____________________________                    _______________________________
Name of Prospective Investor                            Memorandum No.


 





                TENNESSEE VALLEY LITHOTRIPTER LIMITED PARTNERSHIP
 
            A Limited Partnership Formed Under the Laws of Tennessee


                    CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM


                             Up to $729,120 in Cash
 
                                 Up to 80 Units
                         of Limited Partnership Interest




         THIS MEMORANDUM IS PROVIDED TO THE PROSPECTIVE INVESTOR WHOSE
          NAME APPEARS ABOVE SUBJECT TO THE TERMS OF A CONFIDENTIALITY
          AGREEMENT WHICH PROHIBITS DISTRIBUTION OF THIS MEMORANDUM BY
       SUCH PERSON TO ANYONE OTHER THAN PERSONS RETAINED BY THE INVESTOR
        TO PROVIDE ADVICE WITH RESPECT TO THE MATTERS HEREIN ADDRESSED.




                            MEDTECH INVESTMENTS, INC.
                              Exclusive Sales Agent
                                2008 Litho Place
                       Fayetteville, North Carolina 28304
                                 1-800-682-7971
                 The Date of this Memorandum is October 24, 1998

                                   
                                       -i-
<PAGE>

 
                TENNESSEE VALLEY LITHOTRIPTER LIMITED PARTNERSHIP

                             Up to $729,120 in Cash

                 Up to 80 Units of Limited Partnership Interest
                           at $9,114 in Cash per Unit

     Tennessee Valley  Lithotripter  Limited  Partnership,  a Tennessee  limited
partnership  (the  "Partnership"),  organized  by  its  General  Partner,  Prime
Lithotripter  Operations,  Inc., a New York corporation,  d/b/a Tennessee Valley
Lithotripter  (the  "General  Partner"),  hereby  offers  on the terms set forth
herein up to 80 units of  limited  partnership  interest  (the  "Units")  in the
Partnership (the  "Offering").  The purpose of the Partnership is to operate the
mobile  lithotripsy  business  currently  operated by the General  Partner  (the
"Business") at various  locations  primarily in northern  Alabama,  northeastern
Arkansas, western Kentucky,  Tennessee and other areas determined by the General
Partner (the  "Service  Area").  Upon the closing of the  Offering,  the General
Partner will  transfer  substantially  all the  operating  assets and rights and
obligations  under certain  contracts related to the Business to the Partnership
in exchange for a minimum initial 80% interest in the Partnership. See "Proposed
Activities."

     The Units are  divided  into 80 Units  offered  at a per Unit cash price of
$9,114.  Prospective Investors who 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."  Each Unit
represents a 0.25%  economic  interest in the  Partnership.  The  Offering  will
terminate on the earlier of the date all 80 Units are sold or  December 4,  1998
unless,  in the discretion of the General  Partner,  it is sooner  terminated or
extended  for a  period  of up to  180  days.  The  Unit  cash  price  is due at
subscription  except for the portion to be funded with  proceeds  from the loans
described above.
                                 _______________

     The purchase of Units involves  significant  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 (1) the Partnership
faces severe competition in the Service Area and (2) the health care industry is
undergoing  significant  government  regulatory reforms.  See "Risk Factors" and
"Terms of the Offering - Suitability Standards."
                                                                     

                                                                       Net
                      Cash                    Selling                  Cash
                  Offering Price           Commissions(1)           Proceeds (2)
Per Unit (3)         $9,114                  $     250               $    8,864

                                        
Total Maximum (4)  $729,120                  $  20,000                 $709,120

(See Footnotes on Back of Cover Page)

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


                                      -ii-
<PAGE>

(1)  The Units  will be sold on a "best  efforts"  any or all  basis by  MedTech
     Investments,  Inc., a  broker-dealer  registered  with the  Securities  and
     Exchange Commission and a member of the National  Association of Securities
     Dealers,  Inc. (the "Sales Agent").  MedTech is an Affiliate of the General
     Partner.  The  Partnership  will pay the Sales Agent a $250  commission for
     each Unit  sold and will  reimburse  the Sales  Agent for its out of pocket
     offering  costs  (not to exceed  $15,000).  The  Partnership  has agreed to
     indemnify  the  Sales  Agent   against   certain   liabilities,   including
     liabilities under the Securities Act. See "Plan of Distribution."

(2)  Net Cash  Proceeds do not  reflect  deduction  of  expenses  payable by the
     Partnership.  See "Sources and Applications of Funds" and "Compensation and
     Reimbursement  to the General  Partner and its  Affiliates."  The price per
     Unit ($9,114) is payable in cash in full at  subscription;  provided,  that
     prospective  Investors who meet certain  requirements may be able to fund a
     portion  of  their  Unit  purchase  price  with  the  proceeds  of  certain
     third-party  financing.  The  Partnership  has arranged for  financing of a
     portion  of the Units'  purchase  price  with  First-Citizens  Bank & Trust
     Company,  Fayetteville,  North Carolina (the "Bank"). Therefore, in lieu of
     paying  the  entire  purchase  price in cash at  subscription,  prospective
     Investors may execute and deliver to the Sales Agent upon delivery of their
     Subscription  Packets, at least $2,500 cash and a Limited Partner Note in a
     maximum  principal amount of up to $6,614 per Unit to be purchased,  a Loan
     and Security Agreement,  Security Agreement and two Uniform Commercial Code
     Financing Statements ("UCC-1s") (collectively,  the "Loan Documents").  See
     "Terms  of the  Offering  -  Limited  Partner  Loans"  and the forms of the
     Limited  Partner  Note,  the  Loan  and  Security  Agreement  and  Security
     Agreement  attached  to  the  Bank  Commitment  as  Exhibits  A,  B and  C,
     respectively, which is attached hereto as Appendix C and the UCC's attached
     as part of the Subscription Packet.

(3)  Each Investor may purchase no less than one Unit.

(4)  All  subscription  funds  and Loan  Documents  will be held in an  interest
     bearing  escrow  account with  First-Citizens  Bank & Trust  Company,  with
     offices in Fayetteville and Raleigh,  North Carolina,  until the Closing or
     the termination of the Offering.  The Partnership seeks by this Offering to
     sell up to 80  Units  for up to  $729,120  in cash  ($709,120  net of Sales
     Agent's commissions).  In the event one or more complete  subscriptions are
     timely received and accepted by the General Partner, the subscription funds
     (plus  interest) in escrow will be released to the Partnership and the Loan
     Documents  will be released to the Bank. If no  subscriptions  are received
     and  accepted,  the  Offering  will be  terminated  and  all  subscriptions
     canceled.  In the event of termination,  all  subscription  funds (together
     with  interest),  Loan Documents and other  subscription  documents will be
     promptly returned to the Investors.  Neither the General Partner nor any of
     its Affiliates will purchase any Units.
                                 ______________




                                      -iii-
<PAGE>

     THE  UNITS  ARE  BEING  OFFERED  PURSUANT  TO:  (1) AN  EXEMPTION  FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, PROVIDED IN
SECTION 4(2) THEREOF AND RULE 506 OF  REGULATION D  PROMULGATED  THEREUNDER,  AS
AMENDED;  (2) AN EXEMPTION FROM REGISTRATION  PROVIDED IN THE ALABAMA SECURITIES
ACT,  AS  AMENDED,  AND A POLICY  STATEMENT  ISSUED  BY THE  ALABAMA  SECURITIES
COMMISSION;  (3) AN EXEMPTION FROM REGISTRATION PROVIDED IN SECTION 23-42-509(c)
OF THE ARKANSAS  CODE OF 1957  ANNOTED,  AS AMENDED,  AND RULE  509.01(B) OF THE
REGULATIONS   PROMULGATED   THEREUNDER,   AS  AMENDED;  (4)  AN  EXEMPTION  FROM
REGISTRATION  PROVIDED IN THE SECURITIES ACT OF KENTUCKY, AS AMENDED; AND (5) AN
EXEMPTION  FROM  REGISTRATION  PROVIDED  IN  SECTIONS   48-2-102(14)(F)(iv)  AND
48-2-125(b)   OF  THE   TENNESSEE   CODE   ANNOTATED,   AS  AMENDED,   AND  RULE
0780-4-2-.12(1)(c)  OF THE REGULATIONS  PROMULGATED  THEREUNDER,  AS AMENDED.  A
REGISTRATION  STATEMENT RELATING TO THESE SECURITIES HAS NOT BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
                                 ______________

     NEITHER THE  SECURITIES AND EXCHANGE  COMMISSION  NOR ANY STATE  REGULATORY
BODY HAS PASSED UPON THE VALUE OF THE SECURITIES, MADE ANY RECOMMENDATIONS AS TO
THEIR  PURCHASE,  APPROVED  OR  DISAPPROVED  THE  OFFERING,  OR PASSED  UPON THE
ADEQUACY OR ACCURACY OF THIS MEMORANDUM.  ANY  REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
                                 ______________

     THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY  AND RESALE
AND MAY NOT BE  TRANSFERRED  OR RESOLD EXCEPT AS PERMITTED  UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND UNDER APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION  OR EXEMPTION  THEREFROM.  NO PUBLIC OR OTHER MARKET EXISTS OR WILL
DEVELOP  FOR THE UNITS.  UNITS ARE NOT  TRANSFERABLE  WITHOUT THE CONSENT OF THE
GENERAL  PARTNER AND  SATISFACTION  OF CERTAIN  OTHER  CONDITIONS  INCLUDING THE
AVAILABILITY  OF AN EXEMPTION  UNDER THE  SECURITIES  ACT OF 1933 AND APPLICABLE
STATE  SECURITIES  LAWS.  SEE  "RISK  FACTORS  -  LIMITED   TRANSFERABILITY  AND
ILLIQUIDITY OF UNITS." INVESTORS SHOULD PROCEED ONLY ON THE ASSUMPTION THAT THEY
MAY  HAVE  TO BEAR  THE  ECONOMIC  RISK OF AN  INVESTMENT  IN THE  UNITS  FOR AN
INDEFINITE PERIOD OF TIME.
                                 ______________



                                      -iv-
<PAGE>

     IN  MAKING  AN  INVESTMENT  DECISION,  INVESTORS  MUST  RELY ON  THEIR  OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE
OFFERING,  INCLUDING THE MERITS AND RISKS  INVOLVED.  THESE  SECURITIES HAVE NOT
BEEN  RECOMMENDED  BY ANY FEDERAL OR STATE  SECURITIES  COMMISSION OR REGULATORY
AUTHORITY.  FURTHERMORE,  THE  FOREGOING  AUTHORITIES  HAVE  NOT  CONFIRMED  THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT.  ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
                                 ______________

     PROSPECTIVE  INVESTORS  SHOULD NOT CONSTRUE THE CONTENTS OF THIS MEMORANDUM
OR ANY PRIOR OR SUBSEQUENT  COMMUNICATIONS,  WHETHER  WRITTEN OR ORAL,  FROM THE
PARTNERSHIP,  ITS  GENERAL  PARTNER OR ANY OF ITS AGENTS OR  REPRESENTATIVES  AS
INVESTMENT,  TAX OR LEGAL ADVICE.  THIS MEMORANDUM AND THE APPENDICES HERETO, AS
WELL AS THE NATURE OF THE  INVESTMENT,  SHOULD BE REVIEWED  BY EACH  PROSPECTIVE
INVESTOR,  HIS INVESTMENT,  TAX OR OTHER ADVISORS,  AND HIS ACCOUNTANTS OR LEGAL
COUNSEL.
                                 ______________

     NO OFFERING  LITERATURE  OR  ADVERTISING  IN  WHATEVER  FORM WILL OR MAY BE
EMPLOYED  IN THE  OFFERING  OF  UNITS,  EXCEPT  FOR THIS  MEMORANDUM  (INCLUDING
AMENDMENTS AND SUPPLEMENTS,  IF ANY) AND DOCUMENTS  SUMMARIZED HEREIN. NO PERSON
IS  AUTHORIZED  TO GIVE  ANY  INFORMATION  OR TO  MAKE  ANY  REPRESENTATION  NOT
CONTAINED IN THIS MEMORANDUM OR IN THE APPENDICES HERETO, AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON.
                                 ______________

     THE GENERAL  PARTNER WILL MAKE  AVAILABLE,  PRIOR TO THE  CLOSING,  TO EACH
PROSPECTIVE  INVESTOR OR HIS  REPRESENTATIVES,  OR BOTH, THE  OPPORTUNITY TO ASK
QUESTIONS OF, AND RECEIVE  ANSWERS FROM, THE GENERAL  PARTNER OR A PERSON ACTING
ON ITS  BEHALF  CONCERNING  THE  TERMS  AND  CONDITIONS  OF THIS  OFFERING,  THE
PARTNERSHIP,  THE GENERAL PARTNER OR ANY OTHER RELEVANT  MATTERS,  AND TO OBTAIN
ANY ADDITIONAL  INFORMATION,  TO THE EXTENT THAT THE GENERAL  PARTNER  POSSESSES
SUCH  INFORMATION  OR CAN  ACQUIRE IT WITHOUT  UNREASONABLE  EFFORT OR  EXPENSE,
NECESSARY TO VERIFY THE ACCURACY OF THE INFORMATION HEREIN SET FORTH, SUBJECT TO
CERTAIN  CONFIDENTIALITY  RESTRICTIONS CONTAINED IN VARIOUS CONTRACTS WITH THIRD
PARTIES.
                                 ______________


                                       -v-
<PAGE>

     THIS MEMORANDUM CONTAINS  SUMMARIES,  BELIEVED BY THE GENERAL PARTNER TO BE
ACCURATE, OF CERTAIN TERMS OF CERTAIN DOCUMENTS, BUT REFERENCE IS HEREBY MADE TO
THE ACTUAL DOCUMENTS, COPIES OF WHICH ACCOMPANY THIS MEMORANDUM OR ARE AVAILABLE
FROM THE  GENERAL  PARTNER  UPON  REQUEST,  SUBJECT TO  CERTAIN  CONFIDENTIALITY
RESTRICTIONS  CONTAINED  IN  VARIOUS  CONTRACTS  WITH  THIRD  PARTIES.  ALL SUCH
SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY THIS REFERENCE.
                                 ______________

     THIS OFFER CAN BE WITHDRAWN AT ANY TIME BEFORE CLOSING AND IS  SPECIFICALLY
MADE  SUBJECT TO THE TERMS  DESCRIBED  IN THIS  MEMORANDUM.  SUBJECT TO SPECIFIC
RESTRICTIONS  PROVIDED  FOR HEREIN,  THE GENERAL  PARTNER  RESERVES THE RIGHT TO
REJECT ANY  SUBSCRIPTION  IN WHOLE OR IN PART OR TO ALLOT TO ANY  INVESTOR  LESS
THAN THE  NUMBER OF UNITS  SUBSCRIBED  FOR BY SUCH  INVESTOR.  SEE "TERMS OF THE
OFFERING."
                                 ______________

     THIS  MEMORANDUM  HAS BEEN  PREPARED  SOLELY FOR THE  BENEFIT OF  INVESTORS
INTERESTED IN THE PROPOSED  PRIVATE  PLACEMENT OF THE UNITS AND  CONSTITUTES  AN
OFFER ONLY IF THE NAME OF AN OFFEREE APPEARS IN THE  APPROPRIATE  SPACE PROVIDED
ON THE COVER PAGE HEREOF.  DISTRIBUTION  OF THIS  MEMORANDUM TO ANY PERSON OTHER
THAN SUCH OFFEREE AND THOSE PERSONS  RETAINED TO ADVISE HIM WITH RESPECT THERETO
IS UNAUTHORIZED,  AND ANY REPRODUCTION OF THIS MEMORANDUM,  IN WHOLE OR IN PART,
OR THE DIVULGENCE OF ANY OF ITS CONTENTS,  WITHOUT THE PRIOR WRITTEN  CONSENT OF
THE GENERAL PARTNER, IS PROHIBITED.  EACH OFFEREE, BY ACCEPTING DELIVERY OF THIS
MEMORANDUM,  AGREES TO RETURN IT AND ALL RELATED  APPENDICES AND OTHER DOCUMENTS
TO THE GENERAL  PARTNER,  1900 CHURCH STREET,  SUITE 101,  NASHVILLE,  TENNESSEE
37203.  IF THE  OFFEREE  DOES NOT INTEND TO  SUBSCRIBE  FOR THE  PURCHASE OF THE
UNITS, THE OFFEREE'S SUBSCRIPTION IS NOT ACCEPTED OR THE OFFER IS TERMINATED.
                                 ______________

     NEITHER THE DELIVERY OF THIS MEMORANDUM NOR ANY SALES MADE HEREUNDER SHALL,
UNDER ANY  CIRCUMSTANCES,  IMPLY THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE PARTIES  DESCRIBED  HEREIN  SINCE THE DATE HEREOF,  OR THAT THE  INFORMATION
CONTAINED  HEREIN IS CORRECT  AS OF ANY TIME AFTER THE DATE OF THIS  MEMORANDUM.
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY


                                      -vi-
<PAGE>

STATE TO ANY PERSON TO WHOM SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
                                 ______________

     THE  BUSINESS  OF THE  PARTNERSHIP  INVOLVES  CONFLICTS  OF  INTEREST.  SEE
"CONFLICTS OF INTEREST."
                                 ______________

     AFFILIATES  OF THE GENERAL  PARTNER  WILL  RECEIVE  FEES WHETHER OR NOT THE
PARTNERSHIP EARNS ANY INCOME. SEE "COMPENSATION AND REIMBURSEMENT TO THE GENERAL
PARTNER AND ITS AFFILIATES."
                                  ____________

     THE GENERAL  PARTNER  BELIEVES  THIS  OFFERING  IS AN  ECONOMIC  INVESTMENT
OPPORTUNITY;  THUS,  INVESTORS  SHOULD NOT PURCHASE UNITS IN ANTICIPATION OF TAX
BENEFITS.
                                 ______________
 



                                      -vii-
<PAGE>

                                TABLE OF CONTENTS
                                                                           Page

SUMMARY  .....................................................................1

RISK FACTORS..................................................................6
         Operating Risks......................................................6
         Tax Risks...........................................................12
         Other Investment Risks..............................................14

GLOSSARY ....................................................................17

TERMS OF THE OFFERING........................................................23
         General  ...........................................................23
         Limited Partner Loans...............................................25
         Offering Exemptions.................................................26
         Suitability Standards...............................................27
         How to Invest.......................................................28
         Restrictions on Transfer of Units...................................29

PLAN OF DISTRIBUTION.........................................................30

PROPOSED ACTIVITIES..........................................................31
         Purpose  ...........................................................31
         Treatment Methods For Kidney Stone Disease..........................31
         The Asset Contribution..............................................33
         History of the Business.............................................34
         Description of the Assets...........................................34
         Anticipated Partnership Expenditures................................36
         Operation of the Mobile Lithotripsy Systems.........................36
         Funding for Partnership Activities..................................37
         Acquisition of Additional Assets....................................38
         Management and Administration.......................................38
         Financial Projections...............................................40

FINANCIAL CONDITION OF THE BUSINESS..........................................41
         Selected Financial Data of the Business.............................41
         Management's Discussion and Analysis................................43

SOURCES AND APPLICATIONS OF FUNDS............................................45

COMPENSATION AND REIMBURSEMENT TO THE
         GENERAL PARTNER AND ITS AFFILIATES..................................46



                                     -viii-
<PAGE>

GENERAL PARTNER..............................................................48

MANAGEMENT AGENT.............................................................49

CONFLICTS OF INTEREST........................................................51

FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER..............................53

COMPETITION..................................................................53

REGULATION...................................................................55
         State Regulation....................................................61

PRIOR ACTIVITIES.............................................................64

TAX ASPECTS OF THE OFFERING..................................................71
         Partnership Status..................................................72
         Effect of Classification as Corporation.............................73
         Partners, Not Partnership, Subject to Tax...........................73
         Affiliated Service Groups...........................................74
         Passive Income and Losses...........................................77
         Depreciation........................................................81
         Partnership Allocations.............................................81
         Tax Treatment Of Certain Fees and Expenses Paid By The Partnership..83
         Partnership Elections...............................................86
         Taxable Income......................................................86
         Cash Distributions and Determination of Basis.......................87
         Sale of Partnership Units...........................................88
         Further Changes in Tax Laws.........................................88
         Local and State Taxes...............................................88

SUMMARY OF THE PARTNERSHIP AGREEMENT.........................................88
         Formation...........................................................89
         Description of the Units............................................89
         Contribution of the General Partner.................................89
         Dilution Offerings..................................................89
         Fundamental Changes.................................................90
         Profits, Losses and Distributions...................................92
         Management of the Partnership.......................................95
         Powers of the General Partner.......................................95
         Rights and Liabilities of the Limited Partners......................96
         Restrictions on Transfer of Partnership Interests...................97
         Dissolution and Liquidation.........................................97
         Optional Purchase of Limited Partner Interests......................98


                                      -ix-
<PAGE>

         Arbitration.........................................................99
         Power of Attorney...................................................99
         Records  ..........................................................100

LEGAL MATTERS...............................................................100

ADDITIONAL INFORMATION......................................................100


                                   APPENDICES

Appendix A        FINANCIAL PROJECTIONS
Appendix B        AGREEMENT OF LIMITED PARTNERSHIP OF
                    TENNESSEE VALLEY LITHOTRIPTER LIMITED PARTNERSHIP
Appendix C        LOAN COMMITMENT
Appendix D        FORM OF MANAGEMENT AGREEMENT
Appendix E        FORM OF OPINION OF WOMBLE CARLYLE SANDRIDGE & RICE, A
                    PROFESSIONAL LIMITED LIABILITY COMPANY
Appendix F        FINANCIAL STATEMENTS



                                       -x-
<PAGE>

                                     SUMMARY

     This  summary of certain  provisions  of the  Memorandum  is intended for a
quick reference and is not complete. The Memorandum and accompanying  Appendices
must be read and understood in their  entirety by Investors.  See the "Glossary"
for terms used in this Memorandum and not otherwise defined.

     The Units and Subscription  Price.  Tennessee Valley  Lithotripter  Limited
Partnership,  a  limited  partnership  formed  under  the  laws of the  State of
Tennessee,  hereby  offers up to 80 Units of  limited  partner  interest  in the
Partnership.  Each Unit represents a 0.25% economic interest in the Partnership.
Investors should note that their initial Percentage Interests in the Partnership
may be reduced by future  Dilution  Offerings.  See "Summary of the  Partnership
Agreement  -  Dilution  Offerings"  and the  form of the  Partnership  Agreement
attached  hereto as Appendix B. The price for each Unit is $9,114 and is payable
in cash in full at subscription;  provided,  that prospective Investors who meet
certain  requirements may be able to fund a portion of their Unit purchase price
with the proceeds of certain third-party financing. The Partnership has arranged
for financing of a portion of the Units' purchase price with First-Citizens Bank
& Trust Company,  Fayetteville,  North Carolina (the "Bank"). Therefore, in lieu
of paying the entire purchase price in cash,  prospective  Investors may execute
and deliver to the Sales Agent upon delivery of their Subscription  Packets,  at
least $2,500 in cash and a Limited Partner Note in a maximum principal amount of
up to $6,614 per Unit to be purchased,  a Loan and Security Agreement,  Security
Agreement  and two  Uniform  Commercial  Code  Financing  Statements  ("UCC-1s")
(collectively,  the "Loan  Documents").  See  "Terms of the  Offering  - Limited
Partner Loans" and the forms of the Limited  Partner Note, the Loan and Security
Agreement and Security  Agreement attached to the Bank Commitment as Exhibits A,
B and C,  respectively,  which is  attached  hereto as  Appendix C and the UCC's
attached as part of the Subscription Packet. Each Investor may purchase not less
than one Unit. The General Partner may, in its sole discretion,  reject in whole
or in part any subscription. See "Terms of the Offering."

     The Offering. By this Offering the Partnership seeks to sell up to 80 Units
for up to $729,120 in cash ($709,120 net of Sales Agent's  commissions).  In the
event complete  subscriptions for one or more Units are received and accepted by
the General Partner,  all subscription  funds (plus interest) and Loan Documents
held in escrow will be  released to the  Partnership.  If no  subscriptions  are
received  and  accepted  by the end of the  subscription  period as  defined  in
"Subscription  Period"  below,  the  Offering  will be  terminated.  The General
Partner and its Affiliates do not intend to purchase Units in the Offering.  See
"Terms of the Offering - General."  All  subscription  funds and Loan  Documents
will be held in escrow by the Escrow Agent until the Closing or the  termination
of the Offering.

     Subscription  Period.  The  subscription  period will  commence on the date
hereof and will  terminate at 5:00 p.m.,  Central time on  December 4,  1998 (or
earlier, in the discretion of the General Partner, upon the sale of all 80 Units
as provided  herein),  unless sooner terminated by the General Partner or unless
extended for an additional  period up to 180 days.  See "Terms of the Offering -
General - Subscription Period."



                                       -1-
<PAGE>

     Anticipated   Benefits  to  Investors.   The  primary   objectives  of  the
Partnership are (i) to improve the provision of health-care in the Partnership's
Service Area by taking advantage of the  technological  innovations  inherent in
its Mobile  Lithotripsy  Systems and the  Partnership's  quality  assurance  and
outcome analysis  programs,  and (ii) to make cash Distributions to its Partners
from revenues  generated from the operation of the Mobile  Lithotripsy  Systems.
Each Unit represents an initial 0.25% interest in Partnership  income,  loss and
cash  Distributions.  It is  anticipated  that cash  Distributions  will be made
quarterly  following the Closing.  There is no assurance that the  Partnership's
cash  Distribution  objective  can be met. See "Proposed  Activities"  and "Risk
Factors." The General Partner represents that Investors should not invest in the
Partnership for purposes of obtaining deductions,  losses or other tax benefits,
because it is  anticipated  by the General  Partner that taxable  income will be
reportable   by  the  Limited   Partners   along  with  their  receipt  of  cash
Distributions.  To the extent  available,  the General Partner will use its best
efforts to distribute  cash from  operations to enable the Partners to pay their
income tax liabilities on their respective shares of Partnership taxable income.

     The Partnership's projected statements of taxable income (loss), cash flow,
sources and uses of funds and projected  statements of return per Unit,  are set
forth in Appendix A hereto.  The Financial  Projections are based on assumptions
set forth therein and in this  Memorandum  and are included for the  information
and convenience of Investors and their professional advisors. THE PROJECTED DATA
ARE THE GENERAL PARTNER'S  ESTIMATE OF REASONABLE,  BUT NOT NECESSARILY THE MOST
LIKELY,  RESULTS OF THE  PARTNERSHIP'S  OPERATIONS AND REPRESENT A PREDICTION OF
FUTURE EVENTS BASED ON ASSUMPTIONS  THAT MAY OR MAY NOT OCCUR, AND SHOULD NOT BE
RELIED UPON TO INDICATE THE ACTUAL  RESULTS THAT WILL BE OBTAINED.  Further,  no
assurance can be given that the  financial  results of the  Partnership  will be
comparable to the  historical  financial  results of the Business as operated by
the General Partner and the differences could be materially  adverse.  See "Risk
Factors - Other Investment Risks- Financial Projections."

     Proposed  Activities.  It is anticipated  that the Partnership will operate
the  Business  in a manner  similar  to the  manner  in  which  it is  presently
conducted by the General  Partner.  The Partnership will use the proceeds of the
Offering,  to the extent funds are available,  to (i) recondition three trailers
(estimated  at $65,000  each),  and (ii)  purchase  three used  tractors  (up to
$40,000  each).  Offering  proceeds  will also be used to fund  syndication  and
working  capital  costs  and  other  Partnership  expenses.   See  "Sources  and
Application   of  Funds"   and   "Proposed   Activities   -  Other   Partnership
Expenditures."  See also "Risk Factors - Operating  Risks - Partnership  Limited
Resources and Risks of Leverage," "Compensation and Reimbursement to the General
Partner and its  Affiliates"  and the Financial  Projections  attached hereto as
Appendix A.

     The Partnership is a party to an agreement (the  "Contribution  Agreement")
which provides that the General Partner will contribute substantially all of the
assets,  including  five  Mobile  Lithotripter  Systems,  and rights and certain
contractual  obligations under  approximately 30 lithotripsy  services contracts
(the  "Hospital   Contracts"),   related  to  its  lithotripsy  operations  (the
"Business")  to the  Partnership in exchange for at least an 80% interest in the
Partnership (the "Asset Contribution").  The Partnership Interest of the General
Partner will increase 0.25% per unsold Unit.


                                       -2-
<PAGE>

Consummation of the Asset  Contribution is conditioned on the successful Closing
of the Offering and the receipt of certain consents and releases.  See "Proposed
Activities  - The Asset  Contribution."  The  Partnership  will have no separate
operations prior to the Closing and plans thereafter to operate the Business.

     In connection with the Asset Contribution,  the Partnership will succeed to
the rights and  obligations of the General  Partner with respect to the Hospital
Contracts.  While many of the Hospital Contracts are terminable without cause by
either  party  on short  notice,  the  General  Partner  believes  it has a good
relationship  with  many of the  contracting  parties  and does  not  anticipate
significant  cancellations.  There is no assurance,  however, that cancellations
will either not occur or that the resulting impact to the Partnership  would not
be materially  adverse.  See " Risk Factors -  Operating Risks - Contract Terms
and Termination." The Hospital Contracts  generally provide for the provision of
services which are "wholesale" in nature,  i.e. the  Partnership  will primarily
supply the lithotripter,  certain  personnel and maintenance  services for a per
procedure  fee.  Generally,  the  hospitals  and  outpatient  centers are solely
responsible  for billing and  collection,  on their own  behalf,  the  technical
component of the  lithotripsy  procedure.  In addition to the existing  Hospital
Contracts,  the General Partner intends to pursue additional lithotripsy service
opportunities   throughout  the  Service  Area.  The  travel  schedule  for  the
Partnership's  Mobile  Lithotripsy  Systems is expected to be  influenced by the
number  of  treating  physicians  and  patients  in  particular  areas  and  the
Partnership's arrangements with various hospitals and outpatient surgery centers
located throughout the Service Area, including existing scheduling  arrangements
under the  Hospital  Contracts.  See  "Proposed  Activities  - Operation  of the
Business."

     The  Partnership  will  enter  into a separate  Management  Agreement  with
Lithotripters,  Inc., a North Carolina  corporation and Affiliate of the General
Partner (the  "Management  Agent").  Pursuant to the Management  Agreement,  the
Management  Agent  generally  will  (i) manage  all  operations  of  the  Mobile
Lithotripsy  Systems and (ii) conduct  quality  assurance  and outcome  analysis
programs.  See  "Proposed  Activities  -  Operation  of the  Mobile  Lithotripsy
Systems" and the form of the Management Agreement attached hereto as Appendix D.

     Qualified  physicians  desiring to treat  patients  with the  Lithotripters
typically will make appropriate  arrangements  with the hospitals and outpatient
surgery centers serviced by the Partnership.  See "Tax Aspects of the Offering -
Affiliated  Service  Groups" and "Proposed  Activities - Operation of the Mobile
Lithotripsy  Systems."  Generally,  all qualified  physicians  desiring to treat
their own  patients on a  lithotripter  may do so after they have  received  the
necessary  training as  prescribed  by the rules of the  applicable  hospital or
outpatient  surgery center. In addition,  the General Partner reserves the right
to request  physicians (or members of their practice  group) to treat only their
own  patients  with a  lithotripter  if it  determines  that  such  practice  is
advisable  under  applicable  law.  See  "Regulation."  The  treating  qualified
physicians  will be solely  responsible  for billing and collecting on their own
behalf the professional component of the lithotripsy procedure.

