------------------------
Name of Prospective Investor                                   Memorandum Number

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



                       WASHINGTON UROLOGICAL SERVICES, LLC

         A Limited Liability Company Formed Under the Laws of Washington

                    CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM

                             up to $169,480 in Cash
                      up to $110,000 in Personal Guaranties

            40 Units of Limited Liability Company Membership Interest

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


THIS MEMORANDUM IS FURNISHED PURSUANT TO A CONFIDENTIALITY AGREEMENT BETWEEN THE
COMPANY 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 #893892 v 3                                  v
WINSTON #893892 v 3
                  The Date of this Memorandum is April 24, 2000

                       WASHINGTON UROLOGICAL SERVICES, LLC

                             up to $169,480 in Cash

         up to 40 Units of Limited Liability Company Membership Interest

          at $4,237 in Cash and $2,750 in Personal Guaranties per Unit

                  Washington  Urological  Services,  LLC, a  Washington  limited
liability  company (the "Company")  operated by its  four-member  managing board
(the  "Managing  Board"),  hereby  offers on the terms set forth herein up to 40
Units (the  "Units") of limited  liability  company  membership  interest in the
Company, at a price per Unit of $4,237 in cash, plus a personal guaranty of 0.5%
of the Company's obligations under a loan of $550,000 from First-Citizens Bank &
Trust Company (the "Loan") (a $2,750  principal  guaranty  obligation per Unit).
See "Terms of the  Offering."  Each Unit will represent an initial 0.5% economic
interest in the Company.  See "Risk Factors - Other  Investment Risks - Dilution
of Members'  Interests." The Company owns and operates a Storz Modulith(R) SLX-T
model  extracorporeal  shockwave  lithotripter  for the  lithotripsy  of  kidney
stones.  The  lithotripter  is  transported  in a mobile van (together  with the
operational  lithotripter,  the  "Existing  Lithotripsy  System")  enabling  the
Company to provide  lithotripsy  services at various locations  primarily in the
area of the State of Washington  west of the Cascade  Mountains,  and such other
areas as determined by the Managing Board (the "Service Area").

                  The Company  intends to use the net proceeds of this  Offering
primarily to (i) pay the costs of the Offering and (ii) finance a portion of the
cost of purchasing a new Storz Modulith(R) SLX-T transportable  lithotripter and
a  new  mobile  van  to  transport  the  lithotripter  (collectively,  the  "New
Lithotripsy  System").  See  "Sources and  Applications  of Funds." The Existing
Lithotripsy  System and New  Lithotripsy  System  are  referred  to  hereinafter
collectively as the "Lithotripsy  Systems." The cash purchase price and personal
guaranties  are due at  subscription;  however,  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. See "Terms of the Offering - Member Loans." The Offering will terminate on
June 6,  2000 (or  earlier  upon the sale of all 40 Units as  provided  herein),
unless  extended at the  discretion  of the  Managing  Board 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 Company faces
substantial  competition  in the Service Area.  See "Risk Factors" and "Terms of
the Offering - Suitability Standards."

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

                         Cash Selling Net Cash Amount of

            Offering Price Commissions(1) Proceeds (2) Guaranties(3)

Per Unit(4)
            $  4,237         $      75         $  4,162         $  2,750
Total
Maximum(5)  $169,480         $ 3,000           $166,480         $110,000

(See Footnotes on Back of Cover Page)

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

(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 a Member of the  Company,  Sun Medical
     Technologies,  Inc.  (the "Sales  Agent").  The Company  will pay the Sales
     Agent a $75  commission  for each  Unit sold and will  reimburse  the Sales
     Agent for its Offering costs (not to exceed $7,000). The Company has agreed
     to  indemnify  the  Sales  Agent  against  certain  liabilities,  including
     liabilities  vender 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 Company.  See "Sources and  Applications  of Funds." The
                 cash  price  per  Unit   ($4,237)   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 the  Investors,  the Company has  arranged  for
                 financing of a portion of the Units' cash  purchase  price (the
                 "Member Loan") 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 in cash and a Member Note
                 payable  to the Bank in a  maximum  principal  amount  of up to
                 $1,737 per Unit to be purchased, a Loan and Security Agreement,
                 Security  Agreement and two Uniform  Commercial  Code Financing
                 Statements  ("UCC-1's")  (collectively,  the "Loan Documents").
                 See "Terms of the Offering - Member Loans" and the forms of the
                 Member  Note,  the Loan and  Security  Agreement  and  Security
                 Agreement  attached to the form of 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)     At subscription,  each Investor must execute and deliver to the
                 Sales Agent a guaranty  agreement (the "Guaranty")  under which
                 he  will  guarantee  payment  of a  portion  of  the  Company's
                 obligations  under the Loan, the proceeds of which were used by
                 the Company to acquire the Existing  Lithotripsy System and pay
                 sales  taxes on such  equipment.  For each Unit  purchased,  an
                 Investor will be required to guarantee 0.5% of the Loan,  which
                 represents up to a $2,750 principal guaranty obligation.  As of
                 the date of this Memorandum the outstanding balance on the Loan
                 is $433,000. A Member's liability under the Guaranty may exceed
                 the principal  guaranty per Unit as provided above because such
                 liability  includes  not  only  the  maximum  stated  principal
                 amount,  but also  accrued and unpaid  interest,  late  payment
                 penalties  and legal costs  incurred by the Bank in  collecting
                 defaulted  obligations.  For  a  description  of  the  guaranty
                 requirements and the terms of the Guaranties, see "Terms of the
                 Offering  -  Guaranty  Arrangements"  and the form of  Guaranty
                 included  in  the   Subscription   Packet   accompanying   this
                 Memorandum.

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

         (5)     Offering  proceeds  will  first be used by the  Company  to pay
                 Offering  costs and expenses (up to $35,000) and the  remainder
                 of the  proceeds  will be used to finance a portion of the cost
                 of  purchasing  the New  Lithotripsy  System.  See "Sources and
                 Applications  of Funds." The Company  seeks by this Offering to
                 sell up to 40 Units for an  aggregate of up to $169,480 in cash
                 ($166,480 net of Sales Agent's  commissions) and up to $110,000
                 in personal guaranties of the Company's  principal  obligations
                 under the Loan.  All  subscription  funds,  Guaranties 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 cash  purchase  price through a
                 Member  Loan),  rejection  of the  Investor's  subscription  or
                 termination  of the  Offering.  The  Company 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
                 Company  and  the  approval  of his  Guaranty  by the  Bank  as
                 provided herein,  such Investor will be admitted to the Company
                 as a Member,  provided that acceptance of  subscriptions  by an
                 Investor  that  elects to  finance  a portion  of his Unit cash
                 purchase price is also conditioned upon approval by the Bank of
                 his Member Loan.  Upon  admission as a Member,  the  Investor's
                 subscription  funds will be  released  to the  Company  and the
                 Guaranties and the Loan Documents,  if any, will be released to
                 the  Bank.  In  the  event  a  subscription  is  rejected,  all
                 subscription  funds (without  interest),  Guaranty and 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 June 6, 2000,  unless it is sooner
                 terminated  by the Managing  Board,  or unless  extended for an
                 additional  period  not to exceed  180 days.  See "Terms of the
                 Offering."

                                     [The    remainder    of   this    page   is
intentionally left 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 Managing
         Board 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 Company,  its Managing Board,  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

                                                                         Page

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

THE COMPANY...............................................................17

TERMS OF THE OFFERING.....................................................17
         The Units and Subscription Price.................................17
         Acceptance of Subscriptions......................................18
         Guaranty Arrangements............................................18
         Member Loans.....................................................21
         Subscription Period; Closing.....................................23
         Offering Exemption...............................................23
         Suitability Standards............................................23
         How to Invest....................................................24
         Restrictions on Transfer of Units................................24

PLAN OF DISTRIBUTION......................................................25

BUSINESS ACTIVITIES.......................................................26
         General..........................................................26
         Treatment Methods for Kidney Stone Disease.......................26
         The Existing Lithotripsy System..................................27
         Acquisition of New Lithotripsy System............................28
         Acquisition of Additional Assets.................................28
         Hospital Contracts...............................................29
         Operation of the Lithotripsy Systems.............................30
         Management.......................................................31
         Employees........................................................31

FINANCIAL CONDITION OF THE COMPANY........................................32

SOURCES AND APPLICATIONS OF FUNDS.........................................36

MANAGING BOARD............................................................37

MANAGEMENT AGENT..........................................................37

COMPENSATION AND REIMBURSEMENT TO CERTAIN MEMBERS AND THEIR AFFILIATES....38
CONFLICTS OF INTEREST.....................................................40

FIDUCIARY RESPONSIBILITY OF THE MANAGING BOARD............................41

COMPETITION...............................................................41
         Affiliated Competition...........................................42
         Other Competition................................................42

REGULATION................................................................43
         Federal Regulation...............................................43

ALS GUIDELINES DISCLOSURE...........................Error! Bookmark not defined.
         State Regulation.................................................52

PRIOR ACTIVITIES..........................................................53

SUMMARY OF THE OPERATING AGREEMENT........................................54
         Nature of Membership Interest....................................54
         Dilution Offerings...............................................54
         Fundamental Changes..............................................55
         Profits, Losses and Distributions................................57
         Management of the Company........................................60
         Powers of the Managing Board and Members' Voting Rights..........61
         Rights and Liabilities of the Members............................62
         Restrictions on Transfer of Membership Interests.................63
         Dissolution and Liquidation......................................63
         Optional Purchase of Membership Interests........................64
         Noncompetition Agreement and Protection of Confidential
                 Information..............................................65
         Arbitration......................................................65
         Power of Attorney................................................65
         Reports to Members...............................................66
         Records..........................................................66

LEGAL MATTERS.............................................................66

ADDITIONAL INFORMATION....................................................66

GLOSSARY 66

                                   APPENDICES

Appendix A        OPERATING AGREEMENT OF WASHINGTON UROLOGICAL SERVICES, LLC

Appendix B        MEMBER LOAN COMMITMENT (WITH EXHIBITS)

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

Appendix D.       FORM OF OPINION OF REED MCCLURE, A PROFESSIONAL SERVICES
                        CORPORATION

Appendix E        NOTES TO FINANCIAL STATEMENTS


<PAGE>


WINSTON #893892 v 3                                 72
WINSTON #893892 v 3

                                  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 limited liability companies generally, and to the
other special operating, tax and other investment risks set forth below. See the
"Glossary" for terms used in this Memorandum and not otherwise defined.

Operating Risks

                  General Risks of Operations.  The Company was formed under the
laws of the State of Washington  on August 31, 1998 and commenced  operations in
March,  1999.  Although  the Managing  Board's  members and its  personnel  have
significant experience in managing lithotripsy enterprises,  whether the Company
can continue to effectively operate its business cannot be accurately predicted.
The  benefits of an  investment  in the Company also depend on many factors over
which  the  Company  has  no  control,   including  competition,   technological
innovations rendering the Lithotripsy Systems less competitive or obsolete,  and
other matters.  The Company 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 Company's management personnel.

                  Uncertainties Related to Changing Healthcare Environment.  The
health  care  industry  has  experienced  substantial  changes in recent  years.
Managed care is becoming a major factor in the delivery of lithotripsy  services
in the  Service  Area and the  Managing  Board  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
Company.

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

                  Impact of Insurance Reimbursement.  The Company's revenues are
expected to continue to be derived from the fees paid by Contract  Hospitals and
other  health care  facilities  under  lithotripsy  service  contracts  with the
Company.  The Company does not  currently  directly bill or collect 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. The increasing influence of
health  maintenance  organizations and other managed care companies has resulted
in pressure to reduce the  reimbursement  available for lithotripsy  procedures.
The  Management  Agent  and some of its  Affiliates  have  recently  experienced
declining  revenues  based on these managed care  pressures in other health care
markets.  Additionally,  the Health Care Financing  Administration ("HCFA"), the
federal agency which administers the Medicare program,  has proposed rules which
would reduce the reimbursement  available for lithotripsy procedures provided at
hospitals  to  $2,235.  See  "Regulation  - Federal  Regulation."  In most cases
reimbursement rates payable to the Company are less than the proposed HCFA rate.
Because of the  competitive  pressures  from managed  care  companies as well as
threatened reductions in Medicare reimbursement,  the Managing Board anticipates
that  reimbursement   available  for  lithotripsy  procedures  may  continue  to
decrease.  Such  decreases  would  have a  material  adverse  effect on  Company
revenues.  Regarding the professional fees paid to physicians who treat patients
on  the  Lithotripsy  Systems,  the  Managing  Board  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 Storz  Modulith(R)  SLX-T. The
Modulith(R)  SLX-T received FDA premarket  approval on March 27, 1997.  Although
the Managing Board and its Affiliates have limited  positive  direct  experience
with  the use of the  Modulith(R)  SLX-T,  "downtime"  periods  necessitated  by
maintenance and repairs of the Lithotripsy Systems will adversely affect Company
revenues. Preliminary reports from abroad and "word of mouth" anecdotal evidence
indicate that the  Modulith(R)  SLX-T is as effective as most of the  "portable"
lithotripters  in the market.  The Managing  Board 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  Managing  Agent  experienced
electrical and mechanical problems using another precursor, the Modulith(R) SLX.
However,  the Managing Agent's and its Affiliates'  limited  experience with the
transportable  Modulith(R) SLX-T has shown acceptable  retreatment rates. A high
retreatment  rate may adversely  affect the Company.  Investors should note that
some studies  indicate that lithotripsy may cause high blood pressure and tissue
damage.  The Company  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  Company  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.

                  Company Limited  Resources and Risks of Leverage.  The Company
used the Loan  proceeds to acquire the  Existing  Lithotripsy  System and to pay
state sales taxes on such  equipment.  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 are not sufficient to fund
all anticipated expenses,  and the Company will have to supplement Company funds
with the proceeds of debt  financing.  See  "Business  Activities -  Anticipated
Partnership  Expenditures"  and "Sources and Application of Funds." The terms of
the  Loan may  restrict  the  Company's  ability  to  obtain  another  financing
commitment,   and  although   members  of  the  Managing   Board  maintain  good
relationships with certain commercial lending institutions,  the Company has not
obtained a loan  commitment  from any party in any amount and  whether one would
timely be  forthcoming  on terms  acceptable  to the Company  cannot be assured.
While the Managing Board  anticipates  that cash generated from  operations will
continue to enable the Company to repay the remainder of the  obligations  under
the Loan in accordance with its terms, lower than anticipated revenues,  greater
than  anticipated  expenses,  or unexpected  interruptions  in operations  could
result in the Company failing to make payments of principal or interest when due
under the Loan, and the Company's  equity being reduced or  eliminated.  In such
event, the Members could lose their entire  investment and be called upon to pay
their  Guaranties.  See "Risk  Factors - Operating  Risks - Liability  Under the
Guaranty." In addition,  while the Managing  Board does not  anticipate  that it
would cause the Company to incur indebtedness unless cash generated from Company
operations  were at the  time  expected  to  enable  repayment  of such  loan in
accordance with its terms, as discussed above,  lower than anticipated  revenues
and/or greater than anticipated  expenses could result in the Company's  failure
to make  payments of  principal  or interest  when due under such a loan and the
Company's  equity being reduced or eliminated.  In such event, the Members could
also lose their entire investment.

                  Acquisition  of  Additional  Assets.  If  in  the  future  the
Managing  Board  determines  that it is in the best  interest  of the Company to
acquire (i) one or more additional fixed base or mobile  Lithotripsy  Systems or
(ii) any  other  urological  device  or  equipment  so long as such  device  has
received  FDA  premarket  approval at the time it is  acquired  by the  Company,
and/or  (iii) an interest in any  business  entity that  engages in a urological
business  described  above,  the Managing  Board has the  authority to establish
reserves or subject to certain  restrictions  in the Loan, to borrow  additional
funds on behalf of the Company to  accomplish  such  goals,  and may use Company
assets and revenues to secure and repay such borrowings. The Managing Board must
obtain the prior written approval of the Members representing  two-thirds of the
aggregate interests in the Company to take certain actions.  See "Summary of the
Operating  Agreement - Power of the Managing Board and Members'  Voting Rights."
The acquisition of additional  assets may  substantially  increase the Company's
monthly  obligations  and may result in increased  personnel  requirements.  See
"Risk  Factors  -  Operating  Risks -  Company  Limited  Resources  and Risks of
Leverage."  Other than the New  Lithotripsy  System which the Company intends to
purchase  with the proceeds of this  Offering and Company  debt  financing,  the
Managing Board does not anticipate  acquiring  additional  Company assets unless
projected  Company  Cash Flow or proceeds  from  another  Dilution  Offering are
sufficient to finance such  acquisitions.  See "Risk Factors - Other  Investment
Risks -  Dilution  of  Members'  Interests."  In any event,  no Member  would be
personally liable on any additional Company  indebtedness  without such Member's
prior written  consent.  There is no assurance that financing would be available
to the Company to acquire  additional  assets or to fund any additional  working
capital  requirements.  In any event, the Company's  ability to incur additional
indebtedness  while the Loan is  outstanding  is severely  restricted.  Any such
borrowing  by the  Company  will  serve to  increase  the  risks to the  Company
associated with leverage as provided above.

