<PAGE>   1
                              EMPLOYMENT AGREEMENT

         EMPLOYMENT AGREEMENT, made as of November 2, 1998, by and between
GRAHAM-FIELD HEALTH PRODUCTS, INC., a Delaware corporation having its principal
place of business at 400 Rabro Drive East, Hauppauge, New York 11788 (the
"Company"), and HARVEY P. DIAMOND, residing at 19 Clubhouse Lane, Scarsdale, New
York 10583 (the "Executive").

                              W I T N E S S E T H:

         WHEREAS, the Company desires to retain the Executive as its Executive
Vice President of the Home Healthcare Business Unit of the Company to advance
the business and interests of the Company on the terms and conditions set forth
herein;

         WHEREAS, the Executive desires to provide his services to the Company
in such capacities, on and subject to the terms and conditions hereof; and

         WHEREAS, as an inducement for the Company to enter into this Agreement,
the Company and the Executive have entered into a certain Non-Competition
Agreement (the "Non-Competition Agreement"), in the form attached hereto as
Exhibit I;

         WHEREAS, the Company and the Executive have entered into a certain
Change in Control Agreement of even date herewith (the "Change in Control
Agreement"), in the form attached hereto as Exhibit II;

         WHEREAS, the Company and the Executive have entered into certain Stock
Option Agreement of even date herewith (the "Stock
<PAGE>   2
Option Agreement"), in the form attached hereto as Exhibit III;

         NOW, THEREFORE, the parties hereto hereby agree as follows:

         1. EMPLOYMENT. Subject to all of the terms and conditions hereof, the
Company does hereby employ the Executive, effective as of November 2, 1998 (the
"Effective Date") for a term commencing on the date hereof and ending on the
date which is three (3) years after the date hereof (subject to early
termination as provided herein) (the "Term") as its Executive Vice President of
the Home Healthcare Business Unit of the Company, and the Executive does hereby
accept such employment.

         2. DUTIES OF EXECUTIVE. The Executive shall, during the Term, perform
such executive and administrative duties and functions as may from time to time
be appropriate to and consistent with his position as Executive Vice President
of the Home Healthcare Business Unit of the Company, subject at all times to the
control and direction of the Board of Directors, President and Chief Executive
Officer of the Company. The Executive agrees to devote substantially all of his
business time to the business and affairs of the Company. The Executive agrees
to perform his duties hereunder faithfully, diligently and to the best of his
abilities and to refrain from engaging in any other business activity that does,
will or could be deemed to interfere with the performance of his duties
hereunder or does, will or could reasonably be deemed to conflict with the best
interests of the Company. The Executive agrees to accept the payments to be made
to him under this Agreement and the benefits to be derived from the Stock Option
Agreement and Change in Control Agreement as full and complete
<PAGE>   3
compensation for the services required to be performed by, and the covenants of,
the Executive under this Agreement and the Non-Competition Agreement.

         3.       COMPENSATION.

                  3.1 BASE SALARY. The Company agrees to pay the Executive an
annual base salary at the rate of Two Hundred Fifty Thousand Dollars ($250,000)
per annum (the "Base Salary") payable in substantially equal installments every
week or in such other manner as the Company may generally pay its employees.
Nothing contained herein shall be deemed to obligate the Company to increase the
Base Salary at any time.

                  3.2 BONUS PROGRAM. In order to provide performance-based
incentive compensation to the Executive, the Executive shall be eligible to
participate in the Company's bonus program attached hereto as Exhibit IV,
pursuant to which the Executive will be eligible to earn, subject to the
achievement of certain financial goals and targets contained therein, up to 100%
of the Base Salary on an annual basis.

                  3.3 REGULAR BENEFITS. The Executive shall be entitled to
participate in any health insurance, accident insurance, hospitalization
insurance, life insurance, pension, or any other similar plan or benefit
afforded by the Company to its executive officers generally, if and to the
extent that the Executive is eligible to participate in accordance with the
provisions of any such insurance, plan or benefit generally.

