S-1/A

As filed with the Securities and Exchange Commission on May 24, 2005

Registration No. 333-124099

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1 to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

ALLION HEALTHCARE, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	8099	11-2962027
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Number)	(I.R.S. Employer Identification No.)

1660 Walt Whitman Road, Suite 105

Melville, NY 11747

(631) 547-6520

(Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Michael P. Moran

Chairman, Chief Executive Officer and President

1660 Walt Whitman Road, Suite 105

Melville, NY 11747

(631) 547-6520

(Name, Address, Including Zip Code and Telephone Number, Including Area Code, of Agent for Service)

Copies to:

Mark D. Director, Esq. Andrew M. Herman, Esq. Kirkland & Ellis LLP 655 15^th Street, N.W. Suite 1200 Washington, DC 20005 (202) 879-5100 Steven L. Pottle, Esq. Ashley E. Hufft, Esq. Alston & Bird LLP One Atlantic Center 1201 West Peachtree Street Atlanta, GA 30309-3424 USA (404) 881-7000

Approximate date of commencement of proposed sale to the public:    As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.  ¨

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Public Offering Price(1)	Amount of Registration Fee
Common Stock, $.001 par value	$64,400,000	$7,580(2)

(1) Estimated solely for the purpose of calculating the amount of the registration fee paid pursuant to Rule 457(o) under the Securities Act of 1933.

(2) The registrant previously paid $6,768 of this amount on April 15, 2005.

We hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until we file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED MAY 24, 2005

PROSPECTUS

4,000,000 Shares

Common Stock

This is an initial public offering of shares of common stock of Allion Healthcare, Inc. We are offering 4,000,000 shares in this offering. No public market currently exists for our common stock.

We anticipate that the initial public offering price will be between $12.00 and $14.00 per share. We have applied for quotation of our common stock on the Nasdaq National Market under the symbol “ALLI.”

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE “ RISK FACTORS” ON PAGE 8.

	Per Share	Total
Public offering price	$	$
Underwriting discount and commissions	$	$
Proceeds to us	$	$

The underwriters have an option to purchase 600,000 additional shares of common stock from us at the initial public offering price to cover any over-allotments of shares at anytime until 30 days after the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Thomas Weisel Partners LLC

William Blair & Company

First Albany Capital

The date of this prospectus is                     , 2005.

TABLE OF CONTENTS

PROSPECTUS SUMMARY	1
THE OFFERING	4
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA	5
RISK FACTORS	8
FORWARD-LOOKING STATEMENTS	19
DIVIDEND POLICY	19
USE OF PROCEEDS	20
CAPITALIZATION	21
DILUTION	22
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS	23
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA	27
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28

BUSINESS	39
MANAGEMENT	55
PRINCIPAL STOCKHOLDERS	65
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	67
DESCRIPTION OF CAPITAL STOCK	68
MATERIAL PROVISIONS OF DELAWARE LAW, OUR CERTIFICATE OF INCORPORATION AND BYLAWS	71
SHARES ELIGIBLE FOR FUTURE SALE	73
UNDERWRITING	76
LEGAL MATTERS	80
EXPERTS	80
WHERE YOU CAN FIND MORE INFORMATION	80
INDEX TO FINANCIAL STATEMENTS	F-1

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with information different from that which is contained in this prospectus. We are offering to sell shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

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PROSPECTUS SUMMARY

This summary highlights certain information contained elsewhere in this prospectus. For a more complete understanding of the information that you may consider important in making your investment decision, you should read the entire prospectus, including the information set forth under the heading “Risk Factors” and the historical and pro forma consolidated financial statements and the related notes included in this prospectus. Trademarks referred to in this prospectus appear in italic type. LabTracker is a trademark of Ground Zero Software, Inc. FUZEON is a registered trademark of Roche Laboratories Inc. and Trimeris Inc.

In this prospectus, “Allion,” “our company,” “we,” “us,” and “our” refer to Allion Healthcare, Inc., a Delaware corporation, together with our wholly-owned subsidiaries.

Our Company

Overview

We are a national provider of specialty pharmacy and disease management services focused on HIV/AIDS patients. We sell HIV/AIDS medications, ancillary drugs and nutritional supplies under our trade name MOMS Pharmacy. We work closely with physicians, nurses, clinics and AIDS Service Organizations, and with government and private payors, to improve clinical outcomes and reduce treatment costs for our patients. Most of our patients rely on Medicaid and other state-administered programs, such as the AIDS Drug Assistance Program, to pay for their HIV/AIDS medications.

Our net sales grew from $5.0 million in 2000 to $60.1 million in 2004, which represents a compounded annual growth rate of approximately 86% per year. We generate internal growth primarily by increasing the number of patients we serve. In addition, the price of HIV/AIDS medications has increased, and we are filling more prescriptions per patient. Our patients paid an average of approximately $19,800 per patient per year in 2004 for the medications we sold to them. We also grew through acquisitions. In May 2003, we acquired Medicine Made Easy, a California pharmacy, and in the first quarter of 2005, we acquired two additional pharmacies in California—North American Home Health Supply, Inc. and Specialty Pharmacies, Inc.

As many as 1.6 million individuals living in the United States as of the end of 2004 were infected with HIV, of whom between 400,000 and 500,000 were receiving HIV/AIDS medications. Our distribution centers are located in or near metropolitan areas in those states where a majority of HIV/AIDS patients in the United States live—New York, California, Florida, New Jersey and Washington. In March 2005, we served approximately 8,600 patients.

The current standard of care for the treatment of HIV/AIDS involves the use of complex regimens of multiple drugs, or “combination therapies.” Combination therapies consist of predominantly oral medications taken by a patient multiple times a day, typically outside a clinical setting. In the United States, HIV/AIDS-associated morbidity and mortality have declined significantly as the use of combination therapies has expanded. After increasing every year between 1987 and 1994 at an average annual rate of 16%, the HIV/AIDS mortality rate has decreased since 1995. Accordingly, while HIV/AIDS remains life threatening, healthcare providers increasingly treat HIV/AIDS as more of a long-term chronic disease. Despite the apparent effectiveness of combination therapies, patient adherence to a treatment regimen remains critical to the effectiveness of that regimen. Studies on adherence within the HIV/AIDS population have shown that if 95% of medication doses are not taken as prescribed, the medication may become ineffective or the patient may develop drug resistance to such medication, according to the AIDS Research Institute. We believe that the success of combination therapies, which has increased patient longevity, is likely to increase the use of HIV/AIDS medications, with adherence to treatment regimens remaining essential.

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Our Competitive Strengths

We believe we enjoy the following competitive strengths:

• Specialized Services.    We believe we are one of only a few specialty pharmacy and disease management service companies focused on HIV/AIDS patients. We work closely with patients and their healthcare providers to facilitate the success of complex combination therapies and to provide programs to monitor adherence and outcomes. We deliver our medications in a discreet, convenient and timely manner, which we believe also helps facilitate treatment adherence.

• Customized Packaging System.    We dispense prescribed medications in a customized dose-by-dose format called MOMSPaks. We also dispense prescribed medications in pre-filled pillboxes, at the patient’s request. Our customized packaging provides increased convenience to the patient, which we believe can significantly enhance patient adherence to complex combination therapies.

• Government Reimbursement Expertise.    We have experience with the complex reimbursement processes of government programs, such as Medicaid and the AIDS Drug Assistance Program, that optimize collection of payment. As a result, we are able to manage efficiently the process of checking reimbursement eligibility, receiving authorization, adjudicating claims and confirming that payment is received.

• Information Systems and Prescription Automation Solutions.    Our information systems assist healthcare providers in managing and treating HIV/AIDS more effectively. Our systems enable healthcare providers to view their patients’ prescription histories and to submit and renew prescriptions online. Our systems also transmit prescription information to our MOMSPak automated packaging system to promote accurate and efficient prescription processing.

Our Strategy

Key elements of our strategy include:

• Increasing Sales in the Markets We Currently Serve.    We intend to expand in the major metropolitan markets where the majority of HIV/AIDS patients live by enhancing our existing relationships and creating new relationships with HIV/AIDS clinics, hospitals and prescribing physicians through direct sales, outreach programs and community-based education programs.

• Pursuing Strategic Acquisitions.    We intend to pursue additional acquisitions of specialty pharmacies that serve HIV/AIDS patients. Since May 2003, we have acquired three specialty pharmacies in California.

• Developing Marketing Relationships with Drug Manufacturers.    We intend to pursue relationships with leading manufacturers of HIV/AIDS medications to enhance their awareness of our services and to increase our opportunities to benefit from their significant sales teams and marketing efforts. We believe our services are attractive to these manufacturers because we seek to promote patient adherence and receptivity to the drugs they sell. In March 2004, we entered into a specialized services agreement with Roche Laboratories Inc. to receive product pricing discounts in exchange for providing blind patient data with respect to FUZEON, a HIV medication manufactured by Roche.

• Qualifying for HIV/AIDS Reimbursement Programs.    We have qualified in California and believe we qualify in New York for additional reimbursement under those states’ respective Medicaid programs focused on HIV/AIDS patients. We own two of the ten specialty HIV/AIDS pharmacies in California eligible to receive additional reimbursement under that state’s pilot program. We intend to seek to qualify for programs under other state Medicaid programs that may provide additional reimbursement for HIV/AIDS medications that we sell.

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• Increasing Net Sales Through Relationship with Oris/LabTracker.    In May 2005, we entered into a definitive agreement to purchase substantially all of the assets of Oris Medical Systems, Inc. We expect to close this acquisition following completion of this offering. Upon acquiring the assets of Oris, we will obtain Oris’ rights to the LabTracker HIV/AIDS software system, which enables healthcare providers to record, track and analyze the outcomes of HIV/AIDS treatment. Oris’ rights include the exclusive right to license LabTracker to pharmacy providers and the right to develop a pharmacy interface with LabTracker’s existing system. We believe this capability will significantly enhance our ability to attract and retain patients and to develop enhanced business relationships with healthcare providers. We believe that approximately 200 clinics and physician customers currently use LabTracker to help monitor approximately 100,000 HIV/AIDS patients. We believe that patients monitored by LabTracker who fill their prescriptions with us will be able to have their prescription information imported electronically into their healthcare provider’s LabTracker software. We consider existing LabTracker users who do not already fill their patients’ prescriptions through us to be an attractive growth opportunity for our business.

Our Corporate Headquarters and Websites

Our principal executive offices are located at 1660 Walt Whitman Road, Suite 105, Melville, New York 11747, and our telephone number at that address is (631) 547-6520. We also maintain two websites, which can be located at www.allionhealthcare.com and www.momspharmacy.com. We are providing the addresses of these internet websites in this prospectus solely for informational purposes. We do not intend the internet addresses to be active links, and the contents of the websites are not part of this prospectus.

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THE OFFERING

Common stock offered by us 4,000,000 shares, which represents approximately 33.6% of our common stock outstanding after this offering.

Over-allotment option We have granted the underwriters a 30-day option to purchase up to an aggregate of 600,000 additional shares of common stock.

Common stock to be outstanding after the offering 11,894,956 shares

Use of proceeds We intend to use the net proceeds from this offering to repay indebtedness, make a $1 million payment to Oris Medical as set forth in our definitive agreement with Oris Medical, redeem outstanding warrants, and for working capital and other general corporate purposes, including potential future acquisitions. See our discussion under the heading “Use of Proceeds” at page 20.

Proposed Nasdaq National Market symbol “ALLI”

Risk Factors Investing in our common stock entails a high degree of risk. For more information on these risks, you should read the information set forth under the heading “Risk Factors” and other information included in this prospectus.

The number of shares of our common stock that will be outstanding after this offering is based on 3,100,000 shares of common stock outstanding as of May 15, 2005, and an additional 4,794,956 shares issuable upon conversion of our outstanding preferred stock assuming an offering price of $13.00 per share, which is the mid-point of our range. The actual number of shares of our common stock issuable upon conversion of preferred stock will depend on the actual offering price. If the offering price is higher or lower than $13.00 per share, a lesser or greater amount of our common stock, respectively, would be issued in exchange for our preferred stock. For additional information on the conversion terms, please see “Description of Capital Stock—Authorized Capital Stock” beginning at page 68. The outstanding shares number does not include the following:

• 1,667,750 shares of our common stock issuable upon the exercise of outstanding options at a weighted average exercise price of $3.03 per share;

• 1,803,825 shares of our common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $5.57 per share; and

• 982,250 shares of common stock reserved for issuance under our 1998 Stock Option Plan and 2002 Stock Incentive Plan.

Unless otherwise indicated, all information contained in this prospectus assumes:

• conversion of all outstanding shares of our preferred stock into 4,794,956 shares of common stock;

• the adoption of our third amended and restated bylaws, which will occur upon the completion of this offering; and

• that the underwriters do not exercise their option to purchase from us 600,000 additional shares in the offering to cover over-allotments.

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SUMMARY HISTORICAL AND PRO FORMA

CONSOLIDATED FINANCIAL DATA

The following summary financial data should be read together with “Selected Historical Consolidated Financial Data,” “Unaudited Pro Forma Consolidated Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the historical consolidated financial statements and the related notes of Allion Healthcare, Inc., North American Home Health Supply, Inc., Specialty Pharmacies, Inc., and Medicine Made Easy, all of which are included elsewhere in this prospectus.

The summary historical consolidated financial data set forth below are derived from our consolidated financial statements, included elsewhere in this prospectus. The pro forma adjusted consolidated statement of continuing operations data for 2004 assumes that the acquisitions of North American Home Health Supply, Inc., or NAHH, and Specialty Pharmacies, Inc., or Specialty, and the sale of 730,769 shares of common stock at an assumed offering price of $13.00 per share in this offering to repay approximately $9.5 million of our outstanding debt had occurred on January 1, 2004. The pro forma adjusted consolidated statement of continuing operations data for the three months ended March 31, 2005 assumes that the acquisition of Specialty and the sale of 730,769 shares of common stock at an assumed offering price of $13.00 per share in this offering to repay approximately $9.5 million of our outstanding debt had occurred on January 1, 2004. The summary unaudited pro forma adjusted consolidated balance sheet data is presented as of March 31, 2005 and gives effect to the completion of this offering and the application of the net proceeds therefrom. The summary unaudited pro forma financial data is derived from the unaudited pro forma financial statements included elsewhere in this prospectus. We provide you with summary unaudited pro forma financial data for illustrative purposes only and not to represent what our results of operations or financial position actually would have been if the transactions described above had occurred as of January 1, 2004 or January 1, 2005 (which we assume solely to present pro forma results) or what our results of operations or financial position will be for future periods.

	Years Ended December 31,									Pro Forma Adjusted (1)			Three Months Ended March 31,						Pro Forma Adjusted March 31, 2005 (1)
	2002			2003			2004			2004			2004			2005
										(unaudited)			(unaudited)			(unaudited)			(unaudited)
				(in thousands except per share)
Consolidated Statement of Continuing Operations Data: (2)
Net sales	$	21,441		$	42,502		$	60,080		$	101,574		$	13,350		$	22,696		$	27,262
Cost of sales		18,062			37,036			53,162			85,843			11,786			19,122			22,692
Gross profit		3,379			5,466			6,918			15,731			1,564			3,574			4,570
Operating expenses		3,568			7,899			9,163			16,007			2,099			3,449			3,899
Operating income (loss)		(189	)		(2,433	)		(2,245	)		(276	)		(535	)		125			671
Other income (expense)
Interest income (expense)		(69	)		(244	)		(233	)		245			(84	)		(107	)		(18	)
Other income (expense)		(479	)		0			4			(21	)		0			0			0
Income (loss) before taxes and discontinued operations		(737	)		(2,677	)		(2,474	)		(52	)		(619	)		18			653
Provision for taxes		35			20			76			76			7			0			0
Income (loss) from continuing operations	$	(772	)	$	(2,697	)	$	(2,550	)	$	(128	)	$	(626	)	$	18		$	653
Deemed dividend on preferred stock (5)		0			0			0			(1,338	)		0			0			0
Continuing income (loss) available to common shareholders	$	(772	)	$	(2,697	)	$	2,550		$	(1,466	)	$	(626	)	$	18		$	653
Basic continuing income (loss) per common share	$	(.25	)	$	(0.87	)	$	(0.82	)	$	(0.17	)	$	(0.20	)	$	0.01		$	0.08
Diluted continuing income (loss) per common share		(.25	)	$	(0.87	)	$	(0.82	)	$	(0.17	)	$	(0.20	)	$	0.00		$	0.07
Weighted average shares used to compute basic net income (loss) per common share (3)		3,100			3,100			3,100			8,626			3,100			3,100			8,626
Weighted average shares used to compute diluted net income (loss) per common share (3)		3,100			3,100			3,100			8,626			3,100			8,800			9,755

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	As of March 31, 2005
	Actual		Pro Forma Adjusted
	(in thousands)
Consolidated Balance Sheet Data: (4)
Cash and cash equivalents	$	978	$	37,907
Total assets	$	34,405	$	72,334
Notes payable - subordinated	$	5,975	$	1,324
Total liabilities	$	22,637	$	14,049
Total stockholders’ equity	$	11,768	$	58,284

(1) Detailed unaudited pro forma financial data is included under the heading “Unaudited Pro Forma Consolidated Financial Statements” beginning on page 23.

(2) In March 2005, we decided to cease operations at our Austin, Texas distribution center. A significant portion of the operations of the Austin, Texas distribution center was dedicated to serving organ transplant and oncology patients, which was not consistent with our strategy of focusing on the HIV/AIDS market. Operating results for the Texas operation have been reported as discontinued operations in the Condensed Consolidated Statements of Operations for all periods presented.

(3) See Note 2 to our “Notes to Consolidated Financial Statements” on page F-19 for a description of the method used to compute basic and diluted net loss per common share and number of shares used in computing basic and diluted net loss per common share.

(4) The pro forma adjusted balance sheet data above reflects the repayment of indebtedness in accordance with our discussion under the heading “Use of Proceeds” on page 20, conversion of all of our preferred stock into an aggregate of 4,794,956 shares of our common stock immediately prior to the closing of this offering, and the sale of 4,000,000 shares of our common stock at an assumed initial offering price of $13.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. For additional information on the conversion terms see “Description of Capital Stock—Authorized Capital Stock” beginning at page 68.

(5) To reflect a deemed dividend for additional shares issued related to Series C preferred stock (31,667 shares at $5.00 per share), Series D preferred stock (113,151 shares at $6.00 per share) and Series E preferred stock (80,129 shares at $6.25 per share).

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Other Data:

The prescription and patient month data has been presented below to provide additional data about our operations. We have not included information about our Austin, Texas distribution center, which we have decided to close. A prescription represents a 30-day supply of medication for a patient. “Patient months” represents the number of patients who filled a prescription with us during the applicable period, multiplied by the number of different months in which each such patient filled a prescription during the period. If a patient filled prescriptions with us more than once in a month, we count that as a single “patient month” for that patient. Accordingly, if we filled prescriptions for 5,000 patients in a period, and if each of those patients filled prescriptions with us in three different months, we would have 15,000 patient months in such three-month period.

	Prescriptions Filled
	Years Ended December 31,			Three Months Ended March 31,
	2002	2003	2004	2004	2005
Distribution Region:
California (1)	—	60,262	93,566	21,846	55,441
New York	97,070	121,845	146,055	32,560	40,005
Florida (2)	114	6,439	10,931	2,035	3,576
Seattle (1)	—	—	—	—	1,736
Total	97,184	188,546	250,552	56,441	100,758

	Patient Months
	Year Ending December 31,			Three Months Ended March 31,
	2002	2003	2004	2004	2005
Distribution Region:
California (1)	—	8,894	13,634	3,289	14,107
New York	14,707	18,512	21,536	4,923	5,710
Florida (2)	16	689	1,247	246	422
Seattle (1)	—	—	—	—	293
Total	14,723	28,095	36,417	8,458	20,532

(1) Our historical operations in California commenced in May 2003 when we acquired Medicine Made Easy and began operations in Torrance, California. The 2003 information for California presented above reflects prescriptions filled from May through December 2003. California and Seattle operations for the three months ended March 31, 2005 included three months of contribution from North American Home Health Supply, Inc. and one month of contribution from Specialty Pharmacies, Inc.

(2) We began operations in Florida in December 2002.

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RISK FACTORS

If you purchase our common stock, you will be taking on a high degree of financial risk. In deciding whether to invest in our common stock, you should carefully consider the following discussion of risks, together with the other information contained in this prospectus. The occurrence of any of the following risks could materially harm our business and financial condition and our ability to raise additional capital in the future. In that event, the market price of our common stock could decline and you could lose all or part of your investment.

Risks Related to Our Company

If demand for our products and services is reduced, our business and ability to grow would be harmed.

A reduction in demand for HIV/AIDS medications would significantly harm our business as we would not be able to shift quickly our business to provide medications for other diseases. Reduced demand for our products and services could be caused by a number of circumstances, such as:

• a cure or vaccine for HIV/AIDS;

• a new strain of HIV develops that is resistant to available HIV/AIDS medications;

• shifts to treatment regimens other than those we offer;

• new methods of delivery of existing HIV/AIDS medications that do not require our specialty pharmacy and disease management services;

• recalls of HIV/AIDS medications we sell;

• adverse reactions caused by the HIV/AIDS medications we sell;

• the expiration or challenge to the drug patents of the HIV/AIDS medications we sell; or

• competing treatment from a new HIV/AIDS medication or a new use of an existing HIV/AIDS medication.

We have a history of losses and may never again achieve or maintain profitability.

We achieved profitability for the first time in the first quarter of 2005 but we may not be able to maintain profitability on a regular basis. Our operations to date have been funded in part by private placements of our preferred stock and the sale of certain operations. If we fail to maintain profitability, your investment in our stock could result in a significant or total loss. Our predecessor company, The Care Group, Inc., filed for protection under Chapter 11 of the Bankruptcy Code in September 1998. We emerged from bankruptcy in February 1999 and, since that time have continued to experience operating losses.

Changes in reimbursement by third-party payors could harm our business.

The price we receive for our products depends primarily on the reimbursement rates paid by our government and private payors. In 2004, we generated approximately 88% of our net sales from patients who rely on Medicaid and the AIDS Drug Assistance Program, or ADAP, for reimbursements. In recent years, these programs have reduced reimbursement to providers. Changes to the programs themselves, the amounts the programs pay, or coverage limitations established by the programs for the medications we sell, may reduce our earnings. For example, these programs could revise their pricing methodology for the medications we sell, decide not to cover certain medications or cover only a certain number of units prescribed within a specified time period. We are likely to experience some form of revised drug pricing as ADAP and Medicaid expenditures for HIV/AIDS medications have garnered significant attention from government agencies during the past few years. Any reduction in amounts reimbursable by government programs for our services or changes in regulations governing such reimbursements could harm our business, financial condition and results of operations. In addition, if we are disqualified from participating in the state Medicaid programs of New York, New Jersey, California or Florida our net sales and our ability to achieve profitability would be dramatically reduced.

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We are also dependent on reimbursement from private payors. Many payors seek to limit the number of providers that supply drugs to their enrollees. From time to time, private payors with which we have relationships require that we and our competitors bid to keep their business, and there can be no assurance that we will be retained or that our margins will not be adversely affected when that happens.

If we do not continue to qualify for preferred reimbursement programs in California and do not qualify in New York, our net sales could decline.

We have qualified for additional reimbursement rates under a California pilot program for HIV/AIDS pharmacies that is effective until January 1, 2008 and believe we qualify as a specialty HIV pharmacy in New York and are eligible to receive preferred reimbursement rates for HIV/AIDS medications we sell in New York until March 31, 2006.

As of September 1, 2004, reimbursement rates for pharmacy services provided under Medi-Cal, the Medicaid reimbursement program administered in California, were reduced as part of the passage of the State of California budget. On September 28, 2004, California approved an HIV/AIDS Pharmacy Pilot Program bill that funds an additional $9.50 fee per prescription for qualified and participating HIV pharmacies through January 1, 2008, unless extended.

In New York, reimbursement rates for pharmacy services provided under Medicaid were reduced in September 2004. Through March 31, 2006, approved specialized HIV pharmacies will continue to be reimbursed at the higher rate that was in place before the 2004 reimbursement reduction.

There can be no assurance that the California or New York legislatures will not change these programs in a manner adverse to us or will not terminate early or elect not to renew these programs. If either of these programs is not renewed or is terminated early, our net sales could be adversely affected. Additionally, if either California or New York permits additional companies to take advantage of these additional reimbursement programs, our competitive advantage in these states could be adversely impacted.

If we are not able to market our services effectively to HIV/AIDS clinics and their affiliated healthcare providers, we may not be able to grow our patient base as rapidly as we have anticipated.

Our success depends, in part, on our ability to develop and maintain relationships with HIV/AIDS clinics and their affiliated healthcare providers because each is an important patient referral source for our business. If we are unable to effectively market our services to these clinics and healthcare providers, or if our existing relationships with clinics are terminated, our ability to grow our patient base will be harmed which could dramatically reduce our net sales and our ability to achieve profitability.

If we fail to manage our growth effectively, our business could be harmed.

If we are unable to manage our growth effectively, our losses could increase. How we manage our growth will depend, among other things, on our ability to adapt our operational, financial and management controls, reporting systems and procedures to the demands of a larger business. In addition, we may not be able to successfully hire, train and manage additional sales, marketing, customer support and pharmacists quickly enough to support our growth. To provide this support, we may need to open additional offices, which will result in additional burdens on our systems and resources and require additional capital expenditures.

If our credit terms with AmerisourceBergen become unfavorable or our relationship with AmerisourceBergen is terminated our business could be adversely affected.

In September 2003, we entered into a five-year prime vendor agreement with AmerisourceBergen under which we currently purchase almost 100% of our prescription medications. Pursuant to the agreement, we are obligated to purchase at least 95% of the medications we sell from AmerisourceBergen. We also depend on the existing credit terms from AmerisourceBergen to meet our working capital needs between the time we purchase

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medications from AmerisourceBergen and when we receive reimbursement or payment from third party payors. In the past, our ability to grow has been limited in part by our inability to negotiate favorable credit terms from our suppliers. We may become limited in our ability to continue to increase the volume of medications we need to fill prescriptions if we are unable to maintain adequate credit terms from AmerisourceBergen or, alternatively, if we are unable to obtain financing from third-party lenders to support the amount of prescription medications we need to purchase in the future.

There are only a few alternative wholesale distributors from whom we can purchase the medications we offer to HIV/AIDS patients. In the event that our prime vendor agreement with AmerisourceBergen terminates or is not renewed, we might not be able to enter into a new agreement with another wholesale distributor on a timely basis or on terms favorable to us. Our inability to enter into a new supply agreement may cause a shortage of the supply of medications we keep in stock or we may be required to accept pricing and credit terms from a vendor that are less favorable to us than those we have with AmerisourceBergen.

If we do not meet our minimum purchase requirements under our prime vendor agreement with AmerisourceBergen, we will be required to make an additional payment based on the unpurchased volume.

Our prime vendor agreement with AmerisourceBergen requires us to make minimum purchases during the five-year term of the agreement that will be no less than $400 million. If we do not meet the minimum purchase commitments as set forth in the agreement at the end of the term, we will be required to pay an amount equal to 0.20% of the unpurchased volume. We also would be required to pay this amount in the event we terminate our prime vendor agreement with AmerisourceBergen without cause or in the event we default under the agreement. If we were required to make this payment, we would incur a possibly significant expense without any corresponding net sales.

Our success in identifying and integrating acquisitions may impact our business.

As part of our strategy, we continually evaluate acquisition opportunities. There can be no assurance that we will complete any future acquisitions or that such transactions, if completed, will be integrated successfully or will contribute favorably to our operations and financial condition. The integration of acquisitions includes ensuring that our disclosure controls and procedures and our internal control over financial reporting effectively apply to and address the operations of newly acquired businesses. We may be required to change our disclosure controls and procedures or our internal control over financial reporting to accommodate newly acquired operations, and we may also be required to remediate historic weaknesses or deficiencies at acquired businesses. For example, the auditors of Specialty identified certain material weaknesses in Specialty’s internal controls in connection with its audit of the 2004 financial statement of Specialty. The auditors stated that Specialty needed to implement an improved accounting system and implement better controls to segregate duties regarding the cash disbursements and cash receipts functions of Specialty. Based on this letter and our own evaluation of Specialty’s internal controls, we have taken a number of remedial steps, including increasing the number of persons (and making changes in the persons) who are primarily responsible for performing the accounting and financial duties at Specialty. Our review and evaluation of disclosure controls and procedures and internal controls of the companies we acquire may take time and require additional expense, and if they are not effective on a timely basis could adversely affect our business and the market’s perception of our company. In addition, acquisitions may expose us to unknown or contingent liabilities of the acquired businesses, including liabilities for failure to comply with healthcare or reimbursement laws. While we try to negotiate indemnification provisions that we consider to be appropriate for the transactions, there can be no assurance that liabilities relating to the prior operations of acquired companies will not have a material adverse effect on our business, financial condition and results of operations. Furthermore, future acquisitions may result in dilutive issuances of equity securities, incurrence of additional debt, and amortization of expenses related to intangible assets, any of which could have a material adverse effect on our business, financial condition and results of operations.

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We may not be able to integrate successfully the LabTracker software into our business or LabTracker subscribers may choose not to use our services.

In May 2005, we entered into a definitive agreement with Oris Medical Systems, Inc. to secure rights to use the LabTracker HIV/AIDS software system. We intend to interface our existing pharmacy operating system with software developed by Oris Medical and with the LabTracker software to allow physicians and clinics to submit electronically their prescriptions to us and then electronically import that information into LabTracker. There is no guarantee that we will be able to successfully interface the LabTracker software with our and Oris Medical’s existing systems. There is also no guarantee that the physicians or clinics currently using the LabTracker software will use our services, and we cannot be certain that we will be able to attract new customers by marketing this software. Pursuant to the terms of the license agreement between Oris Medical and Ground Zero, Oris Medical has the exclusive right to license LabTracker to pharmacy providers and the right to develop a pharmacy interface with LabTracker’s existing system. If the license is invalid or otherwise does not grant sufficient rights to continue to use the derivative works created by Oris from the underlying LabTracker software, our business could be materially adversely affected.

Upon closing of our acquisition of Oris Medical, we will be required to make royalty payments based on the number of our patients submitting their prescriptions through LabTracker. If we fail to meet such payment obligations, the license to interface with the LabTracker software for HIV/AIDS may become nonexclusive, or terminable by the licensor, and such a change could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We rely on third-party delivery services to deliver our products to the patients we serve. Price increases or service interruptions in our delivery services could adversely affect our results of operations and our ability to make deliveries on a timely basis.

Delivery is essential to our operations and represents a significant expense in the operation of our business that we cannot pass on to our customers. As a result, any significant increase in delivery rates, for example, as a result of an increase in the price of gasoline could have an adverse effect on our results of operations. Similarly, strikes or other service interruptions in these delivery services would adversely affect our ability to deliver our products on a timely basis. In addition, some of the medications we ship require special handling, including refrigeration to maintain temperatures within certain ranges. The spoilage of one or more shipments of our products could adversely affect our business or potentially result in damage claims being made against us.

We rely on a few key employees whose absence or loss could adversely affect our business.

Many key responsibilities within our business have been assigned to a small number of employees. The loss of their services could adversely affect our business. In particular, the loss of the services of our named executive officers—Michael P. Moran, our Chairman, Chief Executive Officer and President, James G. Spencer, our Chief Financial Officer, Mikelynn Salthouse, our Vice President, HIV Sales, or Robert Fleckenstein, our Vice President, Pharmacy Operations—could disrupt our operations. We do not have employment contracts with any of our named executives and none of Messrs. Moran, Spencer and Fleckenstein are restricted from competing with us if they cease working for us. Additionally, as a practical matter, any employment agreement we may enter into will not assure the retention of such employee. In addition, we do not maintain “key person” life insurance policies on any of our employees. As a result, we are not insured against any losses resulting from the death of our key employees. Further, as we grow we must be able to attract and retain other qualified technical operating and professional staff, such as pharmacists. If we cannot attract and retain, on acceptable terms, the qualified employees necessary for the continued development of our business, we may not be able to sustain our business or grow.

A prolonged malfunction of our MOMSPak automated packaging system could hurt our relationships with the patients we serve and our ability to grow.

We rely on our MOMSPak packaging system to create the MOMSPak for dispensing patient medication. We expect that prescriptions packaged in a MOMSPak will increase substantially in the future as more of the

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patients we serve switch to the MOMSPak from traditional packaging system pill boxes and as the number of patients and prescriptions we fill increases. We currently lease three MOMSPak machines. If these machines fail to function properly for a prolonged period, we may have to fill prescriptions by hand using pill boxes or by otherwise sorting the various drug combinations into individual doses. Delays or failure to package medications by our MOMSPak packaging system could result in our loss of a substantial portion of our patients who receive their prescriptions in MOMSPaks.

Our financial results may suffer if we have to write-off intangible assets or goodwill.

As a result of our acquisitions, a significant portion of our total assets consist of intangible assets (including goodwill). Intangible assets, net of amortization, and goodwill together accounted for approximately 65.2% and 31% of the total assets on our balance sheet as of March 31, 2005 and December 31, 2004, respectively. Under current accounting standards we are able to amortize intangible assets over a period of five to fifteen years and do not amortize goodwill. We may not realize the full fair value of our intangible assets and goodwill. We expect to engage in additional acquisitions that may result in our recognition of additional intangible assets and goodwill. We evaluate on a regular basis whether all or a portion of our goodwill and those intangible assets may be impaired. Under current accounting rules, any determination that impairment has occurred would require us to write-off the impaired portion of goodwill and such intangible assets, resulting in a charge to our earnings. Such a write off could have a material adverse effect on our financial condition and results of operations.

We do not have patent or trademark protection for our MOMSPak or our automated prescription packaging system, or for our trade name, MOMS Pharmacy.

We believe that several components of our ability to compete effectively include our MOMSPak package, created by our MOMSPak automated prescription packaging system, and our trade name, MOMS Pharmacy. We developed our MOMSPak packaging system with software and other technology that we licensed from third-parties. We have not attempted to obtain patent protection for our MOMSPak packaging system, and we do not intend to do so in the future. As a consequence, our competitors may develop technology that is substantially equivalent to our MOMSPak system, and we could not prevent them from doing so. If our competitors or other third parties were able to recreate the MOMSPak, one of our competitive advantages in serving HIV/AIDS patients could be lost. In addition, we do not have trademark protections for either our automated packaging system, our MOMSPak package or our MOMS Pharmacy name, and there is no guarantee that if we were to decide to seek protection, we would be able to obtain it.

Unauthorized parties may attempt to use our name or copy or otherwise obtain and use our customized packaging solution or technology. We do not have any confidentiality agreements with any of our collaborative partners, employees or consultants that would prevent them from disclosing our trade secrets. There can be no assurance that we will have adequate remedies for any misuse or misappropriation of our trade secrets. If we are not adequately protected, other companies with sufficient resources and expertise could quickly develop competing products which could materially harm our business, financial condition or results of operations.

A disruption in our telephone system or our computer system could harm our business.

We receive and take prescription orders over the telephone, by facsimile or through our electronic prescription writer. We also rely extensively upon our computer system to confirm payor information, patient eligibility and authorizations; to check on medication interactions and patient medication history; to facilitate filling and labeling prescriptions for delivery and billing; and, to help with the collection of payments. Our success depends, in part, upon our ability to promptly fill and deliver complex prescription orders as well as on our ability to provide reimbursement management services for our patients and their healthcare providers. Any continuing disruption in our telephone, facsimile or computer systems could adversely affect our ability to receive and process prescription orders, make deliveries on a timely basis and receive reimbursement from our payors. This could adversely affect our relations with the patients and healthcare providers we serve and potentially result in a partial reduction in orders from, or a complete loss of, these patients.

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We may not be able to obtain insurance that is sufficient to protect our business from liability.

Our business exposes us to risks inherent in the provision of drugs and related services. Claims, lawsuits or complaints relating to our products and services may be asserted against us in the future. Although we currently maintain professional and general liability insurance, there can be no assurance that the scope of coverage or limits of such insurance will be adequate to protect us against future claims. In addition, there can be no assurance that we will be able to maintain adequate liability insurance in the future on acceptable terms or with adequate coverage against potential liabilities.

Risks Related To The Specialty Pharmacy Industry

There is substantial competition in our industry, and we may not be able to compete successfully.

The specialty pharmacy industry is highly competitive and is continuing to become more competitive. All of the medications, supplies and services that we provide are also available from our competitors. Our current and potential competitors may include:

• other specialty pharmacy distributors;

• specialty pharmacy divisions of wholesale drug distributors;

• pharmacy benefit management companies;

• hospital-based pharmacies;

• other retail pharmacies;

• manufacturers that sell their products both to distributors and directly to clinics and physicians’ offices; and

• hospital-based care centers and other alternate site healthcare providers.

Many of our competitors have substantially greater resources and marketing staffs and more established operations and infrastructure than we have. A significant factor in effective competition will be our ability to maintain and expand relationships with patients, healthcare providers and government and private payors.

If we are found to be in violation of Medicaid reimbursement regulations, we could become subject to retroactive adjustments and recoupments.

As a Medicaid provider, we are subject to retroactive adjustments due to prior-year audits, reviews and investigations, government fraud and abuse initiatives, and other similar actions. Federal regulations also provide for withholding payments to recoup amounts payable under the programs. While we believe we are in material compliance with applicable Medicaid reimbursement regulations, there can be no assurance that we, pursuant to such audits, reviews, investigations, or other proceedings, will be found to be in compliance in all respects with such reimbursement regulations. A determination that we are in violation of any such reimbursement regulations could result in retroactive adjustments and recoupments of payments and have a material adverse effect on us. As a Medicaid provider, we are also subject to routine, unscheduled audits that can have a material adverse impact on our results of operations should an audit result in a negative finding. There can be no assurance at this time as to the impact on us of future Medicaid audits.

Our industry is subject to extensive government regulation, and noncompliance by us or our suppliers could harm our business.

The repackaging, marketing, sale and purchase of medications are extensively regulated by federal and state governments. If we fail or are accused of failing to comply with laws and regulations, our business, financial condition and results of operations could be harmed. Many of the HIV/AIDS medications that we sell receive

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greater attention from law enforcement officials than those medications that are most often dispensed by traditional pharmacies due to the high cost of HIV/AIDS medications and the potential for illegal use. In addition, we recognize that the Federal government has an interest in examining relationships between providers or between providers and other third parties relating to health technology services, including those that facilitate the electronic submission of prescriptions. It is possible that our relationship with LabTracker/Oris Medical might invite inquiry from the Federal government. Our business could also be harmed if the entities with which we contract or have business relationships, such as pharmaceutical manufacturers, distributors, physicians or HIV/AIDS clinics, are accused of violating laws or regulations. The applicable regulatory framework is complex and evolving, and the laws are very broad in scope. There are significant uncertainties involving the application of many of these legal requirements to our business. Many of the laws remain open to interpretation and have not been addressed by substantive court decisions that clarify their meaning. We are unable to predict what additional federal or state legislation or regulatory initiatives may be enacted in the future relating to our business or the healthcare industry in general, or what effect any such legislation or regulation might have on us. Further, we cannot provide any assurance that federal or state governments will not impose additional restrictions or adopt interpretations of existing laws that could increase our cost of compliance with such laws or reduce our ability to become profitable. If we are found to have violated any of these laws, we could be required to pay fines and penalties, which could materially adversely affect our profitability, and our ability to conduct our business as currently structured. Federal and state investigations and enforcement actions continue to focus on the health care industry, scrutinizing a wide range of items such as referral and billing practices, product discount arrangements, dissemination of confidential patient information, clinical drug research trials, pharmaceutical marketing programs, and gifts for patients. It is difficult to predict how any of the laws implicated in these investigations and enforcement actions may be interpreted to apply to our business. To our knowledge, we are not currently the subject of any investigation. Any future investigation may cause publicity that would cause potential patients to avoid us, reducing potential net sales and profits and cause our stock price to decline.

See our discussion under the heading “Business—Government Regulation” beginning at page 46 for a description of the healthcare laws and regulations that apply to our business.

Recent changes in how Medicaid and other government payors calculate the amount we are paid for medications we sell could reduce our pricing and margins.

Historically, many government payors, including ADAP and Medicaid programs, which account for most of our net sales, paid us directly or indirectly for the medications we handle at average wholesale price, or AWP, or at a percentage of AWP. Private payors with whom we may contract also reimburse for medications at AWP or at a percentage of AWP. As a result of certain lawsuits and governmental investigations, one of the independent price reporting services began reporting revised AWPs for approximately 400 national drug codes. Federal and state governmental attention continues to focus on the validity of using AWP as the basis for Medicaid medication payments, including payments for HIV/AIDS medications, and most state Medicaid programs pay substantially less than AWP for drugs.

In October of 2003, the OIG published a report titled “State Strategies to Contain Medicaid Drug Costs.” This report outlines three key strategies for states to pursue in reducing the amount of money spent on drug reimbursement. Many of these strategies are currently being used by some states. These strategies look to contain costs by (1) limiting Medicaid reimbursement for some drugs, (2) shifting from higher to lower cost drugs, (3) limiting the amount of prescription drugs a beneficiary can obtain within a given time period, (4) prior authorization, and (5) cost sharing and co-payments. We expect that many states will continue to pursue these strategies and that these strategies may result in reduced revenues.

As of January 1, 2004, Medicare adopted new pricing that reduced reimbursement for many drugs. In 2005, the agency that administers the Medicare and Medicaid Programs, the Centers for Medicine & Medicaid Services, or CMS, will change reimbursement so that it will either be based on average sales price, or ASP, or be administered under a competitive acquisition program rather than AWP. Although reimbursement from Medicare

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has historically been immaterial to our net sales and we expect to discontinue servicing patients dependent on Medicare, if Medicaid and other government payors change reimbursement to pricing based on ASP, we may receive reduced reimbursement amounts for medications that we dispense.

We cannot predict the eventual results of any payment reforms, future government investigations or recommended strategies for states to employ to reduce drug costs. Modifications to reimbursement payments, if adopted, could have a significant impact to our financial condition and results of operation.

Our business could be affected by reforms in the health-care industry.

Healthcare reform measures have been considered by Congress and other federal and state bodies during recent years. The intent of the proposals generally has been to reduce healthcare costs and the growth of total healthcare expenditures, to expand healthcare coverage for the uninsured and to eliminate fraud, waste and financial abuse. Although comprehensive healthcare reform has been considered, only limited proposals have been enacted. Comprehensive healthcare reform may be considered again and efforts to enact reform bills are likely to continue. We are unable to predict the likelihood of such legislation or similar legislation being enacted into law or the effects that any such legislation would have on our business.

Risks Related To This Offering

There has not been a public market for our common stock since before we emerged from bankruptcy on February 1, 1999.

We cannot predict the extent to which a trading market for our common stock will develop or how liquid that market might become. An active trading market for our common stock may not develop following this offering. You may not be able to sell your shares quickly or at the market price if trading in our stock is not active. If you purchase shares of our common stock in this offering, you will pay a price that was not established in the public trading markets. The public offering price will be determined by negotiations among the underwriters and us. You may not be able to resell your shares at or above the public offering price and may suffer a loss on your investment.

Our stock price may be volatile.

The experiences of other small, newly public companies indicate that the market price for our common stock could be highly volatile. Many factors could cause the market price of our common stock to fluctuate substantially, including:

• future announcements concerning us, our competitors, the drug manufacturers with whom we have relationships or the healthcare market;

• changes in government regulations applicable to our business;

• litigation or administrative proceedings against us;

• the departure of key employees;

• overall volatility of the stock market and general economic conditions;

• changes in our earnings estimates or recommendations by analysts; and

• changes in our operating results from quarter to quarter including as a result of pricing changes in reimbursement terms.

Additionally, following periods of volatility in the market price of a company’s securities, securities class action lawsuits have often been instituted against the company. This type of litigation could result in substantial costs and a diversion of our management’s attention and resources and could limit our ability to grow our business and become profitable.

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You will experience immediate and substantial dilution in the tangible book value of your shares of common stock.

The assumed public offering price of our common stock is substantially higher than the book value per share of our common stock. Purchasers of our common stock in this offering will experience immediate and substantial dilution in the net tangible book value of their shares of approximately $10.07 per share from an assumed public offering price of $13.00 per share. Purchasers will experience additional dilution upon the exercise of outstanding options and warrants and, in the event we issue additional common stock in connection with future acquisitions or other financing needs.

We may need additional funds that, if available, would result in an increase in our interest expense and could result in dilution of your stockholdings.

To implement our business plan and growth strategy, we may need additional funds. We may need additional financing to support our rapid growth or to respond to competitive pressures or unanticipated events. From time to time, we may incur additional short and long-term indebtedness and may also issue equity or debt securities, in public or private transactions, the terms of which will depend on market and other conditions. There can be no assurance that additional financing will be available to us on acceptable terms, if at all, especially in light of our bankruptcy in 1999. We may not be able to fully implement our business plan or pursue our growth strategy if we fail to obtain necessary additional funding. Debt financing, if available, would increase our interest expense and could result in additional restrictions on our spending or ability to pay dividends. Additional equity financing could cause dilution to existing stockholders.

A significant number of shares of our common stock are available for sale in the near future, and their sale could depress our stock price.

The 4,000,000 shares sold in this offering (assuming no exercise of the underwriters’ over-allotment option) will be freely tradeable without restrictions or further registration under the Securities Act, unless the shares are purchased by our affiliates as that term is defined under Rule 144 under the Securities Act. Substantially all of the remaining 7,894,956 shares of common stock outstanding after this offering will be “restricted securities” as defined under Rule 144. In addition, upon completion of this offering, we will have outstanding warrants for 1,803,825 shares of common stock, of which 1,763,825 shares are immediately exercisable, and of which 810,211 shares will be freely tradeable without restrictions or further registration under the Securities Act. Promptly following this offering, we also intend to register approximately 2,750,000 shares of common stock that are authorized for issuance under our stock option plans, 1,667,750 of which have been issued. Once we register the shares authorized for issuance under our stock option plans, they can be freely sold in the public market upon issuance, subject to restrictions imposed on our affiliates under Rule 144.

Holders of 6,583,773 shares of common stock, which includes all of our directors and executive officers, 537,500 warrants to purchase shares of common stock and 1,088,056 options exercisable for common stock will be subject to the 180-day lock-up period as described under the heading “Underwriting” beginning at page 76. In addition, holders of 669,965 shares of common stock will be subject to a 90-day lock-up period pursuant to the terms of the registration rights agreements entered into between us and such holders. Upon expiration of such lock-up agreements, sales of a significant number of shares of our common stock, or the perception that these sales could occur, particularly with respect to affiliates, directors, executive officers or other insiders, could materially and adversely affect the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities. See our discussion under the heading “Shares Eligible for Future Sale” beginning at page 73 and under the heading “Underwriting” beginning at page 76 for a discussion of lock-up agreements with respect to certain shares of common stock.

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Because our principal stockholders and management will continue to own a large percentage of our common stock after the offering, they could collectively be able to determine the outcome of all matters submitted to stockholders for approval regardless of the preferences of our other stockholders.

After the offering, our directors, officers and principal stockholders will beneficially own approximately 40% of our outstanding common stock. As a result, these persons collectively may be able to:

• elect our entire board of directors;

• control our management and policies;

• determine the outcome of any transactions or other matters submitted to our shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets;

• prevent or cause a change in control; and

• amend our amended and restated certificate of incorporation and bylaws at any time.

We will have broad discretion in the application of net proceeds from this offering.

We currently intend to use approximately $9.9 million of the proceeds from this offering to repay certain indebtedness. We also will pay approximately $1.6 million to repurchase approximately 175,000 warrants from the former owners of Specialty Pharmacies, Inc. and $1.0 million to Oris Medical pursuant to the terms of our definitive agreement with Oris Medical. We intend to use substantially all of the remaining net proceeds of this offering for working capital and other general corporate purposes, including potential acquisitions. Accordingly, our management will have broad discretion as to the application of our net proceeds from this offering. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and growth of our business. For more information regarding our use of the proceeds from this offering, you should read the information under the heading “Use of Proceeds” at page 20.

We will incur increased costs as a result of being a public company and our financial results could be adversely affected.

As a public company, we will be required to devote additional internal and external resources to various governance and compliance matters to comply with the laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, SEC regulations and Nasdaq National Market rules. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest resources to comply with evolving laws, regulations and standards, and in addition we expect to have increased general and administrative expenses. This investment will require management to devote time and attention that will not be available for other matters. Because we have a relatively small corporate staff, we will rely heavily on outside professional advisers to assist us with these efforts. As a result, we expect to incur additional operating expenses after the offering and will incur further expenses in the future. These costs will include increased accounting-related fees associated with evaluating, testing and preparing the attestation report on our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act. The way in which these laws, regulations and standards are applied and implemented may change over time, which could result in even higher costs to address and implement revisions to compliance and governance practices. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed and we could be exposed to potential liability.

In addition, the corporate governance rules and regulations for public companies may make obtaining director and officer liability insurance more expensive, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, attracting and retaining qualified individuals to serve on our board of directors or as executive officers may be more difficult.

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Applicable laws and our amended and restated certificate of incorporation and third amended and restated bylaws may discourage takeovers and business combinations that our stockholders might consider in their best interests.

Provisions of our amended and restated certificate of incorporation, our third amended and restated by-laws and the laws of Delaware, the state of our incorporation, may discourage, delay or prevent a change in control of us or a change in management that our stockholders may consider favorable. These provisions:

• limit who may call a special meeting of stockholders;

• establish advance stockholder notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon at stockholder meetings;

• provide our board of directors with the ability to designate the terms of and issue new series of preferred stock without stockholder approval; and

• may make it more difficult for a person to pursue a business combination with us by requiring them in many instances to first obtain approval of our board of directors.

These provisions could discourage proxy contests and make it more difficult for you and other stockholders to remove and elect directors and take other corporate actions. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.

We do not anticipate declaring or paying any cash dividends in the foreseeable future, which may reduce your return on an investment in our common stock.

We do not anticipate declaring or paying any cash dividends in the foreseeable future. Any future decision to pay dividends will be made by our board of directors and will depend on our results of operations, financial condition, contractual and legal restrictions and other factors the board deems relevant. While our ability to pay dividends is currently only limited by covenants in our credit facility with GE Capital if we are experiencing an event of default under such facility, our ability to pay dividends could be limited by the terms of future indebtedness that we incur.

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FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains forward-looking statements.

These forward-looking statements, which include statements about potential acquisitions, our anticipated liquidity and future capital needs and resources, our market size, share and demand, reimbursement rates and management’s expectations and objectives regarding future operating results, net sales and earnings are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements.

These forward-looking statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include those listed under the heading “Risk Factors” and elsewhere in this prospectus. In some cases, you can clearly identify forward-looking statements by terminology such as “may,” “could,” “will,” “should,” “expect,” “intends,” “plans,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We do not intend to update any of the forward-looking statements after the date of this prospectus or to conform these statements to actual results.

DIVIDEND POLICY

We have never paid cash dividends on our capital stock and have no intention of paying any cash dividends in the foreseeable future. Payments of future dividends, if any, will be at the discretion of our board of directors, after taking into account contractual restrictions and such factors as it considers relevant, including our financial condition, the performance of our business, the perceived benefits to our company and our stockholders of reinvesting earnings, anticipated cash needs of our business, the tax consequences of retained earnings and the tax consequences to our company and our stockholders of making dividend payments. Although our ability to pay dividends is not currently restricted under our revolving credit facility with GE Capital unless we are experiencing an event of default, our ability to pay dividends could be limited by the terms of future indebtedness that we incur.

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USE OF PROCEEDS

Our net proceeds from the sale of 4,000,000 shares of our common stock in this offering are estimated to be approximately $46,360,000 ($53,614,000 if the underwriters exercise their over-allotment option in full), assuming an initial public offering price of $13.00 per share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us estimated at $2,000,000 million.

We currently intend to use the net proceeds as follows:

• $1.9 million to repay the promissory notes given to the previous owners of Specialty Pharmacies;

• $1.6 million to repurchase 175,719 of the warrants we issued to the previous owners of Specialty Pharmacies;

• $1.0 million to Oris Medical pursuant to the terms of the definitive agreement with Oris Medical;

• approximately $4.5 million to repay the amount outstanding under our GE credit facility, based on the amount outstanding as of May 15, 2005;

• approximately $1.5 million to repay the amount outstanding under our loan with West Bank;

• approximately $2.0 million to repay the amount outstanding under our subordinated note issued to Crestview Capital Master, LLC; and

• the remaining amount for working capital and other general corporate purposes.

Our notes issued to the previous owners of Specialty Pharmacies accrue interest at the prime rate plus 2% and are due on February 28, 2006. We used these notes as part of the consideration to acquire Specialty Pharmacies.

Our revolving credit facility with GE Capital expires in April 2006 and interest accrues under the facility based upon the prime rate of interest in existence at the time of each borrowing under the facility plus 2%. Because this facility is used to fund working capital it typically fluctuates between $1.5 and $4.5 million outstanding. Our line of credit with West Bank matures in September 2005 and accrues interest at the prime rate plus 2% of interest per annum. The prime rate at March 31, 2005 was equal to 5.75%.

Our subordinated note issued to Crestview Capital Master, LLC accrues interest at a rate of 10% per year. This subordinated note matures on the earlier of three days following closing of this offering or May 13, 2006. Fees of $160,000 were incurred due to the issuance of the subordinated notes.

The amounts actually expended for the purposes listed above may vary significantly and will depend on a number of factors, including the amount of our future net sales, expenses and other factors described under “Risk Factors” beginning on page 8. While we have no current plans, agreements or commitments with respect to any acquisition other than the pending acquisition of substantially all of the assets of Oris Medical that is described elsewhere in this prospectus, we may, if the opportunity arises, use an unspecified portion of the net proceeds to acquire or invest in products, technologies or companies. Our management may spend the proceeds from this offering in ways that our stockholders may not deem desirable.

Until we use the net proceeds of this offering for the above intended purposes, we intend to invest the funds in short-term, investment grade securities. We cannot predict whether the proceeds invested will return a favorable yield.

20

CAPITALIZATION

The following table sets forth our cash and cash equivalents, and our capitalization as of March 31, 2005:

• on an actual basis; and

• on an adjusted basis reflecting (1) conversion of all of our preferred stock into an aggregate of 4,794,956 shares of common stock immediately prior to the completion of this offering, (2) the sale of 4,000,000 shares of common stock in this offering at an assumed initial public offering price of $13.00 per share, after deducting the underwriting discounts and commissions and estimated offering expenses paid by us and (3) the application of the net proceeds from this offering.

You should read this table in conjunction with the section of this prospects entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Use of Proceeds,” “Unaudited Pro Forma Consolidated Financial Statements,” “Selected Historical Consolidated Financial Data,” and with the consolidated financial statements and related notes included elsewhere in this prospectus.

	As of March 31, 2005
	Actual			Pro Forma Adjusted
Cash and cash equivalents	$	978,353		$	37,907,036
Revolving line of credit		2,039,846			0
Notes payable-subordinated		5,973,747			1,323,747
Mandatory redeemable warrants		1,898,215			0
Total indebtedness		9,911,808			1,323,747
Stockholders’ equity:
Convertible preferred stock, $.001 par value; 20,000,000 shares authorized; 4,570,009 shares issued and outstanding, actual; 0 shares issued and outstanding pro forma adjusted		4,570			0
Common stock, $.001 par value; 80,000,000 shares authorized; 3,100,000 shares issued and outstanding actual; 11,894,956 shares issued and outstanding, pro forma adjusted		3,100			11,895
Additional paid-in capital		22,300,801			69,994,623
Accumulated (deficit)		(10,540,812	)		(11,722,115	)
Total stockholders’ equity		11,767,659			58,284,403
Total capitalization	$	21,679,467		$	59,608,150

Our capitalization on a pro forma adjusted basis assumes the conversion of all outstanding shares of preferred stock into common stock based on an assumed offering price of $13.00 per share. See the discussion under the heading “Description of Capital Stock—Authorized Capital Stock” beginning at page 68 for more information on the terms of conversion of our preferred stock into common stock.

The actual number of shares of common stock shown as issued and outstanding in the table above does not include:

• any shares of our common stock to be issued pursuant to the underwriters’ over-allotment option;

• 1,667,750 shares of our common stock issuable upon the exercise of outstanding options at a weighted average exercise price of $3.03 per share;

• 1,803,825 shares of our common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $5.57 per share, 175,719 of which we plan to redeem with proceeds from this offering; and

• 982,250 shares of our common stock reserved for future issuance pursuant to our 1998 Stock Option Plan and 2002 Stock Incentive Plan.

21

DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the offering price per share and the historical adjusted net tangible book value per share of common stock upon the completion of the offering. The historical adjusted net tangible book value as of March 31, 2005 was approximately $(10.7) million, or $(1.35) per share. Historical adjusted net tangible book value per share represents our total tangible assets less total liabilities divided by the pro forma number of shares of common stock outstanding after giving effect to the automatic conversion of all shares of our outstanding preferred stock. Dilution in historical adjusted net tangible book value per share represents the difference between the amount per share paid by purchasers of common stock in this offering and the net tangible book value per share of common stock immediately after the closing of this offering.

After giving effect to the sale of the shares of our common stock being offered hereby at an assumed offering price of $13.00 per share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of March 31, 2005 would have been approximately $34,847,047 million, or $2.93 per share of common stock. This represents an immediate increase in net tangible book value of $4.28 per share to our existing stockholders and an immediate dilution of $10.07 per share to new investors purchasing shares in this offering at the public offering price.

The following table illustrates this dilution on a per share basis:

Assumed initial public offering price per share				$	13.00
Historical adjusted net tangible book value per share as of March 31, 2005	$	(3.44	)
Increase per share due to assumed conversion of all shares convertible into common stock	$	2.09
Pro forma tangible book value per share as of March 31, 2005	$	(1.35	)
Increase per share attributable to new investors		4.28
Pro forma net tangible book value per share after the offering				$	2.93
Dilution per share to new investors				$	10.07

The following table summarizes, as of March 31, 2005, on a pro forma basis, the differences between the number of shares of our common stock purchased from us, the total consideration paid to us and the average price per share paid by our existing stockholders and by new investors in this offering, before deducting the underwriting discounts and commissions and estimated offering expenses:

	Shares Purchased			Total Consideration				Average Price Per Share
	Number	Percent		Amount		Percent
Existing stockholders	7,894,956	66	%	$	22.1	30	%	$	2.88
New investors	4,000,000	34			52.0	70			13.00
Total	11,894,956	100	%	$	74.1	100	%	$	6.44

The above discussion assumes no exercise of outstanding options or warrants. At March 31, 2005, 1,667,750 shares of our common stock were issuable upon exercise of outstanding options with a weighted average exercise price of $3.03 per share, and 1,803,825 shares of our common stock were issuable upon exercise of outstanding warrants with a weighted average exercise price of $5.57 per share. To the extent that these options or warrants are exercised, investors in this offering will experience further dilution. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma consolidated financial statements should be read in conjunction with the historical financial statements of Allion Healthcare, Inc., North American Home Health Supply, Inc., and Specialty Pharmacies, Inc., and the related notes thereto, which are included elsewhere in this prospectus. The following unaudited pro forma consolidated financial statements have been prepared by our management and are based on (a) the historical financial statements of Allion Healthcare, Inc., North American Home Health Supply, Inc. and Specialty Pharmacies, Inc., and (b) the assumptions and adjustments described below.

The unaudited pro forma consolidated statement of operations for the year ended December 31, 2004 and three-month period ended March 31, 2005 gives effect to the following transactions as if they had occurred on January 1, 2004:

• The acquisition of North American Home Health Supply, Inc. for the year ended December 31, 2004;

• The acquisition of Specialty Pharmacies, Inc. for the year ended December 31, 2004 and the two months in 2005 prior to acquisition date; and

• The sale of 730,769 shares of common stock at an assumed offering price of $13.00 per share in this offering to repay approximately $9.5 million of our outstanding debt.

We have included all adjustments, consisting of normal recurring adjustments, which in the opinion of management, are necessary for a fair presentation of the data. We based the pro forma adjustments on available information and on assumptions that we believe are reasonable under the circumstances. See “Notes to Unaudited Pro Forma Consolidated Statement of Operations” at page 26 for a discussion of assumptions made. The unaudited pro forma consolidated financial statements do not purport to represent what our results of operations or financial position actually would have been if the transactions set forth above had occurred on the dates indicated or what our results of operations or financial position will be for future periods.

23

Allion Health Care, Inc. & Subsidiaries

Pro Forma Consolidated Statement of Operations (Unaudited)

Quarter Ended March 31, 2005

	Allion			Specialty - Two Months Ended February 28, 2005		Pro Forma Adjustments - Acquisitions		Pro Forma Consolidated			Adjustments - Offering		Pro Forma Adjusted
Net sales	$	22,695,749		$	4,566,109			$	27,261,858				$	27,261,858
Cost of goods sold		19,122,146			3,569,576				22,691,722				$	22,691,722
Gross profit		3,573,603			996,533				4,570,136					4,570,136
Operating expenses:
Selling, general & administrative expenses		3,448,228			390,173	61,019	(1)		3,899,420				$	3,899,420
Operating income (loss)		125,375			606,360	(61,019	)		670,716					670,716
Other income (expense):
Interest income (expense)		(106,939	)			(22,958 (67,500	)(4) )(6)		(197,397	)	179,350	(7)	$	(18,047	)
Income (loss) from continuing operations		18,436			606,360	(151,477	)		473,319		179,350			652,669
Basic loss per common share from continuing operations	$	0.01						$	0.15				$	0.08
Diluted loss per common share from continuing operations	$	0.00						$	0.05				$	0.07
Basic weighted average of common shares outstanding		3,100,000							3,100,000					8,625,725
Diluted weighted average of common shares outstanding		8,799,702							8,799,702					9,755,418

See notes to pro forma consolidated statement of operations.

24

Allion Health Care, Inc. & Subsidiaries

Pro Forma Consolidated Statement of Operations (Unaudited)

Year Ended December 31, 2004

	Allion			NAHH			Specialty			Pro Forma Adjustments - Acquisitions			Pro Forma Consolidated			Adjustments - Offering			Pro Forma Adjusted
Net sales	$	60,080,003		$	15,400,938		$	26,093,338					$	101,574,279					$	101,574,279
Cost of goods sold		53,162,201			10,716,273			21,964,563						85,843,037						85,843,037
Gross profit		6,917,802			4,684,665			4,128,775						15,731,242						15,731,242
Operating expenses:
Selling, general & administrative expenses		9,162,734			3,167,781			2,399,491			366,116	(1)		16,007,077						16,007,077
											310,955	(2)
											600,000	(3)
Operating income (loss)		(2,244,932	)		1,516,884			1,729,284			(1,277,071)			(275,835	)					(275,835	)
Other income (expense):
Interest income (expense)		(233,460	)					(1,242	)		(137,750	)(4)		(849,640	)		777,452	(7)		244,556
											(72,188	)(5)					316,744	(8)
											(405,000	)(6)
Income (loss) on disposal of assets		4,466			(25,659	)								(21,193	)					(21,193	)
Total other income (expense)		(228,994	)		(25,659	)		(1,242	)		(614,938	)		(870,833	)		1,094,196			223,363
Income before taxes		(2,473,926	)		1,491,225			1,728,042			(1,892,009	)		(1,146,668	)		1,094,196			(52,472	)
Provision for income taxes		(76,202	)											(76,202	)					(76,202	)
Income (loss) from continuing operations		(2,550,128	)		1,491,225			1,728,042			(1,892,009	)		(1,222,870	)		1,094,196			(128,674	)
Deemed dividend on preferred stock																	1,338,047	(9)		1,338,047
Income (loss) from continuing operations available to common shareholders	$	(2,550,128	)	$	1,491,225		$	1,728,042		$	(1,892,009	)	$	(1,222,870	)	$	(243,851	)	$	(1,466,721	)
Basic loss per common share from continuing operations	$	(0.82	)										$	(0.39	)				$	(0.17	)
Diluted loss per common share from continuing operations	$	(0.82	)										$	(0.39	)				$	(0.17	)
Basic weighted average of common shares outstanding		3,100,000												3,100,000						8,625,725
Diluted weighted average of common shares outstanding		3,100,000												3,100,000						8,625,725

See notes to pro forma consolidated statement of operations.

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Notes to Unaudited Pro Forma Consolidated Statement of Operations:

(1) To record amortization expense on the intangibles of $366,116 for the year ended December 31, 2004 and $61,019 for the two months ended February 28, 2005, relating to the acquisition of Specialty.

(2) To record amortization expense on the intangibles of $310,955 for the year ended December 31, 2004, relating to the acquisition of NAHH.

(3) To record $600,000 for the year ended December 31, 2004 of contingent consideration as compensation under the Purchase Agreement dated February 28, 2005 between Specialty and Michael Tubb. This amount is payable to Michael Tubb based on his continued employment for one year post acquisition and is non-recurring. The Company is accruing $50,000 of compensation expense each month for the twelve-month period of the agreement. An additional $600,000 of cash was paid to Michael Tubb on the date of the acquisition and was included in the purchase price.

(4) To record interest expense of $137,750 for the $1.9 million promissory note for the year ended December 31, 2004 and $22,958 for the two months ended February 28, 2005, relating to the acquisition of Specialty, at an contractual interest rate of 7.25% per annum (prime rate + 2%).

(5) To record interest expense of $72,188 for the $675,000 and $700,000 promissory notes for the year ended December 31, 2004, relating to the acquisition of NAHH, at an imputed interest rate of 5.25% per annum.

(6) To record interest expense on borrowings under our revolving credit lines of $405,000 for the year ended December 31, 2004 and $67,500 for the two months ended February 28, 2005, to fund the acquisitions of NAHH and Specialty. We used $4,500,000 of borrowings under the facility with GE Capital (with interest at the Prime Rate plus 2% per annum) and $1,500,000 of borrowings under the revolving credit line with West Bank (with interest at the Prime Rate plus 2% per annum).

(7) To eliminate interest expense resulting from the repayment of debt out of the proceeds of the offering.

(8) To record gain on extinguishment of mandatory redeemable warrants.

(9) To reflect additional shares issued as a deemed dividend on preferred stock Series C (31,667 shares at $5.00 per share), Series D (113,151 shares at $6.00 per share) and Series E (80,129 shares at $6.25 per share).

26

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The selected historical consolidated financial data presented below for the years ended December 31, 2000, 2001, 2002, 2003 and 2004, have been derived from our audited consolidated financial statements. Our audited consolidated financial statements for each of the three years in the period ended December 31, 2004 are contained elsewhere in this prospectus. The historical consolidated financial data as of and for the three months ended March 31, 2004 and 2005 have been derived from our unaudited financial statements. We believe that these unaudited financial statements include all adjustments necessary for the fair presentation of our financial condition and the results of our operations for these periods and as of these dates. You should read the following data together with our historical consolidated financial statements and related notes, with the financial information presented in “Unaudited Pro Forma Consolidated Financial Statements” and related notes and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this prospectus.

	Years Ended December 31,															Three Months Ended March 31
	2000			2001			2002			2003			2004			2004			2005
	(In thousands, except per share)
Statement of Operations Data:
Net sales	$	4,984		$	11,694		$	21,441		$	42,502		$	60,080		$	13,350		$	22,696
Cost of goods sold		4,215			10,070			18,062			37,036			53,162			11,786			19,122
Gross profit		769			1,624			3,379			5,466			6,918			1,564			3,574
Operating expenses:
Selling, general and administrative expenses		1,515			2,846			3,718			7,699			9,163			2,099			3,449
Legal settlement (income) expense		0			0			(150	)		200			0			0			0
Operating income (loss)		(746	)		(1,222	)		(189	)		(2,433	)		(2,246	)		(535	)		125
Other expense:
Interest expense		204			104			69			244			232			84			107
Costs of withdrawn public offering and other		0			0			479			0			0			0			0
Other expense (income)		(73	)		(445	)		0			0			(4	)		0			0
Income (loss) before income taxes and discontinued operations		(877	)		(881	)		(737	)		(2,677	)		(2,474	)		(619	)		18
Provision (benefit) for taxes		(130	)		9			35			20			76			7			0
Net income (loss) from continuing operations		(747	)		(890	)		(772	)		(2,697	)		(2,550	)		(626	)		18
Discontinued operations (1)		(4	)		(224	)		(267	)		(258	)		(130	)		(51	)		(5	)
Net income (loss)	$	(751	)	$	(1,114	)	$	(1,039	)	$	(2,955	)	$	(2,680	)	$	(677	)	$	13
Basic income (loss) per common share (2):
Income (loss) before discontinued operations	$	(0.24	)	$	(0.29	)	$	(0.25	)	$	(0.87	)	$	(0.82	)	$	(0.20	)	$	0.01
Income (loss) from discontinued operations		(0.00	)		(0.07	)		(0.09	)		(0.08	)		(0.04	)		(0.02	)	$	0.00
Net income (loss)	$	(0.24	)	$	(0.36	)	$	(0.34	)	$	(0.95	)	$	(0.86	)	$	(0.22	)	$	0.01
Diluted income (loss) per common share (2):
Income (loss) before discontinued operations	$	(0.24	)	$	(0.29	)	$	(0.25	)	$	(0.87	)	$	(0.82	)	$	(0.20	)	$	0.00
Income (loss) from discontinued operations		(0.00	)		(0.07	)		(0.09	)		(0.08	)		(0.04	)		(0.02	)		0.00
Net income (loss)	$	(0.24	)	$	(0.36	)	$	(0.34	)	$	(0.95	)	$	(0.86	)	$	(0.22	)	$	0.00
Basic weighted average of common shares outstanding (2)		3,100			3,100			3,100			3,100			3,100			3,100			3,100
Diluted weighted average of common shares outstanding (2)		3,100			3,100			3,100			3,100			3,100			3,100			8,800
Balance Sheet Data:
Cash and cash equivalents	$	728		$	1,559		$	213		$	641		$	6,980		$	209		$	978
Total assets	$	2,071		$	4,709		$	4,622		$	12,415		$	19,996		$	12,703		$	34,405
Notes payable—subordinated	$	—		$	—		$	—		$	1,150		$	1,250		$	2,650		$	5,308
Total liabilities	$	2,658		$	1,720		$	5,365		$	10,022		$	8,481		$	9,493		$	22,637
Total stockholders’ equity (deficit)	$	(588	)	$	295		$	(744	)	$	2,393		$	11,514		$	1,716		$	11,768

(1) See Note 9 to “Notes to Condensed Consolidated Financial Statements (Unaudited)” at page F-12 for a description of the effect of our discontinued operations.

(2) See Note 2 to “Notes to Consolidated Financial Statements” beginning at page F-19 for a description of the method used to compute basic and diluted net loss per common share and number of shares used in computing basic and diluted net loss per common share.

27

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with “Selected Historical Consolidated Financial Data,” “Unaudited Pro Forma Consolidated Financial Statements,” our historical consolidated financial statements and the related notes thereto, and the historical financial statements of North American Home Health Supply, Inc., Specialty Pharmacies, Inc. and Medicine Made Easy and the related notes thereto all included elsewhere in this prospectus. The discussion in this prospectus contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” beginning at page 8 and “Forward-Looking Statements” at page 19.

Overview

We are a national provider of specialty pharmacy and disease management services focused on HIV/AIDS patients. We sell HIV/AIDS medications, ancillary drugs and nutritional supplies under our trade name MOMS Pharmacy. We work closely with physicians, nurses, clinics and AIDS Service Organizations, or ASOs, and with government and private payors, to improve clinical outcomes and reduce treatment costs for our patients. Most of our patients rely on Medicaid and other state-administered programs, such as the AIDS Drug Assistance Program, or ADAP, to pay for their HIV/AIDS medications.

We operate our business as a single segment configured to serve key geographic areas most efficiently. As of May 15, 2005, we operated seven distribution centers located in California (3 separate locations), New York, Texas, Florida and Washington. These centers are in close proximity to major metropolitan markets in New York City, New York; San Francisco, California; Los Angeles, California; Seattle, Washington; Miami, Florida; and Austin, Texas. In discussing our results of operations, we address changes in the net sales contributed by each of these distribution centers because we believe this provides a meaningful indication of the historical performance of our business.

In March 2005, we decided to cease operating our Austin, Texas distribution center during 2005. A significant portion of the operations of our Austin, Texas distribution center was dedicated to serving organ transplant and oncology patients, and consistent with our strategy of focusing on the HIV/AIDS market, we decided not to continue this business. Our Texas operations had a net loss of $5,340 for the three-month period ended March 31, 2005. We do not expect to record any material expense associated with shutting down the facilities. As a result of our decision to discontinue our Texas operations, we have presented the results of the Texas distribution center as “discontinued operations.” As required by generally accepted accounting principles, we have restated prior periods to reflect the presentation of the Texas facility as “discontinued operations,” so that period-to-period results are comparable.

The key components of our financial results are our net sales, gross profit and operating expenses.

Net Sales.    We sell HIV/AIDS prescription and ancillary medications, and nutritional supplies. In 2004, payments from Medicaid and ADAP accounted for approximately 88% of our net sales. These are both highly regulated government programs that are subject to frequent changes and cost containment measures. We continually monitor changes in reimbursement for HIV/AIDS medications.

Gross Profit.    Our gross profit reflects net sales less the cost of goods sold. Cost of goods sold is the cost of pharmaceutical products we purchase from wholesalers and is primarily dependent on contract pricing with our main wholesale provider, AmerisourceBergen. The amounts that we are reimbursed by government and private payors have generally increased as the price of the pharmaceuticals we purchase has increased. However, as a result of cost containment initiatives, government and private payors have reduced reimbursement rates, which prevents us from recovering the full amount of any price increases. For this reason, our gross margin (which is

28

gross profit as a percentage of net sales) has declined from approximately 15.8% in 2002 to 12.9% in 2003 to 11.5% in 2004. See “Business—Third Party Reimbursement Cost, Containment and Legislation,” at page 45 for a discussion of the potential for variability in third party reimbursements.

In the first quarter of 2005, we recorded net income of $13,096. Historically, we had generated a net loss from our continuing operations. NAHH, which we acquired on January 4, 2005, has historically reported higher gross margins than our historical business and also reported net income. The higher gross margin for NAHH is due to a product mix that is reimbursed at higher amounts than the HIV/AIDS medications we sell. The purchasers of these higher margin products are primarily not HIV/AIDS patients. In light of our focus on serving HIV/AIDS patients, we expect that this higher margin business will become a smaller portion of our overall business over time. Consequently, we expect our gross margin to decline over time to levels more consistent with our historical HIV/AIDS operations. We, therefore, will depend on increases in the volume of business and sales of prescriptions to sustain our HIV/AIDS operations. There is no assurance that we will be able to achieve the increases needed to generate sufficient net sales and gross profit to result in net income.

While we believe that we now have a sufficient revenue base to operate profitably given our anticipated operating and other expenses, our business remains subject to uncertainties and potential changes, as discussed elsewhere in this prospectus, that could result in losses. In particular, changes to reimbursement rates, unexpected increases in operating expenses, or declines in the number of patients we serve or the number of prescriptions we fill could adversely affect our future results.

Operating Expenses.    Our operating expenses are made up of both variable and fixed costs. Our principal variable costs are labor and delivery, which vary with the number of prescriptions we fill. Our principal fixed costs are facilities, equipment and insurance, which do not vary directly with the number of prescriptions we fill. As we grow, subject to constraints such as facility size, we do not expect our fixed costs to increase as quickly as variable costs. We also believe that our existing fixed costs are sufficient to support additional growth in the number of patients we serve and the number of prescriptions we fill.

We have grown our business by acquiring other specialty pharmacies and expanding our existing business. We expect to continue to make acquisitions and to continue to expand our existing business. Since the beginning of 2003, we have acquired three specialty pharmacies in California. The acquisition of Medicine Made Easy, or MME, in 2003 contributed approximately $14 million of the $21 million increase in our net sales in 2003 over 2002. The two businesses we acquired in the first quarter of 2005, NAHH and Specialty, had aggregate annual net sales of approximately $42 million in 2004. We generate internal growth primarily by increasing the number of patients we serve. In addition, the price of HIV/AIDS medications has increased, and we are filling more prescriptions per patient.

Results Of Operations

Three Months Ended March 31, 2005 and 2004

Net Sales.    Net sales for the three months ended March 31, 2005 increased to $22,695,749 from $13,350,479 for the three months ended March 31, 2004, an increase of 70%. The following table sets forth the net sales for each of our distribution regions for the periods ended March 31, 2005 and 2004, respectively:

	Period ended March 31,
	2005		2004
Distribution Regions	Net Sales		Net Sales
California	$	11,691,612	$	4,966,104
New York		10,149,794		8,010,483
Florida		550,917		373,892
Seattle		303,426		—
Total	$	22,695,749	$	13,350,479

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The increase in net sales for the three months ended March 31, 2005 as compared to the same period in 2004 is attributable primarily to our acquisitions (both in California) in the first quarter of 2005, as well as to an increase in volume from the addition of new patients from existing locations in New York, California and Florida. During the three month period ended March 31, 2005, we owned NAHH for three months and Specialty for one month. Together, these acquisitions contributed $5,565,169 of revenue in the three month period ended March 31, 2005, or approximately 60.5% of the increase in revenue as compared to the first quarter of 2004.

Gross Profit.    Gross profit increased to $3,573,603 for the three months ended March 31, 2005 from $1,563,666 for the three months ended March 31, 2004. This represents an increase in gross margin for the first quarter of 2005 to 15.7% from 11.7% for the same period in 2004, which is primarily due to the impact of the acquisition of NAHH which had a gross margin of 35% during the first quarter of 2005 due to high margin nutritional supplies sold primarily to patients who do not have HIV/AIDS. We expect that this higher gross margin business will become a smaller portion of our overall business over time as we continue to focus on servicing HIV/AIDS patients. Excluding NAHH, our gross margin would have been 12.8% in the first quarter of 2005. The increase in gross margin excluding NAHH resulted from our decision to cease selling lower margin HIV/AIDS medications, ancillary drugs and nutritional supplies to patients serviced out of our New York distribution center.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses for the three months ended March 31, 2005 were $3,448,228 as compared to $2,098,595 for the three months ended March 31, 2004, but as a percentage of net sales they declined to 15.2% for the first quarter of 2005 from 15.7% for the same period in 2004. The decrease as a percentage of net sales was primarily due to reduced commercial insurance expense and other general expenses. The increase in selling, general and administrative expenses of $1,349,633 for the three months ended March 31, 2005 as compared to the same period in 2004 was primarily due to the inclusion of selling, general and administrative expenses from NAHH and Specialty following our acquisition of these businesses. The acquisitions represented $965,870 of the increase. In addition to the increases in expenses related to the acquisitions, the following increases in selling, general and administrative expenses for the three months ended March 31, 2005, compared to the same period in 2004, were associated with our historical businesses:

Components of Selling, General and Administrative Expense	Change ($)
Labor costs (additional employees and temporary help)	$	168,307
Professional fees		108,404
Shipping costs		77,600

Operating Income (Loss).    Operating income for the three months ended March 31, 2005 was $125,375 as compared to a loss of $534,929 for the three months ended March 31, 2004. Acquisitions of NAHH and Specialty contributed approximately $358,000 in operating income in the first quarter of 2005. Excluding our acquisitions, we would have a net loss of $357,693.

Other Income (Expense).     For the three month period ended March 31, 2005, other income (expense) consists entirely of interest expense. Interest expense for the three months ended March 31, 2005 increased to $106,939 from $83,946 for the three months ended March 31, 2004. The increase in interest expense is primarily attributable to our increased short-term borrowing from our revolving credit facility and interest on the secured promissory notes payable related to the NAHH and Specialty acquisitions.

Provision for Taxes.     We recorded no provision for taxes for the three months ended March 31, 2005. We recorded a tax provision of $7,284 for the three months ended March 31, 2004. The provision for taxes relates solely to state tax payments.

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We did not record any income tax expense for the first quarter of 2005 as a result of the availability of accumulated net operating losses. We are in the process of evaluating the amount of such losses available to it to offset income taxes that would otherwise be payable on future taxable earnings, as well as the period over which such losses may be carried forward. Laws and regulations governing the use of such losses are complex and could limit our ability to use these net operating losses. Further losses may not be available to offset or reduce state or local income taxes, and we may be subject to other taxes such as an alternative minimum tax, even if our net operating losses are available for use, to offset or reduce federal income taxes.

Net Income (Loss).    We recorded net income of $13,096 for the three months ended March 31, 2005, as compared to a net loss of $676,916 for the comparable period in the prior year. The net income reflects the impact of the higher gross profits and lower operating expenses (as a percentage of net sales), which produced operating income that exceeded interest and tax expenses before discontinued operations. Excluding net loss from discontinued operations of $5,340, the net income from continuing operations was $18,436.

Years Ended December 31, 2004 and 2003

Net Sales.    Net sales for the year ended December 31, 2004 increased to $60,080,003 from $42,502,557 for the year ended December 31, 2003, an increase of 41.4%. The following table sets forth the net sales for each of our distribution regions in 2004 and 2003:

	Years Ended December 31,
	2004		2003
Distribution Regions	Net Sales		Net Sales
New York	$	36,507,850	$	27,808,291
California (1)		21,803,119		13,767,864
Florida		1,769,034		926,402
Total	$	60,080,003	$	42,502,557

(1) California operations were acquired in May 2003.

Our net sales growth in New York and Florida was due primarily to an increase in the number of prescriptions filled from our existing facilities as a result of our customary sales and marketing initiatives conducted by us. Net sales in New York increased by $8,699,559 for the year ended December 31, 2004, as compared to the same period in 2003. Net sales in Florida increased by $842,631 for the year ended December 31, 2004, as compared to the same period in 2003. Net sales in California increased by $8,035,255 for the year ended December 31, 2004 as compared to 2003, primarily because we operated in California for all of 2004, as compared to only eight months in 2003 (we acquired our initial California operation in May 2003), and due to improvements in operations and an increase in the number of prescriptions we fill in California.

Our net sales increases in 2004 were partially offset by reductions in reimbursement rates in California and New York for the last four months of the year. However, we have qualified for a pilot program in California and we believe we qualify for additional reimbursement in New York for specialized HIV pharmacies. The payments anticipated from California and New York are expected to be retroactive to September 1, 2004, but we will not recognize these amounts as sales until we receive payment. See our discussion under the heading “Business—Third Party Reimbursement, Cost Containment and Legislation” at page 45.

Gross Profit.    Gross profit for the year ended December 31, 2004 increased to $6,917,802 from $5,466,185 for the year ended December 31, 2003, an increase of 26.6%, but our gross margin declined to 11.5% for the year ended December 31, 2004 from 12.9% for the year ended December 31, 2003. Our gross profit increased primarily due to an increase in net sales. Our gross margin declined primarily due to a reduction in reimbursement rates by Medicaid and Medi-Cal, as discussed under the heading “Business—Third Party Reimbursement, Cost Containment and Legislation” at page 45.

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Selling, General and Administrative Expenses.    Selling, general and administrative expenses for the year ended December 31, 2004 increased to $9,162,734 from $7,698,701 for the year ended December 31, 2003, but as a percentage of net sales they declined to 15.2% in 2004 from 18.1% in 2003. The decrease as a percentage of net sales was primarily due to a reduction in labor costs as a percentage of sales, staff reductions in California, decreases in bad debt expense and a decrease in professional fees.

The main components of the increase in selling, general and administrative expenses of $1,464,033 for the year ended December 31, 2004 as compared to the same period in 2003 consisted of the following:

Components of Selling, General and Administrative Expense	Change ($)
Labor costs	$	467,000
Shipping (associated with acquisition of Medicine Made Easy)		266,000
Insurance costs (commercial, employee medical and workers compensation)		157,000
Rent, repair and maintenance (resulting from acquisition of Medicine Made Easy and our move to our facility in Melville, NY)		153,000
Travel expenses		93,000
Legal and settlement expenses relating to New York Medicaid audit		132,000

Operating Loss.    Operating loss for the year ended December 31, 2004 decreased to $2,244,932 from $2,432,516 for the year ended December 31, 2003, which represented 3.7% and 5.7% of net sales, respectively. Operating loss in 2003 included a $200,000 expense associated with the settlement of a New Jersey Medicaid audit. The decline in operating loss (both in absolute dollars and as a percentage of sales) reflects the effect of a greater increase in sales (up 41.4% in 2004 from 2003) than in operating expenses (up 16.0% in 2004 from 2003, or 19.0% excluding the cost of settling the New Jersey Medicaid audit), partially offset by the decline in our gross margin, as discussed above.

Other Income (Expense).    Other income (expense) decreased for the year ended December 31, 2004 to an expense of $228,994 from an expense of $243,882 for the year ended December 31, 2003. In 2004, other income (expense) was comprised primarily of interest expense of $233,460 and a gain of $4,466 from the disposal of an automobile. In 2003, other income (expense) included interest expense of $243,882. The decline in interest expense in 2004 from 2003 mainly reflected lower outstanding borrowing balances in 2004.

Provision for Taxes.    We recorded a tax provision for $76,202 for the year ended December 31, 2004, as compared to a tax provision of $19,646 for the year ended December 31, 2003. The provision for taxes relates primarily to an increase in state tax payments. Because we operated at a loss in 2004 and 2003, we did not pay any income taxes and, thus, did not record any amount for income taxes owed.

Years Ended December 31, 2003 and 2002

Net Sales.    Net sales for the year ended December 31, 2003 increased to $42,502,557 from $21,441,366 for the year ended December 31, 2002, an increase of 98.2%. The following table sets forth the net sales for each of our distribution regions in 2003 and 2002:

	Years Ended December 31,
	2003		2002
Distribution Region	Net Sales		Net Sales
New York	$	27,808,291	$	21,416,134
California(1)		13,767,864		—
Florida		926,402		25,232
Total	$	42,502,557	$	21,441,366

(1) California operations were acquired in May 2003.

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Our May 2003 acquisition of MME significantly increased our net sales in 2003, as compared to 2002. Prior to May 2003, we did not have any operations in California. Excluding California, our net sales increased by 34.0% in 2003, as compared to 2002. Our net sales in New York and Florida increased in 2003, as compared to 2002, as a result of growth in the number of patients served and prescriptions filled from our existing facilities. In addition, we did not begin to operate in Florida until December 2002, therefore the increase in sales in Florida from 2002 to 2003 also reflects the fact that we operated in Florida for all of 2003, as compared to just one month in 2002.

Gross Profit.    Gross profit for the year ended December 31, 2003 increased to $5,466,185 from $3,378,883 for the year ended December 31, 2002, but our gross margin declined to 12.9% from 15.8% of net sales, respectively. Our gross margin for the year ended December 31, 2003 decreased by approximately 2.9% as compared with the gross margins for the year ended December 31, 2002, because of a 2% prescription reimbursement rate decrease by New York Medicaid and ADAP in July 2003 and because we devoted more of our efforts to servicing the HIV/AIDS market, as compared to other markets that included payors with higher reimbursement rates.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses for the year ended December 31, 2003 increased to $7,698,701 from $3,718,158 for the year ended December 31, 2002, and, as a percentage of net sales, increased to 18.1% from 17.3%. The increase as a percentage of net sales was primarily due to the impact of the May 2003 acquisition of MME, which operated at a loss in 2003, as well as the effect of a full year of operations in Florida in 2003, as compared to one month in 2002.

The main components of the increase in selling, general and administrative expenses of $3,980,543 for the year ended December 31, 2003 as compared to the same period in 2002 consisted of the following:

Components of Selling, General and Administrative Expenses	Change ($)
Labor costs	$	1,470,000
General operating expenses (related to Medicine Made Easy acquisition)		819,000
Depreciation and amortization (related to Medicine Made Easy acquisition)		275,000
Clinical, administrative and sales personnel costs (FL and NY)		153,000
Professional fees (primarily related to NJ audit, HIPAA compliance and consulting expenses)		569,000
Bad debt expense		188,000
Shipping costs		138,000
Insurance		133,000

Operating Loss.    Operating losses for the year ended December 31, 2003 increased to $2,432,516 from $189,275 for the year ended December 31, 2002, which represents 5.7% and 0.9% of net sales, respectively. The increase in operating loss (both in absolute dollars and as a percentage of net sales) reflects primarily the effect of additional expenses relating to the MME operations that we acquired in 2003, which contributed approximately $894,000 in operating loss for the eight months that we owned that business in 2003, as well as the negative impact on our gross margin of a 2% prescription reimbursement rate decrease by New York Medicaid and ADAP in July 2003. Additionally, this change reflected the effect of a legal settlement expense of $200,000 in 2003 relating to a New Jersey Medicaid audit. In 2002, the Company benefited from income of $150,000 relating to a legal settlement with New Geri Care of Brooklyn. The settlement represented the amount New Geri Care of Brooklyn failed to pay for inventory it acquired in connection with the purchase of certain assets from us in September 2001.