     In the event the General Partner determines in the future that it is in the
best interest of the  Partnership,  it may cause the  Partnership (i) to acquire
one or more additional fixed base or mobile  lithotripter  systems (or any other
renal stone treatment equipment) for the treatment of renal


                                       -3-

<PAGE>


stones in such  location(s) as the General  Partner may  determine,  in its sole
discretion,  to be in the best interests of the Partnership;  (ii) to acquire an
interest  in any  business  entity,  including,  without  limitation,  a limited
partnership,  limited liability company or corporation, that engages in any such
business activity;  and (iii) to engage in any and all activities  incidental or
related to the foregoing (including without limitation bilary lithotripsy if the
same is ever approved by the FDA),  upon and subject to the terms and conditions
of the  Partnership  Agreement;  and/or (iv) to engage in Dilution  Offerings on
behalf of the  Partnership  to accomplish  such goals,  and may use  Partnership
assets and revenues to secure and repay such borrowings.

     Organization of the  Partnership.  Tennessee  Valley  Lithotripter  Limited
Partnership, a Tennessee limited partnership (the "Partnership"),  was organized
and created under the Act on October 16, 1998. The Asset Contribution will occur
upon  the  successful  Closing  of the  Offering.  The  general  partner  of the
Partnership  is Prime  Lithotripter  Operations,  Inc., a Delaware  corporation,
d/b/a  Tennessee  Valley  Lithotripter,  and  wholly-owned  subsidiary  of Prime
Medical Services, Inc. See "The General Partner." Upon consummation of the Asset
Contribution,  the General  Partner will acquire at least an 80% interest in the
Partnership.  The  Partnership  Interest of the General Partner will increase by
0.25%  for  each  unsold  Unit.  The  address  of the  principal  office  of the
Partnership is 1900 Church Street,  Suite 101,  Nashville,  Tennessee 37203. The
Partnership  will contract with the Management  Agent pursuant to the Management
Agreement to manage the Partnership's day-to-day business operations.  Following
the Asset  Contribution,  the Partnership  will operate five Mobile  Lithotripsy
Systems  throughout the Service Area. See the form of the Partnership  Agreement
attached as Appendix B and "Summary of the Partnership Agreement" below.

     Limited  Liability.  Other than the purchase  price for a Unit,  no capital
assessments will be requested of or imposed on the Limited Partners.  Provided a
Limited  Partner  does not  participate  in the  management  or  control  of the
Partnership,  he will not incur any liability with respect to obligations of the
Partnership,  except to the  extent of his (i)  capital  contributions  and (ii)
obligation to return certain  Distributions made to him constituting a return of
capital  contributions  in accordance  with the Act. See "Risk  Factors -  Other
Investment   Risks -   Limited   Partners'    Obligation   to   Return   Certain
Distributions."  See also,  the form of Opinion of Womble  Carlyle  Sandridge  &
Rice, a Professional  Limited  Liability  Company attached hereto as Appendix E.
Investors funding their Unit purchase price with the proceeds of a loan from the
Bank will be  personally  liable to the Bank as provided in the Loan  Documents.
See "Terms of the Offering - Limited Partner Loans."

     Optional  Purchase of Limited  Partner  Interests.  Upon the  occurrence of
certain  events with  respect to a Limited  Partner,  such as (i) death,  (ii) a
domestic proceeding, (iii) insolvency or (iv) direct or indirect ownership of an
interest in a competing  venture  (including  the lease or sublease of competing
technology),  the  Partnership  Interest  of such  Limited  Partner  may, in the
discretion of the General Partner,  be sold. 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 or
exclusions from public insurance programs),  the General Partner is obligated to
either


                                       -4-
<PAGE>

purchase the  Partnership  Interests of all of the Limited  Partners or dissolve
the Partnership.  The purchase price in the case of any forced  divestiture of a
Limited Partner  Partnership  Interest is likely to be nominal.  See "Summary of
the Partnership Agreement - Optional Purchase of Limited Partner Interests."

     Investment  of the General  Partner.  The General  Partner will acquire its
entire  general  partner  Partnership  interest (80% assuming the sale of all 80
Units) upon consummation of the Asset Contribution.  The General Partner will be
responsible  for the  operation of the  Partnership  and intends to delegate the
day-to-day  management  of  the  Partnership's  lithotripsy  operations  to  the
Management  Agent. See "General  Partner" and "Proposed  Activities - Management
and Administration."

     Compensation  and  Reimbursement of the General Partner and its Affiliates.
The  Management  Agent,  an  Affiliate  of the General  Partner,  will receive a
monthly  management  fee equal to the  greater of $8,000 or 7.5% of  Partnership
Cash Flow per month pursuant to the Management  Agreement.  The General  Partner
and its  Affiliates  will receive  interest on loans,  if any,  they make to the
Partnership.  In addition, the Partnership may contract with the General Partner
or  its  Affiliates  to  render  other  services  or  provide  materials  to the
Partnership  provided that the  compensation  is at the then prevailing rate for
the type of services and/or  materials  provided.  The Management  Agent and the
General Partner are also entitled to reimbursement  from the Partnership for all
costs  incurred  by  them in  managing  the  Partnership.  Upon  the  successful
completion  of this  Offering,  the Sales  Agent,  an  Affiliate  of the General
Partner,  will receive up to $20,000 in sales  commissions  from the Partnership
for the sale of Units and may be reimbursed  for up to $15,000 in  out-of-pocket
offering  expenses.  The General Partner intends to cause the Partnership to pay
AK  Associates,  an Affiliate of the General  Partner,  an aggregate of $195,000
from the proceeds of this Offering to refurbish  three  trailers and to contract
in the future with AK Associates for similar services. In addition,  the General
Partner   anticipates   causing  the  Partnership  to  rent  "loaner"   trailer-
lithotripter  units from  Affiliates of the General Partner at a cost of $35,000
per month per unit while the Partnership's  trailers are being refurbished.  The
General  Partner and its  Affiliates  will receive no  development  fee or other
compensation  for  organizing or operating the  Partnership  except as otherwise
provided  herein.  See "Proposed  Activities - Management  and  Administration,"
"Proposed   Activities -   Funding  for   Partnership   Activities,"   "Plan  of
Distribution,"  "Compensation  and  Reimbursement to the General Partner and its
Affiliates" and "Conflicts of Interest."

     Plan of Distribution.  Subscriptions for Units will be solicited on a "best
efforts" any or all basis by the Sales Agent. Upon the successful  completion of
this Offering,  the  Partnership  will pay the Sales Agent a $250 commission for
each Unit sold and will reimburse the Sales Agent for out-of-pocket expenditures
incurred in connection with this Offering (not to exceed $15,000).  See "Plan of
Distribution" and "Conflicts of Interest."



                                       -5-
<PAGE>

     Eligible  Investors.  Generally,  this  offer  is made  only  to  qualified
investors acceptable to the General Partner and, if applicable,  approved by the
Bank for  purposes of the Limited  Partner  Loans.  See "Terms of the Offering -
Suitability Standards" and "Limited Partner Loans."

                                  RISK FACTORS

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

Operating Risks

     Lack of Operating History; General Risks of Operations. The Partnership was
formed  under the laws of the State of  Tennessee  on  October  16,  1998 and is
expected to have no  operations  prior to the Asset  Contribution.  Although the
General  Partner,  the Management  Agent and their  personnel  have  significant
experience in managing  lithotripsy  enterprises,  whether the  Partnership  can
effectively operate and expand the 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  Systems  less  competitive  or
obsolete,  and other  matters.  The  Partnership  may be  adversely  affected by
various  changing  local  factors such as an increase in local  unemployment,  a
change  in  general   economic   conditions,   changes  in  interest  rates  and
availability  of  financing,  and other matters that may render the operation of
its Mobile Lithotripsy Systems difficult or unattractive. Other factors that may
adversely affect the operation of its Mobile Lithotripsy  Systems are unforeseen
increased operating expenses,  energy shortages and costs attributable  thereto,
uninsured losses and the capabilities of the Partnership's management personnel.

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

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


                                       -6-
<PAGE>

     Impact of Insurance Reimbursement.  The Partnership's revenues are expected
to be derived from the equipment rental fees paid by the Contract Hospitals. The
Partnership  will not directly  bill and collect for services  from  patients or
their third-party payors.  Rental rates received from contracting  hospitals may
be subject to  renegotiation  depending  on the  reimbursement  received  by the
Contract  Hospitals.  Such  reimbursement  may be  reduced  as a  result  of the
introduction  of an outpatient  prospective  payment system  regarding  Medicare
patients,  which in turn could lower reimbursement available from private health
insurers.   The  Partnership's   revenues  could  be  adversely  affected.   See
"Regulation."  These  developments  could  have an  adverse  impact on  proposed
Partnership operations.

     Reliability  and  Efficacy  of  the   Partnership's   Lithotripters.   Upon
consummation of the Asset  Contribution,  the Partnership  will own five Dornier
HM3   lithotripters.   The  HM3  has  a  United  States  operating   history  of
approximately  14 years. The General Partner has experience with the HM3, and in
the General Partner's opinion,  the HM3 has proven to be reliable and dependable
medical  equipment.  The  General  Partner  estimates  that  the HM3 has a 7-10%
overall retreatment rate.  Investors should note that some studies indicate that
lithotripsy may cause high blood pressure and tissue damage. The General Partner
questions the reliability of these studies and believes lithotripsy has become a
widely  accepted  method for the  treatment of renal  stones.  Also,  "downtime"
periods   necessitated  by  maintenance  and  repairs  of  one  or  more  Mobile
Lithotripsy   Systems  will  adversely  effect  Partnership   revenues.   It  is
anticipated that, subject to availability, the General Partner or its Affiliates
will  rent the  Partnership  one of its  mobile  lithotripters  in the  event of
substantial  downtime  problems.  See  "Compensation  and  Reimbursement  to the
General Partner and Its Affiliates."

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

     Partnership  Limited Resources and Risks of Leverage.  The proceeds of this
Offering cannot be accurately  determined until the Closing has occurred and the
number of Units sold has been calculated.  In the event such proceeds are not be
sufficient  to fund all  anticipated  expenses,  it may be necessary in order to
meet current or projected  expenses,  to supplement  Partnership  funds with the
proceeds  of debt  financing.  See  "Proposed  Activities  -  Other  Partnership
Expenditures," " Proposed  Activities - Funding for Partnership  Activities" and
"Sources and Application of Funds." Although the General Partner  maintains good
relationships with certain commercial lending institutions,  it has not obtained
a loan commitment from any party in any


                                       -7-
<PAGE>

amount on behalf of the  Partnership and whether one would timely be forthcoming
on terms  acceptable to the Partnership  cannot be assured.  The General Partner
and/or its  Affiliates  may, but are under no  obligation  to, make loans to the
Partnership,  and there is no assurance that they would be willing or able to do
so at the time, in amounts and on terms required by the  Partnership.  While the
General Partner does not anticipate that it would cause the Partnership to incur
indebtedness unless cash generated from Partnership  operations were at the time
expected to enable  repayment of such loan in accordance  with its terms,  lower
than anticipated  revenues and/or greater than anticipated expenses could result
in the Partnership's  failure to make payments of principal or interest when due
under such a loan and the Partnership's  equity being reduced or eliminated.  In
such  event,  the  Limited  Partners  could lose their  entire  investment.  See
"Proposed  Activities - Funding For  Partnership  Activities"  and the Financial
Projections attached to this Memorandum as Appendix A.

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

     Competition.   Many  competing  fixed-site  and  mobile  lithotripters  are
currently  operating in and around the Service Area in direct  competition  with
the  Business.  The  competing  lithotripsy  service  providers  generally  have
existing  contracts with hospitals and other  facilities.  There is no assurance
that  other  parties  will not,  in the  future,  operate  fixed-site  or mobile
lithotripters  in and around the Service  Area.  The  ability of certain  former
owners of the  Business to compete  with the General  Partners  had been limited
under noncompetition agreements which only recently expired. Whether and to what
extent any of such  persons may elect to compete  with the  Partnership  and the
resulting  impact  on  proposed  Partnership  operations  cannot  be  accurately
predicted  by the General  Partner.  See  "Proposed  Activities - History of the
Business." To the General Partner's  knowledge,  no manufacturers are restricted
from  selling  their  lithotripters  to other  parties in the Service  Area.  In
addition, except as provided by law, none of the General Partner, the Management
Agent or  their  respective  Affiliates  are  prohibited  from  engaging  in any
business or  arrangement  that may compete with the  Partnership.  Four ventures
affiliated with the General Partner either currently  provide or are planning to
provide lithotripsy services in or near the Service Area. See "Prior Activities"
and "Competition." Affiliates of the General Partner are planning and


                                       -8-
<PAGE>

conducting  other joint venture  offerings that would operate  lithotripters  in
other states. In addition, the Partnership will be competing with facilities and
individual  medical  practitioners  who  offer  conventional   treatment  (e.g.,
surgery) for kidney stones.  In order to be  successful,  the  Partnership  must
convince  physicians  and potential  patients of the quality of the treatment it
can provide,  its reasonable  equipment  rental charges,  the superiority of its
lithotripters  to other  lithotripters  and the advantages of  lithotripsy  over
conventional  surgery and other treatment  methods.  The  Partnership  Agreement
severely  restricts  the ability of the Limited  Partners  to own  interests  in
competing  equipment or ventures.  The  enforceability  of these  noncompetition
agreements is generally a matter of state law and is evolving  over time.  There
is no assurance that one or more Limited Partners may not  successfully  compete
with the Partnership.  See "Proposed  Activities - Treatment  Methods for Kidney
Stone Disease" and "Competition."

     Government  Regulation.  All facets of the  healthcare  industry are highly
regulated and will become more so in the future.  The ability of the Partnership
to operate  legally and be  profitable  may be adversely  affected by changes in
governmental regulations, including expected changes in reimbursement,  Medicare
and Medicaid certification regulations,  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 and may subject the
General  Partner  and all  Limited  Partners  to  governmental  scrutiny  and/or
prosecution  for felony  charges and  punishment  in the form of large  monetary
fines, loss of licensure, imprisonment and exclusion from Medicare and Medicaid.
Recent changes in Medicare and Medicaid law have limited 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,   the  Health  Care  Financing
Administration  ("HCFA"),  the federal agency  responsible for administering the
Medicare  program,   published  proposed  Stark II  regulations.   The  proposed
regulations  outline  the  requirements  that must be met for the  Partnership's
proposed  operations to comply with Stark II. 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 guidance, then the Partnership and its
physician  Limited  Partners  may be in  violation  of Stark  II,  as all of the
proposed  regulations'  requirements may not be currently met. 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  Partnership's  arrangements with
contracting  hospitals to serve as an equipment  vendor have to be restricted to
comply with Stark II.  However,  there is no assurance  that such  restructuring
could be accomplished on terms acceptable to the Partnership.

     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


                                       -9-
<PAGE>

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. To the knowledge of the General  Partner,  this Offering
does not comply with any "safe harbor." There is limited guidance from reviewing
courts  regarding the  application  of the broad  language of the  Anti-Kickback
Statute to joint  ventures  similar to the one  described in this  Offering.  In
order  to  prove  violations  of the  Anti-Kickback  law,  the  government  must
establish that one or more parties  offered,  solicited or paid  remuneration to
induce or reward referrals.  The government has said that in certain  situations
the mere  offering of an  opportunity  to invest in a venture  would  constitute
illegal  remuneration in violation of the Anti- Kickback  Statute.  Although the
General  Partner  believes the structure and purpose of the  Partnership  are in
compliance  with the  Anti-Kickback  Statute,  no  assurances  can be given that
government  officials  or a  reviewing  court  would  agree.  Violation  of  the
Anti-Kickback Statute could subject the Partnership, the General Partner and the
physician  Limited Partners to criminal  penalties,  fines and/or exclusion from
the Medicare and Medicaid programs.

     In  addition  to  the  Stark  II and  Anti-Kickback  laws,  an  unfavorable
interpretation   of  other  existing  laws,  or  enactment  of  future  laws  or
regulations,   could   potentially   adversely   affect  the  operation  of  the
Partnership. If this occurs, the General Partner is obligated either to purchase
or cause the sale of the Partnership Interests of all of the Limited Partners or
to  dissolve  the  Partnership.  See  "Summary  of the  Partnership  Agreement -
Optional Purchase of Membership Interests."

     State  laws  will  affect  the  operation  of  the   Partnership  as  well.
Certificates of Need ("CONs") are ordinarily  required to acquire  lithotripters
or initiate lithotripsy services in Tennessee, Alabama and Kentucky. The General
Partner  already has the necessary  CONs for the Mobile  Lithotripsy  Systems in
Alabama and  Kentucky.  In order to transfer  the CONs to the  Partnership,  the
General  Partner  must provide  written  notice to the  respective  CON agencies
thirty (30) days before consummating the transaction.  The General Partner's CON
is currently  subject to challenge by another  potential  lithotripsy  equipment
vendor in Alabama;  the  General  Partner  believes  the  challenge  will not be
successful.  The General Partner does not hold CONs for lithotripsy  services in
Tennessee;  rather,  they  are  held by the  individual  contracting  hospitals.
Arkansas  does  not  require  a CON  for the  acquisition  of  lithotripters  or
initiation  of  lithotripsy   services.   Various   licensure  and  registration
requirements  must be met for the  Partnership  to  provide  mobile  lithotripsy
services in Tennessee,  Alabama,  Arkansas and Kentucky.  The  Partnership  will
comply with such  requirements.  Physicians  licensed in Tennessee  and Kentucky
must treat their own patients on the Mobile Lithotripsy Systems. See "Regulation
- State Regulation."

     Contract Terms and  Termination.  Pursuant to the  Contribution  Agreement,
concurrent with the Closing of the Offering,  the General Partner will assign to
the Partnership all its rights and obligations  under  approximately 30 Hospital
Contracts.  With one  exception,  none of the  Hospital  Contracts  requires the
consent of the Contract  Hospital prior to such assignment.  The General Partner
does not intend to obtain any  consents,  and there is no assurance  that one or
more Contract  Hospitals will not react  unfavorably to such assignment and seek
to terminate.  Many of the Hospital  Contracts are  terminable  without cause by
either party on short notice. Four hospitals


                                      -10-
<PAGE>

have terminated  lithotripsy services agreements with the General Partner within
the last year.  See "Proposed  Activities - Operation of the Business - Hospital
Contracts."  The General Partner does not anticipate  significant  cancellations
and believes it has a good  relationship  with many of the contracting  parties.
There is no assurance, however, that cancellations will either not occur or that
the resulting impact to the Partnership would not have a material adverse effect
on  Partnership  operations.  It is expected that most new  lithotripsy  service
contracts 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, a provision
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. Thus,
there is no assurance that Partnership operations as planned on the date of this
Memorandum will occur 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.  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.  See "Risk  Factors -
Competition."

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

     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 January 1, 2000. The extent of the potential
impact of the Year 2000 Issue is not yet known, and if not timely corrected,  it
could affect the global  economy.  The General Partner has made an assessment of
the Partnership's Year 2000 Issue risks and has concluded that the risks include
the following:  (i) operation of the Mobile Lithotripsy Systems may be adversely
affected;  (ii) third party payors may be adversely affected resulting in delays
in payment to the Partnership; (iii) facilities served by the Mobile Lithotripsy
Systems may be  adversely  affected  resulting  in a cessation of service to the
affected  facilities;  and (iv) the Partnership's  internal information systems,
including its accounting  system,  may be adversely affected resulting in record
keeping  and  accounting   delays.   Dornier,   the   manufacturer  of  the  HM3
lithotripter, has not assured Prime that its HM3 lithotripters will be Year 2000
compliant,  in all necessary respects,  i.e., that they will continue to operate
normally  after  January 1,  2000.  The  General  Partner  cannot  predict  with
certainty  whether  such will be the case or the effects of  noncompliance.  The
General  Partner has not inquired as to the Year 2000  readiness of any Contract
Hospital,  vendor or other third party related to the operation of the Business,
but is  relying  that such  parties  will be Year 2000  compliant.  The  General
Partner anticipates that the internal information systems,  including accounting
systems, that it will use for Partnership purposes will be Year 2000


                                      -11-
<PAGE>

compliant by the end of 1999,  although no assurance can be given that such will
be the case. The  Partnership  currently has no  contingency  plans in the event
that any of the above-described  risks is realized. In the event that any of the
above-described risks are realized, or any other,  unanticipated 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.

Tax Risks

     Investors  should note that the General Partner  anticipates no significant
tax benefits  associated with the operation of the Mobile Lithotripsy Systems 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. The Partnership is relying upon an opinion of its Counsel with respect
to certain material United States federal income tax issues.  Counsel's  opinion
is not  binding on the  Service as to any issue,  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 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 E TO THE MEMORANDUM) AND TO THE DISCUSSION  UNDER THE CAPTION
"TAX ASPECTS OF THE  OFFERING"  HEREIN FOR A MORE  DETAILED  DISCUSSION  OF SUCH
RISKS. IT IS STRONGLY  RECOMMENDED THAT EACH INVESTOR INDEPENDENT LY CONSULT HIS
PERSONAL  TAX  COUNSEL  CONCERNING  THE TAX  CONSEQUENCES  ASSOCIATED  WITH  HIS
OWNERSHIP OF AN INTEREST IN THE PARTNERSHIP.  THE CONCLUSIONS REACHED IN THE TAX
OPINION ARE RENDERED  WITHOUT  ASSURANCE THAT SUCH CONCLUSIONS HAVE BEEN OR WILL
BE ACCEPTED BY THE SERVICE OR THE COURTS.

     THIS  MEMORANDUM  AND THE TAX 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.


                                      -12-
<PAGE>


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

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

     Partnership   Allocations.   The  Partnership  Agreement  contains  certain
allocations of profits and losses that could be reallocated by the Service if it
were determined that the allocations did not have "substantial economic effect."
On December 31, 1985,  the Treasury  Regulations  dealing with the  propriety of
partnership  allocations  were  finalized.  As a general  rule,  allocations  of
profits and losses must have  "substantial  economic effect." Based upon current
law, Counsel is of the opinion that, if the question were litigated,  it is more
probable  than not that the  allocation  of profits  and losses set forth in the
Partnership  Agreement would be sustained for federal income tax purposes.  This
opinion is subject to certain  assumptions and  qualifications and each Investor
should  read  the  complete  discussion  of this  issue at "Tax  Aspects  of the
Offering - Partnership  Allocations." 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


                                      -13-
<PAGE>

maintain  certain cash reserves  deemed  necessary by the General  Partner.  The
Partnership will also incur significant  up-front capital costs that may have to
be paid out of the Partnership's revenues. Because of the circumstances outlined
above, if Partnership cash flow falls  substantially  below the estimates as set
forth in the Financial Projections, a Limited Partner could be subject to income
taxes payable out of personal funds to the extent of the  Partnership's  income,
if any,  attributed to him without  receiving  from the  Partnership  sufficient
Distributions to pay the Limited Partner's tax with respect to such income.  See
"Tax Aspects of the Offering - Taxable Income."

Other Investment Risks

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

     No  Participation  in  Management.  The General  Partner and the Management
Agent will have full  authority  to  supervise  the  business and affairs of the
Partnership pursuant to the Partnership  Agreement and the Management Agreement.
The Limited  Partners  will have no right to  participate  in the  management or
conduct of the  Partnership's  business and affairs.  The General  Partner,  the
Management  Agent,  their  employees  and their  Affiliates  are not required to
devote  their full time to the  Partnership's  affairs  and  intend to  continue
devoting  substantial  time and effort in organizing and operating  partnerships
and  other  ventures  throughout  the  United  States  that are  similar  to the
Partnership.  The General Partner and the Management Agent will devote such time
to the Partnership's business and affairs as they deem 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 E.

     Ability of the General Partner to Unilaterally Effect Fundamental  Changes.
The General Partner has the authority under the Partnership Agreement to effect,
without  Limited  Partner  consent,   transactions  that  could  result  in  the
termination or reorganization of the Partnership, a total or partial dilution of
the Limited  Partners'  interests  in the  Partnership,  and/or the  exchange of
interests in another  enterprise for the limited  partnership  interests held by
the Limited  Partners.  See "Summary of the Partnership  Agreement - Fundamental
Changes."

     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 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 on account of their Partnership  interests and liabilities for which
the recourse of creditors is limited to specific  Partnership  property,  exceed
the fair value of the assets of the Partnership, except that the fair value


                                      -14-

<PAGE>

which the recourse of creditors is limited shall of Partnership property that is
subject to a liability  for which the recourse of creditors is limited  shall be
included  in assets  only to the  extent  that the fair  value of such  property
exceeds such liability.

     Dilution  of Limited  Partners'  Interests.  The  General  Partner  has the
authority  under the  Partnership  Agreement to cause the  Partnership to issue,
offer  and sell  additional  limited  partnership  interests  in the  future  (a
"Dilution  Offering").  Upon the successful closing of a Dilution Offering,  the
Percentage  Interests  of the  Partners  will be  proportionately  diluted.  See
"Summary of the Partnership Agreement - Dilution Offerings."

     Liability  Under  Limited  Partner Loan.  Investors  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 such 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 his
counsel and financial advisors.  Neither the Partnership nor the General Partner
endorses  or  recommends  to  the  prospective  Investors  the  desirability  of
obtaining  financing  from the Bank nor does the  summary of the Loan  Documents
provided herein constitute legal advice. A Limited  Partner's  liability under a
Limited Partner Note continues regardless of whether the Limited Partner remains
a limited partner in the Partnership. As a consequence, such liability cannot be
avoided by claims, defenses or set-offs the Limited Partner may have against the
Partnership,  the  General  Partner  or their  Affiliates.  In  addition  to the
suitability  requirements discussed below, any prospective Investor applying for
a 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.

     Financial Projections.  The Financial Projections contain data that are the
General  Partner's  estimate of possible,  but not  necessarily the most likely,
results of the  Partnership's  operations  and  represent a prediction of future
events based on  assumptions  that may or may not occur and should not be relied
upon to indicate the actual results that will be attained.  Further, there is no
assurance that the financial  results of the Partnership will favorably  compare
to the historical financial results of the Business and the differences could be
materially  adverse.  The  Financial  Projections  begin on the Closing Date and
reflect five full twelve-month tax years; thus, they will not accurately reflect
the consequences of the first tax year of operations,  which will be less than a
full  twelve-month  period.  Investors  should carefully review the notes to the
Financial  Projections,  which contain various assumptions and other information
concerning the data therein.  The General  Partner  believes that the underlying
assumptions provide a reasonable basis for the projections, but some assumptions
inevitably will not materialize and  unanticipated  events and circumstances may
occur  subsequent to the date of the  Financial  Projections.  Accordingly,  the
actual  results  achieved  during  the  projected  periods  will  vary  from the
Financial  Projections and the variations may be material.  Furthermore,  to the
extent the Financial  Projections reflect taxable income and loss, Service audit
adjustments could adversely affect the timing and the amount of


                                      -15-

<PAGE>


deductions  that the  Partnership  plans to claim.  See  "Proposed  Activities -
Operation  of the Mobile  Lithotripsy  Systems"  and the  Financial  Projections
attached hereto as Appendix A.

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

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

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

     Limitation  of  General  Partner's  Liability  and   Indemnification.   The
Partnership  Agreement  provides that the General  Partner will not be liable to
the  Partnership  or to any  Partner  for  errors in  judgment  or other acts or
omissions in connection with the Partnership, except for those involving willful
misconduct or gross negligence.  Therefore, the Limited Partners may have a more
limited  right  of  action  against  the  General  Partner  in the  event of its
misfeasance  or malfeasance  than they would have absent the  limitations in the
Partnership  Agreement.   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 Medical Services, Inc. ("Prime"), the sole shareholder of
the General  Partner,  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 will be amended to include the Partnership and
the General Partner


                                      -16-
<PAGE>

believes that coverage limits of these policies are within  acceptable norms for
the extent and nature of the risks covered.  The Partnership will be responsible
for its share of premium costs. There are certain types of losses, however, that
are  either  uninsurable  or  are  not  economically  insurable.  For  instance,
contractual  liability is generally not covered under Prime's  policies.  Should
such losses  occur with  respect to  Partnership  operations,  or should  losses
exceed  insurance  coverage limits,  the Partnership  could suffer a loss of the
capital invested in its Mobile Lithotripsy  Systems and any anticipated  profits
from such investment.

     Optional  Purchase  of  Limited  Partner  Interests.  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 the interest of a
Limited Partner who (i) dies, (ii) becomes the subject of a domestic proceeding,
(iii) becomes  insolvent or (iv)  acquires a direct or indirect  ownership of an
interest in a competing  venture  (including  the lease or sublease of competing
technology).  The option  purchase price is an amount equal to the lesser of the
fair market  value of the  Partnership  Interest to be  purchased or 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 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 the General Partner that the
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 (i) purchase the Partnership  Interests of all of the Limited Partners
for an amount equal to the greater of a multiple of recent distributions or book
value  or  (ii)  dissolve  the  Partnership.  See the  form  of the  Partnership
Agreement  attached  hereto  as  Appendix  B and  "Summary  of  the  Partnership
Agreement - Optional Purchase of Limited Partner Interests."


                                    GLOSSARY

     Certain terms in this Memorandum shall have the following meanings:

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

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


                                      -17-
<PAGE>

     Asset  Contribution.  The  contribution  to the  Partnership by the General
Partner of substantially all of the operating assets related to the Business and
rights and obligations under  approximately 30 Hospital  Contracts,  pursuant to
the Contribution Agreement.

     Bank. First-Citizens Bank & Trust Company.

     Business.  The  lithotripsy  services  business  currently  operated by the
General Partner.

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

     Capital  Contributions.  All capital contributions made by a Partner or his
predecessor in interest which shall include,  without limitation,  contributions
made  pursuant  to  Article  VII  of  the  Partnership  Agreement.   The  assets
contributed  to  the  Partnership  by  the  General  Partner   pursuant  to  the
Contribution Agreement will be considered Capital Contributions.

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

     Closing.  The admission to the Partnership as Limited Partners of Investors
subscribing for Units.

     Closing  Date.  The date of the  Closing,  which is  scheduled  to occur on
December 4, 1998 (or earlier, in the discretion of the General Partner, upon the
sale of all 80 Units as provided  herein),  unless extended at the discretion of
the General Partner for a period up to 180 days.

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

     Contract  Hospitals.  Any  hospital  or other  health  care  facility  that
contracts  directly  with  the  Partnership  for the  provision  of  lithotripsy
services.

     Contributed  Assets. The assets to be transferred to the Partnership by the
General  Partner  pursuant to the  Contribution  Agreement,  consisting  of five
Mobile  Lithotripsy  Systems,  rights and  obligations  under  approximately  30
Hospital Contracts and all other operating assets related to the Business.

     Contribution  Agreement.  The Contribution Agreement dated October 23, 1998
between the  Partnership and the General Partner which provides for the transfer
of the Contributed Assets to the Partnership by the General Partner.

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


                                      -18-
<PAGE>

     Dilution Offering.  Pursuant to the terms of the Partnership Agreement, the
future offering of additional limited  partnership  interests in the Partnership
by the General Partner.  Any such offering generally will proportionally  reduce
the  existing  Percentage   Interests  of  the  then  current  Partners  in  the
Partnership.

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

     Escrow Agent. First-Citizens Bank & Trust Company.

     FDA. The United States Food and Drug Administration.

     Financial  Projections.  Projections  of  Partnership  revenue,  cash flow,
income, loss, and sources and uses of funds, and of Partnership return per Unit,
attached  hereto as Appendix A,  which have been prepared by the General Partner
based upon the assumptions stated therein.

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

     General Partner. The general partner of the Partnership, Prime Lithotripter
Operations,  Inc., a Delaware corporation,  d/b/a Tennessee Valley Lithotripter,
and wholly-owned subsidiary of Prime.

     Hospital Contracts.  The lithotripsy services contracts the General Partner
has  entered  into  with  the  Contract  Hospitals,  substantially  all of which
contracts  will be assigned  to the  Partnership  pursuant  to the  Contribution
Agreement.

     Investors. Potential purchasers of Units of the Partnership.

     Lenders.  The  commercial  lending  syndicate  and certain other holders of
Prime indebtedness.

     Limited  Partner  Loans.  The loans to  Investors  to fund a portion of the
purchase  price of their Units as described in, and subject to the terms of, the
Loan Commitment.
 
     Limited  Partner  Note.  The  note  attached  as an  Exhibit  to  the  Loan
Commitment  which upon execution and acceptance will represent a Limited Partner
Loan made to an Investor.

