Name of Prospective Investor                                   Memorandum Number

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                  TENNESSEE LITHOTRIPTERS LIMITED PARTNERSHIP I

            A Limited Partnership Formed Under the Laws of Tennessee

                    CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM

                           Sale by Lithotripters, Inc.
                                       of

                    29 Units of Limited Partnership Interest
                           at $4,502 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




                 The Date of this Memorandum is January 14, 1999

                  TENNESSEE LITHOTRIPTERS LIMITED PARTNERSHIP I

                           Sale by Lithotripters, Inc.
                                       of
                    29 Units of Limited Partnership Interest
                           at $4,502 in Cash per Unit

                  Lithotripters,  Inc.  ("Litho" or the  "General  Partner"),  a
North Carolina corporation,  and the general partner of Tennessee  Lithotripters
Limited  Partnership I, a Tennessee  limited  partnership  (the  "Partnership"),
hereby offers for sale and  assignment on the terms set forth herein,  a maximum
of 29 units (the  "Units") of limited  partnership  interest in the  Partnership
issued to and held by Litho.  Each Unit  represents a 0.5% economic  interest in
the  Partnership,  and the Units are offered for assignment at a price of $4,502
per Unit.  See "Terms of the  Offering."  The  Partnership  owns and  operates a
Lithostar(TM) second generation  extracorporeal  shock-wave lithotripter for the
lithotripsy of kidney stones. The Lithostar(TM) is installed in a self-propelled
Coach (collectively,  the Coach with the installed  Lithostar(TM) is referred to
herein as the "Mobile  Lithotripsy  System") enabling the Partnership to provide
lithotripsy services at various locations in western Tennessee and, beginning in
February 2000, in South Haven, Mississippi (the "Service Area").

                  The  cash  purchase  price  is due at  subscription;  however,
prospective  Investors  that  meet  certain  requirements  may be able to 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 February 29, 2000 (or earlier upon the sale of all 29 Units as
provided herein), unless extended at the discretion of Litho for a period not to
exceed 180 days.

                  Litho owns the Units,  therefore  Litho (not the  Partnership)
will receive any proceeds from the sale of Units.

                          ------------------------------

     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 there is substantial current and
anticipated competition in the Service Area and that the health care industry is
undergoing  significant  government  regulatory reforms.  See "Risk Factors" and
"Terms of the Offering - Suitability Standards."

                          ------------------------------


                                   See  Glossary  for  capitalized   terms  used
herein and not otherwise defined.

                                TABLE OF CONTENTS

                                   APPENDICES

Appendix A        AGREEMENT OF LIMITED PARTNERSHIP OF TENNESSEE LITHOTRIPTERS
                         LIMITED PARTNERSHIP I

Appendix B        FORM OF LOAN COMMITMENT (WITH EXHIBITS)

Appendix C        FORM OF OPINION OF WOMBLE CARLYLE SANDRIDGE & RICE,
                        A PROFESSIONAL LIMITED LIABILITY COMPANY

Appendix D        NOTES TO FINANCIAL STATEMENTS


                  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.

                  General Risks of Operations.  Although Litho and its personnel
have significant  experience in managing  lithotripsy  enterprises,  whether the
Partnership  can  continue  to  effectively   operate  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 Mobile Lithotripsy System
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 Mobile  Lithotripsy  System  difficult or  unattractive.  Other
factors that may adversely affect the operation of the Mobile Lithotripsy System
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
selection of  lithotripsy  service  providers  may be shifting  from  individual
practitioners to health maintenance organizations and commercial insurers. There
is no  assurance  that  the  changing  healthcare  environment  will  not have a
material adverse effect on the Partnership.

                  Lack of Diversification.  The Partnership's  principal purpose
will be to  continue  to operate  the Mobile  Lithotripsy  System.  Because  the
Part-ner-ship  is  dependent  on only  one  line  of  business  and  one  Mobile
Lithotripsy  System,  there  will  be  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 price the Partnership
is able to  charge  its  patients  for  the  lithotripsy  of  kidney  stones  is
significantly  dependent  upon the amount of  reimbursement  private health care
insurers would allow for this procedure.  Most of the Partnership's patients pay
for services  directly from private payment sources,  primarily from third-party
insurers such as Blue Cross/Blue Shield and other commercial insurers.  Coverage
and payment  levels for these private  payment  sources vary  depending upon the
patient's  individual  insurance  policy.  The  increasing  influence  of health
maintenance  organizations  and other  managed  care  companies  has resulted in
pressure to reduce the reimbursement available for lithotripsy procedures. Litho
and some of its Affiliates have recently been informed by several  hospitals and
commercial  insurers that reimbursement  rates must be reduced, or the hospitals
and commercial  insurers would  negotiate with competing  lithotripsy  services.
Additionally,   the  Health  Care  Financing   Administration   ("HCFA"),  which
administers  the Medicare  program,  has  proposed  rules which would reduce the
reimbursement  available  for  lithotripsy  procedures  provided at hospitals to
$2,235. See "Regulation - Federal Regulation." In some cases reimbursement rates
payable to Affiliates of Litho by commercial insurers are less than the proposed
HCFA rate.  Because of the competitive  pressures from managed care companies as
well as threatened reductions in Medicare reimbursement,  Litho anticipates that
reimbursement  available for the lithotripsy procedure may continue to decrease.
Such decreases  could have a material  adverse  effect on Partnership  revenues.
Regarding the  professional  fees paid to physicians  who treat  patients on the
Mobile Lithotripsy System, Litho anticipates that similar competitive  pressures
may result in lower  reimbursement paid to physicians,  both by private insurers
and by government programs such as Medicare.

                  Reliability   and   Efficacy   of   the   Lithotripter.    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.  Litho estimates that more than 400
Lithostar(TM)  systems are  currently  operating in over twenty  countries,  and
Litho and its Affiliates  operate over 30 Lithostars(TM)  in other ventures.  In
Litho's  opinion,  the  Lithostar(TM)  has proven to be reliable and  dependable
medical  equipment;  however,  downtime periods  necessitated for maintenance or
repairs of the  Partnership's  Mobile  Lithotripsy  System will adversely affect
Partnership revenues.  The Lithostar(TM) operated by the Partnership has been in
operation since 1990 and has not required service other than routine maintenance
and upgrades.

                  In 1996, the FDA approved a new higher  intensity  shock--head
system for the  Lithostar(TM),  which Litho  believes  has  shortened  procedure
times.  The  Partnership's  Lithostar(TM)  has been  upfitted  with the new tube
system.  Based  upon a  detailed  follow-up  study of 86,000  renal  and  51,000
ureteral  stones  treated  on the  Lithostar(TM)  in all of  Litho's  affiliated
partnerships using both the original and newer shock-head  systems,  Litho notes
an 86% total  success rate with an overall  retreatment  rate of only 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
Litho's  experience  in doing well in excess of 150,000  cases over the past ten
and  one-half  years in its  affiliated  limited  partnerships,  Litho is of the
opinion  that  the  Lithostar(TM)  is  presently  a  very  effective  and  sound
alternative for the treatment of renal stones.

                  Investors   should  note  that  some  studies   indicate  that
lithotripsy may cause high blood pressure and tissue damage. Litho 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.  Litho 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. In addition,  manufacturers
have developed and begun selling a new generation of transportable lithotripters
which are smaller and more mobile than the Mobile Lithotripsy System.  Also, the
newer  transportable  lithotripters cost a fraction of what the Partnership paid
for the Mobile Lithotripsy System in 1990.  Physicians in some market areas have
indicated a preference for the newer transportable lithotripters.

                  Partnership  Limited  Resources and Risks of Leverage.  In the
event of unanticipated  expenses, it may be necessary to supplement  Partnership
funds  with the  proceeds  of debt  financing.  Although  Litho  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.  Litho 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 Litho 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  Litho
determines  that it is in the best  interest  of the  Partnership  to acquire an
additional Lithostar or any other assets related to the provision of lithotripsy
services,  Litho has the  authority  (without  obtaining  the Limited  Partners'
consent) to 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." 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.  Several  competing  lithotripters  are currently
operating  in  and  near  the  Service  Area  in  competition  with  the  Mobile
Lithotripsy System, including competitors that are Affiliates of Litho. There is
no assurance that additional parties will not, in the future, operate fixed-site
or mobile lithotripters in and around the Service Area. To Litho's knowledge, no
manufacturers  are restricted from selling their  lithotripters to other parties
in the Service Area. In addition,  except as otherwise  provided by law, neither
Litho nor its  Affiliates  are  prohibited  from  engaging  in any  business  or
arrangement that may compete with the Partnership.  Several ventures  affiliated
with Litho  provide  lithotripsy  services  near the  Service  Area.  See "Prior
Activities" and  "Competition."  Furthermore,  the Partnership will be competing
with  facilities and individual  medical  practitioners  who offer  conventional
treatment (e.g., surgery) for kidney stones.  Limited Partners recently approved
an  amendment  to  the  Partnership   Agreement  that  removed  the  contractual
restrictions  on  Limited  Partners'  ability  to  own  interests  in  competing
equipment or ventures.

                  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 be 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 Litho 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, in January,  1998, HCFA published proposed
Stark II regulations. Under the proposed regulations,  physician Limited Partner
referrals  of Medicare  and  Medicaid  patients  to  contracting  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  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 Litho
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,  Litho 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.

