OPERATING AGREEMENT

                                       OF

                           KENTUCKY I LITHOTRIPSY, LLC


                     (A Kentucky Limited Liability Company)


                             Dated: January 26, 1999










THE LLC MEMBERSHIP  INTERESTS  REPRESENTED BY THIS OPERATING  AGREEMENT HAVE NOT
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED,  OR UNDER THE  SECURITIES  ACTS OR LAWS OF ANY STATE IN
RELIANCE UPON EXEMPTIONS UNDER THOSE ACTS OR LAWS. THE SALE OR OTHER DISPOSITION
OF THE MEMBERSHIP INTERESTS IS RESTRICTED AS STATED IN THIS OPERATING AGREEMENT,
AND IN ANY EVENT IS  PROHIBITED  UNLESS THE LLC  RECEIVES  AN OPINION OF COUNSEL
SATISFACTORY  TO IT AND ITS COUNSEL THAT SUCH SALE OR OTHER  DISPOSITION  CAN BE
MADE WITHOUT  REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES ACTS AND LAWS. BY ACQUIRING THE MEMBERSHIP  INTEREST
REPRESENTED BY THIS OPERATING AGREEMENT, EACH MEMBER REPRESENTS THAT IT WILL NOT
SELL OR OTHERWISE  DISPOSE OF ITS MEMBERSHIP  INTEREST  WITHOUT  REGISTRATION OR
OTHER  COMPLIANCE WITH THE AFORESAID ACTS AND THE RULES AND  REGULATIONS  ISSUED
THEREUNDER.
<PAGE>

                                TABLE OF CONTENTS
 

ARTICLE I - FORMATION OF THE COMPANY...........................................1
         1.1      Formation....................................................1
         1.2      Name.........................................................1
         1.3      Registered Office and Registered Agent.......................1
         1.4      Principal Place of Business..................................1
         1.5      Purposes and Powers..........................................1
         1.6      Term.........................................................2
         1.7      Nature of Members' Interests.................................2

ARTICLE II - DEFINITIONS.......................................................2
         2.1      Definitions..................................................2

ARTICLE III - MANAGEMENT OF THE COMPANY.......................................11
         3.1      The Manager.................................................11
         3.2      Specific Authority of the Manager...........................12
         3.3      Specific Authority of Manager...............................15
         3.4      Authority as to Third Persons...............................15
         3.5      Compensation and Expenses...................................15
         3.6      Indemnification and Exculpation of the Manager..............15
         3.7      Liability for Return of Capital Contribution................15

ARTICLE IV - EXECUTIVE COMMITTEE..............................................16
         4.1      General Powers.  ...........................................16
         4.2      Number, Term and Qualification..............................16
         4.3      Removal and Replacement.  ..................................16
         4.4      Compensation and Expenses.  ................................17
         4.5      Action by the Executive Committee.  ........................17
         4.6      Action Without Meeting.  ...................................17
         4.7      Meeting by Communications Device.  .........................17
         4.8      Indemnification of Executive Committee Members.  ...........17
         4.9      Liability for Return of Capital Contribution.  .............18

ARTICLE V - RIGHTS AND OBLIGATIONS OF MEMBERS.................................18
         5.1      Names and Addresses of Members..............................18
         5.2      No Management by Members....................................18
         5.3      Election of Manager.........................................18
         5.4      Action by Members...........................................18
         5.5      Operation of Mobile System..................................18
         5.6      Outside Activities..........................................19
         5.7      Disclosure of Con...........................................19
         5.8      Limited Liability...........................................20


                                                      -i-
<PAGE>


ARTICLE VI - CAPITAL CONTRIBUTIONS,
         GUARANTIES AND DILUTION OFFERINGS....................................20
         6.1      Manager Contribution........................................20
         6.2      Physician Members Contribution..............................20
         6.3      No Interest.................................................20
         6.4      Dilution Offerings..........................................20
         6.5      Conditions to the Capital Contributions 
                                       of the Physician Members...............21
         6.6      Capital Accounts............................................21

ARTICLE VII - REPRESENTATIONS, WARRANTIES AND
         COVENANTS OF THE MANAGER.............................................22
         7.1      Manager's Representations and Warranties....................22
         7.2      Manager's Covenants.........................................23

ARTICLE VIII - ALLOCATIONS, ELECTIONS AND REPORTS.............................23
         8.1      Profits and Losses..........................................23
         8.2      Sales Commission............................................23
         8.3      Nonrecourse Deductions......................................23
         8.4      Member Nonrecourse Deductions...............................24
         8.5      Allocations Between Transferor and Transferee...............24
         8.6      Gains from Capital Transactions.............................24
         8.7      Contributed Property........................................24
         8.8      Minimum Gain Chargeback.....................................25
         8.9      Member Minimum Gain Chargeback..............................25
         8.10     Qualified Income Offset.....................................25
         8.11     Gross Income Allocation.....................................26
         8.12     Section 754 Adjustment......................................26
         8.13     Curative Allocations........................................26
         8.14     Compliance with Treasury Regulations........................26
         8.15     Tax Withholding.............................................26

ARTICLE IX - DISTRIBUTIONS....................................................27
         9.1      Company Cash Flow...........................................27
         9.2      Company Refinancing Proceeds................................27
         9.3      Company Sales Proceeds......................................27
         9.4      Distributions in Liquidation................................27
         9.5      Limitation Upon Distributions...............................27

ARTICLE X - TRANSFER OF INTERESTS AND ADMISSION OF MEMBERS....................27
         10.1     Transferability of Membership Interests.....................27
         10.2     Restrictions on Transfers by Physician Members..............28
         10.3     Rights of Transferee........................................29
         10.4     Admission of Members........................................29
         10.5     Amendment of Articles of Organization
                              and Certificate of Qualification................30
         10.6     Fundamental Changes.........................................30

                                                      -ii-
<PAGE>


ARTICLE XI - OPTIONAL PURCHASE OF MEMBERSHIP INTERESTS
         ON CERTAIN EVENTS....................................................30
         11.1     Death.......................................................30
         11.2     Bankruptcy, Insolvency or Assignment for Benefit
                          of Creditors of a Physician Member..................31
         11.3     Breach of Section 5.6.......................................31
         11.4     Domestic Proceeding.........................................32
         11.5     Divestiture Option..........................................32
         11.6     Purchase Price..............................................33
         11.7     Closing of Purchase and Sale................................34
         11.8     Terms and Conditions of Purchase............................35

ARTICLE XII - DISSOLUTION AND LIQUIDATION OF THE COMPANY......................35
         12.1     Dissolution Events..........................................35
         12.2     Continuation................................................36
         12.3     Liquidation.................................................36
         12.4     Articles of Dissolution.....................................36

ARTICLE XIII - MISCELLANEOUS..................................................37
         13.1     Fiscal Year.................................................37
         13.2     Records.....................................................37
         13.3     Reports.....................................................37
         13.4     Reserves....................................................37
         13.5     Notices.....................................................37
         13.6     Amendments..................................................37
         13.7     Additional Documents........................................37
         13.8     Representations of Members..................................38
         13.9     Survival of Rights..........................................38
         13.10    Interpretation and Governing Law............................38
         13.11    Severability................................................38
         13.12    Agreement in Counterparts...................................38
         13.13    Tax Matters Partner.........................................38
         13.14    Third Parties...............................................38
         13.15    Power of Attorney...........................................39
         13.16    Arbitration.................................................39


Attachments:

Schedule I - Names,  Initial Capital  Contributions and Percentage  Interests of
the Members

                                                      -iii-
<PAGE>

                               OPERATING AGREEMENT

                                       OF

                           KENTUCKY I LITHOTRIPSY, LLC


THIS  OPERATING  AGREEMENT  of KENTUCKY I  LITHOTRIPSY  LLC (the  "Company"),  a
limited liability  company organized  pursuant to the Delaware Limited Liability
Company Act, is executed effective as of the ____ day of ______________,  199__,
by and among the Company and the persons executing this Agreement as the initial
Members (as defined below).

                      ARTICLE I - FORMATION OF THE COMPANY

1.1 Formation. The Company was formed on September 23, 1997 upon the filing with
the  Secretary  of State of the  Articles of  Organization  of the  Company.  In
consideration  of the mutual premises and covenants  contained  herein and other
good and valuable consideration,  the receipt and sufficiency of which is hereby
acknowledged,  the parties  hereto agree that the rights and  obligations of the
parties and the  administration and termination of the Company shall be governed
by this Agreement, the Articles of Organization and the Act.

1.2 Name.  The name of the  Company  is as set  forth on the cover  page of this
Agreement.  The Manager may change the name of the Company  from time to time as
it deems advisable,  provided that appropriate  amendments to this Agreement and
the  Articles of  Organization  and  necessary  filings  under the Act are first
obtained.

1.3 Registered  Office and Registered  Agent.  The Company's  registered  office
shall be at Kentucky Home Life Building,  Louisville,  Kentucky,  40202, and the
name of its initial  registered  agent at such address shall be The  Corporation
Trust Company.

1.4 Principal Place of Business.  The principal place of business of the Company
shall be located at 1301 Capital of Texas Highway,  Suite C-300,  Austin, Texas
78746, or at any other place or places as the Manager may from time to time deem
necessary or advisable.

1.5 Purposes and Powers.

(a) The purpose and  business  of the Company  shall  be:  (i) to operate one or
more extracorporeal shock-wave lithotripters (or any other renal stone treatment
equipment) for the lithotripsy of renal stones primarily in central Kentucky, or
in such other  location(s)  as the  Manager,  with the consent of the  Executive
Committee,  may  determine to be in the best  interests of the Company;  (ii) to
acquire and  operate in the future any other  therapeutic  urological  device or
equipment  provided that such device have FDA premarket  approval at the time it
is acquired by the Company; (iii) to acquire an interest in any business entity,
including, without limitation, a limited partnership,  limited liability company
or corporation,  that engages in any business activity described in this Section
1.5; and (iv) to
                                                      -1-
<PAGE>

engage in any and all activities  incidental or related to the  foregoing,  upon
and subject to the terms and conditions of this Agreement.

(b) The Company  shall have any and all powers which are  necessary or desirable
to carry out the purposes  and  business of the Company,  to the extent the same
may be legally  exercised  by limited  liability  companies  under the Act.  The
Company shall carry out the foregoing  activities  pursuant to the  arrangements
set forth in the Articles of Organization and this Agreement.

1.6  Term.  The  Company  shall  continue  in  existence  until the close of the
Company's   business  on  December  31,  2047  as  specified  in  the  Company's
Certificate  of  Formation,  unless the  Company is  earlier  dissolved  and its
affairs wound up in accordance with the provisions of this Agreement or the Act.

1.7 Nature of Members' Interests. The Membership Interests of the Members in the
Company shall be personal property for all purposes.  Legal title to all Company
assets  shall be held in the  name of the  Company.  Neither  any  Member  nor a
successor,  representative or assign of such Member, shall have any right, title
or interest in or to any Property owned by the Company or the right to partition
any Property  owned by the Company.  Membership  Interests  are evidenced by the
execution of this Agreement by the Members.


                            ARTICLE II - DEFINITIONS

2.1  Definitions.  The  following  terms used in this  Agreement  shall have the
following meanings (unless otherwise expressly provided herein):

2.1.1 "Act" means the Kentucky Limited Liability Company Act, as the same may be
amended from time to time.

2.1.2 "Adjusted Capital Account Deficit" means, with respect to any Member,  the
deficit  balance,  if any, in such Member's Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following adjustments:

(i) Credit to such Capital Account any amounts to which such Member is obligated
to restore or is deemed to be obligated to restore  pursuant to the  penultimate
sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and

(ii) Debit to such  Capital  Account  the items  described  in  Sections  1.704-
1(b)(2)(ii)(d)(4),  1.704-1(b)(2)(ii)(d)(5),  and 1.704-1(b)(2)(ii)(d)(6) of the
Treasury Regulations.

The foregoing  definition  of Adjusted  Capital  Account  Deficit is intended to
comply  with the  provisions  of Section  1.704-1(b)(2)(ii)(d)  of the  Treasury
Regulations and shall be interpreted consistently therewith.

                                                      -2-
<PAGE>


2.1.3 "Adjusted Capital  Contributions" means, as of any day, a Member's Capital
Contributions adjusted as follows:

(i) Increased by the amount of any Company liabilities which, in connection with
Distributions, are assumed by such Member or are secured by any Company Property
distributed to such Member; and

(ii)  Reduced  by the  amount  of cash  and the  value of any  Company  property
distributed  to such  Member and the amount of any  liabilities  of such  Member
assumed by the Company or which are secured by any property  contributed by such
Member to the Company.


In the event any Member  transfers  all or any portion of his or her  Membership
Interest in accordance  with the terms of this Agreement,  his transferee  shall
succeed to the Adjusted Capital  Contribution of the transferor to the extent it
relates to the transferred Membership Interest or portion thereof.

2.1.4  "Affiliate"  of a  specified  Person  means  (i) any  Person  directly or
indirectly controlling, controlled by or under common control with the specified
Person;  (ii) any Person owning or controlling  10% or more of the  outstanding
voting interest of such specified Person; (iii) any officer, director or partner
of such  specified  Person;  and  (iv) if  the  specified  Person is an officer,
director  or  partner,  any entity for which the  specified  Person acts in such
capacity.

2.1.5 "Agreement" means this Operating Agreement, as amended from time to time.

2.1.6 "Appraiser" means an independent appraiser,  investment banker,  financial
analyst  or other  valuation  expert  with at least 5 years  experience  valuing
closely held businesses.

2.1.7 "Bank" means First Citizens Bank & Trust Company.

2.1.8  "Articles  of  Organization"  means the Articles of  Organization  of the
Company filed with the  Secretary of State,  as amended or restated from time to
time.

2.1.9 "Bankruptcy" means with respect to a Member, when such Member (i) makes an
assignment  for the benefit of  creditors;  (ii) files a  voluntary  petition in
bankruptcy;  (iii) is adjudged a bankrupt or insolvent,  or has entered  against
him an order for relief, in any bankruptcy or insolvency proceeding;  (iv) files
a petition  or answer  seeking  for  himself  any  reorganization,  arrangement,
composition, readjustment,  liquidation, dissolution or similar relief under any
statute,  law or regulation;  (v) files an answer or other pleading admitting or
failing to contest the material  allegations  of a petition filed against him in
any proceeding of the type described in clauses  (i)-(iv)  above; or (vi) seeks,
consents  to  or  acquiesces  in  the  appointment  of a  trustee,  receiver  or
liquidator of the Member or of all or any  substantial  part of his  properties.
"Bankruptcy"  shall also be deemed to have  occurred  to a Member 120 days after
the commencement of any proceeding  against such Member seeking  reorganization,
arrangement,  composition,  readjustment,  liquidation,  dissolution  or similar
relief under any statute,  law or  regulation,  if the  proceeding  has not been
dismissed,  or if within 90 days after the  appointment  without  his consent or
acquiescence of a trustee, receiver or liquidator of the Member or of all or any
                                                      -3-
<PAGE>

substantial part of his properties, the appointment is not vacated or stayed, or
within 90 days after the  expiration of any such stay,  the  appointment  is not
vacated.
2.1.10 "Buy-Sell  Event" has the meaning assigned to it in Section 11.1. 

