<PAGE>   1
                                                                   EXHIBIT 10.26



                                LICENSE AGREEMENT

           This agreement, effective as of the 23rd day of May, 1996 is entered
into by and between the Life Support Division of Litton Systems, Inc., a
Delaware Corporation, having an address at 2734 Hickory Grove Road, Post Office
Box 4508, Davenport, Iowa, 52808-4508 (hereinafter "Licensor") and Chad
Therapeutics, Inc., a California Corporation, having an address at 9445 DeSoto
Avenue, Chatsworth, California 91311 (hereinafter "Licensee").

           WHEREAS Licensor has developed oxygen gas concentrator and pressure
intensifier technologies and related products for applications in the military,
industrial and recreational markets and is of the belief that such technologies
have application in the health care market.

           WHEREAS Licensee has demonstrated capabilities for manufacturing and
marketing oxygen delivery systems in the health care market.

           WHEREAS the parties desire to undertake a program to redesign and
repackage Licensor's technologies referenced hereinabove into a combined oxygen
concentrator and oxygen cylinder charging system which will utilize Licensor's
technologies to provide a product suitable for application in the health care
market.
           WHEREAS the parties have entered into a Product Design Agreement
dated April 16, 1996 which, as one of its terms and conditions, requires that
there will be a license agreement permitting Licensee to utilize the Licensor's
technologies for the manufacture and sale of the aforementioned product in the
health care market.

           NOW THEREFORE, in consideration of the foregoing premises, the mutual
promises contained herein and other good and valuable consideration, the receipt
of which is hereby acknowledged, and intending to be legally bound hereby
Licensor and Licensee hereby agree as follows:



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                                    ARTICLE I

Definitions:

As used herein:

A.      Territory shall mean the world with the exception of Japan, China,
        Taiwan, Korea, Hong Kong, Singapore and Malaysia. One year after the
        effective date of this agreement and if the aforementioned expected
        countries are available for exclusive licensing of the product, Licensor
        shall negotiate in good faith with Licensee for the extension of this
        license agreement to include the excepted territories.

B.      "Product" shall mean the combination of an oxygen concentrator and
        pressure intensifier and cylinder charging system with appropriate
        valves, controls and the like and suitable packaging made according to
        the specification in paragraph 1 B of the above referenced Product
        Design Agreement, which product shall be marketed and sold as a health
        care product.

C.      "Field of Use" shall mean the health care market excluding the military,
        industrial and recreational markets for gas generation delivery or
        supply systems.

D.      "Licensed Technology" shall mean Licensor's oxygen concentrator and
        pressure intensifier technology as embodied in Licensor's proprietary
        information, U.S. patent numbers 5,071,543, expiring on December 10,
        2008 and 5,354,361, expiring on October 11, 2011 and related foreign
        patents, and Licensor's invention disclosure docket number LILS-149 for
        which a patent application shall be pending in the United States and
        selected foreign countries.

E.      "Net Selling Price" shall mean the gross sales or lease price by which
        Licensee transfers title or possession of a Product less only usual
        trade discounts, sales tax which the seller has to pay or absorb, custom
        duties and transportation and insurance charges, if not included in the
        gross price, and any and a federal, foreign, state or local taxes
        (except income tax) incurred by the seller on such sales or leases.



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F.      "Sales, Sell or Sold", shall mean any sale, transfer, lease, license,
        permission to use or other transfer of the right of possession or title
        or other conveyance by Licensee.

G.      "Proprietary Information" shall mean any scientific or technical
        information, design, process, procedure, formula or improvement that is
        competitively advantageous and secret and that is not generally known in
        the industry and any data or information having competitive advantages
        which may include, but not be limited to, data, data bases, software,
        product plans, strategies, materials, customer names and other
        information related to customers, price fists, pricing policies and
        financial information which the parties consider sensitive and which is
        not generally known to the public. The term Proprietary Information
        specifically includes those items which might otherwise be known as
        knowhow or trade secrets. It shall not include information which is not
        marked as "Proprietary Information" or an equivalent term. 