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


                                      -19-
<PAGE>

     Loan Commitment.  The commitment to the Partnership dated October 23,  1998
attached hereto as Appendix C, pursuant to which the Bank has agreed to fund the
Limited Partner Loans.

     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 Systems. The five tractor trailer transport systems with
installed and operational  lithotripters to be contributed to the Partnership by
the General Partner pursuant to the Contribution Agreement.

     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.

     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 Sections 1.704-2(b)(3), 1.752-1(a)(2) and 1.752-2.

     Offering. This offering of Units.

     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


                                      -20-
<PAGE>

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

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

     Partnership. Tennessee Valley Lithotripter Limited Partnership, a Tennessee
limited partnership.

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

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

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

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

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


                                      -21-
<PAGE>

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

     Percentage Interest. The interest of each Partner in the Partnership, to be
determined  initially in the case of a Limited Partner acquiring his Partnership
Interest  in the  Offering  by  reference  to his  Unit  ownership.  Immediately
following the Asset Contribution, the General Partner will hold approximately an
80% interest in the Partnership in that capacity and the Limited Partners of the
Merging Partnerships  collectively will hold up to a 20% (approximate)  interest
in the Partnership.  The Percentage Interest may be set forth in the Partnership
Agreement or any other  document or agreement,  as a percentage or a fraction or
on any numerical basis deemed appropriate by the General Partner. The Percentage
Interest  of the  Partners  will be  reduced  in the event of a future  Dilution
Offering.

     Prime. Prime Medical Services,  Inc., a publicly held Delaware  corporation
and the sole shareholder of the General Partner.

     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.

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

     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.

     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,  and
member of the National  Association of Securities Dealers,  Inc. The Sales Agent
is an Affiliate of the General Partner.

     SEC. The United States Securities and Exchange Commission.

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

     Service. The Internal Revenue Service.



                                      -22-
<PAGE>

     Service Area. The geographic region in which Partnership operations will be
conducted  and which  consists  primarily of Tennessee  and portions of Alabama,
Arkansas  and  Kentucky.  The General  Partner  reserves  the right to change or
expand the Service Area.

     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 distributed
to and completed by Investors in connection with their subscription for Units.

     Units.  The 80 equal limited partner  interests in the Partnership  offered
pursuant to this Memorandum for a price per Unit of $9,114 in cash, up to $6,614
of which may be funded with the  proceeds of a Limited  Partner  Loan by certain
Investors acceptable to the Bank.


                              TERMS OF THE OFFERING

General

     The  Partnership  was  recently  formed  under  the  laws of the  State  of
Tennessee.  The  General  Partner  intends  to  contribute  to  the  Partnership
substantially all of the operating assets related to the Business and rights and
obligations  under   approximately  30  Hospital   Contracts   pursuant  to  the
Contribution  Agreement upon the Closing in exchange for at least an initial 80%
interest in the  Partnership.  The General  Partner of the  Partnership is Prime
Lithotripter Operations,  Inc. See "General Partner." The Partnership expects to
operate five mobile lithotripters which it will acquire from the General Partner
as provided above. See "Proposed Activities." The principal executive offices of
the General Partner and the Partnership are located at 1900 Church Street, Suite
101, Nashville, Tennessee, 37203.

     The Units and Subscription  Price.  Tennessee Valley  Lithotripter  Limited
Partnership,  a  limited  partnership  formed  under  the  laws of the  State of
Tennessee,  hereby  offers up to 80 Units of  limited  partner  interest  in the
Partnership.  Each Unit represents a 0.25% economic interest in the Partnership.
Investors should note that their initial Percentage Interests in the Partnership
may be reduced by future  Dilution  Offerings.  See "Summary of the  Partnership
Agreement  -  Dilution  Offerings"  and the  form of the  Partnership  Agreement
attached  hereto as Appendix B. The price for each Unit is $9,114 and is payable
in cash in full at subscription;  provided,  that prospective Investors who meet
certain  requirements may be able to fund a portion of their Unit purchase price
with the proceeds of certain third-party financing. The Partnership has arranged
for financing of a portion of the Units' purchase price with First-Citizens Bank
& Trust Company,  Fayetteville,  North Carolina (the "Bank"). Therefore, in lieu
of paying the entire Unit  purchase  price in cash,  prospective  Investors  may
execute  and  deliver to the Sales  Agent upon  delivery  of their  Subscription
Packets,  at least $2,500 cash and a Limited Partner Note in a maximum principal
amount of up to $6,614 per Unit to be purchased,  a Loan and Security Agreement,
Security


                                      -23-
<PAGE>

Agreement  and two  Uniform  Commercial  Code  Financing  Statements  ("UCC-1s")
(collectively,  the "Loan  Documents").  See  "Terms of the  Offering  - Limited
Partner Loans " and the forms of the Limited Partner Note, the Loan and Security
Agreement and Security  Agreement attached to the Loan Commitment as Exhibits A,
B and C,  respectively,  which is  attached  hereto as  Appendix C and the UCC's
attached as part of the Subscription Packet. Each Investor may purchase not less
than one Unit. The General Partner may, in its sole discretion,  reject in whole
or in part any subscription.  Rejected subscription funds (without interest) and
the executed Loan Documents will be returned promptly to the rejected Investor.

     The Offering. By this Offering the Partnership seeks to sell up to 80 Units
for up to $729,120 in cash ($709,120 net of Sales Agent's  commissions).  In the
event  subscriptions  for one or more Units are  received  and  accepted  by the
General Partner on the Closing Date and the Lenders release as collateral all of
the assets and/or consent to the Asset  Contribution as required by the terms of
the  Contribution  Agreement,  all  subscription  funds (plus interest) and Loan
Documents  held in escrow  will be released to the  Partnership.  See  "Proposed
Activities  - The Asset  Contribution."  If no  subscriptions  are  received and
accepted  during the  subscription  period as defined in  "Subscription  Period"
below or the necessary  consents and/or  releases are not secured,  the Offering
will be terminated and all subscription  funds (plus  interest),  Loan Documents
and other subscription documents will be returned to the Investors.  The General
Partner  and its  Affiliates  do not intend to purchase  Units in the  Offering;
provided,  however,  that the interest of the General  Partner will  increase by
0.25% for each unsold Unit. All  subscription  funds will be held in an interest
bearing escrow account until the Closing or the termination of the offering. See
"Risk Factors" and the Loan Commitment attached hereto as Appendix C.

     Subscription  Period.  The  subscription  period will  commence on the date
hereof and will  terminate at 5:00 p.m.,  Central  time, on December 4, 1998 (or
earlier, in the discretion of the General Partner, upon the sale of all 80 Units
as  provided  herein and the  consummation  of the Asset  Contribution),  unless
sooner  terminated by the General  Partner or unless  extended for an additional
period up to 180 days. See "Plan of Distribution."

     Acceptance of Subscriptions.  To enable the Bank and the General Partner to
make credit and investor decisions,  respectively, the prospective Investor must
complete and deliver to the General Partner a Purchaser  Financial  Statement in
the form included in the Subscription Packet accompanying this Memorandum,  or a
substitute  financial  statement  containing  the same  information  as provided
therein, and pages one and two of the prospective Investor's most recently filed
Form 1040 U.S.  Individual Income Tax Return. An Investor whose  subscription is
received and accepted will become a Limited  Partner in the  Partnership  on the
Closing Date  provided the  conditions  to Closing as provided  above under "The
Offering"  are met.  Subscriptions  may be  rejected  in whole or in part by the
General  Partner  and need not be accepted  in the order  received.  The General
Partner  reserves  the  right  to  reduce  any  subscriptions  and  to  allocate
subscriptions  received  in  the  event  the  Units  are  oversubscribed.  If  a
prospective  Investor  finances  a portion of his Unit  purchase  price with the
proceeds of a Limited Partner Note, the General Partner's  decision to issue and
sell a Unit  to  such  Investor  and  the  admission  of  such  Investor  to the
Partnership  as a Limited  Partner will be further  conditioned  upon the Bank's
acceptance of the Investor and funding


                                      -24-
<PAGE>

of the proceeds of the Limited  Partner Note at the Closing to the  Partnership.
To the extent the General Partner reduces an Investor's subscription as provided
above, the Investor's cash Unit purchase price will be proportionately  refunded
and reduced and, if applicable, the principal amount of his Limited Partner Note
will be reduced.  If the General Partner elects to terminate the Offering or the
conditions  to Closing as provided  above under "The  Offering" are not met, all
subscription  funds  (plus  interest),  Loan  Documents  and other  subscription
documents will be returned in full within 30 days of such termination. Notice of
acceptance of an Investor's  subscription  to purchase  Units and the Investor's
Percentage  Interest in the  Partnership  will be furnished  promptly  after the
Closing.

     Closing Date.  On the Closing  Date,  Investors  whose  subscriptions  were
accepted  will be  admitted  as Limited  Partners  to the  Partnership,  and the
subscription  funds  and Loan  Documents  will be  released  from  escrow to the
Partnership.

Limited Partner Loans

     The  purchase  price for the Units is payable in cash with the  prospective
Investor's  personal funds and/or in part 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 Loan Commitment, attached hereto as Appendix C.
If the prospective Investor wishes to finance a portion of the purchase price of
his Units as provided herein, he must deliver to the Sales Agent upon submission
of his  Subscription  Packet an executed Limited Partner Note and Note Addendum,
the form of which are attached as Exhibit A to the Loan  Commitment,  a Loan and
Security  Agreement,  the form of which is  attached  as  Exhibit B  to the Loan
Commitment,  a Security Agreement, the form of which is attached as Exhibit C to
the Loan  Commitment  and two  UCC-1's,  the form of which are  attached  to the
Subscription Packet  (collectively,  the "Loan Documents").  In no event may the
maximum  amount  borrowed per Unit exceed  $6,614.  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 April 15,  1999
(assuming  the  Closing  occurs in 1998),  with a  thirteenth  (13th)  and final
installment in an amount equal to the principal balance then owed on the Limited
Partner Note and all  accrued,  unpaid  interest  thereon due and payable on the
third anniversary of the first installment date.  Interest accrues at the Bank's
"Prime Rate," as the same may change from time to time. The Prime Rate refers to
that  rate  of  interest  established  by the  Bank  and  identified  as such in
literature published and circulated within the Bank's offices. Such term is used
as a means of identifying a rate of interest  index and not as a  representation
by the Bank that such rate is  necessarily  the lowest or most favorable rate of
interest offered to borrowers of the Bank generally. A prospective Investor will
have no  claim or right of  action  based on such  premise.  See the form of the
Limited Partner Note attached as Exhibit A to the Loan Commitment.

     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


                                      -25-
<PAGE>

to him if he is  approved  for a Limited  Partner  Loan.  The Loan and  Security
Agreement  also  authorizes  (i) the  Bank to pay the  proceeds  of the  Limited
Partner Note directly to the  Partnership  and the  Partnership  to  acknowledge
receipt thereof and (ii) the Partnership to remit funds directly to the Bank out
of the  prospective  Investor's  share of any  Distributions  represented by the
prospective  Investor's  percentage  Partnership  Interest  to fund  installment
payments due on the prospective Investor's Limited Partner Note. See the form of
the Loan and Security  Agreement  attached as  Exhibit B to the Loan  Commitment
which is attached hereto as Appendix C.

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

Offering Exemptions

     The  Units  are  being  offered  and will be sold in  reliance  on:  (1) an
exemption from the  registration  requirements of the Securities Act of 1933, as
amended,  provided  in  Section 4(2)  thereof  and  Rule  506  of  Regulation  D
promulgated thereunder,  as amended; (2) an exemption from registration provided
in the Alabama Securities Act, as amended,  and a policy statement issued by the
Alabama Securities  Commission;  (3) an exemption from registration  provided in
Section 23-42- 509(c) of the Arkansas Code of 1957  Annotated,  as amended,  and
Rule 509.01(b) of the regulations  promulgated  thereunder,  as amended;  (4) an
exemption  from  registration  provided in the  Securities  Act of Kentucky,  as
amended;  and (5) an  exemption  from  registration  provided in Sections  48-2-
102(14)(F)(iv) and 48-2-125(b) of the Tennessee Code Annotated,  as amended, and
Rule 0780-4-2- .12(1)(c) of the regulations promulgated thereunder,  as amended.
Only a limited number of investors other than accredited investors, as such term
is defined under Regulation D of the Securities Act of


                                      -26-
<PAGE>

1933, as amended,  may purchase Units hereunder.  The suitability  standards set
forth  below have been  established  in order to comply  with the terms of these
registration exemptions.

Suitability Standards

     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.  For purposes of analyzing his investment in the  Partnership,  each
Investor  should  regard his exposure  with respect to his  investment to be his
cash  subscription  including,  if  applicable,  the  amount  for  which  he  is
personally  liable under his Limited  Partner Note. See "Terms of the Offering -
Limited  Partner  Loans." An Investor  should not purchase a Unit if he does not
have resources  sufficient to bear the loss of this entire  amount.  The General
Partner anticipates  selling Units only to individual  Investors;  however,  the
General Partner reserves the right to sell Units to entities.  See "Terms of the
Offering - General - The Offering."  Because of the risks involved,  the General
Partner  anticipates  selling the Units only to  Investors  residing in Alabama,
Arkansas,  Kentucky and  Tennessee who it  reasonably  believes are  "accredited
investors"  as that term is defined in Rule 501 under the  Securities  Act,  but
reserves  the right to sell to a limited  number  of  Investors  who do not meet
these  criteria.   Certain  institutions  and  the  following   individuals  are
"accredited investors":

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

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

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

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

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

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


                                      -27-
<PAGE>

Factors" and "Summary of the Partnership Agreement - Restrictions on Transfer of
Partnership Interests."

     Investors who wish to subscribe for Units must represent to the Partnership
that they meet the foregoing standards by completing and delivering to the Sales
Agent a Purchaser  Questionnaire in the form included in the Subscription Packet
accompanying this Memorandum.  Each Purchaser Representative,  if any, acting on
behalf of an Investor in connection with this Offering must complete and deliver
to the Sales Agent a Purchaser Representative Questionnaire,  which will be made
available to an Investor upon request.

How to Invest

     Investors who meet the qualifications for investment in the Partnership and
who wish to subscribe for Units may do so as follows:

     a. By  completing,  dating,  signing  and  acknowledging  the  Subscription
Agreement and the Counterpart  Signature Page to the Partnership  Agreement (the
forms of  which  are  included  in the  Subscription  Packet  accompanying  this
Memorandum);

     b. By completing,  dating and signing the Purchaser Questionnaire (the form
of which is included in the Subscription Packet accompanying this Memorandum);

     c. By having any  Purchaser  Representative  who has acted on behalf of the
Investor in connection with this Offering complete,  date and sign the Purchaser
Representative  Questionnaire  (a copy of which is available upon request to the
General Partner);

     d. By completing, dating and signing the Purchaser Financial Statement (the
form  of  which  is  included  in  the  Subscription  Packet  accompanying  this
Memorandum),  or in lieu  thereof,  substituting  the  Investor's  own  personal
executed financial statement,  as long as such substitute statement contains the
same  information  as  provided  in the form,  and  attaching  to the  Purchaser
Financial Statement or substitute  statement,  as the case may be, pages one and
two of the Investor's most recently filed Form 1040 U.S.  Individual  Income Tax
Return;

     e. If the  prospective  Investor  is  financing  a portion of his  purchase
pursuant to a Limited  Partner Loan, by completing and signing (on the front and
the back),  but not dating,  a Limited Partner Note and signing the form of Note
Addendum attached thereto (the form of which Limited Partner Note (including the
Note Addendum) is included in the Subscription Packet and is attached as Exhibit
A to the Loan Commitment);

     f. If the  prospective  Investor  is  financing  a portion of his  purchase
pursuant to a Limited  Partner Loan, by completing  and signing (but not dating)
the Loan and Security


                                      -28-
<PAGE>

Agreement  (the form of which is  included  in the  Subscription  Packet  and is
attached as Exhibit B to the Loan Commitment);

     g. If the  prospective  Investor  is  financing  a portion of his  purchase
pursuant to a Limited  Partner Loan, by completing  and signing (but not dating)
the Security Agreement (the form of which is included in the Subscription Packet
and is attached as Exhibit C to the Loan Commitment);

     h. If the  prospective  Investor  is  financing  a portion of his  purchase
pursuant to a Limited  Partner Loan, by completing and signing two copies of the
UCC-1 (the form of which is included in the Assignment Packet);

     i. By delivering or mailing all of the foregoing,  together with a check in
the appropriate amount payable to "First-Citizens as Escrow Agent for TVLLP," to
the Sales Agent at 2008 Litho Place, Fayetteville, North Carolina 28304.

     All  information  provided by Investors,  including the  information in the
Loan  Documents,   the  Purchaser  Questionnaire  and  the  Purchaser  Financial
Statement,   will  be  kept   confidential  and  not  disclosed  except  to  the
Partnership,  the General  Partner,  the Bank and their  respective  counsel and
Affiliates and, if required, to governmental and regulatory authorities.

Restrictions on Transfer of Units

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

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

     Any assignment of Units or the right to receive  Partnership  Distributions
in respect of Units will not release the assignor from any liabilities connected
with the assigned Units,  including  liabilities under any Limited Partner Loan.
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


                                      -29-
<PAGE>

the  General  Partner,  or the  consent of a Majority in Interest of the Limited
Partners (except the assignor Limited Partner) and the General Partner, (ii) the
submission of certain  documents  and (iii) the payment of expenses  incurred by
the  Partnership  in effecting  the  substitution.  An assignee,  regardless  of
whether he becomes a substituted  Limited Partner,  will be subject to and bound
by all the terms and conditions of the Partnership Agreement with respect to the
assigned  Units.  See "Summary of the  Partnership  Interest -  Restrictions  on
Transfer of Partnership Assets."


                              PLAN OF DISTRIBUTION

     Subscriptions for Units will be solicited by MedTech Investments, Inc., the
Sales Agent. The Sales Agent is an Affiliate of the General  Partner.  The Sales
Agent has entered into a Sales Agency Agreement with the Partnership pursuant to
which the Sales Agent has agreed to act as exclusive  agent for the placement of
the  Units on a "best  efforts"  any or all  basis.  The  Sales  Agent  will not
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 may be  engaged in other  similar
offerings on behalf of the Affiliates of the General Partner during the pendency
of  this  Offering  and  in the  future.  Investors  should  note  the  material
relationship  between the Sales Agent and the General  Partner,  and are advised
that the relationship  creates conflicts in the Sales Agent's performance of its
due diligence responsibilities under the federal securities laws.

     As compensation for its services, the Sales Agent will receive a commission
equal to $250 for each Unit sold.  No  commission  is payable to the Sales Agent
unless a successful  Closing has occurred.  No other commissions will be paid in
connection with this Offering.  Subject to the conditions as provided above, the
Sales Agent may be reimbursed by the Partnership for its out-of- pocket expenses
associated  with the sale of the Units in an amount not to exceed  $15,000.  The
Partnership has agreed to indemnify the Sales Agent against certain liabilities,
including liabilities under the Securities Act.

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

     The subscription period will commence on the date hereof and will terminate
at 5:00 p.m., Central time, on December 4,  1998 (or earlier,  in the discretion
of the  General  Partner,  upon the sale of all 80  Units as  provided  herein),
unless  extended  at the  discretion  of the General  Partner for an  additional
period not to exceed 180 days. No minimum  number of Units must be sold in order
for this Offering to close.

     An Investor  whose  subscription  is received  and  accepted  will become a
Limited  Partner in the  Partnership  on the Closing  Date  provided all closing
conditions are satisfied. See


                                      -30-
<PAGE>

"Terms of the Offering - The Offering."  Subscriptions  may be rejected in whole
or in part by the  Partnership  and need not be accepted in the order  received.
The Partnership  reserves the right to reduce any  subscriptions and to allocate
subscriptions received in the event the Units are oversubscribed.  See "Terms of
the Offering - General - Acceptance of  Subscriptions."  If the General  Partner
elects to terminate the Offering,  or no Units are timely  purchased as provided
herein,  all  subscription  funds  (plus  interest),  Loan  Documents  and other
subscription  documents  will be  returned  within 30 days of such  termination.
Notice of  acceptance of an Investor's  subscription  to purchase  Units and his
initial Percentage  Interest in the Partnership will be furnished promptly after
the Closing. To the extent the Partnership reduces an Investor's subscription as
provided above,  the Investor's cash Unit purchase price will be  proportionally
refunded and reduced and, if  applicable,  the  principal  amount of his Limited
Partner Note will be reduced. All subscription funds will be held in an interest
bearing  escrow  account  with  the  Escrow  Agent  until  the  Closing  or  the
termination of the Offering.

                               PROPOSED ACTIVITIES

Purpose

     The primary purposes of the Partnership are (i) to improve the provision of
health-  care in the  Service  Area by  taking  advantage  of the  technological
innovations  offered by the Mobile  Lithotripsy  Systems  and the  Partnership's
quality  assurance  and  outcome  analysis  programs,  and  (ii)  to  make  cash
distributions to its Partners from revenues  generated from the operation of the
Mobile  Lithotripsy  Systems.  There is no assurance  that these efforts will be
successful.  See "Risk Factors." Following the Closing,  the Partnership expects
to  continue  the current  operations  of the  General  Partner.  See "The Asset
Contribution" and "Operation of the Business" below.

Treatment Methods For Kidney Stone Disease

     Urolithiasis, or kidney stone disease, affects an estimated 600,000 persons
per year in the United  States.  The exact cause of kidney  stone  formation  is
unclear,  although  it has been  attributed  to diet,  climate,  metabolism  and
certain  medications.  A number of methods  currently  are used to treat  kidney
stones.  These  methods range from drug therapy to dissolve the stone to an open
surgical  procedure for stone removal.  Approximately  75 percent 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.  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 following is a
brief discussion of current treatment methods.

     Drug Therapy.  Grain-sized  stones usually pass  spontaneously in the urine
and the patient can be treated  with drugs to reduce  discomfort  and to prevent
further  stone  recurrence.  Larger stones of uric acid also can be dissolved by
appropriate drugs to allow normal passage from


                                      -31-
<PAGE>

the urinary system.  Drug therapy is used to institute  therapeutic  measures to
lower the concentration of stone-forming ions such as calcium and oxalate in the
urine.

     Cystoscopic  Procedures.  Stones  that form or lodge in the  lower  urinary
tract and bladder and that cannot be  excreted  spontaneously  sometimes  can be
extracted through the urethra with a standard  cystoscope combined with either a
stone basket (for a stone in the ureter) or a special stone removal forceps (for
a stone in the  bladder).  Occasionally,  this  procedure can injure the ureter.
Unlike stones in the lower urinary tract,  stones in the upper urinary tract (in
the ureter,  renal  pelvis and the kidney)  are not  accessible  with a standard
cystoscope.

     Ureteroscopic  Procedures.  Ureteroscopy  may  be an  alternative  surgical
method for the  removal  of stones  from the  urinary  tract.  Various  forms of
ureteroscopes  that use fiber  optics can be  inserted  through  the bladder and
ureter to allow a surgeon to view the  internal  recesses  of the upper  urinary
tract and the kidney.  When a stone is observed,  the surgeon can remove it with
special  grapples that pass through the  ureteroscope.  If the stone's size does
not  permit  it to be  extracted,  a  laser  fiber,  electrohydraulic  probe  or
ultrasound  probe can be inserted  into the  ureteroscope  to  disintegrate  the
stone.  Stones that are lodged within the kidney,  however,  cannot  normally be
treated by this method.

     Percutaneous  Lithotripsy.  Percutaneous  lithotripsy  allows  surgeons  to
remove  stones from the kidney,  renal pelvis and upper  urinary tract through a
nephrotomy, a percutaneous channel established through the patient's skin. Under
fluoroscopic  control a long,  fine needle is inserted  into the kidney's  urine
collection  system  through a small  puncture in the patient's  side. The needle
tract is  progressively  widened with dilators and tubes until a nephroscope can
be inserted.  The nephroscope  provides direct vision and direct access into the
recesses  of the  kidney  and the renal  pelvis.  When a stone is  located,  the
working  channel  of the  nephroscope  can  accommodate  various  stone  removal
attachments  such as loops,  baskets or forceps to extract small stones.  When a
stone wider than the  working  channel of the  nephroscope  is  encountered,  an
ultrasonic  lithotrite,  laser fiber, or electrohydraulic  probe can be inserted
into the working channel to disintegrate the stone.

     Laser  Procedures.  Laser  technology  is a fairly new method of destroying
urinary  stones found in the bladder and the ureter.  In this  procedure a laser
light that  fragments  urinary  stones is conducted  through a fiber-optic  tube
inserted through an instrument.  In June 1988, the FDA approved the use of laser
technology to fragment  urinary  stones in the ureter through the insertion of a
fiber-optic  fiber.  Laser procedures are generally done through endoscopes such
as ureteroscopes or nephroscopes.

     Open Surgery.  The traditional open surgical procedure,  widely used before
the  development  of  lithotripsy,  is a major  operation  that requires a large
incision  into the  kidney or ureter to gain  access to the stone.  The  patient
spends as long as two weeks in the hospital  followed by a convalescence  period
of four to six weeks.  In addition to the risk associated with the open surgical
procedure,  another  stone can form in the  kidney or renal  pelvis  that  would
necessitate  performing  another surgical procedure that could result in loss of
the kidney.



                                      -32-
<PAGE>

     Extracorporeal   Shock-Wave  Lithotripsy.   The  extracorporeal  shock-wave
lithotripter,  introduced  in the United  States from West Germany in 1984,  has
dramatically  changed the course of kidney stone disease treatment.  The General
Partner  estimates  that  currently up to 95% of all kidney  stones that require
treatment  can be treated  with  lithotripsy.  Lithotripsy  involves  the use of
shock-waves to disintegrate kidney stones noninvasively.

     HM3  lithotripters  employ a special water bath to maintain the pressure of
shock-  waves.  With these  systems,  a patient is immersed in a special tank of
water and shock-waves  generated by a disposable  high-voltage  underwater spark
electrode are focused on a kidney stone. A fluoroscopic  X-ray system is used to
position the patient accurately over the shock-wave generator in the water bath.
While the patient is under conscious sedation,  usually 500 to 2,000 shock-waves
of short  duration  pass through the water,  penetrate  the flesh and impact the
hard, crystalline kidney stone, causing it to disintegrate.  The shock-waves are
regulated  by an ECG monitor  that  monitors  cardiac  function and prevents the
generation  of the  shock-wave  during  the  sensitive  period of the  patient's
cardiac  cycle.  Disintegration  of the  kidney  stone  occurs  in about  thirty
minutes.  During the procedure and for several days thereafter,  stone fragments
are  passed  with  the  urine.  Some  newer  lithotripters  employ  a  different
shock-wave  component which does not require the use of a water bath or, in most
cases, general anesthesia. The Partnership's lithotripters are first generation,
but have been upgraded to eliminate the need for general  anesthesia and, in the
experience of the General Partner,  produce lower  retreatment rates than second
generation machines. See "Description of the Assets" below.

The Asset Contribution

     The following  description  of the Asset  Contribution  summarizes  certain
provisions of the  Contribution  Agreement,  is not a complete  statement of the
rights and  obligations  set forth  therein and is  qualified in its entirety by
reference to the complete text of the Contribution Agreement, a copy of which is
available upon request from the General Partner.

     Concurrent  with the Closing of the Offering,  the General  Partner and the
Partnership  will  effect  the  contribution  of the  Contributed  Assets to the
Partnership in exchange for the General Partner's  Partnership Interest pursuant
to the terms of the Contribution  Agreement.  Because certain of the Contributed
Assets have been pledged as collateral for certain  obligations  of Prime,  both
the consummation of the transactions  contemplated by the Contribution Agreement
and the Closing of the  Offering are  conditioned  upon the release of all liens
against  such  Assets by the  Lenders  and/or the  consent of the Lenders to the
transfer of such Assets from the General Partner to the Partnership.  See "Terms
of the Offering - The  Offering"  and "-  Description  of the Assets" under this
section.

     The  General  Partner  will  receive  at  least  an  80%  interest  in  the
Partnership  in exchange for the  contribution  of the Assets.  The  Partnership
Interest of the General Partner will increase by 0.25% per unsold Unit.


                                      -33-
<PAGE>

History of the Business

     The General  Partner  purchased the Business from three separate  groups of
physicians  in October 1993. In  connection  with the  acquisition,  each of the
selling  physicians  entered into a  noncompetition  agreement  with the General
Partner. All of such noncompetition  agreements expired on October 15, 1998. The
General Partner anticipates that certain former owners may elect to compete with
the Business since they are no longer subject to the terms of these  agreements.
Whether and to what extent such may be the case cannot be  accurately  predicted
by the General  Partner.  Significant  additional  competition  would  adversely
impact proposed Partnership  operations,  and the effect could be material.  See
"Risk  Factors  -  Operating  Risks -  Competition"  and  "Risk  Factors - Other
Investment Risks - Financial Projections." At the time of its acquisition by the
General Partner,  the Business operated three Mobile Lithotripsy Systems and one
fixed-base  lithotripter,  which was converted to a Mobile Lithotripsy System in
early 1995. A fifth Mobile Lithotripsy System was added in June 1996.

Description of the Assets

     The  equipment   used  in  the  Business   consists  of  five  Dornier  HM3
Lithotripters,  five trailers upfitted to house the lithotripters, five tractors
to transport  the  trailers  from site to site and other  miscellaneous  medical
equipment and supplies.  Descriptions of the principle items of equipment appear
below.

     Lithotripters. Three Dornier HM3 lithotripters were acquired by the General
Partner in April 1991, and two more were acquired in October 1992 and June 1996,
respectively.  Each of the Dornier HM3 units consists of a stainless steel water
tub, patient positioning unit, shock-wave generator,  radiological  localization
system, hydraulic supply system, water treatment system and control cabinet. The
localization  system,  which employs two image  intensifiers,  allows normal and
high-current  fluoroscopy.  The control cabinet  contains control units for both
image  intensifiers,  TV monitors and video image memory.  After positioning the
patient in the tub, the image  intensifiers  are swung by hand into the centered
position and are moved along the cental beams by motor.

     The shock-wave  generation system consists of the capacitor  charging unit,
the pulse generator, shock-wave generator, ECG-trigger unit, ellipsoid reflector
and underwater electrode. The underwater electrode is mechanically linked to the
reflector and is positioned in such a way that the electric energy is discharged
exactly in the lower  focus.  The  shock-wave  energy,  which can be  controlled
within  defined  limits,  is taken  from the  charging  unit and  stored  in the
shock-wave generator. The spark pulses are released synchronously to the R-waves
of the  ECG-signals  via the ECG triggering  unit. The spark pulses cause energy
discharges  in the form of arcs  between the  electrode  tips of the  underwater
electrode  leading to  explosive  vaporizations  of the water in the zone of the
arc.  The  resulting  shock-waves  are  reflected  by  the  ellipsoid  wall  and
concentrated  in the upper focus where the kidney stone is located.  The patient
positioning  unit  enables  the exact  line-up of the kidney  stone in the upper
focus of the reflector.  The patient is placed on a support which makes possible
the optimum  application of the  shock-waves  in accordance  with the individual
anatomic  conditions.   The  movement  of  the  patient  support  in  the  three
coordinates is performed by


                                      -34-
<PAGE>

a positioning  unit,  which is guided by a guideway  installed on the ceiling of
the trailer. The positioning procedure is performed hydraulically and controlled
via the control cabinet.

     Each of the  lithotripters  to be contributed to the  Partnership  has been
upgraded  by the  (i)  installation  of a  larger  ellipsoid  and  40  nanofarad
generator which enables treatment without the need for general anesthesia;  (ii)
installation  of a  Stryker  Frame  and  manual  gantry  controls  which  enable
treatment stones in the distal third of the ureter;  and (iii) conversion of the
imaging system from analogue to digital.  Each of the  lithotripters has been in
operation  for more than twelve  years,  and other than the  upgrades  described
above, typically require only routine maintenance and repair.

