Sample Business Contracts

Consulting Agreement - Stearns Management Co. and Cheung Laboratories Inc.

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                            STEARNS MANAGEMENT COMPANY

                                  May 28, 1996

Cheung Laboratories, Inc.
10220-1 Old Columbia Road
Columbia, MD 21046-1705

Attention:  Messrs:        Augustine Cheung, President
                           Charles C. Shelton, Executive Vice President

                           Letter of Agreement

Dear Messrs. Cheung and Shelton:

         We have held meetings held at the offices of Cheung Laboratories,  Inc.
(the "Company") on May 24th and have participated in several phone conversations
between  May  25th  and  today's  date to get  acquainted  with you and with the
Company and to discuss various  alternative  strategies by which the Company can
finance  the  implementation  of its  business  plans.  Pursuant  to our  verbal
agreement for us to undertake a consulting  engagement  for the Company  reached
during our meetings and confirmed by Mr.  Shelton's  letter of today's date, you
have  forwarded  substantial  additional  information  which we have reviewed in

         Accordingly, this Letter Agreement is to confirm and document the prior
agreements reached whereby the Company, a Maryland corporation,  seeks to secure
the advice and services of Stearns Management Company, an Illinois  corporation,
("Stearns") to render financial  advisory  services to it regarding its near and
long-term  business  strategy  particularly  with  regard  to its need to secure
outside capital to sustain its anticipated growth.  Stearns has agreed to render
such advice and services on the terms and conditions set forth below.

         1.       The Company hereby engages Stearns to render consulting advice
                  to the  Company,  on an  exclusive  basis,  with regard to all
                  matters   involving  the   solicitation  of  outside  capital,
                  restructuring  the  Company  in a  manner  most  conducive  to
                  solicitation and acceptance of such capital, and other matters
                  relative  thereto  including,  but not limited to, the matters
                  outlined in paragraph hereof.

         2.       Stearns will consult with the  Company's  management  at their
                  request to study the Company's  business  plans and to provide
                  specific  recommendations  concerning  financial  and  related
                  matters, including, but not limited to, the following:

                  A        Changes in the capitalization of the Company;
                  B        Changes in the Company's corporate structure;
                  C        Redistribution of shareholdings of the Company's 
                  D        Obtaining working capital financing for the Company
                           and on an on-going basis;
                  E        Offerings of securities in private transactions;
                  F        Offerings of securities in public transactions 
                            including selection of financial public relations
                            alternatives, budgeting and implementation of 
                            follow-on strategy;
                  G        Selection of professionals as special consultants in 
                            connection with such offerings;
                  H        Alternative   uses  of  corporate   assets;
                  I        Alternative  marketing  approaches for  expansion; 
                  J        Selection of advisory personnel  and/or  additional  
                  K        Sale of  stock by insiders pursuant to Rule 144 or

         3.       Stearns will recommend  and, upon request of the Company,  use
                  its best  efforts to  implement a plan(s)  which will  provide
                  capital to the Company from outside sources on a timely basis,
                  both  privately  and  publicly,  utilizing  its  knowledge and
                  contacts   within  the   financial  and   investment   banking

         4.       As  part  of  its   duties  hereunder  and   material  to  its
                  recommendations  to  the  Company,  Stearns  will undertake an
                  analysis of:

                           (a)  The  current  valuation  of  similarly  situated
                           public  companies  in an effort to assure the Company
                           of fair valuation upon marketing of its securities.

                           (b) The Company's short term sales and  manufacturing
                           plans  in  order to  determine  the need for  interim
                           capital  and to assist the Company in  selecting  its
                           best strategy for maximizing  the intrinsic  worth of
                           its shares.