                  State laws will affect the  operation  of the  Partnership  as
well. The Partnership  commenced its extracorporeal  lithotripsy services before
Tennessee's  certificate  of need  ("CON")  law became  effective  in 1993,  and
accordingly  the  Partnership  was  not  required  to  obtain  a  CON  prior  to
commencement of its services at the Contract Hospitals. Litho anticipates that a
CON will be issued in Mississippi so that the Partnership can provide service to
Baptist Memorial Hospital - DeSoto in Southaven;  however, there is no assurance
that  a  CON  will  be  timely  issued.   Various   licensure  and  registration
requirements  must be met for the  Partnership  to  provide  mobile  lithotripsy
services in Tennessee and  Mississippi.  The Partnership has been endeavoring to
comply and will  continue to seek to comply with all  applicable  statutory  and
regulatory  requirements.  Physicians licensed in Tennessee must treat their own
patients on the Mobile Lithotripsy System. See "Regulation - State Regulation."

                  Contract  Terms  and  Termination.  The  Partnership  provides
lithotripsy services to seven Contract Hospitals in the Memphis area pursuant to
four separate Hospital Contracts. In addition, the Partnership has entered in an
additional  Hospital  Contract  with  Baptist  Memorial  Hospital  -  DeSoto  in
Southaven,  Mississippi  pursuant to which the  Partnership  expects to commence
service  in  February  2000.  All but one of the  Hospital  Contracts  grant the
Partnership  the  exclusive  right  to  provide  lithotripsy   services  at  the
particular  Contract  Hospital.  Each  of the  Hospital  Contracts  provide  for
automatic  renewal on a year-to-year  basis. All of the Hospital  Contracts with
automatic  renewal  provisions are terminable  without cause upon 30 days or, in
some  cases 60 or 90 days  prior  written  notice by either  party  prior to any
renewal  date.  The Baptist  Memorial  Hospital - DeSoto  contract has a term of
three years,  but may be  terminated  without  cause by either party on 180 days
notice.  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. Litho
believes it has a good  relationship  with the Contract  Hospitals  and does not
anticipate  significant Hospital Contract  terminations.  There is no assurance,
however, that terminations will either not occur or that the resulting impact to
the  Partnership  would  not  have a  material  adverse  effect  on  Partnership
operations.  Litho  anticipates  that some  Contract  Hospitals  may  attempt to
negotiate  rate  reductions  as a condition to renewal.  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 will
adversely affect Partnership  revenues and such effect could be material.  Thus,
there is no assurance  that  Partnership  operations as conducted on the date of
this  Memorandum  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 - Operating Risks -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."

                  Year 2000  Compliance  . The now  familiar  "Year 2000  Issue"
arose  because many existing  computer  programs use only the last two digits to
refer to a year.  Therefore,  such computer programs do not properly recognize a
year that  begins with "20"  instead of "19." If not  corrected,  many  computer
applications  could fail or create erroneous results on, before or after January
1,  2000.  To  date,  the   Partnership   has  not  experienced  any  Year  2000
Issue-related   problems;   however,  there  is  no  assurance  that  Year  2000
Issue-related  problems will not adversely affect the Partnership in the future,
including on the date  February 29, 2000 as some  experts  have  suggested.  The
Partnership  has not  inquired as to the Year 2000  readiness  of any  insurance
company,  Contract Hospital or other third party it has a relationship with, but
is relying that such parties will be Year 2000 compliant.  In the event that any
Year 2000 Issue problems  arise,  the  Partnership  could be forced to cease its
operations  for an  indefinite  period of time while the Year 2000  problems are
remedied,  at a cost which cannot be accurately predicted at this time. Any such
interruption  in  Partnership  operations  would  adversely  affect  Partnership
revenues.

                  Investors  should note that Litho  anticipates  no significant
tax benefits  associated with the operation of the Mobile  Lithotripsy System or
the Partnership.  No ruling will be sought from the Service on the United States
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.  Litho is relying  upon an opinion of 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,  and there can be 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 or her 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  IN-DE-PEN-DENT-LY  CONSULT HIS OR HER PERSONAL TAX COUNSEL  CONCERNING
THE TAX CONSEQUENCES  ASSOCIATED WITH HIS OR HER OWNERSHIP OF AN INTEREST IN THE
PARTNERSHIP.  THE CONCLUSIONS  REACHED IN COUNSEL'S OPINION ARE RENDERED WITHOUT
ASSURANCE THAT SUCH  CONCLUSIONS HAVE BEEN OR WILL BE ACCEPTED BY THE SERVICE OR
THE COURTS.

                  THIS MEMORANDUM AND COUNSEL'S OPINION DO NOT DISCUSS, NOR WILL
COUNSEL BE RENDERING AN OPINION REGARDING,  ANY 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  OR JUDICIAL  INTERPRETATIONS  OF APPLICABLE  FEDERAL  INCOME TAX
LAWS. ANY OF THE FOREGOING MAY BE GIVEN RETROACTIVE EFFECT.

                  INVESTORS  SHOULD  NOTE THAT THE UNITS ARE BEING  MARKETED  BY
LITHO AS AN  ECONOMIC  INVESTMENT  AND THAT  LITHO  ANTICIPATES  AND  INTENDS NO
SIGNIFICANT  TAX BENEFITS FROM AN INVESTMENT IN THE UNITS.  SEE "PASSIVE  INCOME
AND LOSSES" IN THIS SECTION. THE INVESTMENT IN UNITS IS A LONG-TERM  INVESTMENT.
INVESTORS  SHOULD NOT INVEST IN THE PARTNERSHIP TO ACHIEVE TAX BENEFITS AS LITHO
ANTICIPATES  SIGNIFICANT  PARTNERSHIP  TAXABLE INCOME THROUGHOUT THE TERM OF THE
PARTNERSHIP.

                  Possible   Legislative   or  Other   Actions   Affecting   Tax
Consequences.   The  federal  income  tax  treatment  of  an  investment  in  an
equipment/service  oriented limited  part-ner-ship such as the Part-ner-ship 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 Part-ner-ship, each Investor should consult with his or her
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
healthcare treatment 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 or her 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.  Litho and Counsel  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 Part-ner-ship 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 Treasury  Regulations  dealing with
the propriety of part-ner-ship  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  Part-ner-ship  Agreement would be sustained for federal
income tax purposes. 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 Litho. If Partnership cash flow declines, a Limited
Partner  could be subject to income taxes  payable out of personal  funds to the
extent  of the  Part-ner-ship's  income,  if  any,  attributed  to  him  without
receiving from the  Part-ner-ship  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 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.

               Counsel's   opinion   discussed   above   relies  upon   recently
promulgated  Treasury   Regulations.   Treasury  Regulation  Section  301.7701-2
provides that certain domestic eligible entities,  including partnerships formed
pursuant to state law, will be taxed as  partnerships  so long as the entity has
not made an election to be taxed as a corporation.  Domestic  eligible  entities
with at least two members will be classified as a partnership  unless they elect
to be  classified  as a  corporation  for federal  income tax  purposes.  As the
Partnership  will have at least two members  and will be formed  pursuant to the
Act, the Regulations  will treat the Partnership as a domestic  eligible entity.
As the Partnership  will not elect to be classified as a corporation for federal
income tax purposes,  it will be classified as a partnership.  Therefore,  it is
anticipated  that on the Closing  Date,  Counsel will render its opinion that as
long as the  Partnership  does not  elect  otherwise,  the  Partnership  will be
treated  for  federal  income  tax  purposes  as a  partnership  and  not  as an
association taxable as a corporation.

                  If during any taxable  year there is a material  change in the
law or in the circumstances surrounding the Part-ner-ship, the Part-ner-ship may
be classified as an association  taxable as a corporation.  If that occurs,  the
Part-ner-ship  could be taxed on its  profits  and at rates  which may be higher
than those  imposed  on  individuals.  Any  Part-ner-ship  losses  would only be
deductible by the Part-ner-ship,  rather than being allocated among the Partners
and  deductible  by Limited  Partners on their federal  income tax returns.  See
"Passive Income and Losses" below. Cash  Distributions to Limited Partners would
be treated as  dividends to the extent of current and  accumulated  earnings and
profits of the  Part-ner-ship,  and  Distributions  in excess  thereof  would be
treated as a nontaxable return of capital to the extent of the Limited Partner's
basis in his or her Part-ner-ship Interest, while the remainder would be treated
as capital gain, provided the Limited Partner's interest in the Part-ner-ship is
a capital asset.

                  Litho,  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.  Litho 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.  The Part-ner-ship uses the Modified Accelerated
Cost  Recovery  System  ("MACRS")  to  depreciate  the cost of any  equipment or
improvements  hereafter  acquired.  It is  anticipated  that  any  additions  or
improvements to the Mobile  Lithotripsy  System 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 Mobile Lithotripsy  System) 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.

                  Part-ner-ship  Elections.  The Code permits  part-ner-ships to
make elections for the purpose of adjusting the basis of part-ner-ship  property
on the  distribution  of  property  by a  part-ner-ship  to a partner and on the
transfer of an interest in a  part-ner-ship  by sale or exchange or on the death
of a partner.  The  general  effect of such  elections  is that  transferees  of
Part-ner-ship  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  Part-ner-ship'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
Part-ner-ship  Agreement,  Litho,  in its  discretion,  may make  the  requisite
election  necessary  to effect such  adjustment  in basis and has done so. Thus,
Investors will be treated, for 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 on the fair market value of the assets at the Closing.