                                   ARTICLE II

License Grant:

A.      Licensor hereby grants to Licensee an exclusive, nontransferable,
        royalty bearing license with a right of sublicense to make, use and sell
        Products throughout the Territory in the Field of Use.

B.      Any provision of this agreement to the contrary notwithstanding,
        Licensor reserves the right to make, use and sell Products according to
        the Licensed Technology in others than the Field of Use anywhere and in
        the Field of Use outside the Territory and to use the Licensed
        Technology in the military, industrial and recreational markets for any
        purpose.


                                   ARTICLE III

Consideration and Payments:



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A.      In consideration of the granting herein of the license as described in
        Article II, Licensee shall pay Licensor:
                     
        1.      A nonrefundable licensing fee in the amount of $1,250,000.00 to
                be paid in the following installments:

                a.      On the effective date of this agreement a payment of
                        $150,000.00.

                b.      On each of the dates July 15, 1996 and November 15, 1996
                        payments in the amount of $250,000.00, respectively.

                C.      On each of the dates February 15, 1997 and April 15,
                        1997 payments of $300,000.00, respectively.

        2.      Royalties at the rate of 4% of the Net Selling Price of Products
                sold or leased by Licensee or any sublicensee under this
                agreement. In the event that by reason of the action of a court
                or tribunal of competent jurisdiction no valid claim of any
                existing U. S. patent or U.S. patent which matures from a patent
                application owned by Licensor covers the Product, Licensee or
                any sublicensee shall have the right to reduce the aforesaid
                royalty rate to 2% of the Net Selling Price. Additionally,
                Licensee or any sublicensee shall deposit the amount of the
                difference between 4% and 2% royalties into escrow until such
                time that the validity or enforceability of any such claim
                covering a Product is determined from which there can be no
                further appeal or review. If all claims covering a Product are
                determined invalid or unenforceable and there can be no further
                appeal or review of such decision, Licensee or a sublicensee
                shall have the right to dispose of the escrowed royalties in any
                manner they deem necessary and reasonable, otherwise the
                escrowed amounts shall be paid to Licensor.

B.      All payments to Licensor under this agreement shall be made in U.S.
        dollars at Licensor's address for notice. The payments listed in
        paragraph A1 shall be made on the stated dates.



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        The royalty payments shall be paid to Licensor quarterly on a calendar
        year basis. Payments for sales made during each quarter of each calendar
        year shall be made to Licensor within thirty (30) days after the last
        day of each calendar quarter.

C.      Licensee shall pay all royalties due hereunder to Licensor and Licensor
        shall not be required to look to any other entity for payment.

                                   ARTICLE IV

Sublicenses:

A.      Subject to this paragraph, Licensee may grant sublicenses to persons or
        entities specifically approved in writing by Licensor, which approval
        shall not be unreasonably withheld, provided that each sublicense
        contains a provision that such sublicense and the rights thereby granted
        are personal to the sublicensee thereunder and such sublicense cannot be
        further assigned or sublicensed.

B.      Any sublicense granted pursuant to this Article shall be in accordance
        with the terms and conditions of this agreement.

C.      In respect of any sublicense granted by Licensee in accordance with this
        article, Licensee shall promptly pay to Licensor an amount equal to 25%
        of any lump sum or other payment, howsoever calculated, in addition to
        the royalties set forth in Article III above, made by the sublicensee
        thereunder in consideration for the grant of such sublicense to it by
        the Licensee. 

                                   ARTICLE V

Accounts:

A.      Not later than March 1 of each calendar year, Licensee shall furnish to
        Licensor a statement showing the total net sales of products made
        according to the Licensed Technology by



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        Licensee during the immediate preceding calendar year and the royalties
        payable thereon calculated in the manner required in Article III.

B.      Licensee shall keep at its usual place of business true and accurate
        accounts of all matters connected with the use of the Licensed
        Technology and the manufacture and sale of all Products and shall keep
        books of account relating to royalties payable hereunder containing true
        entries complete in every particular as may be necessary or proper for
        enabling the amount of such royalties to be conveniently ascertained.

