Document:

FIRST SUPPLEMENT DATED MARCH 31, 2000 TO THE

                 CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM DATED

                                FEBRUARY 25, 2000

                   FLORIDA LITHOTRIPTERS LIMITED PARTNERSHIP I

                  Lithotripters,  Inc., a North Carolina corporation  ("Litho"),
by this First Supplement hereby amends and supplements its Confidential  Private
Placement  Memorandum  dated February 25, 2000 (the  "Memorandum").  Capitalized
terms used  herein are  defined in the  Glossary  appearing  in the  Memorandum.
Persons who have  subscribed  for or are  considering an investment in the Units
offered by the Memorandum should carefully review this First Supplement.

Extension of the Offering

                  Pursuant to the authority given to Litho in the Memorandum, it
hereby  elects to extend the  offering  termination  date to April 14,  2000 (or
earlier in the  discretion  of Litho,  upon the sale of all Units as provided in
the Memorandum).SECOND SUPPLEMENT DATED APRIL 14, 2000 TO THE

                 CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM DATED

                                FEBRUARY 25, 2000

                   FLORIDA LITHOTRIPTERS LIMITED PARTNERSHIP I

                  Lithotripters,  Inc., a North Carolina corporation  ("Litho"),
by this Second Supplement hereby amends and supplements its Confidential Private
Placement  Memorandum dated February 25, 2000, as amended and supplemented  (the
"Memorandum").  Capitalized  terms  used  herein  are  defined  in the  Glossary
appearing in the Memorandum.  Persons who have subscribed for or are considering
an investment in the Units offered by the  Memorandum  should  carefully  review
this Second Supplement.

Extension of the Offering

                  Pursuant to the authority given to Litho in the Memorandum, it
hereby elects to extend the offering termination date to May 2, 2000 (or earlier
in the  discretion  of  Litho,  upon the sale of all  Units as  provided  in the
Memorandum).THIRD SUPPLEMENT TO THE

              CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM AND CONSENT

                                 April 19, 2000

                   FLORIDA LITHOTRIPTERS LIMITED PARTNERSHIP I

                                2008 Litho Place

                       Fayetteville, North Carolina 28304

                  Florida Lithotripters Limited Partnership I, a Florida limited
partnership (the  "Partnership"),  hereby  supplements its Confidential  Private
Placement Memorandum of February 25, 2000 (the "Memorandum").  Capitalized terms
used herein are defined in the Glossary appearing in the Memorandum. All persons
who have subscribed for or are considering an investment in the Units offered by
the Memorandum should carefully review this Supplement and Consent.

Competition and Revaluation of Units

                  Recently,  seven Limited  Partners in the  Tallahassee  market
acquired an interest in a competing  lithotripsy  business.  The General  Panner
believes  that  the  increase  in  competition  in  the  Tallahassee  market  in
connection with the former Limited  Partners' new venture will adversely  affect
Partnership revenues on an annual basis by approximately  $600,000.  The General
Partner was aware of the  potential  competition  prior to the  inception of the
Offering and the loss of revenue in the Tallahassee market was factored into the
valuation of the Units.  The General  Partner  intends to enforce the noncompete
provisions  of the  Limited  Partnership  Agreement  and buy  out the  competing
Limited Partners.

Reaffirmation and Consent

                  Attached to this  Supplement as Appendix A is a  Reaffirmation
and Consent that is to be utilized by each subscribing  Investor to evidence his
election  to  either  (i)  withdraw  from the  Offering  and have  returned  his
subscription funds (plus interest) and Loan Documents,  if any, or (ii) reaffirm
his  subscription.  The  Reaffirmation  and  Consent is  self-explanatory.  Each
Investor  should mark the boxes  evidencing  his  election,  and then return the
Reaffirmation and Consent to MedTech Investments, Inc.

     Questions  concerning  this  Supplement  and Consent  should be directed to
MedTech Investments, Inc., 2008 Litho Place, Fayetteville, North Carolina 28304.
MedTech's telephone number is (800) 682-7971.

                   FLORIDA LITHOTRIPTERS LIMITED PARTNERSHIP I

                          A FLORIDA LIMITED PARTNERSHIP

                            REAFFIRMATION AND CONSENT

                  Capitalized  terms  used  herein are  defined in the  Glossary
appearing in the  Confidential  Private  Placement  Meanorandum  of February 25,
2000, and accompanying supplements (the "Memorandum").

                  1.  The  undersigned  hereby   acknowledges   receipt  of  the
Supplement  and  Consent  dated  April 19,  2000.  After  careful  review of the
Supplement and Consent,  by completion and execution of this  Reaffirmation  and
Consent, the undersigned wishes to evidence his election either to withdraw from
the Offering or to reaffirm his subscriptmn.

                  Please check only one of the boxes set forth below to evIdence
your desired election:

___  I wish to withdraw  from the  Offering  and desire to have my  subscription
     funds (plus interest) and Loan Documents, if any, returned to me.

___  I wish  to  reaffirm  my  subscription  and  waive  any  withdrawal  fights
     associated  with the  Supplement and Consent and the  information  provided
     therein.

This _____ day of April, 2000.

                                         ----------------------------
                                         Signature of Subscriber

                                         ----------------------------
                                         Print or Type Name

 Since the Closing Date is scheduled for May 2, 2000, please fax this completed
 form to:

                                 (919) 323-9857
                                 --------------FOURTH SUPPLEMENT TO THE

                    CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM

                                   May 2, 2000

                   FLORIDA LITHOTRIPTERS LIMITED PARTNERSHIP I

                                2008 Litho Place

                       Fayetteville, North Carolina 28304

                  Florida Lithotripters Limited Partnership I, a Florida limited
partnership (the  "Partnership"),  hereby  supplements its Confidential  Private
Placement  Memorandum of February 25, 2000, as supplemented  (collectively,  the
"Memorandum").  Capitalized  terms  used  herein  are  defined  in the  Glossary
appearing  in  the  Memorandum.  All  persons  who  have  subscribed  for or are
considering  an  investment  in  the  Units  offered  by the  Memorandum  should
carefully review this Supplement.

Extension of the Offering

                  Pursuant to the authority  reserved by the General  Partner in
the Memorandum,  the General Partner hereby elects to extend the Closing Date to
May 15,  2000 (or such  earlier  date as the  General  Partner  may, in its sole
discretion, otherwise elect).

     Questions   concerning  this  Supplement  should  be  directed  to  MedTech
Investments,  Inc.,  2008  Litho  Place,  Fayetteville,  North  Carolina  28304.
MedTech's telephone number is (800) 682-7971.Name of Prospective Investor                                   Memorandum Number

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

                   INDIANA LITHOTRIPTERS LIMITED PARTNERSHIP I

             A Limited Partnership Formed Under the Laws of Indiana

                    CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM

                             up to $279,075 in Cash

                    25 Units of Limited Partnership Interest
                           at $11,163 in Cash per Unit

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

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

                            MEDTECH INVESTMENTS, INC.

                              Exclusive Sales Agent

                                2008 Litho Place

                       Fayetteville, North Carolina 28304

                                 1-800-682-7971

<PAGE>

WINSTON #910642 v 2                                      vii
WINSTON #910642 v 2
                  The Date of this Memorandum is June 28, 2000

                   INDIANA LITHOTRIPTERS LIMITED PARTNERSHIP I

                             up to $279,075 in Cash

                 up to 25 Units of Limited Partnership Interest

                           at $11,163 in Cash per Unit

                  Indiana   Lithotripters  Limited  Partnership  I,  an  Indiana
limited  partnership  (the  "Partnership")  operated  by  its  General  Partner,
Lithotripters,  Inc., a North  Carolina  corporation  (the  "General  Partner"),
hereby  offers  on  the  terms  set  forth  herein  up to 25  units  of  limited
partnership  interest in the Partnership  (the "Units"),  at a price per Unit of
$11,163  in cash.  See  "Terms of the  Offering."  Each Unit will  represent  an
initial 1%  economic  interest  in the  Partnership.  See "Risk  Factors - Other
Investment  Risks - Dilution of Limited  Partners'  Interest."  The  Partnership
currently operates a Lithostar(TM) second generation  extracorporeal  shock-wave
lithotripter  for  the  lithotripsy  of  kidney  stones.  The  Lithostar(TM)  is
installed  in a  self-propelled  Calumet  Coach (the  Coach  with the  installed
Lithostar(TM)  is  referred  to herein  as the  "Existing  Lithotripsy  System")
enabling the Partnership to provide  lithotripsy  services at various  locations
primarily  in  southern  Indiana  and  within a 100-mile  radius of  Louisville,
Kentucky (the "Service Area").

                  The  Partnership  intends to use the proceeds of this Offering
to (i) pay the costs of this  Offering,  (ii)  finance a portion  of the cost of
purchasing a new transportable  lithotripter and a new mobile truck to transport
the new lithotripter (the "New Lithotripsy System"), and (iii) finance the costs
of  upgrading  the  imaging  system of the  Partnership's  Existing  Lithotripsy
System.  See  "Sources and  Applications  of Funds" and  "Business  Activities -
Acquisition of New Lithotripsy  System." The Existing Lithotripsy System and the
New Lithotripsy System are, collectively, referred to herein as the "Lithotripsy
Systems." The cash purchase price is due at subscription;  however,  prospective
Investors who meet certain requirements may be able fund a portion of their Unit
purchase price with the proceeds of certain third-party financing. See "Terms of
the Offering - Limited  Partner Loans." The Offering will terminate on August 9,
2000 (or  earlier  upon the sale of all 25  Units as  provided  herein),  unless
extended at the discretion of the General Partner for a period not to exceed 180
days.

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

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

                       Cash                   Selling                Net Cash

                    Offering Price            Commissions(1)         Proceeds(2)
                    --------------            -----------             --------
   Per Unit(3)       $ 11,163                  $ 150                  $ 11,013
   Total Maximum(4)  $279,075                 $ 3,750                 $275,325
(See Footnotes on Back of Cover Page)

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

<PAGE>

(1)      The Units will be sold on a "best-efforts"  any or all basis by MedTech
         Investments,  Inc., a broker-dealer  registered with the Securities and
         Exchange Commission, a member of the National Association of Securities
         Dealers,  Inc.  and an  Affiliate  of the General  Partner  (the "Sales
         Agent"). The Partnership will pay the Sales Agent a $150 commission for
         each Unit sold and will  reimburse  the  Sales  Agent for its  Offering
         costs (not to exceed  $5,000).  The Partnership has agreed to indemnify
         the Sales Agent  against  certain  liabilities,  including  liabilities
         under the Securities Act of 1933 (the "Securities Act").

         See "Plan of Distribution."

(2)      Net Cash Proceeds do not reflect  deduction of expenses  payable by the
         Partnership.  See  "Sources and  Applications  of Funds." The price per
         Unit  ($11,163) is payable in cash upon  subscription;  provided,  that
         prospective  Investors  who meet  certain  requirements  may be able to
         personally  borrow funds from a third-party  financial  institution  in
         order to pay a portion of their cash purchase  price per Unit.  For the
         convenience of Investors, the Partnership has arranged for financing of
         a portion of the Units' purchase price with First-Citizens Bank & Trust
         Company,  which is  headquartered in Raleigh,  North Carolina,  and has
         approximately  370 offices  throughout the  southeastern  United States
         (the "Bank"). Therefore, in lieu of paying the entire purchase price in
         cash at subscription,  prospective Investors may execute and deliver to
         the Sales Agent  together  with their  Subscription  Packets,  at least
         $2,500 cash and a Limited Partner Note payable to the Bank in a maximum
         principal  amount of up to $8,663 per Unit to be purchased,  a Loan and
         Security Agreement,  Security Agreement and two Uniform Commercial Code
         Financing Statements ("UCC-1s")  (collectively,  the "Loan Documents").
         See "Terms of the  Offering - Limited  Partner  Loans" and the forms of
         the Limited Partner Note, the Loan and Security  Agreement and Security
         Agreement  attached to the form of Limited  Partner Loan  Commitment as
         Exhibits A, B and C, respectively, which is attached hereto as Appendix
         B and the UCC-1's attached as part of the Subscription Packet.

