  with, or
          notice to, any governmental unit or any other person is required to be
          made,  obtained  or given  by it in  connection  with  the  execution,
          delivery  and  performance  of this  Agreement  other  than  consents,
          waivers, approvals or authorizations which have been obtained prior to
          the date hereof.

                                   ARTICLE XIV

                               GENERAL PROVISIONS

<PAGE>

               14.1  Notices.  All  notices,   offers  or  other  communications
          required or permitted to be given pursuant to this Agreement  shall be
          in writing and may be personally served,  telecopied or sent by United
          States mail and shall be deemed to have been given when  delivered  in
          person,  upon receipt of telecopy and oral or written  confirmation by
          the addressee of such receipt, or three business days after deposit in
          United  States mail,  registered or certified,  postage  prepaid,  and
          properly  addressed,  by or to the appropriate  party. For purposes of
          this Section 14.1, the addresses of the parties hereto shall be as set
          forth below their name on a signature page hereof.  The address of any
          party hereto may be changed by a notice in writing given in accordance
          with the provisions hereof.  

               14.2 Successors.  This Agreement and all the terms and provisions
          hereof  shall be binding  upon and shall  inure to the  benefit of all
          Partners, and their respective legal representatives, heirs, legatees,
          successors and permitted assigns, except as expressly herein otherwise
          provided.

               14.3 Effect and Interpretation.  This Agreement shall be governed
          by and construed in conformity with the laws of the State of Delaware.
<PAGE>

               14.4   Counterparts.   This   Agreement   may  be   executed   in
          counterparts,  each of which  shall be an  original,  but all of which
          shall constitute one and the same instrument.

               14.5  Partners  Not Agents.  Nothing  contained  herein  shall be
          construed  to  constitute  any Partner  the agent of another  Partner,
          except as specifically  provided herein, or in any manner to limit the
          Partners in the  carrying  on of their own  respective  businesses  or
          activities.

               14.6 Entire  Understanding,  Etc. This Agreement  constitutes the
          entire agreement and  understanding  among the Partners and supersedes
          any prior understandings  and/or written or oral agreements among them
          respecting the subject matter hereof.

               14.7 Amendments. (a) This Agreement may not be amended, except by
          a written  instrument  signed by the General  Partner (and approved on
          behalf of the General  Partner by at least a majority of its directors
          who  are  not  Affiliates  of any of the  Limited  Partners)  and by a
          Majority-in-Interest  of the  Partners;  provided,  however,  that any
          amendment   which   materially   and  adversely   alters  the  rights,
          preferences and terms of the Common Units held by the Limited Partners
          relative  to those of the  Common  Units held by the  General  Partner
          shall   require   the   consent   of   Limited   Partners   holding  a
          majority-in-interest of the Common Units held by Limited Partners.
<PAGE>
               (b) Notwithstanding  Section 14.7(a) above, so long as any Series
          C Preferred Units are held by Limited Partners, the consent of Limited
          Partners  holding at least  66-2/3% of the  Series C  Preferred  Units
          shall be necessary for effecting:  (a) any amendment  that  materially
          and adversely affects the voting powers,  rights or preferences of the
          holders of the Series C Preferred  Units except that any  amendment to
          authorize  or create or to  increase  the  authorized  amount  of, any
          Partnership Interests that are not senior in any respect to the Series
          C Preferred Units or are on a parity with the Series C Preferred Units
          shall not be deemed to  materially  and  adversely  affect  the voting
          powers,  rights or  preferences  of the  holders of Series C Preferred
          Units; or (b) the authorization,  reclassification  or creation of, or
          the increase in the authorized amount of, any Partnership Interests of
          any  class  ranking  prior  to the  Series  C  Preferred  Units in the
          distribution of assets on any  liquidation,  dissolution or winding up
          of the Partnership or in the payment of dividends;  provided, however,
          that no such consent of the holders of Series C Preferred  Units shall
          be required (1) for the issuance of additional  Convertible  Preferred
          Units to the General Partner in connection with the General  Partner's
          issuance and sale of up to $57 million (before deducting  underwriting
          discounts   or   commissions)   of  its  8.5%   Series  B   Cumulative
          Participating  Convertible  Preferred  Stock,  $.01 par value $.01 per
          share,  at a price  equal to or  greater  than $22 per  share  (before
          deducting  underwriting  discounts  or  commissions)  as  long  as  no
          modification  has  been  made to the  General  Partner's  Articles  of
          Incorporation  from the date hereof affecting the rights or privileges
          of such  Convertible  Preferred  Units,  or (2) if, at or prior to the
          time when such amendment,  alteration or repeal is to take effect,  or
          when the issuance of any such prior units or  convertible  security is
          to be made, as the case may be,  provision is made for the  redemption
          of all Series C Preferred Units at the time  outstanding to the extent
          such redemption is authorized by this Agreement.
<PAGE>
               (c)  Notwithstanding  Section 14.7(a)or (b) above, so long as any
          Convertible Preferred Units are held by Limited Partners,  the consent
          of  Limited  Partners  holding  at least  66-2/3%  of the  Convertible
          Preferred  Units shall be necessary for  effecting:  (a) any amendment
          that  materially and adversely  affects the voting  powers,  rights or
          preferences of the holders of the  Convertible  Preferred Units except
          that  any  amendment  to  authorize  or  create  or  to  increase  the
          authorized amount of, any Partnership Interests that are not senior in
          any respect to the Convertible Preferred Units or are on a parity with
          the Convertible  Preferred Units shall not be deemed to materially and
          adversely  affect  the voting  powers,  rights or  preferences  of the
          holders of  Convertible  Preferred  Units;  or (b) the  authorization,
          reclassification  or creation  of, or the  increase in the  authorized
          amount of, any Partnership Interests of any class ranking prior to the
          Convertible  Preferred  Units in the  distribution  of  assets  on any
          liquidation,  dissolution  or winding up of the  Partnership or in the
          payment of dividends;  provided,  however, that no such consent of the
          holders of  Convertible  Preferred  Units shall be required  if, at or
          prior to the time when such amendment, alteration or repeal is to take
          effect,  or when the  issuance of any such prior units or  convertible
          security is to be made, as the case may be,  provision is made for the
          redemption of all Convertible  Preferred Units at the time outstanding
          to the extent such redemption is authorized by this Agreement.

               (d)  Notwithstanding  Sections  14.7(b) or (c) above, the General
          Partner may amend this  Agreement  without the Consent of the Partners
          or the consent of the  holders of the Series C Preferred  Units or the
          Convertible Preferred Units (i) to add to the representations,  duties
          or obligations of the General Partner; (ii) to cure any ambiguity,  to
          correct or supplement any provision  herein which may be  inconsistent
          with any
<PAGE>

     other provisions herein, to reflect a change that does not adversely affect
     any of the Limited  Partners,  or to make any other provisions with respect
     to matters or  questions  arising  under this  Agreement  which will not be
     inconsistent  with the  provisions  of this  Agreement;  (iii) to effect or
     reflect  a  conversion  or  redemption  of  Preferred  Units,   Convertible
     Preferred Units or Series C Preferred Units pursuant to Section 4.8 or 4.10
     hereof;  (iv)  to  reflect  the  admission,  substitution,  termination  or
     withdrawal of Partners in accordance  with this  Agreement;  (v) to reflect
     the Transfer of any Partnership  Units; (vi) to set forth the designations,
     rights,  powers,  duties and  preferences  of any holders of any additional
     Partnership  Interests issued pursuant to Section 4.3 or 4.4 hereof and the
     modification of the provisions  relating to  distributions of Net Cash Flow
     and allocations of income,  loss, gain and deduction  resulting  therefrom;
     and (vii) to satisfy any requirements,  conditions or guidelines  contained
     in any order,  directive,  opinion,  ruling or  regulation  of a federal or
     state agency or contained in federal or state law.

               14.8  Severability.  If any provision of this  Agreement,  or the
          application of such provision to any person or circumstance,  shall be
          held invalid by a court of competent  jurisdiction,  the  remainder of
          this  Agreement,  or the  application  of such provision to persons or
          circumstances  other  than  those to which it is held  invalid by such
          court, shall not be affected thereby.
<PAGE>

               14.9 Trust Provision.  This Agreement, to the extent executed by
          the trustee of a trust,  is executed by such trustee solely as trustee
          and not in a separate capacity.  Nothing herein contained shall create
          any liability on, or require the  performance  of any covenant by, any
          such trustee individually, nor shall anything contained herein subject
          the individual personal property of any trustee to any liability.

               14.10 Pronouns and Headings.  As used herein,  all pronouns shall
          include the  masculine,  feminine  and neuter,  and all defined  terms
          shall include the singular and plural thereof wherever the context and
          facts require such  construction.  The headings,  titles and subtitles
          herein are inserted for  convenience  of reference  only and are to be
          ignored in any construction of the provisions  hereof.  Any references
          in this  Agreement to "including"  shall be deemed to mean  "including
          without limitation".

               14.11  Assurances.  Each of the Partners shall hereafter  execute
          and deliver  such  further  instruments  and do such  further acts and
          things  as may be  required  or useful  to carry  out the  intent  and
          purpose of this Agreement and as are not  inconsistent  with the terms
          hereof.
<PAGE>

               14.12 Remedies  Cumulative.  No remedy herein  conferred upon any
          party is intended  to be  exclusive  of any other  remedy and each and
          every such  remedy  shall be  cumulative  and shall be in  addition to
          every other remedy given hereunder or now or hereafter existing at law
          or in equity or by statute or otherwise. No single or partial exercise
          by any party of any right,  power or remedy  hereunder  shall preclude
          any other or further exercise thereof.

               14.13  Construction.  Every covenant,  term and provision of this
          Agreement shall be construed  simply according to its fair meaning and
          not strictly for or against any Partner.

               14.14  Incorporation  by Reference.  Every exhibit,  schedule and
          other  appendix  attached to this  Agreement and referred to herein is
          hereby incorporated in this Agreement by reference.

               14.15  Waiver  of  Action  for  Partition.  Each of the  Partners
          irrevocably  waives any right that it may have to maintain  any action
          for partition with respect to any of the Partnership's property.

<PAGE>

               IN  WITNESS  WHEREOF,  the  General  Partner  has  executed  this
          Agreement  or caused this  Agreement  to be executed as of the 15th of
          October,  1998 and this Agreement is effective as of the 15th of June,
          1998.
                                                            

                                                                GENERAL PARTNER:

                                                       PRIME RETAIL, INC., a
                                                       Maryland corporation
                                                       100 East Pratt Street
                                                       19th Floor
                                                       Baltimore, Maryland 21202


                                                  By:      /s/ C. Alan Schroeder

                                                 Its:   Executive Vice President
<PAGE>

                                    EXHIBIT A

                         COMMON UNITS, PREFERRED UNITS,
            CONVERTIBLE PREFERRED UNITS AND SERIES C PREFERRED UNITS
<PAGE>
                                                      EXHIBIT B

                                                     ALLOCATIONS


               I  Allocation  of Net  Income and Net Loss.  Except as  otherwise
          provided herein,  Net Income and Net Loss for any Partnership  taxable
          year or other  applicable  period of the  Partnership  (including  the
          period for which the interim  closing of the books is made pursuant to
          the Merger) shall be allocated in the following order and priority:

                    1.1 First,  subject to subsection (f) of Section 1.8 of this
               Exhibit B, Net Income (or,  if  necessary,  Partnership  items of
               income and gain) shall be allocated to the General  Partner in an
               amount  equal to the  excess  of (1) the  amount of Net Cash Flow
               distributed to the General Partner pursuant to subsections (a)(i)
               and  (a)(ii)  of  Section  6.2 for  the  current  and  all  prior
               Partnership  taxable  years over (2) the amount of Net Income (or
               Partnership items of income and gain) previously allocated to the
               General  Partner  pursuant to Section 1.1 of this  Exhibit B (and
               Section  1.8 of this  Exhibit B to the extent  that  Section  1.8
               operates to allocate an amount to the General  Partner in respect
               of an increase in the  liquidation  preference  for the Preferred
               Stock under the General  Partner's  Articles of Incorporation due
               to accrued but unpaid dividends on the Preferred Stock).

                    1.2 Second, subject to Section 1.8 of this Exhibit B (and to
               the extent  not  already  allocated  pursuant  to Section  1.8 in
               respect of an increase in the Preferred  Unit  Redemption  Amount
               due to accrued but unpaid dividends on the Preferred Stock),  for
               any  Partnership  taxable year ending on or after a date in which
               Preferred  Units are redeemed,  Net Income (or Net Loss),  or, if
               necessary,  Partnership items of income, gain, loss and deduction
               thereof,  shall be allocated to the General  Partner in an amount
               equal to the excess (or deficit) of (1) the sum of the  Preferred
               Unit Redemption  Amount for Preferred Units that have been or are
               being redeemed during the  Partnership  Year over (2) the product
               of $25.00 times the number of such Preferred Units.
<PAGE>

                    1.3 Third,  subject to  Section  1.8 of this  Exhibit B, Net
               Income (or, if necessary,  Partnership  items of income and gain)
               shall be  allocated  to Partners  holding  Convertible  Preferred
               Units,  pro rata,  in proportion  to their  relative  Convertible
               Preferred  Units,  in an aggregate  amount equal to the excess of
               (1)  the  sum of the  amount  of Net  Cash  Flow  distributed  to
               Partners   holding   Convertible   Preferred  Units  pursuant  to
               subsections  (a)(iii),  (a)(iv)  and (b) of  Section  6.2 and the
               aggregate   Gross   Asset   Value  of  the  Common   Distribution
               distributed  pursuant  to  subsection  (c) of Section 6.2 for the
               current  and all prior  Partnership  taxable  years  over (2) the
               amount of Net  Income (or  Partnership  items of income and gain)
               previously  allocated to Partners pursuant to Section 1.3 of this
               Exhibit B (and  Section 1.8 of this  Exhibit B to the extent that
               Section 1.8  operates  to allocate an amount to Partners  holding
               Convertible  Preferred  Units in  respect of an  increase  in the
               liquidation  preference for the Convertible Preferred Stock under
               the General  Partner's  Articles of Incorporation  due to accrued
               but unpaid dividends on the Convertible Preferred Stock).