Other Income (Expense).    Other income (expense) for the year ended December 31, 2003 decreased to expense of $243,882 from expense of $547,962 for the year ended December 31, 2002. For the year ended December 31, 2003, other income (expense) consists entirely of interest expense. For the year ended December 31, 2002, interest expense was $69,097. The increase in interest expense is primarily attributable to our increased short-term borrowing from our revolving credit facility and interest on the secured promissory notes that we issued to the sellers of MME, which we acquired in May 2003.

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For the year ended December 31, 2002, other income (expense) also included $413,757 of deferred offering costs relating to a planned public offering that we did not complete and $65,108 of expenses related to acquisitions that were not consummated.

Provision for Taxes.    For the year ended December 31, 2003, we recorded a tax provision for $19,646, as compared to a tax provision of $34,610 for the year ended December 31, 2002. The provision for taxes relates primarily to state tax payments. Because we operated at a loss in 2003 and 2002, we did not pay any income taxes and, thus, did not record any amount for income taxes owed.

Liquidity and Capital Resources

Our business has operated historically at a loss. As a result, we have required third-party financing to fund our losses, as well as our capital requirements and our acquisitions. Historically, we have not made any substantial capital expenditures. We have secured third-party financing through periodic sales of shares of convertible preferred stock, as well as from available bank borrowings.

Operating Requirements

Our primary liquidity need is cash to purchase the medications that we require to fill prescriptions. Our primary vendor, AmerisourceBergen, requires payment within 31 days of delivery of the medications to us. We are reimbursed by third-party payors, on average, within 30 days after a prescription is filled and a claim is submitted in the appropriate format.

Our operations provided $798,329 of cash as of March 31, 2005, which was an improvement from the same period in 2004, when our operations used $1,455,047 of cash. The change reflects primarily the impact of decreases in our working capital as well as our wholesaling contract, which had more favorable payment terms than we had been able to secure previously from our wholesalers. These payment terms improved our liquidity and have enabled us to reduce our working capital.

The five-year purchase agreement that we signed with AmerisourceBergen in September 2003 improved our supplier payment terms from 13 to 31 days. Since entering into that agreement, we have purchased nearly all of our medications from AmerisourceBergen, although we continue to purchase some medications from other wholesalers and from manufacturers on various payment terms. Our contract with AmerisourceBergen requires certain minimum purchase commitments over the term of the agreement, as discussed below under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual and Other Obligations” beginning at page 36. If we do not meet the aggregate minimum purchase commitments by the end of the five-year term, we will be charged 0.2% of the unpurchased volume commitment. At current purchasing levels, we expect to satisfy the minimum required purchase levels. Pursuant to the terms of this agreement, AmerisourceBergen has a subordinated security interest in all of our assets.

Capital Resources

At March 31, 2005 we had cash and cash equivalents of $978,353, down from $6,979,630 at December 31, 2004. The decrease in cash and cash equivalents is primarily from the payment of the cash portion of the purchase price for the acquisitions of NAHH and Specialty.

As of March 31, 2005, our current liabilities exceeded our current assets by approximately $8.6 million. This is primarily attributable to the increased indebtedness incurred to acquire NAHH and Specialty, the cash used to fund a portion of the purchase price for those acquisitions and the additional accounts payable and accrued expenses we assumed in those acquisitions.

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We have a revolving credit facility with GE Capital for an amount up to a maximum of $6.0 million available to us for short-term borrowings, which expires in April 2006. Borrowings under the facility are based on our accounts receivable and bear interest at the “Prime Rate” plus 2%. At March 31, 2005, the Prime Rate was 5.75%. At March 31, 2005, our borrowing capacity was approximately $5.25 million. During the first quarter of 2005, our borrowings under the facility with GE Capital increased to $4.5 million, which included borrowings to fund a portion of the purchase price for the acquisitions of NAHH and Specialty, as well as our ordinary working capital needs. However, as of March 31, 2005, in the ordinary course of our operations, we reduced our borrowings under the GE facility to $2.04 million. GE Capital’s security interest in our assets is senior to the security interest granted to AmerisourceBergen, pursuant to the terms of an intercreditor agreement between GE Capital and AmerisourceBergen.

In addition to the revolving credit facility with GE Capital, we have a $1.5 million line of credit with West Bank, a Des Moines, Iowa bank. Interest on this line of credit accrues interest at the Prime Rate plus 2% per annum. As of March 31, 2005, all $1.5 million was drawn under this line of credit to fund a portion of our recent acquisitions. This line of credit has been guaranteed by one of our directors (who also is one of our principal investors). The line of credit matures in September 2005.

We intend to use a portion of the proceeds from this offering to repay the entire outstanding amounts under the credit facilities with GE Capital and West Bank and to repay the $2.0 million under our subordinated note. We do not anticipate renewing the West Bank facility upon its maturity in September 2005. We also intend to use a portion of the proceeds from this offering to repay approximately $1.9 million of a total of $3.9 million of additional outstanding indebtedness owed to the sellers of the businesses we acquired in the first quarter of 2005, as discussed under the heading “Use of Proceeds” at page 20.

Long-Term Requirements

We expect that the cost of additional acquisitions will be our primary long-term funding requirement. In addition, as our business grows, we anticipate that we will need to invest in additional capital equipment, such as the machines we use to create the MOMSPak for dispensing medication to our patients. We also may be required to expand our existing facilities or to invest in modifications or improvements to new or additional facilities. If our business continues to operate at a loss, we will also need funding for such losses.

Following this offering, we believe that our cash balances and available borrowings under our credit facility with GE Capital will be sufficient to provide us with the capital required to fund our working capital needs and operating expense requirements for at least the next 12 months. We regularly review the availability of new or additional bank borrowing facilities, and we expect that in response to the growth of our business, we will seek to increase our existing facility with GE Capital or refinance that facility with a larger facility from another lender. There is no assurance that we will be able to secure new or additional bank borrowings on favorable terms or at all. The failure to secure additional bank borrowings could limit our future growth, as discussed under the heading “Risk Factors—Risks Related to This Offering ” beginning at page 15.

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Contractual and Other Obligations

At March 31, 2005 our contractual cash obligations and commitments over the next five years were as follows:

	Payments due by Period
	Total		Less than 1 year		1-3 years		4-5 years		More than 5 years
Long-Term Debt Obligation (Notes) (1)(4)	$	4,473,747	$	3,808,327	$	665,420	$	0	$	0
Loan Payable - West Bank (4)		1,500,000		1,500,000		0		0		0
Short Term Debt (3)		250,000		250,000		0		0		0
Mandatory Redeemable Warrants		1,898,215		0		1,898,215		0		0
Capital (Finance) Lease Obligations (1)		304,137		114,319		154,047		35,771		0
Operating Lease Obligations		1,116,199		410,121		647,461		58,617		0
Revolving Credit Line		2,039,846		2,039,846		0		0		0
Purchase Obligations (2)		313,102,036		93,977,036		219,125,000		0		0
Total	$	324,684,180	$	102,099,649	$	222,490,143	$	94,388	$	0

(1) Interest expense payments on these amounts are expected to approximate $311,414 over the next three years.

(2) If we fail to satisfy the minimum purchase obligation under our purchase agreement with AmerisourceBergen, we would be required to pay an amount equal to 0.2% of the unpurchased commitments at the end of the five-year term of the contract.

(3) We owe the Internal Revenue Service $100,000 from the Bankruptcy Court settlement dated September 29, 1999 which is due September 2005. In addition, this liability includes $150,000 of commitments for payment for our acquisition of substantially all the assets of Oris Medical Systems.

(4) In the first quarter of 2005, we incurred $6.0 million of borrowings under our bank credit lines in connection with the two acquisitions that we completed as well as our ordinary working capital needs. Of this amount, $1.5 million comes due in September 2005, and the remainder comes due in April 2006. In addition, we issued a total of $3.9 million of promissory notes to the former owners of the two businesses that we acquired in the first quarter, of which $3.3 million matures in the first quarter of 2006 and the remainder is payable in January 2007. As required by the terms of the promissory notes, we will repay approximately $1.9 million of the promissory notes that mature in the first quarter of 2006 with a portion of the proceeds from this offering.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity.    Our primary financial market risk exposure consists of interest rate risk related to interest that we are obligated to pay on our debt, the majority of which is variable-rate debt. The fair value of our variable rate debt is sensitive to changes in interest rates. If market rates decline, the required payments will decrease, and as rates increase, the amount we are required to pay will increase. Under our current policy, we do not use interest rate derivative instruments to manage our risk of interest rate fluctuations.

We have not hedged against our interest rate risk exposure. As a result, we will benefit from decreasing interest rates, but rising interest rates on our debt will also harm us.

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Critical Accounting Policies

Our critical accounting policies affect the amount of income and expense we record in each period as well as the value of our assets and liabilities and our disclosures regarding contingent assets and liabilities. In applying these critical accounting policies, we must make estimates and assumptions to prepare our financial statements that, if made differently, could have a positive or negative effect on our financial results. We believe that our estimates and assumptions are both reasonable and appropriate, in light of applicable accounting rules. However, estimates involve judgments with respect to numerous factors that are difficult to predict and are beyond management’s control. As a result, actual amounts could differ materially from estimates.

Management believes that the following accounting policies represent “critical accounting policies,” which the SEC defines as those that are most important to the portrayal of a company’s financial condition and results of operations and require management’s most difficult, subjective or complex judgments, often because management must make estimates about uncertain and changing matters. See our discussion of these and other significant accounting policies in Note 2 of the “Notes to Our Consolidated Financial Statements” beginning at page F-19 of this prospectus.

Revenue Recognition.    Net sales refer to our sales of medications and nutritional supplies to patients and are reported at the amount billed to patients, government and private payors and others in the period when delivery to our patients is completed net of contractual adjustments and related discounts. Any customer can initiate the filling of prescriptions by having a doctor call in prescriptions to our pharmacists, faxing prescriptions, or mailing prescriptions to one of our facilities. Once we have verified that the prescriptions are valid, the pharmacist then fills the prescriptions and ships the medications to the customer through an outside delivery service, an express courier service, or postal mail.

Allowance for Doubtful Accounts.    We are reimbursed for the medications we sell by government and private payors. The net sales and related accounts receivable are recorded net of payor contractual discounts to reflect the estimated net billable amounts for the scripts and other products delivered. We estimate the allowance for contractual discounts on a payor-specific basis, given our experience or interpretation of the contract terms if applicable. However, the reimbursement rates are often subject to interpretation that could result in payments that differ from our estimates. Additionally, updated regulations and contract negotiations occur frequently, necessitating our continual review and assessment of the estimation process. While management believes the resulting net carrying amounts for accounts receivable are fairly stated at each quarter-end and that we have made adequate provision for uncollectible accounts based on all available information, no assurance can be given as to the level of future provisions for uncollectible accounts, or how they will compare to the levels experienced in the past.

Intangible Asset Impairment.    In assessing the recoverability of our intangible assets, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If it is determined that impairment indicators are present and that the assets will not be fully recoverable, their carrying values are reduced to estimated fair value. Impairment indicators include, among other conditions, cash flow deficits, a historic or anticipated decline in net sales or operating profit, adverse legal or regulatory developments, accumulation of costs significantly in excess of amounts originally expected to acquire the asset, and a material decrease in the fair value of some or all of the assets. Changes in strategy and/or market conditions could significantly impact these assumptions, and thus we may be required to record impairment charges for these assets. We adopted Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) effective January 1, 2002, and the adoption of the Statement had no impact on our consolidated financial position or results of operations.

Goodwill and Other Intangible Assets.    In accordance with Statement of Financial Accounting Standard (“FAS”) No. 141, “Business Combinations,” and No. 142, “Goodwill and Other Intangible Assets,” goodwill and intangible assets associated with acquisitions that are deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests. Such impairment tests require the comparison of the fair value and

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carrying value of reporting units. Measuring fair value of a reporting unit is generally based on valuation techniques using multiples of sales or earnings, unless supportable information is available for using a present value technique, such as estimates of future cash flows. We assess the potential impairment of goodwill and other indefinite-lived intangible assets annually and on an interim basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Some factors we consider important which could trigger an interim impairment review include the following:

• Significant underperformance relative to expected historical or projected future operating results;

• Significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and

• Significant negative industry or economic trends.

If we determine through the impairment review process that goodwill has been impaired, we record an impairment charge in our consolidated statement of income. Based on our 2004 impairment review process, we have not recorded any impairments during the year ended December 31, 2004.

Recent Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), “Share-Based Payment,” which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123(R) supersedes Accounting Principals Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods:

• “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of statement 123(R) that remain unvested on the effective date.

• “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) all prior periods presented, or (b) prior interim periods of the year of adoption.

SFAS No. 123(R) must be adopted in the first fiscal year beginning after June 15, 2005, which in our case would be the quarterly period beginning January 1, 2006. Early adoption will be permitted in periods in which financial statements have not yet been issued. We expect to adopt Statement 123(R) on January 1, 2006.

As permitted by SFAS No. 123, we currently account for share-based payments to employees using the intrinsic value method prescribed in APB Opinion No. 25. Accordingly, the adoption of SFAS No. 123(R)’s fair value method may have a significant impact on our results of operations, although it will have no impact on our overall financial position. The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future and on required changes in the method of computation of fair value.

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BUSINESS

We are a national provider of specialty pharmacy and disease management services focused on HIV/AIDS patients. We sell HIV/AIDS medications, ancillary drugs and nutritional supplies under our trade name MOMS Pharmacy. We work closely with physicians, nurses, clinics and AIDS Service Organizations, and with government and private payors, to improve clinical outcomes and reduce treatment costs for our patients. Most of our patients rely on Medicaid and other state-administered programs, such as the AIDS Drug Assistance Program, or ADAP, to pay for their HIV/AIDS medications. Billing requirements for these programs are complex. We are one of a limited number of providers that has qualified for certain additional HIV/AIDS reimbursement programs under legislation recently enacted in California and believe we qualify for additional reimbursement in New York.

We believe that the combination of services we offer to patients, healthcare providers and payors makes us an attractive source of specialty pharmacy and disease management services, contributes to better clinical outcomes and reduces overall healthcare costs. Our services include the following:

• Specialized MOMSPaks prescription packaging that helps reduce patient error associated with complex combination therapies;

• Reimbursement experience that assists patients and healthcare providers with the complex reimbursement processes of government programs, such as Medicaid and ADAP, and private payors, and that optimizes collection of payment;

• Services that arrange for the timely delivery of medications as directed by our patients or their physicians in a discreet and convenient manner;

• Specialized pharmacists who consult with patients, physicians, nurses and ASOs to provide education, counseling, treatment coordination, clinical information and compliance monitoring; and

• Information systems and prescription automation solutions that make the provision of clinical data and the transmission of prescriptions more efficient and accurate.

According to IMS Health, the United States market for HIV/AIDS antiretroviral medications totaled approximately $4.9 billion for the year ended March 31, 2005. According to the World Health Organization and the Joint United Nations Programme on HIV/AIDS, or UNAIDS, as many as 1.6 million individuals living in the United States as of the end of 2004 were infected with HIV. Of this number, between 400,000 and 500,000 were receiving HIV/AIDS medications, according to the Cleveland Journal of Medicine. Approximately 44,000 new infections occur in the United States annually. Our distribution centers are located in or near metropolitan areas in those states where a majority of HIV/AIDS patients in the United States live, according to the Centers for Disease Control and Prevention, or CDC—New York, California, Florida, New Jersey and Washington. During March 2005, we served approximately 8,900 patients.

Our patients paid an average of approximately $19,800 per patient per year in 2004 for the medications that we sold to them. Our net sales have grown from $5.0 million in 2000 to $60.1 million in 2004, which represents a compounded annual growth rate of approximately 86% per year. We generated internal growth primarily by increasing the number of patients we serve. In addition, the price of HIV/AIDS medications has increased, and we are filling more prescriptions per patient. Since May 2003, we acquired three specialty pharmacies in California. At the time of acquisition, these companies had aggregate annual net sales of $63.2 million for their respective years preceding acquisition. The patient base of these acquired pharmacies and their relationships with patients and healthcare providers has greatly expanded our presence on the West Coast. We will continue to evaluate acquisition opportunities as they arise, especially other specialty pharmacies that have established relationships with HIV/AIDS clinics and hospitals.

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HIV/AIDS

Human Immunodeficiency Virus, commonly known as HIV, is the virus that causes Acquired Immune Deficiency Syndrome, commonly known as AIDS. HIV is spread most commonly by sexual contact with an infected partner. HIV is also spread through contact with infected blood, including through the use of contaminated needles or syringes. Once inside a host body, HIV attacks T cells, a major component of the immune system. The virus then takes over the cells’ reproductive machinery and reproduces itself causing the cells to weaken and eventually die. When the infected cells die, they release the recently created virus into the bloodstream. Other T cells are then invaded and die, and the body is left vulnerable to diseases that easily would have been fought off by a normally functioning immune system.

The demographic profile of HIV/AIDS patients has shifted since the disease was first diagnosed in 1981. Most HIV/AIDS patients now live in the inner-city of a major metropolitan area and are dependent on government programs to pay for the medications to treat HIV/AIDS. From 1981 – 2001, approximately 40,000 people per year were diagnosed with HIV, according to the CDC. According to a UNAIDS/WHO report, an estimated 44,000 people were infected with HIV in North America in 2004. Of the new HIV cases, it is estimated that 70% are male and 30% are female. A disproportionate number of these patients have been African Americans and Hispanics. The proportion of new cases in African Americans in the United States rose from 25% in 1981 to 50% in 2001. African American women accounted for approximately 72% of all new HIV diagnoses among women and 22% of the overall increase in new HIV cases in the United States in 2001. The proportion of Hispanics infected with HIV rose from 14% in 1981 to 20% in 2001. We believe that as more HIV/AIDS patients look to government programs, the government is likely to take a more active role regulating the pharmacies and other providers of HIV/AIDS medications.

The current standard of care for the treatment of HIV/AIDS involves complex treatment regimens of multiple drugs, or “combination therapies,” that consist of predominantly oral medications taken by a patient multiple times a day, typically outside a clinical setting. Combination therapies often require that a patient take variations of the multi-therapy regimens. For example, a patient may need to take certain medications either after meals or on an empty stomach, or, after high-fat or low-fat meals. The number of medications and varying dosages and schedules often can confuse and overwhelm patients. As a result, many patients lose confidence in their ability to adhere to their drug regimens and simply give up, while others lose track of which doses they have taken or inadvertently miss a dose because of their personal schedules. Alcohol and illicit drug use are also factors in causing non-compliance and may lead to an increasing amount of Medicaid fraud. Poor adherence or even slight or occasional deviations from a prescribed regimen can reduce the potency of therapy and lead to viral resistance. Given the ability of HIV/AIDS to mutate rapidly in the absence of antiretroviral medication, taking a combination therapy exactly as prescribed, without missing or reducing doses, is critical to effective treatment. Once resistance has developed in a patient, success rates of other HIV/AIDS medications are often limited, particularly if the patient’s adherence issues are not resolved, and treatment options become greatly limited. Studies on adherence within the HIV/AIDS population have shown that if 95% of medication doses are not taken as prescribed, the medication may become ineffective or the patient may develop drug resistance to such medication, according to the AIDS Research Institute.

In the United States, HIV/AIDS-associated morbidity and mortality have declined significantly due to combination therapies. Before combination therapies, 50–60% of adults infected with HIV were diagnosed with an AIDS-defining condition within 10 years of infection, and 48% of them died after 10 years of infection, according to the U.S. Department of Health and Human Services. After increasing every year between 1987 and 1994 at an average annual rate of 16%, HIV mortality in the United States leveled off in 1995 and has since decreased, according to the CDC. In 1995, 19% of people living with HIV/AIDS in the United States died compared to 4% in 2003, according to the CDC. While HIV/AIDS remains life threatening, healthcare providers increasingly treat HIV/AIDS as more of a long-term chronic disease.

We are one of only a few specialty pharmacy and disease management service companies that primarily serve HIV/AIDS patients. Despite the special needs of the HIV/AIDS infected population, few national and

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regional pharmacies have focused on this patient population. Most of the pharmacies serving this market have been local or small regional providers located in a single urban market. These pharmacies often do not have the resources or sophistication to provide the specialty pharmacy and disease management services required by patients, healthcare providers and payors to maximize adherence to the treatment regimen. We also believe that neither the retail pharmacies nor the mail order pharmacies offer the range of specialty pharmacy and disease management services we provide.

Our Strategy

Key elements of our strategy include:

• Increasing Net Sales in the Markets We Currently Serve.    We intend to continue to expand in the major metropolitan markets where the majority of HIV/AIDS patients live by enhancing our existing relationships and creating new relationships with HIV/AIDS clinics, hospitals, ASOs and prescribing physicians through the use of direct sales, outreach programs and community-based education programs.

• Pursuing Strategic Acquisitions.    We intend to pursue additional acquisitions of specialty pharmacies that serve HIV/AIDS patients. Since May 2003, we have acquired three specialty pharmacies in California. We will continue to evaluate acquisition opportunities as they arise, especially with respect to specialty pharmacies that have established relationships with HIV/AIDS clinics and hospitals.

• Developing Marketing Relationships with Drug Manufacturers.    We intend to pursue relationships with leading manufacturers of HIV/AIDS medications to enhance their awareness of our services and to increase our opportunities to benefit from their significant sales teams and marketing efforts. The HIV/AIDS sales teams at pharmaceutical companies regularly make sales calls on the leading prescribers of HIV/AIDS medications. If these sales teams are aware of us, they will be in a position to inform the leading prescribers about our products and services, which can increase our visibility in the market. In March 2004, we entered into a specialized services agreement with Roche Laboratories Inc. to receive product pricing discounts in exchange for providing blind patient data with respect to FUZEON, a HIV medication manufactured by Roche.

• Qualifying for HIV/AIDS Reimbursement Programs.    We have qualified in California and believe we qualify in New York for additional reimbursements under those states’ respective Medicaid programs focused on HIV/AIDS patients. We own two of the ten specialty HIV/AIDS pharmacies in California eligible to receive the additional reimbursements under that state’s pilot program. We intend to seek to qualify for programs under other state Medicaid programs that may provide additional reimbursements for the HIV/AIDS medications that we sell.

• Increasing Net Sales Through Relationship with Oris/LabTracker.    In May 2005, we entered into a definitive agreement to purchase substantially all of the assets of Oris Medical Systems, Inc. We expect to close this acquisition following completion of this offering. Upon acquiring the assets of Oris, we will obtain Oris’ rights to the LabTracker HIV/AIDS software system, which enables healthcare providers to record, track and analyze the outcomes of HIV/AIDS treatment. Oris’ rights include the exclusive right to license LabTracker to pharmacy providers and the right to develop a pharmacy interface with LabTracker’s existing system. We believe this capability will significantly enhance our ability to attract and retain patients and to develop enhanced business relationships with healthcare providers. We believe that approximately 200 clinics and physician customers currently use LabTracker to help monitor approximately 100,000 HIV/AIDS patients. We believe that patients monitored by LabTracker who fill their prescriptions with us will be able to have their prescription information imported electronically into their healthcare provider’s LabTracker software. We consider existing LabTracker users who do not already fill their patients’ prescriptions through us to be an attractive growth opportunity for our business.

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Our Products and Services

We offer specialty pharmacy and disease management services to assist patients, healthcare providers and payors in managing HIV/AIDS. We sell HIV/AIDS medications, ancillary drugs and nutritional supplies. Patients or physicians generally initiate the prescription process by contacting us on our toll-free telephone number, through our facsimile number or through our electronic prescription writer. Some clinics have medication drop-off boxes in which physicians also may leave prescriptions for us to fill. A patient may also direct his or her physician to call, fax or electronically transmit a prescription. If requested by a patient, one of our pharmacists may contact the patient’s physician directly to obtain prescription information. Our pharmacists are required to validate and verify the completeness of each prescription, answer questions and, if appropriate, help coordinate support and training for patients. As soon as we receive a prescription, we also seek approval for reimbursement from the payor. Once the prescription is verified, the order is filled, shipped and delivered.

We have designed our services to meet the following challenges that are of particular importance to HIV/AIDS patients, healthcare providers and payors:

Adherence

Packaging.    We have designed our services to improve patient adherence to complex combination therapies. We dispense prescribed medications in customized dose-by-dose packages called MOMSPaks. We also dispense these medications in pre-filled pillboxes, at the patient’s request. Our customized packaging provides increased convenience to the patient and enhances patient adherence to complex combination therapies.

There recently has been increased attention to Medicaid fraud and the resale of HIV/AIDS medications on the black market. According to POZ, a leading HIV publication, the resale of unopened HIV medications on the black market has become a problem in New York. Additionally, some small pharmacies are reportedly repurchasing the medications they distribute to Medicaid patients. We believe the current problem is attributable to the availability of unopened HIV/AIDS medications. Our automated prescription packaging system requires us to open the original bottles before separating the medications into MOMSPaks, thereby reducing the likelihood of after-market resales of HIV/AIDS medications. Doctors can continue to write HIV medication prescriptions without fear of becoming complicit in Medicaid fraud if medication bottles are opened before distribution.

Delivery.    We arrange for delivery of medications as directed by our patients or their physicians in a discreet, convenient and timely manner. We believe that this increases patient adherence as it eliminates the need to pick up medications at a local pharmacy. According to Wall Street Journal Reports and the National Association of Chain Drug Stores Economics Department, 30% of all refillable prescriptions are never refilled and up to 20% of new prescriptions are never filled. We believe that the percentages of unfilled prescriptions are higher among the HIV/AIDS population.

Reimbursement Management

We have experience with the complex reimbursement processes of government programs, such as Medicaid and ADAP, and of private payors, that optimizes collection of payment. As a result, we are able to manage efficiently the process of checking reimbursement eligibility, receiving authorization, adjudicating claims and confirming that payment is received.

We work with government and private payors to obtain appropriate reimbursement. Our billing and reimbursement specialists typically secure pre-approval from a payor before any shipment of medications. Our billing and reimbursement specialists also review such issues as pre-certification or other prior approval requirements, lifetime limits, pre-existing condition clauses and the availability of special state programs. Because the majority of our prescriptions are adjudicated through electronic submission, we are reasonably certain we will receive payment from the payor.

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Due to the high cost and extended duration of the treatment of HIV/AIDS, the availability of adequate health insurance is an on-going concern for our patients and their families. We work closely with physicians and our patients to monitor coverage reductions or termination dates. Because of our ability to facilitate reimbursement from government and private payors, we can in many cases provide prescription medications to patients at lower initial out-of-pocket costs than they might obtain from other sources.

The two largest HIV/AIDS markets in the United States, California and New York, recently underwent fundamental changes in Medicaid reimbursement for HIV/AIDS medications. California recently approved a three-year HIV/AIDS Pharmacy Pilot Program, which provides additional reimbursement for HIV/AIDS medications for up to ten qualified pharmacies. We own two of the ten pharmacies that qualified for this program. In New York, we believe that we will qualify for a higher reimbursement rate under the revised reimbursement rates of the state-mandated Medicaid program, which is in effect through March 2006.

Disease Management

The medications we distribute to our patients require timely delivery, may require temperature maintained distribution, and very often require dosage monitoring. Our employees have developed expertise in HIV/AIDS that allows them to provide customized care to our patients. By focusing on the HIV/AIDS community, we have been able to design our services to help patients better understand and manage their medication needs and schedules. We have named our disease management program MOMSCare.

Upon initiating service, we work closely with the patient and the patient’s physician and other healthcare providers to implement combination therapies and manage the following services:

• programs to monitor utilization compliance and outcomes;

• clinical information and consultation regarding the patient’s illness, medications being used and treatment regimens;

• educational information on the patient’s illness, including advancements in research, technology and combination therapies;

• assistance in setting realistic expectations for a patient’s therapy, including challenges with adherence, and with anticipated outcomes and side effects;

• systems for inventory management and record keeping;

• assistance in coordinating treatment outside of the home / hospital setting; and

• assistance in the formation of patient support groups, advocating legislation to advance the interests of the HIV/AIDS community, and participation in national and regional advocacy groups.

We believe that these disease management services benefit government and private payors by helping our patients avoid costly episodes that can result from non-adherence to a prescribed care regimen. Improved patient adherence avoids costs for the payor by reducing the incidence of physician intervention, hospitalization and emergency room visits. Our staff works closely with patient care coordinators to routinely monitor the patient’s care regimen.

Information Systems and Prescription Automation Solutions

We have licensed and developed information systems that enable patients and healthcare providers to more effectively manage and treat HIV/AIDS. We believe the transmission of electronic prescriptions reduces confusion and potential medication errors. Our electronic prescription transmittal software, EZrx, enables healthcare providers to view their patients’ prescription history, request new prescriptions, or renew prescriptions online, thereby saving physicians and their staff time that would otherwise be spent completing patient prescriptions. We have developed an interface between our pharmacy information system and the MOMSPak automated packaging system that allows for the efficient processing of prescriptions.

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In May 2005, we entered into a definitive agreement to purchase Oris Medical Systems, Inc. We expect to close this acquisition following completion of this offering. Upon acquiring the assets of Oris, we will obtain Oris’ rights to the LabTracker HIV/AIDS software system, which enables healthcare providers to record, track and analyze the outcomes of HIV/AIDS treatment. Oris’ rights include the exclusive right to license LabTracker to pharmacy providers and the right to develop a pharmacy interface with LabTracker’s existing system. We intend to integrate our electronic prescription writer, or that of Oris Medical, and the use of our specialty pharmacy services, with the functions of LabTracker software. LabTracker has the ability to show the correlation between laboratory results and the medications prescribed to a HIV/AIDS patient. However, currently, healthcare providers that desire to use this feature are required to manually input prescription information. We expect that healthcare providers will be able to take prescription information that is transmitted to us electronically and import it directly into the provider’s LabTracker software. This will allow providers to produce reports that can correlate their patients’ laboratory results with the HIV/AIDS medications prescribed and filled by our pharmacy. These reports contain more accurate, timely and comprehensive information about the interaction between a drug and the health of a HIV/AIDS patient. We believe this information allows healthcare providers to alter drug regimens as needed. Currently, more than 200 clinics and physician customers use LabTracker to help monitor approximately 100,000 HIV/AIDS patients. We consider existing LabTracker users who do not already fill their patients’ prescriptions through us to be an attractive growth opportunity for our business. See our discussion under the heading “Risk Factors—Risks Related to Our Company” beginning at page 8 for a discussion of the risks associated with the acquisition of Oris Medical.

Relationships with Pharmaceutical Companies

We actively pursue marketing and other business relationships with pharmaceutical manufacturers. We actively look to work with manufacturers of the leading HIV/AIDS medications to enhance their awareness of our services and to increase our opportunities to benefit from their significant sales teams and marketing efforts. The HIV/AIDS sales teams at pharmaceutical companies regularly make sales calls on the leading prescribers of HIV/AIDS medications. If these sales teams are aware of us, they will be in a position to inform the leading prescribers about our products and services, which can increase our visibility in the market.

We have entered into a specialized services agreement with Roche Laboratories Inc. to receive product pricing discounts and we have agreed to provide Roche with blind patient data with respect to FUZEON, a HIV medication manufactured by Roche. FUZEON has an actual per patient cost per year in excess of $20,000. Roche has entered into this type of agreement with only a limited number of pharmacies.

Marketing

We intend to expand our business in the major metropolitan markets where the majority of HIV/AIDS patients live by enhancing our existing relationships and creating new relationships with HIV/AIDS clinics, hospitals and prescribing physicians through direct sales, outreach programs and community-based education programs. Our sales team markets to the leading prescribers of HIV/AIDS medications. We actively pursue relationships with the largest HIV/AIDS clinics, ASOs, and other groups focused on HIV/AIDS. We provide our services under the trade name of MOMS Pharmacy.

We believe MOMS Pharmacy is a recognized brand-name within the HIV/AIDS community. We have a website at www.momspharmacy.com to directly market our products to the HIV/AIDS community and service organizations, which contains educational material and information of interest for the community. We are providing the address of this internet website in this prospectus solely for informational purposes. We do not intend the internet address to be an active link, and the contents of the website are not part of this prospectus.

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Suppliers

We deliver approximately 1,000 branded and generic prescription medications by purchasing the medications we use to fill prescriptions from wholesale distributors. In 2003, we entered into a five-year prime vendor agreement with AmerisourceBergen to provide us with the HIV/AIDS medications we sell. Pursuant to the agreement, we are obligated to purchase at least 95% of the medications we sell from AmerisourceBergen. As part of this agreement, we receive improved payment terms relative to the terms we could get from other pharmaceutical distributors. In addition, we agreed to purchase minimum dollar amounts of medications from AmerisourceBergen over the five-year term of the agreement. If we fail to meet these minimum purchase amounts, we will be required to make an additional payment equal to 0.2% of the unpurchased amount. See our discussion under the heading “Risk Factors—Risk Related to Our Company” beginning at page 8 about the risks associated with not satisfying our obligations under the AmerisourceBergen Agreement.

Competition

Our industry is highly competitive, fragmented and undergoing consolidation, with many public and private companies focusing on different products or diseases. Each of our competitors provides a different mix of products and services than we do. Some of our current and potential competitors include:

• specialty pharmacy distributors such as, Accredo Health, Inc., BioScrip, Inc., Curative Health Services, Inc., and Priority Healthcare Corp.;

• pharmacy benefit management companies such as, Medco Health Solutions, Inc., ExpressScripts, Inc. and Caremark, Rx, Inc.;

• specialty pharmacy divisions of national wholesale drug distributors;

• hospital-based pharmacies;

• retail pharmacies;

• manufacturers that sell their products both to distributors and directly to clinics and physician offices; and

• hospital-based care centers and other alternate site healthcare providers.

Many of our existing and potential competitors have substantially greater financial, technical marketing and distribution resources than we do. Additionally, many of these companies have greater name recognition and more established relationships with HIV/AIDS patients. Furthermore, these competitors may be able to adopt more aggressive pricing policies and offer customers more attractive terms than we can.

Third Party Reimbursement, Cost Containment and Legislation

In 2004, we generated approximately 88% of our net sales from patients who rely on Medicaid and ADAP for reimbursements, both highly regulated government programs that are subject to frequent changes and cost containment measures. Medicaid is a state program partly funded by the federal government. In recent years, these programs have reduced reimbursement to providers. The Balanced Budget Act of 1997 increased state discretion over the administration of Medicaid programs and reduced spending levels for the Medicaid programs. We expect continued financial pressure on these programs. Approximately 37 states have implemented or have pending “preferred drug list” programs, under which drugs would not appear on an approved and reimbursable Medicaid formulary unless the Medicaid programs receive discounts or other concessions. The drug industry has instituted litigation to halt these programs in some of these states, but the outcome of the litigation is unknown. If the states prevail in these lawsuits, this could result in reductions in the amount of reimbursement that we receive from Medicaid programs for our services and could materially and adversely affect our business, financial condition and results of operation.

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As of September 1, 2004, as part of the passage of the State of California budget, reimbursement rates for pharmacy services provided under Medi-Cal were reduced. Under the changed reimbursement rate, prescriptions are reimbursed at the AWP less 17%, and the provider is paid a $7.25 dispensing fee. The previous reimbursement rate was AWP less 10% with a $4.05 dispensing fee. On September 28, 2004, California approved a three-year HIV/AIDS Pharmacy Pilot Program bill that funds an additional $9.50 fee per prescription for qualified pharmacies that participate in the program. The payments are retroactive and apply to services rendered since September 1, 2004. We own two of the ten pharmacies that have qualified for the pilot program in California.

In New York, reimbursement rates for pharmacy services provided under Medicaid were reduced in September 2004. Under the changed reimbursement rate, prescriptions are reimbursed at the AWP less 12.75% plus a dispensing fee. The previous reimbursement rate was AWP less 12% plus a dispensing fee of $3.50 to $4.50. Approved specialized HIV pharmacies will continue to be reimbursed at AWP less 12% plus a dispensing fee. We believe we will be approved as a specialized HIV pharmacy qualifying for the more favorable reimbursement rate. The legislation authorizing the more favorable reimbursement rate is currently effective until March 31, 2006.

As of January 1, 2004, Medicare adopted new pricing that reduced reimbursement for many drugs. In 2005, the agency that administers the Medicare and Medicaid Programs, the Centers for Medicare & Medicaid Services, known as CMS, will change reimbursement to be based on average sales price, or ASP, or under a competitive acquisition program, or CAP, rather than average wholesale price, or AWP. This change in pricing may result in reduced reimbursement amounts for drugs that we dispense.

Cost containment initiatives are a primary trend in the United States healthcare industry. The increasing prevalence of managed care, centralized purchasing decisions, consolidation among and integration of healthcare providers and competition for patients has affected, and continues to affect, pricing, purchasing, and usage patterns in healthcare. Efforts by payors to eliminate, contain or reduce costs through coverage exclusions, lower reimbursement rates, greater claims scrutiny, closed provider panels, restrictions on required formularies, mandatory use of generics, limitations on payments in certain therapeutic drug categories, claim delays or denials and other similar measures could erode our profit margins or materially harm the results of our operations.

Some government and private payors may attempt to control costs further by selecting certain companies to be their exclusive providers of pharmaceutical benefits. If such arrangements were with our competitors, we would be unable to obtain reimbursement for purchases made by patients insured by such payors.

Government Regulation

Marketing, repackaging, dispensing, selling and purchasing drugs is highly regulated and regularly scrutinized by state and federal government agencies for compliance with laws and regulations relating to the following topics:

• inducements for patient referrals;

• manufacturer calculated and reported AWP and ASP amounts;

• joint ventures and management agreements;

• referrals from physicians with whom we have a financial relationship;

• professional licensure;

• repackaging, storing, and distributing prescription pharmaceuticals;

• incentives to patients; and

• product discounts.

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The laws and regulations are very complex and generally broad in scope resulting in differing interpretations and a lack of consistent court decisions. Compliance with laws continues to be a significant operational requirement for us. We believe that we currently comply in all material respects, and intend to continue to comply, with all laws and regulations with respect to our operations and conduct of business. However, the application of complex standards to the operation of our business always creates areas of uncertainty, and there can be no assurance that all of our business practices would be interpreted by the appropriate regulatory agency to be in compliance in all respects with the applicable requirements. Moreover, regulation of the healthcare industry is in a state of flux. Any failure or alleged failure to comply with applicable laws and regulations could have a material adverse effect on our business, financial condition and results of operations.

We are unable to predict or determine the future course of federal, state and local regulation, legislation or enforcement or what additional federal or state legislation or regulatory initiatives may be enacted in the future relating to our business or the healthcare industry in general, or what effect any such legislation or regulation might have on us. We cannot provide any assurance that federal or state governments will not impose additional restrictions or adopt interpretations of existing laws that could have a material adverse effect on our business or financial position. Consequently, any future change, interpretation or any violation (or alleged violation) of law and regulations could have a material adverse affect on our business, financial condition and results of operations. The following are particular areas of government regulation that apply to our business.

Prescription Drug Marketing Act.    This federal law exempts many drug and medical devices from federal labeling and packaging requirements, as long as they are not adulterated or misbranded and were prescribed by a physician. The law also prohibits the sale, purchase or trade of drug samples that are not intended for sale or intended to promote the sale of the drug. Records must be kept of drug sample distribution, and proper storage and maintenance methods used. To the extent that this law applies to us, we believe that we comply with the documentation, record keeping and storage requirements.

Liability Insurance.    Providing healthcare services and products entails an inherent risk of liability. In recent years, participants in the healthcare industry have become subject to an increasing number of lawsuits, many of which involve large claims and significant defense costs. We may from time to time be subject to such suits as a result of the nature of our business. We maintain general liability insurance, including professional and product liability, in an amount deemed adequate by our management. There can be no assurance, however, that claims in excess of, or beyond the scope of, our insurance coverage will not arise. In addition, our insurance policies must be renewed annually. Although, we have not experienced difficulty in obtaining insurance coverage in the past, there can be no assurance that we will be able to do so in the future on acceptable terms or at all.

Federal Food, Drug, and Cosmetics Act.    This law, as amended by the Prescription Drug Marketing Act, imposes requirements for the labeling, packaging and repackaging, dispensing and advertising of prescription medication; and also prohibits, among other things, the distribution of unapproved, adulterated or misbranded drugs. In the past, the Food and Drug Administration, or the FDA, has viewed particular combination packaging arrangements as constituting new drugs that must be tested and labeled in the packaged combination. On occasion, the FDA also has sought to apply drug compounding guidance to analogous arrangements. We believe that sufficient legal authority, and pharmacy industry practice, supports our position that our activities in packaging the combination of drugs prescribed by physicians do not require the FDA approval or registration by us with the FDA as a manufacturer. However, the FDA may disagree with this interpretation and we could be required to defend our position and possibly to alter our practices; although no such action has ever been initiated against us. To the extent that this law applies to us, we believe that we comply with a reasonable interpretation of the repackaging, labeling, compounding, documentation, record-keeping and storage requirements.

Federal Controlled Substances Act.    This federal law contains pharmacy registration, packaging and labeling requirements, as well as record-keeping requirements related to a pharmacy’s inventory and its receipt and disposition of all controlled substances. Each state has also enacted similar legislation governing pharmacies’ handling of controlled substances. We maintain federal and state controlled substance registrations for each of our facilities where applicable, and follow procedures intended to comply with all such record keeping requirements.

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Federal Mail Order Provisions.    Federal law imposes standards for the labeling, packaging and repackaging, advertising and adulteration of prescription drugs; and the dispensing of controlled substances and prescription drugs. The United States Postal Service and the Federal Trade Commission regulate mail order sellers, requiring truth in advertising, a reasonable supply of drugs to fill orders, the consumer’s right to a refund if an order cannot be filled within 30 days, and in certain cases, child-resistant packaging. To the extent applicable, we believe we substantially comply with these requirements.

Pharmacy Drug Use Review Law.    Federal law requires that states offering Medicaid prescription drug benefits implement a drug use review program. The program requires “before and after” drug use reviews and the use of certain approved compendia and peer-reviewed medical literature as the source of standards for such drug use reviews. States offering Medicaid prescription drug benefits must develop standards for pharmacy patient counseling and record-keeping. These standards apply as well to non-resident pharmacies. We believe our pharmacists monitor these requirements, provide the necessary patient counseling and maintain the appropriate records.

Anti-Kickback Laws.    We are subject to various laws that regulate our relationships with referral sources such as physicians, hospitals and other providers of healthcare services. Under the government payment programs for healthcare services (Medicare, Medicaid, ADAP, etc.), the federal government enforces the federal statute that prohibits the offer, payment, solicitation or receipt of any remuneration to or from any person or entity, directly or indirectly, overtly or covertly, in cash or in kind to induce or exchange for the referral of patients covered by the programs; or the purchasing, leasing, ordering, or arranging for or recommending the lease, purchase or order of any item, good, facility or service covered by the programs. Violations by individuals or entities are punishable by criminal fines, civil penalties, imprisonment or exclusion from participation in reimbursement programs, such as Medicaid.

States also have similar laws proscribing kickbacks, some of which are not limited to services for which government-funded payment may be made. State laws (and their respective exceptions or safe harbors) vary and are subject to interpretations of courts or regulatory agencies.

Anti-kickback laws are very broad in scope and are subject to modifications and variable interpretations. In an effort to clarify the federal anti-kickback law, the Department of Health and Human Services, or DHHS, has adopted a set of “safe harbor” rules, which specify various payment practices that are protected from civil or criminal liability. A practice that does not fall within a safe harbor is not necessarily unlawful, but may be subject to scrutiny and challenge. Failure to satisfy the requirements of a safe harbor requires an analysis of whether the parties intend to violate the anti-kickback law. In the absence of an applicable safe harbor, a violation of the anti-kickback law may occur even if only one purpose of a payment arrangement is to induce patient referrals or purchases or to induce the provision of a prescription drug reimbursable by a federal healthcare program such as Medicaid. Anti-kickback laws have been cited as a partial basis, along with the state consumer protection laws discussed below, for investigations and multi-state settlements relating to financial incentives provided by drug manufacturers to retail pharmacies in connection with pharmaceutical marketing programs. We review our business practices regularly to comply with the federal anti-kickback law and similar state laws. We have a variety of relationships with referral sources, such as physicians, clinics and hospitals. As we grow, we may pursue additional arrangements with such parties. Where applicable, we will attempt to structure these relationships to fit into the appropriate safe harbor; however, it is not always possible to meet all of the requirements of a safe harbor. While we believe that our relationships comply with the anti-kickback laws, if we are found to violate any of these laws, we could suffer penalties, fines, or possible exclusion from participation in federal and state healthcare programs, which could reduce our net sales and profits.

Health Insurance Portability And Accountability Act of 1996, or HIPAA.    Among other things, HIPAA broadened the scope of the DHHS Secretary’s power to impose civil monetary penalties on healthcare providers, and added an additional category to the list of individuals and entities who may be excluded from participating in any federal healthcare program like Medicaid. HIPAA encourages the reporting of healthcare fraud by allowing

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reporting individuals to share in any recovery made by the government, and requires the DHHS Secretary to create new programs to control fraud and abuse and conduct investigations, audits and inspections. HIPAA also defined new healthcare fraud crimes including expanding the coverage of previous laws by, among other things, to include:

• knowingly and willfully attempting to defraud any healthcare benefit program (including government and private, commercial plans); and

• knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false or fraudulent statements in connection with claims and payment for healthcare services by a healthcare benefit plan (including government and private, commercial plans).

We believe that our business arrangements and practices comply with these HIPAA provisions. However, a violation could subject us to penalties, fines, or possible exclusion from Medicaid. Such sanctions could reduce our net sales or profits.

OIG Fraud Alerts and Advisory Opinions.    The Office of Inspector General, or OIG, of DHHS periodically issues Fraud Alerts and Advisory Opinions identifying certain questionable arrangements and practices that it believes may implicate the federal fraud and abuse laws. In a December 1994 Special Fraud Alert relating to “prescription drug marketing schemes,” the OIG stated that investigation may be warranted when a prescription drug marketing activity involves the provision of cash or other benefits to pharmacists in exchange for such pharmacists’ performance of marketing tasks in the course of their pharmacy practice, including, for example, sales-oriented “educational” or “counseling” contacts or physician and/or patient outreach where the value of the compensation is related to the business generated. We believe that we have structured our business arrangements to comply with federal fraud and abuse laws. However, if we are found to have violated any of these laws, we could suffer penalties, fines or possible exclusion from the Medicaid or other government programs, which could adversely affect our operations.

State Unfair and Deceptive Trade Practices and Consumer Protection Laws.    State laws regulating unfair and deceptive trade practices and consumer protection statutes have been used as bases for the investigations and multi-state settlements relating to pharmaceutical industry promotional drug programs in which pharmacists are provided incentives to encourage patients or physicians to switch from one prescription drug to another. We do not participate in any such programs. A number of states involved in these consumer protection driven enforcement actions have requested that the FDA exercise greater regulatory oversight in the area of pharmaceutical promotion activities by pharmacists. It is not possible to determine whether the FDA will act in this regard or what effect, if any, FDA involvement would have on our operations.

The Stark Law.    Federal law prohibits physicians from making a referral for certain health items or services if they, or their family members, have a financial relationship with the entity receiving the referral. No bill may be submitted in connection with a prohibited referral. Violations are punishable by civil monetary penalties upon both the person making the referral and the provider rendering the service. Such persons or entities are also subject to exclusion from federal healthcare programs, such as Medicaid. In 1995, CMS published final regulations under the Stark Law, known as Stark I, which provide some guidance on interpretation of the scope and exceptions of the Stark Law as they apply to clinical laboratory services. In addition, CMS released Phase I of the Stark II final regulations which became effective, in large part on January 4, 2002, and which covers additional health services, including outpatient prescription drugs, and describes the parameters of the statutory exceptions in more detail and sets forth additional exceptions for physician referrals and physician financial relationships. Phase II of the Stark II final regulations became effective on July 26, 2004. Phase II clarifies portions of Phase I, addresses certain exceptions to the Stark Law not addressed in Phase I, and creates several new exceptions. As a result of the Phase II’s comment period and the fact that Phase II did not address application of the Stark Law to Medicaid, CMS plans to release Phase III regulations at a future date. Another feature of the Phase II regulations is that they include new provisions relating to indirect ownership and indirect compensation relationships between physicians and entities offering designated health services. These provisions are complex and have not been interpreted by the courts. We believe that we have structured our relationships with physicians to comply with these Phase II provisions.

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Additionally, a number of states have enacted similar referral prohibitions, which may cover financial relationships between entities and healthcare practitioners other than physicians, as well. The Stark Law applies to our relationships with physicians and physician referrals for our products and services. We believe we have structured our relationships to comply with the Stark Law as well as the applicable state provisions similar to the Stark Law. However, if our practices are found to violate the Stark Law or a similar state prohibition, we may be subject to sanctions or be required to alter or discontinue some of our practices. This could reduce our net sales or profits.

Beneficiary Inducement Prohibition.    The federal civil monetary penalty law prohibits the offering of remuneration or other inducements to beneficiaries of federal healthcare programs to influence the beneficiaries’ decision to seek specific governmentally reimbursable items or services, or to choose a particular provider. The federal civil monetary penalty law and its associated regulations exclude items provided to patients to promote the delivery of preventive care. However, permissible incentives do not include cash or cash equivalents. From time to time, we loan some items at no charge to our patients to assist them with adhering to their drug therapy regimen. Although these items are not expressly included on the list of excluded items set forth in the statute and regulations, we nevertheless believe that our provision of these items does not violate the civil monetary penalty law and regulations in part because we do not believe that providing these items is likely to influence patient choice of goods or services. A determination that we violated the statute or regulations, however, could result in sanctions that reduce our net sales or profits.

False Claims; Insurance Fraud Provisions.    We are also subject to federal and state laws prohibiting individuals or entities from knowingly and willfully making claims for payment to Medicare, Medicaid, or other third-party payors that contain false or fraudulent information. These laws provide for both criminal and civil penalties, including exclusion from federal healthcare programs such as Medicaid, and being required to repay previously collected amounts. The Federal False Claims Act contains a provision encouraging private individuals to file suits on behalf of the government against health care providers such as us. Federal false claims actions may be based on underlying violations of the kickback and/or self-referral prohibitions, as well. State law also proscribes fraudulent acts against third-party payors, including the ADAP and Medicaid programs. Healthcare providers who submit claims which they knew or should have known were false, fraudulent, or for items or services that were not provided as claimed, may be excluded from Medicaid, required to repay previously collected amounts, and subject to substantial civil monetary penalties.

Government Investigations.    The government increasingly examines arrangements between healthcare providers and potential referral sources to determine whether they are designed to exchange remuneration for patient care referrals. Investigators are increasingly willing to look behind formalities of business transactions to determine the underlying purpose of payments. Enforcement actions have increased over the years and are highly publicized. The pharmaceutical industry continues to garner much attention from federal and state governmental agencies. In its Fiscal Year 2002 Work Plan, the OIG identified “pharmaceutical fraud” as one of its “special focus areas” and committed itself to conduct further assessments relating to Medicaid medication reimbursement issues. In the OIG’s 2003, 2004, and 2005 Work Plans, the OIG emphasized its continuing focus on pharmaceutical fraud. The Department of Justice has “identified prescription drug issues” (including product substitution without authorization, controlled substances controls, free goods/diversion, medication errors, sale of samples, and contracting with pharmacy benefit management companies) as being among the “top 10” areas in the health care industry meriting the Department’s attention.

The relationships between drug manufacturers and providers of health care, including pharmacies, physicians, and hospitals, are under increased government scrutiny. In 2003, the OIG published the Compliance Program Guidance for Pharmaceutical Manufacturers. Any relationships we develop with pharmaceutical companies should be consistent with such guidelines.

In addition to investigations and enforcement actions initiated by government agencies, we could be the subject of an action brought under the Federal False Claims Act by a private individual (such as a former employee, a customer or a competitor) on behalf of the government. Actions under the Federal False Claims Act, commonly

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known as “whistleblower” lawsuits, are generally filed under seal to allow the government adequate time to investigate and determine whether it will intervene in the action, and defendant healthcare providers are often without knowledge of such actions until the government has completed its investigation and the seal is lifted.

Privacy and Confidentiality; Electronic Transactions and Security.    Many of our activities involve the receipt or use of confidential health information, including the transfer of the confidential information to a third-party payor program, such as Medicaid. DHHS has promulgated regulations implementing what are commonly referred to as the Administrative Simplification provisions of the Health Insurance Portability and Accountability Act of 1996, or HIPAA, concerning the maintenance, transmission, privacy and security of electronic health information, particularly individually identifiable information. Each state may also have similar statutes and regulations governing the maintenance, transmission, privacy and security of electronic health information, including individually identifiable information. Pursuant to the privacy provisions of HIPAA, DHHS promulgated regulations that had a compliance deadline of April 14, 2003 and that impose extensive requirements on the way in which healthcare providers, health plans and their business associates use and disclose protected health information. This final rule gives individuals significant rights to understand and control how their protected health information is used and disclosed. Direct providers, such as pharmacies, must obtain an acknowledgement from their patients that the patient has received the pharmacy’s Notice of Privacy Practices. For most uses and disclosures of protected health information that do not involve treatment, payment or healthcare operations, the rule requires that all providers and health plans obtain a valid individual authorization. In most cases, use or disclosure of protected health information must be limited to the minimum amount necessary to achieve the purpose of the use or disclosure. In addition, if we choose to distribute medications through new distribution channels such as the Internet, we will have to comply with government regulations that exist now and that may be promulgated in the future. Standards are provided for removing all individually identifiable health information in order to produce de-identified data that may be transferred without obtaining the patient’s authorization. Sanctions for failing to comply with the privacy standards issued pursuant to HIPAA include criminal penalties and civil sanctions. We have implemented certain privacy protections with respect to HIPAA privacy regulations. However, we cannot provide assurance that we have complied with all of the HIPAA privacy requirements. Any failure to comply could subject us to enforcement actions, including civil and criminal penalties, and could cause us to incur expense in changing our medical records system or information management systems.

In addition to the federal health information privacy regulations described above, most states have enacted confidentiality laws that limit the disclosure of confidential medical information. The final privacy rule under HIPAA does not preempt state laws regarding health information privacy that are more restrictive than HIPAA. The failure to comply with these federal and state provisions could result in the imposition of administrative or criminal sanctions.

On October 16, 2002 (which was extended to October 16, 2003 for those providers who submitted a “plan” describing how they will come into compliance) all healthcare providers who transmit certain protected health claims transactions electronically were required to comply with the HIPAA final regulations establishing transaction standards and code sets.

In addition, pursuant to HIPAA, in February 2003, DHHS issued regulations pursuant to HIPAA that govern the security of protected health information that is maintained or transmitted electronically. The compliance date for these regulations is April 20, 2005. The regulations impose additional administrative burdens on healthcare providers, such as pharmacies, relating to the storage and utilization of, and access to, health information. We believe that we have implemented reasonable measures to secure the protected health information that we maintain or transmit, however, we cannot provide assurance that we will be in compliance with all of the HIPAA security rule on April 20, 2005, and these HIPAA security regulations may require that we invest significant capital in upgrading information systems hardware, software and procedures. Any failure to comply could subject us to enforcement actions, including civil penalties.

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Developments in Health Information Technology.    Health care providers are increasingly utilizing technology to make health care safer and more efficient. Health information technology initiatives include e-prescribing, which allows healthcare providers to transmit prescriptions electronically to a pharmacy rather than writing them on paper. E-prescribing products, services and arrangements must be compliant with numerous laws and regulations, including the final HIPAA security regulations, the federal anti-kickback law, and the Stark law. On May 16, 2005, the Department of Health and Human Services in its semi-annual agenda announced its intention to propose a safe harbor and a Stark self-referral law exception for providers who receive nonmonetary remuneration necessary to set up and operate e-prescribing systems. There can be no assurance that such a safe harbor will ever be issued. If such safe harbor were promulgated, we do not expect the safe harbor will be available to the Company since the Department of Health and Human Services has indicated that the safe harbor will be available to hospitals and group practices. Regardless of how the safe harbor is structured, we believe we will structure all such relationships to comply with the relevant statutes. However, if we are found to violate any of these laws, we could suffer penalties, fines, or possible exclusion from participation in federal and state healthcare programs, which could reduce our net sales and profits.

Medicare Prescription Drug Benefit.    In the past, Medicare covered only a limited number of outpatient prescription drugs. In December 2003, the Medicare Prescription Drug Modernization Act, which includes a new Medicare Part D prescription drug benefit, was passed. Final regulations implementing the law providing broader coverage for outpatient prescription drugs will become effective on January 1, 2006. Because only a small number of our patients are covered by Medicare this change should not have any significant effect on us.

Reform.    The U.S. healthcare industry continues to undergo significant change. Future changes in the nature of the health system could reduce our net sales and profits. We cannot provide any assurance as to the ultimate content, timing or effect of any healthcare reform legislation, nor is it possible at this time to estimate the impact of potential legislation, which may be material, on us. Further, although we exercise care in structuring our operations to comply in all material respects with the laws and regulations summarized in this Government Regulation section, we can not assure you that (i) government officials charged with responsibility for enforcing such future laws will not assert that we or certain transactions in which we are involved are in violation thereof, and (ii) such future laws will ultimately be interpreted by the courts in a manner consistent with our interpretation. Therefore, it is possible that future legislation and regulation and the interpretation thereof could have a material adverse effect on us.

Regulation of the Practice of Pharmacy

State laws regulate the practice of pharmacy. Pharmacies and pharmacists must obtain state licenses to operate and dispense medications. Our pharmacists are licensed in those states where their activity requires it. Pharmacists must also comply with professional practice rules. We monitor our pharmacists’ practices for compliance with such state laws and rules. We do not believe that the activities undertaken by our pharmacists violate rules governing the practice of pharmacy or medicine. In an effort to combat fraud, New York State recently enacted emergency regulations requiring the use of an official New York State prescription for all prescribing done in-state. The emergency regulations are expected to become permanent. We are licensed to do business as a pharmacy in each state in which we operate a dispensing pharmacy.

Various states have enacted laws and adopted regulations requiring, among other things, compliance with all laws of the states into which the out-of-state pharmacy dispenses medications, whether or not those laws conflict with the laws of the state in which the pharmacy is located. To the extent that such laws or

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regulations are found to be applicable to our operations, and that such laws of other states where our pharmacies dispense medications are more stringent than those of the states in which our pharmacies are located, we would be required to comply with them. In addition, to the extent that any of these laws or regulations prohibit or restrict the operation of mail service pharmacies and are found to be applicable to us, they could have a harmful effect on our prescription mail service operations, if any. Some federal and state pharmacy associations and some boards of pharmacy have attempted to develop laws or regulations restricting the activity of out-of-state pharmacies.

Laws enforced by the federal Drug Enforcement Administration, as well as some similar state agencies, require our pharmacy locations to individually register in order to handle controlled substances, including prescription drugs. A separate registration is required at each principal place of business where the applicant manufactures, distributes, or dispenses controlled substances. Federal and state laws require that we follow specific labeling and record-keeping requirements for controlled substances. We maintain federal and state controlled substance registrations for each of our facilities that require it, and follow procedures intended to comply with all such record-keeping requirements.

The Company

We were incorporated in Delaware in 1983 under the name The Care Group, Inc. In 1999, upon our exit from bankruptcy, we changed our name to Allion Healthcare, Inc. and focused our business principally on serving HIV/AIDS patients. Our principal executive offices are located at 1660 Walt Whitman Road, Suite 105, Melville, New York 11747, and our telephone number at that address is (631) 547-6520. We also maintain two websites, which can be located at www.allionhealthcare.com and www.momspharmacy.com. We are providing the addresses of these internet websites in this prospectus solely for informational purposes. We do not intend the internet addresses to be active links, and the contents of the websites are not part of this prospectus.

Employees

As of May 15, 2005, we had 126 full-time employees and 8 part-time employees, all of whom were engaged in management, sales, marketing, pharmacy services, customer service, administration or finance. None of our employees are covered by a collective bargaining agreement. We have never experienced an employment-related work stoppage and consider our employee relations to be good.

Facilities

Our principal executive offices are located in Melville, New York, which we have leased through June 30, 2009. Both our executive offices and New York pharmacy operations are located at this site. We lease space in the following locations:

Location	Principal Use	Square Footage	Property Interest
Melville, NY	Pharmacy and Executive Offices	8,215	Leased—expiring June 30, 2009
Torrance, CA	Pharmacy	7,876	Leased—expiring December 31, 2005
Van Nuys, CA	Pharmacy	5,000	Leased—expiring December 31, 2005
Austin, TX	Pharmacy	3,600	Leased—expiring June 30, 2005
Miami, FL	Pharmacy	2,700	Leased—expiring September 30, 2005
La Jolla, CA	Billing Center	1,200	Leased—month-to-month
San Francisco, CA	Pharmacy	560	Leased—expiring March 31, 2008
Seattle, WA	Pharmacy	307	Leased—expiring May 31, 2005

We acquired our facilities in Van Nuys, California and La Jolla, California in the acquisition of North American in January 2005. We acquired our facilities in San Francisco, California and Seattle, Washington in the

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acquisition of Specialty Pharmacies, Inc. in March 2005. We will continue to operate the pharmacy located in San Francisco and plan to open an additional, larger pharmacy and distribution center near the current San Francisco location. We intend to renew the lease of our Seattle, Washington pharmacy when it expires on May 31, 2005.

At this time, we believe we have adequate space for our current operations. We plan to renew these leases prior to expiration or move to other comparable space, except that we plan to terminate our lease in Austin, Texas as a result of our decision to discontinue our Texas operations.

Legal Proceedings

New York Medicaid Audit.    In May 2004, we were notified that our MOMS Pharmacy subsidiary in New York is the subject of an audit and review being conducted by the New York State Department of Health. As part of the audit, the Department withheld payment of certain Medicaid claims we had submitted. The Department refunded $800,000 of the $920,000 which it initially withheld, but it may conclude that we are subject to certain financial penalties and fines, in which case some or all of the payments withheld ultimately may not be paid to us.

In addition to the matters noted above, we are involved from time to time in legal actions arising in the ordinary course of our business. We currently have no pending or threatened litigation that we believe will result in an outcome that would materially affect our business. Nevertheless, there can be no assurance that future litigation to which we become a party will not have a material adverse effect on our business.

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MANAGEMENT

The following table sets forth the names, ages and principal positions of our directors and executive officers:

Name	Age	Positions
Michael P. Moran	44	Chairman, Chief Executive Officer and President
John W. Colloton (1)	74	Director
James B. Hoover (1)(2)(3)	50	Director
John Pappajohn	76	Director
Derace Schaffer, M.D. (1)(2)(3)	56	Director
Harvey Z. Werblowsky, Esq. (2)(3)	57	Director
Robert E. Fleckenstein, RPh	51	Vice President, Pharmacy Operations
MikeLynn Salthouse, RN	49	Vice President, HIV Sales
James G. Spencer	36	Chief Financial Officer, Secretary and Treasurer

(1) Member of Audit Committee

(2) Member of Nominating and Corporate Governance Committee

(3) Member of Compensation Committee

Michael P. Moran has served as our Chairman, Chief Executive Officer and President and as a member of our board of directors since 1997. From 1996 to 1997, Mr. Moran was a Regional Vice President at Coram Healthcare, Inc. From 1990 to 1996, Mr. Moran was a Regional Vice President for Chartwell Home Therapies, Inc. Prior to 1990, Mr. Moran held various sales and management positions at Critical Care America, Inc. Mr. Moran received a B.A. in management from Assumption College.

John W. Colloton has served as one of our directors since 2004. He is currently Director Emeritus of the University of Iowa Hospitals and Clinics, and serves as the lead director of Wellmark, Inc. (Iowa-South Dakota Blue Cross & Blue Shield). From 1989 to 2003, Mr. Colloton served as a director of Baxter International Inc. and from 1997 to 2002, he served as a director of Radiologix, Inc. From 1971 to 1993, Mr. Colloton served as a director of the University of Iowa Hospitals and Clinics, and from 1993 through the year 2000, he served as vice president of the University of Iowa for Statewide Health Services. Mr. Colloton received his B.A. in business administration from Loras College and a masters degree in hospital administration from the University of Iowa.

James B. Hoover has served as one of our directors since 2003. Since 1998, he has served as the Managing Partner of Dauphin Capital Partners, a venture capital firm, of which he is the founder. Prior to founding Dauphin Capital in 1998, Mr. Hoover was a General Partner of Welsh, Carson, Anderson & Stowe, or WCAS, a management buy-out firm specializing in healthcare and information services. From 1984 to 1992, Mr. Hoover was a General Partner of Robertson, Stephens & Co., an investment banking firm specializing in the financing of emerging growth companies with a particular emphasis on the healthcare industry. Mr. Hoover joined Robertson, Stephens in 1984. Currently, Mr. Hoover serves as a director of Quovadx Inc., and U.S. Physical Therapy, Inc., two public companies, as well as a director of several private healthcare companies. He is a member of the Special Projects Committee of Memorial Sloan-Kettering Cancer Center. He received his MBA from the Graduate School of Business at Indiana University. He holds a B.S. from Elizabethtown College (Pennsylvania) where he presently serves as a member of the Board of Trustees and Chairman of its Investment Committee.

John Pappajohn has served as one of our directors since 1996. Since 1969, Mr. Pappajohn has served as the president and principal stockholder of Equity Dynamics, Inc., a financial consulting firm, and the sole owner of Pappajohn Capital Resources, a venture capital firm. Mr. Pappajohn has served on the boards of directors of over 40 public companies and currently serves as a director of the following public companies: MC Informatics, Inc., PACE Health Management Systems, Inc. and Patient Infosystems, Inc. Mr. Pappajohn received his B.A. in business from the University of Iowa.

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Derace Schaffer, M.D. has served as one of our directors since 1996. Dr. Schaffer is a founder of Radiologix, Inc., a public company. Dr. Schaffer has served as the Chairman and Chief Executive Officer of the IDE Group, P.C., one of the radiology practices with which Radiologix has a contractual relationship. In 2004, Dr. Schaffer accepted a position as a professor at the Weill Medical College of Cornell University. Prior to 2004, Dr. Schaffer served as a Clinical Professor of Radiology at the University of Rochester School of Medicine. Dr. Schaffer is also Chief Executive Officer and President of the Lan Group, a venture capital firm. Dr. Schaffer is a founder of Patient Infosystems, Inc., a public company. Dr. Schaffer is a founder and director of Cardsystems, Inc. Dr. Schaffer is a board certified radiologist. He received his postgraduate radiology training at the Harvard Medical School and Massachusetts General Hospital, where he served as Chief Resident. Dr. Schaffer is a member of Alpha Omega Alpha, the national medical honor society.

Harvey Z. Werblowsky, Esq. has served as one of our directors since 2004. Since December 2003, he has been the general counsel of Kushner Companies, a real estate organization. From December 1990 until December 2003, Mr. Werblowsky was a partner at the law firm of McDermott Will & Emery LLP.  Mr. Werblowsky received a B.A. from Yeshiva University and a J.D. from New York University School of Law.

Robert E. Fleckenstein, RPh has served as our Vice President, Pharmacy Operations since December 2003 and is responsible for our national pharmacy operations. Mr. Fleckenstein has held positions in pharmacy management for 20 years, with over 10 of those years in specialty pharmacy. In 2003, he served as Account Manager for US Oncology, Inc. From 2000 to 2002, Mr. Fleckenstein served as Vice President of Operations for CVS ProCare at its Pittsburgh distribution center. From 1997 to 2000, he served as Director of Pharmacy Services for Stadtlanders Drug Company. Prior to 1997, Mr. Fleckstein held various management level positions in specialty and hospital pharmacy companies. Mr. Fleckstein received his B.S. in Pharmacy from the University of Pittsburgh and his MBA from the Katz Graduate School of Business at the University of Pittsburgh.

MikeLynn Salthouse, RN has served as our Vice President, HIV Sales since 2002. Ms. Salthouse has worked in the pharmaceutical industry for 20 years, including nine years with Stadtlanders and CVS ProCare, where she served as Vice President, Sales, and Vice President, Business Development. Prior to 1993, Ms. Salthouse held sales management positions with both Ivonyx and Clinical Homecare, infusion service companies, as well as various sales and management positions at McNeil Consumer Products, a division of Johnson & Johnson. Ms. Salthouse attended Loma Linda University and graduated from Riverside College, both in Southern California.

James G. Spencer has served as our Chief Financial Officer, Secretary and Treasurer since 2004. From October 2003 to May 2004, Mr. Spencer served as a consultant to us until becoming Chief Financial Officer. From 2002 until 2003, Mr. Spencer served as a Vice President in the Health Care Investment Banking Group for Thomas Weisel Partners LLC. From 1999 to 2002, he served as Vice President in the Health Care Investment Banking Group for Credit Suisse First Boston. Prior to 1999, Mr. Spencer worked at Alex. Brown and Sons in Health Care Investment Banking. Mr. Spencer received his MBA from The Wharton School of the University of Pennsylvania and his B.S. in Economics and Management Statistics from the University of Maryland.

A majority of our directors are “independent” in accordance with Nasdaq National Market requirements.

Election of Directors

Our amended and restated certificate of incorporation provides that our board of directors shall initially consist of three directors and our third amended and restated bylaws give the board of directors the authority to fix the number of directors that constitutes the board of directors from time to time. Currently, our board of directors is comprised of six directors and, after the offering, our board of directors will consist of six directors. Any additional directorships resulting from an increase in the number of directors may only be filled by the directors then in office. In accordance with the terms of our amended and restated certificate of incorporation, stockholders will elect each of our directors at the annual meeting of stockholders, or special meeting in lieu thereof. Each director serves until his successor is elected and qualified or until his earlier death, resignation or removal.

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Board Committees

As of the closing of this offering, our board of directors will have an audit committee, a compensation committee and a nominating and corporate governance committee, each of which will have the composition and responsibilities described below:

Audit Committee.    The audit committee provides assistance to the board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal controls and legal compliance functions by approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal accounting controls. The audit committee also oversees the audit efforts of our independent accountants and determines whether the accountants are independent of management. The audit committee currently consists of Messrs. Colloton and Hoover and Dr. Schaffer, each of whom is an independent member of our board of directors. Mr. Hoover serves as the chairperson of our audit committee, and our board of directors has determined that he meets the definition of an “audit committee financial expert,” as defined by the SEC. We believe that the composition of our audit committee meets the criteria for independence under, and the functioning of our audit committee complies with, the applicable requirements of, the Sarbanes-Oxley Act of 2002, the current rules of the Nasdaq National Market and SEC rules and regulations. We intend to comply with future audit committee requirements as they become applicable to us.

Compensation Committee.    The compensation committee determines our general compensation policies and the compensation provided to our directors and officers. The compensation committee also reviews and determines bonuses for our executive officers. In addition, the compensation committee reviews and determines equity-based compensation for our directors, officers, employees and consultants and administers our stock option plans. The current members of the compensation committee are Messrs. Werblowsky, Hoover and Dr. Schaffer, each of whom is an independent director. Mr. Werblowsky serves as the chairperson of our compensation committee. We believe that the composition of our compensation committee will meet the criteria for independence under, and the functioning of our compensation committee complies with, the applicable requirements of, the Sarbanes-Oxley Act of 2002, the current rules of the Nasdaq National Market and SEC rules and regulations. We intend to comply with future compensation committee requirements as they become applicable to us.

Nominating and Corporate Governance Committee.    The nominating and corporate governance committee is responsible for making recommendations to the board of directors regarding candidates for directorships and the size and composition of the board. In addition, the nominating and corporate governance committee is responsible for overseeing our corporate governance guidelines and reporting and making recommendations to the board concerning corporate governance matters. The current members of the nominating and corporate governance committee are Messrs. Werblowsky, Hoover and Dr. Schaffer. Dr. Schaffer serves as the chairperson of our nominating and corporate governance committee. We believe that the composition of our nominating and corporate governance committee will meet the criteria for independence under, and the functioning of our nominating and corporate governance committee complies with, the applicable requirements of the Nasdaq National Market and SEC rules and regulations. We intend to comply with future nominating and corporate governance committee requirements as they become applicable to us.

The audit committee, the compensation committee and the nominating and corporate governance committee each has adopted a written charter that further describes its function and responsibilities. You may obtain copies of these charters by going to the “Investor Relations” section of our website located at www.allionhealthcare.com.

We have adopted a Code of Ethics that applies to all of our directors, officers and employees including our senior financial officers. Our Code of Ethics has been filed with the SEC and is also available on our website located at www.allionhealthcare.com. See our discussion under the heading “Where You Can Find More Information” at page 80 for a discussion of how to access information from the SEC’s website.

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Director Compensation

We do not have a formal policy regarding compensation of our directors for their service as directors. Historically, our non-employee directors have each been granted options to purchase 50,000 shares of common stock pursuant to our 1998 Stock Option Plan and 2002 Stock Incentive Plan as compensation for their initial term serving on our board of directors. These options have an exercise price ranging from $2.00 to $6.00 per share approximating the fair market value as of the date of grant, and vest monthly in equal amounts over either a two or three-year period, beginning one month following the date such option is granted, and cease vesting when a director ceases to serve on our board of directors. Historically, we also granted our non-employee directors options to purchase 20,000 shares of common stock pursuant to our 1998 Stock Option Plan and our 2002 Stock Incentive Plan for each additional year that such director is re-elected. These options have an exercise price approximating the fair market value as of the date of grant, and vest monthly in equal amounts over a one-year period. Our non-employee directors have not received any other compensation for their service as directors. We reimburse all directors for expenses incurred in connection with attending meetings. Directors who are employees or affiliates of ours have not received any compensation for their services as a director, other than Mr. Pappajohn, who may be deemed an affiliate. Accordingly, Mr. Moran has not been compensated for his services as a director. We plan to review the compensation we pay to our non-employee directors following this offering.

Compensation Committee Interlocks and Insider Participation

No interlocking relationship exists between our board of directors or compensation committee and the board of directors or compensation committee of any other entity. Additionally, no member of our compensation committee was during 2004, or formerly, an officer or employee of ours or any of our subsidiaries.

In January 2000, we issued warrants to purchase 375,000 shares of our common stock to John Pappajohn, a director, as consideration for his guarantee of a $1.5 million credit facility with West Bank. These warrants are exercisable at a price of $1.00 per share. As consideration for the renewal of the guaranty, we issued warrants to purchase 125,000 shares of common stock to Mr. Pappajohn in July 2003, exercisable at a price per share of $5.00. In March 2005, when West Bank agreed to extend the maturity of its loan to September 2005, Mr. Pappajohn agreed to keep his guaranty in place through September 2005. As consideration for continuing his guaranty, in April 2005 we issued warrants to Mr. Pappajohn to purchase 100,000 shares of common stock, exercisable at a price equal to the price per share in this offering.

Limitations on Directors’ Liability and Indemnification

Our amended and restated certificate of incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for:

• any breach of their duty of loyalty to the corporation or its stockholders;

• acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

• unlawful payments of dividends or unlawful stock repurchases or redemptions; or

• any transaction from which the director derived an improper personal benefit.

The limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission.

Our third amended and restated bylaws provide that we will indemnify our directors and officers and may indemnify our employees and other agents to the fullest extent permitted by law. Our third amended and restated bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in his or her capacity as an officer, director, employee or other agent. We maintain liability insurance that insures our directors and officers against certain losses and that insures us against our obligation to indemnify our directors and officers.

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The limited liability and indemnification provisions in our amended and restated certificate of incorporation and the third amended and restated by-laws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty and may reduce the likelihood of derivative litigation against our directors and officers, even though a derivative action, if successful, might otherwise benefit us and our stockholders. A stockholder’s investment in us may be adversely affected to the extent we pay the costs of settlement or damage awards against our directors and officers under these indemnification provisions.

At present, there is no pending litigation or proceeding involving any of our directors, officers or employees in which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors, officers and controlling persons of us pursuant to the foregoing provisions or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

Summary Compensation Table

The following table sets forth certain elements of compensation paid by us during the years ended December 31, 2004, 2003 and 2002 to our Chief Executive Officer, and our three most highly compensated executive officers other than our Chief Executive Officer. We refer to these executives as the “named executive officers” elsewhere in this prospectus.

	Annual Compensation							Long-Term Compensation Awards
Name and Principal Position	Year	Salary ($)		Bonus ($)(1)		Other Annual Compensation ($)(2)		Securities Underlying Options (#)
Michael P. Moran, Chairman, Chief Executive Officer President	2004 2003 2002	$ $ $	251,924 247,483 247,569	$ $ $	100,000 100,000 0	$ $ $	0 0 0	0 0 50,000
James G. Spencer, (3) Chief Financial Officer Secretary and Treasurer	2004	$	151,538	$	20,000	$	2,513	125,000
Mikelynn Salthouse, (4) Vice President, HIV Sales	2004 2003 2002	$ $ $	169,204 150,000 40,385	$ $ $	10,000 0 0	$ $ $	7,200 7,200 1,650	40,000 0 75,000
Robert E. Fleckenstein, (5) RPh, Vice President, Pharmacy Operations	2004	$	131,000	$	18,750	$	0	50,000

(1) Bonuses were paid at the discretion of the compensation committee from time to time during 2004 based on merit-based performance. We do not have a written bonus plan.

(2) For the years presented, perquisites and other personal benefits did not exceed the lesser of $50,000 or 10% of total annual salary and bonus for the named executive officer.

(3) Mr. Spencer became our Chief Financial Officer on May 18, 2004. The amount shown in the table above represents the amount we paid Mr. Spencer from May 20 through December 31, 2004. In addition to the amount shown above, Mr. Spencer served as a consultant to us from January 1 until May 17, 2004, during which time he was paid a fee of $23,681. We pay 100% of the premiums for Mr. Spencer’s healthcare insurance plan in lieu of his participation in company-sponsored plans. In 2004, we paid $2,513 of health insurance premiums for Mr. Spencer. The amount we pay for Mr. Spencer’s coverage is less than the

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amount that we would be required to pay had he elected to be covered by the healthcare insurance that we make available to all of our employees. All of our other named executive officers except Mr. Spencer receive healthcare insurance that is identical to what we offer all of our employees.

(4) The amounts shown for “Other Annual Compensation” reflect amounts paid to Ms. Salthouse for an annual automobile allowance.

(5) Mr. Fleckenstein became our Vice President, Pharmacy Operations, in January 2004.

Options Grants in Last Fiscal Year

The following table sets forth information regarding stock options granted in 2004 under our 2002 Stock Incentive Plan to our named executive officers. The potential realizable value is calculated assuming the fair market value of the common stock appreciates at the indicated rate for the entire term of the option and that the option is exercised and sold on the last day of its term at the appreciated price. These gains are based on assumed rates of appreciation compounded annually from the dates the respective options were granted to their expiration date based on an assumed initial public offering price of $13.00 per share, minus the share exercise price of $6.00. The 5% and 10% assumed rates of stock price appreciation are required by the rules of the Securities and Exchange Commission and do not represent our estimate or projection of future stock price growth. Actual gains, if any, on exercised stock options will depend on the future performance of our common stock.

Name	Number of Securities Underlying Options (1)	Percentage of Total Options Granted to Employees in Fiscal Year 2004 (2)		Exercise Price (3)		Expiration Date	Potential Realizable Value At Assumed Annual Rates Of Stock Price Appreciation For Option Term
							5%		10%
Michael P. Moran	0	0	%		—	—		—		—
James G. Spencer	125,000	21	%	$	6.00	5/18/2014	$	1,000,988	$	1,135,406
Mikelynn Salthouse	40,000	7	%	$	6.00	5/18/2014	$	348,332	$	423,663
Robert E. Fleckenstein	50,000	9	%	$	6.00	5/18/2014	$	435,415	$	529,579

(1) The options granted in 2004 were issued on May 18 and vest ratably over a four-year period beginning on the date of grant, except that the options issued to Mr. Spencer were vested 25% on the date of grant, with the remaining options vesting 33 ¹/3% on each of the first three anniversaries of the date of grant.

(2) The figures representing percentages of total options granted to employees in the last fiscal year are based on a total of 587,250 shares underlying options granted to our employees during 2004.

(3) The exercise price of each option granted was equal to the fair market value of our common stock as valued by our board of directors on the date of grant.

Aggregated Stock Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

The following table provides information regarding the number and value of vested and unvested options held by each of our named executive officers as of December 31, 2004. There were no options exercised by the named executive officers in 2004. There was no public trading market for our common stock on December 31, 2004. Accordingly, the dollar values in the table are calculated based upon the assumed initial offering price of $13.00 per share, less the exercise price of the options, and multiplying the result by the number of shares.

Name	Number of Securities Underlying Unexercised Options at Fiscal Year- End (#)		Value of Unexercised In-the-Money Options at Fiscal Year End Exercisable ($)
	Exercisable	Unexercisable	Exercisable		Unexercisable
Michael P. Moran	648,611	1,389	$	8,074,305	$	13,196
James G. Spencer	31,250	93,750	$	218,750	$	656,250
Mikelynn Salthouse	72,917	42,083	$	692,712	$	299,789
Robert E. Fleckenstein	0	50,000	$	—	$	350,000

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Employment Agreements

Currently, we do not have employment agreements with any of our named executives. See our discussion under the heading “Risk Factors—Risks Related to Our Company” at page 8 about the risks associated with not having employment agreements with our executive officers.

1998 Stock Option Plan

Background.    Our 1998 Stock Option Plan, or the 1998 Plan, was adopted by us and our stockholders in connection with our plan of reorganization approved when we emerged from bankruptcy on February 1, 1999. The 1998 Plan authorizes the grant of options to purchase up to 1,250,000 shares of common stock. As of March 31, 2005, incentive stock options and non-qualified stock options to purchase 1,007,750 shares were outstanding under the 1998 Plan. These options have exercise prices ranging from $0.175 to $6.25 per share.

Awards.    The 1998 Plan provides for the discretionary grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, or the Code, to employees and for the grant of nonstatutory stock options to employees, non-employee directors and consultants and other independent contractors providing services to us.

Administration.    Our compensation committee administers the 1998 Plan. The administrator has the power to determine who receives option grants and the terms of the options granted, including the exercise price, the number of shares subject to each option and the exercisability thereof. The administrator also has the authority to cancel and re-grant options.

Exercise Price.    The exercise price of all incentive stock options granted under the 1998 Plan must be at least equal to the fair market value of the common stock on the date of grant. The exercise price of nonstatutory stock options granted under the 1998 Plan must be at least equal to 85% of the fair market value of the common stock on the date of grant. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of our outstanding capital stock, the exercise price of any incentive stock option granted to such a participant must be at least equal to 110% of the fair market value of the common stock on the grant date, and the term of any such incentive stock option must not exceed five years. The term of all other options granted under the 1998 Plan must not exceed ten years.

Change in Control.    The 1998 Plan provides that, in the event we merge with or into another company in which, after the merger, our stockholders existing before the merger do not own at least 50% of the surviving company following the merger, or in the event of a liquidating sale of all or substantially all of our assets, the vesting of each outstanding option under the 1998 Plan will accelerate automatically unless the options are assumed by a successor, replaced with a comparable cash incentive program of the successor corporation or the options are subject to limitations imposed by the administrator.

Other Terms of Options.    Options granted under the 1998 Plan are generally not transferable by the optionee, except by will or the laws of decent and distribution following the optionees death. Options granted under the 1998 Plan must generally be exercised within three months after the optionee ceases to be an employee, director or consultant, or within one year after such optionee’s termination of service by reason of disability or death, but in no event later than the expiration of the option’s term.

Amendment, Suspension and Termination.    Unless terminated sooner, the 1998 Plan will automatically terminate on February 1, 2009. Our board of directors also has the authority to amend, suspend or terminate the 1998 Plan, provided that no such action may adversely affect any outstanding option grants or increase the authorized shares under the 1998 Plan without stockholder approval.

Section 280G.    Under section 280G of the Code, a certain disqualified individual (which is defined in the Treasury regulations to include generally an officer, certain highly-compensated individual, and a more than 1% shareholder) who receives an excess parachute payment as a result of a change in control of the company may be

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subject to an excise tax of 20% and the company will not be allowed to take a tax deduction for such excess parachute payment. A payment contingent on a change in the ownership or control of the company may constitute an excess parachute payment. An acceleration of vesting of stock options upon a change in control under the 1998 Plan may be considered as payment contingent on a change in the ownership or control of the company, and thus could result in the above-mentioned unfavorable tax consequences applying to us and to the recipient.

2002 Stock Incentive Plan

Background.    Our board of directors adopted the 2002 Stock Incentive Plan, or the 2002 Plan, on May 15, 2002 and our stockholders approved it on June 24, 2002. Our stockholders approved an amendment to the 2002 Plan on July 20, 2004 to increase the number of shares available for grant to 1,500,000 share from 500,000 shares. Our board of directors established the 2002 Plan to provide incentives to certain employees, officers, consultants, and non-employee directors of ours and our subsidiaries, and to align the interests of such persons with those of our stockholders. As of May 15, 2005, options to purchase 660,000 shares were outstanding under the 2002 Plan. These options have exercise prices ranging from $3.50 to $6.25 per share. There are 840,000 shares of common stock remaining available for grants under the 2002 Plan.

Share Limits.    The aggregate number of shares of common stock available for grants under the 2002 Plan during its term is 1,500,000 shares. The maximum aggregate number of shares of common stock underlying all grants to any single participant during the life of the 2002 Plan is 100,000 shares (subject to adjustment).

Administration.    Our compensation committee administers the 2002 Plan. The compensation committee has the responsibility, in its sole discretion, to control, operate, manage and administer the 2002 Plan in accordance with its terms. The compensation committee is authorized, subject to the provisions of the 2002 Plan, to establish such rules and regulations as it deems necessary for the proper administration of the 2002 Plan and to take such actions in connection with the 2002 Plan as it deems necessary or advisable.

Eligible Participants.    All of our employees, officers and directors, and employees, officers and directors of our subsidiaries, as well as certain consultants and advisors to us or our subsidiaries, are eligible to participate in the 2002 Plan.

Types of Awards.    The 2002 Plan provides for the grant of any or all of the following types of awards: (1) stock options, including incentive stock options and non-qualified stock options; (2) stock appreciation rights; (3) restricted stock awards; and (4) performance awards. Certain awards may constitute performance-based awards that qualify for the performance-based compensation exemption under Section 162(m) of the Internal Revenue Code.

Stock Options.    Stock options granted under the 2002 Plan may be incentive stock options or non-qualified options. The exercise price of any option granted under the 2002 Plan must be at least equal to the fair market value of the common stock on the date of grant. Stock options cannot be exercised after the tenth anniversary of their date of grant, and the compensation committee will otherwise determine when each stock option becomes vested and exercisable. A stock option’s exercise price may be paid in cash or, in the discretion of the compensation committee, by the delivery of shares of common stock then owned by the participant, or by a combination of these methods or such other methods as the compensation committee deems appropriate.

If a participant’s employment or service as an employee, officer, director, advisor or consultant is terminated due to death or disability, all non-vested portions of the participant’s stock options will be forfeited and all vested portions of the participant’s stock options will remain exercisable until the earlier of (1) the end of the 12-month period following the date of death or termination of employment, or (2) the date the stock options would otherwise expire. If we or any of our subsidiaries terminate a participant’s employment for cause, all of the participant’s stock options, whether vested or non-vested, will be forfeited. If a participant’s employment is

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terminated for any other reason, all non-vested portions of the participant’s stock options will be forfeited and all vested portions of the participant’s stock options will remain exercisable until the earlier of (1) the end of the 90-day period following the termination of employment, or (2) the date the stock options would otherwise expire. The exercisability of stock options after a termination of employment or service may also vary from the terms described above in individual stock option agreements.

Stock Appreciation Rights.    A stock appreciation right is a right to receive a payment, in cash, common stock, or a combination thereof, equal to the excess of (x) the fair market value, or other specified valuation which shall not be greater than the fair market value, of a specified number of shares of our common stock on the date the right is exercised over (y) the fair market value, or other specified valuation which shall not be less than fair market value, of such shares of our common stock on the date the right is granted. Each stock appreciation right shall be subject to such terms and conditions as the compensation committee shall impose in its sole discretion.

Restricted Stock Awards.    A restricted stock award consists of a grant of shares of our common stock that are subject to terms and conditions determined by the compensation committee, including, without limitation, restrictions on the sale or other disposition of such shares and our right to reacquire such shares for no consideration upon termination of the participant’s employment within specified periods. A participant who has been granted a restricted stock award will have the same rights of a holder of shares of our common stock to receive dividends and to vote the shares, unless the compensation committee determines otherwise on the date of grant.

Performance Awards.    A performance award consists of a right to receive a specified number of shares of our common stock or cash at the end of a specified period, subject to such terms and conditions as the compensation committee, in its sole discretion, deems appropriate. The conditions include the performance goal or goals which, depending on the extent to which such goals are met, will determine the number and/or value of the performance awards that will be paid out or distributed to the participant who has been granted performance awards.