2.1.11 "Buy-Sell Notice" has the meaning assigned to it in Section 11.2.

2.1.12 "Capital Account" means, with respect to any Member,  the capital account
maintained for such Member in accordance with Section 6.12 of this Agreement.

2.1.13 "Capital  Contribution" means all contributions to the Company of cash or
property  (valued  for this  purpose  at  initial  gross  fair  market  value as
determined by the  contributing  Member and the Manager) made by a Member or his
or her predecessor in interest which shall include,  without  limitation,  those
contributions made pursuant to Article VI of this Agreement.

2.1.14 "Capital Transaction" means any transactions undertaken by the Company or
by any company or partnership in which the Company owns an interest, which, were
it to  generate  proceeds,  would  produce  Company  Sales  Proceeds  or Company
Refinancing Proceeds.

2.1.15  "Code" means the Internal  Revenue Code of 1986, as amended from time to
time (and any corresponding provisions of succeeding law).

2.1.16  "Company Cash Flow" for any period means the excess,  if any, of (A) the
sum of (i) all gross  receipts from any source for such period,  other than from
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  (including any
compensation to the Managers and their Affiliates); (ii) all amounts paid by the
Company in such period on account of the  amortization  of the  principal of any
debts  or  liabilities  of  the  Company  (including  loans  from  any  Member);
(iii) capital  expenditures of the Company;  and (iv) a  reasonable  reserve for
future  expenditures as provided by Section 13.4;  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
Managers.

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

2.1.18  "Company  Refinancing  Proceeds"  means (i) the cash  realized  from the
financing or refinancing of all or any portion of any Company  assets,  less the
retirement of any related secured loans, the payment of all expenses relating to
the  transaction  and the  establishment  of  such  reasonable  reserves  as the
Managers  shall  deem  prudent or  necessary  and (ii) the  Company's  allocable
portion of cash realized by an entity in which the Company owns an interest from
such entity financing or refinancing all or any portion of such entity's assets,
less the retirement of any related secured loans and the payment of all expenses
relating to such transaction.
                                                      -4-
<PAGE>

2.1.19  "Company  Sales  Proceeds"  means (i) the cash  realized  from the sale,
exchange,  condemnation,  casualty or other disposition of all or any portion of
any Company assets not in the ordinary  course of business,  less the retirement
of any  related  secured  loans,  the  payment of all  expenses  relating to the
transaction and the  establishment  of such reasonable  reserves as the Managers
shall deem prudent or necessary and (ii) the Company's allocable portion of cash
realized  by an entity  in which the  Company  owns an  interest  from the sale,
exchange,  condemnation,  casualty or other disposition of all or any portion of
such entity's assets not in the ordinary course of business, less the retirement
of any related  secured  loans and the payment of all expenses  relating to such
transaction.

2.1.20  "Depreciation"  means,  for each  Fiscal  Year,  an amount  equal to the
depreciation,  amortization,  or other cost recovery  deduction  allowable  with
respect to an asset for such Fiscal  Year,  except that if the Gross Asset Value
of an Asset differs from its adjusted  basis for federal  income tax purposes at
the beginning of such Fiscal Year,  Depreciation  shall be an amount which bears
the same ratio to such  beginning  Gross Asset  Value as the federal  income tax
depreciation,  amortization,  or other cost  recovery  deduction for such Fiscal
Year bears to such beginning adjusted tax basis; provided,  however, that if the
adjusted  basis for federal  income tax purposes of an asset at the beginning of
such Fiscal Year is zero,  Depreciation  shall be determined  with  reference to
such  beginning  Gross Asset Value using any reasonable  method  selected by the
Managers.

2.1.21  "Dilution  Offering" means, as provided in Article VI of this Agreement,
the future  offering of  additional  Membership  Interests in the Company by the
Manager.  Except as otherwise  provided in Article VI, any  successful  Dilution
Offering  will  proportionately  reduce  the  Percentage  Interests  of the then
current Members in the Company.

2.1.22  "Distribution" means any money or other property distributed to a Member
with  respect to the  Member's  Membership  Interest,  but shall not include any
payment to a Member for materials or services  rendered nor any reimbursement to
a Member for expenses permitted in accordance with this Agreement.

2.1.23 "Domestic Proceeding" means any divorce, annulment, separation or similar
domestic proceeding between a married couple.

2.1.24 "Encumbrance" means any lien, pledge, encumbrance,  collateral assignment
or hypothecation.

2.1.25 "Equipment" means the initial equipment to be acquired by the Company for
the operation of the Mobile Lithotripsy System. The initial equipment to be used
in the operation of the Mobile  Lithotripsy  System will include the Trailer,  a
tractor truck, the Dornier HM3 lithotripter and miscellaneous  medical equipment
and supplies.

2.1.26  "Executive  Committee"  means the  committee  made up of four  Physician
Members and a  representative  of the  Manager,  each  appointed by the Manager,
which has certain management authority as set forth in Article IV.

2.1.27 "FDA" means the United States Food and Drug Administration.
                                                      -5-
<PAGE>

2.1.28  "Fiscal Year" means an annual  accounting  period ending  December 31 of
each year during the term of the  Company,  unless  otherwise  specified  by the
Managers.

2.1.29 "Gains from Capital Transactions" means the gains realized by the Company
as a result of or upon any sale, exchange,  condemnation or other disposition of
capital  assets of the Company or any entity in which the  Company  shall own an
interest  (which  assets shall include Code Section 1231 assets and all real and
personal  property)  or as a result of or upon the damage to or  destruction  of
such capital assets.

2.1.30  "Gross  Asset  Value"  means,  with  respect to any asset,  the  asset's
adjusted basis for federal income tax purposes, except as follows:

(i) The initial  Gross Asset Value of any asset  contributed  by a Member to the
Company shall be the gross fair market value of such asset, as determined by the
contributing Member and the Managers,  provided that, if the contributing Member
is a Manager,  the determination of the fair market value of a contributed asset
shall be determined by appraisal;

(ii) The Gross  Asset  Values of all Company  assets  shall be adjusted to equal
their respective gross fair market values, as determined by the Managers,  as of
the  following  times:  (a) the  acquisition  of an  additional  interest in the
Company  (other than upon the initial  formation  of the  Company) by any new or
existing  Member in exchange  for more than a de minimis  Capital  Contribution;
(b) the distribution by the Company to a Member of more than a de minimis amount
of Company property as consideration for an interest in the Company; and (c) the
liquidation  of the Company within the meaning of Treasury  Regulations  Section
1.704-1(b)(2)(ii)(g);  provided,  however,  that  the  adjustments  pursuant  to
clauses  (a) and  (b)  above  shall  be made  only  if the  Managers  reasonably
determine  that such  adjustments  are necessary or  appropriate  to reflect the
relative economic interests of the Members in the Company;

(iii) The Gross Asset Value of any Company asset distributed to any Member shall
be adjusted  to equal the gross fair  market  value of such asset on the date of
distribution as determined by the  distributee and the Managers,  provided that,
if the distributee is a Manager,  the  determination of the fair market value of
the distributed asset shall be determined by appraisal; and

(iv) The Gross Asset Values of Company  assets shall be increased (or decreased)
to reflect any adjustments to the adjusted basis of such assets pursuant to Code
Section  734(b)  or Code  Section  743(b),  but  only to the  extent  that  such
adjustments are taken into account in determining  Capital Accounts  pursuant to
Treasury  Regulations Section  1.704-1(b)(2)(iv)(m)  and Sections 2.1.48(vi) and
7.11 hereof;  provided,  however,  that Gross Asset Values shall not be adjusted
pursuant to this Section 2.1.29(iv) to the extent the Managers determine that an
adjustment  pursuant to Section 2.1.29(ii) hereof is necessary or appropriate in
connection  with a  transaction  that would  otherwise  result in an  adjustment
pursuant to this Section 2.1.29(iv).
                                                      -6-
<PAGE>

If the Gross Asset Value of an asset has been determined or adjusted pursuant to
Section 2.1.29(i),  Section 2.1.29(ii), or Section 2.1.29(iv) hereof, such Gross
Asset Value shall thereafter be adjusted by the Depreciation  taken into account
with respect to such asset for purposes of computing Profits, Gains from Capital
Transactions or Losses.

     2.1.31  "Guaranty"  means the  Guaranty  Agreement  pursuant  to which each
Member will  guarantee a portion of the  Company's  obligation to the Bank under
the Loan. The form of Guaranty Agreement is included in the Subscription  Packet
accompanying the Memorandum.

     2.1.32 "Loan" means the loan of $550,000 from the Bank to the Company. Loan
proceeds  will  be  used  by the  Company  to (i)  acquire  a used  Dornier  HM3
lithotripter (up to $100,000),  (ii) acquire and upfit a mobile Trailer to house
the  lithotripter  (up to  $325,000),  (iii)  acquire a used  tractor  truck for
hauling the Trailer housing the lithotripter (up to $50,000),  and (iv) purchase
additional miscellaneous equipment (up to $30,000), (v) pay the applicable state
sales and use taxes on the  lithotripter  Trailer,  tractor truck and additional
miscellaneous  equipment  (estimated  to be $30,300),  and (vi) serve as working
capital (estimated at $14,700).

     2.1.33 "Losses from Capital  Transactions" means the losses realized by the
Company  as a  result  of or upon  any  sales  exchange,  condemnation  or other
disposition  of the capital  assets of the Company  (which  include Code Section
1231 assets) or as a result of or upon the damage or destruction of such capital
assets.

     2.1.34  "Management  Agent"  means  Lithotripters,  Inc.,  a  wholly  owned
subsidiary of Prime and an Affiliate of the Manager.

     2.1.35  "Management  Agreement"  means the agreement  pursuant to which the
Management Agent will provide the daily management services to the Company.

     2.1.36 "Majority in Interest"  means,  with respect to any referenced group
of Members, a combination of any of such Members who, in the aggregate, own more
than  fifty  percent  (50%)  of the  Percentage  Interests  owned by all of such
referenced group of Members.

     2.1.37 "Manager" means Prime Kidney Stone Treatment,  Inc. ("PKST"),  a New
Jersey Corporation,  the initial Manager of the Company, and any other Person or
Persons that  succeeds  such  Manager in its capacity as Manager,  and any other
Person elected to act as Manager of the Company as provided herein. PKST is also
a member of the Company.

     2.1.38 "Member" means each Person  designated as a member of the Company on
Schedule I hereto,  or any additional member admitted as a member of the Company
in accordance with Article IX.  "Members" refers to such Persons as a group, and
shall include the Manager, PKST, where no distinction is required by the context
in which the term is used herein.

     2.1.39 "Member  Minimum Gain" means an amount,  with respect to each Member
Nonrecourse  Debt,  equal to the Company  Minimum Gain that would result if such
Member Nonrecourse

                                       -7-
<PAGE>

Debt were treated as a Nonrecourse  Liability,  determined  in  accordance  with
Treasury Regulations Section 1.704-2(i).

     2.1.40  "Member  Nonrecourse  Debt"  means  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.

     2.1.41 "Member  Nonrecourse  Deductions"  means  deductions as described in
Treasury  Regulations  Section  1.704-2(i).  The  amount of  Member  Nonrecourse
Deductions with respect to a Member  Nonrecourse Debt for any Fiscal Year equals
the  excess,  if any, of (A) the net  increase,  if any, in the amount of Member
Minimum Gain  attributable  to such Member  Nonrecourse  Debt during such Fiscal
Year, over (B) the aggregate amount of any Distributions during that Fiscal 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).

     2.1.42 "Membership Interest" means all of a Member's rights in the Company,
including  without  limitation,  the Member's share of the Profits and Losses of
the Company, the right to receive Distributions, any right to vote and any right
to  participate in the management of the Company as provided in the Act and this
Agreement.

     2.1.43 "Memorandum" means the Confidential  Private Placement Memorandum of
the Company dated October 14, 1998, as amended or as supplemented.

     2.1.44 "Mobile Lithotripsy System" means the Trailer and tractor truck with
the installed and operational Dornier HM3 lithotripter.

     2.1.45  "Nonrecourse  Deductions" means deductions 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 (A) the net increase, if any, in
the amount of  Company  Minimum  Gain  during  such  Fiscal  Year,  over (B) the
aggregate amount of any  Distributions  during such Fiscal 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).

     2.1.46  "Nonrecourse  Liability"  means any Company  liability  (or portion
thereof)  for which no Member  bears the  "economic  risk of loss,"  within  the
meaning of Treasury Regulations Section 1.752-2.

     2.1.47  "Offering"  means  the  initial  offering  of Units in the  Company
pursuant to the Memorandum.

     2.1.48  "Percentage  Interest"  means the  interest  of each  Member in the
Company,  to be determined in the case of a Physician Member by reference to his
or her Unit ownership based upon the Physician  Members holding an aggregate 80%
Percentage Interest in the Company, with each Unit sold

                                       -8-
<PAGE>

representing  an initial 1%  interest.  The  Manager  will own a 20%  Percentage
Interest  in the  Company.  As  provided  in Article  VI, a  Physician  Member's
Percentage  Interest may be reduced by a future Dilution Offering.  The Members'
Percentage  Interests  in the  Company as of the date hereof are as set forth in
Schedule I attached hereto.  Any future  adjustments in the Member's  Percentage
Interests,  due to future Dilution Offerings or otherwise,  will be reflected by
revisions to Schedule A.

     2.1.49 "Person" means an individual,  a foreign or domestic corporation,  a
professional  corporation,  a  partnership,  a  limited  partnership,  a limited
liability  company,  a foreign  limited  liability  company,  an  unincorporated
association, or other legal entity.

     2.1.50  "Physician  Members" means those investors in the Units admitted to
the  Company,  and any  Person  admitted  as a  substitute  Physician  Member in
accordance  with  the  provisions  herein,  provided  that the  Manager  and its
Affiliates shall not be considered Physician Members.

