FAYETTEVILLE LITHOTRIPTERS LIMITED PARTNERSHIP -
                                    ARIZONA I

             A Limited Partnership Formed Under the Laws of Arizona

                    CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM

                             up to $441,040 in Cash

                    80 Units of Limited Partnership Interest
                           at $5,513 in Cash per Unit

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THIS MEMORANDUM IS FURNISHED PURSUANT TO A CONFIDENTIALITY AGREEMENT BETWEEN THE
PARTNERSHIP  AND THE INVESTOR  WHOSE NAME  APPEARS  ABOVE.  THE  CONFIDENTIALITY
AGREEMENT  PROHIBITS THE DISCLOSURE OF THE  CONFIDENTIAL  MATERIAL  CONTAINED IN
THIS MEMORANDUM,  EXCEPT TO THE EXTENT SUCH INVESTOR DEEMS IT NECESSARY TO SHARE
SUCH INFORMATION  WITH HIS LEGAL,  ACCOUNTING OR OTHER FINANCIAL  ADVISORS,  WHO
LIKEWISE SHALL BE BOUND BY THE SAME  CONFIDENTIALITY  RESTRICTIONS  SET FORTH IN
THE CONFIDENTIALITY AGREEMENT.

                            MEDTECH INVESTMENTS, INC.

                              Exclusive Sales Agent

                                2008 Litho Place

                       Fayetteville, North Carolina 28304

                                 1-800-682-7971


<PAGE>



                  The Date of this Memorandum is June 23, 2000

           FAYETTEVILLE LITHOTRIPTERS LIMITED PARTNERSHIP - ARIZONA I

                             up to $441,040 in Cash

                 up to 80 Units of Limited Partnership Interest

                           at $5,513 in Cash per Unit

                  Fayetteville Lithotripters Limited Partnership - Arizona I, an
Arizona limited partnership (the "Partnership") operated by its General Partner,
Lithotripters,  Inc., a North  Carolina  corporation  (the  "General  Partner"),
hereby  offers on the terms set forth  herein up to 80 Units  (the  "Units")  of
limited partnership  interest in the Partnership,  at a price per Unit of $5,513
in cash. See "Terms of the Offering."  Each Unit will represent an initial 0.25%
economic interest in the Partnership. See "Risk Factors - Other Investment Risks
- Dilution of Limited  Partners'  Interest." The Partnership  currently owns and
operates  two   Lithostar(TM)   second  generation   extracorporeal   shock-wave
lithotripters  for the  lithotripsy  of kidney  stones.  Each  Lithostar(TM)  is
installed  in  a   self-propelled   Coach  (the   Coaches  with  the   installed
Lithostars(TM)  are referred to herein as the  "Existing  Lithotripsy  Systems")
enabling the Partnership to provide  lithotripsy  services at various  locations
throughout Arizona and parts of New Mexico (the "Service Area").

                  The  Partnership  intends to use the proceeds of this Offering
to (i) pay the costs of this  Offering;  (ii)  finance a portion  of the cost of
purchasing two new Storz Modulith(R) SLX-T transportable lithotripters and a new
Coach and new mobile van to transport the lithotripters (collectively,  the "New
Lithotripsy  Systems");  and (iii) to make  distributions  to  persons  who were
Partners of the  Partnership  prior to the  commencement  of the  Offering.  The
Partnership  anticipates  that the New  Lithotripsy  Systems  will  replace  the
Existing  Lithotripsy Systems, and that the Existing Lithotripsy Systems will be
sold or  discarded.  See  "Sources  and  Applications  of Funds."  The  Existing
Lithotripsy Systems and the New Lithotripsy Systems are, collectively,  referred
to as the "Lithotripsy Systems." The cash purchase price is due at subscription;
however,  prospective Investors who meet certain requirements may be able fund a
portion of their Unit  purchase  price with the proceeds of certain  third-party
financing.  See "Terms of the  Offering - Limited  Partner  Loans." The Offering
will  terminate  on August 15, 2000 (or earlier upon the sale of all 80 Units as
provided herein), unless extended at the discretion of the General Partner for a
period not to exceed 180 days.

                  Purchase  of Units  involves  risks and is  suitable  only for
persons of substantial  means who have no need for liquidity in this investment.
Among  other  factors,  prospective  investors  should note that the health care
industry is undergoing  significant  government  regulatory  reforms.  See "Risk
Factors" and "Terms of the Offering - Suitability Standards."


                                        Cash          Selling         Net Cash

                                   Offering Price   Commissions(1)  Proceeds(2)
                                     --------------   -----------     --------
   Per Unit(3)                            $5,513        $ 75           $5,438
   Total Maximum(4)                     $441,040        $ 6,000        $435,040
(See Footnotes on Back of Cover Page)
                               See  Glossary for  capitalized  terms used herein
and not otherwise defined.


<PAGE>


(1)      The Units will be sold on a "best-efforts"  any or all basis by MedTech
         Investments,  Inc., a broker-dealer  registered with the Securities and
         Exchange Commission, a member of the National Association of Securities
         Dealers,  Inc.  and an  Affiliate  of the General  Partner  (the "Sales
         Agent").  The Partnership will pay the Sales Agent a $75 commission for
         each Unit sold and will  reimburse  the  Sales  Agent for its  Offering
         costs (not to exceed  $5,000).  The Partnership has agreed to indemnify
         the Sales Agent  against  certain  liabilities,  including  liabilities
         under the Securities Act of 1933 (the "Securities Act").

         See "Plan of Distribution."

(2)      Net Cash Proceeds do not reflect  deduction of expenses  payable by the
         Partnership.  See  "Sources and  Applications  of Funds." The price per
         Unit  ($5,513)  is payable in cash upon  subscription;  provided,  that
         prospective  Investors  who meet  certain  requirements  may be able to
         personally  borrow funds from a third-party  financial  institution  in
         order to pay a portion of their cash purchase  price per Unit.  For the
         convenience of Investors, the Partnership has arranged for financing of
         a portion of the Units' purchase price with First-Citizens Bank & Trust
         Company,  which is  headquartered in Raleigh,  North Carolina,  and has
         approximately  370 offices  throughout the  southeastern  United States
         (the "Bank"). Therefore, in lieu of paying the entire purchase price in
         cash at subscription,  prospective Investors may execute and deliver to
         the Sales Agent  together  with their  subscription  packets,  at least
         $2,500 cash and a Limited Partner Note payable to the Bank in a maximum
         principal  amount of up to $3,013 per Unit to be purchased,  a Loan and
         Security Agreement,  Security Agreement and two Uniform Commercial Code
         Financing Statements ("UCC-1s")  (collectively,  the "Loan Documents").
         See "Terms of the  Offering - Limited  Partner  Loans" and the forms of
         the Limited Partner Note, the Loan and Security  Agreement and Security
         Agreement  attached to the Form of Bank Commitment as Exhibits A, B and
         C,  respectively,  which is attached hereto as Appendix C and the UCC's
         attached as part of the Subscription Packet.

(3)      Each Investor may purchase no less than one Unit. The General  Partner,
         however, reserves the right to sell less than one Unit as an additional
         investment, and to reject in whole or in part any subscription.

(4)      Offering Proceeds will first be used by the Partnership to pay offering
         costs and expenses  (up to $35,000)  and the  remainder of the proceeds
         will  be used  to  finance  the  New  Lithotripsy  Systems  and to make
         distributions to the persons who were Partners of the Partnership prior
         to the  commencement of the Offering.  See "Sources and Applications of
         Funds." The  Partnership  seeks by this Offering to sell up to 80 Units
         for an  aggregate  of up to  $441,040  in cash  ($435,040  net of Sales
         Agent's commissions). All subscription funds and Loan Documents will be
         held in an  interest  bearing  escrow  account  with the Bank until the
         acceptance of the Investor's  subscription (and approval by the Bank if
         the Investor is financing a portion of the Unit purchase  price through
         a Limited  Partner Loan),  rejection of the Investor's  subscription or
         termination of this Offering. The Partnership has set no minimum number
         of Units to be sold in this Offering. Accordingly, upon the receipt and
         acceptance of an Investor's subscription by the Partnership as provided
         herein,  such Investor will be admitted to the Partnership as a Limited
         Partner,  provided that acceptance of subscriptions by an Investor that
         elects  to  finance  a  portion  of his or her Unit  purchase  price is
         conditioned  upon  approval by the Bank of his or her  Limited  Partner
         Loan. Upon admission as a Limited Partner, the Investor's  subscription
         funds will be released to the Partnership  and the Loan  Documents,  if
         any,  will be  released  to the Bank.  In the event a  subscription  is
         rejected,   all  subscription  funds  (without   interest),   the  Loan
         Documents, if any, and other subscription documents held in escrow will
         be promptly  returned  to the  rejected  Investor.  The  Offering  will
         terminate on August 15,  2000,  unless it is sooner  terminated  by the
         General  Partner,  or unless  extended for an additional  period not to
         exceed 180 days. See "Terms of the Offering."

            [The remainder of this page is left intentionally blank.]


<PAGE>




o        The  Units  are  being  offered  pursuant  to  an  exemption  from  the
         registration  requirements  of the  Securities Act of 1933, as amended,
         provided  by  Section  4(2)  thereof  and  Rule  506  of  Regulation  D
         promulgated  thereunder,  as  amended,  and  an  exemption  from  state
         registration  requirements  provided by the National Securities Markets
         Improvement  Act of 1996. A  registration  statement  relating to these
         securities  has  not  been  filed  with  the  Securities  and  Exchange
         Commission or any state securities commission.

o        Neither the Securities and Exchange Commission nor any state securities
         commission has approved or disapproved of the Units or determined  that
         this  Memorandum  is truthful or complete.  Any  representation  to the
         contrary is a criminal offense.

o        The Units are subject to restrictions on transferability and resale and
         may not be  transferred  or resold  without  the consent of the General
         Partner and  satisfaction  of certain  other  conditions  including the
         availability  of an  exemption  under  the  Securities  Act of 1933 and
         applicable  state securities laws. See "Risk Factors - Other Investment
         Risks - Limited Transferability and Illiquidity of Units." No public or
         other  market  exists or will develop for the Units.  Investors  should
         proceed only on the assumption  that they may have to bear the economic
         risk of an investment in the Units for an indefinite period of time.

o        Prospective   Investors  should  not  construe  the  contents  of  this
         Memorandum or any prior or subsequent  communications,  whether written
         or oral, from the Partnership,  its General Partner, the Sales Agent or
         any of their  agents or  representatives  as  investment,  tax or legal
         advice.  This  Memorandum  and the  appendices  hereto,  as well as the
         nature  of the  investment,  should  be  reviewed  by each  prospective
         Investor,  such  Investor's  investment,  tax or  other  advisors,  and
         accountants and/or legal counsel.

o        No offering  literature in whatever form will or may be employed in the
         offering of Units,  except this  Memorandum  (including  amendments and
         supplements,  if any) and  documents  summarized  herein.  No person is
         authorized to give any  information or to make any  representation  not
         contained in this Memorandum or in the appendices hereto, and, if given
         or made, such other  information or  representation  must not be relied
         upon.




<PAGE>


                                TABLE OF CONTENTS

RISK FACTORS................................................................1
   Operating Risks..........................................................1
   Tax Risks................................................................7
   Other Investment Risks..................................................12
THE PARTNERSHIP............................................................15
TERMS OF THE OFFERING......................................................16
   The Units and Subscription Price........................................16
   Acceptance of Subscriptions.............................................16
   Limited Partner Loans...................................................17
   Subscription Period; Closing............................................19
   Offering Exemption......................................................19
   Suitability Standards...................................................19
   How to Invest...........................................................20
   Restrictions on Transfer of Units.......................................20
PLAN OF DISTRIBUTION.......................................................21
BUSINESS ACTIVITIES........................................................22
   General.................................................................22
   Treatment Methods for Kidney Stone Disease..............................22
   The Existing Lithotripsy Systems........................................23
   Acquisition of the New Lithotripsy Systems..............................24
   Acquisition of Additional Assets........................................26
   Hospital Contracts......................................................26
   Operation of the Lithotripsy Systems....................................27
   Management..............................................................28
   Employees...............................................................28
FINANCIAL CONDITION OF THE PARTNERSHIP.....................................29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS..........34
   Four Months Ended April 30, 2000 and April 30, 1999.....................34
   Year Ended December 31, 1999 and December 31, 1998......................34
   Year Ended December 31, 1998 and December 31, 1997......................34
SOURCES AND APPLICATIONS OF FUNDS..........................................36
THE GENERAL PARTNER........................................................37
COMPENSATION AND REIMBURSEMENT TO THE GENERAL PARTNER AND ITS AFFILIATES...38
CONFLICTS OF INTEREST......................................................40
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER............................41
COMPETITION................................................................42
   Affiliated Competition..................................................42
   Other Competition.......................................................42
REGULATION.................................................................43
   Federal Regulation......................................................43
   State Regulation........................................................52
PRIOR ACTIVITIES...........................................................53
SUMMARY OF THE PARTNERSHIP AGREEMENT.......................................54
   Nature of Limited Partnership Interest..................................55
   Profits, Losses and Distributions.......................................55
   Management of the Partnership...........................................56
   Powers of the General Partner...........................................57
   Rights and Liabilities of the Limited Partners..........................57
   Restrictions on Transfer of Partnership Interests.......................58
   Dissolution and Liquidation.............................................58
   Optional Purchase of Limited Partner Interests..........................59
   Dilution Offerings......................................................59
   Arbitration.............................................................60
   Power of Attorney.......................................................60
   Reports to Limited Partners.............................................60
   Records.................................................................61
LEGAL MATTERS..............................................................61
ADDITIONAL INFORMATION.....................................................61
GLOSSARY...................................................................61



<PAGE>


APPENDICES

Appendix A  AGREEMENT  OF  LIMITED  PARTNERSHIP  OF  FAYETTEVILLE  LITHOTRIPTERS
     LIMITED PARTNERSHIP - ARIZONA I

Appendix B        FORM OF LOAN COMMITMENT (WITH EXHIBITS)

Appendix C        FORM OF OPINION OF WOMBLE CARLYLE SANDRIDGE & RICE, PLLC

Appendix D        NOTES TO FINANCIAL STATEMENTS


<PAGE>


                                 RISK FACTORS

                  Prior to subscribing  for Units,  Investors  should  carefully
examine this entire Memorandum, including the Appendices hereto, and should give
particular   consideration   to  the  general  risks  attendant  to  speculative
investments and investments in partnerships generally,  and to the other special
operating, tax and other investment risks set forth below.

Operating Risks

                  General Risks of Operations.  The Partnership was formed under
the laws of the State of Arizona on August 23, 1988 and commenced  operations in
1990. Although the General Partner and its personnel have significant experience
in managing  lithotripsy  enterprises,  whether the  Partnership can continue to
effectively operate and expand its business cannot be accurately predicted.  The
benefits of an  investment in the  Partnership  also depend on many factors over
which the  Partnership  has no  control,  including  competition,  technological
innovations rendering the Lithotripsy Systems less competitive or obsolete,  and
other matters.  The  Partnership may be adversely  affected by various  changing
local  factors  such as an increase in local  unemployment,  a change in general
economic  conditions,  changes in interest rates and  availability of financing,
and other  matters  that may render the  operation  of the  Lithotripsy  Systems
difficult or unattractive. Other factors that may adversely affect the operation
of the Lithotripsy Systems are unforeseen  increased operating expenses,  energy
shortages and costs attributable thereto,  uninsured losses and the capabilities
of the Partnership's management personnel.

                  Uncertainties Related to Changing Healthcare Environment.  The
healthcare industry has experienced substantial changes in recent years. Managed
care is becoming a major factor in the delivery of lithotripsy services, and the
General Partner  anticipates  that managed care programs,  including  capitation
plans,  will continue to play an increasing  role in the delivery of lithotripsy
services  and that  competition  for these  services  may shift from  individual
practitioners  to  health   maintenance   organizations  and  other  significant
providers  of  managed  care.  No  assurance  can be  given  that  the  changing
healthcare   environment  will  not  have  a  material  adverse  effect  on  the
Partnership.

                  Lack of Diversification. The Partnership's fundamental purpose
will be to  continue  to operate the  Existing  Lithotripsy  Systems and then to
operate the New  Lithotripsy  Systems.  Because the  Partnership is dependent on
only one line of business,  it will have greater risks from  unexpected  service
interruptions,  equipment breakdowns,  technological developments,  kidney stone
treatment  medical  breakthroughs,  economic  problems and similar  matters than
would be the case with a more diversified business.

                  Impact of Insurance Reimbursement.  The Partnership's revenues
are expected to continue to be derived from the fees paid by Contract  Hospitals
under contract with the  Partnership.  The Partnership does not plan to directly
bill or collect for services from patients or their third-party  payors,  though
it  may do so in  the  future  in the  General  Partner's  discretion.  Payments
received from Contract  Hospitals may be subject to  renegotiation  depending on
the reimbursement  they receive.  Such  reimbursement may be reduced for several
reasons,  including the introduction of an outpatient prospective payment system
regarding Medicare patients,  which in turn could lower reimbursement  available
from private health  insurers.  The increasing  influence of health  maintenance
organizations  and other  managed  care  companies  has  resulted in pressure to
reduce the  reimbursement  available  for  lithotripsy  procedures.  Some of the
General Partner's Affiliates have recently experienced  declining revenues based
on these managed care pressures in other health care markets.  Additionally, the
Health  Care  Financing   Administration  ("HCFA"),  the  federal  agency  which
administers   the   Medicare   program,   has  issued  rules  which  reduce  the
reimbursement  available  for  lithotripsy  procedures  provided at hospitals to
$2,265. See "Regulation - Federal Regulation." In some cases reimbursement rates
payable to the General Partner and other  Affiliates from commercial third party
payors  are  less  than the  proposed  HCFA  rate.  Because  of the  competitive
pressures  from  managed  care  companies as well as  threatened  reductions  in
Medicare  reimbursement,  the General  Partner  anticipates  that  reimbursement
available for  lithotripsy  procedures may continue to decrease.  Such decreases
would have a material  adverse  effect on  Partnership  revenues.  Regarding the
professional  fees paid to  physicians  who treat  patients  on the  Lithotripsy
Systems, the General Partner anticipates that similar competitive  pressures may
result in lower  reimbursement paid to physicians,  both by private insurers and
by government programs such as Medicare. See "Regulation."

                  Reliability and Efficacy of the  Partnership's  Lithotripters.
The   Partnership   currently   owns  and  operates  two   Lithostars(TM).   The
Lithostar(TM)  has  an  eleven-year  United  States  operating  history,  having
received  premarket approval from the FDA for renal lithotripsy on September 30,
1988. This approval  followed a period of clinical testing beginning in February
1987 at four test sites in the United States,  which was preceded by substantial
clinical testing of the  Lithostar(TM) at the Urological  Clinic of the Johannes
Gutenberg  University of Mainz, West Germany. The General Partner estimates that
more than 400  Lithostar(TM)  systems  are  currently  operating  in over twenty
countries,   and  the  General  Partner  and  its  Affiliates  operate  over  30
Lithostars(TM)  in  other  ventures.  In  the  General  Partner's  opinion,  the
Lithostar(TM)  has  proven to be  reliable  and  dependable  medical  equipment;
however,  any downtime  periods  necessitated  for maintenance or repairs of the
Partnership's  Existing  Lithotripsy  Systems will adversely affect  Partnership
revenues. In 1996, the FDA approved a new higher intensity shock-head system for
the  Lithostar(TM),  which the General Partner believes has shortened  procedure
times. The Partnership's  Lithostars(TM)  were upfitted with the new tube system
in 1996.  Based  upon a  detailed  follow-up  study of 86,000  renal and  51,000
ureteral  stones treated on the  Lithostar(TM)  in all of the General  Partner's
affiliated  partnerships  using both the original and newer shock-head  systems,
the General Partner notes an 86% total success rate with an overall  retreatment
rate of 15%. This  retreatment  rate included stones of all sizes and locations,
including  staghorn calculi which at times required multiple  treatments.  Based
upon this study and the General Partner's  experience in doing well in excess of
128,000  cases over the past ten and one-half  years in its  affiliated  limited
partnerships,  the General Partner is of the opinion that the  Lithostar(TM)  is
generally an effective and sound alternative for the treatment of renal stones.

                  However,  the Partnership's  Lithostars(TM)  are older models,
and the General  Partner  believes  that these  machines  need to be replaced in
order to retain the  Partnership's  current level of  efficiency  and respond to
competitive  pressures.  The  Partnership  anticipates  purchasing two new Storz
Modulith(R)  SLX-T  model  extracorporeal  shock  wave  lithotripters  with  the
proceeds  of  this  Offering  and  Partnership  debt  financing.  See  "Business
Activities - Acquisition of the New  Lithotripsy  Systems." The General  Partner
believes the Modulith(R) SLX-T offers several advantages over the Lithostar(TM).
In particular,  the General Partner believes that the Modulith(R) SLX-T provides
clearer  imaging than the  Lithostar(TM).  In addition,  because the Modulith(R)
SLX-T is transportable,  it can be moved from site to site more quickly, and the
Modulith(R)  SLX-T offers more flexibility since it can be used in a Coach or in
hospital procedure rooms.

                  The Modulith(R) SLX-T received FDA premarket approval on March
27,  1997.  Although  the General  Partner and its  Affiliates  have limited but
positive direct  experience with the use of the Modulith(R)  SLX-T, any downtime
periods  necessitated by maintenance and repairs of the New Lithotripsy  Systems
will adversely  affect  Company  revenues.  Preliminary  reports from abroad and
"word of mouth"  anecdotal  evidence  indicate that the Modulith(R)  SLX-T is as
effective as most of the  "portable"  lithotripters  in the market.  The General
Partner is aware that early data from abroad  concerning  one  precursor  to the
Modulith(R)  SLX-T reflected a high  retreatment  rate, and that an Affiliate of
the General Partner experienced electrical and mechanical problems using another
precursor,   the  Modulith(R)  SLX.  However,  the  General  Partner's  and  its
Affiliates'  limited  experience with the  transportable  Modulith(R)  SLX-T has
shown acceptable retreatment rates. A high retreatment rate may adversely affect
the Partnership.

                  Investors   should  note  that  some  studies   indicate  that
lithotripsy  may cause high blood  pressure and tissue damage.  The  Partnership
questions the reliability of these studies and believes lithotripsy has become a
widely accepted method for the treatment of renal stones.

                  Technological  Obsolescence.  The  history of  lithotripsy  of
kidney stones as an accepted treatment  procedure is relatively recent, with the
first clinical trials being conducted in West Germany  beginning in 1980 and the
first  premarket  approval for a renal  lithotripter  in the United States being
granted  by the  FDA in  December  1984.  Today,  lithotripsy  is the  treatment
procedure of choice for kidney stone disease,  having  replaced other  treatment
methods.  Published reports indicate that certain  researchers are attempting to
improve  a  laser  technology  to  more  easily  eradicate  kidney  stones,  and
pharmaceutical  companies and researchers  have attempted to develop a safe drug
that can be used to dissolve  kidney  stones in all cases.  The General  Partner
cannot  predict the outcome of ongoing  research in these areas,  and any one or
more  developments  could  reduce  or  eliminate  lithotripsy  as an  acceptable
procedure or treatment method of choice for the treatment of kidney stones.

                  Partnership  Limited  Resources  and  Risks of  Leverage.  The
proceeds of this Offering cannot be accurately  determined until the Closing has
occurred and the number of Units sold has been  calculated.  In any event,  such
proceeds  will not be  sufficient  to fund  all  anticipated  expenses,  and the
Partnership will have to supplement  Partnership funds with the proceeds of debt
financing.  See  "Business  Activities  -  Acquisition  of the  New  Lithotripsy
Systems" and "Sources and  Application of Funds."  Although the General  Partner
maintains good relationships with certain  commercial lending  institutions,  it
has not obtained a loan commitment from any party in any amount on behalf of the
Partnership  and whether one would timely be forthcoming on terms  acceptable to
the  Partnership  cannot be assured.  The General  Partner and/or its Affiliates
may, but are under no obligation to, make loans to the Partnership, and there is
no assurance that they would be willing or able to do so at the time, in amounts
and on terms  required by the  Partnership.  While the General  Partner does not
anticipate that it would cause the Partnership to incur indebtedness unless cash
generated  from  Partnership  operations  were at the time  expected  to  enable
repayment  of such loan in  accordance  with its terms,  lower than  anticipated
revenues  and/or  greater  than   anticipated   expenses  could  result  in  the
Partnership's  failure to make  payments of principal or interest when due under
such a loan and the  Partnership's  equity being reduced or eliminated.  In such
event, the Limited Partners could lose their entire investment.