                  Liability  Under the  Guaranty.  For each Unit  purchased,  an
Investor will be required to execute and deliver to the Bank a Guaranty pursuant
to which the Investor will  personally  guarantee  0.5% of the  Company's  total
obligations  under the Loan, which is equivalent to a $2,750 principal  guaranty
per Unit. Although as of the date of this Memorandum,  the outstanding principal
balance of the Loan is  $433,000,  the terms of the Loan  provide that it can be
renewed for its initial full amount (i.e., $550,000),  and therefore,  Investors
should view their potential liability under their Guaranties as if the full Loan
amount is  outstanding.  Liability under the Guaranty may exceed $2,750 per Unit
because the guaranty  obligation  per Unit also includes 0.5% of all accrued and
unpaid interest, late payment penalties, and legal costs incurred by the Bank in
collecting any defaulted payments.  An Investor should not purchase a Unit if he
does not have resources  sufficient to bear the loss of this entire amount.  See
"Terms of the Offering - Guaranty  Arrangements - Liability  Under the Guaranty"
and "Terms of the Offering - Suitability Standards."

                  If Company operations continue to generate sufficient revenues
to enable the  Company to make all  payments  under the Loan when due, no Member
will be required to perform  under his Guaranty.  If a default  occurs under the
Loan, the Bank may, among other remedies, seek payment directly from the Members
under the  Guaranties.  The  Guaranties  are a guaranty  of  payment  and not of
collection  and require the Members to waive certain  rights to which they might
otherwise  be entitled.  As a result,  the  liability  of the Members  under the
Guaranties is direct and immediate and not conditioned or contingent upon either
the pursuit of any remedies  against the Company or any other person  (including
any other guarantor) or foreclosure of any security  interest or liens available
to the Bank. The  Guaranties are a continuing  guaranty that by their terms will
survive the death,  bankruptcy or disability of a Member  guarantor.  A Member's
liability under the Guaranty continues  regardless of whether the Member remains
a Member in the Company and is not  affected or limited by any claims or offsets
the Member may have against the Company or the Managing  Board.  See the form of
Guaranty Agreement included in the Subscription Packet.

                  Competition.  Many  fixed-site  and mobile  lithotripters  are
currently  operating  in and  around  the  Service  Area  which  are  in  direct
competition  with  the  Company's  Lithotripsy  Systems.  An  Affiliate  of  the
Management  Agent also competes in the Service Area.  The competing  lithotripsy
service providers,  including the Management  Agent's Affiliate,  generally have
existing  contracts with hospitals and other facilities.  The Management Agent's
Affiliate competes with the Company in the Service Area by providing lithotripsy
services  at  Covington  Day Surgery  Center in Kent.  The  Management  Agent is
currently  negotiating an assignment of this services  agreement to the Company.
In the  event the  Management  Agent is unable  to  obtain  the  consent  of the
facility to the assignment,  its Affiliate will continue to provide  services to
the facility for the remaining term of the agreement in direct  competition with
the Company. Affiliates of the Management Agent also compete with the Company by
providing  lithotripsy  services near the Service Area. 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 Company's  knowledge,  no manufacturers are restricted from selling
their  lithotripters  to other  parties in the Service  Area.  Furthermore,  the
Company 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 Company  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 Company's services.

                  Restrictions  on Members.  The  Operating  Agreement  severely
restricts  the  Members'  ability to own  interests  in  competing  equipment or
ventures.  However,  the Managing Board may, in its sole  discretion,  waive the
restrictions  with  respect  to  interests  held by an  Investor  at the time he
becomes a Member.  See  "Summary of the  Operating  Agreement  -  Noncompetition
Agreement and Protection of Confidential  Information."  The  enforceability  of
these noncompetition agreements is generally a matter of state law. No assurance
can be given that one or more  Members  may not  successfully  compete  with the
Company. 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
Company to operate  legally  and be  profitable  may be  adversely  affected  by
changes   in   governmental   regulations,   including   expected   changes   in
reimbursement,  Medicare and Medicaid  certification  requirements,  federal and
state fraud and abuse laws,  including the federal  Anti-Kickback  Statute,  the
federal  False  Claims  Act,  federal  and  state   self-referral   laws,  state
restrictions   on  fee  splitting  and  other   governmental   regulation.   See
"Regulation".  These laws and  regulations  may  adversely  affect the  economic
viability of the Company.  The laws are broad in scope, and  interpretations  by
courts have been  limited.  Violations  of these laws would subject the Managing
Board  and  all  physician  Members  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 Member 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  Company  and its
physician  Members  would  likely  be found in  violation  of Stark  II. In such
instance, the Company and/or its physician Members may be required to refund any
amounts  collected  from  Medicare  and  Medicaid  patients in  violation of the
statute,  and they may be subject to civil monetary  penalties  and/or exclusion
from the Medicare and Medicaid programs.

                  The  Anti-Kickback  Statute  prohibits paying or receiving any
remuneration in exchange for making a referral for healthcare services which may
be  paid  for by  Medicare,  Medicaid  or  CHAMPUS.  The law  has  been  broadly
interpreted to include any payments which may induce or influence a physician to
refer  patients.  One of the federal  agencies that  enforces the  Anti-Kickback
Statute has issued several "safe  harbors"  which,  if complied  with,  mean the
payment or transaction will be deemed not to violate the law. This Offering does
not comply with any "safe  harbor."  There is limited  guidance  from  reviewing
courts  regarding the  application  of the broad  language of the  Anti-Kickback
Statute to joint  ventures  similar to the one  described in this  Offering.  In
order  to  prove  violations  of the  Anti-Kickback  law,  the  government  must
establish that one or more parties  offered,  solicited or paid  remuneration to
induce or reward referrals.  The government has said that in certain  situations
the mere  offering of an  opportunity  to invest in a venture  would  constitute
illegal  remuneration in violation of the  Anti-Kickback  Statute.  Although the
Managing  Board  believes  the  structure  and  purpose  of the  Company  are in
compliance  with the  Anti-Kickback  Statute,  no  assurance  can be given  that
government  officials  or a  reviewing  court  would  agree.  Violation  of  the
Anti-Kickback  Statute  could  subject the Company,  the Managing  Board and the
physician Members 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 has 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 Company. If this occurs, the Managing Board and the Members are
obligated  to use their  best  efforts  to devise a plan for  restructuring  the
Company's  operations  to comply with such laws. In the event such a plan cannot
be devised  within a  reasonable  time period,  the Managing  Board is obligated
either to cause the sale of the Membership Interests of all of the Members or to
dissolve  the  Company.  See  "Summary  of the  Operating  Agreement  - Optional
Purchase of Membership Interests."

                  Regarding  state  law,  Washington  passed  one of  the  first
self-referral  laws  affecting  physicians  in 1949.  Violation  of the law is a
criminal misdemeanor, and can subject the violator to a sentence of up to ninety
(90) days in jail, a fine of up to one thousand  dollars  ($1,000),  or both. In
addition,  violation  of the law  constitutes  unprofessional  conduct and could
jeopardize the professional  (i.e.,  medical)  license of a violator,  including
potential loss of the license.  The Company  requested local health care counsel
in Washington  ("Local  Counsel") to review the  self-referral law and provide a
written  opinion on its impact on this Offering and the business of the Company.
Prospective  Members  are  encouraged  to closely  review  the  opinion of Local
Counsel,  attached as Appendix D. Based on Local Counsel's opinion,  the Company
has determined to proceed with the Offering. However, Local Counsel's opinion is
not binding on any Washington  government  agency, and no assurance can be given
that the  Offering  would not be found to violate the  Washington  self-referral
law. Various  licensure  requirements must be met for the Company to operate the
Lithotripsy  Systems  in  Washington.  The  Company  has been  seeking  and will
continue to seek to comply with such licensure  requirements.  See "Regulation -
State Regulation."

                  Contract   Terms  and   Termination.   The  Company   provides
lithotripsy  services to 16 Contract  Hospitals pursuant to 11 separate Hospital
Contracts.  Generally,  the Hospital  Contracts  grant the Company the exclusive
right to provide lithotripsy  services at the particular Contract Hospital,  and
provide for automatic  renewal on a year-to-year  basis. The Hospital  Contracts
are  terminable  without  cause  upon 180 days or less prior  written  notice by
either  party prior to any  renewal  date.  The  Management  Agent is  currently
negotiating  services contracts with two additional treatment facilities and the
Company is presently  providing  services to such facilities on a month-to-month
basis. 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. The Managing Board believes the Company has
a good  relationship  with  the  Contract  Hospitals  and  does  not  anticipate
significant terminations.  There is no assurance,  however, that fees payable to
the Company by Contract Hospitals will not decline or that terminations will not
occur.  The resulting impact to the Company of such events would have a material
adverse effect on Company operations. In addition, competing vendors may attempt
to cause  certain  Contract  Hospitals  to  contract  with them  instead  of the
Company.  The loss of Contract  Hospitals to competition  will adversely  affect
Company revenues and such effect could be material.  Thus, there is no assurance
that  Company  operations  as  conducted  on the  date of this  Memorandum  will
continue  as  herein  described  or  contemplated,  and  the  cancellation  of a
significant number of service contracts or the Company's inability to secure new
ones  could have a  material  negative  impact on the  financial  condition  and
results of the Company. See "Business Activities - Hospital Contracts" and "Risk
Factors - Competition."

                  Loss on Dissolution and Termination.  Upon the dissolution and
termination of the Company,  the proceeds  realized from the  liquidation of its
assets,  if any, will be distributed to its Members only after  satisfaction  of
the claims of all creditors,  including,  but not limited to the Bank. See "Risk
Factors - Operating  Risks - Liability  Under the  Guaranty" and "Risk Factors -
Other Investment Risks - Liability Under Member Loan." Accordingly,  the ability
of a  Member  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  Operating  Agreement - Optional  Purchase  of  Membership
Interests."

Tax Risks

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

                  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  COMPANY.  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 OR HER PERSONAL TAX COUNSEL  CONCERNING THE
TAX  CONSEQUENCES  ASSOCIATED  WITH HIS OR HER  OWNERSHIP  OF AN INTEREST IN THE
COMPANY.  THE  CONCLUSIONS  REACHED IN COUNSEL'S  OPINION ARE  RENDERED  WITHOUT
ASSURANCE THAT SUCH  CONCLUSIONS HAVE BEEN OR WILL BE ACCEPTED BY THE SERVICE OR
THE COURTS.

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

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

                  Possible   Legislative   or  Other   Actions   Affecting   Tax
Consequences.   The  federal  income  tax  treatment  of  an  investment  in  an
equipment/service  oriented limited liability company such as the Company 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  liability
companies 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 Company,  each Investor  should consult with his
or her personal tax advisor with respect to possible  legislative,  judicial and
administrative developments.

                  Disqualification of Employee Benefit Plans.  Purchase of Units
in the Company may cause  certain  Members,  certain  hospitals  and  healthcare
treatment  centers,  the Company,  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 Members and related entities. Aggregation could also
require  the value of the  vested  retirement  benefit  of a highly  compensated
employee who is a participant  in a  disqualified  plan to be included in his or
her gross income,  regardless  of whether the employee is a Member.  These rules
may adversely affect Investors who are currently  involved in a medical practice
joint  venture,  regardless  of their  purchase  of Units  in the  Company.  The
Managing  Board and  Counsel  to the  Company  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 Company, 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
Company.

                  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.

                  Company Allocations.  The Operating Agreement contains certain
allocations of profits and losses that could be reallocated by the Service if it
were determined that the allocations did not have "substantial economic effect."
On December 31, 1985,  the Treasury  Regulations  dealing with the  propriety of
partnership (and, in effect,  any entities taxed as partnerships,  e.g., limited
liability companies) 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  Operating  Agreement  would be sustained  for federal  income tax purposes.
Investors are cautioned  that the foregoing  opinion is based in part upon final
Regulations  which have not been extensively  commented upon or construed by the
courts.

                  Income in Excess of  Distributions.  The  Operating  Agreement
provides  that in each year  annual  Distributions  may be made to the  Members.
Excluded from the definition of cash available for distribution is the amount of
funds necessary to discharge  Company debts  (including  scheduled  payments and
certain prepayments under the Loan) and to maintain certain cash reserves deemed
necessary by the Managing  Board.  In addition,  the Managing Board  anticipates
that the Company will incur significant capital costs for the acquisition of the
New Lithotripsy System to be funded with debt proceeds whose principal will have
to be paid out of Company  revenues.  If Company  cash flow  declines,  a Member
could be subject to income taxes payable out of personal  funds to the extent of
the  Company's  income,  if any,  attributed to him without  receiving  from the
Company  sufficient  Distributions  to pay the Member's tax with respect to such
income.

                  Effect of Classification as Corporation.  The Company will not
seek a ruling from the Service  concerning the tax status of the Company.  It is
the opinion of Counsel  that the Company  will be treated as a  partnership  for
federal income tax purposes and not as an  association  taxable as a corporation
unless the Company so elects.  The Company has not and will not make an election
to be classified as other than a  partnership  for federal  income tax purposes.
Although  the  Company  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 Company being treated as an association  taxable as a corporation,
with a resulting greater tax burden associated with the purchase of Units.

                  The Managing  Board,  in order to comply with  applicable  tax
law, will keep the Company'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 Managing Board expects that the
Company 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 Members 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  Company  against
other income of the Investor.

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

                  Depreciation.  As in the case of its existing  equipment,  the
Company will use the Modified  Accelerated  Cost  Recovery  System  ("MACRS") to
depreciate the cost of any equipment  (including the New Lithotripsy  System) or
improvements   hereafter   acquired.   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.

                  Company   Elections.   The  Code  permits  limited   liability
companies to make  elections  for the purpose of adjusting  the basis of Company
property on the  distribution  of property by a limited  liability  company to a
member and on the transfer of an interest in a limited liability company by sale
or exchange or on the death of a member. The general effect of such elections is
that  transferees of Membership  Interests will be treated,  for the purposes of
depreciation  and gain,  as though they had a direct  interest in the  Company's
assets,  and the difference  between their  adjusted bases for their  Membership
Interests and their allocable portion of the Company'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  Membership  Interests.  Any such  election,  once
made,  cannot be revoked without the consent of the Service.  Under the terms of
the Operating  Agreement,  the Managing Board,  in its discretion,  may make the
requisite election necessary to effect such adjustment in basis.

                  Sale of Company Units. Gain realized on the sale of Units by a
Member who is not a "dealer" in Units or in membership  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  Company  include  the  Member's  share of the
ordinary  income that the Company  would realize as a result of the recapture of
depreciation  (as described  above) if the Company had sold Company  depreciable
property immediately before the Member sold his Membership  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
Company 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
Company.  Under the Code, a Company  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
Company is entitled  to deduct in full when paid or  incurred;  (2)  amortizable
expenses -- expenditures which the Company 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 Company property
(or  Company  loans)  and  deducted  over a period of time as the  property  (or
Company  loan)  is  amortized  or  depreciated;  (4)  organization  expenses  --
expenditures related to the organization of the Company, 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 Company,  which under  Section 709 of the Code must
be  capitalized  but  may  be  neither  depreciated,  amortized,  nor  otherwise
deducted;   (6)  Company  distributions  --  payments  to  Members  representing
distributions of Company funds, which may be neither capitalized,  amortized nor
deducted;  (7) start-up expenses -- expenditures  incurred by the Company during
an initial  period,  which under Section 195 of the Code may be amortized over a
60-month period;  and (8) guaranteed  payments to Members -- payments to Members
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 the Company 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 Company must constitute  ordinary and
necessary  business expenses in order to be deducted by the Company 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 Company 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 Company.

                  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 Company is an entity 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 Company's  proposed tax treatment
of such items.

                  The Company believes the payments to certain Members and their
Affiliates  are customary and reasonable  payments for the services  rendered by
them to the Company;  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 Company'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
limited  liability  company taxed as a partnership  from deducting or amortizing
costs that are  incurred  to promote  the sale of  membership  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  Company  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  Company,  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 the  Offering.  These costs will be borne  irrespective  of
their  amount,  timing and ability of the Company to deduct  these costs for tax
purposes.

                  Management  Fee.  The  Company  pays  the  Management  Agent a
quarterly  management  fee equal to 7.5% of Company net profits.  The management
fee is paid to the Management Agent for the time and attention devoted by it for
supervising and coordinating the management and  administration of the Company's
day-to-day  operations  pursuant to the terms of the Management  Agreement.  The
Company  will  continue to deduct the  management  fee in full in the year paid.
Assuming  the  management  fee to be paid to the  Management  Agent is ordinary,
necessary and reasonable in relation to the services provided, Counsel is of the
opinion that the Company 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 Company  involve
numerous  existing and potential  conflicts of interest  between the Company and
certain Members and their  Affiliates.  See  "Compensation  and Reimbursement to
Certain  Members  and  their   Affiliates,"   "Competition"  and  "Conflicts  of
Interest."

                  No  Participation  in  Management.  The Managing Board and the
Management  Agent are vested with full  authority to supervise  the business and
affairs of the Company  pursuant to the Operating  Agreement and the  Management
Agreement.  Except as otherwise provided in the Operating  Agreement or the Act,
Members have no right to  participate in the  management,  control or conduct of
the  Company's  business and affairs.  The members of the  Managing  Board,  the
Management  Agent,  their  employees  and their  Affiliates  are not required to
devote their full time to the Company's  affairs and intend to continue devoting
substantial time and effort to organizing  other ventures  throughout the United
States that are similar to the Company.  The members of the  Managing  Board and
the Management Agent will continue to devote such time to the Company's business
and affairs as they deem necessary and appropriate in the exercise of reasonable
judgment.