     2.1.51  "PKST"  means Prime  Kidney  Stone  Treatment,  Inc.,  a New Jersey
corporation. PKST is the sole Manager of the Company.

     2.1.52  "Prime"  means  Prime  Medical  Services,  Inc.,  a  publicly  held
corporation and parent of both the Manager and the Management Agent.

     2.1.53 "Profits and Losses" means, for each Fiscal Year, an amount equal to
the Company's  taxable income or loss for such Fiscal Year (excluding Gains from
Capital  Transactions),  determined in accordance  with Code Section 703(a) (for
this  purpose,  all items of income,  gain,  loss,  or deduction  required to be
stated  separately  pursuant  to Code  Section  703(a)(1)  shall be  included in
taxable income or loss), with the following adjustments:

     (i) Any income of the Company  that is exempt from  federal  income tax and
not  otherwise  taken into account in computing  Profits and Losses  pursuant to
this definition  (excluding Gains from Capital  Transactions)  shall be added to
such taxable income or loss;

     (ii) Any expenditures of the Company described in Code Section 705(a)(2)(B)
or  treated as Code  Section  705(a)(2)(B)  expenditures  pursuant  to  Treasury
Regulations Section  1.704-1(b)(2)(iv)(i),  and not otherwise taken into account
in  computing  Profits  or  Losses  pursuant  to this  Section  2.1.48  shall be
subtracted from such taxable income or loss;

     (iii) In the event the Gross Asset  Value of any Company  asset is adjusted
pursuant to Section 2.1.27,  the amount of such  adjustment  shall be taken into
account  as gain or loss from the  disposition  of such  asset for  purposes  of
computing Profits or Losses;

     (iv) Gain or loss resulting from any  disposition of Company  property with
respect to which gain or loss is  recognized  for  federal  income tax  purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of,

                                       -9-
<PAGE>

notwithstanding  that the adjusted tax basis of such  property  differs from its
Gross Asset Value;

     (v) In lieu of the  depreciation,  amortization,  and other  cost  recovery
deductions  taken into account in computing such taxable  income or loss,  there
shall be taken into account  Depreciation  for such fiscal year or other period,
computed in accordance with the definition of Depreciation set out hereof;

     (vi) To the extent an  adjustment  to the adjusted tax basis of any Company
asset  pursuant  to Code  Section  734(b) or Code  Section  743(b)  is  required
pursuant to Treasury  Regulations  Section  1.704-1(b)(2)(iv)(m)(4)  to be taken
into account in determining Capital Accounts as a result of a distribution other
than in  liquidation of a Member's  interest in the Company,  the amount of such
adjustment shall be treated as an item of gain (if the adjustment  increases the
basis of the asset) or loss (if the adjustment decreases the basis of the asset)
from the  disposition  of the asset and shall be taken into account for purposes
of computing Profits or Losses;

     (vii) Notwithstanding any other provision of this Section 2.1.48, any items
which are  specially  allocated  pursuant to Sections  7.2,  7.3, 7.7, 7.8, 7.9,
7.10,  7.11 or 7.12 hereof shall not be taken into account in computing  Profits
or Losses.

     The  amounts  of the  items of  Company  income,  gain,  loss or  deduction
available to be specially  allocated  pursuant to Sections  7.2,  7.3, 7.7, 7.8,
7.9, 7.10,  7.11 or 7.12 hereof shall be determined by applying rules  analogous
to those set forth in Sections (i) through (vi) above.

     2.1.54 "Property" means any and all property acquired by the Company,  real
and/or personal (including, without limitation, intangible property).

     2.1.55  "Pro  Rata  Basis"  means  in  connection  with  an  allocation  or
distribution in proportion to the respective  Percentage  Interests or the class
of Members to which reference is made.

     2.1.56 "Sales Agency  Agreement" means the sales agency  agreement  through
which MedTech Investments, Inc., an Affiliate of the Manager and a broker-dealer
company  registered with the Securities and Exchange  commission and a member of
the National  Association of Securities  Dealers,  Inc. shall offer and sell the
membership interest of the Company pursuant to the Memorandum.

     2.1.57  "Sales  Commission"  means the  $250.00  sales  commission  paid to
MedTech  Investments,  Inc. for each Unit sold to parties other than the Manager
and its Affiliates.

     2.1.58 "Secretary of State" means the Secretary of State of Kentucky.

     2.1.59 "Service" means the Internal Revenue Service.

     2.1.60  "Service  Area"  means the  geographic  region in which the Company
operations  are expected to be  conducted  and which is  anticipated  to consist
primarily of central Kentucky.

                                      -10-
<PAGE>

     2.1.61 "Tax Matters Partner" means the Person designated by the Managers as
the "tax matters partner," as that term is defined in the Code.

     2.1.62 "Trailer" means the new mobile trailer  manufactured and upfitted by
AK Associates, Inc. to house the lithotripter.

     2.1.63 "Transfer" means sell, assign,  transfer, lease or otherwise dispose
of property, including without limitation an interest in the Company.

     2.1.64  "Treasury   Regulations"  means  the  Income  Tax  Regulations  and
Temporary  Regulations  promulgated  under the Code, as such  regulations may be
amended from time to time  (including  corresponding  provisions  of  succeeding
regulations).

     2.1.65  "Units"  means the 80 equal  membership  interests  in the  Company
offered to the  Memorandum  for a price per Unit of $2,500 in cash and  personal
guaranty of 1% of the Company's obligations under the Loan.

     2.1.66 "Withdrawing Member" has the meaning assigned to it in Article 11.


                     ARTICLE III - MANAGEMENT OF THE COMPANY

     3.1 The Manager.

     (a) Except as otherwise may be expressly  provided in this  Agreement,  the
Articles  of  Organization  or  the  Act,  all  decisions  with  respect  to the
management of the business and affairs of the Company shall be made by action of
the  Manager.  The Manager  shall have 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's  business,
except only as to those acts and things as to which  approval  by the  Executive
Committee  and/or the  Members is  expressly  required  by this  Agreement.  The
Manager  may  delegate  responsibility  for the day-to-  day  management  of the
Company to any Person retained by the Manager including Affiliates of Members or
the Managers who shall have and exercise on behalf of the Company all powers and
rights necessary or convenient to carry out such management responsibilities.

     (b) The  Manager  shall be under no duty to  devote  all of its time to the
business of the Company,  but shall devote only such time as it deems  necessary
to conduct  the  Company  business  and to operate  and manage the Company in an
efficient manner.

     (c) The Manager may charge to the Company all ordinary and necessary  costs
and expenses, direct and indirect,  attributable to the activities,  conduct and
management of the business of the Company. The costs and expenses to be borne by
the Company shall include, but are not limited to, all expenditures  incurred in
acquiring  and financing  the  Equipment or other  Company  property,  legal and
accounting fees and expenses, salaries of employees of the

                                      -11-
<PAGE>

Company,  consulting and quality assurance fees paid to independent contractors,
insurance premiums and interest.

     (d) The Manager  shall  serve as Manager  until the earlier to occur of its
resignation or removal.  If the Manager shall be finally  adjudged by a court of
competent jurisdiction to be liable to the Members or the Company for any act of
gross  negligence or willful  misconduct in the  performance of its duties under
the terms of this Agreement,  the Manager may be removed and another substituted
with the consent of all of the Physician Members.  With the unanimous consent of
the  Members,  the  Manager  may also be  removed  for cause  for the  following
reasons:

     (i) The failure to establish  and maintain a quality  assurance and outcome
analysis program aimed at improving the quality of care of all Company patients;

     (ii) The  failure  to make  adequate  and  customary  arrangements  for the
maintenance of the Mobile Lithotripsy  System, or to provide for the disposables
and other supplies necessary for Company operations;

     (iii) The failure to make  reasonable  arrangements  for the timely billing
for the Company's services and to timely collect for such services;

     (iv) The  failure to engage  drivers  and  lithotripsy  technicians  and to
arrange  for the  engagement  of all  other  nonphysician  personnel  reasonably
necessary to staff and operate the Mobile Lithotripsy System, including, without
limitation, nurses, secretaries and receptionists;

     (v) The failure to establish an Executive Committee;

     (vi)  The  failure  to  timely  make  reasonable   repairs,   replacements,
alterations,  additions and  improvements  to the  equipment  used in the Mobile
Lithotripsy System; and

     (vii) The  failure  to make  reasonable  arrangements  for the  travel  and
location itinerary of the Mobile Lithotripsy System in the Service Area.

     Consent to the removal of the Manager  shall be evidenced by a  certificate
of  removal  signed  by all of the  Members.  In the event of  removal,  the new
Manager shall succeed to all of the powers,  privileges  and  obligations of the
Manager.  The removed  Manager shall become a Member and shall maintain its same
Percentage Interest in the Company notwithstanding anything contained in the Act
to the  contrary.  In addition,  in the event of removal,  the new Manager shall
take all steps  necessary and  appropriate to prepare and record an amendment to
the  Articles  of  Organization  to reflect  the  removal of the Manager and the
admission of such new Manager.

     3.2 Specific Authority of the Managers.  Without limiting the generality of
Section 3.1 above,  and except as otherwise  prohibited by this Agreement or the
Act, the Manager or Managers shall

                                      -12-
<PAGE>

have and  exercise on behalf of the Company all powers and rights  necessary  or
convenient to carry out the purposes of the Company.  Such powers shall include,
without limitation, the following:

     (a) To acquire a Mobile Lithotripsy System;

     (b) To purchase,  hold, manage and dispose of Company assets, including the
purchase,  exchange,  trade, or sale of Company assets at such price, or amount,
for cash, securities or other property and upon such terms, as the Manager deems
to be in the best  interests of the Company;  provided,  that should the Company
assets be exchanged or traded for securities or other property the Manager shall
have the same  powers  with  regard  to such  property  as it does  towards  the
property traded;

     (c) To  exercise  the option of the  Manager or the  Company to  purchase a
Member's Membership Interest pursuant to Article XI;

     (d) To determine  the travel  itinerary  and site  locations for the Mobile
Lithotripsy System or other Company technology;

     (e)  Subject to the  limitations  set forth in Section  4.1, to acquire (i)
additional  Mobile  Lithotripter  Systems,  (ii) any other assets related to the
provision  of  lithotripsy  treatment  services,  or (iii) any  other  assets or
equipment or an interest in another entity  consistent  with the purposes of the
Company as provided in Section 1.5 (collectively,  the "Additional  Assets"), at
such times and at such price and upon such terms,  as the Manager deems to be in
the best interest of the Company;

     (f) Subject to the  limitations  set forth in Section  4.1, to borrow money
for any Company purpose and, if security is required therefor, to subject to any
security  device  any  portion  of  the  Property  of  the  Company,  to  obtain
replacements  of any  other  security  device,  to  repay,  in whole or in part,
refinance,  increase,  modify,  consolidate  or extend any  Encumbrance or other
security device;

     (g) To deposit,  withdraw, invest, pay, retain (including the establishment
of reserves) and distribute the Company funds in accordance  with the provisions
of this Agreement;

     (h)  To  consent  to  the  modifications,   renewal  or  extension  of  any
obligations  to the  Company  of any  Person  or of any  agreement  to which the
Company is a party or of which it is a beneficiary;

     (i) To enter into and carry out  contracts  and  agreements  and any or all
other documents and instruments,  and to do any and all such other things as may
be in furtherance of Company purposes or necessary or appropriate to the conduct
of the Company activities;

     (j) To adjust, compromise, settle or refer to arbitration any claim against
or in favor of the Company,  and to institute,  prosecute and defend any actions
or proceedings relating to the Company, its business and property;

                                      -13-
<PAGE>

     (k) To make all decisions  related to principles  and methods of accounting
and federal income tax elections;

     (l)  Generally  to possess  and  exercise  any and all  rights,  powers and
privileges of Managers under the Act and the laws of the State of Kentucky;

     (m) To do and  perform  all such  other  acts and  things  and to  execute,
acknowledge and deliver any and all other documents or instruments in connection
with any or all of the foregoing; and

     (n) Subject to the limitations  set forth in Section  4.1(j),  to engage or
retain  one or more  persons  to perform  acts or  provide  materials  as may be
required by the Company, at the Company's expense, and to compensate such person
or persons at a rate to be set by the Manager, provided that the compensation is
at the then prevailing rate for the type of services and materials provided,  or
both.  Any person,  whether a Member,  an  Affiliate  of a Member or  otherwise,
including  without  limitation  the  Manager,  may be employed or engaged by the
Company to render services and provide materials, including, but not limited to,
management  services,   professional  services,   accounting  services,  quality
assessment services, legal services, marketing services, maintenance services or
provide  materials;  and if such person is a Member or an Affiliate of a Member,
he shall be entitled  to, and shall be paid  compensation  for said  services or
materials, anything in this Agreement to the contrary notwithstanding,  provided
that  the  compensation  to be  received  for  such  services  or  materials  is
competitive  in  price  and  terms  with  then  prevailing  rate for the type of
services  and/or  materials  provided.  The Company,  pursuant to the terms of a
Management  Agreement,  will contract with the Management  Agent with respect to
the supervision and  coordination  of the management and  administration  of the
day-to-day  operations of the Mobile  Lithotripsy System for a monthly fee equal
to 7.5% of Company  Cash Flow per month.  All costs  incurred by the  Management
Agent in performing its duties as management  agent shall be paid by the Company
directly.  The Company may also contract with qualified  physicians  desiring to
use the Mobile Lithotripsy System for treatment of patients.  Owning an interest
in the Company shall not be a condition to using the Mobile Lithotripsy  System.
The  Manager  and its  Affiliates  may engage in or possess an interest in other
business  ventures of any nature and description  independently  or with others,
including,  but not limited to, the operation of a mobile lithotripsy  treatment
unit  similar to the Mobile  Lithotripsy  System,  whether or not such  business
ventures are in direct or indirect competition with the Company, and neither the
Company  nor the  Physician  Members  shall  have any  right by  virtue  of this
Agreement  in and to said  independent  ventures  or to the  income  or  profits
derived therefrom.

     (o) To cause the  Company to engage in a Dilution  Offering  as provided in
Section 6.4.


                                      -14-
<PAGE>

     3.3 Specific  Authority of Manager.  Notwithstanding  Sections 3.1 and 3.2,
the Manager  shall have and may exercise on behalf of the Company the  following
powers:

     (a) To  prepare  or cause to be  prepared  reports,  statements  and  other
relevant information for distribution to Members; and

     (b) To open  accounts  and  deposit and  maintain  funds in the name of the
Company in banks or savings and loan associations.