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         5.       Upon request of the Company, Stearns will undertake consulting
                  assignments on such other matters as the Company may deem

         6.       In order to induce  Stearns  to enter  into this  relationship
                  with the Company and to discount its normal fees for services,
                  the Company shall:

                           (a)  Grant  to  such   assignees  as  Stearns   shall
                           designate to the Company a transferable  Common Stock
                           Purchase  Warrant  (the   "Warrant"),   in  the  form
                           attached   hereto  as  Exhibit  1,   entitling   such
                           assignees  to  purchase,   for  a  five  year  period
                           commencing  on the date hereof and  renewable  for an
                           additional  five year  period,  the  number of shares
                           which,  when added to the existing  common shares and
                           any securities  convertible  into or exercisable  for
                           the  purchase  of  (options,  warrants  and the like)
                           common shares, would represent,  in aggregate, a five
                           percent (5%) interest in the equity of the Company as
                           of the  completion  of  the  next  registered  public
                           offering  of  common  shares  of  the  Company.  Said
                           Warrant,  when  reduced to  certificate  form,  shall
                           allow said  assignees of Stearns,  in  aggregate,  to
                           invest  a  total  sum  of  money  to  be  derived  by
                           multiplying  $0.41 per share by that number of shares
                           which  shall   constitute   said  five  percent  (5%)
                           interest (on a fully  diluted  basis as is more fully
                           covered in the Warrant) and the Warrant shall contain
                           certain  anti-dilution  features (see form of Warrant
                           attached  as  Exhibit  1)  which  shall  protect  all
                           assignees  of  Stearns  from   percentage   or  price
                           dilution until the Company's next public  offering (a
                           defined  term  in  the   Warrant)   shall  have  been
                           completed, whereupon, in subsequent issues of equity,
                           assignees of Stearns  shall accept  dilution of their
                           interest pro-rata with other holders of common shares
                           or securities convertible or exercisable into same.

                           The  warrants   issuable   upon   execution  of  this
                           Agreement shall be fully vested in the hands of their
                           holders and shall not be cancelable regardless of the
                           termination, for any reason or for

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                           any cause, of this Agreement. Within three (3) months
                           from the date hereof,  any and all Warrants issued in
                           accordance  with this  Agreement,  shall be converted
                           into  Warrants  bearing  the actual  number of shares
                           into  which   each  such   Warrant   certificate   is
                           exercisable  instead  of  the  percentage  of  shares
                           currently   defined  in  the  Warrant  to  be  issued
                           concurrently with the execution of this Agreement.

                           (b) Make the representation and warranties  contained
                           in  paragraphs  and  hereof.  When  made  to  Stearns
                           herein,  all  such  representations,  warranties  and
                           indemnifications   shall  apply  equally  to  Stearns
                           officers,  directors,  affiliates,  heirs, successors
                           and assigns.

         7.       In consideration  for the services  rendered to the Company by
                  Stearns,   Stearns  shall  charge  the  Company  for  services
                  rendered,  commencing with the date of this Agreement,  by its
                  personnel at the  following  per diem rates which  represent a
                  substantial reduction from its normal charges:

                  An initial fee of $34,000 as additional  inducement,  together
                  with the issuance of a warrant to purchase  168,292  shares of
                  CLI  Common  Stocks on the same  terms and  conditions  as may
                  hereafter be issued to investors  in the  contemplated  Bridge
                  Financing  undertaken  shortly,  and  covering   investigatory
                  efforts by Stearns to the date hereof.

                  The following fees and expense rates shall apply hereafter:

                                                              Per Diem

                           Warren C. Stearns                  $1500*
                           Others                             Cost plus 20%
                           Expenses                           Cost plus 20%

         *        Or $190.00/hr for partial days (primarily  Chicago area).  Per
                  diem rates shall apply regardless of the length of the working
                  day  (providing the working day shall have been at least eight
                  (8) hours) and no charges

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                  shall be made for travel  time  unless  same is during  normal
                  working hours during the normal Monday-Friday work week.

                  Payment of fees and  expenses  may be  delayed by the  Company
                  pending  first  receipt of proceeds  from  outside  financing;
                  thereafter,  fees and  expenses  shall be  billed  monthly  in
                  arrears and payable net, 10 days.

                  Statements  from  Stearns  shall be  submitted  monthly to the
                  Company  accompanied by receipts or other documentation as the
                  Company shall reasonably request.

         8.       Stearns shall have the right to rely on verbal instructions or
                  approvals of the Chief Executive, other designated officer, or
                  General  Counsel to the Company with respect to  initiating or
                  continuing to incur fees or expenses.