                  Ability of the Managing Board to Effect  Fundamental  Changes.
The  Managing  Board,  with  the  prior  approval  of the  Members  representing
two-thirds of the aggregate  interests in the Company,  has the authority  under
the  Operating  Agreement  to  effect  transactions  that  could  result  in the
termination or reorganization of the Company, a total or partial dilution of the
Members'  interests in the Company,  and/or the exchange of interests in another
enterprise for the Membership Interests held by the Members.

See "Summary of the Operating Agreement - Fundamental Changes."

                  Members' Obligation to Return Certain Distributions. Except as
provided by other applicable law and provided that a Member does not participate
in the  management  or  control  of the  Company,  he will not be liable for the
liabilities  of the Company in excess of his  investment,  his  Guaranty and his
ratable share of undistributed  profits.  However, under Washington law a Member
will be liable to the Company for a period of three years for any  distributions
received from the Company if at the time of such  distributions  the Member knew
that,  after giving  effect to the  distributions,  (i) the Company would not be
able to pay its debts as they  became due in the usual  course of  business,  or
(ii) all  liabilities  of the Company,  other than  liabilities as to Members on
account of their interest in the Company and liabilities as to which recourse of
creditors is limited to specified Company property, exceed the fair value of the
Company's assets.  For purposes of calculating the assets and liabilities of the
Company,  the fair value of  property  in which the  recourse  of  creditors  is
limited to such  property  may be treated as a Company  asset to the extent that
the fair value exceeds outstanding liabilities on the property.

                  Dilution of Members' Interests. The Managing Board, subject to
certain  limitations  set forth in the  Operating  Agreement,  has the authority
under the  Operating  Agreement  to cause the  Company to issue,  offer and sell
additional membership interests in the future (a "Dilution Offering").  Upon the
sale  of  interests  in the  Company  in a  Dilution  Offering,  the  Percentage
Interests of the Members will be  proportionately  diluted.  See "Summary of the
Operating Agreement - Dilution Offerings."

                  Liability Under Member Loan.  Investors  personally  borrowing
funds to finance a portion of their Unit cash  purchase  price with the proceeds
of a Member Loan will be directly  obligated to the Bank as provided in the Loan
Documents.  A default under the Member Loan could result in the  foreclosure  of
the Investor's right to receive any Company Distributions as well as the loss of
other  personal  assets  unrelated  to  his  Membership  Interest.   Prospective
Investors  should  review  carefully  all the  provisions  contained in the Loan
Commitment and the terms of the Member Note and Loan and Security Agreement with
their counsel and financial advisors. Neither the Company nor the Managing Board
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 Member's  liability under a Member
Note continues regardless of whether the Member remains a member in the Company.
As a  consequence,  such  liability  cannot be avoided by  claims,  defenses  or
set-offs the Member may have against the  Company,  the Managing  Board or their
Affiliates.  In addition to the suitability  requirements  discussed  below, any
prospective  Investor  applying  for a Bank loan to fund a  portion  of his Unit
purchase must be approved by the Bank for purposes of his delivery of the Member
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 Managing Board anticipates that the
Company  will  continue to operate  the  Lithotripsy  Systems for an  indefinite
period of time and that the Company  will not  liquidate  prior to its  intended
termination.  Accordingly,  Investors  should  consider their  investment in the
Company as a long-term investment of indefinite duration.

                  Limited    Transferability    and    Liquidity    of    Units.
Transferability of Units is severely  restricted by the Operating  Agreement and
the Subscription  Agreement,  and the consent of the Managing Board is necessary
for any other  transfers.  No public  market  for the Units  exists  and none is
expected to develop. Moreover, the Units generally may not be transferred unless
the  Company  is  furnished  with an  opinion of  counsel,  satisfactory  to the
Managing  Board,  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 Company 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 Member may not be able to liquidate an  investment in
the  Company  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 Member may
cause adverse tax  consequences  to the selling  Member,  as well as potentially
effect a default under any outstanding Member Loan. Accordingly, the purchase of
Units must be considered a long-term and illiquid investment.

                  Offering  Price.  The  offering  price of the  Units  has been
determined by the Managing  Board in accordance  with the purchase price formula
adopted by the Members in accordance with the Operating Agreement.  The approved
purchase  price  formula  requires  that the price be based  upon a fair  market
valuation of the Company conducted by an independent third-party valuation firm.
The valuation is 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 Managing Board's Liability and  Indemnification.
The Operating  Agreement  provides that the Managing  Board and its members will
not be liable to the  Company  or to any  Member of the  Company  for  errors in
judgment or other acts or omissions in  connection  with the Company  except for
those involving willful misconduct or gross negligence.  Therefore,  the Members
may have a more  limited  right of action  against  the  Managing  Board and its
Members in the event of their  misfeasance or  malfeasance  than they would have
absent the  limitations in the Operating  Agreement.  The Company will indemnify
the  Managing  Board  and  its  members  against  losses  sustained  by  them in
connection  with the  Company,  unless  such  losses are a result of their 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.  The terms of the Loan require the Company to cover
the Existing  Lithotripsy  System by insurance  for losses due to fire and other
casualties under policies  customarily obtained for properties of this type. The
Managing Board  anticipates  that the terms of any additional debt financing for
the  purchase  of the New  Lithotripsy  System  will  include  similar  coverage
requirements.  Prime Medical Services, Inc. ("Prime"),  and the sole shareholder
of Sun Medical  Technologies,  Inc. ("Sun Medical") (the Management  Agent and a
Member of the Company) 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 Company,  and the Managing Board
believes that coverage limits of these policies are within  acceptable norms for
the extent and nature of the risks covered.  The Company 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 Company  operations,  or should  losses  exceed  insurance
coverage limits,  the Company could suffer a loss of the capital invested in the
Company and any anticipated profits from such investment.

                  Optional Purchase of Membership Interests.  As provided in the
Operating  Agreement,  the Company,  and then the individual  Members,  have the
option to purchase  all the  interest of Member who (i) dies,  (ii)  becomes the
subject of a domestic  proceeding,  (iii)  becomes  insolvent,  (iv)  acquires a
direct or indirect  ownership of an interest in a competing  venture  (including
the  lease  or  sublease  of  competing  technology),  or  (v)  defaults  on his
obligation under the Guaranty.  A Member whose  Membership  Interest is sold, as
provided above, or who ceases to be a Member of the Company for any reason, will
be further  restricted from having a direct or indirect ownership in a competing
venture  (including  the lease or sublease of competing  technology)  within the
Company's  Service Area for two years after the  disposition  of his  Membership
Interest.  Members,  except in certain  circumstances set forth in the Operating
Agreement,  are also absolutely prohibited from disclosing Company trade secrets
and  confidential  information.  The option  purchase  price for the  Membership
Interests  of a Member who  becomes  insolvent,  acquires  a direct or  indirect
ownership  interest in a competing  venture or defaults under his Guaranty is an
amount  equal to the  Member's  share of the  Company's  book value,  if any, as
reflected by the Investing  Member's capital account in the Company  (unadjusted
for any appreciation in Company assets and as reduced by depreciation deductions
claimed  by  the  Company  for  tax  purposes).   Because  losses,  depreciation
deductions and Distributions  reduce capital accounts,  and because appreciation
in assets is not reflected in capital accounts, the capital account value option
purchase price may be nominal in amount.  In addition,  in the event existing or
newly  enacted laws or  regulations  or any other legal  developments  adversely
affect (or  potentially  adversely  affect) the  operation of the Company or the
business of the Company,  the Managing  Board and Members will in good faith use
their  best  efforts  to develop an  alternative  method of  operations  for the
Company.  In the event such an  alternative  plan cannot be  developed  within a
reasonable time period,  the Managing Board is obligated to either (i) cause the
sale of the  Membership  Interests  of all of the Members or (ii)  dissolve  the
Company.  The option purchase price for the Membership  Interest of a Member who
dies,  becomes  involved in a domestic  proceeding or is divested due to a legal
development  adversely or potentially adversely affecting the Company's business
will be an amount equal to a multiple of the  aggregate  distributions  recently
made with  respect to such  Membership  Interest.  See the  Operating  Agreement
attached hereto as Appendix A and "Summary of the Operating Agreement - Optional
Purchase of Membership Interests", "- Noncompetition Agreement and Protection of
Confidential  Information" and "Risk Factors - Operating Risks - Liability Under
the Guaranty."

                                   THE COMPANY

                  Washington  Urological  Services,  LLC, a  Washington  limited
liability company (the "Company") was organized and created under the Washington
Limited  Liability  Company Act (the  "Act") on August 31,  1998.  The  existing
Members of the Company (the "Initial Members")  currently hold an aggregate 100%
interest in the Company. In the event that all 40 Units offered hereby are sold,
the Initial  Members will hold an 80% interest in the Company and the  Investors
who purchase the Units offered hereby (the "New Members") will hold an aggregate
20% interest in the Company.  The  Percentage  Interests of the Initial  Members
(aggregate) will decrease by approximately  .5% for each Unit sold. In addition,
all Percentage  Interests are subject to further  reduction in the future by any
additional  dilution  offerings.  See "Risk Factors - Other  Investment  Risks -
Dilution of Members'  Interests." The principal  executive office of the Company
and the  Managing  Board is located at 15195  National  Avenue,  Suite 203,  Los
Gatos,  California  95032.  The telephone number of the Company and the Managing
Board is (800) 750-0786.

                              TERMS OF THE OFFERING

The Units and Subscription Price

                  The Company  hereby  offers an  aggregate of up to 40 Units of
limited liability company membership interest in the Company (the "Units"). Each
Unit  represents  an initial 0.5%  economic  interest in the Company.  See "Risk
Factors  - Other  Investment  Risks -  Dilution  of  Members'  Interests."  Each
Investor may purchase not less than one Unit. The Managing  Board 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 $4,237
in cash, plus a personal guaranty of 0.5% of the Company's obligations under the
Loan of $550,000 from the Bank (up to a $2,750 principal guaranty obligation per
Unit).  See "Terms of the Offering - Guaranty  Arrangements."  The cash purchase
price and Guaranty are due 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 the Investors,  the
Company has arranged for financing of a portion of the Unit cash purchase  price
with the Bank.  See "Terms of the Offering - Member  Loans." The proceeds of the
Offering  will first be used by the Company to pay Offering  costs and expenses,
and the  remaining  proceeds,  if any, will then be used to finance a portion of
the cost of purchasing a new Storz Modulith(R) SLX-T lithotripter  (estimated at
$405,000) and a new mobile van (estimated at $75,000), as well as pay applicable
state  sales or use  taxes  on the New  Lithotripsy  System.  See  "Sources  and
Applications of Funds." The proceeds of this Offering cannot be calculated until
the number of Units sold has been determined at the Closing.  In any event,  the
proceeds of the Offering will be insufficient to fund all of the costs described
above, and it is anticipated that the Company will also use the proceeds of debt
financing  to fund  such  costs.  There  is no  assurance,  however,  that  debt
financing  will be available  for such  purposes.  See "Risk Factors - Operating
Risks - Company Limited Resources and Risks of Leverage."

Acceptance of Subscriptions

                  To enable the Bank and the  Managing  Board to make credit and
investor decisions,  respectively,  each prospective  Investor must complete and
deliver  to the  Managing  Board 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  Company and the Bank (for the
purposes  of the  Guaranty),  will  become  a  Member  in the  Company,  and his
subscription  funds will be released  from escrow to the Company.  Acceptance by
the Managing  Board of a  subscription  of an Investor  that elects to finance a
portion of the Unit cash  purchase  price with the  proceeds of a Member Note is
conditioned upon the Bank's approval of such loan. If the financing  Investor is
otherwise acceptable to the Company,  after receipt of the Bank's approval,  the
Company  will  inform  the  Escrow  Agent that it has  accepted  the  Investor's
subscription and the Escrow Agent will release the Investor's cash  subscription
proceeds to the Company and the Loan  Documents  to the Bank,  and the Bank,  in
turn,  will pay the proceeds  from the Member Note to the Company.  The Investor
will become a Member in the Company at the time the Bank  releases  the proceeds
of his Member Note to the Company.  Subscriptions may be rejected in whole or in
part by the  Company  and need not be  accepted  in the order  received.  To the
extent the Company  rejects or reduces an  Investor's  subscription  as provided
above,  the Investor's  Unit cash purchase  price,  Guaranty,  and the principal
amount of his Member Note will be proportionately  refunded and reduced,  as the
case may be.  Notice of acceptance  of an  Investor's  subscription  to purchase
Units and his  Percentage  Interest in the Company  will be  furnished  promptly
after acceptance of the Investor's subscription.

Guaranty Arrangements

                  Each Investor will be required to execute a Guaranty as a part
of his  subscription.  Each  Member  will have  substantial  exposure  under his
Guaranty.  See "Risk  Factors - Liability  Under the  Guaranty."  The  following
summary of certain  provisions of the Guaranty does not constitute legal advice.
The form of the Guaranty is set forth in the  Subscription  Packet  accompanying
this  Memorandum and should be reviewed  carefully by prospective  Investors and
their counsel.

                  Liability  Under the Guaranty.  Each Investor will be required
to  execute  and  deliver  to the  Bank a  Guaranty  pursuant  to  which he will
personally  guarantee the payment by the Company of a portion of its obligations
to the Bank  under  the Loan.  For each  Unit  purchased,  an  Investor  will be
required to guarantee 0.5% of the Company's  total  obligations  under the Loan,
which is equivalent to up to a $2,750 principal obligation guaranty per Unit. As
of the date of this Memorandum, the outstanding principal balance of the Loan is
$433,000  however the terms of the Loan  provide for the  renewal  thereof,  and
therefore,   Investors  should  view  their  personal  obligations  under  their
Guaranties  to equal their pro rata share of the  original  Loan  amount  (i.e.,
$550,000).  Liability  under the Guaranty may exceed $2,750 per Unit because the
guaranty  obligation per Unit includes not only principal,  but also 0.5% of all
accrued and unpaid interest,  late payment penalties and legal costs incurred by
the Bank in collecting any defaulted payments.

                  The amount of the Members'  Guaranties will be proportionately
reduced  from time to time to the  extent of the  payments  made by the  Company
under the Loan. Interest-only was payable monthly during the first six months of
the Loan. The interest-only period expired on March 18, 2000 and the outstanding
Loan principal,  plus accrued interest,  is payable over 36 monthly installments
as provided below. The amount of each of the first 35 equal monthly installments
of  principal  and  interest  is equal to the  monthly  payment  resulting  from
amortization of the outstanding Loan principal over 36 months,  assuming a fixed
10% per annum  interest rate. A final payment of all  outstanding  principal and
accrued  interest will be payable in the 36th month.  The 10% interest  rate, as
provided above, is used only for purposes of calculating the amount of the equal
monthly installments over the 35 month period. Loan interest actually accrues at
the Bank's Prime Rate,  as the same may change from time to time.  Pursuant to a
formula set forth in the Loan  promissory  note,  prepayments  of Loan principal
must be made  annually  out of Company Cash Flow until the Loan is paid in full.
As of the date of this Memorandum, the Company has not made any prepayments. The
Managing Board believes that Loan principal  prepayments will reduce the term of
the Loan.  The monthly  installment  payments of principal  and interest for the
term of the Loan are equal to $13,972 per month.

                  If Company operations continue to generate sufficient revenues
to enable the Company to make all payments  under the Loan to the Bank when due,
such  payments  will be  sufficient to repay the Bank fully over the term of the
Loan, and no Member will be required to perform under his Guaranty.  However,  a
default by the  Company or the  Members  under the Loan or the  Guaranties  will
entitle the Bank to exercise one or more of the following remedies:  (i) declare
all principal  payments and accrued interest  immediately due and payable;  (ii)
foreclose  on its  security  interest in the  Company's  assets  (including  the
Lithotripsy  Systems and the Company's accounts  receivable);  and/or (iii) seek
payment  directly  from the  Members  under the  Guaranties.  Events of  default
include  the  following:  (i)  default  in the  payment  or  performance  of any
obligation,  covenant  or  liability  contained  or  referred  to  in  the  Loan
documents,   including  the  Guaranties,   unless  remedied  to  the  reasonable
satisfaction  of Bank  within  30 days;  (ii) any  warranty,  representation  or
statement made or furnished to the Bank by or on behalf of the Company or any of
its  guarantors  (including  the  Members)  proving  to have  been  false in any
material respect when made or furnished;  (iii) loss, theft, substantial damage,
destruction,  sale or encumbrance to or of any of the collateral,  or the making
of any levy,  seizure or  attachment  thereof or  thereon,  which is not removed
within 30 days; (iv)  dissolution,  termination of existence (or, in the case of
an individual guarantor, death), insolvency,  business failure, appointment of a
receiver of any part of the property of, assignment for the benefit of creditors
by, or the  commencement  of any  proceeding  under any bankruptcy or insolvency
laws  by or  against  the  Company  or any  guarantor  which  is  not  favorably
terminated  within 30 days; (v) the Company's  failure to maintain its existence
in good standing  unless remedied within 30 days of notice by the Bank; (vi) the
assertion  or  making  of any  seizure,  vesting  or  intervention  by or  under
authority of any  government by which the management of the Company is displaced
of their  authority  in the  conduct  of their  business  or their  business  is
curtailed;  (vii)  upon the entry of any  monetary  judgment  or the  assessment
and/or  filing of any tax lien against the Company or any  guarantor or upon the
issuance of any writ or garnishment or attachment against any property of, debts
due or rights of the  Company or such  guarantor  to  specifically  include  the
commencement  of any action or proceeding to seize monies of the Company or such
guarantor on deposit in any bank account with the Bank,  which is not removed or
terminated  within  30  days.  However,  any  default  by any one or more of the
Company's guarantors under the above provisions applicable thereto, will only be
an actionable default if one or more such defaulting  guarantors either alone or
in the aggregate  guarantees 25% or more of the Loan, and provided  further that
the Bank has not,  within  twelve months of the  occurrence of such  guarantor's
default,  received,  accepted and approved a substitute  guaranty or  guaranties
from a party or parties  acceptable to it in an amount  greater than or equal to
the amount of such  defaulting  guarantor's  guaranties,  or the Company has not
made a prepayment of the Loan  principal in an amount equal to the amount of the
defaulting  guarantor's  guaranty.  The Bank may also  accelerate the Loan if it
should deem itself,  or its  collateral,  insecure or the payment or performance
under the Loan  impaired  and may demand  additional  collateral  at any time it
deems the Loan to be insufficiently secured. As discussed below, under the terms
of the Guaranties, Members waive certain rights to which they might otherwise be
entitled,  and are required to pay their share of the Bank's attorneys' fees and
court costs if the Bank is  successful  in enforcing  the  Guaranties  through a
lawsuit.  Copies of the Company's Loan documentation with the Bank are available
upon request to the Managing Board.