Section 162(m).    Under section 162(m) of the Internal Revenue Code, a public company generally may not deduct compensation in excess of $1.0 million paid to its chief executive officer and the four next most highly compensated officers. Until the annual meeting of our stockholders in 2008, or until the 2002 Plan is materially amended, if earlier, awards granted under the plan will be exempt from the deduction limits of section 162(m). In order for awards granted after the expiration of such grace period to be exempt, the plan must be amended to comply with the exemption conditions and be resubmitted for approval by our stockholders.

Section 280G.    Under section 280G of the Code, a certain disqualified individual (which is defined in the Treasury regulations to include generally an officer, certain highly-compensated individual, and a more than 1% shareholder) who receives an excess parachute payment as a result of a change in control of the company may be subject to an excise tax of 20% and the company will not be allowed to take a tax deduction for such excess parachute payment. A payment contingent on a change in the ownership or control of the company may constitute an excess parachute payment. An acceleration of vesting or payment of the outstanding awards upon a change in control under the 2002 Plan may be considered as payment contingent on a change in the ownership or control of the company. Therefore, if the compensation committee decides to exercise its discretion to permit such acceleration under the 2002 Plan upon a change in control, it could result in the above-mentioned unfavorable tax consequences to us and to the recipient.

Change in Control.    If we experience a change in control, the compensation committee, in its sole discretion, may determine that all or a portion of each outstanding award shall become fully exercisable and vested, as applicable, upon a change in control of our business or at such other date or dates that the compensation committee may determine. In addition, the compensation committee may determine that, upon the occurrence of a change in control of our business, all or a portion of certain outstanding stock options and stock

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appreciation rights will terminate within a specified number of days, and each holder will receive, with respect to each share of our common stock subject to a stock option or stock appreciation right, an amount equal to the excess of the fair market value per share of our common stock immediately prior to the change in control over the exercise price per share of the stock option or stock appreciation right. Such amount will be payable in cash, property or in a combination thereof, as the compensation committee determines. Also, the compensation committee may provide that an award may be assumed by any entity which acquires control of our business, or that an award may be substituted by a similar award under such entity’s compensation plans.

Other Terms of Awards.    The 2002 Plan provides that awards are generally not transferable other than by will or the laws of descent and distribution; however, the compensation committee may permit the transferability of a nonqualified stock option or stock appreciation right by a participant, as a gift to family members or certain entities established for the benefit of family members.

Amendment, Suspension and Termination; Adjustment of Awards.    Our board of directors may further amend, suspend, or terminate the 2002 Plan at any time, provided that such action does not adversely change in a material manner the terms and conditions of any outstanding award granted under the 2002 Plan without the participant’s consent. No amendment of the 2002 Plan will, without the approval of our stockholders, increase the total number of shares which may be issued under the 2002 Plan, or increase the maximum number of shares that may be granted to any individual.

The 2002 Plan contains provisions for equitable adjustment of awards in the event of a merger, consolidation, reorganization, recapitalization, stock dividend stock split and other changes in our capital structure.

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PRINCIPAL STOCKHOLDERS

The following table sets forth information known to us with respect to the beneficial ownership of our common stock as of May 15, 2005 and as adjusted to reflect the sale of shares of our common stock offered by this prospectus, by:

• each stockholder known by us to own beneficially more than 5% of our common stock;

• each of our named executive officers;

• each of our directors; and

• all directors and executive officers as a group.

Except as otherwise noted below, the address of the particular stockholder is Allion Healthcare, Inc., 1660 Walt Whitman Road, Suite 105, Melville, New York 11747.

The column entitled “Percentage of Shares Beneficially Owned—Before Offering” is based on 7,894,956 shares of common stock outstanding as of May 15, 2005, assuming the conversion of all of our outstanding convertible preferred stock into 4,794,956 shares of common stock, which assumes a conversion rate based on an initial offering price of $13.00 per share. The column entitled “Percentage of Shares Beneficially Owned—After Offering” is based on 11,894,956 shares of common stock to be outstanding after this offering after giving effect to the 4,000,000 shares we are selling in this offering, the conversion of all preferred stock, and assuming no further exercises of outstanding options, warrants or the underwriters’ over-allotment option.

We have determined beneficial ownership in accordance with the rules of the SEC. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed below, based on the information furnished by these owners, have sole voting power and investment power with respect to these shares, subject to applicable community property laws.

In computing the number of shares of common stock beneficially owned by a person and the percent ownership of that person, we deemed outstanding shares of common stock subject to options and/or warrants held by that person that are currently exercisable or exercisable within 60 days of May 15, 2005. We did not deem these shares outstanding for purposes of computing the percent ownership of any other person.

Name	Number of Shares Beneficially Owned	Percentage of Shares Beneficially Owned
		Before Offering		After Offering
Directors and Officers:
John Pappajohn (1)	1,769,715	20.7	%	14.1	%
Michael P. Moran (2)	650,000	7.6	%	5.2	%
Derace Schaffer, MD (3)	420,000	5.2	%	3.5	%
James B. Hoover (4)	382,927	4.8	%	3.2	%
Mikelynn Salthouse (5)	85,000	1.1	%	*
James G. Spencer (6)	62,500	*		*
John Colloton (7)	16,667	*		*
Harvey Werblowsky (8)	16,667	*		*
Robert Fleckenstein (9)	12,500	*		*
All officers and directors as a group (9 persons)	3,415,976	35.7	%	25.2	%
5% Stockholders:
Principal Life Insurance Company (10)	743,590	9.4	%	6.3	%
Edgewater Private Equity Fund II, L.P.(11)	646,653	8.2	%	5.4	%
Gary Kirke	500,000	6.3	%	4.3	%

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(1) The common stock owned includes 375,000 shares held by Halkis, Ltd., a sole proprietorship owned by Mr. Pappajohn and 250,000 shares held by Thebes, Ltd., a sole proprietorship owned by Mr. Pappajohn’s spouse, 70,000 shares of common stock issuable upon the exercise of options and 537,500 shares of common stock issuable upon the exercise of warrants. The common stock also includes 4,651 shares and warrants to purchase 50,000 shares of common stock issuable upon the exercise of warrants held by Equity Dynamics, Inc. and 5,000 shares issuable upon the exercise of warrants held by the Pappajohn Revocable Trust.

(2) The common stock owned includes 650,000 shares of common stock issuable upon the exercise of options.

(3) The common stock owned includes 120,000 shares of common stock issuable upon the exercise of options.

(4) The common stock includes 54,722 shares of common stock issuable upon the exercise of options. The common stock also, includes 307,692 shares of common stock held by Dauphin Capital Partners, LP, over which Mr. Hoover exercises voting and investment control by virtue of his position as founder and managing partner, and 5,128 shares owned by TriSons, an entity controlled by Mr. Hoover and his spouse.

(5) The common stock owned includes 85,000 shares of common stock issuable upon the exercise of options.

(6) The common stock owned includes 62,500 shares of common stock issuable upon the exercise of options.

(7) The common stock owned includes 16,667 shares of common stock issuable upon the exercise of options.

(8) The common stock owned includes 16,667 shares of common stock issuable upon the exercise of options.

(9) The common stock owned includes 12,500 shares of common stock issuable upon the exercise of options.

(10) The address for the Principal Life Insurance Company is 711 High Street, Des Moines, IA 50392.

(11) The address for Edgewater Private Equity Fund II, L.P. is 900 N. Michigan Ave., 14th Floor, Chicago, IL 60611.

* Less Than 1%

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Option Grants to Directors

We have granted options to purchase common stock to our directors and officers. See “Management—Director Compensation” beginning at page 58, “Management—Summary Compensation Table” at page 59 and “Management—Option Grants in Last Fiscal Year” at page 60.

Guarantee of Loan

In January 2000, we issued warrants to purchase 375,000 shares of common stock to John Pappajohn, a director, as consideration for his guarantee of a $1.5 million credit facility with West Bank. These warrants are exercisable at a price of $1.00 per share. As consideration for the renewal of the guaranty, we issued warrants to purchase 125,000 shares of common stock to Mr. Pappajohn in July 2003, exercisable at a price per share of $5.00. In March 2005, when West Bank agreed to extend the maturity of its loan until September 2005, Mr. Pappajohn agreed to keep his guaranty in place through September 2005. As consideration for continuing his guaranty, in April 2005 we issued to Mr. Pappajohn warrants to purchase 100,000 shares of common stock exercisable at a price equal to our initial public offering price per share.

Legal Services

One of our directors, Harvey Z. Werblowsky, was a partner at the law firm of McDermott Will & Emery LLP. Prior to 2004, McDermott Will & Emery LLP served as our outside legal counsel on a variety of legal matters pertaining to our business. Mr. Werblowsky left McDermott Will & Emery LLP in 2003.

Private Placements of Securities

From January 2002 through March 2005, we issued the following securities to various investors in private financings:

In April 2003, we raised an aggregate of $6,063,682 through the issuance of 1,235,000 shares of Series C convertible preferred stock at $5.00 per share in private placements with several investors. The terms and rights of the Series C convertible preferred shares are set forth in the Certificate of Designation of Series C Preferred Stock of Allion Healthcare, Inc. Two of our directors, John Pappajohn and James B. Hoover, purchased shares of stock in this offering. Additionally, two of our stockholders that hold at least 5% of our outstanding stock—Edgewater Private Equity Fund II, L.P. and Principal Life Insurance Company—purchased shares in this offering.

In April and May 2004, we raised an aggregate of $8,806,958 through the issuance of 1,491,828 shares of Series D convertible preferred stock at $6.00 per share in private placements with several investors. The terms and rights of the Series D convertible preferred shares are set forth in the Certificate of Designation of Series D Preferred Stock of Allion Healthcare, Inc. Two of our existing stockholders that hold at least 5% of our outstanding stock—Edgewater Private Equity Fund II, L.P. and Principal Life Insurance—purchased shares in this offering.

In December 2004, we raised an aggregate of $4,150,081 through the issuance of 664,013 shares of Series E convertible preferred stock at $6.25 per share in private placements with several investors. The terms and rights of the Series E convertible preferred shares are set forth in the Certificate of Designation of Series E Preferred Stock of Allion Healthcare, Inc. One of our existing stockholders that holds at least 5% of our outstanding stock—Edgewater Private Equity Fund II, L.P.—purchased shares in this offering.

In May 2005, we raised $2,000,000 through the issuance of a subordinated note and warrants to purchase 40,000 shares of our common stock at an exercise price equal to our initial public offering price per share to Crestview Capital Master, LLC, which is one of our existing stockholders.

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DESCRIPTION OF CAPITAL STOCK

The following summary of our capital stock and certain provisions of our amended and restated certificate of incorporation and third amended and restated bylaws does not purport to be complete. It is qualified in its entirety by reference to our certificate and by-laws. Copies of our amended and restated certificate of incorporation and third amended and restated bylaws are filed as exhibits to the registration statement of which this prospectus is a part.

Authorized Capital Stock

Our amended and restated certificate of incorporation authorizes the issuance of 100,000,000 shares of capital stock, consisting of 80,000,000 shares of common stock, $0.001 par value per share, and 20,000,000 shares of preferred stock, $0.001 par value per share. The preferred stock may be issued in one or more series with such terms as the board of directors may determine. As of the date hereof, we have 3,100,000 shares of outstanding common stock held by 105 record holders, 512,500 shares of Series A preferred stock held by two record holders, 666,668 shares of Series B preferred stock held by two record holders, 1,235,000 shares of Series C preferred stock held by 12 record holders, 1,491,828 shares of Series D preferred stock held by 83 record holders, and 664,013 shares of Series E preferred stock held by 51 record holders.

Assuming an initial public offering price of $13.00 per share, each share of our Series A, Series B, Series C, Series D and Series E preferred stock will be converted into one share of common stock immediately prior to the closing of this offering, provided however that:

• if the offering price is less than $13.33 per share with respect to the Series C shares, the conversion price will be 37.5% of the offering price;

• if the offering price is less than $14.00 per share with respect to the Series D shares, the conversion price will be 42.9% of the offering price; and

• if the offering price is less than $14.57 per share with respect to the Series E shares, the conversion price will be 42.9% of the offering price.

Because the offering price of our common stock has not been determined, for purposes of this preliminary prospectus, we have assumed an offering price of $13.00 per share, the midpoint of the range set forth on the cover page of this prospectus. At this price, our preferred stock will convert into an aggregate of 4,794,956 shares of our common stock, calculated as follows:

• the holders of our Series A preferred stock will be converted into 512,500 shares of our common stock;

• the holders of our Series B preferred stock will be converted into 666,668 shares of our common stock;

• the holders of our Series C preferred stock will be converted into 1,266,667 shares of our common stock;

• the holders of our Series D preferred stock will be converted into 1,604,979 shares of our common stock; and

• the holders of our Series E preferred stock will be converted into 744,142 shares of our common stock.

If the offering price is $12.00 per share or $14.00 per share, which are the low and high points of our pricing range, then our outstanding preferred stock will convert into an aggregate of 5,096,272 or 4,596,985 shares of our common stock, respectively.

If the offering price is outside our pricing range, then a smaller or greater number of shares of common stock will be issued upon conversion of the Series C, D and E preferred stock.

We will not have any shares of preferred stock outstanding after the offering.

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Common Stock

Holders of our common stock are entitled to one vote for each share held by them on all matters on which stockholders are entitled to vote, including the election of directors, and do not have cumulative voting rights. Holders of our common stock are entitled to receive, as, when and if declared by our board of directors from time to time, such dividends and other distributions in cash, stock or property from our assets or funds legally available for such purposes. In the event of any distribution of capital assets or winding-up of our company, whether voluntary or involuntary, holders of our common stock are entitled to receive pro rata the assets remaining after creditors have been paid in full. Holders of our common stock have no pre-emptive or conversion rights and there are no redemption or sinking fund provisions applicable to our common stock. The outstanding shares of our common stock are, and upon the shares issued in connection with this offering, will be, duly authorized, validly issued, fully paid and non-assessable.

Preferred Stock

Upon closing of this offering, we will have no outstanding shares of preferred stock. Thereafter, pursuant to our amended and restated certificate of incorporation, our board of directors will have the authority, without further action by the stockholders, to issue up to 20,000,000 shares of undesignated preferred stock in one or more series. Our board will also have the authority to fix the designations, powers, preferences, privileges and relative, participating, optional or special rights and the qualifications, limitations or restrictions of any preferred stock issued, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the common stock. Our board of directors, without stockholder approval, can issue preferred stock with voting, conversion or other rights that are superior to the voting and other rights of the holders of common stock. Preferred stock could be issued with terms that could delay or prevent a change in control of our company or make removal of management more difficult. In addition, the issuance of preferred stock may decrease the market price of the common stock and may adversely affect the voting and other rights of the holders of common stock. We have no plans at this time to issue any preferred stock.

Warrants

Upon completion of this offering, we will have warrants outstanding to purchase 1,803,825 shares of common stock with a weighted average exercise price of $5.57 per share. All of the warrants have either a five-year or a ten-year term and, except for warrants issued to Crestview Capital Master, LLC, which are not exercisable until six months after this offering, are immediately exercisable for shares of our common stock. Warrants to purchase 175,719 shares of common stock that we issued to the former owners of Specialty Pharmacies must be redeemed by us within three days of the completion of this offering at a price of $9 per warrant. In addition, the warrants to purchase an additional 175,719 shares of common stock held by the former owners of Specialty Pharmacies and warrants to purchase 150,000 shares of common stock held by the former owners of North American and the warrants to purchase 40,000 shares of common stock that we issued in May 2005 in connection with our subordinated financing are subject to a lock-up period upon the request of the underwriter of a public offering of our stock whereby the warrant holder will not be permitted to sell, transfer, or dispose of the warrant or the common stock obtained upon exercise of the warrant for a period of 180-days following the effective date of the registration statement for the offering. The lock-up period of the North American and Crestview Capital Master, LLC warrants only applies if the directors and officers of Allion and all acquirers of common stock or rights to common stock in acquisitions also are subject to a 180-day lock-up. See our discussion under the heading “Use of Proceeds” at page 20.

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Registration Rights

Under the terms of the registration rights agreements with the holders of our Series A and Series B preferred stock, persons who will hold an aggregate of 1,179,168 shares of our common stock following the conversion of the Series A and Series B preferred stock upon the consummation of this offering, are entitled to certain registration rights under the Securities Act as follows:

• Demand registration rights.    Stockholders holding at least a majority of the Series A preferred stock and stockholders holding at least a majority of the Series B preferred stock will each have the right to request us to register their shares of common stock they receive upon conversion of preferred stock at the closing of this offering. The holders of each class are entitled to one demand registration on each of Form S-1, Form S-2 and S-3. We may reduce the number of shares requesting registration in light of adverse market conditions.

• Piggyback registration rights.    If we propose to register any of our securities under the Securities Act, for our own account or on account of other stockholders, the holders of Series A and Series B preferred stock are entitled to include their shares in our registration statement. The holders are entitled to an unlimited number of piggyback registrations. We may reduce the number of shares requesting registration in light of adverse market conditions.

The holders of our Series C, Series D and Series E preferred stock who will hold an aggregate of 1,266,667, 1,604,979 and 744,142 shares of our common stock, respectively (assuming conversion at an offering price of $13.00 per share), are also entitled to certain registration rights under the Securities Act pursuant to their registration rights agreements with us. The registration rights held by the holders by the Series C, Series D and Series E preferred stock are identical to those of the Series A and Series B preferred stock holders discussed above, except that the majority of holders of each of the Series C, Series D and Series E preferred stock each have one demand registration on Form S-1 and up to three demand registrations on missed Form S-3.

In connection with our acquisition of North American, we granted registration rights to the former owners of that company for the registration of the common stock underlying their warrants. Under the terms of the Registration Rights Agreement with Michael Stone and Jonathan Spanier dated January 4, 2005 as amended on May 19, 2005, Messrs. Stone and Spanier are entitled to one demand registration on a form selected by our legal counsel, but are not entitled to any piggyback registration rights.

In connection with our financing in May 2005, we granted registration rights with respect to the common stock underlying the warrants we issued in the financing. Under the terms of the registration rights agreements dated May 10, 2005 with the holder of the warrants, it is entitled to one demand registration on a form selected by our legal counsel and one demand registration on a Form S-3 and are not entitled to any piggyback registration rights.

Registration of shares of common stock upon the exercise of these registration rights will result in the holders being able to trade these shares without restriction under the Securities Act after the registration statement is declared effective. We will pay all registration expenses related to the registration of our common stock, except for underwriting discounts. All registration rights terminate, with respect to each holder, when the holder can sell all his shares freely without registration pursuant to Rule 144(k) of the Securities Act.

The registration rights held by each holder of our Series A, Series B, Series C, Series D, and Series E preferred stock are subject to a lock-up period if the managing underwriter of a public offering of our stock provides reasonable prior notice to the holders that a public sale of the holder’s shares will materially adversely effect the offering. Subject to certain exceptions, the lock-up period will begin ten days prior to the effective date of the registration statement for the offering and will end 90-days following effectiveness.

See our discussion under the headings “Shares Eligible for Future Sale” beginning at page 73 and “Risk Factors—Risks Related to this Offering” beginning at page 15 for more information about the number of shares eligible for future sale following completion of this offering.

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MATERIAL PROVISIONS OF DELAWARE LAW,

OUR CERTIFICATE OF INCORPORATION AND BYLAWS

Anti-takeover Provisions of Delaware Law

We are a Delaware corporation subject to Section 203 of the Delaware General Corporation Law. Section 203 provides that, subject to certain exceptions, a Delaware corporation will not engage in certain business combinations with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless: (i) prior to the stockholder becoming an interested stockholder, our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding certain assets; or (iii) at or subsequent to the time that the stockholder becomes an interested stockholder, the business combination is approved by our board of directors and by the affirmative vote of holders of at least 66 ²/3% of our outstanding voting stock not owned by the interested stockholder.

Generally, the term “business combination” includes a merger, asset or stock sale or other transaction resulting in the financial benefit to the interested stockholder. Subject to certain exceptions, an interested stockholder is a person who, together with the person’s affiliates and associates, owns, or within the previous three years did own, 15% or more of our voting stock.

Under certain circumstances, Section 203 makes it more difficult for a person who is an interested stockholder to effect various business combinations with a corporation for a three-year period. The provisions of Section 203 may encourage companies interested in acquiring us to negotiate in advance with our board of directors for approval of certain transactions or business combinations in order to avoid the stockholder approval requirement. Section 203 also may have the effect of preventing changes in our board of directors and may make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Our stockholders, by adopting an amendment to our amended and restated certificate of incorporation, may elect not to be governed by Section 203. Such an amendment becomes effective 12 months after its adoption. Neither our amended and restated certificate of incorporation nor our third amended and restated bylaws presently exclude us from the restrictions imposed by Section 203, and the restrictions imposed by Section 203 apply to us. The provisions of Section 203 could delay or frustrate a change in control of our company, deny our stockholders the receipt of a premium on their common stock and depress the market price of our common stock. The provisions also could discourage, impede or prevent a merger, tender offer or proxy contest, even if such event would be favorable to the interests of our stockholders. See our discussion under “Risk Factors-Risks Related to this Offering” beginning at page 15 for a discussion of risks related to consequences of certain provisions in our amended and restated certificate of incorporation and third amended and restated by-laws.

Anti-takeover Provisions Contained in Our Amended and Restated Certificate of Incorporation and Third Amended and Restated Bylaws

Provisions of Delaware law and our amended and restated certificate of incorporation and third amended and restated bylaws could make it more difficult for third-parties to acquire us by means of a tender offer, a proxy contest or otherwise and remove incumbent officers and directors. These provisions include: (i) a requirement that special meetings of stockholders be called only by the board of directors or our chief executive officer; (ii) advance notice requirements for stockholder proposals and nominations; and (iii) the authority of our board of directors to issue preferred stock without stockholder approval with such terms as the board of directors may determine. These provisions are expected to discourage types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the

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benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.

Our third amended and restated bylaws provide that, except as otherwise required by law, special meetings of the stockholders can only be called pursuant to a resolution adopted by a majority of our board of directors or by our Chief Executive Officer. Stockholders will not be permitted to call a special meeting or to require our board of directors to call a special meeting.

Our third amended and restated bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors. Stockholders at an annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of the board of directors or by a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given to the our secretary timely written notice, in proper form, of the stockholder’s intention to bring that business before the meeting. Our third amended and restated bylaws contain a provision requiring at least 60 but no more than 90 days’ advance notice by a stockholder of a proposal or director nomination that such stockholder desires to present at any annual or special meeting of stockholders, which would prevent a stockholder from making a proposal or a director nomination at a stockholder meeting without us having advance notice of the proposal or director nomination. This provision could make a change in control more difficult by providing our board of directors with more time to prepare an opposition to a proposed change in control. In addition, our third amended and restated bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or defer a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of our company.

Our amended and restated certificate of incorporation provides for the issuance by the board of directors of up to 20,000,000 shares of preferred stock with voting power, designations, preferences and other special rights as determined in the sole discretion of the board. Our amended and restated certificate of incorporation enables our board of directors, without stockholder approval, to designate and issue additional series of preferred stock with such dividend, liquidation, conversion, voting or other rights, including the right to issue convertible securities with no limitation on conversion, as our board of directors may determine, including rights to dividends and proceeds in a liquidation that are senior to the common stock. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including the voting rights, of holders of common stock. In certain circumstances, such issuance could have the effect of decreasing the market price of the common stock The blank check preferred provision in our amended and restated certificate of incorporation may also make it more difficult or expensive for a third-party to acquire a majority of our outstanding voting common stock and may discourage an attempt to obtain control of our company by means of a tender offer, merger, proxy contest or otherwise. Immediately prior to the closing of this offering, no shares of preferred stock will be outstanding and we currently have no plans to issue any shares of preferred stock.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Continental Stock Transfer & Trust Company.

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our stock since we emerged from bankruptcy in February 1999. Future sales of substantial amounts of our common stock in the public market following this offering or the possibility of these sales occurring could adversely affect prevailing market prices for our common stock or could impair our ability to raise capital through an offering of equity securities.

Upon the closing of this offering and after giving effect of this offering, the conversion of all preferred stock into shares of common stock, and assuming no further exercises of outstanding options, warrants or the underwriters’ over-allotment option, an aggregate of 11,894,956 shares of common stock will be issued and outstanding and no shares of preferred stock will be issued and outstanding.

Of these outstanding shares, the 4,000,000 shares sold in this offering (assuming no exercise of the underwriters’ over-allotment option) will be freely tradeable without restrictions or further registration under the Securities Act, other than shares purchased by our “affiliates” as that term is defined in Rule 144 under the Securities Act. Substantially all of the remaining 7,894,956 shares of common stock outstanding after the offering are “restricted securities” as defined in Rule 144. Substantially all of these restricted securities will be subject to the 90-day or 180-day lock up period as described below under “Lock-up Agreements.” In addition, upon completion of this offering, we will have outstanding warrants for 1,803,825 shares of common stock, of which 1,763,825 shares are immediately exercisable, and of which 810,211 shares will be freely tradeable without restrictions or further registration under the Securities Act.

Restricted securities may be sold in the public market in the United States only if registered or if they qualify for an exemption from registration under Rule 144 or 701 under the Securities Act. These exceptions are summarized below.

Lock-up Agreements

Holders of approximately 83.4% of the outstanding shares of our common stock, which includes all of our directors and executive officers, have agreed with the underwriters not to, directly or indirectly, transfer, dispose or hedge shares of common stock or any securities convertible into or exercisable or exchangeable for common stock, for a period of 180 days after the date of this prospectus without the prior written consent of Thomas Weisel Partners LLC, on behalf of the underwriters. See our discussion under the heading “Underwriting—No Sales of Similar Securities” at page 77.

In addition to the lock-up agreements with the underwriters described above, holders of warrants to purchase 537,500 shares of our common stock are subject to 180-day lock-ups pursuant to the terms of the warrants and holders of 669,965 shares of common stock are subject to 90-day lock-ups pursuant to the terms of the registration rights agreements entered into between us and such holders. See our discussion of these lock-ups under the heading “Description of Capital Stock-Warrants” at page 69 and “Description of Capital Stock—Registration Rights” at page 70.

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As a result of these lock-up agreements and rules of the Securities Act, the following number of shares of our common stock will be available for sale in the public market, subject to certain volume and other restrictions, and subject to release as mentioned above, as follows:

Days After the Date of this Prospectus	Number of Shares Eligible for Sale	Comment
Upon effectiveness of prospectus	4,847,424	Freely tradable shares sold in this offering and shares not locked up and eligible for sale under Rule 144(k)
90 days	367,651	90-day lock-up released; shares not locked up and eligible for sale under Rule 144, Rule 144(k).
180 days	6,679,881	180-day lock-up released; shares eligible for sale under Rule 144, Rule 144(k).

Rule 144

In general, under Rule 144, as currently in effect, a person, including any person who may be deemed our affiliate, who owns shares that were acquired from us or an affiliate of us at least one year prior to the proposed sale is entitled to sell upon expiration of the lock-up described above, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:

• 1% of the number of shares of common stock then outstanding, which will equal approximately 118,950 shares immediately after this offering; or

• the average weekly trading volume of the common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us. Rule 144 also provides that our affiliates who sell shares of our common stock that are not restricted shares must nonetheless comply with the same restrictions applicable to restricted shares with the exception of the one-year holding period requirement.

Rule 144(k)

Under Rule 144(k), a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate of us, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, “144(k) shares” may be sold immediately upon the completion of this offering.

Rule 701

In general, under Rule 701, as currently in effect, any of our employees, consultants or advisors who purchase shares from us in connection with a compensatory stock or option plan or other written agreement will be eligible to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with certain restrictions, including the holding period, contained in Rule 144.

Options

As of May 15, 2005, 1,007,750 options to purchase shares of common stock were issued and outstanding under our 1998 Stock Option Plan and 660,000 options to purchase shares of common stock were issued and outstanding under our 2002 Stock Incentive Plan.

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Immediately after the completion of this offering, we intend to file a registration statement under the Securities Act covering shares of common stock issued or reserved for issuance under our 1998 Stock Option Plan and 2002 Stock Incentive Plan. We expect to file such registration statement and have it become effective as soon as practicable after the effective date of this offering. Accordingly, shares registered under this registration statement, except for any such shares held at any time by any of our “affiliates” and 1,088,056 options exercisable for shares of common stock subject to 180-day lock-up agreements, will be available for sale in the open market immediately.

Registration Rights

Upon completion of this offering, stockholders that hold 7,894,956 restricted shares of our common stock have the right, subject to various conditions and limitations, to demand the filing of or to otherwise include their shares on any registration statement that we file with the SEC relating to our common stock and include their shares in registration rights relating to our common stock. However, pursuant to the terms of lock-up agreements, holders of 4,359,306 shares, which includes all of our directors and executive officers, who are entitled to registration rights will not have the right to exercise their registration rights for a period of 180 days after the date of this prospectus, and holders of 669,965 shares who are entitled to registration rights will not have the right to exercise their registration rights for a period of 90 days after the date of this prospectus. Upon registration pursuant to such rights, these shares will become freely tradeable without restriction under the Securities Act. See our discussion under the heading “Description of Capital Stock-Registration Rights” at page 70 for a description of registration rights held by our existing stockholders.

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UNDERWRITING

Subject to the terms and conditions contained in an underwriting agreement dated the date of this prospectus, each of the underwriters named below, through their representatives, Thomas Weisel Partners LLC, William Blair & Company, L.L.C. and First Albany Capital Inc., have severally agreed to purchase from us, and we have agreed to sell to them, the aggregate number of shares of common stock listed opposite their respective names below:

Underwriters	Number of Shares
Thomas Weisel Partners LLC
William Blair & Company, L.L.C.
First Albany Capital Inc.
Total

The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to various conditions. The nature of the underwriters’ obligations commits them to purchase and pay for all of the shares of common stock listed above if any of the shares are purchased. However, the underwriters are not required to purchase and pay for the shares covered by the over-allotment option described below.

Thomas Weisel Partners LLC expects to deliver the shares of common stock to purchasers on or about                     , 2005.

Over-Allotment Option

We have granted a 30-day over-allotment option to the underwriters to purchase up to a total of 600,000 additional shares of our common stock held by them at the initial public offering price, less the underwriting discount, as set forth on the cover page of this prospectus. If the underwriters exercise this option in whole or in part, then each of the underwriters will be separately committed, subject to the conditions described in the underwriting agreement, to purchase a number of additional shares of our common stock in proportion to their respective commitments as set forth in the table above.

Determination of Offering Price

Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations between us and the representatives. In addition to prevailing market conditions, the primary factors to be considered in determining the initial public offering price will include:

• the valuation multiples of publicly-traded companies that the representatives believe are comparable to us;

• our financial information;

• our history and prospects and the outlook for our industry;

• an assessment of our management, our past and present operations, and the prospects for, and timing of, our future net sales;

• the present state of our business and the progress of our operating plan; and

• the consideration of these factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.

We cannot assure you that an active or orderly trading market will develop for our common stock or that our common stock will trade in the public markets subsequent to this offering at or above the initial public offering price.

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Commissions and Discounts

The underwriters propose to offer the shares of our common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus and at that price less a concession not in excess of $             per share of common stock to certain dealers. The underwriters may allow, and the other dealers specified may reallow, concessions not in excess of $             per share of common stock to these other dealers. After this offering, the offering price, concessions and other selling terms may be changed by the underwriters. Our common stock is offered subject to receipt and acceptance by the underwriters and to the other conditions, including the right to reject orders in whole or in part.

The following table summarizes the compensation to be paid to the underwriters by us, assuming both no exercise and full exercise of the underwriters’ over-allotment option, before expenses, payable to us:

	Per Share	Total
		Without Over-Allotment	With Over-Allotment
Public offering price	$	$	$
Underwriting discount	$	$	$
Proceeds, before expenses, to us	$	$	$

In addition, we estimate that the expenses of this offering payable by us, excluding underwriting discounts and commissions, will be approximately $2,000,000, which includes legal, accounting and printing costs and various other fees associated with the registration and listing of our common stock.

Indemnification of Underwriters

We have agreed to indemnify the underwriters against certain civil liabilities, including liabilities under the Securities Act and liabilities arising from breaches of our representations and warranties contained in the underwriting agreement. If we are unable to provide this indemnification, we have agreed to contribute to payments the underwriters may be required to make in respect of those liabilities.

No Sales of Similar Securities

We, each of our directors and executive officers, holders of approximately 83.4% of the outstanding shares of our common stock and holders of 537,500 warrants to purchase shares of our common stock have agreed that, without the prior written consent of Thomas Weisel Partners LLC, we and they will not, for a period of 180 days after the date of this prospectus:

• offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock;

• file or cause to be filed any registration statement with the SEC relating to the offering of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or

• enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock,

whether any transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. These restrictions do not apply to:

• the sale of shares by us in the offering;

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• the issuance by us of shares of common stock upon the exercise of options or warrants or the conversion of preferred stock outstanding on the date of the prospectus that is described in the prospectus (but such restrictions will apply to the securities issued upon the exercise of any options, warrants or preferred stock);

• the issuance by us of options to purchase shares of our common stock under our existing stock incentive plans described in this prospectus, provided that the options do not become vested and exercisable during the period referred to in this paragraph;

• transactions by any person other than us relating to shares of common stock or other securities acquired in open market transactions after the completion of this offering; and

• transfers not involving dispositions for value by any person other than us by gift, to a trust for the benefit of immediate family members, as a distribution to partners or stockholders of the transferor, by a corporation to its wholly-owned subsidiaries, to an entity controlled by the transferor or any immediate family member of the transferor or by will or the laws of descent, provided that the transferee agrees to be bound by such restrictions and the transfer is not required to be reported in any public report or filing with the SEC or otherwise and the transferor does not voluntarily make such report.

The 180-day restricted period described above will be extended, however, if (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to us occurs, or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results or become aware that material news or a material event will occur during the 16-day period beginning on the last day of the 180-day period, until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

Nasdaq National Market Listing

We have applied for approval for quotation of our common stock on the Nasdaq National Market under the symbol “ALLI.”

Discretionary Accounts

The underwriters have informed us that they do not expect sales of shares of common stock offered by this prospectus to any accounts over which they exercise discretionary authority to exceed five percent of the aggregate number of shares offered by them.

Short Sales, Stabilizing Transactions and Penalty Bids

In order to facilitate this offering, persons participating in this offering may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock during and after this offering. Specifically, the underwriters may engage in the following activities in accordance with the rules of the SEC:

Short sales.    Short sales involve the sales by the underwriters of a greater number of shares than they are required to purchase in the offering. Covered short sales are short sales made in an amount not greater than the underwriters’ over-allotment option to purchase additional shares from us in the offering. The underwriters may close out any covered short position by either exercising their over allotment option to purchase shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. Naked short sales are any short sales in excess of such over-allotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering.

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Stabilizing transactions.    The underwriters may make bids for or purchases of the shares in the open market for the purpose of pegging, fixing or maintaining the price of the shares, so long as stabilizing bids do not exceed a specified maximum.

Penalty bids.    The underwriters may impose penalty bids. This means that if the underwriters purchase shares in the open market in a stabilizing transaction or a syndicate covering transaction, they may reclaim a selling concession from the underwriters and selling group members who sold those shares as part of this offering.

Stabilization and syndicate covering transactions may cause the price of our common stock to be higher than it would otherwise be in the absence of these transactions. The imposition of a penalty bid might also have an effect on the price of the shares if it discourages presales of the shares.

The transactions above may occur on the Nasdaq National Market or otherwise. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of the shares. The underwriters are not required to engage in any of these transactions but if these transactions are commenced, they may be discontinued without notice at any time.

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LEGAL MATTERS

Kirkland & Ellis LLP is counsel to us in connection with this offering and will issue an opinion about the legality of the shares we are offering. Alston & Bird LLP is counsel to the underwriters in connection with this offering.

EXPERTS

Our financial statements and schedule as of December 31, 2004 and 2003 and for each of the three years in the period ended December 31, 2004 included in this prospectus have been audited by BDO Seidman, LLP, an Independent Registered Public Accounting Firm, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of that firm as experts in auditing and accounting.

The financial statements of North American Home Health Supply, Inc. as of December 31, 2004 and 2003 and for each of the two years in the period ended December 31, 2004 included in this prospectus have been audited by LWBJ, LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of that firm as experts in auditing and accounting.

The financial statements of Specialty Pharmacies, Inc. as of December 31, 2004 and 2003 and for each of the three years in the period ended December 31, 2004 included in this prospectus have been audited by McGladrey & Pullen, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of that firm as experts in auditing and accounting.

The financial statements of Medicine Made Easy as of December 31, 2002 and 2001 and for each of the two years in the period ended December 31, 2002, included in this prospectus have been audited by BDO Seidman, LLP, an Independent Registered Public Accounting Firm, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of that firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 (including the exhibits, schedules and any amendments thereto) under the Securities Act of 1933 with respect to the shares being offered pursuant to this prospectus. This prospectus is part of this registration statement and does not contain all of the information set forth in the registration statement. Statements contained in this prospectus as to the content of any agreement or other document filed or incorporated by reference as an exhibit are not necessarily complete, and you should consult a copy of those agreements or other documents filed or incorporated by reference as exhibits to the registration statement. For further information, reference is made to the registration statement and to the exhibits and schedules filed with it, which are available for inspection without charge at the SEC’s Public Reference Room at 100 F Street N.E., Room 1580 Washington, D.C. 20549. You can request copies of those documents upon payment of a duplicating fee to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. You can review our SEC filings and the registration statement by accessing the SEC’s internet site at www.sec.gov.

Since we emerged from bankruptcy in 1999, we have been filing reports, proxy statements and other information with the SEC. These reports, proxy statements and other information are available for inspection and copying at the regional offices, public reference facilities and web site of the SEC referenced above.

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INDEX TO FINANCIAL STATEMENTS

ALLION HEALTHCARE, INC.
	Page
Unaudited Interim Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004	F-2
Condensed Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004	F-3
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004	F-4
Notes to Condensed Consolidated Financial Statements	F-5
Annual Consolidated Financial Statements
Independent Registered Public Accounting Firm’s Report	F-14
Consolidated Balance Sheets as of December 31, 2004 and 2003	F-15
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002	F-16
Consolidated Statement of Stockholders’ Equity (Deficit) for the years ended December 31, 2004, 2003 and 2002	F-17
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002	F-18
Notes to Consolidated Financial Statements	F-19
NORTH AMERICAN HOME HEALTH SUPPLY, INC.
	Page
Report of Independent Auditors	F-35
Balance Sheets as of December 31, 2004 and 2003	F-36
Statement of Income for the years ended December 31, 2004 and 2003	F-37
Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2004 and 2003	F-38
Statements of Cash Flows for the years ended December 31, 2004 and 2003	F-39
Notes to Financial Statements	F-40
SPECIALTY PHARMACIES, INC.
	Page
Independent Auditor’s Report	F-43
Balance Sheets as of December 31, 2004 and 2003	F-44
Statements of Income for the years ended December 31, 2004, 2003 and 2002	F-45
Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2004, 2003 and 2002	F-46
Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002	F-47
Notes to Financial Statements	F-48
MEDICINE MADE EASY
	Page
Report of Independent Registered Public Accounting Firm	F-53
Balance Sheets as of December 31, 2002 and 2001	F-54
Statements of Operations and Retained Earnings as of December 31, 2002 and 2001	F-55
Statements of Cash Flows as of December 31, 2002 and 2001	F-56
Notes to Financial Statements for years ended December 31, 2002 and 2001	F-57

F-1

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	At March 31, 2005 (UNAUDITED)			At December 31, 2004
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	978,353		$	6,979,630
Accounts receivable, (net of allowance for doubtful accounts of $346,732 in 2005 and $296,320 in 2004)		8,328,373			4,678,596
Inventories		1,710,737			733,581
Prepaid expenses and other current assets		287,756			722,984
Total current assets		11,305,219			13,114,791
Property and equipment, net		597,004			561,732
Goodwill		11,957,574			4,472,068
Intangible assets		10,479,782			1,643,449
Other assets		65,360			203,622
TOTAL ASSETS	$	34,404,939		$	19,995,662
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	12,298,536		$	6,784,658
Revolving credit line		2,039,846			1,154
Notes payable-subordinated		5,308,327			1,250,000
Current portion of capital lease obligations		140,152			130,640
Other current liabilities		100,000			100,000
Total current liabilities		19,886,861			8,266,452
LONG TERM LIABILITIES:
Mandatory redeemable warrants		1,898,215			—
Note payable		665,420			—
Capital lease obligations		163,985			193,306
Other		22,799			21,409
Total liabilities		22,637,280			8,481,167
CONTINGENCIES
STOCKHOLDERS’ EQUITY
Preferred stock, $.001 par value, shares authorized 20,000,000; issued and outstanding 4,570,009 at March 31, 2005 and December 31, 2004.		4,570			4,570
Common stock, $.001 par value; shares authorized 80,000,000; issued and outstanding 3,100,000 at March 31, 2005 and December 31, 2004.		3,100			3,100
Additional paid-in capital		22,300,801			22,060,733
Accumulated deficit		(10,540,812	)		(10,553,908	)
Total stockholders’ equity		11,767,659			11,514,495
Total liabilities and stockholders’ equity	$	34,404,939		$	19,995,662

See notes to condensed consolidated financial statements.

F-2

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three months ended March 31,
	2005			2004
Net sales	$	22,695,749		$	13,350,479
Cost of goods sold		19,122,146			11,786,813
Gross profit		3,573,603			1,563,666
Operating expenses:
Selling, general and administrative expenses		3,448,228			2,098,595
Operating income (loss)		125,375			(534,929	)
Other income (expense):
Interest expense		(106,939	)		(83,946	)
Income (loss) from continuing operations		18,436			(618,875	)
Provision for income taxes		0			7,284
Income (loss) from continued operations		18,436			(626,159	)
Loss from discontinued operations—Texas		5,340			50,757
Net income (loss)	$	13,096		$	(676,916	)
Basic income (loss) per common share:
Income (loss) from continued operations	$	0.01		$	(0.20	)
(Loss) from discontinued operations		0.00			(0.02	)
Net income (loss)	$	0.01		$	(0.22	)
Diluted income (loss) per common share:
Income (loss) from continued operations	$	0.00		$	(0.20	)
(Loss) from discontinued operations		0.00			(0.02	)
Net income (loss)	$	0.00		$	(0.22	)
Basic weighted average of common shares outstanding		3,100,000			3,100,000
Diluted weighted average of common shares outstanding		8,799,702			3,100,000

See notes to condensed consolidated financial statements.

F-3

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three months ended March 31,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	13,096		$	(676,916	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		298,044			178,411
Changes in operating assets and liabilities:
Accounts receivable		78,743			(862,895	)
Inventories		176,513			38,075
Prepaid expenses and other assets		17,856			26,832
Accounts payable and accrued expenses		214,077			(158,554	)
Net cash provided by (used in) operating activities		798,329			(1,455,047	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment		(30,089	)		(99,855	)
Payments for acquisition of North American		(5,196,408	)		—
Payments for acquisition of Specialty Pharmacies, net of cash deficit acquired of $(37,122)		(5,002,628	)		—
Payments for investment in Oris Medical		(100,000	)		—
Net cash used in investing activities		(10,329,125	)		(99,855	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock—net of fees		103,554			—
Proceeds from line of credit		12,355,840			14,600,000
Repayment of line of credit		(10,317,148	)		(13,452,167	)
Payment for IPO costs		(83,083	)		—
Repayment of capital leases		(29,644	)		(25,083	)
Proceeds from note payable		1,500,000			—
Net cash provided by financing activities		3,529,519			1,122,750
NET DECREASE IN CASH AND CASH EQUIVALENTS		(6,001,277	)		(432,152	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		6,979,630			640,790
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	978,353		$	208,638

See notes to condensed consolidated financial statements.

F-4

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MARCH 31, 2005

Note 1. Organization And Description Of The Business And Basis Of Presentation

(a) Allion Healthcare, Inc. (the “Company” or “Allion”) was originally incorporated in 1983 under the name The Care Group Inc. In 1999, the Company changed its name to Allion Healthcare, Inc. The Company is a national provider of specialty pharmacy and disease management services focused on HIV/AIDS patients. The Company operates primarily under its trade name MOMS Pharmacy.

(b) The condensed consolidated financial statements include the accounts of Allion Healthcare, Inc. and its subsidiaries. The condensed consolidated balance sheet as of March 31, 2005, the condensed consolidated statements of operations for the three months ended March 31, 2005 and 2004, and the condensed consolidated statements of cash flows for the three months ended March 31, 2005 and 2004, are unaudited. The unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the rules promulgated under federal securities laws. Accordingly, they do not include all of the information and footnotes required to be presented for complete financial statements. The accompanying financial statements reflect all adjustments (consisting only of normal recurring items), which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The accompanying balance sheet at March 31, 2005 has been derived from audited financial statements included elsewhere in this prospectus. The Company believes that the disclosures provided are adequate to make the information presented not misleading.

The financial statements and related disclosures have been prepared with the assumption that users of the interim financial information have read or have access to the audited financial statements for the preceding fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The Company believes that the disclosures provided are adequate to make the information presented not misleading. Accordingly, these financial statements should be read in conjunction with the audited financial statements and the related notes thereto included for the year ended December 31, 2004 included elsewhere in this prospectus.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States require the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three months ended March 31, 2005 are not necessarily indicative of the results to be expected for the year ending December 31, 2005 or any other interim period.

In March 2005, the Company decided to cease its operations in Texas and is in the process of closing its Texas facility. The Company expects to complete this process by June 30, 2005 when its lease in Austin, Texas expires. The Company’s financial statements represent the Texas operations as discontinued operations for all periods presented in the accompanying consolidated statements of operations.

As of March 31, 2005 current liabilities exceeded current assets by approximately $8.6 million. This is primarily attributable to the increased indebtedness incurred to acquire North American Home Health Supply, Inc. (“North American” or “NAHH”) and Specialty Pharmacies, Inc. (“Specialty” or “SPI”), the cash used to fund a portion of the purchase price for those acquisitions and the additional accounts payable and accrued expenses we assumed in those acquisitions. The Company is obligated to repay $1.9 million notes it issued in connection with its acquisition of SPI on the consummation of the Company’s initial public offering and is

F-5

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

MARCH 31, 2005

obligated to repay $2,625,000 of notes issued in connection with acquisitions from May 1, 2005 through January 1, 2007 and repay $1.5 million to West Bank in September 2005. The Company expects to pursue several financing strategies to raise additional capital to meet its obligations, including drawing on its existing lines of credit, and a possible public offering of its common stock. In the absence of a public offering of its equity, the Company may seek to issue additional equity or debt securities or seek additional bank borrowings to satisfy its obligations. There can be no assurance that the Company will be successful in obtaining additional funds. If additional financing is available, there is no assurance it will be on terms acceptable to the Company. Any additional stock or convertible financing could result in substantial dilution to stockholders. In May 2005, the Company raised $2 million through a private placement of a subordinated note with an institutional accredited investor. See Note 11 to the “Notes to Our Condensed Consolidated Financial Statements.” If the Company does not raise additional capital, it believes it can maintain operations for the next twelve months with existing capital and funds from operations and available credit.

Note 2. Earnings Per Share

The Company presents earnings per share in accordance with SFAS No. 128, Earnings Per Share. All per share amounts have been calculated using the weighted average number of shares outstanding during each period. Diluted earnings per share are adjusted for the impact of common stock equivalents using the treasury stock method when the effect is dilutive. Preferred stock convertible into common stock of 4,570,009 and 2,414,168 were outstanding at March 31, 2005 and 2004, respectively. The actual number of shares of common stock issuable upon conversion of our preferred stock may be greater as a result of anti-dilution provisions in our certificate of incorporation and certificates of designation which govern the rights of outstanding preferred stock. Options and warrants to purchase approximately 3,331,575 and 2,413,973 shares of common stock were outstanding at March 31, 2005 and 2004, respectively. Preferred stock, options and warrant common shares were not included in the computation of diluted earnings per share for the three months ended March 31, 2004 because the effect would be antidilutive. A reconciliation of the basic and diluted weighted average shares outstanding is as follows:

	Three Months Ended March 31, 2005	Three Months Ended March 31, 2004
Weighted average number of common shares outstanding used as the denominator in the basic earnings per share calculation	3,100,000	3,100,000
Additional shares assuming conversion of preferred stock at a 1:1 ratio	4,570,009	0
Additional shares assuming exercise of dilutive stock options and warrants	1,129,693	0
Shares used in diluted income/loss per share	8,799,702	3,100,000

Note 3. Acquisitions

On January 4, 2005, MOMS Pharmacy, Inc., a California corporation and wholly-owned subsidiary of Allion Healthcare Inc., a Delaware corporation, entered into a stock purchase agreement with Michael Stone and Jonathan Spanier, who owned 100% of the stock of North American Home Health Supply, Inc. (“NAHH”), a California corporation. On the same day, MOMS Pharmacy acquired 100% of the stock of NAHH from Messrs. Stone and Spanier, in accordance with the terms of a stock purchase agreement. In the transaction, Messrs. Stone and Spanier received cash, promissory notes of MOMS Pharmacy and warrants to purchase 150,000 shares of common stock of Allion. Allion also unconditionally guaranteed the payment of the promissory notes by its

F-6

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

MARCH 31, 2005

MOMS Pharmacy subsidiary, pursuant to a guaranty, dated January 4, 2005, in favor of Messrs. Stone and Spanier. Under the guaranty, Allion is absolutely, irrevocably and unconditionally liable for the performance of each and every obligation of MOMS Pharmacy under the promissory notes.

NAHH is engaged primarily in the pharmacy business in California. MOMS Pharmacy is engaged in the HIV/AIDS pharmacy business in California and is licensed to dispense prescriptions in all 50 states.

In accordance with the terms of the Stock Purchase Agreement, MOMS Pharmacy acquired 100% of the stock of NAHH for a combination of cash and securities:

• $5,000,000 of cash paid;

• promissory notes of MOMS Pharmacy, due January 1, 2006, in the aggregate principal amount of $675,000;

• promissory notes of MOMS Pharmacy, due January 1, 2007, in the aggregate principal amount of $700,000; and

• warrants issued by Allion to purchase an aggregate of 150,000 shares of Allion common stock, at an exercise price of $6.26 per share.

The notes accrue interest at a rate of 2.78% per year.

The purchase price is subject to a post-closing adjustment based on the amount of NAHH’s working capital as of the closing date. The purchase price also is subject to reduction for changes in the Medi-Cal rules and regulations at any time after the closing date which result in reduced reimbursement payments to North American for any enteral or nutritional products it sold in 2004. Any purchase price reduction due to changes in the Medi-Cal rules and regulations will be payable solely by offset against the outstanding principal amounts of the promissory notes issued in the transaction.

On February 28, 2005, MOMS Pharmacy, Inc., a California corporation and wholly-owned subsidiary of Allion Healthcare Inc., a Delaware corporation, entered into a stock purchase agreement with the owners (the “Sellers”) of 100% of the stock of Specialty Pharmacies, Inc., a Washington corporation (“Specialty” or “SPI”). On the same day, MOMS Pharmacy acquired 100% of the stock of Specialty from the Sellers, in accordance with the terms of a stock purchase agreement. In the transaction, the Sellers received cash, promissory notes of MOMS Pharmacy and warrants to purchase 351,438 shares of common stock of Allion. Allion unconditionally guaranteed the payment of the promissory notes issued to the Sellers by its MOMS Pharmacy subsidiary, pursuant to a guaranty, dated February 28, 2005, in favor of the Sellers. Under the guaranty, Allion is absolutely, irrevocably and unconditionally liable for the performance of the obligations of MOMS Pharmacy under the promissory notes. On February 28, 2005, MOMS Pharmacy also acquired from Michael Tubb, pursuant to a purchase agreement signed on the same day, all rights he had to acquire capital stock of Specialty. In the transaction, MOMS Pharmacy paid a total of $1.2 million to Mr. Tubb, consisting of cash and a one year promissory note.

Specialty is engaged primarily in the business of providing HIV/AIDS pharmacy services in Washington and California. MOMS Pharmacy is engaged in the HIV/AIDS pharmacy business in California and is licensed to dispense prescriptions in all 50 states.

On February 28, 2005, MOMS Pharmacy also acquired from Michael Tubb, pursuant to a Purchase Agreement signed on the same day, all rights he has to acquire capital stock of Specialty. In the transaction, MOMS Pharmacy paid a total of $1.2 million to Mr. Tubb, consisting of $600,000 cash and a $600,000 one-year

F-7

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

MARCH 31, 2005

promissory note due February 28, 2006. MOMS Pharmacy issued the $600,000 promissory note to Mr. Tubb as partial consideration for the purchase of his rights to acquire an interest in Specialty. The contingent consideration of the $600,000 promissory note is treated as non-recurring compensation under the Purchase Agreement dated February 28, 2005 between Specialty and Michael Tubb, based on his continued employment for one year post acquisition. The Company is accruing $50,000 per month as compensation expense over the twelve month period of the agreement. This note accrues interest at a rate equal to the lowest applicable federal rate. These payments are expressly conditioned on (i) the fulfillment of the non-solicitation and non-competition provisions of the purchase agreement between MOMS Pharmacy and Mr. Tubb, and (ii) Mr. Tubb’s continued employment with Specialty and his use of best efforts, time and attention to and on behalf of Specialty.

Pursuant to the terms of the Stock Purchase Agreement, MOMS Pharmacy acquired 100% of the stock of Specialty for the combination of cash and securities, as follows:

• $5,000,000 of cash paid;

• promissory notes of MOMS Pharmacy, due February 28, 2006, in the aggregate principal amount of $1,900,000; and

• warrants issued by Allion to purchase an aggregate of 351,438 shares of Allion common stock, at an exercise price of $6.26 per share.

The purchase price is subject to a post-closing adjustment based on the amount of Specialty’s working capital as of the closing. If Specialty qualifies for the Medi-Cal Pilot Program for which it has applied, MOMS Pharmacy also agreed to reimburse Sellers up to a maximum of $200,000, for any amounts received by Specialty from Medi-Cal between September 1, 2004 and December 31, 2004.

MOMS Pharmacy issued one-year promissory notes of $1,900,000 to the former owners of Specialty as part of the consideration for the purchase of that business. The notes accrue interest at the prime rate plus 2% per annum. In the event that Allion undertakes an initial public offering prior to February 28, 2006 and raises more than $25 million in the offering, the notes will become due and payable following completion of the offering. Allion issued the Sellers warrants to purchase a total of 351,438 shares of Allion common stock at a per share exercise price of $6.26. The warrants were ascribed a fair market value of $1,898,215. They were recorded as a liability as the warrants are mandatorily redeemable upon passage of time or upon a qualifying initial public offering.

The results of operations from the acquisitions are included as of the date each company was acquired.

F-8

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

MARCH 31, 2005

The following tables describe the allocation of purchase price for these two acquisitions:

Purchase Price Paid for Specialty Pharmacies
Cash paid	$	5,000,000
Pilot program payment		200,000
Notes payable		1,900,000
Fair value of warrants issued		1,898,215
Direct acquisition costs		401,391
Total Purchase Price		9,399,606
plus: net liabilities		376,367
	$	9,775,973
Allocation of Purchase Price
Covenant Not to Compete (five year life)		75,000
Covenant Not to Compete (three year life)		222,672
Referral Lists (fifteen year life)		4,153,386
Workforce (part of goodwill)		400,190
Goodwill		4,924,725
	$	9,775,973
Purchase Price Paid for NAHH
Cash paid at closing	$	5,000,000
Notes payable		1,375,000
Fair value of warrants issued		241,760
Direct acquisition costs		458,064
Total Purchase Price		7,074,824
less: net tangible assets		(298,650	)
debt discount		(51,253	)
	$	6,724,921
Allocation of Purchase Price
Covenant not to compete (five year life)	$	50,000
Referral Lists (fifteen year life)		4,514,331
Goodwill		2,160,590
	$	6,724,921

The following pro forma results were developed assuming the acquisition of NAHH and SPI occurred January 1, 2004.

	Three Months Ended March 31, 2005		Three Months Ended March 31, 2004
Revenue	$	27,261,858	$	23,031,852
Net income	$	385,478	$	(311,679	)
Basic earnings per Share	$	0.12	$	(0.10	)
Diluted earnings per Share	$	0.04	$	(0.10	)

F-9

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

MARCH 31, 2005

On March 3, 2005, MOMS Pharmacy, Inc., a California corporation and wholly-owned subsidiary of Allion Healthcare, Inc., entered into a letter agreement with Oris Medical Systems, Inc., a California corporation based in San Diego. The letter contemplates a potential software licensing arrangement under which we would secure an exclusive license from Oris Medical to interface with a software system which enables healthcare providers to record, track and analyze the outcomes of HIV/AIDS treatment (Ground Zero Software’s LabTracker^™ software). Under such a license, we would pay Oris Medical a per patient royalty fee (for patients of Company’s customers using the software) that would be capped at $40 million. We are not obligated to enter into this software license or to complete any other transaction with Oris Medical. However, to secure the exclusive right to negotiate a software license with Oris Medical, or to negotiate an acquisition of Oris Medical, we have made, and have agreed to make in the future, certain payments to Oris Medical. We paid Oris Medical $100,000 and have agreed to pay them an additional $50,000 per month in each of April, May and June 2005 to cover Oris Medical’s monthly operating expenses. (If actual monthly operating expenses are higher, we are not obligated to pay any higher monthly amount unless we have consented to the excess expenses in advance.) In addition, if we complete an initial public offering of Allion common stock, we have agreed to pay Oris Medical an additional $1 million within three days of completion of that offering. In exchange for these payments, Oris Medical granted us an exclusivity right through August 31, 2005. We have the right, at our sole option, to extend this exclusivity period for up to four successive one-month periods if we pay Oris Medical’s monthly operating expenses for July-October 2005, up to $50,000 per month (with any higher monthly amounts being subject to our prior consent). We may not reach a definitive agreement on either a licensing or acquisition transaction with Oris Medical.

Note 4. Contingencies—Legal Proceedings

New York Medicaid Audit.    In May 2004, the Company was notified that MOMS Pharmacy, Inc., the Company’s New York wholly owned subsidiary, is the subject of an audit and review being conducted by the New York State Department of Health. As part of the audit, the Department of Health withheld payment of Medicaid claims to us but ceased withholding payments in December 2004. The Department returned $800,000 of the total $920,000 it withheld from us. The Department may conclude that MOMS is subject to certain financial penalties and fines, in which case some or all of the remaining payments withheld will not be paid to the Company. At this time, management believes the outcome will not have a material adverse effect on the Company’s financial position and financial resources. The Company accrued the full amount of the monies still withheld as expenses in 2004.

In addition to the matters noted above, we are involved from time to time in legal actions arising in the ordinary course of our business. We currently have no pending or threatened litigation that we believe will result in an outcome that would materially affect our business. Nevertheless, there can be no assurance that future litigation to which we become a party will not have a material adverse effect on our business.

Note 5. Stock-Based Compensation Plans

The Company accounts for its stock option awards to employees under the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Under the intrinsic value based method, compensation cost is the excess, if any, of the fair market value of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock. The Company makes pro forma disclosures of net income and earnings per share as if the fair value based method of accounting had been applied as required by Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based

F-10

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

MARCH 31, 2005

Compensation—Transition and Disclosure.” The Company has not granted options below fair market value on the date of grant. Pro forma information for Stock Based Compensation Plans is in the table that follows:

	Three Months Ended
	March 31, 2005			March 31, 2004
Net income (loss), as reported	$	13,096		$	(676,916	)
Deduct: Total stock-based employee compensation expense determined under fair value method used		(104,976	)		(10,371	)
Net loss, pro forma	$	(91,880	)	$	(687,287	)
Net income per share; basic, as reported	$	0.01		$	(.22	)
Net income per share; diluted, as reported	$	0.00		$	(.22	)
Basic and diluted net loss per share, pro forma	$	(0.03	)	$	(.22	)

Note 6. Concentrations Of Credit Risk And Major Customers

The Company provides prescription medications to its customers in the United States through its six wholly owned subsidiaries. Credit losses relating to customers historically have been minimal and within management’s expectations.

At December 31, 2004 and March 31, 2005, the Company maintained the majority of its cash and cash equivalents with two financial institutions.

Under certain federal and state third-party reimbursement programs, the Company received gross patient revenues of approximately $16,558,000 and $12,886,000 for the three months ended March 31, 2005 and March 31, 2004, respectively. At March 31, 2005 and December 31, 2004, the Company had an aggregate outstanding receivable from federal and state agencies of approximately $6,908,000 and $3,400,000 respectively. At times the amount on deposit may exceed FDIC limits.

Note 7. Major Suppliers

During the three months ended March 31, 2005 and 2004, the Company purchased approximately $18,166,000 and $12,557,000, respectively from one major supplier. Amounts due to this supplier at March 31, 2005 and December 31, 2004 were approximately $7,935,000 and $4,260,000 respectively.

In September 2003, the Company signed a five-year agreement with a drug supplier that requires certain minimum purchases per the agreement. If the Company does not meet the minimum purchase commitments as set forth in the agreement, the Company will be charged a prorated amount of 0.20% of the projected volume remaining on the term of the Agreement. The agreement also states that the Company’s minimum purchases during the term of the agreement will be no less than $400,000,000. The Company has purchased approximately $86,900,000 from this drug wholesaler since the beginning of the term of this agreement and believes it will be able to meet its minimum purchase obligations under this agreement.

F-11

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

MARCH 31, 2005

Note 8. Supplemental Disclosure of Non-cash Financing Activities

During the three months ended March 31, 2005 and 2004 the Company paid state and local taxes of $0 and $15,666, respectively.

Interest paid on credit facilities and capital leases for the three months ended March 31, 2005 and 2004 was $94,330 and $72,265, respectively.

The Company entered into $3,275,000 and $0 of debt in connection with its business acquisitions during the three month periods ended March 31, 2005 and 2004, respectively.

The Company issued warrants with a fair market value of $2,139,975 and $0 in connection with its business acquisitions during the three month periods ended March 31, 2005 and 2004, respectively.

Note 9. Discontinued Operations

In March 2005 the Company decided to cease its operations in Texas and is in the process of closing its Texas facility. The Company expects to complete this process by June 30, 2005 when its lease in Austin, Texas expires. In accordance with the provisions of Statement of Financial Accounting Standard, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”), the results of operations for the Company’s Texas operations have been classified as discontinued operations for all periods presented in the accompanying consolidated statements of operations. The assets and liabilities of the discontinued operations are not material.

	Three Months Ended March 31, 2005			Three Months Ended March 31, 2004
Revenue	$	782,128		$	1,096,638
Net loss	$	(5,340	)	$	(50,757	)

Note 10. Revolving Credit Line

The Company has an available short-term revolving credit facility for up to $6.0 million. At March 31, 2005, the Company’s borrowing capacity was approximately $5.25 million, and its borrowings under this facility was approximately $2.0 million. This credit facility expires on April 21, 2006. Borrowings under the facility are based on the Company’s accounts receivable, bear interest at the “Prime Rate” plus 2% and are collateralized by a perfected and primary security interest in all of the Company’s assets, accounts receivable, trademarks, licenses and values of any kind of the Company. The prime rate at March 31, 2005 was 5.75%.

The Company has a line of credit from a bank for $1.5 million that accrues interest at Prime Rate per annum, with the full principal payable in September of 2005. At March 31, 2005 there was $1.5 million drawn on the line of credit. The Prime Rate at March 31, 2005 was 5.75%. This bank loan has been guarantied by one of the Company’s principal investors. As consideration for extending this guaranty in March 2005, we granted warrants to this investor in April 2005 to purchase 100,000 shares of common stock, exercisable at a price equal to the price in an initial public offering of the Company, or if no such offering occurs by April 20, 2006, $6.26 per share.

F-12

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

MARCH 31, 2005

Note 11. Subsequent Events

In May 2005, the Company raised $2.0 million in a private placement of a subordinated note with an institutional accredited investor. The note is payable on the first anniversary of its issuance, or earlier upon an initial public offering of the Company’s common stock that results in gross proceeds of at least $25 million (a “Qualified Public Offering”), and it accrues interest at a rate of 10% per annum. As additional consideration, the Company has also agreed to issue to this investor, upon a Qualified Public Offering, a warrant to purchase 40,000 shares of common stock. If a Qualified Public Offering does not occur by November 15, 2005, the number of shares of common stock issuable under the warrant will increase by 5,000 shares per month, up to a maximum of 70,000 shares in the aggregate. The warrants will expire on May 15, 2010 and will have an exercise price equal to the offering price per share of the common stock of the Company sold in the Qualified Public Offering. The warrants will be exercisable beginning six months after the Qualified Public Offering, but no earlier than December 31, 2005. If there is a change in control of the Company prior to issuance of the warrant, the Company is required to pay to this investor the amount by which the price per share paid in connection with the change in control transaction exceeds $6.26, multiplied by the number of shares of common stock issuable under the warrant had it been issued immediately prior to closing of the change of control transaction.

F-13

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Allion Healthcare, Inc.

Melville, New York

We have audited the accompanying consolidated balance sheets of Allion Healthcare, Inc. as of December 31, 2004 and 2003 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. We have also audited the schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Allion Healthcare, Inc at December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the schedule presents fairly, in all material respects, the information set forth therein.

/s/ BDO Seidman, LLP

Melville, New York

March 23, 2005

F-14

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2004 AND 2003

	2004			2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	6,979,630		$	640,790
Accounts receivable, (net of allowance for doubtful accounts of $296,320 in 2004 and $437,031 in 2003 )		4,678,596			3,074,488
Inventories		733,581			1,296,655
Prepaid expenses and other current assets		722,984			107,399
Total current assets		13,114,791			5,119,332
Property and equipment, net		561,732			527,667
Goodwill		4,472,068			4,472,068
Intangible assets, net		1,643,449			2,117,601
Other assets		203,622			178,777
TOTAL ASSETS	$	19,995,662		$	12,415,445
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	6,784,658		$	5,750,909
Revolving credit line		1,154			—
Notes payable-subordinated		1,250,000			1,150,000
Current portion of capital lease obligations		130,640			89,460
Other current liabilities		100,000			12,685
Total current liabilities		8,266,452			7,003,054
LONG TERM LIABILITIES:
Notes payable		—			2,750,000
Capital lease obligations		193,306			162,160
Other		21,409			106,951
Total liabilities		8,481,167			10,022,165
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Convertible preferred stock, $.001 par value, shares authorized 20,000,000; issued and outstanding 4,570,009 in 2004 and 2,414,168 in 2003		4,570			2,414
Common stock, $.001 par value; shares authorized 80,000,000; issued and outstanding 3,100,000 in 2004 and 2003		3,100			3,100
Additional paid-in capital		22,060,733			10,261,526
Accumulated deficit		(10,553,908	)		(7,873,760	)
Total stockholders’ equity		11,514,495			2,393,280
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	19,995,662		$	12,415,445

See accompanying notes to consolidated financial statements.

F-15

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

	2004			2003			2002
Statement of Operations Data:
Net sales	$	60,080,003		$	42,502,557		$	21,441,366
Cost of goods sold		53,162,201			37,036,372			18,062,483
Gross profit		6,917,802			5,466,185			3,378,883
Operating expenses:
Selling, general and administrative expenses		9,162,734			7,698,701			3,718,158
Legal settlement expense (income)		0			200,000			(150,000	)
Operating loss		(2,244,932	)		(2,432,516	)		(189,275	)
Other expense:
Interest expense		233,460			243,882			69,097
Costs of withdrawn public offering and other		—			—			478,865
Other expense (income)		(4,466	)		—			—
Loss before income taxes and discontinued operations		(2,473,926	)		(2,676,398	)		(737,237	)
Provision for taxes		76,202			19,646			34,610
Loss from continuing operations		(2,550,128	)		(2,696,044	)		(771,847	)
Loss from discontinued operations		(130,020	)		(258,124	)		(266,913	)
Net loss	$	(2,680,148	)	$	(2,954,168	)	$	(1,038,760	)
Basic and diluted loss per common share:
Income (loss) from continuing operations	$	(0.82	)	$	(0.87	)	$	(0.25	)
(Loss) from discontinued operations		(0.04	)		(0.08	)		(0.09	)
Net income (loss)	$	(0.86	)	$	(0.95	)	$	(0.34	)
Weighted average shares used to compute basic and diluted net loss per common share		3,100,000			3,100,000			3,100,000

See accompanying notes to consolidated financial statements.

F-16

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 2004, 2003 and 2002

	Preferred Stk. $.001 Par Value			Common Stk. $.001 Par Value			Additional Paid-In Capital		Accumulated Deficit			Total
	Shares	Par Value		Shares	Par Value
Balance, January 1, 2002	1,179,168	$	1,179	3,100,000	$	3,100	$	4,171,725	$	(3,880,832	)	$	295,172
Net Loss	—		—	—		—		—		(1,038,760	)		(1,038,760	)
Balance, December 31, 2002	1,179,168		1,179	3,100,000		3,100		4,171,725		(4,919,592	)		(743,588	)
Issuance of Preferred Stock	1,235,000		1,235	—		—		6,062,447		—			6,063,682
Issuance of Warrant Acquisition	—		—	—		—		27,354		—			27,354
Net Loss	—		—	—		—		—		(2,954,168	)		(2,954,168	)
Balance, December 31, 2003	2,414,168		2,414	3,100,000		3,100		10,261,526		(7,873,760	)		2,393,280
Issuance of Preferred Stock	2,155,841		2,156	—		—		11,799,207		—			11,801,363
Net Loss	—		—	—		—		—		(2,680,148	)		(2,680,148	)
Balance, December 31, 2004	4,570,009	$	4,570	3,100,000	$	3,100	$	22,060,733	$	(10,553,908	)	$	11,514,495

See accompanying notes to consolidated financial statements.

F-17

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	2004			2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$(2,680,148	)		$(2,954,168	)	$	(1,038,760	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		716,981			606,057			315,661
Provision for doubtful accounts		(140,711	)		266,851			28,905
Loss on sale of asset		—			5,575			—
Changes in operating assets and liabilities:
Accounts receivable		(1,463,397	)		(346,869	)		(598,887	)
Inventories		563,075			(404,292	)		(277,183	)
Prepaid expenses and other assets		(491,413	)		(140,918	)		201,941
Accounts payable and accrued expenses		1,078,083			—			—
Deferred rent		21,409			272,919			926,212
Net cash used in operating activities		(2,396,121	)		(2,694,845	)		(442,111	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisition of Medicine Made Easy net of Cash acquired of $92,854		—			(2,257,146	)		—
Purchase of property and equipment		(138,208	)		(117,183	)		(67,917	)
Sale of property and equipment		27,500			—			—
Net cash used in investing activities		(110,708	)		(2,374,329	)		(67,917	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of Preferred Stock net of fees		11,607,449			6,063,682			—
Proceeds from line of credit		33,590,405			20,725,000			5,250,000
Payment of deferred financing cost		—			(101,564	)		(265,188	)
Repayment of line of credit		(33,589,251	)		(21,190,081	)		(5,778,855	)
Repayment of long-term debt		(112,934	)					(42,462	)
Repayment of Notes Payable		(2,650,000	)		—			—
Net cash provided by (used in) financing activities		8,845,669			5,497,037			(836,505	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		6,338,840			427,863			(1,346,533	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		640,790			212,927			1,559,460
CASH AND CASH EQUIVALENTS, END OF YEAR	$	6,979,630		$	640,790		$	212,927
SUPPLEMENTAL DISCLOSURE:
Income taxes paid	$	75,407		$	15,666		$	13,982
Interest paid	$	225,830		$	227,216		$	106,491
Assets acquired via capital lease	$	165,623			—		$	365,000

See accompanying notes to consolidated financial statements.

F-18

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. The Company

As of December 31, 2004, Allion Healthcare, Inc., referred to as the Company, was the parent corporation of four wholly owned subsidiaries, which operate under the MOMS Pharmacy name as one reportable segment. These subsidiaries are located in New York, California, Texas and Florida. In March 2005 the Company decided to cease operations in Texas. The operations have been reflected as a discontinued operation in the statements of operations. See Note 4 below. The Company is a national provider of specialty pharmacy and disease management services focused on HIV/AIDS patients. The Company sells HIV/AIDS medications, ancillary drugs and nutritional supplies under its trade name MOMS Pharmacy. Most of the Company’s patients rely on Medicaid and other state-administered programs, such as the AIDS Drug Assistance Program, or ADAP, to pay for their HIV/AIDS medications.

Note 2. Summary Of Significant Accounting Policies

Basis Of Presentation.    The consolidated financial statements include the accounts of the Company and its four wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

Inventories.    Inventories consist entirely of pharmaceuticals available for sale. Inventories are recorded at lower of cost or market, cost being determined on a first-in, first-out (“FIFO”) basis.

Use Of Estimates By Management.    The preparation of the Company’s financial statements in conformity with generally accepted accounting principles require the Company’s management to make certain estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Such estimates primarily relate to accounts receivable, intangibles and deferred tax valuation. Actual results could differ from those estimates.

Property And Equipment.    Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives. Machinery and equipment under capital leases are amortized over the lives of the respective leases or useful lives of the asset, whichever is shorter.

Revenue Recognition.    Net sales are recognized as medications or products are delivered to customers. A substantial portion of the Company’s net sales are billed to third-party payors, including insurance companies, managed care plans and governmental payors. Net sales are recorded net of contractual adjustments and related discounts. Contractual adjustments represent estimated differences between billed net sales and amounts expected to be realized from third-party payors under contractual agreements.

Income Taxes.    The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount currently estimated to be realized.

Cash Equivalents.    For purposes of the consolidated statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

Credit Risk.    Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. The Company places its cash equivalents with financial institutions. The Company has substantially all of its cash in four bank accounts. The balances are insured by FDIC up to $100,000. Such cash balances, at times, may exceed FDIC limits. The Company has not

F-19

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

experienced any losses in such accounts. The Company’s trade receivables represent a broad customer base. The Company routinely assesses the financial strengths of its customers. As a consequence, concentrations of credit risk are limited.

Net Loss Per Share Information.    Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted per share amounts include dilutive common equivalent shares. Common equivalent shares, consist of the incremental common shares issuable upon the exercise of stock options and warrants; common equivalent shares are excluded from the calculation if their effect is anti-dilutive. Diluted loss per share for the years ended December 31, 2004, 2003 and 2002 do not include the impact of common stock options and warrants then outstanding of 2,830,137, 2,359,973 and 1,984,200, respectively, as the effect of their inclusion would be anti-dilutive.

Stock-Based Compensation Plans.    The Company accounts for its stock option awards to employees under the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Under the intrinsic value based method, compensation cost is the excess, if any, of the fair market value of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock. The Company makes pro forma disclosures of net income and earnings per share as if the fair value based method of accounting had been applied as required by Statement of Financial Accounting Standards No. 123 (“SFAS 123”, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”). The Company has not granted options below fair market value on the date of grant. Had compensation expenses been determined as provided by SFAS No. 123 using the Black-Scholes option pricing model, the pro forma effect on the Company’s net loss per share would have been the following for the years ended December 31, 2004, 2003 and 2002, respectively.

	Year Ended
	December 31, 2004			December 31, 2003			December 31, 2002
Net loss, as reported	$	(2,680,148	)	$	(2,954,168	)	$	(1,038,760	)
Deduct: Total stock-based employee compensation expense determined under fair value method used		(441,485	)		(72,725	)		(262,784	)
Net loss, pro forma	$	(3,121,633	)	$	(3,026,893	)	$	(1,301,544	)
Net loss per share; Basic and diluted, as reported	$	(0.86	)	$	(0.95	)	$	(0.34	)
Basic and diluted, as pro forma	$	(1.01	)	$	(0.98	)	$	(0.42	)

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. The following range of weighted-average assumptions were used for grants during the years ended December 31, 2004, 2003 and 2002.

	2004	2003	2002
Dividend yield	0.00%	0.00%	0.00%
Volatility	1.00%	1.00%	1.00%
Risk-free interest rate	4.40%	4.02%	3.35%
Expected life	Eight Years	Eight Years	Eight Years

The weighted average grant date fair value of options granted during 2004, 2003 and 2002 were $1.77, $0.38 and $0.55 respectively.

F-20

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.

Allowance For Doubtful Accounts.    Management regularly reviews the collectibility of accounts receivable by tracking collection and write-off activity. Estimated write-off percentages are then applied to each aging category by payor classification to determine the allowance for estimated uncollectible accounts. The allowance for estimated uncollectible accounts is adjusted as needed to reflect current collection, write-off and other trends, including changes in assessment of realizable value. While management believes the resulting net carrying amounts for accounts receivable are fairly stated at each quarter-end and that the Company has made adequate provisions for uncollectible accounts based on all information available, no assurance can be given as to the level of future provisions for uncollectible accounts, or how they will compare to the levels experienced in the past. The Company’s ability to successfully collect its accounts receivable depends, in part, on its ability to adequately supervise and train personnel in billing and collection, and minimize losses related to system changes.

Shipping And Handling Costs.    Shipping and handling costs that are incurred are not included in cost of sales. These costs are included in selling, general and administrative expenses. Shipping and handling costs were approximately $819,400, $597,300 and $206,906 in 2004, 2003 and 2002 respectively, excluding our Texas operations. Shipping and handling costs are not billed to customers.

Long-Lived Assets.    Amortization of intangible assets is provided using the straight-line method over the estimated useful lives of the assets of five years. The carrying values of intangible and other long-lived assets are periodically reviewed to determine if any impairment indicators are present. If it is determined that such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization and depreciation period, their carrying values are reduced to estimated fair value. Impairment indicators include, among other conditions, cash flow deficits, an historic or anticipated decline in net sales or operating profit, adverse legal or regulatory developments, accumulation of costs significantly in excess of amounts originally expected to acquire the asset and a material decrease in the fair market value of some or all of the assets. Assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. No such impairment existed at December 31, 2004.

Goodwill And Other Indefinite-Lived Intangible Assets:    In accordance with Statement of Financial Accounting Standard (“FAS”) No. 141, “Business Combinations,” and No. 142, “Goodwill and Other Intangible Assets,” goodwill and intangible assets associated with the Medicine Made Easy, referred to as MME, acquisition that are deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests. Such impairment tests require the comparison of the fair value and carrying value of reporting units. Measuring fair value of a reporting unit is generally based on valuation techniques using multiples of sales or earnings, unless supportable information is available for using a present value technique, such as estimates of future cash flows. The Company assesses the potential impairment of goodwill and other indefinite-lived intangible assets annually and on an interim basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Some factors considered important which could trigger an interim impairment review include the following:

• Significant underperformance relative to expected historical or projected future operating results;

F-21

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

• Significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and

• Significant negative industry or economic trends.

If it is determined through the impairment review process that goodwill has been impaired, an impairment charge would be recorded in the consolidated statement of operations. Based on the 2004 impairment review process, there was no impairment charge.

Advertising Costs.    Advertising costs are expensed as incurred. Advertising costs in 2004, 2003 and 2002 were approximately $78,000, $131,000 and $29,000, respectively and were included in selling, general and administrative expenses.

Reclassifications.    Certain prior years’ balances have been reclassified to conform with the current years’ presentation.

Note 3. Recent Accounting Pronouncements

FAS 123R—On December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes Accounting Principals Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods:

• “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of statement 123(R) that remain unvested on the effective date.

• “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

SFAS No. 123(R) must be adopted in the first annual period beginning after June 15, 2005, which in our case would be the quarterly period beginning January 1, 2006. Early adoption will be permitted in periods in which financial statements have not yet been issued. We expect to adopt Statement 123(R) on January 1, 2006.

As permitted by SFAS No. 123, we currently account for share-based payments to employees using the intrinsic value method prescribed in APB Opinion No. 25. Accordingly, the adoption of SFAS No. 123(R)’s fair value method may have a significant impact on our results of operations, although it will have no impact on our overall financial position. The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future and on required changes in the method of computation of fair value. However, had we adopted SFAS No. 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in our disclosure of pro forma net income and earnings per share in Note 2 to our consolidated financial statements.

F-22

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 4. Discontinued Operations

In March 2005 the Company decided to cease its operations in Texas and is in the process of closing its Texas facility. The Company expects to complete this process by June 30, 2005 when its lease in Austin, Texas expires. In accordance with the provisions of Statement of Financial Accounting Standard, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”), the results of operations for the Company’s Texas operations have been classified as discontinued operations for all periods presented in the accompanying consolidated statements of operations.

	Year Ended December 31,
	2004			2003			2002
Revenue	$	4,525,719		$	5,720,436		$	6,016,071
Net loss	$	(130,019	)	$	(257,995	)	$	(266,913	)

Note 5. Acquisition

On May 1, 2003, the Company acquired Medicine Made Easy, referred to as MME. MME fills specialty oral and injectable prescription medications and biopharmaceuticals. MME began operations in January 1999 in the State of California. The aggregate consideration for the acquisition was $4,950,000, subject to post-closing adjustments, and warrants to purchase 227,273 shares of the Company’s common stock for $11.00 per share. $300,000 of the purchase price was paid in cash prior to closing as a lock-up fee. $2,250,000 of the purchase price was paid in cash at closing. $1,150,000 of the purchase price was paid by subordinated secured promissory notes payable on May 1, 2004. The remaining $1,250,000 was paid by subordinated secured promissory notes payable on May 1, 2005. These notes payable accrue interest at a rate of Prime Rate plus 2% per annum. The Prime Rate as of December 31, 2004 was 5.25%. The notes payable are secured by cash, cash equivalents, accounts receivable, inventory, fixed and other assets of the Company, and are subordinated to the Company’s senior indebtedness.

Purchase Price Paid
Cash paid to seller prior to closing	$	300,000
Cash paid at closing		2,250,000
Notes payable-subordinated		2,400,000
Direct acquisition costs		496,898
Liabilities assumed		2,060,551
Fair value of warrants issued		27,354
Total	$	7,534,803
Allocation of Purchase Price
Net current assets	$	1,018,906
Property and equipment		202,461
Identified intangible assets		1,841,368
Goodwill (not deductible for tax purposes)		4,472,068
Total	$	7,534,803

The operations of MME were included in the consolidated financial statements as of May 1, 2003. Under SFAS 141, “Business Combinations”, the Company made an adjustment to current assets and goodwill in the amount of $235,000 as of December 31, 2003 as a result of the Company reaching an agreement on the California AIDS Drug Assistance Program (ADAP) Audit.

F-23

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following pro forma results were developed assuming the acquisition of MME occurred January 1, 2002. In addition, the sale of the Company’s Series C convertible preferred stock is also presumed to have occurred on January 1, 2002.

	Year Ended December 31, 2003 (Unaudited)			Year Ended December 31, 2002 (Unaudited)
Net sales	$	55,865,003		$	49,203,059
Net loss	$	(3,654,185	)	$	(2,034,752	)
Basic and diluted loss per share	$	(1.18	)	$	(0.66	)

Note 6. Intangible Assets

Intangible assets as of December 31, 2004 and 2003 are as follows:

	Useful Life	December 31, 2004					December 31, 2003
		Cost		Accumulated Amortization			Cost		Accumulated Amortization
Intangible assets:
Customer lists	5 Years	$	2,030,745	$	(978,831	)	$	2,030,745	$	(572,682	)
California License	Perpetual		478,616		—			478,616		—
Non-compete covenant	3 Years		147,007		(81,671	)		147,007		(32,668	)
Software	5 Years		50,000		(16,667	)		50,000		(6,667	)
Other	5 Years		45,000		(30,750	)		45,000		(21,750	)
Total		$	2,751,368	$	(1,107,919	)	$	2,751,368	$	(633,767	)

Amortization of intangible assets for the year ended December 31, 2004, 2003 and 2002 was approximately $474,151, $377,000 and $182,000, respectively. The annual amortization on these assets for 2005, 2006, 2007 and 2008 will be approximately $474,151, $366,483, $243,149 and $81,050, respectively. As of 2008 intangibles will be fully amortized.

Note 7. Property And Equipment

	Useful Lives in Years	December 31, 2004		December 31, 2003
Machinery and equipment under capital lease obligations	4	$	530,623	$	365,274
Machinery and equipment	3-5		345,607		322,126
Leasehold improvements	2-2.5		191,535		154,034
Furniture and fixtures	3-5		38,333		4,944
			1,106,098		846,378
Less: accumulated depreciation and amortization			544,366		318,711
		$	561,732	$	527,667

Depreciation and amortization expense relating to property and equipment for the years ended December 31, 2004, 2003 and 2002 was approximately $242,830, $229,000 and $72,000, respectively.

F-24

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 8. Revolving Credit Line

The Company has an available short-term revolving credit facility for up to $6.0 million. At December 31, 2004, the Company’s borrowing capacity was approximately $4,500,000, and its borrowings under this facility was $1,154. This credit facility expires on April 21, 2006. Borrowings under the facility are based on the Company’s accounts receivable, bear interest at Prime + 2% and are collateralized by a perfected and primary security interest in all of the Company’s assets, accounts receivable, trademarks, licenses and values of any kind of the Company. The prime rate at December 31, 2004 was 5.25%. In connection with this credit line, the Company must comply with certain financial covenants. As of December 31, 2004, the Company was in compliance with its covenants under its short-term revolving credit-facility.

The Company has a line of credit from a bank for $1.5 million that accrues interest at Prime Rate per annum, with the full principal payable in September of 2005. At December 31, 2004 there was nothing drawn on the line of credit. The Prime Rate at December 31, 2004 was 5.25%. This bank loan has been guaranteed by one of the Company’s principal investors.

Note 9. Notes Payable

As part of the acquisition of MME, the Company issued two notes. One note for $1,150,000 was paid on May 1, 2004. The second note is for $1,250,000 and is due May 1, 2005. These notes accrue interest at Prime Rate plus 2% per annum. The Prime Rate as of December 31, 2004 and 2003 was 5.25% and 4.00%, respectively. These notes payable are secured by cash, cash equivalents, accounts receivable, inventory, fixed and other assets of the Company, and are subordinated to the Company’s senior debt.

Note 10. Income Taxes

A reconciliation of the income tax expense (benefit) computed at the statutory federal income tax rate to the reported amount follows:

	Year Ended December 31,
	2004			2003			2002
Federal statutory rate:		34	%		34	%		34	%
Tax benefit at federal statutory rates	$	(885,342	)	$	(997,737	)	$	(341,278	)
Change in valuation allowance		938,894			1,093,502			405,721
Permanent differences		113,191			77,833			8,316
State income taxes		(90,541	)		(153,952	)		(37,757	)
	$	76,202		$	19,646		$	35,002

At December 31, 2004, the Company had net operating loss carryforwards for tax purposes of approximately $8,864,072 expiring at various dates from 2005 through 2024.

F-25

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Deferred tax assets (liabilities) comprise of the following:

	December 31, 2004			December 31, 2003
Allowance for doubtful accounts	$	119,000		$	175,000
Benefit of net operating loss carryforward		3,506,000			2,550,000
Intangibles (tax basis difference)		165,000			117,000
Contribution Carryover		18,000			18,000
Sec 263A adjustment		19,000			19,000
Book/Tax depreciation differences		(25,000	)		(15,000	)
		3,802,000			2,864,000
Valuation allowance		(3,802,000	)		(2,864,000	)
Net deferred tax assets	$	—		$	—

Deferred tax assets related to net operating loss carry-forwards have been fully reserved by a valuation allowance. Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, future ownership changes and other limitations may apply to the utilization of this asset.

Note 11. Lease Commitments

The Company leases commercial space in four locations. They are as follows:

Location	Principal Use	Property Interest
Melville, NY	Pharmacy and Executive Offices	Leased—expiring June 30, 2009
Torrance, CA	Pharmacy	Leased—expiring December 31, 2005
Austin, TX	Pharmacy	Leased—expiring June 30, 2005
Miami, FL	Pharmacy	Leased—expiring September 30, 2005

At December 31, 2004, the Company’s lease commitments provide for the following minimum annual rentals.

Year	Minimum Rent
2005	$	376,105
2006		187,654
2007		194,691
2008		201,992
2009		110,056
	$	1,070,498

During the years ended December 31, 2004, 2003 and 2002, rental expense approximated to $413,606, $261,700 and $94,300 respectively excluding our Texas operations.

F-26

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 12. Stockholders’ Equity

a. Common Shares Reserved

Common shares reserved at December 31, 2004, are as follows:

Stock Option Plans	1,667,750
Warrants	1,162,387
Convertible Preferred Stock	4,570,009

b. Stock Options

Under the terms of the Company’s Stock Option Plans, the Board of Directors may grant incentive and nonqualified stock options to employees, officers, directors, agents, consultants and independent contractors of the Company. The 1998 and 2002 Stock Option Plans reserved 2,750,000 shares of common stock for future issuance. Generally, the Company grants stock options with exercise prices equal to the fair market value of the common stock on the date of the grant, as determined by the Board of Directors. Options generally vest over a two to five year period and expire ten years from the date of the grant.