                  Acquisition of Additional Assets. If in the future the General
Partner determines that it is in the best interest of the Partnership to acquire
for the  treatment of renal stones one or more fixed base or mobile  lithotripsy
systems (or any other renal stone  treatment  equipment)  in addition to the New
Lithotripsy  Systems,  the  General  Partner has the  authority  (with the prior
written consent of a majority in interest of the Limited  Partners) to establish
reserves or borrow  additional  funds on behalf of the Partnership to accomplish
such goals, and may use Partnership assets and revenues to secure and repay such
borrowings.  The acquisition of additional assets may substantially increase the
Partnership's monthly obligations and result in greater personnel  requirements.
See "Risk Factors - Operating Risks - Partnership Limited Resources and Risks of
Leverage." Other than the New Lithotripsy Systems, which the Partnership intends
to purchase with the proceeds of the Offering and  Partnership  debt  financing,
the General Partner does not anticipate acquiring additional  Partnership assets
unless projected  Partnership Cash Flow or proceeds from a Dilution Offering are
sufficient to finance such acquisitions.  In any event, no Limited Partner would
be personally  liable on any additional  Partnership  indebtedness  without such
Partner's prior written  consent.  There is no assurance that financing would be
available  to the  Partnership  to  acquire  additional  assets  or to fund  any
additional working capital  requirements.  Any such borrowing by the Partnership
will serve to increase the risks to the Partnership  associated with leverage as
provided above.

                  Competition.  Many  fixed-site  and mobile  lithotripters  are
currently  operating  in and  around  the  Service  Area which will be in direct
competition  with  the  Partnership's  Lithotripsy  Systems.  Affiliates  of the
General Partner operate near the Service Area. The competing lithotripsy service
providers generally have existing contracts with hospitals and other facilities.
Except as provided by law,  neither the General  Partner nor its  Affiliates are
prohibited  from engaging in any business or  arrangement  that may compete with
the   Partnership.   See  "Prior   Activities,"   "Conflicts  of  Interest"  and
"Competition."

                  There is no  assurance  that other  parties  will not,  in the
future,  operate  fixed-base or mobile  lithotripters  in and around the Service
Area. To the General Partner's  knowledge,  no manufacturers are restricted from
selling their  lithotripters to other parties in the Service Area.  Furthermore,
the Partnership  competes with facilities and individual  medical  practitioners
who offer conventional treatment (e.g., surgery) for kidney stones. Managed care
companies  generally  contract  either  directly  with  hospitals  or  specified
providers for lithotripsy  services for  beneficiaries of their plans. It is not
uncommon for managed  care  companies  to have  contracts  already in place with
hospitals  or  specified  providers,  and the  Partnership  will  not be able to
provide  services to beneficiaries of those plans unless it convinces either the
managed care companies or the hospitals to switch to the Partnership's services.

     Limited Partner Restrictions.  The Partnership Agreement severely restricts
the  Limited  Partners'  ability to own  interests  in  competing  equipment  or
ventures.  The enforceability of these noncompetition  agreements is generally a
matter of state law. No assurance can be given that one or more Limited Partners
may not successfully compete with the Partnership. See "Competition."

                  Government  Regulation.  All facets of the healthcare industry
are highly  regulated and will become more so in the future.  The ability of the
Partnership to operate legally and remain  profitable may be adversely  affected
by  changes  in  governmental   regulations,   including   expected  changes  in
reimbursement,  Medicare and Medicaid  certification  requirements,  federal and
state fraud and abuse laws,  including the federal  Anti-Kickback  Statute,  the
federal  False  Claims  Act,  federal  and  state   self-referral   laws,  state
restrictions   on  fee  splitting  and  other   governmental   regulation.   See
"Regulation."  These laws and  regulations  may  adversely  affect the  economic
viability of the Partnership.  The laws are broad in scope, and  interpretations
by courts have been limited.  Violations of these laws would subject the General
Partner  and  all  Limited  Partners  to  governmental  scrutiny  and/or  felony
prosecution  and  punishment  in the  form  of  large  monetary  fines,  loss of
licensure,  imprisonment  and  exclusion  from  Medicare and  Medicaid.  Certain
provisions  of Medicare and Medicaid law limit  provider  ownership  and control
over the various health care services to which  physicians may make Medicare and
Medicaid referrals. The primary laws involved are the "Stark II" federal statute
prohibiting  financial  relationships between physicians and certain entities to
which  they  refer  patients,  and the  Anti-Kickback  Statute  which  prohibits
compensation in exchange for or to induce referrals.

                  Regarding   Stark  II,  HCFA   published   proposed  Stark  II
regulations in 1998. Under the proposed  regulations,  physician Limited Partner
referrals  of  Medicare  and  Medicaid   patients  to  Contract   Hospitals  for
lithotripsy  services would be prohibited.  If HCFA adopts the proposed Stark II
regulations  as final,  or if a reviewing  court were to interpret  the Stark II
statute  using the proposed  regulations  as  interpretive  authority,  then the
Partnership  and its  physician  Limited  Partners  would  likely  be  found  in
violation of Stark II. In such instance,  the  Partnership  and/or its physician
Limited  Partners may be required to refund any amounts  collected from Medicare
and Medicaid  patients in  violation of the statute,  and they may be subject to
civil  monetary  penalties  and/or  exclusion  from the  Medicare  and  Medicaid
programs.

                  The  Anti-Kickback  Statute  prohibits paying or receiving any
remuneration in exchange for making a referral for healthcare services which may
be paid for by Medicare,  Medicaid or TRICARE  (formerly known as CHAMPUS).  The
law has been broadly  interpreted  to include any  payments  which may induce or
influence a  physician  to refer  patients.  One of the  federal  agencies  that
enforces the  Anti-Kickback  Statute has issued several "safe harbors" which, if
complied with, mean the payment or transaction will be deemed not to violate the
law.  This  Offering  does not comply with any "safe  harbor."  There is limited
guidance from reviewing  courts  regarding the application of the broad language
of the  Anti-Kickback  Statute to joint ventures similar to the one described in
this  Offering.  In order to prove  violations  of the  Anti-Kickback  law,  the
government  must establish that one or more parties  offered,  solicited or paid
remuneration  to induce or reward  referrals.  The  government  has said that in
certain  situations  the mere offering of an  opportunity to invest in a venture
would constitute illegal remuneration in violation of the Anti-Kickback Statute.
Although  the  General  Partner  believes  the  structure  and  purpose  of  the
Partnership are in compliance with the Anti-Kickback  Statute, no assurances can
be given that government  officials or a reviewing court would agree.  Violation
of the Anti-Kickback Statute could subject the Partnership,  the General Partner
and the physician Limited Partners to criminal  penalties,  imprisonment,  fines
and/or exclusion from the Medicare and Medicaid programs.

                  The  federal  False  Claims  Act and  similar  laws  generally
prohibit an individual or entity from knowingly and willfully presenting a claim
(or causing a claim to be  presented)  for payment  from  Medicare,  Medicaid or
other third party payors that is false and  fraudulent.  In recent cases,  False
Claims  Act  violations  have been  based on  allegations  that  Stark II or the
Anti-Kickback Statute have been violated.

                  In  addition  to Stark II, the  Anti-Kickback  Statute and the
False Claims Act, an  unfavorable  interpretation  of other  existing  laws,  or
enactment of future laws or regulations,  could potentially adversely affect the
operation of the Partnership.

                  Additionally, state laws require physicians in Arizona and New
Mexico to give their  patients  written  notice when they refer the  patients to
health care  facilities  in which the  physicians  have an  ownership  interest.
Various licensure  requirements also must be met in order for the Partnership to
provide  mobile  lithotripsy  services in Arizona  and New  Mexico.  The General
Partner  will  continue  to cause the  Partnership  to seek to comply  with such
requirements. See "Regulation - State Regulation."

                  Contract  Terms  and  Termination.  The  Partnership  provides
lithotripsy  services  to nine  Contract  Hospitals  pursuant  to five  separate
Hospital  Contracts.  Most,  but not all, of the  Hospital  Contracts  grant the
Partnership  the  exclusive  right  to  provide  lithotripsy   services  at  the
particular  Contract  Hospitals.  Two  of the  Hospital  Contracts  provide  for
automatic renewal on a year-to-year  basis.  Four of the Hospital  Contracts are
terminable  without  cause at any time  upon 90 days or less  written  notice by
either party. The remaining  Hospital  Contracts are terminable without cause at
the end of the  initial  term or any  renewal  period  upon 60 to 90 days  prior
written notice. The General Partner believes it has a good relationship with the
Contract Hospitals and does not anticipate significant terminations. There is no
assurance,  however,  that fees payable to the Partnership by Contract Hospitals
will not decline or that  terminations  will not occur.  The resulting impact of
such events would have a material adverse effect on Partnership  operations.  It
is expected that most new  lithotripsy  service  contracts,  if any,  would have
one-year terms and be automatically renewed unless either party elects to cancel
prior to the end of the term. In addition,  many of the existing contracts have,
and any new contracts are expected to have, provisions permitting termination in
the event certain laws or regulations  are enacted or applied to the contracting
parties'  business  arrangements  in a manner deemed  materially  detrimental to
either party. See "Government Regulation" above. In addition,  competing vendors
may attempt to cause certain Contract Hospitals to contract with them instead of
the Partnership.  The loss of Contract  Hospitals to competition would adversely
affect Partnership revenues and such effect could be material. Thus, there is no
assurance  that  Partnership  operations  as  carried  on as of the date of this
Memorandum or  contemplated  in the future will continue as herein  described or
contemplated,  and the cancellation of a significant number of service contracts
or the Partnership's inability to secure new ones could have a material negative
impact on the financial condition and results of the Partnership.  See "Business
Activities - Hospital Contracts" and "Risk Factors - Competition."

                  Loss on Dissolution and Termination.  Upon the dissolution and
termination of the  Partnership,  the proceeds  realized from the liquidation of
its assets, if any, will be distributed to its partners only after  satisfaction
of the claims of all creditors. Accordingly, the ability of a Limited Partner to
recover  all or any  portion of his  investment  under such  circumstances  will
depend  on the  amount  of funds so  realized  and the  claims  to be  satisfied
therefrom.  See  "Summary of the  Partnership  Agreement - Optional  Purchase of
Limited Partner Interests."

Tax Risks

                  Investors should note that the General Partner  anticipates no
significant  tax  benefits  associated  with the  operation  of the  Lithotripsy
Systems or the  Partnership.  No ruling  will be sought  from the Service on the
federal  income  tax  consequences  of any  of the  matters  discussed  in  this
Memorandum  or any other tax issues  affecting  the  Partnership  or the Limited
Partners. The Partnership is relying upon an opinion of its Counsel with respect
to certain material United States federal income tax issues.  Counsel's  opinion
is not  binding  on the  Service  as to any  issue,  however,  and  there  is no
assurance that any deductions, or the period in which deductions may be claimed,
will not be challenged by the Service. Each Investor should carefully review the
following  risk  factors and consult  his own tax  advisor  with  respect to the
federal,  state  and local  income  tax  consequences  of an  investment  in the
Partnership.

                  THE TAX RISKS SET FORTH IN THIS SECTION ARE NOT INTENDED TO BE
AN EXHAUSTIVE LIST OF THE GENERAL OR SPECIFIC TAX RISKS RELATING TO THE PURCHASE
OF UNITS IN THE  PARTNERSHIP.  EACH  INVESTOR IS DIRECTED TO THE FULL OPINION OF
COUNSEL  (APPENDIX C TO THE  MEMORANDUM).  IT IS STRONGLY  RECOMMENDED THAT EACH
INVESTOR  INDEPENDENTLY  CONSULT HIS  PERSONAL  TAX COUNSEL  CONCERNING  THE TAX
CONSEQUENCES  ASSOCIATED  WITH HIS OWNERSHIP OF AN INTEREST IN THE  PARTNERSHIP.
THE CONCLUSIONS  REACHED IN THE OPINION ARE RENDERED WITHOUT ASSURANCE THAT SUCH
CONCLUSIONS HAVE BEEN OR WILL BE ACCEPTED BY THE SERVICE OR THE COURTS.

                  THIS  MEMORANDUM  AND THE  OPINION  DO NOT  DISCUSS,  NOR WILL
COUNSEL BE RENDERING AN OPINION REGARDING,  THE ESTATE AND GIFT TAX OR STATE AND
LOCAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE PARTNERSHIP.  FURTHERMORE,
INVESTORS SHOULD NOTE THAT THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF AN
INVESTMENT IN THE PARTNERSHIP MAY BE ADVERSELY AFFECTED BY FUTURE CHANGES IN THE
FEDERAL  INCOME  TAX  LAWS,  WHETHER  BY  FUTURE  ACTS  OF  CONGRESS  OR  FUTURE
ADMINISTRATIVE  AND JUDICIAL  INTERPRETATIONS  OF APPLICABLE  FEDERAL INCOME TAX
LAWS. ANY OF THE FOREGOING MAY BE GIVEN RETROACTIVE EFFECT.

                  Possible   Legislative   or  Other   Actions   Effecting   Tax
Consequences.   The  federal  income  tax  treatment  of  an  investment  in  an
equipment/service  oriented  limited  partnership such as the Partnership may be
modified by legislative,  judicial or administrative action at any time, and any
such action may  retroactively  affect  investments and  commitments  previously
made. The rules dealing with federal income taxation of limited partnerships are
constantly  under  review  by  the  Service,   resulting  in  revisions  of  its
regulations and revised  interpretations of established  concepts. In evaluating
an investment in the Partnership, each Investor should consult with his personal
tax advisor with respect to possible  legislative,  judicial and  administrative
developments.

                  Disqualification of Employee Benefit Plans.  Purchase of Units
in the  Partnership may cause certain Limited  Partners,  certain  hospitals and
out-patient  centers,  the  Partnership,  and  employees of the  foregoing to be
treated under Section 414(m) of the Code as being employed in the aggregate by a
single employer or "affiliated  service group" for purposes of minimum coverage,
participation and other employee benefit plan requirements  imposed by the Code.
In contrast,  an employer not affiliated under Section 414(m) need only consider
its own employees in determining whether its employee benefit plans satisfy Code
requirements.  Aggregation of employees could cause the  disqualification of the
retirement plans of certain Limited Partners and related  entities.  Aggregation
could  also  require  the value of the  vested  retirement  benefit  of a highly
compensated  employee who is a participant in a disqualified plan to be included
in his gross income,  regardless  of whether the employee is a Limited  Partner.
These rules may  adversely  affect  Investors  who are  currently  involved in a
medical  practice  joint  venture,  regardless of their purchase of Units in the
Partnership.  The General Partner and legal counsel to the Partnership have been
informally advised by officials of the Service that the Service would not likely
attempt to apply the affiliated service group rules to the Partnership,  nor has
the Service applied these rules to similar  arrangements  in the past.  Informal
discussions with the Service, however, are not binding on the Service, and there
can be no guarantee that the Service will not apply the affiliated service group
rules to the Partnership.

                  INVESTORS  ARE URGED TO CONSULT  WITH  THEIR OWN TAX  ADVISORS
REGARDING THE  APPLICABILITY  OF THE  AFFILIATED  SERVICE GROUP RULES  DESCRIBED
HEREIN  TO THE  EMPLOYEE  BENEFIT  PLANS  MAINTAINED  BY THEM OR  THEIR  MEDICAL
PRACTICES.

                  Partnership  Allocations.  The Partnership  Agreement contains
certain  allocations  of profits  and losses  that could be  reallocated  by the
Service if it were determined  that the  allocations  did not have  "substantial
economic  effect."  On December  31,  1985,  the  Regulations  dealing  with the
propriety  of  partnership  allocations  were  finalized.  As  a  general  rule,
allocations of profits and losses must have "substantial economic effect." Based
upon  current  law,  Counsel  is of  the  opinion  that,  if the  question  were
litigated,  it is more  probable  than not that the  allocation  of profits  and
losses set forth in the  Partnership  Agreement  would be sustained  for federal
income  tax  purposes.  This  opinion is  subject  to  certain  assumptions  and
qualifications.  Investors are cautioned that the foregoing  opinion is based in
part upon final  regulations  which have not been extensively  commented upon or
construed by the courts.

                  Income in Excess of Distributions.  The Partnership  Agreement
provides  that in each year annual  Distributions  may be made to the  Partners.
Excluded from the definition of cash available for distribution is the amount of
funds  necessary to  discharge  Partnership  debts and to maintain  certain cash
reserves deemed  necessary by the General  Partner.  If Partnership Cash Flow is
insufficient to fund expenses and maintain adequate reserves,  a Limited Partner
could be subject to income taxes payable out of personal  funds to the extent of
the Partnership's  income, if any,  attributed to him without receiving from the
Partnership  sufficient  Distributions  to pay the  Limited  Partner's  tax with
respect to such income.

                  Effect of Classification  as Corporation.  The Partnership has
not and will not seek a ruling from the Service concerning the tax status of the
Partnership.  It is the opinion of Counsel that the Partnership  will be treated
as a  partnership  for federal  income tax  purposes  and not as an  association
taxable as a corporation  unless the Partnership so elects.  The Partnership has
not and will not make an election to be  classified  as other than a partnership
for federal income tax purposes. Although the Partnership intends to rely on the
legal opinion of Counsel, the service will not be bound thereby. Moreover, there
can  be no  assurance  that  legislative  or  administrative  changes  or  court
decisions  may not in the future result in the  Partnership  being treated as an
association  taxable  as a  corporation,  with a  resulting  greater  tax burden
associated with the purchase of Units.

                  The General  Partner,  in order to comply with  applicable tax
law, will keep the Partnership's books and records and otherwise compute Profits
and  Losses  based on the  accrual  method,  and not the cash basis  method,  of
accounting pursuant to Section 448 of the Code. The accrual method of accounting
generally  records  income and  expenses  when they are accrued or  economically
incurred.

                  Passive Income and Losses.  The General  Partner  expects that
the  Partnership  will continue to realize taxable income and not taxable losses
during the foreseeable  future.  Nevertheless,  if it instead  realizes  taxable
losses, the use of such losses by the Limited Partners will generally be limited
by Code Section 469.

                  Code Section 469 provides  limitations  for the use of taxable
losses attributable to "passive activities." Code Section 469 operates generally
to  prohibit   passive  losses  from  being  used  against  income  from  active
activities.  The passive activity rules are extremely  complex and Investors are
urged to consult their own tax advisors as to their applicability,  particularly
as they relate to the ability to deduct any losses from the Partnership  against
other income of the Investor.

                  THE PASSIVE  ACTIVITY  LOSS RULES WILL  AFFECT  EACH  INVESTOR
DIFFERENTLY,  DEPENDING ON HIS OR HER OWN TAX  SITUATION.  EACH INVESTOR  SHOULD
CONSULT WITH HIS OR HER OWN TAX ADVISOR TO  DETERMINE  THE EFFECT OF THESE RULES
ON THE INVESTOR IN LIGHT OF THE INVESTOR'S INDIVIDUAL FACTS AND CIRCUMSTANCES.

                  Depreciation. It is expected that the Partnership will use the
Modified  Accelerated  Cost Recovery System  ("MACRS") to depreciate the cost of
any  newly  acquired  equipment  (including  the  New  Lithotripsy  Systems)  or
improvements.  It is  anticipated  that any  additions  or  improvements  to the
Lithotripsy  Systems  will also be  depreciated  over a five year term using the
200% declining  balance method of depreciation,  switching to the  straight-line
method to maximize the depreciation  allowance. If purchases or improvements are
made  after the  beginning  of any year,  only a  fraction  of the  depreciation
deduction may be claimed in that year.

                  As under prior law, the 1986 Act provides that the full amount
of  depreciation  on  personal  property  (such as the  Lithotripsy  Systems) is
recaptured upon  disposition  (i.e., is taxed as ordinary  income) to the extent
gain is realized  on the  disposition.  Investors  should note that the 1986 Act
repealed the investment tax credit for all personal property.

                  Partnership  Elections.  The Code permits partnerships to make
elections for the purpose of adjusting the basis of partnership  property on the
distribution of property by a partnership to a partner and on the transfer of an
interest in a partnership by sale or exchange or on the death of a partner.  The
general  effect of such elections is that  transferees of Partnership  Interests
will be treated, for the purposes of depreciation and gain, as though they had a
direct interest in the Partnership's  assets,  and the difference  between their
adjusted bases for their  Partnership  Interests and their allocable  portion of
the  Partnership's  bases for its assets will be  allocated to such assets based
upon the fair  market  value of the  assets  at the  times of  transfers  of the
Partnership Interests.  Any such election,  once made, cannot be revoked without
the consent of the Service.  Under the terms of the Partnership  Agreement,  the
General Partner, in its discretion, may make the requisite election necessary to
effect such adjustment in basis.

                  Sale of Partnership  Units. Gain realized on the sale of Units
by a Limited  Partner who is not a "dealer"  in Units or in limited  partnership
interests  will be taxed as capital  gain,  except that the portion of the sales
price  attributable to inventory items and unrealized  receivables will be taxed
as ordinary  income.  "Unrealized  receivables" of the  Partnership  include the
Limited  Partner's  share of the  ordinary  income  that the  Partnership  would
realize as a result of the recapture of depreciation (as described above) if the
Partnership had sold Partnership  depreciable  property  immediately  before the
Limited Partner sold his or her Partnership Interest. Investors should note that
the IRS  Restructuring  and Reform Act of 1998  generally  imposes a maximum tax
rate of 20% on net long-term  capital gains.  To the extent the  Partnership has
income attributable to depreciation  recapture incurred on the sale of a capital
asset,  such  income  will be  taxed  at a  maximum  rate of  25%.  The  Revenue
Reconciliation  Act of 1993 imposed a maximum  potential  individual  income tax
rate of 39.6% on ordinary income.

                  Tax  Treatment  Of  Certain  Fees  and  Expenses  Paid  By The
Partnership.  Under the Code, a partnership expenditure will, as a general rule,
fall  into  one  of  the  following  categories:   (1)  deductible  expenses  --
expenditures  such as  interest,  taxes,  and ordinary  and  necessary  business
expenses  which  the  partnership  is  entitled  to  deduct in full when paid or
incurred;  (2)  amortizable  expenses --  expenditures  which the partnership is
entitled to amortize  (i.e.,  deduct  ratably) over a fixed period of time;  (3)
capital  expenditures -- expenditures which must be added to the amortization or
depreciation  base of partnership  property (or partnership  loans) and deducted
over a period of time as the  property  (or  partnership  loan) is  amortized or
depreciated;   (4)  organization   expenses  --  expenditures   related  to  the
organization  of the  partnership,  which  under  Section  709 of the  Code  are
amortized  over a 60-month  period,  provided an election to do so is made;  (5)
syndication  expenses -- expenditures  paid or incurred in promoting the sale of
interests  in the  partnership,  which  under  Section  709 of the Code  must be
capitalized but may be neither depreciated,  amortized,  nor otherwise deducted;
(6) partnership distributions -- payments to partners representing distributions
of partnership funds, which may be neither capitalized,  amortized nor deducted;
(7)  start-up  expenses  --  expenditures  incurred by a  partnership  during an
initial  period,  which under  Section 195 of the Code may be  amortized  over a
60-month period; and (8) guaranteed payments to partners -- payments to partners
for  services  or use of capital  which are  deductible  or treated in the other
categories  of  expenditures  listed above,  provided  they meet the  applicable
requirements.

                  Several  amendments  to the Code enacted by the Tax Reform Act
of 1984  alter  established  tax  accounting  principles.  One or more of  these
amendments  may affect the federal  income tax  treatment of fees and  expenses,
particularly fees paid or incurred by a partnership for services. In particular,
Code  Section  461(h)  now  provides  that an  expense  or fee paid to a service
provider may not be accrued for federal  income tax  purposes  prior to the time
"economic  performance" occurs.  "Economic performance" occurs as (and no sooner
than) the service provider provides the required services.