                  The   Guaranties   are  a  guaranty  of  payment  and  not  of
collection.  As a result,  the liability of the Members under the  Guaranties is
direct and immediate and not  conditional or contingent  upon either the pursuit
of any  remedies  against the Company or any other person  (including  any other
guarantor) or  foreclosure  of any security  interest or liens  available to the
Bank. The Bank may accept any payment,  plan for  adjustment of debts,  plan for
reorganization or liquidation,  or plan of composition or extension proposed by,
or on behalf of, the Company  without in any way  affecting or  discharging  the
liability  of the  Members.  Members  waive any right to require  that an action
first be brought  against the Company,  any other guarantor or any other person,
or to  require  that  resort be had to any  security  or to any  balance  of any
deposit  account  or credit on the books of Bank in favor of the  Company or any
other person.  The Guaranty is a continuing  guaranty that by its terms survives
the death,  bankruptcy,  dissolution  or  disability  of a Member  guarantor.  A
Member's liability under a Guaranty  continues  regardless of whether the Member
remains a member in the Company.

                  Under  the  terms of the  Guaranties,  the  Members  expressly
waive:  (i) notice of  acceptance of the guaranty and of extensions of credit to
the Company; (ii) presentment and demand for payment of the Company's promissory
note;  (iii)  protest  and notice of  dishonor  or of  default;  (iv) demand for
payment under the  Guaranty;  and (v) all other notice to which the Member might
otherwise be entitled.

                  The principal liability of an Investor under the Guaranty will
be up to $2,750 per Unit.  Each Investor should regard his exposure with respect
to his investment in the Company to be his cash  subscription  ($4,237 per Unit)
plus the amount for which he is  personally  liable  under his  Guaranty,  up to
$2,750 per Unit in principal,  plus accrued and unpaid interest, as well as late
payment penalties, legal fees and court costs. An Investor should not purchase a
Unit if he does not have  resources  sufficient  to bear the loss of this entire
amount.  The Guaranty  generally  provides that within thirty days following the
Bank's  determination  that the Company is in default  under the Loan,  the Bank
will send a notice to each Member (the  "Notice")  setting  forth the  Company's
total Loan obligations as of the date of the Notice  (inclusive of all interest,
late  payment  penalties  and  legal  costs  incurred  in  connection  with  the
enforcement of such obligation  accrued but unpaid through such date),  together
with a statement of the amount which the Member is  responsible  for paying (the
"Guaranty  Amount").  Failure by the Bank to send the Notice in a timely fashion
will not,  however,  release the Member  guarantor from any liability  under his
Guaranty.  The Notice will provide that unless the Bank receives  payment of the
Guaranty  Amount from the Member within five business days following the date of
the Notice, the Guaranty Amount will be increased by the Member's pro rata share
(based on the number of  guarantors  who did not pay the Guaranty  Amount within
five  days of the date of the  notice)  of any  additional  accrued  but  unpaid
interest,  late payment  penalties and legal costs through the date such payment
is made. Because each Guaranty runs directly from the Member to the Bank, claims
or defenses the Member may have  against the Company or the  Managing  Board may
not be used to avoid payment  under the  Guaranty.  See the form of the Guaranty
included in the  Subscription  Packet  accompanying  this  Memorandum.  See also
"Terms of the Offering - Suitability Standards."

                  Approval  of Bank.  In  addition  to meeting  the  suitability
requirements  discussed below under "Suitability  Standards," each Investor must
be approved by the Bank for purposes of their delivery of the Guaranty. The Bank
has  established  its  own  criteria  for  approving  the  credit-worthiness  of
Investors,  either individually or as a group, and has not established objective
minimum suitability standards. Instead, the Bank is empowered under the terms of
the Loan to accept or reject any Investor. See "Risk Factors - Operating Risks -
Liability Under the Guaranty."

Member 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 Member Loan or other loan. Financing under the Member Loans was
arranged  by the  Company  with the  Bank as  provided  in the Loan  Commitment,
attached hereto as Appendix B. Prospective Investors should review carefully all
the provisions contained in the Loan Commitment and the terms of the Member Note
and Loan and  Security  Agreement  with their  counsel and  financial  advisors.
Neither  the Company  nor the  Managing  Board  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 cash  purchase
price of his Units as provided  herein,  he must deliver to the Sales Agent upon
submission  of his  Subscription  Packet an executed  Member Note payable to the
Bank and Note Addendum,  the form of which are attached as Exhibit A to the Loan
Commitment,  a Loan and  Security  Agreement,  the form of which is  attached as
Exhibit B to the Loan  Commitment,  a Security  Agreement,  the form of which is
attached as Exhibit C to the Loan Commitment and two UCC-1's, the forms of which
are attached to the Subscription Packet (collectively, the "Loan Documents"). In
no event may the maximum amount borrowed per Unit exceed $1,737. The Member Note
is repayable in twelve (12) predetermined installments in the respective amounts
set forth in the Loan  Commitment.  The installments are payable on each January
15th,  April 15th, June 15th and September 15th commencing on September 15, 2000
(assuming the Closing  occurs prior to May 31, 2000),  with a thirteenth  (13th)
and final  installment in an amount equal to the principal  balance then owed on
the Member Note and all accrued,  unpaid interest thereon due and payable on the
third anniversary of the first installment date.  Interest accrues at the Bank's
"Prime Rate," as the same may change from time to time. The Prime Rate refers to
that  rate  of  interest  established  by the  Bank  and  identified  as such in
literature published and circulated within the Bank's offices. Such term is used
as a means of identifying a rate of interest  index and not as a  representation
by the Bank that such rate is  necessarily  the lowest or most favorable rate of
interest offered to borrowers of the Bank generally. A prospective Investor will
have no  claim or right of  action  based on such  premise.  See the form of the
Member  Note  attached  as Exhibit A to the Loan  Commitment  which is  attached
hereto as Appendix B.

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

                  If the  prospective  Investor  is  approved by the Bank and is
acceptable to the Managing Board,  the Escrow Agent will, upon acceptance of the
Investor's subscription by the Managing Board, release the Loan Documents to the
Bank and the Bank will pay the  proceeds  of the Member  Note to the  Company to
fund a portion of the Investor's Unit purchase.  The  prospective  Investor will
have  substantial  exposure under the Member Note.  Regardless of the results of
the Company's operations,  a prospective Investor will remain liable to the Bank
under his Member Note according to its terms. The Bank can accelerate the entire
principal amount of the Member 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  Member  Note  insufficiently  secured.  A  Member's
liability  under a Member Note also  continues  regardless of whether the Member
remains a member in the  Company.  A Member's  liability  under a Member Note is
directly with the Bank. As a consequence,  such  liability  cannot be avoided by
claims,  defenses  or set-offs  the Member may have  against  the  Company,  the
Managing Board 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 Member 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 Member Loan."

Subscription Period; Closing

                  The  subscription  period will commence on the date hereof and
will terminate at 5:00 p.m., Eastern time, on June 6, 2000 (the "Closing Date"),
unless  sooner  terminated  by the  Managing  Board 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 Member 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  Company  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
Managing Board anticipates selling Units only to individual investors;  however,
the Managing Board reserves the right to sell Units to entities.

                  Because of the risks involved,  the Managing Board anticipates
selling the Units only to Investors  residing in  Washington  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  limited   liability  company
membership  interests.  The Managing  Board 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 Company'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 Company in connection with resales,
if any, of the Units.  Transferability  of Units is severely  restricted  by the
Operating  Agreement  and  the  Subscription  Agreement.  See  "Summary  of  the
Operating Agreement - Restrictions on Transfer of Membership Interests."

                  Investors  who wish to subscribe  for Units must  represent to
the Company 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 Managing Board).

How to Invest

                  Investors who meet the  qualifications  for  investment in the
Company  and  who  wish  to  subscribe  for  Units  may do so by  following  the
instructions  included in the Subscription  Packet accompanying this Memorandum.
All  information  provided  by  Investors  will  be  kept  confidential  and not
disclosed  except  to the  Company,  the  Managing  Board,  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 Company to disclose  publicly
information  concerning the Company. Units can be transferred only in accordance
with the  provisions of, and upon  satisfaction  of, the conditions set forth in
the Operating  Agreement.  Among other things, the Operating  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
Managing  Board  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 Managing Board, instructing
it to effect the  assignment.  Assignees of Units may also, in the discretion of
the  Managing  Board,  be required to pay all costs and  expenses of the Company
with respect to the assignment.

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

                              PLAN OF DISTRIBUTION

                  Subscriptions   for  Units  will  be   solicited   by  MedTech
Investments,  Inc., the Sales Agent,  which is an Affiliate of Sun Medical.  The
Sales Agent has entered into a Sales Agency  Agreement with the Company 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 Affiliates of Sun Medical during the pendency of
this Offering and in the future. The Sales Agent is a wholly owned subsidiary of
Prime.  Investors should note the material  relationship between the Sales Agent
and Sun Medical,  and are advised that the relationship creates conflicts in the
Sales  Agent's  performance  of its due  diligence  responsibilities  under  the
Federal securities laws.

                  As compensation for its services, the Sales Agent will receive
a commission equal to $75 for each Unit sold. No other  commissions will be paid
in connection  with this Offering.  Subject to the conditions as provided above,
the Sales Agent may be reimbursed by the Company for its out-of-pocket  expenses
associated  with the sale of the Units in an amount  not to exceed  $7,000.  The
Company has agreed to indemnify  the Sales Agent  against  certain  liabilities,
including liabilities under the Securities Act.

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

                  The  subscription  period will commence on the date hereof and
will terminate at 5:00 p.m., Eastern time, on June 6, 2000, (or earlier,  in the
discretion  of the Managing  Board),  unless  extended at the  discretion of the
Managing  Board for an additional  period not to exceed 180 days.  See "Terms of
the Offering - Subscription Period; Closing."

                  The  Company  seeks by this  Offering  to sell a maximum of 40
Units for a maximum of an aggregate of $169,480 in cash  ($166,480  net of Sales
Agent Commissions). The Company has set no minimum number of Units to be sold in
this Offering.  The  subscription  funds,  Guaranty 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 Company (and
approved by the Bank in the case of the  Guaranties  and  financed  purchases of
Units), the Company rejects the subscription or the Offering is terminated. Upon
the receipt and  acceptance of an Investor's  subscription  by the Company,  the
Investor will be admitted to the Company as a Member,  provided that  acceptance
of  subscriptions  by an  Investor  that elects to finance a portion of his Unit
cash purchase price is also conditioned on Bank approval. In connection with his
admission as a Member,  the Investor's  subscription funds will be released from
escrow to the  Company,  and his Guaranty and Loan  Documents,  if any,  will be
released  to the Bank which will pay the  proceeds  from any Member  Note to the
Company.  In the  event a  subscription  is  rejected,  all  subscription  funds
(without  interest),  the  Guaranty,  the  Loan  Documents,  if any,  and  other
subscription  documents held in escrow will be promptly returned to the rejected
Investor.  A  subscription  may be rejected in part  (subject to the minimum one
Unit  investment),  in which case a portion of the  subscription  funds (without
interest), the Guaranty and any Member Note will be returned to the Investor.

                               BUSINESS ACTIVITIES

General

                  The Company was formed to (i) acquire one or more  Lithotripsy
Systems and operate  them in the Service  Area,  (ii)  improve the  provision of
healthcare  in the  Company's  Service  Area by  taking  advantage  of both  the
technological  innovations  inherent in the Modulith(R)  SLX-T and the Company's
quality   assurance  and  outcome  analysis   programs,   and  (iii)  make  cash
distributions  to its Members from  revenues  generated by the  operation of the
Lithotripsy  Systems.  The Company owns and  operates  the Existing  Lithotripsy
System in the Service Area and has contracted with the 16 Contract  Hospitals 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,  endoscopic and
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 Company 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

                  Upon closing the Loan,  the Company used a portion of the Loan
proceeds   (approximately   $400,000)  to  acquire  a  new   Modulith(R)   SLX-T
lithotripter. The Modulith(R) SLX-T received FDA premarket approval on March 27,
1997. The Managing Board and its Affiliates have limited,  but positive,  direct
experience  with  the use of the  Modulith(R)  SLX-T  lithotripter.  Preliminary
reports from abroad and "word of mouth"  anecdotal  evidence  indicates that the
Modulith(R) SLX-T is as effective as most of the "portable" lithotripters in the
market.  See "Risk Factors - Operating  Risks - Reliability  and Efficacy of the
Storz Modulith(R) SLX-T."

                  The Modulith(R) SLX-T was especially adapted for the treatment
of urological stones. In addition to the efficient fragmentation of all types of
urinary tract stones,  the Modulith(R)  SLX-T is suitable for performing a range
of  urological  examinations  including  cystoscopy  and  ureterorenoscopy.  The
Modulith(R) SLX-T consists of a cylindrical pressure wave generator, an OEC 9800
C-arm x-ray system unit and a patient table.  The  Modulith(R)  SLX-T  generates
pressure  waves  electromagnetically  from the  cylindrical  energy  source  and
parabolic  reflector.  The pressure wave generator  operates without an acoustic
lens,  thus  avoiding  such  disadvantages  as energy  dissipation  and aperture
limitations.  The  pressure  at the  focal  point  can be varied by means of the
energy control in nine steps from 10 Mpa to 100 Mpa. The energy source is fitted
with an axial and lateral  air-bag.  When  expanded  during  fluoroscopy,  these
air-bags  ensure  optimal  X-ray image  quality  for  monitoring  purposes.  The
pressure wave coupling is dry (water  cushion is used).  The  shock-wave  may be
released at fixed frequencies of 1 Hz, 1.5 Hz or 2 Hz, or may be triggered using
the ECG and/or respiration.  The Modulith(R) SLX-T localizes stones using an OEC
9800 C-arm X-ray system. The X-ray system employs an image intensifier, cassette
film,  digital  spot imaging  capability  and two high  resolution  16" monitors
capable of  displaying  stored  digital  images.  The patient table can be moved
electronically in all three dimensions, and a floating function allows for quick
patient positioning.  The table is X-ray transparent and allows visualization of
the entire  urinary  tract.  The table  includes a patient cradle which provides
comfortable and secure support in the prone, supine and lateral positions.

                  The Company's existing Modulith(R) SLX-T came with an eighteen
month  limited  warranty  (commencing  in  March  1999)  during  which  time all
maintenance, repairs, shock tubes, glassware and capacitors are provided free of
charge. The Managing Board anticipates that upon the expiration of the warranty,
the Company will either pay for maintenance  service on the Modulith(R) SLX-T on
an as  needed  basis,  or enter  into an  annual  maintenance  agreement  with a
third-party service provider. The Managing Board estimates that expenditures for
maintenance of the Modulith(R) SLX-T will be approximately $40,000 per year.

                  The Company also used a portion of the Loan proceeds ($68,000)
to acquire from AK Associates,  L.L.C., an Affiliate of Sun Medical,  a Ford 400
Series  van  which  was  customized  to  include  a 14'  cargo  box to house the
lithotripter  while it is transported from site to site. The floor of the van is
loading dock height so the  lithotripter can be easily loaded on and off the van
at each  treatment  facility.  The van is also  upfitted with a lift gate with a
load capacity of 3,000 pounds for easy loading of the  lithotripter  from street
level.  The  van  has  been  modified  for  securing  the  lithotripter  and its
accessories  during transport and for heating the cargo box during the winter to
prevent  freezing of the  lithotripter  and its components.  The Company did not
purchase the manufacturer's  service contract for the van. Instead,  the Company
pays for  service on an as needed  basis.  The  Managing  Board  estimates  that
expenditures for maintenance and repair of the van will be approximately  $6,000
per year.