C.      If requested in writing by Licensor, Licensee shall at all reasonable
        times produce evidence of the matters referred to in this Article V and
        shall permit such evidence to be verified by an independent accountant
        to be selected and paid for by Licensor. Licensee shall give such
        accountant all necessary facilities for verifying such evidence and
        shall give such information as may be necessary or proper to enable the
        amount of the royalties to be verified.

                                   ARTICLE VI

Improvement:

A.      Should Licensee, or any consultant or employee of Licensee, during the
        term of this agreement make or discover any improvement in the Licensed
        Technology, whether patentable or not, Licensee shall forthwith disclose
        or cause the same to be disclosed to Licensor. Licensee shall own all
        right, title and interest in any such discovery or improvement. However,
        Licensee shall make available to Licensor any improvements or
        modifications it makes to the Licensed Technology and grant Licensor an
        irrevocable, nonexclusive, royalty free unrestricted license to use the
        improvements for the purposes stated in Article II, paragraph B. If so
        requested by Licensor, Licensee shall make available or supply to
        Licensor such information or data as is necessary or convenient for the
        proper understanding or use of such discovery or improvement.



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B.      If Licensor makes or discovers any improvement in the Licensed
        Technology, whether patentable or not, which if practiced would
        constitute an infringement of any patent included in the Licensed
        Technology or would be obvious to one skilled in the art in view of any
        description of the Licensed Technology, Licensor shall forthwith
        disclose or cause the same to be disclosed to Licensee and such
        improvement shall be deemed to be included in the term "Licensed
        Technology" and to be included in this agreement and be subject to the
        terms hereof

                                   ARTICLE VII

Confidentiality:

A.      Licensee shall not disclose any Proprietary Information other than to
        Licensee employees who must have access to such information in order to
        carry out Licensee's obligations under this agreement, and to potential
        sublicensees of the Licensed Technology, providing such disclosure is in
        accordance with paragraph C of this Article. Prior to disclosure of
        Proprietary Information to Licensee employees, such employees shall be
        under a written obligation of confidentiality to Licensee consistent
        with this agreement. Trade secrets and knowhow shall be maintained in
        confidence by Licensee for so long as such information is maintained in
        confidence by Licensor.

B.      To protect Licensor's Proprietary Information, Licensee shall adopt
        security measures commonly observed in industries that rely on
        Proprietary Information. These measures shall include, but not be
        limited to, restricted access to such information, marking such
        information and the selective destruction of sensitive materials. Upon
        termination of this agreement, Licensee shall return or destroy all
        documents or materials embodying Licensor's proprietary information.

C.      Any disclosure of Proprietary Information by Licensee to potential
        vendors, subcontractors or sublicensees of the Licensed Technology shall
        be prohibited, unless such potential vendor



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        subcontractor or sublicensee has signed an agreement which imposes
        obligations of confidentiality and nonuse at least as restrictive as
        those imposed on Licensee hereunder.

                                   ARTICLE VII

Initial Development and Full Use of Licensed Technology:

        Should Licensor not receive a minimum of $100,000.00 in royalties from
Licensee during the third year of this agreement as measured from the effective
date of hereof, $300,000.00 during the fourth year and $500,000.00 during the
fifth year and each year thereafter, Licensor shall have the option to terminate
the license granted hereunder, to allow this agreement to continue in full force
and effect or to convert the exclusive license granted hereunder to a
nonexclusive license. The exercise of this option shall be taken only on sixty
(60) days written notice to Licensee. During the latter sixty (60) day period,
Licensee may prevent such option from being exercised by paying Licensor an
amount equal to the difference between the minimum royalty required for the year
for which notice is given and the amount of royalty actually paid.


                                   ARTICLE IX

Protection of Intellectual Property:

A.      The cost of preparing, prosecuting and maintaining the patent
        application included in the Licensed Technology and any other patent
        applications or copyright applications the Licensor determines to file
        on improvements as defined in Article VI shall be borne by Licensor.