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

(4)      Offering Proceeds will first be used by the Partnership to pay offering
         costs and expenses  (up to $33,750)  and the  remainder of the proceeds
         will  be  used  to  finance  (i) a  portion  of the  cost  of  the  New
         Lithotripsy  System  and (ii) the costs of an  imaging  upgrade  to the
         Partnership's   Existing   Lithotripsy   System.   See   "Sources   and
         Applications  of Funds" and "Business  Activities - Acquisition  of New
         Lithotripsy  System." The Partnership seeks by this Offering to sell up
         to 25 Units for an aggregate of up to $279,075 in cash ($275,325 net of
         Sales Agent's  commissions).  All subscription funds and Loan Documents
         will be held in an interest  bearing escrow account with the Bank until
         the acceptance of the Investor's subscription (and approval by the Bank
         if the  Investor  is  financing  a portion of the Unit  purchase  price
         through  a  Limited   Partner   Loan),   rejection  of  the  Investor's
         subscription  or termination of this Offering.  The Partnership has set
         no minimum  number of Units to be sold in this  Offering.  Accordingly,
         upon the receipt and  acceptance of an Investor's  subscription  by the
         Partnership as provided  herein,  such Investor will be admitted to the
         Partnership  as  a  Limited   Partner,   provided  that  acceptance  of
         subscriptions  by an  Investor  that elects to finance a portion of his
         Unit  purchase  price is  conditioned  upon approval by the Bank of his
         Limited  Partner  Loan.  Upon  admission  as  a  Limited  Partner,  the
         Investor's  subscription  funds will be released to the Partnership and
         the Loan Documents,  if any, will be released to the Bank. In the event
         a subscription is rejected,  all subscription funds (without interest),
         the Loan Documents,  if any, and other  subscription  documents held in
         escrow will be promptly returned to the rejected Investor. The Offering
         will terminate on August 9, 2000, unless it is sooner terminated by the
         General  Partner,  or unless  extended for an additional  period not to
         exceed 180 days. See "Terms of the Offering."

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

<PAGE>

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

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

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

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

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

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

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

<PAGE>

                                TABLE OF CONTENTS

RISK FACTORS................................................................1
   Operating Risks..........................................................1
   Tax Risks................................................................7
   Other Investment Risks..................................................13

THE PARTNERSHIP............................................................16

TERMS OF THE OFFERING......................................................17
   The Units and Subscription Price........................................17
   Acceptance of Subscriptions.............................................17
   Limited Partner Loans...................................................18
   Subscription Period; Closing............................................20
   Offering Exemption......................................................20
   Suitability Standards...................................................20
   How to Invest...........................................................21
   Restrictions on Transfer of Units.......................................21

PLAN OF DISTRIBUTION.......................................................22

BUSINESS ACTIVITIES........................................................23
   General.................................................................23
   Treatment Methods for Kidney Stone Disease..............................23
   The Existing Lithotripsy System.........................................24
   Upgrade to Existing Lithotripsy System..................................25
   Acquisition of New Lithotripsy System...................................25
   Acquisition of Additional Assets........................................28
   Hospital Contracts......................................................29
   Operation of the Lithotripsy Systems....................................30
   Management..............................................................30
   Employees...............................................................31

FINANCIAL CONDITION OF THE PARTNERSHIP.....................................31

MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS
         OF OPERATIONS.....................................................35

SOURCES AND APPLICATIONS OF FUNDS..........................................37

THE GENERAL PARTNER........................................................38

COMPENSATION AND REIMBURSEMENT TO THE GENERAL PARTNER
         AND ITS AFFILIATES................................................39

CONFLICTS OF INTEREST......................................................41

FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER............................43

COMPETITION................................................................43
   Affiliated Competition..................................................43
   Other Competition.......................................................44

REGULATION.................................................................45
   Federal Regulation......................................................45
   State Regulation........................................................54

PRIOR ACTIVITIES...........................................................55

SUMMARY OF THE PARTNERSHIP AGREEMENT.......................................56
   Nature of Limited Partnership Interest..................................57
   Profits, Losses and Distributions.......................................57
   Management of the Partnership...........................................58
   Powers of the General Partner...........................................59
   Rights and Liabilities of the Limited Partners..........................59
   Restrictions on Transfer of Partnership Interests.......................60
   Noncompetition Agreement and Protection of Confidential Information.....60
   Dissolution and Liquidation.............................................61
   Optional Purchase of Limited Partner Interests..........................62
   Dilution Offerings......................................................62
   Arbitration.............................................................63
   Power of Attorney.......................................................63
   Reports to Limited Partners.............................................63
   Records.................................................................63

LEGAL MATTERS..............................................................63

ADDITIONAL INFORMATION.....................................................64

GLOSSARY...................................................................64

<PAGE>

                                   APPENDICES

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

Appendix B        FORM OF LIMITED PARTNER LOAN COMMITMENT (WITH EXHIBITS)

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

Appendix D        NOTES TO FINANCIAL STATEMENTS

<PAGE>

WINSTON #910642 v 2                                      31
WINSTON #910642 v 2
                                  RISK FACTORS

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

Operating Risks

                  General Risks of Operations.  The Partnership was formed under
the laws of the State of Indiana on November 13, 1990 and  commenced  operations
in May, 1991.  Although the General  Partner and its personnel have  significant
experience in managing  lithotripsy  enterprises,  whether the  Partnership  can
continue to effectively operate its business cannot be accurately predicted. The
benefits of an  investment in the  Partnership  also depend on many factors over
which the  Partnership  has no  control,  including  competition,  technological
innovations rendering the Lithotripsy Systems less competitive or obsolete,  and
other matters.  The  Partnership may be adversely  affected by various  changing
local  factors  such as an increase in local  unemployment,  a change in general
economic  conditions,  changes in interest rates and  availability of financing,
and other  matters  that may render the  operation  of the  Lithotripsy  Systems
difficult or unattractive. Other factors that may adversely affect the operation
of the Lithotripsy Systems are unforeseen  increased operating expenses,  energy
shortages and costs attributable thereto,  uninsured losses and the capabilities
of the Partnership's management personnel.

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

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

                  Impact of Insurance Reimbursement.  The Partnership's revenues
are expected to continue to be derived from the fees paid by Contract  Hospitals
and other health care facilities under contracts with the  Partnership,  as well
as fees  directly  billed or  collected  for  services  from  patients  or their
third-party  payors.  Payments received from Contract Hospitals and other health
care facilities may be subject to renegotiation  depending on the  reimbursement
such parties  receive.  Such  reimbursement  may be reduced for several reasons,
including the introduction of an outpatient prospective payment system regarding
Medicare  patients,  which in turn  could  lower  reimbursement  available  from
private  health  insurers.   The  increasing  influence  of  health  maintenance
organizations  and other  managed  care  companies  has  resulted in pressure to
reduce the reimbursement available for lithotripsy procedures. Additionally, the
Health  Care  Financing   Administration  ("HCFA"),  the  federal  agency  which
administers   the   Medicare   program,   has  issued  rules  which  reduce  the
reimbursement  available  for  lithotripsy  procedures  provided at hospitals to
$2,265. See "Regulation - Federal Regulation." In some cases reimbursement rates
payable to the Partnership and the General Partner's  Affiliates from commercial
third-party  payors are already less than the proposed HCFA rate. Because of the
competitive  pressures  from  managed  care  companies  as  well  as  threatened
reductions  in Medicare  reimbursement,  the General  Partner  anticipates  that
reimbursement  available for  lithotripsy  procedures  may continue to decrease.
Such decreases  would have a material  adverse  effect on Partnership  revenues.
Regarding the  professional  fees paid to physicians  who treat  patients on the
Lithotripsy  Systems,  the General Partner  anticipates that similar competitive
pressures may result in lower reimbursement paid to physicians,  both by private
insurers and by government programs such as Medicare. See "Regulation."

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

                  The  Lithostar(TM)  used by the Partnership is an older model,
and the  General  Partner  believes  that the  Partnership  must  acquire  a new
transportable  lithotripter in order to maintain the Partnership's current level
of efficiency and respond to competitive pressures.  The Partnership anticipates
purchasing one new transportable extracorporeal shock wave lithotripter with the
proceeds  of  this  Offering  and  Partnership  debt  financing.  See  "Business
Activities  -  Acquisition  of New  Lithotripsy  System."  The  General  Partner
believes  a  new  transportable   lithotripter  offers  an  advantage  over  the
Partnership's  Existing  Lithotripsy System because it can be moved from site to
site more  quickly,  and can be used in hospital  procedure  rooms at  treatment
facilities  with  limited pad space.  Pursuant  to the terms of the  Partnership
Agreement, the Partnership's  acquisition of a New Lithotripsy System is subject
to the prior approval of a Majority in Interest of the Limited Partners.  In the
event the  requisite  consent of the Limited  Partners is received,  the General
Partner will select from three  available  models the unit which offers the best
combination of value and efficacy for the Partnership.  The General Partner will
consult with the Partnership's  Physician  Advisory Board prior to selecting the
model of lithotripter to be acquired.  The models currently under  consideration
as of  the  date  of  this  Memorandum  are  (i)  the  Storz  Modulith(R)  SLX-T
("Modulith(R)  SLX-T"),  (ii) the Medirex Tripter X-1 Compact  ("Compact"),  and
(iii) the Siemens Modularis(TM) Uro Plus ("Modularis(TM)").

                  The Modulith(R) SLX-T received FDA premarket approval on March
27, 1997. Preliminary reports from abroad and "word of mouth" anecdotal evidence
indicate that the  Modulith(R)  SLX-T is as effective as most of the  "portable"
lithotripters  in the market.  The General Partner is aware that early data from
abroad  concerning  one  precursor  to the  Modulith(R)  SLX-T  reflected a high
retreatment  rate,  and that an  Affiliate  of the General  Partner  experienced
electrical and mechanical problems using another precursor, the Modulith(R) SLX.
However,   the  General  Partner  and  its   Affiliates'   experience  with  the
transportable  Modulith(R) SLX-T has shown acceptable  retreatment rates. A high
retreatment rate may adversely  affect the Partnership.  The General Partner and
its Affiliates  currently operate 11 Modulith(R) SLX-T lithotripters  throughout
the United  States.  The Compact and the  Modularis(TM)  received FDA  premarket
approval in 1996 and 1998, respectively.  The General Partner and its Affiliates
have  limited  direct  experience  with  the use of the  Compact  and no  direct
experience with the Modularis(TM).  Downtime periods necessitated by maintenance
and repairs of any unit  selected from the three models of  lithotripters  under
consideration will adversely affect Partnership revenues.  Investors should note
that some studies  indicate that  lithotripsy  may cause high blood pressure and
tissue damage.  The  Partnership  questions the reliability of these studies and
believes  lithotripsy  has become a widely  accepted method for the treatment of
renal stones.

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

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

                  Acquisition   of   Additional   Assets.   Subject  to  certain
limitations set forth in the Partnership Agreement, if in the future the General
Partner determines that it is in the best interest of the Partnership to acquire
(i) one or more fixed base or mobile  lithotripsy  systems  in  addition  to the
Existing  Lithotripsy  System; or (ii) any other assets related to the provision
of  lithotripsy  services,  the General  Partner has the  authority 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 prior written approval of a Majority in Interest of the Limited
Partners is required for the acquisition of the New  Lithotripsy  System and any
additional lithotripsy systems. See the Partnership Agreement attached hereto as
Appendix A. The acquisition of additional assets may substantially  increase the
Partnership's monthly obligations and result in greater personnel  requirements.
See "Risk Factors - Operating Risks - Partnership Limited Resources and Risks of
Leverage." Other than the New Lithotripsy System,  which the Partnership intends
to purchase with a portion of the proceeds of the Offering and Partnership  debt
financing,   the  General  Partner  does  not  anticipate  acquiring  additional
Partnership  assets unless  projected  Partnership  Cash Flow or proceeds from a
Dilution Offering are sufficient to finance such acquisitions.  In any event, no
Limited  Partner  would  be  personally  liable  on any  additional  Partnership
indebtedness without such Partner's prior written consent. There is no assurance
that  financing  would be available  to the  Partnership  to acquire  additional
assets  or to  fund  any  additional  working  capital  requirements.  Any  such
borrowing by the Partnership will serve to increase the risks to the Partnership
associated with leverage as provided above.

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

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

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

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

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

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

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

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

                  To the best knowledge of the General  Partner,  no certificate
of need ("CON")  will be required to operate in Indiana or on a wholesale  basis
in Kentucky. In Kentucky,  the Partnership will lease the Lithotripsy Systems to
hospitals and other  treatment  centers,  which will in turn be responsible  for
providing  the  lithotripsy   services  and  for  billing.   Various   licensure
requirements  must be met for the  Partnership  to  provide  mobile  lithotripsy
services in Indiana and Kentucky.  The General  Partner will continue to seek to
comply with such requirements. See "Regulation - State Regulation".