A summary of the status of the Company’s stock option plans as of December 31, 2004, 2003, 2002 and changes during the years then ended is presented below:

	2004				2003				2002
Stock Options	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding, beginning of year	1,365,200		$	1.80	1,341,700		$	1.61	1,001,400		$	0.97
Granted	589,250			6.01	50,000			5.00	495,000			3.50
Exercised	—			—	—			—	—			—
Cancelled	(286,700	)		3.09	(26,500	)		2.91	(154,700	)		2.24
Outstanding, end of year	1,667,750		$	3.03	1,365,200		$	1.71	1,341,700		$	1.80
Options exercisable at year end	1,133,758		$	1.75	1,001,268		$	1.20	954,408
Weighted average fair value of options under the plan granted during the year			$	1.77			$	0.38			$	0.55

The following table summarizes information about stock options outstanding at December 31, 2004:

Options Outstanding					Options Exercisable
Range of Exercise Price	Number of Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Outstanding	Weighted Average Exercise Price
$.17 - $.66	555,000	4.09	$	0.18	555,000	$	0.18
$1.00 - $2.00	241,000	5.50	$	1.51	241,000	$	1.51
$3.00	24,500	6.96	$	3.00	14,903	$	3.00
$3.50	210,000	7.50	$	3.50	175,002	$	3.50
$5.00	50,000	8.76	$	5.00	20,834	$	5.00
$6.00 - 6.25	587,250	9.42	$	6.01	127,019	$	6.00
	1,667,750				1,133,758

F-27

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

c. Warrants

On May 1, 2003, the Company issued warrants to the previous owners of Medicine Made Easy, or MME. These warrants can be exercised to purchase 227,273 shares of the Company’s common stock for $11.00 a share and expire in May 2008. The fair value of the warrants was $27,354, and was included in the purchase price of MME.

In July 2003, the Company issued 125,000 warrants, which have an exercise price of $5.00 per share, to a director of the Company in connection with the extension of a guarantee for the West Bank credit facility. These warrants expire in October 2013.

In April and May 2004, the Company issued warrants to purchase 114,493 shares of common stock with an exercise price of $6.00 per share to the placement agents in conjunction with the Company’s Series D convertible preferred stock private placement. These warrants expire 5 years from the date of issue.

In December 2004 the Company issued warrants to purchase 53,121 shares of common stock, which have an exercise price of $6.25, in conjunction with the Company’s Series E Preferred Stock to the placement agent. These warrants expire 5 years from the date of issue.

The Company has issued 117,500 warrants to purchase shares of the Company’s common stock in prior years to various individuals and corporations for consulting purposes. These warrants can be exercised to purchase 117,500 shares of the Company’s common stock for prices ranging from $0.17 a share to $1.00 a share. These warrants expire at various dates from February 1, 2009 through June 30, 2010.

d. Convertible Preferred Stock

The Company has authorized 20,000,000 shares of preferred stock, .001 par value, which the Board of Directors has authority to issue from time to time in series. The Board of Directors also has the authority to fix, before the issuance of each series, the number of shares in each series and the designation, preferences, rights and limitations of each series.

In March 2000, the Company sold 512,500 shares of Series A convertible preferred stock to a group of investors, the net proceeds to the Company were approximately $1,025,000.

In April 2001, the Company sold 333,334 shares of Series B convertible preferred stock to a group of investors. The net proceeds to the Company were approximately $988,000. In October 2001, the Company sold an additional 333,334 shares of Series B convertible preferred stock to a group of investors. The net proceeds to the Company were approximately $999,000.

In April 2003, the Company raised $6,063,682, net of costs of $111,318 related to this issuance in a private placement with several investors. The Company sold 1,235,000 shares of Series C convertible preferred stock at $5.00 per share. There will be no dividends payable on the shares, unless the Company, in its sole discretion declares a dividend. In the event of any liquidation, these shares shall share on a pari passu basis in liquidation with the Series A and B preferred stock outstanding. A portion of the proceeds of the sale of the Series C convertible preferred stock was used in connection with the Company’s $1,475,000 settlement of its lawsuit with Morris and Dickson. $2,250,000 of the proceeds was used to fund the acquisition of MME. $841,789 of the proceeds was used to repay Company indebtedness. The Company has additional indebtedness to the sellers of Medicine Made Easy as described more fully in Note 9.

F-28

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In April and May 2004, the Company raised an aggregate of $8,806,958 through the issuance of 1,491,828 shares of Series D convertible preferred stock at $6.00 per share in private placements with several investors. In conjunction with the offering and for services rendered, the Company issued warrants representing 114,493 shares of common stock with an exercise price of $6.00 per share to placement agents and paid fees of $745,198. The Company used $1,150,000 of the proceeds to pay off notes to the previous owners of MME (the acquisition discussed in Note 5 above) and the remaining balances of its revolving credit lines.

In December 2004, the Company raised $4,150,081 through the issuance of 664,013 shares of Series E convertible preferred stock at a price of $6.25 per share in a private placement with several investors. In connection with the offering and for services rendered, the Company paid a fee of $410,478 in cash, and it issued 5-year warrants to purchase 51,201 shares of Company common stock to a placement agent (representing 8% of the number of shares of Series E convertible preferred stock). The warrants will have a per share exercise price of $6.25, subject to customary provisions regarding anti-dilution and “net issue” exercise.

The Series A, Series B, Series C, Series D and Series E preferred stock have senior preference and priority as to dividends, distributions and payments upon the liquidation, dissolution or winding up of affairs before any payments to holders of the common stock.

Note 13. Fair Value Of Financial Instruments

The methods and assumptions used to estimate the fair value of the following classes of financial instruments were:

Current Assets and Current Liabilities:    The carrying amount of cash, receivables and payables and certain other short-term financial instruments approximate their fair value.

Long-Term Debt:    The fair value of the Company’s long term debt, including the current portions, was estimated using a discounted cash flow analysis, based on the Company’s assumed incremental borrowing rates for similar types of borrowing arrangements. The carrying amount of variable and fixed rate debt at December 31, 2004 approximates its fair value.

Note 14. Related Party Transactions

In January 2000, 375,000 common stock warrants were issued to John Pappajohn, a director, as consideration for his guarantee of a $1.5 million credit facility with West Bank. As consideration for the renewal of the guaranty, we issued warrants to purchase 125,000 shares of common stock to Mr. Pappajohn in July 2003, exercisable at a price per share of $5.00. Mr. Pappajohn has agreed to continue this guarantee until September 2005.

Note 15. Litigation

New Jersey Medicaid Audit.    During the first quarter of 2003, Medicaid commenced a review of the Company’s billing practices in New Jersey. In particular, Medicaid reviewed whether the appropriate procedures were followed by the Company and whether the requisite patient consents were obtained by the Company at the time of delivery. During 2003 the Company accrued an estimated cost of $200,000 for the New Jersey Medicaid Audit. In April 2004 the Company entered into a settlement agreement with Medicaid of New Jersey for $200,000. The Company does not anticipate any additional expense related to this audit. In July 2004, the Company was granted a license to bill New Jersey Medicaid from New York, as a result the Company will no longer serve New Jersey Medicaid patients from Texas.

F-29

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

New York Medicaid Audit.    In May 2004, the Company was notified that its MOMS Pharmacy subsidiary in New York is the subject of an audit and review being conducted by the New York State Department of Health (the “Department”). As part of the audit the Department withheld payment of Medicaid claims. In September 2004, the Department ceased withholding payments. The Department returned $800,000 of the total $920,000 withheld from MOMS Pharmacy. The current amount withheld by Medicaid is approximately $120,000. The Department may conclude that MOMS Pharmacy is subject to certain financial penalties and fines, in which case some or all of the payments withheld will not be paid to the Company. At this time, management believes the outcome will not have a material adverse effect on the Company’s financial position and financial resources. The Company accrued the full amount of the monies still withheld as expenses in 2004.

Note 16. Concentrations Of Credit Risk And Major Customers

The Company provides prescription medications to its customers in the United States through its four wholly owned subsidiaries. Credit losses relating to customers historically have been minimal and within management’s expectations.

At December 31, 2004, the Company maintained 98% of its cash and cash equivalents in four bank accounts with two financial institutions.

Under certain federal and state third-party reimbursement programs, the Company received net sales of approximately $58,710,000, $42,739,000 and $23,081,000 for the years ended December 31, 2004, 2003 and 2002 respectively. At December 31, 2004 and 2003, the Company had an aggregate outstanding receivable from federal and state agencies of approximately $4,186,000 and $3,012,000, respectively.

Note 17. Capital Lease Obligations

Future minimum commitments under non-cancelable capital leases are as follows:

	Capital
Leases
2005	$	153,857
2006		116,274
2007		49,620
2008		49,620
Total minimum lease payments		369,371
Amounts representing interest		(45,425	)
Present value of net minimum lease payments (including current portion of $103,640)	$	323,946

Note 18. Other Long-Term Debt

The Company owes the Internal Revenue Service (I.R.S.) $100,000 as of December 31, 2004 which is recorded in the other current liabilities. The United States Bankruptcy Court entered an order confirming the settlement of the I.R.S. claim against the Company on September 29, 1999. The Company had agreed to pay $130,000 over six years to satisfy the I.R.S. claim. The Company will not carry forward any net operating losses or credit available from pre-1999 periods, into post-1998 years. The Company will have no federal income tax liability from any periods prior to January 1, 1999. In addition, the I.R.S. will not conduct any further audits of the company for periods prior to January 1, 1999, provided that the terms of the Bankruptcy Court’s confirmation order of February 1, 1999 are complied with.

F-30

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 19. Major Suppliers

During the year ended December 31, 2004, the Company purchased approximately $55,707,000 of inventory from its major supplier, $40,268,000 from three major suppliers in 2003 and approximately $22,459,000 from two major suppliers in 2002.

In September 2003, the Company signed a five-year agreement with a AmerisourceBergen that requires certain minimum purchases per the agreement. If the Company has not met the minimum purchase commitments as set forth in the agreement, the Company will be charged a prorated amount of 0.20% of the projected volume remaining on the term of the agreement. The agreement also states that the Company’s minimum purchases during the term of the agreement will be no less than $400,000,000.

Note 20. Quarterly Financial Information (Unaudited)

Quarterly financial information for the years ended December 31, 2004 and 2003, is summarized below (in thousands, except share data):

	2004
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Total
	(In thousands, except per share)
Net sales	$	13,350		$	14,476		$	15,894		$	16,360		$	60,080
Operating loss	$	(535	)	$	(901	)	$	(293	)	$	(516	)	$	(2,245	)
Discontinued operations	$	(16	)	$	60		$	(213	)	$	(89	)	$	(258	)
Net loss	$	(677	)	$	(1,103	)	$	(370	)	$	(530	)	$	(2,680	)
Basic and diluted loss per common share	$	(0.22	)	$	(0.36	)	$	(0.12	)	$	(0.16	)	$	(0.86	)
	2003
	(In thousands, except per share)
Net sales	$	6,675		$	10,614		$	12,603		$	12,611		$	42,503
Operating loss	$	(138	)	$	(802	)	$	(734	)	$	(759	)	$	(2,433	)
Discontinued operations	$	(51	)	$	(90	)	$	(37	)	$	48		$	(130	)
Net loss	$	(202	)	$	(955	)	$	(1,066	)	$	(731	)	$	(2,954	)
Basic and diluted loss per common share	$	(0.07	)	$	(0.31	)	$	(0.34	)	$	(0.23	)	$	(0.95	)

F-31

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 21. Subsequent Events

On January 4, 2005, the Company purchased 100% of the stock of North American Home Health Supply, Inc., a California corporation (“NAHH”). NAHH is engaged primarily in the retail HIV/AIDS pharmacy and prescription nutritional supply business in California. The Company intends to incorporate the NAHH business into its existing operations in California. The Company paid total consideration of $7,067,178.

Purchase Price Paid
Cash paid at closing	$	5,000,000
Cash payment for working capital		311,981
Notes payable		1,375,000
Fair value of warrants issued		241,760
Direct acquisition costs		500,000
Total purchase price		7,428,741
less: net tangible assets		(361,563	)
	$	7,067,178
Allocation of Purchase Price
Covenant not to compete (five year life)		50,000
Referral lists (fifteen year life)		4,514,331
Goodwill		2,502,847
	$	7,067,178

The following pro forma results were developed assuming the acquisition of NAHH occurred January 1, 2003. In addition, we have assumed that the sale of the Company’s Series D and E convertible preferred stock occurred on January 1, 2003.

	Year Ended December 31, 2004 (Unaudited)
Net sales	$	75,480,941
Net loss	$	(1,442,046	)
Basic and diluted loss per share	$	(0.47	)

On February 28, 2005 the Company purchased 100% of the stock of Specialty Pharmacies, Inc. (“SPI”) for aggregate consideration of approximately $7.9 million. SPI is engaged primarily in the business of providing HIV/AIDS pharmacy services in Washington and California. In the transaction, the sellers received cash, promissory notes of MOMS Pharmacy and warrants to purchase 351,438 shares of common stock of Allion. The purchase price consisted of a combination of cash and securities, which included $5,000,000 of cash paid prior to and at closing, promissory notes due February 28, 2006, in the aggregate principal amount of $2,500,000 and warrants issued by the Company to purchase an aggregate of 351,438 shares of Company common stock, at an exercise price of $6.26 per share. The purchase price is subject to a post-closing adjustment based on the amount of SPI’s working capital as of the closing. The Company will reimburse Sellers up to a maximum of $200,000, for any amounts received by the Company as a result of SPI’s qualifying for the California HIV Pilot Program.

On March 3, 2005, the Company entered into a letter of intent with Oris Medical Systems, Inc., a California corporation based in San Diego, to secure from Oris Medical an exclusive license to interface with Ground Zero Software’s LabTracker HIV/AIDS software system. If the Company is able to reach a definitive agreement with Oris Medical, it intends

F-32

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

to integrate its electronic prescription writer, or that of Oris Medical, and the use of the Company’s specialty pharmacy services, with the functions of LabTracker software. Under such a license, the Company would pay Oris Medical a per patient royalty fee (for patients using the software) that would be capped at $40 million. The Company is not obligated to enter into this software license or to complete any other transaction with Oris Medical. However, to secure the exclusive right to negotiate a software license with Oris Medical, or to negotiate an acquisition of Oris Medical, the Company is making certain payments to Oris Medical. These payments are $50,000 per month in each of February, March, April, May and June 2005 to cover Oris Medical’s monthly operating expenses. In addition, if the Company completes an initial public offering of its common stock, the Company has agreed to pay Oris Medical an additional $1 million within three days of completion of that offering. In exchange for these payments, Oris Medical granted the Company an exclusivity right to negotiate a definitive agreement through August 31, 2005. The Company has the right, at its sole option, to extend this exclusivity period for up to four successive one-month periods if the Company pays Oris Medical’s monthly operating expenses for July-October 2005, up to $50,000 per month. The Company may not reach a definitive agreement on either a licensing or acquisition transaction with Oris Medical.

In March 2005, the Company decided to cease its operations in Texas and will complete closing its facilities by June 30, 2005. For the year ended December 31, 2004, Texas represented $4.5 million of the Company’s net sales. The Company’s lease in Austin, Texas expires on June 30, 2005.

In March 2005 the Company decided to cease serving Medicare patients. Medicare reimburses mostly for transplant and oncology medications, which are not areas where the Company plans to specialize going forward. Most of these patients receive reimbursement from Medicare. Currently these patients are served from the Company’s locations in Texas, Florida and New York and are approximately $1.5 million of net sales. The Company may sell a portion of this business to another pharmacy company in return for a nominal amount.

F-33

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

Description	Balance at Beginning of Period		Charged to Costs and Expenses		Deductions (1)		Balance at End of Period
	(In thousands)
Year ended December 31, 2002:
Allowance for doubtful accounts	$	281,799	$	105,652	$	110,845	$	276,606
Year ended December 31, 2003:
Allowance for doubtful accounts	$	276,606	$	236,558	$	76,132	$	437,032
Year ended December 31, 2004:
Allowance for doubtful accounts	$	437,032	$	80,200	$	220,912	$	296,320

(1) Consists primarily of recoveries previously deemed uncollectable.

F-34

Report of Independent Auditors

Board of Directors

North American Home Health Supply, Inc.

We have audited the accompanying balance sheets of North American Home Health Supply, Inc. as of December 31, 2004 and 2003, and the related statements of income, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North American Home Health Supply, Inc. as of December 31, 2004 and 2003, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ LWBJ, LLP

February 24, 2005

F-35

NORTH AMERICAN HOME HEALTH SUPPLY, INC.

BALANCE SHEETS

DECEMBER 31, 2004 AND 2003

	2004		2003
Assets (Note 2)
Current assets:
Cash	$	88,808	$	89,038
Accounts receivable, (net of allowance for doubtful accounts of $136,113 and $82,583 at December 31, 2004 and 2003, respectively)		1,592,726		1,141,392
Inventories		234,086		225,471
Total current assets		1,915,620		1,455,901
Property and equipment, net		15,679		50,534
Other assets		19,737		19,244
Total assets	$	1,951,036	$	1,525,679
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,478,675	$	1,141,165
Accrued expenses		173,711		137,089
Total current liabilities		1,652,386		1,278,254
Stockholders’ equity:
Common stock, no par value; 5,000,000 shares authorized;
20,000 shares issued and outstanding		30,000		30,000
Retained earnings		268,650		217,425
Total stockholders’ equity		298,650		247,425
Total liabilities and stockholders’ equity	$	1,951,036	$	1,525,679

See accompanying notes.

F-36

NORTH AMERICAN HOME HEALTH SUPPLY, INC.

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 21, 2004 AND 2003

	2004		2003
Net Sales (Note 5)	$	15,400,938	$	15,448,597
Cost of sales (Note 6)		10,716,273		10,248,453
Gross profit		4,684,665		5,200,144
Operating expenses:
Selling, general and administrative expenses		3,167,781		3,494,651
Operating income		1,516,884		1,705,493
Loss on disposal of assets		25,659		—
Net income	$	1,491,225	$	1,705,493
Basic and diluted earnings per common share	$	74.56	$	85.27
Basic and diluted weighted average of common shares outstanding		20,000		20,000

F-37

NORTH AMERICAN HOME HEALTH SUPPLY, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

	Shares of Common Stock	Common Stock		Retained Earnings			Total Stockholders’ Equity
Balances at December 31, 2002	20,000	$	30,000	$	231,932		$	261,932
Net income	—		—		1,705,493			1,705,493
Distributions	—		—		(1,720,000	)		(1,720,000	)
Balances at December 31, 2003	20,000		30,000		217,425			247,425
Net income	—		—		1,491,225			1,491,225
Distributions	—		—		(1,440,000	)		(1,440,000	)
Balances at December 31, 2004	20,000	$	30,000	$	268,650		$	298,650

See accompanying notes.

F-38

NORTH AMERICAN HOME HEALTH SUPPLY, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

	2004			2003
Cash flows from operating activities
Net income	$	1,491,225		$	1,705,493
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		20,635			35,195
Loss on disposal of assets		25,659			—
Changes in operating assets and liabilities:
Accounting receivable		(451,334	)		67,699
Inventories		(8,615	)		(1,980	)
Other assets		(493	)		(1,305	)
Accounts payable		337,510			(57,565	)
Accrued expenses		36,622			(1,106	)
Net cash provided by operating activities		1,451,209			1,746,431
Cash flows used in investing activities
Purchase of property and equipment		(11,439	)		(29,801	)
Proceeds from sale of equipment		—			2,850
Net cash used in investing activities		(11,439	)		(26,951	)
Cash flows used in financing activities
Distributions to stockholders		(1,440,000	)		(1,720,000	)
Net cash used in financing activities		(1,440,000	)		(1,720,000	)
Net decrease in cash		(230	)		(520	)
Cash at beginning of year		89,038			89,558
Cash at end of year	$	88,808		$	89,038

See accompanying notes.

F-39

NORTH AMERICAN HOME HEALTH SUPPLY, INC.

NOTES TO FINANCIAL STATEMENTS

1. The Company and Significant Accounting Policies

Nature of Business

North American Home Health Supply, Inc. (the “Company”) is engaged primarily in the pharmacy business in California. The Company has distribution warehouses in California and focuses on delivering its specialty pharmacy products primarily to HIV/AIDS patients.

Inventories

Use of Inventories consist mainly of pharmaceuticals and oral and enteral nutrition products that are available for sale. Inventories are recorded at lower of cost or market, cost being determined on a first-in, first-out (“FIFO”) basis and are stated at the lower of cost or market. Inventories consisted of the following at December 31:

	2004		2003
Pharmaceuticals	$	65,993	$	92,351
Oral and enteral products		137,550		110,329
Supplies		30,543		22,791
	$	234,086	$	225,471

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Such estimates primarily relate to accounts receivable. Actual results could differ from those estimates.

Property and Equipment

Property and equipment is recorded at historical cost and depreciated over the estimated useful lives of the respective assets. Estimated useful lives are as follows:

Machinery and equipment	5-7 years
Furniture and fixtures	5-7 years

Depreciation expense was $20,635 and $35,195 for the years ended December 31, 2004 and 2003, respectively.

Revenue Recognition

Revenue are recognized as medications or products are shipped to customers. A substantial portion of the Company’s revenue are billed to third-party payors, including governmental payors, insurance companies and managed-care plans. Revenues are recorded net of contractual adjustments and related discounts. Contractual adjustments represent estimated differences between billed revenues and amounts expected to be realized from third-party payors under contractual agreements.

Income Taxes

The Company has elected to be taxed as a small business corporation under the provisions of Subchapter S of the Internal Revenue Code. As such, taxable income of the Company is includable in the individual income tax returns of the stockholders and the Company generally will not be subject to tax.

F-40

NORTH AMERICAN HOME HEALTH SUPPLY, INC

NOTES TO FINANCIAL STATEMENTS—(Continued)

Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade receivables. The Company has all of its cash in one bank account. The balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) for up to $100,000. Such cash balances, at times, may exceed FDIC limits. The Company has not experienced any losses in such accounts. A large portion of the Company’s trade receivables is from two third-party reimbursement programs as described in Note 5.

Earnings Per Share

Basic and fully diluted earnings per share are computed using the weighted average number of common shares outstanding during the periods. There are no dilutive common shares or equivalent shares during the years ended December 31, 2004 and 2003.

Allowance for Doubtful Accounts

Management reviews the collectibility of accounts receivable by tracking collection and write-off activity. The allowance for estimated uncollectible accounts is adjusted as needed to reflect current collection, write-off and other trends, including changes in assessment of realizable value. While management believes the resulting net carrying amounts for accounts receivable are fairly stated at each year-end and that the Company has made adequate provision for uncollectible accounts based on all available information, no assurance can be given as to the level of future provisions for uncollectible accounts, or how they will compare to the levels experienced in the past. Under Medicaid, Medicare and other reimbursement programs, the Company is reimbursed for services rendered to covered program patients as determined by reimbursement formulas and regulations. Laws and regulations governing these programs are complex and subject to interpretation. As a result, it is possible that recorded estimates will change. The Company’s ability to successfully collect its accounts receivable depends, in part, on its ability to supervise and train personnel in billing and collection, and minimize losses related to system changes.

Shipping and Handling Costs

Shipping and handling costs that are incurred are not included in cost of sales. They are included in selling, general and administrative expenses. Shipping and handling costs were approximately $530,000 and $550,000 in 2004 and 2003, respectively. Shipping and handling costs are not billed to customers.

Advertising

Advertising costs are expensed as incurred. Advertising costs were approximately $37,000 in 2004 and $64,000 in 2003 and were included in selling, general and administrative expenses.

2. Line of Credit

The Company had a bank line of credit for an amount up to a maximum of $800,000 available for short-term borrowings at an interest rate of .875 percent above the bank’s prime rate. At December 31, 2004 and 2003, the Company’s borrowing capacity was approximately $800,000, and no amounts were borrowed under this facility. This line was secured by substantially all Company assets and was personally guaranteed by the two stockholders of the Company. On January 4, 2005, in conjunction with the sale of the business as described in Note 8, this line of credit was terminated.

F-41

NORTH AMERICAN HOME HEALTH SUPPLY, INC

NOTES TO FINANCIAL STATEMENTS—(Continued)

3. Leases

The Company leases vehicles and conducts its operations in premises leased under various operating leases. Rental expense was approximately $206,000 and $204,000 for the years ended December 31, 2004 and 2003, respectively. The Company subleases a portion of this space and received approximately $48,000 and $19,000 in sublease rental income for the years ended December 31, 2004 and 2003, respectively. Future minimum rental payments under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2004, are as follows:

Year ended December 31, 2005 $79,000

The above rental expense will be offset by $3,500 per month in sublease rental income through February 2005.

4. Fair Value of Financial Instruments

The carrying amount of cash, accounts receivables and account payables approximate their fair value.

5. Concentrations of Credit Risk and Major Customers

The Company provides prescription medications and oral and enteral nutrition products to its customers primarily in California. A significant number of the Company’s customers have a substantial amount of their costs paid by third-party reimbursement programs. Under federal and California third-party reimbursement programs, the Company received net patient revenues of approximately $12,450,000 and $13,000,000 for the years ended December 31, 2004 and 2003, respectively. At December 31, 2004 and 2003, the Company had an aggregate outstanding receivable from these two agencies of approximately $1,040,000 and $710,000, respectively.

Credit losses relating to customers historically have been minimal and within management’s expectations.

6. Major Suppliers

During the years ended December 31, 2004 and 2003, the Company purchased approximately $9,630,000 and $9,150,000, respectively, from three major suppliers.

7. Employee Benefit Plan

The Company has an employee retirement savings plan (401(k) plan) covering substantially all employees. Employees can make elective deferral contributions up to the maximum allowed each year by law. The Company did not match any of the employee elective deferral amounts.

8. Subsequent Event

On January 4, 2005, MOMS Pharmacy, Inc., a California corporation and wholly-owned subsidiary of Allion Healthcare, Inc., a Delaware corporation, entered into a Stock Purchase Agreement with Michael Stone and Jonathan Spanier, who owned 100% of the stock of the Company. On the same day, MOMS Pharmacy acquired 100% of the stock of the Company from Michael Stone and Jonathan Spanier in accordance with the terms of the Stock Purchase Agreement. As a result of this transaction, the Company voluntarily terminated S corporation status.

F-42

Independent Auditor’s Report

To the Board of Directors

Specialty Pharmacies, Inc.

Cardiff, California

We have audited the accompanying balance sheets of Specialty Pharmacies, Inc. as of December 31, 2004 and 2003, and the related statements of income, stockholders’ equity (deficit) and cash flows for the years ended December 31, 2004, 2003 and 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Specialty Pharmacies, Inc. as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years ended December 31, 2004, 2003 and 2002 in conformity with accounting principles generally accepted in the United States of America.

/s/ McGladrey & Pullen, LLP

Des Moines, Iowa

February 28, 2005

F-43

SPECIALTY PHARMACIES, INC.

BALANCE SHEETS

DECEMBER 31, 2004 AND 2003

	2004			2003
ASSETS
CURRENT ASSETS
Cash	$	194,352		$	493,379
Accounts receivable		2,119,285			956,603
Inventories		921,957			654,410
Other current assets		7,252			8,701
Total current assets		3,242,846			2,113,093
Leasehold improvements and equipment, net of accumulated depreciation 2004 $43,378; 2003 $20,636		61,397			56,510
Intangible assets with finite lives, net of accumulated amortization 2004 $70,556; 2003 $45,654		53,955			78,857
Other		2,308			2,308
	$	3,360,506		$	2,250,768
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of capital lease obligations	$	3,817		$	11,431
Accounts payable		3,324,332			2,389,575
Dividends payable		188,065			16,582
Accrued expenses		21,000			136,018
Total current liabilities		3,537,214			2,553,606
CAPITAL LEASE OBLIGATIONS, net of current maturities		6,893			37,295
COMMITMENTS
STOCKHOLDERS’ EQUITY (DEFICIT)
Common stock, no par value, authorized 5,000,000 shares; issued and outstanding 900,000 shares, at amount paid-in		850,373			836,373
Accumulated (deficit)		(1,033,974	)		(1,176,506	)
		(183,601	)		(340,133	)
	$	3,360,506		$	2,250,768

See notes to financial statements.

F-44

SPECIALTY PHARMACIES, INC.

STATEMENT OF INCOME

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

	2004			2003			2002
Sales, net	$	26,093,338		$	14,919,709		$	3,368,002
Cost of sales		21,964,563			13,141,453			3,106,560
Gross profit		4,128,775			1,778,256			261,442
Selling, general and administrative expenses		2,399,491			1,689,561			527,478
Operating income (loss)		1,729,284			88,695			(266,036	)
Interest expense		(1,242	)		(6,463	)		(6,637	)
Income (loss) from continuing operations		1,728,042			82,232			(272,673	)
Discontinued operations:
(Loss) from operations of Dallas pharmacy		—			(23,119	)		(9,882	)
(Loss) on sale of Dallas pharmacy		(23,027	)		(153,024	)		—
		(23,027	)		(176,143	)		(9,882	)
Net income (loss)	$	1,705,015		$	(93,911	)	$	(282,555	)
Basic earnings (loss) per common share from continuing operations	$	1.73		$	0.10		$	(0.36	)
Basic earnings (loss) per common share, net income		1.71			(0.12	)		(0.38	)
Diluted earnings (loss) per common share, continuing operations		1.68			0.10			(0.36	)
Diluted earnings (loss) per common share, net income		1.66			(0.12	)		(0.38	)
Distributions declared per common share		1.56			0.96			0.06
Unaudited pro forma net income (loss):
Income (loss) before provision (benefit) for income tax	$	1,705,015		$	(93,911	)	$	(282,555	)
Pro forma income tax expense (benefit)		647,906			(35,686	)		(107,371	)
Pro forma net income (loss)	$	1,057,109		$	(58,225	)	$	(175,184	)

See notes to financial statements.

F-45

SPECIALTY PHARMACIES, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

	Common Stock		Accumulated (Deficit)			Total Stockholders’ Equity (Deficit)
Balance, beginning	$	—	$	—		$	—
Issuance of common stock, at amount paid-in		750,000		—			750,000
Net (loss)		—		(282,555	)		(282,555	)
Distributions		—		(41,455	)		(41,455	)
Balance, December 31, 2002		750,000		(324,010	)		425,990
Issuance of common stock for services, at estimated fair value		86,373		—			86,373
Net (loss)		—		(93,911	)		(93,911	)
Distributions		—		(758,585	)		(758,585	)
Balance, December 31, 2003		836,373		(1,176,506	)		(340,133	)
Issuance of common stock for services, at estimated fair value		14,000		—			14,000
Net income		—		1,705,015			1,705,015
Distributions		—		(1,562,483	)		(1,562,483	)
Balance, December 31, 2004	$	850,373	$	(1,033,974	)	$	(183,601	)

See notes to financial statements.

F-46

SPECIALTY PHARMACIES, INC.

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

	2004			2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	1,705,015		$	(93,911	)	$	(282,555	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		47,644			55,514			57,115
Common stock issued for services		14,000			86,373			—
Loss on sale of Dallas pharmacy		—			153,024			—
Write-off of advances to related party		84,405			144,828			—
Changes in working capital components:
Accounts receivable		(1,162,682	)		(454,961	)		(501,642	)
Inventories		(267,547	)		(240,082	)		(184,366	)
Prepaid expenses and other current assets		1,449			(5,590	)		(3,111	)
Accounts payable and accrued expenses		819,739			1,189,201			1,279,689
Other		—			5,566			(7,874	)
Net cash provided by operating activities		1,242,023			839,962			357,256
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of certain assets of Procare Pharmacy		—			—			(690,674	)
Proceeds from sale of Dallas pharmacy		—			206,047			—
Purchase of leasehold improvements and equipment		(27,629	)		(12,404	)		(14,558	)
Advances to related party		(84,405	)		(144,828	)		—
Net cash provided by (used in) investing activities		(112,034	)		48,815			(705,232	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		—			—			750,000
Distributions		(1,391,000	)		(758,585	)		(24,873	)
Principal payments on capital lease obligations		(38,016	)		(10,577	)		(3,387	)
Proceeds from long-term debt		—			—			25,881
Principal payments on long-term debt		—			(25,881	)		—
Net cash provided by (used in) financing activities		(1,429,016	)		(795,043	)		747,621
Net increase (decrease) in cash		(299,027	)		93,734			399,645
CASH:
Beginning		493,379			399,645			—
Ending	$	194,352		$	493,379		$	399,645
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION, cash payments for interest	$	1,242		$	6,463		$	6,637
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations incurred for equipment	$	—		$	—		$	62,690
Distribution declared not yet paid		188,065			—			16,582
SUPPLEMENTAL SCHEDULE OF INVESTING ACTIVITIES
Purchase of certain assets of Procare Pharmacy, cash paid for:
Intangibles with finite lives							$	277,671
Inventories								413,003
							$	690,674

See notes to financial statements.

F-47

SPECIALTY PHARMACIES, INC.

NOTES TO FINANCIAL STATEMENTS

Note 1. The Company and Significant Accounting Policies

Nature of business:    Specialty Pharmacies, Inc. (the Company) began operations January 9, 2002 and is engaged in the pharmacy business in California and Washington. The Company focuses on delivering its specialty pharmacy products primarily to HIV/AIDS patients.

Accounting estimates and assumptions:    The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Such estimates primarily relate to the allowance for doubtful accounts receivable. Actual results could differ from those estimates.

Accounts receivable:    Accounts receivables are carried at original invoice amount less an estimate made for doubtful receivables, if any, based on a review of all outstanding amounts. Management reviews the collectibility of accounts receivable by tracking collection and write-off activity. An allowance for estimated uncollectible accounts is adjusted as needed to reflect current collection, write-off and other trends, including changes in assessment of realizable value.

Inventories:    Inventories consist mainly of pharmaceuticals that are available for sale. Inventories are recorded at lower of cost or market, cost being determined on a first-in, first-out (FIFO) basis.

Leasehold improvements and equipment:    Leasehold improvements and equipment are recorded at historical cost and depreciated over the estimated useful lives ranging from 3—7 years of the respective assets. Amortization of assets acquired under capital leases is included with depreciation expenses on owned assets.

Depreciation expense was approximately $23,000, $17,000 and $6,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

Intangible assets with finite lives:    Intangible assets represent the purchase price paid for customer lists and prescription files acquired in 2002 and are being amortized over 5 years. Amortization expense was approximately $25,000, $38,000 and $51,000 for the years ended December 31, 2004, 2003 and 2002, respectively. The estimated aggregate amortization expense is approximately $25,000 for the years ended December 31, 2005 and 2006 and $4,000 for 2007.

Revenue recognition:    Revenue is recognized as medications are provided to customers. A substantial portion of the Company’s revenue is billed to third-party payors, including governmental payors, insurance companies and managed-care plans. Revenue is recorded at contractual amounts based on agreements with each third-party payor.

Income taxes:    The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. As such, the taxable income of the Company is includable in the individual income tax returns of the stockholders, and the Company generally will not be subject to tax. The unaudited pro forma net income (loss) information in the accompanying statements of income reflects the application of corporate income taxes to the Company’s taxable income of an assumed combined federal and state tax rate of 38%.

Credit risk:    Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivables. The Company has all of its cash in four bank accounts. The balances are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $100,000. Such cash balances, at times, may exceed FDIC limits. The Company has not experienced any losses in such accounts. A large portion of the Company’s trade receivables is from third-party reimbursement programs as described in Note 3.

F-48

SPECIALTY PHARMACIES, INC

NOTES TO FINANCIAL STATEMENTS—(Continued)

Earnings per share:    Basic and fully diluted earnings per share are computed using the weighted-average number of common shares outstanding during the periods.

Presented below is the reconciliation of the denominators of the computations for basic earnings per common share and diluted earnings per common share, for the years ended December 31:

	2004	2003	2002
Denominator
Weighted-average shares outstanding	900,000	775,000	750,000
Plus participating securities	100,000	16,667	—
Weighted-average shares outstanding, basic	1,000,000	791,667	750,000
Dilutive effect of unvested stock grant	29,167	4,167	—
Weighted-average shares outstanding, diluted	1,029,167	795,834	750,000

The dilutive effect of the unvested stock grant is only used in the calculation of diluted earnings per share—continuing operations as the shares would have an antidilutive effect for the diluted earnings per share—net income.

Stock-based compensation:    The Company has adopted the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation, but applies Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its plan. Under APB 25, when the exercise price of employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recorded.

Had compensation cost for the plan been determined based on the grant date fair values of awards (the method described in FASB Statement No. 123), the approximate 2003 and 2002 reported net income and earnings per common share would have been decreased to the pro forma amounts shown below based on the fair value of the options being estimated at the date of grant under the minimum value option pricing model assuming a risk-free interest rate of 5% and a weighted-average expected life of 5 years.

	2003			2002
Net (loss), as reported	$	(93,911	)	$	(282,555	)
Less total stock-based employee compensation expense determined under fair value based method for all awards		(2,669	)		(2,001	)
Pro forma net income	$	(96,580	)	$	(284,556	)

The impact of accounting for the stock options in accordance with FASB 123 would have no effect on the earnings per share information presented above.

Shipping and handling costs:    Shipping and handling costs are included in selling, general and administrative expenses. Shipping and handling costs were approximately $25,000, $51,000 and $27,000 in the years ending December 31, 2004, 2003 and 2002, respectively. Shipping and handling costs are not billed to customers.

Advertising:    Advertising costs are expensed as incurred. Advertising costs were approximately $5,000, $2,000 and $1,000 in the years ending 2004, 2003 and 2002, respectively, and were included in selling, general and administrative expenses.

F-49

SPECIALTY PHARMACIES, INC

NOTES TO FINANCIAL STATEMENTS—(Continued)

Acquisition:    On January 30, 2002, the Company acquired certain assets of Procare Pharmacy with one pharmacy located in Dallas, Texas and one pharmacy in Seattle, Washington. The purchase price of these two locations was $287,851 for the Dallas pharmacy and $402,823 for the Seattle pharmacy. The estimated fair values of assets acquired were allocated to inventory, $413,003 and finite lived intangible assets, $277,671.

Note 2. Leases

The Company conducts its operations in premises leased under operating leases which expire through March 2008. Rental expense was approximately $18,000, $16,000 and $23,000 for the years ended December 31, 2004, 2003 and 2002, respectively. Approximate future minimum rental payments under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2004 are as follows:

Year ended December 31
2005	$	19,000
2006		17,000
2007		18,000
2008		5,000
	$	59,000

Capital lease obligations: The Company leases equipment which has a depreciated cost of approximately $33,000 and $46,000 as of December 31, 2004 and 2003, respectively, under a capital lease arrangement.

Approximate future minimum commitments at December 31, 2004 under the noncancelable capital lease are as follows:

2005	$	4,400
2006		4,400
2007		2,900
Total minimum lease payments		11,700
Less amounts representing interest at 6%		1,000
Present value of net minimum lease payments	$	10,700

Note 3. Concentrations of Credit Risk and Major Third-Party Payor

The Company provides prescription medications to customers located primarily in California and Washington. A significant number of the Company’s customers have a substantial amount of their costs paid by third-party reimbursement programs. Under a California third-party reimbursement program, the Company had net sales of approximately $18,549,000, $9,058,000 and $748,000 for the years ended December 31, 2004, 2003 and 2002, respectively. At December 31, 2004 and 2003, the Company had an aggregate outstanding receivable from this program of approximately $1,232,000 and $611,000, respectively.

Credit losses relating to customers historically have been minimal and within management’s expectations.

Note 4. Major Suppliers

During the years ended December 31, 2004 and 2003, all of the Company’s purchases of prescription medications were from one vendor and for the year ended December 31, 2002, all purchases were from two vendors. Such purchases are shown as cost of sales on the accompanying statements of income.

F-50

SPECIALTY PHARMACIES, INC

NOTES TO FINANCIAL STATEMENTS—(Continued)

Note 5. Employee Benefit Plan

The Company has an employee retirement savings plan (401(k) plan) covering substantially all employees. Employees can make elective deferral contributions up to the maximum allowed each year by law. The Company did not make any discretionary or matching contributions to the plan.

Note 6. Stock-Based Compensation

On November 1, 2003, the Company entered into an agreement with its majority shareholder that provides for the beneficial rights to 100,000 shares of common stock in consideration for his future services provided to the Company and his personal guarantee of the Company’s liability to its major supplier. This agreement provides the shareholder with the right to vote and receive profits and distributions on such shares. The agreement shall continue until October 31, 2005 or until such time as the shareholder elects to renounce his personal guarantee. The Company recognized compensation expense related to this agreement of approximately $155,000, $53,000 and none for the years ending December 31, 2004, 2003 and 2002, respectively.

On November 1, 2003, the Company entered into an agreement with a shareholder that grants 50,000 shares of common stock to him in consideration for his services. The shareholder has no ownership rights in the common stock prior to November 1, 2005, at which time he shall have all rights of ownership in such shares. The agreement also provides for a prorata rate of ownership if the Company were to be sold prior to November 1, 2005. The Company recognized compensation expense of approximately $14,000, $2,000 and none for the years ending December 31, 2004, 2003 and 2002, respectively.

On November 1, 2003, the Company issued 150,000 shares of common stock to two of its shareholders in consideration for services provided. The Company recognized approximately $84,000 in compensation expense related to this issuance.

Note 7. Stock Options

In 2002, the Company began a stock option plan that allowed for the granting of 500,000 additional shares of common stock. The plan provides for the grant of options at an exercise price not less than the fair market value of the common stock, as determined by management on the date of grant. The plan is intended to promote stock ownership by employees, directors and officers of the Company to increase their proprietary interest in the growth and success of the Company and to encourage them to remain in the service of the Company. All awards to date are incentive stock options.

Options granted under the plan have a term of ten years and become exercisable over a period of 4 years with 25% after the first year and an additional 6.25% each quarter thereafter.

The Company issued 50,000 options on January 9, 2002 at $1 per share. These options were forfeited on September 2003 with none of the options being exercised. As of December 31, 2004, there were no options outstanding under this agreement.

Note 8. Fair Value of Financial Instruments

The carrying amount of cash, accounts receivable and accounts payable approximate their fair value.

Note 9. Commitment

The Company has an agreement with an employee that provides for the payment of $1,200,000 upon the sale of the Company, provided the employee continues to be employed with the successor company. In connection with the subsequent event discussed in Note 11, this agreement was terminated.

F-51

SPECIALTY PHARMACIES, INC

NOTES TO FINANCIAL STATEMENTS—(Continued)

Note 10. Discontinued Operations

On June 16, 2003, the Company closed its pharmacy in Dallas, Texas and sold the related assets for approximately $206,000. Net revenues of the Dallas pharmacy were approximately $1,048,000 for the year-to-date period ended June 16, 2003 and $2,672,000 for the year ended December 31, 2002.

Note 11. Subsequent Event

On February 28, 2005, MOMS Pharmacy, Inc., a California corporation and wholly owned subsidiary of Allion Healthcare, Inc., a Delaware corporation, entered into a Stock Purchase Agreement with the owners of 100% of the stock of the Company. On the same day, MOMS Pharmacy acquired 100% of the stock of the Company from the owners in accordance with the terms of the Stock Purchase Agreement. In addition, MOMS Pharmacy paid a total of $1,200,000 to an employee in consideration for the employee’s surrender of his contractual rights in connection with the agreement discussed in Note 9. As a result of these transactions, the Company became a wholly-owned subsidiary of MOMS Pharmacy and also voluntarily terminated its S Corporation status.

F-52

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of,

Medicine Made Easy

Torrance, CA

We have audited the accompanying balance sheets of Medicine Made Easy as of December 31, 2002 and 2001 and the related statements of operations and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Medicine Made Easy as of December 31, 2002 and 2001 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As described in Note 12, as of May 1, 2003 the Company was acquired by another company.

/S/    BDO SEIDMAN        

BDO Seidman, LLP

Melville, New York

July 3, 2003

F-53

MEDICINE MADE EASY

BALANCE SHEETS

	Year Ended December 31,
	2002			2001
ASSETS
Current Assets:
Cash and cash equivalents	$	525,158		$	71,675
Accounts receivable (Note 4)		691,669			1,017,846
Inventories		403,382			223,795
Loan receivable—stockholder (Note 8)		50,824			87,159
Prepaid expenses and other current assets		8,800			27,045
Total Current Assets	$	1,679,833		$	1,427,520
Property and equipment, net (Note 3)		236,509			294,955
Other assets		—			24,072
Total Assets	$	1,916,342		$	1,746,547
LIABILITIES AND STOCKHOLDERES’ EQUITY (DEFICIT)
Current Liabilities:
Accounts payable (Note 9)	$	1,961,412		$	1,250,375
Loans payable—stockholders (Note 8)		18,524			60,000
Income taxes payable (Note 5)		1,000			21,000
Deposit on acquisition and other (Note 12)		214,347			—
Total Current Liabilities	$	2,195,283		$	1,331,375
COMMITMENTS AND CONTIGENCIES (NOTES 6, 10 and 11)
Stockholders’ Equity (DEFICIT):
Common Stock, $0.01 par value; 1,000,000 shares authorized, 10,000 shares issued and outstanding		100			100
Additional paid in capital		21,401			21,401
Retained earnings (DEFICIT)		(300,442	)		393,671
Total Stockholders’ Equity (DEFICIT)		(278,941	)		415,172
Total Liabilities and Stockholders’ Equity (DEFICIT)	$	1,916,342		$	1,746,547

See accompanying notes to financial statements.

F-54

MEDICINE MADE EASY

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

	Year Ended December 31,
	2002			2001
NET SALES (Note 4)	$	21,745,621		$	12,670,336
COST OF GOODS SOLD (Note 9)		17,968,358			10,148,449
GROSS PROFIT	$	3,777,263		$	2,521,887
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		4,461,255			2,455,794
OPERATING (LOSS) INCOME	$	(683,992	)	$	66,093
OTHER INCOME (EXPENSE):
Interest (expense) income		(2,311	)		18,446
Other income (expense), net		10,311			(19,949	)
Total other income (expense)	$	8,000		$	(1,503	)
(LOSS) INCOME BEFORE INCOME TAXES (BENEFIT)		(675,992	)		64,590
(BENEFIT) PROVISION FOR INCOME TAXES (Note 5)		(20,000	)		21,000
NET (LOSS) INCOME	$	(655,992	)	$	43,590
Retained earnings, beginning of year	$	393,671		$	350,081
Dividend paid to stockholder		(38,121	)		—
Retained earnings (DEFICIT), end of year	$	(300,442	)	$	393,671

See accompanying notes to financial statements

F-55

MEDICINE MADE EASY

STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(655,992	)	$	43,590
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		122,825			71,428
Net book value of auto given to employee as compensation		24,574			—
Changes in operating assets and liabilities:
Accounts Receivable		326,177			(362,585	)
Inventories		(179,587	)		(103,295	)
Prepaid expenses and other assets		42,317			(12,685	)
Accounts payable and accrued expenses		705,384			620,160
Net cash provided by operating activities	$	385,698		$	256,613
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment	$	(127,074	)	$	(266,130	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loan from stockholder	$	—		$	60,000
Proceeds from line of credit		300,000			—
Repayment of line of credit		(300,000	)		—
Deposit on acquisition		200,000
Repayment of loan from stockholder		36,335			39,970
Repayment of loan to stockholder		(41,476	)		(18,778	)
Net cash provided by (used in) financing activities	$	194,859		$	81,192
NET INCREASE IN CASH AND CASH EQUIVALENTS	$	453,483		$	71,675
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		71,675			—
CASH AND CASH EQUIVALENTS, END OF YEAR	$	525,158		$	71,675
**     Supplemental Disclosure
Income Taxes Paid	$	800		$	16,730
Interest Paid	$	2,311		$	—

See accompanying notes to financial statements.

Non-Cash Financing Activity

During 2002 the Company distributed to a stockholder an automobile and other property with a net book value of $38,121.

F-56

MEDICINE MADE EASY

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2002 AND 2001

NOTE 1. THE COMPANY

Medicine Made Easy (“MME”) (the “Company”) distributes specialty prescription medication services. MME was incorporated in January 1999 in the State of California.

The accompanying financial statements reflect the financial position and results of operations of MME on a historical cost basis.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVENTORIES.    Inventories consist entirely of pharmaceuticals available for sale. Inventories are recorded at lower of cost or market, cost being determined on a first-in, first-out (“FIFO”) basis.

USE OF ESTIMATES BY MANAGEMENT.    The preparation of the Company’s financial statements in conformity with generally accepted accounting principles require the Company’s management to make certain estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Such estimates primarily relate to accounts receivable, inventory and deferred tax valuation. Actual results could differ from those estimates.

PROPERTY AND EQUIPMENT.    Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives of three to five years.

REVENUE RECOGNITION.    Revenue is recognized as medications or products are delivered or mailed to customers. A substantial portion of the Company’s revenue is billed to third-party payors, including insurance companies, managed care plans and governmental payors. Revenue is recorded net of contractual adjustments and related discounts. Contractual adjustments represent estimated differences between billed revenues and amounts expected to be realized from third-party payors under contractual agreements.

INCOME TAXES.    The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount currently estimated to be realized.

CASH EQUIVALENTS.    For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

CREDIT RISK.    Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. The Company places its cash equivalents with financial institutions. The Company’s customer base consists of a large number of diverse customers. The Company has substantially all of its cash in one bank account. The balance is insured by FDIC up to $100,000. Such cash balances, at times, may exceed FDIC limits. The Company has not experienced any losses in such accounts. The Company’s trade receivables represent a broad customer base. The Company routinely assesses the financial strengths of its customers. As a consequence, concentrations of credit risk are limited.

ALLOWANCE FOR DOUBTFUL ACCOUNTS.    Management regularly reviews the collectability of accounts receivable by tracking collection and write-off activity. Estimated write-off percentages are then applied to each aging category by payor classification to determine the allowance for estimated uncollectable accounts.

F-57

MEDICINE MADE EASY

NOTES TO FINANCIAL STATEMENTS—(Continued)

YEARS ENDED DECEMBER 31, 2002 AND 2001

The allowance for estimated uncollectable accounts is adjusted as needed to reflect current collection, write-off and other trends, including changes in assessment of realizable value. While management believes the resulting net carrying amounts for accounts receivable are fairly stated and that the Company has made adequate provisions for uncollectable accounts based on all information available, no assurance can be given as to the level of future provisions for uncollectable accounts, or how they will compare to the levels experienced in the past. The Company’s ability to successfully collect its accounts receivable depends, in part, on its ability to adequately supervise and train personnel in billing and collection, and minimize losses related to system changes. An allowance for doubtful accounts was not considered necessary at December 31, 2002 and 2001.

SHIPPING AND HANDLING COSTS.    Shipping and handling costs that are incurred are included in selling, general and administrative expenses. Shipping and handling costs were approximately $301,000, and $206,000 in 2002 and 2001, respectively. Shipping and handling costs are not billed to customers.

LONG-LIVED ASSETS.    The carrying values of long-lived assets are periodically reviewed to determine if any impairment indicators are present. If it is determined that such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization and depreciation period, their carrying values are reduce to estimated fair value. No such impairment existed at December 31, 2002.

NEW PRONOUNCEMENTS.    In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.” FIN 46 requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. Variable interest entities that effectively disperse risk will not be consolidated unless a single party holds an interest or combination of interests that effectively recombines risks that were previously dispersed. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The adoption of FIN 46 is not expected to have a material effect on the Company’s financial statements. In May 2003, the FASB issued Statement of Financial Account Standards (“SFAS”) 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 is not expected to have a material effect on the Company’s financial statements.

F-58

MEDICINE MADE EASY

NOTES TO FINANCIAL STATEMENTS—(Continued)

YEARS ENDED DECEMBER 31, 2002 AND 2001

NOTE 3. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	December 31, 2002			December 31, 2001
Furniture and fixtures	$	9,026		$	7,284
Machinery and equipment		145,325			50,230
Leasehold improvements		177,045			175,074
Delivery vehicles		109,845			162,143
		441,241			394,731
Less accumulated depreciation and amortization		(204,732	)		(99,776	)
Property and equipment, net	$	236,509		$	294,955

Depreciation of property and equipment for the years ended December 31, 2002 and 2001 approximated $ 123,000 and $ 71,000 respectively.

NOTE 4. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

The concentration of credit risk in the Company’s accounts receivable is mitigated by the large number of customers and by ongoing credit evaluations performed by the Company.

For the years ended December 31, 2002 and 2001 revenues from Medi-Cal and Aids Drug Assistance Program approximated $19,744,000 and $11,412,000 respectively.

Included in accounts receivable as of December 31, 2002 and 2001 are accounts receivable from Medicaid and Aids Drug Assistance Program approximating $592,000 and $916,000, respectively.

NOTE 5. INCOME TAXES

A reconciliation of the income tax expense (benefit) computed at the statutory Federal income tax rate to the reported amount follows:

	Year Ended December 31,
	2002			2001
Federal statutory rate:		34	%		15	%
Tax (benefit) provision at Federal statutory rates	$	(230,000	)	$	10,000
State income taxes		(39,000	)		5,000
Valuation allowance		249,000			6,000
Total	$	(20,000	)	$	21,000

At December 31, 2002, the Company had net operating carry-forwards loss for tax purposes of approximately $493,000 expiring at various dates through 2022. As a result of the change in ownership, certain limitations may apply to this net operating loss carry-forward.

F-59

MEDICINE MADE EASY

NOTES TO FINANCIAL STATEMENTS—(Continued)

YEARS ENDED DECEMBER 31, 2002 AND 2001

The provision (benefit) for income taxes is comprised of the following components:

	Year Ended December 31,
	2002			2001
Current:
Federal	$	(13,000	)	$	13,000
State		(7,000	)		8,000
Total	$	(20,000	)	$	21,000

Deferred tax assets comprise the following:

	December 31,
	2002			2001
Depreciation and amortization	$	19,000		$	9,000
Accrued expenses		14,000			—
Benefit of net operating loss carry-forward		197,000			—
Gross deferred tax assets	$	230,000		$	9,000
Valuation allowance		(230,000	)		(9,000	)
Net deferred tax assets	$	—		$	—

NOTE 6. LEASE COMMITTMENTS

The Company leases office space in Torrance, San Diego and San Francisco, California. The lease for the Torrance space expires in December 2005; the lease for the San Diego space expires in October 2003; and the San Francisco space lease expires in April 2004. As of December 31, 2002, the Company’s lease commitments provide for the following minimum annual rentals.

2003	$	194,026
2004		192,579
2005		138,750
	$	525,355

During the years ended December 31, 2002 and 2001, rental expense approximated to $214,000 and $128,000 respectively.

NOTE 7. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash, current receivables and payables and certain other short-term financial instruments approximate their fair value due to the short-term maturity of these items.

NOTE 8. RELATED PARTY TRANSACTIONS

At December 31, 2002 and 2001 MME was a guarantor on a loan to a shareholder for the purchase of 2330 West 205 Street. The stockholder is the landlord of 2330 West 205 Street, from which MME leases the space.

F-60

MEDICINE MADE EASY

NOTES TO FINANCIAL STATEMENTS—(Continued)

YEARS ENDED DECEMBER 31, 2002 AND 2001

2002 and 2001 lease payments were $ 120,000 and $110,000, respectively. Effective May 1, 2003, MME is no longer the guarantor on the loan due to the acquisition.

At December 31, 2002 and 2001, a stockholder owed the company $50,824 and $87,159, respectively. This loan is an unsecured demand loan with an annual interest rate of 4.50%.

At December 31, 2002 and 2001, the Company owed stockholders $18,524 and $60,000, respectively. This loan is an unsecured demand loan with an annual interest rate of 4.50%.

NOTE 9. MAJOR SUPPLIERS

During the years ended December 31, 2002 and 2001, the Company purchased approximately $17,996,000 and $10,199,000, respectively from a major supplier. Amounts due to this supplier on December 31, 2002 and 2001 were approximately $1,745,000 and $1,110,000, respectively.

NOTE 10. EMPLOYEE BENEFIT PLAN

The Company has a savings and investment 401(k) plan whereby eligible employees can contribute up to 10% of eligible salary to the plan. The Company may elect to match a portion of such employee contributions, or, in certain circumstances, may be required to match up to 3% of employee compensation. Plan members are fully vested as to the matching contributions immediately. During the years ended December 31, 2002 and 2001, the Company contributed approximately $53,000 and $39,000 to the plan, respectively. In addition, the Company pays all plan administrative expenses.

NOTE 11. REVOLVING CREDIT LINE

The Company has a revolving credit facility in the amount of $150,000 available for short-term borrowings. Borrowings under the facility bear interest at 5.25% and were collateralized by a personal guarantee by a stockholder of the Company. As of December 31, 2002 and 2001 there were no balances outstanding under this line of credit. This credit facility expires on February 16, 2007, but, as of May 1, 2003, this credit line is no longer available due to the acquisition (see Note 12).

NOTE 12. SUBSEQUENT EVENTS

On May 1, 2003, Allion Healthcare, Inc. acquired Meds Made Easy (MME). The aggregate consideration for the acquisition was $4,950,000, subject to post-closing adjustments, and warrants to purchase 227,273 shares of Allion Healthcare, Inc. common stock for $11.00 per share. $200,000 of the purchase price was paid in cash prior to closing as a partial lock-up fee as of December 31, 2002. Prior to closing, an additional $100,000 lock-up fee was paid in cash during the first quarter. $2,250,000 of the purchase price was paid in cash at closing. $1,150,000 of the purchase price was paid by subordinated secured promissory notes payable on the first anniversary of the closing. The remaining $1,250,000 was paid by subordinated secured promissory notes payable due on the second anniversary of the closing. These notes payable accrue interest at a rate of Prime Rate plus 2% per annum. The notes payable are secured by cash, cash equivalents, accounts receivable, inventory, fixed and other assets of Allion Healthcare, Inc.

CALIFORNIA AIDS DRUG ASSISTANCE PROGRAM (ADAP) AUDIT.    ADAP has commenced a review of the Company’s billing in California. In particular, ADAP will review whether the appropriate procedures were followed and whether the requisite consents were obtained. The Company is in the process of providing ADAP with the requested documents.

F-61

PROSPECTUS                  , 2005

4,000,000 Shares

Common Stock

Thomas Weisel Partners LLC

William Blair & Company

First Albany Capital

You may rely on the information contained in this prospectus. Neither we nor any of the underwriters have authorized anyone to provide information different from that contained in this prospectus. When you make a decision about whether to invest in our common stock, you should not rely upon any information other than the information in this prospectus. Neither the delivery of this prospectus nor sale of common stock means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or solicitation of an offer to buy these shares of the common stock in any circumstances under which the offer or solicitation is unlawful.

Until             , 2005 (25 days after the commencement of this offering), all dealers that buy, sell or trade these shares of common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the various fees and expenses expected to be incurred by us in connection with the sale and distribution of the securities being registered hereby, other than underwriting discounts and commissions. All of the amounts shown are estimated except the SEC registration fee, the NASD filing fee and the Nasdaq National Market listing fee.

	Amount to be Paid
SEC Registration Fee	$	7,580
NASD Filing Fee	$	6,940
Nasdaq National Market Listing Fee	$	100,000
Printing and Engraving Expenses	$	250,000
Legal Fees and Expenses	$	1,200,000
Accounting Fees and Expenses	$	350,000
Transfer Agent and Registrar Fees and Expenses	$	10,000
Blue Sky Fees and Expenses	$	25,000
Miscellaneous Expenses	$	50,480
Total	$	2,000,000

Item 14. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation’s board of directors to grant, indemnity to officers, directors and other corporate agents under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit indemnification under certain circumstances for liabilities arising under the Securities Act, including reimbursement of expenses incurred.

As permitted by Delaware General Corporation Law, our third amended and restated bylaws provide that we shall indemnify our directors, officers, to the full extent permitted by Delaware General Corporation Law, including in circumstances in which indemnification is otherwise discretionary under Delaware law. Delaware General Corporation Law does not permit indemnification in the following circumstances:

• any breach of the director’s duty of loyalty to us or our stockholders;

• acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

• unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of Delaware General Corporation Law; or

• any transaction from which the director derived an improper personal benefit.

As permitted by Delaware General Corporation Law, our third amended and restated bylaws provide that:

• we are required to indemnify our directors and officers to the fullest extent permitted by Delaware General Corporation Law, subject to limited exceptions where indemnification is not permitted by applicable law;

• we are required to advance expenses, as incurred, to our directors and officers in connection with a legal proceeding to the fullest extent permitted by Delaware General Corporation Law, subject to certain limited exceptions; and

II-1

• the rights conferred in the bylaws are not exclusive.

We intend to obtain an additional directors’ and officers’ insurance policy to cover our directors and officers for certain liabilities, including coverage for public securities matters.

Reference is also made to the underwriting agreement filed as Exhibit 1.1 to this registration statement which provides for indemnification by our underwriters of our directors and officers who sign this registration statement for certain liabilities arising under the Securities Act, or otherwise.

Item 15. Recent Sales of Unregistered Securities

For the past three years, we have issued and sold unregistered securities in the transactions described below.

From time to time, we have granted options and warrants to acquire shares of common stock to employees and members of our board of directors. The following sets forth certain information about such grants:

Year	Number of shares	Range of Exercise Prices
2002	682,500	$1.00-$3.50
2003	60,000	$5.00
2004	699,250	$6.00-$6.25
2005	0	$0.0

On June 30, 2002, we issued warrants to purchase 7,500 shares of our common stock to Covington Associates at an exercise price of $1.00 per share.

On June 30, 2002, we issued warrants to purchase 10,000 shares of our common stock to Hazen & Terrill at an exercise price of $2.00 per share.

In April 2003, we sold 1,235,000 shares of Series C convertible preferred stock to a group of accredited investors at $5.00 per share and received net proceeds of approximately $6,063,682.

On May 1, 2003, we issued warrants to purchase 227,273 shares of our common stock to the previous owners of Medicine Made Easy at an exercise price of $11.00 per share.

On October 1, 2003, we issued warrants to purchase 125,000 shares of our common stock to John Pappajohn, one of our directors, in connection with the private placement of Series C convertible preferred stock that occurred in April 2003, at an exercise price of $5.00 per share.

In April and May 2004, we sold 1,491,828 shares of Series D convertible preferred stock to a group of accredited investors at $6.00 per share and received net proceeds of approximately $8,806,958. Sands Brothers Venture Capital and Roth Capital served as placement agents for our Series D preferred stock offering.

On April 16, 2004, we issued warrants to purchase 24,000 shares of our common stock to Roth Capital at a warrant price of $6.00 per share as partial placement fees for our Series D convertible preferred stock.

On May 26, 2004, we issued warrants to purchase 90,493 shares of our common stock to Sands Brothers at an exercise price of $6.00 per share as partial placement fees for our Series D convertible preferred stock.

On December 23, 2004, we issued 5-year warrants to purchase 53,121 shares of our common stock to Sands Brothers at a warrant price of $6.25 per share as partial placement fees for our Series E convertible preferred stock.

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In December 2004, we sold 664,013 shares of Series E convertible preferred stock to certain accredited investors at a per share price of $6.25 per share and received net proceeds of $4,150,081. Sands Brothers Venture Capital and Roth Capital served as placement agents for our Series E preferred stock offering.

On January 4, 2005, as partial consideration for our acquisition of North American Home Health Supply Inc., we issued warrants to purchase 150,000 shares of our common stock to the former owners of North American Home Health Supply Inc. at an exercise price of $6.26 per share.

On February 28, 2005, as partial consideration for our acquisition of Specialty Pharmacies, Inc., we issued warrants to purchase 351,438 shares of our common stock to the former owners of Specialty Pharmacies, Inc. at an exercise price of $6.26 per share.

In April 2005, we issued warrants to purchase 100,000 shares of common stock to Mr. Pappajohn with a warrant price equal to the initial offering price as consideration for his continuing guaranty of our West Bank note.

In May 2005, we issued warrants to purchase 40,000 shares of common stock with a warrant price equal to the per share price in this offering to an institutional accredited investor who acquired a $2.0 million subordinated note.

We believe the sale and issuance of securities in the transactions described above were exempt from registration under the Securities Act pursuant to Section 4(2) thereof, Regulation D promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and contracts relating to compensation as provided for in Rule 701. The recipients of securities in each such transaction presented their intention to acquire securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and instruments issued in such transactions. All recipients received or had access to adequate information about us.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

1.1	Form of Underwriting Agreement.
2.1	Confirmation Order dated February 1, 1999. (Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on October 10, 1999.)
2.2	First Amended Plan of Reorganization of The Care Group, Inc., et al. dated January 2, 1998. (Incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed on October 10,1999.)
2.3	Stock Purchase Agreement, dated as of May 1, 2003, among MOMS Pharmacy, Inc., as buyer, Allion Healthcare, Inc. as parent, and Darin A Peterson and Allan H. Peterson collectively as sellers. (Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on May 16, 2003.)
2.4	Stock Purchase Agreement by and among MOMS Pharmacy, Inc. and Michael Stone and Jonathan Spanier dated as of January 4, 2005. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 10, 2005.)
2.5	Stock Purchase Agreement by and among MOMS Pharmacy, Inc. and Pat Iantorno, Eric Iantorno, Jordan Iantorno, Jordan Iantorno A/C/F Max Iantorno, Michael Winters and George Moncada dated as of February 28, 2005. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 4, 2005.)
2.6	Asset Purchase Agreement by and among MOMS Pharmacy, Inc. and Oris Medical Systems, Inc. dated as of May 19, 2005.
3.1	Amended and Restated Certificate of Incorporation of the Registrant. (Incorporated by reference to Exhibit A to the Registrant’s proxy statement filed on June 4, 2003.)

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3.2	Certificate of Designation of Rights and Preferences of Series A Preferred Stock of Allion Healthcare, Inc. (Incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2005.)
3.3	Amended and Restated Certificate of Designation of Rights and Preferences of Series B Preferred Stock of Allion Healthcare, Inc. (Incorporated by reference to Exhibit 3.3 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2005.)
3.4	Certificate of Designation of Rights and Preferences of Series C Preferred Stock of Allion Healthcare, Inc. (Incorporate by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-KSB filed on April 16, 2003.)
3.5	Certificate of Designation of Rights and Preferences of Series D Preferred Stock of Allion Healthcare, Inc. (Incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2005.)
3.6	Certificate of Designation of Rights and Preferences of Series E Preferred Stock of Allion Healthcare, Inc. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on December 20, 2004.)
3.7	Second Amended and Restated By-laws of the Registrant. (Incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-KSB filed on April 15, 2003.)
3.8	Third Amended and Restated Bylaws of the Registrant.
3.9	Certificate of Correction of Allion Healthcare, Inc., relating to the Certificate of Designation of Rights and Preferences of Series D Preferred Stock.
3.10	Certificate of Correction of Allion Healthcare, Inc., relating to the Certificate of Designation of Rights and Preferences of Series E Preferred Stock.
3.11	Certificate of Correction of Allion Healthcare, Inc., relating to the Certificate of Designation of Rights and Preferences of Series C Preferred Stock.
3.12	Certificate of Correction of Allion Healthcare, Inc., relating to the Amended and Restated Certificate of Incorporation.
4.1	Warrant to Purchase Common Stock of Allion Healthcare, Inc. issued to Darin A. Peterson, as of May 1, 2003. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on May 16, 2003.)
4.2	Warrant to Purchase Common Stock of Allion Healthcare, Inc. issued to Allan H. Peterson, as of May 1, 2003. (Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report of Form 8-K filed on May 16, 2003.)
4.3	Form of Warrant to Purchase Common Stock of Allion Healthcare, Inc. issued to the former owners of North American Home Health Supply, Inc., as of January 4, 2005. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report of Form 8-K filed on January 10, 2005.)
4.4	Form of Warrant to Purchase Common Stock of Allion Healthcare, Inc. issued to the former owners of Specialty Pharmacies Inc., as of February 28, 2005. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report of Form 8-K filed on March 4, 2005.)
4.5	Subordinated Secured Promissory Note of Allion Healthcare, Inc. dated as of May 1, 2003, in the principal amount of $1,187,500, issued to Darin A. Peterson. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on May 16, 2003.)
4.6	Subordinated Secured Promissory Note of Allion Healthcare, Inc., dated as of May 1, 2003, in the principal amount of $62,500, issued to Allan H. Peterson. (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on May 16, 2003.)

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4.7	Subordinated Secured Promissory Notes of Allion Healthcare, Inc., dated as of January 4, 2005, in the aggregate amount of $1,375,000, issued to the former owners of North American Home Health Supply, Inc. (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on January 10, 2005.)
4.8	Subordinated Secured Promissory Notes of Allion Healthcare, Inc., dated as of February 28, 2005, in the aggregate amount of $1,900,000, issued to the former owners of Specialty Pharmacies, Inc. (Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on March 4, 2005.)
4.9	Continuing Guaranty of Allion Healthcare, Inc. Indebtedness to West Bank by Guarantor John Pappajohn dated as of December 16, 1999. (Incorporated by reference to Exhibit 4.7 to the Registrant’s Annual Report on Form 10-KSB filed on April 14, 2004.)
4.10	Guaranty given by Allion Healthcare, Inc. to and for the benefit of Michael Stone and Jonathan Spanier dated as of January 4, 2005. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on January 10, 2005.)
4.11	Promissory Note of Allion Healthcare, Inc. dated as of March 31, 2005, in the principal amount of $1,500,000 issued to West Bank.
4.12	Warrant to Purchase Common Stock of Allion Healthcare, Inc. issued to John Pappajohn on January 11, 2000.
4.13	Warrant to Purchase Common Stock of Allion Healthcare, Inc. issued to John Pappajohn on October 1, 2003.
4.14	Warrant to Purchase Common Stock of Allion Healthcare, Inc. issued to John Pappajohn on April 15, 2005. (Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on April 21, 2005.)
4.15	Warrant to purchase common stock of Allion Healthcare, Inc. issued to Crestview Capital Master, LLC on May 13, 2005. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 18, 2005.)
4.16	Form of Stock Certificate.
5.1	Opinion of Kirkland & Ellis LLP.
10.1	Registration Rights Agreement, dated as of October 30, 2001, by and between Allion Healthcare, Inc. and Gainesborough, L.L.C. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on 10-KSB/A filed in May 2004.)
10.2	Registration Rights Agreement issued to the holders of Series E convertible preferred stock, dated as of December 17, 2004 (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on December 20, 2004.)
10.3	1998 Stock Option Plan. (Incorporated by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2005.)
10.4	2002 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K filed on April 15, 2003.)
10.5	Loan and Security Agreement, dated as of April 21, 1999, by and among the Registrant, The Care Group of Texas Inc., Care Line of Houston, Inc., Mail Order Meds, Inc., Care Line of New York, Inc., Commonwealth Certified Home Care, Inc. and HCFP Funding, Inc. (Incorporated by reference to Exhibit 10.6 to the Registrant’s Annual Report on Form 10-KSB filed on April 14, 2004.)
10.6	Amendment No. 1 to Loan and Security Agreement, executed as of July 27, 2001 and effective as of April 21, 2001, by and among the Registrant, The Care Group of Texas Inc., Care Line of Houston, Inc., Mail Order Meds, Inc., Care Line of New York, Inc., Commonwealth Certified Home Care, Inc. and Heller Healthcare Finance, Inc. (f/k/a HCFP Funding, Inc.) (Incorporated by reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-KSB filed on April 14, 2004.)

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10.7	Amendment No. 2 to Loan and Security Agreement, dated as of April 2002, by and among the Registrant, The Care Group of Texas, Inc., Care Line of Houston, Inc., Mail Order Meds, Inc., Care Line of New York, Inc., Commonwealth Certified Home Care, Inc. and Heller Healthcare Finance, Inc. (f/k/a HCFP Funding, Inc.) (Incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-KSB filed on April 14, 2004.)
10.8	Amendment No. 3 and Consent to Loan and Security Agreement, dated as of May 28, 2003, by and among the Registrant, The Care Group of Texas, Inc., Care Line of Houston, Inc., Mail Order Meds, Inc., Care Line of New York, Inc., Commonwealth Certified Home Care, Inc. and Heller Healthcare Finance, Inc. (f/k/a HCFP Funding, Inc.) (Incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-KSB filed on April 14, 2004.)
10.9	Amendment No. 4 to Loan and Security Agreement, dated as of September 2003, by and among the Registrant, The Care Group of Texas, Inc., Care Line of Houston, Inc., Mail Order Meds, Inc., Care Line of New York, Inc., Commonwealth Certified Home Care, Inc. and Heller Healthcare Finance, Inc. (f/k/a HCFP Funding, Inc.) (Incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-KSB filed on April 14, 2004.)
10.10	Agreement of Lease Between Reckson Operating Partnership, L.P and Allion Healthcare, Inc. (Incorporated by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-KSB filed on April 14, 2004.)
10.11	Amendment No. 5 to Loan and Security Agreement, dated as of January 2005, by and among the Registrant, The Care Group of Texas, Inc., Care Line of Houston, Inc., Mail Order Meds, Inc., Care Line of New York, Inc., Commonwealth Certified Home Care, Inc. and Heller Healthcare Finance, Inc. (f/k/a HCFP Funding, Inc.) (Incorporated by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2005.)
10.12	Amendment No. 6 to Loan and Security Agreement, dated as of February 2005, by and among the Registrant, The Care Group of Texas, Inc., Care Line of Houston, Inc., Mail Order Meds, Inc., Care Line of New York, Inc., Commonwealth Certified Home Care, Inc. and Heller Healthcare Finance, Inc. (f/k/a HCFP Funding, Inc.) (Incorporated by reference to Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2005.)
10.13	AmerisourceBergen Prime Vendor Agreement dated September 15, 2003. (Incorporated by reference to Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2005.)
10.14	Letter Agreement with Oris Medical Systems, Inc. dated March 3, 2005 relating to potential software licensing arrangement under which we would secure an exclusive license from Oris Medical to use an electronic prescription writing system (Ground Zero Software’s LabTracker software). (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8K filed on March 7, 2005.)
10.15	Registration Rights Agreement, dated as of January 4, 2005, by and between Allion Healthcare, Inc. and Michael Stone and Jonathan Spanier. (Incorporated by reference to Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2005.)
10.15A	Amendment to Registration Rights Agreement dated as of May 19, 2005, between Allion Healthcare, Inc. and Michael Stone and Jonathan Spanier.
10.16	Lease for 1660 Walt Whitman Road, Melville, New York (Incorporated by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-KSB filed on April 14, 2004.)
10.17	Registration Rights Agreement, dated as of April 4, 2003 issued to the holders of Series C convertible preferred stock.
10.18	Form of Registration Rights Agreement, dated as of April 16, 2004 issued to the holders of Series D convertible preferred stock.
10.19	Form of Registration Rights Agreement, dated as of March 30, 2001 issued to the holders of Series A convertible preferred stock.
10.20	Note Purchase Agreement between Allion Healthcare, Inc. and Crestview Capital Master, LLC dated as of May 13, 2005. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on May 18, 2005.)

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10.21	Amendment No. 7 to Loan and Security Agreement, dated as of May 13, 2005 by and among Allion Healthcare, Inc., f/k/a The Care Group, Inc., Mail Order Meds of Texas, Inc., f/k/a Mail Order Meds, Inc., MOMS Pharmacy, Inc. (New York), f/k/a Mail Order Meds of New York, Inc., MOMS Pharmacy, Inc. (California), MOMS Pharmacy, LLC, Medicine Made Easy, North American Home Health Supply, Inc., Specialty Pharmacies, Inc. and GE HFS Holdings, Inc., f/k/a Heller Healthcare Finance, Inc., (f/k/a HCFP Funding, Inc.) (Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on May 18, 2005.)
10.22	Registration Rights Agreement dated as of May 13, 2005 by and between Allion Healthcare, Inc. and Crestview Capital Master, LLC. (Incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed on May 18, 2005.)
10.23	Amendment No. 8 to Loan and Security Agreement, dated as of May 17, 2005 by and among Allion Healthcare, Inc., f/k/a The Care Group, Inc., Mail Order Meds of Texas, Inc., f/k/a Mail Order Meds, Inc., MOMS Pharmacy, Inc. (New York), f/k/a Mail Order Meds of New York, Inc., MOMS Pharmacy, Inc. (California), MOMS Pharmacy, LLC, Medicine Made Easy, North American Home Health Supply, Inc., Specialty Pharmacies, Inc. and GE HFS Holdings, Inc., f/k/a Heller Healthcare Finance, Inc.
10.24	Noncompetition agreement by and between Allion Healthcare, Inc. and Mikelynn Salthouse dated as of August 27, 2002.
14.1	Code of Ethics.
21.1	Subsidiaries of the Registrant (previously filed).
23.1	Consent of BDO Seidman, LLP.
23.2	Consent of LWBJ, LLP.
23.3	Consent of McGladrey & Pullen.
24.1	Power of Attorney, included on the signature page hereof (previously filed).
99.1	Audit Committee Charter.

(b) Financial Statement Schedules

All schedules for which provision is made in the applicable accounting regulations of the Securities Exchange Commission are not required under the related instructions, are inapplicable or not material, or the information called for thereby is otherwise included in the financial statements and therefore have been omitted.

Item 17. Undertakings

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertake that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from a form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

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(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) The undersigned Registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on May 24, 2005.

ALLION HEALTHCARE, INC.
By:	/s/    JAMES G. SPENCER
	James G. Spencer Chief Financial Officer, Treasurer and Secretary

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/    MICHAEL P. MORAN         Michael P. Moran	Chairman of the Board, Chief Executive Officer and President	May 24, 2005
/s/    JAMES G. SPENCER         James G. Spencer	Chief Financial Officer, Secretary and Treasurer (Principal Financial and Principal Accounting Officer)	May 24, 2005
* John Pappajohn	Director	May 24, 2005
* Derace Schaffer, M.D.	Director	May 24, 2005
* James B. Hoover	Director	May 24, 2005
* John Colloton	Director	May 24, 2005
* Harvey Werblowsky	Director	May 24, 2005

*By:	/s/    JAMES G. SPENCER
	James G. Spencer Attorney-in-fact

II-9

EX-1.1

Exhibit 1.1

                     Shares

ALLION HEALTHCARE, INC.

COMMON STOCK

UNDERWRITING AGREEMENT

Dated                     , 2005

TABLE OF CONTENTS

			Page
1.	Representations and Warranties of the Company		2
	1.1	Effective Registration Statement	2
	1.2	Contents of Registration Statement	2
	1.3	Compliance with Securities Act	3
	1.4	Financial Statements of the Company and Acquired Companies	3
	1.5	Pro Forma Financial Statements	4
	1.6	Auditor Independence	4
	1.7	Due Incorporation	4
	1.8	Subsidiaries	4
	1.9	Authorization of Underwriting Agreement	5
	1.10	Pre-Closing Transactions	5
	1.11	Description of Capital Stock	5
	1.12	Outstanding Securities	5
	1.13	Validly Issued Shares	6
	1.14	No Registration Rights	6
	1.15	Nasdaq; Exchange Act Registration	6
	1.16	No Conflicts	7
	1.17	No Consents	7
	1.18	No Material Adverse Change	7
	1.19	Legal Proceedings; Statutes and Regulations	7
	1.20	Contracts	8
	1.21	Related Party Transactions	8
	1.22	Not an Investment Company	8
	1.23	No Violation	8
	1.24	Governmental Permits	9
	1.25	Properties	9
	1.26	Environmental	10
	1.27	Intellectual Property Rights	10
	1.28	No Labor Disputes	10
	1.29	Insurance	10
	1.30	Taxes	11
	1.31	No Price Stabilization or Manipulation	11
	1.32	Accounting Controls	11
	1.33	Exchange Act; Sarbanes-Oxley Act.	11
	1.34	Disclosure Controls and Procedures	12
	1.35	Brokers Fees	12
2.	Purchase and Sale Agreements		12
	2.1	Firm Shares	12
	2.2	Additional Shares	12
	2.3	Market Standoff Provision	13
	2.4	Terms of Public Offering	13
3.	Payment and Delivery		14
	3.1	Firm Shares	14
	3.2	Additional Shares	14
	3.3	Delivery of Certificates	14

-i-

TABLE OF CONTENTS

(continued)

			Page
4.	Covenants of the Company		15
	4.1	Furnish Copies of Registration Statement and Prospectus	15
	4.2	Notification of Amendments or Supplements	15
	4.3	Filings of Amendments or Supplements	15
	4.4	Blue Sky Laws	15
	4.5	Earnings Statement	16
	4.6	Use of Proceeds	16
	4.7	Transfer Agent	16
	4.8	Periodic Reporting Obligations	16
	4.9	Preparation of Prospectus	16
	4.10	Notification of Earnings Releases or Material News	16
5.	Conditions to the Underwriters’ Obligations		16
	5.1	Effective Registration Statement	17
	5.2	Rule 462(b) Registration Statement	17
	5.3	Prospectus Filed with Commission	17
	5.4	No Stop Order	17
	5.5	Nasdaq	17
	5.6	No NASD Objection	17
	5.7	Representations and Warranties	17
	5.8	No Material Adverse Change	18
	5.9	Officer’s Certificate	18
	5.10	Opinion of Company Counsel	18
	5.11	Opinion of Special Regulatory Counsel	18
	5.12	Opinion of Underwriters’ Counsel	18
	5.13	Comfort Letter from BDO Seidman, LLP.	19
	5.14	Comfort Letter from LWBJ, LLP.	19
	5.15	Comfort Letter from McGladrey & Pullen	19
	5.16	Lock-Up Agreements	19
	5.17	Pre-Closing Transactions	19
	5.18	Additional Documents	19
6.	Expenses		20
7.	Indemnity and Contribution		21
	7.1	Indemnification by the Company	21
	7.2	Indemnification by the Underwriters	21
	7.3	Indemnification Procedures	22
	7.4	Contribution Agreement	23
	7.5	Contribution Amounts	23
	7.6	Survival of Provisions	24
8.	Effectiveness		24
9.	Termination		24

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TABLE OF CONTENTS

(continued)

		Page
10.	Defaulting Underwriters	25
11.	Counterparts	26
12.	Headings; Table of Contents	26
13.	Notices	26
14.	Successors	27
15.	Partial Unenforceability	27
16.	Governing Law	27
17.	Consent to Jurisdiction	27
18.	Entire Agreement	28
19.	Amendments	28
20.	Sophisticated Parties	28
SCHEDULE A		30
SCHEDULE B		31
SCHEDULE C		32
EXHIBIT A-1		1
EXHIBIT A-2		1
EXHIBIT B		1
EXHIBIT C		1

-iii-

                    , 2005

Thomas Weisel Partners LLC

William Blair & Company, L.L.C.

First Albany Capital Inc.

    As Representatives of the several Underwriters

c/o Thomas Weisel Partners LLC

390 Park Avenue, 16^th Floor

New York, New York 10022

Ladies and Gentlemen:

Introduction. Allion Healthcare, Inc., a Delaware corporation (the “Company”), proposes to issue and sell to the several underwriters named in Schedule A hereto (the “Underwriters”), an aggregate of [                    ] shares of the common stock, par value $0.001 per share, of the Company (the “Firm Shares”).

The Company also proposes to issue and sell to the several Underwriters not more than an additional [                    ] shares of the Company’s common stock, par value $0.001 per share (the “Additional Shares”), if and to the extent that you shall have determined to exercise, on behalf of the Underwriters, the right to purchase such shares of common stock granted to the Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the “Shares.” The shares of common stock, par value $0.001 per share, of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the “Common Stock.” Thomas Weisel Partners LLC, William Blair and Company and First Albany Inc. have agreed to act as representatives of the several Underwriters (in such capacity, the “Representatives”) in connection with the offering and sale of the Shares.

The Company has prepared and filed with the Securities and Exchange Commission (the “Commission”), in accordance with the provisions of the Securities Act of 1933, as amended (the “Securities Act”), and the applicable rules and regulations thereunder, a registration statement on Form S-1 (Commission File No. 333-124099), including a prospectus, relating to the Shares. The term “Registration Statement” as used herein means the registration statement including all financial schedules and exhibits incorporated or deemed to be incorporated by reference therein (but excluding any information or statements therein that were incorporated, or deemed to be incorporated by reference to the extent such information or statements have been modified or superceded by any statement in the prospectus, or in any other document that was subsequently filed with the Commission and incorporated by reference in the prospectus or Registration Statement) as amended at the time it becomes effective or, if the registration statement became effective prior to execution of this Agreement, as supplemented or amended prior to the execution of this Agreement and includes information (if any) contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) of the rules under the

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Securities Act and deemed to be part thereof at the time of effectiveness pursuant to Rule 430A of the rules under the Securities Act. If it is contemplated, at the time this Agreement is executed, that a post-effective amendment to the registration statement will be filed and must be declared effective before the offering of the Shares may commence, the term “Registration Statement” as used herein means the registration statement as amended by said post-effective amendment. If the Company has filed, or files on or after the date of this Agreement, a registration statement to register additional shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the “Rule 462(b) Registration Statement”), then any reference herein to the term “Registration Statement” shall be deemed to include such Rule 462(b) Registration Statement. The prospectus in the form first used to confirm sales of Shares is hereinafter referred to as the “Prospectus.” All references in this Agreement to the Registration Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the Prospectus, or any amendments or supplements to any of the foregoing, shall include any copy thereof filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval System (“EDGAR”).

Immediately prior to the purchase of the Shares by the Underwriters on the Closing Date (as defined below):

(i) all of the outstanding shares of the Company’s Series A, Series B, Series C, Series D and Series E convertible preferred stock will be automatically converted into shares of Common Stock, as described in the Prospectus (the “Preferred Stock Conversion”), and

(ii) the Company’s Second Amended and Restated Bylaws will be amended and restated (the “Amendment and Restatement”),

all on terms contemplated by the Prospectus. The Preferred Stock Conversion and the Amendment and Restatement are hereinafter collectively called the “Pre-Closing Transactions.”

1. Representations and Warranties of the Company.

The Company represents and warrants to and agrees with each of the Underwriters that:

1.1 Effective Registration Statement.

The Registration Statement has become effective under the Securities Act; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or to the Company’s knowledge threatened by the Commission..

1.2 Contents of Registration Statement.

(i) The Registration Statement, when it became effective, did not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement and the Prospectus comply and, as

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amended or supplemented, if applicable, will comply in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder, (iii) the Prospectus, when first used to confirm the sales of the Shares, does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in the Registration Statement or the Prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein, and (iv) the statistical and market-related data included in the Registration Statement and the Prospectus are based on or derived from sources that the Company believes to be reliable and accurate. With respect to the exception set forth at clause (iii), the Company acknowledges that the only information furnished in writing by the Underwriters for use in the Registration Statement or the Prospectus are the statements specifically relating to (a) the aggregate number of Firm Shares that the Representatives have severally agreed to purchase contained in the first paragraph under the Section captioned “Underwriting” in the Prospectus, (b) the concession and reallowance figures contained in the paragraph captioned “Commissions and Discounts” under the Section caption “Underwriting” in the Prospectus, (c) information under the paragraph captioned “Discretionary Accounts” under the Section captioned “Underwriting” in the Prospectus, and (d) stabilizing and passive market making activities under the paragraph captioned “Short Sales, Stabilizing Transactions and Penalty Bids” under the Section captioned “Underwriting” in the Prospectus.

1.3 Compliance with Securities Act.

Each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder.

1.4 Financial Statements of the Company and Acquired Companies.

The financial statements of (i) the Company and its consolidated subsidiaries, (ii) Medicine Made Easy (“MME”), (iii) North American Home Health Supply, Inc. (“North American”), and (iv) Specialty Pharmacies, Inc. (“Specialty” and, collectively with North American, the “Acquired Companies”) included in the Registration Statement and Prospectus (including, in each case, all notes and schedules thereto) present fairly in all material respects the financial condition, results of operations and cash flows of the Company and its consolidated subsidiaries, MME and of the Acquired Companies at the dates and for the periods indicated; and such financial statements and related schedules and notes thereto, including the unaudited financial information filed with the Commission as part of the Registration Statement, have been prepared in conformity with generally accepted accounting principles (“GAAP”), consistently applied throughout the periods indicated and conform with the rules and regulations adopted by the Commission under the Securities Act, provided however, that unaudited interim financial statements are subject to year end adjustments not material in amount, and do not contain footnotes required under GAAP. The information in the Prospectus under the captions “Summary Historical and Pro Forma Consolidated Financial Data,” “Selected Historical Consolidated Financial Data” and “Unaudited Pro Forma Consolidated Financial Statements”

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presents fairly the information shown therein as at the respective dates and for the respective periods specified and has been presented on a basis consistent with the audited consolidated financial statements of the Company and its consolidated subsidiaries, MME and of the Acquired Companies set forth in the Registration Statement and the Prospectus, subject to such adjustments as shall be described in the footnotes to such financial data in the Prospectus

1.5 Pro Forma Financial Statements.

The unaudited condensed consolidated pro forma financial data and the related notes thereto set forth under the captions “Summary Historical and Pro Forma Consolidated Financial Data,” and “Unaudited Pro Forma Consolidated Financial Statements” in the Registration Statement and the Prospectus presents fairly the information shown therein, have been prepared in accordance with the applicable requirements of Article 11 of Regulation S-X promulgated under Securities Exchange Act of 1934, as amended (the “Exchange Act”), have been properly compiled on a pro forma basis as described therein, and the assumptions used in the preparation thereof were reasonable at the time made and the adjustments used therein are based upon good faith estimates and assumptions believed by the Company to be reasonable at the time made.

