ALLIED HEALTHCARE PRODUCTS, INC.
                              1720 Sublette Avenue
                           St. Louis, Missouri 63110

                               December 16, 1996


Mr. Ted Atwood
124 South Price Road
St. Louis, MO  63124

Dear Mr. Atwood:

           Allied  Healthcare  Products,  Inc.  (the  "Company")  considers  the
establishment and maintenance of a sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its shareholders.
In this  connection,  the  Company  recognizes  that,  as is the case  with many
publicly held corporations, the possibility of a change in control may exist and
that such  possibility,  and the  uncertainty  and questions  which it may raise
among  management,  may result in the  departure or  distraction  of  management
personnel to the detriment of the Company and its shareholders. Accordingly, the
Company's  Board of Directors has determined  that  appropriate  steps should be
taken,  to reinforce and encourage  the  continued  attention and  dedication of
members of the  Company's  management,  including  yourself,  to their  assigned
duties  without   distraction  in  the  face  of  the   potentially   disturbing
circumstances  arising  from the  possibility  of a  change  in  control  of the
Company.

           In order to induce you to remain in the employ of the  company,  this
letter agreement sets forth the severance benefits which the Company agrees will
be provided to you in the event your  employment  with the Company is terminated
subsequent  to a "change  in control of the  Company"  (as  defined in Section 2
hereof) under the circumstances described below.

           1.  TERM.  This Agreement shall commence on the date hereof and shall
continue until December 31, 1998; provided,  however, that commencing on January
1,  1998 and each  January  1st  thereafter,  the term of this  Agreement  shall
automatically  be extended for one additional year unless at least 30 days prior
to such January 1st date,  the Company  shall have given notice that it does not
wish to extend this Agreement, and provided, further, that following a change in
control of the Company (as hereinafter defined) the term of this Agreement shall
automatically  extend to the date which is two years  following  such  change in
control.


<PAGE>


           2.  CHANGE IN CONTROL.  No benefits shall be payable hereunder unless
there shall have been a change in control of the  Company,  as set forth  below,
and your  employment by the Company  shall  thereafter  have been  terminated in
accordance with Section 3 below.  For purposes of this  Agreement,  a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported  in  response to Item 5(f) of Schedule  14A  promulgated
under the Securities Exchange Act of 1934, as amended ("Exchange Act"); provided
that,  without  limitation,  such a change  in  control  shall be deemed to have
occurred if (i) any "person" (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or indirectly,
of  securities  of the Company  representing  a majority of the combined  voting
power of the Company's then outstanding securities; or (ii) during any period of
two  consecutive  years,  individuals  who  at  the  beginning  of  such  period
constitute  the Board of Directors of the Company  (the  "Board")  cease for any
reason to constitute  at least a majority  thereof  unless the election,  or the
nomination for election by the Company's shareholders,  of each new director was
approved by a vote of at least  two-thirds of the directors then still in office
who were directors at the beginning of the period.

           3.  TERMINATION FOLLOWING CHANGE OF CONTROL.  If  any  of the  events
described  in Section 2 hereof  constituting  a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in Section 4
hereof upon the subsequent termination of your employment within a period of two
(2) years  following  such  change in control  unless  such  termination  is (a)
because of your death or Retirement,  (b) by the Company for Cause or Disability
or (c) by you other than for Good Reason.

               (i)  DISABILITY; RETIREMENT.

               (A)  If, as a result of your incapacity due to physical or mental
illness,  you shall have been absent from your duties with the Company on a full
time basis for 130 consecutive  business days, and within thirty (30) days after
written  notice of  termination is given you shall not have returned to the full
time  performance  of your duties,  the Company may terminate this Agreement for
"Disability."

               (B)  Termination  by the Company or you of your employment  based
on  "Retirement"  shall  mean  termination  in  accordance  with  the  Company's
retirement  policy,  including  early  retirement,  generally  applicable to its
salaried employees or in accordance with any retirement arrangement  established
with your consent with respect to you.