                  Contract  Terms  and  Termination.  The  Partnership  provides
lithotripsy  services  to four  Contract  Hospitals  pursuant  to four  separate
Hospital  Contracts.  The Contract Hospitals generally pay the Partnership a fee
for each lithotripsy  procedure performed at the health care facility;  however,
the  Partnership  does directly bill and collect for services from some patients
or  their  third-party  payors.  Three  of  the  Hospital  Contracts  grant  the
Partnership  the  exclusive  right  to  provide  lithotripsy   services  at  the
particular  Contract  Hospitals.  All  of the  Hospital  Contracts  provide  for
automatic  renewal on a year-to-year  basis.  Two of the Hospital  Contracts are
terminable  without  cause at any time  upon 60 days  written  notice  by either
party, and two Hospital Contracts are terminable without cause at the end of the
initial  term or any  renewal  period  upon 60 days prior  written  notice.  The
Partnership also leases the Existing  Lithotripsy  System to an Affiliate of the
General Partner for the purpose of providing  lithotripsy services at a hospital
located in Louisville, Kentucky. See "Competition." The General Partner believes
it has a good relationship  with the Contract  Hospitals and does not anticipate
any  terminations.  There is no  assurance,  however,  that fees  payable to the
Partnership by Contract Hospitals will not decline or that terminations will not
occur.  The resulting impact of such events would have a material adverse effect
on  Partnership  operations.  It is expected that most new  lithotripsy  service
contracts, if any, would have one-year terms and be automatically renewed unless
either party elects to cancel prior to the end of the term. In addition,  all of
the  existing  contracts  have,  and any new  contracts  are  expected  to have,
provisions  permitting  termination in the event certain laws or regulations are
enacted or applied to the contracting parties' business arrangements in a manner
deemed  materially  detrimental  to either party.  See  "Government  Regulation"
above.  In addition,  competing  vendors may attempt to cause  certain  Contract
Hospitals to contract with them instead of the Partnership. The loss of Contract
Hospitals to competition  would adversely affect  Partnership  revenues and such
effect  could  be  material.  Thus,  there  is  no  assurance  that  Partnership
operations as carried on as of the date of this  Memorandum or  contemplated  in
the  future  will  continue  as  herein  described  or  contemplated,   and  the
cancellation of any service  contract or the  Partnership's  inability to secure
new ones could have a material  negative  impact on the financial  condition and
results of the Partnership.  See "Business  Activities - Hospital Contracts" and
"Risk Factors - Competition."

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

Tax Risks

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                  The  General  Partner  believes  the  payments  to it and  its
Affiliates  are customary and reasonable  payments for the services  rendered by
them to the Partnership; however, these fees were not determined by arm's length
negotiations.  Nothing  has come to the  attention  of Counsel  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 cannot express an opinion as to the outcome of the reasonableness of the
amount of any fee should the issue be litigated.

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

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

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

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

Other Investment Risks

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

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

                  Limited Partners' Obligation to Return Certain  Distributions.
Except as provided by other  applicable law and provided that a Limited  Partner
does not  participate in the management or control of the  Partnership,  he will
not  be  liable  for  the  liabilities  of  the  Partnership  in  excess  of his
investment,  his ratable share of undistributed  profits,  and any distributions
received from the  Partnership  to the extent that,  after giving effect to such
distributions,  all  liabilities  of the  Partnership,  other  than  liabilities
attributable to Partners on account of their Partnership Interests, would exceed
the fair value of the Partnership's assets.  However,  under Indiana law, to the
extent that cash distributed to a Limited Partner  constitutes the return of all
or a portion of such Limited Partner's  capital  contribution as provided by the
Act,  although such  distribution was rightfully made, such Limited Partner will
be liable to the  Partnership  for a period of one year following the receipt of
such  distribution for any sum not in excess of such return of capital necessary
to discharge the  Partnership's  liabilities to creditors who extended credit to
the Partnership  during the period the contribution was held by the Partnership.
Furthermore,  if a Limited Partner receives a return of all or a portion of such
Limited Partner's capital contribution in violation of the Partnership Agreement
or the Act, such Limited  Partner will be liable to the Partnership for a period
of six years for the  amount of such  contribution  wrongfully  returned  to the
Limited Partner.

                  Dilution of Limited Partners'  Interests.  The General Partner
has the authority  under the  Partnership  Agreement to cause the Partnership to
periodically  offer and sell additional limited  partnership  interests to local
investors  who are not Limited  Partners (a  "Dilution  Offering").  Partnership
interests  offered in a Dilution Offering must be sold in a manner and according
to terms in the best  interest of the  Partnership,  as  prescribed  in the sole
discretion of the General Partner. Upon the sale of interests in the Partnership
in a  Dilution  Offering,  the  Percentage  Interests  of the  Partners  will be
proportionately  diluted.  See "Summary of the Partnership  Agreement - Dilution
Offerings."

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

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

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

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

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

                  Insurance.  Prime 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  include the  Partnership,  and the
General  Partner  believes  that  coverage  limits of these  policies are within
acceptable norms for the extent and nature of the risks covered. The Partnership
is  responsible  for its share of  premium  costs.  There are  certain  types of
losses,  however, that are either uninsurable or are not economically insurable.
For  instance,  contractual  liability is generally  not covered  under  Prime's
policies.  Should such losses occur with respect to Partnership  operations,  or
should losses exceed insurance  coverage limits,  the Partnership could suffer a
loss of the capital invested in the Partnership 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 to purchase all
the interest of a Limited Partner who (i) dies; (ii) becomes insolvent; or (iii)
acquires a direct or indirect  ownership of an interest in a competing  venture.
The General Partner,  in its sole  discretion,  may elect to assign its purchase
option  rights to the  Partnership.  A Limited  Partner  whose  Limited  Partner
Interest is sold, as provided  above,  or who ceases to be a Limited  Partner of
the Partnership for any reason,  will be further restricted from having a direct
or indirect ownership in a competing venture (including the lease or sublease of
competing  technology)  within a certain  restricted  market  area for two years
after the disposition of his Partnership Interest.  Limited Partners,  except in
certain  circumstances  set  forth  in  the  Partnership  Agreement,   are  also
absolutely prohibited from disclosing Partnership trade secrets and confidential
information.  The option purchase price for the Partnership Interest is equal to
the Partner's  share of the  Partnership's  book value,  if any, as reflected by
such Partner's  Capital Account  (unadjusted for any appreciation in Partnership
assets and as reduced by depreciation  deductions claimed by the Partnership for
tax purposes). Because losses, depreciation, deductions and distributions reduce
capital accounts, and because appreciation in assets is not reflected in capital
accounts,  the  option  purchase  price  may  be  nominal  in  amount.  See  the
Partnership  Agreement  attached  hereto  as  Appendix  A and  "Summary  of  the
Partnership Agreement - Optional Purchase of Limited Partner Interests."

                                 THE PARTNERSHIP

                  Indiana   Lithotripters  Limited  Partnership  I,  an  Indiana
limited  partnership  (the  "Partnership")  was  organized and created under the
Indiana  Revised  Uniform  Limited  Partnership  Act (the "Act") on November 13,
1990. The general  partner of the  Partnership is  Lithotripters,  Inc., a North
Carolina  corporation (the "General Partner"),  and a wholly owned subsidiary of
Prime.  The General Partner  currently holds  approximately a 25.82% interest in
the Partnership in its capacity as the general partner and the existing  limited
partners (the "Initial  Limited  Partners")  currently hold the remaining 74.18%
interest in the  Partnership  as limited  partners  (including  an 8.65% limited
partner  interest held by the General  Partner).  In the event that all 25 Units
offered hereby are sold, the General  Partner will hold  approximately a 19.365%
general partner interest in the  Partnership,  the Initial Limited Partners will
hold a 55.635% limited partner interest in the Partnership and the Investors who
purchase  the Units  offered  hereby (the "New Limited  Partners")  will hold an
aggregate  25%  interest in the  Partnership.  The  Percentage  Interests of the
General  Partner and  Initial  Limited  Partners  (aggregate)  will  decrease by
approximately .26% and .74%, respectively, for each Unit sold. All Partners will
have their  Partnership  Interests  further  reduced in the event of  additional
dilution  offerings.  See  "Summary  of the  Partnership  Agreement  -  Dilution
Offerings." The principal  address of the Partnership and the General Partner is
1301 Capital of Texas Highway,  Suite C-300,  Austin, Texas 78746. The telephone
number of the Partnership and the General Partner is (888) 252-6575.

                              TERMS OF THE OFFERING

The Units and Subscription Price

                  Indiana   Lithotripters  Limited  Partnership  I,  an  Indiana
limited  partnership,  hereby  offers  an  aggregate  of  25  Units  of  limited
partnership  interest in the Partnership (the "Units").  Each Unit represents an
initial 1%  economic  interest  in the  Partnership.  See "Risk  Factors - Other
Investment Risks - Dilution of Limited  Partners'  Interests." Each Investor may
purchase not less than one Unit. The General Partner may,  however,  in its sole
discretion,  sell less than one Unit as an additional  investment  and reject in
whole or in part any  subscription.  The price for each Unit is  $11,163 in cash
payable at subscription;  however,  certain  qualified  Investors may personally
borrow funds from a third-party  financial  institution  to pay a portion of the
cash purchase  price.  For the  convenience of Investors,  the  Partnership  has
arranged for financing a portion of the purchase price with the Bank. See "Terms
of the Offering - Limited  Partner  Loans." The  Proceeds of the  Offering  will
first be used by the  Partnership  to pay offering  costs and expenses,  and the
remainder of the proceeds, if any, will be used to finance a portion of the cost
of (i) purchasing a new transportable  lithotripter (estimated at $425,000), and
a new mobile truck (estimated at $80,000), as well as pay applicable state sales
or use taxes on the New  Lithotripsy  System  (estimated  at $25,250),  and (ii)
upgrading the imaging system of the Partnership's  Existing  Lithotripsy  System
(estimated  at  $56,500).   See  "Sources  and   Applications   of  Funds."  The
Partnership's  acquisition of the New Lithotripsy System is subject to the prior
approval of a Majority in Interest of the Limited Partners.  See the Partnership
Agreement,  attached  hereto as Appendix A. The proceeds of this Offering cannot
be calculated until the number of Units sold has been determined at the Closing.
In the event the proceeds of the Offering  will be  insufficient  to fund all of
the  costs  described  above (a  certainty  in the case the  acquisition  of New
Lithotripsy  System is approved),  it is anticipated  that the Partnership  will
also use Partnership  Cash Flow,  reserves and/or the proceeds of debt financing
to fund such costs. There is no assurance,  however, that debt financing will be
available for such purposes.  See "Risk Factors - Operating  Risks - Partnership
Limited Resources and Risks of Leverage" and "Business  Activities - Acquisition
of New  Lithotripsy  System." As of the date of this  Memorandum,  the requisite
approval  of the Initial  Limited  Partners  is being  solicited  by the General
Partner. In the event the purchase of the New Lithotripsy System is not approved
and Offering  proceeds  remain after funding the Offering costs and the upgrade,
such proceeds will be kept in  Partnership  reserves  and/or  distributed to the
Initial Limited Partners.