                  3.4 AUTOMOBILE ALLOWANCE. The Company recognizes that the
Executive will require the use of an automobile for business
<PAGE>   4
purposes. Therefore, the Company will provide the Executive with an automobile
allowance of $500 per month. In addition, the Company will reimburse the
Executive for gas expenses for the operation of the automobile for business
purposes.

         4. REIMBURSEMENT OF BUSINESS EXPENSES. The Company shall reimburse the
Executive for reasonable travel and business expenses incurred on behalf of the
Company, subject to the approval and substantiation requirements and other
procedures from time to time established by the Company. The Executive may
reasonably incur such expenses in the manner permitted by the executive officers
of the Company.

         5. TERMINATION AND SEVERANCE ARRANGEMENTS.

            (a) The Executive's employment hereunder may be terminated under the
following circumstances:

                (i) The Executive may terminate his employment hereunder at any
time on not less than sixty (60) days prior written notice to the Company.

               (ii) During the Term, the Company may terminate the Executive's
employment hereunder without Cause by providing written notice of termination on
not less than three (3) months prior written notice to the Executive.

              (iii) In the event of the death of or adjudicated incompetency of
the Executive during the Term, this Agreement and all benefits payable hereunder
shall terminate on the date of death or adjudication of incompetency of the
Executive.

               (iv) If the Executive, because of illness, injury or other
incapacitating condition, is unable to perform the services required to be
performed by him under this Agreement for a period
<PAGE>   5
or periods aggregating more than forty-five (45) days in any twelve (12)
consecutive months or a period of thirty (30) consecutive days during any twelve
(12) month period, then the Company, in its sole discretion, may terminate this
Agreement by giving notice thereof to the Executive, and this Agreement and all
benefits payable hereunder shall terminate upon the date of such notice.

               (v) The Company may terminate the Executive's employment at any
time for Cause. For purposes of this Agreement, the term "Cause" shall mean: (A)
gross negligence of the Executive in the performance of his duties, (B) willful
neglect of his duties, (C) the Executive's conviction of any felony, (D) the
Executive's conviction of any misdemeanor involving theft or fraud, (E) any
embezzlement of the Company's or its subsidiaries' property or any
misappropriation of any property material to the Company or any of its
subsidiaries (whether or not a felony or misdemeanor), (F) the willful
engagement by the Executive in conduct which is injurious to the Company or any
of its subsidiaries, (G) the persistent and willful disobedience or material
breach by the Executive of any of the Company's written rules, instructions or
orders, or (H) the Executive's persistent and willful and material breach of the
covenants contained herein.

            b. Upon any termination of the Executive's employment under Section
5(a)(i), (iii), (iv) or (v) of this Agreement, the Executive shall be entitled
to receive solely all amounts and benefits to be paid or provided by the Company
under Sections 3.1, 3.3, and 4 to the date of such termination.

            c. Upon any termination of the Executive's employment under Section
5(a)(ii) of this Agreement, the Executive shall be
<PAGE>   6
entitled to receive solely (i) all amounts and benefits to be paid or provided
by the Company under Sections 3.1, 3.3, 3.4, and 4 to the date of such
termination, (ii) the greater of (x) a lump sum payment equal to the aggregate
amount of Base Salary that would have been paid to the Executive from the date
of such termination through the end of the Term but for such early termination,
or (y) a lump sum payment equal to two (2) times the Base Salary, and (iii) all
amounts and benefits to be paid or provided by the Company under Sections 3.3
and 3.4 shall be continued to be paid or provided to the Executive from the date
of termination through the end of the Term but for such early termination.

         6. EXECUTIVE COVENANTS.

            6.1 CONFIDENTIAL INFORMATION. The Executive expressly covenants and
agrees that he will not at any time, whether during or after his employment by
the Company, directly or indirectly, use or permit the use of any trade secrets,
confidential information, or proprietary information (including, without
limitation, customer lists, costing information, technical information, software
techniques, business plans, marketing data, financial information or similar
items) of, or relating to, the Company, or any affiliate of the Company, in
connection with any activity or business, whether for his own account or
otherwise (except solely the business of the Company, if and to the extent that
the Executive is then an employee of the Company) and will not divulge such
trade secrets, confidential information or proprietary information to any
person, firm, corporation or other entity whatsoever. Any information which
becomes known to the public without breach by the Executive of any of the terms
hereof or of Executive's common law
<PAGE>   7
duties shall not be deemed to be a trade secret or confidential or proprietary
information of the Company.