              (ii)  CAUSE.  The Company may terminate your employment for Cause.
For the purposes of this Agreement,  the Company shall have "Cause" to terminate
your employment  hereunder upon (A) the willful and continued  failure by you to
substantially  perform your duties with the Company (other than any such failure
resulting  from your  incapacity  due to  physical or mental  illness),  after a
demand  for  substantial  performance  is  delivered  to you by the Board  which
specifically identifies the manner in


<PAGE>


which the Board believes that you have not  substantially  performed you duties,
or  (B)  the  willful  engaging  by  you  in  gross  misconduct  materially  and
demonstrably  injurious to the Company. For purposes of this paragraph,  no act,
or failure to act, on your part shall be  considered  "willful"  unless done, or
omitted to be done, by you not in good faith and without  reasonable belief that
your action or omission was in the best interest of the Company. Notwithstanding
the foregoing,  you shall not be deemed to have been terminated for Cause unless
and until there shall have been  delivered  to you a copy of a  resolution  duly
adopted  by the  affirmative  vote of not less  than  two-thirds  of the  entire
membership  of the  Board at a  meeting  of the  Board  called  and held for the
purpose (after  reasonable  notice to you and an opportunity  for you,  together
with your counsel, to be heard before the Board), finding that in the good faith
opinion of the Board you were  guilty of conduct  set forth above in clauses (A)
or (B) of the first sentence of this  paragraph and  specifying the  particulars
thereof in detail.

             (iii)  GOOD REASON.  You  may  terminate your employment  for  Good
Reason. For purposes of this Agreement "Good Reason" shall mean:

               (A)  without  your express written consent, the assignment to you
of  any   duties   materially   inconsistent   with  your   positions,   duties,
responsibilities  and status with the Company  immediately  prior to a change in
control;

               (B)  a reduction by the Company  in your base salary as in effect
on the date hereof or as the same may be increased from time to time;

               (C)  the Company's requiring you  to be based anywhere other than
the  Company's  facility  where  you  performed  your  duties  for  the  Company
immediately prior to a change in control; and

               (D)  the failure by the Company to continue in effect any benefit
or compensation  plan,  pension plan,  life insurance plan,  health and accident
plan or disability plan in which you are  participating  at the time of a change
in control of the Company (or plans  providing  you with  substantially  similar
benefits),  the taking of any action by the Company which would adversely affect
your participation in or materially reduce your benefits under any of such plans
or deprive you of any material  fringe benefit enjoyed by you at the time of the
change in control,  or the failure by the Company to provide you with the number
of paid  vacation  days to which you are then  entitled on the basis of years of
service with the Company in accordance with the Company's normal vacation policy
in effect on the date hereof;

               (E)  the  failure of the Company to obtain the assumption of  the
agreement  to  perform  this  Agreement  by any  successor  as  contemplated  in
paragraph 5 hereof; or


<PAGE>


               (F)  any  purported termination of  your employment which is  not
effected  pursuant to a Notice of  Termination  satisfying the  requirements  of
subparagraph (iv) below (and, if applicable,  subparagraph (ii) above);  and for
purposes of this Agreement, no such purported termination shall be effective.

              (iv)  NOTICE OF TERMINATION.  Any   termination  by  the   Company
pursuant to  subparagraphs  (i) or (ii) above or by you pursuant to subparagraph
(iii) above shall be  communicated by written Notice of Termination to the other
party hereto.  For purposes of this Agreement,  a "Notice of Termination"  shall
mean a notice which shall  indicate the specific  termination  provision in this
Agreement  relied  upon and shall set forth in  reasonable  detail the facts and
circumstances  claimed to  provide a basis for  termination  of your  employment
under the provision so indicated.