                  All expenditures of the Partnership  must constitute  ordinary
and necessary  business expenses in order to be deducted by the Partnership when
paid or incurred,  unless the deduction of any such item is otherwise  expressly
permitted by the Code (e.g.,  taxes).  Expenditures  must also be  reasonable in
amount.  The Service could  challenge a fee deducted by the  Partnership  on the
ground that such fee is a capital  expenditure,  which must either be  amortized
over an extended  period or  indefinitely  deferred,  rather than deducted as an
ordinary and necessary  business  expense.  The Service could also challenge the
deduction  of any fee on the  basis  that the  amount  of such fee  exceeds  the
reasonable  value of the  services  performed,  the goods  acquired or the other
benefits to the Partnership.

                  Under  Section  482  of  the  Code,   the  Service  has  broad
discretion  to reallocate  income,  deductions,  credits or  allowances  between
entities  with  common  ownership  or  control  if it is  determined  that  such
reallocation  is  necessary  to prevent  the  evasion of taxes or to reflect the
income of such entities. The Partnership and the General Partner are entities to
which Section 482 applies and it is possible that the Service could contend that
certain  items  should  be  reallocated  in  a  manner  that  would  change  the
Partnership's proposed tax treatment of such items.

                  The  General  Partner  believes  the  payments  to it and  its
Affiliates  are customary and reasonable  payments for the services  rendered by
them to the Partnership; however, these fees were not determined by arm's length
negotiations.  Nothing has come to the  attention of Counsel to the  Partnership
which would give  Counsel  reasonable  cause to question  the General  Partner's
determination. On audit the Service may challenge such payments and contend that
the amount paid for the services exceeds the reasonable value of those services.
Because of the  factual  nature of the  question  of the  reasonableness  of any
particular fee,  Counsel to the Partnership  cannot express an opinion as to the
outcome  of the  reasonableness  of the  amount of any fee  should  the issue be
litigated.

                  Syndication  Expenses.  Section  709 of the Code  prohibits  a
partnership  from deducting or amortizing costs that are incurred to promote the
sale of partnership  interests  (i.e.,  syndication  expenses).  The Regulations
provide   definitions  for  syndication   expenses  that  must  be  capitalized.
Syndication  expenses include brokerage fees,  registration fees, legal fees for
securities  advice,  accounting  fees for preparation of  representations  to be
included  in  the  offering  materials,  and  printing  costs  of  the  offering
materials.  The  Partnership  intends to treat the entire amount  payable to the
Sales Agent as a sales  commission  for  selling  the Units,  as well as certain
other fees and expenses  allocable to the  preparation of this Memorandum and to
the offering of the Units in the Partnership,  as nondeductible,  nonamortizable
syndication expenses.

                  Investors   will    economically    bear   their    respective
proportionate  share of syndication  expenses as these costs likely will be paid
out of proceeds from this Offering.  These costs will be borne  irrespective  of
their amount,  timing and ability of the  Partnership  to deduct these costs for
tax purposes.

                  Management Fee to General  Partner.  The Partnership  pays the
General Partner a monthly  management fee equal to the greater of $8,000 or 7.5%
of  Partnership  Cash Flow per month.  The management fee is paid to the General
Partner  for the time and  attention  to be  devoted by it for  supervising  and
coordinating the management and  administration of the Partnership's  day-to-day
operations  pursuant to the terms of the Management  Agreement.  The Partnership
will continue to deduct the  management  fee in full in the year paid.  Assuming
the management fee to be paid to the General Partner is ordinary,  necessary and
reasonable in relation to the services provided,  Counsel is of the opinion that
the Partnership may deduct the management fee in full in the year paid.

                  State and Local Taxation.  Each Investor should consult his or
her own  attorney or tax advisor  regarding  the effect of state and other local
taxes on his or her personal situation.

Other Investment Risks

                  Conflicts  of  Interest.  The  activities  of the  Partnership
involve  numerous  existing  and  potential  conflicts  of interest  between the
Partnership,  the General Partner and their  Affiliates.  See  "Compensation and
Reimbursement to the General Partner and its Affiliates," "The General Partner,"
"Competition" and "Conflicts of Interest."

                  No Participation  in Management.  The General Partner has full
authority to supervise the business and affairs of the  Partnership  pursuant to
the Partnership Agreement and the Management Agreement. Limited Partners have no
right to participate in the management or conduct of the Partnership's  business
and affairs.  The General  Partner,  its  employees and its  Affiliates  are not
required to devote  their full time to the  Partnership's  affairs and intend to
continue  devoting  substantial  time and  effort to  organizing  and  operating
partnerships and other ventures throughout the United States that are similar to
the  Partnership.  The General  Partner will continue to devote such time to the
Partnership's  business and affairs as it deems necessary and appropriate in the
exercise of reasonable judgment. The participation by any Limited Partner in the
management  or control of the  Partnership's  affairs could render him generally
liable for the  liabilities  of the  Partnership  that could not be satisfied by
assets of the  Partnership.  See the Form of Legal  Opinion  of  Womble  Carlyle
Sandridge & Rice, a Professional  Limited Liability Company,  attached hereto as
Appendix C.

                  Limited Partners' Obligation to Return Certain  Distributions.
Except as provided by other  applicable law and provided that a Limited  Partner
does not participate in the management or control of the Partnership,  he or she
will not be  liable  for the  liabilities  of the  Partnership  in excess of his
investment,  his ratable share of undistributed  profits,  and any distributions
received from the Partnership if, after giving effect to such distributions, all
liabilities of the Partnership, other than liabilities to Partners on account of
their Partnership Interests, exceed the fair value of the Partnership's assets.

                  Dilution of Limited Partners'  Interests.  The General Partner
has the authority  under the  Partnership  Agreement to cause the Partnership to
periodically  offer  and  sell  additional  limited  partnership   interests  (a
"Dilution Offering").  Partnership interests offered in a Dilution Offering must
be sold  in a  manner  and  according  to  terms  in the  best  interest  of the
Partnership,  as prescribed in the sole discretion of the General Partner.  Upon
the sale of interests in the Partnership in a Dilution Offering,  the Percentage
Interests of the Partners will be proportionately  diluted.  See "Summary of the
Partnership Agreement - Dilution Offerings."

                  Liability  Under Limited  Partner Loan.  Investors  personally
borrowing  funds to  finance a portion  of their  Unit  purchase  price with the
proceeds of a Limited  Partner  Loan will be directly  obligated  to the Bank as
provided in the Loan  Documents.  A default under the Limited Partner Loan could
result in the  foreclosure  of the Investor's  right to receive any  Partnership
Distributions  as well as the loss of other  personal  assets  unrelated  to his
Partnership  Interest.  Prospective  Investors  should review  carefully all the
provisions contained in the Loan Commitment and the terms of the Limited Partner
Note and Loan and Security Agreement with their counsel and financial  advisors.
Neither the Partnership  nor the General  Partner  endorses or recommends to the
prospective  Investors the desirability of obtaining financing from the Bank nor
does the summary of the Loan Documents  provided herein constitute legal advice.
A Limited Partner's liability under a Limited Partner Note continues  regardless
of whether the Limited Partner remains a limited partner in the Partnership.  As
a consequence,  such liability cannot be avoided by claims, defenses or set-offs
the Limited  Partner may have against the  Partnership,  the General  Partner or
their Affiliates.  In addition to the suitability  requirements discussed below,
any prospective  Investor  applying for a Limited Partner Loan to fund a portion
of his Unit  purchase  must be approved by the Bank for purposes of his delivery
of the Limited  Partner  Note.  The Bank has  established  its own  criteria for
approving the creditworthiness of a prospective Investor and has not established
objective  minimum  suitability  standards.  Instead,  the Bank is  empowered to
accept or reject prospective Investors.

                  Long-term Investment. The General Partner anticipates that the
Partnership  will continue to operate the Lithotripsy  Systems for an indefinite
period of time and that the Partnership will not liquidate prior to its intended
termination.  Accordingly,  Investors  should  consider their  investment in the
Partnership as a long-term investment of indefinite duration.

                  Limited    Transferability    and    Illiquidity   of   Units.
Transferability of Units is severely restricted by the Partnership Agreement and
the Subscription Agreement,  and the consent of the General Partner is necessary
for any transfer.  No public market for the Units exists and none is expected to
develop. Moreover, the Units generally may not be transferred unless the General
Partner is  furnished  with an opinion of counsel,  satisfactory  to the General
Partner,  to the effect that such assignment or transfer may be effected without
registration  under the Securities Act and any state  securities laws applicable
to the  transfer.  The  Partnership  will be under no obligation to register the
Units or otherwise  take any action that would enable the assignment or transfer
of a Unit to be in compliance with applicable federal and state securities laws.
Thus,  a Limited  Partner  may not be able to  liquidate  an  investment  in the
Partnership  in the event of an  emergency,  and the  Units  may not be  readily
accepted  as  collateral  for  loans.  Moreover,  a sale of a Unit by a  Limited
Partner may cause  adverse tax  consequences  to the  selling  Limited  Partner.
Accordingly,  the purchase of Units must be  considered a long-term and illiquid
investment.

                  Arbitrary  Offering Price. The offering price of the Units has
been  determined by the General  Partner based upon valuation of the Partnership
conducted by an independent third party based on various assumptions that may or
may not occur. A copy of this  valuation will be made available on request.  The
offering  price of the Units is not,  however,  necessarily  indicative of their
value,  if any,  and no  assurance  can be  given  that the  Units,  if and when
transferable, could be sold for the offering price or for any amount.

                  Limitation of General Partner's Liability and Indemnification.
The Partnership  Agreement  provides that the General Partner will not be liable
to the  Partnership  or to any  Partner  for errors in judgment or other acts or
omissions in connection with the Partnership as long as the General Partner,  in
good faith,  determined  such course of conduct was in the best  interest of the
Partnership, and such course of conduct did not constitute willful misconduct or
gross negligence.  Therefore, the Limited Partners may have a more limited right
of  action  against  the  General  Partner  in the event of its  misfeasance  or
malfeasance  than they would  have  absent the  limitations  in the  Partnership
Agreement.  The  Partnership  will indemnify the General  Partner against losses
sustained by the General Partner in connection with the Partnership, unless such
losses came as a result of the General  Partner's  gross  negligence  or willful
misconduct.  In the opinion of the SEC,  indemnification for liabilities arising
out of the  Securities  Act is  contrary  to  public  policy  and  therefore  is
unenforceable.

                  Insurance.  Prime  maintains  active policies of insurance for
the benefit of itself and certain  affiliated  entities covering employee crime,
workers'   compensation,   business  and   commercial   automobile   operations,
professional liability, inland marine, business interruption,  real property and
commercial  liability risks.  These policies  include the  Partnership,  and the
General  Partner  believes  that  coverage  limits of these  policies are within
acceptable norms for the extent and nature of the risks covered. The Partnership
is  responsible  for its share of  premium  costs.  There are  certain  types of
losses,  however, that are either uninsurable or are not economically insurable.
For  instance,  contractual  liability is generally  not covered  under  Prime's
policies.  Should such losses occur with respect to Partnership  operations,  or
should losses exceed insurance  coverage limits,  the Partnership could suffer a
loss of the capital  invested  in its  Lithotripsy  Systems and any  anticipated
profits from such investment.

                  Optional Purchase of Limited Partner Interests. As provided in
the Partnership  Agreement,  the General Partner, and then the Limited Partners,
have the option to purchase all the interest of a Limited  Partner who (i) dies;
(ii) becomes insolvent; (iii) becomes incompetent;  or (iv) acquires a direct or
indirect  ownership  of an interest in a competing  venture.  A Limited  Partner
whose Limited Partner Interest is sold, as provided above, or who ceases to be a
Limited Partner of the Partnership  for any reason,  will be further  restricted
from having a direct or indirect ownership in a competing venture (including the
lease or sublease of competing technology) within the Partnership's Service Area
for two  years  after  the  disposition  of his  Partnership  Interest.  Limited
Partners,   except  in  certain  circumstances  set  forth  in  the  Partnership
Agreement,  are also absolutely  prohibited from  disclosing  Partnership  trade
secrets  and  confidential  information.  The  option  purchase  price  for  the
Partnership  Interest is equal to the Partner's share of the Partnership's  book
value, if any, as reflected by such Partner's  Capital  Account  (unadjusted for
any appreciation in Partnership assets and as reduced by depreciation deductions
claimed by the  Partnership  for tax purposes).  Because  losses,  depreciation,
deductions and distributions  reduce capital accounts,  and because appreciation
in assets is not reflected in capital accounts, the option purchase price may be
nominal in amount.  See the Partnership  Agreement attached hereto as Appendix A
and "Summary of the Partnership Agreement - Optional Purchase of Limited Partner
Interests."

                                 THE PARTNERSHIP

                  Fayetteville Lithotripters Limited Partnership - Arizona I, an
Arizona limited  partnership (the "Partnership") was organized and created under
the Arizona Uniform Limited  Partnership Act (the "Act") on August 23, 1988. The
general  partner of the  Partnership  is  Lithotripters,  Inc., a North Carolina
corporation  (the  "General  Partner"),  and a wholly owned  subsidiary of Prime
Medical Services,  Inc. ("Prime").  The General Partner currently holds an 18.6%
interest in the  Partnership  in its  capacity  as the  general  partner and the
existing limited partners (the "Initial  Limited  Partners")  currently hold the
remaining  81.4% interest in the  Partnership as limited  partners  (including a
15.81% limited partner interest held by the General Partner).  In the event that
all  80  Units  offered  hereby  are  sold,   the  General   Partner  will  hold
approximately a 14.88% general partner interest in the Partnership,  the Initial
Limited  Partners will hold  approximately a 65.12% limited partner  interest in
the  Partnership  and the Investors  who purchase the Units offered  hereby (the
"New Limited  Partners") will hold an aggregate 20% interest in the Partnership.
The Percentage  Interests of the General  Partner and Initial  Limited  Partners
(aggregate)  will decrease by approximately  0.0465% and 0.2035%,  respectively,
for each Unit sold. All Partners will have their  Partnership  Interests further
reduced in the event of  additional  dilution  offerings.  See  "Summary  of the
Partnership  Agreement  -  Dilution  Offerings."  The  principal  address of the
Partnership  and the General  Partner is 1301  Capital of Texas  Highway,  Suite
C-300,  Austin,  Texas 78746.  The telephone  number of the  Partnership and the
General Partner is (512) 328-2892.

                              TERMS OF THE OFFERING

The Units and Subscription Price

                  Fayetteville Lithotripters Limited Partnership - Arizona I, an
Arizona limited  partnership,  hereby offers an aggregate of 80 Units of limited
partner  interest in the  Partnership  (the  "Units").  Each Unit  represents an
initial 0.25% economic  interest in the  Partnership.  See "Risk Factors - Other
Investment Risks - Dilution of Limited  Partners'  Interests." Each Investor may
purchase not less than one Unit. The General Partner may,  however,  in its sole
discretion,  sell less than one Unit as an additional  investment  and reject in
whole or in part any  subscription.  The  price  for each Unit is $5,513 in cash
payable at subscription;  however,  certain  qualified  Investors may personally
borrow funds from a third-party  financial institution to pay a part of the cash
purchase price.  For the convenience of Investors,  the Partnership has arranged
for financing a portion of the purchase  price with the Bank.  See "Terms of the
Offering - Limited  Partner  Loans." The Proceeds of the Offering  will first be
used by the Partnership to pay offering costs and expenses, and the remainder of
the proceeds will be used (i) to finance a portion of the cost of purchasing two
Storz  Modulith(R)  SLX-T  transportable  lithotripters  (estimated  at $412,000
each),  one new Coach  (estimated at $350,000) and one new mobile van (estimated
at  $80,000),  as well as pay  applicable  state  sales or use  taxes on the New
Lithotripsy  Systems  (estimated at $62,700);  and (ii) to make distributions to
persons  who were  Partners  of the  Partnership  prior to  commencement  of the
Offering. See "Sources and Applications of Funds." The proceeds of this Offering
cannot be calculated  until the number of Units sold has been  determined at the
Closing. In any event, the proceeds of the Offering will be insufficient to fund
the all of the costs described above, and it is anticipated that the Partnership
will  use the  proceeds  of debt  financing  to fund  such  costs.  There  is no
assurance, however, that debt financing will be available for such purposes. See
"Risk  Factors - Operating  Risks - Partnership  Limited  Resources and Risks of
Leverage."

Acceptance of Subscriptions

                  To enable the Bank and the General  Partner to make credit and
investor decisions,  respectively,  each prospective  Investor must complete and
deliver to the  General  Partner a  Purchaser  Financial  Statement  in the form
included  in  the  Subscription  Packet  accompanying  this  Memorandum,   or  a
substitute  financial  statement  containing  the same  information  as provided
therein, and pages one and two of the prospective Investor's most recently filed
Form 1040 U.S.  Individual  Income Tax Return.  An  Investor  that pays the full
amount of his or her Unit purchase price with a check at subscription  and whose
subscription is received and accepted by the Partnership,  will become a Limited
Partner in the Partnership,  and his or her subscription  funds will be released
from  escrow  to  the  Partnership.  Acceptance  by  the  General  Partner  of a
subscription  of an  Investor  that  elects to  finance  a  portion  of the Unit
purchase price with the proceeds of a Limited  Partner Note is conditioned  upon
the Bank's  approval of such loan. See "Terms of the Offering - Limited  Partner
Loans." If the financing  Investor is otherwise  acceptable to the  Partnership,
after receipt of the Bank's  approval,  the  Partnership  will inform the Escrow
Agent that it has accepted the Investor's subscription and the Escrow Agent will
release the Loan  Documents to the Bank and the Bank will pay the proceeds  from
the Limited Partner Loan to the Partnership.  The Investor will become a Limited
Partner in the  Partnership at the time the Bank releases the proceeds of his or
her Limited Partner Note to the  Partnership.  Subscriptions  may be rejected in
whole  or in part by the  Partnership  and  need not be  accepted  in the  order
received.  To the extent the Partnership  reduces an Investor's  subscription as
provided above, the Investor's cash Unit purchase price, or the principal amount
of his  Limited  Partner  Note,  as the  case  may be,  will be  proportionately
refunded and reduced.  Notice of  acceptance of an  Investor's  subscription  to
purchase Units and his Percentage  Interest in the Partnership will be furnished
promptly after acceptance of the Investor's Subscription.

Limited Partner Loans

                  The  purchase  price for the  Units is  payable  in cash.  The
prospective  Investor may pay for the Units with personal funds alone or in part
with such funds,  together with either loan proceeds  personally borrowed by the
Investor under a Limited Partner Loan or other loan. Financing under the Limited
Partner Loans was arranged by the  Partnership  with the Bank as provided in the
Loan  Commitment,  attached hereto as Appendix B.  Prospective  Investors should
review  carefully all the  provisions  contained in the Loan  Commitment and the
terms of the Limited  Partner  Note and Loan and Security  Agreement  with their
counsel and financial advisors.  Neither the Partnership nor the General Partner
endorses  or  recommends  to  the  prospective  Investors  the  desirability  of
obtaining  financing  from the Bank nor does the  summary of the Loan  Documents
provided herein constitute legal advice.  If the prospective  Investor wishes to
finance a portion of the purchase price of his Units as provided  herein,  he or
she must deliver to the Sales Agent upon submission of his  Subscription  Packet
an executed Limited Partner Note payable to the Bank and Note Addendum, the form
of which are attached as Exhibit A to the Loan  Commitment,  a Loan and Security
Agreement,  the form of which is attached as Exhibit B to the Loan Commitment, a
Security  Agreement,  the form of which is  attached  as  Exhibit  C to the Loan
Commitment and two UCC-1's,  the form of which are attached to the  Subscription
Packet (collectively,  the "Loan Documents"). In no event may the maximum amount
borrowed per Unit exceed $3,013. The Limited Partner Note is repayable in twelve
(12) predetermined  installments in the respective amounts set forth in the Loan
Commitment.  The installments are payable on each January 15th, April 15th, June
15th and September  15th  commencing on September 15, 2000 (assuming the Closing
occurs prior to May 31, 2000), with a thirteenth (13th) and final installment in
an amount equal to the principal  balance then owed on the Limited  Partner Note
and  all  accrued,  unpaid  interest  thereon  due  and  payable  on  the  third
anniversary of the first installment date. Interest accrues at the Bank's "Prime
Rate," as the same may change  from time to time.  The Prime Rate refers to that
rate of interest  established  by the Bank and  identified as such in literature
published and circulated within the Bank's offices. Such term is used as a means
of identifying a rate of interest index and not as a representation  by the Bank
that such rate is  necessarily  the lowest or most  favorable  rate of  interest
offered to borrowers of the Bank generally.  A prospective Investor will have no
claim or right of  action  based on such  premise.  See the form of the  Limited
Partner  Note  attached  as Exhibit A to the Loan  Commitment  which is attached
hereto as Appendix B.

                  The  Limited  Partner  Note will be  secured  by the cash flow
distributions  payable with respect to the  prospective  Investor's  Partnership
Interest  as  provided  in the  Loan and  Security  Agreement  and the  Security
Agreement  and as  evidenced by the UCC-1s.  By executing  the Loan and Security
Agreement,  the  prospective  Investor  requests  the  Bank to  extend  the Loan
Commitment  to him if he is approved for a Limited  Partner  Loan.  The Loan and
Security  Agreement  also  authorizes  (i) the Bank to pay the  proceeds  of the
Limited  Partner Note directly to the  Partnership;  and (ii) the Partnership to
remit funds directly to the Bank out of the prospective  Investor's share of any
Distributions  represented by the prospective  Investor's percentage Partnership
Interest to fund installment payments due on the prospective  Investor's Limited
Partner  Note.  See the form of the  Loan and  Security  Agreement  attached  as
Exhibit B to the Loan Commitment which is attached hereto as Appendix B.

                  If the  prospective  Investor  is  approved by the Bank and is
acceptable to the General Partner, the Escrow Agent will, upon acceptance of the
Investor's  subscription by the General  Partner,  release the Loan Documents to
the Bank and the Bank will pay the  proceeds of the Limited  Partner Note to the
Partnership to fund a portion of the Investor's  Unit purchase.  The prospective
Investor  will  have  substantial  exposure  under  the  Limited  Partner  Note.
Regardless of the results of Partnership operations, a prospective Investor will
remain liable to the Bank under his Limited Partner Note according to its terms.
The Bank can accelerate the entire  principal amount of the Limited Partner Note
in the event the Bank in good faith  believes the prospect of timely  payment or
performance  by the  prospective  Investor is impaired or the Bank  otherwise in
good faith  deems  itself or its  collateral  insecure  and upon  certain  other
events,  including, but not limited to, nonpayment of any installment.  The Bank
may also request additional collateral in the event it deems the Limited Partner
Note  insufficiently  secured.  A Limited  Partner's  liability  under a Limited
Partner Note also continues  regardless of whether the Limited Partner remains a
limited  partner  in the  Partnership.  A Limited  Partner's  liability  under a
Limited Partner Note is directly with the Bank. As a consequence, such liability
cannot be avoided by claims,  defenses or set-offs the Limited  Partner may have
against the Partnership, the General Partner or their Affiliates. In addition to
the suitability  requirements  discussed below, the prospective Investor must be
approved by the Bank for purposes of his delivery of the Limited  Partner  Note.
The Bank has established its own criteria for approving the  creditworthiness of
a prospective  Investor and has not established  objective  minimum  suitability
standards.  Instead,  the Bank is  empowered  to accept  or  reject  prospective
Investors.  See "Risk Factors - Other Investment Risks - Liability Under Limited
Partner Loans."

Subscription Period; Closing

                  The  subscription  period will commence on the date hereof and
will  terminate at 5:00 p.m.,  Eastern  time,  on August 15, 2000 (the  "Closing
Date"),  unless sooner  terminated by the General Partner or unless extended for
an additional period up to 180 days. See "Plan of Distribution."

Offering Exemption

                  The Units are being offered and will be sold in reliance on an
exemption from the  registration  requirements of the Securities Act of 1933, as
amended,  provided  by  Section  4(2)  thereof  and  Rule  506 of  Regulation  D
promulgated  thereunder,  as amended,  and an exemption from state  registration
provided  by the  National  Securities  Markets  Improvement  Act of  1996.  The
suitability  standards set forth below have been  established in order to comply
with the terms of these offering exemptions.

