<PAGE>w
October 27, 2000
VIA FEDERAL EXPRESS
Board of Directors of Prime Retail, Inc.
c/o Mr. Glenn D. Reschke
Prime Retail, Inc.
100 East Pratt Street
19th Floor
Baltimore, Maryland 21202
Re: Amendment to Offer
------------------
Dear Glenn:
The purpose of this letter is to amend our prior offer dated
September 20, 2000, with respect to the purchase of five outlet centers
commonly known as Gilroy, Michigan City, Kittery, Waterloo and Puerto Rico.
The proposed changes to our offer are as follows:
a) the request for a 90-day exclusivity period to negotiate a
"friendly" tender offer is hereby deleted; and
b) the request for 5,000,000 warrants to purchase PRT common stock at
$1.50 per share is hereby deleted.
Over the last three weeks, GMAC has made substantial progress in its
due diligence in spite of having to recreate a new cash flow spreadsheet from
over 500 lease abstracts and leases. GMAC continues to have an interest in
moving forward to finalize its due diligence, prepare its board package, and
to secure GMAC board approval. However, GMAC cannot complete its due
diligence and obtain GMAC board approval unless a contract is signed and
approved by PRT's board. GMAC will agree, however, that if GMAC issues its
commitment in accordance with the contract and PRT for any reason chooses not
to close the transaction, then a "break-up" fee (to be negotiated) will have
been earned by GMAC.
With regard to timing, GMAC has agreed to move as expeditiously as
possible to complete due diligence, update third-party reports and to secure
final board approval. GMAC estimates that final board approval could be
secured within three to four weeks of PRT approval of the proposed
transaction, depending on the timing of transaction deliverables.
<PAGE>
Board of Directors of Prime Retail, Inc.
Re: Amendment to Offer
October 27, 2000
Page 2
Please refer to my prior memorandum to the board dated October 2,
2000, a copy of which is available from the company, which analyzed and
compared the benefits of the asset sale proposal versus the Lehman debt
proposal. With the deletion of the requested warrant package, the benefits of
the asset sale proposal are even more significant. As described in the
memorandum, the effective cost of $141.0 million of capital under the Lehman
debt proposal was 24.06%, calculated as follows:
<TABLE>
<CAPTION>
Lehman Debt Proposal
--------------------------------------------------
(mil.) Cost Wtd. Avg.
---------- --------- -----------
<S> <C> <C> <C>
Puerto Rico First $ 20.0 12.25% 1.74%
Mezzanine Loan 121.0 19.25% 16.52%
------ -----
Total $141.0 18.26%
======
Warrants 5.8% 5.80%
-----
Total Cost 24.06%
=====
</TABLE>
The effective cost of $151.0 million of capital under the asset sale proposal
is 17.58%, calculated as follows:
<TABLE>
<CAPTION>
Asset Sale Proposal
--------------------------------------------------
(mil.) Cost Wtd. Avg.
---------- --------- -----------
<S> <C> <C> <C>
Sale of Assets $105.5 19.70% 13.70%
Greenwich Loan 46.0 12.75% 3.98%
------ -----
Total Cost $151.0 17.58%
====== =====
</TABLE>
The 6.5% cost of capital differential represents an annual savings of $9.8
million per year. Moreover, I refer you to the October 2nd memorandum for a
summary discussion of the many other benefits of the asset sale proposal.
If any board members should have any questions, or if anyone would
like to discuss the analysis or conclusions contained in my October 2nd
memorandum, please call me at anytime. Furthermore, if you should have any
questions for GMAC, please feel free to contact either Dan Driscoll or Olivia
Wand at (212) 214-0104 or (212) 214-0157, respectively.
Very truly yours,
/s/ Michael W. Reschke
cc: Steven L. Craig
Daniel J. Driscoll
Olivia Wand
MWR/cgb