Acquisition of New Lithotripsy System

                  It is  anticipated  that during the current  calendar year the
Company  will  purchase  a new  Modulith(R)  SLX-T  lithotripter  (estimated  at
$405,000)  and a new  Ford  400  Series  van  (or an  equivalent  model  van) to
transport the  Modulith(R)  SLX-T from site to site  (estimated at $75,000) with
the proceeds of this Offering and the proceeds of debt  financing.  The Offering
proceeds 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. In the view of risks associated
with  leverage,  a desire to conserve  Partnership  resources and the absence of
commitments for new hospital contracts, it is not expected that the Company will
acquire the New Lithotripsy System unless at least a minimal number of Units are
sold in this Offering and sufficient  business  opportunities with new treatment
centers are anticipated by the Managing Board to be available. See "Risk Factors
-  Operating  Risks -  Company  Limited  Resources  and Risks of  Leverage"  and
"Sources and Applications of Funds." The portion of the proceeds of the Offering
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. The terms of the Loan may restrict the Company's ability to obtain another
financing  commitment,  and although members of the Managing Board maintain good
relationships with certain commercial lending institutions,  the Company has not
obtained a loan  commitment  from any party in any amount and  whether one would
timely be forthcoming on terms acceptable to the Company cannot be assured.

Acquisition of Additional Assets

                  If in the future the Managing Board  determines  that it is in
the best interest of the Company to acquire (i) one or more fixed base or mobile
Lithotripsy Systems,  (ii) any other urological device or equipment,  so long as
such  device  has FDA  premarket  approval  at the  time it is  acquired  by the
Company,  and/or  (iii) an interest  in any  business  entity that  engages in a
urological  business  described  above,  the Managing Board has the authority to
establish  reserves or, subject to certain  restrictions  in the Loan, to borrow
additional  funds on behalf of the Company to accomplish such goals, and may use
Company  assets and revenues to secure and repay such  borrowings.  The Managing
Board must obtain the prior approval of the Members  representing  two-thirds of
the aggregate interests in the Company to take certain actions.  See "Summary of
the  Operating  Agreement - Powers of the  Managing  Board and  Members'  Voting
Rights." The acquisition of such assets likely would result in higher  operating
costs  for the  Company.  The  Managing  Board  does  not  anticipate  acquiring
additional  Company assets unless projected Company Cash Flow or proceeds from a
Dilution Offering are sufficient to finance such  acquisitions.  No Member would
be personally  liable on any Company  indebtedness  without such Member's  prior
written  consent.  There is no  assurance  that  additional  financing  would be
available to the Company to acquire  additional assets or to fund any additional
working capital requirements. Any additional borrowing by the Company will serve
to increase the risks to the Company  associated  with  leverage,  as well as to
increase the risks that cash from  operations  will be  insufficient to fund the
obligations  secured by the Members'  Guaranties.  See "Risk Factors - Operating
Risks - Company  Limited  Resources  and Risks of Leverage"  and "Risk Factors -
Operating Risks - Liability Under the Guaranty."

Hospital Contracts

                  The Company has entered  into  Hospital  Contracts  to provide
lithotripsy  services at 16 treatment  centers in the Service Area. The Contract
Hospitals are:

                           Columbia Capital Medical Center
                           Jefferson General Hospital
                           Kennewick General Hospital
                           Providence General Medical Center
                           Providence St. Peter Hospital
                           Providence Yakima Hospital
                           St. Francis Community Hospital
                           St. Joseph Hospital & Health Center
                           St. Mary Medical Center
                           Sequim Clinic
                           Swedish Hospital Medical Center
                           The Everett Clinic
                           Walla Walla Clinic
                           Walla Walla General Hospital
                           Washington Cascade Surgery Center
                           Yakima Urology Surgery Center

                  Generally,  the  Hospital  Contracts  grant  the  Company  the
exclusive  right  to  deliver  lithotripsy  services  to the  relevant  Contract
Hospital.  The Swedish Hospital  contract also provides that,  without the prior
consent of such  Contract  Hospital,  the Company  may not  provide  lithotripsy
services to any other health care  facility  (with the  exception of  Providence
General Medical Center) within a five-mile radius of the Contract Hospital.  The
Hospital  Contracts require the Company to make a lithotripter  available at the
facilities  as agreed to by the Contract  Hospital and the Company.  The Company
generally  also  provides a technician  and certain  ancillary  services such as
scheduling  necessary  for the  lithotripsy  procedure.  The Contract  Hospitals
generally pay the Company a fee for each lithotripsy procedure performed at that
health care  facility.  The  contracts  expire by their  terms at various  times
through December 31, 2002 and generally  provide for automatic renewal on a year
to year basis. Most of these contracts may be terminated  without cause upon 180
days or less written  notice by either party prior to any renewal  date, or upon
customary  events of default.  The  Management  Agent is  currently  negotiating
written services  agreements with Evergreen  Hospital Medical Center and Olympic
Memorial  Hospital,  and the Company is  presently  providing  services to these
facilities  on a  month-to-month  basis.  No  assurance  can be  given  that the
Management  Agent will be successful in obtaining such  contracts.  The Managing
Board believes it has a good relationship  with many of 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  Company  is  attempting  to  negotiate  similar
agreements to the existing Hospital Contracts with additional  treatment centers
in the Service Area.

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

Operation of the Lithotripsy Systems

                  It is  anticipated  that the Company 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  Company  may also make
arrangements to make the Lithotripsy  Systems available to qualified  physicians
(including  but not limited to qualified  physician  Members)  desiring to treat
their own patients after they have received any necessary training. The Managing
Board and  Management  Agent will  endeavor  to the best of their  abilities  to
require that physicians using the Company's  Lithotripsy Systems comply with the
Company's  quality  assurance and outcome analysis programs in order to maintain
the highest quality of patient care. In addition, the Company 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  Members
disclose to their  patients in writing their  financial  interest in the Company
prior to treatment,  if it determines  that such  practices are advisable  under
applicable  law. See  "Regulation."  The treating  qualified  physician  will be
solely responsible for billing and collecting on his own behalf the professional
service component of the treatment procedure.  Owning an interest in the Company
is not a condition  to using the  Lithotripsy  Systems.  Thus,  local  qualified
physicians who are not Members will be given the same opportunity to treat their
patients using the Lithotripsy Systems as provided above.

Management

                  The Company  has  entered  into a  management  agreement  (the
"Management  Agreement")  with the Management Agent whereby the Management Agent
is obligated to supervise and coordinate the  management and  administration  of
the  operation of the  Lithotripsy  Systems on behalf of the Company in exchange
for a  quarterly  management  fee  equal to 7.5% of  Company  net  profits.  See
"Compensation  and  Reimbursement to Certain Members and their  Affiliates." For
the purposes of the Management  Agreement,  the term "net profits" refers to the
excess, if any, of the Company's revenues from operations (adjusted for revenues
from Capital Transactions) and funds released from reserves, over cash operating
expenses  (not funded by loans or reserves).  The  Management  Agent's  services
under the Management  Agreement include making available any necessary  training
of  physicians  in  the  proper  use of the  lithotripsy  equipment,  monitoring
technological  developments  in renal  lithotripsy  and  advising the Company of
these  developments,  arranging  continuing  education  programs  for  qualified
physicians who use the lithotripsy equipment and providing advertising, billing,
accounts collection,  equipment maintenance,  medical supply inventory and other
incidental  services  necessary for the efficient  operation of the  Lithotripsy
Systems.   The  Management   Agent  also  assists  the  Managing  Board  in  the
coordination  and  supervision  of the Company's  quality  assurance and outcome
analysis  programs.  Costs  incurred by the  Management  Agent in performing its
duties under the Management Agreement are the responsibility of the Company. The
Management  Agent's   engagement  under  the  Management   Agreement  is  as  an
independent  contractor,  and except as  otherwise  provided  in the  Management
Agreement,  neither the Company nor its Members  have any  authority  or control
over the  method or manner in which the  Management  Agent  performs  its duties
under the Management  Agreement.  The Management Agreement is in the second year
of its initial five-year term. Thereafter,  it will be automatically renewed for
three  additional  five-year  terms  unless  terminated  by the  Company  or the
Management Agent.

Employees

                  The Company employs two full-time  registered  technicians who
currently  operate the Existing  Lithotripsy  System and will also staff the New
Lithotripsy  System. All active full-time  employees of the Company are eligible
to participate in Prime's benefit plans.  Prime provides group medical,  dental,
long-term  disability,  accidental  death and  dismemberment  and life insurance
benefits.  The Company 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 COMPANY

                  Set forth on the following pages are the Company's  internally
prepared  accrual  based (i) Income  Statement  for the  ten-month  period ended
December 31, 1999,  (ii) Balance Sheet as of December 31, 1999,  (iii) Cash Flow
Statement for the ten-month  period ended December 31, 1999, and (iv) Statements
of Partner's Equity for the ten-month period ended December 31, 1999.

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

                       WASHINGTON UROLOGICAL SERVICES, LLC

                                INCOME STATEMENT

                                                     Ten Months Ended
                                                     December 31, 1999

       REVENUES                                         $1,364,867

       Operating Expenses

         Employee compensation and benefits                115,810
         Equipment maintenance and repairs                  27,398
         Depreciation and amortization                      75,470
         Management fees                                    76,492
         Overhead allocation                                70,906
         Other operating expenses                           58,215
                                                 -------     ------
                Total operating expenses                   424,291

       Operating Income                                    940,576

       Other income (expenses)
         Interest and other income, net                        796
         Interest expense                                  (29,122)
         Organization and syndication costs               (100,394)
                                                   --      ---------
                Total other income (expense)              (128,720)
                                                  ---      ---------

       Net Income                                          $811,856
                                                  ==        ========


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


<PAGE>


                       WASHINGTON UROLOGICAL SERVICES, LLC

                                  BALANCE SHEET

                                                       December 31, 1999
       ASSETS

       Cash                                              $76,307
       Accounts receivable, net                          211,733
       Other current assets                                6,487
                                                          -----
                Total current assets                     294,527

       Equipment                                         517,584
       Accumulated depreciation                          (75,470)
                                                         --------
                                                         442,114

       Other assets                                            0
                                                         ---------
                Total assets                            $736,641
                                               ===       ========

       LIABILITIES

       Accounts payable                                   $42,769
       Current portion of long-term debt                  135,472
       Accrued liabilities                                  9,014
       Distributions payable                                    0
                                                      ------------
                Total current liabilities                 187,255

       Long term debt                                     297,528

       PARTNERS'EQUITY

       Capital contributions                              147,610
       Syndication costs                                   (7,608)
       Distributions paid                                (700,000)
       Accumulated earnings                               811,856
                                                          -------
                Total partners' equity                    251,858
                                                          --------
                Total liabilities and partners' equity   $736,641
                                                          ========



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


<PAGE>


                       WASHINGTON UROLOGICAL SERVICES, LLC

                             STATEMENT OF CASH FLOWS

                                                           Ten Months Ended
                                                           December 31, 1999
       Cash flows from Operating Activities:
         Net income                                           $811,856
         Adjustments to reconcile net income to

       Change in operating assets and liabilities:

         Accounts receivable                                  (211,733)
         Other current assets                                   (6,487)
         Accounts payable                                       42,769
         Accrued expenses                                        9,014
                                                                 -----

       Net cash provided by operating activities               720,889
                                                                -------

       Cash flows from Investing Activities:

          Purchase of equipment, furniture and fixture         (517,584)
                                                               ---------
       Net cash (used in) investing activities                 (517,584)
                                                               ---------

       Cash flows from Financing Activities:
         Cash borrowed from banks                               433,000
         Funds used to pay bank debt                                  0
         Capital contributed by partners (net)                  140,002
         Distributions to partners                             (700,000)
                                                               ---------

       Net cash (used in) financing activities                 (126,998)
                                                               ---------

       Net increase (decrease) in cash during the period         76,307
                                                    ------       ------

       Cash, beginning of period

       Cash, end of period                                      $76,307
                                                     ===         =======



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


<PAGE>


                       WASHINGTON UROLOGICAL SERVICES, LLC

                          STATEMENT OF PARTNERS' EQUITY

                                                      Ten Months Ended
                                                      December 31, 1999

       Beginning partners' equity                                    $0

       Capital contributions                                   $147,610

       Syndication costs                                        ($7,608)

       Net income                                              $811,856

       Distributions to partners                               (700,000)
                                                     -         ---------

       Ending partners' equity                                 $251,858
                                                    =          ========




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

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


<PAGE>



                        SOURCES AND APPLICATIONS OF FUNDS

                  The  following  table  sets  forth  the funds  expected  to be
available to the Company  from this  Offering if all 40 Units are sold and other
sources and their anticipated and estimated uses.

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

                        Sources of Funds             Sale of 40 Units
----------------------------- --------------------------------------------------
----------------------------- --------------------- ----------------------------

Offering Proceeds(1)                            $169,480              (100%)
                                                --------              ------
----------------------------- --------------------- ----------------------------
----------------------------- --------------------- ----------------------------

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

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

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

Capital Reserve(3)                              $134,480              (  79%)
                                                ---------             -------
----------------------------- --------------------- ----------------------------

   TOTAL APPLICATIONS                           $169,480              (100%)
                                                ========              ======

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

Notes to Sources and Applications of Funds Table

(1)      Assumes 40 Units are purchased by qualified investors.

(2)      Includes   $3,000  in   commissions   payable   to  the  Sales   Agent,
         reimbursement of $7,000 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 in 2000 the Company will  purchase a new Storz
         Modulith(R) SLX-T  transportable  lithotripter at an estimated price of
         $405,000 and a new van to transport  the  lithotripter  at an estimated
         cost  of  $75,000.  See  "Business  Activities  -  Acquisition  of  New
         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 any
         event,  such proceeds  will not be  sufficient to fund all  anticipated
         expenses.  In the view of risks  associated with leverage,  a desire to
         conserve  Partnership  resources and the absence of commitments for new
         hospital  contracts,  it is not expected  that the Company will acquire
         the New  Lithotripsy  System unless at least a minimal  number of Units
         are sold in this Offering and sufficient  business  opportunities  with
         new  treatment  centers are  anticipated  by the  Managing  Board to be
         available.  See "Risk Factors - Company Limited  Resources and Risks of
         Leverage." The terms of the Loan may restrict the Company's  ability to
         obtain  another  financing  commitment,  and  although  members  of the
         Managing  Board  maintain good  relationships  with certain  commercial
         lending  institutions,  the Company has not obtained a loan  commitment
         from  any  party  in  any  amount  and  whether  one  would  timely  be
         forthcoming on terms acceptable to the Company cannot be assured.

                                 MANAGING BOARD

                  The  Company  is  managed  by  a  four-member  managing  board
consisting of two managers  designated  by Sun Medical and two managers  elected
annually  pursuant  to a vote of a Majority  in  Interest  of the other  Members
(excluding  Sun Medical and its  Affiliates).  The Managing Board is responsible
for all decisions  with respect to the management of the business and affairs of
the Company.  The  Managing  Board has full and  complete  authority,  power and
discretion  to manage and  control  the  business  of the  Company,  to make all
decisions  regarding  those  matters  and to  perform  any and all other acts or
activities  customary  or incident to the  management  of the Company  business,
except  only as to those acts and things as to which  approval by the Members is
expressly  required by the  Operating  Agreement.  See "Summary of the Operating
Agreement  - Powers of the  Managing  Board and  Members'  Voting  Rights."  The
Managing   Board,   pursuant  to  the   Management   Agreement,   has  delegated
responsibility  for the  day-to-day  management of the Company to the Management
Agent.  See  "Business  Activities  -  Management."  The current  members of the
Managing  Board are Stan  Johnson,  Jim Turner,  Dr.  John Keene and Dr.  Dennis
Gaskill.  Mr. Johnson also serves as the Chairman of the Managing Board, and has
such authority to act on behalf of the Company as approved by the Managing Board
and Members.  See the  Operating  Agreement  attached  hereto as Appendix A. The
principal  executive  office of the Company and the Managing Board is located at
15195 National Avenue, Suite 203, Los Gatos, California 95032.

                                MANAGEMENT AGENT

                  The   Management   Agent  of  the   Company  is  Sun   Medical
Technologies,  Inc. ("Sun Medical"), a California corporation formed on June 20,
1990.  Prime acquired all the  outstanding  stock of Sun Medical on November 10,
1995 and Sun Medical remains a wholly-owned  subsidiary of Prime.  The principal
executive  office of Sun  Medical is located at 1301  Capital of Texas  Highway,
Suite C-300, Austin, Texas 78746 and its telephone number is (800) 750-0786. Sun
Medical's  assets are illiquid in nature.  The primary assets of Sun Medical are
used mobile lithotripters and equity interests in other medical ventures.

                  Management.  The  following  table  sets  forth  the names and
respective  positions  of the  individuals  serving as  executive  officers  and
directors  of Sun  Medical,  many of whom also serve as  executive  officers  of
Prime.

                              Name                                     Office

                     Stan Johnson                         President and Director
                     Ken Shifrin                          Director
                     Joseph Jenkins, M.D.                 Director
                     Cheryl Williams                      Vice President,
                                                          Chief Financial
                                                          Officer and Director
                     James D. Clark                       Secretary

     Supervision of the day-to-day  management and administration of the Company
is the  responsibility of Sun Medical in its capacity as the Management Agent of
the Company.  Sun Medical itself is managed by a four-member  Board of Directors
composed of Mr. Shifrin, Dr. Jenkins, Ms. Williams and Mr. Johnson.

     Set forth below are the names and descriptions of the background of the key
executive officers and directors of Sun Medical.