                    1.4 Fourth, subject to Section 1.8 of this Exhibit B (and to
               the extent  not  already  allocated  pursuant  to Section  1.8 in
               respect  of  an  increase  in  the  Convertible  Preferred  Units
               Redemption  Amount due to accrued  but  unpaid  dividends  on the
               Convertible  Preferred Stock),  for any Partnership  taxable year
               ending on or after a date in which  Convertible  Preferred  Units
               are  redeemed,  Net  Income  (or Net  Loss),  or,  if  necessary,
               Partnership  items of income,  gain, loss and deduction  thereof,
               shall be  allocated  to Partners  holding  Convertible  Preferred
               Units,  pro rata,  in proportion  to their  relative  Convertible
               Preferred  Units, in an aggregate  amount equal to the excess (or
               deficit)  of  (1)  the  sum  of the  Convertible  Preferred  Unit
               Redemption Amount for Convertible  Preferred Units that have been
               or are being redeemed  during the  Partnership  taxable year over
               (2) the  product of $25.00  times the number of such  Convertible
               Preferred Units.

                    1.5 Fifth,  subject to  Section  1.8 of this  Exhibit B, Net
               Income (or, if necessary,  Partnership  items of income and gain)
               shall be  allocated to the  Partners  holding  Series C Preferred
               Units  in an  amount  equal to the  excess  of (1) the sum of the
               amount of Net Cash Flow distributed to such Partners  pursuant to
               subsections  (a)(v),  (a)(vi)  and  (b) of  Section  6.2  and the
               aggregate   Gross   Asset   Value  of  the  Common   Distribution
               distributed  pursuant  to  subsection  (c) of Section 6.2 for the
               current  and all prior  Partnership  taxable  years  over (2) the
               amount of Net Income (or Partnership items of
<PAGE>

               income and gain) previously  allocated to such Partners  pursuant
               to Section 1.5 of this Exhibit B (and Section 1.8 of this Exhibit
               B to the extent that  Section 1.8  operates to allocate an amount
               to such  Partners in respect of an  increase  in the  liquidation
               preference  for the Series C  Preferred  Stock  under the General
               Partner's  Articles  of  Incorporation  due to accrued but unpaid
               dividends on the Convertible Preferred Stock).

                    1.6 Sixth,  subject to Section 1.8 of this Exhibit B (and to
               the extent  not  already  allocated  pursuant  to Section  1.8 in
               respect of an increase in the Series C Preferred Unit  Redemption
               Amount  due to  accrued  but  unpaid  dividends  on the  Series C
               Preferred Stock),  for any Partnership  taxable year ending on or
               after a date in which Series C Preferred Units are redeemed,  Net
               Income  (or Net Loss),  or, if  necessary,  Partnership  items of
               income,  gain, loss and deduction thereof,  shall be allocated to
               the General Partner in an amount equal to the excess (or deficit)
               of (1) the sum of the Series C Preferred Unit  Redemption  Amount
               for Series C Preferred Units that have been or are being redeemed
               during  the  Partnership  taxable  year over (2) the  product  of
               $13.75 times the number of such Series C Preferred Units.

                    1.7 Seventh, subject to Sections 1.8 and 1.9 of this Exhibit
               B,  the  remaining  Net  Income  or Net  Loss,  if any,  shall be
               allocated  to each of the  Partners  in the  following  order and
               priority:

                    (a) The  remaining  Net Income,  if any,  shall be allocated
               among the Partners  holding Common Units in proportion to, and to
               the extent of, the sum of the aggregate  amounts of Net Cash Flow
               distributed in respect of the Partners'  Common Units pursuant to
               subsections  (a)(vii)  and (b) of Section  6.2 and the  aggregate
               Gross Asset Value of the Common Distribution distributed pursuant
               to subsection (c) of Section 6.2 (including  those amounts of Net
               Cash Flow  distributed  within the  Partnership  taxable  year or
               other applicable period under Section 6.2(e)
<PAGE>

               that are in respect of  subsection  (a)(vii) of Section 6.2, only
               if either  (A) such Net Cash Flow is  distributed  on or prior to
               the date on which  the Cash  Conversion  Price is paid or (B) the
               Limited  Partner  to whom  such  Net  Cash  Flow  is  distributed
               otherwise  continues  to own one or more Common Units on the date
               such distribution is made),

                    (b) In the event that  assets of the  Partnership  are sold,
               conveyed,  transferred or disposed of in  contemplation  of or in
               connection  with the  dissolution,  liquidation and winding-up of
               the  Partnership  under  Article  VIII  (other  than  Section 8.4
               thereof) (a "Capital  Event"),  any  remaining  Net Income or Net
               Loss (or remaining  Partnership  items of income,  gain, loss and
               deduction  thereof),  computed by including the Net Income or Net
               Loss resulting from such Capital Event,  shall be allocated among
               the Partners holding Common Units to the extent  possible,  until
               each Limited  Partner has a Capital Account balance equal to (and
               the General  Partner has a Capital  Account  balance equal to the
               sum of the  Preferred Sum (defined in Section 1.8 of this Exhibit
               B) plus an  additional  amount  equal  to) the pro rata  portion,
               based on the number of Common Units held by each Partner,  of the
               net positive sum of the Capital Account balances for all Partners
               (determined  after taking into account the  allocations  required
               under  subsections  (a) and (b) of  Section 2 of this  Exhibit B)
               less the Preferred  Sum.

                    (c) Any  remaining Net Income or Net Loss shall be allocated
               to the Partners  holding Common Units pro rata in accordance with
               their respective Common Units.

                    1.8  Notwithstanding  Sections  1.1, 1.2, 1.3, 1.4, 1.5, 1.6
               and 1.7 of this Exhibit B, the General Partner shall allocate Net
               Income or Net Loss (or  Partnership  items of income,  gain, loss
               and deduction  thereof) among the Partners to the extent possible
               such  that the  Minimum  Gain  Capital  Account  balance  of each
               Partner,  as of the end of the Partnership  taxable year or other
               applicable  period for which such  allocations  are made,  is not
               less than the sum (the "Preferred Sum") of (i) the product of the
               number of Preferred Units held by such Partner  multiplied by the

<PAGE>

               liquidation preference for a share of Preferred Stock pursuant to
               the General Partner's Articles of Incorporation, (ii) the product
               of the number of Convertible Preferred Units held by such Partner
               multiplied  by  the   liquidation   preference  for  a  share  of
               Convertible  Preferred  Stock  pursuant to the General  Partner's
               Articles of Incorporation, and (iii) the product of the number of
               Series C Preferred  Units held by such Partner  multiplied by the
               liquidation  preference  for a share of Series C Preferred  Stock
               pursuant to the General Partner's Articles of Incorporation.

                    1.9 In the event  allocations  are made  pursuant to Section
               1.8 of this  Exhibit B  ("Reallocated  Income"  and  "Reallocated
               Loss") in prior  Partnership  taxable  years or other  applicable
               periods,  any Net  Income  or Net Loss (or  Partnership  items of
               income,  gain,  loss and deduction  thereof) that would otherwise
               have been allocated  pursuant to subsection (c) of Section 1.7 of
               this Exhibit B, shall be allocated among the Partners so that, to
               the extent  possible,  the net amount of such  allocations of Net
               Income or Net Loss (or Partnership items of income, gain, loss or
               deduction  thereof)  under  subsection (c) of Section 1.7 of this
               Exhibit  B  and  the   allocations  of  Reallocated   Income  and
               Reallocated Loss to each Partner shall be equal to the net amount
               that  would  have  been  allocated  to each such  Partner  if the
               allocations of Reallocated  Income and  Reallocated  Loss had not
               occurred;  provided, however, that allocations under this Section
               1.9 of this  Exhibit  B shall  not be  made  to the  extent  such
               allocations  would cause the Minimum Gain Capital Account balance
               to be less than the Preferred Sum.

                    II Special  Allocations.  Notwithstanding  any provisions of
               Section 1 of this Exhibit B, the  following  special  allocations
               shall be made:


               2.1 Minimum Gain  Chargeback  (Nonrecourse  Liabilities).  

               (a) If there is a net  decrease in  Partnership  Minimum Gain for
          any  Partnership   taxable  year,  each  Partner  shall  be  specially
          allocated items of Partnership  income and gain for such year (and, if
          necessary,  subsequent  years)  in an amount  equal to that  Partner's
          share of the
<PAGE>

          net decrease in Partnership Minimum Gain. The items to be so allocated
          shall be determined in accordance with Sections  1.704-2(f) and (i) of
          the  Regulations.  This  subsection (a) is intended to comply with the
          minimum gain chargeback requirement in said section of the Regulations
          and shall be interpreted consistently therewith.  Allocations pursuant
          to this  subsection  (a) shall be made in proportion to the respective
          amounts required to be allocated to each Partner pursuant hereto.

               (b)  Exceptions  to  Section  2.1(a).  The  allocation  otherwise
          required  pursuant to Section 2.1(a) of this Exhibit B shall not apply
          to a Partner to the extent that: (i) such  Partner's  share of the net
          decrease  in Minimum  Gain is caused by a  guarantee,  refinancing  or
          other change in the  instrument  evidencing a nonrecourse  debt of the
          Partnership  which  causes such debt to become a  partially  or wholly
          recourse debt or a Partner  Nonrecourse  Debt,  and such Partner bears
          the economic  risk of loss  (within the meaning of Section  1.752-2 of
          the  Regulations)  for such changed debt; (ii) such Partner's share of
          the net  decrease in Minimum  Gain  results  from the  repayment  of a
          nonrecourse  liability  of the  Partnership,  which  repayment is made
          using  funds  contributed  by  such  Partner  to  the  capital  of the
          Partnership;  (iii) the IRS, pursuant to Section  1.704-2(f)(4) of the
          Regulations,  waives the requirement of such allocation in response to
          a request for such waiver made by the General Partner on behalf of the
          Partnership (which request the General Partner may or may not make, in
          its sole  discretion,  if it determines that the Partnership  would be
          eligible therefor);  or (iv) additional  exceptions to the requirement
          of such  allocation are  established by revenue  rulings issued by the
          IRS  pursuant  to  Section  1.704-2(f)(5)  of the  Regulations,  which
          exceptions apply to such Partner, as determined by the General Partner
          in its sole discretion.

               2.2 Partner Minimum Gain Chargeback. Except as otherwise provided
          in  Section  1.704-2(i)(4)  of  the  Regulations,  if  there  is a net
          decrease in Partner Minimum Gain  attributable to Partner  Nonrecourse
          Debt during any Partnership taxable year, each Partner who has a share
          of the Partner Minimum Gain  attributable to such Partner  Nonrecourse
          Debt,  determined  in  accordance  with Section  1.704-2(i)(5)  of the
          Regulations,  shall be specially allocated items of Partnership income
          and gain for such year (and,  if  necessary,  subsequent  years) in an
          amount  equal  to that  Partner's  share  of the net  decrease  in the
          Partner Minimum Gain attributable to Partner
<PAGE>
          Nonrecourse  Debt. The items to be so allocated shall be determined in
          accordance with Sections  1.704-2(i)(4) and (j)(2) of the Regulations.
          This  Section  2.2  is  intended  to  comply  with  the  minimum  gain
          chargeback  requirement  with  respect  to  Partner  Nonrecourse  Debt
          contained in said section of the  Regulations and shall be interpreted
          consistently  therewith.  Allocations  pursuant to this subsection (b)
          shall be made in proportion to the respective  amounts  required to be
          allocated to each Partner pursuant hereto.

          2.3  Qualified  Income  Offset.  In the event a  Partner  unexpectedly
          receives any adjustments,  allocations or  distributions  described in
          Sections  1.704-1(b)(2)(ii)(d)(4),  (5) or (6) of the Regulations, and
          such  Partner  has an  Adjusted  Capital  Account  Deficit,  items  of
          Partnership  income  and gain  shall be  specially  allocated  to such
          Partner in an amount and manner  sufficient  to eliminate the Adjusted
          Capital Account  Deficit of such Partner as quickly as possible.  This
          Section 2.3 is intended to  constitute  a  "qualified  income  offset"
          under Section  1.704-1(b)(2)(ii)(d)  of the  Regulations  and shall be
          interpreted  consistently  therewith;   provided  that  an  allocation
          pursuant to this  Section 2.3 of this  Exhibit E  shall be made if and
          only to the extent that such  Partner  would have an Adjusted  Capital
          Account  Deficit  after all  other  allocations  provided  for in this
          Exhibit B have been  tentatively  made as if Section  2.3 and  Section
          2.4(ii) of this Exhibit B were not in this Agreement.