     Tractor Trailers.  The trailers consist of (i) a 1986 Calumet trailer, (ii)
a 1991 Calumet  trailer,  (iii) a 1992  Calumet  trailer,  (iv) a 1995  Ti-Brook
trailer and (v) a 1996 Best  Trailer.  With the  exception  of the 1986  Calumet
trailer which was acquired in April 1994,  all the trailers were  purchased new.
Each trailer is upfitted to house an HM3  lithotripter.  Each trailer contains a
generator and an HVAC system,  is fully wired and is fitted with expanding sides
to accommodate operation of the lithotripter.  Each of the three oldest trailers
each has been  refurbished  once, and the General Partner  anticipates that they
will  either have to be replaced or  substantially  refurbished  and  redesigned
within the next three years.  The trailers are transported  from site to site by
the tractors. See "- Anticipated Partnership Expenditures" in this Section.

     The  tractors  consist  of (i) two 1988  Kenworth  tractors,  (ii) two 1989
Kenworth  tractors and (iii) a 1993 Freightliner  tractor.  Each of the tractors
was used when purchased.  The General Partner  anticipates  that the four oldest
tractors  will  have  to be  replaced  within  the  next  three  years.  See  "-
Anticipated Partnership Expenditures" in this Section.

     Hospital Contracts.  The General Partner is party to separate contracts for
the provision of lithotripsy services (the "Hospital Contracts") to 31 hospitals
in the Service Area (the  "Contract  Hospitals").  Eighteen  Hospital  Contracts
grant the General Partner the exclusive right to deliver lithotripsy services to
the relevant Contract  Hospital.  The Hospital  Contracts  generally require the
General Partner to make a lithotripter  available at the Contract  Hospitals for
use by physicians making appropriate  arrangements with the Contract  Hospitals.
The General Partner also generally  provides a technician and certain  ancillary
services such as scheduling and disposable  medical  products  necessary for the
lithotripsy  procedure.  The Hospital Contracts provide that the General Partner
receives a per  procedure  fee. The hospitals  and clinics are  responsible  for
billing  and  collecting  their own fees from all  insurance  payors.  See "Risk
Factors  -   Operating   Risks  -  Impact  of   Insurance   Reimbursement"   and
"Competition." Pursuant to the Contribution Agreement,  the General Partner will
contribute to the Partnership the General  Partner's rights and obligations with
respect to all of the Hospital  Contracts  except the Lake  Cumberland  Regional
Hospital  agreement  which the General  Partner is obligated to assign to one of
its Affiliates.

     Most of the Hospital Contracts provide that they are automatically  renewed
on a  year-to-year  basis unless notice is given 90 days prior to the end of the
relevant  renewal  term.  In  addition,  most  of  the  Hospital  Contracts  are
terminable upon 90 days written notice by either party without cause and/or upon
the occurrence of customary events of default. Certain Hospital Contracts


                                      -35-
<PAGE>

have  continued  beyond their stated terms and  applicable  renewal  periods and
could be  canceled  at any  time.  Blount  Memorial  Hospital  (contracted  with
competing  vendor),  Middle  Tennessee  Medical Center (leased its own equipment
with plans to purchase in 1999),  Columbia Outpatient Surgery,  Inc. (contracted
with competing vendor) and North Side Hospital (acquired its own equipment) each
have terminated  lithotripsy  services contracts with the General Partner within
the last year. The General Partner believes it has a good relationship with many
of the contracting  parties and does not anticipate  significant  cancellations.
There is no assurance, however, that such cancellations will not occur. With the
exception  of the  Cumberland  Medical  Center  Agreement,  none of the Hospital
Contracts  requires  the  General  Partner to obtain  the  consent of a Contract
Hospital  prior to  assigning  its  Hospital  Contract to the  Partnership.  The
General  Partner  does not  intend  to  obtain  any  consents,  and  there is no
assurance that one or more Contract  Hospitals will not react unfavorably to the
assignment of the Hospital  Contracts to the  Partnership and seek to terminate.
See "Risk Factors - Operating Risks - Contract Terms and Termination."

     Twenty-three  Contract  Hospitals  are located in  Tennessee,  six Contract
Hospitals are located in Kentucky,  one Contract  Hospital is located in Alabama
and one Contract Hospital is located in Arkansas.

Anticipated Partnership Expenditures

     Three of the Calumet trailers are scheduled to be refurbished in 1999 at an
estimated cost of approximately $65,000 per trailer,  which amount would be paid
to  AK  Associates,   an  Affiliate  of  the  General  Partner  engaged  in  the
refurbishment of medical equipment  trailers and coaches.  See "Compensation and
Reimbursement  to the General  Partner and its  Affiliates."  In  addition,  the
General  Partner  anticipates  refurbishing  the remaining  trailers in 2000 and
2001,  respectively.  Refurbishment  of a trailer  typically  takes six to eight
weeks  and  consists  of  removal  and   reinstallation   of  the  lithotripter,
replacement of the interior floors,  cabinets and wall coverings,  exterior body
work,  repainting and re-decaling the exterior and service to the expanding wall
slide- outs.  During the time a trailer is being  refurbished,  the  Partnership
would likely rent a replacement mobile  lithotripter from the General Partner or
one of its  Affiliates at an estimated per month rate of $35,000.  Any necessary
trailer  maintenance  is likely to be  performed  by an Affiliate of the General
Partner at customary rates. See  "Compensation  and Reimbursement to the General
Partner and its  Affiliates." In addition,  in 1999 the General Partner plans to
replace the three oldest  tractors  with used  tractors at an estimated  cost of
approximately   $40,000  per  tractor.  The  General  Partner  also  anticipates
replacing at least one of the remaining tractors in 2000.

Operation of the Mobile Lithotripsy Systems

     It is anticipated  that the Partnership  will continue to provide  services
under the Hospital Contracts and, where possible, enter into similar lithotripsy
service   agreements  with  other  hospitals  and  outpatient   surgery  centers
throughout  the Service  Area.  See "Risk  Factors - Operating  Risks - Contract
Terms and  Termination."  The  services  offered  by the  Partnership  under the
Hospital  Contracts  will be "wholesale" in nature,  i.e. the  Partnership  will
primarily supply the lithotripter,  certain  personnel and maintenance  services
for a per procedure fee. The Contract


                                      -36-
<PAGE>

Hospitals are solely  responsible for billing and collecting on their own behalf
the technical component of the lithotripsy procedure.

     It is anticipated that the Partnership will have a Physician Advisory Board
consisting of five physician Limited Partners  appointed by the General Partner.
The  Physician  Advisory  Board will meet two to four  times per year,  and each
member of the  Physician  Advisory  Board will receive a fee of $250 per meeting
attended. In addition, it is anticipated that the General Partner will appoint a
local Medical Director at a cost to the Partnership of approximately $60,000 per
year. After  consultation  with the Medical Director and the Physician  Advisory
Board,  the Management  Agent will determine the travel  itinerary of the Mobile
Lithotripsy  Systems. See "Proposed Activities - Management and Administration."
The travel  schedule is expected to be influenced by the scheduling  obligations
under the Hospital Contracts,  the number of treating physicians and patients in
particular  areas  and  Partnership  arrangements  with  any new  hospitals  and
outpatient  surgery  centers  located in the Service Area.  The General  Partner
anticipates  the  Partnership  will be able to  obtain  new pad site  space  and
utility  hook-ups at little or no charge from any local  hospitals  and surgical
centers  which enter into new  arrangements  with the  Partnership.  The General
Partner,  in its  sole  discretion,  has the  authority  to  expand  Partnership
lithotripsy operations throughout, and outside of, the Service Area.

     The General Partner anticipates that, over time, technical innovations that
make lithotripsy  simpler and less costly will put downward pressure on the fees
the  Partnership  charges for its services.  A 2,000 page report released by the
Health Care  Financing  Agency  indicates  that the  professional  component  of
Medicare payments for lithotripsy procedures may soon be greatly reduced because
of the relative  simplicity  and risk-free  nature of the  procedure.  See "Risk
Factors  -   Operating  Risks  -  Dependence  on  Insurance  Reimbursement"  and
"Regulation."

Funding for Partnership Activities

     The  General   Partner   intends   that   funding  for  the   Partnership's
refurbishment   of  three  trailers  and  acquisition  of  three  used  tractors
(including  payment of the applicable use and sales taxes) and the Partnership's
start-up,  syndication,  Asset  Contribution,  organization  and working capital
expenses  will come  primarily  from the cash  proceeds  of this  Offering.  The
proceeds of this Offering cannot be accurately  determined until the Closing has
occurred and the number of Units sold has been calculated.  If fewer than all 80
Units are sold,  such  proceeds may not be  sufficient  to fund all  anticipated
expenses. The General Partner anticipates funding any shortfall with Partnership
Cash Flow  and/or the  proceeds of  indebtedness  as  determined  by the General
Partner. See "Risk Factors - Operating Risks - Partnership Limited Resources and
Risks of Leverage," "Proposed Activities - Anticipated Capital Expenditures" and
"Sources and Application of Funds."

     The  Partnership  has  no  commitment  from  any  lender  to  provide  debt
financing,   although   Affiliates   of  the  General   Partner   maintain  good
relationships with certain commercial lenders. There is no assurance that a loan
would be  available  at the time,  in an amount and on terms  acceptable  to the
Partnership.  The  General  Partner  and/or  its  Affiliates  may,  but  are not
obligated to, lend money to the Partnership, and it cannot be determined at this
time if they would be willing


                                      -37-
<PAGE>

and able to do so on terms acceptable to the  Partnership.  Any advances made by
the General  Partner or an  Affiliate to the  Partnership  will not obligate the
General  Partner,  any such  Affiliate  or any other  Affiliate  of the  General
Partner to make future advances to the Partnership. The Partnership may not make
loans  to the  General  Partner  or any of  its  Affiliates.  Borrowings  by the
Partnership  must be  used  solely  for  the  benefit  of the  Partnership.  See
"Conflicts of Interest."

     While the  General  Partner  does not  anticipate  that it would  cause the
Partnership  to  incur  indebtedness  unless  cash  generated  from  Partnership
operations  were at the  time  expected  to  enable  repayment  of such  loan in
accordance with its terms,  lower than anticipated  revenues and/or greater than
anticipated expenses could result in the Partnership's  failure to make payments
of principal or interest when due under such a loan and the Partnership's equity
being reduced or  eliminated.  In such event,  the Limited  Partners  could lose
their entire investment. See "Risk Facors - Operating Risks, Partnership Limited
Resources and Risks of Leverage" and the Financial  Projections attached to this
Memorandum as Appendix A.

Acquisition of Additional Assets

     Pursuant  to  the  Partnership  Agreement,  the  General  Partner  has  the
authority  at any time  (without  obtaining  the Limited  Partners'  consent) to
establish  reserves or borrow  additional  funds on behalf of the Partnership to
acquire one or more fixed base or Mobile Lithotripsy Systems (or any other renal
stone  treatment  equipment),  and may use  Partnership  assets and  revenues to
secure and repay such  borrowings.  The  acquisition of such assets likely would
result in higher operating costs for the Partnership. Except as provided herein,
the General Partner does not anticipate acquiring additional  Partnership assets
unless projected  Partnership Cash Flow or proceeds from a Dilution Offering are
sufficient to finance such acquisitions. See "Sources and Application of Funds."
No Limited Partner would be personally  liable on any  Partnership  indebtedness
without such Limited 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.   A  default  by  the
Partnership  under  any such loan  could  severely  and  negatively  impact  the
Partnership. See "Risk Factors - Operating Risks - Partnership Limited Resources
and Risks of Leverage."

Management and Administration

     Management Fee. Pursuant to the Management Agreement, the Management Agent,
an Affiliate of the General  Partner,  will  contract  with the  Partnership  to
supervise and coordinate the  management  and  administration  of the day-to-day
operations  of the Mobile  Lithotripsy  Systems  for a monthly  fee equal to the
greater of $8,000 or 7.5% of Partnership Cash Flow per month. See  "Compensation
and  Reimbursement  to the General  Partner and its  Affiliates" and "Management
Agent."  The  General  Partner  may,  in  its  sole  discretion,  engage  at the
Partnership's   expense  one  or  more  local   Medical   Directors  to  provide
consultation  regarding  patient  needs and  treatment.  It is expected that one
medical  director will be engaged at an annual  estimated  cost of $60,000.  All
costs  incurred  by the  Management  Agent in  performing  its duties  under the
Management Agreement will be the responsibility of, and will be paid directly or
reimbursed to the Manager by the Partnership.


                                      -38-
<PAGE>

The Management Agent is the management agent for various affiliated  lithotripsy
ventures.  As a  consequence,  many  of its  employees  provide  management  and
administrative  services for numerous  ventures,  including the Partnership.  In
order to properly  allocate the costs of the  Management  Agent's  employees and
other overhead expenses among the entities for which they provide services, such
costs will be divided  among them  based upon the  relative  number of  patients
treated by each.  The General  Partner  believes  that the sharing of Management
Agent personnel costs among the various ventures will result in significant cost
savings for the Partnership.

     Management Duties.  Investors are urged to review carefully the form of the
Management Agreement, a copy of which is attached as Appendix D.  The Management
Agent's  services  under the  Management  Agreement  generally  will include the
provision of lithotripsy  related  services,  housekeeping,  laundry,  equipment
maintenance,  medical and office supply inventory and other incidental  services
necessary for efficient operation of the Mobile Lithotripsy Systems, as well as,
the  supervision  and  coordination  of any  necessary  lithotripsy  training of
qualified  physicians  and the continuing  education of qualified  physicians in
lithotripsy  techniques.  The  Management  Agent  will also be  responsible  for
implementing  and overseeing  the  Partnership's  quality  assurance and outcome
analysis  programs.  In addition,  the Management Agent will employ on behalf of
the Partnership all  nonphysician  personnel  reasonably  necessary to staff and
operate the Mobile Lithotripsy Systems, including, without limitation,  drivers,
lithotripsy technicians,  nurses,  secretary/receptionists  and office managers.
All such personnel will be the employees and the financial responsibility of the
Partnership,   and  the  Management   Agent  may  increase  or  decrease  Mobile
Lithotripsy  System  personnel to the extent the Management Agent deems it would
benefit the Partnership's  operations.  See "Proposed Activities - Employees and
Benefits" below. The Management Agent generally will also be responsible for the
billing and collection of Contract Hospital accounts.

     The Management  Agent's  engagement by the Partnership under the Management
Agreement will be as an independent contractor,  and neither the Partnership nor
its  Limited  Partners  will have any  authority  or control  over the method or
manner in which  the  Management  Agent  performs  its  duties  pursuant  to the
Management  Agreement.  The Management  Agreement vests in the Management  Agent
full operational  control of all aspects of management and administration of the
Mobile  Lithotripsy  Systems.  The term of the Management  Agreement is for five
years and will be  automatically  renewed for up to three  successive  five-year
terms unless terminated by the Partnership or the Management Agent.

     In order for the  Partnership to be responsive to the concerns of the local
physicians  who will use its Mobile  Lithotripsy  Systems,  the General  Partner
expects to appoint a local  Medical  Director  (or  Directors)  and a  Physician
Advisory Board made up of representative  local physicians.  The General Partner
will  consult  with the  Physicians  Advisory  Board  from  time to time on such
matters as  instituting  its detailed  quality  assurance  program,  utilization
review,  outcome analysis and patient  scheduling.  The fees and expenses of the
Medical Director and the Physician  Advisory Board will be the responsibility of
the Partnership.  See "Proposed Activities - Operation of the Mobile Lithotripsy
Systems."



                                      -39-
<PAGE>

     Except  as  otherwise   provided  below,   the  Management  Agent  will  be
responsible  for  maintaining  on behalf of the  Partnership  complete books and
records for the  management of the Mobile  Lithotripsy  Systems.  The Management
Agreement  provides  that all funds  furnished  by the  Partnership  as  working
capital together with all Partnership revenues will be accounted for separately.
Such  funds  will  be  disbursed  by  the  Management  Agent  on  behalf  of the
Partnership  to pay all  expenses  associated  with the  operation of the Mobile
Lithotripsy Systems,  including,  without limitation, the management fee payable
to the Management Agent under the Management Agreement and reimbursements to the
General Partner and the Management  Agent for all of their  out-of-pocket  costs
incurred in the  operation of the Mobile  Lithotripsy  Systems.  The  Management
Agent and its  Affiliates  will  receive no  compensation  under the  Management
Agreement other than its management fee and  reimbursement for its out-of-pocket
costs  incurred  in  fulfilling  its  responsi  bilities  under  the  Management
Agreement.

     Consultation  and Education.  The local Medical  Director will  communicate
regularly with officers of the Management  Agent,  who will remain available for
consultation by phone and who plan to regularly visit all the Mobile Lithotripsy
Systems. The Management Agent will continually monitor progress in technological
developments in renal  lithotripsy and advise the Partnership and the physicians
who  use  the  Partnership's   lithotripters   regarding  the  nature  of  these
developments and its recommended course of action.

     Employees and Benefits. The General Partner currently employs 11 employees.
The Partnership anticipates that it will continue to employ such employees.  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.
Through  its  cafeteria  plan,  Prime  provides  eligible   employees  with  the
opportunity to pay premiums for coverage under such group  insurance  plans on a
pre-tax basis and to receive reimbursement for certain qualifying dependent care
and medical expenses. In addition,  Prime sponsors a 401(k) retirement plan that
allows eligible  employees to save for their retirement on a pre- tax basis and,
in the discretion of Prime, to receive matching  contributions on their savings.
The Partnership likely will also provide paid holidays, sick leave, and vacation
benefits  and  other  miscellaneous  benefits  including  bereavement,  military
reserves, jury duty and educational assistance benefits. Finally, for 1998 only,
certain  employees  of the  Partnership  may be eligible to receive an incentive
bonus based on their performance.

Financial Projections

     Investors are urged to review the  Financial  Projections  and  assumptions
thereto attached as Appendix A.  The Financial Projections contain data supplied
by the  General  Partner  that is based upon the General  Partner's  estimate of
reasonable,  but  not  necessarily  the  most  likely,  results  of  Partnership
operations. The data in the Financial Projections includes the General Partner's
estimate of projected Unit sales,  Partnership  expenses and revenues,  and also
assumptions regarding the anticipated number of lithotripsy procedures that will
be performed at the Mobile Lithotripsy  Systems each year. Because the Financial
Projections represent a prediction of future events based on certain assumptions
that may or may not occur, Investors should not rely on the


                                      -40-
<PAGE>

Financial  Projections  as an  indication  of the  actual  results  that will be
attained.  Some  assumptions  inevitably will not materialize and  unanticipated
events  and  circumstances  may occur  subsequent  to the date of the  Financial
Projections.  The actual  results  achieved  during  the  period  covered by the
Financial  Projections will vary from the projected results and these variations
may be  material.  Furthermore,  no  assurance  can be given that the results of
current or future operations will favorably compare with the historical  results
of the  Business.  See  "Risk  Factors  - Other  Investment  Risks  -  Financial
Projections" and the Financial  Projections (with  accompanying  assumptions and
notes)  attached  hereto as  Appendix A.  A significant  increase in competition
would also  adversely  impact  proposed  Partnership  operations.  See "Proposed
Activities - History of the Business."


                       FINANCIAL CONDITION OF THE BUSINESS

Selected Financial Data of the Business

     The selected  financial data of the Business set forth below should be read
in conjunction with the Financial  Statements of the Business attached hereto as
Exhibit F and "Management's  Discussion and Analysis of Financial  Condition and
Results of Operations of the Business" below.  All the financial  statements are
unaudited.


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                                                       -41-
<PAGE>

Management's  Discussion  and  Analysis of the Results of  Operations  for Prime
Lithotriper  Operations,  Inc., a New York  corporation,  d/b/a Tennessee Valley
Lithotripter

Nine Months Ended September 30, 1998 and September 30, 1997

     Revenues.  Total revenues increased $417,000 (8%) for the nine months ended
September  30, 1998  compared to the same period in 1997 related to a 7% rise in
the number of  procedures  performed,  primarily  due to the addition of two new
hospitals, and a less than 1% rise in revenue per case.

     Operating  Expenses.  Operating expenses declined by $172,000 (12%) for the
nine months ended  September 30, 1998  compared to the same period in 1997.  The
decline is  related  to:  (1)  certain  expenses  totaling  $105,000  (primarily
compensation  and travel)  related to the  management of the office in Nashville
have been excluded from the 1998 amounts due to a restructuring of operations by
Prime Medical in late 1997, and (2) a decline in depreciation  and  amortization
expenses of $90,000,  which is attributable to certain  equipment  having become
fully depreciated resulting in lower depreciation expense in 1998, (3) equipment
maintenance and repairs declined $40,000 due to favorable renewal of maintenance
contracts on the lithotripter equipment.  Offsetting the above listed reductions
was a $81,000  increase in other  operating  expenses which is  attributable  to
increased costs to handle the increase in procedures performed.

     Other Income (Expense). Other income, net increased by $7,000 (185%) due an
increase in interest and other income.

Year Ended December 31, 1997 and December 31, 1996

     Revenues.  Total  revenues  increased  $741,000  (12%)  for the year  ended
December 31,  1997  compared to the same period in 1996  related to a 8% rise in
the  number of  procedures  performed,  primarily  due to higher  procedures  at
existing hospitals, and a 4% rise in revenue per case.

     Operating  Expenses.  Operating expenses decreased by $7,000 (less than 1%)
for the year ended  December 31, 1997  compared to the same period in 1996.  The
decline  is  related  to  (1)  an  increase  of  $104,000  in  the  intercompany
lithotripter rental expense,  which permitted the Business to provide additional
service  to its  existing  hospitals  and (2)  $70,000  in  expenses  (primarily
compensation  and travel) to manage the Business and other  businesses  owned by
the  Affiliates  of the General  Partner have been excluded in the 1997 amounts.
This was partially offset by a decline in depreciation and amortization expenses
of $34,000,  which is  attributable  to certain  equipment  having  become fully
depreciated.

     Other Income (Expense).  Other income, net increased by $400 (9%) due to an
increase in interest and other income.



                                      -42-
<PAGE>

Year Ended December 31, 1996 and December 31, 1995

     Revenues.  Total  revenues  increased  $667,000  (12%)  for the year  ended
December 31,  1996 compared to the same period in 1995, related to a 14% rise in
the number of procedures  performed,  primarily  due to 2 contracts,  which were
entered into in mid-1995,  had a full year of activity in 1996, and a 2% decline
in revenue per case.

     Operating  Expenses.  Operating expenses increased by $105,000 (5%) for the
year ended  December  31, 1996  compared  to the same period in 1995,  due to an
increase of $86,000 in the  employee  compensation  and  benefits  related to an
increase in staff.

     Other Income (Expense). Other income, net increased by $3,000 (561%) due to
an increase in interest and other income.


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                                      -43-
<PAGE>

                        SOURCES AND APPLICATIONS OF FUNDS

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


    Sources of Funds                            Sale of 80 Units
Offering Proceeds(1)                               $729,120            (100.00%)
                 --                                --------            -------  
   TOTAL SOURCES                                   $729,120            (100.00%)
                   Application of Funds
Refurbishment of Three Trailers(2)                 $195,000           (  26.74%)
Purchase of Three Used Tractors(2)                 $120,000           (  16.46%)
Loaner Rental Costs(2)                             $210,000           (  28.80%)
Organizational Start-Up Costs and Working          $139,120           (  19.08%)
Capital(3)
Syndication Costs(4)                               $ 65,000           (   8.91%)
                 --                                --------           -   ----  
   TOTAL APPLICATIONS                              $729,120           ( 100.00%)
                                                   ========           = ======  


Notes to Sources and Applications of Funds Table

     (1) Assumes all 80 Units are purchased by qualified Investors.  In addition
to  the  cash  proceeds  of the  Offering,  the  Partnership  will  acquire  the
Contributed Assets from the General Partner.

     (2) It is anticipated  that the General  Partner will cause the Partnership
to  contract  with AK  Associates,  an  Affiliate  of the  General  Partner,  to
refurbish the  Partnership's  three oldest  trailers at an estimated per trailer
cost of $65,000. In connection with the refurbishments, the General Partner will
also cause the  Partnership  to purchase three used tractors at an estimated per
vehicle cost of $40,000. During the time of each refurbishment (estimated at 6 -
8 weeks),  the General  Partner  will cause the  Partnership  to rent a "loaner"
trailer-lithotripter  unit at an estimated per month cost of $35,000.  The table
assumes that each refurbishment will take two months. See "Proposed Activities -
Anticipated   Partnership   Expenditures"   and  "-  Funding   for   Partnership
Activities."

     (3) This amount  includes the General  Partner's  estimate of (i) legal and
accounting  costs  associated  with  organizing the  Partnership,  preparing the
Partnership Agreement,  the Management Agreement and other ancillary Partnership
documents;  (ii) all out-of-pocket  expenses incurred by the General Partner and
its Affiliates associated with the initial start-up of the


                                      -44-
<PAGE>

     Partnership's operations;  (iii) legal and accounting costs associated with
the Asset  Contribution  and (iv)  working  capital  needs.  To the  extent  the
proceeds of the Offering are  insufficient  to fund the foregoing  costs or such
costs exceed the estimated amounts, it is anticipated that Partnership Cash Flow
and/or  the  proceeds  of debt  financing  will  fund  such  costs.  There is no
assurance  that  Partnership  Cash Flow or debt  financing will be available for
such  purpose.  See  "Risk  Factors  -  Operating  Risks -  Partnership  Limited
Resources and Risks of Leverage."

     (4)  Includes   $20,000  in   commissions   payable  to  the  Sales  Agent,
reimbursement of $15,000 to the Sales Agent for out-of-pocket  expenses incurred
in selling the Units and $30,000 in legal and accounting  costs  associated with
the preparation of this Memorandum.


                      COMPENSATION AND REIMBURSEMENT TO THE
                       GENERAL PARTNER AND ITS AFFILIATES

     The following  summary  describes the types and,  where  determinable,  the
estimated amounts of reimbursements, compensation and other benefits the General
Partner and its  Affiliates  will receive in connection  with the  organization,
operation and management of the Partnership and the Mobile Lithotripsy  Systems.
None of such fees,  compensation and other benefits has been determined at arm's
length.  Except for the items set forth  below,  the  General  Partner  does not
expect to receive any distribution, fee, compensation or other remuneration from
the Partnership.  See "Proposed  Activities - Management and Administration" and
"Plan of Distribution."
 
     1. Partnership  Interest.  Provided the necessary consents and releases are
obtained under the Contribution  Agreement,  the General Partner will contribute
the  Contributed  Assets to the  Partnership in exchange for at least an initial
80% General Partner interest in the Partnership.  See "Proposed Activities - The
Asset  Contribution."  The  Percentage  Interest  of the  General  Partner  will
increase by 0.25% for each unsold Unit.  There is no assurance that the value to
be received by the General Partner in connection with the Asset  Contribution is
fair to the Investors.

     2. Organizational  Expenses.  The General Partner will be reimbursed by the
Partnership for all its out-of-pocket  costs associated with the organization of
the Partnership,  the Asset  Contribution and all expenses of this Offering.  No
other  fees or  compensation  will be  payable  to the  General  Partner  or its
Affiliates,  except for the Management Fee and related reimbursements (described
below), for managing the Partnership.

     3. Management  Fee.  Pursuant to the Management  Agreement,  the Management
Agent will  contract  with the  Partnership  to  supervise  the  management  and
administration  of the day-to-day  operations of the  Partnership's  lithotripsy
business for a monthly fee equal to the greater of $8,000 or 7.5% of Partnership
Cash Flow per month.  All costs incurred by the  Management  Agent in performing
its duties under the  Management  Agreement will be the  responsibility  of, and
will be paid directly or reimbursed by, the Partnership. The Management Agent is
the  management  agent  for  various  affiliated   lithotripsy  ventures.  As  a
consequence, many of the Management


                                                       -45-
<PAGE>

Agent's employees  provide various  management and  administrative  services for
numerous ventures,  including the Partnership. In order to properly allocate the
costs of the Management  Agent's employees and other overhead expenses among the
entities for which they provide  services,  such costs will be divided among all
the ventures  based upon the relative  number of patients  treated by each.  The
General  Partner  believes  that the sharing of  personnel  costs among  various
entities results in significant costs savings for the Partnership. Investors are
urged  to  review  carefully  the  Management  Agreement,  the  form of which is
attached  hereto as  Appendix D.  The management fee for any given month will be
payable on or before the 30th day of the next succeeding month and will begin to
accrue  immediately  following  the  Closing  Date.  The term of the  Management
Agreement is for five years, and will be  automatically  renewed for up to three
successive   five-year  terms  unless  terminated  by  the  Partnership  or  the
Management  Agent.  The  Management  Agent  and  the  General  Partner  will  be
reimbursed by the Partnership for all of their  out-of-pocket  costs  associated
with the operation of the Partnership and the Mobile  Lithotripsy  Systems,  and
the  Partnership  will pay or  reimburse  to the General  Partner  all  expenses
related to the organization of the Partnership,  the Asset Contribution and this
Offering.  No other fees or compensation  will be payable to the General Partner
or its  Affiliates  for managing the  Partnership  other than the management fee
payable to the  Management  Agent as provided in the Management  Agreement.  The
Partnership may, however, contract with the General Partner or its Affiliates to
render other services or provide materials to the Partnership  provided that the
compensation  is at the then  prevailing  rate for the type of  services  and/or
materials provided.

     4.  Partnership  Distributions.  In its capacity as general  partner of the
Partnership,  the  General  Partner is entitled  to its  distributable  share of
Partnership Cash Flow,  Partnership  Sales Proceeds and Partnership  Refinancing
Proceeds as provided by the Partnership Agreement.  Although neither the General
Partner nor its Affiliates intend to purchase Units in this Offering, they would
also  receive  Partnership  Distributions  in  respect  of any  Limited  Partner
Partnership  Interests they hereafter acquire.  The amount of such Distributions
to the General Partner,  if any, cannot be determined at this time. See "Summary
of the Partnership Agreement - Profits, Losses and Distributions," the Financial
Projections  attached as Appendix A  and the form of the  Partnership  Agreement
attached as Appendix B.

     5. Sales Commissions.  The Sales Agent, a wholly-owned subsidiary of Prime,
has entered into a Sales Agency Agreement with the Partnership pursuant to which
the Sales  Agent has  agreed  to sell the Units on a "best  efforts"  any or all
basis.  As  compensation  for its  services,  the  Sales  Agent  will  receive a
commission equal to $250 for each Unit sold (up to an aggregate of $20,000).  If
the  offering  is  successful,  the Sales Agent will also be  reimbursed  by the
Partnership for its out-of-pocket expenses associated with its sale of the Units
in an amount not to exceed $15,000. See "Plan of Distribution" and "Conflicts of
Interest."

     6.  Refurbishment  of Trailers.  It is anticipated that the General Partner
will cause the  Partnership to contract with AK Associates,  an Affiliate of the
General Partner,  to refurbish three of the  Partnership's  trailers in 1999 and
the Partnership's two remaining trailers in 2000 and 2001,  respectively,  at an
estimated per trailer cost of $65,000.  In addition,  it is anticipated that the
General  Partner will cause the  Partnership to contract with  Affiliates of the
General Partner to rent


                                      -46-
<PAGE>

"loaner"  trailer-lithotripter  units during the time the Partnership's trailers
are being  refurbished  at an  estimated  per month  price of $35,000  per unit.
Refurbishment  is  expected  to take  six to  eight  weeks.  Accordingly,  it is
anticipated that the Partnership will pay an aggregate of $350,000 to Affiliates
of the  General  Partner  for  loaner  units  over the  next  three  years.  The
Partnership may require  additional loaner units or rental time in the event any
of the Partnership's Mobile Lithotripsy Systems experience substantial down time
for other  maintenance  or  repairs.  See  "Proposed  Activities  -  Anticipated
Partnership Expenditures."