1.6 Auditor Independence.

BDO Seidman, LLP, which has expressed its opinion with respect to the financial statements and schedules of the Company and its consolidated subsidiaries and MME filed as a part of the Registration Statement and included in the Registration Statement and the Prospectus, is an independent certified public accountant with respect to the Company and its subsidiaries and MME within the meaning of the Securities Act and the rules and regulations of the Commission adopted thereunder.

1.7 Due Incorporation.

The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of Delaware, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and to enter into and perform its obligations under this Agreement, and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have, individually or in the aggregate, a material adverse effect on the assets, properties, condition, financial or otherwise, or in the results of operations, business, affairs or business prospects of the Company and its subsidiaries, taken as a whole (a “Material Adverse Effect”).

1.8 Subsidiaries.

Schedule B hereto accurately sets forth each such subsidiary of the Company and its jurisdiction of organization. Each subsidiary of the Company has been duly organized, is validly existing as a corporation or limited liability company, as the case may be, in good standing under the laws of the jurisdiction of its organization, has the power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to

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transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not result in, individually or in the aggregate, a Material Adverse Effect. All of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly by the Company, free and clear of all liens, encumbrances, equities, claims, preemptive rights, rights of first refusal or similar rights, or restrictions upon voting or transfer.

1.9 Authorization of Underwriting Agreement.

This Agreement has been duly and validly authorized by all necessary corporate action in respect thereof, duly executed and delivered by the Company, and is a valid and binding agreement of the Company, enforceable in accordance with its terms, except as rights to indemnification hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles.

1.10 Pre-Closing Transactions.

The Pre-Closing Transactions will be consummated on or prior to the Closing Date on the terms contemplated by this Agreement and the Prospectus. The Preferred Stock Conversion will not result in a breach or violation of the Company’s Amended and Restated Certificate of Incorporation and the Certificates of Designation for the Series D and E convertible preferred stock. The Amendment and Restatement has been duly and validly authorized by all necessary corporate action in respect thereof in accordance with the Company’s certificate of incorporation and bylaws and the Delaware General Corporation Law.

1.11 Description of Capital Stock.

The authorized, issued and outstanding capital stock of the Company conforms in all material respects to the description thereof contained in the Prospectus, and, as of the date hereof, the Company has authorized and outstanding capital stock as set forth in the column entitled “Actual” and in the corresponding line items under the caption “Capitalization” in the Prospectus.

1.12 Outstanding Securities.

The shares of capital stock, including the Common Stock, outstanding prior to the issuance of the Shares to be sold (i) have been duly authorized and are validly issued, fully paid and non-assessable, (ii) were not issued in violation of any preemptive rights, rights of first refusal or other similar rights of any security holder of the Company or any other person, and (iii) are not subject to preemptive rights, rights of first refusal or similar rights to subscribe for or to purchase or acquire any shares of capital stock of the Company or any of its subsidiaries, or any such rights pursuant to its certificate of incorporation or bylaws or any agreement or instrument to or by which the Company or any of its subsidiaries is a party or bound. All sales of shares of capital stock of the Company prior to the date hereof were at all relevant times duly

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registered under the Securities Act or were exempt from the registration requirements of the Securities Act, and all such sales of shares complied in all material respects with applicable state securities or Blue Sky laws or were exempt from such applicable state securities or Blue Sky laws. Except as disclosed in the Registration Statement and the Prospectus, the Company has not sold or issued any securities during the six-month period preceding the date of the Prospectus, including any sales pursuant to Rule 144A under, or Regulations D or S of, the Securities Act, other than shares issued pursuant to employee benefit plans, qualified stock option plans or other employee compensation plans or pursuant to outstanding options, rights or warrants described in the Registration Statement and the Prospectus.

1.13 Validly Issued Shares.

The Shares to be sold by the Company have been duly authorized and, when issued and delivered by the Company in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive rights, rights of first refusal or other similar rights to subscribe for or to purchase or acquire any shares of Common Stock of the Company or any of its subsidiaries, or any such rights pursuant to its certificate of incorporation or bylaws or any agreement or instrument to or by which the Company or any of its subsidiaries is a party or bound.

1.14 Registration Rights.

There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities (debt or equity) of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement (collectively, “Registration Rights”), other than as set forth on Schedule C hereto. Schedule C hereto accurately sets forth the names of all holders of shares of capital stock of the Company that have Registration Rights and the number and class of such shares of capital stock subject to Registration Rights. Prior to the date hereof, all holders listed on Schedule C have either (i) waived in writing the Registration Rights to which their shares relate in connection with the offering contemplated by this Agreement or (ii) have received written notice from the Company that such shares subject to Registration Rights cannot be included in the offering contemplated by this Agreement upon the advice of Thomas Weisel Partners LLC that such inclusion could delay or jeopardize the success of the offering of the Shares and, no holder who has received notice in accordance with clause (ii) has notified the Company that it objects to the exclusion of its shares from being registered in the offering contemplated by this Agreement.

1.15 Nasdaq; Exchange Act Registration.

The Shares have been listed for quotation on the National Association of Securities Dealers Automated Quotation (“Nasdaq”) National Market System, subject to official notice of issuance. A registration statement has been filed on Form 8-A pursuant to Section 12 of the Exchange Act, which complies in all material respects with the Exchange Act. The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or the quotation of the Common

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Stock on the Nasdaq National Market System, nor has the Company received any notification that the Commission or the Nasdaq National Market is contemplating terminating such registration or quotation.

1.16 No Conflicts.

The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not contravene, result in a breach or violation of, or constitute a default under, or will not result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, (i) any provision of applicable law, (ii) any provision of the certificate of incorporation or bylaws or other organizational or governing documents of the Company or any of its subsidiaries, (iii) any agreement or other instrument binding upon the Company or any of its subsidiaries or to which the Company or any of its subsidiaries is a party or to which any of its or their respective properties are subject, or (iv) any regulation, rule, judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, except, in the case of clauses (i), (iii) and (iv) above, where such violations, breaches, contraventions, liens, charges, claims or encumbrances would not, individually or in the aggregate, result in a Material Adverse Effect.

1.17 No Consents.

(i) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency, domestic or foreign, (ii) no authorization, approval, vote or other consent of any stockholder or creditor of the Company, and (iii) no authorization, approval, vote or other consent of any other person or entity, is necessary or required for the performance by the Company of its obligations under this Agreement, for the offering, issuance, sale or delivery of the Shares hereunder, or for the consummation of any of the other transactions contemplated by this Agreement, in each case on the terms contemplated by the Prospectus, except such as have been already obtained under the Securities Act or the rules and regulations thereunder, or such as may be required under state securities or Blue Sky laws or the National Association of Securities Dealers, Inc. (the “NASD”).

1.18 No Material Adverse Change.

Subsequent to the respective dates as to which information is given in the Registration Statement and the Prospectus, (i) there has not occurred any Material Adverse Effect, (ii) except in the ordinary course of business, the Company and its subsidiaries have not incurred any material liability or obligation, direct or contingent, nor entered into any material transaction, (iii) the Company has not purchased any of its outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock, and (iv) there has not been any material change in the capital stock, short-term debt or long-term debt of the Company and its subsidiaries.

1.19 Legal Proceedings; Statutes and Regulations.

There are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened to which the Company or any of its subsidiaries is a party or to which

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any of the properties of the Company or any of its subsidiaries is subject (i) that are required to be described in the Registration Statement or the Prospectus and are not so described, or (ii) which would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. There are no material statutes or regulations applicable to the Company or any of its subsidiaries, or its or their business operations or properties, that are required to be described in the Registration Statement or the Prospectus that are not described as required. The statements relating to legal matters and proceedings and statutes and regulations in the Prospectus under the subcaptions “– Reimbursement Management,” “– Disease Management,” “– Third Party Reimbursement Cost Containment and Legislation,” “– Government Regulation,” and “– Legal Proceedings,” under the caption “Business,” in each case fairly and accurately summarize such matters and proceedings in all material respects.

1.20 Contracts.

There are no contracts or other documents which are required to be described in the Prospectus or filed as exhibits to the Registration Statement by the Securities Act or the applicable rules and regulations thereunder which have not been described in the Prospectus or filed as exhibits to the Registration Statement.

1.21 Related Party Transactions.

No relationship, direct or indirect, exists between or among the Company, on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company, on the other hand, which is required to be described in the Prospectus and which is not so described. There are no outstanding loans, advances or guarantees of indebtedness by the Company to or for the benefit of any of the officers or directors of the Company or any of their respective family members.

1.22 Not an Investment Company.

The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus, will not be an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.

1.23 No Violation.

The Company and its subsidiaries have conducted its and their businesses in compliance with applicable laws, except where the failure to comply would not result in a Material Adverse Effect and neither the Company nor any of its subsidiaries is in violation of, and no event has occurred which with notice or lapse of time or both would constitute a default under or in, (i) its certificate of incorporation or bylaws, (ii) the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound, or (iii) any federal, state, local or foreign law, statute, rule, regulation, decree, order, license or permit, to which the Company or any of its subsidiaries or any of its or their properties or its or their businesses may be subject, including but not limited to the Federal Food, Drug, and Cosmetic Act, the Federal Controlled Substances

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Act, the Federal Anti-Kickback Statute, the Federal Stark Law, the Federal False Claims Act, the Federal Civil Monetary Penalties Law, the health information privacy and security regulations enacted under the Health Insurance Portability and Accountability Act of 1996, the applicable State pharmacy licensing laws, and the applicable State unfair and deceptive trade practices and consumer protection laws except, for violations or defaults which would not, individually or in the aggregate, result in a Material Adverse Effect.

1.24 Governmental Permits.

The Company, its subsidiaries and each of the pharmacists employed by the Company (i) have all licenses, certificates, authorizations, permits, approvals and other rights from, and have filed all reports, documents and other information required to be filed with, the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as now conducted (each, an “Authorization”) except for such Authorizations where the failure to possess such Authorization, or the invalidity of which, individually or in the aggregate, would not have a Material Adverse Effect, (ii) have fulfilled and performed all obligations necessary to maintain each Authorization, and (iii) to the Company’s knowledge, there are no pending or threatened actions, suits, proceedings or investigations that would reasonably be expected to result in the revocation, termination, suspension, modification or impairment of any Authorization, which revocation, termination, suspension, modification or impairment would, individually or in the aggregate, result in a Material Adverse Effect. All such Authorizations are valid and in full force and effect and the Company, its subsidiaries and each of the pharmacists employed by the Company are in compliance in all respects with the terms and conditions of all such Authorizations and with the rules and regulations of the regulatory authorities having jurisdiction with respect thereto except where the failure to comply would not result in a Material Adverse Effect

1.25 Properties.

All real property, buildings and other improvements held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings or other improvements by the Company and its subsidiaries, and all such leases are in full force and effect. Neither the Company nor any of its subsidiaries has any notice of any claim of any sort that has been asserted by anyone adverse to the rights of the Company or any of its subsidiaries under any of the leases mentioned above or affecting or questioning the rights of the Company or its subsidiaries in the continued possession of the leased premises under any such lease. The Company and its subsidiaries have good and marketable title to all personal property owned by them which is material to the businesses of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries.

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1.26 Environmental.

The Company and its subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses, and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, individually or in the aggregate, result in a Material Adverse Effect.

1.27 Intellectual Property Rights.

Except as disclosed in the Registration Statement and the Prospectus, the Company and its subsidiaries own, license or otherwise possess all rights to use, all software, hardware, systems, processes and other technology and all material patents, patent rights, inventions, know-how (including trade secrets and other unpatented or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names, copyrights and other intellectual property rights (collectively, the “Rights”) necessary for the conduct of its or their businesses as currently operated. To the Company’s knowledge, no claims have been asserted against the Company or any of the Company’s subsidiaries by any person with respect to the use of any such Rights or challenging or questioning the validity or effectiveness of any such Rights. Except as disclosed in the Registration Statement and the Prospectus, the continued use of the Rights in connection with the business and operations of the Company and its subsidiaries does not, to the knowledge of the Company, infringe on the rights of any person, which, if the subject of an unfavorable decision, ruling or filing, would, individually or in the aggregate, result in a Material Adverse Effect.

1.28 No Labor Disputes.

No material labor dispute with the employees of the Company or any of its subsidiaries exists or is imminent; and the Company is not aware of any existing, threatened or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers or contractors that would, individually or in the aggregate, result in a Material Adverse Effect.

1.29 Insurance.

The Company and its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which they are engaged. There are no claims by the Company or its subsidiaries under any insurance policy as to which any insurance company is denying liability or defending under a reservation of rights clause. Neither the Company nor any of its subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its or their businesses at a cost that would not, individually or in the aggregate, result in a Material Adverse Effect.

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1.30 Taxes.

(i) Each of the Company and its subsidiaries has filed all federal, state, local and foreign tax returns and tax forms required to be filed except where the failure to file would not have a Material Adverse Effect, (ii) such returns and forms were complete and correct in all material respects, and any taxes, including any penalties and interest, shown by such returns or otherwise assessed that are due or payable have been paid, (iii) all payroll withholdings required to be made by the Company and its subsidiaries with respect to employees have been made, and (iv) there have been no tax deficiencies asserted or, to the knowledge of the Company, threatened against the Company or its subsidiaries.

1.31 No Price Stabilization or Manipulation.

The Company has not taken, directly or indirectly, any action designed to or that would reasonably be expected to cause or result in any stabilization or manipulation of the price of the Shares.

1.32 Accounting Controls.

The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance regarding the (i) reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, (ii) maintenance of records that in reasonable detail accurately and fairly reflect transactions and dispositions of the assets of the Company and its subsidiaries, (iii) recording of transactions as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the Company and its subsidiaries are being made only in accordance with authorizations of management and directors of the Company or the applicable subsidiary, and (iv) prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s or its subsidiaries’ assets that would have a Material Adverse Effect.

1.33 Exchange Act; Sarbanes-Oxley Act.

The Company has filed all documents required to be filed with the Commission pursuant to Section 13, 14 or 15 of the Exchange Act in the manner and within the time periods required by the Exchange Act and such documents, at the time filed with Commission, conformed in all material respects to the requirements of the Exchange Act, and none of such documents when they were filed with the Commission contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein not misleading. The Company is in compliance in all material respects with all of the provisions of the Sarbanes-Oxley Act of 2002 that are effective and applicable to the Company.

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1.34 Disclosure Controls and Procedures.

Management has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company and its subsidiaries is made known to the Company’s principal executive officer and principal financial officer, or persons performing similar functions, by others within those entities. Since the date of the Form 10-Q for the first quarter of 2005, there has been no change in the Company’s internal controls that has materially affected, or is reasonably likely to materially affect, the Company’s disclosure controls.

1.35 Brokers Fees.

Except as disclosed in the Registration Statement and the Prospectus, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or any of the Underwriters for a brokerage commission, finder’s fee or other like payment in connection with the transactions contemplated herein, the Registration Statement and the Prospectus or, to the Company’s knowledge, any contracts, agreements, understandings, payments, arrangements or issuances with respect to the Company or any of its officers, directors, stockholders, employees or affiliates that may affect the Underwriters’ compensation as determined by the NASD.

2. Purchase and Sale Agreements.

2.1 Firm Shares.

The Company hereby agrees to sell to the several Underwriters, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company at $[                    ] per share (the “Purchase Price”) the number of Firm Shares (subject to such adjustments to eliminate fractional shares as the Representatives may determine) that bears the same proportion to the number of Firm Shares to be sold by the Company as the number of Firm Shares set forth in Schedule A hereto opposite the name of such Underwriter bears to the total number of Firm Shares.

2.2 Additional Shares.

On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to sell to the Underwriters the Additional Shares, and the Underwriters shall have the right to purchase, severally and not jointly, up to [                    ] Additional Shares at the Purchase Price. The Representatives may exercise this right on behalf of the Underwriters in whole or from time to time in part by giving notice to the Company in writing not later than thirty days after the date of this Agreement. Any exercise notice shall specify the number of Additional Shares to be purchased by the Underwriters and the date on which such shares are to be purchased. A purchase date may be the same as the Closing Date (as defined below) but may not be earlier than the Closing Date and no purchase date may be later than ten business days after the date of notice. Additional Shares may be purchased as provided in Section 3 hereof solely for the purpose of

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covering over-allotments made in connection with the offering of the Firm Shares. If any Additional Shares are to be purchased, each Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as the Representatives may determine) that bears the same proportion to the total number of Additional Shares to be purchased as the number of Firm Shares set forth in Schedule A hereto opposite the name of such Underwriter bears to the total number of Firm Shares.

2.3 Market Standoff Provision.

The Company hereby agrees that, without the prior written consent of Thomas Weisel Partners LLC (which consent may be withheld in its sole discretion), it will not, during the period commencing on the date hereof and ending 180 days after the date of the Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, or (iii) file any registration statement with the Commission relating to the offering of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, whether any such transaction described in clause (i), (ii) or (iii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (a) the Shares to be sold hereunder, (b) the issuance by the Company of options to purchase shares of the Company’s Common Stock under the Company’s existing plans as described in the Prospectus, provided that such options do not become vested and exercisable during the 180-day restricted period or (c) the issuance by the Company of shares of Common Stock upon the exercise of options or warrants or the conversion of a security outstanding on the date hereof of which the Underwriters have been advised in writing and which is described in the Prospectus. If, (i) during the last 17 days of the 180-day restricted period described in this Section 2.3, the Company issues an earnings release or material news or a material event relating to the Company occurs, or (ii) prior to the expiration of the 180-day restricted period, the Company announces that it will release earnings results or becomes aware that material news or a material event will occur during the 16-day period beginning on the last day of the 180-day restricted period, the 180-day restricted period described in this Section 2.3 automatically shall extend until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, unless in either clauses (i) or (ii) the Representatives waive the extension in writing.

The Company acknowledges that its directors, officers and certain of its stockholders are subject similar restrictions as contained in this Section 2.3 on the transfer or other disposition of shares of capital stock of the Company held by them, and the Company agrees to take all reasonable measures to enforce the holders’ compliance with such restrictions.

2.4 Terms of Public Offering.

The Company is advised by the Representatives that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration

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Statement and this Agreement have become effective as in the Representatives’ judgment is advisable. The Company is further advised by the Representatives that the Underwriters will offer the Shares to the public initially at a price of $[                    ] per share (the “Public Offering Price”) and to certain dealers selected by the Representatives at a price that represents a concession of not more than $[                    ] per share below the Public Offering Price, and that any Underwriter may allow, and such dealers may reallow, a concession not in excess of $[                    ] per share to any other Underwriter or to certain other dealers.

3. Payment and Delivery.

3.1 Firm Shares.

Payment for the Firm Shares to be sold by the Company shall be made to the Company in immediately available funds against delivery of such Firm Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on [                    ], 2005, or at such other time on the same or such other date, not later than [                    ], 2005, as shall be designated in writing by the Representatives. The time and date of such payment are hereinafter referred to as the “Closing Date.”

3.2 Additional Shares.

Payment for any Additional Shares shall be made to the Company in immediately available funds against delivery of such Additional Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on the date specified in the notice described in paragraph 2.2 or at such other time on the same or on such other date, in any event not later than [                    ], 2005, as shall be designated in writing by the Representatives. The time and date of each payment for any Additional Shares are hereinafter referred to as the “Option Closing Date.”

3.3 Delivery of Certificates.

Certificates for the Firm Shares and Additional Shares, if any, shall be in definitive form and registered in such names and in such denominations as the Representatives shall request in writing not later than two full business day prior to the Closing Date or the Option Closing Date, as the case may be. The certificates evidencing the Firm Shares and Additional Shares shall be delivered to you on the Closing Date or the Option Closing Date, as the case may be, for the respective accounts of the several Underwriters, with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters duly paid, against payment of the Purchase Price therefor.

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4. Covenants of the Company.

In further consideration of the agreements of the Underwriters herein contained, the Company covenants with each Underwriter as follows:

4.1 Furnish Copies of Registration Statement and Prospectus.

To furnish to the Representatives, without charge, four signed copies of the Registration Statement (including exhibits thereto) and, for delivery to each other Underwriter a conformed copy of the Registration Statement (without exhibits thereto) and, to furnish to the Underwriters in New York City, without charge, prior to 10:00 a.m. New York City time on the business day next succeeding the date of this Agreement and during the period mentioned in paragraph 4.3 below, as many copies of the Prospectus and any supplements and amendments thereto or to the Registration Statement as the Representatives may reasonably request.

4.2 Notification of Amendments or Supplements.

Before amending or supplementing the Registration Statement or the Prospectus, to furnish to the Representatives a copy of each such proposed amendment or supplement, and not to file any such proposed amendment or supplement to which the Representatives or counsel for the Underwriters reasonably object, and to file with the Commission within the applicable period specified in Rule 424(b) under the Securities Act any prospectus required to be filed pursuant to such rule.

4.3 Filings of Amendments or Supplements.

If, during such period after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters the Prospectus is required by law to be delivered in connection with sales by an Underwriter or dealer (the “Prospectus Delivery Period”), any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if, in the reasonable opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to the dealers (whose names and addresses the Representatives will furnish to the Company) to which Shares may have been sold by the Representatives on behalf of the Underwriters and to any other dealers upon request, either amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with applicable law.

4.4 Blue Sky Laws.

To use its reasonable efforts to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives shall reasonably request. In each jurisdiction in which the Shares have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction and shall maintain such qualifications in effect so long as required for the distribution of the Shares; provided however, that the Company shall not be required in connection therewith, as condition thereof, to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction or subject itself to taxation as doing business in any jurisdiction.

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4.5 Earnings Statement.

To make generally available to its securityholders and to the Representatives as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Securities Act), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Securities Act and the rules and regulations thereunder (including, at the option of the Company, Rule 158).

4.6 Use of Proceeds.

The Company shall apply the net proceeds from the sale of the Shares sold by it in the manner described under the caption “Use of Proceeds” in the Prospectus.

4.7 Transfer Agent.

The Company shall engage and maintain, at its expense, a registrar and transfer agent for the Common Stock.

4.8 Periodic Reporting Obligations.

During the Prospectus Delivery Period, the Company shall (i) file all documents required to be filed with the Commission pursuant to Section 13, 14 or 15 of the Exchange Act in the manner and within the time periods required by the Exchange Act and (ii) file all reports and documents required to be filed with the Nasdaq National Market under applicable securities laws and by the Nasdaq National Market.

4.9 Preparation of Prospectus.

Immediately following the execution of this Agreement, the Company will, subject to Section 4.3 hereof, prepare the Prospectus containing the Rule 430A Information and other selling terms of the Shares, the plan of distribution thereof and such other information as may be required by the Securities Act or rules and regulations thereunder or as the Representatives and the Company may deem appropriate, and will file or transmit for filing with the Commission, in accordance with Rule 424(b), copies of the Prospectus.

4.10 Notification of Earnings Releases or Material News.

Prior to the expiration of the 180-day period described in Section 2.3, the Company shall promptly notify the Representatives if it intends to release earnings results or becomes aware that material news or a material event concerning the Company will occur at any time prior to the expiration of the 180-day restricted period through the 16-day period beginning on the last day of the 180-day restricted period.

5. Conditions to the Underwriters’ Obligations.

The obligations of the Company to sell the Shares to the several Underwriters and the several obligations of the Underwriters to purchase and pay for the Shares on the Closing

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Date and on each Option Closing Date, as the case may be, are subject to the following conditions:

5.1 Effective Registration Statement.

The Registration Statement shall have become effective not later than [                    ] (New York City time) on the date hereof.

5.2 Rule 462(b) Registration Statement.

If the Company elects to rely upon Rule 462(b), the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Securities Act.

5.3 Prospectus Filed with Commission.

The Company shall have filed the Prospectus with the Commission (including the information required by Rule 430A under the Securities Act) in the manner and within the time period required by Rule 424(b) under the Securities Act; or the Company shall have filed a post-effective amendment to the Registration Statement containing the information required by such Rule 430A, and such post-effective amendment shall have become effective.

5.4 No Stop Order.

No stop order suspending the effectiveness of the Registration Statement, any Rule 462(b) Registration Statement, or any post-effective amendment to the Registration Statement, shall be in effect on the Closing Date and each Option Closing Date, as the case may be, and no proceedings for such purpose shall have been instituted or threatened by the Commission on the Closing Date and each Option Closing Date, as the case may be.

5.5 Nasdaq.

The Shares shall have been listed for quotation on the Nasdaq National Market System.

5.6 No NASD Objection.

The NASD shall have raised no objection to the fairness and reasonableness of the underwriting terms and arrangements.

5.7 Representations and Warranties; Covenants.

The representations and warranties of the Company contained in this Agreement and in the certificates delivered pursuant to Section 5.9 shall be true and correct when made and on and as of the Closing Date and each Option Closing Date, as the case may be, as if made on

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such date (except that those representations and warranties that address matters only as of a particular date shall remain true and correct as of such date). The Company shall have performed in all material respects all covenants and agreements and satisfied all the conditions contained in this Agreement required to be performed or satisfied by the Company at or before such Closing Date or Option Closing Date, as the case may be.

5.8 No Material Adverse Change.

There shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, businesses, operations or prospects of the Company and its subsidiaries, individually or as a whole, from that set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement) that, in the Representative’s reasonable judgment, is material and adverse and that makes it, in the Representative’s judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus.

5.9 Officer’s Certificate.

The Representatives shall have received on the Closing Date and on each Option Closing Date a certificate, dated the Closing Date or the Option Closing Date, as applicable, and signed by the Chief Executive Officer and by the Chief Financial Officer of the Company, representing (i) that the representations and warranties contained in this Agreement are true and correct as of the Closing Date or the Option Closing Date, as applicable, (ii) that the Company has complied with all of the agreements and has satisfied all of the conditions on its part to be performed or satisfied hereunder on or before such Closing Date or Option Closing Date, as applicable.

5.10 Opinion of Company Counsel.

The Representatives shall have received on the Closing Date an opinion of Kirkland & Ellis LLP, counsel for the Company, dated the Closing Date, to the effect set forth in Exhibit A-1 attached hereto. The opinion shall be rendered to the Representatives as representatives of the Underwriters at the request of the Company and shall so state therein.

5.11 Opinion of Special Regulatory Counsel.

The Representatives shall have received on the Closing Date an opinion of Nixon Peabody LLP, special regulatory counsel to the Company, dated the Closing Date, , to the effect set forth in Exhibit A-2 attached hereto. The opinion shall be rendered to the Representatives as representatives of the Underwriters at the request of the Company and shall so state therein.

5.12 Opinion of Underwriters’ Counsel.

The Representatives shall have received on the Closing Date an opinion of Alston & Bird LLP, counsel for the Underwriters, dated the Closing Date, with respect to the Registration Statement, the Prospectus and other related matters as the Representatives may request, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters.

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5.13 Comfort Letter from BDO Seidman, LLP.

The Representatives shall have received, on each of the date hereof and the Closing Date, and the Option Closing Date, a letter dated the date hereof or the Closing Date or the Option Closing Date, as the case may be, in form and substance satisfactory to the Representatives, from BDO Seidman, LLP, independent public accountants, containing statements and information of the type ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information of the Company and its consolidated subsidiaries and of MME, contained in the Registration Statement and the Prospectus; provided that the letter delivered on the Closing Date shall use a “cut-off date” not earlier than the date hereof.

5.14 Comfort Letter from LWBJ, LLP.

The Representatives shall have received, on each of the date hereof and the Closing Date, and the Option Closing Date, a letter dated the date hereof or the Closing Date or the Option Closing Date, as the case may be, in form and substance satisfactory to the Representatives, from LWBJ, LLP, independent public accountants, with respect to the financial statements and certain financial information of North American contained in the Registration Statement and the Prospectus.

5.15 Comfort Letter from McGladrey & Pullen.

The Representatives shall have received, on each of the date hereof and the Closing Date, and the Option Closing Date, a letter dated the date hereof or the Closing Date or the Option Closing Date, as the case may be, in form and substance satisfactory to the Representatives, from McGladrey & Pullen, independent public accountants, with respect to the financial statements and certain financial information of Specialty contained in the Registration Statement and the Prospectus.

5.16 Lock-Up Agreements.

The “lock-up” agreements, each in the form of Exhibit B hereto, between the Representatives and those stockholders, officers and directors of the Company listed in Exhibit C hereto, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date.

5.17 Pre-Closing Transactions.

Prior to the purchase of the Shares on the Closing Date, the Pre-Closing Transactions shall have been duly consummated on the terms contemplated by this Agreement and the Prospectus, and the Representatives shall have received such other evidence that the Pre-Closing Transactions have been consummated as the Representatives may reasonably request.

5.18 Additional Documents.

On the Closing Date and on each Option Closing Date, the Representatives and counsel for the Underwriters shall have received such information, documents and opinions as

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they may reasonably require for the purposes of enabling them to pass upon the issuance and sale of the Shares as contemplated herein or in order to evidence the accuracy of any of the representations and warranties or the satisfaction of any of the conditions or agreements herein contained.

The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the satisfaction of each of the above conditions on or prior to the Option Closing Date and to the delivery to the Representatives on the Option Closing Date of such documents as the Representatives may reasonably request with respect to the good standing of the Company, the due authorization and issuance of the Additional Shares and other matters related to the issuance of the Additional Shares.

6. Expenses.

Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, the Company agrees to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of each of the Company’s counsel and the Company’s accountants in connection with the preparation and negotiation of this Agreement and the registration and delivery of the Shares under the Securities Act, and all other fees or expenses in connection with the preparation and filing of the Registration Statement, any preliminary prospectus, the Prospectus, and amendments and supplements to any of the foregoing, including all printing costs associated therewith, and the mailing and delivering of copies thereof to the Underwriters and dealers, in the quantities as may be specified by the Underwriters, (ii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky or legal investment memorandum in connection with the offer and sale of the Shares under state securities laws and all expenses in connection with the qualification of the Shares for offer and sale under state securities laws as contemplated by paragraph 4.4 hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky or legal investment memorandum (such fees and disbursements not to exceed $5,000), (iv) all filing fees and the reasonable fees and disbursements of counsel to the Underwriters incurred in connection with the review and qualification of the offering of the Shares by the NASD (such fees and disbursements not to exceed $20,000), (v) all fees and expenses in connection with the preparation and filing of the registration statement on Form 8-A relating to the Common Stock and all costs and expenses incident to listing the Shares on the Nasdaq National Market, (vi) the cost of printing certificates, if any, representing the Shares, (vii) the costs and charges of any transfer agent, registrar or depositary, (viii) the costs and expenses of the Company relating to investor presentations on any “road show” undertaken in connection with the marketing of the offering of the Shares, including, without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives and officers of the Company and any such consultants, (ix) all expenses in connection with any offer and sale of the Shares outside of the United States, if any, including filing fees and reasonable fees and disbursements of counsel for the Underwriters in connection with offers and sales outside of the United States, and (x) all other costs and expenses incident to

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the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. It is understood, however, that except as provided in this Section, Section 7 entitled “Indemnity and Contribution,” and the last paragraph of Section 10 below, the Underwriters will pay all of their costs and expenses, including fees and disbursements of their counsel and any advertising expenses connected with any offers they may make.

7. Indemnity and Contribution.

7.1 Indemnification by the Company.

The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and each affiliate of any Underwriter within the meaning of Rule 405 under the Securities Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or in any Blue Sky application or other information or other documents executed by the Company and filed in any state or other jurisdiction to qualify any or all of the Shares under the securities laws thereof, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except (a) insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use therein and (b) that with respect to any preliminary prospectus, the foregoing indemnity agreement shall not inure to the benefit of any Underwriter from whom the person asserting any loss, claim, damage or liability purchased Shares, or any person controlling such Underwriter, if copies of the Prospectus were timely delivered to the Underwriter pursuant to Section 4 and a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Shares to such person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage, liability or expense.

7.2 Indemnification by the Underwriters.

Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, the directors of the Company, the officers of the Company who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) arising out of or based upon any untrue statement or alleged untrue statement of a material

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fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information relating to such Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement, any preliminary prospectus, the Prospectus or any amendments or supplements thereto.

7.3 Indemnification Procedures.

In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 7 (the “Indemnified Party”), the Indemnified Party shall promptly notify the person against whom such indemnity may be sought (the “Indemnifying Party”) in writing and the Indemnifying Party, shall retain counsel reasonably satisfactory to the Indemnified Party to represent the Indemnified Party and any others the Indemnifying Party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel, or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and representation of both parties by the same counsel would be ethically impermissible due to actual or potential differing interests between them. It is understood that the Indemnifying Party shall not, in respect of the legal expenses of any Indemnified Party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for (i) the fees and expenses of more than one separate firm (in addition to any local counsel) for all Underwriters and all persons, if any, who control any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act or who are affiliates of any Underwriter within the meaning of Rule 405 under the Securities Act, and (ii) the fees and expenses of more than one separate firm (in addition to any local counsel) for the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Underwriters and such control persons and affiliates of any Underwriters, such firm shall be designated in writing by Thomas Weisel Partners LLC. In the case of any such separate firm for the Company, and such directors, officers and control persons of the Company, such firm shall be designated in writing by the Company. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Party agrees to indemnify the Indemnified Party from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the Indemnified Party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment includes

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an unconditional release of the Indemnified Party from all liability arising out of such action or claim, and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any Indemnified Party.

7.4 Contribution Agreement.

To the extent the indemnification provided for in this Section 7 is unavailable to an Indemnified Party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Party under such Section 7, in lieu of indemnifying such Indemnified Party thereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party or Parties, on the one hand, and the Indemnified Party or Parties, on the other hand, from the offering of the Shares or (ii) if the allocation provided by clause 7.4(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 7.4(i) above but also the relative fault of the Indemnifying Party or Parties, on the one hand, and of the Indemnified Party or Parties, on the other hand, in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand, in connection with the offering of the Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Shares (before deducting expenses) received by the Company and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the total public offering price of the Shares. The relative fault of the Company, on the one hand, and the Underwriters, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Underwriters’ respective obligations to contribute pursuant to this Section 7.4 are several in proportion to the respective number of Shares they have purchased hereunder, and not joint. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this paragraph 7.4, notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties from whom contribution may be sought shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have under this paragraph 7.4, except to the extent the party or parties from whom contribution may be sought are actually and adversely prejudiced as a result of the failure to receive notice. No party shall be liable for contribution with respect to any action, suit, proceeding or claim settled without its written consent.

7.5 Contribution Amounts.

The Company and the Underwriters agree that it would not be just or equitable if contribution provided by this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation

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that does not take account of the equitable considerations referred to in Section 7.4. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.

7.6 Survival of Provisions.

The indemnity and contribution provisions contained in this Section 7 and the representations, warranties and other statements of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, or the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Shares.

8. Effectiveness.

This Agreement shall become effective upon the execution and delivery hereof by the parties hereto.

9. Termination.

This Agreement shall be subject to termination by notice given by the Representatives to the Company, if (a) after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, or the Nasdaq National Market, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York state authorities or (iv) in the reasonable judgment of the Representatives, there shall have occurred any material adverse change in the financial markets as the result of any outbreak or escalation of hostilities, directly or indirectly, involving the United States or the declaration by the United States of a national emergency or war or any change in financial markets or any calamity or crisis after the date of this Agreement that has an impact on the financial markets, or (v) in the reasonable judgment of the Representatives, there shall have occurred any material adverse change, or any development that could reasonably be expected to result in a material adverse change, in the condition, financial or otherwise, or in the earnings, business, operations or prospects, whether or not arising from transactions in the ordinary course of business, of the

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Company and its subsidiaries, taken as a whole, and (b) in the case of any of the events specified in clauses 9(a)(i) through 9(a)(v), such event, individually or together with any other such event, makes it, in the reasonable judgment of the Representatives, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus.

If this Agreement shall be terminated by the Underwriters, or any of them, pursuant to Sections 9(a)(ii) or 9(a)(v) hereof, or because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, the Company will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves for all out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such terminating Underwriters in connection with this Agreement and the offering contemplated hereunder.

10. Defaulting Underwriters.

If, on the Closing Date or the Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it has or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Firm Shares set forth opposite their respective names in Schedule A bears to the aggregate number of Firm Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as the Representatives may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 10 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased, and arrangements satisfactory to the Representatives and the Company for the purchase of such Firm Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case either the Representatives or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. If, on the Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased, the non-defaulting Underwriters shall have the option to (i) terminate their obligation hereunder to purchase Additional Shares or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase in the absence of such default. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability to the Company and the non-defaulting Underwriters arising out of or related to any default of such Underwriter under this Agreement.

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11. Counterparts.

This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

12. Headings; Table of Contents.

The headings of the sections of this Agreement and the table of contents have been inserted for convenience of reference only and shall not be deemed a part of this Agreement.

13. Notices.

All communications hereunder shall be in writing and shall be mailed, hand delivered or telecopied and confirmed to the parties hereto as follows:

If to the Representatives:

Thomas Weisel Partners LLC

390 Park Avenue, 16^th Floor

New York, NY 10022

Facsimile: (212) 271-3747

Attention: E. James Streator III

with a copy to:

Thomas Weisel Partners LLC

One Montgomery Street, Suite 3700

San Francisco, California 94104

Facsimile: (415) 364-2694

Attention: Jack Helfand, Esq.

If to the Company:

Allion Healthcare, Inc.

1660 Walt Whitman Road, Suite 105

Melville, New York 11747

Facsimile: (631) 547-6532

Attention: Michael P. Moran

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with a copy to:

Kirkland & Ellis LLP

655 15^th Street, N.W., Suite 1200

Washington, DC 20005

Facsimile: 202-879-5200

Attention: Mark D. Director, Esq.

Any party hereto may change the address for receipt of communications by giving written notice to the others.

14. Successors.

This Agreement will inure to the benefit of and be binding upon the parties hereto, including any substitute Underwriters pursuant to Section 10 hereof, and to the benefit of the officers and directors and controlling persons referred to in Section 7, and in each case their respective successors, and no other person will have any right or obligation hereunder. The term “successors” shall not include any purchaser of the Shares as such from any of the Underwriters merely by reason of such purchase.

15. Partial Unenforceability.

The invalidity or unenforceability of any Section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other Section, paragraph or provision hereof. If any Section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable.

16. Governing Law.

THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.

17. Consent to Jurisdiction.

Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby (“Related Proceedings”) may be instituted in the federal courts of the United States of America located in the City of New York or the courts of the State of New York in each case located in the City of New York (collectively, the “Specified Courts”), and each party irrevocably submits to the exclusive jurisdiction (except for proceedings instituted in regard to the enforcement of a judgment of any such court (a “Related Judgment”), as to which such jurisdiction is non-exclusive) of such courts in any such suit, action or proceeding. Service of any process, summons, notice or document by mail to such party’s address set forth above shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or other proceeding in the Specified Courts and irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such suit, action or other proceeding brought in any such court has been brought in an inconvenient forum.

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18. Entire Agreement.

This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof.

19. Amendments.

This Agreement may only be amended or modified in writing, signed by all of the parties hereto, and no condition herein (express or implied) may be waived unless waived in writing by each party whom the condition is meant to benefit.

20. Sophisticated Parties.

Each of the parties hereto acknowledges that it is a sophisticated business person who was adequately represented by counsel during negotiations regarding the provisions hereof, including, without limitation, the indemnification and contribution provisions of Section 7, and is fully informed regarding said provisions. Each of the parties hereto further acknowledges that the provisions of Section 7 hereto fairly allocate the risks in light of the ability of the parties to investigate the Company, its affairs and its business in order to assure that adequate disclosure has been made in the Registration Statement, any preliminary prospectus and the Prospectus (and any amendments and supplements thereto), as required by the Securities Act and the Exchange Act.

[Remainder of page intentionally left blank]

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If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to the Company the enclosed copies hereof, whereupon this instrument, along with all counterparts hereof, shall become a binding agreement in accordance with its terms.

Very truly yours,

ALLION HEALTHCARE, INC.

By:

Name:

Title:

Accepted as of the date hereof

Thomas Weisel Partners LLC

William Blair & Company, L.L.C.

First Albany Capital Inc.

Acting severally on behalf

  of themselves and the

  several Underwriters named

  in Schedule A hereto.

By:	Thomas Weisel Partners LLC
	By:
	Name:
	Title:

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SCHEDULE A

Underwriter	Number of Firm Shares To Be Purchased
Thomas Weisel Partners LLC
William Blair & Company, L.L.C.
First Albany Capital Inc.
Total

SCHEDULE B

Subsidiaries of the Company

Name	Jurisdiction of Organization
Mom’s Pharmacy, Inc.	California
Medicine Made Easy	California
Mail Order Meds, Inc.	Texas
Mom’s Pharmacy, Inc.	New York
Mom’s Pharmacy, LLC	Florida
North American Home Health Supply, Inc.	California
Specialty Pharmacies, Inc.	Washington

SCHEDULE C

Registration Rights

Name of Shareholder with Registration Rights Class of Security subject to Registration Rights Number of Shares subject to Registration Rights

EXHIBIT A-1

Form of Legal Opinion of Kirkland & Ellis LLP

1

EXHIBIT A-2

Form of Legal Opinion of Nixon Peabody LLP

1

EXHIBIT B

Form of Lock-Up Agreement

                    , 2005

Thomas Weisel Partners LLC

William Blair & Company, Inc.

First Albany Capital Inc.

    As Representatives of the several Underwriters

c/o Thomas Weisel Partners LLC

390 Park Avenue, 16^th Floor

New York, New York 10022

Re: Lock-Up Agreement (the “Agreement”)

Ladies and Gentlemen:

The undersigned is an owner of record or beneficially of certain shares of Common Stock, par value $0.001 per share (the “Common Stock”), of Allion Healthcare, Inc., a Delaware corporation (the “Company”), or securities convertible into or exchangeable or exercisable for Common Stock. The undersigned understands that you, as representatives (the “Representatives”), propose to enter into an Underwriting Agreement on behalf of the several Underwriters named in such agreement (collectively, the “Underwriters”), with the Company providing for a public offering of the Common Stock of the Company pursuant to a Registration Statement on Form S-1 to be filed with the Securities and Exchange Commission (the “Public Offering”). The undersigned recognizes that the Public Offering will be of benefit to the undersigned and will benefit the Company by, among other things, raising additional capital for its operations. The undersigned acknowledges that you and the other Underwriters are relying on the representations and agreements of the undersigned contained in this letter in carrying out the Public Offering and in entering into underwriting arrangements with the Company with respect to the Public Offering.

To induce the Underwriters that may participate in the Public Offering to continue their efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of Thomas Weisel Partners LLC (which consent may be withheld in its sole discretion), it will not, during the period commencing on the date hereof and ending 180 days after the date of the final prospectus relating to the Public Offering (the “Prospectus”), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to the exercise of options or warrants or the conversion of a security outstanding on the date of the Prospectus and which is described in the Registration Statement on Form S-1; provided, however, that the undersigned agrees that the foregoing sentence shall apply to any securities issued by the Company to the undersigned upon such an exercise or conversion. The undersigned agrees that if, (1) during the last 17 days of the 180-day restricted period, the Company issues an earnings release or material news or a material event relating to the Company occurs, or (2)

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prior to the expiration of the 180-day restricted period, the Company announces that it will release earnings results or becomes aware that material news or a material event will occur during the 16-day period beginning on the last day of the 180-day period, the 180-day period automatically shall extend until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

The undersigned hereby acknowledges and agrees that written notice of any extension of the 180-day lock-up period pursuant to the previous paragraph will be delivered by Thomas Weisel Partners LLC to the Company and that any such notice properly delivered will be deemed to have been given to, and received by, the undersigned. The undersigned further agrees that, prior to engaging in any transaction or taking any other action that is subject to the terms of this lock-up agreement during the period from the date of this lock-up agreement to and including the 34^th day following the expiration of the initial 180-day lock-up period, it will give notice thereof to the Company and will not consummate such transaction or take any such action unless it has received written confirmation from the Company that the 180-day lock-up period (as may have been extended pursuant to the previous paragraph) has expired.

The restrictions described above are expressly agreed to preclude the undersigned from engaging in any hedging or other transaction which is designed to or reasonably expected to lead to or result in a sale or disposition of the Common Stock even if such Common Stock would be disposed of by someone other than the undersigned. Such prohibited hedging or other transactions would include, without limitation, any short sale or any purchase, sale or grant of any right (including without limitation any put option or put equivalent position or call option or call equivalent position) with respect to any of the Common Stock or with respect to any security that includes, relates to, or derives any significant part of its value from such Common Stock.

Notwithstanding the foregoing, the undersigned may sell or otherwise transfer shares of Common Stock, without the prior written consent of Thomas Weisel Partners LLC, (1) as a bona fide gift or gifts, (2) to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, (3) if the undersigned is a partnership or corporation or similar entity, as a distribution to partners or stockholders of the undersigned, if any, (4) if the undersigned is a corporation, as a transfer to any wholly-owned subsidiary of such corporation, (5) to an entity controlled by the undersigned or an immediate family member of the undersigned, or (6) by will or the laws of descent and distribution; provided, however, that in the case of each such transfer, it shall be a condition to the transfer that (1) the transferee execute an agreement stating that the transferee agrees to be bound by the restrictions contained in this Agreement, (2) any such transfer shall not involve a disposition for value, (3) such transfer is not required to be reported in any public report or filing with the Securities and Exchange Commission or otherwise and (4) the undersigned does not otherwise voluntarily effect any public filing or report regarding such transfers. For purposes of this Agreement, “immediate family” shall mean any relationship by blood, marriage or adoption, not more remote than first cousin. Furthermore, the undersigned may sell shares of Common Stock of the Company purchased by the undersigned in the open market following the Public Offering.

In addition, the undersigned agrees that, without the prior written consent of Thomas Weisel Partners LLC (which consent may be withheld in its sole discretion) it will not, during the period commencing on the date hereof and ending 180 days after the date of the Prospectus, make any demand for or exercise any right with respect to, the registration under the Securities Act of 1993, as amended, of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock. With respect to the Public Offering, the undersigned waives any registration rights relating to registration under the Securities Act of any Common Stock, or any securities convertible into or exercisable or exchangeable for Common Stock, owned either of record or beneficially by the undersigned, including any rights to receive notice of the Public Offering.

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The undersigned understands that whether or not the Public Offering actually occurs depends on a number of factors, including stock market conditions. The Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation among the Company and the Underwriters. If the Public Offering does not close by October 31, 2005, this Agreement shall terminate immediately upon such date and be of no further force and effect.

The undersigned agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of shares of Common Stock or securities convertible into or exchangeable or exercisable for Common Stock held by the undersigned except in compliance with the foregoing restrictions.

This Agreement is irrevocable and will be binding on the undersigned and the respective successors, heirs, personal representatives, and assigns of the undersigned.

This lock-up agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of laws principles thereof.

Very truly yours,

(Name)

(Address)

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EXHIBIT C

Parties to Lock-Up Agreements

1

EX-2.6

Exhibit 2.6

ASSET PURCHASE AGREEMENT

dated as of May 19, 2005

by and between

MOMS PHARMACY, INC.

and

ORIS MEDICAL SYSTEMS, INC.

ASSET PURCHASE AGREEMENT

This ASSET PURCHASE AGREEMENT dated as of May 19, 2005, is by and between MOMS PHARMACY, INC., a California corporation (“Buyer”), and ORIS MEDICAL SYSTEMS, INC., a Washington corporation (“Seller”).

A. Seller is the licensee under a Distribution and License Agreement effective as of March 1, 2005 with Ground Zero Software, Inc. (“Ground Zero”), a copy of which is attached hereto as Exhibit A (the “Ground Zero Agreement”), relating to, among other things, a computer software program known as LabTracker – HIV^™ (“LabTracker”), and has developed and owns or uses other intellectual property, including the Oris System.

B. Buyer desires to purchase and Seller desires to sell, transfer and deliver to Buyer Seller’s right title and interest in and to the Ground Zero Agreement and certain intellectual property, and Buyer desires to have an option to purchase and Seller desires to grant to Buyer an option to purchase certain other assets of Seller, on the terms and conditions set forth in this Agreement.

The parties agree as follows:

ARTICLE I

DEFINITIONS

The terms defined in this Article I, whenever used herein (including the schedules hereto, unless otherwise defined therein), shall have the following meanings:

1.1 “1934 Act” shall have the meaning set forth in Section 2.3(c)(ii) of this Agreement.

1.2 “Accounting” shall have the meaning set forth in Section 2.4.

1.3 “Acquired Assets” shall mean all of Seller’s right, title and interest in and to the Space Lease, the Intellectual Property and all related goodwill, customer lists, books, records, files and other information in tangible form specifically pertaining to any of the Intellectual Property.

1.4 “Affiliate” shall mean any Person that directly or indirectly controls or owns, is controlled by or owned by or is under common control or ownership with another Person.

1.5 “Allion” shall mean Allion Healthcare, Inc., a Delaware corporation.

1.6 “Assets” shall mean the Acquired Assets and, to the extent Buyer exercises the Option, the Option Assets.

1.7 “Business Day” shall mean any day other than a Saturday, Sunday or other day on which banks are closed or are authorized to be closed in New York, New York.

1.8 “Buyer Claimant” shall have the meaning set forth in Section 8.2 of this Agreement.

1.9 “Change in Control” shall have the meaning set forth in Section 2.3(c)(ii) of this Agreement.

1.10 “Closing Date” shall have the meaning set forth in Section 3.1 of this Agreement.

1.11 “Closing” shall mean the closing of the purchase and sale of the Assets, as contemplated by this Agreement.

1.12 “Code” shall mean the Internal Revenue Code of 1986, as amended.

1.13 “Contract” shall have the meaning set forth in Section 4.9 of this Agreement.

1.14 “Earnout Payment” shall have the meaning set forth in Section 2.2(b) of this Agreement.

1.15 “Earnout Period” shall mean the period beginning on the Closing Date and continuing until the earlier of the date that is forty (40) months thereafter, the date that the Maximum Earnout Payment is made, or the date that the payment under Section 2.3(a) or 2.3(b)(ii) is made.

1.16 “Employee Benefit Plan” means any “employee benefit plan” within the meaning of Section 3(3) of ERISA, and any other bonus, profit sharing, compensation, pension, severance, deferred compensation, fringe benefit, insurance, welfare, medical, post-retirement health or welfare benefit, medical reimbursement, health, life, stock option, stock purchase, tuition refund, service award, company car, scholarship, relocation, disability, accident, sick pay, sick leave, vacation, termination, individual employment, executive compensation, incentive, bonus, commission, payroll practices, retention or other plan, agreement, policy, trust fund or arrangement, whether written or unwritten, and whether maintained, sponsored or contributed to by Seller or any entity that would be deemed a “single employer” with Seller under Section 414(b), (c), (m) or (o) of the Code or Section 4001(a)(14) of ERISA (an “ERISA Affiliate”) on behalf of any of the current, former or retired employees of Seller or its beneficiaries or with respect to which Seller or any ERISA Affiliate has or has had any obligation on behalf of any such employee or beneficiary.

1.17 “Encumbrance” shall mean any lien, charge, encumbrance, option, right of first refusal, security interest, easement, obligation or claim or other third party right of any kind.

1.18 “Environment” shall mean any surface or subsurface physical medium or natural resource, including, air, land, soil, surface waters, ground waters, stream and river sediments, and biota.

1.19 “Environmental Laws” shall mean any federal, state, local or foreign law, rule, regulation, ordinance, code, order or judgment (including the common law and any judicial or administrative interpretations, guidances, directives or opinions) relating to the injury to, or the pollution or protection of human health and safety or the Environment.

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1.20 “Environmental Liabilities” shall mean any claims, judgments, damages (including punitive damages), losses, penalties, fines, liabilities, encumbrances, liens, violations, costs and expenses (including attorneys and consultants fees) of investigation, remediation or defense of any matter relating to human health, safety or the Environment of whatever kind or nature by any party, entity or authority, (a) which are incurred as a result of (i) the existence of Hazardous Substances in, on, under, at or emanating from any real property presently or formerly owned or operated by Seller or any of its Affiliates, (ii) the offsite transportation, treatment, storage or disposal of Hazardous Substances generated by Seller or any of its Affiliates, or (iii) the violation of any Environmental Laws or (b) which arise under the Environmental Laws.

1.21 “Equipment” shall mean all items of machinery, equipment, computers, tools, parts, furniture and fixtures set forth on Schedule 4.6 and all other items of machinery, equipment, computers, tools, parts, furniture and fixtures owned by Seller.

1.22 “ERISA Affiliate” shall have the meaning set forth in the definition of “Employee Benefit Plan”.

1.23 “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.

1.24 “Excluded Assets” shall have the meaning set forth in Section 2.1(b) of this Agreement.

1.25 “Excluded Liabilities” shall have the meaning set forth in Section 2.1(c) of this Agreement.

1.26 “GE” shall have the meaning set forth in Section 9.7 of this Agreement.

1.27 “Ground Zero Agreement” shall have the meaning set forth in Recital A.

1.28 “Ground Zero Payment” shall mean (a) twenty-five (25%) of any Earnout Payment due to Seller for Slots filled through University California San Diego, Garden State Infectious Disease Associates, Fresno Community Medical Center, Wellspring Medical Group, University of Miami Medical Center, and University of South Florida Medical Center; and (b) except as stated in (a), fifteen percent (15%) of any Earnout Payment due to Seller hereunder.

1.29 “Hazardous Discharge” shall mean any releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, migrating, disposing or dumping (including the movement of any material through or in air, soil, surface or groundwater) of Hazardous Substances, whether on, off, under or from the Real Property or any other real property owned, operated, leased or used at any time by Seller or its predecessors.

1.30 “Hazardous Substances” shall mean petroleum, petroleum products, petroleum-derived substances, radioactive materials, hazardous wastes, polychlorinated biphenyls, lead based paint, urea formaldehyde, asbestos or any materials containing asbestos, and any

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materials, wastes or substances regulated or defined as or included in the definition of “hazardous substances,” “hazardous materials,” “hazardous constituents,” “toxic substances,” “pollutants,” “contaminants” or any similar denomination intended to classify substances by reason of toxicity, carcinogenicity, ignitability, corrosivity or reactivity under any Environmental Laws.

1.31 “HIPAA” shall have the meaning set forth in Section 4.9 of this Agreement.

1.32 “Included Liabilities” shall have the meaning set forth in Section 2.1(a)(ii) of this Agreement.

1.33 “Indemnitee” and “Indemnitor” shall have the meanings set forth in Section 8.4(a) of this Agreement.

1.34 “Initial Payment” shall have the meaning set forth in Section 2.2(a) of this Agreement.

1.35 “Intellectual Property” means (a) all United States and foreign patents and pending patent applications, trademarks, service marks and trade names held by Oris, including the marks and patents described on Schedule 4.8 of this Agreement, and copyrights, and registrations and pending applications, computer programs and software, research and development, know-how, inventions and other proprietary processes and information of any kind owned or licensed by Oris, and all software necessary or desirable to run Equipment owned or licensed by Oris, all as set forth on Schedule 4.8 of this Agreement; (b) all copies and tangible embodiments of the foregoing; and (c) the right to sue for misappropriation or infringement of any of the foregoing occurring after the Closing.

1.36 “IPO” means an underwritten public offering of any shares of Allion’s common stock resulting in aggregate proceeds to Allion in excess of $25 million.

1.37 “IRS” shall mean the Internal Revenue Service.

1.38 “LabTracker” shall have the meaning set forth in Recital A.

1.39 “Losses” shall have the meaning set forth in Section 8.2 of this Agreement.

1.40 “Material Adverse Effect” shall mean any material adverse effect, individually or in the aggregate, on the condition (financial or otherwise), business, assets, operations of Seller or the Assets.

1.41 “Maximum Earnout Payment” shall have the meaning set forth in Section 2.2(b).

1.42 “Multiemployer Plan” shall have the meaning set forth in Section 4.11(c).

1.43 “Multiple Employer Plan” shall have the meaning set forth in Section 4.11(c).

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1.44 “Option Assets” shall mean all of Seller’s right, title and interest in and to all of its assets and properties, whether tangible or intangible, other than the Acquired Assets, and including, without limitation, the Contracts, the Equipment, inventory, supplies, packaging and shipping materials, tenant improvements, manufacturers warranties and all other information pertaining to the Option Assets.

1.45 “Option” shall mean Buyer’s right to, at the Closing, acquire any or all of the Options Assets, for no additional consideration paid to Seller or any other Person, upon ten (10) Business Days’ prior written notice to Seller at any time prior to the Closing of the identity of the particular Option Assets as to which Buyer has determined to exercise the Option.

1.46 “Oris System” shall mean the electronic prescribing system known as the “Oris System”, which system is comprised of hardware, software and firmware components.

1.47 “Person” shall mean any natural person, corporation, professional corporation, limited or limited liability partnership, general partnership, joint venture, association, joint-stock company, limited liability company, company, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, and any governmental unit or agency or political subdivision thereof.

1.48 “Projected Future Earnout Payments” shall have the meaning set forth in Section 2.3(c)(i) of this Agreement.

1.49 “Purchase Price” shall have the meaning set forth in Section 2.2(b) of this Agreement.

1.50 “Quarterly Slots” shall have the meaning set forth in Section 2.2(c)(i) of this Agreement.

1.51 “Real Property” shall mean the real property leased pursuant to the Space Lease.

1.52 “Related Party” shall have the meaning set forth in Section 4.13 of this Agreement.

1.53 “Restricted Period” and “Restricted Territory” shall have the meanings set forth in Section 7.1 of this Agreement.

1.54 “Seller Claimant” shall have the meaning set forth in Section 8.3 of this Agreement.

1.55 “Signing Shareholders” shall have the meaning set forth in Section 4.2 of this Agreement.

1.56 “Slot(s)” shall mean any natural person who is or has been a patient of a physician customer of Buyer and/or Affiliates on or after the date hereof where the physician customer is or has utilized LabTracker and/or the Oris System and such patient has chosen to have his/her prescription filled by Buyer or an Affiliate of Buyer. “Slots” shall include each individual

5

who has ceased to be a patient of a customer of Buyer for as long as that individual’s prescription continues to be refilled by any wholesale, retail or internet pharmacy operated or owned by Buyer or an Affiliate of Buyer (not taking into consideration such natural persons that have ceased utilizing a pharmacy owned or operated by Allion on the date as of which the number of Slots is calculated).

1.57 “Space Lease” means that certain space lease by and between Seller, as tenant, and Janez Properties, as landlord, to be entered into prior to the Closing.

1.58 “Taxes” (or “Tax” where the context requires) shall mean all federal, state, local, foreign or other taxes, duties, or similar charges (including, without limitation, income (whether net or gross), profits, premium, estimated, excise, sales, use, environmental (including taxes under Code Section 59A), occupancy, franchise, license, value added stamp, windfall profits, social security, gross receipts, franchise, ad valorem, severance, capital levy, production, transfer, gains, withholding, occupation, employment and payroll related and property taxes, alternative or add-on, minimum or estimated, import and export duties and other governmental charges and assessments) imposed by any taxing or governmental authority on or payable by Seller or any other party with respect to the income, operations, products, assets or properties of Seller, whether attributable to statutory or nonstatutory rules and whether or not measured in whole or in part by net income, and including interest, additions to tax or interest, and penalties with respect thereto, and including expenses associated with contesting any proposed adjustment related to any of the foregoing.

ARTICLE II

SALE AND PURCHASE OF THE ASSETS

2.1 Purchase of the Assets.

(a) Upon the terms and subject to the conditions hereof, and upon the basis of the agreements, representations and warranties contained in, and the schedules to, this Agreement:

(i) At the Closing, Seller shall sell, transfer, assign, convey and deliver to Buyer, and Buyer shall purchase and acquire from Seller the Assets, free and clear of all Encumbrances; and

(ii) At the Closing, Seller shall assign, and Buyer shall assume and agree to perform, pay and discharge all obligations under or associated with the Assets which accrues on or after the Closing Date, except the Excluded Liabilities (the “Included Liabilities”).

(b) Notwithstanding anything contained in this Agreement, Seller shall not sell, transfer, assign, convey or deliver to Buyer, and Buyer shall not purchase or acquire from Seller, any of the assets of Seller listed on Schedule 2.1(b) (the “Excluded Assets”).

(c) Except as set forth in Section 2.1(a)(ii) above, Buyer shall not be required to assume, pay, fulfill, perform or otherwise discharge any liabilities or obligations of Seller, including of Seller’s business, of any kind whatsoever (the “Excluded Liabilities”), and Seller shall pay, fulfill, perform and discharge such Excluded Liabilities. The Excluded Liabilities include, without limitation:

(i) Legal, accounting, brokerage, finder’s fees, Taxes or other expenses incurred by Seller or any Affiliate, including, without limitation, in connection with this Agreement or the consummation of the transactions contemplated hereby;

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(ii) Any intercompany debt or other liability or obligation of any nature between Seller and any past or present Related Party of Seller;

(iii) Liabilities or obligations incurred by Seller or any Affiliate of Seller after the Closing;

(iv) Any obligation or liability relating to any litigation or any claim arising out of any dispute, the elements of which occurred prior to the Closing, whether or not listed on any schedule hereto and regardless of whether accruing prior to or subsequent to the Closing;

(v) Any liability for any Taxes accrued to or incurred by Seller or any Affiliate of Seller or relating to operations, products or assets of Seller or any Affiliate of Seller or arising as a consequence of the transactions contemplated hereby;

(vi) Any liability or costs (including, without limitation, costs of remediation) arising out of or relating to a Hazardous Discharge or the release, discharge or disposal of any solid wastes or the handling, storage, use, transportation or disposal of any of the foregoing, as these terms are defined by the Environmental Laws in, on, under or from facilities of Seller at any time prior to the Closing, regardless of whether such liability or costs arise before or after Closing and whether or not in breach of any representation or warranty under this Agreement; provided that this Section shall not create any liability for Seller that does not exist under the Environmental Laws;

(vii) Any liability or obligation to employees, government agencies or other third parties in connection with any option plan, pension plan, other ERISA plan or other Employee Benefit Plan, and any health, dental or life insurance benefits, whether or not insured and whether or not disclosed on any schedule hereto;

(viii) Any liability or obligation under any contract or commitment that is not a Contract assigned to Buyer hereunder, or any default by Seller in respect of such contract or other commitment or obligation of Seller;

(ix) Any liability or obligation to employees in the nature of accrued payroll, vacation, holiday or sick pay, worker’s compensation relating to the period prior to the Closing, whether or not listed on any schedule hereto and regardless of whether accruing prior or subsequent to the Closing; and

(x) Any trade debt, accounts payable, notes payable and bank debts.

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2.2 Purchase Price.

(a) At the Closing Date, in consideration for the Assets, Buyer shall: (i) pay to Seller an amount in cash equal to Nine Hundred Thousand Dollars ($900,000) (the “Initial Payment”); and (ii) Seller shall pay fifteen percent (15%) of the Initial Payment less deductions for direct out of pocket expenses of Seller related to the transactions contemplated by this Agreement to Ground Zero. On the date hereof, Buyer shall pay to Seller One Hundred Thousand Dollars ($100,000) and Seller shall pay fifteen percent (15%) of such payment less deductions for direct out of pocket expenses of Seller related to the transactions contemplated by this Agreement to Ground Zero.

(b) In addition, in consideration for the Assets, Buyer shall pay to Seller an amount equal to (i) (A) One Thousand Dollars ($1,000) multiplied by (B) (x) the number of Slots during the Earnout Period, minus (y) the number of Slots immediately prior to the date hereof, minus (ii) the Ground Zero Payment (the “Earnout Payment” and, together with the Initial Payment, the “Purchase Price”), payable at such times as specified in Section 2.2(c), up to a maximum earnout payment of Forty Million Dollars ($40,000,000) less the cumulative Ground Zero Payments (the “Maximum Earnout Payment”).

(c) The Earnout Payments shall be paid as follows:

(i) Within ten (10) days after the end of each calendar quarter, commencing with the first full calendar quarter immediately following the date hereof, the Buyer shall calculate the aggregate number of Slots on such date minus the number of Slots immediately prior to the date hereof (the “Quarterly Slots”).

(ii) Within fifteen (15) days after the end of each such calendar quarter, Buyer shall pay to Seller a portion of the Earnout Payment equal to an amount determined by multiplying One Thousand Dollars ($1,000) by the number of Quarterly Slots, less (A) any Earnout Payments previously made by Buyer to Seller and less (B) the currently owed Ground Zero Payment.

(iii) Buyer and Seller acknowledge that it is their intent to pay the Earnout Payment based on the increase in the aggregate number of Slots from quarter end to quarter end during the Earnout Period and up to a maximum of the Maximum Earnout Payment.

(iv) Subject to Section 2.2(b)(v), the Earnout Payments shall be made by Buyer in readily available U.S. dollars, by check or by wire transfer.

(v) If Buyer would like to pay part of any Earnout Payment in Allion’s common stock, Buyer shall notify the payee of such Earnout Payment in stock at least five (5) Business Days before the stock grant. Further, Buyer may only pay up to a maximum of eighty (80%) of any Earnout Payment in Allion’s common stock and only if the following conditions are met:

(A) Allion’s stock is regularly traded on Nasdaq or a U.S. national securities exchange;

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(B) Allion’s stock is valued as the amount of the closing price of Allion’s stock on Nasdaq or a U.S. national securities exchange for the immediately preceding Business Day prior to the date that such stock is granted as partial payment of the Earnout Payment;

(C) The common stock of Allion granted as part of the Earnout Payment is freely negotiable and tradable on Nasdaq or a U.S. national securities exchange, except during the period from the date of the IPO until one hundred eighty one (181) calendar days thereafter.

2.3 Buy-Out.

(a) If there is a Change in Control at any time prior to the twenty four (24) month anniversary of the date hereof and the number of Slots is less than fifteen thousand (15,000), Buyer shall pay the Earnout Payment contemporaneously with the Change in Control, in an amount equal to Fifteen Million Dollars ($15,000,000) less any Earnout Payments made by Buyer to Seller prior to the date of the Change in Control.

(b) If there is a Change in Control at any time prior to the twenty four (24) month anniversary of the date hereof and the number of Slots is equal or greater than fifteen thousand (15,000); or there is a Change in Control on or after the twenty four (24) month anniversary date of the date hereof, then either of following shall apply, at the Buyer’s sole and absolute discretion (provided, however that either of (i) or (ii) must be chosen by Buyer):

(i) (A) Buyer’s rights and obligations under this Agreement shall be assumed by Allion, Buyer’s acquirer, Buyer’s successor or other party resulting from a Change in Control and the Agreement shall be otherwise continued even after any Change in Control (by operation of law or otherwise) for the duration of the full Earnout Period; and (B) the historical budgeted amounts provided to the Assets and Seller’s business acquired hereunder shall be maintained at substantially the same level for the duration of the full Earnout Period; or

(ii) As of the date of the Change in Control, Buyer shall pay Seller an amount equal to fifty percent (50%) of the Projected Future Earnout Payments; provided that in no event shall the payment under this Section exceed the Maximum Earnout Payment.

(c) For purposes of this Agreement:

(i) “Projected Future Earnout Payments” shall mean (A) the aggregate number of Slots as of the date of the Change in Control, divided by (B) the number of full and partial months from the date hereof through the date of the Change in Control (the “Accrued Months”), multiplied by (C) the difference of forty (40) minus the Accrued Months.

(ii) “Change in Control” shall mean: (A) a complete liquidation or dissolution of Buyer or the sale or other disposition of all or substantially all of the Assets (in one transaction or a series of related transactions), except where Allion or another wholly-owned subsidiary of Allion is the resulting owner of the Assets; (B) the acquisition (or series of related acquisitions) by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “1934 Act”) of beneficial ownership

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(within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 50% or more of either of (I) the then outstanding shares of common stock of Allion or (II) the combined voting power of the then outstanding voting securities of Allion entitled to vote generally in the election of directors; (C) a reorganization, merger or consolidation involving Buyer or Allion (whether or not Buyer or Allion is the surviving entity), in each case unless the result is that the holders of Allion’s outstanding securities immediately prior to the consummation of such transaction hold voting securities in excess of fifty percent (50%) of the voting power of Allion or the surviving or resulting entity, as the case may be or the resulting entity is another wholly-owned subsidiary of Allion.

2.4 Accounting. Each Earnout Payment or Buy-Out Payment shall be accompanied with a true and accurate accounting of the calculations to be performed by Buyer pursuant to this Article II, all amounts due Ground Zero and Seller (and/or Seller’s shareholders) (the “Accounting”). The Accounting shall be signed by the chief financial officer of Buyer or Allion certifying that the Accounting is true and accurate.

2.5 Allocation of Purchase Price. The Purchase Price for the Assets shall be allocated for federal, state, local and foreign tax purposes by each party among the Assets as mutually agreed upon by Buyer and Seller and set forth as Exhibit 2.5. For all pertinent tax purposes, each party hereto shall report the purchase and sale provided for, and with the characterization given these transactions in this Agreement, to taxing authorities on a basis consistent with such allocation, and each party agrees not to take a position inconsistent with such allocation. After the Closing, Seller and Buyer each shall timely file form 8594 with the IRS detailing this allocation. Any future adjustments to this allocation shall be agreed upon by the parties.

2.6 Nonassignable Contracts. To the extent that the assignment of any Contract to be assigned to Buyer pursuant to this Agreement shall require the consent of any other Person, this Agreement shall not constitute a contract to assign the same if an attempted assignment would constitute a breach thereof. Seller shall use all reasonable efforts, and Buyer shall cooperate where appropriate, to obtain any consent necessary to any such assignment where such consent is requested by Buyer. If any such consent is not obtained, Seller shall cooperate with Buyer in any reasonable arrangement designed to provide for Buyer the benefit, monetary or otherwise, of the Contracts, including enforcement of any and all rights of Seller or Seller’s business against the other party thereto arising out of a breach or cancellation thereof by such other party or otherwise.

ARTICLE III

CLOSING

3.1 The Closing. Subject to the terms and conditions of this Agreement, the Closing shall occur on the third Business Day after the consummation of an IPO (the “Closing Date”), at the offices of Buyer’s counsel, Nixon Peabody LLP, 990 Stewart Avenue, Garden City, New York and Seller’s counsel, Hooper, Lundy & Bookman, Inc., 1875 Century Park East, Los Angeles, California, with such coordination as is necessary to facilitate a remote closing. The parties agree that the Closing may occur upon faxed signatures with originals to be provided as soon as practicable thereafter.

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3.2 Obligations of Seller. At the Closing, Seller shall deliver to Buyer the following:

(a) A bill of sale, in the form attached hereto as Exhibit 3.2(a), duly executed by Seller.

(b) Copies of the resolutions of the Board of Directors and shareholders of Seller certified by the secretary or assistant secretary of Seller, which resolutions shall approve and authorize the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and which shall be attached hereto as Exhibit 3.2(b);

(c) All consents to the assignment to Buyer of the Space Lease, in the form of Exhibit 3.2(c)(i), and the Ground Zero Agreement, in the form of Exhibit 9.6, and such other consents as may be mutually agreed upon by the parties prior to the Closing and attached hereto as Exhibit 3.2(c)(ii);

(d) The independent contractor agreement between Pat Iantorno and Buyer, in form mutually satisfactory to such parties and in the form attached hereto as Exhibit 3.2(d);

(e) The independent contractor agreement between Linda Lyon and Buyer, in form mutually satisfactory to such parties and in the form attached hereto as Exhibit 3.2(e);

(f) The severance agreement by and among James Holden, Seller and Buyer, attached hereto as Exhibit 3.2(f);

(g) Such other instruments of assignment and conveyance as may be necessary or appropriate to fully and effectively transfer to Buyer the Assets; and

(h) All of the other documents and instruments required to be delivered by Seller.

3.3 Obligations of Buyer. At the Closing, Buyer shall deliver to Seller the following:

(a) The Initial Payment;

(b) Copies of the resolutions of the Board of Directors of Buyer certified by the secretary or assistant secretary of Seller, which resolutions shall approve and authorize the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, attached hereto as Exhibit 3.3(b);

(c) The independent contractor agreement between Pat Iantorno and Buyer, in form mutually satisfactory to such parties and in the form attached hereto as Exhibit 3.2(d);

(d) The independent contractor agreement between Linda Lyon and Buyer, in form mutually satisfactory to such parties and in the form attached hereto as Exhibit 3.2(e);

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(e) The severance agreement by and among James Holden, Seller and Buyer, attached hereto as Exhibit 3.2(f); and

(f) All of the other documents and instruments required to be delivered by Buyer.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES REGARDING SELLER AND SELLER’S BUSINESS

Seller hereby represents and warrants to Buyer, with such qualifications and limitations as set forth in the Disclosure Schedules, as of the date hereof and as of the Closing, as follows:

4.1 Organization and Qualification. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Washington, with full corporate power and authority to own, lease and operate its properties and assets and to conduct its business as it is now being conducted.

4.2 Authority. Seller has all requisite corporate power and authority to execute and deliver this Agreement and all documents, certificates, agreements, instruments and writings related hereto to which it is a party and to perform, carry out and consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly and validly executed and delivered by Seller and each shareholder of Seller who is a signatory hereto (representing each shareholder of Seller who is of legal age to sign a binding agreement under applicable law) (each, a “Signing Shareholder”) and, assuming due and valid execution by Buyer, this Agreement constitutes a legal, valid and binding obligation of Seller and each Signing Shareholder, enforceable against Seller and each Signing Shareholder in accordance with its terms subject to (a) applicable bankruptcy, reorganization, insolvency, moratorium and other laws affecting creditors’ rights generally from time to time in effect and (b) limitations on the enforcement of equitable remedies.

4.3 No Breach. Neither the execution and delivery by Seller of this Agreement nor the consummation by Seller of the transactions contemplated hereby will: (a) violate any provision of the articles of organization or bylaws of Seller; (b) conflict with, result in a breach of or constitute a default (or an event which, with or without notice, lapse of time or both, would constitute a default) under the Contracts or any other material agreement, document, certificate or other instrument to which Seller is a party or by which Seller or any of its properties or assets (including the Assets) is subject or bound (except for any Contracts which require consent to assignment to Buyer); (c) result in the creation of, or give any party the right to create, any Encumbrance upon any of the Assets; (d) conflict with, violate, result in a breach of or constitute a default under any judgment, decree, order or process of any court or governmental authority; (e), to Seller’s knowledge, conflict with or violate any material statute, law or regulation applicable to Seller or any of the Assets; or (f), to Seller’s knowledge, require Seller to obtain any authorization, consent, approval or waiver from, or to make any filing with, any governmental or regulatory authority.

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4.4 Absence Of Liabilities; Books and Records. Seller has no liabilities (whether accrued, unmatured, contingent or otherwise, and whether due or to become due), except for (a) performance obligations under executory contracts, (b) liabilities incurred in the ordinary course of business and (c) liabilities that have not been incurred in the ordinary course of business, but are not, individually or in the aggregate, materially adverse to the condition (financial or otherwise), business, assets, operations or prospects of Seller’s business. Seller has no knowledge of any basis for the assertion against Seller of any liability or loss contingency that would have a Material Adverse Effect. The books and records of Seller are accurate and complete in all material respects and have been maintained in accordance with good business practices.

4.5 Absence of Certain Changes or Events. Since December 31, 2004: Seller’s business has been conducted and the Assets have been acquired and operated only in the ordinary and usual course consistent with past practice; neither Seller’s business nor the Assets have suffered any event or condition that has had a Material Adverse Effect; and Seller has no knowledge of any event or condition that has occurred or would reasonably be expected to occur that would reasonably be expected to result in a Material Adverse Effect.

4.6 Assets. Seller has good and freely transferable title to all of the owned Assets, free and clear of all Encumbrances, and has the complete and unrestricted power and right to sell and transfer the owned Assets to Buyer in accordance with the terms hereof, subject to any consents listed on the Disclosure Schedule. Schedule 4.6 sets forth a complete and accurate list of all items of Equipment. The Assets constitute all of the properties and assets used by Seller in connection with the operation of Seller’s business.

4.7 Real Property. Seller does not own any real property and no real property is involved in this transaction. Schedule 4.7 sets forth an accurate and complete list of all leases of Real Property used by Seller in connection with Seller’s business. Seller has peaceful possession of the Real Property and has no other interest in real property in connection with Seller’s business.

4.8 Intellectual Property. Seller owns the Oris System, including, without limitation, all patents, trademarks, service marks, trade names and copyrights, in each case registered or unregistered, inventions, know-how, trade secrets and other intellectual property rights that are part of the Assets. The only intellectual property owned by Oris is the Oris System, which is licensed to various licensees. No Oris System infringes any rights owned or held by any other person. There is no pending or, to the knowledge of Seller, threatened claim or litigation against Seller or Seller’s business contesting its right exclusively to use any Oris System. To the knowledge of Seller, no person is infringing the rights of Seller or Seller’s business in any Oris System. No product or service sold or provided by Seller’s business violates or infringes any intellectual property right owned or held by any other person. The source code of Lab Tracker has not been disclosed by Seller or any of its employees, agents or representatives to any Person other than pursuant to a duly executed confidentiality agreement. To the knowledge of Seller, the Oris System as used in the Seller’s business as presently conducted is valid, enforceable and subsisting, and all application, issuance, renewal, maintenance and other payments that are or have become due with respect thereto have been timely paid and all assignments, certificates and other instruments necessary to record Seller’s rights thereto have been timely filed with the relevant governmental offices.

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4.9 Contracts and Commitments. The contracts listed on Schedule 4.9 are all of Seller’s leases, agreements, arrangements, contracts, commitments or understandings, written or oral, and whether legally binding or otherwise, considered part of the Assets (“Contracts”). Seller is not in breach or default, nor, to the knowledge of Seller, is there any basis for any valid claim of breach or default by Seller, under any Contract (except as may be based on an assignment to Buyer without consent). The Contracts are valid and in full force and effect and, assuming the obtaining of any consents to the assignment thereof, consummation of the transactions contemplated by this Agreement will not cause any Contract to cease to be valid and in full force and effect. Accurate and complete copies of the Contracts, including all amendments thereto, have been heretofore delivered to Buyer. Seller has included on Schedule 4.9 all business associate agreements or addenda that Seller has executed with Covered Entities (as that term is defined under the Health Insurance Portability and Accountability Act of 1996 and the regulations promulgated thereunder (“HIPAA”)). Seller is not in breach or default of any such HIPAA business associate agreements or addenda.

4.10 Litigation, Etc. Except as set forth in Exhibit 4.10, there has not been in the two (2) years prior to the date hereof, nor is there currently, any claim, action, suit, inquiry, proceeding or, to the best of Seller’s knowledge, investigation of any kind or nature whatsoever, by or before any court or governmental or other regulatory or administrative agency, commission or tribunal brought, asserted or initiated by Seller, or pending or, to the best of Seller’s knowledge, threatened against or involving Seller. To the best of Seller’s knowledge, there is no valid basis for any such claim, action, suit, inquiry, proceeding or investigation. Seller is not subject to any judgment, order or decree.

4.11 Employee Benefit Plans; Employees.

(a) Schedule 4.11(a) hereto sets forth a true and complete list of each Employee Benefit Plan.

(b) Each of the Employee Benefit Plans is and has been in compliance with all applicable laws, including without limitation ERISA and the Code in all material respects; each of the Employee Benefit Plans intended to be “qualified” within the meaning of Section 401(a) of the Code is so qualified and has received a determination letter from the Internal Revenue Service pursuant to Revenue Procedure 93-39 to the effect that such Employee Benefit Plan is qualified under Section 401(a) of the Code; no Employee Benefit Plan has or is expected to have an accumulated or waived funding deficiency within the meaning of Section 412 of the Code; neither Seller nor any ERISA Affiliate has incurred or is expected to incur, directly or indirectly, any liability (including any contingent liability) to or on account of a Employee Benefit Plan pursuant to Title IV of ERISA; no proceedings have been instituted to terminate any Employee Benefit Plan that is subject to Title IV of ERISA; no “reportable event,” as such term is defined in Section 4043(b) of ERISA, has occurred or is expected to occur with respect to any Employee Benefit Plan; and no condition exists that presents a risk to Seller or any ERISA Affiliate of incurring a liability to or on account of an Employee Benefit Plan pursuant to Title IV of ERISA.

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(c) The current value of the assets of each of the Employee Benefit Plans that are subject to Title IV of ERISA, based upon the actuarial assumptions (to the extent reasonable) presently used by the Employee Benefit Plans, exceeds the present value of the accrued benefits under each such Employee Benefit Plan calculated as the projected benefit obligation using the methodology under Financial Accounting Standards Board Statement No. 87; no Employee Benefit Plan is a multiemployer plan (within the meaning of Sections 3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code (“Multiemployer Plan”) and no Employee Benefit Plan is a multiple employer plan subject to Sections 4063 and 4064 of ERISA or as defined in Section 413 of the Code (“Multiple Employer Plan”); and all contributions or other amounts payable by Seller as of the Closing with respect to each Employee Benefit Plan in respect of current or prior plan years have been paid. Neither Seller nor any ERISA Affiliate is or was obligated to contribute to any Multiemployer Plan or Multiple Employer Plan. There are no pending, threatened or, to the best knowledge of Seller, anticipated claims (other than routine claims for benefits) by, on behalf of or against any of the Employee Benefit Plans or any trusts related thereto.

(d) No Employee Benefit Plan provides death or medical benefits (whether or not insured), with respect to current or former employees of Seller or any ERISA Affiliate beyond their retirement or other termination of service other than (i) coverage mandated by applicable law or (ii) death benefits under any “employee pension plan” (as that term is defined in Section 3(2) of ERISA) that is qualified under Section 401(a) of the Code.

4.12 Compliance with Law. Seller is and has been, conducting its business, marketing and selling its services and/or products, and owning and operating all of its assets, in compliance in all material respects with all applicable material laws, rules, regulations, orders, authorizations, judgments and decrees, including all material Environmental Laws, of all federal, state, local, foreign or other governmental or regulatory authorities. Seller is in compliance in all material respects with all material permits, licenses, approvals, qualifications and the like issued by any government or regulatory authorities required for Seller’s ownership of the Assets and the operation of Seller’s business.

4.13 Finders. Neither Seller, nor any of its Affiliates, nor any of Seller’s directors or officers, has taken any action that, directly or indirectly, would obligate Buyer or any of its Affiliates to anyone acting as broker, finder, financial advisor or in any similar capacity in connection with this Agreement or any of the transactions contemplated hereby.

4.14 Related Party Transactions; Intercompany Accounts. Except as set forth on Schedule 4.13 hereto, there are no Contracts between Seller, on one hand, and any shareholder, director, officer, employee, consultant or Affiliate of Seller (each, a “Related Party”), on the other, related to Seller’s business. Set forth on Schedule 4.13 is a true and complete list of each transaction during the prior 18 months between Seller, on one hand, and any Related Party, on the other, related to Seller’s business. Except for compensation or bonuses for services rendered, no amounts are owed by or to Seller to or by any Related Party, related to Seller’s business.

4.15 Tax Matters. All Taxes that are due or payable by Seller, whether or not disputed by Seller, have been paid in full. All tax returns to be filed in connection with Taxes have been accurately prepared and duly and timely filed.

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4.16 Improper Payments. Neither Seller, nor any of Seller’s shareholders, officers and employees nor, to the best of Seller’s knowledge, Seller’s agents have made any illegal or improper payments to, or provided any illegal or improper benefit or inducement for, any governmental official, supplier, customer or other person, in an attempt to influence any such person to take or to refrain from taking any action relating to Seller’s business.

4.17 Fraud and Abuse. Neither Seller, nor any of Seller’s shareholders, officers or employees or, to the best of Seller’s knowledge, Seller’s agents, has engaged in any activities that are prohibited under Federal Medicare and Medicaid statutes, 42 U.S.C. §§ 1320a-7, 1320a-7a, 1320a-7b or the Federal False Claims Act, 31 U.S.C. § 3729 et seq., the regulations promulgated pursuant to such statutes, or any related state or local statutes or regulations.

4.18 Physician Self-Referrals. Seller’s operations are in compliance in all material respects with and do not otherwise violate the Federal Medicare and Medicaid statutes regarding physician self-referrals, 42 U.S.C. §§ 1395nn and 1396b(s), the regulations promulgated pursuant to such statutes, or any related state or local statutes or regulations. To the best of Seller’s knowledge, neither Seller, nor any of Seller’s shareholders, officers, employees or agents, has engaged in any activities that may violate such statutes or regulations.

4.19 No Insolvency. Seller is not legally or equitably insolvent, and the consummation of the transactions contemplated hereby will not render Seller legally or equitably insolvent.

4.20 Disclosure. No representation, warranty or other statement by Seller herein or made in writing in connection herewith contains or will contain an untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading.

4.21 Knowledge. References in this Agreement to “Seller’s knowledge”, “knowledge of Seller” or the “best knowledge of Seller” or variations thereof mean the actual knowledge of the chief executive officer, chief financial officer, general counsel and chief technology officer, those individuals having conducted a reasonable investigation of their internal books, records, policies, procedures and other documents held by Seller. No constructive or imputed knowledge shall be attributed to any other individual by virtue of any position held, relationship to any other person or for any other reason.

ARTICLE V

REPRESENTATIONS AND WARRANTIES REGARDING BUYER

Buyer hereby represents and warrants to Seller as follows:

5.1 Organization and Qualification. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of California, with full corporate power and authority to own, lease and operate its properties and assets and to conduct its business as it is now being conducted.

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5.2 Authority. Buyer has all requisite power and authority to execute and deliver this Agreement and to perform, carry out and consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of Buyer. This Agreement constitutes the legal, valid and binding obligations of Buyer, enforceable against Buyer in accordance with its terms.

5.3 No Breach. Neither the execution and delivery of this Agreement by Buyer nor the consummation of the transactions contemplated herein will: (i) violate any provision of the Certificate of Incorporation or Bylaws of Buyer; (ii) conflict with, result in a breach of or constitute a default (or an event which, with or without notice, lapse of time or both, would constitute a default) under, or give any third party the right to terminate or modify, any material agreement or other instrument to which Buyer is a party or by which it or any of its assets is bound; (iii) conflict with, violate, result in a breach of or constitute a default under any judgment, decree, order or process of any court or governmental authority; (iv) to Buyer’s knowledge, conflict with or violate any material statute, law or regulation applicable to the business of Buyer; or (v) to Buyer’s knowledge, require Buyer to obtain any authorization, consent, approval or waiver from, or to make any filing with, any governmental or regulatory authority.

5.4 Finders. Neither Buyer, nor any of its Affiliates, nor any of their respective directors or officers, has taken any action that, directly or indirectly, would obligate Seller or any of its Affiliates to anyone acting as a broker, finder, financial advisor or in any similar capacity in connection with this Agreement or any of the transactions contemplated hereby.

5.5 As Is. Buyer acknowledges that it is purchasing all equipment that is part of the Option Assets to which Buyer exercises its Option (if any) and is assuming the space under the Space Lease on as “AS IS, WHERE IS” BASIS WITH NO WARRANTIES, INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR HABITABILITY, any and all of which warranties (both express and implied) Seller hereby disclaims. Buyer acknowledges that Buyer is not relying on any representation or warranty (expressed or implied, oral or otherwise) made by or on behalf of Seller other than as expressly set forth in this Agreement. Nothing herein shall constitute a waiver of any rights Buyer may have against the landlord pursuant to the Space Lease on and after the Closing Date.

5.6 Litigation, Etc. To the best of Buyer’s knowledge, there is no claim, action, suit, inquiry, proceeding or investigation of any kind or nature whatsoever, by or before any court or governmental or other regulatory or administrative agency, commission or tribunal pending or threatened against Buyer. To the best of Buyer’s knowledge, there is no valid basis for any such claim, action, suit, inquiry, proceeding or investigation. Buyer is not subject to any judgment, order or decree.

5.7 Knowledge. References in this Agreement to “Buyer’s knowledge”, “knowledge of Buyer” or the “best knowledge of Buyer” or variations thereof mean the actual knowledge of the chief executive officer, chief financial officer, chief technology officer and general counsel of Buyer, those individuals having conducted a reasonable investigation of their internal books, records, policies, procedures and other documents held by Buyer. No constructive or imputed knowledge shall be attributed to any such individual by virtue of any position held, relationship to any other person or for any other reason.

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ARTICLE VI

COVENANTS

6.1 Obtaining Consents. Seller shall use its best efforts to obtain all consents to the assignment to Buyer of the Space Lease and the Ground Zero Agreement, which consents shall be in the form attached hereto as Exhibit 3.2(c)(i) and 9.6, respectively. Buyer and Seller shall use all reasonable efforts to obtain all consents, approvals and waivers from, and give all notices to, and make all declarations, filings and registrations with, any governmental and regulatory agencies that are required to consummate the transactions contemplated hereby. Buyer and Seller shall coordinate and cooperate with one another and supply such assistance as may be reasonably requested by each in connection with the foregoing. Buyer shall not amend any Contract that is part of the Assets, except to the extent reasonably necessary to cause such Contract to be compliant with applicable law.