               2.4 Gross Income Allocations.

               (i) There shall be specially  allocated to the General Partner an
          amount of Partnership income and gain during each Partnership  taxable
          year or  portion  thereof,  before  any  other  allocations  are  made
          hereunder,  which is equal to the excess,  if any,  of the  cumulative
          distributions of cash made to the General Partner under Section 6.2(f)
          over the cumulative  allocations of Partnership income and gain to the
          General Partner pursuant to Section 2.4(i) of this Exhibit B.

               (ii) In the  event any  Partner  has a  deficit  Capital  Account
          balance at the end of any  Partnership  taxable  year in excess of the
          amount such  Partner is  obligated  or treated as obligated to restore
          pursuant   to   this   Agreement   or  the   provisions   of   Section
          1.704-1(b)(2(ii)(C)  of the Regulations,  or is deemed to be obligated
          to  restore   pursuant  to  the  penultimate   sentences  of  Sections
          1.704-2(g)(l) and 1.704-2(i)(5) of the Regulations,
<PAGE>


          each such Partner shall be specially  allocated  items of  Partnership
          income and gain in an amount and manner  sufficient  to eliminate  the
          excess Capital Account deficit of such Partner as quickly as possible;
          provided that an allocation  pursuant to this Section 2.4 of Exhibit B
          shall be made if and only to the extent that such  Partner  would have
          such an excess  Capital  Account  deficit after all other  allocations
          provided  for in  this  Exhibit  B have  been  tentatively  made as if
          Section  2.3 and  Section  2.4(ii) of this  Exhibit B were not in this
          Agreement.

               2.5 Nonrecourse  Deductions.  Any Nonrecourse  Deductions for any
          Partnership  taxable year generally shall be allocated to the Partners
          in the same proportion as the Partners are allocated items of loss and
          deduction not attributable to either  Partnership  Nonrecourse Debt or
          Partner Nonrecourse Debt.

               2.6   Partner   Nonrecourse   Deductions.   Partner   Nonrecourse
          Deductions  for any taxable year or other  applicable  period shall be
          specially  allocated to the Partner  that bears the  economic  risk of
          loss for the debt (i.e., the Partner  Nonrecourse  Debt) in respect of
          which  such  Partner  Nonrecourse   Deductions  are  attributable  (as
          determined   under   Sections   1.704-2(b)(4)   and   (i)(1)   of  the
          Regulations).

               2.7 Intentionally Omitted.

               2.8 Curative  Allocations.  The Regulatory  Allocations  shall be
          taken into account in allocating  other items of income,  gain,  loss,
          and deduction among the Partners so that, to the extent possible,  the
          cumulative  net  amount of  allocations  of  Partnership  items  under
          Section  2 of this  Exhibit  B shall be equal to the net  amount  that
          would  have  been   allocated  to  each  Partner  if  the   Regulatory
          Allocations had not occurred.  Notwithstanding the preceding sentence,
          Regulatory  Allocations  relating to (A) Nonrecourse  Deductions shall
          not be taken into  account  except to the extent that there has been a
          decrease  in  Partnership  Minimum  Gain and (B)  Partner  Nonrecourse
          Deductions  shall not be taken into account  except to the extent that
          there has been a
<PAGE>
          decrease in Partner Minimum Gain  attributable to Partner  Nonrecourse
          Debt.  This Section 2.8 is intended to minimize to the extent possible
          and to the extent necessary any economic  distortions which may result
          from   application  of  the  Regulatory   Allocations   and  shall  be
          interpreted in a manner consistent therewith.  Allocations pursuant to
          this  Section  2.8 of  Exhibit B shall be  deferred  with  respect  to
          allocations  pursuant  to clauses (A) and (B) hereof to the extent the
          General Partner reasonably determines that such allocations are likely
          to be offset by  subsequent  Regulatory  Allocations.  For purposes of
          this Section 2.8 of this  Exhibit B,  "Regulatory  Allocations"  shall
          mean the allocations provided under Section 2 of this Exhibit B (other
          than under Sections 2.4(i), 2.5, 2.7 and 2.8.

               2.9 Section 754  Adjustment.  To the extent an  adjustment to the
          adjusted  tax  basis  of any  asset  of the  Partnership  pursuant  to
          Sections 734(b) or 743(b) of the Code is required, pursuant to Section
          1.704-1(b)(2)(iv)(m)  of the Regulations,  to be taken into account in
          determining  Capital  Accounts or adjustments  thereto,  the amount of
          such adjustment to the Capital Accounts shall be treated as an item of
          gain (if the adjustment  increases the basis of the asset) or loss (if
          the  adjustment  decreases  such basis) and such gain or loss shall be
          specially allocated among the Partners in a manner consistent with the
          manner in which their  Capital  Accounts  are  required to be adjusted
          pursuant to such section of the Regulations.

               2.10 Other Allocation  Rules. To the extent permitted by Sections
          1.704-2(h)(3) and 1.704-2(i)(6) of the Regulations, the Partners shall
          endeavor to treat  distributions  of Net Cash Flow as having been made
          from the proceeds of a Nonrecourse  Liability or a Partner Nonrecourse
          Debt  only to the  extent  that such  distribution  would not cause or
          increase an Adjusted Capital Account Deficit for any Partner.

               2.11  Sharing of  Nonrecourse  Liabilities.  The General  Partner
          shall allocate Nonrecourse  Liabilities of the Partnership that are in
          excess of the amount of Partnership  Minimum Gain, in each Partnership
          taxable year as follows:

               (i) To the  extent  of the  total  amount  of  built-in  gain (as
          defined in Regulations  Section  1.752-3(a)(2))  among the Partners in
          accordance  with how the Members  would share taxable gain if the LLC,
          in a  taxable  transaction,  disposed  of all  its  property  in  full
          satisfaction  of  its   Nonrecourse   Liabilities  and  for  no  other
          consideration  (taking into account the  relative  priorities  of such
          Nonrecourse  Liabilities and rights in respect of specific Partnership
          properties;
<PAGE>

               (ii)  To  the  extent  of  any   remaining   excess   Nonrecourse
          Liabilities,    within   the    meaning   of    Regulations    Section
          1.752-3(a)(3)among the Partners as follows:

               (A) First,  assuming that the assets of the  Partnership are sold
          for their  relative  fair market  values,  the General  Partner  shall
          determine  for each of its  partners  the sum of (i) the  amount  Code
          Section 704(c) gain allocable to such Partner (taking into account the
          relative Code Section  704(c)  method  elected by the  Partnership  in
          respect of each contributed  asset under Treasury  Regulation  Section
          1.704-3,  and less the amount already  allocated to such partner under
          Treasury Regulations Section 1.752-3(a)(2)),  plus (ii) the amount, if
          any, of remaining income and gain which would be further  allocated to
          such Partner under this Agreement, after all income and gain allocable
          to Partners under Code Section 704(c) has been taken into account;

               (B) Second, the General Partner shall determine a percentage (the
          "Tier Three Percentage") for each Partner equal to the fraction of the
          sum  computed  for such  partner  in  paragraph  (i)  above,  over the
          aggregate amount of such sums for all Partners; and

               (C)  Third,   the  General  Partner  shall  allocate  the  excess
          nonrecourse  liabilities of the Partnership to each Partner, pro rata,
          in accordance with each Partner's Tier Three Percentage.

          However,  the General  Partner may elect to use a different  method to
          allocate excess Nonrecourse  Liabilities in a Partnership taxable year
          to the  extent  such  allocation  does not cause a Limited  Partner to
          recognize  any  greater  amount of taxable  income  that such  Limited
          Partner  would  have  recognized  under the  method  described  in the
          previous sentence.

               III Tax Allocations.

               3.1 Generally. Subject to subsections (b) and (c) of Section 3 of
          this Exhibit B, items of income,  gain, loss,  deduction and credit to
          be allocated for income tax purposes (collectively, "Tax Items") shall
          be  allocated  among the  Partners on the same basis as they share Net
          Income and Net Loss.


<PAGE>

               3.2 Recapture  Gain. If any portion of gain  recognized  from the
          disposition of an asset by the Partnership  represents the "recapture"
          of previously  allocated  deductions by virtue of the  application  of
          Code Section 1245 or 1250  ("Recapture  Gain"),  such Recapture  Gain,
          solely for income tax purposes, shall be allocated as follows:

               first, to the Partners,  pro rata, in proportion to the lesser of
          each Partner's (i) allocable  share of the total gain  recognized from
          the  disposition  of such  asset  and (ii)  share of  depreciation  or
          amortization  with respect to such asset (under  Regulations  Sections
          1.1245-1(e)(2)  and (3)),  until each such Partner has been  allocated
          Recapture Gain equal to such lesser amount; and

               second, the balance of Recapture Gain will be allocated among the
          Partners whose  allocable  shares of total gain exceed their shares of
          depreciation  or  amortization  with  respect  to  such  asset  (under
          Regulations  Sections  1.1245-1(e)(2) and (3)), in proportion to their
          shares of total gain  (including  Recapture Gain) from the disposition
          of such asset;

          provided,  however,  that no Partner will be allocated  Recapture Gain
          under this  Section 3.2 in excess of the total gain  allocated to such
          Partner from such disposition.

               3.3  Allocations  Respecting  Section  704(c)  and  Revaluations;
          Curative Allocations Resulting from the Ceiling Rule.  Notwithstanding
          Sections  3(a) and 3(b) of this  Exhibit B, Tax Items with  respect to
          Partnership  property  that is subject to Code Section  704(c)  and/or
          Section 1.704-1(b)(2)(iv)(f) of the Regulations (collectively "Section
          704(c) Tax Items")  shall be  allocated in  accordance  with said Code
          section and/or Section  1.704-1(b)(4)(i)  of the  Regulations,  as the
          case may be. The General  Partner is authorized  to, and shall,  elect
          the "traditional method" in respect of all its Properties, except that
          the  General   Partner  is  authorized   to,  and  shall,   elect  the
          "traditional  method  with  curative  allocations"  under  Regulations
          Section  1.704-3(c) in respect of the Horizon  Properties  (other than
          the interest in Horizon Group  Properties,  L.P.  acquired through the
          Merger,  for which the General  Partner is  authorized  to, and shall,
          elect  the   "traditional   method").   With  respect  to   properties
          subsequently  contributed to the  Partnership,  the Partnership  shall
          account for such  variation  under any method  approved  under Section
          704(c)  of the Code and the  applicable  regulations  as chosen by the
          General Partner. In the event the Gross Asset Value of any Partnership
          asset is adjusted  pursuant to  subparagraph  (b) of the definition of
          Gross  Asset  Value  (provided  in  Article  1  of  this   Agreement),
          subsequent  allocations  of Section  704(c) Tax Items with  respect to
          such asset shall take account of the  variation,  if any,  between the
          adjusted  basis of such  asset and its Gross  Asset  Value in the same
          manner  as  under  Section  704(c)  of the  Code  and  the  applicable
          regulations  consistent with the  requirements of Regulations  Section
          1.704-1(b)(2)(iv)(g)  using any method  approved  under  704(c) of the
          Code and the applicable regulations as chosen by the General Partner.
<PAGE>


                                    EXHIBIT C

                                  RIGHTS TERMS


               The Rights granted by the General Partner to the Limited Partners
          pursuant to Section 11.1 of the Partnership Agreement shall be subject
          to the following terms and conditions:

               I  Definitions.  The  following  terms  and  phrases  shall,  for
          purposes of this  Exhibit C and the  Agreement,  have the meanings set
          forth below:

               "Beneficially  Own" shall mean the ownership of Common Stock by a
          Person who would be treated as an owner of such shares of Common Stock
          either directly or  constructively  through the application of Section
          544 of the Code, as modified by Section 856(h)(1)(B) of the Code.

               "Cash  Purchase  Price"  shall  have  the  meaning  set  forth in
          Paragraph IV hereof.

               "Computation  Date"  shall  mean the  date on  which an  Exchange
          Exercise Notice is delivered to the General Partner.

               "Election  Notice"  shall mean the written  notice to be given by
          the General  Partner to the  Exercising  Partner(s) in response to the
          receipt by the  General  Partner of an Exchange  Exercise  Notice from
          such  Exercising  Partner(s),  the form of which  Election  Notice  is
          attached hereto as Schedule 2.

               "Exchange Act" shall mean the Securities Exchange Act of 1934, as
          amended, or any successor statute.

               "Exchange  Exercise  Notice"  shall have the meaning set forth in
          Paragraph II hereof.

               "Exchange  Factor"  shall mean 100%;  provided  that such  factor
          shall be adjusted in accordance  with the  Antidilution  Provisions of
          Paragraph XI hereof.

               "Exchange  Rights"  shall have the meaning set forth in Paragraph
          II hereof.


<PAGE>

               "Exercising  Partners"  shall  have  the  meaning  set  forth  in
          Paragraph II hereof.

               "Kemper  Companies"  shall  mean  each of Kemper  Investors  Life
          Insurance Company,  an Illinois insurance  corporation,  Kilico Realty
          Corporation, an Illinois corporation, KR Gainsville, Inc., an Illinois
          corporation,  and KR  Gulf  Coast  Factory  Shops,  Inc.,  a  Delaware
          corporation.

               "Offered  Common  Units"  shall  mean  the  Common  Units  of the
          Exercising Partner(s) identified in an Exchange Exercise Notice which,
          pursuant to the  exercise of Exchange  Rights,  can be acquired by the
          General Partner under the terms hereof.