B.      Licensee shall cooperate with Licensor in enforcing or policing
        intellectual property protection for the Licensed Technology and
        improvements as provided in Article X hereinbelow and by taking all
        appropriate measures including marking Proprietary Information as
        required.



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<PAGE>   9
                                    ARTICLE X


Notice of Infringement and Enforcement of Rights:

A.      Immediately upon Licensee's learning of any infringement,
        misappropriation or unauthorized use of Licensor's Proprietary
        Information, patents or other intellectual property rights pertaining to
        the Licensed Technology, Licensee shall promptly inform Licensor.

B.      If Licensee and Licensor agree to jointly pursue enforcement of
        Licensor's intellectual property rights, then the parties hereto shall
        share equally all costs, fees and/or expenses incurred in connection
        with enforcement of Licensor's intellectual property rights provided
        only that Licensor's maximum exposure for such costs, fees and expenses
        shall be the amounts of compensation paid and/or payable to Licensor by
        Licensee hereunder. Any payments accruing from such action to enforce
        Licensor's intellectual property rights shall be paid to Licensee and
        Licensor in proportion to the party's respective contributions to all
        costs, fees and/or expenses incurred in such action.

C.      In the event that either party shall determine for any reason that it
        does not choose to enforce Licensor's intellectual property rights then
        that party shall promptly notify the other party of such decision. The
        party choosing to enforce Licensor's intellectual property rights may
        then proceed with such enforcement action solely at its own expense and
        any and all recoveries shall be awarded solely and exclusively to that
        party. However, it is agreed that said other party shall cooperate in
        enforcement of the intellectual property rights, such as by providing
        witnesses and other evidence as needed by the enforcing party at the
        cost of the enforcing party.

                                   ARTICLE XI

Indemnity:

A.      License hereby indemnifies holds harmless Licensor, its parent
        corporation, affiliates and



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        their employees, officers, board members and agents from and against all
        claims, suits, liabilities, damages, costs, fees, expenses or losses
        arising out of or resulting from Licensee's performance of this
        agreement, including any damages, losses or liabilities whatsoever with
        respect to death or injury to any person and damage to any property
        arising from the possession, use or operation of Products produced or
        sold by Licensee or its sublicensees or their customers in any manner
        whatsoever. This indemnity shall not apply to claims, suits,
        liabilities, damages, costs, fees, expenses or losses directly
        attributable to components or subassemblies supplied by Licensor, for
        use in Products of Licensee. 

B.      Licensor hereby indemnifies and holds harmless Licensee and its
        employees, officers, board members and agents from and against all
        claims, suits, liabilities, damages, costs, fees, expenses or losses
        arising out of third party claims against Licensee (1) for patent,
        copyright and/or trademark infringement resulting directly from
        Licensee's use of the Licensed Technology in the manufacture and sale of
        the Products and (2) for product liability directly relating to the
        licensed technology. This indemnity does not extend to claims of
        infringement arising from combinations of the Licensed Technology with
        Licensee's technology or Licensee's modifications to the Licensed
        Technology.

                                   ARTICLE XII

Disclaimer, Warranty and Limitation of Liability:

        Except as expressly set forth in this agreement, Licensor disclaims any
and all promises, representations and warranties with respect to the Licensed
Technology, including its condition, conformity to any representation or
description, the existence of any latent or patent defects therein and its
merchantability or fitness for a particular use or purpose.

                                  ARTICLE XIII

Ownership of Licensed Technology.

        Licensor represents that it is the exclusive owner by assignment from
the inventors and its



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employees of the Licensed Technology, that it has the right to grant the License
herein granted, and that prior to the effective date of this agreement, it has
not granted, nor is it under any obligation to grant, any person or party any
right, license, shopright or privilege under the Licensed Technology

                                   ARTICLE XIV

Trademarks:

        Except for purposes of descriptively identifying the Licensed
Technology, no right, title, interest or license to any trademark or service
mark of Licensor is granted to Licensee.