Suitability Standards

                  In addition to the suitability  requirements  discussed below,
each Investor  wishing to obtain a Limited  Partner Loan must be approved by the
Bank.   The  Bank  has   established   its  own  criteria  for   approving   the
credit-worthiness  of  Investors  and  has  not  established  objective  minimum
suitability  standards.  The Bank has sole  discretion  to accept or reject  any
Investor.

                  An  investment  in the  Partnership  involves a high degree of
financial risk and is suitable only for persons of substantial  financial  means
who have no need for liquidity in their  investments  and who can afford to lose
all of their  investment.  See "Risk Factors - Other  Investment Risks - Limited
Transferability  and  Illiquidity  of Units." An Investor  should not purchase a
Unit if the Investor does not have resources  sufficient to bear the loss of the
entire amount of the purchase price, including any portion financed. The General
Partner anticipates  selling Units only to individual  investors;  however,  the
General Partner reserves the right to sell Units to entities.

                  Because of the risks involved, the General Partner anticipates
selling  the Units only to  Investors  residing in Arizona and New Mexico who it
reasonably believes meet the definition of "accredited investor" as that term is
defined in Rule 501 under the Securities  Act, but reserves the right to sell up
to 35 Investors who are nonaccredited  investors.  Certain  institutions and the
following individuals are "accredited investors":

(1)  An  individual  whose net worth (or joint net worth with his or her spouse)
     exceeds $1,000,000 at the time of subscription;

                  (2)         An individual who has had an individual  income in
                              excess of  $200,000 in each of the two most recent
                              fiscal  years  and  who   reasonably   expects  an
                              individual  income in excess  of  $200,000  in the
                              current year; or

                  (3)         An individual who has had with his or her spouse a
                              joint  income in excess of $300,000 in each of the
                              two most recent  fiscal  years and who  reasonably
                              expects a joint  income in excess of  $300,000  in
                              the current year.

                  Investors  must  also be at least 21 years  old and  otherwise
duly qualified to acquire and hold  partnership  interests.  The General Partner
reserves the right to refuse to sell Units to any person, subject to Federal and
applicable state securities laws.

                  Each  Investor   must  make  an   independent   judgment,   in
consultation with his own counsel,  accountant,  investment  advisor or business
advisor, as to whether an investment in the Units is advisable. The fact that an
Investor meets the Partnership's suitability standards should in no way be taken
as an indication that an investment in the Units is advisable for that Investor.

                  It is anticipated  that  suitability  standards  comparable to
those set forth  above will be imposed by the  Partnership  in  connection  with
resales,  if any, of the Units.  Transferability of Units is severely restricted
by the Partnership Agreement and the Subscription Agreement. See "Summary of the
Partnership Agreement - Restrictions on Transfer of Partnership Interests."

                  Investors  who wish to subscribe  for Units must  represent to
the  Partnership  that they  meet the  foregoing  standards  by  completing  and
delivering to the Sales Agent a Purchaser  Questionnaire in the form included in
the Subscription Packet. Each Purchaser Representative, if any, acting on behalf
of an Investor in connection with this offering must complete and deliver to the
Sales  Agent a  Purchaser  Representative  Questionnaire  (a copy  of  which  is
available upon request to the General Partner).

How to Invest

                  Investors that meet the  qualifications  for investment in the
Partnership  and who wish to  subscribe  for  Units may do so by  following  the
instructions  contained in the Subscription Packet accompanying this Memorandum.
All  information  provided  by  Investors  will  be  kept  confidential  and not
disclosed  except to the Partnership,  the General  Partner,  the Bank and their
respective  counsel  and  Affiliates  and,  if  required,  to  governmental  and
regulatory authorities.

Restrictions on Transfer of Units

                  The Units have not been registered under the Securities Act or
under any state  securities  laws and  holders of Units have no right to require
the  registration  of such  Units or to  require  the  Partnership  to  disclose
publicly information  concerning the Partnership.  Units can be transferred only
in accordance with the provisions of, and upon  satisfaction  of, the conditions
set forth in the  Partnership  Agreement.  Among other things,  the  Partnership
Agreement  provides that no  assignment of Units may be made if such  assignment
could not be effected  without  registration  under the  Securities Act or state
securities  laws.  Moreover,  the  assignment  generally  must  be  made  to  an
individual   approved  by  the  General   Partner  who  meets  the   suitability
requirements described in this Memorandum.

                  Assignors  of  Units  will  be  required  to  execute  certain
documents,   in  form  and  substance   satisfactory  to  the  General  Partner,
instructing  it to effect the  assignment.  Assignees of Units may also,  in the
discretion of the General Partner,  be required to pay all costs and expenses of
the Partnership with respect to the assignment.

                  Any  assignment  of Units or the right to receive  Partnership
Distributions  in  respect  of Units  will not  release  the  assignor  from any
liabilities  connected with the assigned Units,  including liabilities under any
Limited  Partner  Loan.  Such  event may  constitute  a default  under a Limited
Partner Note. An assignee,  whether by sale or otherwise,  will acquire only the
rights of the assignor in the profits and capital of the Partnership and not the
rights of a Limited Partner,  unless such assignee becomes a substituted Limited
Partner.  An assignee may not become a substituted  Limited  Partner without (i)
either the  written  consent of the  assignor  and the General  Partner,  or the
consent of all of the Limited Partners (except the assignor Limited Partner) and
the General  Partner;  (ii) the submission of certain  documents;  and (iii) the
payment of expenses  incurred by the Partnership in effecting the  substitution.
An assignee,  regardless  of whether he becomes a substituted  Limited  Partner,
will be subject to and bound by all the terms and conditions of the  Partnership
Agreement with respect to the assigned  Units.  See "Summary of the  Partnership
Agreement - Restrictions on Transfer of Partnership Interests."

                              PLAN OF DISTRIBUTION

                  Subscriptions   for  Units  will  be   solicited   by  MedTech
Investments,  Inc.,  the  Sales  Agent,  which is an  Affiliate  of the  General
Partner.  The Sales Agent has entered  into a Sales  Agency  Agreement  with the
Partnership  pursuant  to which the Sales  Agent has agreed to act as  exclusive
agent for the placement of the Units on a "best  efforts" any or all basis.  The
Sales Agent is not obligated to purchase any Units.

                  The  Sales  Agent  is a North  Carolina  Corporation  that was
formed on December 23, 1987, and became a member of the National  Association of
Securities  Dealers on March 15, 1988.  The Sales Agent will be engaged in other
similar offerings on behalf of the General Partner and its Affiliates during the
pendency of this  offering and in the future.  The Sales Agent is a wholly owned
subsidiary  of Prime,  which  also owns all the  stock of the  General  Partner.
Investors should note the material  relationship between the Sales Agent and the
General Partner,  and are advised that the relationship creates conflicts in the
Sales  Agent's  performance  of its due  diligence  responsibilities  under  the
Federal securities laws.

                  As compensation for its services, the Sales Agent will receive
a commission equal to $75 for each Unit sold. No other  commissions will be paid
in connection  with this Offering.  Subject to the conditions as provided above,
the Sales  Agent may be  reimbursed  by the  Partnership  for its  out-of-pocket
expenses  associated  with the  sale of the  Units in an  amount  not to  exceed
$5,000.  The Partnership has agreed to indemnify the Sales Agent against certain
liabilities, including liabilities under the Securities Act.

                  The  Partnership  will  not  pay  the  fees  of any  purchaser
representative,  financial advisor, attorney, accountant or other agent retained
by an Investor in connection with his or her decision to purchase Units.

                  The  subscription  period will commence on the date hereof and
will terminate at 5:00 p.m.,  Eastern time, on August 15, 2000, (or earlier,  in
the discretion of the General Partner), unless extended at the discretion of the
General Partner for an additional period not to exceed 180 days.

                  The Partnership seeks by this Offering to sell a maximum of 80
Units for a maximum of an aggregate of $441,040 in cash  ($435,040  net of Sales
Agent  Commissions).  The  Partnership  has set no minimum number of Units to be
sold in this Offering.  The  subscription  funds,  and Loan  documents,  if any,
received from each Investor will be held in escrow  (which,  in the case of cash
subscription funds, shall be held in an interest bearing escrow account with the
Bank) until either the Investor's  subscription  is accepted by the  Partnership
(and  approved  by the Bank in the case of  financed  purchases  of Units),  the
Partnership  rejects the  subscription  or the Offering is terminated.  Upon the
receipt and  acceptance of an Investor's  subscription,  which,  if the Investor
intends to finance a portion of the Unit purchase  price with a Limited  Partner
Loan,  will be  conditioned  upon the Bank's  approval of the Loan, the Investor
will be admitted to the  Partnership as a Limited  Partner.  Upon admission as a
Limited Partner, the Investor's  subscription funds will be released from escrow
to the Partnership, and the Loan Documents, if any, will be released to the Bank
which will pay the proceeds from the Limited Partner Note to the Partnership. In
the event a  subscription  is not  accepted,  all  subscription  funds  (without
interest),  the Loan Documents and other  subscription  documents held in escrow
will be promptly returned to the rejected Investor.  The Offering will terminate
on August 15, 2000,  unless it is sooner  terminated by the General Partner,  or
unless  extended for an additional  period not to exceed 180 days. See "Terms of
the Offering - Subscription Period; Closing."

                               BUSINESS ACTIVITIES

General

                  The  Partnership  was formed to (i)  acquire  the  Lithotripsy
Systems  and  operate  them at various  locations  in  Arizona  and parts of New
Mexico;  (ii) improve the provision of health-care in the Partnership's  Service
Area by taking advantage of both the technological  innovations  inherent in the
Lithotripsy Systems and the Partnership's quality assurance and outcome analysis
programs;  and (iii)  make cash  distributions  to its  Partners  from  revenues
generated by the  operation of the  Lithotripsy  Systems.  The  Partnership  has
contracted with 11 hospitals and medical centers to provide lithotripsy services
to their patients.

Treatment Methods for Kidney Stone Disease

                  Urolithiasis,  or kidney stone  disease,  affects an estimated
600,000  persons per year in the United States.  The exact cause of kidney stone
formation  is  unclear,  although  it has  been  attributed  to  diet,  climate,
metabolism and certain medications. Approximately 75% of all urinary stones pass
spontaneously,  usually  within  one to two  weeks,  and  require  little  or no
clinical or surgical  intervention.  All other kidney stones,  however,  require
some form of medical or surgical  treatment.  A number of methods are  currently
used to treat kidney  stones.  These methods  include drug therapy,  cystoscopic
procedures,  endoscopic procedures, laser procedures, open surgery, percutaneous
lithotripsy and extracorporeal  shock wave lithotripsy.  The type of treatment a
urologist  chooses depends on a number of factors such as the size of the stone,
its  location in the urinary  system and  whether the stone is  contributing  to
other urinary  complications  such as blockage or infection.  The extracorporeal
shock wave  lithotripter,  introduced  in the United States from West Germany in
1984, has dramatically changed the course of kidney stone disease treatment. The
General  Partner  estimates  that  currently up to 95% of all kidney stones that
require treatment can be treated by lithotripsy. Lithotripsy involves the use of
shock waves to disintegrate kidney stones noninvasively.

The Existing Lithotripsy Systems

                  The Partnership  currently owns two Lithostars(TM)  which were
acquired  new in 1990 and 1996.  The  Partnership  plans to sell or discard  the
Lithostars(TM) when the Partnership  purchases the New Lithotripsy  Systems. See
"Business Activities - Acquisition of the New Lithotripsy Systems." However, the
Partnership  will continue to use the  Lithostars(TM)  until the New Lithotripsy
Systems are purchased.  In addition,  if the Partnership is unable to obtain the
necessary  financing to purchase the New  Lithotripsy  Systems,  the Partnership
will continue to use the Existing Lithotripsy Systems unless or until it is able
to purchase the New Lithotripsy Systems.

                  The  Lithostar(TM)  was  developed  as a  cooperative  venture
between Siemens and the Urological  Clinic at Johannes  Gutenberg  University in
Mainz, West Germany.  As a part of this venture,  a Lithostar(TM)  prototype was
installed in March 1986 at the Urological Clinic at the University of Mainz with
successful  results.  On November  18, 1987 the  Lithostar(TM)  was  unanimously
recommended  for  approval  by the FDA's  advisory  panel of experts for urology
devices. On September 30, 1988 the Lithostar(TM) received FDA premarket approval
for use in the United States for renal  lithotripsy.  On April 18, 1989, the FDA
approved the  Lithostar(TM)  for mobile  lithotripsy.  On July 1, 1996,  the FDA
approved a new higher intensity  shock-head system for the  Lithostar(TM)  which
has since been installed in the  Partnership's  Lithostars(TM).  Currently,  the
General  Partner  estimates  that  more  than  400  Lithostar(TM)   systems  are
performing lithotripsy procedures in over 20 countries throughout the world. All
components  of the  Lithostar(TM)  are  manufactured  by Siemens,  a diversified
multinational company.

                  The   Lithostar(TM)   was   designed   with  a  view   towards
substantially improving early lithotripsy technology. See "Business Activities -
Treatment  Methods  for  Kidney  Stone  Disease."   Technological   improvements
incorporated  into  the  Lithostar(TM)  include  an  improved  work  station,  a
shock-wave  component that has eliminated the need for both water bath treatment
and  disposable  electrodes,  and an excellent  stone  localization  and imaging
system. Based upon its experience in its affiliated  lithotripsy  ventures,  the
General   Partner   believes   that  most  patients  can  be  treated  with  the
Lithostar(TM)  without anesthesia of any kind. The General Partner also believes
that  Lithostars(TM)  upfitted  with  the  higher  intensity  shock-head  system
experience somewhat shorter treatment durations.

                  Based upon its experience with over 30 Lithostars(TM) in other
limited  partnerships  sponsored by the General Partner and its Affiliates,  the
General Partner has found that the Lithostar(TM) can fragment most kidney stones
without anesthesia,  cystoscopy or the insertion of ureteral catheters,  and the
General Partner  believes that overall the  Lithostar(TM)  has been an effective
alternative for the treatment of patients.

                  However,  the Partnership's  Lithostars(TM)  are older models,
and the General  Partner  believes  these  machines  will need to be replaced in
order to maintain efficiency and respond to competitive pressures. See "Business
Activities - Acquisition of the New Lithotripsy  Systems." If the Partnership is
unable  to  obtain  financing  to  purchase  the New  Lithotripsy  Systems,  the
Partnership will continue to use the Existing Lithotripsy  Systems,  which could
result in increased downtime and weaken the Partnership's  ability to compete in
the current market.

                  The Partnership's two Coaches were acquired by the Partnership
in 1990 and 1996,  respectively.  The Coaches have been completely  upfitted for
the  Lithostars(TM)  and their  clinical  operations.  Service  for the Coach is
obtained on an as-needed basis. The General Partner  estimates that expenditures
for maintenance and repair have been incurred at a rate of approximately $15,000
per year per Unit.

Acquisition of the New Lithotripsy Systems

                  It is anticipated that in August the Partnership will purchase
two new Storz Modulith(R) SLX-T model  extracorporeal  shock-wave  lithotripters
(up to  $412,000  each)  and a new Coach  (up to  $350,000)  and a new Ford 5400
Series Van (up to $80,000) to transport  the newly  acquired  Modulith(R)  SLX-T
lithotripters with the proceeds of this Offering and the proceeds of Partnership
debt financing.  The Offering proceeds cannot be accurately determined until the
Closing has occurred and the number of Units sold have been  calculated.  In any
event,  such proceeds will not be sufficient to fund all  anticipated  expenses.
The Partnership does not, however,  have a commitment from any lender, and there
is no  assurance  that a loan on terms  acceptable  to the  Partnership  will be
forthcoming. See "Risk Factors - Operating Risks - Partnership Limited Resources
and Risks of Leverage" and "Sources and  Applications  of Funds." The portion of
the proceeds of this Offering  reserved for the purchase of the New  Lithotripsy
Systems will be held in a Capital  Reserve  until the  purchases  are made.  See
"Sources and Applications of Funds."

                  The General  Partner  believes  the  Modulith(R)  SLX-T offers
several  advantages over the Lithostar(TM).  In particular,  the General Partner
believes  that  the  Modulith(R)   SLX-T  provides   clearer  imaging  than  the
Lithostar(TM).  In addition, the Modulith(R) SLX-T is a transportable model, and
thus  can be  moved  from  site  to site  more  easily  and  more  quickly.  The
Modulith(R)  SLX-T also can be used either in an upfitted  Coach or moved into a
hospital  procedure  room,   providing   increased   flexibility  in  performing
lithotripsy services.

                  The Modulith(R) SLX-T received FDA premarket approval on March
27, 1997.  The General  Partner and its Affiliates  have limited,  but positive,
direct  experience  with  the  use  of  the  Modulith(R)   SLX-T   lithotripter.
Preliminary reports from abroad and "word of mouth" anecdotal evidence indicates
that  the  Modulith(R)   SLX-T  is  as  effective  as  most  of  the  "portable"
lithotripters  in the market.  See "Risk Factors - Operating Risks - Reliability
and Efficacy of the  Partnership's  Lithotripters."  The  Modulith(R)  SLX-T was
specially  adapted for the  treatment of urological  stones.  In addition to the
efficient  fragmentation  of all types of urinary tract stones,  the Modulith(R)
SLX-T is suitable for  performing a range of urological  examinations  including
cystoscopy and ureterorenoscopy. The Modulith(R) SLX-T consists of a cylindrical
pressure  wave  generator,  an OEC 9800 C-arm  x-ray  system  unit and a patient
table. The Modulith(R) SLX-T generates pressure waves  electromagnetically  from
the  cylindrical  energy  source and  parabolic  reflector.  The  pressure  wave
generator operates without an acoustic lens, thus avoiding such disadvantages as
energy dissipation and aperture limitations. The pressure at the focal point can
be varied by means of the  energy  control in nine steps from 10 Mpa to 100 Mpa.
The energy  source is fitted with an axial and lateral  air-bag.  When  expanded
during  fluoroscopy,  these  air-bags  ensure  optimal  X-ray image  quality for
monitoring purposes.  The pressure wave coupling is dry (water cushion is used).
The shock-wave may be released at fixed  frequencies of 1 Hz, 1.5 Hz or 2 Hz, or
may be  triggered  using  the ECG  and/or  respiration.  The  Modulith(R)  SLX-T
localizes stones using an OEC 9800 C-arm X-ray system.  The X-ray system employs
an image  intensifier,  cassette film,  digital spot imaging  capability and two
high resolution 16" monitors  capable of displaying  stored digital images.  The
patient  table  can be  moved  electronically  in all  three  dimensions,  and a
floating  function  allows  for quick  patient  positioning.  The table is X-ray
transparent  and allows  visualization  of the entire urinary  tract.  The table
includes a patient cradle which provides  comfortable  and secure support in the
prone, supine and lateral positions.

                  The General Partner does not anticipate any delays in delivery
of the new  Modulith(R)  SLX-T  lithotripters  after  they  are  ordered  by the
Partnership.  Storz will  provide  the  Partnership  with  technical  support to
facilitate  installation  and testing of the Modulith(R)  SLX-T. The Modulith(R)
SLX-T  comes with an  eighteen  month  limited  warranty  during  which time all
maintenance, repairs, shock tubes, glassware and capacitors are provided free of
charge.  The  General  Partner  anticipates  that  upon  the  expiration  of the
warranty,  the  Partnership  will  either  pay for  maintenance  service on each
Modulith(R)  SLX-T on an as needed  basis,  or enter into an annual  maintenance
agreements with a third-party  service  provider.  The General Partner estimates
that   expenditures   for  maintenance  of  each   Modulith(R)   SLX-T  will  be
approximately $40,000 per year.

                  The Partnership plans to purchase from AK Associates,  L.L.C.,
an Affiliate of the General Partner, a Coach which will be used to transport one
of the  Modulith(R)  SLX-T  lithotripters  from site to site.  The Coach will be
upfitted to house a lithotripter and allow full operations at the host site. The
self-contained  coach  configuration  requires  only that a site provide a level
parking  surface,  a water  inlet  connection,  a drain  outlet  connection,  an
electric receptacle and a telephone connection. The General Partner will pay for
maintenance  on  an  as-needed  basis  and  estimates  that   expenditures   for
maintenance and repair of the Coach will be approximately  $15,000 per year. See
"Compensation  and  Reimbursement to the General Partner and its Affiliates" and
"Conflicts of Interest."

                  The  Partnership  also plans to acquire  from AK  Associates a
Ford  5400  Series  van  customized  to  include  a 14'  cargo  box to house the
remaining  Modulith(R) SLX-T  lithotripter  while it is transported from site to
site.  The floor of the van is loading  dock height so the  lithotripter  can be
easily  loaded on and off the van at each  treatment  facility.  The van is also
upfitted  with a lift gate with a load capacity of 3,000 pounds for easy loading
of the  lithotripter  from street level.  The van has been modified for securing
the lithotripter and its accessories  during transport and for heating the cargo
box  during  the  winter  to  prevent  freezing  of  the  lithotripter  and  its
components.  The  Partnership  will either purchase the  manufacturer's  service
contract  for the van or pay for  service  on an as needed  basis.  The  General
Partner  estimates that  expenditures for maintenance and repair of the van will
be approximately $6,000 per year.

Acquisition of Additional Assets

                  If in the future the General Partner  determines that it is in
the best  interest of the  Partnership  to acquire (i) one or more fixed base or
mobile lithotripsy  systems in addition to the New Lithotripsy  Systems; or (ii)
other assets  related to the  provision  of  lithotripsy  services,  the General
Partner may (with the consent of a majority in interest of the Limited Partners)
establish  reserves or borrow funds on behalf of the Partnership to acquire such
assets,  and may use  Partnership  assets and  revenues to secure and repay such
borrowings.  The  acquisition  of such  assets  likely  would  result  in higher
operating  costs for the  Partnership.  The General  Partner does not anticipate
acquiring additional  Partnership assets unless projected  Partnership Cash Flow
or  proceeds   from  a  Dilution   Offering  are   sufficient  to  finance  such
acquisitions.  No Limited Partner would be personally  liable on any Partnership
indebtedness  without  such  Limited  Partner's  written  consent.  There  is no
assurance that  additional  financing  would be available to the  Partnership to
acquire   additional   assets  or  to  fund  any  additional   working   capital
requirements. Any additional borrowing by the Partnership will serve to increase
the risks to the  Partnership  associated  with  leverage.  See "Risk  Factors -
Operating Risks - Partnership Limited Resources and Risks of Leverage."

Hospital Contracts

                  The Partnership has entered into five Hospital  Contracts with
nine  Contract  Hospitals  to operate the  Lithotripsy  Systems at the  Contract
Hospitals. The Contract Hospitals are:

                  Desert Samaritan Hospital
                  Flagstaff Medical Center
                  Good Samaritan Hospital
                  Marcus J. Lawrence Medical Center
                  Maryvale Hospital
                  St. Joseph's Hospital
                  St. Mary's Hospital

                  Thunderbird Samaritan Hospital

                  Triad of Arizona (L.P.), Inc., d/b/a Paradise Valley Hospital

                  Generally,  the Hospital  Contracts  grant the Partnership the
exclusive  right  to  deliver  lithotripsy  services  to the  relevant  Contract
Hospital. Several contracts also provide that, without the prior consent of such
Contract Hospital,  the Partnership may not provide lithotripsy  services to any
other health care facility within a short radius of the Contract  Hospital.  The
Hospital  Contracts require the Partnership to make a lithotripter  available at
the facilities as agreed to by the Contract  Hospital and the  Partnership.  The
Partnership  generally also provides a technician and certain ancillary services
such  as  scheduling  necessary  for the  lithotripsy  procedure.  The  Contract
Hospitals  generally pay the  Partnership a fee for each  lithotripsy  procedure
performed at that health care facility.  Two of the Hospital  Contracts  provide
for automatic renewal on a year-to-year  basis.  Four of the Hospital  Contracts
are terminable without cause at any time by any party on short notice, generally
90 days or less.  The remaining  Hospital  Contracts  may be terminated  without
cause upon 90 days or less  written  notice by either party prior to any renewal
date. The General Partner believes it has a good  relationship with the Contract
Hospitals.  There is no  assurance,  however,  that one or more of the  Hospital
Contracts will not terminate in the future.  See "Risk Factors - Operating Risks
- Contract Terms and  Termination."  The  Partnership is attempting to negotiate
similar agreements to the existing Hospital Contracts with additional  treatment
centers in the Service Area. There can be no assurance that the Partnership will
be able to enter into any new agreements.