     3.4 Authority as to Third  Persons.  Notwithstanding  Sections 3.2, 3.3 and
4.5 the signed  statement of the Manager  reciting  that he has the authority or
the necessary approvals of either the Executive Committee or the Members for any
action, as to any third Person, shall be conclusive evidence of the authority of
the  Manager  to take  that  action  and of  compliance  with  Section  3.2,  if
applicable.  Each Physician Member will promptly execute instruments  determined
by the Manager to be  appropriate  to evidence  the  authority of the Manager to
consummate any transaction permitted by this Agreement.

     3.5  Compensation   and  Expenses.   The  Manager  shall  not  receive  any
compensation from the Company for serving as Manager,  but all expenses incurred
by the  Manager  in  connection  with its  service  as  Manager  will be paid or
promptly  reimbursed  by the Company.  Nothing  contained in this Section 3.5 is
intended  to affect the  Percentage  Interest  of the Manager as a Member or the
amounts  that  may be  payable  to  the  Manager  by  reason  of its  respective
Percentage Interests.

     3.6  Indemnification  and Exculpation of the Manager.  The Manager,  as the
managing member of the Company, is accountable to the Company as a fiduciary and
consequently must exercise good faith and integrity in handling Company affairs.
The Manager and its  Affiliates  shall have no  liability  to the Company  which
arises out of any action or  inaction of the  Manager or its  Affiliates  if the
Manager or its Affiliates, 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  the  Manager  or its
Affiliates.  The Company shall  indemnify the Manager,  each officer,  director,
employee,  agent or  Affiliate  of the  Manager or of any of their  officers  or
directors  (the  "Indemnified  Persons")  against any direct and actual  losses,
liabilities,   damages  or  expenses   (including  court  costs  and  reasonable
attorney's fees but excluding consequential damages) that any of the Indemnified
Persons incur in connection  with the Company,  but only to the extent that such
Indemnified  Person acted in good faith,  without gross  negligence,  or willful
misconduct,  and in a manner reasonably  believed to be in the best interests of
the Company.  Any attorney's fees or other  litigation  expenses  incurred by an
Indemnified  Person shall be advanced to such Indemnified  Person within 30 days
of receipt of a written demand  therefor,  together with an undertaking by or on
behalf of the  Indemnified  Person to repay to the Company  such amount if it is
ultimately  determined  that  the  Indemnified  Person  is  not  entitled  to be
indemnified by the Company pursuant to this Section 3.6.

     3.7 Liability for Return of Capital Contribution.  The Manager shall not be
liable for the return of the Capital Contributions of the Physician Members, and
upon  dissolution,  the Physician Members shall look solely to the assets of the
Company.


                                      -15-
<PAGE>


                        ARTICLE IV - EXECUTIVE COMMITTEE

     4.1 General  Powers.  The  business  and  affairs of the  Company  shall be
managed under the direction of the Manager; provided,  however, that without the
prior  written  consent of the  Executive  Committee,  the Manager shall have no
authority to do any of the following:

     (a) The  refinancing  of any Company  indebtedness,  or the  incurrence  of
additional Company indebtedness, in excess of $100,000;

     (b) A capital  expenditure  by the  Company,  other than out of the initial
Offering  proceeds,  in excess of $100,000,  including  the  acquisition  by the
Company of one or more additional Mobile Lithotripsy Systems or other urological
equipment;

     (c) The institution and carrying out any plan of merger,  consolidation  or
sale of all the  Membership  Interests  or the  Company  as set forth in Section
10.6;

     (d) The voluntary dissolution of the Company;

     (e) The disposition of all or substantially all of the Company's assets;

     (f) Doing any act in contravention of this Agreement;

     (g)  Possessing  or in any manner  dealing with the  Company's  Property or
assigning  the rights of the Company in the  Company's  Property  for other than
Company purposes;

     (h) Amending this Agreement;

     (i)  Expanding  the  Service  Area  beyond the  boundaries  of the State of
Kentucky;

     (j) With the  exception of the  Management  Agreement  (including  renewals
thereof) and the Sales Agency Agreement, authorize or make payment of any salary
or other  compensation  to,  or  enter  into any  contract,  agreement  or other
arrangement with, any Affiliate of the Manager; and

     (k)  Confessing  a judgment  against  the  Company in  connection  with any
threatened or pending legal action.
 
     4.2  Number,  Term and  Qualification.  The  Executive  Committee  shall be
appointed  by the  Manager  and shall  consist of four  Physician  Members and a
representative  of the  Manager  who need not be a  Member.  Each  member of the
Executive  Committee  shall  continue  to hold  office  until his or her  death,
resignation or removal and replacement by the Manager.

     4.3 Removal and Replacement. The Manager may remove and replace one or more
of the Executive Committee members at any time, with or without cause, provided,
however, that written

                                      -16-
<PAGE>

notice of such removal and replacement must be given to the Executive  Committee
and all Physician  Members at least five (5) days before the  effective  date of
removal and replacement.

     4.4 Compensation and Expenses. The members of the Executive Committee shall
not receive  compensation for their services as such, but all expenses  incurred
by the members of the Executive  Committee in  connection  with their service as
such will be paid or  promptly  reimbursed  by the  Company.  Any  member of the
Executive  Committee  may serve the  Company in any other  capacity  and receive
compensation therefore.

     4.5  Action  by the  Executive  Committee.  Any  action  to be taken by the
Executive  Committee  under  this  Agreement  may be taken at a  meeting  of the
Executive Committee held on such terms, and after such notice as the Manager may
establish;  provided,  however,  that  notice  of a  meeting  of  the  Executive
Committee must be given to all Members  entitled to vote at the meeting at least
five  (5)  days  before  the  date of the  meeting.  All of the  members  of the
Executive  Committee in office shall  constitute a quorum for the transaction of
business at a meeting of the Executive Committee,  and the affirmative vote of a
majority of such members shall  constitute  the act of the Executive  Committee,
unless a different  affirmative  vote is  otherwise  specifically  provided  for
herein.  An  Executive  Committee  member  who is  present  at a meeting  of the
Executive  Committee at which action on any Company matter is taken is deemed to
have  assented to the action taken unless he or she objects at the  beginning of
the  meeting (or  promptly  upon  arrival) to the  holding,  or  transacting  of
business at, the meeting,  or unless his or her dissent or abstention is entered
in the minutes of the meeting or unless he or she shall file  written  notice of
his or her dissent or abstention  to such action with the  presiding  officer of
the  meeting  before  its  adjournment  or with the  Manager  immediately  after
adjournment of the meeting.  The right of dissent or abstention  shall not apply
to a member of the Executive Committee who voted in favor of such action.

     4.6 Action Without Meeting.  Unless  otherwise  provided in this Agreement,
any action  required  or  permitted  to be taken at a meeting  of the  Executive
Committee  may be taken  without a meeting if the action is taken by all members
of the Executive Committee. Such action must be evidenced by one or more written
consents  signed by each  member  before or after such  action,  describing  the
action taken, and included in the records of the Company. Action taken without a
meeting  is  effective  when the last  director  signs the  consent,  unless the
consent specifies a different effective date.

     4.7 Meeting by  Communications  Device.  Unless otherwise  provided in this
Agreement,  the Executive Committee may permit any or all members to participate
in a  meeting  by, or  conduct  the  meeting  through  the use of,  any means of
communication by which all members  participating may  simultaneously  hear each
other during the meeting.  A member  participating in a meeting by this means is
deemed to be present in person at the meeting.

     4.8 Indemnification of Executive Committee Members. The Executive Committee
and its members  shall have no liability to the Company  which arises out of any
action or inaction of the Executive Committee if the Executive Committee and its
members in good faith  determined  that such  course of conduct  was in the best
interest of the Company  and such  course of conduct did not  constituted  gross
negligence or willful misconduct of the Executive Committee and its members. The
Company

                                      -17-
<PAGE>

shall  indemnify the members of the Executive  Committee  against any direct and
actual  losses,  liabilities,  damages  or  expenses  (including  court cost and
reasonable attorney's fees but excluding  consequential damages) that any of the
members  incur in  connection  with the Company but only to the extent that such
member acted in good faith, without gross negligence, and in a manner reasonably
believed to be in the best  interests of the  Company.  Any  attorney's  fees or
other litigation expenses incurred by a member of the Executive Committee member
shall be advanced to such member within thirty (30) days of receipt of a written
demand  therefor,  together with an undertaking by or on behalf of the member to
repay to the Company such amount if it is ultimately determined that such member
is not entitled to be indemnified by the Company pursuant to this Section 4.8.

     4.9 Liability for Return of Capital  Contribution.  The Executive Committee
and its members shall not be liable for the return of the Capital  Contributions
of the  Members,  and upon  dissolution,  the  Members  shall look solely to the
assets of the Company.


                  ARTICLE V - RIGHTS AND OBLIGATIONS OF MEMBERS

     5.1 Names and Addresses of Members.  The names,  addresses  and  Percentage
Interests of the Members are as reflected in Schedule I attached hereto and made
a part hereof, which Schedule shall be amended by the Company upon the effective
date of any Transfer or subsequent issuance of any Membership Interest.
 
     5.2 No  Management  by Members.  The  Members in their  capacity as Members
shall not take part in the  management or control of the business,  nor transact
any business  for the Company,  nor shall they have power to sign for or to bind
the Company. The Company may, however,  contract with one or more Members to act
as the local Medical Director for the Mobile  Lithotripsy  System. No Member may
withdraw from the Company except as expressly permitted herein.

     5.3  Election  of Manager.  PKST shall serve as the initial  Manager of the
Company.  The Members  shall have the power to remove and replace the Manager as
set forth in Section 3.1(d).

     5.4 Action by Members.  Any action to be taken by the Members under the Act
or this  Agreement  may be taken (i) at a meeting  of the  Members  held on such
terms,  and after such notice as the Manager may establish;  provided,  however,
that  notice of a meeting of Members  must be given to all  Members  entitled to
vote at the  meeting at least five (5) days before the date of the  meeting,  or
(ii) by written  action of a Majority  in  Interest  of the  Members;  provided,
however,  that any action  requiring the consent of all Members under the Act or
this Agreement taken by written action must be signed by all Members.  No notice
need be given of action proposed to be taken by written  action,  or an approval
given by written action,  unless specifically  required by this Agreement or the
Act. Such written actions must be kept with the records of the Company.

     5.5  Operation of Mobile  System.  The Members shall not operate or utilize
the Mobile  Lithotripsy System or other Company equipment except pursuant to (i)
an  agreement  with the  Company;  or (ii) any  other  arrangement  specifically
approved by the Manager.


                                      -18-
<PAGE>

     5.6 Outside Activities. The Physician Members agree that they owe fiduciary
duties to the Company and, as a consequence,  each Physician  Member agrees that
he or she shall not engage in "Outside  Activities"  (as  defined  below) in the
"Market Area" (as defined below) while he or she is a Member of the Company. The
phrase  "Outside  Activities"  means directly or indirectly  owning,  leasing or
subleasing  Mobile  Lithotripsy  System (or any similar  equipment  or competing
devices used for lithotripsy of renal stones) or any other therapeutic equipment
acquired by the Company.  Prohibited indirect ownership shall include the direct
or indirect  ownership  of any  interest in a business  venture  (through  stock
ownership,  partnership  interest  ownership,  ownership  by or  through a close
family member, or as otherwise determined in good faith by the Manger) involving
the ownership, purchase, lease, sublease, promotion,  management or operation of
a Mobile  Lithotripsy System (or similar equipment or competing devices used for
lithotripsy of renal stones), or other competing device or equipment, unless the
Manager   determines  that  such  activity  by  the  Physician  Members  is  not
detrimental to the best interests of the Company.

     Upon the  termination  or transfer of a  Physician  Member  interest in the
Company for any reason,  including a transfer  pursuant to Section  11.3 hereof,
the  withdrawing  Physician  Member  shall  not,  for a period  of two (2) years
following the date of his or her withdrawal, engage in any Outside Activities in
any  "Market  Area" in which the Company is  transacting  business or within the
prior twelve months has transacted business (the "Restricted  Facilities").  For
the purposes of this Section 5.6, the term "Market Area" shall mean (i) the area
within a fifty  mile  radius  of any  Restricted  Facility,  but if such area is
determined by a court of competent  jurisdiction to be too broad,  then it shall
mean (ii) the area within a twenty-five mile radius of any Restricted  Facility,
but if such area is  determined by a court of competent  jurisdiction  to be too
broad  then it shall  mean  (iii)  the area  within  a ten  mile  radius  of any
Restricted Facility.

     In the event a Physician  Member wishes and intends to engage in an Outside
Activity in a Market Area, he or she must provide  written notice of such intent
to the Manager  prior to engaging in the Outside  Activity.  The written  notice
shall be deemed an election by the Physician Member to withdraw from the Company
(the "Notice of Withdrawal"),  and shall give the Manager the purchase rights as
provided in Section  11.3  hereof.  After the Notice of  Withdrawal,  the former
Physician Member may engage in an Outside Activity in the Market Area only after
waiting the period of two years specified in this  Section 5.6.  In the event of
breach of the waiting period, the Company shall be entitled to any remedy at law
or  equity  with  respect  to  such  breach,  including  without  limitation  an
injunction or suit for damages.

     If a  Physician  Member  during  his or her  participating  in the  Company
engages in an Outside  Activity in a Market Area  without  first  notifying  the
Manager in violation of this Section 5.6, the  Physician  Member shall be deemed
to have given a Notice of Withdrawal on the date the Manager first becomes aware
of the Physician  Member's Outside Activity in the Market Area. Upon receiving a
Physician Member's Notice of Withdrawal or equivalent  thereof,  the Company may
invoke the purchase rights provided in Section 11.3 and shall be entitled to any
other remedy at law or equity  including  without  limitation  and injunction or
suit for damages.

     5.7  Disclosure  of  Confidential   Information.   Each  Physician   Member
acknowledges and agrees that his or her  participation in the Company under this
Agreement necessarily involves his or her

                                      -19-
<PAGE>

understanding  of and access to certain  trade  secrets  and other  confidential
information  pertaining  to the  business  of  the  Company.  Accordingly,  each
Physician Member agrees that at all times during his or her participation in the
Company as a Member and thereafter,  he or she will not, directly or indirectly,
without the express written authority of the Company,  unless required by law or
directed by a applicable legal authority having  jurisdiction over the Physician
Member,  disclose  or use for the benefit of any  person,  corporation  or other
entity  (other  than  the  Company),  or  himself  or  herself,  (i) any  trade,
technical,  operational,  management or other  secrets,  any patient or customer
lists  or  other   confidential  or  secret  data,  or  any  other  proprietary,
confidential  or secret  information  of the  Company  or (ii) any  confidential
information concerning any of the financial  arrangements,  financial positions,
hospital  or  physician  contracts,  third  party  payor  arrangements,  quality
assurance  and  outcome  analysis  programs,  competitive  status,  customer  or
supplier matters, internal organizational matters, technical abilities, or other
business  affairs  of  or  relating  to  the  Company.   The  Physician  Members
acknowledge that all of the foregoing constitutes proprietary information, which
is the exclusive property of the Company. In the event of breach of this Section
5.7 as determined by the Manager, the Company shall be entitled to any remedy at
law or equity with  respect to such breach,  including  without  limitation,  an
injunction or suit for damages.