Acceptance of Subscriptions

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

Limited Partner Loans

                  The  purchase  price for the  Units is  payable  in cash.  The
prospective  Investor may pay for the Units with personal funds alone or in part
with such funds,  together with either loan proceeds  personally borrowed by the
Investor under a Limited Partner Loan or other loan. Financing under the Limited
Partner Loans was arranged by the  Partnership  with the Bank as provided in the
Limited  Partner Loan  Commitment,  attached  hereto as Appendix B.  Prospective
Investors  should review  carefully all the provisions  contained in the Limited
Partner Loan  Commitment and the terms of the Limited  Partner Note and Loan and
Security  Agreement  with their  counsel  and  financial  advisors.  Neither the
Partnership  nor the General  Partner  endorses or recommends to the prospective
Investors the  desirability  of obtaining  financing  from the Bank nor does the
summary of the Loan Documents  provided herein  constitute legal advice.  If the
prospective  Investor  wishes to finance a portion of the purchase  price of his
Units as provided herein,  he must deliver to the Sales Agent upon submission of
his Subscription Packet an executed Limited Partner Note payable to the Bank and
Note  Addendum,  the form of which are  attached  as  Exhibit  A to the  Limited
Partner Loan  Commitment,  a Loan and Security  Agreement,  the form of which is
attached  as  Exhibit B to the  Limited  Partner  Loan  Commitment,  a  Security
Agreement,  the form of which is attached  as Exhibit C to the  Limited  Partner
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  $8,663.  The Limited  Partner Note is
repayable in twelve (12)  predetermined  installments in the respective  amounts
set forth in the Limited Partner Loan  Commitment.  The installments are payable
on each January 15th,  April 15th,  June 15th and September  15th  commencing on
January 15, 2001 (assuming the Closing occurs prior to August 31, 2000),  with a
thirteenth  (13th) and final  installment  in an amount  equal to the  principal
balance then owed on the Limited  Partner Note and all accrued,  unpaid interest
thereon due and payable on the third  anniversary of the first installment date.
Interest accrues at the Bank's "Prime Rate," as the same may change from time to
time. The Prime Rate refers to that rate of interest established by the Bank and
identified as such in  literature  published  and  circulated  within the Bank's
offices.  Such term is used as a means of  identifying a rate of interest  index
and not as a representation by the Bank that such rate is necessarily the lowest
or most favorable rate of interest offered to borrowers of the Bank generally. A
prospective  Investor  will  have no  claim or  right  of  action  based on such
premise.  Under the terms of the Limited  Partner Loan,  the Bank may extend the
maturity  date for the Limited  Partner Note and increase  installment  payments
thereunder in the event interest rates substantially  increase.  See the form of
the Limited  Partner  Note  attached as Exhibit A to the  Limited  Partner  Loan
Commitment which is attached hereto as Appendix B.

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

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

Subscription Period; Closing

                  The  subscription  period will commence on the date hereof and
will  terminate  at 5:00 p.m.,  Eastern  time,  on August 9, 2000 (the  "Closing
Date"),  unless sooner  terminated by the General Partner or unless extended for
an additional period up to 180 days. See "Plan of Distribution."

Offering Exemption

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

Suitability Standards

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

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

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

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

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

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

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

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

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

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

How to Invest

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

Restrictions on Transfer of Units

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

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

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

                              PLAN OF DISTRIBUTION

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

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

                  As compensation for its services, the Sales Agent will receive
a commission equal to $150 for each Unit sold. No other commissions will be paid
in connection  with this Offering.  Subject to the conditions as provided above,
the Sales  Agent may be  reimbursed  by the  Partnership  for its  out-of-pocket
expenses  associated  with the  sale of the  Units in an  amount  not to  exceed
$5,000.  The Partnership has agreed to indemnify the Sales Agent against certain
liabilities, including liabilities under the Securities Act.

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

                  The  subscription  period will commence on the date hereof and
will terminate at 5:00 p.m.,  Eastern time, on August 9, 2000,  (or earlier,  in
the discretion of the General Partner), unless extended at the discretion of the
General  Partner for an additional  period not to exceed 180 days. See "Terms of
the Offering - Subscription Period; Closing."

                  The Partnership seeks by this Offering to sell a maximum of 25
Units for a maximum of an aggregate of $279,075 in cash  ($275,325  net of Sales
Agent  Commissions).  The  Partnership  has set no minimum number of Units to be
sold in this Offering.  The  subscription  funds,  and Loan  documents,  if any,
received from each Investor will be held in escrow  (which,  in the case of cash
subscription funds, shall be held in an interest bearing escrow account with the
Bank) until either the Investor's  subscription  is accepted by the  Partnership
(and  approved  by the Bank in the case of  financed  purchases  of Units),  the
Partnership  rejects the  subscription  or the Offering is terminated.  Upon the
receipt and  acceptance of an Investor's  subscription,  which,  if the Investor
intends to finance a portion of the Unit purchase  price with a Limited  Partner
Loan,  will be conditioned  upon the Bank's  approval of such loan, the Investor
will be admitted to the  Partnership as a Limited  Partner.  Upon admission as a
Limited Partner, the Investor's  subscription funds will be released from escrow
to the Partnership, and the Loan Documents, if any, will be released to the Bank
which will pay the proceeds from the Limited Partner Note to the Partnership. In
the event a  subscription  is not  accepted,  all  subscription  funds  (without
interest),  the Loan Documents and other  subscription  documents held in escrow
will be promptly  returned  to the  rejected  Investor.  A  subscription  may be
rejected  in part,  in which  case a  portion  of the  cash  subscription  funds
(without  interest)  and  any  Limited  Partner  Note  will be  returned  to the
Investor.

                               BUSINESS ACTIVITIES

General

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

Treatment Methods for Kidney Stone Disease

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

The Existing Lithotripsy System

                  The Partnership  currently operates a Lithostar(TM)  which was
acquired new and placed in service in May 1991. The  Lithostar(TM) was developed
as a cooperative  venture between Siemens and the Urological  Clinic at Johannes
Gutenberg  University  in Mainz,  West  Germany.  As a part of this  venture,  a
Lithostar(TM)  prototype was installed in March 1986 at the Urological Clinic at
the  University  of Mainz with  successful  results.  On  November  18, 1987 the
Lithostar(TM)  was  unanimously  recommended  for approval by the FDA's advisory
panel of experts for urology  devices.  On September 30, 1988 the  Lithostar(TM)
received  FDA  premarket  approval  for  use  in the  United  States  for  renal
lithotripsy.  On April 18, 1989, the FDA approved the  Lithostar(TM)  for mobile
lithotripsy. On July 1, 1996, the FDA approved a new higher intensity shock-head
system for the Lithostar(TM) which has since been installed in the Lithostar(TM)
used by the Partnership. Currently, the General Partner estimates that more than
400  Lithostar(TM)  systems are  performing  lithotripsy  procedures  in over 20
countries  throughout  the  world.  All  components  of  the  Lithostar(TM)  are
manufactured by Siemens, a diversified multinational company.

                  The   Lithostar(TM)   was   designed   with  a  view   towards
substantially improving early lithotripsy technology. See "Business Activities -
Treatment  Methods  for  Kidney  Stone  Disease."   Technological   improvements
incorporated  into  the  Lithostar(TM)  include  an  improved  work  station,  a
shock-wave  component that has eliminated the need for both water bath treatment
and  disposable  electrodes,  and an excellent  stone  localization  and imaging
system. Based upon its experience in its affiliated  lithotripsy  ventures,  the
General   Partner   believes   that  most  patients  can  be  treated  with  the
Lithostar(TM)  without anesthesia of any kind. The General Partner also believes
that  Lithostars(TM)  upfitted  with  the  higher  intensity  shock-head  system
experience somewhat shorter treatment durations.  Based upon its experience with
over 30 Lithostars(TM) in this and other limited  partnerships  sponsored by the
General  Partner  and its  Affiliates,  the  General  Partner has found that the
Lithostar(TM) can fragment most kidney stones without anesthesia,  cystoscopy or
the  insertion of ureteral  catheters,  and the General  Partner  believes  that
overall the Lithostar(TM) has been an effective alternative for the treatment of
patients.

                  The  Coach  housing  the  Lithostar(TM)  was  manufactured  by
Calumet Coach Company and was placed in service in May 1991.  The Coach has been
completely  upfitted  for the  Lithostar(TM)  and its clinical  operations.  The
engine  on the  Calumet  Coach  was  replaced  in June  1994 and the  cabin  was
refurbished in December 1998.  Service for the Coach is obtained on an as-needed
basis.  The General  Partner  estimates that  expenditures  for  maintenance and
repair of the Coach have been  incurred at a rate of  approximately  $15,000 per
year.

Upgrade to Existing Lithotripsy System

                  During  the  past  year,  an  upgrade  to the  Lithostar(TM)'s
imaging system has become available and the General Partner, through its limited
direct   experience  with  its   Affiliates,   believes  that  such  an  upgrade
significantly  enhances the imaging capabilities of the Lithostar(TM),  and thus
the overall  efficiency of the lithotripter.  Upon the successful closing of the
Offering, the Partnership will contract with Servicetrends,  Inc., a lithotripsy
maintenance provider, to replace the lithotripter's image intensifiers,  install
new  digital  x-ray  cameras  and  pickup  tubes and  replace  associated  power
supplies.  In  addition,   Servicetrends  may  also  replace  existing  computer
monitors.  The  estimated  cost of the imaging  upgrade is $56,500.  The General
Partner does not  anticipate  that the upgrade will require any downtime for the
Existing Lithotripsy System.

Acquisition of New Lithotripsy System

                  Pursuant  to the  terms  of  the  Partnership  Agreement,  the
Partnership's  acquisition of the New Lithotripsy System is subject to the prior
approval of a Majority in Interest of the Initial  Limited  Partners.  As of the
date of this Memorandum,  the requisite approval of the Initial Limited Partners
is being solicited by the General Partner. Assuming the General Partner receives
the necessary  approval,  it is anticipated that after the successful Closing of
this Offering,  the Partnership will purchase a new  transportable  lithotripter
(up to $425,000) and a new mobile truck to transport the new  lithotripter  from
site to site (up to $80,000) with a portion of the proceeds of this Offering and
the proceeds of Partnership  debt  financing.  The Offering  proceeds  cannot be
accurately  determined  until the Closing has  occurred  and the number of Units
sold have been calculated. In any event, such proceeds will not be sufficient to
fund all anticipated expenses. In the view of risks associated with leverage and
a  desire  to  conserve  Partnership  resources,  it is not  expected  that  the
Partnership will acquire the New Lithotripsy  System unless sufficient  business
opportunities  with treatment  centers are anticipated by the General Partner to
be  available.  See  "Risk  Factors  -  Operating  Risks -  Partnership  Limited
Resources  and Risks of Leverage" and "Sources and  Applications  of Funds." The
portion of the proceeds of the  Offering,  if any,  reserved for the purchase of
the New Lithotripsy  System will be held in the Company's capital reserves until
the purchase of the New  Lithotripsy  System is made.  During the time period in
which the Offering  proceeds are held in the  reserves,  they will be subject to
the potential  claims of  Partnership  creditors.  Although the General  Partner
maintains good relationships with certain commercial lending  institutions,  the
Partnership  has not obtained a loan commitment from any party in any amount and
whether one would timely be forthcoming on terms  acceptable to the  Partnership
cannot be assured.

                  In the event the requisite  consent of the Limited Partners is
received,  the General Partner will select from three available  models the unit
which offers the best combination of value and efficacy for the Partnership. The
General  Partner will consult with the  Partnership's  Physician  Advisory Board
prior to  selecting  the  model  of  lithotripter  to be  acquired.  The  models
currently  under  consideration  as of the date of this  Memorandum  are (i) the
Storz  Modulith(R)  SLX-T  ("Modulith(R)  SLX-T"),  (ii) the Medirex Tripter X-1
Compact   ("Compact"),   and   (iii)   the   Siemens   Modularis(TM)   Uro  Plus
("Modularis(TM)"). The General Partner believes a new transportable lithotripter
will  allow  the   Partnership  to  take   advantage  of  additional   treatment
opportunities because such a unit can be moved from site to site more easily and
more  quickly,  and can be  moved  into a  hospital  procedure  room,  providing
increased flexibility in performing lithotripsy services at sites having limited
pad space.

                  Modulith(R)  SLX-T.  The Modulith(R)  SLX-T is manufactured by
Karl Storz  Lithotripsy-America,  Inc.,  and received FDA premarket  approval on
March 27, 1997.  The General  Partner and its  Affiliates  currently  operate 11
Modulith(R)  SLX-T  lithotripters  throughout  the  United  States  and have had
positive,  direct experience with the use of the Modulith(R) SLX-T lithotripter.
Preliminary reports from abroad and "word of mouth" anecdotal evidence indicates
that  the  Modulith(R)   SLX-T  is  as  effective  as  most  of  the  "portable"
lithotripters  in the market.  See "Risk Factors - Operating Risks - Reliability
and Efficacy of the  Partnership's  Lithotripters."  The  Modulith(R)  SLX-T was
specially  adapted for the  treatment of urological  stones.  In addition to the
efficient  fragmentation  of all types of urinary tract stones,  the Modulith(R)
SLX-T is suitable for  performing a range of urological  examinations  including
cystoscopy and  ureteroscopy.  The  Modulith(R)  SLX-T consists of a cylindrical
pressure  wave  generator,  an OEC 9800 C-arm  x-ray  system  unit and a patient
table. The Modulith(R) SLX-T generates pressure waves  electromagnetically  from
the  cylindrical  energy  source and  parabolic  reflector.  The  pressure  wave
generator operates without an acoustic lens, thus avoiding such disadvantages as
energy dissipation and aperture limitations. The pressure at the focal point can
be varied by means of the  energy  control in nine steps from 10 Mpa to 100 Mpa.
The energy  source is fitted with an axial and lateral  air-bag.  When  expanded
during  fluoroscopy,  these  air-bags  ensure  optimal  X-ray image  quality for
monitoring purposes.  The pressure wave coupling is dry (water cushion is used).
The shock-wave may be released at fixed  frequencies of 1 Hz, 1.5 Hz or 2 Hz, or
may be  triggered  using  the ECG  and/or  respiration.  The  Modulith(R)  SLX-T
localizes stones using an OEC 9800 C-arm X-ray system.  The X-ray system employs
an image  intensifier,  cassette film,  digital spot imaging  capability and two
high resolution 16" monitors  capable of displaying  stored digital images.  The
patient  table  can be  moved  electronically  in all  three  dimensions,  and a
floating  function  allows  for quick  patient  positioning.  The table is X-ray
transparent  and allows  visualization  of the entire urinary  tract.  The table
includes a patient cradle which provides  comfortable  and secure support in the
prone, supine and lateral positions.