                                   ARTICLE XV

Relationship Between the Parties:

        Licensor and Licensee are and shall remain independent contractors and
nothing herein shall create a partnership or joint venture between Licensor and
Licensee.

                                   ARTICLE XVI

Advertising, Publicity and Publications:

A.      Except as otherwise provided herein, Licensee shall not use the names of
        Litton Systems, Inc. or Litton Industries, Inc. or any of their
        respective affiliates or divisions in any advertisement or sales
        materials without the prior written consent of Licensor.

B.      In any publication (including advertisements, sales and trade literature
        and instruction manuals) relating to the Licensed Technology used
        pursuant to this agreement, Licensee shall give due credit to Licensor
        as owner and Licensor of the Licensed Technology. 

                                  ARTICLE XVII

Term and Termination:

A.      This agreement shall commence on the stated effective date of this
        agreement and shall



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        continue until the expiration of the last expiring patent covering any
        of the Licensed Technology licensed hereunder or the cessation of use of
        the Proprietary Information by Licensee, whichever is later.
        Notwithstanding the foregoing the obligations of the parties under
        Article VII, XI and XII shall survive any termination of this agreement.

B.      In the event of the breach of a material obligation hereunder by either
        party, the nonbreaching party shall inform the alleged breaching party
        of said breach in writing. The alleged breaching party shall have thirty
        (30) days from the date of said notification during which time to cure
        the breach. In the event the alleged breaching party does not cure the
        breach within thirty (30) days, the nonbreaching party may terminate
        this agreement.

C.      In the event the aforementioned Product Design Agreement is terminated
        for any of the reasons fisted in Article VIII of that agreement, either
        party shall have the option to terminate this agreement. However, any of
        the sums due Licensor under Article III upon the date of termination
        shall be paid to Licensor within thirty (30) days after such
        termination.

D.      Licensee shall within thirty (30) days of termination of this agreement
        for any reason deliver to Licensor all written documentation in the
        possession of Licensee which contains Proprietary Information pertaining
        to the Licensed Technology.

                                  ARTICLE XVIII

Tooling and Supplies:

A.      Licensor shall manufacture and sell any pressure intensifiers (boost
        pumps) required for the Products to Licensee on an exclusive basis for
        the Field of Use within the Territory.

B.      Licensor shall sell to Licensee on a nonexclusive basis and Licensee
        shall buy from Licensor its requirements for oxygen monitors for the
        Products.

C.      Licensor shall retain ownership of the tooling for the aforementioned
        pressure intensifiers. However, Licensee will purchase and retain
        ownership of any remaining tooling required for the manufacture of the
        Product.



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<PAGE>   13
D.      In the event that Licensor is unable or unwilling to supply Licensee's
        requirements for pressure intensifiers (boost pumps) and oxygen
        monitors. Licensor shall sell to Licensee the aforesaid tooling and
        technical information (specifications, material lists, vendor lists,
        assembly instructions and the like) necessary to manufacture the
        pressure intensifiers or oxygen monitors at Licensors then fair market
        value, not to exceed $250,000.00, for said tooling and technical
        information. Said tooling and technical information shall only be
        utilized by licensee to manufacture the products.

                                   ARTICLE XIX

Notices:

        All notices required or permitted under this agreement shall be in
writing and shall be delivered personally or sent by certified registered mail
to Licensee or Licensor at the addresses set forth below.

To Licensor:                                  To Licensee:

P.O. Box 4508                                 9445 De Soto Avenue
2734 Hickory Grove Road                       Chatsworth, California 91311
Davenport, Iowa 52808-4508

                                   ARTICLE XX

Waiver:

        Waiver by either party of any term or provision of this agreement shall
not constitute a continuing waiver thereof nor of any further or additional
rights such party may hold under this agreement.



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                                   ARTICLE XXI

Severability:

        If any provision of the agreement shall be held to be invalid, illegal
or unenforceable, the validity, legality or unenforceability of the remaining
provisions shall not in any way be affected or impaired.