     Stan  Johnson  has been a Vice  President  of Prime  and  President  of Sun
Medical since November 1995. Mr. Johnson was the Chief Financial  Officer of Sun
Medical from 1990 to 1995.

                  Kenneth  S.  Shifrin  has been  Chairman  of the  Board  and a
Director of Prime since  October  1989 and was elected a Director of Sun Medical
following  Prime's  acquisition of all of Sun Medical'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.

     Joseph  Jenkins,  M.D. has been  President and Chief  Executive  Officer of
Prime since April 1996, and previously  practiced  urology in Washington,  North
Carolina.  Dr. Jenkins was recently elected to Sun Medical's Board of Directors.
Dr.  Jenkins  is  a  board  certified   urologist  and  is  a  founding  member,
past-president and currently a Director of the American Lithotripsy Society.

     Cheryl  Williams is Vice  President-Finance,  Chief  Financial  Officer and
Director   of  Sun  Medical  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.

     James D. Clark recently  became  Secretary of Sun Medical after  previously
serving as its Assistant Treasurer. 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

                      CERTAIN MEMBERS AND THEIR AFFILIATES

                  The  following   summary   describes  the  types  and,   where
determinable,  the estimated amounts of  reimbursements,  compensation and other
benefits  certain  Members and their  Affiliates will receive in connection with
the  continued  operation  and  management  of the Company  and the  Lithotripsy
Systems. See "Business Activities - Management" and "Plan of Distribution."

                  1. Management Fee. Pursuant to the Management  Agreement,  the
Management Agent has contracted with the Company to supervise the management and
administration  of  the  day-to-day  operations  of  the  Company's  lithotripsy
business  for a quarterly  fee equal to 7.5% of Company net profits per calendar
quarter.  All costs  incurred by the  Management  Agent in performing its duties
under the Management  Agreement are the responsibility of, and are paid directly
or  reimbursed  by, the Company.  The  management  fee for any given  quarter is
payable  on or  before  the 30th day of the  month  immediately  following  such
quarter. The Management Agreement is in the second year of its initial five-year
term. The Management  Agreement  will be  automatically  renewed for up to three
additional  successive  five-year  terms unless it is earlier  terminated by the
Company or the  Management  Agent.  The  Management  Agent is  reimbursed by the
Company for all of its out-of-pocket  costs associated with the operation of the
Company and the  Lithotripsy  Systems.  The Company will pay or reimburse to the
members of the Managing Board all of their expenses related to this Offering. No
other fees or compensation will be payable to the Managing Board, the Management
Agent or its  Affiliates  for managing the Company other than the management fee
payable to the  Management  Agent as provided in the Management  Agreement.  The
Company may, however, contract with the any Member or an Affiliate of any Member
to render other services or provide  materials to the Company  provided that the
compensation  is at the then  prevailing  rate for the type of  services  and/or
materials provided.

                  2. Company  Distributions.  In its capacity as a Member of the
Company,  the Management  Agent, Sun Medical,  is entitled to its  distributable
share (23.9% before  dilution) of Company Cash Flow,  Company Sales Proceeds and
Company  Refinancing  Proceeds  as  provided  by the  Operating  Agreement.  See
"Summary of the Operating Agreement - Profits, Losses and Distributions" and the
Operating Agreement attached as Appendix A.

                  3.  Sales   Commissions.   The  Sales  Agent,  a  wholly-owned
subsidiary  of Prime and an Affiliate  of Sun Medical,  has entered into a Sales
Agency  Agreement with the Company  pursuant to which the Sales Agent has agreed
to sell the Units on a "best efforts" any or all basis. As compensation  for its
services,  the Sales Agent will receive a commission  equal to $75 for each Unit
sold (up to an aggregate of $3,000).  If the Offering is  successful,  the Sales
Agent will also be  reimbursed  by the  Company for its  out-of-pocket  expenses
associated  with its sale of the Units in an amount  not to exceed  $7,000.  See
"Plan of Distribution" and "Conflicts of Interest."

     4. New Mobile Van. It is  anticipated  that as in the case of the  Existing
Lithotripsy System, the Company will also use a portion of the Offering proceeds
and/or  debt  financing  to acquire a new Ford 400 Series van (or an  equivalent
model van) from AK Associates, L.L.C., an Affiliate of Sun Medical, at a cost of
approximately $75,000. See "Business Activities - Acquisition of New Lithotripsy
System."

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

                              CONFLICTS OF INTEREST

                  The operation of the Company  involves  numerous  conflicts of
interest between the Company, certain Members and their Affiliates.  Because the
Company is operated by the  Managing  Board (and Sun Medical in its  capacity as
the  Management  Agent),  such conflicts are not always  resolved  through arm's
length  negotiations,  but through the  exercise of the judgment of the Managing
Board  consistent  with its  fiduciary  responsibility  to the  Members  and the
Company's investment  objectives and policies.  The Managing Board, Sun Medical,
their  Affiliates and their  employees will in good faith continue to attempt to
resolve potential conflicts of interest with the Company, and the Managing Board
and Sun  Medical  will each act in a manner  that each  believes to be in or not
opposed to the best interests of the Company.

                  Sun Medical,  in its capacity as the Management Agent, and its
Affiliate, the Sales Agent, will receive management fees and broker-dealer sales
commissions,  respectively,  in connection  with the business  operations of the
Company  and the sale of the Units that will be paid  regardless  of whether any
sums hereafter are distributed to Members. In addition, the Company may contract
with additional  Members or their Affiliates to render other services or provide
materials  to  the  Company  provided  that  the  compensation  is at  the  then
prevailing rate for the type of services and/or materials provided.  The Members
will also  receive  interest  on loans,  if any,  they make to the  Company.  In
addition,  it is anticipated  that the Company will purchase a new mobile van to
transport the new Modulith(R) SLX-T from AK Associates,  L.L.C., an Affiliate of
Sun Medical.  See  "Compensation  and Reimbursement to Certain Members and their
Affiliates" and "Business Activities - Acquisition of New Lithotripsy System."

                  The  members of the  Managing  Board,  and Sun  Medical in its
capacity as Management  Agent, will devote as much of their time to the business
of the  Company as in their  judgment is  reasonably  required.  Managing  Board
members and the  principals  of Sun Medical  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 Managing  Board believes it and Sun
Medical together,  have sufficient  resources to be capable of fully discharging
their  responsibilities to the Company.  Subject to the limitations set forth in
the Operating Agreement, Sun Medical 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 Company nor the holders of any of
the Units shall be entitled to any interest therein. See the Operating Agreement
attached hereto as Appendix A. Sun Medical,  its Affiliates  (including  limited
partnerships and other entities),  and their employees engage in medical service
activities for their own accounts. See "Prior Activities." Sun Medical serves as
a general partner or management agent of other medical ventures that are similar
to the Company and it does not intend to devote its entire financial,  personnel
and  other  resources  to the  Company.  Except  as  provided  by the  Operating
Agreement or 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 Company.  Members of the Managing Board,  Sun Medical,  and
their  Affiliates  are,  however,  obligated  to act in a fiduciary  manner with
respect to the management of the Company and any other medical  venture in which
they have  management  responsibility.  An  Affiliate  of Sun Medical  presently
provides   lithotripsy   services  in  the  Service   Area  under  one  separate
arrangement,  and Sun  Medical  and its  Affiliates  provide  services in states
adjacent to the State of Washington. See "Competition" and "Prior Activities."

     The Sales Agent is MedTech Investments,  Inc., which is an Affiliate of Sun
Medical.  Because of the Sales Agent's  affiliation with Sun Medical,  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  Members  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 Company were  retained by Sun Medical on behalf of the
Managing  Board and Company,  and have in the past performed and are expected in
the future to perform similar services for Sun Medical and its Affiliates.

                 FIDUCIARY RESPONSIBILITY OF THE MANAGING BOARD

                  The  members  of the  Managing  Board are  accountable  to the
Company as  fiduciaries  and  consequently  must exercise good faith in handling
Company affairs.  This is a rapidly  developing and changing area of the law and
Members who have  questions  concerning  the duties of the Managing Board should
consult with their counsel.  Under the Operating Agreement,  the Managing Board,
its members and its  representatives  have no liability to the Company or to any
Member for any loss  suffered  by the  Company  that arises out of any action or
inaction of such parties if they, in good faith,  determined that such course of
conduct  was in the best  interest of the Company and such course of conduct did
not  constitute  gross  negligence  or  willful   misconduct  of  such  parties.
Accordingly,  Members  have a more limited  right of action than they  otherwise
would absent the limitations set forth in the Operating Agreement.  The Managing
Board,  its Members and its  representatives  will be indemnified by the Company
against  any  losses,  judgments,  liabilities,  expenses  and  amounts  paid in
settlement  of any claims  sustained  by them in  connection  with the  Company,
provided  that the same  were not the  result  of gross  negligence  or  willful
misconduct  on  the  part  of  such  parties.  Insofar  as  indemnification  for
liabilities under the Securities Act may be permitted to persons controlling the
Company pursuant to the foregoing provisions, the Company 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 Company.

Affiliated Competition

                  An  Affiliate  of Sun  Medical  owns  and  operates  a  mobile
lithotripsy   service  in  the  Company's   Service  Area.   Executive   Medical
Enterprises, Inc. presently provides lithotripsy services using a mobile Dornier
HM-4  lithotripter  at Covington Day Surgery  Center in Kent. Sun Medical in its
capacity as the Management Agent is currently negotiating the assignment of this
services  contract to the Company.  No  assurance  can be given that Sun Medical
will be  successful  in its  efforts to assign such  contract.  In the event Sun
Medical is  unsuccessful  in its efforts,  EME will continue to compete with the
Company in the Service Area until the contract expires by its own terms.

                  Another Affiliate of Sun Medical  presently  provides and will
continue  to provide  mobile  lithotripsy  services  in  Washington  outside the
Service  Area  at  Kadlec  Medical  Center  in  Richland.  Sun  Medical  and its
Affiliates also provide lithotripsy services in Oregon and Idaho.

Other Competition

                  Various  hospitals  and other  facilities  in the Service Area
have  access  to  lithotripters  which  will be in direct  competition  with the
Company.  Virginia Mason Medical Center in Seattle operates a fixed-site Dornier
HM-3.  Tacoma General  Hospital  operates a fixed-site  Dornier DoLi.  There are
several mobile  lithotripsy  service  providers in the Service Area.  Stonehenge
Urological Services operates a mobile Medstone at Highline Community Hospital in
Seattle,  Auburn  Regional  Medical  Center in Auburn and  Overlake  Hospital in
Bellevue.  Cascade  Urological  Services  operates a Healthtronics  Lithotron at
various hospitals and ambulatory  surgery centers in the Service Area.  Medstone
also operates a mobile unit at various hospitals and ambulatory  surgery centers
in the Service Area.  WaveForm operates a mobile  Healthtronics  lithotripter at
various  hospitals  and  ambulatory  surgery  centers in the Service  Area.  The
foregoing information is to the best knowledge of the Company.  Other hospitals,
ambulatory  surgery centers and other healthcare  facilities may have fixed-base
or mobile  lithotripters of which the Company is not aware. These  lithotripters
would be in competition with the Company.

                  Although the Managing Board  anticipates that the Company 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  Contract  Hospitals and other
health care  centers.  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 Company  believes these
machines  have a competitive  disadvantage  because such machines are capable of
treating stones only in the ureter. The Company 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 Company  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 Company's services.

                  No  assurances  can be given  that new  competing  lithotripsy
clinics  will not open in the future or that  innovations  in  lithotripters  or
other treatments of kidney stone disease will not make the Company's Lithotripsy
Systems  competitively   obsolete.   See  "Risk  Factors  -  Operating  Risks  -
Technological Obsolescence".

                  The  manufacturer  of  the  Lithotripsy  System  is  under  no
obligation  to the  Managing  Board or the Company 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 Company can charge for its  services.  Many
potential  competitors of the Company,  including hospitals and medical centers,
have financial resources, staffs and facilities substantially greater than those
of the Company.

                                   REGULATION

Federal Regulation

                  The Company, the Managing Board and the Members 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 Company,  the Managing  Board and the Members being subject to
imprisonment,  loss of reimbursement,  fines or exclusion from  participation in
Medicare or Medicaid.  Adverse reviews of the Company's operations at any of the
various  regulatory levels may adversely affect the operations and profitability
of the Company.

                  Reimbursement. The Company charges hospitals a per-use fee for
use of its  Lithotripsy  Systems and does not directly  bill or collect from any
patients or third  party  payors for  lithotripsy  services  provided  using its
Lithotripsy  Systems.  The amount of this per-use fee  primarily  depends on the
amount  that  governmental  and  commercial  third  party  payors are willing to
reimburse hospitals for lithotripsy  procedures.  The primary governmental third
party payor is Medicare. Medicare reimbursement policies are statutorily created
and are  regulated by the federal  government.  The Balanced  Budget Act of 1997
required the Health Care Financing  Administration  ("HCFA"), the federal agency
that administers the Medicare program, to establish a prospective payment system
for outpatient  procedures.  One of the goals of the prospective  payment system
was to lower medical costs paid by the Medicare  program.  HCFA issued  proposed
regulations in 1998 which would reduce the reimbursement rate currently paid for
lithotripsy  procedures  performed  on Medicare  patients at hospitals to a base
rate of $2,235.  The base rate includes  anesthesia and sedation,  equipment and
supplies  necessary  for the  procedure,  but  does  not  include  the  treating
physician's professional fee. The base rate is subject to adjustment for various
hospital-specific  factors.  The Managing Board believes the lower reimbursement
rate will be  implemented  in the latter  half of the year 2000.  In some cases,
reimbursement rates payable to the Company are less than the proposed HCFA rate.

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

                  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 - 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  Company  for  the  use of  the  Lithotripsy  Systems.  The  Managing  Board
anticipates that reimbursement for lithotripsy procedures, and therefore overall
Company 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 program in Washington is 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
Washington  Medicaid program  currently  provides  reimbursement for lithotripsy
services.   The   federal   Personal   Responsibility   and   Work   Opportunity
Reconciliation  Act of 1996 requires state health plans,  such as the Washington
Medicaid  program,  to limit Medicaid  coverage for certain  otherwise  eligible
persons.  The Company and its  representatives  do not believe this  legislation
will have a significant impact on the Company'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 Company does not know whether the
Washington Medicaid program has taken or will take such steps.

                  Self-Referral  Restrictions.  Health care entities  which seek
reimbursement  for  services  covered by  Medicare  or  Medicaid  are subject to
federal regulation  restricting  referrals by certain physicians or their family
members.  Congress has passed legislation prohibiting physician self-referral of
patients  for  "designated   health  services",   which  include  inpatient  and
outpatient  hospital  services (42 U.S.C. ss. 1395nn) ("Stark II").  Lithotripsy
services were not specifically identified as a designated health service by this
legislation,  but the  prohibition  includes any service which is provided to an
individual  who is registered as an inpatient or outpatient of a hospital  under
proposed  regulations  discussed  below.  Lithotripsy  services  provided by the
Company 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 Management  Agent and its  Affiliates  determined  that the
statute  would not apply to the type of  lithotripsy  services  provided by them
which are similar to the services provided by the Company. 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 Company 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 Management  Agent and its
Affiliates 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  Company,  a
physician  investor  in the  Company 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 Company's  contracts for provision of
the  Lithotripsy  Systems.  Under the Proposed Stark II  Regulations,  physician
Member referrals of Medicare and Medicaid  patients to Contract  Hospitals would
be  prohibited  because the  Company is  regarded as an entity that  "furnishes"
inpatient and outpatient hospital services.  The Company and its representatives
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 Company's  operations would
not be in compliance with Stark II, as Members 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 Company 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 Company 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
Company  operations would mean that the Company and its physician  Members would
likely be found in violation of Stark II. In such  circumstance,  it is possible
the Company may be given the  opportunity to restructure its operations to bring
them into compliance. In the event the Managing Board and the Members are unable
to devise a plan  pursuant to which the Company may operate in  compliance  with
Stark II and its final  regulations,  the Managing Board is obligated  under the
Operating Agreement either (i) to cause the sale of the Membership  Interests of
all the Members or (ii) to dissolve and liquidate  the Company.  See "Summary of
the  Operating  Agreement - Optional  Purchase  of  Membership  Interests."  The
Company  and/or the physician  Members 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 Company and  physician  Members 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  Company's  analysis  of the
potential impact of Stark II on this Offering discussed above.

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

                  The  Members  are  to  receive  cash  Distributions  from  the
Company.  Since some of the  Members are  physicians  or others in a position to
refer and perform  lithotripsy  services using Company  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
Company.  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 Company do not comply with any Safe Harbor.

                  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 Managing  Board,  the  Hospital  Contracts  entered into by the
Company 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 Company cannot give any assurances that the
Company's Hospital Contracts which involve a "per use" payment to the Company by
Contract Hospitals would not be deemed to violate the Anti-Kickback Statute.

                  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 liability company 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 membership 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  Company;  the
Company 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  Members  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 Company can give no assurance  that  compliance  with some, but
not all, of the criteria of the Safe Harbor would prevent the OIG from finding a
potential violation of the Anti-Kickback Statute by virtue of this Offering.