                  Storz has agreed to provide the Partnership with a Modulith(R)
SLX-T lithotripter  together with accessories for an estimated purchase price of
$425,000  (excluding state sales tax), which price reflects  approximately a 19%
discount ($100,000) from Storz's current list price of $525,000.  Storz provides
technical  support to  facilitate  installation  and testing of the  Modulith(R)
SLX-T.  The  Modulith(R)  SLX-T comes with an eighteen  month  limited  warranty
during  which  time  all  maintenance,   repairs,  shock  tubes,  glassware  and
capacitors are provided free of charge. The Storz Maintenance Contract in future
years covers the same items  listed  above and is quoted  currently at an annual
price of $40,000.

                  Compact.  The Compact is manufactured by Medirex Systems Corp.
("Medirex").  Medirex  has  agreed to  provide  the  Partnership  with a Compact
lithotripter   together  with   accessories   for  a  total  purchase  price  of
approximately  $395,000  (excluding  state  sales  tax),  which  price  reflects
approximately an 11% discount ($50,000) from the current list price of $445,000.
The Compact received FDA premarket approval in 1996. The General Partner and its
Affiliates  have  limited  direct   experience  with  the  use  of  the  Compact
lithotripter.

                  Medirex is affiliated with the Direx group of companies, which
have been pioneers in the development of transportable  lithotripsy  technology.
The Compact was particularly designed for the treatment of urological stones. In
addition to the  efficient  fragmentation  of all types of urinary tract stones,
the Compact is suitable for performing a range of simple urological  procedures.
The Compact  consists of a spark gap  generator,  a Digiscope  RX2  fluoroscopic
image  intensifier  and a patient  table.  The operating  technology is known as
electrohydraulic technology, and the Compact generates pressure waves by the use
of an electrode inside a metal reflector.  The Compact  localizes stones using a
Digiscope RX2  fluoroscopic  image  intensifier,  which is collapsible  for easy
transport.  The U-arm laterally rotates into over- and under-table  positions to
allow display of the entire ureter without  repositioning  the patient,  and the
pressure  generator can be rotated out of the X-ray path.  The patient table can
be moved electronically by remote control in all three dimensions and is capable
of supporting heavy patients.  The table also folds down at both ends to improve
transportability. Medirex provides a blank patient database with the Compact for
discretionary  use and ownership by the purchaser.  Medirex  provides  technical
support to facilitate  installation and testing of the Compact.  The Compact has
an eighteen month limited warranty during which time all  maintenance,  repairs,
shock tubes,  glassware and capacitors are provided free of charge.  The Medirex
maintenance  contract in future  years covers the same items listed above and is
currently quoted at an annual price of $35,000. Any expenses for maintenance and
repairs not covered by the warranty are the obligations of the purchaser.

                  Modularis(TM).  The  Modularis(TM)  is manufactured by Siemens
Medical Systems, Inc. ("Siemens"). Siemens has agreed to provide the Partnership
with  a   Modularis(TM)   with   accessories  for  a  total  purchase  price  of
approximately  $425,000  (excluding  state  sales  tax),  which  price  reflects
approximately a 33% discount ($210,000) from the current list price of $635,000.
The Modularis(TM)  received FDA premarket  approval in October 1998. The General
Partner  and  its  Affiliates  have no  direct  experience  with  the use of the
Modularis(TM) lithotripter.

                  The Modularis(TM),  like the other models under consideration,
was particularly designed for the treatment of urological stones. In addition to
the  efficient   fragmentation  of  all  types  of  urinary  tract  stones,  the
Modularis(TM)  is suitable to performing a wide range of urological  procedures,
including,  laparoscopy,  endourology and moderate ambulatory interventions. The
Modularis(TM)  unit consists of a shock wave System C electromagnetic  generator
component,  a mobile C-arm  fluoroscopic  imaging  system  component and a fully
functional  endourology  patient table. In addition,  the  Modularis(TM)  can be
configured to include a dual echo ultrasound system. The operating technology is
electromagnetic  shock  waves and the  Modularis(TM)  localizes  stones  using a
counterbalanced  isocentric C-arm for fluoroscopy,  radiography and intervention
monitoring.  The C-arm allows unrestricted movement within a 190(degree) orbital
rotation.  Due to the  modular  configuration  of the  Modularis(TM),  the  ESWL
component  can be removed  from the x-ray path.  The patient  table can be moved
electronically by remote control in all dimensions via footswitch or keypad, and
is  capable  of  supporting  heavy  patients.  The  tabletop,  head and foot are
extendable  and the patient  table is  equipped  with a side  cut-out/insert  to
accommodate  the shock wave head. The table top is radiolucent in the diagnostic
area. Siemens provides technical support to facilitate  installation and testing
of the  Modularis(TM).  The  Modularis(TM)  has a twelve month limited  warranty
during  which  time  all  maintenance,   repairs,  shock  tubes,  glassware  and
capacitors  are provided  free of charge.  The Siemens  maintenance  contract in
future years  covers the same items  listed above and is currently  quoted at an
annual price of $50,000.

                  The General  Partner  anticipates  that upon the expiration of
the warranty on the new lithotripter  selected, the Partnership would either pay
for  maintenance  service  on the unit on an as needed  basis,  or enter into an
annual  maintenance   agreement  with  a  third-party   service  provider.   The
Partnership  also plans to acquire from AK Associates,  L.L.C.,  an Affiliate of
the General  Partner,  a Ford 400 Series truck customized to include a 14' cargo
box to house the new lithotripter while it is transported from site to site. The
floor of the truck is  loading  dock  height so the  lithotripter  can be easily
loaded  on and off the  truck  at each  treatment  facility.  The  truck is also
upfitted  with a lift gate with a load capacity of 3,000 pounds for easy loading
of the lithotripter  from street level. The truck has been modified for securing
the lithotripter and its accessories  during transport and for heating the cargo
box  during  the  winter to prevent  freezing  of the new  lithotripter  and its
components.  The  Partnership  will either purchase the  manufacturer's  service
contract  for the truck or pay for  service on an as needed  basis.  The General
Partner estimates that expenditures for maintenance and repair of the truck will
be approximately $6,000 per year.

Acquisition of Additional Assets

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

Hospital Contracts

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

                                    Dearborn County Hospital, Lawrenceburg, IN
                                    Floyd Memorial Hospital, New Albany, IN
                                    King's Daughters' Hospital, Madison, IN
                                    St. Francis Hospital, Beech Grove, IN

                  Three of the  Hospital  Contracts  grant the  Partnership  the
exclusive  right  to  deliver  lithotripsy  services  to the  relevant  Contract
Hospital.  The Hospital Contracts require the Partnership to make a lithotripter
available  at the  facilities  as agreed  to by the  Contract  Hospital  and the
Partnership.  The  Partnership  generally also provides a technician,  nurse and
certain  ancillary  services  such as scheduling  necessary for the  lithotripsy
procedures.  The Contract Hospitals generally pay the Partnership a fee for each
lithotripsy  procedure  performed  at that health care  facility;  however,  the
Partnership  does  directly  bill and collect for services from some patients or
their third-party  payors.  All of the Hospital  Contracts provide for automatic
renewal on a year-to-year  basis.  Two of the Hospital  Contracts are terminable
without  cause at any time by either party on 60 days  notice,  and two Hospital
Contracts may be terminated without cause upon 60 days or less written notice by
either party prior to any renewal date. The Partnership also leases the Existing
Lithotripsy System to Prime Lithotripter Operations, Inc. d/b/a Tennessee Valley
Lithotripter  ("TVL"),  an  Affiliate  of the  General  Partner.  TVL  pays  the
Partnership a per procedure rental fee and uses the Existing  Lithotripsy System
to provide  lithotripsy  services at Suburban Hospital in Louisville,  Kentucky.
See  "Conflicts  of  Interest."  The  General  Partner  believes  it  has a good
relationship with the Contract Hospitals.  There is no assurance,  however, that
one or more of the Hospital  Contracts  will not  terminate  in the future.  See
"Risk  Factors  -  Operating  Risks  -  Contract  Terms  and  Termination."  The
Partnership  is  attempting  to  negotiate  similar  agreements  to the existing
Hospital Contracts with additional  treatment centers in the Service Area. There
can be no  assurance  that the  Partnership  will be able to enter  into any new
agreements.

                  Reimbursement  Agreements.  Prime and the General Partner have
negotiated third-party  reimbursement agreements with certain national and local
commercial  third-party  payors. The national agreements are negotiated by Prime
and the General  Partner  apply to all the  lithotripsy  partnerships  which are
Affiliates of the General Partner, including the Partnership, to the extent such
entities  directly bill and collect from patients or their  third-party  payors.
Some of the  national  and local  payors  have  agreed to pay a fixed  price for
lithotripsy  services.  For the most part,  the  agreements may be terminated by
either party on 60 to 120 days'  notice.  The  national and local  reimbursement
agreements  that have been  negotiated or  renegotiated  in the past two to four
years almost  entirely  provide for lower  reimbursement  rates for  lithotripsy
services than the older agreements.

Operation of the Lithotripsy Systems

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

Management

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

Employees

                  The Partnership  employs as full time employees two registered
technicians  and two registered  nurses.  The  Partnership  anticipates  that an
additional  technician  will be hired for staffing the New  Lithotripsy  System.
Prime provides group medical, dental, long-term disability, accidental death and
dismemberment  and life insurance  benefits.  The Partnership also provides paid
holidays,  sick leave, and vacation  benefits and other  miscellaneous  benefits
including bereavement,  military reserves,  jury duty and educational assistance
benefits.

                     FINANCIAL CONDITION OF THE PARTNERSHIP

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

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

            [The remainder of this page is intentionally left blank]

<PAGE>

                   INDIANA LITHOTRIPTERS LIMITED PARTNERSHIP I

                               INCOME STATEMENTS*

------------------------------------- ------------------------------------------
                  Four Months Ended April 30,           Years Ended December 31,

             2000           1999           1999           1998           1997
----- -------------- -------------- -------------- -------------- --------------

-----------------------------------------
Revenues    $379,553       $813,634     $1,870,242     $2,161,840     $2,369,077
-----------------------------------------

-----------------------------------------
Operating Expenses:
-----------------------------------------
Employee
compensation
and benefits  82,897         96,602        255,999        231,446        230,442
-----------------------------------------
Equipment
maintenance
 and repairs  11,155         37,144        119,321        122,946        141,086
-----------------------------------------
Depreciation
and
amortization  67,191         67,026        201,334        194,044        190,883
-----------------------------------------
Management
fees          44,501         33,514        108,680        129,301        117,751
-----------------------------------------
Overhead
fees          11,096         24,674         72,552         55,337         81,270

Other
operating
expenses      20,870         25,723         73,954        139,049        123,803
----- -------------- -------------- -------------- -------------- --------------

Total
operating
expenses     237,710        284,683        831,840        872,123        885,235
-----------------------------------------

-----------------------------------------
Operating
income       141,843        528,951      1,038,402      1,289,716      1,483,842
-----------------------------------------

-----------------------------------------
Other
income
(expense):
-----------------------------------------
Interest
and
other
income         3,695          2,878          8,329         15,477         15,953

Interest
Expense            0              0              0           (13)              0
-----------------------------------------
      -------------- -------------- -------------- -------------- --------------
Total
other
income
(expense)      3,695          2,878          8,329         15,464         15,953
      -------------- -------------- -------------- -------------- --------------

-----------------------------------------
Net
income      $145,538       $531,829     $1,046,731     $1,305,181     $1,499,795
===== ============== ============== ============== ============== ==============

                                  *See notes to financial  statements,  attached
hereto as Appendix D.