6.2 Transfer and Retention of Records. Except as may be required for tax purposes or other regulatory purposes, neither Seller, nor any of its respective successors and assigns, will retain any document, databases or other media embodying any confidential or proprietary information relating to the Assets or publish or disclose to any third person any such confidential or proprietary information relating to the Assets; provided, however, that Seller shall be entitled to retain copies of any of the foregoing (and have access to the same after the Closing) to the extent necessary in connection with prosecuting or defending any matter not assumed by Buyer or in connection with Seller’s indemnification rights herein. Seller shall take all actions requested by Buyer to transfer records relating to the Assets, which may include making duplicate copies of any records retained by Seller in the form of papers or computer media, at Buyer’s sole cost and expense.

6.3 Employee Matters. Buyer shall not assume or be responsible in any way for the obligations, liabilities or responsibilities (a) of any Employee Benefit Plan of Seller, (b) of Seller, any Affiliate of Seller or any fiduciary under, arising from, or with respect to any Employee Benefit Plan of Seller or (c) to any of Seller’s officers, directors, employees and agents, arising from or related to the transactions contemplated by this Agreement, except pursuant to Section 8.3(e) and (f). Buyer shall not be deemed to be a successor employer with respect to the employment of any employee of Seller or with respect to any of Seller’s Employee Benefit Plans. Buyer may offer employment to any or all of Seller’s employees and former employees, but shall not be obligated to do so.

6.4 Insurance. Seller shall cause Seller’s business to obtain and/or continue to maintain in full force and effect “occurrence” based general liability insurance policies or other insurance arrangements reasonably satisfactory to Buyer through the Closing Date and Seller shall not breach, default, terminate or cancel such insurance policies or agreements.

6.5 Further Assurances. Buyer and Seller shall, and shall cause their respective Affiliates to execute and deliver such other instruments of conveyance and transfer and assumption and take such other action as may be reasonably requested by the other party so as to consummate the transactions contemplated hereby or otherwise to consummate the intent of this Agreement.

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6.6 Schedules and Exhibits. On or prior to the Closing, Buyer and Seller shall agree to and attach to this Agreement all schedules and exhibits required herein.

6.7 Audit Rights. Buyer will maintain accurate records with respect to the performance of Buyer’s obligations under Article II and Section 6.9 under this Agreement. Seller shall have the right to review and audit the books, records and operations of Buyer related to Buyer’s obligations under Article II and Section 6.9 at any time and from time to time pursuant to a written notice provided to Buyer from Seller or a shareholder of Seller. Such audit shall take place during Buyer’s normal business hours. Seller’s audit rights under this Section 6.7 shall survive during the Earnout Period.

6.8 Certain Covenants of Seller. Seller hereby covenants that (unless Buyer otherwise gives its written approval in its sole discretion) Seller shall at its sole cost and expense take the actions set forth below:

(a) On and after the Closing, Seller shall remain liable for the Excluded Liabilities.

(b) Prior to the Closing, Seller shall operate its business in the ordinary course as historically conducted, and maintain the Assets in good operating condition. Prior to and after the Closing, Seller shall pay its debts and accounts payable in the ordinary course of business and on a timely basis, until such time as Seller is dissolved.

(c) Prior to the Closing, Seller shall afford Buyer, its attorneys, accountants, consultants and representatives, reasonable access to Seller, the Assets, the books and records of Seller relating thereto and employees of Seller, upon at least two (2) Business Days’ prior notice and during normal business hours, and shall provide to Buyer and its representatives such additional financial and operating data and other information as Buyer shall from time to time reasonably request, all at Buyer’s sole cost and expense.

(d) Prior to the Closing, Seller shall use its best efforts to preserve for Buyer the goodwill of Seller’s customers and suppliers, and others having business relations with Seller. However, at no time prior to or after the Closing shall Seller engage, or permit its shareholders to engage, in marketing activities on behalf of Buyer, or activities which include the promotion of Buyer or its business, or in any marketing, promotional, selling or other activities in violation of Federal, state or local healthcare laws, rules or regulations.

(e) Prior to and after the Closing, Seller shall promptly advise Buyer in writing of the commencement or threat against Seller of any suit, litigation or legal proceeding that relates to or might affect the Assets.

(f) Prior to the Closing, Seller shall not, and shall not permit its shareholders, officers, directors, employees or agents to, directly or indirectly, initiate, solicit or knowingly encourage (including by way of furnishing non-public information or assistance) any offer or proposal for, or enter into negotiations of any type, or any letter of intent or purchase

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agreement, merger agreement or other similar agreement with any individual or entity with respect to, a sale of any Assets (other than in the ordinary course of business consistent with past practice) or license of any Assets, or a merger, consolidation or business combination in which Seller is a constituent entity, any sale of all or any portion of Seller’s equity, or any liquidation or similar extraordinary transaction with respect to Seller. Prior to Closing, Seller shall, and shall cause its shareholders, officers, directors, employees and agents to, immediately cease all discussions and negotiations with respect to any such transaction, and promptly advise Buyer of any solicitation or other request by any individual or entity relating to any such transaction. Notwithstanding the foregoing, Seller may hold meetings of its shareholders and/or board of directors to discuss an orderly winding-up and dissolution of Seller after the Closing Date; and Seller may otherwise plan (with its attorneys, accountants, consultants and otherwise) for an orderly winding-up and dissolution of Seller after the Closing Date.

(g) Prior to the Closing, Seller shall not dispose, encumber or cause, permit or allow any Encumbrance or other encumbrance to be placed on any of the Assets, except for sales in the ordinary course of business.

(h) Prior to the Closing, Seller shall not amend, terminate, modify or grant any waiver or consent in connection with the Ground Zero Agreement or any Contract, except as contemplated herein.

(i) Prior to the Closing, Seller shall use its best efforts to have all of its Signing Shareholders sign this Agreement below; provided, however, that such action by the shareholders shall not be a condition to Closing.

(j) Prior to the Closing, Seller shall use its best efforts to amend any Contract which Seller’s counsel and Buyer’s counsel agree is necessary to amend.

(k) Prior to the Closing, Seller shall use its best efforts to take any action where the failure or omission to take such action would cause (i) any representation or warranty in Article IV hereof to be untrue or incorrect as of the Closing or (ii) any of the conditions to the Closing not to be satisfied.

6.9 Certain Covenants of Buyer. Buyer hereby covenants that (unless Seller otherwise gives its written approval in its sole discretion) Buyer shall at its sole cost and expense take the actions set forth below:

(a) During the Earnout Period, Buyer will prepare annual budgets for its operation of the Assets and the business of Seller acquired pursuant to this Agreement, and will promptly deliver to Seller a draft of each such budget promptly as it becomes available for Seller’s review and comments; upon Seller’s request, Buyer and Seller will engage in good faith discussions regarding any proposed changes that Seller desires be made to such budget; and Buyer will in good faith consider such proposed changes. Buyer will submit the final budget to Seller for approval. If Seller does not approve the annual budget, Buyer may submit any number of budgets until Seller approves such annual budget. Until agreement on a final annual budget is obtain, the Assets and the business of Seller acquired by Buyer pursuant to this Agreement shall be operated under the prior year’s annual budget. Buyer and Seller agree that the annual budget for the first year of operation of such business after the Closing Date shall be One Million Five Hundred Thousand Dollars ($1,500,000).

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(b) Prior to the Closing and during the Earnout Period, Buyer shall promptly advise Seller in writing of the commencement or threat against Buyer or Allion of any suit, litigation or legal proceeding that relates to or might affect Buyer’s ability to make the Earnout Payments or Buy-Out Payment.

(c) During the Earnout Period, Buyer shall use its reasonable efforts under the then-current circumstances to promote, market, sell and take all others steps reasonably necessary to ensure that the LabTracker and Oris System is purchased and used by as many customers as possible in the United States;

(d) During the Earnout Period, Buyer shall utilize the outbound license agreement for the Oris System in the form attached hereto as Exhibit 6.9 and shall not alter or amend such form license agreement or the charges due thereunder without the written consent of Seller;

(e) Buyer shall pay all amounts due to Maximum ASP (for computer server services for use of the Oris System) and Interfax (for faxing services for use of the Oris System) on and after the Closing Date, whether billed to Seller or Buyer, which such obligation of Buyer shall be considered an “Assumed Liability” hereunder; provided, however that after the Closing, Buyer may cancel any such arrangement and replace such contractors;

(f) If the Closing Date does not occur prior to July 1, Buyer shall exercise all options to extend the Letter of Intent and shall continue all payment thereunder;

(g) During the Earnout Period, without Seller’s prior written consent, Buyer will not enter into any contract, agreement or other arrangement with Ground Zero for the development, marketing or production of any software product that may in any way be competitive with LabTracker or the Oris System and Buyer shall not amend or alter the Ground Zero Agreement in any way that reduces the Earnout Payments or Buy-Out Payments or impairs Buyer’s ability to pay the Earnout Payments and the Buy-Out Payments; and

(h) During the Earnout Period, Buyer will not license, develop or acquire any direct or indirect ownership or financial interest in any software program with the same or similar functionality as LabTracker or the Oris System by any means including, without limitation, through any in-bound software license, internal software development, engagement of outside software developers, asset acquisition, merger or similar transaction.

6.10 Covenant of Signing Shareholders. Each Signing Shareholder hereby covenants that, at no time prior to or after the Closing shall such Signing Shareholder engage in marketing activities on behalf of Buyer, or activities which include the promotion of Buyer or its business, or in any marketing, promotional, selling or other activities in violation of Federal, state or local healthcare laws, rules or regulations.

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ARTICLE VII

RESTRICTIVE COVENANTS

7.1 Non-Competition. Seller and its shareholders hereby agree that as a material inducement to Buyer to enter into this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and its shareholders covenant and agree that it, and each of Seller’s shareholders, officers, directors and Affiliates, shall not, during the Earnout Period (the “Restricted Period”), directly or indirectly, on its own behalf or in the service of or on the behalf of others, as an officer, director, trustee or owner (except as the owner of less than five percent (5%) of the outstanding stock of a publicly held corporation) of any business engaged in the business of developing and marketing software for physician prescription writing within the United States (the “Restricted Territory”), except with the prior written consent of Buyer. Any position held by Seller’s shareholders, officers, directors or employees with Buyer or its Affiliates shall not be considered a violation of this Section. Nothing contained herein shall prohibit any person from practicing their profession.

7.2 Non-Interference. Seller and its shareholders further agree that, during the Restricted Period and within the Restricted Territory, Seller and its shareholders will not, directly or indirectly; (i) induce any former customer of Seller or customer of Buyer to patronize any Person who competes with Buyer; (ii) request or advise any former customer of Seller or customer of Buyer to withdraw, curtail or cancel such Person’s business with Buyer; (iii) enter into any contract, the purpose or result of which would benefit such Seller if any former customer of Seller or customer of Buyer were to withdraw, curtail, or cancel such customer’s business with Buyer; or (iv) disclose to any other Person the names or addresses of any former customer of Seller or customer of Buyer, either individually or collectively.

7.3 Acknowledgements. If the provisions of this Article VII are violated, in whole or in part, Buyer shall be entitled, upon application to any court of proper jurisdiction, to a temporary restraining order or preliminary injunction to restrain and enjoin Seller and its shareholders from such violation without prejudice as to any other remedies Buyer may have at law or in equity. In the event of a violation, Seller and its shareholders agree that it would be virtually impossible for Buyer to calculate its monetary damages and that Buyer would be irreparably harmed. If Buyer seeks such temporary restraining order or preliminary injunction, Buyer shall not be required to post any bond with respect thereto, or, if a bond is required, it may be posted without surety thereon. If any restriction contained in this Article VII is held by any court to be unenforceable, or unreasonable, as to time, geographic area or business limitation, Buyer, Seller and its shareholders agree that such provisions shall be and are hereby reformed to the maximum time, geographic area or business limitation permitted by applicable laws. The parties further agree that the remaining restrictions contained in this Article VII shall be severable and shall remain in effect and shall be enforceable independently of each other. Seller and its shareholders specifically acknowledge, represent and warrant that the covenants set forth in this Article VII are reasonable and necessary to protect the legitimate interests of Buyer, and that Buyer would not have entered into this Agreement or paid the Purchase Price in the absence of such covenants. Buyer hereby acknowledges and agrees that this Article VII shall only apply to those shareholders who sign a consent to be bound by this Article VII.

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ARTICLE VIII

INDEMNIFICATION

8.1 Survival of Representations and Warranties. All representations and warranties contained in Articles IV and V of this Agreement shall survive for one (1) year after the Closing.

8.2 Indemnification by Seller. Seller shall indemnify and save Buyer and its Affiliates, their respective directors, officers, employees, agents and representatives and all of their successors and assigns (collectively “Buyer Claimants” and individually a “Buyer Claimant”) harmless from and defend each of them from and against any and all demands, claims, actions, liabilities, losses, costs, damages or expenses whatsoever (including any reasonable attorneys’ fees) (collectively, “Losses”) asserted against, imposed upon or incurred by Buyer Claimants resulting from or arising out of (a) any inaccuracy or breach of any representation or warranty of Seller contained herein; (b) any breach of any covenant or obligation of Seller contained herein; (c) any liability of Seller arising out of events occurring, conditions existing, products sold or activities of Seller, other than as specified in Sections 8.3(e) and 8.3(f); (d) any liability arising out of or related to the Assets or the Assumed Liabilities accruing prior to the Closing Date; and (e) any payments due by Oris to Ground Zero under Section 5(e) of the Ground Zero Agreement.

8.3 Indemnification by Buyer. Buyer and its Affiliates shall indemnify and save Seller and its respective Affiliates and their respective directors, officers, employees, agents and representatives (collectively “Seller Claimants” and individually a “Seller Claimant”) harmless from and defend each of them from and against any and all Losses asserted against, imposed upon or incurred by Seller Claimants resulting from or arising out of (a) any inaccuracy or breach of any representation or warranty of Buyer contained herein; (b) any breach of any covenant or obligation of Buyer contained herein; and (c) any liability of Buyer arising out of events occurring, conditions existing, products sold or activities of Buyer; (d) any liability arising out of or related to the Assets or the Assumed Liabilities accruing on and after the Closing Date; (e) any claims related to the failure of Buyer to obtain a consent to an assignment of a Contract assumed by Buyer; and (f) any claims related to the termination of or expenses paid for the termination of any Contracts that are part of the Excluded Assets.

8.4 Limitations. Seller shall have no liability to Buyer or Buyer’s Claimant for Losses (for indemnification or otherwise) with respect to claims under Section 8.2(a) until the total of all Losses claimed with respect to such matters exceeds Fifty Thousand Dollars ($50,000) and then Seller shall be liable only for an amount up to the amount of the Purchase Price actually received by Seller and/or Seller’ shareholders.

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8.5 Indemnification Procedures.

(a) The rights and obligations of each party claiming a right to indemnification hereunder (“Indemnitee”) from the other party (“Indemnitor”) shall be governed by the following rules:

(i) The Indemnitee shall give prompt written notice to the Indemnitor of any state of facts which Indemnitee determines could likely give rise to a claim by the Indemnitee against the Indemnitor based on the indemnity agreements contained herein, stating the nature and basis of said claims and the amount thereof, to the extent known. No failure to give such notice shall affect the indemnification obligations of Indemnitor hereunder, except to the extent such failure materially prejudices such Indemnitor’s ability successfully to defend the matter giving rise to the indemnification claim.

(ii) In the event any action, suit or proceeding is brought against the Indemnitee, with respect to which the Indemnitor may have liability under the indemnity agreements contained herein, then upon the written acknowledgment by the Indemnitor within thirty (30) days of the bringing of such action, suit or proceeding that it is undertaking and will prosecute the defense of the claim under such indemnity agreements and confirming that the claim is one with respect to which the Indemnitor is obligated to indemnify and that it will be able to pay the full amount of potential liability in connection with any such claim, the action, suit or proceeding (including all proceedings on appeal or for review which counsel for the Indemnitee shall deem reasonably necessary to protect the interests of the Indemnitee) may be defended by the Indemnitor. However, in the event the Indemnitor shall not offer reasonable assurances as to its financial capacity to satisfy any final judgment or settlement, the Indemnitee may assume the defense and dispose of the claim, after thirty (30) days prior written notice to the Indemnitor. The Indemnitee shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the Indemnitee’s own expense unless (A) the employment of such counsel and the payment of such fees and expenses both shall have been specifically authorized by the Indemnitor in connection with the defense of such action, suit or proceeding or (B) the Indemnitee shall have reasonably concluded and specifically notified the Indemnitor that there may be specific defenses available to it which are different from or additional to those available to the Indemnitor.

(iii) In addition, in any event specified in clause (B) of the second sentence of subparagraph (ii) above, the Indemnitor, to the extent made necessary by such different or additional defenses, shall not have the right to direct the defense of such action, suit or proceeding on behalf of the Indemnitee. If Indemnitor and Indemnitee cannot agree on a mechanism to separate the defense of matters extending beyond the scope of indemnification, such matters shall be defended on the basis of joint consultation.

(iv) The Indemnitee shall be kept fully informed by the Indemnitor of such action, suit or proceeding at all stages thereof, whether or not it is represented by counsel. The Indemnitor shall, at the Indemnitor’s expense, make available to the Indemnitee and its attorneys and accountants all books and records of the Indemnitor relating to such proceedings or litigation, and the parties hereto agree to render to each other such assistance as they may reasonably require of each other in order to ensure the proper and adequate defense of any such action, suit or proceeding.

(v) The Indemnitor shall make no settlement of any claims which Indemnitor has undertaken to defend, without Indemnitee’s consent, unless the Indemnitor fully indemnifies the Indemnitee for all losses, there is no finding or admission of violation of law by, or effect on any other claims that may be made against, the Indemnitee and the relief granted in connection therewith requires no action on the part of and has no effect on the Indemnitee.

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ARTICLE IX

CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER

The obligation of Buyer under this Agreement to consummate the transactions contemplated hereby at the Closing shall be subject to the satisfaction, at or prior to the Closing, of all of the following conditions, any one or more of which may be waived in writing by Buyer:

9.1 Representations and Warranties Accurate. All representations and warranties of Seller contained in this Agreement shall be true and accurate in all material respects on and as of the Closing Date as if made again at and as of such date.

9.2 Performance by Seller. Seller shall have performed and complied with all agreements required by this Agreement to be performed and complied with by it prior to or on the Closing Date.

9.3 Certificate. Buyer shall have received a certificate, dated the Closing Date, signed on behalf of Seller by a principal corporate officer of Seller, to the effect that the conditions set forth in Sections 9.1 and 9.2 have been satisfied.

9.4 Legal Prohibition. No suit, action, investigation, inquiry or other proceeding by any court or regulatory or governmental body or other Person shall have been instituted or threatened which (a) could reasonably be expected to have a Material Adverse Effect on the Assets; (b) arises out of or relates to this Agreement or the transactions contemplated hereby; or (c) questions the validity hereof or seeks to obtain damages in respect thereof. On the Closing Date, there shall be no effective permanent or preliminary injunction, writ, temporary restraining order or any order of any nature issued by a court of competent jurisdiction directing that the transactions provided for herein not be consummated as so provided.

9.5 Closing Deliveries. Buyer shall have received all deliveries to be made to it pursuant to Article III of this Agreement

9.6 Amendments to Ground Zero Agreement. The Ground Zero Agreement shall have been amended in accordance with the amendment attached hereto as Exhibit 9.6, which form shall:

(a) Provide for Ground Zero’s consent to the transactions contemplated by this Agreement, including without limitation the Assignment of the Ground Zero Agreement to Buyer;

(b) Release and discharge Buyer from any obligations of Buyer under Section 5(e) of the Ground Zero Agreement; and

(c) Delete from Section 3(c) the first sentence and the phrase “actively calling such Licensor customers and promoting the Oris System.”

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9.7 Consent. Buyer shall have received all consents, waiver, approvals and the like from GE HFS Holding LLC (“GE”), in connection with Buyer’s credit facility with GE.

9.6 Schedules and Exhibits. Buyer shall have agreed to all schedules and exhibits to be attached to this Agreement prior to the Closing and any schedules or exhibits which have been supplemented or changed by Seller prior to the Closing.

9.7 Space Lease. Buyer shall have approved the Space Lease.

ARTICLE X

CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER

The obligations of Seller under this Agreement shall be subject to the satisfaction, at or prior to the Closing, of all of the following conditions, any one or more of which may be waived in writing by Seller.

10.1 Representations and Warranties Accurate. All representations and warranties of Buyer contained in this Agreement shall be true and accurate in all material respects on and as of the Closing Date as if made again at and as of such date.

10.2 Performance by Buyer. Buyer shall have performed and complied with all agreements required by this Agreement to be performed and complied with by it prior to or on the Closing Date.

10.3 Certificate. Seller shall have received a certificate, dated the Closing Date, signed on behalf of Buyer by a principal corporate officer of Buyer, to the effect that the conditions set forth in Sections 10.1 and 10.2 have been satisfied.

10.4 Legal Prohibition. No suit, action, investigation, inquiry or other proceeding by any court or regulatory or governmental body or other Person shall have been instituted or threatened which (a) could reasonably be expected to have a Material Adverse Effect on the Buyer; (b) arises out of or relates to this Agreement or the transactions contemplated hereby; or (c) questions the validity hereof or seeks to obtain damages in respect thereof. On the Closing Date, there shall be no effective permanent or preliminary injunction, writ, temporary restraining order or any order of any nature issued by a court of competent jurisdiction directing that the transactions provided for herein not be consummated as so provided.

10.5 Shareholder and Board Consent. Seller shall have received approval and authorization to the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby from Seller’s shareholders and Board of Directors.

10.6 Schedules and Exhibits. Seller shall have agreed to all exhibits to be attached to this Agreement prior to the Closing and any schedules or exhibits which have been supplemented or changed by Buyer prior to the Closing.

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10.7 Closing Deliveries. Seller shall have received all deliveries to be made to them pursuant to Article III of this Agreement.

ARTICLE XI

MISCELLANEOUS

11.1 Termination.

(a) This Agreement may be terminated at any time prior to Closing Date:

(i) by mutual consent of the parties hereto;

(ii) by Buyer, by written notice given to the Seller, if any of the conditions set forth in Article IX shall have become incapable of fulfillment and shall not have been waived by Buyer; or

(iii) by Seller, by written notice given to the Buyer, if any of the conditions set forth in Article X shall have become incapable of fulfillment and shall not have been waived by Seller; or

(iv) by either of the parties hereto:

(A) if a court of competent jurisdiction or governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken any other action (which order, decree or ruling the parties hereto shall use their best efforts to lift), in each case permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling or other action shall have become final and nonappealable;

(B) if the Closing Date shall not have occurred on or before September 1, 2005; provided, however, that the right to terminate this Agreement shall not be available to any party whose breach of this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date;

(C) if the Buyer and Seller cannot agree on the schedules or exhibits to be attached hereto prior to the Closing; or

(D) if a material breach of any provision of this Agreement has been committed by the other party and continues for a period of ten (10) calendar days after notice of such breach and such breach has not been waived by the non-breaching party; or

(v) by Seller if the IPO has not occurred by September 1, 2005;

(vi) by Seller or Buyer if Seller has not received approval and authorization to the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby from Seller’s shareholders and Board of Directors on or before the Closing.

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(b) In the event of termination pursuant to Section 11.1(a) of this Agreement, written notice thereof shall forthwith be given to the other party to this Agreement and this Agreement shall terminate, without further action by either of the parties hereto. If this Agreement is terminated as provided herein, no party hereto shall have any liability or further obligation to any other party to this Agreement resulting from such termination except (A) that the provision of this Section 11.1(b) and the proviso of Section 11.1(a)(iv)(B) of this Agreement shall remain in full force and effect and (B) no party waives any claim or right against a breaching party to the extent that such termination results from the breach by a party hereto of any of its representations, warranties, covenants or agreements set forth in this Agreement.

11.2 Expenses. Except as otherwise stated herein, each party hereto shall pay its own expenses incurred in connection with this Agreement, except as otherwise specified in this Agreement and except that all sales, transfer and other similar taxes, levies and charges that may be imposed, levied or assessed in connection with the consummation of the transactions contemplated hereby shall be borne by Seller.

11.3 Amendment. This Agreement may not be terminated, amended, altered or supplemented except by a written agreement executed by the Buyer and Seller.

11.4 Entire Agreement. This Agreement, including the schedules and exhibits hereto, contain the entire agreement of the parties relating to the subject matter of this Agreement and supersede all other agreements and understandings of any kind between the parties respecting such subject matter, except the Letter of Intent by and between Buyer and Seller dated February 28, 2005 (the “Letter of Intent”), which shall not be superceded and shall continue in full force and effect. Each and every representation, warranty and covenant shall be deemed to include the information contained in the schedules thereto.

11.5 Waivers. Waiver by either party of either breach of or failure to comply with any provision of this Agreement by the other party shall not be construed as, or constitute, a continuing waiver of such provision, or a waiver of any other breach of, or failure to comply with, any other provision of this Agreement. No waiver of any such breach or failure or of any term or condition of this Agreement shall be effective unless in a written notice signed by the waiving party and delivered, in the manner required for notices generally, to each affected party. Buyer hereby waives compliance by Seller with the requirements, if any, of Article 6 of the Uniform Commercial Code as in force in any state in which the Assets are located and all other similar laws applicable to bulk sales and transfers.

11.6 Notices. All notices, consents, directions, approvals, instructions, requests and other communications required or permitted by the terms of this Agreement to be given to any Person shall be in writing, and any such communication shall become effective five Business Days after being deposited in the United States mails, certified or registered (return receipt requested), with appropriate postage prepaid for first class mail or, if delivered by hand or courier service or in the form of a telex, telecopy or telegram, when received (if received during normal business hours

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on a Business Day, or if not, then on the next Business Day thereafter), and shall be directed to the following address or telex or telecopy number:

If to Seller:

Oris Medical Systems, Inc.

12526 High Bluff Drive, Suite 250

San Diego, California 92130

Attention: Mr. Pat Iantorno

Telecopier: 858-792-2279

With a copy to:

Hooper, Lundy & Bookman, Inc.

1875 Century Park East, Suite 1600

Los Angeles, California 90067

Attention: Elspeth Delaney

Telecopier: 310-551-8181

If to Buyer:

MOMS Pharmacy, Inc.

1660 Walt Whitman Road

Melville, New York 11747

Attention: Mr. Mike Moran

Telecopier: (631) 547-6532

With a copy to:

Nixon Peabody LLP

990 Stewart Avenue

Garden City, New York 11530

Attention: Allan H. Cohen

Telecopier: (516) 832-7555

or to such other address as a party may have furnished to the other parties in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt. Any notice which is so mailed shall be deemed delivered on the fourth Business Day (or Days) after mailing; any notice which is transmitted by telecopier shall be deemed delivered when transmitted to the telecopier number specified above and acknowledgment of receipt of such facsimile is received.

11.7 Counterparts. This Agreement may be executed in two or more counterparts, and by the different parties hereto in separate counterparts each of which when executed shall be deemed to be an original, but all of which together shall constitute one and the same document.

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11.8 Governing Law; Submission to Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the law of the State of California, without regard to applicable principles of conflict of laws that might otherwise govern.

11.9 Binding Effect; Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Neither party shall assign or transfer this Agreement nor any right or obligation hereunder by operation of law or otherwise without the consent of the other party.

11.10 Severability. If any provision of this Agreement or any part of any such provision is held under any circumstances to be invalid or unenforceable in any jurisdiction, then: (a) such provision or part thereof shall, with respect to such circumstances and in such jurisdiction, be deemed amended to conform to applicable laws so as to be valid and enforceable to the fullest possible extent; (b) the invalidity or unenforceability of such provision or part thereof under such circumstances and in such jurisdiction shall not affect the validity or enforceability of such provision or part thereof under any other circumstances or in any other jurisdiction; and (c) such invalidity or enforceability of such provision or part thereof shall not affect the validity or enforceability of the remainder of such provision or the validity or enforceability of any other provision of this Agreement. Each provision of this Agreement is separable from every other provision of this Agreement, and each part of each provision of this Agreement is separable from every other part of such provision.

11.11 Waiver of Jury Trial. THE PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE TRIAL BY JURY AND THAT ANY PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

11.12 Arbitration. Upon the request of either party, any controversy or claim (whether such claim sounds in contract, tort or otherwise) arising out of or relating to this Agreement, or the breach thereof, shall be settled by binding arbitration in accordance with California Code of Civil Procedure Sections 1280 et seq., and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator shall be selected from JAMS and the arbitration shall be conducted in accordance with JAMS’ current rules for streamlined arbitration. Notwithstanding any other provision of this Agreement, in the case of a dispute involving a claim for equitable relief, a court with equitable jurisdiction may grant temporary restraining orders and preliminary injunctions to preserve the status quo existing before the events which are the subject of the dispute. Any final equitable or other relief shall be ordered in the arbitration proceeding. Each party shall pay an equal share of the fees and expenses of any arbitrator and any administrative fee of JAMS. Subject to Section 11.13 of this Agreement (attorneys fees), each party shall pay the fees and expenses of its own attorney and witnesses.

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11.13 Attorneys’ Fees. In any action or dispute, at law or in equity, that may arise under or otherwise related to this Agreement, the prevailing party shall be entitled to the award of reasonable attorneys’ fees and costs, in addition to whatever relief the prevailing party may be awarded.

11.14 Venue. The parties agree that the only proper venue for the resolution of disputes under or otherwise related to this Agreement is San Diego, California. The parties hereby submit to such jurisdiction, and waive any objection to such venue in court or in arbitration.

11.15 Headings. The headings contained in this Agreement (including the schedules) are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

11.16 No Agency. Neither party hereto shall be deemed hereunder to be an agent of, or partner or joint venturer with, the other party hereto.

11.17 Third Parties. Nothing herein is intended or shall be construed to confer upon or give to any person other than the parties hereto any rights or remedies under or by reason of this Agreement.

11.18 Passage of Title and Risk of Loss. Legal title, equitable title and risk of loss with respect to the Assets will not pass to Buyer until the Assets are transferred at the Closing.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first above written.

SELLER: ORIS MEDICAL SYSTEMS, INC.
By:
	Authorized Officer
BUYER:
MOM’S PHARMACY, INC.
By:
	Authorized Officer

[Signature pages continue.]

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THE SHAREHOLDERS OF SELLER HEREBY AGREE TO COMPLY WITH THE COVENANTS OF ARTICLE VII APPLICABLE TO THE SHAREHOLDERS AND SECTIONS 2.2(b), 6.8(f) AND 6.10:

Pat Iantorno

James T. Holden

Linda M. Lyons

Arthur G. Fraser

Heather R. Iantorno

Michael Winters

George Moncada

Eric Iantorno

Jordan Iantorno

Max Iantorno

[Signature pages continue.]

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THE SHAREHOLDERS OF SELLER HEREBY AGREE TO COMPLY WITH THE COVENANTS OF ARTICLE VII APPLICABLE TO THE SHAREHOLDERS AND SECTIONS 2.2(b), 6.8(f) AND 6.10:

Catherine Firestein

David Firestein

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Exhibit 4.9

CONTRACTS INCLUDED IN THE ASSETS

(to be updated prior to Closing)

1. Ground Zero Agreement

2. Thomson Micromedex Contract (for Red Book data used as part of the Oris System)

3. License and Participation Agreement with Garden State Infectious Disease Medical Group

4. License and Participation Agreement with Owen Clinic, UCSD

5. License and Participation Agreement with University Medical Center - Community Special Services

6. Space Lease

7. Beta Agreement with Toby Dyner, MD

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Exhibit 2.2(b)

PAYMENTS TO SELLER AND SHAREHOLDERS

Upon notice from Seller of the date (if any) of Seller’s dissolution, thereafter all Earnout Payments shall be made by Buyer to the following individuals in the percentage amount set forth and mailed to the address set forth below (or to such other address as is provided to Buyer in writing by such shareholder), accompanied with the Accounting.

Pat Iantorno                    (82.9533%)

PO Box 2495

Rancho Santa Fe, CA 92067

James T. Holden             (4.4860%)

982 Woodgrove Drive

Cardiff by the Sea, CA 92007

Linda M. Lyons                (3.5888%)

14886 De La Valle Pl

Del Mar, CA 92014

Arthur G. Fraser                (1.7944%)

2508 Bush St #B

San Francisco, CA 94115

Heather R. Iantorno            (1.7944%)

552 Orpheus Ave

Encinitas, CA 92024

Michael Winters                (1.6822%)

1029 Arden Drive

Encitas, CA 92024

George Moncada            (1.1215%)

13457 Wyngate Point

San Diego, CA 92130

Eric Iantorno                (0.5607%)

PO Box 2495

Rancho Santa Fe, CA 92067

Jordan Iantorno                (0.5607%)

PO Box 2495

Rancho Santa Fe, CA 92067

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Max Iantorno        (0.5607%)

PO Box 2495

Rancho Santa Fe, CA 92067

Catherine Firestein        (0.4486%)

14886 De La Valle Pl

Del Mar, CA 92014

David Firestein                (0.4486%)

14886 De La Valle Pl

Del Mar, CA 92014

36

EX-3.8

Exhibit 3.8

THIRD AMENDED AND RESTATED

BYLAWS

OF

ALLION HEALTHCARE, INC.

June     , 2005

ARTICLE 1

OFFICES

Section 1. Registered Office. Allion Healthcare, Inc. (the “Corporation”) shall maintain a registered office in the State of Delaware as required by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (the “DGCL”). The registered office of the Corporation shall be located at 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, in the County of New Castle.

Section 2. Other Offices. The Corporation may also have registered offices at such other places as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE 2

STOCKHOLDERS

Section 1. Place of Meetings. Meetings of the stockholders shall be held at such place, within or without the State of Delaware, as the Board of Directors designates. If no designation is made by the Board of Directors, the place of meeting shall be the principal office of the Corporation.

Section 2. Annual Meetings. An annual meeting of stockholders shall be held each year and stated in a notice of meeting or in a duly executed waiver thereof. The date, time and place of such meeting shall be determined by the Chief Executive Officer of the Corporation; provided that if the Chief Executive Officer does not act, the Board of Directors shall determine the date, time, and place of such meeting. At such annual meeting, the stockholders shall elect, by a plurality vote, a Board of Directors and transact such other business as may properly be brought before the meeting.

Section 3. Special Meeting. Special meetings of stockholders may be called for any purpose and may be held at such time and place, within or without the State of Delaware, as shall be stated in a notice of meeting or in a duly executed waiver of notice. Unless otherwise prescribed by law or by the Certificate of Incorporation, special meetings of the stockholders may be called at any time by order of the chief executive officer of the corporation or by the Board of Directors. Only such business shall be conducted at a special meeting of stockholders

as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting pursuant to Section 4 of Article 2 of these Bylaws.

Section 4. Notice. Written notice of all meetings of stockholders shall be given to each stockholder of record who is entitled to vote at such meeting, stating the place, date, and time of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Except as otherwise provided by law, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten (10) days nor more than sixty (60) days before the date of the meeting, and directed to each stockholder of record at such stockholder’s record address. Notice by mail shall be deemed to be given when deposited, with postage thereon prepaid, in the United States mails. If a meeting is adjourned to another time, not more than thirty (30) days thereafter, and/or to another place, and if an announcement of the adjourned time and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless, after adjournment, a new record date is fixed for the adjourned meeting.

Section 5. Stockholder List. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting: (1) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice for the meeting, or (2) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. The list shall also be produced and kept at the time and place where the meeting is to be held and during the whole time of the meeting, and may be inspected by any stockholder who is present.

Section 6. Proxy Presentation. Every stockholder may authorize another person or persons to act for him or her by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder granting such proxy or by his attorney-in-fact. No proxy shall be voted or acted upon after three (3) years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. Persons holding stock in a fiduciary capacity shall be entitled to vote the shares so held. Persons whose stock is pledged shall be entitled to vote such stock unless the pledgor in a transfer on the books of the corporation has expressly empowered the pledgee to vote the pledged shares, in which case only the pledgee or his or her proxy shall be entitled to vote.

Section 7. Quorum; Adjournments. Except as otherwise provided by the DGCL, a quorum for the transaction of business at any meeting of stockholders shall consist of the holders of record of a majority of the shares of the capital stock of the Corporation, issued and outstanding, entitled to vote at the meeting, present in person by proxy. In the absence of a quorum at any meeting or any adjournment thereof, the majority in interest of the stockholders

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entitled to vote thereat, present in person or by proxy shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting of the time, place, if any, thereof by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, until the requisite amount of stock entitled to vote shall be present. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. At any such adjourned meeting at which requisite amount of stock entitled to vote shall be represented, any business may be transacted which might have been transacted at the meeting as originally noticed; but only those stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting.

Section 8. Conduct of Meeting. Meetings of stockholders shall be presided over by the President, a Vice President, or, if none of the foregoing is present, by a chairman to be chosen by the stockholders entitled to vote who are present in person or by proxy at the meeting. The Secretary of the Corporation shall act as secretary of every meeting, but if the Secretary is not present, the presiding officer of the meeting shall appoint any person present to act as secretary of the meeting.

Section 9. Voting. Unless otherwise provided by the DGCL or in the Certificate of Incorporation, and subject to the other provision of these Bylaws, at each meeting of stockholders, each stockholder entitled to vote any shares on any matter to be voted upon at such meeting shall be entitled to one vote on such matter for each such share. Any other action shall be authorized by a majority of the votes cast, except as otherwise provided by the DGCL. Election of directors at all meetings of the stockholders at which directors are to be elected shall be by written ballot. Except as otherwise set forth in the Certificate of Incorporation with respect to the right of the holders of any series of Preferred Stock or any other series or class of stock to elect additional directors under specified circumstances, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.

Section 10. Inspectors. The directors, in advance of any meeting, may, but need not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Such appointments shall be made in accordance with and each inspector shall have the duties prescribed by Section 231 of the DGCL.

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Section 11. Stockholder Nominations and Other Actions.

(i) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of any other business to be considered at an annual meeting of the stockholders may be made only (a) by or at the direction of the Board of Directors, or (b) by any stockholder of record of the Corporation who gives notice in accordance with the procedures set forth in clauses (2) and (3) of this Section 11(i) of Article 2 of this Bylaw, and who is a stockholder of record both on the date of giving such notice and on the record date for determination of stockholders entitled to vote at such annual meeting.

(ii) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (b) of Section 11(i) of Article 2 of this Bylaw, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the first anniversary of the proxy statement for the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than twenty (20) days, or delayed by more than seventy (70) days, from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the forty-fifth (45th) day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. Such stockholder’s notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 14a-11 thereunder, including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above.

(iii) Notwithstanding anything in this Section 11 of Article 2 of this Bylaw to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least forty-five (45) days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be

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delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.

Section 12 General.

(i) Only persons who are nominated in accordance with the procedures set forth in this Bylaw shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Bylaw. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Bylaw and, if any proposed nomination or business is not in compliance with this Bylaw, to declare that such defective proposal or nomination shall be disregarded.

(ii) For purposes of this Bylaw, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act (or their successor provisions), or in a notice of meeting or proxy statement mailed generally to the Corporation’s stockholders.

(iii) Notwithstanding the foregoing provisions of this Bylaw, a stockholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 (or its successor provision) under the Exchange Act.

ARTICLE 3

DIRECTORS

Section 1. Functions and Definition. The business and affairs of the Corporation shall be managed by, or under the direction of, the Board of Directors. In addition to the powers and authorities by these Bylaws expressly conferred upon them, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law, by the Certificate of Incorporation or by these Bylaws required to be exercised or done by the stockholders. Except as otherwise provided in the Certificate of Incorporation, each director of the Corporation shall be entitled to one vote per director on all matters voted or acted upon by the Board of Directors.

Section 2. Qualifications and Number. A director need not be a stockholder, a citizen of the United States, or a resident of the State of Delaware. The number of directors constituting the whole Board may be fixed from time to time upon the approval of two-thirds of the Board of Directors, and until so fixed, shall be six.

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Section 3. Election and Term. The initial Board of Directors shall be elected by the Incorporator and shall hold office until the first annual meeting of stockholders or until their successors are elected and qualified or until their earlier resignation or removal. Thereafter, directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal.

Section 4. Annual Meeting. Following each annual election of directors, the newly elected Board shall meet for the purpose of the election of officers and the transaction of such other business as may properly come before the meeting.

Section 5. Regular Meetings. Regular meetings of the Board of Directors shall be held at such time and place as the Board of Directors shall from time to time by resolution determine.

Section 6. Special Meetings. Special meetings of the Board of Directors shall be held whenever called by the direction of the President or by a majority of the directors then in office.

Section 7. Place. Meetings of the Board of Directors may be held at any place within or without the State of Delaware.

Section 8. Notice. Notice of regular meetings of the Board of Directors need not be given except as otherwise required by law or these Bylaws. Notice of each special meeting of the Board of Directors, and of each regular and annual meeting of the Board of Directors for which notice shall be required, shall be given by the secretary as hereinafter provided in this Section 8 of Article 3, in which notice shall be stated the time and place of the meeting. Except as otherwise required by these Bylaws, such notice need not state the purposes of such meeting. Notice of any special meeting, and of any regular or annual meeting for which notice is required, shall be given to each director at least (a) twenty-four (24) hours before the meeting if by telephone or by being personally delivered or sent by telex, telecopy, email or similar means or (b) five (5) days before the meeting if delivered by mail to the director’s residence or usual place of business. Such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage prepaid, or when transmitted if sent by telex, telecopy, email or similar means. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Any director may waive notice of any meeting by a writing signed by the director entitled to the notice and filed with the minutes or corporate records.

Section 9. Quorum. Except as otherwise provided by law, a majority of the whole Board shall constitute a quorum. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting from time to time to another time and place without notice. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

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Section 10. Organization. At all meetings of the Board of Directors, the President or, in his absence, a chairman chosen by the directors shall preside. The Secretary of the Corporation shall act as secretary at all meetings of the Board of Directors when present, and, in his absence, the presiding officer may appoint any person to act as secretary.

Section 11. Vote. The act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law, by the Certificate of Incorporation or by these Bylaws.

Section 12. Resignation and Removal of Directors. Any director may resign at any time, and such resignation shall take effect upon receipt thereof by the President or Secretary, unless otherwise specified in the resignation. Any or all of the directors may be removed, with or without cause, by the holders of a majority of the shares of stock outstanding and entitled to vote for the election of directors.

Section 13. Vacancies. Unless otherwise provided in the Certificate of Incorporation or in these Bylaws and except as the DGCL may otherwise require, vacancies among the directors, whether caused by resignation, death, disqualification, removal, an increase in the authorized number of directors or otherwise, may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. The directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified, or until their earlier resignation or removal.

Section 14. Action Without a Meeting. Any action required or permitted to be taken by the Board of Directors or a committee thereof may be taken without a meeting if all members of the Board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the Board or committee shall be filed with the minutes of the proceedings of the Board or committee.

Section 15. Telephone, etc. Meetings. Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such a meeting.

Section 16. Compensation. The Board of Directors shall have the authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity.

Section 17. Reliance on Books and Records. A member of the Board of Directors, or a member of any committee designated by the Board of Directors shall, in the performance of such person’s duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation’s officers or employees, or committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

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Section 18. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

ARTICLE 4

COMMITTEES

Section 1. Committees of the Board. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that no such committee shall have the power or authority (i) to approve or adopt, or recommend to the stockholders, any action or matter (x) expressly required by the DGCL to be submitted to stockholders for approval or (y) set forth in Section 11(b) or (ii) to adopt, amend or repeal any Bylaw of the Corporation; and unless the resolution designating the committee, these Bylaws or the Certificate of Incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the DGCL. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board.

Section 2. Procedures Applicable to all Committees. Each committee shall fix its own rules of procedure, and shall meet where and as provided by such rules or by resolution of

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the Board of Directors. The presence of a majority of the then appointed members of a committee shall constitute a quorum for the transaction of business by that committee, and in every case where a quorum is present the affirmative vote of a majority of the members of the committee present shall be the act of the committee. Each committee shall keep minutes of its proceedings, and any action taken by a committee shall be reported to the Board of Directors at its meeting next succeeding such action.

Section 3. Termination of Committee Membership. In the event any person shall cease to be a director of the Corporation, such person shall simultaneously therewith cease to be a member of any committee appointed by the Board of Directors.

ARTICLE 5

OFFICERS

Section 1. General. The executive officers of the Corporation shall be a President, one or more Vice Presidents, a Treasurer and a Secretary, all of whom shall be elected annually by the Board of Directors. Unless otherwise provided in the resolution of election, each officer shall hold office until the next annual election of directors and until his successor shall have been qualified or until his earlier resignation or removal. Any number of such offices may be held by the same person. The Chairman of the Board shall be chosen from the directors. All officers chosen by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article V. Such officers shall also have powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof. Any number of offices may be held by the same person.

Section 2. Chief Executive Officer. The President shall be the Chief Executive Officer of the Corporation unless the Board of Directors designates the Chairman of the Board as Chief Executive Officer. Subject to the control of the Board of Directors, the Chief Executive Officer shall have general executive charge, management and control of the properties, business and operations of the Corporation with all such powers as may be reasonably incident to such responsibilities; may agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation; and shall have such other powers and duties as designated in accordance with these Bylaws and as from time to time are assigned by the Board of Directors.

Section 3. President. Unless the President is not the Chief Executive Officer and the Board of Directors shall have vested such authority exclusively in the Chief Executive Officer, the President shall have the general powers and duties of supervision and management of the Corporation, subject, however, to the control of the Board of Directors. The President shall also perform all duties incident to the office of President and such other duties as may from time to time be assigned to him by the Board of Directors.

Section 4. Vice Presidents. A Vice President shall perform such duties and shall have such authority as from time to time may be assigned to him by the Board of Directors or the President.

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Section 5. The Treasurer. Subject to the direction of the Board of Directors, the Treasurer shall have the general care and custody of all the corporate funds and securities of the Corporation which may come into his hands and shall deposit the same to the credit of the Corporation in such bank or banks or depositories as from time to time may be designated by the Board of Directors, and shall pay out and dispose of the same under the direction of the Board of Directors. The Treasurer shall in general perform all duties incident to the position of Treasurer and such other duties as may be assigned to him by the Board of Directors or the President.

Section 6. The Secretary. The Secretary shall keep the minutes of all proceedings of the Board of Directors and the minutes of all meetings of the stockholders and also, unless otherwise directed by such committee, the minutes of each committee, in books provided for that purpose, of which he shall be the custodian; he shall attend to the giving and serving of all notices for the Corporation; he shall have charge of the seal of the Corporation, of the stock certificate books and such other books and papers as the Board of Directors may direct; and he shall in general perform all the duties incident to the office of Secretary and such other duties as may be assigned to him by the Board of Directors or the President.

Section 7. Other Officers. The Board of Directors may appoint such other officers and agents as it may deem necessary or advisable, for such term as the Board of Directors shall fix in such appointment, who shall have such authority and perform such duties as may from time to time be prescribed by the Board.

Section 8. Resignation and Removal. Any officer may resign his office at any time and such resignation shall take effect upon receipt thereof by the President or Secretary, unless otherwise specified in the resignation. No formal action shall be required of the Board of Directors or the stockholders to make any such resignation effective. All officers, agents and employees of the Corporation shall be subject to removal, with or without cause, at any time by the affirmative vote of a majority of the number of directors which the Corporation would have it there were no vacancies. The power to remove agents and employees, other than officers or agents elected or appointed by the Board of Directors, may be delegated as the Board of Directors shall determine. A newly created office and a vacancy in any office because of death, resignation, or removal may be filled by the Board of Directors for the unexpired portion of the term at any meeting of the Board of Directors.

ARTICLE VI

STOCK

Section 1. Form and Execution of Certificates. The certificates of shares of stock of the Corporation shall be in such form as shall be approved by the Board of Directors. The certificates shall be signed by the Chief Executive Officer or the President or a Vice President, and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, and shall be sealed with the seal of the Corporation. In case any officer who has signed such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issue.

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The Corporation may issue a new certificate of stock in place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Board of Directors may require the owner of any lost, stolen, or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate or the issuance of any such new certificate.

Section 2. Stock Transfers. Upon compliance with provisions restricting the transfer or registration of transfer of shares of stock, if any, transfers or registration of transfers of shares of stock of the Corporation shall be made only on the stock ledger of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation and on surrender of the certificate or certificates for such shares of stock properly endorsed and the payment of all taxes due thereon.

Section 3. Record Date for Stockholders. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent or dissent from any corporate action in writing without a meeting, or for the purpose of determining the stockholders entitled to receive payment of any dividend or other distribution or the allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a date as the record date for any such determination of stockholders, which shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action.

Section 4. Ownership of Stock. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the owner thereof in fact and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it has express or other notice thereof, except as otherwise expressly provided by law.

Section 5. Voting Securities Owned By Corporation. Voting securities in any other Corporation held by the Corporation shall be voted by the chief executive officer, the president or a vice-president, unless the Board of Directors specifically confers authority to vote with respect thereto, which authority may be general or confined to specific instances, upon some other person or officer. Any person authorized to vote securities shall have the power to appoint proxies, with general power of substitution.

ARTICLE 7

INDEMNIFICATION

Section 1. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved (including, without limitation, as a witness) in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he is or was a director, or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, limited liability company,

11

joint venture, trust or other enterprise (hereinafter an “Indemnitee”), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while so serving, shall be indemnified and held harmless by the Corporation to the full extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), or by other applicable law as then in effect, against all expense, liability and loss (including attorneys’ fees and related disbursements, judgments, fines, or excise taxes, penalties and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such Indemnitee in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee, agent, partner, member or trustee and shall inure to the benefit of his or her heirs, executors and administrators. Each person who is or was serving as a director or officer of the Corporation shall be deemed to be serving, or have served, at the request of the Corporation. Any indemnification (but not advancement of expenses) under this Article VII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer in the circumstances because he has met the applicable standard of conduct set forth in the DGCL, as the same exists or hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment). Such determination shall be made with respect to a person who is a director or officer at the time of such determination (a) by a majority vote of the directors who were not parties to such proceeding (the “Disinterested Directors”), even though less than a quorum, (b) by a committee of Disinterested Directors designated by a majority vote of Disinterested Directors, even though less than a quorum, (c) if there are no such Disinterested Directors, or if such Disinterested Directors so direct, by independent legal counsel in a written opinion, or (d) by the stockholders. The Corporation, may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers.

Section 2. Procedure for Indemnification. Any indemnification or advance of expenses (including attorneys’ fees, costs and charges) under this Article VII shall be made promptly, and in any event within thirty (30) days upon the written request of the Indemnitee (and, in the case of advance of expenses, receipt of a written undertaking by or on behalf of Indemnitee to repay such amount if it shall ultimately be determined that Indemnitee is not entitled to be indemnified therefor pursuant to the terms of this Article VII). The right to indemnification or advances as granted by this Article VII shall be enforceable by the Indemnitee in any court of competent jurisdiction, if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within thirty (30) days. Such person’s costs and expenses incurred in connection with successfully establishing his/her right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of expenses (including attorney’s fees, costs and charges) under this Article VII where the required undertaking, if any, has been received by the Corporation) that the claimant has not met the standard of conduct set forth in the DGCL, as the same exists or hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such

12

amendment), but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he/she has met the applicable standard of conduct set forth in the DGCL, as the same exists or hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), nor the fact that there has been an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

Section 3. Advancement of Expenses. Expenses (including attorneys’ fees, costs and charges) incurred by an Indemnitee in defending a proceeding shall be paid by the Corporation in advance of the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that such Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article VII. The majority of the Disinterested Directors (or a committee thereof) may, in the manner set forth above, and upon approval of such Indemnitee, authorize the Corporation’s counsel to represent such person, in any proceeding, whether or not the Corporation is a party to such proceeding.

Section 4. Insurance. The Corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer, employee or agent of the Corporation or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss asserted against him or her and incurred by him or her in any such capacity, whether or note the Corporation would have the power to indemnify such person against such expenses, liability or loss under the DGCL.

Section 5. Other Enterprises, Fines, and Serving at Corporation’s Request. For purposes of this Article VII, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article VII.

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ARTICLE VIII

WAIVER OF NOTICE

Any person may waive any notice required to be given by law, in the Certificate of Incorporation or under these Bylaws (i) by attendance in person, or by proxy if a stockholder, at any meeting, except when such person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, or (ii) by a writing signed by the person or persons entitled to said notice, whether before or after the time stated in said notice, which waiver shall be deemed equivalent to such notice. Neither the business to be transacted at, nor the purpose of, any regular special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice.

ARTICLE X

DIVIDENDS

Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve.

ARTICLE XI

CORPORATE SEAL

The Seal of the Corporation shall be circular in form and contain the name of the Corporation, the words “Corporate Seal” and “Allion Healthcare, Inc.” and the year of incorporation of the Corporation, which seal shall be in charge of the Secretary to be used as directed by the Board of Directors.

ARTICLE XII

FISCAL YEAR

The fiscal year of the Corporation shall be fixed, and shall be subject to change, by the Board of Directors. Unless otherwise fixed by the Board of Directors, the fiscal year of the Corporation shall commence on the first day of January of each year (except for the Corporation’s first fiscal year which shall commence on the date of incorporation) and shall terminate, in each case, on December 31.

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ARTICLE XIV

AMENDMENTS

The Board of Directors shall have power to adopt, amend or repeal ByLaws. ByLaws adopted by the Board of Directors may be repealed or changed, and new ByLaws made, by stockholder action.

ARTICLE XV

CERTIFICATE OF INCORPORATION

These Bylaws shall be subject to the Certificate of Incorporation of the Corporation. All references in these Bylaws to the Certificate of Incorporation of the Corporation shall be construed to mean the Certificate of Incorporation of the Corporation and any certificate of designation to the Certificate of Incorporation of the Corporation, as the same may be amended from time to time.

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EX-3.9

Exhibit 3.9

CERTIFICATE OF CORRECTION

OF

ALLION HEALTHCARE, INC.

Allion Healthcare, Inc., a Delaware corporation (the “Corporation”), pursuant to Section 103(f) of the Delaware General Corporation Law (“DGCL”), certifies that:

FIRST: The name of the corporation is Allion Healthcare, Inc.

SECOND: That a Certificate of Designation of Rights and Preferences of Series D Preferred Stock was filed by the Secretary of State of the State of Delaware on April 15, 2004 (the “Series D Designation”), and that said Series D Designation requires correction as permitted by Section 103 of the General Corporation Law of the State of Delaware.

THIRD: The inaccuracy or defect of said Series D Designation is that the document as originally filed inadvertently did not reflect the availability of certain rights of specified preferred stockholders of the Corporation to receive certain adjustments to their conversion prices in the event of certain public offerings, as approved by the board of directors in connection with their approval of the transaction reflected in the document in Article Fourth below.

FOURTH: Section 5 (g)(ii) of the Series D Designation is corrected to read as follows:

“(ii) Adjustment Upon Certain Public Offerings. In the event that the Company shall issue shares of its Common Stock in a Qualified Public Offering or other public offering in which the issue price is less than $12.00 per share for each share of Common Stock and such Qualified Public Offering or other public offering is completed on or prior to March 31, 2005 (the “Initial Period”), then the Series D Conversion Price shall be automatically adjusted to an amount equal to 50% of the issue price per share of the Common Stock under such Qualified Public Offering or other public offering. In the event that the Company shall issue shares of its Common Stock in a Qualified Public Offering or other public offering in which the issue price is less than $14.00 per share of the Common Stock and such Qualified Public Offering or other public offering is completed after the Initial Period, then the Series D Conversion Price shall be automatically adjusted to an amount equal to 42.9% of the issue price per share of the Common Stock under such Qualified Public Offering or other public offering.”

IN WITNESS WHEREOF, Allion Healthcare, Inc. has caused this Certificate of Correction to be signed by its duly authorized officer this 4th day of May, 2005.

ALLION HEALTHCARE, INC.
By:	/s/ James G. Spencer
	Name:	James G. Spencer
	Title:	CFO, Secretary & Treasurer

EX-3.10

Exhibit 3.10

CERTIFICATE OF CORRECTION

OF

ALLION HEALTHCARE, INC.

Allion Healthcare, Inc., a Delaware corporation (the “Corporation”), pursuant to Section 103(f) of the Delaware General Corporation Law (“DGCL”), certifies that:

FIRST: The name of the corporation is Allion Healthcare, Inc.

SECOND: That a Certificate of Designation of Rights and Preferences of Series E Preferred Stock was filed by the Secretary of State of the State of Delaware on December 14, 2004 (the “Series E Designation”), and that said Series E Designation requires correction as permitted by Section 103 of the General Corporation Law of the State of Delaware.

THIRD: The inaccuracy or defect of said Series E Designation is that the document as originally filed inadvertently did not reflect the availability of certain rights of specified preferred stockholders of the Corporation to receive certain adjustments to their conversion prices in the event of certain public offerings, as approved by the board of directors in connection with their approval of the transaction reflected in the document in Article Fourth below.

FOURTH:, Section 5 (g)(ii) of the Series E Designation is corrected to read as follows:

“(ii) Adjustment Upon Certain Public Offerings. In the event that the Company shall issue shares of its Common Stock in a Qualified Public Offering or other public offering in which the issue price is less than $12.50 per share for each share of Common Stock and such Qualified Public Offering or other public offering is completed on or prior to March 31, 2005 (the “Initial Period”), then the Series E Conversion Price shall be automatically adjusted to an amount equal to 50% of the issue price per share of the Common Stock under such Qualified Public Offering or other public offering. In the event that the Company shall issue shares of its Common Stock in a Qualified Public Offering or other public offering in which the issue price is less than $14.57 per share of the Common Stock and such Qualified Public Offering or other public offering is completed after the Initial Period, then the Series E Conversion Price shall be automatically adjusted to an amount equal to 42.9% of the issue price per share of the Common Stock under such Qualified Public Offering or other public offering.”

IN WITNESS WHEREOF, Allion Healthcare, Inc. has caused this Certificate of Correction to be signed by its duly authorized officer this 4th day of May, 2005.

ALLION HEALTHCARE, INC.
By:	/s/ James G. Spencer
	Name: James G. Spencer
	Title: CFO Secretary & Treasurer

EX-3.11

Exhibit 3.11

CERTIFICATE OF CORRECTION

OF

ALLION HEALTHCARE, INC.

Allion Healthcare, Inc., a Delaware corporation (the “Corporation”), pursuant to Section 103(f) of the Delaware General Corporation Law (“DGCL”), certifies that:

FIRST: The name of the corporation is Allion Healthcare, Inc.

SECOND: That a Certificate of Designation of Rights and Preferences of Series C Preferred Stock was filed by the Secretary of State of the State of Delaware on March 31, 2003 (the “Series C Designation”), and that said Series C Designation requires correction as permitted by Section 103 of the General Corporation Law of the State of Delaware.

THIRD: The inaccuracy or defect of said Series C Designation is that the document as originally filed inadvertently did not reflect the availability of certain rights of specified preferred stockholders of the Corporation to receive certain adjustments to their conversion prices in the event of certain public offerings, as approved by the board of directors in connection with their approval of the transaction reflected in the document in Article Fourth below.

FOURTH: Section 5 (g)(ii) of the Series C Designation is corrected to read as follows:

“(ii) Adjustment Upon Certain Public Offerings. In the event that the Company shall issue shares of its Common Stock in a Qualified Public Offering or other public offering in which the issue price is less than $10.00 per share for each share of Common Stock and such Qualified Public Offering or other public offering is completed on or prior to March 31, 2005 (the “Initial Period”), then the Series C Conversion Price shall be automatically adjusted to an amount equal to 50% of the issue price per share of the Common Stock under such Qualified Public Offering or other public offering. In the event that the Company shall issue shares of its Common Stock in a Qualified Public Offering or other public offering in which the issue price is less than $13.33 per share of the Common Stock and such Qualified Public Offering or other public offering is completed after the Initial Period, then the Series C Conversion Price shall be automatically adjusted to an amount equal to 37.5% of the issue price per share of the Common Stock under such Qualified Public Offering or other public offering.”

IN WITNESS WHEREOF, Allion Healthcare, Inc. has caused this Certificate of Correction to be signed by its duly authorized officer this 9th day of May, 2005.

ALLION HEALTHCARE, INC.
By:	/s/ James G. Spencer
	Name: James G. Spencer
	Title: CFO, Secretary & Treasurer

EX-3.12

Exhibit 3.12

CERTIFICATE OF CORRECTION

OF

ALLION HEALTHCARE, INC.

Allion Healthcare, Inc., a Delaware corporation (the “Corporation”), pursuant to Section 103(f) of the Delaware General Corporation Law (“DGCL”), certifies that:

FIRST: The name of the corporation is Allion Healthcare, Inc.

SECOND: That an Amended and Restated Certificate of Incorporation was filed by the Secretary of State of Delaware on November 11, 2003 (the “Amended and Restated Certificate”), and that said Amended and Restated Certificate requires correction as permitted by Section 103 of the General Corporation Law of the State of Delaware.

THIRD: The inaccuracy or defect of said Amended and Restated Certificate is that the document as originally filed inadvertently did not reflect the availability of certain rights of specified preferred stockholders of the Corporation to receive certain adjustments to their conversion prices in the event of certain public offerings, as approved by the board of directors and the stockholders in connection with their approvals of the Amended and Restated Certificate.

FOURTH: Section 7.6(g)(ii) of the Amended and Restated Certificate is corrected to read as follows:

“(ii) Adjustment Upon Certain Public Offerings. In the event that the Corporation shall issue shares of its Common Stock in a Series C Qualified Public Offering or other public offering in which the issue price is less than $10.00 per share for each share of Common Stock and such Series C Qualified Public Offering or other public offering is completed on or prior to March 31, 2005 (the “Initial Period”), then the Conversion Price shall be automatically adjusted to an amount equal to 50% of the issue price per share of the Common Stock under such Series C Qualified Public Offering or other public offering. In the event that the Corporation shall issue shares of its Common Stock in a Series C Qualified Public Offering or other public offering in which the issue price is less than $13.33 per share of the Common Stock and such Series C Qualified Public Offering or other public offering is completed after the Initial Period, then the Conversion Price shall be automatically adjusted to an amount equal to 37.5% of the issue price per share of the Common Stock under such Series C Qualified Public Offering or other public offering.”

IN WITNESS WHEREOF, Allion Healthcare, Inc. has caused this Certificate of Correction to be signed by its duly authorized officer this 9th day of May, 2005.

ALLION HEALTHCARE, INC.
By:	/s/ James G. Spencer
	Name: James G. Spencer
	Title: CFO, Secretary and Treasurer

EX-4.11

Exhibit 4.11

PROMISSORY NOTE

Principal	Loan Date	Maturity	Loan No	Call / Coll	Account	Officer	Initials
$1,500,000.00	03-31-2005	09-30-2005	61299		0000119338	334

References in the shaded area are for Lender’s use only and do not limit the applicability of this document to any particular loan or item. Any item above containing “***” has been omitted due to text length limitations.

Borrower:	ALLION HEALTHCARE, INC. (TIN: 11-2962027)	Lender:	WEST BANK
	1660 WALT WHITMAN RD STE 105		MAIN BANK
	MELVILLE, NY 11747-4160		1601 22ND STREET
			WEST DES MOINES, IA 50266
			(515) 222-2300

Principal Amount: $1,500,000.00 Initial Rate: 7.750% Date of Note: March 31, 2005

PROMISE TO PAY. ALLION HEALTHCARE, INC. (“Borrower”) promises to pay to WEST BANK (“Lender”), or order, in lawful money of the United States of America, the principal amount of One Million Five Hundred Thousand & 00/100 Dollars ($1,500,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance.

PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on September 30, 2005. In addition, Borrower will pay regular quarterly payments of all accrued unpaid interest due as of each payment date, beginning June 30, 2005, with all subsequent interest payments to be due on the same day of each quarter after that. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal; then to any unpaid collection costs; and then to any late charges. Interest on this Note is computed on a 365/365 simple interest basis; that is, by applying the ratio of the annual interest rate over the number of days in a year, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing.

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is Lender’s Prime Rate (the “Index”). This is the rate Lender charges, or would charge, on 90-day unsecured loans to the most creditworthy corporate customers. This rate may or may not be the lowest rate available from Lender at any given time. Lender will tell Borrower the current Index rate upon Borrower’s request. The interest rate change will not occur more often than each DAY. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 5.750% per annum. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 2.000 percentage points over the Index, resulting in an initial rate of 7.750% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law.

PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of this Note, Borrower understands that Lender is entitled to a minimum interest charge of $7,50. Other than Borrower’s obligation to pay any minimum interest charge, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments of accrued unpaid interest. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: WEST BANK, MAIN BANK, 1601 22ND STREET, WEST DES MOINES, IA 50266.

LATE CHARGE. If a payment is 11 days or more late, Borrower will be charged $15.00.

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, Lender, at its option, may, if permitted under applicable law, increase the variable interest rate on this Note to 4.000 percentage points over the Index. The interest rate will not exceed the maximum rate permitted by applicable law.

DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under this Note:

Payment Default. Borrower fails to make any payment when due under this Note.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s property or Borrower’s ability to repay this Note or perform Borrower’s obligations under this Note or any of the related documents.

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Insolvency. The dissolution or termination of Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the indebtedness or any guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note. In the event of a death, Lender, at its option, may, but shall not be required to, permit the guarantor’s estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and, in doing so, cure any Event of Default.

Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

Insecurity. Lender in good faith believes itself insecure.

Cure Provisions. If any default, other than a default in payment is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower, after receiving written notice from Lender demanding cure of such default: (1) cures the default within twenty (20) days; or (2) if the cure requires more than twenty (20) days, immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender’s attorneys’ fees and Lender’s legal expenses, whether or not there is a lawsuit, including without limitation all attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Iowa without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of Iowa.

CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender’s request to submit to the jurisdiction of the courts of POLK County, State of Iowa.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in

Loan No: 61299 PROMISSORY NOTE (Continued) Page 2

the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the debt against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.

COLLATERAL. Borrower acknowledges this Note is secured by UNLIMITED GUARANTY OF JOHN PAPPAJOHN.

LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note, as well as directions for payment from Borrower’s accounts, may be requested orally or in writing by Borrower or by an authorized person, Lender may, but need not, require that all oral requests be confirmed in writing. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower’s accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender’s internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (A) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (B) Borrower or any guarantor ceases doing business or is insolvent; (C) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor’s guarantee of this Note or any other loan with Lender; (D) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (E) Lender in good faith believes itself insecure.

PURPOSE OF LOAN. The specific purpose of this loan is: WORKING CAPITAL.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE AND ALL OTHER DOCUMENTS RELATING TO THIS DEBT.

BORROWER:
ALLION HEALTHCARE INC.
By:	/s/ Mike Moran
	MIKE MORAN, PRESIDENT of ALLION HEALTHCARE, INC.

DISBURSEMENT REQUEST AND AUTHORIZATION

Principal	Loan Date	Maturity	Loan No	Call / Coll	Account	Officer	initials
$1,500,000.00	03-51-2005	09-30-2005	61299		0000119338	334

References in the shaded area are for Lender’s use only and do not limit the applicability of this document to any particular loan or item. Any item above containing “***” has been omitted due to text length limitations.

Borrower:	ALLION HEALTHCARE, INC. (TIN: 11-2962027)	Lender:	WEST BANK
	1660 WALT WHITMAN RD STE 105		MAIN BANK
	MELVILLE, NY 11747-4160		1601 22ND STREET
			WEST DES MOINES, EA 50266
			(515) 222-2300

LOAN TYPE. This is a Variable Rate Nondisclosable Revolving Line of Credit Loan to a Corporation for $1,500,000.00 due on September 30, 2005. The reference rate (is the Lender’s base or reference rate, which the Lender may increase or decrease at any time in its discretion, The rate is publicly available and may not necessarily reflect the rate that the Lender charges to its other customers. The rate is, currently 5.750%) is added to the margin of 2.000%, resulting in an initial rate of 7.750. This is an unsecured renewal loan.

PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:

¨ Personal, Family, or Household Purposes or Personal Investment.

x Business (Including Real Estate Investment).

SPECIFIC PURPOSE. The specific purpose of this loan is: WORKING CAPITAL.

DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be disbursed until all of Lender’s conditions for making the loan have been satisfied. Please disburse the loan proceeds of $1,500,000.00 as follows:

Other Disbursements:	$	1,500,000.00
$1,500,000.00 TO BE DISBURSED UPON REQUEST
Note Principal:	$	1,500,000.00

CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the following charges:

Prepaid Finance Charges Paid in Cash:	$	0.00
Other Charges Paid in Cash: $10,000.00 COMMITMENT FEE	$	10,000.00
Total Charges Paid in Cash:	$	10,000.00

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS DISBURSEMENT REQUEST AND AUTHORIZATION AND ALL OTHER DOCUMENTS RELATING TO THIS DEBT.

FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER’S FINANCIAL CONDITION AS DISCLOSED IN BORROWER’S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS AUTHORIZATION IS DATED MARCH 31, 2005.

BORROWER:
ALLION HEALTHCARE, INC.
By:	/s/ Mike Moran
	MIKE MORAN, PRESIDENT of ALLION HEALTHCARE, INC.

EX-4.12

Exhibit 4.12

THE ISSUANCE OF THIS WARRANT AND THE OFFER AND SALE OF THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) NOR UNDER ANY STATE SECURITIES LAW AND THIS WARRANT AND ANY SUCH SHARES OF COMMON STOCK MAY NOT BE PLEDGED, SOLD, ASSIGNED OR OTHERWISE TRANSFERRED UNTIL A (1) REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW HAS BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY (IF SO REQUESTED) TO THE EFFECT THAT REGISTRATION UNDER THE ACT OR APPLICABLE STATE SECURITIES LAW IS NOT REQUIRED IN CONNECTION WITH THE PROPOSED TRANSFER.

ALLION HEALTHCARE, INC. WARRANT NUMBER: 1

Void after 5:00 p.m. Eastern Standard Time, on January 11, 2009.

Warrant to Purchase 375,000 Shares of Common Stock.

WARRANT TO PURCHASE COMMON STOCK

OF

ALLION HEALTHCARE, INC.

This is to certify that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, John Pappajohn (“Holder”) is entitled to purchase, subject to the provisions of this Warrant, from Allion Healthcare, Inc., a Delaware corporation (“Company”), 375,000 fully paid, validly issued and nonassessable shares of Common Stock, $0.001 par value per share, of the Company (“Common Stock”) at a price initially set at One Dollar ($1.00) per share at any time or from time to time during the period from the date hereof to expiration, but not later than 5:00 p.m. Eastern Standard Time, on January 11, 2009. The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for each share of Common Stock may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as “Warrant Shares” and the exercise price of a share of Common Stock in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the “Exercise Price”.

(a) EXERCISE OF WARRANT.

(1) This Warrant may be exercised in whole or in part at any time or from time to time on or after the date hereof and until 5:00 p.m Eastern Standard Time on January 11, 2009; provided, however, that if either such day is a day on which banking institutions in the State of New York are authorized by law to close, then on the next succeeding day which shall not be such a day. This Warrant may be exercised by presentation and

surrender hereof to the Company at its principal office, or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of Warrant Shares specified in such form. As soon as practicable after each such exercise of this Warrant, but not later than seven (7) days from the date of such exercise, the Company shall issue and deliver to the Holder a certificate for the Warrant Shares issuable upon such exercise, registered in the name of the Holder or its designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt by the Company of this Warrant at its office, or by the stock transfer agent of the Company, if any, at its office, in proper form for exercise together with payment in full of the exercise price for the Warrant Shares to be purchased, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be physically delivered to the Holder.

(2) In lieu of delivering the Exercise Price in cash or check, the Holder may elect to receive shares equal to the value of the Warrant or portion thereof being exercised (“Net Issue Exercise”). If the Holder wishes to elect the Net Issue Exercise, the Holder shall notify the Company of its election in writing at the time it delivers the Purchase Form to the Company. In the event the Holder shall elect Net Issue Exercise, the Holder shall receive the number of shares of Common Stock equal to the product of (a) the number of shares of Common Stock purchasable under the Warrant, or portion thereof being exercised, and (b) the current market value, as defined in paragraph (c) below, of one share of Common Stock minus the Exercise Price, divided by (c) the current market value, as defined in paragraph (c) below, of one share of Common Stock.

(b) RESERVATION OF SHARES. The Company shall at all times reserve for issuance and/or delivery upon exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance and delivery upon exercise of this Warrant.

(c) FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of a share, determined as follows:

(1) If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for

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trading on the NASDAQ system, the current market value shall be the last reported sale price of the Common Stock on such exchange or system on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the mean of the last reported bid and asked prices for such day on such exchange or system; or

(2) If the Common Stock is not so listed or admitted to unlisted trading privileges, the current market value shall be the mean of the last reported bid and asked prices reported by the National Quotation Bureau, Inc. on the last business day prior to the date of the exercise of this Warrant; or

(3) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current market value of a share of Common Stock shall be an amount, not less than book value thereof as at the end of the most recent fiscal year of the Company ending prior to the date of the exercise of the Warrant, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company.

(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. Subject to the restrictions noted at the beginning of this Warrant, this Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other warrants of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company at its principal office or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be cancelled. This Warrant may be divided or combined with other warrants which carry the same rights upon presentation hereof at the principal office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term “Warrant” as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss; theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone.

(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the

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rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein.

(f) ANTI-DILUTION AND ADJUSTMENT’ PROVISIONS. The Exercise Price in effect at any time and the number of securities purchasable upon the exercise of the Warrant shall be subject to adjustment from time to time upon the happening of certain events as follows:

(1) In case the Company shall (i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution, or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event listed above shall occur.

(2) In case the Company shall fix a record date for the issuance of rights or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price (the “Subscription Price”) (or having a conversion price per share) less than the Exercise Price on such record date, the Exercise Price shall be adjusted so that the same shall equal the price determined by multiplying the Exercise Price in effect immediately prior to the date of issuance by a fraction, the numerator of which shall be the sum of the number of shares outstanding on the record date mentioned above and the number of additional shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate conversion price of the convertible securities so offered) would purchase at the Exercise Price in effect immediately prior to the date of such issuance, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding on the record date mentioned above and the number of additional shares of Common Stock offered for subscription or purchase (or into which the convertible securities so offered are convertible). Such adjustment shall be made successively whenever such rights or warrants are issued and shall become effective immediately after the record date for the determination of shareholders entitled to receive such rights or warrants; and to the extent that shares of Common Stock are not delivered (or securities convertible into Common Stock are not delivered) after the expiration of such rights or warrants, the Exercise Price shall be readjusted

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to the Exercise Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made upon the basis of delivery of only the number of shares of Common Stock (or securities convertible into Common Stock) actually delivered.

(3) In case the Company shall hereafter distribute to the holders of its Common Stock evidences of its indebtedness or assets (excluding cash dividends or distributions and dividends or distributions referred to in Subsection (1) above) or subscription rights or warrants (excluding those referred to in Subsection (2) above), then in each such case the Exercise Price in effect thereafter shall be determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the current market price per share of Common Stock (as defined in Section (c) above), less the fair market value (as determined by the Company’s Board of Directors) of said assets or evidences of indebtedness so distributed or of such rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such current market price per share of Common Stock. Such adjustment shall be made successively whenever such a record date is fixed. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution.

(4) INTENTIONALLY OMITTED

(5) INTENTIONALLY OMITTED

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(6) Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to Subsections (1), (2), and (3), above, the number of Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Shares initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted.

(7) For purposes of any computation respecting consideration received pursuant to Subsections (4) and (5) above, the following shall apply:

(A) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Company for any underwriting of the issue or otherwise in connections therewith;

(B) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than case, the consideration other than cash shall be deemed to be the fair market value thereof as determined in good faith by the Board of Directors of the Company (irrespective of the accounting treatment thereof), whose determination shall be conclusive; and

(C) in the case of the issuance of securities convertible into or exchangeable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Company upon the conversion or exchange thereof the consideration in each case to be determined in the same manner as provided in clauses (A) and (B) of this Subsection (7).

(8) INTENTIONALLY OMITTED.

(9) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least five cents ($0.05) in such price; provided, however, that any adjustments which by reason of this Subsection (9) are not required to be made shall be carried forward and taken into account in any subsequent adjustment required to be made hereunder. All calculations under this Section (f) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this Section (f) to the contrary notwithstanding, the Company shall be entitled, but shall not be required, to make such changes in the Exercise Price, in addition to those required by this Section (f), as it shall determine, in its sole discretion, to be advisable in order that any dividend or distribution in shares of Common Stock, or any subdivision, reclassification or combination of Common Stock, hereafter made by the Company shall not result in any federal income tax liability to the holders of Common Stock or securities convertible into Common Stock (including Warrants).

(10) The Company may retain a firm of independent certified public accountants selected by the Board of Directors (who may be the regular accountants employed by the Company) to make any computation required by this Section (f), and a certificate signed by such firm shall be conclusive evidence of the correctness of such adjustment.

(11) In the event that at any time, as a result of an adjustment made pursuant to Subsection (1) above, the Holder of this Warrant thereafter shall become

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entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Subsections (1) to (9) inclusive above.

(11) Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon exercise of this Warrant, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Agreement.

(g) OFFICER’S CERTIFICATE. Whenever the Exercise Price shall be adjusted as required by the provisions of Section (f), the Company shall promptly and in no event later than 20 days after the effective date of adjustment cause to be mailed by certified mail to each Holder at his last address appearing in the Warrant Register and shall forthwith file, in the custody of its Secretary or an assistant Secretary at its principal office and with its stock transfer agent, if any, an officer’s certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer’s certificate shall be made available at all reasonable times for inspection by the Holder or any holder of a Warrant executed and delivered pursuant to Section (a).

(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be outstanding, (i) if the Company shall pay any dividend or make any distribution upon the Common Stock or (ii) if the Company shall offer to the holders of Common Stock for subscription or purchase by them any share of any class or any other rights or (iii) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, then in any such case, the Company shall cause to be mailed by certified mail to the Holder, at least fifteen days prior to the date specified in (x) or (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up.

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(i) RECLASSIFICATION REORGANIZATION OR MERGER. In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company, or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change or outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale, lease or conveyance to another corporation of the property of the Company as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that the Holder shall have the right thereafter by exercising this Warrant at any time prior to the expiration of the Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock which might have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section (i) shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event that in connection with any such capital reorganization or reclassification, consolidation, merger, sale or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole or in part, for a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Subsection (1) of Section (f) hereof.

(k) RESTRICTIVE LEGEND. Each Warrant Share, when issued, shall include a legend in substantially the following form: THE ISSUANCE OF THESE SHARES HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) NOR UNDER ANY STATE SECURITIES LAW AND THESE SHARES MAY NOT BE PLEDGED, SOLD, ASSIGNED OR OTHERWISE TRANSFERRED UNTIL A (1) REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW HAS BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY (IF SO REQUESTED) TO THE EFFECT THAT REGISTRATION UNDER THE ACT OR APPLICABLE STATE SECURITIES LAW IS NOT REQUIRED IN CONNECTION WITH THE PROPOSED TRANSFER.

(k) NO IMPAIRMENT. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the

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carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment.

[signature page follows]

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Dated: January 11, 2000

ALLION HEALTHCARE, INC.
By:	/s/ Michael P. Moran
	Name: Michael P. Moran Title: President & CEO

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PURCHASE FORM

Dated                                

The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing                  shares of Common Stock and hereby makes payment of                  in payment of the actual exercise price thereof. In lieu of payment of the actual exercise price, the undersigned may direct the Company to net issue such shares of Common Stock in accordance with Section (a)(2) of the within Warrant by writing “net issue” in the space after “payment” of in the preceding sentence.

INSTRUCTIONS FOR REGISTRATION OF STOCK

Name                                                                                                                    

(Please typewrite or print in block letters)

Address                                                                                                                

Signature                                                                                                     

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ASSIGNMENT FORM

FOR VALUE RECEIVED;                                          hereby sells, assigns and transfers unto

Name                                                                                                                           

(Please typewrite or print in block letters)

Address                                                                                                                      

the right to purchase Common Stock represented by this Warrant to the extent of                  shares as to which such right is exercisable and does hereby irrevocably constitute and appoint                                  attorney, to transfer the same on the books of the Company with full power of substitution in the premises.

Date                     , 200    

Signature                                                   

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EX-4.13

Exhibit 4.13

THE ISSUANCE OF THIS WARRANT AND THE OFFER AND SALE OF THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) NOR UNDER ANY STATE SECURITIES LAW AND THIS WARRANT AND ANY SUCH SHARES OF COMMON STOCK MAY NOT BE PLEDGED, SOLD, ASSIGNED OR OTHERWISE TRANSFERRED UNTIL A (1) REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW HAS BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY (IF SO REQUESTED) TO THE EFFECT THAT REGISTRATION UNDER THE ACT OR APPLICABLE STATE SECURITIES LAW IS NOT REQUIRED IN CONNECTION WITH THE PROPOSED TRANSFER.

Void after 5:00 p.m. Eastern Standard Time, on October 1, 2013.

Warrant to Purchase 125,000 Shares of Common Stock.

WARRANT TO PURCHASE COMMON STOCK

OF

ALLION HEALTHCARE, INC.

This is to certify that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, John Pappajohn (“Holder”) is entitled to purchase, subject to the provisions of this Warrant, from Allion Healthcare, Inc., a Delaware corporation (“Company”), ONE HUNDRED TWENTY-FIVE THOUSAND (125,000) fully paid, validly issued and nonassessable shares of Common Stock, $0.001 par value per share, of the Company (“Common Stock”) at a price initially set at Five Dollars ($5.00) per share at any time or from time to time during the period from the date hereof to expiration, but not later than 5:00 p.m. Eastern Standard Time, on October 1, 2013. The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for each share of Common Stock may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as “Warrant Shares” and the exercise price of a share of Common Stock in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the “Exercise Price”.

(a) EXERCISE OF WARRANT.

(1) This Warrant may be exercised in whole or in part at any time or from time to time on or after the date hereof and until 5:00 p.m Eastern Standard Time on October 1, 2013; provided, however, that if either such day is a day on which banking institutions in the State of New York are authorized by law to close, then on the next succeeding day which shall not be such a day. This Warrant may be exercised by presentation and

surrender hereof to the Company at its principal office, or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of Warrant Shares specified in such form. As soon as practicable after each such exercise of this Warrant, but not later than seven (7) days from the date of such exercise, the Company shall issue and deliver to the Holder a certificate for the Warrant Shares issuable upon such exercise, registered in the name of the Holder or its designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt by the Company of this Warrant at its office, or by the stock transfer agent of the Company, if any, at its office, in proper form for exercise together with payment in full of the exercise price for the Warrant Shares to be purchased, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be physically delivered to the Holder.

(2) In lieu of delivering the Exercise Price in cash or check, the Holder may elect to receive shares equal to the value of the Warrant or portion thereof being exercised (“Net Issue Exercise”). If the Holder wishes to elect the Net Issue Exercise, the Holder shall notify the Company of its election in writing at the time it delivers the Purchase Form to the Company. In the event the Holder shall elect Net Issue Exercise, the Holder shall receive the number of shares of Common Stock equal to the product of (a) the number of shares of Common Stock purchasable under the Warrant, or portion thereof being exercised, and (b) the current market value, as defined in paragraph (c) below, of one share of Common Stock minus the Exercise Price, divided by (c) the current market value, as defined in paragraph (c) below, of one share of Common Stock.

(b) RESERVATION OF SHARES. The Company shall at all times reserve for issuance and/or delivery upon exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance and delivery upon exercise of this Warrant.

(c) FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of a share, determined as follows:

(1) If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for

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trading on the NASDAQ system, the current market value shall be the last reported sale price of the Common Stock on such exchange or system on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the mean of the last reported bid and asked prices for such day on such exchange or system; or

(2) If the Common Stock is not so listed or admitted to unlisted trading privileges, the current market value shall be the mean of the last reported bid and asked prices reported by the National Quotation Bureau, Inc. on the last business day prior to the date of the exercise of this Warrant; or

(3) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current market value of a share of Common Stock shall be an amount, not less than book value thereof as at the end of the most recent fiscal year of the Company ending prior to the date of the exercise of the Warrant, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company.

(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. Subject to the restrictions noted at the beginning of this Warrant, this Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other warrants of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company at its principal office or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be cancelled. This Warrant may be divided or combined with other warrants which carry the same rights upon presentation hereof at the principal office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term “Warrant” as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss; theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone.

(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the

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rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein.

(f) ANTI-DILUTION AND ADJUSTMENT’ PROVISIONS. The Exercise Price in effect at any time and the number of securities purchasable upon the exercise of the Warrant shall be subject to adjustment from time to time upon the happening of certain events as follows:

(1) In case the Company shall (i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution, or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event listed above shall occur.

(2) In case the Company shall fix a record date for the issuance of rights or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price (the “Subscription Price”) (or having a conversion price per share) less than the Exercise Price on such record date, the Exercise Price shall be adjusted so that the same shall equal the price determined by multiplying the Exercise Price in effect immediately prior to the date of issuance by a fraction, the numerator of which shall be the sum of the number of shares outstanding on the record date mentioned above and the number of additional shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate conversion price of the convertible securities so offered) would purchase at the Exercise Price in effect immediately prior to the date of such issuance, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding on the record date mentioned above and the number of additional shares of Common Stock offered for subscription or purchase (or into which the convertible securities so offered are convertible). Such adjustment shall be made successively whenever such rights or warrants are issued and shall become effective immediately after the record date for the determination of shareholders entitled to receive such rights or warrants; and to the extent that shares of Common Stock are not delivered (or securities convertible into Common Stock are not delivered) after the expiration of such rights or warrants, the Exercise Price shall be readjusted

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to the Exercise Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made upon the basis of delivery of only the number of shares of Common Stock (or securities convertible into Common Stock) actually delivered.

(3) In case the Company shall hereafter distribute to the holders of its Common Stock evidences of its indebtedness or assets (excluding cash dividends or distributions and dividends or distributions referred to in Subsection (1) above) or subscription rights or warrants (excluding those referred to in Subsection (2) above), then in each such case the Exercise Price in effect thereafter shall be determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the current market price per share of Common Stock (as defined in Section (c) above), less the fair market value (as determined by the Company’s Board of Directors) of said assets or evidences of indebtedness so distributed or of such rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such current market price per share of Common Stock. Such adjustment shall be made successively whenever such a record date is fixed. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution.

(4) In case the Company shall issue shares of its Common Stock excluding shares issued (i) in any of the transactions described in Subsection (1) above, (ii) upon exercise of options granted to the Company’s employees under a plan or plans adopted by the Company’s Board of Directors and approved by its shareholders, if such shares would otherwise be included in this Subsection (4), (iii) upon exercise of this Warrant and (iv) to shareholders of any corporation which merges into the Company in proportion to their stock holdings of such corporation immediately prior to such merger, upon such merger, or issued in a bona fide public offering pursuant to a firm commitment underwriting, but only if no adjustment is required pursuant to any other specific subsection of this Section (f) (without regard to Subsection (8) below) with respect to the transaction giving rise to such rights for a consideration per share (the “Offering Price”) less than the Exercise Price, the Exercise Price shall be adjusted immediately thereafter so that it shall equal such Offering Price. Such adjustment shall be made successively whenever such an issuance is made.

(5) In case the Company shall issue any securities convertible into or exchangeable for its Common Stock, excluding securities issued in transactions described in Subsections (2) and (3) above, for a consideration per share of Common Stock (the “Conversion Price”)

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initially deliverable upon conversion or exchange of such securities, determined as provided in Subsection (7) below, less than the Exercise Price, the Exercise Price shall be adjusted immediately thereafter so that it shall equal such Conversion Price. Such adjustment shall be made successively whenever such an issuance is made.

(6) Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to Subsections (1), (2), (3), (4) and (5) above, the number of Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Shares initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted.

(7) In the case of the issuance of securities convertible into or exchangeable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Company upon the conversion or exchange thereof the consideration in each case to be determined in the same manner as provided in clauses (A) and (B) of this Subsection (7).

(8) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least five cents ($0.05) in such price; provided, however, that any adjustments which by reason of this Subsection (8) are not required to be made shall be carried forward and taken into account in any subsequent adjustment required to be made hereunder. All calculations under this Section (f) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this Section (f) to the contrary notwithstanding, the Company shall be entitled, but shall not be required, to make such changes in the Exercise Price, in addition to those required by this Section (f), as it shall determine, in its sole discretion, to be advisable in order that any dividend or distribution in shares of Common Stock, or any subdivision, reclassification or combination of Common Stock, hereafter made by the Company shall not result in any federal income tax liability to the holders of Common Stock or securities convertible into Common Stock (including Warrants).