               "Ownership  Limit"  shall have the meaning set forth in Paragraph
          III hereof.

               "Purchase  Price" shall mean the Cash Purchase Price or the Stock
          Purchase Price.

               "Registration   Rights   Agreement"   shall  mean  the  agreement
          respecting the  registration  rights  attributable to shares of Common
          Stock,  if any,  issued to Limited  Partners  in  accordance  with the
          provisions hereof, the form of which is attached hereto as Schedule 3.
          Such  agreement  supercedes  in all respects the  Registration  Rights
          Agreement  dated  March 22,  1994 among the  Partnership,  its general
          partner and the other parties  signatory  thereto and the Registration
          Rights  Agreement  dated July 14, 1995 entered into by Horizon  Group,
          Inc., as general partner of Horizon Limited Partnership.

               "Securities  Act"  shall  mean the  Securities  Act of  1933,  as
          amended, or any successor statute.

               "Stock  Purchase  Price"  shall  have the  meaning  set  forth in
          Paragraph IV hereof.

               II Delivery of Exchange Exercise Notices. Any one or more Limited
          Partners  ("Exercising  Partners") may, subject to the limitations set
          forth  herein,  deliver to the  General  Partner  written  notice (the
          "Exchange Exercise Notice") pursuant to which such Exercising Partners
          elect to exercise their rights to convert (the "Exchange  Rights") all

<PAGE>

          or any  portion  of their  Common  Units into  shares of Common  Stock
          subject to the limitations contained in Paragraph III below.

               III  Limitation  on  Exercise of Exchange  Rights.  The  Exchange
          Rights  shall  expire  with  respect to any Common  Units for which an
          Exchange Exercise Notice has not been delivered to the General Partner
          on January 1, 2050. Exchange Rights may be exercised at any time prior
          to January 1, 2050, subject to the limitations contained herein and in
          the  General  Partner's  Articles  of  Incorporation  (the  "Ownership
          Limit"). For purposes of computing the Ownership Limit as of any date,
          each  Limited  Partner and its  Affiliates  shall be deemed to own all
          shares  of Common  Stock  issuable  to such  Limited  Partner  and its
          Affiliates  upon the  exercise of stock  options  granted on or before
          such date under the Stock  Incentive  Plan.  If an  Exchange  Exercise
          Notice is  delivered  to the General  Partner  but, as a result of the
          Ownership  Limit, the Exchange Rights cannot be exercised in full, the
          Exchange  Exercise Notice shall be deemed to be modified such that the
          Exchange Rights shall be exercised only to the extent  permitted under
          the  Ownership  Limit;  with the  exercise  of the  remainder  of such
          Exchange Rights being deemed to have been withdrawn.
               IV  Computation of Purchase  Price/Form of Payment.  The Purchase
          Price payable by the General  Partner to each  Exercising  Partner for
          the  Offered  Common  Units  shall be payable by the  issuance  by the
          General  Partner of the number of shares of its Common  Stock equal to
          the product,  expressed as a whole number, of (i) the number of Common
          Units being  converted,  multiplied  by (ii) the Exchange  Factor (the
          "Stock  Purchase  Price").  At the  election  of the  General  Partner
          exercisable  by the  independent  directors of the General  Partner in
          their sole and absolute discretion,  the Purchase Price may be paid in
          whole (but not in part) in cash rather than in Common Stock (the "Cash
          Purchase Price").  The Cash Purchase Price shall mean, with respect to
          the  applicable  number  of  Offered  Common  Units  which  are  being
          purchased for cash upon the exercise of any Exchange  Right, an amount
          of cash (in  immediately  available  funds) equal to (i) the number of
          shares of the General  Partner's  Common Stock that would be issued to
          the Exercising  Partner if the Stock Purchase Price were paid for such
          Offered  Common Units  (taking into account the  adjustments  required
          pursuant to the  definition of "Exchange  Factor")  multiplied by (ii)
          the  Current Per Share  Market  Price  computed as of the  Computation
          Date. The Cash Purchase Price shall,
<PAGE>

          in the sole and absolute discretion of the General Partner, be paid in
          the form of cash, or cashier's or certified check, or by wire transfer
          of immediately  available funds to the Exercising Partner's designated
          account.

               V  Closing;  Delivery  of  Election  Notice.  The  closing of the
          acquisition of Offered Common Units shall,  unless otherwise  mutually
          agreed, be held at the principal office of the General Partner, on the
          following date(s):

               5.1 With respect to the exercise of Exchange Rights for which the
          Stock Purchase  Price is payable,  the closing shall occur on the date
          agreed to by the General Partner and the Exercising Partner(s),  which
          date  shall in no event be on the date  which is the  later of (i) ten
          (10)  days  after  the  delivery  of the  Election  Notice;  (ii)  the
          expiration or  termination  of the waiting  period  applicable to each
          Exercising  Partner, if any, under the Hart Scott Act; and (iii) forty
          (40) days after receipt of the Exchange  Exercise Notice  delivered in
          accordance with the requirements of Paragraph 3 hereof; and

               5.2 With respect to the exercise of Exchange Rights for which the
          General  Partner  elects to pay the Cash Purchase  Price,  the General
          Partner  shall,  within thirty (30) days after delivery to the General
          Partner of the Exchange  Exercise Notice  delivered in accordance with
          the  requirements  of  Paragraph 3 hereof,  deliver to the  Exercising
          Partner(s) an Election Notice, which Election Notice shall (i) specify
          the General Partner's  election to pay the Cash Purchase Price for all
          of the Offered Common Units and (ii) set forth the  computation of the
          Cash  Purchase  Price  to be  paid  by the  General  Partner  to  such
          Exercising  Partner(s) and the date,  time and location for completion
          of the  purchase  and sale of the  Offered  Common  Units,  which date
          shall,  to the  extent  required,  in no event be more than sixty (60)
          days after the  Computation  Date for such Exchange  Exercise  Notice;
          provided, however, that such sixty (60) day period may be extended for
          an additional period to the extent required for the General Partner to
          cause  additional  shares of its Common  Stock to be issued to provide
          financing   to  be  used  to  acquire   the  Offered   Common   Units.
          Notwithstanding  the foregoing,  the General Partner agrees to use its
          
<PAGE>

          best efforts to cause the closing of the acquisition of Offered Common
          Units hereunder to occur as quickly as possible.

               VI Further  Limitations on Exercise.  The Exchange Rights may not
          be exercised  unless the  Partnership  receives an opinion of counsel,
          which  counsel and opinion  shall be  reasonably  satisfactory  to the
          General  Partner,  that the proposed  exercise of such Exchange Rights
          shall not cause the  Partnership  to cease to qualify as a partnership
          for Federal income tax purposes. This requirement may be waived by the
          independent  directors of the General Partner,  and shall not apply to
          (i) the exercise by the sole remaining Limited Partner of the Exchange
          Rights  with  respect  to all of his or its  Common  Units or (ii) the
          exercise by any of the Kemper  Companies or any of their Affiliates of
          (A) all of the Kemper Companies and their  Affiliates  (whether or not
          they are  beneficiaries  of any  pledge  of  Common  Units by PGI) are
          exercising  Exchange Rights with respect to all Common Units then held
          by them;  (B) after the  consummation  of the proposed  Exchange,  all
          Limited Partners  beneficially and constructively own less than twenty
          percent (20%) of the General  Partner's  outstanding  shares of Common
          Stock or (C) all of the Common  Stock to be  received  by such  Kemper
          Companies  or  their  Affiliate  as  a  result  of  such  Exchange  is
          registered under the Securities Act for sale to the public and is sold
          to the public contemporaneously with the Exchange.

               VII Closing Deliveries.  At the closing,  payment of the Purchase
          Price shall be  accompanied  by proper  instruments  of  transfer  and
          assignment and by the delivery of (i)  representations  and warranties
          of (A) the  Exercising  Partner with  respect to its due  authority to
          sell all of the  right,  title  and  interest  in and to such  Offered
          Common Units to the General  Partner and with respect to the status of
          the Offered Common Units being sold, free and clear of all Liens,  and
          (B) the General Partner with respect to due authority for the purchase
          of such Offered  Common  Units,  and (ii) to the extent that shares of
          Common Stock are issued in payment of the Stock Purchase Price, (A) an
          opinion of counsel for the General Partner, reasonably satisfactory to
          the  Exercising  Partner(s),  to the effect that such shares of Common
          Stock have been duly  authorized,  are validly issued,  fully-paid and
          non-assessable, and (B) a stock certificate or certificates evidencing
          the  Common  Stock  to be  issued  and  registered  in the name of the
          Exercising Partner(s) or its (their) designee.
<PAGE>


               VIII Term of Rights. Unless sooner terminated,  the rights of the
          parties to exercise the Rights shall lapse for all purposes and in all
          respects  on  January 1,  2050;  provided,  however,  that the parties
          hereto  shall  continue  to be bound by an  Exchange  Exercise  Notice
          delivered to the General Partner prior to such date.

               IX Covenants of the General  Partner.  To facilitate  the General
          Partner's  ability to fully  perform its  obligations  hereunder,  the
          General Partner covenants and agrees as follows:

               9.1 At all times during the pendency of the Rights,  the General
          Partner  shall  reserve for  issuance  such number of shares of Common
          Stock as may be necessary to enable the General  Partner to issue such
          shares in full  payment of the Stock  Purchase  Price in regard to all
          Common Units held by Limited  Partners and which are from time to time
          outstanding.

               9.2 As long as the General  Partner  shall be  obligated  to file
          periodic  reports  under the Exchange  Act,  the General  Partner will
          timely file such reports in such manner as shall enable any  recipient
          of Common Stock issued to Limited Partners  hereunder in reliance upon
          an exemption from registration under the Securities Act to continue to
          be eligible to utilize Rule 144 promulgated by the SEC pursuant to the
          Securities  Act,  or any  successor  rule  or  regulation  or  statute
          thereunder, for the resale thereof.

               9.3 During the pendency of the Rights, the Limited Partners shall
          receive in a timely  manner all reports  filed by the General  Partner
          with the SEC and all  other  communications  transmitted  from time to
          time by the General Partner to its stockholders generally.

               9.4 The  General  Partner  shall  be  required  to pay  the  Cash
          Purchase  Price to the extent that payment of the Stock Purchase Price
          by issuance of Common Stock would  disqualify the General Partner from
          being characterized as a REIT.

               9.5 The General Partner shall cooperate with the Limited Partners
          and  provide  by  certificate  of  appropriate  officers  the  factual
          information  reasonably requested by any Limited Partner in connection
          with  delivery of an opinion of counsel  pursuant to Section 6 of this
          Exhibit C.
<PAGE>

               X Limited Partners' Covenants. X.1 Each Limited Partner covenants
          and agrees with the General  Partner  that all  Offered  Common  Units
          tendered to the General  Partner in  accordance  with the  exercise of
          Rights herein  provided shall be delivered to the General Partner free
          and clear of all  Liens  and  should  any  Liens  exist or arise  with
          respect to such Offered  Common  Units,  the General  Partner shall be
          under no  obligation to acquire the same unless,  in  connection  with
          such acquisition,  the General Partner has elected to pay a portion of
          the  purchase  price  in  the  form  of the  Cash  Purchase  Price  in
          circumstances  where such Cash  Purchase  Price will be  sufficient to
          cause such existing Lien to be discharged in full upon  application of
          all or a part of the Cash  Purchase  Price and the General  Partner is
          expressly  authorized to apply such portion of the Cash Purchase Price
          as may be  necessary  to  satisfy  any  indebtedness  in  full  and to
          discharge such Lien in full. Each Limited Partner further agrees that,
          in the event any state or local property  transfer tax is payable as a
          result of the  transfer  of its  Offered  Common  Units to the General
          Partner (or its designee),  such Limited  Partner shall assume and pay
          such transfer tax.  Finally,  each Limited Partner agrees that, to the
          extent it receives an amount of Net Cash Flow under Section  6.2(e) in
          respect of  subsection  (a)(vii)  of Section  6.2 that is treated as a
          distribution  to the General  Partner for purposes of determining  the
          Capital  Account of the General  Partner,  such  Limited  Partner will
          treat  such  amount of Net Cash Flow for  income  tax  purposes  as an
          additional  amount paid by the General  Partner and  realized by it in
          exchange for the Offered Common Units.

         XI       Antidilution Provisions.

               11.1 The Exchange Factor shall be subject to adjustment from time
          to time  effective  upon the  occurrence of the  following  events and
          shall  be  expressed  as  a  percentage,  calculated  to  the  nearest
          one-thousandth of one percent (.001%):

                    (a) In case the General Partner shall pay or make a dividend
               or other distribution in shares of Common Stock to all holders of
               the Common Stock, the Exchange Factor in effect at the opening of
               business   on  the  day   following   the  date   fixed  for  the
               determination  of stockholders  entitled to receive such dividend
               or other  distribution  shall be increased in  proportion  to the
               increase in  outstanding  shares of Common Stock  resulting  from
               such  dividend  or other  distribution,  such  increase to become
               effective  immediately  after the  opening of business on the day
               following  the  record  date  fixed  for such  dividend  or other
               distribution.
<PAGE>

                    (b) In case  outstanding  shares  of Common  Stock  shall be
               subdivided  into a greater number of shares,  the Exchange Factor
               in effect at the opening of business on the day following the day
               upon  which  such   subdivision   becomes   effective   shall  be
               proportionately   increased,   and,   conversely,   in  case  the
               outstanding  shares  of Common  Stock  shall be  combined  into a
               smaller  number of shares,  the Exchange  Factor in effect at the
               opening of business on the day  following the day upon which such
               combination  becomes effective shall be proportionately  reduced,
               such  increase  or  reduction,  as the  case  may be,  to  become
               effective  immediately  after the  opening of business on the day
               following  the day upon which  such  subdivision  or  combination
               becomes effective.