     5.8  Limited   Liability.   No  Members  shall  be  required  to  make  any
contribution  to the capital of the  Company  except as set forth in Article VI,
nor shall any Member in his or her  capacity as such be bound by, or  personally
liable for, any expense,  liability or obligation  of the Company  except to the
extent of his or her (i) interest in the  Company,  (ii)  Guaranties  of Company
obligations,  and (iii)  obligation to return  Distributions  made to him or her
under certain circumstances as required by the Act.


                       ARTICLE VI - CAPITAL CONTRIBUTIONS,
                        GUARANTIES AND DILUTION OFFERINGS

     6.1  Manager  Contribution.  On or before the date of this  Agreement,  the
Manager will contribute to the capital of the Company cash in an amount equal to
20% (up to $50,000) of the total cash  contributed to the Company by the Members
in the Offering made pursuant to the Memorandum.

     6.2 Physician Members Contribution.  Each Physician Member hereby agrees to
contribute and shall contribute to the capital of the Company on the date of his
or her  admission  to the Company the cash amount set forth  opposite his or her
name on Schedule I attached hereto.

     6.3 No Interest.  Except as otherwise provided herein, no interest shall be
paid on any contribution to the capital of the Company.

     6.4 Dilution  Offerings.  As provided in Section 4.1(a),  Manager may, from
time to time, cause the Company to issue,  offer and sell additional  Membership
Interests in the Company (a "Dilution Offering") to local urologists who are not
already  Members  ("Qualified  Investors").  The primary purpose of any Dilution
Offering would be (i) to raise  additional  capital for any  legitimate  Company
purpose as set forth in Section  1.5 and (ii) to assure the  highest  quality of
patient  care by  admitting  Qualified  Investors  to the  Company  who would be
dedicated and motivated as owners to follow the  Company's  treatment  protocol,
and comply with its quality assurance and outcome analysis programs.

                                      -20-
<PAGE>

Any Membership  Interests offered by the Company in a Dilution Offering shall be
sold in the manner and according to the terms  prescribed in the sole discretion
of the Manager;  provided,  however,  that any additional  Membership  Interests
offered  in a  Dilution  Offering  will be sold for a price  no  lower  than the
highest price for which proportionate  Membership  Interests in the Company have
been previously sold by the Manager. Any sale of additional Membership Interests
will result in the proportionate dilution of the Company Percentage Interests of
the existing Members. Any investor acquiring a Membership Interest in a Dilution
Offering  shall agree to be bound by the terms of this  Agreement,  and shall be
automatically  admitted  as a Member of the  Company  notwithstanding  any other
provisions  in this  Agreement to the contrary.  Any  adjustment in the Members'
Percentage  Interests  resulting from a Dilution  Offering shall be set forth on
Schedule I attached hereto.

6.5  Conditions  to the Capital  Contributions  of the  Physician  Members.  The
obligation of the Physician Members to make cash Capital Contributions hereunder
are subject to the condition that the  representations,  warranties,  agreements
and covenants of the Manager set forth in Article VII of this  Agreement are and
shall be true and correct or have been and will have been  complied  with in all
material  respects on the date such  Capital  Contributions  are  required to be
made, except to the extent that any such  representation  or warranty  expressly
pertains to an earlier date.

6.6 Capital Accounts. A Capital Account shall be established for each Member and
shall be credited with each Member's Capital Contributions  pursuant to Sections
6.1 and 6.2. All  contributions  of property to the Company by a Member shall be
valued and credited to the Member's  Capital  Account at such  property's  gross
fair market value on the date of contribution as determined by the  contributing
Member and the  Manager.  All  distributions  of  Property  to the Member by the
Company shall be valued and debited against the Member's Capital Account at such
Property's  gross fair market value on the date of distribution as determined by
the Manager.  Each Member's Capital Account shall at all times be determined and
maintained  pursuant  to  the  principles  of  this  Section  6.6  and  Treasury
Regulations  Section  1.704-1(b)(2)(iv).  A  Member  shall  not be  entitled  to
withdraw any part of his or her Capital Account except as otherwise specifically
provided herein.  Each Member's Capital Account shall be increased in accordance
with such Regulations by:

(i) The amount of Profits allocated to the Member pursuant to this Agreement;

(ii) The amount of all Gains From Capital  Transactions  allocated to the Member
pursuant to this Agreement; and

(iii) The amount of any Company  liabilities  assumed by the Member or which are
secured by any Company property distributed to such Member.

Each  Member's  Capital  Account  shall be  decreased  in  accordance  with such
Regulations by:

     (i)  The  amount  of  Losses  allocated  to the  Member  pursuant  to  this
Agreement;

     (ii) The amount of Company Cash Flow  distributed to the Member pursuant to
this Agreement;


                                      -21-
<PAGE>

     (iii) The amount of Company Sales Proceeds and Company Refinancing Proceeds
distributed to the Member pursuant to this Agreement; and
 
     (iv) The amount of any  liabilities of the Member assumed by the Company or
which are secured by any property contributed by such Member to the Company.

     In addition,  each Member's  Capital Account shall be subject to such other
adjustments  as may be  required  in order to comply  with the  capital  account
maintenance requirements of Section 704(b) of the Code.

     In the event that the Manager shall  determine that it is prudent to modify
the manner in which the  Capital  Accounts,  or any  debits or  credits  thereto
(including,  without limitation,  debits or credits relating to liabilities that
are secured by contributed  or  distributed  property or that are assumed by the
Company or the  Members),  are  computed in order to comply  with such  Treasury
Regulations,  the Manager may make such  modification,  provided  that it is not
likely to have a material effect on the amounts distributable to any Member upon
dissolution of the Company. The Manager also shall (i) make any adjustments that
are necessary or appropriate to maintain  equality  between the Capital Accounts
of the  Members and the amount of Company  capital  reflected  on the  Company's
balance  sheet,  as computed for book  purposes,  in  accordance  with  Treasury
Regulations  Section   1.704-1(b)(2)(iv)(g),   and  (ii)  make  any  appropriate
modifications  in the event  unanticipated  events  might  otherwise  cause this
Agreement not to comply with Treasury Regulations Section 1.704-1(b).


                  ARTICLE VII - REPRESENTATIONS, WARRANTIES AND
                            COVENANTS OF THE MANAGER

     7.1 Manager's Representations and Warranties. The Manager hereby represents
and warrants to the Physician Members that:

     (a) The Company is a limited  liability  company formed in accordance  with
and validly existing under the Act and the other applicable laws of the State of
Kentucky;

     (b) The  interest in the Company of the  Physician  Members  will have been
duly  authorized or created and validly  issued and the Physician  Members shall
have no personal  liability to  contribute  money to the Company  other than the
amounts  agreed to be  contributed  by them in the  manner  and on the terms set
forth in this Agreement, subject, however, to such limitations as may be imposed
under the Act;

     (c) No material  breach or default  adverse to the Company exists under the
terms of any other material agreement affecting the Company; and

     (d) The Manager is a New Jersey  corporation  formed and existing under the
laws of the State of New Jersey.


                                      -22-
<PAGE>

     7.2  Manager's  Covenants.  The Manager  hereby  covenants to the Physician
Members that:

     (a) It will at all times act in a  fiduciary  manner  with  respect  to the
Company and the Physician Members.

     (b) Except as provided in Articles III and XI, it will serve as the Manager
of the Company until the Company is terminated without reconstitution; and

     (c) It will cause the Company to carry adequate public liability,  property
damage and other  insurance  as is customary in the business to be engaged in by
the Company.


                ARTICLE VIII - ALLOCATIONS, ELECTIONS AND REPORTS

     8.1 Profits and Losses.

     (a) Except as otherwise provided herein,  Profits and Losses of the Company
and all items of tax  credit and tax  preference  shall be  allocated  among the
Members in accordance with their respective Percentage  Interests.  In the event
the Percentage Interests vary during any Fiscal Year, Profits and Losses and all
items of tax credit and tax  preference  for such Fiscal Year shall be allocated
among the Members as provided in Section 8.5 below.

     (b) Losses  allocated  pursuant  to this  Section  8.1 shall not exceed the
maximum amount of Losses that can be so allocated  without causing any Member to
have an Adjusted  Capital  Account Deficit at the end of any Fiscal Year. In the
event  some but not all of the  Members  would  have  Adjusted  Capital  Account
Deficits  as  a  consequence  of  an  allocation  of  Losses  pursuant  to  this
Section 8.1,  the limitation set forth in this Section 8.1 shall be applied on a
Member by Member  basis so as to allocate  the maximum  possible  Losses to each
Member under Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations.

     8.2  Sales  Commission.  The Sales  Commission  shall be  allocated  to the
Physician  Members  holding Units to the extent such Physician  Members paid the
Sales Commission,  and in proportion to their respective  capital  contributions
represented by such Units (i.e.,  $250 in Sales  Commission per each such Unit).
The purpose of this  Section 8.2 is to allocate  the Sales  Commission  to those
Members who actually bore the burden of paying the Sales Commission.

     8.3 Nonrecourse Deductions. Nonrecourse Deductions shall be allocated among
the Members in accordance with their respective Percentage Interests.


                                      -23-
<PAGE>

     8.4 Member Nonrecourse Deductions.  Any Member Nonrecourse Deductions shall
be specially  allocated  to the Member who bears the economic  risk of loss with
respect  to the  Member  Nonrecourse  Debt  to  which  such  Member  Nonrecourse
Deductions are  attributable  in accordance  with Treasury  Regulations  Section
1.704-2(i).

     8.5  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 this  Agreement) at any time other than at the end of a
Fiscal Year, the change in any Member's  Percentage Interest or the admission of
a new Member (in accordance with the terms of this Agreement),  the transferring
Member 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,  shall be allocated  between the transferor  Member and the transferee
Member, or the new Member and the other Members, as the case may be, in the same
ratio as the number of days in such Fiscal 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
Fiscal Year,  then upon the mutual  agreement of all the Members  (excluding the
new Member and the  transferring  Member),  the Company  shall treat the periods
before and after the date of the transfer or admission as separate  Fiscal Years
and allocate the Company's net income,  gain,  net loss,  deductions and credits
for each of such deemed  separate  Fiscal Years of the Company.  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 Treasury Regulations thereunder.

     8.6 Gains from Capital Transactions. Gains from Capital Transactions during
any Fiscal Year shall be allocated as follows:

     (a) First, to those Members whose Capital Accounts immediately prior to the
Capital  Transaction  were  negative,  in an amount  sufficient  to increase the
Capital  Accounts to zero, but in the event sufficient gain is not recognized to
do so,  then  among  them  pro rata in  proportion  to  their  negative  Capital
Accounts;

     (b) Second, to the Members in an amount equal to the difference between the
Company Sales  Proceeds to be  distributed to each of the Members as provided in
Section 8.3 and the Capital  Accounts of each respective  Member as adjusted (if
necessary)  by  paragraph  (a) above,  but in the event  sufficient  gain is not
recognized to do so, then among the Members in an amount which, when credited to
the Capital  Accounts of the Members,  results in the Members'  Capital Accounts
bearing  the same  ratio to one  another  as the  ratio of the  distribution  of
Company Sales  Proceeds to each of the Members,  as provided in Section 9.3; and
thereafter

     (c) Any remaining  gain shall be allocated  among the Members in accordance
with  their  respective  Percentage  Interests  as of the  date  of the  Capital
Transaction giving rise to the gain.

     8.7  Contributed  Property.  In accordance with Code Section 704(c) and the
Treasury Regulations  thereunder,  income, gain, loss and deduction with respect
to any property  contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Members so as to take

                                      -24-
<PAGE>

account of any  variation  between the  adjusted  basis of such  property to the
Company for federal income tax purposes and its initial Gross Asset Value at the
time of contribution.

     Any elections or other decisions relating to such allocations shall be made
by the Members in any manner that reasonably  reflects the purpose and intention
of this  Agreement.  Allocations  pursuant  to this  Section  8.7 are solely for
purposes of federal,  state and local taxes and shall not affect,  or in any way
be taken into account in  computing,  any Member's  Capital  Account or share of
Profits,  Losses, other items or Distributions pursuant to any provision of this
Agreement.

     8.8 Minimum Gain Chargeback.  If there is a net decrease in Company Minimum
Gain during any Fiscal Year,  each Member shall be specially  allocated items of
Company  income and gain for such Fiscal  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  Regulation  Section
1.704-2(g).  Allocations  pursuant  to the  previous  sentence  shall be made in
proportion  to the  respective  amounts  required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in accordance
with Treasury Regulations  Sections 1.704-2(f) and 1.704- 2(j)(2).  This Section
8.8 is  intended  to comply  with the minimum  gain  chargeback  requirement  in
Treasury Regulation 1.704-2(f) and shall be interpreted consistently therewith.

     8.9 Member  Minimum Gain  Chargeback.  If there is a net decrease in Member
Minimum Gain  attributable to a Member  Nonrecourse Debt, as defined in Treasury
Regulation Section 1.704- 2(i)(4), during any Fiscal Year, each Member who has a
share of the Member Minimum Gain  attributable to such Member  Nonrecourse Debt,
determined in accordance with Treasury Regulation Section  1.704-2(i)(5),  shall
be  specially  allocated  items of Company  income and gain for such Fiscal Year
(and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's
share of the net  decrease in Member  Minimum Gain  attributable  to such Member
Nonrecourse  Debt,  determined in accordance  with Treasury  Regulation  Section
1.704-2(i)(4)  and (5).  Allocations  pursuant to the previous sentence shall be
made in proportion to the  respective  amounts  required to be allocated to each
Member  pursuant  thereto.  The items to be so allocated  shall be determined in
accordance with Treasury Regulations Section 1.704-2(i)(4).  This Section 8.8 is
intended  to comply  with the Member  Minimum  Gain  chargeback  requirement  in
Treasury Regulation  Section 1.704(i)(4)  and shall be interpreted  consistently
therewith.