         6.2 OWNERSHIP BY COMPANY. The Executive acknowledges and agrees that
all of his work product created, produced or conceived in connection with his
association with the Company shall be deemed work for hire and shall be deemed
owned exclusively by the Company. Without limiting the generality of the
foregoing, the Executive agrees that the Company shall have and possess all
proprietary rights, patent rights, copyright rights and trade secret rights as
may exist in such work product or as which are inherent therein or appurtenant
thereto. The Executive agrees to execute and deliver all documents required by
the Company to document or perfect the Company's proprietary rights in and to
the Executive's work product.

         6.3 REMEDIES. It is expressly understood and agreed that the services
to be rendered hereunder by the Executive are special, unique, and of
extraordinary character, and in the event of the breach by the Executive of any
of the terms and conditions of this Agreement on his part to be performed
hereunder, or in the event of the breach or threatened breach by the Executive
of the terms and provisions of this Section 6 of this Agreement, then the
Company shall be entitled, if it so elects, to institute and prosecute any
proceedings in any court of competent jurisdiction, either in law or equity, for
such relief as it deems appropriate.

         6.4 COVENANTS NON-EXCLUSIVE. The Executive acknowledges and agrees that
the covenants contained in this Section 6 shall not be deemed exclusive of any
common law rights of the Company in connection with the relationships
contemplated hereby; and that the
<PAGE>   8
Company shall have any and all rights as may be provided by law in connection
with the relationships contemplated hereby.

         7.  GENERAL.

             7.1 APPLICABLE LAW AND EXPENSES. This document shall, in all
respects, be governed by the laws of the State of New York. With regard to such
choice of law, the parties acknowledge that substantially all of the
negotiations relating to this Agreement were conducted in New York State and
that this Agreement has been executed by both parties in New York State.

             7.2 VENUE; PROCESS. The parties to this Agreement agree that
jurisdiction and venue shall properly lie in the Supreme Court of the State of
New York, New York County, or in the United States District Court for the
Southern District of New York, with respect to any legal proceedings arising
from this Agreement. Such jurisdiction and venue are merely permissive;
jurisdiction and venue shall also continue to lie in any court where
jurisdiction and venue would otherwise be proper. The parties agree that they
will not object that any action commenced in the foregoing jurisdictions is
commenced in a forum non conveniens. Notwithstanding the foregoing, however,
nothing contained in this Section 7.2 shall be deemed to limit or waive any
right of the parties to remove any dispute to federal court which might
otherwise properly be removed to such court.

             7.3 SURVIVAL. The parties hereto agree that the covenants contained
in Section 6 hereof shall survive for a period of two (2) years following any
termination of employment by the Executive and any termination of this
Agreement.

             7.4 INDEPENDENT REPRESENTATION. The Executive
<PAGE>   9
acknowledges that he has had the opportunity to seek independent counsel and tax
advice in connection with the execution of this Agreement, and the Executive
represents and warrants to the Company (a) that he has sought such counsel and
advice as he has deemed appropriate in connection with the execution hereof and
the transactions contemplated hereby; and (b) that he has not relied on any
representation of the Company as to tax matters or as to the consequences of the
execution hereof.