<PAGE>

                   INDIANA LITHOTRIPTERS LIMITED PARTNERSHIP I

                                 BALANCE SHEETS*

-------------- --------------- ---------------- ---------------- ---------------
 April 30, 2000  April 30, 1999   December 31,     December 31,     December 31,
                                      1999             1998             1997
-------------- --------------- ---------------- ---------------- ---------------

ASSETS

------------------------------------
------------------------------------
Cash  $167,672        $158,107         $376,462         $544,324        $701,364
------------------------------------
Accounts
receivable,
net    397,821         790,741          663,118          579,188         466,550

Other
current
assets  86,187          13,997           66,026           12,378           8,462
-------------- --------------- ---------------- ---------------- ---------------

Total
current
assets 651,680         962,845        1,105,606        1,135,890       1,176,376
------------------------------------

------------------------------------
Equipment
     1,942,432       1,933,030        1,942,432        1,882,655       1,882,655

Accumulated
depreciation
   (1,758,835)     (1,557,336)      (1,691,644)      (1,490,310)     (1,296,266)
-------------- --------------- ---------------- ---------------- ---------------

       183,597         375,694          250,788          392,345         586,389
------------------------------------

------------------------------------
Other
assets       0               0                0                0               0

------------------------------------
-------------- --------------- ---------------- ---------------- ---------------
Total
assets
      $835,277      $1,338,539       $1,356,394       $1,528,235      $1,762,765
============== =============== ================ ================ ===============

------------------------------------
LIABILITIES

------------------------------------
Accounts
payable
       $50,510         $21,741          $47,607          $45,602         $68,262
------------------------------------
Accrued
expenses
        11,416          41,297           22,384           73,961          41,012

Distributions
payable
             0               0          335,000          465,000         650,000
-------------- --------------- ---------------- ---------------- ---------------

Total
current
liabilities
        61,926          63,038          404,991          584,563         759,274
------------------------------------

------------------------------------
PARTNERS' EQUITY
------------------------------------
Capital
contributions
      (64,244)          64,244           64,244           64,244          64,244
------------------------------------
Purchase
of partners'
interests
     (104,034)               0                0                0               0

Distributions
paid
  (12,848,004)    (11,789,448)     (12,628,448)     (11,589,448)    (10,224,448)

Accumulated
earnings
   13,661,145      13,000,705       13,515,607       12,468,876      11,163,695
-------------- --------------- ---------------- ---------------- ---------------
Total
partners'
equity
       773,351       1,275,501          951,403          943,672       1,003,491

====================================
Total
liabilities
and
partners'
equity
      $835,277      $1,338,539       $1,356,394       $1,528,235      $1,762,765
============== =============== ================ ================ ===============

                                  *See notes to financial  statements,  attached
hereto as Appendix D.

<PAGE>

                   INDIANA LITHOTRIPTERS LIMITED PARTNERSHIP I

                            STATEMENTS OF CASH FLOWS*

---- -------------------------------- ------------------------------------------
                 Four Months Ended April 30,            Years Ended December 31,

               2000             1999           1999           1998          1997
     ---------------- --------------- -------------- ------------- -------------
Cash flows from Operating Activities:

Net
income       $145,538        $531,829     $1,046,731    $1,305,181    $1,499,795
------------------------------------------
  Adjustments to reconcile net income To cash provided by operating Activities:

------------------------------------------
Depreciation
and
amortization   67,191          67,026        201,334       194,044       190,883
------------------------------------------

------------------------------------------
Change
in operating
assets and
------------------------------------------
Accounts
receivable    265,297       (211,553)       (83,930)     (112,638)      (32,689)
------------------------------------------
Other
current
assets       (20,161)         (1,619)       (53,648)       (3,916)         2,893
------------------------------------------
Accounts
payable         2,903        (23,861)          2,005      (22,660)        46,825

Accrued
expenses     (10,968)        (32,664)       (51,577)        32,949        20,777
---- ---------------- --------------- -------------- ------------- -------------

Net cash
provided by
operating
activities    449,800         329,158      1,060,915     1,392,960     1,728,484
---- ---------------- --------------- -------------- ------------- -------------

------------------------------------------
Cash flows from Investing Activities:

  Purchase of equipment, furniture &
  fixtures          0        (50,375)       (59,777)             0             0
---- ---------------- --------------- -------------- ------------- -------------

Net Cash (used in)
investing
activities          0        (50,375)       (59,777)             0             0
---- ---------------- --------------- -------------- ------------- -------------

------------------------------------------
Cash flows from Financing Activities:
------------------------------------------
Purchase of
partners' interests
            (104,034)               0              0             0             0

Distributions to
partners    (554,556)       (665,000)    (1,169,000)   (1,550,000)   (1,850,000)
---- ---------------- --------------- -------------- ------------- -------------

Net cash
(used in)
financing
activities  (658,590)       (665,000)    (1,169,000)   (1,550,000)   (1,850,000)
---- ---------------- --------------- -------------- ------------- -------------

Net increase
(decrease)
in cash during
the period  (208,790)       (386,217)      (167,862)     (157,040)     (121,516)
---- ---------------- --------------- -------------- ------------- -------------

Cash, beginning
of period     376,462         544,324        544,324       701,364       822,880
---- ---------------- --------------- -------------- ------------- -------------

------------------------------------------
Cash,
end of
period       $167,672        $158,107       $376,462      $544,324      $701,364
---- ---------------- --------------- -------------- ------------- -------------

                                  *See notes to financial  statements,  attached
hereto as Appendix D.

<PAGE>

                   INDIANA LITHOTRIPTERS LIMITED PARTNERSHIP I

                         STATEMENTS OF PARTNERS' EQUITY*

---- ----------------------------- ---------------------------------------------
                   Period ended April 30                Years ended December 31,
==========================================
           2000           1999           1999            1998           1997
---- -------------- -------------- -------------- --------------- --------------
     -------------- -------------- -------------- --------------- --------------
Beginning
partners'
equity     $951,403       $943,672       $943,672      $1,003,491     $1,253,696
------------------------------------------
------------------------------------------

------------------------------------------
Net
income      145,538        531,829      1,046,731       1,305,181      1,499,795
------------------------------------------

------------------------------------------
Purchase
of partners'
interests
          (104,034)              0              0               0              0

------------------------------------------
Distributions
to
partners  (219,556)      (200,000)    (1,039,000)     (1,365,000)    (1,750,000)
---- -------------- -------------- -------------- --------------- --------------
-------------- -------------- -------------- --------------- --------------

------------------------------------------
------------------------------------------
Ending
partners'
equity     $773,351     $1,275,501       $951,403        $943,672     $1,003,491
------------------- -------------- -------------- --------------- --------------

                                   *See notes to financial  statements  attached
hereto as Appendix D.

        MANAGEMENT'S DISCUSSION ANDANALYSIS OF THE RESULTS OF OPERATIONS

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

                  Revenues. Total revenues decreased $434,081 (53%) for the four
months  ended  April 30,  2000  compared to the same period in 1999 due to a 61%
decrease  in the  number of  procedures  performed  and  partially  offset by an
increase in the revenue per procedure.

                  Operating  Expenses.  Operating  expenses decreased by $46,973
(17%) for the four months  ended  April 30, 2000  compared to the same period in
1999.  This  decrease is due  primarily  to a decrease  of $25,989 in  equipment
maintenance and repairs due to changing from fixed cost service contracts on the
lithotripter to a service call basis with a stop loss insurance  arrangement and
a decrease of $13,705 in employee compensation and benefits due to a decrease in
incentive compensation based on lower income.

     Other Income (Expense). Total other income (expense), net increased by $817
(28%) due to an increase in interest income.

Year Ended December 31, 1999 and December 31, 1998

                  Revenues. Total revenues decreased $291,598 (13%) for the year
ended December 31, 1999 compared to the same period in 1998 due to a 3% decrease
in the number of  procedures  performed  and an increase in the  estimate of the
beginning of year allowance for contractual  adjustments due to the availability
of improved information.

                  Operating  Expenses.  Operating  expenses decreased by $40,283
(5%) for the year ended  December 31, 1999  compared to the same period in 1998,
primarily  due to a decrease in other  operating  expenses  due to  nonrecurring
equipment  rental charges of $42,978  incurred in 1998 while the Coach was being
refurbished.

     Other Income  (Expense).  Total other income  (expense),  net  decreased by
$7,135 (46%) due to the decrease in interest income.

Year Ended December 31, 1998 and December 31, 1997

                  Revenues.  Total revenues decreased $207,237 (9%) for the year
ended  December  31,  1998  compared  to the  same  period  in 1997 due to a 14%
decrease  in the  number of  procedures  performed,  which  resulted  from a 24%
decline  in  procedures  at  hospitals  with  contracts  during  both  years and
partially offset by the Partnership  providing service to TVL, and a 6% increase
in revenue per case.

                  Operating  Expenses.  Operating  expenses decreased by $13,112
(1%) for the year ended  December 31, 1998  compared to the same period in 1997,
due to a decrease  of $25,933 in overhead  allocation  related to the decline in
overhead  costs  incurred  by the  General  Partner,  and a $18,140  decline  in
equipment maintenance and repair, which declined due to the renegotiation of the
equipment service contract.  These declines were partially offset by an increase
of other operating expenses of $15,246,  which was due to the rental of a loaner
unit from the General Partner while the  Partnership's  Coach was refurbished in
late 1998,  and an increase  in  management  fees of  $11,550,  which was due to
higher collections in 1998.

     Other Income (Expense). Total other income (expense), net decreased by $476
(3%) due to the decrease in interest income.

            [The remainder of this page is intentionally left blank]

<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 25 Units are sold and
their anticipated and estimated uses.

----------------------------- --------------------------------------------------
Sources of Funds                                          Sale of 25 Units
Offering Proceeds(1)                  $279,075                       ( 100%)
                                       -------                        -----
   TOTAL SOURCES                       $279,075                       ( 100%)
                                       =======                         ====

         Application of Funds

Syndication Costs(2)                    $33,750                         (12%)
Capital Reserve(3)                     $245,325                         (88%)
                                        -------                          ---

   TOTAL APPLICATIONS                   $279,075                       ( 100%)
                                         =======                         ====
----------------------------- -------------------- -----------------------------

Notes to Sources and Applications of Funds Table

             (1)      Assumes all 25 Units are purchased by qualified Investors.

                  (2) Includes $3,750 in commissions payable to the Sales Agent,
reimbursement of $5,000 to the Sales Agent for  out-of-pocket  expenses incurred
in selling the Units and $25,000 in legal and accounting  costs  associated with
the preparation of this Memorandum.

                  (3) It is anticipated  that upon receiving the requisite prior
approval  of the  Limited  Partners,  and after the  successful  Closing of this
Offering,  the Partnership  will purchase (i) a new  transportable  lithotripter
(estimated  cost  of  $425,000),  (ii) a new  mobile  truck  (estimated  cost of
$80,000),  and (iii) pay  applicable  state sales  taxes on the New  Lithotripsy
System  (estimated  at  $25,250).  In  addition,  the  Partnership  will pay the
expenses  associated  with upgrading its  Lithostar(TM)  at an estimated cost of
$56,500.  See "Business  Activities - Acquisition of the New Lithotripsy System"
and " -  Upgrade  of the  Existing  Lithotripsy  System."  The  Capital  Reserve
represents  proceeds of the Offering  that will be used to pay a portion of such
costs.  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 will not be sufficient to fund all  anticipated  expenses (a
certainty  in  the  case  the  acquisition  of the  New  Lithotripsy  System  is
approved), the remainder of such costs will be financed through Partnership Cash
Flow, reserves and/or borrowings.  In the view of risks associated with leverage
and a desire to conserve  Partnership  resources,  it is not  expected  that the
Partnership will acquire the New Lithotripsy  System unless sufficient  business
opportunities  with treatment  centers are anticipated by the General Partner to
be  available.  See  "Risk  Factors  - Company  Limited  Resources  and Risks of
Leverage." During the time period in which the Offering Proceeds are held in the
Partnership's  reserves,  they will be  subject to the  potential  claims of the
Partnership's   creditors.   Although  the  General   Partner   maintains   good
relationships with certain commercial lending institutions,  the Partnership has
not  obtained a loan  commitment  from any party in any amount and  whether  one
would timely be forthcoming  on terms  acceptable to the  Partnership  cannot be
assured.