                  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  part-ner-ship
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 Part-ner-ship  include the
Limited  Partner's  share of the ordinary  income that the  Part-ner-ship  would
realize as a result of the recapture of depreciation (as described above) if the
Part-ner-ship 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
Part-ner-ship.  Under the Code, a part-ner-ship  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  part-ner-ship  is  entitled  to deduct in full when paid or
incurred;  (2) amortizable  expenses -- expenditures  which the part-ner-ship 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  part-ner-ship  property  (or  part-ner-ship  loans)  and
deducted  over a  period  of time as the  property  (or  part-ner-ship  loan) is
amortized or depreciated;  (4) organization  expenses -- expenditures related to
the organization of the  part-ner-ship,  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)   part-ner-ship   distributions   --  payments   to  partners   representing
distributions  of  part-ner-ship   funds,  which  may  be  neither  capitalized,
amortized  nor deducted;  (7) start-up  expenses --  expenditures  incurred by a
part-ner-ship  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  part-ner-ship  for  services.  In
particular,  new 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 Part-ner-ship 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  Part-ner-ship 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 Part-ner-ship.

                  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  Part-ner-ship  and Litho 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.

                  Litho  believes  the  payments  to it and its  Affiliates  are
customary  and  reasonable  payments  for the  services  rendered by them to the
Part-ner-ship;   however,  these  fees  were  not  determined  by  arm's  length
negotiations.  Nothing  has come to the  attention  of Counsel  which would give
Counsel reasonable cause to question Litho'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 cannot express
an opinion  as to the  outcome  of the  reasonableness  of the amount of any fee
should the issue be litigated.

                  Management Fee to General Partner.  The Partnership pays Litho
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  Litho  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 Litho 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.

                  Ownership  of  Limited  Partner  Interests  by  Litho.   Litho
currently  owns a 14.5%  limited  partner  interest in the  Partnership.  To the
extent  that  Litho  continues  to  hold  a  limited  partner  interest  in  the
Partnership  following  the  closing  of  this  Offering,  Litho  may be able to
influence  the outcome of matters voted on by the Limited  Partners.  Litho also
owns a 20% general partner interest in the Partnership.

     Conflicts of Interest. The activities of the Part-ner-ship involve numerous
existing and potential  conflicts of interest between the  Part-ner-ship,  Litho
and  its  Affiliates.  See  Compensation  and  Reimbursement  to  Litho  and its
Affiliates," "The General Partner," "Competition" and "Conflicts of Interest."

                  No  Participation  in Management.  Litho has full authority to
supervise  the  business  and  affairs  of  the  Part-ner-ship  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.  Litho, its employees and its Affiliates are not required to devote
their full time to the  Part-ner-ship's  affairs and intend to continue devoting
substantial time and effort to organizing  other ventures  throughout the United
States that are similar to the  Partnership.  Litho 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 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  Distribution  received from the
Partnership if the Limited  Partner knew at the time of the  Distribution  that,
after giving effect to the  Distribution,  all  liabilities of the  Partnership,
other than liabilities to Partners with respect to their  Partnership  interests
and  liabilities  for which the  recourse  of  creditors  is limited to specific
property of the limited partnership,  exceed the fair value of the assets of the
Partnership,  except  that  the fair  value of  property  that is  subject  to a
liability  for which  recourse of creditors is limited  shall be included in the
Partnership  assets  only to the  extent  that the fair  value of such  property
excludes such liability.

                  Liability  Under Limited Partner Loan.  Investors  financing 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
Litho 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,   Litho  or  their  Affiliates.  In  addition  to  the  suitability
requirements  discussed below, any prospective Investor applying for a Bank 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.  Litho anticipates that the Partnership
will continue to operate the Mobile  Lithotripsy System 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  Assignment  Agreement,  and the  consent  of  Litho  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 Litho is furnished
with an opinion  of  counsel,  satisfactory  to Litho,  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 Litho 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  Litho  will  not be  liable  to the
Partnership or to any Partner of the Partnership for errors in judgment or other
acts or omissions in connection  with the  Partnership as long as Litho, 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 Litho in the event of its misfeasance or malfeasance than they
would have absent the limitations in the Partnership Agreement.  The Partnership
will indemnify  Litho and its Affiliates  against losses  sustained by Litho and
its  Affiliates in  connection  with the  Partnership,  unless such losses are a
result of the gross negligence or willful misconduct of Litho or its Affiliates.
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 Litho
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
the Partnership and any anticipated profits from such investment.

                  Optional Purchase of Limited Partner Interests. As provided in
the Partnership  Agreement,  Litho and the Limited  Partners have, under certain
circumstances,  the option to purchase all the interest of a Limited Partner who
(i) dies, (ii) becomes insolvent or (iii) becomes  incompetent.  In such a case,
the  option  purchase  price  is an  amount  equal  to the  withdrawing  Limited
Partner's  share of the  Partnership's  book value,  if any, as reflected by the
Limited  Partner's  capital  account  in the  Partnership  (unadjusted  for  any
appreciation  as reflected in Partnership  assets and as reduced by depreciation
deductions  claimed by the  Partnership  for tax purposes).  The option purchase
price is likely to be considerably  less than the fair market value of a Limited
Partner's interest in the Partnership.  Because losses,  depreciation deductions
and Distributions reduce capital accounts, and because appreciation in assets is
not  reflected in capital  accounts,  it is the opinion of Litho that the option
purchase  price  may be  nominal  in  amount.  See the  copy of the  Partnership
Agreement  attached  hereto  as  Appendix  A and  "Summary  of  the  Partnership
Agreement - Optional Purchase of Limited Partner Interests."

                  Tennessee  Lithotripters  Limited  Partnership  I, a Tennessee
limited  partnership  (the  "Partnership")  was  organized and created under the
Tennessee Uniform Revised Limited  Partnership Act (the "Act") on August 6, 1990
and commenced  business in December 1990. 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").  Litho
currently holds a 20% interest in the Partnership in its capacity as the general
partner and the existing  limited  partners  (the  "Initial  Limited  Partners")
currently  hold the  remaining  interest in the  Partnership  (including a 14.5%
limited  partner  interest  held  by  Litho).   The  principal  address  of  the
Partnership is 1301 Capital of Texas Highway, Suite C-3000, Austin, Texas 78746.
The telephone number of the Partnership and Litho is (800) 682-7971.

                  Lithotripters,  Inc.  ("Litho" or the  "General  Partner"),  a
North Carolina corporation,  and the general partner of Tennessee  Lithotripters
Limited  Partnership I, a Tennessee  limited  partnership  (the  "Partnership"),
hereby offers for sale and  assignment on the terms set forth herein,  a maximum
of 29 units (the  "Units") of limited  partnership  interest in the  Partnership
issued to and held by Litho.  Each Unit  represents  and initial  0.5%  economic
interest in the Partnership, and the Units are offered for assignment at a price
of $4,502 per Unit. Litho owns the Units,  therefore Litho (not the Partnership)
will receive any proceeds from the sale of Units.

                  A  prospective  assignee  who pays his  purchase  price with a
check upon submission of his Assignment Packet,  and whose assignment  materials
are  received  and  accepted  by Litho,  will  become a Limited  Partner  in the
Partnership.  Acceptance  of the  assignment  by  Litho  is  conditioned  on the
satisfaction of the suitability  standards for an investor in the Partnership as
set forth below. Upon admission as a Limited Partner, the prospective  assignee'
s cash  funds  (plus  interest)  will be  released  from  escrow to Litho.  If a
prospective  assignee finances a portion of his purchase price with the proceeds
of a Limited Partner Note,  Litho's  decision to sell and assign the Partnership
Interest  to such  prospective  assignee  will be further  conditioned  upon the
Bank's approval of the prospective  assignee's Loan Documents and the funding of
the loan  contemplated  thereby.  If the  prospective  assignee is acceptable to
Litho,  after receipt of the Bank's approval of his Loan  Documents,  Litho will
inform the Escrow  Agent that it will  assign the  Partnership  Interest  to the
prospective  assignee,  and the  Escrow  Agent  will  release  the cash and Loan
Documents,  if any, to Litho and the Bank,  respectively,  and the Bank will pay
the proceeds from the Limited Partner Loan to Litho.  The  prospective  assignee
will then be assigned the  Partnership  Interest and become a Limited Partner in
the  Partnership  at the time the Bank  releases  the  proceeds  of his  Limited
Partner Loan to Litho.  In the event an  application  is not accepted,  all cash
funds  (without  interest)  and Loan  Documents,  if any, held in escrow will be
returned to the  rejected  applicant.  Notice of  acceptance  of the  assignment
materials and admission of a  prospective  assignee as a Limited  Partner in the
Partnership  will be  furnished  promptly  after the  Closing  Date (as  defined
below).  Upon the  Closing  Date,  the  accepted  Investors  will be entitled to
distributions as Limited Partners beginning on the Closing Date.

                  Applications  for the sale  and  assignment  of Units  will be
solicited by MedTech  Investments,  Inc., a North  Carolina  corporation  and an
Affiliate of Litho and the Partnership (the "Sales Agent").  The Sales Agent has
entered into a Sales  Agency  Agreement  with Litho  pursuant to which the Sales
Agent has agreed to act as exclusive agent for the assignment of the Partnership
Interests.

                  The  purchase  price for the Units is payable in cash with the
prospective  Investor's personal funds alone or in part with such funds and with
the proceeds of a Limited  Partner  Loan.  Financing  under the Limited  Partner
Loans was arranged by the  Partnership  with the Bank as provided in the form of
Loan  Commitment,  attached  hereto as Appendix B. 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
Assignment  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 forms of which are attached to the
Subscription Packet  (collectively,  the "Loan Documents").  In no event may the
maximum  amount  borrowed per Unit exceed  $2,002.  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 June 15, 2000
(assuming the Closing  occurs before April 15, 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
form of 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 Litho upon the closing of the Offering 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 form of Loan Commitment which is
attached hereto as Appendix B.