                    11.2 In case the General Partner shall issue rights, options
               or  warrants  to  all  holders  of its  shares  of  Common  Stock
               entitling  them to  subscribe  for or purchase  Common Stock at a
               price per share less than the current  market price per share (as
               determined  in the next  sentence),  each holder of a Common Unit
               shall be  entitled to receive  such number of rights,  options or
               warrants,  as the case may be, as he would have been  entitled to
               receive had he converted  his Common Units  immediately  prior to
               the record date for such issuance by the General  Partner (except
               to the extent such receipt  shall cause such holder to exceed the
               Ownership Limit). For the purpose of any computation  pursuant to
               the  preceding  sentence,  the current  market price per share of
               Common Stock on any date shall be deemed to be the average of the
               daily  Closing  Prices  for the  five  consecutive  Trading  Days
               selected by the General  Partner  commencing not more than twenty
               (20) Trading Days before,  and ending not later than, the earlier
               of the day in  question  and the day  before  the "ex"  date with
               respect  to  the   issuance  or   distribution   requiring   such
               computation.  For purposes of this  Exhibit C, the term  "Trading
               Day" shall mean each  Monday,  Tuesday,  Wednesday,  Thursday and
               Friday,  other  than any day which  securities  are not traded on
               such  exchange or in such market and the term "'ex'  date",  when
               used in respect of any issuance or  distribution,  shall mean the
               first date on which the shares trade regular way on such exchange
               or in such market  without the right to receive such  issuance or
               distribution.
<PAGE>

                    11.3 In case the  shares of Common  Stock  shall be  changed
               into the same or a  different  number  of  shares of any class or
               classes   of   stock,   whether   by   capital    reorganization,
               reclassification,   or  otherwise   (other  than  subdivision  or
               combination   of  shares  or  a  stock   dividend   described  in
               subparagraph  (b) of paragraph  11.1) then and in each such event
               the Limited  Partners shall have the right  thereafter to convert
               their  Common  Units into the kind and amount of shares and other
               securities  and property which would have been received upon such
               reorganization,  reclassification  or other  change by holders of
               the number of shares into which the Common  Units might have been
               converted    immediately    prior    to   such    reorganization,
               reclassification or change.

                    11.4 The General  Partner may, but shall not be required to,
               make such  adjustments  to the  number of shares of Common  Stock
               issuable  upon  conversion of a Common Unit, in addition to those
               required by this Paragraph XI, as the General  Partner's board of
               directors  considers  to be  advisable  in order  that any  event
               treated for federal income tax purposes as a dividend of stock or
               stock rights shall not be taxable to the recipients.  The General
               Partner's  board of directors shall have the power to resolve any
               ambiguity or correct any error in the  adjustments  made pursuant
               to this  Paragraph and its actions in so doing shall be final and
               conclusive.

                    XII  Fractions  of Shares.  No  fractional  Shares  shall be
               issued upon  conversion of Common Units.  If more than one Common
               Unit shall be surrendered  for conversion at one time by the same
               Exercising  Partner,  the number of full  shares of Common  Stock
               which  shall be  issuable  upon  conversion  thereof (or the cash
               equivalent  amount  thereof if the Cash  Purchase  Price is paid)
               shall be computed on the basis of the aggregate  amount of Common
               Units so surrendered.  Instead of any fractional  share of Common
               Stock which would  otherwise be issuable  upon  conversion of any
               Common Unit or Common Units, the General Partner shall pay a cash
               adjustment  in respect of such fraction in an amount equal to the
               same fraction of the current  market price per share at the close
               of business on the day of closing  specified in Paragraph  5.2 of
               this  Exhibit  C (or,  if such day is not a Trading  Day,  on the
               Trading Day immediately preceding such day).

                    XIII Notice of Adjustments of Exchange Factor.  Whenever the
               Exchange Factor is adjusted as herein provided:
<PAGE>

                    (a) the General Partner shall compute the adjusted  Exchange
               Factor in accordance with Paragraph XI hereof and shall prepare a
               certificate   signed  by  the  chief  financial  officer  or  the
               Treasurer  of the  General  Partner  setting  forth the  adjusted
               Exchange  Factor and showing in reasonable  detail the facts upon
               which such adjustment is based; and

                    (b) a notice  stating  that  the  Exchange  Factor  has been
               adjusted  and setting  forth the adjusted  Exchange  Factor shall
               forthwith  be mailed by the  General  Partner  to all  holders of
               Exchange  Rights at their  last  addresses  on record  under this
               Agreement.

               XIV Notice of Certain Corporate Actions. In case:

                    (a) the General  Partner  shall  declare a dividend  (or any
               other distribution) on its Common Stock payable otherwise than in
               cash; or

                    (b) the General  Partner shall authorize the granting to the
               holders of its Common  Stock of rights,  options or  warrants  to
               subscribe  for or purchase any shares of stock of any class or of
               any other rights; or

                    (c) of any  reclassification  of the shares of Common  Stock
               (other  than a  subdivision  or  combination  of its  outstanding
               Common Stock, or of any  consolidation,  merger or share exchange
               to which the General Partner is a party and for which approval of
               any  shareholders of the General Partner is required),  or of the
               sale or transfer of all or substantially all of the assets of the
               General Partner; or

                    (d) of the voluntary or involuntary dissolution, liquidation
               or winding up of the General Partner;

               then the General  Partner shall cause to be mailed to all holders
               of Exchange  Rights at their last  addresses on record under this
               Agreement,  at least 20 days (or 12 days in any case specified in
               clause  (a) or (b) above)  prior to the  applicable  record  date
               hereinafter  specified,  a notice stating (i) the date on which a
               record  is  to  be  taken  for  the  purpose  of  such  dividend,
               distribution, rights, options or warrants, or, if a record is not
               to be taken, the date as of which the holders of shares of Common
               Stock of record to be  entitled to such  dividend,  distribution,
               rights,  options or warrants  are to be  determined,  or (ii) the
               date on which such reclassification, consolidation, merger, share
               exchange, sale, transfer, dissolution,  liquidation or winding up
               is expected to become  effective,  and the date as of which it is
              
<PAGE>

               expected  that  holders of shares of Common Stock of record shall
               be entitled  to exchange  their  shares for  securities,  cash or
               other   property   deliverable   upon   such    reclassification,
               consolidation,    merger,   share   exchange,   sale,   transfer,
               dissolution, liquidation or winding up.

                    XV  Provisions in Case of  Consolidation,  Merger or Sale of
               Assets. In case of any consolidation of the General Partner with,
               or merger of the General  Partner  into,  any other  Person,  any
               merger  or  consolidation  of  another  Person  into the  General
               Partner  (other  than a  merger  which  does  not  result  in any
               reclassification,   conversion,   exchange  or   cancellation  of
               outstanding  shares of Common Stock of the General  Partner),  or
               any sale or transfer of all or substantially all of the assets of
               the General Partner,  the Person formed by such  consolidation or
               resulting  from such merger or which  acquires such assets of the
               General Partner, as the case may be, shall execute and deliver to
               each holder of Exchange  Rights an agreement  providing that such
               holder  shall have the right  thereafter,  during the period such
               Exchange  Rights shall be  exercisable  as specified  herein,  to
               require the conversion of Common Units for the kind and amount of
               securities,   cash  and  other  property   receivable  upon  such
               consolidation, merger, sale or transfer by a holder of the number
               of shares of Common  Stock into which such Common Unit might have
               been converted  immediately prior to such consolidation,  merger,
               sale or transfer,  assuming such holder of shares of Common Stock
               is not a Person with which the General  Partner  consolidated  or
               into which the General  Partner  merged or which  merged into the
               General Partner, or to which such sale or transfer,  was made, as
               the case may be (a  "Constituent  Person"),  or an Affiliate of a
               Constituent Person, and failed to exercise his right of election,
               if any,  as to the kind or  amount of  securities,  cash or other
               property  receivable  upon such  consolidation,  merger,  sale or
               transfer (provided that if the kind or amount of securities, cash
               and other property  receivable upon such  consolidation,  merger,
               sale or transfer  is not the same for each share of Common  Stock
               in respect of which such rights of  election  shall not have been
               exercised  ("non-electing  Share"),  then for the purpose of this
               Paragraph  XV the kind and amount of  securities,  cash and other
               property  receivable  upon such  consolidation,  merger,  sale or
               transfer  by each  non-electing  Share  shall be deemed to be the
               kind and amount so  receivable  per Share by a  plurality  of the
               non-electing   Shares).   Such   agreement   shall   provide  for
               adjustments which, for events subsequent to the effective date of
               such  agreement,   shall  be  as  nearly  equivalent  as  may  be
               practicable  to the  adjustments  provided for in this Exhibit C.
               The above  provisions of this Paragraph XV shall  similarly apply
               to successive consolidations, mergers, sales or transfers.


<PAGE>

                                   SCHEDULE 1

                            EXCHANGE EXERCISE NOTICE


To:      Prime Retail, Inc.



               Reference   is  made  to  that   certain   Agreement  of  Limited
               Partnership  of  Prime  Retail,  L.P.  dated  ___________,   (the
               "Partnership Agreement"), pursuant to which Prime Retail, Inc., a
               Maryland  corporation,  and certain other persons,  including the
               undersigned, formed a Delaware limited partnership known as Prime
               Retail, L.P. (the "Partnership").  Capitalized terms used but not
               defined   herein  shall  have  the  meanings  set  forth  in  the
               Partnership Agreement. Pursuant to Article XI and Paragraph II of
               Exhibit C of the Partnership Agreement,  each of the undersigned,
               being  a  limited  partner  of the  Partnership  (an  "Exercising
               Partner"),  hereby  elects to exercise its Exchange  Rights as to
               the number of Offered  Common Units  specified  opposite its name
               below:

Dated:  ___________________

                                                               Number of Offered
    Exercising Partner                                              Common Units





Exercising Partners:

____________________________
____________________________

<PAGE>

                                   SCHEDULE 2

                                 ELECTION NOTICE


To:      Exercising Partner(s)

                    Reference  is made  to that  certain  Agreement  of  Limited
               Partnership  of Prime Retail,  L.P.  dated  _________,  1993 (the
               "Partnership  Agreement"),  pursuant to which the undersigned and
               certain other persons,  including the Exercising Partners, formed
               a Delaware limited  partnership known as Prime Retail,  L.P. (the
               "Partnership"). All capitalized terms used but not defined herein
               shall have the meanings set forth in the  Partnership  Agreement.
               Pursuant  to  subsection  (b) of  Paragraph V of Exhibit C to the
               Partnership Agreement, the undersigned, being the general partner
               of the  Partnership,  hereby  notifies the Exercising  Partner(s)
               that [(a) the Stock  Purchase Price is payable by issuance of the
               number of shares of Common Stock to the Existing  Partner(s),  as
               set forth  below,]  [(b) it has elected to pay the Cash  Purchase
               Price by payment  of cash to the  Exercising  Partner(s)  for the
               number of Offered  Common  Units,  as set forth  below,]  (c) the
               computation of the [Stock Purchase Price and Cash Purchase Price]
               as set forth on an  attachment  hereto,  (d) the  closing  of the
               purchase  and sale of the Offered  Common Units by payment of the
               [Stock  Purchase  Price  shall  take  place  at  the  offices  of
               ____________________  on  [date]]  and  [(e) the  closing  of the
               payment  of the  Cash  Purchase  Price  shall  take  place at the
               offices of ____________________ on [date].

                             NUMBER OF OFFERED         STOCK       CASH PURCHASE
EXERCISING PARTNER(S)          COMMON UNITS       PURCHASE PRICE      PRICE
--------------------------------------------------------------------------------


Dated:  ___________________

                                                             PRIME RETAIL, INC.,
                                                          a Maryland corporation

                                                  By:___________________________
                                                 Its:___________________________


<PAGE>

                                   SCHEDULE 3

                          REGISTRATION RIGHTS AGREEMENT

<PAGE>

                                    EXHIBIT D

                         SERIES C PREFERRED RIGHTS TERMS


     The Series C Preferred Rights granted by the General Partner to the Limited
Partners  holding  Series C  Preferred  Units  pursuant  to Section  12.1 of the
Partnership  Agreement  shall be subject to the following  terms and conditions:

XVI  Definitions.  The following  terms and phrases shall,  for purposes of this
Exhibit D and the Agreement, have the meanings set forth below:

          "Beneficially  Own" shall  mean the  ownership  of Series C  Preferred
     Stock by a Person who would be treated as an owner of such shares of Series
     C Preferred Stock either directly or constructively through the application
     of Section  544 of the Code,  as modified  by Section  856(h)(1)(B)  of the
     Code. 