     8.10  Qualified  Income  Offset.  If any Member  unexpectedly  receives  an
adjustment,  allocation  or  distribution  as described in Treasury  Regulations
Section  1.704-1(b)(2)(ii)(d)(4) through (6) which causes or increases a deficit
Capital  Account  balance in such  Member's  Capital  Account (as  determined in
accordance  with such  Regulation),  items of  Company  income and gain shall be
specially  allocated to each such Member in an amount and manner  sufficient  to
eliminate,  to the extent  required by the  Regulations,  the  Adjusted  Capital
Account  Deficit  of such  Member  as  quickly  as  possible,  provided  that an
allocation pursuant to this Section 8.10 shall be made if and only to the extent
that such Member would have an Adjusted  Capital Account Deficit after all other
allocations  provided for in this Article VII have been  tentatively  made as if
this Section 8.10 were not in this Agreement. This provision is intended to be a
"qualified  income  offset," as defined in Treasury  Regulation  Section  1.704-
1(b)(2)(ii)(d),  such  Regulation  being  specifically  incorporated  herein  by
reference.


                                      -25-
<PAGE>

     8.11 Gross Income Allocation. In the event any Member has a deficit Capital
Account at the end of any  Fiscal  Year which is in excess of the sum of (i) the
amount such Member is obligated  to restore,  and (ii) the amount such Member is
deemed to be  obligated  to restore  pursuant to the  penultimate  sentences  of
Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5),  each such Member
shall be specially  allocated  items of Company income and gain in the amount of
such excess as quickly as possible, provided that an allocation pursuant to this
Section 8.11 shall be made if and only to the extent that such Member would have
a deficit  Capital  Account  in  excess of such sum after all other  allocations
provided for in this Article VIII have been  tentatively made as if this Section
8.11 and Section 8.10 hereof were not in this Agreement.

     8.12 Section 754  Adjustment.  To the extent an  adjustment to the adjusted
tax basis of any Company asset  pursuant to Code Section  734(b) or Code Section
743(b)   is    required,    pursuant    to    Treasury    Regulations    Section
1.704-1(b)(2)(iv)(m)(2)     or    Treasury     Regulations     Section    1.704-
1(b)(2)(iv)(m)(4),  to be taken into account in determining  Capital Accounts as
the result of a Distribution to a Member in complete liquidation of his interest
in the Company,  the amount of such adjustment to the Capital  Accounts shall be
treated as an item of gain (if the adjustment  increases the basis of the asset)
or loss (if the adjustment  decreases such basis) and such gain or loss shall be
specially  allocated to the Members in  accordance  with their  interests in the
Company in the event that Treasury  Regulations Section  1.704-1(b)(2)(iv)(m)(2)
applies,  or to the Members to whom such distribution was made in the event that
Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.

     8.13 Curative  Allocations.  The allocations set forth in Sections  8.1(b),
8.2, 8.3, 8.7, 8.8, 8.9, 8.10, 8.11 hereof (the  "Regulatory  Allocations")  are
intended to comply with certain requirements of the Treasury Regulations.  It is
the  intent  of  the  Members  that,  to the  extent  possible,  all  Regulatory
Allocations  shall be offset either with other  Regulatory  Allocations  or with
special  allocations of other items of Company  income,  gain, loss or deduction
pursuant to this Section 8.13. Therefore, notwithstanding any other provision of
this Article VIII (other than the  Regulatory  Allocations),  the Managers shall
make such  offsetting  special  allocations  of Company  income,  gain,  loss or
deduction in whatever  manner they  determine  appropriate  so that,  after such
offsetting  allocations are made,  each Member's  Capital Account balance is, to
the extent possible, equal to the Capital Account balance such Member would have
had if the Regulatory Allocations were not part of the Agreement and all Company
items were allocated  pursuant to Section 8.1(a). In exercising their discretion
under this Section 8.13, the Managers shall take into account future  Regulatory
Allocations  under Sections 8.7 and 8.8 that,  although not yet made, are likely
to offset other  Regulatory  Allocations  previously made under Sections 8.2 and
8.3.

     8.14 Compliance  with Treasury  Regulations.  The above  provisions of this
Article VIII notwithstanding, it is specifically understood that the Manager may
without the  consent of any Member  make such  elections,  tax  allocations  and
adjustments,  including  amendments  to  this  Agreement,  as the  Manager  deem
necessary  or  appropriate  to  maintain to the  greatest  extent  possible  the
validity of the tax allocations set forth in this Agreement,  particularly  with
regard to Treasury Regulations under Code Section 704(b).

     8.15 Tax Withholding.  The Company shall be 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

                                      -26-
<PAGE>

comply  with tax  withholding  provisions  of the Code or  other  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 shall
be treated as a cash  Distribution  to such  Member and shall  reduce the amount
otherwise distributable to such Member.


                           ARTICLE IX - DISTRIBUTIONS

     9.1  Company  Cash Flow.  Company  Cash Flow for each Fiscal  Year,  to the
extent available,  shall be distributed to the Members within 60 days of the end
of each Fiscal Year, or earlier in the discretion of the Manager,  in accordance
with  the  Members   respective   Percentage   Interests  at  the  time  of  the
distribution.

     9.2 Company  Refinancing  Proceeds.  Company Refinancing  Proceeds,  to the
extent  available,  shall be  distributed  to the Members  within 60 days of the
Capital  Transaction giving rise to such proceeds,  or earlier in the discretion
of the Managers,  in accordance with the Members respective Percentage Interests
at the time of the distribution.

     9.3 Company Sales Proceeds.  Company Sale Proceeds, to the extent available
shall be distributed  to the Members  within 60 days of the Capital  Transaction
giving rise to such proceeds,  or earlier,  in the discretion of the Manager, in
accordance with the Members respective  Percentage  Interests at the time of the
distribution.

     9.4 Distributions in Liquidation.  Upon liquidation of the Company, all the
Company's  Property  shall be liquidated or  distributed  as provided in Section
12.3 and Profits and Losses allocated accordingly. Proceeds from the liquidation
of the Company shall be distributed in accordance with the provisions of Section
12.3.

     9.5 Limitation Upon  Distributions.  No Distribution  shall be declared and
paid if payment of such  Distribution  would  cause the  Company to violate  any
limitation on distributions provided in the Act.


           ARTICLE X - TRANSFER OF INTERESTS AND ADMISSION OF MEMBERS

     10.1 Transferability of Membership Interests.

     (a) The term  "transfer"  when used in this  Agreement  with  respect  to a
Membership Interest includes a sale, assignment,  gift, pledge, exchange, or any
other disposition (but does not include the issuance of new Membership Interests
pursuant to a Dilution Offering);

     (b) Except as otherwise  provided herein, the Manager shall not at any time
transfer or assigning its interest or obligation as Manager;


                                      -27-
<PAGE>

     (c)  The  Membership   Interest  of  any  Physician  Member  shall  not  be
transferred,  in whole or in part,  except in accordance with the conditions and
limitations set forth in Section 10.2 or Article XI;

     (d) The transferee of a Membership Interest by assignment, operation of law
or otherwise,  shall have only the rights,  powers and privileges  enumerated in
Section 10.3 or otherwise provided by law and may not be admitted to the Company
as a Member except as provided in Section 10.4;

     (e)  Notwithstanding  any provision herein to the contrary,  this Agreement
shall in no way restrict the issuance or transfers of stock of the Manager; and

     (f) Notwithstanding  any provision herein to the contrary,  the issuance of
Membership  Interests  pursuant to a Dilution  Offering and the admission of new
Members  pursuant to a Dilution  Offering shall be governed by the provisions of
Section 6.4 of this Agreement.

     10.2 Restrictions on Transfers by Physician Members.

     (a) All or part of a Membership  Interest may be transferred by a Physician
Member only with the prior written  approval of the Manager,  which approval may
be granted or denied in its sole discretion.

     (b) The Manager  shall not approve any transfer of a  Membership  Interest,
except a pledge of any Membership Interest by the Manager to any bank, insurance
company or other  financial  institution  to secure payment of  indebtedness  (a
"Permitted  Pledge"),  or otherwise  unless the proposed  transferee  shall have
furnished the Manager with a sworn statement that:

     (i) The  proposed  transferee  proposes  to acquire  his or her  Membership
Interest  as a  principal,  for  investment  and not  with a view to  resale  or
distribution;

     (ii)  The   proposed   transferee   meets   such   requirements   regarding
sophistication, income and net worth as required by applicable state and federal
securities laws;

     (iii) The proposed transferee has met such net worth and income suitability
standards as have been established by the Manager;

     (iv) The proposed  transferee  recognizes  that  investment  in the Company
involves  certain risks and has taken full  cognizance of and understands all of
the risk factors related to the purchase of a Membership Interest; and


                                      -28-
<PAGE>

     (v) The proposed  transferee has met all other  requirements of the Manager
for the proposed transfer.

     (c)  Other  than  in the  case  of a  Permitted  Pledge,  a  transfer  of a
Membership Interest may be made only if, prior to the date thereof,  the Company
upon request receives an opinion of counsel,  satisfactory in form and substance
to the Manager, that neither the offering nor the proposed transfer will require
registration under federal or applicable state securities laws or regulations.

     10.3 Rights of  Transferee.  Unless  admitted to the Company as a Member in
accordance with Section 10.4, the transferee of a Membership  Interest or a part
thereof or any right, title or interest therein (including any transferee having
an interest in a Membership  Interest as a result of a Permitted  Pledge)  shall
not be  entitled  to any of the  rights,  powers,  or  privileges  of his or her
predecessor  in interest,  except that (s)he shall be entitled to receive and be
credited  or debited  with his or her  proportionate  share of Company  Profits,
Losses,  Gains from  Capital  Transactions,  Company  Cash Flow,  Company  Sales
Proceeds, Company Refinancing Proceeds and Distributions in liquidation.

     10.4 Admission of Members.  Except as otherwise provided in Section 6.4 and
Article XI, the  Manager,  or the  transferee  of all or part of the  Membership
Interest of a Member, may be admitted to the Company as a Member upon furnishing
to the Manager all of the following:

     (a) The written approval of a Majority in Interest of the Physician Members
(except the assignor Member),  or the assignor Members alone, which approval may
be granted or denied in the sole  discretion  of such  Members or Member (as the
case may be);

     (b) The written  approval of the Manager,  which approval may be granted or
denied in the sole discretion of the Manager;

     (c) Acceptance, in a form satisfactory to the Manager, of all the terms and
conditions of this Agreement and any other documents required in connection with
the operation of the Company pursuant to the terms of this Agreement;

     (d) If the transferee is a corporation, a certified copy of a resolution of
its Board of  Directors  authorizing  it to become a Member  under the terms and
conditions of this Agreement;

     (e) A properly executed power of attorney  substantially  identical to that
contained in Section 13.15;

     (f) Such other  documents  or  instruments  as may be  required in order to
effect his or her admission as a Member; and

     (g) Payment of such  reasonable  expenses as may be incurred in  connection
with his or her admission as a Member.

                                      -29-
<PAGE>

     10.5   Amendment   of  Articles  of   Organization   and   Certificate   of
Qualification.  The Manager shall take all steps  necessary and  appropriate  to
prepare and record any  amendments  to the Articles of  Organization,  as may be
necessary or appropriate  from time to time to comply with the  requirements  of
the Act,  and shall take all steps  necessary  and  appropriate  to prepare  and
record any and all documents  necessary to qualify the Company to do business in
jurisdictions  where the Company is doing  business,  any may for these purposes
exercise  the power of attorney  delivered  to the Company  pursuant to Sections
10.4 and 13.15.

     10.6 Fundamental Changes. As provided in Section 4.1(c), if the Manager and
the Executive Committee approve a plan providing for the merger or consolidation
of  the  Company  with  another  person  or  entity,  or  the  sale  of  all  or
substantially all of the Membership Interests,  including without limitation the
exchange of  Membership  Interests  for equity  interests  in another  person or
entity or for cash or other  consideration or combination  thereof,  then and in
such event,  the Members  shall be obligated to take or refrain from taking,  as
the case may be,  such  actions  as the plan  may  provide,  including,  without
limitations,  executing such instruments,  and providing such information as the
Manager shall  reasonably  request.  Any plan described in this Section 10.6 may
also effect an  amendment  to the  Operating  Agreement or the adoption of a new
operating  agreement in  connection  with the merger of the Company with another
person or entity as  provided in Section  275.360 of the Act.  The plan may also
provide  that the Manager and its  Affiliates  shall  receive  fees for services
rendered in connection with the operation of the Company or any successor entity
following  the  consummation  of the  transactions  described  in the plan,  and
neither  the  Company  nor the  Members  shall  have any right by virtue of this
Agreement in the income derived therefrom. Any securities or other consideration
to be  distributed  to the Members  pursuant to the plan shall be distributed in
the manner set forth in Section12.3 as though the Company were being liquidated.
For  this  purpose  only,  the fair  market  value  of the  securities  or other
consideration to be received  pursuant to the plan shall be treated as "Profits"
and the  capital  accounts  of the  Members  shall be  increased  in the  manner
provided in Section 6.6. No Member shall be entitled to any appraisal or similar
rights in connection with a plan contemplated by this Section 10.6.


     ARTICLE XI - OPTIONAL PURCHASE OF MEMBERSHIP INTERESTS ON CERTAIN EVENTS

     11.1 Death.  Upon the death of a Physician Member,  the deceased  Physician
Member's  executor,  administrator,  or other legal or  personal  representative
shall give written notice of that fact to the Membership. The Manager shall have
the option to purchase at the Closing (as defined below) the Membership Interest
of the deceased  Physician Member (whose executor,  administrator or other legal
or personal  representative  shall then become obligated to sell such Membership
Interest) at the price determined in the manner provided in Section 11.6 of this
Agreement  and on the terms and  conditions  provided  in  Section  11.7 of this
Agreement.  The Manager  shall have a period of thirty (30) days  following  the
date it first  received  notice  of the  death  of the  Physician  (the  "Option
Period")  within which to notify in writing the deceased  Physician's  executor,
administrator  or other  legal or personal  representative,  whether the Manager
desires to purchase all or a portion of the Membership  Interest of the deceased
Member. If the Manager does not elect to purchase the entire Membership Interest
of the deceased  Physician Member before the expiration of the Option Period and
in the manner provided

                                      -30-
<PAGE>

herein,  the portion of the Membership  Interest not purchased  shall be held by
the  deceased  Physician   Member's  executor,   administrator  or  other  legal
representative pursuant to the terms of this Agreement. The Manager, in its sole
discretion,  may elect to assign its rights to purchase the Membership  Interest
of a deceased  Physician  Member  under this Section 11.1 to the Company and, in
such case,  the Company  shall have the same rights as provided  for the Manager
under this Section 11.1.
 