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

                  Although a separate Safe Harbor was not adopted, HCFA noted in
its  commentary  when the Safe  Harbor  regulations  were  issued  in 1991  that
additional  protection  may be merited for  situations  where a physician sees a
patient in his or her own  office,  makes a referral to an entity in which he or
she has an ownership interest and performs the service for which the referral is
made. In such cases, Medicare makes a payment to the facility for the service it
furnishes,  which may result in a profit  distribution  to the  physician.  HCFA
noted that, with respect to the physician's professional fee, such a referral is
simply a referral to oneself, and that in such situations, both the professional
service fee and the profit  distribution  from the associated  facility fee that
are  generated  from the referral may warrant  protection.  HCFA stated that its
primary  concern  regarding  the  above  referral  situation  was the  investing
physician's ability to profit from any diagnostic testing that is generated from
the  services  he or she  performs.  The  Company  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
Company  has not  requested  the OIG to review  this  Offering  and, to the best
knowledge of the Company and its representatives,  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   Members.   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 Company 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  Members  for any  referrals  of  patients
(including the requirement that all distributions of earnings to Members be made
in proportion to their investment  interest),  the Company'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 Company's view of valid business reasons to engage in this transaction, form
the basis in part of the Company's belief that this Offering is appropriate.

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

                  If the  activities  of the Company were  determined to violate
these  provisions,  the  Company,  the Members of the Managing  Board,  and each
Member could be subject, individually, to substantial monetary liability, felony
prison sentences and/or exclusion from  participation in Medicare,  Medicaid and
CHAMPUS.  A prospective  Member 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 Company  cannot assure that the  government,  or a
reviewing  court,  would not take the  position  that billing  errors,  employee
misconduct  or  violations of other  federal  statutes,  should they occur,  are
violations of the federal False Claims Act or similar statutes.

                  Some federal  courts have recently taken the position that qui
tam lawsuits by private plaintiffs are  unconstitutional.  Most notably, a panel
of judges on the Fifth Circuit Court of Appeals took this position in a decision
issued in November  1999.  That decision is being  reviewed by all the judges on
the Fifth Circuit.  The panel's  decision was a minority view;  most courts have
concluded  that qui tam lawsuits are  constitutional.  In another case, the U.S.
Supreme Court may review this issue.  Unless and until the Supreme Court decides
the issue,  prospective  Members 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
Company and its representatives are not aware of any other bill currently before
Congress  which,  if  enacted  into law,  would  have an  adverse  effect on the
Company's  operations in a fashion similar to the Stark II and the Anti-Kickback
laws discussed  above.  In the event that  legislation is enacted which,  in the
opinion of the  Managing  Board,  would  adversely  affect the  operation of the
Company's business,  the Managing Board, after exploring alternative methods for
Company  operations,  is  obligated  either to cause the sale of the  Membership
Interests  of all the Members or to dissolve  the  Company.  See "Summary of the
Operating Agreement - Optional Purchase of Membership Interests."

                  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 Abuse 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 Company believes the Offering and its operations are appropriate  under such
laws,  however,  no assurance  can be given that the  activities  of the Company
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 Sun
Medical,  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  Company  cannot  assure  that  the  FTC  will  not
investigate  issues arising from  physician-owned  health care facilities in the
future  with  respect  to Sun  Medical,  any other  Member or their  Affiliates,
including the Company.

                  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 Company and its
representatives  believe  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 Company and the interests of the Members may
be adversely affected.

State Regulation

                  Washington's  certificate  of need  ("CON") law applies to new
hospitals,  new beds and a few other health care services.  The CON law does not
apply to the  acquisition  of a  lithotripter  or the  initiation of lithotripsy
services.  To the best knowledge of the Company and its  representatives,  since
the hospitals and other treatment  facilities  contracting with the Company will
not own the  Lithotripsy  System,  there is no  facility  licensure  requirement
applicable to the  Lithotripsy  System.  Washington  requires  registration  and
inspection of x-ray producing  medical  machines,  and requires  registration of
radiologic technologists.

                  Washington  enacted  one  of  the  first   self-referral  laws
affecting  physicians in 1949.  The statute  prohibits (1)  physicians and other
licensed  persons from (2) receiving any rebate,  refund,  commission,  unearned
discount  or profit  (3) in  connection  with the  referral  of  patients  or in
connection  with the  furnishing  of medical  diagnosis,  treatment or services.
Violation of the law is a criminal misdemeanor,  and can subject the violator to
a  sentence  of up to  ninety  (90) days in jail,  a fine of up to one  thousand
dollars  ($1,000),  or  both.  In  the  event  the  violator  is a  corporation,
Washington law holds that a person is criminally liable for conduct constituting
an offense  which he performs or causes to be performed in the name or on behalf
of a corporation to the same extent as if such conduct were performed in his own
name or behalf.  In addition,  violation of the law  constitutes  unprofessional
conduct and could  jeopardize  the  professional  (i.e.,  medical)  license of a
violator, including potential loss of the license.

                  The Company  requested  Local  Counsel in Washington to review
the  self-referral  law and  provide a  written  opinion  on its  impact on this
Offering and the business of the Company.  Prospective  Members  should  closely
review the  opinion of Local  Counsel  attached  as  Appendix  D. Based on Local
Counsel's  opinion,  the Company has  determined  to proceed with the  Offering.
However,  Local  Counsel's  opinion is not binding on any Washington  government
agency,  and no assurance  can be given that the Offering or the business of the
Company would not be found to violate the Washington self-referral law. As noted
above,  violations  can  result  in  a  criminal  penalty,  including  jail,  or
disciplinary   action  against  the  violator's   medical   license,   including
revocation.

                  Washington's   Medicaid  program  and  workers'   compensation
program  prohibit  kickbacks in exchange for  referrals.  Violation is a felony.
Prospective  Members are referred to the discussion  above regarding the federal
Anti-Kickback  Statute for an analysis  of the  reasons why the  Managing  Board
believes  this  Offering  and  the  business  of  the  Company  do  not  violate
anti-kickback  laws,  whether federal or state. The Washington  Medicaid statute
incorporates  the  self-referral  limitations  contained in the federal Stark II
law;  prospective  Members are referred to the  discussion  above  regarding the
federal  Stark II law for an  analysis  of its effect on this  Offering  and the
business of the Company. If the Company,  its Managing Board or its Members were
deemed to have violated the federal  Anti-Kickback  Statute or the federal Stark
II law, then it is possible the state of Washington  would  conclude a violation
of the similar state law occurred also.

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

                  THE COMPANY BELIEVES  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 MEMBERS 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

                  Sun Medical is the Management Agent of the Company. Prime, the
sole shareholder of Sun Medical,  is the largest and fastest growing provider of
lithotripsy  services in the United States,  providing  lithotripsy  services at
approximately  450  hospitals  and  surgery  centers  in 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,  Sun Medical 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.  The acquisition of Sun Medical  provided Prime with  complementary
geographic  coverage as well as  additional  expertise  in forming and  managing
lithotripsy operations. Prime and Sun Medical's lithotripters together performed
approximately  38,000  lithotripsy  procedures  in  1999.   Approximately  2,300
urologists utilized Prime and Sun Medical'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  primarily as the
general partner of a limited partnership or through a subsidiary, as is the case
with  entities  affiliated  with Sun  Medical.  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 Sun  Medical  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 Sun Medical and its  Affiliates in the  lithotripsy  field should
not be  considered as  indicative  of the  operating  results  obtainable by the
Company.

                       SUMMARY OF THE OPERATING AGREEMENT

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

Nature of Membership Interest

                  The Investors  will acquire their  interests in the Company in
the form of Units. For each Unit purchased, a cash payment of $4,237 is required
in addition to a personal  guaranty of 0.5% of the Company's  obligations  under
the Loan (up to a  $2,750  principal  guaranty  obligation).  The per Unit  cash
purchase  price and execution and delivery of the  Guaranties  are both due upon
subscription;  however, certain qualified Investors may finance a portion of the
cash purchase  price through either  individually  borrowed funds or through the
Member  Loans.  See "Terms of the Offering - Member  Loans." No Member will have
any liability for the debts and  obligations of the Company by reason of being a
Member except to the extent of (i) his Capital  Contribution and liability under
a Member  Loan,  if any,  (ii) his  liability  under  his  Guaranty,  (iii)  his
proportionate  share of the undistributed  profits of the Company,  and (iv) the
amount of certain Distributions received from the Company as provided by the Act
or other  applicable law. See "Risk Factors - Other  Investment Risks - Members'
Obligation to Return Certain  Distributions."  See also form of Legal Opinion of
Counsel, attached hereto as Appendix C.

Dilution Offerings

                  The Managing Board,  subject to certain  limitations set forth
in the Operating  Agreement,  has the authority to  periodically  offer and sell
additional  Membership  Interests  in the  Company (a  "Dilution  Offering")  to
persons  who are not  investors  in the  Company  ("Qualified  Investors").  The
primary purpose of Dilution  Offerings will be to raise  additional  capital for
any legitimate Company purpose.  Money raised in a Dilution Offering may also be
distributed to the Members.

                  Any sale of Membership  Interests in a Dilution  Offering will
result in  proportionate  dilution of the  Membership  Interests of the existing
Members;  i.e.,  the  interests  of the  Members  in Company  allocations,  cash
distributions and voting rights will be proportionately reduced as a result of a
successful  Dilution  Offering.  Existing Members will have no right to purchase
additional  Membership  Interests offered by the Company in a Dilution Offering.
Any additional  Membership Interests offered in a Dilution Offering will be sold
for a price  determined in accordance  with the purchase price formula set forth
in the  Operating  Agreement,  as such formula may be amended from time to time.
Pursuant to the terms of the Operating  Agreement,  the Members and the Managing
Board recently  amended the purchase price formula for Dilution  Offerings.  The
approved purchase price formula requires that the price of Membership  Interests
be based upon a fair market valuation of the Company conducted by an independent
third-party valuation firm.

Fundamental Changes

                  Under  the  terms of the  Operating  Agreement,  the  Managing
Board, with the consent of the Members representing  two-thirds of the aggregate
interests  of  the  Company,   may  cause  the  Company  to  engage  in  certain
transactions  in the  future,  any of which  transactions  could  result  in the
termination or  reorganization of the Company and a partial or total dilution of
all Investing Members' interests in the Company.  The Managing Board could adopt
a plan  providing  for the merger or  consolidation  of the Company with another
entity;  the sale of all or substantially all of the Company's assets to another
entity;  or  any  other  reorganization,  reclassification  or  exchange  of the
Membership  Interests,  including without  limitation the exchange of Membership
Interests  for  equity  interests  in  another  entity  or  for  cash  or  other
consideration.  In such event,  the Members  are  obligated  by the terms of the
Operating  Agreement to take or refrain  from  taking,  as the case may be, such
actions as the plan may provide, including,  without limitation,  executing such
instruments, and providing such information as the Managing Board may reasonably
request.  Any  such  plan may  also  result  in an  amendment  to the  Operating
Agreement or the  adoption of a new  operating  agreement  in being  liquidated.
Although,  the Managing Board will endeavor to keep the Members  apprised of all
relevant information regarding the above transactions, the Managing Board is not
obligated to provide such  information in any particular  manner  concerning the
risks and effect of the  proposed  transaction;  the  fairness  of the  proposed
transaction to the Company and the Members; the method of valuing the Company in
the  proposed  transaction  and the method of  allocating  value  among  various
participants  in the  proposed  transaction;  the  background,  reasons  for and
alternatives to the roll-up  transactions;  and any conflicts of interest of the
members of the Managing Board,  the Members  participating in the plan, or their
Affiliates in the proposed reorganization.

                  In  December  1993,   Congress  passed  legislation   amending
portions of the  Securities  Exchange Act of 1934 to afford new  protections  to
limited  partnership  investors  in the context of certain  limited  partnership
mergers and  reorganizations  commonly  known as partnership  rollups.  The law,
known as the "Limited Partnership Rollup Reform Act of 1993" (the "Reform Act"),
became   effective  on  December  17,  1994,   and  applies  to  certain  rollup
transactions  proposed after such date. The Reform Act and the Rules promulgated
thereunder are applicable only to certain types of partnership rollups and, when
applicable, provide Members with the following protections:

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

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

     (iii)  disallows  the  practice  of  compensating  persons  soliciting  the
Members' approval of the rollup based on the number of approvals received;

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

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

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

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

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

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

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

Profits, Losses and Distributions

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

                  1.       Allocations.

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

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

     All items of income,  gain,  loss,  deduction,  or credit will be allocated
among the Members proportionately.

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

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

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

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

     (iv) Sales Commission. The Sales Commission shall be allocated to the Units
which are acquired in this  Offering in  proportion  to the  respective  capital
contributions represented by such Units (i.e., $75 in Sales Commissions per each
such Unit).

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

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

     5.  Other   Allocations.   The  Operating   Agreement  provides  for  other
allocations.   Investors  are  encouraged  carefully  to  review  the  Operating
Agreement attached as Appendix A.

                  6.       Distributions.

                  The Operating Agreement authorizes the following Distributions
to be made to the Members:

                  Distribution  of Company Cash Flow.  Company Cash Flow will be
distributed  to the Members  within 60 days after the end of each Fiscal Year of
the Company,  or earlier in the discretion of the Managing  Board, in accordance
with their respective Membership Interests.

                  Distribution of Company Sales Proceeds and Company Refinancing
Proceeds.  Company  Sales  Proceeds  and Company  Refinancing  Proceeds  will be
distributed to the Members within 60 days of the Capital Transaction giving rise
to such  proceeds,  or earlier  in the  discretion  of the  Managing  Board,  in
accordance with their respective Membership Interests.

                  Distribution  Upon  Dissolution.   Upon  the  dissolution  and
termination of the Company,  the Managing  Board,  or if there is none,  another
representative  of the Company and Members,  will cause the  cancellation of the
Company's  Certificate  of Formation,  liquidate the assets of the Company,  and
apply and distribute the proceeds of such  liquidation in the following order of
priority:

     (i)  First,  to the  payment  of  debts  and  liabilities  of the  Company,
including without limitation debts and liabilities to Members,  and the expenses
of liquidation;

                  (ii) Second, to the creation of any reserves that the Managing
         Board  or  the  representative  of  the  Company  may  deem  reasonably
         necessary for the payment of any  contingent or unforeseen  liabilities
         or  obligations  of the Company or of the Managing Board arising out of
         or in connection with the business and operation of the Company; and

                  (iii) Third, the balance, if any, will be distributed pro rata
         to the Members in accordance with the Members' positive Capital Account
         balances  after such  Capital  Accounts are adjusted as provided in the
         Operating  Agreement  and any other  adjustments  required by the final
         Regulations  under  Section  704(b) of the Code.  It is  intended  that
         Capital  Accounts will allow for liquidation  distributions  consistent
         with the manner in which Company Sales Proceeds and Company Refinancing
         Proceeds are distributed;  however, there can be no assurance that such
         will be the case.

                  Tax  Withholding.  The Company is authorized to pay, on behalf
of any Member, any amounts to any federal,  state or local taxing authority,  as
may be necessary  for the Company to comply with tax  withholding  provisions of
the Code or the  income  tax or revenue  laws of any  taxing  authority.  To the
extent the  Company  pays any such  amounts  that it may be  required  to pay on
behalf of a Member,  such amounts will be treated as a cash Distribution to such
Member and will reduce the amount otherwise distributable to him, her or it.

Management of the Company

                  The  Managing  Board has the sole right to manage the business
of the Company and at all times is required to exercise its  responsibilities in
a fiduciary capacity. In certain instances, the requisite consent of the Members
is  required  for any sale or  refinancing  of the  Lithotripsy  Systems  or the
purchase of new equipment by the Company.  See "Powers of the Managing Board and
Members'  Voting Rights" in this Section.  The Company has  contracted  with Sun
Medical  as the  Management  Agent  to  manage  and  administer  the  day-to-day
operations of the Lithotripsy Systems. See "Business Activities - Management."

                  Under the  Operating  Agreement,  the members of the  Managing
Board may be removed  and  replaced  with or without  cause by their  respective
designating Members.

Powers of the Managing Board and Members' Voting Rights

                  1.       General.

                  The business and affairs of the Company shall be managed under
the direction of the Managing Board;  provided,  however, that without the prior
approval of the Members  representing  two-thirds of the aggregate  interests in
the  Company,  the  Managing  Board  shall  have no  authority  to do any of the
following:

     (a) Any act in  contravention  of the Operating  Agreement or the Company's
Certificate of Formation;

     (b) Any act  which  would  make it  impossible  to  carry  on the  ordinary
business of the Company,  other than a transfer of all or  substantially  all of
the assets of the Company;

     (c) Confess a material  judgment against the Company in connection with any
threatened or pending legal action;

                  (d)  Offer and sell  additional  membership  interests  in the
         Company  pursuant  to any  Dilution  Offering  in which the  Membership
         Interests of the  existing  Members are diluted by more than 15% in the
         aggregate;

                  (e) Institute and carry out any plan providing for the merger,
         consolidation  or sale of Membership  Interests or any other action set
         forth under "Fundamental Changes" in this Section;

     (f) Sell any Company  assets in a single  transaction  or series of related
transactions with an aggregate fair market value in excess of $50,000;

                  (g) Adopt the annual  Company  capital and  operating  budget,
         including the approval of the Company's Purchase Price Formula (as that
         term is defined in Section 10.7 of the Operating Agreement),  incurring
         any single capital expenditure in excess of $50,000 not contemplated in
         the  annual  budget,  or  incurring  any  long-term  debt or any single
         borrowing of the Company in excess of $50,000 not  contemplated  in the
         annual budget;

                  (h)      Amend the Operating Agreement;

                  (i)      Modify the purposes of the Company's business;

                  (j) Accept or reject the  Company's  right of first refusal to
         provide  the  Alternative  Services as such terms is defined in Section
         4.6 of the Operating  Agreement  (provided  that Sun and its Affiliates
         shall abstain from voting on such right of first refusal); or

                  (k)      Terminate the Management Agreement.