                               THE GENERAL PARTNER

                  General.   The   General   Partner  of  the   Partnership   is
Lithotripters,  Inc., a North Carolina  corporation  formed in November 1987 for
the purpose of sponsoring  medical  service  limited  partnerships in the United
States (the "General Partner").  On April 26, 1996, the General Partner became a
wholly-owned  subsidiary of Prime. The principal executive office of the General
Partner is located at 1301 Capital of Texas Highway,  Suite C-300, Austin, Texas
78746, (888) 252-6575.  The General Partner's assets are illiquid in nature. The
primary  assets of the General  Partner are equity  interests  in other  medical
ventures.  The General Partner also has substantial potential financial exposure
as a guarantor of certain Prime indebtedness.  Further information regarding the
financial  condition of the General  Partner will be made available to Investors
upon request.

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

                           Name                                    Office

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

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

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

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

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

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

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

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

     David Vela,  M.D. is a Vice  President  of the  General  Partner.  Dr. Vela
received his medical  degree in 1984.  Dr. Vela  developed and operated  various
outpatient  centers  throughout  the  United  States  from  1986 to 1995 and was
recently appointed a Group Vice President of Prime.

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

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

     COMPENSATION AND REIMBURSEMENT TO THEGENERAL PARTNER AND ITS AFFILIATES

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

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

                  2.  Partnership  Distributions.  In its  capacity  as  general
partner of the Partnership, the General Partner is entitled to its distributable
share  (approximately   25.82%,  before  dilution)  of  Partnership  Cash  Flow,
Partnership Sales Proceeds and Partnership  Refinancing  Proceeds as provided by
the Partnership Agreement.  The General Partner also owns approximately an 8.65%
(before dilution) limited partner interest in the Partnership and is entitled to
Distributions  on account of such  interest.  See  "Summary  of the  Partnership
Agreement - Profits,  Losses and  Distributions"  and the Partnership  Agreement
attached as Appendix A. The General Partner will also receive its  proportionate
share of any Offering proceeds distributed to the Initial Limited Partners.  See
"Sources and Applications of Funds."

                  3.  Sales   Commissions.   The  Sales  Agent,  a  wholly-owned
subsidiary  of  Prime,  has  entered  into a Sales  Agency  Agreement  with  the
Partnership  pursuant to which the Sales Agent has agreed to sell the Units on a
"best efforts" any or all basis.  As  compensation  for its services,  the Sales
Agent  will  receive  a  commission  equal to $150 for each  Unit sold (up to an
aggregate of $3,750). If this Offering is successful,  the Sales Agent will also
be reimbursed by the Partnership for its out-of-pocket  expenses associated with
its  sale  of the  Units  in an  amount  not to  exceed  $5,000.  See  "Plan  of
Distribution" and "Conflicts of Interest."

     4. New Truck. It is anticipated that the Company will also use a portion of
the  Offering  proceeds  and/or debt  financing to acquire a new mobile truck to
transport the new lithotripter  from AK Associates,  L.L.C., an Affiliate of the
General Partner, at a cost of approximately  $80,000. See "Business Activities -
Acquisition of the New Lithotripsy System."

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

                              CONFLICTS OF INTEREST

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

                  The General Partner and its Affiliates will receive management
fees and  broker-dealer  sales  commissions  in  connection  with  the  business
operations  of the  Partnership  and the  sale of the  Units  that  will be paid
regardless of whether any sums hereinafter are distributed to Limited  Partners.
None of such fees, compensation and benefits has been determined by arm's length
negotiations. In addition, the Partnership may contract with the General Partner
or  its  Affiliates  to  render  other  services  or  provide  materials  to the
Partnership  provided that the  compensation  is at the then prevailing rate for
the type of services and/or  materials  provided.  The General Partner will also
receive  interest  on  loans,  if  any,  it  makes  to  the   Partnership.   See
"Compensation  and  Reimbursement to the General Partner and its Affiliates." It
is  anticipated  that the  Partnership  will purchase a new mobile truck from AK
Associates,  L.L.C.,  an Affiliate of the General  Partner to transport  the new
lithotripter. See "Compensation and Reimbursement to the General Partner and its
Affiliates"  and  "Business  Activities  -  Acquisition  of the New  Lithotripsy
System."

                  The General  Partner and its Affiliates will devote as much of
their time to the business of the Partnership as in their judgment is reasonably
required.  Principals of the General  Partner may have  conflicts of interest in
allocating  management time, services and functions among their various existing
and future  business  activities in which they are or may become  involved.  See
"Competition"  and "Prior  Activities."  The General Partner believes it and its
Affiliates,   together,  have  sufficient  resources  to  be  capable  of  fully
discharging their  responsibilities to the Partnership.  The General Partner and
its Affiliates  may engage for their own account,  or for the account of others,
in other  business  ventures,  related to medical  services  or  otherwise,  and
neither the Partnership nor the holders of any of the Units shall be entitled to
any interest therein. See the Partnership  Agreement attached hereto as Appendix
A.  The  General  Partner,   its  Affiliates   (including   affiliated   limited
partnerships)  and employees of the General  Partner  engage in medical  service
activities for their own accounts.  See "Prior  Activities." The General Partner
may serve as a general partner of other limited partnerships that are similar to
the  Partnership and does not intend to devote its entire  financial,  personnel
and other resources to the  Partnership.  Except as set forth in the Partnership
Agreement  or as provided  by law,  none of such  entities  or their  respective
Affiliates is prohibited  from engaging in any business or arrangement  that may
be in competition with the  Partnership.  The General Partner and its Affiliates
are also  obligated to act in a fiduciary  manner with respect to the management
of the  Partnership  and any other medical venture in which they have management
responsibilities.  The  General  Partner has several  Affiliates  which  provide
lithotripsy   services  in  or  near  the  Service  Area.  TVL  provides  mobile
lithotripsy  services in the Service Area at a hospital in Louisville,  Kentucky
pursuant  to  a  rental  agreement  with  the   Partnership.   Western  Kentucky
Lithotripters  Limited  Partnership uses a Dornier HM-3 and Modulith(R) SLX-T to
provide mobile  lithotripsy  services to treatment centers near the Service Area
in the following Kentucky counties:  Christian County, Daviess County, Henderson
County,  Hopkins  County,   McCracken  County  and  Warren  County.  Kentucky  I
Lithotripsy,  LLC uses a Dornier HM-3 to provide mobile lithotripsy  services in
central  and  eastern  Kentucky,  and TVL also  operates  several  Dornier  HM-3
lithotripters in Tennessee.  See  "Competition-Affiliated  Competition." Because
other ventures controlled by the General Partner or its Affiliates operate in or
near the Service Area, an issue may arise as to whether a particular lithotripsy
service opportunity  belongs to the Partnership or to another Affiliate.  In the
event an issue arises as to whether a particular lithotripsy service opportunity
in or near the Service Area belongs to the  Partnership,  the General Partner or
another Affiliate, the General Partner will in good faith attempt to resolve the
issue in a manner that it believes to be in or not opposed to the best  interest
of the  Partnership.  Notwithstanding  the foregoing,  no assurance can be given
that one or more limited  partners or members of such  Affiliates or the Limited
Partners  themselves,  may not challenge the decision of the General  Partner on
fiduciary grounds. See "Competition" and "Prior Activities." The General Partner
is planning other limited  partnership  offerings that would operate lithotripsy
businesses in other states.  See  "Competition." The General Partner through its
ownership of limited  partner  interest in the  Partnership is able to influence
any vote on matters  requiring  Limited  Partner  approval.  See "Summary of the
Partnership Agreement."

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

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

                 FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER

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

                                   COMPETITION

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

Affiliated Competition

                  The Partnership faces competition from lithotripters placed in
service  in  Indiana  and  Kentucky,  including  lithotripters  owned  by  other
enterprises affiliated with the General Partner. The General Partner has several
Affiliates  which  currently  provide and will  continue to provide  lithotripsy
services in or near the Service Area. Prime Lithotripter Operations,  Inc. d/b/a
Tennessee Valley Lithotripter ("TVL") rents the Existing Lithotripsy System from
the  Partnership  to  provide  services  at  Suburban  Hospital  in  Louisville,
Kentucky. Western Kentucky Lithotripters Limited Partnership uses a Dornier HM-3
and  Modulith(R)  SLX-T to provide  mobile  lithotripsy  services  to  treatment
centers  near the Service Area in the  following  Kentucky  counties:  Christian
County, Daviess County,  Henderson County, Hopkins County,  McCracken County and
Warren County.  Kentucky I  Lithotripsy,  LLC operates a Dornier HM-3 in central
and eastern Kentucky,  and TVL also operates several Dornier HM-3  lithotripters
in Tennessee. See "Conflicts of Interest."

Other Competition

                  Besides lithotripsy services provided by the General Partner's
Affiliates,  various  hospitals  and other  facilities  in the Service Area have
access to  lithotripters  which are in direct  competition with the Partnership.
The  General  Partner  is aware of two  fixed-site  lithotripters  operating  in
Louisville,  Kentucky: a Dornier HM-4 at Suburban Hospital,  and a Lithostar(TM)
at Alliant  Medical  Pavillion.  In addition,  the General Partner is aware of a
physician-owned   venture  (consisting  in  part  of  former  Limited  Partners)
providing  transportable  lithotripsy services in Indianapolis,  Indiana using a
Healthtronics  Lithotron.  There  may be other  existing  fixed-base  or  mobile
lithotripsy  services in the Service Area which will  directly  compete with the
Partnership's  Lithotripsy Systems, but the General Partner is not familiar with
these other  competitors.  The General Partner is generally  unfamiliar with the
cost of the lithotripsy procedures offered by the Partnership's competitors.

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

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

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

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

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

                                   REGULATION

Federal Regulation

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

                  Reimbursement.   The  Partnership   either  charges   Contract
Hospitals a fee for use of the Existing Lithotripsy System or directly bills and
collects  from  patients  a fee for  lithotripsy  services  provided  using  its
Existing Lithotripsy System. The amount of the fee charged to Contract Hospitals
and patients is dependent on the amount that  governmental  and commercial third
party payors are willing to  reimburse  hospitals  and patients for  lithotripsy
procedures.  The primary  governmental  third party payor is Medicare.  Medicare
reimbursement  policies are statutorily created and are regulated by the federal
government.

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

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

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

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

                  The  Medicaid  programs  in Indiana 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 Indiana  and  Kentucky  currently  provide
reimbursement for lithotripsy services. The federal Personal  Responsibility and
Work Opportunity Reconciliation Act of 1996 requires state Medicaid health plans
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 is unable to  predict  whether  the  Medicaid
programs in Indiana and Kentucky will take such steps.

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

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

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

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

                  HCFA  acknowledges  in its commentary to the Proposed Stark II
Regulations  that  physician  overutilization  of  lithotripsy  is unlikely  and
specifically solicits comments on whether there should be a regulatory exception
for lithotripsy.  HCFA has received a substantial  volume of comments in support
of a regulatory exception for lithotripsy.  HCFA representatives have informally
acknowledged  in published  commentary  that some form of regulatory  relief for
lithotripsy is under consideration and may be forthcoming; however, no assurance
can be made that such will be the case.  The General  Partner  will  continue to
carefully  review  the  Proposed  Stark II  Regulations  and  accompanying  HCFA
commentary,  and explore other  alternative plans of operations that would allow
the   Partnership  to  operate  in  compliance  with  Stark  II  and  its  final
regulations.

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

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

                  Fraud and Abuse. The provisions of the federal Social Security
Act addressing  illegal  remuneration  (the  "Anti-Kickback  Statute")  prohibit
providers and others from soliciting, receiving, offering or paying, directly or
indirectly,  any  remuneration  in return  for either  making a  referral  for a
Medicare,  Medicaid or TRICARE  (formerly  known as 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 some of the Limited Partners are physicians or others in
a position to refer and perform lithotripsy services using Partnership equipment
and  personnel,   such  Distributions   could  come  under  scrutiny  under  the
Anti-Kickback Statute. The Third Circuit United States Court of Appeals has held
that the  Anti-Kickback  Statute is  violated  if one purpose (as opposed to the
primary or sole  purpose)  of a payment to a  provider  is to induce  referrals.
United States v. Greber, 760 F.2d 68 (1985). The Greber case was followed by the
United States Court of Appeals for the Ninth Circuit, United States v. Kats, 871
F.2d 105 (9th Cir.  1989),  and cited  favorably by the First  Circuit in United
States v. Bay State  Ambulance and Hospital  Rental  Service,  Inc., 874 F.2d 20
(1st Cir. 1989).