     11.2  Bankruptcy,  Insolvency or  Assignment  for Benefit of Creditors of a
Physician Member. In the event that an involuntary or voluntary proceeding under
the Federal  Bankruptcy Code, as amended,  is filed for or against any Physician
Member,  or if any Physician  Member shall make an assignment for the benefit of
his or her  creditors,  or if any  Physician  Member has a receiver or custodian
appointed for his assets,  or any Physician Member generally fails to pay his or
her debts when due, the  insolvent  Physician  Member shall give written  notice
(the  "Notice of  Insolvency")  to the Manager of the  commencement  of any such
proceeding or the  occurrence of such event within five days of the first notice
to him or her of such  commencement  or  occurrence  of such event.  The Manager
shall  have the  option to  purchase  at the  Closing  (as  defined  below)  the
Membership Interest of the insolvent Physician Member (which insolvent Physician
Member  or  his  trustee,  custodian,   receiver  or  other  personal  or  legal
representative,  as the case may be,  shall then become  obligated  to sell such
Membership  Interest)  at  the  price  determined  in  the  manner  provided  in
Article 11.6  of this  Agreement  and on the terms and  conditions  provided  in
Article 11.7 of this  Agreement.  The Manager shall have a period of thirty (30)
days  following the date of either the Notice of  Insolvency,  or if such formal
notice is not given,  the date the Manager  first becomes aware of the financial
condition of the Physician  Member as outlined in this Article 11.2 (the "Option
Period"),  within which to notify in writing the insolvent  Physician  Member or
his trustee,  custodian,  receiver,  or other legal or personal  representative,
whether  the  Manager  wishes to  purchase  all or a portion  of the  Membership
Interest of the  insolvent  Physician  Member.  If the Manager does not elect to
purchase the entire Membership Interest of the insolvent Physician Member before
the  expiration  of the Option  Period and in the manner  provided  herein,  the
portion of the Membership  Interest not purchased shall be held by the insolvent
Member,   his   trustee,   custodian,   receiver  or  other  legal  or  personal
representative pursuant to the terms of this Agreement. The Manager, in its sole
discretion,  may elect to assign its rights to purchase the Membership  Interest
of an insolvent  Physician Member under this Section 11.2 to the Company and, in
such case,  the Company  shall have the same rights as provided  for the Manager
under this Section 11.2.

     11.3  Breach of Section  5.6. In the event the  Manager  either  receives a
Notice of Withdrawal  as provided in Section 5.6 or receives  notice of a breach
of Section 5.6 by a Physician Member (the "Defaulting  Physician  Member"),  the
Manager  may  elect,  in its sole  discretion,  to treat such event as a default
under this  Agreement  and enforce the  provisions  of this Section 11.3. If the
Manager elects to enforce the provisions of this Section 11.3, the Manager shall
give written notice of such election (the "Notice of Default") to the Defaulting
Physician  Member within 180 days of the date the Manager first received  notice
of the defaulting  event.  Upon giving the Notice of Default,  the Manager shall
have the option to purchase at the  Closing  (as defined  below) the  Membership
Interest of the Defaulting  Physician Member (which Defaulting  Physician Member
shall then  become  obligated  to sell such  Membership  Interest)  at the price
determined in the manner  provided in Section 11.6 of this  Agreement and on the
terms and  conditions  provided in Section 11.7 of this  Agreement.  The Manager
shall  have a period of thirty  (30) days  following  the date of the  Notice of
Default (the "Option  Period")  within which to notify in writing the Defaulting
Physician Member, whether the Manager wishes to purchase

                                      -31-
<PAGE>

all or a portion of the Membership Interest of the Defaulting  Physician Member.
If the Manager does not elect to purchase the entire Membership  Interest of the
Defaulting  Physician  Member before the  expiration of the Option Period and in
the manner provided herein, the portion of the Membership Interest not purchased
shall be held by the Defaulting  Physician  Member pursuant to the terms of this
Agreement.  The Manager, in its sole discretion,  may elect to assign its rights
to purchase the Membership Interest of a Defaulting  Physician Member under this
Section 11.3 to the Company and, in such case,  the Company  shall have the same
rights as provided for the Manager under this Section 11.3.

     11.4 Domestic Proceeding.  In the event that a spouse of a Physician Member
commences  against a  Physician  Member,  or a  Physician  Member is named in, a
Domestic Proceeding, the Physician Member shall give written notice (the "Notice
of  Domestic  Proceeding")  to the  Manager  of  the  commencement  of any  such
proceeding  within  five  days  of the  first  notice  to  him  or  her of  such
commencement.  The Manager  shall have the option to purchase at the Closing (as
defined below) the Membership  Interest of the Physician  Member involved in the
Domestic  Proceeding (which Physician Member shall then become obligated to sell
such  Membership  Interest),  at the price  determined in the manner provided in
Section  11.6 of this  Agreement  and on the terms and  conditions  provided  in
Section 11.7 of this  Agreement.  The Manager shall have a period of thirty (30)
days following the date of either the Notice of Domestic Proceeding,  or if such
formal  notice is not given,  the date the Manager  first  becomes  aware of the
domestic  circumstances of the Physician Member as provided in this Section 11.4
(the "Option  Period"),  within which to notify in writing the Physician  Member
involved in the Domestic Proceeding,  whether the Manager wishes to purchase all
or a portion of the Membership Interest of such Physician Member. If the Manager
does not elect to  purchase  the  Membership  Interest of the  Physician  Member
involved in the Domestic  Proceeding  before the expiration of the Option Period
and in the manner provided  herein,  the portion of the Membership  Interest not
purchased  shall be held by such Physician  Member pursuant to the terms of this
Agreement.  The Manager, in its sole discretion,  may elect to assign its rights
to purchase the  Membership  Interest of the  Physician  Member  involved in the
Domestic  Proceeding  under this  Section 11.4 to the Company and, in such case,
the Company  shall have the same rights as provided  for the Manager  under this
Section 11.4.

     11.5  Divestiture  Option.  If state  or  federal  regulations  or laws are
enacted or applied,  or if any other legal  developments  occur,  which,  in the
opinion of the Manager  adversely affect (or potentially  adversely  affect) the
operation of the Membership  (e.g.,  the enactment or application of prohibitory
physician  self-referral  legislation  against the Company or its Members),  the
Manager shall promptly either, in its discretion, (i) take the steps outlined in
this Section 11.5 to divest the Physician Members of their Membership Interests,
or (ii) dissolve the Company as provided in Article XII. If the Manager  chooses
option (i), it shall deliver a written  notice to all of the  Physician  Members
(the "Notice of Election")  and purchase such  Membership  Interests for its own
account.  The purchase  price to be paid for each  Membership  Interest shall be
determined  in the manner as provided in Section  11.6 and shall be on the terms
and  conditions  as provided in Section  11.7.  The  transfer of the  Membership
Interests  and the payment of the purchase  price (as provided in Section  11.6)
shall  be made at such  time as  determined  by the  Manager  to be in the  best
interests of the Company and its Physician Members. Each Physician Member hereby
makes,  constitutes and appoints the Manager,  with full power of  substitution,
his true and lawful  attorney-in-fact,  to take such  actions and  execute  such
documents  on his behalf to effect the  transfer of his  Membership  Interest as
provided in this Section 11.5.

                                      -32-
<PAGE>


     11.6  Purchase  Price.  The  purchase  price to be paid for the  Membership
Interest of any Physician  Member whose interest is being purchased  pursuant to
the  provisions of  Article 17.1,  17.2,  17.3,  17.4 or 17.5 (the  "Withdrawing
Physician  Member")  shall be determined in the manner  provided in this Article
17.6. The purchase price for the Membership  Interest  purchased pursuant to the
provisions of Sections 11.2,  11.3, 11.4 or 11.5 shall be an amount equal to the
lesser  of (i) the fair  market  value  of the  Withdrawing  Physician  Member's
Membership  Interest on the  Valuation  Date  (prorated in the event that only a
portion of his or her Membership  Interest is being  purchased) as determined by
an Appraiser (as defined below) selected by the Manager, or (ii) the Withdrawing
Physician  Member's share of the Company's book value, if any,  (prorated in the
event that only a portion of his or her Membership  Interest is being purchased)
as  reflected  by the  Capital  Account  of  the  Withdrawing  Physician  Member
(unadjusted   for  any   appreciation  in  Company  assets  and  as  reduced  by
depreciation  deductions  claimed by the  Company  for tax  purposes)  as of the
Valuation  Date (as defined  below).  In the case of a purchase of a  Membership
Interest pursuant to the provisions of Section 11.1, the purchase price shall be
an amount equal to the greater of (i) two (2) times the aggregate  distributions
made with respect to such Membership Interest pursuant to Section 9.1 during the
twelve-month  period  ending  on the  Valuation  Date  or (ii)  the  Withdrawing
Physician  Member's share of the Company's  book value  determined in the manner
described  above.  For the purposes of this Section 11.6,  the term  "Appraiser"
shall mean an  independent  appraiser who is qualified in appraising  membership
interests and who has at least five years experience. In determining fair market
value, the Appraiser shall take into consideration any outstanding indebtedness,
liabilities,  liens and  obligations of the Company and the relative  Membership
Interests and capital accounts of all Members, as well as applying any customary
discounts for lack of liquidity and control.  Such appraisal  shall be conducted
in  accordance  with  professional  appraisal  standards.  The  valuation of the
Appraiser  shall be conclusive  and binding upon the Company,  the purchaser and
the  Withdrawing   Physician  Member  and  his  or  her   representatives.   The
determination  of the  Withdrawing  Physician  Member's  Capital  Account on the
Valuation  Date  (as  defined  below)  shall be made by the  Company's  internal
accountant  (the "Company  Accountant")  upon a review of the Company's books of
account,  and a formal audit is expressly  waived.  The statement of the Company
Accountant  with  respect to the Capital  Account of the  Withdrawing  Physician
Member on the Valuation Date shall be binding and  conclusive  upon the Company,
the purchaser and the Withdrawing  Physician Member and his representative.  The
Manager, in its sole discretion,  may pursue both of the above valuation methods
and choose the lesser value of the two as indicated  above, or may designate and
follow only one of the methods in calculating the purchase price.  The Valuation
Date shall be the last day of the month immediately preceding the month in which
occurs: (i) the death of a Physician Member, in the case of a purchase by reason
of death;  (ii) the bankruptcy or insolvency of a Physician  Member, in the case
of a purchase by reason of such  bankruptcy or  insolvency;  (iii) the Notice of
Withdrawal or breach of Section 5.6 as provided in Article 11.3 in the case of a
purchase by reason thereof; (iv) the commencement of the Domestic Proceeding, in
the case of a  purchase  by reason  thereof;  or (v) the Notice of  Election  as
provided  in Section  11.5,  in the case of a purchase  by reason  thereof.  Any
Physician  Member  whose  Membership  Interest  is  purchased  pursuant  to  the
provisions  of Section  11.2,  11.3,  11.4 or 11.5 shall be entitled only to the
purchase  price which shall be paid at the Closing in cash (or by  certified  or
cashier's  check) and shall not be entitled to any  Company  distributions  made
after the Valuation Date. The transfer of a Membership Interest of a Withdrawing
Physician  Member  shall be  deemed  to occur as of the  Valuation  Date and the
Withdrawing Physician Member shall have no voting or other rights as a Physician
Member after such date. The purchaser shall be entitled to any

                                      -33-
<PAGE>

distributions  attributable to the transferred interest after the Valuation Date
and the  Company  shall  have  the  right  to  deduct  the  amount  of any  such
distributions made to the Withdrawing  Physician Member after the Valuation Date
from the purchase price.

     11.7 Closing of Purchase and Sale.  The Closing of any purchase and sale of
a Membership Interest pursuant to Section 11.1, 11.2, 11.3, 11.4 or 11.5 of this
Agreement shall take place at the principal office of the Company, or such other
place  designated  by the  Manager,  on the  date  determined  as  follows  (the
"Closing"):

     (a) In the case of a purchase and sale  occurring by reason of the death of
a Physician  Member as provided in Section 11.1 of this  Agreement,  the Closing
shall be held on the thirtieth  day (or if such  thirtieth day is not a business
day, the next business day following the thirtieth  day) next following the last
to occur of:

     (i) Qualification of the executor or personal administrator of the deceased
Physician Member's estate;

     (ii) The date on which any necessary determination of the purchase price of
the Membership Interest to be purchased has been made; or

     (iii) The date that coincides with the close of the Option Period.

     (b) In  the  case  of a  purchase  and  sale  occurring  by  reason  of the
occurrence of one of the events described in Section 11.2, 11.3, 11.4 or 11.5 of
this  Agreement,  the  Closing  shall be held on the  thirtieth  day (or if such
thirtieth  day is not a  business  day,  the next  business  day  following  the
thirtieth day) next following the later to occur of:

     (i) The date on which any necessary  determination of the purchase price of
the Membership Interest to be purchased has been made; or

     (ii) The date that coincides with the close of the Option Period.

     At the  Closing,  although  not  necessary  to  effect  the  transfer,  the
Withdrawing  Physician Member shall  concurrently with tender and receipt of the
applicable purchase price, deliver to the purchaser duly executed instruments of
transfer and assignment,  assigning good and marketable  title to the portion or
portions of the Withdrawing  Physician Member's entire Membership  Interest thus
purchased,  free and clear  from any liens or  encumbrances  or rights of others
therein. The parties acknowledge that occurrence of any of the triggering events
described in Section 11.1,  11.2, 11.3, 11.4 or 11.5 and compliance with all the
Articles of this  Agreement,  except the execution of the transfer  documents by
the Withdrawing Member as provided above in this Section 11.7, are

                                      -34-
<PAGE>

sufficient to effect the complete transfer of the Withdrawing Physician Member's
interest  and the  Withdrawing  Physician  Member  shall be deemed to consent to
admission of the transferee as a substitute  Physician  Member.  Notwithstanding
the date of the Closing or whether a Closing is successfully  held, the transfer
of a Membership  Interest of a Withdrawing  Physician  Member shall be deemed to
occur as of the Valuation Date as defined in Section 11.6.  The deemed  transfer
is effective regardless of whether the Withdrawing Physician Member performs the
duties set forth in this Section 11.7.

     11.8  Terms and  Conditions  of  Purchase.  The  Membership  Interest  of a
Physician  Member shall not be transferred to any Member unless the requirements
of Sections 10.2 and 10.4 (b) through (g) are satisfied  with respect to it. The
purchaser shall be liable for all  obligations  and  liabilities  connected with
that  portion of the  Membership  Interest  transferred  to it unless  otherwise
agreed in writing.