                  Reimbursement  Agreements.   Prime  and  its  Affiliates  have
negotiated third-party  reimbursement agreements with certain national and local
payors.  The national  agreements  apply to all the  lithotripsy  companies with
which Prime is affiliated.  Although the Partnership currently provides services
under the Hospital  Contracts on a wholesale  basis (i.e. the  Partnership  only
bills the Contract  Hospital),  the Partnership may be able to take advantage of
these  reimbursement  agreements in the future in the event it contracts  with a
treatment  facility on a retail basis (i.e. the Partnership  would bill patients
and third party  payors  directly).  Some of the  national and local payors have
agreed  to pay a  fixed  price  for the  lithotripsy  services.  Generally,  the
agreements  may be terminated  by either party on 90 days' notice.  The national
and local reimbursement  agreements that have been negotiated or renegotiated in
the past two to four years almost entirely provide for lower reimbursement rates
for lithotripsy services than the older agreements.

Operation of the Lithotripsy Systems

                  It is  anticipated  that  the  Partnership  will  continue  to
provide  services  under the Hospital  Contracts and similar  arrangements.  See
"Business Activities - Hospital Contracts" and "Risk Factors - Operating Risks -
Contract  Terms and  Termination."  Qualified  physicians  who make  appropriate
arrangements with Contract Hospitals receiving  lithotripsy services pursuant to
the Hospital Contracts and other lithotripsy  service agreements may treat their
own  patients  using  the  Lithotripsy  Systems  after  they have  received  any
necessary  training  required  by the  rules  of  such  Contract  Hospital.  The
Partnership may also make arrangements to make the Lithotripsy Systems available
to qualified  physicians  (including,  but not limited to,  qualified  physician
Limited  Partnership)  desiring  to treat  their own  patients  after  they have
received any necessary  training.  The General Partner will endeavor to the best
of its  abilities  to  require  that  physicians  using  the  General  Partner's
Lithotripsy Systems comply with the Partnership's  quality assurance and outcome
analysis  programs in order to maintain the highest  quality of patient care. In
addition,  the Partnership reserves the right to request that (i) physicians (or
members  of their  practice  groups)  treat  only  their own  patients  with the
Lithotripsy  Systems;  and (ii)  physician  Limited  Partners  disclose to their
patients in writing their financial  interest in the Company prior to treatment,
if it determines  that such practices are advisable  under  applicable  law. See
"Regulation." The treating  qualified  physician will be solely  responsible for
billing and collecting on his own behalf the professional  service  component of
the  treatment  procedure.  Owning  an  interest  in  the  Partnership  is not a
condition to using the Lithotripsy Systems. Thus, local qualified physicians who
are not  Limited  Partners  will be given the same  opportunity  to treat  their
patients using the Lithotripsy Systems as provided above.

Management

                  The Partnership  has entered into a management  agreement (the
"Management  Agreement") with the General Partner whereby the General Partner is
obligated to supervise and coordinate the management and  administration  of the
operation of the  Lithotripsy  Systems on behalf of the  Partnership in exchange
for a monthly  management fee equal to the greater of 7.5% of  Partnership  Cash
Flow per month or $8,000 per month. See  "Compensation  and Reimbursement to the
General Partner and its  Affiliates." The General  Partner's  services under the
Management  Agreement  include  arranging  for the training of physicians in the
proper use of the lithotripsy equipment,  monitoring technological  developments
in renal  lithotripsy  and  advising  the  Partnership  of  these  developments,
arranging  education  programs for qualified  physicians who use the lithotripsy
equipment and providing  advertising,  billing,  accounts collection,  equipment
maintenance,  medical supply inventory and other incidental  services  necessary
for the efficient  operation of the Lithotripsy  Systems.  Costs incurred by the
General Partner in performing its duties under the Management  Agreement are the
responsibility of the Partnership.  The General  Partner's  engagement under the
Management Agreement is as an independent contractor and neither the Partnership
nor its Limited Partners have any authority or control over the method or manner
in which the General Partner performs its duties under the Management Agreement.
The Management  Agreement is in the first 5-year renewal term and will be up for
a second renewal for an additional five-year term in 2004.  Thereafter,  it will
be  automatically  renewed  for an  additional  term  unless  terminated  by the
Partnership or the General Partner.

Employees

                  The Partnership  employs as full time employees two registered
technicians  and two  registered  nurses.  The  Partnership  anticipates  hiring
additional employees to staff the New Lithotripsy Systems.

                     FINANCIAL CONDITION OF THE PARTNERSHIP

                  Set  forth  on  the  following  pages  are  the  Partnership's
internally  prepared  accrual  based (i) Income  Statements  for the years ended
December 31, 1995,  December 31, 1996,  December 31, 1997, December 31, 1998 and
December  31, 1999 and the four months  ended April 30, 1999 and April 30, 2000;
(ii) Balance  Sheets as of December 31,  1995,  December 31, 1996,  December 31,
1997, December 31, 1998 and December 31, 1999 and as of April 30, 1999 and April
30,  2000;  (iii) Cash Flow  Statements  for the years ended  December 31, 1995,
December  31, 1996,  December 31, 1997,  December 31, 1998 and December 31, 1999
and the four months ended April 30, 1999 and April 30, 2000; and (iv) Statements
of Partner's  Equity for the years ended  December 31, 1995,  December 31, 1996,
December 31,  1997,  December 31, 1998 and December 31, 1999 and the four months
ended April 30, 1999 and April 30, 2000.

                  Past financial  performance is not  necessarily  indicative of
future  performance.  There is no assurance that the Partnership will be able to
maintain its current revenues or earnings.

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<PAGE>











        MANAGEMENT'S DISCUSSION ANDANALYSIS OF THE RESULTS OF OPERATIONS

Four Months Ended April 30, 2000 and April 30, 1999

                  Revenues. Total revenues decreased $200,644 (19%) for the four
months ended April 30, 2000 compared to the same period in 1999 primarily due to
an 18% decrease in the number of  procedures  performed and a 1% decrease in net
revenue per case.

                  Operating  Expenses.  Operating  expenses decreased by $58,231
(12%) for the four months  ended  April 30, 2000  compared to the same period in
1999 primarily due to a decrease of $46,773 in equipment maintenance and repairs
due to changing  from fixed cost  service  contracts on the  lithotripters  to a
service  call basis with a stop loss  insurance  arrangement  and a decrease  in
other operating expenses due to the temporary rental of a lithotripter and coach
in 1999 which was not incurred in 2000.

                  Other  Income   (Expense).   Total  other   income   (expense)
experienced  a net  increase  of $1,346 due to a decrease  of $1,296 in interest
income and a decrease of $2,642 in interest  expense due to paying off bank debt
in 1999.

Year Ended December 31, 1999 and December 31, 1998

                  Revenues.  Total revenues increased $200,664 (6%) for the year
ended  December 31, 1999 compared to the same period in 1998  primarily due to a
1%  decrease  in the number of  procedures  performed  and an 8% increase in net
revenue per case.

                  Operating  Expenses.  Operating  expenses decreased by $38,383
(3%) for the year ended  December  31, 1999  compared to the same period in 1998
primarily due to a decrease of $155,035 in  depreciation  expense due to some of
the  equipment  being  fully  depreciated  in 1999,  an  increase  of $26,046 in
management  fees due to the increase in  partnership  cash flow,  an increase of
$42,635  in  other  operating   expenses  primarily  due  to  the  rental  of  a
lithotripter  and coach while one of the coaches  was being  refurbished  and an
increase of $20,236 in employee  compensation  and benefits  primarily due to an
increase in incentive compensation paid.

                  Other  Income   (Expense).   Total  other   income   (expense)
experienced  a net  increase of $41,790 due to an increase of $9,406 in interest
income and a decrease of $22,384 in interest expense due to paying off bank debt
in 1999.

Year Ended December 31, 1998 and December 31, 1997

                  Revenues.  Total revenues increased $139,998 (5%) for the year
ended December 31, 1998 compared to the same period in 1997 due to a 4% increase
in the number of procedures performed and a 1% increase in net revenue per case.

                  Operating  Expenses.  Operating expenses decreased by $123,991
(8%) for the year ended  December  31, 1998  compared to the same period in 1997
primarily  due to a decrease  of $53,571 in  equipment  maintenance  and repairs
primarily due to renegotiated  maintenance  contracts,  a decrease of $48,300 in
overhead  allocation  due to lower  overhead  costs  incurred  and a decrease of
$31,344 in other operating  expenses primarily due to a reversal of a prior year
expense accrual.

                  Other  Income   (Expense).   Total  other   income   (expense)
experienced  a net  increase  of $30,986  due to a $5,525  decrease  in interest
income and a decrease of $36,511 in interest expense due to paying down the bank
debt.


<PAGE>


                        SOURCES AND APPLICATIONS OF FUNDS

                  The  following  table  sets  forth  the funds  expected  to be
available  to the  Partnership  from this  Offering if all 80 Units are sold and
other sources and their anticipated and estimated uses.

         Sources of Funds                                       Sale of 80 Units
Offering Proceeds(1)                         $441,040              ( 100.00%)
                                              -------               --------
   TOTAL SOURCES                             $441,040               (100.00%)
                                              =======                =======
         Application of Funds

Capital Reserve(2)                           $406,040              (  94.37%)
Syndication Costs(3)                         $ 35,000              (   5.63%)
                                              --------             ---------
   TOTAL APPLICATIONS                        $441,040              (100.00%)
                                              =======               =======

Notes to Sources and Applications of Funds Table

     (1) Assumes all 80 Units are purchased by qualified Investors.

                  (2) It is anticipated  that after the Closing of this Offering
the  Partnership  will purchase two new Storz  Modulith(R)  SLX-T  transportable
lithotripters  at an  estimated  cost of  $412,000  each  and a new  Coach at an
estimated  cost of $350,000 and a mobile van at an estimated  cost of $80,000 to
house the  lithotripters.  See  "Business  Activities -  Acquisition  of the New
Lithotripsy  Systems." The Capital Reserve  represents  proceeds of the Offering
that  will be used to pay a portion  of such  costs  and make  distributions  to
persons  who were  Partners  of the  Partnership  prior to the  commence  of the
Offering.  The proceeds of this Offering cannot be accurately  determined  until
the Closing has  occurred and the number of Units sold has been  calculated.  In
any  event,  such  proceeds  will  not be  sufficient  to fund  all  anticipated
expenses.  The  remainder  of such costs will be  financed  through  Partnership
borrowings.  There is no  assurance  that debt  financing  will be  available on
acceptable  terms  for  such  purposes.  In the view of  risks  associated  with
leverage,  a  desire  to  conserve  Partnership  resources  and the  absence  of
commitments for new hospital contracts,  it is not expected that the Partnership
will acquire the New  Lithotripsy  Systems  unless at least a minimum  number of
Units are sold in this Offering and sufficient  business  opportunities with new
treatment  centers are anticipated by the General  Partner to be available.  See
"Risk  Factors - Operating  Risks - Partnership  Limited  Resources and Risks of
Leverage."

                  (3) Includes $6,000 in commissions payable to the Sales Agent,
reimbursement of $5,000 to the Sales Agent for  out-of-pocket  expenses incurred
in selling the Units and $24,000 in legal and accounting  costs  associated with
the preparation of this Memorandum.


<PAGE>


                               THE GENERAL PARTNER

                  General.   The   General   Partner  of  the   Partnership   is
Lithotripters,  Inc., a North Carolina  corporation  formed in November 1987 for
the purpose of sponsoring  medical  service  limited  partnerships in the United
States (the "General Partner").  On April 26, 1996, the General Partner became a
wholly-owned  subsidiary of Prime. The principal executive office of the General
Partner is located at 1301 Capital of Texas Highway,  Suite C-300, Austin, Texas
78746,  (512)  328-2892.  The General  Partner  also has an office at 2008 Litho
Place,  Fayetteville,  North Carolina 28304.  The General  Partner's  assets are
illiquid  in  nature.  The  primary  assets of the  General  Partner  are equity
interests in other medical  ventures.  The General  Partner also has substantial
potential  financial  exposure as a  guarantor  of certain  Prime  indebtedness.
Further  information  regarding the financial  condition of the General  Partner
will be made available to Investors upon request.

                  Management.  The  following  table  sets  forth  the names and
respective  positions  of the  individuals  serving as  executive  officers  and
directors of the General Partner,  many of whom were shareholders of the General
Partner prior to its acquisition by Prime and/or are current shareholders and/or
management personnel of Prime.

                           Name                              Office

                  Joseph Jenkins, M.D.        President, Chief Executive Officer
and Director

                  Kenneth S. Shifrin                Director
                  Cheryl Williams                   Vice President and Director
                  David Vela, M.D.                  Vice President
                  Stan Johnson                      Vice President
                  Philip J. Gallina                 Secretary and Treasurer
                  James Clark                       Assistant Secretary

     Supervision  of  the  day-to-day   management  and  administration  of  the
Partnership will be the responsibility of the General Partner in its capacity as
the management  agent.  The General  Partner itself is managed by a three-member
Board of Directors composed of Mr. Shifrin, Ms. Williams and Dr. Jenkins.

                  Set  forth  below  are  the  names  and  descriptions  of  the
background of the key executive officers and directors of the General Partner.

     Joseph Jenkins,  M.D. was recently appointed the Vice Chairman of the Board
of Directors of Prime and  previously  served as President  and Chief  Executive
Officer of Prime from April 1996 until June 2000.  From May 1990 until  December
1991,  Dr.  Jenkins was a Vice  President of the General  Partner and previously
practiced urology in Washington,  North Carolina. Dr. Jenkins has been President
of the  General  Partner  since  1992 and was  recently  elected to its Board of
Directors.  Dr. Jenkins is a board certified urologist and is a founding member,
a past-president and currently a Director of the American Lithotripsy Society.

                  Kenneth  S.  Shifrin  has been  Chairman  of the  Board  and a
Director of Prime since October 1989 and was recently  elected a Director of the
General Partner  following  Prime's  acquisition of all of the General Partner's
stock.  Mr.  Shifrin  also  has  served  in  various  capacities  with  American
Physicians  Service  Group,  Inc.  ("APS") since February 1985, and is currently
Chairman of the Board and Chief Executive Officer of APS.

     Cheryl Williams is a Vice President and Director of the General Partner and
has been Chief Financial Officer, Vice  President-Finance and Secretary of Prime
since  October  1989.  Ms.   Williams  was  Controller  of  Fairchild   Aircraft
Corporation  from August 1988 to October 1989.  From 1985 to 1988, Ms.  Williams
served as the Chief  Financial  Officer of APS  Systems,  Inc.,  a  wholly-owned
subsidiary of APS.

                  Stan  Johnson was recently  appointed a Vice  President of the
General  Partner and has been a Vice  President  of Prime and  President  of Sun
Medical  Technologies,  Inc. ("Sun") (an affiliate of the General Partner) since
November 1995. Mr. Johnson was the Chief  Financial  Officer of Sun from 1990 to
1995.

     David Vela,  M.D.  was recently  appointed a Vice  President of the General
Partner.  Dr. Vela received his medical  degree in 1984.  Dr. Vela developed and
operated various  outpatient  centers  throughout the United States from 1986 to
1995 and has served as Regional Vice  President of Prime for the Central  Region
since February 1997.

     Philip J.  Gallina  recently  became the  Secretary  and  Treasurer  of the
General Partner,  having  previously  served as a Vice President since 1989. Mr.
Gallina is a Certified Public Accountant  licensed in the state of Pennsylvania.
From 1980 through  February 1989, Mr. Gallina served as Plant Controller for the
Westinghouse  Motor Control and Enclosed  Control Product Lines.  Mr. Gallina is
also a Director, the Vice President,  the Treasurer and the Secretary of MedTech
Investments, Inc., the Sales Agent.

     James D. Clark recently became Assistant  Secretary of the General Partner.
Mr.  Clark has  served  as Tax  Manager  of Prime  since  January  1998 and is a
Certified  Public  Accountant in Texas.  Prior to joining  Prime,  Mr. Clark was
Controller for ERISA Administrative Services, Inc.


     COMPENSATION AND REIMBURSEMENT TO THEGENERAL PARTNER AND ITS AFFILIATES

                  The  following   summary   describes  the  types  and,   where
determinable,  the estimated amounts of  reimbursements,  compensation and other
benefits the General  Partner and its Affiliates will receive in connection with
the continued  operation and management of the  Partnership  and the Lithotripsy
Systems. None of such fees,  compensation and other benefits has been determined
at arm's length.  Except for the items set forth below, the General Partner does
not expect to receive any distribution,  fee, compensation or other remuneration
from the  Partnership.  See  "Business  Activities  -  Management"  and "Plan of
Distribution."

                  1. Management Fee. Pursuant to the Management  Agreement,  the
General  Partner has contracted with the Partnership to supervise the management
and administration of the day-to-day operations of the Partnership's lithotripsy
business for a monthly fee equal to the greater of $8,000 or 7.5% of Partnership
Cash Flow per month. All costs incurred by the General Partner in performing its
duties under the Management  Agreement are the  responsibility  of, and are paid
directly  or  reimbursed  by,  the  Partnership.  The  General  Partner  is  the
management agent for various affiliated  lithotripsy ventures. As a consequence,
many  of  the  General  Partner's   employees  provide  various  management  and
administrative  services for numerous  ventures,  including the Partnership.  In
order to properly  allocate  the costs of the General  Partner's  employees  and
other overhead expenses among the entities for which they provide services, such
costs are  divided  among all the  ventures  based upon the  relative  number of
patients  treated by each.  The  General  Partner  believes  that the sharing of
personnel and overhead costs among various entities results in significant costs
savings for the  Partnership.  The management fee for any given month is payable
on or before the 30th day of the next succeeding month. The Management Agreement
is in its first  five-year  renewal term which expires in 2004.  The  Management
Agreement  will be  automatically  renewed for up to two  additional  successive
five-year term unless it is earlier terminated by the Partnership or the General
Partner.  The General  Partner is reimbursed by the  Partnership  for all of its
out-of-pocket  costs  associated  with the operation of the  Partnership and the
Lithotripsy  Systems,  and the Partnership  will pay or reimburse to the General
Partner all expenses  related to this  Offering.  No other fees or  compensation
will be payable  to the  General  Partner or its  Affiliates  for  managing  the
Partnership  other than the  management  fee payable to the  General  Partner as
provided in the Management  Agreement.  The Partnership may,  however,  contract
with the General  Partner or its  Affiliates to render other services or provide
materials  to the  Partnership  provided  that the  compensation  is at the then
prevailing rate for the type of services and/or materials provided.

                  2.  Partnership  Distributions.  In its  capacity  as  general
partner of the Partnership, the General Partner is entitled to its distributable
share (18.6%,  before  dilution) of  Partnership  Cash Flow,  Partnership  Sales
Proceeds and  Partnership  Refinancing  Proceeds as provided by the  Partnership
Agreement.  The General  Partner also owns a 15.81%  (before  dilution)  limited
partner interest in the Partnership, and is entitled to Distributions on account
of such interest.  See "Summary of the Partnership  Agreement - Profits,  Losses
and Distributions" and the Partnership Agreement attached as Appendix A.

                  3.  Sales   Commissions.   The  Sales  Agent,  a  wholly-owned
subsidiary  of  Prime,  has  entered  into a Sales  Agency  Agreement  with  the
Partnership  pursuant to which the Sales Agent has agreed to sell the Units on a
"best efforts" any or all basis.  As  compensation  for its services,  the Sales
Agent  will  receive  a  commission  equal to $75 for each  Unit  sold (up to an
aggregate of $6,000). If this Offering is successful,  the Sales Agent will also
be reimbursed by the Partnership for its out-of-pocket  expenses associated with
its  sale  of the  Units  in an  amount  not to  exceed  $5,000.  See  "Plan  of
Distribution" and "Conflicts of Interest."

     4. New Coaches and Mobile Van. It is anticipated that the Company will also
use a portion of the Offering  proceeds  and/or debt  financing to acquire a new
Coach and a new Ford 5400 Series van which will house the two new  lithotripters
from AK Associates,  L.L.C.,  an Affiliate of the General Partner,  at a cost of
approximately  $350,000  for the Coach and  $80,000 for the van.  See  "Business
Activities - Acquisition of the New Lithotripsy Systems."

                  5. Loans.  The  General  Partner or its  Affiliates  will also
receive  interest  on  loans,  if any,  made by  them  to the  Partnership.  See
"Conflicts of Interest."  Neither the General  Partner nor any of its Affiliates
are,  however,  obligated  to make loans to the  Partnership.  While the General
Partner  does  not  anticipate  that it would  cause  the  Partnership  to incur
indebtedness unless cash generated from Partnership  operations were at the time
expected to enable  repayment of such loan in accordance  with its terms,  lower
than anticipated  revenues and/or greater than anticipated expenses could result
in the Partnership's  failure to make payments of principal or interest when due
under such a loan and the Partnership's  equity being reduced or eliminated.  In
such event, the Limited Partners could lose their entire investment.

                              CONFLICTS OF INTEREST

                  The operation of the Partnership  involves numerous  conflicts
of interest  between the Partnership and the General Partner and its Affiliates.
Because the Partnership is operated by the General  Partner,  such conflicts are
not resolved through arm's length negotiations,  but through the exercise of the
judgment of the General Partner consistent with its fiduciary  responsibility to
the Limited Partners and the Partnership's  investment  objectives and policies.
The General Partner, its Affiliates and employees of the General Partner will in
good faith continue to attempt to resolve  potential  conflicts of interest with
the  Partnership,  and the General Partner will act in a manner that it believes
to be in or not opposed to the best interests of the Partnership.

                  The General Partner and its Affiliates will receive management
fees and  broker-dealer  sales  commissions  in  connection  with  the  business
operations  of the  Partnership  and the  sale of the  Units  that  will be paid
regardless of whether any sums hereinafter are distributed to Limited  Partners.
None of such fees, compensation and benefits has been determined by arm's length
negotiations. In addition, the Partnership may contract with the General Partner
or  its  Affiliates  to  render  other  services  or  provide  materials  to the
Partnership  provided that the  compensation  is at the then prevailing rate for
the type of services and/or  materials  provided.  The General Partner will also
receive  interest  on  loans,  if  any,  it  makes  to  the   Partnership.   See
"Compensation  and  Reimbursement to the General Partner and its Affiliates." It
is anticipated  that the Partnership  will purchase a new Coach and a new mobile
van from AK Associates, L.L.C., an Affiliate of the General Partner to transport
the new Modulith(R) SLX-T lithotripters.  See "Compensation and Reimbursement to
the General Partner and its  Affiliates" and "Business  Activities - Acquisition
of the New Lithotripsy Systems."

                  The General  Partner and its Affiliates will devote as much of
their time to the business of the Partnership as in their judgment is reasonably
required.  Principals of the General  Partner may have  conflicts of interest in
allocating  management time, services and functions among their various existing
and future  business  activities in which they are or may become  involved.  See
"Competition"  and "Prior  Activities."  The General Partner believes it and its
Affiliates,   together,  have  sufficient  resources  to  be  capable  of  fully
discharging their  responsibilities to the Partnership.  The General Partner and
its Affiliates  may engage for their own account,  or for the account of others,
in other  business  ventures,  related to medical  services  or  otherwise,  and
neither the Partnership nor the holders of any of the Units shall be entitled to
any interest therein. See the Partnership  Agreement attached hereto as Appendix
A.  The  General  Partner,   its  Affiliates   (including   affiliated   limited
partnerships)  and employees of the General  Partner  engage in medical  service
activities for their own accounts.  See "Prior  Activities." The General Partner
may serve as a general partner of other limited partnerships that are similar to
the  Partnership and does not intend to devote its entire  financial,  personnel
and other resources to the Partnership.  Except as provided by law, none of such
entities or their  respective  Affiliates  is  prohibited  from  engaging in any
business or arrangement  that may be in competition  with the  Partnership.  The
General Partner and its Affiliates are, however, obligated to act in a fiduciary
manner with respect to the management of the  Partnership  and any other medical
venture  in which  they  have  management  responsibilities.  Affiliates  of the
General Partner  currently  provide  lithotripsy  services in Texas, New Mexico,
Colorado,  Utah,  Nevada and  California.  The General Partner is planning other
limited partnership offerings that would operate lithotripsy businesses in other
states. See "Competition."