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


                                 GENERAL PARTNER

     The General  Partner of the Partnership is Prime  Lithotripter  Operations,
Inc., a New York corporation and wholly-owned  subsidiary of Prime (the "General
Partner"). Prime is a publicly held company engaged in the ownership,  operation
and management of medical service and related ventures.  The principal executive
office of the  General  Partner  is located at 1900  Church  Street,  Suite 101,
Nashville, Tennessee 37203. The General Partner's assets are illiquid in nature.
Upon the Closing, the primary assets of the General Partner will be its interest
in the Partnership. The General Partner also has substantial potential financial
exposure as a guarantor of certain Prime indebtedness.

     Management.  The  following  table  sets  forth the  names  and  respective
positions  of the  individuals  serving as the  executive  officers and the sole
director of the General Partner,  many of whom are current management  personnel
of Prime.

                       Name                         Office
                       ----                         ------

                  Joseph Jenkins, M.D.              President
                  Cheryl Williams                   Treasurer and sole Director
                  Thomas J. Driber, Ph.D.           Vice President
                  James Clark                       Secretary



                                      -47-
<PAGE>

     Descriptions of the background of the key executive  officers and directors
of the General Partner appear below.

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

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

     Thomas J. Driber,  Ph.D.  has been Vice  President  of the General  Partner
since 1994. 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.

     James Clark has been  Secretary of the General  Partner  since  January 30,
1998. He is currently  tax manager and Secretary or Assistant  Secretary for the
majority of Prime's  subsidiaries.  Prior to January 30, 1998, he was controller
in ERISA Administration Services, a privately held company.


                                MANAGEMENT AGENT

     The  Management  Agent  of the  Company  is  Lithotripters,  Inc.,  a North
Carolina  corporation  formed in November 1987 for the purpose of sponsoring and
managing medical service limited partnerships and limited liability companies in
the United States (the "Management  Agent"). The Management Agent was founded by
William R. Jordan,  M.D. and on April 26, 1996 became a wholly-owned  subsidiary
of Prime.  The principal  executive office of the Management Agent is located at
2008 Litho Place,  Fayetteville,  North  Carolina  28304 and its phone number is
(800) 682- 7971.  The  Management  Agent's  assets are  illiquid in nature.  The
primary  assets of the  Management  Agent  are  partnership  interests  in other
lithotripsy entities.

     Management.  The  following  table  sets  forth the  names  and  respective
positions of the individuals  serving as executive officers and directors of the
Management  Agent,  many of whom were shareholders of the Management Agent 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            Chief Financial Officer
                  Cheryl Williams          Vice President and Director
                  Philip J. Gallina        Secretary and Treasurer

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

     Descriptions of the background of the key executive  officers and directors
of the Management Agent appear below or under "General Partner."

     Kenneth S.  Shifrin has been  Chairman of the Board and a Director of Prime
since October 1989 and was recently  elected a Director of the Management  Agent
following  Prime's  acquisition  of all of the  Management  Agent'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 has been Chief  Financial  Officer  of the  Management  Agent
since 1991. 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
the Management Agent and served in that capacity until April 1996.

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


                                      -48-
<PAGE>

                              CONFLICTS OF INTEREST

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

     The Management  Agent and the Sales Agent,  both  Affiliates of the General
Partner,  will receive  management  fees and  broker-dealer  sales  commissions,
respectively,  in  connection  with  the  sale of the  Units  that  will be paid
regardless of whether any sums are distributed to Limited Partners. None of such
fees,   compensation   and  benefits  has  been   determined   by  arm's  length
negotiations. In addition, the Partnership may contract with the General Partner
or its  Affiliates to render  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.  It is anticipated that the Partnership will
pay  substantial  amounts  of money to  Affiliates  of the  General  Partner  in
connection with the  refurbishment of the  Partnership's  trailers.  The General
Partner  will  also  receive  interest  on  loans,  if  any,  it  makes  to  the
Partnership.  See "Compensation and Reimbursement to the General Partner and its
Affiliates."

     The General  Partner and its  Affiliates,  including the Management  Agent,
will devote as much of their time to the business of the Partnership as in their
judgment is  reasonably  required.  Principals  of the General  Partner may have
conflicts of interest in  allocating  management  time,  services and  functions
among their various existing and future business activities in which they are or
may become  involved.  See  "Competition"  and "Prior  Activities."  The General
Partner believes it and its Affiliates,  together,  have sufficient resources to
be  capable of fully  discharging  the  General  Partner's  and its  Affiliates'
responsibilities to the Partnership.  The General Partner and its Affiliates may
engage for their own account,  or for the account of others,  in other  business
ventures,  related to medical services or otherwise, and neither the Partnership
nor the holders of any of the Units shall be entitled to any  interest  therein.
The General Partner, its Affiliates (including affiliated limited partnerships),
and their employees  engage in medical related service  activities for their own
accounts.  See "Prior  Activities."  The  Management  Agent  serves as a general
partner and/or  management agent 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.  Also,
Affiliates of the General Partner act as general partners of competing  ventures
in Arkansas and Kentucky and are planning  other limited  partnership  offerings
that would operate lithotripsy businesses in other states. See "Competition" and
"Prior Activities."



                                      -49-
<PAGE>

     The Management Agent or its Affiliates closed on twenty-three other limited
partnership  offerings for partnerships which respectively  operate in (i) North
Carolina,  (ii) Utah,  Idaho,  Wyoming and Nevada,  (iii) in  southwestern North
Carolina and northwestern South Carolina, (iv) in eastern South Carolina, (v) in
Arizona,  (vi) in  Louisiana and Texas,  (vii) in  Virginia and North  Carolina,
(viii) in  Arkansas,  (ix) in the San Diego,  California area, (x) in Tennessee,
(xi) in the Orange County,  California  area,  (xii) in the  southeastern  Texas
area,  (xiii) in the south central Texas area,  (xiv) in Las Vegas,  (xv) in the
Santa Barbara and Ventura,  California  area,  (xvi) in  north central  Florida,
(xvii) in  Billings,  Montana,  (xviii) in the northwestern Texas area, (xix) in
Indiana,  Kentucky and Ohio, (xx) in Colorado,  New Mexico and Wyoming, (xxi) in
Hawaii,  (xxii) in the  Austin and Round  Rock  areas of Texas,  and  (xxiii) in
Wisconsin.   The  North  Carolina   partnership   began  treating   patients  in
Fayetteville,  North  Carolina in October  1985.  The Utah,  Idaho,  Wyoming and
Nevada  limited   partnership   began  treating   patients  in  July  1989.  The
southwestern North Carolina and northwestern South Carolina limited  partnership
began  treating  patients in late August  1989 and the  eastern  South  Carolina
limited  partnership began treating patients in mid-September  1989. The Arizona
limited  partnership began treating patients in December 1989. The Louisiana and
Texas limited  partnership  began  operations in May 1990,  and the Virginia and
North  Carolina  partnership  began  operating  in  Virginia  in July 1990.  The
Arkansas  partnership  began  treating  patients  in July  1990.  The San Diego,
California  area  partnership  began  treating  patients  in January  1991.  The
Tennessee  partnership began treating patients in late April 1991 and the Orange
County,  California partnership began treating patients in early April 1991. Two
of the other Texas partnerships began lithotripsy operations in August 1991. The
Indiana,  Kentucky and Ohio partnership  began treating patients in May 1991 and
the Santa Barbara and Ventura, California partnership began treating patients in
August 1991. The Las Vegas  partnership  began  operating in August 1991 and the
Florida  partnership in October 1991. The Billings,  Montana  partnership  began
treating  patients in August 1992.  The  northwestern  Texas  partnership  began
operations in January 1993.  The  Colorado,  New Mexico and Wyoming  partnership
began operations in July 1995. The Hawaii partnership began operations in Hawaii
last year. The Austin and Round Rock, Texas partnership  commenced operations in
October 1997 and the Wisconsin  partnership is preparing to commence  operations
in the near future.

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

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




                                      -50-
<PAGE>

                 FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER

     The General  Partner is accountable  to the  Partnership as a fiduciary and
consequently must exercise good faith in handling Partnership affairs. This is a
rapidly  developing  and changing area of the law and Limited  Partners who have
questions concerning the duties of the General Partner should consult with their
counsel.

     Under the  Partnership  Agreement,  the General  Partner and its Affiliates
will  have no  liability  to the  Partnership  or to any  Partner  for any  loss
suffered  by the  Partnership  that  arises out of any action or inaction of the
General Partner or its Affiliates if the General  Partner or its Affiliates,  in
good faith,  determined  that such course of conduct was in the best interest of
the Part nership and such course of conduct did not constitute  gross negligence
or willful  misconduct of the General  Partner or its  Affiliates.  Accordingly,
Limited  Partners will have a more limited  right of action than they  otherwise
would have absent the limitations set forth in the  Partnership  Agreement.  The
General  Partner  and its  Affiliates  will be  indemnified  by the  Partnership
against  any  losses,  judgments,  liabilities,  expenses  and  amounts  paid in
settlement of any claims  sustained by them in connection with the  Partnership,
provided  that the same  were not the  result  of gross  negligence  or  willful
misconduct on the part of the General Partner or its Affiliates.

     Insofar as indemnification  for liabilities under the Securities Act may be
permitted  to persons  controlling  the  Partnership  pursuant to the  foregoing
provisions,  the  Partnership  has been  informed that in the opinion of the SEC
such indemnification is against public policy as expressed in the Securities Act
and therefore is unenforceable.

                                   COMPETITION

     Many   competing   fixed-site   and   mobile   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 the Service Area, to the best knowledge
of the General Partner.

     Within the Nashville  metropolitan  area, Baptist Hospital and the Columbia
Surgery  Center on the  Centennial  Medical  Center campus  provide  lithotripsy
services.  Baptist  utilizes  two  lithotripters,  a Dornier  HM-3 and a Dornier
MFL-5000, both of which are fixed-based.  The Columbia Surgery Center utilizes a
fixed-base Dornier HM-3. In eastern  Tennessee,  Park West Hospital in Knoxville
owns and  operates a  fixed-based  Dornier  HM-3.  The  University  of Tennessee
Medical Center operates a Storz SL-20. St. Mary's Hospital in Knoxville operates
a lithotripter  (brand  unknown);  in addition,  the General Partner  believes a
group of  Knoxville-area  urologists  has  purchased a new Dornier  SubCompact S
which is  presently  based at St.  Mary's.  In northeast  Tennessee,  there is a
fixed-based unit located at Northside Regional Hospital in Johnson City believed
by the General  Partner to be a Dornier  SubCompact  S. The Johnson City area is
also served by a Dornier HM-4 mobile unit which is based in Bristol,  Tennessee.
The ownership of the unit is unknown. In western Tennessee,  an Affiliate of the
General Partner, Tennessee Lithotripters Limited


                                      -51-
<PAGE>

Partnership  I, operates a Siemens  LithostarTM in the Memphis area. It delivers
services as far east as Dyersburg,  Tennessee.  In Arkansas, an Affiliate of the
General Partner,  Fayetteville  Lithotripters  Limited Partnership - Arkansas I,
owns and operates a Siemens Lithostar on a mobile basis.

     In north Alabama, the Partnership's Service Area includes Muscle Shoals. An
Affiliate  of the General  Partner,  Alabama  Lithotripsy  Services,  operates a
mobile Doli in Huntsville, Alabama.

     In Kentucky, to the best knowledge of the General Partner,  Murray-Calloway
County Hospital in Murray and T.J. Samson Community  Hospital in Glasgow operate
fixed-base extracorporeal shock-wave lithotripters; the General Partner does not
know  the  brand  of  either  unit.  A  provider  called  Stone  Burst  services
Elizabethtown and Campbellsville,  Kentucky; the General Partner is not familiar
with more details related to this provider. An Affiliate of the General Partner,
Prime Kidney Stone Treatment,  Inc., is currently forming a lithotripsy  venture
with  investors in Kentucky that will service the central  Kentucky  area.  This
venture would compete with the  Partnership  in Somerset;  however,  the General
Partner plans to assign its contract with Lake Cumberland  Regional  Hospital in
Somerset to the new  lithotripsy  venture.  While this  assignment  will have an
adverse affect on the Partnership's  revenues,  the impact is not expected to be
material.

     There is no  assurance  that the list of  competitors  identified  above is
complete.  There may be other providers of extracorporeal  shockwave lithotripsy
services in and near the Service  Area of which the General  Partner is unaware.
Their services may adversely affect the Partnership's revenues.  Other hospitals
in and  around  the  Service  Area  may  operate  lithotripters  which  are  not
extracorporeal    shock-wave    lithotripters   but   rather   use   lasers   or
electrohydraulic  lithotripters which have not been upgraded in the same fashion
as the  lithotripters  to be  acquired  from the  General  Partner.  The General
Partner  believes  that  these  machines  are  qualitatively   inferior  to  the
Partnership's  Mobile  Lithotripsy  Systems because such machines are capable of
treating stones only in the ureter and because  anesthesia is generally required
prior to treatment.  The General  Partner  believes that the Mobile  Lithotripsy
Systems  can be used on stones  in  locations  other  than the  ureter  and that
anesthesia  is generally  not  required.  See  "Proposed  Activities - Treatment
Methods for Kidney Stone Disease."

     New competing lithotripsy operations may open in the future, or innovations
in  lithotripters  or other treatment  methods for kidney stone disease may make
the Mobile  Lithotripsy  Systems  competitively  obsolete.  See "Risk  Factors -
Operating Risk - Technological  Obsolescence." None of the General Partner,  the
Management Agent or their respective  Affiliates are prohibited from engaging in
any  business  arrangement  that may compete with the  Partnership.  There is no
assurance the  Partnership  will be able to  successfully  compete with existing
providers,  including facilities that offer traditional methods of treatment for
kidney stone  disease.  See "Proposed  Activities - Treatment  Methods of Kidney
Stone  Disease." The ability of certain former owners of the Business to compete
with General Partner had been limited under noncompetition agreements which only
recently  expired.  Whether and to what extent any of such  persons may elect to
compete with the  Partnership and the resulting  impact on proposed  Partnership
operations cannot be accurately  predicted by the General Partner. See "Proposed
Activities - History of the Business."


                                      -52-
<PAGE>

     Siemens, Dornier and other lithotripsy equipment manufacturers are under no
obligation  to the General  Partner or the  Partnership  to refrain from selling
lithotripter  systems to  urologists,  hospitals or other persons for use in the
Service Area or elsewhere. In addition,  several medical equipment manufacturers
are  expected  to  offer  lower-priced   lithotripters  for  sale,  which  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  equipment.  Lithotripters  can be
obtained  from  manufacturers  other than Siemens and Dornier.  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 the General Partner.

                                   REGULATION

Federal Regulation

     The  Partnership  will be 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 imprisonment,  fines or
exclusion from participation in Medicare or Medicaid. Therefore, adverse reviews
of the  Partnership  operations  at any of the  various  regulatory  levels  may
adversely affect the operations and profitability of the Partnership.

     Reimbursement.  As the  Partnership  will serve  primarily  as an equipment
vendor for contracting  hospitals and will not directly bill or collect from any
patients for lithotripsy services provided using its equipment,  the Partnership
will not be directly affected by changing  third-party  reimbursement  rates for
lithotripsy  services.  However,  the  Partnership's  revenues may be indirectly
affected by such reimbursement, as explained below.

     The Balanced  Budget Act of 1997  required  HCFA to establish a prospective
payment  system for  outpatient  procedures.  In that  connection,  HCFA  issued
proposed  regulations on September 8, 1998.  HCFA proposes a base rate of $2,612
for outpatient lithotripsy  procedures,  which 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 various
adjustments  depending on criteria  applicable  to each  individual  contracting
hospital.  The  proposed  regulations  state  that HCFA plans to  implement  the
outpatient  prospective  payment system sometime after January 1, 2000 (although
the Balanced Budget Act  contemplated  implementation  by January 1,  1999). The
General  Partner  believes  that  implementation  of the proposed  base rate for
lithotripsy  procedures,  which  is low,  may  have  an  adverse  effect  on the
Partnership's revenues.

     Although  the  Partnership  does  not  currently  plan to make  the  Mobile
Lithotripsy Systems available at ambulatory surgery centers, the Partnership may
consider such a step in the future.  Proposed HCFA rules issued on June 12, 1998
setting  the  ambulatory  surgery  center rate for  various  procedures  include
lithotripsy among those procedures  approved for Medicare  reimbursement.  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.


                                      -53-
<PAGE>

However,  the  proposed  rules'  commentary  discusses  the  history of previous
attempts  by HCFA in  proposed  rules  (published  on  December  7,  1990 and on
December  31, 1991) to  authorize  Medicare  reimbursement  for  lithotripsy  at
ambulatory  surgery  centers that were enjoined by federal  courts in litigation
initiated by the American  Lithotripsy  Society  challenging  the  reimbursement
rates  proposed  by HCFA ($812 in 1990 and  $1,150 in 1991).  The  proposal  for
reimbursement  contained  in the June 1998  proposed  rules  assigns a  Medicare
reimbursement rate of $2,107 for lithotripsy if the procedure is performed at an
ambulatory surgery center. Whether these proposed rules will become effective to
authorize  Medicare  reimbursement at ambulatory surgery centers and, if they do
become effective, whether the proposed reimbursement rate will remain unchanged,
is unknown to the General Partner.

     HCFA's rates under the proposed  outpatient  prospective payment system and
ambulatory   surgery  center   reimbursement  are  lower  than  many  healthcare
institutions'  typical  charges for the  procedure.  It is possible the proposed
outpatient   prospective   payment   system  and   ambulatory   surgery   center
reimbursement  rates could affect the  Partnership.  Lower  reimbursement  rates
could cause  contracting  hospitals to seek to pay lower equipment  rental rates
than expected by the General Partner.  This could have a material adverse effect
on Partnership revenues.

     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.  Thus,  changes in lithotripsy  technology  will be
subject to review by the  Medicare  program and  potential  future  decreases in
reimbursement must be considered probable as the lithotripsy  procedure has been
identified by the Medicare program as an overvalued one.

     The  Medicaid  programs in  Tennessee  (TennCare),  Alabama,  Arkansas  and
Kentucky 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 Medicaid programs in each of these states currently
provide   reimbursement   for  lithotripsy   services.   The  federal   Personal
Responsibility  and Work Opportunity  Reconciliation  Act of 1996 requires state
health plans, such as the Medicaid programs in Tennessee,  Alabama, Arkansas and
Kentucky, to limit Medicaid coverage for certain otherwise eligible persons. The
General Partner does not believe this legislation will have a significant impact
on the Partnership's  revenues.  In addition,  federal  regulations permit state
health  plans to limit the  provision  of services  based upon such  criteria as
medical necessity or other criteria  identified in utilization or medical review
procedures. The General Partner believes such steps have been taken in Tennessee
with the  establishment  of the TennCare  program;  the General Partner does not
know whether the Medicaid  programs in Alabama,  Arkansas or Kentucky have taken
or will take such steps.

     Self-Referral  Restrictions.  Health care  entities and  providers  seeking
reimbursement  for  services  covered by  Medicare  or  Medicaid  are subject to
federal regulation restricting referrals


                                      -54-
<PAGE>

by certain  physicians.  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.  Section 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 on the  Partnership's  equipment to all  patients,  including
Medicare and Medicaid  patients,  are billed by the contracting  hospital in its
name and under its provider numbers.  Accordingly,  these  lithotripsy  services
would likely be considered inpatient or outpatient services under Stark II.

     Physicians  Limited  Partners  may be deemed to have an indirect  financial
relationship with the Partnership's  contracting hospitals,  as Limited Partners
will receive  Distributions of the Partnership's profits which in turn are based
on the equipment  rental  charges paid by contracting  hospitals.  On January 9,
1998,  the Health Care  Financing  Administration  ("HCFA"),  the federal agency
responsible  for  administering  the  Medicare   program,   published   proposed
regulations  designed to clarify certain ambiguities and define certain terms of
Stark  II  (the  "Proposed  Stark  II  Regulations").   The  Proposed  Stark  II
Regulations and HCFA's  accompanying  commentary  discuss the requirements  that
equipment rental  arrangements  must meet in order to be protected  transactions
under Stark II. It is not clear whether the Partnership's  planned  arrangements
with contracting  hospitals meet all the requirements.  If the Proposed Stark II
Regulations  become  final in their  present  form (or if,  in the  meantime,  a
reviewing court adopts their positions as the proper interpretation of the Stark
II  statute),  then  compliance  Stark II may be achieved by  demonstrating  the
leases  with  contracting  hospitals  are at fair  market  value and do not vary
depending  on the volume or value of referrals  generated  by physician  Limited
Partners.  No  assurance  can be  given,  however,  that such  efforts  would be
successful. In the event the General Partner is unable to devise a plan pursuant
to which the  Partnership  may operate in compliance with Stark II and its final
regulations,  the General Partner is obligated  under the Partnership  Agreement
either (i) to purchase the Partnership  Interests of all the Limited Partners at
their Capital Account values or (ii) to dissolve and liquidate the  Partnership.
See  "Summary of the  Partnership  Agreement - Optional  Purchase of  Investment
Interests."

     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's
planned  operations  may mean that the  Partnership  and its  physician  Limited
Partners may be in  violation of Stark II. The General  Partner does not believe
either of the above instances will occur; however, no assurances can be made. In
either instance,  however, 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.

     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,


                                      -55-
<PAGE>

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 other  entities 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.  U.S. v. Greber, 760 F.2d 68 (1985). The Greber
case was followed by the United  States Court of Appeals for the Ninth  Circuit,
United States v. Kats, 871 F.2d 105 (9th Cir. 1989),  and cited favorably by the
First  Circuit  in United  States v. Bay State  Ambulance  and  Hospital  Rental
Service, Inc., 874 F.2d 20 (1st Cir. 1989). Since none of these cases involved a
lithotripsy  syndication  or joint  venture such as the  Partnership,  it is not
clear how a court  would  apply  these  holdings  to the facts  related  to this
Offering.

     The OIG has indicated  that it is giving  increased  scrutiny to healthcare
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  healthcare  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.  Any conduct that could be  construed to be illegal  after the
promulgation of the Safe Harbor regulations would have been illegal prior to the
publication of the regulations.

     Prospective Limited Partners should note that the anticipated ownership and
operations  of the  Partnership  may not  fully  comply  with any  Safe  Harbor;
however,  the  preamble  to the Safe  Harbor  regulations  makes  clear that the
failure to comply with a Safe Harbor does not mean the arrangement  violates the
Anti-Kickback Statute. A Safe Harbor was adopted which


                                      -56-
<PAGE>

protects  equipment  leasing  arrangements,  and  to  the  extent  possible  the
Partnership will comply with this Safe Harbor.  However,  it may not be possible
to comply with all the requirements of the Safe Harbor.

     HCFA has stated that one of its primary  concerns  regarding  self-referral
situations is the investing  physician's  ability to profit from any  diagnostic
testing that is generated  from the  services he or she  performs.  It should be
pointed out that HCFA has stated,  in  discussions of potential Safe Harbors and
other  enforcement  guidance,  that the potential for  overutilization  posed by
referrals for therapeutic  services such as lithotripsy is not as significant as
referrals in other contexts,  as the necessity for the therapeutic 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 is  unclear.  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
fraud and abuse statute on proposed business  transactions.  The General Partner
has not  requested  the OIG to review this Offering and, to the knowledge of the
General  Partner,  the OIG has not been asked by anyone to review  offerings  of
this type. Thus,  federal  regulatory  authorities  could take the position that
this  Offering is 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 may 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  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,  under such facts may be challenged by the  government as
constituting a violation of the Anti-Kickback


                                      -57-
<PAGE>

     Statute.  Whether the offering of ownership  interests to investors who may
refer  patients for services on the  Partnership's  Mobile  Lithotripsy  Systems
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 fact
lithotripsy  is a  therapeutic  treatment  the need of which can be  objectively
determined,  and the existence in the General  Partner's  view of valid business
reasons  to engage in this  transaction,  form the basis in part of the  General
Partner's belief that this Offering is in compliance with legal requirements.

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

     If the  activities  of the  Partnership  were  determined  to violate these
provisions, the Partnership,  the General Partner, officers and directors of the
General  Partner,  and each Limited Partner could be subject,  individually,  to
substantial  monetary  liability,  felony prison sentences and/or exclusion from
participation in Medicare, Medicaid and CHAMPUS. For the reasons outlined above,
it is the opinion of the General  Partner that the operations of the Partnership
will not violate the Anti-Kickback  Statute. A prospective  Limited Partner with
questions   concerning  these  matters  should  seek  advice  from  his  or  her
independent counsel.

     New  Legislation.  The General  Partner is not aware of any bill  currently
before  Congress  which has been  scheduled for  committee  hearings  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  adversely  affecting the operation of the
Partnership's  business is enacted,  the General Partner is obligated  either to
purchase the ownership  interests of all the Limited Partners or to dissolve the
Partnership.  See  "Summary of the  Operating  Agreement - Optional  Purchase of
Partnership Interests."

     FTC  Investigation.   Issues  relating  to   physician-owned   health  care
facilities have been investigated by the Federal Trade Commission ("FTC"), which
investigated  two of the lithotripsy  limited  partnerships  affiliated with the
General  Partner,  to  determine  whether they posed an  unreasonable  threat to
competition in the health care field. 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,  the General Partner cannot assure that the FTC will not
investigate  issues arising from  physician-owned  health care facilities in the
future with respect to the General Partner or any of its  affiliates,  including
this Partnership.



                                      -58-
<PAGE>

     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.  Further,  the  American  Medical
Association  recognizes  that there may be situations in which a needed facility
would not be built if referring physicians were prohibited from investing in the
facility. Therefore,  physicians may invest in and refer to an outside facility,
whether or not such physician  provides direct care or services at the facility,
if  there  is a  demonstrated  need  in  the  community  for  the  facility  and
alternative financing is not available.  Because physician Limited Partners will
be  providing  lithotripsy  services,  the  General  Partner  believes  that  an
investment  by a physician  will not be in  violation  of the  American  Medical
Association  Code of  Medical  Ethics.  In the event that the  American  Medical
Association  changes its ethical code to preclude  such  referrals by physicians
and such ethical  requirements  are applied to facilities or services  which, at
the time of adoption, are owned in whole or in part by referring physicians, the
Partnership and the interests of the Limited Partners may be adversely affected.

State Regulation

     Tennessee.  Tennessee  requires a  certificate  of need ("CON") to initiate
lithotripsy  services.  In Tennessee,  CONs for the lithotripsy  services on the
Partnership's  equipment are held not by the General  Partner or the Partnership
but rather by the Contract  Hospitals.  As the Contract Hospitals hold the CONs,
the  Partnership  merely  serves as an  equipment  vendor.  Any of the  Contract
Hospitals  could at any time terminate their  arrangements  with the Partnership
and arrange  for  another  lithotripsy  equipment  vendor to provide  equipment,
without any prohibitions or impediments  from the Tennessee CON agency.  Such an
action by a  Contract  Hospital  could  have a  material  adverse  effect on the
Partnership's revenues.

     To the best  knowledge  of the  General  Partner,  the  Mobile  Lithotripsy
Systems do 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.  The
General Partner must comply with this and all other regulatory requirements.

     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  Systems  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.

     Alabama.  Alabama  requires a CON for the  initiation of new  institutional
health  services,  which  include the  provision of  lithotripsy  services.  The
General  Partner  already  has a CON for the  lithotripsy  services  provided in
Alabama.  In  order  to  transfer  the  CON  from  the  General  Partner  to the
Partnership,  the  General  Partner  must  provide  the  Alabama CON agency with
written notice thirty (30) days before the proposed transfer. It is possible the
Alabama CON agency would


                                      -59-
<PAGE>

conclude no transfer of the CON is  necessary,  since the General  Partner  will
fully manage the new  Partnership.  The General  Partner either will provide the
CON agency  with  written  notice of the  transfer  or will  secure from the CON
agency  written  acknowledgment  that the notice is not  necessary on the ground
that there will be no transfer requiring such notice.


     Prospective  Limited  Partners  should be aware that the General Partner is
currently  involved in a CON  administrative  proceeding in Alabama in which the
General Partner is opposing five separate CON applications filed by LithoMedTech
of Alabama,  LLC ("LMTA") to provide mobile  lithotripsy  vendor services in the
majority of Alabama counties,  including in the  Partnership's  Service Area. In
the course of this proceeding,  LMTA has challenged the General Partner's status
as the proper holder of a CON  authorized to serve as a lithotripsy  vendor;  if
the General Partner does not properly hold a CON for lithotripsy equipment, then
the General Partner cannot legally oppose LMTA's application for CONs. The basis
for LMTA's  challenge  is that the  General  Partner  failed to timely  give the
Alabama CON agency notice of its  acquisition  of the  lithotripsy  equipment in
1993.

     In 1993, the General  Partner  acquired the lithotripsy  equipment  serving
Alabama,  and  the  CON  authorizing  the  purchase  and  establishment  of such
equipment,  from Tennessee Valley Lithotripter Ltd., ("TVL Ltd."), in whose name
the CON was issued in 1992.  Under the  regulations  of the  Alabama CON agency,
anyone  intending to acquire major medical  equipment  already  subject to a CON
must provide written notice to the CON agency 30 days in advance of the proposed
transaction.  When the General Partner  acquired the lithotripsy  equipment from
TVL Ltd. in 1993, no such notice was filed.  However,  in September 1994, notice
was filed by the General Partner and approved by the CON agency.

     In the course of the contested CON  proceedings  with LMTA,  LMTA requested
that  the  administrative  law  judge  ("ALJ")  dismiss  the  General  Partner's
opposition to LMTA's  application on the basis that the failure to properly file
advance notice of change of ownership in strict  compliance  with the regulation
renders the CON void.  The ALJ has not yet ruled  regarding  this  request.  The
General  Partner  believes it is unlikely the ALJ would  invalidate  the General
Partner's  CON  based  on the  grounds  that CON  agency  routinely  waives  the
thirty-day  advance filing  requirement and the CON agency's express approval of
the  General   Partner's  belated  notice.  If  the  General  Partner's  CON  is
invalidated, then the Partnership would be prohibited from providing lithotripsy
equipment services in Alabama.  This could have a material adverse affect on the
Partnership's revenues.

     Radiation-producing  machines such as the on-board x-ray must be registered
with the Alabama radiation  protection  agency. The General Partner is not aware
of any other  legal  requirements  which would  prohibit  the  Partnership  from
operating or continuing to operate as planned.

     Arkansas.  In  Arkansas,  there is no CON  requirement  for  major  medical
equipment or mobile  health  services.  Hospitals  which wish to establish a new
health service must give notice


                                      -60-
<PAGE>

to and obtain the prior approval of the Health Facility Services Division before
instituting  the new  service.  The  Division's  review  determines  whether the
hospital has adequate  policies and  procedures  in place to handle the service.
X-ray machines must be registered with the state Radiation Control Division.

     Kentucky.  Kentucky  requires a certificate  of need ("CON") to establish a
health  facility,  to make a  substantial  change  in a  health  service,  or to
purchase any capital  equipment  which costs more than  $1,567,500.  The General
Partner  already has a CON for the  lithotripsy  services  provided in Kentucky,
except at two sites,  Lourdes Hospital in Paducah and  Owensboro-Mercy  hospital
system in  Owensboro.  An  existing  CON may be  transferred  so long as the CON
agency is provided with written notice thirty (30) days before the transfer. The
General  Partner  will comply with this  requirement.  Regarding  the  equipment
services  provided at Lourdes and Owensboro-  Mercy,  as neither the Partnership
nor the General Partner holds the CON for lithotripsy services,  the Partnership
will merely serve as an equipment vendor.  Either of these contracting hospitals
could at any time terminate their  arrangements with the Partnership and arrange
for  another  lithotripsy  equipment  vendor to provide  equipment,  without any
prohibitions  or  impediments  from the Kentucky  CON agency.  Such an action by
either of these  contracting  hospitals could have a material  adverse effect on
the Partnership's revenues.

     The Mobile  Lithotripsy  Systems are licensed as mobile health  services by
the Kentucky Division of Licensing and Regulation.  Licensure  requires a survey
of the Mobile  Lithotripsy  Systems and approval of the policies and  procedures
related to the Mobile Lithotripsy  Systems. The General Partner does not believe
continued compliance with the licensure requirement will prevent the Partnership
from  operating  as planned in  Kentucky.  Notice of transfer of  ownership of a
licensed  mobile health service must be provided to the regulatory  agency after
the transfer. The General Partner will comply with this requirement.