                                  ARTICLE XXII

Governing Law and Disputes:

A.      This agreement shall be construed in accordance with the laws of the
        State of Iowa, with the exception of its rules on the conflicts of laws.

B.      Any disputes arising under this and/or the Product Design Agreement
        shall be decided by arbitration in accordance with the rules of the
        American Arbitration Association. Each party shall appoint an
        arbitrator, and the two, thus selected, shall appoint a third. If either
        party fails to appoint an arbitrator within sixty (60) days after
        receipt of the notice from the other party of its appointment of an
        arbitrator, or if the arbitrators fail to appoint a third, the
        appointment(s) shall be made by the President of the American
        Arbitration Association or his designee. The arbitration will be held as
        promptly as possible at a time and place determined by the arbitrators.
        The decision of a majority of the arbitrators shall be final and binding
        upon the parties hereto, and the expense of the arbitration shall be
        shared equally by the parties. Judgement upon the award can be entered
        in any court having jurisdiction, or application can be made to such
        court for a judicial acceptance of the award and an order of
        enforcement, as the case may be.



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                                  ARTICLE XXIII

Miscellaneous:

A.      This agreement along with the Product Design Agreement are the complete
        and exclusive statements between the parties relating to the subject
        matter hereof, and supersedes all prior understandings, communications
        or representations, either oral or written between the parties. This
        license agreement may not be modified or altered except by a written
        instrument duly executed by the parties hereto.

B.      Subject to this paragraph, the license is personal to Licensee. It is
        expressly understood that this agreement may not be assigned by either
        party without the prior written consent of the other.

C.      This agreement shall bind and entire to the benefit of the parties
        hereto and their respective successors and permitted assigns, but
        nothing contained herein shall be deemed to permit assignment by either
        party except as otherwise permitted in this agreement.

D.      Neither party shall be held in breach of this agreement because of acts
        or omissions caused by any act of God or other cause beyond the control
        of the parties including but not limited to fire, floods, labor disputes
        or other unforeseen circumstances.

        IN WITNESS WHEREOF the parties have set their hands and seals and duly
executed this agreement effective as of the date first written above.

Litton Systems, Inc.                      Chad Therapeutics, Inc.
Life Support Division

By /s/ JOHN J. HEFFERNAN                  By /s/ CHARLES R. ADAMS
  ------------------------                   ------------------------
Title    Pres.                            Title    CEO
     ---------------------                      ---------------------
Date     5-31-96                          Date     5-31-96
    ----------------------                     ----------------------



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<PAGE>   16
                      FIRST AMENDMENT TO LICENSE AGREEMENT

        This First Amendment to the License Agreement (the "License First
Amendment") is entered into and made effective as of the 3 day of September,
1996 by and between the Life Support Division of Litton Systems, Inc., a
Delaware corporation, having its address at 2734 Hickory Grove Road, PO Box
4508, Davenport, Iowa 52808 (hereinafter referred to as "Licensor") and Chad
Therapeutic, Inc., a California corporation having its address at 9445 DeSoto
Avenue, Chatsworth, California 91311 (hereinafter referred to as "Licensee"),
and hereinafter collectively referred to as "Parties" and individually as
"Party".

                                    RECITALS

        WHEREAS, Litton and Chad entered into a License Agreement having an
effective date of April 16, 1996 (hereinafter the "License Agreement") for the
design by Litton of a Home Oxygen Concentrator and Cylinder Charging System
(referred to in the License Agreement as "Product" or "Device"); and

        WHEREAS, the Parties desire to amend the terms of the License Agreement
as set forth herein;

        NOW, THEREFORE, in consideration of the foregoing premises, the mutual
promises contained herein and other good and valuable consideration, the receipt
of which is hereby acknowledged, and intending to be legally bound hereby,
Licensor and Licensee hereby agree to amend the License Agreement as follows:

1.      The term "Licensed Technology" shall be amended by the addition of
the following to the end of the definition: "Licensed Technology shall also
include all technical information, computer software, trade secrets and related
intellectual property, including, without limitation, patented technology,
covering the Oxygen Monitor and Test Equipment and related manufacturing
technology to be developed by Licensor and disclosed to Licensee under the terms
of the First Amendment to the Product Design Agreement.