     The Sales Agent is MedTech Investments,  Inc., which is an Affiliate of the
General  Partner.  Because of the Sales  Agent's  affiliation  with the  General
Partner,  there  are  conflicts  in the  Sales  Agent's  performance  of its due
diligence  responsibilities  under the  federal  securities  laws.  See "Plan of
Distribution."

                  The interests of the Limited Partners have not been separately
represented  by  independent  counsel  in the  formulation  of the  transactions
described  herein.  The attorneys and  accountants  who have  performed and will
perform services for the Partnership  were retained by the General Partner,  and
have in the past  performed  and are  expected in the future to perform  similar
services for the General Partner, and Prime.

                 FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER

                  The General  Partner is  accountable  to the  Partnership as a
fiduciary and  consequently  must  exercise  good faith in handling  Partnership
affairs.  This is a rapidly  developing and changing area of the law and Limited
Partners who have questions  concerning the duties of the General Partner should
consult with their counsel. Under the Partnership Agreement, the General Partner
and its  Affiliates  have no liability to the  Partnership or to any Partner for
any loss suffered by the  Partnership  that arises out of any action or inaction
of  the  General  Partner  or  its  Affiliates  if the  General  Partner  or its
Affiliates,  in good  faith,  determined  that such course of conduct was in the
best interest of the  Partnership  and such course of conduct did not constitute
gross negligence or willful misconduct of the General Partner or its Affiliates.
Accordingly,  Limited  Partners  have a more  limited  right of action than they
otherwise would absent the  limitations set forth in the Partnership  Agreement.
The General  Partner and its Affiliates  will be indemnified by the  Partnership
against  any  losses,  judgments,  liabilities,  expenses  and  amounts  paid in
settlement of any claims  sustained by them in connection with the  Partnership,
provided  that the same  were not the  result  of gross  negligence  or  willful
misconduct  on the part of the  General  Partner or its  Affiliates.  Insofar as
indemnification  for  liabilities  under the  Securities Act may be permitted to
persons controlling the Partnership  pursuant to the foregoing  provisions,  the
Partnership   has  been   informed   that  in  the   opinion  of  the  SEC  such
indemnification  is against public policy as expressed in the Securities Act and
therefore is unenforceable.

                                   COMPETITION

                  Many   fixed-site   and   mobile   extracorporeal   shock-wave
lithotripsy services are currently operating in and around the Service Area. The
following  discussion  identifies the existing  services in and near the Service
Area, to the best knowledge of the General Partner.

Affiliated Competition

                  The Partnership faces competition from lithotripters placed in
service in the Service Area, and, to a lesser extent, from lithotripters located
near the Service Area and in adjacent states,  including  lithotripters owned by
the General Partner and other entities affiliated with the General Partner.  The
General Partner's  Affiliates provide lithotripsy services in Texas, New Mexico,
Colorado, Utah, Nevada and California.

Other Competition

                  The General Partner is aware of several competing  lithotripsy
services in Tucson,  Arizona.  A  lithotripter  operates at  University  Medical
Center.  In addition,  a Storz  Modulith(R)  SLX-T  provides  services at Tucson
Medical  Center,  Northwest  Hospital  and  possibly  additional  hospitals  and
ambulatory surgery centers. In Phoenix and northern Arizona, the General Partner
believes  that two  physician-owned  lithotripsy  services  operate  at up to 20
hospitals  in  competition  with the  Partnership.  In New  Mexico,  the General
Partner is aware of at least one physician-owned lithotripsy service that serves
approximately  10 facilities  throughout New Mexico.  In addition,  a fixed site
lithotripter  is located at the  University of New Mexico School of Medicine and
the Veterans Administration Hospital.  There may be other hospitals,  ambulatory
surgery centers or other health care facilities where extracorporeal  shock-wave
lithotripsy services are provided in Arizona and New Mexico.

                  Although the General Partner  anticipates that the Partnership
will continue to operate primarily in the Service Area, the actual itinerary for
the  Lithotripsy  Systems is expected to be influenced by the number of patients
in  particular  areas and  arrangements  with various  hospitals and health care
centers including the Contract Hospitals.  See "Business  Activities - Operation
of the Lithotripsy System."

                  Other  hospitals  in and near  the  Service  Area may  operate
lithotripters which are not extracorporeal  shock-wave  lithotripters but rather
use lasers or are electrohydraulic  lithotripters.  The General Partner believes
these machines have a competitive disadvantage because such machines are capable
of  treating  stones  only in the  ureter.  The  General  Partner  believes  the
Lithotripsy  Systems can be used on stones in  locations  other than the ureter.
See "Business Activities - Treatment Methods for Kidney Stone Disease."

                  The  health  care  market  in  the  Service  Area  is  heavily
influenced by managed care companies such as health  maintenance  organizations.
Managed care  companies  generally  contract  either  directly with hospitals or
specified  providers for lithotripsy  services for beneficiaries of their plans.
It is not uncommon for managed care companies to have contracts already in place
with hospitals or specified  providers,  and the Partnership will not be able to
provide  services to beneficiaries of those plans unless it convinces either the
managed care companies or the hospitals to switch to the Partnership's services.

                  No  assurances  can be given  that new  competing  lithotripsy
clinics  will not open in the future or that  innovations  in  lithotripters  or
other  treatments  of  kidney  stone  disease  will not  make the  Partnership's
Lithotripsy Systems competitively  obsolete. See "Risk Factors - Operating Risks
-  Technological  Obsolescence."  In  addition,  the  General  Partner  and  its
Affiliates are not restricted from engaging in lithotripsy ventures unassociated
with the Partnership which may compete with the Partnership.

                  No  manufacturer  of the  Lithotripsy  Systems  is  under  any
obligation to the General Partner or the Partnership to refrain from selling its
lithotripters  to urologists,  hospitals or other persons for use in the Service
Area or elsewhere.  In addition, the availability of lower-priced  lithotripters
in the United States could dramatically  increase the number of lithotripters in
the United States,  increase  competition for lithotripsy  procedures and create
downward  pressure on the prices the  Partnership  can charge for its  services.
Many potential  competitors of the Partnership,  including hospitals and medical
centers, have financial resources,  staffs and facilities  substantially greater
than those of the Partnership and of the General Partner.

                                   REGULATION

Federal Regulation

                  The Partnership,  the General Partner and the Limited Partners
are subject to  regulation  at the federal,  state and local  level.  An adverse
review or determination by certain regulatory  organizations (federal,  state or
private)  may result in the  Partnership,  the  General  Partner and the Limited
Partners  being  subject  to  imprisonment,  loss  of  reimbursement,  fines  or
exclusion from  participation  in Medicare or Medicaid.  Adverse  reviews of the
Partnership's  operations at any of the various  regulatory levels may adversely
affect the operations and profitability of the Partnership.

                  Reimbursement.  The Partnership  charges Contract  Hospitals a
fee for use of the Lithotripsy  Systems.  The Partnership does not directly bill
or  collect  from any  patients  for  lithotripsy  services  provided  using its
Lithotripsy Systems,  though it retains the discretion to do so and may do so in
the future.  The amount of the fee charged to  Contract  Hospitals  is likely to
depend on the amount that  governmental  and  commercial  third party payors are
willing  to  reimburse  hospitals  for  lithotripsy   procedures.   The  primary
governmental third party payor is Medicare.  Medicare reimbursement policies are
statutorily created and are regulated by the federal government.

                  The General  Partner  expects that the level of  reimbursement
under Medicare for lithotripsy  procedures may continue to decline.  As required
by the Balanced  Budget Act of 1997,  the Health Care  Financing  Administration
("HCFA"),  the  federal  agency  that  administers  the  Medicare  program,  has
established a prospective payment system for outpatient  procedures.  One of the
goals of the  prospective  payment  system is to lower medical costs paid by the
Medicare  program.  HCFA has issued  regulations  which reduce the reimbursement
rate currently paid for lithotripsy procedures performed on Medicare patients at
hospitals  to a base rate of  $2,265.  The base  rate  includes  anesthesia  and
sedation,  equipment  and supplies  necessary  for the  procedure,  but does not
include the treating  physician's  professional fee. The base rate is subject to
adjustment for various hospital-specific  factors. The $2,265 reimbursement rate
is scheduled to be  implemented  on July 1, 2000.  In some cases,  reimbursement
rates payable to some Affiliates of the General  Partner from  commercial  third
party payors are less than the new HCFA rate.

                  The Partnership retains the discretion to make the Lithotripsy
Systems  available at ambulatory  surgery  centers  ("ASCs").  Medicare does not
currently reimburse for lithotripsy  procedures provided at ASCs. However,  HCFA
issued proposed rules in 1998 which would authorize  Medicare  reimbursement for
lithotripsy  procedures  provided at ASCs. While the proposed rules had a target
effective  date of  October  1,  1998,  the  effective  date has been  postponed
indefinitely for reasons unrelated to lithotripsy  coverage.  The proposed rules
assign a Medicare  reimbursement rate of $2,107 if the lithotripsy  procedure is
performed  at an ASC.  Whether  these  proposed  rules will become  effective to
authorize Medicare reimbursement at ASCs and, if they do become effective,  what
the reimbursement rate will be, is unknown to the General Partner.

                  The Medicare program has  historically  influenced the setting
of reimbursement standards by commercial insurers.  Therefore,  reduced rates of
Medicare  reimbursement for lithotripsy  services may result in reduced payments
by  commercial  insurers for the same  services.  As was  discussed  previously,
competitive  pressure from health  maintenance  organizations  and other managed
care  companies  has  in  some  circumstances  already  resulted  in  decreasing
reimbursement  rates from  commercial  insurers.  See "Risk  Factors - Operating
Risks - Impact of Insurance Reimbursement." No assurances can be given that HCFA
will not seek to reduce  its  proposed  reimbursement  rates  even more to avoid
paying more than commercial insurers.  As a result,  hospitals may seek to lower
the fees paid to the  Partnership for the use of the  Lithotripsy  Systems.  The
General Partner anticipates that reimbursement for lithotripsy  procedures,  and
therefore overall Partnership revenues, may continue to decline.

                  The  physician  service  (Part B) Medicare  reimbursement  for
renal  lithotripsy  is determined  using  Resource  Based-Relative  Value Scales
("RB-RVS").  The system includes  limitations on future physician  reimbursement
increases tied to annual expenditure  targets legislated annually by Congress or
set based upon  recommendation of the Secretary of the U.S. Department of Health
and Human  Services.  Medicare  has in the  past,  with  regard to other  Part B
services such as cataract implant  surgery,  imposed  significant  reductions in
reimbursement  based upon  changes in  technology.  HCFA has  produced a lengthy
report  whose  conclusion  is  that   professional   fees  for  lithotripsy  are
overvalued. Thus, potential future decreases in reimbursement must be considered
probable.

                  Medicaid  programs  are jointly  sponsored  by the federal and
state  governments to reimburse  service providers for medical services provided
to Medicaid recipients,  who are primarily the indigent. The Arizona Health Care
Cost Containment System ("AHCCCS") (the name of the Medicaid program in Arizona)
and  the  Medicaid   programs  in  Nevada  and  New  Mexico  currently   provide
reimbursement for lithotripsy services. The federal Personal  Responsibility and
Work Opportunity Reconciliation Act of 1996 requires state health plans, such as
AHCCCS  and the  Nevada  and New Mexico  Medicaid  programs,  to limit  Medicaid
coverage for certain otherwise  eligible  persons.  The General Partner does not
believe this  legislation  will have a significant  impact on the  Partnership's
revenues.  In addition,  federal  regulations permit state health plans to limit
the provision of services based upon such criteria as medical necessity or other
criteria  identified in utilization or medical  review  procedures.  The General
Partner does not know whether  AHCCCS or the Medicaid  programs in Nevada or New
Mexico have taken or will take such steps.

                  Self-Referral  Restrictions.  Health care entities  which seek
reimbursement  for  services  covered by  Medicare  or  Medicaid  are subject to
federal regulation  restricting  referrals by certain physicians or their family
members.  Congress has passed legislation prohibiting physician self-referral of
patients  for  "designated   health  services",   which  include  inpatient  and
outpatient  hospital  services (42 U.S.C. ss. 1395nn) ("Stark II").  Lithotripsy
services were not specifically identified as a designated health service by this
legislation,  but the  prohibition  includes any service which is provided to an
individual  who is registered as an inpatient or outpatient of a hospital  under
proposed  regulations  discussed  below.  Lithotripsy  services  provided by the
Partnership  to Medicare  and Medicaid  patients  are billed by the  contracting
hospital  in its name and under  its  Medicare  and  Medicaid  program  provider
numbers.  Accordingly,  these  lithotripsy  services  would likely be considered
inpatient or outpatient services under Stark II.

                  Following  the passage of the Stark II  legislation  effective
January 1, 1995, the General Partner determined that the statute would not apply
to the type of lithotripsy services to be provided by the Partnership.  Stark II
applies only to ownership  interests  directly or  indirectly in the entity that
"furnishes" the designated health care service. The  physician-investors and the
Partnership will not have an ownership  interest in any Contract Hospitals which
offer the  lithotripsy  services to the patients on an  inpatient or  outpatient
basis.  See 42 U.S.C.  ss.  1395nn(a)(1)(A).  Thus,  by referring a patient to a
hospital  offering the  service,  the  physician-investors  will not be making a
referral to an entity in which they maintain an ownership  interest for purposes
of the application of Stark II.

                  This  interpretation   adopted  by  the  General  Partner  was
consistent  with the informal view of the General  Counsel's  Office of the U.S.
Department   of  Health  and  Human   Services.   Based  upon  this   reasonable
interpretation of Stark II, by referring a patient to a hospital  furnishing the
outpatient  lithotripsy  services "under  arrangements" with the Partnership,  a
physician investor in the Partnership is not making a referral to an entity (the
hospital) in which he or she has an ownership interest.

                  In 1998, HCFA published proposed regulations  interpreting the
Stark II statute (the "Proposed  Stark II  Regulations").  The Proposed Stark II
Regulations  and  HCFA's  accompanying  commentary  would  apply  the  physician
referral  prohibitions of Stark II to the Partnership's  contracts for provision
of the Lithotripsy  System.  Under the Proposed Stark II Regulations,  physician
Limited  Partner  referrals  of  Medicare  and  Medicaid  patients  to  Contract
Hospitals  would be prohibited  because the Partnership is regarded as an entity
that "furnishes" inpatient and outpatient hospital services. The General Partner
cannot  predict when final  regulations  will be issued or the  substance of the
final  regulations,  but the  interpretive  provisions of the Proposed  Stark II
Regulations may be viewed as HCFA's interim position until final regulations are
issued.  If the Proposed Stark II  Regulations  are adopted as final (or, in the
meantime,   if  a  reviewing   court  adopted  their  reasoning  as  the  proper
interpretations  of the Stark II  statute),  then the  Partnership's  operations
would not be in  compliance  with  Stark II, as Limited  Partners  would have an
ownership interest in an entity to which they referred patients.

                  HCFA  acknowledges  in its commentary to the Proposed Stark II
Regulations  that  physician  overutilization  of  lithotripsy  is unlikely  and
specifically solicits comments on whether there should be a regulatory exception
for lithotripsy.  HCFA has received a substantial  volume of comments in support
of a regulatory exception for lithotripsy.  HCFA representatives have informally
acknowledged  in published  commentary  that some form of regulatory  relief for
lithotripsy is under consideration and may be forthcoming; however, no assurance
can be made that such will be the case.  The General  Partner  will  continue to
work  through the  American  Lithotripsy  Society to  encourage  the adoption of
legislation  supportive of urologists'  ability to lawfully  maintain  ownership
interests  in  ventures  that  provide  lithotripsy  services  to all  of  their
patients.

                  HCFA's  adoption of the current  Proposed Stark II Regulations
as final or a  reviewing  court's  interpretation  of the  Stark II  statute  in
reliance on the Proposed  Stark II  Regulations  and in a manner  adverse to the
Partnership operations would mean that the Partnership and its physician Limited
Partners  would likely be found in violation of Stark II. In such  circumstance,
it is possible the  Partnership  may be given the opportunity to restructure its
operations to bring them into compliance.  The Partnership  and/or the physician
Limited Partners may not be permitted the opportunity to restructure  operations
and thereby avoid an obligation  to refund any amounts  collected  from Medicare
and  Medicaid  patients  in  violation  of the  statute.  Further,  under  these
circumstances  the  Partnership and physician  Limited  Partners may be assessed
with  substantial  civil  monetary  penalties  and/or  exclusion  from providing
services reimbursed by Medicare and Medicaid.

                  Two bills are currently pending in Congress which would modify
the  reach of the  Stark II  self-referral  prohibition.  One  (H.R.  2650)  was
introduced  by  Representative  Stark,  the other (H.R.  2651) by House Ways and
Means health subcommittee chair Representative Bill Thomas. The Stark bill would
modify, and the Thomas bill would repeal,  the general  prohibition on physician
compensation  arrangements with entities to which they refer patients.  However,
neither  bill,  nor  any  other  bill  currently  pending  in  Congress,   would
substantively  modify the  regulation of referrals of physicians  with ownership
interests.  Thus,  neither bill would affect the  Partnership's  analysis of the
potential impact of Stark II on this Offering discussed above.

                  Fraud and Abuse. The provisions of the federal Social Security
Act addressing  illegal  remuneration  (the  "Anti-Kickback  Statute")  prohibit
providers and others from soliciting, receiving, offering or paying, directly or
indirectly,  any  remuneration  in return  for either  making a  referral  for a
Medicare,  Medicaid or TRICARE  covered  service or ordering,  arranging  for or
recommending any such covered service.  Violations of the Anti-Kickback  Statute
may be  punished by a fine of up to $25,000 or  imprisonment  for up to five (5)
years,  or both. In addition,  violations may be punished by  substantial  civil
penalties  and/or exclusion from the Medicare and Medicaid  programs.  Regarding
exclusion,  the Office of Inspector  General ("OIG") of the Department of Health
and Human  Services may exclude a provider  from  participation  in the Medicare
program for a 5-year  period upon a finding that the  Anti-Kickback  Statute has
been  violated.  After OIG  establishes a factual basis for excluding a provider
from the  program,  the  burden  of proof  shifts to the  provider  to prove the
Anti-Kickback Statute has not been violated.

                  The Limited  Partners are to receive cash  Distributions  from
the Partnership.  Since some of the Limited Partners are physicians or others in
a position to refer and perform lithotripsy services using Partnership equipment
and  personnel,   such  Distributions   could  come  under  scrutiny  under  the
Anti-Kickback Statute. The Third Circuit United States Court of Appeals has held
that the  Anti-Kickback  Statute is  violated  if one purpose (as opposed to the
primary or sole  purpose)  of a payment to a  provider  is to induce  referrals.
United States v. Greber, 760 F.2d 68 (1985). The Greber case was followed by the
United States Court of Appeals for the Ninth Circuit, United States v. Kats, 871
F.2d 105 (9th Cir.  1989),  and cited  favorably by the First  Circuit in United
States v. Bay State  Ambulance and Hospital  Rental  Service,  Inc., 874 F.2d 20
(1st Cir. 1989).

                  The OIG has indicated that it is giving increased  scrutiny to
health care joint ventures involving  physicians and other referral sources.  In
1989, it published a Special Fraud Alert that outlined  questionable features of
"suspect"  joint  ventures,  including  some features which may be common to the
Partnership.  While OIG Special  Fraud Alerts do not  constitute  law,  they are
informative  because they reflect the general  views of the OIG as a health care
fraud and abuse investigator and enforcer.

                  The  OIG  has  published  regulations  which  protect  certain
transactions  from scrutiny under the  Anti-Kickback  Statute (the "Safe Harbor"
regulations).  A Safe Harbor,  if complied with fully, will exempt such activity
from prosecution under the Anti-Kickback  Statute.  However, the preamble to the
Safe  Harbor  regulations  states  that the  failure  of a  particular  business
arrangement to comply with the regulations does not determine whether or not the
arrangement  violates the  Anti-Kickback  Statute because the regulations do not
themselves make any particular  conduct illegal.  This Offering and the business
of the Partnership do not comply with any Safe Harbor.

                  In the commentary introducing the Safe Harbor regulations, the
OIG recognized the beneficial effect that business investments in small entities
may have on the health  care  industry.  The OIG  promulgated  a Safe Harbor for
investment  interests,  including limited partnership  ownership  interests,  in
small  entities which are held by persons in a position to make referrals to the
entities so long as eight  criteria  are met.  This  Offering  does not meet all
eight  criteria;  however,  this  Offering  does  meet  some  of  the  criteria.
Specifically,  the terms on which Limited  Partnership  interests are offered to
physicians who treat their patients on the Lithotripsy System are not related to
the previous or expected volume of referrals or amount of business  generated by
the physicians;  there is no requirement that any physician make referrals or be
in a position to make referrals as a condition for remaining an investor;  there
is no cross-referral  arrangement involved with the business of the Partnership;
the Partnership  does not loan funds or guarantee loans for physicians who refer
patients for treatment on the  Lithotripsy  Systems;  and the  Distributions  to
physicians who are Limited  Partners are directly  proportional to the amount of
their capital  investment.  In order to qualify for Safe Harbor protection,  all
eight  criteria  must be met.  The General  Partner can give no  assurance  that
compliance  with some,  but not all, of the  criteria  of the Safe Harbor  would
prevent the OIG from finding a potential violation of the Anti-Kickback  Statute
by virtue of this Offering.

                  A Safe  Harbor  has  been  adopted  which  protects  equipment
leasing  arrangements.  It requires that the  aggregate  rental charge be set in
advance,  be consistent with fair market value in arms-length  transactions  and
not be determined in a manner that takes into account the volume or value of any
referrals  or business  otherwise  generated  between the  parties.  To the best
knowledge of the General  Partner,  the Hospital  Contracts  entered into by the
Partnership  do not require that the  aggregate  rental charge be set in advance
and contain  other terms which cause the Hospital  Contracts  not to comply with
the Safe  Harbor's  requirements.  When it  issued  this  Safe  Harbor,  the OIG
commented  on  per-use  charges  for  equipment  rentals.  It  stated  that such
arrangements  must be  examined  on a  case-by-case  basis and may be abusive in
certain  situations.  According to the OIG,  payments on a per-use  basis do not
necessarily  violate  the  Anti-Kickback  Statute,  but  such  payments  are not
provided Safe Harbor protection.  The General Partner cannot give any assurances
that the Partnership's Hospital Contracts which involve a per-use payment to the
Partnership  by  Contract   Hospitals   would  not  be  deemed  to  violate  the
Anti-Kickback Statute.

                  In  November  1999,  the OIG issued a Safe  Harbor  protecting
certain physician investment interests in ASCs. The commentary  accompanying the
new Safe Harbor  specifically  distinguished  physician  ownership  in ASCs from
physician  ownership  in other  facilities,  including  lithotripsy  facilities,
end-stage  renal disease  facilities,  comprehensive  outpatient  rehabilitation
facilities and others. The OIG concluded that ASCs benefit from favorable public
policy considerations relating to reducing Medicare costs (including through the
impending   prospective  payment  system  discussed  above);  other  facilities,
including lithotripsy facilities, do not share the same policy considerations or
reimbursement  structures.  Therefore,  the Safe Harbor  status given to certain
physician  investments in ASCs cannot be viewed as an indication  that physician
investments in other facilities,  including lithotripsy facilities, would not be
deemed to violate the Anti-Kickback Statute.

                  Although a separate Safe Harbor was not adopted, HCFA noted in
its  commentary  when the Safe  Harbor  regulations  were  issued  in 1991  that
additional  protection  may be merited for  situations  where a physician sees a
patient in his or her own  office,  makes a referral to an entity in which he or
she has an ownership interest and performs the service for which the referral is
made. In such cases, Medicare makes a payment to the facility for the service it
furnishes,  which may result in a profit  distribution  to the  physician.  HCFA
noted that, with respect to the physician's professional fee, such a referral is
simply a referral to oneself, and that in such situations, both the professional
service fee and the profit  distribution  from the associated  facility fee that
are  generated  from the referral may warrant  protection.  HCFA stated that its
primary  concern  regarding  the  above  referral  situation  was the  investing
physician's ability to profit from any diagnostic testing that is generated from
the services he or she performs.  The General Partner believes the potential for
overutilization posed by referrals for diagnostic services is not present to the
same degree with  therapeutic  services such as lithotripsy  where the necessity
for the  treatment  can be  objectively  determined;  i.e., a renal stone can be
definitely determined before treatment.