     Regarding  physician  referrals,  Kentucky  law  incorporates  the American
Medical  Association's  Code of Medical  Ethics  (discussed  above) in requiring
physicians  to provide  services  at  entities  in which they have an  ownership
interest and to which they refer patients.  To ensure  compliance with this law,
all physician  Limited  Partners  licensed in Kentucky who make referrals to the
Partnership's   Mobile   Lithotripsy   Systems  must  provide  services  on  the
lithotripter.  Kentucky law prohibits physicians from receiving any compensation
in exchange for referrals of Medicare or Medicaid  patients.  As the Partnership
will not  compensate  any  physician  for  referrals  (rather,  all  payments to
physicians  are based on their equity  interests in the  Partnership),  this law
will not be violated.  However,  the law also  provides  that any conduct  which
violates the federal Stark II and Anti-Kickback  laws (discussed above) shall be
deemed to violate Kentucky law. Violations are punishable by criminal penalties,
repayment  of Medicaid  reimbursements  which were in  violation  of the law and
exclusion from the Kentucky Medicaid program.

     Kentucky  requires  registration  of x-ray  machines and  certification  of
radiologic  technologists.  The Partnership  must comply with this and all other
regulatory  requirements in order to operate the Mobile  Lithotripsy  Systems in
Kentucky.
 


                                      -61-
<PAGE>

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

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

                                PRIOR ACTIVITIES

     Since 1985, the Management  Agent and its Affiliates  have been involved in
the formation of urological medical limited partnerships and have closed on over
thirty such limited partnership offerings.

     For  numerous  reasons,  including  differences  in  equipment,   financial
structure,   program  size,  economic  conditions  and  distribution   policies,
operating results obtained by the Management Agent and its Affiliates should not
be  considered  as  indicative  of  the  operating  results  obtainable  by  the
Partnership.  Moreover,  it should not be assumed  that  Limited  Partners  will
experience  returns on their investment  comparable to those  experienced by the
General  Partner in  connection  with the  operation  of the  Business or by its
Affiliates in any of these other ventures.  See "Risk Factors - Other Investment
Risks - Financial Projections."

     A  summary  of the  twenty-three  urological  medical  limited  partnership
offerings  that were  sponsored by the  Management  Agent and its Affiliates and
which have closed is set forth below.

     Carolina Lithotripsy, A Limited Partnership.  Dr. William R. Jordan, former
Chief Executive  Officer and majority  shareholder of the Management Agent prior
to  its  acquisition  by  Prime,  organized  Carolina  Lithotripsy,   A  Limited
Partnership,  a  North  Carolina  limited  partnership  ("Carolina"),  in  1984.
Carolina  was formed to  purchase  an HM3 kidney  lithotripter  manufactured  by
Dornier  Systems  GmbH and to  operate  a  lithotripsy  business.  In a  private
offering of units of limited  partnership  interest  consummated  in March 1985,
Carolina  sold an  aggregate  of 41 units to 48  limited  partners  residing  in
eastern North Carolina and  northeastern  South  Carolina.  Limited  partners of
Carolina  also  guaranteed  $2,925,000 of  indebtedness  incurred by Carolina to
purchase its lithotripter. All indebtedness incurred by Carolina to purchase its
lithotripter  that  was  guaranteed  by its  limited  partners  was  prepaid  by
Carolina.  Dr.  Jordan has served as the  managing  general  partner of Carolina
since its formation.

     On October 5, 1988, Carolina purchased the first LithostarTM sold after FDA
approval. The LithostarTM was delivered to Fayetteville on October 10, 1988, and
was first used to treat  patients on November 14, 1988.  In July 1989,  Carolina
purchased a mobile LithostarTM system


                                      -62-
<PAGE>

located in a Calumet Mobile Coach.  In 1992,  the  fixed-based  LithostarTM  was
changed to a mobile configuration and Carolina now operates two mobile units.

     Fayetteville   Lithotripters   Limited   Partnership-Utah  I.  Fayetteville
Lithotripters Limited  Partnership-Utah I (the "Utah Partnership") sold 40 units
of limited  partnership  interest to 37 investors  (including  Affiliates of the
Management  Agent)  for an  aggregate  offering  price  of  $78,250  in cash and
$1,517,480  in  guaranties  of  partnership  principal  obligations.   The  Utah
Partnership  acquired a LithostarTM  located in a mobile  Calumet Coach in July,
1989, and operated at a site in Salt Lake City exclusively  until  mid-September
1989 when it began  traveling  to other  locations  in Utah and Idaho.  The Utah
Partnership  began  operations in Montana in November 1989 and began  conducting
operations  in Nevada in 1990 and  thereafter  began  operating  in Wyoming  and
Idaho.  The Utah  Partnership no longer  operates in Montana.  As of the date of
this Memorandum, the Partnership has performed in excess of 1,000 procedures and
its financial success has exceeded projections.

     Fayetteville    Lithotripters   Limited   Partnership-South   Carolina   I.
Fayetteville Lithotripters Limited Partnership-South Carolina I ("South Carolina
I") sold 80 units of limited  partnership  interests to 34 investors  (including
the  Management  Agent and its  Affiliates)  for an aggregate  offering price of
$72,500  in  cash  and  $1,318,000  in  guaranties  of   partnership   principal
obligations. South Carolina I acquired a LithostarTM located in a mobile Calumet
Coach in September  1989. It has been operating in the eastern and coastal areas
of South  Carolina  since mid-  September  1989,  and has performed in excess of
1,000 procedures and its financial success has exceeded projections.

     Fayetteville   Lithotripters   Limited   Partnership-South   Carolina   II.
Fayetteville   Lithotripters  Limited  Partnership-South   Carolina  II  ("South
Carolina  II") sold 40 units of limited  partnership  interests  to 30 investors
(including  Affiliates of the Management Agent) for an aggregate  offering price
of  $77,500  in cash and  $1,517,485  in  guaranties  of  partnership  principal
obligations.  South  Carolina  II  acquired  a  LithostarTM  located in a mobile
Calumet  Coach in August  1989.  It has been  operating  in  northwestern  South
Carolina and southwestern  North Carolina,  and has performed in excess of 1,000
procedures and its financial success has exceeded projections.

     Fayetteville  Lithotripters  Limited  Partnership-Arizona  I.  Fayetteville
Lithotripters Limited  Partnership-Arizona I (the "Arizona Partnership") sold 80
units of limited partnership interests to 31 investors (including the Management
Agent and its Affiliates) for an aggregate offering price of $72,500 in cash and
$1,318,000 in  guaranties  of  partnership  principal  obligations.  The Arizona
Partnership  acquired a LithostarTM  located in a mobile Calumet Coach and began
performing  lithotripsy  services in Arizona in December 1989. As of the date of
this  Summary,  the  Arizona  Partnership  has  performed  in  excess  of  1,000
procedures and its financial success has exceeded projections.

     Louisiana Lithotripsy Investment Limited Partnership. Louisiana Lithotripsy
Investment  Limited  Partnership (the Louisiana  Partnership")  sold 80 units of
limited  partnership  interests to 46  investors  (including  Affiliates  of the
Management Agent) for an aggregate offering


                                      -63-
<PAGE>

price  of  $79,437.50  in cash  and  $1,289,250  in  guaranties  of  partnership
principal obligations.  The Louisiana Partnership is the sole limited partner of
Fayetteville  Lithotripters  Limited  Partnership-  Louisiana I ("Louisiana I").
Louisiana I acquired a LithostarTM  located in a mobile  Calumet Coach and began
providing  services in Louisiana  and Texas in May 1990.  As of the date of this
Memorandum,  Louisiana I has  performed  in excess of 1,000  procedures  and its
financial success has exceeded projections.

     Fayetteville  Lithotripters  Limited  Partnership-Virginia  I. Fayetteville
Lithotripters  Limited  Partnership-Virginia  I ("Virginia  I") sold 80 units of
limited  partnership  interests to 51  investors  (including  Affiliates  of the
Management  Agent) for an aggregate  offering  price of  $77,662.50  in cash and
$1,289,250 in guaranties of partnership principal obligations.  Virginia I began
performing  lithotripsy  services  in  Virginia  in July  1990.  Virginia I also
services  locations  in  northeastern  North  Carolina.  As of the  date of this
Memorandum,  Virginia  I has  performed  in excess of 1,000  procedures  and its
financial success has exceeded projections.

     Fayetteville  Lithotripters  Limited  Partnership-Arkansas  I. Fayetteville
Lithotripters  Limited  Partnership-Arkansas  I ("Arkansas  I") sold 80 Units of
limited  partnership  interests to 38  investors  (including  Affiliates  of the
Management Agent) for an aggregate offering price of $77,500 cash and $1,337,000
in  guaranties  of  partnership  principal  obligations.  Arkansas  I acquired a
LithostarTM  located in a mobile Calumet Coach and began performing  services in
Arkansas  in  July  1990.  As of the  date of this  Memorandum,  Arkansas  I has
performed in excess of 1,000  procedures and its financial  success has exceeded
projections.

     San  Diego  Lithotripters  Limited  Partnership.  San  Diego  Lithotripters
Limited  Partnership  (the "San  Diego  Partnership")  sold 80 units of  limited
partnership interests to 48 investors for an aggregate offering price of $80,000
in cash and $1,528,000 in guaranties of partnership  principal  obligations.  In
January 1991,  the San Diego  Partnership  acquired a  LithostarTM  located in a
Calumet Coach and began treating  patients in the  southwestern  California area
(primarily in the San Diego area).  As of the date of this  Memorandum,  the San
Diego  Partnership has performed in excess of 1,000 procedures and its financial
success has exceeded projections.

     Tennessee  Lithotripters  Limited  Partnership I.  Tennessee  Lithotripters
Limited  Partnership  I  ("Tennessee  I") sold 80 units of  limited  partnership
interest to 49 investors for an aggregate  offering price of $80,000 in cash and
$1,286,911 in  guaranties  of  partnership  principal  obligations.  Tennessee I
acquired a LithostarTM located in a Calumet Coach and began treating patients in
Memphis,  Tennessee  in late  April  1991.  As of the  date of this  Memorandum,
Tennessee  I has  performed  in excess  of 1,000  procedures  and its  financial
success has exceeded projections.

     California   Lithotripters   Limited   Partnership-II,    L.P.   California
Lithotripters  Limited  Partnership-II,  L.P. ("California II") sold 80 units of
limited partner interest to 63 investors (including Affiliates of the Management
Agent) for an  aggregate  offering  price of $79,375 in cash and  $1,337,000  in
guaranties  of  partnership  principal  obligations.  California  II  acquired a
LithostarTM located in a Calumet Coach and began treating patients in the Orange
County,  California area in early April 1991.  California II also entered into a
joint venture with California Lithotripters


                                      -64-
<PAGE>

Limited  Partnership-III,  L.P.  and  jointly  financed  and  acquired  a second
LithostarTM located in a mobile self-propelled  Calumet Coach. As of the date of
this  Memorandum,  California II has performed in excess of 1,000 procedures and
its financial success has exceeded projections.

     Texas  Lithotripsy  Limited  Partnership I L.P. Texas  Lithotripsy  Limited
Partnership I L.P.  ("Texas I") sold 80 units of limited partner  interest to 32
investors  (including the Management  Agent and its Affiliates) for an aggregate
offering  price of $190,375 in cash and  $1,483,428 in guaranties of partnership
principal obligations. Texas I acquired a LithostarTM located in a Calumet Coach
and began treating patients in the southeastern Texas area in August 1991. As of
the date of this Memorandum, Texas I has performed in excess of 1,000 procedures
and its financial success has exceeded projections.

     Texas Lithotripsy  Limited  Partnership II L.P. Texas  Lithotripsy  Limited
Partnership II L.P.  ("Texas II"), sold 80 units of limited partner  interest to
41  investors  (including  the  Management  Agent  and  its  Affiliates)  for an
aggregate  offering  price of $196,625 in cash and  $1,483,428  in guaranties of
partnership principal obligations.  Texas II acquired a LithostarTM located in a
Calumet Coach and began treating patients in the Fort Worth metropolitan area of
Texas in July 1991. As of the date of this Memorandum, Texas II has performed in
excess of 1,000 procedures and its financial success has exceeded projections.

     Texas Lithotripsy  Limited  Partnership-III  L.P. Texas Lithotripsy Limited
Partnership-III  L.P. ("Texas III") sold 78 units of limited partner interest to
41  investors  (including  the  Management  Agent  and  its  Affiliates)  for an
aggregate  offering  price of $188,630 in cash and  $1,446,342  in guaranties of
partnership principal obligations. Texas III acquired a LithostarTM located in a
Calumet  Coach and began  treating  patients in the south  central Texas area in
August  1991.  As of the date of this  Memorandum,  Texas III has  performed  in
excess of 1,000 procedures and its financial success has exceeded projections.

     Indiana  Lithotripters Limited Partnership I. Indiana Lithotripters Limited
Partnership  I  ("Indiana  I") sold 80 units of limited  partner  interest to 34
investors for an aggregate  offering  price of $80,000 in cash and $1,672,000 in
guaranties  of  partnership   principal   obligations.   Indiana  I  acquired  a
LithostarTM located in a Calumet Coach and began treating patients in Indiana in
May 1991. As of the date of this  Memorandum,  Indiana I has performed in excess
of 1,000 procedures and its financial success has exceeded projections.

     Las  Vegas  Lithotripters  Limited  Partnership.  Las  Vegas  Lithotripters
Limited  Partnership ("Las Vegas") sold 78 Units of limited partner interests to
26  investors  (including  the  Management  Agent  and  its  Affiliates)  for an
aggregate  offering  price of $111,800 in cash and  $851,682  in  guaranties  of
partnership principal  obligations.  Las Vegas acquired a fixed-base LithostarTM
and began treating patients in Las Vegas,  Nevada in August 1991. As of the date
of this Memorandum,  Las Vegas has performed in excess of 500 procedures and its
financial success has exceeded projections.



                                      -65-

     California   Lithotripters   Limited   Partnership-III,   L.P.   California
Lithotripters Limited Partnership-III,  L.P. ("California III") sold 26 Units of
limited  partner  interests  to  23  investors  (including   Affiliates  of  the
Management  Agent)  for an  aggregate  offering  price  of  $64,025  in cash and
$249,166 in guaranties of  partnership  principal  obligations.  California  III
entered into a joint venture with California II,  acquired a LithostarTM  Mobile
System, and began treating patients in the Santa Barbara and Ventura, California
area in  August  1991.  As of the date of this  Memorandum,  California  III has
performed in excess of 500  procedures  and its  financial  success has exceeded
projections.

     Florida  Lithotripters Limited Partnership I. Florida Lithotripters Limited
Partnership  I  ("Florida  I") sold 80 units of limited  partner  interest to 71
investors  (including  Affiliates  of the  Management  Agent)  for an  aggregate
offering  price of $198,750 in cash and  $1,560,206 in guaranties of partnership
principal  obligations.  Florida I  acquired a  LithostarTM  located in a mobile
self-propelled  Calumet  Coach  and began  treating  patients  in north  central
Florida  in  October  1991.  As of the date of this  Memorandum,  Florida  I has
performed in excess of 1,000  procedures and its financial  success has exceeded
projections.

     Montana  Lithotripters Limited Partnership I. Montana Lithotripters Limited
Partnership  I ("Montana  I") sold 160 units of limited  partner  interest to 31
investors  (including  Affiliates of the Management  Agent) for $188,500 in cash
and $720,000 in  guaranties  of  partnership  principal  obligations.  Montana I
acquired a fixed-base LithostarTM and began treating patients in August 1992. As
of the  date of this  Memorandum,  Montana  I has  performed  in  excess  of 500
procedures and it has met financial projections.

     Texas Lithotripsy  Limited  Partnership IV L.P. Texas  Lithotripsy  Limited
Partnership IV L.P.  ("Texas IV"), sold 80 units of limited partner  interest to
35 investors (including the Management Agent and its Affiliates) for $189,500 in
cash and $1,643,670 in guaranties of partnership principal obligations. Texas IV
acquired a LithostarTM  Mobile System and began treating  patients in July 1992.
As of the date of this  Memorandum,  Texas IV has  performed  in excess of 1,000
procedures and its financial success has exceeded projections.

     Texas  Lithotripsy  Limited  Partnership V L.P. Texas  Lithotripsy  Limited
Partnership V L.P.  ("Texas V") sold 80 units of limited partner  interest to 31
investors  (including the Management  Agent and its  Affiliates) for $187,500 in
cash and $1,643,670 in guaranties of partnership principal obligations.  Texas V
acquired a  LithostarTM  Mobile  System and began  treating  patients in January
1993.  As of the date of this  Memorandum,  Texas V has  performed  in excess of
1,000 procedures and its financial success has exceeded projections.

     Mountain  Lithotripsy Limited Partnership - I. Mountain Lithotripsy Limited
Partnership - I ("Mountain I") sold 31 units of limited  partner  interest to 16
investors (including Affiliates of the Management Agent) for $77,500 in cash and
$588,765 in  guarantees  of  partnership  principal  obligations.  In July 1995,
Mountain  I acquired  a  LithostarTM  Mobile  System  and has  treated  over 500
patients. The financial success of Mountain I has exceeded projections.



                                      -66-
<PAGE>

     Pacific Medical Limited  Partnership.  Pacific Medical Limited  Partnership
("Pacific") sold 80 units of limited partner interest to 35 investors (including
Affiliates  of the  Management  Agent) for  $200,000 in cash and  $1,321,611  in
guarantees of  partnership  principal  obligations.  Pacific  recently  obtained
approval to receive a CON in Hawaii and began operations last fall.

     Texas  Lithotripsy  Limited  Partnership VI, L.P. In September 1997,  Texas
Lithotripsy Limited Partnership VI, L.P. ("Texas VI") received subscriptions and
closed on 160 units of limited partnership  interest to 13 investors  (including
Affiliates  of the  Management  Agent)  for  $361,100  in  cash.  Texas VI began
operations in October 1997.

     Great Lakes Lithotripsy Limited  Partnership.  In October 1997, Great Lakes
Lithotripsy  Limited  Partnership  ("Great Lakes")  received  subscriptions  and
closed on 80 units of limited partnership  interest to 23 investors for $200,000
in cash and $844,800 in guaranties of partnership principal  obligations.  Great
Lakes expects to begin operations in the near future.

     A summary of the urological medical venturers  currently owned and operated
directly  by  Prime,  which  owns all the  stock  of the  Management  Agent  and
indirectly owns all of the stock of the General Partner, is set forth below.

     Alabama Renal Stone  Institute.  This fixed site Dornier HM-3  lithotripter
operation was purchased in April 1992. The lithotripter, which is located on the
campus of Brookwood Hospital,  exclusively  provides lithotripsy services in the
Birmingham,  Alabama  area and  services  all local  physicians.  Alabama  has a
restrictive  CON law  limiting  the number of  lithotripters  in the state.  The
lithotripter has treated over 1,000 patients.

     Alabama  Lithotripsy  Services.  This  mobile  lithotripter  operation  was
purchased from a hospital and a group of 22 local physicians in August 1994. The
service area includes five cities in the northern/central Alabama area where the
company provides exclusive lithotripsy services to hospitals and physicians. The
lithotripter has treated over 1,000 patients.

     Tennessee Valley Lithotripter.  This operation consists of 5 mobile Dornier
HM-3  units  serving  hospitals  throughout  Tennessee,  Kentucky  and  northern
Alabama.  Prime acquired this entity in July 1993, from over 200 physicians that
held  interests  in three  separate  partnerships.  Due to the size and scope of
coverage of this  operation,  it is the largest mobile  lithotripsy  provider in
Tennessee and Kentucky.

     Prime Kidney  Stone  Treatment,  Inc.  This mobile  lithotripter  operation
consists of two mobile Dornier HM-4  lithotripters  serving over 20 locations in
Wisconsin,  Illinois, Indiana, West Virginia,  Maryland and Pennsylvania.  Prime
purchased  these machines in January 1994. The  lithotripters  have treated over
1,000 patients.

     Metro Atlanta Stonebusters G.P. Prime purchased a 60% equity in this mobile
Siemens LithostarTM operation in April 1994, from a group of 15 local urologists
that retained a 40%


                                                       -67-
<PAGE>

equity  interest.  This  venture  services  five  healthcare  facilities  in the
Atlanta, Georgia area. The lithotripter has treated over 1,000 patients.

     Texas Litho,  Inc. This wholly owned  subsidiary  was purchased in December
1994,  from Maxum and provides  management  services as well as holding  general
partner and limited partner equity interests in Texas  ESWL/Laser  Lithotripter,
Ltd. Over 30 investors hold the remaining equity interest in Texas ESWL, some of
whom acquired  their interest in a recent  dilution  offering.  Limited  partner
units sold for  $4,400  each in the 1991  offering  which  raised  approximately
$286,000 from new investors.  Units sold for $12,500 in the 1997  offering.  The
economic  participation  of a unit in ESWL is a function  of the number of units
outstanding  from time to time.  This venture  utilizes a Mobile Dornier MFL5000
lithotripter  servicing accounts Texas, Oklahoma, and Arkansas. The lithotripter
has treated over 1,000 patients.

     Ohio Litho,  Inc.  This wholly owned  subsidiary  was purchased in December
1994, from Maxum Health Services Corp. and performs  management services as well
as holding a 16.73% general  partner equity  interest and 0.90% limited  partner
position in Ohio Mobile  Lithotripter Ltd. This entity operates a mobile Dornier
HM-3  lithotripter  servicing  four  hospitals  in the  northeastern  Ohio area.
Approximately  43 physicians  own the remaining  equity  interest in Ohio Mobile
Lithotripter LTD. The lithotripter has treated over 1,000 patients.  Ohio Litho,
Inc. also owns  approximately 43% of, and serves as the general partner of, Ohio
Mobile  Lithotripter II Ltd., an Ohio limited  partnership formed in 1996 ("Ohio
Mobile  II").  Ohio  Mobile II  operates a Dornier HM4 under lease from PKST and
services 2 hospitals.  41 physician  limited  partners own the remaining  equity
interest in Ohio Mobile II, which performed 120 procedures last year.

     R.R.  Litho,  Inc. This wholly owned  subsidiary  was purchased in December
1994 from Maxum Health Services Corp. and performs  management  services as well
as holding a 19.25% general partner interest in Arklatx Mobile Lithotripter Ltd.
This entity  utilizes a mobile Siemens  LithostarTM to serve eight  locations in
the Louisiana area.  Approximately  31 physicians  hold the remaining  equity in
Arklatx. The lithotripter has treated over 1,000 patients.

    Southern  California Stone Center L.L.C. This fixed site Siemens LithostarTM
lithotripsy  operation  is located  in Sherman  Oaks,  California.  The  company
purchased  a 32.5%  equity  interest  in this  entity  in June  1995,  with  the
remaining 67.5% equity being held by local physician investors. The lithotripter
has treated over 1,000 patients.

     Kidney Stone Center of South Florida. Prime purchased a 70% equity stake in
this fixed site Dornier HM-3  lithotripsy  operation in July 1995. The remaining
30% ownership  equity is held by local  physicians in the Miami/Fort  Lauderdale
area. The lithotripter has treated over 1,000 patients.

     Sun  Medical  Technologies,  Inc.  Prime  purchased  this  operation  which
consists  of  eight  fixed  and  mobile  lithotripters   operating  in  Arizona,
Washington,  Wyoming,  Montana  and New  Mexico  in  October  1995.  Four of the
machines are operated in two partnership structures which include area physician
investors with Sun providing management services and holding 50% as the


                                      -68-
<PAGE>

general  partner.  The remaining  four machines are wholly owned and operated by
Prime. The lithotripters have treated over 1,000 patients.

     Tenn-Ga Stone Group Two, L.P. Prime  purchased a 38.25% equity  interest in
this mobile  lithotripsy  operation in May 1997. The partnership's  lithotripter
has been in operation  since 1993 and currently  services  various  locations in
Tennessee and Georgia.  The remaining  61.75% equity interest in the partnership
is held primarily by local physicians in Tennessee and Georgia.

     Executive  Medical  Enterprises,  Inc.  Pursuant to a stock purchase,  this
Company  became a wholly owned  subsidiary  of Prime in July 1997.  This venture
operates a mobile  lithotripter  which  services  locations  in  California  and
Oregon,  and one fixed site lithotripter  which provides  treatment  services in
Washington.

     Certain additional financial  information  regarding the urological medical
ventures  formed or operated by the Management  Agent and its Affiliates will be
made available upon request.  The  Management  Agent and its Affiliates  plan to
continue forming and/or  acquiring  ventures similar to the one proposed in this
Offering across the United States. See "Management Agent."

                           TAX ASPECTS OF THE OFFERING

     INVESTORS  SHOULD  NOTE THAT THE UNITS ARE BEING  MARKETED  BY THE  GENERAL
PARTNER AS AN ECONOMIC  INVESTMENT AND THAT THE GENERAL PARTNER  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 THE GENERAL PARTNER ANTICIPATES,  AND THE FINANCIAL  PROJECTIONS
FORECAST,  SIGNIFICANT  PARTNERSHIP  TAXABLE  INCOME  THROUGHOUT THE TERM OF THE
PARTNERSHIP.

     The following  general  summary of certain United States federal income tax
aspects  relating to an  investment in the  Partnership  is based upon the Code,
applicable   Treasury   Regulations  (the   "Regulations"),   current  published
administrative positions of the Service contained in Revenue Rulings and Revenue
Procedures, and existing judicial decisions.  Investors should note that the Tax
Reform Act of 1986  substantially  revised the tax consequences of an investment
in an entity such as the Partnership. No assurance can be given that legislative
or  administrative  changes or court decisions may not be forthcoming that could
significantly modify the statements in this summary. Any such changes may or may
not be retroactive  with respect to  transactions  effected prior to the date of
such changes.

     Moreover,   the  Investors   should  note  that  the  discussion  below  is
necessarily  general and the  applicability or effect of matters discussed below
may vary  depending  on an  Investor's  individual  circumstances.  Thus,  it is
impractical  to comment  definitively  on all aspects of federal  income tax law
which may affect each Investor. THEREFORE, EACH INVESTOR SHOULD


                                      -69-
<PAGE>

SATISFY HIMSELF AS TO THE INCOME AND OTHER TAX CONSEQUENCES OF HIS PARTICIPATION
IN THE  PARTNERSHIP BY OBTAINING  ADVICE FROM HIS OWN TAX COUNSEL.  Furthermore,
while the  Partnership  will  furnish each  Limited  Partner with the  necessary
information  to enable him to file the tax  returns  for which he may be liable,
the preparation  and filing of such returns will be the personal  responsibility
of the Limited Partner. The following discussion,  however, may be useful to the
Investors with respect to their evaluation of an investment.

     The Partnership will receive the legal opinion of Womble Carlyle  Sandridge
& Rice, PLLC, a Professional  Limited Liability Company  ("Counsel"),  regarding
certain  federal  income tax aspects of the offering and certain other  matters.
This opinion is subject to important  qualifications  and limitations,  however,
and should be read  thoroughly by each  Investor and his counsel.  A copy of the
form of this  opinion is attached to the  Summary as  Appendix E.  Although  the
Partnership intends to rely on the legal opinion,  the Service will not be bound
thereby, and the Partnership could be subjected to substantial legal expenses in
defending  its position if the Service  should take a position  contrary to that
set forth in the  opinion.  Counsel for the  Partnership  is  providing no legal
opinion regarding the Financial  Projections attached to the Summary as Appendix
A.

Partnership Status

     The Partnership 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.  See  "Effect  of  Classification  as
Corporation" below.

     Counsel's opinion discussed above relies upon recently promulgated Treasury
Regulations.  Treasury  Regulation  Section  301.7701-2  provides  that  certain
business  entities will be treated as associations  taxable as corporations  for
federal  income tax  purposes.  These  business  entities  include  corporations
denominated  as such under  applicable  state law,  associations,  joint-  stock
companies,  insurance  companies,  organizations  that conduct  certain  banking
activities,  organizations wholly owned by a State, other organizations that are
taxable  as  corporations  under  another  provision  of the Code,  and  certain
organizations formed under the laws of a foreign jurisdiction.  According to the
Treasury  Regulations,  business  entities not  classified as  corporations  are
eligible  to choose  their  classification  for  federal  income  tax  purposes.
Domestic eligible entities with at least two members may choose to be classified
as either a  partnership  or a  corporation  for  federal  income tax  purposes.
Partnerships  formed pursuant to state law will be considered  domestic eligible
entities and may choose their classification for federal income tax purposes. If
an eligible


                                      -70-
<PAGE>

entity does not make an election to be treated as a corporation, then the entity
will be treated as a partnership 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
entity  eligible  that may chose  partnership  status  for  federal  income  tax
purposes.  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. See the form of legal opinion of
counsel attached hereto at Appendix E.

Effect of Classification as Corporation

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

Partners, Not Partnership, Subject to Tax

     Under the Code, the  Partnership,  as an entity,  is not subject to federal
income tax. Instead,  each Limited Partner will report on his federal income tax
return his  allocable  share,  as determined by the  Partnership  Agreement,  of
profits  and  losses  realized  by the  Partnership,  whether  or not  any  cash
Distributions  are made to the Limited  Partner during the taxable year. For the
allocation of profits and losses among Partners, see "Summary of the Partnership
Agreement - Profits,  Losses and  Distributions"  and the Partnership  Agreement
attached as Appendix B. The character of any item of profit and loss (as capital
gain or ordinary  income and as capital loss or ordinary  loss) will be the same
to the Limited Partner as it is to the Partnership.

     In addition,  subject to the passive loss rules discussed  below, a Limited
Partner is  entitled to deduct on his  federal  income tax return his  allocable
share of any  Partnership  losses to the extent the  Partner is at-risk  and has
basis in his Partnership  interest at the end of the  Partnership  year in which
such loss occurs.

     The General Partner,  in order to comply with applicable tax law, will keep
the  Partnership's  books and records and otherwise  compute  Profits and Losses
based on the  accrual  method,  and not the cash  basis  method,  of  accounting
pursuant to Section 448 of the Code.



                                      -71-
<PAGE>

     The accrual method of accounting generally records income and expenses when
they are accrued or economically incurred.

Affiliated Service Groups

     Purchase of Units in the Partnership  may cause certain  Limited  Partners,
certain   Contract   Hospitals   and  the   Partnership   to  be  treated  under
Section 414(m)  of the  Code as an  "affiliated  service  group."  Consequently,
employees of each member of any such  affiliated  service group would be treated
as  employed  in the  aggregate  by a single  employer  for  purposes of minimum
coverage,  participation,  nondiscrimination  and other  employee  benefit  plan
qualification  requirements  imposed by the Code.  In contrast,  an employer not
affiliated  with another  employer  under  Section 414(m)  of the Code need only
consider its own employees in determining  whether its employee  pension benefit
plans satisfy the Code qualification requirements.

     Aggregation  of  employers  could  cause the  retirement  plans of  certain
Limited Partners and related entities to fail to satisfy the minimum coverage or
other qualification  requirements imposed by the Code,  potentially resulting in
the disqualification of the plans for favorable tax treatment.  Disqualification
of the retirement plan of a Limited  Partner would require,  among other things,
the value of the vested retirement benefit of a highly compensated  employee who
is a participant in such  disqualified  plan to be included in his gross income,
regardless  of  whether  the  employee  is a Limited  Partner.  In the event the
Service  attempted to disqualify  the  retirement  plan of a Limited  Partner on
account of the affiliated service group rules, the  disqualification of the plan
could  potentially be avoided through  negotiation with the Service of a closing
agreement providing for correction of the disqualifying  defect and payment of a
nondeductible sanction to the United States Treasury.