(9) The Company may retain a firm of independent certified public accountants selected by the Board of Directors (who may be the regular accountants employed by the Company) to make any computation required by this Section (f), and a certificate signed by such firm shall be conclusive evidence of the correctness of such adjustment.

(10) In the event that at any time, as a result of an adjustment made pursuant to Subsection (1) above, the Holder of this Warrant thereafter shall become

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entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Subsections (1) to (8) inclusive above.

(11) Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon exercise of this Warrant, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Agreement.

(g) OFFICER’S CERTIFICATE. Whenever the Exercise Price shall be adjusted as required by the provisions of Section (f), the Company shall promptly and in no event later than 20 days after the effective date of adjustment cause to be mailed by certified mail to each Holder at his last address appearing in the Warrant Register and shall forthwith file, in the custody of its Secretary or an assistant Secretary at its principal office and with its stock transfer agent, if any, an officer’s certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer’s certificate shall be made available at all reasonable times for inspection by the Holder or any holder of a Warrant executed and delivered pursuant to Section (a).

(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be outstanding, (i) if the Company shall pay any dividend or make any distribution upon the Common Stock or (ii) if the Company shall offer to the holders of Common Stock for subscription or purchase by them any share of any class or any other rights or (iii) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, then in any such case, the Company shall cause to be mailed by certified mail to the Holder, at least fifteen days prior to the date specified in (x) or (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up.

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(i) RECLASSIFICATION REORGANIZATION OR MERGER. In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company, or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change or outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale, lease or conveyance to another corporation of the property of the Company as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that the Holder shall have the right thereafter by exercising this Warrant at any time prior to the expiration of the Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock which might have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section (i) shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event that in connection with any such capital reorganization or reclassification, consolidation, merger, sale or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole or in part, for a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Subsection (1) of Section (f) hereof.

(j) RESTRICTIVE LEGEND. Each Warrant Share, when issued, shall include a legend in substantially the following form: THE ISSUANCE OF THESE SHARES HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) NOR UNDER ANY STATE SECURITIES LAW AND THESE SHARES MAY NOT BE PLEDGED, SOLD, ASSIGNED OR OTHERWISE TRANSFERRED UNTIL A (1) REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW HAS BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY (IF SO REQUESTED) TO THE EFFECT THAT REGISTRATION UNDER THE ACT OR APPLICABLE STATE SECURITIES LAW IS NOT REQUIRED IN CONNECTION WITH THE PROPOSED TRANSFER.

(k) NO IMPAIRMENT. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the

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carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment.

[signature page follows]

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Dated: October 1, 2003

ALLION HEALTHCARE, INC.
By:	/s/ Michael P. Moran
	Name: Michael P. Moran Title: President & CEO

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PURCHASE FORM

Dated                                

The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing                  shares of Common Stock and hereby makes payment of                  in payment of the actual exercise price thereof. In lieu of payment of the actual exercise price, the undersigned may direct the Company to net issue such shares of Common Stock in accordance with Section (a)(2) of the within Warrant by writing “net issue” in the space after “payment” of in the preceding sentence.

INSTRUCTIONS FOR REGISTRATION OF STOCK

Name                                                                                                                    

(Please typewrite or print in block letters)

Address                                                                                                                

Signature                                                                                                     

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ASSIGNMENT FORM

FOR VALUE RECEIVED;                                          hereby sells, assigns and transfers unto

Name                                                                                                                           

(Please typewrite or print in block letters)

Address                                                                                                                      

the right to purchase Common Stock represented by this Warrant to the extent of                  shares as to which such right is exercisable and does hereby irrevocably constitute and appoint                                  attorney, to transfer the same on the books of the Company with full power of substitution in the premises.

Date                     , 200    

Signature                                                   

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EX-4.16

EXHIBIT 4.16

COMMON STOCK COMMON STOCK $0.001 PAR VALUE

INCORPORATED UNDER THE LAWS		CUSIP [            ]
OF THE STATE OF DELAWARE		SEE REVERSE FOR CERTAIN DEFINITIONS
	ALLION HEALTH CARE, INC.

THIS CERTIFIES THAT

IS THE OWNER OF

FULLY PAID AND NONASSESSABLE SHARES OF ALLION HEALTH CARE, INC.

transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed.

This Certificate is not valid until countersigned by the Transfer Agent and Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.

Dated:

[CORPORATE SEAL]
SECRETARY CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT	BY	COUNTERSIGNED AND REGISTERED: TRANSFER AGENT AND REGISTRAR AUTHORIZED SIGNATURE

This Corporation will furnish without charge to each stockholder who so requests a statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM	—	as tenants in common	UNIF GIFT MIN ACT—		Custodian
TEN ENT	—	as tenants by the entireties		(Cust)		(Minor)
JT TEN	—	as joint tenants with right of survivorship and not as tenants in common			under Uniform Gifts to Minors Act
					(State)
		Additional abbreviations may also be used though not in the above list.

For Value Received,                                                                   hereby sell(s), assign(s) and transfer(s) unto

PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE

(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

Shares

of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint

Attorney Attorney

to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.

Dated

NOTICE:THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

Signature(s) Guaranteed

THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 174d–15.

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EX-5.1

Exhibit 5.1

	655 Fifteenth Street, N.W. Washington, D.C. 20005
To Call Writer Directly: 202 879-5000	202 879-5000 www.kirkland.com	Facsimile: 202 879-5200 Dir. Fax: 202 879-5200

May 24, 2005

Allion Healthcare, Inc.

1660 Walt Whitman Road

Suite 105

Melville, NY 11747

Ladies and Gentlemen:

We are acting as special counsel to Allion Healthcare, Inc., a Delaware corporation (the “Company”), in connection with the proposed registration by the Company of shares of its Common Stock, par value $0.001 per share (the “Common Stock”), including shares of its Common Stock to cover over-allotments, if any, pursuant to the Registration Statement on Form S-1 (File No. 333-124099), originally filed with the Securities and Exchange Commission (the “Commission”) on April 15, 2005 under the Securities Act of 1933, as amended (the “Act”) (such Registration Statement, as amended or supplemented, is hereinafter referred to as the “Registration Statement”). The shares of Common Stock to be issued and sold by the Company pursuant to the Registration Statement are referred to herein as the “Shares.”

In connection, with the foregoing, we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary for the purposes of this opinion, including (i) the Certificate of Designation of Rights and Preferences of Series D Preferred Stock together with the Certificate of Correction filed with respect thereto, in the form files as Exhibits 3.5 and 3.9, respectively; (ii) the Certificate of Designation of Rights and Preferences of Series E Preferred Stock together with the Certificate of Correction filed with respect thereto, in the form files as Exhibits 3.6 and 3.10, respectively; (iii) the Amended and Restated Certificate of Incorporation of the Company in the form filed as Exhibit 3.1 to the Registration Statement, as such Certificate has been amended by the Certificate of Correction filed with the Secretary of State of the State of Delaware on May 10, 2005 in the form filed as Exhibit 3.12 to the Registration Statement; (iv) the Third Amended and Restated By-laws (the “By-laws”) of the Company in the form filed as Exhibit 3.9 to the Registration Statement; (v) the form of underwriting agreement attached as Exhibit 1.1 to the Registration Statement (the “Underwriting Agreement”); (vi) resolutions of the Board of Directors of the Company (the “Resolutions”) with respect to the issuance and sale of the shares of common stock of the Company, par value $.001 (the “Shares”); and (vii) the Registration Statement.

May 24, 2005

Page 2

For purposes of this opinion, we have assumed the authenticity of all documents submitted to us as originals, the conformity to the originals of all documents submitted to us as copies and the authenticity of the originals of all documents submitted to us as copies. We have also assumed the legal capacity of all natural persons, the genuineness of the signatures of persons signing all documents in connection with which this opinion is rendered, the authority of such persons signing on behalf of the parties thereto and the due authorization, execution and delivery of all documents by the parties thereto. We have not independently established or verified any facts relevant to the opinions expressed herein, but have relied upon statements and representations of officers and other representatives of the Company and others as to factual matters.

Based upon and subject to the foregoing qualifications, assumptions and limitations and the further limitations set forth below, when (i) the Board of Directors of the Company has adopted and approved the By-laws, (ii) the final Underwriting Agreement is duly executed and delivered by the parties thereto, and (iii) the Registration Statement becomes effective under the Act:

When the Shares are registered by the Company’s transfer agent and delivered against payment of the agreed consideration therefor, (assuming the amount paid per Share is above the par value per share of the Common Stock) all in accordance with the Underwriting Agreement and the Resolutions, the Shares will be validly issued, fully paid and non-assessable.

Our opinions expressed above are subject to the qualifications that we express no opinion as to the applicability of, compliance with, or effect of any laws except the General Corporation Law of the State of Delaware.

We hereby consent to the filing of this opinion with the Commission as Exhibit 5.1 to the Registration Statement. We also consent to the reference to our firm under the heading “Legal Matters” in the Registration Statement. In giving this consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission.

This opinion is limited to the specific issues addressed herein, and no opinion may be inferred or implied beyond that expressly stated herein. We assume no obligation to revise or supplement this opinion should the General Corporation Law of the State of Delaware be changed by legislative action, judicial decision or otherwise.

This opinion is furnished to you in connection with the filing of the Registration Statement, and is not to be used, circulated, quoted or otherwise relied upon for any other purposes.

Sincerely,

/S/    KIRKLAND & ELLIS LLP

Kirkland & Ellis LLP

EX-10.15A

Exhibit 10.15A

AMENDMENT TO REGISTRATION RIGHTS AGREEMENT

This AMENDMENT TO REGISTRATION RIGHTS AGREEMENT is dated as of May 19, 2005 (this “Amendment”), between Allion Healthcare, Inc., a Delaware corporation (“Allion”), and Michael Stone and Jonathan Spanier (together, the “Warrant Holders”). Capitalized term used but not defined herein shall have the respective meanings ascribed to them in the Registration Rights Agreement, dated as of January 4, 2005 (the “Agreement”) by and among Allion and the Warrant Holders.

RECITALS

WHEREAS, pursuant to a Stock Purchase Agreement, dated as of January 4, 2005, by and among MOMS Pharmacy, Inc., a California corporation, and the Warrant Holders (the “Stock Purchase Agreement”), the Warrant Holders were issued warrants to purchase an aggregate of 150,000 shares of the common stock of Allion;

WHEREAS, the parties to this Amendment are all of the parties to the Agreement; and

WHEREAS, the parties hereto desire to make certain amendments to the Agreement in accordance with Section 14 thereof.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Amendment hereby agree as follows:

1. Amendment to the Agreement. Section 1 of the Agreement is hereby deleted and replaced in its entirety with the following:

“Request for Registration. At any time after Allion has effected an initial public offering of its equity securities pursuant to a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), the Warrant Holders shall have the right, by written notice signed by both Warrant Holders and given to Allion (the “Demand Notice”), to request that Allion register all of the Warrant Holders’ Registrable Shares under and in accordance with the provisions of the Securities Act (a “Demand Registration”); provided that the Warrant Holders may not issue a Demand Notice prior to December 17, 2005. Allion shall as soon as practicable, but in no event more than 90 days after the date on which Allion receives the Demand Notice, file with the Securities and Exchange Commission (the “SEC”) a registration statement on a form deemed appropriate by Allion’s counsel covering all the Warrant Holder’s Registrable Shares, and Allion shall use its reasonable best efforts to cause the registration statement to become effective within 180 days of such filing. In the event that a Demand Registration involves an underwritten offering and the managing underwriter or underwriters participating in such offering advise the Warrant Holders in writing that the total number of Registrable Shares to be included in such offering exceeds the amount that can be sold in (or during the time of) such offering without delaying or jeopardizing the success of such offering (including the price per share of the Registrable Shares to be sold), then the number of Registrable Shares (which have registration rights with respect to such offering) shall be reduced on a pro rata basis (based

upon the number of shares requested or proposed to be registered by each Warrant Holder, Allion and each other holder of equity securities of Allion eligible to register its shares in the offering) to a number deemed satisfactory by such managing underwriter or underwriters. In the event that the Warrant Holders are unable to register all of their Registrable Shares in an underwritten offering effected in response to a Demand Registration, the Warrant Holders shall have the right to make an additional demand for registration of the remaining Registrable Shares on Form S-3 pursuant to Rule 415 under the Securities Act and shall be entitled to issue an additional Demand Notice for such Demand Registration in accordance with this Section 1. For purposes of this Agreement, “Registrable Shares” means the shares of Common Stock of Allion issued or issuable upon exercise of the Warrants. Registrable Shares shall cease to be such when (a) a registration statement covering such Registrable Shares has become or been declared effective and they have been disposed of pursuant to that registration statement, (b) eligible to be sold, transferred or distributed pursuant to or in compliance with Rule 144 (or any similar provision then in force) or any other exemption from registration under the Securities Act, or (c) they have been otherwise transferred and Allion has delivered new certificates not subject to any stop transfer order or other restriction on transfer and not bearing a legend restricting transfer in the absence of an effective registration statement.

Allion shall not be obligated to effect a registration pursuant to this Section 1:

(a) after Allion has already effected one registration pursuant to this Section 1 that either did not involve an underwritten offering or involved an underwritten offering in which the Warrant Holders were not subjected to any reduction in the number of Registrable Shares they were entitled to include in such registration, that registration has been declared or ordered effective and no stop order suspending the effectiveness of that registration statement has been issued within 30 days of that effectiveness (provided that Allion shall be deemed to have effected a registration pursuant to this Section 1 if it files a registration statement pursuant to this Section 1 and such registration statement is subsequently withdrawn because the Warrant Holders request for any reason whatsoever that such registration statement be withdrawn); or

(b) if, at the time it receives a Demand Request, Allion would be required to prepare any financial statements other than those it customarily prepares or Allion determines in good faith in its reasonable judgment that the registration and offering would interfere with any material financing, acquisition, corporate reorganization or other material corporate transaction or development involving Allion that is pending or contemplated at the time and promptly gives the Warrant Holders written notice of that determination (in which case Allion shall have the right to defer such filing for a period of not more than 60 days after receipt of the Demand Request).

2. Effective Time. This Amendment shall become effective upon its execution by all of the parties hereto (the “Effective Time”). From and after the Effective Time, all references to the Agreement shall be deemed to be references to the Agreement as amended hereby.

3. Ratification. Except as expressly modified by Section 1 of this Amendment, each term and provision of the Agreement is hereby ratified and confirmed and shall continue in full force and effect.

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4. Governing Law. This Amendment shall in all respects be governed by, and construed and enforced in accordance with, the laws of the State of California, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of California or any other jurisdiction) that would cause the application of laws of any jurisdiction other than California.

5. Entire Agreement. This Amendment constitutes the full and entire understanding and agreement of the parties with respect to the subject matter hereof, and there are no further or other agreements or undertakings, written or oral, in effect between the parties relating to the subject matter hereof unless expressly referred to in this Amendment.

6. Execution in Counterparts. This Amendment may be executed in any number of counterparts and in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument.

[end of text; signature page follows]

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IN WITNESS WHEREOF, the parties hereto have executed this Amendment the day and year first above written.

ALLION HEALTHCARE, INC.
By:	/s/ Michael P. Moran
Name:	Michael P. Moran
Title:	President & CEO
	/s/ Michael Stone Name: Michael Stone
	/s/ Jonathan Spanier Name: Jonathan Spanier

EX-10.17

Exhibit 10.17

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time, this “Agreement”) is entered into as of this 4th day of April, 2003 by and between ALLION HEALTHCARE, INC., a Delaware corporation (together with its successors and assigns, the “Corporation”), and the persons who are signatories hereto (together with their successors and assigns, the “Securityholders”).

RECITALS

WHEREAS, the Corporation and the Securityholders have entered into that certain Series C Convertible Preferred Stock Purchase Agreement, dated as of April 4, 2003 (as amended, restated, supplemented or otherwise modified from time to time, the “Purchase Agreement”), pursuant to which the Securityholders have agreed, inter alia, to purchase, and the Corporation have agreed, inter alia, to issue and sell to the Securityholders, certain shares of Series C Preferred Stock (as defined below);

WHEREAS, the Corporation and the Securityholders deem it in their respective best interests to provide for certain arrangements with respect to the registration of shares of Common Stock (as defined below) under the United States Securities Act of 1933, as amended (the “Securities Act”); and

WHEREAS, the execution and delivery of this Agreement is a condition precedent to the consummation of the transactions contemplated by the Purchase Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

Section 1. Definitions. (a) As used herein, each of the following terms shall have the meaning set forth or referred to below:

“Affiliate” shall mean (i) with respect to any individual, (A) a spouse or first generation descendant of such individual and (B) any trust, limited liability company or family partnership whose beneficiaries shall solely be such individual and/or such individual’s spouse and/or any other individual related to the first degree by blood or adoption to such individual or such individual’s spouse and (ii) with respect to any Person which is not an individual, a director, officer, general partner or managing member of such Person, and any other Person that, directly or indirectly through one or more intermediaries Controls, is Controlled by, or is under common Control with, such Person. For purposes hereof, “Control” (including, with correlative meanings, the terms “Controlling,” “Controlled by” and “under common Control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” shall have the meaning set forth in the first paragraph of this Agreement.

“Business Day” shall mean any day that is not a Saturday, Sunday or legal holiday on which banking institutions in the State of New York are authorized or obligated to close.

“Common Stock” shall mean the common stock, par value $0.001 per share, of the Corporation, as constituted on the date hereof, and any stock into which such Common Stock shall have been changed or any stock resulting from any recapitalization, reorganization, merger, sale of assets or reclassification.

“Corporation” shall have the meaning set forth in the first paragraph of this Agreement.

“Delay Period” shall have the meaning set forth in Section 2(d) hereof.

“Demand Notice” shall have the meaning set forth in Section 2(a) hereof.

“Demand Registration” shall have the meaning set forth in Section 2(a) hereof.

“Exchange Act” shall mean the United States Securities Exchange Act of 1934, as amended.

“Hold Back Period” shall have the meaning set forth in Section 4(a) hereof.

“Holder” or “Holders” shall mean the Securityholders and/or any successors thereto or assignees or transferees thereof who or which comply with the second sentence of Section 10 hereof.

“Inspectors” shall have the meaning set forth in Section 5(j) hereof.

“Interruption Period” shall have the meaning set forth in Section 5(k) hereof.

“Losses” shall have the meaning set forth in Section 8(a) hereof.

“NASD” shall mean the National Association of Securities Dealers, Inc., or any successor thereof.

“Other Shares” shall mean, at any time, those shares of Common Stock which do not constitute Primary Shares or Registrable Shares.

“Person” shall mean any natural person, corporation, limited partnership, limited liability company, general partnership, joint stock company, joint venture, association, company, trust, bank, trust company, land trust, business trust or other organization whether or not a legal entity, and any government or agency or political subdivision thereof.

“Piggyback Registration” shall have the meaning set forth in Section 3(a) hereof.

“Primary Shares” shall mean, at any time, the authorized but unissued shares of Common Stock or shares of Common Stock held by the Corporation in its treasury.

“Prospectus” shall mean the prospectus included in any Registration Statement (including a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Securities Act), as

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amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Shares covered by such Registration Statement and all other amendments and supplements to such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus.

“Purchase Agreement” shall have the meaning set forth in the first recital to this Agreement.

“Records” shall have the meaning set forth in Section 5(j) hereof.

“Registrable Shares” shall mean, at any time, with respect to any Holder (i) any Shares and (ii) any other securities issued and issuable with respect to any such Shares or the Series C Preferred Stock by way of a stock dividend, stock distribution or stock split or in connection with a combination of shares, recapitalization, merger, consolidation, sale of assets or other reorganization, in each case in clauses (i) and (ii) which at any time are held by Holders (it being understood that, for purposes of this Agreement, a Person shall be deemed to be a holder of Registrable Shares whenever such Person has the right to acquire or obtain from the Corporation any Registrable Shares, whether or not such acquisition has actually been effected), if and so long as (x) such Shares have not been sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction and (y) such Shares have not been sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect to such Shares are removed upon the consummation of such sale and the seller and purchaser of such shares of Common Stock shall have received an opinion of counsel for the Corporation, which shall be in form and content reasonably satisfactory to the seller and purchaser and their respective counsel, to the effect that such Shares in the hands of the purchaser are freely transferable without restriction or registration under the Securities Act in any public or private transaction.

“Registration” shall mean registration under the Securities Act of an offering of Registrable Shares pursuant to a Demand Registration or a Piggyback Registration.

“Registration Statement” shall mean any registration statement of the Corporation under the Securities Act that covers any of the Registrable Shares pursuant to the provisions of this Agreement, including the related Prospectus, all amendments and supplements to such registration statement (including pre- and post-effective amendments), all exhibits thereto and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

“SEC” shall mean the United States Securities and Exchange Commission, or any successor thereof.

“Securities Act” shall have the meaning set forth in the second recital to this Agreement.

“Securityholders” shall have the meaning set forth in the first paragraph of this Agreement.

“Series C Preferred Stock” shall mean the Series C Convertible Preferred Stock of the Corporation.

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“Shares” shall mean shares of Common Stock issuable upon conversion of the Series C Preferred Stock.

“underwritten offering” shall mean a registration under the Securities Act in which securities of the Corporation are sold to an underwriter for reoffering to the public.

(b) Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires. The word “or” is not exclusive and the word “including” means “including without limitation.” Unless otherwise specified, all accounting terms used in this Agreement shall be interpreted in accordance with generally accepted accounting principles in the United States as in effect from time to time, applied on a consistent basis.

Section 2. Demand Registration. (a) At any time, and from time to time after the one year anniversary of the Purchase Agreement, the Holders of a majority in number of the Registrable Shares, shall have the right, by written notice (the “Demand Notice”) given to the Corporation, to request that the Corporation register (a “Demand Registration”) under and in accordance with the provisions of the Securities Act all or any portion of such Holders’ Registrable Shares. Upon receipt of any such Demand Notice, the Corporation shall promptly, but in no event more than five (5) business days after receipt thereof, notify each other Holder of the receipt of such Demand Notice and, subject to the limitations set forth below, shall include in the proposed registration all Registrable Shares with respect to which the Corporation has received written requests for inclusion therein within 30 days after delivery of the Corporation’s notice. In connection with any Demand Registration in which more than one Holder or holders of Other Shares or the Corporation participates, in the event that such Demand Registration involves an underwritten offering and the managing underwriter or underwriters participating in such offering advise in writing the Holders of Registrable Shares to be included in such offering that the total amount of Shares to be included in such offering exceeds the amount that can be sold in (or during the time of) such offering without delaying or jeopardizing the success of such offering (including the price per share of the Shares to be sold), then the number of Registrable Shares, Primary Shares and Other Shares (which have registration rights with respect to such offering) shall be reduced on a pro rata basis (based upon the number of shares requested or proposed to be registered by each such holder and the Corporation) to a number deemed satisfactory by such managing underwriter or underwriters, provided, that the securities to be excluded shall be determined in the sequence reflected in Section 3(b)(A). The Holders as a group shall be entitled to one Demand Registration on Form S-l, and, as a group, up to three Demand Registrations on Form S-2 or Form S-3 (or any successor form thereto); provided, that any Demand Registration that does not become effective or is not maintained for the time period required in accordance with Section 2(c) hereof shall not count as one of such Demand Registrations.

(b) The Corporation shall as soon as practicable, but in no event more than 90 days after the date on which the Corporation receives a Demand Notice given by the Holders in accordance with Section 2(a) hereof, file with the SEC, and the Corporation shall thereafter use its best efforts to cause to be declared effective within 180 days following the date the Corporation receives such Demand Notice, a Registration Statement on the appropriate form for the

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registration and sale, in accordance with the intended method or methods of distribution, of the total number of Registrable Shares specified by the Holders in such Demand Notice together with any other Registrable Shares with respect to which the Corporation has received a written request for inclusion in accordance with Section 2(a) hereof, subject to reduction as set forth in Section 2(a) hereof.

(c) The Corporation shall use best efforts to keep each Registration Statement filed pursuant to this Section 2 continuously effective and usable for the resale of the Registrable Shares covered thereby for a period of 180 days from the date on which the SEC declares such Registration Statement effective, as such period may be extended pursuant to this Section 2, or if shorter, until all the Registrable Shares covered by such Registration Statement have been sold pursuant to such Registration Statement.

(d) The Corporation shall be entitled to postpone the filing of any Registration Statement otherwise required to be prepared and filed by the Corporation pursuant to this Section 2, or suspend the use of any effective Registration Statement under this Section 2, for a reasonable period of time which shall be as short as practicable, but in any event not in excess of 60 days (a “Delay Period”), if the Corporation determines in good faith that the registration and distribution of the Registrable Shares covered or to be covered by such Registration Statement would materially interfere with any pending material financing, acquisition, disposition or corporate reorganization or other material corporate development involving the Corporation or any of its subsidiaries or would require premature disclosure thereof and promptly gives the Holders written notice of such determination, containing a statement of the reasons for such postponement and an approximation of the period of the anticipated delay; provided, however, that (i) the aggregate number of days included in all Delay Periods during any consecutive 12 months shall not exceed the aggregate of (x) 120 days minus (y) the number of days occurring during all Hold Back Periods and Interruption Periods during such consecutive 12 months and (ii) a period of at least 60 days shall elapse between the termination of any Delay Period, Hold Back Period or Interruption Period and the commencement of the immediately succeeding Delay Period. If the Corporation shall so postpone the filing of a Registration Statement, the Holders of Registrable Shares to be registered shall have the right to withdraw the request for registration by written notice given by the Holders of a majority of the Registrable Shares that were to be registered to the Corporation within 45 days after receipt of the notice of postponement or, if earlier, the termination of such Delay Period. The time period for which the Corporation is required to maintain the effectiveness of any Registration Statement shall be extended by the aggregate number of days of all Delay Periods, all Hold Back Periods and all Interruption Periods occurring during such Registration. The Corporation shall not be entitled to initiate a Delay Period unless it shall (A) concurrently prohibit sales by other securityholders under registration statements covering securities held by such other securityholders and (B) forbid purchases and sales in the open market by all officers and executives of the Corporation.

(e) The Holders of a majority in number of the Registrable Shares to be included in a Registration Statement pursuant to this Section 2 may, at any time prior to the effective date of the Registration Statement relating to such Demand Registration, revoke such request by providing a written notice to the Corporation revoking such request, in which case such request will not count, except as provided below, towards the quota of Demand Registrations

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to which the Holders are entitled pursuant to this Agreement. In the event of such revocation, the Holders of the Registrable Shares to be included in such Demand Registration shall reimburse the Corporation for their pro rata share (based upon the number of Shares requested or proposed to be registered in such Registration) of the out-of-pocket registration expenses referred to in Section 6 hereof incurred by the Corporation in connection with the preparation, filing and processing of the Registration Statement, unless (i) there has been a material adverse change in the business, assets, properties, condition (financial or other) or results of operations of the Corporation and its subsidiaries taken as a whole, since the time of the Demand Notice, (ii) such revocation was based on the Corporation’s failure to comply in any material respect with its obligations hereunder or (iii) the Holders of a majority in number of the Registrable Shares to be included in such Demand Registration choose to count the Demand Registration as one of the Demand Registrations to which the Holders are entitled pursuant to this Agreement.

Section 3. Piggyback Registration. (a) If at any time the Corporation proposes to file a registration statement under the Securities Act with respect to a public offering of Shares for its own account (other than a registration statement (i) on Form S-8 or any successor form thereto, (ii) filed solely in connection with a dividend reinvestment plan or employee benefit plan covering officers or directors of the Corporation or its Affiliates or (iii) on Form S-4 or any successor form thereto, in connection with a merger, acquisition, exchange offer or similar corporate transaction) or for the account of any holder of Shares, then the Corporation shall give written notice of such proposed filing to each Holder at least 30 days before the anticipated filing date. Such notice shall offer the Holders the opportunity to register such amount of Registrable Shares as they may request (a “Piggyback Registration”). Subject to Section 3(b) hereof, the Corporation shall include in each such Piggyback Registration all Registrable Shares with respect to which the Corporation has received written requests for inclusion therein within 20 days after such notice has been given to the Holders. Each Holder shall be permitted to withdraw all or any portion of the Registrable Shares of such Holder from a Piggyback Registration at any time prior to the effective date of such Piggyback Registration. The Holders shall be entitled to an unlimited number of Piggyback Registrations.

(b) The Corporation shall permit the Holders to include all such Registrable Shares on the same terms and conditions as the Shares, if any, of the Corporation included therein. Notwithstanding the foregoing, in the event that any Piggyback Registration involves an underwritten offering and the managing underwriter or underwriters participating in such offering advise in writing the Holders requesting registration that the total amount of securities requested to be included in such Piggyback Registration exceeds the amount which can be sold in (or during the time of) such offering without delaying or jeopardizing the success of the offering (including the price per share of the securities to be sold), then the number of Primary Shares, Registrable Shares and Other Shares (which have registration rights with respect to such offering) requested or proposed to be registered in such offering shall be reduced to a number deemed satisfactory by such managing underwriter or underwriters, provided, that the securities to be excluded shall be determined in the following sequence:

(A) in the event the offering was proposed by or for the account of any holder of Shares: (i) first, the Primary Shares; and (ii) second, the Other Shares and the Registrable

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Shares on a pro rata basis (based upon the number of Shares requested to be registered by each such holder);

(B) in the event the offering was proposed by or for the account of the Corporation: (i) first, the Other Shares and the Registrable Shares on a pro rata basis (based upon the number of Shares requested to be registered by each such holder); and (ii) second, the Primary Shares.

(c) Nothing in this Agreement shall create any liability on the part of the Corporation to the Holders if the Corporation in its sole discretion should decide not to file a Registration Statement proposed to be filed pursuant to Section 3 (a) hereof or to withdraw such Registration Statement subsequent to its filing, regardless of any action whatsoever that a Holder may have taken, whether as a result of the issuance by the Corporation of any notice hereunder or otherwise.

Section 4. Holdback Agreement. (a) If (x) the Corporation shall file a Registration Statement (other than a registration statement (i) on Form S-8 or any successor form thereto, (ii) filed solely in connection with a dividend reinvestment plan or employee benefit plan covering officers or directors of the Corporation or its Affiliates or (iii) on Form S-4 or any successor form thereto, in connection with a merger, acquisition, exchange offer or similar corporate transaction) with respect to an underwritten offering of Shares or similar securities or securities convertible into, or exchangeable or exercisable for, such securities and (y) with reasonable prior notice, the managing underwriter or underwriters advise the Corporation in writing (in which case the Corporation shall notify the Holders with a copy of such underwriter’s notice) that a public sale or distribution of Registrable Shares would materially adversely affect such offering, then, each Holder shall, to the extent not inconsistent with applicable law and unless such managing underwriter or underwriters otherwise agree, refrain from, directly or indirectly, effecting any public sale, distribution or short sale of any Registrable Shares (except as part of such underwritten offering) during the period beginning ten days prior to the effective date of such Registration Statement and continuing until the earliest of (A) the abandonment of such offering, (B) such period of time as is sufficient and appropriate in the opinion of the managing underwriter or underwriters in order to complete the sale and distribution of securities included in such registration (but in no event in excess of 90 days following the effective date of any offering) and (C) the termination in whole or in part of any “hold back” period obtained by the underwriter or underwriters in such offering from the Corporation in connection therewith (each such period, a “Hold Back Period”); provided, that the Holders shall not be subject to the restrictions contained in this Section 4(a) unless each officer and director of the Corporation (regardless of the number of Shares then owned by such officer or director) and each beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of at least 5% of the issued and outstanding shares of Common Stock also agree to be bound by such restrictions.

(b) If (x) the Corporation shall file a Registration Statement (other than a registration statement (i) on Form S-8 or any successor form thereto, (ii) filed solely in connection with a dividend reinvestment plan or employee benefit plan covering officers or directors of the Corporation or its Affiliates or (iii) on Form S-4 or any successor form thereto, in connection with a merger, acquisition, exchange offer or similar corporate transaction) with respect to an underwritten offering of Shares or similar securities or securities convertible into, or

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exchangeable or exercisable for, such securities and (y) with reasonable prior notice, the managing underwriter or underwriters advise the Corporation in writing (in which case the Corporation shall notify the Holders with a copy of such underwriter’s notice) that a public sale or distribution of securities of the Corporation would materially adversely affect such offering, then, the Corporation shall, to the extent not inconsistent with applicable law and unless such managing underwriter or underwriters otherwise agree, refrain from, directly or indirectly, effecting any public sale, distribution or short sale of any securities of the Corporation (except as part of such underwritten offering) during the applicable Hold Back Period.

Section 5. Registration Procedures. In connection with the registration obligations of the Corporation pursuant to and in accordance with Sections 2 and 3 hereof (and subject to Sections 2 and 3 hereof), the Corporation shall use reasonable best efforts to effect such registration to permit the sale of such Registrable Shares in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Corporation shall as expeditiously as possible (but subject to Sections 2 and 3 hereof):

(a) prepare and file with the SEC a Registration Statement for the sale of the Registrable Shares on any form for which the Corporation then qualifies or which counsel for the Corporation shall deem appropriate, in accordance with such Holders’ intended method or methods of distribution thereof, subject to Section 2(b) hereof, and use reasonable best efforts to cause such Registration Statement to become effective and remain effective as provided herein;

(b) prepare and file with the SEC such amendments (including post-effective amendments) to such Registration Statement, and such supplements to the related Prospectus, as may be required by the applicable rules, regulations or instructions under the Securities Act during the applicable period, in accordance with the intended methods of disposition specified by the Holders of the Registrable Shares covered by such Registration Statement, make generally available earnings statements satisfying the provisions of Section 11(a) of the Securities Act (provided that the Corporation shall be deemed to have complied with this clause if it has complied with Rule 158 under the Securities Act), and cause the related Prospectus as so supplemented to be filed pursuant to Rule 424 under the Securities Act, if necessary; provided, however, that before filing a Registration Statement or Prospectus, or any amendments or supplements thereto (other than reports required to be filed by it under the Exchange Act), the Corporation shall furnish to the Holders of Registrable Shares covered by such Registration Statement and each counsel for such Holders and each managing underwriter, if any, for review and comment, copies of all documents required to be filed;

(c) notify the Holders of any Registrable Shares covered by such Registration Statement promptly and (if requested) confirm such notice in writing, (i) when the Registration Statement, a Prospectus or Prospectus supplement or pre-effective or post-effective amendment thereto has been filed, and, with respect to such Registration Statement or any post-effective amendment, when the same has become effective, (ii) of the receipt by the Corporation of any notification with respect to any comments by the SEC with respect to such Registration Statement or Prospectus or any amendment or supplement thereto or of any

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request by the SEC for amendments or supplements to such Registration Statement or the related Prospectus or for additional information regarding such Holders, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Corporation of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (v) of the happening of any event that requires the making of any changes in such Registration Statement, Prospectus or documents incorporated or deemed incorporated therein by reference so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading;

(d) use best efforts to obtain the withdrawal of any order suspending the effectiveness of such Registration Statement, or the lifting of any suspension of the qualification or exemption from qualification of any Registrable Shares for sale in any jurisdiction in the United States;

(e) furnish to the Holder of any Registrable Shares covered by such Registration Statement, each counsel for such Holders and each managing underwriter, if any, without charge, one conformed copy of such Registration Statement, as declared effective by the SEC, and of each post-effective amendment thereto, in each case including financial statements and schedules and all exhibits and reports incorporated or deemed to be incorporated therein by reference; and deliver, without charge, such number of copies of the preliminary prospectus, any amended preliminary prospectus, each final Prospectus and any post-effective amendment or supplement thereto, as such Holder may reasonably request in order to facilitate the disposition of the Registrable Shares of such Holder covered by such Registration Statement in conformity with the requirements of the Securities Act;

(f) prior to any public offering of Registrable Shares covered by such Registration Statement, use reasonable best efforts to register or qualify such Registrable Shares for offer and sale under the securities or “blue sky” laws of such jurisdictions as the Holders of such Registrable Shares shall reasonably request in writing and to keep such registrations or qualifications in effect for so long as the Registration Statement covering such Registrable Shares remains in effect; provided, however, that the Corporation shall in no event be required to qualify generally to do business as a foreign corporation or as a dealer in any jurisdiction where it is not at the time so qualified or to take any action that would subject it to taxation in any such jurisdiction where it is not then subject;

(g) upon the occurrence of any event contemplated by Section 5(c)(v) above, prepare a supplement or post-effective amendment to such Registration Statement or the related Prospectus or any document incorporated or deemed to be incorporated therein by reference and file any other required document so that, as thereafter delivered to the purchasers of the Registrable Shares being sold thereunder (including upon the termination of any Delay Period), such Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

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(h) use its best efforts to cause all Registrable Shares covered by such Registration Statement to be listed on each securities exchange, if any, on which similar securities issued by the Corporation are then listed or if no such securities are so listed, to use its best efforts to cause all such Registrable Shares to be listed or quoted on a national securities exchange, the NASD Over The Counter Bulletin Board, or the Nasdaq Stock Market and, if quoted on the Nasdaq Stock Market, use its best efforts to secure designation of all such Registrable Shares as “NASDAQ Securities” within the meaning of Rules IIAa2-l and IIAa3-l promulgated under the Exchange Act or, failing that, to secure Nasdaq Stock Market authorization for such Registrable Shares and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Shares with the NASD;

(i) on or before the effective date of such Registration Statement, provide the transfer agent of the Corporation for the Registrable Shares with printed certificates for the Registrable Shares covered by such Registration Statement, which are in a form eligible for deposit with The Depository Trust Company;

(j) make available for inspection by any Holder of Registrable Shares included in such Registration Statement, any underwriter participating in any offering pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such Holder or underwriter (collectively, the “Inspectors”), all financial and other records and other information, pertinent corporate documents and properties of any of the Corporation, its subsidiaries and Affiliates (collectively, the “Records”), as shall be reasonably necessary to enable them to exercise their due diligence responsibilities; provided, however, that the Records that the Corporation determines, in good faith, to be confidential and which it notifies the Inspectors in writing are confidential shall not be disclosed by any Inspector unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement in, or omission from, such Registration Statement or Prospectus, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or (iii) such Records have been made generally available to the public; provided further, however, that (A) any decision regarding the disclosure of information pursuant to subclause (i) shall be made only after consultation with counsel for the applicable Inspectors and the Corporation and (B) with respect to any release of Records pursuant to subclause (ii), each holder of Registrable Shares agrees that it shall, promptly after learning that disclosure of such Records is sought in a court having jurisdiction, give notice to the Corporation so that the Corporation, at the Corporation’s expense, may undertake appropriate action to prevent disclosure of such Records; and

(k) if such offering is an underwritten offering, enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other appropriate and reasonable actions requested by the managing underwriters or the Holders of a majority of the Registrable Shares being sold in connection therewith in order to expedite or facilitate the disposition of such Registrable Shares, and in such connection, (i) cause its counsel to provide opinions and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters and counsel to the Holders of the Registrable Shares being sold), addressed to each selling Holder of Registrable Shares covered by such Registration

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Statement and each of the underwriters as to the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such counsel and underwriters, (ii) cause its independent certified public accountants to provide “cold comfort” letters and updates thereof (and, if necessary, any other independent certified public accountants of any subsidiary of the Corporation or of any business acquired by the Corporation for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each selling Holder of Registrable Shares covered by the Registration Statement (unless such accountants shall be prohibited from so addressing such letters by applicable standards of the accounting profession) and each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in “cold comfort” letters in connection with underwritten offerings and (iii) if requested and if an underwriting agreement is entered into, provide indemnification provisions and procedures reasonably requested by such underwriters. The above shall be done at each closing under such underwriting or similar agreement, or as and to the extent required under such agreements. The Corporation may require each Holder of Registrable Shares covered by a Registration Statement to furnish such information in writing regarding such Holder and such Holder’s intended method of disposition of such Registrable Shares as it may from time to time reasonably request in writing. If any such information is not furnished by a Holder of Registrable Shares within a reasonable period of time after receipt of such request, the Corporation may exclude such Holder’s Registrable Shares from such Registration Statement. Each Holder of Registrable Shares covered by a Registration Statement agrees that, upon receipt of any notice from the Corporation of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(iv) or 5(c)(v) hereof, that such Holder shall forthwith discontinue disposition of any Registrable Shares covered by such Registration Statement or the related Prospectus until receipt of the copies of the supplement or amendment to such Prospectus or any document incorporated or deemed to be incorporated therein by reference, contemplated by Section 5(g) hereof, or until such Holder is advised in writing by the Corporation that the use of the applicable Prospectus may be resumed (such period during which disposition is discontinued being an “Interruption Period”) and, if requested by the Corporation, the Holder shall deliver to the Corporation (at the expense of the Corporation) all copies then in its possession, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Registrable Shares at the time of receipt of such request. Each Holder of Registrable Shares covered by a Registration Statement further agrees not to utilize any material other than the applicable current preliminary prospectus or Prospectus in connection with the offering and/or sale of such Registrable Shares.

Section 6. Registration Expenses. Whether or not any Registration Statement is filed or becomes effective, but subject to Section 2(e) hereof, the Corporation shall pay all costs, fees and expenses incident to the Corporation’s performance of or compliance with this Agreement, including (i) all registration and filing fees, including NASD filing fees, (ii) all fees and expenses of compliance with securities or “blue sky” laws, including reasonable fees and disbursements of counsel in connection therewith, (iii) printing expenses (including expenses of printing certificates for Registrable Shares and of printing prospectuses if the printing of prospectuses is requested by the Holders of the Registrable Shares being sold or the managing underwriters, if any), (iv) messenger, telephone and delivery expenses, (v) fees and disbursements of counsel for the Corporation, (vi) fees and disbursements of all independent certified public accountants of

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the Corporation (including expenses of any “cold comfort” letters required in connection with this Agreement) and all other persons retained by the Corporation in connection with such Registration Statement, (vii) reasonable fees and disbursements of one counsel, per Registration, selected by the Holders of a majority of the Registrable Shares being registered, to represent all such Holders; provided, however, that, in the case of a Registration pursuant to Section 3 hereof, the Corporation shall only be required to pay such fees and disbursements of one counsel, per Registration, to represent all holders of securities exercising “piggyback” registration rights in such Registration (which counsel shall not represent the Corporation and shall be acceptable to the Holders of a majority of the Registrable Shares being registered in their sole discretion), (viii) fees and disbursements of underwriters customarily paid by the issuers or sellers of securities and (ix) all other costs, fees and expenses incident to the Corporation’s performance or compliance with this Agreement. Notwithstanding the foregoing, any discounts, commissions or brokers’ fees or fees of similar securities industry professionals and any transfer taxes relating to the disposition of the Registrable Shares by a Holder, will be payable by such Holder and the Corporation will have no obligation to pay any such amounts.

Section 7. Underwriting Requirements. (a) Subject to Section 7(b) hereof, the Holders shall have the right, by written notice, to require that any Demand Registration provide for an underwritten offering.

(b) In the case of any underwritten offering pursuant to a Demand Registration, the Holders of a majority of the Registrable Shares to be registered in connection therewith shall select the institution or institutions that shall manage or lead such offering, which institution or institutions shall be satisfactory to the Corporation, in its sole and absolute discretion. In the case of any underwritten offering pursuant to a Piggyback Registration in connection with a public offering of Shares for the account of the Corporation, the Corporation shall select the institution or institutions that shall manage or lead such offering. No Holder shall be entitled to participate in an underwritten offering unless and until such Holder has entered into an underwriting or other agreement with such institution or institutions for such offering in such form as the Corporation and such institution or institutions shall determine.

Section 8. Indemnification.

(a) Indemnification by the Corporation. The Corporation shall, without limitation as to time, indemnify and hold harmless, to the full extent permitted by law, each Holder of Registrable Shares whose Registrable Shares are covered by a Registration Statement or Prospectus, the shareholders, members, partners, officers, directors and agents and employees of each of them, any other Person acting on behalf of each such Holder, each Person who controls each such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the shareholders, members, partners, officers, directors, agents and employees of each such controlling Person, to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, judgments, costs (including, without limitation, costs of investigation, preparation and reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or based upon any untrue or alleged untrue statement of a material fact contained in such Registration Statement or Prospectus or any amendment or supplement thereto, or any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to

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make the statements therein (in the case of a Prospectus, in the light of the circumstances under which they were made) not misleading, except insofar as the same are based upon information furnished in writing to the Corporation by or on behalf of any such Holder expressly for use therein.

(b) Indemnification by Holders. In connection with any Registration Statement in which a Holder is participating, such Holder shall, without limitation as to time, severally and not jointly and severally indemnify and hold harmless, to the full extent permitted by law, the Corporation, its shareholders, directors, officers, agents and employees, any other Person acting on behalf of the Corporation, each Person who controls the Corporation (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act) and the shareholders, members, partners, directors, officers, agents or employees of such controlling Persons, from and against any and all Losses arising out of or based upon any untrue or alleged untrue statement of a material fact contained in such Registration Statement or the related Prospectus or any amendment or supplement thereto, or any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus, in the light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue or alleged untrue statement or omission or alleged omission is based upon any information furnished in writing by or on behalf of such Holder to the Corporation expressly for use in such Registration Statement or Prospectus. Each Holder’s indemnity obligations under this Section 8 shall be limited to the total sales proceeds (net of all underwriting discounts and commissions) actually received by such Holder in connection with the applicable offering.

(c) Conduct of Indemnification Proceedings. If any Person shall be entitled to indemnity hereunder (an “indemnified party”), such indemnified party shall give prompt notice to the party from which such indemnity is sought (the “indemnifying party”) of any claim or of the commencement of any proceeding with respect to which such indemnified party seeks indemnification or contribution pursuant hereto; provided, however, that the delay or failure to so notify the indemnifying party shall not relieve the indemnifying party from any obligation or liability except to the extent that the indemnifying party has been prejudiced by such delay or failure. The indemnifying party shall have the right, exercisable by giving written notice to an indemnified party promptly after the receipt of written notice from such indemnified party of such claim or proceeding, to assume, at the indemnifying party’s expense, the defense of any such claim or proceeding, with counsel reasonably satisfactory to such indemnified party; provided, however, that (i) an indemnified party shall have the right to employ separate counsel in any such claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless: (1) the indemnifying party agrees to pay such fees and expenses; (2) the indemnifying party fails promptly to assume the defense of such claim or proceeding or fails to employ counsel reasonably satisfactory to such indemnified party; or (3) the named parties to any proceeding (including impleaded parties) include both such indemnified party and the indemnifying party, and such indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it that are inconsistent with those available to the indemnifying party or that a conflict of interest is likely to exist among such indemnified party and any other indemnified parties (in which case the indemnifying party shall not have

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the right to assume the defense of such action on behalf of such indemnified party); and (ii) subject to clause (3) above, the indemnifying party shall not, in connection with any one such claim or proceeding or separate but substantially similar or related claims or proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one firm of attorneys (together with appropriate local counsel) at any time for all of the indemnified parties, or for fees and expenses that are not patently unreasonable. Whether or not such defense is assumed by the indemnifying party, such indemnified party shall not be subject to any liability for any settlement made without its consent. The indemnifying party shall not consent to entry of any judgment or enter into any settlement without the consent of the indemnified party unless (i) there is no finding or admission of any violation of any rights of any Person and no effect on any other claims that may be made against the indemnified party, (ii) the sole relief provided is monetary damages that are paid in full by the indemnifying party and (iii) such judgment or settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release, in form and substance reasonably satisfactory to the indemnified party, from all liability in respect of such claim or litigation for which such indemnified party would be entitled to indemnification hereunder.

(d) Contribution. If the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any Losses (other than in accordance with its terms), then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue statement of a material fact or omission or alleged omission to state a material fact, has been taken by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any legal or other fees or expenses incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this Section 8(d), an indemnifying party that is a Holder shall not be required to contribute any amount which is in excess of the amount by which the total proceeds (net of all underwriting discounts and commissions) received by such Holder from the sale of the Registrable Shares sold by such Holder in the applicable offering exceeds the amount of any damages that such indemnifying party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

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Section 9. Additional Registration Rights. The Corporation shall not, without the consent of all of the Holders, grant to any Person any registration rights which have priority over or are otherwise inconsistent with the registration rights granted pursuant to this Agreement.

Section 10. Transferability of Registration Rights. The registration rights set forth in this Agreement are transferable to any transferee or purchaser of Registrable Shares, subject to compliance with any transfer restrictions contained in any agreement with the Corporation. Each such transferee or purchaser of Registrable Shares must consent in writing to be bound by the terms and conditions of this Agreement in order to acquire the rights granted pursuant to this Agreement. Notwithstanding anything contained herein to the contrary, the registration rights set forth in this Agreement may be transferred to any Affiliate of the Securityholders by the Securityholders providing written notice of such transfer to the Corporation.

Section 11. Miscellaneous. (a) Rules 144 and 144A. The Corporation covenants that it will timely file any reports required to be filed by it under the Securities Act and the Exchange Act so as to enable Holders holding Registrable Shares to sell such Registrable Shares (i) without registration under the Securities Act within the limitation of the exemptions provided by (A) Rules 144 and 144A under the Securities Act, as each such Rule may be amended from time to time or (B) any similar rule or rules hereafter adopted by the SEC, so long as the exemptions provided for in such Rules would otherwise be available to such Holders at such time and/or (ii) pursuant to a registration statement on Form S-3 (or any successor form thereto). Upon the request of any such Holder, the Corporation will forthwith deliver to such Holder a written statement as to whether it has complied with the reporting requirements of Rules 144 and 144A or whether it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (or any successor form thereto).

(b) Termination. This Agreement and the obligations of the Corporation and the Holders hereunder (other than Section 8 hereof and except with respect to rights previously exercised in connection with a public offering pursuant to Sections 2 or 3 hereof) shall terminate on the first date on which all of the Holders’ shares of Common Stock can be sold, in the written opinion of counsel for the Corporation, pursuant to subsection (k) of Rule 144 under the Securities Act.

(c) Notices. All notices, demands, requests or other communications that may be or are required to be given, served, or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery (including delivery by internationally recognized overnight courier), or facsimile transmission, addressed as follows:

(i) If to the Corporation:

Allion Healthcare, Inc.

33 Walt Whitman Road

Suite 200A

Huntington Station, NY 11046

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with a copy to:

Belin Lamson McCormick Zumbach Flynn

A Professional Corporation

The Financial Center

666 Walnut, Suite 2000

Des Moines, IA 50309

Attention: Garth D. Adams, Esq.

Facsimile: (515) 558-0664

(ii) If to any Holder, at such Holder’s address appearing on the signature pages hereof.

Each party may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request or communication shall be deemed to have been duly given at the earlier of its receipt or five Business Days after being deposited in the mail, postage prepaid, if mailed; when delivered by hand, if personally delivered; at the earlier of its receipt or three Business Days following dispatch, if delivered by internationally recognized overnight courier; or upon receipt, if sent by facsimile (followed by a confirmation copy sent by either overnight or two-day courier).

(d) Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, and such invalid, void or otherwise unenforceable provisions shall be null and void. It is the intent of the parties, however, that any invalid, void or otherwise unenforceable provisions be automatically replaced by other provisions which are as similar as possible in terms to such invalid, void or otherwise unenforceable provisions but are valid and enforceable to the fullest extent permitted by law.

(e) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and, subject to Section 10 hereof, their respective heirs, devisees, legatees, legal representatives, successors and assigns.

(f) No Third Party Beneficiary. The terms and provisions of this Agreement are intended solely for the benefit of each party hereto, their respective successors or assigns and any other holder of Registrable Shares, and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person other than any Person entitled to indemnity under Section 8.

(g) Entire Agreement. This Agreement represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the parties hereto with respect to the subject matter hereof.

(h) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to

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departures from the provisions hereof may not be given, unless the Corporation has obtained the written consent of the Holders of at least a majority in number of the Registrable Shares.

(i) Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

(j) Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be one and the same agreement, and shall become effective when counterparts have been signed by each of the parties and delivered to each other party.

(i) Remedies.

(a) No remedy conferred by any of the provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. The election of any one or more remedies by any party hereto shall not constitute a waiver by any such party of the right to pursue any other available remedies.

(b) It is acknowledged that a breach of the provisions of this Agreement could not be compensated adequately by money damages. Accordingly, any party hereto shall be entitled, in addition to any other right or remedy available to it, to an injunction restraining such breach or threatened breach and to specific performance of any provisions of this Agreement, and in either case no bond or other security shall be required in connection therewith. If any action shall be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law and each of the parties hereto waives any and all defenses it may have on the ground of lack of jurisdiction or competence of the court to grant such injunction or other equitable relief. The existence of this right will not preclude any such Person from pursuing any other rights and remedies at law or in equity which such Person may have.

(k) Governing Law; Consent to Jurisdiction and Venue. IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICTS OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. The parties to this Agreement agree that jurisdiction and venue in any action brought by any party hereto pursuant to this Agreement shall properly (but not exclusively) lie in any New York State court located in the City of New York or any federal court of the United States sitting in the Southern District of New York, located in New York County. By execution and delivery of this Agreement, each of the parties hereto irrevocably submits to the jurisdiction of such courts for itself or himself and in respect of its or his property with respect to such action. THE PARTIES HERETO IRREVOCABLY AGREE

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THAT VENUE WOULD BE PROPER IN ANY SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT ANY SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION. The parties further agree that the mailing by certified or registered mail, return receipt requested, of any process required by any such court shall constitute valid and lawful service of process against them, without necessity for service by any other means provided by statute or rule of court. Nothing herein shall preclude any party hereto from bringing suit or taking other legal action in any other jurisdiction.

(l) Calculation of Time Periods. Except as otherwise indicated, all periods of time referred to herein shall include all Saturdays, Sundays and holidays; provided, however, that if the date to perform the act or give any notice with respect to this Agreement shall fall on a day other than a Business Day, such act or notice may be timely performed or given if performed or given on the next succeeding Business Day.

[The remainder of this page has been intentionally left blank.]

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IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date and year first written above.

ALLION HEALTHCARE, INC.
By:	/s/ Michael P Moran
	Name: Michael P Moran
	Title: President & CEO

SECURITYHOLDERS:
JOHN PAPPAJOHN, Individually c/o Equity Dynamics, Inc. The Financial Center Suite 2116, 666 Walnut Street Des Moines, IA 50309
By:	/s/ John Pappajohn
	John Pappajohn, Individually

PRINCIPAL LIFE INSURANCE COMPANY

Attn: Dennis Menken

c/o Principal Global Investors, LLC

801 Grand Avenue

Des Moines, Iowa 50392

By:	/s/ Douglas A. Drees
	Name: Douglas A. Drees, Counsel

By:	/s/ Dennis J. Menken
	Name: Dennis J. Menken
	Title: Portfolio Manager

EDGEWATER PRIVATE EQUITY FUND II, L.P. 900 N. Michigan Avenue Chicago, Illinois 60611
By:	EDGEWATER II MANAGEMENT, L.P.
	Its General Partner

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By:	EDGEWATER II, INC. Its General Partner
By:	/s/ James Gordon
Name:	James Gordon
Title:	Managing Partner
ANDWELL PARTNERS c/o Welsh Anderson and Stowe 500 William Burr Blvd. Teaneck, New Jersey 07666
By:	/s/
	Name:
	Title:
JOE GIAMANCO, Individually Four Whiterock Terrace Holmdel, New Jersey 07733
By:	/s/ Joe Giamanco
	Joe Giamanco, Individually
PAPPAJOHN SHRIVER EIDE NICHOLAS PC PROFIT SHARING FBO SOCRATES G. PAPPAJOHN P.O.Box 1588 103 East State Street Mason City, Iowa 50401-3300
By:	/s/ Socrates Poppajohn
	Name: Socrates Poppajohn
	Title: Trustee

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EX-10.18

Exhibit 10.18

REGISTRATION RIGHTS AGREEMENT: SERIES D

THIS REGISTRATION RIGHTS AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time, this “Agreement”) is entered into as of this 16th day of April, 2004 by and between ALLION HEALTHCARE, INC., a Delaware corporation (together with its successors and assigns, the “Corporation”), and the persons who are signatories hereto (together with their successors and assigns, the “Securityholders”).

RECITALS

WHEREAS, the Corporation and the Securityholders will enter into a Series D Convertible Preferred Stock Purchase Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “Purchase Agreement”), pursuant to which the Securityholders have agreed, inter alia, to purchase, and the Corporation have agreed, inter alia, to issue and sell to the Securityholders, certain shares of Series D Preferred Stock (as defined below);

WHEREAS, the Corporation and the Securityholders deem it in their respective best interests to provide for certain arrangements with respect to the registration of shares of Series D Preferred Stock (as defined below) under the United States Securities Act of 1933, as amended (the “Securities Act”); and

WHEREAS, the execution and delivery of this Agreement is a condition precedent to the consummation of the transactions contemplated by the Purchase Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

Section 1. Definitions, (a) As used herein, each of the following terms shall have the meaning set forth or referred to below:

“Affiliate” shall mean (i) with respect to any individual, (A) a spouse or first generation descendant of such individual and (B) any trust, limited liability company or family partnership whose beneficiaries shall solely be such individual and/or such individual’s spouse and/or any other individual related to the first degree by blood or adoption to such individual or such individual’s spouse and (ii) with respect to any Person which is not an individual, a director, officer, general partner or managing member of such Person, and any other Person that, directly or indirectly through one or more intermediaries Controls, is Controlled by, or is under common Control with, such Person. For purposes hereof, “Control” (including, with correlative meanings, the terms “Controlling,” “Controlled by” and “under common Control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” shall have the meaning set forth in the first paragraph of this Agreement.

“Business Day” shall mean any day that is not a Saturday, Sunday or legal holiday on which banking institutions in the State of New York are authorized or obligated to close.

“Common Stock” shall mean the common stock, par value $0,001 per share, of the Corporation, as constituted on the date hereof, and any stock into which such Common Stock shall have been changed or any stock resulting from any recapitalization, reorganization, merger, sale of assets or reclassification.

“Corporation” shall have the meaning set forth in the first paragraph of this Agreement.

“Delay Period” shall have the meaning set forth in Section 2(d) hereof.

“Demand Notice” shall have the meaning set forth in Section 2(a) hereof.

“Demand Registration” shall have the meaning set forth in Section 2(a) hereof.

“Exchange Act” shall mean the United States Securities Exchange Act of 1934, as amended.

“Hold Back Period” shall have the meaning set forth in Section 4(a) hereof.

“Holder” or “Holders” shall mean the Securityholders and/or any successors thereto or assignees or transferees thereof who or which comply with the second sentence of Section 10 hereof.

“Inspectors” shall have the meaning set forth in Section 5(j) hereof.

“Interruption Period” shall have the meaning set forth in Section 5(k) hereof.

“Losses” shall have the meaning set forth in Section 8(a) hereof.

“NASD” shall mean the National Association of Securities Dealers, Inc., or any successor thereof.

“Other Shares” shall mean, at any time, those shares of Common Stock or other securities convertible into Common Stock which do not constitute Primary Shares or Registrable Shares.

“Person” shall mean any natural person, corporation, limited partnership, limited liability company, general partnership, joint stock company, joint venture, association, company, trust, bank, trust company, land trust, business trust or other organization whether or not a legal entity, and any government or agency or political subdivision thereof.

“Piggyback Registration” shall have the meaning set forth in Section 3(a) hereof.

“Primary Shares” shall mean, at any time, the authorized but unissued shares of Common Stock or shares of Common Stock held by the Corporation in its treasury.

“Prospectus” shall mean the prospectus included in any Registration Statement (including a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Securities Act), as

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amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Shares covered by such Registration Statement and all other amendments and supplements to such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus.

“Purchase Agreement” shall have the meaning set forth in the first recital to this Agreement.

“Records” shall have the meaning set forth in Section 5(j) hereof.

“Registrable Shares” shall mean, at any time, with respect to any Holder (i) any Shares and (ii) any other securities issued and issuable with respect to any such Shares or the Series D Preferred Stock by way of a stock dividend, stock distribution or stock split or in connection with a combination of shares, recapitalization, merger, consolidation, sale of assets or other reorganization, in each case in clauses (i) and (ii) which at any time are held by Holders (it being understood that, for purposes of this Agreement, a Person shall be deemed to be a holder of Registrable Shares whenever such Person has the right to acquire or obtain from the Corporation any Registrable Shares, whether or not such acquisition has actually been effected), if and so long as (x) such Shares have not been sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction and (y) such Shares have not been sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect to such Shares are removed upon the consummation of such sale and the seller and purchaser of such shares of Common Stock shall have received an opinion of counsel for the Corporation, which shall be in form and content reasonably satisfactory to the seller and purchaser and their respective counsel, to the effect that such Shares in the hands of the purchaser are freely transferable without restriction or registration under the Securities Act in any public or private transaction.

“Registration” shall mean registration under the Securities Act of an offering of Registrable Shares or Other Shares pursuant to a Demand Registration or a Piggyback Registration.

“Registration Statement” shall mean any registration statement of the Corporation under the Securities Act that covers any of the Registrable Shares pursuant to the provisions of this Agreement, including the related Prospectus, all amendments and supplements to such registration statement (including pre- and post-effective amendments), all exhibits thereto and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

“SEC” shall mean the United States Securities and Exchange Commission, or any successor thereof.

“Securities Act” shall have the meaning set forth in the second recital to this Agreement.

“Securityholders” shall have the meaning set forth in the first paragraph of this Agreement.

“Series D Preferred Stock” shall mean the Series D Convertible Preferred Stock of the Corporation.

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“Shares” shall mean shares of Common Stock issuable upon conversion of the Series D Preferred Stock.

“underwritten offering” shall mean a registration under the Securities Act in which securities of the Corporation are sold to an underwriter for reoffering to the public.

(b) Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires. The word “or” is not exclusive and the word “including” means “including without limitation.” Unless otherwise specified, all accounting terms used in this Agreement shall be interpreted in accordance with generally accepted accounting principles in the United States as in effect from time to time, applied on a consistent basis.

Section 2. Demand Registration. (a) At any time, and from time to time after the one year anniversary of the Purchase Agreement, the Holders of a majority in number of the Registrable Shares, shall have the right, by written notice (the “Demand Notice”) given to the Corporation, to request that the Corporation register (a “Demand Registration”) under and in accordance with the provisions of the Securities Act all or any portion of such Holders’ Registrable Shares. Upon receipt of any such Demand Notice, the Corporation shall promptly, but in no event more than five (5) business days after receipt thereof, notify each other Holder of the receipt of such Demand Notice and, subject to the limitations set forth below, shall include in the proposed registration all Registrable Shares with respect to which the Corporation has received written requests for inclusion therein within 30 days after delivery of the Corporation’s notice. In connection with any Demand Registration in which more than one Holder or holders of Other Shares or the Corporation participates, in the event that such Demand Registration involves an underwritten offering and the managing underwriter or underwriters participating in such offering advise in writing the Holders of Registrable Shares to be included in such offering that the total amount of Shares to be included in such offering exceeds the amount that can be sold in (or during the time of) such offering without delaying or jeopardizing the success of such offering (including the price per share of the Shares to be sold), then the number of Registrable Shares, Primary Shares and Other Shares (which have registration rights with respect to such offering) shall be reduced on a pro rata basis (based upon the number of shares requested or proposed to be registered by each such holder and the Corporation) to a number deemed satisfactory by such managing underwriter or underwriters, provided, that the securities to be excluded shall be determined in the sequence reflected in Section 3(b)(A). The Holders as a group shall be entitled to one Demand Registration on Form S-1, and, as a group, up to three Demand Registrations on Form S-2 or Form S-3 (or any successor form thereto); provided, that any Demand Registration that does not become effective or is not maintained for the time period required in accordance with Section 2(c) hereof shall not count as one of such Demand Registrations.

(b) The Corporation shall as soon as practicable, but in no event more than 90 days after the date on which the Corporation receives a Demand Notice given by the Holders in accordance with Section 2(a) hereof, file with the SEC, and the Corporation shall thereafter use its best efforts to cause to be declared effective within 180 days following the date the Corporation receives such Demand Notice, a Registration Statement on the appropriate form for the

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registration and sale, in accordance with the intended method or methods of distribution, of the total number of Registrable Shares specified by the Holders in such Demand Notice together with any other Registrable Shares with respect to which the Corporation has received a written request for inclusion in accordance with Section 2(a) hereof, subject to reduction as set forth in Section 2(a) hereof.

(c) The Corporation shall use best efforts to keep each Registration Statement filed pursuant to this Section 2 continuously effective and usable for the resale of the Registrable Shares covered thereby for a period of 180 days from the date on which the SEC declares such Registration Statement effective, as such period may be extended pursuant to this Section 2, or if shorter, until all the Registrable Shares covered by such Registration Statement have been sold pursuant to such Registration Statement.

(d) The Corporation shall be entitled to postpone the filing of any Registration Statement otherwise required to be prepared and filed by the Corporation pursuant to this Section 2, or suspend the use of any effective Registration Statement under this Section 2, for a reasonable period of time which shall be as short as practicable, but in any event not in excess of 60 days (a “Delay Period”), if the Corporation determines in good faith that the registration and distribution of the Registrable Shares covered or to be covered by such Registration Statement would materially interfere with any pending material financing, acquisition, disposition or corporate reorganization or other material corporate development involving the Corporation or any of its subsidiaries or would require premature disclosure thereof and promptly gives the Holders written notice of such determination, containing a statement of the reasons for such postponement and an approximation of the period of the anticipated delay; provided, however, that (i) the aggregate number of days included in all Delay Periods during any consecutive 12 months shall not exceed the aggregate of (x) 120 days minus (y) the number of days occurring during all Hold Back Periods and Interruption Periods during such consecutive 12 months and (ii) a period of at least 60 days shall elapse between the termination of any Delay Period, Hold Back Period or Interruption Period and the commencement of the immediately succeeding Delay Period. If the Corporation shall so postpone the filing of a Registration Statement, the Holders of Registrable Shares to be registered shall have the right to withdraw the request for registration by written notice given by the Holders of a majority of the Registrable Shares that were to be registered to the Corporation within 45 days after receipt of the notice of postponement or, if earlier, the termination of such Delay Period. The time period for which the Corporation is required to maintain the effectiveness of any Registration Statement shall be extended by the aggregate number of days of all Delay Periods, all Hold Back Periods and all Interruption Periods occurring during such Registration. The Corporation shall not be entitled to initiate a Delay Period unless it shall (A) concurrently prohibit sales by other securityholders under registration statements covering securities held by such other securityholders and (B) forbid purchases and sales in the open market by all officers and executives of the Corporation.

(e) The Holders of a majority in number of the Registrable Shares to be included in a Registration Statement pursuant to this Section 2 may, at any time prior to the effective date of the Registration Statement relating to such Demand Registration, revoke such request by providing a written notice to the Corporation revoking such request, in which case such request will not count, except as provided below, towards the quota of Demand Registrations

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to which the Holders are entitled pursuant to this Agreement. In the event of such revocation, the Holders of the Registrable Shares to be included in such Demand Registration shall reimburse the Corporation for their pro rata share (based upon the number of Shares requested or proposed to be registered in such Registration) of the out-of-pocket registration expenses referred to in Section 6 hereof incurred by the Corporation in connection with the preparation, filing and processing of the Registration Statement, unless (i) there has been a material adverse change in the business, assets, properties, condition (financial or other) or results of operations of the Corporation and its subsidiaries taken as a whole, since the time of the Demand Notice, (ii) such revocation was based on the Corporation’s failure to comply in any material respect with its obligations hereunder or (iii) the Holders of a majority in number of the Registrable Shares to be included in such Demand Registration choose to count the Demand Registration as one of the Demand Registrations to which the Holders are entitled pursuant to this Agreement.

Section 3. Piggyback Registration. (a) If at any time the Corporation proposes to file a registration statement under the Securities Act with respect to a public offering of Shares for its own account (other than a registration statement (i) on Form S-8 or any successor form thereto, (ii) filed solely in connection with a dividend reinvestment plan or employee benefit plan covering officers or directors of the Corporation or its Affiliates or (iii) on Form S-4 or any successor form thereto, in connection with a merger, acquisition, exchange offer or similar corporate transaction) or for the account of any holder of Other Shares, then the Corporation shall give written notice of such proposed filing to each Holder at least 30 days before the anticipated filing date. Such notice shall offer the Holders the opportunity to register such amount of Registrable Shares as they may request (a “Piggyback Registration”). Subject to Section 3(b) hereof, the Corporation shall include in each such Piggyback Registration all Registrable Shares with respect to which the Corporation has received written requests for inclusion therein within 20 days after such notice has been given to the Holders. Each Holder shall be permitted to withdraw all or any portion of the Registrable Shares of such Holder from a Piggyback Registration at any time prior to the effective date of such Piggyback Registration. The Holders shall be entitled to an unlimited number of Piggyback Registrations.

(b) The Corporation shall permit the Holders to include all such Registrable Shares on the same terms and conditions as the Shares or Other Shares, if any, of the Corporation included therein. Notwithstanding the foregoing, in the event that any Piggyback Registration involves an underwritten offering and the managing underwriter or underwriters participating in such offering advise in writing the Holders requesting registration that the total amount of securities requested to be included in such Piggyback Registration exceeds the amount which can be sold in (or during the time of) such offering without delaying or jeopardizing the success of the offering (including the price per share of the securities to be sold), then the number of Primary Shares, Registrable Shares and Other Shares (which have registration rights with respect to such offering) requested or proposed to be registered in such offering shall be reduced to a number deemed satisfactory by such managing underwriter or underwriters, provided, that the securities to be excluded shall be determined in the following sequence:

(A) in the event the offering was proposed by or for the account of any holder of Shares: (i) first, the Primary Shares; and (ii) second, the Other Shares and the Registrable

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Shares on a pro rata basis (based upon the number of Shares requested to be registered by each such holder);

(B) in the event the offering was proposed by or for the account of the Corporation: (i) first, the Other Shares and the Registrable Shares on a pro rata basis (based upon the number of Shares requested to be registered by each such holder); and (ii) second, the Primary Shares.

(c) Nothing in this Agreement shall create any liability on the part of the Corporation to the Holders if the Corporation in its sole discretion should decide not to file a Registration Statement proposed to be filed pursuant to Section 3(a) hereof or to withdraw such Registration Statement subsequent to its filing, regardless of any action whatsoever that a Holder may have taken, whether as a result of the issuance by the Corporation of any notice hereunder or otherwise.

Section 4. Holdback Agreement. (a) If (x) the Corporation shall file a Registration Statement (other than a registration statement (i) on Form S-8 or any successor form thereto, (ii) filed solely in connection with a dividend reinvestment plan or employee benefit plan covering officers or directors of the Corporation or its Affiliates or (iii) on Form S-4 or any successor form thereto, in connection with a merger, acquisition, exchange offer or similar corporate transaction) with respect to an underwritten offering of Shares or similar securities or securities convertible into, or exchangeable or exercisable for, such securities and (y) with reasonable prior notice, the managing underwriter or underwriters advise the Corporation in writing (in which case the Corporation shall notify the Holders with a copy of such underwriter’s notice) that a public sale or distribution of Registrable Shares would materially adversely affect such offering, then, each Holder shall, to the extent not inconsistent with applicable law and unless such managing underwriter or underwriters otherwise agree, refrain from, directly or indirectly, effecting any public sale, distribution or short sale of any Registrable Shares (except as part of such underwritten offering) during the period beginning ten days prior to the effective date of such Registration Statement and continuing until the earliest of (A) the abandonment of such offering, (B) such period of time as is sufficient and appropriate in the opinion of the managing underwriter or underwriters in order to complete the sale and distribution of securities included in such registration (but in no event in excess of 90 days following the effective date of any offering) and (C) the termination in whole or in part of any “hold back” period obtained by the underwriter or underwriters in such offering from the Corporation in connection therewith (each such period, a “Hold Back Period”); provided, that the Holders shall not be subject to the restrictions contained in this Section 4(a) unless each officer and director of the Corporation (regardless of the number of Shares then owned by such officer or director) and each beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of at least 5% of the issued and outstanding shares of Common Stock also agree to be bound by such restrictions.

(b) If (x) the Corporation shall file a Registration Statement (other than a registration statement (i) on Form S-8 or any successor form thereto, (ii) filed solely in connection with a dividend reinvestment plan or employee benefit plan covering officers or directors of the Corporation or its Affiliates or (iii) on Form S-4 or any successor form thereto, in connection with a merger, acquisition, exchange offer or similar corporate transaction) with respect to an underwritten offering of Shares or similar securities or securities convertible into, or

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exchangeable or exercisable for, such securities and (y) with reasonable prior notice, the managing underwriter or underwriters advise the Corporation in writing (in which case the Corporation shall notify the Holders with a copy of such underwriter’s notice) that a public sale or distribution of securities of the Corporation would materially adversely affect such offering, then, the Corporation shall, to the extent not inconsistent with applicable law and unless such managing underwriter or underwriters otherwise agree, refrain from, directly or indirectly, effecting any public sale, distribution or short sale of any securities of the Corporation (except as part of such underwritten offering) during the applicable Hold Back Period.

Section 5. Registration Procedures. In connection with the registration obligations of the Corporation pursuant to and in accordance with Sections 2 and 3 hereof (and subject to Sections 2 and 3 hereof), the Corporation shall use reasonable best efforts to effect such registration to permit the sale of such Registrable Shares in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Corporation shall as expeditiously as possible (but subject to Sections 2 and 3 hereof):

(a) prepare and file with the SEC a Registration Statement for the sale of the Registrable Shares on any form for which the Corporation then qualifies or which counsel for the Corporation shall deem appropriate, in accordance with such Holders’ intended method or methods of distribution thereof, subject to Section 2(b) hereof, and use reasonable best efforts to cause such Registration Statement to become effective and remain effective as provided herein;

(b) prepare and file with the SEC such amendments (including post-effective amendments) to such Registration Statement, and such supplements to the related Prospectus, as may be required by the applicable rules, regulations or instructions under the Securities Act during the applicable period, in accordance with the intended methods of disposition specified by the Holders of the Registrable Shares covered by such Registration Statement, make generally available earnings statements satisfying the provisions of Section 11(a) of the Securities Act (provided that the Corporation shall be deemed to have complied with this clause if it has complied with Rule 158 under the Securities Act), and cause the related Prospectus as so supplemented to be filed pursuant to Rule 424 under the Securities Act, if necessary; provided, however, that before filing a Registration Statement or Prospectus, or any amendments or supplements thereto (other than reports required to be filed by it under the Exchange Act), the Corporation shall furnish to the Holders of Registrable Shares covered by such Registration Statement and each counsel for such Holders and each managing underwriter, if any, for review and comment, copies of all documents required to be filed;

(c) notify the Holders of any Registrable Shares covered by such Registration Statement promptly and (if requested) confirm such notice in writing, (i) when the Registration Statement, a Prospectus or Prospectus supplement or pre-effective or post-effective amendment thereto has been filed, and, with respect to such Registration Statement or any post-effective amendment, when the same has become effective, (ii) of the receipt by the Corporation of any notification with respect to any comments by the SEC with respect to such Registration Statement or Prospectus or any amendment or supplement thereto or of any

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request by the SEC for amendments or supplements to such Registration Statement or the related Prospectus or for additional information regarding such Holders, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Corporation of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (v) of the happening of any event that requires the making of any changes in such Registration Statement, Prospectus or documents incorporated or deemed incorporated therein by reference so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading;

(d) use best efforts to obtain the withdrawal of any order suspending the effectiveness of such Registration Statement, or the lifting of any suspension of the qualification or exemption from qualification of any Registrable Shares for sale in any jurisdiction in the United States;

(e) furnish to the Holder of any Registrable Shares covered by such Registration Statement, each counsel for such Holders and each managing underwriter, if any, without charge, one conformed copy of such Registration Statement, as declared effective by the SEC, and of each post-effective amendment thereto, in each case including financial statements and schedules and all exhibits and reports incorporated or deemed to be incorporated therein by reference; and deliver, without charge, such number of copies of the preliminary prospectus, any amended preliminary prospectus, each final Prospectus and any post-effective amendment or supplement thereto, as such Holder may reasonably request in order to facilitate the disposition of the Registrable Shares of such Holder covered by such Registration Statement in conformity with the requirements of the Securities Act;

(f) prior to any public offering of Registrable Shares covered by such Registration Statement, use reasonable best efforts to register or qualify such Registrable Shares for offer and sale under the securities or “blue sky” laws of such jurisdictions as the Holders of such Registrable Shares shall reasonably request in writing and to keep such registrations or qualifications in effect for so long as the Registration Statement covering such Registrable Shares remains in effect; provided, however, that the Corporation shall in no event be required to qualify generally to do business as a foreign corporation or as a dealer in any jurisdiction where it is not at the time so qualified or to take any action that would subject it to taxation in any such jurisdiction where it is not then subject;

(g) upon the occurrence of any event contemplated by Section 5(c)(v) above, prepare a supplement or post-effective amendment to such Registration Statement or the related Prospectus or any document incorporated or deemed to be incorporated therein by reference and file any other required document so that, as thereafter delivered to the purchasers of the Registrable Shares being sold thereunder (including upon the termination of any Delay Period), such Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

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(h) use its best efforts to cause all Registrable Shares covered by such Registration Statement to be listed on each securities exchange, if any, on which similar securities issued by the Corporation are then listed or if no such securities are so listed, to use its best efforts to cause all such Registrable Shares to be listed or quoted on a national securities exchange, the NASD Over The Counter Bulletin Board, or the Nasdaq Stock Market and, if quoted on the Nasdaq Stock Market, use its best efforts to secure designation of all such Registrable Shares as “NASDAQ Securities” within the meaning of Rules 11Aa2-l and 11Aa3-l promulgated under the Exchange Act or, failing that, to secure Nasdaq Stock Market authorization for such Registrable Shares and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Shares with the NASD;

(i) on or before the effective date of such Registration Statement, provide the transfer agent of the Corporation for the Registrable Shares with printed certificates for the Registrable Shares covered by such Registration Statement, which are in a form eligible for deposit with The Depository Trust Company;

(j) make available for inspection by any Holder of Registrable Shares included in such Registration Statement, any underwriter participating in any offering pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such Holder or underwriter (collectively, the “Inspectors”), all financial and other records and other information, pertinent corporate documents and properties of any of the Corporation, its subsidiaries and Affiliates (collectively, the “Records”), as shall be reasonably necessary to enable them to exercise their due diligence responsibilities; provided, however, that the Records that the Corporation determines, in good faith, to be confidential and which it notifies the Inspectors in writing are confidential shall not be disclosed by any Inspector unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement in, or omission from, such Registration Statement or Prospectus, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or (iii) such Records have been made generally available to the public; provided further, however, that (A) any decision regarding the disclosure of information pursuant to subclause (i) shall be made only after consultation with counsel for the applicable Inspectors and the Corporation and (B) with respect to any release of Records pursuant to subclause (ii), each holder of Registrable Shares agrees that it shall, promptly after learning that disclosure of such Records is sought in a court having jurisdiction, give notice to the Corporation so that the Corporation, at the Corporation’s expense, may undertake appropriate action to prevent disclosure of such Records; and

(k) if such offering is an underwritten offering, enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other appropriate and reasonable actions requested by the managing underwriters or the Holders of a majority of the Registrable Shares being sold in connection therewith in order to expedite or facilitate the disposition of such Registrable Shares, and in such connection, (i) cause its counsel to provide opinions and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters and counsel to the Holders of the Registrable Shares being sold), addressed to each selling Holder of Registrable Shares covered by such Registration

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Statement and each of the underwriters as to the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such counsel and underwriters, (ii) cause its independent certified public accountants to provide “cold comfort” letters and updates thereof (and, if necessary, any other independent certified public accountants of any subsidiary of the Corporation or of any business acquired by the Corporation for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each selling Holder of Registrable Shares covered by the Registration Statement (unless such accountants shall be prohibited from so addressing such letters by applicable standards of the accounting profession) and each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in “cold comfort” letters in connection with underwritten offerings and (iii) if requested and if an underwriting agreement is entered into, provide indemnification provisions and procedures reasonably requested by such underwriters. The above shall be done at each closing under such underwriting or similar agreement, or as and to the extent required under such agreements. The Corporation may require each Holder of Registrable Shares covered by a Registration Statement to furnish such information in writing regarding such Holder and such Holder’s intended method of disposition of such Registrable Shares as it may from time to time reasonably request in writing. If any such information is not furnished by a Holder of Registrable Shares within a reasonable period of time after receipt of such request, the Corporation may exclude such Holder’s Registrable Shares from such Registration Statement. Each Holder of Registrable Shares covered by a Registration Statement agrees that, upon receipt of any notice from the Corporation of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(iv) or 5(c)(v) hereof, that such Holder shall forthwith discontinue disposition of any Registrable Shares covered by such Registration Statement or the related Prospectus until receipt of the copies of the supplement or amendment to such Prospectus or any document incorporated or deemed to be incorporated therein by reference, contemplated by Section 5(g) hereof, or until such Holder is advised in writing by the Corporation that the use of the applicable Prospectus may be resumed (such period during which disposition is discontinued being an “Interruption Period”) and, if requested by the Corporation, the Holder shall deliver to the Corporation (at the expense of the Corporation) all copies then in its possession, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Registrable Shares at the time of receipt of such request. Each Holder of Registrable Shares covered by a Registration Statement further agrees not to utilize any material other than the applicable current preliminary prospectus or Prospectus in connection with the offering and/or sale of such Registrable Shares.

Section 6. Registration Expenses. Whether or not any Registration Statement is filed or becomes effective, but subject to Section 2(e) hereof, the Corporation shall pay all costs, fees and expenses incident to the Corporation’s performance of or compliance with this Agreement, including (i) all registration and filing fees, including NASD filing fees, (ii) all fees and expenses of compliance with securities or “blue sky” laws, including reasonable fees and disbursements of counsel in connection therewith, (iii) printing expenses (including expenses of printing certificates for Registrable Shares and of printing prospectuses if the printing of prospectuses is requested by the Holders of the Registrable Shares being sold or the managing underwriters, if any), (iv) messenger, telephone and delivery expenses, (v) fees and disbursements of counsel for the Corporation, (vi) fees and disbursements of all independent certified public accountants of

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the Corporation (including expenses of any “cold comfort” letters required in connection with this Agreement) and all other persons retained by the Corporation in connection with such Registration Statement, (vii) reasonable fees and disbursements of one counsel, per Registration, selected by the Holders of a majority of the Registrable Shares being registered, to represent all such Holders; provided, however, that, in the case of a Registration pursuant to Section 3 hereof, the Corporation shall only be required to pay such fees and disbursements of one counsel, per Registration, to represent all holders of securities exercising “piggyback” registration rights in such Registration (which counsel shall not represent the Corporation and shall be acceptable to the Holders of a majority of the Registrable Shares being registered in their sole discretion), (viii) fees and disbursements of underwriters customarily paid by the issuers or sellers of securities and (ix) all other costs, fees and expenses incident to the Corporation’s performance or compliance with this Agreement. Notwithstanding the foregoing, any discounts, commissions or brokers’ fees or fees of similar securities industry professionals and any transfer taxes relating to the disposition of the Registrable Shares by a Holder, will be payable by such Holder and the Corporation will have no obligation to pay any such amounts.

Section 7. Underwriting Requirements. (a) Subject to Section 7(b) hereof, the Holders shall have the right, by written notice, to require that any Demand Registration provide for an underwritten offering.

(b) In the case of any underwritten offering pursuant to a Demand Registration, the Holders of a majority of the Registrable Shares to be registered in connection therewith shall select the institution or institutions that shall manage or lead such offering, which institution or institutions shall be satisfactory to the Corporation, in its sole and absolute discretion. In the case of any underwritten offering pursuant to a Piggyback Registration in connection with a public offering of Shares for the account of the Corporation, the Corporation shall select the institution or institutions that shall manage or lead such offering. No Holder shall be entitled to participate in an underwritten offering unless and until such Holder has entered into an underwriting or other agreement with such institution or institutions for such offering in such form as the Corporation and such institution or institutions shall determine.

Section 8. Indemnification.

(a) Indemnification by the Corporation. The Corporation shall, without limitation as to time, indemnify and hold harmless, to the full extent permitted by law, each Holder of Registrable Shares whose Registrable Shares are covered by a Registration Statement or Prospectus, the shareholders, members, partners, officers, directors and agents and employees of each of them, any other Person acting on behalf of each such Holder, each Person who controls each such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the shareholders, members, partners, officers, directors, agents and employees of each such controlling Person, to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, judgments, costs (including, without limitation, costs of investigation, preparation and reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or based upon any untrue or alleged untrue statement of a material fact contained in such Registration Statement or Prospectus or any amendment or supplement thereto, or any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to

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make the statements therein (in the case of a Prospectus, in the light of the circumstances under which they were made) not misleading, except insofar as the same are based upon information furnished in writing to the Corporation by or on behalf of any such Holder expressly for use therein.

(b) Indemnification by Holders. In connection with any Registration Statement in which a Holder is participating, such Holder shall, without limitation as to time, severally and not jointly and severally indemnify and hold harmless, to the full extent permitted by law, the Corporation, its shareholders, directors, officers, agents and employees, any other Person acting on behalf of the Corporation, each Person who controls the Corporation (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act) and the shareholders, members, partners, directors, officers, agents or employees of such controlling Persons, from and against any and all Losses arising out of or based upon any untrue or alleged untrue statement of a material fact contained in such Registration Statement or the related Prospectus or any amendment or supplement thereto, or any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus, in the light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue or alleged untrue statement or omission or alleged omission is based upon any information furnished in writing by or on behalf of such Holder to the Corporation expressly for use in such Registration Statement or Prospectus. Each Holder’s indemnity obligations under this Section 8 shall be limited to the total sales proceeds (net of all underwriting discounts and commissions) actually received by such Holder in connection with the applicable offering.

(c) Conduct of Indemnification Proceedings. If any Person shall be entitled to indemnity hereunder (an “indemnified party”), such indemnified party shall give prompt notice to the party from which such indemnity is sought (the “indemnifying party”) of any claim or of the commencement of any proceeding with respect to which such indemnified party seeks indemnification or contribution pursuant hereto; provided, however, that the delay or failure to so notify the indemnifying party shall not relieve the indemnifying party from any obligation or liability except to the extent that the indemnifying party has been prejudiced by such delay or failure. The indemnifying party shall have the right, exercisable by giving written notice to an indemnified party promptly after the receipt of written notice from such indemnified party of such claim or proceeding, to assume, at the indemnifying party’s expense, the defense of any such claim or proceeding, with counsel reasonably satisfactory to such indemnified party; provided, however, that (i) an indemnified party shall have the right to employ separate counsel in any such claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless: (1) the indemnifying party agrees to pay such fees and expenses; (2) the indemnifying party fails promptly to assume the defense of such claim or proceeding or fails to employ counsel reasonably satisfactory to such indemnified party; or (3) the named parties to any proceeding (including impleaded parties) include both such indemnified party and the indemnifying party, and such indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it that are inconsistent with those available to the indemnifying party or that a conflict of interest is likely to exist among such indemnified party and any other indemnified parties (in which case the indemnifying party shall not have

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the right to assume the defense of such action on behalf of such indemnified party); and (ii) subject to clause (3) above, the indemnifying party shall not, in connection with any one such claim or proceeding or separate but substantially similar or related claims or proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one firm of attorneys (together with appropriate local counsel) at any time for all of the indemnified parties, or for fees and expenses that are not patently unreasonable. Whether or not such defense is assumed by the indemnifying party, such indemnified party shall not be subject to any liability for any settlement made without its consent. The indemnifying party shall not consent to entry of any judgment or enter into any settlement without the consent of the indemnified party unless (i) there is no finding or admission of any violation of any rights of any Person and no effect on any other claims that may be made against the indemnified party, (ii) the sole relief provided is monetary damages that are paid in full by the indemnifying party and (iii) such judgment or settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release, in form and substance reasonably satisfactory to the indemnified party, from all liability in respect of such claim or litigation for which such indemnified party would be entitled to indemnification hereunder.

(d) Contribution. If the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any Losses (other than in accordance with its terms), then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue statement of a material fact or omission or alleged omission to state a material fact, has been taken by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any legal or other fees or expenses incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this Section 8(d), an indemnifying party that is a Holder shall not be required to contribute any amount which is in excess of the amount by which the total proceeds (net of all underwriting discounts and commissions) received by such Holder from the sale of the Registrable Shares sold by such Holder in the applicable offering exceeds the amount of any damages that such indemnifying party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

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Section 9. Additional Registration Rights. The Corporation shall not, without the consent of all of the Holders, grant to any Person any registration rights which have priority over or are otherwise inconsistent with the registration rights granted pursuant to this Agreement.

Section 10. Transferability of Registration Rights. The registration rights set forth in this Agreement are transferable to any transferee or purchaser of Registrable Shares, subject to compliance with any transfer restrictions contained in any agreement with the Corporation. Each such transferee or purchaser of Registrable Shares must consent in writing to be bound by the terms and conditions of this Agreement in order to acquire the rights granted pursuant to this Agreement. Notwithstanding anything contained herein to the contrary, the registration rights set forth in this Agreement may be transferred to any Affiliate of the Securityholders by the Securityholders providing written notice of such transfer to the Corporation.