                  The  applicability of the  Anti-Kickback  Statute to physician
investments in health care  businesses to which they refer patients and which do
not qualify  for a Safe  Harbor has not been the focus of many court  decisions,
and therefore,  judicial guidance is limited.  In the only case in which the OIG
has  attempted  to  exercise  the civil  exclusion  remedy in the  context  of a
physician-owned  joint venture,  The Hanlester Network,  et al. v. Shalala,  the
Ninth Circuit for the United States Court of Appeals (the "Court") held that the
Anti-Kickback  Statute  is  violated  when a person or entity (a) knows that the
statute  prohibits  offering or paying  remuneration to induce referrals and (b)
engages in  prohibited  conduct  with the  specific  intent to violate  the law.
Although  the  Court  upheld a lower  court  ruling  that the joint  venture  in
question violated the Anti-Kickback  Statute vicariously through the knowing and
willful  actions of one of its agents,  who was acting outside the parameters of
the  joint  venture's  offering  documents,  the Court  concluded  there was not
sufficient  evidence  indicating  that a return on  investment  to physicians or
other  investors in the joint venture  could on its own  constitute an "offer or
payment" of  remuneration  to make  referrals.  The Court also stated that since
profit  distributions in Hanlester were made based on each investor's  ownership
share and not on the  volume of  referrals,  the fact that  large  referrals  by
investors would result in potentially high investment  returns did not, standing
alone, cause a violation of the Anti-Kickback Statute.

                  The Health  Insurance  Portability and  Accountability  Act of
1996 directed the OIG to respond to requests for advisory opinions regarding the
effect of the  Anti-Kickback  Statute on  proposed  business  transactions.  The
General  Partner has not  requested  the OIG to review this Offering and, to the
best knowledge of the General  Partner,  the OIG has not been asked by anyone to
review offerings of this type.

                  Federal  regulatory  authorities  could take the  position  in
future advisory opinions that business transactions similar to this Offering are
a  means  to  illegally  influence  the  referral  patterns  of the  prospective
physician  Limited  Partners.  Because there is no legal precedent  interpreting
circumstances  identical to these facts,  it is not possible to predict how this
issue would be resolved if litigated.

                  Whenever an offering of ownership  interests is made available
to  persons  with the  potential  to refer  patients  for  services,  there is a
possibility  that the OIG,  HCFA or other  government  agencies or officials may
question whether the ownership  interests are being provided in return for or to
induce referrals by the new owners.  Remuneration,  which  government  officials
have said can include the provision of an opportunity to invest in a facility to
which a person refers patients for services, may be challenged by the government
as constituting a violation of the Anti-Kickback  Statute.  Whether the offering
of ownership  interests to investors who may refer  patients to the  Partnership
might  constitute a violation of this law must be  determined in each case based
upon the  specific  facts  involved.  The various  mechanisms  in place to avoid
providing a financial benefit to prospective  Limited Partners for any referrals
of patients  (including the requirement  that all  distributions  of earnings to
Limited  Partners  be made in  proportion  to their  investment  interest),  the
Partnership's  utilization review and quality assurance programs,  the fact that
lithotripsy  is a  therapeutic  treatment  the need of which can be  objectively
determined,  and the existence in the General  Partner's  view of valid business
reasons  to engage in this  transaction,  form the basis in part of the  General
Partner's belief that this Offering is appropriate.

                  The  General  Partner  of  the  Partnership  intends  for  all
business activities and operations of the Partnership to conform in all respects
with all  applicable  anti-kickback  statutes  (federal  or state).  The General
Partner does not believe that the Partnership's  proposed operations violate the
Anti-Kickback  Statute.  No assurance can be given,  however,  that the proposed
activities of the Partnership  will not be reviewed and challenged by regulatory
authorities  empowered to do so, or that if  challenged,  the  Partnership  will
prevail.

                  If  the  activities  of the  Partnership  were  determined  to
violate these  provisions,  the Partnership,  the General Partner,  officers and
directors of the General  Partner,  and each Limited  Partner  could be subject,
individually,  to substantial monetary liability, felony prison sentences and/or
exclusion from  participation in Medicare,  Medicaid and TRICARE.  A prospective
Limited Partner with questions  concerning these matters should seek advice from
his or her own independent counsel.

                  False Claims  Statutes.  Federal laws governing  reimbursement
for medical services  generally  prohibit an individual or entity from knowingly
and  willfully  presenting  a claim  (or  causing a claim to be  presented)  for
payment  from  Medicare,  Medicaid or other third party  payors that is false or
fraudulent. The standard for "knowing and willful" includes conduct that amounts
to a reckless disregard for whether accurate  information is presented by claims
processors.  Penalties  under  these  statutes  include  substantial  civil  and
criminal fines, exclusion from the Medicare program and imprisonment. One of the
most  prominent  of these laws is the federal  False  Claims  Act,  which may be
enforced by the federal government  directly,  or by a qui tam private plaintiff
on the  government's  behalf.  Under the  federal  False  Claims  Act,  both the
government and the private  plaintiff,  if successful,  are permitted to recover
substantial  monetary  penalties  and  judgments,  as well as an amount equal to
three times actual damages.  In recent cases, some private plaintiffs have taken
the position that violations of the Anti-Kickback  Statute (discussed above) and
Stark II  (discussed  above)  should also be  prosecuted  as  violations  of the
federal False Claims Act. The Partnership cannot assure that the government,  or
a reviewing  court,  would not take the position that billing  errors,  employee
misconduct  or  violations of other  federal  statutes,  should they occur,  are
violations of the federal False Claims Act or similar statutes.

                  Some federal  courts have recently taken the position that qui
tam lawsuits by private plaintiffs are  unconstitutional.  Most notably, a panel
of judges on the Fifth Circuit Court of Appeals took this position in a decision
issued in November  1999.  That decision is being  reviewed by all the judges on
the Fifth Circuit.  The panel's  decision was a minority view;  most courts have
concluded  that qui tam lawsuits are  constitutional.  In another case, the U.S.
Supreme Court may review this issue.  Unless and until the Supreme Court decides
the issue, prospective Limited Partners should consider the ramifications of the
False Claims Act issues discussed in the preceding paragraph.

                  New Legislation. Two bills currently pending in Congress which
would  amend or  repeal  the  compensation  provisions  of the Stark II law were
discussed above in the disclosures  related to self-referral  restrictions.  The
General Partner is not aware of any other bill currently  before Congress which,
if  enacted  into  law,  would  have  an  adverse  effect  on the  Partnership's
operations  in a  fashion  similar  to the Stark II and the  Anti-Kickback  laws
discussed above.

                  ALS Fraud and Abuse Compliance Guidelines.  On March 24, 2000,
the American Lithotripsy Society ("ALS") ( a voluntary  membership  organization
made up of physicians,  health care management personnel,  treatment centers and
medical  suppliers)  published  Fraud  and  Abuste  Compliance   Guidelines  for
Physician  -  Owned  Lithotripsy  Ventures  (the  "ALS  Guidelines").   The  ALS
Guidelines  are aimed at  assisting  ALS  members in  recognizing  and  avoiding
certain  practices  which the ALS  believes are  unethical  or illegal.  The ALS
Guidelines acknowledge that they are neither authoritative, nor constitute legal
advice. Moreover, the ALS Guidelines stipulate that the laws upon which they are
based (all of which are  discussed  in this  "Regulation"  section)  are open to
alternative  interpretations.  Because of the various  reasons set forth in this
Memorandum,  the  Partnership  believes  the  Offering  and its  operations  are
appropriate  under  such  laws;  however,  no  assurance  can be given  that the
activities  of the  Partnership  would be viewed by  regulatory  authorities  as
complying with these laws or the ALS Guidelines.

                  FTC Investigation.  Issues relating to physician-owned  health
care facilities have been investigated by the Federal Trade Commission  ("FTC"),
which  investigated  two lithotripsy  limited  partnerships  affiliated with the
General  Partner,  to  determine  whether they posed an  unreasonable  threat to
competition in the health care field. The affiliated  limited  partnerships were
advised in 1996 that the FTC's  investigation was terminated  without any formal
action taken by the FTC or any  restrictions  being placed on the  activities of
the limited  partnerships.  However,  the General Partner cannot assure that the
FTC will  not  investigate  issues  arising  from  physician-owned  health  care
facilities in the future with respect to the General  Partner or any  Affiliate,
including the Partnership.

                  Ethical  Considerations.  The American  Medical  Association's
Code of Medical  Ethics  states  that  physicians  should not refer  patients to
facilities  in which  they have an  ownership  interest  unless  such  physician
directly  provides  care or services to such  patient at the  facility.  Because
physician investors will be providing lithotripsy services,  the General Partner
believes  that an  investment  by a physician  will not be in  violation  of the
American  Medical  Association's  Code of Medical Ethics.  In the event that the
American Medical Association changes its ethical code to preclude such referrals
by  physicians  and such  ethical  requirements  are  applied to  facilities  or
services  which,  at the  time of  adoption,  are  owned  in whole or in part by
referring physicians,  the Partnership and the interests of the Limited Partners
may be adversely affected.

State Regulation

                  Arizona.   Arizona's  certificate  of  need  ("CON")  law  was
repealed as of 1985. Therefore, no CON is necessary to acquire a lithotripter or
initiate  mobile  lithotripsy  services in Arizona.  Arizona  does  require that
health care  institutions  be licensed.  However,  to the best  knowledge of the
General Partner, the Partnership's  Lithotripsy Systems do not require licensure
as a health care institution because  lithotripsy  services would be provided to
patients under the authority of the host hospital's license.  The x-ray services
associated  with the  lithotripters  must be licensed  by the Arizona  Radiation
Regulatory Agency, and radiologic technologists must be certified in Arizona.

                  Under  Arizona  law,  it  is  unprofessional   conduct  for  a
physician to refer patients to facilities in which the physician has a financial
relationship without giving written notice of such financial relationship to the
patient at the time of  referral.  The Arizona  Board of Medical  Examiners  has
created a form that must be used for this purpose.  The Partnership will require
that its Limited Partners comply with this requirement.

                  New Mexico.  New Mexico's CON law expired in 1983.  Therefore,
no CON is necessary to acquire a lithotripter or initiate  lithotripsy  services
in New Mexico.  To the best knowledge of the General Partner,  no licensure will
be required for the  Lithotripsy  Systems.  The services are regulated under the
Contract  Hospitals'  licensure.  The  lithotripter  must be registered with the
radiation  licensing  and  registration  office of the New Mexico  Department of
Environment.  Radiologic  technologists  must be  certified  and licensed by the
state.

                  It is an unprofessional  practice for New Mexico physicians to
engage in "fee  splitting."  "Fee  splitting"  includes  paying or accepting any
unearned  consideration for referring patients  "irrespective of any membership,
proprietary interest or co-ownership in or with any person" to whom the patients
are referred.  N.M. Stat. ss.  61-6-15.  The General Partner has been informally
advised by the general counsel of the New Mexico Board of Medical Examiners that
a  physician-investor's  receipt  of profits in  proportion  to the  physician's
equity  interest in the Partnership  would not constitute "fee splitting"  under
the statute.  However, the general counsel's opinion is not binding on the Board
of Medical  Examiners.  The General  Partner  cannot make any assurance that the
prohibition on fee splitting  will not be  interpreted  (by the Board of Medical
Examiners or by a reviewing  court) in a fashion  adverse to the Partnership and
its  physician-investors.  The Board of Medical  Examiners' general counsel also
advised that  physician  Limited  Partners  should  provide their  patients with
written disclosure of their ownership interests.  Although written disclosure is
not  required  by any  statute  or  regulation,  the  Partnership  will  require
physician  Limited  Partners to provide written  disclosure so as to comply with
the general counsel's recommendation.

                  The  Partnership  will  continue  to seek to  comply  with all
applicable  statutory and regulatory  requirements.  Further  regulations may be
imposed in Arizona and New Mexico at any time in the future.  Predictions  as to
the form or content of such potential  regulations would be highly  speculative.
They  could  apply  to  the  operation  of  the  Lithotripsy  Systems  or to the
physicians who invest in the  Partnership.  Such restrictive  regulations  could
materially  adversely  affect the  ability  of the  Partnership  to conduct  its
business.

                  THE GENERAL  PARTNER AND THE PARTNERSHIP  BELIEVE  LITHOTRIPSY
SERVICES WILL CONTINUE TO BE SUBJECT TO INTENSE  GOVERNMENTAL  REGULATION AT THE
FEDERAL AND STATE  LEVELS AND,  THEREFORE,  CANNOT  PREDICT THE SCOPE AND EFFECT
THEREOF.

                  PROSPECTIVE  LIMITED  PARTNERS SHOULD CONSULT WITH THEIR LEGAL
COUNSEL  AS TO THE  IMPLICATIONS  OF  FEDERAL  AND STATE  LAWS AND  PROFESSIONAL
ETHICAL  CODES  DEALING  WITH  PHYSICIAN  OWNERSHIP  OF  MEDICAL  EQUIPMENT  AND
FACILITIES BEFORE PURCHASING UNITS.

                                PRIOR ACTIVITIES

                  Prime,  the sole  shareholder of the General  Partner,  is the
largest  and fastest  growing  provider  of  lithotripsy  services in the United
States, providing lithotripsy services at over 450 hospitals and surgery centers
in 31  states,  as  well  as  delivering  non-medical  services  related  to the
operation  of  the  lithotripters,  including  scheduling,  staffing,  training,
quality  assurance,  maintenance,  regulatory  compliance and  contracting  with
payors,  hospitals  and  surgery  centers,  while  medical  care is  rendered by
urologists  utilizing the  lithotripters.  Prime has an economic  interest in 59
mobile and six fixed site  lithotripters,  all but two of which are  operated by
Prime  or  the  General  Partner  and  its  Affiliates.  Prime  began  providing
lithotripsy  services  with an  acquisition  in 1992 and has grown rapidly since
that time through  acquisitions  and de novo  development.  In April 1996, Prime
acquired the General Partner. The General Partner operates over 30 lithotripters
serving approximately 200 locations in 19 states. The acquisition of the General
Partner  provided  Prime  with  complementary  geographic  coverage  as  well as
additional expertise in forming and managing lithotripsy  operations.  Prime and
the General Partner's  lithotripters  together  performed  approximately  38,000
lithotripsy  procedures in 1999.  Approximately  2,300 urologists utilized Prime
and the General Partner's lithotripters in 1999, representing  approximately 30%
of the estimated 7,700 active urologists in the United States.

                  Prime  manages the  operations of  approximately  63 of its 65
lithotripters.  All  of  its  lithotripters  are  operated  in  connection  with
hospitals or surgery  centers.  Prime operates its  lithotripters as the general
partner of a limited  partnership  or through a subsidiary,  as is the case with
the General  Partner  affiliated  partnerships.  Prime  provides a full range of
management and other non-medical support services to the lithotripsy operations,
while  medical  care is provided by  urologists  utilizing  the  facilities  and
certain medical support services are provided by the hospital or surgery center.
Urologists are investors in 50 of its 65 operations.

                  Prime's  lithotripters  range in age from one to twelve years.
Of its 65  lithotripters,  59 are mobile units  mounted in  tractor-trailers  or
self-contained  coaches serving locations in 31 states.  Prime also operates six
fixed site  lithotripters in four states. All of Prime's fixed lithotripsy units
are located and operated in conjunction with a hospital or surgery center.  Most
of these  locations are in major  metropolitan  markets where the population can
support  such  an  operation.  Fixed  site  lithotripters  generally  cannot  be
economically justified in other locations.

                  Prime and the General  Partner  believe that they maintain the
most  comprehensive  quality  outcomes  database and  information  system in the
lithotripsy  services industry.  Prime has detailed  information on over 160,000
procedures covering patient demographic  information and medical condition prior
to  treatment,  the clinical  and  technical  parameters  of the  procedure  and
resulting  outcomes.  Information  is collected  before,  during and up to three
months after the procedure  through internal data collection by doctors,  nurses
and technicians and through patient questionnaires.

                  For  numerous  reasons,  including  differences  in  financial
structure,  program size,  economic  conditions and distribution  policies,  the
success of the General Partner's  Affiliates in the lithotripsy field should not
be  considered  as  indicative  of  the  operating  results  obtainable  by  the
Partnership.

                      SUMMARY OF THE PARTNERSHIP AGREEMENT

                  The  Partnership  Agreement sets forth the powers and purposes
of the  Partnership  and the  respective  rights and  obligations of the General
Partner and the Limited  Partners.  The  following  is only a summary of certain
provisions of the Partnership  Agreement,  and does not purport to be a complete
statement of the various rights and  obligations  set forth therein.  A complete
copy of the Partnership Agreement is set forth as Appendix A to this Memorandum,
and Investors are urged to read the Partnership Agreement in its entirety and to
review it with their counsel and advisors.

Nature of Limited Partnership Interest

                  The Investors will acquire their  interests in the Partnership
in the form of  Units.  For each Unit  purchased,  a cash  payment  of $5,513 is
required.  The  entire  Unit  purchase  price is due in cash upon  subscription;
however, certain qualified Investors may finance a portion of the purchase price
through either individually  borrowed funds or Limited Partner Loans. See "Terms
of the  Offering - Limited  Partner  Loans." No  Limited  Partner  will have any
liability for the debts and  obligations of the Partnership by reason of being a
Limited Partner except to the extent of (i) his or her Capital  Contribution and
liability  under a Limited  Partner Loan, if any; (ii) his or her  proportionate
share of the undistributed  profits of the Partnership;  and (iii) the amount of
certain Distributions  received from the Partnership as provided by the Act. See
"Risk Factors - Other Investment Risks - Limited Partners'  Obligation to Return
Certain  Distributions."  See  also  Form of Legal  Opinion  of  Womble  Carlyle
Sandridge & Rice, PLLC attached hereto as Appendix C.

Profits, Losses and Distributions

                  The  following  is a  Summary  of  certain  provisions  of the
Partnership  Agreement  relating  to  the  allocation  and  distribution  of the
Profits,  Losses,  Partnership  Cash  Flow,  Partnership  Refinancing  Proceeds,
Partnership  Sales  Proceeds,  and cash  upon  dissolution  of the  Partnership.
Because an  understanding  of the defined  financial  terms is  essential  to an
evaluation of the information presented below, Investors should carefully review
the definitions of the terms appearing in the Glossary.

                  1.       Allocations of Profits and Losses.

                  (a) General.  Generally,  Profits and Losses, if any, for each
Year of the  Partnership  will be allocated  proportionately  among the Partners
based on their respective Percentage Interests in the Partnership; provided that
New Limited Partners will be allocated only Profits and Losses that accrue after
the date of their admission to the Partnership as Limited Partners.

                  (b)  Allocations.  Net  gains  and  net  losses  from  Capital
Transactions (a part of Profits and Losses),  if any, shall be allocated  first.
Each  Partner  will  receive his pro rata share of Profits and Losses based upon
the number of days such Partner was a member of the Partnership  during the Year
of the Partnership.  Notwithstanding the foregoing, the Partnership's "allocable
cash basis  items," as that term is used in  Section  706(d)(2)(B)  of the Code,
will be allocated as required by Section  706(d)(2) of the Code and the treasury
regulations promulgated thereunder.

                  (c)  Qualified   Income   Offset.   If  any  Limited   Partner
unexpectedly receives an adjustment,  allocation or distribution as described in
Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4) through (6) that causes such
Limited Partner to have a deficit Capital Account balance,  such Limited Partner
will be allocated items of income and gain in an amount and manner sufficient to
eliminate  such  deficit  balance as  quickly as  possible.  This  provision  is
intended to be a  "qualified  income  offset" as defined in  Regulation  Section
1.704-1(b)(2)(ii)(d).

                  2.       Distributions.

                  (a) Non-liquidation  Distributions.  Partnership Cash Flow for
each Year of the  Partnership,  to the  extent  available,  will be  distributed
within 60 days after the end of each Year of the Partnership,  or earlier in the
discretion of the General Partner,  proportionately  among the Partners based on
their  respective  Percentage  Interests  in  the  Partnership  at the  time  of
distribution.  Partnership Sales Proceeds and Partnership  Refinancing  Proceeds
will be  distributed  within 60 days of the Capital  Transaction  giving rise to
such  proceeds,   or  earlier  in  the   discretion  of  the  General   Partner,
proportionately   among  the  Partners  based  on  their  respective  Percentage
Interests in the  Partnership as of the date of the Capital  Transaction  giving
rise to such  proceeds.  The New Limited  Partners have no rights to receive any
distributions  in the future that are made out of the Initial Limited  Partners'
and General Partner's accrued but undistributed  Partnership Cash Flow as of the
date the New  Limited  Partners  are  admitted to the  Partnership.  New Limited
Partners will be entitled only to  Partnership  Cash Flow that accrues after the
date of their admission to the Partnership as Limited Partners

                  (b) Distribution  Upon  Dissolution.  Upon the dissolution and
termination  of the  Partnership,  the General  Partner or, if there is none,  a
representative  of the  Limited  Partners,  will  liquidate  the  assets  of the
Partnership. The proceeds of such liquidation will be applied and distributed in
the  following  order of  priority:  (a) first,  to the payment of the debts and
liabilities of the Partnership,  and the expenses of liquidation; (b) second, to
the creation of any reserves which the General Partner or the  representative of
the  Limited  Partners  may deem  reasonably  necessary  for the  payment of any
contingent or unforeseen liabilities or obligations of the Partnership or of the
General  Partner arising out of or in connection with the business and operation
of the Partnership;  and (c) third, the balance,  if any, will be distributed to
the Partners in accordance with the Partners' positive capital account balances.
Any General Partner with a negative  capital account  following the distribution
of liquidation  proceeds or the  liquidation of its interest must  contribute to
the  Partnership an amount equal to such negative  capital  account on or before
the end of the  Partnership's  taxable  year (or, if later,  within  ninety days
after  the  date of  liquidation).  Any  capital  so  contributed  shall  be (i)
distributed to those Partners with positive  capital accounts until such capital
accounts  are  reduced  to  zero;   and/or  (ii)  used  to  discharge   recourse
liabilities.

Management of the Partnership

                  The General  Partner has the sole right to manage the business
of the Partnership and at all times is required to exercise its responsibilities
in a  fiduciary  capacity.  Except  as  otherwise  provided  in the  Partnership
Agreement,  the consent of the Limited  Partners is not required for any sale or
refinancing  of the  Lithotripsy  Systems or the purchase of other new assets by
the Partnership.  The General Partner will oversee the day-to-day affairs of the
Partnership  pursuant to the Management  Agreement.  See "Business  Activities -
Management."

                  Under the  Partnership  Agreement,  if the General  Partner is
adjudged  by a court of  competent  jurisdiction  to be  liable  to the  Limited
Partners or the Partnership for acts of gross  negligence or willful  misconduct
in the performance of its duties under the terms of the  Partnership  Agreement,
the General Partner may be removed and another  substituted  with the consent of
all of the Limited  Partners.  The General Partner may transfer all or a portion
of its  Partnership  Interest  only  if,  in the  opinion  of the  Partnership's
accountant,  the new general  partner has  sufficient  net worth and meets other
requirements  to assure that the  Partnership  will  continue to be treated as a
partnership for Federal tax purposes.  Both the admission of any new shareholder
and the  withdrawal  of any  shareholder  from the  General  Partner may be done
without the approval of the Limited Partners.

Powers of the General Partner

                  The General Partner may, in its sole discretion, borrow money,
acquire, encumber, hold title to, pledge, sell, release or otherwise dispose of,
all or any part of the  Partnership's  assets,  when and upon  such  terms as it
determines to be in the best interest of the Partnership, employ such persons as
it deems necessary for the operation of the  Partnership and deposit,  withdraw,
invest, pay, retain (including the establishment of reserves) and distribute the
Partnership's funds. The General Partner, however, is expressly prohibited from,
among other things: (i) possessing Partnership assets or assigning the rights of
the Partnership in Partnership assets,  including the Lithotripsy  Systems,  for
other than  Partnership  purposes;  (ii) admitting  Limited  Partners  except as
provided in the Partnership  Agreement;  (iii) performing any act (other than an
act  required  by the  Partnership  Agreement  or any act  taken  in good  faith
reliance upon legal opinion) which would, at the time such act occurred, subject
any Limited Partner to liability as a general partner in any  jurisdiction;  and
(iv) performing any act in contravention  of the Partnership  Agreement or which
would make it possible to carry on the ordinary business of the Partnership.