          "Change of Control" means each occurrence of any of the following: (i)
     the  acquisition,  directly or  indirectly,  by any individual or entity or
     group (as such term is used in Section  13(d)(3)  of the  Exchange  Act) of
     beneficial  ownership  (as  defined in Rule 13d-3 under the  Exchange  Act,
     except that such  individual  or entity shall be deemed to have  beneficial
     ownership of all shares that any such individual or entity has the right to
     acquire,  whether  such  right is  exercisable  immediately  or only  after
     passage  of time) of more  than 25% of the  General  Partner's  outstanding
     capital stock with voting power,  under  ordinary  circumstances,  to elect
     directors  of the  General  Partner;  (ii) other  than with  respect to the

<PAGE>

          election,  resignation  or  replacement  of any  director  designated,
          appointed  or elected by the holders of the Series C  Preferred  Stock
          (each a "Preferred  Director"),  during any period of two  consecutive
          years, individuals who at the beginning of such period constituted the
          Board of  Directors  of the  General  Partner  (together  with any new
          directors   whose  election  by  such  Board  of  Directors  or  whose
          nomination of or election by the  shareholders  of the General Partner
          was  approved  by a vote of 66 2/3% of the  directors  of the  General
          Partner (excluding  Preferred Directors) then still in office who were
          either directors at the beginning of such period, or whose election or
          nomination  for election  was  previously  so approved)  cease for any
          reason to  constitute  a  majority  of the Board of  Directors  of the
          General  Partner  then in office;  and (iii) (A) the  General  Partner
          consolidating  with or  merging  into  another  entity  or  conveying,
          transferring  or  leasing  all or  substantially  all  of  its  assets
          (including,  but not  limited to, real  property  investments)  to any
          individual or entity,  or (B) any  corporation  consolidating  with or
          merging into the General Partner,  which in either event (A) or (B) is
          pursuant to a  transaction  in which the  outstanding  voting  capital
          stock of the  General  Partner  is  reclassified  or  changed  into or
          exchanged for cash, securities or other property;  provided,  however,
          that the events  described in clause (iii) shall not be deemed to be a
          Change of  Control  (a) if the sole  purpose of such event is that the
          General  Partner is seeking  to change its  domicile  or to change its
          form of organization from a corporation to a statutory  business trust
          or (b) if the  holders  of the  exchanged  securities  of the  General
          Partner immediately after such transaction beneficially own at least a
          majority  of the  securities  of the  merged  or  consolidated  entity
          normally  entitled to vote in elections of directors.he  securities of
          the  merged  or  consolidated  entity  normally  entitled  to  vote in
          elections of directors.

               "Common Stock Purchase Price" shall have the meaning set forth in
          Paragraph IV hereof.  

               "Computation  Date"  shall  mean the  date on  which an  Exchange
          Exercise Notice is delivered to the General Partner.

               "Exchange Act" shall mean the Securities Exchange Act of 1934, as
          amended, or any successor statute.

               "Exchange  Exercise  Notice"  shall have the meaning set forth in
          Paragraph II hereof.

               "Exchange  Rights"  shall have the meaning set forth in Paragraph
          II hereof.

               "Exercising  Partners"  shall  have  the  meaning  set  forth  in
          Paragraph II hereof.

               "Offered  Series C  Preferred  Units"  shall  mean  the  Series C
          Preferred Units of the Exercising Partner(s) identified in an Exchange
          Exercise  Notice which,  pursuant to the exercise of Exchange  Rights,
          can be acquired by the General Partner under the terms hereof.
<PAGE>

               "Ownership  Limit"  shall have the meaning set forth in Paragraph
          III hereof.

               "Purchase  Price" shall mean the Common Stock  Purchase  Price or
          the Series C Preferred Stock Purchase Price.

               "REIT Termination Event" shall mean the earliest to occur of: (i)
          the filing of a federal  income tax return by the General  Partner for
          any  taxable  year on which the General  Partner  does not elect to be
          taxed as a real  estate  investment  trust;  (ii) the  approval by the
          stockholders  of the  General  Partner of a proposal  for the  General
          Partner to cease to qualify as a real estate investment trust; (iii) a
          determination by the Board of Directors of the General Partner,  based
          on the  advice of  counsel,  that the  General  Partner  has ceased to
          qualify as a real estate  investment  trust; or (iv) a "determination"
          within the meaning of Section 1313(a) of the Internal  Revenue Code of
          1986, as amended,  that the General Partner has ceased to qualify as a
          real estate investment trust.

               "Securities  Act"  shall  mean the  Securities  Act of  1933,  as
          amended, or any successor statute.

               "Series C Preferred  Stock Purchase Price" shall have the meaning
          set forth in Paragraph IV hereof.

          XVII Delivery of Exchange  Exercise  Notices.  Any one or more Limited
          Partners holding Series C Preferred Units ("Exercising Partners") may,
          subject to the  limitations  set forth herein,  deliver to the General
          Partner written notice (the "Exchange  Exercise  Notice")  pursuant to
          which such  Exercising  Partners  elect to  exercise  their  rights to
          exchange (the "Exchange  Rights") all or any portion of their Series C
          Preferred  Units  for  shares of  Series C  Preferred  Stock or Common
          Stock, subject to the limitations contained in Paragraph 3 below.

          XVIII Limitation on Exercise of Exchange Rights.  Exchange Rights with
          respect to an exchange into Series C Preferred  Stock may be exercised
          at any time,  and  Exchange  Rights with  respect to an exchange  into
          Common  Stock may be  exercised at any time on or after August 8, 1998
          (or, if earlier, on the first day on which a Change of
<PAGE>


          Control  occurs  or a REIT  Termination  Event)  and from time to time
          thereafter.  Any  exercise of Exchange  Rights shall be subject to the
          limitations  contained herein and in the General Partner's Articles of
          Incorporation (the "Ownership  Limit"). If an Exchange Exercise Notice
          is delivered to the General  Partner but, as a result of the Ownership
          Limit,  the Exchange  Rights cannot be exercised in full, the Exchange
          Exercise  Notice shall be deemed to be modified such that the Exchange
          Rights  shall be  exercised  only to the  extent  permitted  under the
          Ownership  Limit;  with the exercise of the remainder of such Exchange
          Rights being deemed to have been withdrawn.

          XIX Election and  Computation  of Purchase  Price.  The Purchase Price
          payable by the  General  Partner to each  Exercising  Partner  for the
          Offered  Series C Preferred  Units shall be payable by the issuance by
          the General  Partner of the number of shares of its Series C Preferred
          Stock equal to the number of Series C Preferred  Units being converted
          (the "Series C Preferred Stock Purchase Price"). At the election of an
          Exercising  Partner,  the Purchase  Price shall be paid by the General
          Partner  in  shares  of its  Common  Stock  rather  than in  Series  C
          Preferred Stock (the "Common Stock Purchase Price").  The Common Stock
          Purchase Price shall mean,  with respect to the  applicable  number of
          Offered Series C Preferred  Units for which an Exercising  Partner has
          elected to receive the Common  Stock  Purchase  Price  rather than the
          Series C Preferred Stock Purchase  Price,  the number of shares of the
          General  Partner's Common Stock that would be issued to the Exercising
          Partner  if the  Exercising  Partner  held the number of shares of the
          General  Partner's  Series C  Preferred  Stock  equal to the number of
          Offered  Series C Preferred  Units and converted such shares to shares
          of the  General  Partner's  Common  Stock  pursuant  to the  terms and
          provisions of the General Partner's Articles of Incorporation.

          XX  Closing;   Delivery  of  Election  Notice.   The  closing  of  the
          acquisition  of  Offered  Series  C  Preferred  Units  shall,   unless
          otherwise  mutually  agreed,  be held at the  principal  office of the
          General Partner,  on the date agreed to by the General Partner and the
          Exercising  Partner(s),  which  date  shall in no event be on the date
          which is the later of (i) the expiration or termination of the waiting
          period applicable to each Exercising
<PAGE>


          Partner,  if any,  under the Hart  Scott  Act;  and (ii) ten (10) days
          after receipt of the Exchange  Exercise Notice delivered in accordance
          with the requirements of Paragraph II hereof.

          XXI Further  Limitation  on Exercise.  The Exchange  Rights may not be
          exercised unless the Partnership receives an opinion of counsel, which
          counsel and opinion  shall be reasonably  satisfactory  to the General
          Partner,  that the proposed exercise of such Exchange Rights shall not
          cause the Partnership to cease to qualify as a partnership for Federal
          income tax  purposes.  This  requirement  may be waived by the General
          Partner,  and shall not apply to the  exercise  by the sole  remaining
          Limited  Partner of the Exchange  Rights with respect to all of his or
          its Series C Preferred Units.

          XXII Closing Deliveries. At the closing, payment of the Purchase Price
          shall be accompanied by proper  instruments of transfer and assignment
          and by the delivery of (i)  representations  and warranties of (A) the
          Exercising  Partner with  respect to its due  authority to sell all of
          the  right,  title  and  interest  in and to  such  Offered  Series  C
          Preferred  Units to the General Partner and with respect to the status
          of the Offered Series C Preferred  Units being sold, free and clear of
          all Liens,  and (B) the General  Partner with respect to due authority
          for the purchase of such Offered  Series C Preferred  Units,  and (ii)
          (A)  an  opinion  of  counsel  for  the  General  Partner,  reasonably
          satisfactory  to the  Exercising  Partner(s),  to the effect  that the
          shares of Series C Preferred  Stock (or Common Stock, in the event the
          Electing  Partner  has elected to receive  the Common  Stock  Purchase
          Price) have been duly authorized,  are validly issued,  fully-paid and
          non-assessable, and (B) a stock certificate or certificates evidencing
          the  Series C  Preferred  Stock  (or  Common  Stock,  in the event the
          Electing  Partner  has elected to receive  the Common  Stock  Purchase
          Price)  to be  issued  and  registered  in the name of the  Exercising
          Partner(s) or its (their) designee.

          XXIII  Covenants of the General  Partner.  To  facilitate  the General
          Partner's  ability to fully  perform its  obligations  hereunder,  the
          General Partner covenants and agrees as follows:

               23.1 At all times  during the  pendency of the Series C Preferred
          Rights,  the General Partner shall reserve for issuance such number of
          shares  of  Series  C  Preferred  Stock  and  Common  Stock  as may be
          necessary  to enable the General  Partner to issue such shares in full
          payment of the Series C Preferred Stock Purchase Price or Common Stock
          Purchase  Price in  regard to all  Series C  Preferred  Units  held by
          Limited Partners and which are from time to time outstanding.
<PAGE>

               23.2 As long as the General  Partner  shall be  obligated to file
          periodic  reports  under the Exchange  Act,  the General  Partner will
          timely file such reports in such manner as shall enable any  recipient
          of Series C Preferred Stock or Common Stock issued to Limited Partners
          hereunder in reliance upon an exemption  from  registration  under the
          Securities  Act  to  continue  to be  eligible  to  utilize  Rule  144
          promulgated  by  the  SEC  pursuant  to  the  Securities  Act,  or any
          successor  rule or  regulation or statute  thereunder,  for the resale
          thereof.

               23.3 During the  pendency of the Series C Preferred  Rights,  the
          Limited  Partners  holding Series C Preferred Units shall receive in a
          timely  manner all reports  filed by the General  Partner with the SEC
          and all  other  communications  transmitted  from  time to time by the
          General Partner to its stockholders generally.

               23.4  The  General  Partner  shall  cooperate  with  the  Limited
          Partners  holding Series C Preferred  Units and provide by certificate
          of appropriate  officers the factual information  reasonably requested
          by any Limited  Partner in  connection  with delivery of an opinion of
          counsel pursuant to Section VI of this Exhibit D.

          XXIV Limited Partners' Covenants.  Each Limited Partner holding Series
          C Preferred  Units  covenants and agrees with the General Partner that
          all Offered Series C Preferred  Units tendered to the General  Partner
          in  accordance  with the exercise of Series C Preferred  Rights herein
          provided  shall be delivered to the General  Partner free and clear of
          all Liens and  should any Liens  exist or arise  with  respect to such
          Offered Series C Preferred  Units,  the General Partner shall be under
          no  obligation  to acquire the same unless the Purchase  Price will be
          sufficient  to cause such  existing Lien to be discharged in full upon
          application  of all or a part of the  Purchase  Price and the  General
          Partner is expressly  authorized to apply such portion of the Purchase
          Price as may be necessary to satisfy any  indebtedness  in full and to
          discharge such Lien in full. Each Limited Partner

<PAGE>
          holding Series C Preferred Units further agrees that, in the event any
          state or local  property  transfer  tax is  payable as a result of the
          transfer  of its  Offered  Series C  Preferred  Units  to the  General
          Partner (or its designee),  such Limited  Partner shall assume and pay
          such transfer tax.  Finally,  each Limited  Partner  holding  Series C
          Preferred  Units agrees  that,  to the extent it receives an amount of
          Net Cash Flow under Section  6.2(e) in respect of subsection  (a)(vii)
          of  Section  6.2 of the  Partnership  Agreement  that is  treated as a
          distribution  to the General  Partner for purposes of determining  the
          Capital  Account of the General  Partner,  such  Limited  Partner will
          treat  such  amount of Net Cash Flow for  income  tax  purposes  as an
          additional  amount paid by the General  Partner and  realized by it in
          exchange for the Offered Series C Preferred Units.