                  If the  prospective  Investor  is  approved by the Bank and is
acceptable to Litho,  the Escrow Agent will,  upon  acceptance of the Investor's
Assignment Packet by Litho,  release the Loan Documents to the Bank and the Bank
will pay the  proceeds of the Limited  Partner  Note to Litho.  The  prospective
Investor  will  have  substantial  exposure  under  the  Limited  Partner  Note.
Regardless  of  the  results  of the  Partnership's  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,  Litho 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 estab-lished  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 Loan."

                  The  subscription  period will commence on the date hereof and
will  terminate at 5:00 p.m.,  Eastern  time, on February 29, 2000 (the "Closing
Date"),  unless sooner  terminated by Litho or unless extended for an additional
period up to 180 days. See "Plan of Distribution."

                  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(1) thereof, as amended, and an exemption from the
Tennessee  Securities  Act of 1980  provided  by Section  48-2-103(b)(5)  of the
Tennessee Securities Act of 1980. The suitability standards set forth below have
been established in order to comply with the terms of these offering exemptions.

                  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.

                  Investors  must  also be at least 21 years  old and  otherwise
duly  qualified to acquire and hold  partnership  interests.  Litho 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 foregoing  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 meet the  qualifications  for  investment in the
Partnership  and  who  wish  to  purchase  Units  may  do  so by  following  the
instructions included in the Assignment Packet accompanying this Memorandum. All
information  provided by Investors will be kept  confidential  and not disclosed
except to the  Partnership,  Litho,  the Bank and their  respective  counsel and
Affiliates and, if required, to governmental and regulatory authorities.

                  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 Litho 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 Litho, instructing it to effect
the  assignment.  Assignees of Units may also, in the  discretion  of Litho,  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 assignment may constitute an event of default under
such loan.  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 Litho,  or the consent of all of
the Limited Partners  (except the assignor Limited Partner) and Litho,  (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."

                  Unit purchase offers will be solicited by MedTech Investments,
Inc.,  the Sales  Agent,  which is an  Affiliate  of Litho.  The Sales Agent has
entered into a Sales  Agency  Agreement  with Litho  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 Litho 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  controls  Litho.   Investors   should  note  the  material
relationship  between  the  Sales  Agent and  Litho,  and are  advised  that the
relationship  potentially  creates conflicts in the Sales Agent's performance of
its due diligence  responsibilities under the Federal securities laws. Litho has
agreed to  indemnify  the Sales Agent  against  certain  liabilities,  including
liabilities under the Securities Act.

                  Litho 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 offering  period will commence on the date hereof and will
terminate at 5:00 p.m.,  Eastern time, on February 29, 2000 (or earlier,  in the
discretion  of  Litho),  unless  extended  at the  discretion  of  Litho  for an
additional period not to exceed 180 days.

                  The purchase price 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  assignment  offer is accepted by Litho (and
approved by the Bank in the case of financed purchases of Units),  Litho (or, if
applicable,  the Bank) rejects the  subscription  or the Offering is terminated.
Upon the receipt and acceptance of an Investor's  subscription by Litho (and, if
applicable,  the Bank),  the Investor will be admitted to the  Partnership  as a
Limited  Partner.  In connection  with his admission as a Limited  Partner,  the
Investor's  purchase price funds will be released from escrow to Litho,  and the
Loan Documents, if any, will be released to the Bank which will pay the proceeds
from the Limited Partner Note to Litho. In the event an assignment  offer is not
accepted,  all purchase price funds (without  interest),  the Loan Documents and
other  subscription  documents  held in escrow will be promptly  returned to the
rejected Investor.  An assignment offer may be rejected in part, in which case a
portion of the purchase price funds (without  interest) and any Limited  Partner
Note will be returned to the Investor.  The Offering will  terminate on February
29, 2000,  unless it is sooner  terminated by Litho,  or unless  extended for an
additional  period  not to  exceed  180  days.  See  "Terms  of the  Offering  -
Subscription Period; Closing."

                  The   Partnership   was  formed  to  (i)  acquire  the  Mobile
Lithotripsy  System and  operate  it in  western  Tennessee,  (ii)  improve  the
provision of health-care in the  Partnership's  service area by taking advantage
of both the  technological  innovations  inherent in the  Lithostar(TM)  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 Mobile  Lithotripsy  System.  The  Partnership  owns and operates the Mobile
Lithotripsy  System in the Service Area and has contracted with the six Contract
Hospitals to provide lithotripsy services.

                  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.  Ap-proxi-mately  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.
Litho  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  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  Lithostar(TM).  Currently,  Litho
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) owned and operated by the Partnership was new when acquired by
the Partnership in 1990. See "The Partnership."

                  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 with over 30 Lithostars(TM) in its affiliated
lithotripsy  ventures,  Litho has found that the Lithostar(TM) can fragment most
kidney  stones  without  anesthesia,  cystoscopy  or the  insertion  of ureteral
catheters.  Litho further believes that Lithostars(TM)  upfitted with the higher
intensity  shock-head  system experience  somewhat shorter treatment  durations.
Because of Litho's belief in the superior  imaging of the  Lithostar(TM),  Litho
believes that lithotripsy with the Lithostar(TM) provides for treatment of lower
ureteral  stones,   even  impacted  stones,   thereby   rendering   ureteroscopy
practically  obsolete  as a  treatment  of first  choice.  See  "Risk  Factors -
Operating Risks - Technological Obsolescence."

                  The Coach,  which houses a Lithostar(TM),  was acquired by the
Partnership   in  1990.  The  Coach  has  been   completely   upfitted  for  the
Lithostar(TM) and its clinical operations.  Service for the Coach is obtained on
an as-needed basis. Litho estimates that expenditures for maintenance and repair
have been incurred at a rate of approximately  $15,000 per year per Unit. As the
Coach ages, higher annual expenditures may be required to maintain it.

                  If in the  future  Litho  determines  that  it is in the  best
interest of the Partnership to acquire (i) an additional  Lithostar(TM)  or (ii)
any other assets  related to the provision of lithotripsy  services,  Litho may,
without  the  consent of the  Limited  Partners,  borrow  funds on behalf of the
Partnership  to acquire such assets,  and may use the  Partnership's  assets and
revenues  to secure and repay such  borrowings.  See "Risk  Factors -  Operating
Risks -  Acquisition  of  Additional  Assets." Any  additional  borrowing by the
Partnership will serve to increase the risks associated with leverage. See "Risk
Factors - Operating Risks - Partnership  Limited Resource and Risks of Leverage"
and "Risk Factors - Operating Risks - Acquisition of Additional Assets."

                  The  Partnership  has entered into four Hospital  Contracts to
provide  lithotripsy  services  at seven  hospitals  ("Contract  Hospitals")  in
western  Tennessee.  All the Tennessee  Hospital Contracts are in renewal terms.
The Contract Hospitals are:

                           Baptist Memorial  Hospital,  Memphis Baptist Memorial
                           Hospital,  Tipton Methodist  Healthcare - Germantown,
                           Germantown  Methodist  Hospital,  Dyersburg Methodist
                           Hospital  -  Central,  Memphis  Methodist  Hospital -
                           North, Memphis Methodist Hospital - South, Memphis

In addition,  the  Partnership  recently  entered into a Hospital  Contract with
Baptist Memorial Hospital - DeSoto which is located in Southaven, Mississippi.

                  All but one of the Hospital  Contracts  grant the  Partnership
the exclusive  right to deliver  lithotripsy  services to the relevant  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 and disposable medical products necessary
for the lithotripsy  procedure.  All of the Hospital  Contracts provide that the
Partnership  will  bill  and  collect  for  services  rendered  to  patients  of
commercial insurance programs, while the Contract Hospital will bill and collect
for  services  rendered  to  patients  of the  Medicare,  Medicaid  and  CHAMPUS
programs.

                  Each of the Hospital  Contracts,  except the Baptist  Memorial
Hospital - DeSoto  contract,  have initial  terms of one year and  automatically
renew for successive  one-year  terms.  The Baptist  Memorial  Hospital - DeSoto
contract  has a term of three years and is  terminable  without  cause by either
party on 180 days notice.  Each of the Hospital Contracts with renewal terms are
terminable  upon 30 days or, in some cases,  60 or 90 days prior written  notice
prior to any  renewal  date.  The  Hospital  Contracts  also  have,  and any new
contracts are expected to have,  provisions  permitting  the  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  "Risk  Factors  -  Operating  Risks -  Contract  Terms  and
Termination" and "Risk Factors - Operating Risks - Government Regulation." Litho
believes it has a good relationship with many of the Contract  Hospitals.  There
is no assurance,  however,  that one or more of the Contract  Hospitals will not
terminate their agreements with the Partnership in the future. See "Risk Factors
- Operating Risks - Contract Terms and Termination."

                  Litho has negotiated third-party reimbursement agreements with
certain  national or local payors.  The national  agreements  are  negotiated by
Litho  and  apply  to all the  lithotripsy  partnerships  with  which  Litho  is
affiliated.  Litho has also negotiated third-party reimbursement agreements with
local payors in the Service Area,  including  with Blue Cross and Blue Shield of
Memphis  and  Cigna/Equicor.  Some  of  the  national  and  local  reimbursement
agreements assign a fixed price for the lithotripsy services.  For others, Litho
has agreed to accepted a specified  percentage  discount from the normal charges
as payment in full;  these discounts range from nine to twenty-five  percent off
normal  charges.  Generally the  agreements may be terminated by either party on
ninety 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.  In addition,  hospitals may negotiate reimbursement agreements with
payors which service providers,  including  lithotripsy  providers,  must honor;
these may result in lower reimbursement for lithotripsy services.