     Section  414(m) of the Code and  Proposed  Regulations  thereunder  provide
three tests for  determining  whether  aggregation of all employees is required;
satisfaction  of any one of these tests  would  require  aggregation.  Under the
first test, a service organization ("First Service  Organization" or "FSO") will
be aggregated with any other service organization (an "A Organization") if the A
Organization  (i) is a partner or  shareholder  in the FSO,  and (ii)  regularly
performs  services  for the  FSO,  or is  regularly  associated  with the FSO in
performing  services for third  persons.  Whether the A  Organization  regularly
performs  services  for the  FSO,  or is  regularly  associated  with the FSO in
performing  services for third persons,  is determined on the basis of facts and
circumstances,  including the amount of income  derived from the  performance of
such services.

     Under  the  second  test,  an  FSO  will  be  aggregated   with  any  other
organization  (a  "B  Organization")  if  (i) a  significant  portion  of  the B
Organization's  business is the  performance of services for the FSO, for one or
more A Organizations with respect to the FSO, or for both, where services are of
a type historically performed in such service field by employees on December 13,
1980;  and (ii) ten  percent or more of the  interest in the B  Organization  is
held,  in the  aggregate,  by  persons  who  are  officers,  highly  compensated
employees, or the common owners of the FSO or an A Organization.



                                      -72-
<PAGE>

     An  A  Organization,   a  B  Organization,   or  an  FSO  includes  a  sole
proprietorship, partnership, corporation or any other type of entity, regardless
of how it is legally formed. An organization may be deemed to own an interest in
an FSO under the constructive  ownership rules of Section 318(a) of the Code. In
general,  these rules  provide  that a  Partnership  interest  owned by or for a
Limited Partner is considered as owned by any other  partnership in which he has
an interest  (e.g.  a medical  practice  partnership)  (for this  purpose,  an S
corporation is treated as a partnership). In addition, if a Limited Partner owns
fifty percent or more in value of the stock in a corporation,  such  corporation
is deemed to own  Partnership  interests  owned by or for such person.  Indirect
ownership (e.g.,  ownership  through a subsidiary  corporation) is considered in
applying  the  foregoing  rules.  Under these rules,  individual  ownership by a
Limited Partner in the Partnership may be attributed to the medical  practice of
such Limited Partner.  This situation will occur when the Limited Partner is (i)
a sole proprietor of his medical practice,  (ii) a partner in a medical practice
partnership, or (iii) an owner of fifty percent or more in value of the stock of
a professional corporation which constitutes his medical practice. There will be
no attribution of a Limited Partner's individual ownership in the Partnership to
a professional  corporation  (that is not an S corporation) of which the Limited
Partner is less than a fifty percent shareholder.

     The persons or entities with a risk of aggregation as A  Organizations  are
Limited Partners who are sole  proprietors,  medical practice  partnerships or S
corporations  having  a  Limited  Partner  as  a  partner  or  shareholder,   or
professional  corporations  having a Limited  Partner as a fifty percent or more
shareholder. In addition, to be an A Organization, such persons or entities must
regularly perform services for the Partnership,  or be regularly associated with
the Partnership in performing services for third persons.

     Those persons or entities  with a risk of  aggregation  as B  Organizations
would be organizations  performing  services for or on behalf of the Partnership
that are owned at least  ten  percent  in the  aggregate  by highly  compensated
employees  of the  Partnership  or of a Limited  Partner.  The only  persons  or
entities  which the General  Partner  believes could fall into this category are
the Contract  Hospitals  through which service  arrangements are made,  although
there can be no assurance  that others will not be in this category or otherwise
be subject to a  substantial  risk of  aggregation  currently  or in the future.
Aggregation of any Contract Hospital will turn on whether the highly compensated
employees of the Partnership  (if any) or of any A Organization  described above
are also ten percent or more owners of such Contract Hospitals.  The Partnership
does not intend to have any highly compensated employees.

     Under the third test, an organization  the "principal  purpose" of which is
performing on a regular and  continuing  basis  "management  functions"  for one
organization (or for one organization  and other  organizations  aggregated with
such organization under Code Section 414) (the "Management  Organization")  will
be aggregated  with the  organization  (and  organizations  aggregated with such
organization  under Code Sections  144(a)(3) and 414) for which such  management
functions are performed (the "Recipient  Organization").  The only guidance with
respect to the meaning of management  functions was provided in former Temporary
Regulations. In 1992, those Temporary Regulations were withdrawn by the Service.
The Temporary  Regulations provided that management functions include only those
services and activities which have been


                                      -73-
<PAGE>

historically  performed  by employees  in the  business  field of the  Recipient
Organization  on  September  3,  1982.  Such  services  and  activities  include
determining,  implementing or supervising daily business operations,  personnel,
employee  compensation  and benefits,  short-and-long-range  business  planning,
organizational  structure and ownership,  and any  professional  services (e.g.,
medical  services)  that  relate  to  the  foregoing  services  and  activities.
Generally, an organization's  principal business will be management functions if
the  performance  of  management  functions  and other  services for a Recipient
Organization during the current and preceding taxable year constitutes more than
50% of the  Management  Organization's  business  activities.  Those  persons or
entities  with a risk  of  aggregation  as  Management  Organizations  would  be
organizations  performing  management  functions for the Partnership  where more
than 50% of the gross  receipts of the  organization  for the relevant  two-year
period stem from the  performance  of such  functions for the  Partnership.  The
General  Partner does not believe  that a physician  Limited  Partner's  medical
practice will fall into this category.

     By enacting Section 414(m), Congress attempted to prohibit the exclusion of
nonprofessional   employees   from  the  employee   benefit   plans  of  certain
professional   organizations.   Section  414(m)(1)   provides  that  regulations
thereunder  may limit the  extent to which all  employees  of the  members of an
affiliated  service group will be treated as employed by a single employer.  The
Preamble to the Proposed  Regulations  recognizes  that Section  414(m) and such
regulations  may require  aggregation  in  situations in which there has been no
attempt to avoid the employee benefit requirements listed in Section 414(m). The
Proposed  Regulations  provide  that the  Commissioner  of Internal  Revenue may
determine that certain organizations,  or types of organizations,  should not be
considered  as subject to the  requirements  of Section  414(m) even though they
otherwise  meet the conditions for  aggregation.  The General  Partner and legal
counsel to the  Partnership  do not believe that the  contemplated  arrangements
among the Partnership,  Limited Partners, General Partner and Contract Hospitals
is the type of  arrangements  that  Section  414(m) is intended to address;  the
General  Partner  and legal  counsel  to the  Partnership  have been  informally
advised by officials of the Service that the Service would not likely attempt to
apply  the  affiliated  service  group  rules  to the  arrangements;  and in the
experience  of the General  Partner and legal  counsel to the  Partnership,  the
Service has not attempted to apply the affiliated service group rules to similar
arrangements in the past. The informal  discussions  with the Service,  however,
are not binding on the Service,  and there is no guarantee that the Service will
not apply the affiliated service group rules to the arrangement.

     As the  provisions  of Code  Section  414(m) and the  Proposed  Regulations
thereunder are complex and may apply  differently to each Investor  depending on
his or her own circumstances,  Investors are urged to consult with their own tax
advisers before investing in 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.



                                      -74-
<PAGE>

Passive Income and Losses

     The  Partnership  expects and the Financial  Projections  forecast that the
Partnership  will realize taxable income and not taxable losses during its first
five full years of operation.  Nevertheless,  if certain  assumptions upon which
the  Financial  Projections  are  based  do  not  materialize,  there  can be no
assurance that the Partnership  will not realize taxable losses,  in which event
the use of such losses by the Limited Partners will generally be limited by Code
Section  469.  See  "Risk   Factors  -  Other   Investment   Risks -   Financial
Projections."

     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  except  against  income from  passive
activities.

     The passive activity rules apply to individuals (which includes individuals
who are partners in partnerships or  shareholders in S  corporations),  estates,
trusts,  "personal service  corporations"  and "closely held" C corporations.  A
"personal  service  corporation"  is defined as a  corporation  whose  principal
activity is the  performance  of personal  services  substantially  performed by
employee-owners,  but only if the employee-owners in the aggregate own more than
10% of the stock of the corporation by value (not number of shares).  A "closely
held " corporation is defined for purposes of these rules as a corporation where
5 or fewer shareholders own, directly or indirectly,  more than 50% of the stock
value of the corporation,  at any time during the last half of the taxable year.
A special rule applies to  closely-held  C  corporations  which are not personal
service  corporations;  these corporations can offset passive losses against any
income except portfolio income.

     Recently  promulgated  Regulations  set forth rules for  grouping  trade or
business  activities and rental  activities for purposes of applying the passive
activity  rules.  One or more  trade or  business,  or rental  activity  will be
treated  as a single  activity  if the  activities  constitute  an  "appropriate
economic  unit" for the  measurement  of gain or loss. All of the relevant facts
and  circumstances  are to be examined to determine if an  appropriate  economic
unit exists.  A taxpayer may use any reasonable  method of applying the relevant
facts and circumstances in grouping  activities;  however, a rental activity may
not be grouped with a trade or business activity unless one of the activities is
insubstantial in relation to the other activity. The Regulations state that five
factors,  not all of which are  necessary  for a taxpayer to treat more than one
activity as a single  activity,  are given the  greatest  weight in  determining
whether activities  constitute an appropriate  economic unit. Those five factors
are: 1) similarities  and  differences in types of businesses;  2) the extent of
common control; 3) the extent of common ownership; 4) geographical location; and
5) interdependence between the activities.

     Once a taxpayer has grouped activities into appropriate economic units, the
taxpayer may not regroup or separate the activities in subsequent  taxable years
unless the  original  grouping  was  clearly  inappropriate  or there has been a
material change in the facts and circumstances  that makes the original grouping
clearly inappropriate. The Service may regroup activities if: a) the


                                      -75-
<PAGE>

taxpayer's grouping fails to reflect one or more appropriate  economic units and
b) one of the primary  purposes of the taxpayer's  grouping is to circumvent the
passive loss rules.

     A limited  partnership is required to group its activities and its partners
are bound by the grouping  done at the  partnership  level.  A partner must then
group  the  partnership   activity  with  activities  he  conducts  directly  or
indirectly  through other  partnerships  or S  corporations,  if the  activities
constitute an appropriate economic unit.

     The passive activity limitations apply only to a trade,  business or rental
activity in which the taxpayer does not materially participate. Code Section 469
provides generally that a limited partner's interest in a limited partnership is
always  a  passive  activity  interest  because  a  limited  partner  can  never
materially participate in the trade or business of the partnership.  Regulations
provide two  important  exceptions to this general rule for  individual  limited
partners.  First, a partnership interest is not treated as a limited partnership
interest  if the  individual  also owns an  interest  in such  partnership  as a
general partner at all times during the  partnership's  taxable year.  Second, a
limited partner is treated as materially  participating in an activity if he (i)
participates  in the activity  for more than 500 hours during the taxable  year,
(ii)  materially  participated in the activity for any five taxable years during
the preceding ten taxable years, or (iii) materially  participated for any three
preceding  taxable years in a personal  service  activity.  For purposes of this
rule, an activity refers to a single activity or appropriate economic unit if it
involves  the  performance  of personal  services in the fields of health,  law,
engineering,  architecture,  accounting,  actuarial science,  performing arts or
consulting  or any other trade or  business  in which  capital is not a material
income  producing  factor.  "Participation"  generally means any work done by an
individual  in  connection  with an  activity  in  which he  owns,  directly  or
indirectly,  an interest at the time the work is done. The capacity in which the
individual performs the work is immaterial.

     The General  Partner  plans to treat the  Partnership  business as a single
activity.  While  certain  qualified  physician  Limited  Partners  will perform
services  using the  Partnership's  Mobile  Lithotripsy  Systems (see  "Proposed
Activities   -   Operation   of   the   Mobile   Lithotripsy    System"),    the
General Partner does  not  anticipate  that any such Limited  Partner will spend
more than 500 hours during a taxable year in the  performance  of such services.
The General Partner expects,  however,  that certain  physician Limited Partners
will be engaged in a trade or business  activity outside the  Partnership.  Each
Limited  Partner  must  determine,  based  on  all  of the  relevant  facts  and
circumstances,  whether the Partnership business and any other activities of the
Limited  Partner  should be combined  into a single  activity.  The  Regulations
provide that a physician's  own medical  practice and income  derived  through a
limited   partnership  may  constitute  a  single   activity,   particularly  if
substantially all of the  partnership's  services are provided to the doctors or
their  patients  and such  services  are provided to the patients in roughly the
same  proportion  as the  doctors'  interests in the  Partnership.  The services
provided by the  Partnership  will not be limited to  patients of the  physician
Limited Partners. Furthermore, the Partnership will not be providing services to
patients of physician Limited Partners based upon the ownership interests of the
physician  Limited  Partners.  Both of these factors would tend to argue against
grouping the Partnership  activity with the individual medical practice activity
of a physician  Limited  Partner.  Due to the factual  nature of the inquiry and
lack of  authority  in this  area,  Counsel  is unable to give an  opinion as to
whether an


                                      -76-
<PAGE>

individual  physician  Limited Partner will be required to treat the Partnership
trade or business and his own medical practice as a single activity.

     If a physician Limited Partner must combine his separate activities and the
Partnership  activity into a single activity,  the hours of participation of the
physician  Limited  Partner in his separate  medical  practice  would have to be
aggregated  with his hours of  participation  in the  Partnership.  The  General
Partner expects that the physician Limited Partner's total hours will exceed 500
since the physician  Limited  Partner will have spent more than 500 hours in his
own private practice.  Thus, such a Limited Partner will be deemed to materially
participate in the Partnership  for the taxable year and, as a consequence,  the
Partnership income allocable to such Partner will be active income.

     Even if the 500 hour threshold is not met, the material participation rules
may apply to certain Limited Partners.  Regulation Section  1.469-5(j)  provides
that for purposes of the rules regarding  material  participation in five of the
preceding ten taxable  years and material  participation  in a personal  service
activity for any three  preceding  taxable  years,  an individual has materially
participated  in an  activity  for a  preceding  taxable  year if such  activity
includes  significant  activities that are substantially the same as significant
activities  that were  included in an activity in which the taxpayer  materially
participated  for such preceding  taxable year. The  Regulations do not define a
significant  activity nor do the Regulations  specify when such an activity will
be substantially the same as a prior year's activity for purposes of determining
whether material participation exists.

     The General Partner realizes that the physician Limited Partners have spent
more than 500 hours in,  and thus have  materially  participated  in,  their own
private  practices  in  preceding  taxable  years and will  continue to do so in
future  taxable  years.  Due to the factual nature of the inquiry into the prior
activities of individual  Limited  Partners and the lack of regulations or other
authority  explaining  when an  activity  is  substantially  the same as a prior
year's activity,  Counsel is unable to give an opinion as to whether any Limited
Partners will be deemed to be materially  participating in the Partnership under
the provisions of Regulation Section 1.469-5(j).

     In the event that a Limited Partner is deemed to materially  participate in
the  Partnership,  such Limited  Partner's share of Partnership  Profits will be
active income which cannot be used to offset passive  activity  losses,  and his
share  of  Partnership  Losses,  if  any,  may be  used to  offset  income  from
nonpassive  activity sources,  such as active business income,  salary income or
portfolio  income (i.e.,  gross income from  interest,  dividends,  annuities or
royalties  not derived in the ordinary  course of a trade or  business).  On the
other  hand,  if the  Limited  Partner has not  materially  participated  in the
Partnership,  Code Section 469 will generally prohibit such Limited Partner from
using  Partnership  Losses,  if any,  to offset  income  from  other  nonpassive
activity  sources.  Disallowed  passive losses are deferred and carried  forward
indefinitely until the taxpayer has passive income to offset.

     Upon the  taxable  disposition  to an  unrelated  party of all of a passive
activity,  or a substantial  part of a passive activity that may be treated as a
separate activity,  any unused deferred loss allocable to that passive activity,
or to that substantial part of the passive activity that is treated


                                      -77-
<PAGE>

as a  separate  activity,  can be used to  reduce  any gain  realized  upon such
disposition,  with any excess loss  available  for  deduction  first against any
other passive  income and then in full against any other income or gain from any
source.  The  Regulations do not specify what  constitutes  the disposition of a
substantial part of an activity for purposes of this rule. Investors should note
that an  investment  in Units is a  long-term  investment  and that the  General
Partner  anticipates  that the Partnership  will operate the Mobile  Lithotripsy
Systems for an indefinite period of time.  Investors should also note that there
is no market for the resale of Units,  and that any such  resale will be subject
to various  restrictions  imposed by federal and state  securities  laws and the
Partnership  Agreement.  See the form of the Partnership  Agreement  attached as
Appendix B and "Summary of the Partnership  Agreement - Restrictions on Transfer
of Partnership Interests."

     The General Partner expects and the Financial Projections forecast that the
Partnership  will  realize  taxable  income  beginning in the first full year of
operations,  and for each year thereafter during the projected five-year period.
Thus, it is expected that the Partnership  will provide the Limited Partners who
do not materially  participate in the Partnership  with passive  activity income
which can generally be used by the Limited  Partners to offset passive  activity
losses from other sources and previously disallowed  Partnership passive losses,
if any.

     Investors  should note,  however,  that the Temporary  Regulations  contain
special rules which  recharacterize  passive  activity  income as active income.
Specifically,  Section  1.469-2T(f)(2)  requires  the  recharacterization  of an
amount of the passive activity gross income from each "significant participation
passive activity" ("SPA" ) if the taxpayer's  passive activity gross income from
all SPAs in which the taxpayer owns an interest for the taxable year exceeds the
taxpayer's  passive activity  deductions from all such activities for such year.
For  purposes  of  this  rule,  a SPA  is an  activity  in  which  the  taxpayer
participates  for more than 100 hours but does not materially  participate.  The
interest of a Limited  Partner who will  perform  services  using a  Partnership
Lithotripter  under  arrangements  with  an  Contract  Hospital  (see  "Proposed
Activities  -  Operation  of the  Mobile  Lithotripsy  Systems")  will  be a SPA
interest if such Limited  Partner spends more than 100 hours during each year in
the performance of such services. The same conclusion is valid for any physician
Limited Partner that the General  Partner hires to be a Medical  Director of any
Mobile Lithotripsy System. Also, if a Limited Partner is required to combine the
Partnership  activity  and  other  activities  into a single  activity,  Limited
Partners who have performed more than 100 but less than 500 hours of service for
the  combined  activity  annually  will be deemed to own an SPA  interest in the
Partnership.  The  importance  of this rule is that it will  treat the  affected
Limited Partners' shares of Partnership  income as active income which cannot be
offset against passive activity losses, but their shares of Partnership  Losses,
if any, will be treated as passive  activity  losses subject to the Code Section
469 limitations.

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



                                      -78-
<PAGE>

Depreciation

     The Financial Projections assume that the Partnership will use the Modified
Accelerated  Cost Recovery System  ("MACRS") to depreciate the cost of any newly
acquired equipment. Further, the Financial Projections assume that any additions
or  improvements  to the  Mobile  Lithotripsy  Systems  and any newly  purchased
equipment  will be completed  and placed into service  after January 1, 1999 but
prior to October 1, 1999,  and that the mid-year  convention  will apply.  It is
assumed that any additions or improvements to any Mobile Lithotripsy  System, as
well as the cost of any newly purchased equipment, will also be depreciated over
a five year term under the MACRS method of depreciation using the 200% declining
balance  method,   switching  to  the  straight-line   method  to  maximize  the
depreciation  allowance.  In such case, the  Partnership  will claim only a half
year of  depreciation  for these  items in its  first  year of  operations.  The
Partnership  will  depreciate  the  Contributed  Assets,  including  the  Mobile
Lithotripsy  Systems  being  contributed,  utilizing a carryover  basis over the
remainder of their  useful lives and pursuant to MACRS using the 200%  declining
method of depreciation,  switching to the  straight-line  method to maximize the
depreciation allowance.

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

Partnership Allocations

     The Partnership Agreement specifies the Partners' shares of Profits, Losses
and   Distributions,   and  the  Financial   Projections   are  based  upon  the
effectiveness  of the  allocations  so  specified.  See "Summary of  Partnership
Agreement  -  Profits,  Losses  and  Distributions."  The Tax Reform Act of 1976
amended  Section  704(b) of the Code to  provide  that  special  allocations  of
income, gain, loss,  deduction or credit, or items thereof,  will be disregarded
if such  allocations  do not  have  "substantial  economic  effect."  While  the
Congressional   Committees'  reports  do  not  extensively  define  "substantial
economic  effect," the Senate Finance  Committee Report indicates that generally
an allocation has  "substantial  economic  effect" if it may actually affect the
dollar amount of the partners'  shares of the total  partnership  income or loss
independent of tax  consequences.  If an allocation lacks  substantial  economic
effect,  such  allocation  will be  reallocated  on the basis of each  partner's
proportionate  interest in the partnership in question,  "based on all the facts
and  circumstances."  According to the staff of the Joint Committee on Taxation,
"General Explanation of the TRA of 1976," 94th Cong. 2d Sess. 95 N.6 (1976), the
capital  accounts of the  partners  are to be utilized  to  determine  whether a
special  allocation  has  substantial  economic  effect  if  the  allocation  is
reflected  as an increase or  decrease  in a partner's  capital  account and the
capital  accounts of the partners  actually  reflect the dollar amounts that the
partners will receive upon liquidation of the partnership.

     The Treasury  Department  issued final  Regulations under Section 704(b) of
the Code,  effective  December  31,  1985,  which offer  objective  criteria for
determining whether an allocation


                                      -79-
<PAGE>

has  "substantial  economic  effect"  and will be  respected.  While  the  final
Regulations   are  quite  complex  and  could  be  interpreted   such  that  the
Partnership's  allocations would not be sustained, it is Counsel's opinion that,
if litigated, it is more likely than not that the allocations as provided in the
Partnership Agreement would be sustained.

     Investors are cautioned  that the foregoing  analysis and  conclusions  are
based upon extremely  complex final Regulations which have not been construed or
interpreted  by the courts.  The  Partnership  Agreement  authorizes the General
Partner to make  amendments  as  necessary  in order to permit  the  Partnership
allocations  to be sustained for federal  income tax purposes,  but only if such
amendments do not materially  affect adversely the rights and obligations of the
Limited Partners.  Otherwise,  any amendment must be approved by the vote of the
General  Partner  and a Majority in  Interest  of the  Limited  Partners.  If an
amendment to the  Partnership  Agreement  were  required in order to sustain the
Partnership  allocations for federal income tax purposes,  there is no assurance
that such an  amendment  would be possible  or, if it were,  that the rights and
obligations  of the Limited  Partners  might not be  adversely  affected in some
manner which cannot be  ascertained at this time.  Investors  should be aware of
the risks which are inherent in this complex and developing area of the law.

     The  Code  prohibits  the  allocation  of  items  of  income,  gain,  loss,
deductions  or credits to a partner  where such items are earned,  incurred,  or
accrued prior to the time such partner became a partner.  This varying  interest
rule effectively  prohibits  partnerships from  retroactively  allocating a full
share of  partnership  items for a taxable year to persons who were  partners in
the  partnership  for only a portion of the taxable year.  Section 706(d) of the
Code limits rules which otherwise permit the partnership to amend the allocation
provisions  of the  Partnership  Agreement for a taxable year until the due date
for the  partnership  tax return for that year.  Regulations  provide  that if a
change in the  partners'  interests in the  partnership  occurs as a result of a
partner's  sale of his entire  interest in the  partnership,  the  partnership's
taxable year closes with respect to the transferor partner. Thus, the transferor
partner has no interest in  partnership  items incurred after he disposes of his
interest;  conversely,  the  transferee  partner has no interest in  partnership
items incurred before that date. Although,  the partnership's  taxable year does
not close with respect to a partner who sells or exchanges  less than his entire
interest  or whose  interest  is  reduced by an event such as the entry of a new
partner  into the  partnership  or a gift of a  partner's  interest  to  another
person,  the varying interest rule requires  allocations of partnership items to
old and new partners to reflect the changes in their percentage interests.

     Regulations  sets forth two methods for taking into  account the  partners'
varying  interests  in a  partnership  in cases where a partner  disposes of his
entire  interest in a partnership  (in which case the  partnership  taxable year
closes as to him). The legislative  history to the 1976 revisions to the varying
interest  rule  states  that  new  regulations  "are  to  apply"  the  same  two
alternative  methods  of  computing  allocations  for  purposes  of the  varying
interest rule where no partner disposes of his entire interest.

     In the case of a disposition of a partner's entire partnership  interest by
sale,  exchange,  or liquidation,  the  Regulations  provide that the allocation
between transferor and transferee may be


                                      -80-
<PAGE>

made by actually closing the partnership books and calculating the exact taxable
income or loss for the period  ending on the date of the  transfer.  The interim
closing allows tracing of  partnership  items to the segment of the  partnership
taxable year in which they were incurred.  Under this method, a person who was a
partner  for  only  a  portion  of the  taxable  year  would  be  allocated  his
distributive  share of only those items that actually  were incurred  during the
time he was a member of the partnership.
 
     The Regulations  provide that a partnership can avoid an interim closing of
the books if the partners  agree to permit the  transferor  partner to take into
account a pro rata  amount of the items he would have  included  in his  taxable
income if he had remained a partner for the entire taxable year. The Regulations
state that the  proration  may be based on the portion of the taxable  year that
elapsed before the change in interests,  but that the  partnership  may use "any
other method that is reasonable."
 
     The  Partnership  Agreement  provides  that  items of income,  gain,  loss,
deductions, and credits will be allocated between the transferor partner and the
transferee  partner under the proration  method  described  above.  That is, the
items of income,  gain,  loss,  deductions  and credits will be allocated in the
same  ratio as the  number of days in the year  before and after the date of the
transfer or admission,  unless the  Partnership has sold any of its asset in the
year of the transfer or admission. If the Partnership has sold any of its assets
in the year of the transfer or admission, then the General Partner may elect, in
its sole  discretion,  to use the interim closing of the books method  described
above.  Accordingly,  Investors may be allocated  items of income and loss which
may be accrued prior to the Investor becoming a Limited Partner.

Tax Treatment Of Certain Fees and Expenses Paid By The Partnership

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


                                      -81-
<PAGE>

     Several  amendments to the Code enacted by the Tax Reform Act of 1984 alter
established  tax  accounting  principles.  One or more of these  amendments  may
affect the federal income tax treatment of fees and expenses,  particularly fees
paid or incurred by a partnership for services. In particular,  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 Partnership must constitute  ordinary and necessary
business  expenses  in order to be  deducted  by the  Partnership  when  paid or
incurred, unless the deduction of any such item is otherwise expressly permitted
by the Code (e.g.,  taxes).  Expenditures must also be reasonable in amount. The
Service  could  challenge a fee deducted by the  Partnership  on the ground that
such fee is a  capital  expenditure,  which  must  either be  amortized  over an
extended  period or indefinitely  deferred,  rather than deducted as an ordinary
and necessary  business expense.  The Service could also challenge the deduction
of any fee on the basis that the amount of such fee exceeds the reasonable value
of the  services  performed,  the goods  acquired  or the other  benefits to the
Partnership.

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

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

     The Partnership  will incur certain legal,  accounting,  and other expenses
related to the Asset  Contribution  and its  formation.  Under  current  Federal
income tax law, no deduction is allowed for expenses  relating to the  foregoing
and  such  expenses  must  be  capitalized.  Consequently,  no  Partner  will be
allocated any portion of such  capitalized  expenses.  It is expected that these
expenses will be paid out of the proceeds of the Offering and  Partnership  Cash
Flow.

     Organizational  and Syndication  Expenses.  Section 709 of the Code permits
certain costs relating to the organization of a partnership to be amortized over
a period of not less than 60


                                      -82-
<PAGE>

months,  but prohibits a partnership from deducting or amortizing those costs of
forming the partnership  that do not strictly relate to the  organization of the
partnership,  or that are incurred to promote the sale of partnership  interests
(i.e.,   syndication   expenses).   The  Regulations   provide  definitions  for
organizational  expenses that are deductible and syndication  expenses that must
be capitalized and explain how the amortization election is made. Organizational
expenses  include  legal fees for  services  incident to the  organization  of a
partnership,  such as negotiation  and  preparation of a partnership  agreement,
accounting fees for services incident to the organization of the partnership and
filing fees.  Syndication  expenses include brokerage fees,  registration  fees,
legal  fees  for  securities   advice,   accounting   fees  for  preparation  of
representations to be included in the offering materials,  and printing costs of
the  offering  materials.  The  Partnership  intends to treat the entire  amount
payable to the Sales Agent as a sales  commission for selling the Units, as well
as  certain  other  fees  and  expenses  allocable  to the  preparation  of this
Memorandum   and  to  the  offering  of  the  Units  in  the   Partnership,   as
nondeductible, nonamortizable syndication expenses.

     The Partnership  intends to amortize,  over a 60-month period, that portion
of the costs of forming the Partnership that is attributable to the organization
of the entity,  pursuant to the  Regulations.  The Service may take the position
that some  portion  or all of these  costs  relate  to  matters  other  than the
organization  of the  Partnership  and fail to qualify as  amortizable  expenses
under Section 709 and, therefore,  must be capitalized rather than deducted. The
General  Partner   believes  that  the  various   expenses  have  been  properly
characterized.  Because the allocation of these expenses is a factual  question,
Counsel to the  Partnership  cannot  predict the outcome should the character of
certain expenses be challenged on audit.

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

     Start-Up  Expenditures.  Section 195 of the Code permits costs  relating to
the  investigation  and  establishment  of an  active  trade or  business  to be
amortized over a period of not less than 60 months.  The Partnership  intends to
amortize,  over a 60-month  period,  that  portion of the costs  incurred by the
Partnership prior to the time the business of the Partnership commences that are
attributable  to the  investigation  and  establishment  of such  business.  The
Service may take the position  that some portion or all of these costs relate to
matters other than the  investigation  and  establishment  of the  Partnership's
business  and fail to qualify as  amortizable  expenses  under  Section 195 and,
therefore,  must be  capitalized  rather  than  deducted.  The  General  Partner
believes that the various expenses have been properly characterized. Because the
allocation of these expenses is a factual  question,  Counsel to the Partnership
cannot  predict  the  outcome  should  the  character  of  certain  expenses  be
challenged on audit.

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


                                      -83-
<PAGE>

     Management Fee to General  Partner.  The  Partnership  will pay the General
Partner  a monthly  management  fee  equal to the  greater  of $8,000 or 7.5% of
Partnership  Cash Flow per month. The management fee will be paid to the General
Partner  for the time and  attention  to be  devoted by it for  supervising  and
coordinating the management and  administration of the day-to-day  operations of
the Mobile Lithotripsy Systems pursuant to the terms of the Management Agreement
attached as  Appendix  D. See  "Compensation  and  Reimbursement  to the General
Partner and its  Affiliates."  The Partnership  intends to deduct the management
fee in full in the year  paid.  Assuming  the  management  fee to be paid to the
General  Partner is  ordinary,  necessary  and  reasonable  in  relation  to the
services provided, Counsel is of the opinion that the Partnership may deduct the
management fee in full in the year paid.

Partnership Elections

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

     The Code requires partnerships having partners who contribute property with
a  basis  different  than  the  property's  fair  market  value  on the  date of
contribution  to eliminate  that  disparity  utilizing  any one of three methods
described in Treasury  Regulations  promulgated  under Code Section 704(c) - the
traditional  method,  the curative method,  or the curative method with remedial
allocations. In the case of the Partnership, the General Partner has contributed
the  Contributed  Assets which in the  aggregate  have a tax basis  greater than
their fair market value.  However,  certain of the Contributed Assets may have a
tax basis  less than  their  fair  market  value.  Code  Section  704(c) and the
Regulations thereunder provide for methods by which to eliminate,  or attempt to
eliminate,  these  disparities.  They also govern the allocation of depreciation
with respect to  contributed  property  where the tax basis of the property does
not equal its fair market value. They will require the Partnership to attempt to
eliminate these  differences  utilizing any one of the above three methods.  The
General  Partner,  in its  discretion,  may elect which of the three  methods to
utilize to account for the  difference in tax basis and fair market value of the
Contributed Assets in the aggregate and on an individual basis.