2.      All other terms and conditions of the License Agreement shall remain
in full force and effect and shall cover the reciprocal obligations of the
parties to the extent that they have been modified by this First Amendment.



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        IN WITNESS WHEREOF, the Parties have set their hands and seals and duly
executed this License First Amendment effective as of the date first written
above.

Litton Systems, Inc.
Life Support Division

By:/s/ JOHN J. HEFFERNAN
   -----------------------------
       John J. Heffernan

Title: President - Litton Life Support Division




Chad Therapeutic Inc.

By:/s/ CHARLES R. ADAMS 
   -----------------------------
       Charles R. Adams

Title: Chairman, CEO



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<PAGE>   18
                      SECOND AMENDMENT TO LICENSE AGREEMENT

        This Second Amendment to the License Agreement (the "License Second
Amendment") is entered into and made effective as of the 7 day of November 1996
by and between the Life Support Division of Litton Systems, Inc., a Delaware
corporation, having its address at 2734 Hickory Grove Road, PO Box 4508,
Davenport, Iowa 52808 (hereinafter referred to as "Licensor") and Chad
Therapeutic, Inc., a California corporation having its address at 9445 DeSoto
Avenue, Chatsworth, California 91311 (hereinafter referred to as "Licensee"),
and hereinafter collectively referred to as "Parties" and individually as
"Party".

                                    RECITALS

        WHEREAS, Litton and Chad entered into a License Agreement having an
effective date of April 16, 1996 (hereinafter the "License Agreement") for the
design by Litton of a Home Oxygen Concentrator and Cylinder Charging System
(referred to in the License Agreement as "Product" or "Device"); and

        WHEREAS, the parties entered into a First Amendment to the License
Agreement; and 

        WHEREAS, THE Parties desire to further amend the terms of the License
Agreement as set forth herein;

        NOW, THEREFORE, in consideration of the foregoing premises, the mutual
promises contained herein and other good and valuable consideration, the receipt
of which is hereby acknowledged, and intending to be legally bound hereby,
Licensor and Licensee hereby agree to amend the License Agreement as follows: 

1.      The term "Licensed Technology" shall be amended by the addition of
the following to the end of the definition: "Licensed Technology shall also
include all technical information, computer software, trade secrets and related
intellectual property, including, without limitation, patented technology,
covering the High Pressure Fill Port and Pressure Vessel Flow Controller and
related manufacturing technology to be developed by Licensor and disclosed to
Licensee under the terms of this Second Amendment to the Product Design
Agreement.



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2.      All other terms and conditions of the License Agreement shall remain
in full force and effect and shall cover the reciprocal obligations of the
parties to the extent that they have been modified by the Second Amendment.

3.      In addition to the Licensed Technology statements, the "Product"
definition in Article 1, section B of the License Agreement shall be modified to
reflect the project changes which have transpired since the FDA meeting in July,
1996. The product name, Chad Total Oxygen Delivery System, indicates that the
Product has evolved from an oxygen concentrator to an oxygen delivery system.
The "Product" definition shall be modified to include all of the components
packaged by Chad which make up the "System" that are the results of the Litton
design effort described under the Product Design Agreement and its amendments.
As of the effective date of the License Second Amendment, these components
include the CTODS oxygen concentrator and all portable oxygen cylinders equipped
with the pressure vessel flow control valve (Special Fitting). The terms of the
License Agreement shall govern all portable oxygen cylinders equipped with the
pressure vessel flow control valve (Special Fitting) regardless of whether they
are sold with the "System" or sold separately.

        IN WITNESS WHEREOF, the Parties have set their hands and seals and duly
executed this License Second Amendment effective as of the date first written
above.