Section 11. Miscellaneous. (a) Rules 144 and 144A. The Corporation covenants that it will timely file any reports required to be filed by it under the Securities Act and the Exchange Act so as to enable Holders holding Registrable Shares to sell such Registrable Shares (i) without registration under the Securities Act within the limitation of the exemptions provided by (A) Rules 144 and 144A under the Securities Act, as each such Rule may be amended from time to time or (B) any similar rule or rules hereafter adopted by the SEC, so long as the exemptions provided for in such Rules would otherwise be available to such Holders at such time and/or (ii) pursuant to a registration statement on Form S-3 (or any successor form thereto). Upon the request of any such Holder, the Corporation will forthwith deliver to such Holder a written statement as to whether it has complied with the reporting requirements of Rules 144 and 144A or whether it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (or any successor form thereto).

(b) Termination. This Agreement and the obligations of the Corporation and the Holders hereunder (other than Section 8 hereof and except with respect to rights previously exercised in connection with a public offering pursuant to Sections 2 or 3 hereof) shall terminate on the first date on which all of the Holders’ shares of Common Stock can be sold, in the written opinion of counsel for the Corporation, pursuant to subsection (k) of Rule 144 under the Securities Act.

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(c) Notices. All notices, demands, requests or other communications that may be or are required to be given, served, or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery (including delivery by internationally recognized overnight courier), or facsimile transmission, addressed as follows:

(i) If to the Corporation:

Allion Healthcare, Inc.

1660 Walt Whitman Road

Suite 105

Melville, NY 11747

with a copy to:

Belin Lamson McCormick Zumbach Flynn

A Professional Corporation

The Financial Center

666 Walnut, Suite 2000

Des Moines, IA 50309

Attention: Garth D. Adams, Esq.

Facsimile: (515) 558-0664

(ii) If to any Holder, at such Holder’s address appearing on the signature pages hereof.

Each party may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request or communication shall be deemed to have been duly given at the earlier of its receipt or five Business Days after being deposited in the mail, postage prepaid, if mailed; when delivered by hand, if personally delivered; at the earlier of its receipt or three Business Days following dispatch, if delivered by internationally recognized overnight courier; or upon receipt, if sent by facsimile (followed by a confirmation copy sent by either overnight or two-day courier).

(d) Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, and such invalid, void or otherwise unenforceable provisions shall be null and void. It is the intent of the parties, however, that any invalid, void or otherwise unenforceable provisions be automatically replaced by other provisions which are as similar as possible in terms to such invalid, void or otherwise unenforceable provisions but are valid and enforceable to the fullest extent permitted by law.

(e) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and, subject to Section 10 hereof, their respective heirs, devisees, legatees, legal representatives, successors and assigns.

(f) No Third Party Beneficiary. The terms and provisions of this Agreement are intended solely for the benefit of each party hereto, their respective successors or assigns and any other holder of Registrable Shares, and it is not the intention of the parties to confer third- party beneficiary rights upon any other Person other than any Person entitled to indemnity under Section 8.

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(g) Entire Agreement. This Agreement represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the parties hereto with respect to the subject matter hereof.

(h) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Corporation has obtained the written consent of the Holders of at least a majority in number of the Registrable Shares.

(i) Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

(j) Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be one and the same agreement, and shall become effective when counterparts have been signed by each of the parties and delivered to each other party.

(i) Remedies.

(a) No remedy conferred by any of the provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. The election of any one or more remedies by any party hereto shall not constitute a waiver by any such party of the right to pursue any other available remedies.

(b) It is acknowledged that a breach of the provisions of this Agreement could not be compensated adequately by money damages. Accordingly, any party hereto shall be entitled, in addition to any other right or remedy available to it, to an injunction restraining such breach or threatened breach and to specific performance of any provisions of this Agreement, and in either case no bond or other security shall be required in connection therewith. If any action shall be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law and each of the parties hereto waives any and all defenses it may have on the ground of lack of jurisdiction or competence of the court to grant such injunction or other equitable relief. The existence of this right will not preclude any such Person from pursuing any other rights and remedies at law or in equity which such Person may have.

(k) Governing Law: Consent to Jurisdiction and Venue. IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICTS OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. The parties to this Agreement agree that jurisdiction and venue

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in any action brought by any party hereto pursuant to this Agreement shall properly (but not exclusively) lie in any New York State court located in the City of New York or any federal court of the United States sitting in the Southern District of New York, located in New York County. By execution and delivery of this Agreement, each of the parties hereto irrevocably submits to the jurisdiction of such courts for itself or himself and in respect of its or his property with respect to such action. THE PARTIES HERETO IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN ANY SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT ANY SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION. The parties further agree that the mailing by certified or registered mail, return receipt requested, of any process required by any such court shall constitute valid and lawful service of process against them, without necessity for service by any other means provided by statute or rule of court. Nothing herein shall preclude any party hereto from bringing suit or taking other legal action in any other jurisdiction.

(l) Calculation of Time Periods. Except as otherwise indicated, all periods of time referred to herein shall include all Saturdays, Sundays and holidays; provided, however, that if the date to perform the act or give any notice with respect to this Agreement shall fall on a day other than a Business Day, such act or notice may be timely performed or given if performed or given on the next succeeding Business Day.

[The remainder of this page has been intentionally left blank.]

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IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date and year first written above.

ALLION HEALTHCARE, INC.
By:
	Name:	Michael P Moran
	Title:	President & CEO
SECURITYHOLDERS:
SEE ATTACHED SIGNATURE PAGES

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EX-10.19

Exhibit 10.19

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time, this “Agreement”) is entered into as of this 30th day of March, 2001 by and between ALLION HEALTHCARE, INC., a Delaware corporation (together with its successors and assigns, the “Corporation”), and                                          (together with its successors and assigns, the “Securityholder”).

RECITALS

WHEREAS, the Corporation and the Securityholder have entered into that certain Series A Convertible Preferred Stock Purchase Agreement, dated as of October, 2001 (as amended, restated, supplemented or otherwise modified from time to time, the “Purchase Agreement”), pursuant to which the Securityholder has agreed, inter alia, to purchase, and the Corporation has agreed, inter alia, to issue and sell to the Securityholder, certain shares of Series A Preferred Stock (as defined below);

WHEREAS, the Corporation and the Securityholder deem it in their respective best interests to provide for certain arrangements with respect to the registration of shares of Common Stock (as defined below) under the United States Securities Act of 1933, as amended (the “Securities Act”); and

WHEREAS, the execution and delivery of this Agreement is a condition precedent to the consummation of the transactions contemplated by the Purchase Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

Section 1. Definitions. (a) As used herein, each of the following terms shall have the meaning set forth or referred to below:

“Affiliate” shall mean (i) with respect to any individual, (A) a spouse or first generation descendant of such individual and (B) any trust, limited liability company or family partnership whose beneficiaries shall solely be such individual and/or such individual’s spouse and/or any other individual related to the first degree by blood or adoption to such individual or such individual’s spouse and (ii) with respect to any Person which is not an individual, a director, officer, general partner or managing member of such Person, and any other Person that, directly or indirectly through one or more intermediaries Controls, is Controlled by, or is under common Control with, such Person. For purposes hereof, “Control” (including, with correlative meanings, the terms “Controlling,” “Controlled by” and “under common Control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” shall have the meaning set forth in the first paragraph of this agreement.

“Business Day” shall mean any day that is not a Saturday, Sunday or legal holiday on which banking institutions in the State of New York are authorized or obligated to close.

“Common Stock” shall mean the common stock, par value $0.001 per share, of the Corporation, as constituted on the date hereof, and any stock into which such Common Stock shall have been changed or any stock resulting from any recapitalization, reorganization, merger, sale of assets or reclassification.

“Corporation” shall have the meaning set forth in the first paragraph of this Agreement.

“Delay Period” shall have the meaning set forth in Section 2(d) hereof.

“Demand Notice” shall have the meaning set forth in Section 2(a) hereof.

“Demand Registration” shall have the meaning set forth in Section 2(a) hereof.

“Exchange Act” shall mean the United States Securities Exchange Act of 1934, as amended.

“Hold Back Period” shall have the meaning set forth in Section 4(a) hereof.

“Holder” or “Holders” shall mean the Securityholder and/or any successors thereto or assignees or transferees thereof who or which comply with the second sentence of Section 10 hereof.

“Inspectors” shall have the meaning set forth in Section 5(j) hereof.

“Interruption Period” shall have the meaning set forth in Section 5(k) hereof.

“Losses” shall have the meaning set forth in Section 8(a) hereof.

“NASD” shall mean the National Association of Securities Dealers, Inc., or any successor thereof.

“Other Shares” shall mean, at any time, those shares of Common Stock which do not constitute Primary Shares or Registrable Shares.

“Person” shall mean any natural person, corporation, limited partnership, limited liability company, general partnership, joint stock company, joint venture, association, company, trust, bank, trust company, land trust, business trust or other organization whether or not a legal entity, and any government or agency or political subdivision thereof.

“Piggyback Registration” shall have the meaning set forth in Section 3(a) hereof.

“Primary Shares” shall mean, at any time, the authorized but unissued shares of Common Stock or shares of Common Stock held by the Corporation in its treasury.

“Prospectus” shall mean the prospectus included in any Registration Statement (including a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Securities Act), as amended or supplemented by any prospectus supplement with respect to the terms of the offering

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of any portion of the Registrable Shares covered by such Registration Statement and all other amendments and supplements to such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus.

“Purchase Agreement” shall have the meaning set forth in the first recital to this Agreement.

“Records” shall have the meaning set forth in Section 5(j) hereof.

“Registrable Shares” shall mean, at any time, with respect to any Holder (i) any Shares and (ii) any other securities issued and issuable with respect to any such Shares or the Series B Preferred Stock by way of a stock dividend, stock distribution or stock split or in connection with a combination of shares, recapitalization, merger, consolidation, sale of assets or other reorganization, in each case in clauses (i) and (ii) which at any time are held by Holders (it being understood that, for purposes of this Agreement, a Person shall be deemed to be a holder of Registrable Shares whenever such Person has the right to acquire or obtain from the Corporation any Registrable Shares, whether or not such acquisition has actually been effected), if and so long as (x) such Shares have not been sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction and (y) such Shares have not been sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect to such Shares are removed upon the consummation of such sale and the seller and purchaser of such shares of Common Stock shall have received an opinion of counsel for the Corporation, which shall be in form and content reasonably satisfactory to the seller and purchaser and their respective counsel, to the effect that such Shares in the hands of the purchaser are freely transferable without restriction or registration under the Securities Act in any public or private transaction.

“Registration” shall mean registration under the Securities Act of an offering of Registrable Shares pursuant to a Demand Registration or a Piggyback Registration.

“Registration Statement” shall mean any registration statement of the Corporation under the Securities Act that covers any of the Registrable Shares pursuant to the provisions of this Agreement, including the related Prospectus, all amendments and supplements to such registration statement (including pre- and post-effective amendments), all exhibits thereto and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

“SEC” shall mean the United States Securities and Exchange Commission, or any successor thereof.

“Securities Act” shall have the meaning set forth in the second recital to this Agreement.

“Securityholder” shall have the meaning set forth in the first paragraph of this Agreement.

“Series A Preferred Stock” shall mean the Series A Convertible Preferred Stock of the Corporation.

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“Shares” shall mean shares of Common Stock, including, without limitation, the shares issuable upon conversion of the Series A Preferred Stock and shares purchased or purchasable pursuant to the exercise of any outstanding warrants options of the Company (or any portion thereof).

“underwritten offering” shall mean a registration under the Securities Act in which securities of the Corporation are sold to an underwriter for reoffering to the public.

(b) Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires. The word “or” is not exclusive and the word “including” means “including without limitation.” Unless otherwise specified, all accounting terms used in this Agreement shall be interpreted in accordance with generally accepted accounting principles in the United States as in effect from time to time, applied on a consistent basis.

Section 2. Demand Registration. (a) At any time and from time to time after the one year anniversary of the Purchase Agreement, the Holders of a majority in number of the Registrable Shares shall have the right, by written notice (the “Demand Notice”) given to the Corporation, to request the Corporation to register (a “Demand Registration”) under and in accordance with the provisions of the Securities Act all or any portion of such Holders’ Registrable Shares. Upon receipt of any such Demand Notice, the Corporation shall promptly, but in no event more than five (5) business days after receipt thereof, notify each other Holder of the receipt of such Demand Notice and, subject to the limitations set forth below, shall include in the proposed registration all Registrable Shares with respect to which the Corporation has received written requests for inclusion therein within 30 days after delivery of the Corporation’s notice. In connection with any Demand Registration in which more than one Holder or holders of Other Shares or the Corporation participates, in the event that such Demand Registration involves an underwritten offering and the managing underwriter or underwriters participating in such offering advise in writing the Holders of Registrable Shares to be included in such offering that the total amount of Shares to be included in such offering exceeds the amount that can be sold in (or during the time of) such offering without delaying or jeopardizing the success of such offering (including the price per share of the Shares to be sold), then the number of Registrable Shares, Primary Shares and Other Shares (which have registration rights with respect to such offering) shall be reduced on a pro rata basis (based upon the number of shares requested or proposed to be registered by each such holder and the Corporation) to a number deemed satisfactory by such managing underwriter or underwriters, provided, that the securities to be excluded shall be determined in the sequence reflected in Section 3(b)(A). The Holders as a group shall be entitled to one Demand Registration on each of Form S-1, Form S-2 and Form S-3 (or any successor form thereto); provided, that any Demand Registration that does not become effective or is not maintained for the time period required in accordance with Section 2(c) hereof shall not count as one of such Demand Registrations.

(b) The Corporation shall as soon as practicable, but in no event more than 90 days after the date on which the Corporation receives a Demand Notice given by the Holders in accordance with Section 2(a) hereof, file with the SEC, and the Corporation shall thereafter use its best efforts to cause to be declared effective within 180 days following the date the Corporation receives such Demand Notice, a Registration Statement on the appropriate form for the

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registration and sale, in accordance with the intended method or methods of distribution, of the total number of Registrable Shares specified by the Holders in such Demand Notice together with any other Registrable Shares with respect to which the Corporation has received a written request for inclusion in accordance with Section 2(a) hereof, subject to reduction as set forth in Section 2(a) hereof.

(c) The Corporation shall use best efforts to keep each Registration Statement filed pursuant to this Section 2 continuously effective and usable for the resale of the Registrable Shares covered thereby for a period of 180 days from the date on which the SEC declares such Registration Statement effective, as such period may be extended pursuant to this Section 2, or if shorter, until all the Registrable Shares covered by such Registration Statement have been sold pursuant to such Registration Statement.

(d) The Corporation shall be entitled to postpone the filing of any Registration Statement otherwise required to be prepared and filed by the Corporation pursuant to this Section 2, or suspend the use of any effective Registration Statement under this Section 2, for a reasonable period of time which shall be as short as practicable, but in any event not in excess of 60 days (a “Delay Period”), if the Corporation determines in good faith that the registration and distribution of the Registrable Shares covered or to be covered by such Registration Statement would materially interfere with any pending material financing, acquisition, disposition or corporate reorganization or other material corporate development involving the Corporation or any of its subsidiaries or would require premature disclosure thereof and promptly gives the Holders written notice of such determination, containing a statement of the reasons for such postponement and an approximation of the period of the anticipated delay; provided, however, that (i) the aggregate number of days included in all Delay Periods during any consecutive 12 months shall not exceed the aggregate of (x) 120 days minus (y) the number of days occurring during all Hold Back Periods and Interruption Periods during such consecutive 12 months and (ii) a period of at least 60 days shall elapse between the termination of any Delay Period, Hold Back Period or Interruption Period and the commencement of the immediately succeeding Delay Period. If the Corporation shall so postpone the filing of a Registration Statement, the Holders of Registrable Shares to be registered shall have the right to withdraw the request for registration by written notice given by the Holders of a majority of the Registrable Shares that were to be registered to the Corporation within 45 days after receipt of the notice of postponement or, if earlier, the termination of such Delay Period. The time period for which the Corporation is required to maintain the effectiveness of any Registration Statement shall be extended by the aggregate number of days of all Delay Periods, all Hold Back Periods and all Interruption Periods occurring during such Registration. The Corporation shall not be entitled to initiate a Delay Period unless it shall (A) concurrently prohibit sales by other securityholders under registration statements covering securities held by such other securityholders and (B) forbid purchases and sales in the open market by all officers and executives of the Corporation.

(e) The Holders of a majority in number of the Registrable Shares to be included in a Registration Statement pursuant to this Section 2 may, at any time prior to the effective date of the Registration Statement relating to such Demand Registration, revoke such request by providing a written notice to the Corporation revoking such request, in which case such request will not count, except as provided below, towards the quota of Demand Registrations

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to which the Holders are entitled pursuant to this Agreement. In the event of such revocation, the Holders of the Registrable Shares to be included in such Demand Registration shall reimburse the Corporation for their pro rata share (based upon the number of Shares requested or proposed to be registered in such Registration) of the out-of-pocket registration expenses referred to in Section 6 hereof incurred by the Corporation in connection with the preparation, filing and processing of the Registration Statement, unless (i) there has been a material adverse change in the business, assets, properties, condition (financial or other) or results of operations of the Corporation and its subsidiaries taken as a whole, since the time of the Demand Notice, (ii) such revocation was based on the Corporation’s failure to comply in any material respect with its obligations hereunder or (iii) the Holders of a majority in number of the Registrable Shares to be included in such Demand Registration choose to count the Demand Registration as one of the Demand Registrations to which the Holders are entitled pursuant to this Agreement.

Section 3. Piggyback Registration. (a) If at any time the Corporation proposes to file a registration statement under the Securities Act with respect to a public offering of Shares for its own account (other than a registration statement (i) on Form S-8 or any successor form thereto, (ii) filed solely in connection with a dividend reinvestment plan or employee benefit plan covering officers or directors of the Corporation or its Affiliates or (iii) on Form S-4 or any successor form thereto, in connection with a merger, acquisition, exchange offer or similar corporate transaction) or for the account of any holder of Shares, then the Corporation shall give written notice of such proposed filing to each Holder at least 30 days before the anticipated filing date. Such notice shall offer the Holders the opportunity to register such amount of Registrable Shares as they may request (a “Piggyback Registration”). Subject to Section 3(b) hereof, the Corporation shall include in each such Piggyback Registration all Registrable Shares with respect to which the Corporation has received written requests for inclusion therein within 20 days after such notice has been given to the Holders. Each Holder shall be permitted to withdraw all or any portion of the Registrable Shares of such Holder from a Piggyback Registration at any time prior to the effective date of such Piggyback Registration. The Holders shall be entitled to an unlimited number of Piggyback Registrations.

(b) The Corporation shall permit the Holders to include all such Registrable Shares on the same terms and conditions as the Shares, if any, of the Corporation included therein. Notwithstanding the foregoing, in the event that any Piggyback Registration involves an underwritten offering and the managing underwriter or underwriters participating in such offering advise in writing the Holders requesting registration that the total amount of securities requested to be included in such Piggyback Registration exceeds the amount which can be sold in (or during the time of such offering without delaying or jeopardizing the success of the offering (including the price per share of the securities to be sold), then the number of Primary Shares, Registrable Shares and Other Shares (which have registration rights with respect to such offering) requested or proposed to be registered in such offering shall be reduced to a number deemed satisfactory by such managing underwriter or underwriters, provided, that the securities to be excluded shall be determined in the following sequence:

(A) in the event the offering was proposed by or for the account of any holder of Shares: (i) first, the Primary Shares; and (ii) second, the Other Shares and the Registrable

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Shares on a pro rata basis (based upon the number of Shares requested to be registered by each such holder);

(B) in the event the offering was proposed by or for the account of the Corporation: (i) first, the Other Shares and the Registrable Shares on a pro rata basis (based upon the number of Shares requested to be registered by each such holder); and (ii) second, the Primary Shares.

(c) Nothing in this Agreement shall create any liability on the part of the Corporation to the Holders if the Corporation in its sole discretion should decide not to file a Registration Statement proposed to be filed pursuant to Section 3(a) hereof or to withdraw such Registration Statement subsequent to its filing, regardless of any action whatsoever that a Holder may have taken, whether as a result of the issuance by the Corporation of any notice hereunder or otherwise.

Section 4. Holdback Agreement. (a) If (x) the Corporation shall file a Registration Statement (other than a registration statement (i) on Form S-8 or any successor form thereto, (ii) filed solely in connection with a dividend reinvestment plan or employee benefit plan covering officers or directors of the Corporation or its Affiliates or (iii) on Form S-4 or any successor form thereto, in connection with a merger, acquisition, exchange offer or similar corporate transaction) with respect to an underwritten offering of Shares or similar securities or securities convertible into, or exchangeable or exercisable for, such securities and (y) with reasonable prior notice, the managing underwriter or underwriters advise the Corporation in writing (in which case the Corporation shall notify the Holders with a copy of such underwriter’s notice) that a public sale or distribution of Registrable Shares would materially adversely affect such offering, then, each Holder shall, to the extent not inconsistent with applicable law and unless such managing underwriter or underwriters otherwise agree, refrain from, directly or indirectly, effecting any public sale, distribution or short sale of any Registrable Shares (except as part of such underwritten offering) during the period beginning ten days prior to the effective date of such Registration Statement and continuing until the earliest of (A) the abandonment of such offering, (B) such period of time as is sufficient and appropriate in the opinion of the managing underwriter or underwriters in order to complete the sale and distribution of securities included in such registration (but in no event in excess of 90 days following the effective date of any offering) and (C) the termination in whole or in part of any “hold back” period obtained by the underwriter or underwriters in such offering from the Corporation in connection therewith (each such period, a “Hold Back Period”); provided, that the Holders shall not be subject to the restrictions contained in this Section 4(a) unless each officer and director of the Corporation (regardless of the number of Shares then owned by such officer or director) and each beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of at least 5% of the issued and outstanding shares of Common Stock also agree to be bound by such restrictions.

(b) If (x) the Corporation shall file a Registration Statement (other than a registration statement (i) on Form S-8 or any successor form thereto, (ii) filed solely in connection with a dividend reinvestment plan or employee benefit plan covering officers or directors of the Corporation or its Affiliates or (iii) on Form S-4 or any successor form thereto, in connection with a merger, acquisition, exchange offer or similar corporate transaction) with respect to an underwritten offering of Shares or similar securities or securities convertible into, or

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exchangeable or exercisable for, such securities and (y) with reasonable prior notice, the managing underwriter or underwriters advise the Corporation in writing (in which case the Corporation shall notify the Holders with a copy of such underwriter’s notice) that a public sale or distribution of securities of the Corporation would materially adversely affect such offering, then, the Corporation shall, to the extent not inconsistent with applicable law and unless such managing underwriter or underwriters otherwise agree, refrain from, directly or indirectly, effecting any public sale, distribution or short sale of any securities of the Corporation (except as part of such underwritten offering) during the applicable Hold Back Period.

Section 5. Registration Procedures. In connection with the registration obligations of the Corporation pursuant to and in accordance with Sections 2 and 3 hereof (and subject to Sections 2 and 3 hereof), the Corporation shall use reasonable best efforts to effect such registration to permit the sale of such Registrable Shares in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Corporation shall as expeditiously as possible (but subject to Sections 2 and 3 hereof):

(a) prepare and file with the SEC a Registration Statement for the sale of the Registrable Shares on any form for which the Corporation then qualifies or which counsel for the Corporation shall deem appropriate, in accordance with such Holders’ intended method or methods of distribution thereof, subject to Section 2(b) hereof, and use reasonable best efforts to cause such Registration Statement to become effective and remain effective as provided herein;

(b) prepare and file with the SEC such amendments (including post-effective amendments) to such Registration Statement, and such supplements to the related Prospectus, as may be required by the applicable rules, regulations or instructions under the Securities Act during the applicable period, in accordance with the intended methods of disposition specified by the Holders of the Registrable Shares covered by such Registration Statement, make generally available earnings statements satisfying the provisions of Section 11(a) of the Securities Act (provided that the Corporation shall be deemed to have complied with this clause if it has complied with Rule 158 under the Securities Act), and cause the related Prospectus as so supplemented to be filed pursuant to Rule 424 under the Securities Act, if necessary; provided, however, that before filing a Registration Statement or Prospectus, or any amendments or supplements thereto (other than reports required to be filed by it under the Exchange Act), the Corporation shall furnish to the Holders of Registrable Shares covered by such Registration Statement and each counsel for such Holders and each managing underwriter, if any, for review and comment, copies of all documents required to be filed;

(c) notify the Holders of any Registrable Shares covered by such Registration Statement promptly and (if requested) confirm such notice in writing, (i) when the Registration Statement, a Prospectus or Prospectus supplement or pre-effective or post-effective amendment thereto has been filed, and, with respect to such Registration Statement or any post-effective amendment, when the same has become effective, (ii) of the receipt by the Corporation of any notification with respect to any comments by the SEC with respect to such Registration Statement or Prospectus or any amendment or supplement thereto or of any

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request by the SEC for amendments or supplements to such Registration Statement or the related Prospectus or for additional information regarding such Holders, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Corporation of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (v) of the happening of any event that requires the making of any changes in such Registration Statement, Prospectus or documents incorporated or deemed incorporated therein by reference so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading;

(d) use best efforts to obtain the withdrawal of any order suspending the effectiveness of such Registration Statement, or the lifting of any suspension of the qualification or exemption from qualification of any Registrable Shares for sale in any jurisdiction in the United States;

(e) furnish to the Holder of any Registrable Shares covered by such Registration Statement, each counsel for such Holders and each managing underwriter, if any, without charge, one conformed copy of such Registration Statement, as declared effective by the SEC, and of each post-effective amendment thereto, in each case including financial statements and schedules and all exhibits and reports incorporated or deemed to be incorporated therein by reference; and deliver, without charge, such number of copies of the preliminary prospectus, any amended preliminary prospectus, each final Prospectus and any post-effective amendment or supplement thereto, as such Holder may reasonably request in order to facilitate the disposition of the Registrable Shares of such Holder covered by such Registration Statement in conformity with the requirements of the Securities Act;

(f) prior to any public offering of Registrable Shares covered by such Registration Statement, use reasonable best efforts to register or qualify such Registrable Shares for offer and sale under the securities or “blue sky” laws of such jurisdictions as the Holders of such Registrable Shares shall reasonably request in writing and to keep such registrations or qualifications in effect for so long as the Registration Statement covering such Registrable Shares remains in effect; provided, however, that the Corporation shall in no event be required to qualify generally to do business as a foreign corporation or as a dealer in any jurisdiction where it is not at the time so qualified or to take any action that would subject it to taxation in any such jurisdiction where it is not then subject;

(g) upon the occurrence of any event contemplated by Section 5(c)(v) above, prepare a supplement or post-effective amendment to such Registration Statement or the related Prospectus or any document incorporated or deemed to be incorporated therein by reference and file any other required document so that, as thereafter delivered to the purchasers of the Registrable Shares being sold thereunder (including upon the termination of any Delay Period), such Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

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(h) use its best efforts to cause all Registrable Shares covered by such Registration Statement to be listed on each securities exchange, if any, on which similar securities issued by the Corporation are then listed or if no such securities are so listed, to use its best efforts to cause all such Registrable Shares to be listed or quoted on a national securities exchange, the NASD Over The Counter Bulletin Board, or the Nasdaq Stock Market and, if quoted on the Nasdaq Stock Market, use its best efforts to secure designation of all such Registrable Shares as “NASDAQ Securities” within the meaning of Rules 11Aa2-1 and 11Aa3-1 promulgated under the Exchange Act or, failing that, to secure Nasdaq Stock Market authorization for such Registrable Shares and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Shares with the NASD;

(i) on or before the effective date of such Registration Statement, provide the transfer agent of the Corporation for the Registrable Shares with printed certificates for the Registrable Shares covered by such Registration Statement, which are in a form eligible for deposit with The Depository Trust Company;

(j) make available for inspection by any Holder of Registrable Shares included in such Registration Statement, any underwriter participating in any offering pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such Holder or underwriter (collectively, the “Inspectors”), all financial and other records and other information, pertinent corporate documents and properties of any of the Corporation, its subsidiaries and Affiliates (collectively, the “Records”), as shall be reasonably necessary to enable them to exercise their due diligence responsibilities; provided, however, that the Records that the Corporation determines, in good faith, to be confidential and which it notifies the Inspectors in writing are confidential shall not be disclosed by any Inspector unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement in, or omission from, such Registration Statement or Prospectus, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or (iii) such Records have been made generally available to the public; provided further, however, that (A) any decision regarding the disclosure of information pursuant to subclause (i) shall be made only after consultation with counsel for the applicable Inspectors and the Corporation and (B) with respect to any release of Records pursuant to subclause (ii), each holder of Registrable Shares agrees that it shall, promptly after learning that disclosure of such Records is sought in a court having jurisdiction, give notice to the Corporation so that the Corporation, at the Corporation’s expense, may undertake appropriate action to prevent disclosure of such Records; and

(k) if such offering is an underwritten offering, enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other appropriate and reasonable actions requested by the managing underwriters or the Holders of a majority of the Registrable Shares being sold in connection therewith in order to expedite or facilitate the disposition of such Registrable Shares, and in such connection, (i) cause its counsel to provide opinions and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters and counsel to the Holders of the Registrable Shares being sold), addressed to each selling Holder of Registrable Shares covered by such Registration

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Statement and each of the underwriters as to the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such counsel and underwriters, (ii) cause its independent certified public accountants to provide “cold comfort” letters and updates thereof (and, if necessary, any other independent certified public accountants of any subsidiary of the Corporation or of any business acquired by the Corporation for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each selling Holder of Registrable Shares covered by the Registration Statement (unless such accountants shall be prohibited from so addressing such letters by applicable standards of the accounting profession) and each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in “cold comfort” letters in connection with underwritten offerings and (iii) if requested and if an underwriting agreement is entered into, provide indemnification provisions and procedures reasonably requested by such underwriters. The above shall be done at each closing under such underwriting or similar agreement, or as and to the extent required under such agreements. The Corporation may require each Holder of Registrable Shares covered by a Registration Statement to furnish such information in writing regarding such Holder and such Holder’s intended method of disposition of such Registrable Shares as it may from time to time reasonably request in writing. If any such information is not furnished by a Holder of Registrable Shares within a reasonable period of time after receipt of such request, the Corporation may exclude such Holder’s Registrable Shares from such Registration Statement. Each Holder of Registrable Shares covered by a Registration Statement agrees that, upon receipt of any notice from the Corporation of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(iv) or 5(c)(v) hereof, that such Holder shall forthwith discontinue disposition of any Registrable Shares covered by such Registration Statement or the related Prospectus until receipt of the copies of the supplement or amendment to such Prospectus or any document incorporated or deemed to be incorporated therein by reference, contemplated by Section 5(g) hereof, or until such Holder is advised in writing by the Corporation that the use of the applicable Prospectus may be resumed (such period during which disposition is discontinued being an “Interruption Period”) and, if requested by the Corporation, the Holder shall deliver to the Corporation (at the expense of the Corporation) all copies then in its possession, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Registrable Shares at the time of receipt of such request. Each Holder of Registrable Shares covered by a Registration Statement further agrees not to utilize any material other than the applicable current preliminary prospectus or Prospectus in connection with the offering and/or sale of such Registrable Shares.

Section 6. Registration Expenses. Whether or not any Registration Statement is filed or becomes effective, but subject to

Section 2(e) hereof, the Corporation shall pay all costs, fees and expenses incident to the Corporation’s performance of or compliance with this Agreement, including (i) all registration and filing fees, including NASD filing fees, (ii) all fees and expenses of compliance with securities or “blue sky” laws, including reasonable fees and disbursements of counsel in connection therewith, (iii) printing expenses (including expenses of printing certificates for Registrable Shares and of printing prospectuses if the printing of prospectuses is requested by the Holders of the Registrable Shares being sold or the managing underwriters, if any), (iv) messenger, telephone and delivery expenses, (v) fees and disbursements of counsel for the Corporation, (vi) fees and disbursements of all independent certified public accountants of

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the Corporation (including expenses of any “cold comfort” letters required in connection with this Agreement) and all other persons retained by the Corporation in connection with such Registration Statement, (vii) reasonable fees and disbursements of one counsel, per Registration, selected by the Holders of a majority of the Registrable Shares being registered, to represent all such Holders; provided, however, that, in the case of a Registration pursuant to Section 3 hereof, the Corporation shall only be required to pay such fees and disbursements of one counsel, per Registration, to represent all holders of securities exercising “piggyback” registration rights in such Registration (which counsel shall not represent the Corporation and shall be acceptable to the Holders of a majority of the Registrable Shares being registered in their sole discretion), (viii) fees and disbursements of underwriters customarily paid by the issuers or sellers of securities and (ix) all other costs, fees and expenses incident to the Corporation’s performance or compliance with this Agreement. Notwithstanding the foregoing, any discounts, commissions or brokers’ fees or fees of similar securities industry professionals and any transfer taxes relating to the disposition of the Registrable Shares by a Holder, will be payable by such Holder and the Corporation will have no obligation to pay any such amounts.

Section 7. Underwriting Requirements. (a) Subject to Section 7(b) hereof, the Holders shall have the right, by written notice, to require that any Demand Registration provide for an underwritten offering.

(b) In the case of any underwritten offering pursuant to a Demand Registration, the Holders of a majority of the Registrable Shares to be registered in connection therewith shall select the institution or institutions that shall manage or lead such offering, which institution or institutions shall be satisfactory to the Corporation, in its sole and absolute discretion. In the case of any underwritten offering pursuant to a Piggyback Registration in connection with a public offering of Shares for the account of the Corporation, the Corporation shall select the institution or institutions that shall manage or lead such offering. No Holder shall be entitled to participate in an underwritten offering unless and until such Holder has entered into an underwriting or other agreement with such institution or institutions for such offering in such form as the Corporation and such institution or institutions shall determine.

Section 8. Indemnification.

(a) Indemnification by the Corporation. The Corporation shall, without limitation as to time, indemnify and hold harmless, to the full extent permitted by law, each Holder of Registrable Shares whose Registrable Shares are covered by a Registration Statement or Prospectus, the shareholders, members, partners, officers, directors and agents and employees of each of them, any other Person acting on behalf of each such Holder, each Person who controls each such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the shareholders, members, partners, officers, directors, agents and employees of each such controlling Person, to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, judgments, costs (including, without limitation, costs of investigation, preparation and reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or based upon any untrue or alleged untrue statement of a material fact contained in such Registration Statement or Prospectus or any amendment or supplement thereto, or any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to

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make the statements therein (in the case of a Prospectus, in the light of the circumstances under which they were made) not misleading, except insofar as the same are based upon information furnished in writing to the Corporation by or on behalf of any such Holder expressly for use therein.

(b) Indemnification by Holders. In connection with any Registration Statement in which a Holder is participating, such Holder shall, without limitation as to time, severally and not jointly indemnify and hold harmless, to the full extent permitted by law, the Corporation, its shareholders, directors, officers, agents and employees, any other Person acting on behalf of the Corporation, each Person who controls the Corporation (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act) and the shareholders, members, partners, directors, officers, agents or employees of such controlling Persons, from and against any and all Losses arising out of or based upon any untrue or alleged untrue statement of a material fact contained in such Registration Statement or the related Prospectus or any amendment or supplement thereto, or any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus, in the light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue or alleged untrue statement or omission or alleged omission is based upon any information furnished in writing by or on behalf of such Holder to the Corporation expressly for use in such Registration Statement or Prospectus. Each Holder’s indemnity obligations under this Section 8 shall be limited to the total sales proceeds (net of all underwriting discounts and commissions) actually received by such Holder in connection with the applicable offering.

(c) Conduct of Indemnification Proceedings. If any Person shall be entitled to indemnity hereunder (an “indemnified party”), such indemnified party shall give prompt notice to the party from which such indemnity is sought (the “indemnifying party”) of any claim or of the commencement of any proceeding with respect to which such indemnified party seeks indemnification or contribution pursuant hereto; provided, however, that the delay or failure to so notify the indemnifying party shall not relieve the indemnifying party from any obligation or liability except to the extent that the indemnifying party has been prejudiced by such delay or failure. The indemnifying party shall have the right, exercisable by giving written notice to an indemnified party promptly after the receipt of written notice from such indemnified party of such claim or proceeding, to assume, at the indemnifying party’s expense, the defense of any such claim or proceeding, with counsel reasonably satisfactory to such indemnified party; provided, however, that (i) an indemnified party shall have the right to employ separate counsel in any such claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless: (1) the indemnifying party agrees to pay such fees and expenses; (2) the indemnifying party fails promptly to assume the defense of such claim or proceeding or fails to employ counsel reasonably satisfactory to such indemnified party; or (3) the named parties to any proceeding (including impleaded parties) include both such indemnified party and the indemnifying party, and such indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it that are inconsistent with those available to the indemnifying party or that a conflict of interest is likely to exist among such indemnified party and any other indemnified parties (in which case the indemnifying party shall not have

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the right to assume the defense of such action on behalf of such indemnified party); and (ii) subject to clause (3) above, the indemnifying party shall not, in connection with any one such claim or proceeding or separate but substantially similar or related claims or proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one firm of attorneys (together with appropriate local counsel) at any time for all of the indemnified parties, or for fees and expenses that are not patently unreasonable. Whether or not such defense is assumed by the indemnifying party, such indemnified party shall not be subject to any liability for any settlement made without its consent. The indemnifying party shall not consent to entry of any judgment or enter into any settlement without the consent of the indemnified party unless (i) there is no finding or admission of any violation of any rights of any Person and no effect on any other claims that may be made against the indemnified party, (ii) the sole relief provided is monetary damages that are paid in full by the indemnifying party and (iii) such judgment or settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release, in form and substance reasonably satisfactory to the indemnified party, from all liability in respect of such claim or litigation for which such indemnified party would be entitled to indemnification hereunder.

(d) Contribution. If the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any Losses (other than in accordance with its terms), then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue statement of a material fact or omission or alleged omission to state a material fact, has been taken by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any legal or other fees or expenses incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this Section 8(d), an indemnifying party that is a Holder shall not be required to contribute any amount which is in excess of the amount by which the total proceeds (net of all underwriting discounts and commissions) received by such Holder from the sale of the Registrable Shares sold by such Holder in the applicable offering exceeds the amount of any damages that such indemnifying party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

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Section 9. Additional Registration Rights. The Corporation shall not, without the consent of all of the Holders, grant to any Person any registration rights which have priority over or are otherwise inconsistent with the registration rights granted pursuant to this Agreement.

Section 10. Transferability of Registration Rights. The registration rights set forth in this Agreement are transferable to any transferee or purchaser of Registrable Shares, subject to compliance with any transfer restrictions contained in any agreement with the Corporation. Each such transferee or purchaser of Registrable Shares must consent in writing to be bound by the terms and conditions of this Agreement in order to acquire the rights granted pursuant to this Agreement. Notwithstanding anything contained herein to the contrary, the registration rights set forth in this Agreement may be transferred to any Affiliate of the Securityholder by the Securityholder providing written notice of such transfer to the Corporation.

Section 11. Miscellaneous. (a) Rules 144 and 144A. The Corporation covenants that it will timely file any reports required to be filed by it under the Securities Act and the Exchange Act so as to enable Holders holding Registrable Shares to sell such Registrable Shares (i) without registration under the Securities Act within the limitation of the exemptions provided by (A) Rules 144 and 144A under the Securities Act, as each such Rule may be amended from time to time or (B) any similar rule or rules hereafter adopted by the SEC, so long as the exemptions provided for in such Rules would otherwise be available to such Holders at such time and/or (ii) pursuant to a registration statement on Form S-3 (or any successor form thereto). Upon the request of any such Holder, the Corporation will forthwith deliver to such Holder a written statement as to whether it has complied with the reporting requirements of Rules 144 and 144A or whether it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (or any successor form thereto).

(b) Termination. This Agreement and the obligations of the Corporation and the Holders hereunder (other than Section 8 hereof and except with respect to rights previously exercised in connection with a public offering pursuant to Sections 2 or 3 hereof) shall terminate on the first date on which all of the Holders’ shares of Common Stock can be sold, in the written opinion of counsel for the Corporation, pursuant to subsection (k) of Rule 144 under the Securities Act.

(c) Notices. All notices, demands, requests or other communications that may be or are required to be given, served, or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery (including delivery by internationally recognized overnight courier), or facsimile transmission, addressed as follows:

(i) If to the Corporation:

Allion Healthcare, Inc.

33 Walt Whitman Road

Suite 200A

Huntington Station, NY 11046

with a copy to:

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Belin Lamson McCormick Zumbach Flynn

A Professional Corporation

The Financial Center

666 Walnut, Suite 2000

Des Moines, IA 50309

Attention: Garth D. Adams, Esq.

Facsimile: (515) 558-0664

(ii) If to Securityholder:

Michael Richards, M.D.

Each party may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request or communication shall be deemed to have been duly given at the earlier of its receipt or five Business Days after being deposited in the mail, postage prepaid, if mailed; when delivered by hand, if personally delivered; at the earlier of its receipt or three Business Days following dispatch, if delivered by internationally recognized overnight courier; or upon receipt, if sent by facsimile (followed by a confirmation copy sent by either overnight or two-day courier).

(d) Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, and such invalid, void or otherwise unenforceable provisions shall be null and void. It is the intent of the parties, however, that any invalid, void or otherwise unenforceable provisions be automatically replaced by other provisions which are as similar as possible in terms to such invalid, void or otherwise unenforceable provisions but are valid and enforceable to the fullest extent permitted by law.

(e) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and, subject to Section 10 hereof, their respective heirs, devisees, legatees, legal representatives, successors and assigns.

(f) No Third Party Beneficiary. The terms and provisions of this Agreement are intended solely for the benefit of each party hereto, their respective successors or assigns and any other holder of Registrable Shares, and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person other than any Person entitled to indemnity under Section 8.

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(g) Entire Agreement. This Agreement represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the parties hereto with respect to the subject matter hereof.

(h) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Corporation has obtained the written consent of the Holders of at least a majority in number of the Registrable Shares.

(i) Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

(h) Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be one and the same agreement, and shall become effective when counterparts have been signed by each of the parties and delivered to each other party.

(i) Remedies.

(a) No remedy conferred by any of the provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. The election of any one or more remedies by any party hereto shall not constitute a waiver by any such party of the right to pursue any other available remedies.

(b) It is acknowledged that a breach of the provisions of this Agreement could not be compensated adequately by money damages. Accordingly, any party hereto shall be entitled, in addition to any other right or remedy available to it, to an injunction restraining such breach or threatened breach and to specific performance of any provisions of this Agreement, and in either case no bond or other security shall be required in connection therewith. If any action shall be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law and each of the parties hereto waives any and all defenses it may have on the ground of lack of jurisdiction or competence of the court to grant such injunction or other equitable relief. The existence of this right will not preclude any such Person from pursuing any other rights and remedies at law or in equity which such Person may have.

(k) Governing Law; Consent to Jurisdiction and Venue. IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICTS OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. The parties to this Agreement agree that jurisdiction and venue

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in any action brought by any party hereto pursuant to this Agreement shall properly (but not exclusively) lie in any New York State court located in the City of New York or any federal court of the United States sitting in the Southern District of New York, located in New York County. By execution and delivery of this Agreement, each of the parties hereto irrevocably submits to the jurisdiction of such courts for itself or himself and in respect of its or his property with respect to such action. THE PARTIES HERETO IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN ANY SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT ANY SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION. The parties further agree that the mailing by certified or registered mail, return receipt requested, of any process required by any such court shall constitute valid and lawful service of process against them, without necessity for service by any other means provided by statute or rule of court. Nothing herein shall preclude any party hereto from bringing suit or taking other legal action in any other jurisdiction.

(1) Calculation of Time Periods. Except as otherwise indicated, all periods of time referred to herein shall include all Saturdays, Sundays and holidays; provided, however, that if the date to perform the act or give any notice with respect to this Agreement shall fall on a day other than a Business Day, such act or notice may be timely performed or given if performed or given on the next succeeding Business Day.

[The remainder of this page has been intentionally left blank.]

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IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date and year first written above.

ALLION HEALTHCARE, INC.
By:
Name:	Michael P. Moran
Title:	President and CEO
SECURITYHOLDER:
By:
Name:
Title:

19

EX-10.23

Exhibit 10.23

$6,000,000.00

AMENDMENT NO. 8 AND WAIVER

TO

LOAN AND SECURITY AGREEMENT

originally dated as of April 21, 1999

by and among

ALLION HEALTHCARE, INC.

f/k/a THE CARE GROUP, INC.

MAIL ORDER MEDS OF TEXAS, INC.

f/k/a MAIL ORDER MEDS, INC.

MOMS PHARMACY, INC. (NEW YORK)

f/k/a MAIL ORDER MEDS OF NEW YORK, INC.

MOMS PHARMACY, INC. (CALIFORNIA)

MOMS PHARMACY, LLC

MEDICINE MADE EASY

NORTH AMERICAN HOME HEALTH SUPPLY, INC.

SPECIALTY PHARMACIES, INC.

(“Borrower”)

and

GE HFS HOLDINGS, INC.

f/k/a HELLER HEALTHCARE FINANCE, INC.

(“Lender”)

Amended as of May 18, 2005

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AMENDMENT NO. 8 AND WAIVER TO LOAN AND SECURITY AGREEMENT

THIS AMENDMENT NO. 8 AND WAIVER TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is made as of this      day of May, 2005, by and among ALLION HEALTHCARE, INC. f/k/a THE CARE GROUP, INC., a Delaware corporation (“Allion”), MAIL ORDER MEDS OF TEXAS, INC., a Texas corporation (“Meds Texas”), MOMS PHARMACY, INC. f/k/a MAIL ORDER MEDS OF NEW YORK, INC., a New York corporation, (“Moms New York”), MOMS PHARMACY, INC., a California corporation, (“Moms California”), MOMS PHARMACY, LLC, a Florida limited liability company (“Moms Florida”), MEDICINE MADE EASY, a California corporation (“Medicine Made Easy”), NORTH AMERICAN HOME HEALTH SUPPLY, INC., a California corporation (“North American”), SPECIALTY PHARMACIES, INC., a Washington corporation (“Specialty” and, collectively with Allion, Meds Texas, Moms New York, Moms California, Moms Florida, Medicine Made Easy and North American, the “Borrower”), and GE HFS HOLDINGS, INC f/k/a HELLER HEALTHCARE FINANCE, a Delaware corporation (“Lender”).

RECITALS

WHEREAS, pursuant to that certain Loan and Security Agreement dated April 21, 1999 by and between Borrower and Lender (as previously amended, as amended hereby and as further amended, modified and restated from time to time, the “Loan Agreement”), Lender agreed to make available to Borrower a revolving credit loan (the “Loan”); and

WHEREAS, Borrower has requested that Lender waive a default under the Loan Agreement and make certain modifications to the Loan Agreement, as more fully set forth herein, and Lender is agreeable to such request only on the terms and conditions set forth herein; and

NOW, THEREFORE, in consideration of the foregoing, the terms and conditions set forth in this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and Borrower hereby agree as follows:

Section 1. Definitions. Unless otherwise defined in this Amendment, all capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Loan Agreement.

Section 2. Waiver of Default. Lender hereby waives the default arising solely out of Borrower’s allowing its consolidated tangible net worth, as computed in accordance with GAAP, for the period ending March 31, 2005 to fall below the minimum amount required by Section 6.23 of the Loan Agreement.

Section 3. Amendment to Loan Agreement. As of the Effective Date, Section 6.23 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

“Section 6.23. Net Worth. Borrower will not at any time allow its consolidated tangible net worth, as computed in accordance with GAAP, to fall below the sum

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of (a) (-$11,000,000) (i.e., negative $11,000,000), plus (b) fifty percent (50%) of Borrower’s consolidated net income (as computed in accordance with GAAP) for each fiscal quarter of Borrower (beginning with the fiscal quarter ending June 30, 2005) for which consolidated net income is positive, plus (c) one hundred percent (100%) of the net cash proceeds of any offering by Borrower of common equity consummated after January 1, 2005, plus (d) 100% of any capital contribution made to Borrower or any of its subsidiaries after January 1, 2005 by any holder of Borrower’s capital stock and plus (e) one hundred percent (100%) of any increase in stockholders’ equity on the consolidated balance sheet of Borrower that results from any adjustment to stockholders’ equity during any fiscal month of Borrower. ‘Tangible net worth’ means assets (excluding intangible assets) less liabilities. ‘Intangible assets’ means all intangible assets (determined in conformity with GAAP) including, without limitation, goodwill, intellectual property, licenses, organizational costs, deferred amounts, covenants not to compete, unearned income and restricted funds. Lender shall verify Borrower’s compliance with this section by review of Borrower’s internally prepared monthly financial statements and annual audited financial statements, which are required to be delivered to Lender pursuant to Section 6.1.”

Section 4. Confirmation of Representations and Warranties. Each Borrower hereby (a) confirms that all of the representations and warranties set forth in Article IV of the Loan Agreement are true and correct with respect to such entity (except to the extent such representation or warranty relates to a particular date, in which case, such confirmation relates to such date), and (b) specifically represents and warrants to Lender that it has good and marketable title to all of its Collateral, free and clear of any lien or security interest in favor of any other person or entity.

Section 5. Fees; Expenses. Notwithstanding anything in this Amendment to the contrary, Borrower shall be responsible for payment of legal fees for the services of Lender’s in-house counsel in connection with the preparation of this Amendment. Lender shall be entitled to deduct, and Borrower by its signature below hereby authorizes Lender to deduct, the full amount of the fees set forth in this Section 6 from the proceeds of the next subsequent Revolving Credit Loan made by Lender under the Loan Agreement (as amended hereby).

Section 6. Enforceability. This Amendment constitutes the legal, valid and binding obligation of each Borrower and Lender, and is enforceable against each Borrower and Lender in accordance with its terms.

Section 7. Conditions to Effectiveness. This Amendment shall become effective on the date that all of the following conditions are satisfied in Lender’s sole discretion (such date, the “Effective Date”):

(a) Lender shall have received two (2) originals of this Amendment duly executed by an authorized officer of each entity comprising Borrower;

(b) Lender shall have received an Amendment and Waiver Fee of Ten Thousand Dollars ($10,000);

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(c) there shall have occurred and be continuing no Event of Default and no event which, with the giving of notice or the lapse of time or both, could constitute such an Event of Default and, after giving effect to this Amendment, there shall have occurred no Event of Default and no Event which, with the giving of notice or lapse of time or both, could constitute an Event of Default; and

(d) the representations and warranties set forth in Section 4 of this Amendment and in Article IV of the Loan Agreement shall be true and correct as of the date hereof and after giving effect to this Amendment (unless any such representation or warranty by its terms is intended to refer specifically to any earlier date, in which case such representation or warranty shall have been true and correct as of such date).

Section 8. Reference to the Effect on the Loan Agreement.

(a) Upon the effectiveness of this Amendment, each reference in the Loan Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of similar import shall mean and be a reference to the Loan Agreement as amended by this Amendment.

(b) Except as specifically amended above, the Loan Agreement, and all other Loan Documents, shall remain in full force and effect, and are hereby ratified and confirmed.

(c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided in this Amendment, operate as a waiver of any right, power or remedy of Lender, nor constitute a waiver of any provision of the Loan Agreement, or any other documents, instruments and agreements executed or delivered in connection with the Loan Agreement. The granting of the waiver hereunder shall not impose or imply an obligation on Lender to grant a waiver on any future occasion.

Section 9. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Maryland without regard to any otherwise applicable conflicts of law principles.

Section 10. Headings. Section headings in this Amendment are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

Section 11. Counterparts. This Amendment may be executed in counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument.

[SIGNATURES ON NEXT PAGE]

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IN WITNESS WHEREOF, the parties have caused this Amendment No. 8 and Waiver to Loan and Security Agreement to be executed as of the date first written above.

LENDER:

GE HFS HOLDINGS, INC.,

a Delaware corporation

By:

Name:

Title:

BORROWERS:

ALLION HEALTHCARE, INC.,

a Delaware corporation

By:

Name:

Title:

MAIL ORDER MEDS OF TEXAS, INC.,

a Texas corporation

By:

Name:

Title:

MOMS PHARMACY, INC.,

a New York corporation

By:

Name:

Title:

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MOMS PHARMACY, INC.,

a California corporation

By:

Name:

Title:

MOMS PHARMACY, LLC,

a Florida limited liability company

By:

Name:

Title:

MEDICINE MADE EASY,

a California corporation

By:

Name:

Title:

NORTH AMERICAN HOME HEALTH SUPPLY, INC.,

a California corporation

By:

Name:

Title:

SPECIALTY PHARMACIES, INC.,

a Washington corporation

By:

Name:

Title:

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EX-10.24

Exhibit 10.24

NONCOMPETITION

AND NONSOLICITATION AGREEMENT

THIS NONCOMPETITION AND NONSOLICITATION AGREEMENT is made as of the 27th day of August 2002 (the “Start Date”), by and between ALLION HEALTHCARE, INC., a New York corporation (“Allion”) and Mike Lynn Salthouse (the “Employee”).

WITNESSETH

WHEREAS, it is a condition precedent to the consummation of the transactions contemplated by the offer of employment that the parties hereto execute and deliver this Agreement.

NOW, THEREFORE, in consideration of the premises and the covenants and agreements hereinafter contained, and in consideration of each of the parties hereto entering into this Agreement, and intending to be legally bound hereby, the parties agree as follows:

1. Covenant Not to Compete. During the period of employment and for a period of one (1) year from the termination of employment (the “Restricted Period”) the Employee agrees that he or she will not become engaged in or associated in any capacity with, employed by or financially interested in any enterprise, firm or corporation which is engaged in a business competitive to Allion within a fifty (50) mile radius of Allion.

2. Confidentiality. The Employee acknowledges that in connection with his or her association with Allion, the Employee will acquire and make use of confidential information and trade secrets (the “Confidential Information”) of Allion related to the business of Allion, including, financial statements, internal memoranda, reports, customer lists, patient records and other materials or records of proprietary nature. In order to protect the Confidential Information, the Employee agrees that he or she will not, during the Restricted Period and for so long as any such Confidential Information may remain confidential, secret or otherwise wholly or partially protectable, exploit or use such information except in connection with his or her association with Allion or divulge the Confidential Information to any third party, unless Allion consents in writing to such exploitation, use or divulgence or the Employee is under a clear legal duty so to divulge and the Employee informs Allion of such duty. Upon termination of association with Allion, the Employee shall deliver to Allion all equipment, records and copies of records of Allion or any subsidiary of Allion which are then in his or her possession.

3. Non-Solicitation. During the Restricted Period, the Employee shall not (i) solicit, assist in the solicitation of, accept without solicitation, or place or cause to be placed, any business from or for the account of any Existing Clients (hereinafter defined) of Allion, or directly or indirectly, request any Existing Client to withdraw or cancel or change any of its business with Allion or any of its affiliates, (ii) hire or be interested in, or be employed by, directly or indirectly, any business entity which shall hire, with the Employee’s direct or indirect participation, any person who has worked for Allion or any of its affiliates during the two (2) year period immediately following the Restricted Period, or (iii) directly or indirectly urge or attempt to urge, request, advise, entice or attract any employee of Allion or any of its affiliates

for any reason or purpose whatsoever. For the purposes of this Section 3, “Existing Clients” means any person or entity with which Allion or any of its affiliates has done business at any time during the two-year period preceding the Start Date, and for any person or entity with which Allion or any of its affiliates has done business at any time during the one year period following the Start Date.

4. Reasonableness. The parties agree that the time span, scope and the area covered by Sections 1, 2 and 3 of Agreement are reasonable and necessary to protect Allion from competing efforts. If, however, it shall be judicially determined that any provision of Sections 1, 2 or 3 of this Agreement is unreasonably broad in one or more respects, such provision shall not be declared invalid but rather shall be modified to the extent that it shall be determined reasonable. The existence of any claim or cause of action of the Employee against Allion, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Allion of the provisions of Sections 1, 2 and 3 of this Agreement. The Employee acknowledges that the consideration received by him in connection herewith is adequate consideration for the obligations of the Employee hereunder.

5. Remedies. The Employee acknowledges that a breach of Sections 1, 2 or 3 of this Agreement would result in irreparable damage to Allion, and, without limiting other remedies which may exist for a breach of Sections 1, 2 and 3, and the Employee agrees that Sections 1, 2 and 3 may be enforced by temporary restraining order, temporary injunction and permanent injunction restraining violation hereof, pending or following trial on the merits. The Employee hereby further waives the claim or defense that an adequate remedy at law for such breach exists or that irreparable injury will not occur. The Employee hereby further waives any requirement for securing or posting a bond in connection with Allion obtaining any such injunctive or other equitable relief.

6. Notice. Any and all notices, designations, consents, offers, acceptances or any other communication provided for herein shall be given in writing and personally delivered or sent by United States certified mail, return receipt requested, postage prepaid, which shall be addressed, in the case of Allion, to its principal office in the State of New York, and in the case of the Employee, to his or her last known address as reflected in Allion’s records. Notices sent by United States certified mail will be deemed received on the second business day following mailing.

7. Governing Law. This Agreement shall be subject to and governed by the laws of the State of New York, irrespective of the fact that the Employee is or may become a resident of a different state.

8. Invalid Provision. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted.

9. Binding Effect. This Agreement shall be binding upon Allion, the Employee and their respective heirs, legal representatives, executors, administrators, successors and assigns. Any rights given or duties imposed upon the estate of the Employee upon his or her

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death shall inure to the benefit of and be binding upon the fiduciary of the decedent’s estate in his or her fiduciary capacity.

10. Entire Agreement. No change or modification of this Agreement shall be valid unless the same shall be in writing and signed by the Employee and Allion. No waiver of any provision of this Agreement shall be valid unless it is in writing.

IN WITNESS WHEREOF, the parties hereto have executed this Noncompetition and Nonsolicitation Agreement as of the date first above written.

ALLION HEALTHCARE, INC.

By: /s/ Michael P. Moran                      

Name: Michael P. Moran

Title:   President & CEO

/s/ MikeLynn Salthouse                        

Mike Lynn Salthouse

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EX-14.1

Exhibit 14.1

ALLION HEALTHCARE, INC.

CODE OF ETHICS

I. PURPOSE

The Board of Directors (the “Board”) of Allion Healthcare, Inc. (the “Company”) has adopted this Code of Ethics for its employees, officers and directors. This Code of Ethics is intended to deter wrongdoing and promote honest and ethical conduct, compliance with laws and accountability. The individuals subject to this Code of Ethics are accountable to the Company and its constituents for adherence to this Code of Ethics. Failure to observe the terms of this Code of Ethics may result in disciplinary action including termination of employment. Violations of this Code of Ethics may also constitute violations of law and may result in civil and criminal penalties.

After reading this Code of Ethics, each director, officer and employee must sign and return an acknowledgment that he or she has read, understands and to the best of his or her knowledge, is complying with the various provisions of this Code of Ethics.

II. COMPLIANCE WITH APPLICABLE LAWS

All employees, officers and directors of the Company are required to comply with all of the laws, rules and regulations of the U.S. and other countries, and the states, counties, cities and other jurisdictions, applicable to the Company or its business.

The Company will designate a Compliance Officer by appointment of the Board to administer this Code of Ethics. The Company will provide to all employees, officers and directors and post on such website the name of the Compliance Officer and instructions on how to contact the Compliance Officer. Employees, officers and directors will be made aware of any changes to the Compliance Officer. Employees, officers or directors may, at their discretion, make any report or complaint provided for in this Code of Ethics to the Compliance Officer. The Compliance Officer will refer complaints submitted, as appropriate, to the Board or an appropriate Committee of the Board.

This Code of Ethics does not summarize all laws, rules and regulations applicable to the Company and its employees, officers and directors. It is a guide that highlights key issues. Please consult the Compliance Officer regarding the various guidelines which the Company has prepared on specific laws, rules and regulations.

III. CONFLICTS OF INTEREST

All employees, officers and directors of the Company shall act with honesty and integrity avoiding actual or apparent conflicts of interest in personal and professional relationships. A conflict of interest may exist whenever the private interests of an employee, officer or director conflict in any way (or even appear to conflict) with the interests of the Company. A conflict situation can arise when an employee, officer or director takes actions or has interests that may make it difficult to perform his or her work for the Company objectively. Conflicts of interest may also arise when an employee, officer or director, or a member of his or her family, receives improper personal benefits as a result of his or her position in the Company, whether received from the Company or a third party. Loans to, or guarantees of obligations of, employees, officers and directors and their respective family members may create conflicts of interest. Federal law prohibits loans to directors and executive officers. In addition, it is almost always a conflict of interest for a Company employee or officer to work simultaneously for a competitor, customer or supplier.

In addition, directors and officers must disclose to the Company’s Audit Committee any material transaction or relationship that could reasonably be expected to give rise to a conflict of interest. The Company’s Audit Committee will review and address any potential conflicts of interest and related party transactions.

Although it is not always possible to avoid conflicts of interest, it is the Company’s policy to prohibit such conflicts when possible. Conflicts of interest may not always be clear-cut, so if you have a question, you should consult with a member of management or the Compliance Officer. Any employee, officer or director who becomes aware of a conflict or potential conflict should bring it to the attention of a supervisor, corporate officer or the Compliance Officer.

IV. FALSE CLAIMS

Federal law prohibits healthcare providers from making false claims for reimbursement. No employee shall knowingly present (or cause to be presented) a false or fraudulent claim for payment to a patient, the Medicare or Medicaid programs, any other federal health care program or any other third-party payor. No employee shall knowingly use, make or cause to be used or made a false statement or record for the purpose of obtaining reimbursement from any health care benefit program. And, no employee shall knowingly file a false claim on behalf of any physician, clinic or other entity, where the Company acts as billing agent. Prior to submitting a claim for reimbursement, employees should use their best efforts to: ascertain that (a) the prescribed drugs, medical supplies or health care services have actually been provided; (b) the charge accurately reflects the appropriate charge for drugs, supplies or services rendered; (c) a prior authorization, prescription or statement of medial necessity supports the medical necessity for such items or services; and (d) other applicable regulatory requirements for reimbursement have been met.

Examples of the types of actions that could violate the Federal False Claims Act (31 U.S.C. 3729) include:

• Filing a claim for items or services that were not prescribed at all or were not rendered as described on the claim form;

• Filing a claim for items or services that were provided, but which you know were not necessary: or

• Submitting a claim containing information you know to be false.

If you believe in good faith that improper claims for reimbursement are being (or have been) submitted to the Medicare or Medicaid programs, to any other federal or state health care program, or to any third-party payor, you should report such activity to your supervisor and to the Compliance Officer.

If a Company employee has concerns about the propriety of billing practices, the employee should contact his supervisor or the Compliance Officer.

V. NO PAYMENT FOR PATIENT REFERRALS AND ANTI-KICKBACK ISSUES

There are a number of laws, both federal and state, governing Medicare and Medicaid and other federal health programs. These laws prohibit anything of value (including, without limitation, money, a discount, trips) in return for the referral of patients from Medicare or Medicaid or to induce the purchase of goods or services to be paid for by such programs.

Specifically under federal law, no employee shall solicit or receive, or offer to pay or pay any remuneration of any type to any person (including kickbacks, bribes, or rebates) in

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return for referring or recommending the referral of an individual to another person, homecare, hospital or medical facility for services or in return for the purchase of goods or services to be paid for by Medicare or Medicaid. The law further prohibits giving anything of value to any individual (including patients) eligible for benefits from a federal or state health care program to influence or induce such individual to order or receive from a particular provider any item or service for which payment may be made, in whole or part from such program except that incentives given to individuals to promote the delivery of preventative care are excluded from this prohibition.

Examples of the types of actions that would violate this law include the following:

• Offering anything of value to induce someone to buy an item or service from the Company;

• Offering anything of value to induce someone to refer a patient to the Company; or

• Offering any cash payments to anyone in marketing the Company’s products or services.

The law also prohibits: (1) physicians from making referrals of Medicare or Medicaid patients, for certain designated health services, to entities in which the physician has a financial interest (either through ownership or a compensation arrangement); and (2) entities from billing for services rendered as a result of the prohibited referral.

Many states (have also enacted similar legislation prohibiting the payments and referrals described above for patients not covered by Medicare, Medicaid, or other federal health care programs. The Company expects employees to fully comply with applicable laws in connection with all of the Company’s financial arrangements with physicians. The Company expects that no employee shall offer or grant any benefit to a referring physician or other referral source on the condition that such physician or referral source refer or agree to refer any patients to the Company. Neither will an employee accept or solicit any benefit in exchange for directing referrals to a third party. Examples of the types of actions that would violate this law include the following:

• Paying money and other benefits to physicians, clinics and other referral sources in order to induce the doctors and referral sources to refer patients to the Company;

• Additional benefits for high-revenue producing doctors;

• Termination of contractual arrangements with physicians or clinics that do not refer a certain number of patients to the Company;

• Providing money to doctors or others in the form of research grants, consulting agreements and marketing agreements when the money and benefits are paid, in part, with the intent to induce referrals;

• Acceptance of cash or other benefits (other than lawful discounts) from other vendors or suppliers in return for directing referrals; and

• Using your credit card to pay a patient’s co-pay or deductible to induce the patient to use our services.

This Code of Ethics is merely a summary of some typical situations and does not list all situations in which the antikickback or patient referral laws apply; and you should use

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caution when engaging in transactions that involve referral sources, other health care providers, and/or manufacturers or suppliers of pharmaceuticals, durable medical equipment or other supplies. If you believe that an illegal arrangement has been, or may be, entered into involving the Company and a referral source or a vendor of goods or services, or if you believe that any other law governing Medicare or Medicaid may have been violated, you should report such arrangement immediately to your supervisor or the Compliance Officer.

VI. GOVERNMENT INVESTIGATIONS

Various governmental bodies that regulate the healthcare industry may inquire as to our licensure, make a site visit, or otherwise inquire as to our business operations. Some of these inquiries and investigations are routine and result from our application for licenses and provider numbers. Sometimes, government inquiries occur as a result of routine audits or a complaint which the government has a legal obligation to investigate. An inquiry about our Company does not suggest in any way that there has been negligence or impropriety.

We respect the government’s right to conduct a lawful and proper inquiry, just as we have the right to demand that it be done in a lawful and proper fashion. The Company expects you to abide by the Company’s policy regarding governmental investigations.

If you become aware of or are contacted, in person or by telephone, or otherwise, in connection with any investigation, you should immediately contact your supervisor and the Compliance Officer. The following is a sample list of federal and state government agencies:

• Department of Health and Human Services (DHHS)

• Federal Bureau of Investigation (FBI)

• Center for Medicare and Medicaid Services (CMS)

• Office of the Inspector General (OIG)

• Medicare Intermediaries/Carriers/DMERCs

• Drug Enforcement Agency (DEA)

• State Medicaid Program

• Medicaid Fraud Control Unit

• State Attorney General’s Office

• Federal Drug Administration (FDA)

• State Boards of Pharmacy

• Internal Revenue Service (IRS)

• State Departments of Revenue

• Equal Employment Opportunity Commission (EEOC)

• U. S. Attorney’s Office

• Department of Justice (DOJ)

If you are contacted by a representative of a government organization please follow the Company’s policy as set forth in this Code of Ethics.

VII. CORPORATE OPPORTUNITY

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Except as may be approved by the Board or a committee of independent directors, employees, officers and directors are prohibited from (a) taking for themselves personally opportunities that belong to the Company or are discovered through the use of corporate property, information or position; (b) using corporate property, information or position for personal gain; and (c) competing with the Company.

VIII. INSIDE INFORMATION AND SECURITIES TRADING

The Company’s directors, officers or employees who have access to material, non-public information are not permitted to use that information for stock trading purposes or for any purpose unrelated to the Company’s business. It is also against the law to trade or to “tip” others who might make an investment decision based on inside company information. For example, using non-public information to buy or sell Company stock, options in Company stock or the stock of an Company supplier, customer or competitor is prohibited (See the Company’s Insider Trading Policy for more specific information on the Company’s policies.) The consequences of insider trading violations can be severe. These rules also apply to the use of material, nonpublic information about other companies (including, for example, our customers, competitors and potential business partners). In addition to employees, these rules apply to an employee’s spouse, children, parents and siblings, as well as any other family members living in the employee’s home.

IX. CONFIDENTIALITY

All employees, officers and directors, must maintain the confidentiality of confidential information entrusted to them by the Company or its suppliers or customers, except when disclosure is authorized by the Company or required by laws, regulations or legal proceedings. Confidential information includes, but is not limited to, non-public information that might be of use to competitors of the Company, or harmful to the Company or its customers if disclosed. Whenever feasible, employees, officers and directors should consult the Compliance Officer if they believe they have a legal obligation to disclose confidential information.

X. HARASSMENT

Abusive, harassing or offensive conduct is unacceptable, whether verbal, physical or visual. This includes any demeaning, insulting, embarrassing or intimidating behavior directed at any employee related to race, color, sex, national origin, age, religious creed, physical or mental disability, marital status, pregnancy, sexual orientation, veteran status, citizenship or another characteristic protected by law. Unwelcome sexual advances or physical contact, sexually oriented gestures and statements, and the display or circulation of sexually oriented pictures, cartoons, jokes or other material are specifically banned. This Code of Ethics prohibits retaliation against any employee who rejects, protests, or complains about sexual harassment.

XI. FAIR DEALING

Each employee, officer and director should endeavor to deal fairly with the Company’s customers, suppliers, competitors, officers and employees. None should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair dealing practice. Stealing proprietary information, misusing trade secret information that was obtained without the owner’s consent, or inducing such disclosures by past or present employees of other

5

companies is prohibited. Officers and employees must disclose at the commencement of their employment the existence of any employment agreement, non-compete or non-solicitation agreement, confidentiality agreement or similar agreement with a former employer that in any way restricts or prohibits the performance of any duties or responsibilities of their positions with the Company. Copies of such agreements should be provided to the Company to permit evaluation of the agreement in light of the employee’s position. In no event shall an employee use any trade secrets, proprietary information or other similar property, acquired in the course of his or her employment with another employer, in the performance of his or her duties for or on behalf of the Company.

XII. FRAUD

The Company is committed to the elimination of fraud, to the rigorous investigation of any suspected cases of fraud, and, where fraud or other criminal act is proven, to ensure that wrongdoers are appropriately sanctioned.

If an employee believes they have good reason to suspect a colleague or other person of a fraud or an offense involving the Company or a serious infringement of the Company’s rules, such as:

• theft of Company property;

• abuse of Company property or abuse of a position or trust; or

• deception or falsification of records (e.g. fraudulent time or expense claims)

the employee should take the action outlined in the section entitled “Reporting Any Illegal or Unethical Behavior.”

XIII. PROTECTION AND PROPER USE OF COMPANY ASSETS

All employees, officers and directors should protect the Company’s assets and ensure their efficient use. Theft, carelessness, and waste have a direct impact on the Company’s profitability. All Company assets should be used for legitimate business purposes. Directors, officers and employees are to use the Company’s assets according to all of the Company’s policies and procedures, comply with security programs and copyrights or trademarks that prevent their unauthorized use or theft, and abide by all regulations or contractual agreements governing their use.

XIV. ACCURACY OF RECORDS

The Company requires honest and accurate recording and reporting of information in order to make responsible business decisions. This includes such data as quality, safety, and personnel records, as well as all financial records.

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All financial books, records and accounts must accurately reflect transactions and events, and conform both to required accounting principles and to Company’s system of internal controls. No false or artificial entries may be made, no undisclosed or unrecorded funds or assets may be maintained and no inaccurate or inflated work hours may be reported. When a payment is made, it can only be used for the purpose spelled out in the supporting document.

XV. IMPROPER INFLUENCE ON CONDUCT OF AUDITS

No director or officer, or any other person acting under the direction thereof, shall directly or indirectly take any action to coerce, manipulate, mislead or fraudulently influence any public or certified public accountant engaged in the performance of an audit or review of the financial statements of the Company if that person knows or should know that such action, if successful, could result in rendering Company’s financial statements materially misleading. Any person who believes such improper influence is being exerted should contact the Compliance Officer to report such action.

Types of conduct that could constitute improper influence include, but are not limited to, directly or indirectly:

• Offering or paying bribes or other financial incentives, including future employment or contracts for non-audit services;

• Providing an auditor with an inaccurate or misleading legal analysis;

• Threatening to cancel or canceling existing non-audit or audit engagements if the auditor objects to the Company’s accounting;

• Seeking to have a partner removed from the audit engagement because the partner objects to the Company’s accounting;

• Blackmailing; and

• Making physical threats.

XVI. ACCOUNTING COMPLAINTS

The Company’s policy is to comply with all applicable financial reporting and accounting regulations applicable to the Company. Employees, officers or directors who have concerns or complaints regarding questionable accounting or auditing practices are encouraged to promptly submit those concerns or complaints (anonymously, confidentially or otherwise) to the Audit Committee of the Board which will, subject to its duties arising under applicable laws, regulations and legal proceedings, treat such submissions confidentially. Such submissions may be directed to the attention of the Chairman of the Audit Committee, at the principal executive offices of the Company.

XVII. REPORTING ANY ILLEGAL OR UNETHICAL BEHAVIOR

Employees are encouraged to talk to supervisors, managers or other appropriate personnel about observed illegal or unethical behavior and, when in doubt, about the best course of action in a particular situation. Any employee, officer or director who believes that a violation of this Code of Ethics or other illegal or unethical conduct by any employee,

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officers or director has occurred or may occur should promptly contact a supervisor, a corporate officer, or the Compliance Officer. Such reports may be made confidentially or anonymously. Confidentiality will be protected, subject to applicable law, regulation or legal proceedings.

XVIII. NO RETALIATION

The Company will not permit retaliation of any kind by or on behalf of the Company and its employees, officers and directors against good faith reports or complaints of violations of this Code of Ethics or other illegal or unethical conduct.

XIX. PUBLIC COMPANY REPORTING

When we become a public company, it will be of critical importance that the Company’s filings with the Securities and Exchange Commission be accurate and timely. Depending on their respective positions with the Company, employees, officers or directors may be called upon to provide information necessary to assure that the Company’s public reports are complete, fair and understandable. The Company expects employees, officers and directors to take this responsibility very seriously and to provide prompt and accurate answers to inquiries related to the Company’s public disclosure requirements.

XX. INQUIRIES FOR INFORMATION

The Company must be made aware of any inquiries from the government, the financial/analyst community or the media so that it can properly and thoroughly respond. If an employee is contacted by a representative of the governmental agency seeking an interview or making a request for documents, that employee should immediately contact James G. Spencer so that appropriate arrangements can be made to fully comply with the Company’s legal obligations. Even if you believe you can respond to questions, no employee is authorized to speak with analysts or members of the media unless specifically authorized. All inquiries from the financial/analyst community and the media should be referred to James G. Spencer.

XXI. AVAILABILITY AND WAIVERS OF CODE

This Code of Ethics is publicly available at the Company’s website (www.allionhealthcare.com) and to any stockholder who requests it free of charge upon written request to the Secretary of the Company at 1660 Walt Whitman Road, Suite 105, Melville, NY 11747.

Directors, officers and employees of the Company are expected to follow this Code of Ethics, and to represent the Company in a responsible manner in all regions and territories, at all times. Generally, there should be no waivers of this Code of Ethics. However, in rare circumstances conflicts may arise that necessitate waivers. A waiver of this Code of Ethics for a Director, officer or employee may be made by the Company’s Board of Directors and will be promptly disclosed to the extent required by law (including SEC rules and Nasdaq National Market listing standards).

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EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

Allion Healthcare, Inc.

Melville, New York

We hereby consent to the use in the Prospectus constituting a part of this Registration Statement on Form S-1 Amendment No. 1 (“the Registration Statement”), of our report dated March 23, 2005 relating to the consolidated financial statements and schedule of Allion Healthcare, Inc., which is contained in that prospectus.

We also consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated July 3, 2003 relating to the financial statements of Medicine Made Easy, which is contained in that prospectus.

We also consent to the references to us under the caption “Experts” in the Prospectus.

/s/ BDO Seidman, LLP

Melville, New York

May 23, 2005

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in the Registration Statement on Form S-1 of our report dated February 24, 2005, relating to the financial statements of North American Home Health Supply, Inc. as of December 31, 2004 and 2003, and the related statements of income, stockholders’ equity and cash flows for the years then ended, which appear in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

/s/ LWBJ, LLP

May 23, 2005

EX-23.3

Exhibit 23.3

Consent of Independent Registered Public Accounting Firm

We consent to the use in the Registration Statement of Allion Healthcare, Inc. on Form S-1 of our report, dated February 28, 2005, appearing in the Prospectus, which is part of said Registration Statement, relating to the financial statements of Specialty Pharmacies, Inc. which appear in said Registration Statement.

We also consent to the reference to our firm under the caption “Experts” in such Prospectus.

/s/    MCGLADREY & PULLEN, INC.

Des Moines, Iowa

May 23, 2005

EX-99.1

Exhibit 99.1

ALLION HEALTHCARE, INC.

AUDIT COMMITTEE CHARTER

I. PURPOSE

The purpose of the audit committee (the “Audit Committee”) of the Board of Directors (the “Board”) of Allion Healthcare, Inc. (the “Company”) is to assist the Board in overseeing the accounting and financial reporting processes and the audits of the Company’s financial statements. The Audit Committee’s primary duties and responsibilities are to:

• Monitor the integrity of the Company’s financial reporting process and systems of internal controls regarding finance, accounting and legal compliance;

• Appoint, approve and monitor the independence, qualifications, services, performance and compensation of the Company’s independent auditors; and

• Review and approve, as appropriate, related party transactions for potential conflict of interest situations.

While the Audit Committee has the responsibilities and powers set forth in this Audit Committee Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate, are in accordance with generally accepted accounting principles, and fairly present the financial condition and financial result of the Company. The foregoing is the sole responsibility of management and the Company’s independent auditors.

II. COMPOSITION

The Audit Committee shall have at least three members, comprised solely of independent directors (as defined in the applicable rules of the Nasdaq National Market) and shall also satisfy the Nasdaq National Market’s heightened independence requirement for members of an audit committee. Each member of the Audit Committee shall be able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement, or will become able to do so within a reasonable period of time after his or her appointment to the Audit Committee. Additionally, the Audit Committee shall have at least one member who satisfies the definition of an “audit committee financial expert” as set forth in Item 401(h) of Regulation S-K, promulgated by the SEC and as determined by the Nominating & Corporate Governance Committee or the Board (as the case may be) (the “Financial Expert”). The designation of the Financial Expert shall be made by the Board at least annually.

The members of the Audit Committee shall be nominated by the Nominating and Corporate Governance Committee and appointed annually by the Board and shall serve until his or her successor is duly appointed and qualified or until such member’s earlier resignation or removal. Unless a Chair is elected by the full Board, the members of the Audit Committee may designate a Chair by majority vote of the full Audit Committee membership. No member of the Audit Committee shall serve simultaneously on the audit committees of more than two other public companies without the prior approval of the Board.

Formal action to be taken by the Audit Committee shall be by unanimous written consent or by the affirmative vote of a majority of the Audit Committee members present (in person or by conference telephone) at a meeting at which a quorum is present. A quorum shall consist of at least one-half of the members of the Audit Committee.

The Audit Committee may invite such members of management and other persons to its meetings as it may deem desirable or appropriate. The Audit Committee shall maintain a separate book of minutes of its proceedings and actions and report regularly to the Board summarizing the Audit Committee’s actions and any significant issues considered by the Audit Committee. The Audit Committee may, in its discretion, delegate authority to subcommittees, whether or not such delegation is specifically contemplated under any plan or program when and as it deems appropriate.

III. MEETINGS

The Audit Committee shall hold meetings are deemed necessary or desirable by the chair of the Audit Committee. All Audit Committee members are expected to attend each meeting. As part of its responsibility to foster open communication, the Audit Committee should meet periodically with management and the independent auditor in separate sessions to discuss any matters that the Audit Committee or either of these groups believe should be discussed privately. When deemed appropriate, Audit Committee meetings may be held in person or by telephone. Meeting agendas shall be prepared and provided in advance to members, along with appropriate background materials. Minutes or other records of meetings and activities of the Audit Committee shall be maintained and reported to the full Board.

IV. RESPONSIBILITIES AND DUTIES

The Audit Committee shall provide assistance to the directors in fulfilling their responsibility to the stockholders and the investment community relating to the corporate accounting and reporting practices of the Company and oversight of (1) the quality and integrity of financial reports of the Company, (2) the Company’s compliance with legal and regulatory requirements, (3) the independent auditors’ qualifications and independence and (4) the performance of the Company’s independent auditors. In so doing, it is the responsibility of the Audit Committee to maintain free and open communication between the directors, the independent auditors and the financial management of the Company.

In carrying out its responsibilities, the Audit Committee believes its policies and procedures should remain flexible, in order to best react to changing conditions and to ensure to the directors and stockholders that the corporate accounting and reporting practices of the Company are in accordance with all requirements and are of the highest quality. The Audit Committee shall have the sole authority to appoint or replace the independent auditors. The Audit Committee shall be directly responsible for the compensation and oversight of the work of the independent auditors (including resolution of disagreements between management and the independent auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent auditors shall report directly to the Audit Committee.

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The Audit Committee shall preapprove all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent auditors, subject to the de minimus exceptions for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934, as amended, which are approved by the Audit Committee prior to the completion of the audit.

The Audit Committee shall have the following authority and responsibilities:

Independent Auditors

1. The Audit Committee shall recommend to the Board, subject to approval of the stockholders, the appointment of the independent auditor.

2. The independent auditors report directly to the Audit Committee and are ultimately accountable to the Audit Committee and the Board. The Audit Committee shall review the independence and qualifications of the independent auditors and evaluate the performance of the auditors, the provision of audit and non-audit services, and the discharge of auditors when circumstances warrant. In performing this review, the Audit Committee shall:

(i) Obtain and review a report from the independent auditors at least annually regarding (1) the independent auditors’ internal quality-control procedures; (2) any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm; and (3) any steps taken to deal with any such issues. Evaluate the qualifications and performance of the independent auditors, including considering whether the auditors’ quality controls are adequate. The Audit Committee shall present its conclusions with respect to the independent auditors to the Board promptly after each such review;

(ii) On an annual basis, obtain from the independent auditors a written communication delineating all their relationships and professional services as required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees. In addition, review with the independent auditors the nature and scope of any disclosed relationships or professional services, consider whether the provision of permitted nonaudit services, if any, is compatible with maintaining the auditors’ independence, and take, or recommend that the Board of Directors take, appropriate action to ensure the continuing independence of the auditors;

(iii) Review and evaluate the lead partner of the independent auditor and ensure the rotation of the lead audit partner every five years and other audit partners every seven years, and consider whether there should be a regular rotation of the independent auditor itself; and

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(iv) Present its conclusions with respect to the independent auditor to the Board.

3. The Audit Committee shall review with the independent auditor any problems or difficulties and management’s response.

4. The Audit Committee shall approve all audit engagement fees and other significant compensation to be paid to the independent auditor and the terms of such engagement. Pre-approve any non-audit services to be provided to the Company by the independent auditor. Set clear hiring policies by the Company with respect to employees or former employees of the independent auditor.

5. From time to time, the Audit Committee shall discuss with the independent auditor and management:

(i) all critical accounting policies,

(ii) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments and the treatment preferred by the independent auditor;

(iii) the effect of any regulatory and accounting initiatives, as well as off-balance sheet structures, if any; and

(iv) other material written communications between the independent auditor and management, including, but not limited to, the management letter and schedule of unadjusted differences.

6. The Audit Committee shall annually review the independent auditors’ audit plan. Discuss scope, staffing, locations, reliance upon management and general audit approach.

7. The Audit Committee shall, from time to time, review with the independent auditor its evaluation of the quality of the Company’s accounting principles and such matters as are required to be discussed with the Audit Committee under generally accepted auditing standards.

8. The Audit Committee shall have the power to resolve any disagreements between management and the independent auditor regarding financial reporting.

Financial Reporting Process

1. Review and discuss with management and the independent auditor, as appropriate, earnings press releases and other financial information, including particularly any “pro forma” information or other non-GAAP financial measures, and any earnings guidance to be disseminated to the public, communicated to

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ratings agencies, included in any Current Report on Form 8-K or otherwise properly used in any other public presentation.

2. Prior to releasing year-end earnings, discuss the results of the audit with the independent auditors. Discuss certain matters required to be communicated to audit committees in accordance with SAS No. 61. Review significant accounting and reporting issues of complex or unusual transactions and the effect of off-balance sheet structures on the financial statement of the Company.

3. Discuss the annual audited financial statements and quarterly financial statements with management and the independent auditor and outside legal counsel, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Based on review and discussions, make recommendations to the Board whether the Company’s annual audited financial statements should be included in the Company’s Annual Report on Form 10-K.

4. Review the regular internal reports to management prepared by the independent auditor and management’s responses to these documents.

5. Consider the independent auditor’s judgments about the quality (not just the acceptability) and appropriateness of the Company’s accounting principles as applied in financial accounting. Inquire as to the independent auditor’s views about whether management’s choices of accounting principles appear reasonable from the perspective of income, asset and liability recognition, and whether those principles are common practices or are minority practices.

6. In consultation with management, and the independent auditor, consider the integrity and adequacy of the Company’s financial reporting processes and controls, both external and internal. Discuss significant financial risk exposures and the steps management has taken to monitor, control and report such exposures. Review significant findings prepared by the independent auditor together with management’s responses, including the status of previous recommendations.

7. Consider and approve, if appropriate, major changes to the Company’s auditing and accounting principles and practices as suggested by the independent accountants, management.

Internal Controls and Legal Compliance

1. Evaluate whether management is setting the appropriate tone at the top by communicating the importance of internal control over financial reporting and ensuring that all individuals possess an understanding of their roles and responsibilities.

2. Review and investigate any matters relating to the integrity of management, potential conflicts of interest and adherence to the Company’s policies.

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3. Review disclosures made to the Audit Committee by the Company’s Chief Executive Officer and Chief Financial Officer during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of internal control over financial reporting or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company’s internal control over financial reporting.

4. Consider and review with management and the independent auditors, the effectiveness of the Company’s system of internal control over financial reporting. Develop, in consultation with management, a timetable for implementing recommendations to correct identified deficiencies or weaknesses.

5. On at least an annual basis, review with the Company’s counsel any legal matters that could have a significant impact on the organization’s financial statements, the Company’s compliance with applicable laws and regulations, and inquiries received from regulators or governmental agencies.

6. Review management’s monitoring of the Company’s compliance with laws and management’s exercise of ethical practices and ensure that management has the proper review systems in place to ensure that the Company’s financial statements, reports and other information disseminated to governmental organizations, and the public, satisfy legal requirements.

Reports of the Audit Committee

1. Report to the Board about Audit Committee activities and issues that arise with respect to the quality or integrity of the Company’s financial statement, or internal controls over financial reporting.

2. Prepare a report of the Audit Committee to be included in the Company’s proxy statement for its annual meeting of stockholders, disclosing whether (1) the Audit Committee had reviewed and discussed with management and the independent auditors, as well as discussed within the Audit Committee (without management or the independent auditors present), the financial statements and the quality of accounting principles and significant judgments affecting the financial statements; (2) the Audit Committee discussed with the auditors the independence of the auditors; and (3) based upon the Audit Committee’s review and discussions with management and the independent auditors, the Audit Committee had recommended to the Board that the audited financials be included in the Company’s annual report on Form 10-K.

3. Report annually to the shareholders, describing the Audit Committee’s composition, responsibilities and how they were discharged, and any other information required by the Securities and Exchange Commission or the Nasdaq National Market, including approval of non-audit services.

Miscellaneous

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1. The Audit Committee will perform such other functions as assigned by law, the Nasdaq National Market, the Company’s articles of incorporation or by-laws or the Board.

2. Review and reassess the adequacy of the Charter at least annually. Submit the Audit Committee Charter to the Board for approval and have the document published at least every three years in accordance with regulations promulgated by the SEC.

3. Review and pre-approve all related-party transactions as defined by the Nasdaq National Market.

4. Review regularly the Company’s compliance processes.

5. The Audit Committee shall perform any other activities consistent with the Audit Committee Charter, the Company’s By-laws and governing law, as the Audit Committee or the Board deems appropriate or necessary.

6. Establish procedures for:

i. The receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; and

ii. The confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.

V. RESOURCES AND AUTHORITY

The Audit Committee has the authority to conduct any investigation appropriate to fulfilling its responsibilities, and it has direct access to the independent auditors, management and Company employees. The Audit Committee shall have resources, authority and funding appropriate to discharge its duties and responsibilities, including the authority to select, retain, terminate, and approve the fees and other retention terms of special counsel or other experts or consultants, as it deems appropriate, without seeking approval of the Board or management.

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CORRESP

Correspondence Letter