             7.5 NOTICES. Any and all notices required or desired to be given
hereunder by any party shall be in writing and shall be validly given or made to
another party if delivered either personally, by telex, facsimile transmission,
same day delivery service, overnight expedited delivery service, or if deposited
in the United States mail, certified or registered, postage prepaid, return
receipt requested. If notice is served personally, notice shall be deemed
effective upon receipt. If notice is served by telex or by facsimile
transmission, notice shall be deemed effective upon transmission, provided that
such notice is confirmed in writing by the sender within one day after
transmission. If notice is served by same day delivery service or overnight
expedited delivery service, notice shall be deemed effective the day after it is
sent, and if notice is given by United States mail, notice shall be deemed
effective five days after it is sent. In all instances, notice shall be sent to
the parties at the following addresses:

                  If to the Company:
                  Graham-Field Health Products, Inc.
                  400 Rabro Drive East
                  Hauppauge, New York  11788
                  Attention: Chairman of the Board,
<PAGE>   10
                             Chief Executive Officer

                  If to the Executive:

                  Harvey P. Diamond
                  19 Clubhouse Lane
                  Scarsdale, New York   10583
                  Telephone: (914) 478-7325

                  With a copy to:

                  Robert Bernstein, Esq.
                  Bernstein & Seidman
                  21 Scarsdale Road
                  Tuckahoe, New York   10707
                  Telephone No.:  (914) 961-0488
                  Telecopier No.: (914) 961-0754

         Any party may change its address for the purpose of receiving notices
by a written notice given to the other party.

             7.6 MODIFICATIONS OR AMENDMENTS. No amendment, change or
modification of this document shall be valid unless in writing and signed by all
of the parties hereto.

             7.7 WAIVER. No reliance upon or waiver of one or more provisions of
this Agreement shall constitute a waiver of any other provisions hereof.

             7.8 SUCCESSORS AND ASSIGNS. All of the terms and provisions
contained herein shall inure to the benefit of and shall be binding upon the
parties hereto and their respective heirs, personal representatives, successors
and assigns. However, no party shall voluntarily assign any rights hereunder, or
delegate any duties hereunder, except upon the prior written consent of the
other.

             7.9 SEPARATE COUNTERPARTS. This document may be executed in one or
more separate counterparts, each of which, when so executed, shall be deemed to
be an original. Such counterparts shall, together, constitute and shall be one
and the same
<PAGE>   11
instrument.

             7.10 HEADINGS. The captions appearing at the commencement of the
sections hereof are descriptive only and are for convenience of reference.
Should there be any conflict between any such caption and the section at the
head of which it appears, the substantive provisions of such section and not
such caption shall control and govern in the construction of this document.

             7.11 FURTHER ASSURANCES. Each of the parties hereto shall execute
and deliver any and all additional papers, documents and other assurances, and
shall do any and all acts and things reasonably necessary in connection with the
performance of their obligations hereunder and to carry out the intent of the
parties hereto.

             7.12 ENTIRE AGREEMENT. Except for the Change in Control Agreement
relating to payments to be made to the Executive in the event of the termination
of the Executive's employment with the Company following a Change in Control (as
defined therein), this Agreement and the exhibits attached hereto constitute the
entire understanding and agreement of the parties with respect to the subject
matter of this Agreement, and any and all prior agreements, understandings or
representations are hereby terminated and cancelled in their entirety; provided
that notwithstanding anything to the contrary contained in this Agreement, in
the event the Executive's employment is terminated following a Change in Control
as provided in the Change in Control Agreement, the Executive shall be entitled
solely to the amounts and benefits payable under the Change in Control
Agreement, which shall be in lieu of any and all amounts payable under this
Agreement.
<PAGE>   12
         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.

                                    GRAHAM-FIELD HEALTH PRODUCTS, INC.

                                    By: /s/ Paul Bellamy
                                       --------------------------
                                       Name:  Paul Bellamy
                                       Title: President and Chief
                                              Operating Officer



                                     /s/ Harvey P. Diamond
                                    -----------------------------
                                    HARVEY P. DIAMOND
<PAGE>   13
                                    EXHIBIT I

                            NON-COMPETITION AGREEMENT
<PAGE>   14
                                   EXHIBIT II

                           CHANGE IN CONTROL AGREEMENT
<PAGE>   15
                                   EXHIBIT III

                             STOCK OPTION AGREEMENT
<PAGE>   16
                                   EXHIBIT IV

                                  BONUS PROGRAM