          XXV  Fractions of Shares.  No  fractional  Shares shall be issued upon
          conversion  of Series C  Preferred  Units.  If more than one  Series C
          Preferred Unit shall be surrendered  for conversion at one time by the
          same  Exercising  Partner,  the  number  of full  shares  of  Series C
          Preferred  Stock which shall be issuable upon  conversion  thereof (or
          Series C Preferred  Stock if the Common Stock  Purchase Price is paid)
          shall be  computed  on the basis of the  aggregate  amount of Series C
          Preferred  Units so  surrendered.  Instead of any fractional  share of
          Series C Preferred  Stock or Common  Stock which  would  otherwise  be
          issuable upon  conversion  of any Series C Preferred  Unit or Series C
          Preferred  Units,  the General  Partner shall pay a cash adjustment in
          respect of such  fraction in an amount  equal to the same  fraction of
          the current market price per share at the close of business on the day
          of closing specified in Paragraph V of this Exhibit D (or, if such day
          is not a Trading Day, on the Trading Day  immediately  preceding  such
          day).  For the purpose of any  computation  pursuant to the  preceding
          sentence,  the  current  market  price per share of Series C Preferred
          Stock on any date  shall be  deemed  to be the  average  of the  daily
          Closing Prices for the five  consecutive  Trading Days selected by the
          General  Partner  commencing  not more than twenty (20)  Trading  Days
          before,  and ending not later than, the earlier of the day in question
          and the day  before  the "ex" date with  respect  to the  issuance  or
          distribution requiring such computation.  For purposes of this Exhibit
          D, the term "Trading Day" shall mean each Monday, Tuesday,  Wednesday,
          Thursday  and  Friday,  other  than any day which  securities  are not
          traded on such  exchange or in such  market and the term "'ex'  date",
          when used in respect of any issuance or  distribution,  shall mean the
          first date on which the shares trade  regular way on such  exchange or
          in  such  market  without  the  right  to  receive  such  issuance  or
          distribution.
<PAGE>

          XXVI Provisions in Case of Consolidation, Merger or Sale of Assets. In
          case of any  consolidation  of the General Partner with, or merger +of
          the  General   Partner  into,   any  other   Person,   any  merger  or
          consolidation of another Person into the General Partner (other than a
          merger  which  does not  result in any  reclassification,  conversion,
          exchange or cancellation  of outstanding  shares of Series C Preferred
          Stock or Common Stock of the General Partner), or any sale or transfer
          of all or substantially all of the assets of the General Partner,  the
          Person formed by such  consolidation  or resulting from such merger or
          which acquires such assets of the General Partner, as the case may be,
          shall  execute  and  deliver  to each  holder  of  Exchange  Rights an
          agreement  providing that such holder shall have the right thereafter,
          during  the  period  such  Exchange  Rights  shall be  exercisable  as
          specified  herein,  to require  the  conversion  of Series C Preferred
          Units for the kind and amount of  securities,  cash and other property
          receivable  upon such  consolidation,  merger,  sale or  transfer by a
          holder of the number of shares of Series C  Preferred  Stock or Common
          Stock  into  which  such  Series C  Preferred  Unit  might  have  been
          converted  immediately prior to such  consolidation,  merger,  sale or
          transfer,  assuming such holder of shares of Series C Preferred  Stock
          is not a Person with which the General  Partner  consolidated  or into
          which the  General  Partner  merged or which  merged  into the General
          Partner, or to which such sale or transfer,  was made, as the case may
          be (a "Constituent  Person"), or an Affiliate of a Constituent Person,
          and failed to exercise his right of  election,  if any, as to the kind
          or amount of securities,  cash or other property  receivable upon such
          consolidation,  merger, sale or transfer (provided that if the kind or
          amount of  securities,  cash and other property  receivable  upon such
          consolidation, merger, sale or transfer is not the same for each share
          of  Series C  Preferred  Stock in  respect  of which  such  rights  of
          election shall not have been exercised  ("non-electing  Share"),  then
          for  the  purpose  of  this  Paragraph  XI  the  kind  and  amount  of
          securities,   cash   and   other   property   receivable   upon   such
          consolidation,  merger,  sale or transfer by each  non-electing  Share
          shall be deemed to be the kind and amount so receivable per Share by a
          plurality of the  non-electing  Shares).  Such agreement shall provide
          for adjustments  which, for events subsequent to the effective date of
          such agreement, shall be as nearly equivalent as may be practicable to
          the adjustments  provided for in this Exhibit D. The above  provisions
          of  this   Paragraph   XI  shall   similarly   apply   to   successive
          consolidations, mergers, sales or transfers.


<PAGE>

                                   SCHEDULE 1

                            EXCHANGE EXERCISE NOTICE


To:      Prime Retail, Inc.



               Reference is made to that certain Amended and Restated  Agreement
          of Limited Partnership of Prime Retail, L.P. dated ____________, _____
          (the "Partnership Agreement"), pursuant to which Prime Retail, Inc., a
          Maryland  corporation,   and  certain  other  persons,  including  the
          undersigned,  continued a Delaware limited  partnership known as Prime
          Retail,  L.P.  (the  "Partnership").  Capitalized  terms  used but not
          defined  herein shall have the  meanings set forth in the  Partnership
          Agreement.  Pursuant to Article XII of the  Partnership  Agreement and
          Paragraph II of Exhibit D of the  Partnership  Agreement,  each of the
          undersigned,   being  a  limited   partner  of  the   Partnership  (an
          "Exercising  Partner"),  hereby elects to exercise its Exchange Rights
          as to the  number  of  Offered  Series  C  Preferred  Units  specified
          opposite its name below.  Pursuant to Paragraph IV of Exhibit D of the
          Partnership Agreement,  the undersigned elect to receive [the Series C
          Preferred Stock Purchase Price]/[the Common Stock Purchase Price].

Dated:  ___________________

                                                               Number of Offered
         Exercising Partner                             Series C Preferred Units







Exercising Partners:

____________________________
____________________________
<PAGE>

                                    EXHIBIT E

                            SECTION 6.2(e) AGREEMENTS

     1. Special  Distribution  and Allocation  Agreement  dated as of January 1,
1996 among Prime  Retail,  Inc.,  Prime Retail,  L.P. and the  Carpenter  Family
Associates LLC.

     2. Combined Service and Special Distribution and Allocation Agreement dated
as of January 1, 1996 among Prime Retail,  Inc., Prime Retail,  L.P. and William
H. Carpenter, Jr.

     3. Special  Distribution  and Allocation  Agreement  dated as of January 1,
1996 among Prime Retail, Inc., Prime Retail, L.P. and the Rosenthal Family LLC.

     4. Combined Service and Special Distribution and Allocation Agreement dated
as of January 1, 1996 among Prime Retail,  Inc., Prime Retail,  L.P. and Abraham
Rosenthal.
<PAGE>

                                    EXHIBIT F

                       CONVERTIBLE PREFERRED RIGHTS TERMS


     The  Convertible  Preferred  Rights  granted by the General  Partner to the
Limited Partners holding  Convertible  Preferred Units pursuant to Section 11.1A
of the  Partnership  Agreement  shall be  subject  to the  following  terms  and
conditions:

1.  Definitions.  The following  terms and phrases  shall,  for purposes of this
Exhibit F and the Agreement, have the meanings set forth below:

          "Beneficially  Own" shall mean the ownership of Convertible  Preferred
     Stock by a  Person  who  would be  treated  as an owner of such  shares  of
     Convertible  Preferred Stock either directly or constructively  through the
     application of Section 544 of the Code, as modified by Section 856(h)(1)(B)
     of the Code.

          "Common  Stock  Purchase  Price"  shall have the  meaning set forth in
     Paragraph IV hereof.

          "Computation  Date" shall mean the date on which an Exchange  Exercise
     Notice is delivered to the General Partner.

          "Exchange  Act" shall mean the  Securities  Exchange  Act of 1934,  as
     amended, or any successor statute.

          "Exchange  Exercise  Notice"  shall  have  the  meaning  set  forth in
     Paragraph 2 hereof.

          "Exchange  Rights"  shall have the  meaning  set forth in  Paragraph 2
     hereof.

          "Exercising  Partners" shall have the meaning set forth in Paragraph 2
     hereof.

          "Offered  Convertible  Preferred  Units"  shall  mean the  Convertible
     Preferred  Units of the  Exercising  Partner(s)  identified  in an Exchange
     Exercise Notice which,  pursuant to the exercise of Exchange Rights, can be
     acquired by the General Partner under the terms hereof.
<PAGE>

          "Ownership  Limit"  shall have the  meaning  set forth in  Paragraph 3
     hereof.

          "Purchase  Price"  shall mean the Common Stock  Purchase  Price or the
     Convertible Preferred Stock Purchase Price.

          "Securities Act" shall mean the Securities Act of 1933, as amended, or
     any successor statute.

          "Convertible  Preferred  Stock Purchase  Price" shall have the meaning
     set forth in Paragraph 4 hereof.


2.  Delivery of Exchange  Exercise  Notices.  Any one or more  Limited  Partners
holding Convertible Preferred Units ("Exercising  Partners") may, subject to the
limitations set forth herein, deliver to the General Partner written notice (the
"Exchange Exercise Notice") pursuant to which such Exercising  Partners elect to
exercise their rights to convert (the  "Exchange  Rights") all or any portion of
their Convertible  Preferred Units for shares of Convertible  Preferred Stock or
Common Stock, subject to the limitations contained in Paragraph 3 below.

3. Limitation on Exercise of Exchange Rights. Exchange Rights with respect to an
exchange  into  Convertible  Preferred  Stock may be exercised at any time.  Any
exercise of Exchange Rights shall be subject to the limitations contained herein
and in the General Partner's Articles of Incorporation (the "Ownership  Limit").
If an Exchange  Exercise  Notice is delivered  to the General  Partner but, as a
result of the Ownership  Limit, the Exchange Rights cannot be exercised in full,
the  Exchange  Exercise  Notice  shall be  deemed to be  modified  such that the
Exchange  Rights  shall be  exercised  only to the  extent  permitted  under the
Ownership  Limit;  with the exercise of the  remainder of such  Exchange  Rights
being deemed to have been withdrawn.

4. Election and Computation of Purchase Price. The Purchase Price payable by the
General Partner to each Exercising Partner for the Offered Convertible Preferred
Units shall be payable by the  issuance by the General  Partner of the  product,
expressed  as a whole  number,  of (i) the  number of shares of its  Convertible
Preferred  Stock  equal to the  number  of  Convertible  Preferred  Units  being
converted,  multiplied by (ii) the Preferred  Exchange Factor (the  "Convertible
Preferred Stock Purchase Price"). At the election of an Exercising Partner,
<PAGE>

the Purchase Price shall be paid by the General  Partner in shares of its Common
Stock rather than in  Convertible  Preferred  Stock (the "Common Stock  Purchase
Price").  The Common  Stock  Purchase  Price  shall  mean,  with  respect to the
applicable number of Offered Convertible Preferred Units for which an Exercising
Partner has elected to receive the Common Stock  Purchase  Price rather than the
Convertible  Preferred Stock Purchase Price, the number of shares of the General
Partner's  Common  Stock that would be issued to the  Exercising  Partner if the
Exercising   Partner  held  the  number  of  shares  of  the  General  Partner's
Convertible  Preferred  Stock  equal  to the  number  of such  shares  that  the
Exercising  Partner  would  have  received  if  he  had  converted  his  Offered
Convertible  Preferred  Units into such shares and then converted such shares to
shares  of  the  General  Partner's  Common  Stock  pursuant  to the  terms  and
provisions of the General Partner's Articles of Incorporation.

5.  Closing;  Delivery of Election  Notice.  The closing of the  acquisition  of
Offered Convertible  Preferred Units shall, unless otherwise mutually agreed, be
held at the principal  office of the General  Partner,  on the date agreed to by
the General Partner and the Exercising Partner(s),  which date shall in no event
be on the date which is the later of (i) the  expiration or  termination  of the
waiting period  applicable to each  Exercising  Partner,  if any, under the Hart
Scott Act; and (ii) ten (10) days after receipt of the Exchange  Exercise Notice
delivered in accordance with the requirements of Paragraph II hereof.

6.  Further  Limitation  on Exercise.  The Exchange  Rights may not be exercised
unless the Partnership receives an opinion of counsel, which counsel and opinion
shall be  reasonably  satisfactory  to the General  Partner,  that the  proposed
exercise of such  Exchange  Rights shall not cause the  Partnership  to cease to
qualify as a partnership for Federal income tax purposes.  This  requirement may
be waived by the  General  Partner,  and shall not apply to the  exercise by the
sole remaining Limited Partner of the Exchange Rights with respect to all of his
or its Convertible Preferred Units.
<PAGE>

7. Closing  Deliveries.  At the closing,  payment of the Purchase Price shall be
accompanied by proper instruments of transfer and assignment and by the delivery
of (i) representations and warranties of (A) the Exercising Partner with respect
to its due authority to sell all of the right, title and interest in and to such
Offered  Convertible  Preferred Units to the General Partner and with respect to
the status of the Offered Convertible Preferred Units being sold, free and clear
of all Liens,  and (B) the General Partner with respect to due authority for the
purchase of such Offered Convertible Preferred Units, and (ii) (A) an opinion of
counsel for the  General  Partner,  reasonably  satisfactory  to the  Exercising
Partner(s),  to the effect that the shares of  Convertible  Preferred  Stock (or
Common  Stock,  in the event the  Electing  Partner  has  elected to receive the
Common Stock  Purchase  Price) have been duly  authorized,  are validly  issued,
fully-paid  and  non-assessable,  and (B) a stock  certificate  or  certificates
evidencing the  Convertible  Preferred  Stock (or Common Stock, in the event the
Electing  Partner has elected to receive the Common Stock Purchase  Price) to be
issued and  registered in the name of the  Exercising  Partner(s) or its (their)
designee.