                  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 Mobile  Lithotripsy  System after they have received any
necessary  training  required  by the  rules  of  such  Contract  Hospital.  The
Partnership  may also make  arrangements to make the Mobile  Lithotripsy  System
available  to  qualified  physicians  (including  but not  limited to  qualified
physician Limited Partners) desiring to treat their own patients after they have
received  any  necessary  training.  In  addition,  Litho  reserves the right to
request that  physicians (or members of their practice  groups) treat only their
own  patients  with the Mobile  Lithotripsy  System if it  determines  that such
practice is  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 a Mobile  Lithotripsy
System.  Thus, local qualified  physicians that are not Limited Partners will be
given the same  opportunity to treat their  patients using a Mobile  Lithotripsy
System as provided above.

                  The Partnership  has entered into a management  agreement (the
"Management  Agreement")  with Litho whereby Litho is obligated to supervise and
coordinate  the  management  and  administration  of the operation of the Mobile
Lithotripsy  System 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."  Litho's services under the Management  Agreement  include
making  available any necessary  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
continuing  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 Mobile Lithotripsy System.  Costs incurred by
Litho  in  performing  its  duties  under  the  Management   Agreement  are  the
responsibility  of the  Partnership.  Litho'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 Litho performs its duties under the Management  Agreement.  The Management
Agreement  is in the  second  five-year  renewal  term.  Thereafter,  it will be
automatically   renewed  for  one  additional  term  unless  terminated  by  the
Partnership or Litho.  Litho has also  appointed a local Medical  Director and a
Physician's  Advisory  Board.  Litho consults with the Medical  Director and the
Physician's  Advisory Board from time to time, as needed,  on matters  including
the  Partnership's  Quality  Assurance  Program,   utilization  review,  outcome
analysis, patient scheduling and certain Partnership expenditures.

                  The General Partner and Management  Agent will endeavor to the
best  of  their  abilities  to  require  that  physicians  using  a  Partnership
lithotripter  comply  with  the  Partnership's  quality  assurance  and  outcome
analysis programs in order to maintain the highest quality of patient care.

                  The Partnership  employs as full time employees a total of two
registered technicians and two registered nurses. All active full-time employees
of the Partnership  are eligible to participate in Prime's benefit plans.  Prime
provides group  medical,  dental,  long-term  disability,  accidental  death and
dismemberment  and life insurance  benefits.  The Partnership also provides paid
holidays,  sick leave, and vacation  benefits and other  miscellaneous  benefits
including bereavement,  military reserves,  jury duty and educational assistance
benefits.

                  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.  Litho was
founded by William R. Jordan, M.D. and became a wholly owned subsidiary of Prime
Medical Services, Inc. ("Prime") in 1996. See "Conflicts of Interest" and "Prior
Activities."  The  principal  executive  office  of Litho is 2008  Litho  Place,
Fayetteville, North Carolina 29304. The following table sets forth the names and
respective  positions  of the  individuals  serving as  executive  officers  and
directors  of Litho,  many of whom  were a  shareholders  of Litho  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
                           W. Alan Terry                      Vice President
                           Cheryl Williams           Vice President and Director
                           Thomas J. Driber, Ph.D.   Vice President
                           Stan Johnson                       Vice President
                           David Vela, M.D.          Vice President
                           Philip J. Gallina         Secretary and Treasurer
                           James D. Clark            Assistant Secretary

     Supervision  of  the  day-to-day   management  and  administration  of  the
Partnership  is the  responsibility  of  Litho.  Litho  itself is  managed  by a
three-member  Board of Directors  composed of Dr.  Jenkins,  Mr. Shifrin and Ms.
Williams. Litho is a wholly-owned subsidiary of Prime.

                  Descriptions  of the background of the executive  officers and
directors of Litho appear below.

     Joseph  Jenkins,  M.D. has been  President and Chief  Executive  Officer of
Prime since April 1996.  From May 1990 until  December  1991,  Dr. Jenkins was a
Vice President of Litho and previously  practiced  urology in Washington,  North
Carolina.  Dr.  Jenkins has been  President of Litho since 1992 and was recently
elected to its Board of Directors. He also serves as the Chief Executive Officer
of Litho.  Dr. Jenkins is a board certified  urologist and is a founding member,
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
Litho following  Prime's  acquisition of all of Litho'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.

                  W. Alan Terry was recently appointed a Vice President of Litho
and served as Chief  Financial  Officer  of Litho from 1991 to 1998.  In August,
1986,  Mr. Terry joined The May  Department  Stores  Company at their  corporate
headquarters in St. Louis, where he held several financial  management positions
until October,  1987, when he was transferred to one of May's largest divisions,
Caldor,  Inc., as Vice President of Finance.  He remained in that capacity until
June, 1990, when he became Chief Operating  Officer for Litho and served in that
capacity until April 1996.

     Cheryl Williams is a Director and Vice President of Litho. Ms. Williams 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.

     Thomas J. Driber,  Ph.D. was recently  appointed a Vice President of Litho.
Dr. Driber is an  experienced  medical  practice  consultant and has served as a
director of Southern  Medical  Imaging,  Inc.  (1988-1993),  First Choice Health
Plan, Inc. (1986-1988) and Tampa Bay Health Plan, Inc. (1985-1986). In addition,
Dr.  Driber  is an  accomplished  health  care  scholar  and was a member of the
teaching faculty at Florida Neurological Institute School of EEG Technology from
1980  to  1984.  Dr.  Driber  received  a  faculty  appointment  to the  Surgery
department  (renal  transplant  surgery) of the University of Florida College of
Medicine  and taught there from 1977 to 1979.  Dr.  Driber  received a Ph.D.  in
Medical/Social Change Theory, Concentration: Ambulatory Medical Delivery Systems
from Walden University, Institute for Advanced Studies in Minneapolis, Minnesota
in 1984.

     Stan Johnson was recently  appointed a Vice President of Litho. Mr. Johnson
has been a Vice  President of Prime and  President of Sun Medical  Technologies,
Inc., an Affiliate of Litho ("Sun") 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 Litho. Dr. Vela
received his medical  degree in 1984.  Dr. Vela  developed and operated  various
outpatient  surgery centers  throughout the United States from 1986 to 1995, and
has served as the Regional Vice  President of Prime for the Central Region since
February 1997.

     Philip J. Gallina  recently  became the  Secretary  and Treasurer of Litho,
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 Litho. 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.

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

                  1. Management Fee. Pursuant to the Management Agreement, Litho
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 Litho in performing its duties under
the  Management  Agreement are the  responsibility  of, and are paid directly or
reimbursed  by,  the  Partnership.  Litho is the  management  agent for  various
affiliated  lithotripsy  ventures.  As a consequence,  many of Litho's employees
provide various  management and  administrative  services for numerous ventures,
including the  Partnership.  In order to properly  allocate the costs of Litho'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. Litho 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  second   five-year   renewal  term.  The   Management   Agreement  will  be
automatically  renewed for up to one additional successive five-year term unless
it is earlier terminated by the Partnership or Litho. Litho is reimbursed by the
Partnership for all of its out-of-pocket  costs associated with the operation of
the Partnership and the Mobile Lithotripsy System. No other fees or compensation
will be payable to Litho or its  Affiliates for managing the  Partnership  other
than  the  management  fee  payable  to  Litho  as  provided  in the  Management
Agreement.  The Partnership may, however,  contract with Litho 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,  Litho is entitled its distributable  share (20%) of
Partnership Cash Flow,  Partnership  Sales Proceeds and Partnership  Refinancing
Proceeds as provided by the Partnership Agreement.  Litho also owns an aggregate
14.5% (prior to this  Offering)  limited  partner  interest in the  Partnership.
Litho 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. See "Sources and Applications of
Funds."

                  3. Rental of Loaner Coach. In the event the Mobile Lithotripsy
System  experiences  significant  down time for  maintenance  or repairs,  it is
anticipated that Litho would cause the Partnership to contract with Litho or its
Affiliates  to rent a "loaner"  Mobile  Lithotripsy  System  during the time the
Partnership's  Mobile  Lithotripsy  System  is  not  available  for  use  by the
Partnership.

                  4. Loans.  Litho or its Affiliates will also receive  interest
on loans, if any, made by them to the Partnership.  See "Conflicts of Interest."
Neither Litho nor any of its Affiliates are, however, obligated to make loans to
the  Partnership.  While  Litho  does not  anticipate  that it would  cause  the
Partnership to incur  indebtedness  unless cash generated from the Partnership's
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.

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

                  Litho will  receive  management  fees in  connection  with the
business  operations  of  the  Part-ner-ship  regardless  of  whether  any  sums
hereafter are  distributed  to Limited  Partners.  Such fees,  compensation  and
benefits have not been determined by arm's length negotiations. In addition, the
Partnership  may contract with Litho 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.  Litho
will also receive  interest on loans, if any, it makes to the  Partnership.  See
"Compensation and Reimbursement to the General Partner and its Affiliates."

                   Litho and its Affiliates will devote as much of their time to
the business of the  Part-ner-ship as in their judgment is reasonably  required.
Principals  of Litho 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."  Litho  believes  it and  its  Affiliates,  together,  have
sufficient  resources  to be  capable  of  fully  discharging  Litho's  and  its
Affiliates' responsibilities to the Part-ner-ship.  Litho 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
Part-ner-ship  nor the  holders  of any of the Units  shall be  entitled  to any
interest  therein.   Litho,  its  Affiliates   (including   affiliated   limited
partnerships)  and employees engage in medical service  activities for their own
accounts.  See "Prior Activities." Litho 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.  Litho operates other lithotripsy partnerships
in and around Tennessee and 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
Litho.  Because of the Sales Agent's affiliation with Litho, there are potential
conflicts of interest with respect to the Sales Agent's  performance  of its due
diligence  responsibilities  under the  federal  securities  laws.  See "Plan of
Distribution."