Litton Systems, Inc.
Life Support Division


By: /s/ JOHN J. HEFFERNAN
   -------------------------------
        John J. Heffernan

Title: President - Litton Life Support Division


Chad Therapeutic Inc,


By: /s/ CHARLES R. ADAMS
   -------------------------------
        Charles R. Adams

Title: Chairman, CEO



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<PAGE>   20
                      THIRD AMENDMENT TO LICENSE AGREEMENT


        This Third Amendment to the License Agreement (the "License Third
Amendment") is entered into and made effective as of the 15 day of October, 1997
by and between the Life Support Division of Litton Systems, Inc., a Delaware
corporation, having its address at 2734 Hickory Grove Road, P.O. Box 4508,
Davenport, Iowa 52808 (hereinafter referred to as "Licensor") and Chad
Therapeutic, Inc., a California corporation having its address at 21622 Plummer
Street, Chatsworth, California 91311 (hereinafter referred to as "Licensee"),
and hereinafter collectively referred to as "Parties" and individually as
"Party".

                                    RECITALS

        WHEREAS, Litton and Chad entered into a License Agreement having an
effective date of April 16, 1996 (hereinafter the "License Agreement") for the
design by Litton of a Home Oxygen Concentrator and Cylinder Charging System
(referred to in the License Agreement as "Product" or "Device"); and

        WHEREAS, the parties entered into a First Amendment to the License
Agreement having an effective date of September 3,1996 and a Second Amendment to
the License Agreement having an effective date of October 29, 1996; and

        WHEREAS, the parties desire to further amend the terms of the License
Agreement as set forth herein;

        NOW, THEREFORE, in consideration of the foregoing premises, the mutual
promises contained herein and other good and valuable consideration, the receipt
of which is hereby acknowledged, and intending to be legally bound hereby,
Licensor and Licensee hereby agree to amend the License Agreement and the
amendments thereto referenced above as follows:

        1. Licensor hereby grants to Licensee an option to obtain an exclusive,
non-transferable, royalty-bearing license with a right of sublicense to make,
use and sell Products in the Field of Use in Japan, China, Taiwan, Korea, Hong
Kong, Singapore and Malaysia (hereinafter the "Option").



<PAGE>   21
        2. The Option shall be exercisable by Licensee from the effective date
of this License Third Amendment through December 31, 1999, after which time the
Option shall expire.

        3. If Licensor exercises the Option, then Licensee shall pay Licensor
the following sums:

        (a)     Licensee shall pay Licensor the sum of $100,000 within ten
                business days after Licensee notifies Licensor of its exercise
                of the Option; and

        (b)     Licensee shall pay Licensor a second sum of $100,000 twelve
                months after the date on which Licensee has notified Licensor of
                its exercise of the Option.

        4. As further consideration for the grant of said Option, Licensee shall
pay to Licensor royalties at the rate of four percent (4%) of the Net Selling
Price of Products sold or leased by Licensee or any sublicensee in China,
Taiwan, Korea, Hong Kong, Singapore or Malaysia. For sales of Products in Japan,
Licensee shall pay to Licensor a royalty at the rate of six percent (6%) of the
Net Selling Price of Products sold in Japan by Licensee or a sublicensee.

        5. In consideration of Licensor deferring its right to make use of the
Licensed Technology in Japan, China, Taiwan, Korea, Hong Kong, Singapore or
Malaysia during the time that the Option is available for exercise by Licensee,
Licensee shall pay to Licensor the sum of $50,000 on or before January 31, 2000
if Licensee does not exercise the Option within the time period set forth in
Paragraph 2 herein.

        IN WITNESS WHEREOF, the Parties have set their hands and seals and duly
executed this License Third Amendment effective as of the date first written
above. 

LITTON SYSTEMS, INC.                         CHAD THERAPEUTIC, INC.
LIFE SUPPORT DIVISION

By: /s/ JOHN J. HEFFERNAN                    By: /s/ CHARLES R. ADAMS
   -------------------------------              -------------------------------
   John J. Heffernan, President                 Charles R. Adams
   Litton Life Support Division                 Chairman, CEO