            ARTICLE XII - DISSOLUTION AND LIQUIDATION OF THE COMPANY

     12.1 Dissolution  Events.  The Company will be dissolved upon the happening
of any of the following events:

     (a) The expiration of its term on December 31, 2047;

     (b) The filing by, on behalf of, or against the Manager of any  petition or
pleading,  voluntary or involuntary,  to declare the Manager  bankrupt under any
bankruptcy  law or act,  or the  commencement  in any  court of any  proceeding,
voluntary or involuntary,  to declare the Manager insolvent or unable to pay its
debts, or the  appointment by any court or supervisory  authority of a receiver,
trustee or other custodian of the property, assets or business of the Manager or
the  assignment  by it of all or any  part of its  property  or  assets  for the
benefit  of  creditors,  if  said  action,  proceeding  or  appointment  is  not
dismissed,  vacated  or  otherwise  terminated  within  ninety  (90) days of its
commencement;

     (c) The determination of the Manager and Executive  Committee in accordance
with Section 4.1(d) that the Company should be dissolved;

     (d) The  approval  of a plan by the  Manager  and  Executive  Committee  in
accordance with Section 4.1(c)  providing for the merger,  consolidation or sale
of Membership Interests as described in Section 10.6;

     (e) The  election  of the Manager to dissolve  the  Company  following  the
occurrence of an event described in Article 11.5;

     (f) The sale,  exchange or other disposition of all or substantially all of
the  Property  of the  Company  without  making  provision  for the  replacement
thereof; or

                                      -35-
<PAGE>

     (g) Any other event  resulting in the  dissolution  or  termination  of the
Company under the laws of the State of Kentucky.

     12.2  Continuation.  Upon the occurrence of any of the events  described in
Section  12.1(b) above with respect to the Manager,  the business of the Company
will be  continued  if within  ninety (90)  calendar  days all of the  remaining
Members  elect to continue the  business of the Company.  If the Members fail to
continue the Company's business as provided in this Section, the Company will be
liquidated under Section 12.3.

     12.3  Liquidation.  Upon the  happening  of any of the events  specified in
Section  12.1 and, if  applicable,  the failure to continue  the business of the
Company under Section 12.2, the Manager, or any liquidating trustee elected by a
Majority in Interest of the Members, will commence as promptly as practicable to
wind up the  Company's  affairs  unless the Manager or the  liquidating  trustee
(either, the "Liquidator")  determines that an immediate  liquidation of Company
assets would cause undue loss to the Company, in which event the liquidation may
be deferred for a time determined by the Liquidator to be appropriate. Assets of
the  Company  may be  liquidated  or  distributed  in  kind,  as the  Liquidator
determines  to be  appropriate.  The Members will continue to share Company Cash
Flow,  Profits  and Losses  during the period of  liquidation  in the manner set
forth in Articles  VIII and IX. The proceeds  from  liquidation  of the Company,
including  repayment  of any debts of Members to the  Company,  and any  Company
assets that are not sold in connection with the  liquidation  will be applied in
the following order of priority:

     (a) To payment of the debts and  satisfaction  of the other  obligations of
the Company, including without limitation debts and obligations to Members;

     (b)  To  the  establishment  of  any  reserves  deemed  appropriate  by the
Liquidator for any  liabilities  or  obligations of the Company,  which reserves
will be held for the purpose of paying  liabilities or  obligations  and, at the
expiration of a period the Liquidator deems appropriate,  will be distributed in
the manner provided in Section 12.3(c); and

     (c) To the  payment  to the  Members  of the  positive  balances  in  their
respective Capital Accounts, pro rata, in proportion to the positive balances in
those capital accounts after giving effect to all allocations under Article VIII
and all  distributions  under  Article IX for all prior  periods,  including the
period during which the process of liquidation occurs.
 
     12.4 Articles of  Dissolution.  Upon the  dissolution and completion of the
winding up of the Company,  the Manager shall cause a Articles of Dissolution to
be executed on behalf of the Company and filed with the Secretary of State,  and
the Manager shall execute,  acknowledge  and file any and all other  instruments
necessary  or  appropriate  to reflect  the  dissolution  and  winding up of the
Company.


                                      -36-
<PAGE>


                          ARTICLE XIII - MISCELLANEOUS

     13.1 Fiscal Year.  The Fiscal Year will end on December 31, unless  another
fiscal year-end is selected by the Managers.

     13.2  Records.  Proper and complete  records and books of account  shall be
kept by the  Manager  in  which  shall  be  entered  fully  and  accurately  all
transactions  and such other matters  relating to the Company's  business as are
usually entered into records and books of account  maintained by persons engaged
in business of like character.  The records of the Company will be maintained at
the  principal  place of business of the Company,  or at any other  location the
Manager  selects  provided  that  the  Company  keep at its  principal  place of
business the records  required by the Act to be  maintained  there.  Appropriate
records  in  reasonable   detail  will  be  maintained  to  reflect  income  tax
information  for the  Members.  Each  Member may  inspect and make copies of the
records  maintained by the Company  during  reasonable  business  hours and upon
reasonable  notice.  Each Member, at his or her expense,  may make copies of the
records  maintained  by the  Company  and may  require  an audit of the books of
account maintained by the Company to be conducted by the independent accountants
for the Company.

     13.3 Reports. The Manager, at the expense of the Company,  will cause to be
prepared in accordance  with the method of  accounting  then used by the Company
and  distributed  to each Member  within  ninety (90) days after the end of each
Fiscal Year,  a balance  sheet as of the close of the Fiscal Year and the annual
income tax returns and related schedules of the Company for the Fiscal Year.

     13.4  Reserves.  The  Manager  may cause the  Company to create  reasonable
reserve  accounts  to  be  used  exclusively  for  repairs  and  acquisition  of
Additional Assets and for any other valid Company purpose.  The Manager shall in
its sole discretion determine the amount of payments to such reserve accounts.

     13.5  Notices.  The  Manager  will  notify the Members of any change in the
name,  principal or registered  office or registered  agent of the Company.  Any
notice or other  communication  required by this  Agreement  must be in writing.
Notices  and  other  communications  will be  deemed  to have  been  given  when
delivered by hand or dispatched by telegraph, telex or other means of electronic
facsimile  transmission,  or three  business  days after being  deposited in the
United States mail, postage prepaid,  addressed to the Member to whom the notice
is  intended  to be given at his or her  address set forth on Schedule I of this
Agreement  or, in the case of the Company,  to its  principal  place of business
provided  for in Section  1.4. A Person may change his or her notice  address by
notice in  writing to the  Company  and to each other  Member  given  under this
Section 13.5.

     13.6 Amendments.  Except as expressly provided in this Agreement in Section
4.1(h),  no  amendment  of this  Agreement  will be  valid or  binding  upon the
Members, nor will any waiver of any term of this Agreement be effective,  unless
in  writing  and signed by the  Manager  and a  majority  of the  members of the
Executive Committee.

     13.7 Additional Documents. Each party agrees to execute and acknowledge all
documents and writings  which the Manager may deem necessary or expedient in the
creation of this Company and

                                      -37-
<PAGE>

the  achievement  of its  purpose,  specifically  including  but not limited to,
articles  of  organization  and all  amendments,  as  well  as any  cancellation
thereof.

     13.8 Representations of Members. Each Member represents and warrants to the
Company and every other  Member that (s)he (a) is fully aware of, and is capable
of bearing,  the risks relating to an investment in the Company, (b) understands
that his or her  interest  in the  Company  has not been  registered  under  the
Securities  Act or the  securities  law of any  jurisdiction  in  reliance  upon
exemptions  contained in those laws, and (c) has acquired his or her interest in
the  Company  for his or her own  account,  with the  intention  of holding  the
interest for investment and without any intention of  participating  directly or
indirectly  in any  redistribution  or resale of any portion of the  interest in
violation of the Securities Act or any applicable law.

     13.9  Survival  of  Rights.  Except as  herein  otherwise  provided  to the
contrary,  this Agreement  shall be binding upon and inure to the benefit of the
parties, their successors and assigns.

     13.10 Interpretation and Governing Law. When the context in which words are
used in this Agreement indicates that such is the intent,  words in the singular
number  shall  include the plural and vice versa.  The  masculine  gender  shall
include the feminine and neuter.  The Article and Section headings or titles and
the table of contents shall not define,  limit, extend or interpret the scope of
this Agreement or any  particular  Article or Section.  This Agreement  shall be
governed  and  construed  in  accordance  with the laws of the State of Kentucky
without giving effect to the conflicts of laws provisions thereof.

     13.11  Severability.  If any  provision,  sentence,  phrase or word of this
Agreement or the application thereof to any Person or circumstance shall be held
invalid, the remainder of this Agreement,  or the application of such provision,
sentence,  phrase, or word to Persons or  circumstances,  other than those as to
which it is held invalid, shall not be affected thereby.

     13.12 Agreement in Counterparts.  This Agreement may be executed in several
counterparts,  each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.  In addition, this Agreement may contain
more than one  counterpart  of the  signature  pages and this  Agreement  may be
executed by the affixing of the signatures of each of the Members to one of such
counterpart signature pages; all of such signature pages shall be read as though
one,  and they shall have the same force and effect as though all of the signers
had signed a single signature page.

     13.13 Tax Matters Partner.  For purposes of this Agreement,  the Manager is
designated as the Tax Matters Partner (as defined in Section 6231 of the Code).

     13.14  Third  Parties.   The  agreements,   covenants  and  representations
contained  herein are for the benefit of the parties hereto inter se. Nothing in
this  Agreement  is  intended to benefit any third  parties  including,  without
limitation,  any creditor of the Company  and/or any Member.  No creditor of the
Company or any Member  will be  entitled  to require  the  Manager to solicit or
accept any loan or additional capital contribution for the Company or to enforce
any right  which the  Company or any Member may have  against a Member,  whether
arising under this Agreement or otherwise.


                                      -38-
<PAGE>

     13.15 Power of Attorney.  Each Physician  Member hereby makes,  constitutes
and appoints Dr. Joseph Jenkins and Thomas Driber, Ph.D.,  severally,  with full
power of substitution, his true and lawful attorneys-in-fact, for him and in his
name, place and stead and for his use and benefit to sign and acknowledge,  file
and record,  any amendments  hereto among the Members for the further purpose of
executing and filing on behalf of each Physician Member, any and all articles of
organization or other documents necessary to constitute the Company or to effect
the  continuation  of the Company,  the admission or withdrawal of members,  the
qualification  of the Company in a foreign  jurisdiction  (or  amendment to such
qualification),  the  admission  of  substitute  Members or the  dissolution  or
termination of the Company, provided such continuation,  admission,  withdrawal,
qualification,  or dissolution  and termination are in accordance with the terms
of this Agreement.

     The foregoing power of attorney is a special power of attorney coupled with
an interest,  is irrevocable and shall survive the death or legal  incapacity of
each Member.  It may be exercised by any one of said attorneys by listing all of
the Members executing any instrument over the signature of the  attorney-in-fact
acting for all of them.  The power of attorney  shall survive the delivery of an
assignment  by a Member of the whole or any portion of his Unit.  In those cases
in which the assignee of, or the  successor  to, a Member owning a Unit has been
approved by the Members for admission to the Company as a substitute Member, the
power of attorney  shall survive for the sole purpose of enabling the Manager to
execute,   acknowledge  and  file  any  instrument   necessary  to  effect  such
substitution.

     This power of attorney shall not be affected by the  subsequent  incapacity
or mental incompetence of any Member.

     13.16  Arbitration.  Any dispute  arising out of or in connection with this
Agreement  or the breach  thereof  shall be decided by  arbitration  in Raleigh,
North  Carolina in accordance  with the then  effective  commercial  arbitration
rules of the  American  Arbitration  Association,  and  judgment  thereof may be
entered in any court having jurisdiction thereof.




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












                                                      -39-
<PAGE>

     IN WITNESS WHEREOF, the undersigned,  being the Manager and initial Members
of the Company,  have caused this Agreement to be duly adopted by the Company as
of the _____ day of _________, 199__, and do hereby assume and agree to be bound
by and to perform all of the terms and provisions set forth in this Agreement.

                                           MANAGER:

                                           PRIME KIDNEY STONE TREATMENT, INC.,
                                           a New Jersey corporation
Attest:

                                           By:                                 
__________________________                  Thomas Driber, Ph.D., Vice President
         Secretary
                                           MEMBER:


                                           PRIME KIDNEY STONE TREATMENT, INC.,
                                           a New Jersey corporation

                                           By:                                 
                                            Thomas Driber, Ph.D., Vice President


                                                      -40-
<PAGE>

                           COUNTERPART SIGNATURE PAGE


     By signing this  Counterpart  Signature Page, the undersigned  acknowledges
his or her  acceptance  of  that  certain  Operating  Agreement  of  Kentucky  I
Lithotripsy, LLC, and his or her intention to be legally bound thereby.

                  Dated this _________ day of ___________________, 199_.



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

                                    Signature



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

                                    Printed Name




STATE OF _______________                    )
                                            )
COUNTY OF _____________                     )


     BEFORE ME, the  undersigned  Notary  Public in and for the State and County
set forth  above,  on the _______ day of  __________________,  199_,  personally
appeared  ___________________,  and,  being by me first duly sworn,  stated that
(s)he signed this Counterpart Signature Page for the purpose set forth above and
that the statements contained therein are true.




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

                                    Signature of Notary Public



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

                                    Printed Name of Notary

My Commission Expires:

___________________________

[SEAL]

                                                      -41-
<PAGE>

               OPERATING AGREEMENT OF KENTUCKY I LITHOTRIPSY, LLC

                                   SCHEDULE I


Names and Address                     Initial Capital
    of Members                         Contribution         Percentage Interest


Prime Kidney Stone Treatment, Inc.       $50,000                   20%
1301 Capital of Texas Highway
Suite C-300
Austin, TX  78746

Limited partners as a whole             $200,000                   80%



     TOTALS                             $250,000                  100%




     (1) Represents the principal portion of each Member's guaranty  obligation,
as each Member's obligation under the Guaranty includes not only principal,  but
also (as provided in the  Guaranty)  accrued and unpaid  interest,  late payment
penalties  and all  costs  incurred  by the  Bank in  collecting  any  defaulted
obligations.  The  principal  amount of the loan is  $550,000.  The Manager will
guarantee  20% of the Loan (a $110,000  principal  guaranty)  as provided in the
Memorandum.  The  Physician  Members  will  guarantee  1% of the loan (a  $5,500
principal guaranty) for each Unit purchased as provided in the Memorandum.


                                                      -42-