                   The  interests  of the  Investors  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  Litho--  were  retained  by Litho,  and have in the past
performed and are expected in the future to perform  similar  services for Litho
and Prime.

                  Litho, as General Partner, is accountable to the Part-ner-ship
as  a  fiduciary  and   consequently   must  exercise  good  faith  in  handling
Part-ner-ship affairs. This is a rapidly developing and changing area of the law
and Limited  Partners who have  questions  concerning the duties of Litho should
consult  with their  counsel.  Under the  Partnership  Agreement,  Litho and its
Affiliates have no liability to the Part-ner-ship or to any Partner for any loss
suffered by the  Partnership  that arises out of any action or inaction of Litho
or its Affiliates if Litho or its  Affiliates,  in good faith,  determined  that
such course of conduct was in the best  interest of the  Part-ner-ship  and such
course of conduct did not constitute gross  negligence or willful  misconduct of
Litho 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.  Litho 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
Part-ner-ship, provided that the same were not the result of gross negligence or
willful  misconduct  on  the  part  of  Litho  or  its  Affiliates.  Insofar  as
indemnification  for  liabilities  under the  Securities Act may be permitted to
persons controlling the Part-ner-ship pursuant to the foregoing provisions,  the
Part-ner-ship   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.

                  Several competing extracorporeal  shock-wave lithotripters are
currently  operating in and around the Service Area.  The competing  lithotripsy
service  providers  generally  have existing  contracts with  hospitals,  or are
operated by  hospitals  themselves.  The  following  discussion  identifies  the
existing  competitors  in and near the Service  Area,  to the best  knowledge of
Litho.

                  Affiliates of Litho operate  several mobile  lithotripters  in
Tennessee,  Arkansas and Kentucky.  Such  lithotripters do not currently compete
directly with the  Partnership,  and it is not anticipated that they will in the
future; however, Litho and its Affiliates are not contractually  prohibited from
competing  with the  Partnership.  Litho is  planning to conduct  other  limited
partnership offerings that would operate lithotripters in other states.

                  To the best  knowledge  of  Litho,  no  lithotripters  compete
directly  with  the  Partnership  in the  metropolitan  Memphis  area;  however,
competitors operate  lithotripters at several hospitals in northern  Mississippi
and Arkansas and in central  Tennessee,  including several  lithotripters  which
operate in the Nashville area.

                  There may be other existing  fixed-base or mobile  lithotripsy
services  in or near the  Service  Area which  will  directly  compete  with the
Partnership's  Mobile  Lithotripsy  System, but Litho is not familiar with these
other  competitors.  It is  possible  that  some  or all  of  the  Partnership's
competitors are physician-owned or include physicians among their owners.  Litho
is generally  unfamiliar with the cost of the lithotripsy  procedures offered by
the  Partnership's  competitors.  There  is no  assurance  the  Partnership  can
successfully  compete with existing providers,  including  facilities that offer
traditional  methods  of  treatment  for kidney  stone  disease.  See  "Business
Activities - Treatment Methods of Kidney Stone Disease."

                  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.  Litho believes these machines
are  qualitatively  inferior  to the  Partnership's  Mobile  Lithotripsy  System
because  such  machines  are capable of  treating  stones only in the ureter and
because anesthesia is generally required prior to treatment.  Litho believes the
Mobile  Lithotripsy  System  can be used on stones in  locations  other than the
ureter and that anesthesia is generally not required. See "Business Activities -
Treatment Methods for Kidney Stone Disease."

                  The health care market in the Service  Area is  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.
See  "Regulation  -  State  Regulation."  No  assurances  can  be  given  that a
certificate of need would be granted.

                  There  is  no  assurance   that  new   competing   lithotripsy
businesses  will not commence  operations in the future or that other  treatment
methods for kidney  stone  disease will not make the Mobile  Lithotripsy  System
competitively  obsolete.  See "Risk  Factors -  Operating  Risk -  Technological
Obsolescence."  Other service providers are soliciting  physician  ownership and
attempting to establish  competing  ventures in the Service Area.  Litho and its
Affiliates are not prohibited from engaging in any business arrangement that may
compete  with  the  Partnership.  There  is no  assurance  the  Partnership  can
successfully  compete with existing providers,  including  facilities that offer
traditional  methods  of  treatment  for kidney  stone  disease.  See  "Business
Activities - Treatment Methods for Kidney Stone Disease."

                  The manufacturer of the Mobile  Lithotripsy System is under no
obligation to Litho or the Partnership to refrain from selling its lithotripters
to  urologists,  hospitals or other persons for use in or near the Service Area.
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  current  and
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 Litho.

                  The Partnership, Litho 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,  Litho 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   is   subject  to  federal
government  oversight as the Partnership  seeks  reimbursement for its equipment
and services from health care facilities whose patients are beneficiaries of the
Medicare and Medicaid Programs.  Medicare reimbursement policies are statutorily
created and are regulated by the federal government.  The Balanced Budget Act of
1997 required the Health Care  Financing  Administration  ("HCFA"),  the federal
agency that administers the Medicare program, to establish a prospective payment
system for outpatient  procedures.  One of the goals of the prospective  payment
system was to lower  medical  costs paid by the  Medicare  program.  HCFA issued
proposed  regulations  in September,  1998 which would reduce the  reimbursement
rate currently paid for lithotripsy procedures performed on Medicare patients at
hospitals  to a base rate of  $2,235.  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.  Litho believes the reduced
reimbursement  rate will be  implemented in the latter half of the year 2000. In
some  cases,  reimbursement  rates  payable  to  Litho  and  its  Affiliates  by
commercial insurers are less than the proposed HCFA rate.

                  Litho retains the  discretion  to make the Mobile  Lithotripsy
System  available at  ambulatory  surgery  centers  ("ASCs").  Medicare does not
currently reimburse for lithotripsy  procedures provided at ASCs. However,  HCFA
issued proposed rules in June, 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 June,  1998
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 Litho.

                  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 Mobile  Lithotripsy  System.
Litho 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.

                  The  Medicaid   programs  in  Tennessee   (TennCare)   and  in
Mississippi  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  TennCare  program  and the
Mississippi  Medicaid program  currently  provide  reimbursement for lithotripsy
services.   The   federal   Personal   Responsibility   and   Work   Opportunity
Reconciliation Act of 1996 requires state health plans, such as TennCare and the
Mississippi  Medicaid program,  to limit Medicaid coverage for certain otherwise
eligible  persons.   Litho  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.  Litho believes such steps have been
taken in Tennessee with the establishment of the TennCare  program;  the General
Partner does not know whether the Mississippi Medicaid program has taken or will
in the future 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,  Litho  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  provider  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 Litho 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.

                  On  January  9,  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  Mobile  Lithotripsy  System.  Under  the  Proposed  Stark  II
Regulations,  physician  Limited  Partner  referrals  of Medicare  and  Medicaid
patients to  hospitals  contracting  with the  Partnership  would be  prohibited
because the Partnership is regarded as an entity that "furnishes"  inpatient and
outpatient  hospital services.  Litho 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
assurances  can be made that such will be the case.  Litho 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.  Additionally,  Litho will  continue to carefully  review the Proposed
Stark II  Regulations  and  accompanying  HCFA  commentary,  and  explore  other
alternative  plans of operations  that would allow the Partnership to operate in
compliance with Stark II and its final regulations.

                  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. In the event Litho is unable to devise
a plan pursuant to which the Partnership may operate in compliance with Stark II
and its final  regulations,  Litho is obligated under the Partnership  Agreement
either (i) to purchase the Partnership  Interests of all the Limited Partners at
the lesser of fair market value or their Capital  Account  values  (including in
certain  cases the  assumption  of their  Guaranties)  or (ii) to  dissolve  and
liquidate the Partnership.  See "Summary of the Partnership Agreement - Optional
Purchase of Limited Partner  Interests."  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 ban on  physicians  who have
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 CHAMPUS  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 it is anticipated that some of the Limited Partners will
be 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 (1 st Cir. 1989).

                  The OIG has indicated that it is giving increased  scrutiny to
health care joint ventures involving  physicians and other referral sources.  In
May 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 Mobile  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 Mobile  Lithotripsy  System;
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.  Litho 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.

                  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. Litho 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. Litho has
not  requested  the OIG to review this  Offering  and, to the best  knowledge of
Litho, 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 Litho's  view of valid  business  reasons to
engage in this  transaction,  form the basis in part of Litho's belief that this
Offering is appropriate.

                  Litho 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).  Litho 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,  Litho,  officers and directors of
Litho, and each Limited Partner could be subject,  individually,  to substantial
monetary liability,  felony prison sentences and/or exclusion from participation
in Medicare,  Medicaid and CHAMPUS. A prospective Limited Partner with questions
concerning these matters should seek advice from his 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 qui tam 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.  Litho
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. In the event
that  legislation is enacted  which,  in the opinion of Litho,  would  adversely
affect the operation of the Partnership's business, Litho is obligated either to
purchase the  Partnership  Interests of all the Limited  Partners or to dissolve
the Partnership.  See "Summary of the Partnership  Agreement - Optional Purchase
of Limited Partner Interests."

                  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 Litho,
to determine  whether they posed an  unreasonable  threat to  competition in the
health care field. Litho and the 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,  Litho cannot  assure that the FTC will not  investigate
issues arising from  physician-owned  health care  facilities in the future with
respect to Litho 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,  Litho 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.