Rights and Liabilities of the Limited Partners

                  The Limited  Partners do not have any right to  participate in
the management of the business of the Partnership and will not transact business
for the  Partnership.  Limited  Partners  are not  required  to make any capital
contributions  to the  Partnership  except amounts agreed by them to be paid, or
pay or be  personally  liable for, any expense,  liability or  obligation of the
Partnership,  except  to the  extent  (i) his or her  Capital  Contribution  and
liability  under a Limited  Partner Loan, if any; (ii) his or her  proportionate
share of the undistributed  profits of the Partnership;  and (iii) the amount of
certain Distributions  received from the Partnership as provided by the Act. See
"Risk Factors - Other Investment Risks - Limited Partners  Obligations to Return
Certain Distributions."

                  The Limited Partners may not participate in or own an interest
in any competing  lithotripsy  venture,  except with the approval of the General
Partner.  The General Partner may elect to treat participation or ownership by a
Limited Partner in a competing venture as an event of default,  and such Limited
Partner may be required to sell his Partnership Interest. See "Optional Purchase
of Limited Partner Interests" below.

Restrictions on Transfer of Partnership Interests

                  After  acquisition  of  Units  by  Investors,  no  Partnership
Interest nor any Units may be transferred  without the prior written  consent of
the General Partner,  which approval may be withheld only if the General Partner
reasonably  determines  that the  transfer is not in the best  interests  of the
Partnership,  and subject to the  satisfaction  of certain other  conditions set
forth  in  the  Partnership   Agreement.   The  Partnership  Agreement  contains
additional  limitations on transfer,  including provisions  prohibiting transfer
that would cause the  termination of the  Partnership,  would violate federal or
state  securities laws, would prevent the Partnership from being entitled to use
any method of depreciation  which the Partnership might otherwise be entitled to
use, or would  adversely  affect the status of the  Partnership as a partnership
for  Federal  income  tax  purposes.  In  addition,  the  Partnership  Agreement
prohibits  the  holding or transfer  of a  Partnership  interest by or to a "tax
exempt entity" (as defined in Code Section 168(h)) which would affect the method
or  manner  in which the  Partnership  may  depreciate  Partnership  assets.  No
transferee of the Units will automatically  become a Limited Partner.  Admission
of a transferee to the Partnership as a Limited Partner requires the fulfillment
of other obligations enumerated in the Partnership  Agreement,  including either
the approval of all the Limited  Partners  (except the assignor Limited Partner)
and the General Partner, or the approval of the assignor Limited Partner and the
General  Partner.  Any  transferee  of a  Partnership  Interest who has not been
admitted  to the  Partnership  as a Partner  shall not be entitled to any of the
rights,  powers or privileges of his transferor  except the right to receive and
be credited  or debited  with his  proportionate  share of  Partnership  income,
gains,  profits,  losses,  deductions,  credits or  distributions.  A transferor
Limited  Partner will not be released from his or her personal  liability  under
the Limited Partner Loans, unless otherwise specifically agreed by the Bank.

Dissolution and Liquidation

                  The  Partnership  will  dissolve and  terminate for any of the
following reasons:

     1. The sale,  exchange or  disposition of all or  substantially  all of the
property  of the  Partnership  without  making  provision  for  the  replacement
thereof;

                  2.       The expiration of its term on December 31, 2040;

     3. The bankruptcy or occurrence of certain other events with respect to the
General Partner;

     4. The election to dissolve the Partnership made by the General Partner and
a Majority in Interest of the Limited Partners; or

     5. Any other  reason  which  under the laws of the State of  Arizona  would
cause a dissolution.

                  The retirement,  resignation,  bankruptcy,  assignment for the
benefit of creditors,  dissolution,  death,  disability or legal incapacity of a
general partner will not, however, result in a termination of the Partnership if
the remaining general partner or general partners, if any, elect to continue the
business of the Partnership, or if no general partner remains, if within 90 days
of the  occurrence of one of such events,  all of the Limited  Partners elect in
writing to continue the Partnership  and, if necessary,  designate a new general
partner.

                  Upon dissolution,  the General Partner or, if there is none, a
representative of the Limited Partners,  will liquidate the Partnership's assets
and distribute the proceeds  thereof in accordance with the priorities set forth
in  the  Partnership  Agreement.  See  "Profits,   Losses  and  Distributions  -
Distributions - Distribution upon Dissolution"  above and "Optional  Purchase of
Limited Partner Interests" below.

Optional Purchase of Limited Partner Interests

                  As provided in the Partnership Agreement,  the General Partner
and the  Limited  Partners  have an option to  purchase  all the  interest  of a
Limited  Partner in the  Partnership  upon the  occurrence  with  respect to the
Limited Partner of (i) death, (ii) bankruptcy or insolvency, (iii) incompetency,
or (iv) direct or indirect ownership of an interest in a competing venture. Upon
the occurrence of one or more of the preceding events,  the withdrawing  Limited
Partner, or his or her personal representative,  will have a brief period within
which to sell his or her entire Partnership  Interest to a purchaser approved of
by the General Partner. If the withdrawing Limited Partner is unable to sell his
or her  Partnership  Interest as provided  above,  the General Partner will then
have the first option to purchase such Partnership Interest and thereafter,  the
remaining  Limited  Partners  will  have  the  option  to  purchase  any  of the
Partnership  Interest  not  purchased  by the  General  Partner.  If the General
Partner or Limited  Partners elect to exercise  their  respective  options,  the
option purchase price will be equal to the withdrawing  Limited  Partner's share
of the Partnership's  book value, if any, as reflected by such Limited Partner's
capital  account  in  the  Partnership   (unadjusted  for  any  appreciation  in
Partnership  assets  and as reduced by  depreciation  deductions  claimed by the
Partnership  for tax  purposes).  The  withdrawing  Limited  Partner will not be
released from his obligations under any Limited Partner Loan unless so agreed by
the Bank.  Furthermore,  sale of his or her  Limited  Partnership  Interest  may
constitute  an event of  default  under any  outstanding  Limited  Partner  Loan
incurred by the selling  Limited  Partner.  See "Terms of the Offering - Limited
Partner  Loans." There can be no assurance  that the option  purchase price will
represent  the  fair  market  value  of a  Limited  Partner's  interest  in  the
Partnership.   Because   Partnership   losses,   depreciation   deductions   and
Distributions  reduce capital accounts,  and because appreciation in Partnership
assets is not  reflected in capital  accounts,  it is the opinion of the General
Partner that the option purchase price will be nominal in amount.

Dilution Offerings

                  The General  Partner has the authority to  periodically  offer
and sell additional  limited  partnership  interests in the Partnership  through
Dilution Offerings to investors  (including  Existing Limited Partners) who meet
certain  suitability  standards  determined by the General  Partner  ("Qualified
Investors").  The primary  purpose of Dilution  Offerings  would be (i) to raise
additional capital for any legitimate  Partnership purpose including  purchasing
the New Lithotripsy  Systems;  and (ii) to assure the highest quality of patient
care by admitting  Qualified  Investors to the Partnership who will be dedicated
and  motivated as owners to follow the  Partnership's  treatment  protocol,  and
comply with its quality assurance and outcome analysis programs.

                  Any  sale  of  limited  partnership  interests  in a  Dilution
Offering will result in the proportionate dilution of the Partnership Percentage
Interests of the existing  Partners;  i.e., the interests of the General Partner
and of the Limited Partners in Partnership  allocations,  cash distributions and
voting  rights  will be  proportionately  reduced  as a result  of a  successful
Dilution Offering.  The Limited Partner interests offered in a Dilution Offering
will be sold in the manner and  according  to terms in the best  interest of the
Partnership,  as prescribed in the sole discretion of the General  Partner.  Any
additional limited partnership  interests offered in a Dilution Offering will be
sold for a price no lower than  their fair  market  value as  determined  by the
General Partner, in its sole discretion, at the time of this Offering.

Arbitration

                  The  Partnership  Agreement  provides  that  disputes  arising
thereunder shall be resolved by submission to arbitration in Phoenix, Arizona in
accordance with the then prevailing commercial arbitration rules of the American
Arbitration Association.

Power of Attorney

                  Each  Investor,  by  executing  the  Subscription   Agreement,
irrevocably  appoints Dr. Joseph Jenkins to act as  attorney-in-fact  to execute
the Partnership Agreement, any amendments thereto and any certificate of limited
partnership filed by the General Partner.  The Partnership  Agreement,  in turn,
contains  provisions  by which each  Limited  Partner  irrevocably  appoints Dr.
Joseph Jenkins, to act as his or her attorney-in-fact to make, execute, swear to
and file any documents  necessary to the conduct of the Partnership's  business,
such  as  deeds  of  conveyance  of  real or  personal  property  as well as any
amendment  to  the  Partnership  Agreement  or to  any  certificate  of  limited
partnership which accurately reflects actions properly taken by the Partners.

Reports to Limited Partners

                  Within 90 days after the end of each Year of the  Partnership,
the General  Partner  will send to each person who was a Limited  Partner at any
time  during  such year such tax  information,  including,  without  limitation,
Federal Tax Schedule K-1, as will be reasonably necessary for the preparation by
such  person  of his  federal  income  tax  return,  and  such  other  financial
information as may be required by the Act.

Records

                  Proper and complete  records and books of account will be kept
by the  General  Partner  in which  will be  entered  fully and  accurately  all
transactions  and other matters  relative to the  Partnership's  business as are
usually entered into records and books of account  maintained by persons engaged
in business of a like character.  The Partnership books and records will be kept
according to the method of  accounting  determined by the General  Partner.  The
Partnership's  fiscal year will be the calendar year. The books and records will
be  located  at the  office  of the  General  Partner,  and  will be open to the
reasonable  inspection  and  examination  of the Limited  Partners or their duly
authorized representatives during normal business hours.

                                  LEGAL MATTERS

                  Certain  legal  matters in  connection  with the Units offered
hereby will be passed upon for the  Partnership  by Womble  Carlyle  Sandridge &
Rice,  a  Professional  Limited  Liability  Company,  of  Winston-Salem,   North
Carolina.  See  "Conflicts of Interest."  On the Closing  Date,  Womble  Carlyle
Sandridge  & Rice,  a  Professional  Limited  Liability  Company  will render an
opinion,  the form of which is attached as Appendix C to this  Memorandum,  with
respect to certain  federal income tax  consequences  of an investment in Units.
See "Tax Aspects of the Offering."

                             ADDITIONAL INFORMATION

                  The Company will make available to you the  opportunity to ask
questions of its management and to obtain information to the extent it possesses
such  information or can acquire it without an  unreasonable  effort or expense,
which is necessary to verify the accuracy of the information contained herein or
which you or your  professional  advisors  desire in  evaluating  the merits and
risks of an investment in the Company.  Copies of certain Hospital Contracts and
insurance  reimbursement  agreements  may  not,  however,  be  available  due to
confidentiality restrictions contained therein.

                                    GLOSSARY

          Certain terms in this Memorandum shall have the following meanings:

     Act.  The Act means the  Arizona  Uniform  Limited  Partnership  Act, as in
effect on the date hereof.

                  Affiliate.  An  Affiliate  is  (i)  any  person,   partnership
corporation, association or other legal entity ("person") directly or indirectly
controlling, controlled by or under common control with another person; (ii) any
person owning or controlling 10% or more of the outstanding  voting interests of
such other person;  (iii) any officer,  director or partner of such person;  and
(iv) if such other  person is an officer,  director  or partner,  any entity for
which such person acts in such capacity.

     AK  Associates.  AK  Associates,  L.L.C.,  a  subsidiary  of  Prime.  It is
anticipated that the Partnership will purchase two Coaches and a mobile van from
AK Associates.

                  Bank.  First-Citizens Bank & Trust Company.
                  ----

     Capital Account.  The Partnership  capital account of a Partner as computed
pursuant to Article XII of the Partnership Agreement.

                  Capital  Contributions.  All capital  contributions  made by a
Partner or his predecessor in interest which shall include,  without limitation,
contributions made pursuant to Article VII of the Partnership Agreement.

     Capital  Transaction.  Any transaction which, were it to generate proceeds,
would produce Partnership Sales Proceeds or Partnership Refinancing Proceeds.

     Closing Date.  5:00 p.m.,  Eastern Time, on August 15, 2000 (or earlier) in
the  discretion of the General  Partner.  The Closing Date may be extended for a
period of up to 180 days in the discretion of the General Partner.

     Coach. A self-propelled mobile vehicle, which houses a lithotripter.

     Code.  The Internal  Revenue Code of 1986, or  corresponding  provisions of
subsequent, superseding revenue laws.

                  Contract  Hospitals.  The nine hospitals,  medical centers and
ambulatory  surgery  centers  to  which  the  Partnership  provides  lithotripsy
services pursuant to five separate Hospital Contracts.

     Counsel.  Counsel to the  Partnership,  Womble Carlyle  Sandridge & Rice, a
Professional  Limited Liability Company,  P.O. Drawer 84,  Winston-Salem,  North
Carolina 27102.

     Dilution  Offering.  The issuance,  offering and sale by the Partnership of
additional partnership interests in the future.

     Distributions.  Cash or other  property,  from any source,  distributed  to
Partners.

                  Escrow Agent.  First-Citizens Bank & Trust Company.


     Existing  Lithotripsy  System.  The two  Coaches  with  the  installed  and
operational Lithostars(TM)currently owned and operated by the Partnership.

                  FDA.  The United States Food and Drug Administration.
                  ---

                  Financial   Statement.   The  Purchaser  Financial  Statement,
included  in  the  Subscription  Packet  accompanying  this  Memorandum,  to  be
furnished  by the  Investors  for review by the General  Partner and the Bank in
connection with their decision to accept or reject a subscription.

     General  Partner.  The general partner of the  Partnership,  Lithotripters,
Inc.,  a North  Carolina  corporation,  and a wholly owned  subsidiary  of Prime
Medical Services, Inc.

     Hospital Contracts.  The five separate  lithotripsy services agreements the
Partnership has entered into with the Contract Hospitals.

     Initial Limited  Partners.  The Individuals who were Limited Partners prior
to the commencement of this Offering.

                  Investors.  Potential purchasers of Units.


     Limited Partner Loan. The loan to be made by the Bank to certain  qualified
Investors that wish to finance a portion of the Unit purchase price.

                  Limited  Partner Note.  The  promissory  note from an Investor
financing  a portion  of the Unit  purchase  price to the Bank in the  principal
amount of $3,013 per Unit,  the  proceeds of which will be paid  directly to the
Partnership.  The form of the Limited  Partner Note (including the Note Addendum
attached  thereto) is attached as Exhibit A to the Form of Bank Commitment which
is attached hereto as Appendix B.

                  Limited Partners.  The Limited Partners are those Investors in
the Units admitted to the  Partnership  and any person  admitted as a substitute
Limited Partner in accordance with the provisions of the Partnership Agreement.

     Lithostar(TM).    The   Lithostar(TM)model    extracorporeal   shock   wave
lithotripters manufactured by Siemens and currently owned by the Partnership.

     Lithotripsy   Systems.   The  Existing  Lithotripsy  Systems  and  the  New
Lithotripsy Systems, collectively.

                  Loan and Security  Agreement.  The agreement to be executed in
conjunction  with the Limited Partner Note by an Investor who finances a portion
of the Unit purchase price through a Limited  Partner Loan. The form of the Loan
and Security  Agreement is attached as Exhibit B to the Form of Bank  Commitment
which is attached hereto as Appendix B.

     Loan Documents. The Form of Bank Commitment,  the Limited Partner Note, the
Loan and Security Agreement, the Security Agreement and UCC-1, collectively.

                  Loss. The net loss (including capital losses and excluding Net
Gains from Capital  Transactions) of the Partnership for each year as determined
by the Partnership for federal income tax purposes.

     Memorandum.  This Confidential Private Placement Memorandum,  including all
Appendices hereto, and any amendment or supplement hereto.

                  Modulith(R)   SLX-T.   The   new   Storz   Modulith(R)   SLX-T
transportable   lithotripter.   The  Partnership  will  purchase  two  of  these
lithotripters with the proceeds of this Offering and Partnership debt financing.

                  Net Gains from Capital Transactions. The gains realized by the
Partnership  as a result of or upon any sale,  exchange,  condemnation  or other
disposition of the capital assets of the Partnership (which assets shall include
Code Section 1231 assets) or as a result of or upon the damage or destruction of
such capital assets.

     New Limited Partner.  Any Investor admitted to the Partnership as a Limited
Partner.

                  New  Lithotripsy  Systems.  The two  Storz  Modulith(R)  SLX-T
together with the Coach and the van which will be purchased with the proceeds of
the  Offering  and other  financing  and which will be owned and operated by the
Partnership.

                  Nonrecourse  Deductions.  A deduction as set forth in Treasury
Regulations Section  1.704-2(b)(1).  The amount of Nonrecourse  Deductions for a
given Year equals the excess, if any, of the net increase, if any, in the amount
of  Partnership  Minimum Gain during such Year over the aggregate  amount of any
Distributions  during such Year of proceeds of a Nonrecourse  Liability that are
allocable to an increase in Partnership  Minimum Gain,  determined  according to
the provisions of Treasury Regulations Section 1.704-2(h).

                  Nonrecourse  Liability.  Any Partnership liability (or portion
thereof)  for which no Partner  bears the  "economic  risk of loss,"  within the
meaning of Treasury Regulations Section 1.704-2(i).

                  Offering.  The offering of Units pursuant to this Memorandum.


                  Partner Minimum Gain. 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 Treasury Regulations Section 1.704-2(i).

                  Partner  Nonrecourse  Debt.  Any  nonrecourse  debt  (for  the
purposes of Treasury  Regulations Section 1.1001-2) of the Partnership for which
any Partner  bears the  "economic  risk of loss," within the meaning of Treasury
Regulations Section 1.752-2.

                  Partner  Nonrecourse  Deductions.  Deductions  as described in
Treasury  Regulations Section  1.704-2(i)(2).  The amount of Partner Nonrecourse
Deductions  with respect to a Partner  Nonrecourse  Debt for any Year equals the
excess,  if any, of the net increase,  if any, in the amount of Partner  Minimum
Gain  attributable  to such Partner  Nonrecourse  Debt during such Year over the
aggregate amount of any Distributions during that Year to the Partner that bears
the economic risk of loss for such Partner  Nonrecourse  Debt to the extent such
Distributions  are from the  proceeds of such Partner  Nonrecourse  Debt and are
allocable to an increase in Partner  Minimum Gain  attributable  to such Partner
Nonrecourse  Debt,  determined in accordance with Treasury  Regulations  Section
1.704-2(i).

     Partners. The General Partner and the Limited Partners,  collectively, when
no distinction is required by the context in which the term is used herein.

     Partnership. Fayetteville Lithotripters Limited Partnership - Arizona I, an
Arizona limited partnership.

                  Partnership Agreement.  The Partnership's Agreement of Limited
Partnership,  a copy of which is attached  hereto as Appendix A, as the same may
be amended from time to time.

                  Partnership  Cash Flow. For the applicable  period the excess,
if any,  of (A) the sum of (i) all  gross  receipts  from  any  source  for such
period,  other than from  Partnership  loans,  Capital  Transactions and Capital
Contributions;  and (ii) any funds released by the  Partnership  from previously
established  reserves,  over  (B) the sum of (i) all cash  expenses  paid by the
Partnership  for such  period;  (ii) the amount of all  payments of principal on
loans to the Partnership;  (iii) capital  expenditures of the  Partnership;  and
(iv) such  reasonable  reserves as the General  Partner shall deem  necessary or
prudent to set aside for future repairs,  improvements, or equipment replacement
or additions,  or to meet working capital requirements or foreseen or unforeseen
future liabilities and contingencies of the Partnership; provided, however, that
the  amounts  referred  to in (B) (i),  (ii) and (iii) above shall be taken into
account  only to the extent not funded by Capital  Contributions,  loans or paid
out of previously  established reserves.  Such term shall also include all other
funds deemed  available for  distribution  and designated as  "Partnership  Cash
Flow" by the General Partner.

     Partnership  Interest.  The  interest  of a Partner in the  Partnership  as
defined by the Act and the Partnership Agreement.

     Partnership  Minimum Gain. Gain as defined in Treasury  Regulations Section
1.704-2(d).

                  Partnership  Refinancing Proceeds.  The cash realized from the
refinancing of Partnership assets after retirement of any secured loans and less
(i) payment of all expenses relating to the transaction;  and (ii) establishment
of such  reasonable  reserves as the General  Partner  shall deem  necessary  or
prudent to set aside for future repairs,  improvements, or equipment replacement
or additions,  or to meet working capital requirements or foreseen or unforeseen
future liabilities or contingencies of the Partnership.

                  Partnership  Sales Proceeds.  The cash realized from the sale,
exchange,  casualty  or other  disposition  of all or a portion  of  Partnership
assets after the retirement of all secured loans and less (i) the payment of all
expenses related to the transaction;  and (ii)  establishment of such reasonable
reserves as the General Partner shall deem necessary or prudent to set aside for
future repairs,  improvements, or equipment replacement or additions, or to meet
working  capital  requirements or foreseen or unforeseen  future  liabilities or
contingencies of the Partnership.

                  Percentage  Interest.  The  interest  of each  Partner  in the
Partnership,  to be  determined in the case of each Investor by reference to the
percentage  opposite his or her name set forth in Schedule A to the  Partnership
Agreement.  Each Unit sold pursuant to this offering represents an initial 0.25%
economic  interest.  The Percentage  Interest will be set forth in Schedule A to
the Partnership Agreement or any other document or agreement, as a percentage or
a fraction or on any numerical basis deemed appropriate by the General Partner.

     Prime.  Prime Medical Services,  Inc. a publicly held Delaware  corporation
and parent of the General Partner, AK Associates and the Sales Agent.

     Prime Rate. The rate of interest  periodically  established by the Bank and
identified as such in  literature  published  and  circulated  within the Bank's
offices.

                  Pro  Rata  Basis.   In   connection   with  an  allocation  or
distribution,  an allocation  or  distribution  in proportion to the  respective
Percentage Interest of the class of Partners to which reference is made.

     Profit.  The net income of the  Partnership  for each year as determined by
the Partnership for federal income tax purposes.

                  Qualified  Income  Offset Item. An  adjustment,  allocation or
distribution described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5)  or  1.704-1(b)(2)(ii)(d)(6)  unexpectedly received by a
Partner.

     Sales Agent. MedTech Investments, Inc., a registered broker-dealer,  member
of the National  Association  of  Securities  Dealers,  Inc. and an Affiliate of
certain members of the General Partner's management personnel.

                  SEC.  The United States Securities and Exchange Commission.
                  ---

                  Securities Act.  The Securities Act of 1933, as amended.
                  --------------

                  Security   Agreement.   The   agreement   to  be  executed  in
conjunction  with the Limited  Partner  Note by an  Investor  who  finances  the
purchase  price  of his  Units as  provided  herein.  The  form of the  Security
Agreement  is  attached  as  Exhibit C to the Form of Bank  Commitment  which is
attached hereto as Appendix B.

                  Service.  The Internal Revenue Service.
                  -------

                  Service Area.  Arizona and parts of New Mexico and Nevada.
                  ------------

                  Siemens.  Siemens Medical Systems, Inc. and its Affiliates.
                  -------

     Storz. Karl Storz Lithotripsy-America, Inc. and its Affiliates.

                  Subscription Agreement.  The Subscription Agreement,  included
in the Subscription Packet  accompanying this Memorandum,  to be executed by the
Limited Partners in connection with their purchase of Units.

     Subscription  Packet. The packet of subscription  materials to be completed
by Investors in connection with their subscription for Units.

                  UCC-1. The Uniform  Commercial Code Financing  Statement,  two
copies of which are attached to the  Subscription  Packet and are to be executed
in  conjunction  with the Limited  Partner  Note by an Investor  who  finances a
portion of the Unit  purchase  price through a Limited  Partner Loan.  The UCC-1
will be used by the Bank to perfect its  security  interest  in such  Investor's
share of Distributions.

     Units.  The 80 equal units of limited  partner  interest in the Partnership
offered pursuant to this Memorandum for a price per Unit of $5,513 in cash.

     Year of the Partnership.  An annual accounting period ending on December 31
of each year during the term of the Partnership.