                  2.       Tax Matters.

                  (i)   Elections.   The  Managing   Board  will,  in  its  sole
         discretion,  make for the Company any and all  elections  for  federal,
         state  and  local  tax  purposes  including,  without  limitation,  any
         election,  if permitted by  applicable  law, to adjust the basis of the
         Company's property pursuant to Code Sections 754, 734(b) and 743(b), or
         comparable  provisions  of state  or  local  law,  in  connection  with
         transfers of interests in the Company and Company Distributions.

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

Rights and Liabilities of the Members

                  Except as otherwise  provided in "Powers of the Managing Board
and Members'  Voting Rights" in this Section,  the Members do not have any right
to  participate  in the  management  or control of the  business of the Company.
Members are not required to make any capital contributions to the Company except
amounts  agreed by them to be paid,  or pay or be  personally  liable  for,  any
expense,  liability or  obligation  of the Company,  except (i) to the extent of
their  respective  interests in the Company,  (ii) for the  obligation to return
certain  Distributions  made to them as  provided  by the Act,  and (iii) to the
extent of their liabilities pursuant to their respective  Guaranties.  See "Risk
Factors - Other  Investment  Risks -  Members'  Obligations  to  Return  Certain
Distributions" and "Operating Risks - Liability Under the Guaranty."

Restrictions on Transfer of Membership Interests

                  No  Membership  Interest  nor  any  Units  may be  transferred
without the prior written consent of the Managing  Board,  which approval may be
granted or denied in the sole discretion of the Managing  Board,  and subject to
the  satisfaction  of  certain  other  conditions  set  forth  in the  Operating
Agreement.  The Operating Agreement contains additional limitations on transfer,
including  provisions  prohibiting  transfer that would violate federal or state
securities laws. No transferee of the Units will automatically  become a Member.
Admission  of  a  transferee  requires  the  fulfillment  of  other  obligations
enumerated  in the  Operating  Agreement,  including  either the  approval  of a
Majority  in  Interest  of the  Members  (except  the  assignor  Member) and the
Managing  Board,  or the approval of the assignor Member and the Managing Board.
Any transferee of a Membership Interest who has not been admitted to the Company
as a Member shall not be entitled to any of the rights,  powers or privileges of
his,  her or its  transferor  except the right to  receive  and be  credited  or
debited  with his,  her or its  proportionate  share of Company  income,  gains,
profits, losses, deductions,  credits or distributions. A transferor Member will
not be released from his, her or its personal  liability under the Guaranty upon
the  transfer  of  his,  her  or  its  Membership  Interest,   unless  otherwise
specifically agreed by the Bank at the time of the transfer.

Dissolution and Liquidation

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

                  1.       The expiration of its term on December 31, 2020;

     2. The  determination  of the Managing  Board and the Members  representing
two-thirds of the aggregate  interests of the Company that the Company should be
dissolved;

     3. The approval of a plan by the Managing  Board and the Members  providing
for the merger,  consolidation or sale of the Membership  Interests as described
under "Fundamental Changes" in this Section;

     4. The election of the Managing  Board to dissolve the Company in the event
of certain  legislation,  case law or  regulatory  changes  adversely  affecting
Company operations;

     5. The sale,  exchange or other  disposition of all or substantially all of
the  property  of the  Company  without  making  provision  for the  replacement
thereof;

                  6. The Bankruptcy or dissolution of a Member or the occurrence
of any other event which  terminates  the  continued  membership  of any Member,
unless there is at least one remaining Member and the business of the Company is
continued  by the written  consent of a Majority  in  Interest of the  remaining
Members within ninety (90) days of the occurrence of such event; or

     7. Any other event  resulting  in the  dissolution  or  termination  of the
Company under the laws of the State of Washington.

                  The retirement,  resignation,  bankruptcy,  assignment for the
benefit of creditors,  dissolution,  death,  disability or legal incapacity of a
Member will not,  however,  result in a termination of the Company if a Majority
in Interest of the remaining Members,  if any, elect to continue the business of
the Company within 90 days of the occurrence of one of such events.

                  Upon  dissolution,  the Managing Board or, if there is none, a
representative  of  the  Members,   will  liquidate  the  Company's  assets  and
distribute the proceeds  thereof in accordance  with the priorities set forth in
the Operating Agreement. See "Profits,  Losses and Distributions - Distributions
-  Distribution  upon  Dissolution"  above and "Optional  Purchase of Membership
Interests" below.

Optional Purchase of Membership Interests

                  As provided in the Operating Agreement,  the Company, and then
the  Members,  have the option to purchase  all the interest of a Member who (i)
dies,  (ii)  becomes  the  subject  of  a  domestic  proceeding,  (iii)  becomes
insolvent,  (iv)  acquires a direct or  indirect  ownership  of an interest in a
competing venture (including the lease or sublease of competing technology),  or
(v) defaults on his, her or its  obligations  under the Guaranty.  Except in the
event a Member dies or becomes the subject of a domestic proceeding,  the option
purchase  price is an amount  equal to the Member's  share of the  Partnership's
book value, if any, as reflected by the Member's  capital account in the Company
(unadjusted   for  any   appreciation  in  Company  assets  and  as  reduced  by
depreciation  deductions  claimed by the Company for tax  purposes).  The option
purchase price as reflected by a Member's  capital account value is likely to be
considerably  less than the fair  market  value of a  Member's  interest  in the
Company.  Because  losses,  depreciation  deductions  and  Distributions  reduce
capital accounts, and because appreciation in assets is not reflected in capital
accounts, it is the opinion of the Company that the option purchase price may be
nominal in amount.  In addition,  in the event existing or newly enacted laws or
regulations or any other legal  developments  adversely  affect (or  potentially
adversely  affect) the  operation  of the Company or the business of the Company
(e.g.,  any  prohibitions  on provider  ownership),  the Managing  Board and the
Members  will in good  faith use their best  efforts  to develop an  alternative
method of operations for the Company.  In the event an  alternative  plan in the
best  interest of the  Company  cannot be  developed  within a  reasonable  time
period,  the  Managing  Board is  obligated  to either (i) cause the sale of the
Membership  Interests of all of the Members or (ii) dissolve the Company. In the
event of the death of a Member,  a Member  becomes  the  subject  of a  domestic
proceeding,  or a regulatory  event described in the preceding  sentence occurs,
the option purchase price for a Member's  Membership  Interest will be an amount
equal  to two  times  the  aggregate  distributions  made  with  respect  to the
Membership  Interest during the  twelve-month  period ending the last day of the
month  immediately  preceding  the month in which either the death  occurs,  the
domestic  proceeding  commences,  or the date the  Managing  Board  notifies the
Members of the  regulatory  event,  whichever  is  applicable.  In the event the
Company does not elect to exercise its purchase rights, and the Members exercise
their purchase option,  the purchasing Members will assume any liabilities under
any personal Guaranty still outstanding with respect to the withdrawing  Member.
The  withdrawing  Member will not be released  from his, her or its  obligations
under the Guaranty  unless so agreed by the Bank.  See the  Operating  Agreement
attached  hereto as Appendix A and "Risk  Factors - Operating  Risks - Liability
Under the Guaranty."

Noncompetition Agreement and Protection of Confidential Information

                  The  Operating  Agreement  provides  that,  subject to certain
limited  exceptions,  each Member 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 Members in
the Company,  each Member is precluded from engaging in any Outside  Activities.
In the  event  that a  Membership  Interest  in the  Company  is  terminated  or
transferred  upon the  occurrence of certain events as provided in the Operating
Agreement,  he, she or it is precluded,  for a period of two (2) years following
the date of his, her or its  withdrawal,  from engaging in any Outside  Activity
within the Service  Area.  This  prohibition  is in addition to the right of the
Company  (or the  Members) to acquire  the  interest  of a Member  engaged in an
Outside Activity as provided in the Operating Agreement.  See "Optional Purchase
of Membership  Interests" in this Section,  and the Operating Agreement attached
hereto as Appendix A.

                  In addition, the Operating Agreement provides that each Member
acknowledges  and  agrees  that his,  her or its  participation  in the  Company
necessarily involves his, her or its access to confidential  information that is
proprietary  in nature and,  therefore,  the exclusive  property of the Company.
Accordingly,  the  Members  are  precluded  from  disclosing  such  confidential
information  during their  participation as Members of the Company or thereafter
unless required by law or with the prior written consent of the Company.

Arbitration

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

Power of Attorney

                  Each  Investor,  by  executing  the  Subscription   Agreement,
irrevocably  appoints Stan Johnson or his successor in interest as determined by
the  Managing  Board,  severally,  to act as  attorney-in-fact  to  execute  the
Operating  Agreement,  any amendments  thereto and any  certificate of formation
filed by the Company. The Operating  Agreement,  in turn, contains provisions by
which each Member irrevocably appoints Stan Johnson or his successor in interest
as  determined  by the  Managing  Board,  severally,  to act as his,  her or its
attorney-in-fact to make,  execute,  swear to and file any document necessary to
the conduct of the  Company's  business,  such as deeds of conveyance of real or
personal property as well as any amendment to the Operating  Agreement or to the
Certificate of Formation which accurately reflects actions properly taken by the
Managing Board and/or the Members.

Reports to Members

                  Within 90 days after the end of each Year of the Company,  the
Managing Board will send to each person who was a Member 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,
her or its 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  Managing  Board  in which  will be  entered  fully  and  accurately  all
transactions and other matters relative to the Company's business as are usually
entered  into  records,  books and  accounts  maintained  by persons  engaged in
businesses of a like  character.  Pursuant to applicable  law, the Company books
and  records  will  be kept on the  accrual  method  basis  of  accounting.  The
Company's  fiscal year will be the calendar  year. The books and records will be
located at the Company's office,  and will be open to the reasonable  inspection
and examination of the Members or their duly authorized  representatives  during
normal business hours as provided by the Act.

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

                                    GLOSSARY

     Certain terms in this Memorandum shall have the following meanings:

     Act.  The Act means the  Washington  Limited  Liability  Company Act, as in
effect on the date hereof.

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

     Bank. First-Citizens Bank & Trust Company, or its successor-in-interest.

     Capital  Account.  The  Company  capital  account  of a Member as  computed
pursuant to the Operating Agreement.

                  Capital  Contributions.  All capital  contributions  made by a
Member or his predecessor in interest which shall include,  without  limitation,
contributions made pursuant Article V of the Operating Agreement.

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

     Closing Date.  5:00 p.m.,  Eastern Time, on June 6, 2000 (or earlier in the
discretion of the Managing Board). The Closing Date may be extended for a period
of up to 180 days in the discretion of the Managing Board.

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

     Company.   Washington  Urological  Services,   LLC,  a  Washington  limited
liability company, which owns and operates the Existing Lithotripsy System.

                  Company Cash Flow.  For the applicable  period the excess,  if
any, of (A) the sum of (i) all gross  receipts  from any source for such period,
other than the Company loans,  Capital  Transactions and Capital  Contributions,
and (ii) any funds released by the Company from previously established reserves,
over (B) the sum of (i) all cash  expenses  paid by the Company for such period,
(ii) the amount of all  payments of principal  on loans to such  Company,  (iii)
capital  expenditures of the Company,  and (iv) such reasonable  reserves as the
Managing Board 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 Company;  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 "Company Cash Flow" by the Managing Board.

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

                  Company  Refinancing  Proceeds.  The  cash  realized  from the
refinancing of Company 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 Managing Board 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 Company.

                  Company  Sales  Proceeds.  The cash  realized  from the  sale,
exchange,  casualty or other  disposition  of all or a portion of Company 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 Managing  Board 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 Company.

                  Contract  Hospitals.  The 16 hospitals and medical  centers to
which the Company provides  lithotripsy services pursuant to 11 separate written
Hospital Contracts.

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

                  Dilution  Offering.  Pursuant  to the  terms of the  Operating
Agreement,   the  future  offering  of  additional   limited  liability  company
membership  interests in the Company by the Managing  Board.  Any such  offering
generally will proportionally  reduce the existing  Percentage  Interests of the
then current Members in the Company:

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

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

     Existing Lithotripsy System. The van with the operational  Modulith(R)SLX-T
currently owned and operated by the Company.

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

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

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

                  Guaranty.  The Guaranty  Agreement in the form included in the
Subscription  Packet  accompanying  this  Memorandum  pursuant to which each new
Member will  guarantee his pro rata portion of the Company's  obligations to the
Bank under the Loan.

     Hospital  Contracts.  The 11 separate  lithotripsy  services agreements the
Company has entered into with the Contract Hospitals.

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

                  Lithotripsy  Systems.  The Existing Lithotripsy System and the
New  Lithotripsy  System  owned  and  operated  by the  Company,  and any  other
additional or replacement lithotripter and transport vehicle.

                  Loan. The loan of $550,000 from the Bank to the Company.  Loan
proceeds  were  used by the  Company  to (i)  acquire a new  lithotripter,  (ii)
acquire and upfit a new mobile van and (iii) pay sales taxes on the purchases of
the  lithotripter  and the van. The Loan is secured by the Existing  Lithotripsy
System,  the Company's  accounts  receivable  and other  Company  assets and the
Member Guaranties.

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

     Loan Documents. The Loan Commitment, the Member Note, the Loan and Security
Agreement, the Security Agreement and UCC-1's, collectively.

     Local   Counsel.   Reed  McClure,   a  Washington   professional   services
corporation.

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

                  Managing Board. The four person board of managers comprised of
two designees  appointed by Sun Medical and two designees elected by the non-Sun
Medical  affiliated  Members of the Company,  and which is  responsible  for the
management of the daily operations of the Company.

     Management  Agent.  Sun Medical in its capacity as the management  agent of
the Company.

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

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

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

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

                  Member Note. The promissory note from an Investor  financing a
portion of the Unit purchase price to the Bank in the principal  amount of up to
$1,737 per Unit, the proceeds of which will be paid directly to the Company. The
form of the Member  Note  (including  the Note  Addendum  attached  thereto)  is
attached as Exhibit A to the form of Loan Commitment which is attached hereto as
Appendix B.

                  Members.  The current Members and those Investors in the Units
admitted to the Company pursuant to this Offering,  and any person admitted as a
substitute Member in accordance with the provisions of the Operating Agreement.

     Membership Interest. The interest of a Partner in the Company as defined by
the Act and the Operating Agreement.

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

                  Modulith(R)  SLX-T.  The Storz  Modulith(R) SLX  Transportable
("SLX-T") model extracorporeal shock-wave lithotripter manufactured by Storz.

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

                  New  Lithotripsy  System.  The new  mobile  van  with  the new
operational  Modulith(R) SLX-T lithotripter to be acquired by the Company with a
portion of the Offering proceeds and available debt financing.

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

                  Nonrecourse  Liability.  Any  Company  liability  (or  portion
thereof)  for which no Member  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.
                  --------

     Operating Agreement.  The Company's Operating Agreement, a copy of which is
attached as Appendix A, as such may be amended from time to time.

                  Percentage  Interest.  The  interest  of  each  Member  in the
Company,  to be  determined  in the case of each  Investor by  reference  to the
percentage opposite his name set forth in Schedule A to the Operating Agreement.
Each Unit sold  pursuant to this  Offering  represents  an initial 0.5% economic
interest in the Company. The Percentage Interest will be set forth in Schedule A
to the Operating  Agreement or any other document or agreement,  as a percentage
or a fraction or on any  numerical  basis  deemed  appropriate  by the  Managing
Board.

     Prime.  Prime Medical Services,  Inc. a publicly held Delaware  corporation
and parent of Sun Medical 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 Members to which reference is made.

     Profit.  The net income of the Company for each year as  determined  by the
Company 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
Member.

     Sales Agent. MedTech Investments, Inc., a registered broker-dealer,  member
of the National Association of Securities Dealers,  Inc. and an Affiliate of Sun
Medical.

                  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 Member Note by an Investor who finances the purchase price
of his Units as provided herein.  The form of the Security Agreement is attached
as Exhibit C to the form of Loan Commitment which is attached hereto as Appendix
B.

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

                  Service  Area.   The   geographic   region  in  which  Company
operations are conducted and which  consists  primarily of the area of the State
of Washington  west of the Cascade  Mountains.  The Managing  Board reserves the
right to expand the Service Area.

               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
prospective Members 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.

     Sun Medical. Sun Medical Technologies, Inc., a California corporation and a
wholly-owned subsidiary of Prime. Sun
Medical serves as the Company's Management Agent and is a Member of the Company.

                  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 Member Note by an Investor who finances a portion of the
Unit purchase price through a Member Loan. The UCC-1 will be used by the Bank to
perfect its security interest in such Investor's share of Distributions.

                  Units.  The 40  equal  limited  liability  company  membership
interests in the Company  offered  pursuant to this  Memorandum  for a price per
Unit of $4,237 in cash,  plus 0.5% in guaranties  of the  Company's  obligations
under the Loan (up to a $2,750 principal Loan guaranty per Unit).