                  Tennessee. Tennessee requires a certificate of need ("CON") to
initiate  extracorporeal  lithotripsy  services.  This  CON  requirement  became
effective in 1993, after the Partnership  commenced its services at the Contract
Hospitals.  Accordingly,  no CON was  necessary  to initiate  the  Partnership's
services.

                  To the best knowledge of Litho, the Mobile  Lithotripsy System
does not require  licensure as health care  institutions;  rather,  services are
deemed to be  hospital  services  which  are  regulated  under  the  contracting
hospital's license. Tennessee requires registration of x-ray machines.

                  Tennessee  bars referrals of patients to entities in which the
referring  physician has an ownership  interest  unless the referring  physician
performs health care services at the entity. To ensure compliance with this law,
patients   referred  by  physician   Limited   Partners  for  treatment  on  the
Partnership's  Mobile  Lithotripsy  System  must  be  treated  by the  referring
physician. Tennessee requires that physicians disclose their ownership interests
in health care  facilities or equipment in which they have ownership  interests.
The Partnership will require Limited Partners to comply with this requirement.

                  Mississippi. Mississippi requires a certificate of need, among
other things,  to offer  extracorporeal  shockwave  lithotripsy  services if the
services have not been provided by the proposed provider of such services within
the previous year. The hospital is deemed to be the provider and must obtain the
CON. To the best  knowledge  of Litho,  Baptist  Memorial  Hospital - DeSoto has
applied for a CON to offer extracorporeal  shockwave lithotripsy  services.  The
Partnership  cannot commence  providing the Mobile Lithotripsy System at Baptist
Memorial Hospital - DeSoto until a CON has been issued; to the best knowledge of
Litho, the Partnership will be able to provide the Mobile  Lithotripsy System at
Baptist Memorial Hospital - DeSoto on and after February 10, 2000. However, if a
CON is not issued or is successfully challenged by a competitor, the Partnership
will not be able to provide the Mobile  Lithotripsy  System at Baptist  Memorial
Hospital - DeSoto.

                  To the best  knowledge  of Litho,  no  licensure of the Mobile
Lithotripsy  System is  necessary  as a health  care  facility  in  Mississippi.
Mississippi requires registration of x-ray machines.

                  The  Mississippi  Board of  Medical  Licensure  has  adopted a
policy  regarding  the  corporate  practice of medicine.  The policy states that
physicians  shall not receive  compensation as an inducement for the referral of
patients.  As the Partnership's  Distributions to Limited Partners will be based
solely on ownership of equity  interest,  and not on referrals,  Litho  believes
this policy will not be violated. The same policy also prohibits physicians from
violating the federal  Anti-Kickback  Statute. The Mississippi Medicaid statutes
forbid  paying or receiving  kickbacks or bribes  related to the  furnishing  of
goods or services for which  payment may be made in whole or in part pursuant to
the  Medicaid  program.  For the  reasons  explained  above with  respect to the
federal Anti-Kickback  Statutes, the Litho does not believe this Offering or the
business  of the  Partnership  would  violate the  Mississippi  Board of Medical
Licensure's policy or the state Medicaid law.

                  The  Partnership  has  been  endeavoring  to  comply  and will
continue  to seek  to  comply  with  all  applicable  statutory  and  regulatory
requirements.  Further regulations may be imposed in Tennessee or Mississippi 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  Mobile   Lithotripsy  System  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.

                  LITHO 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.

                  Prime,  the indirect sole shareholder of Litho, is the largest
and fastest  growing  provider  of  lithotripsy  services in the United  States,
providing  lithotripsy  services  at  approximately  450  hospitals  and surgery
centers in 34 states, as well as delivering  non-medical services related to the
operation  of  the  lithotripters,  including  scheduling,  staffing,  training,
quality  assurance,  maintenance  and  contracting  with payors,  hospitals  and
surgery  centers,  while  medical care is rendered by  urologists  utilizing the
lithotripters.  Prime has an economic interest in 61 mobile and seven fixed site
lithotripters,  all but two of which  are  operated  by  Prime,  Litho and their
Affiliates.  Prime began providing  lithotripsy  services with an acquisition in
1992  and  has  grown  rapidly  since  that  time  through  a  total  of  twelve
acquisitions  with  interests  in  63  lithotripters  and  development  of  five
lithotripters.   Prime   lithotripters   performed   approximately   37,000,  or
approximately  19.5%, of the estimated 190,000 lithotripsy  procedures performed
in the United States in 1998.  Approximately  2,300  urologists  utilized  Prime
lithotripters  in 1998,  representing  approximately  30% of the estimated 7,700
active urologists in the United States.

                  Prime manages the  operations  of 63 of its 68  lithotripters.
All of its  lithotripters  are operated in connection  with hospitals or surgery
centers.  Prime operates its lithotripters  primarily through subsidiaries which
act as the general partner of a limited partnership. 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 49 of its 68 operations.

                  Prime's  lithotripters  range in age from one to twelve years.
Of its 68  lithotripters,  61 are mobile units  mounted in  tractor-trailers  or
self-contained coaches serving locations in 34 states. Prime also operates seven
fixed site  lithotripters in five 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  Litho   believe   that  they   maintain  the  most
comprehensive   quality  outcomes   database  and  information   system  in  the
lithotripsy  services industry.  Prime has detailed  information on over 150,000
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,  equipment,   economic  conditions  and  distribution
policies,  the success of Litho's Affiliates in the lithotripsy field should not
be  considered  as  indicative  of  the  operating  results  obtainable  by  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, 1997 and December 31, 1998 and the period ended  November 30, 1999,
(ii) Balance Sheets as of December 31, 1997,  December 31, 1998 and November 30,
1999, (iii) Cash Flow Statements for the years ended December 31, 1997, December
31, 1998 and the period ended November 30, 1999 and (iv) Statements of Partner's
Equity for the years ended  December 31, 1997,  December 31, 1998 and the period
ended November 30, 1999.

                  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.

                  Revenues. Total revenues increased $17,647 (1%) for the eleven
months ended  November 30, 1999  compared to the same period in 1998 due to a 9%
increase in the number of  procedures  performed,  and a 13% decrease in revenue
per case.

                  Operating  Expenses.  Operating  expenses decreased by $75,220
(8%) for the eleven  months ended  November 30, 1999 compared to the same period
in 1998  primarily  due to  decreases of $25,674 in property  taxes,  $10,431 in
legal and  accounting  fees,  $21,918 in employee  benefit  costs and $12,186 in
repairs and maintenance costs.

     Other Income  (Expense).  Total other income  (expense),  net  decreased by
$6,636 (26%) due to a decrease in interest income.

                  Revenues.  Total revenues  increased  $6,563 (0%) for the year
ended  December  31,  1998  compared  to the  same  period  in 1997 due to a 12%
increase in the number of  procedures  performed,  and a 10% decrease in revenue
per case.

     Operating  Expenses.  Operating  expenses  decreased by $6,229 (1%) for the
year ended December 31, 1998 compared to the same period in 1997.

     Other Income (Expense). Total other income (expense), net increased by $831
(3%) due to the decrease in interest income.



                  Revenues. Total revenues decreased $550,395 (15%) for the year
ended  December  31, 1997  compared  to the same period in 1996  related to a 2%
increase in the number of  procedures  performed,  and a 16% decrease in revenue
per case.

                  Operating  Expenses.  Operating expenses decreased by $102,755
(10%) for the year ended  December 31, 1997 compared to the same period in 1996,
primarily due to a decrease of $49,683 in management  fees due to lower revenues
and collections,  a decrease of $15,687 in repairs and maintenance  costs, and a
decrease of $22,647 in legal fees.

     Other Income  (Expense).  Total other income  (expense),  net  decreased by
$9,617 (25%) due to the decrease in interest income.



                  The  Partnership  Agreement sets forth the powers and purposes
of the  Partnership  and the respective  rights and obligations of the Litho 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.

                  The Investors will acquire their  interests in the Partnership
in the form of Units. Each Unit costs $4,502.  The entire Unit purchase price is
due in cash upon submission of the Assignment Packet; however, certain qualified
Investors may finance a portion of the purchase  price through  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 Unit
purchase price 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  as  provided  by the Act or other
applicable law. See "Risk Factors - Other Investment  Risks - Limited  Partners'
Obligation to Return Certain  Distributions."  See also Form of Legal Opinion of
Womble  Carlyle  Sandridge & Rice, a  Professional  Limited  Liability  Company,
attached hereto as Appendix C.

                  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 a portion of the  Partnership's  Profits
and Losses based on their  varying  Percentage  Interests  during the year.  The
Profits and Losses shall be  apportioned on the basis of the number in such year
each New Limited Partner was a holder of the Units transferred without regard to
the specific income and losses of the Partnership before or after the transfer.

                  (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  Litho,   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 Litho,  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  Litho'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,  Litho 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 Litho 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 Litho 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.

                  (c) Tax and Other  Withholding.  The Partnership is authorized
to pay, on behalf of any  Partner,  any amounts to any  federal,  state or local
taxing  authority,  as may be necessary for the  Partnership  to comply with tax
withholding  provisions  of the Code or the income  tax or  revenue  laws of any
taxing authority.  In addition,  the Loan Documents authorize the Partnership to
remit certain  Distributions  otherwise  payable to a Limited Partner party to a
Limited  Partner Note directly to the Bank. See "Terms of the Offering - Limited
Partner Loans." To the extent the Partnership  pays any such amounts that it may
be required  to pay on behalf of a Partner,  such  amounts  will be treated as a
cash  Distribution  to  such  Partner  and  will  reduce  the  amount  otherwise
distributable to him.