                  Similarly,  the  parties  hereto  have agreed that most of the
                  communication  between the Company and Stearns shall be verbal
                  so as to  minimize  the amount of time  actually  billable  by
                  Stearns to the Company.  However,  Stearns stands ready at any
                  time to communicate its reports, recommendations,  or comments
                  on any matter in writing if requested to do so by the Company.

         9.       The  Company  acknowledges  that all of the  compensation  due
                  Stearns as a result of its  performance  hereunder  and all of
                  the  inducements  granted  by the  Company to Stearns to enter
                  into the  relationship  created hereby are accepted by Stearns
                  based   on   its   continued   reliance   on   the   Company's
                  representations  and  warranties  contained in this  paragraph
                  and, upon  execution of this  Agreement,  delivered  hereby to

                  The  Company  represents  that it has agreed in  principle  to
                  engage in one or more private  securities  offerings  (more or
                  less,  immediately)  and to seek a next public offering of its
                  common  stock at an early date  (expected to be not later than
                  the end of 1997) to raise needed  capital and, also, to aid in
                  liquefying  existing  investment.  The Company also represents
                  and warrants to Stearns that:

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                           Except  as  already  disclosed  to  Stearns,  it is a
                           corporation  in  good  standing,  has  correctly  and
                           timely filed all reports and notices and has done all
                           such other  things as it is  required to do and to be
                           so filed by all the various  state and federal  laws,
                           rules,  regulations and statutes to which the Company
                           is subject,  is not in  litigation  or  subjected  to
                           threatened  litigation,  has good title to all of its
                           assets  including  but  not  limited  to its  patents
                           (whether  owned or  licensed),  and is in  compliance
                           with each and every  contract or  agreement  which is
                           binding upon it.

                           It   will   engage   competent   securities   counsel
                           reasonably  acceptable to Stearns to prepare offering
                           material  for  each  offering  contemplated  by  this

                           It will begin to  substantially  revise its  Business
                           Plan, in an expeditious  manner,  along the lines and
                           in accordance  with the  suggestions  made by Stearns
                           concurrent with the execution of this  Agreement.  As
                           well, it will furnish Stearns with adequate copies of
                           same as well as such further documentation as Stearns
                           may, from time to time, reasonably request.

                           It will prepare or cause to be prepare or cause to be
                           prepared a  written,  taped,  and  verbal  "technical
                           presentation" and will use its best efforts to attend
                           meetings with  security  analysts to expose a variety
                           of   financial    institutions   of   its   technical

                           It  will  engage  the  services  of  an   experienced
                           businessman  to  act  as  interim  CEO  who  will  be
                           competent  to  attend  to  the  coordination  of  all
                           contemplated activities particularly attendant to the
                           preparation of the Company to financial  institutions
                           and investment bankers.

                           It  will  engage  an   accounting   firm   reasonably
                           acceptable  to Stearns to prepare  audited  financial
                           statements reflecting the Company's financial history
                           for the last three (3) fiscal years.  Said statements
                           shall be prepared in accordance with generally

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                           accepted accounting  principles but shall capitalize,
                           to the extent possible,  the Company's  investment in
                           its patents, prototypes, research and development.

                           That there are no existing  agreements with any party
                           which would act to  mitigate or prohibit  the Company
                           from performance of all actions  contemplated by this
                           Agreement  and  that it has full  authority  to enter
                           into this Agreement.  Additionally,  that the Company
                           is unaware  of any  potential  claim or  payment  for
                           services in the nature of a finder's fee or any other
                           arrangements,   agreements,  payments,  issuances  or
                           understandings  that would operate to affect Stearns'
                           compensation  (including the issuance of the Warrant)

                           It  does,  hereby,   indemnify  Stearns  against  any
                           liability   whatsoever   (including  legal  fees  and
                           expenses)  arising  from claims made by others  based
                           upon  misstatements  or  omissions  of material  fact
                           whether in offering  material prepared by the Company
                           or in  statements  made  or  alleged  to be  made  by
                           employees,  agents,  or  consultants  to the  Company
                           (other than  Stearns).  In this  connection,  Stearns
                           shall rely upon the Company's assurance, made herein,
                           that, upon notice,  the Company shall promptly engage
                           competent  counsel to defend Stearns or failing to do
                           so for a period of thirty (30) days after  receipt of
                           notice,  shall,  immediately upon receipt,  reimburse
                           Stearns for any fees or expenses Stearns, in its sole
                           discretion, deems necessary for its defense.