Taxable Income

     The Partnership  Agreement  provides that in each year of the  Partnership,
annual  Distributions may be made to the Partners.  Excluded from the definition
of cash available for


                                      -84-
<PAGE>

Distributions, however, is the amount of funds necessary to amortize Partnership
debts and to maintain  certain  cash  reserves  deemed  necessary by the General
Partner.  See "Proposed  Activities - Funding for Partnership  Activities."  The
Partnership will also incur significant  up-front capital costs that may have to
be paid out of Partnership  revenues.  Thus, taxable income may very well exceed
cash available for distribution in the Partnership's initial year of operations.
Because of the  circumstances  outlined  above,  if Partnership  cash flow falls
substantially below the estimates as set forth in the Financial  Projections,  a
Limited  Partner could be subject to income taxes payable out of personal  funds
to the extent of the  Partnership's  income,  if any,  attributed to him without
receiving from the Partnership  sufficient cash to pay the Limited Partner's tax
with respect to such income.

Cash Distributions and Determination of Basis

     Under the Partnership  Agreement,  the  Partnership  will distribute to the
Partners cash flow realized from the operation of the Mobile Lithotripsy Systems
and sales  proceeds  realized on a sale of  Partnership  property,  if any.  See
"Summary of Partnership Agreement."

     Generally,  a Distribution  of cash by the Partnership to a Limited Partner
will be taxable to the Limited Partner only to the extent that the  Distribution
exceeds  the  Limited  Partner's  basis  for  his  Partnership   Interest.   Any
Distribution of cash in excess of a Limited  Partner's basis for his Partnership
Interest will generally be taxable as capital gain assuming that the Partnership
Interest  constitutes  a capital  asset in the hands of the Limited  Partner.  A
Limited  Partner's basis for his Partnership  Interest is equal to the amount of
cash contributed by the Limited Partner to the Part nership through the purchase
of his Partnership  Interest increased by Profits allocated to such interest and
decreased  by Losses  allocated  to such  interest  and all  Distributions  with
respect to such interest.

     The General Partner  anticipates that  Partnership Cash Flow  distributions
will not exceed the  Limited  Partners'  basis in their  Partnership  Interests,
thus, under such  circumstances,  the Limited Partners should avoid taxable gain
upon receipt of Partnership Cash Flow distributions and constructive  receipt of
their  share of the deemed  distributions,  if any.  There can be no  assurance,
however,  that the Partnership will not realize any Losses or that Distributions
will not exceed the  amounts  forecast,  or that  Profits  will be less than the
amounts  forecast,  in which event the Limited  Partners may not have sufficient
tax basis in their  Partnership  Interests to avoid taxable gain from receipt of
Partnership  Distributions and constructive receipt of their share of any deemed
distributions.

     THE REGULATIONS  ARE VERY COMPLEX.  THE GENERAL PARTNER URGES EACH INVESTOR
TO CONSULT WITH HIS OWN TAX ADVISOR TO DETERMINE  THE EFFECT OF THE  REGULATIONS
ON THE TAX CONSEQUENCES OF AN INVESTMENT IN THE PARTNERSHIP, PARTICULARLY IN THE
EVENT  THE  PARTNERSHIP  PROFITS  ARE LESS  THAN  THE  AMOUNTS  FORECAST  OR THE
PARTNERSHIP REALIZES LOSSES.


                                      -85-
<PAGE>

Sale of Partnership Units

     Gain  realized  on the  sale of  Units by a  Limited  Partner  who is not a
"dealer" in Units or in limited  partnership  interests will be taxed as capital
gain, except that the portion of the sales price attributable to inventory items
and  unrealized  receivables  will be  taxed  as  ordinary  income.  "Unrealized
receivables"  of the  Partnership  include  the Limited  Partner's  share of the
ordinary income that the Partnership  would realize as a result of the recapture
of depreciation  (as described  above) if the  Partnership had sold  Partnership
depreciable  property  immediately before the Limited Partner sold his 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.

Further Changes in Tax Laws

     In the  foregoing  discussion,  an attempt has been made to  summarize  the
effects of certain  provisions of recent tax  legislation  which would appear to
affect the tax consequences to an Investor in the Partnership. It is, of course,
not  possible  to  discuss  all  of the  changes  in the  Code  effected  by all
amendments  enacted over the last several years which might  adversely  affect a
Limited  Partner.  Consequently,  each  Investor is urged to consult his own tax
counsel in this regard. It should also be noted that other proposals for changes
in the Code have been made  which  might be adopted at some later date and could
have an adverse impact on the Limited Partners.

Local and State Taxes

     The  Partnership is organized  under the laws of the State of Tennessee and
its operations are anticipated to take place primarily within Alabama, Arkansas,
Kentucky and  Tennessee.  Investors  are  anticipated  to be  residents  only of
Alabama, Arkansas, Kentucky and Tennessee.

     Each Investor should consult his own attorney or tax advisor  regarding the
effect of state taxes on his personal situation.


                      SUMMARY OF THE PARTNERSHIP AGREEMENT

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


                                      -86-
<PAGE>

Formation

     The  Partnership  was formed on October 16,  1998 as a limited  partnership
under the laws of the State of Tennessee and has had no operations to date.  The
Initial Limited Partner will withdraw from the Partnership upon the Closing. The
General Partner of the Partnership is Prime Lithotripter Operations, Inc., a New
York corporation, d/b/a Tennessee Valley Lithotripter. See "General Partner."

Description of the Units

     Investors  will acquire their  interests in the  Partnership in the form of
Units.  Upon the  successful  completion of the Offering,  each purchaser of the
Units  whose  subscription  is accepted  by the  General  Partner  will become a
Limited Partner in the Partnership. For each Unit purchased, a payment of $9,114
is required;  provided, that prospective Investors who meet certain requirements
may be able to fund a portion of their Unit purchase  price with the proceeds of
a Limited Partner Loan. See "Terms of the Offering - Limited Partner Loans." The
per Unit cash purchase  price and  execution and delivery of any Loan  Documents
are due upon  subscription.  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 Capital  Contribution,  (ii)  his  proportionate
share of the  undistributed  profits of the Partnership and (iii) the  amount of
certain  Distributions  received  from the  Partnership  as provided by the Act.
Limited  Partners  financing a portion of the purchase price of their Units will
also be liable to the Bank as provided in the Loan Documents.  See "Risk Factors
- Other  Investment  Risks - Liability  Under Limited  Partner  Loans" and "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 E.

Contribution of the General Partner

     Concurrent  with the  Closing of the  Offering,  the General  Partner  will
contribute to the Partnership the Contributed Assets. See "Proposed Activities -
Contribution of Assets." In exchange,  the General Partner will receive at least
an initial 80% Partnership Interest.  The General Partner's Partnership Interest
will increase by 0.25% for each unsold Unit.

Dilution Offerings

     The  General  Partner  has the  authority  to  periodically  offer and sell
additional  limited  partnership  interests  in  the  Partnership  (a  "Dilution
Offering")  to  local  investors  who  are  not  investors  in  the  Partnership
("Qualified  Investors").  The primary purpose of Dilution Offerings is expected
to be to raise additional capital for any legitimate  Partnership purpose. Money
raised in a Dilution  Offering  could also be  distributed  to the  Partners  as
determined by the General Partner. Any sale of limited partnership  interests in
a Dilution  Offering will result in  proportionate  dilution of the  Partnership
Percentage  Interests  of the  existing  Partners;  i.e.,  the  interests of the
General  Partner and of the Limited  Partners in Partnership  allocations,  cash
distributions and voting rights


                                      -87-
<PAGE>

will be proportionately  reduced as a result of a successful  Dilution Offering.
Unless otherwise agreed by the General Partner and a Majority in Interest of the
Limited  Partners at the time,  any  additional  limited  partnership  interests
offered  in a  Dilution  Offering  will be sold for a price  no  lower  than the
highest  price for which  proportionate  limited  partnership  interests  in the
Partnership have been previously sold by the Partnership.

Fundamental Changes

     Under the terms of the Partnership Agreement, the General Partner may cause
the  Partnership  to engage in certain  transactions  in the future  without any
approval by the Limited Partners,  any of which transactions could result in the
termination or reorganization of the Partnership and a partial or total dilution
of all Limited Partners' interests in the Partnership. The General Partner could
adopt a plan providing for the merger or  consolidation  of the Partnership with
another entity; the sale of all or substantially all of the Partnership's assets
to another entity; or any other reorganization,  reclassification or exchange of
the  Partnership  Interests,   including  without  limitation  the  exchange  of
Partnership  Interests  for equity  interests  in another  entity or for cash or
other  consideration.  In such event,  the Limited Partners are obligated by the
terms of the Partnership  Agreement to take or refrain from taking,  as the case
may be, such actions as the plan may  provide,  including,  without  limitation,
executing  such  instruments,  and  providing  such  information  as the General
Partner may reasonably request. Any such plan may also result in an amendment to
the  Partnership  Agreement  or the adoption of a new  partnership  agreement in
connection with the merger of the Partnership with another entity.  The plan may
also provide that the General  Partner and its affiliates  will receive fees for
services  rendered in connection  with the operation of the  Partnership  or any
successor entity following the consummation of the transactions described in the
plan, and neither the Partnership  nor the Limited  Partners will have any right
by virtue of the Partnership Agreement in the fees to be derived therefrom.  Any
securities or other  consideration to be distributed to the Partners pursuant to
any such plan shall be  distributed  in the manner set forth in the  Partnership
Agreement as though the Partnership were being liquidated. Moreover, because the
General Partner has the sole right to approve the transactions  described above,
the  General  Partner may be entitled  to  complete  such  transactions  without
providing the Limited  Partners  information that might otherwise be required to
be  disclosed  to the Limited  Partners  prior to  completing  the  transaction,
including but not limited to information  concerning the risks and effect of the
proposed   transaction;   the  fairness  of  the  proposed  transaction  to  the
Partnership and the Limited Partners;  comparative  distributions to the General
Partner under the Partnership operations and under the proposed  reorganization;
the method of valuing the Partnership in the proposed transaction and the method
of allocating value among various participants in the proposed transaction;  the
background,  reasons for and alternatives to the  transaction;  and conflicts of
interest of the General Partner in the proposed reorganization.

     In December 1993,  Congress  passed  legislation  amending  portions of the
Securities Exchange Act of 1934 to afford new protections to limited partnership
investors   in  the  context  of  certain   limited   partnership   mergers  and
reorganizations  commonly  known as partnership  rollups.  The law, known as the
"Limited  Partnership  Rollup  Reform Act of 1993" (the  "Reform  Act"),  became
effective  on December  17,  1994,  and applies to certain  rollup  transactions
proposed after


                                      -88-
<PAGE>

such date.  The Reform Act and the Rules  promulgated  thereunder are applicable
only to certain  types of  partnership  rollups and,  when  applicable,  provide
limited partners with the following protections:

     (i) allows and facilitates  communication  between limited  partners during
their consideration of a proposed rollup;

     (ii)  allows the  limited  partners  to obtain a list of the other  limited
partners involved in the rollup;

     (iii) prohibits the practice of compensating persons soliciting the limited
partners' approval of the rollup based on the number of approvals received;

     (iv) requires  greater  disclosure to the limited  partners of the terms of
the rollup and its effects on the limited partners  including (a) the reason for
the rollup and consideration of the  alternatives;  (b) the method of allocating
interests in the  successor  entity to the limited  partners and why such method
was chosen;  (c) comparative  information  including  changes in limited partner
voting rights,  changes in  distributions to the limited partners and changes in
compensation  to the general  partner;  (d) conflicts of interest of the general
partner;  (e) changes in the  partnership's  business plan; (f) the valuation of
the limited partnership  interests;  (g) any significant  difference between the
exchange  values  of the  limited  partnerships  and the  trading  price  of the
securities to be issued in the rollup transaction;  (h) the risks and effects of
the proposed rollup  transaction;  (i) a statement by the general partner of the
fairness of the rollup and the general  partner's  basis for such  opinion;  (j)
full  disclosure  of any opinion  (other than  opinions of counsel) or appraisal
received by the general  partner related to the proposed  transaction,  or if no
such opinion or appraisal was sought by the general  partner,  an explanation of
why no such opinion or appraisal is necessary to permit the limited  partners to
make an informed decision regarding the proposed transaction;  (k) the rights of
the limited  partners to exercise  dissenters'  or  appraisal  rights or similar
rights;  (l) the method  for  allocating  rollup  consideration  to the  limited
partners and an explanation why such method was chosen; and (k) tax consequences
of the rollup; and

     (v)  requires a minimum 60 day  offering  period  during  which the limited
partners may consider the proposed rollup (or such shorter period as required by
state law).

     Further,  the Reform Act also  provides that related Rules of Fair Practice
will be amended to prohibit exchanges and national securities  associations from
listing  securities  issued  in  connection  with a rollup  unless  the  limited
partners are afforded the following protections:

     (i)  dissenting  limited  partners  must  have  the  right  to  one  of the
following:  (a) to  receive  an  appraisal  and  compensation;  (b) to  retain a
security under substantially similar terms as the original issue; (c) to approve
of the rollup by a vote of not less than 75% of the  outstanding  securities  of
each  participating  partnership,  or; (d) to use an  independent  committee  to
negotiate the terms of the transaction.


                                      -89-
<PAGE>

     (ii) not to have their voting power unfairly reduced or abridged.

     (iii)  not to  bear  an  unfair  proportion  of  the  costs  of the  rollup
transaction.

     The Reform Act applies only to certain  types of rollup  transactions,  and
there is no certainty  that any plan  considered by the  Partnership at any time
would be subject to the Reform  Act.  Thus  Investors  must  assume in making an
investment in the Units that their Limited Partnership  Interest will be subject
to the provisions of the Partnership  Agreement  permitting  fundamental changes
which could result in the termination or reorganization of the Partnership and a
partial or total dilution of all Limited Partners'  interests in the Partnership
without the consent of, or disclosure  of detailed  information  concerning  the
transaction to, the Limited Partners.

Profits, Losses and Distributions

     The  following  is a  summary  of  certain  provisions  of the  Partnership
Agreement  relating to the allocation and  distribution of the Profits,  Losses,
Partnership  Cash Flow,  Partnership  Refinancing  Proceeds,  Partnership  Sales
Proceeds,  and cash upon dissolution of the  Partnership.  Investors should note
that the Percentage Interests referenced in the discussion below could change as
a consequence of a future Dilution  Offering.  Because an  understanding  of the
defined  financial  terms  is  essential  to an  evaluation  of the  information
presented below,  Investors are urged to review carefully the definitions of the
terms appearing in the Glossary.

     1. Allocations.

     Losses. After giving effect to the special allocations set forth below, the
Partnership's  Losses,  if any, for each Year generally will be allocated to the
Partners in accordance with their respective Percentage Interests.

     Profits.  After giving effect to the special  allocations  set forth below,
the  Partnership's  Profits  for any Year  generally  will be  allocated  to the
Partners in accordance with their respective Percentage Interests.

     All items of income,  gain,  loss,  deduction,  or credit will be allocated
among the Partners  proportionately.  Further,  notwithstanding  the  foregoing,
after giving effect to certain special allocations,  the General Partner must be
allocated at least 1% of all items of income, gain, loss, deduction or credit.

     2. Special Allocations.  The following special allocations shall be made in
the following order:

     (i)  Partnership  Minimum  Gain  Chargeback.  If there is a net decrease in
Partnership  Minimum  Gain  during any Year,  each  Partner  shall be  specially
allocated items of Partnership income and gain for such Year (and, if necessary,
subsequent Years) in an amount equal to such Partner's share of the net decrease
in Partnership Minimum Gain, determined in accordance


                                      -90-
<PAGE>

with Treasury  Regulations Section  1.704-2(g)(2).  Allocations made pursuant to
the previous  sentence  will be made in  proportion  to the  respective  amounts
required  to be  allocated  to each  Partner  pursuant  to that  section  of the
Regulations.  This provision relating to Partnership Minimum Gain Chargebacks is
intended to comply with  Treasury  Regulations  Section  1.704-2(f)  and will be
interpreted and applied in a manner consistent with that Regulation.

     (ii) Partner Minimum Gain Chargeback. If there is a net decrease in Partner
Minimum Gain  attributable to a Partner  Nonrecourse  Debt during any Year, each
Partner who has a share of the Partner Minimum Gain attributable to such Partner
Nonrecourse  Debt shall be specially  allocated items of Partnership  income and
gain for such Year (and, if necessary,  subsequent  Years) in an amount equal to
such Partner's share of the net decrease in Partner Minimum Gain attributable to
such  Partner  Nonrecourse  Debt,  to the  extent  required  and  determined  in
accordance with Treasury Regulations Section 1.704-2(i)(4). Allocations pursuant
to the previous  sentence will be made in proportion to the  respective  amounts
required  to be  allocated  to each  Partner  pursuant  to that  section  of the
Regulations.  This  provision  relating to Partner  Minimum Gain  Chargebacks is
intended to comply with Regulation Section 1.704-2(i)(4) and will be interpreted
and applied in a manner consistent with that Regulation.

     (iii)  Qualified  Income  Offset.  If a Partner  unexpectedly  receives any
adjustments,  allocations  or  distributions  described in Treasury  Regulations
Sections 1.704-1(b)(2)(ii)(d)(4) through (6) which causes or increases a deficit
balance in such  Partner's  Capital  Account (as  adjusted  pursuant to Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)),  items of Partnership income and gain
will be  specially  allocated  to each  such  Partner  in an amount  and  manner
sufficient to eliminate, to the extent required by the Regulations,  the deficit
Capital  Account  of such  Partner  as quickly  as  possible,  provided  that an
allocation  pursuant to this  provision  shall be made only if and to the extent
that  such  Partner  would  have a  deficit  Capital  Account  after  all  other
allocations  have been  tentatively  made as if this  provision  were not in the
Partnership  Agreement.  This  provision is intended to be a  "qualified  income
offset," as defined in Regulation Section 1.704-1(b)(2)(ii)(d).

     3.  Allocations  Between  Transferor  and  Transferee.  In the event of the
transfer  of all or any part of a Partner's  interest  (in  accordance  with the
provisions of the  Partnership  Agreement) in the  Partnership at any time other
than at the end of a year, or the admission of a new Partner (in accordance with
the provisions of the Partnership Agreement),  the transferring or new Partner's
share of the  Partnership's  income,  gain,  loss,  deductions  and credits,  as
computed both for accounting purposes and for federal income tax purposes,  will
be  allocated  between the  transferor  Partner and the  transferee  Partner (or
Partners), or the new Partner and the other Partners, as the case may be, in the
same ratio as the  number of days in such year  before and after the date of the
transfer or admission; provided, however, that if there has been a sale or other
disposition of the assets of the  Partnership  (or any part thereof) during such
year,  then upon the mutual  agreement  of all the Partners  (excluding  the new
Partner  and  the  transferring  Partner),  the  Partnership  may  in  its  sole
discretion  treat the  periods  before  and after  the date of the  transfer  or
admission as separate years and allocate the Partnership's net income, gain, net
loss,   deductions  and  credits  for  each  of  such  deemed   separate  years.
Notwithstanding the foregoing,  the Partnership's  "allocable cash basis items,"
as that term is used in Section  706(d)(2)(B) of the Code, shall be allocated as
required by Section 706(d)(2) of


                                      -91-
<PAGE>

the Code and the  Regulations  thereunder.  See "Tax  Aspects of the  Offering -
Partnership Allocations."

     4.  Incoming  Partner  Allocations.  The  Code  prohibits  the  retroactive
allocation of a full share of partnership items to persons who were partners for
less than the entire year. As provided above, the Partnership Agreement provides
that items of income,  gain,  loss,  deductions  and credits  will be  allocated
between a transferor  Partner and a transferee  Partner in the same ratio as the
number  of days in the  year  before  and  after  the  date of the  transfer  or
admission,  unless the Partnership has sold any of its assets in the year of the
transfer or admission. If the Partnership has sold any of its assets in the year
of the transfer or admission,  then the General  Partner may elect,  in its sole
discretion,  to use the interim closing of the books method described above. See
"Tax Aspects of the Offering - Partnership Allocations."

     5. Distributions.

     The Limited Partnership Agreement authorizes the following Distributions to
be made to the Partners:

     Distribution  of  Partnership  Cash  Flow.  Partnership  Cash  Flow will be
distributed  to the  Partners  within 60 days  after the end of each year of the
Partnership,  or earlier in the discretion of the General Partner, in accordance
with their  respective  Percentage  Interests.  Subject to the  availability  of
Partnership Cash Flow and the financial  obligations of the  Partnership,  it is
anticipated that quarterly distributions will be made to the Partners.  There is
no assurance, however, that such will be the case.

     Distribution  of  Partnership  Sales Proceeds and  Partnership  Refinancing
Proceeds.  Partnership Sales Proceeds and Partnership  Refinancing Proceeds will
be distributed to the Partners within 60 days after the transactions giving rise
to such  proceeds,  or earlier in the  discretion  of the  General  Partner,  in
accordance with their respective Percentage Interests.

     Distribution Upon Dissolution.  Upon the dissolution and termination of the
Partnership,  the General Partner,  or if there is none, a representative of the
Limited Partners,  will cause the cancellation of the Partnership's  Certificate
of Limited Partnership,  liquidate the assets of the Partnership,  and apply and
distribute the proceeds of such liquidation in the following order of priority:

     (i) First, to the payment of debts and liabilities of the Partnership,  and
the expenses of liquidation;

     (ii) Second,  to the creation of any reserves  that the General  Partner or
the  representatives  of the Limited Partners may deem reasonably  necessary for
the payment of any  contingent or unforeseen  liabilities  or obligations of the
Partnership or of the General  Partner  arising out of or in connection with the
business and operation of the Partnership; and



                                      -92-
<PAGE>

     (iii) Third,  the balance,  if any, will be  distributed to the Partners in
accordance  with the Partners'  positive  Capital  Account  balances  after such
Capital Accounts are adjusted as provided in the Partnership Agreement,  and any
other adjustments  required by the final Regulations under Section 704(b) of the
Code. Any general partner with a negative Capital Account following distribution
of  the  liquidation  proceeds  or  the  liquidation  of  its  interest  in  the
Partnership  must contribute to the Partnership an amount equal to such negative
capital account on or before the later of the end of the  Partnership's  taxable
year or within 90 days after the date of liquidation. Any capital so contributed
will 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.  It is  intended  that  Capital  Accounts  will allow for
liquidation  distributions consistent with the manner in which Partnership Sales
Proceeds and Partnership  Refinancing Proceeds are distributed;  however,  there
can be no assurance that such will be the case.

     Tax  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.  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.

Management of the Partnership

     The  General  Partner  has the sole  right to manage  the  business  of the
Partnership and at all times is required to exercise its  responsibilities  in a
fiduciary capacity. The consents of the Limited Partners is not required for any
sale or  refinancing  of the Mobile  Lithotripsy  Systems or the purchase of new
lithotripsy-related   equipment  by  the   Partnership.   Following   the  Asset
Contribution,  the Partnership will contract with the Management Agent to manage
and administer the day-to-day  operations of the Mobile Lithotripsy Systems. See
"Proposed  Activities  -  Management  and  Administration"  and  the  Management
Agreement, the form of which is attached as Appendix D.

     Under the  Partnership  Agreement,  if the General Partner is adjudged by a
court of  competent  jurisdiction  to be liable to the  Limited  Partners or the
Partnership for acts or omissions of gross  negligence or  constituting  willful
misconduct,  the General Partner may be removed and another substituted with the
consent of all of the Limited Partners.

Powers of the General Partner

     1. General.

     The General Partner 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 Part  nership  and employ such  persons as it
deems necessary for the operation of the Partnership. The


                                      -93-
<PAGE>

General  Partner,  however,  is expressly  prohibited  from, among other things:
(i) possessing  Partnership assets or assigning the rights of the Partnership in
Partnership assets or the Mobile Lithotripsy  Systems for other than Partnership
purposes;  (ii) admitting Limited Partners except as provided in the Partnership
Agreement;  and  (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.

     2. Tax Matters.

     (i) Elections.  The General Partner 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.

     (ii) Tax Matters Partner. The Partnership  Agreement designates the General
Partner 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,  the General  Partner 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, the General
Partner shall oversee the  Partnership  tax affairs in the manner which,  in its
best  judgment,  are in the  interests of the  Partners.  Moreover,  the General
Partner 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.

Rights and Liabilities of the Limited Partners

     The Limited Partners do not have any right to participate in the management
of the business of the  Partnership.  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 (i) to the extent of their  respective  interests in
the Partnership, (ii) for the obligation to return certain Distributions made to
them as  provided  by the Act,  and  (iii) to the  extent  of their  liabilities
pursuant to their respective Limited Partner Loan Obligations. See "Risk Factors
- Other  Investment  Risks - Limited  Partners'  Obligations  to Return  Certain
Distributions" and "Liability Under Limited Partner Loans."



                                      -94-
<PAGE>

Restrictions on Transfer of Partnership Interests

     No Partnership  Interest nor any Units may be transferred without the prior
written consent of the General Partner,  which approval may be granted or denied
in the sole discretion of the General  Partner,  and subject to the satisfaction
of  certain  other  conditions  set forth in the  Partner  ship  Agreement.  The
Partnership  Agreement contains  additional  limitations on transfer,  including
provisions  prohibiting  transfer that would violate federal or state securities
laws. No transferee of the Units will  automatically  become a Limited  Partner.
Admission  of  a  transferee  requires  the  fulfillment  of  other  obligations
enumerated  in the  Partnership  Agreement,  including  either the approval of a
Majority  in  Interest of the Limited  Partners  (except  the  assignor  Limited
Partner)  and the  General  Partner,  or the  approval of the  assignor  Limited
Partner and the General  Partner.  Any transferee of a Partnership  Interest who
has not been admitted to the  Partnership  as a Partner shall not be entitled to
any of the rights,  powers or privileges of his  transferor  except the right to
receive and be credited or debited with his  proportionate  share of Partnership
income,  gains,  profits,  losses,  deductions,   credits  or  distributions.  A
transferor  Limited  Partner  will  not be  released  from  his or her  personal
liability  under  any  Limited  Partner  Note  upon the  transfer  of his or her
Partnership  Interest,  unless otherwise  specifically agreed by the Bank at the
time of the transfer.  Unauthorized  transfers may  constitute a default under a
Limited  Partner Note.  See "Risk Factors - Other  Investment  Risks - Liability
Under Limited Partner Loan."

     The  General  Partner  may  transfer  all or a portion  of its  Partnership
Interest only with the consent of a Majority in Interest of the Limited Partners
before  the  transferee  can  be  admitted  as  a  Substitute  General  Partner.
Notwithstanding  the  foregoing,  the  Partnership  Agreement  gives the General
Partner the authority to transfer all or part of its General Partner interest to
any  transferee  controlled  by it or one or  more  of  its  Affiliates  without
obtaining the Limited Partners' consent. Any such transferee would automatically
be a substitute  general partner.  Both the admission of any new shareholder and
the withdrawal of any  shareholder  from the General Partner may be done without
the approval of the Limited Partners.

Dissolution and Liquidation

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

     1. The sale,  exchange or  disposition of all or  substantially  all of the
property of the Partnership without making provision for the replacement thereof
(except to the extent otherwise  provided in a  reorganization  plan approved by
the General Partner as described above);

     2. The expiration of its term on December 31, 2048;

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

     4. The election to dissolve the Partnership made by the General Partner, in
its sole discretion, including pursuant to a reorganization plan approved by the
General Partner; or


                                      -95-
<PAGE>

     5. The election to dissolve the Partnership  made by the General Partner in
the event of certain legislation, case law or regulatory changes which adversely
affect the operation of the Partnership.

     The  retirement,  resignation,  bankruptcy,  assignment  for the benefit of
creditors,  dissolution,  death,  disability  or legal  incapacity  of a general
partner will not 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, a Majority in Interest of the Limited Partners
elect in writing to continue the Partnership and, if necessary,  designate a new
general partner.

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

Optional Purchase of Limited Partner Interests

     As provided in the Partnership  Agreement,  the General Partner,  or if the
General  Partner  elects,  the  Partnership,  has the option to purchase all the
interest  of a Limited  Partner  in the  Partnership  upon the  occurrence  with
respect to the Limited Partner of (i) death, (ii) a domestic  proceeding,  (iii)
insolvency,  or (iv) direct or indirect  ownership of an interest in a competing
venture  (including  the lease or  sublease  of  competing  technology).  If the
General  Partner  and the  Partnership  decline  to  exercise  the  option,  the
withdrawing  Limited  Partner or his  representative,  as the case may be, shall
continue  to  hold  the  Partnership  Interest  pursuant  to  the  terms  of the
Partnership  Agreement.  If the General Partner (or the  Partnership)  elects to
exercise the option,  the option  purchase  price will be equal to the lesser of
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  and as  reduced  by
depreciation deductions claimed by the Partnership for tax purposes) or the fair
market value of such interests. The book value is likely to be considerably less
than the fair market value of the Limited Partner's  interest in the Partnership
and may not provide any  positive  return on the Limited  Partner's  investment.
Because Partnership  losses,  depreciation  deductions and Distributions  reduce
capital  accounts,  and  because  appreciation  in  Partnership  assets  is  not
reflected in capital accounts, it is the opinion of the General Partner that the
option purchase price will be nominal in amount.

     In  addition,  if state or  federal  regulations  or laws  are  enacted  or
applied,  or if any other legal developments occur, which, in the opinion of the
General  Partner,   adversely  affect  (or  potentially  adversely  affect)  the
operation of the  Partnership  or the  business of the  Partnership  (e.g.,  any
prohibition on physician ownership), the General Partner, in its sole discretion
is required either to (i) purchase the Partnership  Interests of all the Limited
Partners  at a price  equal to the  lesser of (y) the fair  market  value of the
Partnership  Interests,   or  (z)  the  book  value  price  set  out  above,  or
(ii) dissolve and liquidate the Partnership. See "Regulation."


                                      -96-
<PAGE>

Noncompetition Agreement and Protection of Confidential Information

     The  Partnership  Agreement  provides  that each  Partner  (other  than the
General  Partner  and its  Affiliates)  is  prohibited  from  having a direct or
indirect  ownership  interest in a  competing  venture  (including  the lease or
sublease of competing  technology)  (the "Outside  Activities").  While they own
Partnership  Interests,  each Partner is precluded  from engaging in any Outside
Activities.  In the event that a Partner's Partnership Interest is terminated or
transferred upon the occurrence of certain events as provided in the Partnership
Agreement,  such Partner is precluded,  for a period of two (2) years  following
the date of such  withdrawal,  from engaging in any Outside  Activity within any
market area in which the  Partnership  is  providing  services  or has  provided
services within the twelve months preceding the withdrawal.  This prohibition is
in  addition to the right of the  General  Partner to acquire the  interest of a
Partner engaged in an Outside Activity as provided in the Partnership Agreement.
See "Optional  Purchase of Limited Partner  Interests" in this Section,  and the
form of the Partnership Agreement attached hereto as Appendix B.

     In  addition,   the  Partnership   Agreement  provides  that  each  Partner
acknowledges  and agrees that such Partner's  participation  in the  Partnership
necessarily involves his access to confidential  information that is proprietary
in  nature  and,   therefore,   the  exclusive   property  of  the  Partnership.
Accordingly,  the Partners  (other than the General  Partner and its Affiliates)
are  precluded  from  disclosing  such  confidential  information  during  their
participation as Partners or thereafter unless required by law or with the prior
written consent of the Partners.

Arbitration

     The Partnership  Agreement  provides that disputes arising thereunder shall
be resolved by submission to  arbitration  in accordance  with the provisions of
Tennessee law.

Power of Attorney

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

Reports to Limited Partners

     Within 90 days after the end of each Year of the  Partnership,  the General
Partner  will send to each  person who was a Limited  Partner at any time during
such year such tax  information,  including,  without  limitation,  Federal  Tax
Schedule K-1, as will be reasonably necessary for the


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<PAGE>

preparation  by such  person of his federal  income tax  return,  and such other
financial information as may be required by the Act.

Records

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


                                  LEGAL MATTERS

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


                             ADDITIONAL INFORMATION

     The 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 may not,
however, be available due to confidentiality restrictions contained therein.


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