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

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

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

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

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

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

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

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

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

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

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

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

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

                  Some federal  courts have recently taken the position that qui
tam lawsuits by private plaintiffs are  unconstitutional.  Most notably, a panel
of judges on the Fifth Circuit Court of Appeals took this position in a decision
issued in November  1999.  That decision is being  reviewed by all the judges on
the Fifth Circuit.  The panel's  decision was a minority view;  most courts have
concluded  that qui tam lawsuits are  constitutional.  In another case, the U.S.
Supreme  Court ruled on May 22, 2000 that private  plaintiffs  have  standing to
bring suits under the False  Claims Act. It is unknown how this  decision by the
U.S.  Supreme Court will affect the case which is pending in the Fifth  Circuit.
However,  because the Supreme Court's decision will allow private  plaintiffs to
continue to bring suit under the False Claims Act,  prospective Limited Partners
should consider the  ramifications  of the False Claims Act issues  discussed in
the preceding paragraph.

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

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

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

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

State Regulation

                  Indiana.   Indiana's  certificate  of  need  ("CON")  law  was
repealed in 1998. Therefore, a CON is not necessary to acquire or operate either
the  Partnership's  Lithostar(TM) or the transportable  unit in Indiana.  To the
best knowledge of the General Partner,  the services provided by the Partnership
will not require licensure as a hospital or other health care facility.  Indiana
requires that  lithotripters  be registered and inspected,  and that  radiologic
technologists  be licensed.  The General  Partner  will  continue to comply with
these requirements.

                  Regarding  physician  referrals,  a Medical Licensing Board of
Indiana  regulation  prohibits  the receipt of  compensation  for  referral of a
patient,  except in association with an approved referral  program.  The Indiana
Medicaid  statute  prohibits  the  receipt  of a fee or charge for  referring  a
patient for the  furnishing of items or services.  As the  Partnership  will not
compensate any physician for referrals  (rather,  all payments to physicians are
based on  their  equity  interests  in the  Partnership),  the  General  Partner
believes  these laws will not be violated.  The General  Partner is not aware of
any other regulatory issues related to the provision of lithotripsy  services in
Indiana.

                  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  $1,655,678.  The
General  Partner has sought and received a written  opinion from the Certificate
of Need  Office of the  Kentucky  Cabinet  for  Health  Services  that no CON is
necessary for mobile  lithotripsy  services  similar to those  discussed in this
Offering so long as the hospital  establishes  and  provides  the  service;  the
General  Partner  has  confirmed  this  opinion  is the same  for  transportable
lithotripters. To ensure that the hospital establishes and provides the service,
contracting hospitals will lease the Lithotripsy Systems and pay the Partnership
for the use of the  equipment;  the  Partnership  will not bill for the services
itself.

                  To  the  best   knowledge   of  the   General   Partner,   the
Partnership's  mobile  Lithostar(TM) must be licensed as a mobile health service
by the Division of Licensing and Regulation.  Licensure requires a survey of the
Existing  Lithotripsy System and approval of the policies and procedures related
to the Existing  Lithotripsy  System.  The General  Partner does not believe the
licensure  requirement will prevent the Partnership from operating as planned in
Kentucky.  The General  Partner has sought and received a written  determination
from the Division of Licensing and Regulation that  transportable  lithotripters
need not be licensed as a mobile health service.

                  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.  Therefore,  all physician
Limited  Partners who make referrals to the  Partnership's  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), the General Partner believes this law will not be
violated.  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 will seek to comply
with  this  and all  other  regulatory  requirements  in order  to  operate  the
Lithostar(TM) or transportable unit.

                  Further  regulations  may be imposed in Indiana or Kentucky at
any time in the future.  Predictions as to the form or content of such potential
regulations  would be highly  speculative.  They could apply to the operation of
the  Lithostar(TM) or transportable  unit or to the physicians who invest in the
Partnership.  Such restrictive regulations could adversely affect the ability of
the Partnership to conduct its business.

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

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

                                PRIOR ACTIVITIES

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

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

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

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

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

                      SUMMARY OF THE PARTNERSHIP AGREEMENT

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

Nature of Limited Partnership Interest

                  The Investors will acquire their  interests in the Partnership
in the form of Units.  For each Unit  purchased,  a cash  payment  of $11,163 is
required.  The  entire  Unit  purchase  price is due in cash upon  subscription;
however, certain qualified Investors may finance a portion of the purchase price
through either individually borrowed funds or through Limited Partner Loans. See
"Terms of the Offering - Limited  Partner  Loans." No Limited  Partner will have
any  liability for the debts and  obligations  of the  Partnership  by reason of
being a Limited Partner except to the extent of (i) his Capital Contribution and
liability under a Limited Partner Loan, if any; (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. See "Risk
Factors  - Other  Investment  Risks -  Limited  Partners'  Obligation  to Return
Certain Distributions." See also form of Opinion of Counsel,  attached hereto as
Appendix C.

Profits, Losses and Distributions

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

                  1.       Allocations of Profits and Losses.

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

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

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

                  2.       Distributions.

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

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

Management of the Partnership

                  The General  Partner has the sole right to manage the business
of the Partnership and at all times is required to exercise its responsibilities
in a  fiduciary  capacity.  The consent of a Majority in Interest of the Limited
Partners is required for any sale of the Lithotripsy  Systems or the purchase of
additional  lithotripsy  systems by the  Partnership.  The  General  Partner may
refinance  the  Lithotripsy  Systems or  purchase  other  assets  related to the
provision of lithotripsy  services without the consent of the Limited  Partners.
The General  Partner  will  oversee the  day-to-day  affairs of the  Partnership
pursuant to the Management Agreement. See "Business Activities - Management."

                  Under the  Partnership  Agreement,  if the General  Partner is
adjudged  by a court of  competent  jurisdiction  to be  liable  to the  Limited
Partners or the Partnership for acts of gross  negligence or willful  misconduct
in the performance of its duties under the terms of the  Partnership  Agreement,
the General Partner may be removed and another substituted with the consent of a
Majority in Interest of the Limited  Partners.  The General  Partner may also be
removed  without  cause and another  party  substituted  with the consent of the
Limited  Partners  who  hold at  least  75% of the  Limited  Partner  Percentage
Interests.  The General Partner may transfer all or a portion of its Partnership
Interest  only if,  in the  opinion  of the  Partnership's  accountant,  the new
general partner has sufficient net worth and meets other  requirements to assure
that the  Partnership  will continue to be treated as a partnership  for federal
tax purposes.  Both the admission of any new  shareholder  and the withdrawal of
any shareholder from the General Partner may be done without the approval of the
Limited Partners.

Powers of the General Partner

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

Rights and Liabilities of the Limited Partners

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

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

Restrictions on Transfer of Partnership Interests

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

Noncompetition Agreement and Protection of Confidential Information

                  The Partnership  Agreement  provides that each Limited Partner
(other than Units held by the General  Partner of its  Affiliates) is prohibited
from having a direct or indirect ownership of an interest in a competing venture
(including  the  lease  or  sublease  of  competing  technology)  (the  "Outside
Activities").  While they are Limited Partners in the Partnership,  each Limited
Partner is precluded from engaging in any Outside Activities.  In the event that
a Limited 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 Limited  Partner
engaged in an Outside  Activity as provided in the  Partnership  Agreement.  See
"Optional  Purchase  of Limited  Partner  Interests"  in this  Section,  and the
Partnership Agreement attached hereto as Appendix A.

                  In addition,  the  Partnership  Agreement  provides  that each
Limited  Partner   acknowledges  and  agrees  that  his   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  Limited  Partners  (other  than the  General  Partner and its
Affiliates who hold Limited  Partner  interests)  are precluded from  disclosing
such confidential  information during their participation as Limited Partners in
the  Partnership or thereafter  unless required by law or with the prior written
consent of the Partnership.

Dissolution and Liquidation

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

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

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

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

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

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

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

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

Optional Purchase of Limited Partner Interests

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

Dilution Offerings

                  The General  Partner has the authority to  periodically  offer
and sell additional  limited  partnership  interests in the Partnership  through
Dilution  Offerings  to local  investors  who are not  Limited  Partners  in the
Partnership ("Qualified  Investors").  The primary purpose of Dilution Offerings
would be (i) to raise additional capital for any legitimate Partnership purpose;
and (ii) to assure the highest  quality of patient care by  admitting  Qualified
Investors to the  Partnership  who will be dedicated  and motivated as owners to
follow  the  Partnership's  treatment  protocol,  and  comply  with its  quality
assurance and outcome analysis programs.

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

Arbitration

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

Power of Attorney

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

Reports to Limited Partners

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

Records

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

                                  LEGAL MATTERS

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

                             ADDITIONAL INFORMATION

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

                                    GLOSSARY

     Certain terms in this Memorandum shall have the following meanings:

     Act. The Act means the Indiana 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.

     AK  Associates.  AK  Associates,  L.L.C.,  a  subsidiary  of  Prime.  It is
anticipated  that the  Partnership  will  purchase  one new mobile truck from AK
Associates  with a portion of the proceeds of this Offering  and/or  Partnership
debt financing.

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

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

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

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

     Closing  Date.  5:00 p.m.,  Eastern Time, on August 9, 2000 (or earlier) in
the  discretion of the General  Partner.  The Closing Date may be extended for a
period of up to 180 days in the discretion of the General Partner.

     Coach.    A    self-propelled    Calumet    Coach    which    houses    the
Lithostar(TM)currently operated by the Partnership.

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

     Compact. The transportable  Tripter X-1 Compact  extracorporeal  shock-wave
lithotripter and accessories manufactured by Medirex.

     Contract  Hospitals.  The four hospitals to which the Partnership  provides
lithotripsy services pursuant to four separate Hospital Contracts.

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

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

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

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

     Existing  Lithotripsy  System. The Coach with the installed and operational
Lithostar(TM)currently operated by the Partnership.

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

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

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

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

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

                  Investors.  Potential purchasers of Units.
                  ---------

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

                  Limited  Partner Note.  The  promissory  note from an Investor
financing  a portion  of the Unit  purchase  price to the Bank in the  principal
amount of $8,663 per Unit,  the  proceeds of which will be paid  directly to the
Partnership.  The form of the Limited  Partner Note (including the Note Addendum
attached  thereto) is attached as Exhibit A to the form of Limited  Partner Loan
Commitment which is attached hereto as Appendix B.

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

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

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

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

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

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

                  Medirex.  Medirex Systems Corp. and its Affiliates.
                  -------

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

     Modularis(TM).  The Modularis(TM)Uro  Plus transportable  lithotripter with
accessories manufactured by Siemens.

                  Modulith(R)   SLX-T.  The  Modulith(R)   SLX-T   transportable
lithotripter with accessories manufactured by Storz.

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

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

                  New Lithotripsy  System.  The new  transportable  lithotripter
together with the new mobile truck which will be purchased  with the proceeds of
the  Offering  and other  financing  and which will be owned and operated by the
Partnership.

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

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

                  Offering.  The offering of Units pursuant to this Memorandum.
                  --------

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

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

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

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

     Partnership.  Indiana  Lithotripters  Limited  Partnership  I,  an  Indiana
limited partnership.

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

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

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

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

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

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

                  Percentage  Interest.  The  interest  of each  Partner  in the
Partnership,  to be  determined in the case of each Investor by reference to the
percentage  opposite  his  name  set  forth  in  Schedule  A to the  Partnership
Agreement.  Each Unit sold  pursuant to this  Offering  represents an initial 1%
economic  interest.  The Percentage  Interest will be set forth in Schedule A to
the Partnership Agreement or any other document or agreement, as a percentage or
a fraction or on any numerical basis deemed appropriate by the General Partner.

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

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

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

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

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

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

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

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

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

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

                  Service  Area.  The  geographic  region  in which  Partnership
operations  are conducted  and which  presently  consists  primarily of southern
Indiana  and the area  within a 100-mile  radius of  Louisville,  Kentucky.  The
General  Partner  has sole  discretion  to expand the  Service  Area  subject to
fiduciary duties owed by the General Partner to its Limited Partners.

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

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

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

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

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

     Units.  The 25 equal units of limited  partner  interest in the Partnership
offered pursuant to this Memorandum for a price per Unit of $11,163 in cash.

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

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