               (v)  DATE OF TERMINATION.  "Date   of  Termination"  shall   mean
(A) if this  Agreement  is  terminated  for  Disability,  thirty (30) days after
Notice of Termination is given (provided that you shall not have returned to the
performance  of your  duties on a  full-time  basis  during such thirty (30) day
period),  (b) if your employment is terminated  pursuant to  subparagraph  (iii)
above,  the  date  specified  in the  Notice  of  Termination,  and  (C) if your
employment  is terminated  for any other  reason,  the date on which a Notice of
Termination is given;  provided that if within thirty (30) days after any Notice
of  Termination  one party  notifies  the  other  party  that a  dispute  exists
concerning the termination,  the Date of Termination  shall be the date on which
the dispute is finally  determined,  either by mutual  written  agreement of the
parties, by a binding and final arbitration award or by a final judgment,  order
or decree of a court of competent  jurisdiction  (the time for appeal  therefrom
having expired and no appeal having been perfected).

           4.  COMPENSATION UPON TERMINATION OR DURING DISABILITY.

               (i)  During  any  period  that  you fail to perform  your  duties
hereunder as a result of incapacity due to physical or mental illness, you shall
continue to receive  your full base salary at the rate then in effect until this
Agreement is  terminated  pursuant to paragraph  3(i) hereof.  Thereafter,  your
benefits  shall be  determined  in  accordance  with  the  Company's  long  term
disability plan, or a substitute plan then in effect.

              (ii)  If  your  employment  shall  be terminated  for  Cause,  the
Company shall pay you your full base salary  through the Date of  Termination at
the rate in effect at the time  Notice of  Termination  is given and the Company
shall have no further obligations to you under this Agreement.

             (iii)  If  the Company shall terminate  your employment other  than
pursuant  to  paragraph  3(i) or 3(ii)  hereof  or if you shall  terminate  your
employment for


<PAGE>


Good Reason, then the Company shall pay to you as severance pay in a lump sum on
the fifth day following the Date of Termination, the following amounts:

               (A)  your full base salary through the Date of Termination at the
rate in effect at the time Notice of Termination is given;

               (B)  in  lieu  of  any further salary payments to you for periods
subsequent to the Date of Termination, an amount equal to the product of (a) the
sum of  your  annual  base  salary  at the  rate  in  effect  as of the  Date of
Termination multiplied by (b) the number one (1);

               (C)  the  Company  shall  also  pay  all  legal fees and expenses
incurred  by you as a result of such  termination  (including  all such fees and
expenses, if any, incurred in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit provided by this Agreement).

              (iv)  Unless  you  are  terminated  for  Cause,  the Company shall
maintain in full force and effect, for the continued benefit of you for one year
after the Date of  Termination,  all  employee  benefit  plans and  programs  or
arrangements in which you were entitled to participate  immediately prior to the
Date of Termination provided that your continued participation is possible under
the general terms and  provisions of such plans and programs.  In the event that
your  participation  in any such plan or program is barred,  the  Company  shall
arrange to provide you with  benefits  substantially  similar to those which you
are entitled to receive under such plans and programs.  At the end of the period
of  coverage,  you shall have the option to have  assigned to you at no cost and
with no apportionment of prepaid premiums, any assignable insurance policy owned
by the Company and relating specifically to you.

               (v)  You  shall  not  be  required  to mitigate the amount of any
payment  provided  for in  this  paragraph  4 by  seeking  other  employment  or
otherwise,  nor shall the amount of any payment provided for in this paragraph 4
be reduced by any  compensation  earned by you as the  result of  employment  by
another employer after the Date of Termination, or otherwise.

           5.  SUCCESSORS, BINDING AGREEMENT.

               (i)  The  Company  will  require any successor (whether direct or
indirect,   by  purchase,   merger,   consolidation  or  otherwise)  to  all  or
substantially all of the business and/or assets of the Company,  by agreement in
form and substance satisfactory to you, to expressly assume and agree to perform
this  Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place.  Failure of the
Company  to  obtain  such  agreement  prior  to the  effectiveness  of any  such
succession  shall  be a  breach  of this  Agreement  and  shall  entitle  you to
compensation  from the  Company in the same  amount and on the same terms as you


<PAGE>


would be entitled  hereunder if you terminated  your employment for Good Reason,
except that for purposes of  implementing  the foregoing,  the date on which any
such succession  becomes  effective shall be deemed the Date of Termination.  As
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business  and/or assets as aforesaid which executes and
delivers  the  agreement  provided  for in this  paragraph 5 or which  otherwise
becomes bound by all the terms and  provisions of this Agreement by operation of
law.