                           It shall  cooperate fully with Stearns in its efforts
                           to secure  outside  capital for the Company and shall
                           not  unreasonably   delay  approval  or  delivery  of
                           information  or  documentation   (including  executed
                           documentation)   necessary   to  conclude   financing
                           originated by Stearns and approved by the Company.

                           It  recognizes  and  confirms  that,  in advising the
                           Company and in fulfilling its  engagement  hereunder,
                           Stearns will use and rely on data, material and other
                           information furnished to Stearns by the

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                           Company.  The Company acknowledges and agrees that in
                           performing its services under this Agreement, Stearns
                           may  rely   upon  the   data,   material   and  other
                           information  supplied by the Company  without in each
                           and  every  case  being  obligated  to  independently
                           verify the  accuracy,  completeness  or  veracity  of

                           In the  event  of any  dispute  between  the  parties
                           hereto,  at the sole option of  Stearns,  the Company
                           will submit same to  arbitration  in accordance  with
                           the rules of the American Arbitration Association and
                           that the prevailing  party in any such arbitration or
                           litigation,  as the  case  may be,  shall be paid its
                           reasonably  attorneys' fees and expenses arising from
                           such proceeding by the other party.

         10.      The term of this  Agreement  is for a period  of one  (1) year
                  from the date hereof or for a period  ending on  the  date  on
                  which a Registration  Statement  covering a public offering of
                  the  Company's  securities  is  declared  effective  by    the
                  Securities  and  Exchange  Commission,  whichever  date  lasts
                  occurs.   Notwithstanding  anything to  the contrary  in  this
                  paragraph,  this  Agreement  may be terminated by either party
                  to this Agreement at any time in its discretion, upon ten (10)
                  days written notice to the other party.

                  In the event that this  Agreement is terminated by the Company
                  for any reason prior to the  termination  date provided in the
                  first  sentence  of this  paragraph  , the  rights  under  the
                  Warrant or Warrants, of even date herewith, by and between the
                  Company and  assignees of sterns shall  continue in full force
                  and effect according to its terms. Additionally,  in the event
                  the Company terminates this Agreement prior to the termination
                  date set forth in the first  sentence of this  paragraph , the
                  Company  shall,   immediately   upon  submission  of  a  final
                  statement by Stearns, pay all the fees and expenses accrued to
                  Stearns through the date of termination.

                  In the event that this Agreement is terminated by Stearns,  it
                  shall be terminated  only by Stearns'  declaration of a breach
                  on the Company's

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                  party  of  this  Agreement   (particularly   pursuant  to  the
                  provisions  of  paragraph  hereof) or because  the Company has
                  elected to materially  delay or change its financing  strategy
                  in such a fashion that the  financing(s)  contemplated  herein
                  are no  longer  feasible  within  the  term  frame  originally
                  contemplated.  In such event, the Company and Stearns agree to
                  work out some mutually  agreeable means by which the Company's
                  obligations  to Stearns may be paid  without  undue  burden on
                  either party.

         11.      Stearns  will  execute  and agrees  hereby to abide by (to the
                  extent its provisions are not in conflict with the performance
                  of duties expected of Stearns to this Agreement) an "Agreement
                  For The  Protection  Of  Confidential  Information")  with the

         If the foregoing  correctly documents the understandings and agreements
reached  between us, please execute this letter  agreement in the space provided
below and return a copy of it for our files.

Very truly yours,                           Read, Understood and Agree:

Stearns Management Company          Cheung Laboratories, Inc.

By:  /s/ ____________________       By:  /s/_______________________
     Warren C. Stearns                   Augustine Y. Cheung
     President                           President

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