                  Litho, in its capacity as 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.  The  consent of the
Limited  Partners  is not  required  for any sale or  refinancing  of the Mobile
Lithotripsy System, the purchase of additional Mobile Lithotripsy Systems or the
purchase  of other new  Partnership  assets.  Litho will  continue  oversee  the
day-to-day affairs of the Partnership pursuant to the Management Agreement.  See
"Business Activities - Management."

                  Under the  Partnership  Agreement,  if Litho 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,  Litho
may be removed  and another  substituted  with the consent of all of the Limited
Partners.  Litho 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
Litho may be done without the approval of the Limited Partners.

                  1.  General.  Litho may, in its  absolute  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. Litho,  however, is expressly prohibited
from,  among other things:  (i) possessing  Partnership  assets or assigning the
rights of the  Partnership  in  Partnership  assets 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  Counsel's
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
impossible to carry on the ordinary business of the Partnership.

                  2.       Tax Matters.

                           (i)  Elections.  Litho will, in its sole  discretion,
         make for the Partnership  any and all elections for federal,  state and
         local tax purposes  including,  without  limitation,  any election,  if
         permitted by applicable  law, to adjust the basis of the  Partnership's
         property   pursuant  to  Code  Sections  754,  734(b)  and  743(b),  or
         comparable  provisions  of state  or  local  law,  in  connection  with
         transfers   of   interests   in   the   Partnership   and   Partnership
         Distributions.  Litho has made a an election  pursuant to Code  Section
         754. See "Risk Factors- Tax Risks- Partnership Elections."

                           (ii) Tax Matters Partner.  The Partnership  Agreement
         designates Litho as the Tax Matters Partner (as defined in Section 6231
         of the Code) and  authorizes  it to act in any similar  capacity  under
         state or local law. As the Tax Matters Partner, Litho is authorized (at
         the  Partnership's  expense):  (i) to  represent  the  Partnership  and
         Partners before taxing authorities or courts of competent  jurisdiction
         in tax matters  affecting the Partnership or Partners in their capacity
         as Partners;  (ii) to extend the statute of limitations  for assessment
         of tax deficiencies against Partners with respect to adjustments to the
         Partnership's federal, state or local tax returns; (iii) to execute any
         agreements  or  other  documents  relating  to or  affecting  such  tax
         matters, including agreements or other documents that bind the Partners
         with respect to such tax matters or otherwise  affect the rights of the
         Partnership  and  Partners;  and (iv) to expend  Partnership  funds for
         professional services and costs associated  therewith.  In its capacity
         as Tax Matters Partner, Litho shall oversee the Partnership tax affairs
         in the manner which, in its best judgment,  are in the interests of the
         Partners.  Moreover,  Litho will, in its sole  discretion,  not make an
         election pursuant to Treasury Regulation 301.7701.3 to be treated as an
         association taxable as a corporation.

                  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) his or her
obligation to return certain  Distributions made to them as provided by the Act.
See "Risk Factors - Other  Investment  Risks - Limited  Partners'  Obligation to
Return Certain Distributions."

                  After  acquisition  of  Units  by  Investors,  no  Partnership
Interest nor any Units may be transferred  without the prior written  consent of
Litho,  which approval may be granted or denied in the sole discretion of Litho,
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 the  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
Litho, or the approval of the assignor Limited Partner and Litho. Any transferee
of the  Partnership  Interest who has not been admitted to the  Partnership as a
Partner will 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, and the sale of his or her Limited Partnership
Interest  may  constitute  an event of  default  under any  outstanding  Limited
Partner Loan.

                  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
Litho;

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

     5. Any other reason  which under the laws of the State of  Tennessee  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, Litho 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.

                  As provided in the Partnership Agreement,  the General Partner
has the option (which it may assign to the  Partnership in its sole  discretion)
to purchase all of the interest of a Limited  Partner who (i) dies, (ii) becomes
the subject of a domestic  proceeding,  (iii) becomes  insolvent,  (iv) acquires
direct or indirect  ownership of an interest in a competing  venture  (including
the  lease  or  sublease  of  competing  technology),  or  (v)  defaults  on his
obligations  under  the  Guaranty.  Except in the case of the death of a Limited
Partner,  the option  purchase price is an amount equal to the lesser of (a) the
fair market value of the Partnership Interest to be purchased or (b) the Limited
Partner's  share of the  Partnership's  book value,  if any, as reflected by the
Limited  Partner's  capital  account  in the  Partnership  (unadjusted  for  any
appreciation in Partnership assets or amounts due and payable to the Partnership
as account receivables, and as reduced by depreciation deductions claimed by the
Partnership  for tax  purposes)  and, in certain  cases,  the  assumption of the
Limited Partner's Guaranty. Although it is anticipated that the Partnership will
use the  accrual  method  of  accounting,  the  cash  method  will  be used  for
determining the capital  account value option  purchase price discussed  herein.
Because  losses,   depreciation  deductions  and  Distributions  reduce  capital
accounts,  and  because  appreciation  in assets  is not  reflected  in  capital
accounts,  it is the opinion of the  General  Partner  that the capital  account
value option purchase price may be nominal in amount. In addition,  in the event
existing or newly enacted laws or  regulations  or any other legal  developments
adversely  affect  (or  potentially  adversely  affect)  the  operation  of  the
Partnership  or the  business of the  Partnership  (e.g.,  any  prohibitions  on
provider ownership),  the General Partner, in its sole discretion,  is obligated
to either (x) purchase the Partnership  Interests of all of the Limited Partners
at the option purchase price provided above or (y) dissolve the Partnership. See
the form of Partnership Agreement attached hereto as Appendix B, "Summary of the
Partnership  Agreement - Optional  Purchase of Limited  Partner  Interests," and
"Risk Factors - Operating Risks - Liability Under the Guaranty."

                  The  Partnership  Agreement  provides  that  disputes  arising
thereunder shall be resolved by submission to arbitration in Memphis, Tennessee.

                  Each  Investor,  by  executing  the  Subscription   Agreement,
irrevocably  appoints Dr. Joseph Jenkins to act as  attorneys-in-fact to execute
the Partnership Agreement, any amendments thereto and any certificate of limited
partnership  filed by  Litho.  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.

                  Within 90 days after the end of each Year of the  Partnership,
Litho 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.

                  Proper and  complete  records and books of account are kept by
Litho in which are  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 businesses of a
like  character.  The  Partnership  books and records are kept  according to the
accrual  method of  accounting.  The  Partnership's  fiscal year is the calendar
year. The books and records are located at the office of Litho,  and are open to
the reasonable  inspection and examination of the Limited Partners or their duly
authorized representatives during normal business hours.

                  On the  Closing  Date,  it is  expected  that  Womble  Carlyle
Sandridge & Rice, a Professional  Limited Liability  Company,  of Winston-Salem,
North Carolina,  will render an opinion as to the formation and existence of the
Partnership, the status of Investors as limited partners and certain federal tax
matters,  the form of which is attached as  Appendix C to this  Memorandum.  See
"Risk Factors - Tax Risks."

                  The Partnership  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 Partnership. Copies of certain Hospital
Contracts and insurance reimbursement  agreements may not, however, be available
due to confidentiality restrictions contained therein.

                                                 [Remainder        of       page
intentionally left blank.]

     Certain terms in this Memorandum shall have the following meanings:

     Act. The Act means the Tennessee  Uniform Revised 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.

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

     Capital Account.  The Partnership  capital account of a Partner as computed
pursuant to 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 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 February 29, 2000 (or earlier) in
the discretion of Litho.  The Closing Date may be extended for a period of up to
180 days in the discretion of Litho.

     Coach. The self-propelled  mobile vehicle manufactured by the Calumet Coach
Company, Calumet City, Illinois, upfitted to house a Lithostar(TM).

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

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

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

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

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

                  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 Litho 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.

     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 in the
Partnership prior to the commencement of this Offering.

                  Investors.  Potential purchasers of Units.
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     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 up to $2,002 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 Loan
Commitment which is attached hereto as Appendix B.

     Limited Partners. The Limited Partners are the Initial Limited Partners.

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

     Lithostar(TM).    The   Lithostar(TM)model    extracorporeal   shock   wave
lithotripter manufactured by Siemens which the Partnership owns and operates.

                  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 Loan Commitment which is
attached hereto as Appendix B.

     Loan Documents. The Loan 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.

                  Mobile  Lithotripsy  System.  The Coach with the installed and
operational  Lithostar(TM)  owned and operated by the  Partnership and any other
additional or replacement lithotripter and transport vehicle.

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

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

     Partnership.  Tennessee  Lithotripters  Limited  Partnership I, a Tennessee
limited partnership, which owns and operates the Mobile Lithotripsy System.

     Partnership Agreement.  The Partnership's Agreement of Limited Partnership,
a copy of which is  attached  as Exhibit A, as such 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 the  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 such Partnership,  (iii) capital  expenditures of the Partnership,  and
(iv) such  reasonable  reserves as Litho 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
Litho.

     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
re-financing  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 Litho 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 Litho  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  oppositive his or her name set forth in Exhibit A to the Partnership
Agreement.  Each Unit sold  pursuant to this  Offering  represents an initial 1%
economic interest in the Partnership.  The Percentage Interest will be set forth
in Exhibit 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
Litho.

     Prime.  Prime Medical Services,  Inc. a publicly held Delaware  corporation
and parent of Litho 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
Litho.

                  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 Loan  Commitment  which is
attached hereto as Appendix B.

                  Service.  The Internal Revenue Service.
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     Service Area.  Western Tennessee and northern  Mississippi.  Litho has sole
discretion to expand the Service Area.

                  Siemens.  Siemens Medical Systems, 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 29 equal limited partner interests in the Partnership offered by
Litho pursuant to this Memorandum for a price per Unit of $4,502 in cash.

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