8. Covenants of the General Partner. To facilitate the General Partner's ability
to fully perform its obligations  hereunder,  the General Partner  covenants and
agrees as follows:

          8.1 At all times  during the  pendency  of the  Convertible  Preferred
     Rights,  the General  Partner  shall  reserve for  issuance  such number of
     shares of Convertible  Preferred Stock and Common Stock as may be necessary
     to enable the General  Partner to issue such shares in full  payment of the
     Convertible  Preferred  Stock Purchase Price or Common Stock Purchase Price
     in regard to all Convertible  Preferred Units held by Limited  Partners and
     which are from time to time outstanding.

          8.2 As long as the General Partner shall be obligated to file periodic
     reports under the Exchange  Act, the General  Partner will timely file such
     reports  in such  manner  as shall  enable  any  recipient  of  Convertible
     Preferred  Stock or Common  Stock issued to Limited  Partners  hereunder in
     reliance upon an exemption  from  registration  under the Securities Act to
     continue to be eligible to utilize Rule 144 promulgated by the SEC pursuant
     to the  Securities  Act, or any  successor  rule or  regulation  or statute
     thereunder, for the resale thereof.
<PAGE>

          8.3 During the  pendency  of the  Convertible  Preferred  Rights,  the
     Limited  Partners  holding  Convertible  Preferred Units shall receive in a
     timely manner all reports filed by the General Partner with the SEC and all
     other  communications  transmitted from time to time by the General Partner
     to its stockholders generally.

          8.4 The General  Partner  shall  cooperate  with the Limited  Partners
     holding   Convertible   Preferred  Units  and  provide  by  certificate  of
     appropriate  officers the factual information  reasonably  requested by any
     Limited  Partner  in  connection  with  delivery  of an  opinion of counsel
     pursuant to Section VI of this Exhibit F.

9.  Limited  Partners'  Covenants.  Each  Limited  Partner  holding  Convertible
Preferred  Units  covenants and agrees with the General Partner that all Offered
Convertible  Preferred  Units tendered to the General Partner in accordance with
the exercise of Convertible  Preferred Rights herein provided shall be delivered
to the General Partner free and clear of all Liens and should any Liens exist or
arise with  respect to such Offered  Convertible  Preferred  Units,  the General
Partner  shall be under no  obligation  to acquire the same unless the  Purchase
Price will be  sufficient  to cause such  existing Lien to be discharged in full
upon  application of all or a part of the Purchase Price and the General Partner
is expressly  authorized  to apply such portion of the Purchase  Price as may be
necessary  to satisfy any  indebtedness  in full and to  discharge  such Lien in
full. Each Limited Partner  holding  Convertible  Preferred Units further agrees
that,  in the event any state or local  property  transfer  tax is  payable as a
result of the transfer of its Offered Convertible Preferred Units to the General
Partner  (or its  designee),  such  Limited  Partner  shall  assume and pay such
transfer tax. Finally,  each Limited Partner holding Convertible Preferred Units
agrees that,  to the extent it receives an amount of Net Cash Flow under Section
6.2(e) in respect of  subsection  (a)(vii)  of  Section  6.2 of the  Partnership
Agreement that is treated as a distribution  to the General Partner for purposes
of determining the Capital Account of the General Partner,  such Limited Partner
will treat such amount of Net Cash Flow for income tax purposes as an additional
amount paid by the  General  Partner  and  realized  by it in  exchange  for the
Offered Convertible Preferred Units.

10. Fractions of Shares. No fractional Shares shall be issued upon conversion of
Convertible  Preferred Units. If more than one Convertible  Preferred Unit shall
be surrendered for conversion at one time by the same


<PAGE>

Exercising  Partner,  the number of full shares of Convertible  Preferred  Stock
which shall be issuable upon  conversion  thereof (or Common Stock if the Common
Stock  Purchase  Price is paid) shall be computed on the basis of the  aggregate
amount of Convertible Preferred Units so surrendered.  Instead of any fractional
share of Convertible  Preferred  Stock or Common Stock which would  otherwise be
issuable  upon  conversion  of any  Convertible  Preferred  Unit or  Convertible
Preferred  Units,  the General Partner shall pay a cash adjustment in respect of
such  fraction in an amount  equal to the same  fraction  of the current  market
price per share at the close of  business  on the day of  closing  specified  in
Paragraph  V of this  Exhibit F (or,  if such day is not a Trading  Day,  on the
Trading Day immediately  preceding such day). For the purpose of any computation
pursuant  to the  preceding  sentence,  the  current  market  price per share of
Convertible Preferred Stock on any date shall be deemed to be the average of the
daily  Closing  Prices for the five  consecutive  Trading  Days  selected by the
General  Partner  commencing not more than twenty (20) Trading Days before,  and
ending not later than, the earlier of the day in question and the day before the
"ex"  date  with  respect  to  the  issuance  or  distribution   requiring  such
computation.  For purposes of this Exhibit F, the term  "Trading Day" shall mean
each Monday, Tuesday,  Wednesday,  Thursday and Friday, other than any day which
securities  are not traded on such exchange or in such market and the term "'ex'
date",  when used in respect of any  issuance  or  distribution,  shall mean the
first date on which the shares  trade  regular  way on such  exchange or in such
market without the right to receive such issuance or distribution.

11.  Provisions in Case of  Consolidation,  Merger or Sale of Assets. In case of
any  consolidation of the General Partner with, or merger of the General Partner
into, any other Person,  any merger or  consolidation of another Person into the
General   Partner   (other   than  a  merger   which  does  not  result  in  any
reclassification,  conversion, exchange or cancellation of outstanding shares of
Convertible Preferred Stock or Common Stock of the General Partner), or any sale
or transfer of all or  substantially  all of the assets of the General  Partner,
the Person formed by such  consolidation  or resulting from such merger or which
acquires such assets of the General  Partner,  as the case may be, shall execute
and deliver to each holder of Exchange Rights an agreement providing that such
<PAGE>

holder shall have the right  thereafter,  during the period such Exchange Rights
shall  be  exercisable  as  specified  herein,  to  require  the  conversion  of
Convertible  Preferred  Units for the kind and  amount of  securities,  cash and
other property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of shares of  Convertible  Preferred  Stock or Common Stock
into which such Convertible Preferred Unit might have been converted immediately
prior to such consolidation,  merger, sale or transfer,  assuming such holder of
shares of  Convertible  Preferred  Stock is not a Person  with which the General
Partner  consolidated  or into which the General  Partner merged or which merged
into the General  Partner,  or to which such sale or transfer,  was made, as the
case may be (a "Constituent  Person"),  or an Affiliate of a Constituent Person,
and failed to exercise his right of  election,  if any, as to the kind or amount
of  securities,  cash or other  property  receivable  upon  such  consolidation,
merger,  sale or transfer  (provided  that if the kind or amount of  securities,
cash and other property  receivable  upon such  consolidation,  merger,  sale or
transfer  is not the same  for each  share  of  Convertible  Preferred  Stock in
respect  of  which  such  rights  of  election  shall  not have  been  exercised
("non-electing  Share"),  then for the purpose of this Paragraph XI the kind and
amount  of   securities,   cash  and  other   property   receivable   upon  such
consolidation,  merger,  sale or  transfer by each  non-electing  Share shall be
deemed to be the kind and amount so  receivable  per Share by a plurality of the
non-electing  Shares).  Such agreement shall provide for adjustments  which, for
events  subsequent to the effective date of such  agreement,  shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Exhibit
F. The above provisions of this Paragraph XI shall similarly apply to successive
consolidations, mergers, sales or transfers. 

12. Antidilution Provisions.

          12.1 The Preferred Exchange Factor shall be subject to adjustment from
     time to time  effective  upon the  occurrence of the  following  events and
     shall  be   expressed   as  a   percentage,   calculated   to  the  nearest
     one-thousandth of one percent (.001%):

               (a) In case the General  Partner  shall pay or make a dividend or
          other  distribution  in shares of Convertible  Preferred  Stock to all
          holders of the  Convertible  Preferred  Stock,  the Exchange Factor in
          effect at the opening of business on the day  following the date fixed
          for  the  determination  of  stockholders  entitled  to  receive  such
          dividend or other distribution shall be increased in proportion to
<PAGE>

          the increase in  outstanding  shares of  Convertible  Preferred  Stock
          resulting from such dividend or other  distribution,  such increase to
          become effective  immediately after the opening of business on the day
          following   the  record   date  fixed  for  such   dividend  or  other
          distribution.

               (b) In case  outstanding  shares of Convertible  Preferred  Stock
          shall be  subdivided  into a greater  number of shares,  the  Exchange
          Factor in effect at the opening of business on the day  following  the
          day  upon  which  such   subdivision   becomes   effective   shall  be
          proportionately  increased,  and, conversely,  in case the outstanding
          shares of Convertible Preferred Stock shall be combined into a smaller
          number of  shares,  the  Exchange  Factor in effect at the  opening of
          business  on the day  following  the day upon which  such  combination
          becomes effective shall be proportionately  reduced,  such increase or
          reduction,  as the case may be, to become effective  immediately after
          the opening of business on the day  following  the day upon which such
          subdivision or combination becomes effective.

               12.2 In case the General  Partner shall issue rights,  options or
          warrants to all holders of its shares of Convertible  Preferred  Stock
          entitling  them to  subscribe  for or purchase  Convertible  Preferred
          Stock at a price per  share  less than the  current  market  price per
          share  (as  determined  in  the  next  sentence),  each  holder  of  a
          Convertible Preferred Unit shall be entitled to receive such number of
          rights, options or warrants, as the case may be, as he would have been
          entitled to receive had he converted his  Convertible  Preferred Units
          immediately  prior to the record date for such issuance by the General
          Partner  (except to the extent such receipt shall cause such holder to
          exceed  the  Ownership  Limit).  For the  purpose  of any  computation
          pursuant to the preceding sentence, the current market price per share
          of Convertible  Preferred  Stock on any date shall be deemed to be the
          average of the daily Closing Prices for the five  consecutive  Trading
          Days selected by the General  Partner  commencing not more than twenty
          (20) Trading Days  before,  and ending not later than,  the earlier of
          the day in question  and the day before the "ex" date with  respect to
          the issuance or distribution requiring such
<PAGE>


          computation.  For purposes of this Exhibit C, the term  "Trading  Day"
          shall mean each Monday, Tuesday, Wednesday, Thursday and Friday, other
          than any day which  securities  are not traded on such  exchange or in
          such  market  and the term  "'ex'  date",  when used in respect of any
          issuance  or  distribution,  shall  mean the  first  date on which the
          shares trade  regular way on such  exchange or in such market  without
          the right to receive such issuance or distribution.

               12.3 In case the shares of Convertible  Preferred  Stock shall be
          changed into the same or a different  number of shares of any class or
          classes of stock, whether by capital reorganization, reclassification,
          or otherwise  (other than  subdivision  or  combination of shares or a
          stock dividend  described in  subparagraph  (a)(ii) of this Paragraph)
          then and in each such event the Limited  Partners shall have the right
          thereafter to convert their Convertible  Preferred Units into the kind
          and amount of shares and other  securities  and  property  which would
          have been received upon such reorganization, reclassification or other
          change by holders of the number of shares  into which the  Convertible
          Preferred  Units might have been converted  immediately  prior to such
          reorganization, reclassification or change.

               12.4 The General  Partner may, but shall not be required to, make
          such  adjustments  to the  number of shares of  Convertible  Preferred
          Stock  issuable upon  conversion of a Convertible  Preferred  Unit, in
          addition  to those  required  by this  Paragraph  12,  as the  General
          Partner's  board of directors  considers to be advisable in order that
          any event  treated  for federal  income tax  purposes as a dividend of
          stock or stock  rights  shall not be  taxable to the  recipients.  The
          General  Partner's  board of directors shall have the power to resolve
          any ambiguity or correct any error in the adjustments made pursuant to
          this  Paragraph  and its  actions  in so  doing  shall  be  final  and
          conclusive.
<PAGE>
SCHEDULE 1

EXCHANGE EXERCISE NOTICE


To:      Prime Retail, Inc.



               Reference is made to that certain Amended and Restated  Agreement
          of Limited Partnership of Prime Retail, L.P. dated ____________, _____
          (the "Partnership Agreement"), pursuant to which Prime Retail, Inc., a
          Maryland  corporation,   and  certain  other  persons,  including  the
          undersigned,  continued a Delaware limited  partnership known as Prime
          Retail,  L.P.  (the  "Partnership").  Capitalized  terms  used but not
          defined  herein shall have the  meanings set forth in the  Partnership
          Agreement. Pursuant to Part B, Article XI of the Partnership Agreement
          and Paragraph II of Exhibit F of the  Partnership  Agreement,  each of
          the  undersigned,  being a  limited  partner  of the  Partnership  (an
          "Exercising  Partner"),  hereby elects to exercise its Exchange Rights
          as to the  number of Offered  Convertible  Preferred  Units  specified
          opposite its name below.  Pursuant to Paragraph IV of Exhibit F of the
          Partnership   Agreement,   the  undersigned   elect  to  receive  [the
          Convertible Preferred Stock Purchase Price]/[the Common Stock Purchase
          Price].

Dated:  ___________________

                                                               Number of Offered
         Exercising Partner                          Convertible Preferred Units







Exercising Partners:

____________________________
____________________________