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The following is an excerpt from a DEF 14A SEC Filing, filed by ALLION HEALTHCARE INC on 4/29/2008.
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ALLION HEALTHCARE INC - DEF 14A - 20080429 - CERTAIN_RELATIONSHIPS
CERTAI N RELATIONSHIPS AND RELATED TRANSACTIONS
 
Certain Transactions with Related Persons
 
There were no transactions with related persons in fiscal 2007.
 
Subsequent to fiscal 2007, we entered into the following transactions with related persons in connection with the acquisition of Biomed America, Inc., or Biomed, as described on page 34 of this Proxy Statement:
 
 
Promissory Note Held by Raymond A. Mirra.   On April 4, 2008, we assumed indebtedness of Biomed, which is payable to Raymond A. Mirra, Jr. pursuant to a promissory note, dated October 5, 2007, executed in favor of Mr. Mirra.  The promissory note is for the principal amount of $3,000,000 plus interest at a rate of 6% per annum.  Mr. Mirra is considered a related person by virtue of his ownership of Parallex LLC. Parallex LLC is a related person as a result of its beneficial ownership of more than 5% of the outstanding shares of our common stock.  Subject to subordination of any payments under this promissory note pursuant to a subordination agreement with CIT Healthcare LLC, the principal amount of $3,000,000 plus interest is payable in full upon written demand by Mr. Mirra, together with all unpaid interest accrued prior to the date of the written demand.  There were no principal and interest payments made to Mr. Mirra since April 4, 2008.  The total amount outstanding under the promissory note as of April 16, 2008 is $3,000,000. The largest aggregate amount of principal outstanding since April 4, 2008 was $3,000,000.
 
Promissory Notes Held by and Transition Services Agreement with RAM Capital Group, LLC.   Also in connection with the acquisition of Biomed on April 4, 2008, we assumed indebtedness of Biomed, which is payable to RAM Capital Group, LLC, or RAM Capital, pursuant to two promissory notes executed in favor of RAM Capital.  In addition, we entered into a transition services agreement with RAM Capital immediately following the acquisition of Biomed.  Mr. Mirra, a related person, is the sole owner of RAM Capital and therefore has an interest in the full value of the two promissory notes and the transition services agreement described below.
 
The first promissory note, dated September 30, 2006 for the principal face amount of $175,000, is executed by Apogenics Healthcare, Inc. in favor of RAM Capital.  This promissory note includes a line of credit that permits us to request up to $250,000 in additional funds, which was subsequently drawn down prior to the Merger.  The promissory note accrues interest at a rate of 6% per annum.  Biomed assumed the promissory note indebtedness upon the merger of Apogenics Healthcare, Inc. into Biomed on December 31, 2007.  There were no principal or interest payments made to Mr. Mirra since April 4, 2008.  The total amount outstanding under this promissory note as of April 16, 2008 is $425,000. The largest aggregate amount of principal outstanding since April 4, 2008, was $425,000.  Any payments to be made under this promissory note are subject to subordination pursuant to a subordination agreement with CIT Healthcare LLC.
 
The second promissory note, dated December 31, 2007 for the principal face amount of $218,535, is executed by Biomed and certain of its subsidiaries in favor of RAM Capital.  This promissory note includes a line of credit that permits us to request up to $400,000 in additional funds, which would be added to any principal amount outstanding.  The promissory note accrues interest at a rate of 6% per annum.  There were no principal or interest payments made to Mr. Mirra since April 4, 2008.  The total amount outstanding under the promissory note as of April 16, 2008 is $218,535. The largest aggregate amount of principal outstanding since April 4, 2008, was $218,535.  Any payments to be made under this promissory note are also subject to subordination pursuant to a subordination agreement with CIT Healthcare LLC.
 
Prior to our acquisition of Biomed, RAM Capital provided various services to Biomed and its subsidiaries.  We entered into the transition services agreement in order for RAM Capital to assist in the transition of Biomed’s business to us following the acquisition.  The agreement requires payments of $10,000 per month plus certain expenses to RAM Capital for each month in which it provides services to us.  The initial term of the agreement is for twelve months and may be extended upon the mutual agreement of RAM Capital and us.
 