              (ii)  This  Agreement  shall  inure  to  the  benefit  of  and  be
enforceable   by   your   personal   or   legal   representatives,    executors,
administrators,  successors, heirs, distributees,  devisees and legatees. If you
should die while any amounts  would still be payable to you hereunder if you had
continued to live, all such amounts,  unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee, or
other designee or, if there be no such designee, to your estate.

           6.  NOTICE.  For  the  purposes  of  this Agreement,  notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly  given  when  delivered  or mailed by United  States
registered mail,  return receipt  requested,  postage prepaid,  addressed to the
respective  addresses  set forth on the first page of this  Agreement,  provided
that all notices to the Company  shall be directed to the attention of the Chief
Executive Officer of the Company with a copy to the Secretary of the Company, or
to such other address as either party may have furnished to the other in writing
in  accordance  herewith,  except  that  notices of change of  address  shall be
effective only upon receipt.

           7.  MISCELLANEOUS.  No  provisions of this Agreement may be modified,
waived or discharged unless such waiver,  modification or discharge is agreed to
in writing signed by you and such officer as may be  specifically  designated by
the Board of Directors  of the Company.  No waiver by either party hereto at any
time of any  breach by the  other  party  hereto  of, or  compliance  with,  any
condition  or  provision  of this  Agreement to be performed by such other party
shall be deemed a waiver of similar or  dissimilar  provisions  or conditions at
the same or at any prior or subsequent  time. No agreements or  representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been  made by  either  party  which  are not set  forth  expressly  in this
Agreement.  The validity,  interpretation,  construction and performance of this
Agreement shall be governed by the laws of the State of Missouri.

           8.  VALIDITY.  The  invalidity or unenforceability of any  provisions
of this Agreement shall not affect the validity or  enforceability  of any other
provision of this Agreement, which shall remain in full force and effect.

           9.  COUNTERPARTS.  This  Agreement  may  be  executed  in one or more
counterparts,  each of which shall be deemed to be an original  but all of which
together will constitute one and the same instrument.


<PAGE>


           10. ARBITRATION.  Any  dispute  or  controversy  arising  under or in
connection  with this Agreement  shall be settled  exclusively by arbitration in
St.  Louis,  Missouri in accordance  with the rules of the American  Arbitration
Association then in effect.  Notwithstanding the pendency of any such dispute or
controversy,  the Company  will  continue to pay you your full  compensation  in
effect when the notice giving rise to the dispute was given (including,  but not
limited to, base salary) and continue you as a participant in all  compensation,
benefit  and  insurance  plans in which you were  participating  when the notice
giving rise to the dispute was given,  until the dispute is finally  resolved in
accordance with paragraph 3(v) hereof.  Amounts paid under this paragraph are in
addition to all other  amounts due under this  Agreement and shall not be offset
against or reduce any other  amounts due under this  Agreement.  Judgment may be
entered on the arbitrator's  award in any court having  jurisdiction;  provided,
however,  that you shall be entitled to seek specific  performance of your right
to be paid until the Date of  Termination  during the pendency of any dispute or
controversy arising under or in connection with this Agreement.

           If this  letter  correctly  sets forth our  agreement  on the subject
matter  hereof,  kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.


                                       Sincerely,

                                       ALLIED HEALTHCARE PRODUCTS, INC.



                                       By /s/ Barry F. Baker
                                          --------------------------------------
                                          Barry F. Baker
                                          Vice President - Finance and Chief
                                            Financial Officer



AGREED TO THIS _____ DAY

OF DECEMBER, 1996.



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