Earn Out Payment to Former Biomed Stockholders and Certain Indemnification Obligations.   Furthermore, in connection with the acquisition of Biomed, we (i) may be obligated to pay the former stockholders of Biomed an earn out payment more fully described below,      (ii) provided customary indemnification obligations in favor of Parallex LLC, a related person by virtue of its ownership interest in Allion, and (iii) received customary indemnifications from Parallex and Mr. Mirra.  Parallex’s interest, and therefore Mr. Mirra’s interest, in any earn out payment is equal to 66% of the total earn out payment paid to the former stockholders of Biomed.
 
We may make an earn out payment in 2009 if the Biomed business we acquired achieves certain financial performance benchmarks during the first full twelve calendar months beginning May 1, 2008.  Subject to certain exceptions, (i) the first $42.0 million of any earn out payment will be payable one-half in cash and one-half in Series A-1 Preferred Stock and (ii) any earn out payment exceeding $42.0 million will be payable in a mixture of cash and Series A-1 Preferred Stock, to be determined in our sole discretion.  Subject to our ability to pay the cash portion of any earn out payment out of available cash on hand, net of reasonable reserves, together with sufficient availability under any credit facility extended to us, we may pay the cash portion of any earn out payment either by issuing (i) promissory notes or (ii) shares of Series A-1 Preferred Stock.  In the event that Proposal 2 of this Proxy Statement is approved at the Annual Meeting or otherwise approved prior to May 1, 2009, any shares of Series A-1 Preferred Stock to be issued as part of the earn out payment will be issued in shares of our common stock.  Under no circumstances, however, will we be required to issue our capital stock in an amount that would result in the former stockholders of Biomed collectively holding in excess of 49% of (i) our then-outstanding capital stock or (ii) our capital stock with the power to direct the Company’s management and policies.
 
 
For purposes of determining the number of shares of capital stock to be issued in connection with any earn out payment, we will divide the portion of the earn out payment to be paid in our capital stock, which we refer to as the Earn Out Share Amount, by the most recent 10-day average of the closing price of our common stock as of the last day of the earn out period.  Notwithstanding the prior sentence, (i) in the event the most recent 10-day average of the closing price of our common stock is less than $8.00 per share, which we refer to as the Floor Amount, then the number of shares of our capital stock to be issued shall be the quotient obtained by dividing the Earn Out Share Amount by the Floor Amount and (ii) in the event the most recent 10-day average of the closing price of our common stock is greater than $10.00 per share, which we refer to as the Ceiling Amount, then the number of shares of our capital stock to be issued shall be the quotient obtained by dividing the Earn Out Share Amount by the Ceiling Amount.
 
 
Review and Approval of Transactions with Related Persons
 
Our Board of Directors has adopted the Allion Healthcare, Inc. Statement of Policy with respect to Related Person Transactions, which sets forth in writing the policies and procedures for the review, approval or ratification of any transaction (or any series of similar transactions) in which we, including any of our subsidiaries, were, are or will be a participant, in which the amount involved exceeds $5,000, and in which any related person had, has or will have a direct or indirect material interest. For purposes of the policy, a “related person” is:
 
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Any person who is, or at any time since the beginning of our last fiscal year was, our executive officer or director or a nominee to become one of our directors;
 
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Any stockholder beneficially owning in excess of 5% of our outstanding common stock;
 
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Any immediate family member of any of the foregoing persons; or
 
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Any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest.
 
Other than a transaction involving compensation that is approved by our Compensation Committee, we will only consummate or continue a related person transaction if it has been approved or ratified by our Audit Committee in accordance with the guidelines set forth in the policy and the transaction is on terms comparable to those that could be obtained in arm’s length dealings with unrelated third parties.
 
Our Board of Directors has determined that the Audit Committee is best suited to review and approve related person transactions. Prior to the consummation or material amendment of a related person transaction, our Audit Committee reviews the transaction and considers all relevant facts and circumstances, including, but not limited to:
 
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The benefits to us from the transaction;
 
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The impact on a director’s independence, if applicable;
 
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The availability of other sources for comparable products or services;
 
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The terms of the transaction; and
 
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The terms available to unrelated third parties or employees generally.
 
The Audit Committee approves only those related person transactions that are in, or are not inconsistent with, the best interests of our company and our stockholders. If a related person transaction is ongoing or completed and was not previously approved, it is promptly submitted to our Audit Committee for review and consideration. Based on the conclusions reached, our Audit Committee evaluates all options, including, but not limited to, ratification, amendment, rescission or termination of the related person transaction.

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